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EXHIBIT 10.1
  

 
—————————————————
 
CONTRIBUTION AGREEMENT
 
—————————————————
 

 

 
by and among
 
DEEP DOWN, INC.,
 
FLOTATION TECHNOLOGIES, INC.
 
FLOTATION INVESTOR, LLC
 
and
 
CUMING FLOTATION TECHNOLOGIES, LLC
 

 

 
Dated as of December 31, 2010
 

 

 
 

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TABLE OF CONTENTS

 
Page
   
ARTICLE I DEFINITIONS
1
     
SECTION 1.01.
Certain Defined Terms
1
SECTION 1.02.
Definitions
7
SECTION 1.03.
Interpretation and Rules of Construction
8
   
ARTICLE II CONTRIBUTION
9
     
SECTION 2.01.
Contributions
9
SECTION 2.02.
Assumption and Exclusion of Liabilities
10
SECTION 2.03.
Unit Issuance
10
SECTION 2.04.
Closing
10
SECTION 2.05.
Closing Deliveries by Flotec
11
SECTION 2.06.
Closing Deliveries by Deep Down
11
SECTION 2.07.
Closing Deliveries by Holdings
12
SECTION 2.08.
Closing Deliveries by the Company
12
   
ARTICLE III REPRESENTATIONS AND WARRANTIES OF DEEP DOWN AND FLOTEC
12
     
SECTION 3.01.
Organization, Authority and Qualification of Flotec
12
SECTION 3.02.
No Conflict
13
SECTION 3.03.
Governmental Consents and Approvals
13
SECTION 3.04.
Financial Statements; Books and Records
13
SECTION 3.05.
Absence of Undisclosed Liabilities
14
SECTION 3.06.
Receivables
14
SECTION 3.07.
Conduct in the Ordinary Course; Absence of Certain Changes, Events and
Conditions
14
SECTION 3.08.
Litigation
16
SECTION 3.09.
Compliance with Laws
16
SECTION 3.10.
Environmental and Other Permits and Licenses; Related Matters
16
SECTION 3.11.
Contracts
16
SECTION 3.12.
Intellectual Property
17
SECTION 3.13.
Real Property
17
SECTION 3.14.
Tangible Personal Property
18
SECTION 3.15.
Assets
18
SECTION 3.16.
Employee Benefit Matters
19
SECTION 3.17.
Labor Matters
19
SECTION 3.18.
Key Employees
20
SECTION 3.19.
Taxes
20
SECTION 3.20.
Insurance
21
SECTION 3.21.
Certain Business Practices
21
SECTION 3.22.
Customers and Suppliers.
21
SECTION 3.23.
Product Warranty; Product Liability.
21
SECTION 3.24.
SPA.
22

 
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SECTION 3.25.
Full Disclosure
23
SECTION 3.26.
Brokers
23
SECTION 3.27.
Accredited Investor
23
   
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
24
     
SECTION 4.01.
Organization and Authority of the Company
24
SECTION 4.02.
No Conflict
25
SECTION 4.03.
Business of the Company
25
SECTION 4.04.
Governmental Consents and Approvals
25
SECTION 4.05.
Litigation
25
SECTION 4.06.
Brokers
25
   
ARTICLE V REPRESENTATIONS AND WARRANTIES OF HOLDINGS
26
     
SECTION 5.01.
Organization and Authority of Holdings
26
SECTION 5.02.
No Conflict
26
SECTION 5.03.
Business of Holdings
26
SECTION 5.04.
Governmental Consents and Approvals
27
SECTION 5.05.
Litigation
27
SECTION 5.06.
Brokers
27
SECTION 5.07.
Accredited Investor
27
   
ARTICLE VI ADDITIONAL AGREEMENTS
28
     
SECTION 6.01.
Conduct of Business Prior to the Closing
28
SECTION 6.02.
Access to Information
29
SECTION 6.03.
Confidentiality
29
SECTION 6.04.
Regulatory and Other Authorizations; Notices and Consents
30
SECTION 6.05.
Notice of Developments
31
SECTION 6.06.
Excluded Liabilities
31
SECTION 6.07.
Tax Cooperation and Exchange of Information
31
SECTION 6.08.
Conveyance Taxes
31
SECTION 6.09.
Further Action
32
SECTION 6.10.
Proration of Taxes and Certain Charges
32
   
ARTICLE VII CONDITIONS TO CLOSING
33
     
SECTION 7.01.
Conditions to Obligations of Flotec and Deep Down
33
SECTION 7.02.
Conditions to Obligations of the Company and Holdings
33
   
ARTICLE VIII INDEMNIFICATION
34
     
SECTION 8.01.
Survival of Representations and Warranties
34
SECTION 8.02.
Indemnification by Flotec and Deep Down
35
SECTION 8.03.
Indemnification by the Company and Holdings
35
SECTION 8.04.
Limits on Indemnification
36
SECTION 8.05.
Notice of Loss; Third Party Claims
36

  
 
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ARTICLE IX TERMINATION, AMENDMENT AND WAIVER
37
     
SECTION 9.01.
Termination
37
SECTION 9.02.
Effect of Termination
37
   
ARTICLE X GENERAL PROVISIONS
38
     
SECTION 10.01.
Expenses
38
SECTION 10.02.
Notices
38
SECTION 10.03.
Public Announcements
39
SECTION 10.04.
Severability
39
SECTION 10.05.
Entire Agreement
39
SECTION 10.06.
Assignment
39
SECTION 10.07.
Amendment
39
SECTION 10.08.
Waiver
39
SECTION 10.09.
No Third Party Beneficiaries
39
SECTION 10.10.
Specific Performance
40
SECTION 10.11.
Binding Arbitration
40
SECTION 10.12.
Currency
42
SECTION 10.13.
Counterparts
42

   

 
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CONTRIBUTION AGREEMENT
 
This CONTRIBUTION AGREEMENT (this “Agreement”), dated as of December 31, 2010,
is entered into by and among DEEP DOWN, INC., a corporation existing under the
laws of Nevada (“Deep Down”), FLOTATION TECHNOLOGIES, INC., a Maine corporation
(“Flotec”), FLOTATION INVESTOR, LLC, a Delaware limited liability company
(“Holdings”), and CUMING FLOTATION TECHNOLOGIES, LLC, a Delaware limited
liability company (the “Company”).
 
RECITALS:
 
A.           Deep Down and Flotec, as applicable, desire to contribute, or cause
to be contributed, to the Company (i) all of their right, title, and interest in
and to the Contributed Assets (as defined herein), (ii) all of their right,
title and interest in, to and under the SPA (as defined herein) and (iii) the
Deep Down Contributed Capital (as defined herein) in exchange for the issuance
by the Company of the Deep Down Units (as defined herein) and the assumption by
the Company of the Assumed Liabilities.
 
B.           Holdings desires to contribute to the Company the Holdings
Contributed Capital (as defined herein) in exchange for the issuance by the
Company of the Holdings Units (as defined herein).
 
C.           Deep Down is the sole shareholder of Flotec and, as such, will
derive substantial benefits from the contemplated Transactions.
 
NOW, THEREFORE, in consideration of the promises and the mutual agreements and
covenants hereinafter set forth, and intending to be legally bound, the parties
hereto hereby agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
SECTION 1.01  Certain Defined Terms.  For purposes of this Agreement:
 
“Act” means the Securities Act of 1933, as amended.
 
“Action” means any Claim, action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
 
“Affiliate” means, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person.
 
“Ancillary Agreements” means the Assumption Agreement, the Bill of Sale, the SPA
Assignment, the Operating Agreement and the Deep Down Securities Purchase
Agreement.
   
 
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“Arbitration Notice” has the meaning set forth in Section 10.11(b).
 
“Assumption Agreement” means the Assumption Agreement to be executed by the
Company, Flotec and Deep Down at the Closing, substantially in the form of
Exhibit A.
 
“Bill of Sale” means the Bill of Sale and Assignment to be executed by the
Company, Flotec and Deep Down at the Closing, substantially in the form of
Exhibit B.
 
“Business” means the specialized offshore flotation business of Deep Down, as
conducted through its wholly owned subsidiary, Flotec.
 
“Business Day” means any day that is not a Saturday, a Sunday or other day on
which banks are required or authorized by Law to be closed in The City of New
York.
 
“Claims” means any and all administrative, regulatory or judicial actions,
suits, petitions, appeals, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations, proceedings, consent orders or
consent agreements.
 
“Code” means the Internal Revenue Code of 1986, as amended through the date
hereof.
 
“Contract” means any contract, agreement, arrangement, commitment, instrument,
document or similar understanding (whether written or oral), including leases,
subleases and rights thereunder.
 
“Contributed Assets” has the meaning set forth in Section 2.01(a).
 
“Conveyance Taxes” means all sales, use, value added, transfer, stamp, stock
transfer, real property transfer or gains and similar Taxes.
 
“Cuming” means Cuming Corporation, a corporation existing under the laws of
Massachusetts.
 
“Cuming Parties” means Cuming and the Cuming Selling Stockholders.
 
“Cuming Selling Stockholders” means the stockholders of Cuming listed on the
signature pages to the SPA.
 
“Deep Down Common Stock” means twenty million shares of Deep Down common stock
to be purchased by Holdings pursuant to the Deep Down Securities Purchase
Agreement.
 
“Deep Down Contributed Capital” means $1,400,000.
 
 “Deep Down Securities Purchase Agreement” means the securities purchase
agreement to be executed by Deep Down and Holdings, at the Closing,
substantially in the form of Exhibit C, pursuant to which Holdings will purchase
from Deep Down the Deep Down Common Stock.
 
“Deep Down Units” means Class A-1 and Class A-2 units of the Company,
representing a 20% percentage interest in the Company.
 
 
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“Disclosure Schedule” means the Disclosure Schedule attached hereto, dated as of
the date hereof, delivered by Flotec and Deep Down to the Company and Holdings
in connection with this Agreement.
 
“Encumbrance” means any security interest, pledge, hypothecation, mortgage, lien
(including environmental and tax liens), violation, charge, lease, license,
encumbrance, servient easement, adverse claim, reversion, reverter, preferential
arrangement, restrictive covenant, condition or restriction of any kind,
including any restriction on the use, voting, transfer, receipt of income or
other exercise of any attributes of ownership.
 
“Environment” means surface waters, groundwaters, soil, subsurface strata and
ambient air.
 
“Environmental Claims” means any Claims relating in any way to any Environmental
Law or any Environmental Permit, including (a) any and all Claims by
Governmental Authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages pursuant to any applicable Environmental Law and
(b) any and all Claims by any Person seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
hazardous materials or arising from alleged injury or threat of injury to
health, safety or the Environment.
 
“Environmental Laws” means any applicable Law currently in effect in any way
relating to the protection of human health and safety, the environment or
natural resources including the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. App. § 1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act
(33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.) the
Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), as each has been
or may be amended and the regulations promulgated pursuant thereto.
 
“Environmental Permits” means all permits, approvals, identification numbers,
licenses and other authorizations required under or issued pursuant to any
applicable Environmental Law.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
 
“ERISA Affiliate” means any entity (whether or not incorporated) which would be
treated as a single employer with another entity under Sections 414(b), (c), (m)
or (o) of the Code and the Regulations.
 
“Flotec Benefit Plans” means all Plans with respect to which Flotec or any ERISA
Affiliate of Flotec has any obligation or liability, contingent or otherwise.
 
“GAAP” means United States generally accepted accounting principles, as
consistently applied.
 
 
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“Governmental Authority” means any federal, national, supranational, state,
provincial, local, or similar government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
 
“Governmental Order” means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental
Authority.
 
“Holdings Contributed Capital” means $22,350,000.
 
“Holdings Units” means Class A-1, Class A-2, Class B-1 and Class B-2 units of
the Company, representing a 80% percentage interest in the Company.
 
“Indebtedness” means, with respect to any Person, (a) all indebtedness of such
Person, whether or not contingent, for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person as lessee under
leases that have been or should be recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person under acceptance, letter of
credit or similar facilities, (g) all obligations of such Person to purchase,
redeem, retire, defease or otherwise acquire for value any capital stock of such
Person or any warrants, rights or options to acquire such capital stock, valued,
in the case of redeemable preferred stock, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends, (h) all
Indebtedness of others referred to in clauses (a) through (g) above guaranteed
directly or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (i) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss, (iii) to supply funds to or in any other
manner invest in the debtor (including any agreement to pay for property or
services irrespective of whether such property is received or such services are
rendered) or (iv) otherwise to assure a creditor against loss, and (i) all
Indebtedness referred to in clauses (a) through (g) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness.
 
“Indemnified Party” means a Company Indemnified Party or a Deep Down Indemnified
Party, as the case may be.
 
“Indemnifying Party” means Flotec and Deep Down, jointly and severally, pursuant
to Section 8.02 or the Company pursuant to Section 8.03, as the case may be.
 
“Intellectual Property” means any rights, licenses, charges, Encumbrances,
equities and other claims that any person may have to claim ownership,
authorship or invention of, to use, to object to or prevent the modification of
or to withdraw from circulation or control the publication or distribution of,
any: (a) copyrights in both published works and unpublished works, (b)
fictitious business names, trading names, corporate names, registered and
unregistered trademarks, service marks and applications, (c) any (i) patents and
patent applications and (ii) business methods, inventions and discoveries that
may be patentable, (d) computer software or middleware and (e) know-how, trade
secrets, confidential information, customer lists, software (source code and
object code), technical information, data, process technology, plans, drawings
and blue prints.
 
 
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“IRS” means the Internal Revenue Service of the United States.
 
“Knowledge” means, with respect to Deep Down the knowledge of Ron Smith, Gene
Butler, Gay Mayeux and Mike Newbury, with respect to Flotec, the knowledge of Al
Marquis, Jr., Peter Russell, Peter Perro and Fred Maguire and with respect to
the Holdings, the knowledge of Glen Gordon and Joshua Ratner.
 
“Law” means any federal, national, supranational, state, provincial, local or
similar statute, law, ordinance, regulation, rule, code, order, requirement or
rule of law (including common law).
 
