LONE STAR STEAKHOUSE & SALOON, INC.
224 EAST DOUGLAS
SUITE 700
WICHITA, KANSAS 67202-3414
----------------
NOTICE OF 2006 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 28, 2006
----------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 2006 Annual Meeting of Stockholders (the
"Meeting") of LONE STAR STEAKHOUSE & SALOON, INC., a Delaware corporation (the
"Company"), will be held on June 28, 2006 at the Del Frisco's Double Eagle
Steak House restaurant located at 5251 Spring Valley Road, Dallas, Texas
75240, at 9:00 a.m. local time, for the following purposes:
-- To elect three (3) members of the Board of Directors to serve until
the 2009 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 26, 2006;
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 16, 2006 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 our 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. Our stockholder 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: May 26, 2006
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
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PROXY STATEMENT
FOR
2006 ANNUAL MEETING OF STOCKHOLDERS
JUNE 28, 2006
----------------
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 2006 Annual Meeting of Stockholders of
the Company (the "Meeting") to be held on Wednesday, June 28, 2006, at the Del
Frisco's Double Eagle Steak House restaurant located at 5251 Spring Valley
Road, Dallas, Texas 75240, 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 May 26, 2006.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on May 16, 2006, 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 21,033,164 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 of record may ensure that their shares are voted at the
Meeting in accordance with the Board of Directors' recommendations by one of
the following methods: (1) completing and signing the proxy card and mailing
it in the enclosed postage-paid envelope; (ii) calling the toll-free telephone
number (1-800-PROXIES) provided on the proxy card; or (iii) voting on the
Internet at the website www.voteproxy.com. Voting by telephone is not
available to stockholders outside of the United States. Complete instructions
for voting by any of the above methods are included on the proxy card.
Stockholders who hold their shares in street name should refer to information
forwarded to them by such bank, broker, or holder of record for their voting
options. 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. Thomas C. Lasorda, Clark R. Mandigo and
John D. White 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 26, 2006. A vote to "ABSTAIN"
will have no other effect on the outcome of the vote on the ratification of
Ernst & Young LLP.
2
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 nominee for 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 21,033,164 shares outstanding as of May 16, 2006.
SHARES
NAME AND ADDRESSES BENEFICIALLY PERCENTAGE
OF BENEFICIAL OWNER HELD OF CLASS
-------------------- ------------ ----------
Jamie B. Coulter .................................. 3,574,032(1) 16.1%
John D. White ..................................... 570,000(2) 2.7%
Gerald T. Aaron ................................... 361,457(3) 1.7%
Deidra Lincoln .................................... 89,576(4) *
Mark Mednansky .................................... 8,750(5) *
Fred B. Chaney .................................... 7,625(6) *
William B. Greene, Jr. ............................ 51,725(7) *
Clark R. Mandigo .................................. 49,225(7) *
Mark Saltzgaber ................................... 44,925(8) *
Thomas Lasorda .................................... 43,839(9) *
Michael Ledeen .................................... 52,925(10) *
Anthony Bergamo ................................... 20,160(11) *
Tomlinson D. O'Connell ............................ 65,156(12) *
Dimensional Fund Advisors Inc ..................... 1,859,807(13) 8.8%
Pioneer Global Asset Management ................... 1,318,000(14) 6.3%
Wachovia Corporation .............................. 1,430,695(15) 6.8%
Barington Companies Equity Partners, L.P. and
Related Entities................................. 1,560,931(16) 7.4%
All directors and executive officers as a group
(17) persons (1-11).............................. 4,887,489(17) 21.1%
---------------
* Less than 1%
(1) Based on Schedule 13G filed in February 2006. Includes presently
exercisable options to purchase 1,178,639 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 405,000 shares of
Common Stock.
(3) Includes presently exercisable options to purchase 248,750 shares of
Common Stock.
(4) Includes presently exercisable options to purchase 84,576 shares of
Common Stock.
(5) Consists of presently exercisable options to purchase 8,750 shares of
Common Stock.
(6) Includes presently exercisable options to purchase 5,625 shares of
Common Stock.
(7) Includes presently exercisable options to purchase 19,225 shares of
Common Stock.
(8) Includes presently exercisable options to purchase 37,425 shares of
Common Stock.
(9) Includes presently exercisable option to purchase 42,425 shares of
Common Stock.
(10) Includes or consists of presently exercisable options to purchase
52,425 shares of Common Stock.
(11) Includes presently exerciseable options to purchase 16,875 shares of
Common Stock.
(12) Based on the information available to the Company, includes presently
exercisable options to purchase 64,156 shares of Common Stock.
(13) Based on a Schedule 13G filed in February 2006, Dimensional Fund
Advisors Inc. beneficially holds 1,859,807 shares of the Company's
Common Stock. Dimensional Fund Advisors Inc. disclaims beneficial
ownership to the 1,859,807 shares of the Company's Common Stock due to
its role as an investment advisor or manager to numerous funds. The
address of Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401.
(14) 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.
(15) Based on a Schedule 13G filed in February 2006, Wachovia Corporation
beneficially holds sole voting power over 1,417,633 shares and sole
dispositive power over 1,430,695 shares of the Company's Common Stock.
Wachovia Corporation filed the Schedule 13G as a parent holding company
and its relevant subsidiaries are Evergreen Investment Management
Company, Wachovia Securities, LLC and Wachovia Bank, N.A. The address
of Wachovia Corporation is One Wachovia Center, Charlotte, North
Carolina 28288-0137.
