<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MAY 31, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 1-13402
INPUT/OUTPUT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2286646
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11104 WEST AIRPORT BLVD., STAFFORD, TEXAS 77477
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 933-3339
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
(TITLE OF CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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: [X] No: [ ]
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. [ ]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant at June 30, 1997 (for purposes of the
below-stated amount only, all directors, officers and 5% or more stockholders
are presumed to be affiliates):
$716,633,000
Indicate the number of shares outstanding of the registrant's classes of Common
Stock, as of the latest practicable date.
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
OF COMMON STOCK AT JUNE 30, 1997
--------------- ----------------
COMMON STOCK, $0.01 PAR VALUE 43,222,851
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Registrant's 1997 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
<PAGE>
P A R T I
ITEM 1. BUSINESS
THE COMPANY
Input/Output is a leading designer and manufacturer of seismic data
acquisition products used on land, in transition zones (i.e. marshes and shallow
bays) and in marine environments. The Company believes that its I/O SYSTEMs are
the most technologically advanced seismic data acquisition systems and are
particularly well-suited for advanced three-dimensional ("3-D") data collection
techniques. The Company's principal customers are seismic contractors and major,
independent and foreign oil and gas companies around the world. During fiscal
1997, approximately 43% of the Company's net sales and other revenues were to
customers outside the United States. See "Markets and Customers".
Recent improvements in drilling success rates through the use of advanced
seismic survey techniques, particularly 3-D techniques, have substantially
increased the demand for seismic data. In addition, advances in technology have
significantly reduced the size, weight, cost and power requirements of seismic
data acquisition systems and increased the quality and quantity of data
available to geoscientists, thereby improving the cost-effectiveness of
large-scale 3-D surveys. As a result, 3-D surveys utilizing these advanced
technologies have gained increasing acceptance in the oil and gas industry as an
exploration risk management tool. Moreover, 3-D surveys are increasingly
employed in field development and reservoir management activities. As a result,
shipments of I/O SYSTEMs have grown from 14 systems shipped in fiscal 1991 to 51
systems in fiscal 1997.
The Company offers a complete range of seismic data acquisition systems
and related equipment. On land, the Company offers the I/O SYSTEM TWO
- -Registered Trademark- MRX and RSR systems (see "Background and Growth
Strategy" below) as well as its Vibrators, a land energy source, and
Geophones, acoustical receivers whose sole purpose is to transform vibrations
from substrata within the earth into electrical signals which are recorded by
the I/O System. The Company also offers transition zone systems in shallow
water with marine versions of the MRX, RSR and an Ocean Bottom Cable System.
The Company's marine data acquisition systems consist primarily of marine
streamers and shipboard electronics that collect seismic data in deep water
environments. The systems feature second generation 24-bit digital electronics
inside the streamer module, high-quality Company-manufactured hydrophones,
digital filtering and other components, and 12,000-meter streamer length
capabilities. Other marine products manufactured and sold by the Company include
airguns and integrated shipboard navigation, positioning, and data telemetry
quality control systems.
The Company believes that its future success will depend on its ability to
continue to introduce technological innovations by enhancing its existing
products and services to its customers, as well as by developing new products,
such as those designed for three and four-component seismic survey techniques
and 4-D seismic surveys. See "Product Development" below.
BACKGROUND AND GROWTH STRATEGY
The Company has achieved its growth by pursuing a strategy focused on: (i)
technological leadership; (ii) complementing internal product development with
product line acquisitions; and (iii) implementing innovative marketing
initiatives. These key elements of the Company's growth strategy can be
summarized as follows:
1
<PAGE>
- - TECHNOLOGICAL LEADERSHIP. The Company's research efforts have resulted in
the development of numerous inventions, processes and techniques which the
Company believes have established the I/O SYSTEM TWO as the most
technologically advanced land seismic data acquisition system. The I/O
SYSTEM TWO is upgradable and expandable to accommodate system enhancements
and follow-on orders for components and related accessories as customers
increase the capacities of their systems. The Company's ongoing research
efforts have also led to the introduction of new products such as the I/O
SYSTEM TWO RSR, the Company's first radio telemetry system. The I/O SYSTEM
TWO RSR is designed to acquire data across a variety of environments,
including transition zones, marshes, swamps, mountain ranges, jungles and
other land seismic environments. The I/O System MSX Marine Recorder,
introduced in fiscal 1997, is the latest development by the Company. It
features monitoring capabilities with components and software designed for
greater operational flexibility.
- - COMPLEMENTARY ACQUISITIONS. The Company has expanded its product line in
recent years through the completion of several complementary acquisitions
and product enhancements developed by the Company. See "Product
Development".
- - INNOVATIVE MARKETING INITIATIVES. Through its finance subsidiary, Global
Charter Corporation ("Global Charter"), the Company offers lease/purchase
programs and assists customers in arranging financing for their equipment
purchases.
A principal development of the Company's product line growth has been
its fiscal 1996 acquisition ("WGEP Acquisition") of the Western Geophysical
Exploration Products Group ("WGEP") from Western Atlas International, Inc.
("WAII"). WAII and its affiliates together constituted the Company's largest
customer during fiscal 1997, 1996 and 1995. The business acquired included the
manufacture, sale and marketing of marine and land seismic data acquisition
systems; marine streamers; marine streamer navigation, positioning and quality
control systems and related software products; vibrators and airgun equipment;
seismic cables and connectors; geophones and hydrophones; and certain other
products and equipment used in the acquisition of seismic data in land,
transition zone and marine environments. See Note 14 of Notes to Consolidated
Financial Statements.
PRODUCTS
LAND DATA ACQUISITION SYSTEMS
A land I/O SYSTEM consists of a Central Electronics Unit containing a
number of modular components, which may vary depending upon customer
specifications, and multiple remote ground equipment modules, including Line
Taps and Remote Signal Conditioners (each designated as an "MRX" which acquires
six channels of analog seismic data). A typical system consists of a Central
Electronics Unit, 12 Line Taps, approximately 200 MRXs and various accessories,
although larger or smaller systems may be assembled. Once a customer purchases a
Central Electronics Unit, the customer can purchase additional Line Taps, MRXs
and accessory equipment to expand and modify a system to fulfill specific
requirements. In addition, a customer may transform an I/O SYSTEM into two or
more separate systems with the purchase of additional Central Electronics Units.
In addition to the standard I/O SYSTEM components, several optional
components are available as accessory equipment. The Company manufactures most
of the components sold as a part of the I/O SYSTEM product line, and purchases
certain separate components for resale, including the operator console,
oscilloscope, printer and digital camera. Depending upon the system's
configuration, the price of an I/O SYSTEM typically ranges from $800,000 to $4.5
million.
2
<PAGE>
CENTRAL ELECTRONICS UNIT
The Central Electronics Unit, which acts as the control center of the
I/O SYSTEM, consists of several components which are typically mounted within a
vehicle or helicopter transportable enclosure. The Company can also package the
Central Electronics Unit to be portable for jungle and other difficult terrain
applications. The Central Electronics Unit receives digitized data from the
MRXs, stores it on magnetic tape for subsequent processing, and displays the
data on optional monitoring devices. The Central Electronics Unit also controls
the data collection parameters of the MRXs, as well as calibrates and provides
operating status analysis and tests all functions of the system.
REMOTE GROUND EQUIPMENT
The remote ground equipment of the I/O SYSTEM consists of multiple
Remote Signal Conditioners ("MRXs") and Line Taps positioned over the survey
area. Seismic signals from sensors called geophones are collected by the MRXs,
each of which handles the collection process for six channels of analog seismic
data. The MRX filters and digitizes the data, which is then transmitted by the
MRX via cable to a Line Tap. The Line Taps manage the seismic data collection
process on each seismic line, further organize the seismic data and transmit
this data and remote equipment operating status information via cable to the
Central Electronics Unit. The MRX automatically routes around cable faults,
thereby increasing crew productivity. In addition, the MRX provides high quality
data through its geophone performance capabilities.
OTHER I/O SYSTEM FEATURES
The I/O SYSTEM has been designed to maximize the efficiency of seismic
crew operations. Menu-driven software incorporated into the Central Electronics
Unit allows a crew to quickly calibrate, test and verify the status of each MRX
deployed. The status of each cable, channel and MRX battery pack also can be
verified. These rapid deployment and remote testing and calibration capabilities
can significantly improve the productivity of seismic crews in the field.
Land-based seismic data acquisition systems require electrical power
and must be designed to operate in diverse environmental conditions. The I/O
SYSTEM TWO has the flexibility to power the MRX via cable from a central power
source or a rechargeable or solar powered battery pack. An MRX's battery pack
may be replaced without terminating or interrupting the MRX's operation. The
battery packs may also be monitored by the Central Electronics Unit during
actual field use to forecast usable time remaining for each battery.
A seismic crew may collect data from sound waves produced by one of
several energy sources. Historically, dynamite and other explosives have been
used. In recent years, large, truck-mounted earth vibrators have been used more
frequently as energy sources. See "Vibrators" below. When non-explosive energy
sources are used, an optional component, the Correlator Stacker Module, is added
to the data acquisition system to correlate the seismic data for further
processing. The Correlator Stacker Module incorporates several advanced noise
control and editing programs to improve data quality and resolution.
RADIO TELEMETRY SYSTEM
The Company's radio telemetry system ("RSR" recorder system) records
data across a variety of environments, including transition zones, marshes and
swamps, as well as mountain ranges, jungle and other land and transition zone
seismic environments. The RSR radio telemetry systems are radio controlled, and
utilize the same electronics as the MRX to record, process and digitize seismic
signals at the remote unit. However, instead of transmitting data back to the
Central Electronics Unit, the RSR stores the seismic data for later retrieval.
The RSR does not require cables for data transmission, since the information is
stored at the unit source.
3
<PAGE>
MARINE DATA ACQUISITION SYSTEM
The Company's marine data acquisition system consists primarily of
marine streamers and shipboard electronics that collect seismic data in deep
water environments. Marine streamers, which contain encapsulated Marine Remote
Signal Conditioner ("MSX") modules and cabling, may measure up to 12,000 meters
in length and are towed behind a special purpose vessel to record seismic data.
Marine electronics include navigation, positioning and data telemetry quality
control systems and related software products, as well as electronics for
shipboard recording.
The marine systems feature second generation 24-bit digital MSX
modules, each of which contain 16 channels per module. This feature, along with
utilization of fiber-optic data transmission and titanium connectors and
inserts, results in reduced size and power consumption, and higher quality and
reliability of acquired marine seismic data, and permits a complete MSX system
to record up to 7,680 channels.
Important features of the Company's marine systems include
Company-manufactured components, such as its hydrophones. In addition, as larger
marine surveys are conducted by seismic crews, the Company believes that its
marine streamers having up to 12,000-meter length capabilities offer many
competitive advantages, including physical strength and flexibility through
specially-designed non-metallic stress members, down-line power capabilities,
and fiber-optic data transmission.
OTHER PRODUCTS AND COMPONENTS
GEOPHONES AND HYDROPHONES. Geophones and hydrophones are seismic
sensor devices designed to detect acoustical energy reflected from the earth's
subsurface. The product line includes low distortion seismic sensors designed
for land (geophones), transition zone (marshphones) and marine (hydrophones)
environments. This product line includes a geophone checking technology as well
as three-component geophones that could be used in three-component 3-D seismic
recording. See "Product Development" below.
AIRGUNS. Airguns are the primary energy source used to initiate the
energy transmitted through the earth's subsurface which are subsequently
recorded as data signals in the marine environment. The Company's sleeve gun, a
specialized type of airgun, is well suited for high resolution 3-D seismic data
collection because of its expanded frequency band. Additionally, the Company
offers an airgun source synchronizing system that can control up to 128 airguns
simultaneously, offering real time monitoring of airgun firings.
VIBRATORS. Vibrators are controlled mechanical devices used as a
source of seismic energy on land. The vibrators offered can be supplied with
seven different vehicles (many of which are manufactured by the Company) and
offer a maximum of 62,000 pounds of peak force. The Company believes that its
vibrators are the only vibrators in the industry to offer patented pre-load
series which significantly extends the life of the vibrator and lowers the
distortion of the sound source.
PRODUCT AGREEMENT
In connection with the WGEP Acquisition, the Company and WAII entered
into a product purchase agreement (the "Product Agreement") governing the
continuing relationship between the parties regarding sales of seismic products
and equipment to WAII by the Company. In the event that WAII purchases products
in any year in an aggregate amount exceeding $70 million (which amount is
subject to adjustment under the Product Agreement), WAII will be entitled to a
rebate (determined pursuant to a formula) based upon the amount exceeding $70
million. The Product Agreement provides that it will terminate upon WAII's
purchase of an aggregate of $350 million (subject to adjustment) in products
from the Company. WAII may also terminate the agreement if (i) the Company sells
all or substantially all of its assets, (ii) the Company merges or consolidates
and, as a result, experiences a change of control (as defined therein) or (iii)
the Company breaches a
4
<PAGE>
material term or condition of the Product Agreement and such breach or violation
is not cured within 60 days of notice thereof.
WAII also agreed, for a period of five years from the closing date, or
until the earlier termination of the Product Agreement and subject to certain
exceptions, not to manufacture any of the product lines sold to the Company in
the transaction. The exceptions principally relate to business conducted by
other affiliates or divisions of WAII or Western Atlas Inc., WAII's ability to
perform research and development activities and WAII's having a secondary source
of supply if the Company discontinues manufacturing a former WGEP product. The
parties also agreed that if the Company discontinues manufacturing a former WGEP
product, or fails to manufacture or deliver a former WGEP product to WAII
specifications and the Company fails or chooses not to remedy WAII's objection
to such discontinuance, then subject to certain dispute resolution procedures
being first carried out, WAII would have a limited, worldwide, perpetual,
irrevocable, non-exclusive, royalty-free license under the intellectual property
assigned to the Company under the WGEP Acquisition with respect to that
particular product.
PRODUCT DEVELOPMENT
The Company's ability to compete effectively and maintain a leading
market position in the manufacture and sale of seismic data acquisition systems
and seismic instruments depends to a substantial degree upon continued
technological innovation. While the market for these products is characterized
by continual and rapid changes in technology, development cycles from initial
conception through product introduction tend to extend over several years. Since
introducing its first I/O SYSTEM in fiscal 1989, the Company has targeted an
amount for research and development expenditures equal to approximately 10% of
its annual budgeted revenues. These research and development expenditures have
principally related to the continued enhancement of the I/O SYSTEM product line
and basic research and development on other emerging technologies having
potential applicability to the seismic industry. See Item 6.- "Selected
Consolidated Financial Data" and Item 7.- "Management's Discussion and Analysis
of Results of Operations and Financial Condition." These efforts have resulted
in the development of numerous inventions, processes and techniques, a number of
which have been incorporated as enhancements to the I/O SYSTEM product line. See
"Intellectual Property" below.
As a result of its ongoing research and development efforts, the
Company expects to introduce during fiscal 1998 certain new products and
enhancements to its existing product lines. These product and enhancement
releases are intended to constitute the initial stage in the latest evolution of
the Company's seismic system product line, as well as represent certain
improvements in functionalities, operator efficiencies and interfaces. No
assurance can be given concerning the successful development of new products or
enhancements, the specific timing of their release or their level of acceptance
in the marketplace.
Seismic survey techniques being investigated for future commercial
applicability in the industry include three and four-component techniques. The
4-D process, or time-lapse 3-D, measures the same length, depth and width of
data acquired in 3-D surveys, but also features the capability to record time
intervals between two or more surveys. The process is well-suited for reservoir
management applications, and is intended to identify fluid movements and changes
in the producing status of the reservoir. Three-component 3-D is an experimental
seismic technique being investigated by a consortium of companies and research
firms (to whom the Company serves as a technical advisor). Several advances in
technology and processing remain to be accomplished in order for 4-D and
three-component 3-D processes to become commercially feasible.
MARKETS AND CUSTOMERS
The Company's principal customers are seismic contractors, which
operate seismic data acquisition systems to collect data in accordance with
their customers' specifications or for their own seismic data libraries. In
addition, the Company markets and sells its products to major, independent and
foreign oil and gas companies, which typically specify seismic data acquisition
5
<PAGE>
program parameters to contractors and consequently may stipulate use of the
Company's equipment, or may operate their own seismic crews. WAII and its
affiliates accounted for approximately 39% of the Company's net sales and other
revenue in fiscal 1997. See Note 8 of Notes to Consolidated Financial
Statements.
A significant part of the Company's marketing efforts are focused on
areas outside the United States. Foreign sales are subject to special risks
inherent in doing business outside of the United States, including the risk of
war, civil disturbances, embargo and government activities, as well as risks of
compliance with additional laws, including tariff regulations and import/export
restrictions. The Company sells its products through a direct sales force
consisting of Company employees and through several international third-party
sales representatives responsible for key geographic areas. Sales personnel
generally have either oil and gas exploration or production expertise or
experience in selling advanced technology-based systems.
During fiscal 1997, 1996, and 1995, approximately 43%, 45% and 68%,
respectively, of the Company's net sales and other revenues were derived from
sales to customers outside the United States. See Note 8 of Notes to
Consolidated Financial Statements for information concerning geographic
distribution of sales. The principal reason for the decline, in fiscal 1997 and
1996, in the percentage of sales and other revenues derived from sales to
customers outside the U.S. was the increased level of sales during fiscal 1997
and 1996 to WAII, which are considered sales to a U.S. customer. Systems sold to
domestic customers (including WAII) are frequently deployed internationally.
Company sales are predominantly denominated in U.S. dollars. From time to time,
certain foreign sales require export licenses.
The Company normally sells its systems and products to customers on
standard net 30-day terms. Through Global Charter, the Company provides
financing arrangements to customers by installment sales contracts under which
the Company typically retains a security interest in the products sold and rents
certain system components to customers from time to time pursuant to short-term
rental arrangements with options to purchase. In addition, through the Company's
revolving line of credit with its principal lender, the Company has also
arranged financing for customer purchases through direct loans to customers from
such lender, which loans in turn have been guaranteed by the Company. See Item
7.- "Management's Discussion and Analysis of Results of Operations and Financial
Condition - Liquidity and Capital Resources".
The Company's installment sales contracts typically require a down
payment of approximately 15% of the purchase price, normally range in length
from 24 to 48 months and bear interest at rates ranging from 7.0% to 12.0% per
annum. See Note 3 of Notes to Consolidated Financial Statements.
The Company's rental program is designed to provide its customers a
convenient and cost effective method to upgrade their system recording capacity
while building equity in the rental equipment. Typical rental terms provide for
a six-month term with 80% of the monthly rental payments applying toward the
purchase of the rental equipment. Upon expiration of the rental term, the
customer either exercises the purchase option or returns the equipment and
forfeits the accrued purchase credits.
The Company has from time to time sold and assigned certain of these
installment sales contracts and leases to third-party financing sources (or sold
equipment to leasing companies which equipment is then leased to customers), the
terms of which often obligate the Company to (i) guarantee or repurchase all or
a portion of the contracts and leases in the event of a default by the customer
or upon certain other occurrences and/or (ii) assist the financing parties in
remarketing the equipment to satisfy the obligation. See Item 7.- "Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Liquidity and Capital Resources".
6
<PAGE>
MANUFACTURING
In November 1996, the Company completed the move to a new 109,896 square
feet manufacturing facility to replace the Company's former electronics assembly
facility. This new facility has technological features for use in future
products, enables the Company to manufacture additional products and components
assembled previously by outside vendors and contains additional features related
to manufacturing efficiency and safety. See Item 2. -"Facilities". Upon
completion of assembly, products undergo functional and environmental testing to
the extremes of product specifications and final quality assurance inspection.
The Company's experience has been to normally fill and ship customer orders
within 45 days of receipt.
SUPPLIERS
The Company purchases a substantial portion of the electronic components
used in its systems and products. Currently, the Company purchases the 24-bit
analog-to-digital converters used in its I/O SYSTEMs from a single vendor. While
the Company purchases that vendor's standard converter, the other components of
the I/O SYSTEM are designed for use with that particular converter. Even though
the Company believes that it could replace such a converter with a functional
equivalent, if such 24-bit converter were not available, redesign of the I/O
SYSTEM would be required and costly delays could result.
COMPETITION
The market for seismic data acquisition systems and seismic instrumentation
is highly competitive and is characterized by continual and rapid changes in
technology. The Company's principal competitor for land seismic equipment is
Societe d'Etudes Recherches et Construction Electroniques, an affiliate of
Compagnie General de Geophysique which, unlike the Company, possesses the
advantage of being able to sell to an affiliated seismic contractor. The
Company's principal competitor in the marine seismic systems market is
GeoScience Corporation, an affiliate of Tech-Sym Corporation.
The Company believes that technology is the primary basis of competition in
the industry, as oil and gas exploration and production companies demand higher
quality seismic data and seismic contractors require improved productivity from
their equipment and crews. The remaining principal competitive factors in the
industry are price and customer support services.
OIL AND GAS ACTIVITIES
As an adjunct to its research, development and marketing efforts, the
Company, through its subsidiary, Output Exploration Company, Inc. ("OPEX"), has
acquired and explored certain oil and gas exploration prospects.
From its organization in 1992 through July 31, 1997, OPEX has participated
in the drilling of 18 wells. Seven wells were dry holes; eight wells are
currently classified as productive, and as of July 31, 1997, three wells have
been completed but not fully tested. The Company expects to participate in up to
five additional wells in fiscal 1998 and depending upon the results, could
participate in additional drilling activities over the next few years. The
Company currently anticipates that total expenditures for fiscal 1998 for
exploration and development activities will be $2.5 million and expects to fund
these expenditures from its cash flow from operations. However, the Company
currently expects that its future level of participation in oil and gas drilling
activities will be funded primarily by cash flows from its productive
properties. See also, Item 7.- "Management's Discussion and Analysis of Results
of Operations and Financial Condition".
7
<PAGE>
INTELLECTUAL PROPERTY
The Company relies on a combination of trade secrets, patents, copyrights
and technical measures to protect its proprietary hardware and software
technologies. Although the Company's patents are considered important to its
operations, no one patent is considered essential to the success of the Company.
Copyright and trade secret protection may be unavailable in certain foreign
countries in which the Company sells its products. In addition, the Company
seeks to protect its trade secrets through confidentiality agreements with its
employees and agents. The Company also owns a number of trademarks, including
I/O-Registered Trademark-, I/O SYSTEM ONE-Registered Trademark- and I/O SYSTEM
TWO-Registered Trademark-.
REGULATORY MATTERS
The Company's 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 Company does
not foresee the need for significant expenditures to ensure 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 the Company.
EMPLOYEES
At June 30, 1997, the Company had 1,176 employees worldwide, of which 949
were employed in the United States. The Company's domestic employees are not
subject to any collective bargaining agreement. The Company has never
experienced a work stoppage and considers its relations with its employees to be
satisfactory.
ITEM 2. FACILITIES
The Company's primary manufacturing facilities are as follows:
Manufacturing Facility Square Footage
---------------------- --------------
Stafford, Texas* 109,896
Houston, Texas** 68,880
Alvin, Texas* 240,000
Cork County, Ireland* 35,630
Norwich, England** 31,000
-------
Voorschoten, The Netherlands** 30,000
-------
515,406
-------
-------
- ---------
* Owned
** Leased
The Company's executive headquarters (utilizing approximately 55,060 square
feet) is located at 11104 West Airport, Stafford, Texas and its research and
development headquarters (utilizing approximately 79,566 square feet) is
adjacent to the headquarters' facility. Both facilities are owned by the Company
and are mortgaged to secure long-term facility indebtedness. See Item 7.-
"Management's Discussion and Analysis of Results of Operations and Financial
Condition". The Company also leases an aggregate of 326,889 square feet of
additional warehouse and office space under short-term operating leases. The
machinery, equipment, buildings and other facilities owned and leased by the
Company are considered by management to be sufficiently maintained and adequate
for the Company's current operations.
8
<PAGE>
The Company anticipates these facilities will accommodate the Company's
growth for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any pending legal proceedings to which the
Company or any of its property is subject which, if adversely determined, could
have a material adverse effect on the business or financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
P A R T II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the New York Stock Exchange ("NYSE")
under the symbol "IO". The following table sets forth the high and low last
reported sales prices of the Common Stock for the periods indicated, as reported
on the NYSE composite tape and have been adjusted to reflect the Company's
two-for-one share split (in the nature of a 100% stock distribution) on January
9, 1996.
PRICE RANGE
----------------------
PERIOD HIGH LOW
------ ---- ---
Fiscal 1997
Fourth Quarter. . . . . . . . . . . . . $ 21 $ 13 3/4
Third Quarter . . . . . . . . . . . . . 23 7/8 16 3/8
Second Quarter. . . . . . . . . . . . . 36 1/8 24
First Quarter . . . . . . . . . . . . . 39 1/4 29
Fiscal 1996
Fourth Quarter. . . . . . . . . . . . . $ 40 1/2 $ 27
Third Quarter . . . . . . . . . . . . . 30 1/4 22
Second Quarter. . . . . . . . . . . . . 23 3/8 17 3/16
First Quarter . . . . . . . . . . . . . 20 7/8 16 15/16
The Company historically has not paid and does not intend to pay cash
dividends on its Common Stock in the foreseeable future. The Company presently
intends to retain earnings for use in its business, with any future decision to
pay cash dividends dependent upon its growth, profitability, financial condition
and other factors the Board of Directors may deem relevant. The Company's
revolving line of credit agreement contains post-default prohibitions on
payments of dividends and other distributions payable in cash or property. See
Item 7.- "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources".
On June 30, 1997, there were 313 stockholders of record of Common Stock and
the Company believes that there were approximately 11,057 beneficial owners of
Common Stock as of such date. During the period covered by this report, the
Company made no unregistered sales of its equity securities.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's consolidated statements of operations for the five fiscal years
ended May 31, 1997, 1996, 1995, 1994 and 1993 and with respect to the Company's
consolidated balance sheets at May 31, 1997, 1996, 1995, 1994 and 1993 have been
derived from the Company's audited consolidated financial statements. This
information should be read in conjunction with Item 7 - "Management's Discussion
9
<PAGE>
and Analysis of Results of Operations and Financial Condition" and the
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Form 10-K. The share data set forth below has been adjusted to
reflect the Company's two two-for-one splits of its Common Stock, which occurred
in May 1994 and January 1996.
<TABLE>
<CAPTION>
Year Ended May 31,
-----------------------------------------------------------
1997 1996 (1) 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales and other revenues . . . . . . . . . . . . . . $281,845 $278,283 $134,698 $95,752 $54,205
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 183,438 163,811 71,440 50,560 26,677
-------- -------- -------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . . . 98,407 114,472 63,258 45,192 27,528
-------- -------- -------- ------- -------
Operating expenses:
Research and development . . . . . . . . . . . . . . . 22,967 23,243 11,400 7,931 5,004
Marketing and sales . . . . . . . . . . . . . . . . . . 13,288 12,027 6,789 4,673 4,492
General and administrative . . . . . . . . . . . . . . 20,592 19,096 11,817 8,980 5,007
Non-recurring items (2). . . . . . . . . . . . . . . . . 15,594 -- -- -- --
Amortization of identified intangibles . . . . . . . . 4,551 4,305 1,331 762 698
-------- -------- -------- ------- -------
Total operating expenses. . . . . . . . . . . . . . 76,992 58,671 31,337 22,346 15,201
-------- -------- -------- ------- -------
Earnings from operations . . . . . . . . . . . . . . . . . 21,415 55,801 31,921 22,846 12,327
Interest expense . . . . . . . . . . . . . . . . . . . . . (793) (2,515) (30) (160) (203)
Other income . . . . . . . . . . . . . . . . . . . . . . . 3,675 3,091 3,944 1,466 1,222
-------- -------- -------- ------- -------
Earnings before income taxes . . . . . . . . . . . . . . . 24,297 56,377 35,835 24,152 13,346
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 7,700 17,700 11,335 7,589 4,204
-------- -------- -------- ------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $16,597 $38,677 $24,500 $16,563 $9,142
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Earnings per common share. . . . . . . . . . . . . . . . . $0.38 $0.94 $0.66 $0.53 $0.31
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
Weighted average common shares
outstanding . . . . . . . . . . . . . . . . . . . 43,820 41,125 37,381 31,448 29,786
BALANCE SHEET DATA (END OF YEAR):
Working capital . . . . . . . . . . . . . . . . . . . . . $170,427 $165,225 $104,908 $87,558 $29,685
Total assets . . . . . . . . . . . . . . . . . . . . . . 384,658 355,465 165,487 132,000 61,542
Short-term debt, including current
installments of long-term debt (3) . . . . . . . . . . . 912 -- -- 591 1,961
Long-term debt (3) . . . . . . . . . . . . . . . . . . . . 11,000 -- -- -- 427
Stockholders' equity . . . . . . . . . . . . . . . . . . . 338,614 317,204 146,712 115,659 47,877
OTHER DATA:
Capital expenditures . . . . . . . . . . . . . . . . . . . $26,966 $10,240 $5,979 $4,010 $3,703
Depreciation and amortization. . . . . . . . . . . . . . . 12,558 10,152 3,570 1,877 1,452
</TABLE>
__________________
(1) See Note 14 of Notes to Consolidated Financial Statements for information
with respect to the Company's WGEP Acquisition.
(2) See Note 15 of Notes to Consolidated Financial Statements for information
with respect to the Company's Non-recurring items.
(3) See Notes 6 and 12 of Notes to Consolidated Financial Statements for
information with respect to the Company's indebtedness and certain contingent
obligations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis of the Company's results of
operations and financial condition should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Form 10-K.
10
<PAGE>
ANNUAL RESULTS OF OPERATIONS
The following table sets forth for fiscal years 1997, 1996 and 1995, the
percentage relationship to net sales and other revenues of certain expenses and
earnings together with the percentage change in such items:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------------
YEAR ENDED MAY 31, PERCENT CHANGE
---------------------------------- -----------------------
1997 1996 1995 1996-1997 1995-1996
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales and other revenues . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 1.3% 106.6%
Cost of sales . . . . . . . . . . . . . . . . . . . . . 65.1 58.9 53.0 12.0 129.3
---- ---- ----
Gross profit . . . . . . . . . . . . . . . . . . . . . 34.9 41.1 47.0 (14.0) 81.0
---- ---- ----
Operating expenses:
Research and development . . . . . . . . . . . . . . 8.2 8.4 8.5 (1.2) 103.9
Marketing and sales . . . . . . . . . . . . . . . . . 4.7 4.3 5.0 10.5 77.2
General and administrative . . . . . . . . . . . . . . 7.3 6.9 8.8 7.8 61.6
Non-recurring items. . . . . . . . . . . . . . . . . . 5.5 -- -- 100.0 --
Amortization of identified
intangibles . . . . . . . . . . . . . . . . . . . . 1.6 1.5 1.0 5.7 223.4
---- ---- ----
Total operating expenses . . . . . . . . . . . . . 27.3 21.1 23.3 31.2 87.2
---- ---- ----
Earnings from operations . . . . . . . . . . . . . . . . . 7.6 20.1 23.7 (61.6) 74.8
Interest expense . . . . . . . . . . . . . . . . . . . . . (0.3) (0.9) (0.0) (68.5) 8,283.3
Other income . . . . . . . . . . . . . . . . . . . . . . 1.3 1.1 2.9 18.9 (21.6)
---- ---- ----
Earnings before income taxes . . . . . . . . . . . . . . . 8.6 20.3 26.6 (56.9) 57.3
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 2.7 6.4 8.4 (56.5) 56.2
---- ---- ----
Net earnings . . . . . . . . . . . . . . . . . . . . . . 5.9% 13.9% 18.2% (57.1)% 57.9%
---- ---- ----
---- ---- ----
</TABLE>
NET SALES AND OTHER REVENUES
Net sales and other revenues consist primarily of seismic data acquisition
systems and component sales and rental income from I/O SYSTEM component
operating leases. Net sales and other revenues for fiscal 1997 were $281.8
million, an increase of $3.6 million, or 1%, over fiscal 1996. Although
year-to-year sales were comparable, the mix of sales changed. Marine equipment
sales increased with the sale of 12 of the Company's new MSX marine systems
introduced in fiscal 1997. This increase in marine equipment sales was partially
offset by a decline in land equipment sales.
Net sales and other revenues for fiscal 1996 were $278.3 million, an
increase of $143.6 million, or 107%, over the prior year, primarily due to sales
from product lines acquired during fiscal 1995 and 1996, increased sales to the
Company's largest customer, continued sales of the Company's traditional
land-based seismic data acquisition systems and market acceptance of its new
radio telemetry system, the I/O SYSTEM TWO RSR.
GROSS PROFITS
The gross profit margins of the Company for the years ended May 31, 1997
and 1996 were negatively impacted by the addition of lower margin products
resulting from the WGEP Acquisition. In addition, during fiscal 1997 the Company
experienced competitive pricing pressures related to its land seismic
acquisition systems which negatively impacted its gross profit margins.
11
<PAGE>
RESEARCH AND DEVELOPMENT
Fiscal 1997 research and development expenses decreased $276,000, or 1%,
from the prior year, to $23.0 million. Expenses were consistent with the prior
year's expenses as a percent of sales.
Fiscal 1996 research and development expenses increased $11.8 million, or
104%, over the prior year, to $23.2 million, primarily due to increased
personnel and related costs associated with the WGEP Acquisition, and increased
supplies and equipment expense due to additional research and development
projects.
