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As filed with the Securities and Exchange Commission on June 11, 1997
Registration No. 333-1600
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
ON
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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SHELLS SEAFOOD RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0427966
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
16313 N. Dale Mabry Highway, Suite 100
Tampa, Florida 33618
(813) 961-0944
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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WILLIAM E. HATTAWAY
President
SHELLS SEAFOOD RESTAURANTS, INC.
16313 N. Dale Mabry Highway, Suite 100
Tampa, Florida 33618
(813) 961-0944
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies of all communications, including all communications sent to the agent for
service, should be sent to:
SHELDON G. NUSSBAUM, ESQ.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
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Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. |_|
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SHELLS SEAFOOD RESTAURANTS, INC.
805,000 Shares of Common Stock
Issuable Upon the Exercise of 805,000 Warrants
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Each Warrant (the "Warrants") entitles the registered holder to
purchase one share of Common Stock, $.01 par value (the "Common Stock"), at a
price of $6.00 per share, subject to adjustment in certain circumstances, at any
time from the date of issuance until April 23, 2001. The Warrants are redeemable
by the Company at any time upon notice of not less than 30 days, at a price of
$.10 per Warrant, provided that the closing sale price of the Common Stock on
all 20 trading days ending on the third day prior to the day on which the
Company gives notice of redemption has been at least $9 per share, constituting
150% of the then effective exercise price of the Warrants.
The Warrants were originally offered and sold to the public in
connection with the Company's initial public offering in April 1996 (the
"Offering") of shares of Common Stock and Warrants. Prior to the Offering, there
was no public market for the Common Stock or the Warrants. The exercise price of
the Warrants was determined by negotiation between the Company and Paragon
Capital Corporation, the underwriter for the Offering (the "Underwriter") and
was not necessarily related to the Company's asset value, net worth, or other
established criteria of value.
The Company's Common Stock and Warrants trade on the Nasdaq Small-Cap
Market ("Nasdaq") under the symbols "SHLL" and "SHLLW," respectively. On June
6, 1997, the closing sale price of the Common Stock and Warrants was $10.625 and
$4.50, respectively.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS." LOCATED ON PAGE 8.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is June ___, 1997
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No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus or a supplement to this Prospectus, and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Company or any other person. Neither this Prospectus nor any
supplement to this Prospectus constitutes an offer to sell or the solicitation
of an offer to buy any securities other than the securities to which it relates
or an offer to sell or the solicitation of an offer to buy such securities in
any circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus or a supplement to this Prospectus nor any sale made
hereunder or thereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or thereof or that the information contained herein or therein is correct
as of any time subsequent to its date.
TABLE OF CONTENTS
Page
Available Information..................................................... 3
Information Incorporated by Reference..................................... 5
The Company............................................................... 6
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 17
Description of Securities................................................. 17
Plan of Distribution...................................................... 20
Legal Matters............................................................. 21
Experts ................................................................. 21
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Proxy statements,
reports and other information concerning the Company can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048, and 500 West Madison Street, Chicago, Illinois 60661, and
copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, at prescribed
rates. Copies of such information may also be inspected at the reading room of
the library of the National Association of Securities Dealers, Inc., 1735 K
Street, Washington, D.C. 20006. This Prospectus does not contain all of the
information set forth in the Registration Statement of which this Prospectus is
a part and exhibits thereto which the Company has filed with the Commission
under the Securities Act and to which reference is hereby made. The Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding the Company and other registrants that file electronically with the
Commission.
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This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement together with exhibits may be inspected at the offices of the
Commission as indicated above without charge and copies thereof may be obtained
therefrom upon payment of a prescribed fee.
Private Securities Litigation Reform Act Safe Harbor Statement. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to Shells
that are based on the beliefs of the management of Shells, as well as
assumptions made by and information currently available to the management of
Shells. When used in this Prospectus, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are intended
to identify forward-looking statements. Such statements reflect the current
views of Shells with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements. For a discussion of such risks,
see "Risk Factors." Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Shells does
not undertake any obligation to publicly release any revisions to these forward
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
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INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission by the Company (File No.
0-28258) pursuant to the Exchange Act are incorporated by reference into this
Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1996;
(ii) The Company's Quarterly Report on Form 10-Q for the quarter
ended March 30, 1997; and
(iii) The Company's Registration Statement on Form 8-A relating to
the Common Stock, as filed with the Securities and Exchange
Commission on April 17, 1996.
All documents and reports subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the securities
offered hereby shall be deemed incorporated by reference into this Prospectus
and to be a part hereof from the date of the filing of such documents or
reports. The information relating to the Company in this Prospectus should be
read together with the information in the documents incorporated by reference.
Any statement contained in a document incorporated by reference herein,
unless otherwise indicated therein, speaks as of the date of the document. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this Prospectus modifies or replaces such statement.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon request, a copy of any or all of the documents
described above, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into such documents. Requests should be
addressed to: Shells Seafood Restaurants, Inc., 16313 N. Dale Mabry Highway,
Suite 100, Tampa, Florida 33618, Attention: President (Tel. No. (813) 961-0944).
The Company furnishes its stockholders with an annual report containing audited
financial statements. In addition, the Company may furnish such other reports as
may be authorized, from time to time, by the Board of Directors.
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The Company
Shells Seafood Restaurants, Inc. (the "Company") manages and operates 33
full service, mid-priced, casual dining seafood restaurants under the name
"Shells," all but one of which are located in Florida. The Shells concept is
designed to appeal to a broad range of customers, particularly families and
young adults, by serving generous portions of high-quality seafood and offering
friendly and efficient service at an attractive price point. Shells restaurants
feature a wide selection of seafood items, including shrimp, oysters, clams,
scallops, lobster, crab, crawfish and daily fresh fish specials, cooked to order
in a variety of ways: steamed, sauteed, grilled, blackened and fried. In
addition, Shells restaurants offer a wide selection of signature pasta dishes,
appetizers, salads and desserts. All restaurants offer full bar service with the
exception of one restaurant which offers beer and wine only. All Shells
restaurants are open for dinner and ten are also open for lunch. Dinner
entrees range in price from $4.95 to $16.95, with an average dinner entree price
of $9.00.
In an effort to increase Shells' name recognition and benefit from customer
loyalty, the Company has developed a prototypical image for its restaurants. The
restaurants are identified by the exterior "Shells" logo sign and a common
interior color scheme and design. Shells restaurants are decorated with a
tropical islands flair, bright colors and cheerful signage, to create a
high-energy, casual atmosphere consistent with the Shells concept. The Company's
commitment to promoting a casual, fun dining experience is underscored by the
design of its menu, which incorporates a variety of nautical caricatures, and by
the colorful "island" shirts worn by the Company's service staff. The Company
believes that the selection and training of its employees result in friendly and
efficient customer service, and contributes to an enjoyable casual dining
experience.
The Company's restaurants average approximately 6,300 square feet in size,
and have an average seating capacity of approximately 210 seats. Average annual
restaurant sales during the year (52 weeks) ended December 29, 1996 for the 17
restaurants open for the full year were approximately $2,188,000. The Company's
food and liquor sales accounted for 87% and 13% of sales, respectively, for the
year (52 weeks) ended December 29, 1996.
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The Company currently owns 28 Shells restaurants, owns a 51% ownership
interest in one Shells restaurant and manages four additional Shells restaurants
pursuant to contractual arrangements. The Company opened 10 restaurants during
1996, including the six restaurants previously owned and operated by Islands
Florida LP, operating as "Islands", which were acquired in November 1996 and
converted and opened as "Shells" restaurants in December 1996. The acquisition
of the six "Islands" restaurants in 1996 was the first opportunity for the
Company to acquire multiple units for conversion to the Shells concept. This
purchase allowed Shells to quickly expand and obtain better operating
efficiencies throughout the South Florida markets. The Company intends to
continue to explore the acquisition of multiple units as part of its expansion
strategy into new markets. In January 1997, the Company opened its 32nd
restaurant in Ocala, Florida and in May 1997, the Company opened its 33rd
restaurant in Florence, Kentucky.
The Company plans to open approximately 8 to 10 additional restaurants
in 1997 in the Florida and Midwest markets and is in various stages of lease
negotiations for sites. The actual number and location of the new restaurant
openings will depend on the Company's ability to execute satisfactory leases or
locate suitable properties for purchase. When opening restaurants outside of
Florida, the Company anticipates focusing on markets that are large enough to
support several restaurants, thereby providing the Company efficiencies in
advertising, supervision, and distribution of food and other supplies within
that market, and the potential to capture a significant percentage of market
share with several restaurants. Since December 1993, the Company has opened 19
and relocated two Shells restaurants, of which 19 were opened or relocated in
existing markets to increase efficiencies in advertising, supervision and
distribution. To the extent that the Company expands its operations outside
Florida, the Company anticipates making minor adjustments to its menu to
accommodate local preferences. The Company believes that it has a sufficient
number of assistant restaurant managers trained and qualified for promotion to
restaurant manager to allow the Company to transfer experienced restaurant
managers to new locations.
