Document:

THIS
      NOTE AND THE SECURITIES UNDERLYING THIS NOTE HAVE NOT BEEN REGISTERED UNDER
      THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER
      APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE
      TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT,
      EXCEPT AS OTHERWISE AGREED BY SHUMATE INDUSTRIES, INC., AN OPINION OF COUNSEL
      REASONABLY SATISFACTORY TO SHUMATE INDUSTRIES, INC. THAT SUCH REGISTRATION
      AND
      QUALIFICATION ARE NOT REQUIRED.

     

    CONVERTIBLE
      PROMISSORY NOTE

    

    
      	
              $2,000,000.00

            	
              July
                10, 2007

            

    

    

    FOR
      VALUE RECEIVED,
      the
      undersigned, Shumate
      Industries, Inc.,
      a
      Delaware corporation (the “Maker”),
      hereby promises to pay to the order of Whitebox
      Shumate Ltd.,
      a
      British Virgin Islands corporation, or its assigns (the “Payee”),
      at
      such place as the Payee may designate in writing, the principal sum of Two
      Million and No/100 Dollars ($2,000,000.00) under the terms set forth
      herein.

     

    1. Interest.
      The
      unpaid principal balance hereof from time to time outstanding shall bear
      interest from the date hereof at the rate of ten percent (10%) per annum;
      provided, however that from and after an event of default under Section 4 below,
      such interest rate shall increase to fifteen (15%) per annum (but in no event
      greater than the highest rate permitted by law).

     

    2. Payment.
      Except
      as otherwise provided herein, and subject to any default hereunder, the
      principal and interest hereof is payable as follows:

     

    (a) Interest
      only is payable in cash in arrears on the first day of each month, beginning
      on
      August 1, 2007 (the “Scheduled
      Interest Payment”).
      However, if Maker gives Payee written notice five (5) days before the due date
      of a particular Scheduled Interest Payment of Maker’s election to defer payment
      of such Scheduled Interest Payment, the amount of such Scheduled Interest
      Payment shall, from and after its otherwise scheduled due date, become part
      of
      the principal balance hereof.

     

    (b) If
      Maker
      fails to file the Registration Statement (as defined below) with the U.S.
      Securities and Exchange Commission under the Securities Act and applicable
      state
      securities laws within 180 days of the date of this Note, or if Maker fails
      to
      obtain effectiveness of the Registration Statement under the Securities Act
      and
      applicable state securities laws within 270 days of the date of this Note,
      then
      for each full month (prorated for partial months) that either or both of these
      failures continue (as aggregated together, the “Failure
      Term”),
      Maker
      shall pay in arrears in cash, on the first day of each month, additional
      interest (the “Contingent
      Additional Interest”,
      which
      automatically shall become part of the principal amount of this Note) at a
      rate
      equal to $3,780.00 per month for any portion of the Failure Term. The
      “Registration
      Statement”
refers
      to a registration statement filed by the Company with the SEC under the
      Securities Act and applicable state securities laws pursuant to a Registration
      Rights Agreement of this date between the Maker and the Payee (the “Registration
      Rights Agreement”).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c) On
      the
      earlier of July 10, 2008 or the initial closing date of the Subsequent Equity
      Financing as defined below (the “Maturity
      Date”),
      the
      outstanding principal balance of this Note (inclusive of any Scheduled Interest
      Payments converted to principal pursuant to Section 2(a) above) will be due
      and
      payable in cash, together with all then-accrued but unpaid interest (including
      any then accrued, but unpaid, Contingent Additional Interest). Maker agrees
      to
      give Payee at least ten (10) days prior written notice of Maker’s required
      payoff of this Note if the Maturity Date will be prior to July 10, 2008 (the
      “Early
      Payment Notice”).
      For
      purposes of this Note, the “Subsequent
      Equity Financing”
refers
      to the first bona fide third party sale by Maker of its equity securities
      (including, without limitation, equity or debt securities directly or indirectly
      convertible or exchangeable for equity securities, alone or with any debt
      securities) occurring after the date of this Note.

     

    3. Conversion.
      

     

    (a) At
      any
      time while any portion of this Note remains unpaid, the Payee may elect (by
      giving written notice to Maker) to convert, at the Conversion Rate below, all
      or
      any portion of the principal and/or accrued, but unpaid, interest hereon into
      securities of Maker. Within ten (10) days after any conversion of this Note,
      the
      Maker shall at its expense issue and deliver to Payee a certificate or
      certificates for the number and type of securities issuable upon
      conversion.

