8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15 (d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

May 29, 2009

DEEP DOWN, INC.

(Exact name of registrant as specified in its charter)

Nevada	0-30351	75-2263732
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

8827 W. Sam Houston Pkwy N. Suite 100, Houston, TX  77040

(Address of principal executive offices) (Zip Code)

(281) 517-5000

Registrant’s telephone number, including area code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

SECTION 1 – Registrant’s Business and Operations

ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

On May 29, 2009, Deep Down, Inc. (“Deep Down”) consummated a purchase transaction with JUMA Properties, LLC (“JUMA”), a related party, pursuant to a purchase and sale agreement (the “Purchase Agreement”) dated May 22, 2009 (effective as of closing on May 29, 2009).  Pursuant to the Purchase Agreement, Deep Down acquired certain property and the improvements thereon where Deep Down’s operations are located, being at 15473 East Freeway, Channelview, Texas 77530 and consisting of 8.203 acres (the “Channelview Property”).  The purchase price for the Channelview Property was $2,600,000.00.

On May 29, 2009, and in connection with such Purchase Agreement, Deep Down entered into a third amendment of its existing credit facility (the “Third Amendment”) with Whitney National Bank (“Whitney”), adding a term loan in the amount of $2,100,000.00.  Proceeds from the term loan in the amount of $2,100,000.00 were used to close the purchase of the Channelview Property on May 29, 2009.  Deep Down is obligated to repay the loan based on a schedule of monthly installments of approximately $18,000.00 with an initial payment on June 1, 2009 and a final payment of all remaining outstanding and unpaid principal and accrued interest in May 2014.  The interest rate on the loan is 6.50%.

The terms of the Third Amendment included a guarantor’s consent and agreement, to be signed by each of Deep Down’s subsidiaries as guarantors of the obligations of Deep Down under the existing credit facility, which Whitney required as a condition to the effectiveness of the Third Amendment.  Whitney also required Deep Down to enter a second amendment to its security agreement (the “Security Agreement Amendment”) in order to reflect Deep Down’s ownership of the Channelview Property.  Deep Down also entered into a Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing (collectively, the “Deed of Trust”), creating a lien on the Channelview Property in favor of Gary M. Olander, as trustee for the benefit of Whitney.

The foregoing descriptions of the Purchase Agreement, Third Amendment, the Security Agreement Amendment and the Deed of Trust are not complete and are qualified in their entirety by reference to the full and complete terms of such agreements, which are attached to this Current Report on Form 8-K as Exhibit 10.1, Exhibit 10.2, Exhibit 10.3 and Exhibit 10.4, respectively, and incorporated herein by reference.

ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT.

Prior to May 29, 2009, we had leased the Channelview Property from JUMA.  In connection with the purchase of the Channelview Property pursuant to the Purchase Agreement on May 29, 2009, the lease between Deep Down and JUMA was terminated.  The base rate of $15,000 per month under the lease was payable to JUMA through August 31, 2013, together with all costs of maintaining, servicing, repairing and operating the premises, including insurance, utilities and property taxes.  We incurred no early termination penalties from JUMA in connection with this termination.  JUMA is owned by Ronald E. Smith, President, CEO and a director of Deep Down and Mary L. Budrunas, a vice president and a director of Deep Down.

The description of the Purchase Agreement in Item 1.01 is incorporated by reference into this Item 1.02.

SECTION 2 – Financial Information

ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.

On May 29, 2009, pursuant to the Purchase Agreement, we purchased the Channelview Property from JUMA, a related party.  The Channelview Property consists of 8.203 acres of land that houses 60,000 square feet of manufacturing space and 7,000 square feet of office space.  The description of the Purchase Agreement in Item 1.01 is incorporated by reference into this Item 2.01.

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As mentioned above, JUMA is owned by Ronald E. Smith, President, CEO and a director of Deep Down and Mary L. Budrunas, a vice president and a director of Deep Down.  The value of the Channelview Property was based on current market conditions and further on an appraisal conducted by Scott Stephens & Associates, Inc., a real estate appraisal company located in Houston, Texas.  Scott Stephens & Associates, Inc. determined that the “as is” market value of the Channelview Property as of February 24, 2009 was $3,160,000.00.

ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.

On May 29, 2009, we entered into the Third Amendment and the Deed of Trust.  The descriptions of the Third Amendment and the Deed of Trust in Item 1.01 are incorporated by reference into this Item 2.03.

SECTION 9 – Financial Statements and Exhibits

ITEM 9.01  FINANCIAL STATEMENTS AND EXHIBITS.

(d) Exhibits:

10.1	Purchase and Sale Agreement, dated May 22, 2009, by and between Deep Down, Inc. and JUMA Properties, LLC.
10.2	Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing, executed as of May 29, 2009, by Deep Down, Inc., as grantor, in favor of Gary M. Olander, as trustee, for the benefit of Whitney National Bank, as beneficiary.
10.3	Third Amendment to Credit Agreement, entered into as of May 29, 2009, between Deep Down, Inc., as borrower, and Whitney National Bank, including the Guarantor’s Consent and Agreement as signed on behalf of Electrowave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC and Deep Down, Inc.
10.4	Second Amendment to Security Agreement, executed as of May 29, 2009, by Deep Down, Inc., Electrowave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC and Deep Down Inc., for the benefit of Whitney National Bank.

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SIGNATURES

Pursuant to the requirements 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.

Date: June 2, 2009

DEEP DOWN, INC.
By:	/s/ Ronald E. Smith
	Ronald E. Smith
	President and Chief Executive Officer

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EXHIBIT INDEX

10.1	Purchase and Sale Agreement, dated May 22, 2009, by and between Deep Down, Inc. and JUMA Properties, LLC.
10.2	Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing, executed as of May 29, 2009, by Deep Down, Inc., as grantor, in favor of Gary M. Olander, as trustee, for the benefit of Whitney National Bank, as beneficiary.
10.3	Third Amendment to Credit Agreement, entered into as of May 29, 2009, between Deep Down, Inc., as borrower, and Whitney National Bank, including the Guarantor’s Consent and Agreement as signed on behalf of Electrowave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC and Deep Down, Inc.
10.4	Second Amendment to Security Agreement, executed as of May 29, 2009, by Deep Down, Inc., Electrowave USA, Inc., Flotation Technologies, Inc., Mako Technologies, LLC and Deep Down Inc., for the benefit of Whitney National Bank.

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EX-10.1

EXHIBIT 10.1

PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT ("Agreement") is entered into as of the 22nd  day of May, 2009 (the "Effective Date"), between JUMA Properties, LLC, a Texas limited liability company ("Seller") and Deep Down, Inc., a Nevada corporation ("Purchaser").

WITNESSETH:

In consideration of the mutual covenants set forth herein and in consideration of the advance deposit herein called for, the receipt and sufficiency of which are hereby acknowledged by Seller, the parties hereto hereby agree as follows:

1.           Sale and Purchase. Seller shall sell, convey, and assign all of its right, title and interest in the Property (hereinafter defined) to Purchaser, and Purchaser shall purchase and accept from Seller, for the Purchase Price (hereinafter defined) and on and subject to the terms and conditions herein set forth, the following:

(a)           The tract of land situated in Harris County, Texas is described on Exhibit "A" attached hereto and made a part hereof for all purposes, together with all rights and interests appurtenant thereto, including all of Seller's right title, and interest in and to adjacent streets, alleys, rights-of-way, and any adjacent strips of real estate (the "Land"); all fixtures and improvements located on the Land which are owned by Seller (the "Improvements"); and all rights, titles, and interests appurtenant to the Land and Improvements;

(b)           All plans, drawings, specifications, surveys, engineering reports, environmental reports and surveys, soils reports, and other technical information related to the Property and in Seller's possession; and

(c)           all tangible personal property owned by Seller located on or used in connection with the Property, and all of Seller's interest in any service, maintenance or management contracts, in any equipment warranties, and in any licenses, permits and trade names related to the operation and ownership of the Land and Improvements.

All of the Property shall be conveyed, assigned, and transferred to Purchaser at Closing (hereinafter defined) free and clear of all liens, claims, easements, and encumbrances whatsoever except for the Permitted Encumbrances (hereinafter defined).

2.           Purchase Price. The price for which Seller shall sell and convey the Property to Purchaser, and which Purchaser shall pay to Seller, is TWO MILLION SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($2,600,000.00) (the "Purchase Price"), to be paid in cash at Closing (as defined in Section 8 hereof) as follows: (i) cash in the sum of FIVE HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS ($570,000.00) (an amount to which Seller acknowledges has been paid by Purchaser to Seller as of the date hereof and prior to Closing and hereinafter referred to as the "Advance") and (ii) proceeds from a third-party mortgage loan to be obtained from Whitney National Bank in the sum of TWO MILLION THIRTY THOUSAND AND NO/100 DOLLARS ($2,030,000.00), on such terms and conditions as may be acceptable to Purchaser, in Purchaser's sole discretion.

3. Delivery of Information by Seller.

(a)           Title Commitment and Title Exception Documents. Prior to Closing, Seller shall provide, or cause to be provided, to Purchaser the following:

(1)           A Commitment for Title Insurance ("Title Commitment") issued by AmeriPoint Title (the "Title Company") covering the Land; and

(2)           Copies of all documents referred to in the Title Commitment ("Title Commitment Documents").

(b)           Survey. Prior to Closing, Seller shall deliver to Purchaser a survey (the "Survey") of the Land acceptable to the Title Company for purposes of issuance of the Policy hereinafter described, and acceptable to Purchaser.

(c)           Other Documents. Prior to Closing, Seller shall deliver or make available to Purchaser the following:

(1)           Copies of all engineering and technical reports in the possession or control of Seller or its representatives that concern the Land and Improvements, including, without limitation, soil testing reports and reports of environmental or hazardous material inspections or surveys;

(2)           Copies of all plans and specifications that describe or relate to the wet or dry utilities on the Land, and any as-built drawings related to the Improvements;

(3)           Copies of all licenses, permits, or similar documents relating to the Property;

(4)           Copies of all property tax assessments and bills relating to the Property for the year 2008 and copies of bills reflecting the payment of such taxes;

(5)           True and complete copies of any and all services, maintenance, management or other contracts with respect to the Property;

(6)           True and complete copies, if any, of all warranties or guarantees with respect to any equipment or appliances constituting a portion of the Property;

(7)           An inventory of the furniture, fixtures, appliances, equipment and other personal property owned by Seller and located on, or used in connection with, the operation of the Property;

(8)           Such other information and documents relating to the Property that are in Seller's possession and/or control and that are reasonably requested by Purchaser.

4.           Right to Inspect Property and Books and Records. From the Effective Date to the Closing Date, unless earlier terminated, Seller shall afford Purchaser and its representatives a continuing right to inspect, at reasonable hours, the Property and all of Seller's books and records pertaining to the Property; provided, however, that in conducting its inspection of the Property, Purchaser shall not unreasonably interfere with the business and operations of the Property.  Further, Purchaser shall indemnify and hold Seller harmless from all costs, expenses, damages, and liabilities incurred as a direct result of Purchaser's inspection of the Property, which indemnity shall survive the expiration or earlier termination of this Agreement. Purchaser's indemnity of Seller shall not extend to losses arising out of or in connection with Seller's negligent acts or willful misconduct. Purchaser agrees to keep all information furnished to it by Seller strictly confidential, but may share such information with its legal counsel, consultants and advisors in connection with the transaction contemplated hereby. If the sale of the Property is not consummated pursuant hereto, Purchaser must restore the Property to as near its pre-entry condition as may be practicable, and Purchaser shall immediately return all such information to Seller.

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5. Title.

(a)           Purchaser shall have the right to object in writing to any liens and encumbrances reflected by the Title Commitment or Survey. All liens and encumbrances to which Purchaser so objects are hereinafter referred to as the "Non-Permitted Encumbrances." Such written notice of Purchaser's objections to Non-Permitted Encumbrances (the "Title Objection Notice") shall be provided to Seller prior to Closing after the receipt by Purchaser of the last of the Title Commitment and Survey, original, updated, or new, as the case may be  (the "Title Objection Date"). If no such Title Objection Notice is given by the Title Objection Date, then it shall be deemed that all matters reflected by the Survey and Title Commitment are "Permitted Encumbrances." Seller shall have the right, but not the obligation, at its sole cost, to cure or remove all Non-Permitted Encumbrances and shall give Purchaser written notice ("Seller's Cure Notice") of Seller's intent to do so within five (5) business days after receipt by Seller of Purchaser's Title Objection Notice. If Seller does not provide a Seller's Cure Notice to Purchaser or, if Seller does provide a Seller's Cure Notice to Purchaser but does not agree therein to cause all of the Non-Permitted Encumbrances to be removed or cured, then Purchaser shall have the right either (i) to terminate this Agreement in accordance with Section 11(b) hereof by delivering notice to Seller within the earlier to occur of five (5) business days after the date Seller's Cure Notice was due or (ii) to elect to purchase the Property subject to the Non-Permitted Encumbrances which Seller has not agreed to cure or remove, and such Non-Permitted Encumbrances subject to which Purchaser elects to purchase the Property shall thereafter become Permitted Encumbrances. If Seller agrees in Seller's Cure Notice to cure or remove any Non-Permitted Encumbrances but thereafter, fails to timely remove such Non-Permitted Encumbrances on or before the Closing Date, then Purchaser shall be entitled to either (xx) terminate this Agreement in accordance with Section 11(b) hereof by delivering written notice to Seller or (yy) elect to purchase the Property subject to the Non-Permitted Encumbrances which Seller has not cured or removed, and such Non-Permitted Encumbrances subject to which Purchaser elects to purchase the Property shall thereafter become Permitted Encumbrances.

(b)           Seller shall provide, at Closing, the standard form of Owner Policy of Title Insurance promulgated for use in Texas by the Texas Department of Insurance (the "Policy"), issued by the Title Company, in Purchaser's favor in the full amount of the Purchase Price for the Property, insuring Purchaser's indefeasible fee simple title to the Property, subject only to the Permitted Encumbrances, and the standard printed exceptions contained in the standard form of Policy. Purchaser shall be obligated to pay for any deletions, special endorsements or other changes or modifications to the Policy.