MARKETING AND SALES
Fiscal 1997 marketing and sales expenses increased $1.3 million, or 10%,
over fiscal 1996, primarily due to increased convention/exhibition costs and
advertising expense related to new product lines.
Fiscal 1996 marketing and sales expenses increased $5.2 million, or 77%,
over the prior year, to $12.0 million, primarily due to increased personnel and
associated marketing expenses related to the WGEP Acquisition, increased outside
sales commissions resulting from higher sales levels, and increased advertising
and exhibition costs for new products and recently acquired product lines.
GENERAL AND ADMINISTRATIVE
Fiscal 1997 general and administrative expenses increased $1.5 million, or
8%, over the prior year, to $20.6 million, primarily due to increased
non-recurring advisory and professional fees and increased bad-debt allowance.
Fiscal 1996 general and administrative expenses increased $7.3 million, or
62%, over the prior year, to $19.1 million, primarily due to increased
personnel, insurance costs and property taxes as a result of acquisitions,
increased bad-debt allowance due to higher sales levels, and increased costs
related to the creation of a company-wide data processing services network.
NON-RECURRING ITEMS
Fiscal 1997 non-recurring items were $15.6 million, consisting of losses
related to the insolvency of a customer, a write-down of capitalized exploration
costs and personnel expenses incurred in organizational changes. There were no
non-recurring item charges in fiscal 1996.
AMORTIZATION OF IDENTIFIED INTANGIBLES
Fiscal 1997 amortization of identified intangibles increased $246,000, or
6%, over the prior year, due to the amortization of additional goodwill related
to acquisitions.
Fiscal 1996 amortization of identified intangibles increased $3.0
million, or 223%, over the prior year, primarily due to amortization of goodwill
related to the WGEP Acquisition.
OPERATING INCOME
Earnings from operations decreased $34.4 million, or 62%, in fiscal 1997 to
$21.4 million compared to $55.8 million in the prior year, primarily due to
decreased profit margins and the fiscal 1997 non-recurring charges.
12
<PAGE>
Earnings from operations increased $23.9 million, or 75%, in fiscal 1996 to
$55.8 million compared to $31.9 million in the prior year, primarily due to
increased revenues.
INTEREST EXPENSE
Interest expense decreased $1.7 million in fiscal 1997 compared to fiscal
1996 due to the repayment in fiscal 1996 of a $70 million acquisition term loan,
which was partially offset by the ten-year-term facilities financing completed
in August 1996. Interest expense in fiscal 1997 was $793,000. See "Liquidity and
Capital Resources" below and Note 6 of Notes to Consolidated Financial
Statements.
Interest expense in fiscal 1996 increased $2.5 million over the prior year,
primarily due to interest on the $70 million acquisition term loan and borrowing
under the $40 million revolving line of credit incurred in connection with the
WGEP Acquisition.
INCOME TAX EXPENSE
The effective tax rate for fiscal 1997 and 1996 was approximately 31.7% and
31.4%, respectively. Income tax expense decreased in 1997 as compared to 1996 in
proportion with the decrease in the 1997 earnings before taxes. See Note 1 and
Note 9 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations from internally
generated cash, its working capital credit facilities, and funds from equity
financings. Cash flows from operating activities before changes in working
capital items were $43.4 million for the year ended May 31, 1997. However, cash
flows from operating activities after changes in working capital items were a
negative $19.9 million for the year ended May 31, 1997, primarily due to
increases in trade accounts receivable resulting from a lower level of cash
sales in fiscal 1997 and higher inventory levels maintained to support increased
anticipated sales levels. The Company believes that it has sufficient credit
facilities in place to finance these increases in its working capital
requirements.
The Company established in June 1995 a $110 million credit facility with
First Interstate Bank of Texas, N.A. (now Wells Fargo Bank, N.A.), comprised of
a $70 million term loan to fund the WGEP Acquisition and a $40 million revolving
line of credit for working capital purposes. The Company retired the term loan
and repaid the amounts outstanding under the revolving facility with certain of
the proceeds from a $120 million public offering of 5,750,000 shares of the
Company's common stock in November 1995. In May 1996, the Company renegotiated
its Credit Facility increasing the maximum amount of the working capital
revolving line of credit up to $50 million. Included under this maximum $50
million facility are subfacilities for (i) letters of credit of up to $15
million for the benefit of the Company and (ii) purchases from the Company of
conditional sales obligations of the Company's customers and making direct loans
to the Company's customers of up to $25 million (which purchases or loans by the
lender(s) will require guaranties from the Company). As of July 31, 1997, no
amounts of indebtedness were outstanding under the Credit Facility and $37.7
million was available for borrowings under the revolving facility.
The loan agreement contains restrictive covenants in favor of the
lender(s), including limitations on future indebtedness of the Company,
restrictions on business combinations involving the Company and its
subsidiaries, post-default limitations on dividends and other distributions
payable in cash or property, a $25 million per fiscal year limitation on the
amounts of certain investments by the Company, and limitations on capital
expenditures of $30 million per fiscal year (which does not include $20 million
in connection with the financing of the construction of the Company's new plant
and related facilities in Stafford, Texas). The loan agreement also contains
provisions requiring the Company to maintain a consolidated tangible net worth
in an amount not less than $180 million, limitations on the ratio of
indebtedness to consolidated net worth and a
13
<PAGE>
provision requiring the ratio of consolidated liabilities to consolidated net
worth to not exceed .50 to 1. See also Notes 4,5 and 6 of Notes to Consolidated
Financial Statements.
Certain of the Company's international sales in developing countries, such
as the Commonwealth of Independent States, have been made on extended-term
arrangements. Political and economic instabilities in certain of these countries
as well as changes in internal laws and policies affecting trade and investment
in these markets may have the effect of increasing the Company's credit risk
with regards to the receivables resulting from these sales.
The Company has from time to time sold and assigned certain of its
installment sales contracts and leases for its products to third-party financing
sources (or sold equipment to leasing companies which equipment is then leased
to customers), the terms of which often obligate the Company to (i) guarantee or
repurchase all or a portion of the contracts and leases in the event of a
default by the customer or upon certain other occurrences and/or (ii) assist the
financing parties in remarketing the purchased equipment to satisfy the
obligation. As of July 31, 1997, such third party financing sources had
purchased equipment contracts and leases which, in the aggregate, obligated the
Company to guarantee or repurchase up to approximately $8.2 million. Depending
upon the Company's level of exposure to these contingent obligations from time
to time, performance of the Company's obligations under a number of these
arrangements could have a material adverse effect on the Company's financial
condition and results of operation. In addition, a number of significant payment
defaults by customers could have a material adverse effect on the Company's
financial position and results of operations.
On December 6, 1996, Grant Geophysical, Inc. ("Grant"), a geophysical
services company, filed for protection under Chapter 11 of the US Bankruptcy
Code. The Company's records reflect that on the filing date the Company had
outstanding current and long-term notes and accounts receivable of approximately
$10.6 million secured by certain seismic equipment sold by the Company to Grant
and an obligation to repurchase $1.1 million in Grant debt. In addition, the
Company has guaranteed, on a partial recourse basis, certain lease obligations
owed by Grant to an institutional lender/purchaser of Company equipment for
which the Company has certain rights to purchase the lessor's interest under
certain circumstances. A proposed plan of reorganization has been filed in the
case that provides for payment in full to holders of secured claims and the
assumption of these lease obligations. If this plan is confirmed, the Company
would be repaid all or substantially all of the outstanding indebtedness owed to
it by Grant. In addition, another customer is in default to the Company with
respect to approximately $11.0 million in secured equipment purchase debt owed
to the Company. The Company has taken a charge of $11.2 million to cover
anticipated losses in connection with this trade debt. No assurance can be given
as to the amount and timing of any recovery to the Company regarding these
defaulted obligations.
In August 1996, the Company obtained a $12.5 million ten-year term mortgage
loan to finance the construction of the Company's new manufacturing facility in
Stafford, Texas. The loan is secured by the Company's land, buildings and
improvements housing its executive and research and development headquarters as
well as its adjacent new manufacturing facility. The mortgage loan will bear
interest at the rate of 7.875% per annum and is repayable in equal monthly
installments of principal and interest. The promissory note contains certain
prepayment penalties. As of July 31, 1997, $11.8 million in indebtedness was
outstanding under this mortgage loan.
Capital expenditures for property, plant, and equipment totaled $27.0
million for fiscal 1997 and are expected to aggregate $10.0 million for fiscal
1998. The Company believes that the combination of its existing working capital,
unused credit available under its working capital credit facility, internally
generated cash flow and access to other financing sources (including sales
finance facilities), will be adequate to meet its anticipated capital and
liquidity requirements for the foreseeable future.
14
<PAGE>
OTHER FACTORS
In interim and annual periods ending after December 15, 1997, the Company
will adopt Statement of Financial Accounting Standards No. 128 "Earnings per
Share". This standard specifies the compilation, presentation and disclosure
requirements for earnings per share for entities with publicly held common stock
or potential common stock. Management does not believe that the adoption of this
standard will have a material effect on the financial statements.
In interim and annual periods beginning after December 15, 1997, the
Company will adopt Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income". This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Management does not believe that the
adoption of this standard will have a material effect on the financial
statements.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain statements contained in Items 1 and 7 of this Form 10-K may be
deemed to be forward-looking within the meaning of The Private Securities
Litigation Reform Act of 1995 and are subject to the "safe harbor" provisions of
that act, including without limitation, statements concerning future sales,
earnings, costs, expenses, acquisitions or corporate combinations, asset
recoveries, operations, business prospects, demand for products, industry
conditions, working capital, capital expenditures, financial condition, and
other results of operations. Such statements involve risks and uncertainties.
Actual results could differ materially from the expectations expressed in such
forward-looking statements. The Company identifies the following important risk
factors which could affect the Company's actual results and cause actual results
to differ materially from any such results which might be projected, forecast,
estimated or budgeted by the Company in such forward-looking statements:
RISK RELATED TO NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The markets for the
Company's product lines are characterized by rapidly changing technology and
frequent product introductions. Whether the Company can develop and produce
successfully, on a timely basis, new and enhanced products that embody new
technology, meet evolving industry standards and practice, and achieve levels of
capability and price that are acceptable to its customers, will be significant
factors in the Company's ability to compete in the future. There can be no
assurance that the Company will not encounter resource constraints or technical
or other difficulties that could delay introduction of new products in the
future. If the Company is unable, for technological or other reasons, to develop
competitive products in a timely manner in response to changes in the seismic
data acquisition industry or other technological changes, its business and
operating results will be materially and adversely affected. In addition, the
Company's continuing development of new products inherently carries the risk of
inventory obsolescence with respect to its older products.
RISKS RELATED TO TIMING OF PRODUCT SHIPMENTS. Due to the relatively high
sales price of the Company's products and relatively low unit sales volume, the
timing in the shipment of systems and the mix of products sold can produce
fluctuations in quarter-to-quarter financial performance. See Note 13 of Notes
to Consolidated Financial Statements. One of the factors which may affect the
Company's operating results from time to time is that a substantial portion of
its net sales and other revenues in any period may result from shipments during
the latter part of a period. Because the Company establishes its sales and
operating expense levels based on its operational goals, if shipments in any
period do not meet goals, revenues and net profits may be adversely affected.
The Company believes that factors which could affect such timing in shipments
include, among others, seasonality of end-user markets, availability of
purchaser financing, manufacturing lead times, customer purchases of leased
equipment and shortages of system components. In addition, because the Company
typically operates, and expects to continue to operate, without a significant
backlog of orders for its products, the Company's manufacturing plans and
expenditure levels are based principally on sales forecasts, which sometimes
results in inventory excesses and imbalances from time to time.
15
<PAGE>
RISKS RELATED TO GROSS MARGIN. The Company's gross margin percentage is a
function of the product mix sold in any period. Other factors, such as unit
volumes, inventory obsolescence, heightened price competition, changes in sales
and distribution channels, shortages in components due to timely supplies or
ability to obtain items at reasonable prices, and availability of skilled labor,
may also continue to affect the cost of sales and the fluctuation of gross
margin percentages in future periods.
UNCERTAINTY OF ENERGY INDUSTRY CONDITIONS. Demand for the Company's
products is dependent upon the level of worldwide oil and gas exploration and
development activity. Such activity in turn is primarily dependent upon oil and
gas prices, which have been subject to wide fluctuation in recent years in
response to relatively minor changes in the supply and demand for oil and
natural gas, market uncertainty and a variety of additional factors that are
beyond the control of the Company. It is impossible to predict future oil and
natural gas price movements with any certainty. No assurances can be given as to
the future level of activity in the oil and gas exploration and development
industry and its relationship to the future demand for the Company's products.
CREDIT RISK FROM SALES ARRANGEMENTS. The Company sells to many customers
on extended-term arrangements. Moreover, in connection with certain sales of its
systems and equipment, the Company has guaranteed certain loans from
unaffiliated parties to purchasers of such systems and equipment. In addition,
the Company has sold contracts and leases to third-party financing sources, the
terms of which often obligate the Company to repurchase the contracts and leases
in the event of a customer default or upon certain other occurrences.
Performance of the Company's obligations under these arrangements could have a
material adverse effect on the Company's financial condition. A number of
significant payment defaults by customers could have a material adverse effect
on the Company's financial position and results of operations.
DISRUPTION IN VENDOR SUPPLIES. The Company's manufacturing process
requires a high volume of quality components. Certain components used by the
Company are currently provided by only one vendor. In the future, the Company
may, from time to time, experience supply or quality control problems with its
suppliers, and such problems could significantly affect its ability to meet
production and sales commitments. The Company's reliance on certain vendors, as
well as industry supply conditions generally, involve 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, any of
which could adversely affect the Company's future financial results.
RELIANCE ON SIGNIFICANT CUSTOMERS. A relatively small number of customers
has accounted for most of the Company's net sales, although the degree of sales
concentration with any one customer has varied from fiscal year to year. During
fiscal 1995, 1996 and 1997 the two largest customers in each of those years
accounted for 26%, 42% and 45%, respectively, of the Company's net sales and
other revenues. The loss of any of these customers could have a material adverse
effect on the Company's sales revenues.
COMPETITION. The design, manufacture and marketing of seismic data
acquisition systems is highly competitive and is characterized by continual and
rapid changes in technology. The Company's principal competitor for land seismic
equipment is Societe d'Etudes Recherches et Construction Electroniques, an
affiliate of Compagnie General de Geophysique which, unlike the Company,
possesses the advantage of being able to sell to an affiliated seismic
contractor.
Competition in the industry is expected to intensify and could adversely
affect the Company's future results. Several of the Company's competitors have
greater name recognition, more extensive engineering, manufacturing and
marketing capabilities, and greater financial, technological and personnel
resources than those available to the Company. In addition, certain companies in
the industry have expanded their product lines or technologies in recent years
as a result of acquisitions. There can be no assurance that the Company will be
able to compete successfully in the future with existing or new competitors.
Pressures from competitors offering lower-priced products could result in future
price reductions for the Company's products.
16
<PAGE>
RISK FROM SIGNIFICANT AMOUNT OF FOREIGN SALES. Sales outside the United
States have historically accounted for a significant part of the Company's net
sales and other revenues. Foreign sales are subject to special risks inherent in
doing business outside of the United States, including the risk of war, civil
disturbances, embargo and government activities, which may disrupt markets and
affect operating results. Foreign sales are also generally subject to the risks
of compliance with additional laws, including tariff regulations and
import/export restrictions. The Company is, from time to time, required to
obtain export licenses and there can be no assurance that it will not experience
difficulty in obtaining such licenses as may be required in connection with
export sales.
Demand for the Company's products from customers in developing countries is
difficult to predict and can fluctuate significantly from year to year. See Note
8 of Notes to Consolidated Financial Statements. The Company believes that these
changes in demand result primarily from the instability of economies and
governments in certain developing countries, changes in internal laws and
policies affecting trade and investment, and because those markets are only
beginning to adopt new technologies and establish purchasing practices. These
risks may adversely affect the Company's future operating results and financial
position. In addition, sales to customers in developing countries on extended
terms can present heightened credit risks for the Company, for the reasons
discussed above.
PROTECTION OF INTELLECTUAL PROPERTY. The Company believes that technology
is the primary basis of competition in the industry. Although the Company
currently holds certain intellectual property rights relating to its product
lines, there can be no assurance that these rights will not be challenged by
third parties or that the Company will obtain additional patents or other
intellectual property rights in the future. Additionally, there can be no
assurance that the Company's efforts to protect its trade secrets will be
successful or that others will not independently develop products similar to the
Company's or design around any of the intellectual property rights owned by the
Company.
DEPENDENCE ON PERSONNEL. The Company's success depends upon the continued
contributions of its personnel, many of whom would be difficult to replace. The
success of the Company will depend on the ability of the Company to attract and
retain skilled employees. Changes in personnel, therefore, could adversely
affect operating results.
RISKS RELATED TO GOVERNMENT REGULATIONS AND PRODUCT CERTIFICATION. The
Company's operations are also subject to laws, regulations, government policies,
and product certification requirements worldwide. Changes in such laws,
regulations, policies, or requirements could affect the demand for the Company's
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 the Company's
future operating results.
RISKS OF STOCK VOLATILITY AND ABSENCE OF DIVIDENDS. In recent years, the
stock market in general and the market for energy and technology stocks in
particular, including the Company's common stock, have experienced extreme price
fluctuations. There is a risk that stock price fluctuation could impact the
Company's operations. Changes in the price of the Company's common stock could
affect the Company's ability to successfully attract and retain qualified
personnel or complete desirable business combinations or other transactions in
the future. The Company has historically not paid cash dividends on its capital
stock, and there can be no assurances that the Company will do so.
RISKS RELATED TO ACQUISITIONS. To implement its business plans, the
Company may make further acquisitions in the future. Acquisitions require
significant financial and management resources both at the time of the
transaction and during the process of integrating the newly acquired business
into the Company's operations. The Company's operating results could be
adversely affected if it is unable to successfully integrate such new companies
into its operations. Certain acquisitions or strategic transactions may be
subject to approval by the other party's board or shareholders, domestic or
foreign governmental agencies, or other third parties. Accordingly, there is a
risk that important acquisitions or transactions could fail to be concluded as
planned.
17
<PAGE>
Future acquisitions by the Company could also result in issuances of equity
securities or the rights associated with the equity securities, which could
potentially dilute earnings per share. In addition, future acquisitions could
result in the incurrence of additional debt, taxes, or contingent liabilities,
and amortization expenses related to goodwill and other intangible assets. These
factors could adversely affect the Company's future operating results and
financial position.
OIL AND GAS OPERATIONS. The Company's oil and gas operations are subject to
the economic risks typically associated with exploration, development, and
production activities, including the necessity of significant expenditures to
drill exploratory wells. In conducting exploration and development activities,
the Company may drill unsuccessful wells and experience losses and changes to
earnings and, if oil or natural gas is discovered, there can be no assurance
that such oil or natural gas can be economically produced or satisfactorily
marketed. Historically, the markets for oil and natural gas have been volatile
and are likely to continue to be volatile in the future. The nature of the oil
and gas business involves certain operating hazards such as well blowouts,
cratering, explosions, uncontrollable flows of oil, natural gas or well fluids,
fires, formations with abnormal pressures, pollution, releases of toxic gas and
other environmental hazards and risks, any of which could result in losses to
the Company. While the Company's current practice is not to act as operator of
any drilling prospect, and while the Company does maintain insurance in
accordance with customary industry practices under the circumstances against
some, but not all, of such risks and losses, the occurrence of such an event not
fully covered by insurance could have a material adverse affect on the Company's
financial position and results of operation.
The foregoing review of factors pursuant to the Private Securities
Litigation Reform Act of 1995 should not be construed as exhaustive. In
addition to the foregoing, the Company wishes to refer readers to the Company's
other filings and reports with the Securities and Exchange Commission, including
its recent reports on Forms 10-Q, for a further discussion of risks and
uncertainties which could cause actual results to differ materially from those
contained in forward-looking statements. The Company undertakes 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item begin at page F-1 hereof.
Form 11-K Information. The Company, pursuant to Rule 15d-21 promulgated
under the Securities Exchange Act of 1934, as amended, will file as an amendment
to this Annual Report on Form 10-K the information, financial statements and
exhibits required by Form 11-K with respect to the Input/Output, Inc. Employee
Stock Purchase Plan.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE>
P A R T I I I
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is contained in the Company's
definitive Proxy Statement to be distributed in connection with its 1997 Annual
Meeting of Stockholders under the captions "Management" and "Voting and Stock
Ownership of Management and Principal Stockholders" and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is contained in the Company's
definitive Proxy Statement to be distributed in connection with its 1997 Annual
Meeting of Stockholders under the caption "Remuneration of Directors and
Officers" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained in the Company's
definitive Proxy Statement to be distributed in connection with its 1997 Annual
Meeting of Stockholders under the caption "Voting and Stock Ownership of
Management and Principal Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
P A R T IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(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 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 inapplicable or
the requested information is shown in the financial statements or
noted therein.
(3) Exhibits:
3.1 --Amended and Restated Certificate of Incorporation, filed
as Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1995 and incorporated
herein by reference.
19
<PAGE>
*3.2 --Certificate of Amendment to the Amended and Restated
Certificate of Incorporation, dated October 11, 1996.
3.3 --Amended and Restated Bylaws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
4.1 --Form of Certificate of Designation, Preferences and Rights
of Series A Preferred Stock of Input/Output, Inc., filed
as Exhibit 2 to the Company's Registration Statement on
Form 8-A dated January 27, 1997 (attached as Exhibit 1 to
the Rights Agreement referenced in Exhibit 10.24) and
incorporated herein by reference.
10.2 --Royalty Agreement, dated November 6, 1992, between I/O
Sensors, Inc., Triton and Triton Technologies, Inc., filed
as Exhibit 10.2 to the 1993 Form 10-K and incorporated
herein by reference.
**10.3 --1990 Restricted Stock Plan, filed as Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 and incorporated herein by reference.
***10.4 --Amended and Restated 1990 Stock Option Plan.
***10.5 --Input/Output, Inc. 1996 Management Incentive Program.
10.6 --Input/Output, Inc. 401(k) Plan, filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995 and incorporated herein by
reference.
***10.7 --Amended Directors Retirement Plan.
**10.8 --Amended and Restated 1991 Directors Stock Option Plan,
filed as Exhibit 4.3 to the Company's Registration
Statement on Form S-8 (Registration No. 33-85304) filed
with the Securities and Exchange Commission on October 19,
1994, and incorporated herein by reference.
***10.9 --Amendment to the Amended and Restated 1991 Directors Stock
Option Plan.
***10.10 --Supplemental Executive Retirement Plan.
***10.11 --Amendment No. 1 to the Company's Supplemental Executive
Retirement Plan, effective January 17, 1997.
***10.12 --Supplemental Executive Retirement Trust.
***10.13 --Amendment No. 1 to the Company's Supplemental Executive
Retirement Trust, effective January 17, 1997.
**10.14 --Employment Agreement, dated February 6, 1991, between the
Company and Robert P. Brindley, filed as exhibit 10.11 to
the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995 and incorporated herein by
reference.
***10.15 --Amendment No. 1 to Employment Agreement between the
Company and Robert P. Brindley dated March 31, 1997.
10.16 --Asset Purchase Agreement dated June 30, 1995, by and
between Input/Output, Inc., I/O Exploration Products
(U.S.A.), Inc. and Western Atlas International, Inc. filed
as Exhibit 10.1 to the Company's Form 8-K dated June 30,
1995 and incorporated herein by reference.
10.17 --Product Purchase Agreement dated June 30, 1995, by and
between Input/Output, Inc., I/O Exploration Products
(U.S.A.), Inc. and Western Atlas International, Inc. filed
as Exhibit 10.2 to the Company's Form 8-K dated June 30,
1995 and incorporated herein by reference.
20
<PAGE>
10.18 --Credit Agreement dated May 7, 1996, by and between
Input/Output, Inc. and Wells Fargo Bank N.A. (formerly
known as First Interstate Bank of Texas, N.A.) filed as
Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1996.
10.19 --Master Letter of Credit Agreement dated April 16, 1996,
between the Company and ABN AMRO Bank N.V. Houston Agency
filed as Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1996.
10.20 --Promissory Note dated August 29, 1996 executed by IPOP
Management, Inc. to the order of The Variable Annuity Life
Insurance Company, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996 and incorporated herein by reference.
10.21 --Master Commercial Lease Agreement dated August 29, 1996,
by and between IPOP Management, Inc. and The Variable
Annuity Life Insurance Company, filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1996 and incorporated herein by
reference.
10.22 --Limited Guaranty dated August 29, 1996, executed by
Input/Output, Inc., filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996 and incorporated herein by reference.
***10.23 --Input/Output, Inc. 1996 Non-Employee Director Stock Option
Plan.
10.24 --Rights Agreement, dated as of January 17, 1997, by and
between Input/Output, Inc. and Harris Trust and Savings
Bank, as Rights Agent, including exhibits thereto, filed
as Exhibits 4 to the Company's Form 8-A dated January 27,
1997 and incorporated herein by reference.
10.25 --Input/Output, Inc. Employee Stock Purchase Plan, filed as
Exhibit 4.4 to the Company's Registration Statement on
Form S-8 (Registration No. 333-24125) filed with the
Securities and Exchange Commission on March 18, 1997 and
incorporated herein by reference.
***10.26 --Employment Agreement, effective as of May 16, 1997,
between the Company and Charles E. Selecman.
*11.1 --Earnings Per Share Computation.
*21.1 --Subsidiaries of the Company.
*23.1 --Consent of KPMG Peat Marwick LLP.
*24.1 --The Power of Attorney is set forth on the signature page
hereof.
*27.1 --Financial Data Schedule.
99.1 --Information required by Form 11-K with respect to the
Input/Output, Inc. Employee Stock Purchase Plan will be
filed as an amendment to this Annual Report on Form 10-K
within 120 days of the end of the fiscal year of the plan
as permitted by Rule 15d-21 under the Securities Exchange
Act of 1934, as amended.
* Filed herewith.
** Management contract or compensatory plan or arrangement.
*** Management contract or compensatory plan or arrangement filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Input/Output, Inc. during
the quarter ended May 31, 1997.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
Reference is made to subparagraph (a) (3) of this Item 14 which
is incorporated herein by reference.
(d) NOT APPLICABLE.
21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF
STAFFORD, STATE OF TEXAS, ON AUGUST 27, 1997.
Input/Output, Inc.
By /s/ Charles E. Selecman
-----------------------------------
CHARLES E. SELECMAN,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Selecman and Robert P. Brindley and
each of them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all documents relating to the Annual Report
on Form 10-K, including any and all amendments and supplements thereto, for the
fiscal year ended May 31, 1997, 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 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, 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.
<TABLE>
<CAPTION>
NAME CAPACITIES DATE
---- ---------- ----
<S> <C> <C>
/s/ Charles E. Selecman Chairman, President August 27, 1997
- -------------------------------- and Chief Executive Officer
CHARLES E. SELECMAN (Principal Executive Officer)
/s/ Robert P. Brindley Director, Executive Vice President, August 27, 1997
- -------------------------------- Chief Financial Officer and Secretary
ROBERT P. BRINDLEY (Principal Financial and
Accounting Officer)
/s/ Shelby H. Carter, Jr. Director August 27, 1997
- --------------------------------
SHELBY H. CARTER, JR.
/s/ Ernest E. Cook Director August 27, 1997
- --------------------------------
ERNEST E. COOK
/s/ Glen H. Denison Director August 27, 1997
- --------------------------------
GLEN H. DENISON
/s/ Theodore H. Elliott, Jr. Director August 27, 1997
- --------------------------------
THEODORE H. ELLIOTT, JR.
/s/ G. Thomas Graves III Director August 27, 1997
- --------------------------------
G. THOMAS GRAVES III
</TABLE>
22
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Input/Output, Inc. and Subsidiaries: Page
----
<S> <C>
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets -- May 31, 1997 and 1996. . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations --Years Ended May 31, 1997, 1996 and 1995 . . . F-4
Consolidated Statements of Stockholders' Equity - Years Ended May 31, 1997, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows -- Years Ended May 31, 1997, 1996 and 1995 . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-7
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Input/Output, Inc.:
We have audited the consolidated financial statements of Input/Output, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Input/Output, Inc. and subsidiaries as of May 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended May 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Houston, Texas
June 30, 1997
F-2
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS May 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,573 $34,252
Trade accounts receivable, less allowance for doubtful accounts of $1,740
and $470 in 1997 and 1996, respectively. . . . . . . . . . . . . . . . . . 61,788 42,989
Trade notes receivable, less allowance for doubtful notes of $7,078 and $728
in 1997 and 1996, respectively (note 3). . . . . . . . . . . . . . . . . . 27,800 28,424
Income taxes receivable (note 9). . . . . . . . . . . . . . . . . . . . . . . . 2,403 --
Inventories (note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,337 92,787
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,939 2,004
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 202,840 200,456
Long-term trade notes receivable (note 3). . . . . . . . . . . . . . . . . . . . . 27,003 16,678
Deferred income tax asset (note 9) . . . . . . . . . . . . . . . . . . . . . . . . 3,097 1,062
Property, plant and equipment, net (note 4). . . . . . . . . . . . . . . . . . . . 78,376 56,035
Goodwill, net of accumulated amortization of $8,001 and
$4,115 in 1997 and 1996, respectively . . . . . . . . . . . . . . . . . . . . 61,024 64,200
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,318 17,034
-------- --------
$384,658 $355,465
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, principally trade . . . . . . . . . . . . . . . . . . . . . . $13,143 $19,518
Accrued expenses (note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,358 13,751
Current installments of debt (note 6) . . . . . . . . . . . . . . . . . . . . . 912 --
Income taxes payable (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,962
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 32,413 35,231
Long-term debt (note 6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 --
Other liabilities (note 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,631 3,030
Commitments and contingencies (notes 10, 11 and 12)
Stockholders' equity (note 7):
Preferred stock, $.01 par value; authorized 5,000,000 shares, none issued . . . -- --
Common stock, $.01 par value; authorized 50,000,000 shares; issued
43,280,851 shares in 1997 and 42,969,676 shares in 1996 . . . . . . . . . . . 433 430
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 218,973 214,259
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,116 104,145
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . (1,673) (762)
Unamortized restricted stock compensation . . . . . . . . . . . . . . . . . . . (235) (868)
-------- --------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . 338,614 317,204
-------- --------
$384,658 $355,465
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Years ended May 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales and other revenues (notes 8 and 10). . . . . $281,845 $278,283 $134,698
Cost of sales. . . . . . . . . . . . . . . . . . . . . 183,438 163,811 71,440
-------- -------- --------
Gross profit. . . . . . . . . . . . . . . . . 98,407 114,472 63,258
-------- -------- --------
Operating expenses:
Research and development. . . . . . . . . . . . . . 22,967 23,243 11,400
Marketing and sales . . . . . . . . . . . . . . . . 13,288 12,027 6,789
General and administrative. . . . . . . . . . . . . 20,592 19,096 11,817
Non-recurring items . . . . . . . . . . . . . . . . 15,594 -- --
Amortization of identified intangibles. . . . . . . 4,551 4,305 1,331
-------- -------- --------
Total operating expenses. . . . . . . . . . . 76,992 58,671 31,337
-------- -------- --------
Earnings from operations . . . . . . . . . . . . . . . 21,415 55,801 31,921
Interest expense . . . . . . . . . . . . . . . . . . . (793) (2,515) (30)
Other income . . . . . . . . . . . . . . . . . . . . . 3,675 3,091 3,944
-------- -------- --------
Earnings before income taxes . . . . . . . . . . . . . 24,297 56,377 35,835
Income taxes (note 9). . . . . . . . . . . . . . . . . 7,700 17,700 11,335
-------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 16,597 $ 38,677 $ 24,500
-------- -------- --------
-------- -------- --------
Earnings per common share. . . . . . . . . . . . . . . $ .38 $ .94 $ .66
-------- -------- --------
-------- -------- --------
Weighted average number of common and
common equivalent shares outstanding . . . . . . . . . 43,819,595 41,125,286 37,381,458
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1997, 1996, AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common stock Additional Cumulative Unamortized Total
--------------------- paid-in Retained Translation restricted stock stockholders'
Shares Amount capital earnings Adjustment compensation equity
---------- ------ ---------- -------- ----------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1994. . . 35,507,676 $355 $78,571 $41,345 $-- $(4,612) $115,659
Amortization of restricted
stock compensation . . . . -- -- -- -- -- 2,052 2,052
Exercise of stock options
and related tax benefits . . 768,200 8 4,604 -- -- -- 4,612
Equity reduction for SERP
Plan . . . . . . . . . . . -- -- -- (187) -- -- (187)
Translation adjustment . . . -- -- -- -- 206 -- 206
Public offering. . . . . . . -- -- (130) -- -- -- (130)
Net earnings . . . . . . . . -- -- -- 24,500 -- -- 24,500
---------- ---- -------- -------- ------- ------ --------
Balance at May 31, 1995. . . 36,275,876 363 83,045 65,658 206 (2,560) 146,712
Amortization of restricted
stock compensation . . . . -- -- -- -- -- 1,692 1,692
Exercise of stock options
and related tax benefits . . 943,800 9 11,502 -- -- -- 11,511
Equity reduction for SERP
Plan . . . . . . . . . . . -- -- -- (187) -- -- (187)
Equity reduction for
Outside Directors
Retirement Plan. . . . . . -- -- -- (3) -- -- (3)
Translation adjustment . . . -- -- -- -- (968) -- (968)
Public offering. . . . . . . 5,750,000 58 119,712 -- -- -- 119,770
Net earnings . . . . . . . . -- -- -- 38,677 -- -- 38,677
---------- ---- -------- -------- ------- ------ --------
Balance at May 31, 1996. . . 42,969,676 430 214,259 104,145 (762) (868) 317,204
Amortization of restricted
stock compensation . . . . -- -- -- -- -- 633 633
Exercise of stock options
and related tax benefits . . 311,175 3 4,714 -- -- -- 4,717
Equity increase for SERP
Plan . . . . . . . . . . . -- -- -- 375 -- -- 375
Equity reduction for
Outside Directors
Retirement Plan. . . . . . -- -- -- (1) -- -- (1)
Translation adjustment . . . -- -- -- -- (911) -- (911)
Net earnings . . . . . . . . -- -- -- 16,597 -- -- 16,597
---------- ---- -------- -------- ------- ------ --------
Balance at May 31, 1997. . . 43,280,851 $433 $218,973 $121,116 $(1,673) $(235) $338,614
---------- ---- -------- -------- ------- ------ --------
---------- ---- -------- -------- ------- ------ --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years ended May 31,
-------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,597 $38,677 $24,500
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 12,558 10,152 3,570
Amortization of restricted stock compensation. . . . . . . . 633 1,692 2,052
Deferred income taxes. . . . . . . . . . . . . . . . . . . . (2,035) (1,627) (624)
Pension costs. . . . . . . . . . . . . . . . . . . . . . . . 96 90 284
Non-recurring items. . . . . . . . . . . . . . . . . . . . . 15,594 -- --
Changes in assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . (38,784) (47,157) (32,293)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (13,550) (29,094) (5,920)
Leased equipment. . . . . . . . . . . . . . . . . . . . . (3,208) 1,332 (2,841)
Accounts payable and accrued expenses . . . . . . . . . . (2,866) 7,224 3,099
Income taxes payable. . . . . . . . . . . . . . . . . . . (4,365) (555) (1,097)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (614) (1,743) (1,185)
------- ------- -------
Net cash used in operating activities . . . . . . . . . (19,944) (21,009) (10,455)
------- ------- -------
Cash flows from investing activities:
Purchase of property, plant and equipment . . . . . . . . . . . . (26,966) (10,240) (5,979)
Acquisition of net assets and business. . . . . . . . . . . . . . (595) (120,467) (5,500)
Purchase of short-term investments. . . . . . . . . . . . . . . . -- -- (65,308)
Maturities of short-term investments. . . . . . . . . . . . . . . -- -- 114,411
Investments in other assets . . . . . . . . . . . . . . . . . . . (190) (2,549) (3,697)
------- ------- -------
Net cash (used in) provided by investing activities . . (27,751) (133,256) 33,927
------- ------- -------
Cash flows from financing activities:
Borrowings from bank. . . . . . . . . . . . . . . . . . . . . . . 23,850 97,800 --
Payments on debt. . . . . . . . . . . . . . . . . . . . . . . . . (11,938) (97,800) (591)
Proceeds from sales of notes receivable . . . . . . . . . . . . . -- -- 20,717
Proceeds from exercise of stock options and related tax benefit . 4,717 11,511 4,612
Net proceeds from public offerings. . . . . . . . . . . . . . . . -- 119,770 (130)
------- ------- -------
Net cash provided by financing activities . . . . . . . 16,629 131,281 24,608
------- ------- -------
Effect of foreign currency exchange rates. . . . . . . . . . . . . . (613) (156) (1)
------- ------- -------
Net (decrease) increase in cash and cash equivalents . . . . . . . . (31,679) (23,140) 48,079
Cash and cash equivalents at beginning of year . . . . . . . . . . . 34,252 57,392 9,313
------- ------- -------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . $2,573 $34,252 $57,392
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION AND GENERAL
The consolidated financial statements include the accounts of Input/Output,
Inc. and its wholly-owned subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company designs, manufactures and markets seismic data acquisition
systems and peripheral seismic instruments for the oil and gas exploration and
production industry worldwide. Net sales and other operating revenues consist
primarily of net sales of products.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
(c) INVENTORIES
Inventories are stated at the lower of cost (primarily first-in, first-out)
or market. Revenue from the sale of products is recognized at the time of
shipment. The Company's obsolescence policy is to reserve for components that
have not been used in three years. The Company's components do not have an
ongoing service requirement.
