SECURITY
AGREEMENT
THIS SECURITY
AGREEMENT is made effective the 19th day of October, 2005, by
SHUMATE INDUSTRIES INC. (formerly EXCALIBUR INDUSTRIES, INC.), a
Delaware corporation (“Excalibur”) having a notice
address of 12060 FM 3083, Conroe, Texas 77301, SHUMATE MACHINE
WORKS, INC., a Texas corporation (“Machine”) having a
notice address of having a notice address of 12060 FM 3083, Conroe,
Texas 77301, in favor of STILLWATER NATIONAL BANK AND TRUST COMPANY
(the "Secured Party"), having a notice address at 1500 S. Utica,
Tulsa, Oklahoma 74104. Excalibur and Machine are sometimes referred
to herein collectively as the “Debtor.”
RECITALS:
WHEREAS, the Debtor and the Secured Party have
entered into a certain Loan Agreement of even date herewith (the
"Loan Agreement"); and
WHEREAS, pursuant to the Loan Agreement the
Debtor has agreed to secure payment of the indebtedness described
herein by granting the Secured Party a security interest covering
the Property (as defined below);
NOW, THEREFORE, in consideration of the premises
and the agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Debtor hereby agrees with the Secured
Party as follows:
1.
Definitions
. Unless otherwise defined herein,
all terms which are defined in the Loan Agreement will have the
same meanings herein as therein, and all terms used herein which
are defined in the Oklahoma Uniform Commercial Code ("UCC") will
have the same meanings herein.
2.
Security Interest
. The Debtor hereby grants to the
Secured Party a security interest in all of the Debtor’s
goods, chattels, accounts, accounts receivable, contract rights,
inventory, supplies, equipment, computer equipment, computer
hardware, computer software, general intangibles, and all other
tangible and intangible personal property, whether now owned or
hereafter acquired, and all proceeds, products, rents, profits and
income therefrom (the “Property”).
3.
Secured Indebtedness
. The security interest granted
hereby in the Property is given to secure the Debtor's payment of
(a) a certain Amended and Restated Promissory Note of even date
herewith in the principal face amount of $3,365,000.00 signed by
the Debtor in favor of the Secured Party (the “Amended and
Restated Note”), and all extensions, renewals, amendments,
modifications, substitutions and changes in form of the Amended and
Restated Note, together with all interest thereon; (b) a certain
Promissory Note (IRS Note) in a principal face amount to be
determined to be executed by the Debtor in favor of the Secured
Party (the “IRS Note”), and all extensions, renewals,
amendments, modifications, substitutions and changes in form of the
IRS Note, together with all interest thereon; (c) a certain
Promissory Note (Revolving Note) of even date herewith in the
principal face amount of $1,000,000.00 signed by the Debtor in
favor of the Secured Party (the “Revolving Note”), and
all extensions, renewals, amendments, modifications, substitutions
and changes in form of the Revolving Note, together with all
interest thereon; (d) all advances made by the Secured Party to
protect the security hereof, including advances made for or on
account of levies, insurance, repairs, taxes and for maintenance or
recovery of the Property, together with interest thereon at the
rate specified in the Restructure Note; and (e) all costs and
expenses incurred in connection with the collection and enforcement
of the foregoing items described at Sections 3(a) through and
including Section 3(d) including reasonable attorneys’ fees
and expenses. (The foregoing items described at Sections 3(a)
through 3(e) hereof inclusive are collectively referred to herein
as the "Secured Indebtedness.")
4.
Debtor's Representations and
Covenants . The Debtor
hereby warrants, represents and agrees as follows:
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Location of
Debtor . The Debtors are
registered corporations organized under the laws of Delaware and
Texas. Its chief executive office and present principal place of
business is the same as set forth in the introductory paragraph
hereof (the “Business Location”).
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Location of
Property . The Property
is now in the possession of the Debtor and is, or will be, located
at the Debtor’s business location and the Debtor will not
move the Property or locate any of the Property in any other
location without the prior written consent of the Secured
Party.
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Business
Purpose . The Property is
to be used by the Debtor in connection with the operation of its
business.
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Title . The Debtor has or will obtain marketable title
to the Property free and clear of all liens, encumbrances and
security interests.
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Transfers . Without the prior written consent of the
Secured Party, the Debtor agrees that the Debtor will not sell,
exchange, lease or in any manner dispose of any of the Property or
any interest therein, without replacing same with property of
comparable value in the ordinary course of business.
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Maintenance
of Property . The Debtor
will use the utmost care to maintain the Property in good condition
and repair, ordinary wear and tear excepted, and without the
Secured Party’s prior written consent, will not suffer or
permit any lien, charge or encumbrance to attach thereto, whether
by reason of repairs, taxes, assessments or otherwise. The Debtor
will not use or permit the Property to be used in violation of any
law, statute or ordinance. The Debtor will not, in any event,
permit anything to be done that may impair the value of the
Property or the security intended to be afforded by this
Agreement.
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Insurance . The Debtor will insure the Property as
required under the Loan Agreement. If the Debtor fails t
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