SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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the Securities Exchange Act of 1934 (Amendment No.)
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LONE STAR STEAKHOUSE & SALOON, INC.
(Name of Registrant as Specified In Its Charter)
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LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202-3414
--------------------
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
to be held on July 11, 2003
--------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 2003 Annual Meeting of Stockholders
(the "Meeting") of LONE STAR STEAKHOUSE & SALOON, INC., a Delaware corporation
(the "Company"), will be held on July 11, 2003 at the Del Frisco's Double Eagle
Steak House restaurant located at 8100 E. Orchard Road, Greenwood Village,
Colorado 80111-5013, 9:00 a.m. local time, for the following purposes:
-- To elect three (3) members of the Board of Directors to serve
until the 2006 Annual Meeting of Stockholders, and until their
successors have been duly elected and qualified;
-- To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 30,
2003; and
-- To transact such other business as may properly be brought
before the Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 29, 2003
as the record date for the Meeting. Only stockholders of record on the stock
transfer books of the Company at the close of business on that date are entitled
to notice of, and to vote at, the Meeting.
A complete list of stockholders entitled to vote at the Meeting will be
available for inspection at the Company's corporate office at 224 East Douglas,
Suite 700, Wichita, Kansas 67202-3414, during normal business hours for ten days
prior to the Meeting. The list also will be available at the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. WE
URGE YOU TO PROMPTLY SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE.
ANY STOCKHOLDER GIVING A PROXY MAY REVOKE IT AT ANY TIME BEFORE THE
PROXY IS VOTED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF THE
COMPANY, BY SUBMITTING A LATER-DATED PROXY, OR BY ATTENDING THE MEETING AND
VOTING IN PERSON.
By Order of the Board of Directors
/s/ Gerald T. Aaron
------------------------------
GERALD T. AARON, Secretary
Dated: June 16, 2003
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED
TO SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE THAT IS PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202-3414
--------------------
PROXY STATEMENT
FOR
2003 ANNUAL MEETING OF STOCKHOLDERS
July 11, 2003
--------------------
INTRODUCTION
This Proxy Statement and the accompanying proxy are being furnished to
stockholders by the Board of Directors of Lone Star Steakhouse & Saloon, Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of the
accompanying proxy for use at the 2003 Annual Meeting of Stockholders of the
Company (the "Meeting") to be held at the Del Frisco's Double Eagle Steak House
restaurant located at 8100 E. Orchard Road, Greenwood Village, Colorado
80111-5013 on July 11, 2003 at 9:00 a.m., local time, or at any adjournments
thereof.
The principal executive offices of the Company are located at 224 East
Douglas, Suite 700, Wichita, Kansas 67202-3414. The approximate date on which
this Proxy Statement and the accompanying proxy will first be sent or given to
stockholders is on or about June 16, 2003.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on May 29, 2003,
the record date (the "Record Date") for the Meeting, will be entitled to notice
of, and to vote at, the Meeting and any adjournments thereof. As of the close of
business on the Record Date, there were 20,715,846 outstanding shares of the
Company's common stock, $.01 par value (the "Common Stock"). Each outstanding
share of Common Stock is entitled to one vote. There was no other class of
voting securities of the Company outstanding on the Record Date. A majority of
the outstanding shares of Common Stock present in person or by proxy is required
for a quorum.
VOTING OF PROXIES
A stockholder may ensure that their shares are voted at the Meeting in
accordance with the Board of Directors' recommendations by completing, signing,
dating, and returning the enclosed proxy in the envelope provided. Submitting
your proxy will not affect your right to attend the Meeting and vote in person.
If the proxy is signed and returned without any direction given, shares will be
voted in accordance with the recommendations of the Board of Directors as
described in this Proxy Statement with respect to Proposal I and Proposal II.
Any stockholder giving a proxy may revoke it at any time before the proxy is
voted by giving written notice of revocation to the Secretary of the Company, by
submitting a later-dated proxy, or by attending the Meeting and voting in
person.
The Board of Directors is soliciting votes FOR election to the Board of
Directors of its nominees, Messrs. Clark R. Mandigo, John D. White and Thomas C.
Lasorda and FOR approval of the appointment of Ernst & Young LLP as its
auditors. The Board of Directors urges you to sign, date, and return the
enclosed proxy today.
If you have any questions, or need any assistance in voting your
shares, please call 888-750-5834 and the Company's proxy solicitors will be
happy to help you.
If your shares are held in "street-name", only your bank or broker can
vote your shares and only upon receipt of your specific instructions. Please
contact the person responsible for your account and instruct that individual to
vote the proxy card as soon as possible.
QUORUM
In order to conduct any business at the Meeting, a quorum must be
present in person or represented by valid proxies. A quorum consists of a
majority of the shares of Common Stock issued and outstanding on the Record Date
(excluding treasury stock). All shares that are voted "FOR", "AGAINST" or
"WITHHOLD AUTHORITY" on any matter will count for purposes of establishing a
quorum and will be treated as shares entitled to vote at the Meeting (the "Votes
Present").
ABSTENTIONS
While there is no definitive statutory or case law authority in
Delaware, the Company's state of incorporation, as to the proper treatment of
abstentions, the Company believes that abstentions should be counted for
purposes of determining both: (i) the total number of Votes Present, for the
purpose of determining whether a quorum is present; and (ii) the total number of
Votes Present that are cast ("Votes Cast") with respect to a matter (other than
in the election of the Board of Directors and ratification of independent
auditors). In the absence of controlling precedent to the contrary, the Company
intends to treat abstentions in this manner.
BROKER NON-VOTES
Shares of Common Stock held in street name that are present by proxy
will be considered as Votes Present for purposes of determining whether a quorum
is present. With regard to certain proposals, the holder of record of shares of
Common Stock held in street name is permitted to vote as they determine, in
their discretion, in the absence of direction from the beneficial holder of the
shares of Common Stock.
The term "broker non-vote" refers to shares held in street name that
are not voted with respect to a particular matter, generally because the
beneficial owner did not give any instructions to the broker as to how to vote
such shares and the broker is not permitted under applicable rules to vote such
shares in its discretion because of the subject matter of the proposal, but
whose shares are present on at least one matter. The Company intends to count
such shares as Votes Present for the purpose of determining whether a quorum is
present. In addition, the broker is permitted to vote such shares on the
proposals to be considered at the Meeting.
VOTES REQUIRED FOR APPROVAL
A plurality of the total Votes Cast by holders of Common Stock is
required for the election of directors. A vote to "WITHHOLD AUTHORITY" for any
nominee for director will be counted for purposes of determining the Votes
Present, but will have no other effect on the outcome of the vote on the
election of directors.
A plurality of the total Votes Cast by holders of Common Stock is
required to ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 30, 2003. A vote to
"ABSTAIN" will have no other effect on the outcome of the vote on the
ratification of Ernst & Young LLP.
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SECURITY OWNERSHIP
The following table sets forth information concerning ownership of the
Company's Common Stock, as of the Record Date, by each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, each director, each executive officer as defined in Item 402(a)(3) of
Regulation S-K and by all directors and executive officers of the Company as a
group. Unless otherwise indicated, the address for five percent stockholders,
directors and executive officers of the Company is 224 East Douglas, Suite 700,
Wichita, Kansas 67202-3414. The percentage of shares owned is based on
20,715,846 shares outstanding as of May 29, 2003.
Shares
Name and Address Beneficially Percentage
of Beneficial Owner Held of Class
-------------------- ------------ ----------
Jamie B. Coulter .................................. 4,695,393(1) 20.4%
John D. White ..................................... 998,025(2) 4.6%
Gerald T. Aaron ................................... 512,707(3) 2.4%
Tomlinson D. O'Connell ............................ 89,449(4) *
Deidra Lincoln .................................... 112,750(5) *
Fred B. Chaney .................................... 37,201(6) *
William B. Greene, Jr. ............................ 57,501(7) *
Clark R. Mandigo .................................. 93,201(8) *
Mark Saltzgaber ................................... 18,101(9) *
Thomas Lasorda .................................... 16,901(9) *
Michael Ledeen .................................... 15,601(9) *
Anthony Bergamo ................................... 3,000 *
Dimensional Fund Advisors Inc. .................... 1,709,945(10) 8.3%
Kennedy Capital Management, Inc. .................. 1,594,154(11) 7.7%
Barclays Global Investors, NA and Barclays Global
Fund Advisors.................................... 1,402,063(12) 6.8%
Pioneer Global Asset Management ................... 1,318,000(13) 6.4%
All directors and executive officers as a group
(14) persons (1-9)............................... 6,811,074(14) 27.4%
---------------
* Less than 1%
(1) Includes presently exercisable options to purchase 2,300,000 shares of
Common Stock. Does not include 177,145 shares held by Intrust Bank as
Trustee of a Rabbi Trust for the Company. Under the terms of a Deferred
Compensation Agreement, Mr. Coulter defers receipt of the value of his
deferred compensation account until 30 days after the termination of his
employment with the Company.
(2) Includes presently exercisable options to purchase 850,000 shares of
Common Stock.
(3) Includes presently exercisable options to purchase 475,000 shares of
Common Stock.
(4) Includes presently exercisable options to purchase 88,449 shares of Common
Stock.
(5) Includes presently exercisable options to purchase 107,750 shares of
Common Stock.
(6) Includes presently exercisable options to purchase 33,201 shares of Common
Stock.
(7) Includes presently exercisable options to purchase 53,601 shares of Common
Stock.
(8) Includes presently exercisable options to purchase 63,201 shares of Common
Stock.
(9) Includes or consists of presently exercisable options to purchase 15,601
shares of Common Stock.
