Document:

Unassociated Document

THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED,
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.

 

WARRANT

 

To
Purchase Units of

SHELLS
SEAFOOD RESTAURANTS, INC.

Dated
as of May ___, 2005 (the “Effective Date”)

WHEREAS,
this
Warrant to Purchase Units (this “Warrant”) is
issued in connection with the closing of an offering by Shells Seafood
Restaurant, Inc. (the “Company”) of up
to $12,000,000 of the Company’s units (each a “Unit”), each
Unit consisting of (i) one (1) share of the Company’s Series B Convertible
Preferred Stock, par value $0.01 per share (the “Series
B Preferred Stock”) and
(ii) a five-year warrant to purchase ten (10) shares of the Company’s common
stock, par value $0.01 per share (the “Common
Stock”) at an
exercise price of $1.30 per full share; 

WHEREAS,
pursuant to that certain letter agreement, dated as of July 19, 2004 (the
“Engagement
Letter”),
between the Company and JMP Securities LLC, a Delaware limited
liability company (“JMP” or the
“Warrantholder”), JMP
has acted on behalf of the Company as placement agent for the offering of the
Units (the “Offering”)
pursuant to the terms set forth in the Securities Purchase Agreement between the
Company and in signatories thereto (the “Securities
Purchase Agreement”);
and

WHEREAS,
this is
the Warrant issued to JMP pursuant to the Engagement Letter upon the closing of
the Offering. 

NOW,
THEREFORE, the
Company, for value received, hereby certifies and agrees as
follows:

1. GRANT
OF THE RIGHT TO PURCHASE UNITS. 

The
Company hereby grants to the Warrantholder, and the Warrantholder is entitled,
upon the terms and subject to the conditions hereinafter set forth, to purchase,
from the Company, up to _____ Units at a purchase price of One Dollar ($1.00)
per Unit (the “Exercise
Price”),
subject to the adjustments set forth in this Warrant. A “Unit” shall
consist of (i) one (1) share of Series B Convertible Preferred Stock (the
“Preferred
Stock”) and
(ii) a warrant (the “Common
Stock Warrant”) to
purchase, at an exercise price of $1.30 per share, ten (10) shares of Common
Stock, the form of which is attached hereto as Exhibit A and
incorporated herein by reference. The number and Exercise Price of such Units
are subject to adjustment as provided in Section 6 hereof. 

 

 

2. TERM
OF THE WARRANT. 

Except as
otherwise provided for herein, the term of this Warrant and the right to
purchase Units as granted herein shall commence on the Effective Date and shall
be exercisable for a period ending on the fifth (5th) anniversary of the
Effective Date.

 

3. EXERCISE
OF THE PURCHASE RIGHTS. 

(a) Exercise
Generally. The
purchase rights set forth in this Warrant are exercisable by the Warrantholder,
in whole or in part, at any time, or from time to time, prior to the expiration
of the term set forth in Section 2 above, by tendering to the Company at its
principal office a notice of exercise in the form attached hereto as
Exhibit
B (the
“Notice
of Exercise”), duly
completed and executed. Promptly upon receipt of the Notice of Exercise and the
payment of the purchase price in accordance with the terms set forth below, and
in no event later than thirty (30) days thereafter, the Company shall issue to
the Warrantholder the number of shares of Preferred Stock and Common Stock
Warrants as such Warrantholder shall be entitled to receive upon exercise of
this Warrant and shall execute the acknowledgment of exercise in the form
attached hereto as Exhibit
C (the
“Acknowledgment
of Exercise”)
indicating the number of Units which remain subject to future purchases, if
any.

 

(b) Exercise
Price. The
Exercise Price for this Warrant may be paid at the Warrantholder's election
either (i) by cash or check, or (ii) by surrender of Preferred Stock
(“Net
Issuance”) as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following
formula:  

X =  Y(A-B)

             
A

 

where:
 X = the
number of shares of Preferred Stock that may be issued to the
Warrantholder.

Y = the
number of shares of Preferred Stock underlying the Units requested to be
exercised under this Warrant.

A = the
fair market value of one (1) share of Preferred Stock at the time the Net
Issuance election is made.

B = the
Exercise Price.

For
purposes of the above calculation, the current fair market value of the
Preferred Stock shall mean with respect to each share of Preferred Stock:

	 	
      (i)
	
      if
      the Common Stock is traded on a securities exchange, the fair market value
      shall be deemed to be the product of (x) the average of the closing prices
      over a five (5) day period ending three days before the day the current
      fair market value of the securities is being determined and (y) the number
      of shares of Common Stock into which each share of Preferred Stock is
      convertible at the time of such exercise; 

 

	 	
      (ii)
	
      if
      the Common Stock is traded over-the-counter, the fair market value shall
      be deemed to be the product of (x) the average of the closing bid prices
      quoted on the NASDAQ system (or similar system) over the five (5) day
      period ending one business day prior to the day the current fair market
      value of the securities is being determined and (y) the number of shares
      of Common Stock into which each share of Preferred Stock is convertible at
      the time of such exercise; and 

	
      
	
      (iii)
	
      if
      there is no public market for the Common Stock, then fair market value of
      the Preferred Stock shall be determined in good faith by the Board of
      Directors of the Company.

