SECURITY AGREEMENT
THIS
SECURITY AGREEMENT is made effective the 19th day of October,
2005,
by SHUMATE INDUSTRIES INC. (formerly
EXCALIBUR INDUSTRIES, INC.), a Delaware
corporation ("Excalibur") having a notice
address of 12060 FM 3083, Conroe,
Texas 77301, SHUMATE MACHINE WORKS, INC., a
Texas corporation ("Machine") having
a notice address of having a notice address
of 12060 FM 3083, Conroe, Texas
77301, in favor of STILLWATER NATIONAL BANK
AND TRUST COMPANY (the "Secured
Party"), having a notice address at 1500 S.
Utica, Tulsa, Oklahoma 74104.
Excalibur and Machine are sometimes
referred to herein collectively as the
"Debtor."
R E C I T A L S:
WHEREAS,
the Debtor and the Secured Party have entered into a certain
Loan
Agreement of even date herewith (the "Loan
Agreement"); and
WHEREAS,
pursuant to the Loan Agreement the Debtor has agreed to secure
payment of the indebtedness described
herein by granting the Secured Party a
security interest covering the Property (as
defined below);
NOW,
THEREFORE, in consideration of the premises and the agreements
herein
contained, and for other good and valuable
consideration, the receipt and
sufficiency of which are hereby
acknowledged, the Debtor hereby agrees with the
Secured Party as follows:
1. Definitions. Unless otherwise defined
herein, all terms which are defined in
the Loan Agreement will have the same
meanings herein as therein, and all terms
used herein which are defined in the
Oklahoma Uniform Commercial Code ("UCC")
will have the same meanings herein.
2. Security Interest. The Debtor hereby
grants to the Secured Party a security
interest in all of the Debtor's goods,
chattels, accounts, accounts receivable,
contract rights, inventory, supplies,
equipment, computer equipment, computer
hardware, computer software, general
intangibles, and all other tangible and
intangible personal property, whether now
owned or hereafter acquired, and all
proceeds, products, rents, profits and
income therefrom (the "Property").
3. Secured Indebtedness. The security
interest granted hereby in the Property is
given to secure the Debtor's payment of (a)
a certain Amended and Restated
Promissory Note of even date herewith in
the principal face amount of
$5,633,053.00 signed by the Debtor in favor
of the Secured Party (the "Amended
and Restated Note"), and all extensions,
renewals, amendments, modifications,
substitutions and changes in form of the
Amended and Restated Note, together
with all interest thereon; (b) a certain
Promissory Note (IRS Note) in a
principal face amount to be determined to
be executed by the Debtor in favor of
the Secured Party (the "IRS Note"), and all
extensions, renewals, amendments,
modifications, substitutions and changes in
form of the IRS Note, together with
all interest thereon; (c) a certain
Promissory Note (Revolving Note) of even
date herewith in the principal face amount
of $1,000,000.00 signed by the Debtor
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in favor of the Secured Party (the
"Revolving Note"), and all extensions,
renewals, amendments, modifications,
substitutions and changes in form of the
Revolving Note, together with all interest
thereon; (d) all advances made by the
Secured Party to protect the security
hereof, including advances made for or on
account of levies, insurance, repairs,
taxes and for maintenance or recovery of
the Property, together with interest
thereon at the rate specified in the
Restructure Note; and (e) all costs and
expenses incurred in connection with the
collection and enforcement of the foregoing
items described at Sections 3(a)
through and including Section 3(d)
including reasonable attorneys' fees and
expenses. (The foregoing items described at
Sections 3(a) through 3(e) hereof
inclusive are collectively referred to
herein as the "Secured Indebtedness.")
4. Debtor's Representations and Covenants.
The Debtor hereby warrants,
represents and agrees as follows:
4.1
Location of
Debtor. The Debtors are registered corporations
organized under the laws of Delaware and Texas. Its chief
executive
office and present principal place of business is the same as
set
forth in the introductory paragraph hereof (the "Business
Location").
4.2
Location of
Property. The Property is now in the possession of the
Debtor and is, or will be, located at the Debtor's business
location
and the Debtor will not move the Property or locate any of the
Property in any other location without the prior written consent
of
the Secured Party.
4.3
Business
Purpose. The Property is to be used by the Debtor in
connection with the operation of its business.
4.4
Title. The
Debtor has or will obtain marketable title to the
Property free and clear of all liens, encumbrances and security
interests.
4.5
Transfers.
Without the prior written consent of the Secured Party,
the Debtor agrees that the Debtor will not sell, exchange, lease
or
in any manner dispose of any of the Property or any interest
therein, without replacing same with property of comparable value
in
the ordinary course of business.
4.6
Maintenance of
Property. The Debtor will use the utmost care to
maintain the Property in good condition and repair, ordinary
wear
and tear excepted, and without the Secured Party's prior
written
consent, will not suffer or permit any lien, charge or
encumbrance
to attach thereto, whether by reason of repairs, taxes,
assessments
or otherwise. The Debtor will not use or permit the Property to
be
used in violation of any law, statute or ordinance. The Debtor
will
not,
in any event, permit anything to be done that may impair the
value of the Property or the security intended to be afforded
by
this Agreement.
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4.7
Insurance. The
Debtor will insure the Property as required under the
Loan Agreement. If the Debtor fails to pay the premiums for any
such
insurance, the Secured Party may do so for the Debtor's
account,
adding the amount so paid by the Secured Pa
