SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the
[X] Definitive Proxy Statement Commission only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2)).
[ ] Soliciting Material Pursuant to /ss/240.14a-11(c) or /ss/240.14a-12
SHELLS SEAFOOD RESTAURANTS, INC.
----------------------------------------------
(Name of Registrant as Specified in its Charter)
SHELLS SEAFOOD RESTAURANTS, INC.
-----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement) Payment of Filing
Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee previously paid with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
16313 N. DALE MABRY HIGHWAY
SUITE 100
TAMPA, FLORIDA 33618
April 9, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Company's Annual Meeting of
Stockholders to be held at 2:00 p.m., on Thursday, May 14, 1998, at The
Metropolitan Club, 1 East 60th Street, New York, New York.
At the Annual Meeting of Stockholders, you are being asked to vote on
electing six directors to the Company's Board of Directors. In addition, I will
be pleased to report on the affairs of the Company and a discussion period will
be provided for questions and comments of general interest to stockholders.
We look forward to greeting personally those stockholders who are able to
be present at the meeting; however, whether or not you plan to be with us at the
meeting, it is important that your shares be represented. Accordingly, you are
requested to sign and date the enclosed proxy and mail it in the envelope
provided at your earliest convenience.
Thank you for your cooperation.
Very truly yours,
/s/ WILLIAM E. HATTAWAY
-----------------------
William E. Hattaway
PRESIDENT
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
April 9, 1998
Notice is hereby given that the Annual Meeting of Stockholders of Shells
Seafood Restaurants, Inc., will be held on Thursday, May 14, 1998, at 2:00 p.m.,
at The Metropolitan Club, 1 East 60th Street, New York, New York for the
following purposes:
(1) To elect six directors to serve for the ensuing year; and
(2) To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Stockholders of record at the close of business on March 31, 1998 will be
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. Stockholders who are unable to attend the Annual Meeting in person are
requested to complete and date the enclosed form of proxy and return it promptly
in the envelope provided. No postage is required if mailed in the United States.
Stockholders who attend the Annual Meeting may revoke their proxy and vote their
shares in person.
Warren R. Nelson
SECRETARY
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
16313 N. DALE MABRY HIGHWAY
SUITE 100
TAMPA, FLORIDA 33618
---------------------
PROXY STATEMENT
-----------------------
GENERAL INFORMATION
PROXY SOLICITATION
This Proxy Statement is furnished to the holders of Common Stock, par value
$.01 per share (the "Common Stock"), of Shells Seafood Restaurants, Inc. (the
"Company") in connection with the solicitation by the Board of Directors of the
Company of proxies for use at the Annual Meeting of Stockholders to be held on
Thursday, May 14, 1998, or at any adjournment thereof, pursuant to the
accompanying Notice of Annual Meeting of Stockholders. The purpose of the
meeting and the matters to be acted upon are set forth in the accompanying
Notice of Annual Meeting of Stockholders. The Board of Directors is not
currently aware of any other matters which will come before the meeting.
Proxies for use at the Annual Meeting are being solicited by the Board of
Directors of the Company. Proxies will be mailed to stockholders on or about
April 9, 1998 and will be solicited chiefly by mail; however certain officers,
directors, employees and agents of the Company, none of whom will receive
additional compensation therefor, may solicit proxies by telephone, telegram or
other personal contact. The Company will bear the cost of the solicitation of
the proxies, including postage, printing and handling, and will reimburse the
reasonable expenses of brokerage firms and others for forwarding material to
beneficial owners of shares of Common Stock.
