10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2009

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12691

ION Geophysical Corporation

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization) 22-2286646
(I.R.S. Employer Identification No.)

2105 CityWest Blvd
Suite 400
Houston, Texas 77042-2839
(Address of Principal Executive Offices, Including Zip Code)

(281) 933-3339
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	New York Stock Exchange
Rights to Purchase Series A Junior Participating Preferred Stock	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act
Yes o No þ

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).* Yes o No o

     * The registrant has not yet been phased into the interactive data requirements.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     As of June 30, 2009 (the last business day of the registrant’s second quarter of fiscal 2009), the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $279.4 million based on the closing sale price on such date as reported on the New York Stock Exchange.

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: common stock, $.01 par value, 118,695,952 shares outstanding as of February 22, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 26, 2010	Part III

TABLE OF CONTENTS

	Page
PART I
Item 1. Business		3
Item 1A. Risk Factors		17
Item 1B. Unresolved Staff Comments		34
Item 2. Properties		34
Item 3. Legal Proceedings		35
Item 4. Reserved		36
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		37
Item 6. Selected Financial Data		38
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Item 7A. Quantitative and Qualitative Disclosures about Market Risk		65
Item 8. Financial Statements and Supplementary Data		66
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		66
Item 9A. Controls and Procedures		66
Item 9B. Other Information		68
PART III
Item 10. Directors, Executive Officers and Corporate Governance		69
Item 11. Executive Compensation		69
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		69
Item 13. Certain Relationships, Related Transactions and Director Independence		69
Item 14. Principal Accountant Fees and Services		69
PART IV
Item 15. Exhibits and Financial Statement Schedules		69
Signatures		75
Index to Consolidated Financial Statements		F-1

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PART I

     Preliminary Note: This Annual Report on Form 10-K contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements should be read in conjunction with the cautionary statements and other important factors included in this Form 10-K. See Item 1A. “Risk Factors” for a description of important factors which could cause actual results to differ materially from those contained in the forward-looking statements.

     In this Form 10-K, “ION Geophysical,” “ION,” “company,” “we,” “our,” “ours” and “us” refer to ION Geophysical Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated. Certain trademarks, service marks and registered marks of ION referred to in this Form 10-K are defined in Item 1. “Business – Intellectual Property.”

Item 1. Business

     We are a technology-focused seismic solutions company that provides advanced seismic data acquisition equipment, seismic software, and seismic planning, processing, and interpretation services to the global energy industry. Our products, technologies, and services are used by oil and gas exploration and production (E&P) companies and seismic acquisition contractors to generate high-resolution images of the subsurface during exploration, exploitation, and production operations. Our products and services are intended to measure and interpret seismic data about rock and fluid properties within the Earth’s subsurface to enable oil and gas companies to make improved drilling and production decisions. The seismic surveys for our data library business are substantially pre-funded by our customers and we contract with third party seismic data acquisition companies to acquire the data, all of which minimizes our risk exposure. We serve customers in all major energy producing regions of the world from strategically located offices in 22 cities on five continents. In October 2009, we announced that we had entered into a binding term sheet with BGP Inc., China National Petroleum Corporation (BGP), a wholly-owned oil field service subsidiary of China National Petroleum Corporation (CNPC), to form a land equipment joint venture. We believe that this joint venture will provide us the opportunity to further extend the geographic scope of our business through the sales and service facilities of BGP, especially in Africa, the Middle East, China, and Southeast Asia.

     Our products and services include the following:

• Land and marine seismic data acquisition equipment,

• Navigation, command & control, and data management software products,

• Planning services for survey design and optimization,

• Seismic data processing and reservoir imaging services, and

• Seismic data libraries.

     Seismic imaging plays a fundamental role in hydrocarbon exploration and reservoir development by delineating structures, rock types, and fluid locations in the subsurface. Geoscientists interpret seismic data to identify new sources of hydrocarbons and pinpoint drilling locations for wells, which can be costly and high risk. As oil and gas reservoirs have become harder to find and more expensive to develop and exploit in recent years, the demand for advanced seismic imaging solutions has grown. In addition, seismic technologies are now being applied more broadly over the entire life cycle of a hydrocarbon reservoir to optimize production. For example, time-lapse seismic images (referred to as “4D” or “four-dimensional” surveys), in which the fourth dimension is time, can be made of producing reservoirs to track the movement of injected or produced fluids and/or to identify locations containing by-passed hydrocarbons.

     ION has been involved in the seismic technology industry for approximately 40 years, starting in the 1960s when we designed and manufactured seismic equipment under our previous company name, Input/Output, Inc. In recent years, we have transformed our business from being solely a manufacturer and seller of seismic equipment to being a provider of a full range of seismic imaging products, technologies, and services. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary” for a list of certain developments in our business in 2009 and early 2010.

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     We operate our company through four business segments. Three of these segments — Land Imaging Systems, Marine Imaging Systems and Data Management Solutions – make up our ION Systems division. The fourth segment is our ION Solutions division.

• Land Imaging Systems — cable-based, cableless and radio-controlled seismic data acquisition systems, digital and analog geophone sensors, vibroseis vehicles (i.e., vibrator trucks) and source controllers for detonator and vibrator energy sources and also consisting of analog geophone sensors. After we complete our land equipment joint venture with BGP, all of these business lines, with the exception of analog geophone sensors, will become part of the joint venture. See “ — Proposed Land Equipment Joint Venture with BGP.”

• Marine Imaging Systems — towed streamer and redeployable ocean bottom cable seismic data acquisition systems and shipboard recorders, streamer positioning and control systems and energy sources (such as air guns and air gun controllers).

• Data Management Solutions — software systems and related services for navigation and data management involving towed marine streamer and seabed operations.

• ION Solutions — advanced seismic data processing services for marine and land environments, seismic data libraries, and Integrated Seismic Solutions (“ISS”) services.

     Our results of operations and financial condition in 2009 were adversely effected by the global economic downturn, which reduced industry demand for our products and services. See Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

     Our executive headquarters are located at 2105 CityWest Boulevard, Suite 400, Houston, Texas 77042-2839. Our telephone number is (281) 933-3339. Our home page on the internet is www.iongeo.com. We make our website content available for information purposes only. Our website should not be relied upon for investment purposes, and it is not incorporated by reference into this Form 10-K.

     In portions of this Form 10-K, we incorporate by reference information from parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in this manner, and you should review this information. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, annual reports, and proxy statements for our stockholders’ meetings, as well as any amendments to those reports, available free of charge through our website as soon as reasonably practicable after we electronically file those materials with, or furnish them to, the SEC.

     You can learn more about us by reviewing our SEC filings on our website. Our SEC reports can be accessed through the Investor Relations section on our website. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information regarding SEC registrants, including our company.

Seismic Industry Overview

     Since the 1930s, oil and gas companies have sought to reduce exploration risk by using seismic data to create an image of the Earth’s subsurface. Seismic data is recorded when listening devices placed on the Earth’s surface or seabed floor, or carried within the streamer cable of a towed streamer vessel, measure how long it takes for sound vibrations to echo off rock layers underground. For seismic acquisition onshore, the acoustic energy producing the sound vibrations is generated by the detonation of small explosive charges or by large vibroseis (vibrator) vehicles. In marine acquisition, the energy is provided by a series of air guns that deliver highly compressed air into the water column.

     The acoustic energy propagates through the subsurface as a spherical wave front, or seismic wave. Interfaces between different types of rocks will both reflect and transmit this wave front. Onshore, the reflected signals return to the surface where they are measured by sensitive receivers that may be either analog coil-spring geophones or digital accelerometers based on MEMS (micro-electro-mechanical systems) technology; offshore, the reflected signals are recorded by either hydrophones towed in an array behind a streamer acquisition vessel or by multicomponent geophones or MEMS sensors that are placed directly on the seabed. Once the recorded seismic energy is processed using advanced algorithms and workflows, images of the subsurface can be created to depict the structure, lithology (rock type), fracture patterns, and fluid content of subsurface horizons, highlighting the most promising places to drill for oil and natural gas. This processing also aids in engineering decisions, such as drilling and completion methods, as well as decisions affecting overall reservoir production.

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     Typically, an E&P company engages the services of a geophysical acquisition company to prepare site locations, coordinate logistics, and acquire seismic data in a selected area. The E&P company generally relies upon third parties, such as ION, to provide the contractor with equipment, navigation and data management software, and field support services necessary for data acquisition. After the data is collected, the same geophysical contractor, a third-party data processing company, the Company’s data processing service or the E&P company itself will process the data using proprietary algorithms and workflows to create a series of seismic images. Geoscientists then interpret the data by reviewing the images and integrating the geophysical data with other geological and production information such as well logs or core information.

     During the 1960s, digital seismic data acquisition systems (which converted the analog output from the geophones into digital data for recording) and computers for seismic data processing were introduced. Using the new systems and computers, the signals could be recorded on magnetic tape and sent to data processors where they could be adjusted and corrected for known distortions. The final processed data was displayed in a form known as “stacked” data. Computer filing, storage, database management, and algorithms used to process the raw data quickly grew more sophisticated, dramatically increasing the amount of subsurface seismic information.

     Until the early 1980s, the primary commercial seismic imaging technology was two-dimensional, or 2-D, technology. 2-D seismic data is recorded using straight lines of receivers crossing the surface of the Earth. Once processed, 2-D seismic data allows geoscientists to see only a thin vertical slice of the Earth. A geoscientist using 2-D seismic technology must speculate on the characteristics of the Earth between the slices and attempt to visualize the true three-dimensional (3-D) structure of the subsurface.

     The commercial development of 3-D imaging technology in the early 1980s was an important technological milestone for the seismic industry. Previously, the high cost of 3-D seismic data acquisition techniques and the lack of computing power necessary to process, display, and interpret 3-D data on a commercial basis had slowed its widespread adoption. Today’s 3-D seismic techniques record the reflected energy across a series of closely-spaced seismic lines that collectively provide a more holistic, spatially-sampled depiction of geological horizons and, in some cases, rock and fluid properties, within the Earth.

     3-D seismic data and the associated computer-based interpretation platforms are designed to allow geoscientists to generate more accurate subsurface maps than could be constructed on the basis of the more widely spaced 2-D seismic lines. In particular, 3-D seismic data provided more detailed information about subsurface structures, including the geometry of bedding layers, salt structures, and fault planes. The improved 3-D seismic images allowed the oil and gas industry to discover new reservoirs, reduce finding and development costs, and lower overall hydrocarbon exploration risk. Driven by faster computers and more sophisticated mathematical equations to process the data, the technology advanced quickly.

     As commodity prices decreased and the pace of innovation in 3-D seismic imaging technology slowed in the late 1990s, E&P companies slowed the commissioning of new seismic surveys. Also, business practices employed by geophysical contractors in the 1990s impacted demand for seismic data. In an effort to sustain higher utilization of existing capital assets, geophysical contractors increasingly began to collect speculative seismic data for their own account in the hopes of selling it later to E&P companies. Contractors typically selected an area, acquired data using generic acquisition parameters and generic processing algorithms, capitalized the acquisition costs, and attempted to sell the survey results to multiple E&P companies. These generic, speculative, multi-client surveys were not tailored to meet the unique imaging objectives of individual clients and caused an oversupply of seismic data in many regions. Additionally, since contractors incurred most of the costs of this speculative seismic data at the time of acquisition, contractors lowered prices to recover as much of their fixed investment as possible, which drove operating margins down.

     As commodity prices increased (beginning in 2004), E&P companies increased their capital investment programs, which drove higher demand for our products and services. Crude oil prices increased to record levels of $147 per barrel in July 2008, but, in conjunction with the global recession sharply declined after that, fell to approximately $35 per barrel during the first quarter of 2009. By the end of 2009, oil prices had recovered to approximately $83 per barrel. Natural gas prices followed a similar, recession-induced downturn. After peaking at $13.31 per mmBtu in July 2008, Henry Hub natural gas prices fell approximately 50%. Unlike the recent recovery of oil prices, natural gas prices have remained depressed due in part to the excess supply of natural gas in the market. These conditions sharply curtailed demand for exploration activities in North America and in other regions. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further information.

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ION Geophysical’s Business Strategy

     Factors Affecting Long-Term Demand. Beginning in 2004 and continuing until 2008, we observed increased spending for seismic services and equipment by E&P companies and seismic contractors, driven in part by an increase in commodity prices. A decline in the number and size of new discoveries, production declines in known reservoirs, and expanded demand for hydrocarbons had increased the pressure on E&P companies to discover additional fields and optimize the recovery of those already on production. Until the fourth quarter of 2008, this increasing exploration activity combined with higher commodity price levels increased the demand for seismic technology and services.

     The recent global recession that began in 2008 reduced the demand for (and associated prices of) hydrocarbons, which has adversely affected our business and results of operations. However, we believe that several factors are in place that will reverse the downturn in seismic spending for the years ahead. These factors include the following:

• Demand for both crude oil and natural gas should continue to increase as the financial health of developed country economies gradually improves, and as demand in high-growth emerging markets, like China and India, returns to or exceeds previous levels;

• E&P companies are focusing more on hydrocarbon reservoirs that are located in deeper waters or deeper in the geologic column. These reservoirs are generally more complex or subtle than the reservoirs that were discovered in prior decades and are located in unconventional reservoir types, such as tar sand deposits or “tight gas” locked within hard rock or low permeability shales. As a result, the process of finding and developing these hydrocarbon deposits is proving to be more challenging, which in turn results in escalating costs and increasing demands for newer and more efficient imaging technologies; and

• E&P companies are increasingly using seismic data to enhance production from known fields by repeating time-lapse seismic surveys over a defined area. This trend should benefit seismic companies such as ION by extending the utility of subsurface imaging beyond exploration and into production monitoring, which can last for decades.

     We believe that E&P companies will, in the future, increasingly use seismic technology providers who will collaborate with them to tailor surveys that address specific geophysical problems and to apply advanced digital sensor and imaging technologies to take into account the geologic peculiarities of a specific area. In the future, we expect that these E&P companies will rely less on undifferentiated, mass seismic studies created using analog sensors and traditional processing technologies that do not adequately identify geologic complexities.

     Becoming a Broad-Based Seismic Provider. Two acquisitions in 2004 were important in our evolution from being primarily a seismic equipment provider to becoming a broad-based seismic solutions company:

• Our acquisition of Concept Systems Holdings Limited (Concept Systems) and its integrated planning, navigation, command & control, and data management software and solutions for towed streamer and seabed operations; and

• Our acquisition of GX Technology Corporation (GXT), and its advanced seismic data imaging solutions services and seismic data libraries for the marine environment.

     Additionally, in September 2008, we further expanded our land system offerings through the acquisition of ARAM Systems Ltd. and Canadian Seismic Rentals Inc. (sometimes collectively referred to herein as “ARAM”). We acquired ARAM for the purpose of advancing our strategy and market penetration in the land seismic recording system business.

     Through these and other acquisitions, along with our research and development efforts, our technologies and services now include seismic data acquisition hardware, command and control software, value-added services associated with seismic survey design, seismic data processing and interpretation, and seismic data libraries.

     Responses to the Global Downturn. The dramatic economic changes that occurred in the fourth quarter of 2008 and continued through 2009 caused us to re-evaluate and refine our business strategy. The disruption in the U.S. financial markets prompted a global economic crisis that adversely affected economic activity in most regions of the world and led to a tightening of the availability of commercial credit. Many economists are now predicting a gradual recovery from the prolonged worldwide economic recession and a slow recovery in the credit markets.

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     Crude oil prices rapidly declined from a peak oil price of $147 per barrel in July 2008 to approximately $35 per barrel in the first quarter of 2009. Hydrocarbon price erosion caused E&P companies to decrease their capital expenditure plans for exploration and production activities, which, in turn, adversely impacted the demand for many of our products and services. Natural gas prices followed a similar, recession-induced downturn. After peaking at $13.31 per mmBtu in July 2008, Henry Hub natural gas prices fell approximately 50%. Unlike the recent recovery of oil prices, natural gas prices have remained depressed due in part to the excess supply of natural gas in the market. These conditions sharply curtailed demand for exploration activities in North America and in other regions.

     Unlike many other seismic companies, we participate in the technology side of the business and are mainly involved in the planning, processing and interpretation of data services. We are not in the field crew business, and therefore do not have large amounts of capital and other resources invested in vessels or other assets necessary to support contracted seismic data acquisition services, nor do we have large manufacturing facilities. Our costs are therefore much more variable than most other seismic companies, which provides greater flexibility in difficult economic times. Nonetheless, the global economic crisis, combined with the decline in crude oil and natural gas prices, adversely affected us in 2009.

• All of our business segments saw decreases in revenues, with some segments experiencing significant decreases. Our 2009 total net revenues declined 38% from our 2008 total net revenues.

• Our acquisition of ARAM in 2008 and the $282 million of debt financing that we incurred to finance the acquisition over-leveraged our company.

• As a result, we reacted by implementing numerous cost-savings programs, including reducing our company-wide employee headcount by approximately 26%.

• We also began considering strategic alternatives.

     In the summer of 2009, we commenced negotiations with BGP for a joint venture for our land equipment business, and announced the signing of a binding term sheet for such a joint venture on October 23, 2009. See “ — Products and Services — ION Systems Division — Proposed Land Equipment Joint Venture with BGP.”

     Our cost reduction initiatives were necessary in order to adjust to the reduced levels in demand and to align with changes in our overall strategy. For example, the severe slowdown in sales activity for our land acquisition systems in North America and Russia. caused our largest headcount reductions to be concentrated within our Land Imaging Systems segment. We believe that our current headcount is sufficient to manage our business and serve our customers’ needs during 2010, but we may make further adjustments as market conditions and our strategy dictate. Our employee headcount will be further reduced once we close the BGP joint venture transactions; employees previously dedicated to the joint venture businesses are expected to become employees within the joint venture.

     In addition to analyzing our employee resources, we have evaluated current and planned internal and external programs, including research and development, to ensure that each program is serving a worthwhile goal in the most efficient manner. We are a technology solutions company and we rely upon our research and development programs to ensure that we offer products capable of solving seismic imaging problems around the world efficiently. The recent declines in oil and natural gas prices do not change the data indicating that the oil and gas industry still suffers from declines in the number and size of new discoveries and production declines in known reservoirs. These facts, combined with growing global demographics, support a conclusion of continuing long-term demand for hydrocarbons. In the current difficult economic environment, we believe that our technologies and services are ideal tools for E&P companies seeking ways to be more productive in a lower price environment. As a result, we have focused much of our research and development efforts on strategic programs that are seeking efficient and cost-effective solutions for the challenges in the current market and also in a recovered economy.

     A key element of our business strategy, which began with our acquisition of GXT in 2004, has been to understand the challenges faced by E&P companies in survey planning, acquisition, processing and even interpretation, and to strive to develop and offer technology and services that enable us to work with the E&P companies to solve their challenges. We have found that a collaborative relationship with E&P companies, with a goal of better understanding their imaging challenges and then working with them and our contractor customers to assure that the right technologies are properly applied, is the most effective method for meeting our customers’ needs. This strategy of being a full solutions provider to solve the most difficult challenges for our customers is an

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important element of our long term business strategy, and we are implementing this approach globally through local personnel in our regional organizations who understand the unique challenges in their areas.

     The rapid decline of oil and natural gas prices in late 2008 and continuing through 2009 has made it even more important for the E&P industry to reduce the number of dry holes and to optimize the wells that are successful. E&P companies continue to be interested in technology to increase production and in improving their understanding of targeted reservoirs, in both the exploration and production phases. We believe that our new technologies, such as FireFly^®, DigiFIN^™ and Orca^®, will continue to attract interest because they are designed to deliver improvements in image quality within more productive delivery systems. For more information regarding our products and services, see “— Products and Services” below.

     In summary, our business strategy is predicated on successfully executing seven key imperatives:

• Increasing our market share and profitability in land acquisition systems and furthering the commercialization of FireFly, our cableless full-wave land data acquisition system, and our other land equipment technologies through our participation in the proposed land equipment joint venture with BGP;

• Continuing to manage our cost structure to reflect current market and economic conditions while keeping key strategic technology programs progressing with an overall goal of enabling E&P companies to solve their complex reservoir problems most efficiently and effectively;

• Expanding our ION Solutions business in new regions with new customers and new land and marine service offerings, including proprietary services for owners and operators of oil and gas properties;

• Globalizing our ION Solutions data processing business by opening advanced imaging centers in strategic locations, and expanding our presence in the land seismic processing segment, with emphasis on serving the national oil companies;

• Developing and introducing our next generation of marine towed streamer products, with a goal of developing markets beyond the new vessel market;

• Expanding our seabed imaging solutions business using our VectorSeis^® Ocean (VSO) acquisition system platform and derivative products to obtain technical and market leadership in what we continue to believe is a very important and expanding market; and

• Leveraging our proposed land equipment joint venture with BGP to design and deliver lower cost, more reliable land imaging systems to our worldwide customer base of land acquisition contractors while concurrently tapping into a broader set of global geophysical opportunities associated with the exploration, asset development, and production operations of BGP’s parent, CNPC.

Full-Wave Digital

     Our seismic data acquisition products and services are well suited for traditional 2-D, 3-D, and 4-D data collection as well as more advanced multicomponent — or “full-wave digital” — seismic data collection techniques.

     Conventional geophone sensors are based on a mechanical, coil-spring magnet arrangement. The single component geophone measures ground motion in one direction, even though reflected energy in the Earth travels in multiple directions. This type of geophone can capture only pressure waves (P-waves). P-waves represent only a portion of the full seismic wavefield. Conventional geophones have limitations in collecting shear waves (S-waves), which involve a component of particle motion that is orthogonal to the direction of wave propagation (a more “horizontal” component of motion). In addition, geophones require accurate placement both vertically and spatially. Inaccurate placement, which can result from poorly planned surveys or human error, can introduce distortions that negatively affect the final subsurface image.

     Multicomponent seismic sensors are designed to record the full seismic wavefield by measuring reflected seismic energy in three directions. This vector-based measurement enables multicomponent sensors to record not only P-wave data, but also to record shear waves. ION’s VectorSeis sensor was developed using MEMS accelerometer technology to enable a true vector measurement of all seismic energy reflected in the subsurface. VectorSeis is designed to capture the entire seismic signal and more faithfully record all wavefields traveling within the Earth. By measuring both P-waves and S-waves, the VectorSeis ‘full-wave’ sensor records a more complete and accurate seismic dataset having higher frequency content than conventional sensors. When data recorded by VectorSeis is processed using the advanced imaging techniques offered by our GXT Imaging Solutions group, we are able to deliver higher-definition images of the subsurface to our oil and gas customers, which enables geophysicists to better identify subtle structural, rock,

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and fluid-oriented features in the Earth. In addition, we believe that full-wave technologies should deliver improved operating efficiencies in field acquisition and reduce cycle times across the seismic workflow, from planning through acquisition and final image rendering.

     VectorSeis acquires full-wave seismic data in both land and marine environments using a portfolio of advanced imaging platforms manufactured by ION:

• Scorpion^® — our cable-based land acquisition system;

• VectorSeis Ocean (VSO) — our redeployable ocean bottom cable system for the seabed; and

• FireFly — our cableless full-wave land acquisition system.

Segment Information

     We operate our company through four business segments. Three of these segments — Land Imaging Systems, Marine Imaging Systems and Data Management Solutions – make up our ION Systems division. The fourth segment is our ION Solutions division.

• Land Imaging Systems — primarily consisting of the businesses to be pursued by the joint venture with BGP, consisting of cable-based, cableless and radio-controlled seismic data acquisition systems, digital geophone sensors, vibroseis vehicles (i.e., vibrator trucks) and source controllers for detonator and vibrator energy sources and also consisting of analog geophone sensors.

• Marine Imaging Systems — towed streamer and redeployable ocean bottom cable seismic data acquisition systems and shipboard recorders, streamer positioning and control systems and energy sources (such as air guns and air gun controllers).

• Data Management Solutions — software systems and related services for navigation and data management involving towed marine streamer and seabed operations.

• ION Solutions — advanced seismic data processing services for marine and land environments, seismic data libraries, and Integrated Seismic Solutions (“ISS”) services.

     We measure segment operating results based on income from operations. See further discussion of our segment operating results at Note 15 of Notes to Consolidated Financial Statements.

Products and Services

     See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary” for a list of certain developments in our business in 2009 and early 2010.

ION Systems Division

     Land Imaging Systems Products

     Products for our Land Imaging Systems business segment include the following:

     Land Acquisition Systems. Our cable-based Scorpion and ARIES^® land acquisition systems consist of a central recording unit and multiple remote ground equipment modules that are connected by cable. The central recording unit is in a transportable enclosure that serves as the control center of each system and is typically mounted within a vehicle or helicopter. The central recording unit receives digitized data, stores the data on storage media for subsequent processing, and displays the data on optional monitoring devices. It also provides calibration, status, and test functionality. The remote ground equipment consists of multiple remote modules and line taps positioned over the survey area. Seismic data is collected by analog geophones or VectorSeis digital sensors.

     Our ARIES product line was acquired in connection with our acquisition of ARAM in September 2008. The product line consists of analog cable-based land acquisition systems and related peripherals and equipment. ARIES land system products include remote acquisition modules (“RAMs”), which acquire analog seismic data from the geophones and transmit the data digitally to the central processing equipment, and line tap units that interconnect baseline cables from the recording equipment to multiple receiver lines and

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function to retransmit data from the RAMs to central recording equipment. ARIES products also include system batteries (standard sealed or lithium-ion), central recording equipment (including seismic processing module and ARAM software), baseline cables that connect the central recording equipment with the taps and receiver line cables that connect geophones or hydrophone groups to a RAM. In November 2008, ION launched its latest version of ARIES. Known as ARIES II^®, this updated land recording system features a 24-bit system architecture that is designed to dramatically improve channel capacity, ensure efficient equipment deployment, and maximize system performance.

     Scorpion is capable of recording full-wave seismic data. Digital sensors can provide increased response linearity and bandwidth, which translates into higher resolution images of the subsurface. In addition, one digital sensor can replace a string of six or more analog geophones, providing users with equipment weight reduction and improved operating efficiencies.

     We began VectorSeis technology land acquisition field tests in 1999, and since that time VectorSeis technology has been used to acquire seismic data in North America, Europe, Asia, the Pacific Basin region, the Middle East, and the Commonwealth of Independent States. In 2002, we introduced our VectorSeis System Four^® land acquisition system. In 2004, we announced the introduction of our new hybrid System Four platform, which gave seismic companies the flexibility to use both traditional analog geophone sensors and digital full-wave VectorSeis sensors on the same survey. VectorSeis is also used as the primary sensor device on our FireFly cableless land acquisition system.

     In November 2005, we announced our development of FireFly, a cableless system for full-wave land seismic data acquisition. By removing the constraints of cables, geophysicists can custom-design surveys for multiple subsurface targets and increase receiver station density to more fully sample the subsurface. We believe that the cableless design of FireFly will improve field productivity while reducing concerns for health and safety and environmental liability exposure. FireFly’s benefits include a decrease in system weight and, we believe, superior operational efficiencies, reduction in operational troubleshooting time, and better defined sampled seismic data. Also, we believe that the data management capabilities of FireFly should reduce the amount of time spent pre-processing the data.

     During late 2006 and 2007, we delivered version 1.0 of our FireFly system, which was used by British Petroleum and then Apache Corporation, in field application projects located in Wyoming and northeast Texas, respectively. An advanced version of our FireFly system was successfully deployed in July 2008 on a multi-client survey in northwest Colorado in which Pittsburgh-based E&P operator, East Resources, served as the lead underwriter. This initial deployment of version 2.0 of our FireFly system was called Durham Ranch, after one of the large, privately held ranches in this ecologically sensitive area. In 2009, ION sold a version 2.0 FireFly system, which is being used in a producing hydrocarbon basin containing reservoirs that have been difficult to image with conventional seismic techniques. During 2009, our version 2.0 FireFly system was utilized on nine surveys shot in three continents, including two high channel count, multicomponent (full-wave) seismic acquisition programs in northeast Texas and three projects in Mexico with Compania Mexicana de Exploraciones (Comesa), an oilfield services company majority-owned by PEMEX, the national oil company of Mexico.

     Geophones. Geophones are analog sensor devices that measure acoustic energy reflected from rock layers in the Earth’s subsurface using a mechanical, coil-spring element. We market a full suite of geophones and geophone test equipment that operate in most environments, including land, transition zone, and downhole. We believe our Sensor group is the leading designer and manufacturer of precision geophones used in seismic data acquisition. Our analog geophones are used in other industries as well. In January 2010, we announced that our land sensors business unit had commercialized a new, high performance geophone (the SM-24XL), which features a simplified product design to deliver enhanced durability in the field and to record high-quality acoustic data for customers.

     Vibrators and Energy Sources. Vibrators are devices carried by large vibroseis vehicles and, along with dynamite, are used as energy sources for land seismic acquisition. We market and sell the AHV-IV™, an articulated tire-based vibrator vehicle, and a tracked vibrator, the XVib^®, for use in environmentally sensitive areas such as the Arctic tundra and desert environments.

     Our Pelton division is a provider of energy source control and positioning technologies. Pelton’s Vib Pro™ control system provides vibrator vehicles with digital technology for energy control and global positioning system technology for navigation and positioning. Pelton’s Shot Pro™ dynamite firing system, released in 2007, is the equivalent technology for seismic operations using dynamite energy sources.

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     Proposed Land Equipment Joint Venture with BGP

     Our binding term sheet with BGP contemplates that we will enter into a purchase agreement with BGP to form the joint venture. We expect to form the joint venture entity as a wholly-owned subsidiary of ION Geophysical Corporation and will contribute to the joint venture certain assets and related liabilities that relate to the proposed joint venture business. Then, BGP will acquire a 51% equity interest from us in the joint venture for an aggregate purchase price of $108.5 million cash, and will contribute to the joint venture certain of its assets and related liabilities that relate to the joint venture’s business. The assets of each party to be contributed to the joint venture will include seismic recording systems, inventory, certain intellectual property rights and contract rights, all as may be necessary to or principally used in the conduct or operation of the businesses to be contributed to the joint venture as presently conducted or operated by each party. The Company expects the value assigned to the joint venture to exceed the Company’s current book value of its land equipment businesses.

     The scope of the joint venture’s business will be to design, develop, engineer and manufacture, and conduct research and development, distribution, sales and marketing and field support operations, of land-based equipment used in seismic data acquisition for the petroleum industry. Excluded from the scope of the joint venture’s business will be (x) the analog sensor businesses of our company and BGP and (y) the businesses of certain companies in which BGP or we are currently a minority owner. All of our other businesses — including our Marine Imaging Systems, Data Management Solutions and ION Solutions (which includes GXT’s Imaging Solutions, Integrated Seismic Solutions (ISS) and BasinSPAN™ and seismic data libraries) — will remain owned and operated by us and will not comprise a part of the joint venture.

     A key part of the strategy behind the joint venture will be to leverage our research and development experience and expertise with the operational experience and expertise of BGP. It is expected that the R&D centers will remain primarily in the U.S. and Canada and much of the land equipment manufacturing operations will move to China in order to reduce costs. In addition, BGP’s crews will be able to field test new technology and related equipment for operational feedback and quality improvements. Finally, we expect that BGP will purchase the majority of its land equipment from the joint venture and will purchase ION products and services from our other business segments. Closing and formation of the joint venture is expected to occur in March 2010.

     Marine Imaging Systems Products

     Products for our Marine Imaging Systems business segment include the following:

     Marine Acquisition Systems. Our traditional marine acquisition system consists of towed marine streamers and shipboard electronics that collect seismic data in water depths greater than 30 meters. Marine streamers, which contain hydrophones, electronic modules and cabling, may measure up to 12,000 meters in length and are towed (up to 20 at a time) behind a towed streamer seismic acquisition vessel. The hydrophones detect acoustical energy transmitted through water from the Earth’s subsurface structures. Our DigiSTREAMER^TM system, our next-generation towed streamer system, was successfully commissioned at the start of the North Sea season in 2008. Another DigiSTREAMER system was delivered during 2008, and a third DigiSTREAMER system was delivered in 2009. DigiSTREAMER uses solid streamer and continuous acquisition technology for towed streamer operations.

     During 2004, we introduced our VectorSeis Ocean (VSO) system, an advanced system for seismic data acquisition using redeployable ocean bottom cable, and we shipped the first system to Reservoir Exploration Technology, ASA (RXT), a Norwegian seismic contractor. Since then, we have delivered five VSO systems to RXT. In 2007, we entered into a multi-year agreement with RXT under which RXT agreed to purchase a minimum of $160.0 million in VSO systems and related equipment from us through 2011. Through December 31, 2009, RXT has purchased a total of $39 million of VSO systems and related equipment toward their commitment. The agreement entitles us to receive a royalty of 2.1% of all revenues generated by RXT through the use of VSO equipment from January 2008 through the end of the term of the agreement, which, in 2009 and 2008, was $4.0 million and $2.4 million, respectively. The agreement granted RXT exclusive rights to the VSO product line through 2011. Because they did not purchase the minimum annual quantity of equipment, in February 2010 we notified RXT that they no longer have exclusive rights to the VSO product line.

     Marine Positioning Systems. Our DigiCOURSE^® marine streamer positioning system includes streamer cable depth control devices, lateral control devices, compasses, acoustic positioning systems, and other auxiliary sensors. This equipment is designed to control the vertical and horizontal positioning of the streamer cables and provides acoustic, compass, and depth measurements to allow processors to tie navigation and location data to geophysical data to determine the location of potential hydrocarbon reserves. DigiFIN^™ is an advanced lateral streamer control system that we commercialized in 2008. We delivered a total of nine DigiFIN systems in 2008 with an additional 13 systems delivered in 2009. DigiFIN is designed to maintain tighter, more uniform marine

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streamer separation along the entire length of the streamer cable, which allows for better sampling of seismic data and improved subsurface images. We believe that DigiFIN also enables faster line changes and minimize the requirements for in-fill seismic work.

     Source and Source Control Systems. We manufacture and sell air guns, which are the primary seismic energy source used in marine environments to initiate the acoustic energy transmitted through the Earth’s subsurface. An air gun fires a high compression burst of air underwater to create an energy wave for seismic measurement. We offer a digital source control system (DigiSHOT^®), which allows for reliable control of air gun arrays for 4-D exploration activities.

     Data Management Solutions Products and Services

     Through this segment, we supply software systems and services for towed marine streamer and seabed operations. Software developed by our subsidiary, Concept Systems, is installed on towed streamer marine vessels worldwide and is a component of many redeployable and permanent seabed monitoring systems. Products and services for our Data Management Solutions business segment include the following:

     Marine Imaging. ORCA is our next-generation software product for towed streamer navigation and integrated data management applications. During 2007 and 2008, Orca made significant inroads into the towed streamer market with several major seismic contractors adopting the technology for their new, high-end seismic vessels. Orca includes modules designed to manage acquisition marine surveys integrating the navigation, source control, and streamer control functions. Orca can manage complex marine surveys such as time-lapse 4-D surveys and WATS (Wide Azimuth Towed Streamer) surveys. WATS is an advanced acquisition technique for imaging complex structures (for example, subsalt) in the marine environment, generally implemented with multiple source vessels that shoot at some distance from the streamer recording vessel. Orca is designed to be compatible with our DigiFIN product, which enables streamer lateral control, and DigiSTREAMER, our new marine streamer acquisition system. SPECTRA^® is Concept Systems’ integrated navigation and survey control software system for towed streamer-based 2-D, 3-D, and 4-D seismic survey operations.

     Seabed Imaging. Concept Systems also offers GATOR^®, an integrated navigation and data management software system for multi-vessel ocean bottom cable and transition zone (such as marshlands) operations. The GATOR system is designed to provide real-time, multi-vessel positioning and data management solutions for ocean-bottom, shallow-water, and transition zone crews.

     Survey Design, Planning and Optimization. Concept Systems also offers consulting services for planning, designing and supervising complex surveys, including 4D and WATS survey operations. Concept Systems’ acquisition expertise and in-field software platforms and development capability are designed to allow their clients to optimize these complex surveys, improving image quality and reducing costs.

     Post-Survey Analysis Tools. Concept Systems’ Command and Control systems such as Orca, SPECTRA and GATOR are designed to integrate with its post-survey tools for processing, analysis, and data quality control. These tools include the SPRINT^® navigation processing and quality control software for marine geophysical surveys, and the REFLEX^® software for seismic coverage and attribute analysis.

ION Solutions Division Services

     Services for our ION Solutions business segment include the following:

     Seismic Data Processing Services. The GXT Imaging Solutions group provides a variety of seismic data processing and imaging services to E&P companies for marine, ocean bottom and land environments. Services include survey planning and design, project oversight of data acquisition operations, advanced signal processing, final image rendering, and geophysical and reservoir analysis.

     The GXT Imaging Solutions group offers processing and imaging services through which it develops a series of subsurface images by applying its processing technology to data owned or licensed by its customers. The group also provides support services to its customers, such as data pre-conditioning for imaging and outsourced management of seismic data acquisition and image processing services.

     The GXT Imaging Solutions group uses parallel computer clusters to process seismic data by applying advanced proprietary algorithms and workflows that incorporate techniques such as illumination analysis, data conditioning and velocity modeling, and time and depth migration. Pre-stack depth migration involves the application of advanced, computer-intensive processing techniques which convert time-based seismic information to a depth basis. While pre-stack depth migration is not necessary in every imaging situation,

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it generally provides the most accurate subsurface images in areas of complex geology. It also helps to convert seismic data, which is recorded in the time domain, into a depth domain format that is more readily applied by geologists and reservoir engineers in identifying well locations. Our Reverse Time Migration (RTM) technology was developed to improve imaging in areas where complex structural conditions or steeply dipping subsurface horizons have provided imaging challenges for oil and gas companies.

     Our AXIS Geophysics group (AXIS), based in Denver, Colorado, focuses on advanced seismic data processing for stratigraphically complex onshore environments. AXIS has developed a proprietary data processing technique called AZIM^™ that is designed to better account for the anisotropic effects of the Earth (i.e., different layers of geological formations that are not parallel to each other), which tend to distort seismic images. AZIM is designed to correct for these anisotropic effects by producing higher resolution images in areas where the velocity of seismic waves varies with compass direction (or azimuth). The AZIM technique is used to analyze fracture patterns within reservoirs.

     We believe that the application of ION’s advanced processing technologies and imaging techniques can better identify complex hydrocarbon-bearing structures and deeper exploration prospects. We also believe that the combination of GXT’s capabilities in advanced velocity model building and depth imaging, along with AXIS’ capability in anisotropic imaging, provides an advanced toolkit for maximizing the data measurements obtained by our VectorSeis full-wave sensor.

     Integrated Seismic Solutions (ISS). ION’s ISS services are designed to manage the entire seismic process, from survey planning and design to data acquisition and management, through pre-processing and final subsurface imaging. The ISS group focuses on the technologically intensive components of the image development process, such as survey planning and design and data processing and interpretation, and outsources the logistics component to geophysical logistics contractors. ION offers its ISS services to customers on both a proprietary and multi-client basis. On both bases, the customers pre-fund a majority of the data acquisition costs. With the proprietary service, the customer also pays for the imaging and processing, but has exclusive ownership of the data after it has been processed. For multi-client surveys, we assume some of the processing costs but retain ownership of the data and images and receive on-going license revenue from subsequent data license sales.

     Seismic Data Libraries. Since 2002, GXT has acquired and processed a growing seismic data library consisting of non-exclusive marine and ocean bottom data from around the world. The majority of the data libraries licensed by GXT consist of ultra-deep 2-D lines that E&P companies use to better evaluate the evolution of petroleum systems at the basin level, including insights into the character of source rocks and sediments, migration pathways, and reservoir trapping mechanisms. In many cases, the availability of geoscience data extends beyond seismic information to include magnetic, gravity, well log, and electromagnetic information, which help to provide a more comprehensive picture of the subsurface. Known as “SPANS,” these geophysical data libraries currently exist for major offshore basins worldwide, including the northern Gulf of Mexico, the southern Caribbean, the north and east coasts of South America, the east and west coasts of West Africa, the east and west coasts of India, northern Canada and Alaska and southeast Asia. In 2009, we completed the acquisition of new BasinSPAN surveys offshore Argentina, northeast Greenland and southern Australia. Additionally, in January 2010, we completed the acquisition of an additional 28,000 km of regional seismic data covering Brazil’s southern Santos, Pelotas and northeastern Equatorial basins; this brings our total basin-scale seismic library offshore Brazil to more than 42,000 kilometers of data acquired. Non-seismic surveys employing gravity gradiometry and magnetic technology were also acquired over northern Canada and the Gulf Coast. Additional SPANS and other seismic and non-seismic programs are planned or under development for other regions of the world.

Product Research and Development

     Our research and development efforts have focused on improving both the quality of the subsurface image and the seismic data acquisition economics for our customers. Our ability to compete effectively in the manufacture and sale of seismic equipment and data acquisition systems, as well as related processing services, depends principally upon continued technological innovation. Development cycles of most products, from initial conception through commercial introduction, may extend over several years.

     In 2009, we principally focused our research and development efforts on commercialization of our FireFly system and on DigiSTREAMER, our solid streamer cable for marine acquisition.

     During 2010, we expect that our product development efforts will continue across selective business lines aimed at the development of strategic key products and technologies. Major research and development programs are expected to continue for FireFly, our “Digi-” line of marine streamer technologies, our cable-based land systems and our land energy source technologies. A key research and development initiative is underway to integrate FireFly with our cable-based land recording systems in order to provide contractors with a hybrid architecture for cabled and cableless recording on the same survey. We also are investing to develop

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hybrid sensor functionality for both FireFly (designing the current “all-digital” system to be compatible with analog geophones) and our ARIES II land acquisition system (designing its current “all-analog” system to be compatible with VectorSeis). For a summary of our research and development expenditures during the past five years, see Item 6. “Selected Financial Data.”

     Because many of these new products are under development, their commercial feasibility or degree of commercial acceptance, if any, is not yet known. No assurance can be given concerning the successful development of any new products or enhancements, the specific timing of their release or their level of acceptance in the marketplace.

Markets and Customers

     Based on historical revenues, we believe that we are a market leader in numerous product lines, including geophones, full-wave sensors based upon micro-electro magnetic systems (MEMS), navigation and data management software, marine positioning and streamer control systems, cableless land acquisition systems and redeployable seabed recording systems.

     Our principal customers are seismic contractors and E&P companies. Seismic contractors purchase our data acquisition systems and related equipment and software to collect data in accordance with their E&P company customers’ specifications or for their own seismic data libraries. We also market and sell products and offer services directly to E&P companies, primarily imaging-related processing services and multi-client seismic data libraries from our GXT subsidiary, as well as consulting services from Concept Systems and GXT. During the years ended December 31, 2009, 2008 and 2007, no single customer accounted for 10% or more of our consolidated net revenues.

     Hydrocarbon price erosion has caused E&P companies to revisit their capital investment plans, which, in turn, is reverberating back through the supply chain to affect us both directly and indirectly through our seismic acquisition contractor customers.

     Contractors from China (including BGP) and other countries are increasingly active not only in their own countries but also in other international markets. As a result, a significant part of our marketing effort is focused on areas outside of the United States. Foreign sales are subject to special risks inherent in doing business outside of the United States, including the risk of armed conflict, civil disturbances, currency fluctuations, embargo and governmental activities, customer credit risks, and risk of non-compliance with U.S. and foreign laws, including tariff regulations and import/export restrictions.

     We sell our products and services through a direct sales force consisting of employees and international third-party sales representatives responsible for key geographic areas. During the years ended December 31, 2009, 2008 and 2007, sales to destinations outside of North America accounted for approximately 64%, 60% and 62% of our consolidated net revenues, respectively. Further, systems sold to domestic customers are frequently deployed internationally and, from time to time, certain foreign sales require export licenses.

     We have consolidated our international sales at our sales facility operating in Dubai. Dubai is geographically better positioned to ensure that we are close to our customers in one of the most active oil and gas centers of the world.

     Traditionally, our business has been seasonal, with strongest demand in the fourth quarter of our fiscal year.

     For information concerning the geographic breakdown of our net revenues, see Note 15 of Notes to Consolidated Financial Statements.

Manufacturing Outsourcing and Suppliers

     Since 2003, we have increased the use of contract manufacturers in our Land and Marine Imaging Systems business segments as an alternative to manufacturing our own products. We have outsourced the manufacturing of our vibrator vehicles, our towed marine streamers, our redeployable ocean bottom cables, various components of VectorSeis Ocean and certain electronic and ground components of our land acquisition systems. We may experience supply interruptions, cost escalations, and competitive disadvantages if we do not monitor these relationships properly.

     These contract manufacturers purchase a substantial portion of the components used in our systems and products from third-party vendors. Certain items, such as integrated circuits used in our systems, are purchased from sole source vendors. Although we and our contract manufacturers attempt to maintain an adequate inventory of these single source items, the loss of ready access to any of these items could temporarily disrupt our ability to manufacture and sell certain products. Since our components are designed for use with

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these single source items, replacing the single source items with functional equivalents could require a redesign of our components and costly delays could result.

     In 2004, we transferred ownership of our subsidiary, Applied MEMS, Inc., to Colibrys Ltd. (Colibrys), a Swiss MEMS-based technology firm, in exchange for a 10% ownership interest in Colibrys. We concurrently entered into a five-year supply agreement with Colibrys that provided for Colibrys to supply us with products on an exclusive basis in our markets. Colibrys manufactures MEMS products, including accelerometers, for our VectorSeis sensors, and for other applications, including test and measurement, earthquake and structural monitoring, and defense. In December 2009, our five-year supply agreement with Colibrys expired, and we currently have no plans to enter into a new supply agreement with Colibrys for the products that were covered by the agreement. As of December 31, 2009, we estimate we have three to four years supply of sensor inventory.

Competition

     The market for seismic products and services is highly competitive and is characterized by continual changes in technology. Our principal competitor for land and marine seismic equipment is Societe d’Etudes Recherches et Construction Electroniques (Sercel), an affiliate of the French seismic contractor, Compagnie General de Geophysique Veritas (CGGVeritas). Sercel possesses the advantage of being able to sell its products and services to an affiliated seismic contractor that operates both land crews and seismic acquisition vessels, providing it with a greater ability to test new technology in the field and to capture a captive internal market for product sales. Sercel has also demonstrated that it is willing to offer extended financing sales terms to customers in situations where we declined to do so due to credit risk. We also compete with other seismic equipment companies on a product-by-product basis. Our ability to compete effectively in the manufacture and sale of seismic instruments and data acquisition systems depends principally upon continued technological innovation, as well as pricing, system reliability, reputation for quality, and ability to deliver on schedule.

     Certain seismic contractors have designed, engineered, and manufactured seismic acquisition technology in-house (or through a controlled network of third-party vendors) in order to achieve differentiation versus their competition. For example, WesternGeco (a wholly-owned subsidiary of Schlumberger Limited, a large integrated oilfield services company) relies heavily on its in-house technology development for designing, engineering, and manufacturing its “Q-Technology” platform, which includes seismic acquisition and processing systems. Although this technology competes directly with ION’s technology for marine streamer, seabed, and land acquisition, WesternGeco does not provide Q-Technology services to other seismic acquisition contractors. However, the risk exists that other seismic contractors may decide to conduct more of their own seismic technology development, which would put additional pressures on the demand for ION acquisition equipment.

     In addition, over the last several years, we have seen both new-build and consolidation activity within the marine towed streamer segment, which could impact our business results in the future. We expect the number of 2-D and 3-D marine streamer vessels, including those in operation, under construction, or announced additions to capacity, to increase to approximately 145 by year-end 2011, compared to approximately 118 at December 31, 2009. In addition, there has been an increase in acquisition activity within the sector, with the major vessel operators – Schlumberger, CGGVeritas, and PGS – all moving to acquire new market entrants in the last several years. Many of these incumbent operators develop their own marine streamer technologies, such that consolidation in the sector reduces the number of potential customers and vessel outfitting opportunities for us.

     Our GXT Imaging Solutions group competes with more than a dozen processing companies that are capable of providing pre-stack depth migration services to E&P companies. See “ — Products and Services — ION Solutions Division Services.” While the barriers to entry into this market are relatively low, the barriers to competing at the higher end of the market, which is the advanced pre-stack depth migration market, where our efforts are focused, are significantly higher. At the higher end of this market, CGGVeritas and WesternGeco are ION Solutions division’s two primary competitors for advanced imaging services. Both of these companies are larger than ION in terms of revenues, number of processing locations, and sales and marketing resources. In addition, both CGGVeritas and WesternGeco possess an advantage of being part of affiliated seismic contractor companies, providing them with access to customer relationships and seismic datasets that require processing.

     Concept Systems provides advanced data integration software and services to seismic contractors acquiring data using either towed streamer vessels or ocean-bottom cable on the seabed. Vessels or ocean-bottom cable crews that do not use Concept Systems software either rely upon manual data integration, reconciliation, and quality control, or develop and maintain their own proprietary software packages. There is evidence of growing competition to Concept Systems’ core command and control business from Sercel and other smaller companies. Concept Systems has recently signed long term (between two and five years) technology partnerships with many of its key clients and will continue to seek to develop key new technologies with these clients. An important competitive factor for

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companies in the same business as Concept Systems is the ability to provide advanced complex command and control software with a high level of reliability combined with expert systems and project support to ensure operations run cost effectively.

     In the land systems market, ION is the second largest provider of cable-based land systems worldwide, trailing only Sercel. In the cableless market, several companies have introduced technologies that compete, directly or indirectly, with FireFly, including Sercel, Ascend Geo, OYO Geospace, Fairfield, and Wireless Seismic. Each company is attempting to implement a cableless architecture in a slightly different way, with variations related to how the telemetry (data communications backbone) works, whether the system can use digital, full-wave sensors (or only analog geophones), and the amount of integration between the cableless recording unit and other technologies used for survey design, equipment deployment/retrieval, operational command and control, and data management.

Intellectual Property

     We rely on a combination of patents, copyrights, trademark, trade secrets, confidentiality procedures, and contractual provisions to protect our proprietary technologies. Although our portfolio of patents is considered important to our operations and particular patents may be material to specific business lines, no one patent is considered essential to our consolidated business operations.

     Our patents, copyrights, and trademarks offer us only limited protection. Our competitors may attempt to copy aspects of our products despite our efforts to protect our proprietary rights, or may design around the proprietary features of our products. Policing unauthorized use of our proprietary rights is difficult, and we are unable to determine the extent to which such use occurs. Our difficulties are compounded in certain foreign countries where the laws do not offer as much protection for proprietary rights as the laws of the United States. From time to time, third parties inquire and claim that we have infringed upon their intellectual property rights and we make similar inquiries and claims to third parties. No material liabilities have resulted from these third party claims to date. For more information on current litigation related to the Company’s patents, see Item 3. “Legal Proceedings.”

     The information contained in this Annual Report on Form 10-K contains references to trademarks, service marks and registered marks of ION and our subsidiaries, as indicated. Except where stated otherwise or unless the context otherwise requires, the terms “VectorSeis,” “VectorSeis System Four,” “System Four,” “FireFly,” “ARIES,” “ARIES II,” “DigiSHOT,” “XVib,” “DigiCOURSE,” “GATOR,” “SPECTRA,” “Orca,” “Scorpion,” “SPRINT,” and “REFLEX” refer to our VECTORSEIS^®, VECTORSEIS SYSTEM FOUR^®, SYSTEM FOUR^®, FIREFLY^®, ARIES^®, ARIES II^®, DIGISHOT^®, XVIB^®, DIGICOURSE^®, GATOR^®, SPECTRA^®, ORCA^®, SCORPION^®, SPRINT^®, and REFLEX^® registered marks, and the terms “AZIM,” “ArgentinaSPAN,” “ArcticSPAN,” “BasinSPAN,” “BightSPAN,” “BrasilSPAN,” “True Digital,” “DigiRANGE II,” “DigiSTREAMER,” “CompassBIRD,” “SM-24,” “AHV-IV,” “Vib Pro,” “Shot Pro,” “DigiFIN,” “Autobahn,” and “SWAT” refer to our AZIM^™, ArgentinaSPAN^™, ArcticSPAN^™, BasinSPAN^™, BightSPAN^™, BrasilSPAN™, True Digital^™, DigiRANGE II^™, DigiSTREAMER^™, CompassBIRD^™, SM-24^™, AHV-IV^™, Vib Pro^™, Shot Pro^™, DigiFIN^™, Autobahn^™, and SWAT^™ trademarks and service marks.

Regulatory Matters

     Our operations are subject to laws, regulations, government policies, and product certification requirements worldwide. Changes in such laws, regulations, policies or requirements could affect the demand for our products or result in the need to modify products, which may involve substantial costs or delays in sales and could have an adverse effect on our future operating results. Our export activities are also subject to extensive and evolving trade regulations. Certain countries are subject to trade restrictions, embargoes, and sanctions imposed by the U.S. government. These restrictions and sanctions prohibit or limit us from participating in certain business activities in those countries.

     Our operations are subject to numerous local, state, and federal laws and regulations in the United States and in foreign jurisdictions concerning the containment and disposal of hazardous materials, the remediation of contaminated properties, and the protection of the environment. We do not currently foresee the need for significant expenditures to ensure our continued compliance with current environmental protection laws. Regulations in this area are subject to change, and there can be no assurance that future laws or regulations will not have a material adverse effect on us. Our customers’ operations are also significantly impacted by laws and regulations concerning the protection of the environment and endangered species. For instance, many of our marine contractors have been affected by regulations protecting marine mammals in the Gulf of Mexico. To the extent that our customers’ operations are disrupted by future laws and regulations, our business and results of operations may be materially adversely affected.

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Employees

     As of December 31, 2009, we had 1,128 regular, full-time employees, 684 of which were located in the U.S. From time to time and on an as-needed basis, we supplement our regular workforce with individuals that we hire temporarily or as independent contractors in order to meet certain internal manufacturing or other business needs. Our U.S. employees are not represented by any collective bargaining agreement, and we have never experienced a labor-related work stoppage. We believe that our employee relations are satisfactory.

     Beginning in the fourth quarter of 2008 and continuing through 2009, we implemented a restructuring program that included reducing our headcount by approximately 26%. During 2010, upon closing our joint venture transaction with BGP, we expect that a significant number of our land equipment systems employees will become employees within the joint venture, thereby further reducing our headcount. We will continue to evaluate our staffing needs during 2010 and will make adjustments as necessary.

Financial Information by Segment and Geographic Area

     For a discussion of financial information by business segment and geographic area, see Note 15 of Notes to Consolidated Financial Statements.

Item 1A. Risk Factors

     This report contains or incorporates by reference statements concerning our future results and performance and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “would,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of such terms or other comparable terminology. Examples of other forward-looking statements contained or incorporated by reference in this report include statements regarding:

• the expected effects of current and future worldwide economic conditions and demand for oil and natural gas and seismic equipment and services;

• future compliance with our debt financial covenants;

• expectations regarding the completion of our proposed joint venture with BGP;

• future benefits to be derived from our proposed joint venture with BGP;

• future availability of cash to fund our operations and pay our obligations;

• the timing of anticipated sales;

• future levels of spending by our customers;

• future oil and gas commodity prices;

• future cash needs and future sources of cash, including availability under our revolving line of credit facility;

• expected net revenues, income from operations and net income;

• the expected outcome of litigation and other claims against us regarding our business plan, our technology and our financial condition and results of operations;

• expected gross margins for our products and services;

• future benefits to our customers to be derived from new products and services, such as Scorpion and FireFly and our full-wave digital products and services;

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• future growth rates for certain of our products and services;

• future sales to our significant customers;

• the degree and rate of future market acceptance of our new products and services;

• expectations regarding future mix of business and future asset recoveries;

• our expectations regarding oil and gas exploration and production companies and contractor end-users purchasing our more expensive, more technologically advanced products and services;

• the degree and rate of future market acceptance of our new products and services;

• expectations regarding future mix of business and future asset recoveries;

• anticipated timing and success of commercialization and capabilities of products and services under development and start-up costs associated with their development;

• expected improved operational efficiencies from our full-wave digital products and services;

• potential future acquisitions;

• future levels of capital expenditures;

• our ability to maintain our costs at consistent percentages of our revenues in the future;

• the outcome of pending or threatened disputes and other contingencies;

• future demand for seismic equipment and services;

• future seismic industry fundamentals;

• the adequacy of our future liquidity and capital resources;

• future opportunities for new products and projected research and development expenses;

• success in integrating our acquired businesses;

• sufficient future profits to fully utilize our net operating losses;

• expectations regarding realization of deferred tax assets; and

• anticipated results regarding accounting estimates we make.

     These forward-looking statements reflect our best judgment about future events and trends based on the information currently available to us. Our results of operations can be affected by inaccurate assumptions we make or by risks and uncertainties known or unknown to us. Therefore, we cannot guarantee the accuracy of the forward-looking statements. Actual events and results of operations may vary materially from our current expectations and assumptions. While we cannot identify all of the factors that may cause actual results to vary from our expectations, we believe the following factors should be considered carefully:

We have a substantial amount of outstanding indebtedness, and we will need to pay or refinance our existing indebtedness or incur additional indebtedness, which may adversely affect our operations. Any failure to complete our proposed transactions with BGP could result in an event of default under our credit obligations.

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     As of December 31, 2009, we had outstanding total indebtedness of approximately $277.4 million, net of a $8.7 million non-cash debt discount associated with the $40.0 million in Convertible Notes, and including capital lease obligations. Total indebtedness on that date included $101.6 million in borrowings under five-year term indebtedness and $118.0 million, excluding the non-cash debt discount, in borrowings under our revolving credit facility, in each case incurred under our amended commercial banking credit facility (the “Amended Credit Facility”). It also included $19.1 million of indebtedness outstanding under a term secured equipment financing loan and $35.0 million of subordinated unsecured debt outstanding under an amended and restated subordinated promissory note (the “Amended and Restated Subordinated Note”) incurred in connection with the ARAM acquisition.

     As of December 31, 2009 and February 22, 2010, we had available $22 million (without giving effect to $1.2 million and $1.4 million, respectively, of outstanding letters of credit) of additional revolving credit borrowing capacity under our Amended Credit Facility.

     In January 2009, Standard and Poor’s Rating Services downgraded our outlook from “stable” to “negative” due to expectations of a weakening seismic market.

     Our substantial levels of indebtedness and our other financial obligations increase the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due, in respect of our outstanding indebtedness. Our substantial debt could also have other significant consequences. For example, it could:

• increase our vulnerability to general adverse economic, competitive and industry conditions;

• limit our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes on satisfactory terms, or at all;

• require us to dedicate a substantial portion of our cash flow from operations to the payment of our indebtedness, thereby reducing funds available to us for operations and any future business opportunities;

• expose us to the risk of increased interest rates because certain of our borrowings, including borrowings under our Amended Credit Facility, are at variable rates of interest;

• restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;

• limit our planning flexibility for, or ability to react to, changes in our business and the industries in which we operate;

• limit our ability to adjust to changing market conditions; and

• place us at a competitive disadvantage to our competitors who may have less indebtedness or greater access to financing.

     During 2009, we had disclosed that under certain circumstances (including lower-than-expected revenues from sales), we would not remain in compliance with certain of the financial covenants contained in our Amended Credit Facility. If we are not able to satisfy the covenants under the Amended Credit Facility, we would need to seek to amend, or seek additional covenant waivers under the facility. There can be no assurance that we would be able to obtain any such waivers or amendments, in which case we would likely seek to obtain new secured debt, unsecured debt or equity financing. However, there also can be no assurance that such debt or equity financing would be available on terms acceptable to us or at all.

     In October 2009, we entered into bridge financing arrangements with Bank of China, New York Branch in connection with our proposed transactions with BGP, and obtained waivers of the financial covenants in the Amended Credit Facility for the fiscal quarters ending September 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010. Without these waivers, we would not have been in compliance with certain of our financial covenants at September 30, 2009 or December 31, 2009. However, our failure to comply with any of our other covenants under the Amended Credit Facility could result in an event of default that, if not cured or waived, could have a material adverse effect on our financial condition, results of operations and debt service capabilities.

     We expect that upon the formation of the proposed land equipment joint venture with BGP and the closing and funding of the related transactions, we will repay our existing revolving credit loans and refinance our term loans under our Amended Credit Facility and repay the Amended and Restated Subordinated Note indebtedness.

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     However, if our proposed joint venture and related transactions with BGP were not to be completed, even for reasons beyond our control (such as us experiencing a material adverse event or condition that results in a material adverse effect on the our business, our prospects or results of operations), then the current waivers, upon notice from the lenders, would cease to be effective and we would at that time likely not be in compliance with certain of the financial covenants. This could then result in an event of default. As the current waivers cover a period of less than twelve months from December 31, 2009, we have classified the long-term indebtedness under our revolving line of credit and term loan facility under our Amended Credit Facility as current at December 31, 2009. As a result of the cross-default provisions contained in our secured equipment financing instruments and our Amended and Restated Subordinated Note, we have also classified these long-term obligations as current at December 31, 2009. Defaults under these credit obligations and any resulting acceleration of indebtedness under their instruments would have a material adverse effect on our operations, financial condition, results of operations and cash flows.

     If we fail to make any required payments under our credit instruments, or if we fail to comply with any of the financial and operating covenants included in those instruments, we will be in default under their terms. The lenders under such facilities could then accelerate the maturity of the indebtedness and foreclose upon our and our subsidiaries’ assets that may secure such indebtedness. Other creditors might then accelerate other indebtedness under the cross-default provisions in those agreements. If our creditors accelerate the maturity of our indebtedness, we may not have sufficient assets to satisfy our debt obligations.

     Even though we believe the joint venture with BGP will be completed as planned, there are certain events outside of our control that could cause the closing of the joint venture to be delayed, terminated or abandoned. In such event, we would need to seek to amend, or seek additional covenant waivers under, the Amended Credit Facility. Even though the lenders under the Amended Credit Facility have demonstrated their willingness to work with us in amending or providing sufficient waivers to our facility, there can be no assurance that we would be able to obtain any such waivers or amendments in the future. If we were unable to obtain such waivers or amendments from the lenders, we would likely seek to replace or pay off the Amended Credit Facility with new secured debt, unsecured debt or equity financing.

There is no guarantee that we will complete our proposed joint venture with BGP, and, if we do complete the joint venture, we may be subject to additional risks relating to our ability to perform our obligations under the joint venture, including funding future joint venture capital requirements.

     In October 2009, we announced that we had entered into a Term Sheet with BGP dated as of October 23, 2009 (the “Term Sheet”) to form a land equipment joint venture. We also entered into bridge financing arrangements consisting of the following:

• Two promissory notes (the “Convertible Notes”) issued to Bank of China under the Amended Credit Facility for an aggregate principal amount of $40.0 million, both convertible into shares of our common stock; and

• A Warrant Issuance Agreement with BGP, under which we granted to BGP a warrant (the “Warrant”) to purchase shares of our common stock that may be exercised in lieu of conversion of the Convertible Notes.

     Completion of the joint venture transactions contemplated in the Term Sheet is conditioned upon, among other things, approvals by Chinese and U.S. authorities and the lack of adverse regulatory actions that would materially prohibit, restrict or delay the completion of the joint venture transactions or the anticipated operations of the joint venture. There can be no assurances that we will obtain necessary approvals or that we will complete the joint venture transactions as contemplated by the Term Sheet. Our inability to complete the joint venture transactions as contemplated may impact adversely our ability to execute our business strategy and, consequently, the marketability and market price of our common stock. In addition, if we are not successful in completing the joint venture transactions as presently contemplated, we will likely have to modify our plans to refinance our senior secured indebtedness under our Amended Credit Facility, which may entail additional time and costs, and may prove unsuccessful. In addition, the limited waivers of our financial covenants contained in our Amended Credit Facility may be terminated in such event, and we may at that time be in violation of the financial covenants and other covenants contained in our Amended Credit Facility and the terms of other indebtedness that contain cross-default provisions.

     If the transactions contemplated by the Term Sheet are not completed, it could have a number of adverse consequences for our business, including the following:

• we may lose the anticipated benefits of our proposed joint venture with BGP, which would include the potential savings from economies of scope and scale for our land seismic business and potential benefits from combined technological and new product development offerings;

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• we may lose our ability to successfully refinance and restructure our senior secured indebtedness on terms favorable to our company, as contemplated by the Term Sheet;

• our business and operations may be harmed to the extent that customers, suppliers and other believe that our ability to successfully compete will be less effective without the joint venture or there is customer or employee uncertainty surrounding the future direction of our company;

• our results of operations, financial condition and cash flows may be adversely affected due to marketplace reaction, reduced sales levels and weakened financial condition caused by any of the factors mentioned above; and

• the exercise price under the Warrant and the conversion prices under the Convertible Notes could be adjusted and reduced below their current amounts to considerably lower-than-current-market-price levels.

     Entering into joint ventures and alliances entails risks, including difficulties in developing and expanding the business of a newly formed joint venture, funding capital calls for the joint venture, exercising influence over the management and activities of joint venture, quality control concerns regarding joint venture products and services and potential conflicts of interest with the joint venture and our joint venture partner. The completion of the joint venture is subject to, among other things, the completion of definitive documents governing the terms of the joint venture, and we cannot guarantee that, if completed, the joint venture operations will be successful. Any inability to meet our obligations as a joint venture partner under the joint venture could result in penalties and reduced percentage interest in the joint venture for our company. Also, we could be disadvantaged in the event of disputes and controversies with our joint venture partner, since our joint venture partner is a relatively significant customer of our products and services and future product and services of the joint venture.

To comply with our indebtedness and other obligations, we will require a significant amount of cash and will be required to satisfy certain debt financial covenants. Our ability to generate cash and satisfy debt covenants depends on many factors beyond our control. Our failure to complete the proposed joint venture and related transactions with BGP and refinance our existing bank indebtedness could result in an event of default under our credit facilities.

     Our ability to make payments on and to refinance our indebtedness and to fund our working capital needs and planned capital expenditures, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control.

     We cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under the Amended Credit Facility or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We will need to repay or refinance our indebtedness on or before the maturity thereof. We cannot assure you that we will be able to refinance any of such indebtedness on commercially reasonable terms, or at all.

     In addition, if for any reason we are unable to meet our debt service obligations, we would be in default under the terms of our agreements governing our outstanding debt. If such a default were to occur, the lenders under the Amended Credit Facility could elect to declare all amounts outstanding under the Amended Credit Facility immediately due and payable, and the lenders would not be obligated to continue to advance funds to us. In addition, if such a default were to occur, our other indebtedness would become immediately due and payable under their cross-default provisions.

     The Amended Credit Facility and other outstanding debt instruments to which we are a party impose significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and taking other actions.

     Subject to certain exceptions and qualifications, the Amended Credit Facility contains customary restrictions on our activities, including covenants that restrict us and our restricted subsidiaries from:

• incurring additional indebtedness and issuing preferred stock;

• creating liens on our assets;

• making certain investments or restricted payments;

• consolidating or merging with, or acquiring, another business;

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• selling or otherwise disposing of our assets;

• paying dividends and making other distributions with respect to capital stock, or repurchasing, redeeming or retiring capital stock or subordinated debt; and

• entering into transactions with our affiliates.

     The loan agreements for our $19.1 million secured equipment financing with ICON ION, LLC contain a number of restrictive covenants that affect us, and our Amended and Restated Subordinated Note contains additional restrictions on our ability to incur additional debt. Any further debt financing we obtain is likely to have similarly restrictive covenants.

     The Amended Credit Facility also contains covenants that require us to meet certain financial ratios and minimum thresholds. For example, the Amended Credit Facility requires that we and our domestic subsidiaries meet certain minimum fixed charge coverage ratio requirements, not exceed certain maximum leverage ratio limitations for each fiscal quarter, and maintain certain minimum tangible net worth. The lenders party to our Amended Credit Facility agreed in an amendment to the Credit Agreement dated October 23, 2009 to waive these financial covenants for the fiscal quarters ending September 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010. Without these waivers, we would not have been in compliance with certain of our financial covenants at September 30, 2009 or December 31, 2009.

     If we were not able to satisfy all of these covenants, we would need to seek to amend, or seek one or more waivers of, the covenants under the Amended Credit Facility. If we cannot satisfy the covenants and are unable to obtain further waivers or amendments, the lenders could declare a default under the Amended Credit Facility. Any default under our Amended Credit Facility would allow the lenders under the facility the option to demand repayment of the indebtedness outstanding under the facility, and would allow certain other lenders to exercise their rights and remedies under cross-default provisions contained in their debt instruments. If these lenders were to exercise their rights to accelerate the indebtedness outstanding, there can be no assurance that we would be able to refinance or otherwise repay any amounts that may become accelerated under the agreements. The acceleration of a significant portion of our indebtedness would have a material adverse effect on our business, liquidity, and financial condition.

     The restrictions in the Amended Credit Facility and our other debt instruments may prevent us from taking actions that we believe would be in the best interest of our business, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We also may incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all. The breach of any of these covenants and restrictions could result in a default under the Amended Credit Facility and our other debt instruments. An event of default under our debt agreements would permit the holders of such indebtedness to declare all amounts borrowed to be due and payable.

     Even though we believe the joint venture with BGP will be completed as planned, there are certain events outside of our control (such as our experiencing a material adverse event or condition that results in a material adverse effect on our business, its prospects or results of operations) that could cause the closing of the joint venture to be delayed, terminated or abandoned. In such event, we would need to seek to amend, or seek additional covenant waivers under, the Amended Credit Facility. Even though the lenders under the Amended Credit Facility have demonstrated their willingness to work with us in amending or providing sufficient waivers to our facility, there can be no assurance that we would be able to obtain any such waivers or amendments in the future. If we were unable to obtain such waivers or amendments from the lenders, we would likely seek to replace or pay off the Amended Credit Facility with new secured debt, unsecured debt or equity financing.

We are exposed to risks relating to the effectiveness of our internal controls.

     Following the end of our third quarter of 2009, we discovered an error in revenue recognition of certain product revenues in connection with the delivery of a FireFly land seismic data acquisition system and related hardware and components in China, which we had recorded in revenues for the second fiscal quarter of 2009. On November 4, 2009, we announced that we were restating our unaudited consolidated financial statements as of and for the three and six month periods ended June 30, 2009, as a result of this error in revenue recognition. We had concluded that, as of June 30, 2009, our internal control over financial reporting was not effective because this error in revenue recognition necessitating the restatement of our second quarter 2009 results of operations constituted a material weakness in our internal control over financial reporting. This material weakness has been remediated as of December 31,

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2009. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. For a description of this material weakness in our internal control over financial reporting identified in November 2009 and our remediation efforts as of December 31, 2009, see Item 9A. “Controls and Procedures.”

     Although we have remediated the above material weakness, there can be no assurance that such controls will effectively prevent material misstatements in our consolidated financial statements in future periods. We may experience controls deficiencies or material weakness in the future, which could adversely impact the accuracy and timeliness of our future reporting and reports and filings we make with the SEC.

If we, our option holders or others holding registration rights, sell additional shares of our common stock in the future, the market price of our common stock could decline. Additionally, our outstanding shares of Series D Preferred Stock, the Convertible Notes issued under our Amended Credit Facility and our Warrant issued to BGP in connection with our proposed joint venture with BGP are convertible into or exercisable for shares of our common stock. The conversion of the Series D Preferred Stock or the Convertible Notes or the exercise of the Warrant would result in dilution, and could result in substantial dilution, to existing stockholders. Sales in the open market of the shares of common stock acquired upon such conversion or exercise may have the effect of reducing the then-current market prices for our common stock.

     The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market in the future, or the perception that such sales could occur. These sales, or the possibility that these sales may occur, could make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

     As of February 22, 2010, we had 118,695,952 shares of common stock issued and outstanding. Substantially all of these shares are available for public sale, subject in some cases to volume and other limitations or delivery of a prospectus. At December 31, 2009, we had outstanding stock options to purchase up to 7,766,188 shares of our common stock at a weighted average exercise price of $7.65 per share. We also had, as of that date, 16,494 shares of common stock reserved for issuance under outstanding restricted stock unit awards.

     Additionally, Fletcher International, Ltd., the holder of our Series D-1 Cumulative Convertible Preferred Stock, Series D-2 Cumulative Convertible Preferred Stock and Series D-3 Cumulative Convertible Preferred Stock (together, the “Series D Preferred Stock”) currently has the right to convert the preferred shares it holds into 9,669,434 shares of our common stock. Under our agreement with Fletcher, the holder of our Series D Preferred Stock has the ability to sell the shares of our common stock (under effective registration statements) acquired by it upon conversion of the Series D Preferred Stock. In September 2009, Fletcher delivered a notice to us purporting to increase the number of shares of our common stock into which its preferred shares may convert from 9,669,434 shares to 11,669,434 shares, to become effective in November 2009. Because we believe that our agreement with Fletcher does not provide Fletcher, as holder, the right to demand such additional increase, we have filed a declaratory judgment action in the Court of Chancery of the State of Delaware asking the court to resolve the issue. See Item 3. “Legal Proceedings.”

     We currently have other pending litigation with Fletcher in Delaware regarding issues involving our Series D Preferred Stock. See Item 3. “Legal Proceedings.”

     The 18,500,000 shares of common stock we issued in June 2009 to certain institutional investors may be resold into the public markets in transactions pursuant to a currently-effective registration statement that was declared effective by the SEC on June 16, 2009. Thus, these purchasing institutional investors currently have the right to dispose of their shares in the public markets.