(10)Based on a Schedule 13G filed in February 2003, Dimensional Fund Advisors
Inc. beneficially holds 1,709,965 shares of the Company's Common Stock.
The address of Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401.
(11)Based on a Schedule 13G filed in February 2003, Kennedy Capital
Management, Inc. beneficially holds 1,594,154 shares of the Company's
Common Stock. The address of Kennedy Capital Management, Inc. is 10829
Olive Blvd, St. Louis, MO 63141.
(12)Based on a Schedule 13G filed in February 2003, Barclays Global Investors,
N.A. has sole dispositive and voting power with respect to 1,097,791
shares of the Company's Common Stock and Barclays Global Fund Advisors has
sole dispositive and voting power with respect to 304,272 shares of the
Company's Common Stock. The address of Barclays Global Investors, N.A. and
Barclays Global Fund Advisors is 45 Fremont Street, San Francisco, CA
94105.
(13)Based on a Schedule 13G filed in December 2001, Pioneer Global Asset
Management beneficially holds 1,318,000 shares of the Company's Common
Stock. The address of Pioneer Global Asset Management is Galleria San
Carlo 6, 20122 Milan, Italy.
(14)Includes presently exercisable options to purchase 4,174,434 shares of
Common Stock, which includes presently exercisable options to purchase
156,429 shares of Common Stock held by executive officers, who are not
specifically identified in the Security Ownership Table above. The
executive officers who are not specifically identified in the Security
Ownership Table also collectively own an additional 4,815 shares of Common
Stock.
3
PROPOSAL I
ELECTION OF THE BOARD OF DIRECTORS
The Board of Directors is currently composed of eight (8) directors,
divided into three classes. Each class of directors is elected for a term of
office to expire at the third succeeding annual meeting of stockholders of the
Company after their election and until their respective successors are elected
and qualified. The terms of three directors are expiring at the Meeting and the
Nominating Committee of the Board of Directors, consisting of independent
directors, has nominated Messrs. Clark R. Mandigo, John D. White and Thomas C.
Lasorda, currently serving as directors of the Company since March 1992, March
1992 and November 2001, respectively, as nominees for reelection to the Board of
Directors. If elected, the term of the Board of Directors' nominees expires at
the 2006 Annual Meeting, and when their respective successors are duly elected
and shall have qualified.
Unless otherwise specified, all of the Proxies received will be voted
in favor of the election of Messrs. Mandigo, White and Lasorda. The directors
shall be elected by a plurality of the votes cast, in person or by proxy, at the
Meeting. Abstentions from voting and broker non-votes on the election of
directors will have no effect since they will not represent Votes Cast at the
Meeting for the purpose of electing a director. Management has no reason to
believe that any of the Board of Directors' nominees will be unable or unwilling
to serve as directors, if elected. Should any of the nominees not remain a
candidate for election at the date of the Meeting, the proxies may be voted for
a substitute nominee selected by the Board of Directors.
The following table sets forth the ages and terms of office of the
directors of the Company:
Term of Office as
Name Age Director Expires
---- --- ----------------
*Clark R. Mandigo ...................... 60 2003
John D. White ........................ 55 2003
*Anthony Bergamo ....................... 56 2004
*Fred B. Chaney ........................ 66 2005
*William B. Greene, Jr. ................ 65 2005
*Thomas C. Lasorda ..................... 75 2003
*Michael A. Ledeen ..................... 61 2004
*Mark G. Saltzgaber .................... 35 2004
---------------
* Independent Director
Clark R. Mandigo has been the Chairman of the Board of the Company
since July 2001 and a Director of the Company since March 1992. Mr. Mandigo has
been a Papa John's Pizza franchisee since 1995. From 1986 to 1991, he was
President, Chief Executive Officer and Director of Intelogic Trace, Inc., a
corporation engaged in the sale, lease and support of computer and
communications systems and equipment. From 1985 to 1997, Mr. Mandigo served on
the Board of Directors of Physician Corporation of America, a managed health
care company and from 1993 to 1997, Mr. Mandigo served on the Board of Palmer
Wireless, Inc., a cellular telephone system operator. Mr. Mandigo currently
serves on the Board of Directors of Horizon Organic Holdings Corporation and as
a Trustee of Accolade Funds.
John D. White is Executive Vice President, Treasurer and a Director of
the Company, and was the Chief Financial Officer from 1992 to 1999. Prior to
joining the Company, Mr. White was employed as Senior Vice President of Finance
for Coulter Enterprises, Inc. Prior to that, Mr. White was a principal of Arthur
Young & Company and taught management development and computer auditing seminars
in their National Training Program. Mr. White earned a BBA in accounting from
Wichita State University in 1970 and is a graduate of the Stanford Executive
Program.
Anthony Bergamo has been a Director of the Company since May 29, 2002.
Mr. Bergamo has been Managing Director of Milstein Hotel Group since April 1996
and Chief Executive Officer of Niagara Falls Redevelopment, Ltd. since August
1998. Mr. Bergamo has held various positions with MB Real Estate, a property
management company based in New York City and Chicago since April 1996,
including the position of Vice Chairman since May 2003. Mr. Bergamo has also
been a Director since 1995 and a Trustee since 1986 of
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Dime Community Bancorp. Mr. Bergamo is also the Founder and Chairman of the
Federal Law Enforcement Foundation since 1988, a foundation that provides
economic assistance to both federal and local law enforcement officers
suffering from serious illness and to communities recovering from natural
disasters. Mr. Bergamo earned a B.S. in History from Temple University in 1968
and a J.D. from New York Law School in 1973.
Fred B. Chaney, Ph.D., has been a director of the Company since May
1995. Dr. Chaney was President and Chief Executive Officer of TEC's parent
company, Vedax Sciences Corporation, until March 1998 when he sold his interest.
Dr. Chaney through the TEC organization had formed a network of various
management organizations in several countries, including the United States where
approximately 4,000 presidents of companies meet on a quarterly basis. Dr.
Chaney's early business career was with the Boeing Company and Rockwell, where
he implemented management systems and quality motivational programs. In 1968, he
co-authored the book Human Factors in Quality Assurance with Dr. D. H. Harris.
Dr. Chaney has authored numerous publications and professional papers and has
taught management classes for the University of Southern California. Dr. Chaney
previously served as a Director of Rusty Pelican Seafood, Inc.
William B. Greene, Jr. has been a member of the Board of Directors
since August 1999. Mr. Greene has been Chairman, Chief Executive Officer and
President of BancTenn Corp since 1974 and Chairman, Chief Executive Officer and
President of Carter County BancCorp since 1972. At the age of 26, Mr. Greene was
the youngest bank President and CEO in the United States and formed the first
statewide banking organization in the history of Tennessee, United Tennessee
Bancshares Corporation. He also served as a director of the Northwestern
Financial Corporation that spearheaded the first major banking consolidation in
America with the merger of Northwestern Bank and First Union Bank now referred
to as Wachovia. Mr. Greene is Chairman of the Wake Forest University Board of
Trustees and Chairman of the Wake Forest University Trustee Investment Policy
Committee for the last eight years, which oversees the University's
billion-dollar endowment. Mr. Greene is also a member of the Board of Trustees
of Milligan College where he recently received his Honorary Doctor of Economics.
Mr. Greene was a member of the Young Presidents' Organization for eighteen years
and in 1998 served as International President of the World Presidents'
Organization, the graduate school of YPO. Mr. Greene is a graduate of Wake
Forest University with a B.S. Degree in Philosophy, Psychology and History. Mr.
Greene did post graduate work at Wake Forest University, the University of
Illinois, and Harvard University. He is a graduate of the Bank Marketing and
Public Relations School at Northwestern University, and a graduate of the
Stonier Graduate School of Banking at Rutgers University.
Thomas C. Lasorda has been a Director of the Company since November
2001. Mr. Lasorda, a member of the Baseball Hall of Fame, has been a Senior Vice
President of the Los Angeles Dodgers since February 1998 and prior thereto was a
Vice President of such team since July 1996. Mr. Lasorda is also an
internationally renowned motivational speaker. He was the manager of the gold
medal winning United States Baseball Team for the 2000 Summer Olympic Games in
Sydney, Australia and was the manager of the Los Angeles Dodgers for 20 years.
Michael A. Ledeen, Ph.D., has been a director of the Company since
November 2001. Dr. Ledeen has been a resident scholar in the Freedom Chair at
the American Enterprise Institute since 1989 and the Vice Chairman of the U.S.-
China Security Review Commission since 2001. An expert in contemporary history
and international affairs, Dr. Ledeen is a frequent contributor to the Wall
Street Journal, the Weekly Standard, National Review, and Commentary and serves
as a foreign affairs editor of the American Spectator. During the Reagan
administration, from 1981 to 1987, Dr. Ledeen held numerous positions including
a consultant to the National Security Adviser, the Office of the Secretary of
Defense, and the State Department and was a special adviser to the Secretary of
State. Dr. Ledeen is the author of seventeen books, including most recently
Tocqueville on American Character (St. Martin's Press, 2000).
Mark G. Saltzgaber has been a director of the Company since November
2001. Mr. Saltzgaber is an experienced investment banker, advisor and private
equity investor in the restaurant industry. He is currently an independent
consultant to emerging restaurant chains and a venture partner of Dorset Capital
Management, LLC ("Dorset Capital"), a consumer-focused private equity firm he
co-founded in 1999. Prior to Dorset Capital, Mr. Saltzgaber was a Managing
Director in the Equity Capital Markets Department at Montgomery Securities where
he was responsible for advising consumer growth companies. Prior to that, Mr.
