AMENDED EXCHANGE AGREEMENT

EX-10.1 3 exhibit101.htm EX-10.1 Test

AMENDED EXCHANGE AGREEMENT

This Exchange Agreement is made as of August 7, 2006, by and between Probe Manufacturing, Inc., a Nevada corporation (the “Company”), and eFund Capital Partners, LLC (the “Purchaser”).

RECITALS

WHEREAS, pursuant to a securities purchase agreement dated December 31, 2004 (the “Original Purchase Agreement”), the company sold 3,500 shares of the Company’s Series B Convertible Preferred Stock, par value $.001 per share, (the “Original Preferred Stock”), which are convertible into shares of commons stock, par value $0.001 per share and otherwise have the rights, preference, privileges, powers and restrictions set forth in a Certificate of Designation filed with the Secretary of State of Nevada on December 31, 2004.

WHERAS, the Company and the Purchaser desire that the Purchaser exchange all of the Series B Convertible Stock currently owned by Purchasers for shares of the Company’s newly designated Series C Convertible Preferred Stock (the “Exchanged Preferred Stock”) upon the terms and conditions set forth herein (the “Exchange”).

WHEREAS, the Exchange is intended to qualify as a private placement transaction under Section 4(2) of the Securities Act of 1933, as amended.

NOW, THEREFORE, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AGREEMENTS

SECTION 1

AUTHORIZATION AND EXCHANGE OF THE SHARES

1.1

Authorization of the Shares.

(a)

The Company has authorized, or before the Closing (as defined in Section 2.1 below) will have authorized, a new series of preferred stock, designated as “Series C Convertible Preferred Stock”, which shall have the rights, preferences and privileges provided for in the Designation.

(b)

In addition, prior to the Closing, the Company shall have authorized the issuance to the Purchaser(s) of up to Five Thousand and Forty (5,040) shares (the “Shares”) of the Series C Preferred Stock, which shall have the rights, preferences and privileges provided for in the Designation.

1.2

Exchange of the Shares. At the Closing, (i) the Purchaser shall deliver to, or as directed by the Company stock certificates representing the Original Preferred Stock and (ii) the Company shall deliver to the purchasers stock certificates, registered in the name of the Purchaser, representing the Exchange Preferred Stock.

1.3

Exchange Preferred Stock. The Exchange Preferred Stock shall have the rights, preferences and privileges as set forth in the Certificate of Designation attached hereto as Exhibit A to be filed prior to Closing by the Company with the Secretary of State of Delaware. Each share of Original Preferred Stock shall be convertible into 1.44 share of the Exchange Preferred Stock. Each share of Preferred Stock shall be convertible into shares of Common Stock in accordance with the terms of the Certificate of Designation.

1.4

Original Preferred Stock. Effective as of the Closing Date, all Original Preferred Stock owned by the Purchaser shall be canceled.

1.5

Warrants. The holders of Series C Convertible Preferred Stock shall receive one A Warrant and one B warrant for every share of common stock received from converting a share of Series C Convertible Preferred stock of the Company’s A and B Warrants pursuant to the terms and conditions of the Company’s Series A and B warrant agreement as amended attached hereto as Exhibit B and C and incorporated by reference.

SECTION 2

CLOSING DATE; DELIVERY

2.1

Closing Date. The closing date shall be the date upon which this Agreement is executed by the parties to this Agreement (the “Closing Date”).

SECTION 3

COMPANY REPRESENTATIONS AND WARRANTIES

Except as disclosed in the Schedules attached hereto, the Company makes the following representations and warranties to the Purchaser:

3.1

Organization and Standing. Each of the Company and its subsidiaries (i) is a corporation duly organized and validly existing under the laws of its respective jurisdiction of incorporation and is in good standing as a domestic corporation under the laws of said state or country, (ii) has all requisite corporate power and authority to own and lease its properties and to conduct its business as presently conducted, and (iii) is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified does not and is not reasonably expected to (x) individually or in the aggregate, have a material adverse effect on the properties, business, results of operations, condition (financial or otherwise), affairs or pro spects of the Company and its subsidiaries, taken as a whole, (y) interfere with or impair the Company’s ability to perform its obligations under this Agreement, or (z) interfere with or prevent the consummation of any of the transactions contemplated by said instruments (any of the events set forth in clauses (x), (y) or (z), a “Material Adverse Effect”).

3.2

Corporate Power. The Company has all requisite legal and corporate power to execute and deliver this Agreement, to exchange and issue the Shares, to issue the Conversion Stock issuable upon conversion of the Shares, and to carry out and perform its obligations under the terms of this Agreement and under the terms of all other agreements and other documents executed in connection herewith.