“Leased Real Property” means the real property leased by Flotec, as tenant,
together with, to the extent leased by Flotec, all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of Flotec
attached or appurtenant thereto and all easements, licenses, rights and
appurtenances relating to the foregoing.
 
“Liabilities” means any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including those arising under any Law (including any Environmental
Law), Action or Governmental Order and those arising under any contract,
agreement, arrangement, commitment or undertaking.
 
“Material Adverse Effect” means any circumstance, change in or effect on the
Business or Flotec that, individually or in the aggregate with all other
circumstances, changes in or effects on the Business or Flotec:  (a) is or is
reasonably likely to be materially adverse to the business, operations, assets
or liabilities (including contingent liabilities), results of operations or the
condition (financial or otherwise) of the Business or (b) is reasonably likely
to materially adversely affect the ability of the Company to operate or conduct
the Business in the manner in which it is currently or contemplated to be
operated or conducted by Flotec.
 
“Operating Agreement” means the limited liability company agreement of the
Company to be executed by the Company, Deep Down and Holdings at the Closing,
substantially in the form of Exhibit D.
 
“Owned Real Property” means the real property in which Flotec has fee title (or
equivalent) interest, together with all buildings and other structures,
facilities or improvements currently or hereafter located thereon, all fixtures,
systems, equipment and items of personal property of Flotec attached or
appurtenant thereto and all easements, licenses, rights and appurtenances
relating to the foregoing.
 
 
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“Permit” means permits, licenses, certificates, waivers, notices and similar
authorizations.
 
“Permitted Encumbrances” means such of the following as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been commenced
and as to which Flotec is not otherwise subject to civil or criminal liability
due to its existence:  (a) liens for Taxes not yet due and payable,
(b) Encumbrances imposed by Law, such as materialmen’s, mechanics’, carriers’,
workmen’s and repairmen’s liens and other similar liens arising in the ordinary
course of business securing obligations that (i) are not overdue for a period of
more than 30 days and (ii) are not in excess of $5,000 in the case of a single
property or $50,000 in the aggregate at any time; (c) pledges or deposits to
secure obligations under workers’ compensation laws or similar legislation or to
secure public or statutory obligations; and (d) minor survey exceptions,
reciprocal easement agreements and other customary encumbrances on title to real
property that (i) were not incurred in connection with any Indebtedness, (ii) do
not render title to the property encumbered thereby unmarketable and (iii) do
not, individually or in the aggregate, materially adversely affect the value of
or the use of such property for its current and anticipated purposes.
 
“Plans” means (i) all “employee benefit plans” (as defined in Section 3(3) of
ERISA), (ii) all employment, consulting, individual compensation and collective
bargaining agreements and (iii) all other employee benefit plans, policies,
agreements, or arrangements, including any bonus or other incentive
compensation, stock purchase, equity or equity-based compensation, deferred
compensation, change in control, termination, severance, sick leave, vacation,
loans, perquisites, salary continuation, health, disability, life insurance and
educational assistance plans, policies, agreements or arrangements.
 
“Person” means any individual, partnership, firm, corporation, limited liability
company, association, trust, unincorporated organization or other entity, as
well as any syndicate or group that would be deemed to be a person under
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
 
“Pre-Closing Period” means any taxable period (or portion thereof) ending on or
prior to the date of the Closing.
 
“Real Property” means the Leased Real Property and the Owned Real Property.
 
“Receivables” means any and all accounts receivable, notes and other amounts
receivable from third parties, including customers and employees, arising from
the conduct of the Business before the Closing, whether or not in the ordinary
course, together with any unpaid financing charges accrued thereon.
 
“Regulations” means the Treasury Regulations (including Temporary Regulations)
promulgated by the United States Department of Treasury with respect to the Code
or other federal tax statutes.
 
“SPA” means that certain Stock Purchase Agreement, dated May 3, 2010, as
amended, among Deep Down and the Cuming Parties.
 
 
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“SPA Assignment” means the assignment of the SPA to be executed by Deep Down,
the Cuming Parties and the Company at the Closing, substantially in the form of
Exhibit E.
 
“Straddle Period” means any taxable period beginning on or prior to and ending
after the date of the Closing.
 
“Tax” or “Taxes” means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority, including taxes or other charges
on or with respect to income, franchises, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security, workers’ compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license, registration and documentation
fees; and customs’ duties, tariffs, and similar charges.
 
“Tax Returns” means any return, declaration, report, election, Claim for refund
or information return or other statement or form filed or required to be filed
with any Tax authority relating to Taxes, including any schedule or attachment
thereto or any amendment thereof.
 
“Transactions” means (a) (i) the contribution by Flotec of the Contributed
Assets to the Company, (ii) the contribution by Deep Down of the SPA to the
Company, (iii) the contribution by Deep Down of the Deep Down Contributed
Capital, (iv) the Company’s issuance of the Deep Down Units to Deep Down and (v)
the Company’s assumption of the Assumed Liabilities; (b) (i) the contribution by
Holdings of the Holdings Contributed Capital and (ii) the Company’s issuance of
the Holdings Units to Holdings; (c) the consummation of the transactions
contemplated by the SPA; (d) the execution, delivery, and performance of all of
the documents, instruments, and agreements to be executed, delivered, and
performed in connection herewith, including the Ancillary Agreements; and (e)
the performance by each of Deep Down, Flotec, Holdings and the Company of its
respective covenants and obligations under this Agreement.
 
“Unit” means a limited liability company interest in the Company.  As of the
date hereof, the Deep Down Units and the Holdings Units constitute all of the
Units.
   
SECTION 1.02  Definitions.  The following terms have the meanings set forth in
the Sections set forth below:
 
Definition
 
Location
“Agreement”
 
Preamble
“Assumed Liabilities”
 
2.02(a)
“Balance Sheet Date”
 
3.04(a)
“Closing”
 
2.04
“Closing Date”
 
2.04

 
 
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Definition
 
Location

 
“Company”
 
Preamble
“Company Indemnified Party”
 
8.02(i)
“Confidential Information”
 
6.03(a)
“Contributed Assets”
 
2.01(a)
“Deep Down”
 
Preamble
“Excluded Assets”
 
2.01(c)
“Excluded Liabilities”
 
2.01(b)
“Financial Statements”
 
3.04(a)
“Flotec”
 
Preamble
“Holdings”
 
Preamble
“Interim Financial Statements”
 
3.04(a)
“Loss”
 
8.02
“Most Recent Balance Sheet”
 
3.04(a)
“Options”
 
3.13(b)
“Tangible Personal Property”
 
3.14
“Third Party Claim”
 
8.05(b)

SECTION 1.03  Interpretation and Rules of Construction.  In this Agreement,
except to the extent otherwise provided or that the context otherwise requires:
 
when a reference is made in this Agreement to an Article, Section, Exhibit or
Schedule, such reference is to an Article or Section of, or a Schedule or
Exhibit to, this Agreement unless otherwise indicated;
 
(a)           the table of contents and headings for this Agreement are for
reference purposes only and do not affect in any way the meaning or
interpretation of this Agreement;
 
(b)           whenever the words “include,” “includes” or “including” are used
in this Agreement, they are deemed to be followed by the words “without
limitation”;
 
(c)           the words “hereof,” “herein” and “hereunder” and words of similar
import, when used in this Agreement, refer to this Agreement as a whole and not
to any particular provision of this Agreement;
 
(d)           all terms defined in this Agreement have the defined meanings when
used in any certificate or other document made or delivered pursuant hereto,
unless otherwise defined therein;
 
(e)           the definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms;
 
(f)           any Law defined or referred to herein or in any agreement or
instrument that is referred to herein means such Law or statute as from time to
time amended, modified or supplemented, including by succession of comparable
successor Laws;
 
(g)           references to a Person are also to its successors and permitted
assigns; and
 
(h)           the use of “or” is not intended to be exclusive unless expressly
indicated otherwise.
 
 
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ARTICLE II

 
CONTRIBUTION
 
SECTION 2.01  Contributions.
 
(a)           Upon the terms and subject to the conditions of this Agreement, at
the Closing, Flotec shall contribute, assign, transfer, convey and deliver, or
cause to be contributed, assigned, transferred, conveyed and delivered, to the
Company, and the Company shall assume from Flotec, all the assets, properties,
goodwill and business of every kind and description and wherever located,
whether tangible or intangible, real, personal or mixed, directly or indirectly
owned by Flotec or to which Flotec is directly or indirectly entitled and, in
any case, belonging to or used or intended to be used in the Business, other
than the Excluded Assets (the assets to be contributed to the Company being
referred to as the “Contributed Assets”), including the following: (i) all Real
Property; (ii) all Tangible Personal Property; (iii) Intellectual Property,
goodwill associated therewith, licenses and sublicenses granted and obtained
with respect thereto, and rights thereunder, remedies against infringements
thereof and rights to protection of interests therein under the laws of all
jurisdictions; (iv) with respect to any Contracts of or benefiting Flotec, all
rights and benefits under or arising out of such Contracts; (v) Receivables;
(vi) securities; (vii) claims, deposits, prepayments, refunds, causes of action,
choses in action and rights of recovery, set off and recoupment; (viii) Permits
obtained or applied for by or on behalf of Flotec from, pursuant to or in
connection with any Law or Governmental Order; (ix) books, records, ledgers,
files, documents, correspondence, advertising and promotional materials,
studies, reports and other written materials; and (x) cash and cash equivalents.
 
(b)           Upon the terms and subject to the conditions of this Agreement, at
the Closing, Deep Down shall contribute, assign, transfer, convey and deliver,
or cause to be contributed, assigned, transferred, conveyed and delivered, to
the Company, and the Company shall assume from Deep Down, all of Deep Down’s
right, title and interest in, to and under the SPA.
 
(c)           Upon the terms and subject to the conditions of this Agreement, at
the Closing, (i) Holdings shall contribute the Holdings Contributed Capital to
the Company and (ii) Deep Down shall contribute the Deep Down Contributed
Capital to the Company.
 
(d)           Upon the Closing, the Company shall contribute the Contributed
Assets and Assumed Liabilities to a wholly-owned subsidiary of the Company in
exchange for 100% of the equity interest in such subsidiary.
 
(e)           Notwithstanding anything in Section 2.01(a) to the contrary, the
Contributed Assets shall exclude the following assets and properties owned by
Flotec or Deep Down (the “Excluded Assets”): (i) the corporate charter,
qualifications to conduct business as a foreign corporation, and the minute
books, stock transfer books and similar documents or records relating to the
organization, maintenance and existence of Flotec as a corporation; (ii) any of
Flotec’s rights under this Agreement, each Contract or writing executed or
delivered in connection with this Agreement and each of the Ancillary Agreements
or (iii) any asset specifically identified on Section 2.01(c) of the isclosure
Schedule.
 
 
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SECTION 2.02  Assumption and Exclusion of Liabilities.
 
(a)           Upon the terms and subject to the conditions of this Agreement,
effective as of the Closing, the Company shall assume and shall agree to timely
pay, perform and discharge in accordance with their respective terms all
Liabilities of Flotec other than the Excluded Liabilities (the “Assumed
Liabilities”), including without limitation the following Liabilities: (i)
Liabilities arising under the sale of products in the ordinary course of
business pursuant to product warranties, product returns and rebates; (ii)
Liabilities constituting, or arising in connection with, accounts payable
existing as of November 30, 2010 (including, for avoidance of doubt, invoiced
accounts payable, and accrued by uninvoiced accounts payable) as listed in
Section 2.02(a) of the Disclosure Schedule, and including Liabilities
constituting, or arising in connection with, accounts payable in the ordinary
course of business and consistent with past practices from November 30, 2010
until the Closing Date; (iii) other Liabilities with respect to the Business or
the Contributed Assets arising after the Closing; (iv) Liabilities for Taxes
relating to the Contributed Assets for all taxable periods (or portions thereof)
beginning after the Closing Date; and (v) Liabilities under Contracts
contributed to the Company pursuant to Section 2.01(a) (the “Assumed
Contracts”).
 
(b)           Notwithstanding subsection (a) above, Flotec shall retain, and
shall be responsible for paying, performing and discharging when due, and the
Company shall not assume or have any responsibility for, all Liabilities of
Flotec as of the Closing other than the Assumed Liabilities (the “Excluded
Liabilities”), including, but not limited to:  (i) except as set forth herein,
all Liabilities for Taxes for all taxable periods in the case of Taxes relating
to the Excluded Assets; (ii) for all taxable periods (or portions thereof)
ending on or prior to (or, to the extent attributable to the portion of such
period ending on the Closing Date, including) the Closing Date, in the case of
Taxes relating to the Contributed Assets; (iii) except as set forth herein, for
costs and expenses incurred in connection with negotiating this Agreement and
the Ancillary Agreements; (iv) Flotec’s Liabilities under this Agreement or any
of the Ancillary Agreements; and (v) those Liabilities set forth in Section
2.02(b) of the Disclosure Schedule.
 
SECTION 2.03  Unit Issuance.
 
(a)           In consideration of the contribution by Flotec and Deep Down of
the Contributed Assets, the SPA and the Deep Down Contributed Capital, at
Closing, the Company will issue to Deep Down the Deep Down Units.
 
(b)           In consideration of the contribution by the Holdings Contributed
Capital, at Closing, the Company will issue to Holdings the Holdings Units.
 
SECTION 2.04  Closing.  Subject to the terms and conditions of this Agreement,
the closing of the Transactions (the “Closing”) will be held at the offices of
Akin Gump Strauss Hauer & Feld LLP, One Bryant Park, New York, New York 10036,
on the day on which all of the conditions to the obligations of the parties set
forth in Section 7.01 and Section 7.02 are satisfied, or at such other place or
at such other time or on such other date as Deep Down, Holdings and the Company
may mutually agree upon in writing.  The date on which the Closing takes place
shall be referred to herein as the “Closing Date”.
 