Saltzgaber was also a Principal and Co-Director of the restaurant investment
banking practice group at Montgomery Securities. Mr. Saltzgaber is currently a
director of Pasta Pomodoro, Inc. and Stir Crazy Enterprises, LLC.
5
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
ITS NOMINEES.
CORPORATE GOVERNANCE
The Company is proud of its corporate governance initiatives and
believes its corporate governance profile compares favorably with other leading
companies.
Constitution of the Board of Directors
The Company has determined that seven out of its eight members of the
Board of Directors meet the current independence standards under (i) the current
and proposed NASD's rules for The NASDAQ Stock Market ("Nasdaq"), (ii) the
provisions of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and
other rules and regulations of the Securities and Exchange Commission, (iii)
Rule 162(m) of the Internal Revenue Code of 1986, as amended, and (iv) the
Company's By-laws. In addition, the Company has determined that members of the
Audit Committee, are "financial experts" as defined by the rules promulgated
under the Sarbanes-Oxley Act.
Board Committees and Director Meetings
For the fiscal year ended December 31, 2002, there were 16 meetings of
the Board of Directors. From time to time, the members of the Board of Directors
also acted by unanimous written consent pursuant to the laws of the State of
Delaware.
The members of the Board of Directors have been active throughout the
year in corporate governance initiatives and in considering and refining the
responsibilities of the Board and its various committees. At each Board of
Directors meeting, the Board of Directors meets in executive session without the
presence of the Chief Executive Officer or any other officer or employee of the
Company.
The Board of Directors has an Executive Committee, an Audit Committee,
a Corporate Governance Committee, a Compensation/Stock Option Committee, and a
Nominating Committee. The Board of Directors approved new charters for all of
the Company's committees even before the implementation of certain of the rules
and regulations of the Sarbanes-Oxley Act and the corporate governance proposals
of Nasdaq, and all of the committee charters reflect the changing corporate
governance requirements. The charters of the Audit Committee, the
Compensation/Stock Option Committee, the Corporate Governance Committee, the
Nominating Committee and the Executive Committee are attached to this proxy
statement as Appendices A, B, C, D and E, respectively. All committee charters
and the Company's Statement on Corporate Governance are also available for
review on the Company web site, www.lonestarsteakhouse.com. Each of the Board of
Directors, the Executive Committee, the Audit Committee, the Corporate
Governance Committee, the Compensation/Stock Option Committee, and the
Nominating Committee may seek legal or other expert advice from a source
independent of management. The Board of Directors views the selection of a Chief
Executive Officer as one of its most important responsibilities and has approved
a policy for Chief Executive Officer succession.
The Executive Committee is composed of two (2) independent directors
and one (1) director who is an employee of the Company. The Executive Committee
has the authority and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Company, but the
Executive Committee does not have such power or authority in reference to the
following matters: (i) approving or adopting or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval; or (ii) adopting,
amending or repealing any By-law of the Company.
The Audit Committee is composed of three (3) of the Company's
independent directors. The Audit Committee is charged with reviewing the
Company's annual audit and meeting with the Company's independent auditors to
review the Company's internal controls and financial management practices and
other responsibilities as discussed in the Audit Committee Charter.
6
The Corporate Governance Committee, which is composed of three (3) of
the Company's independent directors, develops and recommends to the Board
principles of corporate governance, and ensures that there is compliance with
such corporate governance principles. The Corporate Governance Committee
encouraged all of the Directors of the Company to attend various seminars to
insure that its members are regularly updated on the most recent developments in
corporate governance.
The Compensation/Stock Option Committee which is composed of five (5)
of the Company's independent directors, recommends to the Board of Directors
compensation for the Company's key employees and administers the Company's 1992
Incentive and Non-Qualified Stock Option Plan, as amended (the "Plan"). As
described in "Executive Compensation -- Report by the Compensation/Stock Option
Committee on Executive Compensation -- Stock Option Plan," the Plan has expired.
The Nominating Committee is composed of three (3) of the Company's
independent directors and is charged with (i) recommending candidates to stand
for election to the Board of Directors, and (ii) reviewing and making
recommendations to the Board of Directors with respect to the composition of the
Board of Directors.
The members of the Executive Committee are Messrs. Greene, Mandigo and
White. The members of the Audit Committee are Messrs. Bergamo, Greene and
Mandigo. The members of the Corporate Governance Committee are Messrs. Bergamo,
Ledeen and Saltzgaber. The members of the Compensation/Stock Option Committee
are Messrs. Chaney, Greene, Lasorda, Mandigo and Saltzgaber. The members of the
Nominating Committee are Messrs. Chaney, Lasorda and Ledeen.
During fiscal 2002, there were eight meetings or actions by unanimous
written consent of the Executive Committee, nine meetings or actions by
unanimous written consent of the Audit Committee, one meeting or actions by
unanimous written consent of the Corporate Governance Committee, four meetings
or actions by unanimous written consent of the Compensation/Stock Option
Committee and two meetings or actions by unanimous written consent of the
Nominating Committee.
Statement on Corporate Governance
The Company is committed to maintaining high corporate governance
standards, including director independence, continuing education, and,
evaluation of CEO performance.
Additional Corporate Governance Practices
Sarbanes-Oxley Act. The Company has taken a number of measures to
ensure compliance with the Sarbanes-Oxley Act. The Company has coordinated a
number of training sessions with the Audit Committee, the Corporate Governance
Committee, the Board of Directors, regional and district managers, and members
of its finance and legal staffs. The Company has enhanced its disclosure
controls and procedures so that its periodic disclosures to the Securities and
Exchange Commission are reviewed by many more persons than in the past. In
addition, the Company has instituted a sub-certification procedure, subject to
oversight by the Audit Committee, that requires the appropriate responsible
employees to review and certify as to its internal controls and the accuracy of
periodic reports to be filed with the Securities and Exchange Commission, and to
provide additional comfort to the Company's CEO and CFO who must each provide
their own certifications pursuant to certain provisions of the Sarbanes-Oxley
Act and related Securities and Exchange Commission rules. The Audit Committee
has instituted policies and procedures to pre-approve audit and non-audit
services performed by Ernst & Young LLP, the Company's independent auditors.
Other Corporate Governance Accomplishments. Below is a list of certain
other corporate governance measures instituted by the Company, many of which
were instituted by the Company prior to the passage of the Sarbanes-Oxley Act.
o Substantial changes in the composition of the Board of
Directors by the addition of four independent directors;
o The termination of the Company's poison pill;
o The separation of the offices of Chairman of the Board and
Chief Executive Officer;
7
o The rotation of the Chairman of the Board every two years;
o The retention of UBS Warburg, an independent financial advisor
to advise the Board of Directors as to the strategic
alternatives available to the Company to enhance stockholder
value;
o A determination by the Company not to renew change of control
agreements held by executive officers which all expired in
January 2003;
o A requirement that any future stock option repricings for
options held by the Company's officers' and members of the
Board of Directors and any grants of replacement options to
the Company's officers' and members of the Board of Directors
be approved by the Company's stockholders; and
o The hiring by the Company of the Hay Group to consult on the
Company's compensation policies.
Other Executive Officers
In addition to Mr. White, the other Executive Officers of the Company
are as follows:
Jamie B. Coulter, 62, has served as Chief Executive Officer of the
Company since January 1992, served as President of the Company from January,
1992 to June, 1995 and served as Chairman from January 1992 to July 2001. In
1993, Mr. Coulter was inducted into the Pizza Hut Hall of Fame and was named
INC. Magazine's Midwest Region Master Entrepreneur of the year. Mr. Coulter
received the Nation's Restaurant News Golden Chain Award in 1995 and was
Restaurants & Institutions CEO of the year in 1996. In 1997, Mr. Coulter
received the Nation's Restaurant News Hot Concept Award. Mr. Coulter currently
serves as a director of the Federal Law Enforcement Foundation and Empower
America. Mr. Coulter has previously served as Chairman of the Board of Directors
of the Young Presidents' Organization. Mr. Coulter received a BS degree in
Business from Wichita State University in 1963 and is a graduate of the Stanford
University Executive Program.
Tomlinson D. O'Connell, 34, joined the Company in 1995, and has been
President of Lone Star Restaurants since September 2002. From December 1999 to
September 2002, Mr. O'Connell was Senior Vice President of Operations of Lone
Star Steakhouse & Saloon, Inc. Mr. O'Connell is currently responsible for the
operation of all domestic and international Lone Star Steakhouse & Saloon
restaurants. Mr. O'Connell was with the Ritz-Carlton Hotel Company from 1992 to
1995. During his tenure there the company was awarded the Malcolm Baldrige
Award. Additionally, Mr. O'Connell was selected to be a member of the opening
team for the Ritz-Carlton Hotel in Seoul, Korea. Mr. O'Connell graduated from
the University of Nevada at Las Vegas in 1992 with a Bachelor of Science degree
in Hotel Administration.
Gerald T. Aaron, 62, has been Senior Vice President -- Counsel and
Secretary of the Company since January 1994. From November 1991 to January 1994,
Mr. Aaron was employed as General Counsel for Coulter Enterprises, Inc. From
March 1989 to November 1991, Mr. Aaron operated a franchise consultant practice.
From 1969 to 1984 Mr. Aaron was Vice President -- Counsel for Pizza Hut, Inc.
and from 1984 to 1989, Mr. Aaron was President of International Pizza Hut
Franchise Holders Association.
Jeff Bracken, 37, has been Chief Operating Officer of Lone Star
Restaurants since September 2002. Mr. Bracken has worked for the Company since
1996, previously as Vice President of Operations of Lone Star Steakhouse &
Saloon from May 1999 to September 2002 and prior thereto as a Regional Manager.
