Document:

INDENTURE

     

    

     

    SMF
      Energy Corporation

     

    

     

    and

     

    

     

    American
      National Bank

     

    

     

     

    Dated
      as of August 8, 2007

     

    

     

    $10,647,500

     

    

     

    111⁄2%
      Senior Secured Convertible Promissory Notes due December 31,
      2009

     

     

    
      
      

      
        

        

      

    

    

    

     

    TABLE
      OF CONTENTS

     

    Page

    ARTICLE
      I

    DEFINITIONS
      AND RULES OF CONSTRUCTION

     

    
      	
              1.1

            	
              Definitions

            	
              1

            

    

     

    
      	
              1.2

            	
              Other
                Definitions

            	
              3

            

    

     

    
      	
              1.3

            	
              Rules
                of Construction

            	
              3

            

    

     

    ARTICLE
      II

    THE
      SECURITIES

     

    
      	
              2.1

            	
              Form
                and Dating

            	
              4

            

    

     

    
      	
              2.2

            	
              Agents.

            	
              4

            

    

     

    
      	
              2.3

            	
              Paying
                Agent and Trustee to Hold Money in Trust

            	
              4

            

    

     

    
      	
              2.4

            	
              Holder
                Lists

            	
              5

            

    

     

    
      	
              2.5

            	
              Transfer
                and Exchange

            	
              5

            

    

     

    
      	
              2.6

            	
              Outstanding
                Notes

            	
              5

            

    

     

    
      	
              2.7

            	
              Treasury
                Notes Disregarded for Certain Purposes

            	
              5

            

    

     

    
      	
              2.8

            	
              Cancellation

            	
              6

            

    

     

    ARTICLE
      III

    REDEMPTION
      AND CONVERSION OF NOTES

     

    
      	
              3.1

            	
              Notice
                to Trustee of Redemption and Conversion

            	
              6

            

    

     

    
      	
              3.2

            	
              Selection
                of Notes to be Redeemed

            	
              6

            

    

     

    
      	
              3.3

            	
              Notice
                of Redemption

            	
              6

            

    

     

    
      	
              3.4

            	
              Deposit
                of Redemption Price

            	
              6

            

    

     

    
      	
              3.5

            	
              Notes
                Redeemed or Converted in Part

            	
              7

            

    

     

    ARTICLE
      IV

    COVENANTS

     

    
      	
              4.1

            	
              Payment
                of Notes

            	
              7

            

    

     

    
      	
              4.2

            	
              SEC
                Reports

            	
              7

            

    

     

    
      	
              4.3

            	
              Compliance
                Certificate

            	
              7

            

    

     

    
      	
              4.4

            	
              Notice
                of Certain Events

            	
              7

            

    

     

    ARTICLE
      V

    SUCCESSORS

     

    
      	
              5.1

            	
              When
                Company May Merge, etc

            	
              8

            

    

     

    
      	
              5.2

            	
              Successor
                Corporation Substituted

            	
              8

            

    

     

    
      
         

      

      
        -i-

        
          

        

      

      
         

      

    

    ARTICLE
      VI

    DEFAULTS
      AND REMEDIES

     

    
      	
              6.1

            	
              Acceleration

            	
              8

            

    

     

    
      	
              6.2

            	
              Notice
                of Defaults

            	
              9

            

    

     

    
      	
              6.3

            	
              Other
                Remedies

            	
              9

            

    

     

    
      	
              6.4

            	
              Control
                by Two-Thirds Majority

            	
              9

            

    

     

    
      	
              6.5

            	
              Limitation
                on Suits

            	
              9

            

    

     

    
      	
              6.6

            	
              Rights
                of Holders To Receive Payment

            	
              10

            

    

     

    
      	
              6.7

            	
              Priorities

            	
              10

            

    

     

    
      	
              6.8

            	
              Undertaking
                for Costs

            	
              10

            

    

     

    
      	
              6.9

            	
              Proof
                of Claim

            	
              11

            

    

     

    
      	
              6.10

            	
              Actions
                of a Holder

            	
              11

            

    

     

    ARTICLE
      VII

    OTHER
      DISTRIBUTIONS

     

    
      	
              7.1

            	
              Priorities

            	
              11

            

    

     

    ARTICLE
      VIII

    TRUSTEE

     

    
      	
              8.1

            	
              Duties
                of Trustee

            	
              12

            

    

     

    
      	
              8.2

            	
              Rights
                of Trustee

            	
              13

            

    

     

    
      	
              8.3

            	
              Individual
                Rights of Trustee; Disqualification

            	
              13

            

    

     

    
      	
              8.4

            	
              Trustee’s
                Disclaimer

            	
              13

            

    

     

    
      	
              8.5

            	
              Compensation
                and Indemnity

            	
              13

            

    

     

    
      	
              8.6

            	
              Replacement
                of Trustee

            	
              15

            

    

     

    
      	
              8.7

            	
              Successor
                Trustee by Merger, etc

            	
              15

            

    

     

    ARTICLE
      IX

    SATISFACTION
      AND DISCHARGE

     

    
      	
              9.1

            	
              Satisfaction
                and Discharge of Indenture

            	
              16

            

    

     

    
      	
              9.2

            	
              Application
                of Trust Funds

            	
              16

            

    

     

    
      	
              9.3

            	
              Reinstatement

            	
              17

            

    

     

    
      	
              9.4

            	
              Repayment
                to Company

            	
              17

            

    

     

    ARTICLE
      X

    AMENDMENTS

     

    
      	
              10.1

            	
              Without
                Consent of Holders

            	
              17

            

    

     

    
      
         

      

      
        -ii-

        
          

        

      

      
         

      

    

    
      	
              10.2

            	
              With
                Consent of Holders

            	
              17

            

    

     

    
      	
              10.3

            	
              Compliance
                with Trust Indenture Act and Section 12.3

            	
              18

            

    

     

    
      	
              10.4

            	
              Revocation
                and Effect of Consents and Waivers

            	
              18

            

    

     

    
      	
              10.5

            	
              Notice
                of Amendment; Notation on or Exchange of Notes

            	
              19

            

    

     

    
      	
              10.6

            	
              Trustee
                Protected

            	
              19

            

    

     

    ARTICLE
      XI

    SUBORDINATION

     

    
      	
              11.1

            	
              Notes
                Subordinated to Senior Debt

            	
              19

            

    

     

    
      	
              11.2

            	
              Notes
                Subordinated in Any Proceeding

            	
              19

            

    

     

    
      	
              11.3

            	
              No
                Payment on Notes in Certain Circumstances

            	
              19

            

    

     

    
      	
              11.4

            	
              Obligations
                of Company Unconditional

            	
              19

            

    

     

    
      	
              11.5

            	
              Trustee
                Entitled to Assume Payments Not Prohibited in Absence of
                Notice

            	
              20

            

    

     

    
      	
              11.6

            	
              Satisfaction
                and Discharge

            	
              20

            

    

     

    
      	
              11.7

            	
              Subordination
                Rights Not Impaired by Acts or Omissions of Company or Holders of
                Senior
                Debt

            	
              20

            

    

     

    
      	
              11.8

            	
              No
                Fiduciary Duty of Trustee or Holders to Holders of Senior
                Debt

            	
              20

            

    

     

    
      	
              11.9

            	
              Trustee’s
                Rights to Compensation, Reimbursement of Expenses and
                Indemnification

            	
              20

            

    

     

    
      	
              11.10

            	
              Exception
                for Certain Distributions

            	
              21

            

    

     

    ARTICLE
      XII

    MISCELLANEOUS

     

    
      	
              12.1

            	
              Notices

            	
              21

            

    

     

    
      	
              12.2

            	
              Communication
                by Holders with Other Holders

            	
              22

            

    

     

    
      	
              12.3

            	
              Certificate
                and Opinion as to Conditions Precedent

            	
              22

            

    

     

    
      	
              12.4

            	
              Statements
                Required in Certificate or Opinion

            	
              22

            

    

     

    
      	
              12.5

            	
              Rules
                by Trustee

            	
              22

            

    

     

    
      	
              12.6

            	
              No
                Recourse Against Others

            	
              22

            

    

     

    
      	
              12.7

            	
              Variable
                Provisions

            	
              22

            

    

     

    
      	
              12.8

            	
              Governing
                Law

            	
              23

            

    

     

    
      	
              12.9

            	
              Severability

            	
              23

            

    

     

    
      	
              12.10

            	
              Effect
                of Headings, Table of Contents, etc

            	
              23

            

    

     

    
      	
              12.11

            	
              Counterparts;
                Facsimile

            	
              23

            

    

     

    
      	
              12.12

            	
              Successors
                and Assigns

            	
              23

            

    

     

    
      
         

      

      
        -iii-

        
          

        

      

      
         

      

    

    
      	
              12.13

            	
              No
                Interpretation of Other Agreements

            	
              23

            

    

     

    

    EXHIBIT
      A
 Form
      of
      Senior Secured Convertible Promissory Note

     

    
      
         

      

      
        -iv-

        
          

        

      

      
         

      

    

     

    THIS
      INDENTURE is dated effective as of August 8, 2007, between SMF Energy
      Corporation, a Delaware corporation (the “Company”),
      and
      American National Bank, a Colorado corporation (the “Trustee”).

     

    Each
      party agrees as follows for the benefit of the other party and for the equal
      and
      ratable benefit of the Holders of Company’s 111⁄2% Senior Secured Convertible
      Promissory Notes due December 31, 2009, in substantially the form attached
      as
Exhibit
      A
      hereto
      (the “Notes”):

     

    ARTICLE
      I

    DEFINITIONS
      AND RULES OF CONSTRUCTION

     

    1.1 Definitions.

     

    “Affiliate”
means
      any Person controlling, controlled by, or under common control with the
      referenced Person. “Control” for this definition means the power to direct the
      management and policies of a Person, directly or indirectly, whether through
      the
      ownership of voting securities, by contract, or otherwise. The terms
“controlling” and “controlled” have meanings correlative to the definition of
“control.”

     

    “Bankruptcy
      Law”
means
      Title 11 of the U.S. Code or any similar federal or state law for the
      relief of debtors. 

     

    “Business
      Day”
means
      a
      day that is not a Legal Holiday.

     

    “Common
      Stock”
means
      the common stock of Company, par value $.01 per share. 

     

    “Collateral”
shall
      have the meaning given to that term in the Security Agreement.

     

    “Company”
means
      SMF Energy Corporation, a Delaware corporation. 

     

    “Custodian”
means
      any receiver, trustee, assignee, liquidator or similar official under any
      Bankruptcy Law.

     

    “Debt”
means,
      with respect to any Person, (a) any obligation of such Person to pay the
      principal of, premium of, if any, interest on (including interest accruing
      on or
      after the filing of any petition in bankruptcy or for reorganization relating
      to
      Company, whether or not a claim for such post-petition interest is allowed
      in
      such proceeding), penalties, reimbursement or indemnification amounts, fees,
      expenses or other amounts relating to any indebtedness, and any other liability,
      contingent or otherwise, of such Person (i) for borrowed money (including
      instances where the recourse of the lender is to the whole of the assets of
      such
      Person or to a portion thereof), (ii) evidenced by a note, debenture or
      similar instrument (including a purchase money obligation) including securities,
      (iii) for any letter of credit or performance bond in favor of such Person,
      or (iv) for the payment of money relating to a capitalized lease
      obligation; (b) any liability of others of the kind described in the
      preceding clause (a), which the Person has guaranteed or which is otherwise
      its legal liability; (c) any obligation of the type described in
      clauses (a) and (b) secured by a lien to which the property or assets of
      such Person are subject, whether or not the obligations secured thereby shall
      have been assumed by or shall otherwise be such Person’s legal liability; and
      (d) any

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    and
      all
      deferrals, renewals, extensions and refunding of, or amendments, modifications
      or supplements to, any liability of the kind described in any of the preceding
      clauses (a), (b) or (c).

     

    “Default”
means
      any event that is, or after notice or passage of time would be, an Event of
      Default.

     

    “Distribution”
in
      any
      Proceeding means any payment or distribution of assets or securities of Company
      of any kind or character from any source, whether in cash, securities or other
      property made by Company, custodian, liquidating trustee or agent or any other
      person whether pursuant to a plan or otherwise, provided, however, that under
      no
      circumstances will the payment or distribution of the Collateral or any proceeds
      thereof be deemed to be a Distribution. 

     

    “Event
      of Default”
shall
      be as defined in the Notes.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Holder”
means
      a
      Person in whose name a Note is registered.

     

    “Indenture”
means
      this Indenture as amended from time to time.

     

    A
      “Legal
      Holiday”
is
      a
      Saturday, a Sunday or a day on which banking institutions are not required
      to be
      open. If a payment date is a Legal Holiday at a place of payment, payment may
      be
      made at that place on the next succeeding day that is not a Legal Holiday,
      and
      no interest shall accrue for the intervening period. 

     

    “Notes”
means
      the 111⁄2% Senior Secured Convertible Promissory Notes due December 31, 2009 held
      by a Holder, in substantially the form attached as Exhibit
      A
      hereto.

     

    “Officer”
means
      the President, any Vice President, the Treasurer, the Secretary, any Assistant
      Treasurer or any Assistant Secretary of Company. 

     

    “Person”
means
      any individual, corporation, partnership, joint venture, association, limited
      liability company, joint stock company, trust, unincorporated organization
      or
      government or other agency or political subdivision thereof.

     

    “Proceeding”
means
      a
      liquidation, dissolution, bankruptcy, insolvency, reorganization, receivership,
      or similar proceeding under Bankruptcy Law, an assignment for the benefit of
      creditors, any marshalling of assets or liabilities, or winding up or
      dissolution, but does not include any transaction permitted by, and made in
      compliance with, Article V.