     

    (b) The
      “Conversion
      Rate”
is
      as
      follows:

     

    (i) For
      any
      conversion elected in writing by the Payee (other than into the Subsequent
      Equity Financing pursuant to Section 3(b)(ii) below), the Payee may convert
      this
      Note into shares of the Maker’s Common Stock at a Conversion Rate equal to $1.89
      per share.

     

    (ii) For
      any
      conversion elected in writing by the Payee into the Subsequent Equity Financing,
      the Payee may convert this Note into the same securities sold by Maker in the
      Subsequent Equity Financing using the price per share, unit or other security
      as
      the applicable Conversion Rate. The Payee’s right to convert into the Subsequent
      Equity Financing will expire 24 hours in advance of the initial closing of
      the
      Subsequent Equity Financing so long as the Maker has given written notice to
      the
      Payee pursuant to Section 3(e) below.

     

    (c) The
      Conversion Rate (and, as applicable, the factors above used to compute it)
      shall
      be adjusted proportionally for any subsequent stock dividend or split, stock
      combination or other similar recapitalization, reclassification or
      reorganization of or affecting Maker’s Common Stock. In case of any
      consolidation or merger to which the Maker is a party other than a merger or
      consolidation in which the Maker is the continuing corporation, or in case
      of
      any sale or conveyance to another corporation of the property of the Maker
      as an
      entirety or substantially as an entirety, or in the case of any statutory
      exchange of securities with another corporation (including any exchange effected
      in connection with a merger of a third corporation into the Maker), then instead
      of receiving shares of Maker’s Common Stock or other of Maker’s securities,
      Payee shall have the right thereafter to receive the kind and amount of shares
      of stock and other securities and property which the Payee would have owned
      or
      have been entitled to receive immediately after such consolidation, merger,
      statutory exchange, sale or conveyance had the same portion of this Note been
      paid or converted immediately prior to the effective date of such consolidation,
      merger, statutory exchange, sale or conveyance and, in any such case, if
      necessary, appropriate adjustment shall be made in the application of the
      provisions set forth in this Section with respect to the rights and interests
      thereafter of the Payee, to the end that the provisions set forth in this
      Section shall thereafter correspondingly be made applicable, as nearly as may
      reasonably be, in relation to any shares of stock and other securities and
      property thereafter deliverable in connection with this Note. The provisions
      of
      this subsection shall similarly apply to successive consolidations, mergers,
      statutory exchanges, sales or conveyances.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    (d) Payee
      will have the same registration rights with respect to any Common Stock or
      other
      securities of Maker issued to Payee upon any conversion hereof pursuant to
      Section 3(b)(i) above as Payee otherwise has under the Registration Rights
      Agreement. Payee will have the same registration rights with respect to any
      Common Stock or other securities of Maker issued to Payee upon any conversion
      hereof pursuant to Section 3(b)(ii) above as granted by the Maker to the other
      purchasers of securities in the Subsequent Equity Financing.

     

    (e) In
      addition to giving the Early Payment Notice, while any portion of this Note
      remains unpaid, Maker agrees to give Payee at least ten (10) days prior written
      notice of the initial closing date and time of any Subsequent Equity Financing
      and any event that would adjust the Conversion Rate under Section 3(c)
      above.

     

    4. Default.
      The
      occurrence of any one or more of the following events shall constitute an event
      of default, upon which Payee may declare the entire principal amount of this
      Note, together with all accrued but unpaid interest, to be immediately due
      and
      payable:

     

    (a) The
      Maker
      shall fail to make any required payment of principal or interest (including,
      without limitation, as to Contingent Additional Interest that becomes part
      of
      the principal hereof and any interest accrued thereon) when due, and such
      failure shall continue through five (5) days thereafter.

     

    (b) The
      Maker
      shall be in material default under any other term or provision of this Note,
      under any term or provision of the Note Purchase Agreement of this date between
      Maker and Payee (the “Note
      Purchase Agreement”),
      under
      the warrant to purchase 400,000 shares of Maker’s Common Stock issued in
      connection herewith to Payee (the “Warrant”)
      or
      under the Registration Rights Agreement, and any such default is not cured
      within ten (10) days after written notice from Payee to Maker. Notwithstanding
      the foregoing, a failure by the Maker to timely file or obtain effectiveness
      of
      the Registration Statement will not, in and of itself, constitute an event
      of
      default (it being agreed that Contingent Additional Interest will instead accrue
      hereunder upon such failure).

