Document:

Memorandum
      of Understanding

     

     

    This
      Memorandum of Understanding is executed by and among the following
      parties:

     

    
      	Party
              A:	
              C3
                Capital, Limited,
                a
                commercial company registered and established under the BVI Business
                Companies Act 2004 on October 25th
                2007. Its registration number is
                1439706.

            

    

     

    
      	Party
              B:	
              Gao
                Zhigang,
                citizen of People’s Republic of China, whose domicile is Renmin Street
                No.138, Changchun City, Jilin Province. ID Number: 130721197009125215.
                

            

    

     

    
      	Party
              C:	
              Li
                Ping,
                citizen of People’s Republic of China, whose domicile is No. 401, Unit 2,
                Hei Longjiang Road No.57, Buck Sand District, Urumqi City. ID Number:
                650103197603051323.

            

    

     

    

     

    Whereas:

     

    
      	1.	
              According
                to the laws of People’s Republic of China, Party B and Party C propose to
                establish Xinjiang Paragon Master Mining Co., Ltd (hereinafter referred
                to
                as “the Object Company”). The Object Company plans to register with the
                Administration Bureau for Industry and Commerce of Xinjiang Uygur
                Autonomous Region. Up until the execution date of this memorandum
                of
                understanding (hereinafter referred to as this MOU), Party B and
                Party C
                have completed the company’s name pre-approval procedure with
                Administration Bureau for Industry and Commerce of Xinjiang Uygur
                Autonomous Region. Other procedures for the incorporation of the
                company
                are in process.

            

    

     

    
      	2.	
              Party
                B and Party C have confirmed that the registered capital for the
                Object
                Company is RMB 3.2 Million Yuan, among which, the investment by Party
                B is
                RMB 2.88 Million Yuan, taking up 90 %, and the investment by Party
                C is
                RMB 0.32 Million Yuan, taking up
                10%.

            

    

     

    
      	3.	
              Party
                B and Party C have confirmed that, after the completion of registration
                and incorporation procedure for the Object Company, they will transfer
                the
                shares of the Object Company held respectively by them to Party A,
                and
                Party A will make the payment of the equity interest transfer
                price.

            

    

     

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    Through
      friendly consultation among Party A, Party B and Party C, regarding the equity
      interest transfer of the Object Company, the following agreement has been
      reached:

    

      
        	
                Article
                  1

                 

              	
                Party
                  B and Party C, respectively, grant Party A the irrevocable right
                  to
                  purchase the equity interest of the Object Company (“the purchase right”).
                  The purchase right becomes effective upon the completion of industrial
                  and
                  commercial registration for the Object company (taking the date
                  on which
                  the Corporate Business License is issued as final) until the date
                  when
                  Party A makes it clear to abandon the purchase right (referred
                  to as “the
                  purchase right exercise period”). However, if, within eighteen months upon
                  all the conditions as agreed in Article 2 of this MOU have been
                  satisfied,
                  Party A does not conduct the procedure for initiating the purchase
                  right,
                  the purchase right becomes void automatically. 

                 

              
	
                Article
                  2

                 

              	
                After
                  the establishment of the Object Company, Party B and Party C shall
                  conduct
                  relevant procedures in time in order to obtain the permissions,
                  approvals
                  or filing documents for the Object Company’s operation. In addition, Party
                  B and Party C shall obtain the quartz mine exploration and mining
                  right as
                  described in Article 3 of this MOU according to Chinese laws and
                  regulations.

                 

              
	
                Article
                  3

                 

              	
                Party
                  B and Party C shall make the Object Company legally obtain the
                  exploration
                  and mining right for the quartz mine of the mining area in Wenquan
                  County
                  Xinjiang. Party B and Party C confirm that: the reconnaissance
                  geological
                  survey procedure for the before mentioned quartz mine and the procedure
                  of
                  defining the limits of the mining areas shall be conducted by Wenquan
                  County Branch for Xing Tao Da Bei Mining Co. Ltd, Xinjiang. The
                  mining
                  area is situated 14 KM southeast of Wenquan County and its geographical
                  coordinates are east longitude 80 56 36, north latitude 44 56 06.
                  Through
                  geology examination, the standard of the quartzite is 333 + 334
                  and the
                  geological reserves are 1.1 million tons. The applied mining depth
                  is from
                  1450 meters to 1420 meters. The defined mining area applying for
                  is 0.266
                  square kilometers.

