Document:

Unassociated Document

SECURITIES
PURCHASE AGREEMENT

THIS
SECURITIES PURCHASE AGREEMENT (the
“Agreement”), is
made and entered into as of __________ ___, 2005,
by and among Shells Seafood Restaurants, Inc. a Delaware corporation (the
“Company”), and
the undersigned prospective investor (the “Investor”) who is
subscribing for units (the “Units”), each Unit consisting of one share of the
Company’s Series B Convertible Preferred Stock, par value $0.01 per share (the
“Series
B Preferred Stock”), which is
initially convertible into 20 shares of the Company’s common stock, par value
$0.01 per share (the “Common
Stock”), and a
warrant to purchase ten shares of Common Stock at an exercise price of $1.30 per
full share (the
“Warrants”).

	1.  	
      PURCHASE
      AND SALE OF UNITS; CLOSING

	1.1  	
      Purchase
      and Sale of the Units.
      

(a)  Subject
to the terms and conditions of this Agreement, the Investor agrees to purchase
from the Company the number of Units indicated on the signature page hereto (the
“Subscription
Amount”) at a
purchase price of $15.00 per Unit (the “Unit
Price”) for an
aggregate purchase price indicated on the signature page hereto (the
“Aggregate Purchase
Price”). The
Company reserves the right in its sole discretion to accept or reject the
Subscription (as defined below) in whole or in part or to allot to the Investor
less than the Subscription Amount. The actual Subscription Amount, if any,
accepted by the Company is referred to in this Agreement as the “Actual
Subscription Amount”. In the
event the
Actual Subscription Amount differs
from the Subscription Amount, the term Aggregate Purchase Price as utilized
herein shall refer to the sum derived by multiplying the Unit Price by the
Actual Subscription Amount. Subject to the terms and conditions of this
Agreement, the Company shall issue and sell to the Investor the number of Units
equal to the Actual Subscription Amount. 

(b)  Within
two business day of the date of this Agreement, the Investor shall deliver the
Aggregate Purchase Price by wire transfer to Wells Fargo Bank, National
Association, as escrow agent (the “Escrow
Agent”), in
accordance with the wire transfer instructions attached hereto as Exhibit
A. 

1.2  Aggregate
Number of Units Offered. The
Company has entered and intends to enter into this same form of Securities
Purchase Agreement with certain other investors (the “Other
Investors”) and
desires to offer and sell (the “Offering”) up to
an aggregate of 800,000 Units (the “Offering
Amount”).

1.3  Escrow
Account. All
payments for Units made by the Investor as contemplated by Section 1.1 above
will be held by the Escrow Agent for the Investor’s benefit in a non-interest
bearing escrow account. Such moneys placed in the escrow account shall be
disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement, attached hereto as Exhibit
B. In
addition, the payment will be returned promptly to the Investor, without
interest or deduction, if the Investor’s Subscription is rejected or the
Offering is terminated by the Company for any reason.

1.4  Binding
Effect of this Agreement. The
Investor acknowledges and agrees that this Agreement shall be binding upon the
Investor upon the submission to the Company or JMP Securities, LLC (the
“Placement
Agent”) of the
Investor’s signed counterpart signature page to this Agreement (the “Subscription”);
provided that, in the event the Closing Date (as defined below) shall not have
occurred on or prior to May 10, 2005 (such
date subject to extension by up to 15 days by mutual written agreement of the
Company and the Placement Agent and written notice thereof to the Escrow
Agent) (the
“Termination
Date”), this
Agreement shall be terminated and be of no force and effect. The Company, in its
sole discretion, may terminate the Offering at any time prior to the Closing
Date without penalty. The execution of this Agreement by the Investor or
solicitation of the investment contemplated hereby shall create no obligation on
the part of the Company or the Placement Agent to accept any Subscription, in
part or in full, or complete the Offering. The
Investor hereby acknowledges and agrees that the Subscription hereunder is
irrevocable by the Investor, and that, except as required by law, the Investor
is not entitled to cancel, terminate or revoke this Agreement or any agreements
of the Investor hereunder and that if the Investor is an individual this
Agreement shall survive the death or disability of the Investor and shall be
binding upon and inure to the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
The
Investor also agrees that each of the Company and the Placement Agent may reduce
such Investor’s Subscription with respect to the number of Units to be purchased
without any prior notice or further consent of the Investor. If such a reduction
occurs, the part of the Subscription Amount attributable to the reduction shall
be promptly returned, without interest, offset or deduction.

 

1.5  Delivery
of Units at Closing.

(a)  The
completion of the purchase and sale of the Units (the “Closing”) shall
occur, subject
to the satisfaction or waiver of the conditions set forth in Section 1.6 and
Section 1.7 (other than those intended to be satisfied at Closing), at the
offices of Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, NY
10103-3198. The date upon which the Closing actually occurs is herein referred
to as the “Closing
Date”.

(b)  At the
Closing, the Company shall authorize its transfer agent to issue and the
transfer agent shall issue to the Investor (i) one or more stock certificates
registered in the name of the Investor, or in such name of nominee(s) designated
by the Investor in writing, representing in the aggregate a number of shares of
Series B Preferred Stock equal to the Actual Subscription Amount divided by 15
and (ii) one or more warrant agreements registered in the name of the Investor,
or in such name of nominee(s) designated by the Investor in writing representing
in the aggregate Warrants to purchase a number of shares of Common Stock equal
to the Actual Subscription Amount divided by 1.5.

 

1.6  Conditions
to the Company’s Obligation to Complete Purchase and Sale. Upon
acceptance of the Subscription, the Company’s obligation to issue and sell the
Units to the Investor at Closing is subject to the satisfaction, on or before
the Closing Date, of each of the following conditions, provided that these
conditions are for the Company’s sole benefit and may be waived by the Company
at any time in its sole discretion by providing the Investor with prior written
notice thereof: 

 

(a)  Payment
of Aggregate Purchase Price. The
Investor shall have delivered to the Escrow Agent the Aggregate Purchase Price
in accordance with Section 1.1; and

(b)  Representations
and Warranties; Covenants. The
representations and warranties of the Investor set forth in Article III hereof
shall be true and correct as of the date hereof and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date (which shall be true and correct as of such date)), and
the Investor shall have performed, satisfied and complied with in all material
respects the covenants, agreements and conditions required by this Agreement to
be performed, satisfied or complied with by the Investor on or prior to the
Closing Date. 

1.7  Conditions
to the Investor’s Obligation to Complete Purchase and Sale. The
obligation of the Investor hereunder to purchase the Units from the Company at
the Closing is subject to the satisfaction, on or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Investor’s sole benefit and may be waived by the Investor at any time in its
sole discretion by providing the Company with prior written notice thereof:

 

(a)  Opinion
of Counsel. Receipt
by the
Placement Agent on behalf of the Investors
of an
opinion letter of Fulbright
& Jaworski L.L.P., counsel
to the Company, dated the Closing Date, in substantially the form attached
hereto as Exhibit
C;

(b)  Representations
and Warranties; Covenants. The
representations and warranties of the Company set forth in Article II hereof
shall be true and correct in all material respects as of the date hereof and as
of the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date (which shall be true and correct in
all material respects as of such date)), and the Company shall have performed,
satisfied and complied with in all material respects the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company on or prior to the Closing Date;

 

(c)  Officer’s
Certificate. The
Company shall have delivered to the Placement Agent on behalf of the Investors a
certificate, dated the Closing Date, duly executed on behalf of the Company by
its Chief Executive Officer to the effect set forth in clause (b)
above;

 

(d)  Secretary’s
Certificate. The
Company shall have delivered to the Placement Agent, for the benefit of the
Investor, a certificate, dated the Closing Date, duly executed by its Secretary
or Assistant Secretary or other appropriate officer, certifying that the
attached copies of the Company’s Certificate of Incorporation, Certificate of
Designations (as defined below), by-laws and the resolutions of the Board of
Directors or Executive Committee of the Board of Directors approving this
Agreement and the transactions contemplated hereby, are all true, complete and
correct and remain unamended and in full force and effect;

(e)  Certificate
of Designations. The
Company shall deliver to the Placement Agent, for the benefit of the Investor,
evidence that the Certificate of Designations (the “Certificate
of Designations”), a
form of which is attached as Exhibit
D hereto,
has been filed with the Secretary of State of the State of Delaware and is in
full force and effect under the laws of the State of Delaware as of the Closing
Date; and

(f)  No
Litigation. On the
Closing Date, no legal action, suit or proceeding shall be pending or overtly
threatened which seeks to restrain or prohibit the transactions contemplated by
this Agreement.

 

	2.  	
      REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY

Except as
set forth on the Schedule of Exceptions attached hereto as Schedule
A or as
set forth in the SEC Documents (as defined below), the Company hereby represents
and warrants to the Investor as follows:

2.1  Subsidiaries;
Organization. The
Company has no subsidiaries (as defined by Rule 405 under the Securities Act of
1933, as amended (the “Securities
Act”) except
as set forth in Exhibit 21 to its Annual Report on Form 10-K for the fiscal year
ended January 2, 2005 (the “Subsidiaries”). The
Company and each of its Subsidiaries is duly
organized and validly existing and is in good standing under the laws of the
jurisdiction of its incorporation or organization,
except with respect to certain of the Company’s Subsidiaries which neither own
assets nor operate any business where the failure to be in good standing would
not have a material adverse effect upon the business, assets, financial
condition or results of operation of the Company and its Subsidiaries taken as a
whole (a “Material
Adverse Effect”). The
Company and each of its Subsidiaries has full
corporate power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and is registered or qualified to do
business and in good standing in each jurisdiction in which it owns or leases
property or transacts business and where the failure to be so qualified would
have a Material Adverse Effect, and to the Company’s knowledge, no proceeding
has been instituted in any such jurisdiction revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification.

