UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported)      August 10, 2006

 

PROBE MANUFACTURING, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

333-125678

 

20-2675800

(State or other jurisdiction

 

(Commission

 

(IRS Employer

of incorporation)

 

File Number)

 

Identification No.)

 

 

 

 

 

3050 Pullman Street, Cost Mesa, CA

 

92626

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code      (714) 424-2960

 

 

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 





 

ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

 

On August 10, 2006 the following promissory notes and special lines of credit were changed to term promissory notes effective June 30, 2006 and that have a 12% interest rate with a 36 month amortization a balloon payments on April 15, 2008:


1). Note Payable number 2029054, dated March 10, 2006  – related party, Special use, line of credit in the amount of $45,000, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock),  due May 10, 2007.  As of June 30, 2006 the outstanding balance was $29,649, payable to Kambiz Mahdi, This note was converted to a Term Note Payable $30,155.58 with an effective date of  June 30, 2006 The note is un-secured at 12% interest rate, with a 36 month amortization, payments of $1,001 and a balloon payment of $16,588 on April 15, 2008.

2). Note Payable number 2029053, dated March 10, 2006  – related party, special use, line of credit in the amount of $45,000, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock),  due May 10, 2007.  As of June 30, 2006 the outstanding balance was $29,649, payable to Reza Zarif. This note was converted to a Term Note Payable in the amount of 30,155.58 with an effective date of  June 30, 2006, The note is un-secured, At 12% interest rate, with a 36 month amortization, payments of $1,001 and a balloon payment of $16,588.70 on April 15, 2008.

3). Note Payable number 2029055, dated March 10, 2006  – related party, special use, line of credit in the amount of $90,000, unsecured, 12% interest paid in Cash., due May 10, 2007.  As of June 30, 2006 the outstanding balance was $59,298, payable to Frank Kavanaugh, This note was converted to a Term Note Payable  in the amount of $60,113 with an effective date of  June 30, 2006.  The note is un-secured  at 12% interest rate, with a 36 month amortization, payments of $1,996 and a balloon payment of $33,068 on April 15, 2008.

4). Note Payable – number 2401010 – related party, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock) due on May 10, 2007, payable to Kambiz Mahdi.  This note was converted to a Term Note Payable in the amount of 236,986.04 with an effective date of June 30, 2006.  The note is un-secured, At 12% interest rate, with a 36 month amortization, payments of $7,871 and a balloon payment of $130,366 on April 15, 2008.

5). Note Payable – number 2401000 – related party, unsecured, 20% interest (10% paid in Cash and 10% paid in Company stock)  due on May 10, 2007, payable to Reza Zarif.  This note was converted to a Term Note Payable in the amount payable of $236,986.04 with an effective date of  June 30, 2006.  The note is un-secured, at 12% interest rate, with a 36 month amortization payments of $7,871 and a balloon payment of $130,366 on April 15, 2008.

6). Note Payable – Number 2020000 – related party.  This Note was an operating line of credit, secured by the assets of the company,   Borrowings under this Line of credit was at an interest rate of 20% (12% paid in cash and 8% paid in common stock in the company) per annum.    As of June 30, 2006 the Company had an outstanding balance against this line of credit in the amount of $75,000, payable to Rufina Paniego.  This note was converted to a Term Note Payable in the amount of $75,000 with an effective date of  June 30, 2006.  The note is un-secured  at 12% interest rate, with a 36 month amortization, payments of $2,491 and a balloon payment of $41,257 on April 15, 2008

7). Note Payable – Number 2029000 – related party.  This Note was an operating line of credit, secured by the assets of the company,   Borrowings under this Line of credit was at an interest rate of 20% (12% paid in cash and 8% paid in common stock in the company) per annum.    As of June 30, 2006 the Company had an outstanding balance against this line of credit in the amount of $150,000, payable to eFund Capital Partners.  This note was converted to a Term Note Payable in the $150,000 with an effective date of  June 30, 2006 The note is un-secured at 12% interest rate, with a 36 month amortization, payments of $4,982 and a balloon payment of $82516 on April 15, 2008

