Unassociated Document


    Execution
      Version

     

     

    THIS
      WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
      BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
      LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
      MAY
      NOT BE SOLD, OFFERED FOR SALE, PLEDGED, TRANSFERRED, HYPOTHECATED OR OTHERWISE
      DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER OR
      EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS OR AN OPINION
      OF COUNSEL REASONABLY SATISFACTORY TO SHUMATE INDUSTRIES, INC. THAT SUCH
      REGISTRATION IS NOT REQUIRED. A COPY OF THE WARRANT IS AVAILABLE AT THE OFFICES
      OF THE COMPANY.

     

    
      	
            	Right to Purchase 2,443,269 shares of
              Common
              Stock of Shumate Industries, Inc. (subject to adjustment as provided
              herein)


    

     

    COMMON
      STOCK PURCHASE WARRANT

     

    
      	No. 2008-A-002	
               Houston,
                Texas

            
	 	
               Issue
                Date: October 14,
                2008

            


    

     

    SHUMATE
      INDUSTRIES, INC., a corporation organized under the laws of the State of
      Delaware (the “Company”),
      hereby certifies that, for value received, Intervale Capital, LLC, a Delaware
      limited liability company, or its assigns (the “Holder”),
      is
      entitled, subject to the terms set forth below, to purchase from the Company
      at
      any time after October 14, 2008 (“Issue
      Date”)
      until
      5:00 p.m., Houston, Texas time, on the fifth anniversary of the Issue Date
      (the
“Expiration
      Date”),
      up to
      2,443,269 duly authorized, validly issued, fully paid and nonassessable shares
      of Common Stock at a per share purchase price of $0.25. The aforedescribed
      purchase price per share, as adjusted from time to time as herein provided,
      is
      referred to herein as the “Purchase
      Price.”
The
      number and character of such shares of Common Stock and the Purchase Price
      are
      subject to adjustment as provided herein. The Company may reduce the Purchase
      Price without the consent of the Holder.

     

    As
      used
      herein the following terms, unless the context otherwise requires, have the
      following respective meanings: 

     

    (a) The
      term
“Company”
shall
      include Shumate Industries, Inc. and any Person that shall succeed to or assume
      the obligations of Shumate Industries, Inc. hereunder.

     

    (b) The
      term
“Common
      Stock”
      includes (i) the Company’s Common Stock, $0.001 par value per share, and (ii)
      any other securities into which or for which any of the securities described
      in
      clause (i) above may be converted or exchanged pursuant to a plan of
      recapitalization, reorganization, reclassification, merger, sale of assets
      or
      otherwise.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c) The
      term
“Person”
shall
      include an individual, a partnership, a limited liability company, a
      corporation, an association, a joint stock company, a trust, a joint venture,
      an
      unincorporated organization or any federal, state, county or municipal
      governmental or quasi-governmental agency, department, commission, board,
      bureau, instrumentality or similar entity, foreign or domestic, having
      jurisdiction over either the Company or any Holder.

     

    (d) The
      term
“Other
      Securities”
refers
      to any stock (other than Common Stock) and other securities of the Company
      or
      any other Person (i) that the Holder at any time shall be entitled to receive,
      or shall have received, on the exercise of the Warrant, in lieu of or in
      addition to Common Stock, and (ii) that at any time shall be issuable or shall
      have been issued in exchange for or in replacement of Common Stock or Other
      Securities pursuant to the terms hereof.

     

    (e) The
      term
“Warrant
      Shares”
shall
      mean the shares of Common Stock or Other Securities issued or issuable upon
      exercise of this Warrant, in each case as such number may be adjusted from
      time
      to time pursuant to the terms hereof.

     

    (f) The
      term
“2008
      Warrants”
shall
      mean this Warrant and other Common Stock Purchase Warrants in substantially
      the
      form hereof, and any Warrants issued in exchange or substitution therefor or
      in
      replacement thereof. 

     

    
      1. Exercise
        of Warrant.

       

      1.1 Number
        of Shares Issuable upon Exercise.
        From
        and after the Issue Date through and including the Expiration Date, the Holder
        hereof shall be entitled to receive, upon exercise of this Warrant in whole
        in
        accordance with the terms of Section
        1.2
        or upon
        exercise of this Warrant in part in accordance with Section
        1.3,
        shares
        of Common Stock of the Company, subject to adjustment pursuant to Section
        2.

       

      1.2 Full
        Exercise.
        Subject
        to Section
        1.8,
        this
        Warrant may be exercised in full by the Holder hereof by delivery of an original
        or facsimile copy of the form of subscription attached as Exhibit
        A
        hereto
        (the “Subscription
        Form”)
        duly
        executed by such Holder and surrender of the original Warrant within four
        (4)
        business days of exercise, to the Company at its principal office or at the
        office of its Warrant Agent (as provided hereinafter), accompanied by payment,
        in cash, by wire transfer, by certified or official bank check payable to
        the
        order of the Company, or by cancellation of Warrant Shares, with any such
        Warrant Shares so surrendered being credited against such payment in an amount
        equal to the Fair Market Value thereof on the date of such surrender, or
        by any
        combination of any of the foregoing methods, in the amount obtained by
        multiplying (a) the number of shares of Common Stock for which this Warrant
        is
        then exercisable (without giving effect to any adjustments thereof) by (b)
        the
        Purchase Price then in effect.

