SCHEDULE
14A
(RULE
14A-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934
Filed
by
the Registrant þ
Filed
by
a Party other than the Registrant o
Check
the
appropriate box:
o
Preliminary
Proxy Statement
o
Confidential,
for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
þ
Definitive
Proxy Statement
o
Definitive
Additional
Materials
o
Soliciting
Material Pursuant to
§240.14a-12
SHELLS
SEAFOOD RESTAURANTS, INC.
(Name
of Registrant as Specified in its Charter)
N/A
(Name
of Person(s) Filing Proxy Statement if other than the Registrant)
Payment
of Filing Fee (check the appropriate box):
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o
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction
applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is
calculated and state how it was
determined):
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(4)
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Proposed
maximum aggregate value of
transaction:
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Fee
paid previously with preliminary
materials.
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the Form or Schedule and the date of its filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement
No.:
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SHELLS
SEAFOOD RESTAURANTS, INC.
16313
N. Dale Mabry Highway
Suite
100
Tampa,
Florida 33618
September
17, 2007
Dear
Stockholder,
You
are
cordially invited to attend our Annual Meeting of Stockholders to be held at
10:00 a.m. on October 17, 2007 at our executive offices located at 16313 N.
Dale
Mabry Highway, Tampa, Florida 33618.
At
the
Annual Meeting of Stockholders, you are being asked to vote on the election
of
six directors to our Board of Directors. I will be pleased to report on the
affairs of our company and a discussion period will be provided for questions
and comments of general interest to stockholders.
It
is
important that your shares be represented at the meeting, whether or not you
plan to attend in person. We urge you to promptly vote by following the
instructions on the enclosed proxy card. You can vote your shares by completing
and returning the enclosed proxy card, or in certain circumstances as we discuss
in the following Proxy Statement, by Internet or telephone. In this way, you
can
be sure your shares will be voted at the meeting. If you later decide to attend
the meeting, you can generally, if you wish, revoke the proxy and vote in
person.
Thank
you
for your cooperation.
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Very
truly yours,
Leslie
J. Christon
President
and Chief Executive Officer
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SHELLS
SEAFOOD RESTAURANTS, INC.
________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
________________
September
17, 2007
Notice
is
hereby given that we will hold the 2007 Annual Meeting of Stockholders of Shells
Seafood Restaurants, Inc. (“Shells”) on October 17, 2007, at 10:00 a.m., at our
executive offices located at 16313 N. Dale Mabry Highway, Tampa, Florida 33618
for the following purposes:
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(1)
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To
elect six directors to serve for the ensuing year;
and
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(2)
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To
transact such other business as may properly come before the meeting,
or
any adjournment or postponement of the
meeting.
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Stockholders
of record at the close of business on September 4, 2007 will be entitled to
notice of and to vote at the meeting, or any adjournment or postponement
thereof.
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Warren
R. Nelson
Secretary
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Page
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ABOUT
THE MEETING
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1
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INFORMATION
ABOUT OWNERSHIP OF OUR COMMON STOCK
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4
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PROPOSAL
NO. 1—ELECTION OF DIRECTORS
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8
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EXECUTIVE
COMPENSATION
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13
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STOCK
OPTION AND COMPENSATION COMMITTEE REPORT
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16
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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27
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AUDIT
COMMITTEE REPORT
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29
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RELATIONSHIP
WITH OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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30
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OTHER
MATTERS
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31
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ANNEX
A - SHELLS SEAFOOD RESTAURANTS AUDIT COMMITTEE CHARTER
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SHELLS
SEAFOOD RESTAURANTS, INC.
16313
N. Dale Mabry Highway
Suite
100
Tampa,
Florida 33618
PROXY
STATEMENT
________________
ABOUT
THE MEETING
This
proxy statement contains information relating to our 2007 Annual Meeting of
Stockholders to be held on October 17, 2007, at 10:00 a.m., at our executive
offices located at 16313 N. Dale Mabry Highway, Tampa, Florida 33618, and at
any
postponements or adjournments of the meeting.
What
is the purpose of the Annual Meeting?
At
our
Annual Meeting, stockholders will (i) elect six directors to serve on our Board,
and (ii) transact any other business which may properly come before the meeting,
or any adjournment thereof. In addition, management will report on our
performance for the fiscal year ended December 31, 2006, which we refer to
throughout this proxy statement as “fiscal 2006,” and respond to appropriate
questions from stockholders. We are not currently aware of any other matters
which will come before the meeting.
Proxies
for use at the meeting are being solicited by the Board of Directors of Shells,
chiefly by mail. We began mailing this proxy statement, along with the proxy
card, on or about September 17, 2007. We will make arrangements with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to the beneficial owners of our common stock and Series B Preferred
Stock and will reimburse them for their expenses in so doing. To ensure adequate
representation of shares of our common stock and Series B Preferred Stock and
the presence of a quorum at the meeting, officers, agents and Shells employees
may communicate with stockholders, banks, brokerage houses and others by
telephone, facsimile or in person to request that proxies be furnished. Shells
will bear all expenses incurred in connection with this solicitation. We have
no
present plans to hire employees or special paid solicitors to assist in
obtaining proxies, but reserve the option of doing so if it should appear that
a
quorum otherwise might not be obtained.
Who
is entitled to vote at the meeting?
Only
stockholders of record at the close of business on September 4, 2007, the record
date for the meeting, are entitled to receive notice of, and to participate
in,
the Annual Meeting, or any postponements and adjournments of the meeting. If
you
were a stockholder of record on that date, you will be entitled to vote all
of
the shares you held on that date at the Annual Meeting. Your proxy card shows
the number of shares you held at the close of business on September 4, 2007.
What
does it mean if I receive more than one proxy card?
If
you
received more than one proxy card, you have multiple accounts with your brokers
or our transfer agent. Please vote all of these shares. We recommend that you
contact your broker or our transfer agent to consolidate as many accounts as
possible under the same name and address. You may contact our transfer agent,
Continental Stock Transfer & Trust Company, at (212) 509-4000.
What
are the voting rights of the holders of common stock?
Each
outstanding share of our common stock will be entitled to one vote on each
matter to be acted upon at the meeting. On September 4, 2007, there were
23,537,948 shares of common stock outstanding, representing the same number
of
votes.
What
are the voting rights of the holders of Series B Preferred Stock?
Our
Series B Preferred Stock will vote together with our common stock as a single
class on an “as-converted” basis on all actions to be taken by our stockholders
at the Annual Meeting of Stockholders. Each outstanding share of our Series
B
Preferred Stock will be entitled to one vote per each whole share of common
stock into which such share of Series B Preferred Stock is convertible as of
the
record date for such vote. As of
September
4, 2007, the record date for our 2007 Annual Meeting, each share of Series
B
Preferred Stock was convertible into twenty shares of our common stock. On
September 4, 2007, there were 87,552 shares of Series B Preferred Stock
outstanding, representing 1,751,040 votes.
What
constitutes a quorum?
The
presence at the meeting, in person or by proxy, of the holders of a majority
of
the common stock and Series B Preferred Stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, will
constitute a quorum, thereby permitting the meeting to conduct its business.
On
September 4, 2007, 23,537,948 shares of common stock, representing the same
number of votes, were outstanding and 87,552 shares of Series B Preferred Stock,
representing 1,751,040 votes, were outstanding. Accordingly, the presence of
holders representing at least a majority of the votes entitled to be cast,
or
12,144,495 votes, is required to establish a quorum.
Proxies
received but marked as abstentions and broker non-votes will be counted in
determining whether a quorum is present. “Abstentions” are shares held by
stockholders present in person or represented by proxy that are not voted in
connection with a particular matter. “Broker non-votes” are shares held by
brokers or nominees which are present in person or represented by proxy, but
which are not voted on a particular matter because instructions have not been
received from the beneficial owner. Under applicable Delaware law, the effect
of
broker non-votes on a particular matter depends on whether the matter is one
as
to which the broker or nominee has discretionary voting authority under the
applicable rule of the New York Stock Exchange (the “NYSE”). Under the NYSE
rules, a broker does not have discretionary voting power with respect to
“non-routine” matters. The proposal for the election of directors is a routine
matter, and therefore, brokers or nominees have discretionary authority to
vote
on this proposal if beneficial owners fail to give voting instructions.
How
do I vote?
You
may
vote your shares by mailing the enclosed proxy card which gives detailed
instructions. If you vote by mail, please complete and properly sign the
enclosed proxy card and return it in the envelope we have provided. It then
will
be voted according to your instructions. If you are a registered stockholder
and
attend the meeting, you may deliver your completed proxy card or vote in person.
A registered stockholder receives proxy material directly from our transfer
agent, Continental Stock Transfer & Trust Co.
If
your
shares are held in an account in the name of your bank or broker (this is called
“street name”), you will receive from that bank or broker a separate Voter
Instruction Form with instructions on how to vote by return mail, by telephone
or by Internet. Many (but not all) brokerage firms and banks participate in
a
program provided through ADP Investor Communication Services that offers
telephone and Internet voting options.
Unless
you give other instructions on your proxy card, the persons named as proxy
holders on the proxy card will vote for the election of the nominated slate
of
directors to serve for the ensuing year. These votes are in accordance with
the
recommendations of our Board. With respect to any other matter that properly
comes before the meeting, the proxy holders will vote according to their best
judgment.
Can
I change my vote after I have voted?
Yes.
Even
after you have submitted your proxy card you may change your vote at any time
before the proxy is exercised, by filing with the Secretary of Shells either
a
notice of revocation or a duly executed proxy bearing a later date. The powers
of the proxy holders will be suspended if you attend the meeting in person
and
request to vote in person, although attendance at the meeting alone will not
itself revoke a previously granted proxy.
If
your
shares are held by a bank or broker and you wish to vote your shares in person,
you must contact the bank or broker holding your shares and request a special
proxy card indicating your ownership of our stock. In addition, you should
consult your brokerage firm or bank for directions, in the event you voted
your
shares by Internet or telephone and want to later change your vote prior to
the
Annual Meeting.
INFORMATION
ABOUT OWNERSHIP OF OUR COMMON STOCK
The
following table sets forth certain information as of August 15, 2007 regarding
the beneficial ownership of our common stock by (i) each person known by us
to
own beneficially more than 5% of the outstanding common stock; (ii) each current
director (all of whom are standing for re-election); (iii) each executive
officer named in the Summary Compensation Table in this proxy statement; and
(iv) all of our directors and executive officers as a group. Except as otherwise
specified, the named beneficial owner has the sole voting and investment power
over the shares listed, and has an address c/o Shells Seafood Restaurants,
Inc.,
16313 N. Dale Mabry Highway, Suite 100, Tampa, FL 33618. For purposes of this
table, beneficial ownership is determined according to the rules of the
Securities and Exchange Commission (the “SEC”), which generally attributes
beneficial ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those securities. Stock options
and warrants which are presently exercisable or which become exercisable within
60 days of August 15, 2007 into shares of our common stock (or into securities
which are convertible into shares of our common stock) are considered
beneficially owned shares of common stock. For purposes of this table, each
share of Preferred Stock is deemed to represent beneficial ownership of twenty
shares of common stock, being the actual rate of conversion on August 15,
2007.
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Beneficial
Ownership
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Percent
of
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Name
and Address of Beneficial Owner
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Amount
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Class
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Philip
R. Chapman
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400
Madison Avenue, Suite 7C
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New
York, NY 10017 (1)
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4,601,682
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19.45
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%
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Leslie
J. Christon (2)
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1,620,064
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6.44
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%
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Michael
R. Golding
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230
Pleasant Valley Road
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Morganville,
NJ 07751 (3)
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90,000
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*
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Gary
L. Herman
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Galloway
Capital Management, LLC
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720
Fifth Avenue, 10th
Floor
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New
York, NY 10019 (4)
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934,989
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3.96
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%
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Christopher
D. Illick
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735
Iris Lane
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Vero
Beach, FL 32963 (5)
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121,500
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*
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Jay
A. Wolf
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c/o
Trinad Capital, L.P.
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2121
Avenue of the Stars, Suite 2550
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Los
Angeles, CA 90067 (6)
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4,344,315
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17.89
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%
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Guy
C. Kathman (7)
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216,667
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*
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Warren
R. Nelson (8)
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424,918
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1.78
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%
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Beneficial
Ownership
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Percent
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Name
and Address of Beneficial Owner
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Amount
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of
Class
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Christopher
R. Ward, Sr. (9)
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100,001
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*
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Frederick
R. Adler
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1520
South Ocean Blvd.
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Palm
Beach, FL 33480 (10)
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3,783,858
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15.13
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%
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James
R. Adler
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400
Madison Avenue, Suite 7C
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New
York, NY 10017 (11)
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4,455,682
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18.93
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%
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|
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|
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Robert
Ellin
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c/o
Trinad Capital, L.P.
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2121
Avenue of the Stars, Suite 2550
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|
|
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Los
Angeles, CA 90067 (12)
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4,264,315
|
|
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17.62
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%
|
|
|
|
|
|
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Bruce
Galloway
|
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Galloway
Capital Management LLC
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720
Fifth Avenue, 10th
Floor
|
|
|
|
|
|
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New
York, NY 10019 (13)
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2,957,364
|
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12.49
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%
|
|
|
|
|
|
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Banyon
Investment, LLC
|
|
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|
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400
Madison Avenue, Suite 7C
|
|
|
|
|
|
|
|
New
York, NY 10017
|
|
|
4,454,015
|
|
|
18.92
|
%
|
|
|
|
|
|
|
|
|
Lagunitas
Partners, LP
|
|
|
|
|
|
|
|
50
Osgood Place, Penthouse
|
|
|
|
|
|
|
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San
Francisco, CA 94133 (14)
|
|
|
2,600,010
|
|
|
10.65
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%
|
|
|
|
|
|
|
|
|
Pequot
Capital Management, Inc.
|
|
|
|
|
|
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500
Nyala Farm Road
|
|
|
|
|
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|
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Westport,
CT 06880 (15)
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|
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1,333,330
|
|
|
5.36
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%
|
|
|
Beneficial
Ownership
|
|
|
|
Name
and Address of Beneficial Owner
|
|
Amount
|
|
Class
|
|
|
|
|
|
|
|
Trinad
Advisors GP, LLC
|
|
|
|
|
|
2121
Avenue of the Stars, Suite 2550
|
|
|
|
|
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Los
Angeles, CA 90067 (16)
|
|
|
4,264,315
|
|
|
17.62
|
%
|
|
|
|
|
|
|
|
|
Trinad
Capital Master Fund, Ltd.
|
|
|
|
|
|
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2121
Avenue of the Stars, Suite 2550
|
|
|
|
|
|
|
|
Los
Angeles, CA 90067 (16)
|
|
|
4,264,315
|
|
|
17.62
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%
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (9 persons)
(17)
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|
|
12,454,136
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46.94
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%
|
(1)
|
Includes
(i) 4,454,015 shares of common stock owned by Banyon Investment,
LLC, and
(ii) 116,000 shares of common stock which may be acquired through
the
exercise of options held by Mr. Chapman. Mr. Chapman and Mr. James
Adler
are co-managing members of Banyon Investment, LLC and share voting
and
investment powers.