6. Seller's Representations, Warranties, and Covenants.

(a)           Seller's Representations, Warranties and Certain Covenants. In addition to the express warranties under the deed referred to in Section 8(b)(1) hereof, and other conveyance, assignment, and transfer documents to be delivered to Purchaser at Closing, Seller hereby represents and warrants to, and covenants with, Purchaser that:

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(1)           Authority and Binding Agreement. Seller has full right, power, and authority to execute and deliver this Agreement and to consummate the purchase and sale transactions provided for herein without obtaining any further consents or approvals from, or the taking of any other actions with respect to, any third parties. This Agreement, when executed and delivered by Seller and Purchaser, will constitute the valid and binding agreement of Seller, enforceable against Seller in accordance with its terms;

(2)           Good and Indefeasible Title. Seller has good and indefeasible title to the Property, subject only to the exceptions to title set forth in the Title Commitment;

(3)           Operation of the Property. From the Effective Date until the Closing Date, Seller shall: (i) maintain and operate the Property in its ordinary course and in the same manner as Seller has heretofore maintained and operated same, (ii) keep the Property in good repair and not defer any maintenance required in the ordinary course of the business, (iii) not, without the prior written consent of Purchaser, enter into any new lease or amend any existing lease, and (iii) not, without the prior written consent of Purchaser, enter into any agreement or instrument or take any action that would encumber the Property after Closing, that would bind Purchaser or the Property after Closing, or that would be outside the normal scope of maintaining and operating the Property;

(4)           Condemnation. Seller has no knowledge of any condemnation proceedings or proposed proceedings against the whole or any part of the Property and no such proceedings or proposed proceedings have been commenced;

(5)           No Litigation; No Notice of Violation. There is no litigation or proceeding pending or, to Seller's knowledge threatened, against or relating to any portion of the Property, nor does Seller know or have reasonable grounds to know of any basis for such actions. Seller has received no notice of violation of any local law, rule, or ordinance concerning the Property;

(6)           Hazardous Wastes. Seller has not received a summons, citation, direction, letter, notice of violation or other communication, written or oral, from any State, Federal or Local governmental body or agency having jurisdiction therein concerning any intentional or unintentional action or omission on Seller's or any tenant's part which resulted in the releasing, spilling, leaking, pumping, paving, pouring, emitting, emptying or dumping hazardous substance and/or toxic waste in, under, or over the Property;

(7)           Parties in Possession. There are no adverse or other parties in possession of the Property or of any part thereof;

(8)           No Licenses, Contracts, Etc. To Seller's actual knowledge, there are no licenses, contracts, and/or agreements in favor of any third party permitting the use or occupancy of the Property; and

(9)           Representations, and Warranties True and Correct. All representations and warranties of Seller contained in this Agreement are true and correct in all material respects as of the Effective Date hereof, and will be true and correct in all material respects on the date of the Closing.

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(b)           Survival of Representations; Knowledge. All of Seller's representations and warranties made under this Agreement shall survive the Closing.

(c)           False and Inaccurate Representations. If (i) any of Seller's representations and warranties set forth in this Section 6 are determined to be untrue or inaccurate in any material respect, or (ii) at any time at or before Closing there is any material change with respect to the matters represented and warranted by Seller pursuant to this Section 6, then Seller shall give Purchaser prompt written notice thereof, and Purchaser shall have the rights and remedies provided under Section 11(b).

7.           Conditions to Purchaser's Obligation to Close. In addition to any other conditions to Closing set forth elsewhere in this Agreement, the following shall be conditions precedent to Purchaser's obligation to close this transaction:

(a)           No Further Encumbrances. On the Closing Date, there shall be no change in the matters reflected in the Title Commitment and no encumbrance or title defects affecting the Property other than the Permitted Encumbrances shall exist.

(b)           No Changes in the Survey. On the Closing Date, there shall be no change in the matters reflected on the Survey, and there shall not exist any easement right-of-way, encroachment, conflict or protrusion with respect to the Property not shown on the Survey.

(c)           Performance of Obligations. Seller shall have timely and materially complied with all of its covenants and obligations under this Agreement.

(d)           True and Correct Representations. All representations and warranties of Seller shall be true and correct in all material respects as of the date of the Closing.

(e)           Third-Party Financing. Purchaser shall have obtained the financing of the portion of the Purchase Price described in Section 2 hereof, on such terms and conditions as may be acceptable to Purchaser, in Purchaser's sole discretion.

If any of the Closing conditions are not satisfied on the Closing Date, Purchaser shall have the right to: (i) terminate this Agreement (in which event the Advance shall be returned to Purchaser), (ii) proceed to Closing thereby waiving any such unsatisfied Closing conditions, or (iii) extend the Closing Date by up to thirty (30) days, in which event Seller shall use reasonable efforts to take such actions as are necessary to cure or satisfy such Closing conditions precedent. If Purchaser so extends the Closing Date and the applicable condition or conditions are not satisfied, Purchaser shall have the right to elect its remedy under Section 11(b) or proceed with Closing, thereby waiving any unsatisfied Closing conditions. If Purchaser closes the purchase and sale of the Property, it shall be deemed that all conditions precedent to the Closing have either been satisfied or waived by Purchaser.

8.           Closing. The closing ("Closing") of the sale of the Property by Seller to Purchaser shall occur on or before May 29, 2009 (the "Closing Date"), unless the Closing Date is extended pursuant to the terms of this Agreement. Time is of the essence with regard to the Closing Date. The Closing shall occur in the offices of Title Company commencing at 10:00 a.m. (Central Time) on the Closing Date (or at some other time or location as agreed to by the parties). At the Closing, the following, which are mutually concurrent conditions, shall occur:

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(a)           Purchaser, at Purchaser's sole cost and expense, shall deliver or cause to be delivered to Seller the following:

(1)           Funds available for immediate value in Seller's account in the amount of the Purchase Price as specified in Section 2 hereof, adjusted for the prior Advance; and

(2)           Evidence satisfactory to Seller that the person executing the Closing documents on behalf of Purchaser has full right, power, and authority to do so.

(b)           Seller, at its sole cost and expense, shall deliver or cause to be delivered to Purchaser the following:

(1)           A special warranty deed in form and substance satisfactory to Purchaser, fully executed and acknowledged by Seller, conveying to Purchaser the Land and Improvements, subject only to the Permitted Encumbrances;

(2)           All keys to all locks on the Property (and an accounting for keys in possession of others); and all available books and records pertaining to the Property;

(3)           Permits required to operate the Property issued by the appropriate governmental authorities and utility companies respecting the Improvements; and

(4)           Such other instruments as are customarily executed to effectuate the conveyance of property similar to the Property, with the effect that, after the Closing, Purchaser will have succeeded to all of the rights, titles, and interests of Seller related to the Property and Seller will no longer have any rights, titles, or interests in and to the Property.

(c)           The following items shall be adjusted or prorated between Seller and Purchaser at Closing:

(1)           Ad valorem and similar taxes (including personal property  taxes) and assessments relating to the Property for the calendar year 2009 shall be prorated between Seller and Purchaser as of the Closing Date, based upon the best available estimates of the amount of taxes that will be due and payable on the Property during such calendar year.  As soon as the amount of taxes and assessments on the Property for such calendar year are known, Seller and Purchaser shall readjust the amount of taxes and assessments to be paid by each party so that Seller shall pay for those taxes and assessments attributable to the period of time prior to the Closing Date and Purchaser shall pay for those taxes and assessments attributable to the period of time commencing with the Closing Date;

(2)           Rents for or pertaining to the Property for the then current month shall be prorated

at the Closing; provided, however, no proration shall be made for rents that are delinquent as of the Closing Date.  At the Closing, Seller shall pay to Purchaser in cash the amount of any prepaid rents paid to Seller by tenants of the Property for periods subsequent to the Closing Date;

(3)           Seller shall pay to Purchaser in cash at the Closing the amount of any and all security deposits paid to Seller by tenants of the Property.  Seller warrants that no other type of deposit (security or otherwise) is owed in connection with the Property.  Any claims for payment of such deposits shall be promptly paid by Seller; and

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(4)           All other income, and ordinary operating expenses for or pertaining to the Property, including, but not limited to public utility charges, maintenance and service charges, and all other normal operating charges with respect to the Property shall be prorated at the Closing.

(e)           Upon completion of the Closing, Seller shall deliver to Purchaser exclusive possession of the Property free and clear of all tenancies of every kind and parties in possession, with all parts of the Property in the same condition as on the Effective Date hereof, normal wear and tear only excepted.

9.           Brokerage Commissions. Seller and Purchaser acknowledge and agree that neither has dealt with any real estate broker, agent or salesman, and in the event there were to be any claim for fees or real estate commissions occasioned by the execution and/or consummation of this Agreement, any such claim shall be the sole responsibility of the party contracting therefor or the party against whom any such claim is asserted. Each party agrees to indemnify, protect, defend the other party, and hold the other party harmless from any and all claims for fees or real estate commissions asserted against the indemnifying party.

10.           Destruction, Damage, or Taking Before Closing. If, before Closing, all or any part of the Property is destroyed or damaged, or becomes subject to condemnation, a sale in lieu of condemnation, or eminent domain proceeding, then Seller shall promptly notify Purchaser thereof. Purchaser shall have the right to elect to proceed with the Closing (subject to the other provisions of this Agreement) by delivering notice thereof to Seller within five (5) business days of receipt of Seller's notice respecting the damage, destruction, taking, or sale. If Purchaser elects to proceed with Closing, Seller shall assign to Purchaser at Closing Seller's rights to any insurance proceeds or awards payable in respect of the Property. If, within five (5) business days of receipt of Seller's notice respecting the damage, destruction, or taking, Purchaser notifies Seller of its intent to terminate this Agreement, or if Purchaser gives no notice within such period, then Purchaser shall be deemed to have terminated this Agreement pursuant to Section 11(b) hereof. The Closing shall be extended as may reasonably be required by the provisions of this Section.

11. Termination and Remedies.

(a)           If Purchaser fails to consummate the purchase of the Property pursuant to this Agreement for any reason other than (i) termination hereof pursuant to a termination right afforded Purchaser under this Agreement, (ii) Purchaser's termination of this Agreement pursuant to paragraph (c) of this Section, or (iii) Seller's failure to perform its obligations hereunder, then Seller, as its sole and exclusive remedy, shall terminate this Agreement by notifying Purchaser thereof, in which event, Seller shall keep the Advance.

(b)           In the event Seller refuses or fails to satisfy its obligations hereunder and resolve contingencies and satisfy conditions as required of it hereunder, or in the event all contingencies or conditions to closing benefitting Purchaser have been satisfied or waived on or before the Closing Date, but Seller nevertheless refuses or fails to convey title to the Property and close the transaction contemplated hereby in accordance with the terms of this Agreement, Purchaser, as its sole and exclusive remedy shall elect one of the following remedies: (i) terminate this Agreement, in which event the Advance shall be returned to Purchaser; or (ii) institute legal proceedings against Seller for specific performance of Seller's obligations hereunder.

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(c)           If (i) any of Seller's representations or warranties are determined to be false, inaccurate or misrepresented in any material respect, or (ii) Seller fails to consummate the sale of the Property pursuant to this Agreement for any reason other than Purchaser's failure to perform its obligations hereunder, then Purchaser, shall have the rights set forth in paragraph (b) above.

(d)           Seller and Purchaser hereby acknowledge and agree that they have included the provision for payment of liquidated damages in paragraph (a) of this Section because, in the event of a breach by Purchaser, the actual damages to be incurred by Seller can reasonably be expected to approximate the amount of liquidated damages called for herein and because the actual amount of such damages would be difficult if not impossible accurately to measure.

12.           Notices. All notices provided or permitted to be given under this Agreement must be in writing and may be served by depositing same in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, by delivering the same in person to such party; by prepaid telegram or telex; or by facsimile copy transmission with proof of delivery. Notice given in accordance herewith shall be effective upon receipt at the address of the addressee. For purposes of notice, the addresses of the parties shall be as follows:

If to Seller, to: JUMA Properties, LLC

15473 East Freeway

Channelview, Texas 77530

Attention: Ronald E. Smith

If to Purchaser, to: Deep Down, Inc.

8827 W. Sam Houston Parkway N., Suite 100

Houston, Texas 77040

Attention:  Eugene L. Butler

Either party hereto may change its address for notice by giving three (3) days prior written notice thereof to the other party.

13.           Assigns; Beneficiaries. This Agreement may be assigned by Purchaser to any affiliated or related entity or parties, without the prior written consent of Seller. If Purchaser desires to assign this Agreement to any other party, then Purchaser shall first obtain the prior written consent of Seller, which consent shall not be unreasonably withheld or delayed. This Agreement shall inure to the benefit of and bind the parties hereto and their respective heirs, legal representatives, successors and assigns.

14.           Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Texas.

15.           Entire Agreement. This Agreement is the entire agreement between Seller and Purchaser concerning the sale of the Property, and no modification hereof or subsequent agreement relative to the subject matter hereof shall be binding on either party unless reduced to writing and signed by the party to be bound. The parties agree that there are no oral agreements, understandings, representations or warranties signed by the parties which are not expressly set forth herein. Exhibit "A" attached hereto is incorporated herein by this reference for all purposes.

16.           Survival of Covenants. Any covenant of a party under this Agreement which contemplates being performed by such party after the Closing Date, shall survive the Closing.

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17.           Counterparts. This Agreement may be executed in a number of identical counterparts. Each such counterpart is deemed an original for all purposes and all such counterparts shall, collectively, constitute one agreement, but, in making proof of this Agreement, it shall not be necessary to produce or account for more than one counterpart; provided that the counterpart produced must be the counterpart executed by the party against whom enforcement hereof is sought.  This Agreement may be transmitted and signed by facsimile or portable document format (PDF).  The effectiveness of any such documents and signatures shall, subject to applicable law, have the same force and effect as manually-signed originals and shall be binding on the parties.

18.           Attorneys' Fees. The prevailing party in any legal proceeding brought under or with relation to this Agreement or transaction shall be entitled to recover court costs, reasonable attorneys' fees, and all other litigation expenses from the non-prevailing parties.

19.           Business Day. If any date of performance hereunder falls on a Saturday, Sunday or legal holiday, such date of performance shall be deferred to the next day which is not a Saturday, Sunday or legal holiday.

20.           Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, by a court of competent jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision is severed and deleted from this Agreement.

21.           Gender; Number. Unless the context requires otherwise, all pronouns used in this Agreement shall be held and construed to include the other genders, whether used in the masculine, feminine or neuter gender, and words in the singular number shall be held and construed to include the plural, and words in the plural shall be held and construed to include the singular.

[SIGNATURES OF THE PARTIES APPEAR ON THE FOLLOWING PAGE]

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IN WITNESS WHEREOF, Seller has executed multiple counterparts of this Agreement as of the Effective Date.

