| No.3  | Void after January      4, 2013 |
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|       a.   | Cash      Exercise. The purchase rights represented by this Warrant may be      exercised by the Holder, in whole or in part, by the surrender of this      Warrant (with the notice of exercise form attached hereto as Exhibit A      duly executed) at the principal office of the Company. and by the payment      to the Company, by certified, cashier's or other check acceptable to the      Company or by wire transfer to an account designated by the Company. of an      amount equal to the aggregate Exercise Price of the Shares being      purchased. |
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|       b.   | Relinquishment      of Options. (i) The Holder in lieu of purchasing the entire number      of shares subject to purchase hereunder, shallhave the right to      relinquish all or any part of the then unexercised portion of this Warrant      (to the extent then exercisable) for a number of shares of Common Stock to      be determined in accordance with the following provisions of this clause      (b): |
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|       c.     | Stock      Certificates. In the event of any exercise of the rights      represented by this Warrant, certificates for the Shares so purchased      shall be delivered to the Holder within a reasonable time and, unless this      Warrant has been fully exercised or has expired, a new Warrant      representing the shares with respect to which this Warrant shall not have      been exercised shall also be issued to the Holder within such      time. |
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| 2.     | Stock      Fully Paid; Reservation of Shares. All of      the Shares      issuable upon the exercise of the rights represented by this      Warrant will, upon issuance and receipt of the Exercise Price therefor, be      fully paid and nonassessable, and free from all taxes, liens and charges      with respect to the issue thereof. During the period within which the      rights represented by this Warrant may be exercised, the Company shall at      all times have authorized and reserved for issuance sufficient shares of      its Common Stock to provide for the exercise of the rights represented by      this Warrant. |
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| 3.     | Adjustments.Thenumber and kind of      securities purchasable upon the exercise of this Warrant and the Exercise      Price therefor shall be subject to adjustment from time to time upon the      occurrence of certain events, asfollows: |
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|       a.     | Reclassification.      In the case of any reclassification or change of securities of the class      issuable upon exercise of this Warrant (other than a change in par value,      or from par value to no par value, or from no par value to par value, or      as a result of a subdivision or combination), or in case of any merger of      the Company with or into another corporation (other than a merger with      another corporation in which the Company is the acquiring and the      surviving corporation and which does not result in any reclassification or      change of outstanding securities issuable upon exercise of this Warrant),      or in case of any sale of all or substantially all of the assets of the      Company, the Company, or such successor or purchasing corporation, as the      case may be, shall duly execute and deliver to the holder of this Warrant      a new Warrant (in form and substance reasonably satisfactory to the holder      of this Warrant), or the Company shall make appropriate provision without      the issuance of a new Warrant, so that the holder of this Warrant shall      have the right to receive, at a total purchase price not to exceed that      payable upon the exercise of the unexercised portion of this Warrant, and      in lieu of the shares of Common Stock theretofore issuable upon exercise      of this Warrant, (i) the kind and amount of shares of stock, other      securities, money and property receivable upon such reclassification,      change, merger or sale by a holder of the number of shares of Common Stock      then purchasable under this Warrant, or (ii) in the case of such a merger      or sale in which the consideration paid consists all or in part of assets      other than securities of the successor or purchasing corporation, at the      option of the Holder of this Warrant, the securities of the successor or      purchasing corporation having a value at the time of the transaction      equivalent to the fair market value of the Common Stock at the time of the      transaction. The provisions of this subparagraph (a) shall similarly apply      to successive reclassifications, changes, mergers and      transfers. |
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|       b.     | Stock      Splits, Dividends and Combinations. In the event that the Company      shall at any time subdivide the outstanding shares of Common Stock or      shall issue a stock dividend on its outstanding shares of Common Stock the      number of Shares issuable upon exercise of this Warrant immediately prior      to such subdivision or to the issuance of such stock dividend shall be      proportionately increased, and the Exercise Price shall be proportionately      decreased, and in the event that the Company shall at any time combine the      outstanding shares of Common Stock the number of Shares issuable upon      exercise of this Wan•ant immediately prior to such combination shall be      proportionately decreased, and the Exercise Price shall be proportionately      increased, effective at the close of business on the date of such      subdivision, stock dividend or combination, as the case may      be. |
