M-Wave,
Inc.
Shares of Series B
Convertible Preferred Stock
SUBSCRIPTION
AGREEMENT
December 29, 2006
M.A.G. Capital,
LLC
Mercator
Momentum Fund, LP
Mercator
Momentum Fund III, LP
Monarch Pointe
Fund, Ltd.
555 South
Flower Street, Suite 4200
Los Angeles,
California 90071
Ladies and
Gentlemen:
M-Wave, Inc., a
Delaware corporation (the "
Company " ), hereby confirms its
agreement with Mercator Momentum Fund, LP ( "
MMF " ), Mercator Momentum Fund
III, LP ( " MMF III
" ), and Monarch Pointe Fund, Ltd. (
" Monarch " and,
together with MMF and MMF III, the "
Purchasers " ), and M.A.G.
Capital, LLC ( " MAG
" ) as set forth below.
1. The
Securities . Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Purchasers
an aggregate of: (a) 5,000 shares (the "
Shares " ) of its Series B
Convertible Preferred Stock (the " Series B
Stock " ), which shall be convertible
into shares (the " Conversion
Shares " ) of the Company's Common Stock
(the " Common Stock
" ) in accordance with the formula set forth in
the Certificate of Designations further described below. The
rights, preferences and privileges of the Series B Stock are
as set forth in the Certificate of Designations of Series B
Preferred Stock as filed with the Secretary of State of the State
of Delaware (the " Certificate of
Designations " ) in the form attached
hereto as Exhibit A . The numbers of Conversion Shares that
any Purchaser may acquire at any time are subject to limitation in
the Certificate of Designations, so that the aggregate number of
shares of Common Stock of which such Purchaser and all persons
affiliated with such Purchaser have beneficial ownership
(calculated pursuant to Rule 13d-3 of the Securities Exchange Act
of 1934, as amended) does not at any time exceed 9.99% of the
Company's then outstanding Common Stock. The Purchasers also agree
that the number of Conversion Shares that the Purchasers may
acquire at any time, together with any other shares of Common Stock
held by the Purchasers, in the aggregate, shall not exceed 19.99%
of the Company's then outstanding Common Stock without the approval
of the stockholders of the Company if such approval is required by
the rules and regulations of the Nasdaq Capital Market. The Company
shall not record on its stock ledger or permit its transfer agent
to record the conversion of any shares of Series B Stock into
Conversion Shares in violation of the foregoing limitation and any
such attempt to so convert the Series B Stock shall be
void
The Shares are sometimes herein referred to as
the " Securities
." This Agreement, the Certificate of Designations
and the Registration Rights Agreement, in the form attached hereto
as Exhibit B (the " Registration
Rights Agreement " ) are sometimes herein
collectively referred to as the "
Transaction Documents
."
The Securities will be offered and sold to the
Purchasers without such offers and sales being registered under the
Securities Act of 1933, as amended (together with the rules and
regulations of the Securities and Exchange Commission (the
" SEC " )
promulgated thereunder, the " Securities
Act " ), in reliance on exemptions
therefrom.
Each Purchaser acknowledges that notwithstanding
the terms of the Registration Rights Agreement, the
Company may issue the Conversion Shares in unregistered form;
provided, however, that the immediately preceding clause shall not
affect the obligations of the Company under this Agreement and
under Section 2 and Section 3 of the Registration Rights Agreement
to file the Registration Statement and to use its best efforts to
cause the Registration Statement to become effective with the SEC
within the applicable periods described herein or in the
Registration Rights Agreement.
In connection with the sale of the Securities,
the Company has made available (including electronically via the
SEC's EDGAR system) to Purchasers its periodic and current reports,
forms, schedules, proxy statements and other documents (including
exhibits and all other information incorporated by reference) filed
with the SEC under the Securities Exchange Act of 1934, as amended
(the " Exchange Act
" ). These reports, forms, schedules, statements,
documents, filings and amendments, are collectively referred to as
the " Disclosure Documents
." All references in this Agreement to financial
statements and schedules and other information which is
"contained," "included" or "stated" in the Disclosure Documents (or
other references of like import) shall be deemed to mean and
include all such financial statements and schedules, documents,
exhibits and other information which is incorporated by reference
in the Disclosure Documents.
2. Representations
and Warranties of the Company . Except as set forth in the
Disclosure Documents and on the Disclosure Schedule contained in
Schedules A through D attached hereto and made a part hereof
(the " Disclosure
Schedule " ), the Company represents and
warrants to and agrees with Purchasers as follows:
(a) The Disclosure
Documents as of their respective dates did not and will not as of
the Closing Date (after giving effect to any updated disclosures
therein), contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. The Disclosure Documents and the documents incorporated
or deemed to be incorporated by reference therein, at the time they
were filed or hereafter are filed with the SEC, complied and will
comply, at the time of filing, in all material respects with the
requirements of the Securities Act and/or the Exchange Act, as the
case may be, as applicable.