 

2.2  Due
Authorization. The
Company has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement. This Agreement has been duly
authorized and validly executed and delivered by the Company and, assuming due
authorization, execution and delivery by the other party hereto, constitutes a
valid and legally binding obligation of the Company enforceable against the
Company in accordance with its terms, except (i) to the extent rights to
indemnity and contribution may be limited by state or federal securities laws or
the public policy underlying such laws, (ii) enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors’ and contracting parties’ rights
generally and (iii) enforceability may be limited by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).

 

2.3  Non-Contravention. The
execution and delivery of this Agreement, the filing of the Certificate of
Designations, the issuance and sale of the Units to be sold by the Company under
this Agreement, the performance by the Company of its obligations under this
Agreement and the consummation of the transactions contemplated hereby will not
(A) conflict with or constitute a violation of, or default (with or without the
giving of notice or the passage of time or both) under, (i) any material bond,
debenture, note or other evidence of indebtedness, or under any material lease,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which it or its
properties are bound, (ii) the Certificate of Incorporation or by-laws of the
Company or any of its Subsidiaries, or (iii) any law, administrative regulation,
ordinance or order of any court of competent jurisdiction or governmental
agency, arbitration panel or authority applicable to the Company, any of its
Subsidiaries or their respective properties, which conflict, violation or
default would be likely to result in a Material Adverse Effect, or (B) result in
the creation or imposition of any lien, encumbrance, claim, security interest or
restriction whatsoever upon any of the material properties or assets of the
Company or any of its Subsidiaries or an acceleration of indebtedness pursuant
to any obligation, agreement or condition contained in any material bond,
debenture, note or any other evidence of indebtedness or any material indenture,
mortgage, deed of trust or any other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or to which any of the property or assets of the
Company or any of its Subsidiaries is subject. No consent, approval,
authorization or other order of, or registration, qualification or filing with,
any regulatory body, administrative agency, self-regulatory organization, stock
exchange or market, or other governmental body in the United States is required
for the execution and delivery of this Agreement, the filing of the Certificate
of Designations, and the valid issuance and sale of the Units (or the Unit
Securities (as defined below)) to be sold pursuant to this Agreement and of the
Series B Conversion Shares (as defined below) upon the exercise of the Series B
Preferred Stock in accordance with the Certificate of Designations or the
Warrant Shares (as defined below) upon exercise of the Warrants in accordance
with the terms thereof, other than such as have been made or obtained, and
except for any securities filings required to be made under federal or state
securities laws.

 

2.4  Reporting
Status; Sarbanes-Oxley Compliance. The
Company has filed in a timely manner all documents that the Company was required
to file under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), since
January 1, 2003 (the “SEC
Documents”). The
SEC Documents complied as to form in all material respects with the Securities
and Exchange Commission’s (the “SEC”)
requirements as of their respective filing dates, and the information contained
therein as of the date thereof did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent that information contained in
any such document has been revised or superseded by a later filed SEC Document.
The
Company is in compliance with the applicable requirements of the Sarbanes-Oxley
Act of 2002, as amended, and the rules and regulations thereunder, except where
such noncompliance could not reasonably be expected to result in a Material
Adverse Effect. 

 

2.5  Capitalization. As of
the date hereof, the authorized capital stock of the Company consists of
42,000,000 shares of capital stock, of which 40,000,000 shares are designated
Common Stock and 2,000,000 shares are designated Preferred Stock (the
“Preferred
Stock”).
The
Company’s Board of Directors has approved an increase in the Company’s
authorized capital stock from 42,000,000 shares to 60,000,000 shares and an
increase in the authorized number of shares of Common Stock from 40,000,000
shares to 58,000,000 shares (the “Authorized
Capital Increase”). In
addition, holders of at least a majority of the outstanding shares of each class
entitled to vote on such matter have agreed to vote their shares in favor of the
Authorized Capital Increase. As of
May 1, 2005, there were approximately 14,630,417 shares of Common Stock issued
and outstanding and 35,275 shares of Series A Preferred Stock issued and
outstanding. The
rights, privileges and preferences of the Series B Preferred Stock will be as
stated in the Certificate of Designations. As of May
1, 2005, an aggregate of 5,086,750 shares of Common Stock were reserved for
issuance by the Company for warrants and stock options, including the
outstanding options listed in the next sentence. As of May 1, 2005, 2,115,500
shares are issuable upon exercise of outstanding stock options issued by the
Company to employees, consultants and directors of the Company. An additional
24,000,000 shares of Common Stock have been reserved for issuance upon exercise
of the Warrants and the conversion of the Series B Preferred Stock, subject to
and effective upon the Authorized Capital Increase. All outstanding shares of
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and were issued in compliance with U.S. federal and state securities laws. Other
than as set forth above or in Section 2.5 of Schedule
A hereto,
there are no outstanding rights, options, warrants, preemptive rights, rights of
first refusal, agreements, commitments or similar rights for the purchase or
acquisition from the Company or any of its Subsidiaries of any securities of the
Company or any of its Subsidiaries. The Units (and the shares of Series B
Preferred Stock and Warrants included therein, collectively, the “Unit
Securities”) to be
sold pursuant to this Agreement and the shares of Common Stock issuable upon
conversion of the Series B Preferred Stock and exercise of the Warrants (the
“Series
B Conversion Shares” and the
“Warrant
Shares”,
respectively, and together with the Unit Securities, the “Underlying
Securities”) have
been duly authorized, and when issued and paid for in accordance with the terms
of this Agreement, the Certificate of Designations and the Warrants, as
applicable, will be validly issued, fully paid and nonassessable and free and
clear of all pledges, liens and encumbrances, except for the restrictions on
sale and transferability pursuant to applicable U.S. federal and state
securities laws. Other than as set forth in the Certificate of Designations, no
preemptive right, co-sale right, right of first refusal or other similar right
exists with respect to the Units (including the Underlying Securities) or the
issuance and sale thereof. Other than (i) obtaining stockholder approval for the
Authorized Capital Increase; and (ii) obtaining the approval of the Board of
Directors for the filing of the Certificate of Designations, no further approval
or authorization of any shareholder or the Board of Directors of the Company is
required for the issuance and sale of the Units (including the Underlying
Securities). Except as set forth in Section 2.5 of Schedule
A hereto,
no holder of any of the securities of the Company has any rights (“demand,”
“piggyback” or otherwise) to have such securities registered by reason of the
intention to file, filing or effectiveness of a Registration Statement (as
defined in Section 5.1 hereof).

 

2.6  Legal
Proceedings. Except
as disclosed in Section 2.6 of Schedule
A hereto,
there is no action, suit or proceeding before any court, governmental agency or
body, domestic or foreign, now pending or, to the actual knowledge of the
Company or any of its Subsidiaries, overtly threatened against the Company or
its Subsidiaries wherein an unfavorable decision, ruling or finding would
reasonably be expected to materially adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under this Agreement.

2.7  No
Violations. Neither
the Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation or by-laws, or is in violation of any law, administrative
regulation, ordinance or order of any court or governmental agency, arbitration
panel or authority applicable to the Company or any of its Subsidiaries, which
violation, individually or in the aggregate, would be reasonably likely to have
a Material Adverse Effect, or is in default (and there exists no condition
which, with or without the passage of time or giving of notice or both, would
constitute a default) in any material respect in the performance of any bond,
debenture, note or any other evidence of indebtedness in any indenture,
mortgage, deed of trust or any other material agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound or by which the properties of the Company are
bound, which would be reasonably likely to have a Material Adverse
Effect.

2.8  Governmental
Permits, Etc. The
Company and its Subsidiaries possess all necessary franchises, licenses,
certificates and other authorizations from any foreign, federal, state or local
government or governmental agency, department or body that are currently
necessary for the operation of their respective business as currently conducted,
except where such failure to possess could not reasonably be expected to have a
Material Adverse Effect.

 

2.9  Intellectual
Property. The
Company and its Subsidiaries own or possess sufficient rights to use all
patents, patent rights, trademarks, copyrights, licenses, inventions, trade
secrets, trade names and know-how that are necessary for the conduct of their
respective businesses as now conducted (the “Company
Intellectual Property”), except
where the failure to own or possess would not have a Material Adverse Effect.
Except as set forth in Section 2.9 of Schedule
A hereto,
(i) neither the Company nor any of its Subsidiaries has received any written
notice of, or has any actual knowledge of, any infringement by the Company or
its Subsidiaries of intellectual property rights of any third party that,
individually or in the aggregate, would have a Material Adverse Effect and (ii)
neither the Company nor any of its Subsidiaries has received any written notice
of any infringement by a third party of any Company Intellectual Property that,
individually or in the aggregate, would have a Material Adverse
Effect.

 

2.10  Financial
Statements. The
consolidated financial statements of the Company and its Subsidiaries and the
related notes thereto included in the SEC Documents present fairly, in all
material respects, the financial position of the Company as of the dates
indicated and the results of its operations and cash flows for the periods
therein specified subject, in the case of unaudited statements, to normal
year-end audit adjustments. Except as set forth in such financial statements (or
the notes thereto), such financial statements (including the related notes) have
been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods therein
specified. The
financial statements referred to in this Section 2.10 contain all certifications
and statements required by the SEC’s Order, dated June 27, 2002, pursuant to
Section 21(a)(1) of the Exchange Act (File No. 4-460), Rule 13a-14 or 15d-14
under the Exchange Act, or 18 U.S.C. Section 1350 (Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002) with respect to the report relating thereto.

 

2.11  No
Material Adverse Change. Except
as publicly disclosed in the SEC Documents, press releases or in other “public
disclosures” as such term is defined in Section 101(e) of Regulation FD of the
Exchange Act, since January 2, 2005 there has not been (i) any material adverse
change in the business, assets, financial condition or results of operation of
the Company and its Subsidiaries, taken as whole, (ii) any obligation, direct or
contingent, that is material to the Company and its Subsidiaries taken as a
whole, incurred by the Company or any of its Subsidiaries, except obligations
incurred in the ordinary course of business, (iii) any dividend or distribution
of any kind declared, paid or made on the capital stock of the Company; or (iv)
any loss or damage (whether or not insured) to the physical property of the
Company or any of its Subsidiaries which has been sustained which has had a
Material Adverse Effect.

