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."


      
        
          
             

          

          
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      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.


      
        
          
             

          

          
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      (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. 


      
        
          
             

          

          
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      (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.


      
        
          
             

          

          
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      (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.


      
        
          
             

          

          
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      (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.


      
        
          
             

          

          
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      (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, dissolution or winding up of the
        affairs of the Company under the Certificate of Designations.


      
        
          
             

          

          
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      (b)   One
        or
        more certificates in definitive form for the Shares that the Purchasers have
        agreed to purchase, shall be delivered by or on behalf of the Company, against
        delivery of $500,000, each of the Purchasers and the Company shall deliver
        the
        Registration Rights Agreement, duly executed by such party. Such delivery
        of and
        payment for the Shares shall be made at the offices of M.A.G., LLC, 555 South
        Flower Street, Suite 4200, Los Angeles, California 90071, at not later than
        5:00
        p.m. (Los Angeles Time) on December
        29, 2006 (the "Closing"),
        or at
        such date as the Purchasers and the Company may agree upon, such time and
        date
        of delivery against payment being herein referred to as the "Closing
        Date." 

       

      (c)   The
        proceeds shall be held in a reserve account at the bank currently utilized
        by
        the Company and shall be released therefrom only upon a resolution by a majority
        of the Company's independent directors (as defined in the NASD Manual) that
        the
        release of such proceeds (or a portion thereof) is necessary or appropriate
        under the Company's budget (as approved by the Finance Committee of the
        Company's Board of Directors).

       

      4.   Certain
        Covenants of the Company.
        The
        Company covenants and agrees with each Purchaser as follows:

       

      (a)   None
        of
        the Company or any of its Affiliates will sell, offer for sale or solicit
        offers
        to buy or otherwise negotiate in respect of any "security" (as defined in
        the
        Securities Act) which could be integrated with the sale of the Securities
        in a
        manner which would require the registration under the Securities Act of the
        Securities.

       

      (b)   The
        Company will not become, at any time prior to the expiration of three years
        after the Closing Date, an open-end investment company, unit investment trust,
        closed-end investment company or face-amount certificate company that is
        or is
        required to be registered under the Investment Company Act.

       

      (c)   None
        of
        the proceeds of the Series B Stock will be used to reduce or retire any
        insider note or convertible debt held by an officer or director of the
        Company.

       

      (d)   Subject
        to Section 9 of this Agreement, the Conversion Shares will be traded on the
        NASDAQ Capital Market, or such market on which the Company's shares are
        subsequently listed or traded, immediately following the later of (i) their
        issuance or (ii) declaration of effectiveness of the Registration Statement
        by the SEC.

       

      (e)   The
        Company will use commercially reasonable efforts to do and perform all things
        required to be done and performed by it under this Agreement and the other
        Transaction Documents and to satisfy all conditions precedent on its part
        to the
        obligations of the Purchasers to purchase and accept delivery of the
        Securities.


      
        
          
             

          

          
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      (f)   The
        Purchasers shall have a right of first refusal on any financing in which
        the
        Company is the issuer of debt or equity securities between the date of this
        Agreement and the date of effectiveness of the Registration
        Statement.

       

      (g)   For
        so
        long as any shares of Series B Stock are outstanding, the Company shall not
        issue any debt or equity securities with rights or preferences superior to
        those
        of the Series B Stock with respect to the distribution of assets on any
        liquidation, dissolution or winding up of the Company. 

       

      (h)   Additional
        Covenants:

       

      (i)   Not
        less
        than five business days after the Closing Date, the Company shall prepare
        and
        submit to the Purchasers a detailed budget showing all anticipated expenses
        for
        the six-month period commencing January 1, 2007. In addition, by noon pacific
        time of each Monday of each week during which the Series B Stock is outstanding,
        the Company shall submit to the Purchasers a reconciliation of actual expenses
        to budgeted expenses for the prior week and the Company shall cause its officers
        to make themselves reasonably available to the Purchasers to discuss such
        reconciliation.

       

      (ii)   Except
        with the prior written consent of the Purchasers, the Company shall not and
        shall not permit any of its subsidiaries to voluntarily incur any obligation
        or
        enter into any contract, agreement or other arrangement that requires a payment
        by the Company or any of its subsidiaries in excess of, or a series of payments,
        which in the aggregate exceed, $5,000.