3.3

Capitalization. The authorized capital stock of the Company upon the filing of the Designation with the Secretary of State of the State of California will consist of (a) 100,000,000 shares of Common Stock of which 3,577,364 shares are issued and outstanding, and (b) 10,000,000 shares of Preferred Stock of which (i) 440 shares Series A Convertible Preferred Stock of which 440 are issued and outstanding and (ii) Twenty Thousand (20,000) shares of Series B Convertible Preferred Stock of which 12,500 and (iii) 10,000 shares shall be designated as “Series C Convertible Preferred Stock. All of the outstanding shares of Common Stock and all of the shares of Series A, B and C Preferred Stock when issued and sold, will be, validly issued, fully paid and non-assessable, and free of any liens or encumbrances. The Series C Preferred Stock shall have the rights, preferences, privile ges and restrictions set forth in the Designation attached hereto as Exhibit A.

3.4

Authorization. The execution, delivery and performance of this Agreement, and any other agreements related to this Agreement, by the Company have been properly and duly authorized by all requisite corporate action. In addition, all other actions taken by the Company in connection with the transactions contemplated by this Agreement were properly and duly authorized by all requisite corporate action. This Agreement and all documents and agreements executed in connection herewith, constitute valid and binding obligations of the Company. The issuance and sale of the Shares will not give rise to any preemptive rights or rights of first refusal on behalf of any person in existence on the date hereof.

3.5

Conversion Stock. The Conversion Stock has been duly and validly reserved for issuance.

3.6

Accuracy of Reports. All reports, if any, delivered by the Company under this Agreement, have been duly filed, and the requirements of their respective forms (as of their respective filing dates), were complete and correct in all material respects as of the dates at which the information was furnished, and none contains (as of their respective dates of filing) any untrue statement of a material fact nor omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances in which made, not misleading.

3.7

Financial Statements and Changes. All financial reports and materials provided by the Company are true and accurate reflection of the Company’s current financial situation and nothing has been omitted which could have a material adverse effect.

3.8

No Conflict. The provisions of each of this Agreement and the Designation do not constitute any violation, or conflict with or constitute a default under, any indenture, mortgage, deed of trust or other agreement, instrument, court order, judgment, decree, statute, rule or regulation (each a “Term” and collectively the “Terms”) to which the Company or any of its subsidiaries is a party or by which it is bound. The execution, delivery and performance of and compliance with this Agreement, the issuance of the Securities pursuant to the terms hereof and the performance of the Company’s obligations hereunder and thereunder (i) will not result in any violation or be in conflict with or constitute a default under any Term, (ii) will not result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or i ts subsidiaries pursuant to any such Term, and (iii) will not conflict with or violate any applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over the Company, any of its subsidiaries, or any of the Company’s or subsidiaries’ assets or properties, subject to such exceptions as would not have a Material Adverse Effect.

3.9

Governmental Consents. No consent, approval or authorization of, or designation, declaration or filing with, any federal, state or foreign governmental authority is required on the part of the Company in connection with the valid execution and delivery of this Agreement, the offer, sale or the issuance of the Securities or the consummation of any other transaction contemplated hereby, except (i) the filing of the Designation in the office of the State of California, and (ii) if required, qualifications or filings in connection with exemptions under any applicable state “blue sky” laws and Federal securities laws, which qualifications or exemptions, if required, will have been obtained and will be effective on the Closing Date, or will be obtained or filed after the Closing Date within the prescribed time in order to secure such exemptions or qualifications.

3.10

Patents, Trademarks, Etc. The Company and its subsidiaries own or have the right, or prior to the Closing will own or have the right, to use all patents, trademarks, service marks, trade names, copyrights, licenses and rights necessary to their business as now conducted, as conducted at the time of the Closing and as contemplated being conducted thereafter, and, are not infringing upon any person’s or company’s rights under or with respect to any of the foregoing. Neither the Company nor any of its subsidiaries has received any written communications alleging that the Company or a subsidiary has violated any patent, trademark, service mark, trade name, copyright or trade secret or other proprietary right of any other person or entity.

3.11

Litigation. Except as set forth on Schedule 3.11, there is no suit, action or proceeding pending or affecting the Company or any of its subsidiaries, nor is there any judgment, decree, injunction, rule or order of any governmental entity or arbitrator outstanding against the Company or any of its subsidiaries.

3.12

Compliance with Laws. The Company is not in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties, which could reasonably be expected to have a Material Adverse Effect.

3.13

Offering of the Shares. Neither the Company nor any person acting on its behalf has taken or will take any action (including, without limitation, any offering of any securities of the Company under circumstances which would require, under the Securities Act of 1933, as amended (the “Securities Act”), the integration of such offering with the offering and sale of the Securities) which might subject the offering, issuance or sale of the Securities to the registration requirements of the Securities Act.

