Document:

Exhibit 10.4
                            Co-development Agreement

In order to provide an uniform IT-based working platform to the domestic
professional guarantor organizations, Shenzhen Small & Medium Sized Enterprises
Credit Guarantee Center (hereinafter referred to as "Party A") and Shenzhen
Hengtaifeng Technology Co., Ltd. (hereinafter referred to as "Party B") will
cooperate to jointly develop a set of computer software named Information System
for Credit Guarantee Management of Small & Medium Sized Enterprises (hereinafter
referred to as "the Software"). This agreement is signed to standardize the
cooperative project and ensure it is implemented successfully.

Article One: General Rules

Party A is chosen by the State Economic and Trade Commission to carry out the
nation-wide Small & Medium Sized Enterprises Credit Guarantee Experiment. It has
accumulated relatively rich practical experience in professional guarantee field
and built an integrated management architecture. Relatively speaking, it is
influential in the industry.

Party B has relatively rich experience in professional software development. It
has built a professional development team and is influential in Shenzhen.

Based on the principle of mutual rewarding and through amicable negotiation,
Party A and Party B decide to cooperate to develop the Software. Part A is not
only the developer, but also the first one to try with the Software. After the
Software passes the trial process, Party A will be entitled to own a copy of the
official version of the Software, and can recommend it to the State Economic &
Trade Commission for an appraisal. Party A and Party B will jointly commit
themselves to the promotion and application of the Software.

Article Two: Development Period

The development period of this project will be six months since this agreement
takes effect. Detailed development plan will be discussed later.

Article Three: Party A's Responsibilities

1.   Party A has the responsibility to provide demand information, business
     process for the development, and the whole guarantee business contents
     required for the development.
2.   When the Software goes into testing stage, Party A is responsible for
     providing required computer system environment (include hardware, network
     and system software) to ensure the Software is tested and used in normal
     condition.
3.   When the Software is promoted and implemented, Party A has the
     responsibility to assist Party B and jointly carry out the marketing
     activities.
4.   Party A may have access to Party B's technical information, trade secrets

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     and other information that Party B deems not appropriate to disclose to the
     public. Party A shall keep all the information strictly confidential.

Article Four:   Party B's Responsibilities

1.   Party B is the implementing party of the technology, and is responsible for
     system analysis, system design, software programming, system test and other
     related works.
2.   During the testing stage of the Software, Party B is responsible for
     providing the technical guidelines for building the computer system
     environment required when Party A tests the Software.
3.   Within one year of the Party A's formal start of using the Software, Party
     B is responsible for providing technical support with no charge.
4.   Based on the fact that the Software is developed by both Parties, Party B
     is responsible to disclose to Party A all the technical documents (include
     the topology architecture and the source codes, etc.) produced in the
     development. But Party A must not make available these documents to any
     third party.
5.   Party B may have access to Party A's business data and other information
     that Party A deems not appropriate to disclose to the public. Party B shall
     keep all the information strictly confidential.

Article Five:   Development Cost

During the Software development process, Party A and Party B shall undertake the
project development cost of their own parts. Party A and Party B will apply for
"Ke San" Shenzhen Government Funds for Technology Development with this
cooperation project, and the entire fund obtained will be invested in this
project. Before the said governmental funds are obtained, as Party B will have
to make substantial investment at the early stage, Party A will provide to Party
B RMB 50,000.00 as the development subsidy, which will be paid in two times -
the first 40% to be paid upon confirmation of the development requirements, the
rest 60% to be paid upon successful completion of testing. After the said
governmental funds are obtained, Party B agrees to firstly use it to return the
RMB 50,000.00 to Party A.

Article Six:    Rights and Interests

1.    Copyright
o     The copyright is jointly owned by Party A and Party B. When the Software
      is successfully developed, it is Party B's responsibility to register the
      copyright of the Software. The owner of the copyright should be registered
      as both Party A and Party B.
o     If any party needs to license, transfer or pledge the copyright, written
      approval from both parties must be obtained, otherwise such action should
      be deemed invalid.
o     Each Party holds one copy of the application form for software copyright
      registration, the software appraisal documents and the related
      certification documents, which are needed when applying for the software
      copyright registration. The original copy of the Certificate of Computer
      Software Copyright Registration will be kept by Party B, and Party A will

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      keep its copy and scanned pictures. When necessary, Party A may borrow the
      original copy from Party B.
o     Each party will take on 50 percents of the cost for software copyright
      registration and of other related cost.
o     Both Parties should commit themselves to intelligence copyright
      protection.
2.    Party A has the right to use the Software for free (including the upgraded
      version and modified version of the Software), but this right is limited
      only to Party A and its subsidiaries.
3.    The income obtained by sales of the Software should be distributed after
      deducting the taxes from the actual transaction amount. Party A owns 20
      percents and Party B owns 80 percents. The income will be distributed
      semiannually until the protection period of the software copyright
      expires.