8). Note Payable – Number 2029010 – related party.  This Note was an operating line of credit, secured by the assets of the company,   Borrowings under this Line of credit was at an interest rate of 20% (12% paid in cash and 8% paid in common stock in the company) per annum.    As of June 30, 2006 the Company had an outstanding balance against this line of credit in the amount of $140,000, payable to Benner Exemption Trust.  This note was converted to a Term Note Payable in the amount of $140,000 with an effective date of  June 30, 2006.  The note is un-secured  at 12% interest rate, with a 36 month amortization, payments of $4,650 and a balloon payment of $77,014 on April 15, 2008.

9). Note Payable – Number 2029030 – related party.  This Note was an operating line of credit, secured by the assets of the company,   Borrowings under this Line of credit was at an interest rate of 20% (12% paid in cash and 8% paid in common stock in the company) per annum.    As of June 30, 2006 the Company had an outstanding balance against this line of credit in the amount of $140,000, payable to Ed Lassiter.  This note was converted to a Term Note Payable in the amount of $140,000 with an effective date of  June 30, 2006.  The note is un-secured  at 12% interest rate, with a 36 month amortization payments of $4,650 and a balloon payment of $77,014.52 on April 15, 2008.

10). Note Payable - Number 2029020 -   This Note was an operating line of credit, secured by the assets of the company,   Borrowings under this Line of credit was at an interest rate of 20% (12% paid in cash and 8% paid in common stock in the company) per annum.    As of June 30, 2006 the Company had an outstanding balance against this line of credit in the amount of $50,000, payable to Bill Duncan.  This note was converted to a Term Note Payable in the amount of $50,000 with an effective date of  June 30, 2006. The note is un-secured at 12% interest rate, with a 36 month amortization, payments of $1,660.72 and a balloon payment of $27,505.19 on April 15, 2008

11). Note Payable - Number 2029040 -   This Note was an operating line of credit, un-secured,   Borrowings under this Line of credit was at an interest rate of 15%  per annum.    As of June 30, 2006 the Company had an outstanding balance against this line of credit in the amount of $50,000, payable to Hoa Mai.  This note was converted to a Term Note Payable in the amount of $50,000 with an effective date of  June 30, 2006 The note is un-secured  at 12% interest rate, with a 36 month amortization, payments of $1,660.72 and a balloon payment of $27,505.19 on April 15, 2008.

12) Note Payable – Number 2028000 –   This Note was an operating line of credit, secured by the assets of the company,   Borrowings under this Line of credit was at an interest rate of 12%  per annum.    As of June 30, 2006 the Company had an outstanding balance against this line of credit in the amount of $100,000, payable to Ashford Capital.  This note was converted to a Term Note Payable in the amount of $100,000, with an effective date of  June 30, 2006.  The note is un-secured  at 12% interest rate, with a 36 month amortization, payments of $3,321.43 and a balloon payment of $55,010.37 on April 15, 2008.

 


ITEM 8.01 OTHER EVENTS.


As of August 14, 2006 all outstanding Series A and Series C Convertible Preferred Stock was converted to common stock by the holders of the preferred stock.  Therefore, the Company no longer has any outstanding preferred stock.   As of August 14, 2006 the Company had 10,327,700 shares of common stock outstanding.


On August 21, 2006 instituted its profit sharing plan for employee which was approved by the board of directors in January, 2006.  Pursuant to the plan the employees will be entitled to receive ten percent of the net profits before taxes.  The Profit sharing pool will be paid out in 2 payments; 1) 40% of the accrued pool is paid on December 15 th of the current year, 2) The Balance will be paid on March 31 of the following year, after the final year end audit adjustments are completed.  


