AGREEMENT

         THIS AGREEMENT is executed effective the 19th day of October, 2005,
between SHUMATE INDUSTRIES INC. (formerly EXCALIBUR INDUSTRIES, INC.), a
Delaware corporation ("Industries"), SHUMATE MACHINE WORKS, INC., a Texas
corporation ("Machine"), MATTHEW FLEMMING, an individual ("Flemming"), LARRY
SHUMATE, an individual ("Shumate"), RUSS CLARK, an individual ("Clark"), and
STILLWATER NATIONAL BANK AND TRUST COMPANY, a national banking association (the
"Lender"). Flemming, Shumate and Clark are sometimes referred to herein as
"Gurantor" or "Guarantors."

                                R E C I T A L S:

         WHEREAS Industries, Machine and/or Flemming are currently obligated to
the Bank the following principal amounts totaling approximately $13,808,398, as
follows:

                                                      As of
                                                    10/19/05
                                                   ----------
                   SNB Note #5195802                1,100,000
                   SNB Note #5198301                3,500,000
                   SNB Note #5423900                  212,811
                   SNB Note #5550600                  550,000
                   SNB Note #5528400                  500,000
                   SNB Note #5732800                2,450,000
                   SNB Note #5732700 (LOC)            791,861
                   SNB Note #5831900                1,100,000
                   Overdraft of DDA #6175206        1,574,356
                   TW Consulting Notes              2,710,183
                   TW Accrued Interest (est.)       1,000,000
                                                   ----------
                                                   15,489,211

The above described principal indebtedness, together with all interest,
penalties and fees incurred in connection therewith, is referred to hereafter as
the "Prior Debt" and all loan agreements, notes, security agreements,
guaranties, mortgages and other documents executed in connection with the Prior
Debt are hereafter referred to as the "Prior Loan Documents."

         WHEREAS Industries and Machine are indebted to the United States ex rel
Internal Revenue Service in an amount not exceeding $237,546.56 as of October
19, 2005, which debt is secured by a lien covering certain assets of Industries
and Machine (the "IRS Lien"); and

         WHEREAS there presently exist certain defaults under the terms of the
Prior Loan Documents;

         NOW, THEREFORE, in consideration of the mutual agreements between the
parties, it is agreed as follows:

<PAGE>

1. RESTRUCTURE AND NEW LENDING. Pursuant to this Agreement, the parties agree to
a complete restructuring of the Prior Debt, together with additional lending
from the Lender, all to be effectuated through the issuance of amended and
restated instruments, new instruments and common stock. This Agreement together
with all notes, security agreements, mortgages, guaranties, securites and other
documents and instruments executed to effectuate this Agreement shall be
referred to hereafter as the "Restructure Documents."

2. CLOSING. Subject to all of the terms and conditions set forth in this
Agreement being satisfied, the closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Lender's
counsel on such date, at such place and at such time (the "Closing Date") within
two (2) business days after the satisfaction or waiver of the last of the
conditions set forth in Sections 10 and 11 and hereof as shall be determined by
the mutual consent of the parties hereto.

3. ACQUISITION OF LEASES. [Deleted.]

4. CREDIT FACILITIES. In accordance with this Agreement, the Lender shall make
available to Industries, Machine, and Flemming certain credit facilities upon
the following terms:

         4.1.     Evidence of Indebtedness. The indebtedness under the credit
                  facilities will be evidenced as follows:

                  4.1.1.   Amended & Restated Note. At Closing, Industries and
                           Machine will sign an amended and restated note in
                           form and substance and payable on the terms approved
                           by Lender (the "Amended and Restated Note") in the
                           amount of $5,633,053, plus any excess on the existing
                           line of credit, including deposit account overdrafts,
                           if any. The amended and restated note shall amend and
                           restated SNB Note Nos. 5195802, 5198301, 5423900,
                           5550600, 5528400, 5732800 and 5831900 and shall be
                           countersigned by the Lender to evidence that the
                           notes are being amended, restated, and superseded by
                           the Amended and Restated note. Interest only will be
                           paid monthly for three months following Closing.
                           Thereafter, Industries and Machine will make 27 equal
                           monthly payments in an amount sufficient to fully
                           amortize principal and interest on the Amended and
                           Restated Note over 120 months. The Amended and
                           Restated Note shall mature and become due 30 months
                           after closing, at which time, Industries and Machine
                           will make a balloon payment of the entire outstanding
                           principal balance together with all accrued interest
                           and other charges, if any. The following terms will
                           also apply:

                           a)       Use of Proceeds. Proceeds of the Amended and
                                    Restated Note will be applied as follows:
                                    $303,000 will be advanced to the sellers of
                                    certain machines ($83,000.00 will be paid to
                                    Shumate for the purchase of that certain
                                    Daewoo Puma 300LC, Serial # P25L0324 and
                                    $220,000.00 will be paid to Swift for the
                                    purchase of that certain Mitsubishi 800
                                    M-80C, Serial # CH4091); $100,000 will be
                                    available to use for Industries' purchase of
                                    the stock of Machine; the remainder will be
                                    deemed to be applied to the Prior Debt.


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<PAGE>

                           b)       Collateral. The Amended and Restated Note
                                    will be secured by a first priority security
                                    interest covering all existing and future
                                    assets of Industries and Machine, including
                                    but not limited to, accounts receivable,
                                    inventory, equipment, and intangibles.

                           c)       Additional Terms. The Amended and Restated
                                    Note will be cross collateralized and cross
                                    defaulted with the Revolving Note (as
                                    defined below) and the IRS Note (as defined
                                    below).

                  4.1.2.   IRS Note. As soon as reasonably possible after
                           Closing, Industries and Machine will sign a term note
                           in an amount equal to the settlement of the existing
                           IRS lien not to exceed $237,546.56 ("IRS Note").
                           Commencing 30 days after execution of the IRS Note,
                           Industries and Machine will make 48 equal monthly
                           payments in an amount sufficient to fully amortize
                           principal and interest on the IRS Note over 48
                           months. The IRS Note shall mature and become due 48
                           months after closing, at which time, Industries and
                           Machine will pay the entire outstanding principal
                           balance together with all accrued interest and other
                           charges, if any. The following terms shall also
                           apply:

                           a)       Use of Proceeds. The proceeds of the IRS
                                    Note shall be disbursed to the IRS to pay
                                    the debt secured by the IRS tax lien.

                           b)       Collateral. The IRS Note will be secured by
                                    a first priority security interest in all
                                    existing and future assets of Industries and
                                    Machine, including but not limited to,
                                    accounts receivable, inventory, equipment
                                    and intangibles.

                           c)       Additional Terms. The IRS Note will be cross
                                    collateralized and cross defaulted with
                                    Revolving Note and the Amended and Restated
                                    Note.

                           d)       Guarantors. Flemming will guarantee 50% of
                                    the loan amount under the IRS Note, Shumate
                                    shall guarantee 50% of the loan amount under
                                    the IRS Note, and Clark shall guarantee 25%
                                    of the loan amount under the IRS Note. As
                                    the principal is reduced, the amount of the
                                    guaranties will not decline.

                           e)       Flemming, Shumate, and Clark shall each be
                                    referred to as a "Guarantor" and
                                    collectively as the "Guarantors."

                  4.1.3.   Revolving Line of Credit. At Closing, the Lender will
                           provide Industries and Machine a revolving line of
                           credit as follows:


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<PAGE>

                           a)       Note. Industries and Machine will execute
                                    and deliver to the Lender a promissory note
                                    of even date herewith in the principal face
                                    amount of $1,000,000.00 (the "Revolving
                                    Note"), which will be in form and substance
                                    and payable on the terms approved by the
                                    Lender. It is specifically agreed that the
                                    aggregate of advances made during the term
                                    of the Revolving Note may exceed the face
                                    amount thereof, but the unpaid principal
                                    balance due on the Revolving Note will not
                                    exceed the lesser of (i) the Borrowing Base
                                    (as defined below), or (ii) the face amount
                                    of the Revolving Note.

                           b)       Initial Balance. The initial balance of the
                                    Revolving Note will be the balance of the
                                    existing line of credit less the excess
                                    transferred to the Amended and Restated
                                    Note.

                           c)       Advances. Advances under the Revolving Note
                                    will be limited to the Borrowing Base. The
                                    Borrowing Base shall be determined on a
                                    monthly basis upon the submission to the
                                    Lender of a signed monthly borrowing base
                                    certificate" in form acceptable to the
                                    Lender. Each monthly borrowing base
                                    certificate will be supported by a current
                                    accounts receivable aging, and such other
                                    documentation that may reasonably be
                                    required by the Lender to determine the
                                    Borrowing Base. After determination of the
                                    Borrowing Base for any given month,
                                    Industries and Machine may obtain advances
                                    by submitting an advance request in form
                                    acceptable to the Lender.

                           d)       Maturity. Notwithstanding anything herein to
                                    the contrary, the Revolving Note will mature
                                    and become fully due and payable 12 months
                                    from the Closing Date.

                           e)       Collateral. The Revolving Note will be
                                    secured by a first priority security
                                    interest in all existing and future assets
                                    of Industries and Machine, including, but
                                    not limited to, accounts receivable,
                                    inventory, equipment, and intangibles.

                           f)       Other Terms. The Revolving Note will be
                                    cross collateralized and cross defaulted
                                    with the Amended and Restated Note and the
                                    IRS Note.

                           g)       Repayment. The Revolving Note will be
                                    payable in monthly installments of interest
                                    only, with outstanding principal and
                                    interest due upon maturity.

                  4.1.4.   Convertible Note. At the Closing, Industries and
                           Machine will sign a convertible note in the amount of
                           $2,500,000 (the "Convertible Note"). Interest shall
                           accrue from the Closing Date until the earlier of (i)
                           conversion or (ii) 24 months, at which time the
                           accrued interest will be capitalized into principal.
                           Beginning at the end of the ninth quarter, Industries


                                       4
<PAGE>

                           and Holdings will make quarterly interest payments.
                           The Convertible Note will mature on the earlier of
                           sixty months from the date of issuance of the
                           Convertible Note or the date on which the Convertible
                           Note is fully converted into Common Stock (as defined
                           below). All outstanding principal and interest will
                           be due at maturity.

                           a)       Conversion. The principal and accrued
                                    interest on the Convertible Note will be
                                    convertible into shares ("Conversion
                                    Shares") of common stock of Industries
                                    ("Common Stock") at a conversion rate of
                                    $1.00 per share (on a post-reverse split
                                    basis). The conversion price of the
                                    Convertible Note will be subject to
                                    proportional adjustment for stock splits,
                                    stock dividends, recapitalizations, and the
                                    like. The Convertible Note shall be
                                    convertible at the option of the Lender into
                                    Conversion Shares at the then applicable
                                    conversion price.

                           b)       Collateral. The Convertible Note will be
                                    collateralized by all business assets of
                                    Industries, including 100% of the issued and
                                    outstanding capital stock of Machine.

                           c)       Additional Terms. After twenty-four months,
                                    Machine shall be obligated, to the extent
                                    net income is available in a given quarter,
                                    to declare a dividend sufficient to enable
                                    its shareholder to meet the current
                                    obligations under the Convertible Note. This
                                    obligation of Machine is cumulative and
                                    Machine shall be a party to the Convertible
                                    Note for the sole purpose of binding itself
                                    to these covenants but shall not otherwise
                                    be an obligor under the Convertible Note.

                           d)       Registration Rights.

                                    1)       Company Registration: The Lender
                                             shall be entitled to "piggy-back"
                                             registration rights on all
                                             registrations of any other equity
                                             securities of Industries, subject
                                             to the right, however, of
                                             Industries and its underwriters to
                                             reduce the number of shares
                                             proposed to be registered pro rata
                                             in view of market conditions.