 

Upon
partial exercise by either cash or check or the Net Issuance method, the Company
shall promptly issue an amended Warrant representing the remaining number of
Units purchasable hereunder. All other terms and conditions of such amended
Warrant shall be identical to those contained herein, including, but not limited
to the Effective Date hereof. 

(c) Fractional
Shares. No
fractional Units or scrip representing fractional Units shall be issued upon the
exercise of this Warrant. As to any fraction of a Unit, which the Warrantholder
would otherwise be entitled to purchase upon such exercise, the Company shall
issue a
fractional share of Preferred Stock equal to the fraction of a Unit that was to
be issued.

4. AUTHORIZED
SHARES.

Subject
to effecting the Authorized Capital Increase, the Company covenants that during
the period that the Warrant is outstanding, it will reserve from its authorized
and unissued Series B Preferred Stock and Common Stock a sufficient number of
shares to provide for the issuance of the Series B Preferred Stock and Common
Stock issuable upon the exercise of any purchase rights under this Warrant and
the Common Stock Warrant, respectively. The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for the Preferred Stock and Common Stock that are
issuable upon the exercise of the purchase rights of this Warrant and the Common
Stock Warrant, respectively. The Company covenants that all Preferred Stock
which may be issued upon the exercise of the purchase rights represented by this
Warrant, and all Common Stock which may be issued upon the exercise of the
purchase rights represented by the Common Stock Warrant will, upon exercise of
the purchase rights represented by this Warrant or the Common Stock Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such
issue).

5. NO
RIGHTS AS STOCKHOLDER.

This
Warrant does not entitle the Warrantholder to any voting rights or other rights
as a stockholder of the Company prior to the exercise of the
Warrant.

 

6. ADJUSTMENT
RIGHTS.

The
adjustment rights applicable to the Units underlying this Warrant shall be as
follows: 

(a) The
adjustment rights applicable to the Preferred Stock purchasable hereunder are as
set forth in the Certificate of Designations. The Company shall promptly provide
the Warrantholder with any restatement, amendment, modification or waiver of the
Certificate of Designations or the rights and privileges set forth therein. The
Preferred Stock purchasable hereunder shall have the benefit of the same
antidilution rights applicable to such Preferred Stock as designated in the
Certificate of Designations, and the Company shall provide Warrantholder with
all notices and information at the time and to the extent it is required to do
so to the holders of the Preferred Stock.

(b) The
adjustment rights applicable to the Common Stock Warrant shall be as provided in
the form of Common Stock Warrant attached hereto as Exhibit A, the
provisions of which are incorporated herein by reference.

7.
  TRANSFERS.

Without
the prior written consent of the Company, neither this Warrant nor any of the
rights granted hereunder shall not be assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of this Warrant or of any rights
granted hereunder contrary to the provisions of this Section 8, or the levy
of any attachment or similar process upon the Warrant or such rights, shall be
null and void. Notwithstanding the foregoing, and upon written notice to the
Company, this Warrant may be transferred to any member or affiliate of the
Warrantholder; provided that, any such transferee agrees to be bound by the
terms and provisions of this Warrant. 

8. REGISTRATION
RIGHTS.
 

The
shares of Common Stock issuable upon the conversion of the Preferred Stock and
the shares of Common Stock issuable upon the exercise of the Common Stock
Warrant shall have all of the rights of registration granted to Registrable
Securities in Article 5 of the Securities Purchase Agreement (excluding any
provisions relating to the payment of cash penalties).

9. WARRANT
ADJUSTMENT FOR UNDERLYING SECURITIES. 

In the
event that all or any portion of this Warrant has not been exercised and (i) the
Company’s Series B Preferred Stock becomes subject to the automatic conversion
provisions of Section 6(i) of the Certificate of
Designations, then, with respect to the right to receive Series B Preferred
Stock in connection with the exercise of this Warrant, the Warrantholder hereby
agrees that this Warrant shall become exercisable for the number of shares of
Common Stock into which the unissued Preferred Stock is convertible at the time
of such mandatory conversion; or (ii) if the warrants issued pursuant to the
Securities Purchase Agreement become subject to the mandatory exercise provision
of Section 16 of such warrant, then, with respect to the issuance of Common
Stock Warrants upon the exercise of this Warrant, the Warrantholder agrees that
this Warrant shall become exercisable for the number of shares of Common Stock
into which the Common Stock Warrant is exercisable at the time of such mandatory
exercise. In addition, following the automatic conversion of the Series B
Preferred Stock, for purposes of a Net Issuance exercise under Section 3(b), the
words “Preferred Stock” shall be replaced with the words “Common Stock.”