Article Seven: This Agreement enters into effect instantly after it is signed.
Other issues not included in the Agreement will be discussed separately.

Article Eight: This Agreement is made in two duplicate copies, and each party
holds one copy.

Party A: Shenzhen Small & Medium Sized Enterprises Credit Guarantee Center
(Sealed with stamp) Legal Representative (or authorized representative):
Dated: November 12, 2002

Party B: Shenzhen Hengtaifeng Technology Co., Ltd. (Sealed with stamp)
Legal Representative (or authorized representative):
Dated:

                                       3Unassociated Document

CERTIFICATE
OF DESIGNATION

OF

SERIES
B CONVERTIBLE 

PREFERRED
STOCK

OF

SHELLS
SEAFOOD RESTAURANTS, INC.

Pursuant
to Section 151 of the General Corporation Law of the State of
Delaware.

Shells
Seafood Restaurants, Inc., a Delaware corporation (the “Corporation”),
certifies that pursuant to the authority contained in the Certificate of
Incorporation (the “Certificate
of Incorporation”) and in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, its Board of Directors has adopted the following
resolution, creating a series of its Preferred Stock, $0.01 par value per share,
designated as:

	
      Number
      of
	 
	
      Series:
	
      Designated
      Shares:

	 	 
	
      Series
      B Convertible 
	
      800,000
      (initially convertible into 16,000,000

	
      Preferred
      Stock
	
      shares
      of Common Stock)

 

RESOLVED, that a
series of the class of authorized Preferred Stock, $0.01 par value per share, of
the Corporation (the “Preferred
Stock”) be
designated “Series B Convertible Preferred Stock” (the “Series
B Preferred Stock” and
shares thereof “Series
B Preferred Shares”) and
hereby be created. The voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of the shares of such series are as
follows (with capitalized terms being defined as set forth in Section 10 below,
except as otherwise defined herein):

1.  Number
of Shares. The
number of shares constituting the Series B Preferred Stock shall be as set forth
above. 

2.  Ranking. Subject
to Section 5 below, the Series B Preferred Stock ranks senior to the
Corporation’s common stock, par value $0.01 per share, (the “Common
Stock”) as to
distributions upon a Liquidation Event. 

3.  Voting.
Except as
may be otherwise provided in this Certificate of Designation or as otherwise
required by applicable law, the Series B Preferred Stock shall vote together
with the Common Stock as a single class on all actions to be taken by the
stockholders of the Corporation. The holders of Series B Preferred Stock shall
be entitled to notice of all stockholders meetings in accordance with the
Corporation’s bylaws. Each share of Series B Preferred Stock shall entitle the
holder thereof to one vote per each whole share of Common Stock into which such
share of Series B Preferred Stock is convertible as of the record date for such
vote or, if no record date is specified, as of the date of such vote. For so
long as any of the shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the holders of at least a
majority of the shares of Series B Preferred Stock then outstanding:
(i)alter or
change adversely the powers, preferences or rights given to the Series B
Preferred Stock or alter or amend this Certificate of Designation; (ii)
authorize or create any class of stock ranking as to a distribution of assets
upon a Liquidation Event senior to or pari passu with the Series B Preferred
Stock; or (iii) issue any additional shares of the Corporation’s Series A
Convertible Preferred Stock, par value $0.01 per share (the “Series
A Preferred Stock”), or
alter or change the powers, preferences or rights given to the Series A
Preferred Stock.

