sc13d

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Shucjjx5/qOKAY9Kxzhq5UNLiD07Msb6cAX/iiCRBnQ30RPUDTiVDVRYyuU3TdE8 xfpS0flyC6y4SPVN36bDiA== 0000950129-05-004858.txt : 20050509 0000950129-05-004858.hdr.sgml : 20050509 20050506173946 ACCESSION NUMBER: 0000950129-05-004858 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20050509 DATE AS OF CHANGE: 20050506 GROUP MEMBERS: CIC MSRG LP GROUP MEMBERS: CIC PARTNERS GP LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MAIN STREET RESTAURANT GROUP, INC. CENTRAL INDEX KEY: 0000847466 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 112948370 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-41360 FILM NUMBER: 05809250 BUSINESS ADDRESS: STREET 1: 5050 NORTH 40TH ST STREET 2: STE 200 CITY: PHOENIX STATE: AZ ZIP: 85018 BUSINESS PHONE: 6028529000 MAIL ADDRESS: STREET 1: 5050 NORTH 40TH ST STREET 2: STE 200 CITY: PHOENIX STATE: AZ ZIP: 85018 FORMER COMPANY: FORMER CONFORMED NAME: MAIN STREET & MAIN INC DATE OF NAME CHANGE: 19931115 FORMER COMPANY: FORMER CONFORMED NAME: ASSETRONICS INC DATE OF NAME CHANGE: 19900702 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CIC MSRG LP CENTRAL INDEX KEY: 0001325767 IRS NUMBER: 202737899 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 500 CRESCENT COURT, SUITE 250 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 214-871-6800 MAIL ADDRESS: STREET 1: 500 CRESCENT COURT, SUITE 250 CITY: DALLAS STATE: TX ZIP: 75201 SC 13D 1 h25175scsc13d.htm CIC MSRG LP FOR MAIN STREET RESTAURANT GROUP, INC. sc13d

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 13D

(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO
RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)

MAIN STREET RESTAURANT GROUP, INC.

(Name of Issuer)

COMMON STOCK, PAR VALUE $.001 PER SHARE

(Title of Class of Securities)

560345308

(CUSIP Number)

Sandy Nelson
CIC MSRG LP
500 Crescent Court
Suite 250
Dallas, Texas 75201
(214) 871-6843

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

Copy To:

Edward Rhyne
Haynes and Boone, LLP
1221 McKinney Street, Suite 2100
Houston, Texas 77010
Telephone: (713) 547-2226
Facsimile: (713) 236-5504

April 27, 2005

(Date of Event Which Requires Filing of This Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-l(e), 13d-1(f) or 13d-1(g), check the following box o.

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent.


CUSIP No. 560345308					Page 2 of 8

	1.	Name of Reporting Person: CIC MSRG LP			I.R.S. Identification Nos. of above persons (entities only): EIN 20-2737899

	2.	Check the Appropriate Box if a Member of a Group (See Instructions):
		(a)	o
		(b)	o

	3.	SEC Use Only:

	4.	Source of Funds (See Instructions): AF, WC

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o

	6.	Citizenship or Place of Organization: Delaware

Number of Shares Beneficially Owned by Each Reporting Person With
			7.	Sole Voting Power: -0-

			8.	Shared Voting Power: 2,906,976

			9.	Sole Dispositive Power: -0-

			10.	Shared Dispositive Power: 2,906,976

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person: 2,906,976

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions): o

	13.	Percent of Class Represented by Amount in Row (11): 16.6%

	14.	Type of Reporting Person (See Instructions): PN


CUSIP No. 560345308					Page 3 of 8

	1.	Name of Reporting Person: CIC Partners GP LLC			I.R.S. Identification Nos. of above persons (entities only): EIN 26-0081876

	2.	Check the Appropriate Box if a Member of a Group (See Instructions):
		(a)	o
		(b)	o

	3.	SEC Use Only:

	4.	Source of Funds (See Instructions): AF

	5.	Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o

	6.	Citizenship or Place of Organization: Delaware

Number of Shares Beneficially Owned by Each Reporting Person With
			7.	Sole Voting Power: -0-

			8.	Shared Voting Power: 2,906,976

			9.	Sole Dispositive Power: -0-

			10.	Shared Dispositive Power: 2,906,976

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person: 2,906,976

	12.	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions): o

	13.	Percent of Class Represented by Amount in Row (11): 16.6%

	14.	Type of Reporting Person (See Instructions): OO

Page 4 of 8

ITEM 1. SECURITY AND ISSUER.

This Statement on Schedule 13D (this “Statement”) relates to shares of common stock, par value $.001 per share (the “Common Stock”), of Main Street Restaurant Group, Inc., a Delaware corporation (the “Issuer”). The principal executive offices of the Issuer are located at 5050 North 40th Street, Suite 200, Phoenix, Arizona 85018. The phone number of the Issuer is (602) 852-9000.

ITEM 2. IDENTITY AND BACKGROUND.

This Statement is being filed by and on behalf of CIC MSRG LP, a Delaware limited partnership (the “Partnership”), and CIC Partners GP, LLC, a Delaware limited liability company and the general partner of the Partnership (the "General Partner” and, collectively with the Partnership, the “Reporting Persons"). The principal business of the Partnership is its investment in the Common Stock. The principal business of the General Partner is to act as the sole general partner of CIC Partners LP, a Texas limited partnership and a private equity fund, and as the general partner of limited partnerships formed to hold investments of CIC Partners LP, including the Partnership. Pursuant to the limited partnership agreement of the Partnership, the General Partner has sole investment discretion and voting authority with respect to the securities covered by this Statement.

Messrs. Drew R. Johnson, Marshall B. Payne, and Michael S. Rawlings comprise all of the members and managers of the General Partner, in which capacity they may be deemed to share voting control and dispositive power over the securities covered by this Statement. Messrs. Johnson, Payne, and Rawlings disclaim beneficial ownership of such securities. (Messrs. Johnson, Payne, and Rawlings, together with the Reporting Persons, are hereinafter collectively referred to as the “Disclosing Persons”). The present principal occupation of each of Messrs. Johnson, Payne, and Rawlings is serving as a Managing Director of CIC Partners LP, a private equity fund that invests primarily in later stage public and private companies. The principal business address of CIC Partners LP is 500 Crescent Court, Suite 250, Dallas, Texas 75201.

During the last five years, none of the Disclosing Persons has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

The business address of each of the Disclosing Persons is 500 Crescent Court, Suite 250, Dallas, Texas 75201.

Messrs. Johnson, Payne, and Rawlings are citizens of the United States.

ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

The aggregate purchase price of the 2,325,581 shares Common Stock and warrants to purchase 581,395 shares of Common Stock (“Warrants") owned by the Partnership was $5,000,000. The Common Stock and Warrants owned by the Partnership were acquired with funds from the capital account of the Partnership.

ITEM 4. PURPOSE OF THE TRANSACTION.

The Reporting Persons acquired the Common Stock and Warrants to hold primarily for investment. The Reporting Persons do not have any specific plans or proposals relating to the

Page 5 of 8

acquisitions of additional shares of Common Stock except in connection with exercises of the Warrants or the disposition of shares of Common Stock or Warrants held by the Reporting Persons. However, depending upon market conditions and other factors, the Reporting Persons may, from time to time, either jointly or individually, acquire additional shares of Common Stock or Warrants of the Issuer or dispose of all or any portion of the shares of Common Stock and Warrants held by the Reporting Persons.

Pursuant to the Securities Purchase Agreement by and between the Issuer and the Partnership dated as of April 27, 2005 (the “Securities Purchase Agreement”), the Partnership is entitled to select one person that the Issuer will nominate for election to its Board of Directors and to appoint a representative to attend all meetings of the Issuer’s Board of Directors. The Partnership currently intends to nominate Michael S. Rawlings to be nominated as a director of the Issuer. Prior to his election to the Board of Directors, Mr. Rawlings is entitled to attend all meetings of the Board as an observer.

Except as described above, the Reporting Persons do not have any specific plans or proposals which relate to or would result in: (a) any extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (b) a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; (c) any change in the present board of directors or management of the Issuer, including plans or proposals relating to changes in the number or terms of directors or filling any existing vacancies on the Issuer’s board; (d) any material change in the present capitalization or dividend policy of the Issuer; (e) any other material change in the Issuer’s business or corporate structure; (f) changes in the Issuer’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (g) causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (h) a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended; or (i) any action similar to any of those enumerated above; but such persons reserve the right to propose or undertake or participate in any of the foregoing actions in the future.

ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.

(a) As of the date of this Statement, the Reporting Persons beneficially owned an aggregate of 2,906,976 shares of Common Stock, which is comprised of direct ownership of 2,325,581 shares of Common Stock and a Warrant to purchase 581,395 shares of Common Stock at a price of $3.01 per share. The Warrant is not exercisable until November 27, 2005 and expires on November 27, 2010. The 2,906,976 shares of Common Stock beneficially owned by the Reporting Persons constitute 16.6% of the outstanding Common Stock of the Issuer on an as-converted basis. The percentage of Common Stock beneficially owned is based upon 14,641,929 shares of Common Stock represented by the Issuer to the Partnership to be outstanding as of April 27, 2005, plus the shares acquired by the Partnership and the shares issuable upon exercise of the Warrant. All of the Common Stock beneficially owned by the Reporting Persons are held by the Partnership.

The General Partner may be deemed to indirectly beneficially own (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) the Common Stock beneficially owned by the Partnership. Each of Messrs. Johnson, Payne, and Rawlings disclaims beneficial ownership of the Common Stock beneficially owned by the Reporting Persons.

(b) The Partnership and the General Partner have shared power to vote or direct the voting of, and to dispose or direct the disposition of, all the shares of Common Stock beneficially owned by the Reporting Persons.

Page 6 of 8

(c) The Partnership acquired the 2,325,581 shares of Common Stock and the Warrant to purchase 581,395 shares of Common Stock from the Issuer pursuant to the Securities Purchase Agreement. The aggregate purchase price for the shares of Common Stock and the Warrant was $5,000,000, or $2.15 per share of Common Stock acquired. The Warrant is exercisable at $3.01 per share from November 27, 2005 through November 27, 2010. The Common Stock and the Warrant were acquired in a private transaction exempt pursuant to Regulation D promulgated under the Securities Act of 1933.

(d) No other person is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the Common Stock covered by this Statement.

(e) Not applicable.

ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.

The Common Stock and Warrant owned by the Partnership were purchased through a privately negotiated transaction by and between the Partnership and the Issuer, the terms of which are set forth in the Securities Purchase Agreement, filed with this Statement as Exhibit 1. The terms of the Warrant are set forth in that certain Common Stock Purchase Warrant dated April 27, 2005 (the “Warrant Agreement”), filed with this Statement as Exhibit 2. In addition, the Partnership and the Issuer entered into a Registration Rights Agreement dated as of April 27, 2005 (the “Registration Rights Agreement"), filed with this Statement as Exhibit 3, pursuant to which the Issuer agreed to register the resale of the Common Stock, including the shares of Common Stock issuable upon exercise of the Warrant, held by the Partnership.

To the best of the knowledge of the Reporting Persons, except for the Securities Purchase Agreement, the Warrant Agreement and the Registration Rights Agreement described herein, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the Disclosing Persons or between the Disclosing Persons and any other person with respect to any securities of the Issuer, including but not limited to transfer or voting of any of the securities, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies.

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.

The following exhibits are filed herewith:

1.   Securities Purchase Agreement by and between Main Street Restaurant Group, Inc. and CIC MSRG LP, dated April 27, 2005.

2.   Common Stock Purchase Warrant issued to CIC MSRG LP by Main Street Restaurant Group, Inc., dated April 27, 2005.

3.   Registration Rights Agreement by and between Main Street Restaurant Group, Inc. and CIC MSRG LP, dated April 27, 2005.

Page 7 of 8

SIGNATURES

After reasonable inquiry and to the best of their knowledge and belief, the undersigned certify that the information contained in this Statement is true, complete and correct.

Dated: May 6, 2005

CIC MSRG LP

By:   CIC Partners GP LLC,
its General Partner

By:   /s/ Sandy Nelson
Sandy Nelson
Chief Administrative Officer

CIC PARTNERS GP LLC

By:   /s/ Sandy Nelson
Sandy Nelson
Chief Administrative Officer

Page 8 of 8

EXHIBIT INDEX

EX-99.1 2 h25175scexv99w1.htm SECURITIES PURCHASE AGREEMENT exv99w1

EXHIBIT 1

Securities Purchase Agreement

By And Between

Main Street Restaurant Group, Inc.