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| 4.     | Notice      of Adjustments.Whenever thenumber of      Shares purchasable hereunder or the Exercise Price thereof shall be      adjusted pursuant to Section 3 hereof, the Company shall provide notice to      the Holder setting forth, in reasonable detail, the event requiring the      adjustment. the amount of the adjustment. the method by which such      adjustment was calculated, and the number and class of shares which may be      purchased thereafter and the Exercise Price therefor after giving effect      to such adjustment. |
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| 5.     | Fractional      Shares. Whether or not the number of shares purchasable upon the      exercise of a Warrant is adjusted pursuant to Section 3 of this Agreement,      this Warrant may not he exercised for fractional shares and the Company      shall not be required to issue fractions of Shares upon exercise of the      Warrants or to distribute Shares certificates that evidence fractional      Shares, In lieu of fractional Shares, there shall be returned to      exercising Registered Holders of the Warrants upon such exercise an amount      in cash, in United States dollars. equal to the amount in excess of that      required to purchase the largest number of full  Shares. |
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| 6.     | Representations      of the Company. The Company represents that all corporate actions      on the part of the Company, its officers, directors and shareholders      necessary for the sale and issuance of the Shares pursuant hereto and the      performance of the Company's obligations hereunder were taken prior to and      are effective as of the effective date of this  Warrant. |
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| 7.     | Representations      and Warranties by the Holder.The Holder represents and      warrants to the Company as      follows: |
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|       a.      | This      Warrant and the Shares issuable upon exercise thereof are being acquired      for its own account. for investment and not with a view to. or for resale in      connection with, any distribution or public offering thereof within the      meaning of the Securities Act of 1933, as amended (the "Act"). Upon      exercise of this Warrant, the Holder shall. if so requested by the      Company, confirm in writing, in a form satisfactory      to the Company, that the      securities issuable upon exercise of this Warrant are being acquired for      investment and not with a view toward distribution or      resale. |
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|       b.      | The Holder      understands that the Warrant and the Shares have not been registered under      the Act by reason of their issuance in a transaction exempt from      the registration and prospectus delivery requirements of the Act pursuant      to Section 4(2) thereof, and that they must be held by the Holder      indefinitely, and that the Holder must therefore bear the economic risk of      such investment indefinitely, unless a subsequent disposition thereof is      registered under the Act or is exempted from such      registration. |
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|       c.      | The      Holder has such knowledge and experience in financial and business matters      that it is capable of evaluating the merits and risks of the purchase of      this Warrant and the Shares purchasable pursuant to the terms of this      Warrant and of protecting its interests in connection      therewith. |
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|       d.      | The      Holder is able to bear the economic risk of the purchase of the Shares      pursuant to the terms of thisWarrant. |
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| 8.     | Restrictive      Legend.The Shares (unless registered under the Act) shall      be stamped or imprinted with a legend in substantially the following form:      THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR      INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR      DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES      ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE      ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF      COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS      EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE      ACT. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS DEEP DOWN, INC.      HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE NOT BEARING      THIS LEGEND FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME      OF THE HOLDER HEREOF. A COPY OF THE AGREEMENT MAY BE OBTAINED AT NO COST      BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE      SECRETARY OF DEEP DOWN, INC. |
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| 9.             | Restrictions      Upon Transfer and Removal ofLegend. |
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|       a.      | The      Company need not register a transfer of this Warrant or Shares bearing the      restrictive legend set forth in Section 8 hereof, unless the conditions      specified in such legend are satisfied. The Company may also instruct its      transfer agent not to register the transfer of the Shares, unless one of      the conditions specified in the legend referred to in Section 8 hereof is      satisfied. |
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|       b.      | Notwithstanding      the provisions of paragraph (a) above, no opinion of counsel shall be      necessary for a transfer without consideration by any holder (i) if such      holder is a partnership, to a partner or retired partner of such      partnership who retires after the date hereof or to the estate of any such      partner or retired partner, or (ii) if such holder is a corporation, to a      shareholder of such corporation, or to any other corporation under common      control, direct or indirect, with suchholder. |