3.14

Finder’s Fee. The Company represents and warrants that no finders or brokers have been retained or used in connection with the transactions contemplated by this Agreement.

0.15

Tax Matters. Except as set forth on Schedule 3.15, the Company and each of its subsidiaries has timely filed with the appropriate taxing authority all tax returns required to be filed by it or has timely requested extensions and any such request has been granted and has not expired. Each such tax return is complete and accurate in all respects. All taxes shown as owed by the Company or any of its subsidiaries on any tax return or claimed or asserted to be due, from or with respect to any of them, have been paid, except for taxes being contested in good faith and for which adequate reserves have been taken. The Company and each of its subsidiaries have properly made due and sufficient accruals for all taxes for such periods subsequent to the periods covered by such tax returns as required by GAAP. None of the Company or any of its subsidiaries are being a udited or examined by any taxing authority with respect to any tax or is a party to any pending action or proceedings by any taxing authority for assessment or collection of any tax, and no claim for assessment or collection of any tax has been asserted against it or any of its subsidiaries. No claim has been made by any authority in a jurisdiction where the Company or any of its subsidiaries does not file tax returns that it is or may be subject to taxation by that jurisdiction. There is no dispute or claim concerning any tax liability.

3.16

Environmental Matters. Each of the Company and its subsidiaries has obtained, and now maintains as currently valid and effective, all permits, certificates of financial responsibility, and other governmental authorizations (collectively, “Environmental Permits”) that are required to be obtained by the Company or any of its subsidiaries under any state, federal, municipal, foreign or other environmental laws, rules or regulations applicable to any aspect of the Company or such subsidiary, including, but not limited to, in connection with the operation of its businesses and properties (“Environmental Laws”). Each of the Company and its subsidiaries has been in compliance with all terms and conditions of the Environmental Permits and all Environmental Laws and no liability exists under any Environmental Laws or otherwise with respect to prior operations or activities.

SECTION 4

PURCHASER REPRESENTATIONS AND WARRANTIES

The Purchaser represents and warrants to the Company, as follows:

4.1

Investment Intent.

(a)

Purchaser has substantial experience in business and financial matters and is capable of evaluating the merits and risks of its investment in the Company and is able to bear the economic risks of its investment.

(b)

Purchaser is an “accredited investor” as defined in Rule 501(a)(3) of Regulation D of the Securities Act.

(c)

Purchaser is acquiring the Securities for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. Purchaser understands that the Securities have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, which depends upon, among other things, the bona fide nature of the investment intent as expressed herein.

(d)

Purchaser acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act (“Rule 144”) which permit limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions, including the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a “broker’s transaction” or in a transaction directly with a “market maker” (as provided by Rule 144(f)) and the number of shares being sold during any three-month period not exceeding specified limitations.

4.2

Corporate Power. Purchaser has all requisite legal and corporate power to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement.

4.3

Authorization. The execution, delivery and performance of this Agreement by the Purchaser has been duly authorized by all requisite corporate action, and this Agreement constitutes a valid and binding obligation of Purchaser enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors, and rules of law governing specific performance, injunctive relief or other equitable remedies.

4.4

Finder’s Fee. Purchaser represents and warrants that no finders or brokers have been retained or used in connection with the transactions contemplated by this Agreement.

SECTION 5

CONDITIONS TO CLOSING

5.1

Conditions to Purchaser’s Obligations. The obligation of the Purchaser to exchange the Shares at the Closing is subject to the fulfillment to the reasonable satisfaction of the Purchaser, on or prior to the Closing Date, of the following conditions any of which may be waived in writing, in whole or in part, by the Purchaser:

(a)

The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date;

(b)

All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects; and

(c)

The Designation shall have been filed with and accepted by the Nevada Secretary of State.

5.2

Conditions to Company’s Obligations. The Company’s obligation to exchangel and issue the Shares to the Purchaser at the Closing is subject to the fulfillment to the Company’s reasonable satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived in writing, in whole or in part, by the Company:

(a)

The representations and warranties made by the Purchaser in Section 4 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date;

(b)

All covenants, agreements and conditions contained in this Agreement to be performed by the Purchaser on or prior to the Closing Date shall have been performed or complied with in all material respects; and

SECTION 6

COVENANTS

6.1

Additional Documents and Further Assurances. Each party hereto, at the request of the other party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby.

SECTION 7

INDEMNIFICATION

7.1

Indemnification. The parties hereby agree to indemnify, defend and hold each other and their affiliates harmless from and against any and all costs, losses, liabilities, damages, lawsuits, deficiencies, claims and expenses, including without limitation, interest, penalties, reasonable attorneys’ fees and all amounts paid in investigation, defense or settlement of any of the foregoing (, incurred in connection with, arising out of, resulting from, or incident to, any breach of any representation or warranty made by such party in this Agreement.