REVOCABILITY AND VOTING OF PROXY
A form of proxy for use at the Annual Meeting of Stockholders and a return
envelope for the proxy are enclosed. Stockholders may revoke the authority
granted by their execution of proxies at any time before their effective
exercise by filing with the Secretary of the Company a written notice of
revocation or a duly executed proxy bearing a later date, or by voting in person
at the meeting. Shares of the Common Stock represented by executed and unrevoked
proxies will be voted in accordance with the choice or instructions specified
thereon. If no specifications are given, the proxies intend to vote the shares
represented thereby "for" the election of all listed nominees for director and
in accordance with their best judgment on any other matters which may properly
come before the meeting.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on March 31, 1998 are
entitled to notice of and to vote at the Annual Meeting or any and all
adjournments thereof. On March 31, 1998, there were 4,227,062 shares of Common
Stock outstanding; each such share is entitled to one vote on each of the
matters to be presented at the Annual Meeting. The holders of a majority of the
outstanding shares of Common Stock, present in person or by proxy and entitled
to vote, will constitute a quorum at the
<PAGE>
Annual Meeting. Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum. "Broker non-votes" are shares
held by brokers or nominees which are present in person or represented by proxy,
but which are not voted on a particular matter because instructions have not
been received from the beneficial owner. Under applicable Delaware law, the
effect of broker non-votes on a particular matter depends on whether the matter
is one as to which the broker or nominee has discretionary voting authority
under the applicable rule of the New York Stock Exchange. With respect to the
proposal to elect directors, abstentions, broker non-votes, and instructions on
the accompanying proxy card to withhold authority to vote for one or more
nominees will result in the respective nominees receiving fewer votes.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of March 31, 1998
(except as otherwise noted in the footnotes) regarding the beneficial ownership
(as defined by the Securities and Exchange Commission (the "SEC")) of the Common
Stock of: (i) each person known by the Company to own beneficially more than
five percent of the outstanding Common Stock; (ii) each director of the Company
who is standing for re-election and each nominee for election as a director of
the Company; (iii) each executive officer named in the Summary Compensation
Table (see "Executive Compensation"); and (iv) all directors and executive
officers of the Company as a group. Except as otherwise specified, the named
beneficial owner has the sole voting and investment power over the shares
listed, and has an address c/o the Company, 16313 N. Dale Mabry Highway, Suite
100, Tampa, FL 33618.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT CLASS
- ---------------------------------------- ----------- -----------
<S> <C> <C>
Frederick R. Adler ..................... 1,110,726 24.3%
1520 South Ocean Blvd.
Palm Beach, FL 33480 (1), (2)
William E. Hattaway (3) ................ 459,579 10.7%
Warren R. Nelson (4) ................... 70,278 1.6
John R. Ritchey (5) .................... 51,328 1.2%
Frank C. Roehl, III (6) ................ 89,510 2.1%
Philip R. Chapman ...................... 31,000 *
c/o Venad Administrative Services, Inc.
100 First Stamford Place
Stamford, CT 06902 (2), (7)
Kamal Mustafa .......................... 1,000 *
7 Wildwood Drive
North Caldwell, NJ 07006 (2)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT CLASS
- -------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Jay S. Nickse ................................................ 7,000 *
c/o Venad Administrative Services, Inc.
100 First Stamford Place
Stamford, CT 06902 (2), (8)
Edwin F. Russo ............................................... 1,000 *
6650 Stratford Dr.
Parkland, FL 33067 (2)
Frederick R. Adler Intangible Asset Management Trust ......... 1,109,726 24.2%
175 East 64th Street
New York, NY 10021 (9)
Longview Partners, L.P. ...................................... 318,059 7.4%
175 East 64th Street
New York, NY 10021 (10) .....................................
Wellington Management Company, LLP ........................... 386,500 9.1%
75 State Street
Boston, MA 02109 (11)
2001 Partners, L.P. .......................................... 325,000 7.1%
124 East 93rd Street
New York, NY 10128 (12)
All directors and executive officers
as a group (9 persons) (1-8) ............................... 1,821,421 38.2%
========== =====
<FN>
- ------------
* Less than one percent
(1) Consists of 759,726 shares of Common Stock and 350,000 shares of Common
Stock which may be acquired through the exercise of warrants, all of which
are in the name of the Frederick R. Adler Intangible Asset Management Trust
(the "Trust"). Mr. Adler may be deemed to beneficially own the shares and
warrants to purchase shares of Common Stock held by the Trust for federal
securities laws purposes. Mr. Adler disclaims beneficial ownership of the
securities held by the Trust.
(2) Includes 1,000 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 1,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 31, 1998.
3
<PAGE>
(3) Includes 39,498 shares of Common Stock which may be acquired through the
exercise of warrants and 42,656 shares of Common Stock which may be
acquired through the exercise of stock options. Does not include 21,328
shares of Common Stock issuable upon the exercise of options which are not
exercisable within 60 days of March 31, 1998.
(4) Includes 33,328 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 10,664 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 31, 1998.
(5) Includes 25,328 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 10,664 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 31, 1998.
(6) Includes 16,094 shares of Common Stock which may be acquired through the
exercise of warrants and 33,328 shares of Common Stock which may be
acquired through the exercise of stock options. Does not include 10,664
shares of Common Stock issuable upon the exercise of options which are not
exercisable within 60 days of March 31, 1998.
(7) Does not include 244,726 shares of Common Stock and 73,333 shares of
Common Stock issuable upon the exercise of warrants owned by Longview
Partners, L.P., a Delaware limited partnership, of which Susan R. Chapman,
wife of Philip R. Chapman, is general partner. Does not include 759,726
shares of Common Stock and 350,000 shares of Common Stock which may be
acquired through the exercise of warrants owned by the Trust, of which
Susan R. Chapman, wife of Philip R. Chapman, is trustee.