And

CIC MSRG LP

April 27, 2005

TABLE OF CONTENTS


		Page
ARTICLE 1	DEFINITIONS		1
ARTICLE 2	PURCHASE AND SALE OF SHARES		3
2.1	Purchase of Securities		3
2.2	Purchase Price and Form of Payment		3
2.3	Closing Date		3

ARTICLE 3	BUYER’S REPRESENTATIONS AND WARRANTIES		3
3.1	Organization and Qualification		3
3.2	Authorization; Enforcement		4
3.3	Securities Matters		4
3.4	Information		4
3.5	Restrictions on Transfer		4

ARTICLE 4	REPRESENTATIONS AND WARRANTIES OF THE COMPANY		5

4.1	Organization and Qualification		5
4.2	Authorization; Enforcement		5
4.3	Capitalization; Valid Issuance of Securities		6
4.4	No Conflicts		6
4.5	SEC Documents; Financial Statements		7
4.6	Absence of Certain Changes		7
4.7	Absence of Litigation		7
4.8	Patents, Copyrights		7
4.9	Tax Status		8
4.10	No Material Adverse Contracts		8
4.11	Certain Transactions		8
4.12	Permits; Compliance		8
4.13	Environmental Matters		9
4.14	Title to Property		9
4.15	No Investment Company		9
4.16	No Brokers		9
4.17	Registration Rights		9
4.18	1934 Act Registration		10
4.19	Labor Relations		10
4.20	Insurance		10
4.21	ERISA		10
4.22	Disclosure		10
4.23	Disclosure Controls		10

ARTICLE 5	COVENANTS		11

5.1	Form D; Blue Sky Laws		11
5.2	Use of Proceeds		11
5.3	Expenses		11
5.4	Listing		11


		Page
5.5	No Integration		11
5.6	Appointment of Directors		11
5.7	Restriction on Trading		12
5.8	Insurance		12
5.9	Right of First Offer		12

ARTICLE 6	CONDITIONS TO THE COMPANY’S OBLIGATION		12

6.1	Delivery of Transaction Documents		13
6.2	Payment of Purchase Price		13
6.3	Representations and Warranties		13
6.4	Litigation		13

ARTICLE 7	CONDITIONS TO BUYER’S OBLIGATION		13

7.1	Delivery of Transaction Documents		13
7.2	Representations and Warranties		13
7.3	Litigation		13
7.4	No Material Adverse Change		13

ARTICLE 8	INDEMNIFICATION		14

8.1	Indemnification by the Company		14
8.2	Notification		14
8.3	Contribution		14

ARTICLE 9	GOVERNING LAW; MISCELLANEOUS		15

9.1	Governing Law		15
9.2	Counterparts; Signatures by Facsimile		15
9.3	Headings		15
9.4	Severability		15
9.5	Entire Agreement; Amendments		15
9.6	Notices		15
9.7	Successors and Assigns		16
9.8	Third Party Beneficiaries		16
9.9	Publicity		16
9.10	Further Assurances		17
9.11	No Strict Construction		17
9.12	Remedies		17
9.13	Survival		17
9.14	Waiver of Jury		17

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT, dated as of April 27, 2005, is entered into by and between MAIN STREET RESTAURANT GROUP, INC., a Delaware corporation, and CIC MSRG LP, a Delaware limited partnership.

Recitals

A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506;

B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, (i) 2,325,581 shares of Common Stock, and (ii) Warrants to purchase up to 581,395 shares of Common Stock;

C. Contemporaneous with the Closing of this Agreement, the parties hereto have agreed to execute and deliver the Registration Rights Agreement.

Agreement

NOW THEREFORE, the Company and the Buyer hereby agree as follows:

Article 1
Definitions

"Accredited Investor” has the meaning set forth in Section 3.3.

"Agreement” means this Securities Purchase Agreement.

"Buyer” means CIC MSRG LP, a Delaware limited partnership.

“Buyer Nominee” means an individual selected by the Buyer to serve as a director of the Company.

“Buyer Representative” means an individual selected by the Buyer to serve as an observer at all meetings of the Board of Directors of the Company and to receive all correspondence and other materials distributed to directors of the Company in their capacity as directors.

"Common Stock” means the Company’s Common Stock, par value $0.001 per share.

"Company” means Main Street Restaurant Group, Inc., a Delaware corporation.

“Company Disclosure Schedule” has the meaning set forth in Article 4.

“Copyrights” has the meaning set forth in Section 4.8.

"Closing” has the meaning set forth in Section 2.3.

“Closing Date” means April 27, 2005 or such other time as may be mutually agreed upon by the parties to this Agreement.

“Current Filings” means the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 and its Proxy Statement on Schedule 14A for its 2005 Annual Meeting.

“Environmental Laws” has the meaning set forth in Section 4.13.

“Equity Offering” has the meaning set forth in Section 5.8.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“Hazardous Materials” has the meaning set forth in Section 4.13.

“Indemnified Party” has the meaning set forth in Section 8.1.

"Intellectual Property” has the meaning set forth in Section 4.8.

“Investment Company” has the meaning set forth in Section 4.15.

“Losses” has the meaning set forth in Section 8.1.

"Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith.

"1933 Act” means the Securities Act of 1933, as amended.

"1934 Act” means the Securities Exchange Act of 1934, as amended.

“Patents” has the meaning set forth in Section 4.8.

“Permits” has the meaning set forth in Section 4.12.

"Purchase Price” has the meaning set forth in Section 2.2.

“Registration Rights Agreement” means the Registration Rights Agreement, substantially in the form attached as Exhibit B, executed and delivered on the Closing Date, pursuant to which the Company agrees to register the resale of the Shares and Warrant Shares under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

"Regulation S” means Regulation S promulgated under the 1933 Act.

"Rule 144” means Rule 144 promulgated under the 1933 Act.

"Rule 506” means Rule 506 of Regulation D promulgated under the 1933 Act.

"Securities” means the Shares and the Warrants being issued and sold under the Agreement.

"SEC” means the United States Securities and Exchange Commission.

"SEC Documents” has the meaning set forth in Section 4.5.

“Shares” means the 2,325,581 shares of Common Stock being issued and sold under this Agreement.

"Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.

"Trademarks” has the meaning set forth in Section 4.8.

"Transaction Documents” means this Agreement, the Registrations Rights Agreement, the warrant agreement representing the Warrants and any other documents contemplated by the Agreement.

“Transfer Instructions” means instructions delivered to the transfer agent for the Company’s Common Stock to issue certificates representing the Shares registered in the name of the Buyer and to delver such certificates to the Buyer, and further providing that such instructions cannot be revoked or amended without the written consent of the Buyer.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

"Warrants” means warrants to purchase up to 581,395 shares of Common Stock represented by a warrant agreement substantially in the form of Exhibit A.

Article 2
Purchase And Sale Of Securities

2.1 Purchase of Securities. Subject to the terms and conditions of this Agreement, on the Closing Date, the Company shall issue and sell the Securities to the Buyer, and the Buyer shall purchase from the Company the Securities.

2.2 Purchase Price and Form of Payment. At the Closing, Buyer shall pay a total of $5,000,000 (the “Purchase Price") for the Shares. In exchange for payment of the Purchase Price, Buyer shall also be issued the Warrants. The Purchase Price shall be paid by wire transfer of immediately available funds in accordance with the Company’s written instructions. At the Closing, upon payment of the Purchase Price by Buyer, the Company will (a) deliver Transfer Instructions to the transfer agent for the Company’s Common Stock, and (b) will deliver an executed warrant agreement, substantially in the Form of Exhibit A, representing the Warrants to the Buyer.

2.3 Closing Date. Subject to the satisfaction (or written waiver) of the conditions set forth in Article 6 and Article 7 below, the closing of the transactions contemplated by this Agreement shall be held on the Closing Date at the offices of Haynes and Boone, LLP, 1221 McKinney Street, Suite 2100, Houston, Texas 77010, or at such other location as may be mutually agreed upon by the parties to this Agreement (the “Closing").

Article 3
Buyer’s Representations And Warranties

The Buyer represents and warrants to the Company that:

3.1 Organization and Qualification. The Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized, with full power and authority to purchase the Securities.

3.2 Authorization; Enforcement. This Agreement has been duly and validly authorized by, and duly executed and delivered on behalf of, the Buyer, and this Agreement constitutes the valid and binding agreement of the Buyer enforceable in accordance with its terms, except as such enforceability may be limited by: (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws in effect that limit creditors’ rights generally; (ii) equitable limitations on the availability of specific remedies; and (iii) principles of equity.

3.3 Securities Matters. In connection with the Company’s compliance with applicable securities laws:

a. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemption and the eligibility of the Buyer to acquire the Securities.

b. The Buyer is purchasing the Securities for its own account, not as a nominee or agent, for investment purposes and not with a present view towards distribution, except pursuant to sales exempted from registration under the 1933 Act, or registered under the 1933 Act as contemplated by the Registration Rights Agreement.

c. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the 1933 Act (an “Accredited Investor"), and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Securities. The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

3.4 Information. The Buyer and its advisors, if any, have been furnished with all information relating to the business, finances and operations of the Company and information relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Article 4 below. The Buyer understands that its investment in the Securities involves a significant degree of risk.

3.5 Restrictions on Transfer. The Buyer understands that, except as provided in the Registration Rights Agreement, the Securities and the Warrant Shares have not been and are not being registered under the 1933 Act or any applicable state securities laws. The Buyer may be required to hold the Securities and the Warrant Shares indefinitely and the Securities and the Warrant Shares may not be transferred unless (i) the Securities and the Warrant Shares are sold pursuant to an effective registration statement under the 1933 Act, (ii) the Buyer shall have delivered to the Company an opinion of counsel to the effect that the Securities or the Warrant Shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions, (iii) the Securities or the Warrant Shares are sold or transferred to an “affiliate” (as defined in Rule 144 (or a successor rule)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 3.5 and who is an Accredited Investor, (iv) the Securities or the Warrant Shares are sold pursuant to Rule 144, or (v) the

Securities or the Warrant Shares are sold pursuant to Regulation S (or a successor rule), and the Buyer shall have delivered to the Company an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions. Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities and the Warrant Shares may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

The Buyer understands that until such time as the Securities and Warrant Shares have been resold pursuant to a registration statement filed under the 1933 Act as contemplated by the Registration Rights Agreement, are eligible for resale pursuant to Rule 144(k) under the 1933 Act or are sold pursuant to Rule 144 or another similar exemption from registration, certificates evidencing the Securities and Warrant Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates evidencing such Securities and Warrant Shares):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND HAVE BEEN ISSUED IN RELIANCE UPON EXEMPTIONS AFFORDED UNDER APPLICABLE LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD, HYPOTHECATED, TRANSFERRED OR OTHERWISE ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH LAWS.”

Article 4
Representations And Warranties Of The Company

Except as set forth in the Company’s Disclosure Schedule attached hereto (“Company Disclosure Schedule"), the Company represents and warrants to the Buyer that:

4.1 Organization and Qualification. Each of the Company and its Subsidiaries, if any, is a corporation or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized, with full power and authority as a corporation or other entity to own, lease, use and operate its properties and to carry on its business as now operated and conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation or other entity to do business and is in good standing in each jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.

4.2 Authorization; Enforcement. The Company has all requisite corporate power and authority to enter into and perform this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Securities and the Warrant Shares) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required. This Agreement and the Transaction Documents have been duly executed and delivered by the Company. This Agreement constitutes, and each of the Transaction Documents will constitute, upon execution and delivery by the Company, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by: (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws in effect that limit creditors’ rights generally; (ii) equitable limitations on the availability of specific remedies; and (iii) principles of equity.

4.3 Capitalization; Valid Issuance of Securities . As of the date hereof, the authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, of which 14,641,929 shares are issued and outstanding, and 2,000,000 shares of preferred stock, $0.001 par value per share, none of which are outstanding. All of such outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable. The Shares and Warrant Shares have been duly authorized and upon issuance pursuant to the terms of this Agreement or upon exercise of the Warrants will be validly issued, fully paid and nonassessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Except as disclosed in the Current Filings, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act (except the Registration Rights Agreement) and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Securities or the Warrant Shares. The Company is not a party to, and to the Company’s knowledge, none of its shareholders are a party to, any agreements with respect to the voting or transfer of the Company’s capital stock or with respect to any other aspect of the Company’s affairs.

4.4 No Conflicts. The execution, delivery and performance by the Company of this Agreement and the Transaction Documents and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Securities) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or the By-laws, each as amended, of the Company, (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a material violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time would result in a default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement or the Transaction Documents. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The

Company is not in violation of the listing requirements of the NASDAQ National Market and does not reasonably anticipate that the Common Stock will be delisted by the NASDAQ National Market in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances that might give rise to any of the foregoing.

4.5 SEC Documents; Financial Statements. Since December 30, 2002, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents"). As of their respective dates, the SEC Documents complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in any subsequent filing prior to the date hereof.) As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form and substance in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes, year end adjustments or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 27, 2004 and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company.

4.6 Absence of Certain Changes. Since December 27, 2004, the Company has conducted its business only in the ordinary course, consistent with past practice, and since that date there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations or prospects of the Company or any of its Subsidiaries.