The Company has historically converted and renovated existing
restaurants into Shells restaurants in order to minimize initial capital
expenditures. The Company intends to use its existing cash balances, the
proceeds from the exercise of the Warrants contemplated by this Prospectus,
projected cash flows from operations, and, as necessary, third party financing
to implement its expansion strategy.
The Company believes that its ability to select high-traffic, neighborhood
restaurant sites is critical to its expansion strategy and, as a consequence,
focuses on locations in areas with high levels of traffic which are located in
close proximity to heavily populated residential and/or tourist areas. The
Company considers a variety of factors in its site selection process, including
local market demographics, site visibility and accessibility and proximity to
residential neighborhoods, highways and entertainment and tourist centers.
The Company was incorporated under the laws of the State of Florida in
April 1993 and was reincorporated under the laws of the State of Delaware in
April 1996. Effective December 1994, Shells, Inc., a Company incorporated under
the laws of the State of Florida in January 1992, was merged with and into the
Company and became a wholly-owned subsidiary of the Company (the "Merger"). The
Company's executive offices are located at 16313 North Dale Mabry Highway,
Suite 100, Tampa, Florida 33618, and its telephone number is (813) 961-0944.
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RISK FACTORS
The securities being offered hereby involve a high degree of risk.
Prospective investors should review the entire Prospectus and the information
incorporated herein by reference and carefully consider, among other factors,
the matters set forth below. This Prospectus contains forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed below.
Limited Operating History. Although the first Shells restaurant was opened
in 1985, Shells, Inc. was formed in January 1992 as a holding company for the
original Shells restaurants and the Company was formed in April 1993 to
reorganize the operations of the Shells restaurants. Accordingly, the Company
has a limited relevant operating history upon which an evaluation of its
prospects can be made. Such prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in the operation of a new
business in the highly competitive restaurant industry, which is characterized
by a high failure rate.
Prior Losses; Future Operating Results. Prior to 1996 the Company incurred
substantial losses. The Company's future profitability will depend upon, among
other things, corresponding increases in revenues from operations. In addition,
unfavorable economic conditions, including downturns in the economy, resulting
in decreased restaurant dining, could adversely affect the Company's future
operating results. There can be no assurance that the Company's rate of revenue
growth will continue in the future or that the Company's operations will be
profitable.
Significant Capital Requirements; Need for Additional Financing. The
Company's capital requirements have been and will continue to be significant and
its cash requirements have been exceeding its cash flow from operations (at
March 30, 1997, the Company had a working capital deficiency of $1,147,000), due
to, among other things, costs associated with new restaurants and remodeling
existing restaurants as well as the turnover of restaurant inventory relative to
more favorable vendor terms in accounts payable. Additionally, the use of
current assets for investment in leaseholds, land and buildings, and equipment
has also contributed to the deficiency in working capital. The Company believes
that the anticipated proceeds from the exercise of the Warrants contemplated by
this Prospectus, cash flows from operations and funds available from third party
financing ("Third Party Financing"), together with the cash balance of
$3,467,000 at March 30, 1997, will be sufficient to satisfy its contemplated
cash requirements for at least 12 months. The Company's expansion strategy may
be dependent upon obtaining Third Party Financing and achieving projected cash
flow from operations. The Third Party Financing may include, but is not limited
to, traditional lending sources such as bank lines of credit, equipment leasing,
and/or restaurant sale/leaseback arrangements that may be available to the
Company. Third Party Financing may also involve some or all of the Company's
assets being collateralized by a security interest. The Company currently has a
$2,000,000 line of credit of which $1,553,000 was available as of June 1, 1997,
to finance the purchase of restaurant sites. Additionally, the Company has
access to a $1,000,000 line of credit to finance restaurant equipment of which
$624,000 was available for borrowing at June 1, 1997. In the event that the
Company's plans change or its assumptions prove to be inaccurate (due to
unanticipated expenses or construction or other delays or difficulties or
otherwise), or if the anticipated proceeds from the exercise of the Warrants,
Third Party Financing or projected cash flow otherwise prove to be insufficient
to fund operations and fully implement the Company's expansion strategy, the
Company could be required to seek additional financing from sources not
currently anticipated. There can be no assurance that third party financing will
be available to the Company when needed, on acceptable terms, or at all. The
Company has $1,250,000 of principal indebtedness as well as a maximum of
$371,000 of Shells Inc. Preferred Share repurchases due over the next 12 months.
Any inability to obtain Third Party Financing or other additional financing when
required could have a material adverse effect on the Company,
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including requiring the Company to curtail its expansion efforts. Any
additional equity financing may involve substantial dilution to the interests
of the Company's stockholders.
Risks Relating to Proposed Expansion. The Company intends to pursue a
strategy of aggressive growth and will seek to increase significantly the number
of Shells restaurants. However, Shells, Inc. was unsuccessful in the past, and
the Company has limited experience, in effectuating rapid restaurant expansion
and in managing a large number of restaurants or restaurants that are
geographically dispersed. The Company's current business plans indicate an
intent to open 10-12 new Shells restaurants in 1997 in the Florida and Midwest
markets (two of which have already been opened). The Company's proposed
expansion will be dependent on, among other things, existing cash balances,
availability of adequate Third Party Financing, achieving projected cash flow
from operations, market acceptance for the Shells concept in new markets, timely
development and construction of restaurants, securing of required governmental
permits and approvals, the hiring, training and retention of skilled management
and other personnel, the ability to integrate new restaurants into its
operations and the general ability to successfully manage growth, (including
successfully monitoring restaurants, controlling costs, and maintaining
effective quality controls). There can be no assurance that the Company will be
successful in opening the number of restaurants anticipated in a timely manner,
or that, if opened, those restaurants will be operated profitably.
Limited Restaurant Base; Dependence Upon Principal Restaurants. To date, a
substantial portion of the Company's income from operations has been derived
from a limited number of restaurants, in a limited geographic area. The results
achieved to date by the Company's relatively small restaurant base may not be
indicative of the prospects or market acceptance of a larger number of
restaurants or of more geographically dispersed restaurants, located in areas
with more varied demographic characteristics. In light of the Company's small
restaurant base, the lack of success of a Shells restaurant, or the
unsuccessful operation of a new restaurant, could have an adverse effect upon
the financial condition and results of operations of the Company.
Geographic Concentration. As of June 6, 1997, all but one of the current
Shells restaurants are located in Florida, primarily in or near residential
areas, including an aggregate of 28 restaurants concentrated in the Tampa/St.
Petersburg, Orlando, Miami/Ft. Lauderdale and West Palm Beach metropolitan
areas. Given the Company's present geographic concentration, adverse publicity
relating to the Company's restaurants or adverse weather conditions could have
a more pronounced adverse effect on the Company's operating results than might
be the case if the Company's restaurants were more geographically dispersed.
Adverse weather conditions or a decline in tourism in Florida, or in general
economic conditions, which would likely affect the Florida economy or tourism
industry, particularly during the time of peak sales, could have a material
adverse effect on the Company's operations and prospects.
Seasonality. The Company's sales and earnings fluctuate based on seasonal
patterns. The Company has experienced fluctuations in its quarter to quarter
operating results due to various factors, including the seasonal nature of its
business, weather conditions in Florida and the health of Florida's economy in
general and tourism industry in particular. The Company's restaurant sales
increase from January through April and June through August, the peaks of the
Florida tourism season, and generally decrease from September through
mid-December. Because of the seasonality of the Company's business, results for
any quarter are not necessarily indicative of the results that may be achieved
for a full year.
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Difficulties in Procurement of Seafood. Obtaining a reliable supply of
quality seafood at competitive prices is critical to the Company's success. The
Company has formed long-term relationships with several seafood suppliers and
purchases frozen seafood and certain other supplies used in restaurant
operations in bulk. In addition, Shells' menu has been designed to feature
seafood varieties having stable sources of supply, as well as provide
flexibility to adjust to shortages and to take advantage of occasional
purchasing opportunities. The Company believes its diverse menu selection
reduces the risk and minimizes the effect of the shortage of any seafood
products. The Company has been able to anticipate and react to fluctuations in
food costs through selected menu price adjustments, purchasing seafood directly
from numerous suppliers and promoting certain alternative menu selections in
response to availability and price of supply. To date, the Company generally
has not experienced any significant delays in receiving its food and beverage
inventories, restaurant supplies or equipment.
In order to facilitate the distribution of seafood to its restaurants and
minimize the risks relating to storing and distributing seafood, the Company has
entered into a distribution agreement with U.S. Foodservice, Inc. ("U.S. Foods")
(formerly Rykoff-Sexton, Inc.) whereby U.S. Foods purchases from the Company at
cost and takes ownership of all frozen seafood the Company purchases. U.S.
