AMENDED AND RESTATED AGREEMENT FOR STRATEGIC OPERATING ALLIANCE

AMENDED AND RESTATED

AGREEMENT FOR STRATEGIC OPERATING ALLIANCE

THIS AMENDED AND RESTATED AGREEMENT FOR STRATEGIC OPERATING ALLIANCE, dated as of December 31, 2004 (“ Agreement â€), is entered into by and among M-WAVE, INC. , a Delaware corporation (“ M-Wave â€), and AMERICAN STANDARD CIRCUITS, INC. , an Illinois Corporation (“ American Standard â€), and for purposes of Section 13 only, GORDHAN PATEL  (“ Patel â€).

RECITALS :

M-Wave and American Standard are parties to that certain Agreement for Strategic Operating Alliance, dated as of January 28, 2004 (“ Original Agreement â€);

M-Wave claims that American Standard failed to perform certain of its duties under the Original Agreement, including the merging of the parties’ sales departments;

M-Wave and American Standard desire to amend and restate the Original Agreement in its entirety, as set forth herein;

Patel has performed consulting services for M-Wave and M-Wave desires that Patel continue to perform such consulting services for at least (3) months; and

Patel desires to continue to perform such consulting services, in exchange for the options to be issued pursuant to this Agreement.

NOW, THEREFORE, Poly Circuits, Inc, a wholly owned subsidiary of M-Wave, Inc. merged into M-Wave, which succeeded Poly Circuits’ business, assets and interest in Am-Wave  LLC, the Original Agreement is hereby amended and restated in its entirety, effective as of the day and year first above written, as set forth below:

1.          Effectiveness of this Agreement .  This Agreement shall become effective upon the completion of all of the following: (a) execution by M-Wave and American Standard of this Agreement, (b) execution by M-Wave and AMI Partners of an amendment to M-Wave’s lease of a portion of the Manufacturing Facility (as defined below), and (c) execution by M-Wave and American Standard of an agreement (the “ LLC Transfer Agreement â€) transferring M-Wave’s interest in Am-Wave, LLC to American Standard and releasing M-Wave from all continuing liability regarding Am-Wave, LLC.

2.          Manufacturing .  American Standard shall manufacture high-performance circuit boards (“ Products â€) for M-Wave customers, as directed by M-Wave, at their manufacturing facilities located in Franklin Park and West Chicago, Illinois (the “ Manufacturing Facility â€) in accordance with the terms of this Agreement.  M‑Wave in its sole discretion may place any orders for the manufacture of Products with Asian third party vendors.

3.          Purchase Orders .  M-Wave will obtain written purchase orders from its customers for the purchase and delivery of Products hereunder, which shall specify all Work to be completed, and deliver the same to American Standard.  For the purposes of this Agreement, “Work†shall mean to procure labor, components, raw materials, equipment and other supplies, and to manufacture, bond, test, and deliver the Products to M-Wave.  Each purchase order shall specify the quantity of all Products ordered, the part number, the requested delivery date, price, and shall reference the applicable written Specifications.  As used herein, “Specifications†shall include, without limitation, manufacturing plans, test data, quality control data, compositions, bills of material, samples, schematics, process documentation, and test specifications.  Purchase orders shall normally be deemed approved by American Standard upon receipt; provided, however that American Standard may in good faith reject any order for products not listed on Annex 1 that American Standard does not have the technological capacity to manufacture, that does not substantially conform to the terms and conditions of this Agreement, or does not provide a price that is reasonably acceptable to American Standard, or would exceed the amount outstanding credit limits under paragraph 4(c) unless waived by American Standard for any particular order.  American Standard shall notify M-Wave of its disapproval of any purchase order within three (3) business days of receipt of such order.  M-Wave and American Standard will use reasonable efforts to satisfy any order changes made by a customer and will respond to the customer regarding meeting the requested change within seven (7) business days of receipt of a written order requesting such change.  The Parties agree that the terms and conditions contained in this Agreement shall prevail over any terms and conditions of any purchase order, acknowledgment form or other instrument.

4.          Price and Payment Terms .

(a) Unit Price .  For each Product manufactured for M-Wave customers, M-Wave shall pay to American Standard the “ Unit Price ,†which shall mean the standard cost of such Product as set forth in the pricing matrix spreadsheet attached hereto as Annex 1 , as may be changed hereafter from time to time by mutual agreement of the Parties.  The standard cost on such pricing matrix spreadsheet generally equals the difference between (i) the price of such Product to the customer and (ii) an agreed-upon discount (“ Discount â€).  M-Wave shall retain the excess of the amount paid by its customer for the Product over the Unit Price due from M-Wave to American Standard.