|
(2)
|
Includes
1,605,064 shares of common stock which may be acquired through the
exercise of options. Does not include options to purchase 653,845
shares
of common stock which are not exercisable within 60 days of August
15,
2007.
|
(3)
|
Consists
of 90,000 shares of common stock which may be acquired through the
exercise of options.
|
(4)
|
Includes
(i) 562,800 shares of common stock owned by Strategic Turnaround
Equity
Partners, L.P. (Cayman) (“STEP”), an investment fund; (ii) 193,751 shares
of common stock owned by Galloway Capital Management, LLC; (iii)
80,000
shares of common stock which may be acquired through the exercise
of
options; and (iv) 4,688 shares of common stock owned by a trust for
the
benefit of Mr. Herman’s children. Mr. Herman
is a managing member of Galloway Capital Management, LLC, a managing
member of the general partner of STEP, and the trustee of the
aforementioned trust.
|
(5)
|
Consists
of 121,500 shares of common stock which may be acquired through the
exercise of options. Does not include options to purchase 22,500
shares of
common stock which are not exercisable within 60 days of August 15,
2007.
|
(6)
|
Consists
of (i) 3,521,548 shares of common stock owned by Trinad Capital Master
Fund, Ltd.; (ii) 22,270 shares of Series B Preferred Stock convertible
into 445,400 shares of common stock, owned by Trinad Capital Master
Fund,
Ltd.; (iii) warrants to purchase 222,700 shares of common stock owned
by
Trinad Capital Master Fund, Ltd.; (iv) 80,000 shares of common stock
which
may be acquired through the exercise of options and (v) 74,667 shares
of
common stock owned by Trinad Capital, LP. Mr. Wolf is a managing
director
of Trinad Management, LLC which is the manager of Trinad Capital
Master
Fund, Ltd.
|
(7)
|
Consists
of 216,667 shares of common stock which may be acquired through the
exercise of options. Does not include options to purchase 158,333
shares
of common stock which are not exercisable within 60 days of August
15,
2007.
|
(8)
|
Includes
359,650 shares of common stock which may be acquired through the
exercise
of options. Does not include options to purchase 242,326 shares of
common
stock which are not exercisable within 60 days of August 15,
2007.
|
(9)
|
Consists
of 100,001 shares of common stock which may be acquired through the
exercise of options. Does not include options to purchase 104,999
shares
of common stock with are not exercisable within 60 days of August
15,
2007.
|
(10)
|
Includes
(i) 48,833 shares of Series B Preferred Stock convertible into 976,660
shares of common stock and (ii) warrants to purchase 488,330 shares
of
common stock. Does not include 4,454,015 shares of common stock owned
by
Banyon Investment, LLC. Mr. Adler’s son, James Adler, is a co-managing
member of Banyon Investment, LLC.
|
(11)
|
Includes
4,454,015 shares of common stock owned by Banyon Investment, LLC.
Mr.
James Adler and Mr. Chapman
are co-managing members of Banyon Investment, LLC and share voting
and
investment powers. Does not include any share held by Mr. Frederick
Adler,
the father of Mr. James
Adler.
|
(12)
|
Consists
of (i) 3,521,548 shares of common stock owned by Trinad Capital Master
Fund, Ltd.; (ii) 22,270 shares of Series B Preferred Stock convertible
into 445,400 shares of common stock, owned by Trinad Capital Master
Fund,
Ltd.; (iii) warrants to purchase 222,700 shares of common stock owned
by
Trinad Capital Master Fund, Ltd.; and (iv) 74,667 shares of common
stock
owned by Trinad Capital, LP. Mr. Ellin is a managing director of
Trinad
Management, LLC which is the manager of Trinad Capital Master Fund,
Ltd.
|
(13)
|
Consists
of (i) 562,800 shares of common stock owned by Strategic Turnaround
Equity
Partners, L.P. (Cayman) (“STEP”), an investment fund of which Mr. Galloway
is a managing member of Galloway Capital Management, LLC, STEP’s general
partner; (ii) 193,751 shares of common stock owned by Galloway Capital
Management, LLC of which 50% is to the benefit of Mr. Galloway; (iii)
1,955,793 shares of common stock owned by the Bruce Galloway, IRA
R/O;
(iv) warrants to purchase 143,420 shares of common stock owned by
the
Bruce Galloway, IRA R/O; (v) 24,100 shares of common stock owned
by Rexon
Galloway Capital Growth, LLC for which Mr. Galloway has the right
to vote
and dispose; and (vi) 77,500 shares of common stock owned by Mr.
Galloway’s children for which Mr. Galloway has the right to vote and
dispose.
|
(14)
|
Consists
of (i) 1,733,340 shares of common stock and (ii) a warrant to purchase
866,670 shares of common stock.
|
(15)
|
Consists
of warrants to purchase 1,333,330 shares beneficially owned by Pequot
Scout Fund, LP and Pequot Mariner Offshore Fund, LP. Pequot Capital
Management, Inc. is the investment adviser of Pequot Scout Fund,
LP and
Pequot Mariner Offshore Fund, LP.
|
(16)
|
Consists
of (i) 3,521,548 shares of common stock owned by Trinad Capital Master
Fund, Ltd.; (ii) 22,270 shares of Series B Preferred Stock convertible
into 445,400 shares of common stock owned by Trinad Capital Master
Fund,
Ltd.; (iii) warrants to purchase 222,700 shares of common stock owned
by
Trinad Capital Master Fund, Ltd.; and (iv) 74,667 shares of common
stock
owned by Trinad Capital, LP. Trinad Advisors GP, LLC is the general
partner of Trinad Capital Master Fund,
Ltd.
|
(17)
|
Includes
(i) 9,017,154 shares of common stock, and (ii) 2,755,548 shares of
common
stock which may be acquired through the exercise of options. Does
not
include options to purchase an aggregate of 1,195,337 shares of common
stock which are not exercisable within 60 days of August 15,
2007.
|
Certain
information in the table and its footnotes is derived from filings made with
the
Securities and Exchange Commission or supplemental information received from
various of the entities named in this table.
PROPOSAL
NO. 1—ELECTION OF DIRECTORS
How
is the Board Structured?
There
are
six directors to be elected at the Annual Meeting, all of whom currently serve
as directors of Shells. Directors are elected for a term of one year which
expires at the next annual meeting of stockholders, or at such other time as
his
or her successor is duly elected and qualified. Unless you specify otherwise,
your proxy will be voted in favor of the six persons named below. We have no
reason to believe that any of the listed nominees will be unable to serve,
or
that any vacancy will occur on the Board of Directors. However, in the event
any
of these nominees is unable to serve as a director, the shares represented
by
your proxy will be voted for the person, if any, who is designated by the Board
to replace the nominee. All of the listed nominees have consented to be named
and have indicated their intent to serve if elected.
The
Nominating Committee, consisting of Messrs. Herman, Illick and Golding, is
charged with assisting the Board of Directors in its selection of individuals
as
nominees for election to the Board, in selecting directors to serve on the
various committees of the Board and in selecting individuals to fill any
vacancies or newly created directorships on the Board or committees of the
Board. The Nominating Committee does not have a charter. The Nominating
Committee nominated Philip R. Chapman, Leslie J. Christon, Michael R. Golding,
Gary L. Herman, Christopher D. Illick and Jay A. Wolf to stand for re-election
as members of our Board of Directors.
Who
are the nominees for election to the Board?
The
nominees, their ages, the year in which each first became a director and their
principal occupations or employment during the past five years are summarized
below:
|
|
Director
|
|
Director
|
Age
|
Since
|
Principal
Occupation During the Past Five Years
|
Philip
R. Chapman
|
45
|
1997
|
Since
1993, Mr. Chapman has been President of Adler &
|
|
|
|
Company,
a corporation which provides administrative
|
|
|
|
services
for financial and venture capital investing, including
|
|
|
|
certain
entities controlled by Frederick R. Adler, a greater
than
|
|
|
|
10%
stockholder. Mr. Chapman is a director of Regeneration
|
|
|
|
Technologies,
Inc., a company which produces allografts for
|
|
|
|
surgical
use, and of various private companies. He is also a
|
|
|
|
managing
partner of Alpha Beta Capital Management LLC, a
|
|
|
|
private
hedge fund. Mr. Chapman is the son-in-law of
|
|
|
|
Frederick
R. Adler. Mr. Chapman has served as Chairman of
|
|
|
|
our
company since April 2002.
|
|
|
|
|
Leslie
J. Christon
|
53
|
2004
|
Mrs.
Christon has served as our President and Chief
Executive
|
|
|
|
Officer
since joining our company in July 2003. From 2002 to
|
|
|
|
2003,
Mrs. Christon was self-employed as a management
|
|
|
|
consultant
in the restaurant industry. From 2000 to 2002, Mrs.
|
|
|
|
Christon
was employed by Sutton Place Gourmet, Inc. as its
|
|
|
|
President
and Chief Operating Officer. From 1996 to 2000,
|
|
|
|
Mrs.
Christon was employed by Brinker International, On the
|
|
|
|
Border
Restaurants, as its President.
|
|
|
|
|
Michael
R. Golding
|
74
|
2002
|
Dr.
Golding has been a professor of surgery at the State
|
|
|
|
University
of New York Health Science Center in Brooklyn,
|
|
|
|
New
York since 1963, where he is currently an Emeritus
|
|
|
|
Clinical
Professor of Surgery. From 1977 to 1989, Dr.
|
|
|
|
Golding
served as Director of Surgery at Lutheran Medical
|
|
|
|
Center
in Brooklyn, New York. From 1984 to 1989, Dr.
|
|
|
|
Golding
was President of the Tri-Boro Association
of
|
|
|
Director
|
|
Director
|
Age
|
Since
|
Principal
Occupation During the Past Five Years
|
|
|
|
Directors
of Surgery. Dr. Golding is a Fellow of the American
|
|
|
|
College
of Surgeons, a Fellow of the American College of
|
|
|
|
Chest
Physicians, and a Fellow of the American College of
|
|
|
|
Angelology.
Dr. Golding is a Member of the Board of
|
|
|
|
Directors
of the United Hospital Fund. Dr. Golding also serves
|
|
|
|
on
the boards of numerous professional entities and
private
|
|
|
|
companies.
|
|
|
|
|
Gary
L. Herman
|
43
|
2004
|
Mr.
Herman has been a member of Galloway Capital
|
|
|
|
Management,
LLC, an affiliate of a greater than 10%
|
|
|
|
stockholder,
since 2002. Mr. Herman has been the Chairman
|
|
|
|
and
Secretary of Digital Creative Development Corporation,
|
|
|
|
an
investment holding company, since 2001. He has been the
|
|
|
|
Secretary
and a member of the Board of Directors of
|
|
|
|
DataMetrics
Corporation, a military defense company, since
|
|
|
|
2000,
and Chairman since 2005. From 1997 to 2002, Mr.
|
|
|
|
Herman
was an Associate Managing Director of Burnham
|
|
|
|
Securities,
Inc.
|
|
|
|
|
Christopher
D. Illick
|
68
|
1998
|
Mr.
Illick was the President of iQ Venture Partners, Inc.,
an
|
|
|
|
investment
bank, from 2001 until March 2007 and was
|
|
|
|
formerly
a General Partner of Illick Brothers, a real estate and
|
|
|
|
management
concern, since 1965. From 1997 to 2001, Mr.
|
|
|
|
Illick
was a senior officer of the investment bank of Brean
|
|
|
|
Murray
& Co., Inc. Mr. Illick is currently a private
investor.
|
|
|
|
|
Jay
A. Wolf
|
34
|
2004
|
Since
2004, Mr. Wolf has served as a Managing Director of
|
|
|
|
Trinad
Capital, L.P., an activist hedge fund. From 1999 to
|
|
|
|
2003,
Mr. Wolf served as Vice President of Corporate
|
|
|
|
Development
for Wolf Group Integrated Communications
|
|
|
|
Ltd.,
a marketing communications firm, where he was
|
|
|
|
responsible
for the company’s acquisition program. From
|
|
|
|
1996
to 1999, Mr. Wolf was employed by Canadian Corporate
|
|
|
|
Funding,
Ltd., a Toronto-based merchant bank in the senior
|
|
|
|
debt
department and, subsequently by Trillium Growth
|
|
|
|
Capital,
the firm’s venture capital fund. Mr. Wolf currently
|
|
|
|
sits
on the Board of ProLink Holdings Corp., a public
|
|
|
|
company
providing electronic GPS services to the golf
|
|
|
|
industry,
and US Wireless Data, Inc., a public development
|
|
|
|
stage
company.
|
Board
Meetings; Annual Meeting Attendance
During
our 2006 fiscal year, our Board of Directors held 10 meetings, acted by
unanimous written consent four times and acted by committee action 13 times.
During fiscal 2006, each director nominee attended at least 75% of the aggregate
number of meetings of the Board of Directors and all committees of the Board
on
which he or she served, held during the time period in which he or she served.
We
have a
general policy of expecting our directors to attend our annual meetings of
stockholders. All of our directors were in attendance at last year’s annual
meeting of stockholders.
Board
Independence
Our
six-member Board of Directors includes two directors who satisfy the criteria
for independence under Rule 4200(a)(15) of NASDAQ Stock Market. Applying these
independence standards, the Board of Directors has determined that Messrs.
Illick and Golding are independent directors. The Board of Directors also
determined that Mr. Hoffman, who resigned as a director and member of the Audit
Committee effective as of January 1, 2007, was an independent director during
the 2006 fiscal year.
Board
Committees
The
Board
of Directors has standing Executive, Audit, Stock Option and Compensation,
Nominating and Finance Committees.
Executive
Committee.
The
Executive Committee possesses all the powers and authority of the Board in
the
management of the business and affairs of our company, except for certain powers
which are specifically reserved by Delaware law to the entire Board or the
stockholders. Messrs. Chapman and Herman are the current members of the
Executive Committee. The Executive Committee did not meet in fiscal 2006.
Audit
Committee.
Our
Board of Directors has established an Audit Committee in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The Audit Committee’s responsibilities, which includes the review of our
internal accounting controls and procedures, SEC filings, and financial news
releases, as well as, procedures and consulting with and reviewing the services
provided by the independent registered public accounting firm, are described
in
the Audit Committee Charter, as amended, attached hereto as Annex A and is
located on our website at www.ShellsSeafood.com under the Investor Relations
tab. The Audit Committee’s Report appears later in this proxy statement. In
2006, the Audit Committee consisted of Messrs. Hoffner, Golding and Illick.
Mr.
Hoffner resigned from the board of directors and the Audit Committee effective
as of January 1, 2007. Mr. Illick and Dr. Golding are the current members of
the
Audit Committee and are independent directors as that term is defined by Rule
4200(a)(15) of the NASDAQ Stock Market. Mr. Illick is an audit committee
financial expert, as that term is defined in Item 407(d)(5) of Regulation S-K.
The Audit Committee met six times in fiscal 2006.
Stock
Option and Compensation Committee.
The
Stock Option and Compensation Committee is charged with reviewing compensation
policies and practices, recommending compensation for executives and key
employees and administering our stock option plans. The Stock Option and
Compensation Committee Report appears later in this proxy statement. Messrs.