       

      1.3 Partial
        Exercise.
        Subject
        to Section
        1.8,
        this
        Warrant may be exercised in part (but not for a fractional share) by surrender
        of this Warrant in the manner, including payment, provided in Section
        1.2
        except
        that the amount payable by the Holder on such partial exercise shall be the
        amount obtained by multiplying (a) the number of whole shares of Common Stock
        designated by the Holder in the Subscription Form by (b) the Purchase Price
        then
        in effect. Upon any such partial exercise, the Company, at its sole expense,
        will forthwith issue and deliver to or upon the order of the Holder hereof
        a new
        Warrant or Warrants of like tenor, dated the date hereof, in the name of
        the
        Holder hereof or as such Holder (upon payment by such Holder of any applicable
        transfer taxes) may request, for the whole number of shares of Common Stock
        for
        which such Warrant may still be exercised.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      1.4 Fair
        Market Value.
        Fair
        Market Value of a share of Common Stock as of a particular date (the
“Determination
        Date”)
        shall
        mean:

       

      (a) If
        the
        Company’s Common Stock is traded on an exchange or is quoted on an automated
        quotation system, then the closing or last sale price, respectively, reported
        for the last trading day immediately preceding the Determination
        Date;

       

      (b) If
        the
        Company’s Common Stock is not traded on an exchange or quoted on an automated
        quotation system, but is traded in the over-the-counter market, then the
        average
        of the closing sales prices reported for the last three trading days immediately
        preceding the Determination Date;

       

      (c) Except
        as
        provided in clause (d) below, if the Company’s Common Stock is not publicly
        traded, then as the Holder and the Company agree, without premium for control
        and without discount for minority interests, illiquidity or restrictions
        on
        transfer, or in the absence of such an agreement within fifteen (15) days
        of the
        Determination Date, then by arbitration in accordance with the Commercial
        Arbitration Rules of the American Arbitration Association, before a single
        arbitrator to be chosen from a panel of persons qualified by education and
        training to pass on the matter to be decided and without premium for control
        and
        without discount for minority interests, illiquidity or restrictions on
        transfer; or

       

      (d) If
        the
        Determination Date is the date of a liquidation, dissolution or winding up,
        or
        any event deemed to be a liquidation, dissolution or winding up pursuant
        to the
        Company’s Certificate of Incorporation, as amended (the “Charter”),
        then
        all amounts to be payable per share to holders of the Common Stock pursuant
        to
        the Charter in the event of such liquidation, dissolution or winding up,
        plus
        all other amounts to be payable per share in respect of the Common Stock
        in
        liquidation under the Charter, assuming for the purposes of this clause (d)
        that
        all of the shares of Common Stock then issuable upon exercise of all of the
        2008
        Warrants are outstanding at the Determination Date.

       

      1.5 Company
        Acknowledgment.
        The
        Company will, at the time of each exercise of this Warrant, upon the request
        of
        the Holder hereof, acknowledge in writing its continuing obligation to afford
        to
        such Holder all rights to which such Holder shall continue to be entitled
        after
        such exercise in accordance with the provisions of this Warrant. If the Holder
        shall fail to make any such request, such failure shall not affect the
        continuing obligation of the Company to afford to such Holder any such
        rights.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      1.6 Trustee
        for Warrant Holders.
        In the
        event that a bank or trust company shall have been appointed as trustee for
        the
        Holder of the Warrants pursuant to Section
        2.3
        or
2.4,
        such
        bank or trust company shall have all the powers and duties of a Warrant Agent
        (as hereinafter defined) and shall accept, in its own name for the account
        of
        the Company or such successor person as may be entitled thereto, all amounts
        otherwise payable to the Company or such successor, as the case may be, on
        exercise of this Warrant pursuant to this Section
        1.

       