Foods, at its own expense, stores all such seafood at its cold storage
facilities. The Company pays U.S. Foods a carrying cost which represents the
interest expense on the average amount U.S. Foods has invested in the Company's
frozen seafood. Upon the Company's direction, U.S. Foods resells the frozen
seafood to the Company at cost, plus handling and delivery fees, and distributes
the frozen seafood directly to the individual Shells restaurants. In addition,
U.S. Foods procures on behalf of the Company many of the supplies, other than
seafood, used by the restaurants and distributes and sells these products to the
individual restaurants at agreed upon mark-ups. The Company believes that if its
relationship with U.S. Foods was terminated, alternate arrangements for
warehousing and procurement of supplies could be made without a material
interruption of the Company's business. Although the Company believes that its
relationships with its suppliers and U.S. Foods are satisfactory and that
alternate sources are readily available, the loss of certain suppliers or of its
relationship with U.S. Foods, or substantial price increases imposed by such
suppliers in the absence of alternative sources of supply in a timely manner,
could have a material adverse effect on the Company.
Seafood Quality. The Company maintains a continuous inspection program for
all its seafood purchases. Each shipment of frozen seafood is inspected upon
receipt at U.S. Foods distribution center for quality and conformance to the
Company's written specifications prior to delivery to the restaurants. In
addition, fresh fish purchased by the individual restaurants must be purchased
from a Company-approved supplier and is inspected by a restaurant manager at the
time of delivery. The restaurants' employees are educated as to the correct
handling and proper physical characteristics of each product. The Company's area
supervisors, general managers, assistant managers and kitchen managers are all
responsible for properly training hourly employees and ensuring that the
Company's restaurants are operated in accordance with strict health and quality
standards. Compliance with the Company's quality standards is monitored by
on-site visits and formal inspections by the area supervisors. The Company
believes that its inspection procedures and its employee training practices help
the Company to maintain a high standard of quality for the food and service it
provides. The Company believes that it has not experienced any material adverse
effect from contaminated foods. Nevertheless, there can be no assurance that
seafood contamination or consumer perception of inadequate seafood quality, in
the industry in general or as to the Company in particular, will not have a
material adverse effect on the Company's operations and profitability.
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Fluctuations in Food and Other Costs. The Company's profitability is
dependent on its ability to anticipate and react to increases in food, labor,
employee benefits, and similar costs over which the Company has limited control.
Specifically, the Company's dependence on frequent deliveries of seafood and
produce subjects it to the risk of possible shortages or interruptions in supply
caused by adverse weather or other conditions which could adversely affect the
availability and cost of such items. In recent years, the availability of
certain types of seafood has fluctuated, resulting in corresponding
fluctuations, in prices. The Company has been able to anticipate and react to
fluctuations in food costs through selected menu price adjustments, purchasing
seafood directly from numerous suppliers and promoting certain alternative menu
selections in response to price and availability of supply. However, there can
be no assurance that the Company will be able to continue to anticipate and
react to such supply and price fluctuations in the future or that the Company
will not be subject to significantly increased costs in the future. A shortage
of available seafood would cause the Company's cost of sales to increase and,
due to the Company's low pricing structure, could have a material adverse effect
on the Company's operations and profitability. In addition, seafood suppliers
and processors have recently become subject to a program of inspection by the
Food and Drug Administration. This program may increase the Company's seafood
costs due to the increased expense to seafood suppliers and processors in
complying with such a program, which could have a material adverse effect on the
Company's operations and profitability.
Competition. The restaurant industry is intensely competitive with respect
to price, service, location and food quality and variety, and there are many
well-established competitors with substantially greater financial and other
resources than the Company. Such competitors include national, regional and
local full-service casual dining chains, many of which specialize in or offer
seafood products. Some of the Company's competitors have been in existence for
substantially longer periods than the Company and may be better established in
the markets where the Company's restaurants are or may be located. The Company
believes that the full-service casual dining segment is likely to attract a
significant number of new entrants, some offering seafood products. The Company
can also be expected to face competition from a broad range of other
restaurants and food service establishments, including full-service,
quick-service and fast food restaurants which specialize in a variety of
cuisines. While the Company believes that it offers a broad variety of quality
seafood products, there can be no assurance that consumers will regard the
Company's product as sufficiently distinguishable from competitive products,
that substantially equivalent food products will not be introduced by the
Company's competitors or that the Company will be able to compete successfully.
Certain Adverse Factors Affecting the Full-Service Restaurant Industry.
The Company will be required to respond to various factors affecting the
restaurant industry, including changes in consumer preferences, tastes and
eating habits; demographic trends and traffic patterns; increases in food and
labor costs; inflation; and national, regional and local economic conditions.
Recently, a number of full-service restaurant companies have experienced
declining growth rates due to general market saturation, in response to which
certain of these companies have adopted "value pricing" strategies. These
strategies could have the effect of drawing customers away from
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restaurants that do not engage in discount pricing and could also negatively
affect the operating margins of competitors which do attempt to match
competitors' price reductions. Although the Company believes that its products
are generally lower in price than most competitive full-service offerings,
continuing or sustained price discounting in the restaurant industry could have
an adverse effect on the results of operations of the Company.
Government Regulation. The Company is subject to extensive state and local
government regulation by various governmental agencies, including state and
local licensing, zoning, land use, construction and environmental regulations
and various regulations relating to the sale of food and alcoholic beverages,
sanitation, disposal of refuse and waste products, public health, safety and
fire standards. The Company's restaurants are subject to periodic inspections by
governmental agencies to ensure conformity with such regulations. Difficulties
or failure in obtaining required licensing or other regulatory approvals could
delay or prevent the opening of a new restaurant, and the suspension of, or
inability to renew a license at an existing restaurant, would adversely affect
the operations of the Company. Restaurant operating costs are also affected by
other government actions which are beyond the Company's control, including
increases in the minimum hourly wage requirements, workers compensation
insurance rates, health care insurance costs and unemployment and other taxes.
These and other initiatives could adversely affect the Company, as well as the
restaurant industry in general.
Potential Liability for Sale of Alcoholic Beverages. The Company is subject
to "dram-shop" statutes, which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. Florida law
currently provides that a vendor of alcoholic beverages may be held liable in a
civil cause of action for injury or damage caused by or resulting from the
intoxication of a minor (under 21 years of age) if the vendor willfully,
knowingly and unlawfully sells or furnishes alcoholic beverages to the minor and
knows that the minor will soon thereafter be driving a motor vehicle. A vendor
can be similarly held liable if it knowingly provides alcoholic beverages to a
person who is in a noticeable state of intoxication, knows that the person will
soon thereafter be driving a motor vehicle and injury or damage is caused by
that person. In addition, significant national attention is focused on the
problem of drunk driving, which could result in the adoption of additional
legislation and increased potential liability of the Company for damage or
injury caused by its customers.
Possible Infringement of Servicemarks. The Company owns three United States
registrations for the servicemarks that it uses, including the name "Shells."
The Company has also registered its "jumping fish logo" with the United States
Patent and Trademark Office. The Company believes that its servicemarks have
significant value and are essential to its ability to create demand for and
awareness of its restaurants. There can be no assurance, however, that the
Company's servicemarks do not or will not violate the proprietary rights of
others, that they would be upheld if challenged or that the Company, in such an
event, would not be prevented from using its servicemarks, any of which events
could have a material adverse effect on the Company. In addition, there can be
no assurance that the Company will have the financial resources necessary to
enforce or defend its servicemarks.
Potential Inability to Protect Proprietary Information. The Company relies
on trade secrets and proprietary know-how and employs various methods to protect
its concepts and recipes. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop similar know-how or obtain access to the Company's know-how, concepts
and recipes. In the event competitors independently develop or otherwise obtain
access to the Company's know-how, concepts, recipes or trade secrets, the
Company may be adversely effected.
Insurance and Potential Liability. The Company maintains insurance (with
coverage in amounts up to $10,000,000 per occurrence and $10,000,000 in the
aggregate), including insurance relating to personal injury, in amounts which
the Company currently considers adequate. Nevertheless, a partially or
completely uninsured claim against the Company, if successful, could have a
material adverse effect on the Company.
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Dependence on Key Personnel. The success of the Company is largely
dependent upon William E. Hattaway, the Company's President. Although the
Company has entered into a three-year employment agreement with Mr. Hattaway,
expiring on August 1998, the loss of his services could have a material adverse
effect on the Company. The Company has obtained and is the beneficiary of a
$1,700,000 key man life insurance policy on the life of Mr. Hattaway. The
Company's success may also depend upon its ability to attract and retain
qualified management restaurant industry personnel.
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Control by Management. Executive officers and directors of the Company
beneficially will own, in the aggregate, approximately 44.4% of the Company's
outstanding Common Stock (inclusive of 639,696 shares of Common Stock issuable
upon the exercise of options and warrants which are presently exercisable). As a
result, such persons, acting together, will be able to control the Company,
elect all the directors, cause an increase in the capital stock or the
dissolution, merger or sale of the assets of the Company, and generally direct
the affairs of the Company.
Adverse Effect of Substantial Outstanding Options and Warrants. At
June 6, 1997 there were outstanding options and warrants to purchase an
aggregate of 2,393,523 shares of Common Stock, at exercise prices ranging from
$3.15 to $9.50 per share. To the extent that outstanding options or warrants are
exercised, dilution to the interests of the Company's stockholders will occur.
Moreover, the terms upon which the Company will be able to obtain additional
equity may be adversely affected since the holders of the outstanding options
and warrants can be expected to exercise them at a time when, in all likelihood,
the Company would be able to obtain any needed capital on terms more favorable
to the Company than those provided by such securities.