Chapman and Wolf are the current members of the Stock Option and Compensation
Committee. The Stock Option and Compensation Committee does not have a charter.
The Stock Option and Compensation Committee met two times in fiscal 2006. The
Stock Option and Compensation Committee approves all individual stock option
grants except for those previously approved policies of granting set option
amounts to restaurant management upon their promotion to certain positions,
which options are approved by Leslie J. Christon. In fiscal 2006, Leslie J.
Christon participated in deliberations of the Stock Option and Compensation
Committee regarding executive compensation. However, Mrs. Christon did not
participate in deliberations concerning her own compensation. Publicly available
executive compensation information, within the restaurant industry peer group,
as well as company-wide and individual performance is reviewed and considered
by
the Stock Option and Compensation Committee in determining executive
compensation.
Nominating
Committee.
The
Nominating Committee is charged with assisting the Board in (i) its selection
of
individuals as nominees for election to the Board, (ii) selecting directors
to
serve on the various committees of the Board, and (iii) in selecting individuals
to fill any vacancies or newly created directorships on the Board or committees
of the Board. The members of the Nominating Committee are Messrs. Herman and
Illick and Dr. Golding. Mr. Illick and Dr. Golding are independent directors
as
that term is defined by Rule 4200(a)(15) of the NASDAQ Stock Market. Mr. Herman
may not be an independent director pursuant to that definition. During fiscal
2006, the Nominating Committee did not meet.
It
is the
policy of the Nominating Committee to consider candidates for Board membership
suggested by Nominating Committee members and other Board members, management,
our stockholders, third-party search firms and any other appropriate sources.
As
a stockholder, you may recommend any person for consideration as a nominee
for
director by writing to the Nominating Committee of the Board of Directors,
16313
N. Dale Mabry Highway, Suite 100, Tampa, Florida 33618. Recommendations must
be
received by January 31, 2008 to be considered for the 2008 Annual Meeting of
Stockholders. Recommendations must include the name and address of the
stockholder making the recommendation, a representation setting forth the number
of shares of common stock beneficially owned by the recommending stockholder,
a
statement that the recommended nominee has expressed his or her intent to serve
on the Board if elected, biographical information about the recommended nominee,
any other information the stockholder believes would be helpful to the
Nominating Committee in evaluating the recommended nominee, and a description
of
all arrangements or understandings between the recommending stockholder and
each
nominee and any other person concerning the nomination.
In
evaluating candidates, the Nominating Committee will consider, among others,
the
following criteria: personal integrity, sound business judgment, business and
professional skills and experience, independence, potential conflicts of
interest, the extent to which a candidate would fill a present need, and concern
for the long term interests of stockholders. In any particular situation, the
Nominating Committee may focus on persons possessing a particular background,
experience or qualifications which the Nominating Committee believes would
be
important to enhance the effectiveness of the Board. The evaluation process
for
stockholder recommendations is the same as for candidates recommended from
any
other source. The Nominating Committee does not have a written charter.
Finance
Committee.
The
Finance Committee was formed as a special committee on August 26, 2006 (i)
to
determine and assess third party financing options that may be available to
our
company, including for the purposes of meeting contingencies relative to our
working capital requirements and providing additional capital for new restaurant
growth, and (ii) to discuss and negotiate terms and conditions of such options
with third party sources, placement agents, brokers and consultants as deemed
necessary. Messrs. Chapman, Herman and Wolf are the current members of the
Finance Committee. The Finance Committee met five times in fiscal 2006.
How
can you contact our directors?
Securityholders
may contact our directors through written correspondence or e-mail. Written
correspondence should be mailed to our executive offices at 16313 N. Dale Mabry
Highway, Suite 100, Tampa, Florida 33618 Attn: Secretary. E-Mail correspondence
should be directed to [email protected] Attn: Secretary. Each
stockholder communication will be forwarded to all directors, or the director
to
whom it is addressed, unless such communication is unduly hostile, threatening,
illegal or inappropriate, in which case the Secretary has the authority to
discard the communication or take appropriate legal action regarding such
communication. In general, stockholder communications relating to corporate
governance and long-term corporate strategy are more likely to be forwarded
than
stockholder communications relating to personal grievances and matters as to
which we tend to receive repetitive or duplicative communications.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
requires our executive officers and directors, and persons who beneficially
own
more than 10% of our common stock, to file initial reports of ownership and
reports of changes in ownership with the SEC. Executive officers, directors
and
greater than 10% stockholders are required by the SEC to furnish us with copies
of all Section 16(a) forms they file.
Based
upon a review of the copies of the forms furnished to us and written
representations from our executive officers and directors, we believe that
during fiscal 2006, all Section 16(a) filing requirements applicable to our
executive officers, directors and greater than 10% beneficial owners were
complied with on a timely basis, except that Gary L. Herman, a director, and
Bruce Galloway, a greater than 10% beneficial owner, did not report the changes
in their ownership of our common stock with the SEC on a timely basis. Each
of
Mr. Herman and Mr. Galloway subsequently filed a Form 5 with the SEC reflecting
their ownership of our common stock.
What
is the vote required to approve Proposal No. 1?
The
six
nominees receiving the highest number of affirmative votes of the shares present
in person or represented by proxy and entitled to vote, a quorum being present,
shall be elected as directors. Only votes cast “for” a nominee will be counted,
except that the accompanying proxy will be voted for all nominees in the absence
of instructions to the contrary. Abstentions, broker non-votes and instructions
on the accompanying proxy card to withhold authority to vote for one or more
nominees will result in the respective nominees receiving fewer votes. However,
the number of votes otherwise received by a nominee will not be reduced by
any
of these actions.
What
does the Board recommend?
THE
BOARD OF DIRECTORS DEEMS THE ELECTION AS DIRECTORS OF THE SIX NOMINEES LISTED
ABOVE TO BE IN THE BEST INTERESTS OF SHELLS AND ITS STOCKHOLDERS
AND RECOMMENDS A VOTE “FOR” THE ELECTION OF EACH OF THESE NOMINEES.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Compensation
Objectives
We
manage
and operate full service, mid-priced, casual dining seafood restaurants. One
of
our central goals is to ensure that our remuneration policy enables us to
attract, retain and reward capable employees who can contribute, both short
and
longer-term, to our success. Equity participation and a strong alignment to
stockholders’ interests are key elements of our compensation philosophy.
Accordingly, our executive compensation program is designed to provide
competitive compensation, support our business goals and reflect our
performance. The compensation program reflects the following
principles:
|
•
|
compensation
should encourage increased stockholder
value;
|
|
•
|
compensation
programs should reflect and promote our values and reward individuals
for
outstanding contributions towards business goals;
and
|
|
•
|
compensation
programs should enable us to attract and retain highly qualified
professionals.
|
In
establishing the 2006 compensation for our executive officers, the Stock Option
and Compensation Committee
of our Board of Directors (the “Stock Option and Compensation Committee”), among
other things:
|
•
|
Reviewed
and publicly available executive compensation information for comparable
executive officers within the restaurant industry peer
group;
|
|
•
|
determined
a mix of base salary and bonus opportunity, along with an equity
position
to align our executive officers’ compensation with our
performance;
|
|
•
|
assessed
our executive officers’ performance;
and
|
|
•
|
assessed
our financial and business results compared to other companies within
the
restaurant industry and our financial performance relative to our
past
performance and financial goals.
|
In
fiscal
2006, Leslie J. Christon participated in deliberations of the Stock Option
and
Compensation Committee regarding executive compensation. However, Mrs. Christon
did not participate in deliberations concerning her own
compensation.
Compensation
Elements
Our
executive compensation program consists of three parts: base salary, bonus
and
long-term incentive awards. In awarding salary increases and bonuses, we
considered whether the compensation package as a whole appropriately compensated
each executive for our performance during fiscal 2006 for that executive’s
contribution to this performance. In addition, we offer our executive officers
severance arrangements and fringe benefits and perquisites, each of which is
intended to serve our overall compensation philosophy.
Base
Salaries.
Base
salary represents the fixed component of the executive compensation program.
Our
practice generally is to maintain base salaries at approximately competitive
industry averages. Determinations of base salary levels are established after
reviewing marketplace competitiveness with similar restaurant companies.
Periodic increases in base salary relate to individual contributions to our
overall performance and relative marketplace competitiveness.
Non-Equity
Incentive Awards (Bonuses).
Bonuses
represent the variable component of the executive compensation program that
is
tied to our overall performance and to individual achievement. To the extent
deemed appropriate, our policy is to grant bonuses as a portion of the
compensation paid to our management personnel. In determining bonuses, we
consider factors such as our performance during the year and the individual’s
contribution to that performance. Our executive and management bonus program
(“2006 Management Compensation Plan”) specifies criteria relating to our
financial performance, as well as individual contributions to our company.
The
bonus potential for each individual is set at the beginning of the year and
was
100% of base pay for Mrs. Christon and 35% of base pay for each of Messrs.
Kathman, Nelson and Ward. The 2006 Management Compensation Plan specified
measurement criteria based on actual annual cash flow performance versus budget
and allowed for a bonus incentive based on individual performance (10% of bonus
potential).
Long-Term
Equity Incentive Awards.
We
believe that an important goal of the executive compensation program should
be
to provide executives and key employees, who have significant responsibility
for
our management, growth and future success, with an opportunity to increase
their
ownership in our company and the potential for financial gain from increases
in
our stock price. This approach ensures that the interests of the stockholders,
executives and employees will be closely aligned. Therefore, our executive
officers and our other key employees are granted long-term incentive awards
which give them a right to purchase shares of common stock at a specified price
in the future.
We
previously granted stock options under our 1995 Employee Stock Option Plan
(the
“1995 Plan”) and our 1996 Employee Stock Option Plan (the “1996 Plan”). Each of
the 1995 Plan and the 1996 Plan expired with respect to the issuance of new
options, on its respective tenth anniversary as provided in the plan document.
The last of the options which was granted and that remain outstanding under
either the 1995 Plan or the 1996 Plan expire in May 2011. We currently have
one
equity incentive plan for employees, the 2002 Equity Incentive Plan (the “2002
Plan”). The 2002 Plan authorizes us to issue incentive stock options (“ISOs”),
as defined in Section 422 of the Internal Revenue Code, as amended (the “Code”),
and stock options that do not conform to the requirements of that Code section
(“Non-ISOs”). The exercise price of each ISO may not be less than 100% of the
fair market value of the common stock at the time of grant, except that in
the
case of a grant to an employee who owns 10% or more of our outstanding stock
(within the meaning of Section 422 of the Code), the exercise price cannot
be
less than 110% of such fair market value. The exercise price of each Non-ISO
may
not be less than the par value of the common stock. Options may not be exercised
on or after the seventh anniversary (fifth anniversary in the case of an ISO
granted to a 10% stockholder) of the date of grant for options issued during
or
after June 2005, and may after the tenth anniversary of the date of grant for
options issued prior to June 2005. Options may not be transferred during the
lifetime of an option holder.
The
2002
Plan is administered by the Stock Option and Compensation Committee. Subject
to
the provisions of the 2002 Plan, the Stock Option and Compensation Committee
has
the authority to determine the individuals to whom the stock options are to
be
granted, the number of shares to be covered by each option, the option price,
the type of option, the option period, the restrictions, if any, on the exercise
of the option, the terms for the payment of the option price and other terms
and
conditions. Payment by option holders upon exercise of an option may be made
in
cash or other such form of payment acceptable to the Stock Option and
Compensation Committee, including shares of common stock.
The
2002
Plan also provides for grants of restricted stock units, the value of which
is
tied to shares of common stock, and other equity based awards related to common
stock, including unrestricted shares of common stock, stock appreciation rights
and dividend equivalents. Awards of restricted stock, restricted stock units
and
other types of equity based awards may be made in such amounts, and are subject
to such terms and conditions as the Stock Option and Compensation Committee
may
determine.
The
following are the forms of long-term incentive awards that the Stock Option
and
Compensation Committee may decide to grant to our employees under the 2002
Plan: Stock
Options.
The
Stock Option and Compensation Committee believes that the option awards are
consistent with the objectives of our executive compensation program, as grants
of options provide an incentive for the creation of stockholder value, since
the
benefit of the award can only be realized with an appreciation in the price
of
our common stock. The grant of options is based primarily on an employee’s
potential contribution to our growth and financial results. In determining
the
size of option grants, we also consider the number of options owned by such
executive, the number and exercise price of options previously granted and
currently outstanding, and the aggregate size of the current option grants.
Options generally are granted at the prevailing market value of our common
stock
and will only have value if our stock price increases. Generally, grants of
options vest over time, and the individual must be employed by Shells for the
options to vest.
Restricted
Stock and Restricted Stock Units.
The
Stock Option and Compensation Committee may also grant restricted stock and
restricted stock units to our executive officers. The Stock Option and
Compensation Committee may establish conditions and restrictions on the vesting
of such awards and on the issuance of shares of restricted stock as it deems
appropriate, including, without limitation, conditions and restrictions based
upon continued service, the attainment of specified performance goals and/or
other factors and criteria deemed relevant for
this
purpose. To date, the Stock Option and Compensation Committee has not awarded
such restricted stock or restricted stock units to any of our named executive
officers.
Other
Equity-Based Awards.
The
Stock Option and Compensation Committee may grant other types of equity-based
awards, including, without limitation, the grant or offer for sale of
unrestricted shares of common stock and/or the grant of stock appreciation
rights or dividend equivalents, in such amounts and subject to the terms and
conditions as the Stock Option and Compensation Committee determines. These
other equity-based awards may be granted to comply with or take advantage of
applicable local laws or jurisdictions other than the United States. The Stock
Option and Compensation Committee has not awarded such other equity-based awards
to any of our named executive officers.
Severance
Arrangements. In
connection with the employment agreements we entered into with each named
executive officer, the Stock Option and Compensation Committee determined that
the adoption of a severance structure which is competitive with those offered
by
similarly situated public companies in the restaurant industry would advance
the
objectives which the Stock Option and Compensation Committee has established
for
our executive compensation program. In addition, the Stock Option and
Compensation Committee believes that formalizing our severance practices
benefits us by providing us with certainty in terms of our obligations to an
eligible executive in the event that our relationship with any such executive
is
severed.
The
selection of the measures used to determine the amounts payable upon the
happening of certain events as well as the selection of the types of events
which trigger severance payments, represent the determination by the Stock
Option and Compensation Committee and our Board of Directors regarding the
best
position for us to be in should any such event occur in light of the objectives
which have been established for our executive compensation program. In general.
the severance payment structure also benefits us by virtue of the confidential
information, non-competition, non-solicitation provisions, which inure to our
benefit in the event that an eligible executive severs employment with
us. In
the
event of change-in-control, severance payments are applicable if an executive
is
terminated without cause or if executive terminates employment due to a
significant diminuation in responsibilities or a relocation in excess of 50
miles from Tampa, Florida. Mrs. Christon and Mr. Nelson also receive severance
payments in the event of termination without cause.
Fringe
Benefits and Perquisites. Our
named
executive officers are eligible to participate in COBRA health insurance and
in
any other benefits generally available to our executives. In 2006, Leslie J.