 
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SECTION 2.05  Closing Deliveries by Flotec.  At the Closing, Flotec shall
deliver or cause to be delivered to the Company and Holdings:
 
(a)           executed counterparts of the Assumption Agreement and Bill of
Sale;
 
(b)           executed counterparts of such other bills of sale, certificates of
title or origin, deeds, assignments and other instruments of transfer or
conveyance or as may be otherwise necessary to evidence and effect the
assignment and delivery of the Contributed Assets to the Company;
 
(c)           executed counterparts of each Ancillary Agreement to which Flotec
is a party, if any;
 
(d)           an officer’s certificate and a secretary’s certificate for Flotec
duly executed by the appropriate person; and
 
(e)           a certificate of a duly authorized officer of Flotec certifying as
to the matters set forth in Section 7.01(a).
 
SECTION 2.06  Closing Deliveries by Deep Down.  At the Closing, Deep Down shall
deliver or cause to be delivered to the Company and Holdings:
 
(a)           executed counterparts of the Assumption Agreement and Bill of
Sale;
 
(b)           executed counterparts of such other bills of sale, certificates of
title or origin, deeds, assignments and other instruments of transfer or
conveyance or as may be otherwise necessary to evidence and effect the
assignment and delivery of the Contributed Assets to the Company;
 
(c)           executed counterparts of each Ancillary Agreement to which Deep
Down is a party;
 
(d)           certificate(s) representing the Deep Down Common Stock to
Holdings;
 
(e)           the Deep Down Contributed Capital by wire transfer of immediately
available funds to an account designated in writing by the Company no later than
one Business Day prior to the Closing Date; and
 
(f)           a certificate of Deep Down certifying as to the matters set forth
in Section 7.01(a).
 
 
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SECTION 2.07  Closing Deliveries by Holdings.  At the Closing, Holdings shall
deliver to the Company:
 
(a)           the Holdings Contributed Capital by wire transfer of immediately
available funds to an account designated in writing by the Company no later than
one Business Day prior to the Closing Date;
 
(b)           executed counterparts of each Ancillary Agreement to which
Holdings is a party; and
 
(c)           a certificate of a duly authorized officer of Holdings certifying
as to the matters set forth in Section 7.02(a).
 
SECTION 2.08  Closing Deliveries by the Company.  At the Closing, the Company
shall deliver to Deep Down and Holdings:
 
(a)           executed counterparts of the Assumption Agreement and Bill of
Sale;
 
(b)           executed counterparts of each Ancillary Agreement to which the
Company is a party; and
 
(c)           a certificate of a duly authorized officer of the Company
certifying as to the matters set forth in Section 7.02(a).
   
ARTICLE III
  
REPRESENTATIONS AND WARRANTIES
OF DEEP DOWN AND FLOTEC
 
As an inducement to Holdings and the Company to enter into this Agreement, Deep
Down and Flotec hereby jointly and severally represent and warrant to each of
Holdings and the Company as follows:
 
SECTION 3.01  Organization, Authority and Qualification of Flotec.  Flotec is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all necessary power and
authority to enter into this Agreement and the Ancillary Agreements, to carry
out its obligations hereunder and thereunder and to consummate the
Transactions.  Flotec is duly licensed or qualified to do business and is in
good standing in each jurisdiction which the properties owned or leased by it or
the operation of its business makes such licensing or qualification
necessary.  The execution and delivery of this Agreement and the Ancillary
Agreements by Deep Down and Flotec, the performance by Deep Down and Flotec of
their respective obligations hereunder and thereunder and the consummation by
Deep Down and Flotec of the Transactions have been duly authorized by all
requisite action on the part of Deep Down and Flotec.  This Agreement has been,
and upon their execution the Ancillary Agreements shall have been, duly executed
and delivered by each of Deep Down and Flotec and (assuming due authorization,
execution and delivery by the other parties hereto and thereto) this Agreement
constitutes, and upon their execution the Ancillary Agreements shall constitute,
legal, valid and binding obligations of each of Deep Down and Flotec,
enforceable against each of Deep Down and Flotec in accordance with their
respective terms.
 
 
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SECTION 3.02  No Conflict.  Except as set forth on Section 3.02 of the
Disclosure Schedule, the execution, delivery and performance of this Agreement
and the Ancillary Agreements by Deep Down and Flotec do not and will not
(a) violate, conflict with or result in the breach of any provision of any
organizational document of Deep Down or Flotec, (b) conflict with or violate (or
cause an event which could have a Material Adverse Effect as a result of) any
Law or Governmental Order applicable to Deep Down or Flotec, or any of its
assets, properties or businesses, or (c) conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Contributed Assets pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, Permit, franchise or
other instrument or arrangement to which Deep Down or Flotec is a party or by
which any of the Contributed Assets is bound or affected.
 
SECTION 3.03  Governmental Consents and Approvals.  The execution, delivery and
performance of this Agreement and each Ancillary Agreement by Deep Down and
Flotec do not and will not require any consent, approval, authorization or other
order of, action by, filing with or notification to, any Governmental Authority,
except as described in Section 3.03 of the Disclosure Schedule.  Deep Down and
Flotec know of no reason why all the consents, approvals and authorizations
necessary for the consummation of the Transactions will not be received.
 
SECTION 3.04  Financial Statements; Books and Records.
 
(a)           Set forth in Section 3.04 of the Disclosure Schedule are the
following financial statements (the “Financial Statements”) of Flotec:  (a)
unaudited balance sheets and statements of income, changes in stockholders’
equity and cash flow as of and for the fiscal years ended December 31, 2008 and
2009; and (b) unaudited balance sheet (the “Most Recent Balance Sheet”) and
statements of income, changes in stockholders’ equity and cash flow (the
“Interim Financial Statements”) as of and for the nine months ended September
30, 2010 (the “Balance Sheet Date”).  The Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly Flotec’s financial condition as of such
dates and Flotec’s results of operations for such periods and are correct,
complete and consistent with Flotec’s books and records; provided, however, that
(i) the Financial Statements do not include footnotes, (ii) the 2008 statement
of income has been prepared on a pro forma basis reflecting a full twelve
months’ of activity as if Deep Down owned Flotec since January 1, 2008, (iii)
the 2008 Financial Statements will not include a statement of cash flow and (iv)
the Interim Financial Statements are subject to normal year-end adjustments
(which are not expected to be material individually or in the
aggregate).  Flotec is not now insolvent, nor will Flotec be rendered insolvent
by any of the Transactions.  A person is “insolvent” for purposes of this
Section when the sum of its liabilities and obligations is greater than a fair
valuation of all of its property.
 
 
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(b)           The books of account and other financial records of Flotec:  (i)
reflect all items of income and expense and all assets and Liabilities required
to be reflected therein in accordance with GAAP applied on a basis consistent
with the past practices of Flotec, (ii) are in all material respects complete
and correct, and do not contain or reflect any material inaccuracies or
discrepancies and (iii) have been maintained in accordance with good business
and accounting practices.
 
SECTION 3.05  Absence of Undisclosed Liabilities.  There are no Liabilities of
Flotec, other than Liabilities (i) as provided on the Financial Statements as of
the Balance Sheet Date,  (ii) incurred since the Balance Sheet Date  in the
ordinary course of business, consistent with past practice, of Flotec or (iii)
which do not and could not have a Material Adverse Effect.
 
SECTION 3.06  Receivables.  Section 3.06 of the Disclosure Schedule is an aged
list of the Receivables as of the Balance Sheet Date showing separately those
Receivables that as of such date had been outstanding for (a) 29 days or less,
(b) 30 to 59 days, (c) 60 to 89 days, (d) 90 to 119 days and (e) more than 119
days.  All Receivables reflected in Section 3.06 of the Disclosure Schedule
arose from, and the Receivables existing as of the Closing will have arisen from
sales or services to Persons not affiliated with Deep Down or Flotec and in the
ordinary course of business consistent with past practice and constitute or will
constitute, as the case may be, only valid, undisputed claims of Flotec not
subject to valid claims of setoff or other defenses or counterclaims other than
normal cash discounts accrued in the ordinary course of business consistent with
past practice.
 
SECTION 3.07  Conduct in the Ordinary Course; Absence of Certain Changes, Events
and Conditions.  Since the Balance Sheet Date, Flotec has been conducted in the
ordinary course of business and consistent with past practice.  As amplification
and not limitation of the foregoing, since the Balance Sheet Date, Flotec has
not:
 
(a)           permitted or allowed any of the Contributed Assets to be subjected
to any Encumbrance, other than Permitted Encumbrances and Encumbrances that will
be released at or prior to the Closing;
 
(b)           Except as set forth in Section 3.07(b) of the Disclosure Schedule,
except in the ordinary course of business consistent with past practice,
discharged or otherwise obtained the release of any Encumbrance, or paid or
otherwise discharged any Liability, other than current liabilities incurred in
the ordinary course of business consistent with past practice since the Balance
Sheet Date;
 
(c)           written down or written up (or failed to write down or write up
consistent with GAAP and consistent with past practice) the value of any
Receivables or revalued any of the Contributed Assets other than in the ordinary
course of business consistent with past practice;
 
(d)           made any change in any method of accounting or accounting practice
or policy, other than as set forth in Section 3.07(d) of the Disclosure
Schedule;
 
(e)           sold, transferred, leased, subleased, licensed or otherwise
disposed of any properties or assets, real, personal or mixed (including
leasehold interests and intangible property);
 
 
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(f)           merged with, entered into a consolidation with or acquired an
interest of 5% or more in any Person engaged in a business relating to Flotec or
acquired a substantial portion of the assets or business of any Person engaged
in a business relating to Flotec or any division or line of business thereof, or
otherwise acquired any material assets other than in the ordinary course of
business consistent with past practice;
 
(g)           made any material changes in the customary methods of operations,
including practices and policies relating to purchasing, marketing, selling and
pricing;
 
(h)           made, revoked or changed any Tax election or method of Tax
accounting, or settled or compromised any liability with respect to Taxes;
 
(i)           made any loan to, guaranteed any Indebtedness of or otherwise
incurred any Indebtedness on behalf of any Person;
 
(j)           failed to pay any creditor any material amount owed to such
creditor when due;
 
(k)           disclosed any secret or confidential Intellectual Property (except
by way of issuance of a patent) or permitted to lapse or become abandoned any
Intellectual Property (or any registration or grant thereof or any application
relating thereto) to which, or under which, it has any right, title, interest or
license;
 
(l)           allowed any permit to lapse or terminate or failed to renew any
insurance policy or permit that is scheduled to terminate or expire within 45
calendar days of the Closing;
 
(m)           failed to maintain the plant, property and equipment included in
the Contributed Assets in good repair and operating condition, ordinary wear and
tear excepted;
 
(n)           suffered any casualty loss or damage with respect to any of the
Contributed Assets which in the aggregate have a replacement cost of more than
$5,000, whether or not such loss or damage shall have been covered by insurance;
 
(o)           amended, modified or consented to the termination of any Contract
material to the Business;
 
(p)           (i) abandoned, sold, assigned, or granted any security interest in
or to any item of Intellectual Property, including failing to perform or cause
to be performed all applicable filings, recordings and other acts, and pay or
caused to be paid all required fees and taxes, to maintain and protect its
interest in such Intellectual Property, (ii) granted to any third party any
license with respect to Intellectual Property, (iii) developed, created or
invented any Intellectual Property jointly with any third party (other than such
joint development, creation or invention with a third party that is in progress
prior to Balance Sheet Date) or (iv) disclosed, or allow to be disclosed, any
confidential Intellectual Property, unless such Intellectual Property is subject
to a confidentiality or non-disclosure covenant protecting against disclosure
thereof;
 
(q)           Except as set forth in Section 3.07(q) of the Disclosure Schedule,
suffered any Material Adverse Effect;
 
 
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(r)           Except as set forth in Section 3.07(r) of the Disclosure Schedule,
and except in the ordinary course of business consistent with past practices,
taken any action that would result in the creation of a Liability; or
 
(s)           agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 3.07 or granted any options to purchase,
rights of first refusal, rights of first offer or any other similar rights or
commitments with respect to any of the actions specified in this Section 3.07,
except as expressly contemplated by this Agreement and the Ancillary Agreements.
 
SECTION 3.08  Litigation.  There are no Actions by or against Flotec or any
Affiliate thereof and relating to the Business or affecting any of the
Contributed Assets or the Business pending before any Governmental Authority (or
threatened to be brought by or before any Governmental Authority).  None of
Flotec or any of its assets or properties, including the Contributed Assets, is
subject to any Governmental Order (nor are there any such Governmental Orders
threatened to be imposed by any Governmental Authority) which has or has had a
Material Adverse Effect or could reasonably be expected to affect the legality,
validity or enforceability of this Agreement, any Ancillary Agreement or the
consummation of the Transactions.
 
SECTION 3.09  Compliance with Laws.  Except as set forth in Section 3.09 of the
Disclosure Schedule, Flotec has conducted and continues to conduct the Business
in accordance with all Laws and Governmental Orders applicable to it or any of
its properties or assets, including the Contributed Assets, or the Business, and
Flotec is not in violation of any such Law or Governmental Order.
 
SECTION 3.10  Environmental and Other Permits and Licenses; Related Matters.
 
(a)           Flotec is in compliance with all applicable Environmental Laws and
all Environmental Permits.  There has been no release of any hazardous material
on any of the Real Property or, during the period of Flotec’s ownership, lease,
use or occupancy thereof, on any property formerly owned, leased, used or
occupied by Flotec.  To the Knowledge of Flotec, there are no Environmental
Claims pending or threatened against Flotec or the Real Property, and there are
no circumstances that can reasonably be expected to form the basis of any such
Environmental Claim.  Flotec does not have any actual or alleged liability,
whether fixed or contingent, relating to the Business under any Environmental
Law.
 
(b)           Except as set forth in Section 3.10(b) of the Disclosure
Schedule,  neither the execution of this Agreement or the Ancillary Agreements
nor the consummation of the Transactions will require any notice to or consent
of Governmental Authorities or third parties pursuant to any applicable
Environmental Law or Environmental Permit.
 
SECTION 3.11  Contracts.
 
