EXHIBIT B to Subscription Agreement REGISTRATION RIGHTS AGREEMENT
EXHIBIT
B
to
Subscription Agreement
AGREEMENT
dated as
of December 29,
2006,
between MERCATOR MOMENTUM FUND, L.P., MERCATOR MOMENTUM FUND III, L.P,
MONARCH POINTE FUND, LTD. (collectively, the "Funds")
and
M.A.G. CAPITAL, LLC ("MAG")
(the
Funds and MAG are referred to individually as a "Holder"
and
collectively as the "Holders"),
and
M-WAVE, INC., a Delaware corporation (the "Company").
WHEREAS,
pursuant to that certain Subscription Agreement, dated as of December 29,
2006,
among the Company and the Holders (the "Subscription
Agreement"),
the
Funds are purchasing, in exchange for certain securities and the cancellation
of
certain indebtedness, an aggregate of 5,000 shares of Series B Convertible
Preferred Stock (together, the "Series B
Stock")
from
the Company, and have the right to cause their Series B Stock to be
converted into shares of Common Stock (the "Common
Stock"),
of
the Company, pursuant to the conversion formula set forth in the Certificate
of
Designations of Preferences and Rights of Series B Convertible Preferred
Stock
of M-Wave, Inc. (the "Certificate
of Designations");
WHEREAS,
the
Company desires to grant to the Holders the registration rights set forth
herein
with respect to the shares of Common Stock issuable upon the conversion of
the
Series B Stock.
NOW,
THEREFORE,
the
parties hereto mutually agree as follows:
1. Registrable
Securities.
As used
herein the terms "Registrable
Security"
means
each of the shares of Common Stock issued upon the conversion of the Series
B
Stock (the "B
Conversion Shares"),
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date
of
determination that (a) it has been effectively registered under the
Securities Act of 1933, as amended (the "Securities
Act"),
and
disposed of pursuant thereto, or (b) registration under the Securities Act
is no longer required for the immediate public distribution of such security.
The term "Registrable
Securities"
means
any and/or all of the securities falling within the foregoing definition
of a
"Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Common Stock, such adjustment shall be made in the definition of
"Registrable Security" as is appropriate in order to prevent any dilution
or
enlargement of the rights granted pursuant to this Section 1.
2. Registration.
(a) The
Company shall file a registration statement (the "Registration
Statement")
with
the Securities and Exchange Commission (the "Commission")
on or
prior to the Filing Deadline (as defined below), in order to register the
resale
of the Registrable Securities under the Securities Act. Once effective, the
Company shall maintain the effectiveness of the Registration Statement until
the
earlier of (i) the date that all of the Registrable Securities have been
sold, or (ii) the date that the Company receives an opinion of counsel to
the Company that all of the Registrable Securities may be freely traded without
registration under the Securities Act, under Rule 144 promulgated under the
Securities Act or otherwise. The term "Filing Deadline" means (i) in the
event
that within 45 days after the Closing Date (as that term is defined in the
Subscription Agreement) 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.
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(b) The
Company
will initially include in the Registration Statement as Registrable Securities
the
number of shares
of
Common Stock into which the Series B Stock is convertible at the date of
the
initial filing of the Registration Statement.
(c) Depending
on whether the Registration Statement has previously become effective with
the
Commission, the Company shall register additional shares if and as required
pursuant to the Subscription Agreement or the Certificate of Designations
either
by amending the Registration Statement to increase the number of shares that
it
covers or by filing a new registration statement. Any such new registration
statement shall thereafter be deemed part of the Registration Statement for
the
purposes of this Agreement.
3. Covenants
of the Company with Respect to Registration.
The
Company covenants and agrees as follows:
(a) The
Company shall use its best efforts to cause the Registration Statement to
become
effective with the Commission
as
promptly as possible and (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 Commission. If any stop order shall be issued by the Commission
in
connection therewith, the Company shall use its best efforts to obtain promptly
the removal of such order. Following the effective date of the Registration
Statement, the Company shall, upon the request of any Holder, forthwith supply
such reasonable number of copies of the Registration Statement, preliminary
prospectus and prospectus meeting the requirements of the Securities Act,
and
any other documents necessary or incidental to the public offering of the
Registrable Securities, as shall be reasonably requested by the Holder to
permit
the Holder to make a public distribution of the Holder's Registrable Securities.