4.7 Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against the Company or any of its Subsidiaries, or their officers or directors in their capacities as such, that could have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

4.8 Patents, Copyrights. Each of the Company and its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and

copyrights (“Intellectual Property") necessary to enable it to conduct its business as now operated (and, to the Company’s knowledge, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, to the Company’s knowledge, as presently contemplated to be operated in the future); to the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. Neither the Company nor any of its Subsidiaries owns or possesses any copyrights, patents, or trademarks.

4.9 Tax Status. Each of the Company and its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.

4.10 No Materially Adverse Contracts. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.

4.11 Certain Transactions. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

4.12 Permits; Compliance. Each of the Company and its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Permits"), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since December 27, 2004, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts,

defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

4.13 Environmental Matters. There are, with respect to the Company or any of its Subsidiaries, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder. Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business. There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.

4.14 Title to Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects, except such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect. The liability of the Company and its Subsidiaries under leases that have been subleased or assigned to third parties does not, and will not, exceed $1,500,000 in the aggregate.

4.15 No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” as defined under the Investment Company Act of 1940 (an “Investment Company"). The Company is not controlled by an Investment Company.

4.16 No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.

4.17 Registration Rights. Except pursuant to the Registration Rights Agreement or as set forth in the SEC Documents, effective upon the Closing, neither Company nor any Subsidiary is currently subject to any agreement providing any person or entity any rights (including piggyback registration rights) to have any securities of the Company or any Subsidiary registered with the SEC or registered or qualified with any other governmental authority.

4.18 1934 Act Registration. The Common Stock is registered pursuant to Section 12(g) of the 1934 Act, and the Company has taken no action designed to, or which, to the knowledge of the Company, is likely to have the effect of, terminating the registration of the Common Stock under the 1934 Act.

4.19 Labor Relations. No labor or employment dispute exists or, to the knowledge of the Company, is imminent or threatened, with respect to any of the employees or consultants of the Company that has, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

4.20 Insurance. The Company and its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are reasonable and customary for companies in the Company’s line of business. The Company has no reason to believe that it will not be able to renew existing insurance coverage for itself and its Subsidiaries as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary or appropriate to continue business.

4.21 ERISA. Except as disclosed in the Current Filings, the Company does not have any employee benefit plan as defined in Section 3(3) of ERISA or any other executive or employee compensation program, and the Company has substantially performed all material obligations, whether arising by operation of law or by contract, respecting the plans and programs disclosed in the Company Disclosure Schedule, has no knowledge respecting defaults or violations respecting such plans and programs and has timely made all contributions required to be made to such plans and programs. As to each employee benefit plan disclosed in the Company Disclosure Schedule that is intended to be “qualified” under Section 401 of the Code, such plan has received a favorable determination letter from the Internal Revenue Service regarding such qualified status and remains so qualified. Neither the Company, nor any trade or business (whether) or not incorporated which together with the Company would be deemed to be a “single employer” within the meaning of Section 4001(b) of ERISA, sponsors, maintains or contributes to, or has at any time in the six-year period preceding the date of this Agreement sponsored, maintained or contributed to any employee pension benefit plan, as defined in Section 3(2) of ERISA. The consummation of the transactions contemplated by this Agreement will not require the Company to make a larger contribution to, pay greater benefits or provide any other rights under any plan or program disclosed in the Company Disclosure Schedule or otherwise.

4.22 Disclosure. The Company understands and confirms that each Buyer will rely on the representations and covenants contained herein in effecting the transactions contemplated by this Agreement and the Transaction Documents. All disclosure provided to the Buyers regarding the Company, its businesses and the transactions contemplated hereby, including the disclosures in the Company Disclosure Schedule attached hereto furnished by or on behalf of the Company, taken as a whole is true and correct in all material respects and does not contain any untrue statement of material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to the Company or its Subsidiaries or its or their businesses, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

4.23 Disclosure Controls. Each of the Company and its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted

accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the 1934 Act of the Company and each of its Subsidiaries provide reasonable assurance that material information relating to the Company and its Subsidiaries is made known to the Company’s Chief Executive Officer and Chief Financial Officer and, based on an evaluation conducted as of March 31, 2005; there are no significant deficiencies or weaknesses in the design or operations of internal controls that could adversely affect the Company’s ability to record, process and report financial data and other information required to be disclosed in the reports filed or furnished by the Company pursuant to the 1934 Act.

Article 5
Covenants

5.1 Form D; Blue Sky Laws. Upon completion of the Closing, the Company shall file with the SEC a Form D with respect to the Securities as required under Regulation D and each applicable state securities commission and will provide a copy thereof to the Buyer promptly after such filing.

5.2 Use of Proceeds. The Company shall use the proceeds from the sale of the Securities for general corporate purposes; provided, however, that none of such proceeds shall be used to repay indebtedness of the Company other than revolving credit facility indebtedness that could be redrawn by the Company following such repayment.

5.3 Expenses. At the Closing, the Company shall reimburse the Buyer for expenses in the amount of up to $65,000 incurred by Buyer in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the Transaction Documents, including, without limitation, legal, accounting, and other business due diligence expenses as well as out of pocket costs incurred by the Buyer.

5.4 Listing. The Company will obtain and, for so long as the Buyer owns any of the Shares or Warrant Shares, use its best efforts to maintain the listing and trading of its Common Stock on the NASDAQ National Market or any equivalent replacement exchange and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers and such exchanges, as applicable.

5.5 No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

5.6 Appointment of Directors. For so long as Buyer beneficially owns (as defined in Rule 13d-3 promulgated under the 1934 Act) at least 20% of the Shares, the Company agrees to (i), unless otherwise instructed by Buyer, nominate the Buyer Nominee as a director, include the Buyer Nominee as a director nominee of the Company in its annual proxy statement and use its best efforts to ensure that the Buyer Nominee is elected by the Company’s stockholders, and (ii) permit the Buyer Representative to attend all meetings of the Company’s Board of Directors and to distribute all correspondence and other materials distributed to directors of the Company in their capacity as directors to the Buyer Representative. Upon the request of Buyer, the Company agrees to appoint Michael S. Rawlings to its Board of Directors as the Buyer Nominee. As of the Closing Date, the Company agrees to appoint Fouad

Z. Bashour as the Buyer Representative. Until Buyer requests Michael S. Rawlings’ appointment to the Board of Directors as contemplated above, Michael S. Rawlings will be entitled to all the rights and privileges of a Buyer Representative as set forth herein. The Buyer Nominee shall be entitled to the same compensation and reimbursement of expenses, and to participate in Company stock option and similar equity incentive plans, as other members of the Company’s Board of Directors. The Buyer Representative shall be entitled to the same reimbursement of out-of-pocket expenses as members of the Board of Directors.

5.7 Restriction on Trading . The Company shall not, and shall cause John F. Antioco, William G. Shrader, and Michael Garnreiter to refrain from, trading in any shares of Common Stock (other than issuances by the Company and acquisitions by directors and executive officers upon exercise of outstanding stock options granted to directors and officers) until the earlier of (i) the effectiveness of the registration statement contemplated by the Registration Rights Agreement, or (ii) the date on which the Shares and Warrant Shares are freely tradable by the Buyer without restriction pursuant to Rule 144(k) promulgated under the 1933 Act.

5.8 Insurance. For so long as Buyer beneficially owns (as defined in Rule 13d-3 promulgated under the 1934 Act) at least 20% of the Shares, the Company shall use its best efforts and, where applicable, shall cause each Subsidiary to maintain or cause to be maintained with financially sound and reputable insurers that have a rating of “A-” or better as established by Best’s Rating Guide (or an equivalent rating with such other publication of a similar nature as shall be in current use), directors’ liability insurance providing at least the same coverage and amounts and containing terms and conditions which are not less advantageous in any material respect than the directors’ liability insurance maintained by the Company as of the Closing Date.

5.9 Right of First Offer. For a period of one year from the Closing Date, Buyer will be given the first right to purchase any Common Stock, preferred stock, securities exercisable for or convertible into the Company’s equity securities, or other equity securities proposed to be offered by the Company, other than issuances to employees of the Company pursuant to Company stock option, 401(k), or stock purchase plans (“Equity Offering"). If (a) Buyer fails to exercise such right to acquire the securities being offered pursuant to an Equity Offering within 30 days of being informed of such offering or (b) if the price, terms and conditions proposed by the Buyer for the securities in the Equity Offering are not acceptable to the Company, then the Company shall have 90 days to complete the Equity Offering and, in the case of clause (b) above, at a price and upon terms more favorable to the Company than those proposed by the Buyer. If the Company does not consummate the Equity Offering within such 90-day period, then the Company shall not thereafter issue or sell any securities pursuant to an Equity Offering without providing Buyer a right of first offer in the manner provided above. Notwithstanding the foregoing, Buyer’s rights under this Section 5.9 are limited to acquiring such shares of Common Stock, preferred stock, securities exercisable for or convertible into the Company’s equity securities, or other equity securities proposed to be offered by the Company, that the Company could issue to Buyer without prior shareholder approval under Rule 4350(i)(1)(D) of the NASD Manual; provided, however, that the foregoing limitation shall not apply if the Equity Offering to a third party would also require the approval of the Company’s shareholders under Rule 4350(i)(1)(D).

Article 6
Conditions To The Company’s Obligation

The obligation of the Company hereunder to issue and sell the Securities to a Buyer at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

6.1 Delivery of Transaction Documents. The Buyer shall have executed and delivered the Transaction Documents to the Company.

6.2 Payment of Purchase Price. The Buyer shall have delivered the Purchase Price in accordance with Section 2.2 above.

6.3 Representations and Warranties. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the applicable Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Buyer at or prior to the Closing Date.

6.4 Litigation. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters herein that prohibits consummation of any of the transactions contemplated by this Agreement.

Article 7
Conditions To Buyer’s Obligation

The obligation of the Buyer hereunder to purchase the Securities at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for Buyer’s sole benefit and may be waived by Buyer at any time in its sole discretion:

7.1 Delivery of Transaction Documents. The Company shall have executed and delivered the Transaction Documents to the Buyer and shall have delivered the Transfer Instructions to the Company’s transfer agent for its Common Stock.

7.2 Representations and Warranties. The representations and warranties of the Company shall be true and correct in all material respects (provided, however, that such qualification shall only apply to representations or warranties not otherwise qualified by materiality) as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.

7.3 Litigation. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

7.4 No Material Adverse Change. There shall have been no material adverse change in the assets, liabilities (contingent or otherwise), affairs, business, operations, prospects or conditions (financial or otherwise) of the Company or its Subsidiaries prior to the Closing Date.

Article 8
Indemnification

8.1 Indemnification by the Company. Except as otherwise provided in this Article 8, the Company agrees to indemnify, defend and hold harmless the Buyer and its affiliates and their respective officers, directors, agents, employees, subsidiaries, partners, members and controlling persons (each, an “Indemnified Party") to the fullest extent permitted by law from and against any and all losses, claims, or written threats thereof, damages, expenses (including reasonable fees, disbursements and other charges of counsel incurred by the Indemnified Party) or other liabilities (collectively, “Losses") resulting from or arising out of any breach of any representation or warranty, covenant or agreement by the Company to such Indemnified Party set forth in this Agreement or any of the Transaction Documents, other than Losses incurred by an Indemnified Person relating to a claim or action by the Company against any Indemnified Person for the breach (or alleged breach) of this Agreement or any documents contemplated by this Agreement by such Indemnified Person.

8.2 Notification. Each Indemnified Party under this Article 8 shall, promptly after the receipt of notice of the commencement of any claim against such Indemnified Party in respect of which indemnity may be sought from the Company under this Article 8, notify the Company in writing of the commencement thereof. The omission of any Indemnified Party to so notify the Company of any such action shall not relieve the Company from any liability which it may have to such Indemnified Party except and only to the extent that such omission results in the Company’s forfeiture of substantive rights or defenses and such forfeiture results in more damages than would otherwise have resulted. In case any such claim shall be brought against any Indemnified Party, and it shall notify the Company of the commencement thereof, the Company shall be entitled to assume the defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its reasonable judgment; provided, however, that any Indemnified Party may, at its own expense, retain separate counsel to participate in such defense at its own expense. Notwithstanding the foregoing, such Indemnified Party shall have the right to employ separate counsel and to control its own defense of such claim if, in the reasonable opinion of counsel to such Indemnified Party, either (x) one or more defenses are available to the Indemnified Party that are not available to the Company or (y) a conflict or potential conflict exists between the Company, on the one hand, and such Indemnified Party, on the other hand, that would make such separate representation advisable; provided, however, that the Company (i) shall not be liable for the fees and expenses of more than one counsel to all Indemnified Parties and (ii) shall reimburse the Indemnified Parties for all of such fees and expenses of such counsel incurred in any action between the Company and the Indemnified Parties or between the Indemnified Parties and any third party, as such expenses are incurred. The Company agrees that it will not, without the prior written consent of the Indemnified Party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim relating to the matters contemplated hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Party from all liability arising, or that may arise, out of such claim, including any injunctive relief against any Indemnified Party. The Company shall not be liable for any settlement of any claim effected against an Indemnified Party without its written consent, which consent shall not be unreasonably withheld. The rights accorded to an Indemnified Party hereunder shall be in addition to any rights that any Indemnified Party may have at common law, by separate agreement or otherwise; provided, however, that notwithstanding the foregoing or anything to the contrary contained in this Agreement, nothing in this Article 8 shall restrict or limit any rights that any Indemnified Party may have to seek equitable relief.