 

2.12  OTC-BB
Quotation. The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act and is quoted on the Over the Counter Bulletin Board (the “OTC-BB”), and
the Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
terminating the quotation of the Common Stock from the OTC-BB, nor to the
Company’s knowledge is the OTC-BB currently contemplating terminating such
quotation. The Company and the Common Stock meet and the Company will use best
efforts to ensure that the Company and the Common Stock continue to meet the
criteria for continued quotation on the OTC-BB.

 

2.13  No
Manipulation of Stock. The
Company has not taken and will not, in violation of applicable law, take, any
action designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock or the Series B
Preferred Stock to facilitate the sale or resale of the Units or Underlying
Securities.

2.14  Insurance. The
Company maintains and will continue to maintain insurance against loss or damage
by fire or other casualty and such other insurance, including, but not limited
to, product liability insurance, in such amounts and covering such risks as is
believed to be prudent and customary, consistent with industry practice for the
conduct of its and its Subsidiaries’ respective businesses and the value of
their respective properties.

 

2.15  Tax
Matters. The
Company and each of its Subsidiaries has timely filed all material federal,
state, local and foreign income and franchise and other tax returns required to
be filed by any jurisdiction to which it is subject and has paid all taxes due
in accordance therewith, except where the failure to so timely file or pay would
not be likely to result in a Material Adverse Effect, and no tax deficiency has
been determined adversely to the Company or any of its Subsidiaries which has
had, nor does the Company or any of its Subsidiaries have any knowledge of any
tax deficiency which, if determined adversely to the Company or any of its
Subsidiaries, would reasonably be expected to have, a Material Adverse
Effect.

2.16  Investment
Company. The
Company is not an “investment company” within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of the SEC
thereunder.

2.17  No
Registration.
Assuming (i) the accuracy of the representations and warranties made by, and
compliance with the covenants of, the Investor in Article III hereof and of all
other Investors in their respective Securities Purchase Agreements, and (ii)
that the Placement Agent had conducted all of its activities in relation to the
Offering in a manner permitted by all applicable Federal and state securities or
other applicable laws and in a manner consistent with the Company’s ability to
rely upon the exemption from registration provided by Regulation D and Section
4(2) of the Securities Act, no registration of the Units or the Underlying
Securities under the Securities Act is required in connection with the offer and
sale of the Units or the Underlying Securities by the Company to the Investors
as contemplated by this Agreement, the Certificate of Designations and the
Warrants.

2.18  Lock-Up
Agreements. All
executive officers, directors and beneficial owners of at least 5% of the issued
and outstanding Common Stock of the Company have entered into lock up agreements
with the Placement Agent in which, without prior approval of the Placement
Agent and the
Investor, they
agree to not sell shares of Common Stock or securities exercisable, convertible
or exchangeable for shares of Common Stock held by them during the period
commencing one week prior to the Closing Date and ending on the effective date
of the Registration Statement.

2.19  Non-Public
Information. The
Company confirms that neither it nor any person acting on its behalf has
provided the Investor with any information that the Company believes constitutes
material non-public information, except with respect to the existence, terms and
conditions of the Offering or as otherwise is disclosed in the Current Report on
Form 8-K to be filed by the Company in conjunction with the press release
referred to in Section 4.4 hereof (such Current Report on Form 8-K and Press
Release (being referred to as the “Offering
Announcement” and,
together with the existence, terms and conditions of the Offering, as the
“Non-Public
Information”);
provided, however, that the Company makes no representation or warranty with
respect to any activities of the Placement Agent.

2.20  Transactions
With Affiliates and Employees. Except
as disclosed in Section 2.20 of Schedule
A, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.

	3.  	
      REPRESENTATIONS,
      WARRANTIES AND COVENANTS OF THE INVESTOR

The
Investor represents, warrants and covenants to the Company as
follows:

 

	3.1  	
      Securities
      Law Representations and Warranties.
       

(a)  The
Investor (i) is an “accredited investor” as defined in Regulation D under the
Securities Act, (ii) has the knowledge, sophistication and experience necessary
to make, and is qualified to make decisions with respect to, investments in
securities presenting an investment decision like that involved in the purchase
of the Units, including investments in securities issued by the Company and
investments in comparable companies, (iii) can bear the economic risk of a total
loss of its investment in the Units and (iv) has requested, received, reviewed
and considered all information it deemed relevant in making an informed decision
to purchase the Units; 

(b)  The
Investor is acquiring the Units and the Unit Securities for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof;

(c)  The
Investor was not organized for the specific purpose of acquiring the
Units;

 

(d)  The
Investor will not, directly or indirectly, offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Units or Underlying Securities except in
compliance with the Securities Act, applicable state securities laws and the
respective rules and regulations promulgated thereunder;

 

(e)  The
Investor understands that the Units and the Unit Securities are being offered
and sold to it in reliance on specific exemptions from the registration
requirements of the United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Investor’s compliance
with, representations, warranties, agreements, acknowledgements and
understandings of the Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor to acquire
the Units;

 

(f)  The
Investor understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Units or Underlying Securities or the fairness or suitability
of an investment in the Units or Underlying Securities nor have such authorities
passed upon or endorsed the merits of the Offering; and

 

(g)  The
Investor acknowledges that the Company has represented that no action has been
or will be taken in any jurisdiction outside the United States by the Company
that would permit an offering of the Units, or possession or distribution of
offering materials in connection with the issue of the Units, in any
jurisdiction outside the United States where action for that purpose is
required. If the Investor is located or domiciled outside the United States it
agrees to comply with all applicable laws and regulations in each foreign
jurisdiction in which it purchases, offers, sells or delivers Units or has in
its possession or distributes any offering material, in all cases at its own
expense.

(h)  The
Investor has been furnished with all materials relating to the business,
finances and operations of the Company and its Subsidiaries and materials
relating to the offer and sale of the Units which have been requested by the
Investor. The Investor has been afforded the opportunity to ask questions of the
Company and has received answers from an authorized representative of the
Company which are satisfactory to the Investor. Notwithstanding the foregoing,
in entering into this Agreement, the Investor represents that it is relying
solely on the representations, warranties, covenants and agreements set forth in
this Agreement, which document supersedes and replaces any other written or oral
information communicated to the Investor, specifically including, without
limitation, the Confidential Private Placement Memorandum dated March 5, 2005,
whether by e-mail, power-point presentation or otherwise.

	3.2  	
      Legends.

(a)  The
Investor understands that, until the end of the applicable holding period under
Rule 144(k) of the Securities Act (or any successor provision) with respect to
the Underlying Securities, any stock certificate or warrant agreement
representing the Underlying Securities shall bear a legend in substantially the
following form: THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION THEREFROM.

The
legend set forth above shall be removed (i) if the Underlying Securities have
been resold or transferred pursuant to the Registration Statement contemplated
by Section 5 and the Registration Statement was effective at the time of such
transfer, (ii) if, in connection with a sale transaction, such holder provides
the Company with an opinion of counsel reasonably acceptable to the Company to
the effect that a public sale, assignment or transfer of the Underlying
Securities may be made without registration under the Securities Act, or (iii)
upon expiration of the applicable two-year holding period under Rule 144(k) of
the Securities Act (or any successor rule); provided that the Investor is not
and has not been within three months prior to such date, an “affiliate” of the
Company (as such term is defined in Rule 144 of the Securities Act). The Company
shall not require such opinion of counsel for the sale of Underlying Securities
in accordance with Rule 144 of the Securities Act, provided that the Seller
provides such representations that the Company shall reasonably request
confirming compliance with the requirements of Rule 144. The Company may make a
notation on its records and/or provide instruction to its transfer agent
regarding the Company’s stock transfer records, consistent with the provisions
of this Section 3.2.

(b)  The
Investor understands that, in the event Rule 144(k) as promulgated under the
Securities Act (or any successor rule) is amended to change the two-year period
under Rule 144(k) (or the corresponding period under any successor rule), (i)
each reference in Sections 3.2(a) and (b) of this Agreement to “two years” or
the “two-year period” shall be deemed for all purposes of this Agreement to be
references to such changed period, and (ii) all corresponding references in the
Underlying Securities shall be deemed for all purposes to be references to the
changed period, provided that such changes shall not become effective if they
are otherwise prohibited by, or would otherwise cause a violation of, the
then-applicable federal securities laws.

 

3.3  Authorization;
Enforcement; Validity. The
Investor has full right, power, authority and capacity (corporate, statutory or
otherwise) to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement. This Agreement
constitutes a valid and binding obligation of the Investor enforceable against
the Investor in accordance with its terms, except (i) to the extent rights to
indemnity and contribution may be limited by state or federal securities laws or
the public policy underlying such laws, (ii) enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors’ and contracting parties’ rights
generally and (iii) enforceability may be limited by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).

3.4  Certain
Trading Limitations. The
Investor (i) represents that on and from the date the Investor first became
aware of the Offering until the date hereof he, she or it has not and (ii)
covenants that for the period commencing on the date hereof and ending on the
public announcement of the Offering he, she or it will not, engage in any
hedging or other transaction which is designed to or could reasonably be
expected to lead to or result in, or be characterized as, a sale, an offer to
sell, a solicitation of offers to buy, disposition of, loan, pledge or grant of
any right with respect to (collectively, a “Disposition”) the
Common Stock or Preferred Stock of the Company by the Investor or any other
person or entity in violation of the Securities Act. Such prohibited hedging or
other transactions would include without limitation effecting any short sale or
having in effect any short position (whether or not such sale or position is
against the box and regardless of when such position was entered into) or any
purchase, sale or grant of any right (including without limitation any put or
call option) with respect to the Common Stock or Preferred Stock of the Company
or with respect to any security (other than a broad-based market basket or
index) that includes, relates to or derives any significant part of its value
from the Common Stock or Preferred Stock of the Company.