(8) Includes an aggregate of 3,000 shares of Common Stock owned by Mr. Nickse's
minor children. Mr. Nickse disclaims beneficial ownership of the shares
owned by his minor children.
(9) Consists of 759,726 shares of Common Stock and 350,000 shares of Common
Stock which may be acquired through the exercise of warrants.
(10) Consists of 244,726 shares of Common Stock and 73,333 shares of Common
Stock issuable upon the exercise of warrants owned by Longview Partners,
L.P., a Delaware limited partnership.
(11) Wellington Management Company, LLP, ("WMC") in its capacity as investment
adviser, may be deemed to beneficially own 386,500 shares of Common Stock
which are held of record by clients of WMC. WMC has shared power to vote or
to direct the vote of 336,500 shares of Common Stock. WMC has shared power
to dispose or to direct the disposition of 386,500 shares of Common Stock.
Information with respect to WMC has been derived from their Schedule 13G
dated January 17, 1998, as filed with the SEC by WMC.
(12) Consists of 325,000 shares of Common Stock issuable upon the exercise of
warrants owned by 2001 Partners, L.P.
</FN>
</TABLE>
4
<PAGE>
PROPOSAL -- ELECTION OF DIRECTORS
Six directors (constituting the entire Board) are to be elected at the
Annual Meeting. Unless otherwise specified, the enclosed proxy will be voted in
favor of the persons named below to serve until the next annual meeting of
stockholders and until their successors shall have been duly elected and shall
qualify. In the event any of these nominees shall be unable to serve as a
director, the shares represented by the proxy will be voted for the person, if
any, who is designated by the Board of Directors to replace the nominee. All
nominees have consented to be named and have indicated their intent to serve if
elected. The Board of Directors has no reason to believe that any of the
nominees will be unable to serve or that any vacancy on the Board of Directors
will occur.
The nominees, their ages, the year in which each first became a director
and their principal occupations or employment during the past five years are:
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
DIRECTOR AGE DIRECTOR PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------- ----- ----------- -------------------------------------------------------------
<S> <C> <C> <C>
Frederick R. Adler ...... 72 1994 Chairman of the Board of Directors of the Company since
October 1994; Managing Director of Adler & Company
since 1968; Of Counsel to the law firm of Fulbright &
Jaworski L.L.P. since January 1, 1996 and prior thereto a
retiring senior partner of Fulbright & Jaworski L.L.P. since
1991 and prior thereto a senior partner thereof. The
Company retained Fulbright & Jaworski L.L.P. for legal
services during the 1997 fiscal year.
Philip R. Chapman ....... 36 1997 General Partner in Adler & Company since 1995 and prior
thereto a Principal in Adler & Company since 1991;
President of Venad Administrative Services, Inc. since 1996;
Senior Consultant at Booz Allen & Hamilton International
from 1989 until 1991; Executive Vice President and
President of Global Pharmaceutical Corporation in a
temporary capacity during a portion of 1995.
William E. Hattaway ..... 54 1993 President and Director of the Company since April 1993;
President, Chief Executive Officer and Director of Shells,
Inc., a wholly-owned subsidiary of the Company, since
February 1993; Principal in Todays Food Service Concepts
from December 1989 through January 1993; Executive Vice
President of General Mills' Restaurant Group and President
of General Mills' International Restaurant Operations from
April 1987 through December 1989; Chairman and Chief
Executive Officer of Red Lobster from March 1986 to April
1987.
5
<PAGE>
YEAR FIRST
BECAME
DIRECTOR AGE DIRECTOR PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------ ----- ----------- -------------------------------------------------------------
<S> <C> <C> <C>
Kamal Mustafa .......... 50 1994 Chairman of the Board of Directors of Bluestone Capital
Partners since 1995; Managing Director of Hamilton Capital
Partners, Inc. since October 1991; President, Chief
Executive Officer and Portfolio Manager of The MicroCap
Fund, Inc. from April 1994 until July 1996 and prior thereto
a Managing Director from January 1993 to August 1993.
Jay S. Nickse .......... 38 1995 Vice President and Chief Financial Officer of Venad
Administrative Services, Inc., a corporation which provides
administrative services for a number of venture funds,
including funds in which Frederick R. Adler is a partner,
since July 1993; Senior Manager audit and business advisory
group at Price Waterhouse from September 1990 through
July 1993.