On August 21, 2006 the Company instituted its 2006 Employee Incentive Stock Option Plan whereby two percent of the outstanding shares of the Company’s common stock, Outstanding Common Shares, shall be available for grant under this Plan.  The Exercise Price of an Incentive Stock Option shall be lesser of the established Fair Market Value or $.80  at the time of Grant; provided that the Exercise Price of an Incentive Stock Option granted to a holder of more than 10% of the outstanding Shares shall be 110% of the Fair Market Value of the Shares on the date of grant. The term of an Incentive Stock Option granted under this Plan shall be established by the Committee at the date of grant and shall not exceed 10 years from the date of grant for all Incentive Stock Options; provided however, in the case of an Incentive Stock Option with an Exercise Price set at 1 10% of Fair Market Value, the term of such Incentive Stock Option shall not exceed 7 years from the date of grant.


ITEM  9.01  FINANCIAL STATEMENTS AND EXHIBITS.

 

Exhibit Number

 

Description

   

.

10.1

 

Term Note with Kambiz Mahdi

10.2

 

Term Note with Reza Zarif

10.3

 

Term Note with Frank Kavanaugh

10.4

 

Term Note with Kambiz Mahdi

10.5

 

Term Note with Reza Zarif

10.6

 

Term Note with Rufina Paniego

10.7

 

Term Note with eFund Capital Partners, LLC

10.8

 

Term Note with Benner Exemption Trust

10.9

 

Term Note with Ed Lassiter

10.10

 

Term Note with William Duncan

10.11

 

Term Note with Hoa Mai

10.12

 

Term Note with Ashford Capital, LLC

10.13

 

Employee Profit Sharing Plan

10.14

 

2006 Employee Incentive Stock Option Plan

 


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

Probe Manufacturing, Inc.

 

(Registrant)

 

 

Date

  August 22, 2006

 

 

 

 

 

/s/ Reza Zarif

 

(Signature)

 

Print Name: Reza Zarif

 

Title: Chief Executive Officer




Promissory Installment Note

Note#

2029054-a                                             Date:                August 10, 2006


Borrower:      Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Kambiz Mahdi                                                 Amount          $30,155.58


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $301.56 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $1,001.60 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $16,588.70


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006              Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Kambiz Mahdi                                                 

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

2029053-a                                             Date:                August 10, 2006


Borrower:      Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Reza Zarif                                                 Amount          $30,155.58


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $301.56 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $1,001.60 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $16,588.70


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006               Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Reza Zarif                                                 

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

2029055-a                                             Date:                August 10, 2006


Borrower:      Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Frank Kavenaugh                                        Amount          $60,113.39


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $601.13 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $1,996.62 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $33,068.60


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006                Effective Date June 30, 2006

Probe Manufacturing , Inc.,

a Nevada corporation

Frank Kavenaugh                                        

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

2401010-a                                             Date:                August 10, 2006


Borrower:      Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Kambiz Mahdi                                                 Amount          $236,986.04


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $2,369.86 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $7,871.33 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $130,366.91


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006               Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Kambiz Mahdi                                                 Reza Zarif                                                 

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

2401000-a                                             Date:                August 10, 2006


Borrower:      Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Reza Zarif                                                 Amount          $236,986.04


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $2,369.86 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $7,871.33 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $130,366.91


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006               Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Reza Zarif                                                 

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

 2020000                                             Date:                August 10, 2006


Borrower:       Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Rufina Paniego                                                 Amount          $75,000


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $750 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $2,491.07 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $41,257.78


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006               Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Rufina Paniego                                                 

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

2028000                                                      Date:         August 10, 2006


Borrower:       Probe Manufacturing, Inc.                   
                        3050 Pullman Street
                       Costa Mesa,  CA 92661

Payee:       

eFund Capital Partners, LLC                         Amount          $150,000


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $1,5 00 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $4,982.15 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $82,515.56.  Interest for June and July of 2006 will be paid base on the terms of the original note.