 

3.5  No
Sale of Securities. The
Investor hereby covenants with the Company not to make any sale of the Units or
Underlying Securities without (i) complying with the provisions of this
Agreement, including Section 5.3 hereof or (ii) without satisfying the
requirements of the Securities Act and the rules and regulations promulgated
thereunder, including, without limitation, causing the prospectus delivery
requirement under the Securities Act to be satisfied, if applicable. The
Investor acknowledges that there may occasionally be times when the Company,
based on the advice of its counsel, determines that, subject to the limitations
of Section 5.3, it must suspend the use of the prospectus forming a part of the
Registration Statement until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the SEC or
until the Company has amended or supplemented such prospectus.

 

3.6  Registration
Questionnaire. The
Investor has completed or caused to be completed the Registration Questionnaire
attached hereto as Exhibit
E and the
signature page hereto, each for use in preparation of the Registration Statement
and the information contained in such completed Registration Questionnaire and
on such signature page are true and correct in all material respects as of the
date of this Agreement and will be true and correct as of the effective date of
the Registration Statement; provided that the Investor shall be entitled to
update such information by providing written notice thereof to the Company prior
to the effective date of the Registration Statement.

 

3.7  Investor
Suitability Questionnaire. The
information contained in the Investor Suitability Questionnaire in the form
attached as Exhibit
F
delivered by the Investor in connection with this Agreement is complete and
accurate in all respects.

 

3.8  No
Advice. The
Investor understands that nothing in this Agreement or any other materials
presented to the Investor in connection with the purchase and sale of the Units
(and Underlying Securities) constitutes legal, tax or investment advice. The
Investor has consulted such legal, tax and investment advisors as it, in its
sole discretion, has deemed necessary or appropriate in connection with its
purchase of the Units.

 

3.9  No
General Solicitation. The
Investor represents that (i) the Investor was contacted regarding the sale of
the Units by the Placement Agent (or an authorized agent or representative
thereof) with whom the Investor had a prior substantial pre-existing
relationship and (ii) no Units were offered or sold to it by means of any form
of general solicitation or general advertising, and in connection therewith the
Investor did not (A) receive or review any advertisement, article, notice or
other communication published in a newspaper or magazine or similar media or
broadcast over television or radio, whether closed circuit or generally
available; or (B) attend any seminar, meeting or industry investor conference
whose attendees were invited by any general solicitation or general
advertising.

 

3.10  NASD
Compliance. The
Investor acknowledges that if it is a Registered Representative (as defined by
the NASD) of a National Association of Securities Dealers (“NASD”) member
firm, the Investor must give such firm the notice required by the NASD’s Rules
of Fair Practice, receipt of which must be acknowledged by such firm on the
signature page hereof.

 

3.11  Placement
Agent Fees. The
Investor acknowledges that (i) the Company has engaged and authorized the
Placement Agent in connection with the Offering and the transactions
contemplated by this Agreement, (ii) the Company shall pay the Placement Agent a
commission and reimburse the Placement Agent's expenses and the Company shall
indemnify and hold harmless the Investor from and against all fees, commissions
or other payments owing by the Company to the Placement Agent or any other
person or firm acting on behalf of the Company hereunder and (iii) registered
representatives of the Placement Agent and/or its designees (including, without
limitation, registered representatives of the Placement Agent and/or its
designees who may participate in the Offering and sale of the securities sold in
the Offering) may be paid a portion of the commissions paid to the Placement
Agent.

3.12 Treatment
of Non-Public Information.
The
Investor agrees to hold the Non-Public Information in confidence and not to
disclose the same to any other person until such time as the Offering
Announcement is filed with the SEC or publicly announced, as applicable, and
further agrees not to trade in the securities of the Company, directly or
indirectly, on the basis of the Non-Public Information except pursuant to this
Agreement.

4.  COVENANTS

 

4.1  Quotation
of Common Stock. The
Company shall use reasonable best efforts to comply with all requirements of the
OTC-BB with respect to the issuance and quotation of the shares of Common Stock
included in the Underlying Securities and continued quotation of its Common
Stock (including the shares of Common Stock included in the Underlying
Securities), respectively.

 

4.2  Form
D. The
Company agrees to file one or more Forms D with respect to the Units (including
the Underlying Securities) on a timely basis as required under Regulation D
under the Securities Act to claim the exemption provided by Rule 506 of
Regulation D.

 

4.3  Certain
Future Financings and Related Actions. Without
the prior consent of the Placement Agent and the
Investor (i) for
a period of 60 days after the effectiveness of the Registration Statement, the
Company shall not offer, sell, contract to sell or issue (or engage any person
to assist the Company in taking any such action) any equity securities or
securities convertible into, exchangeable for or otherwise entitling the holder
to acquire, any Common Stock or Preferred Stock; or (ii) cause the offering of
the Units pursuant hereby to be integrated with prior offerings by the Company
for purposes of any applicable law, regulation or stockholder approval
provisions, including, without limitation, under the rules and regulations of
the OTC-BB; provided, however, that the Company may issue equity securities (a)
related to the exercise of options, convertible debentures, warrants and/or
other securities outstanding as of the date of this Agreement (including the
Underlying Securities sold pursuant to the Offering), (b) pursuant to any
employee benefit plan currently in existence or hereafter adopted by the Company
and approved by its stockholders, (c) in connection with any issuance of shares
or grant of options to employees, officers, directors or consultants of the
Company pursuant to a stock option plan or other incentive stock plan duly
adopted by the Company’s board of directors or in respect of the issuance of
Common Stock upon exercise of any such option; or (d) in connection with a bona
fide joint venture or development agreement or strategic partnership or to an
independent person, the primary purpose of which is not to raise
cash.

 

4.4  Public
Disclosure. The
Company shall (i) within two Business Days of the Closing Date issue a press
release disclosing the transactions contemplated hereby and (ii) make such other
filings and notices in the manner and within the time required by the
SEC.

4.5  Authorized
Capital Increase. The
Company shall use its best efforts to:

(a)  at its
annual meeting of stockholders (to be held no later than June 30, 2005), submit
the Authorized Capital Increase to a vote of its stockholders and recommend to
its stockholders that they vote in favor of the Authorized Capital
Increase;

(b)  promptly
following approval of the Authorized Capital Increase by the Company’s
stockholders, file with the Secretary of State of the State of Delaware an
amendment to the Company’s Certificate of Incorporation effecting the Authorized
Capital Increase; 

(c)  promptly
following confirmation of acceptance by the Secretary of State of Delaware of
the above referenced amendment filing, notify the Investor in writing that the
Authorized Capital Increase has been effective and that the Series B Preferred
Stock is convertible and the Warrants are exercisable; and

(d)  to take
such other action or actions as may be necessary to effect the Authorized
Capital Increase as soon as practicable and to otherwise permit the Company to
(i) reserve for issuance the Series B Conversion Shares and the Warrant Shares,
and (ii) authorize and validly issue the Series B Conversion Shares upon
conversion of the Series B Preferred Stock and the Warrant Shares upon exercise
of the Warrants. 

	5.  	
      REGISTRATION
      OF REGISTRABLE SHARES;

 

COMPLIANCE
WITH THE SECURITIES ACT

5.1  Registration
Procedures and Expenses. The
Company shall:

 

(a)  subject
to receipt of necessary information from the Investors, including the
Registration Statement Questionnaire, use reasonable best efforts to prepare and
file with the SEC, within 45 days after the Closing Date, a registration
statement (the “Registration
Statement”) on Form
S-1 or S-2 (or the equivalent form) to enable the resale of the Registrable
Securities by the Investor on a delayed or continuous basis under Rule 415 of
the Securities Act; provided that if the Company is entitled to use Form S-3 to
register such Registrable Securities, then the Company shall register such
Registrable Securities under the Securities Act on Form S-3. “Registrable
Securities” means
(a) the shares of Common Stock issued or issuable upon the conversion of the
Series B Preferred Stock issued to the Investor and Other Investors pursuant to
the Purchase Agreement, (b) shares of Common Stock issued or issuable upon
exercise of the Warrants issued to the Investor and Other Investors pursuant to
the Purchase Agreement, and (c) all shares of Common Stock issued or issuable in
respect of the shares referred to in subsection (a) and (b) above by virtue of
any stock split, stock dividend, recapitalization or similar event;

(b)  use
reasonable best efforts, subject to receipt of necessary information from the
Investors, including the Registration Statement Questionnaire, to cause the
Registration Statement to become effective within
90 days of the
Closing Date (unless
the SEC elects to review and comment on such registration statement in which
event the Company will use its reasonable best efforts to cause the SEC to
declare such Registration Statement effective within 120 days of the Closing
Date);

 

(c)  use
reasonable best efforts to prepare and file with the SEC such amendments and
supplements to the Registration Statement and the Prospectus (as defined in
Section 5.4 below) used in connection therewith and take all such other actions
as may be necessary to keep the Registration Statement current and effective for
a period (the “Registration
Period”) not
exceeding, with respect to the Registrable Securities, the earlier of (i) the
date on which all Registrable Securities then held by the Investor may be sold
or transferred in compliance with Rule 144 under the Securities Act or may be
sold or transferred by a person who is not an affiliate of the Company pursuant
to Rule 144 of the Securities Act (or any other similar provisions then in
force) without any volume or manner of sale restrictions thereunder, or (ii)
such time as all Registrable Securities held by the Investor have been sold (A)
pursuant to a registration statement, (B) to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or (C)
in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect thereto, if any, are
removed upon the consummation of such sale;

 