(b) Monthly Charge .  In lieu of the allocation of expenses previously provided in Section 7 of the Original Agreement and in addition to the Unit Price set forth above, by the 20th day of each calendar month beginning November 1, 2004, M-Wave shall be charged an amount (" Monthly Charge ") equal to the difference between (x) the greater of 6% of the aggregate Unit Price of all purchases by M-Wave from AMI Partners in the immediately preceding calendar month or $56,000 less (y) the monthly rent payment made pursuant to the Industrial Loft Lease dated January 28, 2004, as amended, in respect of the second floor of an industrial building known as 475 Industrial Way, West Chicago, Illinois; provided that  :

(i)   M-Wave shall no longer be charged the Monthly Charge if American Standard (A) is no longer able to manufacture the Products for M-Wave at the Manufacturing Facility, (B) ceases to exist, (C) undergoes a Fundamental Change (as defined below), or (D) materially breaches this Agreement and fails to cure such breach within ten calendar days following M-Wave’s delivery of notice of such breach.

(ii)  If American Standard to manufacture pursuant to paragraph 3, at least 50% of the orders for Products that M-Wave places with American Standard in any month, then the Monthly Charge shall equal the lesser of $56,000 or 6% of the aggregate Unit Price of all purchases less the monthly rent payment by M-Wave from American Standard in the immediately preceding calendar month.

(c) Terms.  Payment for each Product by M-Wave to American Standard hereunder is due within ten (10) business days of the date of delivery by American Standard to M-Wave pursuant to Section 6 below; provided that American Standard shall not be obligated to provide M-Wave with outstanding credit in excess of $500,000.

(d) Purchase Credits .  The parties acknowledge that, pursuant to the LLC Transfer and Lease Agreement, M-Wave is entitled to $340,000 in purchase credits from American Standard.  M‑Wave shall be entitled to apply $15,000 of such purchase credits each calendar month as an offset against the Unit Price of Products purchased hereunder and/or against the Monthly Charge and/or against any other amounts due hereunder.  In the event American Standard (i) is no longer able to manufacture the Products for M-Wave at the Manufacturing Facility, (ii) ceases to exist, (iii) undergoes a Fundamental Change (as defined below), or (iv) materially breaches this Agreement and fails to cure such breach within ten calendar days following M-Wave’s delivery of notice of such breach and provided M-Wave is not in default, then (A) M-Wave shall be entitled to apply all such remaining purchase credits as an offset against the Unit Price of Products purchased hereunder and/or against the Monthly Charge and/or against any other amounts due hereunder, with no limits on the amount of the remaining purchase credits that may be applied and offset and (B) American Standard shall  within sixty (60) business days pay to M-Wave in immediately available funds the amount of any remaining purchase credits that have not been so applied by M-Wave.

(e) Other .  The Unit Price is exclusive of federal, state and local excise, sales, use and similar taxes, and any duties; and M-Wave shall be responsible for the collection of all such amounts from customers and the remission of such amounts to the appropriate authorities.  The Unit Price is also exclusive of freight, insurance and other shipping expenses which are the responsibilities of M-Wave.

(f) Fundamental Change .  A “ Fundamental Change †means consummation by American Standard of: (A) a merger or consolidation; (B) a complete liquidation or dissolution of American Standard; (C) the sale or other disposition of all or substantially all of the assets of American Standard; or (D) a similar transaction not described above that has an effect substantially similar to that of a transaction described above.

5.          Packaging and Labeling .  M-Wave, at its own expense, will package and include Labels on or with all M-Wave Products and packaging to be supplied in accordance with the applicable Specifications.  As used herein, “ Label(s) †shall mean all (a) labels and other written, printed or graphic matter placed upon the Products, (b) containers and/or wrappers utilized with the Products including, without limitation, Product inserts which bear the trademarks or trade dress of M-Wave, and (c) other matters designated in the Specifications or on approved prototypes/samples.

6.          Shipments .  M-Wave, at its own expense, shall ship all Products to the customer in accordance with the applicable Specifications.

7.          Acceptances and Rejection .  If a customer (a) rejects in whole or in part any shipment of Products because such Products were determined not to be in accordance with the applicable Specifications (the “ Nonconforming Products â€) or (b) informs M-Wave of any shortage in quantity of any shipment of Products, M-Wave shall promptly provide American Standard written notice of such rejection or shortage and American Standard shall use reasonable efforts to replace the Nonconforming Products or make up the shortage, at no additional cost to the customer and as quickly as possible, but in any event within ten (10) business days of receiving notice of such rejection or shortage.  At American Standard’s option and expense, shipments of Nonconforming Products shall be returned to American Standard via M-Wave or destroyed by the customer.  The remedy of replacement or refund will not be available for Nonconforming Products if such nonconformance was caused by the customer’s misuse, unauthorized modifications, neglect, improper testing or improper storage of such Nonconforming Products.