 

4.  Dividends.
Subject
to the rights of the holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series B Preferred Stock with
respect to dividends, if the
Board shall declare a dividend payable upon the then outstanding shares of the
Common Stock, the Board shall declare at the same time a dividend upon each
outstanding share of the Series B Preferred Stock, payable at the same time as
the dividend paid on the Common Stock, in an amount per share of the Series B
Preferred Stock equal to the amount payable on the largest number of whole
shares of the Common Stock into which each share of the Series B Preferred Stock
is then convertible pursuant to the applicable provisions of this Certificate of
Designations. If the assets of the Corporation shall be insufficient to pay each
of the holders of Common Stock and Series B Preferred Stock the full amount of
dividends to which they shall be entitled pursuant to the immediately preceding
sentence, then the holders of Series B Preferred Stock and the holders of Common
Stock shall share in such payment of dividends on a pro rata basis according to
the respective amounts each such holder would have received had there been
sufficient assets therefor.

5.  Liquidation. Subject
to the rights of the holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series B Preferred Stock with
respect to a Liquidation Event, upon any Liquidation Event, each holder of
shares of Series B Preferred Stock shall be entitled to be paid out of the
assets of the Corporation legally available for distribution to its
stockholders, before any payment shall be made to the holders of Common Stock or
any other class or series of stock ranking on liquidation junior to the Series B
Preferred Stock, an amount equal to the sum of (a) the Series B Liquidation
Value of each share of Series B Preferred Stock held by such holder, plus any
declared but unpaid dividends thereon and (b) the amount such holder would
receive if all holders of Series B Preferred Stock had converted their shares of
Series B Preferred Stock in accordance with Section 6 below immediately prior to
such Liquidation Event. Such amount payable with respect to one share of the
Series B Preferred Stock is sometimes referred to as the “Series
B Liquidation Preference Payment.” If
upon such Liquidation Event, the assets to be distributed among the holders of
Series B Preferred Stock shall be insufficient to permit payment to the holders
of Series B Preferred Stock of the amount distributable as aforesaid, then,
subject to the rights of any stock ranking senior to the Series B Preferred
Stock, the entire assets of the Corporation to be so distributed shall be
distributed ratably among the holders of Series B Preferred Stock in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full. 

Written
notice of any proposed Liquidation Event, stating a payment date, the amount of
the Series B Liquidation Preference Payment and the place where said Series B
Liquidation Preference Payment shall be payable, shall be furnished to each
holder of record of Series B Preferred Stock not less than 20 days prior to the
payment date stated therein, to the holders of record of Series B Preferred
Stock, such notice to be addressed to each such holder at its address as shown
by the records of the Corporation. 

 

6.  Conversions. The
holders of shares of Series B Preferred Stock shall have the following
conversion rights and obligations:

a.  Right
to Convert. Subject
to the terms and conditions of this Section 6, the holder of any share or
shares of Series B Preferred Stock shall have the right, at the holder’s option
at any time and from time to time, to convert any share of Series B Preferred
Stock into such number of fully paid and nonassessable shares of Common Stock as
is obtained by dividing (i) the Series B Liquidation Value, plus all declared
and unpaid dividends thereon, by (ii) the Conversion Price then in effect. Such
rights of conversion shall be exercised by the holder of Series B Preferred
Stock by giving written notice that the holder elects to convert a stated number
of shares of Series B Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares to be converted (or, if such
certificate or certificates have been lost, stolen or mutilated, an executed
affidavit of loss with respect thereto) to the Corporation at its principal
office (or such other office or agency of the Corporation as the Corporation may
designate by notice in writing to the holders of the Series B Preferred Stock)
at any time during its usual business hours on the date set forth in such
notice, together with a statement of the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be
issued.

b.  Issuance
of Certificates; Time Conversion Effected.
Promptly, and in any event, within three business days, after the receipt of the
written notice referred to in Section 6(a) and the surrender of the
certificate or certificates for the share or shares of Series B Preferred Stock
to be converted (or, if applicable, an affidavit of loss) and the payment of any
applicable transfer taxes, the Corporation shall issue and deliver, or cause to
be issued and delivered, to the holder, registered in such name or names as such
holder may direct, a certificate or certificates for the number of whole shares
of Common Stock issuable upon the conversion of such share or shares of Series B
Preferred Stock. To the extent permitted by law, such conversion shall be deemed
to have been effected and the Conversion Price shall be determined as of the
close of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for such share
or shares shall have been surrendered (or affidavit of loss has been received by
the Corporation, if applicable) as aforesaid, and at such time the rights of the
holder of such share or shares of Series B Preferred Stock shall cease,
including without limitation, the right to receive the Series B Liquidation
Preference Payment, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby. 