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    (c) The
      Maker
      shall become insolvent or shall fail to pay, or become unable to pay, its debts
      as they become due; or any bankruptcy, reorganization, debt arrangement or
      other
      proceeding under any bankruptcy or insolvency law shall be instituted by or
      against the Maker.

     

    (d) Any
      representation or warranty of the Maker contained in the Note Purchase Agreement
      shall be untrue in any material respect, or Maker shall fail to materially
      comply with any covenants or agreements of Maker contained in this Note, the
      Note Purchase Agreement, the Warrant or the Registration Rights
      Agreement.

     

    (e) The
      Maker
      incurs an event of default under the terms of its secured revolving line of
      credit facility with Stillwater National Bank (the “Stillwater
      Facility”).

     

    (f) The
      Maker
      incurs aggregate debt senior in security or right of payment to this Note
      (whether or not inclusive of the Stillwater Facility) in excess of $10,000,000,
      without obtaining the Payee’s prior written consent.

     

    Without
      limiting the above, the Maker acknowledges that payments on the various
      scheduled due dates in Sections 2 are of essence and that any failure to timely
      pay any installment of principal or interest (within any permitted grace period
      above) permits Payee to declare this Note immediately due in cash in its
      entirety without any prior notice of any kind to Maker, except for the specific
      notices provided above.

     

    6. Limitations
      on Conversion.
      Notwithstanding anything to the contrary contained herein, the number of shares
      of Common Stock that Payee may acquire upon any conversion of this Note shall
      be
      limited to the extent necessary to insure that, following such conversion,
      the
      total number of shares of Common Stock then beneficially owed by Payee and
      its
      affiliates and any other persons whose beneficial ownership of Common Stock
      would be aggregated with the Payee’s for purposes of Section 13(d) of the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”)
      does
      not exceed 4.99% of the total number of issued and outstanding shares of Common
      Stock (including for such purpose the shares of Common Stock issuable upon
      such
      conversion). For such purposes, beneficial ownership shall be determined in
      accordance with Section 13(d) of the Exchange Act and the rules and regulations
      promulgated thereunder. This provision shall not restrict the number of shares
      of Common Stock which Payee may receive or beneficially own in order to
      determine the amount of securities or other consideration that Payee may receive
      in the event of a merger, sale or other transaction as contemplated in Section
      3(c) of this Note. 

     

    8. Applicable
      Law.
      THE
      VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THE NOTE SHALL BE GOVERNED BY
      THE
      INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT
      OF
      LAWS PRINCIPLES THEREOF.

     

    9. Waivers.
      The
      Maker hereby waives presentment for payment, notice of dishonor, protest and
      notice of payment and all other notices of any kind in connection with the
      enforcement of this Note.

     

    
      
         

      

      
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    10. No
      Setoffs.
      The
      Maker shall pay principal and interest under the Note without any deduction
      for
      any setoff or counterclaim.

     

    11. Costs
      of Collection.
      If this
      Note is not paid when due, the Maker shall pay Payee’s reasonable costs of
      collection, including reasonable attorney’s fees.

    
      	 	 	 
	 	SHUMATE
              INDUSTRIES, INC.
	 
 	 
 	 
 
	
            	By   	
            
	 	 	
              
 
	 	Its	 
	 	
              

            

    

     

    
      
         

      

      
        -5-WARRANT
      NO. 2007-WSL

    

    To
      Purchase Shares of Common Stock

    of

    SHUMATE
      INDUSTRIES, INC.

    

    This
      Warrant and the Securities issuable upon exercise of this Warrant have not
      been
      registered under the Securities Act of 1933 (the “1933 Act”) or under any state
      securities or “Blue Sky” laws (“Blue Sky Laws”). No transfer, sale, assignment,
      pledge, hypothecation or other disposition of this Warrant or the Securities
      issuable upon exercise of this Warrant or any interest therein may be made
      except (a) pursuant to an effective registration statement under the 1933
      Act and any applicable Blue Sky Laws or (b) if the Corporation has been
      furnished with an opinion of counsel for the holder, which opinion and counsel
      shall be reasonably satisfactory to the Corporation, to the effect that no
      registration is required because of the availability of an exemption from
      registration under the 1933 Act and applicable Blue Sky laws.

    

    THIS
      CERTIFIES THAT,
      for good
      and valuable consideration Whitebox
      Shumate Ltd.,
      a
      British Virgin Islands corporation (the “Holder”), or the Holder’s registered
      assigns, is entitled to subscribe for and purchase from Shumate Industries,
      Inc., a Delaware corporation (the “Corporation”), at any time on or after July
      10, 2007, to and including July 10, 2012, the number of fully paid and
      nonassessable shares of the Common Stock of the Corporation, computed below
      at
      the price per share computed below (the “Warrant Exercise Price”), subject to
      the anti-dilution and price protection provisions of this Warrant.