     In October 2009, we issued the Convertible Notes and the Warrant in connection with our execution of the binding Term Sheet with BGP. These instruments provide that they will be initially convertible into, or exercisable for, in the aggregate, up to 14,285,714 shares of common stock. The exercise price under the Warrant and conversion prices under the Convertible Notes will be subject to adjustment upon the occurrence of a “Triggering Event.” A “Triggering Event” will occur in the event that the joint venture transactions cannot be completed by March 31, 2010, solely as a result of the occurrence of a statement, order or other indication from any relevant governmental regulatory agency that (a) the transactions would not be approved, would be opposed, objected to or sanctioned or (b) the transactions or BGP’s business and operations would be required to be altered (or upon the earlier abandonment of such transactions due to any such statement, indication or order). In such event, the exercise price and conversion price will be adjusted (but not to an amount that exceeds $2.80 per share) to a price per share that is equal to 75% of the lowest trading price of our common stock over a ten-consecutive-trading-day period, beginning on and inclusive of the first trading day following the public

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announcement of any failure to complete such transactions (or the abandonment thereof), which failure or abandonment was the result of the Triggering Event. Such an adjustment would further dilute holders of our common stock.

     The conversion prices of the Series D Preferred Stock, the exercise price of the Warrant and conversion prices of the Convertible Notes are also subject to certain customary anti-dilution adjustment.

     Any conversion of the Convertible Notes or exercise of the Warrant will be conditioned upon certain governmental approvals from the Chinese government. At the closing of the transactions contemplated under the Term Sheet, it is expected that BGP (along with any permitted assignees and designees) will own 23,789,536 shares of common stock, whether through exercise of the Warrant, conversions of the Convertible Notes or by direct purchase of shares of common stock from us. Under a registration rights agreement that we entered into with BGP on October 23, 2009, we agreed to register certain resales of shares of commons stock acquired by BGP or its assignees or designees under the Convertible Notes or the Warrant.

     The conversion of our outstanding shares of Series D Preferred Stock into shares of our common stock will dilute the ownership interests of existing stockholders. Likewise, the conversion of the Convertible Notes under our Amended Credit Facility and exercise of our Warrant issued to BGP in connection with our proposed joint venture with BGP will also dilute the ownership interests of existing stockholders. Sales in the public market of shares of common stock issued upon conversion or exercise would likely apply downward pressure on prevailing market prices of our common stock. In addition, the very existence of the outstanding shares of the Series D Preferred Stock, the Convertible Notes and the Warrant represents potential issuances of common stock upon their conversion or exercise, and could represent potential sales into the market of our common stock to be acquired on conversion or exercise, which could also depress trading prices for our common stock.

     Shares of our common stock are also subject to certain demand and piggyback registration rights held by Laitram, L.L.C. We also may enter into additional registration rights agreements in the future in connection with any subsequent acquisitions or securities transactions we may undertake. Any sales of our common stock under these registration rights arrangements with Laitram or other stockholders could be negatively perceived in the trading markets and negatively affect the price of our common stock. Sales of a substantial number of our shares of common stock in the public market under these arrangements, or the expectation of such sales, could cause the market price of our common stock to decline.

The current economic and credit environment and lower oil and natural gas prices could continue to have an adverse effect on customer demand for certain of our products and services, which in turn would adversely affect our results of operations, our cash flows, our financial condition, our ability to borrow and our stock price.

     Global market and economic conditions continue to be weak. The global recession has caused weakened demand and lower prices for oil and natural gas on a worldwide basis, which have tended to reduce the levels of exploration for oil and natural gas. Historically, demand for our products and services has been sensitive to the level of exploration spending by E&P companies and geophysical contractors. The demand for our products and services will continue to be reduced if the level of exploration expenditures continues to be low. During periods of reduced levels of exploration for oil and natural gas, there have been oversupplies of seismic data and downward pricing pressures on our seismic products and services, which in turn, have limited our ability to meet sales objectives and maintain profit margins for our products and services. In the past, these then-prevailing industry conditions have had the effect of reducing our revenues and operating margins. The markets for oil and gas historically have been volatile and are likely to continue to be so in the future.

     The turmoil in the credit markets and its potential impact on the liquidity of major financial institutions may have an adverse effect on our ability to fund our business strategy through borrowings under either existing or new debt facilities in the public or private markets and on terms we believe to be reasonable. Continued weakness in the financial markets could also have a material adverse effect on our ability to refinance all or a portion of our indebtedness incurred in connection with the ARAM acquisition and to otherwise fund our operational requirements.

     Given the tight credit markets, there can be no assurance that our customers will be able to borrow money on a timely basis or on reasonable terms, which could have a negative impact on their demand for our products and impair their ability to pay us for our products and services on a timely basis, or at all. Our sales are affected by interest rate fluctuations and the availability of liquidity, and we would be adversely affected by increases in interest rates or liquidity constraints. Rising interest rates may also make certain alternative products and services provided by our competitors more attractive to customers, which could lead to a decline in demand for our products and services. This could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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     It is difficult to predict how long the current economic conditions will persist, whether they will deteriorate further, and which of our products and services will be adversely affected. We may have further impairment losses if events or changes in circumstances occur which reduce the fair value of an asset below its carrying amount. As a result, these conditions could adversely affect our financial condition and results of operations, and we may be subject to increased disputes and litigation because of these events and issues.

     Stock markets, in general, have experienced over the past 18 months, and may continue to experience, significant price and volume volatility, and the market price of our common stock may continue to be subject to similar market fluctuations unrelated to our operating performance or prospects. This increased volatility, coupled with depressed economic conditions, could continue to have a depressing effect on the market price of our common stock.

If capital expenditures for E&P companies remain at reduced levels compared to recent periods, the demand for our products and services may remain weak and our results of operations will be adversely affected.

     Demand for our products and services depends upon the level of spending by E&P companies and seismic contractors for exploration and development activities, and those activities depend in large part on oil and gas prices. Spending on products and services such as those we provide our customers are of a highly discretionary nature and subject to rapid and material change. Any significant decline in oil and gas related spending on behalf of our customers could cause alterations in our capital spending plans, project modifications, delays or cancellations, general business disruptions or delays in payment, or non-payment of amounts that are owed to us and could have a material adverse effect on our financial condition and results of operations and on our ability to continue to satisfy all of the covenants in our loan agreements. Additionally, increases in oil and gas prices may not increase demand for our services or otherwise have a positive effect on our financial condition or results of operations. Oil and gas companies’ willingness to explore, develop and produce depends largely upon prevailing industry conditions that are influenced by numerous factors over which our management has no control, such as:

• the supply of and demand for oil and gas;

• the level of prices, and expectations about future prices, of oil and gas;

• the cost of exploring for, developing, producing and delivering oil and gas;

• the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels for oil;

• the expected rates of declining current production;

• the discovery rates of new oil and gas reserves;

• weather conditions, including hurricanes, that can affect oil and gas operations over a wide area, as well as less severe inclement weather that can preclude or delay seismic data acquisition;

• domestic and worldwide economic conditions;

• political instability in oil and gas producing countries;

• technical advances affecting energy consumption;

• government policies regarding the exploration, production and development of oil and gas reserves;

• the ability of oil and gas producers to raise equity capital and debt financing; and

• merger and divestiture activity among oil and gas companies and seismic contractors.

     Many of our products contain more advanced technologies than products our competition offer, and these products may tend to be, for that reason, more expensive than comparable products of our competitors.

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     The level of oil and gas exploration and production activity has been volatile in recent years. Previously forecasted trends in oil and gas exploration and development activities may not continue and demand for our products and services may not reflect the level of activity in the industry. Any prolonged substantial reduction in oil and gas prices would likely affect oil and gas production levels and therefore adversely affect demand for the products and services we provide.

We derive a substantial amount of our revenues from foreign operations and sales, which pose additional risks.

     Sales to customers outside of North America accounted for approximately 64% of our consolidated net revenues for the year ended December 31, 2009, and we believe that export sales will remain a significant percentage of our revenue. U.S. export restrictions affect the types and specifications of products we can export. Additionally, to complete certain sales, U.S. laws may require us to obtain export licenses, and we cannot assure you that we will not experience difficulty in obtaining these licenses.

     Like many energy service companies, we have operations in and sales into certain international areas, including parts of the Middle East, West Africa, Latin America, Asia Pacific and the Commonwealth of Independent States, that are subject to risks of war, political disruption, civil disturbance, political corruption, possible economic and legal sanctions (such as possible restrictions against countries that the U.S. government may deem to sponsor terrorism) and changes in global trade policies. Our sales or operations may become restricted or prohibited in any country in which the foregoing risks occur. In particular, the occurrence of any of these risks could result in the following events, which in turn, could materially and adversely impact our results of operations:

• disruption of oil and natural gas E&P activities;

• restriction of the movement and exchange of funds;

• inhibition of our ability to collect receivables;

• enactment of additional or stricter U.S. government or international sanctions;

• limitation of our access to markets for periods of time;

• expropriation and nationalization of our assets;

• political and economic instability, which may include armed conflict and civil disturbance;

• currency fluctuations, devaluations, and conversion restrictions;

• confiscatory taxation or other adverse tax policies; and

• governmental actions that may result in the deprivation of our contractual rights.

     Our international operations and sales increase our exposure to other countries’ restrictive tariff regulations, other import/export restrictions and customer credit risk.

     In addition, we are subject to taxation in many jurisdictions and the final determination of our tax liabilities involves the interpretation of the statutes and requirements of taxing authorities worldwide. Our tax returns are subject to routine examination by taxing authorities, and these examinations may result in assessments of additional taxes, penalties and/or interest.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

     Each borrowing under our Amended Credit Facility will bear interest, at our option, at either an alternate base rate or a LIBOR-based rate. As of December 31, 2009, the $101.6 million in term loan indebtedness and the $118.0 million, excluding a non-cash debt discount, in total revolving credit indebtedness under the Amended Credit Facility accrued interest using the LIBOR-based interest rate of 6.7% per annum. The average effective interest rate for the quarter ended December 31, 2009 under the LIBOR-based rates was 6.2% per annum.

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     Assuming that $219.6 million in revolving and term loans are outstanding, each 100 basis point increase in the interest rate would have the effect of increasing the annual amount of interest to be paid by approximately $2.2 million. As of December 31, 2009, the weighted average interest rate on our outstanding indebtedness of $277.4 million was 12.9% per annum. Our obligations to pay interest at relatively higher rates:

• require us to dedicate a greater portion of our cash flow for interest payments on our indebtedness and our other financial obligations, thereby reducing the availability of our cash flow to fund working capital and capital expenditures;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

• place us at a competitive disadvantage compared to our competitors that have proportionately less debt.

     Alternative funding could result in higher interest rates. However, there can be no assurance that alternative financial resources will be available promptly, on favorable terms or at all. Failure to obtain necessary funding could adversely affect our short-term liquidity and our ability to invest in research and development to fund new product and service initiatives, upgrade our process technology and manufacturing capabilities, and seek out potential acquisition candidates and could adversely affect our business, financial condition and operating results.

Our operating results may fluctuate from period to period, and we are subject to seasonality factors.

     Our operating results are subject to fluctuations from period to period as a result of new product or service introductions, the timing of significant expenses in connection with customer orders, unrealized sales, levels of research and development activities in different periods, the product mix sold, and the seasonality of our business. Because many of our products feature a high sales price and are technologically complex, we generally have experienced long sales cycles for these products and historically incur significant expense at the beginning of these cycles for component parts and other inventory necessary to manufacture a product in anticipation of a future sale, which may not ultimately occur. In addition, the revenues from our sales can vary widely from period to period due to changes in customer requirements. These factors can create fluctuations in our net revenues and results of operations from period to period. Variability in our overall gross margins for any period, which depend on the percentages of higher-margin and lower-margin products and services sold in that period, compounds these uncertainties. As a result, if net revenues or gross margins fall below expectations, our results of operations and financial condition will likely be adversely affected. Additionally, our business can be seasonal in nature, with strongest demand typically in the fourth calendar quarter of each year. The fourth quarter of 2009 was not as strong as seen historically because the typical discretionary spending that normally occurs during the fourth quarter was not realized.

     Due to the relatively high sales price of many of our products and seismic data libraries and relatively low unit sales volume, our quarterly operating results have historically fluctuated from period to period due to the timing of orders and shipments and the mix of products and services sold. This uneven pattern makes financial predictions for any given period difficult, increases the risk of unanticipated variations in our quarterly results and financial condition, and places challenges on our inventory management. Delays caused by factors beyond our control, such as the granting of permits for seismic surveys by third parties and the availability and equipping of marine vessels, can affect our ION Solutions division’s revenues from its processing and ISS services from period to period. Also, delays in ordering products or in shipping or delivering products in a given period could significantly affect our results of operations for that period. Fluctuations in our quarterly operating results may cause greater volatility in the market price of our common stock.

The technologies and businesses contributed by our company and BGP to the proposed joint venture may prove difficult to integrate, disrupt our business, dilute stockholder value and divert management attention.

     The proposed formation of a joint venture with BGP is consistent with our overall business strategy of seeking new technologies, products and businesses to broaden the scope of our existing and planned product lines and technologies. The BGP joint venture involves the integration of multiple product lines and business models that previously have operated independently. This will be a complex and time consuming process. There can be no assurance that we will achieve the expected benefit of the proposed joint venture. This joint venture (if completed) and future joint ventures or acquisitions that we complete may result in unexpected costs, expenses, and liabilities, which may have a material adverse effect on our business, financial condition or results of operations.

     The BGP joint venture and future transactions may expose us to:

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• increased costs associated with the transaction and operation of the new business and new technologies and the management of geographically dispersed operations;

• risks associated with the assimilation of new technologies (including incorporating BGP’s land seismic equipment with our existing land seismic imaging product lines being contributed to the joint venture), operations, sites, and personnel;

• difficulties in retaining and integrating key technical, sales and marketing personnel and the possible loss of such employees and costs associated with their loss;

• difficulties associated with preserving relationships with our customers, partners and vendors;

• risks that any technology developed by the joint venture may not perform as well as we had anticipated;

• the diversion of management’s attention and other resources from other business operations and related concerns;

• the potential inability to replicate operating efficiencies in the joint venture’s operations;

• potential impairments of goodwill and intangible assets;

• the inability to generate revenues to offset associated transaction costs;

• the requirement to maintain uniform standards, controls and procedures; and

• the impairment of relationships with employees and customers as a result of the integration of management personnel from different companies.

     Integration of the contributed businesses requires significant efforts from us and BGP, including coordinating existing business plans and research and development efforts. We may not be able to realize the operating efficiencies, cost savings or other benefits that we expect from the joint venture. The process of combining BGP’s business with our business could cause an interruption of, or loss of momentum in, the operations and activities of the joint venture’s business, as well as the possible loss of key personnel, and could distract our management’s attention from the day-to-day operation of our Company’s remaining businesses.

Intangible assets and goodwill that we have recorded in connection with our acquisitions are subject to impairment evaluations and, as a result, we could be required to write-off additional goodwill and intangible assets, which may adversely affect our financial condition and results of operations.

     In accordance with Accounting Standard Codification (ASC) Topic 350, “Goodwill and Other Intangible Assets” (ASC 350), we are required to compare the fair value of our goodwill and intangible assets (when certain impairment indicators under ASC 350 are present) to their carrying amount. If the fair value of such goodwill or intangible assets is less than its carrying value, an impairment loss is recorded to the extent that the fair value of these assets within the reporting units is less than their carrying value. In the first quarter of 2009, we determined that approximately $38.0 million of intangible assets related to ARAM (included in our Land Imaging Systems reporting unit) had been impaired. We recorded the expense as of March 31, 2009 and reduced the carrying amount of our intangible assets. Any further reduction in or impairment of the value of our goodwill or other intangible assets will result in additional charges against our earnings, which could have a material adverse effect on our reported results of operations and financial position in future periods. At December 31, 2009 and 2008, the goodwill balance was $52.0 million and $49.8 million, respectively. At December 31, 2009 and 2008, the intangible asset balance was $61.8 million and $107.4 million, respectively.

Due to the international scope of our business activities, our results of operations may be significantly affected by currency fluctuations.

     We derive a significant portion of our consolidated net revenues from international sales, subjecting us to risks relating to fluctuations in currency exchange rates. Currency variations can adversely affect margins on sales of our products in countries outside of the United States and margins on sales of products that include components obtained from suppliers located outside of the United States. Through our subsidiaries, we operate in a wide variety of jurisdictions, including the United Kingdom, Canada, the Netherlands, China, Venezuela, India, Russia, the United Arab Emirates and other countries. Certain of these countries have experienced economic problems and uncertainties from time to time. To the extent that world events or economic conditions

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negatively affect our future sales to customers in these and other regions of the world, or the collectibility of receivables, our future results of operations, liquidity and financial condition may be adversely affected. We currently require customers in certain higher risk countries to provide their own financing. In some cases, we have assisted our customers in organizing international financing and export-import credit guarantees provided by the United States government. We do not currently extend long-term credit through notes to companies in countries we consider to be too risky from a credit risk perspective.

     A majority of our foreign net working capital is within the United Kingdom and Canada. The subsidiaries in those countries receive their income and pay their expenses primarily in pounds sterling (GBP) and Canadian dollars (CAD), respectively. To the extent that transactions of these subsidiaries are settled in GBP or CAD, a devaluation of these currencies versus the U.S. dollar could reduce the contribution from these subsidiaries to our consolidated results of operations as reported in U.S. dollars. For financial reporting purposes, such depreciation will negatively affect our reported results of operations since GBP- and CAD-denominated earnings that are converted to U.S. dollars are stated at a decreased value. In addition, since we participate in competitive bids for sales of certain of our products and services that are denominated in U.S. dollars, a depreciation of the U.S. dollar against the GBP and CAD harms our competitive position against companies whose financial strength bears less correlation to the strength of the U.S. dollar. While we have employed economic cash flow and fair value hedges designed to minimize the risks associated with these exchange rate fluctuations, the hedging activities may be ineffective or may not offset more than a portion of the adverse financial impact resulting from currency variations. Accordingly, we cannot assure you that fluctuations in the values of the currencies of countries in which we operate will not materially adversely affect our future results of operations.

We are exposed to risks related to complex, highly technical products.

     Our customers often require demanding specifications for product performance and reliability. Because many of our products are complex and often use unique advanced components, processes, technologies, and techniques, undetected errors and design and manufacturing flaws may occur. Even though we attempt to assure that our systems are always reliable in the field, the many technical variables related to their operations can cause a combination of factors that can, and have from time to time, caused performance and service issues with certain of our products. Product defects result in higher product service, warranty, and replacement costs and may affect our customer relationships and industry reputation, all of which may adversely impact our results of operations. Despite our testing and quality assurance programs, undetected errors may not be discovered until the product is purchased and used by a customer in a variety of field conditions. If our customers deploy our new products and they do not work correctly, our relationship with our customers may be materially and adversely affected.

     As a result of our systems’ advanced and complex nature, we expect to experience occasional operational issues from time to time. Generally, until our products have been tested in the field under a wide variety of operational conditions, we cannot be certain that performance and service problems will not arise. In that case, market acceptance of our new products could be delayed and our results of operations and financial condition could be adversely affected.

We rely on highly skilled personnel in our businesses, and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

     Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain skilled personnel for all areas of our organization. We require highly skilled personnel to operate and provide technical services and support for our businesses. Competition for qualified personnel required for our data processing operations and our other segments’ businesses has intensified in recent years. Our growth has presented challenges to us to recruit, train, and retain our employees while managing the impact of potential wage inflation and the lack of available qualified labor in some markets where we operate. A well-trained, motivated and adequately-staffed work force has a positive impact on our ability to attract and retain business. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.

If we do not effectively manage our transitions into new products and services, our revenues may suffer.

     Products and services for the seismic industry are characterized by rapid technological advances in hardware performance, software functionality and features, frequent introduction of new products and services, and improvement in price characteristics relative to product and service performance. Among the risks associated with the introduction of new products and services are delays in development or manufacturing, variations in costs, delays in customer purchases or reductions in price of existing products in anticipation of new introductions, write-offs or write-downs of the carrying costs of inventory and raw materials associated with prior generation products, difficulty in predicting customer demand for new product and service offerings and effectively managing

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inventory levels so that they are in line with anticipated demand, risks associated with customer qualification, evaluation of new products, and the risk that new products may have quality or other defects or may not be supported adequately by application software. The introduction of new products and services by our competitors also may result in delays in customer purchases and difficulty in predicting customer demand. If we do not make an effective transition from existing products and services to future offerings, our revenues and margins may decline.

     Furthermore, sales of our new products and services may replace sales, or result in discounting of some of our current offerings, offsetting the benefit of a successful introduction. In addition, it may be difficult to ensure performance of new products and services in accordance with our revenue, margin, and cost estimates and to achieve operational efficiencies embedded in our estimates. Given the competitive nature of the seismic industry, if any of these risks materializes, future demand for our products and services, and our future results of operations, may suffer.

Technological change in the seismic industry requires us to make substantial research and development expenditures.

     The markets for our products and services are characterized by changing technology and new product introductions. We must invest substantial capital to develop and maintain a leading edge in technology, with no assurance that we will receive an adequate rate of return on those investments. If we are unable to develop and produce successfully and timely new and enhanced products and services, we will be unable to compete in the future and our business, our results of operations and our financial condition will be materially and adversely affected.

We invest significant sums of money in acquiring and processing seismic data for our ION Solutions’ multi-client data library.

     We invest significant amounts in acquiring and processing new seismic data to add to our ION Solutions’ multi-client data library. A majority of these investments is funded by our customers, while the remainder is recovered through future data licensing fees. In 2009, we invested $89.6 million in our multi-client data library. Our customers generally commit to licensing the data prior to our initiating a new data library acquisition program. However, the aggregate amounts of future licensing fees for this data are sometimes uncertain and depend on a variety of factors, including the market prices of oil and gas, customer demand for seismic data in the library, and the availability of similar data from competitors. For example, the rapid decline of oil and natural gas prices in late 2008 have and could continue to cause E&P companies to significantly delay or reduce their current seismic capital spending budgets. Therefore, we may not be able to recover all of the costs of or earn any return on these investments. In periods in which sales do not meet original expectations, we may be required to record additional amortization and/or impairment charges to reduce the carrying value of our data library, which charges may be material to our results of operations in any period.

The loss of any significant customer could materially and adversely affect our results of operations and financial condition.

     We have traditionally relied on a relatively small number of significant customers. Consequently, our business is exposed to the risks related to customer concentration. No single customer represented 10% or more of our consolidated net revenues for the years ended December 31, 2009, 2008 and 2007; however, our top five customers in total represented approximately 29%, 30% and 31%, respectively, of our consolidated net revenues during those years. The loss of any of our significant customers or deterioration in our relations with any of them could materially and adversely affect our results of operations and financial condition.

     Historically, a relatively small number of customers has accounted for the majority of our net revenues in any period. During the last ten years, our traditional seismic contractor customers have been rapidly consolidating, thereby consolidating the demand for our products. The loss of any of our significant customers to further consolidation could materially and adversely affect our results of operations and financial condition.

Our ION Solutions and Data Management Solutions segments increase our exposure to the risks experienced by more technology-intensive companies.

     The businesses of ION Solutions and Data Management Solutions, being more concentrated in software, processing services, and proprietary technologies than our traditional business, have exposed us to the risks typically encountered by smaller technology companies that are more dependent on proprietary technology protection. These risks include:

• future competition from more established companies entering the market;

• product obsolescence;

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• dependence upon continued growth of the market for seismic data processing;

• the rate of change in the markets for these segments’ technology and services;

• research and development efforts not proving sufficient to keep up with changing market demands;

• dependence on third-party software for inclusion in these segments’ products and services;

• misappropriation of these segments’ technology by other companies;

• alleged or actual infringement of intellectual property rights that could result in substantial additional costs;

• difficulties inherent in forecasting sales for newly developed technologies or advancements in technologies;

• recruiting, training, and retaining technically skilled personnel that could increase the costs for these segments, or limit their growth; and

• the ability to maintain traditional margins for certain of their technology or services.

     The contribution of our land equipment businesses to the joint venture exposes our company to additional risks. Please refer to the additional risks below.

Reservoir Exploration Technology (RXT) has been a significant customer of our Marine Imaging Systems segment. A loss of business from this customer could adversely affect our sales and financial condition if RXT is not replaced by another customer or customers.

     In May 2007, we entered into a multi-year agreement with RXT under which they agreed to purchase a minimum of $160 million in VectorSeis Ocean (VSO) systems and related equipment through 2011. In addition, this agreement entitles us to receive a royalty of 2.1% of revenues generated by RXT through the use of all VSO equipment commencing in January 2008 until the expiration of the agreement. In turn, RXT was granted exclusive rights to this product line through 2011. Because they did not purchase the minimum annual quantity of equipment, in February 2010, we notified RXT that they no longer have exclusive rights to the VSO product line.

     For the years ended December 31, 2009 and 2008, $9.3 million, or 2.2%, and $49.0 million, or 7.2%, respectively, of our consolidated net revenues, were attributable to marine equipment sales to and royalty revenues from RXT. The loss of RXT as a customer or a continued significant reduction in their equipment or systems needs could reduce our sales volumes and revenues and lessen our cash flows, and thereby have a material adverse effect on our results of operations and financial condition. Unless we can broaden our customer base for these marine products, we can give no assurances that the revenues and cash flows from RXT, if lost, can be replaced. To the extent that the risks faced by RXT cause it to curtail its business activities or to make timely payments to its suppliers, we are subject to the same risks.

We are subject to intense competition, which could limit our ability to maintain or increase our market share or to maintain our prices at profitable levels.

     Many of our sales are obtained through a competitive bidding process, which is standard for our industry. Competitive factors in recent years have included price, technological expertise, and a reputation for quality, safety and dependability. While no single company competes with us in all of our segments, we are subject to intense competition in each of our segments. New entrants in many of the markets in which certain of our products and services are currently strong should be expected. See Item 1. “Business – Competition.” We compete with companies that are larger than we are in terms of revenues, number of processing locations and sales and marketing resources. A few of our competitors have a competitive advantage in being part of an affiliated seismic contractor company. In addition, we compete with major service providers and government-sponsored enterprises and affiliates. Some of our competitors conduct seismic data acquisition operations as part of their regular business, which we do not, and have greater financial and other resources than we do. These and other competitors may be better positioned to withstand and adjust more quickly to volatile market conditions, such as fluctuations in oil and natural gas prices, as well as changes in government regulations. In addition, any excess supply of products and services in the seismic services market could apply downward pressure on prices for our products and services. The negative effects of the competitive environment in which we operate could have a material adverse effect on our results of operations.

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Certain of our facilities could be damaged by hurricanes and other natural disasters, which could have an adverse effect on our results of operations and financial condition.

     Certain of our facilities are located in regions of the United States that are susceptible to damage from hurricanes and other weather events, and, during 2005, were impacted by hurricanes or weather events. Our Marine Imaging Systems segment leases 93,000-square feet of facilities located in Harahan, Louisiana, in the greater New Orleans metropolitan area. In late August 2005, we suspended operations at this facility and evacuated and locked down the facility in preparation for Hurricane Katrina. This facility did not experience flooding or significant damage during or after the hurricane. However, because of employee evacuations, power failures and lack of related support services, utilities and infrastructure in the New Orleans area, we were unable to resume full operations at the facility until late September 2005. In September 2008, we lost power and related services for several days at our offices located in the Houston metropolitan area and in Harahan, Louisiana as a result of Hurricane Ike and Hurricane Gustav.

     Future hurricanes or similar natural disasters that impact our facilities may negatively affect our financial position and operating results for those periods. These negative effects may include reduced production and product sales; costs associated with resuming production; reduced orders for our products from customers that were similarly affected by these events; lost market share; late deliveries; additional costs to purchase materials and supplies from outside suppliers; uninsured property losses; inadequate business interruption insurance and an inability to retain necessary staff.

We have outsourcing arrangements with third parties to manufacture some of our products. If these third party suppliers fail to deliver quality products or components at reasonable prices on a timely basis, we may alienate some of our customers and our revenues, profitability, and cash flow may decline. Additionally, the current global economic crisis could have a negative impact on our suppliers, causing a disruption in our vendor supplies. A disruption in vendor supplies may adversely affect our results of operations.

     Our manufacturing processes require a high volume of quality components. We have increased our use of contract manufacturers as an alternative to our own manufacturing of products. We have outsourced the manufacturing of our vibrator vehicles, our towed marine streamers, our redeployable ocean bottom cables, our Applied MEMS components, various components of VectorSeis Ocean, and certain electronic and ground components of our land acquisition systems. Certain components used by us are currently provided by only one supplier. If, in implementing any outsource initiative, we are unable to identify contract manufacturers willing to contract with us on competitive terms and to devote adequate resources to fulfill their obligations to us or if we do not properly manage these relationships, our existing customer relationships may suffer. In addition, by undertaking these activities, we run the risk that the reputation and competitiveness of our products and services may deteriorate as a result of the reduction of our control over quality and delivery schedules. We also may experience supply interruptions, cost escalations, and competitive disadvantages if our contract manufacturers fail to develop, implement, or maintain manufacturing methods appropriate for our products and customers.

     Reliance on certain suppliers, as well as industry supply conditions, generally involves several risks, including the possibility of a shortage or a lack of availability of key components, increases in component costs and reduced control over delivery schedules. If any of these risks are realized, our revenues, profitability, and cash flows may decline. In addition, as we come to rely more heavily on contract manufacturers, we may have fewer personnel resources with expertise to manage problems that may arise from these third-party arrangements.

     Additionally, our suppliers could be negatively impacted by current global economic conditions. If certain of our suppliers were to experience significant cash flow issues or become insolvent as a result of such conditions, it could result in a reduction or interruption in supplies to us or a significant increase in the price of such supplies and adversely impact our results of operations and cash flows.

Our outsourcing relationships may require us to purchase inventory when demand for products produced by third-party manufacturers is low.

     Under some of our outsourcing arrangements, our manufacturing outsourcers purchase agreed-upon inventory levels to meet our forecasted demand. Our manufacturing plans and inventory levels are generally based on sales forecasts. If demand proves to be less than we originally forecasted and we cancel our committed purchase orders, our outsourcers generally will have the right to require us to purchase inventory which they had purchased on our behalf. Should we be required to purchase inventory under these terms, we may be required to hold inventory that we may never utilize. We currently have no purchase commitments with Colibrys for additional MEMS.

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We may be unable to obtain broad intellectual property protection for our current and future products and we may become involved in intellectual property disputes.

     We rely on a combination of patent, copyright, and trademark laws, trade secrets, confidentiality procedures, and contractual provisions to protect our proprietary technologies. We believe that the technological and creative skill of our employees, new product developments, frequent product enhancements, name recognition, and reliable product maintenance are the foundations of our competitive advantage. Although we have a considerable portfolio of patents, copyrights, and trademarks, these property rights offer us only limited protection. Our competitors may attempt to copy aspects of our products despite our efforts to protect our proprietary rights, or may design around the proprietary features of our products. Policing unauthorized use of our proprietary rights is difficult, and we are unable to determine the extent to which such use occurs. Our difficulties are compounded in certain foreign countries where the laws do not offer as much protection for proprietary rights as the laws of the United States.

     Third parties inquire and claim from time to time that we have infringed upon their intellectual property rights. Any such claims, with or without merit, could be time consuming, result in costly litigation, result in injunctions, require product modifications, cause product shipment delays or require us to enter into royalty or licensing arrangements. Such claims could have a material adverse affect on our results of operations and financial condition.

     Much of our litigation in recent years have involved disputes over our and others’ rights to technology. See Item 3. “Legal Proceedings.”

Our operations, and the operations of our customers, are subject to numerous government regulations, which could adversely limit our operating flexibility.

     Our operations are subject to laws, regulations, government policies, and product certification requirements worldwide. Changes in such laws, regulations, policies or requirements could affect the demand for our products or result in the need to modify products, which may involve substantial costs or delays in sales and could have an adverse effect on our future operating results. Our export activities are also subject to extensive and evolving trade regulations. Certain countries are subject to restrictions, sanctions, and embargoes imposed by the United States government. These restrictions, sanctions, and embargoes also prohibit or limit us from participating in certain business activities in those countries. Our operations are subject to numerous local, state, and federal laws and regulations in the United States and in foreign jurisdictions concerning the containment and disposal of hazardous materials, the remediation of contaminated properties, and the protection of the environment. These laws have been changed frequently in the past, and there can be no assurance that future changes will not have a material adverse effect on us. In addition, our customers’ operations are also significantly impacted by laws and regulations concerning the protection of the environment and endangered species. Consequently, changes in governmental regulations applicable to our customers may reduce demand for our products. For instance, regulations regarding the protection of marine mammals in the Gulf of Mexico may reduce demand for our air guns and other marine products. To the extent that our customers’ operations are disrupted by future laws and regulations, our business and results of operations may be materially and adversely affected.

Our certificate of incorporation and bylaws, Delaware law, our stockholders rights plan, the terms of our Series D Preferred Stock and contractual requirements under our agreement with Fletcher contain provisions that could discourage another company from acquiring us.

     Provisions of our certificate of incorporation and bylaws, Delaware law, our stockholders rights plan, the terms of our Series D Preferred Stock and our agreement with Fletcher may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable, including transactions in which you might otherwise receive a premium for shares of our common stock. These provisions include:

• authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;

• providing for a dividend on our common stock, commonly referred to as a “poison pill,” which can be triggered after a person or group acquires, obtains the right to acquire or commences a tender or exchange offer to acquire, 20% or more of our outstanding common stock;

• providing for a classified board of directors with staggered terms;

• requiring supermajority stockholder voting to effect certain amendments to our certificate of incorporation and by-laws;

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• eliminating the ability of stockholders to call special meetings of stockholders;

• prohibiting stockholder action by written consent;

• establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings; and

• requiring an acquiring party to assume all of our obligations under our agreement with Fletcher and the terms of the Series D Preferred Stock set forth in our certificates of rights and designations for those series, including the dividend, liquidation, conversion, voting and share registration provisions.

     In addition, the proposed terms of our joint venture with BGP and BGP’s investment in our company contain a number of provisions, such as certain pre-emptive rights granted to BGP, that could have the effect of discouraging, delaying or preventing a merger or acquisition of our company that our stockholders may otherwise consider to be favorable. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

     Note: The foregoing factors pursuant to the Private Securities Litigation Reform Act of 1995 should not be construed as exhaustive. In addition to the foregoing, we wish to refer readers to other factors discussed elsewhere in this report as well as other filings and reports with the SEC for a further discussion of risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements, which may be made to reflect the events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     Our principal operating facilities at December 31, 2009 were as follows:

	Square
Operating Facilities	Footage		Segment
Stafford, Texas		281,000	Land and Marine Imaging Systems
Calgary, Canada		139,000	Land Imaging Systems and ION Solutions
Houston, Texas		106,000	Global Headquarters and ION Solutions
Harahan, Louisiana		93,000	Marine Imaging Systems
Lacombe, Louisiana		87,000	Marine Imaging Systems
Jebel Ali, Dubai, United Arab Emirates		40,000	International Sales Headquarters and Land Imaging Systems
Denver, Colorado		29,000	ION Solutions
Voorschoten, The Netherlands		29,000	Land Imaging Systems
Edinburgh, Scotland		15,000	Data Management Solutions
		819,000

     Each of these operating facilities is leased by us under a long-term lease agreement. These lease agreements have terms that expire ranging from 2010 to 2018. See Note 17 of Notes to Consolidated Financial Statements.

     In addition, we lease offices in Cranleigh and Norwich, England; Aberdeen, Scotland; Calgary, Canada; Beijing, China; and Moscow, Russia to support our global sales force. We also lease offices for our seismic data processing centers in Egham, England; Port Harcourt, Nigeria; Luanda, Angola; Moscow, Russia; Cairo, Egypt; and in Port of Spain, Trinidad. Our executive headquarters (utilizing approximately 23,100 square feet) is located at 2105 CityWest Boulevard, Suite 400, Houston, Texas. The machinery, equipment, buildings, and other facilities owned and leased by us are considered by our management to be sufficiently maintained and adequate for our current operations.

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Item 3. Legal Proceedings

     WesternGeco. On June 12, 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against us in the United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleges that we have infringed several United States patents regarding marine seismic streamer steering devices that are owned by WesternGeco. WesternGeco is seeking unspecified monetary damages and an injunction prohibiting us from making, using, selling, offering for sale or supplying any infringing products in the United States. Based on our review of the lawsuit filed by WesternGeco and the WesternGeco patents at issue, we believe that our products do not infringe any WesternGeco patents, that the claims asserted by WesternGeco are without merit and that the ultimate outcome of the claims will not result in a material adverse effect on our financial condition or results of operations. We intend to defend the claims against us vigorously.

     On June 16, 2009, we filed an answer and counterclaims against WesternGeco, in which we deny that we have infringed WesternGeco’s patents and assert that the WesternGeco patents are invalid or unenforceable. We also asserted that WesternGeco’s Q-Marine system, components and technology infringe upon our United States patent related to marine seismic streamer steering devices. We also asserted that WesternGeco misappropriated our proprietary technology and breached a confidentiality agreement by using our technology in its patents and products and that WesternGeco tortiously interfered with our relationship with our customers. In addition, we are claiming that the lawsuit by WesternGeco is an illegal attempt by WesternGeco to control and restrict competition in the market for marine seismic surveys performed using laterally steerable streamers. We are requesting various remedies and relief, including a declaration that the WesternGeco patents are invalid or unenforceable, an injunction prohibiting WesternGeco from making, using, selling, offering for sale or supplying any infringing products in the United States, a declaration that the WesternGeco patents should be co-owned by us, and an award of unspecified monetary damages.

     Fletcher. During 2009, three lawsuits were filed in Delaware involving Fletcher International, Ltd. (“Fletcher”), the holder of shares of our Series D Preferred Stock.

• On July 10, 2009, Fletcher filed a “books and records” proceeding in the Delaware Court of Chancery under Section 220(b) of the Delaware General Corporation Law, styled Fletcher International, Ltd. v. ION Geophysical Corporation f/k/a Input/Output, Inc. Fletcher’s complaint asked the Court to require us to produce for its inspection a broad range of our documents and records relating to our ARAM acquisition and other matters. Section 220(b) allows stockholders of Delaware corporations to make a demand on the corporation for access to certain books and records of the corporation, provided that such demand is made with appropriate specificity and is made for a proper purpose. We responded by asserting that Fletcher had not requested the information with appropriate specificity or for a proper purpose as required by law. After a hearing on December 23, 2009, the court determined that most of Fletcher’s stated purposes for requesting the information were not valid or did not constitute “proper” purposes and issued a ruling denying in significant part the scope and breadth of the inspection sought by Fletcher.

• Under our February 2005 agreement with Fletcher, the aggregate number of shares of common stock issued or issuable to Fletcher upon conversion of the Series D Preferred Stock could not exceed a designated maximum number of shares (the “Maximum Number”), and such Maximum Number could be increased by Fletcher providing us with a 65-day notice of increase. In November 2008, Fletcher exercised its right to increase the Maximum Number from 7,669,434 shares to 9,669,434 shares. On September 15, 2009, Fletcher delivered a second notice to us that purported to increase the “Maximum Number” of shares of common stock issuable upon conversion of our Series D Preferred Stock from 9,669,434 shares to 11,669,434 shares. Our interpretation of the agreement with Fletcher gave Fletcher the right to issue only one notice to increase the Maximum Number (which Fletcher had exercised on November 8, 2008). On November 6, 2009, we filed an action in the Court of Chancery of the State of Delaware, styled ION Geophysical Corporation v. Fletcher International, Ltd., seeking a declaration that, under the agreement, Fletcher is permitted to deliver only one notice to increase the Maximum Number and that its purported second notice is legally invalid. Please refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sources of Capital.”

• On November 25, 2009, Fletcher filed a lawsuit against us and each of our directors in the Delaware Court of Chancery. In the lawsuit, styled Fletcher International, Ltd. v. ION Geophysical Corporation, f/k/a Input/Output, Inc., ION International S.à r.l., James M. Lapeyre, Bruce S. Appelbaum, Theodore H. Elliott, Jr., Franklin Myers, S. James Nelson, Jr., Robert P. Peebler, John Seitz, G. Thomas Marsh And Nicholas G. Vlahakis, Fletcher alleges, among other things, that we violated Fletcher’s consent rights by ION International S.à r.l., an indirect wholly-owned subsidiary of ION Geophysical Corporation, issuing a convertible promissory note to the Bank of China in connection with the Bank of China bridge loan funded on October 27, 2009, and that the directors violated their fiduciary duty to the company by allowing ION International S.à r.l. to issue the note without Fletcher’s consent. Fletcher is seeking a court order requiring ION International S.à r.l. to repay the $10 million advanced to ION

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International S.à r.l. under the bridge loan and unspecified monetary damages. In the lawsuit, Fletcher is not claiming that it had a right to consent to any note issued by ION Geophysical Corporation, including the issuance by ION Geophysical Corporation of a $30 million convertible promissory note to the Bank of China on October 27, 2009, as part of the bridge loan. We believe that Fletcher did not have the right to consent to the issuance of the bridge loan note by ION International S.à r.l. or any other promissory note and that the claims asserted by Fletcher in the lawsuit are without merit. We further believe that the ultimate outcome of the lawsuit will not result in a material adverse effect on our financial condition or results of operations. We intend to defend the claims against us in this lawsuit vigorously.

     Greatbatch. In 2002, we filed a lawsuit against operating subsidiaries of battery manufacturer Greatbatch, Inc., including its Electrochem division (collectively “Greatbatch”), in the 24th Judicial District Court for the Parish of Jefferson in the State of Louisiana. In the lawsuit, styled Input/Output, Inc. and I/O Marine Systems, Inc. v. Wilson Greatbatch Technologies, Inc., Wilson Greatbatch, Ltd. d/b/a Electrochem Lithium Batteries, and WGL Intermediate Holdings, Inc., Civil Action No. 578-881, Division “A”, we alleged that Greatbatch had fraudulently misappropriated our product designs and other trade secrets related to the batteries and battery pack used in our DigiBIRD^® marine towed streamer vertical control device and used our confidential information to manufacture and market competing batteries and battery packs. After a two-week trial, on October 1, 2009 the jury concluded that Greatbatch had committed fraud, violated the Louisiana Unfair Trade Practices Act and breached a trust and nondisclosure agreement between us and Greatbatch, and awarded us $21.7 million in compensatory damages. On October 13, 2009, the presiding trial judge signed and entered the judgment, awarding us the amount of the jury verdict. Under applicable law, we are also entitled to receive legal interest from the date of filing the lawsuit, plus our attorneys’ fees and costs. Through December 22, 2009, accrued legal interest totaled $11.2 million, and interest will continue to accrue at the statutory annual rate of 8.5% until paid. Including the verdict amount and accrued interest, the total amount owed under the judgment as of December 22, 2009 was $32.9, million plus our attorneys’ fees and costs. The judgment is currently on appeal.

     Sercel. On January 29, 2010, the jury in a patent infringement lawsuit filed by us against seismic equipment provider Sercel, Inc. in the United States District Court for the Eastern District of Texas returned a verdict in our favor. In the lawsuit, styled Input/Output, Inc. et al v. Sercel, Inc., (5-06-cv-00236), we alleged that Sercel’s 408, 428 and SeaRay digital seismic sensor units infringe our United States Patent No. 5,852,242, which is incorporated in our VectorSeis sensor technology. Our products that use the VectorSeis technology include our System Four, Scorpion, FireFly, and VectorSeis Ocean seismic acquisition systems. After a two-week trial, the jury concluded that Sercel infringed our patent and that our patent was valid, and the jury awarded us $25.2 million in compensatory past damages. We have asked the court to issue a permanent injunction to prohibit Sercel from making, using, selling, offering for sale or importing any infringing products into the United States.

     Other. We have been named in various other lawsuits or threatened actions that are incidental to our ordinary business. Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, cause us to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. We currently believe that the ultimate resolution of these matters will not have a material adverse impact on our financial condition, results of operations or liquidity.

Item 4. Reserved

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our common stock trades on the New York Stock Exchange (NYSE) under the symbol “IO.” The following table sets forth the high and low sales prices of the common stock for the periods indicated, as reported in NYSE composite tape transactions.

	Price Range
Period	High		Low
Year ended December 31, 2009:
Fourth Quarter	$	6.56	$	3.07
Third Quarter		3.76		1.88
Second Quarter		3.51		1.53
First Quarter		4.60		0.83
Year ended December 31, 2008:
Fourth Quarter	$	13.95	$	2.14
Third Quarter		17.61		12.64
Second Quarter		18.26		13.82
First Quarter		16.05		11.04

     We have not historically paid, and do not intend to pay in the foreseeable future, cash dividends on our common stock. We presently intend to retain cash from operations for use in our business, with any future decision to pay cash dividends on our common stock dependent upon our growth, profitability, financial condition and other factors our board of directors consider relevant. In addition, the terms of our Amended Credit Facility prohibit us from paying dividends on or repurchasing shares of our common stock without the prior consent of the lenders.

     Additionally, the terms of our Amended Credit Facility contain covenants that restrict us, subject to certain exceptions, from paying cash dividends on our common stock and repurchasing and acquiring shares of our common stock unless (i) there is no event of default under the Amended Credit Facility and (ii) the amount of cash used for cash dividends, repurchases and acquisitions does not, in the aggregate, exceed an amount equal to the excess of 30% of ION’s domestic consolidated net income for our most recently completed fiscal year over $15.0 million. See Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

     On December 31, 2009, there were 737 holders of record of our common stock.

     During the three months ended December 31, 2009, we withheld and subsequently cancelled shares of our common stock to satisfy minimum statutory income tax withholding obligations on the vesting of restricted stock for employees. The date of cancellation, number of shares and average effective acquisition price per share, were as follows:

						(d) Maximum Number
						(or Approximate
						Dollar
					(c) Total Number of	Value) of Shares
					Shares Purchased as	That
	(a)		(b)		Part of Publicly	May Yet Be Purchased
	Total Number of		Average Price		Announced Plans or	Under the Plans or
Period	Shares Acquired		Paid Per Share		Program	Program
October 1, 2009 to October 31, 2009		—	$	—	Not applicable	Not applicable
November 1, 2009 to November 30, 2009		173	$	2.53	Not applicable	Not applicable
December 1, 2009 to December 31, 2009		39,376	$	5.76	Not applicable	Not applicable
Total		39,549	$	5.75

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Item 6. Selected Financial Data

     The selected consolidated financial data set forth below with respect to our consolidated statements of operations for the years ended December 31, 2009, 2008, 2007, 2006 and 2005, and with respect to our consolidated balance sheets at December 31, 2009, 2008, 2007, 2006 and 2005 have been derived from our audited consolidated financial statements. Our results of operations and financial condition have been affected by the acquisition of ARAM in September 2008 and impairments of assets during the periods presented, which may affect the comparability of the financial information. Our results of operations for the year ended December 31, 2009 and 2008 were negatively impacted from the impairment of our goodwill and intangibles assets totaling $38.0 million and $252.3 million, respectively, the fair value adjustment of the warrant, including amortization of a non-cash debt discount, totaling $36.1 million, for the year-ended December 31, 2009 and from the beneficial conversion charge of $68.8 million associated with our outstanding convertible preferred stock for the year ended December 31, 2008. This information should not be considered as being necessarily indicative of future operations, and should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this Form 10-K.

	Years Ended December 31,
	2009			2008			2007			2006			2005
	(In thousands, except for per share data)
Statement of Operations Data:
Product revenues	$	237,664		$	417,511		$	537,691		$	354,258		$	237,359
Service revenues		182,117			262,012			175,420			149,298			125,323
Net revenues		419,781			679,523			713,111			503,556			362,682
Cost of products		165,923			289,795			386,849			252,647			163,575
Cost of services		121,720			181,980			119,679			91,592			86,619
Gross profit		132,138			207,748			206,583			159,317			112,488
Operating expenses:
Research, development and engineering		44,855			49,541			49,965			37,853			26,379
Marketing and sales		34,945			47,854			43,877			40,651			33,167
General and administrative		72,510			70,893			48,847			40,865			28,326
Impairment of goodwill and intangible assets		38,044			252,283			—			—			—
Total operating expenses		190,354			420,571			142,689			119,369			87,872
Income (loss) from operations		(58,216	)		(212,823	)		63,894			39,948			24,616
Interest expense, including amortization of non-cash debt discount		(35,671	)		(12,723	)		(6,283	)		(5,770	)		(6,134	)
Interest income		1,721			1,439			1,848			2,040			843
Fair value adjustment of the warrant		(29,401	)		—			—			—			—
Impairment of cost method investment		(4,454	)		—			—			—			—
Other income (expense)		(4,023	)		4,200			(3,992	)		(2,161	)		820
Income (loss) before income taxes and change in accounting principle		(130,044	)		(219,907	)		55,467			34,057			20,145
Income tax expense (benefit)		(19,985	)		1,131			12,823			5,114			1,366
Net income (loss) before change in accounting principle		(110,059	)		(221,038	)		42,644			28,943			18,779
Cumulative effect of change in accounting principle		—			—			—			398			—
Net income (loss)		(110,059	)		(221,038	)		42,644			29,341			18,779
Preferred stock dividends and accretion		3,500			3,889			2,388			2,429			1,635
Preferred stock beneficial conversion charge		—			68,786			—			—			—
Net income (loss) applicable to common shares	$	(113,559	)	$	(293,713	)	$	40,256		$	26,912		$	17,144
Net income (loss) per basic share before change in accounting principle	$	(1.03	)	$	(3.06	)	$	0.49		$	0.33		$	0.22
Cumulative effect of change in accounting principle		—			—			—			0.01			—
Net income (loss) per basic share	$	(1.03	)	$	(3.06	)	$	0.49		$	0.34		$	0.22
Net income (loss) per diluted share before change in accounting principle	$	(1.03	)	$	(3.06	)	$	0.45		$	0.32		$	0.21
Cumulative effect of change in accounting principle		—			—			—			0.01			—
Net income (loss) per diluted share	$	(1.03	)	$	(3.06	)	$	0.45		$	0.33		$	0.21

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	Years Ended December 31,
	2009			2008		2007		2006		2005
	(In thousands, except for per share data)
Weighted average number of common shares outstanding		110,516			95,887		81,941		79,497		78,600
Weighted average number of diluted shares outstanding		110,516			95,887		97,321		95,182		79,842
Balance Sheet Data (end of year):
Working capital	$	(59,018	)	$	267,155	$	220,522	$	170,342	$	153,761
Total assets		748,186			861,431		709,149		655,136		537,861
Long-term debt, net of current maturities		6,249			253,510		9,842		70,974		71,541
Stockholders’ equity		282,468			325,070		476,240		369,668		327,545
Other Data:
Capital expenditures	$	2,966		$	17,539	$	11,375	$	13,704	$	5,304
Investment in multi-client library		89,635			110,362		64,279		39,087		19,678
Depreciation and amortization (other than multi-client library)		47,911			33,052		26,767		22,036		23,497
Amortization of multi-client library		48,449			80,532		37,662		25,011		10,707

     The negative working capital seen above is the result of the re-classification of the majority of our long-term debt as current and as a result of the fair value of the warrant associated with our bridge financings arrangements. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Our Current Debt Levels,” “ — Liquidity and Capital Resources — Sources of Capital — Meeting our Liquidity Requirements” and “— Proposed Joint Venture and Related Transactions with BGP” for further information.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Note: The following should be read in conjunction with our Consolidated Financial Statements and related notes that appear elsewhere in this Annual Report on Form 10-K.

Executive Summary

     Our Business. We are a technology-focused seismic solutions company that provides advanced seismic data acquisition equipment, seismic software and seismic planning, processing and interpretation services to the global energy industry. Our products, technologies and services are used by oil and gas exploration and production (“E&P”) companies and seismic contractors to generate high-resolution images of the Earth’s subsurface for exploration, exploitation and production operations.

     We operate our company through four business segments. Three of our business segments — Land Imaging Systems, Marine Imaging Systems and Data Management Solutions — make up our ION Systems division. Our fourth business segment is our ION Solutions division.

• Land Imaging Systems — cable-based, cableless and radio-controlled seismic data acquisition systems, digital geophone sensors, vibroseis vehicles (i.e., vibrator trucks) and source controllers for detonator and vibrator energy sources and also consisting of analog geophone sensors. After we complete our land equipment joint venture with BGP, all of these business lines, with the exception of analog geophone sensors, will become part of the joint venture. See “ — Proposed Land Joint Venture with BGP.”

• Marine Imaging Systems — towed streamer and redeployable ocean bottom cable seismic data acquisition systems and shipboard recorders, streamer positioning and control systems and energy sources (such as air guns and air gun controllers).

• Data Management Solutions — software systems and related services for navigation and data management involving towed marine streamer and seabed operations.

• ION Solutions — advanced seismic data processing services for marine and land environments, seismic data libraries, and Integrated Seismic Solutions (“ISS”) services.

Our current business strategy is predicated on successfully executing seven key imperatives:

• Increasing our market share and profitability in land acquisition systems and furthering the commercialization of FireFly,

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	our cableless full-wave land data acquisition system, and our other land equipment technologies through our participation in the proposed land equipment joint venture with BGP;
•	Continuing to manage our cost structure to reflect current market and economic conditions while keeping key strategic technology programs progressing with an overall goal of enabling E&P companies to solve their complex reservoir problems most efficiently and effectively;
•	Expanding our ION Solutions business in new regions with new customers and new land and marine service offerings, including proprietary services for owners and operators of oil and gas properties;
•	Globalizing our ION Solutions data processing business by opening advanced imaging centers in new strategic locations, and expanding our presence in the land seismic processing segment, with emphasis on serving the national oil companies;
•	Developing and introducing our next generation of marine towed streamer products, with a goal of developing markets beyond the new vessel market;
•	Expanding our seabed imaging solutions business using our VectorSeis Ocean (VSO) acquisition system platform and derivative products to obtain technical and market leadership in what we continue to believe is a very important and expanding market; and
•	Leveraging our proposed land equipment joint venture with BGP to design and deliver lower cost, more reliable land imaging systems to our worldwide customer base of land acquisition contractors, while concurrently tapping into a broader set of global geophysical opportunities associated with the exploration, asset development, and production operations of BGP’s parent, CNPC.

     Our Current Debt Levels. In connection with our acquisition in September 2008 of ARAM, we increased our total indebtedness significantly. As of December 31, 2009, we had outstanding total indebtedness of approximately $277.4 million, net of a $8.7 million non-cash debt discount associated with $40.0 million in Convertible Notes, and including capital lease obligations. Total indebtedness on that date included $101.6 million of outstanding five-year term indebtedness and $118.0 million, excluding the non-cash debt discount, in outstanding revolving credit debt, in each case incurred under our amended commercial banking credit facility (the “Amended Credit Facility”). Total indebtedness on that date also included $19.1 million in borrowings under our secured equipment financing transaction with ICON (described below) and $35.0 million of subordinated indebtedness outstanding under an amended and restated subordinated promissory note (the “Amended and Restated Subordinated Note”) that we had issued to one of ARAM’s selling shareholders as part of the purchase price consideration for the ARAM acquisition.

     On June 4, 2009, we completed a private placement transaction under which we issued and sold 18,500,000 shares of our common stock in privately-negotiated transactions, for aggregate gross proceeds of approximately $40.7 million. The $38.2 million of net proceeds from the offering, along with $2.6 million of cash on hand, were applied to repay in full the outstanding indebtedness under a 2008 bridge loan agreement with Jefferies Finance LLC. The indebtedness under the bridge loan agreement had been scheduled to mature on January 31, 2010 and had an effective interest rate at the time of repayment of 25.3%. We also entered into an additional amendment to the Amended Credit Facility (the “Fifth Amendment”), which among other things, modified certain of the financial and other covenants contained in the Amended Credit Facility. See further discussion below at “— Liquidity and Capital Resources — Sources of Capital” and at Note 12 “Notes Payable, Long-term Debt and Lease Obligations.”

     On June 29, 2009, we entered into a $20.0 million secured equipment financing with ICON ION, LLC, an affiliate of ICON Capital Inc. (“ICON”), receiving $12.5 million in funding on that date and $7.5 million in July 2009. All borrowed indebtedness under the master loan agreements governing this equipment financing arrangement is scheduled to mature on July 31, 2014. We used the proceeds of the secured term loans for working capital and general corporate purposes. See further discussion below at “— Liquidity and Capital Resources — Sources of Capital” and at Note 12 “Notes Payable, Long-term Debt and Lease Obligations.”

     Proposed Joint Venture with BGP. On October 23, 2009, we entered into a binding term sheet (the “Term Sheet”) with BGP Inc., China National Petroleum Corporation, a company organized under the laws of the people’s Republic of China (“BGP”), which sets forth, among other things, the principal terms for a proposed land equipment joint venture between BGP and us. In connection with the execution of the Term Sheet, we entered into an amendment to the Amended Credit Facility (the “Sixth Amendment”) that, among other things, (i) increased the aggregate revolving commitment amount under the Amended Credit Facility from $100.0 million to $140.0 million, (ii) permitted Bank of China, New York Branch (“Bank of China”), to join the Amended Credit Facility as a lender,

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and (iii) modified, or provided limited waivers of, certain of the financial and other covenants contained in the Amended Credit Facility. Our bridge financing arrangement consisted of the following:

• Two promissory notes (the “Convertible Notes”) issued to the Bank of China under the Amended Credit Facility for an aggregate principal amount of $40.0 million, both convertible into shares of our common stock; and

• A Warrant Issuance Agreement with BGP, under which we granted to BGP a warrant (the “Warrant”) to purchase shares of our common stock that may be exercised in lieu of conversion of the Convertible Notes.

     See further discussion below at “— Proposed Joint Venture and Related Transactions with BGP.”

     Waivers under Amended Credit Facility. As a result of our October 2009 bridge financing arrangements with Bank of China, we believe that our liquidity will be sufficient to fund our operations until such time as the transactions with BGP are completed or alternative financing could be obtained. Additionally, as a result of our entering into the Sixth Amendment, we believe that the waivers of the financial covenants contained in the Amended Credit Facility for the fiscal quarters ending September 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010 should enable us to conduct our operations without defaulting under our Amended Credit Facility until the transactions under the Term Sheet are completed. We currently expect these transactions will be completed in March 2010. Without these waivers, we would not have been in compliance with certain of our financial covenants at September 30, 2009 or December 31, 2009.

     If the proposed transactions under the Term Sheet are not completed by March 31, 2010, then the current waivers, upon notice from the lenders after a designated period of time, would cease to be effective and we at that time would likely not be in compliance with certain of the financial covenants contained in the Amended Credit Facility, which could then result in an event of default. As the current waivers cover a period of less than twelve months from December 31, 2009, we have classified our long-term indebtedness under our revolving line of credit and term loan facility under the Amended Credit Facility as current at December 31, 2009. As a result of the cross-default provisions in our secured equipment financing and our amended and restated subordinated seller note, we have also classified these long-term obligations as current at December 31, 2009.

     Even though we believe the joint venture with BGP will be completed as planned, there are certain events outside of the our control (such as us experiencing a material adverse event or condition that results in a material adverse effect on our business, our prospects or results of operations) that could cause the closing of the joint venture to be delayed, terminated or abandoned. In such event, we would need to seek to amend, or seek additional covenant waivers under, the Amended Credit Facility. Even though the lenders under the Amended Credit Facility have demonstrated their willingness to work with us in amending or providing sufficient waivers to its facility, there can be no assurance that we would be able to obtain any such waivers or amendments in the future. If we were to be unable to obtain such waivers or amendments from the lenders, we would likely seek to replace or pay off the Amended Credit Facility with new secured debt, unsecured debt or equity financing.

     As part of the formation of the joint venture, we have been in discussions with various financial institutions (both domestic and international) on the refinancing of our debt. As a result of these discussions and with the recent improvements within the financial markets, we believe that in the unlikely event the joint venture is not completed as planned, we would be able to obtain additional debt or equity financings prior to defaulting on our current debt obligations. However, there also can be no assurance that such debt or equity financing would be available on terms acceptable to us or at all.

     Economic Conditions and Cost Containments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers’ willingness and ability to expend their capital for oil and natural gas exploration and development projects. This demand is highly sensitive to current and expected future oil and natural gas prices. The volatility of oil and natural gas prices in recent years has resulted in sharply curtailed demand for oil and gas exploration activities in North America and other regions. The uncertainty surrounding future economic activity levels and the tightening of credit availability resulted in decreased sales levels for several of our businesses in 2009. Our land seismic equipment businesses in North America and Russia have been particularly adversely affected.

     Our seismic contractor customers and the E&P companies that are users of our products, services and technology have generally reduced their capital spending levels since 2008. We also expect that exploration and production expenditures will remain at restrained levels to the extent E&P companies and seismic contractors are limited in their access to the credit markets as a result of further disruptions in, or continued conservative lending practices in, the credit markets. There continues to be significant uncertainty about

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future activity levels and the impact on our businesses. In particular, our North America and Russia land systems business and our vibroseis truck business experienced steep sales declines in 2009, and uncertain prospects for 2010.

     In response to the global economic downturn, we took measures to reduce operating costs in our businesses during 2008 and 2009. In addition, we slowed our capital spending, including our investments in our multi-client data libraries in 2009. For the year ended December 31, 2009, total capital expenditures were $92.6 million, compared to $127.9 million for the year ended December 31, 2008. We are projecting capital expenditures for 2010 to be between $100 million to $110 million. Of that total, we expect to spend approximately $90 million to $100 million on investments in our multi-client data library, and we anticipate that a majority of this investment will be underwritten by our customers. To the extent that our customers’ commitments do not reach an acceptable level of pre-funding, the amount of our anticipated investment could in likely respect decline. The remaining sums are expected to be funded from internally generated cash.

     We are continuing to explore ways to reduce our cost structure. We have taken a deliberate approach to analyzing product and service demands in our business and are taking a more conservative approach in offering extended financing terms to our customers. Our most significant cost reduction to date has related to reduced headcount. Beginning in the fourth quarter of 2008 and continuing through 2009, we reduced our headcount by 384 positions, or approximately 26% of our employee headcount, in order to adjust to the lower levels of activity. Including all contractors and employees, we reduced our headcount by 489 positions, or 27%. In April 2009, we also initiated a salary reduction program that reduced employee salaries. The salary reductions reduced affected employees’ annual base salaries by 12% for our chief executive officer, chief operating officer and chief financial officer, 10% for all other executives and senior management, and 5% for most other employees. Our Board also elected to implement a 15% reduction in director fees. In addition to the salary reduction program, we suspended our matching contributions to employee 401(k) plan contributions.

     We reinstated all employees salaries and director fees at their previous levels following the October 23, 2009 announcement of our company and BGP entering into a binding Term Sheet providing for, among other things, the formation of a joint venture between our company and BGP involving our land-based seismic data acquisition equipment business (see “— Proposed Joint Venture and Related Transactions with BGP” below).

     We will continue to fund strategic programs to position us for the expected recovery in economic activity. Overall, we will give priority to generating cash flows and reducing our cost structure, while maintaining our long-term commitment to continued technology development. Our business is mainly technology-based. We are not in the field crew business, and therefore do not have large amounts of capital and other resources invested in vessels or other assets necessary to support contracted seismic data acquisition services, nor do we have large manufacturing facilities. This cost structure gives us the flexibility to adjust our expense base when downward economic cycles affect our industry.

     While the current global recession and the decline in oil and gas prices have slowed demand for our products and services in the near term, we believe that our industry’s long-term prospects remain favorable because of the declining rates in oil and gas production and the relatively small number of new discoveries of oil and gas reserves. We believe that technology that adds a competitive advantage through cost reductions or improvements in productivity will continue to be valued in our marketplace, even in the current difficult market. For example, we believe that our new technologies, such as FireFly, DigiFIN and Orca, will continue to attract interest from our customers because those technologies are designed to deliver improvements in image quality within more productive delivery systems. We have adjusted much of our sales efforts for our ARIES land seismic systems from North America to international sales channels (other than Russia).

     International oil companies (IOCs) continue to have difficulty accessing new sources of supply for their exploration activities, partially as a result of the growth of national oil companies. This situation is also affected by increasing environmental concerns, particularly in North America, where companies may be denied access to some of the most promising onshore and offshore exploration opportunities. It is estimated that approximately 85%-90% of the world’s reserves are controlled by national oil companies, which increasingly prefer to develop resources on their own or by working directly with the oil field services and equipment providers. These dynamics often prevent capital, technology and project management capabilities from being optimally deployed on the best exploration and production opportunities, which results in global supply capacity being less than it otherwise might be. As a consequence, the pace of new supply additions may be insufficient to keep up with demand once the global recession ends.

     2009 Developments. Our overall total net revenues of $419.8 million for the year ended December 31, 2009 decreased $259.7 million, or 38.2%, compared to total net revenues for the year ended December 31, 2008. At the same time, our overall gross profit percentage improved for the year ended 2009 to 31.5% compared to 30.6% for the year ended 2008. For the year ended December 31,

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2009, we recorded a loss from operations of ($58.2) million (which includes the effect of an impairment of intangible assets charge of $38.0 million taken in the first quarter of 2009), compared to ($212.8) million (which includes the effect of impairments of goodwill and intangible asset charges of $252.3 million taken in the fourth quarter of 2008) for the year ended December 31, 2008.

Developments during 2009 and early 2010 include the following:

• In January 2009, we announced our first delivery of a multi-thousand station version 2.0 FireFly system equipped with digital, full-wave VectorSeis sensors to the world’s largest land contractor. The deployment in the second quarter of 2009 (we recognized the revenue from this sale in the fourth quarter of 2009) of this FireFly system occurred in a producing hydrocarbon basin containing reservoirs that have proven difficult to image with conventional seismic techniques.

• In March 2009, we announced that we had signed an agreement with The Polarcus Group of Companies for the provision of seismic data processing services. Under the agreement, we will provide hardware, software and geophysicists in order to support a seismic project’s entire imaging lifecycle, from the vessel to an onshore data processing center.

• In April 2009, we announced that a 6,100 station FireFly system will be utilized by a major oil company to undertake two high channel count, multicomponent (full-wave) seismic acquisition programs in northeast Texas, and, in July 2009, we announced that our client had sanctioned the second phase of the program.

• In April 2009, we announced the first commercial sale of our cable-based ARIES II seismic recording platform to one of the world’s largest geophysical services providers. The sale includes two 5,000 channel ARIES II recording systems that the customer plans to deploy on upcoming, high-channel count seismic surveys.

• In May 2009, we announced that an 8,000 station FireFly system will be utilized by Compania Mexicana de Exploraciones (Comesa), an oilfield services company majority-owned by PEMEX, the national oil company of Mexico, on three projects in Mexico.

• In May 2009, we announced that we had successfully acquired an additional 6,200 kilometers of regional seismic data offshore India’s western coast as part of our ongoing IndiaSPAN™ program. Another 3,800 kilometers has since been acquired off the east coast of India.

• In July 2009, we announced that we had successfully completed the data processing and interpretation for ArgentineSPAN™, a basin-scale seismic program offshore Argentina. ArgentineSPAN contains approximately 11,800 kilometers of new, regional data.

• In July 2009, we announced that we had successfully acquired 5,000 kilometers of regional seismic data covering the Bight Basin and Ceduna Sub-basin offshore southern Australia. Known as BightSPAN™, this latest addition to our global BasinSPAN seismic data library offers the first regional geologic study of Australia’s deepwater southern coast.

• In October 2009, we announced our proposed joint venture with BGP and the related bridge financing transactions. See “— Proposed Joint Venture and Related Transactions with BGP.”

• In January 2010, we announced that we had extended our BrasilSPAN™ program, which makes it one of the largest 2-D seismic datasets in our multi-client data library. The program currently contains 42,000 km of data off the coast of South America.

Proposed Joint Venture and Related Transactions with BGP

     On October 23, 2009, we entered into a binding Term Sheet with BGP, which provides for, among other things, the formation of a joint venture between our company and BGP involving our land-based seismic data acquisition equipment business.

     The Term Sheet contemplates that we will enter into a purchase agreement with BGP to form the joint venture. We expect to form the joint venture entity as a wholly-owned subsidiary of ION Geophysical Corporation and will contribute to the joint venture certain assets and related liabilities that relate to the proposed joint venture business. Then, BGP will acquire from us a 51% equity interest in the joint venture for an aggregate purchase price of $108.5 million cash and will contribute to the joint venture certain of its assets and related liabilities that relate to the joint venture’s business. The assets of each party to be contributed to the joint venture will include seismic recording systems, inventory, certain intellectual property rights and contract rights, all as may be necessary to or

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principally used in the conduct or operation of the businesses to be contributed to the joint venture as presently conducted or operated by each party.

     The scope of the joint venture’s business is defined in the Term Sheet as being the business of designing, development, engineering, manufacturing, research and development, distribution, sales and marketing and field support of land-based equipment used in seismic data acquisition for the petroleum industry. Excluded from the scope of the joint venture’s business will be (x) the analog sensor businesses of our company and BGP and (y) the businesses of certain companies in which BGP or we are currently a minority owner. In addition to these excluded businesses, all of our other businesses — including our Marine Imaging Systems, Data Management Solutions and ION Solutions, which includes GXT’s Imaging Solutions, Integrated Seismic Solutions (ISS) and BasinSPAN and seismic data libraries — will remain owned and operated by us and will not comprise a part of the joint venture.

     Under the Term Sheet, the parties have agreed to use their best efforts to cause the closing of the joint venture and related transactions to occur as soon as practicable following the execution of the definitive transaction documents, and on or before the later to occur of the following dates: (i) December 31, 2009 or (ii) 10 business days following the date on which all necessary regulatory approvals (including receiving clearance from the Committee on Foreign Investment in the United States (CFIUS) to complete the transactions) have been obtained, but in any event, no later than March 31, 2010. The parties’ obligations under the Term Sheet may be terminated (a) by written agreement of the parties, (b) by either party in the even that such party’s conditions have not been satisfied on or before March 31, 2010 (subject to a 15-day cure period) or (c) by either party in the event that certain mutual conditions have not been satisfied on or before March 31, 2010. In addition, BGP and we have each agreed to pay the other a break-up fee of $5.0 million if either party determines to terminate its obligations under the Term Sheet because the other party has failed to satisfy certain conditions, including conditions precedent to closing that (x) the other party has not experienced a material adverse event or condition that has resulted in a material adverse effect on its business, prospects and results of operations change, (y) the other party has not breached any of its representations and warranties contained in the Term sheet and such representations and warranties continue to be true and correct and (z) with respect to BGP’s obligations under the Term Sheet, we have not suffered any material default or accelerations of any of our liabilities.

     On October 27, 2009, we borrowed an aggregate of $40.0 million in the form of revolving credit bridge loan financing from Bank of China, which was evidenced by the Convertible Notes. This borrowing was pursuant to and permitted by the terms of the Sixth Amendment to the Credit Facility, which increased the aggregate revolving commitment amount under the accordion feature provisions of the Amended Credit Facility from $100.0 million to $140.0 million and permitted the Bank of China to join the Amended Credit Facility as a lender.

     The Convertible Notes provide that at the stated initial conversion price of $2.80 per share, the full $40.0 million principal amount under the Convertible Notes would be convertible into 14,285,714 shares of Common Stock. The Convertible Notes provide that the conversion price and the number of shares into which the notes may be converted are subject to adjustment under certain terms and conditions similar to those contained in the Warrant.

     As part of BGP arranging for the Bank of China to join our Amended Credit Facility, we granted to BGP the Warrant. The Warrant will be exercisable, in whole or in part, at any time and from time to time, subject to the conditions described below. The Warrant will initially entitle the holder thereof to purchase a number of shares of common stock equal to $40.0 million divided by the exercise price of $2.80 per share, subject to adjustment as described below. At the initial exercise price of $2.80 per share, at such time as the Warrant becomes exercisable, it would initially be fully exercisable for 14,285,714 shares of common stock.

     The Warrant will only become exercisable and the Convertible Notes will only become convertible upon receipt of certain governmental approvals. Any conversions of the Convertible Notes and prior exercises of the Warrant will reduce the dollar amount under the Warrant into which the exercise price may be divided to determine the number of shares that may be acquired upon exercise.

     Additionally, the Term Sheet provides that when the joint venture transactions are closed:

• BGP will have purchased approximately 23.8 million shares of our common stock for $66.6 million and thereby own, before giving effect to the issuance of those shares, approximately 19.99% of our outstanding common stock.

• To the extent that shares are not purchased by BGP under the Warrant prior to closing, the new revolving credit loans from Bank of China, evidenced by the Convertible Notes will convert into approximately 14.3 million shares of ION common stock and will be credited against the approximately 23.8 million shares of ION stock to be purchased by BGP at the transaction closing.

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• ION will appoint a designee of BGP to its Board of Directors to serve with the current nine members of ION’s Board of Directors.

• BGP will arrange for our then-outstanding long-term debt under the Amended Credit Facility (currently $101.6 million outstanding at February 22, 2010) to be refinanced at the joint venture closing.

• We will use a portion of the proceeds from the transactions to pay off and retire our outstanding indebtedness under our current revolving credit facility (after giving effect to the $40.0 million in additional revolving credit borrowings under our existing Amended Credit Facility, approximately $118.0 million is currently outstanding at February 22, 2010) and $35.0 million in seller subordinated indebtedness incurred in connection with our acquisition of ARAM in September 2008.

• We will receive a new $100 million revolving credit facility at the joint venture closing.

• The $19.1 million (as of December 31, 2009) secured equipment financing transaction with ICON will be assigned to and become indebtedness of the joint venture.

     The proposed joint venture is intended to provide a number of benefits and opportunities, including the following:

• Preferred access to BGP, currently the world’s largest land seismic contractor;

• Anticipated improved economies of scope and scale in our land data acquisition system manufacturing and sales operations, enabling us to deliver products in a more timely manner at an overall lower cost to its customers;

• Combining our strengths in land equipment technologies with BGP’s emerging geophysical product portfolio and expertise in operating land seismic acquisition crews, which should permit new joint venture products to be designed and field-tested for reliability, quality and productivity to the benefit of all customers; and

• Aligning the joint venture engineering teams to develop innovative, market-leading land recording systems, 3C (full-wave) sensor and vibroseis products.

     We believe that the joint venture will enable us to continue developing land systems and sensor technologies with lessened primary capital requirements through our partnership with BGP.