c.  Series
B Conversion Price.

i.  Initial
Conversion Price.  The
initial Conversion Price of the Series B Preferred Stock will be $0.75 per
share. In order to prevent dilution of the conversion rights granted to holders
of Series B Preferred Stock hereunder, the Conversion Price will be subject to
adjustment from time to time pursuant to Sections 6(c), 6(f) and 6(g). The
adjustments set forth in Sections 6(c), 6(f) and 6(g) shall apply to the first
event that triggers such adjustment and each subsequent event that triggers such
adjustment. For purposes of this Section 6(c), the Corporation shall be deemed
to have issued or sold Common Stock upon any actions under the circumstances as
set forth in this Section 6(c) or Section 6(d) below.

 

ii.  Adjustment
for Dilutive Events. If and
whenever on or after the Original Issue Date, the Corporation issues or sells,
or in accordance with Section 6(d) below is deemed to have issued or sold, any
shares of Common Stock for consideration per share less than the Conversion
Price in effect immediately prior to the time of such issue or sale (a
“Dilutive
Event”), then
forthwith upon the occurrence of any such Dilutive Event the Conversion Price
will be reduced (in order to increase the number of shares of Common Stock into
which each Series B Preferred Share is convertible) to that price per share
determined by multiplying the Conversion Price in effect immediately prior to
the time of such Dilutive Event by a fraction, (i) the numerator of which shall
be (x) the number of shares of Common Stock Deemed Outstanding immediately prior
to the Dilutive Event, plus (y) the number of shares of Common Stock that the
aggregate consideration (if any) received by the Corporation for the total
number of such shares of Common Stock so issued or sold, or deemed issued or
sold, in such Dilutive Event would purchase at the Conversion Price in effect
immediately prior to such Dilutive Event, and (ii) the denominator of which
shall be the number of shares of Common Stock Deemed Outstanding immediately
after such Dilutive Event (which for the purposes of this subsection (ii) shall
include any actual issuances of Common Stock or securities convertible into or
exchangeable for Common Stock that have been made to existing stockholders in
connection with such Dilutive Event). Notwithstanding the foregoing, the
issuance by the Corporation of any of the following shall not constitute a
Dilutive Event: (A) securities exercisable into up to 10% of the then issued and
outstanding shares of Common Stock (on a fully diluted basis) which are issued
or issuable to employees, consultants, vendor, landlord or members of the Board
for the purpose of soliciting or retaining their services to the extent approved
by the Board or compensation committee thereof, (B) securities issued in
connection with a merger, strategic acquisition, business combination or
joint-venture, (C) securities issued to an independent Person, the purpose of
which is not to raise capital, or (D) securities issued upon conversion,
exercise or exchange of any equity securities issued on or prior to the Original
Issue Date so long as such securities are issued pursuant to the terms of such
previously issued equity securities as in effect at the time of such prior
issuance (collectively, items (A)-(D) shall be referred to as the “Exempt
Issuances”). For
purposes of determining the adjusted Conversion Price pursuant to this Section
6(c)(ii), the “Common
Stock Deemed Outstanding” shall
be the number of shares of Common Stock actually issued and outstanding plus the
number of shares of Common Stock issuable on the conversion of all actually
issued and outstanding Preferred Stock at the conversion price then in effect
for each respective series of Preferred Stock immediately prior to such
adjustment.

d.  Issuance
of Rights, Options or Convertible Securities.
If, other than pursuant to an Exempt Issuance, (i) the Corporation in any manner
grants any rights or options to subscribe for or to purchase shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock (such rights or options referred to herein as “Options” and
such convertible or exchangeable stock or securities referred to herein as
“Convertible
Securities”) and
(ii) the Price Per Share (as defined below) of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Conversion Price in
effect immediately prior to the time of the granting of such Options,
then (x) the
total maximum amount of such Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum number of
Convertible Securities issuable upon the exercise of such Options will be deemed
to be Common Stock issued and sold by the Corporation, (y) the consideration
received pursuant to the Dilutive Event will equal the Price Per Share times the
number of shares of Common Stock so deemed issued and sold by the Corporation
and (z) the number of shares of Common Stock so deemed issued and sold by the
Corporation shall be included in the Common Stock Deemed Outstanding. For
purposes of this Section 6(d), the “Price
Per Share” will be
determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon exercise of all such Options, plus in the case of such Options which relate
to Convertible Securities, and without double-counting, the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price will be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common Stock is
actually issued upon the exercise of such Options or the conversion or exchange
of such Convertible Securities; provided, that, if such Options or Convertible
Securities expire or lapse without being exercised and/or converted into Common
Stock, then the Conversion Price will be readjusted to the Conversion Price
which would have been in effect had such expired or lapsed Options or
Convertible Securities not been issued. 