      1.7 Delivery
        of Stock Certificates, etc. on Exercise.
        The
        Company agrees that the shares of Common Stock purchased upon exercise of
        this
        Warrant shall be deemed to be issued to the Holder hereof as the record owner
        of
        such shares as of the close of business on the date on which this Warrant
        shall
        have been surrendered and payment made for such shares as aforesaid.
        Notwithstanding the foregoing, the Holder may, upon written notice delivered
        to
        the Company concurrently with the surrender of this Warrant for exercise
        as
        provided in Section
        1,
        elect
        that the exercise of all or any portion of this Warrant be conditioned upon
        the
        consummation of any transaction or event, in which case (a) such exercise
        shall
        not be deemed to be effective unless and until the consummation of such
        transaction or event occurs and (b) such exercise may be revoked by the Holder
        at any time prior to the consummation of such transaction or event. If such
        transaction or event is not consummated or is so revoked, the Company shall
        promptly return the surrendered Warrant to such Holder, unless otherwise
        instructed by such Holder. As soon as practicable after the exercise of this
        Warrant in full or in part, and in any event within four (4) business days
        thereafter, the Company at its sole expense (including the payment by it
        of any
        applicable issue taxes) will cause to be issued in the name of and delivered
        to
        the Holder hereof, or as such Holder (upon payment by such Holder of any
        applicable transfer taxes) may direct in compliance with applicable securities
        laws, (i) a certificate or certificates for the number of duly authorized,
        validly issued, fully paid and nonassessable shares of Common Stock (or Other
        Securities) to which such Holder shall be entitled on such exercise, plus,
        in
        lieu of any fractional share to which such Holder would otherwise be entitled,
        one full share of Common Stock, together with any other stock or other
        securities and property (including cash, where applicable) to which such
        Holder
        is entitled upon such exercise pursuant to Section
        1
        or
        otherwise and (ii) in case such exercise is in part only, a new Warrant or
        Warrants as set forth in Section
        1.3.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      1.8 Cashless
        Exercise.
        If at
        any time after April 14, 2008, the Warrant Shares cannot be sold without
        restriction pursuant to an effective registration statement under the Securities
        Act of 1933, as amended (the “Act”),
        with
        a current prospectus available, in lieu of exercising this Warrant in the
        manner
        set forth in Section
        1.2
        or
1.3
        above,
        then the Warrant may be exercised by surrender of the Warrant without payment
        of
        any other consideration, commission or remuneration and by delivery of an
        original or facsimile copy of the form of cashless exercise subscription
        attached as Exhibit
        B
        hereto
        (the “Cashless
        Exercise Subscription Form”)
        duly
        executed by such Holder. The Holder shall be entitled to receive the number
        of
        Warrant Shares equal to the quotient determined by dividing [(A-B) x C] by
        A,
        where:

       

      A
        =
the
        Fair
        Market Value of one share of Common Stock on the date of receipt of the Cashless
        Exercise Subscription Form;

       

      B
        =
the
        Purchase Price per share then in effect; and

       

      
        
          C
            = The
            number
            of Warrant Shares issuable upon such exercise of the Warrant, or part
            thereof,
            had the Warrant been exercised with a cash payment.

        

      

       

      2. Adjustment
        of
        Warrant Shares Issuable Upon Exercise.

       

      2.1 General;
        Number of Warrant Shares.
        The
        number of Warrant Shares that the Holder shall be entitled to receive upon
        each
        exercise hereof shall be determined by multiplying the number of Warrant
        Shares
        that would otherwise (but for the provisions of this Section
        2)
        be
        issuable upon such exercise, as designated by the Holder pursuant to
Section
        1,
        by a
        fraction (a) the numerator of which is the Purchase Price and (b) the
        denominator of which is the Purchase Price in effect on the date of such
        exercise. 

       

      2.2 Reorganization,
        Consolidation, Merger, etc.
        

       

      (a)
        In
        case at any time or from time to time, the Company shall (i) effect a
        reorganization or reclassification of the Warrant Shares or its Common Stock,
        (ii) consolidate with or merge into any other Person and shall not be the
        continuing or surviving corporation of such consolidation or merger, (iii)
        permit any other Person to consolidate with or merge into the Company and
        the
        Company shall be the continuing or surviving Person but, in connection with
        such
        consolidation or merger, the Warrant Shares or the Common Stock shall be
        changed
        into or exchanged for stock or other securities of any other Person or cash
        or
        any other property, or (iv) transfer all or substantially all of its properties
        or assets to any other Person, then, in each such case, as a condition to
        the
        consummation of such a transaction, proper and adequate provision shall be
        made
        by the Company whereby the Holder of this Warrant, on the exercise hereof
        as
        provided in Section
        1,
        at any
        time after the consummation of such transaction, shall receive, in lieu of
        the
        Common Stock (or Other Securities) issuable on such exercise prior to such
        consummation, the greatest amount of stock and other securities and property
        (including cash) to which such Holder would have been entitled as an equity
        holder upon such consummation if such Holder had so exercised this Warrant,
        immediately prior thereto, all subject to further adjustment thereafter as
        provided in this Section
        2.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (b)
        In
        case at any time within 180 days after the Issue Date, the Company shall
        issue
        (i) shares of Common Stock at a purchase price less than the Purchase Price
        or
        (ii) securities that are convertible, exercisable or exchangeable for shares
        of
        Common Stock (except in connection with (A) the Company’s issuance of Common
        Stock or the issuances or grants of options to purchase Common Stock pursuant
        to
        a Company employee benefit plan in effect as of the Issue Date, (B) as a
        result
        of the exercise of any option, warrant, or other right to acquire shares
        of
        Common Stock existing or outstanding as of the Issue Date, (C) as the result
        of
        the conversion or exchange of any securities outstanding as of the Issue
        Date
        that are convertible or exchangeable into shares of Common Stock, or (C)
        as a
        result of the exercise of this Warrant (collectively, the “Excepted
        Issuances”),
        for a
        price or value less than the Purchase Price (such shares of Common Stock
        and,
        together with such shares of Common Stock into which such securities are
        convertible, exercisable or exchangeable, the “Additional
        Shares”),
        the
        number of Warrant Shares that the Holder shall be entitled to receive upon
        the
        exercise hereof shall automatically and without any further action be increased
        by the product of the Additional Shares multiplied by 9.99% and the Purchase
        Price for such additional Warrant Shares shall be the Purchase Price in effect
        on the date of such issuance.