    

    The
      shares which may be acquired upon exercise of this Warrant are referred to
      herein as the “Warrant Shares.” As used herein, the term “Holder” means the
      Holder, any party who acquires all or a part of this Warrant as a registered
      transferee of the Holder, or any record holder or holders of the Warrant Shares
      issued upon exercise, whether in whole or in part, of the Warrant. The term
      “Common Stock” means the common stock, $0.001 par value per share, of the
      Corporation.

    

    This
      Warrant is subject to the following provisions, terms and
      conditions:

    

    1. Computing
      the Number of Warrant Shares. The
      number of Warrant Shares that the Holder may acquire upon the full exercise
      hereof (subject to adjustment as otherwise provided by this Warrant) shall
      be
      equal to 400,000 shares.

    

    2. Computing
      the Warrant Exercise Price. The
      Warrant Exercise Price per share shall be equal to $1.89, subject to adjustment
      as otherwise provided by this Warrant.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3. Exercise
      for Cash or on Cashless Basis; Transferability.

    

    (a) The
      rights represented by this Warrant may be exercised by the Holder hereof, in
      whole or in part (but not as to a fractional share of Common Stock), by written
      notice of exercise (in the form attached hereto) delivered to the Corporation
      at
      the principal office of the Corporation prior to the expiration of this Warrant
      and accompanied or preceded by the surrender of this Warrant along with a check
      in payment of the Warrant Exercise Price for such Warrant Shares.

    

    (b) In
      the
      alternative, payment may be made at the option of Holder by instructing the
      Corporation to withhold from the shares of Common Stock to be issued upon
      exercise of this Warrant a number of whole or fractional shares of Common Stock
      equal to the number of shares for which the Warrant is being exercised
      (including any shares to be surrendered) multiplied by the Warrant Exercise
      Price per share, and then divided by the “Market Price” (as defined in Section
      10 below) of a share of
      Common
      Stock.

    

    (c) Except
      as
      provided in Section 9 hereof, this Warrant may not be sold, transferred,
      assigned, hypothecated or divided into two or more Warrants of smaller
      denominations, nor may any Warrant Shares issued pursuant to exercise of this
      Warrant be transferred. In no event may this Warrant be transferred and divided
      (without any exercise hereof) into any denomination(s) of less than 100 Warrant
      Shares.

    

    4. Exchange
      and Replacement.
      Subject
      to Sections 3 and 9 hereof, this Warrant is exchangeable upon the surrender
      hereof by the Holder to the Corporation at its office for new Warrants of like
      tenor and date representing in the aggregate the right to purchase the number
      of
      Warrant Shares purchasable hereunder, each of such new Warrants to represent
      the
      right to purchase such number of Warrant Shares (not to exceed the aggregate
      total number purchasable hereunder) as shall be designated by the Holder at
      the
      time of such surrender. Upon receipt by the Corporation of evidence reasonably
      satisfactory to it of the loss, theft, destruction or mutilation of this
      Warrant, and, in case of loss, theft or destruction, of indemnity or security
      reasonably satisfactory to it, and upon surrender and cancellation of this
      Warrant, if mutilated, the Corporation will make and deliver a new Warrant
      of
      like tenor, in lieu of this Warrant. This Warrant shall be promptly canceled
      by
      the Corporation upon the surrender hereof in connection with any exchange or
      replacement. The Corporation shall pay all expenses, taxes (other than stock
      transfer taxes), and other charges payable in connection with the preparation,
      execution, and delivery of Warrants pursuant to this
      Section 4.

    

    5. Issuance
      of the Warrant Shares.

    

    (a) The
      Corporation agrees that the Warrant Shares shall be and are deemed to be issued
      to the Holder as of the close of business on the date on which this Warrant
      shall have been surrendered and the payment made for such Warrant Shares as
      aforesaid. Subject to the provisions of paragraph (b) of this Section 5,
      certificates for the Warrant Shares so purchased shall be delivered to the
      Holder within a reasonable time after the rights represented by this Warrant
      shall have been so exercised, and, unless this Warrant has expired, a new
      Warrant representing the right to purchase the number of Warrant Shares, if
      any,
      with respect to which this Warrant shall not then have been exercised shall
      also
      be delivered to the Holder.
      All
      certificates representing Warrant Shares shall be issued with a restrictive
      legend unless
      (i) a registration statement covering the resale of the Warrant Shares and
      naming the Holder as a selling stockholder thereunder is then effective or
      (ii)
      the Warrant Shares are freely transferable without volume restrictions pursuant
      to Rule 144(k) promulgated under the 1933 Act.