 

i.  Change
in Option Price or Conversion Rate. If at
any time there is a reduction in (i) the purchase price provided for in any
Options, (ii) the additional consideration, if any, payable upon the conversion
or exchange of any Convertible Securities or (iii) the rate at which any
Convertible Securities are convertible or exchangeable for Common Stock, then
the Conversion Price in effect at the time of such change will be readjusted to
the Conversion Price which would have been in effect had those Options or
Convertible Securities still outstanding at the time of such change provided for
such reduced purchase price, additional consideration or changed conversion
rate, as the case may be, at the time such Options or Convertible Securities
were initially granted, issued or sold. If such Options or Convertible
Securities expire or lapse without being exercised and/or converted into Common
Stock, then the Conversion Price will be readjusted to the Conversion Price
which would have been in effect had such expired or lapsed Options or
Convertible Securities not been issued.

ii.  Calculation
of Consideration Received. If any
shares of Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received therefor
or the Price Per Share, as the case may be, will be deemed to be the amount
received or to be received by the Corporation therefor. In case any shares of
Common Stock, Options or Convertible Securities are issued or sold in whole or
in part for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation or the non-cash portion of the Price
Per Share, as the case may be, will be the Fair Market Value of such
consideration received or to be received, respectively, by the Corporation. If
any shares of Common Stock, Options or Convertible Securities are issued in
connection with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor will be deemed to be the Fair
Market Value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. 

 

iii.  Integrated
Transactions. In the
event that any share of Common Stock, Option or Convertible Security is issued
in connection with the issuance or sale of other securities of the Corporation,
which issuances together comprise one integrated transaction in which no
specific consideration is allocated to such share of Common Stock, Option or
Convertible Security by the parties thereto, such Common Stock, Option or
Convertible Security shall be deemed to have been issued for such consideration
as is determined in good faith by the Board. 

iv.  Treasury
Shares. The
number of shares of Common Stock Deemed Outstanding at any given time shall not
include shares owned or held by or for the account of the Corporation, and the
disposition of any shares so owned or held shall be considered an issuance or
sale of Common Stock by the Corporation.

e.  Partial
Conversion; Fractional Shares. In case
the number of shares of Series B Preferred Stock represented by the certificate
or certificates surrendered pursuant to Section 6(a) exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series B Preferred Stock represented by
the certificate or certificates surrendered which are not to be converted. If
any fractional share of Common Stock would be delivered upon such conversion,
the Corporation, in lieu of delivering such fractional share, may pay to the
holder surrendering the Series B Preferred Stock for conversion an amount in
cash equal to the current Fair Market Value of such fractional share.

f.  Subdivision
or Combination of Common Stock.
In case
the Corporation shall at any time subdivide (by any stock split, stock dividend,
reclassification or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased. 

g.  Dividends
and Distributions.
 In the
event the Corporation, at any time or from time to time after the Original Issue
Date shall make, issue or fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock, Options or Convertible Securities without
payment of any consideration by such holder for such additional shares of Common
Stock, Options or Convertible Securities, then, except for dividends which are
of the type contemplated by Section 6(f) above (in which case the provisions
thereof shall apply), following the record date fixed for the determination of
holders of shares of Common Stock entitled to receive such dividend or other
distribution (or the date of such dividend or other distribution is paid if no
record date is fixed), the Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable upon conversion of each share
of Series B Preferred Stock shall be increased in proportion to the increase in
number of shares of Common Stock Deemed Outstanding, which calculation for
purposes of this Section 6(g) only, shall include the number of shares of Common
Stock issued or issuable as a result of the dividend or other distribution. If
the Corporation takes a record of the holders of Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable in shares
of Common Stock, Options or in Convertible Securities or (ii) to subscribe for
or purchase shares of Common Stock, Options or Convertible Securities, then such
record date will be deemed to be the date of the issuance or sale of the shares
of Common Stock deemed to have been issued or sold upon the declaration of such
dividend or upon the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.