     Key Financial Metrics. The following table provides an overview of key financial metrics for our company as a whole and our four business segments during the twelve months ended December 31, 2009, compared to those for fiscal 2008 and 2007 (in thousands, except per share amounts):

	Years Ended December 31,
	2009			2008			2007
Net revenues:
ION Systems Division:
Land Imaging Systems	$	103,038		$	200,493		$	325,037
Marine Imaging Systems		103,024			182,710			177,685
Data Management Solutions		33,733			37,240			37,660
Total ION Systems Division		239,795			420,443			540,382
ION Solutions Division		179,986			259,080			172,729
Total	$	419,781		$	679,523		$	713,111
Income (loss) from operations:
ION Systems Division:
Land Imaging Systems	$	(39,126	)	$	(13,662	)	$	28,681
Marine Imaging Systems		29,632			52,624			44,727
Data Management Solutions		19,970			22,298			17,290
Total ION Systems Division		10,476			61,260			90,698
ION Solutions Division		27,747			40,534			21,646
Corporate		(58,395	)		(62,334	)		(48,450	)

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	Years Ended December 31,
	2009			2008			2007
Impairment of goodwill and intangible assets		(38,044	)		(252,283	)		—
Total	$	(58,216	)	$	(212,823	)	$	63,894
Net income (loss) applicable to common shares	$	(113,559	)	$	(293,713	)	$	40,256
Basic net income (loss) per common share	$	(1.03	)	$	(3.06	)	$	0.49
Diluted net income per (loss) common share	$	(1.03	)	$	(3.06	)	$	0.45

     We intend that the discussion of our financial condition and results of operations that follows will provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes.

     We anticipate that we will account for our 49% interest in the proposed joint venture with BGP under the equity method of accounting under U.S. generally accepted accounting principles. As a result, after the joint venture is formed, we will no longer include in our results of operations all of the net revenues and costs and expenses attributable to the contributed businesses on a going forward basis. In our results of operations, our proportional share of the joint venture’s net income (loss) will be reported as a single line item, and our investment in the joint venture will be increased by our proportional share of joint venture net income and decreased by our proportional payment of dividends made. Additionally, our equity investment in the joint venture will be reported as a single line item on our balance sheet, and the assets and liabilities of the contributed business currently consolidated in our balance sheet as of December 31, 2009 will be removed. See “— Proposed Joint Venture and Related Transactions with BGP ” below.

     For a discussion of factors that could impact our future operating results and financial condition, see Item 1A. “Risk Factors” above.

Results of Operations

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

     Net Revenues. Net revenues of $419.8 million for the year ended December 31, 2009 decreased $259.7 million, compared to the corresponding period of 2008, principally due to the continued decline in the global economy, which caused decreased activity and demand for seismic products and services, most notably in our Land Imaging Systems segment. Land Imaging Systems’ net revenues decreased by $97.5 million, to $103.0 million compared to $200.5 million during the twelve months ended December 31, 2008. Despite the inclusion of ARAM’s full-year operating results, the division was strongly impacted by the market decline, which resulted in reduced sales across all product lines compared to 2008. Marine Imaging Systems’ net revenues decreased $79.7 million to $103.0 million, compared to $182.7 million during the year ended December 31, 2008, principally due to the continued decline in the global economy and to delays in the scheduled completion and commissioning of new marine vessels being introduced into the market, which would otherwise have been outfitted by our marine products. This decrease was partially offset by increased sales of our DigiFIN positioning systems. Our Data Management Solutions’ net revenues decreased slightly by $3.5 million, to $33.7 million compared to $37.2 million in 2008. This decrease was due entirely to the effect of foreign currency exchange rate fluctuations compared to a year ago.

     ION Solutions’ net revenues decreased $79.1 million, to $180.0 million, compared to $259.1 million in 2008. The results for 2009 reflected decreased multi-client data library sales and new venture program sales, partially offset by increases in data processing service revenues.

     Gross Profit and Gross Profit Percentage. Gross profit of $132.1 million for the year ended December 31, 2009 decreased $75.6 million compared to the prior year. Gross profit percentage for the twelve months ended December 31, 2009 was 31.5% compared to 30.6% in the prior year. The 0.9% increase in our gross margin percentage was primarily due to the mix of business, especially in our Marine Imaging Systems and our ION Solutions segments. This increase was partially offset by lower margins in our Land Imaging System division, which were principally the result of increased amortization expense related to ARAM’s acquired intangibles and the headcount reduction restructuring charges taken during 2009. The margins for 2009 in our Data Management Solutions segment remained flat due to product mix sold when compared to 2008 margin levels.

     Research, Development and Engineering. Research, development and engineering expense was $44.9 million, or 10.7% of net revenues, for the year ended December 31, 2009, a decrease of $4.6 million compared to $49.5 million, or 7.3% of net revenues, for the corresponding period last year. The decrease was due primarily to decreased salary and payroll expenses related to our reduced headcount, partially offset by increased professional fees relating to current projects.

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     Marketing and Sales. Marketing and sales expense of $34.9 million, or 8.3% of net revenues, for the year ended December 31, 2009 decreased $13.0 million compared to $47.9 million, or 7.0% of net revenues, for the corresponding period last year. The decrease in our sales and marketing expenditures reflects decreased salary and payroll expenses related to reduced headcount, a decrease in travel expenses as part of our cost reduction measures, and a decrease in conventions, exhibits, advertising and office expenses related to cost reduction measures and the timing of the expenses throughout the year. Based upon the recently completed restructuring programs, we expect to continue to incur lower costs related to our marketing and sales efforts than in prior periods as mentioned in “— Executive Summary” above.

     General and Administrative. General and administrative expense of $72.5 million for the year ended December 31, 2009 increased $1.6 million compared to $70.9 million in the prior year. General and administrative expenses as a percentage of net revenues for the years ended December 31, 2009 and 2008 were 17.3% and 10.4%, respectively. The increase in general and administrative expense was mainly due to additional stock-based compensation expense related to adjustments between estimated and actual award forfeitures of $4.5 million, of which $3.3 million is an out-of-period adjustment. Additionally, general and administrative expenses also reflect the inclusion of ARAM’s expenses in 2009 and severance charges related to reductions in headcount. This increase is partially offset by decreased professional legal fees, travel expenses and general office expenses related to cost reduction measures. Based upon the recently completed restructuring programs, we expect to incur lower costs related to our general and administrative activities than in prior periods as mentioned in “— Executive Summary” above.

     Impairment of Intangible Assets. At March 31, 2009, we further evaluated our intangible assets for potential impairment. Based upon our evaluation and given the current market conditions, we determined that approximately $38.0 million of proprietary technology and customer relationships (written off entirely) related to ARAM acquired intangibles were impaired. In the fourth quarter of 2008, we recorded an impairment charge of $10.1 million related to ARAM’s customer relationships, trade name and non-compete agreements. Our net book value associated with ARAM’s acquired intangibles is $34.8 million at December 31, 2009 and has a remaining weighted average life of 6.2 years.

     Interest Expense, including Amortization of a Non-Cash Debt Discount. Interest expense of $35.7 million for the year ended December 31, 2009 increased $23.0 million compared to $12.7 million for the corresponding period last year. The increase is due to the higher levels of outstanding indebtedness and the secured equipment financing transaction that occurred during the second and third quarters of 2009 combined with increased revolver borrowings of $118.0 million and higher prevailing average interest rates in 2009 compared to 2008. Also, during the year ended December 31, 2009, we amortized to interest expense $6.7 million of a non-cash debt discount associated with the Convertible Notes. The remaining unamortized non-cash debt discount was $8.7 million at December 31, 2009 and will be recognized over the expected term of the Convertible Notes (March 31, 2010). See further discussion of the Convertible Notes and other bridge financing arrangements related to BGP and the Bank of China at “— Proposed Joint Venture and Related Transactions with BGP” and “— Liquidity and Capital Resources — Sources of Capital.” Because of these increased levels of borrowed indebtedness, our interest expense will continue to be significantly higher in 2010 than we experienced in prior years; however, with the closing of the proposed joint venture with BGP and the subsequent re-financing of the Amended Credit Facility, the Company believes that its interest expense will decrease compared to 2009.

     Fair Value Adjustment of the Warrant. We are required to account for separately and adjust to fair value the Warrant. We recorded a non-cash fair value adjustment of $29.4 million, reflecting a total non-cash liability associated with the Warrant of $44.8 million at December 31, 2009. We will continue to adjust the Warrant to fair value until such time as it is exercised or converted into our equity at the closing of the joint venture, which is expected to occur in March 2010. Also, associated with the Warrant, we recorded a $15.4 million non-cash discount on the Convertible Notes, which is being amortized to interest expense (see discussion above) over the expected term of the notes (March 31, 2010).

     Impairment of Cost Method Investment. At December 31, 2009, we evaluated our cost method investments for potential impairments. Based upon our evaluation and given the current market conditions related to our investment in Colibrys, Ltd., we determined that the investment was fully impaired and recorded an impairment charge of $4.5 million.

     Other Income (Expense). Other expense for the year ended December 31, 2009 was ($4.0) million compared to other income of $4.2 million for 2008. The other expense for 2009 mainly relates to higher foreign currency exchange losses that primarily resulted from our operations in the United Kingdom and Canada.

     Income Tax (Benefit) Expense. Income tax benefit for the year ended December 31, 2009 was ($20.0) million compared to $1.1 million of tax expense for the year ended December 31, 2008. The increase in tax benefits during 2009 primarily relates to reduced

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consolidated income from operations. We continue to maintain a valuation allowance for a significant portion of our U.S. net deferred tax assets. Our effective tax rate for the year ended December 31, 2009 was 15.4% as compared to (0.5%) for the similar period during 2008. The increase in our effective tax rate relates primarily to the 2008 impairment of goodwill, which has no tax benefit.

     Preferred Stock Dividends. The preferred stock dividend relates to our Series D-1, Series D-2 and Series D-3 Cumulative Convertible Preferred Stock (collectively referred to as the Series D Preferred Stock) that we issued in February 2005, December 2007 and February 2008, respectively. Quarterly dividends must be paid in cash. Dividends are paid at a rate equal to the greater of (i) 5% per annum or (ii) the three month LIBOR rate on the last day of the immediately preceding calendar quarter plus 2¹/2% per annum. All dividends paid to date on the Series D Preferred Stock have been paid in cash. The Series D Preferred Stock dividend rate was 5.0% at December 31, 2009.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

     Net Revenues. Net revenues of $679.5 million for the year ended December 31, 2008 decreased $33.6 million, compared to the corresponding period of 2007, principally due to the sharp decline in the global economy, which caused decreased activity and demand for seismic services, most notably in our Land Imaging Systems segment. Land Imaging Systems’ net revenues decreased by $124.5 million, to $200.5 million compared to $325.0 million during the twelve months ended December 31, 2007. Despite the inclusion of ARAM’s operating results, the division was strongly impacted by the market decline, which resulted in reduced sales of both land systems and vibroseis trucks. This decrease was also made more pronounced by the inclusion of several large 2007 sales of our land acquisition systems that were not duplicated in 2008, including the sale of 14 land acquisition systems to ONGC, the sale of our initial version of FireFly and significantly increased vibrator truck sales in 2007. Marine Imaging Systems’ net revenues increased $5.0 million to $182.7 million, compared to $177.7 million during the year ended December 31, 2007, principally due to stronger sales of our marine positioning products, including sales related to the full commercialization of our DigiFIN advanced streamer command and control system, the first two commercial sales of our DigiSTREAMER system and stronger sales of our marine seismic data acquisition products. We delivered to RXT the fifth VSO system in 2008; however, VSO system sales decreased compared to 2007 mainly due to the timing of the sales. Our Data Management Solutions’ net revenues decreased slightly by $0.5 million, to $37.2 million compared to $37.7 million in 2007. This change primarily reflects continued energy industry demand for marine seismic work, slightly offset by the impact of foreign currency exchange rates between the GBP and the U.S. Dollar in 2008.

     ION Solutions’ net revenues increased $86.4 million, to $259.1 million, or 50%, compared to $172.7 million in 2007. This increase was due to larger demand related to higher proprietary processing revenues, pre-funded multi-client seismic surveys primarily off the coasts of Alaska and South America and sales of off-the-shelf seismic data sales. Sales of our pre-funded multi-client seismic surveys and of off-the-shelf seismic data increased approximately 60% in 2008 compared to 2007.

     Gross Profit and Gross Profit Percentage. Gross profit of $207.7 million for the year ended December 31, 2008 increased $1.1 million compared to the prior year. Gross profit percentage for the twelve months ended December 31, 2008 was 31% compared to 29% in the prior year. The 2% improvement in our gross margin percentage was primarily due to the mix of business, including an increase in system sales as well as higher margin sales from our Data Management Solutions segment, including significantly increased sales of our Orca software. This increase was partially offset by slightly lower margins in our Land Imaging System division relating to inventory write downs directly related to the integration activities of ARAM into our current operating segment and in our ION Solutions segment due to the change in product mix with higher levels of proprietary processing sales. During 2008, we also wrote down the carrying values of certain of our mature analog land systems and related equipment inventory, resulting in a $10.1 million charge.

     Research, Development and Engineering. Research, development and engineering expense was $49.5 million, or 7.3% of net revenues, for the year ended December 31, 2008, a decrease of $0.5 million compared to $50.0 million, or 7.0% of net revenues, for the corresponding period last year. We expect to continue to incur research, development and engineering expenses in 2009 at a more conservative rate than in prior years, as we continue to invest in our next generation of seismic acquisition products and services.

     Marketing and Sales. Marketing and sales expense of $47.9 million, or 7.0% of net revenues, for the year ended December 31, 2008 increased $4.0 million compared to $43.9 million, or 6.2% of net revenues, for the corresponding period last year. The increase in our sales and marketing expenditures reflects the hiring of additional sales personnel, increased exhibit and convention costs and increased travel associated with our global marketing efforts. This increase was partially offset by a decrease in our corporate branding expenses in 2008, due to the higher expenses in 2007 associated with our name change that year.

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     General and Administrative. General and administrative expense of $70.8 million for the year ended December 31, 2008 increased $21.7 million compared to $49.1 million in the prior year. General and administrative expenses as a percentage of net revenues for the years ended December 31, 2008 and 2007 were 10.4% and 6.9%, respectively. The increase in expenditures was primarily due to increases in our bad debt reserves of $4.6 million, in our professional fees relating to our financing efforts of $5.7 million, in salaries and related expenses of $8.7 million due to the hiring of additional personnel and an increase in general office expenses related to our acquisition of ARAM. This increase was partially offset by a decrease in bonus expense due to the lower operating performance compared to 2007’s operating performance.

     Impairment of Goodwill and Intangible Assets. At December 31, 2008, we evaluated our reporting units for potential impairment. Based upon our evaluation and given the current market conditions, we determined that approximately $252.3 million of goodwill and intangible assets related to our Land Imaging Systems, ARAM Systems and ION Solutions reporting units were impaired. We recorded the expense as of December 31, 2008 and reduced the carrying amount of our goodwill and intangible assets.

     Income Tax Expense. Income tax expense for the year ended December 31, 2008 was $1.1 million compared to income tax expense of $12.8 million for the twelve months ended December 31, 2007. The decrease in tax expense during 2008 primarily relates to reduced consolidated income from operations and changes to the valuation allowance on U.S. deferred tax assets. This decrease was partially offset by deferred taxes on the utilization of acquired net operating losses. We continue to maintain a valuation allowance for a significant portion of our U.S. net deferred tax assets. Our effective tax rate for the year ended December 31, 2008 was (0.5%) as compared to 23.1% for the similar period during 2007. The decreased effective tax rate for 2008 relates primarily to the impairment of goodwill, which has no tax benefit, and a reduction in the valuation allowance on U.S. deferred tax assets offset by deferred tax expense related to the utilization of acquired net operating losses of $3.5 million. The 2007 and 2008 effective tax rates were lower than the statutory rate due to the goodwill impairment in 2008 and to the utilization of previously reserved U.S. deferred tax assets in both 2007 and 2008.

     Preferred Stock Dividends and Accretion. The preferred stock dividend relates to our Series D Preferred Stock that we issued in February 2005, December 2007 and February 2008. Quarterly dividends must be paid in cash. Dividends are paid at a rate equal to the greater of (i) 5% per annum or (ii) the three month LIBOR rate on the last day of the immediately preceding calendar quarter plus 2¹/2% per annum. All dividends paid to date on the Series D Preferred Stock have been paid in cash. The Series D Preferred Stock dividend rate was 6.55% at December 31, 2008.

     Adjustments from Preferred Stock Redemption and Conversion Features. Our results of operations for 2008 reflected additional credits to and charges against our earnings resulting from our outstanding Series D-1 Cumulative Convertible Preferred Stock (the “Series D-1 Preferred Stock”), Series D-2 Cumulative Convertible Preferred Stock (the “Series D-2 Preferred Stock”) and Series D-3 Cumulative Convertible Preferred Stock (the “Series D-3 Preferred Stock” and together with the Series D-1 Preferred Stock and the Series D-2 Preferred Stock, the “Series D Preferred Stock”).

     On November 28, 2008, we delivered a notice (the “Reset Notice”) to Fletcher International, Ltd. (“Fletcher”) of our election to reset the conversion prices on our outstanding shares of Series D Preferred Stock. See “— Liquidity and Capital Resources — Sources of Capital — Cumulative Convertible Preferred Stock.” Fletcher is the holder of all of the outstanding shares of our Series D Preferred Stock. By delivering the Reset Notice to Fletcher, we reset the conversion prices on all of our Series D Preferred Stock to $4.4517 per share, in accordance with the terms of our agreement with Fletcher dated as of February 15, 2005 (as amended, the “Fletcher Agreement”). Under the Fletcher Agreement, if a 20-day volume-weighted average trading price per share of our common stock fell below $4.4517 (the “Minimum Price”), we would be required to (i) thereafter pay all dividends on shares of Series D Preferred Stock only in cash and (ii) elect to either (a) satisfy future redemption obligations by distributing only cash (or a combination of cash and common stock), or (b) reset the conversion prices of all of outstanding shares of Series D Preferred Stock to the Minimum Price, in which event the Series D Preferred Stock holder would have no further rights to call for the redemption of those shares.

     We had originally classified the preferred stock outside of stockholders’ equity on the balance sheet below total liabilities. However, with the termination of the redemption rights, there are no other provisions that require cash redemption. Therefore, in the fourth quarter of 2008, we reclassified the preferred stock to stockholders’ equity.

     The redemption features of our outstanding Series D-2 Preferred Stock and Series D-3 Preferred Stock had been considered embedded derivatives that were required to be bifurcated and accounted for separately at their fair value during 2008. These features had been bifurcated as a separate line item in the liabilities section of our consolidated balance sheet. For each quarter during 2008, these redemption features had been re-measured at quarter-end at their fair value with any resulting gain or loss recognized below income from operations and reflected in earnings for the period. As a result of the election we made under the Reset Notice, Fletcher

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is no longer permitted to redeem any shares of our Series D Preferred Stock and the original value of the redemption features of $1.2 million was credited to and reflected in other income in the fourth quarter of 2008.

     Preferred Stock Beneficial Conversion Charge. As a result of the Reset Notice and the adjustment in November 2008 of the conversion prices for the Series D Preferred Stock to the Minimum Price of $4.4517 per share under the Fletcher Agreement, we recognized in the fourth quarter of 2008 a contingent beneficial conversion feature of the Series D Preferred Stock as a non-cash charge to earnings in the amount of $68.8 million. Under applicable financial accounting guidance, the adjustment of reducing the conversion price was deemed to be equivalent to value being transferred to the holder of the Series D Preferred Stock, with such holder thereby realizing enhanced economic value compared to the holders of other ION securities that did not hold a beneficial conversion feature. This feature was calculated at its intrinsic value at the original commitment date, and the amount of the charge was limited to the amount of proceeds allocated to the convertible instruments (i.e. the Series D Preferred Stock).

Liquidity and Capital Resources

Sources of Capital

     Our cash requirements include our working capital requirements, debt service payments, dividend payments on our preferred stock, data acquisitions and capital expenditures. In recent years, our primary sources of funds have been cash flow from operations, existing cash balances, equity issuances and our revolving credit facility (see “ — Revolving Line of Credit and Term Loan Facilities” below).

     At December 31, 2009, our outstanding credit facilities and debt consisted of:

• Our Amended Credit Facility, comprised of:

• An amended revolving line of credit sub-facility (including the additional $40.0 million of revolving credit indebtedness evidenced by the Convertible Notes); and

• A $125.0 million original principal amount term loan;

• A $20.0 million secured equipment financing term loan; and

• A $35.0 million Amended and Restated Subordinated Promissory Note.

     Revolving Line of Credit and Term Loan Facilities. In July 2008, we, ION Sàrl, and certain of our domestic and other foreign subsidiaries (as guarantors) entered into a $100 million amended and restated revolving credit facility under the terms of an amended credit agreement with our commercial bank lenders (this agreement, as it has been further amended, is referred to our “Amended Credit Agreement”). The revolving credit facility terminates on July 3, 2013. This amended and restated revolving credit facility provided us with additional flexibility for our international capital needs by not only permitting borrowings by one of our foreign subsidiaries under the facility but also providing us the ability to borrow in alternative currencies.

     On September 17, 2008, we added a new $125.0 million term loan sub-facility under the Amended Credit Agreement, and borrowed $125.0 million in term loan indebtedness and $72.0 million under the revolving credit sub-facility to fund a portion of the cash consideration for the ARAM acquisition.

     The interest rate on borrowings under our Amended Credit Facility is, at our option, (i) an alternate base rate (either the prime rate of HSBC Bank USA, N.A., or a federals funds effective rate plus 0.50%, plus an applicable interest margin) or (ii) for Eurodollar borrowings and borrowings in Euros, pounds sterling or Canadian dollars, a LIBOR-based rate, plus an applicable interest margin. The amount of the applicable interest margin is determined by reference to a leverage ratio of total funded debt to consolidated EBITDA for the four most recent trailing fiscal quarters. The interest rate margins currently range from 2.875% to 5.5% for alternate base rate borrowings, and from 3.875% to 6.5% for Eurodollar borrowings. As of December 31, 2009, both the $101.6 million in term loan indebtedness under the Amended Credit Facility and the $118.0 million in total revolving credit indebtedness under the Amended Credit Facility accrued interest at the then-applicable LIBOR-based interest rate of 6.7% per annum. The average effective interest rates for the quarter ended December 31, 2009 under the LIBOR-based rates for both the term loan indebtedness and the revolving credit indebtedness were 6.2%.

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     At March 31, 2009, we were in compliance with all of the financial covenants under the terms of the Amended Credit Facility. However, based upon our results for that quarter and our then-current operating forecast for the remainder of 2009, we determined that it was probable that, if we did not take any mitigating actions, we would not be in compliance for the period ending September 30, 2009 with one or more financial covenants under the Amended Credit Facility’s debt agreements. As a result, we approached the lenders under the Amended Credit Facility to obtain amendments to relax certain of these financial covenants and pursued the private placement of our common stock, which, along with our cash on hand, generated sufficient funds to repay the outstanding indebtedness under a bridge loan agreement that we had entered into with Jefferies Finance, LLC in December 2008. See further discussion of the private placement transaction below at “ — Private Placement of 18.5 Million Shares of Common Stock.”

     Fifth Amendment to Amended Credit Facility. In June 2009, we entered into an additional amendment (the “Fifth Amendment”) to our Amended Credit Facility that, among other things, modified certain of the financial and other covenants contained in the Amended Credit Facility and permitted us to repay our Jefferies bridge loan indebtedness. Principal modifications to the terms of the Amended Credit Agreement resulting from the Fifth Amendment included the following:

• An increase in applicable maximum interest rate margins in the event that our leverage ratio exceeds 2.25 to 1.0 — from 4.5% to up to 5.5% for alternate base rate loans, and from 5.5% to up to 6.5% for LIBOR-rate loans;

• A modified restricted payments covenant that permitted us to apply up to $6.0 million of our available cash on hand to prepay the indebtedness under the Jefferies bridge loan agreement;

• A new defined term, “Excess Cash Flow,” and a new requirement for us to apply 50% of our Excess Cash Flow, if any, calculated with respect to a just-completed fiscal year, to the prepayment of the term loan under the Amended Credit Agreement if our fixed charge coverage ratio or our leverage ratio for the just-completed fiscal year does not meet certain requirements; and

• An amendment to fix the maximum revolving credit facility (accordion feature) amount to which the Amended Credit Facility could be increased at $140.0 million.

     The Amended Credit Agreement contains covenants that restrict us, subject to certain exceptions, from:

• Incurring additional indebtedness (including capital lease obligations), granting or incurring additional liens on our properties, pledging shares of our subsidiaries, entering into certain merger or other similar transactions, entering into transactions with affiliates, making certain sales or other dispositions of assets, making certain investments, acquiring other businesses and entering into certain sale-leaseback transactions with respect to certain of our properties;

• Paying cash dividends on our common stock and repurchasing and acquiring shares of our common stock unless (i) there is no event of default under the Amended Credit Facility and (ii) the amount of cash used for cash dividends, repurchases and acquisitions does not, in the aggregate, exceed an amount equal to the excess of 30% of our domestic consolidated net income for our most recently completed fiscal year over $15.0 million.

     The Amended Credit Facility requires us to be in compliance with certain financial covenants, including requirements for us and our domestic subsidiaries to:

• maintain a minimum fixed charge coverage ratio (which must be not less than 1.10 to 1.0 for the fiscal quarter ended December 31, 2009; 1.15 to 1.0 for the fiscal quarter ending March 31, 2010; 1.25 to 1.0 for the fiscal quarter ending June 30, 2010; 1.35 to 1.0 for the fiscal quarter ending September 30, 2010; and 1.50 to 1.0 the fiscal quarter ending December 31, 2010 and thereafter);

• not exceed a maximum leverage ratio (3.00 to 1.0 for the fiscal quarters ended December 31, 2009; 2.75 to 1.0 for the fiscal quarter ending March 31, 2010 and June 30, 2010; 2.5 to 1.0 for the fiscal quarter ending September 30, 2010; and 2.25 to 1.0 the fiscal quarter ending December 31, 2010 and thereafter); and

• maintain a minimum tangible net worth of at least 80% of our tangible net worth as of September 18, 2008 (the date that we completed our acquisition of ARAM), plus 50% of our consolidated net income for each quarter thereafter, and 80% of the proceeds from any mandatorily convertible notes and preferred and common stock issuances for each quarter thereafter.

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     The term loan indebtedness we borrowed under the Amended Credit Facility is subject to scheduled quarterly amortization payments of $4.7 million per quarter until December 31, 2010. On that date, the quarterly principal amortization increases to $6.3 million per quarter until December 31, 2012, when the quarterly principal amortization amount increases to $9.4 million for each quarter until maturity on September 17, 2013. The term loan indebtedness matures on September 17, 2013, but the administrative agent under the Amended Credit Facility may accelerate the maturity date to a date that is six months prior to the maturity date of any additional debt financing that we may incur to refinance certain indebtedness incurred in connection with the ARAM acquisition, by giving us written notice of such acceleration between September 17, 2012 and October 17, 2012.

     The Amended Credit Facility contains customary event of default provisions (including an event of default upon any “change of control” event affecting us), the occurrence of which could lead to an acceleration of ION’s obligations under the Amended Credit Facility.

     Sixth Amendment to Amended Credit Facility. On October 23, 2009, we entered into a Sixth Amendment to the Amended and Restated Credit Agreement that, among other things, (i) increased the aggregate revolving commitment amount under the Amended Credit Facility from $100.0 million to $140.0 million, (ii) permitted Bank of China, New York Branch, to join the Amended Credit Facility, (iii) modified, or provided limited waivers of, certain of the financial and other covenants contained in the Amended Credit Facility (including waivers to the extent necessary to permit the issuance of the BGP Warrant) and (iv) permitted the principal amount of the new revolving credit loans from Bank of China (as evidenced by the Convertible Notes) to be convertible into shares of our common stock. We borrowed on October 27, 2009 an aggregate of $40.0 million in revolving credit indebtedness under the Amended Credit Facility (as amended by the Sixth Amendment), pursuant to the Convertible Notes. The Convertible Notes were issued by ION Geophysical Corporation and ION Sàrl to Bank of China under the terms and conditions of the Amended Credit Facility. The outstanding indebtedness under the Convertible Notes is currently scheduled to mature on the maturity date of the revolving credit indebtedness under the Amended Credit Facility, which is July 3, 2013.

     Under the terms of the Amended Credit Agreement, up to $84.0 million (or its equivalent in foreign currencies) is available for non-U.S. borrowings by ION Sàrl and up to $105.0 million is available for domestic borrowings in the U.S.; however, the total level of outstanding borrowings under the revolving credit facility cannot exceed $140.0 million. Revolving credit borrowings under the Amended Credit Facility are available to fund our working capital needs, to finance acquisitions, investments and share repurchases and for general corporate purposes. In addition, the Amended Credit Facility includes a $35.0 million sub-limit for the issuance of documentary and stand-by letters of credit, of which $1.2 million was outstanding at December 31, 2009. Borrowings under the Amended Credit Facility may be prepaid without penalty.

     As a result of our October 2009 bridge financing arrangements with Bank of China in connection with the Sixth Amendment, we believe that our liquidity will be sufficient to fund our operations for the first quarter of 2010. The execution of the Sixth Amendment, which included waivers of the financial covenants contained in the Amended Credit Facility for the fiscal quarters ending September 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010, should enable us to conduct our operations without defaulting under the Amended Credit Facility until the transactions with BGP are completed, which we currently believe will occur in March 2010. Without these waivers, we would not have been in compliance with certain of our financial covenants at September 30, 2009 or December 31, 2009.

     If the proposed transactions under the Term Sheet are not completed by March 31, 2010, then the current waivers, upon notice from the lenders after a designated period of time, would cease to be effective and we, at that time, would likely not be in compliance with certain of the financial covenants contained in the Amended Credit Facility, which could then result in an event of default. As the current waivers cover a period of less than twelve months from December 31, 2009, we have classified our long-term indebtedness under our revolving line of credit and term loan facility under the Amended Credit Facility as current at December 31, 2009. As a result of the cross-default provisions in our secured equipment financing and our amended and restated subordinated seller note, we have also classified these long-term obligations as current at December 31, 2009.

     Even though we believe the joint venture with BGP will be completed as planned, there are certain events outside of our control (such as our experiencing a material adverse event or condition that results in a material adverse effect on our business, its prospects or results of operations) that could cause the closing of the joint venture to be delayed, terminated or abandoned. In such event, we would need to seek to amend, or seek additional covenant waivers under, the Amended Credit Facility. Even though the lenders under the Amended Credit Facility have demonstrated their willingness to work with us in amending or providing sufficient waivers to our facility, there can be no assurance that we would be able to obtain any such waivers or amendments in the future. If we were unable to

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obtain such waivers or amendments from the lenders, we would likely seek to replace or pay off the Amended Credit Facility with new secured debt, unsecured debt or equity financing.

     Convertible Notes and Warrant. On October 27, 2009, we borrowed an aggregate of $40.0 million in the form of revolving credit bridge financing arranged by BGP from Bank of China, New York Branch, which was evidenced by the Convertible Notes. This borrowing was permitted by the terms of the Sixth Amendment to the Credit Facility, which increased the aggregate revolving commitment amount under the accordion feature provisions of the Amended Credit Facility from $100.0 million to $140.0 million and permitted Bank of China to join the Amended Credit Facility as a lender. As further described above, the total outstanding indebtedness under the Amended Credit Facility, which includes the Bank of China bridge loans, was $118.0 million, excluding the non-cash debt discount, at December 31, 2009.

     The Convertible Notes, issued in October 2009 in connection with the execution of the Term Sheet with BGP, provide that at the stated initial conversion price of $2.80 per share, the full $40.0 million principal amount under the Convertible Notes would be convertible into 14,285,714 shares of Common Stock. The Convertible Notes provide that the conversion price and the number of shares into which the notes may be converted are subject to adjustment under certain terms and conditions similar to those contained in the Warrant.

     As part of BGP arranging for the Bank of China to join our Amended Credit Facility, we granted to BGP the Warrant. The Warrant will be exercisable, in whole or in part, at any time and from time to time, subject to the conditions described below. The Warrant will initially entitle the holder thereof to purchase a number of shares of common stock equal to $40.0 million divided by the exercise price of $2.80 per share, subject to adjustment as described below. At the initial exercise price of $2.80 per share, at such time as the Warrant becomes exercisable, it would initially be fully exercisable for 14,285,714 shares of common stock.

     The Warrant will only become exercisable and the Convertible Notes will only become convertible upon receipt of certain governmental approvals. Any conversions of the Convertible Notes and prior exercises of the Warrant will reduce the dollar amount under the Warrant into which the exercise price may be divided to determine the number of shares that may be acquired upon exercise.

     The exercise price under the Warrant and conversion prices under the Convertible Notes will be subject to adjustment upon the occurrence of a “Triggering Event.” A “Triggering Event” will occur in the event that the joint venture transactions cannot be completed by March 31, 2010, solely as a result of the occurrence of a statement, order or other indication from any relevant governmental regulatory agency that (a) the transactions would not be approved, would be opposed, objected to or sanctioned or (b) the transactions or BGP’s business and operations would be required to be altered (or upon the earlier abandonment of such transactions due to any such statement, indication or order). In such event, the exercise price and conversion price per share will be adjusted (but not to an amount that exceeds $2.80 per share) to a price per share that is equal to 75% of the lowest trading price of our common stock over a ten-consecutive-trading-day period, beginning on and inclusive of the first trading day following the public announcement of any failure to complete such transactions (or the abandonment thereof), which failure of abandonment was the result of the Triggering Event. The exercise price of the Warrant and conversion prices of the Convertible notes are also subject to certain customary anti-dilution adjustment.

     The Warrant provides for certain cashless exercise rights that are exercisable by the holder of the Warrant in the event that certain governmental approvals from the People’s Republic of China permitting the exercise of the Warrant for cash are not obtained.

     At the same time as the closing of the joint venture transactions, all of the then-outstanding principal amounts under the Convertible Notes will be automatically converted into shares of common stock unless, at the option of the holder of the Warrant, the holder elects to exercise the Warrant in whole or in part, in lieu of the full conversion of such remaining principal amounts under the Convertible Notes.

     Assuming that no adjustments occur to the exercise or conversion prices of (or the number of shares to be issued under) the Warrant or the Convertible Notes prior to closing the joint venture transactions, the Term Sheet provides that at the closing of the transactions, BGP would purchase directly from us a number of shares of Common Stock at a purchase price of $2.80 per shares such that, when added to the total number of shares of Common Stock that may have been previously issued pursuant to conversion of the Convertible Notes and/or exercise of the Warrant, BGP (and its transferees and permitted assignees) would own, together, before giving effect to the issuance of those shares, approximately 19.99% of the issued and outstanding shares of our Common Stock (i.e. 23,789,536 shares).

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     See further discussion of the accounting impact of the Warrant at “— Critical Accounting Policies and Estimates — Fair Value of the Warrant.”

     Secured Equipment Financing. On June 29, 2009, we entered into a $20.0 million secured equipment financing transaction with ICON ION, LLC (“ICON”), an affiliate of ICON Capital Inc. Two master loan agreements were entered into with ICON in connection with this transaction: (i) we, ARAM Rentals Corporation, a Nova Scotia unlimited company (“ARC”), and ICON entered into a Canadian Master Loan and Security Agreement dated as of June 29, 2009 with regard to certain equipment leased to customers by ARC, and (ii) we, ARAM Seismic Rentals, Inc., a Texas corporation (“ASRI”), and ICON entered into a Master Loan and Security Agreement (U.S.) dated as of June 29, 2009 with regard to certain equipment leased to customers by ASRI (collectively, the “ICON Loan Agreements”). All borrowed indebtedness under the ICON Loan Agreements is scheduled to mature on July 31, 2014. We used the proceeds of the secured term loans for working capital and general corporate purposes.

     Under the terms of the ICON Loan Agreements, ICON advanced $12.5 million on June 29, 2009 and $7.5 million on July 20, 2009. The indebtedness under the ICON Loan Agreements is secured by first-priority liens in (a) certain of our ARAM seismic rental equipment located in the United States and Canada (subject to certain exceptions), and certain additional and replacement seismic equipment, (b) written leases or other agreements evidencing payment obligations relating to the leasing by ARC or ASRI of this equipment to their respective customers, including their related receivables, (c) the cash or cash equivalents held by such subsidiaries and (d) any proceeds thereof.

     The obligations of each of ARC and ASRI under the ICON Loan Agreements are guaranteed by us under a Guaranty dated as of June 29, 2009 (the “ICON Guaranty”). The ICON Loan Agreements and the ICON Guaranty constitute permitted indebtedness under the Amended Credit Facility.

     Under both ICON Loan Agreements, interest on the outstanding principal amount will accrue at a fixed interest rate of 15% per annum calculated monthly, and is payable monthly on the first day of each month. Principal and interest are payable, commencing on September 1, 2009, in 60 monthly installments until the maturity date, when all remaining outstanding principal and interest will be due and payable. Pursuant to the ICON Loan Agreements, in connection with the closing in June 2009, ARC and ASRI paid ICON a non-refundable upfront fee of $0.3 million. In addition, ICON will receive an administrative fee equal to 0.5% of the aggregate principal amount of advances under the ICON Loan Agreements, payable at the end of each of the first four years during their terms. Inclusive of these additional fees, the effective interest rate on the ICON loan was 16.3% as of December 31, 2009.

     Beginning on August 1, 2012, and continuing until January 31, 2014, we may prepay the outstanding principal balances of the loans in full by giving ICON 30 days’ prior written notice and paying a prepayment fee equal to 3.0% of the then-outstanding principal amount of the loans. Commencing on February 1, 2014, the loans may be prepaid in full without payment of any prepayment penalty or fee, subject to our giving ICON 30 days’ prior written notice.

     The ICON Loan Agreements contain certain cross-default provisions with respect to defaults under our Amended Credit Facility. Therefore, similar to the current classification of the Amended Credit Facility indebtedness, we have also classified this long-term indebtedness as current.

     Assuming that the BGP joint venture transaction is completed as planned, we anticipate that the primary obligation to repay the ICON indebtedness will be assumed by the joint venture, and the obligations under the Guaranty will be assumed by a joint venture entity, although it is also expected that we would remain secondarily liable on the Guaranty by backstopping the joint venture entity’s guaranty of the primary repayment obligations.

     Amended and Restated Subordinated Seller Note. As part of the purchase price for the ARAM acquisition, one of our subsidiaries issued an unsecured senior promissory note (the “Senior Seller Note”) in the original principal amount of $35.0 million to Maison Mazel Ltd., one of the selling shareholders of ARAM. On December 30, 2008, in connection with other acquisition refinancing transactions that were completed on that date, the Senior Seller Note was amended and restated pursuant to an Amended and Restated Subordinated Promissory Note (“the Amended and Restated Subordinated Note”) issued to Maison Mazel, the selling shareholder. The principal amount of the Amended and Restated Subordinated Note is $35.0 million and matures on September 17, 2013. We also entered into a guaranty dated December 30, 2008, whereby we guaranteed on a subordinated basis the subsidiary’s repayment obligations under the Amended and Restated Subordinated Note.

     Effective April 9, 2009, (i) the subsidiary transferred the Amended and Restated Subordinated Note to us and we assumed in full the obligations of ION Sub under such note, and (ii) our guaranty of payment of the indebtedness under the Amended and Restated

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Subordinated Note was terminated. The subsidiary was also released from its obligations under the Amended and Restated Promissory Note by Maison Mazel.

     Interest on the outstanding principal amount under the Amended and Restated Subordinated Note accrues at the rate of fifteen percent (15%) per annum, and is payable quarterly.

     The terms of the Amended and Restated Subordinated Note provide that the particular covenants contained in the Amended Credit Agreement (or in any successor agreement or instrument) that restricts our ability to incur additional indebtedness will be incorporated into the Amended and Restated Subordinated Note. However, under the Amended and Restated Subordinated Note, neither Maison Mazel nor any other holder of the Amended and Restated Subordinated Note will have a separate right to consent to or approve any amendment or waiver of the covenant as contained in the Amended Credit Facility.

     In addition, we have agreed that if we incur indebtedness under any financing that:

• qualifies as “Long Term Junior Financing” (as defined in the Amended Credit Agreement),

• results from a refinancing or replacement of the Amended Credit Facility such that the aggregate principal indebtedness (including revolving commitments) thereunder would be in excess of $275.0 million, or

• qualifies as unsecured indebtedness for borrowed money that is evidenced by notes or debentures, has a maturity date of at least five years after the date of its issuance and results in total gross cash proceeds to us of not less than $40.0 million,

then we will be obligated to repay in full from the total proceeds from such financing the then-outstanding principal of and interest on the Amended and Restated Subordinated Note.

     The indebtedness under the Amended and Restated Subordinated Note is subordinated to the prior payment in full of our “Senior Obligations,” which are defined in the Amended and Restated Subordinated Note as the principal, premium (if any), interest and other amounts that become due in connection with:

• our obligations under the Amended Credit Facility,

• our liabilities with respect to capital leases and obligations that qualify as a “Sale/Leaseback Agreement” (as that term is defined in the Amended Credit Agreement),

• guarantees of the indebtedness described above, and

• debentures, notes or other evidences of indebtedness issued in exchange for, or in the refinancing of, the Senior Obligations described above, or any indebtedness arising from the payment and satisfaction of any Senior Obligations by a guarantor.

     It is contemplated that at the closing of the joint venture transactions, we will obtain sources of financing sufficient to enable us to repay in full the indebtedness under the Amended and Restated Subordinated Note.

     The Amended and Restated Subordinated Seller Note contains certain cross-default provisions with respect to defaults and acceleration of indebtedness under our Amended Credit Facility. Therefore, similar to the current classification of the Amended Credit Facility, we have also classified this long-term indebtedness as current.

     Private Placement of 18.5 Million Shares of Common Stock. On June 4, 2009, we completed the offering and sale of 18,500,000 shares of our common stock in privately-negotiated transactions with several institutional investors. The purchase price per share of common stock sold was $2.20, representing total gross proceeds of approximately $40.7 million. The net proceeds from the offering of $38.2 million were applied, along with $2.6 million of our cash on hand, to repay in full the outstanding indebtedness under the Bridge Loan Agreement. In accordance with the terms of the stock purchase agreements, we filed with the SEC on June 11, 2009, a registration statement with respect to potential resales of the shares purchased by the investors, which was declared effective on June 19, 2009. The offering and sale by us of the shares of common stock in the private placement were not registered under the Securities Act of 1933, as amended, in reliance on an exemption from the registration requirements of that Act.

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     Cumulative Convertible Preferred Stock. During 2005, we entered into an Agreement dated February 15, 2005 with Fletcher (this Agreement, as amended to the date hereof, is referred to as the “Fletcher Agreement”) and issued to Fletcher 30,000 shares of our Series D-1 Preferred Stock in a privately-negotiated transaction, receiving $29.8 million in net proceeds. The Fletcher Agreement also provided to Fletcher an option to purchase up to an additional 40,000 shares of additional series of preferred stock from time to time, with each series having a conversion price that would be equal to 122% of an average daily volume-weighted market price of our common stock over a trailing period of days at the time of issuance of that series. In 2007 and 2008, Fletcher exercised this option and purchased 5,000 shares of Series D-2 Preferred Stock for $5.0 million (in December 2007) and the remaining 35,000 shares of Series D-3 Preferred Stock for $35.0 million (in February 2008). Fletcher remains the sole holder of all of our outstanding shares of Series D Preferred Stock. Dividends on the shares of Series D Preferred Stock must be paid in cash.

     Under the Fletcher Agreement, if a 20-day volume-weighted average trading price per share of our common stock fell below $4.4517 (the “Minimum Price”), we were required to deliver a notice (the “Reset Notice”) to Fletcher. On November 28, 2008, the 20-day volume-weighted average trading price per share of our common stock on the New York Stock Exchange for the previous 20 trading days was calculated to be $4.328, and we delivered the Reset Notice to Fletcher in accordance with the terms of the Fletcher Agreement. In the Reset Notice, we elected to reset the conversion prices for the Series D Preferred Stock to the Minimum Price ($4.4517 per share), and Fletcher’s redemption rights were terminated. The adjusted conversion price resulting from this election was effective on November 28, 2008.

     In addition, under the Fletcher Agreement, the aggregate number of shares of common stock issued or issuable to Fletcher upon conversion or redemption of, or as dividends paid on, the Series D Preferred Stock could not exceed a designated maximum number of shares (the “Maximum Number”), and such Maximum Number could be increased by Fletcher providing us with a 65-day notice of increase, but under no circumstance could the total number of shares of common stock issued or issuable to Fletcher with respect to the Series D Preferred Stock ever exceed 15,724,306 shares. The Fletcher Agreement had designated 7,669,434 shares as the original Maximum Number. On November 28, 2008, Fletcher purported to deliver a second notice to us to increase the Maximum Number to 9,669,434 shares, effective February 1, 2009. On September 15, 2009, Fletcher delivered a notice to us purporting to increase the Maximum Number from 9,669,434 shares to 11,669,434 shares, to become effective on November 19, 2009. We believe that our agreement with Fletcher gives Fletcher the right to issue only one notice to increase the Maximum Number. On November 6, 2009, we filed an action in the Court of Chancery of the State of Delaware seeking a declaration that, under the relevant agreement, Fletcher is permitted to deliver only one notice to increase the Maximum Number and that its purported second notice is legally invalid.

     The conversion prices and number of shares of common stock to be acquired upon conversion are also subject to customary anti-dilution adjustments. Converting the shares of Series D Preferred Stock at one time could result in significant dilution to our stockholders that could limit our ability to raise additional capital. Certain rights and obligations of Fletcher and our company pertaining to the Series D Preferred Stock are currently the subject of pending litigation in the Chancery Court of the State of Delaware. See Item 3. “Legal Proceedings” and Item 1A. “Risk Factors”.

Meeting our Liquidity Requirements

     As of December 31, 2009, our total outstanding indebtedness (including capital lease obligations) was approximately $277.4 million, net of a $8.7 million non-cash debt discount, consisting of approximately $101.6 million in borrowings under the term loans and $118.0 million, excluding the non-cash debt discount, in revolving credit indebtedness under the Amended Credit Facility, $19.1 million of borrowings under our new secured equipment financing and $35.0 million of outstanding subordinated indebtedness under the Amended and Restated Subordinated Note. The repayment in full in June 2009 of the $40.0 million bridge loan agreement indebtedness was significant because it represented at that time short-term indebtedness that was scheduled to mature in January 2010. Inclusive of the additional fees (and an upfront fee previously paid of 5.0%), the effective interest rate under the Bridge Loan Agreement was 25.3% at the time of repayment. Currently, under their terms, none of our principal debt facilities mature prior to 2013.

     We had disclosed in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 that, as a result of our entering into the Fifth Amendment, repaying the indebtedness outstanding under the Bridge Loan Agreement and entering into the secured equipment financing transaction in June 2009, we expected that we would remain in compliance with the financial covenants under the Amended Credit Facility and that our cash on hand and cash generated from our operations would be sufficient to fund our operations for the remainder of 2009. However, lower-than-expected sales revenues realized during the third quarter of 2009 resulted in a high likelihood that, as of September 30, 2009, we would not be in compliance with certain of such financial covenants. As a result, we entered into the Sixth Amendment of our Amended Credit Facility, which, among other things, included waivers of the financial covenants contained in the Amended Credit Facility for the fiscal quarters ending September 30, 2009, December 31, 2009,

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March 31, 2010 and June 30, 2010. These waivers should enable us to conduct our operations without defaulting under the Amended Credit Facility until the transactions with BGP are completed, which we currently believe will occur in March 2010. Without these waivers, we would not have been in compliance with certain of our financial covenants at September 30, 2009 or December 31, 2009.

     As a result of obtaining the $40.0 million of additional revolving credit indebtedness under the Convertible Notes in October 2009 and entering into the Sixth Amendment, we believe that our liquidity will be sufficient to fund our operations until such time as the transactions with BGP are completed or alternate financing could be obtained.

     If the proposed transactions under the Term Sheet with BGP are not completed by March 31, 2010, then the current waivers, upon notice from the lenders after a designated period of time, would cease to be effective and we at that time would likely not be in compliance with certain of the financial covenants contained in the Amended Credit Facility, which could then result in an event of default. As the current waivers cover a period of less than twelve months from December 31, 2009, we have classified our long-term indebtedness under our revolving line of credit and term loan facility under the Amended Credit Facility as current at December 31, 2009. As a result of the cross-default provisions in our secured equipment financing and our amended and restated subordinated seller note, we have also classified these long-term obligations as current at December 31, 2009.

     Even though we believe the joint venture with BGP will be completed as planned, there are certain events outside of the our control (such as us experiencing a material adverse event or condition that results in a material adverse effect on our business, our prospects or results of operations) that could cause the closing of the joint venture to be delayed, terminated or abandoned. In such event, we would need to seek to amend, or seek additional covenant waivers under, the Amended Credit Facility. Even though the lenders under the Amended Credit Facility have demonstrated their willingness to work with us in amending or providing sufficient waivers to its facility, there can be no assurance that we would be able to obtain any such waivers or amendments in the future. If we were to be unable to obtain such waivers or amendments from the lenders, we would likely seek to replace or pay off the Amended Credit Facility with new secured debt, unsecured debt or equity financing.

     As part of the formation of the joint venture, we have been in discussions with various financial institutions (both domestic and international) on the refinancing of our debt. As a result of these discussions and with the recent improvements within the financial markets, we believe that in the unlikely event the joint venture is not completed as planned, we would be able to obtain additional debt or equity financings prior to defaulting on our current debt obligations. However, there also can be no assurance that such debt or equity financing would be available on terms acceptable to us or at all.

     For the year ended December 31, 2009, total capital expenditures, including investments in our multi-client data library, were $92.6 million, and we are projecting capital expenditures for the year 2010 to be between $100 million to $110 million. If there continues to be weak demand for our products and services, we would expect continued reduced levels of capital expenditures, which may, in turn, lessen our requirements for working capital. Of the total projected 2010 capital expenditures, we are estimating that approximately $90 million to $100 million will be spent on investments in our multi-client data library, but we are anticipating that most of these investments will be underwritten by our customers. To the extent our customers’ commitments do not reach an acceptable level of pre-funding, the amount of our anticipated investment in these data libraries could be significantly less.

Cash Flow from Operations

     We have historically financed our operations from internally generated cash and funds from equity and debt financings. Cash and cash equivalents were $16.2 million at December 31, 2009, a decrease of $19.0 million compared to December 31, 2008. Net cash provided by operating activities was $52.0 million for the year ended December 31, 2009, compared to $111.7 million for the year ended December 31, 2008. The decrease in net cash provided in our operating activities was primarily due to decreased accrued liabilities and accounts payable. This decrease was partially offset by a decrease in our inventories, a decrease in accounts receivable resulting from lower sales levels and increased collections on our receivables and a decrease in our unbilled receivables due to lower sales levels and the timing of the invoicing of those sales. We are continuing to adjust our manufacturing and purchasing plans in order to focus on continuing to make sales from the remaining inventory and thereby further reduce current levels of inventory.

     Cash and cash equivalents were $35.2 million at December 31, 2008, a decrease of $1.2 million compared to December 31, 2007. Net cash provided by operating activities was $111.7 million for the year ended December 31, 2008, compared to $93.8 million for the year ended December 31, 2007. The increase in net cash provided in our operating activities was primarily due to increased accrued liabilities and accounts payable as well as decreased accounts receivable resulting from increased collections in 2008. This increase was partially offset by increased investment in our inventories. We have adjusted our manufacturing and purchasing plans in order that we can focus on making sales from this inventory in order to reduce our current levels of inventory.

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Cash Flow from Investing Activities

     Net cash flow used in investing activities was $91.6 million for the year ended December 31, 2009, compared to $354.6 million for the year ended December 31, 2008. The principal uses of our cash for investing activities during the year ended December 31, 2009 were a $89.6 million investment in our multi-client data library and $3.0 million of equipment and rental equipment purchases.

     Net cash flow used in investing activities was $354.6 million for the year ended December 31, 2008, compared to $76.0 million for the year ended December 31, 2007. The principal uses of our cash for investing activities during the year ended December 31, 2008 were $242.8 million expended to acquire ARAM in September 2008, $17.5 million of equipment and rental equipment purchases and a $110.4 million investment in our multi-client data library. This was partially offset by $10.7 million of cash we acquired in the ARAM acquisition and proceeds from the sale of assets and rental assets of $5.4 million.

Cash Flow from Financing Activities

     Net cash flow provided by financing activities was $19.7 million for the year ended December 31, 2009, compared to $244.3 million for the year ended December 31, 2008. The net cash flow provided by financing activities during 2009 primarily consisted of $52.0 million in net borrowings under our revolving credit facility, net proceeds from the ICON secured rental equipment financing transaction of $19.2 million, and the net proceeds of $38.2 million from a private placement of our common stock in June 2009. This cash inflow was partially offset by scheduled principal payments on our term loan under our Amended Credit Facility, the prepayment of the principal balance on the Jefferies bridge loan indebtedness and payments under our other notes payable and capital lease obligations all totaling $81.5 million. Additionally, we paid $3.5 million in cash dividends on our outstanding Series D-1, Series D-2 and Series D-3 Preferred Stock and $4.6 million in financing costs related to our debt transactions and amendments to our debt facilities during the twelve months ended December 31, 2009.

     Net cash flow provided by financing activities was $244.3 million for the year ended December 31, 2008, compared to $0.8 million for the year ended December 31, 2007. The net cash flow provided by financing activities during 2008 was primarily related to $160.3 million of net proceeds from acquisition debt we borrowed to purchase ARAM, $66.0 million of net borrowings on our revolving credit facility, $35.0 million in proceeds from the issuance and sale of our Series D-3 Preferred Stock in February 2008 and $6.3 million in proceeds related to the exercise of stock options and stock purchases by our employees under our employee plans. This cash inflow was partially offset by scheduled principal payments of $18.1 million on our notes payable and capital lease obligations and $3.9 million in cash dividends paid on our outstanding Series D-1, Series D-2 and Series D-3 Preferred Stock.

Inflation and Seasonality

     Inflation in recent years has not had a material effect on our costs of goods or labor, or the prices for our products or services. Traditionally, our business has been seasonal, with strongest demand in the fourth quarter of our fiscal year. The fourth quarter of 2009 was not as strong as seen historically because the typical discretionary spending that normally occurs during the fourth quarter was not realized.

Future Contractual Obligations

     The following table was compiled based upon the current presentation of our debt in our balance sheet and not on the original terms and maturity dates of the respective debt instruments. The table below also does not include the non-cash debt discount of $8.7 million but instead lists the contractual principal amounts since those amounts will be the principal paid at the termination of the contractual obligations. The following table sets forth estimates of future payments of our consolidated contractual obligations, as of December 31, 2009 (in thousands):

Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
Notes payable and long-term debt	$	279,562	$	275,905	$	1,324	$	1,798	$	535
Interest on notes payable and long-term debt obligations		16,628		15,544		713		353		18
Equipment capital lease obligations		6,475		3,884		2,591		—		—
Operating leases		46,330		12,603		18,469		8,018		7,240
Product warranty		5,088		5,088		—		—		—
Purchase obligations		21,430		21,430		—		—		—
Total	$	375,513	$	334,454	$	23,097	$	10,169	$	7,793

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     The long-term debt and lease obligations at December 31, 2009 included $118.0 million, excluding the $8.7 million non-cash debt discount, of revolving credit indebtedness and $101.6 million under our five-year term loan, in each case incurred under our Amended Credit Facility and maturing in 2013. The remaining amount of these obligations consists of $35.0 million under our Amended and Restated Subordinated Note, $19.1 million under the ICON Loan Agreements, $4.2 million indebtedness related to our Stafford, Texas facility sale-leaseback arrangement and $1.7 million of short-term notes payable. The $6.5 million of capital lease obligations relates to ARAM and GXT’s financing of computer and other equipment purchases. The interest on notes payable and long-term debt obligations in the table above are calculated based upon the current presentation of our debt in our balance sheet and not on the original terms and maturity dates of the respective debt instruments. Using the original terms and maturity dates, the interest expense would be $24.8 million for 1-3 years and $8.1 million for 3-5 years. See “— Revolving Line of Credit and Term Loan Facilities” above and Note 12 “Notes Payable, Long-term Debt and Lease Obligations.”

     Because we may prepay our outstanding revolving credit indebtedness under the Amended Credit Facility at any time, the interest expense is not included in the above table. However, if the outstanding principal of $118.0 million as of December 31, 2009 was not repaid in 2010, the interest expense would be $8.0 million using the interest rate as of December 31, 2009. For further discussion of our notes payable, long-term debt and capital lease obligations, see Note 12 “Notes Payable, Long-term Debt and Lease Obligations.”

     The non-cash liability associated with fair value of the Warrant of $44.8 million at December 31, 2009 was not reflected in the above table as its settlement upon exercise is only through issuance of our common shares and does not provide for cash settlement. See further discussion of the accounting impact of the Warrant at “— Critical Accounting Policies and Estimates — Fair Value of the Warrant.”

     The operating lease commitments at December 31, 2009 relate to our leases for certain equipment, offices, processing centers, and warehouse space under non-cancelable operating leases.

     The liability for product warranties at December 31, 2009 relate to the estimated future warranty expenditures associated with our products. Our warranty periods generally range from 30 days to three years from the date of original purchase, depending on the product. We record an accrual for product warranties and other contingencies at the time of sale, which is when the estimated future expenditures associated with those contingencies become probable and the amounts can be reasonably estimated. We generally receive warranty support from our suppliers regarding equipment they manufactured. Our purchase obligations primarily relate to our committed inventory purchase orders for which deliveries are scheduled to be made in 2010.

     Dividends on our Series D Preferred Stock are payable quarterly and must be paid in cash. In 2009, we paid $3.5 million in dividends on our Series D Preferred Stock. The dividend rate was 5.0% at December 31, 2009. See “— Liquidity and Capital Resources” above.

     Upon the completion of the joint venture transactions, the ICON Loan Agreements and all outstanding amounts owed under the agreements will be assumed by the joint venture. In addition, we intend to repay the $35.0 million under our Amended and Restated Subordinated Note and the $118.0 million of revolving credit indebtedness from the proceeds of the joint venture transaction. Additionally, as of December 31, 2009, approximately $16.9 million of operating leases, product warranty and purchase obligations related to businesses that will be assumed by the joint venture upon its closing.

Critical Accounting Policies and Estimates

     The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make choices between acceptable methods of accounting and to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. The following accounting policies are based on, among other things, judgments and assumptions made by management that include inherent risk and uncertainties. Management’s estimates are based on the relevant information available at the end of each period. We believe that all of the judgments and estimates used to prepare our financial statements were reasonable at the time we made them, but circumstances may change requiring us to revise our estimates in ways that could be materially adverse to our results of operations and financial condition. Management has discussed these critical accounting estimates with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our disclosures relating to the estimates in this Management’s Discussion and Analysis.

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•	Revenue Recognition and Product Warranty. We derive revenue from the sale and rental of (i) acquisition systems and other seismic equipment within our Land Imaging Systems and Marine Imaging Systems segments; (ii) imaging services, multi-client surveys and licenses of “off-the-shelf” data libraries within our ION Solutions segment; and (iii) navigation, survey and quality control software systems within our Data Management Solutions segment.
	For the sales of acquisition systems and other seismic equipment, we follow the requirements of ASC 605-10 “Revenue Recognition” and recognize revenue when (a) evidence of an arrangement exists; (b) the price to the customer is fixed and determinable; (c) collectibility is reasonably assured; and (d) the acquisition system or other seismic equipment is delivered to the customer and risk of ownership has passed to the customer, or, in the limited case where a substantive customer-specified acceptance clause exists in the contract, the later of delivery or when the customer-specified acceptance is obtained.
	Our Land Imaging Systems segment receives rental income from the rental of seismic equipment. The rental is in the form of operating leases as the lease terms range from a couple of days to several months. Rental revenue is recognized on a straight line basis over the term of the operating lease.
	Revenues from all imaging and other services are recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Revenues from contract services performed on a day-rate basis are recognized as the service is performed.
	Revenues from multi-client surveys are recognized as the seismic data is acquired and/or processed on a proportionate basis as work is performed. Under this method, we recognize revenues based upon quantifiable measures of progress, such as kilometers acquired or days processed. Upon completion of a multi-client seismic survey, the survey data is considered “off-the-shelf” and licenses to the survey data are sold to customers on a non-exclusive basis. The license of a completed multi-client survey is represented by the license of one standard set of data. Revenues on licenses of completed multi-client data surveys are recognized when (a) a signed final master geophysical data license agreement and accompanying supplemental license agreement are returned by the customer; (b) the purchase price for the license is fixed or determinable; (c) delivery or performance has occurred; and (d) no significant uncertainty exists as to the customer’s obligation, willingness or ability to pay. In limited situations, we have provided the customer with a right to exchange seismic data for another specific seismic data set. In these limited situations, we recognize revenue at the earlier of the customer exercising its exchange right or the expiration of the customer’s exchange right.
	When separate elements (such as an acquisition system, other seismic equipment and/or imaging services) are contained in a single sales arrangement, or in related arrangements with the same customer, we follow the requirements of ASC 605-25 “Accounting for Multiple-Element Revenue Arrangement,” and allocate revenue to each element based upon its vendor-specific objective evidence of fair value, so long as each such element meets the criteria for treatment as a separate unit of accounting. We limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services. We generally do not grant return or refund privileges to our customers. When undelivered elements, such as training courses and engineering services, are inconsequential or perfunctory and not essential to the functionality of the delivered elements, we recognize revenue on the total contract and make a provision for the costs of the incomplete elements.
	For the sales of navigation, survey and quality control software systems, we follow the requirements for these transactions of ASC 985-605 “Software Revenue Recognition,” because in those systems the software is more than incidental to the arrangement as a whole. Following the requirements of ASC 985-605 “Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software,” we consider the hardware within these systems to be a software-related item because the software is essential to the hardware’s functionality. As a result, we recognize revenue from sales of navigation, survey and quality control software systems when (a) evidence of an arrangement exists; (b) the price to the customer is fixed and determinable; (c) collectibility is reasonably assured; and (d) the software and software-related hardware is delivered to the customer and risk of ownership has passed to the customer, or, in the limited case where a substantive customer-specified acceptance clause exists in the contract, the later of delivery or when the customer-specified acceptance is obtained. These arrangements generally include us providing related services, such as training courses, engineering services and annual software maintenance. We allocate revenue to each element of the arrangement based upon vendor-specific objective evidence of fair value of the element or, if vendor-specific objective evidence is not available for the delivered element, we apply the residual method.
	In addition to perpetual software licenses, we offer certain time-based software licenses. For these time-based licenses, we recognize revenue ratably over the contract term, which is generally two to five years.

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We generally warrant that our manufactured equipment will be free from defects in workmanship, material and parts. Warranty periods generally range from 30 days to three years from the date of original purchase, depending on the product. We provide for estimated warranty as a charge to costs of sales at the time of sale.

•	Multi-Client Data Library. Our multi-client data library consists of seismic surveys that are offered for licensing to customers on a non-exclusive basis. The capitalized costs include the costs paid to third parties for the acquisition of data and related activities associated with the data creation activity and direct internal processing costs, such as salaries, benefits, computer-related expenses, and other costs incurred for seismic data project design and management. For the years ended December 31, 2009, 2008 and 2007, we capitalized, as part of our multi-client data library $3.8 million, $5.4 million, and $4.3 million, respectively, of direct internal processing costs.
	Our method of amortizing the costs of a multi-client data library available for commercial sale is the greater of (i) the percentage of actual revenue to the total estimated revenue multiplied by the total cost of the project (the sales forecast method) or (ii) the straight-line basis over a four-year period. The sales forecast method is our primary method of calculating amortization. The total amortization period of four years represents the minimum period over which benefits from these surveys are expected to be derived. We have determined the amortization period of four years based upon our historical experience that indicates that the majority of our revenues from multi-client surveys are derived during the acquisition and processing phases and during four years subsequent to survey completion.
	Estimated sales are determined based upon discussions with our customers, our experience, and our knowledge of industry trends. Changes in sales estimates may have the effect of changing the percentage relationship of cost of services to revenue. In applying the sales forecast method, an increase in the projected sales of a survey will result in lower cost of services as a percentage of revenue, and higher earnings when revenue associated with that particular survey is recognized, while a decrease in projected sales will have the opposite effect. Assuming that the overall volume of sales mix of surveys generating revenue in the period was held constant in 2009, an increase in 10% in the sales forecasts of all surveys would have decreased our amortization expense by approximately $3.2 million.
	We estimate the ultimate revenue expected to be derived from a particular seismic data survey over its estimated useful economic life to determine the costs to amortize, if greater than straight-line amortization. That estimate is made by us at the project’s initiation. For a completed multi-client survey, we review the estimate quarterly. If during any such review, we determine that the ultimate revenue for a survey is expected to be more or less than the original estimate of total revenue for such survey, we decrease or increase (as the case may be) the amortization rate attributable to the future revenue from such survey. In addition, in connection with such reviews, we evaluate the recoverability of the multi-client data library, and if required under ASC 360 “Accounting for the Impairment and Disposal of Long-Lived Assets,” record an impairment charge with respect to such data. There were no impairment charges during 2009 and 2008.

• Fair Value of the Warrant. We issued the Warrant to BGP as part of our proposed joint venture with them, which included BGP arranging for the Bank of China to join as a new lender to our Amended Credit Facility. The Warrant is required to be accounted for at its fair value with changes in its fair value being recognized below income from operations in the period of change. The fair value of the Warrant was determined using a Black-Scholes model that the value of the features based upon certain key inputs. The key input for the Black-Scholes model is the current market price of our common stock, the yield on our common stock dividend payments (0%), risk-free interest rates, the expected term (March 31, 2010) and our stock’s historical and implied volatility. The most significant inputs are the current market price of our common stock. Holding all other inputs constant, a 10% increase or decrease in our common stock price would result in an increase or decrease in the fair value of the warrant liability of $8.4 million and ($8.3 million), respectively.

• Reserve for Excess and Obsolete Inventories. Our reserve for excess and obsolete inventories is based on historical sales trends and various other assumptions and judgments, including future demand for our inventory and the timing of market acceptance of our new products. Should these assumptions and judgments not be realized for reasons such as delayed market acceptance of our new products, our valuation allowance would be adjusted to reflect actual results. Our industry is subject to technological change and new product development that could result in obsolete inventory. Our valuation reserve for inventory at December 31, 2009 was $30.6 million compared to $24.1 million at December 31, 2008. The majority of the increase in our reserves for excess and obsolete inventory in 2009 related to our Marine Imaging Systems mature acquisition systems and source products. The increase in our reserves for excess and obsolete inventories in 2008 primarily related to our analog land acquisition systems. As a result of the integration of ARAM into our Land Imaging Systems segment, at the end of 2008, we evaluated and determined that market values of certain of our mature analog products were lower than their then-current book values.

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•	Goodwill and Other Intangible Assets. For purposes of performing the impairment test for goodwill as required by ASC 350, we established the following reporting units: Land Imaging Systems (includes ARAM), Sensor Geophone, Marine Imaging Systems, Data Management Solutions, and ION Solutions. To determine the fair value of our reporting units, we use a discounted future returns valuation method. If we had established different reporting units or utilized different valuation methodologies, our impairment test results could differ.
	ASC 350 requires us to compare the fair value of our reporting units to their carrying amount on an annual basis to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting units is less than its carrying value.
	We completed our annual goodwill impairment testing as of December 31, 2008 and determined that all of the goodwill within our Land Imaging Systems (including ARAM) and ION Solutions reporting units were impaired. As a result, we recorded a goodwill impairment charge of $242.2 million. The decrease in these reporting units’ fair value was primarily driven by the overall economic and financial crisis and the decrease in the current demand for our land analog acquisition products, especially within North America and Russia.
	We completed our annual goodwill impairment testing as of December 31, 2009 and determined that no goodwill was impaired. Our remaining goodwill as of December 31, 2009 was comprised of $27.0 million in our Marine Imaging Systems and $25.1 million in our Data Management Solutions reporting units. Our 2009 annual impairment test indicated that the fair value of these two reporting units significantly exceeded their carrying values by over 50% for each business unit. The analyses are based upon the operating forecasts approved annually by the Board of Directors, which include assumptions about market and economic conditions. However, if our estimates or related projections associated with the reporting units significantly change in the future, we may be required to record further impairment charges. If the operational results of our segments are lower than forecasted or the economic conditions are worse than expected, then the fair value of our segments will be adversely affected.
	Our intangible assets other than goodwill relate to proprietary technology, patents, customer relationships, trade names and non-compete agreements that are amortized over the estimated periods of benefit (ranging from 4 to 20 years). Following the guidance of ASC 360, we review the carrying values of these intangible assets for impairment if events or changes in the facts and circumstances indicate that their carrying value may not be recoverable. Any impairment determined is recorded in the current period and is measured by comparing the fair value of the related asset to its carrying value. For the years ended December 31, 2009 and 2008, we determined that certain of the intangible assets (customer relationships, trade names and non-compete agreements) associated with our ARAM acquisition were impaired and recorded impairment charges of $38.0 million and $10.1 million, respectively.
	Similar to our treatment of goodwill, in making these assessments we rely on a number of factors including operating results, business plans, internal and external economic projections, anticipated future cash flows and external market data. However, if our estimates or related projections associated with the reporting units significantly change in the future, we may be required to record further impairment charges.
•	Accounts and Notes Receivable Collectibility. We consider current information and circumstances regarding our customers’ ability to repay their obligations, such as the length of time the receivable balance is outstanding, the customers’ credit worthiness and historical experience, and consider an account or note impaired when it is probable that we will be unable to collect all amounts due. When we consider a note receivable as impaired, we measure the amount of the impairment based on the present value of expected future cash flows or the fair value of collateral. We include impairment losses (recoveries) in our allowance for doubtful accounts and notes through an increase (decrease) in bad debt expense.
	We record interest income on investments in notes receivable on the accrual basis of accounting. We do not accrue interest on impaired loans where collection of interest according to the contractual terms is considered doubtful. Among the factors we consider in making an evaluation of the collectibility of interest are: (i) the status of the loan; (ii) the fair value of the underlying collateral; (iii) the financial condition of the borrower; and (iv) anticipated future events.
•	Stock-Based Compensation. We account for stock based compensation under the recognition provisions of ASC 718 “Share-Based Payment.” We estimate the value of stock option awards on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited

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to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate, and expected dividends.

The accompanying financial statements for the twelve months ended December 31, 2009 include approximately $3.3 million of stock-based compensation expense related to 2008, 2007 and 2006. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The prior-period stock-based compensation expense relates to adjustments between estimated and actual forfeitures which should have been recognized over the vesting period of such awards. Such amounts were not deemed material with respect to either the results of prior years or the results and the trend of earnings for the current year and were therefore recorded in 2009.

In 2009, 2008 and 2007, we recognized $12.7 million, $8.3 million and $6.9 million, respectively, of stock-based compensation expense related to our employees’ outstanding stock-based awards. The total expense in 2009 was comprised of $1.2 million reflected in cost of sales, $0.8 million in research and development expense, $1.5 million in marketing and sales expense, and $9.2 million (including the $3.3 million stock-based compensation charge described above) in general and administrative expense. In addition to the share-based compensation expense related to the Company’s plans, we recorded $0.8 million of share-based compensation expense in 2009 related to employee stock appreciation rights. Pursuant to ASC 718, the stock appreciation rights are considered liability awards and, as such, these amounts are accrued in the liability section of the balance sheet.

Recent Accounting Pronouncements

     In October 2009, the Financial Accounts Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2009-13 on ASC 605, “Revenue Recognition— Multiple Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). ASU 2009-13 amended guidance related to multiple-element arrangements which requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. The consensus eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances. All entities must adopt the guidance no later than the beginning of their first fiscal year beginning on or after June 15, 2010. Entities may elect to adopt the guidance through either prospective application for revenue arrangements entered into, or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented. We are currently evaluating the impact, if any, of ASU 2009-13 on our financial position and results of operations.

     In October 2009, the FASB issued ASU No. 2009-14 on ASC 985, “Certain Revenue Arrangements That Include Software Elements” (ASU 2009-14). ASU 2009-14 amended guidance that is expected to significantly affect how entities account for revenue arrangements that contain both hardware and software elements. As a result, many tangible products that rely on software will be accounted for under the revised multiple-element arrangements revenue recognition guidance, rather than the software revenue recognition guidance. The revised guidance must be adopted by all entities no later than fiscal years beginning on or after June 15, 2010. An entity must select the same transition method and same period for the adoption of both this guidance and the revisions to the multiple-element arrangements guidance noted above. We are currently evaluating the impact, if any, of ASU 2009-14 on our financial position and results of operations.

     In August 2009, the FASB issued ASU 2009-05, “Fair Value Measurements and Disclosures, Measuring Liabilities at Fair Value (Topic 820)” (ASU 2009-05). ASU 2009-05 provides additional clarification on valid valuation techniques using acquired prices in active markets for identical liabilities. The provisions for ASU 2009-05 were effective for interim period ending after August 2009. The adoption of ASU 2009-05 did not have a material impact to the company’s financial position, results of operations or cash flows.

     In June 2009, the FASB issued ASC 105-10, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“ASC 105-10”). ASC 105-10 is the single, official source of authoritative, nongovernmental GAAP, other than guidance issued by the SEC and is effective for interim or annual financial periods ending after September 15, 2009. We adopted this statement on September 15, 2009 and have updated all existing GAAP references to the new codification.