                 

              
	
                Article
                  4

                 

              	
                As
                  confirmed by Party A, Party B and Party C, Party A will purchase
                  the
                  equity interest of the Object Company and shall pay the equity
                  interest
                  purchase price, in aggregate, USD $50,000. The foregoing equity
                  interest
                  transfer price shall be paid to Party B and Party C respectively
                  according
                  to the ratio of investments of the Object Company by Party B and
                  Party
                  C.

                 

              
	
                Article
                  5

                 

              	
                Within
                  the purchase right exercise period as agreed in Article 1, Party
                  B and
                  Party C shall not transfer their equity interest of the Object
                  Company to
                  any party other than Party A or the third party appointed by Party
                  A.
                  Party B and Party C also shall not hypothecate or enact other restrictive
                  right upon the equity interest of the Object
                  Company.

              

      

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      
        	
                Article
                  6

                 

              	
                When
                  Party A exercises the purchase right, it shall send to Party B
                  and Party C
                  written notices respectively. Within thirty days upon Party B and
                  Party C
                  receive the written notices, they shall complete the execution
                  of the
                  equity interest transfer contract of the Object Company with Party
                  A
                  according to the material conditions as agreed in this MOU (hereinafter
                  referred to as “equity interest transfer contract”).

                 

              
	
                Article
                  7

                 

              	
                Party
                  A, Party B and Party C shall, after the execution of the equity
                  interest
                  transfer contract, cooperate promptly in order to complete all
                  the
                  approval procedures as required by the equity interest transfer
                  of the
                  Object Company.

                 

              
	
                Article
                  8

                 

              	
                As
                  the substantial incentive for Party B and Party C to execute this
                  MOU,
                  Party A promises that, Party A will, at the time as agreed in the
                  equity
                  interest transfer contract, make the payment to Party B and Party
                  C of the
                  transfer price of the equity interest held by Party B and Party
                  C.

                 

              
	
                Article
                  9

              	
                As
                  the substantial incentive for Party A to execute this MOU, Party
                  B and
                  Party C promise to Party A that: 

              

      

       

    

    
      	 	
              (1)

            	
              By
                November 30th,
                2008, Party B and Party C will complete the company incorporation
                procedure for the Object Company and make the Object Company obtain
                all
                the permissions, approvals or filing documents for legal
                operation;

            

    

     

    
      	 	
              (2)

            	
              By
                December 31st
                2008, Party B and Party C will, on behalf of the Object Company,
                obtain
                the exploration right for quartz mine as defined in Article 3 of
                this MOU.
                They also guarantee to obtain the mining license for the Object
                Company;

            

    

     

    
      	 	
              (3)

            	
              When
                Party A decides to purchase the equity interest of the Object Company,
                conduct the Due Diligence Investigation, Party B and Party C shall
                cooperate fully and settle in time all the problems of the Object
                company
                as required by Party A according to
                laws.

            

    

    

      
        	
                Article
                  10

              	
                Within
                  three days upon Party A makes the payment of the equity transfer
                  price
                  according to the equity interest transfer contract, Party B and
                  Party C
                  shall make payment, without any consideration, to the Object Company
                  of
                  RMB of equal value of US $50,000, for the purpose of daily operation
                  of
                  the Object Company.

              

      

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      
        	
                Article
                  11

                 

              	
                Party
                  A, Party B and Party C shall bear all the costs and taxes as required
                  by
                  laws for the purpose of completion of the issues as agreed in this
                  MOU.

                 

              
	
                Article
                  12

                 

              	
                Party
                  A, Party B and Party C confirm that Party B shall be responsible
                  for the
                  performance arrangement of the obligations and related liabilities
                  of
                  Party B and Party C under the equity interest transfer contract.
                  Party B
                  shall also take joint liability for the obligations and related
                  liabilities of Party C.

                 

              
	
                Article
                  13

                 

              	
                If
                  any party to this MOU violates the obligations under this MOU,
                  or its
                  representation, statement or warranty is untrue, it will constitute
                  a
                  breach of this MOU. The party in breach shall compensate the non-breaching
                  party all the losses resulting from the execution and performance
                  of this
                  MOU.