SELLER:

JUMA Properties, LLC, a Texas limited liability company

By:          /s/ Ronald E. Smith                                                      

Ronald E. Smith, Member

PURCHASER:

Deep Down, Inc., a Nevada corporation

By:          /s/ Eugene L. Butler                                                      

Eugene L. Butler, Chief Financial Officer

Signature Page to Purchase and Sale Agreement

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EX-10.2

EXHIBIT 10.2

NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

DEED OF TRUST, SECURITY AGREEMENT

AND UCC FINANCING STATEMENT FOR FIXTURE FILING

(Texas)

by

DEEP DOWN, INC.,

as Grantor,

to

GARY M. OLANDER,

as Trustee,

for the benefit of

WHITNEY NATIONAL BANK

as Beneficiary

This Instrument shall be effective as a

UNIFORM COMMERCIAL CODE FINANCING STATEMENT FILED AS A

FIXTURE FILING

By
Debtor:	Deep Down, Inc.
	15473 East Freeway
	Channelview, Texas  77530
To
Secured Party:	Whitney National Bank
	4265 San Felipe, Suite 200
	Houston, Texas  77027

This Financing Statement covers goods described herein by item or type some or all of which are affixed or are to be affixed to the real property described in Exhibit A attached hereto.

THIS INSTRUMENT PREPARED BY AND AFTER RECORDING PLEASE RETURN TO:

Porter & Hedges, L.L.P.

1000 Main Street, 36th Floor

Houston, Texas 77002

Attn:  Nick H. Sorensen

TABLE OF CONTENTS

SECTION 1.	DEFINITIONS	1
SECTION 2.	GRANT OF LIEN; HABENDUM CLAUSE.	4
2.1	Grant of Lien; Habendum Clause	4
2.2	Subrogation	4
SECTION 3.	WARRANTIES AND REPRESENTATIONS	4
3.1	Lien of this Instrument	4
3.2	Litigation	4
3.3	Acknowledgment by Grantor	4
3.4	Environmental	4
SECTION 4.	AFFIRMATIVE COVENANTS	4
4.1	Payment and Performance	5
4.2	Payment of Impositions	5
4.3	Repair	5
4.4	Insurance	5
4.5	Restoration Following Casualty	6
4.6	Defense of Title	6
4.7	Future Impositions	6
4.8	Environmental Indemnification	6
4.9	Information About Mortgaged Property	6
4.10	Further Assurances	6
SECTION 5.	NEGATIVE COVENANTS	6
5.1	Use Violations	6
5.2	Alterations	7
5.3	Prohibition on Transfer	7
5.4	Replacement of Fixtures and Personalty	7
5.5	No Further Encumbrances	7
SECTION 6.	DEFAULT AND FORECLOSURE.	7
6.1	Remedies	7
6.2	Divestment of Rights, Tenant at Sufferance	10
6.3	Separate Sales	10
6.4	Remedies Cumulative, Concurrent, and Nonexclusive	10
6.5	Release of and Resort to Collateral	10
6.6	Waiver of Redemption, Notice, and Marshaling of Assets	11
6.7	Discontinuance of Proceedings	11
6.8	Application of Proceeds, Deficiency Obligation	11
6.9	Purchase by Beneficiary	11
6.10	Disaffirmation of Contracts	11
6.11	Deficiency Suit	12
SECTION 7.	CONDEMNATION	12
SECTION 8.	SECURITY AGREEMENT	12
8.1	Security Interest	12
8.2	Financing Statements	12

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8.3	Uniform Commercial Code Remedies	13
8.4	No Obligation of the Trustee or Beneficiary	13
SECTION 9.	CONCERNING THE TRUSTEE	13
9.1	No Liability	13
9.2	Retention of Monies	13
9.3	Successor Trustee	13
9.4	Succession Instruments	13
9.5	Performance of Duties by Lenders	14
SECTION 10.	MISCELLANEOUS	14
10.1	Survival of Obligations	14
10.2	Covenants Running with the Land	14
10.3	Recording and Filing	14
10.4	Notices	14
10.5	No Waiver	14
10.6	Beneficiary’s Right to Pay Indebtedness or Perform Obligations	14
10.7	Limitation on Effectiveness of Lien	15
10.8	Governing Law	15
10.9	Multiple Counterparts and Facsimile Signatures	15
10.10	Waiver of Jury Trial	15
10.11	Entirety	15
EXHIBITS
Exhibit A	Description of Land
Exhibit B	Permitted Encumbrances

                                                                                                                                     ;    

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DEED OF TRUST, SECURITY AGREEMENT

AND UCC FINANCING STATEMENT FOR FIXTURE FILING

STATE  OF  TEXAS	§
	§
COUNTY OF HARRIS	§

This DEED OF TRUST, SECURITY AGREEMENT AND UCC FINANCING STATEMENT FOR FIXTURE FILING (as amended, restated, or supplemented, this “Deed of Trust”) is executed as of May 29, 2009, by DEEP DOWN, INC., a Nevada corporation (“Grantor”), to GARY M. OLANDER, Trustee, and his successors in the trust hereby created (such Trustee and any successor in trust, being hereinafter referred to as the “Trustee”) for the benefit of Whitney National Bank, a national banking association (“Beneficiary”).

SECTION 1. DEFINITIONS.  Unless otherwise defined in this Deed of Trust, or unless the context otherwise requires, each capitalized term used in this Deed of Trust shall have the meaning given such term in the Credit Agreement, as hereinafter defined.  As used in this Deed of Trust, the following terms shall have the following meanings:

Beneficiary means Whitney National Bank, and its successors and assigns.

Credit Agreement means that Credit Agreement dated as of November 11, 2008 (as amended by that certain First Amendment to Credit Agreement dated as of December 18, 2008, that certain Second Amendment to Credit Agreement dated as of February 13, 2009, that certain Third Amendment to Credit Agreement dated as of the date hereof, and as further amended, restated, or supplemented), and executed by Grantor, as borrower, and Beneficiary, as lender.

Default means a “Default” as defined in the Credit Agreement.

Fixtures means all materials, supplies, equipment, apparatus, and other items now or hereafter attached to, installed on or in the Land or the Improvements, or which in some fashion are deemed to be fixtures to the Land or Improvements under the laws of the State of Texas, including the Texas Business and Commerce Code, other than those owned by tenants under any Lease.  The term “Fixture” shall include, without limitation, all items of Personalty to the extent that the same may be deemed fixtures under applicable law or Legal Requirements.

Grantor means the above defined Grantor and any and all subsequent record or equitable owners of the Mortgaged Property.

Impositions means all real estate and personal property taxes; water, gas, sewer, electricity, and other utility rates and charges; charges for any easement, license, or agreement maintained for the benefit of the Mortgaged Property, and all other taxes, standby fees, charges, and assessments and any interest, costs, or penalties with respect thereto of any kind and or character whatsoever which at any time before or after the execution of this Deed of Trust may be assessed, levied, or imposed upon the Mortgaged Property or the ownership, use, occupancy, or enjoyment thereof.

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Improvements means all buildings, structures, open parking areas, and other improvements, and any and all accessions, additions, replacements, substitutions, or alterations thereof or appurtenances thereto, now or at any time hereafter situated, placed, constructed, or renovated upon the Land or any part thereof.

Indebtedness means (a) the Obligation under and as defined in the Credit Agreement, including, without limitation, amounts that would become due but for operation of any applicable provision of Title 11 of the United States Code (including 11 U.S.C. §§ 502 and 506), together with all pre- and post-maturity interest thereon, which shall include, without limitation, all post-petition interest if Grantor voluntarily or involuntarily files for bankruptcy protection, (b) all indebtedness, liabilities, and obligations of Grantor arising under this Deed of Trust, (c) interest accruing on, and reasonable attorneys’ fees, court costs, and other costs of collection reasonably incurred in the collection or enforcement of, any of the indebtedness, liabilities, or obligations described in clauses (a) and (b) above, and (d) any and all renewals and extensions of, or amendments to, any of the indebtedness, liabilities, and obligations described in clauses (a) through (c) above, together with all funds hereafter advanced by Beneficiary to or for the benefit of Grantor as contemplated by any covenant or provision contained in any Loan Document, including this Deed of Trust, it being contemplated that Grantor may hereafter become indebted to Beneficiary in further sum or sums.

Land means the real estate or any interest therein described in Exhibit A attached hereto and made a part hereof, together with all Improvements and Fixtures and all rights, titles, and interests appurtenant thereto.

Laws are defined in the Credit Agreement.

Leases means any and all leases, subleases, licenses, concessions, or other agreements (written or oral, now or hereafter in effect) which grant a possessory interest in and to, or the right to extract from, mine, occupy, sell or use the Mortgaged Property, and all other agreements, including, but not limited to, utility contracts, maintenance agreements, and service contracts which in any way relate to the use, occupancy, operations, maintenance, enjoyment, or ownership of the Mortgaged Property, save and except any and all leases, subleases, or other agreements pursuant to which Grantor is granted a possessory interest in the Land.

Legal Requirements means (a) any and all present and future Laws in any way applicable to Grantor, or the Mortgaged Property, including but not limited to those respecting the ownership, use, occupancy, possession, operation, maintenance, alteration, repair, or reconstruction thereof, (b) Grantor’s presently or subsequently effective organizational documents, (c) any and all Leases and other contracts (written or oral) of any nature to which Grantor may be bound, and (d) any and all restrictions, reservations, conditions, easements, or other covenants or agreements of record affecting the Mortgaged Property.

Mortgaged Property means the Land, Improvements, Fixtures, Personalty, Leases, and Rents, together with:

(a) all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages, and appurtenances in anywise appertaining thereto, and all of Grantor’s right, title and interest in and to any streets, ways, alleys, strips, or gores of land adjoining the Land or any part therein;

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(b) all betterments, accessions, additions, appurtenances, substitutions, replacements, and revisions thereof and thereto and all reversions and remainders therein;

(c) all other interest of every kind and character which Grantor now has or at anytime hereafter acquires in and to the above described and all property which is used or useful in connection therewith, including rights of ingress and egress, easements, licenses, and all reversionary rights or interests of Grantor with respect to such property.  To the extent permitted by applicable law and the Legal Requirements, all of the Personalty and Fixtures are to be deemed and held to be a part of and affixed to the Land.

As used in this Deed of Trust, the term “Mortgaged Property” is expressly defined as meaning all or any portion of the above and any interest therein.

Permitted Encumbrances means (a) the Liens, easements, building lines, restrictions, security interests, and other matters (if any) as set out on attached Exhibit B and (b) to the extent applicable, the Permitted Liens.

Personalty means all of Grantor’s right, title, and interest in and to all tangible and intangible personal property, whether or not Fixtures or otherwise constituting fixtures under the Texas Business and Commerce Code (as amended), including all equipment, inventory, goods, consumer goods, accounts, chattel paper, instruments, money, general intangibles, documents, minerals, crops, and timber (as those terms are defined in the Texas Business and Commerce Code, as amended) which are attached to, installed, placed or used on or in connection with, or is acquired for such attachment, installation, placement, or use, or which arises out of the improvement, financing, leasing, operation, or use of, the Land, the Improvements, Fixtures, or other goods located on the Land or Improvements, together with all additions, accessions, accessories, amendments, and modifications thereto, extensions, renewals, enlargements, and proceeds thereof, substitutions therefor, and income and profits therefrom.  The following are included, without limitation, in the definition of “Personalty”: furnishings, building materials, supplies, machines, engines, boilers, stokers, pumps, fans, vents, blowers, dynamos, furnaces, elevators, ducts, shafts, pipes, furniture cabinets, shades, blinds, screens; plumbing, heating, air conditioning, lighting, lifting, ventilating, refrigerating, cooking, medical, laundry and incinerating equipment; partitions, drapes, carpets, rugs and other floor coverings, and awnings; call and sprinkler systems, fire prevention and extinguishing apparatus and equipment, water tanks, compressors, vacuum cleaning systems; disposals, swimming pools, dishwashers, ranges, ovens, kitchen equipment, and cafeteria equipment; recreational equipment; loan commitments, financing arrangements, bonds, leases, licenses, permits, sales contracts, insurance policies, and the proceeds therefrom, plans and specifications, surveys, rent rolls, books and records, funds, bank deposits; all trademarks, service marks, trade names, and symbols used in connection therewith; any award, remuneration, settlement, or compensation heretofore made or hereafter to be made by any tribunal to Grantor, including those for any vacation of or change of grade in any streets affecting the Land or the Improvements; all plans and specifications for the Improvements; all contracts and subcontracts relating to the Improvements; all deposits (including tenants’ security deposits), funds, accounts, contract rights or documents; arising from or by virtue of any transactions involving an interest in the property described herein; all permits, licenses, franchises, certificates, and other rights and privileges obtained in connection with the property described herein; all proceeds arising from or by virtue of the sale, lease, or other disposal of all or any part of the Mortgaged Property (consent to same not granted or to be implied hereby); and all proceeds (including premium refunds) payable or to be payable under each policy of insurance relating to the Mortgaged Property.

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Rents means all of the rents, revenues, income, proceeds, royalties, profits, and other benefits paid or payable for using, leasing, licensing, possessing, operating from or in, residing in, selling, mining, extracting, or otherwise enjoying or using the Mortgaged Property.

SECTION 2. GRANT OF LIEN; HABENDUM CLAUSE.

2.1 Grant of Lien; Habendum Clause.  To secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of Grantor’s obligations under this Deed of Trust, Grantor has GRANTED, BARGAINED, SOLD, and CONVEYED, and by these presents does GRANT, BARGAIN, SELL, and CONVEY unto the Trustee the Mortgaged Property, subject to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee, the Trustee’s successors in trust, and the Trustee’s assigns forever, in trust with power of sale, and Grantor does hereby bind itself and its successors, legal representatives, and assigns to warrant and forever defend the title to the Mortgaged Property unto the Trustee against every Person whomsoever lawfully claiming or to claim the same or any part thereof by, through or under Grantor, but not otherwise; provided that, if the Indebtedness has been paid in full and the Beneficiary’s commitment to lend under the Credit Agreement has finally terminated, then the Liens, security interests, estates, and rights granted in this Deed of Trust shall terminate; otherwise the same shall remain in full force and effect.

2.2 Subrogation.  The Trustee and Beneficiary are hereby subrogated to the claims and liens of all parties whose claims or liens are fully or partially discharged or paid with the proceeds of the Indebtedness secured by this Deed of Trust, notwithstanding that such claims or liens may have been cancelled and satisfied of record.

SECTION 3. WARRANTIES AND REPRESENTATIONS.  Grantor acknowledges that certain representations and warranties in the Credit Agreement are applicable to it and confirms that each such representation and warranty is true and correct.  Furthermore, Grantor hereby unconditionally warrants and represents to the Beneficiary as follows:

3.1 Lien of this Instrument.  This Deed of Trust constitutes a valid, subsisting lien on the Land, the Improvements, and the Fixtures, and a valid, subsisting security interest in and to the Personalty.

3.2 Litigation.  Except as disclosed on Schedule 7.5 to the Credit Agreement, there are no actions, suits, or proceedings pending or, to the knowledge of Grantor, threatened against or affecting the Mortgaged Property or involving the validity or enforceability of this Deed of Trust or the priority of the lien and security interest hereof.

