6%
SUBORDINATED DEBENTURE
 
 $
      500,000
              March
      31, 2008
  THIS
DEBENTURE HAS BEEN ISSUED PURSUANT TO A NONPUBLIC OFFERING AND
 ACCORDINGLY,
IN CONFORMITY WITHTHE PRIVATE OFFERING EXEMPTIONS UNDER SECTION
 4(2) OF
THE SECURITIES ACT OF 1933, AS AMENDED, THIS DEBENTURE HAS NOT BEEN
 REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THE HOLDER OF THIS
 DEBENTURE
HAS REPRESENTED THAT IT HAS ACQUIRED THIS DEBENTURE FOR INVESTMENT
 AND NOT
WITH ANY PRESENT INTENTION OF DISTRIBUTION.
  FOR VALUE
RECEIVED, the undersigned, Deep Down, Inc., a Nevadacorporation (herein
called the "Payor"), hereby promises to pay to Charter Capital Holdings, LP (the
"Payee"), in lawfulmoney of
the United States of America ,on or before three (3) years from and after the
date hereof,the
principal sum of Five Hundred Thousand Dollars ($500,000) together with interest
at the rateof six
(6%)percent per annum on the unpaid balance from the date hereof until
paid, computed on the basis of a 365-day year. interest only on the principal
sum shall be payable in annual installments on the first andsecond anniversary hereof, with all such principal and accrued interest
due and payable on March 31, 2011.
  This
Debenture is issued in exchange for and cancellation of the Series E
Exchangeable Preferred Stock of the Payor pursuant to the terms
thereof.
  1.  Place of Payment.
Payments of both principal and interest are to be made at P.O. Box 270568,
Houston, Texas 77277-0568, or such other place as the Payor hereof shall
designate to the Payee, in lawful money of the United States of
America.
  2.  Restrictions on
Transfer. Neither this Debenture nor any interest herein may be sold,
assigned, transferred, or pledged, except with the express written consent of
the Payor.
  3.  Registered Debenture.
Subject to the provisions of Section 2 hereof, upon surrender of this Debenture
for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed by the registered Payee hereof or such
Payee's attorney duly authorized in writing, a new Debenture for a like
principal amount will be issued to and registered in the name of the transferee.
Prior to due presentment for registration of transfer, the Payor may treat the
person in whose name this Debenture is registered as the owner hereof for the
purpose of receiving payment and for all other purposes, and the Payor shall not
be affected by any notice to the contrary.
  4.  Subordination. Payee
by acceptance of this Debenture agrees that the indebtedness evidenced by this
Debenture, and any renewals or extensions thereof, shall at all times and in all
respects be subordinate and junior in right of payment to any and all direct or
indirect liability or indebtedness of the Payor, its subsidiaries, parents and
affiliates, whether now existing or created in the future, whether liquidated,
unliquidated, contingent, presently known or unknown. The indebtedness described
in the preceding sentence is hereinafter sometimes referred to as "Senior
Indebtedness".
  Prior to
the date on which all Senior Indebtedness is repaid, if an event of default is
then existing and continuing on any of the Senior Indebtedness, no payment
either of principal or interest
  