       

      In
        addition to any other remedy provided under law, if the Company breaches
        any of
        the covenants in this Section 4(h), then the Purchasers shall be entitled
        to
        cause the Company to repurchase the Series B Stock for cash in immediately
        payable funds in an amount equal to the original purchase price therefor
        plus
        all accrued but unpaid dividends thereon. If the Purchasers so elect to cause
        the Company to repurchase Series B Stock pursuant to the previous sentence,
        then
        the Purchasers shall give a written notice to the Company of such election
        and
        the Company shall, within three business days of receipt of such notice,
        make
        the payment specified in the previous sentence.

      


      5.   Conditions
        of the Purchasers' Obligations.
        The
        obligation of each Purchaser to purchase and pay for the Securities is subject
        to the following conditions unless waived in writing by the
        Purchaser:

       

      (a)   The
        representations and warranties of the Company contained in this Agreement
        shall
        be true and correct in all material respects (other than representations
        and
        warranties with a Material Adverse Effect qualifier, which shall be true
        and
        correct as written) on and as of the Closing Date; the Company shall have
        complied in all material respects with all agreements and satisfied all
        conditions on its part to be performed or satisfied hereunder at or prior
        to the
        Closing Date.


      
        
          
             

          

          
            -9-

            
              

            

          

          
             

          

        

      

      


      (b)   None
        of
        the issuance and sale of the Securities pursuant to this Agreement or any
        of the
        transactions contemplated by any of the other Transaction Documents shall
        be
        enjoined (temporarily or permanently) and no restraining order or other
        injunctive order shall have been issued in respect thereof; and there shall
        not
        have been any legal action, order, decree or other administrative proceeding
        instituted or, to the Company's knowledge, threatened against the Company
        or
        against any Purchaser relating to the issuance of the Securities or any
        Purchaser's activities in connection therewith or any other transactions
        contemplated by this Agreement, the other Transaction Documents or the
        Disclosure Documents.

       

      (c)   The
        Purchasers shall have received an opinion of legal counsel to the Company,
        with
        respect to the authorization of the Shares and other customary matters in
        the
        form attached hereto as Exhibit C.
        

       

      6.   Representations
        and Warranties of the Purchasers.

       

      (a)   Each
        Purchaser represents and warrants to the Company that the Securities to be
        acquired by it hereunder (including the Conversion Shares that it may acquire
        upon conversion thereof) are being acquired for its own account for investment
        and with no intention of distributing or reselling such Securities (including
        the Conversion Shares that it may acquire upon conversion thereof) or any
        part
        thereof or interest therein in any transaction which would be in violation
        of
        the securities laws of the United States of America or any State. Nothing
        in
        this Agreement, however, shall prejudice or otherwise limit a Purchaser's
        right
        to sell or otherwise dispose of all or any part of such Conversion Shares
        under
        an effective registration statement under the Securities Act and in compliance
        with applicable state securities laws or under an exemption from such
        registration. By executing this Agreement, each Purchaser further represents
        that it does not have any contract, undertaking, agreement or arrangement
        with
        any person to sell, transfer or grant participation to any Person with respect
        to any of the Securities.

       

      (b)   Each
        Purchaser understands that the Securities (including the Conversion Shares
        that
        it may acquire upon conversion thereof) have not been registered under the
        Securities Act and may not be offered, resold, pledged or otherwise transferred
        except (a) pursuant to an exemption from registration under the Securities
        Act (and, if requested by the Company, based upon an opinion of counsel
        acceptable to the Company) or pursuant to an effective registration statement
        under the Securities Act and (b) in accordance with all applicable
        securities laws of the states of the United States and other
        jurisdictions.

       

      Each
        Purchaser agrees to the imprinting, so long as appropriate, of the following
        legend on the Securities (including the Conversion Shares that it may acquire
        upon conversion thereof):

       

      The
        shares of stock evidenced by this certificate have not been registered under
        the
        U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged
        or otherwise transferred ("transferred") in the absence of such registration
        or
        an applicable exemption therefrom. In the absence of such registration, such
        shares may not be transferred unless, if the Company requests, the Company
        has
        received a written opinion from counsel in form and substance satisfactory
        to
        the Company stating that such transfer is being made in compliance with all
        applicable federal and state securities laws.


      
        
          
             

          

          
            -10-

            
              

            

          

          
             

          

        

      

      


      Further
        with regard to the Series B Stock, the following legend shall be included:


       

      Additional
        restrictions on transfer pursuant to agreements exist and are available upon
        request from the Company. 