Absence of Dividends. The Company has never paid cash dividends on its
Common Stock and does not anticipate paying such cash dividends in the
foreseeable future. In addition, the Company's existing debt financings have
prohibited the payment of cash dividends and any future financing agreements
may also prohibit the payment of cash dividends.
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Determination of Warrant Exercise Price. The exercise price and other terms
of the Warrants have been determined by negotiations between the Company and the
underwriter of the Common Stock and Warrants sold in the Offering and does not
necessarily reflect the Company's book value or other established criteria of
value.
Volatility of Stock Price. The market price of the Common Stock has been
highly volatile. Factors such as the Company's financial results,
quarter-to-quarter variations in operating results, announcements by the Company
or its competitors, general market trends and various factors affecting the
restaurant industry generally, have had and may continue to have a significant
impact on the market price of the Common Stock. In addition, in recent years,
the stock market has experienced a high level of price and volume volatility and
market prices for the stock of many companies (including emerging growth
companies, the common stock of which trade in the over-the-counter-market) have
experienced wide price fluctuations which have not necessarily been related to
the operating performances of such companies.
Provisions with Potential Anti-Takeover Effect. The Company's Certificate
of Incorporation provides that up to 2,000,000 shares of preferred stock may be
issued by the Company from time to time in one or more series. The Board of
Directors is authorized to determine the rights, preferences, privileges and
restrictions granted to and imposed upon any wholly unissued series of
preferred stock and to fix the number of shares of any series of preferred
stock and the designation of any such series, without any vote or action by the
Company's stockholders. The Board of Directors may authorize and issue
preferred stock with voting, dividend, liquidation, conversion or other rights
that could adversely affect the voting power or other rights of the holders of
Common Stock. In addition, the potential issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of the
Common Stock. Although the Company has no present intention to issue any shares
of its preferred stock, there can be no assurance that the Company will not do
so in the future.
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Limitation of Liability of Directors. As authorized by the Delaware
General Corporation Law (the "GCL"), the Company's Certificate of Incorporation
provides that no director of the Company shall be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases or (iv) for any transaction from which the director
derived an improper personal benefit. The effect of the provision in the
Certificate of Incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the
Company or any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Certificate of Incorporation provides that if the GCL is amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of the directors shall be eliminated or limited to the
fullest extent permitted by the GCL as so amended. These provisions will not
alter any liability of directors under federal securities laws. In addition,
the Company has entered into indemnification agreements with its current
directors and executive officers. These provisions and agreements may have the
practical effect in certain cases of eliminating the ability of stockholders to
collect monetary damages from directors.
Possible Inability to Exercise Warrants. As of the date of this
Prospectus, the securities offered hereby are qualified for sale in California
(subject to certain suitability standards), Colorado, Connecticut, Delaware,
Florida, Georgia, Hawaii, Illinois, Louisiana, Maryland, Nevada, New Jersey,
New York, Rhode Island, Utah, Washington (subject to certain suitability
standards) and Washington, D.C. Accordingly the Common Stock and Warrants will
not be qualified for sale in all jurisdictions. Although certain exemptions in
the securities laws of certain states might permit Warrants to be transferred
to purchasers in states other than those in which the Common Stock and Warrants
were initially qualified, the Company will be prevented from issuing Common
Stock in such states upon exercise of the Warrants unless an exemption from
qualification is available or unless the issuance of Common Stock upon exercise
of the Warrants is qualified. The Company may decide not to seek or may not be
able to obtain qualification of the issuance of such Common Stock in all of the
states in which the holders of the Warrants reside.
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USE OF PROCEEDS
The net proceeds to the Company from the exercise of the Warrants
(including Warrants which may have been exercised prior to the date of this
Prospectus) are estimated to be approximately $4,750,000 (assuming all Warrants
are exercised in full). The Company is expecting approximately an additional
$635,000 in net proceeds from the exercise by certain persons affiliated with
the Company (or associated with such persons) of certain additional Warrants
which are presently outstanding. The Company expects to use the net proceeds of
such exercises in connection with its expansion stragegy and for general
corporate purposes.
DESCRIPTION OF SECURITIES
General
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, and 2,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"), issuable in series
with rights and preferences as designated by the Board of Directors. As of June
6, 1997, the number of shares outstanding of the Registrant's Common Stock
was 3,320,986 which are held by 186 recordholders.
Common Stock
Each holder of Common Stock is entitled to one vote for each share owned
of record on all matters voted upon by stockholders, and a majority vote is
required for all actions to be taken by stockholders. In the event of a
liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets of the Company,
if any, remaining after the payment of all debts and liabilities of the Company
and the liquidation preference of any outstanding Preferred Stock. The Common
Stock has no preemptive rights, no cumulative voting rights and no redemption,
sinking fund or conversion provisions.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of any Preferred Stock that may
be issued and outstanding and subject to any dividend restrictions imposed by
the Company's creditors. No dividend or other distribution (including
redemptions or repurchases of shares of capital stock) may
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be made if, after giving effect to such distribution, the Company would not be
able to pay its debts as they become due in the usual course of business, or
the Company's total assets would be less than the minimum of its total
liabilities plus the amount that would be needed at the time of a liquidation
to satisfy the preferential rights of any holder of Preferred Stock.
The Company has never declared or paid any dividend with respect to the
Common Stock and does not expect to pay dividends in the foreseeable future. If
the Company realizes net profits in the future, its foreseeable policy will be
to retain such earnings for the operation and expansion of its business.
Warrants
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $6.00, subject to adjustment, until 5:00 P.M.
Eastern Standard Time on April 23, 2001.
The Warrants are redeemable by the Company upon 30 days' notice, at a price
of $0.10 per Warrants, provided that the closing bid price of the Common Stock
on all of the 20 trading days ending on the third day prior to the day on which
the Company gives notice has been at least 150% of the then effective exercise
price of the Warrants (or, $9.00 per share). The holders of Warrants called for
redemption have exercise rights until the close of business on the date fixed
for redemption. It is expected that on June 16, 1997, the Company will issue a
notice of redemption, setting July 16, 1997 as the redemption date.
The Warrants have been issued in registered form under a Warrant Agreement
between the Company, the Underwriter and Continental Stock Transfer and Trust
Company as Warrant Agent. Reference is made to said Warrant Agreement for a
complete description of the terms and conditions therein (the description
herein contained being qualified in its entirety by reference thereto).
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date or, if applicable, the date set for redemption
of the Warrants, at the offices of the Warrant Agent, with the exercise form on
the reverse side of the certificate completed and executed as indicated.
Warrants being exercised must be accompanied by full payment of the exercise
price to the Company for the number of Warrants being exercised. The
Warrantholders do not have the rights or privilege of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the shares
of Common Stock issuable upon exercise of such Warrant have been registered or
qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of such Warrant. The Company will use its best efforts
to have all such shares so registered or qualified, although there is no
assurance that it will be able to do so.
Other Outstanding Warrants
The Company currently has outstanding (i) warrants to purchase an
aggregate of 229,904 shares of Common Stock at an exercise price equal to $5.50
(110% of the initial public offering price of the Common Stock), exercisable at
any time up to April 23, 1998 (of which warrants to purchase 39,498 shares and
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16,094 shares of Common Stock are owned by William E. Hattaway, President of the
Company, and Frank C. Roehl, III, Vice President of Marketing of the Company,
respectively) (ii) warrants to purchase an aggregate of 75,000 shares of Common
Stock at an exercise price of $3.75 per share, exercisable at any time on or
prior to December 31, 1999, (all of which warrants are owned by Frederick R.
Adler, the Chairman of the Board and a principal stockholder of the Company),
(iii) warrants to purchase an aggregate of 200,000 shares of Common Stock at an
exercise price of $3.50 per share, exercisable at any time on or prior to
September 19, 2000, (all of which warrants are owned by Mr. Adler or an entity
associated with Mr. Adler), (iv) warrants to purchase an aggregate of 350,000
shares of Common Stock at an exercise price of $3.15 per share, exercisable at
any time on or prior to December 31, 1999, (all of which warrants are owned by
Mr. Adler or an entity associated with Mr. Adler), (v) warrants to purchase an
aggregate of 150,000 shares of Common Stock at an exercise price of $3.50 per
share, exercisable at any time on or prior to February 29, 2001 (all of which
warrants are owned by Mr. Adler or an entity associated with Mr. Adler), (vi)
warrants to purchase an aggregate of 112,376 shares of Common Stock at an
exercise price of $6.00 per share, exercisable at any time on or prior to April
23, 2001, and (vii) warrants to purchase up to 140,000 shares of Common Stock
and up to 70,000 warrants at exercise prices of $6.00 per share and $0.12 per
warrant.