       

      2.3 Dissolution.
        In the
        event of any dissolution of the Company following the transfer of all or
        substantially all of its properties or assets, the Company, prior to such
        dissolution, shall at its expense (a) appoint a bank or trust company (a
        “Trustee”)
        having
        its principal office in Houston, TX and otherwise reasonably satisfactory
        to the
        Holder, as trustee for the Holder of the Warrants, pursuant to documentation
        reasonably satisfactory to the Holder and (b) deliver or cause to be delivered
        to such Trustee the stock and other securities and property (including cash,
        where applicable) receivable by the Holder of the Warrants after the effective
        date of such dissolution pursuant to this Section
        2.

       

      2.4 Continuation
        of Terms.
        Upon
        any reorganization, reclassification, consolidation, merger or transfer (and
        any
        dissolution following any transfer) referred to in this Section
        2,
        this
        Warrant shall continue in full force and effect and the terms hereof shall
        be
        applicable to the Other Securities and property (including cash, where
        applicable) receivable upon the exercise of this Warrant after the consummation
        of such reorganization, reclassification, consolidation or merger or the
        effective date of dissolution following any such transfer, as the case may
        be,
        and shall be binding upon the issuer of any Other Securities, including,
        in the
        case of any such transfer, the Person acquiring all or substantially all
        of the
        properties or assets of the Company, whether or not such person shall have
        expressly assumed the terms of this Warrant. In the event (a) this Warrant
        does
        not continue in full force and effect after the consummation of the transactions
        described in this Section
        2,
        or (b)
        the Holders do not receive an opinion of counsel for any Person (other than
        the
        Company) that may be required to deliver any Other Securities and property
        receivable upon the exercise of this Warrant as provided herein, which opinion
        of counsel shall be reasonably satisfactory to such Holder, stating that
        this
        Warrant shall thereafter continue in full force and effect and the terms
        hereof
        shall be applicable to the Other Securities and property that such Person
        may be
        required to deliver upon any exercise of this Warrant or the exercise of
        any
        rights pursuant thereto, then the Company shall appoint a Trustee in accordance
        with Section
        2.3
        and
        deliver to such Trustee all of the Company’s securities and property (including
        cash, where applicable) receivable by the Holder of the Warrants as contemplated
        by this Section
        2.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      2.5 Extraordinary
        Events Regarding Common Stock.
        In the
        event that the Company shall (a) subdivide (by any stock split, stock dividend,
        recapitalization or otherwise) its outstanding shares of Common Stock into
        a
        greater number of shares of Common Stock or pays a dividend or makes a
        distribution to holders of the shares of Common Stock in the form of additional
        shares of Common Stock, or (b) combine its outstanding shares of the Common
        Stock into a smaller number of shares of the Common Stock, then, in each
        such
        event, the Purchase Price shall, simultaneously with the happening of such
        event, be adjusted by multiplying the then Purchase Price by a fraction,
        the
        numerator of which shall be the number of shares of Common Stock outstanding
        immediately prior to such event and the denominator of which shall be the
        number
        of shares of Common Stock outstanding immediately after such event, and the
        product so obtained shall thereafter be the Purchase Price then in effect.
        The
        Purchase Price, as so adjusted, shall be readjusted in the same manner upon
        the
        happening of any successive event or events described herein in this
Section
        2.
        

       