       

      The
        legend set forth above may be removed if and when the Conversion Shares are
        disposed of pursuant to an effective registration statement under the Securities
        Act or in the opinion of counsel to the Company experienced in the area of
        United States Federal securities laws such legends are no longer required
        under
        applicable requirements of the Securities Act. The Shares and the Conversion
        Shares shall also bear any other legends required by applicable Federal or
        state
        securities laws, which legends may be removed when in the opinion of counsel
        to
        the Company experienced in the applicable securities laws, the same are no
        longer required under the applicable requirements of such securities laws.
        The
        Company agrees that it will provide each Purchaser, upon request, with a
        substitute certificate, not bearing such legend at such time as such legend
        is
        no longer applicable. Each Purchaser agrees that, in connection with any
        transfer of the Conversion Shares by it pursuant to an effective registration
        statement under the Securities Act, it will comply with all prospectus delivery
        requirements of the Securities Act. The Company makes no representation,
        warranty or agreement as to the availability of any exemption from registration
        under the Securities Act with respect to any resale of the Shares or the
        Conversion Shares.

       

      (c)   Each
        Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
        Regulation D under the Securities Act. Neither Purchaser learned of the
        opportunity to acquire Shares or any other security issuable by the Company
        through any form of general advertising or public solicitation.

       

      (d)   Each
        Purchaser represents and warrants to the Company that it has such knowledge,
        sophistication and experience in business and financial matters so as to
        be
        capable of evaluating the merits and risks of the prospective investment
        in the
        Securities, having been represented by counsel, and has so evaluated the
        merits
        and risks of such investment and is able to bear the economic risk of such
        investment and, at the present time, is able to afford a complete loss of
        such
        investment.

       

      (e)   Each
        Purchaser represents and warrants to the Company that (i) the purchase of
        the Securities to be purchased by it has been duly and properly authorized
        and
        this Agreement has been duly executed and delivered by it or on its behalf
        and
        constitutes the valid and legally binding obligation of the Purchaser,
        enforceable against the Purchaser in accordance with its terms, subject to
        bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
        similar laws of general applicability relating to or affecting creditors'
        rights
        generally and to general principles of equity; (ii) the purchase of the
        Securities to be purchased by it does not conflict with or violate its charter,
        by-laws or any law, regulation or court order applicable to it; and
        (iii) the purchase of the Securities to be purchased by it does not impose
        any penalty or other onerous condition on the Purchaser under or pursuant
        to any
        applicable law or governmental regulation.

       

      (f)   Each
        Purchaser represents and warrants to the Company that neither it nor any
        of its
        directors, officers, employees, agents, partners, members, or controlling
        persons has taken, or will take, directly or indirectly, any actions designed,
        or that might reasonably be expected to cause or result in, the destabilization
        or manipulation of the price of the Common Stock.


      
        
          
             

          

          
            -11-

            
              

            

          

          
             

          

        

      

      


      (g)   Each
        Purchaser acknowledges it or its representatives have reviewed the Disclosure
        Documents and further acknowledges that it or its representatives have been
        afforded (i) the opportunity to ask such questions as it has deemed
        necessary of, and to receive answers from, representatives of the Company
        concerning the terms and conditions of the offering of the Securities and
        the
        merits and risks of investing in the Securities; (ii) access to information
        about the Company and the Company's financial condition, results of operations,
        business, properties, management and prospects sufficient to enable it to
        evaluate its investment in the Securities; and (iii) the opportunity to
        obtain such additional information which the Company possesses or can acquire
        without unreasonable effort or expense that is necessary to verify the accuracy
        and completeness of the information contained in the Disclosure
        Documents.

       

      (h)   Each
        Purchaser represents and warrants to the Company that it has based its
        investment decision solely upon the information contained in the Disclosure
        Documents and such other information as may have been provided to it or its
        representatives by the Company in response to its inquiries, and has not
        based
        its investment decision on any research or other report regarding the Company
        prepared by any third party ("Third
        Party Reports").
        Each
        Purchaser understands and acknowledges that (i) the Company does not
        endorse any Third Party Reports and (ii) its actual results may differ
        materially from those projected in any Third Party Report.

       

      (i)   Each
        Purchaser understands and acknowledges that (i) any forward-looking
        information included in the Disclosure Documents is subject to risks and
        uncertainties, including those risks and uncertainties set forth in the
        Disclosure Documents; and (ii) the Company's actual results may differ
        materially from those projected by the Company or its management in such
        forward-looking information.

       

      (j)   Each
        Purchaser understands and acknowledges that (i) the Securities are offered
        and sold without registration under the Securities Act in a private placement
        that is exempt from the registration provisions of the Securities Act and
        (ii) the availability of such exemption depends in part on, and that the
        Company and its counsel will rely upon, the accuracy and truthfulness of
        the
        foregoing representations and Purchaser hereby consents to such
        reliance.

