Document:

EXHIBIT
      10.3

    

    COMMERCIAL
      SECURITY AGREEMENT

    

    Grantor:
      Shells
      Seafood Restaurants, Inc.

    16313
      North Dale Mabry Hwy, Suite 100

    Tampa,
      FL 33618

    

    Lender:
      COLONIAL
      BANK, N.A.

    Corporate
      Lending

    400
      N. Tampa Street

    Tampa,
      FL 33602

    

    THIS
      COMMERCIAL SECURITY AGREEMENT dated December 28, 2005, is made and executed
      between Shells Seafood Restaurants, Inc.

    (
      "Grantor") and COLONIAL BANK, N.A. ("Lender").

    

    GRANT
      OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
      a
      security interest in the Collateral to secure the

    Indebtedness
      and agrees that Lender shall have the rights stated in this Agreement with
      respect to the Collateral, in addition to all other rights

    which
      Lender may have by law.

    

    COLLATERAL
      DESCRIPTION. The
      word
      "Collateral" as used in this Agreement means the following descr ibed property,
      whether now owned or

    hereafter
      acquired, whether now existing or hereafter ar ising, and wherever located,
      in
      which Grantor is giving to Lender a secur ity interest for

    the
      payment of the Indebtedness and performance of all other obligations under
      the
      Note and this Agreement:

    Blanket
      Lien on all Business Assets including but not limited to all Inventory,
      Accounts, Equipment and General Intangibles

    In
      addition, the word "Collateral" also includes all the following, whether now
      owned or hereafter acquired, whether now existing or hereafter

    arising,
      and wherever located:

    (A)
      All
      accessions, attachments, accessor ies, tools, parts, supplies, replacements
      of
      and additions to any of the collateral described herein,

    whether
      added now or later.

    (B)
      All
      products and produce of any of the property descr ibed in this Collateral
      section.

    (C)
      All
      accounts, general intangibles, instruments, rents, monies, payments, and all
      other rights, arising out of a sale, lease, consignment

    or
      other
      disposition of any of the property described in this Collateral
      section.

    (D)
      All
      proceeds (including insurance proceeds) from the sale, destruction, loss, or
      other disposition of any of the property described in this

    Collateral
      section, and sums due from a third party who has damaged or destroyed the
      Collateral or from that party’s insurer, whether due

    to
      judgment, settlement or other process.

    (E)
      All
      records and data relating to any of the property described in this Collateral
      section, whether in the form of a writing, photograph,

    microfilm,
      microfiche, or electronic media, together with all of Grantor’s right, title,
      and interest in and to all computer software required to

    utilize,
      create, maintain, and process any such records or data on electronic
      media.

    

    RIGHT
      OF SETOFF. To
      the
      extent permitted by applicable law, Lender reserves a right of setoff in all
      Grantor ’s accounts with Lender (whether

    checking,
      savings, or some other account). This includes all accounts Grantor holds
      jointly with someone else and all accounts Grantor may

    open
      in
      the future. However , this does not include any IRA or Keogh accounts, or any
      trust accounts for which setoff would be prohibited by

    law.
      Grantor authorizes Lender, to the extent permitted by applicable law, to charge
      or setoff all sums owing on the Indebtedness against any

    and
      all
      such accounts.

    

    GRANTOR’S
      REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL.
With
      respect to the Collateral, Grantor represents and promises to Lender
      that:

    Perfection
      of Secur ity Interest. Grantor
      agrees to take whatever actions are requested by Lender to perfect and continue
      Lender’s security

    interest
      in the Collateral. Upon request of Lender, Grantor will deliver to Lender any
      and all of the documents evidencing or constituting the

    Collateral,
      and Grantor will note Lender ’s interest upon any and all chattel paper and
      instruments if not delivered to Lender for possession

    by
      Lender.
This
      is a continuing Secur ity Agreement and will continue in effect even though
      all
      or any par t of the Indebtedness is paid in full

    and
      even though for a per iod of time Grantor may not be indebted to Lender
      .

    Notices
      to Lender . Grantor
      will promptly notify Lender in writing at Lender ’s address shown above (or such
      other addresses as Lender may

    designate
      from time to time) prior to any (1) change in Grantor’s name; (2) change in
      Grantor’s assumed business name(s); (3) change

    in
      the
      management of the Corporation Grantor; (4) change in the authorized signer(s)
      ;
      (5) change in Grantor’ s pr incipal office address;

    (6)
      change
      in Grantor ’s state of organization; (7) conversion of Grantor to a new or
      different type of business entity; or (8) change in

    any
      other
      aspect of Grantor that directly or indirectly relates to any agreements between
      Grantor and Lender. No change in Grantor ’s name

    or
      state
      of organizationwill take effect until after Lender has received
      notice.

    No
      Violation. The
      execution and delivery of this Agreement will not violate any law or agreement
      governing Grantor or to which Grantor is

    a
      party,
      and its certificate or articles of incorporation and bylaws do not prohibit
      any
      term or condition of this Agreement.

