DEVELOPMENT AGREEMENT

DEVELOPMENT AGREEMENT

BETWEEN

HEMIWEDGE VALVE CORPORATION

AND

AT BALANCE AMERICAS LLC

This Development Agreement is made effective as of July 13, 2006 (the "Effective

Date"), and is between HEMIWEDGE VALVE CORPORATION, a Texas corporation (hereinafter "HVC"), a wholly-owned subsidiary and Affiliate of Shumate Industries, Inc., ("SHUMATE") having an office at 12060 FM 3083, Conroe, TX 77301, and AT BALANCE AMERICAS LLC, a Limited Liability Corporation organized under the laws of Delaware (hereinafter "@BALANCE"), a wholly-owned subsidiary and Affiliate of Shell Technology Ventures, having an office at 11767 Katy Freeway, Suite 1030, Houston, TX 77069. HVC and @BALANCE may be referred to herein individually as a "Party" or collectively as "the Parties."

Whereas HVC has expertise in designing and manufacturing certain valves (called "HEMIWEDGE ^® " valves) and @BALANCE has expertise in well construction and workover operations that may use a subsurface valve called a "Downhole Isolation Valve" and the Parties desire to cooperate to develop and produce an improved valve for use as a Downhole Isolation Valve;

Now, therefore, the Parties are entering into this Agreement that will set forth the terms and conditions under which the Parties may engage in development activities, as may be agreed by the Parties from time to time, pursuant to the procedures set forth herein.

Unless expressly defined and used with an initial capital letter in this Agreement, words shall have their normally accepted meanings. The word "shall" is mandatory, the word "may" is permissive, the word ^" or ^" is not exclusive, the words ^" includes ^" and ^" including ^" are not limiting, and the singular includes the plural. The following terms shall have the described meanings:

1.   "Affiliate" of a Party means any controlling parent company of a Party, and all present and future companies in which a Party or its parent company, directly or indirectly, owns or controls 50% or more of the stock.

1.2   "Agreement" means the terms and conditions of this Development Agreement together with any exhibits or attachments including any Phase Descriptions signed by both Parties and referring to this Development Agreement, such as included in EXHIBIT B, which are incorporated herein by this reference.

1.3   "Change of Control" means a change in ownership or control of a Party effected through any of the following transactions:

(i)   a merger, consolidation or reorganization approved by the Party's equity holders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor entity are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned such Party's outstanding voting securities immediately prior to such transaction, or

(ii)   any transfer or other disposition of all or substantially all of the Party's assets.

1.4   "Confidential Information" means HVC Confidential Information, @BALANCE Confidential Information, or both if the context so indicates.

1.5   "Custom Sales Agreement" means the agreement so titled, if executed by and between the Parties that sets out the terms under which Joint Product will be manufactured and sold to @BALANCE. The Custom Sales Agreement will be executed concurrently with the issuance of Warrants and the termination of this Agreement except as to its provisions for confidentiality.

1.6   "Disclosing Party" means either Party hereunder that discloses its Confidential Information to the other Party.

1.7   "HVC Confidential Information" means any and all information and items disclosed or delivered by HVC to @BALANCE hereunder, that is identified by HVC as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software). With respect to the HVC Confidential Information referenced in the preceding sentence, HVC agrees (i) to coordinate and control the disclosure thereof with an @BALANCE Representative, (ii) if such HVC Confidential Information is disclosed in tangible form, HVC will stamp or otherwise clearly mark such information as HVC Confidential Information, and (iii) if such Confidential information is disclosed orally, HVC agrees to identify the Confidential Information as confidential at the time of disclosure, and provide to @BALANCE written confirmation thereof within thirty (30) days after such disclosure.

1.8.1   that are necessarily infringed in the manufacture or sale or other transfer of Joint Products; and

1.8.2   under which patents, claims or the relevant patent applications therefore, HVC has the right to grant licenses to @BALANCE of the scope granted below, without such grant or the exercise of rights thereunder resulting in the payment of royalties or other consideration by HVC to third parties. The term "HVC Licensed Patent Claim" shall also include the corresponding claims of any reissued or reexamined patents containing any of the aforesaid claims provided they continue to meet the aforesaid criteria.

1.9   "HVC Technology" means (i) the information listed in a Phase Description as being provided by and that is actually provided by HVC (ii) any other information provided by HVC pursuant to a Phase, including technical information, know-how, trade secrets and other information but only to the extent such information described in (i) and (ii) above, is owned or controlled by HVC or licensed to HVC independently of a Joint Project and HVC has the free right to grant a license or a non-assertion right to the extent necessary for the implementation of the Joint Project.