                                    2)       Expenses: Industries shall bear
                                             registration expenses (exclusive of
                                             underwriting discounts and
                                             commissions) of all such piggy-back
                                             registrations.

                                    3)       Term of Rights: The lesser of five
                                             (5) years after the date of this
                                             Agreement or date after which a
                                             Lender may dispose of all of its
                                             shares under Rule 144 within a
                                             ninety (90) day period.


                                       5
<PAGE>

                                    4)       Other Provisions: Other provisions
                                             shall be contained in a
                                             Registration Rights Agreement as
                                             are reasonable, including cross
                                             indemnification, the period of time
                                             in which the Registration Statement
                                             will be kept effective,
                                             underwriting arrangements, transfer
                                             rights and lock-up provisions.

                  4.1.5.   Flemming Note. At Closing, Flemming will execute and
                           deliver to the Lender a promissory note in the amount
                           of $350,000 (the "Flemming Note"), which shall mature
                           30 months after the Closing Date. All principal and
                           interest on the Flemming Note will be due at
                           maturity. The following terms shall also apply:

                           a)       Use of Proceeds. The proceeds of the
                                    Flemming Note will be used to fund
                                    Flemming's $250,000 capital contribution to
                                    Industries with the remainder applied to the
                                    existing personal indebtedness of Flemming
                                    to the Lender.

                           b)       Collateral. The Flemming Note will be
                                    secured by all of Flemming's existing and
                                    future equity and other interests in or
                                    right to payment or property from Industries
                                    or Machine, excluding Flemming's ordinary
                                    compensation earned from Machine.

                           c)       Other Terms. The Lender will release
                                    Flemming from the balance of his obligations
                                    under the Prior Debt. As a part of such
                                    release, the Lender will dismiss all
                                    litigation, and release all judgments, if
                                    any, against Flemming arising from his
                                    guaranty of the Prior Debt.

         4.2.     Interest. Interest on each of the credit facilities will be
                  paid at the interest rate equal to the Prime Rate plus two
                  percent (2 %) per annum, adjusted on each day on which a
                  change in the Prime Rate occurs (the "Interest Rate"). "Prime
                  Rate" means the prime rate as published in the "Money Rates
                  Section" of the Wall Street Journal, which rate is not
                  necessarily the lowest rate of interest charged by the Lender.
                  All interest on the Amended and Restated Note will be
                  calculated for the actual number of days elapsed at a per diem
                  charge based on a year consisting of 360 days.

         4.3.     Notation of Advances. The Lender shall have the right (acting
                  at its sole discretion with or without the consent of
                  Industries and Machine) from time make notations of advances
                  by it to Industries and Machine and payments to it by
                  Industries and Machine on any liability ledger records
                  maintained by or for the Lender as to indebtedness of
                  Industries and Machine, and such ledger shall be presumed
                  correct until the contrary is established by Industries or
                  Machine. Upon demand by the Lender at any time or from time to
                  time, Industries or Machine will confirm and admit by signed
                  writing the exact amount of indebtedness for principal and
                  interest then outstanding under this Agreement. Any billing
                  statement or accounting rendered by or for the Lender shall be
                  conclusive and fully binding on Industries and Machine unless
                  specific written notice of exception is given to the Lender by
                  Industries and Machine within thirty (30) days thereafter.


                                       6
<PAGE>

         4.4.     Authority to Request Advances. The Lender may make loans in
                  any amount and in any manner requested orally or in writing by
                  any officer or agent of Industries and Machine or by any
                  person reasonably believed by the Lender to be an officer or
                  agent of Industries and Machine. Loan proceeds may be
                  disbursed by deposit in any deposit account of Industries or
                  Machine, by an instrument payable to Industries or Machine.

         4.5.     Prepayment. Industries and Machine may prepay the credit
                  facilities at any time, without premium or penalty. Each
                  prepayment will be applied by the Lender first to the payment
                  of unpaid fees and expenses, then to accrued interest on the
                  Revolving Note and then to the payment of principal. If at any
                  time the aggregate outstanding principal balance of the debt
                  under the Revolving Note exceeds the amount then permitted
                  under the Borrowing Base, Industries and Machine shall
                  immediately, without notice or demand, make payment upon the
                  Revolving Note in an amount equal to the excess.

         4.6.     Lending Restrictions. Notwithstanding any other provision of
                  this Agreement or the other Restructure Documents, any advance
                  herein provided for will not be required to be made by the
                  Lender: (a) if after making such advance, the Lender would, as
                  determined in the sole discretion of the Lender, exercised in
                  good faith, be in violation of any regulatory requirements
                  imposed by any branch of government of the United States of
                  America or any state thereof; (b) if any event of Default (as
                  defined in Section 12 below) has occurred and has not been
                  cured by Industries and Machine or waived by the Lender; (c)
                  if, since the Closing Date and up to the date of the advance
                  request, any litigation or governmental proceeding has been
                  instituted against Industries, Machine, any Guarantor or any
                  of the Collateral (defined below), which, if decided
                  adversely, will, in the reasonable opinion of the Lender,
                  adversely affect to a material extent, the financial condition
                  or continued operation of Industries or Machine; or (d) if,
                  since the Closing Date and up to the date of the advance
                  request, any loss, destruction, liens, claims, or encumbrances
                  against any of the Collateral (other than those in favor of
                  the Lender) have occurred, been made or filed and have not
                  been removed or settled to the satisfaction of the Lender.

5. BORROWING BASE. "Borrowing Base" means, as of any given date, the sum of the
following: (1) eighty percent (80%), or at the Lender's sole discretion any
lesser percentage designated upon sixty (60) days notice, of Eligible Trade
Accounts Receivable, plus (2) fifty percent (50%) of the value of the inventory
with such inventory availability being limited to 50% of the borrowing base and
capped at $100,000, up to a maximum of One Million and No/100 Dollars
($1,000,000.00) and subject to the following:

         5.1.     "Trade Accounts Receivable" means, as of any given date, all
                  accounts receivable of Industries or Machine for goods sold
                  and delivered and services rendered by Industries or Machine
                  in the ordinary course of the business presently conducted by


                                       7
<PAGE>

                  each of them and representing amounts then invoiced and due
                  and owing. A Trade Account Receivable shall be an "Eligible
                  Trade Account Receivable," and shall be included in the
                  Borrowing Base, only if and so long as it meets each and all
                  of the following requirements:

                  5.1.1.   It is a valid, genuine and legally enforceable
                           obligation, subject to no defense, set off or
                           counter-claim, of the account debtor or other obligor
                           named herein or in the records of Industries or
                           Machine pertaining thereto, and that neither
                           Industries nor Machine has received from the account
                           debtor or other obligor any notification repudiating
                           such obligation or asserting that such obligation is
                           subject to any defense, set off or counterclaim; and

                  5.1.2.   It is owned by Industries or Machine free and clear
                           of all interests, liens, attachments, encumbrances,
                           and security interests except the security interest
                           granted to the Lender pursuant to this Agreement; and

                  5.1.3.   The account debtor or other obligor is located in the
                           United States; and

                  5.1.4.   Not more than ninety (90) days have expired since the
                           date of invoice; or, if the Lender in its sole
                           discretion accepts as eligible a Trade Account
                           Receivable which is due on a date stated in the
                           invoice, not more than thirty (30) days have expired
                           since the date stated; and

                  5.1.5.   Neither Industries nor Machine has received notice
                           from the Lender that the credit of the account debtor
                           is not satisfactory to the Lender for any reason; and

                  5.1.6.   The account debtor is not an entity in which
                           Industries or Machine or any Guarantor has a
                           controlling interest; and

                  5.1.7.   Eligible Trade Accounts Receivable shall not include
                           any account receivable of the same account debtor to
                           Industries, Machine, or any or the Guarantors in
                           excess of fifteen percent (15%) of the then Eligible
                           Trade Accounts Receivable calculated after ineligible
                           accounts; and

                  5.1.8.   The entire receivable of one account debtor becomes
                           ineligible if more than ten percent (10%) of the
                           total due is over ninety (90) days past due, unless
                           the ten percent (10%) over ninety (90) days is
                           attributable to an isolated dispute over a specific
                           invoice.

         5.2.     The value of Inventory used in determining the Borrowing Base
                  shall equal the value of raw material plus the value of
                  finished product and shall not include the value of any work
                  in progress.


                                       8
<PAGE>

6. COLLATERAL SECURITY. The performance of all covenants and agreements
contained in this Agreement and in the other documents executed or delivered as
a part of this transaction and the payment of the notes and all renewals,
amendments and modifications thereof shall be secured by the following, which
shall be delivered at the Closing:

         6.1.     Security Agreement. Industries and Machine will grant to the
                  Lender a security interest covering the following:

                  6.1.1.   Accounts. All of Industries and Machine's accounts
                           and contracts receivable of any kind whether now
                           existing or hereafter arising (herein called the
                           "Accounts"); all chattel papers, documents and
                           instruments relating to the Accounts; and all rights
                           now or hereafter existing in and to all security
                           agreements, leases, and other contracts securing or
                           otherwise relating to any Accounts or any such
                           chattel papers, documents and instruments;

                  6.1.2.   Furniture, Fixtures, and Equipment. All of Industries
                           and Machine's furniture, fixtures and equipment in
                           all of its forms whether now owned or hereafter
                           acquired and wherever located (herein called the
                           "Equipment"); all parts thereof and all accessions or
                           additions thereto, whether now owned or hereafter
                           acquired;

                  6.1.3.   General Intangibles. All of Industries and Machine's
                           general intangibles of any kind whether now existing
                           or hereafter arising (herein called the "General
                           Intangibles"); all chattel papers, documents and
                           instruments relating to the General Intangibles; and
                           all rights now or hereafter existing in and to all
                           security agreements, leases, licenses, permits,
                           patents, distribution agreements and contracts
                           securing or otherwise relating to any General
                           Intangibles or any such chattel papers, documents and
                           instruments and all of Industries and Machine's lien
                           rights against other persons whether statutory,
                           contractual, or by common law with respect to the
                           leases, Inventory or other collateral described in
                           this Agreement;

                  6.1.4.   Inventory. All of Industries and Machine's inventory
                           in all of its forms whether now owned or hereafter
                           acquired and wherever located (herein called the
                           "Inventory"), and all accessions or additions thereto
                           and products thereof, whether now owned or hereafter
                           acquired;

                  6.1.5.   Other. Without in any way limiting or modifying the
                           foregoing in any respect, all of Industries and
                           Machine's goods, chattels, business records,
                           contracts, contract rights, advertising agreements,
                           tax refunds, documents of title, fixtures, insurance
                           policies and proceeds, patents, trademarks, service
                           marks, logos, trade names, copyrights and
                           applications therefor, licenses, licensing fees,
                           permits, approvals, consents, certificates, stock,
                           surveys, engineering reports, tools, landscaping,
                           machinery, furniture, furnishing, business machines,
                           appliances, vehicles, trailers, rolling stock,
                           deposits, security deposits, money, securities,
                           claims, demands, causes of action, refunds, rebates,
                           income and all other tangible and intangible real,
                           personal or mixed property whether now owned or
                           hereafter acquired;


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<PAGE>

                  6.1.6.   Additional Property. Any additional Property from
                           time to time delivered to or deposited with the
                           Lender as security pursuant to the terms of this
                           Agreement; and

                  6.1.7.   Proceeds. All proceeds, products, additions to,
                           replacements of, substitutions for, and accessions of
                           any and all Property described above.