     In April 2009, the FASB issued ASC 825-10-65-1, “Interim Disclosures about Fair Value of Financial Instruments” (ASC 825-10-65-1). ASC 825-10-65-1 provides additional clarification on interim disclosures and require public companies to disclose the fair value of financial instruments whenever companies publish interim financial summary information. The provisions for ASC 825-10-65-1 were effective for interim periods ending after June 15, 2009 with earlier adoption permitted. We adopted ASC 825-10-65-1 on the effective date. The adoption of ASC 825-10-65-1 did not have a material impact to our financial position, results of operation or cash flows.

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     In April 2009, the FASB issued ASC 320-10, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” (ASC 320-10). ASC 320-10 provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. This issuance changes (i) the method for determining whether an other-than-temporary impairment exists for debt securities and for cost method investments; and (ii) the amount of an impairment charge to be recorded in earnings. ASC 320-10 was effective for interim and annual periods ending after June 15, 2009. The Company has determined that it is not practicable to estimate the fair value of its cost method investments, as quoted market prices are not available. During 2009, the Company’s investment in Colibrys Ltd. was determined to be impaired and was subsequently written off. The aggregate carrying amount of cost method investments was $0.5 million at December 31, 2009, and was included within Other Assets. The adoption of ASC 320-10 did not have a material impact to our financial position, results of operation or cash flows.

     In September 2008, the FASB issued ASC 260-10, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (ASC 260-10), which was effective for fiscal years beginning after December 15, 2008. ASC 260-10 would require unvested share-based payment awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be included in the computation of basic earnings per share according to the two-class method. The adoption of ASC 260-10 did not have a material impact on our earnings per share computation.

Credit and Sales Risks

     No single customer represented 10% or more of our consolidated net revenues for the years ended December 31, 2009, 2008 and 2007; however, our top five customers in total represented approximately 29%, 30% and 31%, respectively of our consolidated net revenues. The loss of any significant customers or deterioration in our relationship with either customer could have a material adverse effect on our results of operations and financial condition.

     For the twelve months ended December 31, 2009, we recognized $92.8 million of sales to customers in Europe, $67.2 million of sales to customers in Asia Pacific, $25.4 million of sales to customers in Africa, $42.4 million of sales to customers in the Middle East, $34.3 million of sales to customers in Latin American countries, and $4.7 million of sales to customers in the Commonwealth of Independent States, or former Soviet Union (CIS). The majority of our foreign sales are denominated in U.S. dollars. For the years ended December 31, 2009 and 2008, international sales comprised 64% and 60%, respectively, of total net revenues. In recent years, the CIS and certain Latin American countries have experienced economic problems and uncertainties. However, given the recent market downturn, more countries and areas of the world have also begun to experience economic problems and uncertainties. To the extent that world events or economic conditions negatively affect our future sales to customers in these and other regions of the world or the collectibility of our existing receivables, our future results of operations, liquidity, and financial condition may be adversely affected. We currently require customers in these higher risk countries to provide their own financing and in some cases assist the customer in organizing international financing and Export-Import credit guarantees provided by the United States government. We do not currently extend long-term credit through notes to companies in countries we consider to be inappropriate for credit risk purposes.

Certain Relationships and Related Party Transactions

     James M. Lapeyre, Jr. is chairman of our board of directors. He is also the chairman and a significant equity owner of Laitram, L.L.C. (Laitram) and has served as president of Laitram and its predecessors since 1989. Laitram is a privately-owned, New Orleans-based manufacturer of food processing equipment and modular conveyor belts. Mr. Lapeyre and Laitram together owned approximately 8.1% of our outstanding common stock as of February 22, 2010.

     We acquired DigiCourse, Inc., our marine positioning products business, from Laitram in 1998 and have renamed it I/O Marine Systems, Inc. In connection with that acquisition, we entered into a Continued Services Agreement with Laitram under which Laitram agreed to provide us certain accounting, software, manufacturing, and maintenance services. Manufacturing services consist primarily of machining of parts for our marine positioning systems. The term of this agreement expired in September 2001 but we continue to operate under its terms. In addition, when we have requested, the legal staff of Laitram has advised us on certain intellectual property matters with regard to our marine positioning systems. Under a lease of commercial property dated February 1, 2006, between Lapeyre Properties L.L.C. (an affiliate of Laitram) and ION, we agreed to lease certain office and warehouse space from Lapeyre Properties until January 2011. During 2009, we paid Laitram a total of approximately $4.0 million, which consisted of approximately $3.2 million for manufacturing services, $0.7 million for rent and other pass-through third party facilities charges, and $0.1 million for other services. For the 2008 and 2007 fiscal years, we paid Laitram a total of approximately $4.3 million and $4.9 million for these services. In the opinion of our management, the terms of these services are fair and reasonable and as favorable to us as those that could have been obtained from unrelated third parties at the time of their performance.

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Off-Balance Sheet Arrangements

     As part of our ongoing business, we do not participate in transactions that generate material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs) that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As a result, we have no material off-balance sheet arrangements.

Indemnification

     In the ordinary course of our business, we enter into contractual arrangements with our customers, suppliers, and other parties under which we may agree to indemnify the other party to such arrangement from certain losses it incurs relating to our products or services or for losses arising from certain events as defined within the particular contract. Some of these indemnification obligations may not be subject to maximum loss limitations. Historically, payments we have made related to these indemnification obligations have been immaterial.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     Market risk is the risk of loss from adverse changes in market prices and rates. Our primary market risks include risks related to interest rates, foreign currency exchange rates and changes in our common stock price.

     Interest Rate Risk. On December 31, 2009, we had outstanding total indebtedness of approximately $277.4 million, net of a $8.7 million non-cash debt discount associated with our $40.0 million in Convertible Notes, and including capital lease obligations. Of that indebtedness, approximately $219.6 million accrues interest under rates that fluctuate based upon market rates plus an applicable margin. Both the $101.6 million in term loan indebtedness and the $118.0 million, excluding the non-cash debt discount, in total revolving credit indebtedness outstanding under the Amended Credit Facility accrued interest using LIBOR-based interest rate of 6.7% per annum. The average effective interest rate for the quarter ended December 31, 2009 under the LIBOR-based rates for both the term loan indebtedness and the revolving credit loans were 6.2%. Each 100 basis point increase in the interest rate would have the effect of increasing the annual amount of interest to be paid by approximately $2.2 million.

     The fair market value of our outstanding notes payable and long-term debt was determined to be $286.0 million at December 31, 2009. Approximately $118.0 million of our revolving credit borrowings and $101.6 million of our Term Loan were re-negotiated in October 2009. Additionally, the debt under the ICON Loan Agreements totaling $19.1 million at December 31, 2009 was negotiated in June 2009. As a result, a majority of our principal debt facilities were re-negotiated within the fourth quarter of 2009 using current market rates. Also, a majority of our indebtedness is variable-rate, which approximates fair value.

     Foreign Currency Exchange Rate Risk. Our operations are conducted in various countries around the world, and we receive revenue from these operations in a number of different currencies with the most significant of our international operations using Canadian dollars (CAD). As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in currencies other than the U.S. dollar, which is our functional currency, or the functional currency of many of our subsidiaries, which is not necessarily the U.S. dollar. To the extent that transactions of these subsidiaries are settled in currencies other than the U.S. dollar, a devaluation of these currencies versus the U.S. dollar could reduce the contribution from these subsidiaries to our consolidated results of operations as reported in U.S. dollars.

     Through our subsidiaries, we operate in a wide variety of jurisdictions, including United Kingdom, Canada, the Netherlands, China, Venezuela, India, Russia, the United Arab Emirates, and other countries. Our financial results may be affected by changes in foreign currency exchange rates. Our consolidated balance sheet at December 31, 2009 reflected approximately $38.8 million of net working capital related to our foreign subsidiaries. A majority of our foreign net working capital is within Canada and the United Kingdom. The subsidiaries in those countries receive their income and pay their expenses primarily in Canadian dollars (CDN) and pounds sterling (GBP), respectively. To the extent that transactions of these subsidiaries are settled in CDN or GBP, a devaluation of these currencies versus the U.S. dollar could reduce the contribution from these subsidiaries to our consolidated results of operations as reported in U.S. dollars.

     Fair Value of the Warrant. The Warrant issued to BGP related to our proposed joint venture, which included BGP arranging for the Bank of China to join as a new lender to our Amended Credit Facility, is required to be accounted for at its fair value. The value of the Warrant was determined using a Black-Scholes model. The key input for the Black-Scholes model is the current market price of

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our common stock, the yield on our common stock dividend payments (0%), risk-free interest rates, the expected term (March 31, 2010) and our stock’s historical and implied volatility. Holding all other inputs constant, a 10% increase or decrease in our common stock price would result in an increase or decrease in the fair value of the warrant liability of $8.4 million and ($8.3 million), respectively.

Item 8. Financial Statements and Supplementary Data

     The financial statements required by this item begin at page F-1 hereof.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     Not applicable.

Item 9A. Controls and Procedures

     (a) Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file with or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms. Disclosure controls and procedures, include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

     Our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2009. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.

     (b) Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

(i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and
(iii)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2009 based upon criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon their assessment, management concluded that the internal control over financial reporting was effective as of December 31, 2009.

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     The independent registered public accounting firm that has also audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K has issued an audit report on our internal control over financial reporting. This report appears below.

     Remediation of Material Weakness in Internal Control over Financial Reporting. Under Rule 12b-2 under the Exchange Act, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In October 2009, a material weakness was identified in the design and operation of controls surrounding revenue recognition, which resulted in a restatement to our condensed consolidated financial statements as of and for the three and six months ended June 30, 2009. This revenue recognition error resulted from the fact that the sales records in the possession of our management at June 30, 2009 did not contain all relevant documentation relating to the sale of our FireFly land seismic data acquisition system and related hardware and components in China. The discovery of the existence of the additional documentation relating to the sale in question occurred during the course of due diligence procedures that had been performed in connection with our proposed joint venture and related transactions with BGP. In connection with this due diligence process, our employees discovered certain documentation irregularities regarding the sale of the FireFly system, including that a portion of the documentation reflecting the terms for the sale had not been made available to our management for assessment with respect to the recording and reporting of the sale.

     As a result, we implemented the following procedures to remediate this material weakness:

• We implemented a quarterly certification requiring our global sales force to confirm that all documentation related to sales transactions have been provided to Company management.

• Global sales personnel (including China) no longer have the authority to enter into sales contracts without the review and approval of designated corporate management; and

• We provided further training and education on the Company’s revenue recognition policies and procedures and will continue to provide this training on an annual basis to our global sales force.

     Because of significant efforts expended to remediate the material weaknesses described above, management believes that, as of December 31, 2009, the material weakness that existed as of June 30, 2009 had been fully remediated.

     (c) Changes in Internal Control. Other than as described above, there was not any change in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

     We believe that the actions taken to remediate these weaknesses and the resulting improvement in controls have strengthened our disclosure controls and procedures, as well as our internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of ION Geophysical Corporation and Subsidiaries

     We have audited ION Geophysical Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). ION Geophysical Corporation and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on ION Geophysical Corporation and subsidiaries’ internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over

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financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     In our opinion, ION Geophysical Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ION Geophysical Corporation and subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of operations, cash flows, stockholders’ equity and comprehensive income (loss) for each of the three years in the period ended December 31, 2009 of ION Geophysical Corporation and subsidiaries and our report dated March 1, 2010 expressed an unqualified opinion thereon.

/s/ Ernst and Young LLP

Houston, Texas
March 1, 2010

Item 9B. Other Information

     Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

     Reference is made to the information appearing in the definitive proxy statement, under “Item 1 — Election of Directors,” for our annual meeting of stockholders to be held on May 26, 2010 (the “2010 Proxy Statement”) to be filed with the SEC with respect to Directors, Executive Officers and Corporate Governance, which is incorporated herein by reference and made a part hereof in response to the information required by Item 10.

Item 11. Executive Compensation

     Reference is made to the information appearing in the 2010 Proxy Statement, under “Executive Compensation,” to be filed with the SEC with respect to Executive Compensation, which is incorporated herein by reference and made a part hereof in response to the information required by Item 11.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     Reference is made to the information appearing in the 2010 Proxy Statement, under “Item 1 — Section 16(a) Beneficial Ownership Reporting Compliance,” to be filed with the SEC with respect to Security Ownership of Certain Beneficial Owners, and Management and Related Stockholder Matters, which is incorporated herein by reference and made a part hereof in response to the information required by Item 12.

Item 13. Certain Relationships, Related Transactions and Director Independence

     Reference is made to the information appearing in the 2010 Proxy Statement, under “Item 1 — Certain Transactions and Relationships,” to be filed with the SEC with respect to Certain Relationships and Related Transactions and Director Independence, which is incorporated herein by reference and made a part hereof in response to the information required by Item 13.

Item 14. Principal Accountant Fees and Services

     Reference is made to the information appearing in the 2010 Proxy Statement, under “Principal Auditor Fees and Services,” to be filed with the SEC with respect to Principal Accountant Fees and Services, which is incorporated herein by reference and made a part hereof in response to the information required by Item 14.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) List of Documents Filed

     (1) Financial Statements

     The financial statements filed as part of this report are listed in the “Index to Consolidated Financial Statements” on page F-1 hereof.

     (2) Financial Statement Schedules

     The following financial statement schedule is listed in the “Index to Consolidated Financial Statements” on page F-1 hereof, and is included as part of this Annual Report on Form 10-K:

     Schedule II — Valuation and Qualifying Accounts

     All other schedules are omitted because they are not applicable or the requested information is shown in the financial statements or noted therein.

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(3) Exhibits

3.1	—	Restated Certificate of Incorporation dated September 24, 2007 filed on September 24, 2007 as Exhibit 3.4 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
3.2	—	Amended and Restated Bylaws of ION Geophysical Corporation filed on September 24, 2007 as Exhibit 3.5 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
3.3	—	Certificate of Ownership and Merger merging ION Geophysical Corporation with and into Input/Output, Inc. dated September 21, 2007, filed on September 24, 2007 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.1	—	Certificate of Rights and Designations of Series D-1 Cumulative Convertible Preferred Stock, dated February 16, 2005 and filed on February 17, 2005 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.2	—	Certificate of Elimination of Series B Preferred Stock dated September 24, 2007, filed on September 24, 2007 as Exhibit 3.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.3	—	Certificate of Elimination of Series C Preferred Stock dated September 24, 2007, filed on September 24, 2007 as Exhibit 3.3 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.4	—	Certificate of Designation of Series D-2 Cumulative Convertible Preferred Stock dated December 6, 2007, filed on December 6, 2007 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.5	—	Certificate of Designation of Series D-3 Cumulative Convertible Preferred Stock dated February 20, 2008, filed on February 22, 2008 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.6	—	Certificate of Designations of Series A Junior Participating Preferred Stock of ION Geophysical Corporation effective as of December 31, 2008, filed on January 5, 2009 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.7	—	Form of Senior Indenture, filed on December 19, 2008 as Exhibit 4.3 to the Company’s Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated herein by reference.
4.8	—	Form of Senior Note, filed on December 19, 2008 as Exhibit 4.4 to the Company’s Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated herein by reference.
4.9	—	Form of Subordinated Indenture, filed on December 19, 2008 as Exhibit 4.5 to the Company’s Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated herein by reference.
4.10	—	Form of Subordinated Note, filed on December 19, 2008 as Exhibit 4.6 to the Company’s Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated herein by reference.
4.11	—	Warrant to Purchase Shares of the Common Stock of ION Geophysical Corporation dated October 27, 2009, issued by ION Geophysical Corporation to BGP Inc., China National Petroleum Corporation, filed on October 29, 2009 as Exhibit 4.1 to the Company’s Current Report on Form 8-K/A and incorporated herein by reference.
4.12	—	Convertible Promissory Note, dated October 23, 2009, issued by ION Geophysical Corporation to the Bank of China, New York Branch, filed on October 29, 2009 as Exhibit 4.2 to the Company’s Current Report on Form 8-K/A and incorporated herein by reference.
4.13	—	Convertible Promissory Note, dated October 23, 2009, issued by ION International S.à r.l. to the Bank of China, New York Branch, filed on October 29, 2009 as Exhibit 4.3 to the Company’s Current Report on Form 8-K/A and incorporated herein by reference.
**10.1	—	Amended and Restated 1990 Stock Option Plan, filed on June 9, 1999 as Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (Registration No. 333-80299), and incorporated herein by reference.
10.2	—	Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office Park II, LP as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006 as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
10.3	—	Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office Park District as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006 as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.

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**10.4	—	Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option Plan, filed on June 9, 1999 as Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (Registration No. 333-80299), and incorporated herein by reference.
**10.5	—	Amendment No. 1 to the Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option Plan dated September 13, 1999 filed on November 14, 1999 as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1999 and incorporated herein by reference.
**10.6	—	Employment Agreement dated effective as of May 22, 2006 between Input/Output, Inc. and R. Brian Hanson, filed on May 1, 2006 as Exhibit 10.1 to the Company’s Form 8-K, and incorporated herein by reference.
**10.7	—	First Amendment to Employment Agreement dated as of August 20, 2007 between Input/Output, Inc. and R. Brian Hanson, filed on August 21, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.8	—	Second Amendment to Employment Agreement, dated as of December 1, 2008, between ION Geophysical Corporation and R. Brian Hanson, filed on January 29, 2009 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.9	—	Input/Output, Inc. Employee Stock Purchase Plan, filed on March 28, 1997 as Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (Registration No. 333-24125), and incorporated herein by reference.
**10.10	—	Fourth Amended and Restated — 2004 Long-Term Incentive Plan, filed as Appendix A to the definitive proxy statement for the 2008 Annual Meeting of Stockholders of ION Geophysical Corporation, filed on April 21, 2008, and incorporated herein by reference.
10.11	—	Registration Rights Agreement dated as of November 16, 1998, by and among the Company and The Laitram Corporation, filed on March 12, 2004 as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated herein by reference.
**10.12	—	Input/Output, Inc. 1998 Restricted Stock Plan dated as of June 1, 1998, filed on June 9, 1999 as Exhibit 4.7 to the Company’s Registration Statement on S-8 (Registration No. 333-80297), and incorporated herein by reference.
**10.13	—	Input/Output Inc. Non-qualified Deferred Compensation Plan, filed on April 1, 2002 as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.
**10.14	—	Input/Output, Inc. 2000 Restricted Stock Plan, effective as of March 13, 2000, filed on August 17, 2000 as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2000, and incorporated herein by reference.
**10.15	—	Input/Output, Inc. 2000 Long-Term Incentive Plan, filed on November 6, 2000 as Exhibit 4.7 to the Company’s Registration Statement on Form S-8 (Registration No. 333-49382), and incorporated by reference herein.
**10.16	—	Employment Agreement dated effective as of March 31, 2003, by and between the Company and Robert P. Peebler, filed on March 31, 2003 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.17	—	First Amendment to Employment Agreement dated September 6, 2006, between Input/Output, Inc. and Robert P. Peebler, filed on September 7, 2006, as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.18	—	Second Amendment to Employment Agreement dated February 16, 2007, between Input/Output, Inc. and Robert P. Peebler, filed on February 16, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.19	—	Third Amendment to Employment Agreement dated as of August 20, 2007 between Input/Output, Inc. and Robert P. Peebler, filed on August 21, 2007 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.20	—	Fourth Amendment to Employment Agreement, dated as of January 26, 2009, between ION Geophysical Corporation and Robert P. Peebler, filed on January 29, 2009 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.21	—	Employment Agreement dated effective as of June 15, 2004, by and between the Company and David L. Roland, filed on August 9, 2004 as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, and incorporated herein by reference.
**10.22	—	Employment Agreement, dated as of December 1, 2008, between ION Geophysical Corporation and James R. Hollis,

71

		filed on January 29, 2009 as Exhibit 10.3 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.23	—	GX Technology Corporation Employee Stock Option Plan, filed on August 9, 2004 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, and incorporated herein by reference.
10.24	—	Concept Systems Holdings Limited Share Acquisition Agreement dated February 23, 2004, filed on March 5, 2004 as Exhibit 2.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.25	—	Registration Rights Agreement by and between ION Geophysical Corporation and 1236929 Alberta Ltd. dated September 18, 2008, filed on November 7, 2008 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q and incorporated herein by reference.
**10.26	—	Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc. — Concept Systems Employment Inducement Stock Option Program, filed on July 27, 2004 as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-117716), and incorporated herein by reference.
**10.27	—	Form of Employee Stock Option Award Agreement for ARAM Systems Employee Inducement Stock Option Program, filed on November 14, 2008 as Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (Registration No. 333-155378) and incorporated herein by reference.
10.28	—	Agreement dated as of February 15, 2005, between Input/Output, Inc. and Fletcher International, Ltd., filed on February 17, 2005 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.29	—	First Amendment to Agreement, dated as of May 6, 2005, between the Company and Fletcher International, Ltd., filed on May 10, 2005 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.30	—	Input/Output, Inc. 2003 Stock Option Plan, dated March 27, 2003, filed as Appendix B of the Company’s definitive proxy statement filed with the SEC on April 30, 2003, and incorporated herein by reference.
10.31	—	Amended and Restated Credit Agreement dated as of July 3, 2008, by and among ION Geophysical Corporation, ION International S.À R.L., HSBC Bank USA, N.A., as administrative agent, joint lead arranger and joint bookrunner, ABN AMRO Incorporated, as joint lead arranger and joint bookrunner, and CitiBank, N.A., as syndication agent, filed on July 8, 2008 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.32	—	First Amendment to Amended and Restated Credit Agreement and Domestic Security Agreement, dated as of September 17, 2008, by and among ION Geophysical Corporation, ION International S.À R.L., HSBC Bank USA, N.A., as administrative agent, joint lead arranger and joint bookrunner, ABN AMRO Incorporated, as joint lead arranger and joint bookrunner, and CitiBank, N.A., as syndication agent, filed on September 23, 2008 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.33	—	Third Amendment to Amended and Restated Credit Agreement dated as of December 29, 2008, by and among ION Geophysical Corporation, ION International S.À R.L., the Guarantors and Lenders party thereto and HSBC Bank USA, N.A., as administrative agent, filed on January 5, 2009 as Exhibit 10.3 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.34	—	Fourth Amendment to Amended and Restated Credit Agreement and Foreign Security Agreement, Limited Waiver and Release dated as of December 30, 2008, by and among ION Geophysical Corporation, ION International S.À R.L., the Guarantors and Lenders party thereto and HSBC Bank USA, N.A., as administrative agent, filed on January 5, 2009 as Exhibit 10.4 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.35	—	Fifth Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2009 by and among ION Geophysical Corporation, ION International S.à r.l., certain other foreign and domestic subsidiaries of the ION Geophysical Corporation, HSBC Bank USA, N.A., as administrative agent, joint lead arranger and joint bookrunner, ABN AMRO Incorporated, as joint lead arranger and joint bookrunner, Citibank, N.A., as syndication agent, and the lenders party thereto, filed on August 6, 2009 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and incorporated herein by reference.
*10.36	—	Sixth Amendment and Waiver to Amended and Restated Credit Agreement dated effective as of October 23, 2009 by and among ION Geophysical Corporation, ION International S.À R.L., the Guarantors and Lenders party thereto and HSBC Bank USA, N.A., as administrative agent.
**10.37	—	Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc. — GX Technology Corporation Employment Inducement Stock Option Program, filed on April 4, 2005 as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-123831), and incorporated herein by reference.

72

**10.38	—	Consulting Services Agreement dated as of October 19, 2006, by and between GX Technology Corporation and Michael K. Lambert, filed on October 24, 2006 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.39	—	First Amendment to Consulting Services Agreement dated as of January 5, 2007, by and between GX Technology Corporation and Michael K. Lambert, filed on January 8, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.40	—	Letter agreement dated October 19, 2006, by and between the Company and Michael K. Lambert, filed on October 24, 2006 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.41	—	Severance Agreement dated as of December 1, 2008, between ION Geophysical Corporation and Charles J. Ledet, filed on December 5, 2008 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.42	—	Consulting Agreement dated as of December 1, 2008, between ION Geophysical Corporation and Charles J. Ledet, filed on December 5, 2008 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.43	—	Rights Agreement, dated as of December 30, 2008, between ION Geophysical Corporation and Computershare Trust Company, N.A., as Rights Agent, filed as Exhibit 4.1 to the Company’s Form 8-A (Registration No. 001-12691) and incorporated herein by reference.
10.44	—	Amended and Restated Share Purchase Agreement, dated as of September 17, 2008, by and among ION Geophysical Corporation, Aram Systems Ltd., Canadian Seismic Rentals Inc. and the Sellers party thereto, filed on September 23, 2008 as Exhibit 2.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.45	—	Assignment Agreement dated as of December 30, 2008 by and among 3226509 Nova Scotia Company, ARAM Systems Ltd., Canadian Seismic Rentals Inc., Maison Mazel Ltd. and ION Geophysical Corporation, filed on January 5, 2009 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.46	—	Release Agreement dated as of December 30, 2008 by and among ION Geophysical Corporation, 3226509 Nova Scotia Company, ARAM Systems Ltd., Canadian Seismic Rentals Inc., Maison Mazel Ltd. and the Sellers party thereto, filed on January 5, 2009 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.47	—	Amended and Restated Subordinated Promissory Note dated December 30, 2008, made by 3226509 Nova Scotia Company in favor of Maison Mazel Ltd., filed on January 5, 2009 as Exhibit 10.6 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.48	—	ION Stock Appreciation Rights Plan dated November 17, 2008.
10.49	—	Form of Purchase Agreement dated as of June 1, 2009, for the offering and sale of 18,500,000 shares of common stock of ION Geophysical Corporation in privately-negotiated transactions to “accredited investors” (as defined in Rule 501 under the Securities Act of 1933, as amended), by and between ION Geophysical Corporation and the Purchasers named therein, filed on August 6, 2009 as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and incorporated herein by reference.
10.50	—	Canadian Master Loan and Security Agreement dated as of June 29, 2009 by and among ICON ION, LLC, as lender, ION Geophysical Corporation and ARAM Rentals Corporation, a Nova Scotia corporation, filed on August 6, 2009 as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and incorporated herein by reference.
10.51	—	Master Loan and Security Agreement (U.S.) dated as of June 29, 2009 by and among ICON ION, LLC, as lender, ION Geophysical Corporation and ARAM Seismic Rentals, Inc., a Texas corporation, filed on August 6, 2009 as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and incorporated herein by reference.
*10.52	—	Term Sheet dated as of October 23, 2009 by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation.
*10.53	—	Warrant Issuance Agreement dated as of October 23, 2009 by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation.
*10.54	—	Registration Rights Agreement dated as of October 23, 2009 by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation.

73

*21.1	—	Subsidiaries of the Company.
*23.1	—	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
*24.1	—	The Power of Attorney is set forth on the signature page hereof.
*31.1	—	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
*31.2	—	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
*32.1	—	Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
*32.2	—	Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.

*	Filed herewith.
**	Management contract or compensatory plan or arrangement.

(b)	Exhibits required by Item 601 of Regulation S-K.
	Reference is made to subparagraph (a) (3) of this Item 15, which is incorporated herein by reference.
(c)	Not applicable.

74

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Houston, State of Texas, on March 1, 2010.

ION GEOPHYSICAL CORPORATION
By	/s/ R. Brian Hanson
	R. Brian Hanson
	Executive Vice President and Chief Financial Officer

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert P. Peebler and David L. Roland and each of them, as his or her true and lawful attorneys-in-fact and agents with full power of substitution and re-substitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all documents relating to the Annual Report on Form 10-K for the year ended December 31, 2009, including any and all amendments and supplements thereto, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name	Capacities	Date
/s/ ROBERT P. PEEBLER Robert P. Peebler	Chief Executive Officer and Director (Principal Executive Officer)	March 1, 2010
/s/ R. BRIAN HANSON R. Brian Hanson	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March 1, 2010
/s/ MICHAEL L. MORRISON Michael L. Morrison	Vice President and Corporate Controller (Principal Accounting Officer)	March 1, 2010
/s/ JAMES M. LAPEYRE, JR.	Chairman of the Board of Directors and Director	March 1, 2010
James M. Lapeyre, Jr.
/s/ BRUCE S. APPELBAUM	Director	March 1, 2010
Bruce S. Appelbaum
/s/ THEODORE H. ELLIOTT, JR.	Director	March 1, 2010
Theodore H. Elliott, Jr.
/s/ G. THOMAS MARSH	Director	March 1, 2010
G. Thomas Marsh
/s/ FRANKLIN MYERS	Director	March 1, 2010
Franklin Myers
/s/ S. JAMES NELSON, JR.	Director	March 1, 2010
S. James Nelson, Jr.
/s/ JOHN N. SEITZ	Director	March 1, 2010
John N. Seitz

75

Name	Capacities	Date
/s/ NICHOLAS G. VLAHAKIS	Director	March 1, 2010
Nicholas G. Vlahakis

76

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
ION Geophysical Corporation and Subsidiaries:
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets — December 31, 2009 and 2008		F-3
Consolidated Statements of Operations — Years ended December 31, 2009, 2008, and 2007		F-4
Consolidated Statements of Cash Flows — Years ended December 31, 2009, 2008, and 2007		F-5
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) — Years ended December 2009, 2008, and 2007		F-6
Notes to Consolidated Financial Statements		F-7
Schedule II — Valuation and Qualifying Accounts		S-1

     All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of ION Geophysical Corporation and Subsidiaries

     We have audited the accompanying consolidated balance sheets of ION Geophysical Corporation and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, cash flows, stockholders’ equity and comprehensive income (loss) for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ION Geophysical Corporation and subsidiaries at December 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ION Geophysical Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2010, expressed an unqualified opinion thereon.

/s/ Ernst and Young LLP

Houston, Texas
March 1, 2010

F-2

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

			December 31,
	2009			2008
	(In thousands,
	except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	16,217		$	35,172
Restricted cash		1,469			6,610
Accounts receivable, net		111,046			150,565
Current portion notes receivable, net		13,367			11,665
Unbilled receivables		21,655			36,472
Inventories		202,601			262,519
Deferred income tax asset		6,001			4,382
Prepaid expenses and other current assets		23,145			16,004
Total current assets		395,501			523,389
Notes receivable		—			4,438
Deferred income tax asset		26,422			11,757
Property, plant, equipment and seismic rental equipment, net		78,555			59,129
Multi-client data library, net		130,705			89,519
Goodwill		52,052			49,772
Intangible assets, net		61,766			107,443
Other assets		3,185			15,984
Total assets	$	748,186		$	861,431
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt	$	271,132		$	38,399
Accounts payable		40,189			94,586
Accrued expenses		65,893			77,438
Accrued multi-client data library royalties		18,714			28,044
Fair value of the warrant		44,789			—
Deferred revenue		13,802			17,767
Total current liabilities		454,519			256,234
Long-term debt, net of current maturities		6,249			253,510
Non-current deferred income tax liability		1,262			22,713
Other long-term liabilities		3,688			3,904
Total liabilities		465,718			536,361
Commitments and contingencies
Stockholders’ equity:
Cumulative convertible preferred stock		68,786			68,786
Common stock, $.01 par value; authorized 200,000,000 shares; outstanding 118,688,702 and 99,621,926 shares at December 31, 2009 and 2008, respectively, net of treasury stock		1,187			996
Additional paid-in capital		666,928			619,198
Accumulated deficit		(411,548	)		(301,489	)
Accumulated other comprehensive income (loss)		(36,320	)		(55,859	)
Treasury stock, at cost, 849,539 and 848,422 shares at December 31, 2009 and 2008, respectively		(6,565	)		(6,562	)
Total stockholders’ equity		282,468			325,070
Total liabilities and stockholders’ equity	$	748,186		$	861,431

See accompanying Notes to Consolidated Financial Statements.

F-3

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

				Years Ended December 31,
	2009				2008			2007
			(In thousands, except per share data)
Product revenues	$	237,664			$	417,511		$	537,691
Service revenues		182,117				262,012			175,420
Total net revenues		419,781				679,523			713,111
Cost of products		165,923				289,795			386,849
Cost of services		121,720				181,980			119,679
Gross profit		132,138				207,748			206,583
Operating expenses:
Research, development and engineering		44,855				49,541			49,965
Marketing and sales		34,945				47,854			43,877
General and administrative		72,510				70,893			48,847
Impairment of goodwill and intangible assets		38,044				252,283			—
Total operating expenses		190,354				420,571			142,689
Income (loss) from operations		(58,216	)			(212,823	)		63,894
Interest expense, including amortization of a non-cash debt discount		(35,671	)			(12,723	)		(6,283	)
Interest income		1,721				1,439			1,848
Fair value adjustment of the warrant		(29,401	)			—			—
Impairment of cost method investment		(4,454	)			—			—
Other income (expense)		(4,023	)			4,200			(3,992	)
Income (loss) before income taxes		(130,044	)			(219,907	)		55,467
Income tax (benefit) expense		(19,985	)			1,131			12,823
Net income (loss)		(110,059	)			(221,038	)		42,644
Preferred stock dividends and accretion		3,500				3,889			2,388
Preferred stock beneficial conversion charge		—				68,786			—
Net income (loss) applicable to common shares	$	(113,559	)		$	(293,713	)	$	40,256
Earnings per share:
Basic net income (loss) per share	$	(1.03	)		$	(3.06	)	$	0.49
Diluted net income (loss) per share	$	(1.03	)		$	(3.06	)	$	0.45
Weighted average number of common shares outstanding:
Basic		110,516				95,887			81,941
Diluted		110,516				95,887			97,321

See accompanying Notes to Consolidated Financial Statements.

F-4

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31
	2009			2008			2007
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	(110,059	)	$	(221,038	)	$	42,644
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization (other than multi-client library)		47,911			33,052			26,767
Amortization of multi-client data library		48,449			80,532			37,662
Stock-based compensation expense related to stock options, nonvested stock, and employee stock purchases		12,671			8,306			6,875
Bad debt expense		3,528			4,852			437
Amortization of debt discount		6,732			816			—
Fair value adjustment of the warrant		29,401			—			—
Fair value adjustment of preferred stock redemption features		—			(1,215	)		—
Impairment of goodwill and intangible assets		38,044			252,283			—
Impairment of cost method investment		4,454			—			—
Deferred income tax		(38,150	)		(17,549	)		2,960
Excess tax benefit from stock-based compensation		—			(328	)		—
Profit on sale of rental assets		(524	)		(3,190	)		—
Change in operating assets and liabilities:
Accounts and notes receivable		41,936			37,673			(14,348	)
Unbilled receivables		14,817			(14,084	)		6,211
Inventories		18,582			(89,998	)		(11,270	)
Accounts payable, accrued expenses and accrued royalties		(72,140	)		46,160			8,674
Deferred revenue		(4,188	)		(6,088	)		(16,203	)
Other assets and liabilities		10,522			1,531			3,351
Net cash provided by operating activities		51,986			111,715			93,760
Cash flows from investing activities:
Purchase of property, plant and equipment		(2,966	)		(17,539	)		(11,375	)
Investment in multi-client data library		(89,635	)		(110,362	)		(64,279	)
Business acquisition		—			(242,835	)		—
Cash of acquired business		—			10,677			—
Proceeds from the sale of fixed assets and rental equipment		1,972			5,434			386
Increase in cost method investments		(59	)		—			(700	)
Other investing activities		(950	)		—			—
Net cash used in investing activities		(91,638	)		(354,625	)		(75,968	)
Cash flows from financing activities:
Borrowings under revolving line of credit		77,000			235,000			175,000
Repayments under revolving line of credit		(25,000	)		(169,000	)		(175,000	)
Net proceeds from issuance of debt		19,218			160,308			—
Net proceeds from issuance of stock		38,220			—			—
Payments on notes payable and long-term debt		(81,517	)		(18,082	)		(8,424	)
Costs associated with debt amendments		(4,630	)		—			—
Issuance of preferred stock		—			35,000			5,000
Payment of preferred dividends		(3,500	)		(3,889	)		(2,375	)
Proceeds from employee stock purchases and exercise of stock options		286			6,323			8,038
Restricted stock cancelled for employee minimum income taxes		(345	)		(1,660	)		(1,314	)
Excess tax benefit from stock-based compensation		—			328			—
Purchases of treasury stock		(3	)		(39	)		(117	)
Net cash provided by financing activities		19,729			244,289			808
Effect of change in foreign currency exchange rates on cash and cash equivalents		968			(2,616	)		753
Net increase (decrease) in cash and cash equivalents		(18,955	)		(1,237	)		19,353
Cash and cash equivalents at beginning of period		35,172			36,409			17,056
Cash and cash equivalents at end of period	$	16,217		$	35,172		$	36,409

See accompanying Notes to Consolidated Financial Statements.

F-5

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (LOSS)

																	Accumulated
																	Other
	Cumulative Convertible										Additional						Comprehensive						Total
	Preferred Stock				Common Stock						Paid — In			Accumulated			Income			Treasury			Stockholders’
	Shares		Amount		Shares			Amount			Capital			Deficit			(Loss)			Stock			Equity
Balance at January 1, 2007		—	$	—		80,123,486		$	810		$	493,605		$	(123,095	)	$	4,859		$	(6,511	)	$	369,668
Comprehensive income:
Net income		—		—		—			—			—			42,644			—			—			42,644
Other comprehensive income:
Translation adjustment		—		—		—			—			—			—			601			—			601
Total comprehensive income																								43,245
Preferred stock dividends												(2,388	)											(2,388	)
Stock-based compensation expense		—		—		—			—			6,875			—			—			—			6,875
Purchase of treasury stock		—		—		(8,548	)		—			—			—			—			(117	)		(117	)
Exercise of stock options		—		—		1,036,794			10			6,960			—			—			—			6,970
Vesting of restricted stock units/awards		—		—		455,307			4			(4	)		—			—			—			—
Restricted stock cancelled for employee minimum income taxes		—		—		(91,732	)		—			(1,314	)		—			—			—			(1,314	)
Issuance of stock for the ESPP		—		—		113,763			2			1,068			—			—			—			1,070
Conversion of 5.5% convertible senior notes		—		—		12,212,964			122			52,030			—			—			—			52,152
Issuance of treasury stock		—		—		5,574			—			35			—			—			44			79
Balance at December 31, 2007		—		—		93,847,608			948			556,867			(80,451	)		5,460			(6,584	)		476,240
Comprehensive income:
Net loss		—		—		—			—			—			(221,038	)		—			—			(221,038	)
Other comprehensive loss:
Translation adjustment		—		—		—			—			—			—			(61,319	)		—			(61,319	)
Total comprehensive loss																								(282,357	)
Preferred stock dividends												(3,889	)											(3,889	)
Reclassification of preferred stock to equity		70,000		68,786		—			—			—			—			—			—			68,786
Stock-based compensation expense		—		—		—			—			8,306			—			—			—			8,306
Purchase of treasury stock		—		—		(2,745	)		—			—			—			—			(39	)		(39	)
Issuance of stock for ARAM acquisition		—		—		3,629,211			36			48,922			—			—			—			48,958
Exercise of stock options		—		—		656,166			6			4,842			—			—			—			4,848
Vesting of restricted stock units/awards		—		—		550,083			5			(5	)		—			—			—			—
Restricted stock cancelled for employee minimum income taxes		—		—		(101,991	)		—			(1,660	)		—			—			—			(1,660	)
Issuance of stock for the ESPP		—		—		109,943			1			1,474			—			—			—			1,475
Conversion of 5.5% convertible senior notes		—		—		925,926			9			3,996			—			—			—			4,005
Tax benefits from stock-based compensation		—		—		—			—			271			—			—			—			271
Issuance of treasury stock		—		—		7,725			—			65			—			—			61			126
Other equity adjustments		—		—		—			(9	)		9			—			—			—			—
Balance at December 31, 2008		70,000		68,786		99,621,926			996			619,198			(301,489	)		(55,859	)		(6,562	)		325,070
Comprehensive income:
Net loss		—		—		—			—			—			(110,059	)		—			—			(110,059	)
Other comprehensive loss:
Translation adjustment		—		—		—			—			—			—			19,539			—			19,539
Total comprehensive loss																								(90,520	)
Preferred stock dividends												(3,500	)											(3,500	)
Stock-based compensation expense		—		—		—			—			12,671			—			—			—			12,671
Purchase of treasury stock		—		—		(1,117	)		—			—			—			—			(3	)		(3	)
Issuance of stock		—		—		18,500,000			185			38,035			—			—			—			38,220
Exercise of stock options		—		—		9,837			—			21			—			—			—			21
Vesting of restricted stock units/awards		—		—		528,284			5			(5	)		—			—			—			—
Restricted stock cancelled for employee minimum income taxes		—		—		(79,878	)		—			(99	)		—			—			—			(99	)
Issuance of stock for the ESPP		—		—		109,650			1			263			—			—			—			264
Tax benefits from stock-based compensation		—		—		—			—			344			—			—			—			344
Balance at December 31, 2009		70,000	$	68,786		118,688,702		$	1,187		$	666,928		$	(411,548	)	$	(36,320	)	$	(6,565	)	$	282,468

See accompanying Notes to Consolidated Financial Statements.

F-6

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

     General Description and Principles of Consolidation. ION Geophysical Corporation (formerly Input/Output, Inc.) and its wholly-owned subsidiaries offer a full suite of related products and services for seismic data acquisition and processing, including products incorporating traditional analog technologies and products incorporating the proprietary VectorSeis, True Digital™ technology. The consolidated financial statements include the accounts of ION Geophysical Corporation and its wholly-owned subsidiaries (collectively referred to as the “Company” or “ION”). Inter-company balances and transactions have been eliminated. Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.

     Overview and Proposed Joint Venture with BGP. Demand for the Company’s products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly the willingness and ability of the Company’s customers to expend their capital for oil and natural gas exploration and development projects. This demand is highly sensitive to current and expected future oil and natural gas prices.

     The global financial crisis, which has contributed, among other things, to significant reductions in available capital and liquidity from banks and other providers of credit, resulted in the worldwide economy entering into a prolonged, severe recessionary period, which may continue through all or part of 2010. Oil prices increased to record levels during the second quarter of 2008, but, in conjunction with the global recession, sharply declined after that, falling to approximately $35 per barrel during the first quarter of 2009. By the end of 2009, oil prices had recovered to approximately $83 per barrel. Natural gas prices followed a similar, recession-induced downturn. After peaking at $13.31 mmBtu in July 2008, Henry Hub natural gas prices fell approximately 50%. Unlike the recent recovery of oil prices, natural gas prices have remained depressed due in part to the excess supply of natural gas in the market. These conditions sharply curtailed demand for exploration activities in North America and other regions.

     The weakness in demand for the Company’s products, the uncertainty surrounding future economic activity levels and the tightening of credit availability resulted in decreased sales for the Company’s business units. The Company’s seismic contractor customers and the exploration and production companies (“E&P companies”) that are users of the Company’s products, services and technology have generally reduced their capital spending levels since 2008. The Company expects that the level of customers’ exploration and production expenditures will continue to be reduced to the extent that E&P companies and seismic contractors are limited in their access to the credit markets as a result of further disruptions in, or the more conservative lending practices by, the lending markets. There continues to be significant uncertainty about future exploration and production activity levels and the impact on the Company’s businesses. In particular, the North America and Russia land systems business and the Company’s vibroseis truck business experienced steep sales declines in 2009.

     While the global recession and the lower oil and gas prices slowed demand for the Company’s products and services in the near term, the Company believes that the industry’s long-term prospects remain favorable because of the declining rates in oil and gas production. The Company believes that technology that adds a competitive advantage through cost reductions or improvements in productivity will continue to be valued in its marketplace, even in the current difficult market. For example, the Company believes that its new technologies, such as FireFly^®, DigiFIN^™ and Orca^®, will continue to attract interest from its customers because those new technologies are designed to deliver improvements in image quality within more productive delivery systems.

     In response to this global economic downturn and subsequently decreased demand for the Company’s products and services, the Company took measures to reduce its cost structure. The most significant cost reduction to date has related to reduced headcount. Beginning in the fourth quarter of 2008 and continuing through 2009, the Company reduced its headcount by 384 positions, or approximately 26% of its employee headcount, in order to adjust to the lower levels of activity. Including all contractors and employees, the Company reduced its headcount by 489 positions, or 27%. In April 2009, the Company also initiated a salary reduction program that reduced employee base salaries. The salary reductions reduced affected employees’ annual base salaries by 12% for the Company’s chief executive officer, chief operating officer and chief financial officer, 10% for all other executives and senior management, and 5% for most other employees. Additionally, the Board of Directors elected to implement a 15% reduction in director fees. In addition to the salary reduction program, the Company elected to suspend its matching contributions to its employee 401(k) plan contributions. See further discussion of the reinstatement of employees salaries and of director fees at Note 20 “— Restructuring Activities.” The Company intends to continue to fund strategic programs to position it for the expected recovery in economic activity. Overall, the Company has and will continue to give priority to generating cash flow and reducing its cost structure, while maintaining its long-term commitment to continued technology development.

F-7

     On June 4, 2009, the Company completed a private placement transaction in which the Company issued and sold 18,500,000 shares of its common stock in privately-negotiated transactions for aggregate gross proceeds of approximately $40.7 million. The $38.2 million in net proceeds from the offering, along with $2.6 million of cash on hand, were applied to repay in full the outstanding indebtedness under a bridge loan agreement with Jefferies Finance LLC dated as of December 30, 2008. The indebtedness under this bridge loan agreement had been scheduled to mature on January 31, 2010 and had an effective interest rate at the time of repayment of 25.3%. The Company also entered into an additional amendment (the “Fifth Amendment”) to its amended commercial banking credit facility (the “Amended Credit Facility”) which, among other things, modified certain of the financial and other covenants contained in the Amended Credit Facility.

     In addition, on June 29, 2009, the Company also entered into a $20.0 million secured equipment financing term loan with ICON ION, LLC (“ICON”), an affiliate of ICON Capital Inc. The Company received $12.5 million on that date and $7.5 million in July 2009. All borrowed indebtedness under this arrangement is scheduled to mature on July 31, 2014 and constitutes permitted indebtedness under the Amended Credit Facility. The proceeds of the secured term loan are being applied for working capital and general corporate purposes. See further discussion at Note 12 “— Notes Payable, Long-term Debt and Lease Obligations.”

     On October 23, 2009, the Company entered into a binding term sheet (the “Term Sheet”) with BGP Inc., China National Petroleum Corporation, a company organized under the laws of the People’s Republic of China (“BGP”), which sets forth, among other things, the principal terms for a proposed joint venture between BGP and the Company. In connection with the execution of the Term Sheet, the Company entered into an amendment to the Amended Credit Facility (the “Sixth Amendment”), that, among other things, (i) increased the aggregate revolving commitment amount under the Amended Credit Facility from $100.0 million to $140.0 million, (ii) permitted Bank of China, New York Branch (“Bank of China”), to join the Amended Credit Facility as a lender, and (iii) modified, or provided limited waivers of, certain of the financial and other covenants contained in the Amended Credit facility. This bridge financing arrangement consisted of the following:

• Two promissory notes (the “Convertible Notes”) issued to Bank of China under the Amended Credit Facility as amended by the Sixth Amendment, both convertible into shares of the Company’s common stock; and

• A Warrant Issuance Agreement with BGP, under which the Company granted BGP a warrant (the “Warrant”) to purchase shares of the Company’s common stock that may be exercised in lieu of conversion of the Convertible Notes.

     In October 2009, the Company borrowed an aggregate of $40.0 million in the form of revolving credit bridge financing arranged by BGP from Bank of China, New York Branch and evidenced by the Convertible Notes mentioned directly above. This borrowing was permitted by the terms of the Sixth Amendment to the Credit Facility. See further discussion below at Note 2 “— Term Sheet with BGP and Bridge Financing Transactions.”

     As a result of the Company’s bridge financing arrangements that the Company entered into in October 2009, the Company believes that its liquidity will be sufficient to fund its operations until such time as the transactions with BGP are completed or alternate financing could be obtained. As a result of the Company’s entering into the Sixth Amendment, the Company believes that the waivers of the financial covenants contained in the Amended Credit Facility for the fiscal quarters ending September 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010 should enable the Company to conduct its operations without defaulting under the Amended Credit Facility until the transactions under the Term Sheet are completed. The Company currently expects these transactions to be completed during March 2010. Without these waivers, the Company would not have been in compliance with certain of its financial covenants at September 30, 2009 or December 31, 2009.

     If the proposed transactions under the Term Sheet are not completed by March 31, 2010, then the current waivers, upon notice from the lenders after a designated period of time, would cease to be effective and the Company at that time would likely not be in compliance with certain of the financial covenants contained in the Amended Credit Facility, which could then result in an event of default. As the current waivers cover a period of less than twelve months from December 31, 2009, the Company has classified its long-term indebtedness under its revolving line of credit and term loan facility under the Amended Credit Facility as current at December 31, 2009. As a result of the cross-default provisions in its secured equipment financing and its amended and restated subordinated seller note, the Company has also classified these long-term obligations as current at December 31, 2009.

     Even though the Company believes the joint venture with BGP will be completed as planned, there are certain events outside of the Company’s control (such as the Company experiencing a material adverse event or condition that results in a material adverse effect on the Company’s business, its prospects or results of operations) that could cause the closing of the joint venture to be delayed, terminated or abandoned. In such event, the Company would need to seek to amend, or seek additional covenant waivers under, the

F-8

Amended Credit Facility. Even though the lenders under the Amended Credit Facility have demonstrated their willingness to work with the Company in amending or providing sufficient waivers to its facility, there can be no assurance that the Company would be able to obtain any such waivers or amendments in the future. If the Company were to be unable to obtain such waivers or amendments from the lenders, the Company would likely seek to replace or pay off the Amended Credit Facility with new secured debt, unsecured debt or equity financing.

     As part of the formation of the joint venture, the Company has been in discussions with various financial institutions (both domestic and international) on the refinancing of the Company’s debt. As a result of these discussions and with the recent improvements within the financial markets, the Company believes that in the unlikely event the joint venture is not completed as planned, the Company would be able to obtain additional debt or equity financings sufficient to meet its obligations. However, there also can be no assurance that such debt or equity financing would be available on terms acceptable to the Company or at all.

     Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are made at discrete points in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of judgment and, therefore, cannot be determined with exact precision. Areas involving significant estimates include, but are not limited to, accounts and notes receivable, inventory valuation, sales forecast related to multi-client data libraries, goodwill and intangible asset valuation, deferred taxes, and accrued warranty costs. Actual results could differ from those estimates.

     Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 2009 and 2008, there were $1.5 million and $6.6 million, respectively, of short-term restricted cash that are used to secure standby and commercial letters of credit.

     Accounts and Notes Receivable. Accounts and notes receivable are recorded at cost, less the related allowance for doubtful accounts and notes. The Company considers current information and events regarding the customers’ ability to repay their obligations, such as the length of time the receivable balance is outstanding, the customers’ credit worthiness and historical experience. The Company considers an account or note to be impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms. When a note receivable is considered impaired, the amount of the impairment is measured based on the present value of expected future cash flows or the fair value of collateral. Impairment losses (recoveries) are included in the allowance for doubtful accounts and notes through an increase (decrease) in bad debt expense.

     Notes receivable are generally collateralized by the products sold and bear interest at contractual rates ranging from 8.0% to 12.0% per year. For non-interest bearing notes with a maturity greater than one year, or those notes which the stated rate of interest is considered a below market rate of interest, the Company imputes interest using prevailing market rates at the note’s origination. Cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and are recognized as interest income thereafter. The Company records interest income on investments in notes receivable on the accrual basis of accounting. The Company does not accrue interest on impaired loans where collection of interest according to the contractual terms is considered doubtful. Among the factors the Company considers in making an evaluation of the collectibility of interest are: (i) the status of the loan; (ii) the fair value of the underlying collateral; (iii) the financial condition of the borrower; and (iv) anticipated future events.

     Inventories. Inventories are stated at the lower of cost (primarily standard cost, which approximates first-in, first-out method) or market. The Company provides reserves for estimated obsolescence or excess inventory equal to the difference between cost of inventory and its estimated market value based upon assumptions about future demand for the Company’s products and market conditions.

     Property, Plant, Equipment and Seismic Rental Equipment. Property, plant, equipment and seismic rental equipment are stated at cost. Depreciation expense is provided straight-line over the following estimated useful lives:

	Years
Machinery and equipment		3-8
Buildings		10-20
Rental equipment		2-7
Leased equipment and other		1-10

F-9

     Expenditures for renewals and betterments are capitalized; repairs and maintenance are charged to expense as incurred. The cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and any gain or loss is reflected in operating expenses.

     The Company periodically evaluates the net realizable value of long-lived assets, including property, plant, equipment and seismic rental equipment, relying on a number of factors including operating results, business plans, economic projections, and anticipated future cash flows. Impairment in the carrying value of an asset held for use is recognized whenever anticipated future cash flows (undiscounted) from an asset are estimated to be less than its carrying value. The amount of the impairment recognized is the difference between the carrying value of the asset and its fair value. There were no significant impairment charges with respect to the Company’s property, plant, equipment and seismic rental equipment during 2009, 2008 and 2007.

     Multi-Client Data Library. The multi-client data library consists of seismic surveys that are offered for licensing to customers on a non-exclusive basis. The capitalized costs include costs paid to third parties for the acquisition of data and related activities associated with the data creation activity and direct internal processing costs, such as salaries, benefits, computer-related expenses, and other costs incurred for seismic data project design and management. For the years ended December 31, 2009, 2008, and 2007, the Company capitalized, as part of its multi-client data library, $3.8 million, $5.4 million, and $4.3 million, respectively, of direct internal processing costs. At December 31, 2009 and 2008, multi-client data library creation and accumulated amortization consisted of the following:

	December 31,
	2009			2008
Gross costs of multi-client data creation	$	337,516		$	247,881
Less accumulated amortization		(206,811	)		(158,362	)
Total	$	130,705		$	89,519

     The Company’s method of amortizing the costs of a multi-client data library available for commercial sale is the greater of (i) the percentage of actual revenue to the total estimated revenue multiplied by the total cost of the project (the sales forecast method) or (ii) the straight-line basis over a four-year period. The greater of the sales forecast method or the straight-line amortization policy is applied on a cumulative basis at the individual survey level. Under this policy, the Company first records amortization using the sales forecast method. The cumulative amortization recorded for each survey is then compared with the cumulative straight-line amortization. If the cumulative straight-line amortization is higher for any specific survey, additional amortization expense is recorded, resulting in accumulated amortization being equal to the cumulative straight-line amortization for such survey.

     The Company estimates the ultimate revenue expected to be derived from a particular seismic data survey over its estimated useful economic life to determine the costs to amortize, if greater than straight-line amortization. That estimate is made by the Company at the project’s initiation. For a completed multi-client survey, the Company reviews the estimate quarterly. If during any such review, the Company determines that the ultimate revenue for a survey is expected to be more or less than the original estimate of total revenue for such survey, the Company decreases or increases (as the case may be) the amortization rate attributable to the future revenue from such survey. In addition, in connection with such reviews, the Company evaluates the recoverability of the multi-client data library, and, if required under Accounting Standard Codification (ASC) Topic 360 “Accounting for the Impairment and Disposal of Long-Lived Assets,” records an impairment charge with respect to such data. There were no significant impairment charges associated with the Company’s multi-client data library during 2009, 2008 and 2007.

     Computer Software. In February 2004, the Company acquired Concept Systems Holding Limited (Concept Systems). A portion of the purchase price was allocated to software available-for-sale and included within Other Assets. The capitalized costs of computer software are charged to costs of products in the period sold, using the greater of (i) the percentage of actual sales to the total estimated sales multiplied by the total costs of the software or (ii) a straight-line amortization rate equal to the software costs divided by its remaining estimated economic life. At December 31, 2009, the total costs of software were $11.7 million, less accumulated amortization of $9.7 million. Amortization expense was $1.6 million, $2.0 million and $2.1 million, respectively, for the years ended December 31, 2009, 2008 and 2007.

     Cost Method Investments. Certain of the Company’s investments are accounted for under the cost method. The cost method investments are recorded at cost and reviewed periodically if there are events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. See further discussion below, including the impairment

F-10

of a cost method investment, at Note 8 “— Cost Method Investment.” The aggregate carrying amount of cost method investments was $0.5 million and $5.0 million at December 31, 2009 and 2008, respectively, and included within Other Assets.

     Financial Instruments. Fair value estimates are made at discrete times based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amount of its cash and cash equivalents, accounts and notes receivable, and accounts payable approximate the fair values at those dates. The fair market value of the Company’s outstanding notes payable and long-term debt was determined to be $286.0 million at December 31, 2009. Approximately $118.0 million of the Company’s revolving credit borrowings and $101.6 million of the Company’s Term Loan were re-negotiated in October 2009. Additionally, the debt under the ICON Loan Agreements totaling $19.1 million at December 31, 2009 was negotiated in June 2009. As a result, a majority of the Company’s principal debt facilities were re-negotiated within the fourth quarter of 2009 using current market rates. Also, a majority of the Company’s indebtedness is variable-rate, which approximates fair value.

     In 2007, 2008 and 2009, the Company periodically entered into economic cash flow and fair value hedges designed to minimize the risks associated with exchange rate fluctuations. The impact to the financial statements is insignificant for all periods with any gains and losses included in the income statement.

     Goodwill and Other Intangible Assets. For purposes of performing the impairment test for goodwill as required by ASC 350, the Company established the following reporting units: Land Imaging Systems (including ARAM Systems, Ltd. (“ARAM”)), Sensor Geophone, Marine Imaging Systems, Data Management Solutions, and ION Solutions. To determine the fair value of these reporting units, the Company uses a discounted future returns valuation method.

     In accordance with ASC 350, the Company is required to evaluate the carrying value of its goodwill and certain indefinite-lived intangible assets at least annually for impairment, or more frequently if facts and circumstances indicate that impairment has occurred. The Company formally evaluates the carrying value of its goodwill for impairment as of December 31 for each of its reporting units. If the carrying value of a reporting unit of an entity that contains goodwill, is determined to be less than the fair value of the reporting unit, there exists the possibility of impairment of goodwill. An impairment loss of goodwill is measured in two steps by allocating first the current fair value of the reporting unit to net assets and liabilities including recorded and unrecorded other intangible assets to determine the implied carrying value of goodwill. The next step is to measure the difference between the carrying value of goodwill and the implied carrying value of goodwill, and, if the implied goodwill is less than the carrying value of goodwill, to record an impairment loss of goodwill as the difference between the implied and carrying value amounts on the Consolidated Statements of Operations in the period in which the impairment is determined. See further discussion, including the impairment of goodwill, below at Note 9 “— Goodwill.”

     The intangible assets other than goodwill relate to proprietary technology, patents, customer relationships, trade names and non-compete agreements that are amortized over the estimated periods of benefit (ranging from 4 to 20 years). Following the guidance of ASC 360, the Company reviews the carrying values of these intangible assets for impairment if events or changes in the facts and circumstances indicate that their carrying value may not be recoverable. Any impairment determined is recorded in the current period and is measured by comparing the fair value of the related asset to its carrying value. See further discussion, including the impairment of intangible assets, below at Note 10 “— Intangible Assets.”

     Intangible assets amortized on a straight-line basis are:

	Estimated Useful Life
	(Years)
Proprietary technology		4-8
Customer relationships		8
Patents		5-20
Trade names		5
Non-compete agreements		5

     Intangible assets amortized on an accelerated basis are:

	Estimated Economic Life
	(Years)
Customer relationships		15
Intellectual property rights		5

F-11

     Fair Value. ASC 820-10, “Fair Value Measurements,” (ASC 820-10) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This standard establishes a fair value hierarchy based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use, which are broken out into three levels. Level 1 inputs are quoted prices from active markets for identical assets and liabilities at the measurement date, while Level 2 inputs are inputs other than quoted prices that are observable, either directly or indirectly. Level 3 inputs include assets and liabilities whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting the Company’s own assumptions and requiring significant management judgment.

• Goodwill and Intangible Assets. In 2008 and 2009, the Company performed a valuation of its goodwill and intangible asset balances. Both valuations were performed using Level 3 inputs. The fair value of these assets was estimated using a discounted cash flow model, which included a variety of inputs. The key inputs for the model included the operational five-year forecast for the Company, the then-current market discount factor and the forecasted cash flows related to each intangible asset. The forecasted operational and cash flow amounts were determined using the current activity levels in the Company as well as the current and expected short-term market conditions. For further information, see Note 9 “— Goodwill” and Note 10 “— Intangible Assets.”

• Warrant. The Warrant issued to BGP in October 2009 had an initial fair value of $15.4 million, which was comprised of Level 2 inputs and was listed on the balance sheet as a current liability. On December 31, 2009, the Warrant was re-valued at approximately $44.8 million. For further information, see Note 12 “— Notes Payable, Long-Term Debt and Lease Obligations.”

The Warrant is the only material transactions currently requiring recurring fair value calculations. The fair value of the Warrant was estimated using a Black-Scholes model, which includes a variety of inputs. The key inputs for the Black-Scholes model include the current market price of the Company’s common stock, the yield on the common stock dividend payments (0%), risk-free interest rates, the expected term (March 31, 2010) and the Company stock’s historical and implied volatility.

• Cost Method Investments. In 2009, the Company performed a fair value analysis based upon Level 3 inputs, utilizing current financial data and operational forecasts with the main drivers in the calculation being the investment’s forecasted cash flows and its current obligations. For further information, see Note 8 “— Cost Method Investment.”

     Revenue Recognition and Product Warranty. The Company derives revenue from the sale and rental of (i) acquisition systems and other seismic equipment within its Land Imaging Systems and Marine Imaging Systems segments; (ii) imaging services, multi-client surveys and licenses of “off-the-shelf” data libraries within its ION Solutions segment; and (iii) navigation, survey and quality control software systems within its Data Management Solutions segment.

     For the sales of acquisition systems and other seismic equipment, the Company follows the requirements of ASC 605-10 “Revenue Recognition” and recognizes revenue when (a) evidence of an arrangement exists; (b) the price to the customer is fixed and determinable; (c) collectibility is reasonably assured; and (d) the acquisition system or other seismic equipment is delivered to the customer and risk of ownership has passed to the customer, or, in the limited case where a substantive customer-specified acceptance clause exists in the contract, the later of delivery or when the customer-specified acceptance is obtained.

     The Company’s Land Imaging Systems segment receives rental income from the rental of seismic equipment. The rental is in the form of operating leases as the lease terms range from a couple of days to several months. Rental revenue is recognized on a straight line basis over the term of the operating lease.

     Revenues from all imaging and other services are recognized when persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Revenues from contract services performed on a day-rate basis are recognized as the service is performed.

     Revenues from multi-client surveys are recognized as the seismic data is acquired and/or processed on a proportionate basis as work is performed. Under this method, the Company recognizes revenues based upon quantifiable measures of progress, such as kilometers acquired or days processed. Upon completion of a multi-client seismic survey, the survey data is considered “off-the-shelf” and licenses to the survey data are sold to customers on a non-exclusive basis. The license of a completed multi-client survey is

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represented by the license of one standard set of data. Revenues on licenses of completed multi-client data surveys are recognized when (a) a signed final master geophysical data license agreement and accompanying supplemental license agreement are returned by the customer; (b) the purchase price for the license is fixed or determinable; (c) delivery or performance has occurred; (d) and no significant uncertainty exists as to the customer’s obligation, willingness or ability to pay. In limited situations, the Company has provided the customer with a right to exchange seismic data for another specific seismic data set. In these limited situations, the Company recognizes revenue at the earlier of the customer exercising its exchange right or the expiration of the customer’s exchange right.

     When separate elements (such as an acquisition system, other seismic equipment and/or imaging services) are contained in a single sales arrangement, or in related arrangements with the same customer, the Company follows the requirements of ASC 605-25 “Accounting for Multiple-Element Revenue Arrangement,” and allocates revenue to each element based upon its vendor-specific objective evidence of fair value, so long as each such element meets the criteria for treatment as a separate unit of accounting. The Company limits the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services. The Company generally does not grant return or refund privileges to its customers. When undelivered elements, such as training courses and engineering services, are inconsequential or perfunctory and not essential to the functionality of the delivered elements, the Company recognizes revenue on the total contract and makes a provision for the costs of the incomplete elements.

     For the sales of navigation, survey and quality control software systems, the Company follows the requirements of ASC 985-605 “Software Revenue Recognition,” because in those systems the software is more than incidental to the arrangement as a whole. Following the requirements of ASC 985-605 “Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software,” the Company considers the hardware within these systems to be a software-related item because the software is essential to the hardware’s functionality. As a result, the Company recognizes revenue from sales of navigation, survey and quality control software systems when (a) evidence of an arrangement exists; (b) the price to the customer is fixed and determinable; (c) collectibility is reasonably assured; and (d) the software and software-related hardware is delivered to the customer and risk of ownership has passed to the customer, or, in the limited case where a substantive customer-specified acceptance clause exists in the contract, the later of delivery or when the customer-specified acceptance is obtained. These arrangements generally include the Company providing related services, such as training courses, engineering services and annual software maintenance. The Company allocates revenue to each element of the arrangement based upon vendor-specific objective evidence of fair value of the element or, if vendor-specific objective evidence is not available for the delivered element, the Company applies the residual method.

     In addition to perpetual software licenses, the Company offers certain time-based software licenses. For these time-based licenses, the Company recognizes revenue ratably over the contract term, which is generally two to five years.

     The Company generally warrants that its manufactured equipment will be free from defects in workmanship, materials and parts. Warranty periods generally range from 30 days to three years from the date of original purchase, depending on the product. The Company provides for estimated warranty as a charge to costs of sales at the time of sale.

     Research, Development and Engineering. Research, development and engineering costs primarily relate to activities that are designed to improve the quality of the subsurface image and overall acquisition economics of the Company’s customers. The costs associated with these activities are expensed as incurred. These costs include prototype material and field testing expenses, along with the related salaries and stock-based compensation, facility costs, consulting fees, tools and equipment usage, and other miscellaneous expenses associated with these activities.

     Income Taxes. Income taxes are accounted for under the liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company reserves for a significant portion of U.S. net deferred tax assets and will continue to reserve for a significant portion of U.S. net deferred tax assets until there is sufficient evidence to warrant reversal (see Note 16 “— Income Taxes”). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     Comprehensive Net Income (Loss). Comprehensive net income (loss), consisting of net income (loss) and foreign currency translation adjustments, is presented in the Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss). The

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balance in Accumulated Other Comprehensive Income (Loss) consists of foreign currency translation adjustments. In 2009 and 2008, the Company recorded in Accumulated Other Comprehensive Income (Loss) the tax impact of currency translation adjustments of $1.0 million and $2.3 million, respectively.

     Net Income (Loss) per Common Share. Basic net income (loss) per common share is computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is determined based on the assumption that dilutive restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have been exercised and the aggregate proceeds were used to reacquire common stock using the average price of such common stock for the period. The total number of shares issuable under anti-dilutive options at December 31, 2009, 2008 and 2007 were 7,766,188, 7,893,275 and 1,550,800, respectively.

     The Convertible Notes and Warrant entered into on October 23, 2009 were anti-dilutive. See further discussion of these transactions at Note 2 “— Term Sheet with BGP and Bridge Financing Transactions.”

     There are 70,000 outstanding shares of Series D Cumulative Convertible Preferred Stock, which the Company believes may currently be converted, at the holder’s election, into up to 9,669,434 shares of common stock. See further discussion on the resetting of the Series D Preferred Stock conversion provisions at Note 13 “— Cumulative Convertible Preferred Stock” and Note 19 “— Legal Matters.” The outstanding shares of all Series D Preferred Stock were anti-dilutive for the years ended December 31, 2009, 2008 and 2007.

     As shown in the table below, the Company’s convertible senior notes that matured on December 15, 2008 were dilutive for the year ended December 31, 2007.

     The following table summarizes the calculation of the weighted average number of common shares and weighted average number of diluted common shares outstanding for purposes of the computation of basic net income (loss) per common share and diluted net income (loss) per common share (in thousands, except per share amounts):

	Years Ended December 31,
	2009			2008			2007
Net income (loss) applicable to common shares	$	(113,559	)	$	(293,713	)	$	40,256
Income impact of assumed convertible debt conversion		—			—			3,694
Net income (loss) after impact of assumed convertible debt conversion	$	(113,559	)	$	(293,713	)	$	43,950
Weighted average number of common shares outstanding		110,516			95,887			81,941
Effect of dilutive stock awards		—			—			2,629
Effect of assumed convertible debt conversion		—			—			12,751
Weighted average number of diluted common shares outstanding		110,516			95,887			97,321
Net income (loss) per basic share	$	(1.03	)	$	(3.06	)	$	0.49
Net income (loss) per diluted share	$	(1.03	)	$	(3.06	)	$	0.45

     Foreign Currency Gains and Losses. Assets and liabilities of the Company’s subsidiaries operating outside the United States which account in a functional currency other than U.S. dollars have been translated to U.S. dollars using the exchange rate in effect at the balance sheet date. Results of foreign operations have been translated using the average exchange rate during the periods of operation. Resulting translation adjustments have been recorded as a component of Accumulated Other Comprehensive Income (Loss) in the Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss). Foreign currency transaction gains and losses are included in the Consolidated Statements of Operations as they occur. Total foreign currency transaction gains (losses) were $(3.8) million, $3.1 million and $(1.8) million for the years ended December 31, 2009, 2008 and 2007, respectively.

     Concentration of Credit and Foreign Sales Risks. No single customer represented 10% or more of the Company’s consolidated net revenues for the years ended December 31 2009, 2008 and 2007; however, the Company’s top five customers in total represented approximately 29%, 30% and 31%, respectively, of the Company’s consolidated net revenues. The loss of any significant customers or deterioration in the Company’s relationship with these customers could have a material adverse effect on the Company’s results of operations and financial condition.

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     For the twelve months ended December 31, 2009, the Company recognized $92.8 million of sales to customers in Europe, $67.2 million of sales to customers in Asia Pacific, $25.4 million of sales to customers in Africa, $42.4 million of sales to customers in the Middle East, $34.3 million of sales to customers in Latin American countries and $4.7 million of sales to customers in the Commonwealth of Independent States, or former Soviet Union (CIS). The majority of the Company’s foreign sales are denominated in U.S. dollars. For the years ended December 31, 2009, 2008 and 2007, international sales comprised 64%, 60% and 62%, respectively, of total net revenues. In recent years, the CIS and certain Latin American countries have experienced economic problems and uncertainties. However, given the recent market downturn, more countries and areas of the world have also begun to experience economic problems and uncertainties. To the extent that world events or economic conditions negatively affect the Company’s future sales to customers in these and other regions of the world or the collectibility of the Company’s existing receivables, the Company’s future results of operations, liquidity, and financial condition would be adversely affected.

     Stock-Based Compensation. The Company accounts for stock based compensation under the recognition provisions of ASC 718, “Share-Based Payment” (ASC 718). The Company estimates the value of stock option awards on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate, and expected dividends. The Company recognizes stock-based compensation on the straight-line basis over the service period of each award (generally the award’s vesting period).

     The accompanying financial statements for the twelve months ended December 31, 2009 include approximately $3.3 million of stock-based compensation expense related to 2008, 2007 and 2006. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The prior-period stock-based compensation expense relates to adjustments between estimated and actual forfeitures which should have been recognized over the vesting period of such awards. Such amounts were not deemed material with respect to either the results of prior years or the results and the trend of earnings for the current year and were therefore recorded in the second quarter of 2009.

     Recent Accounting Pronouncements. In October 2009, the Financial Accounts Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2009-13 on ASC 605, “Revenue Recognition — Multiple Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). ASU 2009-13 amended guidance related to multiple-element arrangements which requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. The consensus eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances. All entities must adopt the guidance no later than the beginning of their first fiscal year beginning on or after June 15, 2010. Entities may elect to adopt the guidance through either prospective application for revenue arrangements entered into, or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented. The Company is currently evaluating the impact, if any, of ASU 2009-13 on the Company’s financial position and results of operations.

     In October 2009, the FASB issued ASU No. 2009-14 on ASC 985, “Certain Revenue Arrangements That Include Software Elements” (ASU 2009-14). ASU 2009-14 amended guidance that is expected to significantly affect how entities account for revenue arrangements that contain both hardware and software elements. As a result, many tangible products that rely on software will be accounted for under the revised multiple-element arrangements revenue recognition guidance, rather than the software revenue recognition guidance. The revised guidance must be adopted by all entities no later than fiscal years beginning on or after June 15, 2010. An entity must select the same transition method and same period for the adoption of both this guidance and the revisions to the multiple-element arrangements guidance noted above. The Company is currently evaluating the impact, if any, of ASU 2009-14 on the Company’s financial position and results of operations.

     In August 2009, the FASB issued ASU 2009-05, “Fair Value Measurements and Disclosures, Measuring Liabilities at Fair Value (Topic 820)” (ASU 2009-05). ASU 2009-05 provides additional clarification on valid valuation techniques using acquired prices in active markets for identical liabilities. The provisions for ASU 2009-05 were effective for interim period ending after August 2009. The adoption of ASU 2009-05 did not have a material impact to the company’s financial position, results of operations or cash flows.

     In June 2009, the FASB issued ASC 105-10, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (ASC 105-10). ASC 105-10 is the single, official source of authoritative, nongovernmental GAAP, other than guidance issued by the SEC and is effective for interim or annual financial periods ending after September 15, 2009. The Company adopted this statement on September 15, 2009 and has updated all existing GAAP references to the new codification.

F-15

     In April 2009, the FASB issued ASC 825-10-65-1, “Interim Disclosures about Fair Value of Financial Instruments” (ASC 825-10-65-1). ASC 825-10-65-1 provides additional clarification on interim disclosures and require public companies to disclose the fair value of financial instruments whenever companies publish interim financial summary information. The provisions for ASC 825-10-65-1 were effective for interim periods ending after June 15, 2009 with earlier adoption permitted. The Company adopted ASC 825-10-65-1 on the effective date. The adoption of ASC 825-10-65-1 did not have a material impact to the Company’s financial position, results of operation or cash flows.