3.3 Acknowledgment by Grantor.  Grantor acknowledges that the execution and delivery of this Deed of Trust is a requirement to Beneficiary’s execution of the Credit Agreement and the other Loan Documents and is an integral part of the transactions contemplated by the Loan Documents and is a condition precedent to the effectiveness of the Credit Agreement.

3.4 Environmental.  In addition to the representations set out above, Grantor expressly incorporates into this Deed of Trust the representations set forth in Section 7.7 of the Credit Agreement, and confirms that the same are true and correct.

SECTION 4. AFFIRMATIVE COVENANTS.  Grantor acknowledges that certain covenants in the Credit Agreement are applicable to it or shall be imposed upon it, and Grantor covenants and agrees to comply with each of them.  Furthermore, Grantor hereby unconditionally covenants and agrees with Beneficiary as follows:

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4.1 Payment and Performance.  Grantor will pay, or cause to be paid, the Indebtedness as and when called for in the Loan Documents and will perform all of its obligations under this Deed of Trust on or before the dates they are to be performed.

4.2 Payment of Impositions.  Grantor will pay and discharge, or cause to be paid and discharged, the Impositions and Grantor’s obligations to materialmen, mechanics, carriers, warehousemen, or other like Persons as and when required to be paid pursuant to the terms of the Credit Agreement unless contested in good faith by appropriate proceedings.

4.3 Repair.  Grantor will keep the Mortgaged Property in good order and condition and presenting a good appearance and will make all repairs, replacements, renewals, additions, betterments, improvements, and alterations thereof and thereto, interior and exterior, structural and nonstructural, ordinary and extraordinary, foreseen and unforeseen, which are necessary or reasonably appropriate to keep same in such order and condition.  Grantor will also use its best efforts to prevent any act or occurrence which might materially impair the value or usefulness of the Mortgaged Property for its intended usages as set forth in any plans and specifications for the Improvements submitted to Beneficiary or in the Loan Documents.  In instances where repairs, replacements, renewals, additions, betterments, improvements, or alterations are required in and to the Mortgaged Property on an emergency basis to prevent loss, damage, waste, or destruction thereof, Grantor shall proceed to construct same, or cause same to be constructed, notwithstanding anything to the contrary contained in Section 5.2 below; provided that, in instances where such emergency measures are to be taken, Grantor will promptly notify Beneficiary in writing of the commencement of such emergency measures and, when same are completed, the completion date and the measures actually taken.

4.4 Insurance.  In addition to the requirements of Section 8.6 of the Credit Agreement, Grantor shall obtain and maintain insurance upon and relating to the Mortgaged Property insuring against personal injury and death, loss by fire and such other hazards, casualties, and contingencies (including but not limited to fire, lightning, hail, windstorm, explosion, malicious mischief, vandalism, and rent loss or extra expense insurance covering loss of Rents) as are covered by extended coverage policies in effect where the Land is located and such other risks as may be reasonably specified by Beneficiary from time to time, all in such amounts and with such insurers of recognized responsibility as are reasonably acceptable to Beneficiary; provided that, absent written direction from Beneficiary, such insurance shall be in an amount not less than the full insurable replacement value of the Mortgaged Property.  If, and to the extent that the Mortgaged Property is located within an area that has been or is hereafter designated or identified as an area having any type of flood, mudslide, or flood-related erosion hazard by the Federal Emergency Management Agency or by such other official as shall from time to time be authorized by federal or state law to make such designation pursuant to the National Flood Insurance Act of 1968, as such act may from time to time be amended and in effect, or pursuant to any other national or state program of flood insurance, Grantor shall carry flood insurance with respect to the Mortgaged Property in an amount not less than the maximum amount available under the Flood Disaster Protection Act of 1973 and the regulations issued pursuant thereto, as amended from time to time, in form complying with the “insurance purchase” requirement of that Act.  Each insurance policy issued in connection with the Mortgaged Property shall provide, by way of endorsements, riders, or otherwise, that proceeds will be payable to Beneficiary as its interest may appear and should be cancelable only after Beneficiary is given thirty (30) days written notice of such cancellation.  All renewal and substitute policies of insurance or certified copies thereof shall be delivered at the office of Beneficiary, premiums then due and payable paid, at least fifteen (15) days before termination of policies theretofore delivered to Beneficiary.  Beneficiary shall have the right, but not the obligation, to make premium payments, at Grantor’s expense, to prevent any cancellation, endorsement, alteration or reissuance, and such payments shall be accepted by the insurer to prevent same.

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4.5 Restoration Following Casualty.  If any act or occurrence of any kind or nature (including any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Mortgaged Property, Grantor shall give notice thereof to Beneficiary.  If any of the Mortgaged Property covered by insurance is destroyed or damaged by any casualty against which insurance shall have been required hereunder, the proceeds of such insurance will be applied as provided in the Credit Agreement.

4.6 Defense of Title.  If the title of the Trustee to, or the interest of Beneficiary in, the Mortgaged Property or any part thereof, shall be endangered or shall be attacked, directly or indirectly, Grantor shall, at Grantor’s expense, take all necessary and proper steps for the defense of such title or interest, including the employment of counsel, the prosecution or defense of litigation, and the compromise or discharge of claims made against such title or interest in the Mortgaged Property.  In the event of Grantor’s failure or inability to proceed initially as provided above, the Trustee and Beneficiary or either of them (whether or not named as parties to legal proceedings with respect thereto) are hereby authorized and empowered to take, at Grantor’s expense, such additional steps as in their reasonable judgment may be necessary or proper for the defense of any such legal proceedings or the protection of the validity or priority of this Deed of Trust and the rights, titles, liens and security interests created or evidenced hereby.

4.7 Future Impositions.  If at any time any law shall be enacted imposing or authorizing the imposition of any tax upon this Deed of Trust or upon any rights, titles, liens, or security interests created hereby, or any part thereof, Grantor shall promptly pay all such taxes to the extent it can lawfully do so.  In the event of the enactment of such a law, if it is unlawful for Grantor to pay such taxes, payment of such tax shall be deemed an obligation which Beneficiary may pay pursuant to Section 10.6 of this Deed of Trust.

4.8 Environmental Indemnification.  In addition to the covenants set out in Sections 4 and 5 of this Deed of Trust, Grantor expressly incorporates into this Deed of Trust the indemnification set forth in Section 13.10 of the Credit Agreement and hereby agrees to the same.

4.9 Information About Mortgaged Property.  Grantor will maintain at its chief executive office, a current record of the location of all Mortgaged Property, and furnish to Beneficiary, at such intervals as Beneficiary may reasonably request, lists, descriptions, and other information as may be necessary or proper to keep Beneficiary informed with respect to the identity, location, status, condition and value of the Mortgaged Property.  Grantor will promptly notify Beneficiary of any change in any material fact or circumstance represented or warranted by Grantor with respect to any of the Mortgaged Property, or any material claim, action or proceeding affecting title to any of the Mortgaged Property.

4.10Further Assurances. Grantor will from time to time promptly execute and deliver to Beneficiary all such other assignments, certificates, supplemental documents, and financing statements, and do all other acts or things as Beneficiary may reasonably request in order to more fully create, evidence, perfect, continue and preserve the priority of the Lien created by this Deed of Trust.

SECTION 5. NEGATIVE COVENANTS.  Grantor acknowledges that certain covenants in the Credit Agreement are applicable to it or shall be imposed upon it and covenants and agrees to comply with each of them.  Furthermore, Grantor hereby covenants and agrees that, until the entire Indebtedness is paid in full and the Beneficiary’s commitment to lend under the Credit Agreement is finally terminated:

5.1 Use Violations.  Grantor will not use, maintain, operate, or occupy, or allow the use, maintenance, operation, or occupancy of the Mortgaged Property in any manner which, in case of any of the following would constitute a Material Adverse Event, (a) violates any Legal Requirement, (b) may be dangerous unless safeguarded as required by law, or (c) constitutes a public or private nuisance.

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5.2 Alterations.  Grantor will not commit or permit any waste of the Mortgaged Property that would constitute a Material Adverse Event on its value as security for the Indebtedness and will not (subject to the provisions of Section 4.3 herein), without the advance written notice to Beneficiary, make or permit to be made any alterations or additions to the Mortgaged Property of a material nature.

5.3 Prohibition on Transfer.  Except as otherwise may be permitted by Section 9.9 of the Credit Agreement, Grantor will not sell, trade, transfer, assign, exchange, or otherwise dispose of any of the Mortgaged Property.

5.4 Replacement of Fixtures and Personalty.  Grantor will not, without Beneficiary’s prior written consent or as otherwise allowed pursuant to Section 9.9 of the Credit Agreement, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is replaced by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest except such as may be first approved in writing by Beneficiary or any Permitted Encumbrance.

5.5 No Further Encumbrances.  Grantor will not, without Beneficiary’s prior written consent, create, place, suffer, or permit to be created or placed or, through any act or failure to act, acquiesce in the placing of or allow to remain, any mortgage, pledge, lien (statutory, constitutional, or contractual), security interest, encumbrance, or charge on, or conditional sale or other title retention agreement, regardless of whether same are expressly subordinate to the liens of the Loan Documents, with respect to the Mortgaged Property, other than the Permitted Encumbrances.

SECTION 6. DEFAULT AND FORECLOSURE.

6.1 Remedies.  If a Default occurs and is continuing, Beneficiary may, in accordance with the Credit Agreement, by and through the Trustee or otherwise, exercise any or all of the following rights, remedies and recourses to the extent permitted by applicable Law:

(a) Declare the Indebtedness immediately due and payable in accordance with the terms of the Credit Agreement whereupon the same shall become immediately due and payable.  Except as expressly provided in the Credit Agreement, Grantor expressly waives any notice of intent to accelerate, notice of acceleration, or any other notice, presentment, protest, demand or action of any kind or nature whatsoever.

(b) Enter upon the Mortgaged Property and take exclusive possession thereof and of all books, records, and accounts relating thereto without notice and without being guilty of trespass.  If Grantor remains in possession of all or any part of the Mortgaged Property, and without Beneficiary’s prior written consent thereto, Beneficiary may, without notice to Grantor, invoke any and all legal remedies to dispossess Grantor, including specifically one or more actions for forcible entry and detainer, trespass to try title, and writ of restitution.  Nothing contained in the foregoing sentence shall, however, be construed to impose any greater obligation or any prerequisites to acquiring possession of the Mortgaged Property after a Default than would have existed in the absence of such sentence.

(c) Hold, lease, manage, operate, or otherwise use or permit the use of the Mortgaged Property, either itself or by other persons, firms or entities, in such manner, for such time and upon such other terms as Beneficiary may deem to be prudent and reasonable under the circumstances (making such repairs thereto and taking any and all other action with reference thereto, from time to time, as Beneficiary shall deem reasonably necessary for the purpose of maintaining the Mortgaged Property in its then current condition but not making any material capital improvements thereto) and apply all Rents and other amounts collected by the Trustee in connection therewith in accordance with the provisions of Section 6.8 of this Deed of Trust.

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(d) Request the Trustee to proceed with foreclosure.  Upon the request, the Trustee is authorized and empowered, and it shall be his special duty, to sell or offer for sale the Mortgaged Property.  The Mortgaged Property shall be sold at public auction to the highest bidder for cash or other consideration approved by Beneficiary.  The Mortgaged Property may be sold or offered for sale in such order and in such portions or parcels as Beneficiary may determine whether or not such portions or parcels are contiguous, with or without having first taken possession of same, and without the necessity of having any Personalty present at such sale. The sale shall be conducted at the county courthouse in the county where the Land is located, at the area of the county courthouse designated by the Commissioner’s Court of such county as the area in which foreclosure sales are to take place, as evidenced by the designation recorded in the real property records of such county and, if no area is so designated, then in the area designated in the Trustee’s, or any substitute trustee’s, Notice of Sale as being the area for such foreclosure sale.  If the Land, or any portion thereof to be sold, is located in more than one county, the sale may occur at the designated area of the county courthouse in any county in which the Land is located.  The foreclosure sale shall take place on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m.  Notice of the sale must be given at least twenty-one (21) days before the date of the sale.  The Notice of Sale must include a statement of the earliest time at which the sale will occur, and the sale must begin at that time or not later than three (3) hours after that time.  Notice of the sale must be given:

(i) by posting or causing to be posted at the courthouse door of each county in which the Land (or any portion to be sold) is located a written or printed notice designating the county in which the Mortgaged Property will be sold, and

(ii) by filing in the office of the county clerk of each county in which the Land (or any portion to be sold) is located a copy of the notice, and

(iii)by certified mail on each debtor who, according to the records of Beneficiary or other holder of the Indebtedness, is obligated to pay the Indebtedness secured by this Deed of Trust.

Notice may be served, given, filed, posted, or mailed by the Trustee or by any person acting for the Trustee.  The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service.  Beneficiary may, at its option, accomplish all or any of the aforesaid in the manner permitted or required under (i) Section 51.002 of the Texas Property Code, as amended and restated, relating to the sale of real property under a power of sale or, (ii) with respect to the Personalty sold separately from the rest of the Mortgaged Property, Chapter 9 of the Texas Business and Commerce Code relating to the sale of collateral after default by a debtor or by any other amendment or successor to either statute.  Nothing contained in this Section 6.1(d) shall be construed to limit in any way the Trustee’s rights to sell the Personalty by private sale if, and to the extent that, such private sale is permitted under the laws of the State of Texas or by public or private sale after entry of a judgment by any court of competent jurisdiction ordering same.  At any sale of the Mortgaged Property whether made under the power of sale contained in this Deed of Trust, Section 51.002 of the Texas Property Code, Chapter 9 of the Texas Business and Commerce Code, any other Legal Requirement, or by virtue of any judicial proceedings or any other legal right, remedy, or recourse,

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(iv) the Trustee need not have the Mortgaged Property physically present or have constructive possession of the Mortgaged Property; provided that, the title to and right of possession of any such Mortgaged Property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale;

(v) each conveyance instrument executed by the Trustee shall contain a special warranty of title binding upon Grantor;

(vi) each and every recital contained in any conveyance instrument executed by the Trustee shall constitute prima facie evidence of the truth and accuracy of the matters recited therein including, without limitation, appointment of any successor Trustee hereunder, nonpayment of the Indebtedness, notice, filing, posting, and conduct of the sale in the manner provided herein and by law;

(vii)all prerequisites to the validity of the sale shall be rebuttably presumed to have been performed;

(viii)the receipt from the Trustee, or such other party or officer conducting the sale, shall be sufficient to discharge the purchaser for his purchase money, and no purchaser or his assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication, or non-application thereof;

(ix) Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim, and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar both at law and in equity against Grantor and against all other persons claiming or to claim the property sold or any part thereof by, through or under Grantor; and

(x) Beneficiary may be a purchaser at any such sale and may credit the bid against the Indebtedness.