(d) PROPERTY, PLANT AND EQUIPMENT
Plant and equipment are recorded at cost and depreciated principally on a
straight-line basis using estimated useful lives as follows: building - 25
years, machinery and equipment - five to eight years and other - three to eight
years. Repairs and maintenance are expensed as incurred. Gains and losses on
sales and retirements are recognized on disposal.
(e) GOODWILL
Goodwill results from business acquisitions and represents the excess of
acquisition costs over the fair value of the net assets of businesses acquired.
Goodwill is amortized on a straight-line basis over 5 to 20 years. The Company
measures goodwill annually using undiscounted cash flows to assess
recoverability. The Company believes that no impairment of goodwill exists.
(f) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value 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 significant judgment and therefore cannot be
determined with precision.
The Company believes that the carrying amounts of its current assets,
current liabilities, long-term notes receivable and long-term debt approximate
the fair value of such items.
(g) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
F-7
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(h) REVENUE RECOGNITION
The Company recognizes revenue at the shipment date. No right of return
exists regarding any product(s) sold by the Company.
(i) PRODUCT WARRANTIES
The Company warrants that all equipment manufactured by it will be free
from defects in workmanship, in material and parts ranging from 90 days to three
years from the date of original purchase depending on the product.
For new customers, the Company provides operator training, as well as
start-up and on-site support. The Company provides for estimated training,
installation and warranty costs as a charge to cost of sales at the time of
sale.
(j) EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
shares of common stock outstanding during the respective years after giving
retroactive effect to the changes in capital structure discussed in Note 7. For
purposes of the computations, restricted stock has been added as a common stock
equivalent as of the date of grant. Stock options have been included from the
date of their issuance due to the dilutive effect on the computation.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123 allows a company to adopt a fair value based
method of accounting for its stock-based compensation plans, or to continue to
follow the intrinsic value method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to
Employees".
The Company has elected to continue to follow APB Opinion No. 25. If the
Company had adopted SFAS 123 the Company's net earnings and earnings per share
for the years ended May 31, 1997 and 1996 would have been reduced as discussed
in Note 7.
(k) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are generally translated at
current exchange rates and related translation adjustments are reported as a
component of stockholders' equity. Statements of operations are translated at
the average rates during the period.
(l) STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information follows (in
thousands):
Cash paid during the year for: 1997 1996 1995
------- -------- -------
Interest (net of amounts capitalized) . . $ 752 $ 2,515 $ 30
------- -------- -------
------- -------- -------
Income taxes. . . . . . . . . . . . . . . $11,470 $ 10,692 $10,255
------- -------- -------
------- -------- -------
F-8
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(m) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals 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. Actual results could differ from those
estimates.
(n) RECLASSIFICATION
Certain amounts previously reported in the financial statements have been
reclassified to conform to the current year presentation.
(O) RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). SFAS
128 specifies the compilation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock. The requirements of this statement will be effective for interim
and annual periods ending after December 15, 1997. Management does not believe
that the implementation of SFAS 128 will have a material effect on the financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The requirements of this statement will be effective for both interim and annual
periods beginning after December 15, 1997. Management does not believe that the
implementation of SFAS 130 will have a material effect on the financial
statements.
(2) INVENTORIES
A summary of inventories, net of reserves,
follows (in thousands):
1997 1996
------ ------
Raw Materials. . . . . . . . . . . . . . . $56,573 $47,280
Work-in-process. . . . . . . . . . . . . . 23,878 29,016
Finished goods . . . . . . . . . . . . . . 25,886 16,491
------ ------
$106,337 $92,787
-------- -------
-------- -------
(3) TRADE NOTES RECEIVABLE
The current and long-term trade notes receivable at May 31, 1997 are
secured by seismic equipment sold by the Company, bearing interest at rates
ranging from 7% to 12% and are due at various dates to 2001. In assessing the
exposure to loss, management has considered the financial capabilities of the
borrowers to repay the notes and the net realizable value of the equipment
securing the notes. See Note 12.
F-9
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
On December 6, 1996, Grant Geophysical, Inc. ("Grant"), an international
geophysical services company, filed for protection under Chapter 11 of the US
Bankruptcy Code. The Company's records reflect that on the filing date the
Company had outstanding current and long-term notes and accounts receivable of
approximately $10.6 million secured by certain seismic equipment sold by the
Company to Grant and an obligation to repurchase $1.1 million in Grant debt. In
addition, the Company has guaranteed, on a partial recourse basis, certain lease
obligations owed by Grant to an institutional lender/purchaser of Company
equipment for which the Company has certain rights to purchase the lessor's
interest under certain circumstances. A proposed plan of reorganization has been
filed in the case that provides for payment in full to holders of secured claims
and the assumption of these lease obligations. If this plan is confirmed, the
Company would be repaid all or substantially all of the outstanding indebtedness
owed to it by Grant. In addition, another customer is in default to the Company
with respect to approximately $11.0 million in secured equipment purchase debt
owed to the Company. The Company has taken a charge of $11.2 million to cover
anticipated losses in connection with this trade debt. No assurance can be given
as to the amount and timing of any recovery to the Company regarding these
defaulted obligations.
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
MAY 31,
---------------------
1997 1996
------- -------
Land . . . . . . . . . . . . . . . . . . . . $ 3,819 $ 3,801
Building . . . . . . . . . . . . . . . . . . 28,008 15,622
Machinery and equipment. . . . . . . . . . . 49,002 39,136
Leased equipment . . . . . . . . . . . . . . 12,573 8,338
Other. . . . . . . . . . . . . . . . . . . . 12,692 6,425
------- -------
106,094 73,322
Less accumulated depreciation. . . . . . . . 27,718 17,287
------- -------
$78,376 $56,035
------- -------
------- -------
(5) ACCRUED EXPENSES
A summary of accrued expenses follows (in thousands):
MAY 31,
---------------------
1997 1996
------- -------
Compensation, including commissions. . . . . $6,602 $7,657
Warranty, training and installation. . . . . 3,856 3,731
Other. . . . . . . . . . . . . . . . . . . . 7,900 2,363
------- -------
$18,358 $13,751
------- -------
------- -------
(6) LONG-TERM DEBT
In August 1996, the Company, through one of its wholly-owned subsidiaries,
obtained a $12.6 million, ten-year term loan secured by certain of its land and
buildings located in Stafford, Texas which includes the Company's executive
offices, research and development headquarters, and newly-constructed
electronics manufacturing building. The term loan, which the Company has
guaranteed under a Limited Guaranty, bears interest at a fixed rate of 7.875%
per annum and is repayable in equal monthly installments of principal and
interest of $151,439. The total installment payments in each of the next five
years would be $1,817,000 with a balance thereafter of $7,700,000. The Company
leases all of the property from its subsidiary under a master lease, which lease
has been collaterally assigned to the lender as security for the term loan. The
term loan provides for penalties for pre-payment prior to maturity. The term
loan also contains
F-10
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
certain restrictive financial covenants with which the Company was in compliance
at May 31, 1997.
(7) STOCKHOLDERS' EQUITY
(a) CHANGES IN CAPITAL STRUCTURE
On January 9, 1996, the Company effected a two-for-one stock split for
stockholders of record on December 26, 1995. The consolidated financial
statements, including all references to the number of shares of common stock and
all per share information, have been adjusted to reflect the common stock split
on a retroactive basis.
In November 1995, the Company offered and sold 5,750,000 shares of its
common stock in an underwritten public offering. The proceeds to the Company
before deducting the Company's expenses of the offering were approximately
$120,175,000. The proceeds were used to retire indebtedness incurred in
connection with the WGEP Acquisition and for general corporate purposes.
(b) STOCK OPTIONS AND RESTRICTED STOCK
STOCK OPTION PLANS. The Company has adopted a stock option plan for
eligible employees which provides for the granting of options to purchase a
maximum of 7,000,000 shares of common stock. Transactions under the employee
stock option plan are summarized as follows:
EMPLOYEE STOCK OPTION PLAN
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
May 31, 1994 . . . . . . . . . . $2.00-$11.9375 2,471,800 794,100 (3,000)
---------------- ----------- ----------- -----------
Increase in Shares Authorized. . -- -- -- 4,000,000
Granted-139,000. . . . . . . . . 9.375-16.875 139,000 -- (139,000)
Became exercisable . . . . . . . -- -- 645,000 --
Exercised. . . . . . . . . . . . 2.00-3.90625 (695,700) (695,700) --
Canceled/Forfeited . . . . . . . 2.03125-3.50 (1,700) -- 1,700
---------------- ----------- ----------- -----------
May 31, 1995 . . . . . . . . . . 2.00-16.875 1,913,400 743,400 3,859,700
---------------- ----------- ----------- -----------
Granted - 816,750. . . . . . . . 17.8125-39.25 816,750 -- (816,750)
Became exercisable . . . . . . . -- -- 544,600 --
Exercised. . . . . . . . . . . . 2.00-11.9375 (741,300) (741,300) --
Canceled/Forfeited . . . . . . . 3.50-17.8125 (6,000) -- 6,000
---------------- ----------- ----------- -----------
May 31, 1996 . . . . . . . . . . 2.0313-39.25 1,982,850 546,700 3,048,950
---------------- ----------- ----------- -----------
Granted - 1,082,950. . . . . . . 16.875-21.125 1,082,950 -- (1,082,950)
Became exercisable . . . . . . . -- -- 586,800 --
Exercised. . . . . . . . . . . . 2.0313-20.125 (242,675) (242,675) --
Canceled/Forfeited . . . . . . . 3.90625-39.25 (518,600) -- 518,600
---------------- ----------- ----------- -----------
May 31, 1997 . . . . . . . . . . $2.0313-$21.125 2,304,525 890,825 2,484,600
---------------- ----------- ----------- -----------
---------------- ----------- ----------- -----------
</TABLE>
F-11
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
EMPLOYEE STOCK OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Weighted Weighted Average Weighted
Option Price Average Remaining Average
Per Share Outstanding Exercise Price Contract Life Exercisable Exercise Price
- --------------- ----------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.0313 46,650 $2.0313 3.8 years 46,650 $2.0313
3.5-3.9063 467,675 3.8213 5.8 years 467,675 3.8213
6.8438-9.375 50,000 7.350 6.8 years 20,000 6.8438
11.0-11.9375 278,500 11.8702 6.9 years 182,500 11.8861
16.8750-21.125 1,461,700 19.0985 9.0 years 174,000 19.3361
- --------------- ----------- -------------- -------------- ----------- --------------
$2.0313-$21.125 2,304,525 $14.5242 8.0 years 890,825 $8.4780
- --------------- ----------- -------------- -------------- ----------- --------------
- --------------- ----------- -------------- -------------- ----------- --------------
</TABLE>
The Company has also adopted a directors stock option plan which provides
for the granting of options to purchase a maximum of 1,114,000 shares of common
stock by the Company's non-employee directors. Transactions under the directors
stock option plan are summarized as follows:
DIRECTORS STOCK OPTION PLAN
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
--------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
May 31, 1994 . . . . . . . . . . . $2.0313-$5.75 343,000 97,000 360,000
--------------- ----------- ----------- ---------
Increase in shares authorized. . . -- -- -- 270,000
Granted - 210,000. . . . . . . . . 11.8438 210,000 -- (210,000)
Became exercisable . . . . . . . . -- -- 96,000 --
Exercised. . . . . . . . . . . . . 2.0313-11.8438 (72,000) (72,000) --
--------------- ----------- ----------- ---------
May 31, 1995 . . . . . . . . . . . 2.0313-11.8438 481,000 121,000 420,000
--------------- ----------- ----------- ---------
Granted - 210,000. . . . . . . . . 19.1875 210,000 -- (210,000)
Became exercisable . . . . . . . . -- -- 112,500 --
Exercised. . . . . . . . . . . . . 2.0313-11.8438 (202,500) (202,500) --
--------------- ----------- ----------- ---------
May 31, 1996 . . . . . . . . . . . 2.0313-19.1875 488,500 31,000 210,000
--------------- ----------- ----------- ---------
Increase in shares authorized. . . -- -- -- 400,000
Granted - 350,000. . . . . . . . . 29-29.625 350,000 -- (350,000)
Became exercisable . . . . . . . . -- -- 207,500 --
Exercised. . . . . . . . . . . . . -- (68,500) (68,500) --
--------------- ----------- ----------- ---------
May 31, 1997 . . . . . . . . . . . $2.0313-$29.625 770,000 170,000 260,000
--------------- ----------- ----------- ---------
--------------- ----------- ----------- ---------
</TABLE>
DIRECTOR STOCK OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
Weighted Weighted Average Weighted
Option Price Average Remaining Average
Per Share Outstanding Exercise Price Contract Life Exercisable Exercise Price
- --------------- ----------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.2188 15,000 $3.2188 5.3 years 15,000 $3.2188
5.750 45,000 5.750 6.3 years 20,000 5.750
11.8438 157,500 11.8438 7.3 years 67,500 11.8438
19.1875 202,500 19.1875 8.3 years 67,500 19.1875
29.0-29.625 350,000 29.375 9.4 years -- --
- --------------- ----------- -------------- -------------- ----------- --------------
$3.2188-$29.625 770,000 $21.2197 8.4 years 170,000 $13.2817
- --------------- ----------- -------------- -------------- ----------- --------------
- --------------- ----------- -------------- -------------- ----------- --------------
</TABLE>
F-12
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 allows a company to adopt a fair value based
method of accounting for its stock-based compensation plans, or to continue to
follow the intrinsic value method of acounting prescribed by Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to
Employees".
The Company has elected to continue to follow APB Opinion No. 25; however,
if the Company had adopted SFAS 123 the Company's net earnings and earnings per
share for the years ended May 31, 1997 and 1996 would have been reduced as
follows (in thousands, except per share amounts):
1997 1996
As Reported Proforma As Reported Proforma
----------- -------- ----------- --------
Net Earnings . . . . . . . $16,597 $14,323 $38,677 $37,784
Earnings per Share . . . . $ .38 $ .33 $ .94 $ .92
The weighted average fair value of options granted during 1997 and 1996 was
$10.21 and $9.24, respectively. The fair value of each option was determined
using the Black-Scholes option valuation model. The key input variables used in
valuating the options were as follows: average risk-free interest rate based on
5-year Treasury bonds, stock price volatility of 44% and estimated option term
of 5 years. The effects of applying SFAS 123 as calculated above may not be
representative of the effects on reported net earnings for future years.
RESTRICTED STOCK PLAN. The Company adopted a restricted stock plan which
provides for the award of up to 610,000 shares of common stock to key officers
and employees. Ownership of the common stock will vest over a period of four
years. The restriction is removed from 50% of the shares after two years, 25% in
the third year and 25% in the fourth year. Shares 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
has all the rights of a stockholder, including the right to receive dividends
and the right to vote such shares. As of May 31, 1997, the Company has 30,000
shares available for grant due to the cancellation of unvested shares granted to
an employee.
The market value of shares of common stock granted under the restricted
stock plan was recorded as unamortized restricted stock compensation and shown
as a separate component of stockholders' equity. The restricted stock
compensation is amortized over the four-year vesting period.
F-13
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(8) EXPORT SALES AND MAJOR CUSTOMERS:
A summary of net sales and other revenues from foreign customers by
geographic area follows (in thousands):
1997 1996 1995
------- ------- -------
Europe . . . . . . . . . . . . . . . . . $45,191 $26,718 $15,871
Canada and Mexico. . . . . . . . . . . . 20,688 25,324 28,075
South America. . . . . . . . . . . . . . 17,619 6,151 10,792
Former Soviet Union. . . . . . . . . . . 16,590 17,994 26,066
People's Republic of China . . . . . . . 10,928 16,854 2,479
Middle East. . . . . . . . . . . . . . . 9,120 20,192 4,665
Africa . . . . . . . . . . . . . . . . . 608 8,460 2,222
Pakistan and India . . . . . . . . . . . 195 2,684 959
Other. . . . . . . . . . . . . . . . . . 260 427 835
-------- -------- -------
$121,199 $124,804 $91,964
-------- -------- -------
-------- -------- -------
Net sales and other revenues from individual customers representing 10% or
more of net sales and other revenues were as follows:
CUSTOMER 1997 1996 1995
-------- ---- ---- ----
A. . . . . . . . . . . . . . . . . . . . 39% 32% 15%
B. . . . . . . . . . . . . . . . . . . . 6% 10% 11%
(9) INCOME TAXES
Components of income taxes follow (in thousands):
1997 1996 1995
------ ------- -------
Current:
Federal . . . . . . . . . . . . . . . $5,022 $14,615 $10,517
Foreign . . . . . . . . . . . . . . . 3,686 3,986 1,007
State and local . . . . . . . . . . . 1,027 726 435
Deferred-Federal . . . . . . . . . . . . (2,035) (1,627) (624)
------ ------- -------
$7,700 $17,700 $11,335
------ ------- -------
------ ------- -------
A reconciliation of the expected income tax expense on earnings using the
statutory Federal income tax rate of 35% for the years ended 1997, 1996 and
1995, to the income tax expense reported herein is as follows (in thousands):
1997 1996 1995
------ ------- -------
Expected income tax expense: . . . . . . $8,504 $19,732 $12,542
Tax benefit from use of foreign sales
corporation . . . . . . . . . . . . . (1,330) (2,032) (982)
Foreign tax credit . . . . . . . . . . . (142) (305) (206)
Foreign taxes. . . . . . . . . . . . . . 898 118 (6)
State and local taxes. . . . . . . . . . 667 472 283
Other. . . . . . . . . . . . . . . . . . (897) (285) (296)
------ ------- -------
$7,700 $17,700 $11,335
------ ------- -------
------ ------- -------
F-14
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The tax effects of the cumulative temporary differences resulting in the
net deferred tax asset follow (in thousands):
MAY 31,
------------------
1997 1996
------- -------
Accrued expenses . . . . . . . . . . . . . . . . . $ (1,406) $ (1,351)
Allowance accounts . . . . . . . . . . . . . . . . (3,417) (1,053)
Unamortized restricted stock compensation. . . . . (732) (1,711)
Uniform capitalization . . . . . . . . . . . . . . (817) (409)
Other. . . . . . . . . . . . . . . . . . . . . . . (1,219) --
------- -------
Total deferred tax assets . . . . . . . . . . . (7,591) (4,524)
------- -------
Valuation allowance . . . . . . . . . . . . . . -- --
------- -------
Total deferred tax asset, net . . . . . . . . . (7,591) (4,524)
------- -------
Basis in identified intangibles. . . . . . . . . . 2,102 2,075
Basis in property, plant and equipment . . . . . . 2,392 150
Other. . . . . . . . . . . . . . . . . . . . . . . -- 1,237
------- -------
Total deferred tax liabilities . . . . . . . . . . 4,494 3,462
------- -------
Total deferred tax asset, net . . . . . . . . . $(3,097) $(1,062)
------- -------
------- -------
Management believes that total deferred tax assets will more likely than
not be fully realized based on the Company's historical earnings and future
expectations of adjusted taxable income as well as reversing gross deferred tax
liabilities
(10) LEASES
The Company is a party to several leases as described below:
AS LESSOR: The Company leases seismic equipment to customers under
operating leases with noncancellable terms of less than one year. Rental income
relating to the operating leases was: $8,707,000 in 1997; $7,386,000 in 1996;
and $4,263,000 in 1995. The Company also owns a building with tenants. The
rental income relating to those leases was: $344,000 in 1997; $257,000 in 1996;
and $194,000 in 1995.
AS LESSEE: The Company had rental expense relating to operating leases
for a secondary facility and various equipment of: $1,575,000 in 1997;
$1,801,000 in 1996; and $680,000 in 1995. At May 31, 1997, none of the operating
leases had noncancellable lease terms in excess of one year.
(11) RETIREMENT PLANS
The Company has a 401(k) retirement savings plan which covers
substantially all employees. Employees may voluntarily contribute up to 16% of
their compensation, as defined, to the plan and the Company may contribute
additional amounts at its sole discretion. The Company's contributions to the
plan were: $2,007,000 in 1997; $1,933,000 in 1996; and $980,000 in 1995.
The Company has adopted a non-qualified, unfunded supplemental executive
retirement plan (SERP Plan). The SERP Plan provides for certain compensation to
become payable on the participant's death, retirement or total disability as set
forth in the plan. The SERP Plan is accounted for under Financial Accounting
Standards No. 87 "Employer's Accounting for Pensions". The fiscal 1997
consolidated financial statements include pension expense of $359,000, accrued
pension costs of $1,887,000, an intangible asset for unrecognized prior service
cost of $864,000 and equity increase of $375,000.
F-15
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company has adopted a non-qualified, unfunded outside directors
retirement plan (Directors Plan). The Directors Plan provides for certain
compensation to become payable on the participants death, retirement or total
disability as set forth in the plan. The Directors Plan is accounted for under
Financial Accounting Standards No. 87 "Employer's Accounting for Pensions." The
fiscal 1997 consolidated financial statements include pension expense of
$183,000, accrued pension costs of $483,000 and an equity reduction of $1,000.
(12) CREDIT RISK
At May 31, 1997 and 1996, the Company had guaranteed approximately
$8,198,000 and $30,307,000, respectively, of trade notes receivable sold with
recourse (See Note 3) and loans from unaffiliated parties to purchasers of the
Company's seismic equipment. All loans guaranteed are collateralized by the
seismic equipment. Due to the inherent uncertainties of the guaranty agreements
the Company can not estimate the fair value of the guaranties as of May 31,
1997.
(13) SELECTED QUARTERLY INFORMATION - (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
1997 AUG. 31 NOV. 30 FEB. 28 MAY 31
- ---- ------- ------- ------- ------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales and other revenues . . $73,004 $67,044 $64,773 $77,024
Gross profit . . . . . . . . . . 28,634 22,212 23,886 23,675
Earnings from operations . . . . 12,485 6,223 8,687 (5,980)
Interest expense . . . . . . . . -- (172) (296) (325)
Other income . . . . . . . . . . 1,723 1,004 685 263
Income taxes . . . . . . . . . . 4,547 2,258 2,904 (2,009)
Net earnings (loss). . . . . . . $9,661 $4,797 $6,172 $(4,033)
------ ------ ------ -------
------ ------ ------ -------
Earnings per share . . . . . . . $0.22 $0.11 $0.14 $(0.09)
------ ------ ------ -------
------ ------ ------ -------
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
1996 AUG. 31 NOV. 30 FEB. 28 MAY 31
- ---- ------- ------- ------- ------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales and other revenues . . $54,758 $70,530 $77,074 $75,921
Gross profit . . . . . . . . . . 21,905 28,470 31,671 32,426
Earnings from operations . . . . 9,404 13,642 16,669 16,086
Interest expense . . . . . . . . (868) (1,647) -- --
Other income . . . . . . . . . . 880 (23) 724 1,510
Income taxes . . . . . . . . . . 3,013 3,831 5,566 5,290
------ ------ ------- -------
Net earnings . . . . . . . . . . $6,403 $8,141 $11,827 $12,306
------ ------ ------- -------
------ ------ ------- -------
Earnings per share . . . . . . . $0.17 $0.21 $0.27 $0.28
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
F-16
<PAGE>
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(14) WGEP ACQUISITION
On June 30, 1995, the Company completed the WGEP Acquisition for
approximately $121.3 million. The transaction was accounted for by the purchase
method of accounting. Accordingly, acquired assets and assumed liabilities were
recorded at their estimated fair values, which resulted in goodwill of
approximately $62.9 million that will be amortized over 20 years. A summary of
the final purchase price allocation is as follows (in thousands):
Cash . . . . . . . . . . . . . . . . . . $ 1,000
Trade accounts receivable. . . . . . . . 4,500
Inventories. . . . . . . . . . . . . . . 35,600
Prepaid expenses . . . . . . . . . . . . 300
Property, plant and equipment. . . . . . 28,700
Other assets . . . . . . . . . . . . . . 1,000
Goodwill . . . . . . . . . . . . . . . . 62,900
Accounts payable . . . . . . . . . . . . (1,400)
Accrued expenses . . . . . . . . . . . . (9,500)
Income taxes payable . . . . . . . . . . (1,800)
--------
Purchase price . . . . . . . . . . . . . $121,300
--------
--------
(15) NON-RECURRING ITEMS
Fiscal 1997 non-recurring items were $15.6 million, consisting of losses
related to the insolvency of a customer, a write-down of capitalized exploration
costs and personnel expenses incurred in organizational changes. There were no
non-recurring item charges in fiscal 1996.
(16) COMMITMENTS AND CONTINGENCIES
The Company has a working capital revolving line of credit up to $50
million. Included under this maximum $50 million facility are subfacilities for
(i) letters of credit of up to $15 million for the benefit of the Company and
(ii) purchases from the Company of conditional sales obligations of the
Company's customers and making direct loans to the Company's customers of up to
$25 million (which purchases or loans by the lender(s) will require guaranties
from the Company). As of May 31, 1997, no amounts of indebtedness were
outstanding under the credit facility and $46.7 million was available for
borrowings under the revolving facility.
F-17
<PAGE>
SCHEDULE II
INPUT/OUTPUT, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ----------------- ------------ ------------ ------------ ------------ -------------
Balance at Charged to Charged to
Year Ended Beginning Costs and Other Balance at
May 31, 1995 of Year Expenses Accounts Deductions End of Year
- ----------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $26 $100 $-- $26 $100
Allowance for
doubtful notes
receivable 80 45 -- -- 125
Warranty, training
and installation 1,086 2,828 -- 2,143 1,771
<CAPTION>
- ----------------- ------------ ------------ ------------ ------------ -------------
Balance at Charged to Charged to
Year Ended Beginning Costs and Other Balance at
May 31, 1996 of Year Expenses Accounts Deductions End of Year
- ----------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $100 $508 $-- $138 $470
Allowance for
doubtful notes
receivable 125 603 -- -- 728
Warranty, training
and installation 1,771 5,378 -- 3,418 3,731
<CAPTION>
- ----------------- ------------ ------------ ------------ ------------ -------------
Balance at Charged to Charged to
Year Ended Beginning Costs and Other Balance at
May 31, 1997 of Year Expenses Accounts Deductions End of Year
- ----------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $470 $1,508 $-- $238 $1,740
Allowance for
doubtful notes
receivable 728 7,350 -- 1,000 7,078
Warranty, training
and installation 3,731 4,469 -- 4,344 3,856
</TABLE>
F-18
<PAGE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
INPUT/OUTPUT, INC.
Input/Output, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY: That the following amendment of the Restated
Certificate of Incorporation of the Corporation was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware:
SECTION 1 of Article FOURTH of the Corporation's Restated Certificate of
Incorporation be amended so that, as amended, SECTION 1 of Article FOURTH
shall be and read as follows:
"SECTION 1. CAPITALIZATION. The Corporation is authorized
to issue one hundred five million (105,000,000) shares of capital
stock. One hundred million (100,000,000) of the authorized
shares shall be common stock, one cent ($0.01) par value each
("Common Stock"), and five million (5,000,000) of the authorized
shares shall be preferred stock, one cent ($0.01) par value each
("Preferred Stock").
Each holder of shares of capital stock of the Corporation
shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock of
the Corporation held by the stockholder, unless otherwise
specifically provided pursuant to this Restated Certificate of
Incorporation."
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Robert P. Brindley, its duly authorized officer, on October 10, 1996.
INPUT/OUTPUT, INC.
By: /s/ ROBERT. P. BRINDLEY
-----------------------------------
Robert P. Brindley
Senior Vice President, Chief
Financial Officer and Secretary
<PAGE>
INPUT/OUTPUT, INC.
AMENDED AND RESTATED 1990 STOCK OPTION PLAN
(Amended as of January 17, 1997)
1. PURPOSE.
The 1990 Stock Option Plan (the "Plan") is intended to provide a means of
attracting and retaining in the service of Input/Output, Inc. (the "Company")
and its Subsidiaries certain key employees of ability and potential, to
encourage such persons to exert their best efforts on behalf of the Company and
to align their interests more closely with those of the stockholders. It is
intended that these purposes will be effected through the granting of options,
which may be in the form of stock options intended to qualify ("Incentive Stock
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") or stock options which are not intended to so qualify ("Non-
Qualified Stock Options")
2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of at least two members.
The Committee shall have full power and authority to select the key
employees to be granted options hereunder at such time or times, in such
amounts, and upon such terms and conditions as the Committee may prescribe. The
Committee shall have full power and authority to interpret and construe the Plan
and to establish and amend general rules and regulations for the administration
of the Plan. The Committee's interpretation and construction of the Plan shall
be conclusive and binding upon all persons. Administrative costs in connection
with the Plan shall be paid by the Company. The Committee may delegate to
officers of the Company or any affiliate of the Company the authority, subject
to such terms as the Committee shall determine, to perform specified functions
under the Plan; provided however, that any function relating to an optionee then
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or relating to a "covered employee" as that term is defined under
Section 162(m) of the Code, shall be performed solely by the Committee in order
to ensure compliance with applicable requirements of Rule 16b-3 promulgated
under the 1934 Act and Section 162(m) of the Code.
No current or previous member of the Board or the Committee, nor any
officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
such members of the Board or the Committee and each and any officer or employee
of the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such
individuals may be entitled under the Company's Certificate of Incorporation or
Bylaws, as a matter of law, or otherwise.