Edwin F. Russo ......... 72 1994 Of Counsel to the law firm of Edwards & Angell from July
1994 to July 1995; Of Counsel to the law firm of Fine
Jacobson Schwartz Nash & Block from April 1991 to June
1994.
</TABLE>
Mr. Adler is chairman of the Executive Committee and a director of Data
General Corporation, a computer company, and USA Detergents, Inc., a
manufacturer of laundry and household cleaning products. Mr. Adler is also a
director of Prime Cellular Inc., a software company; and various private
companies.
Mr. Chapman is a director of Global Pharmaceutical Corporation, a
manufacturer of generic pharmaceuticals; Integrated Packaging Assembly Corp., a
semiconductor company; and a director of various private companies. Mr. Chapman
is the son-in-law of Mr. Adler.
Mr. Mustafa is a director of First Colony Coffee & Tea Company, a specialty
coffee and tea producer; Robocom Systems, Inc., which develops, markets and
supports advanced warehouse and distribution management software solutions;
Sistex, Inc., which develops and markets advanced non-intrusive security systems
to computer users; Beachport Entertainment, which develops, produces and
distributes quality, live family entertainment and made for television programs;
and Nova Asset Management.
Pursuant to a shareholders agreement between Mr. Adler, the Company and
various other parties (the "Shareholders Agreement"), the Company has agreed to
nominate and the Company and the other parties to the Shareholders Agreement
have agreed to use their best efforts to cause an individual nominated by Mr.
Adler to be elected a director of the Company until the earlier of (i) April 29,
1999 or (ii) the date that 300,000 shares of the Company represent less than 5%
of the Company's issued and outstanding shares of Common Stock. To date, Mr.
Adler has not exercised such right.
In May of 1997, the Company established an Audit Committee to review the
internal accounting procedures of the Company and to consult with and review the
services provided by the independent
6
<PAGE>
auditors. Messrs. Chapman, Mustafa, and Nickse are the current members of the
Audit Committee. During the 1997 fiscal year, the Audit Committee held one
meeting.
In May of 1997, the Company established a Stock Option and Compensation
Committee to review compensation policies and practices, to recommend
compensation for executives and key employees and to administer the Company's
stock option plans. Messrs. Adler, Chapman, and Russo are the current members of
the Stock Option and Compensation Committee. During the 1997 fiscal year, the
Stock Option and Compensation Committee acted once by unanimous consent.
In May of 1997, the Company established an Executive Committee to exercise,
to the extent authorized by law, all powers and authority of the Board in the
management of the business and affairs of the Company. Messrs. Adler, Chapman,
and Hattaway are the current members of the Executive Committee. During the 1997
fiscal year, the Executive Committee acted twice by unanimous consent.
In June of 1996, the Company established a Finance Committee. The Finance
Committee is made up of the following directors: Messrs. Chapman, Hattaway,
Mustafa and Nickse. The purpose of the Finance Committee is to approve major
capital expenditures, including new restaurant development, relocation and
remodeling of restaurants, as well as the purchase of restaurant equipment and
system requirements. The Finance Committee is expected to review future third
party financing proposals, which includes, but is not limited to, bank lines of
credit, real estate mortgages, the financing of building and leasehold
improvements, equipment leases and sale/leaseback transactions. During the 1997
fiscal year, the Finance Committee acted 11 times by unanimous consent.
Each director of the Company is elected for a term of one year which
expires at the next annual meeting of the Company's stockholders or at such
other time as his successor is duly elected and qualified. Each executive
officer is appointed by the Board of Directors and serves at the pleasure of the
Board, subject to the terms of employment agreements between the Company and
each of the executive officers. To date, non-employee directors have received
stock options, which vest over the two years following the date of grant, to
acquire 2,000 shares of Common Stock.
MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended December 28, 1997, the Board of Directors held
one meeting and acted by committee action 15 times. Each director attended the
Board meeting, either in person or telephonically, and was in attendance for at
least 75% of meetings of all committees of the Board of Directors on which he
served.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who beneficially own more than ten percent of the Common Stock, to file
initial reports of ownership and reports of changes in ownership with the SEC.
Executive officers, directors and greater than ten percent beneficial owners
are required by the SEC to furnish the Company with copies of all Section 16(a)
forms they file.
Based upon a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
the Company believes that during
7
<PAGE>
fiscal 1997 all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than ten percent beneficial owners were complied
with on a timely basis, except for the late filing of a Form 3 by Philip R.
Chapman, relating to his becoming a director of the Company.
