Document:

deepdown_8k-ex1002.htm

    
      EXHIBIT
10.2

    

    
 

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

     

     

    DEED
OF TRUST, SECURITY AGREEMENT

    AND
UCC FINANCING STATEMENT FOR FIXTURE FILING

    (Texas)

     

    by

     

    DEEP DOWN, INC.,

     

    as Grantor,

     

    to

     

    GARY M. OLANDER,

    as Trustee,

     

    for the
benefit of

    WHITNEY
NATIONAL BANK

    as
Beneficiary

     

    
      

    

     

    This
Instrument shall be effective as a

    UNIFORM
COMMERCIAL CODE FINANCING STATEMENT FILED AS A

    FIXTURE
FILING

     

    
       

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

      

       

    

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

     

    THIS
INSTRUMENT PREPARED BY AND AFTER RECORDING PLEASE RETURN TO:

    Porter & Hedges,
L.L.P.

    1000 Main Street, 36th
Floor

    Houston, Texas 77002

    Attn:  Nick H.
Sorensen

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
TABLE
OF CONTENTS

     

     

    
      	SECTION
      1. 	DEFINITIONS 	
              1

            
	 	 	 
	SECTION
      2. 	GRANT OF LIEN;
      HABENDUM CLAUSE. 	
              4

            
	
              2.1

            	Grant of Lien;
      Habendum Clause 	
              4

            
	
              2.2

            	Subrogation 	
              4

            
	 	 	 
	SECTION
      3. 	WARRANTIES AND
      REPRESENTATIONS 	
              4

            
	
              3.1

            	Lien of this
      Instrument 	
              4

            
	
              3.2

            	Litigation 	
              4

            
	
              3.3

            	Acknowledgment by
      Grantor 	
              4

            
	
              3.4

            	Environmental 	
              4

            
	 	 	 
	SECTION
      4. 	AFFIRMATIVE
      COVENANTS 	
              4

            
	
              4.1

            	Payment and
      Performance 	
              5

            
	
              4.2

            	Payment of
      Impositions 	
              5

            
	
              4.3

            	Repair 	
              5

            
	
              4.4

            	Insurance 	
              5

            
	
              4.5

            	Restoration
      Following Casualty 	
              6

            
	
              4.6

            	Defense of
      Title 	
              6

            
	
              4.7

            	Future
      Impositions 	
              6

            
	
              4.8

            	Environmental
      Indemnification 	
              6

            
	
              4.9

            	Information About
      Mortgaged Property 	
              6

            
	
              4.10

            	Further
      Assurances 	
              6

            
	 	 	 
	SECTION 5.	NEGATIVE
      COVENANTS 	
              6

            
	
              5.1

            	Use
      Violations 	
              6

            
	
              5.2

            	Alterations 	
              7

            
	
              5.3

            	Prohibition on
      Transfer 	
              7

            
	
              5.4

            	Replacement of
      Fixtures and Personalty 	
              7

            
	
              5.5

            	No Further
      Encumbrances 	
              7

            
	 	 	 
	SECTION
      6. 	DEFAULT AND
      FORECLOSURE. 	
              7

            
	
              6.1

            	Remedies 	
              7

            
	
              6.2

            	Divestment of
      Rights, Tenant at Sufferance 	
              10

            
	
              6.3

            	Separate
      Sales 	
              10

            
	
              6.4

            	Remedies Cumulative,
      Concurrent, and Nonexclusive 	
              10

            
	
              6.5

            	Release of and
      Resort to Collateral 	
              10

            
	
              6.6

            	Waiver of
      Redemption, Notice, and Marshaling of Assets 	
              11

            
	
              6.7

            	Discontinuance of
      Proceedings 	
              11

            
	
              6.8

            	Application of
      Proceeds, Deficiency Obligation 	
              11

            
	
              6.9

            	Purchase by
      Beneficiary 	
              11

            
	
              6.10

            	Disaffirmation of
      Contracts 	
              11

            
	
              6.11

            	Deficiency
      Suit 	
              12

            
	 	 	 
	SECTION
      7. 	CONDEMNATION 	
              12

            
	 	 	
               

            
	SECTION
      8. 	SECURITY
      AGREEMENT	
              12

            
	
              8.1

            	Security
      Interest 	
              12

            
	
              8.2

            	Financing
      Statements 	
              12

            

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    
      	
              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 	 

    

                            

                                                                                                                                            

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    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.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    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;

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    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:

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    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.]

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

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

     

    
    

     

    
    

    
      	 	
              GRANTOR:

              

              DEEP
      DOWN, INC.,

              a
      Nevada corporation

              

              

              By:   /s/ Eugene L.
      Butler                           
       

              Eugene
      L. Butler

              Chief
      Financial Officer 

            

    

     

     

    
       

      
        	STATE  OF  TEXAS 	§ 
	 	§ 
	COUNTY OF
      HARRIS 	§ 

      

    

    
       

    

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

     

     

    
    

     

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

              STATE
      OF TEXAS 

            

    

     

    

    

    

    
      
        
          Signature
and Acknowledgement Page to

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

        

         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
A

    TO
DEED OF TRUST

    LEGAL
DESCRIPTION

     

    

     

     

    
      
        
        

      

      
        Exhibit A
- Page 1

        
          

        

      

      
        
        

      

    

    
 

    

     

     

     

     

    
      
        
        

      

      
        Exhibit A
- Page 2

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
B

     

    TO
DEED OF TRUST

    PERMITTED
ENCUMBRANCES

     

    
      	
              1.  