                  The property described in this section shall be referred to
                  hereafter as the "Collateral."

         6.2.     Flemming Security Agreement. Flemming will execute and deliver
                  to the Lender a security agreement covering all of Flemming's
                  existing and future equity and other interests in or right to
                  payment or property from Industries or Machine, excluding
                  Flemming's ordinary compensation earned from Machine.

         6.3.     Lockbox Agreement. The Lender and Industries and Machine agree
                  that (i) Lender will establish a lockbox account (the
                  "Lockbox") for the receipt of payments on account and accounts
                  receivable of Industries and Machine; (ii) Industries and
                  Machine will cooperate with Lender to assure that all account
                  debtors of Industries and Machine are notified to make
                  payments on account to the Lockbox; and (iii) without limiting
                  the requirement that all account debtors make payment only to
                  the Lockbox, any payments received directly by Industries or
                  Machine will be deposited before 11:00 a.m. the following
                  business day into the Lockbox. The Lockbox will be swept by
                  the Lender on a daily basis and the funds therein will be
                  applied to the principal balance on the Revolving Note,
                  provided however, that, on or about the 15th day of each
                  month, the funds swept from the lockbox will be applied first
                  to pay the outstanding interest on the Revolving Note and then
                  to principal balance.

7. GUARANTIES. Flemming and Shumate will each provide a limited guaranty equal
to 50% of the dollar amount of the IRS Note. Clark will provide a limited
guaranty equal to 25% of the IRS Note. These guaranties are cumulative in favor
of the Lender. As the principal is reduced, the amount of the guaranties will
not decline.

8. CONVERSION OF PORTION OF PRIOR DEBT. At the Closing, $2,368,000 of the Prior
Debt (the "Conversion Amount") will be converted into a number of shares (the
"Shares") of Common Stock equal to the quotient obtained by dividing the
Conversion Amount by $1.00 per share (the "Conversion Price").

         8.1.     Number of Shares. Industries and Machine represent and warrant
                  that, as of Closing, the Shares will constitute not less than
                  twenty percent (20%) of the issued and outstanding common
                  stock of Industries.


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<PAGE>

         8.2.     No Adjustments. It is anticipated that Industries may combine,
                  by way of reverse stock split, the outstanding shares of
                  Common Stock into a smaller number of shares. It is hereby
                  understood that the Conversion Price set forth in Section 8
                  shall not be adjusted if Industries, at any time while this
                  Agreement is in effect, (a) shall pay a stock dividend or
                  otherwise make a distribution or distributions on shares of
                  its Common Stock or any other equity or equity equivalent
                  securities payable in shares of Common Stock, (b) subdivide
                  outstanding shares of Common Stock into a larger number of
                  shares, (c) combine (including by way of reverse stock split)
                  outstanding shares of Common Stock into a smaller number of
                  shares, or (d) issue by reclassification of shares of the
                  Common Stock any shares of capital stock of Industries.

         8.3.     Taxes. The issuance of certificates for the Shares on
                  conversion of the Conversion Amount shall be made without
                  charge to the Lender for any documentary stamp or similar
                  taxes that may be payable in respect of the issue or delivery
                  of such certificate.

         8.4.     Registration Rights.

                  8.4.1.   Definitions. As used in this Section 8.4, the
                           following terms shall have the following meanings:

                           a)       Exchange Act: The Securities Exchange Act of
                                    1934, as amended, and the rules and
                                    regulations of the SEC promulgated
                                    thereunder.

                           b)       Losses: See Section 8.4.6 hereof.

                           c)       Prospectus: The prospectus included in any
                                    Registration Statement (including, without
                                    limitation, a prospectus that discloses
                                    information previously omitted from a
                                    prospectus filed as part of an effective
                                    registration statement in reliance upon
                                    Securities Act Rule 430A), as amended or
                                    supplemented by any prospectus supplement,
                                    with respect to the terms of the offering of
                                    any portion of the Registrable Securities
                                    covered by such Registration Statement and
                                    all other amendments and supplements to the
                                    prospectus, including post-effective
                                    amendments, and all material incorporated by
                                    reference or deemed to be incorporated by
                                    reference in such prospectus.

                           d)       Registration Expenses: All reasonable
                                    expenses incurred by Industries in complying
                                    with Sections 8.4.3 and 8.4.4 hereof,
                                    including, without limitation, all
                                    registration and filing fees, printing
                                    expenses, fees and disbursements of counsel
                                    for Industries, accountants' expenses
                                    (including, without limitation, any special
                                    audits or "comfort" letters incidental to or
                                    required by any such registration), any fees
                                    or disbursements of underwriters customarily
                                    paid by issuers or sellers of securities
                                    (but excluding underwriting discounts and
                                    commissions) and blue sky fees and expenses
                                    in all states reasonably designated by the
                                    holders of Registrable Securities.


                                       11
<PAGE>

                           e)       Registrable Securities: The Shares and any
                                    Common Stock issued or issuable in respect
                                    of the Shares pursuant to any stock split,
                                    stock dividend, recapitalization, or similar
                                    event.

                           f)       Registration Statement: Any registration
                                    statement of Industries which covers any of
                                    the Registrable Securities pursuant to the
                                    provisions of this Agreement, including the
                                    Prospectus, amendments and supplements to
                                    such registration statement, including
                                    post-effective amendments, all exhibits and
                                    all material incorporated by reference or
                                    deemed to be incorporated by reference in
                                    such registration statement.

                           g)       Rule 144: Rule 144 under the Securities Act,
                                    as such Rule may be amended from time to
                                    time, or any similar rule or regulation
                                    hereafter adopted by the SEC (excluding Rule
                                    144A).

                           h)       SEC: The Securities and Exchange Commission.

                           i)       Securities Act: The Securities Act of 1933,
                                    as amended, and the rules and regulations
                                    promulgated by the SEC thereunder.

                           j)       Underwritten registration or underwritten
                                    offering: A registration in which securities
                                    of Industries are sold to an underwriter for
                                    reoffering to the public.

                  8.4.2.   Securities Subject to the Registration Rights. The
                           securities entitled to the benefits of the
                           Registration Rights set forth in this Section 8.4 are
                           the Registrable Securities.

                  8.4.3.   Registration Rights. If, at any time after the
                           Closing and expiring on the fifth anniversary of the
                           Closing, Industries proposes to register any of its
                           securities under the Securities Act (except for
                           registrations on Forms S-8 or S-4 or their
                           equivalent), it will give written notice by
                           registered mail, at least thirty (30) days prior to
                           the filing of each such Registration Statement, to
                           the Lender of its intention to do so. If the Lender
                           notifies Industries within twenty (20) days after
                           receipt of any such notice of its desire to include
                           any Registrable Securities in such proposed
                           Registration Statement, Industries shall afford the
                           Lender the opportunity to have any such Registrable
                           Securities registered under such Registration
                           Statement. These rights may be exercised at any time
                           on an unlimited number of occasions prior to the
                           fifty anniversary of the Closing Date, subject to the
                           terms and conditions set forth in this Section 8.4.


                                       12
<PAGE>

                  8.4.4.   Holdback and Lock-Up Agreements.

                           a)       Restrictions on Public Sale by the Lenders
                                    of Registrable Securities. Each holder of
                                    Registrable Securities whose Registrable
                                    Securities are covered by a Registration
                                    Statement filed pursuant to Section 8.4.3
                                    hereof agrees, if requested by the managing
                                    underwriters in an underwritten offering (to
                                    the extent timely notified in writing by
                                    Industries or the managing underwriters),
                                    not to effect any public sale or
                                    distribution of securities of Industries of
                                    any class included in such Registration
                                    Statement, including a sale pursuant to Rule
                                    144 (except as part of such underwritten
                                    offering), during the 10-day period prior
                                    to, and the 180-day period beginning on, the
                                    effective date of any underwritten offering
                                    made pursuant to such Registration
                                    Statement.

                           b)       The foregoing provisions shall not apply to
                                    any holder of Registrable Securities if such
                                    holder is prevented by applicable statute or
                                    regulation from entering into any such
                                    agreement; provided, however, that any such
                                    holder shall undertake in its request to
                                    participate in any such underwritten
                                    offering not to effect any public sale or
                                    distribution of the class of Registrable
                                    Securities covered by such Registration
                                    Statement (except as part of such
                                    underwritten offering) during such period
                                    unless it has provided five (5) business
                                    days prior written notice of such sale or
                                    distribution to the managing underwriters.

                  8.4.5.   Expenses and Procedures.

                           a)       Expenses of Registration. All Registration
                                    Expenses (exclusive of underwriting
                                    discounts and commissions) shall be borne by
                                    Industries. Each holder of Registrable
                                    Securities shall bear all underwriting
                                    discounts, selling commissions, sales
                                    concessions and similar expenses applicable
                                    to the sale of the Registrable Securities
                                    sold by such holder.

                           b)       Registration Procedures. Industries will
                                    keep the holders of Registrable Securities
                                    advised as to the initiation of
                                    registration, qualification and compliance
                                    and as to the completion thereof. At its
                                    expense, Industries will furnish such number
                                    of Prospectuses and other documents incident
                                    thereto as the holders or underwriters from
                                    time to time may reasonably request.

                           c)       Information. Industries may require each
                                    seller of Registrable Securities as to which
                                    any registration is being effected to
                                    furnish such information regarding the
                                    distribution of such Registrable Securities
                                    as Industries may from time to time
                                    reasonably request and Industries may
                                    exclude from such registration the
                                    Registrable Securities of any seller who
                                    unreasonably fails to furnish such
                                    information after receiving such request.


                                       13
<PAGE>

                           d)       Delay or Suspension. Notwithstanding
                                    anything herein to the contrary, Industries
                                    may, at any time, suspend the effectiveness
                                    of any Registration Statement for a period
                                    of up to 60 consecutive days or 90 days in
                                    the aggregate in any calendar year, as
                                    appropriate (a "Suspension Period"), by
                                    giving notice to each holder of Registrable
                                    Securities to be included in the
                                    Registration Statement, if Industries shall
                                    have determined, after consultation with its
                                    counsel, that Industries is required to
                                    disclose any material corporate development
                                    which Industries determines could reasonably
                                    be expected to have a material effect on
                                    Industries. Each holder of Registrable
                                    Securities agrees by acquisition of such
                                    Registrable Securities that, upon receipt of
                                    any notice from Industries of a Suspension
                                    Period, such holder shall forthwith
                                    discontinue disposition of such Registrable
                                    Securities covered by such Registration
                                    Statement or Prospectus until such holder
                                    (i) is advised in writing by Industries that
                                    the use of the applicable Prospectus may be
                                    resumed, (ii) has received copies of a
                                    supplemental or amended prospectus, if
                                    applicable, and (iii) has received copies of
                                    any additional or supplemental filings which
                                    are incorporated or deemed to be
                                    incorporated by reference in such
                                    Prospectus. Industries shall prepare, file
                                    and furnish to each holder of Registrable
                                    Securities immediately upon the expiration
                                    of any Suspension Period, appropriate
                                    supplements or amendments, if applicable, to
                                    the Prospectus and appropriate documents, if
                                    applicable, incorporated by reference in the
                                    Registration Statement. Industries agrees to
                                    use its best efforts to cause any Suspension
                                    Period to be terminated as promptly as
                                    possible.