VOTE REQUIRED
The six nominees receiving the highest number of affirmative votes of the
shares present in person or represented by proxy and entitled to vote, a quorum
being present, shall be elected as directors. Only votes cast for a nominee will
be counted, except that the accompanying proxy will be voted for all nominees in
the absence of instructions to the contrary. Abstentions, broker non-votes and
instructions on the accompanying proxy card to withhold authority to vote for
one or more nominees will result in the respective nominees receiving fewer
votes.
THE BOARD OF DIRECTORS DEEMS THE ELECTION AS DIRECTORS OF THE SIX NOMINEES
LISTED ABOVE TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THESE NOMINEES.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by the Company or
its subsidiaries as well as certain other compensation paid during the fiscal
years indicated to the Chief Executive Officer of the Company and to each other
executive officer of the Company whose total annual salary and bonus exceeded
$100,000 for the fiscal year ended December 28, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
FISCAL ------------------------- -----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) AWARDS OPTIONS (2)
- --------------------------------------- ------- ----------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
William E. Hattaway, Chief Executive 1997 $167,731 $17,000 -- --
Officer, President and Director (3) 1996 $154,078 -- -- $63,984
1995 $149,100 -- -- --
Warren R. Nelson, Vice President 1997 $ 96,862 $13,500 -- --
of Finance, Chief Financial 1996 $ 94,477 -- -- $43,922
Officer, Secretary and Treasurer (3) 1995 $ 82,478 -- -- --
John R. Ritchey, Vice President 1997 $ 97,519 $13,500 -- --
of Operations (3) 1996 $ 95,747 -- -- $43,992
1995 $ 87,699 -- -- --
Frank C. Roehl, III, Vice President 1997 $100,657 $ 9,000 -- --
of Marketing (3) 1996 $103,289 -- -- $43,992
1995 $ 99,428 -- -- --
<FN>
- ------------
(1) Bonuses paid during the fiscal year are for the prior fiscal year.
(2) Consists of options to purchase Common Stock of the Company at the initial
public offering price, $5.00 per share, which was the fair value on the
date of grant.
(3) Each of Messrs. Hattaway, Nelson, Ritchey and Roehl is a party to an
employment agreement with the Company.
See "--Employment Agreements."
</FN>
</TABLE>
The following table sets forth information with respect to (i) options
exercised during fiscal 1997 by the persons named in the Summary Compensation
Table and (ii) unexercised options held by such individuals at December 28,
1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS IN-THE-MONEY OPTIONS
SHARES HELD AT FISCAL YEAR END AT FISCAL YEAR END (1)
ACQUIRED VALUE ----------------------------- ----------------------------
NAME ON EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------------- --------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William E. Hattaway ...... -- -- 21,328 42,656 $93,310 $186,620
Frank C. Roehl, III ...... -- -- 22,664 21,328 $99,155 $ 93,310
John R. Ritchey (2) ...... 8,000 $62,588 14,664 21,328 $64,155 $ 93,310
Warren R. Nelson ......... -- -- 22,664 21,328 $99,155 $ 93,310
<FN>
- ------------
(1) Based on a closing stock price of the Common Stock on Friday, December 26,
1997 of $9.375.
(2) On August 12, 1997, Mr. Ritchey exercised options to acquire 8,000 shares
of the Common Stock at a price of $5.00 per share. The closing price of the
Common Stock was $12.00 on August 12, 1997.
</FN>
</TABLE>
There were no options granted to the officers of the Company during fiscal
1997.
9
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Messrs.
Hattaway, Nelson, Ritchey and Roehl. The employment agreement between the
Company and Mr. Hattaway expires in August 1998 and provides for annual base
compensation of $187,000 per year and supplemental discretionary bonuses, as
determined by the Company's Board of Directors Compensation Committee. In the
event Mr. Hattaway's employment is terminated by the Company at any time for any
reason other than justifiable cause (as defined in the employment agreement),
disability or death, the Company has agreed to pay Mr. Hattaway an amount equal
to the lesser of (i) the amount that would be paid to Mr. Hattaway during the
remainder of the term of the employment agreement or (ii) an amount equal to
100% of his annual base compensation. Each of Messrs. Nelson, Ritchey and Roehl
has a one-year employment agreement that provides for a base annual salary of
$123,500, $129,500 and $116,800, respectively, during fiscal 1998. Each of the
employment agreements is renewed automatically at the end of its respective
initial term, and annually thereafter, unless either party gives notice to the
other of an intent not to renew. In accordance with their employment agreements,
upon the consummation of the initial public offering of the Common Stock (the
"Offering") on April 29, 1996, Messrs. Hattaway, Nelson, Ritchey and Roehl
received options to purchase 63,984, 31,992, 31,992 and 31,992 shares of Common
Stock, respectively, at the offering price per share of Common Stock. In
addition, in 1993, Mr. Hattaway received 260,000 shares and each of Messrs.