    Enforceability
      of Collateral. To
      the
      extent the Collateral consists of accounts, chattel paper , or general
      intangibles, as defined by the

    Uniform
      Commercial Code, the Collateral is enforceable in accordance with its terms,
      is
      genuine, and fully complies with all applicable laws

    and
      regulations concerning form, content and manner of preparation and execution,
      and all persons appearing to be obligated on the

    Collateral
      have author ity and capacity to contract and are in fact obligated as they
      appear to be on the Collateral. At the time any account

    becomes
      subject to a secur ity interest in favor of Lender, the account shall be a
      good
      and valid account representing an undisputed, bona

    fide
      indebtedness incurred by the account debtor, for merchandise held subject to
      delivery instructions or previously shipped or delivered

    pursuant
      to a contract of sale, or for services previously per formed by Grantor with
      or
      for the account debtor. So long as this Agreement

    remains
      in
      effect, Grantor shall not, without Lender’ s prior written consent, compromise,
      settle, adjust, or extend payment under or with

    regard
      to
      any such Accounts. There shall be no setoffs or counterclaims against any of
      the
      Collateral, and no agreement shall have been

    made
      under
      which any deductions or discounts may be claimed concerning the Collateral
      except those disclosed to Lender in writing.

    Location
      of the Collateral. Except
      in
      the ordinary course of Grantor ’s business, Grantor agrees to keep the
      Collateral (or to the extent the

    Collateral
      consists of intangible property such as accounts or general intangibles, the
      records concerning the Collateral) at Grantor ’s

    address
      shown above or at such other locations as are acceptable to Lender. Upon
      Lender’s request, Grantor will deliver to Lender in form

    satisfactory
      to Lender a schedule of real properties and Collateral locations relating to
      Grantor’s operations, including without limitation the

    following:
      (1) all real property Grantor owns or is purchasing; (2) all real property
      Grantor is renting or leasing; (3) all storage facilities

    Grantor
      owns, rents, leases, or uses; and (4) all other proper ties where Collateral
      is
      or may be located.

    Removal
      of the Collateral. Except
      in
      the ordinary course of Grantor ’s business, including the sales of inventory,
      Grantor shall not remove

    the
      Collateral from its existing location without Lender’ s pr ior written consent.
      To the extent that the Collateral consists of vehicles, or

    other
      titled property, Grantor shall not take or permit any action which would require
      application for cer tificates of title for the vehicles

    outside
      the State of Florida, without Lender’s pr ior written consent. Grantor shall,
      whenever requested, advise Lender of the exact location

    of
      the
      Collateral.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Transactions
      Involving Collateral. Except
      for
      inventory sold or accounts collected in the ordinary course of Grantor ’s
      business, or as

    otherwise
      provided for in this Agreement, Grantor shall not sell, offer to sell, or
      otherwise transfer or dispose of the Collateral. While

    Grantor
      is
      not in default under this Agreement, Grantor may sell inventory, but only in
      the
      ordinary course of its business and only to buyers

    who
      qualify as a buyer in the ordinary course of business. A sale in the ordinary
      course of Grantor ’s business does not include a transfer in

    par
      tial
      or total satisfaction of a debt or any bulk sale. Grantor shall not pledge,
      mortgage, encumber or otherwise permit the Collateral to

    be
      subject
      to any lien, security interest, encumbrance, or charge, other than the secur
      ity
      interest provided for in this Agreement, without

    the
      prior
      wr itten consent of Lender. This includes secur ity interests even if junior
      in
      r ight to the secur ity interests granted under this

    Agreement.
      Unless waived by Lender , all proceeds from any disposition of the Collateral
      (
      for whatever reason) shall be held in trust for

    Lender
      and
      shall not be commingledwith any other funds; provided however, this requirement
      shall not constitute consent by Lender to any

    sale
      or
      other disposition. Upon receipt, Grantor shall immediately deliver any such
      proceeds to Lender.

    Title.
      Grantor
      represents and war rants to Lender that Grantor holds good and marketable title
      to the Collateral, free and clear of all liens

    and
      encumbrances except for the lien of this Agreement. No financing statement
      cover
      ing any of the Collateral is on file in any public

    office
      other than those which reflect the secur ity interest created by this Agreement
      or to which Lender has specifically consented.

    Grantor
      shall defend Lender’s rights in the Collateral against the claims and demands of
      all other persons.

    Repairs
      and Maintenance. Grantor
      agrees to keep and maintain, and to cause others to keep and maintain, the
      Collateral in good order ,

    repair
      and
      condition at all times while this Agreement remains in effect. Grantor further
      agrees to pay when due all claims for work done

    on,
      or
      services rendered or material furnished in connection with the Collateral so
      that no lien or encumbrance may ever attach to or be

    filed
      against the Collateral.

    Inspection
      of Collateral. Lender
      and
      Lender’s designated representatives and agents shall have the right at all
      reasonable times to examine

    and
      inspect the Collateral wherever located.

