Document:

NOTE
      PURCHASE AGREEMENT

    

    THIS
      NOTE PURCHASE AGREEMENT
      is made
      this 10th day of July, 2007 (the “Effective
      Date”)
      by and
      between Shumate Industries, Inc., a Delaware corporation (the “Company”),
      and
      Whitebox Shumate Ltd., a British Virgin Islands corporation (“WSL”).

    

    SECTION
      1. AGREEMENT
      TO SELL AND PURCHASE

    

    1.1. Sale
      and Purchase at the Closing.
      Subject
      to the terms and conditions of this Agreement, at the Closing, the Company
      hereby agrees to issue and sell to WSL, and WSL agrees to purchase from the
      Company, a promissory note in the form of Exhibit
      A
      (the
“Convertible
      Promissory Note”)
      for a
      purchase price of $2,000,000 and a warrant registered in WSL’s name (the
“Warrant”)
      pursuant to which WSL will have the right to acquire an aggregate 400,000 shares
      of the Company’s Common Stock, par value $.001 per share (the “Warrant
      Shares”).
      The
      Warrant will be in the form of Exhibit
      B
      and the
      purchase price for the Warrant will be $100.00. The Convertible Promissory
      Note
      will be convertible at the option of WSL into shares of the Company’s Common
      Stock (the “Conversion
      Shares”).

     

    1.2. Authorization
      of Transactions.
      On or
      prior to the closing of the transactions contemplated in this Agreement (the
      “Closing”),
      the
      Company shall have authorized the issuance and sale of the Convertible
      Promissory Note (including the Conversion Shares) and the Warrant (including
      the
      Warrant Shares underlying the Warrant).

    

    SECTION
      2. CLOSING,
      DELIVERY AND PAYMENT

    

    2.1. Closing.
      The
      Closing shall take place at 10:00 a.m. on the Effective Date at the offices
      of
      WSL’s legal counsel, Messerli & Kramer P.A., in Minneapolis, Minnesota, or
      at such other time or place as the Company and WSL may mutually agree (the
      “Closing
      Date”).
      At
      the Closing, subject to the terms and conditions of this Agreement, the Company
      and WSL will deliver the following documents and instruments:

    

    (a) Company’s
      Closing Deliveries.
      

    

    (i) The
      Company will issue, sell and deliver the Convertible Promissory Note and the
      Warrant to WSL. 

    

    (ii) The
      Company will execute and deliver to WSL the Registration Rights Agreement in
      the
      form of the attached Exhibit
      C (the
      “Registration
      Rights Agreement”).
      

    

    (iii) The
      Company will cause to be delivered the legal opinion of its counsel, in agreed
      upon form, as to those matters set forth in Section 5(d).

     

    
      
         

      

      
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    (iv) The
      Company will pay to Messerli & Kramer P.A., counsel to WSL, legal fees and
      expenses in the amount of $10,000 for representing WSL in connection with the
      transactions contemplated by this Agreement.

    

    (v) The
      Company will execute and/or deliver to WSL any other agreement or document
      as
      reasonably requested by WSL to consummate the transactions contemplated by
      this
      Agreement, including all third party consents required in connection with this
      Agreement.

    

    (b) WSL’s
      Closing Deliveries.

    

    (i) WSL
      will
      deliver $2,000,000 by certified check or wire transfer of immediately available
      funds as and for payment of the Convertible Promissory Note. 

    

    (ii) WSL
      will
      deliver $100.00 by certified check or wire transfer of immediately available
      funds as and for payment of the Warrant.

    

    (iii) WSL
      shall
      execute and deliver the Registration Rights Agreement.

    

    SECTION
      3. REPRESENTATIONS,
      WARRANTIES AND COVENANTS OF THE COMPANY

    

    The
      Company hereby makes the following representations, warranties and covenants
      to
      WSL as of the Closing Date:

    

    3.1. Organization,
      Good Standing and Qualification.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware. The Company’s only subsidiaries are (i)
      Shumate Machine Works, Inc., a Texas corporation and (ii) Hemiwedge Valve
      Corporation, a Texas corporation (each a “Subsidiary”
and,
      together, the “Subsidiaries”).
      The
      Company has all requisite corporate power and authority to own and operate
      its
      properties and assets, to execute and deliver this Agreement, the Convertible
      Promissory Note, the Warrant and the Registration Rights Agreement (together,
      the “Transaction
      Documents”),
      to
      issue and sell the Conversion Shares upon conversion of the Convertible
      Promissory Note and the Warrant Shares upon exercise of the Warrant, to carry
      out the provisions of the Transaction Documents and to carry on its business
      as
      presently conducted and as presently proposed to be conducted. The Company
      is
      duly qualified to do business and is in good standing in each jurisdiction
      in
      which the nature of its activities and of its properties (both owned and leased)
      makes such qualification necessary, except for those jurisdictions in which
      failure to be so qualified would not have a material
      adverse effect on the Company, or its business or properties, taken as a
      whole.

    

    3.2. Capitalization. The
      authorized capital stock of the Company consists of 50,000,000 shares of Common
      Stock, par value $0.001 per share, of which 20,283,045 shares are issued and
      outstanding as of the date hereof, and 10,000,000 shares of Preferred Stock,
      par
      value $0.001 per share, of which no shares are issued and outstanding as of
      the
      date hereof. As of the Closing Date, and except as disclosed on Schedule 3.2
      or
      in the annual, quarterly or periodic reports or information filed or furnished
      by the Company within the twelve (12) months prior to the Closing Date (the
      “Recent
      SEC Filings”)
      with
      the U.S. Securities and Exchange Commission (the “SEC”)
      pursuant to either the Securities Act of 1933, as amended (the “Securities
      Act”)
      or the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”),
      the
      Company has no outstanding options, warrants or other rights to acquire any
      capital stock, or securities convertible or exchangeable for capital stock
      or
      for securities themselves convertible or exchangeable for capital stock
      (together, “Convertible
      Securities”).
      As of
      the Closing Date, and except pursuant to the Convertible Promissory Note or
      the
      Warrant, as disclosed on Schedule 3.2 or in the Recent SEC Filings, the Company
      has no agreement or commitment to sell or issue any shares of capital stock
      or
      Convertible Securities. All issued and outstanding shares of the Company’s
      capital stock (i) have been duly authorized and validly issued, (ii) are fully
      paid and nonassessable, (iii) except as set forth in the Recent SEC Filings,
      are
      free from any preemptive and cumulative voting rights and (iv) were issued
      pursuant to valid registrations, qualifications or exemptions under federal
      and
      state securities laws. As of the Closing Date, and except as disclosed on
      Schedule 3.2 or in the Recent SEC Filings, there are no outstanding rights
      of
      first refusal or proxy or shareholder agreements of any kind relating to any
      of
      the Company’s securities to which the Company or any of its executive officers
      or directors is a party or as to which the Company otherwise has knowledge.
      The
      Conversion Shares and the Warrant Shares when and if issued, sold and delivered
      in accordance with the terms of the Convertible Promissory Note and the Warrant,
      will be validly issued, fully paid, nonassessable and free of any liens or
      encumbrances, other than restrictions on transfer under applicable federal
      and
      state securities laws.

     

    
      
         

      

      
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    3.3. Authorization;
      Binding Obligations. All
      corporate action on the part of the Company, its officers, directors and
      shareholders necessary for the authorization of the Transaction Documents and
      the performance of all obligations of the Company under this Agreement at the
      Closing, has been taken or will be taken prior to the Closing. The Transaction
      Documents, when executed and delivered, will be valid and binding obligations
      of
      the Company enforceable in accordance with their terms, except (i) as limited
      by
      applicable bankruptcy, insolvency, reorganization, moratorium or other laws
      of
      general application affecting enforcement of creditors’ rights generally,
      (ii) as limited by laws relating to the availability of specific
      performance, injunctive relief or other equitable remedies and (iii) to the
      extent that the enforceability of the indemnification provisions of the
      Registration Rights Agreement may be limited by applicable laws. The sale of
      the
      Convertible Promissory Note, (upon conversion of the Convertible Promissory
      Note) the Conversion Shares, the Warrant and (upon exercise of the Warrant)
      the
      Warrant Shares is not (and will not be) subject to any preemptive rights or
      rights of first refusal, except as set forth in the Recent SEC Filings (none
      of
      which third party rights will cause a reduction in the principal amount of
      the
      Convertible Promissory Note or the number of shares purchasable under the
      Warrant being acquired by WSL hereunder).

    

    3.4. Financial
      Statements.
      The
      Company’s unaudited consolidated balance sheet, and the consolidated statements
      of operations and cash flow as of and for the three months ended March 31,
      2007,
      and the audited consolidated balance sheet as of December 31, 2006 and the
      audited consolidated statements of operations, cash flows and changes in
      stockholders’ equity (deficit) of the Company for the years ended December 31,
      2006 and 2005 (all of the foregoing together, the “Financial
      Statements”),
      all
      as included within the Recent SEC Filings, fairly present in all material
      respects the consolidated financial condition, operating results, cash flows
      and
      changes in stockholders’ equity (deficit) of the Company as of the respective
      dates and for the respective periods covered thereby. The Financial Statements
      have been prepared in accordance with generally accepted accounting principles
      in the United States (“GAAP”)
      applied on a consistent basis (except as may be indicated in the notes thereto).
      For purposes hereof, “Latest
      Statement Date”
means
      March 31, 2007, and “Latest
      Financial Statements”
means
      the unaudited consolidated financial statements of the Company as of and for
      the
      three months ended March 31, 2007. Malone & Bailey, PC, the accounting firm
      that expressed an opinion with respect to the Company’s audited Financial
      Statements, is registered as a public accounting firm with the Public Company
      Accounting Oversight Board (the “PCAOB”),
      conducted its audit of the Company’s audited Financial Statements in accordance
      with PCAOB standards and is “independent” within the meaning of PCAOB standards
      and the rules and regulations of the SEC and OTC Bulletin Board.

     

    
      
         

      

      
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    3.5. Liabilities.
      The
      Company (i) has no material liabilities and (ii) to the best of its knowledge,
      has no material contingent liabilities, in each case not otherwise disclosed
      in
      the Latest Financial Statements, on Schedule 3.5 or in the Recent SEC Filings,
      except (A) current liabilities incurred in the ordinary course of business
      subsequent to the Latest Statement Date and (B) obligations under contracts
      and
      commitments incurred in the ordinary course of business and not required under
      GAAP or the rules and regulations of the SEC or the PCAOB to be reflected in
      the
      Latest Financial Statements, which, in both cases have not had, either in any
      individual case or in the aggregate, a material adverse effect on the Company,
      or its business or properties, taken as a whole.