 

10. TERMINATION
UPON CERTAIN EVENTS. 

 

If there
shall be a merger or consolidation of the Company with or into another
corporation (other than a merger or reorganization involving only a change in
the state of incorporation of the Company or the acquisition by the Company of
other businesses where the Company survives as a going concern), or the sale of
all or substantially all of the Company’s capital stock or assets to any other
person, or the liquidation or dissolution of the Company, then as a part of such
transaction, at the Company’s option, either:

 

(a) provision
shall be made so that the Warrantholder shall thereafter be entitled to receive
the number of shares of stock or other securities or property of the Company, or
of the successor corporation resulting from the merger, consolidation or sale,
to which the Warrantholder would have been entitled if the Holder had exercised
its rights pursuant to the Warrant immediately prior thereto (and, in such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 10 to the end that the provisions of Section 6 hereof
shall be applicable after that event in as nearly equivalent a manner as may be
practicable); or

 

(b) this
Warrant shall terminate on the effective date of such merger, consolidation or
sale (the “Termination
Date”) and
become null and void, provided that if
this Warrant shall not have otherwise terminated or expired, (i) the Company
shall have given the Warrantholder written notice of such Termination Date at
least twenty (20) business days prior to the occurrence thereof and (ii) the
Warrantholder shall have the right until 5:00 p.m., Eastern Standard Time, on
the day immediately prior to the Termination Date to exercise its rights
hereunder to the extent not previously exercised.

11. MISCELLANEOUS.

(a) Governing
Law. This
Warrant will be governed by and construed in accordance with the laws of the
State of New York, without giving effect to the conflict of law principles
thereof.

(b) Counterparts.
This
Warrant may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

(c) Notices. All
notices, requests and other communications hereunder shall be in writing, shall
be either (i) delivered by hand, (ii) made by telex, telecopy or facsimile
transmission, (iii) sent by overnight courier, or (iv) sent by registered mail,
postage prepaid, return receipt requested. All notices from the Company to the
Warrantholder shall be sent to One Embarcadero Center, Suite 2100, San
Francisco, CA 94111. All notices from the Warrantholder to the Company shall be
delivered to the Company at its offices at 1613 N. Dale Mabry Highway, Suite
100, Tampa, FL 33618 or such other address as the Company shall so notify the
Warrantholder. All notices, requests and other communications hereunder shall be
deemed to have been given (i) by hand, at the time of the delivery thereof to
the receiving party at the address of such party described above, (ii) if made
by telex, telecopy or facsimile transmission, at the time that receipt thereof
has been acknowledged by electronic confirmation or otherwise, (iii) if sent by
overnight courier, on the next business day following the day such notices is
delivered to the courier service, or (iv) if sent by registered mail, on the
fifth business day following the day such mailing is made.

 

(d) Severability. In the
event any one or more of the provisions of this Warrant shall for any reason be
held invalid, illegal or unenforceable, the remaining provisions of this Warrant
shall be unimpaired, and the invalid, illegal or unenforceable provision shall
be replaced by a mutually acceptable valid, legal and enforceable provision,
which comes closest to the intention of the parties underlying the invalid,
illegal or unenforceable provision. 

(e) Amendments. Any
provision of this Warrant may be amended or waived by a written instrument
signed by the Company and the Warrantholder.

(f) Capitalized
Terms.
Capitalized
terms not defined in this Warrant shall have the meaning ascribed to such term
in the Securities Purchase Agreement.

(g) Headings. The
headings in this Warrant are for convenience of reference only and shall in no
way modify or affect the meaning or construction of any of the terms or
provisions of this Warrant.

	 	SHELLS
      SEAFOOD RESTAURANTS, INC.
      

      

      By:______________________________ 

      Name:
        

      Title: 

 

EXHIBIT
A

FORM
OF WARRANT

 

EXHIBIT
B

 

NOTICE
OF EXERCISE

To: ____________________________

	
      (1)
	
      The
      undersigned Warrantholder hereby elects to purchase _______ Units (with
      each Unit representing one share of Series B Convertible Preferred Stock
      and a Warrant to purchase 10 shares of Common Stock) of Shells Seafood
      Restaurants, Inc. (the “Company”),
      pursuant to the terms of the Warrant dated the ___th day of May, 2005 (the
      “Warrant”)
      between the Company and the Warrantholder, and [tenders
      herewith payment of the purchase price for such shares in full, together
      with all applicable transfer taxes, if any] [elects pursuant to Section
      3(b) of the Warrant to effect a Net Issuance].