(16) According to a Schedule 13D filed with the Securities Exchange
Commission on April 26, 2006, Barington Companies Equity Partners, L.P.
is a member of a "group" within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 that includes the following "reporting
persons": Barington Investments, L.P.; Barington Companies Advisors,
LLC; Barington Companies Investors, LLC; Barington Companies Offshore
Fund, Ltd.; Barington Offshore Advisors, LLC; Barington Capital Group,
L.P.; LNA Capital Corp.; James Mitarotonda; Starboard Value and
Opportunity Master Fund Ltd.; Parche, LLC; Admiral Advisors, LLC;
Ramius Capital Group, L.L.C.; C4S & Co., L.L.C.; Peter A. Cohen; Morgan
B. Stark; Jeffrey M. Solomon; Thomas W. Strauss; RJG Capital Partners,
L.P.; RJG Capital Management, LLC; Ronald Gross; D.B. Zwirn Special
Opportunities Fund, L.P.; D.B. Zwirn Special Opportunities Fund (TE),
L.P.; D.B. Zwirn Special Opportunities Fund, Ltd.; The Coast Fund,
L.P.; D.B. Zwirn & Co., L.P.; DBZ GP, LLC; Zwirn Holdings, LLC; Daniel
B. Zwirn. The address of the principal business and principal office of
Barington Companies Equity Partners, L.P. is 888 Seventh Avenue, 17th
Floor, New York, New York 10019.
(17) Does not include shares beneficially owned by the Company's former
President of Lone Star Restaurants and Chief Operating Officer,
Tomlinson D. O'Connell. Includes presently exercisable options to
purchase 2,131,690 shares of Common Stock, which includes presently
exercisable options to purchase 12,750 shares of Common Stock held by
any executive officer, who is not specifically identified in the
Security Ownership Table above. The executive officer who is not
specifically identified in the Security Ownership Table also owns an
additional 500 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, solely consisting of
independent directors, has nominated Messrs. Thomas C. Lasorda, Clark R.
Mandigo and John D. White, currently serving as directors of the Company since
November 2001, March 1992 and March 1992, respectively, as nominees for
reelection to the Board of Directors. If elected, the term of the Board of
Directors' nominees expires at the 2009 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. Lasorda, Mandigo and White. 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:
NAME AGE TERM OF OFFICE AS DIRECTOR EXPIRES
---- --- ----------------------------------
* Fred B. Chaney, Ph.D. ............ 69 2008
* Anthony Bergamo .................. 59 2007
* William B. Greene, Jr. ........... 68 2008
* Thomas C. Lasorda ................ 78 2006
* Michael A. Ledeen, Ph.D. ......... 64 2007
* Clark R. Mandigo ................. 63 2006
* Mark G. Saltzgaber ............... 38 2007
John D. White..................... 58 2006
---------------
* Independent Director
Fred B. Chaney, Ph.D., has been Chairman of the Board since June 21, 2005
and 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
program, formed a worldwide network of CEO's and key executives serving over
8,000 mid-sized growth companies. 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 been a guest
lecturer on customer service at UCLA, Loyola, University of Southern
California and University of Colorado Business Schools. Dr. Chaney previously
served as a Director of Rusty Pelican Seafood, Inc. Dr. Chaney earned his
Bachelors (1959), Masters (1960), and Ph.D. (1962) in managerial psychology at
Purdue University. He also completed a National Science Foundation Post-
Doctorial Fellowship at University of London in 1964.
Anthony Bergamo has been a Director of the Company since May 29, 2002. Mr.
Bergamo has served in a variety of capacities with Milstein Hotel Group since
April 1996, most recently as Vice Chairman and has been 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,
a Trustee since 1986 and currently is Chairman of the Audit Committee of Dime
Community Bancshares, Inc. 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
4
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.
William B. Greene, Jr. served as Chairman of the Board from July 2003
through June 21, 2005, and has been a Director of the Company 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. Mr. Greene is the immediate past Chairman of the Wake
Forest University Board of Trustees and Chairman of the Wake Forest University
Trustee Investment Policy Committee for the last nine 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 and the University of Illinois. 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, was recently appointed as
Special Advisor to the Chairman of the Los Angeles Dodgers and was previously
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 was the Vice Chairman of the
U.S.- China Security Review Commission from 2001 to 2004. 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 contributing editor to the National Review
Online. 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
eighteen books, including most recently "The War Against the Terror Masters"
(St. Martin's Press, 2003).
Clark R. Mandigo served as the Chairman of the Board of the Company from
July 2001 through July 2003 and has been 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, from 1993 to 1997, Mr. Mandigo served on the
Board of Palmer Wireless, Inc., a cellular telephone system operator, and from
1995 to February 2004, Mr. Mandigo served on the Board of Horizon Organic
Holdings Corporation. Mr. Mandigo currently serves as a Trustee of Accolade
Funds and U.S. Global Investors Funds. Mr. Mandigo is a graduate of the
University of Kansas where he also received his Juris Doctorate degree.
Mark G. Saltzgaber has been a Director of the Company since November 2001.
Mr. Saltzgaber is an experienced investment banker, consultant and private
equity investor in the restaurant industry. He is currently an independent
consultant to emerging restaurant chains and private equity firms. Mr.
Saltzgaber was previously a Venture Partner until March 2004 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 at Montgomery Securities. Mr. Saltzgaber is
currently a director of Pasta Pomodoro, Inc.
5
John D. White is Executive Vice President, Treasurer and a Director of the
Company, and has been the Chief Financial Officer of the Company since
September 2004. Mr. White was also Chief Financial Officer of the Company 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.
