SHELLS SEAFOOD RESTAURANTS, INC.
16313 N. DALE MABRY HIGHWAY
SUITE 100
TAMPA, FLORIDA 33618
April 1, 1999
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 Wednesday, April 28, 1999, at The
University Club, 1 West 54th Street, New York, New York.
At the Annual Meeting of Stockholders, you are being asked to vote on (i)
electing eight directors to the Company's Board of Directors, and (ii) the
ratification of the grant and the repricing of certain stock options issues to
specified non-employee 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 1, 1999
Notice is hereby given that the Annual Meeting of Stockholders of Shells
Seafood Restaurants, Inc., will be held on Wednesday, April 28, 1999, at 2:00
p.m., at The University Club, 1 West 54th Street, New York, New York for the
following purposes:
(1) To elect eight directors to serve for the ensuing year;
(2) To ratify the grant and the repricing of certain options to purchase
Common Stock issued to specified non-employee directors, each pursuant
to the Shells Seafood Restaurants, Inc. Stock Option Plan for
Non-Employee Directors; and
(3) 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 19, 1999 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 Wednesday, April 28, 1999 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 1, 1999 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.
<PAGE>
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on March 19, 1999 are
entitled to notice of and to vote at the Annual Meeting or any and all
adjournments thereof. On March 19, 1999, there were 4,454,015 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 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. The effect of broker non-votes on the specific
items to be brought before the Annual Meeting of Stockholders is discussed
under each item.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of March 19, 1999
(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.
2
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT CLASS
- -------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Frederick R. Adler ........................................... 1,291,426 26.9%
1520 South Ocean Blvd.
Palm Beach, FL 33480 (1), (2)
William E. Hattaway (3) ...................................... 480,907 10.6%
Warren R. Nelson (4) ......................................... 80,942 1.8%
John R. Ritchey (5) .......................................... 61,992 1.4%
Frank C. Roehl, III (6) ...................................... 100,174 2.2%
Philip R. Chapman ............................................ 33,000 *
c/o Venad Administrative Services, Inc.
342 Madison Avenue, Suite 807
New York, NY 10173 (2), (7), (9)
Christopher D. Illick ........................................ 1,000 *
c/o Brean Murray & Company, Inc.
570 Lexington Avenue
New York, NY 10022 (8), (9)
Richard A. Mandell ........................................... 1,000 *
245 East 19th Street
New York, NY 10003 (8), (9)
Kamal Mustafa ................................................ 3,000 *
7 Wildwood Drive
North Caldwell, NJ 07006 (2), (9)
Jay S. Nickse ................................................ 9,000 *
c/o Venad Administrative Services, Inc.
342 Madison Avenue, Suite 807
New York, NY 10173 (2), (9), (10)
Edwin F. Russo ............................................... 3,000 *
6650 Stratford Dr.
Parkland, FL 33067 (2), (9)
Frederick R. Adler Intangible Asset Management Trust ......... 916,226 20.6%
175 East 64th Street
New York, NY 10021
Adler Children Trust ......................................... 350,000 7.3%
1520 South Ocean Blvd.
Palm Beach, FL 33480 (11)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT CLASS
- -------------------------------------------- ----------- -----------
<S> <C> <C>
Longview Partners, L.P. .................... 318,059 7.0%
175 East 64th Street
New York, NY 10021 (12)
Wellington Management Company, LLP ......... 384,000 8.6%
75 State Street
Boston, MA 02109 (13)
2001 Partners, L.P. ........................ 325,000 6.8%
124 East 93rd Street
New York, NY 10128 (14)
All directors and executive officers
as a group (11 persons) (1-10) ............ 2,065,441 41.2%
========= ====
</TABLE>
- ----------------
* Less than 1%
(1) Consists of 916,226 shares of Common Stock held in the name of the
Frederick R. Adler Intangible Asset Management Trust (the "Asset Trust"),
10,100 shares of Common Stock held in the name of 1520 Partners Limited
("1520 Partners") and 350,000 shares of Common Stock which may be acquired
through the exercise of warrants, which are in the name of the Adler
Children Trust (the "Children Trust"). Mr. Adler is the general partner of
1520 Partners. Mr. Adler may be deemed to beneficially own the shares and
warrants to purchase shares of Common Stock held by the Asset Trust, 1520
Partners and the Children Trust for federal securities laws purposes. Mr.
Adler disclaims beneficial ownership of the securities held by the Asset
Trust, 1520 Partners and the Children Trust.