       

      7.   Covenants
        of Purchasers.
        Purchasers,
        on behalf of themselves and their affiliates and the permitted assignee of
        any
        Conversion Shares hereby covenant and agree not to, directly or indirectly,
        offer to "short sell", contract to "short sell" or otherwise "short sell"
        any
        securities of the Company, including, without limitation, shares of Common
        Stock
        that will be received as a result of the conversion of the Series B
        Stock.

       

      8.   Termination.

       

      (a)   This
        Agreement may be terminated in the sole discretion of the Company by notice
        to
        each Purchaser if at the Closing Date:


      
        
          
             

          

          
            -12-

            
              

            

          

          
             

          

        

      

       

      (i)   the
        representations and warranties made by any Purchaser in Section 6 are not
        true
        and correct in all material respects; or

       

      (ii)   as
        to the
        Company, the sale of the Securities hereunder (i) is prohibited or enjoined
        by any applicable law or governmental regulation or (ii) subjects the
        Company to any penalty, or in its reasonable judgment, other onerous condition
        under or pursuant to any applicable law or government regulation that would
        materially reduce the benefits to the Company of the sale of the Securities
        to
        such Purchaser, so long as such regulation, law or onerous condition was
        not in
        effect in such form at the date of this Agreement.

       

      (b)   This
        Agreement may be terminated by any Purchaser by notice to the Company given
        in
        the event that (i) the Company shall have failed, refused or been unable to
        satisfy all material conditions on its part to be performed or satisfied
        hereunder on or prior to the Closing Date or (ii) if after the date of this
        Agreement but prior to the Closing Date, trading in securities of the Company
        on
        the NASDAQ Capital Market shall have been suspended and the Company ceases
        to be
        publicly traded. 

       

      (c)   This
        Agreement may be terminated by mutual written consent of all
        parties.

       

      9.   Registration.
        The
        Company shall use its best efforts to prepare and file with the SEC on or
        prior
        to the Filing Deadline (as defined below) a Registration Statement covering
        the
        resale of the maximum number of Conversion Shares issuable upon conversion
        of
        the Shares (collectively, the "Registrable
        Securities"),
        for an
        offering to be made on a continuous basis pursuant to Rule 415 (the "Registration
        Statement")
        based
        on the Conversion Price set forth in the Certificate of Designations. The
        term
        "Filing Deadline" means (i) in the event that within 45 days after the Closing
        Date the Company enters into any agreement (a "Merger
        Agreement")
        to
        effect a merger, reorganization, consolidation, recapitalization, sale of
        substantial assets or similar transaction, the date that is 45 days after
        the
        Company enters into such Merger Agreement, or (ii) in the event that the
        Company
        does not enter into a Merger Agreement within 45 days after the Closing Date,
        the date that is 60 days after the Closing Date. The Company shall use its
        best
        efforts to ensure that the Registration Statement is declared effective by
        the
        SEC (i) in the event that the Company enters into a Merger Agreement within
        45
        days after the Closing Date, not later than 150 days after the date the Company
        enters into such Merger Agreement and (ii) in the event that the Company
        does
        not enter into a Merger Agreement within 45 days after the Closing Date,
        within
        60 days of the date the Registration Statement is filed with the SEC.


       

      10.   Event
        of Default.
        An
        "Event
        of Default"
        means
        the Company's failure to: (i) file the Registration Statement with the SEC
        on or prior to the Filing Deadline (as defined in Section 9 hereof), (ii)
        maintain trading of the Company's Common Stock on the NASDAQ Small Cap Market
        or
        other publicly traded market, or (iii) deliver to Purchasers, or
        Purchasers' broker, as directed, Common Stock that Purchasers have converted
        within three (3) business days of such conversions. 

       

      11.   Notices.
        All
        communications hereunder shall be in writing and shall be hand delivered,
        mailed
        by first-class mail, couriered by next-day air courier or by facsimile and
        confirmed in writing (i) if to the Company, at the addresses set forth
        below, or (ii) if to a Purchaser or MAG, to the address set forth for such
        party on the signature page hereto, with a copy to Latham & Watkins, LLP,
        633 West Fifth Street, Los Angeles, California 90071, Attention: Justin
        O’Neill, Esq. 


      
        
          
             

          

          
            -13-

            
              

            

          

          
             

          

        

      

      


      If
        to the
        Company:

      


      M-Wave,
        Inc.