The obligations of the Company hereunder with respect to the Holder's
Registrable Securities are subject to the Holder's furnishing to the Company
such appropriate information concerning the Holder, the Holder's Registrable
Securities and the terms of the Holder's offering of such Registrable Securities
as the Company may reasonably request in writing.
(b) The
Company shall pay all costs, fees and expenses in connection with the
Registration Statement filed pursuant to Section 2 hereof including,
without limitation, the Company's legal and accounting fees, printing expenses,
and blue sky fees and expenses; provided, however, that each Holder shall
be
solely responsible for the fees of any counsel retained by the Holder in
connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Registrable Securities sold
by
the Holder pursuant thereto.
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(c) The
Company will take all necessary actions which may be required to qualify
or
register the Registrable Securities included in the Registration Statement
for
the offer and sale under the securities or blue sky laws of such states as
are
reasonably requested by each Holder of such securities, provided that the
Company shall not be obligated to execute or file any general consent to
service
of process or to qualify as a foreign corporation to do business under the
laws
of any such jurisdiction.
4. Additional
Terms.
(a) The
Company shall indemnify and hold harmless the Holders and each underwriter,
within the meaning of the Securities Act, who may purchase from or sell for
any
Holder, any Registrable Securities, from and against any and all losses,
claims,
damages and liabilities caused by any untrue statement of a material fact
contained in the Registration Statement, any other registration statement
filed
by the Company under the Securities Act with respect to the registration
of the
Registrable Securities, any post-effective amendment to such registration
statements, or any prospectus included therein or caused by any omission
to
state therein a material fact required to be stated therein or necessary
to make
the statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission
based
upon information furnished or required to be furnished in writing to the
Company
by the Holders or underwriter expressly for use therein, which indemnification
shall include each person, if any, who controls any Holder or underwriter
within
the meaning of the Securities Act and each officer, director, employee and
agent
of each Holder and underwriter; provided, however, that the indemnification
in
this Section 4(a) with respect to any prospectus shall not inure to the
benefit of any Holder or underwriter (or to the benefit of any person
controlling any Holder or underwriter) on account of any such loss, claim,
damage or liability arising from the sale of Registrable Securities by the
Holder or underwriter, if a copy of a subsequent prospectus correcting the
untrue statement or omission in such earlier prospectus was provided to such
Holder or underwriter by the Company prior to the subject sale and the
subsequent prospectus was not delivered or sent by the Holder or underwriter
to
the purchaser prior to such sale and provided further, that the Company shall
not be obligated to so indemnify any Holder or any such underwriter or other
person referred to above unless the Holder or underwriter or other person,
as
the case may be, shall at the same time indemnify the Company, its directors,
each officer signing the Registration Statement and each person, if any,
who
controls the Company within the meaning of the Securities Act, from and against
any and all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in the Registration Statement, any
registration statement or any prospectus required to be filed or furnished
by
reason of this Agreement or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission based upon information furnished
in
writing to the Company by the Holder or underwriter expressly for use
therein.
(b) If
for
any reason the indemnification provided for in the preceding section is held
by
a court of competent jurisdiction to be unavailable to an indemnified party
with
respect to any loss, claim, damage, liability or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by the indemnified
party as a result of such loss, claim, damage or liability in such proportion
as
is appropriate to reflect the relative fault of the indemnified party and
the
indemnifying party, as well as any other relevant equitable
considerations.
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(c) Neither
the filing of a Registration Statement by the Company pursuant to this Agreement
nor the making of any request for prospectuses by the Holder shall impose
upon
any Holder any obligation to sell the Holder's Registrable
Securities.
(d) Each
Holder, upon receipt of notice from the Company that an event has occurred
which
requires a Post-Effective Amendment to the Registration Statement or a
supplement to the prospectus included therein, shall promptly discontinue
the
sale of Registrable Securities until the Holder receives a copy of a
supplemented or amended prospectus from the Company, which the Company shall
provide as soon as practicable after such notice.
(e) If
the
Company fails to keep the Registration Statement referred to above continuously
effective during the requisite period, then the Company shall, promptly upon
the
request of any Holder, use its best efforts to update the Registration Statement
or file a new registration statement covering the Registrable Securities
remaining unsold, subject to the terms and provisions hereof.