Each option shall be evidenced by a written stock option agreement. Unless
otherwise provided in the resolution approving such grant, the date on which the
Committee approves the granting of an option shall be considered the date on
which such option is granted. The Committee shall prescribe the terms of each
option agreement, which terms shall not be inconsistent with the terms of this
Plan.
3. ELIGIBILITY.
<PAGE>
The individuals who shall be eligible to participate in the Plan shall be
such key employees (including officers and directors who are employees) of the
Company or of any corporation or entity (hereinafter called a "Subsidiary") in
which the Company has a proprietary interest by reason of stock ownership or
otherwise (including any corporation or entity in which the Company acquires a
proprietary interest after the adoption of this Plan), but only if the Company
owns, directly or indirectly, stock or equity interests possessing not less than
50% of the total combined voting power of all classes of stock or equity
interests in such corporation. Such key employees shall be executive,
administrative, professional or technical personnel of the Company or of any
Subsidiary who have principal or shared responsibility for the management,
direction and financial success of the Company. More than one (1) option may be
granted from time to time to any employee. The holders of options shall not be,
or have any of the rights or privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of any part of an option
unless and until certificates representing such shares shall have been issued by
the Company to such holders.
4. STOCKHOLDER APPROVAL AND TERM.
This Plan shall become effective as of the date approved by the
stockholders of the Company. Subject to its termination pursuant to Section 12,
the Plan shall remain in effect until all options granted hereunder shall have
been exercised, earned, or distributed, or shall have expired or have been
canceled; PROVIDED however, that no options hereunder shall be granted after
September 1, 2000.
5. SHARES SUBJECT TO THE PLAN.
Subject to adjustment pursuant to Section 9, the total number of shares of
common stock of the Company, $.01 par value ("Common Stock"), with respect to
which stock options may be granted hereunder shall not exceed 7,000,000. In the
event that shares of Common Stock are delivered to the Company in full or
partial payment of the exercise price for the exercise of a stock option granted
under the Plan in accordance with Section 6 of this Plan, the number of shares
available for future grants of options under the Plan shall be reduced only by
the net number of shares issued upon the exercise of the option.
The aggregate number of shares of Common Stock that may be represented by
grants of stock options made to any optionee during any consecutive four-year
period may not exceed in any event 750,000 shares. Should any option granted
under this Plan expire or terminate unexercised, in whole or in part, the shares
of Common Stock formerly subject to such option shall again be available for
grant under the Plan. Shares granted or issued hereunder may be authorized but
unissued Common Stock or shares reacquired by the Company and held in its
treasury, as may from time to time be determined by the Committee.
6. STOCK OPTIONS.
All stock options granted hereunder shall be evidenced by written stock
option agreements setting forth the following terms and conditions:
(a) NUMBER OF SHARES. The option agreement shall state the total
number of shares to which it pertains.
(b) EXERCISE PRICE. The exercise price shall be not less than the
fair market value, as defined in Section 11(a) hereof, for each share of
Common Stock on the date of grant of the option. If an Incentive Stock
Option is granted to an employee and if the employee owns or is deemed to
own (by reason of the attribution rules applicable under Section 424(d) of
the Code) more than 10% of the combined voting power of all classes of
stock of the Company (or of any parent corporation
-2-
<PAGE>
or Subsidiary of the Company), the exercise price for each share (to the
extent required by the Code at the time of grant) shall not be less than
110% of the fair market value of a share of Common Stock on the date such
Incentive Stock Option is granted.
(c) EXERCISE OF STOCK OPTION. The Committee, in its sole discretion,
shall prescribe in each option agreement the time or times at which a stock
option shall be exercisable, in full or in part; PROVIDED that the
Committee, in its sole discretion, may accelerate the time or times at
which stock options shall became exercisable. In no event may an option be
exercised or shares be issued pursuant to an option if any necessary
listing of the shares on a securities exchange or any registration or
qualification required under applicable state or federal securities laws
has not been accomplished. Unless the Committee directs otherwise, an
option granted hereunder may be exercised no sooner than as follows:
EXERCISE DATE NUMBER OF SHARES
------------- ----------------
1. One (1) year from the Up to 25% of the total optioned
date of grant shares under the option
2. Two (2) years from the Up to an additional 25% of the
date of grant total optioned shares
3. Three (3) years from the Up to an additional 25% of the
date of grant total optioned shares
4. Four (4) years from the Up to an additional 25% of the
date of grant total optioned shares
(d) EXERCISE PROCEDURES. A stock option shall be exercised by
delivery of written notice of exercise to the Secretary of the Company and
payment of the full exercise price of the shares for which the option is
being exercised. The exercise price may be paid:
(1) in cash or by check payable to the order of the Company, or
(2) through the delivery of Common Stock owned by the optionee,
having an aggregate fair market value on the date of
exercise equal to the exercise price, or
(3) by any combination of (1) and (2) above.
The Committee may impose such limitations and prohibitions on the use of
shares of Common Stock to exercise an option as it deems appropriate.
Additionally, shares covered by a stock option may be purchased upon
exercise, in whole or in part, in accordance with the applicable stock
option agreement, by authorizing a third party to sell the shares (or a
sufficient portion thereof) acquired upon exercise of a stock option, and
assigning the delivery to the Company of a sufficient amount of the sale
proceeds to pay for all the shares acquired through such exercise and any
tax withholding obligations resulting from such exercise.
(e) PERIOD OF OPTIONS. The Committee shall prescribe in each stock
option agreement the period during which a stock option may be exercised;
PROVIDED HOWEVER, that no stock option shall be granted for a period of
longer than ten years. However, if an employee owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of stock of the
Company (or any parent corporation or Subsidiary of the Company) and an
Incentive Stock Option is granted to such employee, the term of such
Incentive Stock Option (to the extent required by the Code at the time of
grant) shall be no more than five years from the date of grant.
-3-
<PAGE>
(f) INCENTIVE STOCK OPTIONS. To the extent required by the Code for
incentive stock options, the exercise of Incentive Stock Options granted
under the Plan shall be subject to the $100,000 calendar year limit as set
forth in Section 422(d) of the Code; to the extent that any grant exceeds
such $100,000 calendar year limit, the portion of such granted Stock Option
shall be deemed a Non-Qualified Stock Option.
(g) GRANTS OF NON-QUALIFIED OPTIONS TO NEW FULL-TIME EMPLOYEES.
Effective December 19, 1996 and thereafter, the Committee shall be
authorized, at any time and from time, to adopt a policy or policies to
grant non-qualified stock options under the Plan to individuals on and
effective as of the date any such individual becomes a full-time employee
of the Company or a Subsidiary, to purchase a number of shares to be from
time to time designated by the Committee, each such stock option to have an
exercise price equal to the fair market value for each share of Common
Stock as of the date of grant in accordance with sub-Section (b) of this
Section 6, to have a term of ten years from the date of grant and to vest
and become exercisable in accordance with the terms of sub-Section (c) of
Section 6. Notwithstanding the foregoing, nothing contained in this sub-
Section (g) shall confer on any person any contractual or similar rights to
any such grant, or be evidence of any agreement, contract or understanding,
express or implied, that any particular person will be employed by the
Company or any Subsidiary or have rights to any non-qualified stock option.
If Common Stock acquired upon exercise of an Incentive Stock Option is
disposed of by an optionee prior to the expiration of either two years from
the date of grant of such option or one year from the transfer of shares to
the optionee pursuant to the exercise of such option or in any other
disqualifying disposition within the meaning of Section 422 of the Code,
then such optionee shall promptly notify the Company in writing of the date
and terms of such disposition. A disqualifying disposition by an optionee
shall not affect the status of any other option granted under the Plan as
an Incentive Stock Option within the meaning of Section 422 of the Code.
Notwithstanding the provisions of Section 7, the option period of an
optionee's Incentive Stock Options shall terminate no later than ninety
(90) days after termination of such optionee's employment with the Company
and its Subsidiaries; PROVIDED that if such employment terminates by reason
of the death or total and permanent disability (as defined in Section 22(e)
of the Code) of the optionee, then the option period of such optionee's
Incentive Stock Options shall terminate no later than one hundred eighty
(180) days after such termination by reason of death or disability.
7. TERM OF EMPLOYMENT.
In the event an optionee shall cease to be employed by the Company, the
unexercised portions of such optionee's options which are eligible to be
exercised in accordance with this Plan as of the date of such termination of
employment may be exercised within one hundred eighty (180) days after such date
of termination; PROVIDED HOWEVER, that the option shall be exercisable as
follows in the event of death, disability or retirement:
(a) DEATH. In the event of death while employed, all unmatured
installments of the stock option outstanding shall thereupon automatically
be accelerated and become fully vested and exercisable in full, and the
stock option may be exercised, for a period of twelve (12) months after the
optionee's death or until expiration of the option term (if sooner), by the
optionee's estate or personal representative, or by the person who acquired
the right to exercise the option by bequest or inheritance or by reason of
the optionee's death; and
-4-
<PAGE>
(b) RETIREMENT OR DISABILITY. In the event of termination of
employment as the result of retirement or disability, all unmatured
installments of the stock option outstanding shall thereupon automatically
be accelerated and become fully vested and exercisable in full, and the
stock option may be exercised in full for a period of twelve (12) months
after such termination or until expiration of the option term (if sooner).
For the purposes of this Plan, the "retirement" of an optionee shall be
deemed to be retirement after qualification therefor pursuant to a
retirement plan or a retirement policy of the Company. Also, for the
purposes of this Plan, the "disability" of an optionee shall mean the total
and permanent disability (as that term is described in Section 22(e) of the
Code) of such optionee.
8. CHANGE OF CONTROL.
In the event of a Change of Control affecting the Company, all unmatured
installments of outstanding options shall automatically be accelerated and
become fully vested and exercisable in full, without regard to the provisions of
subsection 6(c) hereof. For the purposes of this Plan, a "Change in Control"
shall mean the occurrence of any of the following events: (i) there shall be
consummated any merger or consolidation pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, or any sale, lease, exchange or other disposition (excluding
disposition by way of mortgage, pledge or hypothecation), in one transaction or
a series of related transactions, of all or substantially all of the assets of
the Company (a "Business Combination"), in each case unless, following such
Business Combination, the holders of the outstanding Common Stock immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 51% of the outstanding common stock or equivalent equity interests of
the corporation or entity resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the outstanding
Common Stock, (ii) the stockholders of the Company approve any plan or proposal
for the complete liquidation or dissolution of the Company, (iii) any "person"
(as such term is defined in Section 3(a)(9) or Section 13(d)(3) under the
Securities Exchange Act of 1934 (the "1934 Act") or any "group" (as such term is
used in Rule 13d-5 promulgated under the 1934 Act), other than the Company, any
successor of the Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary (including such plan's trustee), becomes a beneficial
owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or
indirectly, of securities of the Company representing 40% or more of the
Company's then outstanding securities having the right to vote in the election
of directors, or (iv) during any period of two consecutive years, individuals
who, at the beginning of such period constituted the entire Board, cease for any
reason (other than death) to constitute a majority of the directors, unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period.
9. ADJUSTMENTS.
(a) If at any time while the Plan is in effect or unexercised options
are outstanding, there shall be any increase or decrease in the number of
issued and outstanding shares of Common Stock through the declaration of a
stock dividend or through any recapitalization resulting in a stock split-
up, combination, or exchange of shares of Common Stock, then and in such
event:
(1) An appropriate adjustment shall be made in the maximum
number of shares of Common Stock then subject to being
awarded under the Plan to the end
-5-
<PAGE>
that the same proportion of the Company's issued and
outstanding shares of Common Stock shall continue to be
subject to being so awarded; and
(2) Appropriate adjustments shall be made in the number of
shares of Common Stock and the exercise price per share
thereof then subject to purchase pursuant to each option
previously granted, to the end that the same proportion of
the Company's issued and outstanding shares of Common Stock
in each such instance shall remain subject to purchase at
the same aggregate exercise price.
(b) Except as otherwise expressly provided herein, the issuance by
the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection
with direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number of or exercise
price of shares of Common Stock then subject to outstanding options granted
under the Plan.
Without limiting the generality of the foregoing, the presence of
outstanding options granted under the Plan shall not affect in any manner
the right or power of the Company to make, authorize or consummate (1) any
or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (2) any merger or
consolidation of the Company; (3) any issuance by the Company of debt
securities or preferred or preference stock which would rank senior to the
shares of Common Stock subject to outstanding options; (4) the dissolution
or liquidation of the Company; (5) any sale, transfer or assignment of all
or any part of the assets or business of the Company; or (6) any other
corporate act or proceeding, whether of a similar character or otherwise.
(c) Subject to any required action by the stockholders, if the
Company shall be the surviving or resulting corporation in any
reorganization, merger or consolidation, any outstanding stock option
granted hereunder shall pertain to and apply to the securities or rights
(including cash, property or assets) to which a holder of the number of
shares of Common Stock subject to the stock option would have been
entitled. Notwithstanding any other provision of the Plan, and without
affecting the number of shares reserved or available hereunder, the
Committee shall authorize the issuance, continuation or assumption of
outstanding stock options or provide for other equitable adjustments after
changes in the shares of Common Stock resulting from any merger,
consolidation, sale of assets, acquisition of property or stock,
recapitalization, reorganization, or similar occurrence in which the
Company is the continuing or surviving corporation, upon such terms and
conditions as it may deem necessary in order to preserve optionees' rights
under the Plan.
(d) In the event of any reorganization, merger or consolidation
pursuant to which the Company is not the surviving or resulting
corporation, or of any proposed sale of all or substantially all of the
assets of the Company, there shall be substituted for each share of Common
Stock subject to the unexercised portions of such outstanding stock option
that number of shares of each class of stock or other securities or that
amount of cash, property or assets of the surviving or consolidated company
which were distributed or distributable to the stockholders of the Company
in respect of each share of Common Stock held by them, such outstanding
stock options to be thereafter exercisable for such stock, securities, cash
or property in accordance with their terms.
-6-
<PAGE>
(e) Upon the occurrence of each event requiring an adjustment of the
exercise price and/or the number of shares purchasable pursuant to stock
options granted pursuant to the terms of this Plan, the Company shall mail
forthwith to each optionee a copy of its computation of such adjustment
which shall be conclusive and shall be binding upon each such optionee,
except as to any optionee who contests such computation by written notice
to the Company within thirty (30) days after receipt thereof by such
optionee.
10. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS.
Stock options may be granted under the Plan from time to time in
substitution for such options held by employees of a corporation or other entity
who become or are about to become key employees of the Company or a Subsidiary
as the result of a merger or consolidation of the employing corporation or
entity with the Company or a Subsidiary or the acquisition by the Company or a
Subsidiary of equity securities of the employing corporation or entity as the
result of which it becomes a Subsidiary. The terms and conditions of the
substitute options so granted may vary from the terms and conditions set forth
in Section 6 of this Plan to such extent as the Board or the Committee, as the
case may be, at the time of grant deem appropriate to conform, in whole or in
part, to the provisions of the options in substitution for which they are
granted.
11. MISCELLANEOUS PROVISIONS.
The following provisions shall apply hereunder:
(a) FAIR MARKET VALUE. For the purposes of this Plan, "fair market
value" of the Company's shares of Common Stock means (i) the closing sales
price per share on the principal securities exchange on which the Common
Stock is traded (or if there is no sale on the relevant date, then on the
last previous day on which a sale was reported), or (ii) the mean between
the closing or average (as the case may be) bid and asked prices per share
of Common Stock on the over-the-counter market, whichever is applicable.
(b) NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan or in any
stock option agreement confers upon any employee the right to continue in
the employ of the Company or interferes with or restricts in any way the
right of the Company to discharge any employee at any time.
(c) STOCKHOLDERS' RIGHTS. The holder of a stock option shall have
none of the rights or privileges of a stockholder except with respect to
shares which have been issued.
(d) TAX REQUIREMENTS. The employee receiving shares issued upon
exercise of any stock option shall be required to pay the Company the
amount of any taxes which the Company is required to withhold with respect
to such shares of Common Stock. Such payment shall be required to be made
prior to or concurrent with the delivery of any certificate representing
such shares of Common Stock. Such payment may be made in cash, by check,
or through the delivery of shares of Common Stock which the employee owns
or is entitled to receive after payment of the exercise price, which shares
have an aggregate fair market value equal to the required withholding
payment, or any combination thereof. With respect to an Incentive Stock
Option, in the event of a subsequent disqualifying disposition of Common
Stock within the meaning of Section 422 of the Code, such payment of taxes
may be made in cash, by check or through the delivery of shares of Common
Stock which the employee then owns, which shares have an aggregate fair
market value equal to the required withholding payment, or any combination
thereof.
-7-
<PAGE>
(e) GOVERNMENT REGULATIONS. Notwithstanding any of the provisions
hereof, or of any written agreements evidencing options granted hereunder,
the obligation of the Company to sell and deliver shares shall be subject
to all applicable laws, rules and regulations and to such approvals by any
government agencies or national securities exchanges as may be required.
The employee shall agree not to exercise any stock option, and the Company
shall not be obligated to issue any shares, if the exercise thereof or if
the issuance of shares shall constitute a violation by the employee or the
Company of any provision of any law or regulation of any governmental
authority.
(f) BENEFIT PLAN COMPUTATIONS. Any benefits received or amounts paid
to an employee with respect to any option under the Plan shall not affect
the level of benefits provided to or received by any employee, or the
employee's estate or beneficiary, pursuant to any employee benefit plan of
the Company.
(g) LIMITED ASSIGNABILITY OF OPTION. A stock option granted to an
optionee may not be transferred or assigned other than (i) by will or the
laws of descent and distribution or (ii) pursuant to a qualified domestic
relations order (as defined in Section 401(a)(13) of the Internal Revenue
Code of 1986, as amended (the "Code") or Section 206(d)(3) of the Employee
Retirement Income Security Act of 1974, as amended). In addition, the
Committee may, in its discretion, authorize all or a portion of the stock
options granted to an optionee to be on terms which permit transfer by such
optionee to (A) the spouse, ex-spouse, children, step children or
grandchildren of the optionee ("Immediate Family Members"), (B) a trust or
trusts for the exclusive benefit of one or more Immediate Family Members,
(C) a partnership or limited liability company in which one or more
Immediate Family Members are the only partners or members, (D) an entity
exempt from federal income tax pursuant to Section 501(c)(3) of the Code or
any successor provision and/or (E) a split interest trust or pooled income
fund described in Section 2522(c)(2) of the Code or any successor
provision, so long as (x) the stock option agreement evidencing any option
granted pursuant to this Plan is approved by the Committee and expressly
provides for transferability in a manner consistent with this Section
11(g), and (y) subsequent transfers of such option shall be prohibited
except for transfers by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order (as described above).
Furthermore, the Committee may, in its discretion, authorize all or a
portion of the stock options granted to an optionee to be on terms which
permit transfer by such optionee to other entities or persons to whom the
Committee may in its discretion permit transfers of the option.
Notwithstanding any provision contained herein to the contrary, in the case
of an Incentive Stock Option, such transfer or assignment may occur only to
the extent it will not result in disqualifying such option as an incentive
stock option under Section 422 of the Code, or any successor provision.
Following any such transfer permitted by the terms hereof, such option
shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes of
Sections 1, 2, 5, 6, 8, 9, 11 and 12 of this Plan any reference to
"optionee" shall be deemed to include the transferee. The provisions of
Section 7 of this Plan concerning events of termination of service shall
continue to be applied with respect to the original optionee, following
which event(s) any such affected stock options shall be exercisable by the
transferee only to the extent and for the periods specified therein or in
the stock option agreement. The Committee and the Company shall have no
obligation to inform any transferee of a stock option of any expiration,
termination, lapse or acceleration of such stock option. Subject to the
foregoing, during an optionee's lifetime, stock options granted to an
optionee may be exercised only by the optionee or, provided the particular
stock option agreement so provides, by the optionee's guardian or legal
representative. The designation by an optionee of a beneficiary will not
constitute a transfer of the stock option.
-8-
<PAGE>
(h) EMPLOYMENT. Employment by the Company shall be deemed to include
employment by a Subsidiary. The Committee shall have the authority to
determine whether or not an optionee has terminated his employment with the
Company.
(i) INVESTMENT INTENT. The Company may require that there be
presented to and filed with it by any optionee(s) under the Plan, such
evidence as it may deem necessary to establish that the options or the
shares of Common Stock to be purchased or transferred are being acquired
for investment and not with a view to their distribution.
(j) INTERPRETATION. Where the context requires, words in the
masculine gender shall include the feminine and neuter genders, the plural
form of a word shall include the singular form, and the singular form of a
word shall include the plural form. All references in this Plan to
sections of the Code or sections of ERISA shall be deemed to include any
successor provisions to such sections as contained in any laws or
regulations adopted subsequent to August 1, 1996.
12. SUSPENSION, TERMINATION OR AMENDMENT OF THE PLAN.
Subject to the limitations set forth in this Section 12, the Board may at
any time and from time to time, without the consent of the optionees, alter,
amend, revise, suspend, or discontinue the Plan in whole or in part, except that
the Board shall not amend this Plan in any manner which would have the effect of
preventing Incentive Stock Options granted under this Plan from being "incentive
stock options" as defined in Section 422 of the Code, although it is recognized
that stock options are not prevented from being "incentive stock options" at
grant solely because the requirements of Section 422 of the Code are not met
upon exercise of the stock option or sale of the Common Stock acquired upon
exercise, or as a result of any cancellation of the stock option.
In addition, the Board shall have the power to amend the Plan in any manner
advisable in order for stock options granted under the Plan to qualify for the
exemption provided by Rule 16b-3 (or any successor rule relating to exemption
from Section 16(b) of the 1934 Act) or to qualify as "performance-based"
compensation under Section 162(m) of the Code (including amendments as a result
of changes to Rule 16b-3 or Section 162(m) or the regulations promulgated
thereunder to permit greater flexibility with respect to stock options granted
under the Plan), and any such amendment shall, to the extent deemed necessary or
advisable by the Committee, be applicable to any outstanding stock options
theretofore granted under the Plan, notwithstanding any contrary provisions
contained in any stock option agreement. In the event of any such amendment to
the Plan, the holder of any stock option outstanding under the Plan shall, upon
request of the Committee and as a condition to the exercisability thereof,
execute a conforming amendment in the form prescribed by the Committee to any
stock option agreement relating thereto within such reasonable time as the
Committee shall specify in such request. Notwithstanding anything contained in
this Plan to the contrary, unless required by law, no action contemplated or
permitted by this Section 12 shall adversely affect any rights of optionees or
obligations of the Company to optionees with respect to any stock options
theretofore granted under the Plan without the consent of the affected optionee.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
pursuant to prior action taken by the Board.
INPUT/OUTPUT, INC.
By: /s/ GARY D. OWENS
-----------------------------------
Name: GARY D. OWENS
Title: President
-9-
<PAGE>
INPUT/OUTPUT, INC.
1996 MANAGEMENT INCENTIVE PROGRAM
PURPOSE
The purpose of the Input/Output, Inc. 1996 Management Incentive Program is
to advance the interests of Input/Output, Inc. and its stockholders by providing
certain key employees with annual incentive compensation which is tied to the
achievement of preestablished and objective performance goals. The Plan is
intended to provide Participants with annual incentive compensation which is not
subject to the deduction limitation rules prescribed under Section 162(m) of the
Code, and should be construed to the extent possible as providing for
remuneration which is "performance-based compensation" within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder.
ARTICLE I
DEFINITIONS
For the purposes of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
"BASE SALARY" means the actual base salary of a Participant (exclusive
of Bonuses and any compensation under any other employee compensation or
benefit plans of the Company) paid or to be paid, as the case may be, to a
Participant with respect to the Bonus Year in question, according to the
books and records of the Company and its Subsidiaries.
"BOARD" means the board of directors of the Company.
"BONUS" means either or both, as the context may require, of a Budget
Bonus or an PBT Bonus awarded pursuant to the Plan.
"BONUS YEAR" means the fiscal year of the Company and its Subsidiaries
with respect to which a Bonus is calculated.
"BUDGET BONUS" means the Bonus calculated in accordance with Article
V.
"BUDGETED PROFITS BEFORE TAXES" means the estimated consolidated
earnings before income taxes of the Company and its Subsidiaries for the
Bonus Year in question, as determined in accordance with GAAP and adopted
by the Company for purposes of the Company's annual operating budget for
the Bonus Year in question.
"COMMITTEE" has the meaning assigned to it in Article II.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means Input/Output, Inc., a Delaware corporation.
<PAGE>
"CORPORATE THRESHOLD" means with respect to any Bonus Year, the
minimum level of Profits Before Taxes that must be realized by the Company
before any Budget Bonus or PBT Bonus, as the case may be, can be paid by
the Company.
"COVERED EMPLOYEE" shall have the same meaning as the term "covered
employee" (or its counterpart, as such term may be changed from time to
time) contained in the treasury regulations promulgated under Code Section
162(m), or their respective successor provision or provisions, that being
an employee for which the limitation on deductibility for compensation
pursuant to Code Section 162(m) is applicable.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of
Certified Public Accountants acting through the Accounting Principles Board
or by the Financial Accounting Standards Board or through other appropriate
boards or committees thereof and which are consistently applied for all
periods so as to properly reflect the financial condition and the results
of operations of the Company and its Subsidiaries, except that any
accounting principle or practice required to be changed by such Financial
Accounting Standards Board (or other appropriate board or committee of such
board) in order to continue as a generally accepted accounting principle or
practice may so be changed.
"GROUP" and "GROUPS" have the meanings assigned to them in Article IV.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"PARTICIPANT" means any key employee of the Company or any of its
Subsidiaries that the Committee has determined to be eligible for
participation in the Plan.
"PAYMENT DATE" means the business day selected by the Committee upon
which the Committee shall calculate and declare Bonuses in accordance with
Section 7.2, which shall be a date after the Company's independent
accounting firm issues its audit report on the Company's financial
statements with respect to the Bonus Year in question, and which in any
event shall not be later than ninety (90) days after the end of the
applicable Bonus Year.
"PBT BONUS" means the Bonus calculated in accordance with Article VI.
"PERFORMANCE GOALS" means the performance measures established by the
Committee for each Group for any Bonus Year in accordance with Articles V
and VI of the Plan, which shall be expressed as percentages; these
applicable percentages will be multiplied by the Base Salaries of
Participants in determining their Bonus amounts.
"PLAN" means the Input/Output, Inc. 1996 Management Incentive Program,
as it may be amended from time to time.
"PROFITS BEFORE TAXES" or "PBT" means the consolidated earnings before
income taxes of the Company and its Subsidiaries for the fiscal year in
question, determined by reference to the Company's audited consolidated
statement of operations for such fiscal year prepared in accordance with
GAAP.
"SUBSIDIARY" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of the
Bonus, each of the corporations other than the last
-2-
<PAGE>
corporation in the unbroken chain owns stock possessing more than 50% of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, and "SUBSIDIARIES" means more than one of any
such corporations.
"TOTAL BONUS" means the aggregate compensation, if any, awarded to a
Participant on the Payment Date for any Bonus Year pursuant to a Budget
Bonus and/or a PBT Bonus.
ARTICLE II
ADMINISTRATION
Subject to the terms of this Article II, the Plan shall be administered by
the Compensation Committee (the "Committee") of the Board, which shall consist
of at least two members. Any member of the Committee may be removed at any
time, with or without cause, by resolution of the Board. Any vacancy occurring
in the membership of the Committee may be filled by appointment by the Board.
Each member of the Committee, at the time of his appointment to the Committee
and while he is a member thereof, must be an "outside director" as such term is
used in Code Section 162(m).
The Board shall select one of its members to act as the Chairman of the
Committee, and the Committee shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee shall constitute
a quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee. Subject
to the terms hereof, the Committee shall interpret the Plan, prescribe, amend,
and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, and make such other determinations and take such
other action as it deems necessary or advisable.
The Committee shall have full authority to select the key employees who
will participate in the Plan, to designate the Groups in which they will
participate, to establish Performance Goals with respect to each Group and
certify the extent of their achievement, establish and certify the achievement
of the Corporate Thresholds, and generally to administer the Plan, including
authority to interpret and construe any provision of the Plan. Except as
provided below, any interpretation, determination, or other action made or taken
by the Committee shall be final, binding, and conclusive on all interested
parties, including the Company and all Participants.
ARTICLE III
ELIGIBILITY
The Committee shall, on a date within the first ninety (90) days of the
Bonus Year in question, select the particular key members of management of the
Company and the particular key employees of the Company and its Subsidiaries to
whom Bonuses under the Plan may be granted. Except as otherwise provided in
Article IV, employees who participate in the Plan may also participate in other
incentive or benefit plans of the Company or any Subsidiary. As used herein, the
term "employee" shall mean any person employed full-time by the Company or a
Subsidiary on a salaried basis, and the term "employment" shall mean full-time
salaried employment by the Company or a Subsidiary.
-3-
<PAGE>
ARTICLE IV
INCENTIVE PLAN GROUPS
Each Participant in the Plan shall be designated as a member of a Group by
the Committee in accordance with the terms of the Plan. The initial Groups of
Participants under the Plan shall be constituted as follows:
Group I: Chief Executive Officer and Chief Operating Officer of the
Company
Group II: Vice Presidents and Controller of the Company
Group III: Tier One key employees of the Company and its Subsidiaries,
as determined by the Committee
Group IV: Tier Two key employees of the Company and its Subsidiaries as
determined by the Committee
The Committee may hereafter establish different Groups or classes of Groups with
respect to any Bonus Year if such designation is accomplished within the first
90 days of such Bonus Year.
In addition, certain officers and key employees may participate in similar
Subsidiary-only management incentive plans adopted by that Subsidiary and, by
reason of such participation, as determined by the Committee, may not be
eligible for participation in this Plan.
ARTICLE V
BUDGET BONUS
Prior to that date which is 90 days after the commencement of the Bonus
Year in question, the Board shall have reviewed and approved the operations
budget for such Bonus Year, which shall reflect the Budgeted Profits Before
Taxes for such Bonus Year. Not later than the 90th day of the Bonus Year in
question, the Committee shall set forth in writing the key employees designated
as Participants for the Bonus Year and their appropriate Group, whether that
Group will participate in the Budget Bonus, the Corporate Threshold with respect
to the Budget Bonus for such Bonus Year, and the Performance Goals with respect
to each participating Group. The Corporate Threshold with respect to the Budget
Bonus for any particular Bonus Year shall be an amount equal to (i) the Budgeted
Profits Before Taxes, multiplied by (ii) a percentage determined by the
Committee; provided that such Corporate Threshold shall not be less than an
amount equal to 80% of Budgeted Profits Before Taxes. The actual percentage
amounts of the Performance Goals to apply with respect to the Base Salaries of
Participants in each Group will be determined by reference to the extent of the
amount that the Profits Before Taxes exceeds the Corporate Threshold for the
Budget Bonus for that Bonus Year; provided that the maximum Budget Bonus that
may be received by a Participant may not exceed twenty-five percent (25%) of
such Participant's Base Salary for such Bonus Year.
-4-
<PAGE>
ARTICLE VI
PBT BONUS
Not later than the 90th day of the Bonus Year in question, the Committee
shall set forth in writing the key employees designated as Participants for the
Bonus Year and their appropriate Group, whether that Group will participate in
the PBT Bonus, the Corporate Threshold with respect to the PBT Bonus for such
Bonus Year, and the Performance Goals with respect to each participating Group.
The Corporate Threshold with respect to the PBT Bonus for any particular Bonus
Year shall be not less than the amount of the Profits Before Taxes for the
immediately preceding Bonus Year in question. The actual percentage amounts of
the Performance Goals to apply with respect to the Base Salaries of Participants
in each Group for purposes of determining a PBT Bonus will be determined by
reference to the extent of the amount that the Profits Before Taxes exceeds the
Corporate Threshold for the PBT Bonus for that Bonus Year.
ARTICLE VII
PAYMENT OF BONUSES AND GENERAL PROVISIONS
7.1 LIMITATION ON TOTAL BONUS. Notwithstanding any provision to the
contrary contained herein, the maximum Total Bonus payable to any Participant
with respect to any Bonus Year shall not exceed $750,000. The Bonus amounts
calculated in accordance with Articles V and/or VI hereof for any Participant
who is a Covered Employee with respect to the Bonus Year in question may be
reduced by an amount of up to 50% by the Committee in its sole discretion;
PROVIDED, HOWEVER, that under no circumstances may the amount of a Bonus
determined under Articles V and/or VI of this Plan with respect to any
Participant who is a Covered Employee with respect to the Bonus Year in question
be increased. Bonus amounts calculated hereunder with respect to any
Participant who is not a Covered Employee for the Bonus Year in question may be
reduced or increased by the Committee in its sole discretion.
7.2 PAYMENT. As a condition to eligibility for payment of a Bonus with
respect to any particular Bonus Year, a Participant shall be required to be in
the employ of the Company or one of its Subsidiaries through the applicable
Payment Date, UNLESS (i) such Participant terminated his or her employment
during such period due to retirement from the Company and its Subsidiaries in
accordance with standard retirement policies of the Company and its Subsidiaries
then in effect, or (ii) the Participant, while in the employ of the Company or
one of its Subsidiaries, became totally and permanently disabled (as that term
is defined in Section 22(e) of the Code) or died during such period. In the
event of such retirement, death or disability, the Participant (or, in the case
of death or disability, the Participant's estate or legal representative, as the
case may be, or a designated beneficiary in accordance with Section 11.6) shall
receive a prorated portion of his Bonus based on the portion of the Bonus Year
that the Participant was in the employ of the Company or one of its
Subsidiaries.
