EXHIBIT 10.2

 
NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE
OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN
INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC
RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.
 
 
DEED OF TRUST, SECURITY AGREEMENT
AND UCC FINANCING STATEMENT FOR FIXTURE FILING
(Texas)
 
by
 
DEEP DOWN, INC.,
 
as Grantor,
 
to
 
GARY M. OLANDER,
as Trustee,
 
for the benefit of
WHITNEY NATIONAL BANK
as Beneficiary
 

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This Instrument shall be effective as a
UNIFORM COMMERCIAL CODE FINANCING STATEMENT FILED AS A
FIXTURE FILING
 
 

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

 
This Financing Statement covers goods described herein by item or type some or
all of which are affixed or are to be affixed to the real property described in
Exhibit A attached hereto.
 
THIS INSTRUMENT PREPARED BY AND AFTER RECORDING PLEASE RETURN TO:
Porter & Hedges, L.L.P.
1000 Main Street, 36th Floor
Houston, Texas 77002
Attn:  Nick H. Sorensen
 

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TABLE OF CONTENTS
 
 

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

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

                        
                                                                                                                                        
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DEED OF TRUST, SECURITY AGREEMENT
AND UCC FINANCING STATEMENT FOR FIXTURE FILING
 

STATE  OF  TEXAS  §    §  COUNTY OF HARRIS  § 

 
This DEED OF TRUST, SECURITY AGREEMENT AND UCC FINANCING STATEMENT FOR FIXTURE
FILING (as amended, restated, or supplemented, this “Deed of Trust”) is executed
as of May 29, 2009, by DEEP DOWN, INC., a Nevada corporation (“Grantor”), to
GARY M. OLANDER, Trustee, and his successors in the trust hereby created (such
Trustee and any successor in trust, being hereinafter referred to as the
“Trustee”) for the benefit of Whitney National Bank, a national banking
association (“Beneficiary”).
 
SECTION 1.    DEFINITIONS.  Unless otherwise defined in this Deed of Trust, or
unless the context otherwise requires, each capitalized term used in this Deed
of Trust shall have the meaning given such term in the Credit Agreement, as
hereinafter defined.  As used in this Deed of Trust, the following terms shall
have the following meanings:
 
Beneficiary means Whitney National Bank, and its successors and assigns.
 
Credit Agreement means that Credit Agreement dated as of November 11, 2008 (as
amended by that certain First Amendment to Credit Agreement dated as of December
18, 2008, that certain Second Amendment to Credit Agreement dated as of February
13, 2009, that certain Third Amendment to Credit Agreement dated as of the date
hereof, and as further amended, restated, or supplemented), and executed by
Grantor, as borrower, and Beneficiary, as lender.
 
Default means a “Default” as defined in the Credit Agreement.
 
Fixtures means all materials, supplies, equipment, apparatus, and other items
now or hereafter attached to, installed on or in the Land or the Improvements,
or which in some fashion are deemed to be fixtures to the Land or Improvements
under the laws of the State of Texas, including the Texas Business and Commerce
Code, other than those owned by tenants under any Lease.  The term “Fixture”
shall include, without limitation, all items of Personalty to the extent that
the same may be deemed fixtures under applicable law or Legal Requirements.
 
Grantor means the above defined Grantor and any and all subsequent record or
equitable owners of the Mortgaged Property.
 
Impositions means all real estate and personal property taxes; water, gas,
sewer, electricity, and other utility rates and charges; charges for any
easement, license, or agreement maintained for the benefit of the Mortgaged
Property, and all other taxes, standby fees, charges, and assessments and any
interest, costs, or penalties with respect thereto of any kind and or character
whatsoever which at any time before or after the execution of this Deed of Trust
may be assessed, levied, or imposed upon the Mortgaged Property or the
ownership, use, occupancy, or enjoyment thereof.
 
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Improvements means all buildings, structures, open parking areas, and other
improvements, and any and all accessions, additions, replacements,
substitutions, or alterations thereof or appurtenances thereto, now or at any
time hereafter situated, placed, constructed, or renovated upon the Land or any
part thereof.
 
Indebtedness means (a) the Obligation under and as defined in the Credit
Agreement, including, without limitation, amounts that would become due but for
operation of any applicable provision of Title 11 of the United States Code
(including 11 U.S.C. §§ 502 and 506), together with all pre- and post-maturity
interest thereon, which shall include, without limitation, all post-petition
interest if Grantor voluntarily or involuntarily files for bankruptcy
protection, (b) all indebtedness, liabilities, and obligations of Grantor
arising under this Deed of Trust, (c) interest accruing on, and reasonable
attorneys’ fees, court costs, and other costs of collection reasonably incurred
in the collection or enforcement of, any of the indebtedness, liabilities, or
obligations described in clauses (a) and (b) above, and (d) any and all renewals
and extensions of, or amendments to, any of the indebtedness, liabilities, and
obligations described in clauses (a) through (c) above, together with all funds
hereafter advanced by Beneficiary to or for the benefit of Grantor as
contemplated by any covenant or provision contained in any Loan Document,
including this Deed of Trust, it being contemplated that Grantor may hereafter
become indebted to Beneficiary in further sum or sums.
 
Land means the real estate or any interest therein described in Exhibit A
attached hereto and made a part hereof, together with all Improvements and
Fixtures and all rights, titles, and interests appurtenant thereto.
 
Laws are defined in the Credit Agreement.
 
Leases means any and all leases, subleases, licenses, concessions, or other
agreements (written or oral, now or hereafter in effect) which grant a
possessory interest in and to, or the right to extract from, mine, occupy, sell
or use the Mortgaged Property, and all other agreements, including, but not
limited to, utility contracts, maintenance agreements, and service contracts
which in any way relate to the use, occupancy, operations, maintenance,
enjoyment, or ownership of the Mortgaged Property, save and except any and all
leases, subleases, or other agreements pursuant to which Grantor is granted a
possessory interest in the Land.
 
Legal Requirements means (a) any and all present and future Laws in any way
applicable to Grantor, or the Mortgaged Property, including but not limited to
those respecting the ownership, use, occupancy, possession, operation,
maintenance, alteration, repair, or reconstruction thereof, (b) Grantor’s
presently or subsequently effective organizational documents, (c) any and all
Leases and other contracts (written or oral) of any nature to which Grantor may
be bound, and (d) any and all restrictions, reservations, conditions, easements,
or other covenants or agreements of record affecting the Mortgaged Property.
 