(d)  promptly
furnish to the Investor with respect to the Registrable Securities registered
under the Registration Statement such reasonable number of copies of the
Prospectus, including any supplements to or amendments to the Prospectus, in
order to facilitate the public sale or other disposition of all or any of the
Registrable Securities by the Investor;

 

(e)  promptly
take such action as may be necessary to qualify, or obtain, an exemption for the
Registrable Securities under such of the state securities laws of United States
jurisdictions as shall be necessary to qualify, or obtain an exemption for, the
sale of the Registrable Securities in states specified in writing by the
Investor; provided, however, that the Company shall not be required to qualify
to do business or consent to service of process in any jurisdiction in which it
is not now so qualified or has not so consented, subject itself to general
taxation in any such jurisdiction or provide any undertakings that cause the
Company undue expense or burden;

 

(f)  bear all
expenses in connection with the procedures in paragraphs (a) through (e) and (g)
of this Section 5.1 and the registration of the Registrable Securities pursuant
to the Registration Statement, regardless of whether a Registration Statement
becomes effective, including without limitation: (i) all registration and filing
fees and expenses (including filings made with the OTC-BB); (ii) fees and
expenses of compliance with federal securities and state “blue sky” or
securities laws; (iii) expenses of printing (including printing certificates for
the Registrable Securities and Prospectuses); (iv) all application and filing
fees, if any, in connection with quotation of the Registrable Securities on the
OTC-BB; and (v) all fees and disbursements of counsel of the Company and
independent certified public accountants of the Company; provided, however, that
the Investor shall be responsible for paying the underwriting commissions or
brokerage fees, and taxes of any kind (including, without limitation, transfer
taxes) applicable to any disposition, sale or transfer of the Investor’s
Registrable Securities. The Company shall, in any event, bear its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties);

 

(g)  advise
the Investor, within two business days by e-mail, fax or other type of
communication, and, if requested by such person, confirm such advice in writing:
(i) after it shall receive notice or obtain knowledge of the issuance of any
stop order by the SEC delaying or suspending the effectiveness of the
Registration Statement or of the initiation or threat of any proceeding for that
purpose, or any other order issued by any state securities commission or other
regulatory authority suspending the qualification or exemption from
qualification of such Registrable Securities under state securities or “blue
sky” laws; and it will promptly use its reasonable best efforts to prevent the
issuance of any stop order or other order or to obtain its withdrawal at the
earliest possible moment if such stop order or other order should be issued;
(ii) when the Prospectus or any supplements to or amendments of the Prospectus
have been filed, and, with respect to the Registration Statement or any
post-effective amendment thereto, when the same has become effective;
and (iii)
when the SEC notifies the Company whether there will be a "review" of such
Registration Statement and whenever the SEC comments in writing on such
Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to the Investor that pertain to the
Investor as a Selling Stockholder or to the Plan of Distribution, but not
information which the Company believes would constitute material and non-public
information);

 

(h)  except if
otherwise required pursuant to written comments received from the SEC upon a
review of such Registration Statement, include in the Registration Statement the
"Plan of Distribution" attached hereto as Exhibit
G;

(i)  not,
prior to the date on which the Registration Statement is declared effective,
prepare and file with the SEC a registration statement relating to an offering
for its own account or the account of others (other than as contemplated in this
Agreement) under the Securities Act of any of its equity securities;

(j)  unless
otherwise agreed to by holders of no less than 50.1% of the Registrable
Securities held by the Investor and all Other Investors, neither the Company nor
any of its securities holders (other than the Investor, all Other Investors and
the Placement Agent (and/or its designees)) may include securities of the
Company in any Registration Statement filed pursuant to this Agreement other
than the Registrable Securities and shares of Common Stock issued or issuable to
the Placement Agent and/or the Placement Agent’s designees, and that Company
shall not after the date hereof enter into any agreement in contravention of the
foregoing; 

(k)  if at any
time during the Registration Period, there is not one or more effective
Registration Statements covering the resale of all Registrable Securities and
the Company shall determine to prepare and file with the SEC a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than of Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to the Investor written notice of such determination and if, within
20 days after receipt of such notice the Investor shall so request in writing,
the Company shall include in such registration statement those Registrable
Securities requested by the Investor to be so included and which are not
otherwise covered by one or more effective Registration Statements;

(l)  not less
than seven business days prior to the filing of a Registration Statement or any
related Prospectus or any amendment or supplement thereto, the Company shall
furnish to the Investor copies of the “Selling Stockholders” section of such
document, the “Plan of Distribution,” any risk factor contained in such document
that addresses specifically this transaction or the Selling Stockholders, as
proposed to be filed, which documents will be subject to the review and comment
of the Investor and its counsel; provided, that, the failure of any Investor or
his, her or its counsel to respond to such proposed documents within five
business days after receipt thereof shall be deemed approval of same so long as
the proposed documents as delivered to Investor are accompanied by a written
notice instructing the Investor of the foregoing; and provided, further, that no
such review and comment shall inhibit the Company from filing the Registration
Statement within 45 days after the Closing Date or otherwise from complying with
its obligations hereunder;

(m)  respond
as promptly as reasonably possible to any comments received from the SEC with
respect to each Registration Statement or any amendment thereto and, as promptly
as reasonably possible provide the Investor true and complete copies of all
correspondence from and to the SEC relating to such Registration Statement that
would not result in the disclosure to the Investor of material and non-public
information concerning the Company; 

(n)  comply in
all material respects with the provisions of the Securities Act, the Exchange
Act and all rules of the SEC promulgated thereunder with respect to the
Registration Statements and the disposition of all Registrable Securities
covered by each Registration Statement;

(o)  cooperate
with the Investor to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee
pursuant to the Registration Statements, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as the Investor may request;
provided, that, the delivery of such certificates shall be subject to the
payment by the Investor of any transfer taxes, if applicable; and

(p)  cooperate
with any due diligence investigation undertaken by the Investor in connection
with the sale of the Registrable Securities, including, without limitation, by
making available any documents and information; provided, that the Company will
not deliver or make available to the Investor material, nonpublic information
unless the Investor specifically requests in writing to receive such material,
nonpublic information; and, provided, further, that, at the Company’s request,
the Investor shall execute and deliver a customary agreement of confidentiality
in form reasonably satisfactory to both the Company and the Investor.

5.2  Delay
in Filing of Registration Statement. The
Company further agrees that, in the event the Registration Statement has not
been filed with the SEC within 45 days after the Closing Date, the Company shall
pay to the Investor liquidated damages in the amount of 1.0% of the Aggregate
Purchase Price of the Units purchased by the Investor pursuant to this
Agreement, and an additional 1.0% of the Aggregate Purchase Price of the Units
purchased by the Investor for each full 30-day period, or partial portion
thereof, that the Registration Statement has not been filed with the SEC. In
addition, if the failure to become effective is primarily due to the fault of
the Company, the Company shall pay to the Investor liquidated damages in the
amount of 1.0% of the Aggregate Purchase Price of the Units purchased by the
Investor pursuant to this Agreement in the event the Registration Statement has
not been declared effective by the SEC within 90 days after the filing of the
Registration Statement with the SEC, and an additional 1.0% of the Aggregate
Purchase Price of the Units purchased by the Investor pursuant to this Agreement
for each 30-day period, or partial portion thereof in the event the Registration
Statement has not been declared effective by the SEC within 120 days after the
filing of the Registration Statement with the SEC, until the Registration
Statement has been declared effective by the SEC.

 

5.3  Transfer
of Shares; Suspension. 

(a)  The
Investor agrees that it will not effect any Disposition of the Registrable
Securities or its right to purchase the Registrable Securities that would
constitute a sale within the meaning of the Securities Act, except as
contemplated in the Registration Statement referred to in Section 5.1 or in
accordance with the Securities Act, and that it will promptly notify the Company
of any changes in the information set forth in the Registration Statement or the
Registration Statement Questionnaire regarding the Investor or its plan of
distribution.

(b)  Except in
the event that paragraph (c) below applies, the Company shall use reasonable
best efforts to, at all times during the Registration Period, promptly (i)
prepare and file from time to time with the SEC a post-effective amendment to
the Registration Statement or a supplement to the related Prospectus or a
supplement or amendment to any document incorporated therein by reference or
file any other required document so that such Registration Statement will not
contain an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading, and so that, as
thereafter delivered to purchasers of the Registrable Securities being sold
thereunder, such Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; (ii) provide the Investor copies of any
documents filed pursuant to Section 5.3(b)(i); and (iii) inform the
Investor that the Company has complied with its obligations in Section 5.3(b)(i)
(or that, if the Company has filed a post-effective amendment to the
Registration Statement which has not yet been declared effective, the Company
will notify the Investor to that effect, will use its reasonable best efforts to
secure the effectiveness of such post-effective amendment as promptly as
possible and will promptly notify the Investor pursuant to Section 5.3(b)(iii)
hereof when the amendment has become effective).

 

(c)  Subject
to paragraph (d) below, in the event of (i) any request by the SEC or any other
federal or state governmental authority during the period of effectiveness of
the Registration Statement for amendments or supplements to a Registration
Statement or related Prospectus or for additional information; (ii) the issuance
by the SEC or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose; (iii) the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) any event or circumstance which necessitates the making of any
changes in the Registration Statement or Prospectus, or any document
incorporated or deemed to be incorporated therein by reference, so that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the Prospectus, it will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, then
the Company shall deliver a notice in writing to the Investor (the “Suspension
Notice”) to the
effect of the foregoing and, upon receipt of such Suspension Notice, the
Investor will refrain from selling any Registrable Securities pursuant to the
Registration Statement (a “Suspension”) until
the Investor’s receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until it is advised in writing by the
Company that the current Prospectus may be used. In the event of any Suspension,
the Company will use its commercially reasonable efforts, consistent with the
best interests of the Company and its stockholders, to cause the use of the
Prospectus so suspended to be resumed as soon as reasonably practicable after
the delivery of a Suspension Notice to the Investor. If the Suspension is
primarily due to the fault of the Company, the Company shall pay to the Investor
liquidated damages in the amount of 1.0% of the Aggregate Purchase Price of the
Units purchased by the Investor pursuant to this Agreement for each 30-day
period, or partial portion thereof following the completion of the initial
30-day period, in which the
Investor must refrain from selling Registrable Securities due to a
Suspension.