    

    3.6. Certain
      Agreements and Actions. Except
      as
      disclosed in the Financial Statements, on Schedule 3.6 or in the Recent SEC
      Filings, the Company has not (i) declared or paid any dividends, or
      authorized or made any distribution upon or with respect to any class or series
      of its capital stock during the periods covered by the Financial Statements
      or
      since the Latest Statement Date, (ii) since the Latest Statement Date,
      except for the Convertible Promissory Note, incurred any indebtedness for money
      borrowed or any other material liabilities out of the ordinary course of
      business, (iii) except as set forth in Schedule 3.6 or in the Recent SEC
      Filings, made any loans or advances to any person, other than ordinary advances
      for travel or entertainment expenses or (iv) sold, exchanged or otherwise
      disposed of any of its assets or rights, other than in the ordinary course
      of
      business.

    

    3.7. Obligations
      of or to Related Parties.
      Except
      as disclosed on Schedule 3.7 or in the Recent SEC Filings, there are no
      obligations of the Company to officers, directors or key employees of the
      Company or, to the Company’s knowledge, to any members of their immediate
      families or other affiliates, other than (i) for accrued salaries,
      (ii) reimbursement for expenses reasonably incurred on behalf of the
      Company and (iii) for other employee benefits made generally available to
      all employees (including stock option agreements outstanding under any stock
      option plan approved by the Board of Directors of the Company). Except as
      disclosed on Schedule 3.7 or in the Recent SEC Filings, to the Company’s
      knowledge, none of the officers, directors or key employees of the Company
      or,
      to the Company’s knowledge, any members of their immediate families or other
      affiliates, are indebted to the Company or have any direct or indirect ownership
      interest in any firm, corporation or other entity with which the Company is
      affiliated or with which the Company has a business relationship, or any firm,
      corporation or other entity that competes with the Company, except that such
      officers, directors, employees and members of their immediate families may
      own
      securities (with beneficial ownership not exceeding 2%) in publicly-traded
      companies that compete with the Company. Except as disclosed on Schedule 3.7
      or
      in the Recent SEC Filings, no officer, director or key employee of the Company,
      or, to the Company’s knowledge, any member of their immediate families or other
      affiliates, is, directly or indirectly, interested in or a party to any material
      contract with the Company. Except as disclosed on Schedule 3.7, in the Financial
      Statements or in the Recent SEC Filings, the Company is not a guarantor or
      indemnitor of any indebtedness of any other person, firm or
      corporation.

     

    
      
         

      

      
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    3.8. Changes.
      Since
      the Latest Statement Date, and except as disclosed on Schedule 3.8 or in the
      Recent SEC Filings, there has not been, to the Company’s knowledge, any event or
      condition of any character that, either individually or cumulatively, has
      materially and adversely affected the business, assets, liabilities, financial
      condition, operations or prospects of the Company.

    

    3.9. Title
      to Properties and Assets; Liens. Except
      as
      set forth on Schedule 3.9 or in the Recent SEC Filings, the Company has good
      and
      marketable title to its properties and assets, including the properties and
      assets reflected in the Latest Financial Statements, in each case subject to
      no
      mortgage, pledge, lien, lease, encumbrance or charge, other than (i) those
      resulting from taxes that have not yet become delinquent, (ii)  liens and
      encumbrances that do not materially detract from the value of the property
      subject thereto or materially impair the operations of the Company and
      (iii) those that have otherwise arisen in the ordinary course of business.
      With respect to the property and assets it leases, the Company is in compliance
      with such leases in all material respects and, to the Company’s knowledge, holds
      a valid leasehold interest free of any liens, claims or encumbrances. All
      facilities, machinery, equipment, fixtures and other properties owned, leased
      or
      used by the Company which are reasonably necessary to the Company’s conduct of
      its business are in good operating condition and repair and are reasonably
      fit
      and usable for the purposes for which they are being used, reasonable wear
      and
      tear excepted.

    

    3.10. Patents
      and Trademarks.
      Schedule
      3.10 contains a listing of all U.S. and foreign patents and patent applications,
      and U.S. and foreign trademarks and service marks and applications therefor,
      owned by, assigned to or licensed to the Company. Except as set forth on
      Schedule 3.10 or in the Recent SEC Filings, the Company owns or has a valid
      right to use all patents, trademarks, service marks, trade names, copyrights,
      trade secrets, information and other proprietary rights and processes necessary
      for its business as now conducted and as proposed to be conducted, without
      any
      known infringement of the rights of others. None of the Company’s employees is
      obligated under any contract (including licenses, covenants or commitments
      of
      any nature) or other agreement, or subject to any judgment, decree or order
      of
      any court or administrative agency, that would interfere with their duties
      to
      the Company or that would conflict with the Company’s business as now conducted
      or proposed to be conducted. None of the execution or delivery of, or the
      performance of the transactions contemplated by, the Transaction Documents,
      the
      carrying on of the Company’s business by the employees of the Company nor the
      conduct of the Company’s business as currently conducted or proposed to be
      conducted will conflict with or result in a breach of the terms, conditions
      or
      provisions of, or constitute a default under, any contract, covenant or
      instrument under which any employee is now obligated. The Company does not
      require the use of any inventions, trade secrets or proprietary information
      of
      any of its employees made prior to their employment by the Company, except
      for
      inventions, trade secrets or proprietary information that have been exclusively
      assigned to the Company.

     

    
      
         

      

      
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    Except
      as
      set forth in Schedule 3.10, (i) each of the Company’s key employees have
      executed agreements of confidentiality and non-disclosure as to the Company’s
      confidential information, including its intellectual property and trade secrets,
      and (ii) each of the Company’s employees has agreed to assign to the Company
any
      and
      all significant conceptions and ideas for inventions, improvements and valuable
      discoveries, whether patentable or not, which are conceived or made by such
      employees, solely or jointly with another, during the period of employment,
      and
      which are directly related to the business or activities of the Company and
      which the employee conceives as a result of the employee’s employment by the
      Company (other than inventions for which no equipment, supplies, facility or
      trade secret information of the Company was used and which was developed
      entirely on the employee’s own time and (1) which do not relate (a) directly to
      the business of the Company or (b) to the Company’s actual or demonstrably
      anticipated research or development or (2) which do not result from any work
      performed by the employee for the Company).

    

    3.11. Compliance
      with Other Instruments.
      Except
      as disclosed on Schedule 3.11, the Company is not in violation or default of
      any
      term of its Certificate of Incorporation or Bylaws, or to its knowledge in
      any
      material respect of any mortgage, indenture, contract, agreement, instrument
      or
      contract to which it is party or by which it is bound or of any judgment,
      decree, order, writ or, to its knowledge, any statute, rule or regulation
      applicable to the Company that would materially and adversely affect the
      business, assets, liabilities, financial condition, operations or prospects
      of
      the Company. The execution and delivery of, and the performance of and
      compliance with the transactions contemplated by, the Transaction Documents,
      and
      the issuance and sale of the Convertible Promissory Note, upon conversion of
      the
      Convertible Promissory Note, the Conversion Shares, the Warrant and, upon
      exercise of the Warrant, the Warrant Shares, will not, with or without the
      passage of time or giving of notice, result in any such material violation,
      or
      be in conflict with or constitute a default under any such term, or result
      in
      the creation of any mortgage, pledge, lien, encumbrance or charge upon any
      of
      the properties or assets of the Company or the suspension, revocation,
      impairment, forfeiture or nonrenewal of any permit, license, authorization
      or
      approval applicable to the Company, its business or operations or any of its
      assets or properties, except for such results that would not materially and
      adversely affect the business, assets, liabilities, financial condition,
      operations or prospects of the Company. The Company is in compliance with all
      effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the
      rules and regulations thereunder, that are applicable to it, except where such
      noncompliance could not have or reasonably be expected to materially and
      adversely affect the business, assets, liabilities, financial condition,
      operations or prospects of the Company.

     

    
      
         

      

      
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    3.12. Litigation. There
      is
      no action, suit, proceeding or investigation pending or, to the Company’s
      knowledge, currently threatened against the Company that questions the validity
      of this Agreement or the other Transaction Documents or the right of the Company
      to enter into any of such agreements, or to consummate the transactions
      contemplated hereby or thereby. Except as disclosed in the Financial Statements,
      on Schedule 3.12 or in the Recent SEC Filings, there is no action, suit,
      proceeding or investigation or, to the Company’s knowledge, currently threatened
      against the Company that might result, either individually or in the aggregate,
      in any material adverse change in the assets, condition, affairs or prospects
      of
      the Company, financial or otherwise, or any change in the current equity
      ownership of the Company. The foregoing includes, without limitation, actions
      pending or threatened involving the prior employment of any of the employees
      of
      the Company, their use in connection with the Company’s business of any
      information or techniques allegedly proprietary to any of their former employers
      or their obligations under any agreements with prior employers. The Company
      is
      not a party or subject to the provisions of any order, writ, injunction,
      judgment or decree of any court or government agency or
      instrumentality.

    

    3.13. Tax
      Returns and Payments. The
      Company has filed all tax returns (federal, state and local) to its knowledge
      required to be filed by it. All taxes shown to be due and payable on such
      returns, any assessments imposed, and, to the Company’s knowledge, all other
      taxes due and payable by the Company on or before the Closing have been paid
      or
      will be paid prior to the time they become delinquent. The Company has not
      been
      advised (i) that any of its returns, federal, state or other, have been or
      are being audited as of the date hereof or (ii) of any deficiency in
      assessment or proposed judgment to its federal, state or other taxes. The
      Company has no knowledge of any liability of any tax to be imposed upon the
      properties or assets of the Company as of the date of this Agreement that is
      not
      adequately provided for.