     In April 2009, the FASB issued ASC 320-10, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” (ASC 320-10). ASC 320-10 provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. This issuance changes (i) the method for determining whether an other-than-temporary impairment exists for debt securities and for cost method investments; and (ii) the amount of an impairment charge to be recorded in earnings. ASC 320-10 was effective for interim and annual periods ending after June 15, 2009. The adoption of ASC 320-10 did not have a material impact to the Company’s financial position, results of operation or cash flows.

     In September 2008, the FASB issued ASC 260-10, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (ASC 260-10), which was effective for fiscal years beginning after December 15, 2008. ASC 260-10 would require unvested share-based payment awards containing non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) to be included in the computation of basic earnings per share according to the two-class method. The adoption of ASC 260-10 did not have a material impact on the Company’s earnings per share computation.

     Subsequent Events. In connection with preparation of the consolidated financial statements and in accordance with the recently issued ASC 855-10, “Subsequent Events,” the Company evaluated subsequent events after the balance sheet date of December 31, 2009 through March 1, 2010, the date of the Company’s filing of this Form 10-K.

(2) Term Sheet with BGP and Bridge Financing Transactions

     On October 23, 2009, the Company entered into the Term Sheet with BGP, which provides for, among other things, the formation of a joint venture between the Company and BGP involving the Company’s land-based seismic data acquisition equipment business.

     The Term Sheet contemplates that the Company will enter into a purchase agreement with BGP under which (i) BGP will acquire from the Company a 51% equity interest in the joint venture for an aggregate purchase price of $108.5 million cash to be paid to the Company and the contribution by BGP to the joint venture of certain assets and certain related liabilities of BGP that relate to the joint venture’s business and (ii) the Company will retain a 49% interest in the joint venture in exchange for the contribution of certain assets and certain related liabilities that relate to the Company’s land business. The assets of each party to be transferred to the joint venture will include seismic recording systems, inventory, certain intellectual property rights and contract rights, all as may be necessary to own and operate the business of the joint venture.

     The scope of the joint venture’s business is defined in the Term Sheet as being the business of designing, development, engineering, manufacturing, research and development, distribution, sales and marketing and field support of land-based equipment used in seismic data acquisition for the petroleum industry. Excluded from the scope of the joint venture’s business will be (x) the analog sensor businesses of the Company and BGP and (y) the businesses of certain companies in which BGP or the Company are currently a minority owner. In addition to these excluded businesses, all of the Company’s other businesses — including the Marine Imaging Systems, Data Management Solutions and ION Solutions, which includes GXT’s Imaging Solutions, Integrated Seismic Solutions (ISS) and BasinSPAN™ and seismic data libraries — will remain owned and operated by the Company and will not comprise a part of the joint venture.

     Under the Term Sheet, the parties agreed to use their best efforts to cause the closing of the joint venture and related transactions to occur as soon as practicable following the execution of the definitive transaction documents, and on or before the later to occur of the following dates: (i) December 31, 2009 or (ii) 10 business days following the date on which all necessary regulatory approvals (including receiving clearance from the Committee on Foreign Investment in the United States (CFIUS) to complete the transactions) have been obtained, but in any event, no later than March 31, 2010.

     The parties’ obligations under the Term Sheet may be terminated (i) by written agreement of the parties, (ii) by either party in the event that such party’s conditions have not been satisfied on or before March 31, 2010 (subject to a 15-day cure period) or (iii) by either party in the event that certain mutual conditions have not been satisfied on or before March 31, 2010. In addition, BGP and the

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Company have each agreed to pay the other a break-up fee of $5.0 million if either party determines to terminate its obligations under the Term Sheet because the other party has failed to satisfy certain conditions (including conditions precedent to closing that (a) the other party has not experienced a material adverse event or condition that has resulted in a material adverse effect on its business, prospects and results of operations change, (b) the other party has not breached any of its representations and warranties contained in the Term Sheet and such representations and warranties continue to be true and correct and (c) with respect to BGP’s obligations under the Term Sheet, ION has not suffered any material default or accelerations of any of its liabilities).

     On October 27, 2009, the Company borrowed an aggregate of $40.0 million in the form of revolving credit bridge financing arranged by BGP from Bank of China, New York Branch and evidenced by the Convertible Notes. This borrowing was permitted by the terms of the Sixth Amendment to the Credit Facility, which increased the aggregate revolving commitment amount under the accordion feature provisions of the Amended Credit Facility from $100.0 million to $140.0 million and permitted Bank of China to join the Amended Credit Facility as a lender.

     The Convertible Notes provide that at the stated initial conversion price of $2.80 per share, the full $40.0 million principal amount under the Convertible Notes would be convertible into 14,285,714 shares of Common Stock. The Convertible Notes provide that the conversion price and the number of shares into which the notes may be converted are subject to adjustment on terms and conditions similar to those contained in the Warrant.

     As part of BGP arranging for the Bank of China to join the Amended Credit Facility, the Company granted to BGP the Warrant. The Warrant will be exercisable, in whole or in part, at any time and from time to time, subject to the conditions described below. The Warrant will initially entitle the holder thereof to purchase a number of shares of common stock equal to $40.0 million divided by the exercise price of $2.80 per share, subject to adjustment as described below. At the initial exercise price of $2.80 per share, at such time as the Warrant becomes exercisable, it would initially be fully exercisable for 14,285,714 shares of common stock.

     The Warrant will only become exercisable and the Convertible Notes will only become convertible upon receipt of certain governmental approvals. Any conversions of the Convertible Notes and prior exercises of the Warrant will reduce the dollar amount under the Warrant into which the exercise price may be divided to determine the number of shares that may be acquired upon exercise.

     The exercise price under the Warrant and conversion prices under the Convertible Notes will be subject to adjustment upon the occurrence of a “Triggering Event.” A “Triggering Event” will occur in the event that the joint venture transactions cannot be completed by March 31, 2010, solely as a result of the occurrence of a statement, order or other indication from any relevant governmental regulatory agency that (a) the transactions would not be approved, would be opposed, objected to or sanctioned or (b) the transactions or BGP’s business and operations would be required to be altered (or upon the earlier abandonment of such transactions due to any such statement, indication or order). In such event, the exercise price and conversion price per share will be adjusted (but not to an amount that exceeds $2.80 per share) to a price per share that is equal to 75% of the lowest trading price of the Company’s common stock over a ten-consecutive-trading-day period, beginning on and inclusive of the first trading day following the public announcement of any failure to complete such transactions (or the abandonment thereof), which failure of abandonment was the result of the Triggering Event. The exercise price of the Warrant and conversion prices of the Convertible Notes are also subject to certain customary anti-dilution adjustment.

     The Warrant provides for certain cashless exercise rights that are exercisable by the holder of the Warrant in the event that certain governmental approvals from the People’s Republic of China permitting the exercise of the Warrant for cash are not obtained.

     See further discussion of the accounting impact of the Warrant at Note 12 “— Notes Payable, Long-Term Debt and Lease Obligations.”

     Additionally, the Term Sheet provides that when the joint venture transactions are closed:

• BGP will have purchased approximately 23.8 million shares of the Company’s common stock for $66.6 million and thereby own, before giving effect to the issuance of those shares, approximately 19.99% of the Company’s outstanding common stock.

• To the extent that shares are not purchased by BGP under the Warrant prior to closing, the new revolving credit loans from Bank of China, evidenced by the Convertible Notes will convert into approximately 14.3 million shares of ION common stock and will be credited against the approximately 23.8 million shares of ION stock to be purchased by BGP at the transaction closing.

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• ION will appoint a designee of BGP to its Board of Directors to serve with the current nine members of ION’s Board of Directors.

• BGP will arrange for the Company’s then-outstanding long-term debt under the Amended Credit Facility (currently $101.6 million outstanding at February 22, 2009) to be refinanced at the joint venture closing.

• ION will use a portion of the proceeds from the transactions to pay off and retire the Company’s outstanding indebtedness under its current revolving credit facility (after giving effect to the $40.0 million in additional revolving credit borrowings under the existing Amended Credit Facility, approximately $118.0 million, excluding the non-cash debt discount, is currently outstanding at February 22, 2009) and $35.0 million in seller subordinated indebtedness incurred in connection with the acquisition of ARAM in September 2008.

• ION will receive a new $100 million revolving credit facility at the joint venture closing.

• The $19.1 million (as of December 31, 2009) secured equipment financing transaction with ICON will be assigned to and become indebtedness of the joint venture.

(3) ARAM Acquisition

     In July 2008, the Company signed a share purchase agreement to acquire all of the outstanding shares of ARAM Systems Ltd., a Canadian-based provider of cable-based land seismic recording systems, and its affiliated company, Canadian Seismic Rentals Inc. (sometimes collectively referred to herein as “ARAM”), from their shareholders (“the Sellers”). Founded in 1971, ARAM designs, manufactures, sells and leases land seismic data acquisition systems, specializing in analog cabled systems. On September 17, 2008, the Company, ARAM and the Sellers entered into an Amended and Restated Share Purchase Agreement (the “Amended Purchase Agreement”), which amended the terms of the original share purchase agreement executed in July 2008. On September 18, 2008, the Company, through its acquisition subsidiary, 3226509 Nova Scotia Company (“ION Sub”), completed the acquisition of the outstanding shares of ARAM in accordance with the terms of the Amended Purchase Agreement.

     The Company acquired ARAM for the purpose of advancing the Company’s strategy and market penetration in the land seismic recording system business. The operations of ARAM were combined with those of the Company as of September 19, 2008. The acquisition was accounted for by the purchase method, with the purchase price allocated to the fair value of assets purchased and liabilities assumed. The allocation of the purchase price, including related direct costs, for the acquisition is as follows (in thousands):

Fair values of assets and liabilities:
Net current assets	$	69,827
Property, plant, equipment and seismic rental equipment		24,026
Net other long-term assets		2,480
Intangible assets		101,800
Goodwill		173,836
Deferred tax liability		(31,723	)
Capital lease obligations		(3,453	)
Total allocated purchase price		336,793
Less non-cash consideration — issuance of common stock		(48,958	)
Less issuance of seller notes		(45,000	)
Less cash of acquired business		(10,677	)
Cash paid for acquisition, net of cash acquired	$	232,158

     The intangible assets of ARAM relate to customer relationships, proprietary technology, trade names and non-compete agreements, which are being amortized over their estimated useful lives ranging from five to eight years. At December 31, 2008, the Company completed its annual impairment test for goodwill, including its intangible assets. As a result of the overall economic crisis, which significantly decreased the current demand for analog acquisition products, especially in North America and Russia, the Company determined that the goodwill associated with the ARAM acquisition and a portion of ARAM’s acquired intangible assets were impaired. At March 31, 2009, the Company performed an interim impairment test on the intangible assets of ARAM based upon the continued depressed market conditions and determined that $38.0 million of intangibles related to ARAM’s proprietary technology

F-18

and customer relationships was impaired. See further discussion of goodwill and intangible assets and the impairment of these assets at Note 9 “— Goodwill” and Note 10 “— Intangible Assets.”

     The following summarized unaudited pro forma consolidated income statement information for the years ended December 31, 2008 and 2007, assumes that the ARAM acquisition had occurred as of the beginning of the periods presented. The Company has prepared these unaudited pro forma financial results for comparative purposes only. These unaudited pro forma financial results may not be indicative of the results that would have occurred if the Company had completed the acquisitions as of the beginning of the periods presented or the results that will be attained in the future.

	Years ending December 31
	2008			2007
Pro forma net revenues	$	741,982		$	838,022
Pro forma income (loss) from operations	$	(201,603	)	$	91,994
Pro forma net income (loss)	$	(302,890	)	$	42,931
Pro forma basic net income (loss) per common share	$	(3.08	)	$	0.50
Pro forma diluted net income (loss) per common share	$	(3.08	)	$	0.46

(4) Accounts and Notes Receivable

     A summary of accounts receivable is as follows (in thousands):

	December 31,
	2009			2008
Accounts receivable, principally trade	$	116,720		$	156,250
Less allowance for doubtful accounts		(5,674	)		(5,685	)
Accounts receivable, net	$	111,046		$	150,565

     A summary of notes receivable, accrued interest, and allowance for doubtful notes is as follows (in thousands):

	December 31,
	2009			2008
Notes receivable and accrued interest	$	13,438		$	16,103
Less allowance for doubtful notes		(71	)		—
Notes receivable, net		13,367			16,103
Less current portion notes receivable, net		13,367			11,665
Long-term notes receivable	$	—		$	4,438

     The activity in the allowance for doubtful notes receivable is as follows (in thousands):

	Years Ended December 31,
	2009		2008			2007
Balance at beginning of period	$	—	$	3,351		$	4,530
Additions charged to bad debt expense		71		—			—
Write-offs charged against the allowance		—		(3,351	)		(1,179	)
Balance at end of period	$	71	$	—		$	3,351

(5) Inventories

     A summary of inventories is as follows (in thousands):

	December 31,
	2009			2008
Raw materials and subassemblies	$	111,022		$	104,862
Work-in-process		10,129			20,698
Finished goods		112,068			161,065
Reserve for excess and obsolete inventories		(30,618	)		(24,106	)
Total	$	202,601		$	262,519

F-19

     The Company provides for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and its estimated market value based upon assumptions about future demand for the Company’s products and market conditions. For the years ended December 31, 2009, 2008 and 2007, the Company recorded inventory obsolescence and excess inventory charges of approximately $9.0 million, $14.0 million, and $5.3 million, respectively. In 2009, the majority of the increase in the reserves for excess and obsolete inventory in 2009 related to Marine Imaging Systems mature acquisition systems and source products.

(6) Supplemental Cash Flow Information and Non-Cash Activity

     Supplemental disclosure of cash flow information is as follows (in thousands):

	Years Ended December 31,
	2009		2008		2007
Net cash paid during the period for:
Interest	$	24,051	$	5,251	$	3,370
Income taxes		22,184		14,894		7,470

     During the twelve months ended December 31, 2009, the Company transferred approximately $48.6 million of inventories, at cost, to its seismic rental equipment pool.

     In October 2009, the Company entered into a bridge financing that included the Warrant and the Convertible Notes. See further discussion of these transactions at Note 2 “— Term Sheet with BGP and Bridge Financing Transactions.” As a result, the Company recorded a $15.4 million discount on the Convertible Notes associated with the day-one fair value of the Warrant. The Company also recorded a subsequent fair value adjustment of $29.4 million, reflecting a total non-cash liability associated with the Warrant of $44.8 million at December 31, 2009.

     In September 2008, the Company acquired all of the share capital of ARAM. As part of the consideration for this acquisition, the Company issued to one of the Sellers (i) 3,629,211 shares of the Company’s common stock valued at $49.0 million and (ii) the Senior Seller Note and the Subordinated Seller Note in the aggregate original principal amount of $45.0 million. See further discussion of this acquisition at Note 3 “— ARAM Acquisition” above.

     In November 2007, approximately $52.8 million of the Company’s $60.0 million 5.5% convertible senior notes was converted. This resulted in a non-cash reclassification from long-term debt to stockholders’ equity as the Company issued approximately 12.2 million shares. In July 2008, approximately $4.0 million of the Company’s $7.2 million 5.5% convertible senior notes was converted. This resulted in a non-cash reclassification from long-term debt to stockholders’ equity as the Company issued approximately 0.9 million shares.

     In 2009, 2008 and 2007, the Company purchased $0.4 million, $5.9 million and $6.0 million, respectively, of computer and other equipment, which were financed through capital leases.

(7) Property, Plant, Equipment and Seismic Rental Equipment

     A summary of property, plant and equipment is as follows (in thousands):

	December 31,
	2009			2008
Land	$	25		$	25
Buildings		15,710			15,697
Machinery and equipment		90,656			103,377
Lease and seismic rental equipment		65,856			18,329
Furniture and fixtures		4,735			4,834
Other		1,187			5,722
Total		178,169			147,984
Less accumulated depreciation		(99,614	)		(88,855	)
Property, plant, equipment and seismic rental equipment, net	$	78,555		$	59,129

     Total depreciation expense for the years ended December 31, 2009, 2008 and 2007 was $32.1 million, $19.2 million and $16.4 million, respectively. At December 31, 2009, a building of $6.7 million at cost, less accumulated depreciation of $4.7 million is

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continuing to be depreciated over its useful life, pursuant to a ten-year non-cancelable lease agreement (see Note 12 “— Notes Payable, Long-term Debt and Lease Obligations”).

(8) Cost Method Investment

     In December 2004, the Company sold all of the capital stock of Applied MEMS, a wholly-owned subsidiary, to Colibrys Ltd. (Colibrys), a privately-held firm based in Switzerland. Colibrys manufactures micro-electro-mechanical-systems (MEMS) accelerometers used in the Company’s VectorSeis digital, full-wave seismic sensors, as well as products for applications that include test and measurement, earthquake and structural monitoring, and defense. In exchange for the stock of Applied MEMS, the Company received shares of Colibrys equal to approximately 10% of the outstanding equity of Colibrys (valued at $3.5 million), and the right to designate one member of the board of directors of Colibrys. Since 2004, the Company had made additional cash contributions to Colibrys of $1.0 million. The investment is accounted for under the cost method.

     To protect the Company’s intellectual property rights, the Company retained ownership of its MEMS intellectual property, and in connection with its investment in Colibrys, the Company licensed certain intellectual property to Colibrys on a royalty-free basis. Additionally, the Company received preferential rights to Colibrys’ MEMS technology for seismic applications involving natural resource extraction. The Company also entered into a five-year supply agreement with Colibrys and Applied MEMS, which provided for them to supply the Company with MEMS accelerometers on an exclusive basis in the Company’s markets at agreed prices consistent with market prices. This supply agreement expired in December 2009, and the Company has no further purchase obligations to buy MEMS from Colibrys.

     As part of the periodic cost method investment impairment review, the Company identified its investment in Colibrys as meeting impairment indicators as of December 31, 2009. The Company then calculated the fair value of its investment and based upon the Company’s analysis, the Company determined that its investment was fully impaired from its original cost of $4.5 million.

(9) Goodwill

     On December 31, 2009, the Company completed the annual review of the carrying value of goodwill in the Marine Imaging Systems and Data Management Solutions reporting units and noted no impairments. The annual impairment test for 2009 indicated that the fair value of these two reporting units significantly exceeded their carrying values. However, if the estimates or related projections associated with the reporting units significantly change in the future, the Company may be required to record further impairment charges.

     On December 31, 2008, the Company completed the annual review of the carrying value of goodwill in the Land Imaging Systems (including ARAM), Marine Imaging Systems, Data Management Solutions and ION Solutions reporting units. For purposes of goodwill, ARAM was considered a separate reporting unit in 2008 since it was acquired late in that year and integration into Land Imaging Systems was not fully completed as of December 31, 2008. The Company determined during the fourth quarter of fiscal 2008 that the continued market and economic decline, the resulting decline in the North American and Russian land systems market, and the uncertainty of future revenues, income and related cash flows had resulted in impairments within its Land Imaging Systems, ARAM and ION Solutions reporting units. As a result of these evaluations, the Company determined the goodwill of these reporting units was fully impaired and recorded a goodwill impairment charge of $242.2 million at December 31, 2008.

     The following is a summary of the changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2008 (in thousands):

	Land			Marine		Data
	Imaging			Imaging		Management			ION Solutions
	Systems			Systems		Solutions			Division			Total
Balance at January 1, 2008	$	3,478		$	26,984	$	32,278		$	90,405		$	153,145
Goodwill acquired during the year		173,836			—		—			—			173,836
Impact of acquisition net operating losses		—			—		(730	)		(3,496	)		(4,226	)
Impact of foreign currency translation adjustments		(22,064	)		—		(8,760	)		—			(30,824	)
Impairment losses		(155,250	)		—		—			(86,909	)		(242,159	)
Balance at December 31, 2008		—			26,984		22,788			—			49,772
Impact of foreign currency translation adjustments		—			—		2,280			—			2,280
Balance at December 31, 2009	$	—		$	26,984	$	25,068		$	—		$	52,052

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     During fiscal year 2008, the Company made adjustments to goodwill related to the tax affected portion of the net operating losses (NOLs) utilized with respect to the Company’s previous GXT and Concept Systems acquisitions in 2004. These adjustments resulted in reductions of approximately $4.2 million to the Company’s goodwill balances.

(10) Intangible Assets

     In the first quarter of 2009, the Company recorded an impairment charge of $38.0 million, before tax, associated with a portion of its proprietary technology and the remainder of its customer relationships related to the ARAM acquisition. In the fourth quarter of 2008, the Company had recorded an intangible asset impairment charge of $10.1 million, before tax, related to ARAM’s customer relationships, trade name and non-compete agreements. This additional impairment during the first quarter of 2009 was the result of the continued overall economic and financial crisis, which has continued to adversely affect the demand for the Company’s products and services, especially for its land analog acquisition products within North America and Russia. As of December 31, 2009, no further impairment indicators were noted and no additional impairments of the Company’s intangible assets had occurred. The Company’s net book value associated with ARAM’s acquired intangibles was $34.8 million at December 31, 2009.

     A summary of intangible assets, net, is as follows (in thousands):

	December 31, 2009
	Gross		Accumulated
	Amount		Amortization			Impairments			Net
Proprietary technology	$	84,864	$	(19,907	)	$	(33,311	)	$	31,646
Customer relationships		45,415		(18,833	)		(4,733	)		21,849
Trade names		11,389		(6,164	)		—			5,225
Patents		3,689		(2,964	)		—			725
Intellectual property rights		4,550		(2,871	)		—			1,679
Non-compete agreements		919		(277	)		—			642
Total	$	150,826	$	(51,016	)	$	(38,044	)	$	61,766

	December 31, 2008
	Gross		Accumulated
	Amount		Amortization			Impairments			Net
Proprietary technology	$	80,755	$	(11,997	)	$	—		$	68,758
Customer relationships		50,641		(15,065	)		(5,130	)		30,446
Trade names		14,516		(4,260	)		(4,207	)		6,049
Patents		3,689		(2,735	)		—			954
Intellectual property rights		3,050		(2,514	)		—			536
Non-compete agreements		1,575		(89	)		(786	)		700
Total	$	154,226	$	(36,660	)	$	(10,123	)	$	107,443

     Total amortization expense for intangible assets for the years ended December 31, 2009, 2008 and 2007 was $13.4 million, $11.2 million, and $8.3 million, respectively. A summary of the estimated amortization expense for the next five years is as follows (in thousands):

Years Ended December 31,
2010	$	12,281
2011	$	10,604
2012	$	9,334
2013	$	8,411
2014	$	6,767

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(11) Accrued Expenses

     A summary of accrued expenses is as follows (in thousands):

	December 31,
	2009		2008
Compensation, including compensation-related taxes and commissions	$	20,144	$	24,446
Accrued multi-client data library acquisition costs		13,890		17,654
Accrued taxes (primarily income taxes)		11,159		6,143
Product warranty		5,088		10,526
Other		15,612		18,669
Total accrued expenses	$	65,893	$	77,438

     The Company generally warrants that all manufactured equipment will be free from defects in workmanship, materials, and parts. Warranty periods generally range from 30 days to three years from the date of original purchase, depending on the product. The Company provides for estimated warranty as a charge to cost of sales at time of sale, which is when estimated future expenditures associated with such contingencies become probable and reasonably estimated. However, new information may become available, or circumstances (such as applicable laws and regulations) may change, thereby resulting in an increase or decrease in the amount required to be accrued for such matters (and therefore a decrease or increase in reported net income in the period of such change). A summary of warranty activity is as follows (in thousands):

	Years Ended December 31,
	2009			2008			2007
Balance at beginning of period	$	10,526		$	13,439		$	6,255
Opening balance for accruals for warranties for acquired entity		—			845			—
Accruals (expirations) for warranties issued/expired during the period		(2,121	)		4,624			13,074
Settlements made (in cash or in kind) during the period		(3,317	)		(8,382	)		(5,890	)
Balance at end of period	$	5,088		$	10,526		$	13,439

(12) Notes Payable, Long-term Debt and Lease Obligations

	December 31,
Obligations	2009			2008
$140.0 million revolving line of credit	$	118,000		$	66,000
Term loan facility		101,563			120,313
Secured Equipment Financing		19,080			—
Bridge loan		—			40,816
Amended and restated subordinated seller note		35,000			35,000
Subordinated seller note		—			10,000
Facility lease obligation		4,174			4,610
Equipment capital leases and other notes payable		8,220			15,170
Unamortized non-cash debt discount		(8,656	)		—
Total		277,381			291,909
Current portion of notes payable, long-term debt and lease obligations		(271,132	)		(38,399	)
Non-current portion of notes payable, long-term debt and lease obligations	$	6,249		$	253,510

     Revolving Line of Credit and Term Loan — Amended Credit Facility. The Company, its subsidiary, ION International S.à r.l. (“ION Sàrl), and certain of the Company’s domestic and other foreign subsidiaries (as guarantors) are parties to a $140.0 million amended and restated revolving credit facility and a $125.0 million original principal amount term loan facility under the terms of its Amended Credit Facility, which is governed by the terms of its amended credit agreement with its commercial bank lenders. The revolving credit facility terminates on July 3, 2013 and provides additional flexibility for the Company’s international capital needs by permitting non-U.S. borrowings by ION Sàrl under the facility and providing the Company and ION Sàrl the ability to borrow in alternative currencies. Under the terms of the Amended Credit Agreement, up to $84.0 million (or its equivalent in foreign currencies) is available for borrowings by ION Sàrl and up to $105.0 million is available for borrowings by the Company; however, the total level of outstanding borrowings under the revolving credit facility may not exceed $140.0 million. The term loan indebtedness was borrowed in September 2008 to fund a portion of the cash consideration for the ARAM acquisition.

     The interest rate on borrowings under the Amended Credit Facility is, at the Company’s option, (i) an alternate base rate (either the prime rate of HSBC Bank USA, N.A., or a federals funds effective rate plus 0.50%, plus an applicable interest margin) or (ii) for Eurodollar borrowings and borrowings in Euros, pounds sterling or Canadian dollars, a LIBOR-based rate, plus an applicable interest margin. The amount of the applicable interest margin is determined by reference to a leverage ratio of total funded debt to consolidated EBITDA for the four most recent trailing fiscal quarters. The interest rate margins range from 2.875% to 5.5% for alternate base rate borrowings, and from 3.875% to 6.5% for Eurodollar borrowings. As of December 31, 2009, the $101.6 million in outstanding term loan indebtedness under the Amended Credit Facility and the $118.0 million in total outstanding revolving credit indebtedness under the Amended Credit Facility accrued interest at an applicable LIBOR-based interest rate of 6.7% per annum. The

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average effective interest rates for the quarter ended December 31, 2009 under the LIBOR-based rates for both the term loan indebtedness and the Amended Credit Facility (as a whole) were 6.2%, respectively.

     The Company and its bank lenders entered into a Fifth Amendment to the Amended Credit Facility in June 2009. The principal modifications, excluding the amended financial covenants listed further below, to the terms of the Amended Credit Agreement resulting from the Fifth Amendment were as follows:

• Increased applicable maximum interest rate margins in the event that the Company’s leverage ratio exceeds 2.25 to 1.0 — from 4.5% to up to 5.5% for alternate base rate loans, and from 5.5% to up to 6.5% for LIBOR-rate loans;

• Modified a restricted payments covenant, permitting the Company to apply up to $6.0 million of its available cash on hand to prepay the indebtedness under the Jefferies bridge loan agreement;

• Added a requirement for the Company to apply 50% of its “Excess Cash Flow,” if any, calculated with respect to a just-completed fiscal year, to the prepayment of the term loan under the Amended Credit Agreement if the Company’s fixed charge coverage ratio or its leverage ratio for the just-completed fiscal year did not meet certain requirements; and

• Modified the Amended Credit Agreement to prohibit any increase in the revolving commitments under the Amended Credit Facility until the Company had delivered its compliance certificate for the period ending September 30, 2009, and then only if certain fixed charge coverage ratio and leverage ratio requirements were met.

The Amended Credit Agreement contains covenants that restrict the Company, subject to certain exceptions, from:

• Incurring additional indebtedness (including capital lease obligations), granting or incurring additional liens on the Company’s properties, pledging shares of the Company’s subsidiaries, entering into certain merger or other similar transactions, entering into transactions with affiliates, making certain sales or other dispositions of assets, making certain investments, acquiring other businesses and entering into certain sale-leaseback transactions with respect to certain of the Company’s properties; or

• Paying cash dividends on the Company’s common stock and repurchasing and acquiring shares of the Company’s common stock unless (i) there is no event of default under the Amended Credit Facility and (ii) the amount of cash used for cash dividends, repurchases and acquisitions does not, in the aggregate, exceed an amount equal to the excess of 30% of ION’s domestic consolidated net income for the Company’s most recently completed fiscal year over $15.0 million.

     The Amended Credit Facility also requires the Company to be in compliance with certain financial covenants, including requirements for the Company and its domestic subsidiaries to:

• Maintain a minimum fixed charge coverage ratio (which must be not less than 1.10 to 1.0 for the fiscal quarter ended December 31, 2009; 1.15 to 1.0 for the fiscal quarter ending March 31, 2010; 1.25 to 1.0 for the fiscal quarter ending June 30, 2010; 1.35 to 1.0 for the fiscal quarter ending September 30, 2010; and 1.50 to 1.0 the fiscal quarter ending December 31, 2010 and thereafter);

• Not exceed a maximum leverage ratio (3.00 to 1.0 for each of the fiscal quarters ended December 31, 2009; 2.75 to 1.0 for the fiscal quarter ending March 31, 2010 and June 30, 2010; 2.5 to 1.0 for the fiscal quarter ending September 30, 2010; and 2.25 to 1.0 the fiscal quarter ending December 31, 2010 and thereafter); and

• Maintain a minimum tangible net worth of at least 80% of the Company’s tangible net worth as of September 18, 2008 (the date that the Company completed its acquisition of ARAM), plus 50% of the Company’s consolidated net income for each quarter thereafter, and 80% of the proceeds from any mandatorily convertible notes and preferred and common stock issuances for each quarter thereafter.

     On October 23, 2009, the Company and ION S.à.r.l. entered into a Sixth Amendment to the Amended and Restated Credit Agreement that, among other things, (i) increased the aggregate revolving commitment amount under the Amended Credit Facility from $100.0 million to $140.0 million, (ii) permitted Bank of China, New York Branch, to join the Amended Credit Facility, (iii) modified, or provided limited waivers of, certain of the financial and other covenants contained in the Amended Credit Facility (including waivers to the extent necessary to permit the issuance of the BGP Warrant) and (iv) permitted the principal amount of the new revolving credit loans from Bank of China (as evidenced by the Convertible Notes) to be convertible into shares of our common

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stock. See further discussion on the proposed joint venture above at Note 2 “— Term Sheet with BGP and Bridge Financing Transactions.”

     The execution of the Sixth Amendment, which included waivers of the financial covenants contained in the Amended Credit Facility for the fiscal quarters ending September 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010, should enable the Company to conduct its operations without defaulting under the Amended Credit Facility until the transactions with BGP are completed, which the Company currently believes will occur in March 2010. Without these waivers, the Company would not have been in compliance with certain of its financial covenants at September 30, 2009 or at December 31, 2009. However, any failure to comply with the Company’s other covenants under the Amended Credit Facility could result in an event of default that, if not cured or waived, could have a material adverse effect on the Company’s financial condition, results of operations and debt service capabilities.

     If the proposed transactions under the Term Sheet with BGP are not completed by March 31, 2010, then the current waivers, upon notice from the lenders after a designated period of time, would cease to be effective and the Company at that time would likely not be in compliance with certain of the financial covenants contained in the Amended Credit Facility, which could then result in an event of default. As the current waivers cover a period of less than twelve months from December 31, 2009, the Company has classified its long-term indebtedness under its revolving line of credit and term loan facility under the Amended Credit Facility as current at December 31, 2009. As a result of the cross-default provisions in its secured equipment financing and its amended and restated subordinated seller note, the Company has also classified these long-term obligations as current at December 31, 2009.

     The term loan indebtedness under the Amended Credit Facility is subject to scheduled quarterly amortization payments of $4.7 million per quarter until December 31, 2010. Commencing on December 31, 2010, the quarterly principal amortization increases to $6.3 million per quarter until December 31, 2012, when the quarterly principal amortization amount increases to $9.4 million for each quarter until maturity on September 17, 2013. The term loan indebtedness matures on September 17, 2013, but the terms of the Amended Credit Facility allow the administrative agent to accelerate the maturity date to a date that is six months prior to the maturity date of additional debt financing that the Company may incur to refinance certain indebtedness incurred in connection with the ARAM acquisition.

     The Amended Credit Facility contains customary events of default provisions (including an event of default upon any “change of control” event affecting the Company), the occurrence of which could lead to an acceleration of ION’s payment obligations under the Amended Credit Facility.

     The Amended Credit Facility includes a $35.0 million sub-limit for the issuance of documentary and stand-by letters of credit, of which $1.2 million was outstanding at December 31, 2009. As of December 31, 2009, the Company had available $20.0 million of additional revolving credit borrowing capacity, which can be used solely for funding additional letters of credit under the Amended Credit Facility.

     The obligations of the Company and ION Sàrl under the Amended Credit Facility are guaranteed by certain domestic and foreign subsidiaries of the Company and are secured by security interests in stock of the domestic guarantors and certain first-tier foreign subsidiaries, and by substantially all of the Company’s other assets and those of the guarantors. The obligations of ION Sàrl and the foreign guarantors are secured by security interests in all of the stock of the foreign guarantors and the domestic guarantors, and substantially all of the Company’s assets and the other assets of the foreign guarantors and the domestic guarantors.

     Convertible Notes and Warrant. On October 27, 2009, the Company borrowed an aggregate of $40.0 million in the form of revolving credit bridge financing arranged by BGP from Bank of China, New York Branch and evidenced by the Convertible Notes. This borrowing was permitted by the terms of the Sixth Amendment to the Credit Facility, which increased the aggregate revolving commitment amount under the accordion feature provisions of the Amended Credit Facility from $100.0 million to $140.0 million and permitted Bank of China to join the Amended Credit Facility as a lender. As further described above, the total outstanding indebtedness under the Amended Credit Facility, which includes the Bank of China bridge loans, was $118.0 million, excluding the non-cash debt discount, at December 31, 2009.

     The Convertible Notes, issued in October 2009 in connection with the execution of the Term Sheet with BGP, provide that at the stated initial conversion price of $2.80 per share, the full $40.0 million principal amount under the Convertible Notes would be convertible into 14,285,714 shares of Common Stock. The Convertible Notes provide that the conversion price and the number of shares into which the notes may be converted are subject to adjustment on terms and conditions similar to those contained in the Warrant.

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     As part of BGP arranging for the Bank of China to join the Amended Credit Facility, the Company granted the Warrant to BGP. The Warrant will be exercisable, in whole or in part, at any time and from time to time, subject to the conditions described below. The Warrant will initially entitle the holder thereof to purchase a number of shares of common stock equal to $40.0 million divided by the exercise price of $2.80 per share, subject to adjustment as described below. At the initial exercise price of $2.80 per share, at such time as the Warrant becomes exercisable, it would initially be fully exercisable for 14,285,714 shares of common stock.

     The Warrant will only become exercisable and the Convertible Notes will only become convertible upon receipt of certain governmental approvals. Any conversions of the Convertible Notes and prior exercises of the Warrant will reduce the dollar amount under the Warrant into which the exercise price may be divided to determine the number of shares that may be acquired upon exercise.

     The exercise price under the Warrant and conversion prices under the Convertible Notes will be subject to adjustment upon the occurrence of a “Triggering Event.” A “Triggering Event” will occur in the event that the proposed joint venture transactions with BGP cannot be completed by March 31, 2010, solely as a result of the occurrence of a statement, order or other indication from any relevant governmental regulatory agency that (a) the transactions would not be approved, would be opposed, objected to or sanctioned or (b) the transactions or BGP’s business and operations would be required to be altered (or upon the earlier abandonment of such transactions due to any such statement, indication or order). In such event, the exercise price and conversion price per share will be adjusted (but not to an amount that exceeds $2.80 per share) to a price per share that is equal to 75% of the lowest trading price of our common stock over a ten-consecutive-trading-day period, beginning on and inclusive of the first trading day following the public announcement of any failure to complete such transactions (or the abandonment thereof), which failure or abandonment was the result of the Triggering Event. The exercise price of the Warrant and conversion prices of the Convertible notes are also subject to certain customary anti-dilution adjustments.

     The Warrant provides for certain cashless exercise rights that are exercisable by the holder of the Warrant in the event that certain governmental approvals from the People’s Republic of China permitting the exercise of the Warrant for cash are not obtained.

     At the same time as the closing of the joint venture transactions, all of the then-outstanding principal amounts under the Convertible Notes will be automatically converted into shares of common stock unless, at the option of the holder of the Warrant, the holder elects to exercise the Warrant in whole or in part, in lieu of the full conversion of such remaining principal amounts under the Convertible Notes.

     Assuming that no adjustments occur to the exercise or conversion prices of (or the number of shares to be issued under) the Warrant or the Convertible Notes prior to closing the joint venture transactions, the Term Sheet provides that at the closing of the transactions, BGP would purchase directly from the Company a number of shares of Common Stock at a purchase price of $2.80 per share such that, when added to the total number of shares of Common Stock that may have been issued pursuant to conversion of the Convertible Notes and /or exercise of the Warrant, BGP (and its transferees and permitted assignees) would own, together, 19.99% of the Company’s issued and outstanding shares of Common Stock (i.e. 23.8 million shares) before giving effect to the issuance of those shares.

     As discussed above, the exercise price of the Warrant is subject to adjustment resulting from “Triggering Event”. Following the guidance of ASC 815 “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,” the Company determined that the Warrant is not considered indexed to the Company’s own stock and is therefore required to be accounted for as a liability at its fair value. As a result, the Company recorded a $15.4 million non-cash discount on the Convertible Notes associated with the day-one fair value of the Warrant, which is being amortized over the expected term of the notes (March 31, 2010). Approximately $6.7 million of this non-cash debt discount was recognized as interest expense during the year ended December 31, 2009. The Company also recorded a subsequent non-cash fair value adjustment of $29.4 million, reflecting a total non-cash liability associated with the Warrant of $44.8 million at December 31, 2009.

     Secured Equipment Financing. On June 29, 2009, the Company entered into a $20.0 million secured equipment financing transaction with ICON. Two master loan agreements were entered into with ICON in connection with this financing transaction: (i) the Company, ARAM Rentals Corporation, a Nova Scotia unlimited company (“ARC”), and ICON entered into a Canadian Master Loan and Security Agreement dated as of June 29, 2009 with regard to certain seismic equipment leased to customers by ARC, and (ii) the Company, ARAM Seismic Rentals, Inc., a Texas corporation (“ASRI”), and ICON entered into a Master Loan and Security Agreement (U.S.) dated as of June 29, 2009 with regard to certain seismic equipment leased to customers by ASRI (collectively, the “ICON Loan Agreements”). All borrowed indebtedness under the ICON Loan Agreements is scheduled to mature on July 31, 2014. The Company used the proceeds of the secured term loans for working capital and general corporate purposes.

F-26

     Under the ICON Loan Agreements, ICON advanced $12.5 million on June 29, 2009 and $7.5 million on July 20, 2009. The indebtedness under the ICON Loan Agreements is secured by first-priority liens in (a) certain ARAM seismic rental equipment owned by ARC or ASRI located in the United States and Canada (subject to certain exceptions), and certain additional and replacement seismic equipment owned by such subsidiaries from time to time, (b) written leases or other agreements evidencing payment obligations relating to the leasing by ARC or ASRI of this equipment to their respective customers, including their related receivables, (c) the cash or cash equivalents held by such subsidiaries and (d) any proceeds thereof.

     The repayment obligations of each of ARC and ASRI under the ICON Loan Agreements are guaranteed by the Company under a Guaranty dated as of June 29, 2009 (the “Guaranty”). The indebtedness under the ICON Loan Agreements and the Guaranty constitute permitted indebtedness under the Amended Credit Facility.

     Under both ICON Loan Agreements, interest on the outstanding principal amount will accrue at a fixed interest rate of 15% per annum calculated monthly, and is payable monthly on the first day of each month. Principal and interest are payable, commencing on September 1, 2009, in 60 monthly installments until the maturity date, when all remaining outstanding principal and interest will be due and payable. Pursuant to the ICON Loan Agreements, ICON received a non-refundable upfront fee of $0.3 million. In addition, ICON will receive an administrative fee equal to 0.5% of the aggregate principal amount of advances under the ICON Loan Agreements, payable at the end of each of the first four years during their terms. Inclusive of these additional fees, the effective interest rate on the secured equipment financing was 16.3% as of December 31, 2009.

     Beginning on August 1, 2012, and continuing until January 31, 2014, the outstanding principal balances of the loans may be prepaid in full by giving ICON 30 days’ prior written notice and paying a prepayment fee equal to 3.0% of the then-outstanding principal amount of the loans. Commencing on February 1, 2014, the loans may be prepaid in full by giving ICON 30 days’ prior written notice and without payment of any prepayment penalty or fee.

     The ICON Loan Agreements contain certain cross-default provisions with respect to defaults under the Company’s Amended Credit Facility. Therefore, similar to the current classification of the Amended Credit Facility indebtedness, the Company has also classified this long-term indebtedness as current.

     Assuming that the BGP joint venture transaction is completed as planned, the Company anticipates that the obligations under the Guaranty will be assumed by a joint venture entity, although it is also expected that the Company would remain secondarily liable on the Guaranty.

     Amended and Restated Subordinated Seller Note. As part of the purchase price for the ARAM acquisition, in September 2008, the Company’s acquisition subsidiary (“ION Sub”) issued an unsecured senior promissory note in the original principal amount of $35.0 million (the “Senior Seller Note”) to one of the selling shareholders of ARAM, now known as Maison Mazel Ltd. On December 30, 2008, in connection with acquisition refinancing transactions that were completed on that date, the terms of the Senior Seller Note were amended and restated pursuant to an Amended and Restated Subordinated Promissory Note dated December 30, 2008 (the “Amended and Restated Subordinated Note”). The principal amount of the Amended and Restated Subordinated Note is $35.0 million, which matures on September 17, 2013. The Company also entered into a guaranty dated December 30, 2008, whereby the Company guaranteed on a subordinated basis, ION Sub’s repayment obligations under the Amended and Restated Subordinated Note. Interest on the outstanding principal amount under the Amended and Restated Subordinated Note accrues at the rate of 15% per annum, and is payable quarterly.

     The terms of the Amended and Restated Subordinated Note provide that the particular covenants contained in the Amended Credit Agreement (or in any successor agreement or instrument) that restrict the Company’s ability to incur additional indebtedness will be incorporated into the Amended and Restated Subordinated Note. However, under the Amended and Restated Subordinated Note, neither Maison Mazel nor any other holder of the Amended and Restated Subordinated Note have a separate right to consent to or approve any amendment or waiver of the covenant as contained in the Amended Credit Facility.

     In addition, ION Sub agreed that if it incurs indebtedness under any financing that:

• qualifies as “Long Term Junior Financing” (as defined in the Amended Credit Agreement),

• results from a refinancing or replacement of the Amended Credit Facility such that the aggregate principal indebtedness (including revolving commitments) thereunder would be in excess of $275.0 million, or

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• qualifies as unsecured indebtedness for borrowed money that is evidenced by notes or debentures, has a maturity date of at least five years after the date of its issuance and results in total gross cash proceeds to the Company of not less than $40.0 million,

then ION Sub is obligated to repay in full from the total proceeds from such financing the then-outstanding principal of and interest on the Amended and Restated Subordinated Note.

     The indebtedness under the Amended and Restated Subordinated Note is subordinated to the prior payment in full of the Company’s “Senior Obligations,” which is defined in the Amended and Restated Subordinated Note as the principal, premium (if any), interest and other amounts that become due in connection with:

• the Company’s obligations under the Amended Credit Facility,

• the Company’s liabilities with respect to capital leases and obligations that qualify as a “Sale/Leaseback Agreement” (as that term is defined in the Amended Credit Agreement),

• guarantees of the indebtedness described above, and

• debentures, notes or other evidences of indebtedness issued in exchange for, or in the refinancing of, the Senior Obligations described above, or any indebtedness arising from the payment and satisfaction of any Senior Obligations by a guarantor.

     In April 2009, ION Sub assigned the Amended and Restated Subordinated Note to the Company, and the related guaranty by the Company of ION Sub’s repayment obligations was terminated. In connection with this assignment, ION Sub was released from its obligations under the Amended and Restated Subordinated Note.

     The Amended and Restated Subordinated Seller Note contains certain cross-default provisions with respect to defaults and acceleration of indebtedness under the Company’s Amended Credit Facility. Therefore, similar to the current classification of the Amended Credit Facility, the Company has also classified this long-term indebtedness as current.

     Bridge Loan. On December 30, 2008, the Company and certain of its domestic subsidiaries (as guarantors) entered into the Bridge Loan Agreement with Jefferies Finance LLC (“Jefferies”). Under the Bridge Loan Agreement, the Company borrowed $40.8 million in unsecured indebtedness (the “Bridge Loan”) to refinance certain outstanding short-term indebtedness that had been loaned to the Company by Jefferies in connection with the completion of the Company’s acquisition of ARAM in September 2008. The maturity date of the Bridge Loan was January 31, 2010. In June 2009, the Company repaid the entire outstanding Bridge Loan indebtedness using the net proceeds of $38.2 million from a private placement of its common stock and $2.6 million of operating cash. Under the Bridge Loan Agreement, the Company was required to pay to Jefferies a non-refundable initial duration fee of 3.0% of the aggregate principal amount of the Bridge Loan outstanding (if any) on June 30, 2009 and a non-refundable additional duration fee of 2.0% of the aggregate principal amount of the Bridge Loan outstanding (if any) on September 30, 2009. However, due to the prepayment in June 2009, no such duration fees were required to be paid to Jefferies. The annual interest rate on the Bridge Loan at the time of its repayment was 15%. Inclusive of these additional fees (and an upfront fee previously paid of 5.0%), the effective interest rate on the Bridge Loan was 25.3% at the time of its repayment.

     Subordinated Seller Note. As part of the purchase price for the ARAM acquisition in September 2008, ION Sub also issued to Maison Mazel, Ltd., one of the selling shareholders of ARAM, an unsecured promissory note in the principal amount of $10.0 million. In connection with the refinancing transactions that occurred in December 2008, the obligations of ION Sub and the Company under this note and a related guaranty were terminated and extinguished in exchange for the Company’s assignment to Maison Mazel, Ltd. of the Company’s rights to a Canadian federal income tax refund (the “Refund Claim”). However, while the indebtedness under this note was legally extinguished, the liability for financial accounting purposes could not be extinguished on the Company’s consolidated balance sheet, and was included as short-term debt. In May 2009, the Company received and submitted to Maison Mazel, Ltd. the final Refund Claim. In June 2009, the remaining balance of $0.7 million of this indebtedness was paid.

     Facility Lease Obligation. In 2001, the Company sold its facilities, located in Stafford, Texas, for $21.0 million. Simultaneously with the sale, the Company entered into a non-cancelable twelve-year lease with the purchaser of the property. Because the Company retained a continuing involvement in the property that precluded sale-leaseback treatment for financial accounting purposes, the sale-leaseback transaction was accounted for as a financing transaction.

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     In June 2005, the owner sold the facilities to two parties, which were unrelated to each other as well as unrelated to the seller. In conjunction with the sale of the facilities, the Company entered into two separate lease arrangements for each of the facilities with the new owners. One lease, which was classified as an operating lease, has a twelve-year lease term. The second lease continues to be accounted for as a financing transaction due to the Company’s continuing involvement in the property as a lessee, and has a ten-year lease term. The Company recorded the commitment under the second lease as a $5.5 million lease obligation at an implicit rate of 11.7% per annum, of which $4.2 million was outstanding at December 31, 2009. Both leases have renewal options allowing the Company to extend the leases for up to an additional twenty-year term, which the Company does not expect to renew.

     Equipment Capital Leases. The Company has entered into a series of equipment loans that are due in installments for the purpose of financing the purchase of computer equipment, in the form of capital leases expiring in various years through 2012. Interest charged under these loans range from 1.3% to 8.0% and the leases are collateralized by liens on the computer equipment. The assets and liabilities under these capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are amortized over the lesser of their related lease terms or their estimated productive lives and such charges are reflected within depreciation expense.

     The following table was compiled based upon the current presentation of the Company’s debt in its balance sheet and not on the original terms and maturity dates of the respective debt instruments. A summary of future principal obligations under the notes payable, long-term debt and equipment capital lease obligations are as follows (in thousands):

	Notes Payable and			Capital Lease
Years Ended December 31,	Long-Term Debt			Obligations
2010	$	275,905		$	4,182
2011		610			2,425
2012		714			295
2013		832			—
2014		966			—
2015 and thereafter		535			—
Less: Unamortized non-cash debt discount		(8,656	)		—
Total	$	270,906			6,902
Imputed interest					(427	)
Net present value of equipment capital lease obligations					6,475
Current portion of equipment capital lease obligations					3,884
Long-term portion of equipment capital lease obligations				$	2,591

(13) Cumulative Convertible Preferred Stock

     During 2005, the Company entered into an Agreement dated February 15, 2005 with Fletcher International, Ltd. (“Fletcher”) (this Agreement, as amended to the date hereof, is referred to as the “Fletcher Agreement”) and issued to Fletcher 30,000 shares of Series D-1 Cumulative Convertible Preferred Stock (Series D-1 Preferred Stock) in a privately-negotiated transaction, receiving $29.8 million in net proceeds. The Fletcher Agreement also provided to Fletcher an option to purchase up to an additional 40,000 shares of additional series of preferred stock from time to time, with each series having a conversion price that would be equal to 122% of an average daily volume-weighted market price of the Company’s common stock over a trailing period of days at the time of issuance of that series. In 2007 and 2008, Fletcher exercised this option and purchased 5,000 shares of Series D-2 Cumulative Convertible Preferred Stock (Series D-2 Preferred Stock) for $5.0 million (in December 2007) and the remaining 35,000 shares of Series D-3 Cumulative Convertible Preferred Stock (Series D-3 Preferred Stock) for $35.0 million (in February 2008). The shares of Series D-1 Preferred Stock, Series D-2 Preferred Stock and Series D-3 Preferred Stock are sometimes referred to as the “Series D Preferred Stock.” Fletcher remains the sole holder of all of the Company’s outstanding shares of Series D Preferred Stock.

     Until November 2008, all shares of Series D Preferred Stock had substantially similar terms, except for their conversion prices, which were as follows:

• The conversion price for the Series D-1 Preferred Stock was $7.869 per share;

• The conversion price for the Series D-2 Preferred Stock was $16.0429 per share; and

• The conversion price for the Series D-3 Preferred Stock was $14.7981 per share.

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     The terms of the Series D Preferred Stock had provided that the shares could be redeemed for cash or in shares of common stock, calculated based upon the prevailing market price of the Company’s common stock at the time of redemption. Dividends on the shares of Series D Preferred Stock could be payable, at the Company’s election, in cash or in shares of the Company’s common stock. To date, all dividends paid on the Series D Preferred Stock have been paid in cash.

     Under the Fletcher Agreement, if a 20-day volume-weighted average trading price per share of the Company’s common stock fell below $4.4517 (the “Minimum Price”), the Company was required to deliver a notice (the “Reset Notice”) to Fletcher and elect to either:

• satisfy all future redemption obligations by distributing only cash, or a combination of cash and common stock, or

• reset the conversion prices of all of the outstanding shares of Series D Preferred Stock to the Minimum Price, in which event Fletcher would have no further rights to redeem its shares of Series D Preferred Stock.

     In addition, the Fletcher Agreement provided that upon the Company’s delivery of the Reset Notice, the Company would thereafter be required to pay all future dividends on shares of Series D Preferred Stock in cash.

     On November 28, 2008, the volume-weighted average trading price per share of the Company’s common stock on the New York Stock Exchange for the previous 20 trading days was calculated to be $4.328, and the Company delivered the Reset Notice to Fletcher in accordance with the terms of the Fletcher Agreement. In the Reset Notice, the Company elected to reset the conversion prices for the Series D Preferred Stock to the Minimum Price ($4.4517 per share), and Fletcher’s redemption rights were terminated. The adjusted conversion price resulting from this election was effective on November 28, 2008.

     In addition, under the Fletcher Agreement, the aggregate number of shares of common stock issued or issuable to Fletcher upon conversion or redemption of, or as dividends paid on, the Series D Preferred Stock could not exceed a designated maximum number of shares (the “Maximum Number”), and such Maximum Number could be increased by Fletcher providing the Company with a 65-day notice of increase, but under no circumstance could the total number of shares of common stock issued or issuable to Fletcher with respect to the Series D Preferred Stock ever exceed 15,724,306 shares. The Fletcher Agreement had designated 7,669,434 shares as the original Maximum Number. On November 28, 2008, Fletcher delivered a notice to the Company to increase the Maximum Number to 9,669,434 shares, effective February 1, 2009.

     As a result of these elections and notices:

• Fletcher is no longer permitted to redeem its shares of Series D Preferred Stock,

• the Company is required to pay all future dividends on the Series D Preferred Stock in cash and may not pay such dividends in shares of its common stock, and

• the Maximum Number of shares of common stock into which the shares of Series D Preferred Stock may be converted is 9,669,434 shares.

     The conversion prices and number of shares of common stock to be acquired upon conversion are also subject to customary anti-dilution adjustments.

     The accounting impact as a result of these elections and notices were as follows:

• Beneficial conversion charge — The reset of the conversion prices triggered a contingent beneficial conversion feature. Following the guidance of ASC 470-20, “Application of Issue No. 98-5 to Certain Convertible Instruments,” the Company recorded a beneficial conversion charge of $68.8 million during the year ended December 31, 2008. This charge was calculated at its intrinsic value at the original commitment date. The total charge was limited to the amount of proceeds allocated to the convertible instruments.

• Classification of preferred stock — The Company originally classified the preferred stock outside of stockholders’ equity on the balance sheet below total liabilities. However, with the termination of the redemption rights, there are no other provisions that could require cash redemption. Therefore, in the fourth quarter of 2008, the Company reclassified the preferred stock to stockholders’ equity.

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• Elimination of rights of redemption — The outstanding shares of the Series D-2 Preferred Stock and the Series D-3 Preferred Stock were subject to the accounting guidance contained in ASC Topic 815-10: “Determining the Nature of a Host Contract Related to a Hybrid Financial Instrument Issued in the Form of a Share under FASB Statement No. 133” (ASC 815-10). ASC 815-10 became effective on a prospective basis on July 1, 2007, and the additional guidance and clarification of ASC 815-10 applies to transactions occurring after July 1, 2007. Under ASC 815-10, the redemption features of the Series D-2 Preferred Stock and the Series D-3 Preferred Stock were embedded derivatives that were required to be bifurcated and accounted for separately at their fair value. The fair value of the redemption features had been classified as a liability on the balance sheet of the Company and, on a quarterly basis, changes in the fair value of these redemption features had been reflected in the income statement below income from operations. However, after the resetting of the conversion prices, Fletcher has no further rights to redeem its shares. Therefore, the redemption obligation was eliminated, resulting in a positive fair value adjustment of $1.2 million for the year ended December 31, 2008.

     On September 15, 2009, Fletcher delivered a second notice to the Company that purported to increase the Maximum Number of shares of common stock issuable upon conversion of the Series D Preferred Stock from 9,669,434 shares to 11,669,434 shares. The Company’s interpretation of the agreement with Fletcher gave Fletcher the right to issue only one notice to increase the Maximum Number (which Fletcher had exercised in November 2008). On November 6, 2009, the Company filed an action in the Court of Chancery of the State of Delaware, styled ION Geophysical Corporation v. Fletcher International, Ltd., seeking a declaration that, under the agreement, Fletcher is permitted to deliver only one notice to increase the Maximum Number and that its purported second notice is legally invalid. See further discussion of this action and other legal actions between Fletcher and the Company at Note 19 “— Legal Matters.”

(14) Stockholders’ Equity and Stock-Based Compensation

     Stockholder Rights Plan

     In December 2008, the Company’s Board of Directors adopted a stockholder rights plan. The stockholder rights plan was adopted to give the Company’s Board increased power to negotiate in the Company’s best interests and to discourage appropriation of control of the Company at a price that was unfair to its stockholders. The stockholder rights plan involved the distribution of one preferred share purchase “right” as a dividend on each outstanding share of the Company’s common stock to all holders of record on January 9, 2009. Each right entitles the holder to purchase one one-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at a purchase price of $21.00 per one one-thousandth of a share of Series A Preferred Stock, subject to adjustment. The rights trade in tandem with the Company’s common stock until, and will become exercisable beginning upon a “distribution date” that will occur shortly following, among other things, the acquisition of 20% or more of the Company’s common stock by an acquiring person. The rights plan and the rights will expire in accordance with their terms of the plan on December 29, 2011.

     Stock Option Plans

     The Company has adopted stock option plans for eligible employees, directors, and consultants, which provide for the granting of options to purchase shares of common stock. As of December 31, 2009, there were 7,766,188 shares issued or committed for issuance under outstanding options under the Company’s stock option plans, and 410,873 shares available for future grant and issuance.

     The options under these plans generally vest in equal annual installments over a four-year period and have a term of ten years. These options are typically granted with an exercise price per share equal to or greater than the current market price and, upon exercise, are issued from the Company’s unissued common shares. In August 2006, the Compensation Committee of the Board of Directors of the Company approved fixed pre-established quarterly grant dates for all future grants of options.

     Transactions under the stock option plans are summarized as follows:

	Option Price								Available
	per Share		Outstanding			Vested			for Grant
January 1, 2007	$	1.73-$30.00		6,824,648			4,335,587			696,286
Increase in shares authorized		—		—			—			2,400,000
Granted		13.52-16.03		1,381,200			—			(1,381,200	)
Vested		—		—			968,250			—
Exercised		1.73-12.45		(1,036,794	)		(1,036,794	)		—
Cancelled/forfeited		3.35-30.00		(329,413	)		(66,601	)		279,544

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	Option Price								Available
	per Share		Outstanding			Vested			for Grant
Restricted stock granted out of option plans		—		—			—			(473,708	)
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans		—		—			—			90,122
December 31, 2007		1.73-24.63		6,839,641			4,200,442			1,611,044
Increase in shares authorized		—		—			—			1,000,000
Granted		3.00-16.39		1,886,950			—			(1,886,950	)
Vested		—		—			913,915			—
Exercised		1.73-13.52		(656,166	)		(656,166	)		—
Cancelled/forfeited		3.35-24.63		(587,150	)		(308,850	)		378,800
Restricted stock granted out of option plans		—		—			—			(454,983	)
Issuance of inducement stock options in acquisition		14.10		410,000			—			—
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans		—		—			—			187,496
December 31, 2008		1.73-16.39		7,893,275			4,149,341			835,407
Granted		1.07-5.44		635,750			—			(635,750	)
Vested		—		—			1,089,478			—
Exercised		1.73-3.00		(9,837	)		(9,837	)		—
Cancelled/forfeited		3.00-16.39		(753,000	)		(186,300	)		564,950
Restricted stock granted out of option plans		—		—			—			(568,874	)
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans		—		—			—			215,140
December 31, 2009	$	1.07-$16.39		7,766,188			5,042,682			410,873

     Stock options outstanding at December 31, 2009 are summarized as follows:

			Weighted
			Average Exercise		Weighted				Weighted
			Price of		Average				Average Exercise
			Outstanding		Remaining				Price of Vested
Option Price per Share	Outstanding		Options		Contract Life		Vested		Options
$1.07 —$1.73		33,522	$	1.34		5.5		13,522	$	1.73
2.49 — 3.80		1,892,850	$	2.97		7.9		669,288	$	2.93
3.85 — 5.81		844,441	$	5.31		7.1		326,691	$	5.10
5.94 — 9.01		2,350,375	$	6.60		4.1		2,326,625	$	6.58
9.08 — 14.03		1,326,350	$	10.36		5.7		1,081,353	$	10.27
14.10 — 16.39		1,318,650	$	15.17		8.1		625,203	$	15.29
Totals		7,766,188	$	7.65		6.3		5,042,682	$	7.86

     Additional information related to the Company’s stock options is as follows:

								Weighted Average
						Weighted Average		Remaining		Aggregate
				Weighted Average		Grant Date Fair		Contractual Life in		Intrinsic
	Number of Shares			Exercise Price		Value		Years		Value (000’s)
Total outstanding at January 1, 2009		7,893,275		$	8.11				7.1
Options granted		635,750		$	4.90	$	3.17
Options exercised		(9,837	)	$	2.17
Options cancelled		(186,300	)	$	10.04
Options forfeited		(566,700	)	$	10.28
Total outstanding at December 31, 2009		7,766,188		$	7.65				6.3	$	6,263
Options exercisable and vested at December 31, 2009		5,042,682		$	7.86				5.0	$	2,327

     The total intrinsic value of options exercised during the twelve months ended December 31, 2009, 2008 and 2007 was less than $0.1 million, and approximately $4.8 million and $13.5 million, respectively. Cash received from option exercises under all share-based payment arrangements for the twelve months ended December 31, 2009 and 2008 was less than $0.1 million and approximately $6.3 million, respectively. The weighted average grant date fair value for stock option awards granted during the twelve months ended December 31, 2009, 2008 and 2007 was $3.17, $3.02, and $7.55 per share, respectively.

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     Restricted Stock and Restricted Stock Unit Plans

     The Company has adopted restricted stock plans which provide for the award of up to 300,000 shares of common stock to key officers and employees. In addition, the Company has issued restricted stock and restricted stock units under the Company’s 2004 Long-Term Incentive Plan, 2000 Restricted Stock Plan, 1998 Restricted Stock Plan (which expired in 2008) and other applicable plans. Restricted stock units are awards that obligate the Company to issue a specific number of shares of common stock in the future if continued service vesting requirements are met. Non-forfeitable ownership of the common stock will vest over a period as determined by the Company in its sole discretion, generally in equal annual installments over a three-year period. Shares of restricted stock awarded may not be sold, assigned, transferred, pledged or otherwise encumbered by the grantee during the vesting period. Except for these restrictions, the grantee of an award of shares of restricted stock has all the rights of a common stockholder, including the right to vote such shares.

     The status of the Company’s restricted stock and restricted stock unit awards for the year ended December 31, 2009 is as follows:

	Number of Shares/Units
Total nonvested at January 1, 2009		876,542
Granted		574,874
Vested		(531,043	)
Forfeited		(142,368	)
Total nonvested at December 31, 2009		778,005

     At December 31, 2009, the intrinsic value of restricted stock and restricted stock unit awards was approximately $4.6 million. The weighted average grant date fair value for restricted stock and restricted stock unit awards granted during the twelve months ended December 31, 2009, 2008 and 2007 was $4.79, $5.79 and $14.97 per share. The total fair value of shares vested during the twelve months ended December 31, 2009, 2008 and 2007 was $4.7 million, $5.3 million, and $6.5 million, respectively.

     Employee Stock Purchase Plan

     In April 1997, the Company adopted an Employee Stock Purchase Plan (ESPP), which allowed all eligible employees to authorize payroll deductions at a rate of 1% to 15% of base compensation for the purchase of the Company’s common stock. The purchase price of the common stock was the lesser of 85% of the closing price on the first day of the applicable offering period (or most recently preceding trading day) or 85% of the closing price on the last day of the offering period (or most recently preceding trading day). Each offering period was six months and commenced on January 1 and July 1 of each year. The ESPP was considered a compensatory plan under ASC 718. The Company recorded compensation expense of approximately $0.4 million during the years ended December 31, 2008 and 2007, respectively. The expense represented the estimated fair value of the look-back purchase option. The fair value was determined using the Black-Scholes option pricing model and was recognized over the purchase period. There were 109,943 and 113,763 shares purchased by employees during the years ended December 31, 2008 and 2007, respectively. Effective December 31, 2008, the ESPP was terminated. While the plan was terminated on December 31, 2008, the shares purchased (109,650) on January 1, 2009 were recorded and included in the financial statements as of December 31, 2009

     Stock Appreciation Rights Plan

     The Company has adopted a stock appreciation rights plan, which provides for the award of stock appreciation rights (“SARs”) to directors and selected key employees and consultants. The awards under this plan are subject to the terms and conditions set forth in agreements between the Company and the holders. The exercise price per SAR is not to be less than one hundred percent (100%) of the fair market value of a share of common stock on the date of grant of the SAR. The term of each SAR shall not exceed ten years from the grant date. Upon exercise of a SAR, the holder shall receive a cash payment in an amount equal to the spread specified in the SAR agreement for which the SAR is being exercised. In no event will any shares of common stock be issued, transferred or otherwise distributed under the plan.

     In December 2008, the Company granted to three individuals a total of 575,000 SAR awards with a weighted average exercise price of $6.24. The Company recorded $0.8 million and $0.2 million, respectively, of share-based compensation expense during the twelve months ended December 31, 2009 and 2008 related to employee stock appreciation rights. Pursuant to ASC 718, the stock appreciation rights are considered liability awards and as such, these amounts are accrued in the liability section of the balance sheet.

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     Valuation Assumptions

     The Company calculated the fair value of each option and SAR award on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for each respective period:

	Years Ended December 31
	2009			2008			2007
Risk-free interest rates		1.6% — 2.4	%		1.5% — 3.4	%		3.4% — 4.9	%
Expected lives (in years)		3.6 — 5.5			4.7 — 5.0			4.5 — 5.0
Expected dividend yield		0	%		0	%		0	%
Expected volatility		75.0% — 91.9	%		44.7% — 83.2	%		45.0% — 53.3	%

     The computation of expected volatility during the twelve months ended December 31, 2009, 2008 and 2007 was based on an equally weighted combination of historical volatility and market-based implied volatility. Historical volatility was calculated from historical data for a period of time approximately equal to the expected term of the option award, starting from the date of grant. Market-based implied volatility was derived from traded options on the Company’s common stock having a term of six months. The Company’s computation of expected life in 2009, 2008 and 2007 was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future employee behavior. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

(15) Segment and Geographic Information

     In order to allow for increased visibility and accountability of costs and more focused customer service and product development, the Company evaluates and reviews results based on four segments: three of these segments — Land Imaging Systems, Marine Imaging Systems and Data Management Solutions — make up the ION Systems Division, and the fourth segment is the ION Solutions Division. The Company’s land sensors business unit, which specializes in the design and manufacture of geophones, and its land imaging systems business unit have been aggregated to form the Land Imaging Systems segment. The Company measures segment operating results based on income from operations.

     A summary of segment information for the years ended December 31, 2009, 2008 and 2007, is as follows (in thousands):

	Years Ended December 31,
	2009			2008			2007
Net revenues:
ION Systems Division:
Land Imaging Systems	$	103,038		$	200,493		$	325,037
Marine Imaging Systems		103,024			182,710			177,685
Data Management Solutions		33,733			37,240			37,660
Total ION Systems Division		239,795			420,443			540,382
ION Solutions Division		179,986			259,080			172,729
Total	$	419,781		$	679,523		$	713,111
Income (loss) from operations:
ION Systems Division:
Land Imaging Systems	$	(39,126	)	$	(13,662	)	$	28,681
Marine Imaging Systems		29,632			52,624			44,727
Data Management Solutions		19,970			22,298			17,290
Total ION Systems Division		10,476			61,260			90,698
ION Solutions Division		27,747			40,534			21,646
Corporate and other		(58,395	)		(62,334	)		(48,450	)
Impairment of goodwill and intangible assets		(38,044	)		(252,283	)		—
Total	$	(58,216	)	$	(212,823	)	$	63,894
Depreciation and amortization (including multi-client data library):
ION Systems Division:
Land Imaging Systems	$	26,204		$	9,094		$	4,036
Marine Imaging Systems		1,456			1,655			1,383
Data Management Solutions		2,665			3,145			3,329
Total ION Systems Division		30,325			13,894			8,748
ION Solutions Division		62,930			96,995			53,220
Corporate and other		3,105			2,695			2,461
Total	$	96,360		$	113,584		$	64,429

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	December 31,
	2009		2008
Total assets:
ION Systems Division:
Land Imaging Systems	$	316,895	$	398,473
Marine Imaging Systems		107,883		146,877
Data Management Solutions		40,133		41,293
Total ION Systems Division		464,911		586,643
ION Solutions Division		221,596		222,206
Corporate and other		61,679		52,582
Total	$	748,186	$	861,431

	December 31,
	2009		2008
Total assets by geographic area:
North America	$	520,454	$	644,165
Europe		56,413		63,560
Middle East		111,056		113,324
Latin America		50,374		34,608
Other		9,889		5,774
Total	$	748,186	$	861,431

The Company’s results of operations and financial condition have been affected by the acquisition of ARAM in September 2008 and impairments of assets during the periods presented, which may affect the comparability of the financial information. Intersegment sales are insignificant for all periods presented. Corporate assets include all assets specifically related to corporate personnel and operations, a majority of cash and cash equivalents, and all facilities that are jointly utilized by segments. Depreciation and amortization expense is allocated to segments based upon use of the underlying assets.

     A summary of net revenues by geographic area follows (in thousands):

	Years Ended December 31,
	2009		2008		2007
North America	$	152,995	$	272,567	$	267,673
Europe		92,760		202,170		179,064
Asia Pacific		67,199		57,470		131,683
Commonwealth of Independent States (CIS)		4,739		30,051		52,247
Africa		25,435		31,693		37,116
Middle East		42,403		32,872		29,311
Latin America		34,250		52,700		16,017
Total	$	419,781	$	679,523	$	713,111

     Net revenues are attributed to geographical locations on the basis of the ultimate destination of the equipment or service, if known, or the geographical area imaging services are provided. If the ultimate destination of such equipment is not known, net revenues are attributed to the geographical location of initial shipment.

(16) Income Taxes

     The sources of income (loss) before income taxes are as follows (in thousands):

	Years Ended December 31,
	2009			2008			2007
Domestic	$	(91,646	)	$	(82,811	)	$	36,453
Foreign		(38,398	)		(137,096	)		19,014
Total	$	(130,044	)	$	(219,907	)	$	55,467

     Components of income taxes are as follows (in thousands):

	Years Ended December 31,
	2009			2008			2007
Current:
Federal	$	526		$	58		$	2,499
State and local		74			208			(222	)
Foreign		17,565			18,414			7,586
Deferred (U.S. and foreign)		(38,150	)		(17,549	)		2,960
Total income tax (benefit) expense	$	(19,985	)	$	1,131		$	12,823

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     A reconciliation of the expected income tax expense on income (loss) before income taxes using the statutory federal income tax rate of 35% for the years ended December 31, 2009, 2008 and 2007 to income tax expense is as follows (in thousands):

	Years Ended December 31,
	2009			2008			2007
Expected income tax expense at 35%	$	(45,515	)	$	(76,967	)	$	19,414
Alternate minimum tax		526			58			2,499
Foreign taxes (tax rate differential and foreign tax differences)		4,288			2,367			29,865
Nondeductible financing		12,646			—			—
Nondeductible goodwill		—			84,756			—
State and local taxes		74			269			(282	)
Deferred tax asset valuation allowance		6,531			(9,613	)		(39,266	)
Nondeductible expenses		1,465			261			593
Total income (benefit) tax expense	$	(19,985	)	$	1,131		$	12,823

     The tax effects of the cumulative temporary differences resulting in the net deferred income tax asset (liability) are as follows (in thousands):

	December 31,
	2009			2008
Current deferred:
Deferred income tax assets:
Accrued expenses	$	5,428		$	8,812
Allowance accounts		10,965			9,557
Inventory		(257	)		(103	)
Total current deferred income tax asset		16,136			18,266
Valuation allowance		(5,405	)		(4,401	)
Net current deferred income tax asset		10,731			13,865
Deferred income tax liabilities:
Unbilled receivables		(4,945	)		(9,877	)
Net current deferred income tax asset (liability)	$	5,786		$	3,988
Non-current deferred:
Deferred income tax assets:
Net operating loss carryforward	$	26,268		$	4,632
Basis in research and development		26,087			26,674
Basis in property, plant, equipment and seismic rental equipment		3,492			2,122
Tax credit carryforwards and other		11,836			9,533
Total non-current deferred income tax asset		67,683			42,961
Valuation allowance		(27,721	)		(24,697	)
Net non-current deferred income tax asset		39,962			18,264
Deferred income tax liabilities:
Basis in identified intangibles		(14,802	)		(29,220	)
Net non-current deferred income tax asset (liability)	$	25,160		$	(10,956	)

     In 2002, the Company established a valuation allowance for substantially all of its deferred tax assets. Since that time, the Company has continued to record a valuation allowance. The valuation allowance was calculated in accordance with the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires that a valuation allowance be established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. The Company will continue to reserve for a significant portion of U.S. net deferred tax assets until there is sufficient evidence to warrant reversal. In the event the Company’s expectations of future operating results or the availability of certain tax planning strategies change, an additional valuation allowance may be required to be established on the Company’s existing unreserved net U.S. deferred tax assets. At December 31, 2009, the

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Company had net operating loss carry-forwards of approximately $85.4 million, the majority of which expires beyond 2027. In 2008, approximately $3.5 million of tax benefits related to acquired net operating losses were recorded as reductions of goodwill of the acquired companies.

     As a result of the implementation of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (ASC 740-10) adopted on January 1, 2007, the Company recorded no adjustment to beginning retained earnings because there were no unrecognized tax benefits. As of December 31, 2009, the Company has no significant unrecognized tax benefits and does not expect to recognize any significant increases in unrecognized tax benefits during the next twelve month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense.

     The Company’s U.S. federal tax returns for 2005 and subsequent years remain subject to examination by tax authorities. The Company is no longer subject to IRS examination for periods prior to 2005, although carryforward attributes that were generated prior to 2005 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period. In the Company’s foreign tax jurisdictions, tax returns for 2006 and subsequent years generally remain open to examination.