Christon was entitled to an automobile allowance of $1,000 per month, plus
maintenance, reimbursement for the cost of gasoline used for daily commutation
to work and for business travel and automobile insurance. In his role as Vice
President of Operations, Mr. Kathman utilizes a company owned vehicle for his
travel to and supervision of our restaurants. Pursuant to an amendment to her
employment agreement, effective as of July 1, 2007, Mrs. Christon’s automobile
allowance was increased to $1,200 per month. Mrs. Christon and Messrs. Kathman
and Nelson each held company paid life insurance policies in 2006.
Adjustment
or Recovery of Payments or Awards
We
do not
have a policy regarding the adjustment or recovery of payments or awards (other
than as required by law) if relevant performance measures are restated or
otherwise adjusted in a manner that would reduce the size of an award or
payment.
Impact
of Tax Treatments on Compensation
Section
162(m) of the Code limits the annual tax deduction for public companies to
$1
million for compensation paid to a company’s chief executive officer or any of
the four other most highly compensated executive officers. Qualifying
performance-based compensation is not subject to the deduction limit if the
Code
requirements are met. While such stock options vest over a specified period
of
time contingent upon the option holder’s continued employment, such stock
options only have value if our performance results in a stock price higher
than
the price on the date of grant.
While
we
intend to seek to take advantage of favorable tax treatment for executive
compensation where appropriate, our primary drivers for determining the amount
and form of executive compensation are the retention and motivation of superior
executive talent.
Future
Periods
The
foregoing discussion describes the compensation objectives and policies which
we
utilized with respect to our named executive officers during 2006. In the
future, as the Stock Option and Compensation Committee continues to review
each
element of the executive compensation program with respect to our named
executive officers, the objectives of our executive compensation program, as
well as the methods which the Stock Option and Compensation Committee utilizes
to determine both the types and amounts of compensation to award to our named
executive officers, may change.
STOCK
OPTION AND COMPENSATION COMMITTEE REPORT
The
Stock
Option and Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) of Regulation S-K with
management. Based on its review and discussions with management, the Stock
Option and Compensation Committee recommended to the Board of Directors that
the
Compensation Discussion and Analysis be included in this proxy
statement.
Stock
Option and Compensation Committee,
Philip
R.
Chapman, Chairman
Jay
A.
Wolf
Summary
Compensation Table
The
following table summarizes compensation earned by the Chief Executive Officer,
Chief Financial Officer and the two other executive officers (each, a “named
executive officer”) for the fiscal year ended December 31, 2006:
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NON-EQUITY
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INCENTIVE
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OPTION
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PLAN
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NAME
AND PRINCIPAL POSITION
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AWARDS(2)
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COMPENSATION(1)(3)
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TOTAL
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Leslie
J. Christon
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2006
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$
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300,000
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—
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$
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21,155
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$
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12,530
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$
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333,685
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Chief
Executive Officer and
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President
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(Principal
Executive Officer) (4)
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Warren
R. Nelson
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2006
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166,904
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$
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11,596
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9,484
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868
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188,852
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Executive
Vice President of
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Finance,
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Chief
Financial Officer, Secretary
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and
Treasurer
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(Principal
Financial Officer) (5)
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Guy
C. Kathman
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2006
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144,634
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3,517
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8,348
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516
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157,015
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Vice
President of Operations (6)
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Christopher
R. Ward, Sr.
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2006
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127,927
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3,227
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7,539
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-
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138,693
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Vice
President of Purchasing
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(1)
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All
of the salaries and non-equity incentive plan compensation for the
named
executive officers in fiscal 2006 were paid in
cash.
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(2)
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Option
awards consist of compensation cost recognized in our financial statements
with respect to awards granted in previous fiscal years and the subject
fiscal year. Option awards are expensed on a straight-line basis
over the
vesting period of the award. The option awards are valued at fair
value
using the Black- Scholes option pricing model. Effective January
1, 2006,
we adopted the fair value based method of accounting for stock-based
employee compensation as required by SFAS No. 123R, “Share-Based Payment.”
The fair value based method requires us to expense all stock-based
employee compensation. See Note 1 and Note 14 to our audited financial
statements for the 2006 fiscal year, contained in Part I Item 8 “Financial
Statements”, of our Annual Report on Form 10-K for the year ended December
31, 2006, for the methodology used and assumptions made in the valuation
of our options.
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(3)
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All
non-equity incentive plan compensation earned by our named executive
officers for the 2006 fiscal year under the 2006 Management Compensation
Plan was paid during such period as disclosed in the column above.
See
Compensation Discussion and Analysis for a discussion of the 2006
Management Compensation Plan in our Annual Report on Form 10-K for
the
year ended December 31, 2006.
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(4)
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Other
compensation for Mrs. Christon includes an automobile allowance of
$1,000
per month and life insurance premiums paid by Shells of $530. Effective
as
of July 1, 2007, Mrs. Christon’s salary was reduced to $275,000 per annum
and her automobile allowance was increased to $1,200 per
month.
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(5)
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Other
compensation for Mr. Nelson consists of life insurance premiums paid
by
Shells of $868, in the aggregate, for policy years covering 2005
and
2006.
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(6)
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Other
compensation for Mr. Kathman consists of life insurance premiums
paid by
Shells of $516.
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Narrative
Discussion of Summary Compensation Table Information
The
following is a narrative discussion of the material factors which we believe
are
necessary to understand the information disclosed in the foregoing Summary
Compensation Table. The following narrative disclosure is separated into
sections, with a separate section for each of our named executive
officers.
Leslie
J. Christon
Cash
Compensation (Base Salaries and Bonuses).
Mrs.
Christon was awarded total cash compensation for her services to us in 2006
in
the amount of $321,155. Of this sum, $300,000 represents Mrs. Christon’s annual
base salary for 2006 and $21,155 represents an amount earned or paid to Mrs.
Christon as a cash bonus under the 2006 Management Compensation Plan and her
employment agreement. The base salary and cash bonus paid to Mrs. Christon
for
2006 constituted approximately 90% and 6%, respectively, of the total
compensation paid to Mrs. Christon as set forth in the “Total” column in the
Summary Compensation Table.
The
Stock
Option and Compensation Committee determined it appropriate to increase the
annual base salary and decrease the cash bonus to Mrs. Christon for her services
to us in 2006. In determining Mrs. Christon’s base salary and cash bonus for
2006, the Stock Option and Compensation Committee considered the competitive
trends, our overall performance and resources, general economic conditions,
the
compensation level of similarly situated executives at our peer companies,
and a
number of factors relating to Mrs. Christon including the performance of Mrs.
Christon and her level of experience, ability and knowledge. Based on our
performance and Mrs. Christon’s contribution to such performance for 2006, Mrs.
Christon’s annual base salary and cash bonus was adjusted from $287,115 and
$89,375, respectively, in 2005 to $300,000 and $21,155, respectively, in 2006.
Quantitative and qualitative factors, such as our financial performance, were
considered in determining Mrs. Christon’s base salary. Her industry experience,
past performance, and the total cash compensation necessary to retain top
executive talent were also important factors in determining base salary.
Effective as of July 1, 2007, Mrs. Christon’s amended and restated employment
agreement was further amended and restated and her salary was reduced to
$275,000 per annum.
Long-Term
Equity Incentive Awards.
In
fiscal 2003, pursuant to her employment agreement, Mrs. Christon was granted
an
option to purchase 297,374 shares of common stock. The option vested annually
over two years. Integral to the financing completed on May 24, 2005, the Board
of Directors approved two option grants, one prior to the financing and the
second following the financing. On March 21, 2005, Mrs. Christon was granted
an
option to purchase 450,000 shares which vested as to one-third of the shares
on
each of the first and second anniversaries of the grant date, and vests as
to
the last third on March 21, 2008. On June 13, 2005, Mrs. Christon was granted
an
option, subject to stockholder approval of an increase of the authorized shares
under the 2002 Plan, to purchase 450,000 shares which vested as to one-third
of
the shares on each of December 31, 2005 and June 13, 2007 and vests as to
one-third of the shares on June 13, 2008. Effective July 1, 2005, we entered
into an Amended and Restated Employment Agreement with Mrs. Christon. In
connection therewith, we granted Mrs. Christon options to purchase an additional
1,061,535 shares of our common stock which vested as to 353,845 shares on each
of December 31, 2005 and July 1, 2007 and will vest as to 353,845 shares on
July
1, 2008, subject to her continued employment with Shells. These stock options
consist of (a) options to purchase 903,528 shares pursuant to a Stock Option
Agreement, dated November 14, 2005, by and between Mrs. Christon and us, (b)
options to purchase 100,000 shares pursuant to our 2002 Plan and (c) options
to
purchase 58,007 shares pursuant to our 1996 Plan. Based on the vesting schedule
of the options, we expect to recognize compensation expense of approximately
$207,000 in each of 2007 and 2008 as a result of the adoption of FASB Statement
No. 123-R, “Share-Based Payment.” Further, in the event our common stock is not
publicly traded, we shall have the right to repurchase any shares purchased
by
Mrs. Christon upon the exercise of her option to purchase 1,061,535 shares
granted on November 14, 2005 at the fair market value of such shares by giving
written notice to Mrs. Christon within one year after her employment is
terminated. No long-term incentive awards were granted to Mrs. Christon in
2006.
Fringe
Benefits and Perquisites.
In
2006, Mrs. Christon was entitled to an automobile allowance of $1,000 per month,
plus maintenance, reimbursement for the cost of gasoline used for daily
commutation to work and for business travel and automobile insurance. Effective
as of July 1, 2007, Mrs. Christon’s automobile allowance was increased to $1,200
per month in addition to maintenance, reimbursement for the cost of gasoline
used for daily commutation
to work and for business travel and automobile insurance. We pay the premiums
on
a $500,000 term life insurance policy on Mrs. Christon which policy is owned
by
us and payable to a beneficiary designated by Mrs. Christon. Mrs. Christon
is
also eligible to participate in COBRA health insurance, or in any other benefits
generally available to our executive officers.
Employment
Agreement.
We
entered into an amended and restated employment agreement with Mrs. Christon
effective as of July 1, 2007 (the “Christon Agreement”). The Christon Agreement
extended the term of her employment with us through June 30, 2008, and provides
for automatic successive one year extensions thereof, unless either party
delivers prior written notice of non-extension. Pursuant to the amended and
restated employment agreement, Mrs. Christon is entitled to receive an annual
base salary of $275,000, a target bonus potential up to 100% of her base salary,
and an automobile allowance of $1,200 per month. For a detailed description
of
the severance provisions contained in Mrs. Christon’s employment agreement,
please refer to the narrative discussion Severance Arrangements.
Warren
R. Nelson
Cash
Compensation (Base Salaries and Bonuses). Mr.
Nelson was awarded total cash compensation for his services to us in 2006 in
the
amount of $176,388. Of this sum, $166,904 represents Mr. Nelson’s annual base
salary for 2006 and $9,484 represents an amount earned or paid to Mr. Nelson
as
a cash bonus under the 2006 Management Compensation Plan. The base salary and
cash bonus paid to Mr. Nelson for 2006 constituted approximately 88% and 5%,
respectively, of the total compensation paid to Mr. Nelson as set forth in
the
“Total” column in the Summary Compensation Table.
The
Stock
Option and Compensation Committee determined it appropriate to increase the
annual base salary and decrease the cash bonus to Mr. Nelson for his services
to
us in 2006. In determining Mr. Nelson’s base salary and cash bonus for 2006, the
Stock Option and Compensation Committee considered the competitive trends,
our
overall performance and resources, general economic conditions, the compensation
level of similarly situated executives at our peer companies, and a number
of
factors relating to Mr. Nelson including the performance of Mr. Nelson and
his
level of experience, ability and knowledge. Based on our performance and Mr.
Nelson’s contribution to such performance for 2006, Mr. Nelson’s annual base
salary and cash bonus was adjusted from $161,885 and $36,540, respectively,
in
2005 to $166,904 and $9,484, respectively in 2006. Quantitative and qualitative
factors, such as our financial performance, were considered in determining
Mr.
Nelson’s base salary. His industry experience, past performance, and the total
cash compensation necessary to retain top executive talent were also important
factors in determining base salary.
Long-Term
Equity Incentive Awards.
Integral to the financing completed on May 24, 2005, the Board of Directors
approved two option grants to Mr. Nelson, one prior to the financing and the
second following the financing. On March 21, 2005, Mr. Nelson was granted an
option to purchase 125,000 shares which vested as to one-third of the shares
on
each of the first and second anniversaries of the grant date, and vests as
to
the last third on March 21, 2008. On June 13, 2005, Mr. Nelson was granted
an
option, subject to stockholder approval of an increase of the authorized shares
under the 2002 Plan, to purchase 125,000 shares which vested as to one-third
of
the shares on each of December 31, 2005 and June 13, 2007 and vests as to
one-third on June 13, 2008. No long-term incentive awards were granted to Mr.
Nelson in 2006. On January 5, 2007, Mr. Nelson was granted an option to purchase
158,992 shares which vest as to one-third of the shares on each of the first
three anniversaries of the grant date. Of the total option grant, an option
to
purchase 100,000 shares of common stock was deemed a newly issued long-term
incentive, and an option to purchase 58,992 shares was to replace options
previously expired unexercised or significantly under water.
Fringe
Benefits and Perquisites.
Mr.
Nelson is eligible to participate in certain retirement, COBRA health insurance,
401(k) or any other plan or arrangement, or in any other benefits generally
available to our executive officers. We reimburse Mr. Nelson for the premiums
on
a $240,000 term life insurance policy which is payable to a beneficiary
designated by Mr. Nelson.
Severance
Agreement.
Effective March 13, 2006, we entered into an agreement with Mr. Nelson to
provide him with severance and other consideration in the event of a Change
in
Control of Shells (as defined in the agreement). The severance agreement remains
effective through June 30, 2008, and provides for automatic successive one-year
extensions thereof, unless either party delivers prior written notice of
non-extension. Mr. Nelson also is party to a letter agreement with the Board
of
Directors clarifying his severance arrangement if he is terminated without
cause. For a detailed description of Mr. Nelson’s severance agreements, please
refer to the narrative discussion Severance Arrangements.
Guy
C.
Kathman
Cash
Compensation (Base Salaries and Bonuses).
Mr.
Kathman was awarded total cash compensation for his services to us in 2006
in
the amount of $152,982. Of this sum, $144,634 represents Mr. Kathman’s annual
base salary for 2006 and $8,348 represents an amount earned or paid to Mr.
Kathman as a cash bonus, under the 2006 Management Compensation Plan. The base
salary and cash bonus paid to Mr. Kathman for 2006 constituted approximately
92%
and 5%, respectively, of the total compensation paid to Mr. Kathman as set
forth
in the “Total” column in the Summary Compensation Table.
The
Stock
Option and Compensation Committee determined it appropriate to increase the
annual base salary and decrease the cash bonus to Mr. Kathman for his services
to us in 2006. In determining Mr. Kathman’s base salary and cash bonus for 2006,
the Stock Option and Compensation Committee considered the competitive trends,
our overall performance and resources, general economic conditions, the
compensation level of similarly situated executives at our peer companies,
and a
number of factors relating to Mr. Kathman including the performance of Mr.
