PROMISSORY NOTE

 

$500,000

February 23, 2005

 

Los Angeles, California

 

 

FOR VALUE RECEIVED, the undersigned M-Wave, Inc., a Delaware corporation (the
"Company"), promises to pay to the order of Mercator Momentum Fund,
L.P., ("Payee"), at its address c/o Mercator Advisory Group, LLC, 555 South
Flower Street, Suite 4200, Los Angeles, CA  90071, or at such other place as the
holder hereof may designate, in lawful money of the United States of America and
in immediately available funds, the principal sum of Five Hundred Thousand
Dollars ($500,000) with interest thereon as set forth herein.

1.                 INTEREST:

The outstanding principal balance of this Note shall bear interest from the date
hereof (computed on the basis of a 360-day year, actual days elapsed) at a rate
per annum equal to ten percent (10%).

2.                 PAYMENTS:

a.                 Interest Payments. Commencing on the date hereof through
maturity, interest payments on the outstanding principal balance shall be due
and payable monthly in arrears, prorated for any partial month.

b.                 Principal Payments.        Upon close of sale of that certain
real property commonly known as 215 Park Street in Bensenville, IL, the Company
shall make a mandatory principal payment of not less than $104,839.  Any
outstanding principal balance and any accrued but unpaid interest shall be due
and payable in full on August 23, 2006 (the "Maturity Date").

c.                 Application of Payments.   Each payment made on this Note
shall be credited, first, to any interest then accrued on the principal amount
to be paid and, second, to the outstanding principal balance hereof.

d.                 Prepayment.   The Company may prepay any amounts outstanding
hereunder in whole or in part at any time without premium or penalty.

3.                 EVENTS OF DEFAULT:

The occurrence of any of the following shall constitute an "Event of Default"
under this Note:

a.                 The Company fails to pay any principal or interest payment
when due under of this Note.

b.                 The Company fails to perform any other obligation under this
Note and such failure continues for five (5) days after notice thereof to the
Company.

c.                 The Company becomes insolvent, or suffers or consents to or
applies for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or generally fails to pay its debts as they
become due, or makes a general assignment for the benefit of creditors; files a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under Title 11 of
the United States Code, as amended or recodified from time to time (the
"Bankruptcy Code"), or under any state, federal or other law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other relief for debtors
is filed or commenced against it and is pending for more than sixty (60) days,
or it files an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or it is adjudicated a bankrupt, or an
order for relief is entered against it by any court of competent jurisdiction
under the Bankruptcy Code or any other applicable state, federal or other law
relating to bankruptcy, reorganization or other relief for debtors.

d.                 The dissolution or liquidation of the Company.

4.                 MISCELLANEOUS:

a.         Remedies.   Upon the occurrence of any Event of Default, the holder
of this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by the Company.  In
addition, the Company shall pay to the holder immediately upon demand the full
amount of all payments, advances, charges, costs and expenses, including without
limitation reasonable attorneys' fees and costs, expended or incurred by the
holder in connection with the enforcement of the holder's rights and/or the
collection of any amounts which become due to the holder under this Note, and
the prosecution or defense of any action in any way related to this Note,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by the holder or any other person or entity)
relating to the Company or any other person or entity.

b.         Governing Law and Consent to Jurisdiction.   This Note shall be
governed by, and construed in accordance with, the laws of the State
of CALIFORNIA WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW
TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.

c.         DUE DILIGENCE AND LEGAL FEES.  In connection with the due diligence
and preparation of this Promissory Note and related documents, the Company shall
pay Mercator Advisory Group, LLC the sum of $9,677 for due diligence and $1,613
for legal fees, which sums shall be due and payable on the date hereof.

IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first
written above.

 

M-WAVE, INC.

a Delaware corporation

 

By   /s/Jim Mayer

 

Jim Mayer - CEO

[Printed Name and Title]