SECURITY
      AGREEMENT

     

    


    THIS
      SECURITY AGREEMENT is made effective the 19th day of October, 2005, by SHUMATE
      INDUSTRIES INC. (formerly EXCALIBUR INDUSTRIES, INC.), a Delaware corporation
      (“Excalibur”) having a notice address of 12060 FM 3083, Conroe, Texas 77301,
      SHUMATE MACHINE WORKS, INC., a Texas corporation (“Machine”) having a notice
      address of having a notice address of 12060 FM 3083, Conroe, Texas 77301, in
      favor of STILLWATER NATIONAL BANK AND TRUST COMPANY (the "Secured Party"),
      having a notice address at 1500 S. Utica, Tulsa, Oklahoma 74104. Excalibur
      and
      Machine are sometimes referred to herein collectively as the
“Debtor.”

     

    RECITALS:

    


    WHEREAS,
      the Debtor and the Secured Party have entered into a certain Loan Agreement
      of
      even date herewith (the "Loan Agreement"); and

    


    WHEREAS,
      pursuant to the Loan Agreement the Debtor has agreed to secure payment of the
      indebtedness described herein by granting the Secured Party a security interest
      covering the Property (as defined below); 

    


    NOW,
      THEREFORE, in consideration of the premises and the agreements herein contained,
      and for other good and valuable consideration, the receipt and sufficiency
      of
      which are hereby acknowledged, the Debtor hereby agrees with the Secured Party
      as follows:

    


    1. Definitions.
      Unless
      otherwise defined herein, all terms which are defined in the Loan Agreement
      will
      have the same meanings herein as therein, and all terms used herein which are
      defined in the Oklahoma Uniform Commercial Code ("UCC") will have the same
      meanings herein.

    


    2. Security
      Interest.
      The
      Debtor hereby grants to the Secured Party a security interest in all of the
      Debtor’s goods, chattels, accounts, accounts receivable, contract rights,
      inventory, supplies, equipment, computer equipment, computer hardware, computer
      software, general intangibles, and all other tangible and intangible personal
      property, whether now owned or hereafter acquired, and all proceeds, products,
      rents, profits and income therefrom (the “Property”). 

    


    3. Secured
      Indebtedness.
      The
      security interest granted hereby in the Property is given to secure the Debtor's
      payment of (a) a certain Amended and Restated Promissory Note of even date
      herewith in the principal face amount of $3,365,000.00 signed by the Debtor
      in
      favor of the Secured Party (the “Amended and Restated Note”), and all
      extensions, renewals, amendments, modifications, substitutions and changes
      in
      form of the Amended and Restated Note, together with all interest thereon;
      (b) a
      certain Promissory Note (IRS Note) in a principal face amount to be determined
      to be executed by the Debtor in favor of the Secured Party (the “IRS Note”), and
      all extensions, renewals, amendments, modifications, substitutions and changes
      in form of the IRS Note, together with all interest thereon; (c) a certain
      Promissory Note (Revolving Note) of even date herewith in the principal face
      amount of $1,000,000.00 signed by the Debtor in favor of the Secured Party
      (the
“Revolving Note”), and all extensions, renewals, amendments, modifications,
      substitutions and changes in form of the Revolving Note, together with all
      interest thereon; (d) all advances made by the Secured Party to protect the
      security hereof, including advances made for or on account of levies, insurance,
      repairs, taxes and for maintenance or recovery of the Property, together with
      interest thereon at the rate specified in the Restructure Note; and (e) all
      costs and expenses incurred in connection with the collection and enforcement
      of
      the foregoing items described at Sections 3(a) through and including Section
      3(d) including reasonable attorneys’ fees and expenses. (The foregoing items
      described at Sections 3(a) through 3(e) hereof inclusive are collectively
      referred to herein as the "Secured Indebtedness.")

    


    
      
        
        

      

      
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    4. Debtor's
      Representations and Covenants.
      The
      Debtor hereby warrants, represents and agrees as follows:

    


    
      	 	
              4.1

            	
              Location
                of Debtor.
                The Debtors are registered corporations organized under the laws
                of
                Delaware and Texas. Its chief executive office and present principal
                place
                of business is the same as set forth in the introductory paragraph
                hereof
                (the “Business Location”).

            


    

    


    
      	 	
              4.2

            	
              Location
                of Property.
                The Property is now in the possession of the Debtor and is, or will
                be,
                located at the Debtor’s business location and the Debtor will not move the
                Property or locate any of the Property in any other location without
                the
                prior written consent of the Secured Party.


            


    

    


    
      	 	
              4.3

            	
              Business
                Purpose.
                The Property is to be used by the Debtor in connection with the operation
                of its business.

            


    

    


    
      	 	
              4.4

            	
              Title.
                The Debtor has or will obtain marketable title to the Property free
                and
                clear of all liens, encumbrances and security
                interests.