    

    3.14. Employees.
      The
      Company has no collective bargaining agreements with any of its employees.
      The
      Company is not aware of any labor union organizing activity relating to its
      employees. Except as set forth on Schedule 3.14 or in the Recent SEC Filings,
      no
      employee has any agreement or contract, written or verbal, regarding his
      employment. Except as disclosed on Schedule 3.14 or in the Recent SEC Filings,
      the Company is not a party to or bound by any currently effective employment
      contract, deferred compensation arrangement, bonus plan, incentive plan, profit
      sharing or defined benefit plan, retirement agreement or other employee
      compensation plan or agreement. To the Company’s knowledge, no employee of the
      Company, nor any consultant with whom the Company has contracted, is in
      violation of any material term of any employment contract, proprietary
      information agreement or any other agreement relating to the right of any such
      individual to be employed by, or to contract with, the Company because of the
      nature of the business to be conducted by the Company; and, to the Company’s
      knowledge, the continued employment by the Company of its present employees,
      and
      the performance of the Company’s contracts with its independent contractors,
      will not result in any such violation. The Company has not received any written
      or oral notice alleging that any such violation has occurred. Except as
      disclosed on Schedule 3.14 or in the Recent SEC Filings, no employee of the
      Company has been granted the right to continued employment by the Company or
      to
      any material compensation following termination of employment with the Company.
      The Company is not aware that any officer or key employee, or that any group
      of
      key employees, intends to terminate their employment with the Company, nor
      does
      the Company have a present intention to terminate the employment of any officer,
      key employee or group of key employees.

     

    
      
         

      

      
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    3.15. Compliance
      with Laws; Permits. Except
      as
      disclosed on Schedule 3.15 or in the Recent SEC Filings, to its knowledge,
      the
      Company is not in violation of any applicable statute, rule, regulation, order
      or restriction of any domestic or foreign government or any instrumentality
      or
      agency thereof in respect of the conduct of its business or the ownership of
      its
      properties that would materially and adversely affect the business, assets,
      liabilities, financial condition, operations or prospects of the Company. No
      governmental orders, permissions, consents, approvals or authorizations are
      required to be obtained and no registrations or declarations are required to
      be
      filed in connection with the execution and delivery of, and the performance
      of
      the transactions contemplated by, the Transaction Documents or the sale and
      issuance of the Convertible Promissory Note, upon exercise of the Convertible
      Promissory Note, the Conversion Shares, the Warrant and, upon exercise of the
      Warrant, the Warrant Shares, except such as has been duly and validly obtained
      or filed, or with respect to any filings that must be made after the Closing,
      as
      will be filed in a timely manner. To its knowledge, the Company has all
      franchises, permits, licenses and any similar authority necessary for the
      conduct of its business as now being conducted by it, the lack of which could
      materially and adversely affect the business, properties, prospects or financial
      condition of the Company and the Company believes it can obtain any similar
      authority for the conduct of its business as now conducted or planned to be
      conducted.

    

    3.16. Environmental
      and Safety Laws.
      The
      Company is not in violation of any applicable statute, law or regulation
      relating to the environment or occupational health and safety, where such
      violation would have a material adverse effect on the Company, and to the
      Company’s knowledge, no material expenditures are or will be required in order
      to comply with any such existing statute, law or regulation. Without limiting
      the foregoing:

    

    
      	 	
              (i)

            	
              with
                respect to any real
                property owned, leased or otherwise utilized by the Company (“Real
                Property”),
                the Company is not or has not in the past been in violation of any
                Hazardous Substance Law which violation could reasonably be expected
                to
                result in a material liability to the Company or its properties and
                assets;

            

    

    

    
      	 	
              (ii)

            	
              neither
                the Company nor, to the knowledge of the Company, any third party
                has
                used, released, generated, manufactured, produced or stored, in,
                on,
                under, or about any Real Property, or transported thereto or therefrom,
                any Hazardous Substances that could reasonably be expected to result
                in a
                material liability to the Company under any Hazardous Substance
                Law;

            

    

     

    
      
         

      

      
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              (iii)

            	
              to
                the knowledge of the Company, there are no underground tanks, whether
                operative or temporarily or permanently closed, located on any Real
                Property that could reasonably be expected to result in a material
                liability to the Company under any Hazardous Substance
                Law;

            

    

    

    
      	 	
              (iv)

            	
              there
                are no Hazardous Substances used, stored or present at, or on, or
                to the
                knowledge of the Company that could reasonably be expected to migrate
                onto
                any Real Property, except in compliance with Hazardous Substance
                Laws;
                and

            

    

    

    
      	 	
              (v)

            	
              to
                the knowledge of the Company, there neither is nor has been any condition,
                circumstance,
                action, activity or event that could reasonably be expected to be
                a
                material violation by the Company of any Hazardous Substance Law,
                or to
                result in liability to the Company under any Hazardous Substance
                Law.

            

    

    

    For
      purposes hereof, “Hazardous
      Substances”
      means
      (statutory acronyms and abbreviations having the meaning given them in the
      definition below of “Hazardous
      Substances Laws”)
      substances defined as “hazardous substances,” “pollutants” or “contaminants” in
      Section 101 of the CERCLA; those substances defined as “hazardous waste,”
“hazardous materials” or “regulated substances” by the RCRA; those substances
      designated as a “hazardous substance” pursuant to Section 311 of the CWA;
      those substances defined as “hazardous materials” in Section 103 of the
      HMTA; those substances regulated as a hazardous chemical substance or mixture
      or
      as an imminently hazardous chemical substance or mixture pursuant to
      Sections 6 or 7 of the TSCA; those substances defined as “contaminants” by
      Section 1401 of the SDWA, if present in excess of permissible levels; those
      substances regulated by the Oil Pollution Act; those substances defined as
      a
      pesticide pursuant to Section 2(u) of the FIFRA; those substances defined
      as a source, special nuclear or by-product material by Section 11 of the
      AEA; those substances defined as “residual radioactive material” by
      Section 101 of the UMTRCA; those substances defined as “toxic materials” or
“harmful physical agents” pursuant to Section 6 of the OSHA; those
      substances defined as hazardous wastes in 40 C.F.R. Part 261.3; those
      substances defined as hazardous waste constituents in 40 C.F.R.
      Part 260.10, specifically including Appendix VII and VIII of Subpart D of
      40 C.F.R. Part 261; those substances designated as hazardous substances in
      40 C.F.R. Parts 116.4 and 302.4; those substances defined as hazardous
      substances or hazardous materials in 49 C.F.R. Part 171.8; those substances
      regulated as hazardous materials, hazardous substances, or toxic substances
      in
      40 C.F.R. Part 1910; any chemical, material, toxin, pollutant, or waste
      regulated by or in any other Hazardous Substances Laws; and in the regulations
      adopted and publications promulgated pursuant to said laws, whether or not
      such
      regulations or publications are specifically referenced herein.

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    “Hazardous
      Substances Law”
      means
      any of:

    

    
      	
            	(i)	
              the
                Comprehensive Environmental Response, Compensation, and Liability
                Act
                of 1980,
                as amended (42 U.S.C. Section 9601 et
                seq.)
                (“CERCLA”);

            

    

    

    
      	
            	(ii)	
              the
                Federal Water Pollution Control Act (33 U.S.C. Section 1251
                et
                seq.)
                (“Clean Water
                Act”
                or
                “CWA”);

            

    

    

    
      	 	
              (iii)

            	
              the
                Resource Conservation and Recovery Act (42 U.S.C. Section 6901
                et
                seq.)
                (“RCRA”);

            

    

    

    
      	
            	(iv)	
              the
                Atomic Energy Act of 1954 (42 U.S.C. Section 2011 et
                seq.)
                (“AEA”);

            

    

    

    
      	
            	(v)	
              the
                Clean Air Act (42 U.S.C. Section 7401 et
                seq.)
                (“CAA”);

            

    

    

    
      	 	
              (vi)

            	
              the
                Emergency Planning and Community Right to Know Act (42 U.S.C.
                Section 11001 et
                seq.)
                (“EPCRA”);

            

    

    

    
      	 	
              (vii)

            	
              the
                Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
                Section 136 et
                seq.)
                (“FIFRA”);

            

    

    

    
      	
            	(viii)	
              the
                Oil Pollution Act of 1990 (33 U.S.C.A. Section 2701 et
                seq.);

            

    

    

    
      	
            	(ix)	
              the
                Safe Drinking Water Act (42 U.S.C. Sections 300f et
                seq.)
                (“SDWA”);

            

    

    

    
      	 	
              (x)

            	
              the
                Surface Mining Control and Reclamation Act of 1974 (30 U.S.C.
                Sections 1201 et
                seq.)
                (“SMCRA”);

            

    

    

    
      	
            	(xi)	
              the
                Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.)
                (“TSCA”);

            

    

    

    
      	 	
              (xii)

            	
              the
                Hazardous Materials Transportation Act (49 U.S.C. Section 5101
                et
                seq.)
                (“HMTA”);
                

            

    

    

    
      	 	
              (xiii)

            	
              the
                Uranium Mill Tailings Radiation Control Act of 1978 (42 U.S.C.
                Section 7901 et seq.) (“UMTRCA”);

            

    

    

    
      	 	
              (xiv)

            	
              the
                Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.)
                (“OSHA”);
                and

            

    

    

    
      	 	
              (xv)

            	
              all
                other federal, state and local governmental rules which govern Hazardous
                Substances, and the regulations adopted and publications promulgated
                pursuant to all such foregoing
                laws.

            

    

    

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

       

    

    3.17. Offering
      Valid.
      Assuming
      the accuracy of the representations and warranties of WSL contained in Section
      4, the offer, sale and issuance of the Convertible Promissory Note, upon
      conversion of the Convertible Promissory Note, the Conversion Shares, the
      Warrant and, upon exercise of the Warrant, the Warrant Shares will be exempt
      from the registration requirements of the Securities Act, and will have been
      registered or qualified (or are exempt from registration and qualification)
      under the registration, permit or qualification requirements of the State of
      Minnesota.

    

    3.18. Full
      Disclosure.
      None of
      the Transaction Documents contains any untrue statement of a material fact
      nor,
      to the Company’s knowledge and belief, omits to state a material fact necessary
      in order to make the statements contained herein or therein not
      misleading.

    

    3.19. Insurance.
      The
      Company has fire and casualty insurance policies with coverage customary for
      companies similarly situated to the Company.

    

    3.20. Foreign
      Corrupt Practices. Neither
      the Company, nor to the knowledge of the Company, any agent or other person
      acting on behalf of the Company, has (i) directly or indirectly, used any
      corrupt funds for unlawful contributions, gifts, entertainment or other unlawful
      expenses related to foreign or domestic political activity, (ii) made any
      unlawful payment to foreign or domestic government officials or employees or
      to
      any foreign or domestic political parties or campaigns from corporate funds,
      (iii) failed to disclose fully any contribution made by the Company (or made
      by
      any person acting on its behalf of which the Company is aware) which is in
      violation of law, or (iv) violated in any material respect any provision of
      the
      Foreign Corrupt Practices Act of 1977, as amended.