(d)  Notwithstanding
the foregoing paragraphs of this Section 5.3, the Investor shall not be
prohibited from selling Registrable
Securities under
the Registration Statement as a result of Suspensions for more than an aggregate
of 60 days in any twelve-month period. 

 

5.4  Indemnification. For the
purpose of this Section 5.4, the term “Registration
Statement” shall
include any preliminary or final prospectus, exhibit, supplement or amendment
included in or relating to the Registration Statement referred to in Section 5.1
and the term “Rules
and Regulations” means
the rules and regulations promulgated under the Securities Act.

 

(a)  Indemnification
by the Company. The
Company agrees to indemnify, defend and hold harmless the Investor, its
officers, directors, agents, investment advisors, partners, members, managers,
stockholders, trustees and employees, and each person, if any, who controls the
Investor (or any of such other persons) within the meaning of the Securities
Act, against any losses, claims, damages, liabilities, costs or expenses to
which the Investor or other person may become subject (including, without
limitation, reasonable legal and other costs and expenses of preparing,
investigating, defending, settling, compromising or paying such losses, claims,
damages, liabilities, costs or expenses) (collectively, “Losses”), as
incurred, under the Securities Act, the Exchange Act, or any other federal or
state statutory law or regulation insofar as such losses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, including the Prospectus,
financial statements and schedules, and all other documents filed as a part
thereof, as amended at the time of effectiveness of the Registration Statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434 of
the Rules and Regulations, or the Prospectus, in the form first filed with the
Commission pursuant to Rule 424(b) of the Regulations, or filed as part of the
Registration Statement at the time of effectiveness if no Rule 424(b) filing is
required (the “Prospectus”), or any
amendment or supplement thereto, (ii) the omission or alleged omission to state
in any of them a material fact required to be stated therein or necessary to
make the statements in any of them, in light of the circumstances under which
they were made, not misleading, (iii) any inaccuracy in the representations and
warranties of the Company contained in this Agreement, or any failure of the
Company to perform its obligations under this Agreement, or (iv) any violation
or alleged violation by the Company of the Securities Act, the Securities and
Exchange Act of 1934, as amended, state (“blue sky”) securities laws or any rule
or regulation promulgated thereunder; provided, however, that the Company will
not be liable in any such case to the extent that any such Loss arises out of or
is based upon (i) an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, the Prospectus or any
amendment or supplement of the Registration Statement or Prospectus in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of the Investor expressly for use in the Registration Statement or the
Prospectus, or to the extent that such information relates to such Investor or
such Investor’s proposed method of distribution and was reviewed by such
Investor and approved for use in the Registration Statement, or (ii) the failure
of the Investor to comply with the covenants and agreements contained in
Sections 3.5 or 5.3 of this Agreement respecting resale of Registrable
Securities, or (iii) the inaccuracy of any representations made by the Investor
in this Agreement or (iv) any untrue statement or omission of a material fact in
any Prospectus that is corrected in any subsequent Prospectus that was delivered
to the Investor before the pertinent sale or sales by the Investor.

(b)  Indemnification
by the Investor. The
Investor will indemnify, defend and hold harmless the Company, each of its
directors, each of its officers who sign the Registration Statement and each
person, if any, who controls the Company within the meaning of the Securities
Act, against any Losses to which the Company, each of its directors, each of its
officers who sign the Registration Statement or such controlling person may
become subject, under the Securities Act, the Exchange Act, or any other federal
or state statutory law or regulation insofar as such Losses arise out of or are
based upon (i) any failure on the part of the Investor to comply with the
covenants and agreements contained in Sections 3.5 or 5.3 of this Agreement
respecting the sale of the Registrable Securities or (ii) the inaccuracy of any
representation or warranty made by the Investor in this Agreement or (iii) any
untrue statement
of any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement to the Registration Statement or Prospectus, or the
omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or omission
was made in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Investor expressly for use
therein; provided, however, that the Investor shall not be liable for any such
untrue statement
or omission of which the Investor has delivered to the Company in writing a
correction at least two business days before the occurrence of the transaction
from which such loss was incurred, and the Investor will reimburse the Company,
each of its directors, each of its officers who signed the Registration
Statement or any controlling person for any legal and other expense reasonably
incurred by the Company, each of its directors, each of its officers who signed
the Registration Statement or such controlling person in connection with
investigating, defending, settling, compromising or paying any such Loss for
which such person is entitled to be indemnified in accordance with this Section
5.4(b).
Notwithstanding
the provisions of this Section 5.4, the Investor shall not be liable for any
indemnification obligation under this Agreement in excess of the amount of net
proceeds received by the Investor from the sale of the Registrable Securities,
unless such obligation has resulted from the gross negligence or willful
misconduct of the Investor. 

(c)  Indemnification
Procedure.

 

(i)  Promptly
after receipt by an indemnified party under this Section 5.4 of notice of the
threat or commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this Section
5.4, promptly notify the indemnifying party in writing of the claim; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party for contribution or
otherwise under the obligations to indemnify contained in Section 5.3 to the
extent it is not materially prejudiced as a result of such failure.

 

(ii)  In case
any such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with all other indemnifying parties similarly notified, to
assume the defense thereof; provided, however, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it or other indemnified parties that are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election to assume the defense of such
action, the indemnifying party will not be liable to such indemnified party
under this Section 5.4 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless:

(1)  the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence in Section 5.4(b)(ii) above (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel in each jurisdiction where counsel is reasonably necessary,
approved by such indemnifying party (such approval not to be unreasonably
withheld) representing all of the indemnified parties who are parties to such
action), or 

 

(2)  the
indemnifying party shall not have counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of action, in each of which cases the reasonable
fees and expenses of counsel shall be at the expense of the indemnifying party.

 

(d)  Contribution. If a
claim for indemnification under this Section 5.4 is unavailable to an
indemnified party (by reason of public policy or otherwise), then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of any losses, claims, damages, liabilities or expenses referred to in this
Agreement, in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the actions,
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any losses, claims, damages, liabilities or
expenses shall be deemed to include, subject to the limitations set forth in
this Section 5.4, any reasonable attorneys’ or other reasonable fees or expenses
incurred by such party in connection with any proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

 

The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5.4 were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5.4, no Investor shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds from the sale of Registrable Securities by the Investor
exceeds the amount of any damages that the Investor has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No party to this Agreement guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any other party to this Agreement who was
not guilty of such fraudulent misrepresentation.

 

5.5  Termination
of Conditions and Obligations. The
restrictions imposed by Article 3 or Article 5 upon the transferability of the
Registrable Securities shall cease and terminate as to any particular number of
the Registrable Securities upon the termination of the Registration Period with
respect to such Registrable Securities. 

 

5.6  Rule
144. At all
times during which there are Registrable Securities outstanding which have not
been previously (a) sold
to or through a broker or dealer or underwriter in a public distribution, or (b)
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(l) thereof, in the case
of either clause (a) or clause (b) in such a manner that, upon the consummation
of such sale, all transfer restrictions and restrictive legends with respect to
such shares are removed upon the consummation of such sale, the
Company shall use reasonable best efforts to:

 

(a)  comply
with the requirements of Rule 144(c) under the Securities Act with respect to
current public information about the Company; 

 

(b)  file with
the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act (at any time it is subject
to such reporting requirements); and

(c)  furnish
to any holder of Registrable Securities promptly after receipt of a written
request therefor (i) a written statement by the Company as to its compliance
with the requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company, and (iii) such other reports and documents of
the Company as such holder may reasonably request to avail itself of any similar
rule or regulation of the SEC allowing it to sell any such securities without
registration.

5.7  Registration
of Other Securities.
Notwithstanding anything contained herein to the contrary and for the avoidance
of doubt, the parties hereto acknowledge that (a) the Company has granted
registration rights to (i) Other Investors with respect to Registrable
Securities, and (ii) the Placement Agent (and/or its designees) with respect to
the securities issued or issuable to the Placement Agent (and/or its designees)
in connection with the transactions contemplated hereby and (b) any Registration
Statement prepared, filed and made effective under this Section 5 may also cover
the resale of such other securities. 

 

	6.  	
      MISCELLANEOUS

6.1  Notices. Except
as specifically permitted by Section 5.1(g), all notices, requests, consents and
other communications hereunder shall be in writing, shall be mailed (b) if
within the United States by first-class registered or certified airmail, or
nationally recognized overnight express courier, postage prepaid, or by
facsimile, or (b) if delivered from outside the United States, by International
Federal Express or facsimile, and shall be deemed given (i) if delivered by
first-class registered or certified mail domestic, three business days after so
mailed, (ii) if delivered by nationally recognized overnight carrier, one
business day after so mailed, (iii) if delivered by International Federal
Express, two business days after so mailed, and (iv) if delivered by facsimile,
upon electric confirmation of receipt if sent during the normal business hours
of the recipient and, if not, on the next business day, and shall be delivered
as addressed as follows:

if to the
Company, to:

Warren
Nelson

16313 N.
Dale Mabry Highway 

Suite 100

Tampa,
Florida 33618 

Tel:
813-961-0944

Fax:
813-961-6865

Email:
warren@shellsseafood.com

with a
copy to:

Sheldon
G. Nussbaum, Esq.

Fulbright
& Jaworski L.L.P.

666 Fifth
Avenue

New York,
NY 10103

Tel:
212-318-3254

Fax:
212-318-3400

Email:
snussbaum@fulbright.com

if to the
Investor, at its address on the signature page hereto, or at such other address
or addresses as may have been furnished to the Company in writing.