     

    
      
         

      

      
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    (b) Notwithstanding
      the foregoing, however, the Corporation shall not be required to deliver any
      certificate for Warrant Shares upon exercise of this Warrant except in
      accordance with exemptions from the applicable securities registration
      requirements or registrations under applicable securities laws. Except as
      described in Section 11, nothing herein shall obligate the Corporation to effect
      registrations under federal or state securities laws. The Holder agrees to
      execute such documents and make such representations, warranties and agreements
      as may be required solely to comply with the exemptions relied upon by the
      Corporation, or the registrations made, for the issuance of the Warrant
      Shares.

    

    6. Covenants
      of the Corporation.
      The
      Corporation covenants and agrees that all Warrant Shares will, upon issuance
      and
      payment in accordance with Section 3 hereof, be duly authorized and issued,
      fully paid, non-assessable and free from all taxes, liens and charges with
      respect to the issue thereof. The Corporation further covenants and agrees
      that
      during the period within which the rights represented by this Warrant may be
      exercised, the Corporation will at all times have authorized and reserved for
      the purpose of issue or transfer upon exercise of the subscription rights
      evidenced by this Warrant a sufficient number of shares of Common Stock to
      provide for the exercise of the rights represented by this Warrant.

    

    7. Anti-dilution
      Adjustments.
      The
      provisions of this Warrant are subject to adjustment as provided in this
      Section 7. No adjustment shall be made pursuant to this Section 7 if the
      same adjustment has already been made pursuant to another provision of this
      Warrant.

    

    (a) Stock
      Splits, Dividends and Combinations.
      The
      otherwise applicable Warrant Exercise Price shall be adjusted from time to
      time
      such that in case the Corporation shall hereafter:

    

    (i)
      pay any
      dividends on any class of stock of the Corporation payable in Common Stock
      or
      securities convertible into Common Stock;

    

    (ii)
      subdivide its then outstanding shares of Common Stock into a greater number
      of
      shares; or

    

    (iii)
      combine
      outstanding shares of Common Stock, by reclassification or
      otherwise;

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    

    then,
      in
      any such event, the Warrant Exercise Price in effect immediately prior to such
      event shall (until adjusted again pursuant hereto) be adjusted immediately
      after
      such event to a price (calculated to the nearest full cent) determined by
      dividing (A) the number of shares of Common Stock outstanding immediately
      prior to such event, multiplied by the then existing Warrant Exercise Price,
      by
      (B) the total number of shares of Common Stock outstanding immediately
      after such event (including in each case the maximum number of shares of Common
      Stock issuable in respect of any securities convertible into Common Stock),
      and
      the resulting quotient shall be the adjusted Warrant Exercise Price per share.
      An adjustment made pursuant to this Subsection shall become effective
      immediately after the record date in the case of a dividend or distribution
      and
      shall become effective immediately after the effective date in the case of
      a
      subdivision, combination or reclassification. If, as a result of an adjustment
      made pursuant to this Subsection, the Holder of any Warrant thereafter
      surrendered for exercise shall become entitled to receive shares of two or
      more
      classes of capital stock or shares of Common Stock and other capital stock
      of
      the Corporation, the Board of Directors (whose determination shall be
      conclusive) shall determine the allocation of the adjusted Warrant Exercise
      Price between or among shares of such classes of capital stock or shares of
      Common Stock and other capital stock. All calculations under this Subsection
      shall be made to the nearest cent or to the nearest 1/100 of a share, as the
      case may be. In the event that at any time as a result of an adjustment made
      pursuant to this Subsection, the holder of any Warrant thereafter surrendered
      for exercise shall become entitled to receive any shares of the Corporation
      other than shares of Common Stock, thereafter the Warrant Exercise Price of
      such
      other shares so receivable upon exercise of any Warrant shall be subject to
      adjustment from time to time in a manner and on terms as nearly equivalent
      as
      practicable to the provisions with respect to Common Stock contained in this
      Section.