8.3 Contribution. If the indemnification provided for in this Article 8 from the Company is unavailable to an Indemnified Party hereunder in respect of any Losses referred to herein, then the Company, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or

payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions which resulted in such Losses, as well as any other relevant equitable considerations. The relative faults of such Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Company or Indemnified Party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Losses referred to above shall be deemed to include, subject to the limitations set forth in Sections 8.1 and 8.2, any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding.

Article 9
Governing Law; Miscellaneous

9.1 Governing Law. This Agreement shall be enforced, governed by and construed in accordance with the laws of the State of Delaware applicable to agreements made and to be performed entirely within such state, without regard to the principles of conflict of laws. All parties agree that service of process upon a party mailed by first class mail shall be deemed in every respect effective service of process upon the party in any such suit or proceeding. Nothing herein shall affect any party’s right to serve process in any other manner permitted by law. The party which does not prevail in any dispute arising under this Agreement shall be responsible for all fees and expenses, including attorneys’ fees, incurred by the prevailing party in connection with such dispute.

9.2 Counterparts; Signatures by Facsimile. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

9.3 Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

9.4 Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

9.5 Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and supersedes all prior written and oral agreement and understandings relating to the matters covered herein, including, without limitation, any confidentiality agreements. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

9.6 Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally

or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be:

If to the Company:

Main Street Restaurant Group, Inc.
5050 North 40th Street, Suite 200
Phoenix, Arizona 85018
Attention: Michael Garnreiter
Telephone: (602) 852-9000
Facsimile: (602) 852-9076

With a copy to:

Greenberg Traurig
2375 East Camelback
Phoenix, Arizona 85016
Attention: Robert Kant
Telephone: (602) 445-8302
Facsimile: (602) 445-8100

If to a Buyer:

To the address set forth immediately below such Buyer’s name on the signature pages
hereto.

With a copy to:

Haynes and Boone, LLP
1221 McKinney Street, Suite 2100
Houston, Texas 77010
Attention: Edward Rhyne
Telephone: (713) 547-2226
Facsimile: (713) 236-5504

Each party shall provide notice to the other party of any change in address in accordance with this section.

9.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Buyer may assign its rights hereunder to any person who purchases the Securities in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.

9.8 Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

9.9 Publicity. The Buyer shall have a reasonable advance period of time to review and approve any press releases or any other public statements with respect to the transactions contemplated

hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon). Notwithstanding the foregoing, the Company shall file with the SEC a Form 8-K disclosing the transactions herein and attaching the relevant agreements and instruments within four business days of the Closing Date.

9.10 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

9.11 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

9.12 Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.

9.13 Survival. The representations and warranties of the Company and the agreements and covenants set forth in Sections 4.5, 4.9, 4.13, 4.14 and 4.21 shall survive the Closing, notwithstanding any due diligence investigation conducted by or on behalf of the Buyer, for the greater of (a) 30 months from the Closing Date and (b) the applicable statute of limitations period. The other representations and warranties of the Company in Articles 4 and the Buyer in Article 3 shall survive for a period of 30 months from the Closing Date, notwithstanding any due diligence investigation conducted by or on behalf of the Buyer.

9.14 Waiver of Jury Trial. The Company and the Buyer hereby (i) irrevocably and unconditionally waive, to the fullest extent permitted by law, trial by jury in any legal action or proceeding relating to this Agreement or any Transaction Documents and for any counterclaim therein; (ii) certify that no party hereto nor any representative or administrative agent of counsel for any party hereto has represented, expressly or otherwise, or implied that such party would not, in the event of litigation, seek to enforce the foregoing waiver, and (iii) acknowledge that such party has been induced to enter into this Agreement or any of the Transaction Documents and the transactions contemplated hereby and thereby by, among other things, the mutual waivers and certifications contained in this Section 9.14.

[Remainder of page intentionally left blank]

[Signature page follows]

     IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

MAIN STREET RESTAURANT GROUP, INC.

By:   /s/ William G. Shrader
Title: President and CEO

BUYER:

CIC MSRG LP

By:   /s/ Marshall B. Payne
Title: President of CIC Partners GP LLC,
         General Partner of CIC MSRG LP

JURISDICTION:  Delaware

ADDRESS:           500 Crescent Court, Suite 250
          Dallas, TX 75201
          Telephone: (214) 880-4489
          Facsimile: (214) 880-4491

SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT

Exhibit A

Form of Warrant

Exhibit B

Form Of Registration Rights Agreement

Company
Disclosure Schedule

EX-99.2 3 h25175scexv99w2.htm COMMON STOCK PURCHASE WARRANT exv99w2

EXHIBIT 2

NEITHER THIS WARRANT NOR ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT (THE “SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS.

MAIN STREET RESTAURANT GROUP, INC.
COMMON STOCK PURCHASE WARRANT


		Name of holders:		CIC MSRG LP (“Warrantholder”).

		Number of shares:		581,395 (“Warrant Shares”).

		Purchase price per shares:		$3.01 (“Exercise Price”).

		The fifth anniversary date of the vesting date hereof:		November 27, 2010 (“Expiration Date”).

This certifies that, for good and valuable consideration, Main Street Restaurant Group, Inc., a Delaware corporation (the “Company”), grants to the Warrantholder, the right to subscribe for and purchase from the Company validly issued, fully paid and nonassessable Warrant Shares of the Company’s Common Stock, $0.001 par value per share (the “Common Stock”), at the Exercise Price, at any time after November 27, 2005 and prior to the Expiration Date, all subject to the terms, conditions and adjustments herein set forth.

1. Exercise of Warrant.

1.1 Exercise of Warrant. This Warrant may be exercised, in whole or in part, at any time or from time to time after November 27, 2005 and prior to the Expiration Date, by surrendering to the Company at its principal office this Warrant, with an exercise form in the form attached hereto as Exhibit A, duly executed by the Warrantholder and accompanied by payment of the Exercise Price for the number of shares of Common Stock specified in such Exercise Form.

1.2 Delivery of Warrant Shares; Effectiveness of Exercise.

(a) Delivery of Warrant Shares. A stock certificate or certificates for the Warrant Shares specified in the Exercise Form along with a check for the amount of cash to be paid in lieu of fractional shares, if any, shall be delivered to the Warrantholder within three Business Days (as defined below) after the Exercise Date (as defined in Section 1.2(b)). If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates and cash in lieu of fractional shares, if any, deliver to the Warrantholder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. As used herein, “Business Day” means any day other than a Saturday, Sunday or a day on which national banks are authorized by law or executive order to close in the State of Delaware.

(b) Effectiveness of Exercise. The exercise of this Warrant shall be deemed to have been effective immediately prior to the close of business on the Business Day on which this Warrant is exercised in accordance with Section 1.1 (the “Exercise Date”). The Person (as defined below) in whose name any certificate for shares of Common Stock shall be issuable upon such exercise shall be deemed to

be the record holder of such shares of Common Stock for all purposes on the Exercise Date. As used herein, “Person” means any individual, corporation, partnership, joint venture, association, trust, limited liability company or other entity.

(c) Limitations on Exercise. Notwithstanding anything to the contrary herein, this Warrant may not be exercised to the extent the issuance of the Warrant Shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other laws or regulations.

1.3 Payment of Taxes. The issuance of certificates for Warrant Shares shall be made without charge to the Warrantholder for any stock transfer or other issuance tax in respect thereof; provided, however, that the Warrantholder shall be required to pay any and all taxes that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Warrantholder as reflected upon the books of the Company.

2. Transferability.

Nothing herein shall prohibit the Warrantholder from selling, assigning, transferring, gifting, exchanging or otherwise disposing of, or granting a lien, encumbrance, pledge or other security interest in (each a “Transfer”) this Warrant. This Section 2 shall survive the exercise of the Warrants.

3. Restrictive Legends.

3.1 Warrants. Except as otherwise permitted by this Section 3.1, this Warrant is subject to the following legend, and each Warrant issued in substitution for any Warrant pursuant to Section 6 shall be stamped or otherwise imprinted with a legend in substantially the following form:

Neither this warrant nor any securities acquired upon the exercise of this warrant (the “securities”) have been registered under the securities act of 1933, as amended (the “securities act”), or any state securities laws and neither the securities nor any interest therein may be offered, sold, transferred, pledged or otherwise disposed of except pursuant to an effective registration statement under the securities act and applicable state securities laws or an available exemption from registration under such act and such laws.

3.2 Warrant Shares. Except as otherwise permitted by this Section 3.2, each stock certificate for Warrant Shares issued upon the exercise of any Warrant and each stock certificate issued upon the direct or indirect transfer of any such Warrant Shares shall be stamped or otherwise imprinted with a legend in substantially the following form:

The securities represented hereby have not been registered under the securities act of 1933, as amended (the “securities act”), or any state securities laws and neither the securities nor any interest therein may be offered, sold, transferred, pledged or otherwise disposed of except pursuant to an effective registration statement under the securities act and applicable state securities laws or an exemption from registration under such act and such laws.

3.3 Removal of Legends. Notwithstanding the foregoing, the Warrantholder may require the Company to issue a Warrant or a stock certificate for Warrant Shares, in each case without the legend required by Section 3.1 or 3.2, as applicable, if either (a) such Warrant or such Warrant Shares, as the case may be, have been registered for resale under the Securities Act or (b) the Warrantholder has delivered to the Company an opinion of legal counsel (from a firm reasonably satisfactory to the Company), which opinion must be addressed to the Company and be reasonably satisfactory in form and substance to the Company’s counsel, to the effect that such registration is not required with respect to such Warrant or such Warrant Shares, as the case may be.

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4. Registration Rights.

The initial Warrantholder and certain transferees and assignees thereof are entitled to registration rights with respect to the Warrant Shares in accordance with the terms of that certain Registration Rights Agreement dated April 27, 2005, by and between the Company and the Warrantholder.

5. Reservation of Shares, Etc.

The Company covenants and agrees as follows:

(a) All Warrant Shares that are issued upon the exercise of this Warrant will, upon issuance, be validly issued, fully paid and nonassessable, not subject to any preemptive rights, and free from all taxes, liens, security interests, charges, and other encumbrances with respect to the issuance thereof, other than taxes in respect of any transfer occurring contemporaneously with such issue and the restrictions on transfer contained in this Warrant.

(b) During the period within which this Warrant may be exercised, the Company will at all times have authorized and reserved, and keep available free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant.

(c) The Company will, from time to time, take all such action as may be required to assure that the par value per share of the Warrant Shares is at all times equal to or less than the Exercise Price, as may be adjusted.

6. Loss or Destruction of Warrant. Subject to the terms and conditions hereof, upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of such bond or indemnification as the Company may reasonably require, and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor.

7. Ownership of Warrant. The Company may deem and treat the Person in whose name this Warrant is registered as the holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration of transfer.

8. Antidilution Provisions.

8.1 Antidilution Adjustments. The number of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment as follows:

(a) Stock Dividends, Subdivision, Combination or Reclassification of Common Stock. If at any time after the date of this Warrant, the Company (i) declares a stock dividend on the Common Stock payable in shares of its capital stock (including Common Stock), (ii) increases the number of shares of Common Stock outstanding by a subdivision or split-up of shares of Common Stock, (iii) decreases the number of shares of Common Stock outstanding by a combination of shares of Common Stock, or (iv) issues any shares of its capital stock in a reclassification of the Common Stock, then, on the record date for such dividend or the effective date of such subdivision or split-up, combination, or reclassification, as the case may be, the number and kind of shares to be delivered upon exercise of this Warrant will be adjusted so that the Warrantholder will be entitled to receive the number and kind of shares of capital stock that such Warrantholder would have owned or been entitled to receive upon or by reason of such event had this Warrant been exercised immediately prior thereto, and the Exercise Price will be adjusted as provided in Section 8.1(f).