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

            

    

    

    
      	
              2.  

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

            

    

    

    
      	
              3.  

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

            

    

    

    
      	
              4.  

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

            

    

    

    
      	
              5.  

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

            

    

    

    
      	
              6.  

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

            

    

    

    
      	
              7.  

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

            

    

    

    
      	
              8.  

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

            

    

     

     

    Exhibit B - Page
1deepdown_8k-ex1003.htm

    
      EXHIBIT
10.3

       

      THIRD
AMENDMENT TO CREDIT AGREEMENT

    

    

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

     

    RECITALS

     

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

     

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

     

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

     

    1.    Amendments to Credit
Agreement.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    

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

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
 

    RE Term Loan
Closing Date means May 29, 2009.

    

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

    

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

    

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

    

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

    

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

     

    “2.1           Term Facility and RE Term
Facility.

     

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

     

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

    

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    

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

     

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

    

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

     

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

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    “3.2           Term Facility and RE Term
Facility.

    

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

     

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

     

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

     

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

     

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

     

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

    

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

     

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

    

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

     

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

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    2.    Exhibits and
Schedules.

     

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

     

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

     

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

     

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

     

    (a)    this
Amendment executed by Borrower and Lender;

     

    (b)    Guarantors’
Consent and Agreement;

     

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

     

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

     

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

     

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

     

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

     

    (h)    Flood
determination regarding the Properties;

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

    6.    Miscellaneous.

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

    

    [Signatures are on the following
page.]

     

     

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

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

     

    
    

     

    
      	 	      
              BORROWER:

              

              DEEP
      DOWN, INC.,

              a
      Nevada corporation

              

              

              By:      /s/ Eugene L.
      Butler                                           
      

              Eugene
      L. Butler

              Chief
      Financial Officer

              

              

              LENDER:

              

              WHITNEY
      NATIONAL BANK,

              a
      national banking association

              

              

              By:      /s/ Paul W.
      Cole                                                  
      

              Paul
      W. Cole

              Vice
      President 

            

    

     

     

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    
      
GUARANTORS’
CONSENT AND AGREEMENT

    TO

    THIRD
AMENDMENT TO CREDIT AGREEMENT

     

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

     

    
    

     

    
      	 	      
              GUARANTORS:

               

              ELECTROWAVE
      USA, INC.,

              a
      Nevada corporation

              

              FLOTATION
      TECHNOLOGIES, INC.,

              a
      Maine corporation

              

              MAKO
      TECHNOLOGIES, LLC,

              a
      Nevada limited liability company

              

              DEEP
      DOWN INC.,

              a
      Delaware corporation

              

              

              By:      /s/ Eugene L.
      Butler                                                                       
      

              Eugene
      L. Butler

              Chief
      Financial Officer of each of the foregoing
      companies 

            

    

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    ANNEX
A

    

    Schedules
and Exhibits

    

    
    

     

    
      	      
              SCHEDULE
      1.1  

              SCHEDULE
      1.2

              SCHEDULE
      3.2

              SCHEDULE
      5

              SCHEDULE
      7.2

              SCHEDULE
      7.5

              SCHEDULE
      7.12

              SCHEDULE
      7.14

              SCHEDULE
      7.16

              SCHEDULE
      9.13 

              
                 

                EXHIBIT
      A-1

                EXHIBIT
      A-2

                EXHIBIT
      A-3

                EXHIBIT
      B

                EXHIBIT
      C

                EXHIBIT
      D

                EXHIBIT
      E

                EXHIBIT
      F

                EXHIBIT
      G

              

            	      
              Parties,
      Addresses, and Wiring Information

              Existing
      Debt and Liens

              Amortization
      Schedule

              Conditions
      Precedent

              Subsidiaries

              Litigation

              Place
      of Business

              Transactions
      with Affiliates

              Material
      Agreements

              Subordinated
      Debt that May be Prepaid

              

              Term
      Note

              Revolving
      Note

              RE
      Term Note

              Guaranty
      (Corporate Guarantors)

              Loan
      Request

              Borrowing
      Base and No Default Certificate

              Compliance
      Certificate

              Security
      Agreement

              Pledge
      Agreement 

            

    

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ANNEX
B

     

    SCHEDULE
7.16

     

    Material
Agreements

     

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

     

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

    

     

    

     

    

     

    
      
        
          Annex B
to Third Amendment to Credit Agreement

        

         

      

      
         

        
          

        

      

      
         

      

    

    ANNEX
C

    

    EXHIBIT
A-3

    

    REAL ESTATE TERM
NOTE

     

    
    

     

    
      	$
      __________ 	
              Houston,
      Texas May [___], 2009

            

    

                                               

     

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

     

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

     

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

     

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

     

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

    

    

    
      
        
          Annex C
to Third Amendment to Credit Agreement

        

         

      

      
         

        
          

        

      

      
         

      

    

    EXECUTED
as of the date first written above.

     

    
      
        	 	
                BORROWER:

                 

                
                  DEEP
      DOWN, INC.,

                  a
      Nevada corporation

                

              	 
	 	 	 	 
	
                Date

              	
                By:
      

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

      

    

     

     

     

     

    
      

     

    

      Annex C
to Third Amendment to Credit Agreement

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