    

    3.21. Brokers
      or Finders.
      Except
      as set forth in Schedule 3.21, the Company has not incurred nor will incur,
      directly or indirectly, any liability for any brokerage or finders’ fees or
      agent’s commissions or any similar charges (whether payable in cash, in equity
      securities or by a combination thereof) in connection with this Agreement or
      any
      transaction contemplated hereby.

    

    3.22 SEC
      Reports. Except
      as
      set forth in Schedule 3.22, the Company has filed or furnished all reports,
      forms or other information required to be filed or furnished by it under the
      Securities Act and the Exchange Act for the twelve months preceding the date
      hereof or such shorter period as the Company has been required by law to file
      or
      furnish such reports, forms or other information (the foregoing materials being
      collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has timely filed a valid extension of such time of filing or
      furnishing and has filed or furnished any such SEC Reports prior to the
      expiration of any such extension. As of their respective dates, the SEC Reports
      complied in all material respects with the requirements of the Securities Act
      and the Exchange Act and the rules and regulations of the SEC promulgated
      thereunder, and none of the SEC Reports, when filed, contained any untrue
      statement of a material fact or omitted to state a material fact required to
      be
      stated therein or necessary in order to make the statements therein, in light
      of
      the circumstances under which they were made not misleading.

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

    

    3.23 Investment
      Company Act.
      The
      Company is not, and will not use the net proceeds from the sale of the
      Convertible Promissory Note, the Warrant and, upon exercise of the Warrant,
      the
      Warrant Shares in a manner so as to become, an “investment company,” or a
      company “controlled” by an “investment company,” within the meaning of the
      Investment Company Act of 1940, as amended.

    

    3.24 No
      Manipulation of Stock.
      Neither
      the Company, nor any of its directors, officers or controlling persons, has
      taken or will, in violation of applicable law, take, any action designed to
      or
      that might reasonably be expected to cause or result in, or which has
      constituted, stabilization or manipulation of the price of the Company’s Common
      Stock to facilitate the sale or resale of the securities issued or issuable
      in
      connection with the transactions contemplated under this Agreement.

    

    3.25 Registration
      Rights.
      Except
      as disclosed on Schedule 3.25 or in the Recent SEC Filings, or as required
      pursuant to the Registration Rights Agreement, the Company is presently not
      under any obligation, and has not granted any rights, to register (as defined
      in
      the Registration Rights Agreement) any of the Company’s presently outstanding
      securities or any of its securities that may hereafter be issued.

    

    3.26 Press
      Releases.
      The
      press releases disseminated by the Company during the twelve months preceding
      the date of this Agreement do not individually or taken as a whole contain
      any
      untrue statement of a material fact or omit to state a material fact required
      to
      be stated therein or necessary in order to make the statements therein, in
      light
      of the circumstances under which they were made and when made, not
      misleading.

    

    3.27 Material
      Changes.
      Since
      the date of the Latest Financial Statements, except as specifically disclosed
      in
      the Recent SEC Filings, (i) there has been no event, occurrence or development
      that has had or that could reasonably be expected to result in a material and
      adverse effect on the results of operations, assets, prospects, business or
      condition (financial or otherwise) of the Company and the Subsidiaries, taken
      as
      a whole, (ii) the Company has altered its method of accounting or the identity
      of its auditors and (iv) the Company has not declared or made any dividend
      or
      distribution of cash or other property to its shareholders or purchased,
      redeemed or made any agreements to purchase or redeem any shares of its capital
      stock. The Company does not have pending before the SEC any request for
      confidential treatment of information.

     

    3.28 Listing
      and Maintenance Requirements.
      Except
      as specified in the Recent SEC Filings, the Company has not, in the two years
      preceding the date hereof, received notice from any Trading Market to the effect
      that the Company is not in compliance with the listing or maintenance
      requirements thereof. The Company is in compliance with the listing and
      maintenance requirements for continued listing of the Common Stock on the
      Trading Market on which the Common Stock is currently listed or quoted. The
      issuance and sale of the Convertible Promissory Note, upon conversion of the
      Convertible Promissory Note, the Conversion Shares, the Warrant and, upon
      exercise of the Warrant, the Warrant Shares under the Transaction Documents
      does
      not contravene the rules and regulations of the Trading Market on which the
      Common Stock is currently listed or quoted, and no approval of the shareholders
      of the Company thereunder is required for the Company to issue and deliver
      to
      WSL the securities contemplated by the Transaction Documents. A “Trading
      Market”
is
      the
      New York Stock Exchange, the American Stock Exchange, the NASDAQ National
      Market, the NASDAQ SmallCap Market or OTC Bulletin Board. 

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

     

    SECTION
      4. REPRESENTATIONS
      AND WARRANTIES OF WSL

    

    WSL
      hereby represents and warrants to the Company as of the Closing Date, and
      agrees, as follows: 

    

    4.1. Authorization.
      WSL
      has
      full power and authority to enter into this Agreement and each of the
      Transaction Documents, and each such agreement, when executed and delivered
      by
      WSL, will constitute the valid and binding obligation of WSL enforceable in
      accordance with its terms, except (i) as limited by applicable bankruptcy,
      insolvency, reorganization, moratorium or other laws of general application
      affecting enforcement of creditors’ rights generally and (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other
      equitable remedies.

    

    4.2. Investment
      Representations.
      WSL
      understands that neither the offer nor the sale of the Convertible Promissory
      Note, upon conversion of the Convertible Promissory Note, the Conversion Shares,
      the Warrant or, upon exercise of the Warrant, the Warrant Shares has been,
      or
      will not be, registered under the Securities Act (except as required by the
      Registration Rights Agreement). WSL also understands that the Convertible
      Promissory Note, upon conversion of the Convertible Promissory Note, the
      Conversion Shares, the Warrant and, upon exercise of the Warrant, the Warrant
      Shares are being offered and sold pursuant to an exemption from registration
      contained in the Securities Act based in part upon WSL’s representations
      contained in the Agreement. WSL hereby represents and warrants as
      follows:

    

    (a) WSL
      Bears Economic Risk. WSL
      has
      substantial experience in evaluating and investing in private placement
      transactions of securities in companies similar to the Company so that it is
      capable of evaluating the merits and risks of its investment in the Company
      and
      has the capacity to protect its own interests. WSL must bear the economic risk
      of this investment indefinitely unless the Convertible Promissory Note, upon
      conversion of the Convertible Promissory Note, the Conversion Shares, the
      Warrant and, upon exercise of the Warrant, the Warrant Shares are registered
      pursuant to the Securities Act, or an exemption from registration is available.
      Pending the availability of registration under the Registration Rights
      Agreement, WSL has no present intention of selling or otherwise transferring
      the
      Convertible Promissory Note, upon conversion of the Convertible Promissory
      Note,
      the Conversion Shares, the Warrant or, upon exercise of the Warrant, the Warrant
      Shares, or any interest therein. The WSL also understands that there is no
      assurance that any exemption from registration under the Securities Act will
      be
      available and that, even if available, such exemption may not allow WSL to
      transfer all or any portion of the Convertible Promissory Note, upon conversion
      of the Convertible Promissory Note, the Conversion Shares, the Warrant or,
      upon
      exercise of the Warrant, the Warrant Shares under the circumstances, in the
      amounts or at the times WSL might propose.

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    

    (b) Acquisition
      for Own Account.
      WSL is
      acquiring, or will acquire, the Convertible Promissory Note, upon conversion
      of
      the Convertible Promissory Note, the Conversion Shares, the Warrant and, upon
      exercise of the Warrant, the Warrant Shares for its own account for investment
      only, and not with a view towards their public distribution.

    

    (c) WSL
      Can Protect Its Interest.
      WSL
      represents that by reason of its, or of its management’s, business or financial
      experience, WSL has the capacity to protect its own interests in connection
      with
      the transactions contemplated in this Agreement. Further, WSL is aware of no
      publication of any advertisement in connection with the transactions
      contemplated in the Agreement.

    

    (d) Accredited
      Investor.
      WSL
      represents that it is an accredited investor within the meaning of Rule 501
      of
      Regulation D of the Securities Act.

    

    (e) Residence.
      WSL
      represents that it is organized under the laws of the British Virgin Islands
      and
      that its principal place of business is located in the State of
      Minnesota.

    

    SECTION
      5. CONDITIONS FOR CLOSING

    

    5.1. Conditions
      for the Company to Satisfy for the Closing.
      The
      obligation
      of WSL to purchase the Convertible Promissory Note and Warrant as contemplated
      by this Agreement is subject to satisfaction of the following contingencies
      at
      or prior to the Closing:

    

    (a) The
      Company
      shall have obtained all third party consents required in connection with this
      Agreement.

    

    (b) The
      Company shall have delivered the agreements, documents and instruments and
      paid
      the fees described in Section 2.1(a) of this Agreement.

    

    (c) The
      Company shall have performed and complied with all agreements, obligations
      and
      conditions contained in this Agreement that are required to be performed or
      complied with by it on or before the Closing.

    

    (d) Spectrum
      Law Group, LLP, legal counsel to the Company, shall have delivered an opinion
      to
      WSL with respect to the following matters (which opinion may contain customary
      exclusions and limitations that are reasonably acceptable to counsel for
      WSL):

    

    
      	 	
              (i)

            	
              The
                Company is a corporation duly incorporated, validly existing and
                in good
                standing under the laws of the State of Delaware. Each Subsidiary
                is a
                corporation duly incorporated, validly existing and in good standing
                under
                the laws of the State of Texas. The Company and each Subsidiary has
                all
                corporate power and authority necessary to own its properties and
                to
                conduct its business as, to such counsel’s knowledge, it is presently
                conducted.

            

    

     

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

     

    
      	 	
              (ii)

            	
              The
                Company has the requisite corporate power and authority to execute,
                deliver and perform its obligations under the Transaction
                Documents.

            

    

     

    
      	 	
              (iii)

            	
              The
                Transaction Documents have been duly authorized by all necessary
                corporate
                action on the part of the Company.