Preferred Stock
The Company's Board of Directors is vested with authority to divide the
authorized shares of Preferred Stock into one or more series of such shares and
to fix and determine the relative rights and preferences of any such series. A
series of such shares may, among other matters, establish (a) the number of
preferred shares to constitute such series and the distinctive designations
thereof; (b) the rate and preference of dividends, if any, the time of payment
of dividends, whether dividends are cumulative and the date from which any
dividend shall accrue; (c) whether preferred shares may be redeemed and, if so,
the redemption price and the terms and conditions of redemption; (d) the
liquidation preferences payable on preferred shares in the event of involuntary
or voluntary liquidation; (e) sinking fund or other provisions, if any, for
redemption or purchase of such preferred shares; (f) the terms and conditions
by which preferred shares may be converted, if the preferred shares of any
series are issued with the privilege of conversion, and (g) voting rights, if
any. The Board of Directors, without the approval of the Company's
stockholders, has the power to authorize the issuance of Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the Common Stock.
Shells, Inc. Preferred Shares
Shells, Inc. currently has issued and outstanding 148,250 shares of its
Shells, Inc. Preferred Shares. Pursuant to the Merger, the Company has agreed
to allow each holder of Shells, Inc. Preferred Shares to put 20% of his or her
shares of Shells, Inc. Preferred Shares to Shells, Inc. on an annual basis,
which commenced on April 23, 1997. The put price would be $10.00 per share of
Shells, Inc. Preferred Shares plus accrued dividends. The Company has also
agreed that it will use the initial proceeds, if any, received from the exercise
of the Shells, Inc. Warrants to redeem the Shells, Inc. Preferred Shares, at a
redemption price of $10.00 per share.
Directors' Liability
The Company's Certificate of Incorporation limits the personal liability of
each director of the Company to the maximum extent permitted under the GCL. See
"Risk Factors--Limitation of Liability of Directors."
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Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and,
therefore, is unenforceable.
Liability Insurance
The Company maintains a policy of insurance under which the directors and
officers of the Company are insured, subject to the limits of the policy,
against certain losses arising from claims made against such directors and
officers by reason of any acts or omissions covered under such policy in their
respective capacities as directors or officers, including liabilities under the
Securities Act.
PLAN OF DISTRIBUTION
Each outstanding Warrant entitles the holder thereof to purchase one share
of Common Stock at a price of $6.00 per share, subject to adjustment, at any
time up to 5:00 p.m. Eastern Standard Time on April 23, 2001. The Warrants are
redeemable by the Company upon 30 days' notice, at a price of $0.10 per Warrant,
provided that the closing bid price of the Common Stock on all of the 20 trading
days ending on the third day prior to the day on which the Company gives notice
has been at least 150% of the then effective exercise price of the Warrants
($9.00 per share). The holders of Warrants called for redemption have exercise
rights until the close of business on the date fixed for redemption. It is
expected that on June 16, 1997, the Company will issue a notice of redemption
setting July 16, 1997 as the redemption date.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date or, if applicable, the date set for redemption
of the Warrants, at the office of the Warrant Agent, with the exercise form on
the reverse side of the certificate completed and executed. Warrants being
exercised must be accompanied by full payment of the exercise price for the
number of Warrants being exercised. The Company does not expect to retain the
services of any third party in connection with the solicitation of the exercise
of the Warrants. See "Description of Securities -- Warrants".
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LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fulbright & Jaworski L.L.P.
Frederick R. Adler, the Chairman of the Company's Board of Directors, is Of
Counsel to Fulbright & Jaworski L.L.P. and beneficially owns 647,284 shares of
the Company's Common Stock and warrants to purchase an additional 462,442
shares.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 29, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 15. Indemnification of Directors and Officers.
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was
unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine that despite the adjudication of liability, such person
is fairly and reasonably entitled to be indemnified for such expenses which the
court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director or
officer of the corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liabilities under such Section 145.
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The Company's Certificate of Incorporation and By-laws provide that the
Company shall indemnify certain persons, including officers, directors,
employees and agents, to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware. The Company has also entered
into indemnification agreements with its current directors and executive
officers. Reference is made to the Certificate of Incorporation, By-laws and
Form of Indemnification Agreement filed as Exhibits 3.1, 3.3 and 10.53,
respectively. The Company's directors and officers are insured against losses
arising from any claim against them as such for wrongful acts or omissions,
subject to certain limitations.
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Item 16. Exhibits
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(a) Exhibits.
1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation.*
3.2 Agreement and Plan of Merger, dated March 31, 1996, by and between Shells Seafood Restaurants,
Inc., a Delaware Corporation, and Shells Seafood Restaurant, Inc., a Florida Corporation.*
3.3 By-laws.*
4.1 Specimen Common Stock Certificate.*
4.2 Specimen Warrant Certificate.*
4.3 Form of Warrant Agreement between Shells Seafood Restaurant, Inc. and Continental Stock
Transfer & Trust Company and Paragon Capital Corporation.*
4.4 Form of Warrant Agreement between Shells Seafood Restaurants, Inc. and Paragon Capital
Corporation.*
5 Opinion of Fulbright & Jaworski L.L.P. regarding legality*
10.1 Employment Agreement, dated September 1, 1995, between William E. Hattaway and Shells
Seafood Restaurants, Inc.*
10.2 Employment Agreement, dated September 2, 1993, between Frank C. Roehl, III and Shells Seafood
Restaurants, Inc.*
10.3 Employment Agreement, dated October 11, 1993, between John R. Ritchey and Shells Seafood
Restaurants, Inc.*
10.4 Employment Agreement, dated May 18, 1993, between Warren R. Nelson and Shells Seafood
Restaurants, Inc.*
10.5 1996 Employee Stock Option Plan.*
10.6 1995 Employee Stock Option Plan, as amended.
10.7 Agreement for Purchase and Sale of Assets, dated May 14, 1993, between Shells Seafood
Restaurants, Inc. and Shells, Inc.*
10.8 Agreement for Assignment of Servicemarks, dated August 19, 1993, between Shells Seafood
Restaurants, Inc. and Shells, Inc.*
10.9 Agreement and Plan of Merger, dated November 16, 1994, by and among Shells Seafood
Restaurants, Inc., Shells Seafood Acquisition, Inc. and Shells, Inc.*
10.10 First Amendment of Agreement and Plan of Merger, dated December 13, 1995, by and among Shells
Seafood Restaurants, Inc., Shells Seafood Acquisition, Inc. and Shells, Inc.*
10.11 Warrant Agreement, dated as of December 29, 1994, relating to warrants to purchase 230,000 shares
of Common Stock, adopted by the Board of Directors of Shells Seafood Restaurants, Inc.*
10.12 Note and Stock Purchase Agreement, dated September 20, 1993, between Commonwealth Associates
Growth Fund, Inc. and Shells Seafood Restaurants, Inc.*
10.13 Intentionally omitted
10.14 Intentionally omitted
</TABLE>
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10.15 Shareholders Agreement, dated September 20, 1993, by and among Cotton Foods, Inc., William E.
Hattaway, Commonwealth Associates Growth Fund, Inc. and Shells Seafood Restaurants, Inc.*
10.16 Note and Warrant Purchase Agreement, dated December 29, 1994, between Shells Seafood
Restaurants, Inc. and Frederick R. Adler and The MicroCap Fund, Inc.*
10.17 Promissory Note in the initial principal amount of $500,000, dated December 29, 1994, by Shells
Seafood Restaurants, Inc. for the benefit of Frederick R. Adler.*
10.18 Promissory Note in the initial principal amount of $500,000, dated December 29, 1994, by Shells
Seafood Restaurants, Inc. for the benefit of The MicroCap Fund, Inc.*
10.19 Security Agreement, dated as of December 29, 1994, between The MicroCap Fund, Inc. and Shells
Seafood Restaurants, Inc.*
10.20 First Amendment to Note and Stock Purchase Agreement and Shareholders Agreement, effective as
of December 29, 1994, by and among Food Properties, Ltd., (as successor in interest to Cotton
Foods, Inc.), William E. Hattaway, The MicroCap Fund, Inc. (formerly known as Commonwealth
Associates Growth Fund, Inc.), and Shells Seafood Restaurants, Inc.*
10.21 Registration Rights Agreement, effective as of December 29, 1994, by and among Frederick R.
Adler, The MicroCap Fund, Inc. and Shells Seafood Restaurants, Inc.*
10.22 Warrant Agreement, dated December 29, 1994, relating to Warrants to purchase 20,000 shares of
Class A Preferred Stock, adopted by the Board of Directors of Shells Seafood Restaurants, Inc.*