      3. Other
        Dilutive Events. If
        any
        event shall occur as to which the provisions of Section
        2
        is not
        strictly applicable but with respect to which the failure to make any adjustment
        would not fairly protect the Holders or fairly preserve and give effect to
        the
        anti-dilution rights represented by this Warrant in accordance with its
        essential intent and principles, then, in each such case, the Company shall
        promptly adjust (the “Company
        Dilutive Adjustment”),
        on a
        basis consistent with the essential intent and principles established in
        Section
        2,
        the
        shares of Common Stock (or Other Securities) issuable on the exercise of
        the
        Warrants to the extent necessary to preserve, without dilution, the rights
        represented by this Warrant. If the Holder shall object to the adjustment
        or the
        facts upon which such adjustment is based, the Holder shall prepare a
        calculation of what it believes to be the proper adjustment (the “Holder
        Dilutive Adjustment”)
        and
        submit such calculation to the Company; provided,
        that,
        the
        Company Dilutive Adjustment shall remain in effect regardless of any dispute
        by
        the Holder of such adjustment. If the Company and the Holder cannot agree
        upon a
        final adjustment within ten (10) days after the Company’s receipt of such
        notice, the difference between the Company Dilutive Adjustment, as such
        adjustment was readjusted in writing and delivered to the Holder prior to
        the
        initiation by written demand of arbitration hereby (the “Adjusted
        Company Dilutive Adjustment”),
        and
        the Holder Dilutive Adjustment, as such adjustment was readjusted in writing
        and
        delivered to the Company prior to the initiation by written demand of
        arbitration hereby (the “Adjusted
        Holder Dilutive Adjustment”),
        shall
        be settled finally, completely and conclusively by binding arbitration in
        Houston, Harris County, Texas by a single arbitrator, to be selected from
        a
        panel of persons qualified by education and training to pass on the matter
        to be
        decided, in accordance with the Commercial Arbitration Rules of the American
        Arbitration Association. Arbitration shall be initiated by written demand
        by the
        party seeking arbitration. This agreement to arbitrate shall be specifically
        enforceable only in the District Court of Harris County, Texas. A decision
        of
        the arbitrator (the “Arbitrated
        Dilutive Adjustment”)
        shall
        be final, conclusive, and binding on all parties, and judgment may be entered
        thereon in the District Court of Harris County, Texas, to enforce such decision
        and the benefits thereof. Any costs and expenses related to such arbitration
        and
        required to be paid prior to the delivery of the arbitrator’s decision (the
“Initial
        Arbitration Costs”)
        shall
        initially be paid by the party commencing arbitration. All costs and expenses
        related to such arbitration shall ultimately be paid by the party whose adjusted
        dilutive adjustment referenced above was further from the Arbitrated Dilutive
        Adjustment and such party shall, if necessary, promptly reimburse the other
        party for the Initial Arbitration Costs paid by such other party.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      4. Certificate
        as to Adjustments.
        In each
        case of any adjustment or readjustment in the shares of Common Stock (or
        Other
        Securities) issuable on the exercise of the Warrants, the Company, at its
        sole
        expense, will promptly cause its Chief Financial Officer or other appropriate
        designee to compute such adjustment or readjustment and, upon written request
        of
        a Holder, cause independent certified public accountants (which may be the
        regular auditors of the Company) selected by the Company to verify such
        computation (other than any computation of the Fair Market Value, which shall
        be
        determined in accordance with the definition thereof), in each case, in
        accordance with the terms of the Warrant, and prepare a certificate setting
        forth such adjustment or readjustment and showing in detail the facts upon
        which
        such adjustment or readjustment is based, including a statement of (a) the
        consideration received or receivable by the Company for any additional shares
        of
        Common Stock (or Other Securities) issued or sold or deemed to have been
        issued
        or sold, (b) the number of shares of Common Stock (or Other Securities)
        outstanding or deemed to be outstanding, and (c) the Purchase Price and the
        number of shares of Common Stock to be received upon exercise of this Warrant,
        in effect immediately prior to such adjustment or readjustment and as adjusted
        or readjusted as provided in this Warrant. The Company will forthwith mail
        a
        copy of each such certificate to the Holder of the Warrant.
        The
        Company will also keep copies of all such reports at its chief executive
        office
        and will cause the same to be available for inspection, upon reasonable notice
        to the Company, at such office during normal business hours by any Holder
        or any
        prospective purchaser of this Warrant designated by the Holder.

       

      5. No
        Dilution or Impairment.
        The
        Company shall not, by amendment of its Charter or through any consolidation,
        merger, reorganization, reclassification, transfer of assets, dissolution,
        issue
        or sale of securities or any other voluntary action, avoid or seek to avoid
        the
        observance or performance of any of the terms of this Warrant, but will at
        all
        times in good faith assist in the carrying out of all such terms and in the
        taking of all such action as may be necessary or appropriate in order to
        protect
        the rights of the Holder against dilution or other impairment. Without limiting
        the generality of the foregoing, the Company (a) will take all such action
        as
        may be necessary or appropriate in order that the Company may validly and
        legally issue the Warrant Shares upon exercise of this Warrant and (b) will
        not
        take any action that results in any adjustment of the Purchase Price if the
        total number of Warrant Shares issuable upon exercise of the Warrant after
        such
        action would exceed the total number of shares of Common Stock (or Other
        Securities, if applicable) then authorized by its Charter and available for
        the
        purpose of issuance upon such exercise.

       

      6. Reservation
        of Stock, etc. Issuable on Exercise of Warrant; Financial
        Statements.
        The
        Company will at all times reserve and keep available, solely for issuance
        and
        delivery on the exercise of the Warrants, all shares of Common Stock (or
        Other
        Securities) from time to time issuable on the exercise of the Warrant. All
        Warrant Shares issuable upon exercise of this Warrant shall be duly authorized
        and, when issued upon such exercise, shall be validly issued and, in the
        case of
        shares, fully paid and nonassessable, with no liability on the part of the
        Holders thereof.