(2) Includes 3,000 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 4,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 19, 1999.
(3) Includes 63,984 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 5,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 19, 1999.
(4) Includes 43,992 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 5,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 19, 1999.
(5) Includes 35,992 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 5,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 19, 1999.
4
<PAGE>
(6) Includes 43,992 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 3,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 19, 1999.
(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 916,226
shares of Common Stock owned by the Asset Trust, of which Susan R.
Chapman, wife of Philip R. Chapman, is trustee.
(8) Includes 1,000 shares of Common Stock which may be acquired through the
exercise of stock options. Does not include 4,000 shares of Common Stock
issuable upon the exercise of options which are not exercisable within 60
days of March 19, 1999.
(9) Assumes that Proposal No. 2 set forth herein is approved by the Company's
stockholders.
(10) 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.
(11) Consists of 350,000 shares of Common Stock which may be acquired through
the exercise of warrants.
(12) 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.
(13) Wellington Management Company, LLP, ("WMC") in its capacity as investment
adviser, may be deemed to beneficially own 384,000 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 309,000 shares of Common Stock. WMC has shared
power to dispose or to direct the disposition of 384,000 shares of Common
Stock. Information with respect to WMC has been derived from their
Schedule 13G dated December 31, 1998, as filed with the SEC by WMC.
(14) Consists of 325,000 shares of Common Stock issuable upon the exercise of
warrants owned by 2001 Partners, L.P.
5
<PAGE>
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Eight 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 ..... 73 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 1998 fiscal year.
Philip R. Chapman ...... 37 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.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
DIRECTOR AGE DIRECTOR PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- --------------------------- ----- ----------- -------------------------------------------------------------
<S> <C> <C> <C>
William E. Hattaway ....... 55 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.
Kamal Mustafa ............. 51 1994 Chairman of the Board of Directors of Bluestone Capital
Partners since 1995; 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; Managing Director and
the head of Mergers and Acquisitions as well as the head
of Corporate Financing Origination, U.S.A. at Citibank for
ten years.
Jay S. Nickse ............. 39 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 business advisory
group at Price Waterhouse from September 1990 through
July 1993.
Edwin F. Russo ............ 73 1994 Private investor since August 1995. 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.
Christopher D. Illick ..... 60 1998 Senior officer of Brean Murray & Co., Inc., an investment
bank, since 1997; General Partner of Illick Brothers, a real
estate and management concern, since 1965; Limited
partner in the investment banking firm of Oakes,
Fitzwilliams & Co. from 1995 to 1997; Chairman and Chief
Executive Officer of National Transaction Network, an
electronic payment systems integrator from 1992 to 1995.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
DIRECTOR AGE DIRECTOR PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
- ------------------------ ----- ----------- ------------------------------------------------------------
<S> <C> <C> <C>
Richard A. Mandell ..... 56 1998 Private investor. Vice President Private Investments at
Clariden Asset Management (New York) Inc., a subsidiary
of Clariden Bank, a private Swiss bank, from January 1996
to February 1998. Managing Director of Investment
Banking for Prudential Securities Incorporated from 1982 to
June 1995.
</TABLE>
Mr. Adler is chairman of the Executive Committee and a director of Data
General Corporation, a computer company, and of 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; Cambio Inc., a provider of network documentation
systems; and a director of various private companies. Mr. Chapman is the
son-in-law of Mr. Adler.
Mr. Illick is a director of Biomune Systems Inc., a manufacturer of
neutrochemicals, and USA Detergents, Inc., a manufacturer of laundry and
household cleaning products.
Mr. Mandell is a director of Sbarro, Inc., a food service company,
Trend-Lines, Inc., a specialty retailer of woodworking tools and accessories
and golf equipment and supplies, and USA Detergents, Inc., a manufacturer of
laundry and household cleaning products.
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.
Messrs. Illick and Mandell were nominated by the Board to fill two
vacancies on the Board of Directors created by an increase in the number of
directors from six to eight on November 3, 1998.
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
8
<PAGE>
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 auditors. Messrs. Chapman, Mustafa,
and Nickse are the current members of the Audit Committee. During the 1998
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 1998 fiscal year,
the Stock Option and Compensation Committee acted by unanimous written consent
five times.
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 1998 fiscal year, the Executive Committee held three
meetings and acted once by unanimous written consent.