(a)           Section 3.11 of the Disclosure Schedule lists each Contract of
$10,000 or more in value that relates to the Business or any of the Contributed
Assets.  Contracts of less than $10,000, in the aggregate, comprise less than
10% of the value of the Business.  To the Knowledge of Flotec, each such
Contract is enforceable and will continue to be enforceable on identical terms
following the consummation of the Transactions.  Neither Flotec nor, to the
Knowledge of Flotec, any of the counter-parties to any such Contract is or has
been in (and no event has occurred that, with or without notice or lapse of
time, would create or constitute a) breach or violation of, or default under,
any of such Contract’s provisions.  No party to such Contract has repudiated any
provision of the Contract.
 
 
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(b)           Except as set forth in Section 3.11(b) of the Disclosure Schedule,
each of the Contracts is assignable by Flotec without any other Person’s
consent.
 
SECTION 3.12  Intellectual Property.  Section 3.12 of the Disclosure Schedule
sets forth a true and complete list of all Intellectual Property owned by
Flotec.  Except as set forth in Section 3.12 of the Disclosure Schedule, Flotec
owns, or possesses adequate rights to use, all Intellectual Property used in the
Business.  To the Knowledge of Flotec, no third party infringes upon,
misappropriates or violates the Intellectual Property. To Flotec’s Knowledge,
(a) Flotec’s use of the Intellectual Property in the Business does not infringe
upon any rights any other Person owns or holds, and (b) no Permit is required
for the assignment of all interests in the Intellectual Property used in the
Business to the Company as part of the Transactions.
 
SECTION 3.13  Real Property.
 
(a)           Section 3.13(a) of the Disclosure Schedule sets forth a true and
complete list of all Owned Real Property.  Flotec has good, marketable and
indefeasible title to the Owned Real Property.  Section 3.13(b) contains an
accurate and complete list of all title reports and title policies Flotec or
Deep Down has obtained with respect to the Owned Real Property.
 
(b)           Section 3.13(b) of the Disclosure Schedule sets forth a true and
complete list of all leases and subleases relating to the Real Property and any
and all ancillary documents pertaining thereto (including all amendments,
modifications, supplements, exhibits, schedules, addenda and restatements
thereto and thereof and all consents, including consents for alterations,
assignments and sublets, documents recording variations, memoranda of lease,
options, rights of expansion, extension, first refusal and first offer and
evidence of commencement dates and expiration dates).  The rent set forth in
each lease or sublease of the Leased Real Property is the actual rent being
paid, and there are no separate agreements or understandings with respect to the
same.  With respect to each of such leases and subleases, Flotec has not
exercised or given any notice of exercise, nor has any lessor or landlord
exercised or received any notice of exercise by a lessor or landlord of, any
option, right of first offer or right of first refusal contained in any such
lease or sublease, including any such option or right pertaining to purchase,
expansion, renewal, extension or relocation (collectively, “Options”).  Flotec
has the full right to exercise any Options contained in the leases and subleases
pertaining to the Leased Real Property on the terms and conditions contained
therein and upon due exercise would be entitled to enjoy the full benefit of
such Options with respect thereto.
 
(c)           To the Knowledge of Flotec, there is no material violation of any
Law (including any building, planning or zoning law) relating to any of the Real
Property.  Flotec is in peaceful and undisturbed possession of each parcel of
Real Property, and there are no contractual or legal restrictions that preclude
or restrict the ability to use the Real Property for the purposes for which it
is currently being used.  All existing water, sewer, steam, gas, electricity,
telephone, cable, fiber optic cable, Internet access and other utilities
required for the use, occupancy, operation and maintenance of the Real Property
are adequate for the conduct of the Business as it has been and currently is
conducted.  To the Knowledge of Flotec, there are no material latent defects or
material adverse physical conditions affecting the Real Property or any of the
facilities, buildings, structures, erections, improvements, fixtures, fixed
assets and personalty of a permanent nature annexed, affixed or attached to,
located on or forming part of the Real Property.  Flotec has not leased or
subleased any parcel or any portion of any parcel of Real Property to any other
Person and no other Person has any rights to the use, occupancy or enjoyment
thereof pursuant to any lease, sublease, license, occupancy or other agreement,
nor has Flotec assigned its interest under any lease or sublease listed in 0 of
the Disclosure Schedule to any third party.  To the Knowledge of Flotec, there
are no condemnation proceedings or eminent domain proceedings of any kind
pending or threatened against the Real Property.
 
 
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(d)           All the Real Property is occupied under a valid and current
certificate of occupancy or similar permit, the Transactions will not require
the issuance of any new or amended certificate of occupancy and, to the
Knowledge of Flotec, there are no facts that would prevent the Real Property
from being occupied by the Company after the Closing in the same manner as
occupied by Flotec immediately prior to the Closing.
 
SECTION 3.14  Tangible Personal Property.  Section 3.14 of the Disclosure
Schedule lists each item or distinct group of machinery, equipment, tools,
supplies, furniture, fixtures, personalty and other tangible personal property
(the “Tangible Personal Property”) used in the Business and a true and complete
list of all leases and subleases for Tangible Personal Property and any and all
material ancillary documents pertaining thereto (including all amendments,
consents and evidence of commencement dates and expiration dates).  Flotec has
the full right to exercise any renewal options contained in the leases and
subleases pertaining to the Tangible Personal Property on the terms and
conditions contained therein and upon due exercise would be entitled to enjoy
the use of each item of leased Tangible Personal Property for the full term of
such renewal options.
 
SECTION 3.15  Assets.
 
(a)           Flotec owns, leases or has the legal right to use all the
properties and assets used or intended to be used in the conduct of the
Business, and, with respect to contract rights, is a party to and enjoys the
right to the benefits of all contracts, agreements and other arrangements used
or intended to be used by Flotec or in or relating to the conduct of the
Business, all of which properties, assets and rights constitute Contributed
Assets.  Flotec has good and marketable title to, or, in the case of leased or
subleased Contributed Assets, valid and subsisting leasehold interests in, all
the Contributed Assets, free and clear of all Encumbrances, except Permitted
Encumbrances.
 
(b)           The Contributed Assets constitute all the properties, assets and
rights forming a part of, used, held or intended to be used in, and all such
properties, assets and rights as are necessary in the conduct of, the
Business.  All the Contributed Assets are in good operating condition and repair
and are suitable for the purposes for which they are used and intended.
 
 
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(c)           Flotec has the complete and unrestricted power and unqualified
right to sell, assign, transfer, convey and deliver the Contributed Assets to
the Company without penalty or other adverse consequences.  Following the
consummation of the Transactions and the execution of the instruments of
transfer contemplated by this Agreement, the Company will own, with good, valid
and marketable title, or lease, under valid and subsisting leases, or otherwise
acquire the interests of Flotec in the Contributed Assets, free and clear of any
Encumbrances, other than Permitted Encumbrances, and without incurring any
penalty or other adverse consequence, including any increase in rentals,
royalties, or license or other fees imposed as a result of, or arising from, the
consummation of the Transactions.
 
(d)           The Business, as owned and operated by Flotec prior to the
Closing, can maintain present production levels without a material increase in
capital or operating expenditures.
 
SECTION 3.16  Employee Benefit Matters.  Except as set forth in Section 3.16 of
the Disclosure Schedule, Flotec does not have any employee benefit plan.
 
SECTION 3.17  Labor Matters.  (a) Flotec is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by Flotec, and currently, to the Knowledge of Flotec, there are no
organizational campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit which could reasonably be expected
to affect the Business; (b) to the Knowledge of Flotec, there are no
controversies, strikes, slowdowns or work stoppages pending or threatened
between Flotec and any of its employees employed in connection with the
Business, and Flotec has not experienced any such controversy, strike, slowdown
or work stoppage within the past three years; (c) to the Knowledge of Flotec,
Flotec has not breached or otherwise failed to comply with the provisions of any
collective bargaining or union contract, and there are no grievances outstanding
against Flotec under any such agreement or contract which could reasonably be
expected to have a Material Adverse Effect; (d) to the Knowledge of
Flotec, there are no unfair labor practice complaints pending against Flotec
before the National Labor Relations Board or any other Governmental Authority or
any current union representation questions involving employees of Flotec which
could reasonably be expected to have a Material Adverse Effect; (e) Flotec is
currently in compliance with all applicable Laws relating to the employment of
labor, including those related to wages, hours, collective bargaining and the
payment and withholding of taxes and other sums as required by the appropriate
Governmental Authority and has withheld and paid to the appropriate Governmental
Authority or is holding for payment not yet due to such Governmental Authority
all amounts required to be withheld from employees of Flotec in connection with
the Business and is not liable for any arrears of wages, Taxes, penalties or
other sums for failure to comply with any of the foregoing; (f) Flotec has paid
in full to all of its employees all wages, salaries, commissions, bonuses,
benefits and other compensation due to or on behalf of such employees; (g) to
the Knowledge of Flotec, there is no Claim with respect to payment of wages,
salary or overtime pay that has been asserted or is now pending or threatened
before any Governmental Authority with respect to any Persons currently or
formerly employed by Flotec in connection with the Business; (h) Flotec is not a
party to, or otherwise bound by, any consent decree with, or citation by, any
Governmental Authority relating to employees or employment practices; (i) to the
Knowledge of Flotec, there is no charge or proceeding with respect to a
violation of any occupational safety or health standard that has been asserted
or is now pending or threatened with respect to Flotec; and (j) to the Knowledge
of Flotec, there is no charge of discrimination in employment or employment
practices, for any reason, including age, gender, race, religion or other
legally protected category, which has been asserted or is now pending or
threatened before the United States Equal Employment Opportunity Commission, or
any other Governmental Authority in any jurisdiction in which Flotec has
employed or currently employs any Person in connection with the Business.
 
 
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SECTION 3.18  Key Employees.
 
(a)           Section 3.18(a) of the Disclosure Schedule lists the name, place
of employment, the current annual salary rates, bonuses, deferred or contingent
compensation, pension, accrued vacation and other like benefits paid or payable
(in cash or otherwise) in the last two completed fiscal years, the date of
employment and a description of the position and job function of each current
salaried employee, officer, director, consultant or agent of Flotec who is
employed or retained in connection with the Business with annual compensation in
excess of $70,000.
 
(b)           All directors, officers, management employees and technical and
professional employees of Flotec are under written obligation to Flotec to
maintain in confidence all confidential or proprietary information acquired by
them in the course of their employment and to assign to Flotec all inventions
made by them within the scope of their employment during such employment and for
a reasonable period thereafter.
 
SECTION 3.19  Taxes.  (a) All Tax Returns required to be filed by or with
respect to Flotec, the Contributed Assets or the Business (including any
consolidated, combined or unitary Tax Return that includes Flotec) have been
timely filed; (b) all Taxes required to be shown on such Tax Returns or
otherwise due by or with respect to Flotec, the Contributed Assets or the
Business have been timely paid; (c) all such Tax Returns (insofar as they relate
to Flotec, the Contributed Assets or the Business) are true, correct and
complete in all material respects; (d) no adjustment relating to such Tax
Returns has been proposed formally or informally by any Governmental Authority
(insofar as either relates to Flotec, the Contributed Assets or the Business or
could result in liability of Flotec on the basis of joint and/or several
liability) and, to the Knowledge of Flotec, no basis exists for any such
adjustment; (e) to the Knowledge of Flotec, there are no pending or threatened
Actions for the assessment or collection of Taxes against Flotec, the
Contributed Assets or the Business or any Person that was included in the filing
of a Tax Return with Flotec on a consolidated, combined or unitary basis;
(f) there are no Tax liens on any of the Contributed Assets; (g) there are no
requests for information outstanding that could affect the Taxes relating to the
Business; (h) neither Flotec nor Deep Down has received any notice or inquiry
from any jurisdiction where Flotec does not currently file Tax Returns to the
effect that such filings may be required with respect to the Business or that
the Business may otherwise be subject to taxation by such jurisdiction;
(i) Flotec has properly and timely withheld, collected or deposited all amounts
required to be withheld, collected or deposited in respect of Taxes and
(j) there are no Tax investigations, inquiries or audits by any Tax authority in
progress relating to the Contributed Assets or the Business, nor have Flotec or
Deep Down received any written notice indicating that a Governmental Authority
intends to conduct such an audit or investigation.
 
 
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SECTION 3.20  Insurance.  All material assets, properties and risks of Flotec
are, and for the past three years have been, covered by valid and, except for
insurance policies that have expired under their terms in the ordinary course,
currently effective insurance policies or binders of insurance (including
general liability insurance, property insurance and workers’ compensation
insurance) issued in favor of Flotec with responsible insurance companies, in
such types and amounts and covering such risks as are consistent with customary
practices and standards of companies engaged in businesses and operations
similar to those of Flotec.  No insurance that Flotec has ever carried has been
cancelled nor has any cancellation been threatened.  Flotec has never been
denied coverage nor has any such denial been threatened.
 
SECTION 3.21  Certain Business Practices.  Neither Flotec nor Deep Down nor, to
the Knowledge of Flotec or to the Knowledge of Deep Down, any of their
directors, officers, agents, representatives or employees (in their capacity as
directors, officers, agents, representatives or employees) has: (a) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity in respect of the Business; (b) directly
or indirectly, paid or delivered any fee, commission or other sum of money or
item of property, however characterized, to any finder, agent, or other party
acting on behalf of or under the auspices of a governmental official or
Governmental Authority which is in any manner illegal under any Law of the
United States or any other country having jurisdiction; or (c) made any payment
to any customer or supplier of Flotec or any officer, director, partner,
employee or agent of any such customer or officer, director, partner, employee
or agent for the unlawful reciprocal practice, or made any other unlawful
payment or given any other unlawful consideration to any such customer or
supplier or any such officer, director, partner, employee or agent, in respect
of the Business.
 
SECTION 3.22  Customers and Suppliers.
 