      11533
        Franklin Avenue, 2nd
        Floor

      Franklin
        Park, Illinois 60131

      


      Attention:
        Jeff Figlewicz

      Telephone:
        630-562-4751

      Facsimile:
        630-562-1775

      


      with
        a
        copy to:

      


      Ellenoff
        Grossman & Schole LLP

      370
        Lexington Avenue, Floor 19 

      New
        York,
        New York 10017

      Attn:
        Barry I. Grossman

      Telephone:
        212-370-1300

      Facsimile:
        212-370-7889

      


      All
        such
        notices and communications shall be deemed to have been duly given:
        (i) when delivered by hand, if personally delivered; (ii) five
        business days after being deposited in the mail, postage prepaid, if mailed
        certified mail, return receipt requested; (iii) one business day after
        being timely delivered to a next-day air courier guaranteeing overnight
        delivery; (iv) the date of transmission if sent via facsimile to the
        facsimile number as set forth in this Section or the signature page hereof
        prior
        to 6:00 p.m. (Pacific time) on a business day, or (v) the business day
        following the date of transmission if sent via facsimile at a facsimile number
        set forth in this Section or on the signature page hereof after 6:00 p.m.
        (Pacific time) or on a date that is not a business day. Change of a party's
        address or facsimile number may be designated hereunder by giving notice
        to all
        of the other parties hereto in accordance with this Section.

       

      12.   Survival
        Clause.
        The
        respective representations, warranties, agreements and covenants of the Company
        and the Purchasers set forth in this Agreement shall survive until the first
        anniversary of the Closing.

       

      13.   [Reserved]

       

      14.   Enforcement.
        If any
        action at law or in equity is necessary to enforce or interpret the terms
        of
        this Agreement or the Certificate of Designations, the prevailing party or
        parties shall be entitled to receive from the other party or parties reasonable
        attorneys' fees, costs and necessary disbursements in addition to any other
        relief to which the prevailing party or parties may be
        entitled.


      
        
          
             

          

          
            -14-

            
              

            

          

          
             

          

        

      

      


      15.   Successors.
        This
        Agreement shall inure to the benefit of and be binding upon Purchasers, MAG
        and
        the Company and their respective successors and legal representatives, and
        nothing expressed or mentioned in this Agreement is intended or shall be
        construed to give any other person any legal or equitable right, remedy or
        claim
        under or in respect of this Agreement, or any provisions herein contained;
        this
        Agreement and all conditions and provisions hereof being intended to be and
        being for the sole and exclusive benefit of such persons and for the benefit
        of
        no other person. Neither the Company nor any Purchaser may assign this Agreement
        or any rights or obligation hereunder without the prior written consent of
        the
        other party.

       

      16.   No
        Waiver; Modifications in Writing.
        No
        failure or delay on the part of the Company, MAG or any Purchaser in exercising
        any right, power or remedy hereunder shall operate as a waiver thereof, nor
        shall any single or partial exercise of any such right, power or remedy preclude
        any other or further exercise thereof or the exercise of any other right,
        power
        or remedy. The remedies provided for herein are cumulative and are not exclusive
        of any remedies that may be available to the Company, MAG or any Purchaser
        at
        law or in equity or otherwise. No waiver of or consent to any departure by
        the
        Company, MAG or any Purchaser from any provision of this Agreement shall
        be
        effective unless signed in writing by the party entitled to the benefit thereof,
        provided that
        notice of any such waiver shall be given to each party hereto as set forth
        below. Except as otherwise provided herein, no amendment, modification or
        termination of any provision of this Agreement shall be effective unless
        signed
        in writing by or on behalf of each of the Company, MAG and the Purchasers.
        Any
        amendment, supplement or modification of or to any provision of this Agreement,
        any waiver of any provision of this Agreement, and any consent to any departure
        by the Company, MAG or any Purchaser from the terms of any provision of this
        Agreement shall be effective only in the specific instance and for the specific
        purpose for which made or given. Except where notice is specifically required
        by
        this Agreement, no notice to or demand on the Company in any case shall entitle
        the Company to any other or further notice or demand in similar or other
        circumstances.

       

      17.   Entire
        Agreement.
        This
        Agreement, together with the other Transaction Documents, constitutes the
        entire
        agreement among the parties hereto and supersedes all prior agreements,
        understandings and arrangements, oral or written, among the parties hereto
        with
        respect to the subject matter hereof and thereof. Disclosure by the Company
        in
        any Schedule to this Agreement shall be deemed applicable to all applicable
        provisions hereof.

       

      18.   Severability.
        If any
        provision of this Agreement is held to be invalid or unenforceable in any
        respect, the validity and enforceability of the remaining terms and provisions
        of this Agreement shall not in any way be affected or impaired
        thereby.