Kathman and his level of experience, ability and knowledge. Based on our
performance and Mr. Kathman’s contributions to such performance for 2006, Mr.
Kathman’s annual base salary and cash bonus was adjusted from $139,616 and
$30,800, respectively, in 2005 to $144,634 and $8,348, respectively in 2006.
Quantitative
and qualitative factors, such as our financial performance, were considered
in
determining Mr. Kathman’s base salary. His industry experience, past
performance, and the total cash compensation necessary to retain top executive
talent were also important factors in determining base salary.
Long-Term
Equity Incentive Awards.
Integral to the financing completed on May 24, 2005, the Board of Directors
approved two option grants to Mr. Kathman, one prior to the financing and the
second following the financing. On March 21, 2005, Mr. Kathman was granted
an
option to purchase 125,000 shares which vested as to one-third of the shares
on
each of the first and second anniversaries of the grant date, and vests as
to
the last third on March 21, 2008. On June 13, 2005, Mr. Kathman was granted
an
option, subject stockholder approval of an increase of the authorized shares
under the 2002 Plan, to purchase 125,000 shares which vested as to one-third
of
the shares on each of December 31, 2005 and June 13, 2007 and vests as to
one-third of the shares on June 13, 2008. No long-term incentive awards were
granted to Mr. Kathman in 2006. On January 5, 2007, Mr. Kathman was granted
an
option to purchase 75,000 shares which vests as to one-third of the shares
on
each of the first three anniversaries of the grant date.
Fringe
Benefits and Perquisites.
Mr.
Kathman is eligible to participate in COBRA health insurance, or in any other
benefits generally available to our executive officers. We pay premiums on
a
$100,000 term life insurance policy on Mr. Kathman which policy is owned by
us
and payable to a beneficiary designated by Mr. Kathman.
Severance
Agreement.
Effective March 13, 2006, we entered into an agreement with Mr. Kathman to
provide him with severance and other consideration in the event of a Change
in
Control of Shells (as defined in the agreement). The severance agreement remains
effective through June 30, 2008, and provides for automatic successive one-year
extensions thereof, unless either party delivers prior written notice of
non-extension. For a detailed description of Mr. Kathman’s severance agreement,
please refer to the narrative discussion Severance Arrangements.
Christopher
R. Ward, Sr.
Cash
Compensation (Base Salaries and Bonuses).
Mr.
Ward was awarded total cash compensation for his services to us in 2006 in
the
amount of $135,466. Of this sum, $127,927 represents Mr. Ward’s annual base
salary for 2006 and $7,539 represents an amount paid to Mr. Ward as a cash
bonus, under the 2006 Management Compensation Plan. The base salary and cash
bonus paid to Mr. Ward for 2006 constituted approximately 92% and 5%,
respectively, of the total compensation paid to Mr. Ward as set forth in the
“Total” column in the Summary Compensation Table.
The
Stock
Option and Compensation Committee determined it appropriate to increase the
annual base salary and decrease the cash bonus to Mr. Ward for his services
to
us in 2006. In determining Mr. Ward’s base salary and cash bonus for 2006, the
Stock Option and Compensation Committee considered the competitive trends,
our
overall performance and resources, general economic conditions, the compensation
level of similarly situated executives at our peer companies, and a number
of
factors relating to Mr. Ward including the performance of Mr. Ward and his
level
of experience, ability and knowledge. Based on our performance and Mr. Ward’s
contribution to such performance for 2006, Mr. Ward’s annual base salary and
cash bonus was adjusted from $124,110 and $23,813, respectively, in 2005 to
$127,927 and $7,539, respectively in 2006. Quantitative and qualitative factors,
such as our financial performance, were considered in determining Mr. Ward’s
base salary. His industry experience, past performance, and the total cash
compensation necessary to retain top executive talent were also important
factors in determining base salary.
Long-Term
Equity Incentive Awards.
As a
hiring incentive, on September 7, 2004, Mr. Ward was granted options to purchase
40,000 shares which vested as to one-third of the shares on each of September
7,
2005, December 31, 2005 and September 7, 2007. Integral to the financing
completed on May 24, 2005, the Board of Directors approved two option grants
to
Mr. Ward, one prior to the financing and the second following the financing.
On
March 21, 2005, Mr. Ward was granted an option to purchase 45,000 shares which
vested as to one-third of the shares on each of the first and second
anniversaries of the grant date, and vests as to the last third on March 21,
2008. On June 13, 2005, Mr. Ward was granted an option, subject stockholder
approval of an increase of the authorized shares under the 2002 Plan, to
purchase 45,000 shares which vested as to one-third of the shares on each of
December 31, 2005 and June 13, 2007 and vests as to one-third of the shares
on
June 13, 2008. No
long-term incentive awards were granted to Mr. Ward in 2006. On January 5,
2007,
Mr. Ward was granted an option to purchase 75,000 shares which vests as to
one-third of the shares on each of the first three anniversaries of the grant
date.
Fringe
Benefits and Perquisites.
Mr.
Ward is eligible to participate in COBRA health insurance, or in any other
benefits generally available to our executive officers.
Severance
Agreement.
Effective March 13, 2006, we entered into an agreement with Mr. Ward to provide
him with severance and other consideration in the event of a Change in Control
of Shells (as defined in the agreement). The severance agreement remains
effective through June 30, 2008, and provides for automatic successive one-year
extensions thereof, unless either party delivers prior written notice of
non-extension. For a detailed description of Mr. Ward’s severance agreement,
please refer to the narrative discussion Severance Arrangements.
Grant
of Plan Based Awards
We
did
not grant any awards to our named executive officers under our 1996 Plan or
2002
Plan during the 2006 fiscal year. Our 1995 Plan and 1996 Plan have expired
and
no further options may be granted under such plans.
The
only
incentive awards that were granted to the named executive officers for the
2006
fiscal year were the non-equity incentive awards granted under the 2006
Management Plan Compensation.
Outstanding
Equity Awards at Fiscal Year-End
The
following table summarizes outstanding stock options for each named executive
officer as of December 31, 2006:
|
|
NUMBER
OF SECURITIES
|
|
|
|
|
|
|
|
UNDERLYING
UNEXERCISED
|
|
|
|
|
|
|
|
OPTIONS
|
|
|
OPTION
|
|
|
|
|
(NUMBER
OF SHARES)(#)
|
|
|
EXERCISE
|
|
OPTION
|
|
|
|
|
UNEXERCISABLE
|
|
|
PRICE
|
|
EXPIRATION
|
NAME
|
|
EXERCISABLE
|
|
(1)
|
|
|
PER
SHARE
|
|
DATE
|
Leslie
J. Christon
|
|
297,374
|
|
-
|
|
$ |
0.62
|
|
7/6/2013
|
|
|
150,000
|
|
300,000
|
(2)
|
|
1.10
|
|
3/21/2015
|
|
|
150,000
|
|
300,000
|
(3)
|
|
0.76
|
|
6/12/2013
|
|
|
353,844
|
|
707,691
|
(4)
|
|
0.85
|
|
7/1/2012
|
|
|
|
|
|
|
|
|
|
|
Warren
R. Nelson
|
|
5,000
|
|
-
|
|
|
5.13
|
|
1/10/2009
|
|
|
10,000
|
|
-
|
|
|
2.00
|
|
2/6/2010
|
|
|
20,000
|
|
-
|
|
|
0.45
|
|
4/18/2011
|
|
|
152,771
|
|
5,213
|
(5)
|
|
0.42
|
|
2/28/2012
|
|
|
41,666
|
|
83,334
|
(6)
|
|
1.10
|
|
3/21/2015
|
|
|
41,666
|
|
83,334
|
(7)
|
|
0.76
|
|
6/13/2012
|
|
|
|
|
|
|
|
|
|
|
Guy
C. Kathman
|
|
50,000
|
|
-
|
|
|
0.64
|
|
9/23/2013
|
|
|
41,666
|
|
83,334
|
(6)
|
|
1.10
|
|
3/21/2015
|
|
|
41,666
|
|
83,334
|
(7)
|
|
0.76
|
|
6/13/2012
|
|
|
|
|
|
|
|
|
|
|
Christopher
R. Ward, Sr.
|
|
26,667
|
|
13,333
|
(8)
|
|
0.71
|
|
9/7/2014
|
|
|
15,000
|
|
30,000
|
(9)
|
|
1.10
|
|
3/21/2015
|
|
|
15,000
|
|
30,000
|
(10)
|
|
0.76
|
|
6/13/2012
|
(1)
|
See
Termination of Employment and Change in Control Arrangements, following
this table, for additional information regarding
vesting.
|
(2)
|
These
options vested and became exercisable as to 150,000 shares on March
21,
2007 and will vest and become exercisable as to an additional 150,000
shares on March 21, 2008.
|
(3)
|
These
options vested and became exercisable as to 150,000 shares on June
13,
2007 and will vest and become exercisable as to an additional 150,000
shares on June 13, 2008.
|
(4)
|
These
options vested and became exercisable as to 353,845 shares on July
1, 2007
and will vest and become exercisable as to an additional 353,846
shares on
July 1, 2008.
|
(5)
|
These
became fully vested and exercisable on February 28,
2007.
|
(6)
|
These
options vested and became exercisable as to 41,667 shares on March
21,
2007 and will vest and become exercisable as to an additional 41,666
shares on March 21, 2008.
|
(7)
|
These
options vested and became exercisable as to 41,667 shares on June
13, 2007
and will vest and become exercisable as to an additional 41,666 shares
on
June 13, 2008.
|
(8)
|
These
options vested and became exercisable on September 7,
2007.
|
(9)
|
These
options vested and became exercisable as to 15,000 shares on March
21,
2007 and will vest and become exercisable as to an additional 15,000
shares on March 21, 2008.
|
(10)
|
These
options vested and became exercisable as to 15,000 shares on June
13, 2007
and will vest and become exercisable as to an additional 15,000 shares
on
June 13, 2008.
|
Option
Exercises and Stock Vested
None
of
our named executive officers exercised any options to purchase our stock during
the 2006 fiscal year. None of our named executive officers hold any shares
or
restricted stock, restricted stock units or similar instruments.
Termination
of Employment and Change in Control Arrangements
Severance
Arrangements
The
Stock
Option and Compensation Committee and our Board of Directors determined that
it
was in our best interests to provide severance arrangements to our named
executive officers, based on such individual’s position with us. Accordingly,
the Christon Agreement provides the terms and conditions for certain payments
and benefits upon an involuntary termination of the Mrs. Christon’s employment
or the occurrence of certain other circumstances that may affect Mrs. Christon,
including the termination of her employment following a change in control of
Shells. We also entered into severance agreements (the “Executive Severance
Agreements”) with each of Warren Nelson, Guy Kathman and Christopher Ward, Sr.
to provide the terms and conditions for certain payments and benefits upon
a
termination of such executive officer’s employment without cause (as defined
therein) or upon such executive officer’s resignation following a diminution of
his responsibilities or a relocation outside of the Tampa, Florida market
following a change in control of Shells. Mr. Nelson also has a letter agreement
with the Board of Directors, dated January 19, 2000, specifying severance
payments for termination without cause.
Termination
Without Cause.
In the
event Mrs. Christon’s employment is terminated for any reason other than by us
for cause or her permanent disability or due to her death, then, provided that
Mrs. Christon executes general release of all claims against us and abides
by
all restrictive covenants contained in the Christon Agreement, including, the
provisions relating to non-competition, non-solicitation and confidentiality,
Mrs. Christon will receive as severance payment her then effective base salary
for a period commencing on the date of termination and ending on the earlier
of
the six-month anniversary of such date or the date upon which Mrs. Christon
commences to employment with another entity. Mrs. Christon will continue to
receive health coverage for herself and her dependents for a six-month period
following the date of termination or, if earlier, until she commences employment
with another entity. Such severance payments are not provided to Messrs. Nelson,
Kathman or Ward under the Executive Severance Agreements. Pursuant to his letter
agreement, if Mr. Nelson is terminated without cause, he is entitled to receive
severance payments equal to twelve months of his then annual salary payable
over
the ensuing twelve-month period.
Termination
for Cause; Permanent Disability; Death.
In the
event we terminate Mrs. Christon’s employment for cause, or due to her permanent
disability or death she will not be entitled to receive the severance payment
described above. Termination for “cause” means termination because of: (a)
executive’s refusal to perform, or continual neglect of, the duties under the
employment agreement which is materially injurious to our company and the
neglect is not remedied within 30 days after written notice from us; (b)
executive’s conviction of any crime or offense involving money or property of
Shells or which constitutes a felony; (c) executive’s performance or failure to
act, for which if executive was prosecuted and convicted, would constitute
a
crime involving money or property of Shells or which constitutes a felony;
(d)
any attempt by executive to secure improperly any personal profit in connection
with the business of Shells and which, to the extent capable of being cured,
is
not remedied within 30 days after written notice from us; and (e) executive’s
breach of covenants relating to non-competition, non-solicitation and
confidentiality. (The above for “cause” definition also apply for Messrs.
Nelson, Kathman and Ward.) An executive shall be deemed to be “permanently
disabled” if, because of ill health, physical or mental disability or for other
causes beyond the executive’s control, the executive is unable to perform the
essential functions of her/his job for 90 consecutive days or for a total of
120
days in any twelve-month period.
Termination
following a Change in Control.
In the
event that, within six months of a change in control of Shells, a named
executive officer is terminated without cause or a named executive officer
terminates her/his employment with us due to (a) a significant diminution in
her/his job responsibilities or title or (b) the named executive officer being
required to relocate outside of the Tampa, Florida market, then provided that
the named executive officer executes a general release of all claims against
us
and abides by the covenants relating to non-competition, non-solicitation and
confidentiality, then all the executive’s unvested stock options will vest
immediately
and the executive shall be entitled to receive a severance payment equal to
six
month’s then effective base salary (in the case of Mrs. Christon), or one-year’s
then effective base salary (in the case of Mr. Nelson), or nine months’ then
effective base salary (in case of Messrs. Kathman and Ward). In addition, the
named executive officer shall continue to receive health coverage for herself
or
himself and his or her dependents for the six-month period (in case of Mrs.
Christon), or one-year period (in case of Mr. Nelson), or nine-month period
(in
case of Messrs. Kathman and Ward) following the date of termination or, if
earlier, until the executive commences employment with another entity. A “change
in control” is deemed to have occurred if (a) there is consummated (i) any
consolidation or merger of Shells in which Shells is not the continuing or
surviving corporation or pursuant to which our shares of common stock would
be
converted into cash, securities or other property, other than a merger of Shells
in which the holders of our common stock immediately prior to the merger own
more than 50% of the common stock of the surviving corporation immediately
after
the merger or (ii) any sale, lease, exchange or other transfer of all, or
substantially all, of our assets, (b) our stockholders approve any plan or
proposal for our liquidation or dissolution, (c) any person who does not own
5%
or more of our outstanding common stock becomes the beneficial owner of 35%
or
more of our outstanding common stock other than pursuant to a plan or
arrangement entered into by such person and our company or (d) during any period
of two consecutive years, individuals who constitute the entire board of
directors cease to constitute a majority, unless the election of a majority
of
the new directors was approved by a vote of at least two-thirds of the directors
then still in the office.
