FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is entered into as of December 31, 2010, among DEEP DOWN, INC., a Nevada corporation (“Borrower”), FLOTATION TECHNOLOGIES, INC., a Maine corporation (“Flotation Technologies”), 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).

 

 

A.    Borrower and Lender entered into that certain Amended and Restated Credit Agreement dated as of November 11, 2008, and amended and restated through April 14, 2010 (as amended, restated, or supplemented, the “Credit Agreement”).

 

B.    Flotation Technologies, Deep Down Inc., a Delaware corporation, ElectroWave USA, Inc., a Nevada corporation, and Mako Technologies, LLC, a Nevada limited liability company are guarantors of the Borrower’s obligations under the Credit Agreement (each a “Guarantor” and collectively, the “Guarantors”).

 

C.    Flotation Technologies has previously entered into: (i) that certain Guaranty dated as of November 11, 2008, executed by each it and each of the other Guarantors (as ratified by that certain Ratification of Guaranty, Security Agreement, and Intercreditor Agreement dated as of April 14, 2010, and as further amended, restated, or supplemented, the “Guaranty”), pursuant to which each Guarantor guaranteed the obligations of the Borrower under the Credit Agreement, and (ii) that certain Security Agreement dated as of November 11, 2008, executed by Borrower and each of the Guarantors (as ratified by that certain Ratification of Guaranty, Security Agreement, an d Intercreditor Agreement dated as of April 14, 2010, and as further amended, restated, or supplemented, the “Security Agreement”), pursuant to which Borrower and each Guarantor granted a lien on all of their respective assets in favor of Lender.

 

D.    Borrower, Flotation Technologies, and Flotation Investor, LLC, a Delaware limited liability company (“Holdings”), have formed Cumming Flotation Technologies, LLC, a Delaware limited liability company (“CFT”).

 

E.    In connection with the formation of CFT:

 

(i)    Borrower and Holdings have entered into that certain Securities Purchase Agreement dated as of December 31, 2010 (the “Securities Purchase Agreement”), pursuant to which Borrower has issued to Holdings twenty million shares of common stock of Borrower for the aggregate consideration of $1,400,000 (the “Stock Sale”), and

 

(ii)    Borrower, Flotation Technologies, Holdings, and CFT, have entered into that certain Contribution Agreement dated as of December 31, 2010 (as amended, restated, or supplemented, the “Contribution Agreement”), pursuant to which:

 

(a)    Flotation Technologies has contributed to CFT all of the assets of Flotation Technologies as described in the Contribution Agreement (the “Contributed Assets”) in exchange for certain equity interests in CFT and the assumption by CFT of all liabilities of Flotation Technologies other than an intercompany corporate overhead  payable from Flotation Technologies to Borrower in the approximate amount of $372,000 (the “Asset Contribution”);

  

  

(b)    Borrower has contributed to CFT:

 

(1)    $1,400,000 of the cash proceeds from the Stock Sale under the Securities Purchase Agreement (the “Cash Investment”); and

 

(2)    all of its rights and obligations under that certain Stock Purchase Agreement, dated May 3, 2010, as amended, among Borrower, Cuming Corporation, a Massachusetts corporation (“Cuming”), and the stockholders of Cuming listed on the signature pages thereto, in exchange for certain equity interests in CFT, which, together with the equity interests held by Flotation Technologies, shall, in the aggregate, be equal to 20% of the equity interests issued by CFT, and

 

(iii)    Holdings contributed $22,350,000 in cash to CFT in exchange for 80% of the equity interests issued by CFT.

 

F.    In connection with the formation of CFT by Flotation Technologies, Borrower, and Holdings, Borrower has requested that Lender (i) amend the Credit Agreement, (ii) consent to the Asset Contribution and the Cash Investment, and (iii) release all of its liens on, and security interests in, the Contributed Assets, in each case, 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)   Section 1.1 of the Credit Agreement is amended to delete the defined term “EBITDA” in its entirety and to replace it with the following:

 

“EBITDA means consolidated net income of the Companies, plus income taxes, plus Interest Expense, plus depreciation and amortization, plus non-cash stock-based compensation, in each case to the extent subtracted in calculating net income, plus cash distributions received by any Company in respect of its equity interests in CFT (but excluding any income or losses allocable to such Company’s equity interests in CFT).   For the fiscal qu arters ended March 31, 2010, June 30, 2010, September 30, 2010, and December 31, 2010, EBITDA shall be calculated by adding back to consolidated net income up to $13,000,000 of the amounts written down related to impairment of good will and other intangible assets for the fiscal year ended December 31, 2010.”

 

 

  

 

4.   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;

 

 

5.   Covenants.  Borrower hereby covenants and agrees that:

 

(a)   On or before February 28, 2011:

 

 

 

  

  

 

[Signatures are on the following page.]

  

   

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

 

  

 

 

     

 

 

 

 

 

 

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.

 

[Signatures are on the following page.]