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006                   Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

eFund Capital Partners, LLC                         

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Term Notes\Efund 2029000.doc


Promissory Installment Note

Note#

 2029010                                             Date:                August 10, 2006


Borrower:       Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Benner Exemption Trust                               Amount          $140,000


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $1,400 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $4,650.00 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $77,014.52.


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006                Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Benner Exemption Trust  

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

 2029010                                             Date:                August 10, 2006


Borrower:       Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Ed Lassiter                                                      Amount          $140,000


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $1,400 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $4,650.00 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $77,014.52.


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006                  Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Ed Lassiter                                                      

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

 2029020                                                      Date:    August 10, 2006


Borrower:       Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

William Duncan                                            Amount          $50,000


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $500 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $1660.72 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $27,505.19.


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006              Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

William Duncan                                            

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Promissory Installment Note

Note#

 2029040                                             Date:                August 10, 2006


Borrower:       Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Hoa Mai                                                       Amount          $50,000


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $500 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $1,660.72 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $27,505.19


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006               Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Hoa Mai                                                 

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Term Notes\hoa 2029040.doc


Promissory Installment Note

Note#

2028000                                            Date:                August 10, 2006


Borrower:       Probe Manufacturing, Inc.
                       3050 Pullman Street
                       Costa Mesa,  CA 92661


Payee:       

Ashford Capital Transition Fund               Amount          $100,000


Interest Rate:  12% per annum

PAYMENT TERMS .  This Note is due and payable as follows, to-wit:  Interest payments of $1,000 on August 15, 2006 and September 15, 2006.  Eighteen monthly payments of $3,321.43 including Principal and interest, commencing October 15, 2006 and each month thereafter on the 15 th day of the month,  With a final balloon payment due on April 15, 2008 of $55,010.37.


PRE-PAYMENT. Borrower will allocate 50% of all equity financing raised by the Company to pay off its debt.  The Borrower may prepay all or part of this note at anytime.


DEFAULT AND ACCELERATION CLAUSE .  If Borrower defaults in the payment of this Note or in the performance of any obligation, and the default continues for five (5) days after Payee gives Borrower notice of the default, then Payee may declare the unpaid principal balance and earned interest on this Note immediately due.  Borrower and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests, and notices of protest, to the extent permitted by law.


ATTORNEY’S FEES .  If this Note is given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Borrower shall pay Payee all costs of collection and enforcement, including reasonable attorney’s fees and court costs in addition to other amounts due.


SEVERABILITY .  If any provision of this Note or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shall be enforced to the maximum extent permitted by law.


BINDING EFFECT .  The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto.


GOVERNING LAW .  This Note shall be governed, construed and interpreted by, through and under the Laws of the State of California.  

EXECUTED as of  August 10, 2006                Effective Date June 30, 2006


Probe Manufacturing , Inc.,

a Nevada corporation

Ashford Capital Transition Fund

By: _____________________________

By:______________________________

Its: ________________ Date: ________

Its: ________________ Date: _________

                                         



 

P:\notes payable\Template.doc


Probe Profit Sharing

Policy/Procedure



Name: Profit Sharing Plan

Manual Section: Fringe Benefits

Effective Date: 1/1/2006

New: [X] Revised: [_]

1. Background or Issue

The annual profit sharing program was established to compensate employees for their contributions to the organization’s success. Profit sharing is based on the company’s annual profitability.


2. Determination of Profit Sharing Pool

At the end of each quarter, the profit sharing pool is calculated, accrued and funds are set aside based on the Company's (Quarterly Net Profit before Tax) times 10%.  The Profit sharing pool will be paid out in 2 payments; 1) 40% of the accrued pool is paid on December 15 th of the current year, 2) The Balance will be paid on March 31 of the following year, after the final year end audit adjustments are completed.  