                 

              
	
                Article
                  14

                 

              	
                Any
                  disputes arising from construing, performing or relating to this
                  MOU shall
                  be settled by means of friendly negotiation. In case that the disputes
                  cannot be settled through negotiation, any party has the right
                  to submit
                  the disputes to China International Economic and Trade Arbitration
                  Commission (“CIETAC”) arbitration in Beijing subject to the prevailing
                  arbitration rules of CIETAC. The arbitration award is final and
                  legally
                  binding on the parties.

                 

              
	
                Article
                  15

                 

              	
                This
                  MOU is written in Chinese and English and the two versions equally
                  valid.
                  In case of any discrepancy between the two versions, the Chinese
                  version
                  will prevail. 

                 

              
	
                Article
                  16

                 

              	
                Party
                  A, Party B and Party C will execute this MOU in six originals and
                  each
                  party shall keep two originals. 

                 

              
	
                Article
                  17

                 

              	
                The
                  effectiveness, construction, and performance of this MOU shall
                  be governed
                  by the prevailing laws and regulations of People’s Republic of China.
                  

                 

              
	
                Article
                  18

                 

              	
                This
                  MOU shall become effective upon the signatures and seals by Party
                  A, Party
                  B and Party C. 

                 

              

      

    

     

    (no
      text
      and execution page follows)

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (no
      text,
      for signatures only)

     

    

     

    Party
      A:
      C3 Capital, Limited

     

    Authorized
      Representative: 

     

    Date:

     

    

     

    

     

    

     

    Party
      B:

     

    Date:

     

    

     

    

     

    

     

    Party
      C:

     

    Date:

     

    

     

    
      
         

      

      
        5THIS
      NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (“SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED EXCEPT
      (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
      OR
      (II) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, BUT
      ONLY UPON THE PAYEE FIRST HAVING OBTAINED A WRITTEN OPINION OF MAKER’S COUNSEL,
      OR OTHER COUNSEL ACCEPTABLE TO MAKER, THAT THE PROPOSED DISPOSITION IS
      CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AND ANY
      APPLICABLE “BLUE SKY” OR OTHER SIMILAR SECURITIES LAW. 

     

    CONVERTIBLE
      PROMISSORY NOTE

     

    
      	
              $______,000

            	
              September
                2, 2008

            

    

    

    

    FOR
      VALUE
      RECEIVED, SMF
      Energy Corporation,
      a
      Delaware corporation (“Maker”),
      promises
      to pay to the order of _________________
      or his/
      her/ its assigns (“Payee”),
      at
      such place as the Payee may designate in writing, in lawful money of the United
      States of America, the principal sum of ______________________ Thousand Dollars
      ($____,000). 

    

    1.  Principal
      Payments.
      The
      principal amount of this promissory note (the “Note”
and,
      collectively with substantially identical promissory notes of Maker, the
“Notes”),
      together with any accrued but unpaid interest, shall be due and payable on
      September 1, 2010 (the
      “Due
      Date”).
      The
      outstanding principal balance of this Note may be prepaid by Maker prior to
      maturity as provided in Section 4 of this Note.

     

    2.  Interest.
      The
      outstanding principal balance of this Note shall accrue interest at a fixed
      rate
      of twelve percent (12%). Interest shall be calculated on the basis of a 360-day
      year. Accrued interest on this Note shall be paid semi-annually, on each March
      1
      and September 1, beginning March 1, 2009, until the outstanding principal
      balance of this Note is paid in full. 

     

    3.  Interest
      Method of Payment; Application.
      

     

    (a)  All
      payments (including any prepayments) shall be made on the due date thereof
      by
      wire transfer of immediately available funds to such bank account as Payee
      may
      from time to time designate in writing. All cash payments of interest shall
      be
      made on the due date thereof by check drawn on a United States bank. Payments
      (including all prepayments) received by Payee on this Note shall be applied
      first to the payment of accrued and unpaid interest and only thereafter to
      the
      outstanding principal balance of this Note.

     

    (b)  In
      the
      event the interest provisions hereof or any exactions provided for herein shall
      result, because of the reduction of principal, or for any reason at any time
      during the life of this loan, in an effective rate of interest which, for any
      month, transcends the limit of the usury or any other law applicable to the
      loan
      evidenced hereby, all sums in excess of those lawfully collectible as interest
      for the period in question shall, without further agreement or notice between
      or
      by any party hereto, be applied to reduction of the outstanding principal
      balance upon receipt of such moneys by Payees hereof, with the same force and
      effect as though the payment had specifically designated such extra sums to
      be
      so applied to principal.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.  Redemption
      and Prepayment.