In the event that a person becomes an employee of the Company or one of its
Subsidiaries during a Bonus Year and the Committee determines to designate such
person as a member of Group III or Group IV (or their successor Group(s), if
subsequently designated by the Committee in accordance with Article IV), such
person will become a Participant as of the date of each designation, and shall
be entitled to receive a prorated portion of his Bonus based on the portion of
the Bonus Year that the Participant was in the employ of the Company or one of
its Subsidiaries. If a Participant that is a member of Group I or Group II (or
their successor Group(s), if designated by the Committee) ceases to be employed
by the Company or such Participant's status with the Company as an officer
changes as a result of a reassignment of duties, any person who succeeds the
Participant in the same or a comparable position within the Company, may be
designated
-5-
<PAGE>
by the Committee as a Participant and a member of Group I or Group II (or
their successor(s)), as may be applicable, for the duration of the applicable
Bonus Year, effective as of the date such person assumes such position.
Following the verification by the Company's independent accountants of the
Company's financial results for any Bonus Year, the Committee shall certify (i)
whether the Profits Before Taxes exceeded the Corporate Thresholds for the
Budget Bonus and the PBT Bonus; (ii) whether and the extent to which PBT Bonuses
and Budget Bonuses are payable to the Participants in each Group by applying
their applicable Performance Goals to their respective Base Salaries; and (iii)
the amounts of the Bonuses, if any, to be paid to the Participants in accordance
with Articles V and VI, as may be applicable (and Section 7.1, if applicable).
The Committee shall instruct the Company, or instruct the Company to cause any
Subsidiary, as applicable, to pay to each Participant his Bonus in accordance
with this Article, as promptly as reasonably practicable after such Payment
Date.
7.3 PARTIAL FISCAL YEARS. In the event that the Company and its
Subsidiaries adopt any different fiscal year which results in a fiscal year
having less than twelve months, the Committee shall, in its sole discretion,
award Bonuses computed as provided in Articles V and VI (and Section 7.1, if
applicable) but reduced by the Committee for such shortened fiscal year, or
defer any awards of Bonuses for such fiscal period until a Payment Date
following such full twelve-month fiscal year.
7.4 NO RIGHTS TO BONUS. The prospective recipient of a Bonus shall not
have any rights with respect to any Bonus, or any portion thereof, until the
award thereof on the Payment Date to which the particular Bonus amount relates.
ARTICLE VIII
AMENDMENT OR DISCONTINUANCE
The Committee may at any time and from time to time, without the consent of
the Participants, alter, amend, revise, suspend, or discontinue the Plan in
whole or in part; provided that any amendment that modifies any preestablished
performance goal for Participants in Group I or Group II (or their successor(s),
as may be applicable) under this Plan with respect to any particular Bonus Year
may only be effected on or prior to that date which is 90 days following the
commencement of such Bonus Year. In addition, the Board shall have the power to
amend the Plan in any manner advisable in order for Bonuses granted under the
Plan to qualify as "performance-based" compensation under Section 162(m) of the
Code (including amendments as a result of changes to Section 162(m) or the
regulations thereunder to permit greater flexibility with respect to Bonuses
granted under the Plan).
ARTICLE IX
EFFECT OF THE PLAN
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any Participant any right to be granted a
Bonus or any other rights. In addition, nothing contained in this Plan and no
action taken pursuant to its provisions shall be construed to (a) give any
Participant any right to any compensation, except as expressly provided herein;
(b) be evidence of any agreement, contract or understanding, express or implied,
that the Company will employ a Participant in any particular position; (c) give
any Participant any right, title, or interest whatsoever in or to any
investments which the Company may
-6-
<PAGE>
make to aid it in meeting its obligations hereunder; or (d) create a trust of
any kind or a fiduciary relationship between the Company and a Participant or
any other person.
ARTICLE X
TERM
The effective date of this Plan shall be as of July 12, 1996, subject to
stockholder approval. This Plan and any benefits granted hereunder shall be
null and void if stockholder approval is not obtained at the next annual meeting
of stockholders of the Company. Unless sooner terminated by action of the
Board, the Plan will terminate on the 12th day of July, 2001.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan confers upon any
Participant the right to continue in the employ of the Company or interferes
with or restricts in any way the right of the Company to discharge any employee
at any time (subject to any contract rights of such employee).
11.2 TAX REQUIREMENTS. The Company (and, where applicable, its
Subsidiaries) shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
applicable taxes required by law to be withheld with respect to any payment of
any Bonus to a Participant.
11.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Committee,
nor any officer, employee or agent of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and each and every officer, employee or agent of the
Company acting on their behalf shall, to the fullest extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation. Each member of the Committee shall, in the
performance of his or her duties under the Plan, be fully protected in relying
in good faith upon the financial statements of the Company as contemplated by
the terms of the Plan.
11.4 EFFECT ON PARTICIPATION. The award of a Bonus to a Participant shall
not by itself be deemed either to entitle the Participant to, or to disqualify
the Participant from, as the case may be, participation in any other future
grant of Bonuses under the Plan or otherwise, or in any other compensation or
benefit plan of the Company or any of its Subsidiaries currently existing or
hereafter established.
11.5 OTHER COMPENSATION AGREEMENTS. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
11.6 APPLICABILITY TO SUCCESSORS. The Plan shall be binding upon and inure
to the benefit of the Company and each Participant, the successors and assigns
of the Company, and the beneficiaries, personal representatives and heirs of
each Participant. Any interests of Participants under the Plan may not be
voluntarily sold, transferred, alienated, assigned or encumbered, other than by
will or pursuant to the laws
-7-
<PAGE>
of descent and distribution; provided however, that a Participant may designate
a beneficiary or beneficiaries to receive payments after the Participant's
death, by written notice to the Committee. If the Company becomes a party to
any merger, consolidation or reorganization, the Plan shall remain in full
force and effect as an obligation of the Company or its successors in interest.
11.7 REORGANIZATION, MERGER OR CONSOLIDATION. In the event of a merger,
consolidation, sale of assets, reorganization or other business combination in
which the Company is not the surviving or continuing corporation, or pursuant to
which shares of the Company's Common Stock would be converted into cash,
securities or other property (other than a merger of the Company in which the
holders of the Company's Common Stock immediately prior to the merger have the
same proportionate ownership of Common Stock of the surviving corporation
immediately after the merger), the Bonus Year will be deemed to have ended on
the date such transaction is consummated. PBT Bonus calculations will be
determined based on the Bonus Year-to-date profits before taxes and will be
determined based on a comparison of (i) profits before taxes for such Bonus Year
to the date of the event, to (ii) profits before taxes for the immediately
preceding fiscal year to the same date of such preceding year. The Budget Bonus
calculations will be determined based on a comparison of (x) profits before
taxes for such Bonus Year to the date the transaction is consummated, to (y)
Budgeted Profits Before Taxes for such Bonus Year, pro-rated to the date the
transaction is consummated. Such calculations will be based upon the Company's
consolidated statement of earnings for the month ended immediately prior to the
date of consummation of the sale, merger, reorganization or business
combination.
11.8 GENDER AND NUMBER. Where the context permits, words in the masculine
gender shall include the feminine and neuter genders, the plural form of a word
shall include the singular form, and the singular form of a word shall include
the plural form.
11.9 STOCKHOLDER VOTE. The material terms of this Plan shall be disclosed
to the stockholders of the Company for approval in accordance with Section
162(m) of the Code. No award or payment of any Bonus under this Plan shall
made unless such stockholder approval is obtained.
ARTICLE XII
UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any Bonuses granted but not yet paid to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general unsecured
creditor of the Company.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
pursuant to prior action taken by the Board.
INPUT/OUTPUT, INC.
By: /s/ GARY D. OWENS
-----------------------------------
Name: GARY D. OWENS
Title: PRESIDENT
-8-
<PAGE>
INPUT/OUTPUT, INC.
AMENDED DIRECTORS RETIREMENT PLAN
(EFFECTIVE APRIL 26, 1994)
The following shall constitute the Retirement Plan for directors of
Input/Output, Inc. hereinafter referred to as the "Company".
1. EFFECTIVE DATE.
The Plan (as amended effective April 26, 1994) shall be effective as of April
26, 1994, with respect to all members of the Board of Directors of the
Company (the "Board") as of such date. The Plan, however, shall have no
effect on the benefits payable to any Director who retired prior to April 26,
1994.
2. PARTICIPATION.
In order to be entitled to receive any benefits under the plan, A Director
must have served as an outside Director for an aggregate of not less than
five (5) complete years or, if a Director has served less than an aggregate
of five (5) complete years as an outside Director, (i) have his service on
the Board as an outside Director terminated due to death or disability or
(ii) have a "change in control of the Company" as defined below occur while
he is a Director. For purposes hereof, an "outside Director" shall be
defined as a Director who is not a full or part-time employee of the Company
or who, other than as a Director, does not act, directly or indirectly, for
the Company under any consulting contract or agreement for the provision of
services which provides for compensation in excess of $60,000 during any
fiscal year.
For purposes hereof, a "change in control of the Company" shall mean the
occurrence of any of the following events: there shall be consummated (i) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, (ii) any sale, lease, exchange, transfer
(excluding transfer by way of pledge or hypothecation), in one transaction or
a series of related transactions, of all, or substantially all, of the
assets of the Company, (iii) the stockholders of the Company approve any plan
or proposal for the liquidation or dissolution of the Company, (iv) any
"person" (as such term is defined in Section 3(a)(9) or Section 13(d)(3)
under the Securities Exchange Act of 1934, as amended (the "1934 Act") or any
"group" (as such term is defined in Rule 13d-5 promulgated under the 1934
Act), other than the Company or any successor of the Company or any
Subsidiary of the Company or any employee benefit plan of the Company or any
Subsidiary (including such plan's trustee), becomes a beneficial owner for
purposes of Rule 13d-3 promulgated under the 1934 Act, directly or
indirectly, of securities of the Company representing 50.1% or more of the
Company's then outstanding securities having the right to vote in the
election of directors, or (v) during any period of two consecutive years,
individuals who, at the beginning of such period constituted the entire
Board, cease for any reason (other than death) to constitute a majority of
the Board, unless the election, or the nomination for election, by the
Company's
<PAGE>
stockholders, of each new Director was approved by a vote of at least
two-thirds of the Directors then still in office who were Directors at the
beginning of the period.
3. PAYMENT OF BENEFITS.
Payment of benefits under the Plan shall be payable quarterly and commence at
the beginning of the Company's fiscal quarter next following the later date at
which a Director (i) attains age sixty-five (65) or (ii) retires from the Board
provided, however, that if a Director retires from the Board due to his death or
disability, the payments to such Director or his estate will commence at the
beginning of the Company's fiscal quarter next following the date of such
Director's death or retirement, as the case may be. The payments of benefits
hereunder shall continue for a period equal to the lesser of (i) the number of
years and parts thereof, rounded upwards to the nearest six (6) months, during
which such Director served as an outside Director or (ii) ten (10) years. In
case of a takeover as described in paragraph two above, a Director may elect to
receive a lump sum payment representing the present value of the quarterly
payments otherwise payable.
4. AMOUNT OF BENEFITS.
The total benefits payable hereunder to a Director for each year that he
receives benefits hereunder shall be equal to the greater of (i) the annual
stipend payable to the Directors of the Company effective for the fiscal year of
the Company in which he retires or (ii) the annual stipend payable to the
Directors of the Company for the Company's fiscal year prior to the fiscal year
in which he retires.
The mandatory retirement age for a Director is the end of the first term or
partial term following his seventy-second (72nd) birthday.
/s/ GARY D. OWENS
-------------------------------------
Gary D. Owens
President and Chief Executive Officer
ATTEST:
/s/ ROBERT P. BRINDLEY
- ----------------------------------
Robert P. Brindley
Secretary
-2-
<PAGE>
AMENDMENT TO THE INPUT/OUTPUT, INC.
AMENDED AND RESTATED
1991 OUTSIDE DIRECTORS STOCK OPTION PLAN
This Amendment to the Input/Output, Inc. Amended and Restated 1991
Outside Directors Stock Option Plan (the "Amendment") is effective as of the
17th day of January, 1997, and except as modified herein, the terms of the
Plan remain in full force and effect. Any terms not otherwise defined herein
have the meanings ascribed to them as set forth in the Plan.
AMENDMENT
Section 11(g) of the Plan is hereby repealed in its entirety and a new
Section 11(g) is adopted as follows:
Section 11(g) LIMITED ASSIGNABILITY OF OPTION. No option granted
hereunder may be sold, transferred, pledged or disposed of otherwise than (i)
by will or the laws of descent and distribution or (ii) pursuant to a
qualified domestic relations order (as defined in Section 401(a)(13) of the
Internal Revenue Code of 1986, as amended (the "Code") or Section 206(d)(3)
of the Employee Retirement Income Security Act of 1974, as amended). In
addition, the Board may, in its discretion, authorize all or a portion of the
options granted to an Outside Director to be on terms which permit transfer
by such Outside Director to (A) the spouse, ex-spouse, children, step
children or grandchildren of the Outside Director ("Immediate Family
Members"), (B) a trust or trusts for the exclusive benefit of one or more
Immediate Family Members, (C) a partnership or limited liability company in
which one or more Immediate Family Members are the only partners or members,
(D) an entity exempt from federal income tax pursuant to Section 501(c)(3) of
the Code or any successor provision and/or (E) a split interest trust or
pooled income fund described in Section 2522(c)(2) of the Code or any
successor provision, so long as (x) the stock option agreement evidencing any
option granted pursuant to this Plan is approved by the Board and expressly
provides for transferability in a manner consistent with this Section 11(g),
and (y) subsequent transfers of such option shall be prohibited except for
transfers by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order (as described above). Furthermore, the
Board may, in its discretion, authorize all of a portion of the option
granted to an Outside Director to be on terms which permit transfer by such
Outside Director to other entities or persons to whom the Board may in its
discretion permit transfers of the option.
Following transfer, such option shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of Sections 1, 2, 5, 6, 8, 9, 11 and 12 of this Plan any
reference to "Outside Director" shall be deemed to include the transferee. The
provisions of Section 7 of this Plan concerning events of termination of service
shall continue to be applied with
<PAGE>
respect to the original optionee, following which event(s) any such affected
stock options shall be exercisable by the transferee only to the extent and
for the periods specified therein or in the stock option agreement. The
Board and the Company shall have no obligation to inform any transferee of an
option of any expiration, termination, lapse or acceleration of such option.
Subject to the foregoing, during an Outside Director's lifetime, a stock
option may be exercised only by the Outside Director to whom granted, or his
guardian in the event of his disability, or such other person as described in
Section 7(a) hereof in the event of his death. The designation by an Outside
Director of a beneficiary will not constitute a transfer of a stock option.
IN WITNESS WHEREOF, the Board of Directors of Input/Output, Inc. has
caused this Amendment to the Plan to be adopted as of the date first written
above and has instructed the officer indicated below to sign same for and on
behalf of such corporation.
INPUT/OUTPUT, INC.
By:
---------------------------------
Its:
---------------------------------
<PAGE>
INPUT/OUTPUT, INC.
AMENDED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JULY 28, 1994
PURPOSE
The purpose of the Input/Output, Inc. Executive Supplemental Retirement
Plan, effective June 4, 1992, is to provide specified benefits to a select group
of management and highly compensated employees who contribute materially to the
continued growth, development and future business success of Input/Output, Inc.
and its subsidiaries. It is the intention of Input/Output, Inc. that this Plan
be administered as an unfunded pension benefit plan established and maintained
for a select group of management or highly compensated employees.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. For purposes of this Plan, the following phrases or
terms shall have the indicated meanings unless otherwise
clearly apparent from the context:
(a) "ACTUARIAL EQUIVALENT" shall mean a benefit of equivalent value
to the normal form of the benefit payable under the Plan. The Actuarial
Equivalent shall be determined by using a mortality table and an interest
rate assumption as the Board of Directors, in its discretion, shall
reasonably determine under the facts and circumstances existing at the
time of such determination.
(b) "BENEFICIARY" shall mean the Participant's spouse on the date of
his Normal Retirement, Early Retirement, Total Disability, or death.
(c) "BOARD OF DIRECTORS" shall mean the Board of Directors of
Input/Output, Inc. "unless otherwise indicated or the context otherwise
requires.
(d) "CHANGE IN CONTROL" shall mean (1) any consolidation or merger of
the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's common stock would
be converted into cash, securities or other property, other than a merger
of the Company in which the holders of the Company's common stock
immediately
1
<PAGE>
prior to the merger have the same proportionate ownership of common stock
of the surviving corporation immediately after the merger, (2) any sale,
lease, exchange transfer (excluding transfer by way of pledge or
hypothecation), in one transaction or a series of related transactions, of
all, or substantially all, of the assets of the Company, (3) the
stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company, (4) any "person" (as such term
is defined in Section 3(a)(9) or Section 13(d)(3) under the Securities
Exchange Act of 1934 [the "1934 Act"]) or any "group" (as such term is used
in Rule 13d-5 promulgated under the 1934 Act), other than the Company or
any successor of the Company or any subsidiary of the Company or any
employee benefit plan of the Company or any subsidiary (including such
plan's trustee), becomes a beneficial owner for purposes of Rule 13d-3
promulgated under the 1934 Act, directly or indirectly of securities of the
Company representing 50.1% or more of the Company's then outstanding
securities having the right to vote in the election of directors, or (5)
during any period of two consecutive years, individuals who, at the
beginning of such period constituted the entire Board, cease for any reason
(other than death) to constitute a majority of the directors, unless the
election, or the nomination for election, by the Company's stockholders, of
each new director was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
(e) "COMMITTEE" shall mean the administrative committee appointed to
manage and administer the Plan in accordance with the provisions of Article
XIII hereof.
(f) "COMPANY" shall mean Input/Output, Inc. which shall act through
its Board of Directors unless otherwise indicated.
(g) "COMPENSATION" shall mean the base salary and bonus received by a
Participant during the calendar year for services actually rendered in the
course of employment with the Employer but excluding contributions by the
Employer to a plan of deferred compensation, amounts realized from the
exercise of a non-qualified stock option or realized when restricted stock
(or property) becomes freely transferable or is no longer subject to a
substantial risk of forfeiture, and amounts realized from the sale,
exchange or other disposition of stock acquired under a statutory stock
option. Notwithstanding anything in this Plan to the contrary,
"Compensation" shall include amounts contributed by the Employer by salary
reduction to a plan described in Section 125 or Section 401(k) of the
Internal Revenue Code.
(h) "DEFERRED BENEFIT" shall mean an annual benefit f or the life of
the Participant beginning as of the Participant's Normal Retirement Date,
equal to sixty percent (60%) of a Participant's Final Average Compensation,
reduced
2
<PAGE>
by (1) the Participant's Primary Social Security Benefit, (2) the Actuarial
Equivalent of the annual value of matching contributions made by the
Employer to the Input/Output, Inc. 401(k) Plan and credited to the
Participant's account under such plan as of the date of the Participant's
Normal Retirement, Early Retirement, Total Disability, or death, whichever
is applicable, and (3) the annual amount of compensation received by a
Participant for acting as a director of the Employer after the
Participant's Normal Retirement Date, Early Retirement Date, or date of
Total Disability, whichever is applicable.
(i) "EARLY RETIREMENT DATE" shall be the date a Participant
terminates employment which is prior to his Normal Retirement Date and on
or after the later of (1) the date of the Participant's fifty-fifth (55th)
birthday or (2) the date that the Participant completes fifteen (15) Years
of service; provided, however, that such termination has been approved by
the Board of Directors in accordance with section 4.3 hereof.
(j) "EMPLOYEE" shall mean any person who is in the regular full-time
employment of the Company or a Subsidiary, as determined by the personnel
rules and practices of the Company or the Subsidiary. The term does not
include persons who are retained by the Company or a Subsidiary solely as
consultants.
(k) "EMPLOYER" shall mean the Company and any Subsidiary that duly
adopts the Plan as provided in Article XIV hereof. Where the context
dictates, the term "Employer" as used herein refers to the particular
Employer of a particular Participant.
(1) "FINAL AVERAGE COMPENSATION" shall mean the result obtained by
dividing the total Compensation paid to a Participant during a considered
period by the number of years in the considered period. The considered
period shall be the three (3) consecutive, full calendar years preceding a
Participant's Normal Retirement Date, Early Retirement Date, date of Total
Disability or date of death, whichever is applicable, which produces the
highest average Compensation. In the event the Participant was employed
for fewer then three (3) continuous, full calendar years, the considered
period shall be all years in which Compensation was paid.
(m) "NORMAL RETIREMENT DATE" shall be the later of (1) the date of
the Participant's sixty-fifth (65th) birthday or (2) the date of the
Participant's termination of employment.
(n) "PARTICIPANT" shall mean an Employee who is selected to
participate in the Plan in accordance with the provisions of Article II.
3
<PAGE>
(o) "PLAN" shall mean the Input/Output, Inc. Supplemental Executive
Retirement Plan, as amended from time to time.
(p) "PLAN YEAR" shall mean the period beginning on June 4, 1992, and
ending May 31, 1993, and the annual period of twelve (12) months beginning
on June 1 each year thereafter.
(q) "PRIMARY SOCIAL SECURITY BENEFIT" shall mean the estimated
monthly amount of benefits which a Participant would be entitled to receive
at his Normal Retirement Date as his "primary insurance amount" determined
as of the January 1 of the year in which the Participant's Normal
Retirement Date occurs, regardless of whether the Participant applies for
his Social Security benefits and regardless of whether, by virtue of
remaining in covered employment or otherwise, he is ineligible therefor or
receives reduced benefits.
If a Participant dies before his Normal Retirement Date or terminates
employment due to Early Retirement, his Primary Social Security Benefit
shall be his "primary insurance amount" that would be payable to the
Participant upon the later of (i) the earliest date on which such
Participant could elect to begin receiving benefits under the Social
Security Act, or (ii) the actual date of his Early Retirement or death and
assuming that such Participant will not receive any wages after his Early
Retirement Date which would be treated as wages for purposes of the Social
Security Act.
If the Participant terminates due to Total Disability prior to his
Normal Retirement Date, his Primary Social Security Benefit shall be the
benefit payable as if his Social Security disability insurance benefit were
to be approved at the same time as his Total Disability. As used in this
subsection, the term "primary insurance amount" shall have the meaning
ascribed to it in the Federal Social Security Act as amended and in effect
on the affected Participant's date of death, Total Disability, Normal
Retirement, or Early Retirement, whichever is appropriate.
(r) "RETIREMENT" and "RETIRE" shall mean termination of employment
with the Employer at or after the Participant attains age sixty-five (65)
or, with the consent of the Employer, on or after the Participant's Early
Retirement Date.
(s) "SUBSIDIARY" shall mean any business organization in which
Input/Output, Inc. directly or indirectly, owns an interest, excluding
ownership interests Input/Output, Inc. or its subsidiaries may hold in
their fiduciary capacities as trustee or otherwise.
4
<PAGE>
(t) "TOTAL DISABILITY" or "TOTALLY DISABLED" shall mean a physical or
mental condition which is expected to be of long, continued duration and
which, in the judgment of the Board of Directors, totally and presumably
permanently prevents the Participant from engaging in any substantial
gainful employment with the Employer at substantially the same compensation
the Participant was receiving prior to the onset of the described physical
or mental condition.
(u) "VESTED DEFERRED BENEFIT" shall mean the portion a Participant's
Deferred Benefit that is not forfeitable pursuant to the provision of
Article V and this Section. A Participant shall be fully vested (1) upon
attaining age sixty-five (65), (2) on or after attaining age fifty-five
(55) and completing twenty-five (25) Years of service, (3) upon a Change in
control as provided in Section 5.2 hereof, or (4) upon Total Disability of
the Participant as provided in Article VI hereof.
(v) "YEARS OF SERVICE" shall mean each complete calendar year that a
Participant is employed by the Employer, beginning on the Participant's
first day of employment and ending on the date of the Participant's
Retirement, death, Total Disability, or termination of employment with the
Employer.
1.2 "CONSTRUCTION". The masculine gender when used herein shall be deemed
to include the feminine gender, and the singular may include the plural unless
the context clearly indicates to the contrary. The words "hereof," "herein,"
"hereunder," and other similar compounds of the word "here" shall mean and refer
to the entire Plan and not to any particular provision or section. Whenever the
words "Article" or "Section" are used in this Plan, or a cross-reference to an
"Article" or "Section" is made, the Article or Section referred to shall be an
Article or Section of this Plan unless otherwise specified.
End of Article I
5
<PAGE>
ARTICLE II
ELIGIBILITY AND PARTICIPATION
In order to be eligible to participate in this Plan, an Employee must be
selected by the Board of Directors of the Company. The Board of Directors, in
its sole and absolute discretion, shall determine eligibility for participation
in accordance with the purposes of the Plan. Upon being selected to participate
in the Plan, the Company shall request the Employee to execute a waiver of any
right to a preferential treatment over the general creditors of the Company in
the event of the Company's insolvency.
End of Article II
6
<PAGE>
ARTICLE III
PRE-RETIREMENT DEATH BENEFIT
If a Participant dies after he has attained age fifty-five (55) and
completed fifteen (15) Years of Service but before Retirement, the Actuarial
Equivalent of the Participant's Vested Deferred Benefit shall be paid to his
Beneficiary in the form of a fifty percent (50%) survivor annuity as if the
Participant had retired on the date immediately preceding his death, provided
that the Participant was married on his date of death. In the event that the
Participant was not married on his date of death, no benefit shall be paid.
Payment of such Vested Deferred Benefit shall commence effective the first day
of the month following the Participant's date of death.
End of Article III
7
<PAGE>
ARTICLE IV
RETIREMENT BENEFIT
4.1 NORMAL RETIREMENT. Upon reaching his Normal Retirement Date, a
Participant shall be entitled to his Deferred Benefit and shall be fully vested
in such benefit. Payment of such monthly amount shall commence effective the
first of the month following the Participant's Normal Retirement Date. A
Participant's Deferred Benefit shall be paid in the form provided in section
4.2 hereof.
4.2 Form of Benefit Payment. If the Participant is married on the date on
which payment of his Vested Deferred Benefit shall begin under Sections 4.1, 4.3
or Article VI, a Participant's Vested Deferred Benefit shall be paid in the form
of (a) a fifty percent (50%) joint and survivor annuity which is the Actuarial
Equivalent of a single life annuity for the Participant that can be provided by
the Participant's Vested Deferred Benefit, or (b) a single life annuity, as the
Board of Directors in its discretion shall determine. In determining the form
of the Participant's benefit, the Board may take into account, but shall not be
bound by, the Participant's desires. If the Participant is not married on such
date, his Vested Deferred Benefit for purposes of Section 4.1, 4.3, or Article
VI shall be paid in the form of a life e annuity. With respect to a benefit
described in Article III, the Actuarial Equivalent of the Participant's Vested
Deferred Benefit shall be paid to the Beneficiary of a Participant who was
married on the date of his death in the form of a fifty percent (50%) survivor
annuity as if the Participant had retired on the date immediately preceding his
death. The Company, in its discretion, may at any time accelerate the payment
of benefits and distribute a single lump sum to the Participant or the
Participant's Beneficiary equal to the Actuarial Equivalent of the Vested
Deferred Benefit which has not been paid.
4.3 EARLY RETIREMENT. Upon his Early Retirement Date, a Participant shall
be entitled to the Actuarial Equivalent of his Vested Deferred Benefit,
effective on the first of the month following the date the Board approves the
Participant's termination as Early Retirement. Termination of employment on or
after a Participant attains age fifty-five (55) shall not entitle the
Participant to a benefit unless the Board of Directors approves such termination
as Early Retirement. The Board of Directors shall not unreasonably withhold its
approval of the Participant's termination of employment as Early Retirement.
The benefit shall be paid in the form provided under Section 4.2 hereof.
4.4 Post-Retirement Death Benefit. If a Participant dies after Retirement
but before his Vested Deferred Benefit has been paid in full, the benefit
payable to the Participant's Beneficiary shall be determined in accordance with
Section 4.2 hereof.
8
<PAGE>
4.5 ACCRUAL OF RETIREMENT BENEFIT. Except as provided in Section 5.2, a
Participant who ceases to be an Employee before attaining age fifty-five (55)
shall not be entitled to any benefits hereunder and the Employer shall have no
obligation hereunder to such Participant or his Beneficiary.
4.6 LUMP SUM SETTLEMENT. A Participant who becomes entitled to payment of
his Vested Deferred Benefit due to Normal Retirement or Early Retirement, or who
terminates employment after a Change in Control, may upon thirty (30) days
written notice to the Company, receive a settlement of his Deferred Benefit in a
single lump sum payment. The amount which the Participant receives shall be
equal to the present value of the portion of his Vested Deferred Benefit which
has not been paid, or, in the case of a Participant who terminates employment
after a Change in Control, the present value of his Deferred Benefit, reduced by
a penalty in the amount of twenty percent (20%) of such present value. After
receiving such notice from the Participant, the Company shall cease payment of
the Participant's monthly benefit, if applicable. The Company shall pay the
reduced benefit to the Participant in a single lump sum payment within sixty
(60) days of the Company's receipt of the notice. In the event the Participant
dies before the lump sum is paid, the Company shall pay the present value of the
fifty percent (50%) survivor annuity to the Beneficiary, if any, of such
Participant.
4.7 Golden Parachute Excise Tax. In addition to the Participant's Vested
Deferred Benefit payable under this Plan, the Company shall also pay the
Participant an amount equal to the excise tax under Section 28OG of the Internal
Revenue Code in the event that the Participant, in good faith, or the Internal
Revenue Service determines that the Benefit payable hereunder causes the
Participant to be liable for such tax.
End of Article IV
9
<PAGE>
ARTICLE V
VESTING
5.1 Vesting Schedule. If a Participant terminates employment prior to his
Normal Retirement Date due to death or Early Retirement approved by the Board of
Directors in accordance with Plan Section 4.3 hereof, the Participant's Vested
Deferred Benefit shall be determined under this Section. A Participant shall be
fifty percent (50%) vested in his Deferred Benefit upon attaining fifty-five
(55) years of age and completing fifteen (15) Years of Service. A Participant's
vested interest shall increase five percent (5%) thereafter for each additional
Year- of Service completed by the Participant after attaining age fifty-five
(55) and completing fifteen (15) Years of Service. A Participant shall be fully
vested on his Normal Retirement Date. Notwithstanding anything in this Plan to
the contrary, a Participant shall be fully vested on or after attaining age
fifty-five (55) if the Participant completes twenty-five (25) Years of Service.
The Benefit shall be paid in accordance with Plan Section-4.2 hereof.
5.2 Change in Control. Notwithstanding any provision of this Plan to the
contrary, in the event that a Change in Control occurs, a Participant,
regardless of his age or Years of Service, shall become fully vested in his
Deferred Benefit. If the Participant remains employed after the Change in
Control, the Participant's Deferred Benefit shall be payable upon his death,
Total Disability, Early Retirement or Normal Retirement, after the Change in
Control in the form provided in Section 4.2 hereof, taking into account the
Participant's marital status on the applicable date. In the event that the
Participant terminates employment after a Change in Control, he shall not be
entitled to an Early Retirement Benefit under Section 4.3. Such Participant
shall be entitled to a benefit upon death, Total Disability, Normal Retirement,
or a lump sum settlement as provided under Section 4.6 hereof. In the event
that the Participant terminates employment prior to his death, Total Disability,
or Normal Retirement, the Participant's Deferred Benefit shall be based upon the
Participant's Compensation prior to his termination of employment and his
marital status shall be determined on the date payment of his Benefit shall be
effective.
End of Article
10
<PAGE>
ARTICLE VI
DISABILITY
Notwithstanding any provision contained in this Plan to the contrary, in
the event that a Participant is Totally Disabled prior to his Normal Retirement
Date, regardless of his age or Years of Service, he shall become fully vested in
his Deferred Benefit. Such benefit shall be equal to the Actuarial Equivalent
of his Deferred Benefit based upon his age on the date of his Total Disability,
shall be paid in the form required under Section 4.2 hereof, and shall commence
effective on the first of the month after he is determined to be Totally
Disabled. If a Participant's Total Disability ceases prior to his Normal
Retirement Date and he is reemployed by the Employer, the payment of his Vested
Deferred Benefit shall cease and the Deferred Benefit payable to the Participant
upon his Normal Retirement Date or Early Retirement Date or to the Participant's
Beneficiary upon his death shall be reduced by the Actuarial Equivalent of the
aggregate payments previously received by the Participant due to his Total
Disability. If the Participant's Total Disability ceases and he is not
reemployed by the employer, his benefits shall cease on the date his Total
Disability ceases unless the Board of Directors shall approve the Participant
for Early Retirement at that time, effective the date that the Participant's
Total Disability ceases; if the Board of Directors does not approve the
Participant for Early retirement at that time, such Participant's Deferred
Benefit shall be paid in accordance with this Plan beginning on the
Participant's Early Retirement Date or Normal Retirement Date or to the
Participant's Beneficiary upon his death, as applicable, reduced by the
Actuarial Equivalent of the aggregate payments previously received by the
Participant due to this Total Disability.
End of Article VI
11
<PAGE>
ARTICLE VII
BENEFICIARY
A Participant's Beneficiary shall be his spouse at the date payments are to
begin due to Normal Retirement, Early Retirement, Total Disability or death.