(a)           Section 3.22 of the Disclosure Schedule sets forth a list of the
ten (10) largest customers and the ten (10) largest suppliers of Flotec, as
measured by the dollar amount of purchases therefrom or thereby, during each of
the fiscal years ended December 31, 2008 and 2009, showing the approximate total
sales by Flotec to each such customer and the approximate total purchases by
Flotec from each such supplier, during such period.
 
(b)           Since the Balance Sheet Date, no customer or supplier listed
in Section 3.22 of the Disclosure Schedule has terminated its relationship with
Flotec or any of the subsidiaries or materially reduced or changed the pricing
or other terms of its business with Flotec and, to the Knowledge of Flotec, and,
except as set forth in Section 3.22 of the Disclosure Schedule, no customer or
supplier listed in Section 3.22 of the Disclosure Schedule has notified Flotec
that it intends to terminate or materially reduce or change the pricing or other
term of its business with Flotec.
 
SECTION 3.23  Product Warranty; Product Liability.
 
(a)           Except as set forth in Section 3.23(a) of the Disclosure Schedule,
each product manufactured, sold or delivered by Flotec in conducting its
business has been in conformity with all product specification, all express and
implied warranties and all applicable Laws.  Except as set forth in Section
3.23(a) of the Disclosure Schedule, Flotec has no liability for replacement or
repair of any such products or other damages in connection therewith or any
other customer or product obligations not reserved against on the Balance
Sheet.  Section 3.23(a) of the Disclosure Schedule provides an itemized list of
the products Flotec has delivered that are under warranty and the length of each
warranty.
 
 
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(b)           Flotec has no liability arising out of any injury to individuals
or property as a result of the ownership possession, or use of any product
designed, manufactured, assembled, repaired, maintained, delivered, sold or
installed, or services rendered, by or on behalf of Flotec.  Flotec has not
committed any act or failed to commit any act, which would result in, and there
has been no occurrence which would give rise to or form the basis of, any
material product liability or liability for breach of warranty (whether covered
by insurance or not) on the part of Flotec with respect to products designed,
manufactured, assembled, repaired, maintained, delivered, sold or installed or
services rendered by or on behalf of Flotec.
 
SECTION 3.24  SPA.
 
(a)           Attached hereto as Exhibit F is a true, complete and correct copy
of the SPA, including all amendments thereto and waivers thereunder.  The SPA
constitutes the entire agreement between Deep Down and the Cuming Parties
relating to the sale of the business of Cuming.
 
(b)           The SPA is the legal, valid and binding obligation of Deep Down
and, to the Knowledge of Deep Down, the Cuming Parties, enforceable against Deep
Down and, to the Knowledge of Deep Down, the Cuming Parties, in accordance with
its terms.  The execution, delivery and performance of the SPA was and is within
the corporate powers of Deep Down and, to the Knowledge of Deep Down, the Cuming
Parties.  The SPA was duly authorized by all necessary action on the part of,
and validly executed and delivered by, Deep Down and, to the Knowledge of Deep
Down, the Cuming Parties.  There is no breach or default, and no event has
occurred or circumstance exists that (with or without notice or lapse of time,
or both) would constitute or give rise to a breach or default, in the
performance of the SPA by Deep Down or, to the Knowledge of Deep Down, the
Cuming Parties.  To the Knowledge of Deep Down, no event has occurred or
circumstance exists that (with or without notice or lapse of time, or both)
would give either the Cuming Parties or Deep Down the right to terminate the
SPA.  From and after the date hereof, the Company shall be entitled to enforce
all the rights, obligations, duties and benefits of Deep Down under the SPA.
 
(c)           Deep Down has not waived any rights or defaults under the SPA and
has not taken any action or omitted to take any action under the SPA that would
adversely affect the Company’s rights under the SPA.
 
(d)           Deep Down has not received any notice and has no Knowledge (i) of
the Cuming Parties’ intention to terminate, amend or restate the SPA, in whole
or in part, (ii) of the Cuming Parties’ or any other Person’s or Governmental
Authority’s (where applicable) intention to challenge the validity or
enforceability of the SPA, or (iii) that Deep Down or the Cuming Parties are in
breach of any of its obligations under the SPA.
 
 
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(e)           Except as set forth in Section 3.24(e) of the Disclosure Schedule
and other than the SPA Assignment executed by Deep Down, the Cuming Parties and
the Company, the contribution by Deep Down of Deep Down’s right, title and
interest in, to and under the SPA to the Company will not require the approval,
consent, ratification, waiver, or other authorization of any Cuming Party or any
other Person or Governmental Authority under the SPA or otherwise and will not
constitute a breach of or default or event of default under the SPA or any other
agreement to which Deep Down is a party or law to which Deep Down is subject.
 
(f)           No change, effect, event, occurrence, state of facts, development
or condition has occurred relating or affecting Deep Down, the SPA, or, to the
Knowledge of Deep Down, the Cuming Parties, that has had or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
 
SECTION 3.25  Full Disclosure.  No representation or warranty of either Flotec
or Deep Down in this Agreement, nor any statement or certificate furnished or to
be furnished to the Company or Holdings pursuant to this Agreement, or in
connection with the Transactions, contains or will contain any untrue statement
of a material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
 
SECTION 3.26  Brokers.  Other than FBR Capital Markets & Co., no broker, finder
or investment banker is entitled to any brokerage, finder’s or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of Flotec or Deep Down.
 
SECTION 3.27  Accredited Investor.  Deep Down represents and warrants to the
Company as follows:
 
(a)           Deep Down has received, read carefully and is familiar with this
Agreement and the Ancillary Agreements, and has consulted with legal counsel
regarding these documents.  With respect to the Company, Deep Down is familiar
with its business, plans and financial condition, Deep Down has received all
materials which have been requested by it and has had a reasonable opportunity
to ask questions of the Company and its representatives and the Company has
answered all inquiries that Deep Down has put to it.  Deep Down has taken all
the steps necessary to evaluate the merits and risks of an investment in the
Units as proposed hereunder.
 
(b)           Deep Down understands that an investment in the Units involves
substantial risks and is suitable only for persons or entities of substantial
financial resources who have no need for liquidity in their investment and can
afford the total loss of their investment and represents that he can bear the
economic risk associated with an investment in the Units.
 
(c)           Deep Down understands that the Units  have not been registered
under the Act, or the securities laws of any state of the United States, and
will be subject to substantial restrictions on transferability unless and until
the securities are registered or an exemption from registration becomes
available, and that the Company has no current intention to register securities.
 
(d)           Deep Down is an “accredited investor” as such term is defined in
Rule 501(a) of Regulation D promulgated under the Act.
 
 
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(e)           Deep Down understands that there will be an appropriate legend
noting restrictions on transfer of the Units.
 
(f)           Deep Down is acquiring Units for its own account for investment
purposes only and not with a view to the sale or other distribution thereof, and
Deep Down presently has no intention of offering, selling, transferring,
pledging, hypothecating, or otherwise disposing of all or any part of the Units
at any particular time, for any particular price, or upon the happening of any
particular event or circumstances.
 
(g)           Deep Down understands that the Units will be issued to it in
reliance on specific exemptions from the registration requirements of Federal
and State securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgements and
understandings of Deep Down set forth herein in order to determine the
applicability of such exemptions.
 
(h)           Deep Down is sufficiently experienced in financial and business
matters to be capable of evaluating the merits and risks involved in purchasing
the Units and to make an informed decision relating thereto.
 
(i)           In evaluating the purchase of the Units, Deep Down has consulted
its own investment, legal and tax advisors with respect to the economic, legal
and tax consequences of purchasing the Units, and has not relied on the Company,
its officers, directors or professional advisors for advice as to such
consequences.
 
ARTICLE IV

 
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
 
As an inducement to each of (i) Deep Down and Holdings to enter into this
Agreement, the Company hereby represents and warrants to each of Deep Down,
Flotec and Holdings as follows:
 
SECTION 4.01  Organization and Authority of the Company.  The Company is a
limited liability company duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all necessary
limited liability company power and authority to enter into this Agreement and
the Ancillary Agreements to which it is a party, to carry out its obligations
hereunder and thereunder and to consummate the Transactions.  The execution and
delivery by the Company of this Agreement and the Ancillary Agreements to which
it is a party, the performance by the Company of its obligations hereunder and
thereunder and the consummation by the Company of the Transactions have been
duly authorized by all requisite limited liability company action on the part of
the Company.  This Agreement has been, and upon their execution the Ancillary
Agreements to which the Company is a party shall have been, duly executed and
delivered by the Company, and (assuming due authorization, execution and
delivery by the other parties hereto and thereto) this Agreement constitutes,
and upon their execution the Ancillary Agreements to which the Company is a
party shall constitute, legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.
 
 
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SECTION 4.02  No Conflict.  Assuming the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 4.04, except as may result from any facts or circumstances relating
solely to Flotec and Deep Down, the execution, delivery and performance by the
Company of this Agreement and the Ancillary Agreements to which it is a party do
not and will not (a) violate, conflict with or result in the breach of any
provision of the certificate of formation or limited liability company agreement
of the Company, (b) conflict with or violate any Law or Governmental Order
applicable to the Company or (c) conflict with, or result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which the Company is a party, which would adversely affect the
ability of the Company to carry out its obligations under, and to consummate the
Transactions.
 
SECTION 4.03  Business of the Company.  The Company (i) has not conducted any
business activities other than the negotiation and execution of this Agreement,
the Ancillary Agreements and other documents contemplated by and incidental
hereto and thereto and such other matters as are contemplated by this Agreement
and the Ancillary Agreements and (ii) does not have any liabilities, except for
liabilities incurred in connection with the negotiation and execution of this
Agreement and pursuant to this Agreement, the Ancillary Agreements and other
documents contemplated by and incidental hereto and thereto and such other
matters as are contemplated by this Agreement and the Ancillary Agreements.
 
SECTION 4.04  Governmental Consents and Approvals.  The execution, delivery and
performance by the Company of this Agreement and each Ancillary Agreement to
which the Company is a party do not and will not require any consent, approval,
authorization or other order of, action by, filing with, or notification to any
Governmental Authority, except as described in a writing given to Holdings,
Flotec and Deep Down by the Company on the date of this Agreement.
 
SECTION 4.05  Litigation.  No Action by or against the Company is pending which
could affect the legality, validity or enforceability of this Agreement, any
Ancillary Agreement or the consummation of the Transactions.
 
SECTION 4.06  Brokers.  No broker, finder or investment banker is entitled to
any brokerage, finder’s or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of the Company.
 
 
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ARTICLE V
  
REPRESENTATIONS AND WARRANTIES
OF HOLDINGS
 
As an inducement to the Company, Deep Down and Flotec to enter into this
Agreement, Holdings hereby represents and warrants to the Company, Deep Down and
Flotec as follows:
 
SECTION 5.01  Organization and Authority of Holdings.  Holdings is a limited
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction of its formation and has all necessary limited
liability company power and authority to enter into this Agreement and the
Ancillary Agreements to which it is a party, to carry out its obligations
hereunder and thereunder and to consummate the Transactions.  The execution and
delivery by Holdings of this Agreement and the Ancillary Agreements to which it
is a party, the performance by Holdings of its obligations hereunder and
thereunder and the consummation by Holdings of the Transactions have been duly
authorized by all requisite limited liability company action on the part of
Holdings.  This Agreement has been, and upon their execution the Ancillary
Agreements to which Holdings is a party shall have been, duly executed and
delivered by Holdings, and (assuming due authorization, execution and delivery
by the other parties hereto and thereto) this Agreement constitutes, and upon
their execution the Ancillary Agreements to which Holdings is a party shall
constitute, legal, valid and binding obligations of Holdings, enforceable
against Holdings in accordance with their respective terms.
 
SECTION 5.02  No Conflict.  Assuming the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 5.04, except as may result from any facts or circumstances relating
solely to deep Down and Flotec, the execution, delivery and performance by
Holdings of this Agreement and the Ancillary Agreements to which it is a party
do not and will not (a) violate, conflict with or result in the breach of any
provision of the certificate of formation or limited liability company agreement
of Holdings, (b) conflict with or violate any Law or Governmental Order
applicable to Holdings or (c) conflict with, or result in any breach of,
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a default) under, require any consent under, or give to
others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which Holdings is a party, which would adversely affect the
ability of Holdings to carry out its obligations under, and to consummate the
Transactions.
 
SECTION 5.03  Business of Holdings.  Holdings (i) has not conducted any business
activities other than the negotiation and execution of this Agreement, the
Ancillary Agreements and other documents contemplated by and incidental hereto
and thereto and such other matters as are contemplated by this Agreement and the
Ancillary Agreements and (ii) does not have any liabilities, except for
liabilities incurred in connection with the negotiation and execution of this
Agreement and pursuant to this Agreement, the Ancillary Agreements and other
documents contemplated by and incidental hereto and thereto and such other
matters as are contemplated by this Agreement and the Ancillary Agreements.
 
 
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SECTION 5.04  Governmental Consents and Approvals.  The execution, delivery and
performance by Holdings of this Agreement and each Ancillary Agreement to which
Holdings is a party do not and will not require any consent, approval,
authorization or other order of, action by, filing with, or notification to any
Governmental Authority, except as described in a writing given to Deep Down and
Flotec by Holdings on the date of this Agreement.
 
SECTION 5.05  Litigation.  No Action by or against Holdings is pending, or to
the Knowledge of Holdings threatened, which could affect the legality, validity
or enforceability of this Agreement, any Ancillary Agreement or the consummation
of the Transactions.
 
SECTION 5.06  Brokers.  No broker, finder or investment banker is entitled to
any brokerage, finder’s or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of Holdings.
 
SECTION 5.07  Accredited Investor.  Holdings represents and warrants to the
Company as follows:
 
(a)           Holdings has received, read carefully and is familiar with this
Agreement and the Ancillary Agreements, and has consulted with legal counsel
regarding these documents.  With respect to the Company, Holdings is familiar
with its business, plans and financial condition, Holdings has received all
materials which have been requested by it and has had a reasonable opportunity
to ask questions of the Company and its representatives and the Company has
answered all inquiries that Holdings has put to it.  Holdings has taken all the
steps necessary to evaluate the merits and risks of an investment in the Units
as proposed hereunder.
 