	
      (2)
	
      Please
      issue a certificate or certificates representing said Preferred Stock and
      Warrants in the name of the undersigned or in such other name as is
      specified below.

	
       WARRANTHOLDER:           
      
	 
      _________________________________

      (Name)

      

      _________________________________

      (Address)

      

      

      _________________________________

      

      

      By:______________________________

       

      Title:_____________________________

      

      Date:_____________________________

 

EXHIBIT
C

	I.  	
      ACKNOWLEDGMENT
      OF EXERCISE

 

The
undersigned ____________________________________, hereby acknowledge receipt of
the “Notice
of Exercise” from
________________________, to purchase ________ Units (each Unit representing one
share of Series B Convertible Preferred Stock and a Warrant to purchase 10
shares of Common Stock) of Shells Seafood Restaurants, Inc. pursuant to the
terms of the Warrant, and further acknowledges that _________ Units remain
subject to purchase under the terms of the Warrant.

	 	SHELLS
      SEAFOOD RESTAURANTS, INC.
      

      

      By:________________________________

      Name:

      Title:

      Date:Unassociated Document

AMENDMENT
NO.
1 TO LOAN AND SECURITY AGREEMENT

This
Amendment No. 1 (“Amendment
No. 1”) to
that certain Loan and Security Agreement dated as of March 23, 2005 (the
“Agreement”) is
made as of May 23, 2005, by and among Shells Seafood Restaurants, Inc., a
Delaware corporation (the “Company”), and
the Lenders (as defined in the Agreement) parties thereto. Capitalized terms not
herein defined shall have the meaning given to them in the
Agreement.

 

WHEREAS,
the Agreement expires, subject to certain exceptions set forth therein, upon the
earlier to occur of March 31, 2006 or the closing of a financing providing net
proceeds to the Company of not less than $1,600,000 (such earlier date being
referred to as the “Maturity
Date”);

 

WHEREAS,
on the date hereof, the Company closed a private financing transaction providing
net proceeds to the Company in excess of $1,600,000; and

 

WHEREAS,
the parties to the Agreement desire to provide for the extension of the
agreement for an additional two (2) years from the date hereof.

 

NOW,
THEREFORE, in consideration of the premises and other good and valuable
consideration, the parties hereby agree as follows:

 

1.  Amendment
to Section 1. Section
1 of the Agreement is hereby amended and restated in its entirety as
follows:

 

1.
AMOUNT. The
Lenders agree, on the terms and conditions of this Agreement, to make loans
(hereinafter called individually a “Loan” and, collectively, “the Loans”) to the
Company in an aggregate principal amount at any one time outstanding up to but
not exceeding One Million Six Hundred Thousand Dollars ($1,600,000); provided,
however that each Loan request by the Company to the Lenders, in the aggregate,
shall be in increments of $200,000, and each individual Lender is committing to
make Loans only up to the aggregate principal amount set forth opposite such
Lenders’ name on Exhibit A hereto. The obligation of a Lender to make loans up
to but not exceeding such aggregate principal amount at any one time outstanding
is hereinafter called its “commitment.” Within such limits, the Company may
borrow, repay, and reborrow funds under this revolving credit line, at any time
or from time to time from the date hereof to and including May 23, 2007 (the
“Maturity Date”), subject to earlier termination of the commitment of the
Lenders in accordance herewith. All Loans shall be made by, and repayments (if
any) made to, each of the Lenders, in proportion to the percentage interest set
forth opposite such Lenders’ name on Exhibit A hereto; and shall be repaid, to
the extent then still outstanding, on the Maturity Date (subject to earlier
repayment as provided in Section 4 below). 

 

2.  Entire
Agreement. This
Amendment No. 1, together with the provisions of the Agreement not amended
hereby, constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and supersede all other prior agreements, whether
written or oral, between the parties hereto.

 

3.  Counterparts. This
Amendment No. 1 may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document.

[Remainder
of Page Intentionally Left Blank]

 

IN
WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 1 to
be executed as of the date first above written.

SHELLS
SEAFOOD RESTAURANTS, INC.

By: ____/s/
Warren R. Nelson_______________

Name: Warren R.
Nelson

Title: Chief
Financial Officer

_/s/
Frederick R. Adler________________

        Frederick R.
Adler 

Trinad
Capital L.P.      

___/s/
Jay Wolf_____________________

Name: Jay
Wolf

Title: Managing
Director

Bruce
Galloway, IRA, R/O

By:
/s/ Bruce Galloway 

Name:
Bruce Galloway

Title:

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