The
Stock
Option and Compensation Committee and the Board have determined that such terms
of severance payments are customary within the restaurant industry and, as
such,
are necessary for attracting and retaining capable and qualified senior
management.
Effect
on the Stock Options
Termination
Without Cause.
If the
optionee’s employment terminates for any reason other than cause, permanent
disability or death, then (a) that portion of the option that is exercisable
on
the date of termination remains exercisable by the optionee during the 90 day
period following the date of termination and (b) that portion of the option
that
is not exercisable on the date of termination will immediately
terminate.
Termination
for Cause, Death or Disability.
If the
optionee’s employment with Shells is terminated due to his or her death or
permanent disability (as defined above), then (a) the portion of that option
that is exercisable on the date of termination remains exercisable by the
optionee (or his estate) during the one-year period following the date of
termination, provided that, in the event of a termination due to disability,
if
the optionee dies during such one-year period, then the optionee’s beneficiary
may exercise the option, to the extent exercisable by the optionee prior to
his
or her death, for a period of one year following the date of death and (b)
the
portion of that option that is not exercisable on the date of termination will
immediately terminate. If the optionee’s employment is terminated for cause (as
defined above), then the option will immediately terminate and cease to be
exercisable.
Change
in Control.
If
there occurs a change in control of Shells (substantially as defined above),
the
optionee’s right to exercise the options accelerates as follows: (a) if the
optionee is not offered a comparable position with Shells, the option
immediately becomes vested and exercisable in full or (b) if the optionee is
offered a comparable position with Shells, the option immediately becomes vested
and exercisable with respect to one-half of the shares of common stock for
which
this option is not vested and exercisable and if the optionee accepts such
comparable position with Shells through the first anniversary of the change
in
control, the option, to the extent not already vested and exercisable, will
become vested and exercisable in full on such first anniversary (or earlier)
date. As described above, in the event that, within six months of a change
in
control of Shells, the executive is terminated without cause or terminates
her/his employment with us due to (a) a significant diminution in her/his job
responsibilities or title or (b) the executive being required to relocate
outside of the Tampa, Florida market, then provided that the executive executes
a general release of all claims against us and abides by the covenants relating
to non-competition, non-solicitation and confidentiality, all the executive’s
unvested stock options will vest immediately. Under the 1995 Plan and the 1996
Plan, the Board of Directors has discretion relative to accelerating the vesting
of options if a change of control occurs.
The
following tables provide quantitative disclosures of the estimated payments
and
benefits that would be provided to each of Mrs. Christon, and Messrs. Nelson,
Kathman and Ward, applying the assumptions that each of the triggering events
described in their employment agreements (including Mrs. Christon’s amended and
restated employment
agreement effective July 1, 2007), took place on December 31, 2006 and the
last
day of employment for the named executive officers was December 31,
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCK
|
|
|
|
|
|
|
|
|
STOCK
|
|
|
|
|
|
|
STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS
|
|
|
|
|
|
|
|
|
OPTIONS |
|
|
|
|
|
|
OPTIONS
|
|
|
|
|
|
|
|
|
|
SEVERANCE
|
|
|
|
|
(#
OF
|
|
|
MEDICAL
|
|
|
|
SEVERANCE
|
|
(#
OF
|
|
MEDICAL
|
|
|
SEVERANCE |
|
(#
OF
|
|
|
|
MEDICAL |
|
|
|
|
|
PAYMENT
|
|
|
|
|
SHARES)
|
|
|
BENEFITS
|
|
|
|
PAYMENT
|
|
SHARES)
|
|
BENEFITS
|
|
|
PAYMENT
|
|
SHARES)
|
|
|
|
BENEFITS
|
|
|
|
Leslie
J. Christon
|
$
|
150,000
|
|
|
(1
|
)
|
951,218
|
|
$
|
5,965
|
|
(2
|
)
|
N/A
|
|
951,218
|
|
N/A
|
|
$
|
150,000
|
|
1,307,691
|
(3
|
)
|
$
|
5,965
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warren
R. Nelson
|
|
167,000
|
|
|
|
|
271,103
|
|
|
N/A
|
|
|
|
N/A
|
|
271,103
|
|
N/A
|
|
|
167,000
|
|
171,881
|
(3
|
)
|
|
11,930
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guy
C. Kathman
|
|
N/A
|
|
|
|
|
133,332
|
|
|
N/A
|
|
|
|
N/A
|
|
133,332
|
|
N/A
|
|
|
108,150
|
|
166,668
|
(3
|
)
|
|
8,947
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
R. Ward, Sr.
|
|
N/A
|
|
|
|
|
56,667
|
|
|
N/A
|
|
|
|
N/A
|
|
56,667
|
|
N/A
|
|
|
96,000
|
|
73,333
|
(3
|
)
|
|
8,947
|
|
(4
|
)
|
(1)
|
Mrs.
Christon’s severance payment is subject to deduction in the event she
becomes employed elsewhere within such six month
period.
|
(2)
|
Mrs.
Christon will receive payment of COBRA continuation health coverage
premiums for the six-month period from the date of termination; provided
that she is not employed by another entity for such
period.
|
(3)
|
Amount
represents unvested options as of December 31, 2006 including
out-of-the-money stock options. If the executive officer is not offered
a
comparable position with Shells, or if , provided executive is not
terminated without cause within six months of the change in control
or
executive terminates his employment with Shells as a result of being
required to relocate outside the Tampa, Florida Market, then in all
such
cases, the option immediately becomes vested and exercisable in full.
If
the executive officer is offered a comparable position with Shells,
the
option immediately becomes vested and exercisable with respect to
one-half
of the shares of common stock for which the option is not vested
and
exercisable and if the executive officer accepts such comparable
position
through the first anniversary of the change in control, the option,
to the
extent not already vested and exercisable, will become vested and
exercisable on such first
anniversary
|
(4)
|
Mr.
Nelson will continue to receive health coverage for a one-year period
following termination and Messrs. Kathman and Ward will receive such
premiums for a nine-month period following termination; provided
that that
such executive does not become employed by another entity during
such
period.
|
Non-Competition;
Non-Solicitation; Confidentiality
The
Christon Agreement and the Executive Severance Agreements contain covenants
regarding non-competition and non-solicitation, which each named executive
officer is required to abide by to receive severance payments. The termination
of the Christon Agreement or any of the Executive Severance Agreements will
not
affect the enforceability of these covenants. Each named executive officer
has
agreed that during her employment with Shells (in case of Mrs. Christon, which
is deemed to include any period in which she is paid severance) or his
employment with Shells and for 24 months immediately following the employment
term (in case of Messrs. Kathman, Ward, and Nelson, if termination occurs due
to
change of control), she or he will not (a) compete with Shells or any of its
affiliates in the seafood segment of the restaurant business or become
associated with a business enterprise which competes with Shells or its
affiliates, provided that if Shells terminates Mrs. Christon’s or Mr. Nelson’s
employment without cause, she or he will not be subject to such covenant; (b)
divert business from Shells or its affiliates or solicit, accept or procure
business from, divert the business of, or attempt to convert to other methods
of
using the same or similar services or products as provided by Shells, any
customer of Shells; (c) interfere with Shells’ or its affiliates’ customer and
vendor/supplier relationship or (d) solicit for employment, employ or otherwise
engage the services of, any employee or agent of Shells or its affiliates.
The
non-competition provision for the
Executive Severance Agreements only applies to the State of Florida and any
geographical area in which Shells then has a market presence. The named
executive officers agrees that she or he will not, directly or indirectly,
use
or intentionally disclose or permit to be known to anyone outside of Shells
any
confidential matters of Shells, except with our prior written consent or as
required by court order or law, or when reasonably necessary during the
executive’s employment by Shells for the executive to perform her or his job
duties. Each named executive officer is required to abide by such
confidentiality provisions to receive severance payments.
Director
Compensation
|
|
|
|
For
the 2006 fiscal year, we paid our non-employee directors fees as
follows:
|
|
|
|
|
|
DIRECTOR'S
|
|
DESCRIPTION
|
|
FEE
|
|
Annual
retainer paid in quarterly installments
|
|
$
|
10,000
|
|
Additional
annual fee paid to Audit Committee Chair (paid in quarterly
installments)
|
|
$
|
10,000
|
|
|
|
|
|
|
Annual
stock option grant (# of shares)
|
|
|
20,000
|
|
Additional
annual stock option grant awarded to Audit Committee Chair (# of
shares)
|
|
|
30,000
|
|
During
2005, we adopted a policy of compensating our non-employee directors $2,500
per
quarter, with the exception of the Chair of the Audit Committee who is
compensated $5,000 per quarter. We continue to reimburse directors for
reasonable expenses incurred in connection with attendance at Board and Board
committee meetings.
In
February 2005, after three years of not providing any form of compensation
to
our non-employee directors, we granted an option to each non-employee director
to purchase 20,000 shares of our common stock pursuant to our 2002 Plan and
we
adopted a policy pursuant to which each non-employee director would receive
an
option to purchase 20,000 shares of our common stock each year upon their
election or re-election to our Board. In June 2005, we granted an additional
option to purchase 20,000 shares of our common stock to each of our non-employee
directors following the completion of our May 2005 financing transaction.
Further, in June 2005, we approved an additional option grant to the Chair
of
the Audit Committee, granted upon his or her election or reelection, for an
option to purchase 30,000 shares of our common stock. Options granted to
non-employee directors vest monthly over the twelve-month period from the date
of grant.
The
following table summarizes fees earned or paid in cash and stock options to
non-employee directors for the year ended December 31, 2006:
|
|
FEES
|
|
OPTION
|
|
|
|
|
|
EARNED
OR
|
|
AWARDS
|
|
|
|
NAME
|
|
PAID
IN CASH(1)
|
|
(in
$’s)(2)(3)
|
|
TOTAL
|
|
Philip
R. Chapman
|
|
$
|
10,000
|
|
$
|
3,855
|
|
$
|
13,855
|
|
Michael
R. Golding
|
|
|
10,000
|
|
|
3,855
|
|
|
13,855
|
|
Gary
L. Herman
|
|
|
10,000
|
|
|
3,855
|
|
|
13,855
|
|
John
F. Hoffner (4)
|
|
|
20,000
|
|
|
16,150
|
|
|
36,150
|
|
Christopher
D. Illick
|
|
|
10,000
|
|
|
3,855
|
|
|
13,855
|
|
Jay
A. Wolf
|
|
|
10,000
|
|
|
3,855
|
|
|
13,855
|
|
(1)
|
Represents
the annual retainer of $10,000, paid quarterly, along with the fee
for the
chairman of the Audit Committee.
|
(2)
|
Option
awards consist of compensation cost recognized in our financial statements
with respect to awards granted in previous fiscal years and the subject
fiscal year. Option awards are expensed on a straight-line basis
over the
vesting period of the award. The option awards are valued at fair
value
using the Black- Scholes option pricing model. Effective January
1, 2006,
we adopted the fair value based method of accounting
for stock-based employee compensation as required by SFAS No. 123R,
“Share-Based Payment.”
The fair value based method requires us to expense all stock-based
employee compensation. See Note 1 and Note 14 to our audited financial
statements for the 2006 fiscal year, contained in Part I Item 8 “Financial
Statements”, to our Annual Report on Form 10-K for the year ended December
31, 2006, for the methodology used and assumptions made in the valuation
of our options.
|
(3)
|
We
granted options to purchase an aggregate of 150,000 shares of our
common
stock to non-employee directors in 2006. Options to purchase an aggregate
of 480,000 shares of our common stock were outstanding at the fiscal
year
end to non-employee directors.
|
(4)
|
Mr.
Hoffner resigned from the Board of Directors and as Chair of the
Audit
Committee effective as of January 1,
2007.
|
Stock
Option and Compensation Committee Interlocks and Insider
Participation
In
fiscal
2006, Messrs. Chapman and Wolf served on our Stock Option and Compensation
Committee. Neither of them are present or past employees or officers of Shells.
A more detailed description of the transactions engaged by Shells with Trinad
and Frederick R. Alder is set forth under “Certain Relationships and Related
Transactions”. Mr. Chapman is the son-in-law of Fredrick R. Alder. Mr. Wolf is a
managing director of Trinad. None of our named executive officers have served
on
the board or compensation committee (or other committee servicing as equivalent
function) of any other entity, one of whose executive officers served on our
Board of Directors or the Stock Option and Compensation Committee.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
information set forth below briefly describes certain transactions between
us
and certain parties who or which may be deemed to be affiliated with
us.
In
fiscal
2005 and 2006, we entered into several transactions with Fortress Realty
Investments, LLC (“Fortress”), described below. Fortress is related to
Drawbridge Global Macro Fund, L.P., a then beneficial owner of greater than
5%
of our outstanding common stock. On September 29, 2005, we sold a certain
property to Fortress at a sale price of approximately $1.67 million which was
considered a fair value purchase amount. Concurrently, we leased a Shells
Seafood Restaurant location at 1551 3rd Street in Winter Haven, Florida. The
minimum lease term is 20 years with a straight-line annual rent of $182,000.
Subsequently, Fortress sold the Winter Haven property and assigned its interest
as lessor to a third party. On April 27, 2006, we completed a lease buy-out
transaction with Fortress, pursuant to which we transferred our interest in
an
option embedded in the lease agreement receiving net cash proceeds of $212,000.
Concurrently, we leased a Shells Seafood Restaurant location at 3415 SW College
Road in Ocala, Florida. The minimum lease term is 20 years with a straight-line
annual rent of $178,000. Subsequently, Fortress sold the Ocala property and
assigned its interest as lessor to a third party. On October 27, 2006, we
completed a sale and leaseback transaction with Fortress, pursuant to which
we
sold and simultaneously leased back a Shells Seafood Restaurant location at
725
East 3rd
Avenue,
New Smyrna Beach, Florida at a sale price of approximately $1.33 million which
was considered a fair value purchase amount. The minimum lease term is 20 years
with a straight-line annual rent of $145,000.
The
May 2005 Financing Transaction
In
May
2005, we completed a financing of $6.9 million through the private placement
of
securities to certain accredited investors, which included Trinad Capital,
L.P.,
Bruce Galloway and Frederick R. Adler who are each security holders who
beneficially own more than five percent of our common stock. Under the terms
of
the transaction, we issued 461,954 units, with each unit consisting of (i)
one
share of our Series B Preferred Stock, initially convertible into twenty shares
of our common stock, and (ii) a warrant to purchase ten shares of our common
stock at an exercise price of $1.30 per share. The purchase price was $15.00
per
unit. In addition, we issued a warrant to purchase 37,651 units (consisting
of
37,651 shares of our Series B Preferred Stock and warrants to purchase 376,510
shares of our common stock) at a purchase price of $15.00 per unit to the
placement agent of our May 2005 financing. We realized net proceeds of
approximately $5.8 million from the May 2005 financing. Of the total proceeds
from our securities issued, $1,282,000 represented cancellation or conversion
of
related party debt and
$348,000 represented the conversion of our existing convertible debentures,
all
of which converted into the securities issued in the transaction. We used a
portion of the net proceeds from the May 2005 financing to retire the remaining
$2,232,000 of loans and accrued interest from debenture holders from a debt
financing completed in December 2004, as well as $8,000 of related party accrued
interest. Additionally, in conjunction with the May 2005 financing, $500,000
principal amount of related party debt was used to exercise warrants to purchase
1,000,000 shares of our common stock.