     

    “SEC”
means
      the United States Securities and Exchange Commission.

     

    “Securities
      Purchase Agreement”
means
      the Securities Purchase Agreement by and between Company and the Purchasers
      (as
      defined therein), dated the date hereof.

     

    “Security
      Agreement”
means
      the Security Agreement of even date herewith between Company and
      Trustee.

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    “Senior
      Debt”
means
      debt of Company whenever incurred, outstanding at any time, which expressly
      states by its terms that it is senior in right of payment to the Notes,
      including, but not limited to, the debt evidenced under the Wachovia Agreements;
      provided,
      however,
      that
      Debt held by Company or any Affiliate of Company is not deemed to be Senior
      Debt.

     

    “Senior
      Debt Default Notice”
means
      any notice of a default (other than a Senior Debt Payment Default) that permits
      the holders of any Senior Debt to declare such Senior Debt due and
      payable.

     

    “Senior
      Debt Payment Default”
means
      a
      default in the payment of any principal of or interest on any Senior
      Debt.

     

    “TIA”
means
      the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb), as
      amended from time to time.

     

    “Trustee”
means
      American National Bank, a Colorado corporation.

     

    “U.S.
      Government Obligations”
means
      securities that are direct, noncallable, nonredeemable obligations of, or
      noncallable, nonredeemable obligations guaranteed by, the United States for
      the
      timely payment of which obligation or guarantee the full faith and credit of
      the
      United States is pledged, or funds consisting solely of those securities,
      including funds managed by Trustee or one of its Affiliates (including funds
      for
      which it or its Affiliates receives fees in connection with such
      management).

     

    “Wachovia”
means
      Wachovia Bank, National Association, successor by merger to Congress Financial
      Corporation (Florida).

     

    “Wachovia
      Agreements”
means,
      collectively, the Loan and Security Agreement by and between Company and
      Wachovia dated September 26, 2002 and the loan documents referenced therein,
      together with all amendments thereto.

     

    1.2 Other
      Definitions.

     

    TermDefined
      in Section

    

    ““Notice”11.1

    “Paying
      Agent”2.3

    “Registrar”2.3

    

    1.3 Rules
      of Construction.
      Unless
      the context otherwise requires:

     

    (a) a
      term
      defined in Section 1.1
      or
Section 1.2
      has the
      meaning assigned to it in those Sections;

     

    (b) an
      accounting term not otherwise defined has the meaning assigned to that term
      in
      accordance with generally accepted accounting principles in the United
      States;

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    (c) the
      word
“or” is not exclusive;

     

    (d) a
      word in
      the singular includes the plural, and a word in the plural includes the
      singular;

     

    (e) provisions
      apply to successive events and transactions; and

     

    (f) the
      word
“including” means including without limitation.

     

    ARTICLE
      II

    THE
      SECURITIES

     

    2.1 Form
      and Dating.
      The
      Notes will be substantially in the form attached hereto as Exhibit A,
      the
      terms of which are incorporated by reference in, and expressly made a part
      of,
      this Indenture. The Notes may have notations, legends, or endorsements required
      by law, national stock exchange rule, automated quotation system, an agreement
      to which Company is subject, or usage. Each Note will be dated the date of
      its
      issuance.

     

    2.2 Agents.
      

     

    (a) Company
      will maintain an office or agency where Notes may be presented for registration
      of transfer or for exchange (the “Registrar”)
      and
      where Notes may be presented for payment (the “Paying
      Agent”).
      The
      Registrar will keep a register of the Notes and of their transfer and
      exchange.

     

    (b) Company
      may appoint more than one Registrar or Paying Agent. Company will notify Trustee
      of the name and address of any Registrar or Paying Agent not a party to this
      Indenture. If Company does not appoint another Registrar or Paying Agent,
      Company will act in that capacity. 

     

    2.3 Paying
      Agent and Trustee to Hold Money in Trust. On
      or
      prior to the due date for each payment of the principal and/or interest on
      any
      Note, Company will deposit with the Paying Agent, or Company or its Affiliate
      will segregate and hold in a separate trust fund, a sum sufficient to pay such
      payment. If Company is not the Paying Agent, then Company will require each
      Paying Agent, other than Trustee, to agree in writing that such Paying Agent
      will hold such sums in trust for the benefit of Holders. If Trustee receives
      any
      proceeds from the Collateral, which payment is not required by the Security
      Agreement to be applied to the purchase of replacement Collateral, then Trustee
      shall hold such amounts in trust until Trustee delivers such amounts to the
      Paying Agent on or prior to the due date for the next payment of the principal
      and/or interest on any Note, and such amounts shall be used to fund, in whole
      or
      in part, such payment, reducing the amount required to be paid by Company to
      fund such payment. If Trustee receives any funds representing the proceeds
      of
      casualty or similar insurance on the Collateral, Trustee shall, in collaboration
      with Company, cause such funds to be applied to the purchase of replacement
      Collateral, or repairs to existing Collateral, as Company shall, in its
      discretion, elect. If and to the extent that Company elects not to apply any
      such insurance proceeds to the purchase of replacement Collateral or the repair
      of existing Collateral, then the Trustee shall hold such amounts in trust until
      Trustee delivers such amounts to the Paying Agent on or prior to the due date
      for the next payment of the principal and/or interest on any
      Note,

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    and
      such
      amounts shall be used to fund, in whole or in part, such payment reducing the
      amount required to be paid by Company to fund such payment. The Paying Agent
      will notify the Holders and Trustee of any Default by Company in making any
      deposit required under this Section
      2.3.
      During
      the continuation of any such Default, Company may require the Paying Agent
      to
      transfer all sums held by the Paying Agent to Trustee and to account for any
      funds disbursed by the Paying Agent. Upon complying with this Section
      2.3,
      the
      Paying Agent shall have no further liability for such amounts delivered to
      Trustee. If Company or any Affiliate of Company acts as the Paying Agent,
      Company or that Affiliate will segregate the sums held in its capacity as the
      Paying Agent in a separate trust fund.

     

    2.4 Holder
      Lists.
      The
      Registrar will maintain a list of the currently available names and addresses
      of
      Holders. Company will furnish to Trustee, in writing at least ten (10) Business
      Days before each interest payment date and at such other times as Trustee may
      request, a list in such form and as of such date as Trustee may reasonably
      require of the names and addresses of Holders.

     

    2.5 Transfer
      and Exchange.
      

     

    (a) Each
      Note
      will be issued in
      unregistered form
      and will
      be transferable only upon surrender of such Note for registration of transfer
      and pursuant to the transfer restrictions noted in the Note. When a Note is
      presented to the Registrar with a request to register a transfer or to exchange
      it for an equal principal amount of Notes of other denominations in accordance
      with the provisions of the Note, the Registrar will register the transfer or
      make the exchange if the requirements for such transactions are met and the
      Note
      has not been redeemed or converted to Common Stock. Company may charge a
      reasonable fee for any registration of transfer or exchange.

     

    (b) All
      notes
      issued upon any transfer or exchange in accordance with the terms of this
      Indenture and the Notes will evidence the same debt and be subject to the same
      terms and conditions as the Notes surrendered upon such transfer or
      exchange.

     

    2.6 Outstanding
      Notes.

     

    (a) The
      Notes
“outstanding” as of any time are all of the Notes that have not been cancelled
      by Trustee or delivered to Trustee for cancellation pursuant to Section 2.8.
      A Note
      does not cease to be outstanding because Company or an Affiliate holds the
      Note.

     

    (b) A
      Note
      considered paid under Section 4.1
      ceases
      to be outstanding and interest on that Note ceases to accrue. A Note that is
      converted to Common Stock (or that portion of the Note that is converted in
      the
      event of a partial conversion) ceases to be outstanding upon Company’s receipt
      of a notice of conversion. 

     

    2.7 Treasury
      Notes Disregarded for Certain Purposes.
      In
      determining whether the Holders of the required principal amount of Notes have
      concurred in any direction, waiver, or consent, any Notes owned by Company
      or an
      Affiliate will be disregarded and deemed not to be outstanding, except that,
      for
      the purposes of determining whether Trustee will be protected in relying on
      any
      such direction, waiver, or consent, only Notes which Trustee knows are owned
      by
      Company or an Affiliate will be disregarded. Notes owned by Company or Affiliate
      that have been pledged in

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    good
      faith will not be disregarded if the pledgee establishes to the satisfaction
      of
      Trustee the pledgee’s right to deliver any direction, waiver, or consent with
      respect to the Notes and that the pledgee is not Company or any other obligor
      upon the Notes or any Affiliate of Company or of that other
      obligor.

     

    2.8 Cancellation.
      Company
      at any time may deliver Notes that have been paid or converted, in whole or
      in
      part, to Common Stock to Trustee for cancellation or for partial cancellation
      and reissuance. The Paying Agent will forward to Trustee any Notes converted,
      in
      whole or in part, to Common Stock, or surrendered to the Paying Agent for
      payment. The Trustee will cancel all Notes surrendered for registration of
      transfer, exchange, payment, conversion or cancellation and will dispose of
      canceled Notes according to Trustee’s standard procedures or as Company
      otherwise directs. Company will not issue new Notes to replace Notes that (a)
      Company has paid in full or (b) have been converted entirely to Common Stock
      or
      (c) have been delivered to Trustee for cancellation.

     

    ARTICLE
      III

    REDEMPTION
      AND CONVERSION OF NOTES

     

    3.1 Notice
      to Trustee of Redemption or Conversion.

     

    (a) If
      Company elects to redeem a Note pursuant to the terms of the Note, Company
      will
      notify Trustee of the redemption in accordance with the terms and conditions
      set
      forth in the Note. If a Holder elects to convert any portion of Holder’s Note,
      then Company will notify Trustee by delivering the Note to be converted to
      Trustee for cancellation and, in the event of a partial conversion, Company
      will
      issue a new Note to Holder representing the balance of the Note after such
      conversion. 

     

    (b) Company
      shall give the notice of redemption provided for in Section
      3.1(a) at
      least
      fifteen (15) days (unless both Wachovia and Trustee agree in writing to a
      shorter period) but not more than sixty (60) days before
      a
      redemption date, which notice shall specify the redemption date, the amount
      of
      principal due on the Note to be redeemed and the provisions of the Note pursuant
      to which Company elects to redeem such Securities.

     

    3.2 Selection
      of Notes to be Redeemed.
      If less
      than all the Notes are to be redeemed, Company may select the Notes to be
      redeemed in any manner it deems appropriate, which may or may not be pro rata,
      as Company determines in its sole discretion. Company will make such selection
      from all outstanding Notes that have not been previously called for
      redemption.

     

    3.3 Notice
      of Redemption.
      Company
      will send a notice of redemption to each Holder whose Note is to be redeemed
      in
      accordance with the terms and conditions set forth in the Note, which notice
      will permit Holder to convert the redeemed Note or portion thereof to Common
      Stock in lieu of such redemption in accordance with the terms of the Note
      permitting such conversion.

     

    3.4 Deposit
      of Redemption Price.
      On or
      before the redemption date, Company will deposit with the Paying Agent (or,
      if
      Company or any Affiliate is the Paying Agent, will segregate

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    and
      hold
      in trust) the amounts sufficient to pay the redemption price of the Notes being
      redeemed together with all accrued interest thereon.

     

    3.5 Notes
      Redeemed or Converted in Part.
      Upon
      surrender of a Note that is redeemed or converted in part, Company will deliver
      to the Holder, at Company’s expense, a new Note equal in principal amount to the
      unredeemed portion of the redeemed or unconverted Note.

     

    ARTICLE
      IV

    COVENANTS

     

    4.1 Payment
      of Notes.

     

    (a) Company
      will pay the principal of, and interest on, the Notes on the dates and in the
      manner provided in the Notes and this Indenture. Principal and interest will
      be
      considered paid on the date due if the requisite amounts (i) are paid to the
      Holders prior to or on such due date if the Paying Agent is Company or its
      Affiliate, or (ii) are deposited with the Paying Agent prior to or on such
      due
      date if the Paying Agent is not Company or its Affiliate.

     

    (b) Company
      will pay interest on overdue principal and unpaid interest in accordance with
      the terms of, and at the rate prescribed in, the Notes.

     

    4.2 SEC
      Reports.
      From
      the date hereof until such time as all Notes have been paid in full, Company
      will provide Trustee with copies of the annual reports and of the information,
      documents and other reports which Company is required to file with the SEC
      pursuant to Section 13 or 15(d) of the Exchange Act. In the event Company
      is no longer a reporting company with the SEC, Company will provide Trustee
      with
      copies of the information and financial statements that would be required to
      be
      included in Forms 10-K and 10-Q at such times that any such form would be
      required to be filed with the SEC if Company were a reporting company. Company
      will also make available copies of any quarterly and annual reports that Company
      makes available to its stockholders. Delivery of such reports, information,
      documents, and other reports to Trustee is for informational purposes only
      and
      Trustee’s receipt of such reports will not constitute notice or constructive
      notice of any information contained in such reports or determinable from
      information contained in such reports, including Company’s compliance with any
      of covenants contained in this Indenture.

     

    4.3 Compliance
      Certificate.
      Company
      will deliver to Trustee, within one hundred and five (105) days after the end
      of
      each fiscal year of Company, a certificate signed by the chief executive
      officer, chief financial officer or principal accounting officer of Company,
      as
      to such officer’s knowledge of Company’s compliance with all conditions and
      covenants contained in this Indenture and the Note (determined without regard
      to
      any period of grace or requirement of notice provided in this
      Indenture).

     

    4.4 Notice
      of Certain Events.
      Company
      shall give prompt written notice to Trustee, each Holder and any Paying Agent
      of
      (a) any Proceeding, (b) any Default or Event of Default, (c) any
      cure or waiver of any Default or Event of Default, (d) any Senior Debt
      Payment Default or Senior Debt Default Notice, and (e) the listing of any
      of the Notes on any national stock exchange.