    Taxes,
      Assessments and Liens. Grantor
      will pay when due all taxes, assessments and liens upon the Collateral, its
      use
      or operation, upon

    this
      Agreement, upon any promissory note or notes evidencing the Indebtedness, or
      upon any of the other Related Documents. Grantor

    may
      withhold any such payment or may elect to contest any lien if Grantor is in
      good
      faith conducting an appropr iate proceeding to contest

    the
      obligation to pay and so long as Lender’ s interest in the Collateral is not
      jeopardized in Lender’s sole opinion. If the Collateral is

    subjected
      to a lien which is not discharged within fifteen (15) days, Grantor shall
      deposit with Lender cash, a sufficient corporate surety

    bond
      or
      other security satisfactory to Lender in an amount adequate to provide for
      the
      discharge of the lien plus any interest, costs,

    reasonable
      attorneys’ fees or other charges that could accrue as a result of foreclosure or
      sale of the Collateral. In any contest Grantor

    shall
      defend itself and Lender and shall satisfy any final adverse judgment before
      enforcement against the Collateral. Grantor shall name

    Lender
      as
      an additional obligee under any surety bond furnished in the contest
      proceedings. Grantor further agrees to furnish Lender with

    evidence
      that such taxes, assessments, and governmental and other charges have been
      paid
      in full and in a timely manner. Grantor may

    withhold
      any such payment or may elect to contest any lien if Grantor is in good faith
      conducting an appropriate proceeding to contest the

    obligation
      to pay and so long as Lender’s interest in the Collateral is not jeopardiz
      ed.

    Compliance
      with Governmental Requirements. Grantor
      shall comply promptly with all laws, ordinances, rules and regulations of
      all

    governmental
      author ities, now or hereafter in effect, applicable to the ownership,
      production, disposition, or use of the Collateral, including

    all
      laws
      or regulations relating to the undue erosion of highly-erodible land or relating
      to the conversion of wetlands for the production of an

    agr
      icultural product or commodity. Grantor may contest in good faith any such
      law,
      ordinance or regulation and withhold compliance

    dur
      ing
      any proceeding, including appropriate appeals, so long as Lender ’s interest in
      the Collateral, in Lender ’s opinion, is not jeopardized.

    Hazardous
      Substances. Grantor
      represents and warrants that the Collateral never has been, and never will
      be so
      long as this Agreement

    remains
      a
      lien on the Collateral, used in violation of any Environmental Laws or for
      the
      generation, manufacture, storage, transpor tation,

    treatment,
      disposal, release or threatened release of any Hazardous Substance. The
      representations and warranties contained herein are

    based
      on
      Grantor ’s due diligence in investigating the Collateral for Hazardous
      Substances. Grantor hereby (1) releases and waives any

    future
      claims against Lender for indemnity or contr ibution in the event Grantor
      becomes liable for cleanup or other costs under any

    Environmental
      Laws, and (2) agrees to indemnify and hold harmless Lender against any and
      all
      claims and losses resulting from a breach

    of
      this
      provision of this Agreement. This obligation to indemnify shall survive the
      payment of the Indebtedness and the satisfaction of this

    Agreement.

    Maintenance
      of Casualty Insurance. Grantor
      shall procure and maintain all risks insurance, including without limitation
      fire, theft and

    liability
      coverage together with such other insurance as Lender may require with respect
      to the Collateral, in form, amounts, coverages and

    basis
      reasonably acceptable to Lender and issued by a company or companies reasonably
      acceptable to Lender . Grantor , upon request of

    Lender,
      will deliver to Lender from time to time the policies or cer tificates of
      insurance in form satisfactory to Lender, including stipulations

    that
      coverages will not be cancelled or diminished without at least ten (10) days’ pr
      ior written notice to Lender and not including any

    disclaimer
      of the insurer’s liability for failure to give such a notice. Each insurance
      policy also shall include an endorsement providing that

    coverage
      in favor of Lender will not be impaired in any way by any act, omission or
      default of Grantor or any other person. In connection

    with
      all
      policies cover ing assets in which Lender holds or is offered a security
      interest, Grantor will provide Lender with such loss payable

    or
      other
      endorsements as Lender may require. If Grantor at any time fails to obtain
      or
      maintain any insurance as required under this

    Agreement,
      Lender may (but shall not be obligated to) obtain such insurance as Lender
      deems
      appropriate, including if Lender so chooses

    "single
      interest insurance," which will cover only Lender’s interest in the
      Collateral.

    Application
      of Insurance Proceeds. Grantor
      shall promptly notify Lender of any loss or damage to the Collateral, whether
      or
      not such

    casualty
      or loss is covered by insurance. Lender may make proof of loss if Grantor fails
      to do so within fifteen (15) days of the casualty.

    All
      proceeds of any insurance on the Collateral, including accrued proceeds thereon,
      shall be held by Lender as par t of the Collateral. If

    Lender
      consents to repair or replacement of the damaged or destroyed Collateral, Lender
      shall, upon satisfactory proof of expenditure, pay

    or
      reimburse Grantor fromthe proceeds for the reasonable cost of repair or
      restoration. If Lender does not consent to repair or replacement

    of
      the
      Collateral, Lender shall retain a sufficient amount of the proceeds to pay
      all
      of the Indebtedness, and shall pay the balance to

    Grantor.
      Any proceeds which have not been disbursed within six (6) months after their
      receipt and which Grantor has not committed to

    the
      repair
      or restoration of the Collateral shall be used to prepay the
      Indebtedness.

    Insurance
      Reserves. Lender
      may
      require Grantor tomaintain with Lender reserves for payment of insurance
      premiums, which reserves shall

    be
      created
      by monthly payments from Grantor of a sum estimated by Lender to be sufficient
      to produce, at least fifteen (15) days before

    the
      premium due date, amounts at least equal to the insurance premiums to be paid.
      If fifteen (15) days before payment is due, the reserve

    funds
      are
      insufficient, Grantor shall upon demand pay any deficiency to Lender . The
      reserve funds shall be held by Lender as a general

    deposit
      and shall constitute a non-interest-bearing account which Lender may satisfy
      by
      payment of the insurance premiums required to be

    paid
      by
      Grantor as they become due. Lender does not hold the reserve funds in trust
      for
      Grantor, and Lender is not the agent of Grantor

    for
      payment of the insurance premiums required to be paid by Grantor. The
      responsibility for the payment of premiums shall remain

    Grantor’s
      sole responsibility.