                           e)       Blue Sky. Industries will, as expeditiously
                                    as possible, use its best efforts to
                                    register or qualify the Registrable
                                    Securities covered by a Registration
                                    Statement under the securities or blue sky
                                    laws of such jurisdictions as Industries
                                    deems appropriate or, in the case of an
                                    underwritten public offering, the managing
                                    underwriter shall reasonably request,
                                    provided that Industries shall not be
                                    required in connection therewith or as a
                                    condition thereto to qualify to do business
                                    in any jurisdiction where it is not so
                                    qualified or to take any action which would
                                    subject it to taxation or service of process
                                    in any jurisdiction where it is not
                                    otherwise subject to such taxation or
                                    service of process.

                           f)       Notification of Material Events. Industries
                                    will, as expeditiously as possible,
                                    immediately notify each holder of
                                    Registrable Securities under a Registration
                                    Statement, at any time when a prospectus
                                    relating thereto is required to be delivered


                                       14
<PAGE>

                                    under the Securities Act, of the happening
                                    of any event as a result of which the
                                    Prospectus contained in such Registration
                                    Statement, as then in effect, includes an
                                    untrue statement of a material fact or omits
                                    to state any material fact required to be
                                    stated therein or necessary to make the
                                    statements therein not misleading in the
                                    light of the circumstances then existing
                                    and, as expeditiously as possible, amend or
                                    supplement such Prospectus to eliminate the
                                    untrue statement or the omission.

                  8.4.6.   Indemnification.

                           a)       Indemnification by Maker. Industries shall,
                                    without limitation as to time, indemnify and
                                    hold harmless, to the full extent permitted
                                    by law, each holder of Registrable
                                    Securities, its officers, directors, agents
                                    and employees, each person who controls such
                                    holder (within the meaning of Section 15 of
                                    the Securities Act or Section 20 of the
                                    Exchange Act), and the officers, directors,
                                    agents or employees of any such controlling
                                    person, from and against all losses, claims,
                                    damages, liabilities, costs (including,
                                    without limitation, all reasonable
                                    attorneys' fees) and expenses (collectively
                                    "Losses"), as incurred, arising out of or
                                    based upon any untrue statement or alleged
                                    untrue statement of a material fact
                                    contained in any Registration Statement,
                                    Prospectus or preliminary prospectus or any
                                    amendment or supplement thereto, or arising
                                    out of or based upon any omission or alleged
                                    omission of a material fact required to be
                                    stated therein or necessary to make the
                                    statements therein in light of the
                                    circumstances under which they were made (in
                                    the case of any Prospectus) not misleading,
                                    except insofar as the same are based solely
                                    upon information furnished to Industries by
                                    such holder for use therein; provided,
                                    however, that Industries shall not be liable
                                    in any such case to the extent that any such
                                    Loss arises out of or is based upon an
                                    untrue statement or alleged untrue statement
                                    or omission made in any preliminary
                                    prospectus or Prospectus if (i) such holder
                                    failed to send or deliver a copy of the
                                    Prospectus or Prospectus supplement with or
                                    prior to the delivery of written
                                    confirmation of the sale of Registrable
                                    Securities and (ii) the Prospectus or
                                    Prospectus supplement would have corrected
                                    such untrue statement or omission. If
                                    requested, Industries shall also indemnify
                                    underwriters, selling brokers, dealer
                                    managers and similar securities industry
                                    professionals participating in the
                                    distribution, their officers, directors,
                                    agents and employees and each person who
                                    controls such persons (within the meaning of
                                    Section 15 of the Securities Act or Section
                                    20 of the Exchange Act) to the same extent
                                    as provided above with respect to the
                                    indemnification of the holders of
                                    Registrable Securities.


                                       15
<PAGE>

                           b)       Indemnification by Holder of Registrable
                                    Securities. In connection with any
                                    Registration Statement in which a holder of
                                    Registrable Securities is participating,
                                    such holder of Registrable Securities shall
                                    furnish to Industries in writing such
                                    information as Industries may reasonably
                                    request for use in connection with any
                                    Registration Statement or Prospectus. Such
                                    holder hereby agrees to indemnify and hold
                                    harmless, to the full extent permitted by
                                    law, Industries, and its officers,
                                    directors, agents and employees, each person
                                    who controls Industries (within the meaning
                                    of Section 15 of the Securities Act or
                                    Section 20 of the Exchange Act), and the
                                    officers, directors, agents or employees of
                                    any such controlling person, from and
                                    against all losses, as incurred, arising out
                                    of or based upon any untrue statements or
                                    alleged untrue statement of material fact
                                    contained in any Registration Statement,
                                    Prospectus or preliminary prospectus, or
                                    arising out of or based upon any omission of
                                    a material fact required to be stated
                                    therein or necessary to make the statements
                                    therein in light of the circumstances under
                                    which they were made (in the case of any
                                    Prospectus) not misleading, to the extent,
                                    but only to the extent, that such untrue
                                    statement or omission is contained in any
                                    information so furnished in writing by such
                                    holder to Industries for use in such
                                    Registration Statement, Prospectus or
                                    preliminary prospectus. Industries shall be
                                    entitled to receive indemnities from
                                    accountants, underwriters, selling brokers,
                                    dealer managers and similar securities
                                    industry professionals participating in the
                                    distribution to the same extent as provided
                                    above with respect to information so
                                    furnished by such persons specifically for
                                    inclusion in any Registration Statement,
                                    Prospectus or preliminary prospectus,
                                    provided, that the failure of Industries to
                                    obtain any such indemnity shall not relieve
                                    Industries of any of its obligations
                                    hereunder. Notwithstanding any provision of
                                    this Section 8.4.6 to the contrary, the
                                    liability of a holder of Registrable
                                    Securities under this Section 8.4.6 shall
                                    not exceed the purchase price received by
                                    such holder for the Registrable Securities
                                    sold pursuant to a Registration Statement or
                                    Prospectus.

                           c)       Conduct of Indemnification Proceedings. If
                                    any action or proceeding (including any
                                    governmental investigation or inquiry) shall
                                    be brought or any claim shall be asserted
                                    against any person entitled to indemnity
                                    hereunder (an "indemnified party"), such
                                    indemnified party shall promptly notify the
                                    party from which such indemnity is sought
                                    (the "indemnifying party") in writing, and
                                    the indemnifying party shall assume the
                                    defense thereof, including the employment of
                                    counsel reasonably satisfactory to the
                                    indemnified party and the payment of all
                                    fees and expenses incurred in connection
                                    with the defense thereof. All such fees and
                                    expenses (including any fees and expenses
                                   incurred in connection with investigation or
                                    preparing to defend such action or
                                    proceeding) shall be paid to the indemnified
                                    party, as incurred, within 20 days of
                                    written notice thereof to the indemnifying
                                    party; provided, however, that if, in
                                    accordance with this Section 8.4.6, the
                                    indemnifying party is not liable to the
                                    indemnified party, such fees and expenses
                                    shall be returned promptly to the


                                       16
<PAGE>

                                    indemnifying party. Any such indemnified
                                    party shall have the right to employ
                                    separate counsel in any such action, claim
                                    or proceeding and to participate in the
                                    defense thereof, but the fees and expenses
                                    of such counsel shall be the expense of such
                                    indemnified party unless (a) the
                                    indemnifying party has agreed to pay such
                                    fees and expenses, (b) the indemnifying
                                    party shall have failed promptly to assume
                                    the defense of such action, claim or
                                    proceeding and to employ counsel reasonably
                                    satisfactory to the indemnified party in any
                                    such action, claim or proceeding, or (c) the
                                    named parties to any such action, claim or
                                    proceeding (including any impleaded parties)
                                    include both such indemnified party and the
                                    indemnifying party, and such indemnified
                                    party shall have been advised by counsel
                                    that there may be one or more legal defenses
                                    available to it which are different from or
                                    additional to those available to the
                                    indemnifying party (in which case, if such
                                    indemnified party notifies the indemnifying
                                    party in writing that it elects to employ
                                    separate counsel at the expense of the
                                    indemnifying party, the indemnifying party
                                    shall not have the right to assume the
                                    defense of such action, claim or proceeding
                                    on behalf of such indemnified party, it
                                    being understood, however, that the
                                    indemnifying party shall not, in connection
                                    with any one such action, claim or
                                    proceeding or separate but substantially
                                    similar or related actions, claims or
                                    proceedings in the same jurisdiction arising
                                    out of the same general allegations or
                                    circumstances, be liable for the reasonable
                                    fees and expenses of more than one separate
                                    firm of attorneys (together with appropriate
                                    local counsel) at any time for all such
                                    indemnified parties, unless in the opinion
                                    of counsel for such indemnified party a
                                    conflict of interest may exist between such
                                    indemnified party and any other of such
                                    indemnified parties with respect to such
                                    action, claim or proceeding, in which event
                                    the indemnifying party shall be obligated to
                                    pay the fees and expenses of such additional
                                    counsel or counsels). No indemnifying party
                                    will consent to entry of any judgment or
                                    enter into any settlement which does not
                                    include as an unconditional term thereof the
                                    release of such indemnified party from all
                                    liability in respect to such claim or
                                    litigation without the written consent
                                    (which consent will not be unreasonably
                                    withheld) of the indemnified party. No
                                    indemnified party shall consent to entry of
                                    any judgment or enter into any settlement
                                    without the written consent (which consent
                                    will not be unreasonably withheld) of the
                                    indemnifying party from which indemnify or
                                    contribution is sought.


                                       17
<PAGE>

                           d)       Contribution. If the indemnification
                                    provided for in this Section 8.4.6 is
                                    unavailable to an indemnified party under
                                    Section 8.4.6(a) or 8.4.6(b) hereof (other
                                    than by reason of exceptions provided in
                                    those Sections) in respect of any Losses,
                                    then each applicable indemnifying party in
                                    lieu of indemnifying such indemnified party
                                    shall contribute to the amount paid or
                                    payable by such indemnified party as a
                                    result of such Losses, in such proportion as
                                    is appropriate to reflect the relative fault
                                    of the indemnifying party and indemnified
                                    party in connection with the actions,
                                    statements or omissions which resulted in
                                    such Losses as well as any other relevant
                                    equitable considerations. The relative fault
                                    of such indemnifying party and the
                                    indemnified party shall be determined by
                                    reference to, among other things, whether
                                    any action in question, including any untrue
                                    statement or alleged untrue statement of a
                                    material fact or omission or alleged
                                    omission of a material fact, has been taken
                                    or made by, or relates to information
                                    supplied by, such indemnifying party or
                                    indemnified party, and the parties' relative
                                    intent, knowledge, access to information and
                                    opportunity to correct or prevent such
                                    action, statement or omission. The amount
                                    paid or payable by a party as a result of
                                    any Losses shall be deemed to include,
                                    subject to the limitations set forth in
                                    Section 8.4.6(c), any legal or other fees or
                                    expenses reasonably incurred by such party
                                    in connection with any action, suit, claim,
                                    investigation or proceeding.

                           e)       The parties hereto agree that it would not
                                    be just and equitable if contribution
                                    pursuant to this Section 8.4.6 (d) were
                                    determined by pro rata allocation or by any
                                    other method of allocation that does not
                                    take into account the equitable
                                    considerations referred to in the
                                    immediately preceding paragraph. No person
                                    guilty of fraudulent misrepresentation
                                    (within the meaning of Section 11(f) of the
                                    Securities Act) shall be entitled to
                                    contribution from any person who was not
                                    guilty of such fraudulent misrepresentation.

                  8.4.7.   Rule 144. Industries shall file the reports required
                           to be filed by it under the Securities Act and the
                           Exchange Act and the rules and regulations adopted by
                           the SEC thereunder, and will take such further action
                           as any holder of Registrable Securities may
                           reasonably request, all to the extent required from
                           time to time to enable such holder to sell
                           Registrable Securities without registration under the
                           Securities Act within the limitation of the exemption
                           provided by Rule 144 or Rule 144A. Upon the request
                           of any holder of Registrable Securities, Industries
                           shall deliver to such holder a written statement as
                           to whether Industries has complied with such
                           requirements. Notwithstanding the foregoing, nothing
                           in this Section 8.4.7 shall be deemed to require
                           Industries to register any of its securities under
                           any section of the Exchange Act.