    
      
         

      

      
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    ARTICLE
      V

    SUCCESSORS

     

    5.1 When
      Company May Merge, etc.

     

    (a) Without
      the consent in writing of the Holders of at least a majority of the principal
      amount of outstanding Notes, Company will not consolidate or merge with or
      into,
      or transfer all or substantially all of its assets to, or acquire all or
      substantially all of the assets of, any Person, unless: 

     

    (i) either:

     

    (A) Company
      will be the resulting or surviving entity; or 

     

    (B) that
      Person (1) is a corporation organized and existing under the laws of the United
      States, a State of the United States or the District of Columbia and (2) assumes
      by supplemental indenture all the obligations of Company under the Notes and
      this Indenture; and 

     

    (ii) immediately
      before and immediately after the transaction no Default exists; 

     

    (iii) Richard
      E. Gathright is the Chief Executive Officer of the surviving entity;
      and

     

    (iv) prior
      to
      the proposed transaction, Company delivers to Trustee an Officer’s Certificate
      and an Opinion of Counsel, each of which will state that such consolidation,
      merger, or transfer and the supplemental indenture comply with this Article V
      and that
      Company has complied with all conditions precedent in this Indenture and
      relating to this transaction.

     

    5.2 Successor
      Corporation Substituted.
      Upon
      any consolidation, merger, or any transfer of all or substantially all of the
      assets of Company in accordance with Section 5.1,
      the
      successor corporation formed by such consolidation or into which Company is
      merged or to which such transfer is made, will succeed to, and be substituted
      for, and may exercise every right and power of, Company under this Indenture
      and
      the Notes with the same effect as if that successor had been named as Company
      in
      this Indenture and in the Notes. In the event of any such transfer, the
      predecessor Company shall be released and discharged from all liabilities and
      obligations in respect of the Notes and the Indenture, and the predecessor
      Company may be dissolved, wound up or liquidated at any time
      thereafter.

     

    ARTICLE
      VI

    DEFAULTS
      AND REMEDIES

     

    6.1 Acceleration.
      Upon
      the occurrence and during the continuation of an Event of Default, all
      outstanding principal and accrued and unpaid interest on the Notes will be
      immediately due and payable.

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    6.2 Notice
      of Defaults.
      If a
      continuing Default is known to Trustee, Trustee will mail to the Holders a
      notice of the Default no later than thirty (30) days after it receives knowledge
      of such Default. Except in the case of a Default in the payment of any amounts
      of principal or interest due on any Note, Trustee may withhold the notice if
      and
      so long as Trustee in good faith determines that withholding the notice is
      in
      the interests of the Holders. Trustee
      shall mail to Holders any notice it receives from Holder(s) under Section 6.5,
      and any
      notice Trustee provides pursuant to Section 6.5.

     

    6.3 Other
      Remedies.
      

     

    (a) If
      an
      Event of Default occurs and is continuing, Trustee may pursue any available
      remedy to collect the payment of principal or interest on the Notes or to
      enforce the performance of any provision of the Notes, this Indenture or the
      Security Agreement.

     

    (b) The
      Trustee may maintain a proceeding under Section
      6.3(a)
      even if
      the Trustee does not possess any of the Notes or does not produce any of them
      in
      the Proceeding. A delay or omission by Trustee or any Holder in exercising
      any
      right or remedy accruing upon an Event of Default will not impair the right
      or
      remedy or constitute a waiver of or acquiescence in the Event of Default. All
      remedies are cumulative to the extent permitted by law. 

     

    6.4 Control
      by Two-Thirds Majority.
      The
      Holders of sixty six and two thirds percent (66 2/3%) of the principal amount
      of
      outstanding Notes may direct the time, method, and place of conducting any
      Proceeding for any remedy available to Trustee or exercising any trust or power
      conferred on Trustee. The Trustee, however, may refuse to follow any direction
      that conflicts with law or this Indenture, is unduly prejudicial to the rights
      of other Holders, or would involve Trustee in personal liability or expense
      for
      which Trustee has not received an indemnity reasonably satisfactory to
      Trustee. 

     

    6.5 Limitation
      on Suits.

     

    (a) A
      Holder
      may pursue a remedy with respect to this Indenture or the Holder’s Note only
      if:

     

    (i) Trustee
      has notice of an Event of Default;

     

    (ii) Holders
      of at least twenty-five
      percent (25%)
      in
      principal amount of the Notes make a written request to Trustee to pursue the
      remedy;

     

    (iii) Trustee
      either (A) gives to such Holders notice that Trustee will not comply with
      such request, or (B) does not comply with such request within fifteen
      (15) days
      after receipt of the request from such Holders; and

     

    (iv) Holders
      of more than sixty-six and 2/3 percent (662/3%)
      of the
      principal amount of the Notes do not give Trustee written notice inconsistent
      with the request delivered under Section
      6.5(a)(ii)
      prior to
      the earlier of (A) the date on which Trustee delivers a notice under
Section 6.5(a)(iii)(A)
      or (B)
      the expiration of the period described in Section 6.5(a)(iii)(B).

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    (b) A
      Holder
      may not use this Indenture to prejudice the rights of another Holder or to
      obtain a preference or priority over another Holder.

     

    6.6 Rights
      of Holders To Receive Payment.
      

     

    (a) Notwithstanding
      any other provision of this Indenture, the right of any Holder of a Note to
      receive payment of principal and interest on the Note, on or after the
      respective due dates expressed in the Note, or to bring suit for the enforcement
      of any such payment on or after such respective dates, will not be impaired
      or
      affected without the consent of the Holder.

     

    (b) Nothing
      in this Indenture limits or defers the right or ability of any Holder to
      petition for commencement of a case pertaining to Company under applicable
      Bankruptcy Law except as provided under Article
      XI,
      Subordination. 

     

    6.7 Priorities.

     

    (a) After
      an
      Event of Default, any money or other property distributable in respect of
      Company’s obligations under this Indenture will be paid in the following
      order:

     

    (i) first,
      to
      Trustee (including any predecessor Trustee) for amounts due under Section
      8.5;

     

    (ii) second,
      to
      holders of Senior Debt if and to the extent required by Article XI;

     

    (iii) third,
      to
      Holders if and to the extent Holders have incurred any reasonable expenses
      enforcing Holders’ right under Section
      6.5,
      with the
      reasonableness of such expenses determined by Trustee, in its sole
      discretion; 

     

    (iv) fourth
      to
      Holders for amounts due and unpaid on the Notes for principal and interest,
      ratably, without preference or priority of any kind, according to the amounts
      due and payable on the Notes for principal and interest, respectively;
      and

     

    (v) fifth,
      to
      Company.

     

    (b) The
      Trustee may fix a record date and payment date for any payment to
      Holders.

     

    6.8 Undertaking
      for Costs.
      In any
      suit for the enforcement of any right or remedy under this Indenture or the
      Notes or in any suit against Trustee for any action taken or omitted by it
      as
      Trustee, a court in its discretion may require the filing by any party litigant
      in the suit of an undertaking to pay the costs of the suit, and the court in
      its
      discretion may assess reasonable costs, including reasonable attorneys’ fees,
      against any party litigant in the suit, having due regard to the merits and
      good
      faith of the claims or defenses made by the party litigant. This Section will
      not apply to a suit by Trustee, a suit by a Holder pursuant to Section 6.6,
      or a
      suit by Holders of more than ten percent (10%) in principal amount of the Notes.
      

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    6.9 Proof
      of Claim.
      In the
      event of any Proceeding, Trustee may file a claim for the unpaid balance of
      the
      Notes in the form required in the Proceeding and cause the claim to be approved
      or allowed. Nothing contained in this Indenture will be deemed to authorize
      Trustee to authorize or consent to, or accept or adopt on behalf of, any Holder
      any plan of reorganization, arrangement, adjustment, or composition affecting
      the Notes or the rights of any Holder, or to authorize Trustee to vote in
      respect of the claim of any Holder in any Proceeding. 

     

    6.10 Actions
      of a Holder.
      For the
      purpose of providing any consent, waiver or instruction to Company or Trustee,
      a
“Holder” shall include a Person who provides to Company or Trustee, as the case
      may be, an affidavit of beneficial ownership of a Note together with a
      satisfactory indemnity against any loss, liability, or expense to that party,
      to
      the extent that such party acts upon such affidavit of beneficial ownership,
      including any consent, waiver or instructions given by a Person providing such
      affidavit and indemnity.

     

    ARTICLE
      VII

    OTHER
      DISTRIBUTIONS

     

    7.1 Priorities.

     

    (a) Upon
      a
      full or partial sale of Collateral pursuant to the terms of the Security
      Agreement in the absence of an Event of Default where the proceeds of such
      sale
      are designated by Company for payment of principal of the Notes, Trustee will
      hold the proceeds thereof in a separate account for the benefit of Holders
      in
      kind, and any money or other property distributable in respect of Company’s
      obligations under this Indenture from such account will be paid in the following
      order:

     

    (i) first,
      to
      Trustee (including any predecessor Trustee) for amounts due under Section
      8.5;

     

    (ii) second,
      to
      holders of Senior Debt if and to the extent required by Article XI;

     

    (iii) third,
      to
      Holders if and to the extent Holders have incurred any reasonable expenses
      enforcing Holders’ right under Section
      6.5,
      with the
      reasonableness of such expenses determined by Trustee, in its sole
      discretion;

     

    (iv) to
      Holders for amounts due and unpaid on the Notes for principal and interest,
      ratably, without preference or priority of any kind, according to the amounts
      due and payable on the Notes for principal and interest, respectively;
      and

     

    (v) fifth,
      to
      Company.

     

    (b) Any
      money
      or other property distributable arising out of foreclosure proceedings brought
      against Company and distributable in respect of Company’s obligations under this
      Indenture will be paid in the order noted in Section
      7.1(a)
      above.

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

    (c) The
      Trustee may fix a record date and payment date for any payment to Holders
      pursuant to this Article
      VII.

     

    ARTICLE
      VIII

    TRUSTEE

     

    8.1 Duties
      of Trustee.

     

    (a) If
      an
      Event of Default has occurred and is continuing, Trustee will exercise those
      rights and powers vested in it by the Indenture, the Notes and the Security
      Agreement, and use the same degree of care and skill in their exercise, as
      a
      prudent person would exercise or use under the circumstances in the conduct
      of
      its own affairs, including the exercise of the remedies set forth in this
      Indenture and the Note.

     

    (b) Except
      during the continuance of an Event of Default:

     

    (i) The
      Trustee need perform only those duties that are specifically set forth in this
      Indenture, the Notes and the Security Agreement.

     

    (ii) In
      the
      absence of bad faith on its part, Trustee may conclusively rely upon
      certificates or opinions furnished to Trustee and conforming to the requirements
      of this Indenture, as to the truth of the statements and the correctness of
      the
      opinions expressed in those certificates and opinions. However, Trustee will
      examine the certificates and opinions to determine whether or not the
      certificates and opinions conform to the requirements of this
      Indenture.

     

    (c) The
      Trustee may not be relieved from liability for its own negligent action, its
      own
      negligent failure to act or its own willful misconduct, except
      that:

     

    (i) This
      paragraph does not limit the effect of Section
      8.1(b).

     

    (ii) Trustee
      will not be liable for any error of judgment made in good faith by a Trustee
      or
      by any agent, employee or Affiliate of Trustee, unless a court of competent
      jurisdiction finds that Trustee was negligent in ascertaining the pertinent
      facts.

     

    (iii) Trustee
      will not be liable with respect to any action Trustee takes or omits to take
      in
      good faith in accordance with a direction received by Trustee pursuant to
Section
      2.3
      or
Section 6.4.

     

    (iv) Trustee
      may refuse to perform any duty or exercise any right or power which would
      require Trustee to expend its own funds or risk any liability if Trustee
      reasonably believes that repayment of such funds or adequate indemnity against
      that risk is not reasonably assured to Trustee.

     

    (d) Every
      provision of this Indenture that in any way relates to Trustee is subject to
      Section
      8.1(a),
      (b)
      and
(c).

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    (e) The
      Trustee will not be liable for interest on any money received by Trustee, except
      as Trustee may agree with Company. The Trustee is not required to segregate
      money in trust from other funds, except to the extent required by this Indenture
      or as may be otherwise required by law.

     

    8.2 Rights
      of Trustee.

     

    (a) Except
      as
      set forth in Section
      8.1(b),
      the
      Trustee may rely on any document believed by Trustee to be genuine and to have
      been signed or presented by the proper Person. The Trustee is not required
      to
      investigate any fact or matter stated in the document.

     

    (b) Before
      Trustee acts or refrains from acting, Trustee may require a certificate from
      an
      Officer of Company or an opinion of counsel. The Trustee shall not be liable
      for
      any action it takes or omits to take in good faith in reliance on such
      certificate or opinion. The Trustee may also consult with counsel on any matter
      relating to this Indenture or the Notes. The Trustee shall not be liable for
      any
      action Trustee takes or omits to take in good faith in reliance on the advice
      of
      counsel.

     

    (c) The
      Trustee may act through agents and will not be responsible for the misconduct
      or
      negligence of any agent appointed with due care.

     

    (d) The
      Trustee will not be liable for any action Trustee takes or omits to take in
      good
      faith which Trustee believes to be authorized or within Trustee’s rights or
      powers.

     

    (e) Trustee
      will only be charged with knowledge of agents, officers, employees or other
      Affiliates of Trustee.

     

    8.3 Individual
      Rights of Trustee; Disqualification.
      Trustee
      in its individual or any other capacity may become the owner or pledgee of
      Notes
      and may otherwise deal with Company or an Affiliate with the same rights Trustee
      would have if it were not Trustee.