Mortgaged Property means the Land, Improvements, Fixtures, Personalty, Leases,
and Rents, together with:
 
(a)    all rights, privileges, tenements, hereditaments, rights-of-way,
easements, appendages, and appurtenances in anywise appertaining thereto, and
all of Grantor’s right, title and interest in and to any streets, ways, alleys,
strips, or gores of land adjoining the Land or any part therein;
 
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(b)    all betterments, accessions, additions, appurtenances, substitutions,
replacements, and revisions thereof and thereto and all reversions and
remainders therein;
 
(c)    all other interest of every kind and character which Grantor now has or
at anytime hereafter acquires in and to the above described and all property
which is used or useful in connection therewith, including rights of ingress and
egress, easements, licenses, and all reversionary rights or interests of Grantor
with respect to such property.  To the extent permitted by applicable law and
the Legal Requirements, all of the Personalty and Fixtures are to be deemed and
held to be a part of and affixed to the Land.
 
As used in this Deed of Trust, the term “Mortgaged Property” is expressly
defined as meaning all or any portion of the above and any interest therein.
 
Permitted Encumbrances means (a) the Liens, easements, building lines,
restrictions, security interests, and other matters (if any) as set out on
attached Exhibit B and (b) to the extent applicable, the Permitted Liens.
 
Personalty means all of Grantor’s right, title, and interest in and to all
tangible and intangible personal property, whether or not Fixtures or otherwise
constituting fixtures under the Texas Business and Commerce Code (as amended),
including all equipment, inventory, goods, consumer goods, accounts, chattel
paper, instruments, money, general intangibles, documents, minerals, crops, and
timber (as those terms are defined in the Texas Business and Commerce Code, as
amended) which are attached to, installed, placed or used on or in connection
with, or is acquired for such attachment, installation, placement, or use, or
which arises out of the improvement, financing, leasing, operation, or use of,
the Land, the Improvements, Fixtures, or other goods located on the Land or
Improvements, together with all additions, accessions, accessories, amendments,
and modifications thereto, extensions, renewals, enlargements, and proceeds
thereof, substitutions therefor, and income and profits therefrom.  The
following are included, without limitation, in the definition of “Personalty”:
furnishings, building materials, supplies, machines, engines, boilers, stokers,
pumps, fans, vents, blowers, dynamos, furnaces, elevators, ducts, shafts, pipes,
furniture cabinets, shades, blinds, screens; plumbing, heating, air
conditioning, lighting, lifting, ventilating, refrigerating, cooking, medical,
laundry and incinerating equipment; partitions, drapes, carpets, rugs and other
floor coverings, and awnings; call and sprinkler systems, fire prevention and
extinguishing apparatus and equipment, water tanks, compressors, vacuum cleaning
systems; disposals, swimming pools, dishwashers, ranges, ovens, kitchen
equipment, and cafeteria equipment; recreational equipment; loan commitments,
financing arrangements, bonds, leases, licenses, permits, sales contracts,
insurance policies, and the proceeds therefrom, plans and specifications,
surveys, rent rolls, books and records, funds, bank deposits; all trademarks,
service marks, trade names, and symbols used in connection therewith; any award,
remuneration, settlement, or compensation heretofore made or hereafter to be
made by any tribunal to Grantor, including those for any vacation of or change
of grade in any streets affecting the Land or the Improvements; all plans and
specifications for the Improvements; all contracts and subcontracts relating to
the Improvements; all deposits (including tenants’ security deposits), funds,
accounts, contract rights or documents; arising from or by virtue of any
transactions involving an interest in the property described herein; all
permits, licenses, franchises, certificates, and other rights and privileges
obtained in connection with the property described herein; all proceeds arising
from or by virtue of the sale, lease, or other disposal of all or any part of
the Mortgaged Property (consent to same not granted or to be implied hereby);
and all proceeds (including premium refunds) payable or to be payable under each
policy of insurance relating to the Mortgaged Property.
 
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Rents means all of the rents, revenues, income, proceeds, royalties, profits,
and other benefits paid or payable for using, leasing, licensing, possessing,
operating from or in, residing in, selling, mining, extracting, or otherwise
enjoying or using the Mortgaged Property.
 
SECTION 2.    GRANT OF LIEN; HABENDUM CLAUSE.
 
2.1    Grant of Lien; Habendum Clause.  To secure the full and timely payment of
the Indebtedness and the full and timely performance and discharge of Grantor’s
obligations under this Deed of Trust, Grantor has GRANTED, BARGAINED, SOLD, and
CONVEYED, and by these presents does GRANT, BARGAIN, SELL, and CONVEY unto the
Trustee the Mortgaged Property, subject to the Permitted Encumbrances, TO HAVE
AND TO HOLD the Mortgaged Property unto the Trustee, the Trustee’s successors in
trust, and the Trustee’s assigns forever, in trust with power of sale, and
Grantor does hereby bind itself and its successors, legal representatives, and
assigns to warrant and forever defend the title to the Mortgaged Property unto
the Trustee against every Person whomsoever lawfully claiming or to claim the
same or any part thereof by, through or under Grantor, but not otherwise;
provided that, if the Indebtedness has been paid in full and the Beneficiary’s
commitment to lend under the Credit Agreement has finally terminated, then the
Liens, security interests, estates, and rights granted in this Deed of Trust
shall terminate; otherwise the same shall remain in full force and effect.
 
2.2    Subrogation.  The Trustee and Beneficiary are hereby subrogated to the
claims and liens of all parties whose claims or liens are fully or partially
discharged or paid with the proceeds of the Indebtedness secured by this Deed of
Trust, notwithstanding that such claims or liens may have been cancelled and
satisfied of record.
 
SECTION 3.    WARRANTIES AND REPRESENTATIONS.  Grantor acknowledges that certain
representations and warranties in the Credit Agreement are applicable to it and
confirms that each such representation and warranty is true and
correct.  Furthermore, Grantor hereby unconditionally warrants and represents to
the Beneficiary as follows:
 
3.1    Lien of this Instrument.  This Deed of Trust constitutes a valid,
subsisting lien on the Land, the Improvements, and the Fixtures, and a valid,
subsisting security interest in and to the Personalty.
 
3.2    Litigation.  Except as disclosed on Schedule 7.5 to the Credit Agreement,
there are no actions, suits, or proceedings pending or, to the knowledge of
Grantor, threatened against or affecting the Mortgaged Property or involving the
validity or enforceability of this Deed of Trust or the priority of the lien and
security interest hereof.
 
3.3    Acknowledgment by Grantor.  Grantor acknowledges that the execution and
delivery of this Deed of Trust is a requirement to Beneficiary’s execution of
the Credit Agreement and the other Loan Documents and is an integral part of the
transactions contemplated by the Loan Documents and is a condition precedent to
the effectiveness of the Credit Agreement.
 