    Insurance
      Repor ts. Grantor,
      upon request of Lender, shall furnish to Lender repor ts on each existing policy
      of insurance showing such

    information
      as Lender may reasonably request including the following: (1) the name of the
      insurer ; (2) the risks insured; (3) the amount

    of
      the
      policy; (4) the property insured; (5) the then cur rent value on the basis
      of
      which insurance has been obtained and the manner of

    determining
      that value; and (6) the expiration date of the policy. In addition, Grantor
      shall upon request by Lender (however not more

    often
      than
      annually) have an independent appraiser satisfactory to Lender determine, as
      applicable, the cash value or replacement cost of

    the
      Collateral.

    Financing
      Statements. Grantor
      authorizes Lender to file a UCC financing statement, or alternatively, a copy
      of
      this Agreement to perfect

    Lender’
s
      secur ity interest. At Lender’s request, Grantor additionally agrees to sign all
      other documents that are necessary to per fect,

    protect,
      and continue Lender ’s security interest in the Property. Grantor will pay all
      filing fees, title transfer fees, and other fees and costs

    involved
      unless prohibited by law or unless Lender is required by law to pay such fees
      and costs. Grantor irrevocably appoints Lender to

    execute
      documents necessary to transfer title if there is a default. Lender may file
      a
      copy of this Agreement as a financing statement. If

    Grantor
      changes Grantor ’s name or address, or the name or address of any person
      granting a security interest under this Agreement

    changes,
      Grantor will promptly notify the Lender of such change.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    GRANTOR’S
      RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until
      default and except as otherwise provided below with respect to

    accounts,
      Grantor may have possession of the tangible personal property and beneficial
      use
      of all the Collateral and may use it in any lawful

    manner
      not
      inconsistent with this Agreement or the Related Documents, provided that
      Grantor’s right to possession and beneficial use shall not

    apply
      to
      any Collateral where possession of the Collateral by Lender is required by
      law
      to perfect Lender ’s security interest in such Collateral.

    Until
      otherwise notified by Lender, Grantor may collect any of the Collateral
      consisting of accounts. At any time and even though no Event of

    Default
      exists, Lender may exercise its r ights to collect the accounts and to notify
      account debtors to make payments directly to Lender for

    application
      to the Indebtedness. If Lender at any time has possession of any Collateral,
      whether before or after an Event of Default, Lender shall

    be
      deemed
      to have exercised reasonable care in the custody and preservation of the
      Collateral if Lender takes such action for that purpose as

    Grantor
      shall request or as Lender, in Lender’s sole discretion, shall deem appropr iate
      under the circumstances, but failure to honor any request

    by
      Grantor
      shall not of itself be deemed to be a failure to exercise reasonable care.
      Lender shall not be required to take any steps necessary to

    preserve
      any rights in the Collateral against prior parties, nor to protect, preserve
      or
      maintain any security interest given to secure the

    Indebtedness.

    

    LENDER’S
      EXPENDITURES. If
      any
      action or proceeding is commenced that would materially affect Lender’s interest
      in the Collateral or if

    Grantor
      fails to comply with any provision of this Agreement or any Related Documents,
      including but not limited to Grantor’s failure to

    discharge
      or pay when due any amounts Grantor is required to discharge or pay under this
      Agreement or any Related Documents, Lender on

    Grantor’s
      behalf may (but shall not be obligated to) take any action that Lender deems
      appropriate, including but not limited to discharging or

    paying
      all
      taxes, liens, security interests, encumbrances and other claims, at any time
      levied or placed on the Collateral and paying all costs for

    insuring,
      maintaining and preserving the Collateral. All such expenditures incurred or
      paid by Lender for such purposes will then bear interest at

    the
      rate
      charged under the Note from the date incurred or paid by Lender to the date
      of
      repayment by Grantor. All such expenses will become a

    part
      of
      the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be
      added to the balance of the Note and be apportioned

    among
      and
      be payable with any installment payments to become due during either (1) the
      term of any applicable insurance policy; or (2) the

    remaining
      term of the Note; or (C) be treated as a balloon payment which will be due
      and
      payable at the Note’s maturity. The Agreement also

    will
      secure payment of these amounts. Such r ight shall be in addition to all other
      r
      ights and remedies to which Lender may be entitled upon

    Default.

    

    DEFAULT.
      Each
      of
      the following shall constitute an Event of Default under this
      Agreement:

    Payment
      Default. Grantor
      fails to make any payment when due under the Indebtedness.

    Other
      Defaults. Grantor
      fails to comply with or to perform any other term, obligation, covenant or
      condition contained in this Agreement or

    in
      any of
      the Related Documents or to comply with or to perform any term, obligation,
      covenant or condition contained in any other

    agreement
      between Lender and Grantor .