(b) Reorganization, Etc. If at any time after the date of this Warrant any consolidation of the Company with or merger of the Company with or into any other Person (other than a merger or consolidation in which the Company is the surviving or continuing corporation and which does not result in any reclassification of, or change (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in outstanding shares of Common Stock) or any sale, lease, or other transfer of all or substantially all of the assets of the Company

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to any other Person (each a “Reorganization Event”), will be effected in such a way that the holders of Common Stock shall be entitled to receive stock, other securities or assets (whether such stock, other securities, or assets are issued or distributed by the Company or another Person) with respect to or in exchange for Common Stock, then, with respect to any unexercised Warrant, the Board of Directors of the Company or any surviving or acquiring corporation or entity (the “Relevant Entity”) must take such action as is equitable and appropriate to substitute a new warrant for such Warrant or to assume such Warrant in order to make such new or assumed warrant as nearly as may be practicable, equivalent to the old Warrant (the “Reorganization Action”).

(c) Extraordinary Distributions. If at any time after the date of this Warrant the Company shall distribute to all holders of its Common Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation and the Common Stock is not changed or exchanged) cash, evidences of indebtedness, securities or other assets (excluding (i) ordinary course cash dividends and (ii) dividends payable in shares of capital stock for which adjustment is made under Section 8.1(a)) or rights, options or warrants to subscribe for or purchase securities of the Company, then the number of shares of Common Stock to be delivered to such Warrantholder upon exercise of this Warrant will be increased so that the Warrantholder thereafter will be entitled to receive the number of shares of Common Stock determined by multiplying the number of shares such Warrantholder would have been entitled to receive immediately before such record date by a fraction, the numerator of which is the Current Market Price (as defined below) per share of the Common Stock and the denominator of which is the Current Market Price per share of Common Stock on such record date minus the then fair market value (as reasonably determined by the Board of Directors of the Company in good faith) of the portion of the cash, evidences of indebtedness, securities or other assets so distributed or of such rights or warrants applicable to one share of Common Stock (provided that such denominator shall in no event be less than the par value of the Warrant Shares; and the Exercise Price will be adjusted as provided in Section 8.1(f).

As used herein, “Current Market Price” means, with respect to each share of Common Stock as of any date, the average of the daily Closing Prices (as defined below) per share of Common Stock for the 10 consecutive trading days immediately prior to such date; provided that if on any such date the shares of Common Stock are not listed or admitted for trading on any national securities exchange or quoted by the National Association of Securities Dealers, Inc. Automated Quotation System (“Nasdaq”) or a similar service if Nasdaq is no longer reporting such information, the Current Market Price for a share of Common Stock shall be the fair market value of such share as determined in good faith by the Board of Directors of the Company or, if requested by the Warrantholder, an independent financial expert from a nationally recognized investment banking firm (an “Independent Financial Expert”) selected jointly by the Board of Directors and such Warrantholder. If the Company and the Warrantholder are unable to agree upon an Independent Financial Expert within 15 days after the request by the Warrantholder, each of the Company and the Warrantholder shall select an Independent Financial Expert within five days following the expiration of such 15-day period and these two Independent Financial Experts must select a third Independent Financial Expert and the determination of the fair market value of a share of Common Stock by such third Independent Financial Expert will be final and binding on the Company and the Warrantholder. If either the Company or the Warrantholder fails to select an Independent Financial Expert within such five-day period, then the fair market value of a share of Common Stock will be determined by the Independent Financial Expert selected by the other party. The fees and expenses of any of the Independent Financial Experts retained in accordance with the foregoing will be borne by the Company. “Closing Price” of the Common Stock as of any day, means (a) the average of the closing bid and asked prices, in either case as reported on the principal national securities exchange on which the Common Stock is listed or admitted to trading or (b) if the Common Stock is not listed or admitted to trading on any national securities exchange, the average of the highest reported bid and lowest reported asked quotation for the Common Stock, in either case reported on Nasdaq, or a similar service if Nasdaq is no longer reporting such information.

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(d) Pro Rata Repurchases. If at any time after the date of this Warrant, the Company or any subsidiary thereof makes any purchase of shares of Common Stock, whether for cash, shares of capital stock of the Company, other securities of the Company, evidences of indebtedness of the Company or any other Person, or any other property (including, without limitation, shares of capital stock, other securities, or evidences of indebtedness of a subsidiary of the Company), or any combination thereof, which purchase is subject to Section 13(e) of the Securities Exchange Act of 1934, as amended, or is made pursuant to an offer made available to all holders of Common Stock (a “Pro Rata Repurchase”), then the number of shares of Common Stock to be delivered to such Warrantholder upon exercise of this Warrant will be increased so that the Warrantholder thereafter is entitled to receive the number of shares of Common Stock determined by multiplying the number of shares of Common Stock such Warrantholder would have been entitled to receive immediately before such Pro Rata Repurchase by a fraction (which in no event will be less than one), (i) the numerator of which will be the product of (A) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase minus the number of shares of Common Stock repurchased in such Pro Rata Repurchase, and (B) the Current Market Price of the Common Stock as of the day immediately preceding the first public announcement by the Company of the intent to effect such Pro Rata Repurchase, and (ii) the denominator of which will be (A) the product of (x) the number of shares of Common Stock outstanding immediately before such Pro Rata Repurchase, and (y) the Current Market Price of the Common Stock as of the day immediately preceding the first public announcement by the Company of the intent to effect such Pro Rata Repurchase, minus (B) the aggregate purchase price of the Pro Rata Repurchase (provided that such denominator shall never be less than the par value of the Warrant Shares).

(e) Fractional Shares. No fractional shares of Common Stock or scrip will be issued to any Warrantholder in connection with the exercise of this Warrant. Instead of any fractional shares of Common Stock that would otherwise be issuable to such Warrantholder, the Company will pay to such Warrantholder a cash adjustment in respect of such fractional interest in an amount equal to that fractional interest of the then Current Market Price per share of Common Stock.

(f) Carryover. Notwithstanding any other provision of this Section 8.1, no adjustment shall be made to the number of shares of Common Stock to be delivered to the Warrantholder (or to the Exercise Price) if such adjustment represents less than 1% of the number of shares to be so delivered, but any lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment that together with any adjustments so carried forward shall amount to 1% or more of the number of shares to be so delivered.

(g) Exercise Price Adjustment. Whenever the number of Warrant Shares purchasable upon the exercise of the Warrant is adjusted as provided pursuant to this Section 8.1, the Exercise Price per share payable upon the exercise of this Warrant will be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, (i) the number of which will be the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to such adjustment, and (ii) the denominator of which will be the number of Warrant Shares purchasable immediately thereafter; provided, however, that the Exercise Price for each Warrant Share shall in no event be less than the par value of such Warrant Share.

(h) Multiple Adjustments. If any action or transaction would require adjustment of the number of shares of Common Stock to be delivered to the Warrantholder upon exercise of this Warrant pursuant to more than one subsection of this Section 8.1, only one adjustment will be made and each such adjustment will be the amount of adjustment that has the highest absolute value.

8.2 Notice of Adjustment. Whenever the number of Warrant Shares or the Exercise Price of such Warrant Shares is adjusted, as herein provided, the Company must promptly mail by overnight courier or by first class mail, postage prepaid, to the Warrantholder, notice of such adjustment or adjustments setting forth the number of Warrant Shares and the Exercise Price of such Warrant Shares after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.

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8.3 Notices of Corporate Action. So long as this Warrant has not been exercised in full, in the event of

(a) any action that would trigger an adjustment to the number of shares of Common Stock to be delivered to the Warrantholder upon exercise of this Warrant,

(b) any consolidation or merger involving the Company and any other party or any transfer of all or substantially all the assets of the Company to any other party, or

(c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company must deliver, by overnight courier or by first class mail, postage prepaid, to the Warrantholder a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of a dividend, distribution or right and the amount and character of any such dividend, distribution or right and (ii) the date or expected date on which a reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation, or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or other securities) will be entitled to exchange their shares of Common Stock (or other securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice must be delivered at least 20 days prior to the date therein specified in the case of any date referred to in the foregoing clauses (i) and (ii).

8.4 Effect of Failure to Notify. Failure to file any certificate or notice or to mail any notice, or any defect in any certificate or notice, pursuant to Section 8.3 will not affect the legality or validity of the adjustment to the Exercise Price, the number of shares purchasable upon exercise of this Warrant, or any transaction giving rise thereto.

9. Amendments. Any provision of this Warrant may be amended and the observance thereof waived only with the written consent of the Company and the Warrantholder.

10. Expiration of the Warrant. The obligations of the Company pursuant to this Warrant will terminate on the Expiration Date.

11. Miscellaneous.

11.1 Entire Agreement. This Warrant constitutes the entire agreement between the Company and the Warrantholder with respect to the Warrants.

11.2 Binding Effect; Benefits. This Warrant will inure to the benefit of and is binding upon the Company and the Warrantholder and their respective heirs, successors and assigns, as the case may be. Nothing in this Warrant, expressed or implied, is intended to or shall confer on any Person other than the Company and the Warrantholder, or their respective heirs, successors or assigns, as the case may be, any rights, remedies, obligations or liabilities under or by reason of this Warrant.

11.3 Section and Other Headings. The section and other headings contained in this Warrant are for reference purposes only and will not be deemed to be a part of this Warrant or to affect the meaning or interpretation of this Warrant.

11.4 Notices. All notices and other communications required or permitted hereunder must be in writing and must be delivered personally, telecopied or sent by certified, registered, or express mail, postage prepaid. Any such notice will be deemed given when so delivered personally, telecopied, or sent by certified, registered or express mail, as follows: (a) if to the Company, addressed to: Main Street Restaurant Group, Inc., 5050 North 40^th Street, Suite 200, Phoenix, Arizona 85018, Attention: Chief Financial Officer, Telecopy: (602) 852-9076; or (b) if to the Warrantholder, addressed to: CIC MSRG LP, 500 Crescent Court, Suite 250, Dallas, Texas 75201, Telecopy: (214) 880-4491. Any party may by notice given in accordance with this Section 11.4 designate another address or person for receipt of notices hereunder.

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11.5 Severability. Any term or provision of this Warrant that is invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the terms and provisions of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction.

11.6 Governing Law. This Warrant is deemed to be a contract made under the laws of the State of Delaware and for all purposes will be governed by and construed in accordance with the laws of such State applicable to such agreements made and to be performed entirely within such State.

11.7 Certain Remedies. The Warrantholder will be entitled to an injunction or injunctions to prevent breaches of the provisions of this Warrant and to enforce specifically the terms and provisions of this Warrant in any court of the United States or any court of any state having jurisdiction, this being in addition to any other remedy to which the Warrantholder may be entitled at law or in equity.

11.8 No Rights or Liabilities as Stockholder. Nothing contained in this Warrant will be deemed to confer upon the Warrantholder any rights as a stockholder of the Company or as imposing any liabilities on the Warrantholder to purchase any securities whether such liabilities are asserted by the Company or by creditors or stockholders of the Company or otherwise.

11.9 Further Assurances. Each of the Company and the Warrantholder must do and perform all such further acts and things and execute and deliver all such certificates, instruments and documents as the Company or the Warrantholder may, at any time and from time to time, reasonably request in connection with the performance of any of the provisions of this Agreement.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer.

MAIN STREET RESTAURANT GROUP, INC.

By:   /s/ William G. Shrader
Its:   President and CEO
Dated: April 27, 2005

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EXHIBIT A
EXERCISE FORM

(To be executed upon exercise of this Warrant)

The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase of the Warrant Shares and herewith tenders payment for such Warrant Shares to the order of Main Street Restaurant Group, Inc., in the amount of $_________in accordance with the terms of this Warrant. The undersigned requests that a certificate for such Warrant Shares be registered in the name of the undersigned and that such certificates be delivered to the undersigned’s address below.

Dated: __________________________

Signature __________________________

__________________________________
(Print Name)

__________________________________
(Street Address)

__________________________________
(City) (State) (Zip Code)

EX-99.3 4 h25175scexv99w3.htm REGISTRATION RIGHTS AGREEMENT exv99w3

EXHIBIT 3

REGISTRATION RIGHTS AGREEMENT

This REGISTRATION RIGHTS AGREEMENT, dated as of April 27, 2005, is entered into by and between MAIN STREET RESTAURANT GROUP, INC., a Delaware corporation (the “Company"), and CIC MSRG LP, a Delaware limited partnership (the “Purchaser").

Recitals:

A. The Company desires to issue and sell 2,325,581 shares of its Common Stock (“Shares") and warrants to purchase up to 581,395 shares of its Common Stock (“Warrant Shares") to the Purchaser as set forth in the Securities Purchase Agreement dated as of April 27, 2005 entered into by and between the Company and the Purchaser (the “Securities Purchase Agreement");

B. It is a condition precedent to the consummation of the transactions contemplated by the Securities Purchase Agreement that the Company provide for the rights set forth in this Agreement; and

C. Certain terms used in this Agreement are defined in ARTICLE I hereof.

Agreement

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound, the parties hereto hereby agree as follows:

ARTICLE I

Definitions

“Affiliate” means any Person that directly or indirectly controls, or is under control with, or is controlled by such Person. As used in this definition, “control” (including with its correlative meanings, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).