3.4    Environmental.  In addition to the representations set out above, Grantor
expressly incorporates into this Deed of Trust the representations set forth in
Section 7.7 of the Credit Agreement, and confirms that the same are true and
correct.
 
SECTION 4.    AFFIRMATIVE COVENANTS.  Grantor acknowledges that certain
covenants in the Credit Agreement are applicable to it or shall be imposed upon
it, and Grantor covenants and agrees to comply with each of them.  Furthermore,
Grantor hereby unconditionally covenants and agrees with Beneficiary as follows:
 
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4.1    Payment and Performance.  Grantor will pay, or cause to be paid, the
Indebtedness as and when called for in the Loan Documents and will perform all
of its obligations under this Deed of Trust on or before the dates they are to
be performed.
 
4.2    Payment of Impositions.  Grantor will pay and discharge, or cause to be
paid and discharged, the Impositions and Grantor’s obligations to materialmen,
mechanics, carriers, warehousemen, or other like Persons as and when required to
be paid pursuant to the terms of the Credit Agreement unless contested in good
faith by appropriate proceedings.
 
4.3    Repair.  Grantor will keep the Mortgaged Property in good order and
condition and presenting a good appearance and will make all repairs,
replacements, renewals, additions, betterments, improvements, and alterations
thereof and thereto, interior and exterior, structural and nonstructural,
ordinary and extraordinary, foreseen and unforeseen, which are necessary or
reasonably appropriate to keep same in such order and condition.  Grantor will
also use its best efforts to prevent any act or occurrence which might
materially impair the value or usefulness of the Mortgaged Property for its
intended usages as set forth in any plans and specifications for the
Improvements submitted to Beneficiary or in the Loan Documents.  In instances
where repairs, replacements, renewals, additions, betterments, improvements, or
alterations are required in and to the Mortgaged Property on an emergency basis
to prevent loss, damage, waste, or destruction thereof, Grantor shall proceed to
construct same, or cause same to be constructed, notwithstanding anything to the
contrary contained in Section 5.2 below; provided that, in instances where such
emergency measures are to be taken, Grantor will promptly notify Beneficiary in
writing of the commencement of such emergency measures and, when same are
completed, the completion date and the measures actually taken.
 
4.4    Insurance.  In addition to the requirements of Section 8.6 of the Credit
Agreement, Grantor shall obtain and maintain insurance upon and relating to the
Mortgaged Property insuring against personal injury and death, loss by fire and
such other hazards, casualties, and contingencies (including but not limited to
fire, lightning, hail, windstorm, explosion, malicious mischief, vandalism, and
rent loss or extra expense insurance covering loss of Rents) as are covered by
extended coverage policies in effect where the Land is located and such other
risks as may be reasonably specified by Beneficiary from time to time, all in
such amounts and with such insurers of recognized responsibility as are
reasonably acceptable to Beneficiary; provided that, absent written direction
from Beneficiary, such insurance shall be in an amount not less than the full
insurable replacement value of the Mortgaged Property.  If, and to the extent
that the Mortgaged Property is located within an area that has been or is
hereafter designated or identified as an area having any type of flood,
mudslide, or flood-related erosion hazard by the Federal Emergency Management
Agency or by such other official as shall from time to time be authorized by
federal or state law to make such designation pursuant to the National Flood
Insurance Act of 1968, as such act may from time to time be amended and in
effect, or pursuant to any other national or state program of flood insurance,
Grantor shall carry flood insurance with respect to the Mortgaged Property in an
amount not less than the maximum amount available under the Flood Disaster
Protection Act of 1973 and the regulations issued pursuant thereto, as amended
from time to time, in form complying with the “insurance purchase” requirement
of that Act.  Each insurance policy issued in connection with the Mortgaged
Property shall provide, by way of endorsements, riders, or otherwise, that
proceeds will be payable to Beneficiary as its interest may appear and should be
cancelable only after Beneficiary is given thirty (30) days written notice of
such cancellation.  All renewal and substitute policies of insurance or
certified copies thereof shall be delivered at the office of Beneficiary,
premiums then due and payable paid, at least fifteen (15) days before
termination of policies theretofore delivered to Beneficiary.  Beneficiary shall
have the right, but not the obligation, to make premium payments, at Grantor’s
expense, to prevent any cancellation, endorsement, alteration or reissuance, and
such payments shall be accepted by the insurer to prevent same.
 
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4.5    Restoration Following Casualty.  If any act or occurrence of any kind or
nature (including any casualty for which insurance was not obtained or
obtainable) shall result in damage to or loss or destruction of the Mortgaged
Property, Grantor shall give notice thereof to Beneficiary.  If any of the
Mortgaged Property covered by insurance is destroyed or damaged by any casualty
against which insurance shall have been required hereunder, the proceeds of such
insurance will be applied as provided in the Credit Agreement.
 
4.6    Defense of Title.  If the title of the Trustee to, or the interest of
Beneficiary in, the Mortgaged Property or any part thereof, shall be endangered
or shall be attacked, directly or indirectly, Grantor shall, at Grantor’s
expense, take all necessary and proper steps for the defense of such title or
interest, including the employment of counsel, the prosecution or defense of
litigation, and the compromise or discharge of claims made against such title or
interest in the Mortgaged Property.  In the event of Grantor’s failure or
inability to proceed initially as provided above, the Trustee and Beneficiary or
either of them (whether or not named as parties to legal proceedings with
respect thereto) are hereby authorized and empowered to take, at Grantor’s
expense, such additional steps as in their reasonable judgment may be necessary
or proper for the defense of any such legal proceedings or the protection of the
validity or priority of this Deed of Trust and the rights, titles, liens and
security interests created or evidenced hereby.
 
4.7    Future Impositions.  If at any time any law shall be enacted imposing or
authorizing the imposition of any tax upon this Deed of Trust or upon any
rights, titles, liens, or security interests created hereby, or any part
thereof, Grantor shall promptly pay all such taxes to the extent it can lawfully
do so.  In the event of the enactment of such a law, if it is unlawful for
Grantor to pay such taxes, payment of such tax shall be deemed an obligation
which Beneficiary may pay pursuant to Section 10.6 of this Deed of Trust.
 
4.8    Environmental Indemnification.  In addition to the covenants set out in
Sections 4 and 5 of this Deed of Trust, Grantor expressly incorporates into this
Deed of Trust the indemnification set forth in Section 13.10 of the Credit
Agreement and hereby agrees to the same.
 