    

    (b) Mechanics
      of Adjustment for Stock Splits, Dividends and Combinations.
      Upon
      each adjustment of the Warrant Exercise Price pursuant to Section 7(a)
      above, the Holder of each Warrant shall thereafter (until another such
      adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
      the
      number of shares, calculated to the nearest full share, obtained by multiplying
      the number of shares specified in such Warrant (as adjusted as a result of
      all
      adjustments in the Warrant Exercise Price in effect prior to such adjustment)
      by
      the Warrant Exercise Price in effect prior to such adjustment and dividing
      the
      product so obtained by the adjusted Warrant Exercise Price.

    

    (c) Consolidations,
      Mergers and Reorganization Events.
      In case
      of any consolidation or merger to which the Corporation is a party other than
      a
      merger or consolidation in which the Corporation is the continuing corporation,
      or in case of any sale or conveyance to another corporation of the property
      of
      the Corporation as an entirety or substantially as an entirety, or in the case
      of any statutory exchange of securities with another corporation (including
      any
      exchange effected in connection with a merger of a third corporation into the
      Corporation), there shall be no adjustment under Subsection (a) of this
      Section 7; but the Holder of each Warrant then outstanding shall have the right
      thereafter to convert such Warrant into the kind and amount of shares of stock
      and other securities and property which he would have owned or have been
      entitled to receive immediately after such consolidation, merger, statutory
      exchange, sale or conveyance had such Warrant been converted immediately prior
      to the effective date of such consolidation, merger, statutory exchange, sale
      or
      conveyance and, in any such case, if necessary, appropriate adjustment shall
      be
      made in the application of the provisions set forth in this Section with respect
      to the rights and interests thereafter of any Holders of the Warrant, to the
      end
      that the provisions set forth in this Section shall thereafter correspondingly
      be made applicable, as nearly as may reasonably be, in relation to any shares
      of
      stock and other securities and property thereafter deliverable on the exercise
      of the Warrant. The provisions of this Subsection shall similarly apply to
      successive consolidations, mergers, statutory exchanges, sales or
      conveyances.

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    (d) Adjustment
      Upon Subsequent Equity Financing.

    

    (i) If
      at any
      time while this Warrant is outstanding, the Corporation conducts a
      Subsequent Equity Financing (as defined below), and if the securities sold
      by
      the Corporation in the Subsequent Equity Financing include options or warrants
      to acquire Common Stock (all together, “Convertible Securities”), then from and
      after the initial closing on the Subsequent Equity Financing, the Warrant
      Exercise Price hereunder will be adjusted, if lower than the then effective
      Warrant Exercise Price, to equal the effective exercise price per share of
      Common Stock of the Convertible Securities issued in the Subsequent Equity
      Financing.

    

    (ii) The
      provisions of Sections 7(a)-(c) will apply to adjust the Warrant Exercise Price
      and type of securities purchasable hereunder upon events described therein
      occurring from and after the initial closing date of the Subsequent Equity
      Financing.

    

    (iii) For
      purposes of this Warrant, a “Subsequent Equity Financing” refers to the first
      bona fide third party sale by the Corporation of its equity securities
      (including, without limitation, equity or debt securities directly or indirectly
      convertible or exchangeable for equity securities, alone or with any debt
      securities) occurring after the date of this Warrant.

    

    (e) Certificate
      as to Adjustments.
      Upon
      the occurrence of each adjustment or readjustment of the Warrant Exercise Price
      or the number of Warrants covered hereby pursuant to this Section 7, the
      Corporation, at its expense, shall promptly compute such adjustment or
      readjustment in accordance with the terms hereof and furnish to the Holder
      a
      certificate setting forth such adjustment or readjustment and showing in detail
      the facts upon which such adjustment or readjustment is based. The Corporation
      shall, upon the written request at any time of the Holder, furnish or cause
      to
      be furnished to the Holder a like certificate setting forth (i) such
      adjustments and readjustments, (ii) the Warrant Exercise Price at the time
      in effect, and (iii) the number of shares of Common Stock and the amount,
      if any, of other property (including Special Securities) which at the time
      would
      be received upon the exercise of this Warrant. 

    

    8. No
      Voting Rights.
      This
      Warrant shall not entitle the Holder to any voting rights or other rights as
      a
      shareholder of the Corporation.