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
NASD's rules for The NASDAQ Stock Market ("Nasdaq"), (ii) the Sarbanes-Oxley
Act of 2002 (the "Sarbanes-Oxley Act") and other rules and regulations of the
Securities and Exchange Commission ("SEC"), (iii) Rule 162(m) of the Internal
Revenue Code of 1986, as amended, and (iv) the Company's By-laws. The Company
has determined that all the members of the Audit Committee, are "financial
experts" as defined by the rules promulgated under the Sarbanes-Oxley Act. The
Company currently rotates the position of the Chairman of the Board. Dr.
Chaney was appointed Chairman of the Board on June 21, 2005.
BOARD COMMITTEES AND DIRECTOR MEETINGS
Directors are expected to attend all Board meetings and meetings of
committees on which they serve, and each annual stockholders' meeting. In 2005
all of the Directors, other than Mr. Thomas C. Lasorda, attended the Company's
annual meeting of stockholders.
For the fiscal year ended December 27, 2005, there were 11 meetings or
actions by unanimous written consent of the Board of Directors. Each Director,
other than Mr. Lasorda, attended more than 75% of the total number of meetings
of the Board and committees on which he served.
From time to time the Board of Directors has reviewed and enhanced its
corporate governance initiatives in response to changing regulatory
requirements and the concerns of the Company's stockholders and other
constituents. At each Board of Directors meeting, the independent members of
the Board of Directors meet 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. All committees have charters and all the charters and
the Company's Statement on Corporate Governance are 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 outside
services.
The Executive Committee is composed of three (3) independent directors. 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
6
approval; or (ii) adopting, amending or repealing any By-law of the Company.
All matters approved by the Executive Committee are brought for approval or
ratified by the Board of Directors.
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. The Audit
Committee is also responsible for engaging, overseeing and compensating the
Company's independent auditors.
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
encourages 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
2004 Stock Option Plan (the "2004 Plan") and the Company's 1992 Incentive and
Non-Qualified Stock Option Plan, as amended (the "1992 Plan"). The 1992 Plan
has expired.
The Nominating Committee is composed of three (3) of the Company's
independent directors and is charged with identifying prospective candidates
to serve as directors by reviewing candidates credentials and qualifications,
and interviewing prospective candidates before submitting their respective
names to the Board.
The members of the Executive Committee are Dr. Chaney and Messrs. Greene and
Mandigo. 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 Dr. Chaney and Messrs. Greene, Lasorda, Mandigo and Saltzgaber.
The members of the Nominating Committee are Messrs. Greene, Lasorda and
Ledeen.
During fiscal 2005, there were seven meetings or actions by unanimous
written consent of the Executive Committee, nine meetings or actions by
unanimous written consent of the Audit Committee, four meetings or actions by
unanimous written consent of the Corporate Governance Committee, five meetings
or actions by unanimous written consent of the Compensation/Stock Option
Committee and three 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.
DIRECTOR ORIENTATION AND CONTINUING EDUCATION
The Company provides new Directors with a director orientation program to
familiarize each new Director with the Company's business, significant
financial, accounting and risk management issues, compliance, code of business
conduct and ethics, corporate governance guidelines, principal officers and
independent auditors.
LOAN POLICY
The Company does not provide any type of loans to the Company's executive
offices or Directors to pay the exercise price of stock options held by them.
SUCCESSION PLAN
The Board of Directors continually focuses on succession planning. The
Company's succession plan has been impacted by recent personnel changes at the
Company. Accordingly, the Board of Directors has been studying options to its
succession plan.
7
CODE OF CONDUCT AND ETHICS
The Company has adopted a code of conduct and ethics (the "Code") that
applies to all directors, officers and employees. The Code is reasonably
designed to deter wrongdoing and promote (i) honest and ethical conduct,
including the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships, (ii) full, fair, accurate,
timely and understandable disclosure in reports and documents filed with, or
submitted to, the SEC and in other public communications made by the Company,
(iii) compliance with applicable governmental laws, rules and regulations,
(iv) the prompt internal reporting of violations of the Code to appropriate
persons identified in the Code, and (v) accountability for adherence to the
Code. Amendments to the Code and any grant of a waiver from a provision of the
Code requiring disclosure under applicable SEC rules will be disclosed on the
Company's website at www.lonestarsteakhouse.com. The Code is also available on
the Company's website.
SARBANES-OXLEY ACT
The Company has taken a number of measures to ensure compliance with the
Sarbanes-Oxley Act. The Board of Directors, Officers, regional and district
managers, and members of the Company's finance and legal staffs receive
regular updates on the Sarbanes-Oxley Act and Nasdaq regulations. The Company
has enhanced its disclosure controls and procedures so that its periodic
disclosures to the SEC are reviewed by many more persons than in the past. In
addition, the Company has instituted a sub-certification procedure, that
requires the appropriate responsible employees to review and certify full
compliance with all internal controls and the accuracy of periodic reports to
be filed with the SEC. 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 EXECUTIVE OFFICERS
In addition to Mr. White, the other Executive Officers of the Company are as
follows:
Jamie B. Coulter, 65, 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 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.
Mark Mednansky, 48, has been Chief Operating Officer of the Company since
October 2005. Mr. Mednansky joined the Company in 1998 and was a regional
manager from 1998 to 2001 and then became Vice President of Upscale
Restaurants. He also became President of the Texas Land & Cattle Steak House
concept in January 2004. Prior to joining the Company, Mr. Mednansky was
Director of Operations for Big Four Restaurants in Phoenix, Arizona from 1997
to 1998 and Director of Restaurant Services for VIAD Corp. from 1992 to 1998.
Gerald T. Aaron, 65, 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.
Deidra Lincoln, 46, 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.