(b) Schedule A
attached hereto sets forth a complete list of the subsidiaries of
the Company (the "Subsidiaries"). Except as set forth in the
Disclosure Documents or on Schedule A , each of the Company
and its Subsidiaries has been duly incorporated and each of the
Company and the Subsidiaries is validly existing in good standing
as a corporation under the laws of its jurisdiction of
incorporation, with the requisite corporate power and authority to
own its properties and conduct its business as now conducted as
described in the Disclosure Documents and is duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of its properties or
the conduct of its business requires such qualification, except
where the failure to be so qualified would not, individually or in
the aggregate, have a material adverse effect on the business,
condition (financial or other), properties, prospects or results of
operations of the Company and the Subsidiaries, taken as a whole
(any such event, a " Material Adverse
Effect " ); as of the Closing Date, the
Company will have the authorized, issued and outstanding
capitalization set forth in on Schedule B attached hereto
(the " Company Capitalization
" ); except as set forth in the Disclosure
Documents or on Schedule A , the Company does not have any
subsidiaries or own directly or indirectly any of the capital stock
or other equity or long-term debt securities of or have any equity
interest in any other person; all of the outstanding shares of
capital stock of the Company and the Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable
and were not issued in violation of any preemptive or similar
rights and are owned free and clear of all liens, encumbrances,
equities, and restrictions on transferability (other than those
imposed by the Securities Act and the state securities or "Blue
Sky" laws) or voting; except as set forth in the Disclosure
Documents, all of the outstanding shares of capital stock of the
Subsidiaries are owned, directly or indirectly, by the Company;
except as set forth in the Disclosure Documents, no options,
warrants or other rights to purchase from the Company or any
Subsidiary, agreements or other obligations of the Company or any
Subsidiary to issue or other rights to convert any obligation into,
or exchange any securities for, shares of capital stock of or
ownership interests in the Company or any Subsidiary are
outstanding; and except as set forth in the Disclosure Documents or
on Schedule C , there is no agreement, understanding or
arrangement among the Company or any Subsidiary and each of their
respective stockholders or any other person relating to the
ownership or disposition of any capital stock of the Company or any
Subsidiary or the election of directors of the Company or any
Subsidiary or the governance of the Company's or any Subsidiary's
affairs, and, if any, such agreements, understandings and
arrangements will not be breached or violated as a result of the
execution and delivery of, or the consummation of the transactions
contemplated by, the Transaction Documents.
(c) The Company has
the requisite corporate power and authority to execute, deliver and
perform its obligations under the Transaction Documents. Each of
the Transaction Documents has been duly and validly authorized by
the Company and, when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms except
as the enforcement thereof may be limited by (A) bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally or (B) general
principles of equity and the discretion of the court before which
any proceeding therefore may be brought (regardless of whether such
enforcement is considered in a proceeding at law or in equity)
(collectively, the " Enforceability
Exceptions " ).
(d) The Shares have
been duly authorized and, when issued upon payment thereof in
accordance with this Agreement, will have been validly issued,
fully paid and non-assessable. The Conversion Shares issuable have
been duly authorized and validly reserved for issuance, and when
issued upon conversion of the Shares in accordance with the terms
of the Certificate of Designations, will have been validly issued,
fully paid and non-assessable. The Common Stock of the Company
conforms to the description thereof contained in the Disclosure
Documents. The stockholders of the Company have no preemptive or
similar rights with respect to the Common Stock.
(e) No consent,
approval, authorization, license, qualification, exemption or order
of any court or governmental agency or body or third party is
required for the performance of the Transaction Documents by the
Company or for the consummation by the Company of any of the
transactions contemplated thereby, or the application of the
proceeds of the issuance of the Securities as described in this
Agreement, except for such consents, approvals, authorizations,
licenses, qualifications, exemptions or orders (i) as have
been obtained on or prior to the Closing Date, (ii) as are not
required to be obtained on or prior to the Closing Date that will
be obtained when required, or (iii) the failure to obtain
which would not, individually or in the aggregate, have a Material
Adverse Effect.
(f) Except as set
forth on Schedule D , none of the Company or the
Subsidiaries is (i) in material violation of its certificate
of incorporation or bylaws (or similar organizational document),
(ii) in breach or violation of any statute, judgment, decree,
order, rule or regulation applicable to it or any of its properties
or assets, which breach or violation would, individually or in the
aggregate, have a Material Adverse Effect, or (iii) except as
described in the Disclosure Documents, in default (nor has any
event occurred which with notice or passage of time, or both, would
constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan agreement, note,
lease, license, franchise agreement, permit, certificate or
agreement or instrument to which it is a party or to which it is
subject, which default would, individually or in the aggregate,
have a Material Adverse Effect.