10.23 Note and Warrant Purchase Agreement among Shells Seafood Restaurants, Inc., and Frederick R.
Adler, as nominee, dated as of September 19, 1995.*
10.24 Warrant Agreement, dated as of September 19, 1995, relating to Warrants to purchase 200,000 shares
of Common Stock, adopted by the Board of Directors, of Shell Seafood Restaurants, Inc.*
10.25 Security Agreement, dated as of September 19, 1995 by and among Shells Seafood Restaurants, Inc.
and Frederick R. Adler, as nominee and James Monroe.*
10.26 Promissory Note in the initial principal amount of $650,000, dated September 19, 1995, by Shells
Seafood Restaurant, Inc. for the benefit of Frederick R. Adler, as nominee.*
10.27 Promissory Note in the initial principal amount of $100,000, dated September 19, 1995, by Shells
Seafood Restaurant, Inc. for the benefit of James Monroe.*
10.28 Registration Rights Agreement, dated as of September 19, 1995 by and among Shells Seafood
Restaurants, Inc., Frederick R. Adler, as nominee, James Monroe, and any person or entity in whose
name certain warrants are originally registered.*
10.29 Form of Extension Agreement, effective February 1, 1996, by and among Frederick R. Adler, The
MicroCap Fund, Inc. James Monroe and Shells Seafood Restaurants, Inc.*
10.30 Distributor Agreement, dated January, 1995, between Rykoff Sexton and Shells Seafood Restaurants,
Inc.*
10.31 Joint Venture Agreement, dated March 1, 1994, between Shells of Melbourne, Inc. and WLH
Investments, Inc.*
10.32 First Amendment to Joint Venture Agreement, effective as of March 31, 1995 between Shells of
Melbourne, Inc. and WLH Investments, Inc.*
10.33 Promissory Note in the initial principal amount of $400,000, dated March 8, 1994, by Shells, Inc.
for the benefit of WLH Investments, Inc.*
10.34 Management and License Agreement, dated March 1, 1994, between Shells of Melbourne Joint Venture
and Shells Seafood Restaurants, Inc.*
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.35 Consulting Agreement, dated September 1, 1993, between Jupiter Marine, Inc. and Shells Seafood
Restaurants, Inc.*
10.36 Termination Agreement, dated December 29, 1994, between Jupiter Marine, Inc. and Shells Seafood
Restaurants, Inc.*
10.37 Management and License Agreement dated July 29, 1993, between Shells of Carrollwood Village,
Inc. and Shells Seafood Restaurants, Inc., as amended.*
10.38 Management and License Agreement, dated July 28, 1993, between Shells of North Tampa, Inc. and
Shells Seafood Restaurants, Inc., as amended.*
10.39 Management and License Agreement, dated July 29, 1993, between Shells of Sarasota South, Inc.
and Shells Seafood Restaurants, Inc., as amended.*
10.40 Amended Option Agreement dated August 10, 1995 between Shells Seafood Restaurants, Inc. and
Shells of Carrollwood Village, Inc.*
10.41 Amended Option Agreement, dated August 11, 1995 between Shells Seafood Restaurants, Inc. and
Shells of North Tampa, Inc.*
10.42 Amended Option Agreement, dated August 16, 1995 by and between Shells Seafood Restaurants,
Inc. and Shells of Sarasota South, Inc.*
10.43 Agreement for Consulting and Management Services and Licensing of Service Marks, dated
October 4, 1989 by and between Ursula Colland and Shells of Daytona Beach, Inc., as amended by the
Stipulation of Settlement dated December 2, 1994.*
10.44 Asset Purchase Agreement, dated September 30, 1994 between Shells of St. Pete Beach, Inc. and the
Bleckley Corporation.*
10.45 Assignment Agreement, dated September 30, 1994 between Shells of St. Pete Beach, Inc. and the
Bleckley Corporation.*
10.46 Promissory Note in the initial principal amount of $540,000, dated September 30, 1994 by Shells of
St. Pete Beach, Inc. for the benefit of The Bleckley Corporation.*
10.47 Continuing and Unconditional Guaranty by Shells Seafood Restaurants, Inc. for the benefit of The
Bleckley Corporation.*
10.48 Security Agreement, dated September 30, 1995 between Shells of St. Pete Beach, Inc. and the
Bleckley Corporation.*
10.49 Loan and Security Agreement, dated December 22, 1993 between Shells of Altamonte Springs, Inc.
and Altavest, Inc.*
10.50 Promissory Note in the initial principal amount of $150,000, dated December 22, 1993 by Shells of
Altamonte Springs, Inc. for the benefit of Altavest, Inc.*
10.51 Assignment Agreement, dated November 1, 1993 between Shells of Countryside Square, Inc. and
Clearwater Food Service, Inc.*
10.52 Promissory Note in the initial principal amount of $500,000, dated November 1, 1993 by Shells of
Country Side Square, Inc. for the benefit of Clearwater Food Service, Inc.*
10.53 Form of Directors Indemnification Agreement.*
10.54 Form of Extension Agreement, effective March 30, 1996 by and among Frederick R. Adler, The
MicroCap Fund, Inc., Longview Partners, L.P. and Shells Seafood Restaurants, Inc.*
10.55 Form of Amended and Restated Common Stock Warrant Agreement, effective as of February 1,
1996.*
10.56 Promissory Note in the principal amount of $453,000, dated September 4, 1996 by Shells Seafood
Restaurants, Inc. for the benefit of Huntington National Bank of Florida.+
10.57 Line of Credit for $2,000,000 dated July 18, 1996 by Shells Seafood Restaurants, Inc. for the
benefit of First Union National Bank of Florida.+
10.58 Agreement for the purchase and sale of leases, leasehold improvements, restaurant assets, assigned
contracts and restaurant licenses by Shells Seafood Restaurants, Inc. for the benefit of Islands
Florida LP.+
10.59 Stock Option Plan for Non-Employee Directors.
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
21 Subsidiaries of the Registrant.*
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).*
24 Power of Attorney for Directors (included on signature page).*
</TABLE>
- ------------
* Previously filed.
+ Previously filed with the Securities and Exchange Commission as Exhibits to,
and incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1996 (File No. 0-28258)
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-6
<PAGE>
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriter during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriter, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriter is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person of the
Registrant in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Tampa, State of Florida on June 9, 1997.
SHELLS SEAFOOD RESTAURANTS, INC.
/s/ By: WILLIAM E. HATTAWAY
---------------------------------
William E. Hattaway
President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints William E. Hattaway and Warren R. Nelson,
his true and lawful attorney-in-fact, each acting alone, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments including post-effective
amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
President and Director (Principal June 9, 1997
/s/ WILLIAM E. HATTAWAY Executive Officer)
-----------------------
William E. Hattaway
/s/ WARREN R. NELSON Vice President of Finance and Chief June 9, 1997
----------------------- Financial Officer, Treasurer and Secretary
Warren R. Nelson (Principal Financial and Accounting
Officer)
/s/ FREDERICK R. ADLER* Director June 9, 1997
-----------------------
Frederick R. Adler
/s/ PHILIP R. CHAPMAN Director June 9, 1997
-----------------------
Philip R. Chapman
/s/ KAMAL MUSTAFA* Director June 9, 1997
-----------------------
Kamal Mustafa
/s/ JAY S. NICKSE* Director June 9, 1997
-----------------------
Jay S. Nickse
/s/ EDWIN F. RUSSO* Director June 9, 1997
-----------------------
Edwin F. Russo
</TABLE>
/s/ WILLIAM E. HATTAWAY
*By: --------------------------
(William E. Hattaway as
Attorney-in-Fact for
each of the persons indicated)
II-8
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose.
The purpose of this Stock Option Plan for Non-Employee Directors (the
"Plan") of Shells Seafood Restaurants, Inc. (the "Corporation") is to
strengthen the Corporation's ability to attract and retain the services of
knowledgeable and experienced persons who, through their efforts and expertise,
can make a significant contribution to the success of the Corporation's
business by serving as members of the Corporation's Board of Directors and to
provide additional incentive for such directors to continue to work for the
best interests of the Corporation and its stockholders through ownership of
its Common Stock, $.01 par value (the "Common Stock"). Accordingly, the
Corporation will grant to each non-employee director options to purchase shares
of the Corporation's Common Stock on the terms and conditions hereafter
established.
2. Stock Subject to Plan.
The Company may issue and sell a total of 100,000 shares of its Common
Stock pursuant to the Plan. Such shares may be either authorized and unissued
or held by the Company in its treasury. New options may be granted under the
Plan with respect to shares of Common Stock which are covered by the
unexercised portion of an option which has terminated or expired by its terms,
by cancellation or otherwise.
3. Administration of the Plan.
The Plan shall be administered by the Board of Directors of the
Corporation (the "Board"). The interpretation and construction by the Board of
any provisions of the Plan or of any other matters related to the Plan shall be
final. The Board may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem advisable. No member of the Board shall be
liable for any action or determination made in good faith with respect to the
Plan.
The Board of Directors may at any time amend, alter, suspend or terminate
the Plan; provided, however, that any such action would not impair any option
to purchase Common Stock theretofore granted under the Plan; and provided
further that without the approval of the Corporation's stockholders, no
amendments or alterations would be made which would (i) increase the number of
shares of Common Stock that may be purchased by each non-employee director
under the Plan (except as permitted by Paragraph 10), (ii) increase the
aggregate number of shares of Common Stock as to which options may be granted
under the Plan (except as permitted by Paragraph 10), (iii) decrease the option
exercise price (except as permitted by Paragraph 10), or (iv) extend the period
during which outstanding options granted under the Plan may be exercised; and
provided further that Paragraph 5 of the Plan shall not be amended more than
once every six months other than to comply with changes in the Internal Revenue
Code of 1986, as amended, or the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder.
4. Eligibility.
All non-employee directors of the Corporation shall be eligible to receive
options under the Plan. Receipt of stock options under any other stock option
plan maintained by the Corporation or any subsidiary shall not, for that
reason, preclude a director from receiving options under the Plan.