            

    

     

    
      	 	
              (iv)

            	
              The
                authorized capital stock of the Company consists of 50,000,000 shares
                of
                Common Stock, par value $0.001 per share, of which 20,283,045 shares
                are
                outstanding, and 10,000,000 shares of Preferred Stock, par value
                $0.001,
                of which no shares are outstanding.

            

    

     

    
      	 	
              (v)

            	
              Each
                of the Transaction Documents, when executed and delivered by the
                Company,
                will constitute valid and binding obligations of the Company, enforceable
                against the Company in accordance with their
                terms.

            

    

     

    
      	 	
              (vi)

            	
              The
                Conversion Shares and the Warrant Shares have been duly authorized,
                and
                when issued in accordance with the terms of the Convertible Promissory
                Note or Warrant, as applicable, will be validly issued, fully paid
                and
                nonassessable. 

            

    

     

    
      	 	
              (vii)

            	
              The
                execution and delivery of the Transaction Documents by the Company
                will
                not result in (i) a violation of the Company’s Certificate of
                Incorporation or Bylaws or (ii)  a violation of any judgment or
                order known to such counsel.

            

    

     

    SECTION
      6. OTHER AGREEMENTS

     

    For
      so
      long as any amount is outstanding under the Convertible Promissory Note or
      WSL
      beneficially owns any portion of the Warrant or the Warrant Shares, the Company
      covenants and agrees to the following (as to which the failure to comply with
      any provision shall constitute a material event of default under this
      Agreement):

     

    6.1 Internal
      Accounting Controls.
      The
      Company shall maintain a system of internal accounting controls sufficient
      to
      provide reasonable assurance that (i) transactions are executed in accordance
      with management’s general or specific authorizations, (ii) transactions are
      recorded as necessary to permit preparation of financial statements in
      conformity with GAAP and to maintain asset accountability, (iii) access to
      assets is permitted only in accordance with management’s general or specific
      authorization, and (iv) the recorded accountability for assets is compared
      with
      the existing assets at reasonable intervals and appropriate action is taken
      with
      respect to any differences. 

     

    6.2. SEC
      Reporting.
      The
      Company shall (a) timely file (or obtain extensions in respect thereof and
      file
      within the applicable grace period) all reports and other information required
      to be filed or furnished by the Company pursuant to the Exchange Act; (b)
      maintain disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) that are designed to ensure that material information
      relating to the Company is made known to the certifying officers by others
      within the Company, particularly during the period in which the Company’s Form
      10-KSB or Form 10-QSB, as the case may be, is being prepared and (c) when and
      to
      the extent required by SEC and PCAOB rules and regulations, maintain internal
      control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
      and
      15d-15(f)).

     

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

     

    SECTION
      7. MISCELLANEOUS

     

    7.1. Governing
      Law.
      This
      Agreement shall be governed by the internal laws of the State of Minnesota
      as
      such laws are applied to agreements between Minnesota residents entered into
      and
      performed entirely in Minnesota.

    

    7.2. Survival.
      The
      representations, warranties, covenants and agreements made in this Agreement
      shall survive any investigation made by the parties and the closing of the
      transactions contemplated hereby. All statements as to factual matters contained
      in any certificate or other instrument delivered by or on behalf of the Company
      pursuant hereto in connection with the transactions contemplated hereby shall
      be
      deemed to be representations and warranties by the Company hereunder solely
      as
      of the date of such certificate or instrument.

    

    7.3. Successors
      and Assigns.
      Except
      as otherwise expressly provided herein, the provisions hereof shall inure to
      the
      benefit of, and be binding upon, the successors, assigns, heirs, executors
      and
      administrators of the parties hereto and shall inure to the benefit of and
      be
      enforceable by each person who shall be a holder of the Convertible Promissory
      Note, the Warrant and, upon exercise of the Warrant, the Warrant Shares from
      time to time.

    

    7.4. Entire
      Agreement.
      The
      Transaction Documents and the other documents delivered pursuant hereto
      constitute the full and entire understanding and agreement between the parties
      with regard to the subjects hereof and no party shall be liable or bound to
      any
      other in any manner by any representations, warranties, covenants and agreements
      except as specifically set forth herein and therein.

    

    7.5. Severability.
      In case
      any provision of the Agreement shall be invalid, illegal or unenforceable,
      the
      validity, legality and enforceability of the remaining provisions shall not
      in
      any way be affected or impaired thereby.

    

    7.6. Amendment
      and Waiver.
      This
      Agreement may be amended or modified, and any provision hereunder may be waived,
      only upon the written consent of the Company and WSL.

    

    7.7. Notices.
      All
      notices, requests, consents, and other communications hereunder shall be in
      writing and shall be deemed effectively given and received when delivered in
      person or by national overnight courier service or by certified or registered
      mail, return receipt requested, or by telecopier, addressed as
      follows:

    

    
      	
            	(a)	
              if
                to the Company, at

               

              
                Shumate
                  Industries, Inc.

                12060
                  FM 3083

                Conroe,
                  Texas 77301

                Attention:
                  Matthew C. Flemming, Chief Financial Officer

                Facsimile:
                  (936) 539-9396

              

            

    

     

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

     

    
      	 	 	
              with
                a copy to:

              

              Spectrum
                Law Group, LLP

              1900
                Main Street, Suite 125

              Irvine,
                California 92614

              Attention:
                Marc A. Indeglia, Esq.

              Facsimile:
                (949) 851-5940

            

    

     

    
      	
            	(b)	
              if
                to WSL, at

               

              
                Whitebox
                  Advisors, LLC

                3033
                  Excelsior Boulevard, Suite 300

                Minneapolis,
                  Minnesota 55416

                Attention:
                  Jonathan Wood, Chief Financial Officer

                Facsimile:
                  (612) 253-6151

                

                with
                  a copy to:

                

                Messerli
                  & Kramer P.A.

                150
                  South Fifth Street, Suite 1800

                Minneapolis,
                  Minnesota 55402

                Attention:
                  Jeffrey C. Robbins, Esq.

                Facsimile:
                  (612) 672-3777

              

            

    

     

    7.8. Indemnification
      by the Company.
      The
      Company agrees to indemnify and hold WSL, its affiliates and the directors,
      officers, managers, employees and agents of each of the foregoing (each, a
      “Whitebox
      Party”)
      harmless against any and all claims, losses, liabilities, obligations, damages,
      judgments, costs or expenses (including reasonable legal fees and costs) that
      any such Whitebox Party may suffer, sustain or become subject to as a result
      of,
      or in connection with, or in any way related to or by reason of (a) any
      misrepresentation, breach or inaccuracy of any representation, warranty,
      covenant or agreement made by the Company in any of the Transaction Documents;
      or (b) the execution, delivery or performance of any of the Transaction
      Documents or any transaction contemplated by any of the Transaction
      Documents.

     

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

    

    7.9. Expenses.
      The
      Company agrees to pay or reimburse WSL for its reasonable legal fees and
      expenses that it may incur after the date hereof in connection with the granting
      of any waiver with respect to, the modification of any of the terms or
      provisions of, or the enforcement of any of the Transaction
      Documents.

    

    7.10. Titles
      and Subtitles.
      The
      titles of the sections and subsections of the Agreement are for convenience
      of
      reference only and are not to be considered in construing this
      Agreement.

     

    7.11. Counterparts.
      This
      Agreement may be delivered via facsimile or other means of electronic
      communication, and may be executed in counterparts, each of which shall be
      an
      original, but all of which together shall constitute one
      instrument.

    

    IN
      WITNESS WHEREOF,
      the
      undersigned have hereunto affixed their signatures.

    
      	 	 	 	 
	Whitebox
              Shumate Ltd.	 	 	Shumate
              Industries, Inc.
	 	 	 	 
	 	 	 	 
	By	 	 	By
	
              
                
Jonathan
                Wood,

            	 	 	
              
                
Matthew
                C. Flemming,

            
	
              Chief
                Financial
                Officer

            	 	 	
              Chief
                Financial
                Officer

            

    

    

    
      
         

      

      
        -18-REGISTRATION
      RIGHTS AGREEMENT

     

    THIS
      REGISTRATION RIGHTS AGREEMENT
      (the
“Agreement”)
      is
      entered into as of July 10, 2007, by and among Shumate
      Industries, Inc.,
      a
      Delaware corporation (the “Company”),
      and
Whitebox
      Shumate Ltd.,
      a
      British Virgin Islands corporation (“WSL”
or
      the
“Investor”).

     

    RECITALS
      :

     

    A. The
      Company
      and the
      Investor
      have
      entered into a Note Purchase Agreement of this date (the “Note
      Purchase Agreement”),
      pursuant to which the Investor purchased a $2,000,000 face amount convertible
      promissory note (the “Note”)
      in
      consideration of a $2,000,000 loan and a warrant to purchase shares of the
      Company’s Common Stock (the “Warrant”)
      from
      the Company in consideration of $100.00.

     

    B. As
      a
      condition to the Note Purchase Agreement, the Company has agreed to grant
      certain registration rights with respect to the shares of the Company’s Common
      Stock (or other securities) issuable upon conversion of the Note and/or exercise
      of the Warrant pursuant to the terms of this Agreement.

     

    C. The
      execution of this Agreement is a condition precedent to WSL’s performance
      obligations under the Note Purchase Agreement.

     

    NOW,
      THEREFORE,
      in
      consideration of the foregoing and of the mutual promises and covenants
      contained in this Agreement, and for other good and valuable consideration,
      the
      receipt and sufficiency of which are hereby acknowledged, the parties, intending
      to be legally bound, hereby agree as follows:

     

    ARTICLE
      1.

    DEFINITIONS

     

    As
      used
      in this Agreement, the following terms shall have the following respective
      meanings:

     

    1.1  “Commission”
      shall
      mean the U.S. Securities and Exchange Commission or any other successor federal
      agency at the time administering the Securities Act.

     

    1.2  “Common
      Stock”
      shall
      mean the Company’s common stock, $0.001 par value per share.

     

    1.3  “Exchange
      Act”
      shall
      mean the Securities and Exchange Act of 1934, as amended, or any similar federal
      statute and the rules and regulations of the Commission thereunder, all as
      the
      same shall be in effect at the time.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.4  “Holders”
      shall
      mean and include the Investor and any transferee thereof to whom the
      registration rights conferred by this Agreement have been transferred in
      accordance with Article 10 hereof.