SECTION 8

MISCELLANEOUS

8.1

Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to the Company or the Purchaser, upon any breach or default under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character by the Company or the Purchaser of any breach or default under this Agreement, or any waiver by the Company or the Purchaser of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in writing, and all remedies, either under this Agreemen t, or by law or otherwise afforded to the Company or the Purchaser, shall be cumulative.

8.2

Waivers and Amendments. This Agreement and the provisions hereof may not be waived or amended except pursuant to a written instrument signed by the required party or parties as aforesaid.

8.3

Severability. In the event that any provision of this Agreement shall be deemed to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby.

8.4

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

8.5

Notices, Etc. All notices and other communications required or permitted hereunder shall be in writing and shall be delivered either (i) personally, (ii) by facsimile transmission, or (iii) by a nationally recognized overnight courier, in each case with all delivery or postal charges pre-paid, and in each case, addressed attention: President. All notices and communications shall be sent or delivered to the address or fax number, as applicable, for the applicable party as set forth on the signature page of this Agreement, or at such other address or fax number as the applicable party shall have furnished in writing to the other party (or its transferees). Each such notice or communication, addressed and posted as aforesaid, shall for all purposes of this Agreement be treated as effective or having been given (i) when delivered, if delivered personally, (ii) the business day on whi ch the notice or communication is sent, if delivered by facsimile transmission, or (iii) upon the earlier of its receipt or two (2) business days after the business day of deposit with a nationally recognized overnight courier, if delivered by such means.

8.6

Entire Agreement. This Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with regard to the subject matters hereof and thereof, and supersede any and all prior agreements and understandings among the parties.

8.7

Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California as they apply to contracts entered into and wholly to be performed within such state, and without reference to its principles of conflicts of law or choice of law.

8.8

Attorneys’ Fees. In the event of any litigation in a court of competent jurisdiction arising in connection with this Agreement and the transactions contemplated hereby, the prevailing party in judgment shall be entitled to recover reasonable legal fees and costs in connection with such action including any appeals.

8.9

Independent Advice of Counsel. The parties represent and declare that, in executing this agreement, they relied solely upon their own judgment, belief and knowledge, and had the ability to seek the advice of their own independently selected counsel concerning the nature, extent and duration of their duties and rights contained in this agreement. The parties further represent and agree that they have not been influenced by any representations or statements concerning any matters made by any other party or by any person or attorney representing any other party.

8.10

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

[Signatures on following page]

Series C Convertible Preferred Stock Exchange Agreement – PROBE

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first written above.

COMPANY

PROBE MANUFACTURING, INC., a Nevada corporation

By: /s/ Reza Zarif

Reza Zarif

Chief Executive Officer

Address:

3050 Pullman Street

Costa Mesa, CA 92626

Fax: (714) 424-2972

PURCHASER

eFund Capital Partners, LLC

By: /s/ Barrett Evans

Print Name: Barrett Evans

Print Title: Managing Partner

Address:

_______________________

Fax: (___) __-___

2 of 9

Series B Convertible Preferred Stock Purchaser Agreement –PROBE

Schedules to Series B Convertible Preferred Stock Purchase Agreement

Schedule 3.11

Litigation

None.

Schedule 3.15

Tax Matters

None.

EXHIBIT A

Certificate of Designation for Series C Convertible Preferred Stock

EXHIBIT B

SERIES A WARRANT AGREEMENT

AMENDED AND RESTATED

SERIES A WARRANT PURCHASE AGREEMENT

THE WARRANT REPRESENTED BY THIS CERTIFICATE (AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, AND THE WARRANT MAY NOT BE EXERCISED, EXCEPT IN COMPLIANCE WITH THE REQUIREMENTS OF, OR AN EXEMPTION UNDER, SUCH ACT.

WARRANT TO PURCHASE FIVE

SHARES OF COMMON STOCK OF

PROBE MANUFACTURING, INC. PER UNIT PURCHASED

This certifies that, for value received, __________________ or its registered assigns (“Holder”), is entitled to purchase from Probe Manufacturing, Inc., a Nevada corporation (the “Company”), 5 shares fully paid and non-assessable shares of the Company’s Common Stock (the “Warrant Shares”) for cash at a price of $2.00 per share, for every unit that they purchased in the Company’s Private Placement Memorandum (the “Stock Purchase Price”), at any time or from time to time up to and including 5:00 p.m. (Pacific time) November 15, 2006 (the “Expiration Date”), upon surrender to the Company at its principal offices at 3050 Pullman Street, Costa Mesa, CA 92626 (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Notice of Ex ercise attached hereto duly filled in and signed and, except as provided in Section 2 below, upon payment in cash or by check or wire transfer of the aggregate Stock Purchase Price for the number of Warrant Shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of Warrant Shares are subject to adjustment as provided in Section 4 below.