Voluntary deductions are normally not taken from sharing checks. However, mandatory deductions, such as child support and garnishments are deducted. When applicable; if an employee wishes, he/she may request that a percentage of their profit sharing be deducted for contribution to his/her 401(k) account. In order to make this deduction request, the employee must complete a request form each year.


3. Profit Sharing Payment

Profit sharing is calculated for all active employees and employees who are on approved leave as of the date of each payment for that payment. The Profit Sharing pool will be paid evenly to all eligible employees on a prorate basis, based on the number of regular hours worked during the year after their probationary period. However, profit sharing is not paid to employees who have been terminated for cause or who have voluntarily left the Company prior to the payment date of the bonus. Those employees who are on approved leave will receive their checks in the mail.


Profit Sharing checks are always live. Federal withholding is always calculated at the flat IRS bonus rate of 27%.


4. Eligibility for Temporary Employees

Temporary employee’s are not eligible for participating in the profit sharing plan.






Table of Contents

PROBE MANUFACTURING, INC. 2006 EMPLOYEE INCENTIVE STOCK OPTION PLAN



1.   Purpose


The purpose of the Probe Manufacturing, Inc. 2006 Employee Incentive Stock Option Plan is to attract and retain high performing individuals who will make an immediate and long-term contribution to Probe Manufacturing, Inc.'s business by providing such individuals with the opportunity to acquire an ownership interest in Probe Manufacturing, Inc. through the award of Incentive Stock Options.


2.   Definitions


Whenever the following words are capitalized and used in the Plan, they shall have the respective meanings set forth below.


a.   "Board of Directors" means the Board of Directors of the Company.


b.   "Cause" shall include, but not be limited to (i) an act or acts of personal dishonesty of a Participant at the expense of the Company or any of its subsidiaries, (ii) a willful violation of the Participant's employment duties and responsibilities, (iii) a conviction of the Participant of a felony or a crime involving moral turpitude, (iv) unauthorized disclosure of confidential information, (v) competing with the Company or (vi) conduct substantially prejudicial to the Company. The Committee shall have the exclusive right to determine whether Cause exists and the Committee's determination shall be binding and conclusive on all Participants and the Company.


c.   "Code" means the Internal Revenue Code of 1986, as amended.


d.   "Committee" means a committee of at least two individuals appointed by the Board of Directors to administer the Plan. If the Company shall register its Common Stock under the Securities Act, then the Committee shall consist of at least two or more individuals meeting both the "Non-employee Director" standard set forth in Rule 16b-3 promulgated under Section 16 of the Exchange Act and the "Outside Director" standard set forth in the regulations promulgated under Section 1 62(m) of the Code.


e.   "Company" means Probe Manufacturing, Inc. Inc. and its subsidiaries.


f.   "Disability" means the permanent and total disability of Participant as defined in Section 22(e)(3) of the Code.


g.   "Exchange Act" means the Securities Exchange Act of 1934, as amended.


h.   "Exercise Price" the price at which Shares may be purchased upon exercise of an Incentive Stock Option covering such shares in accordance with the terms and conditions prescribed by this Plan.


i.   "Fair Market Value" means as of any given date, the fair market value of the Shares as determined by the Committee in good faith in its sole discretion, or if the Shares are publicly traded, the mean of the highest  and lowest quoted selling prices of the Shares on the exchange on which the Shares are listed (consolidated trading) or, if applicable, the mean of the highest and lowest quoted bid prices of the Shares as furnished by the National Association of Securities Dealers Inc.'s Automated Quotation System, as of the most recent trading date.


j.   "Grant Agreement" means an agreement setting forth the terms of an award of Incentive Stock Options to an employee of the Company, which is entered into by the Company and such employee.


k.   "Incentive Stock Option" means a stock option, which complies with Section 422 of the Internal Revenue Code of 1986, as amended and which is granted under this Plan to an employee of the Company.


l.   "Participant" means an individual selected by the Committee for an Incentive Stock Option award by the Committee in accordance with Section 5 below.


m.   "Plan" means this Probe Manufacturing, Inc. 2004 Incentive Stock Option Plan, as amended or restated from time to time.


n.   "Securities Act" shall mean the Securities Act of 1933, as amended.


o.   "Share" means a share of the Company's common stock no par value per share.