4.9    Information About Mortgaged Property.  Grantor will maintain at its chief
executive office, a current record of the location of all Mortgaged Property,
and furnish to Beneficiary, at such intervals as Beneficiary may reasonably
request, lists, descriptions, and other information as may be necessary or
proper to keep Beneficiary informed with respect to the identity, location,
status, condition and value of the Mortgaged Property.  Grantor will promptly
notify Beneficiary of any change in any material fact or circumstance
represented or warranted by Grantor with respect to any of the Mortgaged
Property, or any material claim, action or proceeding affecting title to any of
the Mortgaged Property.
 
4.10   Further Assurances. Grantor will from time to time promptly execute and
deliver to Beneficiary all such other assignments, certificates, supplemental
documents, and financing statements, and do all other acts or things as
Beneficiary may reasonably request in order to more fully create, evidence,
perfect, continue and preserve the priority of the Lien created by this Deed of
Trust.
 
SECTION 5.    NEGATIVE COVENANTS.  Grantor acknowledges that certain covenants
in the Credit Agreement are applicable to it or shall be imposed upon it and
covenants and agrees to comply with each of them.  Furthermore, Grantor hereby
covenants and agrees that, until the entire Indebtedness is paid in full and the
Beneficiary’s commitment to lend under the Credit Agreement is finally
terminated:
 
5.1    Use Violations.  Grantor will not use, maintain, operate, or occupy, or
allow the use, maintenance, operation, or occupancy of the Mortgaged Property in
any manner which, in case of any of the following would constitute a Material
Adverse Event, (a) violates any Legal Requirement, (b) may be dangerous unless
safeguarded as required by law, or (c) constitutes a public or private nuisance.
 
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5.2    Alterations.  Grantor will not commit or permit any waste of the
Mortgaged Property that would constitute a Material Adverse Event on its value
as security for the Indebtedness and will not (subject to the provisions of
Section 4.3 herein), without the advance written notice to Beneficiary, make or
permit to be made any alterations or additions to the Mortgaged Property of a
material nature.
 
5.3    Prohibition on Transfer.  Except as otherwise may be permitted by
Section 9.9 of the Credit Agreement, Grantor will not sell, trade, transfer,
assign, exchange, or otherwise dispose of any of the Mortgaged Property.
 
5.4    Replacement of Fixtures and Personalty.  Grantor will not, without
Beneficiary’s prior written consent or as otherwise allowed pursuant to Section
9.9 of the Credit Agreement, permit any of the Fixtures or Personalty to be
removed at any time from the Land or Improvements unless the removed item is
removed temporarily for maintenance and repair or, if removed permanently, is
replaced by an article of equal suitability and value, owned by Grantor, free
and clear of any lien or security interest except such as may be first approved
in writing by Beneficiary or any Permitted Encumbrance.
 
5.5    No Further Encumbrances.  Grantor will not, without Beneficiary’s prior
written consent, create, place, suffer, or permit to be created or placed or,
through any act or failure to act, acquiesce in the placing of or allow to
remain, any mortgage, pledge, lien (statutory, constitutional, or contractual),
security interest, encumbrance, or charge on, or conditional sale or other title
retention agreement, regardless of whether same are expressly subordinate to the
liens of the Loan Documents, with respect to the Mortgaged Property, other than
the Permitted Encumbrances.
 
SECTION 6.    DEFAULT AND FORECLOSURE.
 
6.1    Remedies.  If a Default occurs and is continuing, Beneficiary may, in
accordance with the Credit Agreement, by and through the Trustee or otherwise,
exercise any or all of the following rights, remedies and recourses to the
extent permitted by applicable Law:
 
(a)    Declare the Indebtedness immediately due and payable in accordance with
the terms of the Credit Agreement whereupon the same shall become immediately
due and payable.  Except as expressly provided in the Credit Agreement, Grantor
expressly waives any notice of intent to accelerate, notice of acceleration, or
any other notice, presentment, protest, demand or action of any kind or nature
whatsoever.
 
(b)    Enter upon the Mortgaged Property and take exclusive possession thereof
and of all books, records, and accounts relating thereto without notice and
without being guilty of trespass.  If Grantor remains in possession of all or
any part of the Mortgaged Property, and without Beneficiary’s prior written
consent thereto, Beneficiary may, without notice to Grantor, invoke any and all
legal remedies to dispossess Grantor, including specifically one or more actions
for forcible entry and detainer, trespass to try title, and writ of
restitution.  Nothing contained in the foregoing sentence shall, however, be
construed to impose any greater obligation or any prerequisites to acquiring
possession of the Mortgaged Property after a Default than would have existed in
the absence of such sentence.
 
(c)    Hold, lease, manage, operate, or otherwise use or permit the use of the
Mortgaged Property, either itself or by other persons, firms or entities, in
such manner, for such time and upon such other terms as Beneficiary may deem to
be prudent and reasonable under the circumstances (making such repairs thereto
and taking any and all other action with reference thereto, from time to time,
as Beneficiary shall deem reasonably necessary for the purpose of maintaining
the Mortgaged Property in its then current condition but not making any material
capital improvements thereto) and apply all Rents and other amounts collected by
the Trustee in connection therewith in accordance with the provisions of
Section 6.8 of this Deed of Trust.
 
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(d)    Request the Trustee to proceed with foreclosure.  Upon the request, the
Trustee is authorized and empowered, and it shall be his special duty, to sell
or offer for sale the Mortgaged Property.  The Mortgaged Property shall be sold
at public auction to the highest bidder for cash or other consideration approved
by Beneficiary.  The Mortgaged Property may be sold or offered for sale in such
order and in such portions or parcels as Beneficiary may determine whether or
not such portions or parcels are contiguous, with or without having first taken
possession of same, and without the necessity of having any Personalty present
at such sale. The sale shall be conducted at the county courthouse in the county
where the Land is located, at the area of the county courthouse designated by
the Commissioner’s Court of such county as the area in which foreclosure sales
are to take place, as evidenced by the designation recorded in the real property
records of such county and, if no area is so designated, then in the area
designated in the Trustee’s, or any substitute trustee’s, Notice of Sale as
being the area for such foreclosure sale.  If the Land, or any portion thereof
to be sold, is located in more than one county, the sale may occur at the
designated area of the county courthouse in any county in which the Land is
located.  The foreclosure sale shall take place on the first Tuesday of any
month between the hours of 10:00 a.m. and 4:00 p.m.  Notice of the sale must be
given at least twenty-one (21) days before the date of the sale.  The Notice of
Sale must include a statement of the earliest time at which the sale will occur,
and the sale must begin at that time or not later than three (3) hours after
that time.  Notice of the sale must be given:
 
(i)    by posting or causing to be posted at the courthouse door of each county
in which the Land (or any portion to be sold) is located a written or printed
notice designating the county in which the Mortgaged Property will be sold, and
 
(ii)    by filing in the office of the county clerk of each county in which the
Land (or any portion to be sold) is located a copy of the notice, and
 
(iii)   by certified mail on each debtor who, according to the records of
Beneficiary or other holder of the Indebtedness, is obligated to pay the
Indebtedness secured by this Deed of Trust.
 