In June of 1996, the Company established a Finance Committee. The Finance
Committee is made up of the following directors: Messrs. Adler, 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 1998 fiscal year, the Finance Committee acted six times by unanimous
written 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. Non-employee directors receive
9
<PAGE>
stock options pursuant to the Company's Stock Option Plan for Non-employee
Directors, (the "Non-employee Directors' Plan"), which vest over the two years
following the date of grant, to acquire 2,000 shares of Common Stock upon the
date of their election to the Board, and stock options to acquire 2,000 shares
of Common Stock on each anniversary of their election to the Board (to the
extent they are then still directors of the Company). To date, Messrs. Adler,
Chapman, Mustafa, Nickse and Russo have each received options to acquire 4,000
shares of Common Stock pursuant to the Non-employee Directors' Plan. On
November 3, 1998, Messrs. Illick and Mandell each received options to acquire
2,000 shares of Common Stock. In addition, on November 3, 1998, the Board of
Directors approved, subject to stockholder approval, a supplemental grant of
options to purchase 3,000 shares of Common Stock to each of Messrs. Adler,
Chapman, Illick, Mandell, Mustafa, Nickse, and Russo.
In November 1998, the Board of Directors adopted a policy to compensate
directors for their attendance at meetings of the Board of Directors. Each
director is entitled to receive $1,000 for each meeting that they attend in
person and $500 for each telephonic meeting, in addition to reimbursement for
all out-of-pocket expenses incurred by such director in connection with the
attendance of such meeting.
MEETINGS OF THE BOARD OF DIRECTORS
During the fiscal year ended January 3, 1999, the Board of Directors held
two meetings, acted by unanimous written consent four times and acted by
committee action 16 times. Each director attended the Board meetings, 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 fiscal 1998 all Section 16(a)
filing requirements applicable to its executive officers, directors and greater
than ten percent beneficial owners were complied with on a
10
<PAGE>
timely basis, except for the late filing of a Form 3 by Messrs. Illick and
Mandell, relating to Mr. Illick and Mr. Mandell becoming a director of the
Company.
VOTE REQUIRED
The eight 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 EIGHT
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.
11
<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 January 3, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
FISCAL ------------------------- -------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) AWARDS OPTIONS
- --------------------------------------- ------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
William E. Hattaway, Chief 1998 $184,462 $ 8,500 -- --
Executive Officer, President and 1997 $167,731 $17,000 -- --
Director (2) 1996 $154,078 -- -- 63,984
Warren R. Nelson, Vice President 1998 $121,339 $ 6,000 -- --
of Finance, Chief Financial Officer, 1997 $ 96,862 $13,500 -- --
Secretary and Treasurer (2) 1996 $ 94,477 -- -- 43,922
John R. Ritchey, Vice President of 1998 $126,462 $ 7,000 -- --
Operations (2) 1997 $ 97,519 $13,500 -- --
1996 $ 95,747 -- -- 43,992
Frank C. Roehl, III, Vice President 1998 $114,339 $ 5,000 -- --
of Marketing (2) 1997 $100,657 $ 9,000 -- --
1996 $103,289 -- -- 43,992
</TABLE>
- ----------------
(1) Bonuses paid during the fiscal year are for the prior fiscal year.
(2) Each of Messrs. Hattaway, Nelson, Ritchey and Roehl is a party to an
employment agreement with the Company. See "--Employment Agreements."
The following table sets forth information with respect to (i) options
exercised during fiscal 1998 by the persons named in the Summary Compensation
Table and (ii) unexercised options held by such individuals at January 3, 1999.
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 ......... 0 -- 42,656 21,328 -- --
Frank C. Roehl, III ......... 0 -- 33,328 10,664 -- --
John R. Ritchey ............. 0 -- 25,328 10,664 -- --
Warren R. Nelson ............ 0 -- 33,328 10,664 -- --
</TABLE>
- ----------------
(1) Based on a closing stock price of the Common Stock on Thursday, December
31, 1998, the last trading date of fiscal 1998, of $4.125.
There were no options granted to the officers of the Company during fiscal
1998.
12
<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 1999 and provides for annual base
compensation of $195,000 per year and supplemental discretionary bonuses, as
determined by the Compensation Committee of the Company's Board of Directors.
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 $129,600, $134,000 and $121,400, respectively, during fiscal 1999.
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.
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
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Common Stock upon the date of their election to the Board and stock options to
acquire 2,000 shares of Common Stock on each anniversary of their election to
the Board (to the extent they are then still directors of the Company) at the
market price of the Common Stock on the date of grant. These options vest over
a two year period. In each of 1997 and 1998, 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. In 1998, in
connection with their election to the Board, Messrs. Illick and Mandell, each
were granted options to purchase 2,000 shares of Common Stock pursuant to the
Non-employee Directors' Plan. The Board has also approved, subject to
stockholder approval, a supplemental grant of options to purchase 3,000 shares
of Common Stock pursuant to the Non-Employee Directors' Plan to each of Messrs.