    Default
      in Favor of Third Parties. Should
      Borrower or any Grantor default under any loan, extension of credit, secur
      ity
      agreement, purchase

    or
      sales
      agreement, or any other agreement, in favor of any other creditor or person
      that
      may materially affect any of Grantor’s proper ty or

    Grantor’s
      or any Grantor’s ability to repay the Indebtedness or perform their respective
      obligations under this Agreement or any of the

    Related
      Documents.

    False
      Statements. Any
      warranty, representation or statement made or furnished to Lender by Grantor
      or
      on Grantor’ s behalf under this

    Agreement
      or the Related Documents is false or misleading in any mater ial respect, either
      nowor at the time made or furnished or becomes

    false
      or
      misleading at any time thereafter.

    Defective
      Collateralization. This
      Agreement or any of the Related Documents ceases to be in full force and effect
      (including failure of any

    collateral
      document to create a valid and perfected security interest or lien) at any
      time
      and for any reason.

    Insolvency.
      The
      dissolution or termination of Grantor ’s existence as a going business, the
      insolvency of Grantor, the appointment of a

    receiver
      for any part of Grantor’s property, any assignment for the benefit of creditors,
      any type of creditor workout, or the commencement

    of
      any
      proceeding under any bankruptcy or insolvency laws by or against Grantor
      .

    Creditor
      or For feiture Proceedings. Commencement
      of foreclosure or for feiture proceedings, whether by judicial proceeding,
      self-help,

    repossession
      or any other method, by any creditor of Grantor or by any governmental agency
      against any collateral securing the

    Indebtedness.
      This includes a garnishment of any of Grantor’ s accounts, including deposit
      accounts, with Lender. However, this Event of

    Default
      shall not apply if there is a good faith dispute by Grantor as to the validity
      or reasonableness of the claim which is the basis of the

    creditor
      or forfeiture proceeding and if Grantor gives Lender wr itten notice of the
      creditor or for feiture proceeding and deposits with Lender

    monies
      or
      a surety bond for the creditor or forfeiture proceeding, in an amount determined
      by Lender, in its sole discretion, as being an

    adequate
      reserve or bond for the dispute.

    Events
      Affecting Guarantor. Any
      of the
      preceding events occurs with respect to any guarantor, endorser, surety, or
      accommodation party

    of
      any of
      the Indebtedness or guarantor , endorser, surety, or accommodation party dies
      or
      becomes incompetent or revokes or disputes the

    validity
      of, or liability under, any Guaranty of the Indebtedness.

    Adverse
      Change. A
      material
      adverse change occurs in Grantor’s financial condition, or Lender believes the
      prospect of payment or

    per
      formance of the Indebtedness is impaired.

    Insecurity.
      Lender
      in
      good faith believes itself insecure.

    Cure
      Provisions. If
      any
      default, other than a default in payment is curable and if Grantor has not
      been
      given a notice of a breach of the

    same
      provision of this Agreement within the preceding twelve (12) months, it may
      be
      cured if Grantor, after receiving written notice from

    Lender
      demanding cure of such default: (1) cures the default within fifteen (15) days;
      or (2) if the cure requires more than fifteen (15)

    days,
      immediately initiates steps which Lender deems in Lender’s sole discretion to be
      sufficient to cure the default and thereafter

    continues
      and completes all reasonable and necessary steps sufficient to produce
      compliance as soon as reasonably practical.

    

    RIGHTS
      AND REMEDIES ON DEFAULT. If
      an
      Event of Default occurs under this Agreement, at any time thereafter , Lender
      shall have all the

    r
      ights of
      a secured party under the Florida Uniform Commercial Code. In addition and
      without limitation, Lender may exercise any one or more

    of
      the
      following rights and remedies:

    Accelerate
      Indebtedness. Lender
      may
      declare the entire Indebtedness, including any prepayment penalty which Grantor
      would be required

    to
      pay,
      immediately due and payable, without notice of any kind to Grantor
      .

    Assemble
      Collateral. Lender
      may
      require Grantor to deliver to Lender all or any por tion of the Collateral
      and
      any and all cer tificates of title

    and
      other
      documents relating to the Collateral. Lender may require Grantor to assemble
      the
      Collateral and make it available to Lender at a

    place
      to
      be designated by Lender. Lender also shall have full power to enter upon the
      property of Grantor to take possession of and

    remove
      the
      Collateral. If the Collateral contains other goods not covered by this Agreement
      at the time of repossession, Grantor agrees

    Lender
      may
      take such other goods, provided that Lender makes reasonable efforts to return
      them to Grantor after repossession.

    Sell
      the Collateral. Lender
      shall have full power to sell, lease, transfer, or otherwise deal with the
      Collateral or proceeds thereof in Lender’s

    own
      name
      or that of Grantor. Lender may sell the Collateral at public auction or private
      sale. Unless the Collateral threatens to decline

    speedily
      in value or is of a type customarily sold on a recognized market, Lender will
      give Grantor, and other persons as required by law,

    reasonable
      notice of the time and place of any public sale, or the time after which any
      pr
      ivate sale or any other disposition of the Collateral

    is
      to be
      made. However, no notice need be provided to any person who, after Event of
      Default occurs, enters into and authenticates an

    agreement
      waiving that person’s right to notification of sale. The requirements of
      reasonable notice shall be met if such notice is given at

    least
      ten
      (10) days before the time of the sale or disposition. All expenses relating
      to
      the disposition of the Collateral, including without