                                       18
<PAGE>

                  8.4.8.   Underwritten Registrations. No holder of Registrable
                           Securities may participate in any underwritten
                           registration hereunder unless such person (i) agrees
                           to sell such holder's Registrable Securities on the
                           basis provided in any underwriting arrangements
                           approved by the persons entitled hereunder to approve
                           such arrangements, and (ii) completes and executes
                           all questionnaires, powers of attorney, indemnities,
                           underwriting agreements and other documents required
                           under the terms of such underwriting arrangements.

9. RELEASES. The parties agree that the following releases will be delivered at
the Closing of the transactions contemplated herein:

         9.1.     Companies. At the Closing, the Lender shall release
                  Industries, Holding, and Machine from their obligations for
                  payment of the Prior Debt except to the extent that the Prior
                  Debt is amended and restated and provision for payment is made
                  herein, in the Amended and Restated Note, the IRS Note, the
                  Revolving Note, or in the Convertible Note. As a part of such
                  release, the Lender will dismiss all litigation, and release
                  all judgments, if any, against Industries, Holding, and
                  Machine arising out of or relating to the Prior Debt. Unless
                  otherwise expressly amended pursuant to the Restructure
                  Documents, all other terms of the Prior Loan Documents shall
                  remain in effect.

         9.2.     Flemming. At Closing, the Lender shall release Flemming from
                  his obligation for payment of the Prior Debt except to the
                  extent that the Prior Debt is amended and restated and
                  provision for payment is made herein, in the Flemming Note or
                  in Flemming's guaranty. As a part of such release, the Lender
                  will dismiss all litigation, and release all judgments, if
                  any, against Flemming arising from his guaranty of the Prior
                  Debt. Unless otherwise expressly amended pursuant to the
                  Restructure Documents, all other terms of the Prior Loan
                  Documents shall remain in effect.

         9.3.     Lender. At Closing, Industries, Machine, and Flemming shall
                  jointly and severally release the Lender from any and all
                  claims arising in connection with or relating to the Prior
                  Debt.

10. CONDITIONS OF LENDING. The obligation of the Lender to perform this
Agreement and to make the initial or any future advances under any of the notes
executed pursuant to the Agreement is subject to the continued performance by
Industries, Machine, Flemming, Shumate, and Clark of the following conditions
precedent:

         10.1.    Flemming Capital Contribution. At Closing, Flemming will make
                  a capital contribution to Industries in the amount of
                  $250,000. Such capital contribution will be in the form of a
                  cash payment to the Lender, which shall be applied to the
                  Prior Debt.


                                       19
<PAGE>

         10.2.    Stockholder Approval. The existing stockholders of Industries
                  shall approve the terms of the recapitalization as provided
                  herein and the accompanying dilutions of existing outstanding
                  common stock.

         10.3.    Restructure Documents; Collateral. The Restructure Documents
                  and all other instruments and documents incidental to the
                  transactions contemplated hereby shall have been duly
                  executed, acknowledged (where appropriate), and delivered to
                  the Lender by Industries and Machine, all in form and
                  substance satisfactory to the Lender.

         10.4.    Settlement with IRS. [Intentionally omitted.]

         10.5.    Prohibitive Orders. No order, writ or injunction of any court
                  or administrative agency is in effect or is being sought
                  prohibiting the transactions contemplated by this Agreement or
                  the other Restructure Documents.

         10.6.    Authority. The Lender shall have received a certificate of
                  incorporation, certificate of good standing, a certified copy
                  of the bylaws and certified copies of corporate resolutions
                  and other documents reasonably required to authorize the
                  execution, delivery and performance of the Restructure
                  Documents by Industries and Machine, all in form and substance
                  satisfactory to the Lender.

         10.7.    Representations and Warranties . The representations and
                  warranties set forth in this Agreement shall be true and
                  correct on and as of Closing, the initial advance, and each
                  additional advance with the same effect as if such
                  representations and warranties had been made on and as of such
                  date and there shall have occurred.

         10.8.    Opinion of Counsel. The Lender shall have received an opinion
                  of counsel for Industries and Machine stating that, subject to
                  standard assumptions, qualifications, exceptions, and
                  limitations):

                  10.8.1.  Organization and Existence. Industries and Machine
                           are corporations duly incorporated and validly
                           existing under the laws of their respective states of
                           incorporation. Industries and Machine have the
                           corporate power to execute, deliver and perform their
                           respective obligations under the Restructure
                           Documents and to own their respective properties and
                           to conduct their respective businesses in the manner
                           presently conducted, except where the failure to so
                           qualify would not have a material adverse effect on
                           Industries and Machine.

                  10.8.2.  Power and Authority; Validity. Each of the
                           Restructure Documents has been duly authorized,
                           executed and delivered by Industries and Machine, and
                           if an action or proceeding was brought in a
                           California court to enforce any Transaction Document


                                       20
<PAGE>

                           and the court was to apply the laws of the State of
                           California to govern and interpret such Transaction
                           Document, the Transaction Document would constitute
                           the valid and binding obligation of Industries and
                           Machine, enforceable against it in accordance with
                           its terms;

                  10.8.3.  No Violations. The execution and delivery by
                           Industries and Machine of the Restructure Documents
                           and the consummation by Industries and Machine of the
                           transactions contemplated thereby will not
                           contravene, breach or result in any default under the
                           certificate of incorporation or bylaws of Industries
                           and Machine or, to counsel's knowledge, under any
                           agreement or other legally binding instrument to
                           which Industries or Machine is a party, and, to
                           counsel's knowledge, will not result in the violation
                           by Industries and Machine of any statute, regulation
                           or law to which Industries and Machine are subject,
                           except in each case, for conflicts, breaches or
                           defaults which in the aggregate would not materially
                           hinder or impair the consummation of the transactions
                           contemplated by the Restructure Documents or have a
                           material adverse effect on the Lender.

                  10.8.4.  Collateral. If an action or proceeding was brought to
                           enforce any security interest under the Restructure
                           Documents and the court was to apply the Model
                           Uniform Commercial Code to govern and interpret the
                           Restructure Documents, the Restructure Documents are
                           sufficient to create in favor of the Lender an
                           enforceable security interest in those items and
                           types of collateral described in the Restructure
                           Documents to the extent provided by the Model Uniform
                           Commercial Code.

         10.9.    No Default. There shall not exist any Event of Default under
                  this Agreement or any event which, with the giving of notice
                  or the lapse of time (or both) would become an Event of
                  Default thereunder; and

         10.10.   Deliveries. Industries and Machine shall have delivered the
                  following to the Lender:

                  10.10.1. Notes. The Amended and Restated Note, the Revolving
                           Note, and the Convertible Note;

                  10.10.2. Security Agreement. A security agreement duly
                           executed by Industries and Machine, in form and
                           substance satisfactory to the Lender, granting the
                           Lender a security interest in the Collateral;

                  10.10.3. Resolutions. Copies of resolutions of the board of
                           directors of Industries and Machine authorizing the
                           execution, delivery and performance of the
                           Restructure Documents by Industries and Machine;


                                       21
<PAGE>

                  10.10.4. Articles and Certificate. A copy of the articles of
                           incorporation of Industries and Machine and a
                           certificate of good standing as to Industries and
                           Machine issued by the secretary of state of the
                           appropriate state;

                  10.10.5. Schedules. All collateral schedules, financing
                           statements, security interest, subordination
                           agreements, releases and termination statements which
                           the Lender may request to assure the creation,
                           perfection and priority of the security interests
                           created by the security agreement;

                  10.10.6. Lock Box Agreement. Lock box agreement duly executed
                           by Industries and Machine in form and substance
                           satisfactory to the Lender, defining how payments of
                           accounts receivable are to be paid and accounted for;

                  10.10.7. Guaranties. Guaranty Agreements in form and substance
                           satisfactory to the Lender executed by each of the
                           Guarantors;

                  10.10.8. UCC Financing Statements. UCC financing statements
                           describing the collateral securing the repayment of
                           the indebtedness and UCC financing statements for
                           Industries and Machine;

                  10.10.9. Subscription Agreement. A subscription agreement for
                           the Flemming capital contribution referred to in
                           Section 10.1;

                  10.10.10. Bills of Sale. Bills of sale reflecting evidence
                           that Machine has acquired the equipment referred to
                           in Section 4.1.1.a);

                  10.10.11. Common Stock. The certificates representing the
                           Shares in definitive form and registered in the name
                           of the Lender.

                  10.10.12. Settlement and Release Agreements; Dismissals. One
                           or more settlement and release agreements, in form
                           and substance satisfactory to the Lender, releasing
                           such persons from any and all claims arising out of
                           or relating to the Prior Debt except as set forth
                           Article 9.

11. CONDITIONS OF CLOSING BY INDUSTRIES, MACHINE, FLEMMING, SHUMATE, AND CLARK.
The obligations of Industries, Machine, Flemming, Shumate, and Clark to perform
this Agreement and consummate the transactions contemplated hereby, is subject
to the performance by Lender of each of the following conditions precedent:

         11.1.    Stockholder Approval. The existing stockholders of Industries
                  shall approve the terms of the recapitalization as provided
                  herein and the accompanying dilutions of existing outstanding
                  common stock.

         11.2.    Restructure Documents. The Restructure Documents and all other
                  instruments and documents incidental to the transactions
                  contemplated hereby shall have been duly executed,
                  acknowledged (where appropriate), and delivered to by the
                  Lender, all in form and substance satisfactory to Industries.


                                       22
<PAGE>

         11.3.    Prohibitive Orders. No order, writ or injunction of any court
                  or administrative agency is in effect or is being sought
                  prohibiting the transactions contemplated by this Agreement or
                  the other Restructure Documents.

         11.4.    Deliveries. Industries and Machine shall have delivered the
                  following to the Lender:

                  11.4.1.  Subscription Agreement. A subscription agreement for
                           the Flemming capital contribution referred to in
                           Section 10.1;

                  11.4.2.  Bills of Sale. Bills of sale reflecting evidence that
                           Machine has acquired the equipment referred to in
                           Section 4.1.1.a);

                  11.4.3.  Settlement and Release Agreements; Dismissals. One or
                           more settlement and release agreements and
                           dismissals, in form and substance satisfactory to
                           Industries, Machine and Flemming releasing such
                           persons from any and all claims arising out of or
                           relating to the Prior Debt except as set forth
                           herein, as set forth in Article 9.

12. REPRESENTATIONS AND WARRANTIES. To induce the Lender to enter into this
Agreement and to make advances to Industries and Machine pursuant hereto,
Industries, Machine jointly and severally represent and warrant to the Lender
that:

         12.1.    Existence and Power. Industries and Machine are and will
                  continue to be corporations duly formed and validly existing
                  in good standing under the laws of their respective states of
                  organization and are authorized and qualified to do business
                  in each state where, because of the nature of the activities
                  or assets, such qualification is required, except those states
                  where failure to so qualify will not have a material adverse
                  effect; Industries and Machine have adequate power, authority,
                  and legal right to own, operate and hold the Collateral;
                  Industries and Machine are or will be at the time of
                  acquisition, duly authorized, qualified and licensed under all
                  applicable laws, regulations, ordinances or orders of public
                  authorities to carry on their business in the operation and
                  ownership of the Collateral; Industries and Machine have
                  adequate authority, power and legal right to enter into,
                  execute, deliver and perform the terms of the Restructure
                  Documents, to borrow money and to give security for borrowings
                  as contemplated by the Restructure Documents and to consummate
                  the transactions contemplated thereby, and in doing so,
                  neither Industries nor Machine will violate any law or the
                  provisions of any articles, charter or bylaws or any other
                  agreement or instrument binding upon Industries, Machine or
                  the Collateral. The Restructure Documents, upon their
                  execution and delivery, will constitute valid, legal and
                  binding Indebtedness of Industries and Machine, enforceable in
                  accordance with their terms, subject only to applicable
                  bankruptcy, insolvency or similar laws generally affecting the
                  enforcement of creditor's rights.