This Warrant is subject to the following terms and conditions:

1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SALES

The Company agrees that the Warrant Shares purchased under this Warrant will be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which this Warrant will have been surrendered and payment made for such shares. Certificates for the Warrant Shares so purchased, together with any other securities or property to which Holder is entitled upon such exercise, will be delivered to Holder by the Company at the Company’s expense within five business days after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the Warrant Shares, the Company will cancel this Warrant and execute and deliver a new Warrant of like tenor for the balance of the Warrant Shares purchasable under the Warrant surrendered upon such purchase to Holder within a reasonable time. Each stock certificate so delivered wi ll be in such denominations of the Company’s Common Stock as may be requested by Holder and will be registered in the name of Holder.

2. NET EXERCISE RIGHT

2.1

Right to Net Exercise. In addition to, and without limiting, the other rights of Holder hereunder, Holder will have the right (the “Net Exercise Right”) to exercise this Warrant in part or in total into Warrant Shares as follows at any time during the term hereof. Upon exercise of the Net Exercise Right, the Company will deliver to Holder, without payment by Holder of any Stock Purchase Price or any cash or other consideration, that number of Warrant Shares computed using the following formula:

X=Y (A-B)

Where:

The number of Warrant Shares to be issued to Holder

The number of Warrant Shares purchasable pursuant to this Warrant

The Fair Market Value of one Warrant Share as of the Exercise Date

The Stock Purchase Price

2.2

Method of Exercise. The Net Exercise Right may be exercised by Holder by the surrender of this Warrant to the Company at its principal office, together with a written notice specifying that Holder intends to exercise the Net Exercise Right and indicating the number of Warrant Shares to be acquired upon exercise of the Net Exercise Right. Such exercise will be effective upon the Company’s receipt of this Warrant, together with the exercise notice, or on such later date as is specified in the exercise notice (the “Exercise Date”) and, at Holder’s election, may be made contingent upon the closing of the Company’s initial public offering of any securities pursuant to a registration statement under the Securities Act of 1933, as amended (the “Securities Act”). Certificates for the Warrant Shares s o acquired will be delivered to Holder immediately upon the Exercise Date. If applicable, the Company will, upon surrender of this Warrant for cancellation, deliver a new Warrant evidencing the rights of Holder to purchase the balance of the Warrant Shares which Holder is entitled to purchase hereunder.

2.3

Fair Market Value. The “Fair Market Value” of a Warrant Share as of a particular date means:

(a) if conversion of the Warrant Shares is effective as of the closing of the Company’s initial public offering of any securities pursuant to a registration statement under the Securities Act, the “price to public” specified for such shares in the final prospectus for such public offering;

(b) if the shares of the Company’s Common Stock are traded on a national securities exchange or quoted on the National Association of Securities Dealers National Market System, the average of the closing prices for such shares for the five trading days immediately prior to the Exercise Date; however, if the shares of the Company’s Common Stock are traded in another over-the-counter market, then the average of the mean between the bid and asked prices for such five trading days; and

(c) otherwise, the price as determined in good faith by the Board of Directors of the Company.

2.4

Automatic Exercise. Notwithstanding the foregoing, if the aggregate value of the cash, stock or other property that Holder would have received if Holder had exercised this Warrant immediately prior to the closing of an Acquisition (as defined below) or an Asset Transfer (as defined below) exceeds the aggregate Stock Purchase Price of the Warrant Shares, then this Warrant shall automatically be deemed exercised, with no notice required by Holder and in lieu of the cash exercise provided for in this Warrant, on a Net Issuance Exercise basis as described in Section 2.1 above. For purposes of this Section 2.4, the value of such stock or other property will be deemed its fair market value as determined in good faith by the Board of Directors of the Company. As used herein, “Acquisition” shall mean any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Company’s voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company. As used herein, “Asset Transfer” shall mean a sale, lease or other disposition of all or substantially all of the assets of the Company.

3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES

The Company covenants and agrees that all Warrant Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise or conversion of the subscription rights evidenced by this Warrant, a sufficient number of shares of the Company’s authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise or conversion of the rights represented by this Warrant. The Company will ta ke all such action as may be necessary to assure that such shares of the Company’s Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the stock may be listed. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) if the total number of shares of the Company’s Common Stock issuable after such action upon exercise or conversion of all outstanding warrants, together with all shares then outstanding and all shares then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of the Company’s Common Stock then authorized by the Company’s Articles of Incorporation.

4. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES

The Stock Purchase Price and the number of shares purchasable upon the exercise or conversion of this Warrant will be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4.

4.1

Subdivision or Combination of Stock. If the Company at any time subdivides the outstanding shares of the Company’s Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision will be proportionately reduced; and conversely, if the Company at any time combines the outstanding shares of the Company’s Common Stock into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination will be proportionately increased. Upon each adjustment of the Stock Purchase Price, Holder will thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately pri or to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment.

4.2

Dividends In Stock, Other Stock Property, Reclassification. If at any time or from time to time the holders of the Company’s Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) receive or become entitled to receive, without payment therefor:

(a) any shares of the Company’s Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution;

(b) any cash paid or payable otherwise than as a regular periodic cash dividend at a rate which is substantially consistent with past practice (or, in the case of an initial dividend, at a rate which is substantially consistent with industry practice); or

(c) any Common Stock or other or additional stock or other securities or property (including cash) by way of spin-off, split up, reclassification, combination of shares or similar corporate rearrangement; (other than shares of the Company’s Common Stock issued as a stock split, adjustments in respect of which will be covered by the terms of subsection 4.1 above), then and in each such case, Holder will, upon the exercise or conversion of this Warrant, be entitled to receive, in addition to the number of Warrant Shares receivable thereupon, and without payment of any additional consideration thereof, the amount of stock and other securities and property (including cash in the cases referred to this Section 4.2 which Holder would hold on the date of such exercise or conversion had he or it been the holder of record of such Common Stock as of the date on which holde rs of the Company’s Common Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property.

4.3

Organic Change. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) equity securities or assets with respect to or in exchange for Common Stock, is referred to herein as an “Organic Change.” Prior to the consummation of any Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to Holder) to insure that Holder shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of this Warrant, such shares, securities or assets a s may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of this Warrant had such Organic Change not taken place. In any such case, the Company shall make appropriate provision (in form and substance satisfactory to Holder) with respect to Holder’s rights and interests to insure that the provisions of this Section 4 and Section 3 hereof shall thereafter be applicable to the Warrant (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, an immediate adjustment of the Stock Purchase Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Common Stock acquirable and receivable upon exercise of the Warrant, if the value so reflected is less than the Stock Purchase Price in effect imme diately prior to such consolidation, merger or sale). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance satisfactory to Holder), the obligation to deliver to Holder such shares, securities or assets as, in accordance with the foregoing provisions, Holder may be entitled to acquire.

4.4

Other Notices. If at any time:

(a) The Company will declare any cash dividend upon the Company’s Common Stock;

(b) The Company will declare any dividend upon the Company’s Common Stock payable in stock or make any special dividend or other distribution to the holders of the Company’s Common Stock;

(c) The Company will offer for subscription pro rata to the holders of the Company’s Common Stock any additional shares of stock of any class or other rights;

(d) There will be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation;

(e) There will be a voluntary or involuntary dissolution, liquidation or winding up of the Company; or

(f) The Company will take or propose to take any other action, notice of which is actually provided to or is required to be provided, pursuant to any written agreement, to holders of the Company’s Common Stock, then, in any one or more of said cases, the Company will give, by first class mail, postage prepaid, addressed to Holder at Holder’s address as shown on the books of the Company, (x) at least 10 days prior written notice of the date on which the books of the Company will close or a record will be taken for such dividends, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (y) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days prior written notice of the date when the same will take place. Any notice given in accordance with the foregoing clause (x) will also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of the Company’s Common Stock will be entitled to exchange their stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be.

4.5

Certain Events. If any other event occurs as to which the other provisions of this Section 4 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company will make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price and/or the application of such provisions, in accordance with such essential intent and principles, so as to protect such purchase rights as aforesaid. The adjustment will be such as will give Holder upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as Holder would have owned had the Warrant been exercised or converted prior to the event and had he or it continued to hold such shares unti l after the event requiring adjustment.

5. ISSUE TAX

The issuance of certificates for shares of the Company’s Common Stock upon the exercise or conversion of this Warrant will be made without charge to Holder for any issue tax in respect thereof; provided, however, that the Company will not be required to pay any tax which may be payable in respect of any transfer involving the issuance and delivery of any certificate in a name other than that of the original Holder of the Warrant being exercised.

6. CLOSING OF BOOKS

The Company will at no time close its transfer books against the transfer of this Warrant or of any shares of the Company’s Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant.

7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY

Nothing contained in this Warrant will be construed as conferring upon Holder the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest will accrue or be payable in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant has been exercised or converted. No provisions hereof, in the absence of affirmative action by Holder to purchase shares of the Company’s Common Stock, and no mere enumeration herein of the rights or privileges of Holder, will give rise to any liability of Holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors.