“Business Day” means any day excluding Saturday, Sunday or any other day which is a legal holiday under the laws of the State of Delaware or is a day on which banking institutions therein located are authorized or required by law or other governmental action to close.

“Closing Date” has the meaning ascribed to such term in the Securities Purchase Agreement.

“Common Stock” means the common stock, par value $0.001 per share, of the Company.

“Company” has the meaning set forth in the preamble.

“Designated Holder” means the Purchaser and any transferee or transferees of Registrable Securities that have not ceased to be Registrable Securities, provided the registration rights conferred by this Agreement have been transferred to such transferee or transferees in compliance with this Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

“Indemnified Party” has the meaning set forth in Section 2.7.

“Indemnifying Party” has the meaning set forth in Section 2.7.

“Losses” has the meaning set forth in Section 2.7.

“Majority Holders” means holders of a majority of the Registrable Securities.

“Non-Registration Event” has the meaning set forth in Section 2.1(a).

“Non-Registration Event Penalty Payment” has the meaning set forth in Section 2.1(a).

“Person” means any individual, company, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, governmental body or other entity.

“Piggyback Registration” has the meaning set forth in Section 2.2.

“Purchaser” has the meaning set forth in the preamble.

“Registrable Securities” means, subject to the immediately following sentence, (i) the Shares and the Warrant Shares underlying the warrants acquired by the Purchaser from the Company pursuant to the Securities Purchase Agreement, (ii) any shares of Common Stock issued as a Non-Registration Event Penalty Payment, (iii) any shares of Common Stock or other securities issued or issuable, directly or indirectly, with respect to the securities referred to in clauses (i) or (ii) by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, and (iv) any other security issued as a dividend or other distribution with respect to, in exchange for or in replacement of the securities referred to in the preceding clauses. As to any particular shares of Common Stock constituting Registrable Securities, such shares of Common Stock will cease to be Registrable Securities if they (x) have been effectively registered under the Securities Act and disposed of in accordance with a Registration Statement covering them, (y) have been sold to the public pursuant to Rule 144 (or by similar provision under the Securities Act), or (z) are eligible for resale under Rule 144(k) (or by similar provision under the Securities Act) without any limitation on the amount of securities that may be sold under paragraph (e) thereof.

“Registration Request” has the meaning set forth in Section 2.1(a).

“Registration Statement” means a registration statement (including the prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference in such registration statement) on Form S-3 (or, if the Company is not eligible to use Form S-3, such other appropriate registration form of the SEC pursuant to which the Company is eligible to register the resale of Registrable Securities) filed by the Company under the Securities Act that registers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement and permits or facilitates the resale of all the Registrable Securities in the manner (including the manner of sale) reasonably requested by the Designated Holders, including the offer and sale of the Registrable Securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.

“Representatives” has the meaning set forth in Section 2.7.

“Required Filing Date” has the meaning set forth in Section 2.1(a).

“Required Registration Statement” has the meaning set forth in Section 2.1(a).

“SEC” means the United States Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

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“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

“Securities Purchase Agreement” has the meaning set forth in the recitals.

“Shares” has the meaning set forth in the recitals.

“Warrant Shares” has the meaning set forth in the recitals.

ARTICLE II

Registration Rights

2.1 Demand Registration.

(a) Upon the written request of the Designated Holder, requesting that the Company effect a registration of Registrable Securities under the Securities Act, specifying the number of shares of Registrable Securities to be registered (which may be all or any portion of at least 25% of the Shares), and specifying the intended method of disposition thereof (a “Registration Request"), the Company shall use its best efforts to prepare and as promptly as possible after the date hereof, but in any event, not later than 30 days after the Registration Request (or, if such 30th day is not a Business Day, by the first Business Day thereafter) (the “Required Filing Date"), file a Registration Statement with the SEC (the “Required Registration Statement") and cause the Required Registration Statement to be declared effective under the Securities Act within 60 days after the Registration Request (or, if such 60th day is not a Business Day, by the first Business Day thereafter). Notwithstanding the foregoing sentence, if the Required Registration Statement is subjected to a full review by the SEC, the Company will use its best efforts to cause the Required Registration Statement to be declared effective under the Securities Act within 120 days after Registration Request (or, if such 120th day is not a Business Day, by the first Business Day thereafter). The Company agrees to include in the Required Registration Statement all information regarding the Designated Holders and the intended methods of distribution which the Designated Holders shall reasonably request.

The failure of the Company to file a Required Registration Statement prior to the Required Filing Date, or to cause the Required Registration Statement to become effective within the applicable 60- or 120-day period specified in the preceding paragraph, shall be deemed to be a “Non-Registration Event.” The Company and the Purchaser agree that the Purchaser will suffer damages if a Non-Registration Event occurs, and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if a Non-Registration Event should occur, then for each 30-day period after the occurrence of such Non-Registration Event and before the Required Registration Statement becomes effective, the Company shall pay the Purchaser, as liquidated damages, an amount equal to 1.0% of the aggregate Purchase Price (as such tern is defined in the Securities Purchase Agreement) paid by the Purchaser for the Securities (as such term is defined in the Securities Purchase Agreement), with such payment being pro-rated for any period of less than 30 days after the occurrence of the Non-Registration Event and before the Required Registration Statement becomes effective. Each such payment is hereinafter referred to as a “Non-Registration Event Penalty Payment.” The Non-Registration Event Penalty Payment shall be due and payable on the day immediately following the last day of the applicable 30-day period or portion thereof. Notwithstanding the foregoing, in no event shall the Company be obligated to pay more than one Non-Registration Event Penalty Payment to the Purchaser in respect of a substantively concurrent failure to perform; i.e., if a Non-Registration Event Penalty Payment is accruing due to failure to file a Required Registration Statement prior to the Required Filing Date, a separate Non-Registration Event Penalty Payment shall not be due for a contemporaneous failure to cause the Registration

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Statement to become effective in accordance with the periods specified in the preceding paragraph. The Company, at its sole discretion, may pay the Non-Registration Event Penalty Payment in cash or in shares of Common Stock. If the Company elects to pay the Non-Registration Event Penalty Payment to the Purchaser in shares of Common Stock, it shall deliver a number of unregistered, legended shares of its Common Stock equal to, (i) 1.0% of the aggregate Purchase Price, divided by (ii) the lower (x) $2.15, or (y) the closing price of the Common Stock on the trading day immediately preceding the date the Non-Registration Event Penalty Payment is due.

(b) Upon receipt of the Registration Request, the Company will promptly give written notice of such Registration Request to all Designated Holders, and thereupon the Company will use its best efforts to effect as expeditiously as possible the registration under the Securities Act of the following:

(i) the Registrable Securities specified for registration in the Registration Request in accordance with the intended method of disposition stated in such request;

(ii) any Registrable Securities that other holders of which have requested in writing to have registered, if such request is made within 30 days after the giving of such written notice by the Company to the Designated Holders (which request shall specify the intended method of disposition of such Registrable Securities); and

(iii) all shares of Common Stock that the Company or Persons entitled to exercise “piggy-back” registration rights pursuant to contractual commitments of the Company may elect to register in connection with the offering of Registrable Securities pursuant to this Section 2.1;

all to the extent required to permit the disposition (in accordance with the intended method of disposition specified in the Registration Request) of the Registrable Securities and the additional shares of Common Stock, if any, that are the subject of such registration, as provided above; provided, that, the provisions of this Section 2.1 shall not require the Company to effect more than two registrations of Registrable Securities. The Purchaser shall automatically be deemed to have made the first permitted Registration Request on the Closing Date of the Securities Purchase Agreement.

(c) The registrations under this Section 2.1 shall be on an appropriate Registration Statement that permits the disposition of such Registrable Securities in accordance with the intended methods of distribution specified in the Registration Request. The Company agrees to include in any Required Registration Statement all information regarding the Designated Holders and the intended methods of distribution which Designated Holders of Registrable Securities being registered shall reasonably request.

(d) A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected (i) unless a Registration Statement with respect thereto has become effective; provided, however, that a Registration Statement that does not become effective after the Company has filed a Registration Statement with respect thereto solely by reason of the Majority Holders’ refusal to proceed with the registration (other than a refusal to proceed based upon the advice of counsel relating to a matter with respect to the Company) shall be deemed to have been effected by the Company at the request of the Majority Holders unless the Designated Holders electing to have Registrable Securities registered pursuant to such Registration Statement shall have elected to pay all fees and expenses otherwise payable by the Company in connection with such registration pursuant to Section 2.6, (ii) if, after it has become effective, such registration is withdrawn by the Company (other than at the request of the Majority Holders) or interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason prior to the expiration of the period specified in Section 2.1(g) below, or (iii) if the conditions to closing

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specified in any purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied, other than due solely to some act or omission by the Designated Holders electing to have Registrable Securities registered pursuant to such Registration Statement.

(e) If a requested registration pursuant to this Section 2.1 involves an underwritten offering, the underwriter or underwriters thereof shall be selected by the holders of a majority (by number of shares) of the Registrable Securities requested to be included in such Registration Statement and shall be reasonably acceptable to the Company. If counsel for the Designated Holders selling Registrable Securities provides an opinion to such underwriters, then the Designated Holders will provide a copy of such opinion to the Company.

(f) If a requested registration pursuant to this Section 2.1 involves an underwritten offering, and if the managing underwriter advises the Company in writing (with a copy to each Designated Holder of Registrable Securities requesting registration) that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company and other securities that are subject to “piggy-back” registration rights and that are not Registrable Securities) exceeds the number that can be sold in such offering within a price range reasonably acceptable to the Company and to the holders of a majority (by number of shares) of the Registrable Securities requested to be included in such Registration Statement, the Company will include in such registration, to the extent of the number that the Company is so advised can be sold in such offering, (i) first, the Registrable Securities that have been requested to be included in such registration by the Designated Holders pursuant to this Agreement (pro rata based on the amount of Registrable Securities sought to be registered by each such Designated Holder), (ii) second, provided that no securities sought to be included by the Designated Holders have been excluded from such registration, the securities of other persons entitled to exercise “piggy-back” registration rights pursuant to contractual commitments of the Company (pro rata based on the amount of securities sought to be registered by such persons) and (iii) third, securities the Company proposes to register.

(g) The Company shall use its best efforts to keep any Registration Statement filed pursuant to this Section 2.1 continuously effective (i) for a period of two years after the Registration Statement first becomes effective, plus the number of days during which such Registration Statement was not effective or usable pursuant to Section 2.3(b), 2.4(e), or 2.4(i); (ii) if such Registration Statement is related to an underwritten offering, for such period as in the opinion of counsel for the underwriters a prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer, or (iii) for such shorter period as will terminate when all of the Registrable Securities covered by such Registration Statement have been disposed of in accordance with such Registration Statement or have otherwise ceased to be Registrable Securities. In the event the Company shall give any notice pursuant to Section 2.4(e) or 2.4(i), the additional time period mentioned in Section 2.1(g)(i) during which the Registration Statement filed pursuant to this Section 2.1 is to remain effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.4(e) or 2.4(i) to and including the date when each seller of a Registrable Security covered by such Registration Statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 2.4(e) or, if no supplemental or amended prospectus is required, the date each seller of a Registrable Security covered by such Registration Statement has been notified that the stop order or other order suspending the effectiveness of such Registration Statement in any jurisdiction has been withdrawn.

2.2 Piggyback Registration

(a) Whenever the Company proposes to register any of its securities under the Securities Act (other than pursuant to a registration pursuant to Section 2.1 or a registration on Form S-4 or S-8 or any successor or similar forms) and the registration form to be used may be used for the registration

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of Registrable Securities, whether or not for sale for its own account, the Company will give prompt written notice (but in no event less than 25 days before the anticipated date of the filing the Registration Statement with respect to such registration) to all Designated Holders, and such notice shall describe the proposed registration and distribution and offer to all Designate Holders the opportunity to register the number of Registrable Securities as each such Designated Holder may request. The Company will include in such Registration Statement all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the Designated Holders’ receipt of the Company’s notice (a “Piggyback Registration").

(b) The Company shall use its best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggyback Registration to be included on the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof.

(c) Any Designated Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to this Section 2.2 by giving written notice to the Company of its request to withdraw; provided, that in the event of such withdrawal (other than pursuant to Section 2.2(e) hereof), the Company shall not be required to reimburse such holder for the fees and expenses referred to in Section 2.6 hereof incurred by such Designated Holder prior to such withdrawal, unless such withdrawal was due to a material adverse change to the Company or, based upon the advice of counsel, otherwise relating to a matter with respect to the Company. The Company may withdraw a Piggyback Registration at any time prior to the time it becomes effective.