Jon W. Howie, 38, has been the Company's Chief Accounting Officer since June
2005. Mr. Howie has been Controller of the Company since March 2000. Mr. Howie
is a Certified Public Accountant and prior to joining the
8
Company was employed as an Audit Senior Manager with Grant Thornton, LLP from
1999 to 2000. Prior to joining Grant Thornton, LLP, Mr. Howie was employed by
Ernst & Young, LLP from 1989 to 1999. While employed at Ernst & Young, LLP he
served in many different professional capacities, including three years of
service as an Audit Senior Manager. Mr. Howie served as an accounting and
business advisor to clients in both the private and public sectors, which
included numerous initial public offerings, as well as secondary offerings and
other SEC filings.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3 and 4 and amendments thereto, all
directors, officers and beneficial owners of more than 10 percent of the
Company's beneficial securities timely filed their Forms 3, 4 and 5.
9
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
who were serving as executive officers at the end of the fiscal year ended
December 27, 2005 (collectively with the CEO the "Named Executive Officers")
other than the CEO whose salary and bonus exceeded $100,000 with respect to
the fiscal year ended December 27, 2005. In addition, Named Executive Officers
include one other executive officer who was no longer employed by the Company
at the end of the fiscal year ended December 27, 2005.
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- ------------------------------------
NUMBER OF
SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) COMPENSATION(1) (# OF SHARES) COMPENSATION(2)
--------------------------- ---- -------- --------- --------------- ------------------ ---------------
Jamie B. Coulter ........................ 2005 $865,910 $ 1,500 $ 145,791(4) -- $102,991
Chief Executive Officer 2004 $856,731 $414,000(3) $ 148,162(4) 65,000 $110,823
2003 $823,558 $145,493 $ 110,104(4) -- $ 95,318
John D. White ........................... 2005 $674,382 $ 1,500 $ 112,181(5) -- $ 67,588
Chief Financial Officer, 2004 $623,077 $176,500 $ 93,878(5) 60,000 $ 79,958
Executive Vice President and Treasurer 2003 $600,000 $158,583 $ 61,047(5) -- $ 74,704
Mark Mednansky .......................... 2005 $249,588 $151,500 $ -- 75,000 $ 40,109
Chief Operating Officer 2004 $207,692 $101,500 $ -- 35,000 $ 30,919
2003 $199,038 $ 53,861 $ -- -- $ --
Deidra Lincoln .......................... 2005 $260,000 $ 55,105 $ -- -- $ 31,511
Vice President of Del Frisco's 2004 $270,000 $ 42,500 $ -- 20,000 $ 31,250
2003 $260,000 $ 34,035 $ -- -- $ 28,904
Gerald T. Aaron ......................... 2005 $274,794 $ 45,213 $ -- -- $ 32,001
Senior Vice President, Counsel & 2004 $259,615 $ 74,000 $ -- 35,000 $ 33,362
Secretary 2003 $250,000 $ 66,951 $ -- -- $ 31,214
Tomlinson D. O'Connell(6) ............... 2005 $338,050 $ 269 $38,860(6) -- $ 33,832
Former President and Chief Operating 2004 $363,462 $176,500 $68,361(6) 100,000 $ 53,996
Officer of Lone Star Restaurants 2003 $347,115 $151,500 $ -- -- $ 49,189
---------------
(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) Of such bonus $162,500 was paid in 2005 for services performed in 2004.
(4) During the fiscal years ended December 27, 2005, December 28, 2004 and
December 30, 2003, Mr. Coulter received benefits primarily relating to tax,
accounting and administrative services provided by Company personnel,
$87,468, $80,136 and $87,038, respectively. The balance was primarily for
reimbursement for certain medical insurance premiums and expenses.
(5) During the fiscal years ended December 27, 2005, December 28, 2004 and
December 30, 2003, Mr. White received benefits primarily relating to
personal use of the Company's airplane of $54,750, $28,962 and $38,209,
respectively. The balance was primarily for reimbursement for certain
medical insurance premiums and expenses.
(6) On October 13, 2005, Mr. O'Connell resigned from all positions held with
the Company, including President and Chief Operating Officer of Lone Star
Restaurants. During the fiscal year ended December 27, 2005, Mr. O'Connell
received benefits primarily relating to the personal use of the Company's
airplane of $16,974. The balance was primarily reimbursement for country
club memberships. During the fiscal year ended December 28, 2004, Mr.
O'Connell received benefits primarily relating to the personal use of the
Company's airplane of $37,230. The balance was primarily for reimbursement
for certain medical insurance premiums and expenses.
10
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock option
grants made to the CEO and the other Named Executive Officers for services
performed during the fiscal year ended December 27, 2005.
OPTION GRANT TABLE
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE
APPRECIATIONS FOR
INDIVIDUAL GRANTS OPTION TERM (2)
----------------------------------------------------------- -----------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO
(# OF EMPLOYEES IN EXERCISE OF EXPIRATION
NAME SHARES)(1) FISCAL YEAR BASE PRICE ($/SH) DATE 5% 10%
---- ---------- ------------ ----------------- ---------- ---------- ----------
Jamie B. Coulter ........................ -- -- -- -- $ -- $ --
John D. White ........................... -- -- -- -- $ -- $ --
Mark Mednansky .......................... 75,000(1) 23% $23.11 12/28/15 $1,090,032 $2,762,354
Deidra Lincoln .......................... -- -- -- -- $ -- $ --
Gerald T. Aaron ......................... -- -- -- -- $ -- $ --
Tomlinson D. O'Connell .................. -- -- -- -- $ -- $ --
---------------
(1) The options indicated were granted on December 28, 2005, and related to
services provided for the fiscal year ended December 27, 2005, and vest
ratably over a four-year period. Such options were granted pursuant to the
2004 Plan.
(2) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of options immediately prior to
the expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of
employment, nontransferability or differences in vesting periods.