1.10   "Joint Product" means a Downhold Isolation Valve used in any activity related to forming, improving or refurbishing an hydraulic connection between a subsurface reservoir and the Earth's surface or water bottom, including but not limited to drilling, completing or working over a well, apparatus related to or used with the Valve, or any other item specified in a Phase Description to be jointly developed by the Parties hereunder.

1.12   "Joint Technology" means, unless specified otherwise in a Phase Description, those Inventions or other materials consisting of the specific results of the Parties' partial or completed design and development work pursuant to Joint Project, as embodied in all tangible, written, graphic, and other documentary forms as well as the intangible forms, and shall include but not be limited to the following: program material, design information, engineering notes, Joint Project design databases, design tool and design methodology information and designs and any tools developed as part of a Joint Product.

1.13   "@BALANCE Confidential Information" means any and all information and items disclosed or delivered by @BALANCE to HVC hereunder, that is identified by @BALANCE as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software). With respect to the @BALANCE Confidential Information referenced in the preceding sentence, @BALANCE agrees (i) to coordinate and control the disclosure thereof with an HVC Representative, (ii), if such @BALANCE Confidential Information is disclosed in tangible form, @BALANCE will stamp or otherwise clearly mark such information as @BALANCE Confidential Information, and (iii) if such Confidential Information is disclosed orally, @BALANCE agrees to identify the Confidential Information as confidential at the time of disclosure, and provide to HVC written confirmation thereof within thirty (30) days after such disclosure.

1.14   "a BALANCE Technology" means (i) the information listed in a Phase Description as being provided by and that is actually provided by @BALANCE, (ii) any other information provided by @BALANCE pursuant to a Phase Description including technical information, know-how, trade secrets and other information, but only to the extent such information described in (i) and (ii) above, is owned or controlled by @BALANCE or licensed to @BALANCE independently of a Joint Project and @BALANCE has the free right to grant a license or a non-assertion right to the extent necessary for the implementation of said Joint Project.

1.16   "Receiving Party" means either Party hereunder that receives the other Party's Confidential Information.

1.17   "Representative" means, with respect to a Party, that Party's agents, representatives and employees (including attorneys, accountants, consultants, contract employees and advisors).

1.18   "Phase Descriptions" means a written agreement executed by both Parties describing a Phase, such as included in EXHIBIT B.

1.19   "Term" means the period from the Effective Date of this Agreement through the same date in the year 2008.

1.20   "Warrants" means the security issued from HVC's publicly traded parent company Shumate Industries, Inc. (OTCBB:SHMT) in connection with the execution of the Custom Sales Agreement.

2.1   The Parties agree to cooperate on a Joint Project for the design of certain Joint Products useful during drilling of wells. Each Phase of development work to be performed by the Parties shall be the subject of a Phase Description, which shall be attached as Exhibit B to this Agreement. Each Phase Description will establish the activities of that Phase, a plan for the conduct of the work, the schedule for task completion and the deliverables. Each Phase Description will set forth a budget for the Phase described. @BALANCE will pay the estimated costs of each Phase before work begins for the Phase. In the event of a conflict between the provisions of a Phase Description and the provisions of this Development Agreement, the provisions of the Phase Description will prevail. The Parties recognize that the budget attached in Exhibit B for each Phase is an estimate by HVC which may vary depending on materials costs and other variables. HVC will utilize a Change Order to request more money from @BALANCE during an uncompleted Phase when needed. The Parties agree that it is @BALANCE's sole discretion as to whether @BALANCE chooses to approve any Change Order.

2.2   The initial Joint Project is described in the Phase Descriptions attached in Exhibit B. Future Phases, if any, will be documented in a similar mariner and will become a part of this Agreement upon signature by the Project Executive Director of @BALANCE and the Project Representative of HVC. Neither Party will be obligated with respect to any proposed additional Phase until and unless a Phase Description with respect thereto is signed by both Parties. Neither Party has an obligation to agree to any additional Phase.

2.3   @BALANCE will appoint a Project Executive Director to provide oversight and coordination of the Joint Project.

2.4   HVC will appoint a Project Representative who will work with the Project Executive Director to ensure that appropriate development processes are being followed for all Phases.

2.5   Each Party agrees that its employees shall comply in all material respects with all reasonable personnel, human resources, security and safety rules, procedures and guidelines of the other Party applicable to contractors resident at or visiting the premises of such Party while such employees are on the other Party's premises.