Notice may be served, given, filed, posted, or mailed by the Trustee or by any
person acting for the Trustee.  The affidavit of any person having knowledge of
the facts to the effect that such service was completed shall be prima facie
evidence of the fact of service.  Beneficiary may, at its option, accomplish all
or any of the aforesaid in the manner permitted or required under (i)
Section 51.002 of the Texas Property Code, as amended and restated, relating to
the sale of real property under a power of sale or, (ii) with respect to the
Personalty sold separately from the rest of the Mortgaged Property, Chapter 9 of
the Texas Business and Commerce Code relating to the sale of collateral after
default by a debtor or by any other amendment or successor to either
statute.  Nothing contained in this Section 6.1(d) shall be construed to limit
in any way the Trustee’s rights to sell the Personalty by private sale if, and
to the extent that, such private sale is permitted under the laws of the State
of Texas or by public or private sale after entry of a judgment by any court of
competent jurisdiction ordering same.  At any sale of the Mortgaged Property
whether made under the power of sale contained in this Deed of Trust, Section
51.002 of the Texas Property Code, Chapter 9 of the Texas Business and Commerce
Code, any other Legal Requirement, or by virtue of any judicial proceedings or
any other legal right, remedy, or recourse,
 
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(iv)    the Trustee need not have the Mortgaged Property physically present or
have constructive possession of the Mortgaged Property; provided that, the title
to and right of possession of any such Mortgaged Property shall pass to the
purchaser thereof as completely as if the same had been actually present and
delivered to purchaser at such sale;
 
(v)    each conveyance instrument executed by the Trustee shall contain a
special warranty of title binding upon Grantor;
 
(vi)    each and every recital contained in any conveyance instrument executed
by the Trustee shall constitute prima facie evidence of the truth and accuracy
of the matters recited therein including, without limitation, appointment of any
successor Trustee hereunder, nonpayment of the Indebtedness, notice, filing,
posting, and conduct of the sale in the manner provided herein and by law;
 
(vii)   all prerequisites to the validity of the sale shall be rebuttably
presumed to have been performed;
 
(viii)   the receipt from the Trustee, or such other party or officer conducting
the sale, shall be sufficient to discharge the purchaser for his purchase money,
and no purchaser or his assigns or personal representatives, shall thereafter be
obligated to see to the application of such purchase money or be in any way
answerable for any loss, misapplication, or non-application thereof;
 
(ix)    Grantor shall be completely and irrevocably divested of all of its
right, title, interest, claim, and demand whatsoever, either at law or in
equity, in and to the property sold, and such sale shall be a perpetual bar both
at law and in equity against Grantor and against all other persons claiming or
to claim the property sold or any part thereof by, through or under Grantor; and
 
(x)    Beneficiary may be a purchaser at any such sale and may credit the bid
against the Indebtedness.
 
(e)    Beneficiary or the Trustee may make application to a court of competent
jurisdiction, as a matter of strict right and without notice to Grantor or
regard to the adequacy of the Mortgaged Property for the repayment of the
Indebtedness, for appointment of a receiver of the Mortgaged Property.  Any such
receiver shall have all the usual powers and duties of receivers in similar
cases, including the full power to sell, rent, maintain, and otherwise operate
the Mortgaged Property upon such terms as may be approved by the court, and
shall apply the Rents in accordance with the provisions of Section 6.8 in this
Deed of Trust.
 
(f)    Pursuant to Section 21.48A of the Texas Insurance Code, in the event
Beneficiary is the successful bidder at a foreclosure sale of all or any part of
the Mortgaged Property, it shall have the right to cancel any insurance policy
covering the property foreclosed upon and collect any unearned premiums from
said policy.
 
(g)    Exercise any and all other rights, remedies, and recourses granted under
the Loan Documents or now or hereafter existing in equity, at law, by virtue of
statute, or otherwise.
 
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6.2    Divestment of Rights, Tenant at Sufferance.  After sale of the Mortgaged
Property, or any portion thereof, Grantor shall be divested of any and all
interest and claim thereto, including any interest or claim to all insurance
policies, bonds, loan commitments, contracts, and other intangible property
covered by this Deed of Trust.  Additionally, with respect to the Land,
Improvements, Fixtures, and Personalty, after a sale of all or any portion
thereof, Grantor will be considered a tenant at sufferance of the purchaser of
the same, and said purchaser shall be entitled to immediate possession thereof,
and if Grantor shall fail to vacate the Mortgaged Property immediately, said
purchaser may and shall have the right, without further notice to Grantor, to go
into any justice court in any precinct or county in which the Land and
Improvements are located and file an action in forcible entry and detainer or
forcible detainer, which action shall lie against Grantor or its assigns or
legal representatives as a tenant at sufferance.
 
6.3    Separate Sales.  If a Default occurs and is continuing, the Trustee may
sell all or any portion of the Mortgaged Property together or in lots or parcels
and in such manner and order as the Trustee, in its sole discretion, may
elect.  The sale or sales by the Trustee of less than the whole of the Mortgaged
Property shall not exhaust the power of sale granted in this Deed of Trust, and
the Trustee is specifically empowered to make successive sale or sales under
such power until the whole of the Mortgaged Property shall be sold; and if the
proceeds of such sale or sales of less than the whole of such Mortgaged Property
shall be less than the aggregate of the Indebtedness and the expense of
executing this trust, this Deed of Trust and the lien, security interest and
assignment hereof shall remain in full force and effect as to the unsold portion
of the Mortgaged Property just as though no sale or sales had been made;
provided that, Grantor shall never have any right to require the sale or sales
of less than the whole of the Mortgaged Property, but Beneficiary shall have the
right, at its sole election, to request the Trustee to sell less than the whole
of the Mortgaged Property.  As among the various counties in which items of the
Mortgaged Property may be situated, sales in such counties may be conducted in
any order that the Trustee may deem expedient; and any one or more of such sales
may be conducted in the same month, or in successive or different months, as the
Trustee may deem expedient.  If Default occurs as to nonpayment of part of the
Indebtedness, Beneficiary shall have the option to proceed as if under a full
foreclosure, conducting the sale as herein provided without declaring the entire
Indebtedness due, and if sale is made because of default of an installment, or a
part of an installment, such sale may be made subject to the unmatured part of
the Notes and the Indebtedness; and such sale, if so made, shall not in any
manner affect the unmatured part of the Indebtedness but as to such unmatured
part, this Deed of Trust shall remain in full force and effect as though no sale
had been made under the provisions of this Deed of Trust.  Any number of sales
may be made under this Deed of Trust without exhausting the right of sale for
any unmatured part of the Indebtedness secured hereby.
 