(g) The execution,
delivery and performance by the Company of the Transaction
Documents and the consummation by the Company of the transactions
contemplated thereby and the fulfillment of the terms thereof will
not (a) violate, conflict with or constitute or result in a
breach of or a default under (or an event that, with notice or
lapse of time, or both, would constitute a breach of or a default
under) any of (i) the terms or provisions of any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or
instrument to which any of the Company or the Subsidiaries is a
party or to which any of their respective properties or assets are
subject, (ii) the Certificate of Designations or bylaws of any
of the Company or the Subsidiaries (or similar organizational
document) or (iii) any statute, judgment, decree, order, rule
or regulation of any court or governmental agency or other body
applicable to the Company or the Subsidiaries or any of their
respective properties or assets or (b) result in the
imposition of any lien upon or with respect to any of the
properties or assets now owned or hereafter acquired by the Company
or any of the Subsidiaries; which violation, conflict, breach,
default or lien would, individually or in the aggregate, have a
Material Adverse Effect.
(h) The audited
consolidated financial statements included in the Disclosure
Documents present fairly the consolidated financial position,
results of operations, cash flows and changes in shareholders'
equity of the entities, at the dates and for the periods to which
they relate and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis; the
interim un-audited consolidated financial statements included in
the Disclosure Documents present fairly the consolidated financial
position, results of operations and cash flows of the entities, at
the dates and for the periods to which they relate subject to
year-end audit adjustments and have been prepared in accordance
with generally accepted accounting principles applied on a
consistent basis with the audited consolidated financial statements
included therein; the selected financial and statistical data
included in the Disclosure Documents present fairly the information
shown therein and have been prepared and compiled on a basis
consistent with the audited financial statements included therein,
except as otherwise stated therein; and each of the auditors
previously engaged by the Company or to be engaged in the future by
the Company is an independent certified public accountant as
required by the Securities Act.
(i) Except as
described in the Disclosure Documents, there is not pending or, to
the knowledge of the Company, threatened any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to
which any of the Company or the Subsidiaries is a party, or to
which their respective properties or assets are subject, before or
brought by any court, arbitrator or governmental agency or body,
that, if determined adversely to the Company or any such
Subsidiary, would, individually or in the aggregate, have a
Material Adverse Effect or that seeks to restrain, enjoin, prevent
the consummation of or otherwise challenge the issuance or sale of
the Securities to be sold hereunder or the application of the
proceeds therefrom or the other transactions described in the
Disclosure Documents.
(j) The Company and
the Subsidiaries own or possess adequate licenses or other rights
to use all patents, trademarks, service marks, trade names,
copyrights and know-how that are necessary to conduct their
businesses as described in the Disclosure Documents. None of the
Company or the Subsidiaries has received any written notice of
infringement of (or knows of any such infringement of) asserted
rights of others with respect to any patents, trademarks, service
marks, trade names, copyrights or know-how that, if such assertion
of infringement or conflict were sustained, would, individually or
in the aggregate, have a Material Adverse Effect.
(k) Each of the
Company and the Subsidiaries possesses all licenses, permits,
certificates, consents, orders, approvals and other authorizations
from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals
presently required or necessary to own or lease, as the case may
be, and to operate its respective properties and to carry on its
respective businesses as now or proposed to be conducted as set
forth in the Disclosure Documents ( "
Permits " ), except where the
failure to obtain such Permits would not, individually or in the
aggregate, have a Material Adverse Effect and none of the Company
or the Subsidiaries has received any notice of any proceeding
relating to revocation or modification of any such Permit, except
as described in the Disclosure Documents and except where such
revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect.
(l) Subsequent to the
respective dates as of which information is given in the Disclosure
Documents and except as described therein, (i) the Company and
the Subsidiaries have not incurred any material liabilities or
obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business or
(ii) the Company and the Subsidiaries have not purchased any
of their respective outstanding capital stock, or declared, paid or
otherwise made any dividend or distribution of any kind on any of
their respective capital stock or otherwise (other than, with
respect to any of such Subsidiaries, the purchase of capital stock
by the Company), (iii) there has not been any material
increase in the long-term indebtedness of the Company or any of the
Subsidiaries, (iv) there has not occurred any event or
condition, individually or in the aggregate, that has a Material
Adverse Effect, and (v) the Company and the Subsidiaries have
not sustained any material loss or interference with respect to
their respective businesses or properties from fire, flood,
hurricane, earthquake, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or
governmental proceeding.
(m) There are no
material legal or governmental proceedings nor are there any
material contracts or other documents required by the Securities
Act to be described in a prospectus that are not described in the
Disclosure Documents. Except as described in the Disclosure
Documents, none of the Company or the Subsidiaries is in default
under any of the contracts described in the Disclosure Documents,
has received a notice or claim of any such default or has knowledge
of any breach of such contracts by the other party or parties
thereto, except for such defaults or breaches as would not,
individually or in the aggregate, have a Material Adverse
Effect.