            


    

    


    
      	 	
              4.5

            	
              Transfers.
                Without the prior written consent of the Secured Party, the Debtor
                agrees
                that the Debtor will not sell, exchange, lease or in any manner dispose
                of
                any of the Property or any interest therein, without replacing same
                with
                property of comparable value in the ordinary course of
                business.

            


    

    


    
      	 	
              4.6

            	
              Maintenance
                of Property.
                The Debtor will use the utmost care to maintain the Property in good
                condition and repair, ordinary wear and tear excepted, and without
                the
                Secured Party’s prior written consent, will not suffer or permit any lien,
                charge or encumbrance to attach thereto, whether by reason of repairs,
                taxes, assessments or otherwise. The Debtor will not use or permit
                the
                Property to be used in violation of any law, statute or ordinance.
                The
                Debtor will not, in any event, permit anything to be done that may
                impair
                the value of the Property or the security intended to be afforded
                by this
                Agreement.

            


    

    


    
      
        
        

      

      
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              4.7

            	
              Insurance.
                The Debtor will insure the Property as required under the Loan Agreement.
                If the Debtor fails to pay the premiums for any such insurance, the
                Secured Party may do so for the Debtor's account, adding the amount
                so
                paid by the Secured Party to the other amounts secured hereby; however,
                the Secured Party is under no obligation and has no duty to pay such
                premiums. The Secured Party is here-by appointed the Debtor's
                attorney-in-fact to endorse any draft or check which may be payable
                to the
                Debtor in order to collect the proceeds of such property damage insurance.
                All insurance proceeds will be applied either to the Secured Indebtedness,
                or to the repair, restoration or replacement of the damaged or destroyed
                property, at the election of the Lender. Any proceeds required to
                be made
                available to Debtor for use in restoring, repairing and/or replacing
                any
                such damage to Property will be made available in accordance with
                the
                procedures for Debtor obtaining an advance under the Loan
                Agreement.

            


    

    


    
      	 	
              4.8

            	
              Inspection
                of Property.
                At any reasonable time and on reasonable prior notice to Debtor,
                the
                Secured Party may inspect the Property and all of the Debtor's records
                concerning the Property and the Borrower’s business
                operations.

            


    

    


    
      	 	
              4.9

            	
              Further
                Assurances.
                The Debtor will from time to time sign, execute, deliver and file,
                alone
                or with the Secured Party, any financing statements, secu-rity agreements
                or other documents; procure any instru-ments or documents; and take
                all
                further action that may be reasonably necessary or desirable, or
                that the
                Secured Party’s reasonable discretion in order to confirm, perfect,
                preserve and protect the security inter-ests intended to be granted
                hereby, and in addi-tion, the Debtor hereby authorizes the Secured
                Party
                to file such financing statements in such locations covering the
                Property
                as may be deemed necessary by the Secured Party without the signa-ture
                of
                the Debtor. 

            


    

    


    
      	 	
              4.10

            	
              Filing
                Reproductions.
                At the option of the Secured Party, a carbon, photographic or other
                reproduction of this Agreement or of a financing statement cover-ing
                the
                Property will be sufficient as a financing statement and may be filed
                as a
                financing statement.

            


    

    


    
      	 	
              4.11

            	
              Financing
                Statement Filings; Notifications.
                The Debtor will immediately notify the Secured Party of any condition
                or
                event that may change the proper location for the filing of any financing
                statements or other public notice or recordings for the purpose of
                perfecting a security interest in the Property. Without limiting
                the
                generality of the foregoing, the Debtor will: (a) immediately notify
                the
                Secured Party of any change to a jurisdiction other than the State
                of
                Texas of the State of Delaware in the Debtor’s state of organization; (b)
                prior to any of the Property becoming so related to any particular
                real
                estate, other than the Business Location, so as to become a fixture
                on
                such real estate, notify the Secured Party of the description of
                such real
                estate and the name of the record owner thereof; and (c) immediately
                notify the Secured Party of any change in the Debtor's name, identity
                or
                company structure. In any notice furnished pursuant to this Section
                4.11,
                the Debtor will expressly state that the notice is required by this
                Agreement and contains facts that will or may require additional
                filings
                of financing statements or other notices for the purpose of con-tinuing
                perfection of the Secured Party's security interest in the
                Property.

            


    

    


    
      
        
        

      

      
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    5. Secured
      Party's Expenditures.
      If the
      Debtor fails to make any expenditure or pay any sum necessary to: (1)
      keep
      and main-tain the Property in good repair, ordinary wear and tear and insured
      casualty excepted; (2)
      discharge any lien, encum-brance, levy, security interest or other charge on
      the
      Property; or (3)
      maintain insurance upon the Property as required hereby, the Secured Party
      may
      but will not be required to make any expenditure for such purpose or purposes
      and all sums so expended will be payable on demand, will bear interest at the
      rate specified in the Restructure Note and all such sums and interest will
      additionally be secured hereby. The Debtor will pay all costs of filing any
      financ-ing, continuation or termination statements with respect to the security
      interest granted hereby in the Property.