    limitation
      the expenses of retaking, holding, insur ing, preparing for sale and selling
      the
      Collateral, shall become a part of the Indebtedness

    secured
      by
      this Agreement and shall be payable on demand, with interest at the Note rate
      from date of expenditure until repaid.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Appoint
      Receiver . In
      the
      event of a suit being instituted to foreclose this Agreement, Lender shall
      be
      entitled to apply at any time pending

    such
      foreclosure suit to the court having jurisdiction thereof for the appointment
      of
      a receiver of any or all of the Collateral, and of all rents,

    incomes,
      profits, issues and revenues thereof, from whatsoever source. The parties agree
      that the cour t shall for thwith appoint such

    receiver
      with the usual powers and duties of receivers in like cases. Such appointment
      shall be made by the cour t as a matter of strict

    right
      to
      Lender and without notice to Grantor, and without reference to the adequacy
      or
      inadequacy of the value of the Collateral, or to

    Grantor’s
      solvency or any other party defendant to such suit. Grantor hereby specifically
      waives the right to object to the appointment of a

    receiver
      and agrees that such appointment shall be made as an admitted equity and as
      a
      matter of absolute right to Lender, and consents to

    the
      appointment of any officer or employee of Lender as receiver. Lender shall
      have
      the right to have a receiver appointed to take

    possession
      of all or any par t of the Collateral, with the power to protect and preserve
      the Collateral, to operate the Collateral preceding

    foreclosure
      or sale, and to collect the Rents from the Collateral and apply the proceeds,
      over and above the cost of the receivership, against

    the
      Indebtedness. The receiver may serve without bond if permitted by law. Lender’s
      r ight to the appointment of a receiver shall exist

    whether
      or
      not the apparent value of the Collateral exceeds the Indebtedness by a
      substantial amount. Employment by Lender shall not

    disqualify
      a person from serving as a receiver .

    Collect
      Revenues, Apply Accounts. Lender,
      either itself or through a receiver , may collect the payments, rents, income,
      and revenues from

    the
      Collateral. Lender may at any time in Lender ’s discretion transfer any
      Collateral into Lender’s own name or that of Lender’s nominee

    and
      receive the payments, rents, income, and revenues therefrom and hold the same
      as
      security for the Indebtedness or apply it to

    payment
      of
      the Indebtedness in such order of preference as Lender may determine. Insofar
      as
      the Collateral consists of accounts, general

    intangibles,
      insurance policies, instruments, chattel paper, choses in action, or similar
      property, Lender may demand, collect, receipt for ,

    settle,
      compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender
      may determine, whether or not Indebtedness or

    Collateral
      is then due. For these purposes, Lender may, on behalf of and in the name of
      Grantor, receive, open and dispose of mail

    addressed
      to Grantor; change any address to which mail and payments are to be sent; and
      endorse notes, checks, drafts, money orders,

    documents
      of title, instruments and items per taining to payment, shipment, or storage
      of
      any Collateral. To facilitate collection, Lender

    may
      notify
      account debtors and obligors on any Collateral to make payments directly to
      Lender .

    Obtain
      Deficiency. If
      Lender
      chooses to sell any or all of the Collateral, Lender may obtain a judgment
      against Grantor for any deficiency

    remaining
      on the Indebtedness due to Lender after application of all amounts received
      from
      the exercise of the r ights provided in this

    Agreement.
      Grantor shall be liable for a deficiency even if the transaction described
      in
      this subsection is a sale of accounts or chattel

    paper.

    Other
      Rights and Remedies. Lender
      shall have all the rights and remedies of a secured creditor under the
      provisions of the Uniform

    Commercial
      Code, as may be amended from time to time. In addition, Lender shall have and
      may exercise any or all other rights and

    remedies
      it may have available at law, in equity, or otherwise.

    Election
      of Remedies. Except
      as
      may be prohibited by applicable law, all of Lender’s rights and remedies,
      whether evidenced by this

    Agreement,
      the Related Documents, or by any other writing, shall be cumulative and may
      be
      exercised singularly or concurrently. Election

    by
      Lender
      to pursue any remedy shall not exclude pursuit of any other remedy, and an
      election to make expenditures or to take action to

    per
      form
      an obligation of Grantor under this Agreement, after Grantor ’s failure to
      perform, shall not affect Lender ’s r ight to declare a default

    and
      exercise its remedies.

    

    MISCELLANEOUS
      PROVISIONS. The
      following miscellaneous provisions are a part of this Agreement:

    Amendments.
      This
      Agreement, together with any Related Documents, constitutes the entire
      understanding and agreement of the parties

    as
      to the
      matters set forth in this Agreement. No alteration of or amendment to this
      Agreement shall be effective unless given in wr iting

    and
      signed
      by the par ty or parties sought to be charged or bound by the alteration or
      amendment.

    Attorneys’
      Fees; Expenses. Grantor
      agrees to pay upon demand all of Lender ’s costs and expenses, including Lender
’s reasonable

    attorneys’
      fees and Lender’s legal expenses, incurred in connection with the enforcement of
      this Agreement. Lender may hire or pay

    someone
      else to help enforce this Agreement, and Grantor shall pay the costs and
      expenses of such enforcement. Costs and expenses

    include
      Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a
      lawsuit, including reasonable attorneys’ fees and

    legal
      expenses for bankruptcy proceedings (including effor ts to modify or vacate
      any
      automatic stay or injunction), appeals, and any

    anticipated
      post-judgment collection services. Grantor also shall pay all court costs and
      such additional fees as may be directed by the

    court.