                                       23
<PAGE>

         12.2.    No Usury. The transaction evidenced by this Agreement does not
                  violate any usury law or other law relating to the payment of
                  interest on loans.

         12.3.    Regulatory Compliance. The authorization, execution, delivery,
                  and performance of this Agreement and each and every
                  Restructure Document are not and will not be subject to the
                  jurisdiction, approval or consent of, or to any requirement of
                  registration with or notification to, any federal, state or
                  local regulatory body or administrative agency, other than the
                  filing of a preliminary and a definitive information statement
                  under Section 14 of the Securities Exchange Act of 1934, as
                  amended, and any notice filings under federal and state
                  securities laws;

         12.4.    Financial Statements. Financial statements furnished to the
                  Lender by Industries and Machine were prepared in accordance
                  with generally accepted accounting principles consistently
                  applied, except as expressly therein set forth. They present
                  fairly the financial condition of Industries and Machine as of
                  the dates thereof. The annual reports disclose fully all
                  liabilities of Industries and Machine whether or not
                  contingent, with respect to any pension plan. Since the date
                  of the most recent financial statement, there has been no
                  material adverse change in the financial condition of
                  Industries or Machine other than as disclosed to the Lender;

         12.5.    Liabilities. Neither Industries nor Machine has any material
                  liabilities, direct or contingent, except those to Lender and
                  those disclosed to the Lender;

         12.6.    Full Disclosure. Neither this Agreement, the other Restructure
                  Documents nor any statement or documents referred to herein or
                  delivered to the Lender by Industries and Machine, or any
                  other party on their behalf contains any untrue statement or
                  omits to state a material fact necessary to make the
                  statements herein or therein not misleading;

         12.7.    Litigation. Except as disclosed in writing to the Lender, to
                  the knowledge of Industries and/or Machine, there is no
                  action, suit proceeding or investigation pending, or
                  threatened against Industries or Machine which, if adversely
                  determined, would adversely affect Industries or Machine or
                  impair the ability of Industries or Machine to carry on their
                  businesses substantially as now conducted or contemplated or
                  result in any substantial liability not adequately covered by
                  insurance;

         12.8.    No Default. The making and performance by Industries and
                  Machine of this Agreement will not violate any provision or
                  constitute a default under any indenture, agreement, or
                  instrument to which Industries or Machine may be a party or by
                  which Industries, Machine or any of the Collateral is bound or
                  affected;

         12.9.    Ownership of Collateral. Industries and Machine have or will
                  acquire good and marketable title to the Collateral;


                                       24
<PAGE>

         12.10.   No Encumbrances. All assets of Industries and Machine are free
                  and clear of all liens, security interests, and encumbrances,
                  except those specifically permitted by Lender;

         12.11.   Priority. When the financing statements delivered pursuant to
                  this Agreement are filed in the proper offices where
                  Industries and Machines are incorporated, the Lender will have
                  a valid and perfected first security interest in the
                  Collateral described in the Security Agreement, subject to no
                  prior security interest, assignment, lien or encumbrance
                  except interests, if any, specifically approved by the Lender
                  in writing;

         12.12.   Permits. Industries and Machine have, or will obtain, all
                  governmental and private permits, certificates, consents and
                  franchises which are material to the business, property,
                  assets, operations or condition, financial or otherwise, of
                  Industries and Machine to carry on their businesses as now
                  being conducted. All such governmental and private permits,
                  certificates, consents and franchises are, or will be, valid
                  and subsisting, and there is no existing violation thereof;

         12.13.   Taxes. Except as disclosed to the Lender, Industries and
                  Machine and the Guarantor have filed all foreign, federal,
                  state and local tax returns which are required to be filed and
                  have paid or made provisions for payment of all taxes which
                  have or may become due pursuant to said returns or pursuant to
                  any assessment. Neither Industries and Machine nor the
                  Guarantors know of any basis for the assessment of any
                  deficiency taxes;

         12.14.   Location of Business Records. Industries and Machine will give
                  the Lender written notice of each location of Industries or
                  Machine at which inventory and records of Industries or
                  Machine pertaining to Collateral are kept. Except as such
                  notice is given, all records of Industries and Machine
                  pertaining to the Collateral are and will continue to be kept
                  at Industries and Machine's addresses as they appear in this
                  Agreement, or at such other address as Industries and Machine
                  designate for such purpose in a written notice to the Lender.

         12.15.   ERISA. Each qualified retirement plan of Industries or Machine
                  presently conforms and is administered in a manner consistent
                  with the Employee Retirement Income Security Act of 1974.

         12.16.   Survival of Representations. All representations and
                  warranties made by Industries, Machine, or the Guarantors
                  herein will survive the Closing, and any investigation at any
                  time made by or on behalf of the Lender will not diminish the
                  Lender's right to rely thereon. All statements contained in
                  any certificate or other instrument delivered by or on behalf
                  of Industries, Machine or the Guarantors under or pursuant to
                  this Agreement or in connection with the transactions
                  contemplated hereby will constitute representations and
                  warranties made by Industries or Machine hereunder.


                                       25
<PAGE>

13. AFFIRMATIVE COVENANTS. Until payment in full of the Indebtedness, Industries
and , Machine jointly and severally agree that, unless the Lender otherwise
consents in writing, Industries and Machine will perform or cause to be
performed the following agreements:

         13.1.    Performance of Obligations. Industries and Machine will
                  promptly and punctually perform all of the obligations
                  hereunder and under the Restructure Documents, and under all
                  other instruments executed or delivered pursuant thereto;

         13.2.    Maintenance of Collateral. Maintain their properly in good
                  working order and condition; make all needful and proper
                  repairs, replacements, additions and improvements thereto.

         13.3.    Equipment Appraisal Updates. Equipment appraisal update
                  inspections will be performed every six months.

         13.4.    Financial Reports and Condition. Industries and Machine will
                  furnish or cause to be furnished to the Lender, prepared in
                  accordance with generally accepted accounting principles, and
                  certified as to truth and accuracy by either the chief
                  executive officer or chief financial officer of Industries and
                  Machine, the following:

                  13.4.1.  Weekly Borrowing Base Certificate. On a weekly basis,
                           Industries and Machine will provide a Weekly
                           Borrowing Base Certificate in a form acceptable to
                           the Lender for reporting purposes only. For the
                           purposes of determining credit availability, the
                           Borrowing Base is determined on a monthly basis as
                           provided above.

                  13.4.2.  Projections. Industries and Machine will provide
                           detailed 2006 financial statement projections by
                           January 31, 2006, and for each year thereafter by
                           January 31st of the subject year.

                  13.4.3.  Quarterly Financial Statements. Industries and
                           Machine will deliver quarterly financial statements
                           of at least compiled quality by the 45th day
                           following the end of each quarter.

                  13.4.4.  Annual Financial Statements. Industries and Machine
                           will furnish to the Lender their audited annual
                           financial statement on or before April 15th of each
                           year.

                  13.4.5.  Income Tax Returns. Industries and Machine will
                           furnish to the Lender copies of their respective
                           federal income tax returns and requests for an
                           extension of time in which to file within fifteen
                           (15) days after filing of same.

                  13.4.6.  Monthly Financial Reports. Within fifteen (15) days
                           after the close of each month commencing with the
                           month ending October 31, 2005, Industries and Machine
                           and Guarantors will furnish to the Lender the
                           following Monthly internally prepared consolidating
                           financial statements of Industries and Machine
                           including the following:


                                       26
<PAGE>

                           a)       Accounts Receivable Aging/Listings. A
                                    current aging of accounts receivable of
                                    Industries and Machine;

                           b)       Inventory. A current listing of the
                                    inventory of Industries and Machine;

                           c)       Balance Sheet. A balance sheet which
                                    demonstrates a "Liquidity Ratio" of 1.10 to
                                    1.0. Industries and Machine will provide the
                                    Lender with within forty-five (45) days
                                    after the close of each of its fiscal year's
                                    quarter information reasonably needed by the
                                    Lender to determine the Liquidity Ratio. As
                                    used herein, Liquidity Ratio shall be
                                    defined as the ratio of Industries and
                                    Machine's current assets to Industries and
                                    Machine's current liabilities.
                                    Notwithstanding anything herein to the
                                    contrary, failure to obtain the stated
                                    Liquidity Ratio shall not be an event of
                                    default until March 31, 2006, and tested
                                    quarterly thereafter.

                           d)       Income Statement. Beginning March 31, 2007,
                                    an income statement which demonstrates a
                                    minimum debt coverage ratio of 1.00:1,
                                    increasing by 5 basis points each quarter to
                                    1.20 at September 30, 2006. Industries shall
                                    thereafter maintain a debt coverage ratio of
                                    1.20, tested quarterly.

                           e)       Cash Flow Statements. A statement of changes
                                    in cash and a cash flow statement of
                                    Industries and Machine in form satisfactory
                                    to the Lender.

         13.5.    Quarterly Field Audits. Industries and Machine will provide
                  quarterly field audits on or before the 15th day following the
                  end of the subject quarter with the next field audit to be
                  completed by January 15, 2006.

         13.6.    Other Information. At the Lender's request from time to time,
                  Industries and/or Machine will provide the Lender with such
                  other information as the Lender may reasonably request
                  regarding the business affairs or financial condition of
                  Industries and Machine, and Industries and Machine will
                  provide access to the Lender at all reasonable times to all
                  agreements, purchase and sale contracts, maintenance
                  agreements, and all other documents and information relating
                  to the Collateral.

         13.7.    Taxes. All taxes which hereafter become due and assessments,
                  governmental charges and levies which are hereafter imposed on
                  Industries and Machine or their respective assets, income and
                  profits will be paid prior to the date on which penalties
                  attach thereto; provided that Industries and Machine will not
                  be required to pay any such charge which is being contested in
                  good faith by proper proceedings as to which adequate reserves
                  have been established.


                                       27
<PAGE>

         13.8.    Tax on Indebtedness. Industries and Machine hereby agree to
                  pay any and all taxes which may be levied or assessed directly
                  or indirectly on the notes or any of the Restructure
                  Documents, or the debt secured thereby, without regard to any
                  law which may be hereafter enacted imposing payment of the
                  whole or any part thereof upon the Lender, its successors or
                  assigns; and, upon violation of this Agreement, or upon the
                  rendering by any court of competent jurisdiction of a decision
                  that such an agreement by Industries or Machine is legally
                  inoperative, or if the rate of said tax, when added to the
                  rate of interest provided for in the Note, shall exceed the
                  then legal rate of interest, then, and in any such event, the
                  debt hereby secured, without deduction, shall, at the option
                  of the Lender, become immediately due and payable, anything
                  contained in the Restructure Documents notwithstanding;
                  provided that Industries and Machine's obligation to pay such
                  taxes shall exclude United States franchise taxes and United
                  States taxes imposed on or measured by Lender's net income or
                  net receipts;

         13.9.    Access. Industries and Machine shall permit any officer,
                  employee, attorney, or accountant for the Lender or for any
                  participant designated by the Lender, to inspect the
                  Collateral or to review, make extracts from, or copy any and
                  all of its corporate and financial books, records and
                  properties of Industries and Machine at all times during
                  ordinary business hours.