The Participant shall, upon becoming a participant, notify the Committee of the
spouse's name and date of birth. The Participant shall be responsible for
notifying the Committee for any change in marital status.
End of Article VII
12
<PAGE>
ARTICLE VIII
SOURCE OF BENEFITS
8.1 BENEFITS PAYABLE FROM GENERAL ASSETS. Amounts payable hereunder shall
be paid from the Input/Output, Inc. Supplemental Executive Retirement Trust and
the general assets of the Employer, and no person entitled to payment hereunder
shall have any claim, right, security interest, or other interest in any fund,
trust, account, or other asset of the Employer that may be looked to for such
payment. The Employer's liability f or the payment of benefits hereunder shall
be evidenced only by this Plan.
8.2 INVESTMENTS TO FACILITATE PAYMENT OF BENEFITS. Although the Employer
is not obligated to invest in any specific asset or fund in order to provide the
means for the payment of any liabilities under this Plan, the Employer may elect
to do so and, in such event, no Participant shall have any interest whatever in
such asset or fund.
8.3 EMPLOYER OBLIGATION. The Employer shall have no obligation of any
nature whatsoever to a Participant under this Plan, except as otherwise
expressly provided herein.
8.4 WITHHOLDING OF INFORMATION, ETC. If, in connection with a
Participant's enrolling in the Plan, the Employer requests the Participant to
furnish evidence of insurability, the Participant dies, and it is determined
that the Participant withheld, knowingly concealed, or knowingly provided false
information about the bodily or mental condition or conditions that caused the
Participant's death, the Employer shall have no obligation to provide the
benefits contracted for on the basis of such withholding, concealment, or false
information.
End of Article VIII
13
<PAGE>
ARTICLE IX
TERMINATION OF EMPLOYMENT
This Plan does not in any way obligate the Employer to continue the
employment of a Participant with the Employer, nor does either limit the right
of the Employer at any time and for any reason to terminate the Participant's
employment. In no event shall this Plan by its terms or implications constitute
an employment contract of any nature whatsoever between the Employer and a
Participant. Termination of a Participant's employment with the Employer for
any reason, whether by action of the Employer or otherwise, shall immediately
terminate his participation in this Plan, and all further obligations of either
party thereunder, except as may be provided in Article IV.
End of Article IX
14
<PAGE>
ARTICLE X
TERMINATIONS, AMENDMENT, MODIFICATION OR
SUPPLEMENT OF PLAN
10.1 TERMINATION AMENDMENT, ETC. The Employer reserves the right to
terminate, amend, modify or supplement this Plan, wholly or partially, at any
time and f rom time to time; provided, however, that:
(a) No action to terminate or amend this Plan shall be taken except
upon written notice to each Participant to be affected thereby, which
notice shall be given not less than thirty (30) days prior to such action;
(b) The Employer shall take no action to terminate or amend this Plan
with respect to a Participant or his Beneficiary after the payment of any
benefit has commenced in accordance with Articles III, IV, or VI but has
not been completed; and
(c) The Employer shall take no action to amend the Plan in a manner
that results in the reduction of the Participant's Vested Deferred
Benefits.
10.2 RIGHTS AND OBLIGATIONS UPON TERMINATION. Upon the termination of this
Plan, this Plan shall not be of any further force and effect, and no party shall
have any further obligation under this Plan so terminated except as may be
provided f or in this Article X. Upon termination of this Plan, the Vested
Deferred Benefit of a Participant shall be determined using the Participant's
Years of Service prior to the termination date and the Participant shall not be
credited with any additional Years of Service, and Compensation earned after the
termination of the Plan shall not be taken into account. The Employer shall pay
such Vested Deferred Benefit at such time and in such manner as provided under
Articles III, IV and VI as if the Plan had not been terminated. Notwithstanding
the preceding sentence, in the event that a Change in Control occurs prior to or
coincident with the termination of the Plan, a Participant shall be fully vested
in his Deferred Benefit and such Benefit shall be determined and paid in
accordance with Section 5.2 hereof.
End of Article X
15
<PAGE>
ARTICLE XI
OTHER BENEFITS AND AGREEMENTS
The benefits provided for a Participant and his Beneficiary hereunder are
in addition to any other benefits available to such Participant under any other
program or plan of the Employer f or its employees, and, except as may otherwise
be expressly provided for, this Plan shall supplement and shall not supersede,
modify, or amend any other program or plan of the Employer or a Participant.
Moreover, benefits under this Plan shall not be considered compensation for the
purpose of computing contributions or benefits under any plan maintained by the
Employer that is qualified under section 401(a) of the Internal Revenue Code of
1986, as amended.
End of Article XI
16
<PAGE>
ARTICLE XII
RESTRICTION ON ALIENATION OF BENEFITS
No right or benefit under this Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber, or charge the same shall
be void. No right or benefit hereunder shall in any manner be liable for or
subject to the debts, contracts, liabilities, or torts of the person entitled to
such benefit. If any Participant or Beneficiary under this Plan should become
bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or
charge any right to a benefit hereunder, then such right or benefit shall, in
the discretion of the Company terminate, and, in such event, the Company shall
hold or apply the same or any part thereof for the benefit of such Participant
or Beneficiary, his or her spouse, children, or other dependents, or any of
them, in such manner and in such portion as the Company, in its sole and
absolute discretion, may deem proper.
End of Article XII
17
<PAGE>
ARTICLE XIII
ADMINISTRATION OF THIS PLAN
13.1 APPOINTMENT OF COMMITTEE. The general administration of this Plan, as
well as construction and interpretation thereof, shall be vested in the
Committee, the number and members of which shall be designated and appointed
from time to time by, and shall serve at the pleasure of, the Board of
Directors; provided, however, that a Committee member who is also a Participant
hereunder shall not have the power or authority to make any decision or
interpret this Plan in any manner which may affect the amount of benefits
payable to him, the form of benefits payable to him, or the timing of the
payment of benefits to him. The interested Committee member shall abstain from
any decision which could affect the amount, timing or form of his Deferred
Benefit. Any such member of the committee may resign by notice in writing filed
with the secretary of the Committee. Vacancies shall be filled promptly by the
Board of Directors. Each person appointed a member of the Committee shall
signify his acceptance by filing a written acceptance with the secretary of the
Board of Directors.
13.2 COMMITTEE OFFICIALS. The Board of Directors shall designate one of
the members of the Committee as chairman and shall appoint a secretary who need
not be a member of the Committee. The secretary shall keep minutes of the
Committee's proceedings and all data, records and documents relating to the
Committee's administration of this Plan. The Committee may appoint from its
number such subcommittees with such powers as the Committee shall determine and
may authorize one or more of its members or any agent to execute or deliver any
instrument or make any payment on behalf of the Committee.
13.3 COMMITTEE ACTION. All resolutions or other actions taken by the
Committee shall be by the vote of a majority of those members present at a
meeting at which a majority of the members are present, or in writing by all the
members at the time in office if they act without a meeting. . :
13.4 COMMITTEE RULES AND POWERS - GENERAL. Subject to the provisions of
this Plan, the Committee' shall from time to time establish rules, forms, and
procedures for the administration of this, Plan.
13.5 RELIANCE ON CERTIFICATES, ETC. The members of the Committee and the
officers and directors of the Employer shall be entitled to rely on all
certificates and reports made by any duly appointed accountants, and on all
opinions given by any duly appointed legal counsel. Such legal counsel may be
counsel for the Employer.
18
<PAGE>
13.6 LIABILITY OF COMMITTEE. No member of the Committee shall be liable
for any act or omission of any other member of the Committee, or for any act or
omission on his own part, excepting only his own willful misconduct. The
Employer shall indemnify and save harmless each member of the Committee against
any and all expenses and liabilities arising out of his membership on the
Committee, excepting only expenses and liabilities arising out of his own
willful misconduct. Expenses against which a member of the Committee shall be
indemnified hereunder shall include, without limitation, the amount of any
settlement or judgment, costs, counsel fees, and related charges reasonably
incurred in connection with a claim asserted, or a proceeding brought, or
settlement thereof. The foregoing right of indemnification shall be in addition
to any other rights to which any such member may be entitled as a matter of law.
13.7 INFORMATION TO COMMITTEE. To enable the Committee to perform its
functions, the Employer shall supply full and timely information to the
Committee on all matters relating to the compensation of all Participants, their
retirement, death or other cause for termination of employment, and such other
pertinent facts as the Committee may require.
13.8 EXPENSES OF THE COMMITTEE. The members of the Committee shall serve
without compensation, but all expenses of the Committee shall be paid by the
Employer. Such expenses shall include all expenses incident to the functioning
of the Committee including, without limitation, fees of accountants, counsel,
and other specialists and other costs of administering the Plan.
End of Article XIII
19
<PAGE>
ARTICLE XIV
ADOPTION OF PLAN BY SUBSIDIARY
AFFILIATED OR ASSOCIATED COMPANIES
Any corporation that is a subsidiary may, with the approval of the Board of
Directors, adopt this Plan and thereby come within the definition of Employer in
Article I hereof. Such adoption shall be effectuated by and evidenced by a
formal instrument executed by the adopting organization and delivered to the
company. The sole, exclusive right of any amendment of whatever kind or extent
to this Plan or the Trust is reserved by the Company. It shall not be necessary
or permitted for the adopting organization to sign or execute the original or
then amended or subsequently amended Plan documents. The effective date of this
Plan for any such adopting organization shall be that stated in the instrument
of adoption. The Company's administrative powers and right to amend and appoint
and remove the Committee and their successors, shall not be diminished by reason
of the participation of any Employer in this Plan.
End of Article XIV
20
<PAGE>
ARTICLE XV
MISCELLANEOUS
15.1 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any Participant, a
Participant's legal representative, or Beneficiary in accordance with the
provisions of this Plan, to the extent thereof, shall be in full satisfaction of
all claims hereunder against the Employer. The Employer may require such
Participant, legal representative, or Beneficiary, as a condition precedent to
such payment, to execute a receipt and release therefor in such form as it may
determine.
15.2 NO GUARANTEE OF INTERESTS. Neither the Committee nor any of its
members guarantees the payment of any amounts which may be or becomes due to any
person or entity under this Plan. The liability of the Employer to make any
payment under this Plan is limited to the assets available to general creditors
of the Employer, including the assets, if any, in the Input/Output, Inc.
Supplemental Executive Retirement Trust.
15.3 EMPLOYER RECORD. Records of the Employer as to a Participant's
employment, termination of employment and the reason therefor, reemployment,
authorized leaves of absence, and compensation shall be conclusive on all
persons and entities, unless determined to be incorrect.
15.4 EVIDENCE. Evidence required of anyone under this Plan may be by
certificate, affidavit, document, or other information which the person or
entity acting on it considers pertinent and reliable, and signed, made, or
presented by the proper party or parties.
15.5 NOTICE. Any notice which shall be or may be given under this Plan
shall be in writing and shall be mailed by United States mail, postage prepaid.
If notice is to be given to the Employer, such notice shall be addressed to the
Company at:
Input/Output, Inc.
4235 Greenbriar Drive
Stafford, Texas 77477-3918
marked to the attention of the Secretary, Administrative Committee,
Input/Output, Inc. Supplemental Executive Retirement Plan; or, if notice to a
Participant, addressed to the address shown on such Participant's Beneficiary
designation form.
15.6 CHANGE OF ADDRESS. Any party may, from time to time, change the
address to which notices shall be mailed by giving written notice of such new
address.
21
<PAGE>
15.7 EFFECT OF PROVISIONS. The provisions of this Plan shall be binding
upon the Employer and its successors and assigns, and upon a Participant, his
Beneficiary, assigns, heirs, executors, and administrators.
15.8 HEADINGS. The titles and headings of Articles and Sections are
included for convenience of reference only and are not to be considered in the
construction of the provisions hereof.
15.9 GOVERNING LAW. All questions arising with respect to this Plan shall
be determined by reference to the laws of the State of Texas, as in effect at
the time of their adoption and execution, respectively.
End of Article XV
22
<PAGE>
ARTICLE XVI
CLAIMS PROCEDURE
16.1 CLAIMS PROCEDURE. Claims for benefits under this Plan shall be filed
on forms supplied by the Committee with the Board of Directors. Written notice
of the disposition of a claim shall normally be furnished the claimant within
ninety (90) days after the application therefor is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth,
pertinent provisions of the Plan shall be cited and, where appropriate, an
explanation as to how the claimant can perfect the claim will be provided.
16.2 Claims Review Procedure. Any Participant or Beneficiary who has been
denied a benefit, or feels aggrieved by any other action of the Committee shall
be entitled, upon request to the Board of Directors and if he has not already
done so, to receive a written notice of such action, together with a full and
clear statement of the reasons for the action. If the claimant wishes further
consideration of his position, he may request a hearing from the Board of
Directors. Such form, together with written statement of the claimant's
position, shall be filed with the Board of Directors no later than ninety (90)
days after receipt of the written notification provided for above or in Section
16.1. The Board of Directors shall normally schedule an opportunity for a full
and fair hearing of the issue within the next thirty (30) days, if feasible.
The decision following such hearing shall be made within thirty (30) days and
shall be communicated in writing to the claimant.
End of Article XVI
23
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
as of the 28th day of July, 1994, by its Chief Executive Officer pursuant to
prior action taken by the Board.
INPUT/OUTPUT, INC.
By:
Gary D. Owens
President and Chief Executive
Officer
Attest:
Robert P. Brindley
Secretary
24
<PAGE>
24
INPUT/OUTPUT,.INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WAIVER AND BENEFICIARY DESIGNATION FORM
ANNEX I
I acknowledge that, as an employee of ___________________________________,
I have been offered an opportunity to participate in the Input/output, Inc.
Supplemental Executive Retirement Plan (the "Plan"), a copy of which is attached
hereto as Exhibit "A". By my signature below, I am waiving any preferential
treatment that I may have now or in the future over the general creditors of the
Company to assets of the Company in the event of the Company's insolvency. I
acknowledge that I will be a general creditor of the Company and will not be
entitled to any specific asset or fund of the Company in the event of the
Company's insolvency.
My spouse is the. beneficiary of the benefits payable under the Plan in the
event of my death.
NAME OF SPOUSE
DATE OF BIRTH
I understand that the Plan may be terminated at any time, in the sole
discretion of the Company, without any obligation of any nature whatsoever to
the Company, except I shall be entitled to my vested benefit under the Plan as
of the termination in accordance with Section 10. 2 of the Plan. I understand
that I must inform the Committee of the Plan in the event my marital status
changes.
25
25
<PAGE>
PARTICIPANT:
(Signature)
(Type or print name)
(Address of Participant)
26
<PAGE>
AMENDMENT NO. 1 TO
INPUT/OUTPUT, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, effective June 4, 1992, the Input/Output, Inc. Supplemental
Executive Retirement Plan (the "Supplemental Retirement Plan" or the "Plan") was
established by Input/Output, Inc. (the "Company") to provide for the payment of
certain pension and pension-related benefits to a select group of management and
highly compensated employees who contribute materially to the continued growth,
development and further business success of the Company; and
WHEREAS, the Company retained the power to amend the Supplemental
Retirement Plan pursuant to Section 10.1 of the Plan; and
WHEREAS, the Company desires to amend the Supplemental Retirement Plan to
clarify and correct certain provisions to ensure that the Company's purpose is
carried out;
NOW, THEREFORE, in consideration of the premises and pursuant to the
amendment authority reserved thereunder, effective as of January 17, 1997, the
Plan is hereby amended as hereinafter set forth:
I.
Section 1.1(a) is amended by adding the following sentence at the end of
the definition of "Actuarial Equivalent":
"PROVIDED, HOWEVER, that in the event that a Change of Control occurs, the
following mortality table and interest rate shall be used to determine the
Actuarial Equivalent for any form of benefit with respect to (i) any
Participant whose employment terminates within 24 months after such Change
of Control and (ii) any Participant or Beneficiary who is receiving
payments in the form of an annuity under Article III, Section 4.1, Section
4.3, or Section 4.4 at the time of a Change of Control; and, PROVIDED
FURTHER, that this provision may not be amended at any time prior to that
date which is two years following such Change of Control:
Interest: the prevailing interest rate on 30-year Treasury
securities for the month ended immediately prior to the
date of the Change of Control;
Mortality: 1971 Group Annuity Mortality Table for Males set back
one year."
<PAGE>
II.
Section 4.6 is hereby amended in its entirety to read as follows:
"4.6 LUMP SUM SETTLEMENT. A Participant who becomes entitled to
payment of his Vested Deferred Benefit due to Normal Retirement or Early
Retirement, or who terminates employment after a Change of Control, may
upon thirty (30) days written notice to the Company, receive a settlement
of his Deferred Benefit in a single lump sum payment. If the Participant
becomes entitled to payment of his Vested Deferred Benefit due to (i)
Normal Retirement, (ii) Early Retirement, or (iii) involuntary termination
of his employment by the Company after a Change of Control, the lump sum
amount which the Participant shall be entitled to receive shall be equal
to the present value of the portion of his Vested Deferred Benefit which
has not been paid. In addition, if a Participant or a Participant's
Beneficiary is receiving payments in the form of an annuity under Article
III, Section 4.1, Section 4.3, or Section 4.4 of this Plan, then upon a
Change of Control, the Participant or Beneficiary (as applicable) may, upon
thirty (30) days written notice to the Company, require that payment of
benefits shall be accelerated and paid as a lump sum in an amount equal to
the present value of the portion of the Participant's Vested Deferred
Benefit which has not been paid. If the Participant becomes entitled to
payment of his Vested Deferred Benefit due to voluntary termination of
employment by the Participant after a Change of Control, the amount which
the Participant receives shall be equal to the present value of the portion
of his Vested Deferred Benefit which has not been paid REDUCED BY a penalty
in the amount of twenty percent (20%) of such present value. In all such
cases, such present value shall be equal to the Actuarial Equivalent of the
Vested Deferred Benefit which has not been paid. After receiving such
notice from a Participant who is currently receiving periodic payments, the
Company shall thereupon cease making such payments. The Company shall make
any lump sum payment required under this Section 4.6 in one payment to the
Participant within sixty (60) days after the Company's receipt of the
applicable notice. In the event the Participant dies before the lump sum
is paid, the Company shall pay the lump sum amount to the Participant's
Beneficiary, or if no Beneficiary of the Participant is then living, such
amount shall be paid to the Participant's estate."
III.
Section 4.7 is amended in its entirety to read as follows:
"4.7 GOLDEN PARACHUTE EXCISE TAX. In addition to the Participant's
Vested Deferred Benefit payable under the Plan, the Company hereby agrees
to indemnify and hold harmless, on a net after-tax basis, the Participant
from
- 2 -
<PAGE>
and against any excise tax liability arising under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any successor
provision thereto, including any federal, state or local income or other
tax liability arising from the payment by the Company pursuant to such
indemnity and/or any additional federal excise taxes arising under Section
4999 of the Code related thereto (collectively, the "Excise Tax Protection
Amounts") with respect to the Participant 's receipt of any payments and
benefits under the Plan. Such indemnity shall include (A) any and all
interest, penalties, or other assessments incurred by the Company or the
Participant for the failure to have timely paid any of the Excise Tax
Protection Amounts to any governmental authority, and (B) any and all
claims, losses, damages, including interest and penalties, costs or
reasonable expenses (including reasonable attorneys' and professional fees)
incurred by the Company or the Participant from, in connection with, or
arising out of, the challenge by the Company, either on its own behalf or
for and on behalf of the Participant, of any governmental authority's right
to collect from the Company or the Participant all or any portion of the
Excise Tax Protection Amounts; PROVIDED, HOWEVER, that the Participant's
attorneys shall be selected by the Company and be reasonably acceptable to
the Participant and, PROVIDED, FURTHER, that the Company will not be liable
to the Participant for any penalty or other assessment or interest
attributable to such penalty or other assessment if the Company has
requested the Participant to disclose any item indemnified hereunder on any
tax return filed by the Participant and the Participant has failed to
disclose such item on such return in the manner requested by the Company.
In the case of any claims, losses, damages, fees, costs, or expenses billed
to the Participant that are subject to the Company's indemnification
obligation under this SECTION 4.7, the Company hereby agrees to pay any and
all such amounts within the later to occur of the due date provided by law
or as soon as practicable after receipt of the invoice for such amounts,
and the Company hereby agrees to indemnify and hold the Participant
harmless from and against any and all claims, damages (including interest
and penalties), fees, costs (including costs of collection) and expenses
paid by the Participant or charged to the Participant that relate to or
arise out of the Company's failure to timely pay any and all such amounts."
IV.
Except as expressly amended by the terms of this Amendment No. 1, the
remaining terms of the Plan shall remain in full force and effect.
- 3 -
<PAGE>
EXECUTED this 26th day of March, 1997, effective as of January 17, 1997.
INPUT/OUTPUT, INC.
By: /s/ Gary D. Owens
----------------------------------------
Its: President and Chief Executive Officer
----------------------------------------
- 4 -
<PAGE>
INPUT/OUTPUT, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT TRUST
This Agreement made as of this 20th day of July , 1992, by and between
Input/Output, Inc. (the "Company"), a corporation organized under the laws of
the State of Delaware, and First Interstate Bank of Texas, N.A. (the "Trustee"),
in order to create an irrevocable trust known as the Input/Output, Inc.
Supplemental Executive Retirement Trust (the "Trust") for the benefit of the
individuals who have been selected by the Company to participate in the
Input/Output, Inc. Supplemental Executive Retirement Plan, a copy of which is
attached hereto as Exhibit A (the "Plan"), and their beneficiaries.
WITNESSETH:
WHEREAS, the Company has established the Input/Output, Inc. Supplemental
Executive Retirement Plan to provide retirement income and death benefits for
certain members of the management group of the Company and its subsidiaries and
highly compensated employees of the Company and its subsidiaries ("Plan
Participants") and their beneficiaries; and
WHEREAS, the amount, if any, and the timing of benefit payments ("Deferred
Benefits") to which the Plan Participants or their beneficiaries shall be
entitled are determined by the terms of the Plan; and
WHEREAS, the Company wishes to establish the Trust and to transfer to the
Trust assets which shall be held therein until paid to Plan Participants as
Deferred Benefits in such manner and at such times as specified in the Plan,
subject, however, to the claims of the Company's general creditors in the event
of the Company's insolvency as defined in Section 6 hereunder; and
WHEREAS, the Company is obligated to pay in accordance with the Plan
Deferred Benefits from its general assets to the extent not paid by this Trust,
and the establishment of the Trust shall not reduce or otherwise affect the
Company's liability to pay Deferred Benefits, except that the Company's
liability shall be discharged by actual payment of Deferred Benefits from this
Trust; and
WHEREAS, the Company intends that the Trust assets shall at all times be
subject to the claims of its general creditors as herein provided and that the
Plan shall not be deemed to be funded within the meaning of the Internal Revenue
Code of 1986, as amended, and the Employee Retirement Income Security Act of
1974, as amended, solely by virtue of the existence of this Trust.
NOW, THEREFORE, in consideration establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
1
<PAGE>
1. ESTABLISHMENT OF TRUST FUND: PURPOSE. The purpose of this Trust is to
discharge the obligations of the Company to Plan Participants and to creditors
of the Company in the event of the Company's insolvency. The Company hereby
conveys, transfers and deposits with the Trustee in trust one Dollar ($1.00) in
cash which shall become the original principal of the Trust to be held,
administered and disposed of by the Trustee along with any subsequently
contributed cash or property as provided in this Trust Agreement. This Trust
shall be irrevocable until termination as provided in SECTION 6 hereof. The
Trust is intended for Federal income tax purposes to be a grantor trust, within
the meaning of section 671 of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
2. USE OF TRUST FUNDS. The principal of the Trust, and any earnings
thereon shall beheld separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes herein set forth. Neither
the Plan Participants, their beneficiaries, nor the Plan shall have any
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust prior to the time such assets are paid to Plan Participants or their
beneficiaries as Deferred Benefits as provided in Section 3, and all rights
created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan Participants against the Company.
3. PAYMENTS BY THE TRUSTEE. When Deferred Benefits are due and payable
to a Plan Participant or his beneficiary under the terms of the Plan, the
Company shall promptly direct the Trustee to pay to the Plan Participant or his
beneficiary the Deferred Benefits in such amounts, in such form and over such
period as may be provided in the Plan. Upon its receipt of such written
directions from the Company and provided this Trust has not then terminated
pursuant to paragraph (c) of SECTION 6 hereof, the Trustee shall promptly pay
such Deferred Benefits as provided in the written directions to the Plan
Participant or his beneficiary.
4. FAILURE TO PAY. In the event that the Company shall fail or refuse to
direct the Trustee to pay to a Plan Participant or his beneficiary any amount
claimed by a Plan Participant or his beneficiary to be due and payable to such
Plan Participant or his beneficiary under the terms of the Plan, the Trustee,
provided this Trust has not then terminated pursuant to paragraph (c) of SECTION
6 hereof, shall promptly pay such amount to the Plan Participant or beneficiary
upon satisfaction of the following conditions:
(a) The Plan Participant or the beneficiary presents a sworn written
statement subject to penalty of perjury (substantially in the form of
Exhibit B hereto) to the Trustee and the Company simultaneously that such
amount is due and payable;
2
<PAGE>
(b) Upon receipt of the statement, the Trustee confirms the Company's
receipt of the statement by sending a copy of such statement (by registered
mail) to the Company within ten (10) business days after the Trustee's
receipt of such statement; and
(c) The Company confirms the Plan Participant's or the beneficiary's right
to payment, or fails to provide a controverting affidavit to Trustee
denying the Plan Participant's or the beneficiary's right to payment under
the terms of the Plan and this Trust within fifteen (15) business days
after the Company's initial receipt of notice of demand for payment.
In the event that the Company provides a controverting affidavit to
the Trustee disputing the Plan Participant's or the beneficiary's right to
payment under the terms of this Trust, the Trustee shall pay the disputed
amount into court pending a judicial resolution of such Plan Participant's
or such beneficiary's right to payment. Under no circumstances shall such
payment exceed the amount held hereunder for the account of such Plan
Participant as reflected in the records of the Trust.
5. FUNDING OF THE TRUST. The Company and the Trustee agree that the Trust
hereby created has been established to pay obligations of the Company under the
Plan. The Company may make contributions to the Trust at any time and from time
to time, in cash or in kind, to augment the Trust's assets. The Company shall
make a contribution each year in an amount equal to $200,000; provided, however,
that the Board of Directors, in its discretion, may reduce the contribution or
determine that a contribution shall not be made.
Notwithstanding the above, upon a "change in control" of the Company (by
merger, consolidation, sale or acquisition of assets or stock or otherwise), the
Company shall contribute to the Trust such amount as is needed to fund the
present value of the Deferred Benefits payable at age sixty-five (65) to the
individuals who are Participants in the Plan (or their beneficiaries) during
the. calender year in which the "change in control" occurs. The amount which
the Company shall contribute and the Deferred Benefits shall be decided by an
actuary selected by the Trustee who is independent of the Company. For purposes
of this Trust, a "change in control" shall mean (1) any consolidation or merger
of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's common stock would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Company's common stock immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, (2) any sale, lease,
exchange transfer (excluding transfer by way of pledge or hypothecation), in one
transaction or a series of related transactions, of all, or substantially all,
of the assets of the Company, (3) the stockholders of the Company approve any
plan or proposal
3
<PAGE>
for the liquidation or dissolution of the Company, (4) any "person" (as such
term is defined in Section 3(a)(9) or Section 13(d)(3) under the Securities
Exchange Act of 1934 (the "1934 Act") or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the Company or any
successor of the Company or any subsidiary of the Company or any employee
benefit plan of the Company or any subsidiary (including such plan's trustee),
becomes a beneficial owner for purposes of Rule 13d-3 promulgated under the 1934
Act, directly or indirectly (4) of securities of the Company representing 50.1%
or more of the Company's then outstanding securities having the right to vote in
the election of directors, or (5) during any period of two consecutive years,
individuals who, at the beginning of such period constituted the entire Board,
cease for any reason (other than death) to constitute a majority of the
directors, unless the election, or the nomination for election, by the Company's
stockholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
6. TERMINATION. This Trust shall terminate upon the first to happen of
the following:
(a) The date the Trustee receives from all Plan Participants who are
entitled to payment under the terms of the Plan signed statements
(substantially in the form of Exhibit C hereto) to the effect that the
Company has satisfied all of its obligations under the Plan;
(b) The date all assets held hereunder are distributed;
(c) The date the Company files a voluntary petition in bankruptcy or is
adjudicated a bankrupt or an insolvent or files any petition or answer
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under the present or
any future state or Federal bankruptcy act or any other present or future
applicable statute or law relative to bankruptcy, insolvency or other
relief for debtors, or seeks or consents to or acquiesces in the
appointment of any trustee, receiver, conservator, or liquidator for itself
or any substantial part of its properties (the term "acquiesce" including,
but not being limited to, the failure to file a petition or notion or
pleading to vacate or discharge any order, judgment, or decree providing
for. such appointment within ten (10) days after the appointment); or a
court of competent jurisdiction enters an order, judgment or decree
approving a petition filed against the Company seeking any similar relief
under the present or any future state or Federal bankruptcy act, or any
other present or future applicable Federal, state, or other statute or law
relating to bankruptcy, insolvency, or other relief for debtors, and the
Company acquiesces in the entry of such order, judgment or decree (the term
"acquiesce" including, but not being limited to, the failure to file a
petition or motion to vacate or discharge the order, judgment or decree
within ten (10) days after
4
<PAGE>
the entry of the order, judgment or decree); or the Company does not
acquiesce or consent and such an order, judgment or decree becomes final
and nonappealable or, if appealed, all such appeals have been resolved and
the order, judgment or decree is effective; or the Company admits in
writing its insolvency or the Company becomes insolvent or the Company
gives notice to any governmental body of insolvency or pending insolvency,
or suspension or pending suspension of operations; or the Company makes an
assignment for the benefit of creditors takes any other similar action for
the protection or benefit of creditors; or
(d) The twenty-first (21st) anniversary of the death of the last surviving
individuals who were Plan Participants on the date of execution of this
Trust Agreement.
The Board of Directors and the Chief Executive and Chief Financial Officers
of the Company hereby agree immediately to notify the Trustee in writing of any
facts or circumstances which could result in an application of paragraph (c)
above, and the Trustee shall determine whether paragraph (c) above is
applicable. If the Trustee receives information or notice from any sources
other than the Company or its Board of Directors or the Chief Executive Officer
as to any facts or circumstances which could result in an application of
paragraph (c) above, the Trustee shall determine, based on its own
investigation, whether paragraph (c) is applicable. During the period when the
Trustee is making its determination as required in the preceding two sentences,
it shall suspend all payments under this Trust to any Plan Participant or his
beneficiary. SECTION 14 shall apply to any action taken by the Trustee under
this SECTION 6. For purposes of this Trust, the term "insolvency" shall mean
(i) the inability of the company to satisfy its obligations as they mature, (ii)
that total liabilities exceed total assets of the company, or (iii) both (i) and
(ii) of this sentence.
7. PROCEDURE UPON TERMINATION. Upon termination of the Trust, all assets
and property of the Trust to the extent not previously distributed shall be paid
or delivered to the Company, and such assets and property shall be subject to
the claims of the Company's creditors as if such assets and property were the
general assets of the Company; provided, however, that the Trustee may withhold
from such assets and property (i) any amounts due and unpaid to the Trustee in
respect of fees and expenses payable to the Trustee hereunder and (ii) any taxes
required to be paid out of the trust estate. In the event of a termination of
the Trust, the Plan Participants and their beneficiaries shall have no greater
rights with respect to the assets of the Trust than those possessed by general
creditors of the Company under applicable Federal and state law. In addition,
each Plan Participant, as a condition precedent to receiving payments from this
Trust, agrees, in the event of termination of the Trust for reasons specified in
paragraph (c) of SECTION 6, to waive any lien
5
<PAGE>
under Texas law which he might otherwise be able to assert as an employee of the
Company with respect to Deferred Benefits payable from this Trust.
8. TAX STATUS OF THE TRUST. The assets of the Trust shall be used,
subject to the rights of creditors of the Company as specified in paragraph (c)
of SECTION 6, to discharge obligations of the Company. Accordingly, the Trust
is a "grantor trust" under the provisions of Sections 671 through 677 of the
Internal Revenue Code of 1986, as amended. The Company hereby agrees to
properly include all items of revenue and expense of the Trust on its Federal
income tax return filed with the Internal Revenue Service.
9. LIMITATIONS ON USE OF TRUST ASSETS. Subject to SECTION 7 herein, no
part of the assets of the Trust, or the income and gains therefrom, shall be
recoverable by the Company or used for any purpose other than (i) paying
Deferred Benefits to Plan Participants or their beneficiaries; (ii) defraying
reasonable expenses of administration in accordance with this Trust Agreement
that are not paid by the Company; and (iii) in the event of termination of this
Trust as a result of the Company's bankruptcy or insolvency as specified in
paragraph (c) of SECTION 6, to pay creditors of the Company.
Notwithstanding the above, the Company may recover at anytime, an amount
equal to the excess of the fair market value of the assets of the Trust on the
preceding May 31 over 125% of the present value as of the preceding May 31 of
the vested Deferred Benefits payable at age sixty-five (65) to Participants in
the Plan (or their beneficiaries) on the date the excess amount is requested.