8.          Customer Complaints .  If M-Wave receives a consumer complaint relating to a defect in any Product, M-Wave may seek, in a prompt and reasonable manner, the resolution of such complaint by American Standard in accordance with the terms of this Agreement.

9.          Hazardous or Unsafe Condition of Products .  In the event American Standard or M-Wave learns of any condition relating to a potential safety hazard or unsafe condition in any of the Products, or is advised of such by any state or federal regulatory authorities having jurisdiction over such Products, such Party shall immediately advise the other Party and provide all relevant information, and the Parties shall exert all reasonable efforts to promptly resolve the situation.

10.        Transition Issues.   

(a) Phone System .  M-Wave shall manage the phone system at the Manufacturing Facility, and provide American Standard with access to and use of same, at M-Wave's sole expense, through January 31, 2005.  After February 1, 2005, American Standard shall have no further right to use the phone system managed and paid for by M-Wave, and American Standard shall install its own phone system and pay its own phone and internet expenses.

(b) Reception; IT .  M-Wave and American Standard shall each pay 50% of the salary of the receptionist, until such time as American Standard determines that such receptionist is no longer needed.  M-Wave and American Standard shall each pay 50% of the salary of the information technology manager through December 31, 2004; thereafter, American Standard shall pay M-Wave $40 per hour for information technology services requested by American Standard and provided by M-Wave's employees.

(c) Deliveries .  For use of American Standard's driver, M-Wave will pay American Standard $100 per week to make one delivery per week to University Park and $250 per week to make daily deliveries from American Standard's facility in Franklin Park, until such time as M-Wave notifies American Standard that either or both of such delivery services are no longer needed.

(d) Engineering .  M-Wave will pay American Standard $40 per hour for engineering services requested by M-Wave and provided by American Standard's employees."

(e) Orbotec Equipment .  M-Wave will transfer ownership and possession of the Orbotec Model DP-100 UV Laser Direct Imaging System, S/N DP 1202 to American Standard without recourse.  All responsibilities in regards to licensing fees, transfer fees, maintenance of equipment, etc. are the sole responsibility of American Standard. M-Wave will co-operate with ASC to get Orbotec licenses for equipment and software including the LDI machine, transferred to ASC for no cost.

11.        Term .

(a) Stated  Term .  This Agreement shall be effective as of October 1, 2004 and shall continue in effect until August 31, 2006 (the “ Term â€).

(b) Early Termination .

(i)   Notwithstanding the above, the non-breaching Party shall have the right to terminate this Agreement immediately, if the other Party materially breaches this Agreement at any time and such breach is not cured (x) within seven (7) days of written notice if the breach was caused by the failure of the other Party to make any payment required under this Agreement or (y) within thirty (30) days of written notice thereof for any other material breach of this Agreement.  In either case, such notice shall specify in detail the nature of the breach.

(ii)  Either Party may terminate this Agreement, effective immediately upon the giving of written notice, if the other Party shall file a petition for bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall take advantage of the insolvency laws of any state of the United States, or shall make an assignment for the benefit of creditors, or shall have a receiver appointed, whether by private instrument or by court officer, for its property, or become subject to an involuntary petition for bankruptcy, or have a major portion of its assets become subject to attachment that is not rescinded within forty-five (45) days.

(iii) This Agreement may be terminated by either Party upon sixty (60) days written notice to the other if any conditions constituting a Force Majeure as described in Section 24(b) herein exist for a period in excess of forty-five (45) days in any twelve-month period.

(c) Effect of Termination .  Termination or expiration of this Agreement shall not (i) affect any other rights of either Party which may have accrued up to the date of such termination or expiration, or (ii) relieve either Party of its obligation to pay to the other Party sums due in respect of Products delivered and accepted prior to termination or expiration of this Agreement.  The provisions of Sections 15 (Intellectual Property), 18 (Product Warranty), 19 (Records and Audit), 20 (Confidentiality), 21 (Non-Solicitation of Customers and Employees), 23 (Indemnification), and 24 (Miscellaneous) of this Agreement shall survive termination or expiration of this Agreement.

12.        Sales .  M-Wave will no longer pursue merging the sales departments as described in the Original Agreement. However, M-Wave will be the sole sales agent for all microwave and RF products produced at the Manufacturing Facility, except however American Standard may manufacture small orders of microwave and RF products at the Manufacturing Facility with M-Wave’