(f) Each
Holder agrees to provide the Company with any information or undertakings
reasonably requested by the Company in order for the Company to include any
appropriate information concerning the Holder in the Registration Statement
or
in order to promote compliance by the Company or the Holder with the Securities
Act.
(g) The
Company agrees that it shall cause each of its directors, officers and
shareholders owning ten percent (10%) or more of the Company's outstanding
Common Stock to refrain from selling any shares of the Company's Common Stock
until the Registration Statement has been declared effective.
(h) Each
Holder, on behalf of itself and its affiliates and the permitted assignee
of any
Conversion Shares, hereby covenants and agrees 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.
5. Governing
Law.
The
Registrable Securities will be, if and when issued, delivered in California.
This
Agreement shall be deemed to have been made and delivered in the State of
California
and
shall be governed as to validity, interpretation, construction, effect and
in
all other respects by the internal substantive laws of the State of California,
without
giving effect to the choice of law rules thereof.
6. Amendment.
This
Agreement may only be amended by a written instrument executed by the Company
and the Holders.
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7. Entire
Agreement.
This
Agreement constitutes the entire agreement of the parties hereto with respect
to
the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
8. Execution
in Counterparts.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
document.
9. Notices.
All
notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed duly given when delivered by hand or mailed by
registered or certified mail, postage prepaid, return receipt requested,
as
follows:
If
to the
Holders,
M.A.G.
Capital, LLC
Mercator
Momentum Fund, L.P.
Mercator
Momentum Fund III, L.P.
Monarch
Pointe Fund, Ltd.
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Company, M-Wave,
Inc.
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10. Binding
Effect; Benefits.
Any
Holder may assign its rights hereunder. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective
heirs,
legal representatives, successors and assigns. Nothing herein contained,
express
or implied, is intended to confer upon any person other than the parties
hereto
and their respective heirs, legal representatives and successors, any rights
or
remedies under or by reason of this Agreement.
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11. Headings.
The
headings contained herein are for the sole purpose of convenience of reference,
and shall not in any way limit or affect the meaning or interpretation of
any of
the terms or provisions of this Agreement.
12. Severability.
Any
provision of this Agreement which is held by a court of competent jurisdiction
to be prohibited or unenforceable in any jurisdiction(s) shall be, as to
such
jurisdiction(s), ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
13. Jurisdiction.
Each of
the parties irrevocably agrees that any and all suits or proceedings based
on or
arising under this Agreement may be brought only in and shall be resolved
in the
federal or state courts located in the City of Los Angeles, California
and
consents to the jurisdiction of such courts for such purpose. Each of the
parties irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding in any such court. Each of the parties
further agrees that service of process upon such party mailed by first class
mail to the address set forth in Section 8 shall be deemed in every respect
effective service of process upon such party in any such suit or proceeding.
Nothing herein shall affect the right of other
party
to serve
process in any other manner permitted by law. Each of the parties agrees
that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in
any
other lawful manner.
14. Attorneys'
Fees and Disbursements.
If any
action at law or in equity is necessary to enforce or interpret the terms
of
this Agreement, the prevailing party or parties shall be entitled to receive
from the other party or parties reasonable attorneys' fees and disbursements
in
addition to any other relief to which the prevailing party or parties may
be
entitled.
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balance of this page is intentionally left blank.]
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IN
WITNESS WHEREOF,
this
Agreement has been executed and delivered by the parties hereto as of the
date
first above written.
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M-WAVE,
INC.
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By:
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/s/
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Name:
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Its:
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President
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HOLDERS:
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MERCATOR
MOMENTUM FUND, L.P.
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BY:
M.A.G. CAPITAL, LLC
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ITS
GENERAL PARTNER
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By:
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Name:
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Its:
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MERCATOR
MOMENTUM FUND III, L.P.
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BY:
M.A.G. CAPITAL, LLC
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ITS
GENERAL PARTNER
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By:
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Name:
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Its:
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M.A.G.
CAPITAL, LLC
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By:
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Name:
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Its:
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MONARCH
POINTE FUND, LTD.
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By:
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Name:
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Its:
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