Nelson, Ritchey and Roehl received 26,000 shares of the Common Stock in
consideration of services to be rendered to the Company.
STOCK OPTION PLANS
On September 11, 1995, the Company's Board of Directors approved the
Company's 1996 Employee Stock Option Plan (the "1996 Plan") and the 1995
Employee Stock Option Plan (the "1995 Plan" and together with the 1996 Plan,
the "Plans"). The 1996 Plan provides for the issuance of options to purchase a
total of 101,000 shares of Common Stock, and the 1995 Plan provides for the
issuance of options to purchase a total of 340,000 shares of Common Stock. The
Plans authorize the Board of Directors to issue incentive stock options
("ISOs"), as defined in Section 422 of the Internal Revenue Code (the "Code"),
and stock options that do not conform to the requirements of that Code section
("Non-ISOs"). The exercise price of each ISO may not be less than 100% of the
fair market value of the Common Stock at the time of grant, except that in the
case of a grant to an employee who owns (within the meaning of Code Section
422) 10% or more of the outstanding stock of the Company (a "10% Stockholder"),
the exercise price shall not be less than 110% of such fair market value. The
exercise price of each Non-ISO may not be less than the par value of the Common
Stock. Options may not be exercised prior to the first anniversary, or on or
after the tenth anniversary (fifth anniversary in the case of an ISO granted to
a 10% Stockholder), of their grant. Options may not be transferred during the
lifetime of an optionholder.
On May 20, 1997, the shareholders approved the Non-employee Director Stock
Option Plan whereby each non-employee director is granted options to acquire
2,000 shares of Common Stock at the market price on the date of grant. These
options vest over a two year period. In 1997, Messrs. Adler, Chapman, Mustafa,
Nickse and Russo were each granted options to purchase 2,000 shares of Common
Stock pursuant to the Non-employee Director Stock Option Plan.
The Plans are administered by the Stock Option and Compensation Committee
(the "Committee") of the Board of Directors. Subject to the provisions of the
Plans, the Committee has the authority to determine the individuals to whom the
stock options are to be granted, the number of shares to be covered by each
option, the option price, the type of option, the option period, the
restrictions, if any,
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on the exercise of the option, the terms for the payment of the option price and
other terms and conditions. Payment by optionholders upon exercise of an option
may be made (as determined by the Committee) in cash, by promissory note or
other such form of payment acceptable to the Board of Directors, including
shares of Common Stock.
As of December 28, 1997, the Company has granted options to purchase all
101,000 shares of Common Stock available for issuance under the 1996 Plan.
Messrs. Nelson, Ritchey and Roehl each received options to purchase 12,000
shares at an exercise price of $5.00 per share. These options vest as to
one-third of the shares on each of the anniversary dates of the date the Company
agreed to grant these options, so long as the executive officer remains in the
continuous employ of the Company. The options may be exercised for ten years
following the date the Company agreed to grant these options (the initial public
offering price of the Common Stock). As of December 28, 1997, the Company has
granted options to purchase 175,460 shares of Common Stock available for
issuance under the 1995 Plan. Messrs. Hattaway, Nelson, Ritchey and Roehl
received options to purchase 63,984, 31,992, 31,992 and 31,992 shares of Common
Stock at an exercise price of $5.00 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth below briefly describes certain transactions
between the Company and certain parties who or which may be deemed to be
affiliated with the Company.
In January 1995, Frederick R. Adler, Chairman of the Board of the Company
loaned the Company $500,000 (the "Loan") at an annual interest rate of prime
plus 2%. The Loan, which was scheduled to mature in June 1995, was extended by
Mr. Adler until the earlier of the consummation of the Offering or February 29,
1996. In February 1996, the Loan was further extended until 18 months from the
consummation of the Offering. As compensation for granting these extensions, the
Company issued to Mr. Adler warrants to purchase an aggregate of 250,000 shares
of Common Stock at exercise prices ranging from $3.15 to $3.50 per share. The
Loan was repaid in September 1997.
On March 1, 1994, the Company's wholly-owned subsidiary, Shells of
Melbourne, Inc. ("Shells of Melbourne"), entered into a joint venture agreement
(the "Joint Venture Agreement") with WLH Investments, Inc. ("WLH Investments"),
a corporation wholly-owned by Wanda L. Hattaway, wife of William E. Hattaway,
the Company's President. The joint venture owns and operates the Shells
restaurant located in Melbourne, Florida. The Joint Venture Agreement provides
that WLH Investments receives a cumulative annual preferred return of 15% on
the $400,000 of capital contributed to the joint venture by WLH Investments.