6.4    Remedies Cumulative, Concurrent, and Nonexclusive.  The Trustee and
Beneficiary shall have all rights, remedies, and recourses granted in the Loan
Documents and available at law or equity (including specifically those granted
by the Texas Business and Commerce Code, as amended but taking into account the
provisions of the Credit Agreement) and same (a) shall be cumulative and
concurrent; (b) may be pursued separately, successively, or concurrently against
Grantor or others obligated under the Notes, or against the Mortgaged Property,
or against any one or more of them at the sole discretion of Beneficiary; (c)
may be exercised as often as occasion therefor shall arise, it being agreed by
Grantor that the exercise or failure to exercise any of the same shall in no
event be construed as a waiver or release thereof or of any other right, remedy,
or recourse; and (d) are intended to be, and shall be, nonexclusive.
 
6.5    Release of and Resort to Collateral.  Any part of the Mortgaged Property
may be released by Beneficiary in accordance with the Credit Agreement without
affecting, subordinating, or releasing the lien, security interest, and
assignment hereof against the remainder of the Mortgaged Property.  The lien,
security interest, and other rights granted hereby shall not affect or be
affected by any other security taken for the Indebtedness or any part
thereof.  The taking of additional security or the rearrangement, extension, or
renewal of the Indebtedness, or any part thereof, shall not release or impair
the lien, security interest, and other rights granted hereby or affect the
liability of any endorser, guarantor, or surety or improve the right of any
permitted junior lienholder; and this Deed of Trust, as well as any instrument
given to secure any rearrangement, renewal, or extension of the Indebtedness
secured hereby, or any part thereof, shall be and remain a first and prior lien,
except as otherwise provided herein, on all of the Mortgaged Property not
expressly released until the Indebtedness is completely paid.
 
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6.6    Waiver of Redemption, Notice, and Marshaling of Assets.  To the fullest
extent permitted by Law, Grantor hereby irrevocably and unconditionally waives
and releases (a) all benefits that might accrue to Grantor by any present or
future laws exempting the Mortgaged Property from attachment, levy, or sale on
execution or providing for any appraisement, valuation, stay of execution,
exemption from civil process, redemption, or extension of time for payment, (b)
except as may be provided for under the terms hereof or the other Loan
Documents, all notices of any Default or of Beneficiary’s or the Trustee’s
election to exercise or the actual exercise of any right, remedy, or recourse
provided for under the Loan Documents, (c) any right to appraisal or marshaling
of assets or a sale in inverse order of alienation, (d) the exemption of
homestead, and (e) the administration of estates of decedents or other matters
whatever to defeat, reduce, or affect the right of Beneficiary under the terms
of this Deed of Trust to sell the Mortgaged Property for the collection of the
Indebtedness secured hereby (without any prior or different resort for
collection) or the right of Beneficiary under the terms of this Deed of Trust,
to the payment of the Indebtedness out of the proceeds of sale of the Mortgaged
Property in preference to every other person and claimant whatever (only
reasonable expenses of such sale being first deducted).
 
6.7    Discontinuance of Proceedings.  In case Beneficiary shall have proceeded
to invoke any right, remedy, or recourse permitted under the Loan Documents and
shall thereafter elect to discontinue or abandon the same for any reason,
Beneficiary shall have the unqualified right to do so, and, in such event,
Grantor and Beneficiary shall be restored to their former positions with respect
to the Indebtedness, the Loan Documents, the Mortgaged Property, and otherwise
and the rights, remedies, recourses, and power of Beneficiary shall continue as
if same had never been invoked.
 
6.8    Application of Proceeds, Deficiency Obligation.  The proceeds of any sale
of, and the Rents and other income generated by the holding, leasing, operating,
or other use of, the Mortgaged Property shall be applied by Beneficiary (or the
receiver, if one is appointed) to the extent that funds are so available
therefrom in accordance with Section 3.4 of the Credit Agreement with any
surplus to be paid, at the option of Beneficiary to the payment of any
indebtedness or obligation secured by a subordinate deed of trust or security
interest on the Mortgaged Property or to Grantor.  Any other party liable on the
Indebtedness shall be liable for any deficiency remaining in the Indebtedness
subsequent to the sale referenced in this Section 6.8.
 
6.9    Purchase by Beneficiary.  To the extent permitted by Law, Beneficiary
shall have the right to become the purchaser at the sale of the Mortgaged
Property under this Deed of Trust and shall have the right to be credited on the
amount of its bid for the Mortgaged Property or any part thereof being sold, all
of the Indebtedness due and owing as of the date of such sale.
 
6.10   Disaffirmation of Contracts.  To the extent permitted by Law, the
purchaser at any Trustee’s or foreclosure sale hereunder may disaffirm any
easement granted or rental, lease, or other contract made in violation of any
provision of this Deed of Trust or the Credit Agreement and may take immediate
possession of the Mortgaged Property free from, and despite the terms of, such
grant of easement or rental, lease, or other contract.  With respect to any
Lease of real property submitted to and approved by Beneficiary, Beneficiary
agrees that the holding of a foreclosure sale or conveyance in lieu thereof by
it shall not terminate such Lease nor the rights and obligations of a lessee
thereunder, so long as such lessee continues to perform all of its obligations
thereunder, including, without limitation, the payment of all rental payments
thereunder.
 
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6.11    Deficiency Suit.  It is expressly agreed by Grantor that to the extent
Sections 51.003, 51.004 or 51.005 of the Texas Property Code, or any amendment
thereto, requires that the “fair market value” of the Mortgaged Property shall
be determined as of the foreclosure date in order to enforce a deficiency
against Grantor or any other party liable for repayment of the Indebtedness, the
term “fair market value” shall include those matters required by Law and, to the
extent permitted by Law, shall also include the additional factors set forth
below:
 
(a)    the Mortgaged Property is to be valued “AS IS” and “WITH ALL FAULTS” and
there shall be no assumption of restoration of or refurbishment of improvements,
if any, after the date of the foreclosure;
 
(b)    there shall be an assumption that the purchaser desires to resell the
Mortgaged Property for an all cash sales price promptly (but no later than 12
months) after the foreclosure sale;
 
(c)    an offset to the fair market value of the Mortgaged Property, as
determined hereunder, shall be made by deducting from such value the reasonable
estimated closing costs relating to the sale of the Mortgaged Property,
including but not limited to, brokerage commissions, title policy expenses, tax
prorations, escrow fees, and other common charges which are incurred by a seller
of property; and
 
(d)    after consideration of the factors required by Law and those required
above, an additional discount factor shall be calculated based upon the
estimated holding costs associated with maintaining the Mortgaged Property for
the estimated time it will take to effectuate a sale of the Mortgaged Property
including, without limitation, utility expenses, taxes and assessments (to the
extent not accounted for in (c) above) so that the “fair market value” as so
determined is discounted to be as of the date of the foreclosure sale of the
Mortgaged Property.
 