From March, 1990 to 1996, Mr. Bracken worked for Coulter Enterprises, Inc. in
various management positions for its Pizza Hut restaurants, including General
Manager, Area Supervisor, District Manager and Senior District Manager.
Deidra Lincoln, 43, has been Vice President of Del Frisco's since
January, 2000. Ms. Lincoln is the co-founder of Del Frisco's Double Eagle Steak
House ("Del Frisco's"), which was acquired by the Company in 1995. Since 1995,
Ms. Lincoln has served in various managerial capacities and is responsible for
all of the Company's Del Frisco's operations.
Randall H. Pierce, 63, has been Chief Financial Officer of the Company
since February, 2000. Mr. Pierce is a CPA and was a partner of Ernst & Young LLP
from 1974 to 1997. Mr. Pierce served in the Wichita, Kansas office as an Audit
Engagement Partner from 1974 to 1997 and Office Managing Partner from 1996 to
1997. Mr. Pierce served as Office Director of Accounting and Auditing from 1974
through 1997. From 1997 through January, 2000, Mr. Pierce served as a financial
and business consultant focusing on advising and negotiating merger and
acquisition transactions, sale and disposition transactions and general business
strategies.
8
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the four most highly compensated executive officers of the Company
(collectively with the CEO the "Named Executive Officers") other than the CEO
whose salary and bonus exceeded $100,000 with respect to the fiscal year ended
December 31, 2002.
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ------------------------------------
Number of
Securities
Other Annual Compensation Underlying Options All Other
Name and Principal Position Year Salary Bonus($) (1) (# of Shares) Compensation(2)
--------------------------- ---- ------ -------- ------------------------- ------------------ ---------------
Jamie B. Coulter ................. 2002 $750,000 $1,051,500 $109,848(5) -- $180,150
Chief Executive Officer 2001 $750,000 $ 226,500(3) $ 97,473(6) -- $ 97,650
2000 $750,000 $ 226,642(4) $ 87,787(7) -- $ 72,265
-- --
John D. White .................... 2002 $600,000 $ 270,353 -- -- $ 87,035
Executive Vice President and 2001 $600,000 $ 181,500(3) -- -- $ 78,150
Treasurer 2000 $600,000 $ 181,500(4) -- -- $ 57,842
Tomlinson D. O'Connell ........... 2002 $200,000 $ 301,500 $ 57,785(8) -- $ 50,150
President of Lone Star Restaurants 2001 $200,000 $ 301,500(3) -- -- $ 50,150
2000 $200,000 $ 53,753(4) -- $ 23,106
Gerald T. Aaron .................. 2002 $250,000 $ 80,189 -- -- $ 25,000
Senior Vice President 2001 $250,000 $ 76,500(3) -- -- $ 25,000
Counsel & Secretary 2000 $250,000 $ 76,500(4) -- -- $ 24,039
Deidra Lincoln ................... 2002 $260,000 $ 70,918 -- -- $ 33,092
Vice President of Del Frisco's 2001 $260,000 -- -- -- $ 26,000
2000 $260,000 $ 142,004(4) -- -- $ 26,000
---------------
(1) As to Named Executive Officers, except as set forth herein perquisites and
other personal benefits, securities or property received by each Named
Executive Officer did not exceed the lesser of $50,000 or 10% of such
Named Executive Officer's annual salary and bonus.
(2) Represents fifty percent matching contributions by the Company pursuant to
the Company's Deferred Compensation Plan which became effective October 7,
1999.
(3) Such bonus was paid in 2002 for services performed in 2001.
(4) Such bonus was paid in 2001 for services performed in 2000.
(5) During the fiscal year ended December 31, 2002, Mr. Coulter received
benefits primarily relating to tax and accounting services provided by
Company personnel ($82,850) and the balance was primarily for reimbursement
for certain medical insurance premiums and expenses.
(6) During the fiscal year ended December 25, 2001, Mr. Coulter received
benefits primarily relating to tax and accounting services provided by
Company personnel ($67,700) and the balance was primarily for reimbursement
for certain medical insurance premiums and expenses.
(7) During the fiscal year ended December 26, 2000, Mr. Coulter received
benefits primarily relating to tax and accounting services provided by
Company personnel ($78,287) and the balance was primarily for reimbursement
for certain medical insurance premiums and expenses.
(8) During the fiscal year ended December 31, 2002, Mr. O'Connell received
benefits primarily relating to the personal use of the Company's airplane
($54,396) and the balance was primarily for certain medical premiums.
Option Grants in Last Fiscal Year
No options were granted to the CEO or any Named Executive Officer for
services rendered during the fiscal year ended December 31, 2002.
Option Exercise Table
The following table provides information with respect to the exercise
of stock options by Named Executive Officers during the fiscal year ended
December 31, 2002. The following table also sets forth certain information
9
concerning unexercised options held as of December 31, 2002 by the CEO and the
other Named Executive Officers. At December 31, 2002, the closing price of the
Company's Common Stock, as reported by the Nasdaq National Market, was $19.34.
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Acquired Underlying Unexercised In-the-Money Options at
on Exercise Value Realized(1) Options at December 31,2002 December 31, 2002($)
--------------- ----------------- ---------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Jamie B. Coulter ............. -- -- 2,600,000 -0- $28,265,250 -0-
John D. White ................ 150,000 $2,009,273 850,000 -0- $ 9,240,563 -0-
Tomlinson D. O'Connell ....... 100,000 $1,351,483 46,957 41,492 $ 491,405 $437,122
Gerald T. Aaron .............. 100,000 $1,259,582 475,000 -0- $ 5,163,844 -0-
Deidra Lincoln ............... 150,000 $1,946,988 68,527 39,223 $ 738,203 $423,018
---------------
(1) Based on the difference between the exercise price of the options and the
fair market value of a share of Common Stock at exercise, as reported on
the Nasdaq National Market.
Equity Compensation Plan Information
The Company previously maintained the Company's 1992 Directors Stock
Option Plan (the "Directors Plan") and the Plan. Both the Directors Plan and the
Plan have terminated. The following table gives information about stock option
awards under these plans as of December 31, 2002. These plans are discussed
further in Note 6 to the Company's Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
Number of Securities
Remaining Available for
Number of Securities to be Future Issuance under Equity
Issued Upon Exercise of Weighted-Average Exercise Compensation Plans
Outstanding Options, Price of Outstanding Options, (Excluding Securities
Warrants and Rights Warrants and Rights Reflected in Column (a))
Plan Category (a) (b) (c)
------------- -------------------------- ----------------------------- ----------------------------
Equity compensation plans approved by
security holders................... 5,083,114 $8.98 0
Equity compensation plans not
approved by security holders....... 0 -- 0
--------- ----- -
Total............................... 5,083,114 $8.98 0
========= ===== =
Directors Compensation
Directors who are not employees of the Company have received an annual
fee of $5,000 and a fee of $1,250 for each Board of Directors meeting attended
and are reimbursed for their expenses. Employees who are directors are not
entitled to any fees for their service as a director. Effective January 1, 2003,
the Company revised directors' fees as follows: directors who are not employees
will receive an annual fee of $20,000; each Chairman of a Committee will receive
an additional annual fee of $5,000; each member of the Audit Committee will
receive an additional annual fee of $5,000; each director who is not an employee
will also receive $1,000 for each telephonic meeting, $2,000 for each Committee
Meeting attended (if no Board of Directors Meeting is being held on the same
day) and $2,500 for attending Board and Committee Meetings held on the same day.
In addition, the Chairman of the Board will not be an employee of the Company
and will serve a two year term and receive a total director's fee of $200,000.
The Company revised the directors' fees as a result of the additional time and
effort required from the directors to ensure that they are fulfilling their
increased obligations under the Sarbanes-Oxley Act. The Company previously
granted options to non-employee directors under the Directors Plan. The
Directors Plan has expired and the Company has not made a determination as to
whether to submit a new plan, subject to requisite approval. It is the intent of
the Company to maintain the practice of an initial stock option grant of 40,000
shares and an annual stock option grant of 6,800 shares to all Directors,
subject to a new plan being approved by the stockholders of the Company.
Currently, options to purchase an aggregate of 364,400 shares of Common Stock
are outstanding under the Directors Plan at exercise prices ranging from $6.688
per share to $18.81 per share.
10
In fiscal 2002, Mr. Saltzgaber received a director's fee of $250,000 in
consideration of providing certain services in connection with a proposed
transaction (the "Proposed Transaction") between the Company and Bruckman,
Rosser, Sherrill & Co., Inc. including, but not limited to, assisting the
Company in its analysis of the Proposed Transaction and acting as the lead
negotiator for the Company in its consideration of the Proposed Transaction.
Employment Agreements
The Company has entered into separate employment agreements, with each
of Messrs. White, Aaron, and O'Connell, dated as of April 29, 2003, providing
for the employment of such individuals as Executive Vice President, Senior Vice
President -- Counsel and Secretary and President of Lone Star Restaurants,
respectively. Each employment agreement provides that the officer shall devote
substantially all of his professional time to the business of the Company. The
Employment Agreements provide base salaries in the amounts of $600,000, $250,000
and $350,000, respectively, for Messrs. White, Aaron and O'Connell, subject to
increases as determined by the Board of Directors. Each agreement terminates in
April 2006. Additionally, each agreement contains non-competition and
non-solicitation provisions which apply for twenty-four months after cessation
of employment and confidentiality provisions which apply for ten years after
cessation of employment.