     

    (a)  Optional
      Redemption.
      At any
      time after the date of this Note, Maker shall have the option to redeem this
      Note, in whole or in part, without prepayment penalty or premium, except that,
      if such pre-payment is proposed to be made before the first anniversary of
      the
      issuance of the Note, then a prepayment penalty equal to one percent (1%) of
      the
      principal amount being redeemed shall also be paid. In addition to the principal
      amount being pre-paid and the pre-payment penalty, if any, Maker shall also
      pay
      any accrued but unpaid interest on the entire outstanding principal balance
      of
      this Note at the time of redemption.

     

    (b)  Notice
      to Payee.
      At
      least fifteen (15) days but
      not
      more than sixty (60) days (the “Payee
      Notice Period”)
      before
      a redemption date, Maker shall mail or cause to be mailed a notice of redemption
      to Payee. The notice shall state:

     

    (i)  the
      redemption date;

     

    (ii)  the
      redemption price;

     

    (iii)  that
      this
      Note called for redemption must be surrendered to Maker to collect the
      redemption price; and

     

    (iv)  that,
      unless Maker defaults in making such redemption payment, interest on this Note
      called for redemption ceases to accrue on the redemption date.

     

    (c)  Effect
      of Notice of Redemption.
      This
      Note will become irrevocably due and payable on the redemption date at the
      redemption price. A notice of redemption may not be conditional. If the
      redemption is only a partial redemption, then only the redeemed portion shall
      become due and payable on the redemption date. 

     

    (d)  Conversion
      Prior to Redemption or Merger.
      During
      the Payee Notice Period, the Payee may elect to convert any portion of the
      outstanding principal or the accrued but unpaid interest of this Note into
      common stock of Maker in accordance with Section 5 hereof rather than permit
      the
      Note to be redeemed 

     

    (e)  Note
      Redeemed or Converted in Part.
      If less
      than the entire principal amount of this Note is redeemed or converted, Maker
      will deliver to Payee, at Maker’s expense, a new promissory note in the same
      form of this Note in an amount equal in principal to the unredeemed and
      unconverted portion of this Note not more than thirty (30) days after such
      partial conversion or redemption. 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    5.  Conversion.
      

     

    (a)  Optional
      Conversion.
      The
      unpaid principal amount of this Note and the accrued but unpaid interest thereon
      is convertible by the holder hereof into shares (“Shares”)
      of
      Maker’s common stock (“Common Stock”)
      at
      $0.65 per share (the “Conversion
      Price”).

     

    (b)  Upon
      conversion of this Note, certificates for the Shares so purchased shall be
      delivered to Payee within three (3) business days of the Maker’s actual receipt
      of this original Note and a completed Notice of Conversion in substantially
      the
      same form attached hereto as Exhibit
      A.

     

    (c)  The
      number and kind of securities purchasable upon the conversion of this Note
      and
      the Conversion Price shall be subject to adjustment from time to time upon
      the
      occurrence of certain events, as follows:

     

    (i)  In
      case
      of any reclassification or change of outstanding securities of the Common Stock
      (other than a change in par value, or from par value to no par value, or from
      no
      par value to par value, or as a result of a subdivision or combination), or
      in
      case of any merger of Maker with or into another corporation (other than a
      merger with another corporation in which Maker is a continuing corporation
      and
      which does not result in any reclassification or change of outstanding
      securities issuable upon conversion of this Note), or in case of any sale of
      all
      or substantially all of the assets of Maker, Payee shall have the right upon
      conversion of this Note to receive, in lieu of Shares of Common Stock
      theretofore issuable upon conversion of this Note, the kind and amount of shares
      of stock, other securities, money and property receivable upon such
      reclassification, change or merger by the holder of one share of Common Stock.
      These provisions shall similarly apply to successive reclassifications, changes,
      mergers and transfers.

     

    (ii)  If
      Maker
      at any time while this Note remains outstanding and unexpired shall subdivide
      or
      combine its Common Stock, the Conversion Price shall be proportionately
      adjusted. In the case of a subdivision, the Conversion Price shall be
      proportionately decreased and the number of Shares shall be proportionately
      increased. In the case of a combination, the Conversion Price shall be
      proportionately increased and the number of Shares shall be proportionately
      decreased. 