    Caption
      Headings. Caption
      headings in this Agreement are for convenience purposes only and are not to
      be
      used to interpret or define the

    provisions
      of this Agreement.

    Governing
      Law. This Agreement will be governed by federal law applicable to Lender and,
      to
      the extent not preempted by federal law, the

    laws
      of the State of Flor ida without regard to its conflicts of law provisions.
      This
      Agreement has been accepted by Lender in the State of

    Florida.

    No
      Waiver by Lender. Lender
      shall not be deemed to have waived any rights under this Agreement unless such
      waiver is given in wr iting

    and
      signed
      by Lender . No delay or omission on the part of Lender in exercising any right
      shall operate as a waiver of such right or any

    other
      r
      ight. A waiver by Lender of a provision of this Agreement shall not prejudice
      or
      constitute a waiver of Lender’s right otherwise to

    demand
      strict compliance with that provision or any other provision of this Agreement.
      No prior waiver by Lender , nor any course of

    dealing
      between Lender and Grantor , shall constitute a waiver of any of Lender’s rights
      or of any of Grantor’s obligations as to any future

    transactions.
      Whenever the consent of Lender is required under this Agreement, the granting
      of
      such consent by Lender in any instance

    shall
      not
      constitute continuing consent to subsequent instances where such consent is
      required and in all cases such consent may be

    granted
      or
      withheld in the sole discretion of Lender .

    Notices.
      Any
      notice
      required to be given under this Agreement shall be given in writing, and shall
      be effective when actually delivered,

    when
      actually received by telefacsimile (unless otherwise required by law), when
      deposited with a nationally recognized overnight courier,

    or,
      if
      mailed, when deposited in the United States mail, as first class, certified
      or
      registered mail postage prepaid, directed to the addresses

    shown
      near
      the beginning of this Agreement. Any party may change its address for notices
      under this Agreement by giving written notice

    to
      the
      other parties, specifying that the purpose of the notice is to change the
      party’s address. For notice purposes, Grantor agrees to keep

    Lender
      informed at all times of Grantor ’s current address. Unless otherwise provided
      or required by law, if there is more than one Grantor ,

    any
      notice
      given by Lender to any Grantor is deemed to be notice given to all
      Grantors.

    Power
      of Attorney. Grantor
      hereby appoints Lender as Grantor’s ir revocable attorney-in-fact for the
      purpose of executing any documents

    necessary
      to perfect, amend, or to continue the security interest granted in this
      Agreement or to demand termination of filings of other

    secured
      par ties. Lender may at any time, and without further authorization from
      Grantor, file a carbon, photographic or other reproduction

    of
      any
      financing statement or of this Agreement for use as a financing statement.
      Grantor will reimburse Lender for all expenses for the

    per
      fection and the continuation of the perfection of Lender ’s secur ity interest
      in the Collateral.

    Severability.
      If
      a cour
      t of competent jur isdiction finds any provision of this Agreement to be
      illegal, invalid, or unenforceable as to any

    circumstance,
      that finding shall not make the offending provision illegal, invalid, or
      unenforceable as to any other circumstance. If feasible,

    the
      offending provision shall be considered modified so that it becomes legal,
      valid
      and enforceable. If the offending provision cannot be so

    modified,
      it shall be considered deleted from this Agreement. Unless otherwise required
      by
      law, the illegality, invalidity, or unenforceability

    of
      any
      provision of this Agreement shall not affect the legality, validity or
      enforceability of any other provision of this Agreement.

    Successors
      and Assigns. Subject
      to
      any limitations stated in this Agreement on transfer of Grantor’s interest, this
      Agreement shall be

    binding
      upon and inure to the benefit of the par ties, their successors and assigns.
      If
      ownership of the Collateral becomes vested in a

    person
      other than Grantor , Lender, without notice to Grantor, may deal with Grantor’ s
      successors with reference to this Agreement and the

    Indebtedness
      by way of forbearance or extension without releasing Grantor from the
      obligations of this Agreement or liability under the

    Indebtedness.

    Survival
      of Representations and Warranties. All
      representations, war ranties, and agreements made by Grantor in this Agreement
      shall

    survive
      the execution and delivery of this Agreement, shall be continuing in nature,
      and
      shall remain in full force and effect until such time

    as
      Grantor’s Indebtedness shall be paid in full.

    Time
      is of the Essence. Time
      is of
      the essence in the performance of this Agreement.

    Waive
      Jury. All par ties to this Agreement hereby waive the right to any jury trial
      in
      any action, proceeding, or counterclaim brought by any

    par
      ty against any other par ty.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    DEFINITIONS.
      The
      following capitalized words and terms shall have the following meanings when
      used in this Agreement. Unless specifically

    stated
      to
      the contrary, all references to dollar amounts shall mean amounts in lawful
      money of the United States of Amer ica. Words and terms

    used
      in
      the singular shall include the plural, and the plural shall include the singular
      , as the context may require. Words and terms not otherwise

    defined
      in
      this Agreement shall have the meanings attributed to such terms in the Uniform
      Commercial Code:

    Agreement.
      The
      word
      "Agreement" means this Commercial Security Agreement, as this Commercial Secur
      ity Agreement may be amended

    or
      modified fromtime to time, together with all exhibits and schedules attached
      to
      this Commercial Security Agreement from time to time.