     United States income taxes have not been provided on the cumulative undistributed earnings of the Company’s foreign subsidiaries in the amount of approximately $112.0 million as it is the Company’s intention to reinvest such earnings indefinitely. These foreign earnings could become subject to additional tax if remitted, or deemed remitted, to the United States as a dividend; however, it is not practicable to estimate the additional amount of taxes payable.

     During 2004, the Company recorded $52.9 million and $21.4 million as identifiable intangible assets related to its purchase of GXT and Concept Systems, respectively. During 2008, the Company recorded $101.8 million as identifiable intangible assets related to its purchase of ARAM Systems. At December 31, 2008 and March 31, 2009, the Company recorded impairment charges related to these assets of $10.1 million and $38.0 million, respectively. These intangible assets are not deductible for federal income taxes. The deferred tax liability related to the GXT intangibles is included in the December 31, 2009 and 2008 deferred tax balances. The deferred tax liability related to the Concept Systems intangibles totaled $1.4 million and $1.9 million at December 31, 2009 and 2008, respectively. The deferred tax liability related to the ARAM intangibles totaled $9.7 million and $21.9 million, respectively, at December 31, 2009 and 2008.

(17) Operating Leases

     Lessee. The Company leases certain equipment, offices, and warehouse space under non-cancelable operating leases. Rental expense was $14.3 million, $14.8 million, and $11.7 million for the years ended December 31, 2009, 2008 and 2007, respectively.

     A summary of future rental commitments over the next five years under non-cancelable operating leases is as follows (in thousands):

Years Ended December 31,
2010	$	12,603
2011		10,075
2012		8,394
2013		4,608
2014		3,410
Total	$	39,090

(18) Benefit Plans

     401(k). The Company has a 401(k) retirement savings plan which covers substantially all employees. Employees may voluntarily contribute up to 60% of their compensation, as defined, to the plan. Effective June 1, 2000, the Company adopted a company matching contribution to the 401(k) plan. The Company matched the employee contribution at a rate of 50% of the first 6% of compensation contributed to the plan. However, in April 2009, the Company suspended its match to employee’s 401(k) plan contributions. Company contributions to the plans were $0.7 million, $1.6 million, and $1.5 million, during the years ended December 31, 2009, 2008 and 2007, respectively.

     Supplemental executive retirement plan. The Company previously had a non-qualified, supplemental executive retirement plan (SERP) for its executives. The SERP provided for certain compensation to become payable on the participants’ death, retirement or

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total disability as set forth in the plan. The only remaining obligations under this plan are the scheduled benefit payments to the spouse of a deceased former executive. The present value of the expected obligation to the spouse has been provided for in the Company’s balance sheet.

(19) Legal Matters

     WesternGeco. On June 12, 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against the Company in the United States District Court for the Southern District of Texas, Houston Division. In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleges that the Company has infringed several United States patents regarding marine seismic streamer steering devices that are owned by WesternGeco. WesternGeco is seeking unspecified monetary damages and an injunction prohibiting the Company from making, using, selling, offering for sale or supplying any infringing products in the United States. Based on the Company’s review of the lawsuit filed by WesternGeco and the WesternGeco patents at issue, the Company believes that its products do not infringe any WesternGeco patents, that the claims asserted by WesternGeco are without merit and that the ultimate outcome of the claims against it will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the claims against it vigorously.

     On June 16, 2009, the Company filed an answer and counterclaims against WesternGeco, in which the Company denies that it has infringed WesternGeco’s patents and asserts that the WesternGeco patents are invalid or unenforceable. The Company also asserted that WesternGeco’s Q-Marine system, components and technology infringe upon a United States patent owned by the Company related to marine seismic streamer steering devices. The claims by the Company also asserted that WesternGeco misappropriated the Company’s proprietary technology and breached a confidentiality agreement between the parties by using the Company’s technology in its patents and products and that WesternGeco tortiously interfered with the Company’s relationship with its customers. In addition, the Company claims that the lawsuit by WesternGeco is an illegal attempt by WesternGeco to control and restrict competition in the market for marine seismic surveys performed using laterally steerable streamers. In its counterclaims, the Company is requesting various remedies and relief, including a declaration that the WesternGeco patents are invalid or unenforceable, an injunction prohibiting WesternGeco from making, using, selling, offering for sale or supplying any infringing products in the United States, a declaration that the WesternGeco patents should be co-owned by the Company, and an award of unspecified monetary damages.

     Fletcher. During 2009, three lawsuits were filed in Delaware involving Fletcher International, Ltd. (“Fletcher”), the holder of shares of the Series D Preferred Stock.

• On July 10, 2009, Fletcher filed a “books and records” proceeding in the Delaware Court of Chancery under Section 220(b) of the Delaware General Corporation Law, styled Fletcher International, Ltd. v. ION Geophysical Corporation f/k/a Input/Output, Inc. Fletcher’s complaint asked the Court to require the Company to produce for its inspection a broad range of the Company’s documents and records related to the ARAM acquisition and other matters. Section 220(b) allows stockholders of a Delaware corporation to make a demand on the corporation for access to certain books and records of the corporation, provided that such demand is made with appropriate specificity and is made for a proper purpose. The Company responded by asserting that Fletcher had not requested the information with appropriate specificity or for a proper purpose as required by law. After a hearing on December 23, 2009, the court determined that most of Fletcher’s stated purposes for requesting the information were not valid or did not constitute “proper” purposes and issued a ruling denying in significant part the inspection sought by Fletcher.

• Under our February 2005 agreement with Fletcher, the aggregate number of shares of common stock issued or issuable to Fletcher upon conversion of the Series D Preferred Stock could not exceed a designated maximum number of shares (the “Maximum Number”), and such Maximum Number could be increased by Fletcher providing us with a 65-day notice of increase. In November 2008, Fletcher exercised its right to increase the Maximum Number from 7,669,434 shares to 9,669,434 shares. On September 15, 2009, Fletcher purported to deliver a second notice to the Company that purported to increase the “Maximum Number” of shares of common stock issuable upon conversion of the Series D Preferred Stock from 9,669,434 shares to 11,669,434 shares. The Company’s interpretation of the agreement with Fletcher gave Fletcher the right to issue only one notice to increase the Maximum Number (which Fletcher had exercised in November 2008). On November 6, 2009, the Company filed an action in the Court of Chancery of the State of Delaware, styled ION Geophysical Corporation v. Fletcher International, Ltd., seeking a declaration that, under the agreement, Fletcher is permitted to deliver only one notice to increase the Maximum Number and that its purported second notice is legally invalid.

• On November 25, 2009, Fletcher filed a lawsuit against the Company and each of its directors in the Delaware Court of Chancery. In the lawsuit, styled Fletcher International, Ltd. v. ION Geophysical Corporation, f/k/a Input/Output, Inc., ION International S.à r.l., James M. Lapeyre, Bruce S. Appelbaum, Theodore H. Elliott, Jr., Franklin Myers, S. James Nelson, Jr., Robert P. Peebler,

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John Seitz, G. Thomas Marsh And Nicholas G. Vlahakis, Fletcher alleges, among other things, that the Company violated Fletcher’s consent rights by ION International S.à r.l., an indirect wholly-owned subsidiary of ION Geophysical Corporation, issuing a promissory note to the Bank of China in connection with the Bank of China bridge loan funded on October 27, 2009, and that the directors violated their fiduciary duty to the company by allowing ION International S.à r.l. to issue the note without Fletcher’s consent. Fletcher is seeking a court order requiring ION International S.à r.l. to repay the $10 million advanced to ION International S.à r.l. under the bridge loan and unspecified monetary damages. In the lawsuit, Fletcher is not claiming that it had a right to consent to any note issued by ION Geophysical Corporation, including the issuance by ION Geophysical Corporation of a $30 million promissory note to the Bank of China on October 27, 2009, as part of the bridge loan. The Company believes that Fletcher did not have the right to consent to the issuance of the bridge loan note by ION International S.à r.l. or any other promissory note and that the claims asserted by Fletcher in the lawsuit are without merit. The Company further believes that the ultimate outcome of the lawsuit will not result in a material adverse effect on the Company’s financial condition or results of operations. The Company intends to defend the claims against it in this lawsuit vigorously.

     Greatbatch. In 2002, the Company filed a lawsuit against operating subsidiaries of battery manufacturer Greatbatch, Inc., including its Electrochem division (collectively “Greatbatch”), in the 24th Judicial District Court for the Parish of Jefferson in the State of Louisiana. In the lawsuit, styled Input/Output, Inc. and I/O Marine Systems, Inc. v. Wilson Greatbatch Technologies, Inc., Wilson Greatbatch, Ltd. d/b/a Electrochem Lithium Batteries, and WGL Intermediate Holdings, Inc., Civil Action No. 578-881, Division “A”, the Company alleged that Greatbatch had fraudulently misappropriated the Company’s product designs and other trade secrets related to the batteries and battery pack used in the Company’s DigiBIRD^® marine towed streamer vertical control device and used the Company’s confidential information to manufacture and market competing batteries and battery packs. After a two-week trial, on October 1, 2009 the jury concluded that Greatbatch had committed fraud, violated the Louisiana Unfair Trade Practices Act and breached a trust and nondisclosure agreement between Greatbatch and the Company, and awarded the Company $21.7 million in compensatory damages. On October 13, 2009, the presiding trial judge signed and entered the judgment, awarding the Company the amount of the jury verdict. Under applicable law, the Company also entitled to receive legal interest from the date of filing the lawsuit, plus the Company’s attorneys’ fees and costs. Through December 22, 2009, accrued legal interest totaled $11.2 million, and interest will continue to accrue at the statutory annual rate of 8.5% until paid. Including the verdict amount and accrued interest, the total amount owed under the judgment as of December 22, 2009 was $32.9 million plus the Company’s attorneys’ fees and costs. The judgment is currently on appeal. The Company has not accrued any amounts related to this gain contingency as of December 31, 2009.

     Sercel. On January 29, 2010, the jury in a patent infringement lawsuit filed by the Company against seismic equipment provider Sercel, Inc. in the United States District Court for the Eastern District of Texas returned a verdict in the Company’s favor. In the lawsuit, styled Input/Output, Inc. et al v. Sercel, Inc., (5-06-cv-00236), the Company alleged that Sercel’s 408, 428 and SeaRay digital seismic sensor units infringe the Company’s United States Patent No. 5,852,242, which is incorporated in the Company’s VectorSeis^® sensor technology. The Company’s products that use the VectorSeis technology include the Company’s System Four^®, Scorpion^®, FireFly^®, and VectorSeis Ocean seismic acquisition systems. After a two-week trial, the jury concluded that Sercel infringed the Company’s patent and that the Company’s patent was valid, and the jury awarded the Company $25.2 million in compensatory past damages. The Company has asked the court to issue a permanent injunction to prohibit Sercel from making, using, selling, offering for sale or importing any infringing products into the United States. The Company has not accrued any amounts related to this gain contingency as of December 31, 2009.

     Other. The Company has been named in various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. Management currently believes that the ultimate resolution of these matters will not have a material adverse impact on the financial condition, results of operations or liquidity of the Company.

(20) Restructuring Activities

     During 2009, the Company continued its restructuring program that was initiated in the fourth quarter of 2008. Under this program, the Company has reduced its employee headcount by a total of approximately 26% (or 384 positions). When terminated independent contractors are included, the Company has reduced its headcount by a total of 489 positions, or 27%. At December 31, 2008, the Company had accrued $1.8 million related to severance costs. In 2009, the Company accrued an additional $3.1 million related to severance costs and made cash payments to employees of $4.1 million, resulting in an accrual as of December 31, 2009 of $0.8 million. Of the amount expensed for the year ended December 31, 2009, approximately $2.1 million was included in operating

F-39

expenses, with the remaining $1.0 million included in cost of sales. During 2010, the Company will continue to evaluate its staffing needs and may reduce its employee headcount further as necessary.

     In April 2009, the Company initiated a salary reduction program that reduced employee base salaries. The salary reductions ranged from 12% for the Company’s chief executive officer, chief operating officer and chief financial officer, 10% for all other executives and senior management, and 5% for most other employees. The Company’s Board of Directors also elected to implement a 15% reduction in director fees. In addition to the salary reduction program, the Company suspended its match to employee 401(k) plan contributions.

     Following the October 23, 2009 announcement of the Company and BGP entering into the Term Sheet, which provides for, among other things, the formation of a joint venture between the Company and BGP involving the Company’s land-based seismic data acquisition equipment business (see further discussion at Note 2 “— Term Sheet with BGP and Bridge Financing Transactions”), the Company’s management decided to reinstate all employees salaries and director fees on a prospective basis.

(21) Selected Quarterly Information — (Unaudited)

     A summary of selected quarterly information is as follows (in thousands, except per share amounts):

	Three Months Ended
Year Ended December 31, 2009	March 31			June 30			September 30			December 31
Product revenues	$	59,476		$	52,038		$	51,263		$	74,887
Service revenues		47,414			37,219			51,107			46,377
Total net revenues		106,890			89,257			102,370			121,264
Gross profit		33,696			29,976			34,629			33,837
Impairment of intangible assets		38,044			—			—			—
Income (loss) from operations		(44,576	)		(7,511	)		(1,559	)		(4,570	)
Interest expense, including amortization of a non-cash debt discount		(7,417	)		(6,861	)		(6,380	)		(15,013	)
Fair value adjustment of the warrant		—			—			—			(29,401	)
Impairment of cost method investment		—			—			—			(4,454	)
Interest and other income		462			(5,869	)		2,120			985
Income tax expense (benefit)		(13,963	)		(4,510	)		131			(1,643	)
Preferred stock dividends		875			875			875			875
Net income (loss) applicable to common shares	$	(38,443	)	$	(16,606	)	$	(6,825	)	$	(51,685	)
Net income (loss) per basic and diluted share	$	(0.39	)	$	(0.16	)	$	(0.06	)	$	(0.44	)

	Three Months Ended
Year Ended December 31, 2008	March 31			June 30			September 30			December 31
Product revenues	$	93,034		$	104,360		$	140,332		$	79,785
Service revenues		47,125			76,305			78,197			60,385
Total net revenues		140,159			180,665			218,529			140,170
Gross profit		48,394			58,021			72,621			28,712
Impairment of goodwill and intangible assets		—			—			—			252,283
Income (loss) from operations		10,295			19,736			31,574			(274,428	)
Interest expense		(487	)		(652	)		(1,592	)		(9,992	)
Interest and other income		789			793			(364	)		4,421
Income tax expense (benefit)		2,059			3,524			3,760			(8,212	)
Preferred stock dividends		910			908			925			1,146
Preferred stock beneficial conversion charge		—			—			—			68,786
Net income (loss) applicable to common shares	$	7,628		$	15,445		$	24,933		$	(341,719	)
Net income (loss) per basic share	$	0.08		$	0.16		$	0.26		$	(3.43	)
Net income (loss) per diluted share	$	0.08		$	0.16		$	0.25		$	(3.43	)

(22) Related Parties

     Mr. James M. Lapeyre, Jr. is the chairman and a significant equity owner of Laitram, L.L.C. (Laitram) and has served as president of Laitram and its predecessors since 1989. Laitram is a privately-owned, New Orleans-based manufacturer of food processing

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equipment and modular conveyor belts. Mr. Lapeyre and Laitram together owned approximately 8.1% of the Company’s outstanding common stock as of February 22, 2010.

     The Company acquired DigiCourse, Inc., the Company’s marine positioning products business, from Laitram in 1998 and renamed it I/O Marine Systems, Inc. In connection with that acquisition, the Company entered into a Continued Services Agreement with Laitram under which Laitram agreed to provide the Company certain accounting, software, manufacturing, and maintenance services. Manufacturing services consist primarily of machining of parts for the Company’s marine positioning systems. The term of this agreement expired in September 2001 but the Company continues to operate under its terms. In addition, when the Company requests, the legal staff of Laitram advises the Company on certain intellectual property matters with regard to the Company’s marine positioning systems. Under a lease of commercial property dated February 1, 2006, between Lapeyre Properties L.L.C. (an affiliate of Laitram) and ION, the Company agreed to lease certain office and warehouse space from Lapeyre Properties until January 2011. During 2009, the Company paid Laitram a total of approximately $4.0 million, which consisted of approximately $3.2 million for manufacturing services, $0.7 million for rent and other pass-through third party facilities charges, and $0.1 million for other services. For the 2008 and 2007 fiscal years, the Company paid Laitram a total of approximately $4.3 million and $4.9 million, respectively, for these services. In the opinion of the Company’s management, the terms of these services are fair and reasonable and as favorable to the Company as those that could have been obtained from unrelated third parties at the time of their performance.

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SCHEDULE II
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

			Charged
	Balance at		(Credited)
	Beginning		to Costs and						Balance at
Year Ended December 31, 2007	of Year		Expenses			Deductions			End of Year
			(In thousands)
Allowances for doubtful accounts	$	2,801	$	437		$	(563	)	$	2,675
Allowances for doubtful notes		4,530		—			(1,179	)		3,351
Warranty		6,255		13,074			(5,890	)		13,439
Valuation allowance on deferred tax assets		76,324		(39,266	)		355			37,413

			Acquired		Charged
	Balance at		Reserves		(Credited)
	Beginning		during the		to Costs and						Balance at
Year Ended December 31, 2008	of Year		period		Expenses			Deductions			End of Year
					(In thousands)
Allowances for doubtful accounts	$	2,675	$	—	$	4,852		$	(1,842	)	$	5,685
Allowances for doubtful notes		3,351		—		—			(3,351	)		—
Warranty		13,439		845		4,624			(8,382	)		10,526
Valuation allowance on deferred tax assets		37,413		—		(9,613	)		1,298			29,098

			Charged
	Balance at		(Credited)
	Beginning		to Costs and						Balance at
Year Ended December 31, 2009	of Year		Expenses			Deductions			End of Year
			(In thousands)
Allowances for doubtful accounts	$	5,685	$	3,457		$	(3,468	)	$	5,674
Allowances for doubtful notes		—		71			—			71
Warranty		10,526		(2,121	)		(3,317	)		5,088
Valuation allowance on deferred tax assets		29,098		6,531			(2,503	)		33,126

S-1

EXHIBIT INDEX

3.1	—	Restated Certificate of Incorporation dated September 24, 2007 filed on September 24, 2007 as Exhibit 3.4 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
3.2	—	Amended and Restated Bylaws of ION Geophysical Corporation filed on September 24, 2007 as Exhibit 3.5 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
3.3	—	Certificate of Ownership and Merger merging ION Geophysical Corporation with and into Input/Output, Inc. dated September 21, 2007, filed on September 24, 2007 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.1	—	Certificate of Rights and Designations of Series D-1 Cumulative Convertible Preferred Stock, dated February 16, 2005 and filed on February 17, 2005 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.2	—	Certificate of Elimination of Series B Preferred Stock dated September 24, 2007, filed on September 24, 2007 as Exhibit 3.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.3	—	Certificate of Elimination of Series C Preferred Stock dated September 24, 2007, filed on September 24, 2007 as Exhibit 3.3 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.4	—	Certificate of Designation of Series D-2 Cumulative Convertible Preferred Stock dated December 6, 2007, filed on December 6, 2007 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.5	—	Certificate of Designation of Series D-3 Cumulative Convertible Preferred Stock dated February 20, 2008, filed on February 22, 2008 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.6	—	Certificate of Designations of Series A Junior Participating Preferred Stock of ION Geophysical Corporation effective as of December 31, 2008, filed on January 5, 2009 as Exhibit 3.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.7	—	Form of Senior Indenture, filed on December 19, 2008 as Exhibit 4.3 to the Company’s Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated herein by reference.
4.8	—	Form of Senior Note, filed on December 19, 2008 as Exhibit 4.4 to the Company’s Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated herein by reference.
4.9	—	Form of Subordinated Indenture, filed on December 19, 2008 as Exhibit 4.5 to the Company’s Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated herein by reference.
4.10	—	Form of Subordinated Note, filed on December 19, 2008 as Exhibit 4.6 to the Company’s Registration Statement on Form S-3 (Registration No. 333-156362) and incorporated herein by reference.
4.11	—	Warrant to Purchase Shares of the Common Stock of ION Geophysical Corporation dated October 27, 2009, issued by ION Geophysical Corporation to BGP Inc., China National Petroleum Corporation, filed on October 29, 2009 as Exhibit 4.1 to the Company’s Current Report on Form 8-K/A and incorporated herein by reference.
4.12	—	Convertible Promissory Note, dated October 23, 2009, issued by ION Geophysical Corporation to the Bank of China, New York Branch, filed on October 29, 2009 as Exhibit 4.2 to the Company’s Current Report on Form 8-K/A and incorporated herein by reference.
4.13	—	Convertible Promissory Note, dated October 23, 2009, issued by ION International S.à r.l. to the Bank of China, New York Branch, filed on October 29, 2009 as Exhibit 4.3 to the Company’s Current Report on Form 8-K/A and incorporated herein by reference.
**10.1	—	Amended and Restated 1990 Stock Option Plan, filed on June 9, 1999 as Exhibit 4.2 to the

		Company’s Registration Statement on Form S-8 (Registration No. 333-80299), and incorporated herein by reference.
10.2	—	Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office Park II, LP as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006 as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
10.3	—	Office and Industrial/Commercial Lease dated June 2005 by and between Stafford Office Park District as Landlord and Input/Output, Inc. as Tenant, filed on March 31, 2006 as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and incorporated herein by reference.
**10.4	—	Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option Plan, filed on June 9, 1999 as Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (Registration No. 333-80299), and incorporated herein by reference.
**10.5	—	Amendment No. 1 to the Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option Plan dated September 13, 1999 filed on November 14, 1999 as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 1999 and incorporated herein by reference.
**10.6	—	Employment Agreement dated effective as of May 22, 2006, between Input/Output, Inc. and R. Brian Hanson filed on May 1, 2006 as Exhibit 10.1 to the Company’s Form 8-K, and incorporated herein by reference.
**10.7	—	First Amendment to Employment Agreement dated as of August 20, 2007 between Input/Output, Inc. and R. Brian Hanson, filed on August 21, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.8	—	Second Amendment to Employment Agreement, dated as of December 1, 2008, between ION Geophysical Corporation and R. Brian Hanson, filed on January 29, 2009 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.9	—	Input/Output, Inc. Employee Stock Purchase Plan, filed on March 28, 1997 as Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (Registration No. 333-24125), and incorporated herein by reference.
**10.10	—	Fourth Amended and Restated 2004 Long-Term Incentive Plan, filed as Appendix A to the definitive proxy statement for the 2008 Annual Meeting of Stockholders of ION Geophysical Corporation, filed on April 21, 2008, and incorporated herein by reference.
10.11	—	Registration Rights Agreement dated as of November 16, 1998, by and among the Company and The Laitram Corporation, filed on March 12, 2004 as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, and incorporated herein by reference.
**10.12	—	Input/Output, Inc. 1998 Restricted Stock Plan dated as of June 1, 1998, filed on June 9, 1999 as Exhibit 4.7 to the Company’s Registration Statement on S-8 (Registration No. 333-80297), and incorporated herein by reference.
**10.13	—	Input/Output Inc. Non-qualified Deferred Compensation Plan, filed on April 1, 2002 as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.
**10.14	—	Input/Output, Inc. 2000 Restricted Stock Plan, effective as of March 13, 2000, filed on August 17, 2000 as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2000, and incorporated herein by reference.
**10.15	—	Input/Output, Inc. 2000 Long-Term Incentive Plan, filed on November 6, 2000 as Exhibit 4.7 to the Company’s Registration Statement on Form S-8 (Registration No. 333-49382), and incorporated by reference herein.
**10.16	—	Employment Agreement dated effective as of March 31, 2003, by and between the Company and Robert P. Peebler, filed on March 31, 2003, as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.

**10.17	—	First Amendment to Employment Agreement dated September 6, 2006, between Input/Output, Inc. and Robert P. Peebler, filed on September 7, 2006, as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.18	—	Second Amendment to Employment Agreement dated February 16, 2007, between Input/Output, Inc. and Robert P. Peebler, filed on February 16, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.19	—	Third Amendment to Employment Agreement dated as of August 20, 2007 between Input/Output, Inc. and Robert P. Peebler, filed on August 21, 2007 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.20	—	Fourth Amendment to Employment Agreement, dated as of January 26, 2009, between ION Geophysical Corporation and Robert P. Peebler, filed on January 29, 2009 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.21	—	Employment Agreement dated effective as of June 15, 2004, by and between the Company and David L. Roland, filed on August 9, 2004 as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, and incorporated herein by reference.
**10.22	—	Employment Agreement, dated as of December 1, 2008, between ION Geophysical Corporation and James R. Hollis, filed on January 29, 2009 as Exhibit 10.3 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.23	—	GX Technology Corporation Employee Stock Option Plan, filed on August 9, 2004 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, and incorporated herein by reference.
10.24	—	Concept Systems Holdings Limited Share Acquisition Agreement dated February 23, 2004, filed on March 5, 2004 as Exhibit 2.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.25	—	Registration Rights Agreement by and between ION Geophysical Corporation and 1236929 Alberta Ltd. dated September 18, 2008, filed on November 7, 2008 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q and incorporated herein by reference.
**10.26	—	Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc. — Concept Systems Employment Inducement Stock Option Program, filed on July 27, 2004 as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-117716), and incorporated herein by reference.
**10.27	—	Form of Employee Stock Option Award Agreement for ARAM Systems Employee Inducement Stock Option Program, filed on November 14, 2008 as Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (Registration No. 333-155378) and incorporated herein by reference.
10.28	—	Agreement dated as of February 15, 2005, between Input/Output, Inc. and Fletcher International, Ltd., filed on February 17, 2005 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.29	—	First Amendment to Agreement, dated as of May 6, 2005, between the Company and Fletcher International, Ltd., filed on May 10, 2005 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.30	—	Input/Output, Inc. 2003 Stock Option Plan, dated March 27, 2003, filed as Appendix B of the Company’s definitive proxy statement filed with the SEC on April 30, 2003, and incorporated herein by reference.
10.31	—	Amended and Restated Credit Agreement dated as of July 3, 2008, by and among ION Geophysical Corporation, ION International S.À R.L., HSBC Bank USA, N.A., as administrative agent, joint lead arranger and joint bookrunner, ABN AMRO Incorporated, as joint lead arranger and joint bookrunner, and CitiBank, N.A., as syndication agent, filed on July 8, 2008 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.32	—	First Amendment to Amended and Restated Credit Agreement and Domestic Security Agreement, dated as of September 17, 2008, by and among ION Geophysical Corporation, ION International S.À R.L., HSBC Bank USA, N.A., as administrative agent, joint lead arranger and joint

		bookrunner, ABN AMRO Incorporated, as joint lead arranger and joint bookrunner, and CitiBank, N.A., as syndication agent, filed on September 23, 2008 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.33	—	Third Amendment to Amended and Restated Credit Agreement, dated as of December 29, 2008, by and among ION Geophysical Corporation, ION International S.À R.L., the Guarantors and Lenders party thereto and HSBC Bank USA, N.A., as administrative agent, filed on January 5, 2009 as Exhibit 10.3 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.34	—	Fourth Amendment to Amended and Restated Credit Agreement and Foreign Security Agreement, Limited Waiver and Release dated as of December 30, 2008, by and among ION Geophysical Corporation, ION International S.À R.L., the Guarantors and Lenders party thereto and HSBC Bank USA, N.A., as administrative agent, filed on January 5, 2009 as Exhibit 10.4 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.35	—	Fifth Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2009 by and among ION Geophysical Corporation, ION International S.à r.l., certain other foreign and domestic subsidiaries of the ION Geophysical Corporation, HSBC Bank USA, N.A., as administrative agent, joint lead arranger and joint bookrunner, ABN AMRO Incorporated, as joint lead arranger and joint bookrunner, Citibank, N.A., as syndication agent, and the lenders party thereto, filed on August 6, 2009 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and incorporated herein by reference.
*10.36	—	Sixth Amendment and Waiver to Amended and Restated Credit Agreement dated effective as of October 23, 2009 by and among ION Geophysical Corporation, ION International S.À R.L., the Guarantors and Lenders party thereto and HSBC Bank USA, N.A., as administrative agent.
**10.37	—	Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc. — GX Technology Corporation Employment Inducement Stock Option Program, filed on April 4, 2005 as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-123831), and incorporated herein by reference.
**10.38	—	Consulting Services Agreement dated as of October 19, 2006, by and between GX Technology Corporation and Michael K. Lambert, filed on October 24, 2006 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.39	—	First Amendment to Consulting Services Agreement dated as of January 5, 2007, by and between GX Technology Corporation and Michael K. Lambert, filed on January 8, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.40	—	Letter agreement dated October 19, 2006, by and between the Company and Michael K. Lambert, filed on October 24, 2006 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.41	—	Severance Agreement dated as of December 1, 2008, between ION Geophysical Corporation and Charles J. Ledet, filed on December 5, 2008 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.42	—	Consulting Agreement dated as of December 1, 2008, between ION Geophysical Corporation and Charles J. Ledet, filed on December 5, 2008 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.43	—	Rights Agreement, dated as of December 30, 2008, between ION Geophysical Corporation and Computershare Trust Company, N.A., as Rights Agent, filed as Exhibit 4.1 to the Company’s Form 8-A (Registration No. 001-12691) and incorporated herein by reference.
10.44	—	Amended and Restated Share Purchase Agreement, dated as of September 17, 2008, by and among ION Geophysical Corporation, Aram Systems Ltd., Canadian Seismic Rentals Inc. and the Sellers party thereto, filed on September 23, 2008 as Exhibit 2.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.45	—	Assignment Agreement dated as of December 30, 2008 by and among 3226509 Nova Scotia Company, ARAM Systems Ltd., Canadian Seismic Rentals Inc., Maison Mazel Ltd. and ION Geophysical Corporation, filed on January 5, 2009 as Exhibit 10.1 to the Company’s Current

		Report on Form 8-K and incorporated herein by reference.
10.46	—	Release Agreement dated as of December 30, 2008 by and among ION Geophysical Corporation, 3226509 Nova Scotia Company, ARAM Systems Ltd., Canadian Seismic Rentals Inc., Maison Mazel Ltd. and the Sellers party thereto, filed on January 5, 2009 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
10.47	—	Amended and Restated Subordinated Promissory Note dated December 30, 2008, made by 3226509 Nova Scotia Company in favor of Maison Mazel Ltd., filed on January 5, 2009 as Exhibit 10.6 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.48	—	ION Stock Appreciation Rights Plan dated November 17, 2008.
10.49	—	Form of Purchase Agreement dated as of June 1, 2009, for the offering and sale of 18,500,000 shares of common stock of ION Geophysical Corporation in privately-negotiated transactions to “accredited investors” (as defined in Rule 501 under the Securities Act of 1933, as amended), by and between ION Geophysical Corporation and the Purchasers named therein, filed on August 6, 2009 as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and incorporated herein by reference.
10.50	—	Canadian Master Loan and Security Agreement dated as of June 29, 2009 by and among ICON ION, LLC, as lender, ION Geophysical Corporation and ARAM Rentals Corporation, a Nova Scotia corporation, filed on August 6, 2009 as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and incorporated herein by reference.
10.51	—	Master Loan and Security Agreement (U.S.) dated as of June 29, 2009 by and among ICON ION, LLC, as lender, ION Geophysical Corporation and ARAM Seismic Rentals, Inc., a Texas corporation, filed on August 6, 2009 as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, and incorporated herein by reference.
*10.52	—	Term Sheet dated as of October 23, 2009 by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation.
*10.53	—	Warrant Issuance Agreement dated as of October 23, 2009 by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation.
*10.54	—	Registration Rights Agreement dated as of October 23, 2009 by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation.
*21.1	—	Subsidiaries of the Company.
*23.1	—	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
*24.1	—	The Power of Attorney is set forth on the signature page hereof.
*31.1	—	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
*31.2	—	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
*32.1	—	Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
*32.2	—	Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.

*	Filed herewith.
**	Management contract or compensatory plan or arrangement.

EX-10.36

EXHIBIT 10.36

SIXTH AMENDMENT AND WAIVER TO
AMENDED AND RESTATED CREDIT AGREEMENT

     This Sixth Amendment and Waiver to Amended and Restated Credit Agreement (the “Sixth Amendment” or “this Amendment”) is made and entered into effective as of the 23rd day of October, 2009 (the “Sixth Amendment Effective Date”), by and among ION GEOPHYSICAL CORPORATION, a Delaware corporation (the “Domestic Borrower”), ION INTERNATIONAL S.À R.L., a Luxembourg private limited company (société à responsabilité limitée), having its registered office at 65, Boulevard Grande — Duchesse Charlotte, L-1331 Luxembourg, with a share capital of EUR12,500, and registered with the Luxembourg Register of Commerce and Companies under the number B-135.679 (the “Foreign Borrower” and together with the Domestic Borrower, the “Borrowers”), the Guarantors party hereto (the “Guarantors”), the Lenders party hereto, including Bank of China, New York Branch (the “New Lender”), which has become a Lender pursuant to this Amendment, and HSBC BANK USA, N.A., as administrative agent (the “Administrative Agent”).

RECITALS

     WHEREAS, the Borrowers, Guarantors, Administrative Agent and the Lenders party thereto immediately prior to the effectiveness of this Amendment (the “Existing Lenders”) entered into that certain Amended and Restated Credit Agreement dated as of July 3, 2008, as amended by that certain First Amendment to Amended and Restated Credit Agreement and Domestic Security Agreement dated as of September 17, 2008, that certain Second Amendment to Amended and Restated Credit Agreement dated as of October 17, 2008, that certain Third Amendment to Amended and Restated Credit Agreement dated as of December 29, 2008, that certain Fourth Amendment to Amended and Restated Credit Agreement and Foreign Security Agreement, Limited Waiver and Release dated as of December 30, 2008, and that certain Fifth Amendment to Amended and Restated Credit Agreement dated as of June 1, 2009 (and as otherwise amended, restated, modified or supplemented prior to the date hereof, the “Credit Agreement”), by and among the Borrowers, the Guarantors, the Lenders and the Administrative Agent; and

     WHEREAS, the Borrowers have requested that the Existing Lenders and the Administrative Agent amend or waive certain provisions to the Credit Agreement, and said parties are willing to do so subject to the terms and conditions set forth herein, provided that the Domestic Borrower and Domestic Guarantors ratify and confirm all of their respective obligations under the Credit Agreement and each other Loan Document to which each is a party and the Foreign Borrower and Foreign Guarantors ratify and confirm all of their respective obligations under the Credit Agreement and each other Loan Document to which each is a party.

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set forth in this Amendment, Borrowers, Guarantors, the Lenders party hereto (including the New Lender) and the Administrative Agent agree as follows:

     1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein have the meanings assigned to them in the Credit Agreement.

     2. Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows:

     (a) Section 2.18 of the Credit Agreement is hereby amended by restating the first sentence of paragraph (a), and paragraphs (b), (c) and (f) in their entirety, each to provide as follows:

     “(a) If no Default or Event of Default shall have occurred and be continuing, the Borrowers may at any time during the Availability Period request an increase of the aggregate Revolving Loan Commitments by notice to the Administrative Agent in writing of the amount of such proposed increase (such notice, a “Commitment Increase Notice”); provided, however, that (i) the Revolving Loan Commitment of any Revolving Lender may not be increased without such Revolving Lender’s consent, (ii) the minimum amount of any such increase shall be $10,000,000, (iii) the aggregate amount of the Revolving Lenders’ Revolving Loan Commitments shall not exceed $140,000,000, and (iv) the aggregate principal amount of all Foreign Revolving Loans at any time outstanding, shall not exceed sixty percent (60%) of the total of all the Revolving Lenders’ Revolving Loan Commitments as such commitments are increased pursuant to this Section 2.18.

     (b) If any portion of the increased Revolving Loan Commitments is not subscribed for by such Revolving Lenders, the Borrowers may, in their sole discretion, but with the consent of the Administrative Agent as to any Person that is not at such time a Revolving Lender (which consent shall not be unreasonably withheld or delayed), offer to any existing Revolving Lender, or to any other Person approved by the Administrative Agent, the opportunity to participate in all or a portion of the increased Revolving Loan Commitments pursuant to paragraph (c) or (d) below, as applicable, by notifying the Administrative Agent. Promptly and in any event within five (5) Business Days after receipt of notice from the Borrowers of their desire to offer such unsubscribed commitments to certain existing Revolving Lenders, to the additional Persons identified therein or such additional Persons identified by the Administrative Agent and approved by the Borrowers, the Administrative Agent shall notify such proposed lenders of the opportunity to participate in all or a portion of such unsubscribed portion of the increased Revolving Loan Commitments.

     (c) Any Person that the Borrowers select to offer participation in the increased Revolving Loan Commitments shall execute and deliver to the Administrative Agent a New Lender Agreement setting forth its Revolving Loan Commitment, and upon the effectiveness of such New Lender Agreement such Person (a “New Lender”) shall become a Revolving Lender for all purposes and to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and the signature pages hereof shall be deemed to be amended to add the name of such New Lender and Schedule 2.01 and the definition of Revolving Loan Commitment in Section 1.01 hereof shall be deemed amended to increase the aggregate Revolving Loan Commitments of the

Revolving Lenders by the Revolving Loan Commitment of such New Lender, provided that the Revolving Loan Commitment of any New Lender shall be an amount not less than $10,000,000. Each New Lender Agreement and Commitment Increase Agreement shall be irrevocable and shall be effective upon notice thereof by the Administrative Agent at the same time as that of all other New Lenders or increasing Revolving Lenders.

     (f) If any Person becomes a New Lender pursuant to Section 2.18(c) or any Revolving Lender’s Revolving Loan Commitment is increased pursuant to Section 2.18(d), additional Loans made on or after the effectiveness thereof (the “Re-Allocation Date”) shall be made pro rata based on their respective Revolving Loan Commitments in effect on or after such Re-Allocation Date (except to the extent that any such pro rata borrowings would result in any Revolving Lender making an aggregate principal amount of Loans in excess of its Revolving Loan Commitment, in which case such excess amount will be allocated to, and made by, such New Lender and/or Revolving Lenders with such increased Revolving Loan Commitments to the extent of, and pro rata based on, their respective Revolving Loan Commitments), and continuations of Loans outstanding on such Re-Allocation Date shall be effected by repayment of such Loans on the last day of the Interest Period applicable thereto or, in the case of ABR Loan, on the date of such increase, and the making of new Loans of the same Type pro rata based on the respective Revolving Loan Commitments in effect on and after such Re-Allocation Date.”

     (b) Schedule 2.01 to the Credit Agreement is hereby amended and restated in its entirety as set forth on Schedule 2.01 attached hereto.

     3. Waivers of Certain Provisions of Credit Agreement.

     (a) Subject to Section 8(b) of this Amendment, the Lenders hereby waive any Default or Event of Default caused by any failure by the Domestic Borrower and its Subsidiaries to comply with any or all of Sections 6.14, 6.15 and 6.16 of the Credit Agreement for each of the fiscal quarters ending September 30, 2009, December 31, 2009, March 31, 2010 and June 30, 2010, provided that the provisions of this Section 3(a) shall not in any way be construed to waive, nor shall this Amendment in any way serve as a waiver of, any other Default or Event of Default now or hereafter existing under the Credit Agreement or other Loan Documents, except as expressly set forth herein.

     (b) The Lenders hereby waive any and all provisions of the Credit Agreement (including, without limitation, Section 6.07 of the Credit Agreement) to the fullest extent necessary, if any, to permit the Domestic Borrower to issue and perform the terms of that certain Warrant to BGP Inc., China National Petroleum Corporation, a company organized under the laws of the People’s Republic of China (“BGP”), pursuant to which BGP, or its assignee, may acquire Equity Interests of the Domestic Borrower in accordance with, and pursuant to, the terms and conditions set forth therein, which terms shall be reasonably satisfactory to the Administrative Agent.

     (c) Each Existing Lender hereby waives any right of first refusal of such Existing Lender under Section 10.04(b)(ii)(E) of the Credit Agreement to purchase an assignment, in full or in part, by the New Lenders of its Revolving Loan Commitment and Revolving Credit Exposure to BGP.

     4. Increase in Commitments and Borrowing Request; Joinder of New Lender.

     (a) Commitment Increase and Notice. By its execution hereof, each of the Borrowers hereby notifies the Administrative Agent that the Borrowers request (i) an increase in the aggregate Revolving Loan Commitments by the amount of $40,000,000 (from $100,000,000 to $140,000,000) and (ii) that the New Lender join the Credit Agreement as a Lender with a Revolving Loan Commitment of $40,000,000 as set forth on Schedule 2.01 hereto. In lieu of delivering a separate Borrowing Request, the Domestic Borrower hereby requests that the New Lender make Revolving Loans under the Credit Agreement in an aggregate principal amount of $20,000,000, by not later than October 27, 2009, with such other administrative details as may be required under Section 2.03 of the Credit Agreement being set forth in a separate written notice delivered to the New Lender and the Administrative Agent. All parties hereto acknowledge that the maximum balance available to be requested by both Borrowers collectively under Section 2.18 of the Credit Agreement is now $0.

     (b) Consent of Administrative Agent. By its execution hereof, Administrative Agent consents to (i) the increase in the aggregate Revolving Loan Commitments by the amount of $40,000,000 and (ii) the joinder of the New Lender as a Lender under the Credit Agreement with a Revolving Loan Commitment of $40,000,000 set forth on Schedule 2.01 hereto.

     (c) Joinder of New Lender. By its execution hereof, New Lender hereby joins the Credit Agreement as a Lender and becomes a party to the Credit Agreement with a Revolving Loan Commitment of $40,000,000 as set forth on Schedule 2.01 hereto, with all of the duties, obligations, rights and privileges appurtenant thereto, including those specifically set forth in this Amendment. New Lender agrees that this Amendment constitutes the New Lender Agreement for purposes of the Credit Agreement. New Lender acknowledges that (i) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to execute this Amendment and join the Credit Agreement as a Lender, (ii) it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder and (iii) it confirms receipt of the requests to make Revolving Loans set forth in Section 4(a) above.

     5. Acknowledgments of Administrative Agent and Existing Lenders Regarding Commitment Increase, Equity Conversion Rights of New Lender. By their execution hereof,

each of the Administrative Agent and each Existing Lender party hereto acknowledges and agrees that:

     (a) Section 4(a) of this Amendment shall be deemed to be a Commitment Increase Notice from the Borrowers with respect to the joinder of New Lender to the Credit Agreement with a Revolving Loan Commitment of $40,000,000;

     (b) this Amendment constitutes the New Lender Agreement with respect to the joinder of New Lender to the Credit Agreement with a Revolving Loan Commitment of $40,000,000;

     (c) each Existing Lender waives any rights of such Existing Lender under Section 2.18 of the Credit Agreement to any prior notice of the increase in the aggregate Revolving Loan Commitments, or to participate in the increase in the aggregate Revolving Loan Commitments, in each case, effectuated pursuant this Amendment;

     (d) notwithstanding anything to the contrary in Section 2.18 of the Credit Agreement, the New Lender shall not be required to advance the initial Revolving Loans requested under Section 4(a) above to the Domestic Borrower until October 27, 2009, provided that if the New Lender has not advanced such initial Revolving Loans to the Domestic Borrower on or before November 3, 2009, then this Amendment shall automatically terminate of its own accord pursuant to the provisions of Section 8(a) of this Amendment;

     (e) notwithstanding any provision of the Credit Agreement, the outstanding Revolving Loans of the New Lender may be converted in full or in part by the New Lender, or its designee or assignee, into common stock of the Domestic Borrower in accordance with the terms of the promissory notes issued to the New Lender by each of the Domestic Borrower and the Foreign Borrower, respectively, upon the effectiveness of this Amendment (and each such promissory note shall constitute a Note” for purposes of Section 2.08(h) of the Credit Agreement);

     (f) upon any conversion of outstanding Revolving Loans of the New Lender, the amount of the Revolving Loans owing by the Domestic Borrower or the Foreign Borrower, as applicable, to the New Lender shall be extinguished and deemed to be forgiven or repaid in a principal amount equal to the amount of the Revolving Loans converted, and the Domestic Borrower or the Foreign Borrower, as applicable, shall pay in cash to the New Lender or its assignee, all accrued, unpaid interest owing to the New Lender or its assignee in respect of the principal amount of Revolving Loans converted; and

     (g) upon any such conversion by the New Lender of its outstanding Revolving Loans into common stock of the Domestic Borrower, the Revolving Loan Commitment of the New Lender or its assignee shall be reduced by an amount equal to the principal amount of the Revolving Loans converted, Schedule 2.01 (as then in effect) shall be deemed to be automatically revised accordingly (and the Administrative Agent may distribute an updated Schedule 2.01 reflecting the reduction in the New Lender’s

Revolving Loan Commitment and the corresponding reduction in the aggregate Revolving Loan Commitments), and, to the extent that the Revolving Loan Commitment of the New Lender is reduced to $0, the New Lender shall, ipso facto, cease to be a Lender.

     6. Consent of the Borrowers, Administrative Agent and the Issuing Lenders Regarding Conversion of Revolving Loan Commitment of the New Lender. By their execution hereof, each of the Borrowers, the Administrative Agent and each Issuing Lender party hereto hereby consents under Section 10.04(b)(i) of the Credit Agreement to an assignment, in full or in part, by the New Lenders of its Revolving Loan Commitment and Revolving Credit Exposure to BGP.

     7. Conditions to Effectiveness. This Amendment shall be effective on the Sixth Amendment Effective Date upon satisfaction of each of the following conditions:

     (a) the Administrative Agent (or its counsel) shall have received from each of the Borrowers, the Guarantors, Existing Lenders constituting at least the Required Lenders (determined prior to, and without giving effect to, the New Lender having joined the Credit Agreement and the increase in the Revolving Loan Commitments effectuated pursuant to this Amendment) and the New Lender, either (a) a counterpart of this Amendment signed on behalf of such party or (b) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Amendment) that such party has signed a counterpart of this Amendment;

     (b) the Administrative Agent shall have received all amounts owing to it on or prior to the Sixth Amendment Effective Date, including payment of all other fees and reimbursement or payment of all legal fees and other expenses required to be reimbursed or paid by the Borrowers to the extent that invoices have been provided to the Borrowers;

     (c) the Administrative Agent shall have received evidence reasonably satisfactory to it that the Domestic Borrower and BGP, have entered into a certain term sheet (the “JV Term Sheet”) setting forth the terms of a transaction pursuant to which the Domestic Borrower and BGP, will directly or indirectly form a joint venture involving a substantial portion of the Domestic Borrower’s land-based seismic data acquisition equipment business, and certain related transactions, all on terms and conditions reasonably satisfactory to the Administrative Agent and Existing Lenders comprising not less than the Required Lenders;

     (d) the Administrative Agent shall have received all documents and other items that it may reasonably request relating to any other matters relevant hereto, all in form and substance satisfactory to the Administrative Agent; and

     (e) no Default or Event of Default shall exist.

     8. Conditions Subsequent.

     (a) The effectiveness of this Amendment shall automatically terminate and be of no further force and effect if the New Lender has not advanced to the Administrative Agent, all Revolving Loans to be made to either of the Borrowers pursuant to Section 4(a) hereof on or before November 3, 2009.

     (b) If the transactions contemplated by the JV Term Sheet are not consummated on or prior to March 31, 2010 (unless such date is extended by the parties hereto; provided that in no event shall such date be later than June 30, 2010), or are terminated prior to such date, the waivers of Sections 6.14, 6.15 and 6.16 set forth in Section 3(a) above for any period shall terminate and be rescinded sixty (60) days after receipt by the Domestic Borrower of written notice to that effect from the Administrative Agent.

     9. Representations and Warranties. Each Borrower and each Guarantor represents and warrants that the representations and warranties contained in the Credit Agreement and the other Loan Documents made by it are true and correct as of the date hereof, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct as of such earlier date. Each Borrower and each Guarantor also hereby confirm that this Amendment has been duly authorized by all necessary corporate action and constitutes the binding obligation of each of the Borrowers and the Guarantors, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights and remedies generally and to the effect of general principles of equity (regardless of whether enforcement is considered in a proceeding at Law or in equity).

     10. Continuing Effect of the Credit Agreement. This Amendment shall not constitute a waiver of any provision not expressly referred to herein and shall not be construed as a consent to any action on the part of the Borrowers or Guarantors that would require a waiver or consent of the Lenders or an amendment or modification to any term of the Loan Documents except as expressly stated herein. Except as expressly modified hereby, the provisions of the Credit Agreement and the Loan Documents are and shall remain in full force and effect.

     11. Ratification. The Domestic Borrower and each Domestic Guarantor hereby confirm and ratify the Credit Agreement and each of the other Loan Documents to which it is a party, as amended hereby, and acknowledges and agrees that the same shall continue in full force and effect, as amended hereby and by any prior amendments thereto. The Foreign Borrower and each Foreign Guarantor hereby confirm and ratify the Credit Agreement and each of the other Loan Documents to which it is a party, as amended hereby, and acknowledges and agrees that the same shall continue in full force and effect, as amended hereby and by any prior amendments thereto.

     12. Counterparts. This Amendment may be executed by all parties hereto in any number of separate counterparts each of which may be delivered in original, electronic or facsimile form and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

     13. References. The words “hereby,” “herein,” “hereinabove,” “hereinafter,” “hereinbelow,” “hereof,” “hereunder” and words of similar import when used in this Amendment shall refer to this Amendment as a whole and not to any particular article, section or provision of this Amendment. References in this Amendment to an article or section number are to such articles or sections of this Amendment unless otherwise specified.

     14. Headings Descriptive. The headings of the several sections and subsections of this Amendment are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Amendment.

     15. Governing Law. This Amendment shall be governed by and construed in accordance with the law of the State of New York, without regard to such state’s conflict of laws rules.

     16. Release by Borrowers and Guarantors. Each Borrower and each Guarantor does hereby release and forever discharge the Agent and each of the Lenders and each affiliate thereof and each of their respective employees, officers, directors, trustees, agents, attorneys, successors, assigns or other representatives from any and all claims, demands, damages, actions, cross-actions, causes of action, costs and expenses (including legal expenses), of any kind or nature whatsoever known to any Obligor, whether based on law or equity, which any of said parties has held or may now own or hold, for or because of any matter or thing done, omitted or suffered to be done on or before the actual date upon which this Amendment is signed by any of such parties (i) arising directly or indirectly out of the Credit Agreement, Loan Documents, or any other documents, instruments or any other transactions relating thereto and/or (ii) relating directly or indirectly to all transactions by and between the Borrowers or Guarantors or their representatives and the Agent and each Lender or any of their respective directors, officers, agents, employees, attorneys or other representatives and, in either case, whether or not caused by the sole or partial negligence of any indemnified party. Such release, waiver, acquittal and discharge shall and does include any claims of any kind or nature which may, or could be, asserted by any of the Borrowers or Guarantors.

     17. Final Agreement of the Parties. THIS AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[Signature Pages Follow]

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers to be effective as of the day and year first above written.

DOMESTIC BORROWER: ION GEOPHYSICAL CORPORATION, a Delaware corporation
By:	/s/ David L. Roland
Name:	David L. Roland
Title:	Senior Vice President, General Counsel and Corporate Secretary
FOREIGN BORROWER: ION INTERNATIONAL S.À R.L., a Luxembourg private limited liability company
By:	/s/ David L. Roland
Name:	David L. Roland
Title:	Category A Manager

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

GUARANTORS OF DOMESTIC AND FOREIGN LOANS: GX TECHNOLOGY CORPORATION, a Texas corporation
By:	/s/ David L. Roland
Name:	David L. Roland
Title:	Vice President
ION EXPLORATION PRODUCTS (U.S.A.), Inc., a Delaware corporation
By:	/s/ David L. Roland
Name:	David L. Roland
Title:	Director
I/O MARINE SYSTEMS, INC., a Louisiana corporation
By:	/s/ David L. Roland
Name:	David L. Roland
Title:	Vice President

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

GUARANTORS OF FOREIGN LOANS: CONCEPT SYSTEMS LIMITED, a private limited company incorporated under the law of Scotland
By:		/s/ David L. Roland
Name:		David L. Roland
Title:		Director
I/O CAYMAN ISLANDS, LTD, an Exempted Company incorporated in the Cayman Islands
By:		/s/ David L. Roland
Name:		David L. Roland
Title:		Director
ION INTERNATIONAL HOLDINGS L.P., a Bermuda limited partnership
By:	ION Exploration Products (USA) Inc.,
	a Delaware corporation,  its General Partner
	By:	/s/David L. Roland
	Name: David L. Roland
	Title:   Director
SENSOR NEDERLAND B.V., a private company incorporated under the laws of The Netherlands
By:		/s/ David L. Roland
Name:		David L. Roland
Title:		Director

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

ARAM SYSTEMS CORPORATION, a Nova Scotia unlimited corporation
By:	/s/ David L. Roland
Name:	David L. Roland
Title:	Vice President

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

ADMINISTRATIVE AGENT AND LENDER: HSBC BANK USA, N.A.
By:	/s/ J. Gregory Davis
Name:	J. Gregory Davis
Title:	Senior Vice President

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

LENDER: HSBC BANK CANADA
By:	/s/ John Schmidt
Name:	John Schmidt
Title:	Account Manager, Energy Financing
By:	/s/ Kevin Bale
Name:	Kevin Bale
Title:	Assistant Vice President, Energy Financing

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

LENDER: ABN AMRO BANK N.V.
By:	/s/ Neil J. Bivona
Name:	Neil J. Bivona
Title:	Senior Vice President
By:	/s/ Parker H. Douglas
Name:	Parker H. Douglas
Title:	Senior Vice President

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

LENDER: CITIBANK, N.A.
By:	/s/ Faith E. Allen
Name:	Faith E. Allen
Title:	Senior Vice President

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

LENDER: WHITNEY NATIONAL BANK
By:	/s/ Douglas Webster
Name:	Douglas Webster
Title:	Banking Officer

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

LENDER: PNC BANK, NATIONAL ASSOCIATION
By:	/s/ Holly Kay
Name:	Holly Kay
Title:	Vice President

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

LENDER: ABU DHABI INTERNATIONAL BANK INC.
By:	/s/ David J. Young
Name:	David J. Young
Title:	Vice President
By:	/s/ Nagy S. Kolta
Name:	Nagy S. Kolta
Title:	Executive Vice President

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

NEW LENDER: BANK OF CHINA, NEW YORK BRANCH
By:	/s/ William Warren Smith
Name:	William Warren Smith
Title:	Chief Lending Officer

[Signature page to Sixth Amendment and Waiver to Credit Agreement]

SCHEDULE 2.01

REVOLVING LOAN COMMITMENTS

Lender	Revolving Loan Commitments		Term Loan Commitments
HSBC Bank USA, N.A.	$	19,090,909.09	$	34,000,000
ABN AMRO Bank, N.A.	$	19,090,909.09	$	34,000,000
HSBC Bank Canada	$	9,090,909.09	$	30,000,000
Citibank, N.A.	$	16,363,636.36	$	7,000,000
Whitney National Bank	$	13,636,363.64	$	10,000,000
PNC Bank, National Association	$	13,636,363.64	$	10,000,000
Abu Dhabi International Bank Inc.	$	9,090,909.09	$	0
Bank of China, New York Branch	$	40,000,000.00	$	0
TOTAL	$	140,000,000	$	125,000,000

[Schedule 2.01]

EX-10.52

Exhibit 10.52

PROJECT PINGPONG

TERM SHEET

We have set forth below in this term sheet (this “Term Sheet”) the terms upon which to negotiate and agree on the Definitive Transaction Documents (as defined in Article (A)(1.5)) between BGP Inc., China National Petroleum Corporation, a company organized under the laws of the People’s Republic of China (“PRC”) (“California”) and ION Geophysical Corporation, a company organized under the laws of the State of Delaware, United States of America (“Indiana”) (and their affiliates as applicable) for the proposed establishment of a joint venture, the purchase of equity interest in Indiana by California, the refinancing of certain existing debt of Indiana and the provision of a new credit facility to Indiana and the collaboration in other areas as set forth below. California and Indiana are each referred to herein as a “Party” and together as the “Parties”. The Parties intend that following the execution of this Term Sheet, California shall enter into certain agreements for the provision of Bridge Financing (as defined below) to Indiana on terms and conditions set forth herein.

Except for the provisions of Article (F) (which are unconditional), the transactions contemplated by this Term Sheet (other than the Bridge Financing (as defined in Article (A)(1.2)) and the related Definitive Transaction Documents are conditioned upon, among other things, the receipt of applicable regulatory approvals (and favorable review of certain voluntary regulatory approvals), the simultaneous consummation of each of the Transactions (as defined in Article (A)(1.1)) and the satisfactory completion of confirmatory business, accounting, financial, legal, regulatory and tax due diligence as set forth herein. The consummation of the Bridge Financing is conditional upon the terms set forth in the related Bridge Financing agreement(s) between the Parties.

This Term Sheet supersedes all prior understandings and discussions between the Parties with respect to the subject matters of this Term Sheet. The Definitive Transaction Documents, when agreed to and executed, will supersede this Term Sheet in all respects. The terms set out below are confidential information subject to the Non-Disclosure Agreement between the Parties, dated as of August 7, 2009 (the “NDA”), provided that, if any disclosure obligation or any transactions involving equity securities or debt of Indiana contemplated in this Term Sheet conflicts with any provision of the NDA, the provision in this Term Sheet shall prevail and Indiana acknowledges its invitation for California to enter into those provisions with Indiana.

Article		Description
(A)	Overall Transactions
1	Transactions and Best Efforts	1.1	This Term Sheet contemplates the following transactions (collectively, the “Transactions”):
			(a)	the Equity Investment (as defined in Article (C)(1));
			(b)	the formation of the JV (as defined in Article (D) (3.1)) and the associated transactions contemplated under Article (C) (the “JV Transaction”);
			(c)	the New Credit Facility (as defined in Article (E)); and
			(d)	the Refinancing (as defined in Article (E)).

Article	Description
	1.2	The Parties additionally intend for the bridge financing to be provided in accordance with Article (B) of this Term Sheet (the “Bridge Financing”) and the related agreement(s) between the Parties.
	1.3	Each of the Equity Investment, the JV Transaction, the New Credit Facility and the Refinancing shall be completed contemporaneously with each other as contemplated by this Term Sheet and the related Definitive Transaction Documents.
	1.4	Each Party shall negotiate in good faith and use its best efforts to negotiate and enter into, within the Exclusivity Period (as defined in Article (F)3)), the definitive transaction documents (together with any other ancillary agreements and documents) embodying the terms set forth in this Term Sheet and other terms as both Parties may subsequently agree (collectively, the “Definitive Transaction Documents”).
	1.5	As soon as practicable, but not later than 30 days after the execution of this Term Sheet (or such later date as the Parties may agree), the Parties shall jointly submit to the Committee on Foreign Investment in the United States (“CFIUS”) a draft voluntary notice relating to the Transactions pursuant to the Exon-Florio Provision of the Defense Production Act of 1950, 50 U.S.C. app. § 2170, as amended (“Exon-Florio”) and, as soon as practicable, a final Exon-Florio notice. The Parties each, to their fullest ability, shall timely provide CFIUS with any additional or supplemental information requested by CFIUS or its member agencies during the Exon-Florio review process. Each of the Parties, in cooperation with each other, shall take all commercially reasonable steps advisable, necessary or desirable to finally and successfully complete the Exon-Florio review process as promptly as practicable. Neither California nor Indiana shall be required to agree to any structural or conduct remedy or condition pursuant to the reviews contemplated by this paragraph that would, in its sole judgment, be expected to have a material adverse effect on the business of the JV, as contemplated by the Parties, the value of the Equity Investment, the remaining business of the Party outside of the JV Business, or any other aspect of the expected value of the Transactions to the Party after giving effect to the transactions contemplated by this Term Sheet.
	1.6	Each Party shall, with regard to the review of the transactions contemplated hereby, (i) promptly inform and provide the other Party with a copy of any material communication received by such Party from CFIUS and (ii) permit the other Party reasonable time and notice (subject to the limitation that, with respect to responses to inquiries from CFIUS during the Exon-Florio review process, such Party may not preclude the other Party from responding within the timeframe required under the CFIUS regulations, 31 C.F.R. Sec. 800.403(a)(3)) to (x) review and comment in advance on any material communication to be made or delivered to CFIUS, including any proposed understanding, undertakings, or agreements, (y) consult with the other Party in advance of any meeting or conference with CFIUS and (z) attend and participate in such meetings and conferences (to the extent permitted by

2

Article		Description
			CFIUS).
		1.7	In addition, each of the Parties shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the execution, delivery and performance of the Definitive Transaction Documents or the consummation of the Transactions, including (i) the obtaining of all necessary actions or non-actions, waivers, consents and approvals from governmental entities and the making of all necessary registrations and filings (including filings with governmental entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any governmental entity, (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Term Sheet or any Definitive Transaction Document or the consummation of the Transactions, including seeking to have any stay or temporary restraining order entered by any court or other governmental entity vacated or reversed and (iv) the execution and delivery of any additional instruments necessary to consummate the Transactions and to fully carry out the purposes of this Term Sheet.
2	Definitive Transaction Documents	2.1	The Definitive Transaction Documents currently contemplated by the Parties for the Transactions are set forth below (provided that the listed documents may change in response to changes to the plan of implementation of the Transactions):
			(a)	With respect to the Equity Investment (as further described in Article (C)):
				· a share subscription agreement; and
				· a registration rights agreement
			(b)	With respect to the JV (as further described in Article (D)):
				· the organizational documents of the JV, which shall include matters related to the governance of the JV set forth in Article (D);
				· a shareholders’ agreement between the Parties;
				· the JV SPA (as defined in Article (D)3.1)), which will provide for the acquisition by California from Indiana of 51% of the equity interest in the JV with a consideration in cash and the value of certain assets (such assets, the “California Transferred Assets”);
				· an assignment and transfer agreement, pursuant to which Indiana transfers to the JV the Indiana Transferred Assets (as set forth in Article (D)(3.1));
				· if not included in the JV SPA, an assignment and transfer agreement, pursuant to which California transfers to the JV the California Transferred Assets (as set forth in Article (D)(3.1));
				· certain intellectual property agreements embodying the

3

Article	Description
					principles and providing for the arrangements with respect to the transfer and assign by California of certain intellectual property rights used in or necessary for the conduct or operation of the JV Business (as defined in (D)6));
				·	certain intellectual property agreements embodying the principles and providing for the arrangements with respect to the Indiana JV Business IP (as set forth in Article (D) (2.3));
				·	employee agreements with respect to certain designated key employees of the JV;
				.	certain service agreements relating to certain services to be provided by the Parties hereto to the JV;
				·	certain sales agreements;
				·	certain operating policies and compliance policies; and
		(c)	With respect to the New Credit Facility:
				·	one or more agreements with regard to the New Credit Facility arrangements involving Indiana.
		(d)	With respect to the Refinancing:
				·	one or more agreements with regard to the Refinancing arrangements involvig Indiana.
		(e)	In general:
				·	any documents, agreements or procedures mutually agreed by the Parties in connection with an order or request of any governmental entity.
	2.2	The Definitive Transaction Documents shall reflect the terms of the Transactions as set forth in this Term Sheet, and any schedule and/or exhibits hereto, and such other terms as subsequently agreed to between the Parties.
	2.3	The Parties agree that they shall use their best efforts to work diligently and in good faith to cause the closing of the Transactions (the “Closing”) to occur as soon as possible after the signing of the Definitive Transaction Documents and no later than the latest to occur of (i) December 31, 2009 or (ii) ten (10) business days following the date on which all regulatory approvals (including receiving clearance from CFIUS to complete the Transactions) have been obtained, but in any event no later than March 31, 2010 (such date, the “Outside Date”).
	2.4	In connection with the provision of the Bridge Financing, the Parties and the other parties named therein shall simultaneously enter into the following documents (the “Bridge Financing Documents”):
				·	Sixth Amendment to that certain Amended and Restated Credit Agreement, dated as of July 3, 2008 (the “Credit Agreement”), among Indiana, its subsidiary and the guarantors and lenders named therein, as amended;
				·	Warrant Issuance Agreement between Indiana and California (including Form of Warrant);

4

Article			Description
					·	Convertible Promissory Note and Foreign Convertible Promissory Note issued by Indiana to a lender arranged by California; and
					·	Registration Rights Agreement between California and Indiana.
3	Additional Collaboration	3.1		The Parties shall set forth the terms and conditions of the following additional collaborations in the Definitive Transaction Documents, all as subject to any regulatory approvals (including receiving clearance from CFIUS to complete the Transactions) and any licensing and other requirements as may be necessary:
				(a)	California shall commit to purchasing from the JV certain products that are offered for sale by the JV on arms-length terms (which may include preferential rates and/or discounts, such as customary volume discounts), subject to such products being acceptable to customers of California and being comparable to or better than (in terms of price, quality, technology, reliability, delivery terms and other aspects) similar products that are or would be offered by independent third parties; and
				(b)	California shall commit to purchasing from Indiana marine streamers and Indiana’s Intelligent Acquisition IA™ streamer technologies for California’s vessel “BGP Prospector” on terms and conditions to be agreed to by the Parties and at price, quality, technology, reliability and delivery terms and other aspects no less favorable to California and Indiana than would prevail in an arm’s-length transaction with independent third parties under similar circumstances and market positions.
		3.2		Furthermore, the Parties hereby express their desire to provide each other with preference in the following future business opportunities, provided in each case that the terms and conditions (including price, quality, technology, reliability and delivery) are no less favorable to the other Party than that would prevail in a transaction with a third party and that, if applicable, the purchased services or products are acceptable to the other Party’s customers (and it being understood that no binding agreement is intended herein):
				(a)	Indiana’s choice of contractors for its multi-client business/Solutions division;
				(b)	Indiana’s choice of contractors for its outsourced manufacturing and production of other equipment outside the scope of the JV Business;
				(c)	Indiana’s provision of data processing and analysis services (utilizing Indiana’s data processing and analysis technologies) to California and/or the JV, subject to compliance with applicable US export control laws; and
				(d)	California’s future purchases from Indiana of non-JV Business equipment and services, subject to compliance with applicable US export control laws.

5

Article			Description
4	Registration Rights; Resale	4.1		Notwithstanding anything to the contrary in the NDA, California shall have the right to freely acquire, dispose or otherwise transfer (i) any equity securities of Indiana that California (or an affiliate) acquires pursuant to the relevant Definitive Transaction Documents and (ii) any debt or equity securities or warrants of Indiana that California (or the lender or other third party arranged by it) acquires in connection with the Bridge Financing.
		4.2		Indiana shall provide the (i) usual and customary registration rights with respect to shares of common stock of Indiana (the “Common Stock”) issued to California (or lender or other third party arranged by California who holds such Common Stock) pursuant to any of the Transactions, including the Bridge Financing, and shall file with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement registering such shares promptly and in any event within 20 business days after the issuance of such Common Stock and use its best efforts to cause such registration statement to be declared effective by the SEC within 60 days after the issuance of such Common Stock and continuously maintain thereafter the effectiveness of such registration statement while California (or lender or other third party arranged by it) holds any shares of such issued Common Stock and (ii) cause such Common Stock issued pursuant to the Transactions to be listed on the New York Stock Exchange (the “NYSE”), subject only to the official notice of the issuance of such shares, prior to the issuance of such Common Stock.
(B)	Bridge Financing
1	Bridge Financing	1.1		Simultaneously with the signing of this Term Sheet, the Parties shall execute the Bridge Financing Documents contemplated as of the date hereof, and, subject to the signing of, and entering into legal effect of, each of the Bridge Financing Documents by the relevant parties thereto, California or a financial institution arranged by California shall provide such Bridge Financing in accordance with the terms and conditions contained therein.
(C)	Purchase of Equity Interest
1	Common Stock to be Purchased	1.2		Immediately after the Closing, California (or its affiliate) (together with any subsequent permitted transferee, “Holder”) will have purchased enough shares of the Common Stock so that, as a result, California would own 19.99% of the issued and outstanding shares of the Common Stock on a pre-issuance basis (the “Equity Investment”). Indiana shall issue such shares of Common Stock constituting the Equity Investment in a primary issuance (including by conversion of the Bridge Financing or the exercise of the warrants associated therewith). Other details of the Equity Investment shall be set forth in the Definitive Transaction Documents.
2	Issuance Price and Use of Proceeds	2.1		The price to be paid by California for the purchase of the primary shares of the Common Stock under the Equity Investment at the Closing shall be US$2.80 per share. The purchase price shall be paid to Indiana in lawful currency of the United States by wire transfer of immediately available funds.

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Article			Description
		2.2		Use by Indiana of the proceeds of the Equity Investment shall be limited to use in working capital and repayment of existing indebtedness.
3	Board Representation	3.1		So long as Holder owns at least 10% of the outstanding shares of the Common Stock (i) Holder shall have the right, but not the obligation, to nominate one director (the “California Director”) to the Board of Directors of Indiana (the “Indiana Board”) and (ii) upon such nomination, Indiana shall appoint the California Director to the Indiana Board and shall use its best efforts to ensure that the California Director remains on the Indiana Board.
		3.2		Indiana shall use its best efforts to appoint the California Director to one or more committees of the Indiana Board to the extent that the California Director meets the applicable regulatory requirements on qualifications.
4	Information Rights	4.1		Holder shall enjoy information rights and certifications as to such information substantially similar to those enjoyed by other shareholders of similar stature. Notwithstanding the foregoing sentence, Holder shall have access to Indiana’s products, software, and technology only to the extent permitted by applicable U.S. export control laws and any licenses held by Indiana thereunder, provided that Indiana shall use its best efforts to procure all such licenses, if and when required, so that Holder would be afforded access to information substantially similar to those enjoyed by other shareholders of similar stature. Indiana may require that such access be preceded by certification of Holder that no products, software, or technology will be reexported, transferred, or conveyed except in compliance with U.S. export control laws.
		4.2		Except with respect to (i) information and discussion relating to competition with California, (ii) related party transactions with California; (iii) conflicts of interest involving the California Director and (iv) as may be restricted or prohibited by applicable laws (which include U.S. export control laws) or voluntary agreements with any governmental entity (including CFIUS or a member agency of CFIUS), the California Director shall have access to information available to any other members of the Indiana Board. The foregoing sentence’s reference to “applicable law” shall include, but not be limited to, U.S. export control laws, and, the California Director shall have access to Indiana’s products, software, and technology only to the extent permitted by applicable U.S. export control laws and any licenses held by Indiana thereunder, provided that Indiana shall use its best efforts to procure all such licenses, if and when required, so that the California Director would be afforded access to information available to any other members of the Indiana Board. Indiana may require that such access be preceded by certification of California that no products, software, or technology will be re-exported, transferred, or conveyed except in compliance with U.S. export control laws. The California Director shall at all times comply with policies, regulations and laws applicable to all the other directors of the Indiana Board.

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Article			Description
5	Liquidity of Equity Investment; Anti- Dilution Rights	5.1		The registration, listing and transfer rights relating to the Equity Investment are as set forth above in Article (A)(4) above.
		5.2		In the event of a further issuance of the Common Stock or securities convertible into, exercisable or exchangeable for the Common Stock (“Common Stock Equivalent Securities”), Holder shall have the right to subscribe for such securities to maintain its proportional shareholding prior to the issuance of such securities. Such subscription by Holder shall be made at the issue price received by Indiana (i.e., net of all underwriting discounts). In the case of an issuance or sale of Common Stock Equivalent Securities for a consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration shall be deemed to be the fair value thereof as determined from the methodology implied in the definitive documents in connection with such an issuance, which methodology and calculations Indiana shall provide to Holder. Indiana shall provide (i) reasonable notice (at least 48 hours in cases described in the preceding sentence or three (3) business days in all other cases) to Holder of any issuance of the Common Stock or Common Stock Equivalent Securities and (ii) the same information to Holder as to other potential subscribers of such securities to enable Holder to make an informed decision. Holder shall have the later of (i) two (2) business days and (ii) the deadline by which other potential subscribers have to commit to subscribe. The foregoing does not apply to any issuance pursuant to (a) equity compensation awards pursuant to existing plans and programs approved by the Indiana Board (and additional plans and programs substantially similar with the existing plans and programs), (b) inducement equity compensation awards issued to employees pursuant to rules of the New York Stock Exchange or (c) equity compensation awards or plans adopted by Indiana in connection with an acquisition of a business.
6	Representations and Warranties	6.1		Indiana shall provide to California customary representations and warranties in the share subscription agreement with respect to the Equity Investment. Indiana shall further provide representations, warranties and covenants as may be requested by California in connection with any export control matters and conduct of business questions reasonably determined by California to be necessary in ensuring California’s compliance with applicable laws.
7	Indemnification	7.1		Indiana shall provide the California Director with indemnity and Director and Officer (D&O) liability insurance coverage to the same extent as provided to all other members of the Indiana Board.
(D)	Joint Venture
1	Preparatory Committee	1.1		Upon the signing of this Term Sheet, the Parties shall establish a preparatory committee for the JV and nominate their respective representatives to participate in such committee for mutual consultation on the matters set forth in this Article (D) and to coordinate and effect any necessary action to form the JV.