(n) Each of the
Company and the Subsidiaries has good and marketable title to all
real property described in the Disclosure Documents as being owned
by it and good and marketable title to the leasehold estate in the
real property described therein as being leased by it, free and
clear of all liens, charges, encumbrances or restrictions, except,
in each case, as described in the Disclosure Documents or such as
would not, individually or in the aggregate, have a Material
Adverse Effect. All material leases, contracts and agreements to
which the Company or any of the Subsidiaries is a party or by which
any of them is bound are valid and enforceable against the Company
or any such Subsidiary, are, to the knowledge of the Company, valid
and enforceable against the other party or parties thereto and are
in full force and effect.
(o) Each of the
Company and the Subsidiaries has filed all necessary federal, state
and foreign income and franchise tax returns, except where the
failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes
shown as due thereon; and other than tax deficiencies which the
Company or any Subsidiary is contesting in good faith and for which
adequate reserves have been provided in accordance with generally
accepted accounting principles, there is no tax deficiency that has
been asserted against the Company or any Subsidiary that would,
individually or in the aggregate, have a Material Adverse
Effect.
(p) None of the
Company or the Subsidiaries is, or immediately after the Closing
Date will be, required to register as an "investment company" or a
company "controlled by" an "investment company" within the meaning
of the Investment Company Act of 1940, as amended (the
" Investment Company Act
" ).
(q) None of the
Company or the Subsidiaries or, to the knowledge of any of such
entities' directors, officers, employees, agents or controlling
persons, has taken, directly or indirectly, any action designed, or
that might reasonably be expected, to cause or result in the
stabilization or manipulation of the price of the Common
Stock.
(r) None of the
Company, the Subsidiaries or any of their respective Affiliates (as
defined in Rule 501(b) of Regulation D under the
Securities Act) directly, or through any agent, engaged in any form
of general solicitation or general advertising (as those terms are
used in Regulation D under the Securities Act) in connection
with the offering of the Securities or engaged in any other conduct
that would cause such offering to be constitute a public offering
within the meaning of Section 4(2) of the Securities Act.
Assuming the accuracy of the representations and warranties of the
Purchasers in Section 6 hereof, it is not necessary in
connection with the offer, sale and delivery of the Securities to
the Purchasers in the manner contemplated by this Agreement to
register any of the Securities under the Securities Act.
(s) There is no
strike, labor dispute, slowdown or work stoppage with the employees
of the Company or any of the Subsidiaries which is pending or, to
the knowledge of the Company or any of the Subsidiaries,
threatened.
(t) Each of the
Company and the Subsidiaries carries general liability insurance
coverage comparable to other companies of its size and similar
business.
(u) Each of the
Company and the Subsidiaries maintains internal accounting controls
which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization,
(B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain
accountability for its assets, (C) access to its material
assets is permitted only in accordance with management's
authorization and (D) the values and amounts reported for its
material assets are compared with its existing assets at reasonable
intervals.
(v) The Company does
not know of any claims for services, either in the nature of a
finder's fee or financial advisory fee, with respect to the
offering of the Shares and the transactions contemplated by the
Transaction Documents.
(w) The Common Stock
is traded on the NASDAQ Capital Market. Except as described in the
Disclosure Documents, the Company currently is not in violation of,
and subject to approval of the Company's shareholders, the
consummation of the transactions contemplated by the Transaction
Documents will not violate, any rule of the NASDAQ Capital
Market.
(x) The Company is
eligible to use SB-2 for the resale of the Conversion Shares by
Purchasers or their transferees. The Company has no reason to
believe that it is not capable of satisfying the registration or
qualification requirements (or an exemption therefrom) necessary to
permit the resale of the Conversion Shares under the securities or
"blue sky" laws of any jurisdiction within the United
States.
3. Purchase, Sale
and Delivery of the Shares .
(a) On the basis of
the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth,
the Company agrees to issue and sell to the Purchasers, and
Purchasers agree to purchase from the Company on the Closing Date
(as defined below), 5,000 Shares of Series B Stock;
provided , however, that the Purchasers shall have no
obligation to consummate the transactions contemplated to occur on
the Closing Date unless all of the following conditions have been
met as of the Closing Date: (i) no Event of Default shall have
occurred and remain uncured, (ii) there shall have been no
breach by the Company of any covenant under this Agreement,
(iii) the Company shall be current in all of its public
filings, (iv) the Purchasers shall have received an opinion
from the Company's counsel with respect to the authorization of the
securities to be issued to the Purchasers and other customary
matters, and (v) the Company shall not, after the date of this
Agreement have consummated or entered into any agreement to effect
a transaction that would be regarded as a liquidation,
dissoluti