       

      19.   APPLICABLE
        LAW.
        THE
        VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS
        SET
        FORTH HEREIN 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. THE PARTIES HEREBY IRREVOCABLY AND
        UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR
        RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL COURTS
        LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE
        EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.


      
        
          
             

          

          
            -15-

            
              

            

          

          
             

          

        

      

      


      20.   Counterparts.
        This
        Agreement may be executed in two or more counterparts and may be delivered
        by
        facsimile transmission, each of which shall be deemed an original, but all
        of
        which together shall constitute one and the same instrument. 

       

      21.   If
        the
        foregoing correctly sets forth our understanding, please indicate your
        acceptance thereof in the space provided below for that purpose, whereupon
        this
        Agreement shall constitute a binding agreement among the Company, the Purchasers
        and MAG.

       

      Very
        truly yours,

       

      M-Wave,
        Inc.

       

       

      
        	
                By:

              	
                /s/
                  Joseph A. Turek

              	 
	 	
                Name:
                  Joseph A. Turek

              	 
	 	
                Title:
                  President and COO

              	 


      

      


      
        
          
             

          

          
            -16-

            
              

            

          

          
             

          

        

      

      


      ACCEPTED
        AND AGREED:

       

       

      
        	
                Mercator
                  Momentum Fund, LP

              	 	
                Mercator
                  Momentum Fund III, LP

              
	 	 	 
	
                By:

              	
                M.A.G.
                  Capital, LLC

              	 	
                By:

              	
                M.A.G.
                  Capital, LLC

              
	
                Its:

              	
                General
                  Partner

              	 	
                Its:

              	
                General
                  Partner

              
	 	 	 	 	 
	 	 	 	 	 
	
                By:

              	 	 	
                By:

              	 
	
                Its:

              	 	 	
                Its:

              	 
	 	 	 	 	 
	
                M.A.G.
                  Capital, LLC

              	 	
                Monarch
                  Pointe Fund, Ltd.

              
	 	 	 	 	 
	 	 	 	 	 
	
                By:

              	 	 	
                By:

              	 
	
                Its:

              	 	 	
                Its:
                  

              	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	
                Addresses
                  for Notice:

              
	 	 	 	
                M.A.G.
                  Capital, LLC

              
	 	 	 	
                555
                  South Flower Street, Suite 4200

              
	 	 	 	
                Los
                  Angeles, California 90071

              
	 	 	 	
                Attention:
                  David Firestone

              
	 	 	 	
                Facsimile:
                  (213) 533-8285

              
	 	 	 	 	 
	 	 	 	
                with
                  copy to:

              
	 	 	 	 	 
	 	 	 	
                Justin
                  O’Neill, Esq.

              
	 	 	 	
                Latham
                  & Watkins LLP

              
	 	 	 	
                633
                  West Fifth Street, 40th
                  Floor

              
	 	 	 	
                Los
                  Angeles, California 90071

              
	 	 	 	
                Facsimile:
                  (213) 891-8763

              


      

      


      
        
           

        

        
          -17-

          
            

          

        

        
           

        

      


      Schedule
        A

       

      Direct
        and Indirect Subsidiaries of M-Wave, Inc.

       

      


      M-Wave
        DBS, Inc., an Illinois corporation (not in good standing)

       

      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      


      Schedule
        B

       

      Company
        Capitalization

       

      [See
        the
        Balance Sheet of the Company set forth in the Form 10-QSB for the period
        ended
        September 30, 2006 included in the Disclosure Documents.]

       

      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      

       

      Schedule
        C

       

      Agreements
        regarding ownership or disposition of capital stock

       

      None

       

      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      

       

      Schedule
        D

      Violations/Breaches

       

      None

       

      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      

       

      Exhibit
        A

       

      Certificate
        of Designations of

      Series
        B
        Convertible Preferred Stock

      of

      M-Wave,
        Inc.

       

      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      

       

      Exhibit
        B

       

      Registration
        Rights Agreement

       

      
        
           

        

        
          -1-

          
            

          

        

        
           

        

      


      Exhibit
        C

       

      Form
        of
        Legal Opinion

       

      (Delivered
        to Purchasers at the Closing)

       

      This
        opinion is furnished to you pursuant to the Subscription Agreement by and
        among
        the purchasers signatory thereto (the “Purchasers”),
        M.A.G. Capital, LLC (“MAG”)
        and
        M-Wave, Inc., a Delaware corporation (the “Company”),
        dated
        as of December 29, 2006, (the “Subscription
        Agreement”).
        This
        opinion is rendered at the request of the Company. Except as otherwise defined
        herein, capitalized terms used in this opinion are defined as set forth in
        the
        Subscription Agreement.