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Article			Description
		1.2		Such preparatory committee shall, among other tasks, (i) prepare a business plan as soon as possible, which shall be finalized prior to the signing of the Definitive Transaction Documents and shall become the Initial Business Plan (as defined in Article (D)(11)); (ii) discuss with and recommend to the JV Board (as defined in Article (D)(8.1)) the candidates, positions and titles for the Executive Management of the JV, and (iii) discuss, develop and recommend to the JV Board an organizational plan for the JV, including a transition plan for the period after Closing.
2	Formation of the Holding Entity; Indiana’s Transfer of Assets	2.1		Indiana and/or California shall establish one or more wholly-owned subsidiaries in legal form and under the laws of jurisdiction(s) to be mutually agreed upon by the Parties after taking into account all relevant considerations (including those with respect to tax) (“Holdco”).
		2.2		Indiana and/or California shall engage in a reorganization (the “Reorganization”) prior to the Closing in accordance with one or more plans to be mutually agreed upon by the Parties.
		2.3		Assets: As part of the Reorganization (and subject to tax structure), Indiana shall transfer to Holdco free and clear of all mortgages, charges, pledges, liens or claims or security interests (“Encumbrances”) (except for the ICON Capital Financing (as defined below) and other customary immaterial permitted Encumbrances) all tangible and intangible assets necessary to or principally used in the conduct or operation of the JV Business as presently conducted and operated by Indiana (or license certain Intellectual Property to Holdco as described below or provide Holdco with the benefits of assets not transferred to Holdco through services to be mutually agreed by the Parties as provided in Article (D)(4.2)), including all research & development operations within the scope of the JV Business and the ARAM Rental Business, but excluding the Indiana Excluded Assets (the “Indiana Transferred Assets”).
				Without limiting the effect of the foregoing, the following arrangements shall be made with respect to the following categories of the Indiana Transferred Assets:
				(a)	Specified Assets: Indiana will transfer to Holdco certain tangible and intangible assets as set forth in Schedule (D)(2.3)(a) (it being understood that this schedule, with respect to tangible assets, and all schedules relating to tangible assets in this Term Sheet reflect only assets in the aggregate and that the Parties shall agree upon detailed schedules for purposes of the Definitive Transaction Documents and that each schedule in this Term Sheet represents such information to the best of such preparing Party’s knowledge and may be updated and supplemented by mutual agreement of the Parties in the Definitive Transaction Documents);
				(b)	Intellectual Property: Indiana will transfer and assign or license all intellectual property (including all patents, trademarks, trade dress, copyrights, software, trade secrets, inventions, know-how, formulae, processes,

9

Article	Description
		procedures,customer lists, supplier lists, market surveys and marketing know-how, along with all other intellectual property and goodwill of the business connected with the use of the foregoing and all registrations or applications in connection with the foregoing) (the foregoing, “Intellectual Property”) rights to be used in or necessary for the conduct or operation of the JV Business as presently conducted and operated by Indiana (the “Indiana JV Business IP”) as follows:
		(i)	Indiana shall transfer and assign to Holdco ownership of all Indiana JV Business IP owned or held by it that is used primarily in the conduct of the JV Business (the “Transferred Indiana JV Business IP”) and shall list such Intellectual Property with appropriate labeling on Schedule (D)(2.3)(b)(i);
		(ii)	Where requested by Indiana, Holdco shall grant to Indiana an exclusive, perpetual, non-sublicensable (except to wholly-owned subsidiaries), non-assignable, royalty-free license for such Transferred Indiana JV Business IP to be used substantially in the manner as such Intellectual Property is presently used by Indiana and solely for use (a) in connection with providing services to the JV or (b) in Indiana’s businesses that are outside the scope of the JV Business (the “Indiana Business Field”).
		(iii)	With respect to the Indiana JV Business IP not constituting the Transferred Indiana JV Business IP, Indiana shall provide a list of such Intellectual Property with appropriate labeling on Schedule (D)(2.3)(b)(iii), and shall grant to Holdco an exclusive, perpetual, irrevocable, non-terminable, sublicensable, assignable, royalty-free license for such Indiana JV Business IP solely for use within the scope of the JV Business;
		(iv)	Subject to Subsection (v) below, Indiana shall assign and transfer to Holdco (i) all agreements under which Indiana is licensed or otherwise permitted by a third party to use any Indiana JV Business IP, and (ii) all agreements identified by California under which a third party is licensed or otherwise permitted to use any Indiana JV Business IP owned by Indiana ((i) and (ii) collectively, the “Intellectual Property Contracts) and provide a list of such contracts under Schedule (D)(2.3)(b)(iv);
		(v)	If for any reason Indiana is unable, after exercising best efforts, to obtain appropriate consents for an Intellectual Property Contract to be assigned and transferred pursuant to Section 2.3(b)(iv), Indiana shall procure a new, equivalent contract providing

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Article	Description
				Holdco with the same or substantially similar rights and benefits as the Intellectual Property Contract that was not assigned and transferred, provided that if the procurement of a new contract is prohibitively expensive or impracticable, the Parties shall discuss and mutually agree upon a course of action;
			(vi)	Each Party shall provide a customary covenant as to non-assertion of its contributed Intellectual Property rights against Holdco, provided that Holdco shall have the right to assert its intellectual property rights with respect to the Indiana JV Business IP against Indiana if Indiana continues to use such Intellectual Property following the Closing and in the absence or outside the scope of any license from the JV;
			(vii)	Subject to compliance with U.S. export control laws, Indiana shall agree to deliver all notebooks, databases, source code, documents and other materials embodying the Indiana JV Business IP to Holdco (the Parties agree that Indiana shall be permitted to retain a copy of all such materials only to the extent of legally mandated retention purposes) and shall agree to reasonably make available for consultation with Holdco (and the subsequent JV) any employees involved in the development of such Indiana JV Business IP; and
			(viii)	Indiana shall acknowledge that it has transferred or licensed all Indiana JV Business IP and that it retains or is licensed no Indiana JV Business IP that is not included in the Transferred Indiana JV Business IP, the Intellectual Property Contracts or otherwise not licensed to the JV, the absence of which would materially and adversely affect the JV’s conduct and operation of the JV Business. If, despite Indiana’s best efforts with respect to the foregoing, following the Closing, should Indiana discover any Indiana JV Business IP that should have been transferred or licensed to the JV, it shall promptly transfer and assign or license such Intellectual Property to the JV in accordance with the terms herein.
		(c)	Contracts: Indiana will transfer and assign to Holdco, and Holdco will assume from Indiana, all contracts and agreements held by Indiana necessary to or principally used in the conduct or operation of the JV Business as presently conducted and operated by Indiana (the “Indiana JV Contracts”), except for such contracts agreed to by the Parties for which arrangements have been made and by which the JV Business will not be adversely affected.
			(i)	Indiana shall use its best efforts to inform its affected suppliers and customers of the formation

11

Article		Description
					of the JV and use best efforts to transition such supplier and customer contracts (and their administration) to the JV in a manner not disruptive to the JV Business.
				(ii)	Indiana shall assign and transfer to Holdco all insurance policies that are held by Indiana and that are to be used in or necessary to the conduct or operation of the JV Business or procure substantially equivalent insurance policies for the JV to take effect immediately follow the Closing, provided that if the consent to transfer or assignment or the procurement of such new insurance policies is prohibitively expensive or impracticable, the Parties shall discuss and mutually agree upon a course of action.
				(iii)	A schedule of Indiana JV Contracts and their arrangements identified as of the signing of this Term Sheet shall be set forth in Schedule (D)(2.3)(c)(iv). The Parties shall agree on the list of Indiana JV Contracts prior to the signing of the Definitive Transaction Documents.
			(d)	ARAM Rental Business: The ARAM equipment rental business is owned and operated through two wholly-owned subsidiaries of Indiana: ARAM Rentals Corporation (“ARC”) and ARAM Seismic Rentals, Inc. (“ASRI”) (collectively, the “ARAM Rental Business”). Indiana intends to transfer the ARAM Rental Business to Holdco through an assignment of the stocks of ASRI and ARC or their parent companies. The Parties acknowledge that the assets of the ARAM Rental Business are secured by master loan and security agreements between ARC and ICON Ion, LLC and ASRI and ICON Ion, LLC, respectively (the “ICON Capital Financing”), that ARC and ASRI are borrowers under the ICON Capital Financing, that Indiana is and after the Closing will remain a guarantor of the ICON Capital Financing and that the security interest in the assets of the ARAM Rental Business will remain with such assets after their transfer to the JV. As consideration for Indiana remaining as guarantor for the ICON Capital Financing (pursuant to the terms of such ICON Capital Financing), at the Closing, the JV shall execute and deliver a guarantee in favor of Indiana on substantially the same terms to the guarantee provided by Indiana to ICON Ion, LLC.
	2.4		The “Indiana Excluded Assets” are as specifically agreed to by the Parties and set forth on Schedule (D)(2.4) (including certain amounts of accounts receivable of Indiana for which California or one of its subsidiaries is the payor).
	2.5		Following the signing of this Term Sheet, the Parties may by mutual agreement update the schedules set forth in this Article (D)2) and elsewhere in this Article (D), which shall form the basis of the relevant schedules in the Definitive Transaction

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Article			Description
				Documents.
		2.6		Each Party will use its best efforts to procure any consents of third parties required to effect the transactions described in this Article (D). Each Party shall provide the other Party with commercially reasonable assistance as shall be requested by the other Party from time to time in procuring such consents of third parties.
		2.7		From the signing of this Term Sheet to the Closing, except for the Reorganization, Indiana shall maintain and operate its JV Business in the ordinary course and substantially as presently conducted.
3	California’s Acquisition of Equity Interest and Formation of JV;	3.1		California shall enter into a share purchase agreement (the “JV SPA”) the effect of which is that at the Closing:
				(a)	California shall purchase, and Indiana shall sell, 51% of the equity interests of Holdco;
				(b)	in consideration for the transfer of the aforesaid 51% of the equity interests of Holdco, California shall (i) pay to Indiana US$108.5 million in lawful currency of the United States and (ii) subject to satisfactory completion of due diligence by Indiana, transfer and assign to Holdco certain assets of California that the Parties agree are useful to the JV Business. The California Transferred Assets are listed on Schedule (D)(3.1)(b) and include:
					(i)	Certain land seismic recording systems under development;
					(ii)	Certain production lines relating to auxiliary equipment;
					(iii)	certain manufacturing facility and land relating to the manufacturing of the ES109 recording system
					(iv)	All equity owned by California in the sales and marketing company, which equals 80% of the total issued and outstanding equity of such company;
					(v)	All Intellectual Property owned or held by California to be used primarily in the conduct or operation of the California Transferred Assets (the “California JV Business IP”); and
					(vi)	All contracts and agreements held by California primarily in the conduct or operation of the California Transferred Assets, but excluding any and all contracts related to the provision or receipt of goods or services in or related to Cuba, Iran, Myanmar (Burma), North Korea, Syria and Sudan, and any other government, country or person or entity, including such persons and entities that are identified on the List of Specially Designated Nationals and Blocked Persons (“SDNs”), that is the target of U.S. economic sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) (the “California JV Contracts”). The Parties shall agree

13

Article		Description
					on the list of California JV Contracts prior to such transfer;
			(c)	California agrees to the same arrangements, commitments, representations, undertakings and agreements with regard to the California Transferred Assets as Indiana made or is required to make in Section 2.3 with regard to the Indiana Transferred Assets, if applicable;
			(d)	a shareholders’ agreement entered into by California and Indiana shall become effective and Holdco shall adopt new articles of association providing for the remaining provisions of this Article (D) (following such change, Holdco shall be referred to herein as the “JV”).
	3.2		On and following the Closing, California (or an affiliate thereof) shall hold 51% of the equity interest of the JV and Indiana (or an affiliate thereof) shall hold 49% of the equity interest of the JV (each such percentage ownership of the JV, a “Percentage Interest”).
	3.3		The Parties shall provide customary representations and warranties to each other in the JV SPA, including with respect to the assets (including Intellectual Property), contracts, employees, the shares of Holdco, services available to it and the consents obtained. Without in any way limiting the scope of customary representations and warranties to be provided in the JV SPA, Indiana shall specifically provide representations and warranties to the effect that (i) it owns or has the right to use, and will transfer and assign to the JV, all Indiana Transferred Assets except as otherwise agreed to by the Parties and identified in the JV SPA, (ii) together with any services provided by Indiana to be mutually agreed between the Parties pursuant to Article (D)(4.2) and any license of Intellectual Property by Indiana, the Indiana Transferred Assets constitute all the assets, properties, contracts and rights necessary for the JV Group (as defined in Article (D)(32.2)) to conduct the JV Business in all material respects as presently conducted by Indiana,(iii)there are no material undisclosed liabilities regarding the Indiana Transferred Assets whether contingent or fixed except as those that have been disclosed to California in writing prior to the signing of this Term Sheet, (iv) Indiana has complied with all applicable laws and (v) the transactions contemplated by the Definitive Transaction Documents would not contravene or result in a default under any contract of Indiana or any law applicable to the JV Business, subject, in each case, to customary qualifications. Without in any way limiting the scope of customary representations and warranties to be provided in the JV SPA, California shall specifically provide representations and warranties in the JV SPA with regard to the California Transferred Assets that are substantially similar to the representations and warranties that Indiana provides with respect to the Indiana Transferred Assets.
	3.4		The Parties shall provide customary indemnities to each other, including with respect to their respective representations and warranties as to the assets contributed.

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Article			Description
		3.5		The Parties agree that, after the signing of this Term Sheet, if either Party reasonably believes that any tangible or intangible asset that is necessary to the JV Business is not transferred or assigned to the JV (or, where the transfer or assignment of such asset is not permissible, no substitute arrangement has been made), the Party to whom the asset belongs shall agree to have such transferred and assigned to the JV (or, where the transfer or assignment of such asset is not practicable, to make substitute arrangements that provide the JV with substantially similar benefits as if the asset has been transferred and assigned to the JV).
		3.6		The Parties acknowledge that the California Transferred Assets to be contributed to the JV by California will require additional capital expenditures for which California will contribute up to US$9.5 million (the “Additional California Cap-Ex”) (which the Parties agree constitutes part of the value of the California Transferred Assets) and which Additional California Cap-Ex will not be used for working capital. California agrees to pay such funding amounts of the Additional California Cap-Ex into the JV when and as necessary in connection with the JV building a manufacturing facility on the California-contributed land. If the total Additional California Cap-Ex is below US$9.5 million, California agrees to contribute an amount equal to the shortfall to another capital expenditure project of the JV to be identified by the JV Board. Such funding by California shall not be deemed to be an additional capital contribution or loan by California and California shall not receive any additional shares of the JV as a result of the funding.
		3.7		All direct or indirect taxes shall be borne by the Party obligated to pay such taxes under law, including any tax liability incurred in connection with the operation of the JV Business conducted by such Party prior to the Closing and any liability for taxes resulting from the assignment or transfer of any Indiana Transferred Assets and any California Transferred Assets, as applicable, in connection with the Closing.
		3.8		The Parties shall further discuss on the structure and jurisdiction of the JV based on tax and other considerations.
4	Employees and Service Agreements	4.1		As part of the formation of the JV, Indiana and California agree as follows:
				(a)	Indiana and California shall use their best efforts to ensure the stability of the operations and personnel of the JV Business;
				(b)	The Parties agree that Indiana’s contributions to the JV Business shall form the core operations of the JV and as such, Indiana is in the best position to identify those key JV Business personnel of Indiana necessary to the full functioning of the JV Business (including all management, technology and research & development personnel) (such persons, the “Key Employees”). Therefore, Indiana shall provide California with a list of such Key Employees it identifies and the Parties shall either (i) cause the Key Employees to become employed by the JV by transferring

15

Article		Description
					to the JV the stock of the corporate entity that employs the Key Employees (and receiving their acknowledgement as to such transfer) or (ii) use their best efforts to cause the Key Employees to terminate employment with Indiana and become employed by the JV or its subsidiaries pursuant to a comparable offer of employment from the JV, unless Indiana has obtained California’s consent in writing to not take such action with regard to such Key Employees;
				(c)	California shall take the same actions described in Subsection (b) above with regard to its key employees for the California Transferred Assets, if applicable;
				(d)	Indiana and California shall jointly identify to each other all of their respective employees necessary or primarily related to the JV Business and shall make all appropriate arrangements (including using best efforts for such employees to be employed by, seconded or provide services to the JV) to make the services of such employees available to the JV, subject to any applicable U.S. export control licenses or authorizations;
				(e)	Without the JV’s prior written consent (which consent shall not be unreasonably withheld), from the Closing until the fifth anniversary of the Closing, neither Party may directly or indirectly (i) solicit or accept the employment of any employees of the JV or (ii) hire, re-hire, agree to have as a contractor or otherwise employ such employees of the JV;
				(f)	All Intellectual Property developed by employees of the JV after the Closing shall belong to the JV.
			4.2	In connection with the establishment of the JV, Indiana and California shall enter into one or more services agreement(s) with the JV, providing for such additional services as the JV may require from Indiana and California and as Indiana and California are capable and willing to provide, in order to operate the JV Business, and the JV shall provide appropriate licenses of its Intellectual Property as necessary for the provision of such services; provided that the foregoing shall not be construed as excusing either Party from the transfer of the Indiana Transferred Assets and the California Transferred Assets, as applicable, or the obligation with regard to any Key Employees, and the Parties hereby agree that they intend only for a limited amount of ancillary assets used in the conduct of the JV Business (and not any critical or core assets) contributed by each Party to be provided as a service.
5	Name, Headquarters and Facilities		5.1	The name of the JV shall be mutually agreed by the Parties.
			5.2	The principal headquarters of the JV shall be determined by the JV Board.
			5.3	The locations of the facilities and operations of the JV Group shall be determined by the JV Board after taking into account the best commercial interests of the JV and applicable U.S. export control laws.

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Article		Description
6	Scope of the JV		6.1	The scope of the JV Group shall be the business of designing, development, engineering, manufacturing, research and development, distribution, sales and marketing and field support of land-based equipment used in seismic data acquisition for the energy and petroleum industry, including any and all existing products and technologies comprising Indiana’s Scorpion®, Aries®, FireFly®, Pelton, vibroseis, eVib, Connex and land VectorSeis® product lines and businesses and any research & development of, improvements of and new products by the JV based on the forgoing products including the ARAM Rental Business, but excluding any Excluded Business (collectively, the “JV Business”). The Parties agree that the JV itself may conduct the JV Business or may be engaged solely in the business of holding investments in its subsidiaries, which subsidiaries may engage in the JV Business.
			6.2	The “Excluded Business” shall mean:
				(a)	the analog sensor businesses of Indiana and California; and
				(b)	the businesses of certain companies in which California or Indiana is a minority owner as of the date of this Term Sheet that are listed on Schedule (D)(6.2)(b).
			6.3	The scope of the JV Business may be revised only by mutual agreement of the Parties.
			6.4	The JV’s objective will be to maximize its value and economic profits for its shareholders.
7	Term		7.1	The term of the JV shall commence on the Closing and will have an initial term of thirty (30) years and shall automatically renew for additional five (5) year terms (collectively, the “Term”), unless one Party notifies the other Party in writing of its intent not to renew at least 180 days prior to the expiration of any term. Following expiration of the Term, Article (D)(30) shall apply.
8	Future Capital Contributions		8.1	From time to time, the Board of Directors of the JV (the “JV Board”) may determine that the JV shall require additional equity to fund the then effective Business Plan (as defined in Article (D)(11)). In such event, the Board shall have the right to require the Parties to make a proportional mandatory additional capital contribution (“Additional Capital Contribution”).
			8.2	If one Party fails to make all or any portion of an Additional Capital Contribution, then the other Party who has contributed its entire portion of such Additional Capital Contribution may elect to advance all or a portion of the non-contributing Party’s unpaid portion of such Additional Capital Contribution to the JV as a loan by the contributing Party to the non-contributing Party, bearing interest at an annual rate equal to the “prime” rate plus an applicable margin. If such loan is not repaid with all accrued interest within ninety (90) days, then such contributing Party shall have the right to elect to cause the remaining unpaid portion of the capital advance to be converted into an additional capital contribution to the JV by the contributing Party. In such event, the value of the new shares of the JV shall be calculated with respect

17

Article		Description
				to the then fair market value of the JV as agreed to by the Parties or as determined by a mutually acceptable, reputable international independent valuation firm retained by the JV.
9	Allocations of Profits and Losses		9.1	Profits and losses of the JV (for financial, accounting and tax purposes) shall be allocated to each Party pro rata in proportion to its Percentage Interest.
10	Distributions; Distribution Policy		10.1	Distributions to the Parties shall be made to each Party on a pro rata basis in proportion to its Percentage Interest and shall be made by the JV to the Parties when and as declared by the JV Board.
			10.2	The JV shall make distributions in accordance with the JV Board’s dividend and distribution policy. The initial policy of the JV Board with respect to dividends and distributions to the JV’s shareholders, whether by distribution of earnings and profits, returns of capital or other available profits shall be set forth in more detail in the Definitive Transaction Documents (the “Dividend and Distribution Policy”).
11	Business Plan and Annual Operating Plan		11.1	California and Indiana will mutually agree to an initial five-year business plan for the JV prior to the entering into of Definitive Transaction Documents to be effective after the Closing (the “Initial Business Plan”). California and Indiana agree to present the Initial Business Plan to the JV Board and procure that their respective representatives on the JV Board to vote for the approval and adoption of the Initial Business Plan.
			11.2	Subsequent five-year business plans (the “Subsequent Business Plans” and, together with the Initial Business Plan, the “Business Plans”) for the JV will be prepared by the Executive Management (as defined in Article (D)(17)) for approval by the JV Board.
			11.3	The Parties shall cause the JV to operate within the parameters set forth in the then-effective Business Plan.
			11.4	Each fiscal year, the Executive Management shall prepare an annual operating budget and plan of the JV based on the then effective Business Plan (the “Annual Operating Plan”) for approval by the JV Board.
12	Governance Structure of JV		12.1	The shareholders of the JV shall elect the members of the JV Board as set forth in Article (D)(14) and be entitled to vote in approving the Fundamental Matters as set forth in Article(D)(13).
			12.2	Except as otherwise set forth in the shareholders’ agreement or the JV’s governing documents, the JV Board shall be responsible for approving all matters related to the JV, including the appointment of the Executive Management, except as prohibited by applicable law.
			12.3	The Board shall delegate its powers with respect to the management and operation of the JV to the Executive Management as provided in the organizational documents of the JV.
			12.4	The Executive Management shall report to the JV Board and be responsible for the day-to-day operations of the JV as set forth in

18

Article		Description
				Article (D)(17).
13	Shareholder Votes and Fundamental Matters		13.1	All resolutions of the shareholders shall require a simple majority, except for any resolution on a Fundamental Matter, which shall require the approval of shareholders holding at least 70% of the voting power.
			13.2	The following are “Fundamental Matters”:
				(a)	amending or waiving any terms of the organizational documents of the JV (other than mere technical amendments having no effect on the rights of the shareholders of the JV);
				(b)	winding up or liquidating or adopting a plan to effect the dissolution of the JV;
				(c)	a sale of all or substantially all assets of the JV;
				(d)	a change in the size or function of the JV Board; and
				(e)	mergers, statutory share exchanges, amalgamations, consolidations and similar corporate changes of such nature as provided by applicable law.
			13.3	Subject to applicable law and the matters set forth in Section 13.2 above, all decisions and actions that may be legally taken by the JV Board shall be within the JV Board’s sole jurisdiction.
			13.4	Written resolutions in lieu of shareholder meetings shall be permitted.
14	Board Authority and Composition		14.1	The JV Board shall be the ultimate decision making body of the JV and shall review and consider such matters as it may deem proper.
			14.2	The JV Board shall have 7 directors, consisting initially of 4 directors appointed by California (each, a “California JV Director”) and 3 directors appointed by Indiana (each, an “Indiana JV Director” and together with the California JV Directors, the “JV Directors”), which shall be appropriately adjusted following changes in the ownership of equity interest of the JV.
			14.3	Following the resignation, retirement or removal of a JV Director, the replacement of such vacancy shall be made by the Party who initially appointed such director.
			14.4	The JV Board shall be chaired by a California JV Director and shall have as a vice-chair an Indiana JV Director.
15	Meetings of the Board		15.1	The JV Board shall meet quarterly as convened by the chairman, the vice-chairman or as required by applicable law. Each JV Director shall be given notice of the JV Board meeting location, agenda and any other accompanying materials at least ten (10) business days prior to a meeting and shall be given a reasonable opportunity to attend even if their attendance is not required in order to obtain quorum. At the request of any JV Director given at least two (2) business days in advance of the meeting date, the JV shall provide video-conferencing for the conduct of such meeting.
			15.2	The quorum for meetings of the JV Board shall be 4 directors (5 in the case of JV Board meetings held for the purpose of approving

19

Article		Description
				resolutions on the specific matters set forth in Article (D)(16.1). If such quorum shall not be present at any meeting of the JV Board, the directors present shall adjourn the meeting and promptly give notice of when the next JV Board will be reconvened.
			15.3	The JV Board shall be permitted to act by written resolutions in lieu of meetings of the JV Board provided that such written resolutions are circulated to all JV Directors at least ten (10) business days prior to the adoption of such resolution, subject to any bona fide exigent circumstances that demand more prompt action.
			15.4	The minutes of the JV Board, any resolutions made by the JV Board and information provided to the JV Board (including meeting agendas) shall be in both Chinese and English and copies shall be circulated to all JV Directors.
16	Actions of the Board		16.1	The JV Board shall be entitled to take actions with the affirmative vote of a simple majority of the outstanding members of the Board, except for the following actions (each, a “Reserved Matter”), which shall require the approval of at least 5 directors:
				(a)	conducting any material business that is not within the scope of the JV Business;
				(b)	any change of the timing of the fiscal year, the financial reporting standard or the auditor of the JV;
				(c)	material changes to the Initial Business Plan;
				(d)	approving or changing the Dividend and Distribution Policy;
				(e)	approving or changing the JV’s policies and practices applicable to Related-Party Transactions (as defined in Article (D)(26));
				(f)	the admission of any new shareholder of the JV resulting from issuances of new equity interest of the JV (except for the issuance of new equity interest to affiliates of California or Indiana);
				(g)	authorize, approve or require any Additional Capital Contribution in excess of the amount of capital expenditure and working capital needs contemplated under the Business Plans or such other amount as approved by the Board in compliance with the voting requirements of this subsection; and
				(h)	any action that would increase the indebtedness of the JV beyond that contemplated within the Business Plans or such other amount as may be approved by the Board in compliance with the voting requirements of this subsection.
17	Executive Management		17.1	The “Executive Management” of the JV shall be appointed by the JV Board and shall be identified and agreed to as quickly as possible by the preparatory committee for the JV after the execution of this Term Sheet.
			17.2	The JV Board shall appoint additional members of Executive Management in its discretion. In recognition of the importance of

20

Article		Description
				management continuity and stability to the JV, the JV Board shall give considerable weight to maintaining the appointment of the member of the Executive Management members to retain talents for the long-term.
			17.3	The Executive Management shall be responsible for the day-to-day operations of the JV, including:
				(a)	Execution of the Business Plans, including marketing, development and pricing strategies;
				(b)	Providing monthly management reports on key commercial, financial, technological and/or marketing developments and such other reports as the JV Board may request; and
				(c)	Such other matters as may be appropriate or as may be requested or delegated by the JV Board.
18	Employee Related Matters		18.1	Following the Closing,
				(a)	The Parties shall endeavor to maintain the stability and continuity of the JV’s employees to ensure the smooth operation of the JV Business.
				(b)	Unless otherwise agreed, new employees of the JV shall be employed by the JV, as the JV Board may determine to be appropriate. At the request of the JV, the Parties shall provide additional human resources support functions, including, if necessary, available and permissible under applicable benefits plans, secondment arrangements and/or benefits and insurance, for such employees. If either Party provides such services, the JV shall reimburse such Party all costs it incurs as a result of such services.
19	Marketing, Distribution and Additional Support		19.1	Each Party shall provide such support to the JV as may be necessary to conduct the JV Business, including sales, marketing and distribution and other support services that may be necessary to ensure that such Party’s contributions to the JV Business may operate at least as well as prevailed prior to the Closing (subject to any arrangements under the Business Plan). If either Party provides such services, the JV shall reimburse such Party all costs it incurs as a result of such services.
			19.2	The JV Board shall choose the provider(s) of marketing and sales services to the JV, which shall initially be Indiana. Indiana shall be obligated to provide such services for two (2) years following the establishment of the JV (for the avoidance of doubt, the JV’s use of Indiana’s marketing and sales services shall not confer upon Indiana any exclusive right to provide such or any other services to the JV), although the JV may decline such services at any time.
			19.3	It is the intention of the Parties to have the JV establish its own marketing and sales personnel and networks within two (2) years following the establishment of the JV, and Indiana shall provide the JV with all reasonable assistance and support to the JV in its effort to build its own marketing and sales networks and sales team. If, after the expiration of such two (2) year period, the JV has not yet fully established its own marketing and sales personnel and

21

Article		Description
				networks, at the request of the JV, Indiana shall continue to use best efforts to assist the JV to provide such services (or parts thereof) for which the JV lacks its own capability on comparable terms until the JV can fully establish its own capability in such area.
20	Branding		20.1	The JV shall have ownership of and right to use all brands and trade names of the existing products of the Parties to be contributed to the JV Business.
			20.2	The JV shall determine the brands and trade names of its new products and product lines developed and operated by the JV Business.
21	Certain Intellectual Property Considerations		21.1	The JV shall acquire ownership of any Intellectual Property developed by it or its subsidiaries after the Closing in the course of its business, including any improvements it makes to any Intellectual Property licensed from any Party.
			21.2	Indiana shall grant an irrevocable, perpetual, royalty-free license to the JV (for use solely in the JV Business) for all improvements on the Indiana JV Business IP made by Indiana following the Closing.
			21.3	The JV shall grant an irrevocable, perpetual, royalty-free license to Indiana (for use solely in the Indiana Business Field) for all improvements on Indiana JV Business IP made by the JV following the Closing.
			21.4	The JV shall have customary rights with respect to infringement actions by third parties with respect to any Intellectual Property licensed by the Parties, including indemnification from the licensor regarding such claims.
22	Non-Competition		22.1	Each of California and Indiana agrees that, during the Term of the JV, it and its subsidiaries shall not compete anywhere in the world directly in the businesses that are within the scope of the JV Business other than any Excluded Business. In the event a Party (the “Acquirer”) acquires, incidentally as part of a larger transaction, a business that competes directly with the businesses that are within the scope of the JV (a “Competing Business”), the Acquirer shall undertake to dispose of such Competing Business within a reasonable period of time.
			22.2	Subject to the foregoing, the Parties acknowledge and agree that each Party shall be permitted to conduct its businesses in the ordinary course with competitors of the JV and that either Party may conduct businesses with competitors of the other Party.
			22.3	Each Party agrees that in furtherance of the JV, the Parties shall cooperate on such matters outside the scope of the JV Business from time to time as may be agreed between the Parties.
23	Financial Reporting		23.1	The fiscal year of the JV shall begin on January 1 and end on December 31.
			23.2	The JV shall prepare and maintain their accounts and financial statements, and maintain internal controls, in accordance with, and otherwise comply with the applicable provisions of United States Generally Accepted Accounting Principles (“U.S. GAAP”) and until

22

Article		Description
				the end of the year 2013 shall produce financial statements in accordance with both U.S. GAAP and the Internal Financing Reporting Standards, as adopted by the International Accounting Standards Board and endorsed by the European Union (“IFRS”), after which the JV shall only be required to produce financial statements in accordance with IFRS, unless otherwise agreed to by the Parties.
			23.3	The JV Board shall determine the auditor of the JV from among the following audit firms (or their successors or affiliated entities in different geographic regions): Ernst & Young, PricewaterhouseCoopers, Deloitte Touche Tohmatsu and KPMG.
24	Audit Rights		24.1	The Definitive Transaction Documents shall grant California and Indiana the right to inspect and audit, at their respective expense, the books, records, facilities, operations and assets of the JV.
25	Information Rights		25.1	The JV shall produce unaudited quarterly financial statements and business reports and audited annual financial statements for the Parties.
26	Related-Party Transactions		26.1	The JV shall receive in all transactions between a Party or any of its affiliates, on the one hand, and the JV or any of its subsidiaries, on the other hand (each, a “Related-Party Transaction”), terms (including potential customary volume discounts) no less favorable to the JV than those that would have prevailed in a transaction with independent third parties in an arm’s-length transaction under similar circumstances and market positions, provided that in all transactions the JV shall be obligated to provide to California and Indiana terms that are at least as favorable as those provided to third parties including with respect to, quality, payment terms, price and delivery terms.
			26.2	All Related-Party Transactions, other than those in the ordinary course of business, shall be approved by the JV Board in the same manner as an addition to the policies and practices applicable to Related Party Transactions required by Section 16.1, unless such Related Party Transaction has previously been approved, including:
				(a)	licenses of certain intellectual property by Indiana to the JV and by the JV to the Parties as contemplated in this Term Sheet at Closing;
				(b)	agreement relating to marketing, sales and distribution channels and networks of the Parties;
				(c)	secondment arrangements of employees; and
				(d)	services agreements with respect to other support functions to be provided by Indiana or California to the JV.
			26.3	Related-Party Transactions that are in the ordinary course of business, including those in the ordinary course of business such as the purchase of products by California from the JV and the supply of products by Indiana to the JV, shall be approved by the JV Board or the Executive Management (if so delegated by the JV Board) consistent with the policies and practices required by Section 26.1 above. Each quarter, a written summary of all

23

Article		Description
				material Related Party Transactions and purchases by either Party from the JV performed during the preceding quarter, including a description of the pricing, payment and other principal terms of such transactions, shall be delivered to the JV Board pursuant to the specific provisions of the JV organizational documents.
			26.4	If a Party or its affiliate offers terms and conditions (including as to quality and reliability) to the JV that are at least as favorable to the JV as terms and conditions that are or would be offered by an independent third party, the JV and the JV Board shall give preference to dealing with such Party or its affiliate.
27	Transfers of Ownership Interests		27.1	Neither Party may directly or indirectly transfer (including by a Change of Control) or assign its interests and rights in the JV without the prior written consent of the other Party, except that:
				(a)	California may transfer all or any part of its equity interest in the JV as required under applicable law, regulation or government policy where such law, regulation or government policy mandates that California shall no longer be the holder of such equity interest of the JV, provided that such transferee agrees to be bound by all terms applicable to the ownership of the JV including becoming a party to all applicable agreements, subject to applicable law (each, a “Permitted California Transfer”);
				(b)	either Party may transfer pursuant to a Change of Control provided that it complies with the procedures for a Right of First Refusal to the other Party as to its equity interest in the JV and that the transferee is not a competitor of the other Party;
				(c)	On or after the fifth (5th) anniversary of the Closing, following compliance with the procedures for a Right of First Refusal to the other Party, any Party may transfer or assign its interests in the JV to a person other than a direct competitor of the JV and the other Party; provided that such transferee agrees to abide by all terms applicable to the ownership of the JV including becoming a party to all applicable agreements;
			A “Change of Control” means the (i) acquisition, directly or indirectly, by a third party or group consisting of third parties of beneficiary ownership in excess of 50% of the outstanding shares of the common stock of a Party or voting power of outstanding voting securities entitled to vote in the election of directors of the Party or (ii) consummation of a merger, consolidation, amalgamation or similar business combination between a Party and any other third party, excluding, in each case, any Permitted California Transfer.
			A “Right of First Refusal” means a right of first refusal on customary terms and procedures.
28	Deadlock and Dispute Resolution Procedures		28.1	In the event of any dispute between the Parties related to the JV (including a disagreement related to the operation or governance of the JV and a breach by either Party or the JV of its obligations) or the consistent and repeated failure (on at least two separate

24

Article	Description
			occasions) by the JV Board or Parties to resolve any matter (or obtaining quorum on such matter), in addition to any other remedies required by applicable law:
			(a)	The chief executive officers of California and Indiana shall discuss the dispute in good faith on a regular basis for a period of thirty (30) days (or a lesser period if both Parties agree that a resolution is not forthcoming) following the occurrence of the dispute, in an effort to resolve the dispute;
			(b)	If no agreement is reached by the end of the discussion period described above, then the dispute will be referred to non-binding mediation for a period of not greater than sixty (60) days after the conclusion of the discussion period described above, in a forum according to customary procedures to be agreed to in the Definitive Transaction Documents (provided that if the nature of the dispute is not conducive to resolution by mediation, the Parties may mutually agree to forego the mediation process); and
			(c)	If no resolution is reached at the conclusion of the mediation process described above, then either Party may refer the dispute to arbitration as provided in this Term Sheet.
		28.2	Notwithstanding the foregoing, at any time after the fifth (5th) anniversary of the Closing and prior to the eighth (8th) anniversary of the Closing, following the occurrence of (i) any failure to resolve as to any Fundamental Matter or Reserved Matter, (ii) a dispute over a material breach of the terms of the JV or (iii) a fundamental disagreement by the Indiana JV Directors or Indiana with respect to any significant management or operational matter concerning the JV that has been raised and discussed at least once at a meeting of the JV Board and has not been resolved; provided that, in each case, such dispute has undergone the procedures set forth in Article (D)(28.1) above but prior to arbitration (a “Deadlock”), Indiana shall have the right to elect to require California to purchase all of shares in the JV held by Indiana for the then fair market value of shares of the JV as of the date of the Deadlock Notice (as defined below) (such a sale, the “Deadlock Sale”). The Deadlock Sale right and fair market value of such shares shall be as follows:
			(a)	If Indiana elects to exercise its Deadlock Sale right as described above, it shall deliver a written notice (the “Deadlock Notice”) to California and the JV within twenty (20) business days following the occurrence of a Deadlock.
			(b)	For a period of ten (10) business days following delivery of the Deadlock Notice, Indiana and California shall attempt in good faith to reach agreement on the fair market value of Indiana’s shares in the JV. If the Parties cannot agree on such value within the designated time period, Indiana and California shall, within ten (10) business days, agree upon two internationally recognized investment banking firms with expertise in valuing companies engaged in

25

Article	Description
				businesses similar or related to the JV Business. The Parties shall jointly be responsible for the fees and expenses of the selected investment banks.
			(c)	Within twenty (20) business days of the selection of the investment banks pursuant to Clause (b) above, each such investment bank shall independently determine, by using commonly accepted valuation techniques, the enterprise value of the entire JV on a 100% basis. The JV shall provide the investment banks with prompt access to such information of the JV as the investment banks may reasonably request to enable them to prepare their appraisal. On the thirty (30th) business day (or earlier or later if reasonably requested by such investment banks) following the selection of the two investment banks, each investment bank shall deliver its valuation report of the JV to the Parties and the enterprise value of the JV shall be equal to the average (mean) of the valuations determined by the two investment banks. The Parties shall then derive the value of Indiana’s JV shares by subtracting the JV’s net debt from the JV’s enterprise value and multiplying the resulting value by Indiana’s percentage ownership in the JV.
			(d)	The JV shall provide the investment banks with prompt access to such information of the JV as the investment banks may reasonably request to enable them to prepare their appraisal. On the thirty (30th) business day (or earlier or later if reasonably requested by such investment banks) following the selection of the two investment banks, each investment bank shall deliver its valuation report of Indiana’s JV shares to the Parties, and the fair market value of Indiana’s JV shares shall be equal to the average (mean) of the valuations determined by the two investment banks.
			(e)	The Parties shall use their best efforts to obtain all governmental and other approvals and make all notifications necessary to complete the Deadlock Sale. The Deadlock Sale shall be completed within twenty (20) business days after determination of the fair market value for Indiana’s shares as described above (whether by investment banks or by agreement of the Parties) or, if all necessary approvals are not obtained or if California has insufficient funds to acquire such equity interest in the JV in a Deadlock Sale by such date, within ten (10) business days after the receipt of all such approvals or expiration of an additional ninety (90) day grace period during which California may raise additional funding. Upon completion of the Deadlock Sale, all of the JV equity interest owned by Indiana shall be transferred to California, free and clear of all Encumbrances, and California shall pay the purchase price to Indiana in lawful currency of the United States by wire transfer of immediately available funds.
		28.3	During the process of the Deadlock Sale, the Parties and the JV

26

Article		Description
				shall use their best efforts to continue to operate the JV in the ordinary course of business.
29	Withdrawals; Winding Up, Liquidation and Dissolution		29.1	No Party shall withdraw from the JV or take any action to dissolve, terminate or liquidate the JV or to require apportionment or appraisal of the JV or any of its assets except as expressly permitted by the terms of the Definitive Transaction Documents concerning the JV, and each Party shall waive any rights to take such actions under applicable law.
			29.2	The JV shall dissolve upon (a) the written agreement of both Parties or (b) a termination of the JV.
			29.3	Upon dissolution of the JV, all the business and affairs of the JV will be promptly liquidated and wound up and the remaining assets of the JV shall be distributed to the owners of the JV in accordance with their ownership percentages.
30	Termination		30.1	The JV shall terminate if one of the following events shall have occurred:
					•	the written agreement of all shareholders of the JV;
					•	the expiration of the Term of the JV;
					•	the sale of all or substantially all of the assets of the JV;
					•	the dissolution of the JV; or
					•	at the election of a Party, if the other Party enters into bankruptcy, insolvency, liquidation or similar creditor protection.
			30.2	Following the date of such termination (the “Termination Date”), the JV shall promptly cease operations and wind up its business in accordance with Section 29.
31	Sale Upon Material Breach		31.1	Upon a material breach by either Party of the terms of any Definitive Transaction Documents concerning the JV that materially impedes in the conduct of the JV Business by the JV which is not cured within a period of two (2) months following notice of such breach to such Party (a “Triggering Event”), the other Party (the “Non-Triggering Party”) shall at its sole discretion have the right to buy all of the equity interest in the JV held by the Party undergoing the Triggering Event and those held by affiliates of such Party (the “Trigger Purchase”) for 80% of the then fair market value of shares of the JV in accordance with procedures similar to that for a Deadlock Sale.
32	Compliance with Law		32.1	The JV shall at all times be in material compliance with applicable laws. For the avoidance of doubt, the JV shall at all times comply with the applicable requirements of the U.S. Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1, et seq.) (“FCPA”) and as well as applicable non-U.S. law implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business or other non-U.S. anti-bribery conventions and anti-corruption and anti-bribery laws (collectively, the “anti-bribery laws”); U.S. economic sanctions administered by OFAC; all U.S. statutory and regulatory requirements and export and import control laws and regulations related to the export or transfer of

27

Article		Description
				commodities, software and technology, including the Arms Export Control Act (22 U.S.C. § 2778), the International Traffic in Arms Regulations (ITAR) (22 C.F.R. § 120 et seq.), the Export Administration Regulations (15 C.F.R. § 730 et seq.) and associated executive orders (collectively the “Export Control Laws”); and anti-boycott laws, regulations and guidelines of the United States, including Section 999 of the Internal Revenue Code and the regulations and guidelines issued pursuant thereto and the Export Administration Regulations administered by the U.S. Department of Commerce, as relating to anti-boycott matters (the “anti-boycott laws”).
			32.2	Without limiting the foregoing, the Parties shall cause the JV and its subsidiaries (the “JV Group”) to adopt and enforce compliance policies designed to prevent, and not to engage in, any business relationships or transactions between the JV Group and (i) any countries targeted by U.S. economic sanctions administered by OFAC, (ii) any SDN or other entity or individual targeted by the U.S. economic sanctions administered by OFAC, or any entity or individual directly or indirectly owned or controlled by any SDN or other person so targeted or (iii) any of the Parties or their affiliates that would further the activities of those described clauses (i) and (ii) of the foregoing. In addition, the Parties shall cause the JV Group to adopt and enforce policies to ensure compliance with (i) the FCPA and the anti-bribery laws and (ii) all Export Control Laws, especially with respect to the assets contributed to the JV Group by Indiana and any products, services or technologies that make use of such contributed assets.
			32.3	The Parties shall specify further details with respect to the foregoing in the shareholders’ agreement between the Parties and the Parties shall cause the JV Group to implement appropriate policies and procedures to ensure compliance with the foregoing and cause the JV Group to abide by such policies and procedures.
(E)	Refinancing and Credit Facility
1	Refinancing		1.1	The Parties agree that Indiana’s currently existing US$110.8 million term A loan shall be refinanced by certain commercial lender(s) procured by California at terms reasonably satisfactory to both Parties (the “Refinancing”). The refinanced debt shall be held by Indiana. The Parties acknowledge and agree that the Refinancing is an integral part of the Transactions to be completed by the Closing and that all parts of the Transactions shall occur concurrently or simultaneously.
			1.2	The Parties agree that the principles of the Refinancing shall be as follows:
				(a)	The final maturity date shall be no sooner than December 31, 2015;
				(b)	The interest rate spread shall be tighter than those under the existing Credit Agreement; and
				(c)	The covenants in connection with the long-term financing shall be more favorable (less stringent) than that under the existing Credit Agreement.

28

Article		Description
				(d)	In addition to other customary terms and conditions, the Refinancing (and the New Credit Facility) will be secured by a first priority lien over substantially all of Indiana’s assets.
			1.3	The Parties shall negotiate and enter into definitive Refinancing agreements to be agreed to by the Parties.
2	Credit Facility		2.1	The Parties agree that certain commercial lender(s) procured by California shall arrange and extend to Indiana a new revolving line of credit in the amount of US$100 million (the “New Credit Facility”), which may be combined with the Refinancing, at terms reasonably satisfactory to both Parties. The Parties agree that the principal terms of the New Credit Facility shall be the same as the principal terms of the Refinancing. The Parties further acknowledge and agree that the New Credit Facility is an integral part of the Transactions to be completed by the Closing and that all parts of the Transactions shall occur concurrently or simultaneously.
			2.2	The Parties shall negotiate and enter into definitive New Credit Facility agreements to be agreed to by the Parties.
(F)	Other Terms
1	Confidentiality		1.1	The contents of this Term Sheet are confidential and shall be subject to the terms of the Non-Disclosure Agreement, dated as of August 7, 2009.
			1.2	Neither Party shall issue a press release, make an announcement or make any disclosure relating to the Bridge Financing, the Equity Investment, the JV, the New Credit Facility and the Refinancing, this Term Sheet or any matters referred to or contemplated herein, including the existence of this and the status of the Transactions, without the express written consent of the other Party, except as may be required to comply with the requirements of any applicable law, rules or regulations of any stock exchange upon which the securities of a Party are listed or quoted, in which case such Party shall, prior to such disclosure, consult with and provide an opportunity to the other Party to comment on the contents of such disclosure. Notwithstanding the foregoing, the Parties hereby agree that the contents of this Term Sheet and the matters referred to or contemplated herein may be provided to and discussed with CFIUS and any other governmental entity in furtherance of seeking Transaction approvals.
2	Representations and Warranties		2.1	Each Party hereby represents and warrants that:
				(a)	it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization;
				(b)	it has the requisite corporate power and has been duly authorized to enter into this Term Sheet;
				(c)	no consent, approval, license, permit, order, waiver, authorization, registration, declaration, notice or filing

29

Article	Description
				(“Consent”) is required to be obtained by it from, or to be given by it, or made by it with any governmental authority or any other Person in connection with the execution, delivery and performance by it of this Term Sheet, except for certain regulatory and corporate approvals and third party consents listed on Schedule (F)(2.1)(c) and no Consent is required for the consummation of the Transactions, other than (i) the review of the Transactions by CFIUS under Exon-Florio, (ii) filings required pursuant to the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, if any, and (iii) applicable PRC government approvals in connection with Transactions and such other Consents as may be identified by the Parties;
			(d)	the execution, delivery and performance of this Term Sheet by it and the consummation of the transactions contemplated hereby does not and will not (i) violate, conflict with or result in the breach of any provision of its organizational or governance documents; (ii) in any material respect, conflict with or violate any Law applicable to it or any of its material assets or properties; or (iii) in any material respect, conflict with, or result in a violation or breach of or constitute a default under, any material contract to which it is a party or by which its assets, rights and properties are bound;
			(e)	there are no material undisclosed liabilities whether contingent or fixed relating to such Party or to the JV Business except as that has been disclosed to the other Party in writing prior to the signing of this Term Sheet; and
			(f)	no regulatory investigation or other legal proceeding (other than those arising from the Transactions) against any Party shall have been initiated or threatened against such Party.
		2.2	Indiana hereby further represents and warrants: (i) Schedule (F)(2.2) contains a complete and accurate list of export classifications and export licenses for the products of each of the Indiana group companies that are to be contributed to the JV Group and that are to be retained by Indiana for the conduct of its business; (ii) none of the Indiana group companies provides any products or services to the United States Government (including any department, agency, committee, or other body thereof); (iv) none of the Indiana group companies produces or trades in: (A) defense articles and defense services, and related technical data covered by the United States Munitions List (USML), which is set forth in the ITAR, or any other article or service covered in the ITAR; (B) articles and services for which commodity jurisdiction requests under 22 C.F.R. § 120.4 are pending; (C) products and technology subject to export authorization administered by the Department of Energy (10 C.F.R. part 810) or export licensing requirements administered by the Nuclear Regulatory Commission (10 C.F.R. part 110); or (D) Select Agents and Toxins (7 C.F.R. part 331; 9 C.F.R. part 121; and 42 C.F.R. part 73); (v) each of the Indiana group companies is, and has at all times been, in

30

Article		Description
				compliance with all statutory and regulatory requirements under the FCPA, as well as any applicable anti-bribery laws in each jurisdiction in which such Indiana group company operates and, in each case, is without notice of violation thereof; (vi) (A) no company of the Indiana group companies or any of its affiliates does business with, sponsors, or provides assistance or support to, the government of, or any person located in, any country (including Cuba, Iran, Myanmar (Burma), North Korea, Syria or Sudan), or with any SDN or other person or entity targeted by any U.S. economic sanctions administered by OFAC; (B) no company of the Indiana group companies is owned or controlled (within the meaning of the Foreign Assets Control Regulations (31 C.F.R. §§ 500-598) (“OFAC regulations”)) by any targeted government or SDN or other targeted person or entity; (C) the proceeds of the Transactions received by Indiana will not be used (directly or indirectly) to fund any operations in, finance any investments or activities in or make any payments to, any targeted country, or to fund, finance or make any payments to any targeted person or entity; and (D) all of the companies of the Indiana group companies are, and have at all times been, in compliance in all respects with applicable provisions of the OFAC regulations; (vii) all of the Indiana group companies are, and have at all times been, without notice of violation in any material respect of and in compliance in all material respects with the anti-boycott laws including all reporting requirements, and is not a party to any agreement requiring it to participate in or cooperate with the Arab boycott of Israel, including any agreement to provide boycott-related information or to refuse to do any business with any person or entity for boycott-related reasons; and (viii) all of the Indiana group companies are, and have at all times been, in compliance with all Export Control Laws and no Indiana group company has sold, exported, re-exported, transferred, diverted or otherwise disposed of any products, software or technology (including products derived from or based on such technology) to any destination or person prohibited by the Export Control Laws, without obtaining prior authorization from the competent government authorities as may be required by those laws.
			2.3	Indiana, as a publicly listed company in the United States, further represents and warrants that it complies with all applicable United States securities laws and regulations and NYSE rules in all material respects.
3	Exclusivity		3.1	During the period from the execution of this Term Sheet to the Outside Date (the “Exclusivity Period”), Indiana shall not and shall cause its subsidiaries, affiliates and representatives not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries or the making by any third party of any proposal or offer with respect to any transaction contemplating any acquisition or purchase of any equity of Indiana or any of its businesses (or joint venture, pledge, transfer or disposal of any material assets), any merger or other business combination involving Indiana or any strategic arrangement with respect to contemplating a sale, joint venture, pledge, transfer or disposal of any material assets to be used in the JV Business (each, a “Restricted Transaction”).

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Article		Description
			3.2	In addition, during the Exclusivity Period, Indiana shall not and shall cause its subsidiaries, affiliates and representatives not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to a Restricted Transaction, or otherwise knowingly facilitate any effort or attempt to make or implement any Restricted Transaction. During the Exclusivity Period, Indiana shall and shall cause its subsidiaries, affiliates and representatives to promptly inform California of any communications or attempts at communications by any third party relating to a Restricted Transaction. Parties may extend such Exclusivity Period by mutual agreement in writing.
			3.3	During the Exclusivity Period, California shall not and shall cause its subsidiaries, affiliates and representatives not to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate any inquiries or the making by any third party of any proposal or offer with respect to any transaction relating to the JV Business that would be inconsistent or interfere with the transactions contemplated by the Parties in this Term Sheet (a, “California Restricted Transaction”).
			3.4	In addition, during the Exclusivity Period, California shall not and shall cause its subsidiaries, affiliates and representatives not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to a California Restricted Transaction, or otherwise knowingly facilitate any effort or attempt to make or implement any California Restricted Transaction. During the Exclusivity Period, California shall and shall cause its subsidiaries, affiliates and representatives to promptly inform Indiana of any communications or attempts at communications by any third party relating to a California Restricted Transaction.
4	Conditions to Entry into Definitive Transaction Documents		4.1	Each Party shall negotiate in good faith and use its best efforts to negotiate and enter into, within the Exclusivity Period, the Definitive Transaction Documents embodying the terms set forth in this Term Sheet and other terms as both Parties may subsequently agree.
			4.2	Each Party’s obligations to enter into Definitive Transaction Documents shall be conditional upon (“Mutual Signing Conditions”):
				(a)	no indication or statement from the relevant regulatory agencies that the Transactions would not be approved, would be objected to or would be sanctioned or otherwise be required to be altered from the terms contemplated herein or that California’s business and operations would be required to be altered;
				(b)	no regulatory order prohibiting the transactions contemplated by the Definitive Transaction Documents shall have been issued by any governmental agency; and
				(c)	no assignment for the benefit of creditors or bona fide proceeding been instituted by or against the other Party or its subsidiaries seeking to adjudicate any of them as

32

Article	Description
				bankrupt or insolvent or seeking their liquidation, winding up or reorganization or any other relief from creditors being sought; and
			(d)	no fact or circumstance arising during such Party’s due diligence investigation of the other Party, which findings lead to the discovery of any material issues in the other Party’s JV Business and, in the case of Indiana, Indiana’s financial condition, business and operations that materially changes such Party’s reasonable expectations with respect to the other Party’s relevant business, prospects and results of operations from that prevailing as of the date of this Term Sheet;
		4.3	California’s obligations to enter into Definitive Transaction Documents shall be further conditional upon (“California Signing Conditions”):
			(a)	no material adverse event or condition occurring that has resulted in a material adverse effect as to Indiana, including its business, prospects and results of operations;
			(b)	no notice of default being issued and no declaration of acceleration by any holders of any material liability of Indiana and its subsidiaries (including, without limitation, the Bridge Financing) or any default or material breach under such material liability;
			(c)	no material breach by Indiana of any of its representations or warranties as set forth in Article (F)(2) or the obligations under this Term Sheet, except for such breaches which have been cured or compensated by Indiana within 20 business days following their discovery; and
			(d)	the representations and warranties of Indiana set forth in Article (F)(2) continuing to be true and correct in all material respects as if such representations and warranties had been made on such subsequent dates until the Definitive Transaction Documents are entered into, except for such breaches which have been cured or compensated by Indiana within 20 business days following their discovery.
		4.4	Indiana’s obligations to enter into Definitive Transaction Documents shall be further conditional upon (“Indiana Signing Conditions”):
			(a)	no material adverse event or condition occurring that has resulted in a material adverse effect as to California’s ability to effect the Transactions, including its business, prospects and results of operations of its JV Business; and
			(b)	no material breach by California of any of its representations or warranties as set forth in Article (F)(2) or the obligations under this Term Sheet, except for such breaches which have been cured or compensated by California within 20 business days following their discovery; and
			(c)	the representations and warranties of California set forth in

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Article		Description
					Article (F)(2) continuing to be true and correct in all material respects as if such representations and warranties had been made on such subsequent dates until the Definitive Transaction Documents are entered into, except for such breaches which have been cured or compensated by California within 20 business days following their discovery.
5	Termination of TermSheet; Fees Payable		5.1	Each Party’s obligations under this Term Sheet may be terminated at any time prior to the entering into of Definitive Transaction Documents:
				(a)	by written agreement of the Parties;
				(b)	by either Party by giving notice of such termination to the other Party if any of the Mutual Signing Conditions for the entering into of Definitive Transaction Documents have not been or are not capable of being satisfied as of the Outside Date (or earlier if it becomes apparent any such Mutual Signing Condition is not capable of being satisfied);
				(c)	by California if any of the California Signing Conditions have not been satisfied as of the Outside Date (or earlier if it becomes apparent that any such California Signing Condition is not capable of being satisfied), subject to a cure period of twenty (20) business days; or
				(d)	by Indiana if any of the Indiana Signing Conditions have not been satisfied as of the Outside Date (or earlier if it becomes apparent that any such Indiana Signing Condition is not capable of being satisfied), subject to a cure period of twenty (20) business days.
			5.2	If this Term Sheet shall be terminated in accordance with Article (F)(5.1) immediately above, a fee of US$5 million payable by wire transfer in immediately available funds shall be made within ten (10) business days as follows:
				(a)	No amounts shall be payable by either Party if this Term Sheet is terminated in accordance with Article (F)(5.1)(a) or Article (F)(5.1)(b);
				(b)	Indiana shall pay to California such US$5 million in the event that California terminates this Term Sheet pursuant to Article (F)(5.1)(c);
				(c)	California shall pay to Indiana such US$5 million in the event that Indiana terminates this Term Sheet pursuant to Article (F)(5.1)(d).
			5.3	The Definitive Transaction Documents shall also provide for an appropriate reciprocal break-up fee in the event that a Party does not comply with its obligations to complete the Transactions in accordance with the Definitive Transaction Documents.
6	Conditions to the Closing		6.1	The closing of the Transactions shall be subject to customary closing conditions to be set forth in the Transaction Documents, including, without limitation:

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Article		Description
				(a)	obtaining regulatory approvals required under applicable laws, regulations and required third-party consents;
				(b)	the prior or simultaneous closing of all parts of the Transactions;
				(c)	either (i) CFIUS shall have provided notice to the Parties to the effect that a review or investigation of the Transactions has been concluded, and that a determination has been made that there are no unresolved U.S. national security concerns or (ii) CFIUS shall have provided notice to the Parties to the effect that a review or investigation of the Transactions has been concluded, and that a determination has been made that mitigation efforts are necessary to resolve the U.S. national security concerns of CFIUS and California and Indiana shall have agreed on such mitigation efforts and entered into such agreements that permit CFIUS to determine that there are no unresolved U.S. national security concerns or (iii) the period of time for any applicable review process by CFIUS and any subsequent Presidential decision whether to take action under Exon-Florio shall have expired, and the President of the United States shall not have taken action to block or prevent the consummation of the Transactions under Exon-Florio on the basis that they threaten to impair the national security of the United States or otherwise;
				(d)	obtaining all required import and export licenses in connection with the JV Business and the Equity Investment; and
				(e)	with respect to the Equity Investment:
					(i)	the filing of the application for listing of the shares to be issued under the Equity Investment on the NYSE;
				(f)	with respect to the JV:
					(i)	the formation of Holdco and satisfactory completion of the transactions contemplated in Article (D)2) and satisfactory completion of the policies, procedures and arrangements contemplated in Article (D)(32); and
				(g)	other customary closing conditions.
7	Miscellaneous		7.1	Subject to Article (G), this Term Sheet shall be binding on the Parties.
			7.2	Use of the word “including” in this Term Sheet shall mean “including without limitation”.
			7.3	No person not a party to this Term Sheet shall have any right under the Contracts (Rights of Third Parties) Act 1999 to enforce any provision of this Term Sheet.
8	No Third Beneficiaries		8.1	This Term Sheet shall inure to the benefit of and be binding (subject to Article (G)) upon the parties hereto and their respective successors. Nothing in this Term Sheet, express or implied, is

35

Article		Description
				intended to confer upon any person other than California or Indiana or their respective successors, any rights or remedies under or by reason of this Term Sheet.
9	Severability		9.1	In case any provision (or part of a provision) of this Term Sheet shall be invalid, illegal, unenforceable or otherwise cannot be given legal effect, the validity, legality, enforceability and legal effectiveness of the remaining provisions (or remaining part of the affected provision) shall not in any way be affected or impaired thereby.
10	No Assignment		10.1	No party to this Term Sheet may, whether by contract, operation of law or otherwise, assign any of its rights or delegate any of its obligations under this Term Sheet without the prior written consent of the other parties hereto, and any purported assignment without such consent shall be void and without effect, it being understood that California’s obligations with respect to Bridge Financing, Refinancing and New Credit Facility may be undertaken by one or more lenders arranged by California.
11	Governing Law		11.1	This Term Sheet shall be governed by the laws of England and Wales without regard to the conflict of law principles thereof.
12	Arbitration		12.1	All disputes in connection with either this Term Sheet, any Transaction Documents or other documents subsequently executed, or the breach, termination, interpretation or validity thereof, shall be finally settled by the Hong Kong International Arbitration Centre (the “HKIAC”) pursuant to UNCITRAL Rules, with California, on the one hand, being entitled to designate one arbitrator, and with Indiana, on the other hand, being entitled to designate one arbitrator, while the third arbitrator will be selected by agreement between the two designated arbitrators or, failing such agreement within ten (10) calendar days of initial consultation between the two arbitrators, by the HKIAC pursuant to its arbitration rules.
			12.2	If any Party fails to designate its arbitrator within twenty (20) calendar days after the designation of the first of the three arbitrators, the HKIAC shall have the authority to designate any person whose interests are neutral to the Parties as the second of the three arbitrators.
			12.3	The arbitration shall be conducted in both Chinese and English.
(G)	Effectiveness
1	Effective of Term Sheet		1.1	Except for Article (B), Article (F) and this Article (G), which shall be effective upon the execution of this Term Sheet, other provisions of this Term Sheet shall be subject to and conditioned upon the receipt of approval of this Term Sheet from each of the National Development and Reform Commission of the PRC and the Ministry of Commerce of the PRC.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, each of the Parties has caused this Term Sheet to be executed by a duly authorized officer as of October 23, 2009.

BGP INC., CHINA NATIONAL PETROLEUM CORPORATION
By:	/s/ Wang Tiejun
	Name:	Wang Tiejun
	Title:	President
ION GEOPHYSICAL CORPORATION
By:	/s/ Robert P. Peebler
	Name:	Robert P. Peebler
	Title:	Chief Executive Officer

-37-

List of Schedules

1.	Schedule (D)(2.3)(a): Tangible and intangible assets to be transferred by Indiana to Holdco.
2.	Schedule (D)(2.3)(b)(i): Transferred Indiana JV Business IP.
3.	Schedule (D)(2.3)(b)(iii): Indiana JV Business IP not constituting the Transferred Indiana JV Business IP.
4.	Schedule (D)(2.3)(b)(iv): Intellectual Property Contracts.
5.	Schedule (D)(2.3)(c)(iv): Indiana JV Contracts and their arrangements.
6.	Schedule (D)(2.4): Indiana Excluded Assets.
7.	Schedule (D)(3.1)(b): California Transferred Assets.
8.	Schedule (D)(6.2)(b): Companies in which California or Indiana is a minority owner and whose businesses are parts of the Excluded Business.
9.	Schedule (F)(2.1)(c): Certain regulatory and corporate approvals and third party consents.
10.	Schedule (F)(2.2): Export classification.

-38-

EX-10.53

EXHIBIT 10.53

Warrant Issuance Agreement

Dated as of October 23, 2009

between

ION Geophysical Corporation,

and

BGP Inc., China National Petroleum Corporation

TABLE OF CONTENTS

	Page
Recitals		1
Article I Issuance; Closing
1.1 Issuance		1
1.2 Terms of Warrant		1
1.3 Closing		1
1.4 Interpretation		3
Article II Representations and Warranties
2.1 Disclosure		3
2.2 Representations and Warranties of Company		3
2.3 Representations and Warranties of Investor		7
Article III Covenants
3.1 Certain Actions by Company		8
3.2 SEC Reports; NYSE Listing; Registration Statement		8
3.3 Use of Proceeds		8
3.4 Sufficiency of Common Shares		8
3.5 Change of Control		9
Article IV Additional Agreements
4.1 Expenses		9
4.2 Best Efforts		9
4.3 Transfers		9
4.4 Investor Filings		10
Article V Indemnity
5.1 Indemnification of Investor		10
5.2 Conduct of Claims		10

- i -

	Page
Article VI Miscellaneous
6.1 Termination		11
6.2 Amendment		11
6.3 Waiver of Conditions		11
6.4 Counterparts and Facsimile		11
6.5 Governing Law; Submission to Jurisdiction, Etc.		12
6.6 Notices		12
6.7 Entire Agreement, Etc.		13
6.8 Definitions of “Subsidiary”, “affiliate” and “person”		13
6.9 Assignment		13
6.10 Severability		13
6.11 No Third Party Beneficiaries		14
6.12 Further Assurances		14

- ii -

LIST OF ANNEXES AND SCHEDULES

ANNEX A:	FORM OF WARRANT
ANNEX B:	FORM OF REGISTRATION RIGHTS AGREEMENT
ANNEX C:	CHIEF FINANCIAL OFFICER’S CERTIFICATE
ANNEX D:	FORM OF LEGAL OPINION
SCHEDULE 2.2(b):	COMPANY’S CAPITAL STRUCTURE
SCHEDULE 4.3(a):	PERSONS TO WHOM WARRANT SHALL NOT BE TRANSFERRED

- iii -

INDEX OF DEFINED TERMS

	Location of
Term	Definition
affiliate	6.8(b)
Agreement	Preamble
Bankruptcy Exceptions	2.2(d)(i)
Beneficial Ownership	3.5
Board	2.2(l)
Bridge Funding	Recital A
Business Day	1.4
Change of Control	3.5
Closing	1.3(a)
Closing Date	1.3(a)
Commission	2.1(a)
Common Shares	Recital B
Company	Preamble
Company’s Knowledge	2.2(l)
control	6.8(b)
Convertible Notes	1.3(c)
Credit Agreement	Recital A
Exchange Act	2.1(a)
GAAP	2.2(e)(i)
Governmental Entities	2.2(d)(iii)
HKIAC	6.5(b)
Indemnified Party	5.1
Indemnifying Party	5.2(a)
Investor	Preamble
Investor Material Adverse Effect	1.3(c)
ION International	Recital A
Issuance	1.1
Material Adverse Effect	1.3(d)(i)
New Lender	Recital A
NYSE	2.2(k)
person	6.8(c)
Previously Disclosed	2.1(a)
Proceeding	5.1
Registration Rights Agreement	Recital D
SEC Reports	2.1(a)
Securities Act	Recital C
Subsidiary	6.8(a)
Transaction Documents	2.1(b)
Transaction Term Sheet	2.2(l)
Transfer	4.3(a)
Warrant	Recital B
Warrant Shares	Recital B

- iv -

          This Warrant Issuance Agreement, dated October 23, 2009 (this “Agreement”), between ION Geophysical Corporation, a corporation organized under the laws of the State of Delaware (the “Company”), and BGP Inc., China National Petroleum Corporation, a company organized under the laws of the People’s Republic of China (the “Investor”).

Recitals:

WHEREAS:

          A. The Investor has (i) arranged for Bank of China, New York Branch (the “New Lender”) to provide certain financing to the Company and (ii) provided assurance to the New Lender for the benefit of the Company ((i) and (ii) collectively, the “Bridge Funding”) as evidenced in (x) the Amended and Restated Credit Agreement dated as of July 3, 2008 (as amended, modified and supplemented from time to time (including by the Sixth Amendment to the Amended and Restated Credit Agreement), the “Credit Agreement”), among the Company, ION International S.À.R.L., a Luxembourg private limited company (société à responsabilité limitée) (“ION International”), the guarantors, HSBC Bank USA, N.A., ABN AMRO Incorporated, as Joint Lead Arranger and Joint Bookrunner and the lenders named therein and (y) an agreement between the Investor and the New Lender;

          B. In consideration for the Bridge Funding, the Company agrees to issue to the Investor a warrant (the “Warrant”), in substantially the form of warrant attached hereto as Annex A, to purchase such number of shares of the Common Stock of the Company, par value US$0.01 per share (“Common Shares”), as specified in the Warrant (such Common Shares issuable pursuant to the Warrant, the “Warrant Shares”);

          C. The Warrant shall be issued to the Investor without being registered under the United States Securities Act of 1933, as amended (the “Securities Act”), in reliance upon exemptions from the registration requirements thereunder; and

          D. Resales of the Warrant Shares shall be registered under the Securities Act, pursuant to a Registration Rights Agreement (the “Registration Rights Agreement”) in substantially the form attached hereto as Annex B.

          NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

Article I

Issuance; Closing

          1.1 Issuance. On the terms and subject to the conditions set forth in this Agreement, the Company agrees to issue to the Investor at the Closing, the Warrant (the “Issuance”).

          1.2 Terms of Warrant. After the Issuance, the rights and obligations of the holder of the Warrant shall be governed by the terms set forth in the Warrant.

          1.3 Closing.

          (a) On the terms and subject to the conditions set forth in this Agreement, the closing of the Issuance (the “Closing”) will take place at the offices of Sullivan & Cromwell LLP, 28^th Floor, Nine Queen’s Road Central, Hong Kong, at 9:30 p.m., Hong Kong time, October 27, 2009

or as soon as practicable thereafter, or at such other place, time and date as shall be agreed between the Company and the Investor. The time and date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

          (b) Subject to the fulfillment or waiver of the conditions to the Closing in this Section 1.3, at the Closing, the Company will deliver the Warrant, as evidenced by one or more certificates dated the Closing Date and bearing appropriate legends as hereinafter provided for, in consideration for the Bridge Funding.

          (c) The obligation of the Company to consummate the Closing is also subject to the fulfillment (or waiver by the Company) at or prior to the Closing of the following conditions: (i) the representations and warranties of the Investor set forth in this Agreement shall be true and correct as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct as of such date), except to the extent that the failure of such representations and warranties to be so true and correct, individually or in the aggregate, does not have and would not be reasonably likely to have an Investor Material Adverse Effect and (ii) the simultaneous execution of the documentation for the Bridge Funding (including, but not limited to, certain convertible promissory note(s) issued by the Company and/or ION International pursuant to the Credit Agreement (such convertible promissory notes issued upon the execution of the documentation for the Bridge Funding and other similar convertible promissory notes issued after such time collectively, the “Convertible Notes”)). “Investor Material Adverse Effect” means a material adverse effect on the ability of the Investor to consummate the Issuance and the other transactions contemplated by the Transaction Documents.

          (d) The obligation of the Investor to consummate the Closing is also subject to the fulfillment (or waiver by the Investor) at or prior to the Closing of each of the following conditions:

     (i) the representations and warranties of the Company set forth in this Agreement shall be true and correct as though made on and as of the Closing Date (other than representations and warranties that by their terms speak as of another date, which representations and warranties shall be true and correct as of such date), except to the extent that the failure of such representations and warranties to be so true and correct, individually or in the aggregate, does not have and would not be reasonably likely to have a Material Adverse Effect. “Material Adverse Effect” means a material adverse effect on (i) the business, results of operation or financial condition of the Company and its consolidated Subsidiaries taken as a whole or (ii) the ability of the Company to timely consummate the Issuance and the other transactions contemplated by the Transaction Documents;

     (ii) the Company shall have duly executed and delivered the Warrant in substantially the form attached hereto as Annex A to the Investor or its designee(s);

     (iii) the Company shall have duly executed and delivered to the Investor or its designee(s) the Registration Rights Agreement in substantially the form attached hereto as Annex B;

     (iv) the chief financial officer of the Company shall have duly executed and delivered the certificate, dated as of the Closing Date, certifying the representation and warranties of the Company in Section 2.2(l) and substantially in the form attached hereto as Annex C; and

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     (v) the company shall, or shall cause its legal counsel to, have delivered to the Investor a customary validity and “no registration” opinion, dated as of the Closing Date, reasonably satisfactory to the Investor, in substantially the form attached hereto as Annex D.

          1.4 Interpretation. When a reference is made in this Agreement to “Recitals”, “Articles”, “Sections” or “Annexes”, such reference shall be to a Recital, Article or Section of, or Annex to, this Agreement unless otherwise indicated. The terms defined in the singular have a comparable meaning when used in the plural, and vice versa. References to “herein”, “hereof”, “hereunder” and the like refer to this Agreement as a whole and not to any particular section or provision, unless the context requires otherwise. The table of contents and headings contained in this Agreement are for reference purposes only and are not part of this Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed followed by the words “without limitation”. No rule of construction against the draftsperson shall be applied in connection with the interpretation or enforcement of this Agreement, as this Agreement is the product of negotiation between sophisticated parties advised by counsel. All references to “US$” mean the lawful currency of the United States of America. Except as expressly stated in this Agreement, all references to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of any statute, include any rules and regulations promulgated under such statute) and to any section of any statute, rule or regulation include any successor to the section. References to a “Business Day” shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the City of New York, New York, United States of America, or Beijing, People’s Republic of China generally are authorized or required by law or other governmental actions to close.

Article II

Representations and Warranties

          2.1 Disclosure.

          (a) “Previously Disclosed” means information set forth or incorporated in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 or its other reports and forms filed with the United States Securities and Exchange Commission (the “Commission”) (such reports and forms, the “SEC Reports”) under Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) on or after December 31, 2008 but prior to the date hereof.

          (b) For purposes of this Agreement, the term “Transaction Documents” refers collectively to this Agreement, the Registration Rights Agreement and the Warrant, in each case, as amended, modified or supplemented from time to time in accordance with their respective terms.

          2.2 Representations and Warranties of Company. Except as Previously Disclosed, the Company represents and warrants to the Investor that as of the date hereof:

          (a) Organization, Authority and Subsidiaries. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business in all material respects as currently conducted, and, has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business so as to require such qualification (except where the failure to be so qualified would not be reasonably likely to have a Material Adverse Effect). Each

3

Subsidiary of the Company has been duly organized and is validly existing in good standing under the laws of its jurisdiction of organization.

          (b) Capitalization. Set forth in Schedule 2.2(b) is the Company’s capital structure immediately prior to the Closing Date. All of the outstanding Common Shares are, and all shares of capital stock which may be issued pursuant to outstanding stock options, warrants or other convertible rights will be, when issued and paid for in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable, free of any preemptive rights in respect thereof and issued in compliance with all applicable state and federal laws concerning issuance of securities. As of the date hereof, except as set forth in Schedule 2.2(b), and except for Common Shares or other securities issued upon conversion, exchange, exercise or purchase associated with the securities, options, warrants, rights and other instruments referenced in Schedule 2.2(b), no shares of capital stock or other voting securities of the Company were outstanding, no equity equivalents, interests in the ownership or earnings of the Company or other similar rights were outstanding, and there were no existing options, warrants, calls, subscriptions or other rights or agreements or commitments relating to the capital stock of the Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue, transfer, sell or redeem any shares of capital stock, or other equity interest in, the Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to grant, extend or enter into any such option, warrant, call, subscription or other right, agreement or commitment.