    


    6. Default;
      Remedies.
      On the
      occurrence of a Default under the Loan Agreement, the Secured Party may, at
      its
      option and without notice to any party, declare all or any portion of the
      Secured Indebtedness to be immediately due and payable and may proceed to
      enforce payment of the same, to foreclose the Secured Party’s security interest
      in the Property pursuant to the provisions of the UCC, to exercise any or all
      other rights and remedies provided herein and in the other Loan Documents and
      by
      the UCC or otherwise available at law or in equity. Whenever the Debtor is
      in
      Default under the Loan Agreement, the Debtor on demand by the Secured Party,
      will assemble the Property and make it available to the Secured Party at the
      Business Location, or if the Business Location is unavailable, at a place
      designated by the Secured Party. All remedies hereunder are cumulative, and
      any
      indulgence or waiver by the Secured Party will not be construed as an
      abandon-ment of any other right hereunder or of the power to enforce the same
      or
      another right at a later time. Whether the Secured Party elects to exercise
      any
      other rights or remedies under this Agreement or applicable law, the Secured
      Party, as a matter of right and without regard to the sufficiency of the
      security for repayment of the Secured Indebtedness, without notice to Debtor
      and
      without any showing of insolvency, fraud, or mismanagement on the part of
      Debtor, and without the necessity of filing any judicial or other proceeding
      other than the proceeding for appointment of a receiver, shall be entitled
      to
      the appointment of a receiver or receivers of the Property or any part thereof,
      including, but not limited to, all healthcare accounts receivable, healthcare
      insurance receivables, and all other accounts receivable (the “Receivables”),
      and Debtor hereby irrevocably consents to the appointment of a receiver or
      receivers. Any receiver appointed pursuant to the provisions of this subsection
      shall have the usual powers and duties of receivers in such matters including,
      but not limited to, the collection of the Receivables

    


    7. Secured
      Party's Duties.
      The
      powers conferred upon the Secured Party by this Agreement are solely to protect
      its interest in the Property and will not impose any duty upon the Secured
      Party
      to exercise any such powers. Except as may otherwise be provided in the Loan
      Agreement, the Secured Party will be under no duty whatsoever to make or give
      any presentment, demand for performance, notice of nonperformance, protest,
      notice of protest, notice of dishonor, or other notice or demand in connection
      with any of the Property or the Secured Indebtedness, or to take any steps
      neces-sary to preserve any rights against prior parties. The Secured Party
      will
      not be liable for failure to collect or realize upon any or all of the Secured
      Indebtedness or Property, or for any delay in so doing, nor will the Secured
      Party be under any duty to take any action whatsoever with regard
      thereto.

     

    
      
        
        

      

      
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    8. Continuing
      Agreement.
      This is
      a continuing agreement and the grant of a security interest hereunder will
      remain in full force and effect and all the rights, powers and remedies of
      the
      Secured Party hereunder will continue to exist until all of the Secured
      Indebtedness is paid in full.

    


    9. Preservation
      of Liability.
      Neither
      this Agreement nor the exercise by the Secured Party of (or the failure to
      so
      exercise) any right, power or remedy conferred herein or by law will be
      construed as relieving any person liable on the Secured Indebted-ness from
      liability on the Secured Indebtedness and for any deficiency
      thereon.

    


    10. Successors
      and Assigns.
      The
      covenants and agreements herein contained by or on behalf of the Debtor will
      bind the Debtor, and the Debtor's legal representatives, successors and assigns
      and will inure to the benefit of the Secured Party and the Secured Party's
      successors and assigns.

    


    11. Invalidity.
      If any
      provision hereof will for any reason be held to be invalid or unenforceable,
      such invalidity or unenforceability will not affect any other provision
      hereof.

    


    12. Construction.
      This
      Agreement will be construed and interpreted in accordance with the laws of
      the
      State of Oklahoma.

    


    This
      Agreement is executed effective the date first above written. 

     

    
      
        	 	 	SHUMATE MACHINE WORKS, INC.,
                a Texas
                corporation
	 	 	 
	 	 	 
	 	 	By: /s/
                Matthew C. Flemming
	 	 	Name: Matthew C. Flemming
	 	 	Title: CFO
	 	 	 
	 	 	 
	 	 	
                SHUMATE
                  INDUSTRIES, INC., (formerly EXCALIBUR
                  INDUSTRIES, INC.), a Delaware corporation 

              
	 	 	 
	 	 	 
	 	 	By: /s/
                Matthew C. Flemming
	 	 	Name: Matthew C. Flemming
	 	 	Title: Chief Financial
                Officer


      
   

    
      
         

      

      
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