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."

                                R E C I T A L S:

      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
$5,633,053.00 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

<PAGE>

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.")

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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<PAGE>

      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 hereby
            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, security agreements or other documents; procure any
            instruments 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 interests intended to be granted hereby, and in
            addition, 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 signature
            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 covering 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 continuing
            perfection of the Secured Party's security interest in the Property.


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<PAGE>

5. Secured Party's Expenditures. If the Debtor fails to make any expenditure or
pay any sum necessary to: (1) keep and maintain the Property in good repair,
ordinary wear and tear and insured casualty excepted; (2) discharge any lien,
encumbrance, 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
financing, 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 abandonment 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 necessary 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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<PAGE>

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 Indebtedness 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: Chief Financial Officer
                                               ---------------------------------


                                        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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