3.   Number of Shares


Two percent of the outstanding shares of the Company’s common stock, Outstanding Common Shares, shall be available for grant under this Plan. If any Incentive Stock Option granted under the Plan shall terminate or expire for any reason without having been exercised in full, the un-issued Shares covered by such incentive Stock Option shall again be available for grant under the Plan. The Shares issued by the Company under this Plan may be either un-issued Shares or treasury Shares.


4.   Administration


This Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum. The Committee shall have full power and authority to:


(a) Prescribe, amend and rescind rules and procedures governing the administration of this Plan;


(b) Interpret the provisions of this Plan and to establish and interpret rules and procedures with respect to the operation of this Plan;


(c) Determine the eligibility of employees to participate in this Plan in accordance with the standards set forth in this Plan;


(d) Determine, in accordance with the Plan and Section 422 of the Code, the terms of Incentive Stock Options granted to employees; and


(e) Delegate certain of the duties of the Committee to one or more agents to facilitate the administration of this Plan. Each action of the Committee, which is within the scope of the authority delegated to the Committee, shall be binding on all persons.


5.   Eligibility and Participation


Incentive Stock Options may be granted only to employees of the Company upon selection by the Committee, in its sole discretion. An employee who has been elected by the Committee for a grant of an Incentive Stock Option must, as a condition to receiving such grant, enter into a Grant Agreement with the Company specifying the terms of such grant.


Selection of an employee for an award shall not require the Committee to make another grant to such Participant at any other time during such Participant's employment with the Company.


6.   Incentive Stock Options


6.1. Power to Grant Stock Options


The Committee shall have the right and the power to grant, in accordance with this Plan, Incentive Stock Options on such terms and conditions as may be established by Committee in accordance with this Plan and Section 422 of the Code on or prior to the date of grant of such Incentive Stock Options.



6.2. Exercise Price


The Exercise Price of an Incentive Stock Option shall be lesser of the established Fair Market Value or  $.80  at the time of Grant; provided that the Exercise Price of an Incentive Stock Option granted to a holder of more than 10% of the outstanding Shares shall be 110% of the Fair Market Value of the Shares on the date of grant.


6.3. Term


The term of an Incentive Stock Option granted under this Plan shall be established by the Committee at the date of grant and shall not exceed 10 years from the date of grant for all Incentive Stock Options; provided however, in the case of an Incentive Stock Option with an Exercise Price set at 1 10% of Fair Market Value in accordance with Paragraph 6.2 above, the term of such Incentive Stock Option shall not exceed 7 years from the date of grant.


6.4. Vesting


An Incentive Stock Option granted under this Plan shall become exercisable upon such date or dates specified by the Committee, in its sole discretion, in the Grant Agreement relating to such Incentive Stock Option. To the extent required by Section 422 of the Code, the aggregate Fair  Market Value, determined as of the date of grant, of Shares for which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000.


6.5. Exercise


An Incentive Stock Option may be exercised by a Participant upon the date or dates and in accordance with the conditions specified in the Grant Agreement executed by such Participant which relates to such Incentive Stock Option. However, no Incentive Stock Option shall be exercised for a fraction of a share.


To exercise an Incentive Stock Option, the Participant must deliver written notice to the Chief Financial Officer of the Company or any other Company executive provided by the applicable Grant Agreement after the date such Incentive Stock Option becomes exercisable but prior to the expiration of the

term of such Incentive Stock Option or of the cancellation or forfeiture of such Incentive Stock Option.