     

    1.5  “Register,” “registered”
      and
“registration”
      refer to
      a registration effected by preparing and filing with the Commission a
      registration statement in compliance with the Securities Act, and the
      declaration or ordering by the Commission of the effectiveness of such
      registration statement.

     

    1.6  “Registrable
      Securities”
      means:
(i)
      all
      shares of Common Stock issuable upon exercise of the Warrant; (ii) all shares
      of
      Common Stock issuable upon conversion of the Note; and
      (iii)
      any and all shares of Common Stock or other securities issuable upon any stock
      split, stock dividend, recapitalization, reclassification, merger, consolidation
      or other similar event with respect to the Common Stock or other securities
      issued or issuable pursuant to subsections (i) and (ii) of this Section 1.6;
      excluding in all cases, however, Registrable Securities sold by a Holder to
      the
      public pursuant to a registered offering or pursuant to Rule 144 promulgated
      by
      the Commission under the Securities Act or sold in a private transaction in
      which the Holder’s registration rights under this Agreement are not
      assigned.

     

    1.7  “Registration
      Expenses”
      shall
      mean all
      expenses incurred by the Company in complying with Articles 2, 3 and 4 hereof,
      including, without limitation, all registration, qualification and Commission,
      National Association of Securities Dealers, Inc., stock exchange and other
      filing fees, printing expenses, escrow fees, fees and disbursements of legal
      counsel for the Company, fees and disbursements of any special counsel engaged
      by the Holders, blue sky fees and expenses, and the expense of any special
      audits incident to or required by any such registration (but excluding the
      compensation of regular employees of the Company, which shall be paid in any
      event by the Company).

     

    1.8  “Securities
      Act”
      shall
      mean the Securities Act of 1933, as amended, or any similar federal statute
      and
      the rules and regulations of the Commission thereunder, all as the same shall
      be
      in effect at the time.

     

    1.9  “Selling
      Expenses”
      shall
      mean all underwriting fees, discounts, selling commissions and stock transfer
      taxes applicable to the Registrable Securities registered by the
      Holders.

     

    1.10  “Underwriter”
      shall
      mean (whether or not the term is capitalized) a broker-dealer engaged by the
      Company to distribute Registrable Securities as principal or agent.

     

    1.11  “Underwriting” or
      “Underwritten”
      shall
      mean (whether or not the term is capitalized) a method of publicly distributing
      securities through an Underwriter.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    ARTICLE
      2.

    COMPANY
      REGISTRATION

     

    2.1  Notice
      of Registration to Holder.
      If the
      Company determines to register any of its securities, either for its own account
      or the account of a security holder or holders, other than (i) a registration
      relating solely to employee benefit plans on Form S-8 (or any successor form)
      or
      (ii) a registration relating solely to a Commission Rule 145 transaction on
      Form
      S-4 (or any successor form), the Company will:

     

    (a)  promptly
      give Holder written notice thereof and

     

    (b)  include
      in such registration (and any related qualification under blue sky laws or
      other
      compliance), and in any underwriting involved therein, all the Registrable
      Securities specified in a written request or requests, made within 30 days
      after
      receipt of such written notice from the Company described in Section 3.1(a),
      by
      Holder, subject to any reductions in the Registrable Securities to be registered
      made in the manner set forth in Section 3.2(a) or any other reductions required
      due to the Commission’s recent interpretation of Rule 415 of the Securities
      Act.

     

    2.2  Underwriting.
      If the
      registration of which the Company gives notice is for an offering involving
      an
      underwriting, the Company shall so advise the Holder as a part of the written
      notice given pursuant to Section 2.1(a). In such event, the right of the Holder
      to registration pursuant to this Article 2 shall be conditioned upon the
      Holder’s participation in such underwriting and the inclusion of the Holder’s
      Registrable Securities in the underwriting to the extent provided herein. In
      such case, the Holder shall (together with the Company) enter into an
      underwriting agreement in customary form with the managing underwriter selected
      for such underwriting by the Company.

     

    (a)  Notwithstanding
      any other provision of this Article 2, if the managing underwriter determines
      that marketing factors require a limitation of the number of shares to be
      underwritten, the underwriter may exclude some or all Registrable Securities
      from such registration and underwriting. The Company shall so advise the Holder
      of Registrable Securities, and the number of shares of Common Stock to be
      included in such registration shall be allocated as follows: first, for the
      account of the Company, all shares of Common Stock proposed to be sold by the
      Company; and
      second, for the account of the Holder and any other shareholders of the Company
      participating in such registration, the number of shares of Common Stock
      requested to be included in the registration by the Holder and such other
      shareholders in proportion, as nearly as practicable, to the respective amounts
      of Registrable Securities that are proposed to be offered and sold by the Holder
      and such other shareholders of Registrable Securities at the time of filing
      the
      registration statement. No
      Registrable Securities excluded from the underwriting in this Article 2 by
      reason of the underwriters’ marketing limitation shall be included in such
      registration.

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    (b)  The
      Company shall so advise the Holder and the other holders distributing their
      securities through such underwriting of any such limitation, and the number
      of
      shares of Registrable Securities held by the Holder that may be included in
      the
      registration. If the Holder disapproves of the terms of any such underwriting,
      the Holder may elect to withdraw therefrom by written notice to the Company
      and
      the managing underwriter. Any securities excluded or withdrawn from such
      underwriting shall be withdrawn from such registration, but the Holder shall
      continue to be bound by the terms hereof.

     

    (c)  The
      Company shall have the right to terminate or withdraw any registration initiated
      by it under this Article 2 prior to the effectiveness of such registration,
      whether or not the Holder has elected to include Registrable Securities in
      such
      registration.

     

    2.3  Inclusion
      of Shares by the Company. If
      the
      resale distribution of Registrable Securities is being effected by means of
      an
      underwriting and if the managing underwriter will not limit the number of
      Registrable Securities to be underwritten, the Company may include securities
      for its own account or for the account of others in such registration if the
      managing underwriter so agrees. The inclusion of such shares shall be on the
      same terms as the registration of shares held by the Holder. In the event that
      the underwriters exclude some of the securities to be registered, the securities
      to be sold for the account of the Company and any other holders shall be
      excluded in their entirety prior to the exclusion of any Registrable
      Securities.

     

    ARTICLE
      3.

    REQUIRED
      REGISTRATION

     

    3.1  Required
      Registration.
      To the
      extent that all Registrable Securities have not been registered pursuant to
      Section 2 above, within 180 days of the date hereof, the Company will file
      a
      registration statement under the Securities Act on Form SB-2 (or any successor
      to Form SB-2) or a similar long form registration statement, covering the
      registration of the Registrable Securities and will, as soon as practicable,
      use
      its best efforts to effect such registration (including, without limitation,
      filing post-effective amendments, related qualification under blue sky laws
      or
      other compliance) of all the Registrable Securities. If, however, the Company
      is
      eligible for use of Form S-3 (or any comparable or successor form) to register
      the Registrable Securities, the Company may satisfy the requirement of this
      Section 3.1 through the use of such Form.

     

    3.2 Underwriting.
      If
      the
      registration is for an underwritten offering, the provisions of Sections 2.2(a),
      (b) and (c) and Section 2.3 hereof shall apply to such
      registration.

     

    3.3 Contingent
      Additional Interest; Effect of Particular Note Conversions.
      The
      required registration statement under this Article 3 is the Registration
      Statement referred to in Section 2(b) of the Note, as to which the failure
      to so
      timely file as provided in Section 3.1 above, or to obtain effectiveness within
      270 days of the date hereof, will give rise to the Company’s obligation to pay
      Contingent Additional Interest under the Note. To the extent that pursuant
      to
      Sections 3(d) and 3(b)(ii) of the Note, the registration rights as to
      Registrable Securities issuable upon conversion of the Note become governed
      by
      the registration rights agreement relating to a Subsequent Equity Financing
      (as
      that term is defined in Section 2(c) of the Note), the registration rights
      as to
      Registrable Securities issuable upon exercise of the Warrant, and as to
      Registrable Securities not governed by the Section 3(b)(ii) of the Note, will
      continue to be governed by this Agreement.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    ARTICLE
      4.

    REGISTRATION
      ON FORM S-3

     

    4.1  Request
      for Registration.
      The
      Company shall use its reasonable best efforts to continue to qualify for
      registration on Form S-3 or any comparable or successor form. At all times
      when
      the Company is eligible to use of Form S-3, and in addition to the rights
      contained above in Articles 2 and 3, the Holder shall have the right to request
      registrations on Form S-3. Such requests shall be in writing and shall state
      the
      number of Registrable Securities to be disposed of and the intended methods
      of
      disposition of such securities. The Company shall not be obligated to effect
      any
      such registration if in a given 6-month period, the Company has effected a
      registration of Registrable Securities within the preceding 6-month
      period.

     

    4.2  Underwriting.
      If the
      registration is for an underwritten offering, the provisions of Sections 2.2(a),
      (b) and (c) and Section 2.3 hereof shall apply to such registration.

     

    ARTICLE
      5.

    EXPENSES
      OF REGISTRATION

     

    All
      Registration Expenses incurred in connection with any registration,
      qualification or compliance pursuant to Articles 2, 3 and 4 hereof, shall be
      borne by the Company; provided, however, that any expenses incurred as a result
      of any amendment described in Section 2.2(a) shall be borne by the Holder of
      the
      Registrable Securities being registered in such registration. All Selling
      Expenses relating to Registrable Securities registered by the Holder shall
      be
      borne by the Holder of such Registrable Securities (if there are multiple
      Holders, then pro rata on the basis of the number of securities so
      registered).

     

    ARTICLE
      6.