Such amount shall be determined by the actuary for the Plan; provided, however,
that value of assets contributed to the Trust before a Change in Control, as
defined under SECTION 5 hereof, shall not be taken into account in determining
such excess. The Company shall request such excess in writing, no later than
July 31. The Trustee shall pay such excess amount to the Company within a
reasonable time after request by the Company and review by the Trustee.
10. TRUSTEE POWERS AND DUTIES. Subject to any limitations stated
elsewhere herein, in addition to the authority, rights, privileges, powers and
duties elsewhere herein vested in the Trustee and those now or hereafter
conferred by law, the Trustee shall also have the following authority, rights,
privileges, powers and duties:
(a) To hold, manage, control, collect and use the assets of the Trust in
accordance with the terms of this instrument.
(b) To sell (for cash, on credit or both) exchange, or otherwise dispose
of, the whole or any part of the assets of the Trust, at public or private
sale; to lease (including, but not limited to, oil, gas, or mineral
leases), rent, mortgage
6
<PAGE>
(including purchase money mortgages), pledge, or otherwise encumber, the
whole or any part of the Trust; and to loan or borrow money in any manner,
including by joint and several obligations, upon such terms and regardless
of the duration of the Trust, as the Trustee may deem advisable.
(c) To invest or reinvest the Trust in property of any description
whatsoever (including, but not limited to, oil, gas, or mineral interests;
common or preferred stock; shares of investment trusts or companies; bills,
notes and other evidences of indebtedness; non-income producing property;
and property outside of Texas).
(d) To make or hold investments of any part of the Trust in common or
undivided interest with other persons or entities, including an undivided
interest in any property in which any Trustee, individually or otherwise,
may hold an undivided interest; and to buy from or sell to any person or
entity to the extent not otherwise prohibited herein.
(e) Any other investment selected by the Trustee which is qualified to
receive investments from the Trust, including shares of any open-end or
closed-end investment company registered under the Investment Company Act
of 1940 (15 U.S.C. Section 80a-1, ET. SEQ.), as amended. The Trustee shall
not be precluded from making such investment in an open-end investment
company on the grounds that an investment company is organized, sponsored
or controlled by the Trustee or an affiliate of the Trustee, or on the
grounds that the Trustee or an affiliate of the Trustee provides services
to such investment company as investment advisor, custodian, transfer
agent, registrar, distributor or otherwise. The Trustee is specifically
authorized to invest in shares of the investment portfolios offered by the
Westcore Trust, subject to compliance with applicable Department of Labor
and Treasury Department requirements.
Any amounts added to any of such funds at any time shall be subject to
all of the provisions of such funds, as amended from time to time.
(f) To deposit or invest all or a part of the Trust in savings accounts,
certificates of deposit or other deposits which bear a reasonable rate of
interest in a bank or similar financial institution, including the
commercial department of the Trustee or its agent, if such bank or other
instruction is supervised by any agency of a state or the federal
government.
(g) To employ and compensate such attorneys, counsel, brokers, banks,
investment advisors or other agents or employees and to delegate to them
such of the duties, rights and powers of the Trustee (including the power
to vote
7
<PAGE>
shares of stock) as may be deemed advisable in handling and administering
the Plan.
(h) To partition any property or interest held as a part of the Trust and,
in any and all such partitions, to pay or receive such money or property as
may be necessary or advisable to equalize differences; to make any
distribution from the Trust in cash or other property (including any
undivided interest in any property) or both, in any manner whatsoever
(including composing shares differently); and to evaluate any property
belonging to the Trust.
(i) To institute, join in, maintain, defend, compromise, submit to
arbitration or settle any litigation, claim, obligation or controversy with
respect to any matter affecting the Trust, regardless of the manner in
which such matter may have arisen, all in the name of the Trustee and
without the joinder of any Participant.
(j) To vote, in person or by proxy, any stocks or other securities having
voting rights; to exercise any conversion privileges, subscription rights,
or other options and to make any payments incidental thereto; to consent to
or participate in any merger, reorganization, consolidation, or other
change affecting any corporate security in the Trust; and generally to
exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property held in the Trust as part of the Trust.
The Trustee is also authorized to exercise all the rights, powers, options
and privileges now or hereafter granted to, provided for, or vested in, trustees
under the Texas Property Code, except in matters such as conflict with the terms
of this instrument or applicable law. As far as possible, no subsequent
legislation or regulation shall be in limitation of the rights, powers or
privileges granted the Trustee hereunder or in the Texas Property Code as it
exists at the time of the execution hereof. Generally, the Trustee shall have,
hold, manage, control, use, invest and reinvest, disburse, and dispose of the
Trust under all circumstances to the same extent as if the Trustee were the
owner thereof in fee simple, subject only to such limitations as are contained
herein and such applicable laws as cannot be waived, including the right to
purchase life insurance on Plan Participants and exercise all rights of
ownership with respect to such insurance; provided, however, that the Board of
Directors may direct the Trustee as to the investment or disposition of some or
all of the Trust's assets or delegate to an individual or a committee of
individuals the right to direct the Trustee as to the investment or disposition
of Trust assets, or may delegate such right and authority to an investment
manager pursuant to SECTION 11. The Trustee shall have the right, power and
authority to do on behalf of this Trust all things which, in its sole judgment,
are necessary, proper or desirable to carry out the above-described duties and
responsibilities; provided, however, that the Trustee is expressly prohibited
from exercising any of its powers primarily for the benefit of the Company
rather than for the benefit of the Plan Participants and their beneficiaries.
8
<PAGE>
11. APPOINTMENT OF INVESTMENT MANAGER. The Company may appoint an
investment manager or managers to manage (including the power to acquire or
dispose of) the assets of the Trust (or a portion thereof). The Trustee shall
not be liable for the acts or omissions of such investment manager, or be under
any obligation to invest or otherwise manage any assets of the Trust which are
subject to the management of such investment manager. An investment manager
shall have full power and authority to manage, acquire or dispose (or direct the
Trustee with respect to acquisition or disposition) of any Trust assets under
its control. In the event that the Company exercises this right, the Company
shall certify to the Trustee and the investment manager the scope of the duties
and responsibilities of the investment manager. An investment manager shall be
either (a) registered as an investment adviser under the Investment Advisor Act
of 1940, (b) a bank, as defined in the Investment Advisor's Act of 1940, or (c)
an insurance company qualified to manage, acquire or dispose of Trust assets
under the laws of more than one state.
Upon its appointment, an investment manager shall certify and acknowledge
in writing to the Company and the Trustee that he is a fiduciary with respect to
this Trust, and that he has assumed the duties and responsibilities conferred
upon him by the Company. The duties, responsibilities, and authority of any
investment manager may be revoked or modified by the Company or its authorized
representative at any time by written notice to such investment manager and to
the Trustee. Any investment manager duly appointed and authorized by the
Company, shall, during the period of his appointment, possess fully and
absolutely those powers, rights and duties of the Trustee (to the extent
delegated and to the extent permissible under the terms of this Trust) with
respect to the investment or reinvestment of that portion of the assets over
which such investment manager has investment management authority.
During any period of time when such investment manager is so appointed and
serving, and with respect to those assets of the Trust over which such
investment manager exercises investment management authority, the Trustee's
responsibility shall be limited to holding such assets as a custodian, providing
accounting services, disbursing benefits as authorized, and executing such
investment instructions only as directed by such investment manager. The
Trustee shall not be responsible for any acts or omissions of such investment
manager. Any instrument duly signed by such investment manager (or the
authorized representative of such investment manager) purporting to evidence any
instruction, direction or order of such investment manager with respect to the
investment of those assets of the Trust over which the investment manager has
authority shall be accepted by the Trustee.
12. WITHHOLDING. Anything herein to the contrary notwithstanding, all
payments required to be made hereunder by the Trustee to the Plan Participant or
his beneficiary shall be subject to withholding of such amounts, if any,
relating to tax or other payroll deductions as the Trustee is required to
withhold pursuant to any applicable laws or regulations. The Company shall
determine for the Trustee all amounts that the Trustee is required to withhold,
and the Trustee shall be fully protected in relying on such determination.
13. TITLE TO TRUST ASSETS. Legal title to any and all assets held in this
Trust shall be vested in the Trustee, and beneficial ownership of any and all
such assets shall at all times be vested in the Company. No Plan Participant or
beneficiary shall under any
9
<PAGE>
circumstances acquire any right, title or interest in and to any assets of the
Trust or the Company. In addition, nothing in this Trust shall be deemed to
create a fiduciary relationship between the Plan Participant or his beneficiary
and the Trustee or the Company or to limit the Company's right, subject to any
existing employment contracts or other agreements provisions to the contrary, to
terminate the Plan Participant's employment at any time.
14. LIABILITY OF TRUSTEE. The Trustee shall not be liable, responsible,
or accountable for damages or otherwise to this Trust, the Company, any Plan
Participant, or any beneficiary for any action taken or failure to act on behalf
of this Trust within, the scope of the authority conferred upon the Trustee by
this Trust Agreement or by law, unless such act or omission was performed or
committed fraudulently or constitutes gross negligence; provided, however, the
Trustee shall in no event be liable, responsible or accountable for damages or
otherwise to this Trust, the Company, or any Plan Participant or any beneficiary
of this Trust for any action taken by the Trustee pursuant to a direction by the
Company or anyone to whom the Company has delegated such authority.
15. INDEMNIFICATION OF TRUSTEE. The Company shall indemnify and hold the
Trustee harmless from and against any loss, expense, damage or injury suffered
or sustained by it by reason of any acts, omissions or alleged acts or omissions
arising out of its activities on behalf of the Trust or in furtherance of the
interests of this Trust, including but not limited to the performance of any of
its duties or obligations hereunder, but excluding losses, expenses, damages or
injuries resulting from the Trustee's fraud or gross negligence; provided,
however, the Trustee shall in any event be indemnified and held harmless from
and against any loss, expense, damage or injury suffered or sustained by the
Trustee due to any action taken by the Trustee pursuant to a direction by the
Company or anyone to whom the Company has delegated such authority. In the
event the Trustee becomes involved in litigation in connection with this Trust,
the Company agrees to indemnify and hold the Trustee harmless from all losses,
costs, damages and expenses, including, but not limited to, reasonable
attorneys, fees, suffered or incurred by the Trustee as a result thereof.
For purposes of SECTIONS 12, 14, and 15, payment of any assets held
hereunder by the Trustee pursuant to a demand upon the Trustee by a Plan
Participant or his beneficiary for payment of benefits under the Plan, if made
in accordance with SECTION 4 hereof, shall be deemed a direction by the Company
to make such payment.
16. BOND. No Trustee, original or successor, need post any bond or other
security for so acting.
17. NO COURT SUPERVISION. No Trustee shall be required to qualify before,
be appointed by, or, in the absence of breach of trust, account to any court or
obtain the order or approval of any court in the exercise of any power of
discretion granted in this instrument.
18. TAXES, EXPENSES AND COMPENSATION. For its services hereunder, the
Company shall pay the Trustee such reasonable compensation as is agreed upon in
writing between the Company and the Trustee. The Company shall also pay the
reasonable expenses, including, but not limited to, legal fees reasonably
incurred by the Trustee in the performance of its
10
<PAGE>
duties under this Trust Agreement and other reasonable expenses of the Trust.
Any fees or expenses, including, but not limited to, legal fees
reasonably ,incurred, not paid by the Company may be paid out of the cash
assets, if any, held by the Trustee hereunder.
19. RESIGNATION OR REMOVAL OF TRUSTEE AND DESIGNATION OF SUCCESSOR
TRUSTEE. The Trustee hereinabove named or any successor Trustee may at any time
resign upon giving to the Company thirty (30) days written notice of such
resignation. The Board of Directors may remove the Trustee hereinabove named or
any successor Trustee hereinafter appointed upon giving thirty (30) days written
notice to the Trustee and shall appoint a successor Trustee within thirty (30)
days of the effective date of the removal. The thirty (30) day notice period
may be waived by the party entitled to notice under this Section 19.
In the event that any Trustee serving hereunder shall resign, be removed,
or cease or fail for any reason to serve as Trustee, the Company shall appoint a
successor within thirty (30) days of the effective date of such resignation.
The Company shall immediately thereafter notify each Plan Participant or
beneficiary of the name and address of the successor Trustee. The Company shall
not designate any person or entity as Trustee if, as a result of the identity of
such person or entity, any Plan Participant would be required to include in
income any amounts held in trust hereunder. No Trustee shall be liable for the
default of any predecessor Trustee. Any Trustee hereunder may accept the Trust
assets as delivered to it by a predecessor fiduciary and shall be responsible
only for such assets as are actually delivered to it.
Notwithstanding the above, upon a change in control of the Company, the
Trustee may not be removed by the Company except with the written permission of
more than fifty percent (50%) of the Participants or their beneficiaries. In
such event the Company shall notify all Participants and beneficiaries in
writing of the Company's intent to remove the Trustee and the identity of the
proposed successor trustee. Such notice shall be mailed to the last known
address of the Participant or beneficiary. The removal of the Trustee and the
appointment of a successor trustee shall not be effective until thirty (30) days
after the date that notices are mailed to Participants or beneficiaries. The
Company shall notify, in writing, the Participants and beneficiaries whether the
required consent was obtained within thirty (30) days after the successor
trustee is appointed. For purposes of this Section, a "change in control" shall
be defined as under SECTION 5 hereof.
20. REVOCABILITY; AMENDMENTS: TERMINATION. This Trust is irrevocable,
subject to the right of the Company to terminate the Trust upon the issuance of
a ruling by the Internal Revenue Service or the Department of Labor which would
cause one or more Plan Participants or their beneficiaries to be in constructive
receipt of income or in receipt of an economic benefit attributable to assets of
this Trust prior to the time at which benefits under the Plan become due and
payable; provided, however, such right to terminate shall exist for only the 30
day period beginning the day after the date of such a ruling. The Company, the
Trustee, and any Plan Participant shall have no right to alter or amend this
Trust in any respect except (i) by mutual written agreement of all such parties,
(ii) in order to obtain a favorable ruling from the Internal Revenue Service, or
(iii) with respect to administrative matters not affecting the substantive
rights of Plan Participants or their beneficiaries under
11
<PAGE>
the Plan, including amending the Trust in the form of a model trust issued by
the Internal Revenue Service.
21. SUCCESSION. As used in this instrument, the word "Trustee" shall mean
any and all trustees from time to time serving hereunder and shall refer both to
the original Trustee and to any successor or substitute Trustee. In the event
of the death or incapacity of a Plan Participant, the rights of such Plan
Participant under this Trust Agreement may be exercised by the person or persons
entitled to the benefits otherwise payable to the Plan Participant under the
Agreement.
No right or interest in or to any payment to or benefit of a Plan
Participant shall be assignable by such Plan Participant except by will or the
laws of descent and distribution. No right, benefit or interest of a Plan
Participant hereunder shall be subject to anticipation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothecation or set-off in respect of
any claim, debt or obligation, or to execution, attachment, levy or similar
process, or assignment by operation of law. Any attempt, voluntarily or
involuntarily, to effect any action specified in the immediately preceding
sentence shall, to the full extent permitted by law, be null, void and of no
effect; provided, however, that this provision shall not preclude a Plan
Participant from designating one or more beneficiaries to receive any amount
that may be payable to such Plan Participant under the Agreement or the Plan
after his death and shall not preclude the legal representatives of the Plan
Participant's estate from assigning any right hereunder to the person or persons
entitled thereto under his will, or, in the case of intestacy, to the person or
persons entitled thereto under the laws of intestacy applicable to his estate.
22. ACCEPTANCE. The Trustee by executing this Agreement accepts this Trust
and agrees to hold any assets and properties acceptable to the Trustee that are
added hereto in accordance with the terms and conditions hereof.
23. RELIANCE. The Trustee shall be protected in acting upon any written
notice, request, wavier, consent, certificate, receipt, authorization, power of
attorney or other paper or document which the Trustee in good faith believes to
be genuine and what it purports to be. A third party dealing with the Trustee
shall not be required to make inquiry as to the authority of the Trustee to take
any action or to inquire into the validity or the propriety of any act of the
Trustee.
24. LEGAL COUNSEL. The Trustee may consult with legal, counsel, including
legal counsel of the company, in the event of any dispute or question as to the
construction of any of the provisions hereof or its duties hereunder, and it
shall incur no liability and shall be fully protected in acting in accordance
with the opinion and instructions of such counsel.
25. ENFORCEMENT OF TRUST AGREEMENT AND LEGAL PROCEEDINGS. The Company shall
have the right to enforce any provision of this Trust Agreement, and any Trust
beneficiary shall have the right as a beneficiary of the Trust to enforce any
provision of this Trust Agreement that affects the right, title and interest of
such beneficiary in the Trust. In any action or proceedings affecting the
Trust, the only necessary parties shall be the Company, the Trustee and the Plan
Participants or their beneficiaries and, except as otherwise required
12
<PAGE>
by applicable law, no other person shall be entitled to any notice or service of
process. Any judgment entered in such an action or proceeding shall to the
maximum extent permitted by applicable law be binding and conclusive on all
persons having or claiming to have any interest in the Trust.
26. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefits of the Company and the Trustee and shall extend to and be binding upon
the heirs, executors, administrators, legal representatives, successors and
assigns, respectively, of the parties hereto.
27. TRUST SITUS; CONFLICTS OF LAWS. The situs of this Trust for all
purposes shall be the State of Texas. All questions pertaining to the
construction or validity hereof shall be governed by the laws of the State of
Texas.
28. ENTIRE AGREEMENT. This Trust Agreement is intended to be a complete
and exhaustive statement of the parties' agreement, supersedes all previous
agreements or understandings between them as to the subject matter of this Trust
Agreement and may not be modified or terminated orally.
29. HEADINGS. Headings of Sections of this Trust Agreement are included
for convenience only and shall not control the meaning or interpretation of any
provision of this Trust Agreement.
30. SEVERABILITY. If any provision of this Trust Agreement shall be
declared by a court of competent jurisdiction to be invalid and unenforceable,
that provision shall be null and void, but the remaining provisions of this
Trust Agreement shall be interpreted and applied as if the provision were not in
the document.
31. NOTICES. All notices and other communications given hereunder shall
be in writing and shall be deemed to have been duly given if delivered or
mailed, registered mail, to the parties at the address of the parties listed on
Exhibit D attached hereto or such other address as the Participant, a
beneficiary, or the Company may provide in writing to the Trustee from time to
time. All notices and other communications required or permitted hereunder that
are addressed as provided in this SECTION 31, shall, if delivered personally, be
deemed given upon delivery and shall, if delivered by mail in the manner
described above, be deemed given upon deposit in a regular depository of the
United States mail.
32. COUNTERPARTS. This Trust Agreement may be executed in any number of
counterparts, each of which shall be deemed to be the original. Executed the
day and year first above written.
THE COMPANY:
INPUT/OUTPUT, INC.
13
<PAGE>
By: /s/ Gary D. Owens
------------------------------
Its: President
------------------------------
TRUSTEE:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By: /s/ M. Dunmire
------------------------------
Its: Vice President
------------------------------
14
<PAGE>
EXHIBIT B
FORM OF WRITTEN AFFIDAVIT TO TRUSTEE
REGARDING DEFAULT BY COMPANY
_______________________ 1997
TO:
[TRUSTEE)
ATTN:
I, _______________________________ (PLAN PARTICIPANT OR OTHER BENEFICIARY]
___________________________, declare under penalty of perjury that the following
is true and correct:
I am a beneficiary of that certain trust known as Input/Output, Inc.
Supplemental Executive Retirement Trust (the "Trust Agreement") dated as of
______________, 1992, by and between (TRUSTEE) and Input/Output,
Inc.
The Company owes to the undersigned $_________________ under Input/Output,
Inc. Supplemental Executive Retirement Plan (the "Plan"), and the Company has
failed to pay such amount to the undersigned following the giving of all
required notice to the company regarding such failure to pay.
I hereby request (TRUSTEE) to pay over to me the amount of
$_________ pursuant to the Plan and Trust Agreement.
Executed on __________________, 1997, at _______________________________.
SIGNED:
---------------------------------
TYPED NAME:
-----------------------------
15
<PAGE>
STATE OF _____________ Section
Section
COUNTY OF ____________ Section
SUBSCRIBED AND SWORN TO BEFORE ME on ___________________, 1997, by
_______________________________________________.
SIGNED:
---------------------------------
Notary Public
My commission Expires:
------------------
16
<PAGE>
EXHIBIT C
ACKNOWLEDGMENT OF RECEIPT OF ALL BENEFITS
PAYABLE UNDER SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
__________________, 1997
Input/Output, Inc.
Attn:
Re: Complete Distribution of all benefits owed to me under Input/Output,
Inc. Executive Retirement Plan (the "Plan") Inc.
Dear______________:
Please be advised that I acknowledge that Input/Output, Inc. has satisfied
all obligations to me under the pursuant to the above-referenced Plan.
Sincerely yours,
---------------------------------
cc: [TRUSTEE)
Attn:
17
<PAGE>
EXHIBIT D
1. Input/Output, Inc.
4235 Greenbriar Drive
Stafford, TX 77477-3918
2. Charles E. Selecman
4724 Pecan Creek Circle
Richmond, TX 77469
3. Robert P. Brindley
4014 Bountiful Crest
Sugar Land, TX 77479
4. Gary D. Owens
12615 New Kentucky
Cypress, TX 77429
5. Michael J. Sheen
11990 N. Hanworth
Houston, TX 77031
18
<PAGE>
AMENDMENT NO. 1 TO
INPUT/OUTPUT, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT TRUST
WHEREAS, effective July 20, 1992, the Input/Output, Inc. Supplemental
Executive Retirement Trust (the "Supplemental Retirement Trust" or this "Trust")
was established by Input/Output, Inc. (the "Company") to provide for the payment
of certain pension and pension-related benefits to a select group of management
and highly compensated employees who contribute materially to the continued
growth, development and further business success of the Company; and
WHEREAS, the Company retained the power to amend the Supplemental
Retirement Trust pursuant to Section 20 with respect to administrative matters;
and
WHEREAS, the Company desires to amend the Supplemental Retirement Trust to
clarify and correct certain provisions to ensure that the Company's purpose is
carried out;
NOW, THEREFORE, in consideration of the premises and pursuant to the
amendment authority reserved thereunder, effective as of January 17, 1997, this
Trust is hereby amended as hereinafter set forth:
I.
Section 5 is amended by adding the following sentence at the end:
"In the event that a Change of Control occurs, the mortality table and
interest rate set forth in the Plan shall be used to determine the
actuarial equivalent for any form of benefit with respect to any
Participant whose employment terminates within 12 months after such Change
of Control, and to determine the amount needed to fund the present value of
the Deferred Benefits as required by this Section 5."
EXECUTED this 27th day of March, effective as of January 17, 1997.
INPUT/OUTPUT, INC.
By: /s/ Gary D. Owens
---------------------------
Its: President
---------------------------
<PAGE>
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT OF
ROBERT P. BRINDLEY
DATED FEBRUARY 6, 1991
WHEREAS, effective February 6, 1991, Robert P. Brindley (the "Employee")
and Input/Output, Inc. (the "Company") entered into an Employment Agreement
(the ("Employment Agreement"); and
WHEREAS, the Employee and the Company desire to amend the Employment
Agreement pursuant to Section 7 thereof; and
WHEREAS, the Company's Board of Directors have approved the terms of such
amendment, which terms are set forth herein;
NOW, THEREFORE, for and in consideration of the premises and pursuant to
the amendment authority reserved thereunder, effective as of January 31,
1997, the Employment Agreement is hereby amended as hereinafter set forth:
I.
(A) Section 1.1 is amended to read in its entirety as follows:
"1.1 CONTRACT TERM. Subject to the terms and conditions hereof, the
Company agrees to employ the Employee for a term commencing as of February
1, 1997 and continuing through January 31, 1999, unless renewed pursuant to
this Section 1.1. Beginning on January 31, 1998, this Agreement shall be
automatically renewed each January 31 for a two-year term, unless either
the Company or the Employee provides written notice of election not to
renew, at least thirty (30) days before the applicable January 31. By way
of example, unless the Employee or the Company so notifies the other on or
before January 1, 1998, then the term of this Agreement will be
automatically extended to expire on January 31, 2000, unless further
extended; unless the Employee or the Company so notifies the other on or
before January 1, 1999, then the term of this Agreement will be
automatically extended to expire on January 31, 2001, unless further
extended in the same manner or otherwise. In the event the Employee or the
Company so notifies the other on or before January 1, 1998, then the term
of the Agreement shall expire on January 31, 1999."
<PAGE>
(B) Section 1.2 is hereby amended as follows: The reference in Section 1.2
to "January 31, 1993" in the first sentence thereof is hereby deleted
and substituted in lieu thereof shall be "January 31, 1999".
II.
Section 3.3.2 is amended in its entirety to read as follows:
"3.3.2 In lieu of any further salary payments to the Employee for
periods subsequent to the Date of Termination, an amount equal to the
product of (a) the sum of the Employee's annual base salary plus management
incentive bonus payments for the three most recently completed fiscal years
of the Company (for these purposes, the bonus relating to such fiscal
years shall be used even if such bonus is actually paid in a different
fiscal year), divided by three (3), MULTIPLIED BY (b) two (2);"
III.
Except as expressly amended by the terms of this Amendment No. 1, the
remaining terms and conditions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereof have executed this Amendment on this
31 day of MARCH, 1997, but effective as of January 31, 1997.
INPUT/OUTPUT, INC.
/s/ GARY D. OWENS
--------------------------------------
By: GARY D. OWENS
Its: PRESIDENT
EMPLOYEE
/s/ ROBERT P. BRINDLEY
--------------------------------------
Robert P. Brindley
-2-
<PAGE>
AMENDED AND RESTATED INPUT/OUTPUT, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(AS AMENDED JANUARY 17, 1997 AND JUNE 30, 1997)
PURPOSE
The purpose of the Plan is to promote the long-term growth of the Company
by increasing the proprietary interest of Non-Employee Directors in the Company,
and to attract and retain highly qualified and capable Non-Employee Directors by
allowing these Non-Employee Directors to participate in the long-term growth and
financial success of the Company.
ARTICLE I
DEFINITIONS
For the purpose of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
1.1 "Board" means the board of directors of the Company.
1.2 "Change in Control" means the occurrence of any of the following
events: (i) there shall be consummated any merger or consolidation pursuant to
which shares of the Company's Common Stock would be converted into cash,
securities or other property, or any sale, lease, exchange or other disposition
(excluding disposition by way of mortgage, pledge or hypothecation), in one
transaction or a series of related transactions, of all or substantially all of
the assets of the Company (a "Business Combination"), in each case unless,
following such Business Combination, the holders of the outstanding Common Stock
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 51% of the outstanding common stock or equivalent equity
interests of the corporation or entity resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination,
of the outstanding Common Stock, (ii) the stockholders of the Company approve
any plan or proposal for the complete liquidation or dissolution of the Company,
(iii) any "person" (as such term is defined in Section 3(a)(9) or
Section 13(d)(3) under the 1934 Act) or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the Company, any
successor to the Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary (including such plan's trustee), becomes a beneficial
owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or
indirectly, of securities of the Company representing 40% or more of the
Company's then outstanding securities having the right to vote in the election
of directors, or (iv) during any period of two consecutive years, individuals
who, at the beginning of such period constituted the entire Board, cease for any
reason (other than death) to constitute a majority of the directors, unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period.
1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.4 "Common Stock" means the common stock which the Company is currently
authorized to issue or may in the future be authorized to issue.
1.5 "Company" means Input/Output, Inc., a Delaware corporation.
<PAGE>
1.6 "Date of Grant" means the effective date on which an option is awarded
to a Participant as set forth in the relevant stock option agreement.
1.7 "Discretionary Grants" shall have the meaning set forth in Section 4.3
hereof.
1.8 "Fair Market Value" of the Company's shares of Common Stock means (i)
the closing sale price per share on the principal securities exchange on which
the Common Stock is traded (or if there is no sale on the relevant date, then on
the last previous day on which a sale was reported), or (ii) the mean between
the closing or average (as the case may be) bid and asked prices per share of
Common Stock on the over-the-counter market, whichever is applicable.
1.9 "First Grant" shall have the meaning set forth in Section 4.2 hereof.
1.10 "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.11 "Non-Employee Director" means a director of the Company who is not an
employee of the Company or any Subsidiary.
1.12 "Nonqualified Stock Option" or "Stock Option" means an option to
purchase shares of Common Stock granted to a Participant pursuant to Article IV
and which is not intended to qualify as an incentive stock option under Section
422 of the Code.
1.13 "Participant" means any Non-Employee Director who is, or who is
proposed to be, a recipient of a Stock Option pursuant to the terms of this
Plan.
1.14 "Plan" means the Input/Output, Inc. Non-Employee Director Stock Option
Plan, as it may be amended from time to time.
1.15 "Second Grant" shall have the meaning set forth in Section 4.2 hereof.
1.16 "Stock Dividend" means a dividend or other distribution declared on
the shares of Common Stock payable in (i) capital stock of the Company or any
Subsidiary of the Company, or (ii) rights, options or warrants to receive or
purchase capital stock of the Company or any Subsidiary of the Company, or
(iii) securities convertible into or exchangeable for capital stock of the
Company or any Subsidiary of the Company, or (iv) any capital stock received
upon the exercise, or with respect to, the foregoing.
1.17 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of the
Stock Option, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain,
and "Subsidiaries" means more than one of any such corporations.
1.18 "Third Grant" shall have the meaning set forth in Section 4.2 hereof.
ARTICLE II
ADMINISTRATION
Except as expressly set forth in Section 4.3 concerning Discretionary
Grants, the Plan shall be administered in accordance with the terms of this
Article II by the Compensation Committee (the "Committee") of the Board, which
shall consist of at least two members. Any member of the Committee may be
removed at any time, with or without cause, by resolution of the Board. Any
vacancy occurring in the
-2-
<PAGE>
membership of the Committee may be filled by appointment by the Board. Each
member of the Committee, at the time of his appointment to the Committee and
while he is a member thereof, must be a "disinterested person", as that term
is defined in Rule 16b-3 promulgated under the 1934 Act, and an "outside
director" under Section 162(m) of the Code.
The Board shall select one of its members to act as the Chairman of the
Committee, and the Committee shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee shall constitute
a quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee.
The Committee shall have full authority and responsibility to administer
the Plan, including authority to interpret and construe any provision of the
Plan and to adopt such rules and regulations for administering the Plan as it
may deem necessary. Except as provided below, any interpretation,
determination, or other action made or taken by the Committee shall be final,
binding, and conclusive on all interested parties, including the Company and all
Participants.
ARTICLE III
SHARES SUBJECT TO THE PLAN
Subject to the provisions of Articles X and XI of the Plan, the aggregate
number of shares which may be issued to Participants under grants of Stock
Options made by the Committee under the Plan shall not exceed 400,000. In the
event that shares of Common Stock are delivered to the Company in full or
partial payment of the exercise price for the exercise of a stock option granted
under the Plan in accordance with Article V of this Plan, the number of shares
available for future grants of options under the Plan shall be reduced only by
the net number of shares issued upon the exercise of the option.
Shares to be distributed and sold may be made available from either
authorized but unissued Common Stock or Common Stock held by the Company in its
treasury. Shares that by reason of the expiration or unexercised termination of
a Stock Option are no longer subject to purchase may be reoffered under the
Plan.
ARTICLE IV
STOCK OPTION GRANTS
4.1 ELIGIBILITY. Only Non-Employee Directors serving as such as of the
Date of Grant shall be eligible to receive grants of Stock Options under this
Plan.
4.2 NON-DISCRETIONARY GRANT OF STOCK OPTIONS. On the first business day
of November 1996, each person who is a then a Non-Employee Director shall be
granted a Nonqualified Stock Option to purchase 20,000 shares of Common Stock.
Thereafter, on the first business day of November 1997, each such Non-Employee
Director shall be granted a Nonqualified Stock Option to purchase 10,000 shares
and on the first business day of November 1998, each such Non-Employee Director
shall be granted a Nonqualified Stock Option to purchase 10,000 shares.
With respect to any Non-Employee Director who joins the Board after the
first business day of November 1996, on that date on which such person is first
elected or otherwise commences serving as a Non-Employee Director, such person
shall be granted a Nonqualified Stock Option to purchase 20,000 shares.
Thereafter, on the first business day of the immediately succeeding November
following such date, such Non-Employee Director shall be granted a Nonqualified
Stock Option to purchase 10,000 shares, and on the first business day of the
November immediately succeeding the date that such 10,000-share Stock Option was
granted, such Non-Employee Director shall be granted an additional Nonqualified
Stock Option to purchase 10,000 shares.
-3-
<PAGE>
The first grant of a Nonqualified Stock Option for 20,000 shares pursuant
to this Section 4.2 is herein referred to as the "First Grant"; the second grant
and third grant of Nonqualified Stock Options for 10,000 shares each pursuant to
this Section 4.2 is herein referred to as the "Second Grant" and the "Third
Grant," respectively.
Notwithstanding any provision contained herein to the contrary, any non-
elective grant made pursuant to this Section 4.2 shall be conditioned on the
availability of sufficient shares reserved for issuance under the terms of the
Plan at the Date of Grant of such Stock Option. In the event that insufficient
shares are then available, the number of shares under Nonqualified Stock Options
to be granted shall be reduced to the extent shares are then so available, on
the basis of the seniority of the Non-Employee Directors then eligible for
grants hereunder (with the Non-Employee Directors having less time of service on
the Board being first subject to reduction of the number of shares to be granted
under their particular Stock Option), or on such other basis as deemed advisable
or appropriate under the circumstances as determined by the Committee.