     

    8.4 Trustee’s
      Disclaimer.
      Trustee
      will have no responsibility for the validity or adequacy of this Indenture,
      the
      Security Agreement or the Notes. The Trustee will not be accountable for
      Company’s use of the proceeds from the Notes. The Trustee will not be
      responsible for the accuracy or completeness of any statement of fact in the
      Security Agreement or the Notes.

     

    8.5 Compensation
      and Indemnity.

     

    (a) Company
      will pay to Trustee from time to time reasonable compensation for Trustee’s
      services. The Trustee’s compensation will not be limited by any law on
      compensation of a trustee of an express trust. Company will reimburse Trustee
      upon request for all reasonable out-of-pocket expenses incurred by Trustee.
      Those expenses will include the reasonable compensation and out-of-pocket
      expenses of Trustee’s agents and counsel.

     

    (b) Company
      will indemnify Trustee against any loss, liability or expense incurred by
      Trustee. The Trustee will notify Company promptly of any claim for which Trustee
      may seek indemnity. Company shall defend the claim and Trustee shall cooperate
      in the defense. The Trustee may have separate counsel and Company will pay
      the
      reasonable fees and expenses of such counsel. 

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    Company
      need not pay for any settlement made without Company’s consent, which consent
      shall not unreasonably be withheld.

     

    (c) Company
      need not reimburse any expense or indemnify against any loss or liability
      incurred by Trustee through gross negligence, willful misconduct, or bad
      faith.

     

    (d) To
      secure
      Company’s payment obligations in this Section
      8.5,
      Trustee
      will have a lien prior to the Notes on all money or property held or collected
      by Trustee, except any money held in trust to pay principal and interest on
      any
      Note(s).

     

    (e) Without
      prejudice to its rights under this Indenture, when Trustee incurs expenses
      or
      renders services after an Event of Default relating to the following, the
      expenses and the compensation for the services are intended to constitute
      expenses of administration under any Bankruptcy Law when:

     

    (i) Company
      pursuant to, or within the meaning of, any Bankruptcy Law:

     

    (A) commences
      a voluntary case;

     

    (B) consents
      to the entry of an order for relief against Company in an involuntary
      case;

     

    (C) consents
      to the appointment of a Custodian of Company or for all or substantially all
      of
      Company’s property; or

     

    (D) makes
      a
      general assignment for the benefit of Company’s creditors; or

     

    (ii) a
      court
      of competent jurisdiction enters an order or decree under any Bankruptcy Law
      that:

     

    (A) is
      for
      relief against Company in an involuntary case,

     

    (B) appoints
      a Custodian of Company or for all or substantially all of Company’s property,
      or

     

    (C) orders
      the liquidation of Company, and the order or decree remains unstayed and in
      effect for sixty (60) days.

     

    
      
         

      

      
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    8.6 Replacement
      of Trustee.

     

    (a) A
      resignation or removal of Trustee and appointment of a successor Trustee will
      become effective only upon the successor Trustee’s acceptance of appointment as
      provided in this Section
      8.6.

     

    (b) The
      Trustee may resign by notifying Company. The Holders of at least sixty six
      and
      two thirds percent (66 2/3%) of the principal amount of outstanding Notes may
      remove Trustee by notifying Trustee and Company. Company may remove Trustee
      if:

     

    (i) Trustee
      fails to comply with Section 8.7;

     

    (ii) Trustee
      is adjudged bankrupt or insolvent;

     

    (iii) a
      receiver or public officer takes charge of Trustee or its property;
      or

     

    (iv) Trustee
      becomes incapable of acting.

     

    (c) If
      Trustee resigns or is removed or if a vacancy exists in the office of Trustee
      for any reason, Company will promptly appoint a successor Trustee.

     

    (d) If
      a
      successor Trustee is not appointed and does not take office within thirty (30)
      days after the retiring Trustee resigns or is removed, the retiring Trustee
      may
      appoint a successor Trustee at any time prior to the date on which a successor
      Trustee takes office. If a successor Trustee does not take office within
      forty-five (45) days after the retiring Trustee resigns or is removed, the
      retiring Trustee, Company or, subject to Section 6.8,
      any
      Holder may petition any court of competent jurisdiction for the appointment
      of a
      successor Trustee.

     

    (e) If
      Trustee fails to comply with Section 8.7,
      any
      Holder may petition any court of competent jurisdiction for the removal of
      Trustee and the appointment of a successor Trustee. Within one (1) year after
      a
      successor Trustee appointed by Company or a court pursuant to this Section 8.6
      takes
      office, the Holders of sixty six and two thirds percent (66 2/3%) of the
      principal amount of outstanding Notes may appoint a successor Trustee to replace
      such successor Trustee.

     

    (f) A
      successor Trustee will deliver a written acceptance of the appointment to the
      retiring Trustee and to Company. Upon receipt of the acceptance by Company,
      the
      resignation or removal of the retiring Trustee will become effective, and the
      successor Trustee will have all the rights, powers, and duties of Trustee under
      this Indenture. The successor Trustee shall mail a notice of its succession
      to
      the Holders. The retiring Trustee will promptly transfer all property held
      by
      that retiring Trustee as Trustee to the successor Trustee, subject to the lien
      provided for in Section
      8.5.

     

    8.7 Successor
      Trustee by Merger, etc.
      If
      Trustee consolidates, merges or converts into, or transfers all or substantially
      all of its corporate trust business to, another corporation, the successor
      corporation without any further act will be the successor
      Trustee.

    
      
         

      

      
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    ARTICLE
      IX

    SATISFACTION
      AND DISCHARGE

     

    9.1 Satisfaction
      and Discharge of Indenture.

     

    (a) This
      Indenture shall cease to be of further effect (except as to any surviving rights
      of conversion, registration of transfer or exchange of Notes expressly provided
      for herein), and Trustee, on demand of and at expense of Company, shall execute
      proper instruments acknowledging satisfaction and discharge of this Indenture,
      when

     

    (i) Either

     

    (A) all
      Notes
      theretofore delivered (other than Notes for whose payment money has theretofore
      been deposited in trust or segregated and held in trust by Company and
      thereafter repaid to Company or discharged from such trust, as provided in
      Section 9.4)
      have
      been delivered to Trustee for cancellation; or

     

    (B) all
      such
      Notes not theretofore delivered to Trustee for cancellation (i) have become
      due
      and payable, (ii) will become due and payable at their stated maturity within
      one (1) year, or (iii) are to be called for redemption within one (1) year
      under
      arrangements satisfactory to Trustee for the giving of notice of redemption
      by
      Trustee in the name, and at the expense, of Company, and Company has deposited
      or caused to be deposited with Trustee in trust an amount of money or
      U.S. Government Obligations sufficient to pay and discharge the entire
      indebtedness on such Notes not theretofore delivered to Trustee for
      cancellation, for principal and interest to the date of such deposit (in the
      case of Notes which have become due and payable) or to the stated maturity
      or
      redemption date, as the case may be;

     

    (ii) Company
      has paid or caused to be paid all other sums payable hereunder by Company;
      and

     

    (iii) Company
      has delivered to Trustee a certificate of an Officer of Company and a legal
      opinion from Company counsel, each stating that all conditions precedent herein
      relating to the satisfaction and discharge of this Indenture have been complied
      with.

     

    (b) Notwithstanding
      the satisfaction and discharge of this Indenture, the obligations of Company
      to
      the Holders under Section 4.1,
      to
      Trustee under Section
      8.5,
      and, if
      money or U.S. Government Obligations shall have been deposited with Trustee
      pursuant to Section
      9.1(a)(i)(B)
      of this
      Section, the obligations of Trustee under Section 9.2
      shall
      survive.

     

    9.2 Application
      of Trust Funds.
      The
      Trustee or Paying Agent shall hold in trust, for the benefit of the Holders,
      all
      money and U.S. Government Obligations deposited with it (or into which such
      money and U.S. Government Obligations are reinvested) pursuant to
Section 9.1.
      It
      shall apply such deposited money and money from U.S. Government Obligations
      in accordance with this Indenture to the payment of the principal and interest
      on the Notes. Money and U.S. Government

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

    Obligations
      so held in trust (a) are not subject to Article XI
      and
      (b) are subject to Trustee’s rights under Section
      8.5.

     

    9.3 Reinstatement.
      If
      Trustee or Paying Agent is unable to apply any money or U.S. Obligations in
      accordance with Section 9.1
      by
      reason of any order or judgment of any court or governmental authority
      enjoining, restraining or otherwise prohibiting such application, then Company’s
      obligations under this Indenture and the Notes will be revived and restated
      as
      though no deposit had occurred pursuant to this Article IX,
      until
      such time as Trustee or Paying Agent is permitted to apply all such money or
      U.S. Government Obligations in accordance with Section 9.1;
      provided,
      however,
      that if
      Company makes any payment of principal of, or interest on, any Note following
      the reinstatement of its obligations, Company will be subrogated to the rights
      of the Holders of such Notes to receive such payment from the money or
      U.S. Government Obligations held by Trustee or Paying Agent after payment
      in full to the Holders.

     

    9.4 Repayment
      to Company.

     

    (a) The
      Trustee and Paying Agent shall promptly turn over to Company upon request any
      excess money or U.S. Government Obligations held by them at any time. All
      money or U.S. Government Obligations deposited with Trustee pursuant to
Section 9.1
      (and
      held by it or a Paying Agent) for the payment of Notes subsequently redeemed
      or
      cancelled will be returned to Company upon request. 

     

    (b) The
      Trustee and the Paying Agent shall pay to Company upon request any money held
      by
      them for payment of principal or interest that remains unclaimed for two (2)
      years after the right to such money has matured. After payment to Company,
      Holders entitled to the money shall look to Company for payment as unsecured
      general creditors unless an abandoned property law designates another
      Person.

     

    ARTICLE
      X

    AMENDMENTS

     

    10.1 Without
      Consent of Holders.
      Company
      and Trustee may amend this Indenture or the Notes without the consent of any
      Holder:

     

    (a) to
      cure
      any ambiguity, defect or inconsistency;

     

    (b) to
      comply
      with Section 4.1;
      or

     

    (c) to
      make
      any change that does not adversely affect the rights of any Holder.

     

    10.2 With
      Consent of Holders.

     

    (a) Company
      and Trustee may amend this Indenture with the written consent of the Holders
      of
      a majority of the principal amount of outstanding Notes. However, without the
      consent of each Holder affected, an amendment under this Section may
      not:

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

    (i) reduce
      the amount of Notes whose Holders must consent to an amendment;

     

    (ii) reduce
      the interest on or change the time for payment of interest on the affected
      Holder’s Note;

     

    (iii) reduce
      the principal of or extend the fixed maturity of the affected Holder’s
      Note;

     

    (iv) reduce
      the premium payable upon the redemption of the affected Holder’s Note
or
      change
      the time at which the affected Holder’s Note may or will be redeemed;

     

    (v) make
      the
      affected Holder’s Note payable in money other than of the type stated in the
      Note;

     

    (vi) make
      any
      change to Section 6.5
      or this
Section 10.2;
      or

     

    (vii) make
      any
      change to Article XI
      that
      adversely affects the rights of any Holder.

     

    (b) The
      consent of the Holders under this Section will not be necessary to approve
      the
      particular form of any proposed amendment, but will be sufficient if that
      consent approves the substance of that amendment.

     

    (c) An
      amendment under this Section
      10.2
      may not
      make any change that adversely affects the rights under Article XI
      of any
      Senior Debt unless the holder(s) of such Senior Debt consent(s) to the
      change.

     

    10.3 Compliance
      with Trust Indenture Act and Section 12.3.
      Every
      amendment to this Indenture or the Notes shall comply with the TIA as then
      in
      effect, so long as the Indenture and Notes are subject to the TIA. The Trustee
      is entitled to, and Company will provide, an opinion of counsel and a
      certificate of an Officer of Company pursuant to Section
      12.3
      that
      Trustee’s execution of any amendment or supplemental indenture is permitted
      under this Article X.

     

    10.4 Revocation
      and Effect of Consents and Waivers.

     

    (a) A
      consent
      to an amendment or a waiver by a Holder of a Note will bind the Holder and
      every
      subsequent Holder of that Note or portion of the Note that evidences the same
      debt as the consenting Holder’s Note, even if a notation of the consent or
      waiver is not made on the Note.

     

    (b) Company
      may, but shall not be obligated to, fix a record date for the purpose of
      determining the Holders entitled to give their consent or take any other action
      described above or required or permitted to be taken pursuant to this Indenture.
      If a record date is fixed, then notwithstanding the immediately preceding
      paragraph, those Persons who were Holders at such record date (or their duly
      designated proxies), and only those Persons, will be entitled to give such
      consent or to revoke any consent previously given or take any such action,
      whether or not such

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

    Persons
      continue to be Holders after such record date. No consent will be valid or
      effective for more than one hundred twenty (120) days after the record
      date.

     

    10.5 Notice
      of Amendment; Notation on or Exchange of Notes.

     

    (a) After
      any
      amendment under this Article
      X
      becomes
      effective, Company will mail to the Holders a notice briefly describing that
      amendment. The failure to give notice to all Holders, or any defect in that
      notice, will not impair or affect the validity of an amendment under this
Article
      X.

     

    (b) Company
      or Trustee may place an appropriate notation about an amendment or waiver on
      any
      Note issued after the date of that amendment or waiver. Company may issue in
      exchange for affected Notes new Notes that reflect the amendment or
      waiver.

     

    10.6 Trustee
      Protected.
      The
      Trustee need not sign any supplemental indenture that adversely affects that
      Trustee’s rights.