         13.10.   Title; Pledge. Industries and Machine agree to grant to the
                  Lender first perfected security interests covering all or any
                  part of the Collateral. Industries and Machine will maintain
                  and defend good and marketable title to the Collateral free
                  and clear of all claims, liens or encumbrances except those in
                  favor of the Lender.

         13.11.   Qualification; Licenses. Industries and Machine will take such
                  actions or cause such actions to be taken as might be required
                  to maintain Industries and Machine's corporate existence and
                  all governmental and private permits, licenses and authorities
                  of Industries and Machine necessary or desirable to the
                  continuation of their businesses and will comply with all
                  statutes and governmental regulations.

         13.12.   Notices. Industries and Machine will promptly give written
                  notice to the Lender of: (a) any litigation commenced against
                  or affecting Industries or Machine, or the Collateral; (b) any
                  dispute which exists between Industries or Machine and any
                  governmental regulatory body or law enforcement authority
                  relating to any federal or state laws that could reasonably be
                  expected to have a material adverse effect on (i) the
                  financial condition or results of operations of Industries or
                  Machine, or (ii) the ability of Industries or Machine to
                  perform their obligations hereunder or under any other
                  Restructure Documents; (c) any event of Default; (d) any
                  change in the senior management of Industries or Machine
                  regardless of the reason for such change (i.e. action by
                  stockholders, board of directors, death or retirement); and
                  (e) any other matter which has resulted or could be expected
                  to result in a material adverse change in (i) the financial
                  condition or results of operations of Industries or Machine or
                  (ii) the ability of Industries or Machine to perform under
                  this Agreement or any of the Restructure Documents.


                                       28
<PAGE>

         13.13.   Additional Documents. At any time and from time to time, upon
                  written request of the Lender, Industries or Machine agree to
                  furnish any additional information and to execute any and all
                  additional documents, not inconsistent with the provisions of
                  this Agreement, which may be required by the Lender in
                  connection with or pursuant to any provision set forth in this
                  Agreement or the Restructure Documents;

         13.14.   Compliance with Applicable Law. Industries and Machine will
                  continuously comply with all applicable regulations, rules,
                  ordinances or orders of the United States of America, any
                  state, or any other jurisdiction, or of any agency of federal
                  state and local taxing authority or other agency which might
                  materially and adversely affect the business, operations or
                  financial condition of Industries or Machine;

         13.15.   Books and Records. Industries and Machine will keep and
                  maintain accurate books and records in accordance with sound
                  accounting practices consistently applied;

         13.16.   Insurance. Industries and Machine will maintain property,
                  liability, workman's compensation and other forms of insurance
                  in amounts reasonably designated at any time or from time to
                  time by the Lender;

         13.17.   Notice to Existing Account Debtors. Industries and Machine
                  shall provide notice in accordance with the Lockbox Agreement
                  to all existing account debtors;

         13.18.   Notice to New Account Debtors. Industries and Machine shall
                  insert language into all new contracts notifying the contract
                  party that Industries or Machine's right to payment under the
                  contract is pledged to the Lender and shall instruct the
                  account debtor to make such payments to the Lockbox; and

         13.19.   Operating Accounts. Industries and Machine will conduct their
                  banking business through accounts established or to be
                  established with the Lender for all accounts, cash and cash
                  equivalents.

14. NEGATIVE COVENANTS. Until payment in full of the Indebtedness, Industries
and Machine jointly and severally agree that unless the Lender otherwise
consents in writing, which consent shall not be unreasonably withheld, neither
Industries and Machine nor the Guarantors will perform or permit to be performed
any of the following acts:

         14.1.    Control. There shall be no change in the executive management
                  of Industries or Machine without the Bank's prior written
                  consent.


                                       29
<PAGE>

         14.2.    Use of Loan Proceeds. Neither Industries nor Machine shall
                  permit any funds advanced to Industries or Machine under this
                  Loan Agreement to be used for any purposes other than
                  financing the businesses of Industries and Machine;

         14.3.    Other Debt. Industries and Machine shall incur no additional
                  debt in excess of $50,000 without prior approval from the
                  Lender.

         14.4.    Insider Debt. Permit funds to be owing to Industries and
                  Machine by the directors or stockholders of Industries or
                  Machine, or members of their families, on account of any loan,
                  credit sale or other transaction or event;

         14.5.    Contingent Liabilities. Neither Industries nor Machine will
                  assume, guarantee, endorse or otherwise become contingently
                  liable for the indebtedness of any other person, firm or
                  corporation, except by the endorsement of negotiable
                  instruments for deposit or collection or other similar
                  transactions in the ordinary course of their business;

         14.6.    Senior Debt. Neither Industries nor Machine will take or
                  permit to be taken any action which would or might impair the
                  senior position of the Lender under the Restructure Documents;

         14.7.    Creation of Liens. Neither Industries nor Machine shall
                  create, assume or suffer to exist any mortgage, pledge, lien,
                  charge or encumbrance on any of the Collateral excluding only
                  encumbrances to the Lender contemplated by this Agreement,
                  except the security interests created by the Security
                  Agreement, liens for taxes or assessments not yet due or
                  contested in good faith by appropriate proceedings, security
                  interests approved by the Lender in writing, at its sole
                  discretion, and other liens, charges and encumbrances
                  incidental to the conduct of their business or the ownership
                  of their property which were not incurred in connection with
                  the borrowing of money or the purchase of property on credit
                  and which do not in the aggregate materially detract from the
                  value of their property or materially impair the use thereof
                  in their business;

         14.8.    Disposition of Collateral. Neither Industries nor Machine
                  shall sell, convey, assign, transfer or otherwise dispose of
                  any of the Collateral or any other assets of Industries or
                  Machine except for the use of inventory in the ordinary course
                  of business;

         14.9.    Liquidation or Merger. Neither Industries nor Machine shall
                  liquidate, dissolve, or enter into any consolidation, merger,
                  sale of substantially all of its assets, or other business
                  combination, and neither Industries nor Machine shall
                  discontinue or substantially alter the normal operation of
                  their respective businesses.

         14.10.   Distribution. Except as set forth in the Convertible Note,
                  neither Industries nor Machine shall: (a) declare or pay any
                  dividends, stock bonuses or any other distributions to any
                  stockholder or any other person; or (b) authorize or make any
                  other distribution to any stockholder, subsidiary, affiliate
                  or person of any of the assets or business of Industries or
                  Machine;


                                       30
<PAGE>

         14.11.   Stock Redemption. Neither Industries nor Machine shall
                  purchase, acquire, redeem, retire or call or make any
                  commitment to purchase, acquire, redeem, retire or call any of
                  the capital stock or other equity instruments of Industries,
                  except pursuant to an "employee benefit plan" as defined in
                  the Securities Act of 1933, as amended;

         14.12.   Excessive Compensation. Neither Industries nor Machine shall
                  pay excessive or unreasonable salaries, bonuses, fees,
                  commissions or other compensation;

         14.13.   Investments. Neither Industries nor Machine shall purchase
                  stock or securities of, extend credit to or make investments
                  in, become liable as surety for, or guarantee or endorse any
                  obligation of, any person, firm or corporation, except direct
                  obligations of the United States and commercial lender
                  deposits;

         14.14.   Margin Stock. Neither Industries nor Machine shall use any of
                  the proceeds received from the Lender for the purpose of
                  purchasing or carrying margin stock within the meaning of
                  Regulation U of the Board of Governors of the Federal Reserve
                  System;

         14.15.   Purchase of Property. Neither Industries nor Machine shall
                  acquire equipment valued in excess of $50,000 without prior
                  Lender approval. Acquisition includes every means of acquiring
                  new equipment including capital leases, true leases or any
                  other arrangement by which Industries and Machines undertake
                  to pay monthly obligations in excess of $1,500 related to such
                  equipment.

         14.16.   Default. Neither Industries nor Machine shall permit any
                  default or event of default to occur under any note, loan
                  agreement, lease, mortgage, contract for deed, security
                  agreement or other contractual obligation binding upon
                  Industries or Machine;

         14.17.   Other Agreements. Neither Industries nor Machine shall enter
                  into any agreement that limits or restricts the ability of
                  Industries or Machine to comply with the terms of the
                  Restructure Documents.

15. EVENTS OF DEFAULT. Unless consented to by the Lender, the occurrence of any
of the following events will constitute a "Default" under the Restructure
Documents:

         15.1.    Nonpayment of Note. Default in payment when due of any
                  interest or principal of any of the notes when and such
                  failure shall continue for five (5) calendar days.

         15.2.    Other Nonpayment. Default in payment when due of any other
                  indebtedness payable to the Lender under the terms of the
                  Restructure Documents and such failure shall continue for five
                  (5) calendar days;

         15.3.    Breach of Agreement. Default by Industries or Machine in the
                  performance or observance of any covenant contained in the
                  Restructure Documents or under the terms of any other
                  instrument delivered to the Lender in connection with any of
                  the Restructure Documents when such failure continues for a
                  period of ten (10) calendar days;


                                       31
<PAGE>

         15.4.    Representations and Warranties. Any representation, statement,
                  certificate, schedule or report made or furnished to the
                  Lender on behalf of Industries or Machine proves to be false
                  or erroneous in any material respect at the time of the making
                  thereof or any warranty ceases to be complied with in any
                  material respect;

         15.5.    Default on Substantial Obligations. Industries and Machine
                  shall fail to pay when due any substantial liability or
                  liabilities owed to persons other than the Lender; or the
                  maturity of any such liability or liabilities shall be
                  accelerated; or any breach, default or event of default shall
                  occur under any indenture, loan agreement, note or agreement
                  pertaining to any such liability, entitling a creditor or
                  representative of creditors of Industries or Machine, acting
                  with or without the consent or concurrence of other creditors
                  and with or without notice or a period of grace, to accelerate
                  the maturity of or demand payment of any such liability,
                  whether such breach, default or event of default is waived by
                  the creditor so entitled. "Substantial" for these purposes,
                  means in excess of Twenty-Five Thousand and No/100 Dollars
                  ($25,000);

         15.6.    Insolvency. The making of an assignment for the benefit of the
                  creditors of Industries or Machine;

         15.7.    Bankruptcy. The institution of bankruptcy, reorganization,
                  liquidation or receivership proceedings by or against
                  Industries or Machine under the Bankruptcy Code, as amended,
                  or under any other laws, whether state or federal, for the
                  relief of Industries or Machine, now or hereafter existing;

         15.8.    Receivership. The appointment of a receiver or trustee for
                  Industries and Machine, the Guarantors or for any substantial
                  part of the Collateral, or the discontinuance of business or a
                  material adverse change in the nature of the business of
                  Industries or Machine or in the financial condition of
                  Industries or Machine;

         15.9.    Benefit Plan Insecurity. Any event or reportable event which
                  the Lender in good faith determines to constitute potential
                  grounds for the termination of any employee benefit plan or
                  other plan maintained for employees of Industries or Machine,
                  or for the appointment of a trustee to administer any such
                  plan, shall have occurred and be continuing thirty (30)
                  calendar days after written notice to such effect shall have
                  been given by the Lender to Industries or Machine; or any such
                  plan shall be terminated, or a trustee shall be appointed to
                  administer any such plan; or the Pension Benefit Guaranty
                  Corporation shall institute proceedings to terminate any such
                  plan or to appoint a trustee to administer any such plan;

         15.10.   Judgment. Entry by any court of a final judgment against
                  Industries or Machine or an attachment of any portion of the
                  Collateral;


                                       32
<PAGE>

         15.11.   Termination of Corporate Existence. The cessation by
                  Industries or Machine to be a validly existing corporation
                  under the laws of their respective states of organization; or

         15.12.   Failure of Liens. Failure of the Lender's security interests
                  covering the Collateral to constitute first and prior liens on
                  any of the Collateral.