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| 10.      | Rights      of Shareholders. No holder of this Warrant shall be entitled, as a      Warrant holder, to vote or receive dividends or be deemed the holder of      any Shares or any other securities of the Company which may at any time be      issuable on the exercise hereof for any purpose, nor shall anything      contained herein be construed to confer upon the holder of this Warrant,      as such, any of the rights of a stockholder of the Company or any right to      vote for the election of directors or upon any matter submitted to      shareholders at any meeting thereof, or to give or withhold consent to any      corporate action (whether upon any recapitalization, issuance of stock,      reclassification of stock, change of par value, consolidation, merger,      conveyance, or otherwise) or to receive notice of meetings, or to receive      dividends or subscription rights or otherwise until the Warrant shall have      been exercised and the Shares purchasable upon the exercise hereof shall      have become deliverable, as providedherein. |
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| 11.     | Registration      Rights. |
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|       a.     | Definitions.      As used herein: |
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|             i.     | The      terms "register," "registered" and "registration" refer to a registration      effected by preparing and filing with the Securities and Exchange      Commission (the "SEC") a registration statement pursuantto      the Securities Act of 1933, as amended (the "Act"), and the      declaration or order of effectiveness of such registration      statement. |
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|            ii.             | For      the purposes hereof the term "Registerable Securities" means shares of (i)      common stock,      preferred stock or debt securities of the Company (the "Securities"), (ii)      stock or debt securities issued in lieu of the Securities in any      reorganization which have not been sold to the public and (iii) stock      issued in respect of the stock referred in (i) and (ii) as a result of a      stock split, stock dividend. recapitalization or combination, which have      not been sold to the public. |
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|       b.     | Incidental      Registration. |
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|            i.     | If      the Company at any time proposes to register any of its securities under      the Act, whether      of its own accord or at the demand of any holder of such securities      pursuant to an agreement with respect to the registration thereof      (provided such agreement does not prohibit third parties from including      additional securities in such registration), and if the form of      registration statement proposed to be used may be used for the      registration of Registerable Securities, the Company will give notice to      Holder not less than 10 days nor more than 30 days prior to the filing of      such registration statement of its intention to proceed with the proposed      registration (the "Incidental Registration"), and, upon written request of      the Holder made within ten (10) days after the receipt of any such notice      (which request will specify the Registerable Securities intended to be      disposed of by the Holder and state the intended method of disposition      thereof'), the Company will use its best efforts to cause all Registerable      Securities of Holder as to which registration has been requested to be      registered under the Act, provided that if such registration is in      connection with an underwritten public offering, Holder's Registerable      Securities to be included in such registration shall be offered upon the      same terms and conditions as apply to any other securities included in      such registration. Notwithstanding anything contained in this Section 1.2      to the contrary, the Company shall have no obligation to cause      Registerable Securities to be registered with respect to any Registerable      Securities which shall be eligible for resale under Rule 144(k) of the      Securities Act. |
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|            ii.            | If an Incidental Registration is      a primary registration on behalf of the Company and is inconnection      with an underwritten public offering, and if the managing underwriters      advise the Company in writing that in their opinion the amount of      securities requested to be included in such registration (whether by the      Company. the      Holder, or other holders of the Company's securities pursuant to      any other rights granted by the Company to demand inclusion of any such      securities in such registration) exceeds the amount of      such securities which can be successfully sold in such offering, the      Company will include in such registration the amount of securities      requested to be included which in the opinion of such underwriters can be      sold, in the following order (A) first, all of the securities the Company      proposes to sell, and (B) second, any other securities requested to he      included in such registration, pro rata among the holders thereof on the      basis of the amount of such securities then owned by such      holders. |