<PAGE>
5. Grants.
(i) Each person who is a non-employee director at the time the Plan is
adopted by the Board, and any person who is not a non-employee director at such
time but who later becomes a non-employee director, shall on the date of such
adoption of the Plan or appointment to the Board, as applicable (the "Initial
Grant Date"), be issued an option to purchase 2,000 shares of the Corporation's
Common Stock (the "Initial Option") at the following price for the following
term and otherwise in accordance with the terms of the Plan:
(a) The option exercise price per share of Common Stock shall be the
Fair Market Value (as defined below) of the Common Stock covered by such
Initial Option on the Initial Grant Date.
(b) Except as provided herein, the term of an Initial Option shall be
for a period of ten (10) years from the Initial Grant Date.
(ii) In addition, each non-employee director shall, on each anniversary of
the Initial Grant Date (the "Additional Grant Date"), if he is still a
non-employee director on such date, be granted an option to purchase 2,000
shares of the Corporation's Common Stock (the "Additional Option"; and together
with the Initial Option, being referred to herein as an "Option") at the
following price for the following term and otherwise in accordance with the
terms of the Plan:
(a) The option exercise price per share of Common Stock shall be the
Fair Market Value (as defined below) of the Common Stock covered by such
Additional Option on the Additional Grant Date.
(b) Except as provided herein, the term of an Additional Option shall be
for a period of ten (10) years from the Additional Grant Date.
(iii) "Fair Market Value" shall mean, for each Grant Date, (A) if the
Common Stock is listed or admitted to trading on the New York Stock Exchange
(the "NYSE") or the American Stock Exchange (the "ASE"), the average of the
high and low sale price of the Common Stock on such date or, if no sale takes
place on such date, the average of the highest closing bid and lowest closing
asked prices of the Common Stock on such exchange, in each case as officially
reported on the NYSE or the ASE, or (B) if no shares of Common Stock are then
listed or admitted to trading on the NYSE or the ASE, the average of the high
and low sale prices of the Common Stock on such date on the NASDAQ National
Market System or, if no shares of Common Stock are then quoted on the NASDAQ
National Market System, the average of the closing bid and highest asked prices
of the Common Stock on such date on NASDAQ or, if no shares of Common Stock are
then quoted on NASDAQ, the average of the highest bid and lowest asked prices
of the Common Stock on such date as reported in the over-the-counter system. If
no closing bid and highest asked prices thereof are then so quoted or published
in the over-the-counter market, "Fair Market Value" shall mean the fair value
per share of Common Stock (assuming for the purposes of this calculation the
economic equivalence of all shares of classes of capital stock), as determined
on a fully diluted basis in good faith by the Board, as of a date which is 15
days preceding such Grant Date.
(iv) Options granted hereunder shall not be "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
6. Regulatory Compliance and Listing.
The issuance or delivery of any Option may be postponed by the Corporation
for such period as may be required to comply with the Federal securities laws,
any applicable listing requirements of any applicable secur-
<PAGE>
ities exchange and any other law or regulation applicable to the issuance or
delivery of such Options, and the Corporation shall not be obligated to issue
or deliver any Options if the issuance or delivery of such options would
constitute a violation of any law or any regulation of any governmental
authority or applicable securities exchange.
7. Restrictions on Exercisability and Sale.
Each Option granted under the Plan may be exercisable as to 50% of the
total number of shares issuable under such Option on each of the two successive
anniversaries of the Initial Grant Date or Additional Grant Date, as
applicable, of such Option.
8. Cessation as Director.
In the event that the holder of an Option granted pursuant to the Plan
shall cease to be a director of the Corporation for any reason such holder may
exercise any portion of the Option that is exercisable by him or her at the
time he or she ceases to be a director of the Corporation, but only to the
extent such Option is exercisable as of such date, within six months after the
date he or she ceases to be a director of the Corporation.
9. Death.
In the event that a holder of an Option granted pursuant to the Plan shall
die, his or her estate, personal representative or beneficiary may exercise any
portion of the Option that was exercisable by the deceased Optionee at the time
of his or her death, but only to the extent such Option is exercisable as of
such date, within twelve months after the date of his or her death.
10. Stock Splits, Mergers, etc.
In the event of any stock split, stock dividend or similar transaction
which increases or decreases the number of outstanding shares of Common Stock,
appropriate adjustment shall be made by the Board of Directors, whose
determination shall be final, to the number and option exercise price per share
of Common Stock which may be purchased under any outstanding Options. In the
case of a merger, consolidation or similar transaction which results in a
replacement of the Corporation's Common Stock for stock of another corporation,
the Corporation will make a reasonable effort, but shall not be required, to
replace any outstanding Options granted under the Plan with comparable options
to purchase the stock of such other corporation, or will provide for immediate
maturity of all outstanding Options, with all Options not being exercised
within the time period specified by the Board of Directors being terminated.
11. Transferability.
Options are not assignable or transferable, except upon the optionholder's
death to a beneficiary designated by the optionee in accordance with procedures
established by the Board or, if no designated beneficiary shall survive the
optionholder, pursuant to the optionholder's will or by the laws of descent and
distribution, to the extent set forth in Section 9 and during the
optionholder's lifetime, may be exercised only by him or her.
12. Exercise of Options.
An optionholder electing to exercise an Option shall give written notice
to the Corporation of such election and of the number of shares of Common Stock
that he or she has elected to acquire. An optionholder shall have no rights of
a stockholder with respect to shares of Common Stock covered by his or her
Option until after the date of issuance of a stock certificate to such
optionholder upon partial or complete exercise of his or her Option.
<PAGE>
13. Payment.
The Option exercise price shall be payable in cash, check or in shares of
Common Stock upon the exercise of the Option. If the shares of Common Stock are
tendered as payment of the Option exercise price, the value of such shares
shall be the Fair Market Value as of the date of exercise. If such tender would
result in the issuance of fractional shares of Common Stock, the Corporation
shall instead return the difference in cash or by check to the electing
optionee.
14. Obligation to Exercise Option.
The granting of an Option shall impose no obligation on the director to
exercise such option.
15. Continuance as Director.
Nothing in the Plan shall be deemed to create any obligation on the part
of the Board to nominate any director for re-election by the Corporation's
stockholders.
16. Term of Plan.
The Plan shall be effective as of the date on which it is adopted by the
Board, subject to the approval of the stockholders of the Company within one
year from the date of adoption by the Board. The Plan will terminate on the
date ten years after the date of adoption by the Board, unless sooner
terminated by the Board. The rights of optionees under Options outstanding at
the time of the termination of the Plan shall not be affected solely by reason
of the termination and shall continue in accordance with the terms of the
Option (as then in effect or thereafter amended).
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
1995 EMPLOYEE STOCK OPTION PLAN
1. Purpose. The purpose of the Shells Seafood Restaurants, Inc. 1995
Employee Stock Option Plan (the "Plan") is to enable Shells Seafood
Restaurants, Inc. (the "Company") and its stockholders to secure the benefits
of common stock ownership by executive officers of the Company and its
subsidiaries. The Board of Directors of the Company (the "Board") believes that
the granting of options under the Plan will foster the Company's ability to
attract, retain and motivate those individuals who will be largely responsible
for the profitability and long-term future growth of the Company.
2. Stock Subject to the Plan. The Company may issue and sell a total of
340,000 shares of its common stock, $.01 par value (the "Common Stock"),
pursuant to the Plan. Such shares may be either authorized and unissued or held
by the Company in its treasury. New options may be granted under the Plan with
respect to shares of Common Stock which are covered by the unexercised portion
of an option which has terminated or expired by its terms, by cancellation or
otherwise.
3. Administration. The Plan will be administered by the Board or a
committee (the "Committee") consisting of at least two directors appointed by
and serving at the pleasure of the Board. Unless the Board determines
otherwise, the members of the Committee are to be "disinterested directors"
within the meaning and for the purposes of Rule 16(b)-3 under the Securities
Exchange Act of 1934. Subject to the provisions of the Plan, the Committee,
acting in its sole and absolute discretion, will have full power and authority
to grant options under the Plan, to interpret the provisions of the Plan, to
fix and interpret the provisions of option agreements made under the Plan, to
supervise the administration of the Plan, and to take such other action as may
be necessary or desirable in order to carry out the provisions of the Plan. A
majority of the members of the Committee will constitute a quorum. The
Committee may act by the vote of a majority of its members present at a meeting
at which there is a quorum or by unanimous written consent. The decision of the
Committee as to any disputed question, including questions of construction,
interpretation and administration, will be final and conclusive on all persons.
The Committee will keep a record of its proceedings and acts and will keep or
cause to be kept such books and records as may be necessary in connection with
the proper administration of the Plan.
4. Eligibility. Options may be granted under the Plan to present or future
executive officers of the Company or a subsidiary of the Company (a
"Subsidiary") within the meaning of Section 424(f) of the Internal Revenue Code
of 1986 (the "Code"). Subject to the provisions of the Plan, the Committee may
from time to time select the persons to whom options will be granted, and will
fix the number of shares covered by each such option and establish the terms
and conditions thereof (including, without limitation, exercise price and
restrictions on exercisability of the option or on the shares of Common Stock
issued upon exercise thereof and whether or not the option is to be treated as
an incentive stock option within the meaning of Section 422 of the Code (an
"Incentive Stock Option").