SECTION 7.    CONDEMNATION.  If the Mortgaged Property, or any part thereof,
shall be condemned or otherwise taken for public or quasi-public use under the
power of eminent domain, or be transferred in lieu thereof, all damages or other
amounts awarded for the taking, or injury to, the Mortgaged Property shall be
paid to Beneficiary, and Beneficiary shall apply and disburse the proceeds as
provided in the Credit Agreement.
 
SECTION 8.    SECURITY AGREEMENT.
 
8.1    Security Interest.  This Deed of Trust shall be construed as a Deed of
Trust on real property and it shall also constitute and serve as a security
agreement on personal property within the meaning of, and shall constitute until
the grant of this Deed of Trust shall terminate as provided in Section 2 hereof,
a first and prior security interest under Chapter 9 of the Texas Business and
Commerce Code (subject only to the Permitted Encumbrances) with respect to the
Personalty and Fixtures.  Grantor has granted, bargained, conveyed, assigned,
transferred, and set over, and by these presents does grant, bargain, convey,
assign, transfer, and set over unto Beneficiary a first and prior security
interest (subject only to the Permitted Encumbrances) in and to all of Grantor’s
right, title, and interest in, to, and under the Personalty and Fixtures to
secure the full and timely payment of the Indebtedness and the full and timely
performance and discharge of the Grantor’s obligations under this Deed of Trust.
 
8.2    Financing Statements.  Grantor shall execute and deliver to Beneficiary,
in form and substance reasonably satisfactory to it and its legal counsel, such
financing statements and such further assurances as Beneficiary may, from time
to time, consider reasonably necessary to create, perfect, and preserve the
security interest herein granted, and Beneficiary may cause such statements and
assurances to be recorded and filed at such times and places as may be required
or appropriate by law to so create, perfect, and preserve such security
interest.  Pursuant to the Texas Business and Commerce Code, this Deed of Trust
shall be effective as a financing statement filed as a fixture filing from the
date of its filing for record covering the Fixtures and Personalty.  The
addresses of Grantor, as Debtor, and Beneficiary, as Secured Party, are set
forth on the cover page of this Deed of Trust.
 
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8.3    Uniform Commercial Code Remedies.  The Trustee and Beneficiary shall have
all the rights, remedies, and recourses with respect to the Personalty,
Fixtures, Leases, and Rents afforded a secured party by the Texas Business and
Commerce Code in addition to, and not in limitation of, the other rights,
remedies and recourses afforded by the Loan Documents and at law.
 
8.4    No Obligation of the Trustee or Beneficiary.  The assignment and security
interest herein granted shall not be construed to (a) deem or constitute the
Trustee or Beneficiary, as trustees in possession of the Mortgaged Property, (b)
obligate the Trustee or Beneficiary to operate or attempt to operate the
Mortgaged Property or (c) obligate the Trustee or Beneficiary to take any
action, incur any expenses, or perform or discharge any obligation, duty, or
liability whatsoever under any of the Leases or otherwise.
 
SECTION 9.    CONCERNING THE TRUSTEE.
 
9.1    No Liability.  The Trustee shall not be liable for any error or judgment
or act done by the Trustee or be otherwise responsible or accountable under any
circumstances whatsoever other than his own gross negligence, willful
misconduct, violation of law or fraud.  The Trustee shall not be personally
liable for any damages resulting from entry on the Mortgaged Property by the
Trustee or anyone acting by virtue of the powers granted the Trustee under this
Deed of Trust, or for debts contracted or liability or damages incurred in the
management or operation of the Mortgaged Property.  The Trustee shall have the
right to rely on any instrument, document, or signature authorizing or
supporting any action taken or proposed to be taken by him hereunder and
believed by him in good faith to be genuine.  The Trustee shall be entitled to
reimbursement for reasonable expenses incurred by him in the performance of the
Trustee’s duties under this Deed of Trust and to reasonable compensation for
services rendered under this Deed of Trust.  Grantor will, from time to time,
reimburse the Trustee for and save and hold the Trustee harmless from and
against any and all loss, cost, liability, damage and expense whatsoever
incurred by him in the performance of the Trustee’s duties other than those
arising from his own gross negligence, willful misconduct, violation of Law or
fraud.
 
9.2    Retention of Monies.  All monies received by the Trustee shall, until
used or applied as herein provided, be held in trust for the purposes for which
they were received, but need not be segregated in any manner from any other
monies (except to the extent required by law), and the Trustee shall be under no
liability for interest on any monies received hereunder.
 
9.3    Successor Trustee.  The Trustee may resign by the giving of notice of
such resignation in writing to Beneficiary.  If the Trustee shall die, resign,
or become disqualified from acting in the execution of this Trust or shall fail
or refuse to exercise the same when requested by Beneficiary so to do or if for
any reason and without cause Beneficiary shall prefer to appoint a substitute
trustee to act instead of the original Trustee named herein, or any prior
successor or substitute trustee, Beneficiary shall have full power to appoint a
substitute trustee and, if preferred, several substitute trustees in succession
who shall succeed to all the estate, rights, powers and duties of the forenamed
Trustee without other formality than designating the successor or substitute
Trustee in writing.
 
9.4    Succession Instruments.  Any new Trustee appointed pursuant to any of the
provisions of this Deed of Trust shall, without any further act, deed, or
conveyance, become vested with all the estates, properties, rights, powers, and
trusts of its or his or her predecessor in the rights hereunder with like effect
as if originally named as the Trustee herein; but, nevertheless, upon the
written request of Beneficiary, or any acting successor trustee, the Trustee
ceasing to act shall execute and deliver an instrument transferring to such
successor trustee, upon the trust herein expressed, all the estates, properties,
rights, powers, and trusts of the Trustee so ceasing to act, and shall duly
assign, transfer, and deliver any of the property and monies held by the Trustee
to the successor trustee so appointed.
 
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9.5    Performance of Duties by Lenders.  The Trustee may authorize one or more
parties to act on his behalf to perform any ministerial functions required of
him hereunder, including, without limitation, the transmittal, posting and
filing of any notices.
 