       

      7. Assignment;
        Exchange of Warrant.
        Subject
        to compliance with applicable securities laws, this Warrant, and the rights
        evidenced hereby, may be transferred by any registered holder hereof (a
“Transferor”).
        On
        the surrender for exchange of this Warrant, with the Transferor’s endorsement in
        the form of Exhibit
        C
        attached
        hereto (the “Transferor
        Endorsement Form”),
        the
        Company, at its sole expense, but with payment by the Transferor of any
        applicable transfer taxes, will issue and deliver to or on the order of the
        Transferor thereof a new Warrant or Warrants of like tenor, dated the date
        hereof, in the name of the Transferor and/or the transferee(s) specified
        in such
        Transferor Endorsement Form (each a “Transferee”),
        calling in the aggregate on the face or faces thereof for the number of shares
        of Common Stock called for on the face or faces of the Warrant so surrendered
        by
        the Transferor. No such transfers shall result in a public distribution of
        the
        Warrant. 

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      8. Replacement
        of Warrant.
        Upon
        receipt of evidence reasonably satisfactory to the Company of the loss, theft,
        destruction or mutilation of this Warrant and, in the case of any such loss,
        theft or destruction of this Warrant by any Person other than the Holder,
        on
        delivery of an indemnity agreement reasonably satisfactory in form and amount
        to
        the Company or, in the case of any such mutilation, on surrender of this
        Warrant
        for cancellation, the Company at its sole expense, will execute and deliver,
        in
        lieu thereof, a new Warrant of like tenor and dated the date
        hereof.

       

      9. Registration
        Rights.
        The
        Holder of this Warrant has been granted certain registration rights by the
        Company. These registration rights are set forth in the Registration Rights
        Agreement dated as of October 14, 2008, (the “Registration
        Rights Agreement”),
        between the Company and Holder. The terms of the Registration Rights Agreement
        are incorporated herein by this reference.

       

      10. Restrictions
        on Transfer.
        The
        Holder of this Warrant, by acceptance thereof, agrees that, this Warrant
        and the
        Warrant Shares issuable upon the exercise hereof have not been registered
        under
        the Act, or any state securities laws. This Warrant and the Warrant Shares
        issuable upon exercise hereof, may not be sold, offered for sale, pledged,
        transferred, hypothecated or otherwise disposed of in the absence of an
        effective registration statement under or exemption from the Act and all
        applicable state securities laws. Such Holder agrees that, upon the failure
        of
        the Holder to comply with this Section
        10,
        the
        Company may issue instructions to its transfer agent to place, or may itself
        place, a “stop order” on transfers with respect to the Warrant and Warrant
        Shares. The certificates evidencing the Warrant and Warrant Shares which
        will be
        delivered to such Holder by the Company shall bear substantially the following
        legend:

       

      THE
        SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
        SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THE SECURITIES
        EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
        TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
        EFFECTIVE REGISTRATION STATEMENT UNDER OR EXEMPTION FROM SUCH ACT AND ALL
        APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
        SATISFACTORY TO SHUMATE INDUSTRIES, INC. THAT SUCH REGISTRATION IS NOT
        REQUIRED.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      Each
        Holder of this Warrant and the Warrant Shares, at the time all or a portion
        of
        such Warrant or Warrant Share is transferred or exercised, as applicable,
        agrees
        to make such written representations to the Company as counsel for the Company
        may reasonably request, in order that the Company may be reasonably satisfied
        that such transfer of the Warrant, exercise of the Warrant and consequent
        issuance of Warrant Shares, or transfer of the Warrant Shares, as applicable,
        will not violate the registration and prospectus delivery requirements of
        the
        Act, or other applicable state securities laws.

       

      11. Warrant
        Agent.
        The
        Company may, by written notice to the Holder of the Warrant, appoint an agent
        (a
“Warrant
        Agent”)
        for
        the purpose of issuing Common Stock (or Other Securities) on the exercise
        of
        this Warrant pursuant to Section
        1,
        exchanging this Warrant pursuant to Section
        7,
        and
        replacing this Warrant pursuant to Section
        8,
        or any
        of the foregoing, and thereafter any such issuance, exchange or replacement,
        as
        the case may be, shall be made at such office by such Warrant
        Agent.

       

      12. Transfer
        on the Company’s Books.
        Until
        this Warrant is transferred on the books of the Company, the Company may
        treat
        the registered holder hereof as the absolute owner hereof for all purposes,
        notwithstanding any notice to the contrary. The Company shall not close its
        books against the transfer of this Warrant or any Warrant Shares in any manner
        which interferes with the timely exercise of this Warrant in accordance with
        the
        express terms hereof.

       

      13. Governmental
        Filings and Approvals.
        The
        Company shall assist and cooperate with the Holder in making any required
        governmental filings or obtaining any required governmental approvals prior
        to
        or in connection with any exercise of this Warrant (including, without
        limitation, making any filings required to be made by the Company).