   (notwithstanding
the expressed maturity or any time for the payment of principal of or interest
on this Debenture) shall he made on this Debenture, and the Payee or any legal
holder of this Debenture will take no steps, whether by suit or otherwise, to
compel or enforce the collection of this Debenture, nor will the Payee or legal
holder use this Debenture by way of counterclaim, setoff, recoupment or
otherwise so as to diminish, discharge or otherwise satisfy in whole or in part
any indebtedness or liability of the holder to the Pa3./or, whether now existing
or hereafter arising and howsoever evidenced.
  5.  Default.
If the Payor shall file a voluntary petition in bankruptcy or shall file any
petition or answer seeking for itself any arrangement, composition,
readjustment, or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting the material allegations of a
petition filed against the Payor in any such proceeding, or shall seek or
consent to or acquiesce in the appointment of any trustee or receiver, on all or
any part of the properties of the Payor, or if a decree or order by a court
having jurisdiction in the premises shall have been entered adjudging the Payor
to be bankrupt or insolvent under the federal bankruptcy laws or any applicable
law of the United States of American or any state law, or appointing a receiver
or trustee or assignee in bankruptcy or insolvency of the Payor or its
properties, and such decree or order shall have continued undischarged or
unstayed for a period of sixty (60) days, or if the Payor shall make an
assignment for the benefit of creditors, or if the Payor shall fail to pay this
Debenture or any installment when due, then in any such event the holder of this
Debenture shall have the option to declare this Debenture due and payable,
whereupon the entire unpaid principal balance of this Debenture and all interest
accrued thereon shall thereupon at once mature and become due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Payor. The Payee must give Payor 30 days prior
written notice of his intent to accelerate the maturity hereof, during which
period the Payor has the right to cure the default.
  6.  Usury.
It is the intention of the parties hereto to comply with applicable usury laws
(now or hereafter enacted); accordingly, notwithstanding any provision to the
contrary in this Debenture, or in any of the documents securing payment hereof
or otherwise relating hereto, in no event shall this Debenture or such documents
require the payment or permit the collection of interest in excess of the
maximum amount permitted by such laws. If any such excess of interest is
contracted for, charged, taken, reserved or received under this Debenture or
under the terms of any of the documents securing payment hereof or otherwise
relating hereto, or in the event the maturity of the indebtedness evidenced by
this Debenture is accelerated in whole or in part, or in the event that all or
part of the principal or interest of this Debenture shall be prepaid, so that
under any of such circumstances the amount of interest contracted for, charged,
taken, reserved or received under this Debenture or under any of the instruments
securing payment hereof or otherwise relating hereto, on the amount of principal
actually outstanding from time to time under this Debenture shall exceed the
maximum amount of interest permitted by applicable usury laws, now or hereafter
enacted, then in any such event (i) the provisions of this paragraph shall
govern and control, (ii) any such excess which may have been collected at final
maturity of said indebtedness either shall be applied as a credit against the
then unpaid principal amount hereof or refunded to the Payor at the Payee's
option, and (iii) upon such final maturity, the effective rate of interest shall
be automatically reduced to the maximum lawful rate allowed under applicable
usury laws as now or hereafter construed by the courts having jurisdiction
thereof. Without limiting the foregoing, all calculations of the rate of
interest contracted for, charged, taken, reserved or received under this
Debenture or under such other documents which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate, shall be made, to
the extent permitted by law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the loan
evidenced hereby, all interest at any time contracted for, charged, taken,
reserved or received from the Payor or otherwise by the Payee in connection with
such indebtedness.
  
 Unless
changed in accordance with law, the applicable method of calculating the usury
ceiling rate under Texas law shall he the indicated (weekly) ceiling rate in
effect and applicable to the loan evidenced by this Dehenture, as provided in
Tex. Rev. Civ. Stat. Ann, Art. 50694.04, as amended; provided, that the Payor
may also rely on alternate maximum rates of interest under the applicable laws
if they are higher. All past due principal and interest on this Debenture,
whether due as the result of acceleration of maturity or otherwise, shall bear
interest at the lesser of (i) six (6%) per annum or (ii) the maximum lawful rate
of interest permitted by applicable state law, if any, to be charged to and paid
by the Payor from the date the payment thereof shall have become due until the
same have been fully discharged by payment.
  7.  Prepayments.
The principal of, and interest on, this Debenture is subject to prepayment at
the option of the Payor, without premium or penalty.
  8.  Governing
Law, This Debenture is to be governed by and construed in accordance with
the laws of the State of Texas.
   Deep
Down, Inc.
   By: 
/s/ Ronald E. Smith
 Ronald E.
Smith
 President
and Chief Executive Officer