SECTION 10. MISCELLANEOUS.
 
10.1   Survival of Obligations.  All covenants, agreements, representations, and
warranties made by Grantor in this Deed of Trust and the other Loan Documents,
including without limitation, any certificates or other documents or instruments
delivered in connection herewith, shall survive the execution and delivery of
this Deed of Trust and the other Loan Documents.  The obligations and provisions
of all indemnities from Grantor to Beneficiary contained herein or in any of the
Loan Documents shall continue and remain in full force and effect after the
Indebtedness of Grantor have been paid or discharged in full and shall survive
the termination of this Deed of Trust and the repayment of the Indebtedness.
 
10.2   Covenants Running with the Land.  All obligations contained in this Deed
of Trust are intended by the parties to be and shall be construed as covenants
running with the Land.
 
10.3   Recording and Filing.  Grantor will cause the Loan Documents and all
amendments and supplements thereto and substitutions therefor to be recorded,
filed, re-recorded, and refiled in such manner and in such places as the Trustee
or Beneficiary shall reasonably request and will pay all such recording, filing,
re-recording and refiling, taxes, fees, and other charges.
 
10.4   Notices.  Any notice, request, or other communication required or
permitted to be given hereunder shall be given at the addresses and in
accordance with the notice provisions set forth in Section 13.4 of the Credit
Agreement.
 
10.5   No Waiver.  Any failure by the Trustee or Beneficiary to insist, or any
election by the Trustee or Beneficiary, not to insist, upon strict performance
by Grantor of any of the terms, provisions, or conditions of this Deed of Trust
shall not be deemed to be a waiver of the same or of any other term, provision,
or condition thereof, and the Trustee or Beneficiary shall have the right at any
time or times thereafter to insist upon strict performance by Grantor of any and
all of such terms, provisions, and conditions.
 
10.6   Beneficiary’s Right to Pay Indebtedness or Perform Obligations.  If any
obligated party shall fail, refuse, or neglect to make any required payment on
the Indebtedness or if Grantor fails, refuses, or neglects to perform any of its
obligations under this Deed of Trust,  then in each case, at any time thereafter
and without notice to or demand upon Grantor, or any other party, and without
waiving or releasing any other right, remedy, or recourse Beneficiary may have
because of the same, Beneficiary may (but shall not be obligated to) make such
payment or perform such act for the account of and at the expense of Grantor and
shall have the right to enter upon the Mortgaged Property for such purpose and
to take all such action thereon with respect to the Mortgaged Property as it
reasonably may deem necessary or appropriate.  Grantor shall be obligated to
repay Beneficiary for all sums advanced by it pursuant to this Section 10.6 and
shall indemnify and hold Beneficiary harmless from and against any and all loss,
cost, expense, liability, damage, and claims and causes of action, including
reasonable attorneys’ fees (except such as result from the gross negligence,
willful misconduct, violation of Law or fraud of Beneficiary, the Trustee or
each of their respective agents, successors, assigns, subsidiaries, directors,
officers, employees, representatives, parents or attorneys), incurred or
accruing by any acts performed by Beneficiary pursuant to the provisions of this
Section 10.6 or by reason of any other provision of the Loan Documents.  All
sums paid by Beneficiary pursuant to this Section 10.6 and all other sums
extended by Beneficiary to which it shall be entitled to be indemnified,
together with interest thereon at the Default Rate from the date of such payment
or expenditure, shall constitute additions to the Indebtedness, shall be secured
by the Security Documents and shall be paid by Grantor to Beneficiary upon
demand in accordance with the terms of the Credit Agreement.
 
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10.7   Limitation on Effectiveness of Lien.  It is the intention of Grantor and
Beneficiary that the amount of the Indebtedness secured by this Deed of Trust
shall be in, but not in excess of, the maximum amount permitted by fraudulent
conveyance, fraudulent transfer or similar Laws applicable as to
Grantor.  Accordingly, notwithstanding anything to the contrary contained in
this Deed of Trust or any other agreement or instrument executed in connection
with the payment of any of the Indebtedness, the amount of the Indebtedness
secured by this Deed of Trust shall be limited to that amount which after giving
effect thereto would not (a) render Grantor insolvent, (b) result in the fair
saleable value of the assets of Grantor being less than the amount required to
pay its debts and other liabilities (including contingent liabilities) as they
mature, or (c) leave Grantor with unreasonably small capital to carry out its
business as now conducted and as proposed to be conducted, including its capital
needs, as such concepts described in (a), (b) and (c) herein are determined
under applicable Law, if the obligations of Grantor hereunder would otherwise be
set aside, terminated, annulled or avoided for such reason by a court of
competent jurisdiction in a proceeding actually pending before such court.
 
10.8   Governing Law.  This Deed of Trust must be construed, and its performance
enforced, under Texas law.
 
10.9   Multiple Counterparts and Facsimile Signatures.  This Deed of Trust may
be executed in any number of counterparts with the same effect as if all
signatories had signed the same document.  All counterparts must be construed
together to constitute one and the same instrument.  This Deed of Trust may be
transmitted and signed by facsimile and shall have the same effect as
manually-signed originals and shall be binding on all parties.
 
10.10         Waiver of Jury Trial.  Grantor and Beneficiary irrevocably and
voluntarily waive any right they may have to a trial by jury in respect of any
claim.  This provision is a material inducement for the parties entering into
this Deed of Trust.
 
10.11         Entirety.  This Deed of Trust, the Credit Agreement, and the other
Loan Documents Represent the Final Agreement Between The parties and May Not Be
Contradicted by Evidence of Prior, Contemporaneous, or Subsequent Oral
Agreements by the Parties.  There Are No Unwritten Oral Agreements among the
Parties.
 
[Signature and acknowledgement are on the following page.]
 
 
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IN WITNESS WHEREOF, this Deed of Trust is executed on the date set forth in the
notary acknowledgment below, but is effective for all purposes as of the date
first set forth in the preamble to this Deed of Trust.
 

 

 
GRANTOR:

DEEP DOWN, INC.,
a Nevada corporation

By:   /s/ Eugene L. Butler                             
Eugene L. Butler
Chief Financial Officer 

 
 
 

STATE  OF  TEXAS  §    §  COUNTY OF HARRIS  § 

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

 

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

 

Signature and Acknowledgement Page to
Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing
 
 

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EXHIBIT A
TO DEED OF TRUST
LEGAL DESCRIPTION
 
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Exhibit A - Page 1

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Exhibit A - Page 2

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

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

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

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

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

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

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

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

 
 
Exhibit B - Page 1