16. REMEDIES. On the occurrence of an event of Default which has not been timely
cured, the Lender may terminate all Indebtedness of the Lender under the
Restructure Documents, including, without limitation, any obligation to make
advances under the Revolving Note, and may exercise any one or more of the
following options:

         16.1.    Termination of Lender Obligations. The Lender may terminate
                  the obligations of the Lender under this Agreement.

         16.2.    Acceleration. The Lender may declare the Indebtedness
                  evidenced to be immediately due and payable, and the same
                  shall thereupon be immediately due and payable, without notice
                  or presentment or other demand, and the Lender thereupon may
                  exercise and enforce all rights and remedies available to it
                  to collect the Indebtedness;

         16.3.    Selective Enforcement. In the event the Lender elects to
                  selectively and successively enforce the Lender's rights under
                  any one or more of the instruments securing payment of the
                  Indebtedness, such action will not be deemed a waiver or
                  discharge of any other lien or encumbrance securing payment of
                  the Indebtedness until such time as the Lender has been paid
                  in full all sums advanced by the Lender;

         16.4.    Waiver of Event of Default. The Lender may, by an instrument
                  in writing signed by the Lender, waive any event of Default
                  that has occurred and any of the consequences of such event of
                  Default; and in such event, the Lender, Industries and Machine
                  will be restored to their respective former positions, rights
                  and Indebtedness under the Restructure Documents. Any event of
                  Default so waived will, for all purposes of this Agreement, be
                  deemed to have been cured and not to be continuing, but no
                  such waiver will extend to any subsequent or other event of
                  Default or impair any consequence of such subsequent or other
                  event of Default. The rights and remedies of the Lender shall
                  be cumulative and the exercise or enforcement of any one right
                  or remedy shall neither be a condition to nor bar the exercise
                  and enforcement of any other;

         16.5.    Performance by Lender. In the event Industries or Machine fail
                  to cure any Default in the time provided by the Lender, the
                  Lender will at any time thereafter have the right (but not the
                  obligation) to pay any claim or lien (whether prior or
                  subordinate to liens held by the Lender) affecting the
                  Collateral and to take possession of the Collateral in such
                  manner as the Lender determines. Industries and Machine hereby
                  authorize the Lender to increase the indebtedness owing by
                  Industries and Machine to the Lender by the cost of satisfying
                  claims against the Collateral and the cost of repossession of
                  the Collateral and agree that the Restructure Documents will
                  evidence and secure payment of such costs whether or not the
                  total funds advanced exceed the face amount of the Restructure
                  Documents;


                                       33
<PAGE>

         16.6.    Cumulative Remedies. No failure on the part of the Lender to
                  exercise and no delay in exercising any right hereunder will
                  operate as a waiver thereof, nor will any single or partial
                  exercise by the Lender of any right hereunder preclude any
                  other or further right of exercise thereof or the exercise of
                  any other right. The remedies herein provided are cumulative
                  and not alternative; and

         16.7.    Setoff. Regardless of the adequacy of any other Collateral
                  held by the Lender, any deposits or other sums credited by or
                  due from the Lender to Industries or Machine will at all times
                  constitute collateral security for all of the Indebtedness of
                  Industries and Machine and may be set off against any and all
                  liabilities, direct or indirect, absolute or contingent, due
                  or to become due, now existing or hereafter arising, of
                  Industries or Machine to the Lender. The rights granted by
                  this paragraph will be in addition to the rights of the Lender
                  under any statutory lien.

17. MISCELLANEOUS. It is further agreed as follows:

         17.1.    Recitals. The recitals are hereby acknowledged by the parties
                  to be true and correct and are adopted and incorporated herein
                  as material terms of this Agreement.

         17.2.    Fees. In partial consideration of the extension of credit
                  contemplated under this Agreement, Industries and Machine
                  shall pay to the Lender origination fees in the amount of 0.5%
                  of the original principal balances of the Amended and Restated
                  Note, the IRS Note, the Revolving Note, and the Convertible
                  Note.

         17.3.    Hold Harmless. Each party hereby agrees to indemnify and hold
                  any other party to this Agreement harmless from all liability,
                  loss, damage or expense, including reasonable attorney's fees,
                  whether incurred under retainer, salary or otherwise, that
                  such party may incur in good faith in compliance with or the
                  enforcement of the terms of this Agreement or any of the
                  Restructure Documents.

         17.4.    Supersession. It is agreed and understood between Industries,
                  Machine, the Guarantors and the Lender that: (a) except to the
                  extent the Prior Loan Documents are amended hereby, at and
                  after the Closing, the Prior Loans will remain in full force
                  and effect; and (b) the execution of this Agreement will not
                  discharge, interrupt, impair, abate or otherwise modify the
                  priority or the validity of any lien or security interest
                  securing payment of the indebtedness evidenced by the Prior
                  Loan Documents.

         17.5.    Notices. All notices, requests and demands will be served by
                  first class or express mail, postage prepaid, or sent by
                  telex, telegram, telecopy or other similar form of rapid
                  transmission confirmed by mailing written confirmation at
                  substantially the same time as such rapid transmission, as
                  follows:


                                       34
<PAGE>

                  Industries,
                  Machine and
                  the Guarantors-       12060 FM 3083
                                        Conroe, TX 77301
                                        Attn: Matthew C. Flemming, CFO
                                        Fax: (936) 539-9396

                  With a copy to-       Marc A. Indeglia
                                        Spectrum Law Group, LLP
                                        1900 Main Street, Suite 125
                                        Irvine, CA 92614
                                        Fax: (949) 851-5940

                  The Lender-           Stillwater National Bank and Trust
                                        Company
                                        1500 S. Utica
                                        Tulsa, Oklahoma 74104
                                        Attn: Jerry L. Lanier, Executive Vice
                                              President
                                        Fax: (918) 523-3892

                  With a copy to-       Bryan J. Wells
                                        Conner & Winters, P.C.
                                        211 N. Robinson
                                        1700 One Leadership Square
                                        Oklahoma City, Oklahoma 73102
                                        Fax: (405) 232-2695

                  or at such other address as any party designates for such
                  purpose in a written notice to the other parties. Notices will
                  be deemed to have been given on the date notice is sent by
                  rapid transmission or three business days after notice is
                  placed in the mail, properly addressed, postage prepaid.

         17.6.    Construction. Nothing contained in this Agreement will be
                  construed to constitute the Lender as a joint venturer with
                  Industries or Machine or to constitute a partnership. The
                  descriptive headings of the paragraphs of this Agreement are
                  for convenience only and are not to be used in the
                  construction of the content of this Agreement. This Agreement
                  may be executed in multiple counterparts, each of which will
                  be an original instrument, but all of which will constitute
                  one agreement.

         17.7.    Venue. This Agreement and the documents issued hereunder are
                  executed and delivered as an incident to a lending transaction
                  negotiated and to be performed in Oklahoma City, Oklahoma
                  County, Oklahoma. The Restructure Documents are intended to
                  constitute a contract made under the laws of the State of


                                       35
<PAGE>

                  Oklahoma and to be construed in accordance with the internal
                  laws of said state. Industries, Machine, the Guarantors and
                  the Lender hereby waive all objections and consent to the
                  jurisdiction and venue of any state or federal court sitting
                  in Oklahoma County, Oklahoma.

         17.8.    Severability. In case any one or more of the provisions
                  contained in the Restructure Documents should be invalid,
                  illegal or unenforceable in any respect in any jurisdiction,
                  the validity, legality and enforceability of such provision or
                  provisions will not in any way be affected or impaired thereby
                  in any other jurisdiction; and the validity, legality and
                  enforceability of the remaining provisions contained herein
                  and therein will not in any way be affected or impaired
                  thereby.

         17.9.    No Oral Modification. This Agreement may not be amended,
                  altered, modified or changed verbally, but only by an
                  agreement in writing signed by the party against whom
                  enforcement of any amendment, waiver, change, modification or
                  discharge is sought.

         17.10.   Extension of Loan Term. It is understood that the Lender is
                  under no obligation to extend the term of this Agreement
                  beyond the maturity of any of the notes and that any such
                  extension will be made at the Lender's sole discretion. Any
                  such extension will be evidenced by the acceptance by the
                  Lender of a promissory note renewing and extending the time of
                  payment of any of the notes on terms acceptable to the Lender.

         17.11.   No Waiver. No advance of loan proceeds under any of the
                  Restructure Documents will constitute a waiver of any of the
                  representations, warranties, conditions or covenants of
                  Industries or Machine under the Restructure Documents. In the
                  event Industries or Machine are unable to satisfy any
                  warranty, condition or covenant contained in the Restructure
                  Documents, no advance of loan proceeds will preclude the
                  Lender from thereafter declaring such inability to be an event
                  of Default.

         17.12.   Exclusive Benefit. All provisions of the Restructure Documents
                  are for the sole and exclusive benefit of the Lender,
                  Industries, Machine, Flemming, Shumate, Clark, and Stuart, and
                  no other person will have standing to require satisfaction of
                  the provisions thereof or be entitled to assume that advances
                  thereunder will not be made by the Lender in the absence of
                  strict compliance with the provisions of the Restructure
                  Documents. Any and all provisions of the Restructure Documents
                  may be waived by the Lender in whole or in part at any time
                  if, in the sole discretion of the Lender, it is advisable to
                  do so.

         17.13.   Application of Loan Proceeds. The Lender may apply the loan
                  proceeds under the notes to the satisfaction of any condition,
                  warranty or covenant of Industries and Machine under any of
                  the Restructure Documents, and any proceeds so applied will be
                  considered as a part of the loan proceeds advanced and will be
                  secured by the Restructure Documents.


                                       36
<PAGE>

         17.14.   Binding Effect. This Agreement will be binding on Industries,
                  Machine, the Guarantors and their successors and permitted
                  assigns and will inure to the benefit of the Lender and the
                  Lender's successors and assigns.

         17.15.   Counterparts. This Agreement may be executed in multiple
                  counterparts, each of which will be an original instrument,
                  but all of which will constitute one agreement. The parties to
                  this Agreement may rely upon original, fax, digital or scanned
                  signatures in the execution of this Agreement.

                  IN WITNESS WHEREOF, Industries, Machine, the Guarantors and
the Lender have duly executed this Agreement effective the date first above
written.

                                        SHUMATE INDUSTRIES, INC., (formerly
                                        EXCALIBUR INDUSTRIES, INC.), a Delaware
                                        corporation

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

                                        SHUMATE MACHINE WORKS, INC.
                                        a Texas corporation

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


                                        /s/ Matthew C. Flemming
                                        ----------------------------------------
                                        MATTHEW FLEMMING, individually

                                        /s/ Larry Shumate
                                        ----------------------------------------
                                        LARRY SHUMATE, individually


                                       37
<PAGE>

                                        /s/ Russ Clark
                                        ----------------------------------------
                                        RUSS CLARK, individually


                                        STILLWATER NATIONAL BANK AND TRUST
                                        COMPANY, a national banking association

                                        By: /s/ Michael Mattson
                                            ------------------------------------
                                        Name: Michael Mattson
                                              ----------------------------------
                                        Title: Vice President
                                               ---------------------------------
                                         (the "Lender")


                                       38