     

    ARTICLE
      XI

    SUBORDINATION

     

    11.1 Notes
      Subordinated to Senior Debt.
      Except
      for the rights of Holders to the Collateral described in the Security Agreement,
      which is a first priority security interest in such Collateral, the rights
      of
      Holders to payment of the principal of and interest on the Notes are
      subordinated to the rights of holders of Senior Debt, to the extent and in
      the
      manner provided in this Article XI
      and the
      Notes.

     

    11.2 Notes
      Subordinated in Any Proceeding.
      If
      Trustee receives any Distribution in a Proceeding before all Senior Debt is
      paid
      in full, then such Distribution will be applied by Trustee in accordance with
      this Article XI.
      As used
      in this Article
      XI,
      “Trustee” includes any Paying Agent.

     

    11.3 No
      Payment on Notes in Certain Circumstances.

     

    (a) Company
      shall not, directly or indirectly (other than in capital stock of Company)
      pay
      any principal of or interest on, redeem, defease or repurchase the Notes except
      as provided in the Notes.

     

    (b) If
      any
      Distribution, payment or deposit to redeem, defease or acquire any of the Notes
      shall have been received by Trustee at a time when such Distribution was
      prohibited by the provisions of Section 11.3(a),
      then,
      unless such Distribution is no longer prohibited by Section 11.3(a),
      such
      Distribution will be received and applied by Trustee for the benefit of the
      holders of Senior Debt, and will be paid or delivered by Trustee to the holders
      of Senior Debt for application to the payment of all Senior Debt, pursuant
      to
      the terms of the Notes and (i) the Wachovia Agreements, in the case of Wachovia,
      and (ii) the applicable Senior Debt agreement(s), in the case of other holders
      of Senior Debt.

     

    11.4 Obligations
      of Company Unconditional.
      Nothing
      in this Indenture is intended to or shall impair, as between Company and the
      Holders, the obligation of Company, which is absolute

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

    and
      unconditional, to pay to the Holders the principal of and interest on the Notes
      as and when the same will become due and payable in accordance with their terms,
      or is intended to or shall affect the relative rights of the Holders and
      creditors of Company, other than the holders of Senior Debt. If Company fails
      because of this Article
      XI
      to pay
      principal of or interest on a Note on the due date, the failure is still a
      Default. Upon any Distribution, Trustee and the Holders will be entitled to
      rely
      upon any order or decree made by any court of competent jurisdiction in which
      the Proceeding is pending, or a certificate of the liquidating trustee or agent
      or other Person making any Distribution for the purpose of ascertaining the
      Persons entitled to participate in such Distribution, the holders of Senior
      Debt
      and other Debt of Company, the amount thereof or payable thereon, the amount
      or
      amounts paid or distributed thereon and all other facts pertinent thereto or
      to
      this Article
      XI.

     

    11.5 Trustee
      Entitled to Assume Payments Not Prohibited in Absence of Notice. The
      Trustee shall not at any time be charged with knowledge of the existence of
      any
      facts which would prohibit the making of any payment to or by Trustee, unless
      and until Trustee shall have received, no later than three (3) Business Day(s)
      prior to such payment, written notice thereof from Company or from one or more
      holders of Senior Debt (or shall have expressly declared in writing actual
      knowledge of such fact) and, prior to the receipt of any such written notice
      (or
      the existence of such declaration), Trustee will be entitled in all respects
      conclusively to presume that no such fact exists. Unless Trustee shall have
      received the notice provided for in the preceding sentence or shall have
      expressly declared in writing actual knowledge of such fact, Trustee shall
      have
      full power and authority to receive such payment and to apply the same to the
      purpose for which it was received, and shall not be affected by any notice
      to
      the contrary which may be received by it on or after such date. The foregoing
      shall not apply to Company or any of its Affiliates acting as Paying
      Agent.

     

    11.6 Satisfaction
      and Discharge.
      Amounts
      that are deposited in trust with Trustee pursuant to and in accordance with
      Article
      IX
      and that
      are not prohibited to be deposited by Section 11.3(a)
      shall
      not be subject to this Article XI
      when so
      deposited. 

     

    11.7 Subordination
      Rights Not Impaired by Acts or Omissions of Company or Holders of Senior
      Debt.
      No
      right of any holder of any Senior Debt established in this Article XI
      shall at
      any time or in any way be prejudiced or impaired by any act or failure to act
      on
      the part of Company or by any act or failure to act, in good faith, by any
      such
      holder, or by any failure by Company to comply with the terms of this
      Indenture.

     

    11.8 No
      Fiduciary Duty of Trustee or Holders to Holders of Senior Debt.
      Neither
      Trustee nor the Holders owes any fiduciary duty to the holders of Senior Debt.
      Neither Trustee nor the Holders will be liable to any holder of Senior Debt
      in
      the event that Trustee, acting in good faith, shall pay over or distribute
      to
      the Holders, Company, or any other Person, any property to which any holders
      of
      Senior Debt are entitled by virtue of this Article
      XI
      or
      otherwise. Nothing contained in this Section 11.8
      shall
      affect the obligation of any other such Person to hold such payment for the
      benefit of, and to pay such payment over to, the holders of Senior
      Debt.

     

    11.9 Trustee’s
      Rights to Compensation, Reimbursement of Expenses and
      Indemnification.
      The
      Trustee’s rights to compensation, reimbursement of expenses and indemnification
      under Sections 6.7
      and
8.5
      are not
      subordinated.

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

    11.10 Exception
      for Certain Distributions.
      The
      rights of holders of Senior Debt under this Article
      XI
      do not
      extend (a) to any Distribution to the extent applied to Trustee’s rights to
      compensation, reimbursement of expenses or indemnification or (b) to
      Distributions under any plan approved by the court in any
      Proceeding.

     

    ARTICLE
      XII

    MISCELLANEOUS

     

    12.1 Notices.

     

    (a) Any
      notice or communication is duly given if in writing and delivered in person
      or
      sent by first-class mail (registered or certified, return receipt requested),
      facsimile or overnight air courier guaranteeing next-day delivery, addressed
      as
      follows:

     

    If
      to
      Company:

     

    SMF
      Energy Corporation

    200
      West
      Cypress Creek Road, Suite 400

    Ft.
      Lauderdale, Florida 33309

    Attn:
      Richard E. Gathright

    Ph:
      954-308-4200

    Fax:
      954-308-4210

    

    If
      to the
      Trustee:

    

    American
      National Bank

    3033
      East
      1st Avenue

    Denver,
      CO 80206

    Attention:
      Colleen Carwin

    Ph:
      (303)
      394-5057

    Fax:
      (303) 394-5320

    

    Company
      or the Trustee by notice to the other may designate additional or different
      addresses for subsequent notices or communications.

    

    (b) All
      notices and communications (other than those sent to Holders) shall be deemed
      to
      have been duly given: at the time delivered by hand, if personally delivered;
      five (5) business days after being deposited in the mail, postage prepaid,
      if
      mailed; when receipt acknowledged, if faxed; and the next business day after
      timely delivery to the courier, if sent by overnight air courier guaranteeing
      next-day delivery.

     

    (c) Any
      notice or communication to a Holder shall be mailed by first-class mail to
      such
      Holder’s address shown on the register kept by the Registrar. Failure to mail a
      notice or communication to a Holder or any defect in it shall not affect its
      sufficiency with respect to other Holders. If Company mails a notice or
      communication to Holders, it shall mail a copy to the Trustee at the same
      time.

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

    (d) If
      a
      notice or communication is mailed in the manner provided above within the time
      prescribed, it is duly given, whether or not the addressee receives
      it.

     

    12.2 Communication
      by Holders with Other Holders.
      Holders
      may communicate with other Holders with respect to their rights under this
      Indenture, the Note or the Securities Purchase Agreement.

     

    12.3 Certificate
      and Opinion as to Conditions Precedent.
      Upon
      any request or application by Company to Trustee to take any action under this
      Indenture, Company shall furnish to Trustee:

     

    (a) a
      certificate of an Officer of Company stating that, to the knowledge of such
      Officer, all conditions precedent, if any, provided for in this Indenture
      relating to the proposed action have been complied with; and

     

    (b) an
      opinion of counsel to Company stating that, in the opinion of such counsel,
      all
      such conditions precedent have been complied with.

     

    12.4 Statements
      Required in Certificate or Opinion. Each
      certificate or opinion with respect to compliance with a condition or covenant
      provided for in this Indenture shall include:

     

    (a) a
      statement that each Person making such certificate or opinion has read such
      covenant or condition; 

     

    (b) a
      brief
      statement as to the nature and scope of the examination or investigation upon
      which the statements or opinions contained in such certificate or opinion are
      based;

     

    (c) a
      statement that, in the opinion of such Person, the Person has made such
      examination or investigation as is necessary to enable such Person to express
      an
      informed opinion as to whether or not such covenant or condition has been
      complied with; and

     

    (d) a
      statement as to whether or not, in the opinion of such Person, such condition
      or
      covenant has been complied with.

     

    12.5 Rules
      by Trustee. The
      Trustee may make reasonable rules for action by or a meeting of
      Holders.

     

    12.6 No
      Recourse Against Others. A
      director, officer, employee or stockholder, as such, of Company shall not have
      any liability for any obligations of Company under the Notes or the Indenture
      or
      for any claim based on, in respect of or by reason of such obligations or their
      creation.

     

    12.7 Variable
      Provisions.

     

    (a) Company
      will initially act as Paying Agent.

     

    (b) The
      first
      certificate pursuant to Section 4.3
      will be
      for the fiscal year ending on June 30, 2008.

    
      
         

      

      
        -22-

        
          

        

      

      
         

      

    

    (c) The
      depositary institution into which Trustee or Paying Agent deposits any funds
      held under this Indenture shall always have a combined capital and surplus
      of at
      least $50,000,000 as set forth in its most recent published annual report of
      condition. The Trustee and Paying Agent will be deemed to be in compliance
      with
      the capital and surplus requirement set forth in the preceding sentence if
      the
      obligations of such depositary institution are guaranteed by a Person which
      could otherwise qualify as such depositary institution hereunder.

     

    12.8 Governing
      Law. The
      laws
      of the State of Delaware shall govern this Indenture, without regard to the
      conflicts of laws of that state.

     

    12.9 Severability.
      In case
      any provision in this Indenture or in the Notes shall be invalid, illegal or
      unenforceable, the validity, legality and enforceability of the remaining
      provisions shall not in any way be affected or impaired thereby.

     

    12.10 Effect
      of Headings, Table of Contents, etc. The
      Article and Section headings herein and the table of contents are for
      convenience only and shall not affect the construction hereof.

     

    12.11 Counterparts;
      Facsimile. This
      Indenture may be executed in two or more counterparts, each of which shall
      be
      deemed to be an original but all of which taken together shall constitute one
      agreement. Signatures to this Indenture may be transmitted by facsimile and
      such
      transmission shall be deemed to be an original.

     

    12.12 Successors
      and Assigns.
      All
      covenants and agreements of Company in this Indenture and the Notes shall bind
      its successors and assigns. All agreements of the Trustee in this Indenture
      shall bind its successor.

     

    12.13 No
      Interpretation of Other Agreements.
      This
      Indenture may not be used to interpret another indenture, loan or debt agreement
      of Company or any Subsidiary. Any such indenture, loan or debt agreement may
      not
      be used to interpret this Indenture.

     

    [Signature
      page follows.]

     

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Indenture to be executed
      by
      their respective duly authorized officers or persons as of the date first set
      forth above.

    
 

    COMPANY:

     

    SMF
      ENERGY CORPORATION

     

     

    By:

      
        

      

    

    Richard
      E. Gathright

    Chief
      Executive Officer and President

     

     

    TRUSTEE:

     

    AMERICAN
      BANK NATIONAL BANK

     

     

    By:

      
        

      

    

    Name:

    Title:

     

     

    By:

    
      
        

      

    

    Name:

    Title:

     

    
      
         

      

        -24-SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT (this
      “Security
      Agreement”)
      dated
      August 8, 2007 is entered into by and between SMF Energy Corporation
      (“SMF”),
      a
      Delaware corporation having its principal place of business at 200 W. Cypress
      Creek Road, Suite 400, Fort Lauderdale, Florida 33309, H & W Petroleum
      Company, Inc. (“H
      & W”)
      and
      SMF Services, Inc. (“SSI”),
      both
      wholly owned subsidiaries of SMF having their principal place of business at
      200
      W. Cypress Creek Road, Suite 400, Fort Lauderdale, Florida 33309 and American
      National Bank, a bank located at 3033 East 1st Avenue, Denver, Colorado 80206
      (the “Trustee”),
      as
      indenture trustee for the holders (the “Holders”)
      of
      SMF’s 111⁄2% Senior
      Secured Convertible Notes due December 31, 2009
      (the
“Notes”)
      pursuant to an indenture between Company and Trustee of even date herewith
      (the
“Indenture”).
      SMF,
      H & W and SSI taken together are referred to herein as “Company.”
      

     

    WHEREAS,
      Company
      wishes to grant to the Trustee, for the benefit of Holders, a first priority
      security interest in certain assets,
      as
      hereinafter enumerated, to secure the Notes; and

     

    WHEREAS,
      Company
      and Wachovia Bank, National Association, successor by merger to Congress
      Financial Corporation (Florida) (“Wachovia”),
      are
      parties to that certain Loan and Security Agreement dated September 26, 2002,
      as
      amended (the “Wachovia
      Agreement”)
      and
      SMF and Wachovia, along with certain other persons, are parties to that certain
      Subordination Agreement dated July 13, 2007 (the “Subordination
      Agreement”).