(b)           Holdings understands that an investment in the Units involves
substantial risks and is suitable only for persons or entities of substantial
financial resources who have no need for liquidity in their investment and can
afford the total loss of their investment and represents that he can bear the
economic risk associated with an investment in the Units.
 
(c)           Holdings understands that the Units have not been registered under
the Act, or the securities laws of any state of the United States, and will be
subject to substantial restrictions on transferability unless and until the
securities are registered or an exemption from registration becomes available,
and that the Company has no current intention to register securities.
 
(d)           Holdings is an “accredited investor” as such term is defined in
Rule 501(a) of Regulation D promulgated under the Act.
 
(e)           Holdings understands that there will be an appropriate legend
noting restrictions on transfer of the Units.
 
(f)           Holdings is acquiring the Units for its own account for investment
purposes only and not with a view to the sale or other distribution thereof, and
Holdings presently has no intention of offering, selling, transferring,
pledging, hypothecating, or otherwise disposing of all or any part of the Units
at any particular time, for any particular price, or upon the happening of any
particular event or circumstances.
 
 
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(g)           Holdings understands that the Units will be issued to it in
reliance on specific exemptions from the registration requirements of Federal
and State securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgements and
understandings of Holdings set forth herein in order to determine the
applicability of such exemptions.
 
(h)           Holdings is sufficiently experienced in financial and business
matters to be capable of evaluating the merits and risks involved in purchasing
the Units and to make an informed decision relating thereto.
 
(i)           In evaluating the purchase of the Units, Holdings has consulted
its own investment, legal and tax advisors with respect to the economic, legal
and tax consequences of purchasing the Units, and has not relied on the Company,
its officers, directors or professional advisors for advice as to such
consequences.
 
ARTICLE VI

 
ADDITIONAL AGREEMENTS
 
SECTION 6.01  Conduct of Business Prior to the Closing.
 
(a)           Deep Down and Flotec covenant and agree that, except as described
in Section 6.01(a) of the Disclosure Schedule, between the date hereof and the
time of the Closing, Deep Down and Flotec shall not conduct the Business other
than in the ordinary course and consistent with Flotec’s prior
practice.  Without limiting the generality of the foregoing, except as described
in Section 6.01(a) of the Disclosure Schedule, (i) Flotec shall (A) continue its
advertising and promotional activities, and pricing and purchasing policies, in
accordance with past practice; (B) not shorten or lengthen the customary payment
cycles for any of its payables or receivables; (C) use its commercially
reasonable efforts to (1) preserve intact the business organization of Flotec
and (2) preserve its current relationships with the customers, suppliers of
Flotec and other persons with which they have had significant business
relationships; and (D) not engage in any practice, take any action, fail to take
any action or enter into any transaction which could cause any representation or
warranty of Flotec or Deep Down to be untrue or result in a breach of any
covenant made by Flotec in this Agreement and (ii) Deep Down shall not amend,
terminate or take any action under the SPA that would adversely affect the
Company’s rights under the SPA without the prior written consent of Holdings;
provided that it is understood that Deep Down shall enter into an amendment to
the SPA prior to Closing to reflect any and all amended terms, including a
purchase price reduction and lease renewal extensions, as agreed among Deep
Down, Holdings and Cuming (the “Required SPA Amendment”).
 
(b)           Except as described in Section 6.01(a) of the Disclosure Schedule,
Deep Down and Flotec covenant and agree that, between the date hereof and the
time of the Closing, without the prior written consent of Holdings, Deep Down
and Flotec will not do any of the things enumerated in the second sentence of
Section 3.07 (including clauses (a) through (s) thereof).
   
 
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SECTION 6.02  Access to Information.
 
(a)           From the date hereof until the Closing, upon reasonable notice and
in a manner so as to not interfere with the normal business operations of
Flotec, Deep Down and Flotec shall cause its officers, directors, employees,
agents, representatives, accountants and counsel to:  (i) afford the officers,
employees, agents, accountants, counsel and representatives of the Company or
Holdings reasonable access, during normal business hours, to the offices, books
and records of and (ii) furnish to the officers, employees, agents, accountants,
counsel and representatives of the Company or Holdings such additional financial
and operating data and other information regarding the assets, properties,
liabilities and goodwill of the as the Company or Holdings may from time to time
reasonably request.
 
(b)           In order to facilitate the resolution of any Claims made by or
against or incurred by the Company after the Closing or for any other reasonable
purpose, for a period of seven years following the Closing, Flotec and Deep Down
shall (i) retain the books and records of Flotec or Deep Down which relate to
the Business and its operations for periods prior to the Closing and which shall
not otherwise have been delivered to the Company and (ii) upon reasonable notice
and in a manner so as to not interfere with the normal business operations of
Deep Down, afford the officers, employees, agents and representatives of the
Company reasonable access (including the right to make photocopies, at the
Company’s expense), during normal business hours, to such books and records.
 
SECTION 6.03  Confidentiality.
 
(a)           The parties hereto agree to, and shall cause their agents,
representatives, Affiliates, employees, officers and directors to:  (i) treat
and hold as confidential (and not disclose or provide access to any Person to)
all information (hereinafter “Confidential Information”) relating to trade
secrets, processes, patent applications, product development, price, customer
and supplier lists, pricing and marketing plans, policies and strategies,
details of client and consultant contracts, operations methods, product
development techniques, business acquisition plans, new personnel acquisition
plans and all other confidential or proprietary information with respect to the
Business, (ii) in the event that a party hereto or any agent, representative,
Affiliate, employee, officer or director of such party is requested or becomes
legally compelled to disclose any such information, provide the other parties
hereto with prompt written notice of such requirement so that such other parties
may seek a protective order or other remedy or waive compliance with this
Section 6.03, (iii) in the event that such protective order or other remedy is
not obtained, or such other parties waive compliance with this Section 6.03,
furnish only that portion of such Confidential Information which it is advised
by counsel to be legally required to be provided and exercise its best efforts
to obtain assurances that confidential treatment will be accorded such
Confidential Information, and (iv) promptly furnish (prior to, at, or as soon as
practicable following, the Closing) to the other parties any and all copies (in
whatever form or medium) of all such Confidential Information then in the
possession of such party or any of its agents, representatives, Affiliates,
employees, officers and directors and, except as otherwise required by Section
6.02(b), destroy any and all additional copies then in its possession or any of
its agents, representatives, Affiliates, employees, officers and directors of
such information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof (except to the extent such
party is required to maintain such Confidential Information pursuant to
applicable Laws, professional standards or internal compliance procedures);
provided, however, that the term “Confidential Information” shall not include
any information that, at the time of disclosure, is available publicly and was
not disclosed in breach of this Agreement by any party or such party’s agents,
representatives, Affiliates, employees, officers or directors; and provided,
further, that, with respect to Intellectual Property, specific information shall
not be deemed to be within the foregoing exception merely because it is embraced
in general disclosures in the public domain.  In addition, with respect to
Intellectual Property, any combination of features shall not be deemed to be
within the foregoing exception merely because the individual features are in the
public domain unless the combination itself and its principle of operation are
in the public domain.  The parties hereto agree and acknowledge that remedies at
law for any breach of their obligations under this Section 6.03 are inadequate
and that in addition thereto the other parties hereto shall be entitled to seek
equitable relief, including injunction and specific performance, in the event of
any such breach.
   
 
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(b)           Notwithstanding anything herein to the contrary, each party hereto
(and each such party’s representatives, agents and employees) may consult any
tax advisor regarding the tax treatment and tax structure of the transactions
contemplated hereby, and may disclose to any person, without limitation of any
kind, the tax treatment and tax structure of such transactions and all materials
(including opinions and other tax analyses) that are provided relating to such
treatment or structure.
 
SECTION 6.04  Regulatory and Other Authorizations; Notices and Consents.
 
(a)           Flotec and Deep Down shall use their commercially reasonable
efforts to obtain all authorizations, consents, orders and approvals of all
Governmental Authorities and officials that may be or become necessary for their
execution and delivery of, and the performance of their obligations pursuant to,
this Agreement and the Ancillary Agreements and will cooperate fully with the
Company in promptly seeking to obtain all such authorizations, consents, orders
and approvals.
 
(b)           The Company shall use its commercially reasonable efforts to
obtain all authorizations, consents, orders and approvals of all Governmental
Authorities and officials that may be or become necessary for its execution and
delivery of, and the performance of its obligations pursuant to, this Agreement
and the Ancillary Agreements, including, but not limited to, the State Licenses,
and will cooperate fully with Flotec and Deep Down in promptly seeking to obtain
all such authorizations, consents, orders and approvals.
 
(c)           The Company, Flotec and Deep Down agree that, in the event that
any consent, approval or authorization necessary or desirable to preserve for
the Business any right or benefit under any lease, license, contract, commitment
or other agreement or arrangement to which Flotec or Deep Down is a party is not
obtained prior to the Closing, Flotec or Deep Down will, subsequent to the
Closing, cooperate with the Company in attempting to obtain such consent,
approval or authorization as promptly thereafter as practicable.  If such
consent, approval or authorization cannot be obtained, Flotec or Deep Down shall
use its commercially reasonable efforts to provide the Company with the rights
and benefits of the affected lease, license, contract, commitment or other
agreement or arrangement for the term of such lease, license, contract or other
agreement or arrangement, and, if Flotec or Deep Down provides such rights and
benefits, the Company, as the case may be, shall assume the obligations and
burdens thereunder.
  
 
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SECTION 6.05  Notice of Developments.  Prior to the Closing, each party hereto
shall promptly notify the other parties hereto in writing of (a) all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which could result in any breach of a representation or warranty or
covenant of such party in this Agreement or which could have the effect of
making any representation or warranty of such party in this Agreement untrue or
incorrect in any respect and (b) all other material developments affecting the
assets, Liabilities, business, financial condition, operations, results of
operations, customer or supplier relations, employee relations, projections or
prospects of the Business.
 
SECTION 6.06  Excluded Liabilities.  Flotec or Deep Down, as applicable, shall
pay and discharge the Excluded Liabilities as and when the same become due and
payable.
 
SECTION 6.07  Tax Cooperation and Exchange of Information.  Deep Down, Flotec
and the Company shall provide each other with such cooperation and information
as any of them reasonably may request of the others in filing any Tax Return,
amended Tax Return or Claim for refund, determining a liability for Taxes or a
right to a refund of Taxes, participating in or conducting any audit or other
proceeding in respect of Taxes or making representations to or furnishing
information to parties subsequently desiring to purchase any part of the
Contributed Assets or the Business from the Company.  Such cooperation and
information shall include providing copies of relevant Tax Returns or portions
thereof, together with accompanying schedules, related work papers and documents
in their possession relating to rulings or other determinations by Tax
authorities.  Deep Down, Flotec and the Company shall make themselves (and their
respective employees) available on a basis mutually convenient to all parties to
provide explanations of any documents or information provided under this Section
6.07.  Each of Deep Down, Flotec and the Company shall retain all Tax Returns,
schedules and work papers, records and other documents in its possession (or in
the possession of its Affiliates) relating to Tax matters relevant to the
Contributed Assets or the Business for each taxable period first ending after
the Closing and for all prior taxable periods until the later of (a) the
expiration of the statute of limitations of the taxable periods to which such
Tax Returns and other documents relate, without regard to extensions except to
the extent notified by the other party in writing of such extensions for the
respective Tax periods, or (b) six years following the due date (without
extension) for such Tax Returns.  After such time, before Deep Down, Flotec or
the Company shall dispose of any such documents in its possession (or in the
possession of its Affiliates), the other party shall be given the opportunity,
after 90 days’ prior written notice, to remove and retain all or any part of
such documents as such other party may select (at such other party’s
expense).  Any information obtained under this Section 6.07 shall be kept
confidential in accordance with Section 6.03, except as may be otherwise
necessary in connection with the filing of Tax Returns or Claims for refund or
in conducting an audit or other proceeding.
 
SECTION 6.08  Conveyance Taxes.  Flotec and Deep Down shall be liable for and
shall hold the Company harmless against any Conveyance Taxes which become
payable in connection with the Transactions.  Flotec and Deep Down, after the
review and consent by the Company, shall file such applications and documents as
shall permit any such Conveyance Tax to be assessed and paid on or prior to the
Closing in accordance with any available pre-sale filing procedure.  The Company
shall execute and deliver all instruments and certificates necessary to enable
Flotec and Deep Down to comply with the foregoing.  The Company shall complete
and execute a resale or other exemption certificate with respect to the
inventory items sold hereunder, and shall provide Flotec and Deep Down with an
executed copy thereof.
  
 
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SECTION 6.09  Further Action.  Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable Law,
and to execute and deliver such documents and other papers, as may be required
to carry out the provisions of this Agreement and the Ancillary Agreements to
which it is a party and consummate and make effective the Transactions.
 
SECTION 6.10  Proration of Taxes and Certain Charges.
 
(a)           Except as provided in Section 6.08, all real property Taxes,
personal property Taxes or similar ad valorem obligations levied with respect to
the Contributed Assets for any taxable period that includes the day before the
date of the Closing and ends after the date of the Closing, whether imposed or
assessed before or after the date of the Closing, shall be prorated between
Flotec and the Company as of 12:01 A.M. on the date of the Closing.  If any
Taxes subject to proration are paid by the Company, on the one hand, or Flotec
or Deep Down, on the other hand, the proportionate amount of such Taxes paid (or
in the event a refund of any portion of such Taxes previously paid is received,
such refund) shall be paid promptly by (or to) the other after the payment of
such Taxes (or promptly following the receipt of any such refund).
 