Regardless of the theoretical value of an option, its ultimate value will
depend on the market value of the Common Stock at a future date, and that
value will depend on a variety of factors, including the overall condition
of the stock market and the Company's results of operations and financial
condition. There can be no assurance that the values reflected in this
table will be achieved.
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 27, 2005, and also sets forth certain information concerning
unexercised options held as of December 27, 2005 by the CEO and the other
Named Executive Officers. At December 27, 2005, the closing price of the
Company's Common Stock, as reported by the Nasdaq National Market, was $23.30.
11
FISCAL YEAR-END OPTION VALUES
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME EXERCISE REALIZED(1) DECEMBER 27, 2005 DECEMBER 27, 2005(2)
------------------------------------------ -------- ----------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Jamie B. Coulter .......................... -- -- 1,162,389 65,000 12,590,126 --
John D. White ............................. -- -- 515,000 60,000 7,638,094 --
Mark Mednansky(3) ......................... 10,000 216,250 -- 35,000 -- --
Deidra Lincoln ............................ -- -- 79,576 20,000 1,170,055 --
Gerald T. Aaron ........................... 17,500 260,422 357,500 35,000 5,302,172 --
Tomlinson D. O'Connell .................... 24,293 516,204 64,156 -- 925,450 --
---------------
(1) Based on the difference between the exercise price of the options and the
fair market value of a share of Common Stock at the date of exercise, as
reported on the Nasdaq National Market.
(2) All of the unexercisable options held by the CEO and the other Named
Executive Officers were granted on December 28, 2004 and have an exercise
price equal to $27.80, the closing price of the Company's Common Stock on
such date.
(3) Does not include options granted to Mr. Mednansky on December 28, 2005 for
services provided for the fiscal year ended December 27, 2005.
OPTION REPRICINGS
As part of the settlement of the class action and derivative lawsuit brought
by the California Public Employees Retirement System against the Company,
Jamie B. Coulter, the Company's Chief Executive Officer and a former director,
and certain of the Company's current directors agreed to reprice certain stock
options or personally make payments to the Company which, upon the exercise of
the stock options, would result in additional proceeds to the Company of
approximately $4.7 million.
EQUITY COMPENSATION PLAN INFORMATION
The Company previously issued options under 1992 Directors Stock Option Plan
(the "Directors Plan") and the 1992 Plan. The ability to issue options under
both plans has expired. In December 2004, the Company's stockholders approved
the adoption of the 2004 Plan. The following table provides information about
stock option awards under the Directors Plan, the 1992 Plan and the 2004 Plan
as of December 27, 2005. The 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 27, 2005.
NUMBER OF
SECURITIES
NUMBER OF REMAINING AVAILABLE
SECURITIES TO BE FOR FUTURE ISSUANCE
ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING
OPTIONS, WARRANTS OPTIONS, WARRANTS SECURITIES REFLECTED
AND RIGHTS AND RIGHTS IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- ----------------- ----------------- --------------------
Equity compensation plans approved by security holders............ 4,428,672 $16.61 1,452,500
Equity compensation plans not approved by security holders........ -- -- --
--------- ------ ---------
Total............................................................. 4,428,672 $16.61 1,452,500
========= ====== =========
DIRECTORS COMPENSATION
Directors who are not employees receive an annual fee of $20,000; each
Chairman of a Committee receives an additional annual fee of $5,000; each
member of the Audit Committee receives an additional annual fee of $5,000;
directors who are not employees 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 is paid a
12
Chairman's fee of $100,000 per year. The Company revised the directors' fees
in 2004 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 and the 2004 Plan. Currently, options to
purchase an aggregate of 493,700 shares of Common Stock are outstanding and
granted to non-employee directors under the Directors Plan and the 2004 Plan
at exercise prices ranging from $7.438 per share to $27.59 per share.
Upon the effectiveness of the 2004 Plan, each non-employee director received
options to purchase 15,000 shares of Common Stock, any non-employee directors
first elected or appointed to the Board of Directors since the expiration of
the Directors Plan received options to purchase 40,000 shares of Common Stock
and each non-employee director received and shall receive an annual grant of
options to purchase 7,500 shares of Common Stock. Upon the effectiveness of
the 2004 Plan, the Chairman of the Audit Committee received options to
purchase 2,500 shares of Common Stock and shall receive an annual grant of
options to purchase 2,500 shares of Common Stock. In addition, upon a new non-
employee director being elected or appointed to the Board of Directors such
non-employee director shall receive options to purchase 40,000 shares of
Common Stock and upon the appointment of a new Audit Committee Chairman, such
new Chairman shall receive options to purchase 2,500 shares of Common Stock
and an annual grant of options to purchase 2,500 shares of Common Stock.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Ms. Lincoln and has also
entered into separate employment agreements, with each of Messrs. White,
Mednansky and Aaron, dated on April 29, 2003, providing for the employment of
these individuals as Executive Vice President, Director of Upscale
Restaurants, and Senior Vice President - Counsel and Secretary, respectively.
Each employment agreement provides that the officer shall devote their entire
business time to the business of the Company. The Employment Agreements
provide base salaries in the amounts of $600,000, $200,000 (subsequently
increased to $250,000) and $250,000, respectively, for Messrs. White,
Mednansky and Aaron, subject to increases as determined by the Compensation/
Stock Option Committee and ratified by the Board of Directors. Each agreement
initially terminates on April 29, 2006, and is extended automatically for
successive terms of one year each, unless either the Company or the respective
employee gives written notice to the other not later than 90 days prior to the
termination date. No notice was given with respect to any of the agreements
and accordingly the termination date has now been extended to April 29, 2007.