 

 

h.  Notice
of Adjustment. 

i.  Immediately
upon any adjustment of the Conversion Price, the Corporation shall give written
notice thereof to all holders of shares of Series B Preferred Stock specifying
the Conversion Price in effect thereafter.

ii.  The
Corporation shall give written notice to all holders of Series B Preferred Stock
at least 20 days prior to the date on which the Corporation closes its books or
takes a record for determining rights to vote with respect to any Liquidation
Event. The Corporation shall also give written notice to the holders of Series B
Preferred Stock at least 20 days prior to the date on which any Liquidation
Event shall occur.

i.  Automatic
Conversion.
Each
share of Series B Preferred Stock that is issued and outstanding at 5:00 P.M.
New York City time on May 23, 2015 shall automatically be converted into the
number of shares of Common Stock into which such shares of Series B Preferred
Stock are then convertible pursuant to this Section 6 without any further action
by any holder of such shares and whether or not the certificate(s) representing
such shares are surrendered to the Corporation or its transfer
agent.

j.  Stock
to be Reserved.
Following the consummation of the Authorized Capital Increase (as such term is
defined and described in the Securities Purchase Agreement dated May 23, 2005
between the Corporation and the signatories thereto), the Corporation will at
all times reserve and keep available out of its authorized Common Stock, solely
for the purpose of issuance upon the conversion of Series B Preferred Stock as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of all then outstanding shares of Series B Preferred Stock.
The Corporation covenants that all shares of Common Stock which shall be so
issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof. The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed. The Corporation will not take any
action which results in any adjustment of any Conversion Price if the total
number of shares of Common Stock issued and issuable after such action upon
conversion of the Series B Preferred Stock would exceed the total number of
shares of Common Stock then authorized by the Certificate of
Incorporation.

k.  No
Reissuance of Series B Preferred Stock. Shares
of Series B Preferred Stock which are converted into shares of Common Stock as
provided herein shall not be reissued. 

 

l.  Issue
Tax.
The
issuance of certificates for shares of Common Stock upon conversion of Series B
Preferred Stock shall be made without charge to the holders thereof for any
issuance tax in respect thereof, provided that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
holder of the Series B Preferred Stock which is being converted. 

m.  Closing
of Books. The
Corporation will at no time close its transfer books against the transfer of any
shares of Series B Preferred Stock or of any shares of Common Stock issued or
issuable upon the conversion of any shares of Series B Preferred Stock in any
manner which interferes with the timely conversion of such Series B Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws. 

 

n.  No
Impairment.
The
Corporation will not, by amendment of this Certificate of Designation or its
Certificate of Incorporation, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of the all the provisions of
this Section 6 and in the taking all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series B Preferred Stock against impairment. 

 

	7.  	
      Miscellaneous.

a.  Registration
of Transfer. The
Corporation will keep at its principal office a register for the registration of
shares of Series B Preferred Stock. Upon the surrender of any certificate
representing shares of Series B Preferred Stock at such place, the Corporation
will, at the request of the record holder of such certificate, execute and
deliver (at the Corporation’s expense (excluding any applicable transfer taxes,
which shall be borne by the holder)) a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of Series B
Preferred Stock represented by the surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares of Series B Preferred Stock as is requested by the holder of the
surrendered certificate and will be substantially identical in form to the
surrendered certificate.

b.  Replacement. Upon
receipt of evidence reasonably satisfactory to the Corporation of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
shares of Series B Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation upon surrender of such
certificate, the Corporation will (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Series B Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.

8.  Amendment
and Waiver. No
amendment, modification or waiver will be binding or effective with respect to
any provision of this Certificate of Designation without the prior written
consent of the holder or holders of at least a majority of the outstanding
Series B Preferred Stock at the time such action is taken; provided that no
action will adversely discriminate among any holders of shares of Series B
Preferred Stock other than as a result of differences in the number of shares of
Series B Preferred Stock held by such holders without the consent of such
holders.