Report by the Compensation/Stock Option Committee on Executive Compensation
General
The Compensation/Stock Option Committee determines the cash and other
incentive compensation, if any, to be paid to the Company's executive officers
and key employees. Messrs. Chaney, Greene, Lasorda, Mandigo and Saltzgaber,
non-employee directors of the Company, serve as members of the Compensation /
Stock Option Committee and are independent directors in accordance with the
definition of "independent director" pursuant to the Company's Amended and
Restated By-laws. Mr. Saltzgaber serves as Chairman of the Compensation/Stock
Option Committee. During fiscal 2002, there were four (4) meetings of the
Compensation/Stock Option Committee.
Compensation Philosophy
The Compensation/Stock Option Committee's executive compensation
philosophy is to base management's pay, in part, on the achievement of the
Company's performance goals, to provide competitive levels of compensation, to
recognize and reward individual initiative, achievement and length of service to
the Company, to assist the Company in retaining and attracting the best
qualified management, and to enhance long term stockholder value. To meet the
competitive pressures of retaining and attracting the best qualified management
personnel, the Company is offering compensation and benefits that attempt to
place it among the top quartile of its industry.
In November 2002, the Company engaged Hay Group, Inc. ("Hay Group") to
review its compensation programs and to make any recommendations it deemed
appropriate to ensure that such programs were competitive with leading industry
competitors and consistent with the compensation philosophy of the Company. Hay
Group is one of the five largest management consulting firms in the world
primarily focused on human resources. They possess in excess of 50 years of
experience and have worked with approximately half of the "Fortune 1000"
companies in the United States. Furthermore, Hay Group has extensive knowledge
of the restaurant industry and partners with the Chain Restaurant Compensation
Association ("CRCA") to conduct an annual compensation survey. In its evaluation
of the Company's executive compensation programs, Hay Group analyzed and
measured the Company's executive positions using their own proprietary job
evaluation methodology. They then compared the base salaries, total cash
compensation and total direct compensation (including long-term incentives such
as stock options) for these positions to similar positions of a 12-company peer
group and the CRCA. Hay Group's study concluded that, especially in light of the
expiration of the Company's Stock Option Plan, total direct compensation for
most of the Company's executive officers fell below the median for both the peer
group and the CRCA.
The Compensation/Stock Option Committee strongly believes that the
caliber of the management personnel makes a significant difference in the
Company's long term success and it is the philosophy of the Compensation/
11
Stock Option Committee to provide officers with the opportunity to realize
potentially significant financial gains through the grants of stock options.
The Compensation/Stock Option Committee also believes that the potential for
equity ownership by management is beneficial in aligning management and
stockholders' interest in the enhancement of stockholder value. However,
despite the philosophy of the Compensation/Stock Option Committee that stock
options are an important part of compensation, the Compensation/Stock Option
Committee was unable to grant stock options in fiscal 2002 due to the
expiration of the Company's Stock Option Plan.
Section 162(m) of the Internal Revenue Code prohibits a publicly held
corporation, such as the Company, from claiming a deduction on its federal
income tax return for compensation in excess of $1 million paid for a given
fiscal year to the chief executive officer (or person acting in that capacity)
at the close of the corporation's fiscal year and the four most highly
compensated officers of the corporation, other than the chief executive officer,
at the end of the corporation's fiscal year. The $1 million compensation
deduction limitation does not apply to "performance-based compensation," or any
contributions by the Company pursuant to the Company's Deferred Compensation
Plan (the "Deferred Plan"). The Company believes that, with certain exceptions,
any compensation received by executive officers in connection with the exercise
of options granted under the Stock Option Plan qualifies as "performance-based
compensation." In September 2002, the Company adopted the Lone Star Steakhouse &
Saloon, Inc. Stock Option Deferred Compensation Plan (the "Stock Deferred
Plan"). In connection with the implementation of the Stock Deferred Plan, Mr.
Coulter agreed to the Company's request to defer receipt of income he was
entitled to receive upon the exercise of options to purchase 300,000 shares of
Common Stock until 30 days after the termination of his employment with the
Company. As a result, the Company believes that the payment of such income to
Mr. Coulter, after his employment with the Company terminates, will not be
subject to the tax deductibility limitation of Section 162(m). To the extent
that Mr. Coulter agrees to a similar deferral upon the exercise of options in
the future, the compensation paid to Mr. Coulter will not be subject to the
limitations imposed by Section 162(m). The policy of the Compensation/Stock
Option Committee is to the extent reasonable to qualify the Company's executive
officers' compensation for deductibility under Section 162(m) and other
applicable tax laws. However, the Compensation/Stock Option Committee believes
that providing an appropriate level of cash compensation and maintaining
flexibility in determining compensation are also important issues which must be
balanced with preserving a tax deduction for amounts in excess of $1,000,000.
For 2002, a portion of the bonus paid to Mr. Coulter was not deductible under
Section 162(m).
Salaries
Base salaries for the Company's executive officers are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual, food service and management experience, and by
reference to the competitive marketplace for management talent, including a
comparison of base salaries for comparable positions at other companies (base
salaries are targeted to be competitive with the top quartile of the industry).
The Company believes that it is necessary to position executive officers' base
salaries at these levels in order to attract, retain and motivate its executive
officers. In addition, the Compensation/Stock Option Committee considers the
recommendations of the Company's Chief Executive Officer and its Executive Vice
President. The Company defines the relevant labor market through the use of
third-party executive salary surveys that reflect both the restaurant industry
as well as a broader cross-section of companies from many industries. Annual
salary adjustments are determined by (i) considering various factors, tangible
and intangible achieved by the Company; (ii) the overall performance of the
executive; (iii) the length of the executive's service to the Company; and (iv)
any increased responsibilities assumed by the executive. There are no
restrictions on salary adjustments of the Company. The Company has employment
agreements with its executive officers other than Mr. Coulter, which set the
base salaries for such individuals.
Annual Bonuses
The Compensation/Stock Option Committee evaluates the performance of
the Company's executives on an annual basis. Messrs. White, O'Connell, Aaron and
Ms. Lincoln received bonuses of $270,353, $301,500, $80,189 and $70,918,
respectively, for fiscal 2002. These bonuses were based, first, upon the
Company's performance, including, but not limited to, (a) the Company's actual
stock price performance and stock price performance relative to its peers, (b)
an increase in net income of 71% to $39,209,000 or $1.49 per share on a
12
diluted basis for the fiscal year ended December 31, 2002 compared to
$22,902,000 or $.90 per share for the previous year and (c) the Company's actual
performance as compared to the Company's projected performance goals for fiscal
2002 and, by the level of personal achievement by individual participants.
Compensation of Chief Executive Officer
Mr. Coulter's base salary in fiscal 2002 was $750,000. Mr. Coulter's
base salary is, among other things, based upon the factors described in the
"Salaries" paragraph above. Mr. Coulter's salary was not increased in fiscal
2002 or 2001. Mr. Coulter was awarded a bonus of $1,051,500 for services
performed in fiscal 2002. Mr. Coulter's bonus is based upon the factors
described in the "Annual Bonuses" paragraph above and his role as Chief
Executive Officer in enabling the Company to achieve its performance in fiscal
2002.
Stock Option Plan
It has historically been the philosophy of the Compensation/Stock
Option Committee to tie a significant portion of an executive's total
opportunity for financial gain to increases in stockholder value, thereby
aligning the long- term interest of the stockholders with the executives and to
retain such key employee. All salaried employees, including executives and
part-time employees, of the Company and its subsidiaries, were eligible for
grants of stock options pursuant to the Plan. The Company was unable to grant
any stock options to any of the Named Executive Officers for the fiscal year
ended December 31, 2002 since the Plan has expired and, at this time, the
Company has no other Stock Option Plans in effect for employees including
executive officers. In the future the Company may submit a proposed new stock
option plan for employees to the Company's stockholders for their approval.
Deferred Compensation Plan
The Deferred Plan is a non-qualified deferred compensation plan.
Deferred Plan participants elect the percentage of pay they wish to defer into
their Deferred Plan account. They also elect the percentage of their deferral
account to be allocated among various investment options. The Deferred Plan
permits highly compensated employees or any employee at the level of District
Manager or higher to defer a portion of their annual compensation into unfunded
accounts with the Company. Participants in the Deferred Plan are considered a
select group of management and highly compensated employees according to the
Department of Labor. A participant's account balance will be paid in cash upon
death, termination of employment or retirement and, subject to certain penalty
provisions, while the participant is employed by the Company. In addition, at
the request of the participant, if the committee administering the Deferred
Plan, in its sole discretion, determines that a participant has suffered an
unforeseen financial emergency, such committee may first modify the
participant's deferral election and then may distribute to the participant that
portion of the participant's account balance necessary to alleviate the
participant's hardship. The Company's contribution vests annually in four equal
installments commencing in the second year of employment with the Company. All
executive officers who participate in the Deferred Plan have been employed by
the Company for more than four (4) years.
Compensation/Stock Option Committee
This report by the Compensation/Stock Option Committee on Executive
Compensation is submitted by the members of the Compensation/Stock Option
Committee: Fred B. Chaney, William B. Greene, Jr., Thomas C. Lasorda, Clark R.
Mandigo and Mark G. Saltzgaber.
Compensation Committee Interlocks
The Compensation/Stock Option Committee consists of Messrs. Chaney,
Greene, Lasorda, Mandigo and Saltzgaber. See "Certain Relationships and Related
Transactions" for a description of a transaction between Mr. Mandigo's son and
the Company. No member of the Compensation/Stock Option Committee was an officer
or employee of the Company or any subsidiary of the Company during fiscal 2002.