However, in connection with his appointment as the Company's Chief Operating
Officer, the Company is in the process of negotiating a new employment
contract with Mr. Mednansky. Each agreement contains non-competition, non-
solicitation and confidentiality provisions which apply for twenty-four months
after cessation of employment and confidentiality provisions which apply for
ten years after cessation of employment. Mr. Coulter does not have an
employment, non-competition or non-solicitation agreement with the Company.
Mr. Coulter's non-competition, non-solicitation and confidentiality agreement
expired in 2001. In 2001, Mr. Coulter was not re-elected to the Board of
Directors of the Company.
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. Dr. Chaney and Messrs. 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 2005, there were five
meetings or actions by unanimous written consent 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 to retain and attract the best qualified
management, and to enhance long term stockholder
13
value. In retaining and attracting the best qualified management personnel,
the Company targets offering compensation and benefits that place it near the
top quartile of its industry.
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/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.
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 1992 Plan qualifies
as "performance-based compensation." 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.
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, 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 or above 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 sets the
base salaries and other terms and conditions of employment for such
individuals. The base salaries of the Company's executive officers other than
Mr. Mednansky did not increase from fiscal 2005 to fiscal 2006. Mr.
Mednansky's salary increased from $250,000 in 2005 to $300,000 in 2006 and the
increase was based on his promotion and the additional responsibilities
attendant to his new position.
Annual Bonuses
The Compensation/Stock Option Committee evaluates the performance of the
Company's executives on an annual basis. Other than a $1,500 annual bonus
paid to all Wichita based office employees, Mr. White did not receive a bonus
for fiscal 2005. Messrs. Mednansky, Aaron and Howie received bonuses of
$151,500, $45,213 and $48,747 respectively, for fiscal 2005. Ms. Lincoln
received a bonus of $55,105 for fiscal 2005. The bonuses were based upon the
level of individual achievement and development, the performance of each of
the Company's respective concepts and departments, and the Company's overall
performance, including, but not limited to, its year-over-year change in
earnings per share and cash flow and its stock price performance for the year.
Mr. Mednansky's bonus also includes a $25,000 bonus in connection with his
promotion to the position of
14
Chief Operating Officer. Mr. Mednansky's responsibilities also include
President of the Texas Land & Cattle Steak House concept.
Compensation of Chief Executive Officer
Mr. Coulter's base salary is, among other things, based upon the factors
described in the "Salaries" paragraph above. Other than a $1,500 annual bonus
paid to all Wichita based office employees, Mr. Coulter did not receive a
bonus for services performed in fiscal 2005. Mr. Coulter's base salary did not
increase from 2005 to 2006. Mr. Coulter was not present during the
Compensation/Stock Option Committee's deliberation of his compensation.
Stock Option Plan
It is 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, are eligible for grants of stock options
pursuant to the 2004 Plan. During 2005, the only Named Executive Officer to
whom the Company granted options pursuant to the 2004 Plan was Mark Mednansky.
Mr. Howie was also granted options for services provided to the Company in
2005. In determining the number of options granted to Messrs. Mednansky and
Howie the Compensation/Stock Option Committee based its determination on each
of their promotions and the additional responsibilities attendant to each of
their new positions.
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:
Mark G. Saltzgaber, Chairman
Fred B. Chaney, Ph.D.
William B. Greene, Jr.
Thomas C. Lasorda
Clark R. Mandigo
Compensation Committee Interlocks
The Compensation/Stock Option Committee consists of Dr. Chaney and Messrs.
Greene, Lasorda, Mandigo and Saltzgaber. There were no transactions between
any member of the Compensation/Stock Option Committee and the Company during
the fiscal year ended December 27, 2005. No member of the Compensation/Stock
Option Committee was an officer or employee of the Company or any subsidiary
of the Company during fiscal 2005.
15
COMPARISON OF TOTAL RETURN FROM DECEMBER 26, 2000
TO DECEMBER 27, 2005 AMONG LONE STAR STEAKHOUSE & SALOON, INC.,
THE STANDARD & POOR'S SMALL-CAP 600 INDEX AND THE STANDARD &
POOR'S 500 RESTAURANTS INDUSTRY INDEX (THE "PEER GROUP").
[LINE CHART OMITTED]
BASE
PERIOD
COMPANY / INDEX 26-DEC-00 25-DEC-01 31-DEC-02 30-DEC-03 28-DEC-04 27-DEC-05
------------------------------------------------------- --------- --------- --------- --------- --------- ---------
LONE STAR STEAKHOUSE SALOON ............................ 100 185.35 257.17 316.65 393.25 339.62
S&P SMALLCAP 600 INDEX ................................. 100 110.63 95.02 134.03 162.12 174.76
S&P 500 RESTAURANTS .................................... 100 91.93 70.76 106.03 152.61 162.81
The foregoing information was provided by Standard & Poor's. Assumes $100
invested on December 26, 2000 in the Company's Common Stock, the Standard &
Poor's Small-Cap 600 Index and the Peer Group.
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.
16
PROPOSAL II
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending December
26, 2006. 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 Audit Committee of 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, will be available to respond to
appropriate questions and will have the opportunity to make a statement if
they desire. 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 27, 2005 and December 28, 2004, were:
2005 2004
---------- ----------
Audit ............................................... $ 959,742 $ 951,807
Audit Related ....................................... 41,950 120,790
Tax ................................................. 169,934 316,437
Other ............................................... -- --
---------- ----------
Total............................................. $1,171,626 $1,389,034
========== ==========
Audit Fees
Audit fees for 2005 and 2004 were for professional services rendered for the
integrated audits of the consolidated financial statements of the Company,
statutory audits, timely reviews of quarterly financial statements, consents
and assistance with review of documents filed with the SEC.