 

9.  Notices. Except
as otherwise expressly provided, all notices referred to herein will be in
writing and will be deemed delivered (a) if delivered personally, when
delivered, (b) if sent by overnight delivery, on the next business day
following deposit with a nationally recognized courier, (c) if sent by
registered or certified mail, return receipt requested, postage prepaid, on the
third business day after registration or certification thereof, or (d) if sent
by confirmed facsimile transmission, on the date transmitted if during normal
business hours of the recipient and otherwise on the next business day,
provided, that any such facsimile transmission shall be followed by delivery via
another method permitted hereby, in each case, when delivery is made (i) if to
the Corporation, at its principal executive offices, and (ii) if to any
stockholder, at such holder’s address as it appears in the stock records of the
Corporation (unless otherwise indicated in writing by such holder).

10.  Definitions.

For
purposes of this Certificate of Designation, the definitions of terms contained
in the Certificate of Incorporation are hereby incorporated by reference, except
to the extent that any term is specifically defined in this Certificate of
Designation. As used in this Certificate of Designation:

“Board” means
the Corporation’s Board of Directors.

“Conversion
Price” means
$0.75 per share or, in case an adjustment of such conversion price has taken
place pursuant to the provisions of Section 6, then the conversion price as last
adjusted and in effect at the date any share or shares of Series B Preferred
Stock are surrendered for conversion.

“Corporate
Sale” means
any merger, consolidation, reorganization or other similar transaction or series
of transactions of the Corporation or any of its Subsidiaries into or with any
other corporation or entity (other than with and into a corporation or other
entity, 100% of the outstanding capital stock or other equity interests of which
are held by the Corporation), or a sale, conveyance, mortgage, transfer,
license, pledge, lease or other disposition of all or substantially all of the
assets of the Corporation or any of its Subsidiaries, or any other transaction
or series of transactions, in all instances in which the holders of the
outstanding voting securities of the Corporation immediately prior to such
transaction hold less than 50% of the voting securities of the surviving entity
immediately following such transaction. 

“Fair
Market Value” means
(a) with respect to property other than cash or securities, the value of such
property as determined in good faith by the Board, irrespective of any
accounting treatment; and (b) with respect to a share of the capital stock of
the Corporation or any other Person, as of a particular date (the “Valuation
Date”), the
following: (i) if such capital stock is then listed on a national stock
exchange, the closing sale price of one share of such capital stock on such
exchange on the last trading day prior to the Valuation Date; (ii) if such
capital stock is then quoted on Nasdaq, the closing sale price of one share of
such capital stock on Nasdaq on the last trading day prior to the Valuation Date
or, if no such closing sale price is available, the average of the high bid and
the low ask price quoted on Nasdaq on the last trading day prior to the
Valuation Date; (iii) if such capital stock is then quoted on any domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, the average of the bid and
asked prices on the last trading day prior to the Valuation Date, or (D) if such
capital stock is not then listed on a national stock exchange, quoted on Nasdaq,
or quoted on any domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, the Fair Market Value of one share of such
capital stock as of the Valuation Date shall be determined in good faith by the
Board. 

 

 

“Liquidation
Event” shall
mean (a) any dissolution, liquidation or winding-up of the Corporation, whether
voluntary or involuntary, or (b) unless otherwise agreed in writing by holders
of at least a majority of the outstanding Series B Preferred Stock, any
Corporate Sale. 

 

“Original
Issue Date” means
the date as of which the first shares of Series B Preferred Stock are issued by
the Corporation. 

“Person” means
an individual, corporation, partnership, limited liability company, limited
partnership, syndicate, person (including, without limitation, a “Person” as
defined in Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a government

 

“Series
B Liquidation Value” means
$15.00 (adjusted appropriately in the event the shares of Series B Preferred
Stock are subdivided into a greater number, whether by stock split, stock
dividend, reclassification or otherwise, or combined into a lesser number,
whether by reverse stock split, reclassification or otherwise).

[Signature
Page Follows]

 

 

IN
WITNESS WHEREOF, the
undersigned has executed this Certificate of Designation of Series B Convertible
Preferred Stock on this 23rd day of
May, 2005.

 

	 	 	 
	 	SHELLS SEAFOOD
      RESTAURANTS, INC.
	 
 	 
 	 
 
		By:  	/s/ Warren R. Nelson
	 	
      
      

      Name: Warren R. Nelson  

      Title:
      Executive Vice President of Finance and Chief Financial
      Officer

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