(d) If (i) a Piggyback Registration involves an underwritten offering of the securities being registered, whether or not for sale for the account of the Company, to be distributed (on a firm commitment basis) by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction, and (ii) the managing underwriter of such underwritten offering shall in writing inform the Company and Designated Holders requesting such registration of its belief that the distribution of all or a specified number of such Registrable Securities concurrently with the securities being distributed by such underwriters would interfere with the successful marketing of the securities being distributed by such underwriters (such writing to state the basis of such belief and the approximate number of such Registrable Securities which may be distributed without such effect), then the Company will be required to include in such registration only the amount of securities which it is so advised should be included in such registration. In such event: (x) in cases initially involving the registration for sale of securities for the Company’s own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities which the Company proposes to register, (ii) second, Registrable Securities and securities which have been requested to be included in such registration by Persons entitled to exercise “piggy-back” registration rights pursuant to contractual commitments of the Company (pro rata based on the amount of securities sought to be registered by Designated Holders and such other Persons); and (y) in cases not initially involving the registration for sale of securities for the Company’s own account, securities shall be registered in such offering in the following order of priority: (i) first, the securities of any Person whose exercise of a “demand” registration right pursuant to a contractual commitment of the Company is the basis for the registration, (ii) second, Registrable Securities and securities that have been requested to be included in such registration by Persons entitled to exercise “piggy-back” registration rights pursuant to contractual commitments of the Company (pro rata based on the amount of securities sought to be registered by Designated Holders and such other Persons), (iii) third, the securities which the Company proposes to register.

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(e) If, as a result of the proration provisions of this Section 2.2, any Designated Holders shall not be entitled to include in a Piggyback Registration all the Registrable Securities that such Designated Holders has requested to be included, such holder may elect to withdraw his request to include Registrable Securities in such registration.

2.3 Holdback Agreements.

(a) To the extent not inconsistent with applicable law, in connection with a public offering of securities of the Company, upon the request of the Company or the underwriter, in the case of an underwritten public offering of the Company’s securities, each Designated Holder who beneficially owns (as defined in Rule 13d-3 under the Exchange Act) at least 5% of the outstanding capital stock of the Company will not effect any public sale or distribution (other than those included in the registration statement being filed with respect to such public offering) of any securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such securities during the 14 days prior to and the 90-day period beginning on such effective date, unless (in the case of an underwritten public offering) the managing underwriters otherwise agree to a shorter period of time. Notwithstanding the foregoing, no Designated Holder shall be required to enter into any such “lock up” agreement unless and until all of the Company’s executive officers and directors execute substantially similar “lock up” agreements and the Company uses commercially reasonable efforts to cause each holder of more than 5% of its outstanding capital stock to execute substantially similar “lock up” agreements. Neither the Company nor the underwriter shall amend, terminate or waive a “lock up” agreement unless each “lock up” agreement with a Designated Holder is also amended or waived in a similar manner or terminated, as the case may be.

(b) The Company shall have the right at any time, to delay the filing of a Registration Statement or to require that the Designated Holders of Registrable Securities to suspend further open market offers and sales of Registrable Securities pursuant to a Registration Statement filed hereunder (i) for a period not to exceed an aggregate of 60 days in any 12-month period for valid business reasons (not including avoidance of their obligations hereunder) to avoid legally required premature public disclosure of a pending material corporate transaction, including pending acquisitions or divestitures of assets, mergers and combinations and similar events; and (ii) upon the occurrence of any of the events specified in Section 2.4(e) or 2.4(i). The Company will give the Designated Holders notice of any such suspension and will use its best efforts to minimize the length of such suspension.

2.4 Registration Procedures. The Company will use its best efforts to effect the registration of Registrable Securities pursuant to this Agreement in accordance with the intended methods of disposition thereof, and pursuant thereto the Company will as expeditiously as possible:

(a) within a reasonable period of time, and not less than three days, before filing a Registration Statement, or any amendment or supplement, the Company will furnish to the counsel selected by the holders of a majority of such Registrable Securities a copy of such Registration Statement, and will provided such counsel with all correspondence with the SEC regarding the Registration Statement and notice of the effectiveness of the Registration Statement;

(b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to comply with the Securities Act or otherwise keep such Registration Statement effective for the period provided for in Section 2.1, or the periods contemplated by the Company or the Persons requesting any Registration Statement filed pursuant to Section 2.2;

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(c) furnish to each seller of Registrable Securities such number of copies of such Registration Statement, each amendment and supplement thereto, the prospectus included in the Registration Statement (including each preliminary prospectus), any documents incorporated by reference therein and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;

(d) use its best efforts to register or qualify such Registrable Securities under such state securities or blue sky laws as any seller of Registrable Securities reasonably requests and do any and all other acts and things that may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller and to keep each such registration or qualification (or exemption therefrom) effective during the period that the Registration Statement is required to be kept effective; provided, however, that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any such jurisdiction);

(e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in the Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and, the Company will as soon as possible prepare and furnish to each seller the number of copies reasonably requested by such seller of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made;

(f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be approved for trading on any automated quotation system of a national securities association on which similar securities of the Company are quoted;

(g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such Registration Statement;

(h) enter into such customary agreements (including underwriting agreements containing customary representations and warranties by the Company and customary indemnification and contribution provisions to and from the underwriters) and take all other customary and appropriate actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;

(i) notify each Designated Holder of any stop order issued or threatened by the SEC or any order suspending or preventing the use of any related prospectus or suspending the qualification of any securities included in such Registration Statement for sale in any jurisdiction;

(j) otherwise comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company’s first full calendar quarter after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

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(k) in the event of the issuance of any stop order suspending the effectiveness of a Registration Statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any securities included in such Registration Statement for sale in any jurisdiction, the Company will use its best efforts to promptly obtain the withdrawal of such order;

(l) if requested by a Designated Holder, use its best efforts to obtain one or more comfort letters, dated the effective date of the Registration Statement (and, if such registration includes an underwritten offering, dated the date of the closing under the underwriting agreement), signed by the Company’s independent public accountants in customary form and covering such matter of the type customarily covered by comfort letters as the holders of a majority of the Registrable Securities being sold or any underwriters selected by such holders reasonably request;

(m) provide a legal opinion of the Company’s outside counsel, dated the effective date of such Registration Statement (and, if such registration includes an underwritten offering, dated the date of the closing under the underwriting agreement), with respect to the Registration Statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary form and covering such matters of the type customarily covered by legal opinions of such nature;

(n) subject to execution and delivery of mutually satisfactory confidentiality agreements, make available at reasonable times for inspection by any seller of Registrable Securities, any managing underwriter participating in any disposition of such Registrable Securities pursuant to the Registration Statement, and any attorney, accountant or other agent retained by such seller or any managing underwriter, during normal business hours of the Company at the Company’s corporate office in Phoenix, Arizona and without unreasonable disruption of the Company’s business or unreasonable expense to Company and for the purpose of due diligence with respect to the Registration Statement, legally disclosable, financial and other records and pertinent corporate documents of the Company and its subsidiaries reasonable requested by such persons, and cause the Company’s officers, directors, employees and independent accountants to supply all similar information reasonably requested by any such seller, managing underwriter, attorney, accountant or agent in connection with the Registration Statement, as shall be reasonably necessary to enable them to exercise their due diligence responsibility;

(o) if the Designated Holders become entitled, pursuant to an event described in clauses (ii), (iii) or (iv) of the definition of Registrable Securities, to receive any securities in respect of Registrable Securities that were already included in a Registration Statement, subsequent to the date such Registration Statement is declared effective, and the Company is unable under the securities laws to add such Registrable Securities to the then effective Registration Statement, the Company shall promptly file, in accordance with the procedures set forth herein, an additional Registration Statement with respect to such newly issued Registrable Securities and will use its best efforts to (i) cause any such additional Registration Statement, when filed, to become effective within 60 days of the date that the need to file the Registration Statement arose, and (ii) keep such additional Registration Statement effective during for the period described in Section 2.1(g);

(p) if requested by a Designated Holder, the Company shall (i) as soon as practicable incorporate in a prospectus supplement or post-effective amendment such information as a Designated Holder reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective

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amendment; and (iii) as soon as practicable, supplement or make amendments to any Registration Statement if reasonably requested by a Designated Holder selling any Registrable Securities pursuant to such Registration Statement;

(q) cooperate with each seller of Registrable Securities and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers; and

(r) take all other steps reasonably necessary to effect the registration of the. Registrable Securities contemplated hereby.

2.5 Conditions Precedent to Company’s Obligations Pursuant to this Agreement. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement that each of the Designated Holders whose Registrable Securities are to be registered pursuant to this Agreement shall furnish such Designated Holder’s written agreement to be bound by the terms and conditions of this Agreement prior to performance by the Company of its obligations under this Agreement. By executing and delivering this Agreement, each Designated Holder represents and warrants that the information concerning, and representations and warranties by, such Designated Holder, including information concerning the securities of the Company held, beneficially or of record, by such Designated Holder, furnished to the Company pursuant to the Securities Purchase Agreement or otherwise, are true and correct as if the same were represented and warranted on the date any Registration Statement required pursuant to this Agreement is filed with the SEC or the date of filing with the SEC of any amendment thereto, and each Designated Holder covenants to immediately notify the Company in writing of any change in any such information, representation or warranty and to refrain from offering or disposing of any securities pursuant to any Registration Statement until the Company has reflected such change in such Registration Statement. By executing and delivering this Agreement, each Designated Holder further agrees to furnish any additional information as the Company may reasonably request in connection with any action to be taken by the Company pursuant to this Agreement, and to pay such Designated Holder’s expenses which are not required to be paid by the Company pursuant to this Agreement.

2.6 Fees and Expenses. All expenses incident to the Company’s performance of or compliance with this Agreement including, without limitation, all registration and filing fees payable by the Company, fees and expenses of compliance by the Company with securities or blue sky laws, printing expenses of the Company, messenger and delivery expenses of the Company, the reasonable fees and expenses of a single counsel retained by the Designated Holders of a majority (by number of shares) of the Registrable Securities requested to be included in such Registration Statement and fees and disbursements of counsel for the Company and all independent certified public accountants of the Company, and other Persons retained by the Company will be borne by the Company, and the Company will pay its internal expenses (including, without limitation, all salaries and expenses of the Company’s employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance of the Company and the expenses and fees for listing or approval for trading of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on any automated quotation system of a national securities association on which similar securities of the Company are quoted. The Company shall have no obligation to pay any underwriting discounts or commissions attributable to the sale of Registrable Securities or any of the expenses incurred by any Designated Holder that are not payable by the Company, such costs to be borne by such Designated Holder or Holders, including, without limitation, underwriting fees, discounts and expenses, if any, applicable to any Designated Holder’s Registrable Securities; fees and disbursements of counsel or other professionals that any Designated Holder may choose to retain in connection with the Registration Statement filed pursuant to this Agreement (except as otherwise provided above or in the Securities Purchase Agreement); selling commissions or stock transfer taxes applicable to the Registrable Securities registered on behalf of any Designated Holder; any other expenses incurred by or on behalf of such

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Designated Holder in connection with the offer and sale of such Designated Holder’s Registrable Securities other than expenses that the Company is expressly obligated to pay pursuant to this Agreement.

2.7 Indemnification.

(a) The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Designated Holder and its general or limited partners, officers, directors, members, managers, employees, advisors, representatives, agents and Affiliates (collectively, the “Representatives") from and against any loss, claim, damage, liability, attorney’s fees, cost or expense and costs and expenses of investigating and defending any such claim (collectively, the “Losses"), joint or several, and any action in respect thereof to which such Designated Holder or its Representatives may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereto) arise out of or are based upon (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, prospectus or preliminary or summary prospectus or any amendment or supplement thereto or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company shall advance to and reimburse each such Designated Holder and its Representatives for any legal or any other expenses incurred by them in connection with investigating or defending or preparing to defend against any such Loss, action or proceeding; provided, however, that the Company shall not be liable to any such Designated Holder or other indemnitee in any such case to the extent that any such Loss (or action or proceeding, whether commenced or threatened, in respect thereof) arises out of or is based upon (x) an untrue statement or alleged untrue statement or omission or alleged omission, made in such Registration Statement, any such prospectus or preliminary or summary prospectus or any amendment or supplement thereto, in reliance upon, and in conformity with, written information prepared and furnished to the Company by such Designated Holder or its Representatives expressly for use therein and, with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to the Registration Statement, to the extent a prospectus relating to the Registrable Securities was required to be delivered by such Designated Holder under the Securities Act in connection with such purchase, there was not sent or given to such person, at or prior to the written confirmation of the sale of such Registrable Securities to such person, a copy of the final prospectus that corrects such untrue statement or alleged untrue statement or omission or alleged omission, if the Company had previously furnished copies thereof to such Designated Holder, or (y) such Designated Holder’s use of a Registration Statement or the related prospectus during a period when a stop order has been issued in respect of such Registration Statement or any proceedings for that purpose have been initiated or use of a prospectus when use of such prospectus has been suspended pursuant to Section 2.3(b), 2.4(e) or 2.4(i); provided that in each case, that such Designated Holder received prior written notice of such stop order, initiation of proceedings or suspension from the Company. In no event, however, shall the Company be liable for indirect, incidental or consequential or special damages of any kind. In connection with an underwritten offering, the Company will indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Designated Holders.