Audit Related Fees
Audit related fees for 2005 were primarily consultations regarding
accounting related issues. Audit related fees for 2004 were primarily for
matters related to Sarbanes-Oxley Act advisory services.
Tax Fees
Tax fees for 2005 and 2004 were for services related to tax compliance
($169,934 for the fiscal year ended December 27, 2005 and $221,425 for the
fiscal year ended December 28, 2004), including the preparation of tax
returns. In addition, with respect to the fiscal year ended December 28, 2004,
tax fees include tax planning and tax advice related primarily to the
Company's 2004 acquisition of Texas Land and Cattle Steakhouse.
All Other Fees
There were no other fees paid to Ernst & Young LLP for the fiscal years
ended December 27, 2005 and December 28, 2004.
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.
Pre-Approval Policies and Procedures
All audit and non-audit services to be performed by the Company's
independent accountant must be approved in advance by the Audit Committee.
Consistent with applicable law, limited amounts of services, other than audit,
review or attest services, may be approved by one or more members of the Audit
Committee pursuant
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to authority delegated by the Audit Committee, provided each such approved
service is reported to the full Audit Committee at its next meeting.
All of the engagements and fees for the Company's fiscal year ended December
27, 2005 were approved by the Audit Committee. In connection with the audit of
the Company's Financial Statements for the Fiscal Years ended December 27,
2005 and December 28, 2004, Ernst & Young LLP only used full-time, permanent
employees.
The Audit Committee of the Board of Directors considered whether the
provision of non-audit services by Ernst & Young LLP was compatible with its
ability to maintain independence from an audit standpoint and concluded that
Ernst & Young LLP's independence was not compromised.
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 26, 2006.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the fiscal year ended December 27, 2005, there were no transactions that
were required to be described under "Certain Relationships and Related
Transactions."
AUDIT COMMITTEE REPORT
The members of the Audit Committee at December 27, 2005 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). During fiscal 2005, there were
nine meetings or actions by unanimous written consent of the Audit Committee.
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 adopted a written charter, which is available at the
Company's website at www.lonestarsteakhouse.com. 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 27, 2005, 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 June 20, 2005, 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 27, 2005 and has discussed with Ernst & Young LLP the
independence of Ernst & Young LLP.
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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 27, 2005.
Anthony Bergamo, Chairman
William B. Greene, Jr.
Clark R. Mandigo
STOCKHOLDER PROPOSALS AND NOMINATING COMMITTEE REPORT
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 January 26, 2007.
On May 21, 1998 the SEC 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 2007 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 April 11,
2007 the Company will be permitted to use its 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 SEC; 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.
The Nominating Committee identifies prospective candidates to serve as
directors by reviewing candidates credentials and qualifications, and
interviewing prospective candidates before submitting their respective names
to the Board. In addition, The Nominating Committee adopted a written charter,
which is available at the Company's website at www.lonestarsteakhouse.com. The
members of the Nominating Committee on December 27, 2005 were William B.
Greene, Jr., Thomas C. Lasorda and Michael A. Ledeen Ph.D. During fiscal 2005,
there were three meetings or actions by unanimous written consent of the
Nominating Committee, and each of the members of the Nominating Committee was
present at that meeting. Each member of the Nominating Committee meets the
criteria for being "independent" set forth under Section 4200(a)(15) of
Nasdaq's listing standards.
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The Nominating Committee considers recommendations for director nominees
from a wide variety of sources, including members of the Company's Board,
business contacts, community leaders, other third-party sources and members of
management. The Nominating Committee also considers shareholder
recommendations for director nominees that are properly received in accordance
with the Company's By-laws and applicable rules and regulations of the SEC.
The Board believes that all of its directors should have the highest
personal integrity and have a record of exceptional ability and judgment. The
Board also believes that its directors should ideally reflect a mix of
experience and other qualifications. There is no firm requirement of minimum
qualifications or skills that candidates must possess. The Nominating
Committee evaluates director candidates based on a number of qualifications,
including their independence, judgment, leadership ability, expertise in the
industry, experience developing and analyzing business strategies, financial
literacy, risk management skills, and, for incumbent directors, his or her
past performance.
The Nominating Committee initially evaluates a prospective nominee on the
basis of his or her resume and other background information that has been made
available to the Committee. A member of the Nominating Committee will contact
for further review and interview those candidates who the Committee believes
are qualified, who may fulfill a specific Board need and who would otherwise
best make a contribution to the Board. If, after further discussions with the
candidate, and other review and consideration as necessary, the Nominating
Committee believes that it has identified a qualified candidate, it will
consider making a recommendation to the Board.
Procedures for Contacting Directors
The Board of Directors has established a process for stockholders to send
communications to the Board. Stockholders may communicate with the Board
generally or a specific director at any time by writing to: Gerald T. Aaron,
Secretary, Lone Star Steakhouse & Saloon, Inc., 224 East Douglas, Suite 700,
Wichita, Kansas 67202-3414. The Secretary reviews all messages received, and
forwards any message that reasonably appears to be a communication from a
stockholder about a matter of stockholder interest that is intended for
communication to the Board. Communications are sent as soon as practicable to
the director to whom they are addressed, or if addressed to the Board
generally, to the Chairman of the Nominating Committee. Because other
appropriate avenues of communication exist for matters that are not of
stockholder interest, such as general business complaints or employee
grievances, communications that do not relate to matters of stockholder
interest are not forwarded to the Board. The Secretary has the right, but not
the obligation, to forward such other communications to appropriate channels
within the Company.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. The transfer
agent and registrar for the Company's Common Stock, American Stock Transfer &
Trust Company, 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.