2.6   Personnel supplied by each Party are employees or contractors of the supplying Party and shall not for any purpose be considered employees or agents of the other Party. Each Party shall be responsible for the supervision, direction and control, payment of salary (including withholding of taxes), worker's compensation insurance, disability benefits and the like of its own employees while engaged in any Joint Project in accordance with the law of the state or states wherein a Joint Project is to be performed.

2.7   To the extent permitted by law, during the Term and for one year thereafter, @BALANCE and HVC each agrees neither to solicit nor hire the employees of the other Party performing services hereunder without the prior written consent of the other Party.

2.8   Each Party (a "Hosting Party") allowing employees of the other Parry (an "Assigning Party") to work on its premises assumes no liability to the Assigning Party for any injury, (including death) to persons or damage to or loss of property suffered on or about the such Hosting Party's premises or in connection with work under this Agreement unless caused by the willful misconduct or gross negligence of the Hosting Party, its employees or invitees (other than employees of the Assigning Party). Each Hosting Party makes no representation or warranty, written or oral, of any kind as to the condition of or the fitness for any purpose of its premises.

3.1   HVC shall contribute relevant HVC Technology, HVC Licensed Patents and HVC Confidential Information to the Joint Project. @BALANCE shall contribute relevant @BALANCE Technology. Each Party shall retain ownership of its contributed Technology, patent rights and Information. Joint Technology shall be owned by HVC.

3.2   HVC shall have the right at HVC's expense to protect Joint Technology or Joint Products by U.S. and foreign patents. @BALANCE shall cooperate in prosecuting such patents at HVC's request. If HVC chooses not to prosecute a patent on Joint Technology, @BALANCE shall have the right to prosecute U.S. or foreign patents and pay the costs therefor. HVC shall pay the cost of and obtain the benefit of any action to enforce such patents against infringers. In the event HVC declines to take action to enforce such patents, @BALANCE shall have the right to take such action at its cost and shall obtain the benefit of any such action, and HVC shall join as a party to such action to enforce patents taken by @BALANCE if it is determined that HVC is a necessary party.

3.3   If and when @BALANCE reaches a decision to commercialize a Joint Product, the Parties will use their best efforts to negotiate and enter into a Custom Sales Agreement. The Custom Sales Agreement shall be executed within ninety (90) days after testing of the Joint Product as provided in Phase 3 (described in Exhibit B). The Custom Sales Agreement shall provide terms that include @BALANCE's right to have world-wide exclusivity in the purchase of Joint Products from HVC, provided that @BALANCE pays minimums (an Exclusivity Fee), purchases at least a specified value of Joint Products from HVC, funds part or all of any necessary capital expenditures needed by HVC to manufacture Joint Products, or any combination of the foregoing. The Custom Sales Agreement shall also provide @Balance the right to procure Joint Products from third parties to the extent HVC is not able to meet @ Balance's requirements for such Joint Products, and shall require HVC to license such third parties to such extent. The Custom Sales Agreement shall provide @BALANCE the right to purchase Joint Products from HVC at not more than HVC's cost to make same plus a markup consistent with HVC's markup on similar HVC products sold to third parties in arm's length transactions.

3.4   When the Custom Sales Agreement provided in Section 3.3 has been executed, SHUMATE shall issue to @BALANCE warrants (the "Warrants") to purchase shares of common stock of SHUMATE. The number of shares that can be purchased upon exercise of the Warrants shall equal the quotient obtained by dividing (a) the amount, in U.S. dollars, that @BALANCE has provided to develop and test the Joint Product, by (b) $3.00. The exercise price of the Warrants shall be $3.00 per share, and the term of the Warrants shall be ten (10) years. The Warrants will contain standard "piggy-back" registration rights with respect to the shares of common stock issuable upon exercise of the Warrants. By example, if @BALANCE spends $1.5 million during the Agreement, then in connection with agreeing to commercialize the Joint Product (executing the Custom Sales Agreement contemplated herein), SHUMATE will issue a fully-vested warrant of 500,000 shares, with a $3.00 strike price and a term of 10 years. SHUMATE's assent to be bound by the foregoing obligation, and its representation and warranty of authority to perform such obligation are evidenced by signature of its authorized representative below.

3.5   Each Party agrees that it will not assert against the other Party any patent claims covering technology related to Downhole Isolation Valves, to the extent and only to the extent that such technology related to Downhole Isolation Valves is used to manufacture, use, or sell a Joint Product.