Written notice delivered to the Company by the Participant must state the number of Shares being purchased and must be accompanied by payment of the full purchase price for such Shares. Method of payment for the Shares for which Incentive Stock Options are exercised shall be set forth in the Participant's Grant Agreement and, at the Committee's sole discretion, may include any or all of the following methods: (1) delivery of a personal check or money order payable to the Company; (2) delivery of Shares which have been held by such Participant for at least six months; (3) delivery by the Participant of a promissory note with recourse, and/or, (4) if there is a public market for the Shares, the delivery of a properly executed exercise notice, together with irrevocable instructions to a broker to promptly deliver to the Company either sale proceeds of Shares sold to pay the purchase price or the amount loaned by the broker to pay the purchase price.


6.6. Limitation on Transfer of Incentive Stock Options


No Incentive Stock Option granted under this Plan shall be transferable otherwise than by will or the laws of descent and distribution, and any Incentive Stock Option granted under this Plan may be exercised during the lifetime of the person to whom the Incentive Stock Option shall initially have been granted only by such person or by such person's guardian or legal representative.



7.   Termination


7.1 . Death, Disability, or Termination of the Participant's employment by the Company other than for Cause


In the event of Death or Disability of the Participant, or termination of the Participant's employment by the Company other than for Cause, all vested Incentive Stock Options shall be exercisable by the Participant's estate, personal representative, or Participant for a period which shall not exceed the expiration date(s) of any such Incentive Stock Options determined by the Committee and set forth in the applicable Grant Agreement(s) or the period permitted by Section 422 of the Code.


All unvested Incentive Stock Options may become exercisable to the extent determined by the Committee, in its sole discretion.


7.2. Voluntary Termination


In the event of a voluntary termination of employment by Participant, all vested and unvested Incentive Stock Options shall be immediately forfeited by the Participant without any consideration.


7.3. Termination For Cause


In the event of termination for Cause, all vested and unvested Incentive Stock Options shall be immediately forfeited by the Participant without any consideration.


7.4. Obligation to enter into Voting Trust Agreement with Company


If a Participant terminates employment with the Company under Paragraphs 7.1, 7.2 or 7.3 above and the Company has not registered its Shares under the Securities Act, at the request of the Company, such Participant shall be required to enter into a voting trust agreement with the Company on such terms and conditions as may be determined by the Committee in its sole discretion. In accordance with the voting trust agreement, such Participant shall give an unauthorized representative of the Company an irrevocable right to exercise all voting and consent rights in connection with Shares purchased upon exercise of Incentive Stock Options granted to such Participant under this Plan.


The obligation set forth under this Paragraph 7.4 shall terminate on the date he Company registers Shares under the Securities Act.


8.   Change of Control


8.1. Acceleration of Incentive Stock Options


Notwithstanding any provision of this Plan to the contrary, upon the occurrence of a Change in Control as set forth in Paragraph 8.2 below, all unvested Incentive Stock Options then outstanding under this Plan shall become fully exercisable as of the date of the Change in Control.


8.2. Definition of "Change in Control"


A Change in Control shall be deemed to have occurred on the earliest of the following dates:


(i)   the acquisition, other than from the Company or with the approval of the Board of Directors of the Company, of 50 percent or more of either the then outstanding Shares or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors;


(ii)  Registration of the Company's Common Stock under the Securities Act pursuant to an S-1 filing.


(iii) Approval by the stockholders of the Company of the sale or other disposition of all or substantially all of the Company's assets or a sale of all of the outstanding shares of Common Stock of the Company to an unaffiliated entity or individual; or


(iv)  Liquidation or dissolution of the Company.



9.    No Right to Continued Employment


Nothing in the Plan or in any Grant Agreement shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate such individual's employment at any time.


10.   Limitation on Right to Shares


No Participant shall have any rights as a shareholder to any Shares subject to Incentive Stock Options until such Incentive Stock Options have been exercised.