    REGISTRATION
      PROCEDURES

     

    6.1  In
      the
      case of each registration effected by the Company pursuant to this Agreement,
      the Company will keep the Holder advised in writing as to the initiation of
      each
      registration and as to the completion thereof. The Company agrees to use its
      reasonable best efforts to effect or cause such registration to permit the
      sale
      of the Registrable Securities covered thereby by the Holder thereof in
      accordance with the intended method or methods of distribution thereof described
      in such registration statement. In connection with any registration of any
      Registrable Securities, and except as otherwise provided in Article 5 hereof,
      the Company shall, at its expense:

     

    (a)  prepare
      and file with the Commission a registration statement with respect to such
      Registrable Securities and use its reasonable best efforts to cause such
      registration statement filed to become effective;

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

    (b)  maintain
      the effectiveness of such registration statement until the earlier of (A) two
      years after the date that the registration statement filed pursuant to Section
      3.1 is first declared effective by the Commission, (B) the date on which all
      of
      the Registrable Securities covered by a registration statement may be sold
      by
      the Holder pursuant to Rule 144(k) or (C) such time as all of the Registrable
      Securities have been publicly sold pursuant to a registration
      statement;

     

    (c)  prepare
      and file with the Commission such amendments and supplements to such
      registration statement and the prospectus included therein as may be necessary
      to effect and maintain the effectiveness of such registration statement as
      may
      be required by the applicable rules and regulations of the Commission and the
      instructions applicable to the form of such registration statement and furnish
      to the Holder of the Registrable Securities covered thereby copies of any such
      supplement or amendment prior to this being used and filed with the
      Commission;

     

    (d)  promptly
      notify the Holder of Registrable Securities to be included in a registration
      statement hereunder, the sales or placement agent, if any, therefor and the
      managing underwriter of the securities being sold, and confirm such advice
      in
      writing, (A) when such registration statement or the prospectus included therein
      or any prospectus amendment or supplement or post-effective amendment has been
      filed, and, with respect to such registration statement or any post-effective
      amendment, when the same has become effective, (B) of the issuance by the
      Commission of any stop order suspending the effectiveness of such registration
      statement or the initiation of any proceedings for that purpose, (C) of the
      receipt by the Company of any notification with respect to the suspension of
      the
      qualification of the Registrable Securities for sale in any jurisdiction or
      the
      initiation or threatening of any proceeding for such purpose or (D) if,
      to
      the Company’s knowledge, it shall be the case, at any time when a prospectus is
      required to be delivered under the Securities Act, that such registration
      statement or prospectus, or any document incorporated by reference in any of
      the
      foregoing, contains 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 light of the circumstances then existing;

     

    (e)
      notwithstanding anything herein to the contrary, the Company 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 the
      Company shall have determined, after consultation with its counsel, that the
      Company is required to disclose any material corporate development which the
      Company determines could reasonably be expected to have a material effect on
      the
      Company. Each holder of Registrable Securities agrees by acquisition of such
      Registrable Securities that, upon receipt of any notice from the Company of
      a
      Suspension Period or an event described under Section 6.1(d), 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 the Company 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. The Company 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. The Company agrees to use its best efforts to cause
      any
      Suspension Period to be terminated as promptly as possible;

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    (f)
      use
      its reasonable best efforts to obtain the withdrawal of any order suspending
      the
      effectiveness of such registration statement or any post-effective amendment
      thereto or of any order suspending or preventing the use of any related
      prospectus or suspending the qualification of any Registrable Securities
      included in such registration statement for sale in any jurisdiction at the
      earliest practicable date;

     

    (g)
      furnish to the Holder of Registrable Securities to be included in such
      registration statement hereunder, each placement or sales agent, if any,
      therefor and each underwriter, if any, thereof a conformed copy of such
      registration statement, each such amendment and supplement thereto (in each
      case
      excluding all exhibits and documents incorporated by reference) and such number
      of copies of the registration statement (excluding exhibits thereto and
      documents incorporated by reference therein unless specifically so requested
      by
      the Holder, agent or underwriter, as the case may be) of the prospectus included
      in such registration statement (including each preliminary prospectus and any
      summary prospectus), in conformity with the requirements of the Securities
      Act,
      as the Holder, agent, if any, and underwriter, if any, may reasonably request
      in
      order to facilitate the disposition of the Registrable Securities owned by
      the
      Holder sold by such agent or underwritten by such underwriter and to permit
      the
      Holder, agent and underwriter to satisfy the prospectus delivery requirements
      of
      the Securities Act;

     

    (h)
      use
      its reasonable best efforts to (A) register or qualify the Registrable
      Securities to be included in such registration statement under such other
      securities laws or blue sky laws of such states of the United States or the
      District of Columbia to be designated by the Holder participating in such
      registration and each placement or sales agent, if any, therefor and
      underwriter, if any, thereof, as the Holder and each underwriter, if any, of
      the
      securities being sold shall reasonably request (provided, that the Company
      shall
      not be required to use its best efforts to register or qualify the Registrable
      Securities in more than 15 such jurisdictions unless the expenses thereof are
      borne by the Holder requesting such efforts), (B) keep such registrations or
      qualifications in effect and comply with such laws at all times during the
      period described in Section 6.1(b) above and (C) take any and all such actions
      as may be reasonably necessary or advisable to enable the Holder, agent, if
      any,
      and underwriter to consummate the disposition in such jurisdictions of such
      Registrable Securities; provided, however, that in order to fulfill the
      foregoing obligations under this Section 6.1(g), the Company shall not (unless
      otherwise required to do so in any jurisdiction) be required to (1) qualify
      generally to do business as a foreign company or a broker-dealer, (2) execute
      a
      general consent to service of process or (3) subject itself to taxation;
      and

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

     

    (i)
      furnish, at the request of the Holder participating in the registration, on
      the
      date that such Registrable Securities are delivered to the underwriters for
      sale, if such securities are being sold through underwriters, or, if such
      securities are not being sold through underwriters, on the date that the
      registration statement with respect to such securities becomes effective, (i)
      an
      opinion, dated as of such date, of the counsel representing the Company for
      the
      purposes of such registration, in form and substance as is customarily given
      to
      underwriters in an underwritten public offering and reasonably satisfactory to
      the Holder requesting registration, addressed to the underwriters, if any,
      and
      to the Holder requesting registration of Registrable Securities and (ii) a
      letter dated as of such date, from the independent certified public accountants
      of the Company, in form and substance as is customarily given by independent
      certified public accountants to underwriters in an underwritten public offering
      and reasonably satisfactory to the Holder requesting registration, addressed
      to
      the underwriters, if any, and if permitted by applicable accounting standards,
      to the Holder requesting registration of Registrable Securities.

     

    6.2  The
      Company may require the Holder of Registrable Securities as to which any
      registration is being effected to furnish to the Company such information
      regarding the Holder and the Holder’s method of distribution of such Registrable
      Securities as the Company may from time to time reasonably request in writing.
      The Holder agrees to notify the Company as promptly as practicable of any
      inaccuracy or change in information previously furnished by the Holder to the
      Company or of the occurrence of any event in either case as a result of which
      any prospectus relating to such registration contains or would contain an untrue
      statement of a material fact regarding the Holder or the distribution of such
      Registrable Securities or omits to state any material fact regarding the Holder
      or the distribution of such Registrable Securities required to be stated therein
      or necessary to make the statements therein not misleading in light of the
      circumstances then existing, and promptly to furnish to the Company any
      additional information required to correct and update any previously furnished
      information or required so that such prospectus shall not contain, with respect
      to the Holder or the distribution of such Registrable Securities, an untrue
      statement or a material fact or omit to state a material fact required to be
      stated therein or necessary to make the statements therein not misleading in
      light of the circumstances then existing.

     

    6.3  The
      Holder will (i) comply with the provisions of the Securities Act with respect
      to
      disposition of the Registrable Securities to be included in any registration
      statement filed by the Company and (ii) comply with the “Plan of Distribution”
section of the current prospectus relating to any registration statement
      covering Registrable Securities filed by the Company.

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    6.4 The
      Holder, by the Holder’s acceptable of the Registrable Securities, agrees to
      cooperate with the Company as reasonably requested in connection with the
      preparation and filing of any Registration Statement hereunder and in responding
      to any comments of the Commission in connection therewith.

     

    ARTICLE
      7.

    INDEMNIFICATION

     

    7.1  The
      Company will indemnify the Holder, each of its officers, directors and partners,
      and the Holder’s legal counsel and independent accountants, if any, and each
      person controlling any such persons within the meaning of Section 15 of the
      Securities Act, with respect to which registration, qualification or compliance
      has been effected pursuant to this Agreement, and each underwriter, if any,
      and
      each person who controls any underwriter within the meaning of Section 15 of
      the
      Securities Act, against all expenses, claims, losses, damages and liabilities
      (or actions in respect thereof), including any of the foregoing incurred in
      settlement of any litigation, commenced or threatened, arising out of or based
      on any untrue statement (or alleged untrue statement) of a material fact
      contained in any registration statement, prospectus, offering circular or other
      document, or any amendment or supplement thereof, incident to any such
      registration, qualification or compliance, or based on any omission (or alleged
      omission) to state therein a material fact required to be stated therein or
      necessary to make the statements therein not misleading, or any violation by
      the
      Company of any rule or regulation promulgated under the Securities Act or any
      state securities laws applicable to the Company and relating to action or
      inaction by the Company in connection with any such registration, qualification
      or compliance, and will reimburse each such Holder, each of its officers,
      directors and partners and the Holder’s legal counsel and independent
      accountants, and each person controlling any such persons, each such underwriter
      and each person who controls any such underwriter, for any reasonable legal
      and
      any other expenses reasonably incurred in connection with investigating,
      preparing or defending any such claim, loss, damage, liability or action;
      provided, however, that the Company will not be liable in any such case to
      the
      extent that any such claim, loss, damage, liability or expense arises out of
      or
      is based on any untrue statement or omission or alleged untrue statement or
      omission made in reliance upon and in conformity with written information
      furnished to the Company by such Holder, officers, directors, partners, legal
      counsel, accountants, underwriter or controlling persons, and expressly intended
      for use in such registration statement, prospectus, offering circular or other
      document, or any amendment or supplement thereof; and provided further, that
      the
      Company 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, the Company 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.

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

     

    7.2  The
      Holder will, if Registrable Securities held by the Holder are included in the
      securities as to which such registration, qualification or compliance is being
      effected, indemnify the Company, each of its directors and officers and its
      legal counsel and independent accountants, each underwriter, if any, of the
      Company’s securities covered by such a registration statement, and each person
      who controls the Company or such underwriter within the meaning of Section
      15 of
      the Securities Act, against all expenses, claims, losses, damages and
      liabilities (or actions in respect thereof), including any of the foregoing
      incurred in settlement of any litigation, commenced or threatened, arising
      out
      of or based on any untrue statement (or alleged untrue statement) of a material
      fact contained in any such registration statement, prospectus, offering circular
      or other document, or any amendment or supplement thereto, incident to any
      such
      registration, qualification or compliance or based on any omission (or alleged
      omission) to state therein a material fact required to be stated therein or
      necessary to make the statements therein not misleading, and will reimburse
      the
      Company, such directors, officers, partners, legal counsel, independent
      accountants, underwriters or control persons for any legal or any other expenses
      reasonably incurred in connection with investigating, preparing or defending
      any
      such claim, loss, damage, liability or action, in each case to the extent,
      but
      only to the extent, that such untrue statement (or alleged untrue statement)
      or
      omission (or alleged omission) is made in such registration statement,
      prospectus, offering circular, other document or amendment or supplement in
      reliance upon and in conformity with written information furnished to the
      Company by the Holder and expressly intended for use in such registration
      statement, prospectus, offering circular or other document, or any amendment
      or
      supplement thereof; provided, however, that the obligations of the Holder
      hereunder shall be limited to an amount equal to the proceeds to the Holder
      of
      Registrable Securities sold as contemplated herein.