13
COMPARISON OF TOTAL RETURN FROM DECEMBER 31, 1997
TO DECEMBER 31, 2002 AMONG LONE STAR STEAKHOUSE & SALOON, INC.,
THE STANDARD & POOR'S MID-CAP 400 AND SMALL-CAP 600 INDEX AND THE STANDARD &
POOR'S RESTAURANT INDUSTRY INDEX (THE "PEER GROUP").
[GRAPHIC]
Company/Index Base Period 29-Dec-98 28-Dec-99 26-Dec-00 25-Dec-01 31-Dec-02
------------- ----------- --------- --------- --------- --------- ---------
Lone Star Steakhouse & Saloon, Inc. 100 45.00 51.07 48.42 89.75 124.53
S&P Mid-cap 400 Index 100 129.89 153.75 176.02 177.28 152.97
S&P Small-cap 600 Index 100 96.15 109.16 119.61 132.32 113.65
Restaurants-500 100 158.58 161.56 140.40 129.08 99.35
Assumes $100 invested on December 31, 1997 in the Company's Common
Stock, the Standard & Poor's Mid-Cap 400 and Small-Cap 600 Index and the Peer
Group.
The Company is using a different index (Standard & Poor's Small-cap 600
Index) from the index used (Standard & Poor's Mid-cap 400 Index) in the
Company's proxy statement for its 2002 annual meeting of stockholders. The
reason for the change is that the Company is included in the Standard & Poor's
Small-Cap 600 Index due to a change in the Company's capitalization. As required
by item 401(l) of Regulation S-K, the Company is including both the new index
and the index used in the immediately preceding fiscal year.
The calculations in the table were made on a dividends reinvested
basis.
There can be no assurance that the Company's Common Stock performance
will continue with the same or similar trends depicted in the above graph.
14
PROPOSAL II
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 30, 2003. Although the
selection of independent auditors does not require ratification, the Board of
Directors has directed that the appointment of Ernst & Young LLP be submitted to
stockholders for ratification due to the significance of their appointment to
the Company. If stockholders do not ratify the appointment of Ernst & Young LLP
as the Company's independent auditors, the Board of Directors will consider the
appointment of other certified public accountants. A representative of Ernst &
Young LLP will be present at the Meeting and will be available to respond to
appropriate questions. The approval of the proposal to ratify the appointment of
Ernst & Young LLP requires the affirmative vote of a majority of the votes cast
by all stockholders represented and entitled to vote thereon.
Aggregate fees for professional services rendered to the Company by
Ernst & Young LLP for the years ended December 31, 2002 and December 25, 2001,
were:
2002 2001
-------- --------
Audit ............................................ $284,430 $133,400
Audit Related .................................... 22,800 --
Tax .............................................. 352,375 362,206
All Other ........................................ -- --
-------- --------
Total ........................................... $659,605 $495,606
======== ========
Audit fees for 2002 and 2001 were for professional services rendered
for the audits of the consolidated financial statements of the Company,
statutory and subsidiary audits, timely reviews of quarterly financial
statements, consents and assistance with review of documents filed with the
Securities Exchange Commission.
Audit Related fees for 2002 were primarily for due diligence related to
mergers and acquisitions and consultations relating to stock repurchase issues.
Tax fees for 2002 and 2001 were for services related to (i) tax
compliance ($208,922 for the fiscal year ended December 31, 2002 and $206,471
for the fiscal year ended December 25, 2001), including the preparation of tax
returns and (ii) tax planning and tax advice related to the Company's Australian
operations.
The Audit Committee reviews audit and non-audit services performed by
Ernst & Young LLP as well as the fees charged by Ernst & Young LLP for such
services. In its review of non-audit service fees, the Audit Committee
considers, among other things, the possible effect of the performance of such
services on the auditor's independence. Additional information concerning the
Audit Committee and its activities with Ernst & Young LLP can be found in the
following sections of this proxy statement: "Board Committees and Director
Meetings," and "Audit Committee Report."
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 30, 2003.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The adult son of Clark R. Mandigo was employed by the Company as a
General Manager until December 2002 and the adult son of Gerald T. Aaron is
employed by the Company as a District Manager. The Company has a total of 270
General Managers and 33 District Managers. Total compensation in 2002 payable to
the adult sons of Messrs. Mandigo and Aaron was $107,987 and $110,709,
respectively.
15
AUDIT COMMITTEE REPORT
The members of the Audit Committee at December 31, 2002 were Messrs.
Bergamo, Greene and Mandigo, all of whom are "independent directors" (as
"independent director" is defined pursuant to the Nasdaq Marketplace Rule
4200(a)(14)(D) and the Sarbanes-Oxley Act). The Audit Committee met nine times
during the fiscal year. The composition of the Audit Committee, the attributes
of its members and the responsibilities of the Audit Committee are intended to
be in accordance with applicable requirements for corporate audit committees.
The Audit Committee revised its written charter during fiscal 2002 to
conform with the newly proposed Nasdaq requirements and the Sarbanes-Oxley Act.
The Company's independent auditors are responsible for auditing the financial
statements. The activities of the Committee are in no way designed to supersede
or alter those traditional responsibilities. The Audit Committee serves a
broad-level oversight role, in which it provides advice, counsel and direction
to management and the auditors on the basis of the information it receives,
discussions with management and the auditors and the experience of the Audit
Committee's members in business, financial and accounting matters. The
Committee's role does not provide any special assurances with regard to the
Company's financial statements, nor does it involve a professional evaluation of
the quality of the audits performed by the independent auditors.
In connection with the audit of Company's financial statements for the
year ended December 31, 2002, the Audit Committee met with representatives from
Ernst & Young LLP, the Company's independent auditors. The Audit Committee
reviewed and discussed with Ernst & Young LLP, the Company's financial
management and financial structure, as well as the matters relating to the audit
required to be discussed by Statements on Auditing Standards 61 and 90.
On July 12, 2002, the Audit Committee received from Ernst & Young LLP
the written disclosures and the letter regarding Ernst & Young LLP's
independence required by Independence Standards Board of Standard No. 1.
In addition, the Audit Committee reviewed and discussed with the
Company's management the Company's audited financial statements relating to
fiscal year ended December 31, 2002 and has discussed with Ernst & Young LLP the
independence of Ernst & Young LLP.
Based upon review and discussions described above, the Audit Committee
recommended to the Board of Directors that the Company's financial statements
audited by Ernst & Young LLP be included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2002.
William B. Greene, Jr., Chairman
Anthony Bergamo
Clark R. Mandigo
16
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next Annual Meeting of Stockholders of the
Company, stockholder proposals for such meeting must be submitted to the Company
no later than February 17, 2004.
On May 21, 1998 the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934, as amended. The amendment to Rule 14a-4(c)(1) governs the Company's use of
its discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Company's proxy statement. The amendment provides
that if the Company does not receive notice of the proposal at least 45 days
prior to the first anniversary of the date of mailing of the prior year's proxy
statement, then the Company will be permitted to use its discretionary voting
authority when the proposal is raised at the annual meeting, without any
discussion of the matter in the proxy statement.
With respect to the Company's year 2004 Annual Meeting of Stockholders,
if the Company is not provided notice of a stockholder proposal, which has not
been timely submitted, for inclusion in the Company's proxy statement by May 2,
2004 the Company will be permitted to use it discretionary voting authority as
outlined above.
The By-laws of the Company establish procedures for stockholder
nominations for elections of directors of the Company and bringing business
before any annual meeting or special meeting of stockholders of the Company. Any
stockholder entitled to vote generally in the election of directors may nominate
one or more persons for election as directors at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Company, not less than 90 days nor more than
120 days prior to the meeting; provided, however, that in the event that if and
only if the annual meeting is not scheduled to be held within a period that
commences thirty days after such anniversary date (the "Other Meeting Date"),
such Stockholder Notice shall be given in the manner provided by the later of
(i) the close of business on the date ninety days prior to such Other Meeting
Date or (ii) the close of business on the tenth day following the date on which
such Other Meeting Date is first publicly announced or disclosed. Any notice to
the Secretary must include: (i) the name and address of record of the
stockholder who intends to make the nomination; (ii) a representation that the
stockholder is a holder of record of shares of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission; and (iv) the consent of each nominee
to serve as a director of the Company if so elected. The Company may require any
proposed nominee to furnish such other information as may reasonably by required
by the Company to determine the eligibility of such proposed nominee to serve as
a director of the Company. The presiding officer of the meeting may, if the
facts warrant, determine that a nomination was not made in accordance with the
foregoing procedure, in which event, the officer will announce that
determination to the meeting and the defective nomination will be disregarded.
To be brought before an annual meeting by a stockholder, business must
be appropriate for consideration at an annual meeting and must be properly
brought before the meeting. Business will have been properly brought before the
annual meeting by a stockholder if the stockholder has given timely notice
thereof in writing to the Secretary of the Company and has complied with any
other applicable requirements. To be timely, each such notice must be given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Company, not less than 90 days nor more than 120 days prior to
the meeting; provided, however, that in the event that if and only if the annual
meeting is on the "Other Meeting Date", such Stockholder Notice shall be given
in the manner provided by the later of (i) the close of business on the date
ninety days prior to such Other Meeting Date or (ii) the close of business on
the tenth day following the date on which such Other Meeting Date is first
publicly announced or disclosed. Any notice to the Secretary must include as to
each matter the stockholder proposes to bring before the annual meeting (w) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (x)
the name and address of record of the stockholder proposing such business, (y)
the name, class or series and number of shares of the Company that are owned by
the stockholder, and (z) any material interest of the stockholder in such
business.