     

    NOW,
      THEREFORE, in
      consideration of the foregoing premises and to induce Holders to purchase the
      Notes, Company hereby agrees as follows:

     

    SECTION
      1. DEFINITIONS.
      As used
      herein, the following terms shall have the following meanings, and shall be
      equally applicable to both the singular and plural forms of
      the
      terms defined:

     

    “Applicable
      Law”
      shall
      mean (a) with respect to the Vehicles (as defined below), the law of the state
      in which the Vehicles are titled, as set forth on Schedule
      A
      hereto
      and (b) with respect to the Equipment (as defined below), the state in which
      the
      Equipment is located, as set forth on Schedule
      A
      hereto,
      and (c) with respect to the Account, (as defined below) and the interpretation
      and governing law of this Agreement generally, the law of the State of Florida
      and the laws of the United States of America, as such laws now exist or may
      be
      changed or amended or come into effect in the future.

     

    “Business
      Day” shall
      mean any day other than a Saturday, Sunday or public holiday or the equivalent
      for banks in the State of Florida. 

     

    “Equipment”
      shall
      have the meaning given to it in the UCC.

     

    “Event
      of Default”
      shall
      mean any event specified in Section 7
      hereof.

     

    “GAAP” shall
      mean generally accepted accounting principles in the United States of America,
      as in effect from time to time.

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

    “Loan
      Documents”
      shall
      mean, collectively, this Security Agreement, the Securities Purchase Agreement
      between Holders and SMF of even date herewith (the “Securities
      Purchase Agreement”)
      evidencing the sale of the Notes and the warrants to purchase common stock
      of
      SMF (the “Warrants”),
      the
      Indenture, the Notes, the Warrants and all other documents,
      agreements,
      certificates,
      instruments and opinions executed and delivered in connection therewith, as
      the
      same may be modified, extended, restated or supplemented from time to
      time.

     

    “Material
      Adverse Change”
      shall
      mean, with respect to any Person, a material adverse change in the business,
      operations, results of operations, assets, liabilities or condition (financial
      or otherwise) of such Person taken as a whole.

     

    “Material
      Adverse Effect”
      shall
      mean, with respect to any Person, a material adverse effect on the business,
      operations, results of operations, assets, liabilities or condition (financial
      or otherwise) of such Person taken as a whole.

     

    “Obligations”
      shall
      mean all indebtedness, obligations and liabilities of Company under the Notes
      and this Security Agreement, whether on account of principal, interest,
      indemnities, fees (including, without limitation, attorneys’ fees, marketing
      fees, origination fees, collection fees and all other professionals’ fees),
      costs, expenses, taxes or otherwise.

     

    “Person”
      shall
      mean any individual, sole proprietorship, partnership, joint venture, trust,
      unincorporated organization, association, corporation,
      institution,
      entity, party or government (including any division, agency or department
      thereof), and the successors, heirs and assigns of each.

     

    “UCC”
means
      the Uniform Commercial Code as from time to time in effect in the state of
      Applicable Law; provided, however, that in the event that, by reason of
      mandatory provisions of law, any or all of the attachment, perfection or
      priority of the secured parties’ security interest in any Collateral is governed
      by the Uniform Commercial Code as in effect in a jurisdiction other than the
      State of Applicable Law, the term “UCC’ shall mean the Uniform Commercial Code
      as in effect in such other jurisdiction for purposes of the provisions hereof
      relating to such attachment, perfection or priority and for purposes of
      definitions related to such provisions; provided, further, that if the UCC
      is
      amended after the date hereof, such amendment will not be given effect for
      the
      purposes of this Agreement if and to the extent the result of such amendment
      would be to limit or eliminate any item of Collateral.

     

    “Vehicles”
means
      all vehicles covered by a certificate of title law of any state.

     

    SECTION
      2. CREATION
      OF SECURITY INTEREST; COLLATERAL.
      In
      order
      to secure the payment and performance of all the Obligations, Company hereby
      assigns and grants to Holders a continuing general, first priority lien on
      and
      security interest in the following (hereinafter collectively referred to herein
      as the “Collateral”):

     

    (a) 
      all of H
& W’s right, title and interest in and to: (i) the Vehicles that are listed
      on Schedule A
      hereto
      and shown on Schedule
      A as
      owned
      by H & W, including future additions, parts, accessories, attachments,
      substitutions, repairs, related intangibles and improvements and replacements
      to
      or of any listed Vehicle; and (ii) the Equipment
      listed
      on Schedule
      A
      hereto
      and shown on Schedule
      A as
      owned
      by H & W,

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    including
      future additions, parts, accessories, attachments, substitutions, repairs,
      related intangibles and improvements and replacements to or of any such
      Equipment; and (iii) any proceeds from the sale, assignment, or other transfer
      of any such Vehicles or Equipment, including, without limitation, proceeds
      of
      insurance;

     

    (b) all
      of
      SSI’s right, title and interest in and to: (i) the Vehicles listed on
Schedule A
      hereto
      and shown on Schedule
      A as
      owned
      by SSI, including future additions, parts, accessories, attachments,
      substitutions, repairs, related intangibles and improvements and replacements
      to
      or of any listed Vehicle; and (ii) the Equipment listed on Schedule
      A
      hereto
      and shown on Schedule
      A as
      owned
      by SSI, including future additions, parts, accessories, attachments,
      substitutions, repairs, related intangibles and improvements and replacements
      to
      or of any such Equipment; and (iii) the intangible assets listed on Schedule
      A
      hereto
      and shown on Schedule
      A as
      owned
      by SSI; and (iv) any proceeds from the sale, assignment, or other transfer
      of
      any such Vehicles, Equipment, or intangible assets, including, without
      limitation, proceeds of insurance; 

     

    (c) all
      of
      SMF’s right, title and interest in and to: (i) the Vehicles listed on
Schedule A
      hereto
      and shown on Schedule
      A as
      owned
      by SMF, including future additions, parts, accessories, attachments,
      substitutions, repairs, improvements and replacements to or of any Vehicle,
      and
      any proceeds from the sale, assignment, or other transfer of one or more
      Vehicles, including, without limitation, proceeds of insurance; and (ii) certain
      patents listed on Schedule A and shown on Schedule
      A as
      owned
      by SMF; and (iii) any proceeds from the sale, assignment, or other transfer
      of
      any such Vehicles or patents, including, without limitation, proceeds of
      insurance; and

     

    (d) approximately
      $1,141,000 in cash proceeds from prior sales of Vehicles and Equipment currently
      being held in an interest bearing account (the “Trustee Account”)
      by
      Trustee that will be applied to the purchase of replacement Equipment and
      Vehicles by Company, and any Vehicles and Equipment subsequently acquired with
      such proceeds.

     

    The
      term
“Collateral” shall not include any property of Company that has been pledged to
      Wachovia by or in connection with the Wachovia Agreement, including but not
      limited to any “account” (as that term is used in the Uniform Commercial Code)
      or any other right to payment arising out of or dervied from the sale of
      inventory or the rendition of services by Company. 

     

    SECTION
      3. COMPANY’S
      REPRESENTATIONS AND WARRANTIES.
      SMF,
      H & W and SSI jointly and severally represent and warrant to
      Holders as follows:

     

    SECTION
      3.1 Good
      Standing; Qualified to do Business.
      SMF is a
      duly organized and validly existing corporation in good standing under the
      laws
      of the State of Delaware. H & W is a duly organized and validly existing
      corporation in good standing under the laws of the State of Texas. SSI is a
      duly
      organized and validly existing corporation in good standing under the laws
      of
      the State of Delaware. Company has the power and authority to own its properties
      and assets and to transact the businesses in which it is presently, or proposes
      to be, engaged and is duly qualified and authorized to do business and is in
      good standing in every jurisdiction in which the failure to be so qualified
      could have a Material Adverse Effect on

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    (i) Company,
      (ii) Company’s ability to perform its obligations under the Loan Documents
      or (iii) the rights of Holders or the Trustee under this
      Agreement.

     

    SECTION
      3.2 Due
      Execution, etc.
      The
      execution, delivery and performance by SMF, H & W and SSI of each
      of the Loan Documents to which each of them is a party are within the powers
      of
      each of them, do not contravene their respective Articles of Incorporation
      or
      Certificate of Formation, as applicable, or Bylaws or Operating Agreement,
      as
      applicable, and do not (i) violate any law or regulation, or any order or
      decree of any court or governmental authority, (ii) conflict with or result
      in a breach of, or constitute a default under, any material indenture, mortgage
      or deed of trust or any material lease, agreement or other instrument binding
      on
      Company or any of its properties, or (iii) require the consent,
      authorization by or approval of or notice to, or filing or registration with,
      any governmental authority or other Person except for Wachovia. This Security
      Agreement is, and each of the other Loan Documents to which Company is or will
      be a party when delivered will be, the legal, valid and binding obligation
      of
      SMF, H & W and SSI enforceable against each of them in accordance
      with its terms.

     

    SECTION
      3.3 Solvency;
      No Liens. On the
      date
      hereof, each of SMF, H & W and SSI is solvent, is paying its debts
      as they become due and has sufficient capital to conduct its business. The
      security interests granted herein constitute and shall at all times constitute
      the first and only liens on the Collateral. Each of SMF, H & W and
      SSI is the absolute owner of the Collateral shown on Schedule
      A
      to be
      owned by it, with full right to pledge, sell, consign, transfer and create
      a
      security interest therein, free and clear of any and all claims or liens in
      favor of any other Person, subject only to the Wachovia Inventory Rights
      described in Section 3.8 hereof. 

     

    SECTION
      3.4 No Judgments,
      Litigation. No
      judgments are outstanding against Company nor is there now pending or, to the
      best of Company’s knowledge after diligent inquiry, threatened any litigation,
      contested claim, or governmental proceeding by or against Company except
      judgments and pending or threatened litigation, contested claims and
      governmental proceedings which would not, in the aggregate, have a Material
      Adverse Effect on Company.

     

    SECTION
      3.5 No Defaults.
      On
      the
      date hereof, Company is not in material default under any material contract,
      lease, or commitment to which it is a party or by which it is bound. Company
      knows of no dispute regarding any contract, lease, or commitment which could
      have a Material Adverse Effect on Company.

     

    SECTION
      3.6 Collateral
      and Operating Locations. On
      the
      date hereof, the Collateral (other than mobile goods and Equipment in transit)
      are kept at the locations listed on Schedule
      B
      hereto,
      and Company is conducting operations from those locations listed on Schedule
      C
      hereto.

     

    SECTION
      3.7 No Events
      of Default. No
      Event
      of Default has occurred and is continuing nor has any event occurred which,
      with
      the giving of notice or the passage of time, or both, would constitute an Event
      of Default.

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    SECTION
      3.8 No
      Limitation on Holders’ Rights. Except
      as
      permitted herein, none of the Collateral is subject to contractual obligations
      that may restrict or inhibit Holders’ or Trustee’s rights or abilities to sell
      or dispose of the Collateral or any part thereof after the occurrence of an
      Event of Default except that neither any Holder nor Trustee may take any action
      to repossess, seize, foreclose upon, sell or dispose of any tanks, shelves,
      racks, containers or other Equipment that is used or required for the storage
      or
      preservation of Inventory (as defined in the Wachovia Agreement), packaging
      machinery or other Equipment that Wachovia reasonably determines is necessary
      for Wachovia to protect its security interest in, or exercise its remedies
      with
      respect to, the Inventory, until such time as Wachovia, acting in good faith
      and
      with reasonable diligence, has taken all action necessary to protect its
      security interest in, or exercise its remedies with respect to, such Inventory
      irrespective of any exercise of remedies against the Equipment by a Holder
      or
      the Trustee (the “Wachovia
      Inventory Rights”).
      

     

    SECTION
      3.9 Perfection
      and Priority of Security Interest.
      This
      Security Agreement creates a valid and, upon completion of all required filings
      of financing statements, perfected, first priority and exclusive security
      interest in the Collateral, securing the payment of all the
      Obligations.

     

    SECTION
      3.10 Identifying
      Information. Schedule A
      hereto
      sets forth the true and correct model number and serial number, vehicle
      identification number or other identifying information of each item of
      Collateral.

     

    SECTION
      4. COVENANTS
      OF COMPANY.

     

    SECTION
      4.1 Existence,
      etc. Company
      will (i) maintain its existence and its current yearly accounting cycle, (ii)
      maintain in full force and effect all licenses, bonds, franchises, leases,
      trademarks, patents, contracts and other rights necessary or desirable to the
      prudent conduct of its business, (iii) continue in the same general line of
      business as presently conducted by it and (iv) comply with all applicable
      laws and regulations of any federal, state or local governmental authority,
      except for such laws and regulations the violations of which would not, in
      the
      aggregate, have a Material Adverse Effect on Company.

     

    SECTION
      4.2 Notice
      to Trustee and Holders. 

     

    (a) As
      soon
      as possible, and in any event within five (5) days after Company learns of
      it,
      Company will give written notice to Trustee and Holders of (i) any
      proceeding instituted or threatened to be instituted by or against Company
      in
      any federal, state, local or foreign court or before any commission or other
      regulatory body (federal, state, local or foreign) which, in the opinion of
      management, could have a Material Adverse Effect on Company, (ii) the
      occurrence of any Material Adverse Change with respect to Company and
      (iii) the occurrence of any Event of Default or event or condition which,
      with notice or lapse of time or both, would constitute an Event of Default,
      together with a statement of the action which Company has taken or proposes
      to
      take with respect thereto. 

     

    (b) Company
      further covenants to provide all notices required by the Indenture and the
      Notes.

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    SECTION
      4.3 Maintenance
      of Books and Records. Company
      will maintain books and records pertaining to the Collateral in such detail,
      form and scope as Trustee shall
      require in Trustee’s commercially reasonable judgment. Company agrees that
      Trustee or Trustee’s agents, prior to an event of default and upon five (5) days
      notice, may enter upon Company’s premises at any time and from time to time
      during normal business hours, and at any time on and after the occurrence of
      an Event
      of
      Default, for the purpose of inspecting the Collateral and any and all records
      pertaining thereto.