     

    7.3  Each
      party entitled to indemnification under this Section 7 (the “Indemnified
      Party”)
      shall
      give notice to the party required to provide indemnification (the “Indemnifying
      Party”)
      promptly after such Indemnified Party has actual knowledge of any claim as
      to
      which indemnity may be sought, and shall permit the Indemnifying Party to assume
      the defense of any such claim or any litigation resulting therefrom, provided
      that counsel for the Indemnifying Party, who shall conduct the defense of such
      claim or litigation, shall be approved by the Indemnified Party (whose approval
      shall not unreasonably be withheld). The Indemnified Party may participate
      in
      such defense at such party’s expense; provided, however, that the Indemnifying
      Party shall bear the expense of such defense of the Indemnified Party if
      representation of both parties by the same counsel would be inappropriate due
      to
      actual or potential conflicts of interest. The failure of any Indemnified Party
      to give notice as provided herein shall not relieve the Indemnifying Party
      of
      its obligations under this Agreement, unless such failure is prejudicial to
      the
      ability of the Indemnifying Party to defend the action. No Indemnifying Party,
      in the defense of any such claim or litigation, shall, except with the consent
      of each Indemnified Party, consent to entry of any judgment or enter into any
      settlement which does not include as an unconditional term thereof the giving
      by
      the claimant or plaintiff to such Indemnified Party of a release from all
      liability in respect of such claim or litigation.

     

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

     

    7.4  If
      the
      indemnification provided for in Section 7.1 or 7.2 is unavailable or
      insufficient to hold harmless an Indemnified Party, then each Indemnifying
      Party
      shall contribute to the amount paid or payable by such Indemnified Party as
      a
      result of the expenses, claims, losses, damages or liabilities (or actions
      or
      proceedings in respect thereof) referred to in Section 7.1 or 7.2, in such
      proportion as is appropriate to reflect the relative fault of the Company on
      the
      one hand and the sellers of Registrable Securities on the other hand in
      connection with statements or omissions which resulted in such losses, claims,
      damages or liabilities (or actions or proceedings in respect thereof) or
      expenses, as well as any other relevant equitable considerations. The relative
      fault shall be determined by reference to, among other things, whether the
      untrue or alleged untrue statement of a material fact or the omission or alleged
      omission to state a material fact relates to information supplied by the Company
      or the sellers of Registrable Securities and the parties’ relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      untrue statement or omission. The Company and the Holders agree that it would
      not be just and equitable if contributions pursuant to this Section 7.4 were
      to
      be determined by pro rata allocation (even if all Sellers of Registrable
      Securities were treated as one entity for such purpose) or by any other method
      of allocation which does not take account of the equitable considerations
      referred to in the first sentence of this Section 7.4. The amount paid by an
      Indemnified Party as a result of the expenses, claims, losses, damages or
      liabilities (or actions or proceedings in respect thereof) referred to in the
      first sentence of this Section 7.4 shall be deemed to include any legal or
      other
      expenses reasonably incurred by such Indemnified Party in connection with
      investigating or defending any claim, action or proceeding which is the subject
      of this Section 7.4. 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. The obligations of sellers of Registrable Securities to
      contribute pursuant to this Section 7.4 shall be several in proportion to the
      respective amount of Registrable Securities sold by them pursuant to a
      registration statement.

     

    ARTICLE
      8.

    RULE
      144 REPORTING

     

    With
      a
      view to making available the benefits of certain rules and regulations of the
      Commission which may at any time permit the sale of securities of the Company
      to
      the public without registration, the Company agrees to use its best efforts
      to:

     

    8.1  Make
      and
      keep public information regarding the Company available as those terms are
      understood and defined in Rule 144 under the Securities Act; and

     

    8.2  File
      with
      the Commission in a timely manner all reports and other documents required
      of
      the Company under the Securities Act and the Exchange Act after the date hereof.
      To this end, the Company will comply with its public filing and reporting
      obligations set forth in Section 6.2 of the Note Purchase
      Agreement.

     

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

     

    ARTICLE
      9.

    TRANSFER
      OF REGISTRATION RIGHTS

     

    The
      rights to cause the Company to register Registrable Securities under this
      Agreement may be assigned by the Holder to Whitebox Advisors, LLC (“Whitebox
      Advisors”)
      or to a
      transferee or assignee of Registrable Securities that (i) is a subsidiary,
      parent or affiliated entity, general partner or limited partner, member or
      retired partner or member of the Holder or of Whitebox Advisors, (ii) is an
      affiliated fund, a follow-on fund or predecessor fund of the Holder or a related
      fund or of Whitebox Advisors, (iii) is a Holder’s family member or trust
      for the benefit of an individual Holder or (iv) acquires at least
      50,000 shares
      of
      Registrable Securities (as adjusted for stock splits, stock dividends, stock
      combinations, reclassifications, recapitalizations, mergers, consolidations
      or
      other similar events); provided, however, (A) the transferor shall, within
      ten days before such transfer, furnish to the Company written notice of the
      name
      and address of such transferee or assignee and the securities with respect
      to
      which such registration rights are being assigned and (B) such transferee
      shall agree in writing to be subject to all restrictions set forth in this
      Agreement. In each case, such rights may only be transferred together with
      the
      underlying Registrable Securities in a transfer permitted by the Securities
      Act
      and applicable state securities laws. Any such transferee or assignee shall
      be
      deemed a Holder hereunder (and references to the singular Holder herein will
      thereafter mean the several Holders). If there is more than one Holder, then
      actions taken hereunder (such as to demand registration not otherwise undertaken
      by the Company) shall be by the Holders of a majority-in-interest of the
      Registrable Securities.

     

    ARTICLE
      10.

    MISCELLANEOUS

     

    10.1  Governing
      Law.
      The
      internal laws of the state of Minnesota shall govern the interpretation,
      validity and performance of the terms of this agreement, regardless of the
      law
      that might be applied under principles of conflicts of law.

     

    10.2  Successors
      and Assigns.
      Except
      as otherwise expressly provided herein, the provisions hereof shall inure to
      the
      benefit of, and be binding upon, the successors, assigns, heirs, executors
      and
      administrators of the parties hereto.

     

    10.3  Entire
      Agreement.
      This
      Agreement constitutes the full and entire understanding and agreement between
      the parties with regard to the subject matter hereof.

     

    10.4  Termination.
      The
      right of the Holder to request inclusion in any registration under Article
      2 or
      4 shall terminate on the date hereafter when (i) the Holder (together with
      its
      affiliates, partners, members and former partners and members) beneficially
      holds less than 1% of the Company’s Common Stock and (ii) all Registrable
      Securities held by or issuable to the Holder (and its affiliates, partners,
      members and former partners and members) upon conversion of the Note or upon
      exercise of the Warrant may be sold under Rule 144 during any 90 day
      period.

     

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

     

    10.5  Notices.
      All
      notices, requests, consents, and other communications hereunder shall be in
      writing and shall be deemed effectively given and received when delivered in
      person or by national overnight courier service or by certified or registered
      mail, return receipt requested, or by telecopier, addressed as
      follows:

     

    	(a)  	
            if
              to the Company, at

          

    	 	 

    	 	
            Shumate
              Industries, Inc.

            12060
              FM 3083

            Conroe,
              Texas 77301

            Attention:
              Matthew C. Flemming, Chief Financial Officer

            Facsimile:
              (936) 539-9396

          

    	 	 

    	 	
            with
              a copy to:

             

            Spectrum
              Law Group, LLP

            1900
              Main Street, Suite 125

            Irvine,
              California 92614

            Attention:
              Marc A. Indeglia, Esq.

            Facsimile:
              (949) 851-5940

          

    	 	 

    	(b)  	if to WSL, at

    	 	 

    	 	
            Whitebox
              Advisors, LLC

            3033
              Excelsior Boulevard, Suite 300

            Minneapolis,
              Minnesota 55416

            Attention:
              Jonathan Wood, Chief Financial Officer

            Facsimile:
              (612) 253-6151

            

            with
              a copy to:

             

            Messerli
              & Kramer P.A.

            150
              South Fifth Street, Suite 1800

            Minneapolis,
              Minnesota 55402

            Attention:
              Jeffrey C. Robbins, Esq.

            Facsimile:
              (612) 672-3777

          

      

    (c) if
      to any
      other Holder, to the address reflected on the records of the Company, or such
      other address or addresses as shall have been furnished in writing by such
      party
      to the Company and to the other parties to this Agreement.

     

    10.6  Severability.
      The
      invalidity, illegality or unenforceability of one or more of the provisions
      of
      this Agreement in any jurisdiction shall not affect the validity, legality
      or
      enforceability of the remainder of this Agreement in such jurisdiction or the
      validity, legality or enforceability of this Agreement, including any such
      provision, in any other jurisdiction, it being intended that all rights and
      obligations of the parties hereunder shall be enforceable to the fullest extent
      permitted by law.

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

     

    10.7  Titles
      and Subtitles.
      The
      titles of the sections and subsections of this Agreement are for convenience
      of
      reference only and are not to be considered in construing this
      Agreement.

     

    10.8  Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      an original, but all of which together constitute one instrument.

     

    IN
      WITNESS WHEREOF,
      the
      undersigned have hereunto affixed their signatures.

    
      	 	 	 	 
	Whitebox
              Shumate Ltd.	 	 	Shumate
              Industries, Inc.
	 	 	 	 
	 	 	 	 
	By	 	 	By
	
              
                

              

              Jonathan
                Wood, 

              Chief
                Financial Officer

            	 	 	
              
                

              

              Matthew
                C. Flemming,

              Chief
                Financial Officer

            

    

     

    
      
         

      

      
        -14-

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