    Borrower
      . The
      word
      "Borrower" means Shells Seafood Restaurants, Inc. and includes all co-signers
      and co-makers signing the Note and all

    their
      successors and assigns.

    Collateral.
      The
      word
      "Collateral" means all of Grantor’s right, title and interest in and to all the
      Collateral as descr ibed in the Collateral

    Descr
      iption section of this Agreement.

    Default.
      The
      word
      "Default" means the Default set forth in this Agreement in the section titled
      "Default".

    Environmental
      Laws. The
      words
      "Environmental Laws" mean any and all state, federal and local statutes,
      regulations and ordinances

    relating
      to the protection of human health or the environment, including without
      limitation the Comprehensive Environmental Response,

    Compensation,
      and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
      ("CERCLA"), the Super fund Amendments and

    Reauthorization
      Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
      Act, 49 U.S.C. Section 1801, et seq.,

    the
      Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or
      other applicable state or federal laws, rules, or

    regulations
      adopted pursuant thereto.

    Event
      of Default. The
      words
      "Event of Default" mean any of the events of default set forth in this Agreement
      in the default section of this

    Agreement.

    Grantor.
      The
      word
      "Grantor" means Shells Seafood Restaurants, Inc..

    Guaranty.
      The
      word
      "Guaranty" means the guaranty from guarantor, endorser , surety, or
      accommodation party to Lender, including

    without
      limitation a guaranty of all or part of the Note.

    Hazardous
      Substances. The
      words
      "Hazardous Substances" mean mater ials that, because of their quantity,
      concentration or physical,

    chemical
      or infectious characteristics, may cause or pose a present or potential hazard
      to human health or the environment when

    improper
      ly used, treated, stored, disposed of, generated, manufactured, transpor ted
      or
      otherwise handled. The words "Hazardous

    Substances"
      are used in their very broadest sense and include without limitation any and
      all
      hazardous or toxic substances, mater ials or

    waste
      as
      defined by or listed under the Environmental Laws. The term "Hazardous
      Substances" also includes, without limitation, petroleum

    and
      petroleum by-products or any fraction thereof and asbestos.

    Indebtedness.
      The
      word
      "Indebtedness" means the indebtedness evidenced by the Note or Related
      Documents, including all principal and

    interest
      together with all other indebtedness and costs and expenses for which Grantor
      is
      responsible under this Agreement or under any of

    the
      Related Documents.

    Lender.
      The
      word
      "Lender" means COLONIAL BANK, N.A., its successors and assigns.

    Note.
      The
      word
      "Note" means the Note executed by Shells Seafood Restaurants, Inc. in the pr
      incipal amount of $500,000.00 dated

    December
      28, 2005, together with all renewals of, extensions of, modifications of,
      refinancings of, consolidations of, and substitutions for

    the
      note
      or credit agreement.

    Proper
      ty. The
      word
      "Proper ty" means all of Grantor ’s r ight, title and interest in and to all the
      Proper ty as described in the "Collateral

    Descr
      iption" section of this Agreement.

    Related
      Documents. The
      words
      "Related Documents" mean all promissory notes, credit agreements, loan
      agreements, environmental

    agreements,
      guaranties, security agreements, mortgages, deeds of trust, security deeds,
      collateral mortgages, and all other instruments,

    agreements
      and documents, whether now or hereafter existing, executed in connection with
      the Indebtedness.

    GRANTOR
      HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT
      AND AGREES TO ITS

    TERMS.
      THIS AGREEMENT IS DATED DECEMBER 28, 2005.

    

    GRANTOR:

    SHELLS
      SEAFOOD RESTAURANTS, INC.

    By:/s/
      War
      ren R. Nelson, Vice President/CFO 

    Shells
      Seafood Restaurants, Inc.Exhibit
      10.4

    

    

    

    

    July
      7,
      2006

    

    

    Mr.
      Warren Nelson

    Shells
      Seafood Restaurants, Inc.

    16313
      N.
      Dale Mabry Highway

    Suite
      100

    Tampa,
      FL
      33618

    

    
      	
              Re: 

            	Colonial Bank, N.A. (the
              “Bank”) 
	 	Loan to Shells Seafood Restaurants,
              Inc.
              (“Shells”) 

    

    

    Dear
      Mr.
      Nelson:

    

    This
      letter will confirm that effective as of June 28, 2006, the Bank has agreed
      to
      extend the maturity date of Loan Number 8035494726 (the “Loan”) and the
      repayment of the Promissory Note in the principal amount of $500,000 (the
“Note”) issued thereunder from June 28, 2006 to September 28, 2006. The Bank
      acknowledges and agrees that no Event of Default has occurred under the Loan
      or
      the Note from the date it was entered into through the date of hereof. Except
      as
      set forth above, all of the terms and conditions of the Loan and the Note remain
      in full force and effect.

     

    Please
      call me at (813) 314-5285 with any questions.

     

    
      	 	Sincerely, 
	 	 
	 	COLONIAL BANK, N.A. 
	 	 
	 	 
	 	By:     /s/ David
              Ogburn
	 	
              Name:
                J. David Ogburn 

            
	 	
              Title:
                Sr. Vice
                President

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