     

    SECTION
      4.4 Insurance.
      Company will
      maintain insurance on the Collateral under such policies of insurance, with
      such
      insurance companies, in such amounts and covering such risks as are at all
      times
      satisfactory to Trustee. All such policies shall be made payable to Trustee,
      for
      the benefit of Holders, in case of loss, under a standard non-contributory
      “lender” or “secured party” clause and are to contain such other provisions as
      Trustee may reasonably require to protect Holders’ interests in the Collateral
      and to any payments to be made under such policies. True copies of all original
      insurance policies are to be delivered to Trustee, premium prepaid, with the
      loss payable endorsement in favor of Trustee, for the benefit of Holders, and
      shall provide for not less than thirty (30) days’ prior written notice to
      Trustee and Holders of any alteration or cancellation of coverage. If Company
      fails to maintain such insurance, Trustee may arrange for (at Company’s expense
      and without any responsibility on Trustee’s or Holders’ part for) obtaining the
      insurance. Upon an Event of Default and during the continuation thereof, and
      unless Trustee shall otherwise agree with Company in writing, Trustee shall,
      after giving prior written notice to Company and Wachovia, have the sole right,
      in the name of Holders or Company, to file claims under any insurance policies,
      to receive and give acquittance for any payments that may be payable thereunder,
      and to execute any endorsements, receipts, releases, assignments, reassignments
      or other documents that may be necessary to effect the collection, compromise
      or
      settlement of any claims under any such insurance policies. 

     

    SECTION
      4.5 Taxes.
      Company
      will pay, when due, all taxes, assessments, claims and other charges (the
“Taxes”)
      lawfully levied or assessed against
      Company or the Collateral other than Taxes that are being diligently contested
      in good faith by Company by appropriate proceedings promptly instituted and
      for
      which an adequate reserve is being maintained by Company in accordance with
      GAAP. If any Taxes remain
      unpaid after the date fixed for the payment thereof, or if any lien shall be
      claimed therefor, then, without notice to Company, and on Company’s behalf,
      Trustee may pay such Taxes, and the amount thereof shall be added to the
      Obligations.

     

    SECTION
      4.6 Company
      to Defend Collateral Against Claims; Fees on Collateral.  Company
      will defend the Collateral against all claims and demands of all Persons at
      any
      time claiming the same or any interest therein. Company will not permit any
      notice creating or otherwise relating to liens on the Collateral or any portion
      thereof to exist or be on file in any public office. Company shall promptly
      pay,
      when due, all transportation, storage and warehousing charges and license fees,
      registration fees, assessments, charges, permit fees and taxes (municipal,
      state
      and federal) which may now or hereafter be imposed upon the ownership, leasing,
      renting, possession, sale or use of
      the
      Collateral, excluding, however, all taxes on or measured by Holders’
income.

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    SECTION
      4.7 Notice
      of Change
      of Location, Structure or Identity.
      Company
      will not (i) change the location of SMF’s, H & W’s or SSI’s principal place
      of business or (ii) establish any place of business other than those set forth
      on Schedule
      C
      hereto or
      (iii)
      change the base location or permit the movement of any Collateral from the
      locations specified in Schedule B
      hereto
      (other than the movement of Vehicles and Equipment in the ordinary course of
      business) or (iv) transfer ownership of any Collateral from SMF, H & W or
      SSI to SSI, SMF or H & W, or their successors in interest, as the case may
      be, or (v) transfer ownership of any Collateral to another subsidiary of SMF
      that has agreed to be joined as a party to this Agreement, or (vi) merge or
      consolidate with any other Person (except for any merger or consolidation
      between SMF and any of its wholly owned subsidiaries or among any of those
      subsidiaries); or (vii) sell all or substantially all of its assets unless,
      in
      the case of any of (i), (ii), (iii), (iv), (v), (vi) or (vii), Company has
      delivered to Trustee (A) prior written notice thereof and (B) duly executed
      financing statements and other agreements
      and instruments
      (all in form and substance satisfactory to Trustee) necessary or, in the opinion
      of Trustee, desirable to perfect and maintain in favor of Holders a first
      priority security
      interest in the Collateral. Notwithstanding anything to the contrary in the
      immediately preceding sentence, Company may keep any Vehicle or item of
      Equipment at any location in the United States provided that such Vehicle or
      item of Equipment is covered by a certificate of title law in any state and
      Holders’ security interest in any such Collateral is conspicuously marked on the
      certificate of title thereof and Company has complied with the provisions of
      Section 4.9
      hereof.

     

    SECTION
      4.8 Use
      of Collateral; Licenses. The
      Collateral shall be operated and maintained by competent, qualified personnel
      in
      connection with Company’s business purposes, for the purpose for
      which the
      Collateral was designed and in accordance with applicable operating
      instructions, laws and government regulations, and Company shall use every
      reasonable precaution to prevent loss or damage to the Collateral from
      accidents, fire and other hazards. The Collateral shall not be used or operated
      for personal, family or household purposes. Company shall procure and maintain
      in effect all orders, licenses, certificates, permits, approvals and consents
      required by federal, state or local laws or by any governmental body, agency
      or
      authority in connection with the delivery, installation, use and operation
      of
      the Collateral.

     

    SECTION
      4.9 Further
      Assurances.
      Company
      will, promptly upon request by Trustee, execute and deliver, or use its best
      efforts to obtain, any document reasonably required by Trustee (including,
      without limitation, warehouseman or processor disclaimers, mortgagee waivers,
      landlord disclaimers, or subordination agreements with respect to the
      Obligations and the Collateral), give any notices, execute and file any
      financing statements, mortgages or other documents (all in form and substance
      satisfactory to
      Trustee), mark any chattel paper, deliver any chattel paper or instruments
      to
      Trustee, and take any other actions that are necessary or, in the opinion of
      Trustee, desirable to perfect or continue the perfection and the first priority
      of Holders’ security interest in the Collateral, to protect the Collateral
      against the rights, claims, or interests of any Persons other than the Wachovia
      Inventory Rights, or to effect the purposes of this Security Agreement. As
      long
      as amounts remain due to Holders from Company under the Loan Documents, Company
      hereby authorizes Trustee or Holders to file one or more financing or
      continuation statements, and amendments thereto, relating to all or any part
      of
      the Collateral without the signature of Company where permitted by law. A copy
      of this Security Agreement or any financing statement covering the Collateral
      or
      any part thereof shall be sufficient as a

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    financing
      statement where permitted by law. To the extent required under this Security
      Agreement, Company
      will pay all reasonable costs incurred in connection with any of the foregoing.
      Trustee will provide Company and Wachovia with prior written notice of any
      actions proposed to be taken by Trustee as provided hereinabove.

     

    SECTION
      4.10 No
      Disposition of Collateral. Without
      the prior written approval of Trustee,
      Company
      will not in any way hypothecate or create or permit to exist any lien, security
      interest, charge or encumbrance on or
      other
      interest in any of the Collateral, except for the lien and security interest
      granted hereby. Company will not sell, transfer, assign, pledge, collaterally
      assign, exchange or otherwise dispose of any of the Collateral without the
      prior
      written consent of Trustee, provided, however that no such consent shall be
      required for the routine sale or other disposition of obsolete or worn out
      Equipment so long as (i) any proceeds therefrom are paid to Trustee for the
      benefit of Holders and (ii) not more than $500,000 in Equipment, based on fair
      market value, is sold or disposed of without Trustee’s consent in any fiscal
      year of SMF. In the event the Collateral, or any part thereof, is sold,
      transferred, assigned, exchanged, or otherwise disposed of, irrespective of
      whether it is approved by the Trustee, the security interest of Holders shall
      continue in such Collateral or part thereof notwithstanding such sale, transfer,
      assignment, exchange or other disposition, and Company will hold the proceeds
      thereof in a separate account for the benefit of Holders. Following such a
      sale,
      Company will transfer such proceeds to Trustee, for the benefit of Holders,
      in
      kind, which shall effect a release of the security interest of Holders in such
      Collateral, including any security interest in future additions, parts,
      accessories, attachments, substitutions, repairs and improvements or
      replacements to or of such Collateral. 

     

    SECTION
      4.11 No
      Limitation on Holders’ Rights. Other
      than the Wachovia Inventory Rights, Company will not enter into any contractual
      obligations which may restrict or inhibit Trustee’s or Holders’ rights or
      ability to sell or otherwise dispose of the Collateral or any part thereof.
      Neither Company nor Trustee will take any action to interfere with the Wachovia
      Inventory Rights. 

     

    SECTION
      4.12 Protection
      of Collateral. Upon
      three (3) Business Days’ notice to Company (except after an Event of Default),
      Trustee shall have the right at any time to make any payments and do any other
      acts Trustee may deem necessary to protect Holders’ security interest in the
      Collateral, including, without limitation, the rights to satisfy, purchase,
      contest or compromise any encumbrance, charge or lien which, in the reasonable
      judgment of Trustee, appears to be prior to or superior to the security
      interests granted hereunder, and appear in and defend any action or proceeding
      purporting to affect its security interests in, or the value of, any of the
      Collateral. Company hereby agrees to reimburse Holders for all reasonable
      payments made and expenses incurred under this Security Agreement, including
      fees, expenses and disbursements of attorneys and paralegals (including the
      allocated costs of
      in-house counsel) acting for Holders, including any of the foregoing payments
      under, or acts taken to
      protect its security interests in, any of the Collateral, which amounts shall
      be
      secured under this Security Agreement, and agrees it shall be bound by any
      payment made or act taken by Trustee or Holders hereunder absent Trustee’s gross
      negligence or willful misconduct. Holders shall have no obligation to make
      any
      of the foregoing payments or perform any of the foregoing acts.

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    SECTION
      4.13 Delivery
      of Items.
      Company
      will promptly (but in no event later than three (3) Business Days) after
      Company’s receipt thereof, deliver to Trustee any documents or certificates of
      title issued with respect to any property included in the Collateral, and any
      promissory notes, letters of credit or instruments related to or otherwise
      in
      connection with any property included in the Collateral, which in any such
      case
      come into the possession of Company, or shall cause the issuer thereof to
      deliver any of the same directly to Trustee, in each case with any necessary
      endorsements in favor of Trustee for the benefit of Holders.

     

    SECTION
      4.14 Fundamental
      Changes. Without
      the prior written consent of Trustee, Company shall not merge or consolidate
      with any other Person (except for any merger or consolidation between SMF and
      any of its wholly owned subsidiaries or among any of those subsidiaries) or
      sell
      or otherwise dispose of all or substantially all of its assets.

     

    SECTION
      5. COVENANTS
      OF TRUSTEE.
      Trustee
      shall comply with the provisions of the Indenture, including, but not limited
      to, notice provisions required therein.

     

    SECTION
      6. FINANCIAL
      STATEMENTS.
      Until
      the
      payment and satisfaction in full of all Obligations, Company shall deliver
      to
      Trustee and to Holders the following financial information: 

     

    SECTION
      6.1 Annual Financial
      Statements. As
      soon
      as available, but not later than one hundred twenty (120) days after the end
      of
      each fiscal year of SMF and its consolidated subsidiaries, the consolidated
      balance sheet, income statement and statements of cash flows and shareholders
      equity for SMF and its consolidated subsidiaries (the “Financial
      Statements”)
      for
      such year, reported on by independent certified public accountants;
      and

     

    SECTION
      6.2 Quarterly
      Financial Statements.
      As soon
      as available, but not later than sixty (60) days after the end of each of the
      first three (3) fiscal quarters in any fiscal year of SMF and its consolidated
      subsidiaries, the Financial Statements for such fiscal quarter, together with
      a
      certification duly executed by a responsible officer of SMF that such Financial
      Statements have been prepared in accordance with GAAP and are fairly stated
      in
      all material respects (subject to normal year-end audit
      adjustments).

     

    SECTION
      7. EVENTS
      OF DEFAULT.
      The
      occurrence of any of the following events shall constitute an Event of Default
      hereunder:

     

    (a) failure
      of Company to
      pay
      any of the Obligations when payable, whether at stated maturity, by
      acceleration, or otherwise;

     

    (b) failure
      of Company to perform, comply with or observe in any material respect any term,
      covenant or agreement applicable to it contained in any of the Loan
      Documents;

     

    (c) any
      representation or warranty made or deemed made by Company hereunder, under
      or in
      connection with the Financial Statements, under any other Loan Document as
      defined herein or under any other agreement between Company and Holders, or
      under any document, instrument or certificate executed by Company in favor
      of
      Holders, shall prove to have been false or incorrect in any material respect
      when made;

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    (d) any
      material provision of any Loan Document as defined herein to which Company
      is a
      party shall for any reason cease to be valid and binding on Company, or Company
      shall so assert in writing;

     

    (e) dissolution,
      liquidation, winding up or cessation of any of Company’s business, or the
      failure of Company to pay its debts as they mature; or the admission in writing
      by Company of its inability to pay its debts as they mature; or the calling
      of a
      meeting of Company’s creditors for purposes of compromising Company’s
      debts;

     

    (f) the
      commencement by or against Company of any bankruptcy, insolvency, arrangement,
      reorganization, receivership or similar proceedings under any federal or state
      law and, in the case of any such involuntary proceeding, such proceeding remains
      undismissed or unstayed for forty-five (45) days following the commencement
      thereof, or any action by Company is taken authorizing any such
      proceedings;

     

    (g) Company
      suffers or sustains a Material Adverse Change;

     

    (h) an
      assignment for the benefit of creditors is made by Company, whether voluntary
      or
      involuntary, or Company consents to the appointment of a trustee or receiver,
      or
      if a trustee or receiver is appointed for Company or for a substantial
      part of its property;

     

    (i) Company
      shall (i) default in the payment of principal of or interest on any
      indebtedness (other than the Obligations) beyond the period of grace, if any,
      provided in the instrument or agreement under which such indebtedness was
      created; or (ii) default in the observance or performance of any other
      agreement or condition relating to any such indebtedness or contained in any
      instrument or agreement relating thereto, or any other event shall occur or
      condition exist, the effect of which default or other event or condition is
      to
      cause, or to permit the holder or holders of such indebtedness to cause, with
      the giving of notice if required, such indebtedness to become due prior to
      its
      stated maturity;

     

    (j) any
      material federal tax lien is filed of record against Company and is not bonded
      or discharged within five (5) Business Days;

     

    (k) any
      material judgment shall be rendered against
      Company which shall not be stayed, vacated, bonded or discharged within sixty
      (60) days;

     

    (l) any
      material covenant, agreement or obligation of Company contained in or evidenced
      by any of the Loan Documents shall cease to be enforceable, or shall be
      determined to be unenforceable, in accordance with its terms; any of the Loan
      Parties shall deny or disaffirm its obligations under any of the Loan Documents
      or any liens granted in connection therewith; or any liens granted on any of
      the
      collateral shall be determined to be void, voidable or invalid, are subordinated
      or are not given the priority contemplated by this Security Agreement;
      or

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    (m) this
      Security Agreement shall for any reason (other than pursuant to the terms
      hereof) cease to create a valid and perfected first priority lien on the
      Collateral purported to be covered hereby.