(e) Beneficiary or the Trustee may make application to a court of competent jurisdiction, as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, for appointment of a receiver of the Mortgaged Property.  Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to sell, rent, maintain, and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply the Rents in accordance with the provisions of Section 6.8 in this Deed of Trust.

(f) Pursuant to Section 21.48A of the Texas Insurance Code, in the event Beneficiary is the successful bidder at a foreclosure sale of all or any part of the Mortgaged Property, it shall have the right to cancel any insurance policy covering the property foreclosed upon and collect any unearned premiums from said policy.

(g) Exercise any and all other rights, remedies, and recourses granted under the Loan Documents or now or hereafter existing in equity, at law, by virtue of statute, or otherwise.

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6.2 Divestment of Rights, Tenant at Sufferance.  After sale of the Mortgaged Property, or any portion thereof, Grantor shall be divested of any and all interest and claim thereto, including any interest or claim to all insurance policies, bonds, loan commitments, contracts, and other intangible property covered by this Deed of Trust.  Additionally, with respect to the Land, Improvements, Fixtures, and Personalty, after a sale of all or any portion thereof, Grantor will be considered a tenant at sufferance of the purchaser of the same, and said purchaser shall be entitled to immediate possession thereof, and if Grantor shall fail to vacate the Mortgaged Property immediately, said purchaser may and shall have the right, without further notice to Grantor, to go into any justice court in any precinct or county in which the Land and Improvements are located and file an action in forcible entry and detainer or forcible detainer, which action shall lie against Grantor or its assigns or legal representatives as a tenant at sufferance.

6.3 Separate Sales.  If a Default occurs and is continuing, the Trustee may sell all or any portion of the Mortgaged Property together or in lots or parcels and in such manner and order as the Trustee, in its sole discretion, may elect.  The sale or sales by the Trustee of less than the whole of the Mortgaged Property shall not exhaust the power of sale granted in this Deed of Trust, and the Trustee is specifically empowered to make successive sale or sales under such power until the whole of the Mortgaged Property shall be sold; and if the proceeds of such sale or sales of less than the whole of such Mortgaged Property shall be less than the aggregate of the Indebtedness and the expense of executing this trust, this Deed of Trust and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Mortgaged Property just as though no sale or sales had been made; provided that, Grantor shall never have any right to require the sale or sales of less than the whole of the Mortgaged Property, but Beneficiary shall have the right, at its sole election, to request the Trustee to sell less than the whole of the Mortgaged Property.  As among the various counties in which items of the Mortgaged Property may be situated, sales in such counties may be conducted in any order that the Trustee may deem expedient; and any one or more of such sales may be conducted in the same month, or in successive or different months, as the Trustee may deem expedient.  If Default occurs as to nonpayment of part of the Indebtedness, Beneficiary shall have the option to proceed as if under a full foreclosure, conducting the sale as herein provided without declaring the entire Indebtedness due, and if sale is made because of default of an installment, or a part of an installment, such sale may be made subject to the unmatured part of the Notes and the Indebtedness; and such sale, if so made, shall not in any manner affect the unmatured part of the Indebtedness but as to such unmatured part, this Deed of Trust shall remain in full force and effect as though no sale had been made under the provisions of this Deed of Trust.  Any number of sales may be made under this Deed of Trust without exhausting the right of sale for any unmatured part of the Indebtedness secured hereby.

6.4 Remedies Cumulative, Concurrent, and Nonexclusive.  The Trustee and Beneficiary shall have all rights, remedies, and recourses granted in the Loan Documents and available at law or equity (including specifically those granted by the Texas Business and Commerce Code, as amended but taking into account the provisions of the Credit Agreement) and same (a) shall be cumulative and concurrent; (b) may be pursued separately, successively, or concurrently against Grantor or others obligated under the Notes, or against the Mortgaged Property, or against any one or more of them at the sole discretion of Beneficiary; (c) may be exercised as often as occasion therefor shall arise, it being agreed by Grantor that the exercise or failure to exercise any of the same shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse; and (d) are intended to be, and shall be, nonexclusive.

6.5 Release of and Resort to Collateral.  Any part of the Mortgaged Property may be released by Beneficiary in accordance with the Credit Agreement without affecting, subordinating, or releasing the lien, security interest, and assignment hereof against the remainder of the Mortgaged Property.  The lien, security interest, and other rights granted hereby shall not affect or be affected by any other security taken for the Indebtedness or any part thereof.  The taking of additional security or the rearrangement, extension, or renewal of the Indebtedness, or any part thereof, shall not release or impair the lien, security interest, and other rights granted hereby or affect the liability of any endorser, guarantor, or surety or improve the right of any permitted junior lienholder; and this Deed of Trust, as well as any instrument given to secure any rearrangement, renewal, or extension of the Indebtedness secured hereby, or any part thereof, shall be and remain a first and prior lien, except as otherwise provided herein, on all of the Mortgaged Property not expressly released until the Indebtedness is completely paid.

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6.6 Waiver of Redemption, Notice, and Marshaling of Assets.  To the fullest extent permitted by Law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefits that might accrue to Grantor by any present or future laws exempting the Mortgaged Property from attachment, levy, or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption, or extension of time for payment, (b) except as may be provided for under the terms hereof or the other Loan Documents, all notices of any Default or of Beneficiary’s or the Trustee’s election to exercise or the actual exercise of any right, remedy, or recourse provided for under the Loan Documents, (c) any right to appraisal or marshaling of assets or a sale in inverse order of alienation, (d) the exemption of homestead, and (e) the administration of estates of decedents or other matters whatever to defeat, reduce, or affect the right of Beneficiary under the terms of this Deed of Trust to sell the Mortgaged Property for the collection of the Indebtedness secured hereby (without any prior or different resort for collection) or the right of Beneficiary under the terms of this Deed of Trust, to the payment of the Indebtedness out of the proceeds of sale of the Mortgaged Property in preference to every other person and claimant whatever (only reasonable expenses of such sale being first deducted).

6.7 Discontinuance of Proceedings.  In case Beneficiary shall have proceeded to invoke any right, remedy, or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon the same for any reason, Beneficiary shall have the unqualified right to do so, and, in such event, Grantor and Beneficiary shall be restored to their former positions with respect to the Indebtedness, the Loan Documents, the Mortgaged Property, and otherwise and the rights, remedies, recourses, and power of Beneficiary shall continue as if same had never been invoked.

6.8 Application of Proceeds, Deficiency Obligation.  The proceeds of any sale of, and the Rents and other income generated by the holding, leasing, operating, or other use of, the Mortgaged Property shall be applied by Beneficiary (or the receiver, if one is appointed) to the extent that funds are so available therefrom in accordance with Section 3.4 of the Credit Agreement with any surplus to be paid, at the option of Beneficiary to the payment of any indebtedness or obligation secured by a subordinate deed of trust or security interest on the Mortgaged Property or to Grantor.  Any other party liable on the Indebtedness shall be liable for any deficiency remaining in the Indebtedness subsequent to the sale referenced in this Section 6.8.

6.9 Purchase by Beneficiary.  To the extent permitted by Law, Beneficiary shall have the right to become the purchaser at the sale of the Mortgaged Property under this Deed of Trust and shall have the right to be credited on the amount of its bid for the Mortgaged Property or any part thereof being sold, all of the Indebtedness due and owing as of the date of such sale.

6.10Disaffirmation of Contracts.  To the extent permitted by Law, the purchaser at any Trustee’s or foreclosure sale hereunder may disaffirm any easement granted or rental, lease, or other contract made in violation of any provision of this Deed of Trust or the Credit Agreement and may take immediate possession of the Mortgaged Property free from, and despite the terms of, such grant of easement or rental, lease, or other contract.  With respect to any Lease of real property submitted to and approved by Beneficiary, Beneficiary agrees that the holding of a foreclosure sale or conveyance in lieu thereof by it shall not terminate such Lease nor the rights and obligations of a lessee thereunder, so long as such lessee continues to perform all of its obligations thereunder, including, without limitation, the payment of all rental payments thereunder.

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6.11 Deficiency Suit.  It is expressly agreed by Grantor that to the extent Sections 51.003, 51.004 or 51.005 of the Texas Property Code, or any amendment thereto, requires that the “fair market value” of the Mortgaged Property shall be determined as of the foreclosure date in order to enforce a deficiency against Grantor or any other party liable for repayment of the Indebtedness, the term “fair market value” shall include those matters required by Law and, to the extent permitted by Law, shall also include the additional factors set forth below:

(a) the Mortgaged Property is to be valued “AS IS” and “WITH ALL FAULTS” and there shall be no assumption of restoration of or refurbishment of improvements, if any, after the date of the foreclosure;

(b) there shall be an assumption that the purchaser desires to resell the Mortgaged Property for an all cash sales price promptly (but no later than 12 months) after the foreclosure sale;

(c) an offset to the fair market value of the Mortgaged Property, as determined hereunder, shall be made by deducting from such value the reasonable estimated closing costs relating to the sale of the Mortgaged Property, including but not limited to, brokerage commissions, title policy expenses, tax prorations, escrow fees, and other common charges which are incurred by a seller of property; and

(d) after consideration of the factors required by Law and those required above, an additional discount factor shall be calculated based upon the estimated holding costs associated with maintaining the Mortgaged Property for the estimated time it will take to effectuate a sale of the Mortgaged Property including, without limitation, utility expenses, taxes and assessments (to the extent not accounted for in (c) above) so that the “fair market value” as so determined is discounted to be as of the date of the foreclosure sale of the Mortgaged Property.

SECTION 7. CONDEMNATION.  If the Mortgaged Property, or any part thereof, shall be condemned or otherwise taken for public or quasi-public use under the power of eminent domain, or be transferred in lieu thereof, all damages or other amounts awarded for the taking, or injury to, the Mortgaged Property shall be paid to Beneficiary, and Beneficiary shall apply and disburse the proceeds as provided in the Credit Agreement.

SECTION 8. SECURITY AGREEMENT.

8.1 Security Interest.  This Deed of Trust shall be construed as a Deed of Trust on real property and it shall also constitute and serve as a security agreement on personal property within the meaning of, and shall constitute until the grant of this Deed of Trust shall terminate as provided in Section 2 hereof, a first and prior security interest under Chapter 9 of the Texas Business and Commerce Code (subject only to the Permitted Encumbrances) with respect to the Personalty and Fixtures.  Grantor has granted, bargained, conveyed, assigned, transferred, and set over, and by these presents does grant, bargain, convey, assign, transfer, and set over unto Beneficiary a first and prior security interest (subject only to the Permitted Encumbrances) in and to all of Grantor’s right, title, and interest in, to, and under the Personalty and Fixtures to secure the full and timely payment of the Indebtedness and the full and timely performance and discharge of the Grantor’s obligations under this Deed of Trust.

8.2 Financing Statements.  Grantor shall execute and deliver to Beneficiary, in form and substance reasonably satisfactory to it and its legal counsel, such financing statements and such further assurances as Beneficiary may, from time to time, consider reasonably necessary to create, perfect, and preserve the security interest herein granted, and Beneficiary may cause such statements and assurances to be recorded and filed at such times and places as may be required or appropriate by law to so create, perfect, and preserve such security interest.  Pursuant to the Texas Business and Commerce Code, this Deed of Trust shall be effective as a financing statement filed as a fixture filing from the date of its filing for record covering the Fixtures and Personalty.  The addresses of Grantor, as Debtor, and Beneficiary, as Secured Party, are set forth on the cover page of this Deed of Trust.

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8.3 Uniform Commercial Code Remedies.  The Trustee and Beneficiary shall have all the rights, remedies, and recourses with respect to the Personalty, Fixtures, Leases, and Rents afforded a secured party by the Texas Business and Commerce Code in addition to, and not in limitation of, the other rights, remedies and recourses afforded by the Loan Documents and at law.

8.4 No Obligation of the Trustee or Beneficiary.  The assignment and security interest herein granted shall not be construed to (a) deem or constitute the Trustee or Beneficiary, as trustees in possession of the Mortgaged Property, (b) obligate the Trustee or Beneficiary to operate or attempt to operate the Mortgaged Property or (c) obligate the Trustee or Beneficiary to take any action, incur any expenses, or perform or discharge any obligation, duty, or liability whatsoever under any of the Leases or otherwise.

SECTION 9. CONCERNING THE TRUSTEE.

9.1 No Liability.  The Trustee shall not be liable for any error or judgment or act done by the Trustee or be otherwise responsible or accountable under any circumstances whatsoever other than his own gross negligence, willful misconduct, violation of law or fraud.  The Trustee shall not be personally liable for any damages resulting from entry on the Mortgaged Property by the Trustee or anyone acting by virtue of the powers granted the Trustee under this Deed of Trust, or for debts contracted or liability or damages incurred in the management or operation of the Mortgaged Property.  The Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by him hereunder and believed by him in good faith to be genuine.  The Trustee shall be entitled to reimbursement for reasonable expenses incurred by him in the performance of the Trustee’s duties under this Deed of Trust and to reasonable compensation for services rendered under this Deed of Trust.  Grantor will, from time to time, reimburse the Trustee for and save and hold the Trustee harmless from and against any and all loss, cost, liability, damage and expense whatsoever incurred by him in the performance of the Trustee’s duties other than those arising from his own gross negligence, willful misconduct, violation of Law or fraud.

9.2 Retention of Monies.  All monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other monies (except to the extent required by law), and the Trustee shall be under no liability for interest on any monies received hereunder.

9.3 Successor Trustee.  The Trustee may resign by the giving of notice of such resignation in writing to Beneficiary.  If the Trustee shall die, resign, or become disqualified from acting in the execution of this Trust or shall fail or refuse to exercise the same when requested by Beneficiary so to do or if for any reason and without cause Beneficiary shall prefer to appoint a substitute trustee to act instead of the original Trustee named herein, or any prior successor or substitute trustee, Beneficiary shall have full power to appoint a substitute trustee and, if preferred, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the forenamed Trustee without other formality than designating the successor or substitute Trustee in writing.

9.4 Succession Instruments.  Any new Trustee appointed pursuant to any of the provisions of this Deed of Trust shall, without any further act, deed, or conveyance, become vested with all the estates, properties, rights, powers, and trusts of its or his or her predecessor in the rights hereunder with like effect as if originally named as the Trustee herein; but, nevertheless, upon the written request of Beneficiary, or any acting successor trustee, the Trustee ceasing to act shall execute and deliver an instrument transferring to such successor trustee, upon the trust herein expressed, all the estates, properties, rights, powers, and trusts of the Trustee so ceasing to act, and shall duly assign, transfer, and deliver any of the property and monies held by the Trustee to the successor trustee so appointed.

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9.5 Performance of Duties by Lenders.  The Trustee may authorize one or more parties to act on his behalf to perform any ministerial functions required of him hereunder, including, without limitation, the transmittal, posting and filing of any notices.

SECTION 10.MISCELLANEOUS.