3.6   Upon request by @BALANCE, before commencement of sale of Joint Products manufactured by HVC, the Parties will negotiate and execute a non-exclusive, royalty-free Trademark License for use of the registered trademark HEMIWEDGE ^® in products or services sold by @BALANCE that include goods manufactured by HVC. The Trademark License shall include all limitations, restrictions and requirements necessary to avoid any impairment of the rights of HVC in the mark or any diminution in value of the mark to HVC.

3.7   To the extent capital investment is required by HVC to meet the demand for Joint Products, @BALANCE and/or its Affiliate Shell Technology Ventures shall have the right to participate in such capital investment by cash payment, and shall receive as consideration for such cash payment common stock of SHUMATE, subject to first right of refusal of certain interests of investors in SHUMATE created in February 2006.

4.1   For a period of five (5) years from the date of disclosure of Confidential Information, the Receiving Party agrees to use the same degree of care and discretion to keep the Disclosing Party's Confidential Information confidential as it uses with its own similar information that it wishes to keep confidential. The Confidential Information received by a Receiving Party shall not be used for any purpose other than in connection with exercising the rights and licenses granted to it under this Agreement, subject to the obligation of confidentiality and subject to the terms and conditions of the licenses granted herein.

4.2   The Receiving Party may disclose the Confidential Information of the Disclosing Party only to the Receiving Party's Representatives on a need-to-know basis, subject to the requirements of Section 4.1.

4.3   Notwithstanding any other provisions of this Agreement, the nondisclosure and use obligations specified herein shall not apply to any Confidential Information that:

4.3.1   is already lawfully in the possession of the Receiving Party prior to being furnished to the Receiving Party by the Disclosing Party, provided that the source of such information was not and does not become known by the Receiving Party, prior to disclosure by the Receiving Party, to be prohibited from disclosing the information to the Receiving Party by legal, contract or fiduciary obligation to the Disclosing Party;

4.3.2   is independently developed by employees (without use of Confidential Information) of the Receiving Party or any of its subsidiaries;

4.3.3   becomes generally publicly available without breach of this Agreement;

4.3.4   is rightfully received by the Receiving Party on a non-confidential basis from a third party that is not known by the Receiving Party to be prohibited from disclosing the information to the Receiving Party by legal, contract, or fiduciary obligation to the Disclosing Party; or

4.3.5   is released for disclosure by the Disclosing Party with its written consent.

4.4   Disclosure of Confidential Information shall not be precluded if such disclosure is:

4.4.1   in response to a valid order of a court or other governmental body; or

4.4.2   otherwise required by law; or

4.4.3   necessary to establish the Receiving Party's rights under this Agreement.

4.5   Each party shall obtain the consent of the other before making any press release or other publication of any activity pursuant to this Agreement, which consent shall not be unreasonably withheld.

5.1   During the Term (from the Effective Date to the same date in the year 2008) either Party may terminate this Agreement upon written notice to the other Party that it does not choose to proceed to another Phase after completion of the current Phase. Such notice shall be sent at least thirty (30) days before scheduled completion of the current Phase.

5.2   @BALANCE may terminate this Agreement upon written notice to HVC if HVC is more than ninety (90) days late in completing work on a Phase.

5.3   This Agreement shall not terminate of its own accord in the event of a Change of Control of either Party. In the event of a Change of Control, the Party undergoing same shall, to the extent not provided for by operation of law, provide in the agreement giving effect to the Change of Control require the counterparty to such agreement to accept assignment of this Agreement and be bound by all its terms as fully as if such counterparty were a parry to this Agreement, and the other Party shall accept such assignment.

5.4   Upon expiration or termination of this Agreement, both Parties shall end the Phase in process and the following shall apply:

5.4.1   Neither Party shall be under any obligation to make further disclosures of technical information of any kind to the other Party.

5.4.2   All confidentiality obligations set forth herein shall continue.

5.4.3   Joint Technology shall be owned by HVC and HVC shall continue to have the right to prosecute patents to protect the Joint Technology or Joint Products as provided in Section 3.2.

6.1   Although the Parties will use all reasonable efforts in performing Joint Projects, the Parties acknowledge that the results of the design and development work to be performed are uncertain and cannot be guaranteed by either Party. Therefore, if a Party has exerted its reasonable efforts in the performance of its responsibilities under a Phase Description, the failure to achieve schedules within the Phase Description shall not constitute a breach of this Agreement. Further, neither Party warrants