Shells of Melbourne will then be allocated an amount equal to such preferred
return. The remaining net income of the joint venture will be allocated 51% to
Shells of Melbourne and 49% to WLH Investments. Based upon such allocations,
the Company paid $114,047 to WLH Investments for fiscal 1997 results. This
amount was paid to WLH Investments in March 1998.
The Joint Venture Agreement, as amended in September 1995, provides both
the Company and WLH Investments with the option (the "WLH Option") to exchange
WLH Investments' interest in the joint venture for shares of Common Stock having
a value of $750,000, based upon the greater of $20 per share or the per share
market price of the Common Stock on the date the WLH Option is exercised. The
WLH Option is exercisable at any time following the date that the value of the
Common Stock equals or exceeds $20 per share for a period of 20 consecutive
trading days. The Company has granted WLH Investments certain registration
rights with respect to the shares of Common Stock issuable upon exercise of the
WLH Option.
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Although the Company believes that the foregoing transactions were on terms
no less favorable than would have been available from unaffiliated third parties
in arm's length transactions, there can be no assurance that this is the case.
All future transactions between the Company and its officers, directors and 5%
shareholders will be on terms no less favorable than could be obtained from
independent third parties, and will be approved by a majority of the independent
and disinterested members of the Board of Directors.
STOCK OPTION AND COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS REGARDING
EXECUTIVE COMPENSATION
The report of the Stock Option and Compensation Committee shall not be
deemed incorporated by reference by any general statement incorporating by
reference this proxy statement into any filing under the Securities Act of 1933,
as amended (the "Securities Act"), or under the Exchange Act, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
COMPENSATION PHILOSOPHY
The Company is engaged in the management and operation of full service,
mid-priced, casual dining seafood restaurants. One of the Company's strengths
contributing to its success is the strong management team, many of whom have
been with the Company for a significant period of time. A central goal of the
Board is to ensure that the Company's remuneration policy is such that the
Company is able to attract, retain and reward capable employees who can
contribute, both short- and longer-term, to the continued success of the
Company. Equity participation and a strong alignment to stockholders' interests
are key elements of the Company's compensation philosophy.
The Company's executive compensation program consists of three parts: base
salary, bonus and stock options. In awarding salary increases and bonuses, the
Board did not relate the various elements of corporate performance to each
element of executive compensation. Rather, the Board considered whether the
compensation package as a whole adequately compensated each executive for the
Company's performance during 1997 and that executive's contribution to such
performance.
BASE SALARY
Base salary represents the fixed component of the executive compensation
program. The Company's philosophy regarding base salaries is conservative,
maintaining salaries at approximately competitive industry average.
Determinations of base salary levels are established on an annual review of
marketplace competitiveness with similar restaurant companies, and on internal
relationships. Periodic increases in base salary relate to individual
contributions to the Company's overall performance, relative marketplace
competitiveness levels and length of service to the Company.
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<PAGE>
BONUS
Bonuses represent the variable component of the executive compensation
program that is tied to the Company's performance and individual achievement. To
the extent deemed appropriate, the Company's policy is to grant bonuses as a
portion of the compensation paid to its management personnel. In determining
bonuses, the Board considers factors such as relative performance of the Company
during the year and the individual's contribution to the Company's performance.
STOCK OPTIONS
The Board, which administers the Company's stock option plans, believes
that one important goal of the executive compensation program should be to
provide executives and key employees--who have significant responsibility for
the management, growth and future success of the Company--with an opportunity to
increase their ownership in the Company and potentially gain financially from
the Company's stock price increases. This approach ensures that the best
interests of the stockholders, executives and employees will be closely aligned.
Therefore, executive officers and other key employees of the Company are granted
stock options from time to time, giving them a right to purchase shares of
Common Stock at a specified price in the future. The grant of options is based
primarily on an employee's potential contribution to the Company's growth and
financial results. In determining the size of option grants, the Board also
considers the number of options owned by such officer, the number of options
previously granted and currently outstanding, and the aggregate size of the
current option grants. Options generally are granted at the prevailing market
value of the Common Stock and will only have value if the Company's stock price
increases. Generally, grants of options vest in equal amounts over three years
and the individual must be employed by the Company for such options to vest.