10.1Survival of Obligations.  All covenants, agreements, representations, and warranties made by Grantor in this Deed of Trust and the other Loan Documents, including without limitation, any certificates or other documents or instruments delivered in connection herewith, shall survive the execution and delivery of this Deed of Trust and the other Loan Documents.  The obligations and provisions of all indemnities from Grantor to Beneficiary contained herein or in any of the Loan Documents shall continue and remain in full force and effect after the Indebtedness of Grantor have been paid or discharged in full and shall survive the termination of this Deed of Trust and the repayment of the Indebtedness.

10.2Covenants Running with the Land.  All obligations contained in this Deed of Trust are intended by the parties to be and shall be construed as covenants running with the Land.

10.3Recording and Filing.  Grantor will cause the Loan Documents and all amendments and supplements thereto and substitutions therefor to be recorded, filed, re-recorded, and refiled in such manner and in such places as the Trustee or Beneficiary shall reasonably request and will pay all such recording, filing, re-recording and refiling, taxes, fees, and other charges.

10.4Notices.  Any notice, request, or other communication required or permitted to be given hereunder shall be given at the addresses and in accordance with the notice provisions set forth in Section 13.4 of the Credit Agreement.

10.5No Waiver.  Any failure by the Trustee or Beneficiary to insist, or any election by the Trustee or Beneficiary, not to insist, upon strict performance by Grantor of any of the terms, provisions, or conditions of this Deed of Trust shall not be deemed to be a waiver of the same or of any other term, provision, or condition thereof, and the Trustee or Beneficiary shall have the right at any time or times thereafter to insist upon strict performance by Grantor of any and all of such terms, provisions, and conditions.

10.6Beneficiary’s Right to Pay Indebtedness or Perform Obligations.  If any obligated party shall fail, refuse, or neglect to make any required payment on the Indebtedness or if Grantor fails, refuses, or neglects to perform any of its obligations under this Deed of Trust,  then in each case, at any time thereafter and without notice to or demand upon Grantor, or any other party, and without waiving or releasing any other right, remedy, or recourse Beneficiary may have because of the same, Beneficiary may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Grantor and shall have the right to enter upon the Mortgaged Property for such purpose and to take all such action thereon with respect to the Mortgaged Property as it reasonably may deem necessary or appropriate.  Grantor shall be obligated to repay Beneficiary for all sums advanced by it pursuant to this Section 10.6 and shall indemnify and hold Beneficiary harmless from and against any and all loss, cost, expense, liability, damage, and claims and causes of action, including reasonable attorneys’ fees (except such as result from the gross negligence, willful misconduct, violation of Law or fraud of Beneficiary, the Trustee or each of their respective agents, successors, assigns, subsidiaries, directors, officers, employees, representatives, parents or attorneys), incurred or accruing by any acts performed by Beneficiary pursuant to the provisions of this Section 10.6 or by reason of any other provision of the Loan Documents.  All sums paid by Beneficiary pursuant to this Section 10.6 and all other sums extended by Beneficiary to which it shall be entitled to be indemnified, together with interest thereon at the Default Rate from the date of such payment or expenditure, shall constitute additions to the Indebtedness, shall be secured by the Security Documents and shall be paid by Grantor to Beneficiary upon demand in accordance with the terms of the Credit Agreement.

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10.7Limitation on Effectiveness of Lien.  It is the intention of Grantor and Beneficiary that the amount of the Indebtedness secured by this Deed of Trust shall be in, but not in excess of, the maximum amount permitted by fraudulent conveyance, fraudulent transfer or similar Laws applicable as to Grantor.  Accordingly, notwithstanding anything to the contrary contained in this Deed of Trust or any other agreement or instrument executed in connection with the payment of any of the Indebtedness, the amount of the Indebtedness secured by this Deed of Trust shall be limited to that amount which after giving effect thereto would not (a) render Grantor insolvent, (b) result in the fair saleable value of the assets of Grantor being less than the amount required to pay its debts and other liabilities (including contingent liabilities) as they mature, or (c) leave Grantor with unreasonably small capital to carry out its business as now conducted and as proposed to be conducted, including its capital needs, as such concepts described in (a), (b) and (c) herein are determined under applicable Law, if the obligations of Grantor hereunder would otherwise be set aside, terminated, annulled or avoided for such reason by a court of competent jurisdiction in a proceeding actually pending before such court.

10.8Governing Law.  This Deed of Trust must be construed, and its performance enforced, under Texas law.

10.9Multiple Counterparts and Facsimile Signatures.  This Deed of Trust may be executed in any number of counterparts with the same effect as if all signatories had signed the same document.  All counterparts must be construed together to constitute one and the same instrument.  This Deed of Trust may be transmitted and signed by facsimile and shall have the same effect as manually-signed originals and shall be binding on all parties.

10.10         Waiver of Jury Trial.  Grantor and Beneficiary irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any claim.  This provision is a material inducement for the parties entering into this Deed of Trust.

10.11         Entirety.  This Deed of Trust, the Credit Agreement, and the other Loan Documents Represent the Final Agreement Between The parties and May Not Be Contradicted by Evidence of Prior, Contemporaneous, or Subsequent Oral Agreements by the Parties.  There Are No Unwritten Oral Agreements among the Parties.

[Signature and acknowledgement areon the following page.]

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IN WITNESS WHEREOF, this Deed of Trust is executed on the date set forth in the notary acknowledgment below, but is effective for all purposes as of the date first set forth in the preamble to this Deed of Trust.

GRANTOR:

DEEP DOWN, INC.,

a Nevada corporation

By:   /s/ Eugene L. Butler                             

Eugene L. Butler

Chief Financial Officer 

STATE  OF  TEXAS	§
	§
COUNTY OF HARRIS	§

This instrument was acknowledged before me on May 29, 2009, by Eugene L. Butler, Chief Financial Officer of Deep Down, Inc., a Nevada corporation, on behalf of said corporation, and for the purpose and consideration therein stated.

	/s/ Karen D. Billiot, Notary Public
(notary seal)	NOTARY PUBLIC IN AND FOR THE STATE OF TEXAS

Signature and Acknowledgement Page to

Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing

EXHIBIT A

TO DEED OF TRUST

LEGAL DESCRIPTION

Exhibit A - - Page 1

Exhibit A - - Page 2

EXHIBIT B

TO DEED OF TRUST

PERMITTED ENCUMBRANCES

1.   An easement executed by Houston Lighting & Power Company to Harris County Water Control and Improvement District No. 21, as set forth in instrument filed for record under Harris County Clerk’s File No. P335254.

2.   All the oil, gas and other minerals, and all other elements not considered a part of the surface estate, the royalties, bonuses, rentals and other rights in connection with same all of which are expressly excepted therefrom, as the same are set forth in instrument(s) filed for record under Harris County Clerk’s File No. 20070709617.

3.   The terms, conditions and stipulations of that certain Mineral Lease dated May 11, 1973, from Marvin R. Friesz, as Lessor, to Inexco Oil Company, as Lessee, filed for record under Harris County Clerk’s File No. D926594.

4.   The terms, conditions and stipulations of that certain Mineral Lease dated August 23, 1993, from Marvin R. Friesz, as Lessor, to Jones & Zwiener, Inc., as Lessee, filed for record under Harris County Clerk’s File No. P423770.  Jones & Zwiener, Inc. assigned their interest to Amerada Hess Corporation and Etoco Incorporated by instrument filed for record under Harris County Clerk’s File No. R242746.

5.   The terms, conditions and stipulations of that certain Mineral Lease dated February 3, 1998, from Summit Performance Systems, Inc., f/k/a Ordira, Inc., as Lessor, to Etoco, Incorporated, as Lessee, filed for record under Harris County Clerk’s File No. T052530.  Etoco, Incorporated assigned their interest to Ballard Exploration Company, Inc. by instrument filed for record under Harris County Clerk’s File No. T882720.

6.   The terms, conditions and stipulations of that certain Mineral Lease dated February 3, 1998, from Summit Performance Systems, Inc., f/k/a Ordira, Inc., as Lessor, to Etoco, Incorporated, as Lessee, filed for record under Harris County Clerk’s File No. T052530.  Summit Performance Systems, Inc. assigned to Alan S. Greenberg by instrument filed for record under Harris County Clerk’s File No. T234004.  Summit Performance Systems, Inc. assigned to Worldwide  Machinery by instrument filed for record under Harris County Clerk’s File No. T234005.   Etoco, Incorporated assigned their interest to Ballard Exploration Company, Inc. by instrument filed for record under Harris County Clerk’s File No. T882720.

7.   The terms, conditions and stipulations of that certain Mineral Lease dated July 23, 1996, from Jonathan Grenader and David A. Grenader, as Lessor, to Ballard Exploration Company, Inc.,  as Lessee, filed for record under Harris County Clerk’s File No. S055480.  Amendment of Pooled Unit Designation filed for record under Harris County Clerk’s File No. U508342.  Royalty Deed executed by B Red Inc. to Margaret J. Moore by instrument filed for record under Harris County Clerk’s File No. U824500.  Assignment of Overriding Royalty to Royalty Clearinghouse Partnership by instrument filed for record under Harris County Clerk’s File No. V408157.  Conveyance of royalties to Royalty Clearinghouse Partnership by instrument filed for record under Harris County Clerk’s File No. V486651.  Conveyance of royalties to Royalty Clearinghouse, Ltd. by instrument filed for record under Harris County Clerk’s File No. Y289427.  Conveyance of royalties to Concord Royalties, LLC filed for record under Harris County Clerk’s File No. 20070432920.  Assignment of Royalty Interests by Monterey Crude Ltd. to Vapiti Resources LLC by instrument filed for record under Harris County Clerk’s File No. W563873.

8.   Subject property lies within the boundaries of Harris County Water Control & Improvement District No. 21.

Exhibit B - Page 1

EX-10.3

EXHIBIT 10.3

THIRD AMENDMENT TO CREDIT AGREEMENT

THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is entered into as of May 29, 2009, between DEEP DOWN, INC., a Nevada corporation (“Borrower”), and WHITNEY NATIONAL BANK, a national banking association (the “Lender”).  Capitalized terms used but not defined in this Amendment have the meanings given them in the Credit Agreement (defined below).

RECITALS

A.           Borrower and Lender entered into that certain Credit Agreement dated as of November 11, 2008 (as amended by that certain First Amendment to Credit Agreement dated December 18, 2008, that certain Second Amendment to Credit Agreement dated February 13, 2009, and as further amended, restated, or supplemented, the “Credit Agreement”).

B.           Borrower and Lender have agreed to amend the Credit Agreement, subject to the terms and conditions of this Amendment.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned hereby agree as follows:

1. Amendments to Credit Agreement.

(a) The Recitals to the Credit Agreement are deleted and are replaced with the following:

A. Borrower has requested that Lender extend credit to it in the form of a revolving credit facility in the maximum principal amount of up to $2,000,000 to be used for working capital and general corporate purposes.

B. Borrower has requested that Lender extend credit in the form of a single advance term loan to purchase a new Super Mohawk 21 remote operated vehicle.

C. Borrower has requested that Lender extend credit in the form of a single advance term loan in the principal amount of up to $2,100,000 to be used to acquire the Properties.

D. Lender has agreed to extend to Borrower the requested credit on the terms and conditions set out in this Agreement:

(b) Section 1.1 of the Credit Agreement is amended to delete the defined terms “Notes” and “Term Facility” in their entirety and replace them with the following:

“Notes means the Term Note, the Revolving Note, and the RE Term Note.”

“Term Facility is defined in Section 2.1(a).”

(c) Section 1.1 of the Credit Agreement is further amended to add the following new defined terms in the appropriate alphabetical order:

“RE Term Facility is defined in Section 2.1(b).

RE Term Loan Closing Date means May 29, 2009.

RE Term Loan Committed Amount means $2,100,000.

RE Term Loan Maturity Date means the earlier of (a) May 29, 2014, and (b) the acceleration of maturity of RE Term Loan in accordance with Section 12 of this Agreement.

RE Term Note means a promissory note substantially in the form of Exhibit A-3,executed by Borrower and made payable to Lender in the original principal amount of the RE Term Loan Committed Amount, together with all renewals, extensions, modifications, amendments, supplements, restatements and replacements of, or substitutions for, each such promissory note.

RE Term Principal Amount means, when determined, the outstanding principal balance of the RE Term Note.”

(d) Section 2.1 of the Credit Agreement is deleted in its entirety and replaced with the following:

“2.1           Term Facility and RE Term Facility.

(a)           Subject to the terms and conditions of this Agreement, Lender agrees to make a term loan to Borrower in an amount equal to the Term Committed Amount in a single Loan on the Term Loan Closing Date which, when paid or prepaid, may not be reborrowed (the “Term Facility”).

(b)           Subject to the terms and conditions of this Agreement, Lender agrees to make a term loan to Borrower in an amount equal to the RE Term Loan Committed Amount in a single Loan on the RE Term Loan Closing Date which, when paid or prepaid, may not be reborrowed (“RE Term Facility”).”

(e) Section 2.3(a) of the Credit Agreement is amended to delete the first sentence thereof in its entirety and to replace it with the following:

“Subject to compliance with Section 5, Borrower may request a Loan under the Revolving Credit Facility, the Term Facility, or the RE Term Facility by submitting a Loan Request to Lender.”

(f) Section 2.5(a) of the Credit Agreement is deleted in its entirety and replaced with the following:

“(a)           Subject to Section 2.5(b), Borrower may voluntarily pay or prepay all or any part of the Revolving Principal Amount, the Term Principal Amount, or the RE Term Principal Amount, without premium or penalty, at any time, and while no Cash Management Agreement is in place, subject to the following conditions:

(i)Lender must receive Borrower’s written or telephonic prepayment notice by 10:00 a.m. on the prepayment date;

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(ii)Borrower’s prepayment notice shall (A) specify the prepayment date, (B) specify the amount of the Loan to be prepaid, and (C) indicate whether the RE Term Principal Amount, the Revolving Principal Amount, or the Term Principal Amount is to be repaid;

(iii)each partial prepayment must be in a minimum amount of not less than(A) $100,000 or a greater integral multiple of $10,000 or (B) if less than the minimum amount, the outstanding balance of the RE Term Principal Amount, the Revolving Principal Amount, or the Term Principal Amount, as applicable;

(iv)all accrued and unpaid interest on the portion of the RE Term Principal Amount, the Revolving Principal Amount, or the Term Principal Amount prepaid must also be paid in full on the prepayment date;

(v)each partial prepayment of the RE Term Facility shall be applied to the scheduled principal payments in the inverse order of their maturity; and

(vi)each partial prepayment of the Term Facility shall be applied to the scheduled principal payments in the inverse order of their maturity.”