     

    SECTION
      8. REMEDIES.
      If
      any
      Event of Default shall have occurred and be continuing, then, subject only
      to
      the Wachovia Inventory Rights:

     

    (a) Trustee,
      on behalf of Holders, may, without prejudice to any of Trustee’s or Holders’
other rights under any Loan Document or applicable law, declare all Obligations
      to be immediately due and payable (except with respect to any Event of Default
      set forth in Section 7(f)
      hereof,
      in which case all Obligations shall automatically become immediately due and
      payable without necessity of any declaration) without presentment,
      representation, demand of payment or protest, which are hereby expressly
      waived;

     

    (b) Trustee,
      on behalf of Holders, may, after ten (10) Business Days prior written notice
      to
      Wachovia (unless (i) there are no amounts then owed to Wachovia under the
      Wachovia Agreement and (ii) the Wachovia Agreement has been terminated), take
      possession of the Collateral and, for that purpose, may enter, with the aid
      and
      assistance of any person or persons, any premises where the Collateral or any
      part hereof is, or may be placed, and remove the same;

     

    (c) the
      obligation of Trustee or Holders, if any, to give additional (or to continue)
      financial accommodations of any kind to Company shall immediately
      terminate;

     

    (d) Trustee,
      on behalf of Holders, may, after ten (10) Business Days prior written notice
      to
      Wachovia (unless (i) there are no amounts then owed to Wachovia under the
      Wachovia Agreement and (ii) the Wachovia Agreement has been terminated),
      exercise in respect of the Collateral, in addition to other rights and remedies
      provided for herein (or in any Loan Document) or otherwise available to it,
      all
      the rights and remedies of a secured party under the UCC whether or not the
      UCC
      applies to the affected Collateral and also may (i) require Company to, and
      Company hereby agrees that they will at Company’s expense and upon request of
      Trustee or Holders forthwith, assemble all or part of the Collateral as directed
      by Holders and make it available to Trustee and Holders at a place to be
      designated by Holders that is reasonably convenient to both parties and
      (ii) without notice except as specified below, sell the Collateral or any
      part thereof in one or more parcels at public or private sale, at any of
      Trustee’s offices or elsewhere, for cash, on credit or for future delivery, and
      upon such other terms as Trustee, on behalf of Holders, may deem commercially
      reasonable. Trustee agrees to provide at least ten (10) days’ notice to Wachovia
      and Company of the time and place of any public sale or the time after which
      any
      private sale is to be made pursuant to or at any time following a foreclosure
      or
      repossession. Trustee or Holders shall not be obligated to make any sale of
      Collateral regardless of notice of sale having been given. Trustee or Holders
      may adjourn any public or private sale from time to time by announcement at
      the
      time and place fixed therefor, and such sale may, without further notice, be
      made at the time and place to which it was so adjourned; and

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    (e) all
      cash
      proceeds received by Trustee or Holders in respect of any sale of, collection
      from, or other realization upon all or any part of the Collateral may, at the
      discretion of Trustee or Holders, be held by Trustee or Holders as collateral
      for, or then or at any time thereafter applied in whole or in part by Holders
      against, all or any part of the Obligations in such order as Trustee or Holders
      shall elect. Unless otherwise required by applicable law, as determined by
      a
      court of competent jurisdiction, any surplus of such cash or cash proceeds
      held
      by Trustee or Holders and remaining after the full and final payment of all
      the
      Obligations shall be paid over to Wachovia unless (i) there are no amounts
      then
      owed to Wachovia under the Wachovia Agreement and (ii) the Wachovia Agreement
      has been terminated, in which case such surplus will be paid over to Company.
      

     

    SECTION
      9. MISCELLANEOUS
      PROVISIONS.

     

    SECTION
      9.1 Notices.
      Except
      as
      otherwise provided herein, all notices, approvals, consents, correspondence
      or
      other communications required or desired to be given hereunder shall be given
      in
      writing and shall be delivered by overnight courier, hand delivery or certified
      or registered mail, postage prepaid, (i) if to Trustee, to the address noted
      under Trustee’s name on the signature page attached hereto or to such other
      address as shall be designated by Trustee to Company in writing, (ii) if to
      Holder(s), to the address noted under each Holder’s name on the signature page
      attached to the Securities Purchase Agreement or to such other address as shall
      be designated by Holder to Company in writing, and (iii) if to Company, to
      address of SMF noted on the first page of this Security Agreement. All such
      notices and correspondence shall be effective when received.

     

    SECTION
      9.2 Headings.
      The headings
      in this Security Agreement are for purposes of reference only and shall not
      affect the meaning or construction of any provision of this Security
      Agreement.

     

    SECTION
      9.3 Assignments.
      Company
      shall not have the right to assign the Notes nor this Security Agreement or
      any
      interest therein. A Holder may assign its rights and delegate its obligations
      under the Notes or this Security Agreement.

     

    SECTION
      9.4 Amendments,
      Waivers and Consents. Any
      amendment or waiver of any provision of this Security Agreement and any consent
      to any departure by Company from any provision of this Security Agreement shall
      be effective only by a writing signed by the Trustee and, in the case of any
      amendment or waiver which would have, directly or indirectly, an adverse impact
      on the Wachovia Inventory Rights, with the prior written consent of Wachovia,
      provided,
      however,
      that
      Trustee shall not consent to any such amendment without the prior written
      consent of the holders of a majority of the principal amount of the Notes,
      and
      shall bind and benefit Company and Holders and their respective successors
      and
      assigns, subject, in the case of Company, to the first sentence of Section 9.3
      hereof.

     

    SECTION
      9.5 Joinder
      by Other Subsidiaries. If
      a
      wholly owned subsidiary of SMF that is not already a party to this
      Agreement (an "Additional
      Subsidiary")
      has executed a written joinder agreement by which the Additional
      Subsidiary agrees to be bound by all the terms and conditions of this
      Agreement as if it were an original party to this Agreement,
      then it

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    will
      be deemed for all purposes to be a party hereto and all
      references
      to
      Company in this Agreement shall be deemed to include the Additional Subsidiary.
      Upon execution and delivery of such a joinder agreement to Trustee, Company
      may
      transfer any portion of the Collateral to the Additional Subsidiary upon
      compliance with the notice procedures for such transfers set forth in Section
      4.7  hereof .

     

    SECTION
      9.6 Interpretation
      of Agreement. Time
      is
      of the essence in each provision of this Security Agreement of which time is
      an
      element. To the extent a term or provision of this Security Agreement conflicts
      with the Notes and is not dealt with herein with more specificity, this Security
      Agreement shall control with respect to the subject matter of such term or
      provision. Acceptance of or acquiescence in a course of performance rendered
      under this Security Agreement shall not be relevant in determining the meaning
      of this Security Agreement even though the accepting or acquiescing
      party had
      knowledge of the nature of the performance and opportunity for
      objection.

     

    SECTION
      9.7 Continuing
      Security Interest.
      This
      Security Agreement shall create a continuing security interest in the Collateral
      and shall (i) remain in full force and effect until the indefeasible
      payment in full of the Obligations, (ii) be binding upon each of SMF,
      H & W and SSI and their respective successors and assigns and
      (iii) inure, together with the rights and remedies of Holders hereunder, to
      the benefit of Holders and its successors, transferees and assigns.

     

    SECTION
      9.8 Reinstatement.
      To the
      extent permitted by law, this Security Agreement and the rights and powers
      granted to Trustee and Holders hereunder and under the other Loan Documents
      shall continue to be effective or be reinstated if at any time any amount
      received by Holders in respect of the Obligations is rescinded or must otherwise
      be restored or returned by Trustee or Holders upon the insolvency, bankruptcy,
      dissolution, liquidation or reorganization of either Company or upon the
      appointment of any receiver, intervenor, conservator, trustee or similar
      official for either Company or any substantial part of its assets, or otherwise,
      all as though such payments had not been made.

     

    SECTION
      9.9 Survival
      of Provisions. All
      representations, warranties and covenants of Company contained herein shall
      survive the execution and delivery of this Security Agreement, and shall
      terminate only upon the full and final payment and performance by Company of
      the
      Obligations secured hereby.

     

    SECTION
      9.10 Indemnification.
      Company
      agrees to indemnify and hold harmless Trustee, Holders and their respective
      directors, officers, agents, employees and counsel from and against any and
      all
      costs, expenses, claims, or liability incurred by Holders or such Person
      hereunder and under any other Loan Document or in connection herewith or
      therewith, unless such claim or liability shall be due to willful misconduct
      or
      gross negligence on the part of Holders or such Person.

     

    SECTION
      9.11 Governing
      Law.
      the
      validity, interpretation and enforcement of this Security Agreement shall be
      governed by and construed in accordance with the laws of the state of Applicable
      Law, without giving effect to the conflict of law principles
      thereof.

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    SECTION
      9.12 Venue;
      Service of Process.
      Any
      legal action or proceeding with respect to this Security Agreement or any other
      loan document may be brought in the courts of the state of Florida situated
      in
      Broward County, or of the United States of America for the Southern District
      of
      Florida and, by execution and delivery of this Security Agreement, Company
      hereby accepts for itself and in respect of its property, generally and
      unconditionally, the jurisdiction of the aforesaid courts. Company
      hereby irrevocably
      waives, in connection with any such action or proceeding, (a) any
      objection, including, without limitation, any objection to the laying of venue
      or based on the grounds of forum non conveniens, that it may now or hereafter
      have to the bringing of any such action or proceeding in such respective
      jurisdictions and (b) the right to interpose any noncompulsory setoff,
      counterclaim or cross-claim. Company
      irrevocably consents to the service of process of any of the aforementioned
      courts in any such action or proceeding by the mailing of copies thereof by
      registered or certified mail, postage prepaid, to company at the address for
      it
      specified in Section
      9.1
      hereof.
      Nothing herein shall affect the right of Trustee or Holders to serve process
      in
      any other manner permitted
      by
      law or
      to commence legal proceedings or otherwise proceed against Company in any other
      jurisdiction, subject in each instance to the provisions hereof with respect
      to
      rights and remedies.

     

    SECTION
      9.13 Delays;
      Partial
      Exercise of Remedies.
      No delay
      or omission of Trustee or Holders to exercise any right or remedy hereunder,
      whether before or after the happening of any Event of Default, shall impair
      any
      such right or shall operate as a waiver thereof or as a waiver of any such
      Event
      of Default. No single or partial exercise by Trustee or Holders of any right
      or
      remedy shall preclude any other or further exercise thereof, or preclude any
      other right or remedy.

     

    SECTION
      9.14 Waiver
      of Jury Trial. COMPANY,
      TRUSTEE AND HOLDERS IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
      PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY
      AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THOSE
      AGREEMENTS.

     

    SECTION
      9.15 Entire
      Agreement.
      Company,
      Trustee and Holders agree that this Security Agreement and the exhibits hereto
      are the complete and exclusive statement and agreement between the parties
      with
      respect to the subject matter hereof, superseding all proposals and prior
      agreements, oral or written, and all other communications between the parties
      with respect to the subject matter hereof.

     

    SECTION
      9.16 Counterparts;
      Facsimile.
      This
      Security Agreement may be executed in two or more counterparts, each of which
      shall be deemed to be an original but all of which taken together shall
      constitute one agreement. Signatures to this Security Agreement may be
      transmitted by facsimile and such transmission shall be deemed to be an
      original.

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have caused this Security Agreement to be duly executed and
      delivered by their proper and duly authorized officers as of the date first
      set
      forth above.

     

    SMF
      ENERGY CORPORATION

     

     

    By:
      
      
        

      

    

    Richard
      E. Gathright

    Chief
      Executive Officer and President

     

    FED
      ID
      NO. 65-0707824

     

     

    H
      & W PETROLEUM COMPANY, INC.

     

    By:
      
      
        

      

    

    Richard
      E. Gathright

    Chief
      Executive Officer and President

     

    FED
      ID
      NO. 74-2121111

     

     

    SMF
      SERVICES, INC.

     

    By:
      
      
        

      

    

    Richard
      E. Gathright

    Chief
      Executive Officer and President

     

    FED
      ID
      NO. 20-2096974

     

     

    AMERICAN
      NATIONAL BANK

     

     

    By:
      
      
        

      

    

    Name:

    Title:

     

     

    By:
      
      
        

      

    

    Name:

    Title:

     

    FED
      ID
      NO. __________________________

     

    
      
        
        

      

      -15-

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