6.2  Changes. This
Agreement may not be modified or amended except pursuant to an instrument in
writing signed by the Company and the Investor.

 

6.3  Headings. The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.

 

6.4  Severability. In case
any provision contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.

 

6.5  Survival
of Representations, Warranties and Agreements.
Notwithstanding any investigation made by any party to this Agreement, all
covenants, agreements, representations and warranties made by the Company and
the Investor herein shall survive the execution of this Agreement, the delivery
to the Investor of the Units being purchased and the payment therefor
as
follows: (a) the representations and warranties made by the Company in Sections
2.2 and 2.5 shall survive indefinitely, (b) all representations and warranties
made by the Company (other than those identified in clause (a) above) and all
representations and warranties made by the Investor shall survive for a period
of 18 months following the Closing Date, and (c) all covenants and agreements of
the parties shall survive indefinitely unless otherwise stated
herein.

6.6  Governing
Law. This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York, without giving effect to the principles of
conflicts of law.

 

6.7  Entire
Agreement. This
Agreement and the documents referenced herein constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings among the parties.

 

6.8  Finders
Fees. Neither
the Company nor the Investor nor any affiliate thereof has incurred any
obligation which will result in the obligation of the other party to pay any
finder’s fee or commission in connection with this transaction, except for fees
payable by the Company to the Placement Agent.

 

6.9  Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other party.
Facsimile signatures shall be deemed originals for all purposes
hereunder.

 

6.10  Successors
and Assigns. This
Agreement shall inure to the benefit of and be binding upon the successors,
heirs, executors and administrators and permitted assigns of the parties hereto.
With respect to transfers that are not made pursuant to the Registration
Statement (or Rule 144 but are otherwise made in accordance with all applicable
laws and the terms of this Agreement), the rights and obligations of the
Investor under this Agreement shall be automatically assigned by the Investor to
any transferee of all or any portion of the Investor’s Units, Underlying
Securities or Registrable Securities, as applicable who is a Permitted
Transferee (as defined below); provided, however, that within two business days
prior to the transfer, (i) the Company is provided written notice of the
transfer including the name and address of the transferee and the number of
Units, Underlying Securities or Registrable Securities, as applicable to be
transferred; and (ii) that such transferee agrees in writing to be bound by the
terms of this Agreement as if such transferee were the Investor. (For purposes
of this Agreement, a “Permitted
Transferee” shall
mean any Person who (a) is an “accredited investor,” as that term is defined in
Rule 501(a) of Regulation D under the Securities Act, (b) receives the Units,
Underlying Securities or Registrable Securities, as applicable, in a transaction
which is in compliance with the Federal and applicable state securities law, and
(c) is a transferee of at least 50,000 shares of Series B Preferred Stock (or
50,000 Series B Conversion Shares)). Upon any transfer permitted by this Section
6.10, the Company shall be obligated to such transferee to perform all of its
covenants under this Agreement as if such transferee was the
Investor.

 

6.11  Expenses. The
Company and the Investor shall bear its or his own expenses in connection with
the preparation and negotiation of the Agreement.

 

6.12  Exculpation. Each
party to this Agreement acknowledges that Mintz Levin Cohn Ferris Glovsky &
Popeo, P.C. represented the Placement Agent in the Offering contemplated by this
Agreement and has not represented either the Company, the Investor or any Other
Investor in connection with the Offering.

 

6.13  Third
Party Rights. Except
as explicitly set forth in this Agreement, nothing in this Agreement shall
create or be deemed to create any rights in any person or entity not a party to
this Agreement.

 

6.14  No
Waiver.It is
agreed that a waiver by either party of a breach of any provision of this
Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.

 

6.15  Further
Assurances.The
parties agree to execute and deliver all such further documents, agreements and
instruments and take such other and further action as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.

[SIGNATURE
PAGES FOLLOW]

 

COMPANY
SIGNATURE PAGE TO THE SECURITIES PURCHASE AGREEMENT

 

 

IN
WITNESS WHEREOF, the parties have caused this Securities Purchase Agreement to
be duly
executed as of the date first written above.

SHELLS
SEAFOOD RESTAURANTS, INC.

By:______________________________

Name:

Title:

Amount of
Subscription 

Accepted $____________________

 

 

 

 

[Signatures
of Investors on Following Page]

INVESTOR
SIGNATURE PAGE TO THE SECURITIES PURCHASE AGREEMENT

INVESTOR

 

____________________________________

(print
full legal name of Investor)

By:       

(signature
of authorized representative)

Name:      

Its:       

Address:     

Telephone:     

Email:      

Tax I.D.
or SSN:    

Address
where Units should be sent (if different from above)

 

NUMBER
OF UNITS SUBSCRIBED FOR:
    

AGGREGATE
PURCHASE PRICE:
     

	
      

      *If
      Investor is a Registered Representative with an NASD member firm, have the
      following acknowledgment signed by the appropriate
      party:

	
      The
      undersigned NASD member firm acknowledges receipt of the notice required
      by Rule 3040 of the NASD Conduct Rules.

	
       

      ______________________________________

      Name
      of NASD Member

	
       

      By:___________________________________

      Name:

      Title:

[Signature
page to Securities Purchase Agreement]Unassociated Document

THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION
THEREFROM.

 

STOCK
PURCHASE WARRANT

 

Warrant
No.: ____________

 

To
Purchase [__________] Shares of Common Stock of

 

SHELLS
SEAFOOD RESTAURANTS, INC.

 

THIS
CERTIFIES that, for value received, [___________]
(the
“Holder”), is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth in this Stock Purchase Warrant (the
“Warrant”), at
any time on or after the Initial Exercise Date (as defined below) and on or
prior to the close of business on the Expiration Date (as defined below) but not
thereafter, to subscribe for and purchase from Shells Seafood Restaurants, Inc.,
a corporation incorporated in the State of Delaware (the “Company”), up to
[________] shares (the “Warrant
Shares”) of
Common Stock, $0.01 par value, of the Company (the “Common
Stock”). The
purchase price of one share of Common Stock (the “Exercise
Price”) under
this Warrant shall be equal to $1.30 per share. The
Exercise Price and the number of Warrant Shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. The period from
and after the Initial Exercise Date to and including the Expiration Date is
referred to herein as the “Exercise Period.”

 

This
Warrant is issued pursuant to that certain Securities Purchase Agreement, dated
as of ________ __, 2005, by and between the Company and the Holder (the
“Purchase
Agreement”). As
provided in the Purchase Agreement, the Company has covenanted and agreed to use
its best efforts to effect an Authorized Capital Increase (as such term is
defined in the Purchase Agreement) and to give the Holder hereof notice of the
same. As used in this Warrant, (i) the “Initial
Exercise Date” shall
mean the date as of which the Authorized Capital Increase is actually effected
and (ii) the “Expiration Date” shall mean May __, 2010; provided, however, that
if the Authorized Capital Increase is not effected by June 1, 2005, then the
term “Expiration Date” shall mean the date which is the fifth anniversary of the
date the Authorized Capital Increase is effected. 

 

1. Title
to Warrant

 

Prior to
the end of the Exercise Period and subject to compliance with applicable laws
and Section 7 hereof, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the Holder in person
or by duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.

 

 

2. Authorization
of Shares

 

The
Company covenants that all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant, be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes, liens and charges in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).

 

3. Exercise
of Warrant, Cash Payment 

 

(a) Except as
provided in Section 4 herein, exercise of the purchase rights represented
by this Warrant may be made at any time or times during the Exercise Period by
the surrender of this Warrant and the Notice of Exercise Form annexed hereto
duly executed, at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at
the address of such Holder appearing on the books of the Company) and upon
payment of the Exercise Price of the shares thereby purchased by wire transfer
or cashier’s check drawn on a United States bank, the Holder shall be entitled
to receive a certificate for the number of Warrant Shares so purchased.
Certificates for shares purchased hereunder shall be delivered to the Holder
within three (3) trading days after the date on which this Warrant shall
have been exercised as aforesaid. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and Holder or any other person so designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes, as
of the date the Warrant has been exercised by surrender of the Warrant and
payment to the Company of the Exercise Price and all taxes required to be paid
by the Holder, if any, pursuant to Section 5 prior to the issuance of such
shares, have been paid. 

 

(b) If this
Warrant shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Shares, deliver
to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant. 

 

4. No
Fractional Shares or Scrip

 

No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. As to any fraction of a share, which Holder would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.

 

5. Charges,
Taxes and Expenses

 

Issuance
of certificates for Warrant Shares shall be made without charge to the Holder
for any issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name of the Holder or
in such name or names as may be directed by the Holder; provided,
however, that in
the event certificates for Warrant Shares are to be issued in a name other than
the name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder;
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

 

2

 

6. Closing
of Books

 

The
Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant.

 

7. Transfer,
Division and Combination 

 

(a) This
Warrant may not be sold, transferred, assigned or hypothecated by the Holder
except in accordance with any applicable state and Federal securities laws. The
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company, together with
a written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this Warrant
not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued. Notwithstanding the above, the
Holder shall not transfer this Warrant or any rights hereunder to any person or
entity which is then engaged in a business that is, in the reasonable judgment
of the Company, in direct competition with the Company.

 

(b) This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with
Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.

 

(c) The
Company shall prepare, issue and deliver at its own expense (other than transfer
taxes) the new Warrant or Warrants under this Section 7.

 

(d) The
Company agrees to maintain, at its aforesaid office, books for the registration
and the registration of transfer of the Warrants.

 

8. No
Rights as Shareholder until Exercise

 

This
Warrant does not entitle the Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. 

 

3

 

9. Loss,
Theft, Destruction or Mutilation of Warrant

 

The
Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it
(which, if required by the Company’s then existing written policy, may include
the posting of a bond), and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.