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    

    9. Notice
      of Transfer of Warrant or Resale of the Warrant Shares; Assumption upon
      Merger.

    

    (a) Subject
      to the sale, assignment, hypothecation or other transfer restrictions set forth
      in Section 3 hereof, the Holder, by acceptance hereof, agrees to give
      written notice to the Corporation before transferring this Warrant or
      transferring any Warrant Shares of such Holder's intention to do so, describing
      briefly the manner of any proposed transfer. Promptly upon receiving such
      written notice, the Corporation shall present copies thereof to the
      Corporation's counsel. If in the opinion of such counsel the proposed transfer
      may be effected without registration or qualification (under any federal or
      state securities laws), the Corporation, as promptly as practicable, shall
      notify the Holder of such opinion, whereupon the Holder shall be entitled to
      transfer this Warrant or to dispose of Warrant Shares received upon the previous
      exercise of this Warrant, all in accordance with the terms of the notice
      delivered by the Holder to the Corporation; provided that an appropriate legend
      may be endorsed on this Warrant or the certificates for such Warrant Shares
      respecting restrictions upon transfer thereof necessary or advisable in the
      opinion of counsel and satisfactory to the Corporation to prevent further
      transfers which would be in violation of Section 5 of the 1933 Act and
      applicable state securities laws; and provided further that the prospective
      transferee or purchaser shall execute such documents and make such
      representations, warranties and agreements as may be required solely to comply
      with the exemptions relied upon by the Corporation for the transfer or
      disposition of the Warrant or Warrant Shares.

    

    (b) If,
      in
      the opinion of the Corporation’s counsel, the proposed transfer or disposition
      of this Warrant or such Warrant Shares described in the written notice given
      pursuant to this Section 9 may not be effected without registration or
      qualification of this Warrant or such Warrant Shares, the Corporation shall
      promptly give written notice thereof to the Holder, and the Holder will limit
      its activities in respect to such transfer or disposition as, in the opinion
      of
      such counsel, are permitted by law.

    

    10. Fractional
      Shares.
      Fractional shares shall not be issued upon the exercise of this Warrant, but
      in
      any case where the holder would, except for the provisions of this Section,
      be
      entitled under the terms hereof to receive a fractional share, the Corporation
      shall, upon the exercise of this Warrant for the largest number of whole shares
      then called for, pay a sum in cash equal to the sum of (a) the excess, if
      any, of the Market Price of such fractional share over the proportional part
      of
      the Warrant Exercise Price represented by such fractional share, plus
      (b) the proportional part of the Warrant Exercise Price represented by such
      fractional share. For purposes of this Section and Section 3(b) above, the
      term
“Market Price” with respect to shares of Common Stock of any class or series
      means the average closing sale price for the ten trading days immediately prior
      to the date of exercise or, if none, the average of the last reported closing
      bid and asked prices for the ten trading days immediately prior to the date
      of
      exercise on any national or regional securities exchange or quoted in the
      National Association of Securities Dealers, Inc.'s Automated Quotations System
      (“Nasdaq”), or if not listed on a national or regional securities exchange or
      quoted in Nasdaq, the average of the closing bid prices for the ten trading
      days
      immediately prior to the date of exercise as reported by bigcharts.com (or
      if
      this service is discontinued, such other reporting service acceptable to the
      Holder) on the OTC Bulletin Board, or if no quotations in such Common Stock
      are
      available, the fair market value of the shares as determined in good faith
      by
      the Board of Directors of the Corporation.

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    

    11.  Registration
      Rights.
      Holder
      shall have registration rights for the Warrant Shares (or such other securities
      as are issuable upon exercise hereof) as described in the Registration
      Rights Agreement of this same date.

     

    12. Maximum
      Exercise.
      The
      Holder shall not be entitled to exercise this Warrant on an exercise date,
      in
      connection with that number of shares of Common Stock which would be in excess
      of the sum of (i) the number of shares of Common Stock beneficially owned
      by the Holder and its affiliates on an exercise date, and (ii) the number
      of shares of Common Stock issuable upon the exercise of this Warrant with
      respect to which the determination of this limitation is being made on an
      exercise date, which would result in beneficial ownership by the Holder and
      its
      affiliates of more than 4.99% of the outstanding shares of Common Stock on
      such
      date. For the purposes of the immediately preceding sentence, beneficial
      ownership shall be determined in accordance with Section 13(d) of the
      Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
      Subject to the foregoing, the Holder shall not be limited to aggregate exercises
      which would result in the issuance of more than 4.99%. The restriction described
      in this paragraph may be waived, in whole or in part, upon sixty-one (61)
      days prior notice from the Holder to the Corporation. The Holder may decide
      whether to convert the Convertible Promissory Note issued to it on this date
      or
      exercise this Warrant to achieve an actual 4.99% ownership position. For
      purposes of this Warrant, in determining the number of outstanding shares of
      Common Stock, a Holder may rely on the number of outstanding shares of Common
      Stock as reflected in (1) the Corporation’s most recent Form 10-Q (or 10-QSB) or
      Form 10-K (or 10-KSB), as the case may be, (2) a more recent public announcement
      by the Corporation or (3) any other notice by the Corporation or its transfer
      agent setting forth the number of shares of Common Stock outstanding. In any
      case, the number of outstanding shares of Common Stock shall be determined
      after
      giving effect to conversions of the Convertible Promissory Note and exercise
      of
      this Warrant by such Holder and its affiliates since the date as of which such
      number of outstanding shares of Common Stock was reported.