8. EXPIRATION

This Warrant will expire at 5:00 PM on the fifth anniversary of the date hereof.

REGISTRATION RIGHTS

Company shall at its own expense, register all warrants issued under this Agreement in the next registration statement filed by the Company.

10. WARRANTS TRANSFERABLE

Subject to the provisions of the Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to Holder (except for transfer taxes), upon surrender of this Warrant properly endorsed (by Holder executing the Assignment Form annexed hereto). Each Holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, will be deemed negotiable, and that the holder hereof, when this Warrant will have been so endorsed, may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as transferee hereof on the books of the Company, any notice to the contrary notwithstanding; but, until such transfer on such books, the Company may treat the registered Holder hereof as the Holder hereof for all purposes.

11. MODIFICATION AND WAIVER

This Warrant and any provision hereof may be amended, waived or modified upon written consent of the Company and Holder.

12. NOTICES

Any notice or other communication required or permitted to be given or made under this Agreement: (i) will be in writing, (ii) will be delivered by hand delivery, U.S. Mail (certified or registered), Federal Express, UPS, Overnight, Airborne, or other nationally recognized delivery service, fax, or e-mail or other means of electronic transmission, and (iii) will be addressed as follows:

To Holder at:

________________

To the Company at:

Probe Manufacturing, Inc.

3050 Pullman St.

Costa Mesa, CA 92626

Attn: Reza Zarif

Fax: ###-###-####

Email: ***@***

or to such other address as such Person may designate by 10 days advance notice to the other parties hereto.

Absent fraud or manifest error, a receipt signed by the addressee or such addressee’s authorized representative, a certified or registered mail receipt, a signed delivery service confirmation or a fax or e-mail confirmation of transmission will constitute proof of delivery. Any notice actually received by the addressee will constitute delivery notwithstanding the failure to comply with any provisions of this subsection.

A notice delivered by regular or certified U.S. Mail will be deemed to have been delivered on the third business day after such notice’s post-mark. Any other notice will be deemed to have been received on the date and time of the signed receipt or confirmation of delivery or transmission thereof, unless that receipt or confirmation date and time is not a business day or is after 5:00 p.m. local time on a business day, in which case such notice will be deemed to have been received on the next succeeding business day.

13. GOVERNING LAW

This Warrant will be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California (other than conflict of law rules which might result in the application of the laws of any other jurisdiction).

14. LOST WARRANTS OR STOCK CERTIFICATES

The Company represents and warrants to Holder that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or any stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of this Warrant or any stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

15. FRACTIONAL SHARES

No fractional shares will be issued upon exercise of this Warrant. The Company will, in lieu of issuing any fractional share, pay the Holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price.

16. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT

The rights and obligations of the Company, of Holder and of the holder of any shares of stock issued upon exercise of this Warrant, shall survive the exercise of this Warrant.

17. BINDING EFFECT ON SUCCESSORS

This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company’s assets. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its duly authorized officers, effective as of __________ __, 2006.

Probe Manufacturing, Inc.

A Nevada Corporation

By: __________________________________

Name: ________________________________

Title: _________________________________

NOTICE OF EXERCISE
- Signature
NOTICE OF EXERCISE
- Signature

NOTICE OF EXERCISE

(To be signed only upon exercise of Warrant)

To:

PROBE MANUFACTURING, INC.

The undersigned, Holder of the attached Warrant, hereby irrevocably elects to exercise the purchase right represented by the Warrant as follows:

[ ]

The undersigned elects to purchase for cash or check _______ full shares of Common Stock of Probe Manufacturing, Inc. and herewith makes payment of $_________ for those shares;

[ ]

The undersigned elects to effect a net exercise of the Warrant, exercising the Warrant [ ] in full or [ ] as to the following gross number of shares: _______________.

The undersigned requests that the certificates for the shares be issued in the name of, and delivered to, __________________________________, whose address is ______________ ____________________________.

[The undersigned further requests that a new Warrant for the unexercised portion of the attached Warrant be issued in the name of, and delivered to, ________________________, whose address is _______________________________________.]

Dated: _________________

(Signature must conform in all respects to name of Holder as specified on the face of the attached Warrant.)

Signature

Address

ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns, and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant with respect to the number of shares of Common Stock set forth below:

Name of Assignee:

Address:

No. of Shares:

and does hereby irrevocably constitute and appoint _________, attorney-in-fact, to make such transfer on the books of Probe Manufacturing, Inc., maintained for that purpose, with full power of substitution in the premises.