 

10. Saturdays,
Sundays, Holidays, etc.

 

If the
last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall be a Saturday, Sunday or a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday, Sunday or legal holiday.

 

11. Adjustments
of Exercise Price and Number of Warrant Shares

 

The
number and kind of securities purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following. In case the Company shall (i) pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, or (iv) issue any shares of its capital stock in
a reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which it would have owned or
have been entitled to receive had such Warrant been exercised in advance
thereof. Upon each
such adjustment of the kind and number of Warrant Shares or other securities of
the Company which are purchasable hereunder, the Holder shall thereafter be
entitled to purchase the number of Warrant Shares or other securities resulting
from such adjustment at an Exercise Price per Warrant Share or other security
obtained by multiplying the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Shares purchasable pursuant hereto
immediately prior to such adjustment and dividing by the number of Warrant
Shares or other securities of the Company purchasable hereunder resulting from
such adjustment. An
adjustment made pursuant to this paragraph shall become effective immediately
after the effective date of such event retroactive to the record date, if any,
for such event.

 

12. Effect
of Merger or Reorganization

 

Upon a
merger, consolidation, acquisition of all or substantially all of the property
or stock, liquidation or other reorganization of the Company (collectively, a
“Reorganization”) during
the Exercise Period, as a result of which the shareholders of the Company
receive cash, stock or other property in exchange for their shares of Common
Stock, the Holder shall be given notice of such proposed action as provided in
Section 18(c) and lawful provision shall be made so that the Holder shall
thereafter be entitled to receive, upon exercise of this Warrant, the number of
shares of securities of the successor corporation resulting from such
Reorganization (and cash and other property), to which a holder of the Warrant
Shares issuable upon exercise of this Warrant would have been entitled in such
Reorganization if this Warrant had been exercised immediately prior to such
Reorganization. In any such case, appropriate adjustment (as determined in good
faith by the Company’s Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interest of the
Holder after the Reorganization to the end that the provisions of this Warrant
(including adjustments of the Exercise Price and the number and type of
securities purchasable pursuant to the terms of this Warrant) shall be
applicable after that event, as near as reasonably may be, in relation to any
shares deliverable after that event upon the exercise of this
Warrant.

 

4

 

13. Notice
of Adjustment

 

Whenever
the number of Warrant Shares or number or kind of securities or other property
purchasable upon the exercise of this Warrant or the Exercise Price is adjusted,
as herein provided, the Company shall promptly mail by registered or certified
mail, return receipt requested, to the Holder notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made. Such notice, in
the absence of manifest error, shall be conclusive evidence of the correctness
of such adjustment.

 

14. Notice
of Corporate Action

 

If at any
time:

 

(a) the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of stock
of any class or any other securities or property, or to receive any other right;
or

 

(b) there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Company to, another
corporation or,

 

(c) there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company;

 

then, in
any one or more of such cases, the Company shall give to Holder:

 

	 	
      (i)
	
      at
      least 10 days’ prior written notice of the date on which a record
      date shall be selected for such dividend, distribution or right or for
      determining rights to vote in respect of any such reorganization,
      reclassification, merger, consolidation, sale, transfer, disposition,
      liquidation or winding up, and 

 

5

 

	 	
      (ii)
	
      in
      the case of any such reorganization, reclassification, merger,
      consolidation, sale, transfer, disposition, dissolution, liquidation or
      winding up, at least 10 days’ prior written notice of the date when
      the same shall take place. Such notice in accordance with the foregoing
      clause also shall specify 

 

	 	
      (A)
	
      the
      date on which any such record is to be taken for the purpose of such
      dividend, distribution or right, the date on which the holders of Common
      Stock shall be entitled to any such dividend, distribution or right, and
      the amount and character thereof, and 

 

	 	
      (B)
	
      the
      date on which any such reorganization, reclassification, merger,
      consolidation, sale, transfer, disposition, dissolution, liquidation or
      winding up is to take place and the time, if any such time is to be fixed,
      as of which the holders of Common Stock shall be entitled to exchange
      their Warrant Shares for securities or other property deliverable upon
      such disposition, dissolution, liquidation or winding up. Each such
      written notice shall be sufficiently given if addressed to Holder at the
      last address of Holder appearing on the books of the Company and delivered
      in accordance with Section 18(c).

 

15. Authorized
Shares

 

Subject
to effecting an Authorized Capital Increase, the Company covenants that during
the period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of the purchase rights under this Warrant.
The Company will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed. As used herein “Principal
Market” means
whichever of the New York Stock Exchange, the American Stock Exchange, the
NASDAQ National Market, the NASDAQ SmallCap Market, the Over-The-Counter
Bulletin Board or the “Pink Sheets” published by the National Quotation Bureau
Incorporated Sheets on which the Common Stock is listed or quoted.

 

The
Company will 

 

6

 

(a) not
increase the par value of any Warrant Shares above the amount payable therefor
upon such exercise immediately prior to such increase in par value;

 

(b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant; and 

 

(c) use
commercially reasonable efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant;
provided,
however, that the Company shall not be required to qualify to do business or
consent to service of process in any jurisdiction in which it is not now so
qualified or has not so consented, subject itself to general taxation in any
such jurisdiction or provide any undertakings that cause the Company undue
expense or burden.

 

Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

 

16.
 Mandatory
Exercise

 

This
Warrant must be exercised in whole by the Holder upon the first business day
following the occurrence of the following conditions: (i) the
closing
price for the Common Stock on the Over-The-Counter Bulletin Board or any other
stock quotation system or exchange upon which the Common Stock is listed for any
consecutive twenty (20) trading days is equal to or exceeds
$2.00; and (ii) during such 20-day period, the average daily trading volume of
the Common Stock on such
stock quotation system or exchange is at
least 100,000 shares. Notwithstanding the foregoing language in this Section 16,
the Holder shall not be obligated to exercise this Warrant prior to the date on
which the Registration Statement (as such term is defined in the Purchase
Agreement) is declared effective.

 

17. Registration
Rights

 

The
Company agrees to register the Warrant Shares for resale under the Securities
Act on the terms and subject to the conditions set forth in Article V of the
Purchase Agreement.

 

18. Miscellaneous

 

(a) Jurisdiction. This
Warrant shall constitute a contract under the laws of Delaware without regard to
its conflict of law, principles or rules.

 

(b) Restrictions. The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.

 

7

 

(c) Notices. All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be 

 

	 	
      (i)
	
      hand
      delivered;

 

	 	
      (ii)
	
      deposited
      in the mail, registered or certified, return receipt requested, postage
      prepaid;

 

	 	
      (iii)
	
      delivered
      by reputable air courier service with charges prepaid, for next day
      delivery; or 

 

	 	
      (iv)
	
      transmitted
      by facsimile, addressed as set forth below or to such other address as
      such party shall have specified most recently by written notice.
      

 

Any
notice or other communication required or permitted to be given hereunder shall
be deemed effective

 

	 	
      (i) 
	
      upon
      hand delivery or delivery by facsimile, with accurate confirmation
      generated by the transmitting facsimile machine, at the address or number
      designated below (if delivered on a business day during normal business
      hours where such notice is to be received), or the first business day
      following such delivery (if delivered other than on a business day during
      normal business hours where such notice is to be received) or
    

 

	 	
      (ii)
	
      on
      the first business day following the date of sending by reputable courier
      service, fully prepaid, addressed to such address, or

 

	 	
      (iii)
	
      upon
      actual receipt of such mailing, if mailed.

 

The
addresses for such communications shall be with respect to the Holder of this
Warrant or of Warrant Shares issued pursuant thereto, addressed to such Holder
at its last known address or facsimile number appearing on the books of the
Company maintained for such purposes, or with respect to the Company, to the
address provided on the signature page hereof. Any party hereto may from time to
time change its address for notices by giving at least ten (10) days
written notice of such changed address to the other party hereto.

 

(d) Limitation
of Liability. No
provision hereof, in the absence of affirmative action by Holder to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of Holder,
shall give rise to any liability of Holder for the purchase price of any Common
Stock or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.

 

8

 

(e) Successors
and Assigns. Subject
to applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder.
The provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by any such Holder or
holder of Warrant Shares. 

 

(f) Amendment. This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

 

(g) Severability.
Wherever possible, each provision of this Warrant shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.

 

(h) Headings. The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

 

[Signature
Page Follows]

 

9

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized.

 

Dated:
_______ __, 2005

 

		
      SHELLS
      SEAFOOD RESTAURANTS, INC.

       

      By:_____________________________      

      Name: 

      Its: 

       

      Address: 16313 North Dale Mabry Highway, Suite
      100, Tampa, Florida 33618

 

10

 

NOTICE
OF EXERCISE

 

To: Shells
Seafood Restaurants, Inc.

 

The
undersigned hereby elects to purchase ___________________ shares of Common Stock
of Shells Seafood Restaurants, Inc. covered by such Warrant and herewith makes
payment of $_____________, representing the full purchase price for such shares
at the price per share provided for in such Warrant.

 

The
undersigned agrees to pay all applicable transfer taxes, if any that are
applicable to such Warrant exercise.

 

Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

 

_______________________________

 

The
Warrant Shares shall be delivered to the following:

 

_______________________________

 

_______________________________

 

_______________________________

 

	 	[PURCHASER]
       

      By:
      __________________________________

      Name:

      Title:

      Dated:
      ________________________

 

Page
1

 

 

ASSIGNMENT
FORM

 

(To
assign the foregoing warrant, execute

 

this form
and supply required information. 

 

Do not
use this form to exercise the warrant.)

 

FOR VALUE
RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

 

_______________________________________________
whose address is
________________________________________________________.

 

_______________________________________________________________.

 

Dated:
______________, _______

 

	 	 
      Holder’s
      Signature: _____________________________

       

      Holder’s
      Address: _____________________________

       

      _____________________________

 

Page
2

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