     

    (iii)  If
      Maker
      at any time while this Note is outstanding and unexpired shall pay a dividend
      or
      other distribution with respect to Common Stock or any other equity interest
      in
      Maker which is payable in Common Stock (except any distribution specifically
      provided for in the foregoing paragraph (i) or (ii)) then the Conversion Price
      and the number of Shares into which this Note may be converted shall be
      adjusted, from and after the date of determination of stockholders entitled
      to
      receive such dividend or distribution to that price determined by multiplying
      the Conversion Price in effect immediately prior to such date of determination
      by a fraction (a) the numerator of which shall be the total number of shares
      of
      Common Stock outstanding immediately prior to such dividend or distribution
      and
      (b) the denominator of which shall be the total number of shares of Common
      Stock
      outstanding immediately after such dividend or distribution.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (iv)  When
      there is an adjustment in the Conversion Price and a corresponding increase
      in
      the number of Shares of Common Stock that can be obtained by conversion, the
      adjustment to the number of Shares shall be made by multiplying the number
      of
      Shares purchasable immediately prior to such adjustment in the Conversion Price
      by a fraction, the numerator of which shall be the Conversion Price immediately
      prior to such adjustment and the denominator of which shall be the Conversion
      Price immediately thereafter, with the adjustment being made to the nearest
      whole share.

     

    (v)  Whenever
      the Conversion Price shall be adjusted, Maker shall make a certificate signed
      by
      its chief financial officer setting forth, in reasonable detail, the event
      requiring the adjustment, the amount of the adjustment, the method by which
      such
      adjustment was calculated, and the Conversion Price or Prices after giving
      effect to such adjustment, and shall cause copies of such certificate to be
      mailed (by first class mail, postage prepaid) to the Payee.

     

    (vi)  If
      Maker
      proposes (A) to declare any dividend or distribution upon any class or series
      of
      its stock, whether in cash, property, stock or other securities, whether or
      not
      a regular cash dividend and whether or not out of earnings or earned surplus;
      (B) to effect any reclassification or recapitalization of the Common Stock
      outstanding involving a change in the Common Stock; or (C) to merge or
      consolidate with or into any other entity, or sell, lease or convey all or
      substantially all its assets or property, or to liquidate, dissolve or wind
      up,
      whether voluntary or involuntary, then Maker shall send to the Payee at least
      ten (10) days’ prior written notice of the record date for any such event and
      prompt notice of any material change in the terms of any such
      transaction.

     

    (d)  Automatic
      Conversion.
      This
      Note shall automatically be converted into shares of Common Stock, based on
      the
      then-effective Conversion Price, (A) if the closing price of the Common Stock
      as
      reported on the Nasdaq Capital Stock Market (or on such other public securities
      trading market, such as the OTC Bulletin Board, as then constitutes the primary
      trading market for the Common Stock) is equal to or greater than two times
      the
      Conversion Price then in effect (the “Automatic
      Conversion Price”),
      for a
      period of twenty (20) consecutive business days, or (B) at any time upon the
      affirmative election of the holders of at least sixty-six and two-thirds percent
      (66 2/3%) of the principal amount of the then outstanding Notes, or (C) upon
      the
      earliest to occur of (x) the closing of a firmly underwritten public offering
      pursuant to an effective registration statement under the Securities Act
      covering the offer and sale of Common Stock for the account of the Company
      in
      which (i) the per share price is at least two times the Automatic Conversion
      Price and (ii) the cash proceeds to the Company (before underwriting discounts,
      commissions and fees) are at least Ten Million Dollars ($10,000,000). This
      Note
      may not be automatically converted at any time on or after the date on which
      the
      Company has called for redemption this Note pursuant to Section 4, provided
      that
      the Company then pays the redemption price in accordance with Section 4.

     

    (e)  No
      fractional Shares of Common Stock will be issued in connection with any
      conversion of this Note. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (f)  Payee
      shall not be entitled to vote or receive dividends or be deemed the holder
      of
      Common Stock or any other securities of Maker which may at any time be issuable
      on the exercise hereof for any purpose, nor shall anything contained herein
      be
      construed to confer upon Payee any of the rights of a stockholder of Maker
      before this Note has been converted.

     

    6.  Default.
      If
      any
      payment required by this Note is not paid, and the continuation of such failure
      to pay for a period of ten (10) days of the receipt of written notice (as
      provided herein) of such failure by Payees or any subsequent holder hereof
      to
      Maker, this Note shall be considered to be in default and the entire unpaid
      principal sum hereof shall, at the option of the holder hereof, by notice to
      Maker, become immediately due and payable in full. 