Dated:______________________________________________________

Signature of Holder: ___________________________________________

EXHIBIT C

SERIES B WARRANT AGREEMENT

AMENDED AND RESTATED

SERIES B WARRANT PURCHASE AGREEMENT

WARRANT TO PURCHASE FIVE

SHARES OF COMMON STOCK OF

PROBE MANUFACTURING, INC.

This certifies that, for value received, __________________ or its registered assigns (“Holder”), is entitled to purchase from Probe Manufacturing, Inc., a Nevada corporation (the “Company”), 5 shares fully paid and non-assessable shares of the Company’s Common Stock (the “Warrant Shares”) for cash at a price of $3.00 per share, for every unit that they purchased in the Company’s Private Placement Memorandum (the “Stock Purchase Price”), at any time or from time to time up to and including 5:00 p.m. (Pacific time) on May 15, 2007 (the “Expiration Date”), upon surrender to the Company at its principal offices at 3050 Pullman Street, Costa Mesa, CA 92626 (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Notice of Exer cise attached hereto duly filled in and signed and, except as provided in Section 2 below, upon payment in cash or by check or wire transfer of the aggregate Stock Purchase Price for the number of Warrant Shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of Warrant Shares are subject to adjustment as provided in Section 4 below.

This Warrant is subject to the following terms and conditions:

1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SALES

2. NET EXERCISE RIGHT

2.1

X=Y (A-B)

Where:

The number of Warrant Shares to be issued to Holder

The number of Warrant Shares purchasable pursuant to this Warrant

The Fair Market Value of one Warrant Share as of the Exercise Date

The Stock Purchase Price

2.2

2.3

Fair Market Value. The “Fair Market Value” of a Warrant Share as of a particular date means:

(c) otherwise, the price as determined in good faith by the Board of Directors of the Company.

2.4

3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES

4. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES

4.1

4.2

4.3

4.4

Other Notices. If at any time:

(a) The Company will declare any cash dividend upon the Company’s Common Stock;

(b) The Company will declare any dividend upon the Company’s Common Stock payable in stock or make any special dividend or other distribution to the holders of the Company’s Common Stock;

(c) The Company will offer for subscription pro rata to the holders of the Company’s Common Stock any additional shares of stock of any class or other rights;

(e) There will be a voluntary or involuntary dissolution, liquidation or winding up of the Company; or

4.5

5. ISSUE TAX

6. CLOSING OF BOOKS

7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY

8. EXPIRATION

This Warrant will expire at 5:00 PM on the fifth anniversary of the date hereof.

10.

REGISTRATION RIGHTS

Company shall at its own expense, register all warrants issued under this Agreement in the next registration statement filed by the Company.

10. WARRANTS TRANSFERABLE

11. MODIFICATION AND WAIVER

This Warrant and any provision hereof may be amended, waived or modified upon written consent of the Company and Holder.

12. NOTICES

To Holder at:

________________

To the Company at:

Probe Manufacturing, Inc.

3050 Pullman St.

Costa Mesa, CA 92626

Attn: Reza Zarif

Fax: ###-###-####

Email: ***@***

or to such other address as such Person may designate by 10 days advance notice to the other parties hereto.

13. GOVERNING LAW

14. LOST WARRANTS OR STOCK CERTIFICATES

15. FRACTIONAL SHARES

16. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT

The rights and obligations of the Company, of Holder and of the holder of any shares of stock issued upon exercise of this Warrant, shall survive the exercise of this Warrant.

17. BINDING EFFECT ON SUCCESSORS

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its duly authorized officers, effective as of __________ __, 2006.

Probe Manufacturing, Inc.

A Nevada Corporation

By: __________________________________

Name: ________________________________

Title: _________________________________

NOTICE OF EXERCISE

(To be signed only upon exercise of Warrant)

To:

PROBE MANUFACTURING, INC.

The undersigned, Holder of the attached Warrant, hereby irrevocably elects to exercise the purchase right represented by the Warrant as follows:

[ ]

The undersigned elects to purchase for cash or check _______ full shares of Common Stock of Probe Manufacturing, Inc. and herewith makes payment of $_________ for those shares;

[ ]

The undersigned elects to effect a net exercise of the Warrant, exercising the Warrant [ ] in full or [ ] as to the following gross number of shares: _______________.

Dated: _________________

(Signature must conform in all respects to name of Holder as specified on the face of the attached Warrant.)

Signature

Address

ASSIGNMENT FORM

Name of Assignee:

Address:

No. of Shares:

Dated:______________________________________________________

Signature of Holder: ___________________________________________

PROBE MANUFACTURING INDUSTRIES, INC.

____________________________

Amended

Series C Convertible Preferred Stock

Exchange Agreement

August 7, 2006

AMENDED EXCHANGE AGREEMENT

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