Adler, Chapman, Nickse, Mustafa, Russo, Illick and Mandell.
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, 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
Committee, including shares of Common Stock. During fiscal 1998, options to
purchase a total of 52,500 shares of Common Stock were granted to non-executive
officer employees under the 1995 Plan, all with an exercise price equal to
their fair market value on the date of grant. Options to purchase an additional
62,000 shares of Common Stock, none of which were held by any of the Company's
executive officers, were repriced by the Committee during fiscal 1998 at their
then fair market value.
As of January 3, 1999, the Company has granted options to purchase all
101,000 shares of Common Stock available for issuance under the 1996 Plan.
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
holder remains in the continuous employ of the Company. The options may be
exercised for 10 years following the date the Company agreed to grant these
options. As of January 3, 1999, the Company has granted options to purchase
225,126 shares of Common Stock of the 340,000 shares of Common Stock available
for issuance under the 1995 Plan. Certain executive officers of the Company
have received options to purchase Common Stock under both the 1995 Plan and
1996 Plan.
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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.
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 $60,000 to WLH Investments for its fiscal 1998 preferred
returns. In addition, as of January 3, 1999, the Company owed WLH Investments
$119,257 for the remaining net income allocation. These amounts were paid to
WLH Investments in February 1999.
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. 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.
In March 1999 the Company entered into a consulting agreement (the
"Consulting Agreement") with Richard A. Mandell, a member of the Company's
Board of Directors. Pursuant to the terms of the Consulting Agreement, Mr.
Mandell shall provide services as an executive consultant to management as
requested from time-to-time by the Company. The Company shall pay Mr. Mandell
$20,000 per annum for his services under the Consulting Agreement.
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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 1998 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.
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
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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 $187,000 and $195,000 for the
1998 and 1999 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
[GRAPHIC OMITTED]
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PROPOSAL NO. 2 -- APPROVAL OF ACTIONS TAKEN
PURSUANT TO THE DIRECTORS' OPTION PLAN
In May 1997, the Board of Directors adopted, and the stockholders
approved, the Shells Seafood Restaurants, Inc. Stock Option Plan for
Non-employee Directors. The Non-employee Directors' Plan provides, in part,
that each non-employee director elected or appointed to the Board of Directors
will automatically receive on the later of the date of his or her initial
election or appointment to the Company's Board of Directors or the date the
Non-employee Directors' Plan was adopted by the Board of Directors (the
"Initial Grant Date"), an option to purchase 2,000 shares of the Company's
Common Stock (the "Initial Option") at a per share exercise price equal to the
fair market value of the Common Stock on the Initial Grant Date. Pursuant to
the Plan, each non-employee director also automatically receives on each
anniversary of the Initial Grant Date for that director, an option to purchase
2,000 shares of the Company's Common Stock at a per share exercise price equal
to the fair market value of the Common Stock on the applicable additional grant
date. A total of 100,000 shares have been reserved for issuance under the
Non-employee Directors' Plan.
The Non-employee Directors' Plan is administered by the Board of Directors
of the Company. However, the Non-employee Directors' Plan prescribes the
individuals who would be awarded options, the number of shares subject to the
options, and the terms and conditions of each award. In general, any amendments
or alterations to the Non-employee Directors' Plan which, among other things,
would (i) increase the number of shares of Common Stock that may be purchased
by each non-employee director under the Non-employee Directors' Plan or (ii)
decrease the option exercise price, requires the approval of the Company's
stockholders.