(g) Section 2.5(e) of the Credit Agreement is deleted in its entirety and replaced with the following:

“(e)           On the date such amounts are received by, or for the account of, Borrower, the following amounts shall be paid to Lender in the form received with any endorsement or assignment and shall be applied first, to the RE Term Principal Amount, and second, to the Term Principal Amount, in each case in accordance with this Section 2.5:  (i) 100% of the Net Proceeds from the issuance of any Subordinated Debt; and (ii) 100% of the Net Proceeds from the Disposition of any asset not permitted by Section 9.9.  The non-cash portion of all Net Proceeds Lender is entitled to receive under this Section 2.5, shall be pledged to Lender concurrently with the applicable Disposition.”

(h) Section 2.5(f) of the Credit Agreement is deleted in its entirety and replaced with the following:

“(f)           Unless otherwise specified in this Agreement, prepayments under this Section 2.5 shall be applied (i) first, to the prepayment of the outstanding RE Term Principal Amount, and shall be applied to the scheduled principal payments in the inverse order of their maturity until the RE Term Principal Amount is paid in full, and (ii) second, to the prepayment of the outstanding Term Principal Amount, and shall be applied to the scheduled principal payments in the inverse order of their maturity until the Term Principal Amount is paid in full.”

(i) The Credit Agreement is further amended to add the following new Section 2.5(h) in the appropriate alphanumerical order:

“(h)           If the RE Term Principal Amount ever exceeds the RE Term Loan Committed Amount, then Borrower shall promptly prepay the RE Term Principal Amount in an amount equal to the excess, together with all accrued and unpaid interest on the principal amount prepaid.”

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(j) Section 3.1(a) of the Credit Agreement is deleted in its entirety and replaced with the following:

“(a)           The Loan under the Term Facility shall be evidenced by the Term Note.  The Loans under the Revolving Credit Facility shall be evidenced by the Revolving Note.  The Loans under the RE Term Facility shall be evidenced by the RE Term Note.”

(k) Section 3.2 of the Credit Agreement is deleted in its entirety and replaced with the following:

“3.2           Term Facility and RE Term Facility.

(a) Payments of principal and accrued and unpaid interest on the Loan made under the Term Facility in the amount of $35,246.35 are due and payable monthly in arrears beginning on the first day of February 1, 2009, and continuing on the first day of each month thereafter.

(b) All outstanding principal and all accrued and unpaid interest in respect of the Term Facility is due and payable on the Term Maturity Date.

(c) Payments of principal and accrued and unpaid interest on the RE Term Facility in the amount of $18,293.25 are due and payable monthly in arrears beginning on the first day of June 1, 2009, and continuing on the first day of each month thereafter.

(d) All outstanding principal and all accrued and unpaid interest in respect of the RE Term Facility is due and payable on the RE Term Loan Maturity Date.”

(l) Section 3.5 of the Credit Agreement is amended to renumber subsection (c) thereof as a new subsection (d), and to add the following new subsection (c) in the appropriate alphabetical order:

“(c)           The RE Term Principal Amount shall accrue interest at an annual rate equal to the lesser of (i) 6.50% and (ii) the Maximum Rate.”

(m) Section 7.13 of the Credit Agreement is amended to add the following new subsection (d) in the appropriate alphabetical order:

“(d)           Borrower will use the proceeds of the RE Term Facility to finance Borrower’s acquisition of the Properties.”

(n) Section 8.10(d) of the Credit Agreement is deleted in its entirety and replaced with the following:

“(d)           Any Eminent Domain Proceeds arising from the Properties or Insurance Proceeds arising from losses incurred by Borrower shall be applied (i) first, to the RE Term Facility, (ii) second, to the Term Facility, (iii) third, to the Revolving Credit Facility, and (iv) fourth, to Cash Collateralize LC Exposure, with the excess, if any, payable to Borrower.”

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2. Exhibits and Schedules.

(a) The list of Schedules and Exhibits set out on page iv of the Credit Agreement is deleted and is replaced with the list of Schedules and Exhibits attached to this Amendment as Annex A.

(b) Schedule 7.16 to the Credit Agreement is hereby deleted and is replaced with the updated Schedule 7.16 attached to this Amendment as Annex B.

(c) Exhibit A-3, attached to this Amendment as Annex C, is added to the Credit Agreement in the appropriate alphanumerical order.

3. Conditions.  This Amendment shall be effective once each of the following have been delivered to Lender:

(a) this Amendment executed by Borrower and Lender;

(b) Guarantors’ Consent and Agreement;

(c) RE Term Note executed by Borrower and payable to Lender in the original face amount of $2,100,000;

(d) Officer’s Certificate from Borrower certifying as to incumbency of officers, specimen signatures, no changes to its articles of incorporation and bylaws since the date of the Certificate delivered in connection with the closing of the Credit Agreement, and resolutions adopted by its Board of Directors authorizing its execution of this Amendment and the other documents required in connection herewith;

(e) Evidence that Borrower has paid not less than $500,000 toward the purchase price of the Properties;

(f) Deed conveying good and marketable title to the Properties into Borrower;

(g) Phase I environmental assessment regarding the Properties, in form and substance acceptable to Lender;

(h) Flood determination regarding the Properties;

(i) Certificate of Liability Insurance acceptable to Lender, naming Lender as an additional insured;

(j) Certificate of Property Insurance acceptable to Lender, naming Lender as a loss payee;

(k) Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing, creating a lien on the Properties in favor of Gary M. Olander, as trustee for the benefit of Lender;

(l) Second Amendment to Security Agreement, executed by Borrower and Lender;

(m) Borrower shall have paid, and Lender shall have received, a closing fee in the amount of $10,500; and

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(n) such other documents and items as Lender may reasonably request.

4. Representations and Warranties.  Borrower represents and warrants to Lender that (a) it possesses all requisite power and authority to execute, deliver and comply with the terms of this Amendment, (b) this Amendment has been duly authorized and approved by all requisite corporate action on the part of Borrower, (c) no other consent of any Person (other than Lender) is required for this Amendment to be effective, (d) the execution and delivery of this Amendment does not violate its organizational documents, (e) the representations and warranties in each Loan Document to which it is a party are true and correct in all material respects on and as of the date of this Amendment as though made on the date of this Amendment (except to the extent that such representations and warranties speak to a specific date), (f) it is in full compliance with all covenants and agreements contained in each Loan Document to which it is a party, and (g) no Default or Potential Default has occurred and is continuing.  The representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment.  No investigation by Lender is required for Lender to rely on the representations and warranties in this Amendment.

5. Scope of Amendment; Reaffirmation; Release.  All references to the Credit Agreement shall refer to the Credit Agreement as amended by this Amendment.  Except as affected by this Amendment, the Loan Documents are unchanged and continue in full force and effect.  However, in the event of any inconsistency between the terms of the Credit Agreement (as amended by this Amendment) and any other Loan Document, the terms of the Credit Agreement shall control and such other document shall be deemed to be amended to conform to the terms of the Credit Agreement.  Borrower hereby reaffirms its obligations under the Loan Documents to which it is a party and agrees that all Loan Documents to which they are a party remain in full force and effect and continue to be legal, valid, and binding obligations enforceable in accordance with their terms (as the same are affected by this Amendment).  Borrower hereby releases Lender from any liability for actions or omissions in connection with the Credit Agreement and the other Loan Documents prior to the date of this Amendment.

6. Miscellaneous.

(a) No Waiver of Defaults.  Except as expressly set out above, this Amendment does not constitute (i) a waiver of, or a consent to, (A) any provision of the Credit Agreement or any other Loan Document not expressly referred to in this Amendment, or (B) any present or future violation of, or default under, any provision of the Loan Documents, or (ii) a waiver of Lender’s right to insist upon future compliance with each term, covenant, condition and provision of the Loan Documents.

(b) Form.  Each agreement, document, instrument or other writing to be furnished Lender under any provision of this Amendment must be in form and substance satisfactory to Lender and its counsel.

(c) Headings.  The headings and captions used in this Amendment are for convenience only and will not be deemed to limit, amplify or modify the terms of this Amendment, the Credit Agreement, or the other Loan Documents.

(d) Costs, Expenses and Attorneys’ Fees.  Borrower agrees to pay or reimburse Lender on demand for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation, and execution of this Amendment, including, without limitation, the reasonable fees and disbursements of Lender’s counsel.

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(e) Successors and Assigns.  This Amendment shall be binding upon and inure to the benefit of each of the undersigned and their respective successors and permitted assigns.

(f) Multiple Counterparts.  This Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document.  All counterparts must be construed together to constitute one and the same instrument.  This Amendment may be transmitted and signed by facsimile or portable document format (PDF).  The effectiveness of any such documents and signatures shall, subject to applicable law, have the same force and effect as manually-signed originals and shall be binding on Borrower and Lender.  Lender may also require that any such documents and signatures be confirmed by a manually-signed original; provided that the failure to request or deliver the same shall not limit the effectiveness of any facsimile or PDF document or signature.

(g) Governing Law.  This Amendment and the other Loan Documents must be construed, and their performance enforced, under Texas law.

(h) Entirety.  The Loan Documents (as amended hereby) Represent the Final Agreement Between Borrower and Lender and May Not Be Contradicted by Evidence of Prior, Contemporaneous, or Subsequent Oral Agreements by the Parties.  There Are No Unwritten Oral Agreements among the Parties.

[Signatures are on the following page.]

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The Amendment is executed as of the date set out in the preamble to this Amendment.

BORROWER:

DEEP DOWN, INC.,

a Nevada corporation

By:      /s/ Eugene L. Butler                                           

Eugene L. Butler

Chief Financial Officer

LENDER:

WHITNEY NATIONAL BANK,

a national banking association

By:      /s/ Paul W. Cole                                                  

Paul W. Cole

Vice President 

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GUARANTORS’ CONSENT AND AGREEMENT

TO

THIRD AMENDMENT TO CREDIT AGREEMENT

As an inducement to Lender to execute, and in consideration of Lender’s execution of, this Amendment, each of the undersigned hereby consents to this Amendment and agrees that this Amendment shall in no way release, diminish, impair, reduce or otherwise adversely affect the obligations and liabilities of the undersigned under the Guaranty executed by the undersigned in connection with the Credit Agreement, or under any Loan Documents, agreements, documents or instruments executed by the undersigned to create liens, security interests or charges to secure any of the Obligation (as defined in the Credit Agreement), all of which are in full force and effect.  Each of the undersigned further represents and warrants to Lender that (a) the representations and warranties in each Loan Document to which it is a party are true and correct in all material respects on and as of the date of this Amendment as though made on the date of this Amendment (except to the extent that such representations and warranties speak to a specific date), (b) it is in full compliance with all covenants and agreements contained in each Loan Document to which it is a party, and (c) no Default or Potential Default has occurred and is continuing.  Each Guarantor hereby releases Lender from any liability for actions or omissions in connection with the Loan Documents prior to the date of this Amendment.  This Consent and Agreement shall be binding upon the undersigned, their successors and permitted assigns, and shall inure to the benefit of Lender, and its successors and assigns.

GUARANTORS:

ELECTROWAVE USA, INC.,

a Nevada corporation

FLOTATION TECHNOLOGIES, INC.,

a Maine corporation

MAKO TECHNOLOGIES, LLC,

a Nevada limited liability company

DEEP DOWN INC.,

a Delaware corporation

By:      /s/ Eugene L. Butler                                                                       

Eugene L. Butler

Chief Financial Officer of each of the foregoing companies 

ANNEX A

Schedules and Exhibits

SCHEDULE 1.1   SCHEDULE 1.2 SCHEDULE 3.2 SCHEDULE 5 SCHEDULE 7.2 SCHEDULE 7.5 SCHEDULE 7.12 SCHEDULE 7.14 SCHEDULE 7.16 SCHEDULE 9.13    EXHIBIT A-1 EXHIBIT A-2 EXHIBIT A-3 EXHIBIT B EXHIBIT C EXHIBIT D EXHIBIT E EXHIBIT F EXHIBIT G Parties, Addresses, and Wiring Information Existing Debt and Liens Amortization Schedule Conditions Precedent Subsidiaries Litigation Place of Business Transactions with Affiliates Material Agreements Subordinated Debt that May be Prepaid
Term Note Revolving Note RE Term Note Guaranty (Corporate Guarantors) Loan Request Borrowing Base and No Default Certificate Compliance Certificate Security Agreement Pledge Agreement 

ANNEX B

SCHEDULE 7.16

Material Agreements

1.           Subordinated Debenture with Charter Capital Holdings, LP for $500,000.00 with interest at six percent (6%) per annum payable on March 31, 2011.

2.           Lease Agreement with A-K-S-L 49 Beltway 8, L.P. for office space located at 8827 W. Sam Houston Parkway N., Suite 100, Houston, Texas 77040.

Annex B to Third Amendment to Credit Agreement

ANNEX C

EXHIBIT A-3

REAL ESTATE TERM NOTE

$ __________  Houston, Texas May [___], 2009

FOR VALUE RECEIVED, DEEP DOWN, INC., a Nevada corporation (“Borrower”), hereby promises to pay to the order of WHITNEY NATIONAL BANK, a national banking association (“Lender”), on or before the RE Term Loan Maturity Date, the principal amount of $________ or so much thereof as may then be outstanding under this note, together with interest, as described below.

This note has been executed and delivered under, and is subject to the terms of, the Credit Agreement dated November 11, 2008 (as amended by that certain First Amendment to Credit Agreement dated as of December 18, 2008, that certain Second Amendment to Credit Agreement dated as of February 13, 2009, that certain Third Amendment to Credit Agreement dated as of the date hereof, and as further amended, supplemented or restated, the “Credit Agreement”), between Borrower and Lender, and is the “RE Term Note” referred to in the Credit Agreement.  Unless defined in this note, or the context requires otherwise, capitalized terms used in this note have the meanings given to such terms in the Credit Agreement.  Reference is made to the Credit Agreement for provisions affecting this note regarding applicable interest rates, principal and interest payment dates, final maturity, voluntary and mandatory prepayments, acceleration of maturity, exercise of rights, payment of attorneys’ fees, court costs and other costs of collection, certain waivers by Borrower and others now or hereafter obligated for payment of any sums due under this note, and security for the payment of this note.  This note is a Loan Document and, therefore, is subject to the applicable provisions of Section 13 of the Credit Agreement, all of which applicable provisions are incorporated into this note by reference as if set forth in this note verbatim.

Specific reference is made to Section 3.8 of the Credit Agreement for usury savings provisions.

the rights and obligations of the parties hereto shall be determined solely from written agreements, documents, and instruments, and any prior oral agreements between the parties are superseded by and merged into such writings.  this note, the credit agreement and the other written loan documents executed by the borrower and the lender (or by the borrower for the benefit of the lender) represent the final agreement between the borrower and the lender and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements by the parties.  there are no unwritten oral agreements between the parties.

This note must be construed — and its performance enforced — under Texas law.