Revolving
Line of Credit
In
March
2005, Trinad Capital, L.P. (“Trinad”), Bruce Galloway and Frederick R. Adler
provided us with a $1.6 million revolving line of credit, which was to mature
on
the earlier of July 31, 2006 or the closing of an aggregate amount of financing
providing us not less than $1.6 million of net proceeds. Trinad Master Fund,
Ltd., an affiliate of Trinad, Mr. Galloway and Mr. Adler are each security
holders who beneficially own more than five percent of our common stock. Amounts
drawn under the line of credit bear interest at the rate of 15% per annum,
payable 8% monthly in arrears and 7% deferred until the maturity date. These
investors received a fee of $80,000, in the aggregate, for extending the credit
line to us, paid to each investor pro rata in accordance with each investor’s
percentage interest (50% for Adler, 30% for Trinad and 20% for
Galloway).
In
conjunction with the May 2005 Financing, these investors agreed to extend the
maturity date under the line of credit to May 23, 2007 for no additional
consideration. As of December 31, 2006, we have drawn $1,440,000 of the
$1,600,000 line of credit availability, to assist in the financing of two
restaurant acquisitions in the fourth quarter of 2005 and to fund remaining
remodeling costs and working capital requirements. During 2006, we paid an
aggregate of $98,561 in interest payments to these investors. In addition,
as of
December 31, 2006, we owed $87,453 in deferred interest on the outstanding
debt.
It is not expected that we will be able to borrow the remaining $160,000 under
the credit line. We did not repay any of the principal amount during the 2006
fiscal year.
On
March
30, 2007, the maturity date under the line of credit was further extended to
May
23, 2008 at an extension fee, payable in shares of our common stock, equal
to 7%
of the $1,440,000 borrowed. On the extension date, our price per share of common
stock was $0.45, resulting in an extension fee of 224,000 shares of our common
stock, with a transaction cost of $100,800 to be amortized over the extension
period. Our Audit Committee approved the terms of this extension upon receipt
of
a fairness opinion conducted by a third party valuation expert at the request
of
the Audit Committee.
Review,
Approval or Ratification of Transactions with Related
Persons
In
connection with the review and approval or ratification of a related party
transaction, each member of our management must disclose to our executive
officers and/or the Audit Committee, as applicable, the material terms of the
related party transaction, including the approximate dollar value of the amount
involved in the transaction, and all the material facts as to the related
party’s direct or indirect interest in, or relationship to, the related party
transaction. The Audit Committee, in accordance with its amended charter dated
December 22, 2006, reviews and approves all related party transactions. The
Audit Committee must advise the Board of the related party transaction and
any
requirement for disclosure in our applicable filings under the Securities Act
of
1933, as amended, or the Securities Exchange Act of 1934, as amended, and
related rules, and, to the extent required to be disclosed, management must
ensure that the related party transaction is disclosed in accordance with such
acts and related rules.
AUDIT
COMMITTEE REPORT
This
report of the Audit Committee shall not be deemed incorporated by reference
by
any general statement incorporating by reference this proxy statement into
any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that Shells specifically incorporates the information
by
reference, and shall not otherwise be deemed filed under such Acts.
Management
has the primary responsibility for the financial statements and the financial
reporting process, including the systems of internal control. On behalf of
the
Board, the Audit Committee, among other things, reviews and monitors the
financial reporting process, the systems of internal control, the audit process,
the independence and performance of our independent registered public accounting
firm and the process for monitoring compliance with laws and regulations. The
members of the Audit Committee are Dr. Michael R. Golding and Mr. Illick. On
May
17, 2000, the Company adopted a written charter for the Audit Committee. The
charter was amended on December 22, 2006 and then again on September 6, 2007.
A
copy of the Audit Committee Charter, as amended, is attached hereto as Annex
A.
During
2006, the Audit Committee reviewed Shells’ financial statements and related SEC
filings with management and the Board of Directors and discussed with Kirkland
Russ Murphy & Tapp P.A. (“Kirkland Russ”), Shells’ independent registered
public accounting firm for fiscal 2006, the matters required to be discussed
by
Statement of Auditing Standard No. 61. The Audit Committee received from
Kirkland Russ the written disclosures and the letter required by Independence
Standards Board Standard No. 1 and discussed with Kirkland Russ its
independence. The Audit Committee has reviewed the audit fees of Kirkland Russ
and any non-audit services and fees, to assure compliance with Shells’ and the
Audit Committee’s policies restricting the independent registered public
accountants from performing services that might impair their independence.
After
reviewing and discussing the financial statements, and in reliance upon the
matters reviewed and discussed with Kirkland Russ above, and without other
independent verification, the Audit Committee recommended that the audited
consolidated financial statements of Shells be included in Shells’ Annual Report
on Form 10-K for fiscal 2006.
|
Audit
Committee,
Christopher
D. Illick, Chairman
Michael
R. Golding
|
RELATIONSHIP
WITH OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Who
is our Independent Registered Public Accounting Firm?
The
firm
of Kirkland, Russ, Murphy & Tapp, P.A. audited and issued a report on our
financial statements for fiscal 2006 and has been selected by the Audit
Committee to issue a report on our financial statements for the fiscal year
ending December 31, 2007. A representative of Kirkland, Russ, Murphy & Tapp,
P.A. is expected to be present at the Annual Meeting and available to respond
to
appropriate questions from stockholders, and will have an opportunity to make
a
statement if he or she desires to do so.
What
were our audit fees for fiscal 2006 and 2005?
|
|
FISCAL
YEAR
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|
CATEGORY
|
|
2006
|
|
2005
|
|
Audit
Fees
|
|
$
|
93,800
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|
$
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63,500
|
|
Audit-Related
Fees
|
|
|
-
|
|
|
-
|
|
Tax
Fees
|
|
|
16,000
|
|
|
17,000
|
|
All
Other Fees
|
|
|
2,425
|
|
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62,608
|
|
Total
Fees
|
|
$
|
112,225
|
|
$
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143,108
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|
“All
Other Fees” in fiscal 2006 consists of $1,450 relating to fees incurred in
connection with management’s preparation for the assessment of internal controls
over financial reporting as required by the Sarbanes-Oxley Act of 2002 and
$975
relating to tax planning. “All Other Fees” in fiscal 2005 consists of $60,858
relating to fees incurred in connection with our securities offering in May
2005
and $1,750 relating to tax planning. The Audit Committee of the Board of
Directors has determined that the performance and services related to “Tax Fees”
and “All Other Fees” is compatible with maintaining the independence of Kirkland
Russ.
We
have a
policy that discourages the retention of our independent registered public
accounting firm for non-audit services. We will not retain our independent
registered public accounting firm for non-audit work unless: (a) the approvals
of the Chair of the Audit Committee and the Chief Financial Officer are obtained
prior to the retention; and (b) the retention will not affect the status of
the
auditors as “independent accountants” under applicable rules of the SEC and the
Independence Standards Board.
The
details regarding any engagement of the independent registered public accounting
firm for non-audit services are provided promptly to the full Audit Committee.
During fiscal 2006 and 2005, all of the services provided by Kirkland, Russ,
Murphy & Tapp, P.A. for the services described above under “Audit-Related
Fees”, “Tax Fees” and “All Other Fees” were pre-approved using the above
procedures.
OTHER
MATTERS
When
are stockholders’ proposals for the 2008 Annual Meeting due?
We
anticipate that the 2008 Annual Meeting of Stockholders will be held in our
second financial quarter. To be considered for inclusion in the proxy statement
for the 2008 Annual Meeting, each stockholder proposal must be received by
us no
later than January 31, 2008. However, in the event the 2008 Annual Meeting
of
Stockholders is to be held at a later date, then stockholder proposals will
be
accepted until a reasonable time before the date we begin to print and
distribute the proxy materials.
We
know
of no other business to be acted upon at the Annual Meeting. However, if any
other business properly comes before the Annual Meeting, it is the intention
of
the persons named in the enclosed proxy to vote on such matters in accordance
with their best judgment.
The
prompt submission of your proxy will be appreciated and helpful in obtaining
the
necessary vote. Therefore, whether or not you expect to attend the Annual
Meeting, please vote by signing the proxy card and returning it in the enclosed
envelope, or, if available, by Internet or telephone.
|
By
Order of the Board of Directors
Warren
R. Nelson
Secretary
|
Dated:
September 17, 2007
A
COPY OF OUR ANNUAL REPORT ON FORM 10-K
WILL
BE SENT WITHOUT CHARGE TO ANY STOCKHOLDER
REQUESTING
IT IN WRITING FROM:
SHELLS
SEAFOOD RESTAURANTS, INC.
16313
N. DALE MABRY HIGHWAY, SUITE 100
TAMPA,
FLORIDA 33618
ATTENTION:
SECRETARY
OR
VISIT
OUR WEBSITE AT
WWW.
SHELLSSEAFOOD.COM
TO
ACCESS AND PRINT
A
COPY OF OUR ANNUAL REPORT ON FORM 10-K
GO
TO MENU OPTION “INVESTOR RELATIONS”
AND
LOOK FOR “EDGAR” FILINGS
SHELLS
SEAFOOD RESTAURANTS, INC.
THIS
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON OCTOBER 17, 2007
Leslie
J.
Christon and Warren R. Nelson, as the true and lawful attorneys, agents and
proxies of the undersigned, with full power of substitution, are hereby
authorized to represent and to vote all shares of stock of Shells Seafood
Restaurants, Inc. held of record by the undersigned on September 4, 2007, at
the
Annual Meeting of Stockholders to be held at 10:00 a.m., October 17, 2007,
at
our executive offices located at 16313 N. Dale Mabry Highway, Tampa, Florida
33618 and at any adjournment or postponement thereof. Any and all proxies
heretofore given are hereby revoked.
WHEN
PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE UNDERSIGNED.
IF
NO DIRECTION IS MADE, THE PROXY WILL BE VOTED FOR ALL LISTED NOMINEES FOR
DIRECTORS.
Proposal
No. 1—Election of Directors—Nominees are:
Philip
R.
Chapman, Leslie J. Christon, Michael R. Golding, Gary L. Herman, Christopher
D.
Illick and Jay A.
Wolf.
o
FOR
|
o WITHHOLD
AUTHORITY
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all
listed nominees (except do not vote
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|
for
the nominee(s) whose name(s)
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|
appear(s)
below):
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Discretionary
authority is hereby granted with respect to such other matters as may properly
come before the meeting.
IMPORTANT:
Please sign exactly as name appears below. Each joint owner shall sign.
Executors, administrators, trustees, etc. should give full title as such. If
signer is a corporation, please give full corporate name by duly authorized
officer. If a partnership, please sign in partnership name by authorized person.
|
Dated:_______________________,
2007
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|
|
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(Signature) |
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|
|
|
(Signature if held jointly) |
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|
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The
above-signed acknowledges receipt of the Notice of
Annual
Meeting of Stockholders and the Proxy Statement
furnished
therewith.
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THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY CARD
USING
THE ENCLOSED, PREPAID ENVELOPE.
Annex
A
Shells
Seafood Restaurants, Inc.
Audit
Committee Charter
(As
amended)
Organization
This
charter governs the operations of the audit committee (the “Committee”) of the
Board of Directors (sometimes, the “Board”) of Shells Seafood Restaurants, Inc.
(the “Company”).
Statement
of Policy
The
committee shall provide assistance to the Board of Directors in fulfilling
its
oversight responsibility to the Company’s stockholders, the investment
community, and others relating to:
|
•
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the
integrity of the Company’s financial statements and financial reporting
process;
|
|
•
|
the
Company’s systems of internal
controls;
|
|
•
|
the
performance of the Company’s accounting function and independent auditors;
and
|
|
•
|
the
independent auditor’s qualifications and
independence.
|
In
so
doing, it is the responsibility of the Committee to maintain free and open
communication between the Committee, independent auditors and the Company’s
management. In discharging its oversight role, the Committee is empowered
to
investigate any matter brought to its attention with full access to all books,
records, facilities, and personnel of the Company and the power to retain
independent legal, accounting or other consultants to advise the Committee.
It
is the intent of the Committee to comply with all applicable rules and
regulations governing the Committee, such as those of the Securities and
Exchange Commission (the “Commission”).
Meetings
The
Committee shall meet at least four times annually. In addition, the Committee
shall hold such special meetings as may be called by any member of the Committee
or at the request of the Company’s independent auditors. The Chairman of the
Board, the Chief Executive Officer, Chief Financial Officer, and other key
members of management may be invited from time to time to meetings to offer
information, expertise and advise as requested by the Committee. The Committee
may also request that independent auditors participate in Committee meetings,
as
necessary. Attendance may be in person or by telephone.
Composition
and Organization of Committee
|
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The
Committee shall consist of at least two independent
directors.
|
|
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The
members of the Committee shall meet the independence and experience
requirement of applicable federal securities laws, including, the
rules
and regulations of the Commission. Each member of the Committee
must be
able to read and understand fundamental financial statements, including
a
balance sheet, income statement
|
|
|
and
cash flow statement. In addition, at least one member should be
an “audit
committee financial expert” as determined by the Board in accordance with
the rules of the Commission.
|
|
•
|
Appointment
to Committee
|
|
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The
members of the Committee shall be appointed by the Board upon the
recommendation of the Nominating Committee. The Board shall make
the
appointments to the Committee at the organization meeting following
each
Annual Meeting of Stockholders.
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|
|
Members
will be appointed by the Board for a one year term or until a successor
is
appointed and qualified. The
full Board will fill vacancies on the Committee and may remove
a Committee
member from membership on the Committee at any time without
cause.
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|
|
The
Committee Chair will be a board member appointed by the Board.
If the
Committee Chair is absent from a meeting, another member of the
Committee
will act as Chair.
|
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•
|
Annual
Review of Committee and Charter
|
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|
The
Committee shall annually review the Committee’s own performance, which
shall include eliciting input from management and the independent
auditor
on the performance of the Committee. The Committee shall report
the
results of such self-assessment to the
Board.
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|
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Not
less than annually, the Committee shall review this Charter and
recommend
to the Board any changes it deems advisable. Only the full Board
of
Directors may amend this Committee’s
Charter.
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|
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Members
of the Committee shall, at the discretion of the Board, be entitled
to
receive fees for service on the Committee or for service as Chair
of the
Committee, in addition to the normal fees paid to all
directors.
|
Responsibilities
and Processes
The
primary responsibility of the Committee is to oversee the Company’s financial
reporting process on behalf of the Board of Directors and report the results
of
the Committee’s activities to the Board. The Company’s management is responsible
for the preparation, presentation and integrity of the Company’s financial
statements and disclosures, and the independent auditor is responsible for
auditing year-end financial statements and reviewing quarterly financial
statements and conducting other procedures. It is not the duty of the Committee
to certify the Company’s financial statements, to guarantee the independent
auditor’s report, or to plan or conduct audits. Since the primary function of
the Committee is oversight, the Committee shall be entitled to rely on the
expertise, skills and knowledge of management and the independent auditor
and
the accuracy of information provided to the Committee by such persons in
carrying out its oversight responsibilities. Nothing in this Charter is intended
to change the responsibilities of management and the independent auditor.