(b)           Except as otherwise provided in this Agreement, all installments
of special assessments or other charges on or with respect to the Contributed
Assets payable by Flotec for any period in which the Closing shall occur,
including, without limitation, base rent, common area maintenance, royalties,
all municipal, utility or authority charges for water, sewer, electric or gas
charges, garbage or waste removal, and cost of fuel, shall be apportioned as of
the Closing and each party shall pay its proportionate share promptly upon the
receipt of any bill, statement or other charge with respect thereto.  If such
charges or rates are assessed either based upon time or for a specified period,
such charges or rates shall be prorated as of the 12:01 A.M. on the date of the
Closing.  If such charges or rates are assessed based upon usage of utility or
similar services, such charges shall be prorated based upon meter readings taken
on the date of the Closing.
 
(c)           All refunds, reimbursements, installments of base rent, additional
rent, license fees or other use related revenue receivable by any party to the
extent attributable to the operation of the Business for any period in which the
Closing shall occur shall be prorated so that Flotec shall be entitled to that
portion of any such installment applicable to any period from and after the date
of the Closing, and if the Company or Flotec, as the case may be, shall receive
any such payments after the date of the Closing, they shall promptly remit to
such other parties their share of such payments.
 
(d)           The prorations pursuant to this Section 6.10 may be calculated
after the Closing, as each item to be prorated (including without limitation any
such Tax, obligation, assessment, charge, refund, reimbursement, rent
installment, fee or revenue) accrues or comes due, provided that, in any event,
any such proration shall be calculated not later than thirty (30) days after the
party requesting proration of any item obtains the information required to
calculate such proration.
  
 
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ARTICLE VII
 
CONDITIONS TO CLOSING
 
SECTION 7.01  Conditions to Obligations of Flotec and Deep Down.  The
obligations of Flotec and Deep Down to consummate the Transactions shall be
subject to the fulfillment or written waiver, at or prior to the Closing, of
each of the following conditions:
 
(a)           Representations, Warranties and Covenants.  The representations
and warranties of the Company and Holdings contained in this Agreement shall
have been true and correct when made and shall be true and correct in all
material respects as of the Closing, except to the extent such representations
and warranties are as of another date, in which case, such representations and
warranties shall be true and correct as of that date, in each case, with the
same force and effect as if made as of the Closing, other than such
representations and warranties as are made as of another date, the covenants and
agreements contained in this Agreement to be complied with by the Company on or
before the Closing shall have been complied with in all material respects;
 
(b)           No Proceeding or Litigation.  No Action shall have been commenced
by or before any Governmental Authority against any of Flotec, Deep Down,
Holdings or the Company, seeking to restrain or materially and adversely alter
the Transactions which, in the reasonable, good faith determination of either
Flotec or Deep Down, is likely to render it impossible or unlawful to consummate
such Transactions; provided, however, that the provisions of this
Section 7.01(b) shall not apply if Flotec or Deep Down has directly or
indirectly solicited or encouraged any such Action;
 
(c)           SPA.  The closing conditions contained in the SPA shall have been
satisfied in all material respects such that the transactions contemplated
thereby shall close simultaneous with the Closing; and
 
(d)           Closing Deliverables.  Each document required to be delivered by
Holdings and the Company pursuant to Section 2.07 and Section 2.08,
respectively, must have been delivered.
 
SECTION 7.02  Conditions to Obligations of the Company and Holdings.  The
obligations of the Company and Holdings to consummate the Transactions shall be
subject to the fulfillment or written waiver, at or prior to the Closing, of
each of the following conditions:
 
(a)           Representations, Warranties and Covenants.  The representations
and warranties of Flotec or Deep Down contained in this Agreement (i) that are
not qualified by “materiality” or “Material Adverse Effect” shall have been true
and correct in all material respects when made and shall be true and correct in
all material respects as of the Closing with the same force and effect as if
made as of the Closing and (ii) that are qualified by “materiality” or “Material
Adverse Effect” shall have been true and correct when made and shall be true and
correct as of the Closing with the same force and effect as if made of the
Closing, except to the extent such representations and warranties are as of
another date, in which case, such representations and warranties shall be true
and correct as of that date with the same force and effect as if made as of the
Closing and except in the case of clause (ii) above for such failure of such
representations and warranties to be true and correct that would not have,
individually or in the aggregate, a Material Adverse Effect, and the covenants
and agreements contained in this Agreement to be complied with by Flotec or Deep
Down on or before the Closing shall have been complied with in all material
respects;
  
 
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(b)           No Proceeding or Litigation.  No Action shall have been commenced
or threatened by or before any Governmental Authority against any of Flotec,
Deep Down, Holdings or the Company, seeking to restrain or materially and
adversely alter the Transactions which, in the reasonable, good faith
determination of the Company or Holdings, is likely to render it impossible or
unlawful to consummate such Transactions or which could have a Material Adverse
Effect; provided, however, that the provisions of this Section 7.01(b) shall not
apply if Company or Holdings has directly or indirectly solicited or encouraged
any such Action;
 
(c)           Consents and Approvals.  The Company, Holdings Flotec and Deep
Down shall have received, each in form and substance reasonably satisfactory to
the Company and Holdings, all authorizations, consents, orders and approvals of
all Governmental Authorities and officials and all third party consents
necessary for the consummation of the Transactions, including (i) all third
party consents required under any  Contract and (ii) the SPA Assignment;
 
(d)           SPA.  The closing conditions contained in the SPA shall have been
satisfied in all material respects such that the transactions contemplated
thereby shall close simultaneous with the Closing;
 
(e)           Required SPA Amendment.  Deep Down and Cuming shall have entered
into the Required SPA Amendment;
 
(f)           Closing Deliverables.  Each document required to be delivered by
Flotec and Deep Down pursuant to Section 2.05 and Section 2.06, respectively,
must have been delivered; and
 
(g)           No Material Adverse Effect.  No event or events shall have
occurred, or be reasonably likely to occur, which, individually or in the
aggregate, have, or could reasonably be expected to have, a Material Adverse
Effect.
 
ARTICLE VIII
 
INDEMNIFICATION
 
SECTION 8.01  Survival of Representations and Warranties.
 
(a)           The representations and warranties of Flotec and Deep Down
contained in this Agreement and the Ancillary Agreements shall survive the
Closing for a period of eighteen (18) months following the Closing; provided,
however, that (i) the representations and warranties made pursuant
toSection 3.01, Section 3.10, Section 3.15, Section 3.23 and Section 3.25 shall
survive indefinitely, and (ii) the representations and warranties dealing with
Tax matters shall survive until 120 days after the expiration of the relevant
statute of limitations for the Tax liabilities in question.  Neither the period
of survival nor the liability of Flotec or Deep Down with respect to Flotec’s
and Deep Down’s representations and warranties shall be reduced by any
investigation made at any time by or on behalf of the Company or Holdings.  If
written notice of a Claim has been given prior to the expiration of the
applicable representations and warranties by the Company or Holdings to Flotec
or Deep Down, then the relevant representations and warranties shall survive as
to such Claim, until such Claim has been finally resolved.
  
 
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(b)           The representations and warranties of the Company and Holdings
contained in this Agreement and the Ancillary Agreements shall survive the
Closing for a period of eighteen (18) months following the Closing; provided,
however, that the representations and warranties made pursuant to Section 4.01
and Section 4.06 shall survive indefinitely.  Neither the period of survival nor
the liability of the Company or Holdings with respect to the Company’s and
Holdings’ representations and warranties shall be reduced by any investigation
made at any time by or on behalf of Flotec or Deep Down.  If written notice of a
Claim has been given prior to the expiration of the applicable representations
and warranties by Flotec or Deep Down to the Company or Holdings, then the
relevant representations and warranties shall survive as to such Claim, until
such Claim has been finally resolved.
 
SECTION 8.02  Indemnification by Flotec and Deep Down.  The Company, Holdings
and their Affiliates, officers, directors, employees, agents, successors and
assigns (each a “Company Indemnified Party”) shall be indemnified and held
harmless by Flotec and Deep Down, jointly and severally, for and against any and
all Liabilities, losses, diminution in value, damages, Claims, costs and
expenses, interest, awards, judgments and penalties (including reasonable
attorneys’ and consultants’ fees and expenses) suffered or incurred by them
(including any Action brought or otherwise initiated by any of them)
(hereinafter a “Loss”), arising out of or resulting from:
 
(i)           the breach of any representation or warranty made by Flotec or
Deep Down contained in this Agreement;
 
(ii)           the breach of any covenant or agreement by Flotec or Deep Down
contained in this Agreement; or
 
(iii)           the Excluded Liabilities.
 
SECTION 8.03  Indemnification by the Company.  Flotec, Deep Down and their
Affiliates, officers, directors, employees, agents, successors and assigns (each
a “Deep Down Indemnified Party”) shall be indemnified and held harmless by the
Company for and against any and all Losses, arising out of or resulting from:
 
(i)           the breach of any representation or warranty made by the Company
or Holdings contained in this Agreement; or
 
(ii)           the breach of any covenant or agreement by the Company or
Holdings contained in the this Agreement; or
   
(iii)   the Assumed Liabilities.
  
 
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SECTION 8.04  Limits on Indemnification.   Notwithstanding anything to the
contrary contained in this Agreement, except with respect to Claims relating to
Taxes:  (a) an Indemnifying Party shall not be liable for any claim for
indemnification pursuant to Section 8.02 or Section 8.03, unless and until the
aggregate amount of indemnifiable Losses which may be recovered from the
Indemnifying Party equals or exceeds $75,000, after which the Indemnifying Party
shall be liable only for those Losses in excess of $75,000 and (b) the maximum
amount of indemnifiable Losses which may be recovered from an Indemnified Party
arising out of or resulting from the causes set forth in Section 8.02(i) or
Section 8.03(i) as the case may be, shall be an amount equal to $3,000,000.  The
provisions of this Section 8.04 shall not apply with respect to indemnification
for Taxes.
 
SECTION 8.05  Notice of Loss; Third Party Claims.
 
(a)           An Indemnified Party shall give the Indemnifying Party notice of
any matter which an Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement, within 60 days of such
determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises.
 
(b)           If an Indemnified Party shall receive notice of any Action, audit,
demand or assessment (each, a “Third Party Claim”) against it or which may give
rise to a Claim for Loss under this Article VIII, within 30 days of the receipt
of such notice, the Indemnified Party shall give the Indemnifying Party notice
of such Third Party Claim; provided, however, that the failure to provide such
notice shall not release the Indemnifying Party from any of its obligations
under this Article VIII except to the extent that the Indemnifying Party is
materially prejudiced by such failure and shall not relieve the Indemnifying
Party from any other obligation or Liability that it may have to any Indemnified
Party otherwise than under this Article VIII.  If the Indemnifying Party
acknowledges in writing its obligation to indemnify the Indemnified Party
hereunder against any Losses that may result from such Third Party Claim, then
the Indemnifying Party shall be entitled to assume and control the defense of
such Third Party Claim at its expense and through counsel of its choice if it
gives notice of its intention to do so to the Indemnified Party within five days
of the receipt of such notice from the Indemnified Party; provided, however,
that if there exists or is reasonably likely to exist a conflict of interest
that would make it inappropriate in the judgment of the Indemnified Party, based
on the advise of counsel, for the same counsel to represent both the Indemnified
Party and the Indemnifying Party, then the Indemnified Party shall be entitled
to retain its own counsel in each jurisdiction for which the Indemnified Party
determines counsel is required, at the expense of the Indemnifying Party.  In
the event that the Indemnifying Party exercises the right to undertake any such
defense against any such Third Party Claim as provided above, the Indemnified
Party shall cooperate with the Indemnifying Party in such defense and make
available to the Indemnifying Party, at the Indemnifying Party’s expense, all
witnesses, pertinent records, materials and information in the Indemnified
Party’s possession or under the Indemnified Party’s control relating thereto as
is reasonably required by the Indemnifying Party.  Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party,
at the Indemnifying Party’s expense, all such witnesses, records, materials and
information in the Indemnifying Party’s possession or under the Indemnifying
Party’s control relating thereto as is reasonably required by the Indemnified
Party.  The party controlling the defense of the Third Party Claim shall at all
times use commercially reasonable efforts to keep the Indemnified Party or the
Indemnifying Party, as the case may be, reasonably apprised of the status of the
defense.  No Third Party Claim may be settled by the Indemnifying Party without
the prior written consent of the Indemnified Party, which shall not be
unreasonably withheld, conditioned or delayed, unless such settlement includes
as an unconditional term thereof the delivery by the claimant to the Indemnified
Party of a written release from all liability in respect of such Third Party
Claim.  If the Indemnified Party is in control of the defense of the Third Party
Claim, it may settle such Third Party Claim on behalf of and for the account and
risk of the Indemnifying Party, who shall be bound by the result; provided,
however, that it shall have exercised efforts in resolving such Third Party
Claim consistent with the efforts that it would have exercised if such
settlement was for its own account; and provided, further, that if a settlement
offer for monetary damages is made by the claimant that includes an
unconditional release of the Indemnified Party and the Indemnifying Party
notifies the Indemnified Party in writing of its willingness to accept such
settlement offer and pay the amount called for by such offer, then the
Indemnifying Party’s obligation with respect to such Third Party Claim shall be
limited to the lesser of (A) the amount of the settlement offer and (B) the
aggregate Losses of the Indemnified Party with respect to such Third Party
Claim.
 