Annex C to Third Amendment to Credit Agreement

EXECUTED as of the date first written above.

	BORROWER: DEEP DOWN, INC., a Nevada corporation
Date	By:	/s/ Eugene L. Butler
		Eugene L. Butler
		Chief Financial Officer

Annex C to Third Amendment to Credit Agreement

EX-10.4

EXHIBIT 10.4

SECOND AMENDMENT TO SECURITY AGREEMENT

THIS SECOND AMENDMENT TO SECURITY AGREEMENT (this “Amendment”) is executed as of May 29, 2009, by DEEP DOWN, INC., a Nevada corporation (“Parent”), ELECTROWAVE USA, INC., a Nevada corporation (“Electrowave”), FLOTATION TECHNOLOGIES, INC., a Maine corporation (“Flotech”), MAKO TECHNOLOGIES, LLC, a Nevada limited liability company (“Mako”), and DEEP DOWN INC., a Delaware corporation (“DD Delaware,” and together with Parent, Electrowave, Flotech, and Mako, collectively, “Debtor”), for the benefit of WHITNEY NATIONAL BANK, a national banking association (“Secured Party”).  Capitalized terms used but not defined in this Amendment have the meanings given them in the Security Agreement (defined below).

RECITALS

A.           Parent, as borrower (in such capacity, “Borrower”), and Secured Party, as lender, have entered into that certain Credit Agreement dated as of November 11, 2008 (as amended by that certain First Amendment to Credit Agreement dated as of December 18, 2008, that certain Second Amendment to Credit Agreement dated as of February 13, 2009, that certain Third Amendment to Credit Agreement dated as of the date hereof, and as further amended, restated, or supplemented, the “Credit Agreement”).

B.           To further secure the obligations of Borrower under the Credit Agreement, Electrowave, Flotech, Mako, and DD Delaware executed that certain Guaranty dated as of November 11, 2008 (as amended, restated, or supplemented, the “Guaranty”) for the benefit of Secured Party, together with certain other Loan Documents.

C.           To further secure their respective obligations under the Credit Agreement and Guaranty, each Debtor executed that certain Security Agreement dated as of November 11, 2008 (as amended by that certain First Amendment to Security Agreement dated as December 18, 2008, and as further amended, restated, or supplemented, the “Security Agreement”).

D.           Debtors and Secured Party have agreed to amend the Security Agreement, subject to the terms and conditions of this Amendment.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the undersigned hereby agree as follows:

1. Exhibits and Schedules.  Schedule 1 to the Security Agreement is hereby deleted in its entirety and replaced with Schedule 1 to this Amendment.

2. Representations and Warranties.  Each Debtor represents and warrants to Secured Party that (a) it possesses all requisite power and authority to execute, deliver and comply with the terms of this Amendment, (b) this Amendment has been duly authorized and approved by all requisite corporate action on the part of Parent, (c) no other consent of any Person (other than Secured Party) is required for this Amendment to be effective, (d) the execution and delivery of this Amendment does not violate its organizational documents, (e) the representations and warranties in each Loan Document to which it is a party are true and correct in all material respects on and as of the date of this Amendment as though made on the date of this Amendment (except to the extent that such representations and warranties speak to a specific date), (f) it is in full compliance with all covenants and agreements contained in each Loan Document to which it is a party, and (g) no Default or Potential Default has occurred and is continuing.  The representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment.  No investigation by Secured Party is required for Secured Party to rely on the representations and warranties in this Amendment.

3. Scope of Amendment; Reaffirmation; Release.  All references to the Security Agreement shall refer to the Security Agreement as amended by this Amendment.  Except as effected by this Amendment, the Security Agreement is unchanged and continues in full force and effect.  Each Debtor hereby reaffirms its obligations under the Loan Documents to which it is a party and agrees that all Loan Documents to which they are a party remain in full force and effect and continue to be legal, valid, and binding obligations enforceable in accordance with their terms (as the same are affected by this Amendment).  Each Debtor hereby releases Secured Party from any liability for actions or omissions in connection with the Credit Agreement, Security Agreement, and the other Loan Documents prior to the date of this Amendment.

4. Miscellaneous.

(a) No Waiver of Defaults.  Except as expressly set out above, this Amendment does not constitute (i) a waiver of, or a consent to, (A) any provision of the Credit Agreement, Security Agreement, or any other Loan Document not expressly referred to in this Amendment, or (B) any present or future violation of, or default under, any provision of the Loan Documents, or (ii) a waiver of Secured Party’s right to insist upon future compliance with each term, covenant, condition and provision of the Loan Documents.

(b) Form.  Each agreement, document, instrument or other writing to be furnished Secured Party under any provision of this Amendment must be in form and substance satisfactory to Secured Party and its counsel.

(c) Headings.  The headings and captions used in this Amendment are for convenience only and will not be deemed to limit, amplify or modify the terms of this Amendment, the Credit Agreement, the Security Agreement, or the other Loan Documents.

(d) Costs, Expenses and Attorneys’ Fees.  Each Debtor agrees to pay or reimburse Secured Party on demand for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation, negotiation, and execution of this Amendment, including, without limitation, the reasonable fees and disbursements of Secured Party’s counsel.

(e) Successors and Assigns.  This Amendment shall be binding upon and inure to the benefit of each of the undersigned and their respective successors and permitted assigns.

(f) Multiple Counterparts.  This Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document.  All counterparts must be construed together to constitute one and the same instrument.  This Amendment may be transmitted and signed by facsimile or portable document format (PDF).  The effectiveness of any such documents and signatures shall, subject to applicable law, have the same force and effect as manually-signed originals and shall be binding on Debtors and Secured Party.  Secured Party may also require that any such documents and signatures be confirmed by a manually-signed original; provided that the failure to request or deliver the same shall not limit the effectiveness of any facsimile or PDF document or signature.

(g) Governing Law.  This Amendment and the other Loan Documents must be construed, and their performance enforced, under Texas law.

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(h) Entirety.  The Loan Documents (as amended hereby) Represent the Final Agreement Between Debtors and Secured Party and May Not Be Contradicted by Evidence of Prior, Contemporaneous, or Subsequent Oral Agreements by the Parties.  There Are No Unwritten Oral Agreements among the Parties.

[Signatures appear on the next page.]

3

The Amendment is executed as of the date set forth in the preamble.

DEBTORS:

DEEP DOWN, INC.,

a Nevada corporation

ELECTROWAVE USA, INC.,

a Nevada corporation

FLOTATION TECHNOLOGIES, INC.,

a Maine corporation

MAKO TECHNOLOGIES, LLC,

a Nevada limited liability company

DEEP DOWN INC.,

a Delaware corporation

By:      /s/ Eugene L. Butler                                     

Eugene L. Butler

Chief Financial Officer of each of the

foregoing companies 

SECURED PARTY:

WHITNEY NATIONAL BANK,

a national banking association

By:      /s/ Paul W. Cole                                       

Paul W. Cole

Vice President 

Signature Page to Second Amendment to Security Agreement

SCHEDULE 1

Location of Books and Records

as to Accounts and Principal Place of Business

DEEP DOWN, INC., a Nevada corporation

(a) The exact name of Debtor, as such name appears in its organizational documents.

Deep Down, Inc.

(b) Any change in Debtor’s identity or legal structure within the past five years.

In December 2006, Mediquip Holdings, Inc., a Nevada corporation (later renamed Deep Down, Inc., a Nevada corporation), divested Westmeria Healthcare Limited, its wholly-owned subsidiary representing substantially all of its preceding operations, and subsequently acquired Deep Down, Inc., a Delaware corporation.

(c) All other names (including trade names) used by Debtor or any of its divisions or other business units in connection with the conduct of its business or ownership of its properties at any time in the past five years.

See (b) above.

(d) Debtor’s federal taxpayer identification number.

75-2263732

(e) Debtor’s principal place of business.

15473 East Freeway, Channelview, Texas 77530

(f) The locations where Debtor maintains its inventory.

15473 East Freeway, Channelview, Texas 77530

(g) All real property owned by Debtor.

15473 East Freeway, Channelview, Texas 77530

(h)           All real property leased by Debtor.

8827 W. Sam Houston Parkway N., Suite 100, Houston, Texas 77040

(i)           All intellectual property of Debtor.

None.

Schedule 1 to Second Amendment to Security Agreement – Page 1

ELECTROWAVE USA, INC., a Nevada corporation

(a) The exact name of Debtor, as such name appears in its organizational documents.

Electrowave USA, Inc. (“Electrowave”)

(b) Any change in Debtor’s identity or legal structure within the past five years.

In 2007, Deep Down, Inc., a Nevada corporation, formed a wholly-owned subsidiary, Electrowave, for purposes of acquiring substantially all of the assets of Electrowave USA, Inc., a Texas corporation.

(c) All other names (including trade names) used by Debtor or any of its divisions or other business units in connection with the conduct of its business or ownership of its properties at any time in the past five years.

(d) Debtor’s federal taxpayer identification number.

33-1157259

(e) Debtor’s principal place of business.

15473 East Freeway, Channelview, Texas 77530

(f) The locations where Debtor maintains its inventory.

15473 East Freeway, Channelview, Texas 77530

(g) All real property owned by Debtor.

None.

(h)           All real property leased by Debtor.

None.

(i)           All intellectual property of Debtor.

·        One issued patent – US Patent No. 6,869,254

·        The following trademark registrations with the United States Patent and Trademark Office:  Electrowave, Reg. No. 2,853,428; Drilsys, Reg. No. 2,831,872; and Mudsys, Reg. No. 2,869,165

Schedule 1 to Second Amendment to Security Agreement – Page 2

FLOATATION TECHNOLOGIES, INC., a Maine corporation

(a) The exact name of Debtor, as such name appears in its organizational documents.

Flotation Technologies, Inc.

 (b) Any change in Debtor’s identity or legal structure within the past five years.

Deep Down, Inc., Nevada, acquired all of the issued and outstanding stock effective June 5, 2008.

(c) All other names (including trade names) used by Debtor or any of its divisions or other business units in connection with the conduct of its business or ownership of its properties at any time in the past five years.

N/A

(d) Debtor’s federal taxpayer identification number.

01-0433648

(e) Debtor’s principal place of business.

20 Morin Street, Biddeford, ME 04005

(f) The locations where Debtor maintains its inventory.

20 Morin Street, Biddeford, ME 04005

(g) All real property owned by Debtor.

20 Morin Street, Biddeford, ME 04005

(h)           All real property leased by Debtor.

None.

(i)           All intellectual property of Debtor.

Patents

Drilling Riser Buoyancy Produced with Plastic Shell, Serial No. 61/000,476

Driller Riser Auxiliary Clamp with Integral Mux Clamp, Serial No. 61/000,471

Distributed Buoyancy Module, Serial No. 60/503,811

Clamp for Holding Distributed Buoyancy Modules, Serial No. 60/503,812

Schedule 1 to Second Amendment to Security Agreement – Page 3

Unregistered Trademarks

HardBallTM floats

Quick-LocTM cable floats

FlotecTM syntactic foams

Flex-LokTM buoyancy bend restrictors

Hydro-FloatTM of HydrofloatTM mooring buoys

StablemoorTM high current ADCP buoys

ROVitTM floats

CoreTecTM drilling riser buoyancy modules

FLOTECTTM and FLOTECT HDTM impact and abrasion protection

InflexTM bend restrictors and bend stiffeners

The Company has used the motto “A Company with Depth” for many years.

The Company has used the saying “Tales from the Deep” for many years for its annual OTC party and a previous newsletter.

Internet Domain Names owned by Debtor

Flotec.com

Flotationtechnologies.com

Adepbuoys.com

Buoyancycollars.com

Buoyancymodules.com

Buoyancysolutions.com

Cable-floats.com

Cablefloat.com

Cablefloats.com

Cableflotation.com

Distributedbuoyancy.com

Flowlineinsulation.com

Floatationdevices.com

Schedule 1 to Second Amendment to Security Agreement – Page 4

MAKO TECHNOLOGIES, LLC, a Nevada limited liability company

(a) The exact name of Debtor, as such name appears in its organizational documents.

Mako Technologies, LLC (“Mako”)

(b) Any change in Debtor’s identity or legal structure within the past five years.

In December 2007, Deep Down, Inc., a Nevada corporation formed a wholly-owned subsidiary, Mako, for purposes of acquiring all of the outstanding common stock of Mako Technologies, Inc., a Louisiana corporation, which then merged with and into Mako, with Mako as the surviving entity.

(c) All other names (including trade names) used by Debtor or any of its divisions or other business units in connection with the conduct of its business or ownership of its properties at any time in the past five years.

(d) Debtor’s federal taxpayer identification number.

26-1573407

(e) Debtor’s principal place of business.

125 Mako Lane, Morgan City, LA 70380

(f) The locations where Debtor maintains its inventory.

125 Mako Lane, Morgan City, LA 70380

(g) All real property owned by Debtor.

None.

(h)           All real property leased by Debtor.

125 Mako Lane, Morgan City, LA 70380

(i)           All intellectual property of Debtor.

None.

Schedule 1 to Second Amendment to Security Agreement – Page 5

DEEP DOWN INC., a Delaware corporation

(a) The exact name of Debtor, as such name appears in its organizational documents.

Deep Down Inc. (“Deep Down”)

(b) Any change in Debtor’s identity or legal structure within the past five years.

On November 21, 2006 Subsea Acquisition Corporation (“Subsea”), a Texas corporation acquired all of the outstanding capital stock of Strategic Offshore Services Corporation (“SOS”), a Texas corporation, and also acquired Deep Down.  Immediately after the acquisition, Subsea merged with and into SOS, with Subsea continuing as the surviving company.  Immediately thereafter, Subsea merged with and into its wholly-owned subsidiary Deep Down, with Deep Down continuing as the surviving company.  In December 2006, Mediquip Holdings, Inc., a Nevada corporation (later renamed Deep Down, Inc., a Nevada corporation), divested Westmeria Healthcare Limited, its wholly-owned subsidiary representing substantially all of its preceding operations, and subsequently acquired Deep Down.

 (c) All other names (including trade names) used by Debtor or any of its divisions or other business units in connection with the conduct of its business or ownership of its properties at any time in the past five years.

(d) Debtor’s federal taxpayer identification number.

76-0550204

(e) Debtor’s principal place of business.

15473 East Freeway, Channelview, Texas 77530

(f) The locations where Debtor maintains its inventory.

15473 East Freeway, Channelview, Texas 77530

(g) All real property owned by Debtor.

None.

(h)           All real property leased by Debtor.

None.

(i)           All intellectual property of Debtor.

The following trademark registrations with the United States Patent and Trademark Office:  Moray, Reg. No. 2,745,237; Aquasox, Reg. No. 2,890,204; and Seastax, Reg. No. 2,647,390

Schedule 1 to Second Amendment to Security Agreement – Page 6