20
ANNUAL REPORT
All stockholders of record as of May 16, 2006 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for
the fiscal year ended December 27, 2005. Such report contains certified
consolidated financial statements of the Company and its subsidiaries for the
fiscal year ended December 27, 2005.
By Order of the Company,
/s/ Gerald T. Aaron
GERALD T. AARON
Secretary
Dated: Wichita, Kansas
May 26, 2006
The Company will furnish, without charge, a copy of its Annual Report on
Form 10-K for the fiscal year ended December 27, 2005 (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.
21
ANNUAL MEETING OF STOCKHOLDERS OF
LONE STAR STEAKHOUSE & SALOON, INC.
JUNE 28, 2006
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
\|/ Please detach along perforated line and mail in the envelope provided. \|/
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
FOR AGAINST ABSTAIN
1. To elect the following nominees as directors to serve until the 2009 2. To ratify the appointment of |_| |_| |_|
Annual Meeting of Stockholders and until their successors are elected Ernst & Young, LLP as the
and qualified. company's independent auditors
for the fiscal year ended
NOMINEES: December 26, 2006.
|_| FOR ALL NOMINEES o Thomas C. Lasorda
o Clark R. Mandigo 3. In their discretion, the Proxies are
|_| WITHHOLD AUTHORITY o John D. White authorized to consider and take action upon
FOR ALL NOMINEES such other matters as may properly come
before the meeting or any adjournment
|_| FOR ALL EXCEPT thereof.
(See instructions below)
PROPERLY EXECUTED PROXIES WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE
INSTRUCTION: To withhold authority to vote for any individual nominee(s), UNDERSIGNED. IF NO SUCH DIRECTIONS ARE GIVEN,
mark "FOR ALL EXCEPT" and fill in the circle next to each nominee SUCH PROXIES WILL BE VOTED FOR THE ELECTION
you wish to withhold, as shown here: o AS DIRECTORS OF THE NOMINEES REFERRED TO IN
PARAGRAPH 1 AND FOR RATIFICATION OF ERNST &
YOUNG, LLP.
The undersigned revokes any prior proxies to
vote the shares covered by this proxy.
----------------------------------------------------------------------- PLEASE SIGN, DATE AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED REPLY ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that changes
to the registered name(s) on the account may not be submitted via this method.
|_|
Signature of Stockholder_______________ Date: __________________ Signature of Stockholder______________ Date: __________________
NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When
signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
LONE STAR STEAKHOUSE & SALOON, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LONE STAR STEAKHOUSE & SALOON, INC. (THE "COMPANY")
FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS OF THE COMPANY
TO BE HELD AT 9:00 A.M., LOCAL TIME, ON WEDNESDAY, JUNE 28, 2006
The undersigned hereby appoints Jamie B. Coulter, John D. White, and each
of them, attorneys and proxies with full power of substitution to vote in the
name of and as proxy for the undersigned all the shares of common stock of the
Company held of record by the undersigned on May 16, 2006 at the Annual Meeting
of Stockholders of the Company to be held at 9:00 a.m. local time on Wednesday,
June 28, 2006, at the Del Frisco's Double Eagle Steak House restaurant located
at 5251 Spring Valley Road, Dallas, Texas, and at any adjournment thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
ANNUAL MEETING OF STOCKHOLDERS OF
LONE STAR STEAKHOUSE & SALOON, INC.
June 28, 2006
PROXY VOTING INSTRUCTIONS
MAIL - Date, sign and mail your proxy
card in the envelope provided as soon as
possible.
-OR-
TELEPHONE - Call toll-free 1-800-PROXIES COMPANY NUMBER
(1-800-776-9437) from any touch-tone
telephone and follow the instructions.
Have your proxy card available when you ACCOUNT NUMBER
call.
-OR-
INTERNET - Access "www.voteproxy.com" and
follow the on-screen instructions. Have
your proxy card available when you
access the web page.
You may enter your voting instructions at 1-800-PROXIES or www.voteproxy.com up
until 11:59 PM Eastern Time the day before the cut-off or meeting date.
\|/ Please detach along perforated line and mail in the envelope provided IF \|/
you are not voting via telephone or the internet.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
FOR AGAINST ABSTAIN
1. To elect the following nominees as directors to serve until the 2009 2. To ratify the appointment of |_| |_| |_|
Annual Meeting of Stockholders and until their successors are elected and Ernst & Young, LLP as the
qualified. Company's independent auditors
NOMINEES: for the fiscal year ended
|_| FOR ALL NOMINEES December 26, 2006.
o Thomas C. Lasorda
|_| WITHHOLD AUTHORITY o Clark R. Mandigo
FOR ALL NOMINEES o John D. White 3. In their discretion, the Proxies are
authorized to consider and take action upon
|_| FOR ALL EXCEPT such other matters as may properly come
(See instructions below) before the meeting or any adjournment
thereof.
PROPERLY EXECUTED PROXIES WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED. IF NO SUCH DIRECTIONS ARE GIVEN,
SUCH PROXIES WILL BE VOTED FOR THE ELECTION
AS DIRECTORS OF THE NOMINEES REFERRED TO IN
INSTRUCTION: To withhold authority to vote for any individual nominee(s), PARAGRAPH 1 AND FOR RATIFICATION OF ERNST &
mark "FOR ALL EXCEPT" and fill in the circle next to each YOUNG, LLP.
nominee you wish to withhold, as shown here: o
The undersigned revokes any prior proxies to
vote the shares covered by this proxy.
PLEASE SIGN, DATE, AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED REPLY ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted
via this method. |_|
Signature of Stockholder_______________ Date: __________________ Signature of Stockholder______________ Date: __________________
NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When
signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.