4.3 DISCRETIONARY STOCK OPTION GRANTS. In addition to the Nonqualified
Stock Option grants provided for in Section 4.2, the Board shall have full power
and authority, in its sole discretion, to grant Nonqualified Stock Options
hereunder to any or all Non-Employee Directors at such time or times, in such
amounts, and upon such terms and conditions as the Committee, in its sole
discretion, may prescribe. Grants of Nonqualified Stock Options pursuant to
this Section 4.3 are referred to herein as "Discretionary Grants."
4.4 GRANTS EVIDENCED BY AGREEMENT. Each grant of Stock Options shall be
evidenced by a stock option agreement setting forth the number of shares subject
to the Stock Option, the option exercise price, the option period of the Stock
Option, and such other terms and provisions as, except to the extent permitted
herein, are not inconsistent with the Plan.
4.5 EXERCISE PRICE. The exercise price for a Stock Option shall be equal
to the Fair Market Value per share of the Common Stock on the Date of Grant.
Notwithstanding anything to the contrary contained in this Section 4.5, the
exercise price of each Stock Option granted pursuant to the Plan shall not be
less than the par value per share of the Common Stock.
4.6 VESTING; OPTION PERIOD. Each Stock Option shall vest and be
exercisable as follows: The First Grant Stock Options shall vest in 33.33%
installments on the first, second and third anniversary dates of the First
Grant; the Second Grant Stock Options shall vest in 50% installments on the
first and second anniversary dates of the Second Grant; and the Third Grant
Stock Options shall be fully exercisable on and after the first anniversary
date of the Third Grant. In addition, Discretionary Grant Stock Options
shall vest in 33.33% consecutive annual installments commencing on the first
anniversary date of each such Discretionary Grant, or as the Board shall
otherwise prescribe. In no event shall the period of time during which a
Nonqualified Stock Option may be exercised exceed ten years from the Date of
Grant of the Stock Option in question. No Stock Option may be exercised at
any time after the expiration of its option period. A Stock Option, or
portion thereof, may be exercised in whole or in part only with respect to
whole shares of Common Stock.
ARTICLE V
EXERCISE OF STOCK OPTIONS
Full payment for shares purchased upon exercise of a Stock Option shall be
made in cash or by the Participant's delivery to the Company of shares of Common
Stock which have a Fair Market Value equal to the exercise price (or in any
combination of cash and shares of Common Stock having an aggregate Fair Market
Value equal to the exercise price). No shares may be issued until full payment
of the purchase price therefor has been made, and a Participant will have none
of the rights of a stockholder until shares are issued
-4-
<PAGE>
to him. Additionally, shares covered by a Stock Option may be purchased upon
exercise, in whole or in part, in accordance with the applicable stock option
agreement, by authorizing a third party to sell the shares (or a sufficient
portion thereof) acquired upon exercise of a Stock Option, and assigning the
delivery to the Company of a sufficient amount of the sale proceeds to pay
for all the shares acquired through such exercise and any tax withholding
obligations resulting from such exercise.
ARTICLE VI
TERMINATION OF EMPLOYMENT OR SERVICE
In the event a Participant shall cease to serve in his capacity as a
director of the Company for any reason other than death, disability or
retirement pursuant to Company policies, such Participant's Stock Options may be
exercised by the Participant for a period of one hundred eighty (180) days after
the Participant's termination of service, or until expiration of the applicable
Option Period (if sooner), to the extent of the shares with respect to which
such Stock Options could have been exercised by the Participant on the date of
termination, and thereafter to the extent not so exercised, such Stock Options
shall terminate. In addition, a Participant's Stock Options may be exercised as
follows in the event of such Participant's death, disability or retirement:
(a) DEATH. In the event of death while serving as a director, all
unmatured installments of Stock Options outstanding shall thereupon
automatically be accelerated and become fully vested and exercisable in
full, and the Stock Option may be exercised for a period of twelve (12)
months after the Participant's death or until expiration of the Stock
Option period (if sooner), by the Participant's estate or personal
representative, or by the person who acquired the right to exercise the
Stock Option by bequest or inheritance or by reason of the Participant's
death; and
(b) DISABILITY OR RETIREMENT. In the event of termination of service
as a director as the result of a total and permanent disability (as defined
in Section 22(e) of the Code) or retirement as a director pursuant to
standard Company policies applicable to directors, then all unmatured
installments of Stock Options outstanding shall thereupon automatically be
accelerated and become fully vested and exercisable in full, and the Stock
Option may be exercised by the Participant or his guardian or legal
representative for a period of twelve (12) months after such termination or
until expiration of the Stock Option period (if sooner).
ARTICLE VII
AMENDMENT OR DISCONTINUANCE
The Board may at any time and from time to time, without the consent of the
Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or
in part.
In addition, the Board shall have the power to amend the Plan in any manner
advisable in order for Stock Options granted under the Plan to qualify for the
exemption provided by Rule 16b-3 (or any successor rule relating to exemption
from Section 16(b) of the 1934 Act), including amendments as a result of changes
to Rule 16b-3 or the regulations thereunder to permit greater flexibility with
respect to Stock Options granted under the Plan, and any such amendment shall,
to the extent deemed necessary or advisable by the Committee, be applicable to
any outstanding Stock Options theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any stock option agreement.
In the event of any such amendment to the Plan, the holder of any Stock Option
outstanding under the Plan shall, upon request of the Committee and as a
condition to the exercisability thereof, execute a conforming amendment in the
form prescribed by the Committee to any stock option agreement relating thereto
within such reasonable time as the Committee shall specify in such request.
Notwithstanding anything contained in this Plan to the contrary, unless required
by law, no action contemplated or permitted by this Article VII shall adversely
affect any
-5-
<PAGE>
rights of Participants or obligations of the Company to Participants with
respect to any Stock Options theretofore granted under the Plan without the
consent of the affected Participant.
ARTICLE VIII
EFFECT OF THE PLAN
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any director any right to be granted a Stock
Option to purchase or receive Common Stock of the Company or any other rights
except as may be evidenced by a stock option agreement, or any amendment
thereto, duly authorized by and executed on behalf of the Company and then only
to the extent of and upon the terms and conditions expressly set forth therein.
ARTICLE IX
TERM
The Plan shall be submitted to the Company's stockholders for their
approval. Unless sooner terminated by action of the Board, the Plan will
terminate on the 12th day of July, 2006. Stock Options under the Plan may not
be granted after that date, but Stock Options granted before that date will
continue to be effective in accordance with their terms and conditions.
ARTICLE X
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect or unexercised Stock Options are
outstanding there shall be any increase or decrease in the number of issued and
outstanding shares of Common Stock through the declaration of a Stock Dividend
or through any recapitalization resulting in a stock split-up, combination, or
exchange of shares of Common Stock, then and in such event:
(i) An appropriate adjustment shall be made in the maximum
number of shares of Common Stock then subject to being awarded under
grants pursuant to the Plan, to the end that the same proportion of
the Company's issued and outstanding shares of Common Stock shall
continue to be subject to being so awarded; and
(ii) Appropriate adjustments shall be made in the number of
shares of Common Stock and the exercise price per share thereof then
subject to purchase pursuant to each such Stock Option previously
granted and unexercised, to the end that the same proportion of the
Company's issued and outstanding shares of Common Stock in each
instance shall remain subject to purchase at the same aggregate
exercise price.
Any fractional shares resulting from any adjustment made pursuant to this
Article X shall be eliminated for the purposes of such adjustment. Except as
otherwise expressly provided herein, the issuance by the Company of shares of
its capital stock of any class, or securities convertible into shares of capital
stock of any class, either in connection with direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number of or exercise price of shares of Common Stock then subject to
outstanding Stock Options granted under the Plan.
-6-
<PAGE>
ARTICLE XI
RECAPITALIZATION, MERGER AND CONSOLIDATION
(a) The existence of this Plan and Stock Options granted hereunder
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior preference
stocks ranking prior to or otherwise affecting the Common Stock or the
rights thereof (or any rights, options or warrants to purchase same), or
the dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
(b) Subject to any required action by the stockholders, if the
Company shall be the surviving or resulting corporation in any merger or
consolidation, any outstanding Stock Option granted hereunder shall pertain
to and apply to the securities or rights (including cash, property or
assets) to which a holder of the number of shares of Common Stock subject
to the Stock Option would have been entitled. Notwithstanding any other
provision of the Plan, and without affecting the number of shares reserved
or available hereunder, the Committee shall authorize the issuance,
continuation or assumption of outstanding Stock Options or provide for
other equitable adjustments after changes in the shares of Common Stock
resulting from any merger, consolidation, sale of assets, acquisition of
property or stock, recapitalization, reorganization, or similar occurrence
in which the Company is the continuing or surviving corporation, upon such
terms and conditions as it may deem necessary in order to preserve
Participants' rights under the Plan.
(c) In the event of any reorganization, merger or consolidation
pursuant to which the Company is not the surviving or resulting
corporation, or of any proposed sale of substantially all of the assets of
the Company, there may be substituted for each share of Common Stock
subject to the unexercised portions of such outstanding Stock Option that
number of shares of each class of stock or other securities or that amount
of cash, property or assets of the surviving or consolidated company which
were distributed or distributable to the stockholders of the Company in
respect of each share of Common Stock held by them, such outstanding Stock
Options to be thereafter exercisable for such stock, securities, cash or
property in accordance with their terms.
(d) In the event of a Change in Control of the Company, then,
notwithstanding any other provision in the Plan to the contrary, all
unmatured installments of Stock Options outstanding shall thereupon
automatically be accelerated and exercisable in full.
(e) Upon the occurrence of each event requiring an adjustment of the
exercise price and/or the number of shares purchasable pursuant to Stock
Options granted pursuant to the terms of this Plan, the Company shall mail
forthwith to each Participant a copy of its computation of such adjustment
which shall be conclusive and shall be binding upon each such Participant,
except as to any Participant who contests such computation by written
notice to the Company within thirty (30) days after receipt thereof by such
Participant.
ARTICLE XII
OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS
GRANTED BY OTHER CORPORATIONS
Stock Options may be granted under the Plan from time to time in
substitution for such stock options held by directors of a corporation who
become or are about to become directors of the Company as the result
-7-
<PAGE>
of a merger or consolidation of the corporation with the Company or a
Subsidiary or the acquisition by either of the foregoing of stock of the
corporation as the result of which it becomes a Subsidiary.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 EXERCISE OF STOCK OPTIONS. Stock Options granted under the Plan may
be exercised during the option period, at such times and in such amounts, in
accordance with the terms and conditions and subject to such restrictions as are
set forth herein and in the applicable stock option agreements. Notwithstanding
anything to the contrary contained herein, Stock Options may not be exercised,
nor may shares be issued pursuant to a Stock Option if any necessary listing of
the shares on a stock exchange or any registration or qualification under state
or federal securities laws required under the circumstances has not been
accomplished.
13.2 LIMITED ASSIGNABILITY. A Stock Option granted to a Participant may
not be transferred or assigned, other than (i) by will or the laws of descent
and distribution or (ii) pursuant to a qualified domestic relations order (as
defined in Section 401(a)(13) of the Code or Section 206(d)(3) of the Employee
Retirement Income Security Act of 1974, as amended). In addition, the Committee
may, in its discretion, authorize all or a portion of the Stock Options granted
to a Participant to be on terms which permit transfer by such Participant to (A)
the spouse, ex-spouse, children, step children or grandchildren of the
Participant ("Immediate Family Members"), (B) a trust or trusts for the
exclusive benefit of one or more Immediate Family Members, (C) a partnership or
limited liability company in which one or more Immediate Family Members are the
only partners or members, (D) an entity exempt from federal income tax pursuant
to Section 501(c)(3) of the Code or any successor provision and/or (E) a split
interest trust or pooled income fund described in Section 2522(c)(2) of the Code
or any successor provision, so long as (x) the stock option agreement evidencing
any Stock Option granted pursuant to this Plan is approved by the Committee and
expressly provides for transferability in a manner consistent with this Section
13.2, and (y) subsequent transfers of such Stock Option shall be prohibited
except for transfers by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order (as described above). Furthermore, the
Committee may, in its discretion, authorize all or a portion of the Stock
Options granted to a Participant to be on terms which permit transfer by such
Participant to other entities or persons to whom the Committee may in its
discretion permit transfers of Stock Options.
Following transfer, such Stock Option shall continue to be subject to the
same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of Articles II, III, V, VII, X, XI and XIII of this
Plan the term "Participant" shall be deemed to include the transferee. The
provisions of Article VI of this Plan concerning events of termination of
service shall continue to be applied with respect to the original Participant,
following which event(s) any such affected stock options shall be exercisable by
the transferee only to the extent and for the periods specified therein or in
the stock option agreement. The Committee and the Company shall have no
obligation to inform any transferee of a Stock Option of any expiration,
termination, lapse or acceleration of such Stock Option. Subject to the
foregoing, during a Participant's lifetime, Stock Options granted to a
Participant may be exercised only by the Participant or, if the particular stock
option agreement so provides, by the Participant's guardian or legal
representative. The designation by a Participant of a beneficiary will not
constitute a transfer of the Stock Option.
13.3 INVESTMENT INTENT. The Company may require that there be presented to
and filed with it by any Participant(s) under the Plan, such evidence as it may
deem necessary to establish that the Stock Options granted or the shares of
Common Stock to be purchased or transferred are being acquired for investment
and not with a view to their distribution.
-8-
<PAGE>
13.4 STOCKHOLDERS' RIGHTS. The holder of a Stock Option shall have none
of the rights or privileges of a stockholder except with respect to shares
which have been actually issued.
13.5 INDEMNIFICATION OF BOARD AND COMMITTEE. No current or previous
member of the Board or the Committee, nor any officer or employee of the
Company acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination, or interpretation taken or made in good
faith with respect to the Plan, and all such members of the Board or the
Committee and each and any officer or employee of the Company acting on their
behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such individuals
may be entitled under the Company's Certificate of Incorporation or Bylaws,
as a matter of law, or otherwise.
13.6 INTERPRETATION. Where the context permits, words in the masculine
gender shall include the feminine and neuter genders, the plural form of a
word shall include the singular form, and the singular form of a word shall
include the plural form. All references in this Plan to sections of the Code
or ERISA shall be deemed to include any successor provisions to such sections
as contained in any laws or regulations adopted or promulgated subsequent to
August 1, 1996.
ARTICLE XIV
EFFECTIVE DATE
This Plan will be submitted for approval by the stockholders of the Company
at the 1996 annual meeting of stockholders of the Company and, if approved by
the stockholders in accordance with applicable law, the Plan will be effective
as of the date of its approval by the Board and will continue in effect until
the expiration of its term or until earlier terminated, amended, or suspended in
accordance with the terms hereof. If stockholder approval is not obtained at the
1996 annual meeting of stockholders, the Plan shall be nullified.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed pursuant to prior action taken by the Board.
INPUT/OUTPUT, INC.
By: /s/ GARY D. OWENS
------------------------------
Name: GARY D. OWENS
Title: PRESIDENT
-9-
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into by and between INPUT/OUTPUT, INC.
(the "Company"), having a business address at 11104 West Airport Boulevard,
Stafford, Texas 77477-3016, and CHARLES E. SELECMAN ("Executive"), having a
mailing address at 26 Island Estates Parkway, Palm Coast, Florida 32137.
WHEREAS, the Company wishes to employ the Executive and to assure itself of
the services of the Executive for the period provided in this Agreement, and the
Executive wishes to be employed by the Company for such period on the terms and
conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
1. EMPLOYMENT. Upon the terms and subject to the conditions contained in
this Agreement, the Executive agrees to provide services as provided herein for
the Company during the term of this Agreement. The Executive agrees to devote
his best efforts to the business of the Company, and shall perform his duties in
a diligent and business-like manner, all for the purpose of advancing the
business of the Company.
2. DUTIES. The duties of the Executive shall be those duties which can
reasonably be expected to be performed by a person with the title of Chairman of
the Board, President and Chief Executive Officer of Input/Output, Inc. The
Executive shall report directly to the Board of Directors of the Company. The
Executive's duties may, from time to time, be changed or modified at the
discretion of Board of Directors of the Company.
3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the
Company agrees to employ the Executive for a term commencing as of May 16, 1997
(the "Effective Date") and continuing until December 15, 1997, unless renewed in
accordance with this SECTION 3. Beginning December 15, 1997, this Agreement
shall be automatically renewed for successive six-month terms, unless either the
Company or the Executive provides written notice of election not to renew, at
least 30 days before the applicable renewal date.
4. SALARY AND BENEFITS.
(a) BASE SALARY. The Company shall, during the term of this
Agreement, pay the Executive a monthly base salary of $40,000 beginning on
June 1, 1997. Such salary shall be paid in bi-monthly installments less
applicable withholding and salary deductions. The Base Salary may be
reviewed and adjusted by the Company upon any renewal of this Agreement
<PAGE>
under SECTION 3. The Company may not, however, reduce the Executive's Base
Salary at any time during the term of this Agreement.
(b) INITIAL FEE. The Company shall pay the Executive an initial fee
of $150,000, payable on June 1, 1997. Such amount shall be paid in a lump
sum, less applicable withholding and salary deductions.
(c) BONUS. The Company shall pay the Executive a bonus in accordance
with the following schedule. The amount of the bonus shall be paid in a
lump sum, less applicable withholding and salary deductions, no later than
five days after December 15, 1997, irrespective of whether the Executive is
employed by the Company through December 15, 1997.
AVERAGE STOCK PRICE BONUS
------------------- ----------
Less than $20 $ 300,000
At least $20 but less than $25 $ 600,000
At least $25 but less than $30 $1,200,000
At least $30 but less than $35 $2,400,000
$35 or greater $3,600,000
For purposes of this SECTION 3(c), the "Average Stock Price" shall be the
average of the closing price of a share of common stock of the Company, par
value $.01 per share ("Common Stock"), as reported on the New York Stock
Exchange Composite Transactions for the ten consecutive trading days
immediately preceding December 15, 1997. In the event of any increase or
decrease in the number of issued and outstanding shares of Common Stock
through the declaration of a stock dividend or through any recapitalization
resulting in a stock split-up, combination or exchange of shares of Common
Stock, the Average Stock Price shall be adjusted proportionally.
Notwithstanding any provision contained in this Agreement to the contrary,
in the event the Executive's employment terminates prior to December 15,
1997 for any reason other than for Cause, the amount of the bonus payable
shall be equal to the amount as determined according to the preceding
schedule multiplied by a fraction calculated as follows: the numerator
shall equal the total number of days between May 16, 1997 and December 15,
1997 during which the Executive is employed by the Company, and the
denominator shall equal the total number of days between May 16, 1997 and
December 15, 1997. In the event the Executive's employment is terminated
for Cause, no bonus will be payable.
(d) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The amount and payment
of any benefit the Executive is receiving or is entitled to receive under
any supplemental executive retirement plan established by the Company shall
-2-
<PAGE>
be unchanged and unaffected by this Agreement and any amounts paid to the
Executive hereunder.
(e) STOCK OPTIONS. The Executive shall be granted a nonqualified
stock option effective as of June 4, 1997, to purchase 200,000 shares of
Common Stock under the Input/Output, Inc. Amended and Restated 1990 Stock
Option Plan, at an exercise price of $17.50 per share. Such option shall
become 100% vested on the earlier to occur of (i) the Executive's
termination of employment for any reason or (ii) June 4, 1998. The option
shall be exercisable from the date of such termination of employment
through that date which is one year thereafter.
(f) LIVING EXPENSES. The living expenses of the Executive and his
spouse in Houston, Texas shall be paid by the Company, as well as travel
expenses by the Executive and his spouse to and from his permanent
residence outside of Texas.
(g) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the
Executive for all reasonable out-of-pocket expenses incurred by the
Executive in the course of his duties, in accordance with normal policies.
(h) EMPLOYEE BENEFITS. As of June 1, 1997, the Executive shall be
entitled to participate in all employee benefit programs generally
available to employees of the Company and to receive all normal perquisites
provided to senior executive officers of the Company, without respect to
any waiting or eligibility period otherwise required for participation in
such programs or entitlement to such perquisites.
(i) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite
provided to the Executive shall be deemed to be in lieu of base salary,
bonus, or other compensation.
5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may
terminate the employment of the Executive at any time as it deems appropriate.
(a) DEATH; DISABILITY; TERMINATION WITHOUT CAUSE; RESIGNATION FOR
GOOD REASON. If, during the term of this Agreement, the Executive's
employment terminates due to death or disability or without Cause (as
defined in SECTION 5(b)), or the Executive voluntarily terminates his
employment, the Company shall pay to the Executive (or, in the event of the
Executive's death, his designee under SECTION 10(b) hereunder) the amount
of Base Salary accrued but unpaid to the Executive through the date of such
termination of employment. In addition, the Executive (or his designee)
shall be entitled to receive a severance benefit equal to the product of
$360,000 multiplied by a
-3-
<PAGE>
fraction, where the numerator is the total number of days between May 16,
1997 and December 15, 1997 during which the Executive is not employed by
the Company, and the denominator is the total number of days between
May 16, 1997 and December 15, 1997. The amount of any such Base Salary
payable and severance benefit shall be paid in a lump sum, less applicable
withholding and salary deductions, as soon as practicable following such
termination. The Executive (or his designee) shall also be entitled to
receive a bonus, in such amount and payable at such time as described in
SECTION 3(c) above. Finally, the Executive and his spouse as of the date
of his termination of employment shall be entitled to receive medical
benefits for the lifetimes of both, with the total premium cost of such
benefits to be borne by the Company. The Company may terminate the
Executive's employment for disability if the Executive is incapacitated
and absent from his duties hereunder on a full-time basis for four
consecutive months or for at least 120 days during any six-month period.
(b) TERMINATION FOR CAUSE. If the Company shall discharge the
Executive for Cause, the Executive shall be entitled to receive only the
amount of Base Salary accrued by but unpaid to the Executive through the
date of such termination of employment, and the Company shall have no
further obligation to make any payment under this Agreement, except as may
otherwise be provided under the terms of any employee benefit programs in
which the Executive is participating.
For the purposes of this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon (A) the willful and
continued failure by the Executive to perform his duties with the Company
(other than any such failure resulting from incapacity due to physical or
mental illness), after a demand for substantial performance is delivered to
the Executive by the Board which specifically identifies the manner in
which the Board believes that he has not substantially performed his
duties, or (B) the willful engaging by the Executive in gross misconduct
materially and demonstrably injurious to the Company. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was not in
the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to him a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds (2/3) of the
entire authorized membership of the Board at a meeting of the Board called
and held for the purpose (after reasonable notice and an opportunity for
the Executive, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board he was guilty of
-4-
<PAGE>
conduct set forth above in clauses (A) or (B) of the first sentence of this
paragraph and specifying the particulars thereof in detail.
(c) MITIGATION OF AMOUNTS PAYABLE HEREUNDER. The Executive shall
not be required to mitigate the amount of any payment provided for in this
SECTION 5 by seeking other employment or otherwise, nor shall the amount of
any payment provided for in this SECTION 5 be reduced by any compensation
earned by the Executive as the result of employment by another employer
after the date of termination, or otherwise.
6. CONFIDENTIAL INFORMATION. The Company shall provide to the Executive
initial and ongoing information of members of the Company Group (as defined
below), which information is confidential and constitutes valuable, special and
unique property of such members of the Company Group. In return, the Executive
agrees that he shall not at any time, either during or subsequent to the term of
this Agreement, disclose to others, use, copy or permit to be copied, except in
pursuance of his duties for and on behalf of the Company, its successors,
assigns or nominees, any Confidential Information of any member of the Company
Group (regardless of whether developed by the Executive) without the prior
written consent of the Company.
As used herein, "Company Group" means the Company, and any entity that
directly or indirectly controls, is controlled by, or is under common control
with, the Company, and for purposes of this definition "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such entity, whether through the
ownership of voting securities, by contract or otherwise.
The term "Confidential Information" with respect to any person means any
secret or confidential information or know-how and shall include, but shall not
be limited to, the plans, customers, costs, prices, uses, and applications of
products and services, results of investigations, studies or experiments owned
or used by such person, and all apparatus, products, processes, compositions,
samples, formulas, computer programs, computer hardware designs, computer
firmware designs, and servicing, marketing or manufacturing methods and
techniques at any time used, developed, investigated, made or sold by such
person, before or during the term of this Agreement, that are not readily
available to the public or that are maintained as confidential by such person.
The Executive shall maintain in confidence any Confidential Information of third
parties received as a result of his employment with the Company in accordance
with the Company's obligations to such third parties and the policies
established by the Company.
-5-
<PAGE>
7. INTELLECTUAL PROPERTY. The Executive shall hold in trust for the
benefit of the Company, and shall disclose promptly and fully to the Company in
writing, and hereby assigns, and binds his heirs, executors, and administrators
to assign, to the Company any and all inventions, discoveries, ideas, concepts,
improvements, copyrightable works, and other developments (the "Developments")
conceived, made, discovered or developed by him, solely or jointly with others,
during the term of his employment by the Company, whether during or outside of
usual working hours and whether on the Company's premises or not, that relate in
any manner to the past, present or anticipated business of any member of the
Company Group. All works of authorship created by the Executive, solely or
jointly with others, shall be considered works made for hire under the Copyright
Act of 1976, as amended, and shall be owned entirely by the Company. Any and
all such Developments shall be the sole and exclusive property of the Company,
whether patentable, copyrightable, or neither, and the Executive shall assist
and fully cooperate in every way, at the Company's expense, in securing,
maintaining, and enforcing, for the benefit of the Company or its designee,
patents, copyrights or other types of proprietary or intellectual property
protection for such Developments in any and all countries. Within one year
following the end of the term of this Agreement and without limiting the
generality of the foregoing, any Development of the Executive relating to any
subject matter on which the Executive worked or was informed during his
employment by the Company shall be conclusively presumed to have been conceived
and made prior to the termination of his employment (unless the Executive
clearly proves that such Development was conceived and made following the
termination of his employment), and shall accordingly belong and be assigned to
the Company and shall be subject to this Agreement. At the request of the
Company (but without additional compensation from the Company during his
employment by the Company) the Executive shall execute any and all papers and
perform all lawful acts that the Company may deem necessary or appropriate to
further evidence or carry out the transactions contemplated hereunder,
including, without limitation, such acts as may be necessary for the
preparation, filing, prosecution, and maintenance of applications for United
States letters patent and foreign letters patent, or for United States and
foreign copyright, on the Developments.
8. NO TAMPERING. Throughout the term of the Agreement and through the
second anniversary of the expiration thereof, the Executive shall not (a)
request, induce or attempt to influence any distributor or supplier of goods or
services to any member of the Company Group to curtail or cancel any business
they may transact with any member of the Company Group; (b) request, induce or
attempt to influence any customers of any member of the Company Group that have
done business with or potential customers which have been in contact with any
member of the Company Group to curtail or cancel any business they may transact
with any member of the Company Group; or (c) request, induce or attempt to
influence any employee of any member of the Company Group to terminate his or
her employment with such member of the Company Group.
-6-
<PAGE>
9. REMEDIES. The Executive acknowledges that a remedy at law for any
breach or attempted breach of the Executive's obligations under SECTIONS 6
THROUGH 8 may be inadequate, agrees that the Company may be entitled to specific
performance and injunctive and other equitable remedies in case of any such
breach or attempted breach, and further agrees to waive any requirement for the
securing or posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief. The Company shall have the right to
offset against amounts to be paid to the Executive pursuant to the terms hereof
any amounts from time to time owing by the Executive to the Company. The
termination of the Agreement pursuant to SECTION 3, 5(a) OR 5(b) shall not be
deemed to be a waiver by the Company of any breach by the Executive of this
Agreement or any other obligation owed the Company.
10. MISCELLANEOUS PROVISIONS.
(a) SUCCESSORS OF THE COMPANY. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of
the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the Company
to obtain such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms as
the Executive would be entitled hereunder if the Company terminated the
Executive's employment without Cause, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this SECTION 10 or which otherwise
becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign his rights
or delegate his duties or obligations hereunder without the written consent
of the Company. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts would still be
payable to him hereunder as if he had continued to live, all such amounts,
unless other provided herein, shall be paid in accordance with the terms of
this Agreement to his designee or, if there be no such designee, to his
estate.
-7-
<PAGE>
(c) NOTICE. For the purposes of this Agreement, notices and all
other communications provide for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered or certified mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the first page
of this Agreement, provided that all notices to the Company shall be
directed to the attention of the Executive Vice President of the Company
with a copy to the Secretary of the Company, or to such other in writing in
accordance herewith, except that notices of change of address shall be
effective only upon receipt.
(d) AMENDMENT; WAIVER. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and such officer
as may be designated by the Board of Directors of the Company. No waiver
by either party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not set forth expressly in this Agreement.
(e) INVALID PROVISIONS. Should any portion of this Agreement be
adjudged or held to be invalid, unenforceable or void, such holding shall
not have the effect of invalidating or voiding the remainder of this
Agreement and the parties hereby agree that the portion so held invalid,
unenforceable or void shall, if possible, be deemed amended or reduced in
scope, or otherwise be stricken from this Agreement to the extent required
for the purposes of validity and enforcement thereof.
(e) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's
obligations under this Agreement shall survive regardless of whether the
Executive's employment by the Company is terminated, voluntarily or
involuntarily, by the Company or the Executive, with or without Cause.
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
(g) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Texas.
-8-
<PAGE>
(h) CAPTIONS. The use of captions and Section headings herein is for
purposes of convenience only and shall not effect the interpretation or
substance of any provisions contained herein.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the 24
day of June, 1997, but effective as of May 16, 1997.
INPUT/OUTPUT, INC.
By: /s/ ROBERT P. BRINDLEY
-------------------------------
Name: Robert P. Brindley
Title: Executive Vice President
/s/ CHARLES E. SELECMAN
----------------------------------
Charles E. Selecman
-9-
<PAGE>
EXHIBIT 11.1
<PAGE>
EXHIBIT 11.1
INPUT/OUTPUT, INC.
COMPUTATION OF EARNINGS PER SHARE
May 31,
------------------------
1997 1996
---- ----
Weighted average number of common shares outstanding 43,181,486 39,631,464
Dilutive effect of stock options 638,109 1,493,822
---------- ----------
Weighted average number of common and common
equivalent shares outstanding 43,819,595 41,125,286
Net earnings $16,597,000 $38,677,000
Earnings per common share - primary $0.38 $0.94
---------- ----------
---------- ----------
Weighted average number of common
shares outstanding 43,181,486 39,631,464
Dilutive effect of stock options 661,290 1,622,075
---------- ----------
Weighted average number of common and
common equivalent shares outstanding 43,842,776 41,253,539
Net earnings $16,597,000 $38,677,000
Earnings per common share - fully diluted $0.38 $0.94
---------- ----------
---------- ----------
<PAGE>
EXHIBIT 21.1
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
JURISDICTION OF
ORGANIZATION
------------
INPUT/OUTPUT OF CANADA, INC. DELAWARE
I/O INTERNATIONAL, INC. DELAWARE
I/O EASTERN, INC. DELAWARE
OUTPUT EXPLORATION COMPANY, INC. DELAWARE
IPOP MANAGEMENT, INC. DELAWARE
GLOBAL CHARTER CORPORATION DELAWARE
I/O SENSORS, INC. DELAWARE
MICROFLOW ANALYTICAL, INC. DELAWARE
TESCORP SEISMIC PRODUCTS, INC. DELAWARE
I/O CABLE, INC. DELAWARE
I/O EXPLORATION PRODUCTS (U.S.A.), INC. DELAWARE
I/O EXPLORATION PRODUCTS (U.K.), INC. DELAWARE
SENSOR NEDERLAND B.V. NETHERLANDS
DE REGT SPECIAL CABLE LTD. IRELAND
<PAGE>
EXHIBIT 23.1
<PAGE>
EXHIBIT 23.1
Independent Auditor's Consent
The Board of Directors
Input/Output, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-54394, No. 33-46386, No. 33-50620, No. 33-85304, No. 333-14231 and No.
333-24125) on Form S-8 of Input/Output, Inc. of our report dated June 30, 1997,
relating to the consolidated balance sheets of Input/Output, Inc. and
subsidiaries as of May 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended May 31, 1997, which report appears in the
May 31, 1997 annual report on Form 10-K of Input/Output, Inc.
Houston, Texas
August ___, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 5/31/97
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 2,573
<SECURITIES> 0
<RECEIVABLES> 89,588
<ALLOWANCES> 0
<INVENTORY> 106,337
<CURRENT-ASSETS> 202,840
<PP&E> 78,376
<DEPRECIATION> 0
<TOTAL-ASSETS> 384,658
<CURRENT-LIABILITIES> 32,413
<BONDS> 0
0
0
<COMMON> 433
<OTHER-SE> 338,181
<TOTAL-LIABILITY-AND-EQUITY> 384,658
<SALES> 281,845
<TOTAL-REVENUES> 281,845
<CGS> 183,438
<TOTAL-COSTS> 76,992
<OTHER-EXPENSES> (2,882)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 793
<INCOME-PRETAX> 24,297
<INCOME-TAX> 7,700
<INCOME-CONTINUING> 16,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,597
<EPS-PRIMARY> .38
<EPS-DILUTED> 0
</TABLE>