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|            iii.         | If      an Incidental Registration is a secondary registration on behalf of      holders of securities of the Company and is in      connection with an underwritten public offering, and if the      managing underwriters advise the Company in writing that in their      opinion the amount of securities requested to be included in such      registration (whether by such holders, by the Holder, or by holders of the      Company's securities pursuant to any other rights granted by the Company      to demand inclusion of securities in such registration) exceeds the amount      of such securities which can be sold in such offering, the Company will      include in, such registration the amount of securities requested to be      included which in the opinion of such underwriters can be sold, in the      following order (A) first, all of the securities requested to be included      by holders demanding or requesting such registration, and (B) second, any      other securities requested to be included in such registration, pro rata      among the holders thereof on the basis of the amount of such securities      then owned by such holders. |
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|       c.     | Registration      Procedures.The Company will advise the Holder in writing as      to the effective date of the registration and as to the completion      thereof. At its expense the Companywill: |
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|            i.     | keep      the registration effective for a period of days or until the Holder has      completed the distribution      described in the registration statement relating thereto, whichever first      occurs; and |
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|            ii.            | furnish      such number of prospectuses and any other documents incident thereto as      the Holder      from time to time may reasonablyrequest. |
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| 12.       | Notices.      All notices and other communications required or permitted hereunder shall      be in writing, shall be effective when given, and shall in any event be      deemed to be given upon receipt or, if earlier, (a) five (5) days after      deposit with the U.S. Postal Service or other applicable postal service,      if delivered by first class mail, postage prepaid, (b) upon delivery, if      delivered by hand. (c) one business day after the business day of deposit      with Federal Express or similar overnight courier, freight prepaid or (d)      one business day after the business day of facsimile transmission, if      delivered by facsimile transmission with copy by first class mail, postage      prepaid. and shall be addressed (i) if to the Holder, at the Holder's      address as set forth on the books of the Company, and (ii) if to the      Company, at the address of its principal corporate offices (attention:      President) or at such other address as a party may designate by ten days      advance written notice to the other party pursuant to the provisions      above. |
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| 13.       | Governing      Law. This Warrant and all actions arising out of or in connection      with this Agreement shall be governed by and construed in accordance with      the laws of the State of Nevada, without regard to the conflicts of law      provisions of the State of Nevada or of any other  state. |
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| 14.       | Entire      Agreement; Modification; Waivers. This Agreement contains the      entire agreement of the parties, and supersedes any prior agreements with      respect to its subject matter. Except for the provisions of subsection      4.2, the Warrant Agent and the Company, by supplemental agreement, may      make any changes in this Agreement (i) that they shall deem appropriate to      cure any ambiguity or to correct any defective or inconsistent provision      or manifest mistake or error herein contained; or (ii) that they may deem      necessary or desirable and that shall not adversely affect the interests      of the Registered Holders of Warrant Certificates (this provision, for instance, shall permit      the Exercise Price to be decreased at the Company's    option). |
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| 15.              | Assignment.      This Warrant may be assigned or transferred, in whole or in part, by due      execution of the assignment form attached hereto as Exhibit B and the      delivery of a true and correct copy thereof to the principal office of the      Company along with a certification by the Holder that the assignee is, or      was at the time this Warrant was issued, a registered representative with      Dragonfly Capital Partners, LLC. Any assignment shall be null, void and of      no force or effect unless the assignee is. or was at the time this Warrant      was issued, a registered representative with Dragonfly Capital Partners.      LLC and the assignment is accompanied by a certification to such      effect. |
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| 16.              | Jurisdiction      and Venue. The courts of the State of Texas, sitting in the City of      Houston. (the "Texas Courts') shall have exclusive jurisdiction to hear,      adjudicate, decide, determine and enter final judgment in any action,      suit, proceeding, case. controversy or dispute. whether at law or in      equity or both, and whether in contract or tort or both, arising out of or      related to this Agreement, or the construction or enforcement hereof or      thereof (any such action, suit. proceeding. case, controversy or dispute,      a "Related Action"). The Company and the Registered Holder hereby      irrevocably consent and submit to the exclusive personal jurisdiction of      the Texas Courts to hear, adjudicate, decide, determine and enter final      judgment in any Related Action. The Company and the Registered Holder      hereby irrevocably waive and agree not to assert any right or claim that      it is not personally subject to the jurisdiction of the Texas Courts in      any Related Action, including any claim of      forum non conveniens or that the Texas Courts are not the proper      venue or form to adjudicate any Related Action. If any Related Action is      brought or maintained in any court other than the Texas Courts, then that      court shall, at the request of the Company or the Registered Holder.      dismiss that action. |