      


      In
        rendering this opinion, we have examined originals or copies of the
        following:

      


      (i)   the
        documents listed on Exhibit
        A
        hereto
        with respect to the formation, status and/or authority of the Company (the
        “Authority
        Documents”);
        

      


      (ii)   the
        Transaction Documents executed by the Company; and

      


      (iii)   the
        certificate of an officer of the Company attached to this opinion as
Exhibit
        B
        (the
“Certificate”).

      


      As
        to
        matters of fact, as opposed to matters of law, relevant to this opinion,
        we have
        relied without independent investigation on, and assumed the accuracy and
        completeness of the Certificate and the certificates of public officials
        listed
        on Exhibit
        A.
        We have
        not made an investigation as to, and have not independently verified, the
        facts
        underlying the matters covered by the Certificate. For purposes of this opinion,
        we have not undertaken any search of court dockets or records in any
        jurisdiction.

      


      As
        used
        in this opinion, the expression “to our knowledge” refers to the current actual
        knowledge of the attorneys of this firm who have worked on matters for the
        Company solely in connection with the Transaction Documents and the transactions
        contemplated thereby, and without any independent investigation of any
        underlying facts or situations.

       

      In
        rendering this opinion we have made the following assumptions, each without
        any
        investigation or independent verification:

      


              (a)   For
        all
        parties other than the Company, we have assumed (i) the authenticity and
        completeness of all documents, certificates and instruments submitted to
        us as
        originals, (ii) the conformity with the originals of all documents, certificates
        and instruments submitted to us as copies, (iii) the legal capacity to sign
        of
        all individuals executing such documents, (iv) the due authorization, execution
        and delivery of the Transaction Documents and the Authority Documents, as
        applicable, executed by each such party and the validity and enforceability
        thereof against such party, (v) that each such party is validly existing,
        qualified and in good standing in each jurisdiction where qualification is
        required and has full power, authority and legal right to execute and deliver
        the Transaction Documents, as applicable, to which it is a signatory and
        to
        carry out the transactions contemplated to be performed by it thereunder,
        (vi)
        that each such party has complied with any order, rule, regulation or law
        which
        may be applicable to such party with regard to any aspect of the transactions
        contemplated by the Transaction Documents, and that the
        observance and performance of the provisions contained therein by such other
        parties will not conflict with or result in a breach of any requirements
        of law
        applicable to such party, and (vii) that each of the Transaction Documents
        constitutes a legal, valid, binding and enforceable obligation of such party,
        and such party will observe and perform the conditions, covenants, obligations
        and other liabilities applicable to such party and arising with respect to
        each
        document to which such party is a signatory.
        


      
        
           

        

        
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                (b)   We
        have
        assumed that there are no oral modifications or written agreements or
        understandings which limit, modify or otherwise alter the terms, provisions,
        or
        conditions of, or relate to, the transactions contemplated by the Transaction
        Documents.

       

                (c)   We
        have
        assumed the truth and accuracy of the representations and warranties of the
        Purchasers and MAG in the Transaction Documents.

      


      


      Statements
        in this opinion as to validity, binding effect and enforceability are subject
        to
        (i) limitations as to enforceability imposed by bankruptcy, reorganization,
        moratorium, insolvency, fraudulent transfer and other laws of general
        application (statutory or otherwise) relating to or affecting the enforceability
        of creditors’ rights, (ii) general principles of equity including, principles of
        commercial reasonableness, good faith and fair dealing (regardless of whether
        enforcement is sought in a proceeding at law or in equity), (iii) the invalidity
        or unenforceability, under certain circumstances, of provisions to the effect
        that rights or remedies are not exclusive, that every right or remedy is
        cumulative and may be exercised in addition to, or with, any other right
        or
        remedy or that the election of some particular remedy or remedies does not
        preclude recourse to one or another remedy, (iv) limitations that may exist
        under federal and state laws or the public policy underlying such laws with
        respect to rights to indemnity, and (v) limitations that may exist in equity
        with respect to waiver of rights or defenses.

      


      Our
        opinions are limited to the laws of the State of New York, Delaware corporate
        law and the federal law of the United States and we do not express any opinion
        as to the laws of any other state or jurisdiction or what effect, if any,
        laws
        of other jurisdiction may have upon our opinions expressed herein under
        conflicts of law principles or otherwise. We express no opinion as to any
        county, municipal, city, town or village ordinance, rule, regulation or
        administrative decision.