       

      14. Notices
        of Corporation Action.
        If, at
        any time prior to the Expiration Date of this Warrant and prior to its exercise
        in full, any one or more of the following events shall occur: (a) any taking
        by
        the Company of a record of the holders of any class of securities for the
        purpose of determining the holders thereof who are entitled to receive any
        dividend or other distribution, or any right to subscribe for, purchase or
        otherwise acquire any shares of Common Stock of the Company or any Other
        Securities or property, or to receive any other right; (b) any capital
        reorganization of the Company, any reclassification or recapitalization of
        the
        Common Stock of the Company, any consolidation or merger involving the Company
        and any other Person or any transfer of all or substantially all the assets
        of
        the Company to any other Person; (c) any voluntary or involuntary dissolution,
        liquidation or winding-up of the Company; or (d) any issuance of any additional
        shares of Common Stock (or Other Securities) other than Excepted Issuances,
        then
        in any such event, the Company will mail to each Holder a notice specifying
        (i)
        in respect of subsection (a) above, the date or expected date on which any
        such
        record is to be taken for the purpose of such dividend, distribution or right,
        and the amount and character of such dividend, distribution or right, (ii)
        in
        respect of subsection (b) or (c) above, the date or expected date on which
        any
        such reorganization, reclassification, recapitalization, consolidation, merger,
        transfer, dissolution, liquidation or winding-up is to take place, (iii)
        in
        respect of subsection (b) or (c) above, the date, if any such date is to
        be
        fixed, as of which the holders of record of shares of Common Stock (or Other
        Securities) shall be entitled to exchange their shares of Common Stock (or
        Other
        Securities) for the cash, capital stock or other property deliverable upon
        such
        reorganization, reclassification, recapitalization, consolidation, merger,
        transfer, dissolution, liquidation or winding-up and a description in reasonable
        detail of the transaction and (iv) in respect of subsection (d) above, the
        expected date of such issuance, together with a description of the Common
        Stock
        (or Other Securities) to be issued and the consideration to be received by
        the
        Company therefor. In respect of such notices described in clauses (i), (ii)
        and
        (iii) above, such notice shall be mailed at least thirty (30) days prior
        to the
        date therein specified; in respect of notices described in clause (iv) above,
        such notice shall be mailed as soon as is reasonably practicable under the
        attendant circumstances but in no event later than five (5) business days
        prior
        to the date therein specified.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      15. Notices.
        All
        notices, demands, requests, consents, approvals, and other communications
        required or permitted hereunder shall be in writing and, unless otherwise
        specified herein, shall be (i) personally served, (ii) deposited in the mail,
        registered or certified, return receipt requested, postage prepaid, (iii)
        delivered by reputable air courier service with charges prepaid, or (iv)
        transmitted by hand delivery or facsimile, addressed as set forth below or
        to
        such other address as such party shall have specified most recently by written
        notice. Any notice or other communication required or permitted to be given
        hereunder shall be deemed effective (a) upon hand delivery or delivery by
        facsimile, with accurate confirmation generated by the transmitting facsimile
        machine, at the address or number designated below (if delivered on a business
        day during normal business hours where such notice is to be received), or
        the
        first business day following such delivery (if delivered other than on a
        business day during normal business hours where such notice is to be received)
        or (b) on the second business day following the date of mailing by express
        courier service, fully prepaid, addressed to such address, or upon actual
        receipt of such mailing, whichever shall first occur. The addresses for such
        communications shall be: (i) if to the Company to: Shumate Industries, Inc.,
        1011 Beach Airport Road, Conroe, Texas 77301, Attn: President, CEO, telecopier
        number: (936) 539-2990, with a copy by telecopier only to: Indeglia &
Carney, telecopier number: (949) 851-5940, Attn: Marc A. Indeglia and (ii)
        if to
        the Holder, to: Intervale Capital, LLC, 2800
        Post
        Oak Boulevard, Suite 2000, Houston, Texas 77056,
        Attn:
        Curtis W. Huff, telecopier number: (713) 961-0361, with an additional copy
        by
        telecopier only to: Fulbright & Jaworski, L.L.P., telecopier number: (713)
        651-5246, Attn: Gene G. Lewis. The Holder and the Company agree to promptly
        advise the other parties hereto of any change of address from that so set
        forth.

       

      16. Miscellaneous.
        This
        Warrant and any term hereof may be changed, waived, discharged or terminated
        only by an instrument in writing signed by the party against which enforcement
        of such change, waiver, discharge or termination is sought. This Warrant
        shall
        be construed and enforced in accordance with and governed by the laws of
        the
        State of Texas. Any dispute relating to this Warrant shall be adjudicated
        in
        Harris County, Texas. The headings in this Warrant are for purposes of reference
        only and shall not limit or otherwise affect any of the terms hereof. The
        invalidity or unenforceability of any provision hereof shall in no way affect
        the validity or enforceability of any other provision.

       

      [Signature
        Page Follows]

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

         

      

      IN
        WITNESS WHEREOF, the Company has executed this Warrant as of the date first
        written above.