THE REPRICING
In May 1997, in connection with the adoption of the Non-employee
Directors' Plan by the Stockholders, the Company granted to each of Frederick
R. Adler, Philip R. Chapman, Kamal Mustafa, Jay S. Nickse and Edwin F. Russo an
option to purchase 2,000 shares of Common Stock pursuant to the Non-employee
Directors' Plan, at a per share exercise price of $9.50. In May 1998, pursuant
to the Non-employee Directors' Plan, Messrs. Adler, Chapman, Mustafa, Nickse
and Russo were each granted an option to purchase 2,000 shares of Common Stock
at a per share exercise price of $11.00. The exercise prices reflected the fair
market value (as defined in the Non-employee Directors' Plan) of the Common
Stock on the dates of grant. In November 1998, the Board decided to reprice
employee options (none of which represent options held by executive management)
to purchase an aggregate of 62,000 shares of Common Stock, including, subject
to
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stockholder approval, options to purchase 1,000 shares of Common Stock at an
exercise price of $9.50 and options to purchase 2,000 shares of Common Stock at
an exercise price of $11.00 previously granted to each of Messrs. Chapman,
Mustafa, Nickse and Russo. The options were repriced to have a per share
exercise price of $5.75, the fair market value of the Common Stock on the date
of repricing. The Board felt that such repricing was advisable given that the
Company's stock price had declined substantially since the date of the grant of
such options and the repriced options had lost much of their intended value in
enabling the Company to retain on its Board knowledgeable persons who, through
their efforts and expertise, can make a significant contribution to the
Company's business and the best interests of the Company and its stockholders.
THE SUPPLEMENTAL OPTION GRANTS
In November 1998, the Board granted a supplemental option to purchase 3,000
shares of Common Stock to each of Messrs. Adler, Chapman, Illick, Mandell,
Mustafa, Nickse and Russo, in all instances subject to receiving stockholder
approval for the additional grants. Each of these options was granted under the
Non-employee Directors' Plan and is exercisable at a price per share of $5.75,
the fair market value of the Common Stock on the date of grant.
VOTE REQUIRED
The affirmative vote of holders of a majority of the shares of Common
Stock issued, outstanding and entitled to vote, present or represented at the
meeting, a quorum being present, is required for the adoption of this proposal.
Broker non-votes with respect to this matter will be treated as neither a vote
"for" or "against" the matter, although they will be counted in determining if
a quorum is present. However, abstentions will be considered in determining the
number of votes required to attain a majority of the shares present or
represented at the meeting and entitled to vote. Accordingly, an abstention
from voting by a stockholder present in person or by proxy at the meeting has
the same legal effect as a vote "against" the matter because it represents a
share present or represented at the meeting and entitled to vote, thereby
increasing the number of affirmative votes required to approve this proposal.
RATIFICATION OF THE REPRICING AND THE SUPPLEMENTAL OPTION GRANTS
The Board of Directors believes that ratification of the repricing of the
options previously granted and the approval of the supplemental option grants
will serve the best interest of the Company and its stockholders by helping the
Company to retain and maintain an incentive for members of its current Board of
Directors, and assisting in recruiting new
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members to the Board who have the potential to make a significant contribution
to the Company.
Accordingly, the Board of Directors recommends that the stockholders
approve the following resolutions:
RESOLVED, that the repricing of (i) options to purchase 1,000 shares of
Common Stock of the Company at an exercise price of $9.50 per share;
and (ii) options to purchase 2,000 shares of Common Stock of the
Company at an exercise price of $11.00 per share; granted to each of
Philip R. Chapman, Kamal Mustafa, Jay S. Nickse and Edwin F. Russo
pursuant to the Company's Non-employee Directors' Plan from $9.50 and
$11.00 per share, respectively, to $5.75 per share be, and it hereby
is, approved and ratified in all respects; and it is further
RESOLVED, that the grant of a supplemental option to purchase 3,000
shares of Common Stock at a per share exercise price of $5.75 to each
of the Company's non-employee directors be, and it hereby is, approved
and ratified in all respects.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL THEREOF.
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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 1999 fiscal
year. A representative of Deloitte & Touche LLP 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 2000
Annual Meeting of Stockholders of the Company must be received by the Company
no later than December 2, 1999 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 1, 1999
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
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SHELLS SEAFOOD RESTAURANTS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 1999
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 19, 1999, at the Annual Meeting of Stockholders to be held
at 2:00 p.m., Wednesday, April 28, 1999, at The University Club, 1 West 54th
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 PROPOSAL
NOS. 1 AND 2.
Proposal No. 1--Election of Directors--Nominees are:
Frederick R. Adler, Philip R. Chapman, William E. Hattaway,
Christopher D. Illick, Richard A. Mandell, 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.
Proposal No. 2--Approval of Actions taken pursuant to the Company's Stock
Option Plan for Non-Employee Directors
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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)
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IMPORTANT: Please sign exactly as name appears below. Each joint owner shall
sign. Executors, administrators, trustees, etc. should give full title as such.
If signer is a corporation, please give full corporate name by duly authorized
officer. If a partnership, please sign in partnership name by authorized
person.
Dated __________________________, 1999
______________________________________
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.