      


      Our
        opinions set forth below are subject to the following
        qualifications:

      


      A.   We
        express no opinion as
        to the
        enforceability of (i) the choice of California law under the Transaction
        Documents in an action in a Federal Court or state court outside of the State
        of
        New York and (ii) any consent to subject matter jurisdiction of any Federal
        court. 

      


      B.   We
        express no opinion as to the requirements of, effects of, or any entity’s
        compliance with laws or regulations related to (i) environmental or hazardous
        substance laws, rules or regulations, (ii) land use or zoning laws, ordinances,
        regulations or restrictions, (iii) antitrust and unfair competition laws,
        (iv)
        fiduciary duty laws, (v) pension and employee benefit laws, (vi) labor laws,
        (vii) building codes, (viii) landlord/tenant laws, (ix) the Americans With
        Disabilities Act, and (x) tax laws, or any related regulations, except as
        specifically set forth herein. 


      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      


      C.   In
        addition to the exceptions and limitations above, we advise you that certain
        provisions of the Transaction Documents may be further limited or rendered
        unenforceable by applicable law, rules, regulations,
        court
        decisions and constitutional requirements in and of the State of New York,
        California or the United States; provided that the qualification expressed
        in
        this sentence will not render the Transaction Documents invalid as a whole
        or
        make the remedies afforded by the Transaction Documents inadequate for the
        practical realization of the rights or benefits provided by the Transaction
        Documents, except for the economic consequences of any judicial, administrative
        or other procedural delay which may be imposed by, relate to, or result from
        such laws, rules, regulations, decisions or constitutional
        requirements. 

      


      Based
        upon and subject to the foregoing, we are of the opinion that: 

      


      (i)   Based
        solely on the Authority Documents, the Company is a corporation duly organized,
        validly existing and in good standing under the laws of the State of Delaware,
        with corporate power to own its properties and to conduct its
        business.

       

      (ii)   The
        Company has the corporate power to execute, deliver and perform the Transaction
        Documents, including the Exhibits, thereto. The Transaction Documents have
        been
        duly authorized by all requisite corporate action by the Company and constitute
        the valid and binding obligations of the Company, enforceable in accordance
        with
        their terms. 

       

       

      (a)   As
        of the
        date hereof, in accordance with its Certificate of Incorporation on file
        with
        the Secretary of State of the State of Delaware, the authorized capital stock
        of
        the Company consists of 1,000,000 shares of Preferred Stock and 200,000,000
        shares of Common.

       

      (b)   The
        shares of the Company's Series B Stock have been duly authorized and, upon
        issuance, delivery, and payment therefor as described in the Subscription
        Agreement, will be validly issued, fully paid and non-assessable. 

       

      (c)   The
        shares of the Company’s Common Stock initially issuable upon conversion of the
        shares of Series B Stock sold have been duly authorized and reserved for
        issuance and, upon issuance and delivery upon conversion of the Series B
        Stock
        as described in the Certificate of Designations, will be validly issued,
        fully
        paid and non-assessable.


      
        
          
             

          

          
            -3-

            
              

            

          

          
             

          

        

      

       

      (iii)   The
        Company's execution and delivery of the Transaction Documents and the issue
        and
        sale of the Series B Stock, on the terms and conditions set forth in the
        Subscription Agreement, will not violate any law of the United States or
        the
        General Corporation Law of the State of Delaware, or, to our knowledge, any
        rule
        or regulation of any governmental authority or regulatory body of the United
        States or the State of Delaware or any provision of the Company's Certificate
        of
        Incorporation or Bylaws.

       

      (iv)   To
        our
        knowledge, no consent, approval, order or authorization of, and no notice
        to or
        filing with, any governmental agency or body or any court is required to
        be
        obtained or made by the Company for the issuance and sale of the Series B
        Stock
        pursuant to the Transaction Documents, except such as have been obtained
        or made
        and such as may be required under applicable federal and/or state securities
        laws. 

       

      (v)   On
        the
        assumption that the representations of the Purchasers and MAG in the
        Subscription Agreement are correct and complete, the offer and sale of the
        Series B Stock pursuant to the terms of the Subscription Agreement are exempt
        from the registration requirements of Section 5 of the Securities Act of
        1933,
        as amended, and under such securities laws as they presently exist, the issuance
        of the Company's Common Stock upon conversion of the Series B Stock by the
        Purchasers and MAG would also be exempt from such registration
        requirements.

       

      


      This
        opinion is furnished to the Purchasers and MAG for their benefit in connection
        with the transactions described above and may not be relied upon by any other
        person or for any other purpose without our prior written consent.

       

       

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