    

    13. Representations
      of Holder.
      The
      Holder of this Warrant, by the acceptance hereof, represents that it is
      acquiring this Warrant and the Warrant Shares for its own account for investment
      only and not with a view towards, or for resale in connection with, the public
      sale or distribution of this Warrant or the Warrant Shares, except pursuant
      to
      sales registered or exempted under the 1933 Act; provided, however, that by
      making the representations herein, the Holder does not agree to hold this
      Warrant or any of the Warrant Shares for any minimum or other specific term
      and
      reserves the right to dispose of this Warrant and the Warrant Shares at any
      time
      in accordance with or pursuant to a registration statement or an exemption
      under
      the 1933 Act. The Holder of this Warrant further represents, by acceptance
      hereof, that, as of this date, such Holder is an “accredited investor” as such
      term is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities
      and Exchange Commission under the 1933 Act (an “Accredited Investor”). Upon
      exercise of this Warrant, other than pursuant to a sale pursuant to a
      Registration Statement or other exemption under the 1933 Act, the Holder shall,
      if requested by the Corporation, confirm in writing, in a form reasonably
      satisfactory to the Corporation, that the Warrant Shares so purchased are being
      acquired solely for the Holder’s own account and not as a nominee for any other
      party, for investment and not with a view toward distribution or resale and
      that
      such Holder is an Accredited Investor. If such Holder cannot make such
      representations because they would be factually incorrect, it shall be a
      condition to such Holder’s exercise of this Warrant that the Corporation receive
      such other representations as the Corporation considers reasonably necessary
      to
      assure the Corporation that the issuance of its securities upon exercise of
      this
      Warrant shall not violate any federal or state securities laws.

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      Shumate
      Industries, Inc. has caused this Warrant to be signed by its duly authorized
      officer and this Warrant to be dated July 10, 2007.

    
      	 	 	 
	 	SHUMATE
              INDUSTRIES, INC.
	 
 	 
 	 
 
	
            	By  	
            
	 	
              

              Matthew
                C. Flemming,

              Chief
                Financial Officer

            

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

    EXERCISE
      FORM

    

    (To
      Be
      Executed by the Registered Holder in Order to Exercise the Warrant)

    

    To: Shumate
      Industries, Inc.

    

    The
      undersigned hereby irrevocably elects to exercise the attached Warrant to
      purchase for cash, ________________ of the shares issuable upon the exercise
      of
      such Warrant, and requests that certificates for such shares (together with
      a
      new Warrant to purchase the number of shares, if any, with respect to which
      this
      Warrant is not exercised) shall be issued in the name of:

    

    
      	 	 	NAME:	  

	 	 	
               

            	 
	 	 	
              SOC.
                SEC. or 

              TAX
                I.D. NO. 

            	   
              
	 	 	 	 
	 	 	ADDRESS: 	   
              
	 	 	 	 
	 	 	 	   
              
	 	 	 	 
	 	 	 	 
	 	 	 	     
	Date: _________, 20__ .	 	 	Signature *

    

    

    
      	
              *

            	
              The
                signature on the Notice of Exercise of Warrant must correspond to
                the name
                as written upon the face of the Warrant in every particular without
                alteration or enlargement or any change whatsoever. When signing
                on behalf
                of a corporation, partnership, trust or other entity, please indicate
                your
                position(s) and title(s) with such
                entity.

            

    

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    ASSIGNMENT
      FORM

    

    (To
      be
      Executed by the Registered Holder in Order to Transfer the Warrant)

    

    To: Shumate
      Industries, Inc.

    

    FOR
      VALUE
      RECEIVED, the undersigned hereby sells, assigns, and transfers unto
      _________________________________ the right to purchase the securities of
      Shumate Industries, Inc. to which the within Warrant relates and appoints
      _______________________, attorney, to transfer said right on the books of
      Shumate Industries, Inc. with full power of substitution in the
      premises.

    
      	 	 	 	 
	
            	 	 	
            
	Dated:
              ______________20__	 	 	
              
(Signature)
	 	 	 	 
	 	 	 	Address:

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