COMPENSATION TO CHIEF EXECUTIVE OFFICER
Mr. Hattaway was compensated in accordance with his employment agreement
which provided for an annual base compensation of $170,000 and $187,000 for the
1997 and 1998 calendar years, respectively. In connection with Mr. Hattaway's
employment, the Board reviewed the accomplishments of Mr. Hattaway and the
Company's performance, as well as Mr. Hattaway's increased duties and
responsibilities in connection with the Company's expansion strategy.
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THE COMPANY'S PERFORMANCE
The following Stock Price Performance Graph shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act or under the
Exchange Act, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The following graph compares cumulative total return of the Common Stock
with the cumulative total return of (i) the Russell 2000 Index and (ii) the
Nations Restaurant News Stock Index (the "Peer Index"). The graph assumes (a)
$100 was invested on April 23, 1996 (the date of the Offering) in each of the
Common Stock, the stocks comprising the Russell 2000 Index and the stocks
comprising the Peer Index, and (b) the reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
SHELLS SEAFOOD RESTAURANTS, INC., RUSSELL 2000 INDEX,
AND NATIONS RESTAURANT NEWS STOCK INDEX
STOCK PERFORMANCE GRAPH
[INSERT GRAPH HERE}
<TABLE>
<CAPTION>
4/23/96 6/30/96 9/29/96 12/29/96 3/30/97 6/29/97 9/28/97 12/28/97
------- ------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHELLS SEAFOOD RESTAURANTS, INC 100 150 139 175 176 203 270 188
RUSSELL 2000 INDEX 100 102 102 105 103 115 131 124
NATIONS RESTAURANT NEWS STOCK INDEX 100 100 99 94 92 100 103 98
</TABLE>
14
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RELATIONSHIP WITH INDEPENDENT AUDITORS
Deloitte & Touche LLP have been the independent auditors for the Company
since December 15, 1994 and will serve in that capacity for the 1998 fiscal
year. A representative of Deloitte & Touche LLP is expected to be present at the
Annual Meeting and is expected to be available to respond to appropriate
questions from stockholders, and will have an opportunity to make a statement if
he or she desires to do so.
STOCKHOLDER PROPOSALS
All stockholder proposals which are intended to be presented at the 1999
Annual Meeting of Stockholders of the Company must be received by the Company no
later than December 11, 1998 for inclusion in the Board of Directors' proxy
statement and form of proxy relating to that meeting.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at the
Annual Meeting. However, if any other business properly comes before the Annual
Meeting, it is the intention of the persons named in the enclosed proxy to vote
on such matters in accordance with their best judgment.
The prompt return of your proxy will be appreciated and helpful in
obtaining the necessary vote. Therefore, whether or not you expect to attend the
Annual Meeting, please sign the proxy and return it in the enclosed envelope.
By Order of the Board of Directors
Warren R. Nelson
SECRETARY
Dated: April 9, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
WILL BE SENT WITHOUT CHARGE TO ANY STOCKHOLDER
REQUESTING IT IN WRITING FROM:
SHELLS SEAFOOD RESTAURANTS, INC.
16313 N. DALE MABRY HIGHWAY, SUITE 100
TAMPA, FLORIDA 33618
ATTENTION: SECRETARY
15
<PAGE>
SHELLS SEAFOOD RESTAURANTS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 1998
William E. Hattaway and Warren R. Nelson, as the true and lawful attorneys,
agents and proxies of the undersigned, with full power of substitution, are
hereby authorized to represent and to vote all shares of Common Stock of Shells
Seafood Restaurants, Inc. held of record by the undersigned on March 31, 1998,
at the Annual Meeting of Stockholders to be held at 2:00 p.m., Thursday, May 14,
1998, at The Metropolitan Club, 1 East 60th Street, New York, New York, and at
any adjournment thereof. Any and all proxies heretofore given are hereby
revoked.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE
UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE
PROPOSAL.
Proposal--Election of Directors--Nominees are:
Frederick R. Adler, Philip R. Chapman, William E. Hattaway,
Kamal Mustafa, Jay S. Nickse and Edwin F. Russo.
[ ] FOR all listed nominees (except do not vote for the nominee(s) whose
name(s) appears(s) below):
--------------------------------------------------------------------
[ ] WITHHOLD AUTHORITY to vote for the listed nominees.
Discretionary authority is hereby granted with respect to such other matters as
may properly come before the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE)
<PAGE>
IMPORTANT: Please sign exactly as name appears below. Each joint owner shall
sign. Executors, administrators, trustees, etc. should give full title as such.
If signor is a corporation, please give full corporate name by duly authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated______________, 1998
_________________________
Signature
_________________________
Signature if held jointly
The above-signed acknowledges
receipt of the Notice of Annual
Meeting of Stockholders and the
Proxy Statement furnished
therewith.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