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| 17.              | Specific      Performance. The Company hereby acknowledges and agrees that it is      difficult, if not impossible to measure in money the damages that will      accrue to the Registered Holder by reason of a failure to issue the Shares      under this Agreement, and that the Registered Holder may seek to      specifically enforce the Company's obligation to issue the Shares.      Therefore, if the Registered Holder shall institute any action or      proceeding to enforce the provisions hereof, the Company hereby waives all      claims or defenses therein that the Registered Holder has an adequate      remedy at law, and hereby agrees not to assert or otherwise raise any such      claim or defense. |
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| 18.              | Waiver      of Jury Trial. The Company and the Registered Holder hereby waive      trial by jury in any RelatedAction. |
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| 19.              | Attorney's      Fees .The prevailing party in any Related Action shall be entitled      to recover that party's costs of suit, including reasonable attorney's      fees. |
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| 20.              | Binding      Effect. This Agreement shall be binding on, and shall inure to the      benefit of the parties and their respective successors in      interest. |
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| 2l.               | Construction,      Counterparts. This Agreement shall be construed as a whole and in      favor of the validity and enforceability of each of its provisions, so as      to carry out the intent of the parties as expressed herein. Heading are      for the convenience of reference, and the meaning and interpretation of      the text of any provision shall take precedence over its heading. This      Agreement may be signed in one or more counterparts, each of which shall      constitute an original, but all of which, taken together shall constitute      one agreement. A faxed copy or photocopy of a party's signature shall be      deemed an original for allpurposes. |
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|   | DEEP      DOWN, INC. |                                  |
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|   |                 |                                  |   |
|   | By:                  | /s/ Ronald      E. Smith         |   |
|   |                 | Name:      Ronald E. Smith       |   |
|   |                 | Title:      President & CEO  |   |
|   |                 |                                  |   |

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|     1.      | The      undersigned hereby elects to purchase _______ Shares of DEEP DOWN, INC.      pursuant to the terms of the attachedWarrant. |
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|     2.      | Method      of Exercise (Please initial the applicable blank); |
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|     3.      | Please      issue a certificate or certificates representing said Shares in the name      of the undersigned or in such other name as is specified      below; |
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|                                                     |                                                                                                                                                           |
|                                                     | ______________________________________                                                                                                                    |
|                                                     |            (Name)                                                                                  |
|                                                     |                                                                                                                                                           |
|                                                     | ______________________________________                                                                                                               |
|                                                     |                                                                                                                                                           |
|                                                     | ______________________________________                                                                                                               |
|                                                     |                 (Address)                                                                               |

|     4.      | The      undersigned hereby represents and warrants that the aforesaid Shares are      being acquired for the account of the undersigned for investment and not      with a view to. or for resale, in connection with the distribution      thereof, and that the undersigned has no present intention of distributing      or reselling such shares and all representations and warranties of the      undersigned set forth in Section 7 of the attached Warrant are true and      correct as of the datehereof. |
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|   | _______________________________    |
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|   | (Signature)                        |
|   | Title:___________________________  |

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|   | ___________________________________________________  |
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|   | Signature      Guaranteed:                      |
|   | ___________________________________________________  |