     

    7.  Notices.
      Any
      notice provided for in this Note shall be in writing and shall be given and
      be
      effective upon (1) personal delivery to Maker, or (2) receipt of such notice
      by
      certified or registered mail, return receipt requested, addressed to Maker
      at
      Maker's address stated below, or to such other address as Maker may designate
      by
      written notice to Payees. Any notice to Payees shall be in writing and shall
      be
      given and be effective upon (1) personal delivery to Payees, or (2) by mailing
      such notice by certified or registered mail, return receipt requested, to Payees
      at the address stated in the first paragraph of this Note, or to such other
      address as Payees may designate by written notice to Maker.

     

    8.  Unsecured
      Subordinated Note.
      PAYEES
      ACKNOWLEDGE THAT THIS IS AN UNSECURED NOTE AND ACKNOLWEDGES THAT IT IS SUBJECT
      IN ALL RESPECTS TO THE SUBORDINATION AGREEMENT BY AND BETWEEN PAYEES, MAKER,
      WACHOVIA BANK, NATIONAL. ASSOCIATION, H & W PETROLEUM COMPANY, INC. AND SMF
      SERVICES, INC., OF EVEN DATE HEREWITH AND THAT IT IS ALSO SUBORDINATED TO THE
      MAKER’S AUGUST 15, 2007 SENIOR SECURED CONVERTIBLE PROMISSORY NOTES.

     

    9.  Waivers.
      Maker
      and
      all endorsers, guarantors and all persons liable or to become liable on this
      Note waive presentment, protest and demand, notice of protest, demand and
      dishonor and nonpayment of this Note, and agree that at any time and from time
      to time without notice, the terms of the payment herein may be modified, changed
      or exchanged by agreement between the Payees or any subsequent holder hereof
      and
      Maker or any successor in title to Maker without in any way affecting the
      liability of any party to this Note or any person liable or to become liable
      with respect to any indebtedness evidenced hereby. No delay or omission on
      the
      part of the holder hereof in exercising any right hereunder shall operate as
      a
      waiver of such right or of any other right under this Note. A waiver on one
      occasion shall not be construed as a bar to or waiver of any such right and/or
      remedy on any future occasion.

     

    10.  Miscellaneous.
      The
      validity and construction of this Note and all matters pertaining hereto are
      to
      be determined in accordance with the laws of the State of Florida. Maker and
      all
      endorsers, guarantors and other persons liable or to become liable hereunder
      agree that in the event of default, this Note may be enforced in any court
      of
      competent jurisdiction in the State of Florida, and all such persons do hereby
      submit to the jurisdiction of such court regardless of their residence or where
      this Note or any endorsement or guarantee hereof may be executed.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    In
      the
      event of default and the placement of this Note in the hands of any attorney
      for
      collection, Maker agrees to pay all collection costs and expenses, including
      reasonable attorneys’ fees.

     

    This
      Note
      is delivered as a part of a business transaction and not in connection with
      a
      consumer purchase.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, Maker has executed this Note effective as of the date first
      set
      forth above.

     

     

    
      	 	
              SMF
                ENERGY CORPORATION

            
	 	 
	 	 
	 	
              By: 
                ____________________________

              Richard
                E. Gathright

              President
                and Cheif Executive Officer

              200
                West Cypress Creek Road, Suite 400

              Fort
                Lauderdale, FL 33309

            

    

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    

    NOTICE
      OF CONVERSION

    

    

    

    TO: SMF
      ENERGY CORPORATION

    

    1. The
      undersigned note holder (“Holder”) hereby elects to convert $____________ of the
      principal amount of the September 2, 2008 12% Unsecured Convertible Promissory
      Note (the “Note”) of SMF Energy Corporation (“SMF”) payable to Holder into
      ____________ shares of the Common Stock of SMF (the “Shares”) at the
      $________per Share price prescribed by the Note (the “Conversion Price”).
      Enclosed herewith is the original Note, tendered for such conversion. If and
      to
      the extent that additional sums remain owed under the Note after such
      conversion, SMF is directed to issue a new replacement Note to Holder
      representing the unpaid balance of the Note after the conversion. 

    

    2. By
      this
      conversion, Holder does not waive any payment of unpaid interest on the
      converted portion of the Note that accrued prior to the date of conversion.
      Any
      such accrued but unpaid interest is not payable until the next regular date
      set
      forth in the Note for payment of interest on the Note. 