(b) In connection with the filing of the Registration Statement by the Company pursuant to this Agreement, the Designated Holders will furnish to the Company in writing such information as the Company reasonably requests for use in connection with such Registration Statement and the related prospectus and, to the fullest extent permitted by law, each such Designated Holder will indemnify and hold harmless the Company and its Representatives from and against any Losses, severally but not jointly, and any action in respect thereof to which the Company and its Representatives may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based

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upon (i) the purchase or sale of Registrable Securities during a suspension as set forth in Section 2.3(b), 2.4(e) or 2.4(i) in each case after such Designated Holder’s receipt of written notice of such suspension, (ii) any untrue or alleged untrue statement of a material fact contained in the Registration Statement, prospectus or preliminary or summary prospectus or any amendment or supplement thereto, or (iii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but, with respect to clauses (ii) and (iii) above, only to the extent such untrue statement or omission is made in such Registration Statement, any such prospectus or preliminary or summary prospectus or any amendment or supplement thereto in connection with a sale of Registrable Securities and as required under the Securities Act, in reliance upon and in conformity with written information prepared and furnished to the Company by such Designated Holder expressly for use therein or by failure of such Designated Holder to deliver a copy of the Registration Statement or prospectus or any amendments or supplements thereto, and such Designated Holder will reimburse the Company and each Representative for any legal or any other expenses incurred by them in connection with investigating or defending or preparing to defend against any such Loss, action or proceeding; provided, however, that such Designated Holder shall not be liable in any such case if, prior to the filing of any such Registration Statement or prospectus or amendment or supplement thereto, such Designated Holder has furnished in writing to the Company information expressly for use in such Registration Statement or prospectus or any amendment or supplement thereto that corrected or made not misleading information previously furnished to the Company. The obligation of each Designated Holder to indemnify the Company and its Representatives shall be limited to the net proceeds received by such Designated Holder from the sale of Registrable Securities under such Registration Statement. In no event, however, shall any Designated Holder be liable for indirect, incidental or consequential or special damages of any kind.

(c) Promptly after receipt by any Person in respect of which indemnity may be sought pursuant to Section 2.7(a) or 2.7(b) (an “Indemnified Party") of notice of any claim or the commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be made against the Person against whom such indemnity may be sought (an “Indemnifying Party"), promptly notify the Indemnifying Party in writing of the claim or the commencement of such action; provided, that the failure to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability that it may have to an Indemnified Party under Section 2.7(a) or 2.7(b) except to the extent of any actual prejudice resulting therefrom. If any such claim or action shall be brought against an Indemnified Party, and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, and provided, and for so long as, the Indemnifying Party diligently pursues the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its Representatives who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the written opinion of counsel to such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest between them, it being understood, however, that the Indemnifying Party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Indemnified Parties. No Indemnifying

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Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding other than the payment of monetary damages by the Indemnifying Party on behalf of the Indemnified Party.

(d) If the indemnification provided for in this Section 2.7 is unavailable to the Indemnified Parties in respect of any Losses referred to herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Designated Holders on the other in connection with the statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of each Designated Holder on the other shall be determined by reference to, among other things, whether any action taken, including any untrue or alleged untrue statement of a material fact, or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and the Designated Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.7(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Losses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 2.7, no Designated Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Designated Holder were offered to the public exceeds the amount of any Losses that such Designated Holder has otherwise paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11 (f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Each Designated Holder’s obligations to contribute pursuant to this Section 2.7 is several in the proportion that the proceeds of the offering received by such Designated Holder bears to the total proceeds of the offering. The indemnification provided by this Section 2.7 shall be a continuing right to indemnification with respect to sales of Registrable Securities and shall survive the registration and sale of any Registrable Securities by any Designated Holder and the expiration or termination of this Agreement. The indemnity and contribution agreements contained herein are in addition to any other liability that any Indemnifying Party might have to any Indemnified Party.

2.8 Participation in Registrations.

(a) No Person may participate in any registration hereunder that is underwritten unless such Person (i) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and this Agreement.

(b) Each Person that is participating in any registration under this Agreement agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in

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Section 2.4(e) or 2.4(i) above, such Person will forthwith discontinue the disposition of its Registrable Securities pursuant to the Registration Statement and all use of the Registration Statement or any prospectus or related document until such Person’s receipt of the copies of a supplemented or amended prospectus as contemplated by such Section 2.4(e) and, if so directed by the Company, will deliver to the Company (at the Company’s expense) all copies thereof, other than permanent file copies, then in such Designated Holder’s possession of such documents at the time of receipt of such notice. Furthermore, each Designated Holder agrees that if such Designated Holder uses a prospectus in connection with the offering and sale of any of the Registrable Securities, the Designated Holder will use only the latest version of such prospectus provided by Company.

ARTICLE III

Transfers of Certain Rights

3.1 Transfer. The rights granted to the Purchaser by the Company under this Agreement to cause the Company to register Registrable Securities may be transferred or assigned (in whole or in part) to the Purchaser’s Affiliates and to the partners of CIC Partners LP, to the extent Registrable Securities are transferred or assigned to such Affiliates or distributed to such partners, and all other rights granted to the Purchaser by the Company hereunder may be transferred or assigned to any such transferee or assignee of Registrable Securities; provided, in each case, that the Purchaser must give written notice of any such transfer or assignment to the Company at the time of, or within a reasonable time after, any such transfer or assignment, stating the name and address of the transferee(s) or assignee(s) and identifying the Registrable Securities with respect to which such registration rights are being transferred or assigned.

3.2 Transferees. Any permitted transferee or assignee to whom rights under this Agreement are transferred or assigned shall, as a condition to such transfer or assignment, deliver to the Company a written instrument by which such transferee or assignee agrees to be bound by the obligations imposed upon the Purchaser under this Agreement to the same extent as if such transferee or assignee were the Purchaser hereunder.

3.3 Subsequent Transferees or Assignees. A transferee or assignees to whom rights are transferred or assigned pursuant to this ARTICLE III may not again transfer or assign such rights to any other person or entity, other than as provided in Section 3.1 or 3.2 above.

ARTICLE IV

Miscellaneous

4.1 Current Public Information. The Company covenants that it will use its best efforts to timely file all reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the SEC thereunder, and will use its best efforts to take such further action as the Purchaser may reasonably request, all to the extent required to enable the holders of Registrable Securities to sell Registrable Securities pursuant to Rule 144 or Rule 144A adopted by the SEC under the Securities Act or any similar rule or regulation hereafter adopted by the SEC. The Company shall, upon the request of a Designated Holder, deliver to such Designated Holder a written statement as to whether it has complied with such requirements during the 12- month period immediately preceding the date of such request.

4.2 Recapitalizations, Exchanges, etc. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the Registrable Securities, (ii) any and all shares of Common Stock into which the Registrable Securities are converted, exchanged or substituted in any recapitalization or other capital reorganization by the Company and (iii) any and all equity securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) that may be issued in respect of, in conversion of, in exchange for or in substitution of, the Registrable Securities and shall be

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appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. The Company shall cause any successor or assign (whether by merger, consolidation, sale of assets or otherwise) to enter into a new registration rights agreement with the Designated Holders on terms substantially the same as this Agreement as a condition of any such transaction.

4.3 No Inconsistent Agreements. The Company has not and shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Purchaser in this Agreement. The Parties acknowledge and agree that the Company has granted registration rights heretofore and may grant registration rights hereafter, which are or shall be pari passu with the registration rights of the Purchaser, and shall not be deemed to conflict with this covenant.

4.4 Amendments and Waivers. The provisions of this Agreement may be amended and the Company may take action herein prohibited, or omit to perform any act herein required to be performed by it, if, but only if, the Company has obtained the written consent of the Majority Holders.

4.5 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid wider applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

4.6 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 instrument.

4.7 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including telecopy, telex or similar writing) and shall be deemed given or made as of the date delivered, if delivered personally or by telecopy (provided that delivery by telecopy shall be followed by delivery of an additional copy personally, by mail or overnight courier), one day after being delivered by overnight courier or four business days after being mailed by registered or certified mail (postage prepaid for the most expeditious form of delivery, return receipt requested), to the parties at the following addresses (or to such other address or telex or telecopy number as a party may have specified by notice given to the other party pursuant to this provision):

If to the Company, to:

Main Street Restaurant Group, Inc.
5050 North 40^th Street, Suite 200,
Phoenix, Arizona
Attention: Chief Financial Officer
Telephone: (602) 852-9000
Facsimile: (602) 852-9076

With copy to:

Greenberg Traurig
2375 East Camelback
Phoenix, Arizona 85016
Attention: Robert Kant
Telephone: (602) 445-8302
Facsimile: (602) 445-8100

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If to a Purchaser, to:

CIC MSRG LP
500 Crescent Court, Suite 250
Dallas, TX 75201
Attention: Fouad Bashour
Telephone: (214) 880-4489
Facsimile: (214) 880-4491

With copy to:

Haynes and Boone, LLP
1221 McKinney, Suite 2100
Houston, Texas 77010
Attention: Edward Rhyne
Telephone: (713) 547-2226
Facsimile: (713) 236-5504

4.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of laws rules or provisions.

4.9 Captions. The captions, headings and arrangements used in this Agreement are for convenience only and do not in any way limit or amplify the terms and provisions hereof.

4.10 No Prejudice. The terms of this Agreement shall not be construed in favor of or against any party on account of its participation in the preparation hereof.

4.11 Words in Singular and Plural Form. Words used in the singular form in this Agreement shall be deemed to import the plural, and vice versa, as the sense may require.

4.12 Remedy for Breach. The Company hereby acknowledges that in the event of any breach or threatened breach by the Company of any of the provisions of this Agreement, the Designated Holders would have no adequate remedy at law and could suffer substantial and irreparable damage. Accordingly, the Company hereby agrees that, in such event, the Designated Holders shall be entitled, and notwithstanding any election by any Designated Holder to claim damages, to obtain a temporary and/or permanent injunction to restrain any such breach or threatened breach or to obtain specific performance of any such provisions, all without prejudice to any and all other remedies which any Designated Holders may have at law or in equity.

4.13 Successors and Assigns, Third Party Beneficiaries. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto, each assignee of the Designated Holders permitted pursuant to ARTICLE III and their respective permitted successors and assigns and executors, administrators and heirs. Designated Holders are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Designated Holders.

4.14 Entire Agreement. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.

4.15 Attorneys’ Fees. In the event of any action or suit based upon or arising out of any actual or alleged breach by any party of any representation, warranty, covenant or agreement in this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and expenses of such action or suit from the other party in addition to any other relief ordered by any court.

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     IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed as of the date and year first written above.

THE COMPANY:

MAIN STREET RESTAURANT GROUP, INC.

By:   /s/ William G. Shrader
Title: President and CEO

PURCHASER:

CIC MSRG LP

By:   /s/ Marshall B. Payne

Title: President of CIC Partners GP LLC,

         General Partner of CIC MSRG LP

-----END PRIVACY-ENHANCED MESSAGE-----

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	1.	Securities Purchase Agreement by and between Main Street Restaurant Group, Inc. and CIC MSRG LP, dated April 27, 2005.

	2.	Common Stock Purchase Warrant issued to CIC MSRG LP by Main Street Restaurant Group, Inc., dated April 27, 2005.

	3.	Registration Rights Agreement by and between Main Street Restaurant Group, Inc. and CIC MSRG LP, dated April 27, 2005.


	CIC MSRG LP
	By:	CIC Partners GP LLC,
		its General Partner


	By:	/s/ Sandy Nelson
		Sandy Nelson
		Chief Administrative Officer


	CIC PARTNERS GP LLC
	By:	/s/ Sandy Nelson
		Sandy Nelson
		Chief Administrative Officer


	MAIN STREET RESTAURANT GROUP, INC.
	By:	/s/ William G. Shrader
	Title: President and CEO


	BUYER: CIC MSRG LP
	By:	/s/ Marshall B. Payne
	Title: President of CIC Partners GP LLC,
	General Partner of CIC MSRG LP


	JURISDICTION: Delaware
	ADDRESS:		500 Crescent Court, Suite 250 Dallas, TX 75201 Telephone: (214) 880-4489 Facsimile: (214) 880-4491


	MAIN STREET RESTAURANT GROUP, INC.
	By:	/s/ William G. Shrader
	Its:	President and CEO
Dated: April 27, 2005


	THE COMPANY: MAIN STREET RESTAURANT GROUP, INC.
	By:	/s/ William G. Shrader
	Title: President and CEO


	PURCHASER: CIC MSRG LP
	By:	/s/ Marshall B. Payne
	Title: President of CIC Partners GP LLC,
	General Partner of CIC MSRG LP