The
Committee shall prepare a report of its activities in accordance with the
rules
of the Commission to be included in the Company’s annual proxy statement.
The
Committee, in carrying out its responsibilities, believes its policy and
procedures should remain flexible, in order to best react to changing conditions
and circumstances. The Committee should take the appropriate actions to set
the
overall corporate “tone” for quality financial reporting, sound business risk
practices, and ethical behavior.
The
following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The processes are set forth
as a
guide with the understanding that the Committee may supplement them as
appropriate. In carrying out its responsibilities, the Committee will:
Independent
Auditors
|
1.
|
Have
the sole authority and responsibility for the appointment, retention,
oversight, termination and replacement of the independent auditor
(subject, if applicable, to shareholder ratification). The Committee
shall
be directly responsible for the compensation and oversight of the
work of
the independent auditor for the purpose of preparing and issuing
an audit
report and related work.
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No
audit services or non-audit services shall be performed by the
independent
auditor for the Company unless the services and related costs are
first
pre-approved by the Committee and unless permitted by the rules
and
regulations of the Commission. If the Committee approves an audit
service
within the scope of the engagement of the independent auditor,
such audit
services shall be deemed to have been pre-approved for the purposes
of
this Section.
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2.
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Perform
the following:
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a.
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Obtain
from the independent auditors on an annual basis, the written disclosures
required under Independence Standards Board Standard No. 1 regarding
any
relationships between the auditors and the Company, or any other
relationships that reasonably may be thought to bear on the auditors’
independence;
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b.
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Discuss
with the independent auditor the auditor’s independence, including all
relationships between the independent auditor and the Company that
may
impact the independent auditor’s objectivity and
independence;
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c.
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Obtain
from the independent auditors on an annual basis, a written statement
that
the Company’s chief executive officer, chief financial officer, controller
or any person serving in an equivalent position to any of the foregoing
for the Company, was not employed by the independent auditor and
did not
participate in any capacity in the audit of the Company during
the one
year period preceding the date of the initiation of the audit for
which
the independent auditor is engaged;
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d.
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Recommend
to the Board appropriate action in response to the independent
auditor’s
report to satisfy itself of the independent auditor’s
independence;
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|
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e.
Review and evaluate the lead audit partner of the independent auditor’s
team;
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f.
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Annually
obtain and review from the independent auditor a written report
describing
(i) the independent auditor’s internal quality-control procedures and (ii)
any material issues raised by the independent auditor’s most recent
internal quality-control review or peer review;
and
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g.
|
Annually
obtain from the independent auditor a written report in which the
independent auditor attests to and reports on the assessment of
the
Company’s internal controls made by the Company’s
management.
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3.
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Meet
with the independent auditors and financial management of the Company to
review the scope of the proposed audit for the current year and
the audit
procedures to be utilized.
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4.
|
Review
each opinion or report of the independent auditors and review any
comments
or recommendations of the independent auditors with respect to
the audited
or interim financial statements.
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5.
|
Provide
sufficient opportunity for the independent auditors to meet with
the
members of the Committee without members of management present.
Among the
items to be discussed in these meetings are the independent auditors’
evaluation of the Company’s financial and accounting personnel, and the
cooperation that the independent auditors received during the course
of
the audit.
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Financial
Reporting Process
|
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6.
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Review
significant accounting and reporting issues, including recent professional
and regulatory announcements, and the impact on the financial statements,
including any significant changes in the Company’s selection or
application of accounting principles, any major issues as to the
adequacy
of the Company’s internal controls and any special steps adopted in light
of material control deficiencies.
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7.
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Evaluate
whether management is setting the appropriate tone at the top by
communicating the importance of strong internal controls. Obtain
an
understanding of internal controls and the significant risk areas
for the
Company through discussions with management, and the independent
auditors.
Periodically review the adequacy of internal controls that could
significantly affect the Company’s financial statements through
discussions with management and the independent
auditors.
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8.
|
Review
and discuss with the independent auditor the following as it relates
to
periodic filings with the
Commission:
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a.
|
all
critical accounting policies and practices used by the
Company;
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b.
|
all
alternative treatments of the Company’s financial information within GAAP
that have been discussed with management, and the ramifications
of the use
of such alternative treatments and related disclosures;
and
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c.
|
all
other material written communications between the independent auditor
and
management, such as any management letter or schedule of adjusted
differences.
|
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9.
|
Review
with appropriate representatives of management and the independent
auditors the financial information contained in the company’s Quarterly
reports on Form 10-Q prior to filing, the Company’s earnings announcements
prior to release, and the results of the independent auditors’ review of
Interim Financial information pursuant to Statement of Auditing
Standards
Statement No. 71, as may be modified or supplemented. The chairman
of the
Committee may represent the entire Committee, either in person
or by
telephone conference call, for purposes of this
review.
|
|
10.
|
Review
with appropriate representatives of management and the independent
auditors the scope and timing of the annual audit, as well as the
results
of the audit work performed at the completion of the annual audit
of the
Company’s consolidated financial statements included in the Annual Report
on Form 10-K for the last fiscal year. Prior to its filing, the
Committee
shall, without limitation:
|
|
a.
|
Review
and discuss the Company’s annual consolidated financial statements and
related footnotes;
|
|
b.
|
Review
and discuss the independent auditors’ audit of the consolidated financial
statements and their report;
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|
c.
|
Review
and discuss any significant changes required in the independent
auditors’
examination plan;
|
|
d.
|
Discuss
with management and the independent auditor any problems, difficulties
or
disputes encountered during the course of the audit, including
any
restrictions on the scope of the independent auditor’s activities or on
access to requested information, any accounting adjustments that
were
noted or proposed by the independent auditor but that were not
adopted,
any communications between the independent auditor’s team assigned to the
Company’s audit and the auditors affiliated national office, and any
“management” or “internal control” letter issued, or proposed to be
issued, by the independent auditor to the
Company;
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e.
|
Review
and discuss other matters related to the conduct of the audit which
are to
be communicated to the Committee under general accepted auditing
standards
including, discussions relating to the independent auditors’ judgments
about such matters as the quality, not just the acceptability,
of the
Company’s accounting practices and other items set forth in Statement of
Auditing Standards Statement No. 61 (“SAS61”) (Communication with Audit
Committees) or other such auditing standards that may in time modify,
supplement or replace SAS61; and
|
|
f. |
Recommend
to the Board of Directors, based on the review and discussions
referred to
above, that the Company’s consolidated financial statements be included in
the Annual Report on Form 10-K for the last fiscal year for filing
with
the Commission.
|
Financial
Reporting Oversight
|
11.
|
Discuss
with management the Company’s earnings press releases, including the use
of “pro forma” or “adjusted” non - GAAP information, as well as financial
information and earnings guidance provided to analysts and rating
agencies, if applicable. Such discussion may be done generally,
consisting
of discussing the types of information to be disclosed and the
types of
presentations to be made.
|
|
12.
|
Periodically
inquire of management and the independent auditor as to any disagreements
that may have occurred between them relating to the Company’s financial
statements or disclosures. The Committee shall have the sole
responsibility for the resolution of any disagreements between
management
and the independent auditor regarding financial
reporting.
|
Review
of Other Documents and Reports
|
13.
|
Review
the activities, organizational structure, and qualifications of
accounting
and financial human resources within the
Company.
|
|
14.
|
Review
the procedures established by the Company that monitor the compliance
by
the Company with the covenants and restrictions contained in its
loan
agreements.
|
|
15.
|
Review
with the Company’s counsel any legal matter that could have a significant
impact on the Company’s financial
statements.
|
Accountability
to Board of Directors
|
16.
|
Report
through the Committee Chair to the Board of Directors following
the
meetings of the Committee.
|
|
17.
|
Maintain
minutes or other records of meetings and activities of the Committee,
all
of which shall be submitted to the Corporate secretary to be filed
with
the minutes of meetings of the Company’s Board of
Directors.
|
Legal
Compliance and Ethics
|
18.
|
Review
the Company’s policies and procedures for compliance with laws and
regulations that may impact financial reporting and
disclosure.
|
|
19.
|
Periodically
review and approve the Company’s ethics code or “Code of Conduct”.
Recommend material changes for approval by the Board of Directors.
Provide
for and review prompt disclosure to the public of any substantive
change
in, or any waiver of, such ethics
code.
|
|
20.
|
Periodically
review and approve the Company’s procedures for (i) the receipt, retention
investigation and resolution of complaints received by the Company
regarding accounting, internal accounting controls or auditing
matters,
and (ii) the confidential, anonymous submission by employees, in
accordance with the Company’s Whistle Blower’s policy, of concerns
regarding questionable accounting or auditing matters. Monitor
compliance with such
procedures.
|
|
21.
|
As
requested by the Board, review and investigate conduct alleged
by the
Board to be in violation of the Ethics Code and adopt as necessary
remedial, disciplinary or other measures with respect to such
conduct.
|
|
22.
|
Conduct
or authorize and investigation of any matter brought to its attention
within the scope of its duties, with the power to retain outside
counsel
for this purpose if, in its judgment, that is appropriate. Report
to the
Board of Directors the results of its investigation and make such
recommendations, as it may deem
appropriate.
|
|
23.
|
Review
and reassess the adequacy of this Charter annually and recommend
any
proposed changes to the Board for
approval.
|
|
24.
|
Annually
review its own performance.
|
Other
|
25.
|
Consider
such other matters in relation to the financial affairs of the
Company,
and in relation to the external audit of the Company as the Committee
may,
in its discretion, determine to be
advisable.
|
|
26.
|
Perform
any other activities consistent with this Charter, the Company’s By-laws
and charter documents and governing law as the Committee or the
Board of
Directors deems necessary or
appropriate.
|
|
27.
|
Annually
review the Company’s plans and programs with respect to major areas of
risk management and related insurance
overage.
|
|
28.
|
Annually
review and monitor the Company’s risk assessment programs and related risk
management strategies.
|
|
29.
|
Annually
review the Company’s programs on loss prevention and security
matters.
|
|
30.
|
Review
and approve, on an ongoing basis, all related party
transactions.
|
Audit
Committee Agenda Items*
|
|
|
|
|
As
|
|
Q1
|
Q2
|
Q3
|
Q4
|
Needed
|
|
|
|
|
|
|
External
Auditors
|
|
|
|
|
|
|
|
|
|
|
|
Appointment
of external auditors
|
|
|
|
X
|
|
Approval
of engagement letter
|
X
|
|
|
|
|
Review
cost of audit and non-audit services, if any
|
X
|
X
|
X
|
X
|
|
Pre-approval
of non-audit services performed by external
firm
|
X
|
X
|
X
|
X
|
|
External
auditors’ independence
|
X
|
|
|
|
|
External
auditors’ audit plan, including timing, scope
and procedures
|
|
|
|
X
|
|
Significant
changes to audit plan, scope restrictions, lack
of info
|
|
|
|
|
X
|
Local
office’s communication with national office
|
X
|
|
|
|
|
Disagreements
with management
|
X
|
|
|
|
|
External
auditors’ report
|
X
|
|
|
|
|
External
auditors’ management letter
|
X
|
X
|
|
|
|
External
auditors’ opinion of quality of Shells financial
reporting
|
X
|
X
|
X
|
X
|
|
Attestation
report on internal controls
|
X
|
|
|
|
|
External
auditors’ internal control findings
|
X
|
|
|
|
|
Significant
accounting and reporting issues
|
X
|
X
|
X
|
X
|
|
External
auditors’ results of Quarterly Review
|
X
|
X
|
X
|
X
|
|
Private
session with external auditors
|
X
|
X
|
X
|
X
|
|
|
|
|
|
|
|
Other
Committee Activities
|
|
|
|
|
|
|
|
|
|
|
|
Approve
previous meeting minutes
|
X
|
X
|
X
|
X
|
|
File
meeting minutes with Secretary
|
X
|
X
|
X
|
X
|
|
Report
to Board of Directors
|
X
|
X
|
X
|
X
|
|
Report
to shareholders
|
X
|
|
|
|
|
Annual
Self-evaluation
|
|
|
X
|
|
|
Evaluate
lead audit partner
|
|
X
|
X
|
|
|
Evaluate
management’s role and success in maintaining
internal controls
|
X
|
|
|
|
|
Management
to discuss with Audit Committee
|
X
|
X
|
X
|
X
|
|
Whistle
Blower reports submitted to management, if
any, and appropriate resolution.
|
|
|
|
|
|
Respond
to and investigate any Whistle Blower reports
submitted to Audit Committee Chairperson.
|
|
|
|
|
X
|
*
Any
items
that are not marked “as needed” nonetheless will be addressed promptly if any
issue arises in that area.
Audit
Committee Agenda Items*
|
|
|
|
|
As
|
|
Q1
|
Q2
|
Q3
|
Q4
|
|
|
|
|
|
|
|
Financial
and Related Reporting
|
|
|
|
|
|
|
|
|
|
|
|
Review
of draft Form 10-Q / quarterly public filing
|
|
X
|
X
|
X
|
|
Review
of draft Form 10-K / annual public filing
|
X
|
|
|
|
|
Review
of proxy materials and narrative reporting
|
X
|
|
|
|
|
Review
of Audit Committee Charter (included in proxy)
|
X
|
|
|
|
|
Review
final draft of earnings announcements
|
X
|
X
|
X
|
X
|
|
Review
and discuss critical accounting policies and practices,
alternative treatments, and material communications
between external audit and management
|
X
|
X
|
X
|
X
|
|
Planned
changes in accounting principals
|
|
|
|
|
X
|
Significant
accounting judgment and estimates
|
X
|
X
|
X
|
X
|
|
Discuss
with management the Company’s earnings press
releases
|
|
|
|
|
X
|
|
|
|
|
|
|
Controls
and Compliance
|
|
|
|
|
|
|
|
|
|
|
|
Evaluation
of disclosure controls
|
X
|
X
|
X
|
X
|
|
Management’s
assessment of internal controls
|
X
|
X
|
X
|
X
|
|
Significant
changes in financial reporting internal controls
|
X
|
X
|
X
|
X
|
|
Status
of Sarbanes-Oxley Section 404 Compliance
|
X
|
X
|
X
|
X
|
|
Project
|
|
|
|
|
|
Review
accounting and finance organization structure
and qualifications
|
|
|
X
|
|
|
Monitoring
process for compliance with loan agreements
|
X
|
|
|
|
|
Review
risk management and related insurance coverage
|
|
X
|
|
|
|
Review
risk assessment program and risk management
strategies
|
|
X
|
|
|
|
Review
related party transactions
|
X
|
|
|
|
|
Review
of independence, experience, and qualifications
of Audit Committee Members
|
X
|
|
|
|
|
Annual
update on Loss Prevention and Security
|
|
|
X
|
|
|
Matters
|
|
|
|
|
|
Tax
matters
|
X
|
X
|
X
|
X
|
|
Significant
legal matters
|
|
|
|
|
X
|
Report
of Charitable Contributions
|
|
|
|
X
|
|
*
Any
items
that are not marked “as needed” nonetheless will be addressed promptly if any
issue arises in that area.