17
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. The
transfer agent and registrar for the Company's Common Stock, Wachovia Bank,
N.A., as a part of its regular services and for no additional compensation other
than reimbursement for out-of-pocket expenses, has been engaged to assist in the
proxy solicitation. The Company has retained Innisfree M&A Incorporated for a
fee not to exceed $6,500, plus reimbursement of reasonable out-of-pocket
expenses to assist in the solicitation of proxies and revocations. Proxies may
be solicited through the mail and through telephonic or telegraphic
communications to, or by meetings with, stockholders or their representatives by
directors, officers, and other employees of the Company who will receive no
additional compensation therefor.
The Company requests persons such as brokers, nominees, and fiduciaries
holding stock in their names for others, or holding stock for others who have
the right to give voting instructions, to forward proxy material to their
principals and to request authority for the execution of the proxy, and the
Company will reimburse such persons for their reasonable expenses.
ANNUAL REPORT
All stockholders of record as of May 29, 2003 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for the
fiscal year ended December 31, 2002. Such report contains certified consolidated
financial statements of the Company and its subsidiaries for the fiscal year
ended December 31, 2002.
By Order of the Company,
/s/ Gerald T. Aaron
--------------------------
GERALD T. AARON
Secretary
Dated: Wichita, Kansas
June 16, 2003
The Company will furnish, without charge, a copy of its Annual Report
on Form 10-K for the fiscal year ended December 31, 2002 (without exhibits) as
filed with the Securities and Exchange Commission to stockholders of record on
the Record Date who make written request therefor to Gerald T. Aaron, Secretary,
Lone Star Steakhouse & Saloon, Inc., 224 E. Douglas, Suite 700, Wichita, Kansas
67202-3414.
18
Appendix A
LONE STAR STEAKHOUSE & SALOON, INC.
AUDIT COMMITTEE CHARTER
---------------------
Organization
This charter governs the operations of the Audit Committee (the
"Committee"). The Committee shall review and reassess this charter at least
annually and obtain the approval of the Board of Directors (the "Board"). The
Committee shall be appointed by the Board and shall be comprised of at least
three directors, each of whom shall be independent as defined by applicable
NASDAQ rules and regulations. In general, members of the Committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company. All Committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the Committee, and at
least one member shall have accounting or related financial management
expertise.
Statement of Policy
The Committee shall provide assistance to the Board in fulfilling their
oversight responsibility to the stockholders, potential stockholders, the
investment community, and others relating to the Company's financial statements
and the financial reporting process, the systems of internal accounting and
financial controls, the annual independent audit of the Company's financial
statements, and the legal compliance and ethics programs as established by
management and the Board. In so doing, it is the responsibility of the Committee
to maintain free and open communication between the Committee, independent
auditors, and management of the Company 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 outside counsel or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The Committee in carrying out its
responsibilities believes its policies 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 responsibilities of the
Committee. The responsibilities are set forth as a guide with the understanding
that the Committee may supplement them as appropriate including any changes
required by them to carry out its duties, including those required by changes in
the policies of the NASDAQ National Market.
The responsibilities of the Committee shall include:
1. Directly overseeing and compensating the independent auditors;
2. Reviewing this charter on an annual basis and updating it as
conditions dictate;
3. Providing oversight and monitoring of Company management, and the
independent auditors and their activities with respect to the
Company's financial reporting process;
4. Reviewing and recommending to the Board on an annual basis, the
selection of the Company's independent auditors, subject to
stockholder approval;
5. Under its ultimate authority, evaluating and, where appropriate,
replacing the independent auditors;
A-1
6. Discussing with the independent auditors the overall scope and
plans for their audit including their approach and independence,
and discussing with the Company's accounting department the
adequacy of staffing;
7. Discussing with management, the Company's accounting department
and the independent auditors the adequacy and effectiveness of the
accounting and financial controls, including the Company's system
to monitor and manage business risk, and legal and ethical
compliance programs;
8. Reviewing the performance of the independent auditors with the
understanding of both management and the independent auditors,
that the independent auditors are ultimately accountable to the
Board and the Committee, as representatives of the Company's
stockholders;
9. Requesting from the independent auditors a formal written
statement delineating all relationships between the auditor and
the Company, consistent with Independent Standards Board Standard
No. 1, and engaging in a dialogue with the auditors with respect
to any disclosed relationships or services that may impact the
objectivity and independence of the auditors;
10. Reviewing the interim financial statements with management and the
independent auditors prior to the filing of the Company's
Quarterly Report on Form 10-Q;
11. Discussing with the Company's independent auditors the matters
required to be discussed by statement on Accounting Standard No.
61, as it may be modified or supplemented;
12. Reviewing with management and the independent auditors, the
financial statements to be included in the Company's Annual Report
on Form 10-K, including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements;
13. Providing a report in the Company's proxy statement in accordance
with the requirements of Item 306 of regulation S-K and Item
7(d)(3) of Schedule 14A;
14. Discussing the results of the quarterly review and any other
matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards;
15. Discussing the results of the annual audit and any other matters
required to be communicated to the Committee by the independent
auditors under generally accepted auditing standards;
16. Reviewing the Committee's own structure, processes and membership
requirements;
17. Establishing procedures to receive and respond, on a confidential
basis, to complaints (from employees and others) regarding the
Company's accounting, internal accounting controls and audit
matters;
18. Have the authority to approve, in advance, all non-audit services
to be provided to the Company by the independent auditors;
19. Have the authority to consult with and retain legal, accounting
and other experts in connection with the performance of its duties
and responsibilities; and
20. Performing such other duties as may be requested by the Board, or
as the Committee shall deem appropriate.
Meetings
The Committee will meet a minimum of four (4) times each fiscal year,
with two face-to-face meetings with the outside auditors or more frequently as
circumstances dictate in order to completely discharge its responsibilities as
outlined in this charter. The Committee may establish its own schedule, which it
will provide to the Board in advance.
The Committee will meet separately with the independent auditors as
well as members of the Company's management as it deems appropriate in order to
review the financial controls of the Company.
A-2
Minutes
The Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board.
Reports
Apart from the report prepared pursuant to Item 306 of Regulation S-K
and Item 7(d)(3) of Schedule 14A, the Committee will summarize its examinations
and recommendations to the Board from time to time as may be appropriate,
consistent with this charter.
A-3
Appendix B
LONE STAR STEAKHOUSE & SALOON, INC.
CHARTER OF THE
COMPENSATION/STOCK OPTION COMMITTEE
A. Purpose
The primary purposes of the Compensation Committee (the "Committee")
are: (i) to assist the Board of Directors (the "Board") in discharging its
responsibilities with respect to compensation of the Company's executive
officers and (ii) to produce an annual report on executive compensation for
inclusion in the Company's proxy statement in accordance with the applicable
rules and regulations.
B. Organization
The Committee shall consist of three or more directors, each of whom
shall satisfy applicable independence requirements of NASDAQ and any other
regulation requirements.
The Committee members shall be elected by the Board at a meeting of the
Board; members shall serve until their successors shall be duly elected and
qualified. The Committee's chairperson shall be designated by the full Board or,
if it does not do so, the Committee members shall elect a Chairman by vote of a
majority of the full Committee.
The Committee may form and delegate authority to subcommittees when
appropriate.
C. Structure and Meetings
The chairperson of the Committee will preside at each meeting of the
Committee and in consultation with the other members of the Committee, shall set
the frequency and length of each meeting and the agenda of items to be addressed
at each meeting. The chairperson will ensure that the agenda for each meeting is
circulated in advance of the meeting.
D. Duties and Responsibilities
The Committee shall have the power and authority of the Board to
perform the following duties and to fulfill the following responsibilities:
1. Review and approve corporate goals relevant to the compensation
of the Chief Executive Officer and evaluate the Chief Executive
Officer's performance in light of these goals and objectives;
2. Develop an annual report, which describes the Chief Executive
for Officer's compensation and other executive officer
compensation inclusion in the Company's proxy statement, in
accordance with applicable rules and regulations;
3. Develop guidelines and review the compensation and performance of
executive officers of the Company;
4. Make recommendations to the Board with respect to incentive-
compensation plans and equity-based plans, and establish criteria
for the granting of options in accordance with criteria;
5. Review major organizational and staffing matters;
6. Review director compensation levels and practices, and recommend,
from time to time, changes in such compensation levels and
practices to the Board with equity ownership in the Company
encouraged;
7. Annually review and reassess the adequacy of this charter and
recommend any proposed changes to the Board for approval;
B-1
8. Perform any other activities under this charter, the Company's By-
laws or governing law as the Committee or the Board deems
appropriate;
9. Administer the 1992 Incentive and Nonqualified Stock Option Plan
of Lone Star Steakhouse & Saloon, Inc.; and
10. Administer the Stock Option Deferred Compensation Plan.
E. Performance Evaluation
The Committee shall conduct an annual performance evaluation of the
Committee itself.
F. Committee Resources
The Committee shall have the authority to obtain advice and seek
assistance from internal and external legal, accounting and other advisors. The
Committee shall determine the extent of funding necessary for the payment of
compensation to any consultant retained to advise the Committee.
B-2
Appendix C
LONE STAR STEAKHOUSE & SALOON, INC.
CHARTER OF THE CORPORATE GOVERNANCE COMMITTEE
A. Purpose
The primary objective of the Corporate Governance Committee (the
"Committee") is to assist the Board of Directors (the "Board") in developing and
recommending to the Board a set of effective corporate governance policies and
procedures applicable to the Company.