 
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ARTICLE IX
   
TERMINATION, AMENDMENT AND WAIVER
 
SECTION 9.01  Termination.  This Agreement may be terminated at any time prior
to the Closing:
 
(a)           by the Company or Holdings if, between the date hereof and the
Closing: (i) an event or condition occurs that has resulted in a Material
Adverse Effect, (ii) any representations and warranties of Flotec or Deep Down
contained in this Agreement (1) that are not qualified by “materiality” or
“Material Adverse Effect” shall not have been true and correct in all material
respects when made or (2) that are qualified by “materiality” or “Material
Adverse Effect” shall not have been true and correct when made, (iii) Flotec or
Deep Down shall not have complied in all material respects with the covenants or
agreements contained in this Agreement to be complied with by them or
(iv) Flotec or Deep Down makes a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against Flotec or Deep
Down seeking to adjudicate any of them a bankrupt or insolvent, or seeking
liquidation, winding up or reorganization, arrangement, adjustment, protection,
relief or composition of its debts under any Law relating to bankruptcy,
insolvency or reorganization;
 
(b)           by Flotec or Deep Down if, between the date hereof and the
Closing: (i)  any representations and warranties of the Company or Holdings
contained in this Agreement shall not have been true and correct in all material
respects when made, (ii) the Company or Holdings shall not have complied in all
material respects with the covenants or agreements contained in this Agreement
to be complied with by them or (iii) the Company or Holdings makes a general
assignment for the benefit of creditors, or any proceeding shall be instituted
by or against the Company or Holdings seeking to adjudicate any of them a
bankrupt or insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts under
any Law relating to bankruptcy, insolvency or reorganization;
   
(c)           by any of Flotec, Deep Down, Holdings or the Company if the
Closing shall not have occurred by December 31, 2010; provided, however, that
the right to terminate this Agreement under this Section 9.01(c) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the failure
of the Closing to occur on or prior to such date;
 
(d)           by any of Flotec, Deep Down, Holdings or the Company in the event
that any Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Transactions and such order, decree, ruling or other action shall have become
final and nonappealable; or
 
(e)           by the mutual written consent of Flotec, Deep Down, Holdings and
the Company.
 
SECTION 9.02  Effect of Termination.  In the event of termination of this
Agreement as provided in Section 9.01, this Agreement shall forthwith become
void and there shall be no liability on the part of either party hereto except
(a) as set forth in Section 6.03 and Section 10.01 and (b) that nothing herein
shall relieve either party from liability for any breach of this Agreement.
   
 
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ARTICLE X
 
GENERAL PROVISIONS
 
SECTION 10.01  Expenses.  Except as otherwise specified in this Agreement, all
costs and expenses, including fees and disbursements of counsel, financial
advisors and accountants, incurred by Flotec, Deep Down, Holdings and the
Company shall be paid in accordance with Section 11.9 of the Operating
Agreement.
 
SECTION 10.02  Notices.  All notices, requests, Claims, demands and other
communications hereunder shall be in writing and shall be deemed duly given
(a) on the date of delivery if delivered personally, or if by facsimile or
electronic mail, upon written confirmation of receipt by facsimile or electronic
mail, or otherwise, (b) on the first Business Day following the date of dispatch
if delivered utilizing a next-day service by a recognized next-day courier or
(c) on the earlier of confirmed receipt or the fifth Business Day following the
date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid, to the respective parties hereto at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 10.02):
 
If to Deep Down or Flotec:
 
Deep Down, Inc.
8827 W. Sam Houston Parkway N., Suite 100
Houston, TX  77040
Facsimile: (281) 517-5001
Attention: Eugene L. Butler, Executive Chairman
 
Copy to (which will not constitute notice):
 
Looper Reed & McGraw, P.C.
1300 Post Oak Blvd, Suite 2000
Houston, Texas 77056
Facsimile: (713) 986-7100
Attention: Jeffrey D. Hopkins
 
If to Holdings or the Company:
 
Flotation Investor, LLC
c/o York Capital Management
767 Fifth Avenue, 17th Floor
New York, NY  10153
Attention:  Joshua Ratner
Copy to (which will not constitute notice):
 
Akin Gump Strauss Hauer & Feld LLP
One Bryant Park
New York, NY  10036
Email:  gsecol@akingump.com
Attention: Geoffrey Secol
  
 
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SECTION 10.03  Public Announcements.  Neither party hereto shall make, or cause
to be made, any press release or public announcement in respect of this
Agreement or the Transactions or otherwise communicate with any news media
without the prior written consent of the other party unless otherwise required
by Law, and the parties hereto shall cooperate as to the timing and contents of
any such press release, public announcement or communication.
 
SECTION 10.04  Severability.  If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any Law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect for so long as the economic or legal substance of the
Transactions is not affected in any manner materially adverse to either party
hereto.  Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
Transactions are consummated as originally contemplated to the greatest extent
possible.
 
SECTION 10.05  Entire Agreement.  This Agreement and the Ancillary Agreements
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, between Deep Down, Flotec, Holdings and the
Company with respect to the subject matter hereof and thereof.
 
SECTION 10.06  Assignment.  This Agreement may not be assigned by operation of
law or otherwise without the express written consent of Deep Down, Flotec,
Holdings and the Company (which consent may be granted or withheld in the sole
discretion of such parties); provided, however, that Holdings may assign this
Agreement or any of its respective rights and obligations hereunder to one or
more of its Affiliates without the consent of Flotec, Deep Down or the
Company.  No assignment of any obligations hereunder shall relieve the parties
hereto of any such obligations.
 
SECTION 10.07  Amendment.  This Agreement may not be amended or modified except
(a) by an instrument in writing signed by, or on behalf of, Deep Down, Flotec,
Holdings and the Company or (b) by a waiver in accordance with Section 10.08.
 
SECTION 10.08  Waiver.  Either party to this Agreement may (a) extend the time
for the performance of any of the obligations or other acts of the other party,
(b) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered by the other party pursuant
hereto or (c) waive compliance with any of the agreements of the other party or
conditions to such party’s obligations contained herein.  Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party to be bound thereby.  Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition of this
Agreement.  The failure of either party hereto to assert any of its rights
hereunder shall not constitute a waiver of any of such rights.  All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
 
SECTION 10.09  No Third Party Beneficiaries.  Except for the provisions of
Article VIII relating to indemnified parties, this Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their respective
successors and permitted assigns and nothing herein, express or implied, is
intended to or shall confer upon any other Person, including any union or any
employee or former employee of Deep Down or Flotec, any legal or equitable
right, benefit or remedy of any nature whatsoever, including any rights of
employment for any specified period, under or by reason of this Agreement.
   
 
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SECTION 10.10  Specific Performance.  Flotec and Deep Down acknowledge and agree
that the Company and Holdings would be irreparably damaged if any of the
provisions of this Agreement are not performed in accordance with their specific
terms and that any breach of this Agreement by Flotec or Deep Down could not be
adequately compensated in all cases by monetary damages alone.  Accordingly, in
addition to any other right or remedy to which the Company and Holdings may be
entitled, at law or in equity, it shall be entitled to enforce any provision of
this Agreement by a decree of specific performance and to temporary, preliminary
and permanent injunctive relief to prevent breaches or threatened breaches of
any of the provisions of this Agreement, without posting any bond or other
undertaking.
 
SECTION 10.11  Binding Arbitration.
 
(a)           AAA Arbitration.  In the event of any dispute, claim or
controversy between or among the parties to this Agreement arising out of or
relating to this Agreement or any breach thereof, including, without limitation,
any claim that this Agreement or any of its parts is invalid, illegal or
otherwise voidable or void, whether such dispute, claim or controversy sounds in
contract, tort, equity or otherwise, and whether such dispute, claim or
controversy relates to the meaning, interpretation, effect, validity,
performance or enforcement of the Agreement, such dispute, claim or controversy
shall be settled by and through an arbitration proceeding to be administered by
the American Arbitration Association (or any like organization successor
thereto) in New York, New York, in accordance with the American Arbitration
Association’s Commercial Arbitration Rules.  Each of the parties to this
Agreement hereby agrees and consents to such venue and waives any objection
thereto.  The arbitrability of any such dispute, claim or controversy shall
likewise be determined in such arbitration.  Such arbitration proceeding shall
be conducted in as expedited a manner as is then permitted by the commercial
arbitration rules (formal or informal) of the American Arbitration
Association.  Both the foregoing agreement of the parties to this Agreement to
arbitrate any and all such disputes, claims and controversies and the results,
determinations, findings, judgments and/or awards rendered through any such
arbitration shall be final and binding on the parties hereto and may be
specifically enforced by legal proceedings.  Notwithstanding any provision of
this Agreement relating to which state laws govern this Agreement, all issues
relating to arbitrability or the enforcement of the agreement to arbitrate
contained herein shall be governed by the Federal Arbitration Act (9 U.S.C. §§ 1
et seq.) and the federal common law of arbitration.
 
(b)           Procedure.  Such arbitration may be initiated by written notice
from any party to this Agreement to the other parties hereto setting forth a
demand for arbitration and detailing with specificity the nature of the dispute,
claim or controversy to be arbitrated (the “Arbitration Notice”).  Within two
(2) Business Days following receipt of the Arbitration Notice, each party shall
exchange lists of three (3) acceptable, qualified arbitrators.  Within two (2)
Business Days following the exchange of lists of acceptable arbitrators, the
parties shall select by mutual agreement (3) three arbitrators from their
original lists.  If no such agreement is reached within seven (7) Business Days
following the delivery of the Arbitration Notice, the New York office of the
American Arbitration Association shall select (3) three arbitrators from the
original lists provided by the parties to serve as the arbitrators.  Time is of
the essence of this arbitration procedure, and all arbitration hearings will,
unless determined to be impracticable or not in the interests of justice by the
arbitrators, be commenced within ninety (90) days of the service of a demand for
arbitration, and the arbitrators shall be instructed and required to render his
or her decision within ten (10) days following completion of the
arbitration.  The arbitrators shall provide a written statement setting forth
the factual basis and legal reasoning supporting any decision or award, pursuant
to Rule R-42(b) of the American Arbitration Association’s Commercial Arbitration
Rules.
  
 
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(c)           Discovery Rules.  The parties will be entitled to take discovery
in accordance with the provisions of the New York Rules of Civil Procedure, but
either party may request that the arbitrator limit the amount or scope of
discovery and, in determining whether to do so, the arbitrators shall balance
the need for discovery against the parties’ mutual desire to resolve disputes
expeditiously and inexpensively.
 
(d)           Qualifications of Arbitrators.  The arbitrators in any such
arbitration shall, insofar as is practicable, be a person who is expert in the
subject matter of the dispute.
 
(e)           Governing Law.  The arbitrators shall follow any applicable
federal and New York state substantive law.
 
(f)           Opportunity to Present Evidence.  Prior to rendering his or her
determination or award, the arbitrator(s) shall afford each party an opportunity
to express its views as to the proper determination of the matters under
arbitration, orally or in writing as the arbitrators may deem appropriate;
provided, however, that (i) any party submitting written material shall be
required to submit a copy of that material to the other parties, who shall have
the opportunity to submit a written reply to that material within ten (10)
Business Days, and (ii) if any party is to submit oral statements, the other
parties shall be afforded a reasonable opportunity to be present at the time at
which these oral statements are made before the arbitrator(s) and to reply
orally.
 
(g)           Experts Engaged by Arbitrators.  The arbitrators may, at their
discretion and at the expense of the parties who will bear the cost of the
arbitration, employ an expert to assist them in their determination.
 
(h)           Costs of Arbitration.  The fees of the arbitrators and the cost of
the arbitration proceeding and any proceeding in court to confirm or to vacate
any arbitration award, as applicable (including, without limitation, attorneys’
fees and costs), shall be borne by the unsuccessful party and shall be awarded
as part of the arbitrators’ judgment.
 
(i)           Venue and Jurisdiction.  This Agreement and all matters related to
this Agreement will be construed and enforced in accordance with the internal
laws of New York irrespective of its conflicts of law rules.  The parties hereby
consent to the jurisdiction of, and venue in, the courts in the County of New
York, New York, to enforce any arbitration award or to hear any application for
injunctive relief as provided for in this Agreement.
 
(j)           Exclusive Remedy.  The parties to this Agreement agree that
arbitration as set forth above shall be the sole means of resolving any
disputes, claims and controversies among them arising out of this
Agreement.  The parties to this Agreement hereby waive to the fullest extent
permitted by law any right to or claim for any punitive or exemplary damages
against the others and agree that in the event of a dispute between or among
them, each shall be limited to the recovery of only the actual damages
sustained.
 
(k)           Survival.  The arbitration provisions of this Section 6.11 are
self-executing and shall remain in full force and effect after the expiration or
termination of this Agreement.  If any party fails to appear at any properly
noticed arbitration proceeding, an award may be entered against such party by
default or otherwise, notwithstanding such failure to appear.
   
 
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(l)           Injunctive Relief.  The obligation herein to arbitrate shall not
prevent any party from seeking temporary restraining orders, preliminary
injunctions or other procedures in a court to obtain interim relief when deemed
necessary by such court to preserve the status quo or prevent irreparable injury
pending resolution by arbitration of the actual dispute.
 
(m)           ACKNOWLEDGEMENT. EACH PARTY TO THIS AGREEMENT UNDERSTANDS AND
AGREES THAT:
 
(i)           ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
 
(ii)           EACH PARTY TO THIS AGREEMENT IS WAIVING ITS RIGHT TO SEEK
REMEDIES IN COURT, INCLUDING THE RIGHT TO A JURY TRIAL.
 
(iii)           PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS.
 
(iv)           ANY PARTY'S RIGHT TO APPEAL OR TO SEEK MODIFICATION OF RULINGS BY
THE ARBITRATOR(S) IS STRICTLY LIMITED.
 
SECTION 10.12  Currency.  Unless otherwise specified in this Agreement, all
references to currency, monetary values and dollars set forth herein shall mean
United States (U.S.) dollars and all payments hereunder shall be made in United
States dollars.
 
SECTION 10.13  Counterparts.  This Agreement may be executed and delivered
(including by facsimile or other electronic transmission) in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original, but all of which taken
together shall constitute one and the same agreement.
 
[SIGNATURE PAGE FOLLOWS]
 
 
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IN WITNESS WHEREOF, Deep Down, Flotec, Holdings and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
 
 

  DEEP DOWN, INC.          
 
By:
/s/ Eugene L. Butler       Eugene L. Butler       Executive Chairman          

  

  FLOTATION TECHNOLOGIES, INC.          
 
By:
/s/ Michael J. Newbury       Michael J. Newbury       Vice President          

 
   
 
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  FLOTATION INVESTOR, LLC          
 
By:
/s/ Joshua Ratner       Name: Joshua Ratner       Title: VP & Secretary        
 

  

  CUMING FLOTATION TECHNOLOGIES, LLC          
 
By:
/s/ Joshua Ratner       Name: Joshua Ratner       Title: Manager          

 
 
 
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