    

    2. Please
      issue a certificate or certificates representing the Shares in the name of
      Holder or in such other names as may be specified below:

    ______________________________

    ______________________________
______________________________

    3. [For
      use only in the absence of an effective registration statement covering the
      Shares]
      Holder
      represents that the Shares are being acquired for the account of Holder, for
      investment purposes, and not with a view to, or for resale in connection with,
      the distribution thereof and that Holder has no present intention of
      distributing or reselling such Shares. In support thereof, Holder has executed
      an Investment Representation Statement attached to this Notice as Attachment
      1.

    

    NAME
      OF
      HOLDER: ______________________________

    

    
      	
              Date:
                _________________________________

            	_________________________________
	 	
              (Signature
                of Holder)

            

    

     

    
 

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    Attachment
      1

    to
      Notice of Conversion

    (For
      use only in the absence of an effective registration statement covering the
      Shares) 

    

    INVESTMENT
      REPRESENTATION STATEMENT

     

    

    

    
      	
              HOLDER:

            	____________________________
	 	 
	
              COMPANY:

            	
              SMF
                ENERGY CORPORATION

            
	 	 
	
              SECURITY:

            	
              COMMON
                STOCK ISSUED UPON CONVERSION OF UNSECURED CONVERTIBLE PROMISSORY
                NOTE
                

            
	 	 
	
              AMOUNT:

            	____________________________
	 	 
	
              DATE:

            	____________________________

    

    

    

    In
      connection with the purchase of the above-listed securities (the “Securities”),
      the
      undersigned (“Holder”)
      represents to Company the following:

    

    (a) Holder
      is
      aware of Company’s business affairs and financial condition, and has acquired
      sufficient information about Company to reach an informed and knowledgeable
      decision to acquire the Securities. Holder is purchasing these Securities for
      Holder’s own account for investment purposes only and not with a view to, or for
      the resale in connection with, any “distribution” thereof for purposes of the
      Securities Act of 1933, as amended (the “Securities
      Act”).

    

    (b) Holder
      understands that the Securities have not been registered under the Securities
      Act in reliance upon a specific exemption therefrom, which exemption depends
      upon, among other things, the bona fide nature of Holder’s investment intent as
      expressed herein. In this connection, Holder understands that, in the view
      of
      the Securities and Exchange Commission (“SEC”),
      the
      statutory basis for such exemption may be unavailable if Holder’s representation
      was predicated solely upon a present intention to hold these Securities for
      the
      minimum capital gains period specified under tax statutes, for a deferred sale,
      for or until an increase or decrease in the market price of the Securities,
      or
      for a period of one year or any other fixed period in the future.

    

    (c) Holder
      further understands that the Securities must be held indefinitely unless
      subsequently registered under the Securities Act or unless an exemption from
      registration is otherwise available. Moreover, Holder understands that Company
      is under no obligation to register the Securities except as set forth in the
      Warrant. In addition, Holder understands that the certificate evidencing the
      Securities will be imprinted with a legend which prohibits the transfer of
      the
      Securities unless they are registered or such registration is not required
      in
      the opinion of counsel for Company.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (d) Holder
      is
      aware of the provisions of Rule 144, promulgated under the Securities Act,
      which, in substance, permits limited public resale of “restricted securities”
acquired, directly or indirectly, from the issuer thereof (or from an affiliate
      of such issuer), in a non- public offering subject to the satisfaction of
      certain conditions.

    

    (e) Holder
      further understands that at the time Holder wishes to sell the Securities there
      may be no public market upon which to make such a sale.

    

    (f) Holder
      further understands that in the event all of the requirements of Rule 144
      are not satisfied, registration under the Securities Act, compliance with some
      other registration exemption will be required; and that, notwithstanding the
      fact that Rule 144 is not exclusive, the Staff of the SEC has expressed its
      opinion that persons proposing to sell private placement securities other than
      in a registered offering and otherwise than pursuant to Rule 144 will have
      a substantial burden of proof in establishing that an exemption from
      registration is available for such offers or sales, and that such persons and
      their respective brokers who participate in such transactions do so at their
      own
      risk.

    

    

     

    
      	
            	
              Signature
                of Holder:

            
	 	 
	 	 
	
              Date:
                ____________________

            	___________________________

    

    

    
      
        
        

      

      
        10

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