B. Organization
The Committee shall consist of three or more directors, each of whom
shall satisfy the applicable independence requirements of NASDAQ and any other
regulatory requirements.
The Committee members shall be elected by the Board at a meeting of the
Board; members shall serve until their successors shall be duly elected and
qualified. The Committee's chairperson shall be designated by the full Board or,
if it does not do so, the Committee members shall elect a Chairman by vote of a
majority of the full Committee.
The Committee may form and delegate authority to subcommittees when
appropriate.
C. Meetings
The Committee will meet no less than four times a year. Special
meetings may be convened as required. The chairperson of the Committee will
preside at each meeting and, in consultation with the other members of the
Committee, will set the frequency and length of each meeting and the agenda of
items to be addressed at each meeting. The chairperson of the Committee shall
ensure that the agenda for each meeting is circulated to each Committee member
in advance of the meeting.
D. Duties and Responsibilities
The Committee has the following duties:
1. Develop principles of corporate governance and recommend them to
the Board for its approval;
2. Review periodically the principles of corporate governance
approved by the Board to insure that they remain relevant and
there is compliance with them;
3. Review periodically the Certificate of Incorporation and By-laws
of the Company and recommend to the Board changes thereto in
respect of good corporate governance;
4. Review the procedures and communication plans for stockholder
meetings to ensure that the rights of stockholders are fully
protected, that required information concerning the Company is
adequately presented and that the meeting promotes effective
communication between the Company and its stockholders on matters
of importance;
5. Recommend to the Board ways and means for the Board and management
of the Company to communicate with stockholders between annual
meetings of the stockholders;
6. Review directorships and consulting agreements of Board members
for conflicts of interest;
7. Clear actual and potential conflicts of interest a Board member
may have and issue to a Board member having an actual or potential
conflict of interest instructions on how to conduct him/herself in
matters before the Board that may pertain to such a conflict;
8. Have the authority to obtain advice and assistance from internal
or external legal, accounting or other advisors in connection with
the performance of its duties and responsibilities; and
C-1
9. Take such other actions regarding the manner of governance of the
Company, including the adoption of principles of corporate
governance, from time to time that are in the best interests of
the Company and its stockholders, as the Committee shall deem
appropriate.
E. Performance Evaluation
The Committee shall conduct an annual performance evaluation of the
Committee itself.
C-2
Appendix D
LONE STAR STEAKHOUSE & SALOON, INC.
CHARTER OF THE NOMINATING COMMITTEE
A. Purpose
The purpose of the Nominating Committee (the "Committee") of the Board
of Directors (the "Board") will be to (i) identify, review and evaluate
candidates to serve on the Board; (ii) serve as a focal point for communication
between Board candidates, non-committee Board members and the Company's
management; and (iii) recommend such candidates to the Board.
B. Organization
The Committee shall consist of three or more directors, each of whom
shall satisfy the applicable independence requirements of NASDAQ and any other
regulatory requirements.
The Committee members shall be elected by the Board at a meeting of the
Board of Directors; members shall serve until their successors shall be duly
elected and qualified. The Committee's chairperson shall be designated by the
full Board or, if it does not do so, the Committee members shall elect a
Chairman by vote of a majority of the full Committee.
The Committee may form and delegate authority to subcommittees when
appropriate.
C. Meetings
The Committee will meet no less than two times a year. Special meetings
may be convened as required. The chairperson of the Committee will preside at
each meeting and, in consultation with the other members of the Committee, will
set the frequency and length of each meeting and the agenda of items to be
addressed at each meeting. The chairperson of the Committee shall ensure that
the agenda for each meeting is circulated to each Committee member in advance of
the meeting.
D. Duties and Responsibilities
The Committee has the following duties:
1. Identify potential candidates for membership on the Board, the
Committee shall have the sole authority to retain and terminate
any search firm used to identify candidates for the Board;
2. Gather information on such candidates, conduct inquiries into the
backgrounds and qualifications of such candidates, and conduct
interviews and meetings with such candidates or their references;
3. Make recommendations to the Board regarding overall Board
composition and makeup, including having a majority of independent
directors on the Board;
4. Make recommendations to the Board regarding the composition and
size of the Board, with the goal of ensuring that the Board has
the proper expertise and its membership consists of persons with
sufficiently diverse backgrounds;
5. Make recommendations to the Board with regard to the criteria for
selection of Board members;
6. Assist the Board in planning for continuity on the Board as
existing Board members retire or rotate off the Board;
7. Review and recommend to the Board an appropriate course of action
upon the resignation of current Board members;
8. Recommend to the Board persons to be members of Board committees;
9. Have the authority to obtain advice and assistance from internal
or external legal, accounting or other advisors in connection with
the performance of its duties and responsibilities; and
10. Take such other action within the Committee's scope of duties,
that are in the best interests of the Company and its
stockholders, as the Committee shall deem appropriate.
D-1
Appendix E
LONE STAR STEAKHOUSE & SALOON, INC.
CHARTER OF THE EXECUTIVE COMMITTEE
A. Purpose
The primary objective of the Executive Committee (the "Committee") is
to assist the Board of Directors (the "Board") as and when requested on specific
projects and to coordinate with the executive officers of the Company in the
management and business affairs of the Company, when required between meetings
of the Board.
B. Organization
The Committee shall consist of three directors: two independent
directors, each of whom shall satisfy the applicable independence requirements
of NASDAQ and any other regulatory requirements, and one director who is an
employee of the Company.
Committee members shall be elected by the Board at a meeting of the
Board; members shall serve until their successors shall be duly elected and
qualified. The Committee's chairperson shall be designated by the full Board or,
if it does not do so, the Committee members shall elect a Chairman by vote of a
majority of the full Committee.
The Committee may form and delegate authority to subcommittees when
appropriate.
C. Meetings
The Committee will meet no less than four times a year. Special
meetings may be convened as required. The chairperson of the Committee will
preside at each meeting and, in consultation with the other members of the
Committee, will set the frequency and length of each meeting and the agenda of
items to be addressed at each meeting. The chairperson of the Committee shall
ensure that the agenda for each meeting is circulated to each Committee member
in advance of the meeting.
D. Duties and Responsibilities
The Committee has the following duties:
1. Have the authority and may exercise all powers and authority of
the Board in the management of the business and affairs of the
Company between meetings of the Board, but the Committee shall not
have such power or authority in reference to the following
matters: (i) approving or adopting or recommending to
stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders
for approval; (ii) appointment of members to the Board or to any
committees; or (iii) adopting, amending or repealing any By-law of
the Company;
2. Make recommendations to the Board with regard to a succession plan
for the Chief Executive Officer;
3. Make recommendations and assist the Board in succession planning
for other executive officers;
4. Assist the Chief Executive Officer and Chairman of the Board on
such matters as shall be requested between meetings of the Board;
and
5. Have the authority to obtain advice and assistance from internal
or external legal, accounting or other advisors in connection with
the performance of its duties and responsibilities, as may be
required.
E-1
LONE STAR STEAKHOUSE & SALOON, INC.
ANNUAL MEETING OF STOCKHOLDERS - JULY 11, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Lone Star Steakhouse & Saloon, Inc., a
Delaware Corporation (the "Company"), hereby appoints Jamie B. Coulter and John
D. White with full power of substitution and to each substitute appointed
pursuant to such power, as proxy or proxies, to cast all votes as designated
hereon, which the undersigned stockholder is entitled to cast at the Annual
Meeting of the Stockholders (the "Annual Meeting") of Lone Star Steakhouse &
Saloon, Inc., to be held at 9:00 a.m., local time on July 11, 2003 at the Del
Frisco's Double Eagle Steak House restaurant located at 8100 E. Orchard Road,
Greenwood Village, Colorado 80111-5013, and at any and all adjournments and
postponements thereof, with all powers which the undersigned would possess if
personally present (i) as designated below with respect to the matters set forth
below and described in the accompanying Notice and Proxy Statement, and (ii) in
their discretion with respect to any other business that may properly come
before the Annual Meeting. The undersigned stockholder hereby revokes any proxy
or proxies heretofore given by the undersigned to others for such Annual
Meeting.
This proxy when properly executed and returned will be voted in the
manner directed by the undersigned stockholder. If no direction is made, this
proxy will be voted (1) FOR the election of all nominees listed in Proposal 1;
(2) FOR the ratification of Ernst & Young, LLP as the Company's independent
auditors; and (3) in accordance with the discretion of the proxies or proxy with
respect to any other business transacted at the Annual Meeting.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. Election of nominees named below to the Board of Directors of the Company.
|_| FOR all nominees listed below (except as marked to the contrary below).
|_| WITHHOLD AUTHORITY to vote for all nominees listed below.
Nominees: Clark R. Mandigo, John D. White, Thomas C. Lasorda
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
2. To ratify the appointment of Ernst & Young, LLP as the Company's independent
auditors for the fiscal year ending December 30, 2003.
FOR |_| AGAINST |_| ABSTAIN |_|
This proxy may be revoked prior to the time it is voted by delivering to the
Secretary of the Company either a written revocation or a proxy bearing a later
date or by appearing at the Annual Meeting and voting in person.
DATED: ___________________, 2003
________________________, (L.S.)
(Signature)
____________________________, (L.S.)
(Signature)
Your signature should appear the same as
your name appears hereon. In signing as
attorney, executor, administrator,
trustee or guardian, please indicate the
capacity in which signing. When signing
as joint tenants, all parties in the
joint tenancy must sign. When a proxy is
given by a corporation, it should be
signed by an authorized officer and the
corporate seal affixed. No postage is
required if mailed in the United States.
PLEASE ACT PROMPTLY
PLEASE SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE TODAY