          (c) Warrant and Warrant Shares. The Warrant has been duly authorized and, when executed and delivered as contemplated hereby, will constitute a valid and legally binding obligation of the Company in accordance with its terms, and the Warrant Shares have been duly authorized and when issued upon exercise of the Warrant against payment therefor in accordance with the terms of the Warrant will be validly issued, fully paid and non-assessable.

          (d) Authorization, Enforceability.

     (i) The Company has the corporate power and authority to execute and deliver this Agreement and the other Transaction Documents and to carry out its obligations hereunder and thereunder. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, and no further approval or authorization is required on the part of the Company in connection herewith and therewith. This Agreement and the other Transaction Documents are or will be valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity (“Bankruptcy Exceptions”).

     (ii) The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby and compliance by the Company with any of the provisions hereof and thereof, will not (i) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Subsidiary under any of the terms, conditions or provisions of (A) its certificate of incorporation and by-laws or (B) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement, contract or other instrument or obligation to

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which the Company or any Subsidiary is a party or by which it or any Subsidiary may be bound, or to which the Company or any Subsidiary or any of the properties or assets of the Company or any Subsidiary may be subject, or (ii) violate any law, statute, rule or regulation or any judgment, ruling, order, writ, injunction, business license, decree or other regulatory restriction applicable to the Company or any Subsidiary or any of their respective properties or assets.

     (iii) Except as contemplated in the Transaction Term Sheet, the Warrant and/or the Convertible Notes, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any United States of America, People’s Republic of China or other national, state, provincial, local and other governmental or regulatory authorities (collectively, “Governmental Entities”), is required to be made or obtained by the Company in connection with the consummation by the Company of the Issuance.

          (e) Company Financial Statements.

     (i) The consolidated financial statements of the Company and its consolidated Subsidiaries included or incorporated by reference in the SEC Reports filed prior to the Closing, present fairly in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates indicated therein and the consolidated results of their operations for the periods specified therein; and such financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) applied on a consistent basis (except as may be noted therein).

     (ii) Ernst & Young LLP is an independent registered public accounting firm of the Company as required by the Exchange Act and the rules and regulations of the Commission and the Public Company Accounting Oversight Board.

          (f) Reports.

     (i) Since December 31, 2008, the Company has complied in all material respects with the filing requirements of Sections 13(a) and 15(d) of the Exchange Act.

     (ii) The SEC Reports filed by the Company prior to the Closing, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents, when they became effective or were filed with the Commission, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading.

     (iii) The Company is in compliance with the applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and rules and regulations of the Commission with respect thereto as in effect at the time of filing.

          (g) No Material Adverse Effect. Since the most recent SEC Report, no fact, circumstance, event, change, occurrence, condition or development has occurred that, individually or in the aggregate, has had or would be reasonably likely to have a material adverse effect.

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          (h) Exemption from Registration. An exemption from registration under the Securities Act (including the exemption under Regulation S, Section 4(2), and/or Regulation D of the Securities Act) is available for the issuance of the Warrant and the Warrant Shares.

          (i) Solvency. The sum of the assets of the Company, both at a fair valuation and at present fair salable value, exceeds its liabilities, including contingent liabilities. The Company has sufficient capital or access to capital with which to conduct its business as presently conducted and as proposed to be conducted. The Company has not incurred debt, and does not intend to incur debt, beyond its ability to pay such debt as it matures. For purposes of this paragraph, “debt” means any liability on a claim, and “claim” means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. With respect to any such contingent liabilities, such liabilities are computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. In addition, no assignment for the benefit of creditors or bona fide proceeding has been instituted by or against the Company or its Subsidiaries seeking to adjudicate any of them as bankrupt or insolvent or seeking their liquidation, winding up or reorganization and no other relief from creditors has been sought.

          (j) Form S-3. The Company is eligible to use Form S-3 to register securities under the Securities Act.

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

          (l) Certain Certifications. To the best of the Company’s Knowledge, (i) there is no current or threatened investigation or proceeding (other than those arising from the transactions contemplated by the Term Sheet, dated as of October 23, 2009 between the Company and Investor (the “Transaction Term Sheet”)) against the Company by any Governmental Entities; (ii) there is no current or threatened shareholder lawsuit against the Company alleging a violation of fiduciary duties or applicable securities laws (other than those in existence at the time of the execution of the Transaction Term Sheet and disclosed to the Investor); (iii) the Company, as a publicly listed company on the NYSE, complies in all material respects with all applicable U.S. securities laws and regulations and all NYSE rules; (iv) no representation or warranty by the Company for itself or on behalf of its Subsidiaries in Section 2.2 of this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make any statement in any such representation or warranty not misleading; (v) the Company has reserved for issuance, free of preemptive or similar rights, a sufficient number of shares of authorized and unissued Warrant Shares to effectuate the exercise of the Warrant at the initial exercise price of such Warrant and (vi) except as set forth in the SEC Reports, each of the Company and its Subsidiaries has complied in all material respects with each applicable law, rule or regulation to which the Company or any such Subsidiary or its respective business, operations, assets or properties is or has been subject and no event has occurred and no circumstance exists that constitutes a violation of, conflict with or failure on the part of the Company or any of its Subsidiaries to comply with, any law, rule or regulation. “Company’s Knowledge” means the actual knowledge, after due inquiry, of the executive management and the board of directors (the “Board”) of the Company, as of the date hereof

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          2.3 Representations and Warranties of Investor. The Investor hereby represents and warrants to the Company that as of the date hereof:

          (a) Authorization, Enforceability.

     (i) The Investor has the power and authority, corporate or otherwise, to execute and deliver this Agreement and the Registration Rights Agreement and to carry out its obligations hereunder and thereunder. The execution, delivery and performance by the Investor of this Agreement and the Registration Rights Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Investor, and no further approval or authorization is required on the part of the Investor or any other party for such authorization to be effective. This Agreement and the Registration Rights Agreement are or will be valid and binding obligations of the Investor enforceable against the Investor in accordance with their respective terms, except as the same may be limited by Bankruptcy Exceptions.

     (ii) Other than such as have been made or obtained, no notice to, filing with, exemption or review by, or authorization, consent or approval of, any Governmental Entity is required to be made or obtained by the Investor in connection with the consummation by the Investor of the Issuance except for any such notices, filings, exemptions, reviews, authorizations, consents and approvals the failure of which to make or obtain would not be reasonably likely to have an Investor Material Adverse Effect.

          (b) Investment Purposes. The Investor acknowledges that the Warrant and the Warrant Shares have not been registered under the Securities Act or under any state securities laws. The Investor (i) is acquiring the Warrant pursuant to an exemption or exception from registration under the Securities Act solely for investment purposes for its own account with no present intention to distribute them to any person in violation of the Securities Act or any applicable state securities laws; (ii) will not sell or otherwise dispose of any of the Warrant or the Warrant Shares, except in compliance with the registration requirements or exemption provisions of the Securities Act and any applicable state securities laws; (iii) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of the Issuance and of making an informed investment decision, and has conducted a review of the business and affairs of the Company that it considers sufficient and reasonable for purposes of making the Issuance, (iv) is able to bear the economic risk of the Issuance and at the present time is able to afford a complete loss of such investment and (v) is an “accredited investor” (as that term is defined by Rule 501 of Regulation D under the Securities Act).

          (c) Legend. The Investor agrees that all certificates or other instruments representing the Warrant and the Warrant Shares will bear a legend substantially to the following effect:

“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS. THIS INSTRUMENT IS ISSUED PURSUANT TO A WARRANT ISSUANCE AGREEMENT, DATED OCTOBER 23, 2009, BETWEEN THE ISSUER OF THE WARRANT AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH THE

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ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF THIS INSTRUMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH THE TERMS OF THIS INSTRUMENT WILL BE VOID.”

In the event that (i) the Warrant or the Warrant Shares become registered under the Securities Act or (ii) the Warrant Shares are eligible to be transferred without restriction in accordance with Rule 144 under the Securities Act, the Company shall issue new certificates or other instruments representing the Warrant or Warrant Shares, which shall not contain such portion of the above legend that is no longer applicable; provided that the Investor surrenders to the Company the previously issued certificates or other instruments.

Article III

Covenants

          3.1 Certain Actions by Company. From the date of the Closing, as long as (i) the Investor holds the Warrant or (ii) any principal amount, whether or not then outstanding, under the Bridge Funding is capable of being converted to Common Shares in accordance the Convertible Notes, the Company shall not make any recommendation to the Company’s shareholders or take other actions through the Board that would materially and adversely affect the rights of the Investor or its permitted assignees or transferees under the terms of the Warrant (or the Warrant Shares), subject to applicable laws, including laws governing the fiduciary duties of the Board, and the certificate of incorporation and by-laws of the Company.

          3.2 SEC Reports; NYSE Listing; Registration Statement. For so long as the Warrant has not been fully exercised or expired, the Company shall (i) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to the Exchange Act; (ii) maintain the eligibility of the Common Shares for listing on the NYSE; (iii) regain the eligibility of the Common Shares for listing or quotation on all markets and exchanges including the NYSE in the event that the Common Shares are delisted by the NYSE or any other applicable market or exchange; (iv) obtain a listing on another national securities exchange or Nasdaq’s National Market System if the Common Shares are delisted by the NYSE and NYSE eligibility cannot be regained; (v) cause the representations and warranties contained in Section 2.2 to be and remain true and correct, except those representations and warranties which address matters only as of a particular date, which shall be true and correct as of such date and (vi) (x) file with the Commission a registration statement for the purpose of registering the resales of the Warrant Shares, (y) use its best efforts to cause such registration statement to be declared effective by the Commission and (z) continuously maintain thereafter the effectiveness of such registration statement.

          3.3 Use of Proceeds. If any part of the Warrant is exercised prior to the closing of the transactions contemplated by the Transaction Term Sheet between the Company and the Investor, the Company shall use the proceeds it receives from such exercise for working capital needs and shall not use such proceeds for the prepayment of any indebtedness (except to the extent required by Section 2.09(d) of the Credit Agreement).

          3.4 Sufficiency of Common Shares. During the period from the Closing Date until the date on which the Warrant has been fully exercised or expired, the Company shall at all times have reserved for issuance, free of preemptive or similar rights, a sufficient number of shares of authorized and unissued Warrant Shares to effectuate such exercise. If, at any time for any reason, insufficient Common Shares are authorized, the Company shall use its best efforts to amend its certificate of incorporation to permit the exercise in full of the Warrant. Nothing in this Section 3.4 shall preclude the Company from satisfying its obligations in respect of the exercise of the Warrant by delivery of the Common Shares which

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are held in the treasury of the Company. As soon as practicable, the Company shall, at its expense, cause the Warrant Shares to be listed on the NYSE no later than the time at which they become freely transferable in the public market under the Securities Act, subject to official notice of issuance.

          3.5 Change of Control. The Company agrees that it shall not enter into an agreement which would result in a Change of Control unless such agreement expressly obligates the person(s) acquiring control to assume all of the Company’s obligations under this Agreement and the other Transaction Documents. A “Change of Control” means the (i) acquisition, directly or indirectly, by a third party or group consisting of third parties of Beneficial Ownership in excess of 50% of the outstanding shares of the Common Shares or voting power of outstanding voting securities entitled to vote in the election of directors of the Board or (ii) consummation of a merger, consolidation, amalgamation or similar business combination between the Company and any third party. “Beneficial Ownership” shall be determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act, including the provision that any member of a “group” shall be deemed to have Beneficial Ownership of all securities Beneficially Owned by other members of the group, and except that the exclusion in Rule 13d-3(d)(1)(i) for rights to acquire securities that are not exercisable “within 60 days” shall not apply.

Article IV

Additional Agreements

          4.1 Expenses. Unless otherwise provided in any Transaction Document executed by the Company and the Investor, each of the parties hereto will bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated under the Transaction Documents, including fees and expenses of its own financial or other consultants, investment bankers, accountants and counsel.

          4.2 Best Efforts. Subject to the terms and conditions of this Agreement, each of the parties will use its best efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation of the Issuance as promptly as practicable and otherwise to enable consummation of the transactions contemplated hereby and shall use commercially reasonable efforts to cooperate with the other party to that end.

          4.3 Transfers.

          (a) The Investor shall be able to directly or indirectly transfer, sell, contract to sell, assign, pledge, convey, lend, hypothecate, grant any option to purchase, purchase any option to sell, make any short sale or otherwise encumber or dispose of (including entering into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequence of ownership interests) all or parts of the Warrant, the Warrant Shares and the rights and obligations of the Investor under this Agreement in connection with a Transfer of the Warrant, without any consent from, but with notice to (it being understood that such notice shall not be construed as a condition to the effectiveness of the Transfer), the Company. Each transaction referenced in the previous sentence is called a “Transfer”. Notwithstanding the foregoing, the Investor shall not Transfer any part of the Warrant or any Warrant Share to the Company’s competitors identified in Schedule 4.3(a).

          (b) Person(s) to whom the Investor Transfers parts or all of the Warrant shall (x) assume the rights and obligations of the Investor under this Agreement and (y) be able to exercise the Warrant according to the terms of the Warrant.

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          (c) Notwithstanding Section 4.3(a) above, the Warrant and the Warrant Shares will be, when issued, restricted securities under the Securities Act and may not be offered or sold except pursuant to an effective registration statement or an available exemption from registration under the Securities Act. Accordingly, the Investor shall not, directly or through others, offer or sell the Warrant or any Warrant Share except pursuant to a registration statement or an exemption from registration under the Securities Act, if available.

          4.4 Investor Filings. The Investor shall make such filings with the Commission as may be required or as the Investor may deem necessary or advisable in connection with the transactions contemplated in this Agreement, including any filing under Sections 13(d) and 16(a), as may be applicable, of the Exchange Act and the rules and regulations promulgated thereunder.

Article V

Indemnity

          5.1 Indemnification of Investor. The Company hereby agrees to indemnify the Investor and each of its officers, directors, employees, consultants, agents, attorneys, accountants, advisors and affiliates and each person that controls any of the foregoing persons (each an “Indemnified Party”) against any claim, demand, action, liability, damages, loss, cost or expense (including reasonable legal fees and expenses incurred by such Investor Indemnified Party in investigating or defending any such proceeding) (all of the foregoing, including associated costs and expenses being referred to herein as a “Proceeding”), that it may incur directly or indirectly in connection with or as a result of any of the transactions contemplated hereby arising out of or based upon:

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

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

          (c) any breach or non-performance by the Company of any of its covenants, agreements or obligations under this Agreement.

          5.2 Conduct of Claims.

          (a) Whenever a claim for indemnification shall arise under Section 5.1, the Indemnified Party shall notify the Company in writing of the Proceeding and the facts constituting the basis for such claim in reasonable detail;

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

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          (c) The Company shall not, without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any Governmental Entity, commenced or threatened, or any claim whatsoever in respect of which indemnification could be sought under this Article V unless such settlement, compromise or consent (A) includes an unconditional release of each Indemnified Party from all liability arising out of such litigation, investigation, proceeding or claim and (B) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.

Article VI

Miscellaneous

          6.1 Termination. This Agreement may be terminated at any time prior to the Closing:

          (a) by the Investor if the Closing shall not have occurred by the fifth (5^th) calendar day following the date of this Agreement; provided that in the event the Closing has not occurred by such fifth (5^th) calendar day, the parties shall consult in good faith to determine whether to extend the term of this Agreement; provided further, that the right to terminate this Agreement under this Section 6.1(a) shall not be available to the Investor if its breach of any representation or warranty or failure to perform any obligation under this Agreement shall have caused or resulted in the failure of the Closing to occur on or prior to such fifth (5^th) calendar day;

          (b) by the Investor if an assignment for the benefit of creditors or a bona fide proceeding has been instituted by or against the Company or its Subsidiaries seeking to adjudicate any of them as bankrupt or insolvent or seeking their liquidation, winding up or reorganization or any other relief from creditors has been sought;

          (c) by either the Investor or the Company in the event that any Governmental Entity shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or

          (d) by the mutual written consent of the Investor and the Company.

In the event of termination of this Agreement as provided in this Section 6.1, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto, except that nothing herein shall relieve either party from liability for any breach of this Agreement.

          6.2 Amendment. No amendment of any provision of this Agreement will be effective unless made in writing and signed by a duly authorized officer or representative of each party hereto.

          6.3 Waiver of Conditions. The conditions to each party’s obligation to consummate the Issuance are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable laws. No waiver will be effective unless it is in a writing signed by a duly authorized officer or representative of the waiving party that makes express reference to the provision or provisions subject to such waiver.

          6.4 Counterparts and Facsimile. For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement. Executed

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signature pages to this Agreement may be delivered by facsimile and such facsimiles will be deemed as sufficient as if actual signature pages had been delivered.

          6.5 Governing Law; Submission to Jurisdiction, Etc.

          (a) This Agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of laws principles thereof.

          (b) Each of the parties hereto agrees all disputes arising among the parties in connection with the Transaction Documents, or the breach, termination, interpretation or validity thereof, shall be finally settled by the Hong Kong International Arbitration Centre (the “HKIAC”) pursuant to UNCITRAL Rules with the Company, on the one hand, being entitled to designate one arbitrator, and with the Investor, on the other hand, being entitled to designate one arbitrator, while the third arbitrator will be selected by agreement between the two designated arbitrators or, failing such agreement, within 10 calendar days of initial consultation between the two arbitrators, by the HKIAC pursuant to its arbitration rules. If any party fails to designate its arbitrator within 20 calendar days after the designation of the first of the three arbitrators, the HKIAC shall have the authority to designate any person whose interests are neutral to the parties as the second of the three arbitrators. The arbitration shall be conducted in English. To the extent consistent with UNCITRAL Rules, each of the parties hereto shall cooperate with the others in provision of information during any discovery process relating to arbitrations in connection with the Transaction Documents. The parties hereto further agree that, to the extent consistent with UNCITRAL Rules, the parties shall be entitled to seek temporary and permanent injunctive relief from the arbitrators without the necessity of proving actual damages and without posting a bond or other security.

          (c) Each of the parties hereto agrees that notice may be served upon such party at the address and in the manner set forth for such party in Section 6.6.

          (d) To the extent permitted by applicable laws, each of the parties hereto hereby unconditionally waives trial by jury in any legal action or proceeding relating to the Transaction Documents or the transactions contemplated hereby or thereby.

          6.6 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second Business Day following the date of dispatch if delivered by a recognized next-day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.

(A) If to the Investor:

BGP Inc., China National Petroleum Corporation
No. 189, West Fanyang Street,
Zhou Zhou 072751, Hebei
People’s Republic of China
Attention: Mr. Yueliang Guo
Facsimile: (+86-10) 8120 1636

with a copy to:

Sullivan & Cromwell, LLP
28^th Floor

12

Nine Queen’s Road
Hong Kong
Attention: Chun Wei
Facsimile: (+852) 2522 2280

(B) If to the Company:

ION Geophysical Corporation
2105 CityWest Blvd.
Suite 400
Houston, Texas 77042-2839
United States of America
Attention: Mr. David L. Roland
Facsimile: (+001-281) 879 3600

          6.7 Entire Agreement, Etc. This Agreement (including the Annexes and Schedules hereto) and the other Transaction Documents constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties, both written and oral, among the parties, with respect to the subject matter hereof.

          6.8 Definitions of “Subsidiary”, “affiliate” and “person”. (a) Unless otherwise stated, when a reference is made in this Agreement to a Subsidiary of a person, the term “Subsidiary” means those entities of which such person owns or controls more than 50% of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which more than 50% of the outstanding equity securities is owned directly or indirectly by its parent.

          (b) The term “affiliate” means, with respect to any person, any person directly or indirectly controlling, controlled by or under common control with, such other person. For purposes of this definition, “control” when used with respect to any person, means the possession, directly or indirectly, of the power to cause the direction of management and policies of such person, whether through the ownership of voting securities, by contract or otherwise.

          (c) The term “person” means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Entities or other entity.

          6.9 Assignment. Neither this Agreement nor any right, remedy, obligation nor liability arising hereunder or by reason hereof shall be assignable by any party hereto without the prior written consent of the other parties, and any attempt to assign any right, remedy, obligation or liability hereunder without such consent shall be void, except (i) an assignment, in the case of a merger or consolidation where such party is not the surviving entity, or a sale of substantially all of its assets, to the entity which is the survivor of such merger or consolidation or the purchaser in such sale or (ii) a Transfer by Investor in accordance with Section 4.3 hereof.

          6.10 Severability. If any provision of this Agreement or a Transaction Document, or the application thereof to any person or circumstance, is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.

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          6.11 No Third Party Beneficiaries. Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity other than the Company and the Investor (and the transferees to which an assignment is made in accordance with this Agreement), any benefits, rights, or remedies.

          6.12 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

[Remainder of page intentionally left blank]

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     In Witness Whereof, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first herein above written.

ION GEOPHYSICAL CORPORATION
By:	/s/ David L. Roland
	Name:	David L. Roland
	Title:	Senior Vice President, General Counsel and
	Corporate Secretary
BGP INC., CHINA NATIONAL PETROLEUM CORPORATION
By:	/s/ Wang Tiejun
	Name:	Wang Tiejun
	Title:	President

15

EX-10.54

EXHIBIT 10.54

Registration Rights Agreement

Dated as of October 23, 2009

between

ION Geophysical Corporation

and

BGP Inc., China national Petroleum Corporation

TABLE OF CONTENTS

	Page
Section 1.  Certain Definitions		1
Section 2.  Demand Registration		4
Section 3.  Piggyback Registrations		5
Section 4.  S-3 Shelf Registration		6
Section 5.  Suspension Periods		7
Section 6.  Holdback Agreements		8
Section 7.  Registration Procedures		8
Section 8.  Registration Expenses		11
Section 9.  Indemnification		12
Section 10. Securities Act Restrictions		13
Section 11. Transfers of Rights		13
Section 12. Miscellaneous		14

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          This Registration Rights Agreement (this “Agreement”), is made and entered into as of October 23, 2009, by and between ION Geophysical Corporation., a corporation organized under the laws of the State of Delaware (the “Company”), and BGP Inc., China National Petroleum Corporation, a company organized under the People’s Republic of China (the “Investor”).

          WHEREAS, the Company and the Investor are parties to a Warrant Issuance Agreement, dated October 23, 2009 (the “Warrant Issuance Agreement”) pursuant to which the Investor is issued a warrant (the “Warrant”) to purchase a certain number of shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”);

          WHEREAS, pursuant to certain arrangements between the Investor and Bank of China, New York Branch (the “New Lender”), the Investor may receive a certain number of shares of the Common Stock resulting from the conversion of certain indebtedness of the Company held by the New Lender; and

          WHEREAS, in connection with the consummation of the transactions contemplated in connection with the Warrant Issuance Agreement and the provision of financing by the New Lender to the Company through certain arrangements made by the Investor (the “Bridge Funding”), the parties desire to enter into this Agreement in order to create certain registration rights for the Investor as set forth below.

          NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valid consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:

          Section 1. Certain Definitions.

          In addition to the terms defined elsewhere in this Agreement, the following terms shall have the following meanings:

          “Affiliate” of any Person means any other Person which directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlling,” “controlled” and “under common control with”) as used with respect to any Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

          “Agreement” means this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to this Registration Rights Agreement as the same may be in effect at the time such reference becomes operative.

          “beneficially own” means, with respect to any Person, securities of which such Person or any of such Person’s Affiliates, directly or indirectly, has “beneficial ownership” as determined pursuant to Rule 13d-3 and Rule 13d-5 of the Exchange Act, including securities beneficially owned by others with whom such Person or any of its Affiliates has agreed to act together for the purpose of acquiring, holding, voting or disposing of such securities; provided that a Person shall not be deemed to “beneficially own” (i) securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person’s Affiliates until such tendered securities are accepted for payment, purchase or exchange, (ii) any security as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding: (a) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the Exchange Act, and (b) is not also then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report). Without limiting the foregoing, a Person shall be deemed to be the beneficial owner of all Registrable Shares owned of record by any majority-owned subsidiary of such Person.

          “Bridge Funding” has the meaning set forth in the second Recital hereto.

          “Common Stock” has the meaning set forth in the first Recital hereto.

          “Company” has the meaning set forth in the introductory paragraph.

          “Demand Registration” has the meaning set forth in Section 2(a).

          “Demand Registration Statement” has the meaning set forth in Section 2(a).

          “Exchange Act” means the Securities Exchange Act of 1934.

          “Exercise Shares” means Shares acquired by the Investor upon (i) the exercise of the Warrant or (i) the conversion of any outstanding amount under the Bridge Funding into Shares.

          “Form S-3” means a registration statement on Form S-3 under the Securities Act or such successor forms thereto permitting registration of securities under the Securities Act.

          “Governmental Entity” means any national, federal, state, municipal, local, territorial, foreign or other government or any department, commission, board, bureau, agency, regulatory authority or instrumentality thereof, or any court, judicial, administrative or arbitral body or public or private tribunal.

          “Holdback Agreement” has the meaning set forth in Section 6.

          “Holdback Period” has the meaning set forth in Section 6.

          “Investor” means the Person named as such in the first paragraph of this Agreement. References herein to the Investor shall apply to Permitted Transferees who become Investors pursuant to Section 11, provided that for purposes of all thresholds and limitations herein, the actions of the Permitted Transferees shall be aggregated.

          “Minimum Amount” means US$8,000,000.

          “Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, Governmental Entity or any other entity.

          “Permitted Transferee” means any direct or indirect subsidiary of the Investor where the Investor beneficially owns at least 80% of the equity interests (measured by both voting rights and value) of such subsidiary.

          “Piggyback Registration” has the meaning set forth in Section 3(a).

          “Prospectus” means the prospectus or prospectuses (whether preliminary or final) included in any Registration Statement and relating to Registrable Shares, as amended or supplemented and including all material incorporated by reference in such prospectus or prospectuses.

          “Registrable Shares” means, at any time, (i) the Exercise Shares, and (ii) any securities issued by the Company after the date hereof in respect of the Exercise Shares by way of a share dividend or share split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, but excluding (iii) any and all Exercise Shares and other securities referred to in clauses (i) and (ii) that at any time after the date hereof (a) have been sold pursuant to an effective registration statement or Rule 144 under the Securities Act, (b) have been sold in a transaction where a subsequent public distribution of such securities would not require registration under the Securities Act, (c) are eligible for sale pursuant to Rule 144 under the Securities Act without limitation thereunder on volume or manner of sale, (d) are not outstanding or (e) have been transferred to a Person that does not become an Investor pursuant to Section 11 hereof (or any combination of clauses (a), (b), (c), (d) and (e)). It is understood and agreed that, once a security of the kind described in clause (i) or (ii) above becomes a security of the kind described in clause (iii) above, such security shall cease to be a Registrable Share for all purposes of this Agreement and the Company’s obligations regarding Registrable Shares hereunder shall cease to apply with respect to such security.

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          “Registration Expenses” has the meaning set forth in Section 8(a).

          “Registration Statement” means any registration statement of the Company which covers any of the Registrable Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all documents incorporated by reference in such Registration Statement.

          “S-3 Shelf Registration” has the meaning set forth in Section 4(a).

          “S-3 Shelf Registration Statement” has the meaning set forth in Section 4(a).

          “SEC” means the Securities and Exchange Commission or any successor agency.

          “Securities Act” means the Securities Act of 1933.

          “Shares” means any shares of the Common Stock. If at any time Registrable Shares include securities of the Company other than Common Stock, then, when referring to Shares other than Registrable Shares, “Shares” shall include the class or classes of such other securities of the Company.

          “Shelf Takedown” has the meaning set forth in Section 4(b).

          “Suspension Period” has the meaning set forth in Section 5.

          “Termination Date” means the first date on which there are no Registrable Shares or there is no Investor.

          “Third Party Holdback Period” means any Holdback Period imposed on the Investor pursuant to Section 6 in respect of an underwritten offering of Shares in which (i) the Investor elected not to participate or (ii) the Investor’s participation was reduced or eliminated pursuant to Section 3(b) or 3(c).

          “underwritten offering” means a registered offering in which securities of the Company are sold to one or more underwriters on a firm-commitment basis for reoffering to the public, and “underwritten Shelf Takedown” means an underwritten offering effected pursuant to an S-3 Shelf Registration.

          “Warrant” has the meaning set forth in the first Recital hereto.

          In addition to the above definitions, unless the context requires otherwise:

     (i) any reference to any statute, regulation, rule or form as of any time shall mean such statute, regulation, rule or form as amended or modified and shall also include any successor statute, regulation, rule or form from time to time;

     (ii) “including” shall be construed as inclusive without limitation, in each case notwithstanding the absence of any express statement to such effect, or the presence of such express statement in some contexts and not in others;

     (iii) references to “Section” are references to Sections of this Agreement;

     (iv) words such as “herein”, “hereof”, “hereinafter” and “hereby” when used in this Agreement refer to this Agreement as a whole;

     (v) references to “business day” mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York generally are authorized or required by law or other governmental action to close; and

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     (vi) references to “dollars” and “$” mean U.S. dollars.

          “Warrant Issuance Agreement” has the meaning set forth in the first Recital hereto.

          Section 2. Demand Registration.

          (a) Right to Request Registration. Subject to the provisions hereof, until the Termination Date, the Investor may at any time request registration for resale under the Securities Act of all or part of the Registrable Shares separate from an S-3 Shelf Registration (a “Demand Registration”); provided that (based on the then-current market prices) the number of Registrable Shares included in the Demand Registration would, if fully sold, yield gross proceeds to the Investor of at least the Minimum Amount. Subject to Section 2(d) and Sections 5 and 7 below, the Company shall (i) file a Registration Statement registering for resale such number of Registrable Shares as requested to be so registered pursuant to this Section 2(a) (a “Demand Registration Statement”) within twenty (20) business days after the Investor’s request therefor and (ii) if necessary, use best efforts to cause such Demand Registration Statement to be declared effective by the SEC as soon as practicable thereafter and in any event within sixty (60) calendar days of the Investor’s request for Demand Registration. If permitted under the Securities Act, such Registration Statement shall be one that is automatically effective upon filing.

          (b) Number of Demand Registrations. Subject to the limitations of Sections 2(a), 2(d) and 4(a), the Investor shall be entitled to request up to three (3) Demand Registrations in the aggregate under this Agreement (regardless of the number of Permitted Transferees who may become an Investor pursuant to Section 11). A Registration Statement shall not count as a permitted Demand Registration unless and until it has become effective.

          (c) Priority on Demand Registrations. The Company may include Shares other than Registrable Shares in a Demand Registration for any accounts (including for the account of the Company) on the terms provided below; and if such Demand Registration is an underwritten offering, such Shares may be included only with the consent of the managing underwriters of such offering. If the managing underwriters of the requested Demand Registration advise the Company and the Investor requesting such Demand Registration that in their opinion the number of Shares proposed to be included in the Demand Registration exceeds the number of Shares which can be sold in such underwritten offering without materially delaying or jeopardizing the success of the offering (including the price per share of the Shares proposed to be sold in such underwritten offering), the Company shall include in such Demand Registration (i) first, the number of Registrable Shares that the Investor proposes to sell, and (ii) second, the number of Shares proposed to be included therein by any other Persons (including Shares to be sold for the account of the Company) allocated among such Persons in such manner as the Company may determine. If the number of Shares which can be sold is less than the number of Shares proposed to be registered pursuant to clause (i) above by the Investor, the amount of Shares to be sold shall be allocated to the Investor.

          (d) Restrictions on Demand Registrations. The Investor shall not be entitled to request a Demand Registration (i) within three months after the Investor has sold Shares in a Demand Registration or an underwritten Shelf Takedown requested pursuant to Section 4(b) or (ii) at any time when the Company is diligently pursuing a primary or secondary underwritten offering pursuant to a Piggyback Registration. Notwithstanding the foregoing, the Company shall not be obligated to proceed with a Demand Registration if the offering to be effected pursuant to such registration can be effected pursuant to an S-3 Shelf Registration and the Company, in accordance with Section 4, effects or has effected an S-3 Shelf Registration pursuant to which such offering can be effected.

          (e) Underwritten Offerings. The Investor shall be entitled to request an underwritten offering pursuant to a Demand Registration, but only if the number of Registrable Shares to be sold in the offering would reasonably be expected to yield gross proceeds to the Investor of at least the Minimum Amount (based on then-current market prices) and only if the request is not made within three months after the Investor has sold Shares in an underwritten offering pursuant to (i) a Demand Registration or (ii) an S-3 Shelf Registration. If any of the Registrable Shares covered by a Demand Registration are to be sold in an underwritten offering, the Company shall have the right to select the managing underwriter or underwriters to lead the offering.

          (f) Effective Period of Demand Registrations. Upon the date of effectiveness of any Demand Registration for an underwritten offering and if such offering is priced promptly on or after such date, the Company

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shall use reasonable best efforts to keep such Demand Registration Statement effective for a period equal to sixty (60) days from such date or such shorter period which shall terminate when all of the Registrable Shares covered by such Demand Registration have been sold by the Investor. If the Company shall withdraw any Demand Registration pursuant to Section 5 before such sixty (60) days end and before all of the Registrable Shares covered by such Demand Registration have been sold pursuant thereto, the Investor shall be entitled to a replacement Demand Registration which shall be subject to all of the provisions of this Agreement. A Demand Registration shall not count against the limit on the number of such registrations set forth in Section 2(b) if (i) after the applicable Registration Statement has become effective, such Registration Statement or the related offer, sale or distribution of Registrable Shares thereunder becomes the subject of any stop order, injunction or other order or restriction imposed by the SEC or any other governmental agency or court for any reason not attributable to the Investor or its Affiliates (other than the Company and its controlled Affiliates) and such interference is not thereafter eliminated so as to permit the completion of the contemplated distribution of Registrable Shares or (ii) in the case of an underwritten offering, the conditions specified in the related underwriting agreement, if any, are not satisfied or waived for any reason not attributable to the Investor or its Affiliates (other than the Company and its controlled Affiliates), and as a result of any such circumstances described in clause (i) or (ii), less than 75% of the Registrable Shares covered by the Registration Statement are sold by the Investor pursuant to such Registration Statement.

          Section 3. Piggyback Registrations.

          (a) Right to Piggyback.

          Whenever prior to the Termination Date the Company proposes to register any Shares under the Securities Act (other than on a registration statement on Form S-8, F-8, S-4 or F-4), whether for its own account or for the account of one or more holders of Shares (other than the Investor), and the form of registration statement to be used may be used for any registration of Registrable Shares (a “Piggyback Registration”), the Company shall give written notice to the Investor of its intention to effect such a registration and, subject to Sections 3(b) and 3(c), shall include in such registration statement and in any offering of Shares to be made pursuant to that registration statement all Registrable Shares with respect to which the Company has received a written request for inclusion therein from the Investor within ten (10) business days after the Investor’s receipt of the Company’s notice or, in the case of a primary offering, such shorter time as is reasonably specified by the Company in light of the circumstances (provided that only Registrable Shares of the same class or classes as the Shares being registered may be included). The Company shall have no obligation to proceed with any Piggyback Registration and may abandon, terminate and/or withdraw such registration for any reason at any time prior to the pricing thereof. If the Company or any other Person other than the Investor proposes to sell Shares in an underwritten offering pursuant to a registration statement on Form S-3 under the Securities Act, such offering shall be treated as a primary or secondary underwritten offering pursuant to a Piggyback Registration.

          (b) Priority on Primary Piggyback Registrations. If a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company and the managing underwriters advise the Company and the Investor (if the Investor has elected to include Registrable Shares in such Piggyback Registration) that in their opinion the number of Shares proposed to be included in such offering exceeds the number of Shares (of any class) which can be sold in such offering without materially delaying or jeopardizing the success of the offering (including the price per share of the Shares proposed to be sold in such offering), the Company shall include in such registration and offering (i) first, the number of Shares that the Company proposes to sell, and (ii) second, the number of Shares requested to be included therein by holders of Shares, including the Investor (if the Investor has elected to include Registrable Shares in such Piggyback Registration), pro rata among all such holders on the basis of the number of Shares requested to be included therein by all such holders or as such holders and the Company may otherwise agree (with such allocations among different classes of Shares, if more than one are involved, to be determined by the Company).

          (c) Priority on Secondary Piggyback Registrations. If a Piggyback Registration is initiated as an underwritten registration on behalf of a holder of Shares other than the Investor, and the managing underwriters advise the Company that in their opinion the number of Shares proposed to be included in such registration exceeds the number of Shares (of any class) which can be sold in such offering without materially delaying or jeopardizing the success of the offering (including the price per share of the Shares to be sold in such offering), then the Company shall include in such registration (i) first, the number of Shares requested to be included therein by the holder(s) requesting

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such registration, (ii) second, the number of Shares requested to be included therein by other holders of Shares including the Investor (if the Investor has elected to include Registrable Shares in such Piggyback Registration) and (iii) third, the number of Shares that the Company proposes to sell, pro rata among such holders on the basis of the number of Shares requested to be included therein by such holders or as such holders and the Company may otherwise agree (with allocations among different classes of Shares, if more than one are involved, to be determined by the Company).

          (d) Selection of Underwriters. If any Piggyback Registration is a primary or secondary underwritten offering, the Company shall have the right to select the managing underwriter or underwriters to administer any such offering.

          (e) Basis of Participations. The Investor may not sell Registrable Shares in any offering pursuant to a Piggyback Registration unless it (a) agrees to sell such Shares on the same basis provided in the underwriting or other distribution arrangements approved by the Company and that apply to the Company and/or any other holders involved in such Piggyback Registration and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, lockups and other documents required under the terms of such arrangements.

          Section 4. S-3 Shelf Registration.

          (a) Right to Request Registration. Subject to the provisions hereof, at any time when the Company is eligible to use Form S-3 prior to the Termination Date, the Investor shall be entitled to request on two (2) occasions that the Company file a Registration Statement on Form S-3 (or an amendment or supplement to an existing registration statement on Form S-3) for a public offering of all or such portion of the Registrable Shares designated by the Investor pursuant to Rule 415 promulgated under the Securities Act or otherwise (an “S-3 Shelf Registration”). A request for an S-3 Shelf Registration may not be made within three months after the Investor has sold Shares in a Demand Registration or at any time when an S-3 Shelf Registration is in effect or the Company is diligently pursuing a primary or secondary underwritten offering pursuant to a registration statement. Upon such request, and subject to Section 5, the Company shall (i) file a Registration Statement (or any amendment or supplement thereto) covering the number of shares of Registrable Shares specified in such request under the Securities Act on Form S-3 (an “S-3 Shelf Registration Statement”) for public sale in accordance with the method of disposition specified in such request within twenty (20) business days after the Investor’s written request therefor and (ii) use best efforts, if necessary, to cause such S-3 Shelf Registration Statement to become effective as soon as practicable thereafter and in any event within sixty (60) calendar days of the Investor’s written request for such S-3 Shelf Registration. If permitted under the Securities Act (and the rules and regulations thereunder), such Registration Statement shall be one that becomes automatically effective upon filing. The right to request an S-3 Shelf Registration may be exercised no more than twice in the aggregate, regardless of the number of Permitted Transferees who may become an Investor pursuant to Section 11. If the Investor has used its right to a S-3 Shelf Registration pursuant to this Section 4 and has exercised fewer than three Demand Registrations, the Investor may elect a third S-3 Shelf Registration and, upon such election, the number of Demand Registrations available to the Investor shall be reduced by one.

          (b) Right to Effect Shelf Takedowns. The Investor shall be entitled, at any time and from time to time when an S-3 Shelf Registration Statement is effective and until the Termination Date, to sell such Registrable Shares as are then registered pursuant to such S-3 Registration Statement (each, a “Shelf Takedown”), but only upon not less than three (3) business days’ prior written notice to the Company (if such takedown is to be underwritten). The Investor shall be entitled to request that a Shelf Takedown shall be an underwritten offering; provided that (based on the then-current market prices) the number of Registrable Shares included in each such underwritten Shelf Takedown would reasonably be expected to yield gross proceeds to the Investor of at least the Minimum Amount; provided further that the Investor shall not be entitled to request any underwritten Shelf Takedown (i) within three months after the Investor has sold Shares in an underwritten offering effected pursuant to a (x) Demand Registration or (y) S-3 Shelf Registration or (ii) at any time when the Company is diligently pursuing a primary or secondary underwritten offering of Shares pursuant to a registration statement. The Investor shall give the Company prompt written notice of the consummation of each Shelf Takedown (whether or not underwritten).

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          (c) Priority on Underwritten Shelf Takedowns. The Company may include Shares other than Registrable Shares in an underwritten Shelf Takedown for any accounts on the terms provided below, but only with the consent of the managing underwriters of such offering and the Investor (such consent not to be unreasonably withheld). If the managing underwriters of the requested underwritten Shelf Takedown advise the Company and the Investor that in their opinion the number of Shares proposed to be included in the underwritten Shelf Takedown exceeds the number of Shares which can be sold in such offering without materially delaying or jeopardizing the success of the offering (including the price per share of the Shares proposed to be sold in such offering), the Company shall include in such underwritten Shelf Takedown (i) first, the number of Shares that the Investor proposes to sell, and (ii) second, the number of Shares proposed to be included therein by any other Persons (including Shares to be sold for the account of the Company) allocated among such Persons in such manner as the Company may determine. If the number of Shares which can be sold is less than the number of Registrable Shares proposed to be included in the underwritten Shelf Takedown pursuant to clause (i) above, the amount of Shares to be so sold shall be allocated to the Investor. The provisions of this paragraph (c) apply only to a Shelf Takedown that the Investor has requested be an underwritten offering.

          (d) Selection of Underwriters. If any of the Registrable Shares are to be sold in an underwritten Shelf Takedown initiated by the Investor, the Company shall have the right to select the managing underwriter or underwriters to lead the offering.

          (e) Effective Period of S-3 Shelf Registrations. The Company shall use best efforts to keep any S-3 Shelf Registration Statement effective for a period of 90 days after the later of the following dates (i) the effective date of such registration statement and (ii) the date on which the applicable holding period for restricted securities held by an affiliate of the Company pursuant to Rule 144 under the Securities Act shall have lapsed; provided that such period shall be extended by the number of days in any Suspension Period commenced pursuant to Section 5 during such period (as it may be so extended) and by the number of days in any Third Party Holdback Period commenced during such period (as it may be so extended). Notwithstanding the foregoing, the Company shall not be obligated to keep any such registration statement effective, or to permit Registrable Shares to be registered, offered or sold thereunder, at any time on or after the Termination Date.

          Section 5. Suspension Periods.

          (a) Suspension Periods. The Company may (i) delay the filing or effectiveness of a Registration Statement in conjunction with a Demand Registration or an S-3 Shelf Registration or (ii) prior to the pricing of any underwritten offering or other offering of Registrable Shares pursuant to a Demand Registration or an S-3 Shelf Registration, delay such underwritten or other offering (and, if it so chooses, withdraw any registration statement that has been filed), but in each case described in clauses (i) and (ii) only if the Company reasonably determines (x) that proceeding with such an offering would require the Company to disclose material information that would not otherwise be required to be disclosed at that time and that the disclosure of such information at that time would not be in the Company’s best interests, or (y) that the registration or offering to be delayed would, if not delayed, materially adversely affect the Company and its subsidiaries taken as a whole or materially interfere with, or jeopardize the success of, any pending or proposed material transaction, including any debt or equity financing, any acquisition or disposition, any recapitalization or reorganization or any other material transaction, whether due to commercial reasons, a desire to avoid premature disclosure of information or any other reason. Any period during which the Company has delayed a filing, an effective date or an offering pursuant to this Section 5 is herein called a “Suspension Period”. If pursuant to this Section 5 the Company delays or withdraws a Demand Registration or S-3 Shelf Registration requested by the Investor, the Investor shall be entitled to withdraw such request and, if it does so, such request shall not count against the limitation on the number of such registrations set forth in Section 2 or Section 4. The Company shall provide prompt written notice to the Investor of the commencement and termination of any Suspension Period (and any withdrawal of a registration statement pursuant to this Section 5), but shall not be obligated under this Agreement to disclose the reasons therefor. The Investor shall keep the existence of each Suspension Period confidential and refrain from making offers and sales of Registrable Shares (and direct any other Persons making such offers and sales to refrain from doing so) during each Suspension Period. In no event (i) may the Company deliver notice of a Suspension Period to the Investor more than three (3) times in any calendar year and (ii) shall a Suspension Period or Suspension Periods be in effect for an aggregate of one hundred and eighty (180) days or more in any calendar year.

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          (b) Other Lockups. Notwithstanding any other provision of this Agreement, the Company shall not be obligated to take any action hereunder that would violate any lockup or similar restriction binding on the Company in connection with a prior or pending registration or underwritten offering.

          (c) Warrant Issuance Agreement Restrictions. Nothing in this Agreement shall affect the restrictions on transfers of Shares in Section 4.3 of the Warrant Issuance Agreement, which shall apply independently hereof in accordance with the terms thereof.

          Section 6. Holdback Agreements.

          The restrictions in this Section 6 shall apply for as long as the Investor is the beneficial owner of any Registrable Shares. If the Company sells Shares or other securities convertible into or exchangeable for (or otherwise representing a right to acquire) Shares in a primary underwritten offering pursuant to any registration statement under the Securities Act (but only if the Investor is provided its piggyback rights, if any, in accordance with Sections 3(a) and 3(b)), or if any other Person sells Shares in a secondary underwritten offering pursuant to a Piggyback Registration in accordance with Sections 3(a) and 3(b), and if the managing underwriters for such offering advise the Company (in which case the Company promptly shall notify the Investor) that a public sale or distribution of Shares outside such offering would materially adversely affect such offering, then, if requested by the Company, the Investor shall agree, as contemplated in this Section 6, not to (and to cause its majority-controlled Affiliates not to) sell, transfer, pledge, issue, grant or otherwise dispose of, directly or indirectly (including by means of any short sale), or request the registration of, any Registrable Shares (or any securities of any Person that are convertible into or exchangeable for, or otherwise represent a right to acquire, any Registrable Shares) for a period (each such period, a “Holdback Period”) beginning on the tenth (10^th)day before the pricing date for the underwritten offering and extending through the earlier of (i) the ninetieth (90^th)day after such pricing date (subject to customary automatic extension in the event of the release of earnings results of or material news relating to the Company) and (ii) such earlier day (if any) as may be designated for this purpose by the managing underwriters for such offering (each such agreement of the Investor, a “Holdback Agreement”). Each Holdback Agreement shall be in writing in form and substance satisfactory to the Company and the managing underwriters. Notwithstanding the foregoing, the Investor shall not be obligated to make a Holdback Agreement unless the Company and each selling shareholder in such offering also execute agreements substantially similar to such Holdback Agreement. A Holdback Agreement shall not apply to (i) the exercise of any warrants or options to purchase shares of the Company (provided that such restrictions shall apply with respect to the securities issuable upon such exercise) or (ii) any Shares included in the underwritten offering giving rise to the application of this Section 6.

          Section 7. Registration Procedures.

          (a) Whenever the Investor requests that any Registrable Shares be registered pursuant to this Agreement, the Company shall use reasonable best efforts to effect, as soon as practicable as provided herein, the registration and the sale of such Registrable Shares in accordance with the intended methods of disposition thereof, and, pursuant thereto, the Company shall, as soon as practicable as provided herein:

          (i) subject to the other provisions of this Agreement, prepare and file with the SEC a Registration Statement with respect to such Registrable Shares and use best efforts to cause such Registration Statement to become effective (unless it becomes automatically effective upon filing);

          (ii) prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the applicable requirements of the Securities Act and use best efforts to keep such Registration Statement effective for the relevant period required hereunder, but no longer than is necessary to complete the distribution of the Shares covered by such Registration Statement, and to comply with the applicable requirements of the Securities Act with respect to the disposition of all the Shares covered by such Registration Statement during such period in accordance with the intended methods of disposition set forth in such Registration Statement;

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          (iii) use reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any Registrable Shares for sale in any jurisdiction in the United States;

          (iv) deliver, without charge, such number of copies of the preliminary and final Prospectus and any supplement thereto as the Investor may reasonably request in order to facilitate the disposition of the Registrable Shares of the Investor covered by such Registration Statement in conformity with the requirements of the Securities Act;

          (v) use reasonable best efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such U.S. jurisdictions as the Investor reasonably requests and continue such registration or qualification in effect in such jurisdictions for as long as the applicable Registration Statement may be required to be kept effective under this Agreement (provided that the Company will not be required to (I) qualify generally to transact business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph (v), (II) subject itself to taxation in any such jurisdiction or (III) consent to general service of process in any such jurisdiction);

          (vi) notify the Investor and each distributor of such Registrable Shares identified by the Investor, at any time when a Prospectus relating thereto would be required under the Securities Act to be delivered by such distributor, of the occurrence of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and, at the request of the Investor, the Company shall use reasonable best efforts to prepare, as soon as practicable, a supplement or amendment to such Prospectus so that, as thereafter delivered to any prospective purchasers of such Registrable Shares, such Prospectus shall not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

          (vii) in the case of an underwritten offering in which the Investor participates pursuant to a Demand Registration, a Piggyback Registration or an S-3 Shelf Registration, enter into an underwriting agreement, containing such provisions (including provisions for indemnification, lockups, opinions of counsel and comfort letters), and take all such other customary and reasonable actions as the managing underwriters of such offering may request in order to facilitate the disposition of such Registrable Shares (including, making members of senior management of the Company available at reasonable times and places to participate in “road-shows” that the managing underwriter determines are necessary to effect the offering);

          (viii) in the case of an underwritten offering in which the Investor participates pursuant to a Demand Registration, a Piggyback Registration or an S-3 Shelf Registration, and to the extent not prohibited by applicable law, (A) make reasonably available, for inspection by the managing underwriters of such offering and one attorney and accountant acting for such managing underwriters, pertinent corporate documents and financial and other records of the Company and its subsidiaries and controlled Affiliates, (B) cause the Company’s officers and employees to supply information reasonably requested by such managing underwriters or attorney in connection with such offering, (C) make the Company’s independent accountants available for any such managing underwriters’ due diligence and have them provide customary comfort letters to such underwriters in connection therewith; and (D) cause the Company’s counsel to furnish customary legal opinions to such underwriters in connection therewith; provided however that such records and other information shall be subject to such confidential treatment as is customary for underwriters’ due diligence reviews;

          (ix) prior to the issuance of such Registrable Shares, cause all such Registrable Shares to be listed on each primary securities exchange (if any) on which securities of the same class issued by the Company are then listed, subject only to the official notice of issuance of such Registrable Shares;

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          (x) provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such Registration Statement and, a reasonable time before any proposed sale of Registrable Shares pursuant to a Registration Statement, provide the transfer agent with printed certificates for the Registrable Shares to be sold, subject to the provisions of Section 11;

          (xi) make generally available to its shareholders a consolidated earnings statement (which need not be audited) for a period of twelve (12) months beginning after the effective date of the Registration Statement as soon as reasonably practicable after the end of such period, which earnings statement shall satisfy the requirements of an earning statement under Section 11(a) of the Securities Act and Rule 158 thereunder; and

          (xii) promptly notify the Investor and the managing underwriters of any underwritten offering, if any:

     (1) when the Registration Statement, any pre-effective amendment, the Prospectus or any Prospectus supplement or any post-effective amendment to the Registration Statement has been filed and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective;

     (2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for any additional information regarding the Investor;

     (3) of the notification to the Company by the SEC of its initiation of any proceeding with respect to the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement; and

     (4) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Shares for sale under the applicable securities or blue sky laws of any jurisdiction.

          For the avoidance of doubt, the provisions of clauses (vii), (viii), (xi) and (xii) of this Section 7(a) shall apply only in respect of an underwritten offering and only if (based on market prices at the time the offering is requested by the Investor) the number of Registrable Shares to be sold in the offering would reasonably be expected to yield gross proceeds to the Investor of at least the Minimum Amount.

          (b) No Registration Statement (including any amendments thereto) shall contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading, and no Prospectus (including any supplements thereto) shall contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case, except for any untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact made in reliance on and in conformity with written information furnished to the Company by or on behalf of the Investor or any underwriter or other distributor specifically for use therein.

          (c) At all times after the Company has filed a registration statement with the SEC pursuant to the requirements of the Securities Act and until the Termination Date, the Company shall use reasonable best efforts to continuously maintain in effect the registration statement of Common Stock under Section 12 of the Exchange Act and to use reasonable best efforts to file all reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder, all to the extent required to enable the Investor to be eligible to sell Registrable Shares (if any) pursuant to Rule 144 under the Securities Act.

          (d) The Company may require the Investor and each distributor of Registrable Shares as to which any registration is being effected to furnish to the Company information regarding such Person and the

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distribution of such securities as the Company may from time to time reasonably request in connection with such registration.

          (e) The Investor agrees by having its Common Stock treated as Registrable Shares hereunder that, upon being advised in writing by the Company of the occurrence of an event pursuant to Section 7(a)(vi), the Investor will immediately discontinue (and direct any other Persons making offers and sales of Registrable Shares to immediately discontinue) offers and sales of Registrable Shares pursuant to any Registration Statement (other than those pursuant to a plan that is in effect prior to such time and that complies with Rule 10b5-1 of the Exchange Act) until it is advised in writing by the Company that the use of the Prospectus may be resumed and is furnished with a supplemented or amended Prospectus as contemplated by Section 7(a)(vi), and, if so directed by the Company, the Investor will deliver to the Company all copies, other than permanent file copies then in the Investor’s possession, of the Prospectus covering such Registrable Shares current at the time of receipt of such notice.

          (f) The Company may prepare and deliver an issuer free-writing prospectus (as such term is defined in Rule 405 under the Securities Act) in lieu of any supplement to a prospectus, and references herein to any “supplement” to a Prospectus shall include any such issuer free-writing prospectus. Neither the Investor nor any other seller of Registrable Shares may use a free-writing prospectus to offer or sell any such shares without the Company’s prior written consent.

          (g) It is understood and agreed that any failure of the Company to file a registration statement or any amendment or supplement thereto or to cause any such document to become or remain effective or usable within or for any particular period of time as provided in Section 2, 4 or 7 or otherwise in this Agreement, due to reasons that are not reasonably within its control, or due to any refusal of the SEC to permit a registration statement or prospectus to become or remain effective or to be used because of unresolved SEC comments thereon (or on any documents incorporated therein by reference) despite the Company’s good faith and reasonable best efforts to resolve those comments, shall not be a breach of this Agreement.

          (h) It is further understood and agreed that the Company shall not have any obligations under this Section 7 at any time on or after the Termination Date, unless an underwritten offering in which the Investor participates has been priced but not completed prior to the Termination Date, in which event the Company’s obligations under this Section 7 shall continue with respect to such offering until it is so completed (but not more than 60 days after the commencement of the offering).

          (i) Notwithstanding anything to the contrary in this Agreement, the Company shall not be required to file a Registration Statement or include Registrable Shares in a Registration Statement unless it has received from the Investor, at least five (5) days prior to the anticipated filing date of the Registration Statement, all requested information required to be provided by the Investor for inclusion therein.

          Section 8. Registration Expenses.

          (a) All expenses incident to the Company’s performance of or compliance with this Agreement, including all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, FINRA fees, listing application fees, printing expenses, transfer agent’s and registrar’s fees, cost of distributing Prospectuses in preliminary and final form as well as any supplements thereto, and fees and disbursements of counsel for the Company and all independent certified public accountants and other Persons retained by the Company (all such expenses being herein called “Registration Expenses”) (but not including any underwriting discounts or commissions attributable to the sale of Registrable Shares or fees and expenses of counsel and any other advisor representing any underwriters or other distributors), shall be borne by the Company. The Investor shall bear the cost of all underwriting discounts and commissions associated with any sale of Registrable Shares and shall pay all of its own costs and expenses, including all fees and expenses of any counsel (and any other advisers) representing the Investor and any stock transfer taxes.

          (b) The obligation of the Company to bear the expenses described in Section 8(a) shall apply irrespective of whether a registration, once properly demanded or requested becomes effective or is withdrawn or suspended; provided however that Registration Expenses for any Registration Statement withdrawn solely at the

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request of the Investor (unless withdrawn following commencement of a Suspension Period pursuant to Section 5) shall be borne by the Investor.

          Section 9. Indemnification.

          (a) The Company shall indemnify, to the fullest extent permitted by law, the Investor and each Person who controls the Investor (within the meaning of the Securities Act) against all losses, claims, damages, liabilities, judgments, costs (including reasonable costs of investigation) and expenses (including reasonable attorneys’ fees) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any amendment thereof or supplement thereto or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are made in reliance and in conformity with information furnished in writing to the Company by the Investor expressly for use therein. In connection with an underwritten offering in which the Investor participates conducted pursuant to a registration effected hereunder, the Company shall indemnify each participating underwriter and each Person who controls such underwriter (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Investor.

          (b) In connection with any Registration Statement in which the Investor is participating, the Investor shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus, or amendment or supplement thereto, and shall indemnify, to the fullest extent permitted by law, the Company, its officers and directors and each Person who controls the Company (within the meaning of the Securities Act) against all losses, claims, damages, liabilities, judgments, costs (including reasonable costs of investigation) and expenses (including reasonable attorneys’ fees) arising out of or based upon any untrue or alleged untrue statement of material fact contained in the Registration Statement or Prospectus, or any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that the same are made in reliance and in conformity with information furnished in writing to the Company by or on behalf of the Investor expressly for use therein.

          (c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying Person of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying Person to assume the defense of such claim with counsel reasonably satisfactory to the indemnified Person. Failure so to notify the indemnifying Person shall not relieve it from any liability that it may have to an indemnified Person except to the extent that the indemnifying Person is materially and adversely prejudiced thereby. The indemnifying Person shall not be subject to any liability for any settlement made by the indemnified Person without its consent (but such consent will not be unreasonably withheld). An indemnifying Person who is entitled to, and elects to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel (in addition to one local counsel) for all Persons indemnified (hereunder or otherwise) by such indemnifying Person with respect to such claim (and all other claims arising out of the same circumstances), unless in the reasonable judgment of any indemnified Person there may be one or more legal or equitable defenses available to such indemnified Person which are in addition to or may conflict with those available to another indemnified Person with respect to such claim, in which case such maximum number of counsel for all indemnified Persons shall be two rather than one. If an indemnifying Person is entitled to, and elects to, assume the defense of a claim, the indemnified Person shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but, except as set forth above, the indemnifying Person shall not be obligated to reimburse the indemnified Person for the costs thereof. The indemnifying Person shall not consent to the entry of any judgment or enter into or agree to any settlement relating to a claim or action for which any indemnified Person would be entitled to indemnification by any indemnified Person hereunder unless such judgment or settlement imposes no ongoing obligations on any such indemnified Person and includes as an unconditional term the giving, by all relevant claimants and plaintiffs to such indemnified Person, a release, satisfactory in form and substance to such indemnified Person, from all liabilities in respect of such claim or action for which such indemnified Person would be entitled to such indemnification. The indemnifying Person shall not be liable hereunder for any amount paid or payable or incurred pursuant to or in connection with any judgment entered or settlement effected with the consent of an indemnified Person unless the indemnifying Person has also consented to such judgment or settlement.

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          (d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person or any officer, director or controlling Person of such indemnified Person and shall survive the transfer of securities and the Termination Date but only with respect to offers and sales of Registrable Shares made before the Termination Date or during the period following the Termination Date referred to in Section 7(h).

          (e) If the indemnification provided for in or pursuant to this Section 9 is due in accordance with the terms hereof, but is held by a court to be unavailable or unenforceable in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying Person, in lieu of indemnifying such indemnified Person, shall contribute to the amount paid or payable by such indemnified Person as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying Person on the one hand and of the indemnified Person on the other in connection with the statements or omissions which result in such losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of the indemnifying Person on the one hand and of the indemnified Person on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying Person or by the indemnified Person, and by such Person’s relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In no event shall the liability of the indemnifying Person be greater in amount than the amount for which such indemnifying Person would have been obligated to pay by way of indemnification if the indemnification provided for under Section 9(a) or 9(b) hereof had been available under the circumstances.

          Section 10. Securities Act Restrictions.

          The Registrable Shares are restricted securities under the Securities Act and may not be offered or sold except pursuant to an effective registration statement or an available exemption from registration under the Securities Act. Accordingly, the Investor shall not, directly or through others, offer or sell any Registrable Shares except pursuant to a Registration Statement as contemplated herein or pursuant to Rule 144 or another exemption from registration under the Securities Act, if available. The Company may impose stop-transfer instructions with respect to any Registrable Shares that are to be transferred in contravention of this Agreement. Any certificates representing the Registrable Shares may bear a legend (and the Company’s share registry may bear a notation) referencing the restrictions on transfer contained in this Agreement (and the Warrant Issuance Agreement), until such time as such securities have ceased to be (or are to be transferred in a manner that results in their ceasing to be) Registrable Shares. Subject to the provisions of this Section 10, the Company will replace any such legended certificates with unlegended certificates promptly upon surrender of the legended certificates to the Company or its designee, in order to facilitate a lawful transfer or at any time after such shares cease to be Registrable Shares.

          Section 11. Transfers of Rights.

          (a) If the Investor transfers any rights to a Permitted Transferee in accordance with the Warrant Issuance Agreement, such Permitted Transferee shall, together with all other such Permitted Transferees and the Investor, also have the rights of the Investor under this Agreement, but only if the Permitted Transferee signs and delivers to the Company a written acknowledgment (in form and substance satisfactory to the Company) that it has joined with the Investor and the other Permitted Transferees as a party to this Agreement and has assumed the rights and obligations of the Investor hereunder with respect to the rights transferred to it by the Investor. Each such transfer shall be effective when (but only when) the Permitted Transferee has signed and delivered the written acknowledgment to the Company. Upon any such effective transfer, the Permitted Transferee shall automatically have the rights so transferred, and the Investor’s obligations under this Agreement, and the rights not so transferred, shall continue; provided that so long as the original Investor (not including any Permitted Transferee) has any remaining Registrable Shares, the right to request Demand Registrations and Shelf Registrations shall be held only by the original Investor (and not any Permitted Transferees) and under no circumstances shall the Company be required to provide (i) more than three (3) Demand Registrations and (ii) more than two (2) Shelf Registration (or three (3) in the event the Investor elects to exchange one of its Demand Rights for a Shelf Registration). Notwithstanding any other provision of this Agreement, no Person who acquires securities transferred in violation of this Agreement or the Warrant Issuance Agreement, or who acquires securities that are not or upon acquisition cease to be Registrable

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Shares, shall have any rights under this Agreement with respect to such securities, and such securities shall not have the benefits afforded hereunder to Registrable Shares.

          Section 12. Miscellaneous.

          (a) Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on the second business day following the date of dispatch if delivered by a recognized next day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice.

If to the Company:

ION Geophysical Corporation
2105 CityWest Blvd. Suite 400
Houston, Texas 77042-2839
United States of America
Attention: Mr. David L. Roland
Facsimile: (+001-281) 879 3600

If to the Investor:

BGP Inc., China National Petroleum Corporation
No. 189, West Fanyang Street,
Zhou Zhou 072751, Hebei
People’s Republic of China
Attention: Mr. Yueliang Guo
Facsimile: (+86-10) 8120 1636

with a copy to:

Sullivan & Cromwell LLP
28^th Floor
Nine Queen’s Road Central
Hong Kong
Attention: Chun Wei
Facsimile: (+852) 2522 2280

          (b) No Waivers. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

          (c) Assignment. Neither this Agreement nor any right, remedy, obligation nor liability arising hereunder or by reason hereof shall be assignable by any party hereto without the prior written consent of the other parties, and any attempt to assign any right, remedy, obligation or liability hereunder without such consent shall be void, except (i) an assignment, in the case of a merger or consolidation where such party is not the surviving entity, or a sale of substantially all of its assets, to the entity which is the survivor of such merger or consolidation or the purchaser in such sale or (ii) an assignment by Investor to a Permitted Transferee in accordance with the terms hereof.

          (d) No Third-Party Beneficiaries. Nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity other than the Company and the Investor (and any Permitted Transferee

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to which an assignment is made in accordance with this Agreement), any benefits, rights, or remedies (except as specified in Section 9 hereof).

          (e) This Agreement will be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of laws principles thereof.

     (i) Each of the parties hereto agrees all disputes arising among the parties in connection with the Transaction Documents, or the breach, termination, interpretation or validity thereof, shall be finally settled by the Hong Kong International Arbitration Centre (the “HKIAC”) pursuant to UNCITRAL Rules with the Company, on the one hand, being entitled to designate one arbitrator, and with the Investor, on the other hand, being entitled to designate one arbitrator, while the third arbitrator will be selected by agreement between the two designated arbitrators or, failing such agreement, within 10 calendar days of initial consultation between the two arbitrators, by the HKIAC pursuant to its arbitration rules. If any party fails to designate its arbitrator within 20 calendar days after the designation of the first of the three arbitrators, the HKIAC shall have the authority to designate any person whose interests are neutral to the parties as the second of the three arbitrators. The arbitration shall be conducted in English. To the extent consistent with UNCITRAL Rules, each of the parties hereto shall cooperate with the others in provision of information during any discovery process relating to arbitrations in connection with the Transaction Documents. The parties hereto further agree that, to the extent consistent with UNCITRAL Rules, the parties shall be entitled to seek temporary and permanent injunctive relief from the arbitrators without the necessity of proving actual damages and without posting a bond or other security.

     (ii) Each of the parties hereto agrees that notice may be served upon such party at the address and in the manner set forth for such party in Section 12(a).

     (iii) To the extent permitted by applicable laws, each of the parties hereto hereby unconditionally waives trial by jury in any legal action or proceeding relating to the Transaction Documents or the transactions contemplated hereby or thereby.

          (f) Counterparts; Effectiveness. This Agreement may be executed in any number of counterparts (including by e-mail or facsimile) and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto.

          (g) Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes and replaces all other prior agreements, written or oral, among the parties hereto with respect to the subject matter hereof.

          (h) Captions. The headings and other captions in this Agreement are for convenience and reference only and shall not be used in interpreting, construing or enforcing any provision of this Agreement.

          (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

          (j) Additional Registration Rights. The Company agrees that it shall not grant any registration rights to any third party (i) unless such rights are expressly made subject to the rights of the Investor in a manner

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consistent with this Agreement or (ii) if such registration rights are senior to, or take priority over, the registration rights granted to the Investor under this Agreement.

          (k) Amendments. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the prior written consent of the Company and the Investor.

[Remainder of page intentionally left blank]

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In Witness Whereof, this Registration Rights Agreement has been duly executed by each of the parties hereto as of the date first written above.

ION GEOPHYSICAL CORPORATION
By:	/s/ David L. Roland
	Name:	David L. Roland
	Title:	Senior Vice President, General Counsel and Corporate Secretary

BGP INC., CHINA NATIONAL PETROLEUM CORPORATION
By:	/s/ Wang Tiejun
	Name:	Wang Tiejun
	Title:	President

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF ION GEOPHYSICAL CORPORATION

Subsidiary	Jurisdiction
ARAM Rentals Corporation	Canada
ARAM Seismic Rentals, Inc.	Texas
ARAM Systems Corporation	Canada
ARAM Systems Inc.	Texas
ARAM Systems Middle East FZE	Dubai
Beijing ION Geophysical Co., Ltd.	China
Concept Systems Holdings Limited	Scotland
Concept Systems Limited	Scotland
GMG/AXIS, Inc.	Delaware
GX Technology Canada, Ltd.	Canada
GX Technology Corporation	Texas
GX Technology de Venezuela C.A.	Venezuela
GX Technology EAME. Limited.	UK
GX Technology Sismica Brasil Ltda.	Brazil
GX Technology Trinidad, Ltd.	West Indies
I/O Cayman Islands, Ltd.	Cayman Islands
I/O International, Ltd.	Cayman Islands
I/O International Holdings, Ltd.	Cayman Islands
I/O Luxembourg S.à r.l.	Luxembourg
I/O Marine Systems Limited	UK
I/O Marine Systems, Inc.	Louisiana
I/O U.K., LTD.	UK
I/O U.K. Holdings Limited	Scotland
“Inco” Industrial Components ‘s-Gravenhage B.V.	Netherlands
Input/Output Canada, Ltd.	Canada
Input/Output Services CIS, LLC	Russia
ION China Holdings, Limited	Hong Kong
ION Exploration Holdings S.à r.l.	Luxembourg
ION Exploration Products (U.S.A.), Inc.	Delaware
ION International Holdings L.P.	Bermuda
ION International S.à r.l.	Luxembourg
ION International Sales Limited	Cyprus
IPOP Management, Inc.	Delaware
Sensor Nederland B.V.	Netherlands
Texas Seismic Rentals Inc.	Texas

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements and each related Prospectus:

(1)	Registration Statement (Form S-8 No. 33-54394) pertaining to the Input/Output, Inc. Amended 1990 Stock Option Plan and Amended and Restated 1991 Outside Directors’ Stock Option Plan,
(2)	Registration Statement (Form S-8 No. 33-46386) pertaining to the Input/Output, Inc. 1990 Restricted Stock Plan, 1990 Stock Option Plan and 1991 Directors’ Stock Option Plan,
(3)	Registration Statement (Form S-8 No. 33-85304) pertaining to the Input/Output, Inc. Amended 1990 Stock Option Plan and the Input/Output, Inc. Amended and Restated 1991 Outside Directors Stock Option Plan,
(4)	Registration Statement (Form S-8 No. 333-14231) pertaining to the Input/Output, Inc. 1996 Non-Employee Director Stock Option Plan,
(5)	Registration Statement (Form S-8 No. 333-24125) pertaining to the Input/Output, Inc. Employee Stock Purchase Plan,
(6)	Registration Statement (Form S-8 No. 333-80297) pertaining to the Input/Output, Inc. 1998 Restricted Stock Plan,
(7)	Registration Statement (Form S-8 No. 333-80299) pertaining to the Input/Output, Inc. Amended and Restated 1990 Stock Option Plan and the Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option Plan,
(8)	Registration Statement (Form S-8 No. 333-36264) pertaining to the Input/Output, Inc. 2000 Restricted Stock Plan,
(9)	Registration Statement (Form S-8 No. 333-49382) pertaining to the Input/Output, Inc. 2000 Long-Term Incentive Plan,
(10)	Registration Statement (Form S-8 No. 333-60950) pertaining to the Input/Output, Inc. Non-Employee Directors’ Retainer Plan,
(11)	Registration Statement (Form S-8 No. 333-112677) pertaining to the Input/Output, Inc. 2003 Employee Stock Option Plan,
(12)	Registration Statement (Form S-8 No. 333-116355) pertaining to the GX Technology Corporation Employee Stock Option Plan,
(13)	Registration Statement (Form S-8 No. 333-117716) pertaining to the Input/Output, Inc. Concept Systems Employment Inducement Stock Option Program,
(14)	Registration Statement (Form S-8 No. 333-123831) pertaining to the Input/Output, Inc. GX Technology Corp. Employment Inducement Stock Option Program and the Input/Output, Inc. April 2005 Inducement Equity Program,
(15)	Registration Statement (Form S-8 No. 333-125655) pertaining to the Input/Output, Inc. 2004 Long-Term Incentive Plan,

(16)	Registration Statement (Form S-8 No. 333-135775) pertaining to the Input/Output, Inc. Second Amended and Restated Input/Output, Inc. 2004 Long-Term Incentive Plan,
(17)	Registration Statement (Form S-3 No. 333-112263) of Input/Output, Inc.,
(18)	Registration Statement (Form S-3 No. 333-115345) of Input/Output, Inc.,
(19)	Registration Statement (Form S-3 No. 333-123632) of Input/Output, Inc.,
(20)	Registration Statement (Form S-8 No. 333-145274) pertaining to the Third Amended and Restated Input/Output, Inc. 2004 Long-Term Incentive Plan, and
(21)	Registration Statement (Form S-3 No. 333-148235) of ION Geophysical Corporation,
(22)	Registration Statement (Form S-3 No. 333-149458) of ION Geophysical Corporation,
(23)	Registration Statement (Form S-8 No. 333-155378) pertaining to the Fourth Amended and Restated 2004 Long-Term Incentive Plan and the ARAM Systems Employee Inducement Stop Options Program,
(24)	Registration Statement (Form S-3 No. 333-155387) of ION Geophysical Corporation,
(25)	Registration Statement (Form S-3 No. 333-156362) of ION Geophysical Corporation,
(26)	Registration Statement (Form S-3 No. 333-156363) of ION Geophysical Corporation and
(27)	Registration Statement (Form S-3 No. 333-159898) of ION Geophysical Corporation.

of our reports dated March 1, 2010, with respect to the consolidated financial statements and schedule of ION Geophysical Corporation and subsidiaries and the effectiveness of internal control over financial reporting of ION Geophysical Corporation and subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 2009.

/s/ Ernst and Young LLP

Houston, Texas
March 1, 2010

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)

I, Robert P. Peebler, certify that:

1.	I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2009 of ION Geophysical Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has

materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2010	/s/ Robert P. Peebler
	Robert P. Peebler
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)

I, R. Brian Hanson, certify that:

1.	I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2009 of ION Geophysical Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has

materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2010	/s/ R. Brian Hanson
	R. Brian Hanson
	Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. §1350

     In connection with this Annual Report of ION Geophysical Corporation (the “Company”) on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert P. Peebler, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2010	/s/ Robert P. Peebler
	Robert P. Peebler
	Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. §1350

     In connection with this Annual Report of ION Geophysical Corporation (the “Company”) on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Brian Hanson, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2010	/s/ R. Brian Hanson
	R. Brian Hanson
	Executive Vice President and Chief Financial Officer