11.   Investment Representation and Legending of Share Certificates


As a condition to receiving an Incentive Stock Option grant under the Plan, Participant shall agree that, unless the Shares subject such Incentive Stock Options have been effectively registered under the Securities Act, the Company shall be under no obligation to issue the Shares covered by such Incentive Stock Options unless and until the following conditions have been met:


a.    That Participant or any other individual who exercises such Incentive Stock Options on behalf of or as a result of a transfer from Participant, shall warrant to the Company prior to receipt of the Shares that such person(s) are acquiring such Shares for their own respective accounts for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares.


b.    The Company shall have received an opinion of its counsel that the Shares  may be issued upon such particular exercise in compliance with the Securities Act without registration.


All Share certificates issued upon the exercise of an Incentive Stock Option shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan; the rules, regulations or other requirements of the Securities Act and the Exchange Act, the rules of any stock exchange upon which such Shares are listed, or under any other applicable Federal or state laws; and the Committee may have a legend placed on any such certificates to make appropriate reference to such restrictions.


12.   Adjustment of Shares


In the event of any corporate change through recapitalization, merger, consolidation, stock dividend, split-up, combination or exchange of Shares or otherwise, which affects the character and amount of the Company's Shares prior to exercise of any Incentive Stock Option granted under this Plan, any such

Incentive Stock Options, to the extent not exercised, shall entitle a Participant holding such Incentive Stock Options to such number and kind of Shares as such Participant would have been entitled to had such Participant actually owned the Shares subject to such Incentive Stock Options at the time of such change. The Committee, in its sole discretion, shall determine any adjustments necessary to ensure that the Incentive Stock Option after such change is equivalent in value to such Incentive Stock Option prior to such change including, but not limited to, changes in the Incentive Stock Option Exercise Price or the number of Shares covered by such Incentive Stock Option(s).


13.   Withholding Tax


Whenever the Company is required to issue Shares upon exercise of an Incentive Stock Option by a Participant, such Participant shall remit to the Company an amount sufficient to satisfy any federal, state or local income and payroll tax withholding liability prior to the delivery of any certificate(s) for such

Shares. Upon approval by the Committee, in its sole discretion, any such liability may be satisfied prior to delivery of any certificate(s) by Participant electing to have the Company withhold a number of Shares equal in value to such liability, from the number of Shares to be issued to such

Participant.


14.   Termination and Amendment of Plan  


The Plan shall terminate on August 21, 2013, unless previously terminated by action of the holders of a majority of the Shares outstanding. Upon termination, no additional Incentive Stock Option grants shall be made; however, outstanding Incentive Stock Options shall remain exercisable under the Plan in accordance with the terms of the applicable Grant Agreement(s).  The Committee may amend the Plan without further approval of the holders of a majority of the Shares outstanding provided that no amendment may materially and adversely affect any Incentive Stock Options previously issued unless the written consent of such affected Participant(s) is received prior to approval of such proposed amendment.


15.   Miscellaneous


15.1. Headings


Section headings used in this Plan are for convenience only and shall not be deemed to limit, characterize or affect in any way any provision of this Plan.  All provisions in this Plan shall be construed as if no headings had been used in this Plan.


15.2. Severability


Whenever possible, each provision in this Plan shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Plan is held to be prohibited by or invalid under applicable law, then (i) such provision shall be deemed amended to accomplish the objectives of the provision as originally written to the fullest extent permitted by law and (ii) all other provisions of this Plan shall remain in full force and effect.


15.3. No Strict Construction


No rule of strict construction shall be applied against the Company, the Committee or any other person in the interpretation of any term of this Plan or any rule or procedure established by the Committee.


16.    Governing Law


All issues and questions concerning the construction, validity, enforcement and interpretation of this plan shall be governed by, and construed in accordance with, the laws of the state of California, without giving effect to any choice of law or conflict of law rules or provisions (whether of the state of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the state of California.


Dated: As of August 21, 2006


Probe Manufacturing, Inc.