       

       

      
        	 	 SHUMATE INDUSTRIES,
                INC.
	 	 	 
	 	 By:
	 
	 	 Name: Matthew C.
                Flemming
	 	 Title: Chief Financial
                Officer
	 	 
	 	 
	
                WITNESS:

              	 
	 	 
	 	 


      

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      Exhibit
        A

       

      FORM
        OF
        SUBSCRIPTION

      (To
        be
        signed only on exercise of Warrant 

      pursuant
        to Section 1.2 or 1.3 of the Common Stock Purchase Warrant)

       

      


       

      TO:
        SHUMATE INDUSTRIES, INC.

       

      The
        undersigned, pursuant to the provisions set forth in the attached Warrant
        (No.____), hereby irrevocably elects to purchase ________ shares of the Common
        Stock covered by such Warrant (without giving effect to any adjustments
        thereof).

       

      The
        undersigned herewith makes payment of the full purchase price for such shares
        at
        the price per share provided for in such Warrant, which is $___________ in
        the
        aggregate. Such payment takes the form of (check applicable box or
        boxes):

       

      
        	
                [___]

              	
                $__________
                  in lawful money of the United States (including certified or official
                  bank
                  check).

              


      

       

      
        	[___]	
                Cancellation
                  of __________ Warrant Shares.

              


      

       

      The
        undersigned requests that the certificates for such shares be issued in the
        name
        of, and delivered to _____________________________________________________
        whose
        address is

       

      
        
          

        

         

          
            

          

           

        

      

      The
        undersigned represents and warrants that all offers and sales by the undersigned
        of the securities issuable upon exercise of the within Warrant shall be made
        pursuant to registration of the Common Stock under the Securities Act of
        1933,
        as amended (the “Securities
        Act”),
        or
        pursuant to an exemption from registration under the Securities
        Act.

       

      


      
        	Dated:
                	 	 	 
	 	 	 	(Signature must conform to name of
                holder as
                specified on the face of the Warrant)
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	(Address)


      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

         

      

      Exhibit
        B

       

      FORM
        OF
        CASHLESS EXERCISE SUBSCRIPTION

      (To
        be
        signed only on exercise of Warrant 

      pursuant
        to Section 1.8 of the Common Stock Purchase Warrant)

       

      


       

      TO:
        SHUMATE INDUSTRIES, INC.

       

      The
        undersigned, pursuant to the provisions set forth in the attached Warrant
        (No.____), hereby irrevocably elects to exercise the attached Warrant with
        respect to ________ shares of the Common Stock covered by such Warrant pursuant
        to Section 1.8 of the Common Stock Purchase Warrant, and makes payment therefore
        in full by surrender and delivery of this Warrant. The calculations supporting
        this exercise are attached hereto.

       

      The
        undersigned requests that the certificates for such shares be issued in the
        name
        of, and delivered to _____________________________________________________
        whose
        address is

       

        
          

        

      

       

        
          

        

         

      

      The
        undersigned represents and warrants that all offers and sales by the undersigned
        of the securities issuable upon exercise of the within Warrant shall be made
        pursuant to registration of the Common Stock under the Securities Act of
        1933,
        as amended (the “Securities
        Act”),
        or
        pursuant to an exemption from registration under the Securities
        Act.

       

      
        
          	Dated:
                  	 	 	 
	 	 	 	(Signature must conform to name
                  of holder as
                  specified on the face of the Warrant)
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	(Address)


        

      

       


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      


      Exhibit
        C

       

      FORM
        OF
        TRANSFEROR ENDORSEMENT

      (To
        be
        signed only on transfer of Warrant)

       

      


      For
        value
        received, the undersigned hereby sells, assigns, and transfers unto the
        person(s) named below under the heading “Transferee” the right represented by
        the within Warrant to purchase the number of shares of Common Stock of SHUMATE
        INDUSTRIES, INC. to which the within Warrant relates specified under the
        heading
“Number Transferred,” respectively, opposite the name(s) of such person(s) and
        appoints each such person Attorney to transfer its respective right on the
        books
        of SHUMATE INDUSTRIES, INC. with full power of substitution in the
        premises.

       

      
        	
                Transferee

              	 	
                Number
                  Transferred

              
	 	 	 
	 	 	 
	 	 	 
	 	 	 


      

      


      The
        undersigned transferor represents and warrants to SHUMATE INDUSTRIES, INC.
        that
        the transfer(s) contemplated herein are in compliance with applicable securities
        laws.

       

      
        
          	Dated:
                  	 	 	 
	 	 	 	(Signature must conform to name
                  of holder as
                  specified on the face of the Warrant)
	 	 	 	 
	Signed in the presence
                  of:	 	 
	 	 	 
	(Name)	 	 
	 	 	 	(Address)


        

      

       

      
        	
                ACCEPTED
                  AND AGREED:

                


                (TRANSFEREE)

              	 	 
	 	 	 
	 	 	 
	(Name)	 	 
	 	 	 	(Address)