5. Terms and Conditions of Options. Each option granted under the Plan
will be evidenced by a written agreement in a form approved by the Committee.
Each such option will be subject to the terms and conditions set forth in this
paragraph and such additional terms and conditions not inconsistent with the
Plan (and, in the case of an Incentive Stock Option, not inconsistent with the
provisions of the Code applicable thereto) as the Committee deems appropriate.
<PAGE>
(a) Option Exercise Price. In the case of an option which is not treated
as an Incentive Stock Option, the exercise price per share may not be less than
the par value of a share of Common Stock on the date the option is granted;
and, in the case of an Incentive Stock Option, the exercise price per share may
not be less than 100% of the fair market value of a share of Common Stock on
the date the option is granted (110% in the case of an optionee who, at the
time the option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or a Subsidiary (a
"ten percent shareholder")). For purposes hereof, the fair market value of a
share of Common Stock on any date will be equal to the closing sale price per
share as published by a national securities exchange on which shares of the
Common Stock are traded on such date or, if there is no sale of Common Stock on
such date, the average of the bid and asked prices on such exchange at the
closing of trading on such date or, if shares of the Common Stock are not
listed on a national securities exchange on such date, the closing price or, if
none, the average of the bid and asked prices in the over the counter market at
the close of trading on such date, or if the Common Stock is not traded on a
national securities exchange or the over the counter market, the fair market
value of a share of the Common Stock on such date as determined in good faith
by the Committee.
(b) Option Period. The period during which an option may be exercised will
be fixed by the Committee and will not exceed 10 years from the date the option
is granted (5 years in the case of an Incentive Stock Option granted to a "ten
percent shareholder").
(c) Exercise of Options. No option will become exercisable unless the
person to whom the option was granted remains in the continuous employ or
service of the Company or a Subsidiary for at least one year (or for such other
period as the Committee may designate) from the date the option is granted.
Subject to earlier termination of the option as provided herein, unless the
Committee determines otherwise, the option will become exercisable in
accordance with the following schedule based upon the number of full years of
the optionee's continuous employment or service with the Company or a
Subsidiary following the date of grant:
<TABLE>
<CAPTION>
Full Years of Continuous Incremental Percentage of Cumulative Percentage of
Employment/Service Option Exercisable Option Exercisable
- -------------------------- --------------------------- -------------------------
<S> <C> <C>
Less than 1 0 % 0 %
1 33.3% 33.3%
2 33.3% 66.6%
3 or more 33.3% 100%
</TABLE>
All or part of the exercisable portion of an option may be exercised at any
time during the option period, except that, without the consent of the
Committee, no partial exercise of an option may be for less than 100 shares. An
option may be exercised by transmitting to the Company (1) a written notice
specifying the number of shares to be purchased, and (2) payment of the
exercise price (or, if applicable, delivery of a secured obligation therefor),
together with the amount, if any, deemed necessary by the Committee to enable
the Company to satisfy its income tax withholding obligations with respect to
such exercise (unless other arrangements acceptable to the Company are made
with respect to the satisfaction of such withholding obligations).
(d) Payment of Exercise Price. The purchase price of shares of Common
Stock acquired pursuant to the exercise of an option granted under the Plan may
be paid in cash and/or such other form of payment as may be permitted under the
option agreement, including, without limitation, previously-owned shares of
Common Stock. The Committee may permit the payment of all or a portion of the
purchase price in installments (together with interest) over a period of not
more than 5 years.
(e) Rights as a Stockholder. No shares of Common Stock will be issued in
respect of the exercise of an option granted under the Plan until full payment
therefor has been made (and/or provided for where all or a por
<PAGE>
tion of the purchase price is being paid in installments). The holder of an
option will have no rights as a stockholder with respect to any shares covered
by an option until the date a stock certificate for such shares is issued to
him or her. Except as otherwise provided herein, no adjustments shall be made
for dividends or distributions of other rights for which the record date is
prior to the date such stock certificate is issued.
(f) Nontransferability of Options. No option shall be assignable or
transferrable except upon the optionee's death to a beneficiary designated by
the optionee in accordance with procedures established by the Committee or, if
no designated beneficiary shall survive the optionee, pursuant to the
optionee's will or by the laws of descent and distribution. During an
optionee's lifetime, options may be exercised only by the optionee or the
optionee's guardian or legal representative.
(g) Termination of Employment or Other Service. If an optionee ceases to
be employed by or to perform services for the Company and any Subsidiary for
any reason other than death or disability (defined below), then each
outstanding option granted to him or her under the Plan will terminate on the
date three months after the date of such termination of employment or service
or on such other date as may be specified in the option agreement. If an
optionee's employment or service is terminated by reason of the optionee's
death or disability (or if the optionee's employment or service is terminated
by reason of his or her disability and the optionee dies within one year after
such termination of employment or service), then each outstanding option
granted to the optionee under the Plan will terminate on the date one year
after the date of such termination of employment or service (or one year after
the later death of a disabled optionee) or on such other date as may be
specified in the option agreement. For purposes hereof, the term "disability"
means the inability of an optionee to perform the customary duties of his or
her employment or other service for the Company or a Subsidiary by reason of a
physical or mental incapacity which is expected to result in death or be of
indefinite duration.
(h) Other Provisions. The Committee may impose such other conditions with
respect to the exercise of options, including, without limitation, any
conditions relating to the application of federal or state securities laws, as
it may deem necessary or advisable.
6. Capital Changes, Reorganization, Sale.
(a) Adjustments Upon Changes in Capitalization. The aggregate number and
class of shares for which options may be granted under the Plan, the number and
class of shares covered by each outstanding option and the exercise price per
share shall all be adjusted proportionately for any increase or decrease in the
number of issued shares of Common Stock resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
(b) Cash, Stock or Other Property for Stock. Except as otherwise provided
in this subparagraph, in the event of an Exchange Transaction (as defined
below), all optionees will be permitted to exercise their outstanding options
(whether or not otherwise exercisable) subject to and effective upon the
consummation of the Exchange Transaction, and any outstanding options not so
exercised before the consummation of the Exchange Transaction will thereupon
terminate. Notwithstanding the preceding sentence, if, as part of the Exchange
Transaction, the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock"), and if the Board, in its sole discretion, so
directs, then all outstanding options will be converted into options to
purchase shares of Exchange Stock. The amount and price of the converted
options will be determined by adjusting the amount and price of the options
granted hereunder on the same basis as the determination of the number of
shares of Exchange Stock the holders of Common Stock will receive in the
Exchange Transaction.
(c) Definition of Exchange Transaction. For purposes hereof, the term
"Exchange Transaction" means a merger (other than a merger of the Company in
which the holders of Common Stock immediately prior to the
<PAGE>
merger have the same proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of the
Company, as a result of which the Shareholders of the Company receive cash,
stock or other property in exchange for or in connection with their shares of
Common Stock.
(d) Fractional Shares. In the event of any adjustment in the number of
shares covered by any option pursuant to the provisions hereof, any fractional
shares resulting from such adjustment will be disregarded and each such option
will cover only the number of full shares resulting from the adjustment.
(e) Determination of Board to be Final. All adjustments under this
paragraph 6 shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
7. Amendment and Termination of the Plan. The Board may amend or terminate
the Plan. Except as otherwise provided in the Plan with respect to equity
changes, any amendment which would increase the aggregate number of shares of
Common Stock as to which options may be granted under the Plan, materially
increase the benefits under the Plan, or modify the class of persons eligible
to receive options under the Plan shall be subject to the approval of the
holders of a majority of the Common Stock issued and outstanding. No amendment
or termination may affect adversely any outstanding option without the written
consent of the optionee.
8. No Rights Conferred. Nothing contained herein will be deemed to give
any individual any right to receive an option under the Plan or to be retained
in the employ or service of the Company or any Subsidiary.
9. Governing Law. The Plan and each option agreement shall be governed by
the laws of the State of Delaware.
10. Decisions and Determinations of Committee to be Final. Except to the
extent rights or powers under this Plan are reserved specifically to the
discretion of the Board, all decisions and determinations of the Committee are
final and binding.
11. Term of the Plan. The Plan shall be effective as of September 11,
1995, the date on which it was adopted by the Board, subject to the approval of
the stockholders of the Company, which approval was granted during March, 1996.
The Plan will terminate on September 10, 2005, the date ten years after the
date of adoption by the Board, unless sooner terminated by the Board. The
rights of optionees under options outstanding at the time of the termination of
the Plan shall not be affected solely by reason of the termination and shall
continue in accordance with the terms of the option (as then in effect or
thereafter amended).
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INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 1 to Form S-1 to Registration Statement No. 333-1600 of Shells
Seafood Restaurants, Inc., (the "Company") on Form S-3 of our report dated
February 21, 1997, appearing in the Annual Report on Form 10-K of the
Company for the year ended December 29, 1996 and to the reference to us under
the heading "Experts" in the Prospectus, which is part of such Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
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Tampa, Florida
June 10, 1997
