sec document
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
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Filed by a Party other than the Registrant |_|
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|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
LONE STAR STEAKHOUSE & SALOON, INC.
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(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 2001 ANNUAL MEETING OF STOCKHOLDERS
to be held on July 6, 2001
--------------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Stockholders
(the "Meeting") of LONE STAR STEAKHOUSE & SALOON, INC., a Delaware corporation
(the "Company"), will be held on July 6, 2001 at the Sullivan's Steakhouse
restaurant located at 300 Colorado Street, Austin, Texas 78701, 9:00 a.m. local
time, for the following purposes:
1. To elect one (1) member of the Board of Directors to
serve until the 2004 Annual Meeting of Stockholders and
until his successor has been duly elected and qualified;
2. To ratify the appointment of Ernst & Young, LLP as the
Company's independent auditors for the fiscal year
ending December 25, 2001;
3. To consider and act upon a proposal by a stockholder;
and
4. 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 11,
2001 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 WHITE 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
GERALD T. AARON, Secretary
Dated: May 18, 2001
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE
URGED TO SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY IN THE ENVELOPE THAT IS
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas Suite 700
Wichita, Kansas 67202-3414
--------------------------
PROXY STATEMENT
FOR
2001 ANNUAL MEETING OF STOCKHOLDERS
July 6, 2001
--------------------------
INTRODUCTION
This Proxy Statement and the accompanying WHITE 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 2001 Annual Meeting of
Stockholders of the Company (the "Meeting") to be held at its Sullivan's
Steakhouse restaurant located at 300 Colorado Street, Austin, Texas 78701, on
July 6, 2001 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 WHITE Proxy will first be sent
or given to stockholders is on or about May 20, 2001.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on May 11,
2001, 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 outstanding 24,037,241 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 its shares are voted at the Meeting in
accordance with the Board of Directors' recommendations by completing, signing,
dating, and returning the enclosed WHITE proxy in the envelope provided.
Submitting your proxy will not affect your right to attend the Meeting and vote
in person. If the WHITE 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. 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 the Board's nominee,
Jamie B. Coulter, for election to the Board of Directors, FOR approval of the
appointment of Ernst & Young LLP as its auditors and AGAINST the stockholder
proposal. The Board of Directors urges you to sign, date, and return the
enclosed WHITE 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 WHITE 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").
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ABSTENTIONS
Abstentions will count as Votes Present and shall have the same
effect as a vote against a matter (other than in the election for the Board of
Directors). 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). 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 it determines, in its
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. Broker non-votes will not be counted as Votes Cast with respect to
matters as to which the record holder has expressly not voted. Accordingly,
broker non-votes will have no effect upon the outcome of voting on any of the
business matters set forth in this Proxy Statement.
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.
Other Proposals. Other than the election of Directors, the vote
required for all other business matters set forth in this Proxy Statement is the
affirmative vote of a majority of the Votes Cast.
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.
Shares
Name and Address of Beneficial Owner Beneficially Held Percentage of Class
------------------------------------ ----------------- -------------------
Jamie B. Coulter 4,995,393(1) 18.8%
John D. White 1,148,025(2) 4.6%
Gerald T. Aaron 612,707(3) 2.5%
Deidra Lincoln 151,861(4) *
Tomlinson D. O'Connell 80,876(5) *
Fred B. Chaney 69,601(6) *
William B. Greene, Jr. 17,001(7) *
Clark R. Mandigo 79,601(8) *
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Dimensional Fund Advisors Inc. 2,006,900(9) 8.3%
Chilton Investment Company, Inc. 1,800,900(10) 7.5%
Pioneer Investment Management, Inc. 1,309,700(11) 5.4%
All directors and executive officers as
a group (11) persons (1-8) 7,329,645(12) 25.5%
* Less than 1%
(1) Includes presently exercisable options to purchase 2,600,000 shares of Common Stock.
(2) Includes presently exercisable options to purchase 1,000,000 shares of Common Stock.
(3) Includes presently exercisable options to purchase 575,000 shares of Common Stock.
(4) Includes presently exercisable options to purchase 146,861 shares of Common Stock.
(5) Includes presently exercisable options to purchase 79,876 shares of Common Stock
(6) Includes presently exercisable options to purchase 65,601 shares of Common Stock.
(7) Includes presently exercisable options to purchase 15,601 shares of Common Stock.
(8) Includes presently exercisable options to purchase 49,601 shares of Common Stock.
(9) Based on a Schedule 13G filed in February, 2001, Dimensional Fund Advisors Inc.
beneficially holds 2,006,900 shares of the Company's Common Stock. The address of
Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(10) Based on a Schedule 13G filed in January 2001, Chilton Investment Company, Inc.
beneficially holds 1,800,900 shares of the Company's Common Stock. The address of
Chilton Investment Company, Inc. is 65 Locust Avenue, New Canaan, CT 06840.
(11) Based on a Schedule 13G filed in January 2001, Pioneer Investment Management, Inc.
beneficially holds 1,309,700 shares of the Company's Common Stock. The address of
Pioneer Investment Management, Inc. is 60 State Street, Boston, MA 02109.
(12) Includes presently exercisable options to purchase 4,663,305 shares of Common Stock,
which includes presently exercisable options to purchase 129,765 shares of Common Stock
held by executive officers, who are not specifically identified in the Security
Ownership Table above.
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PROPOSAL I
ELECTION OF DIRECTORS
Article Fifth, Paragraph A of the Certificate of Incorporation of
the Company, and Article Two, Section 2.2 of its By-Laws provide for the
organization of the Board of Directors into three classes. The number of
Directors is established by the By-Laws pursuant to Board of Directors
authorization. Currently, the Board of Directors is composed of five (5)
Directors. At the Company's 2000 Annual Meeting of Stockholders, the Company's
stockholders approved a proposal to amend the Company's By-Laws to require that
a majority of the Board of Directors be comprised of "Independent Directors" as
defined in the proposal and the Company has amended its By-Laws to implement
this proposal. In addition, the Board of Directors has a Nominating Committee,
consisting of independent Directors which is charged with recommending
candidates to stand for election to the Board. The Board of Directors' nominee
for Director, Jamie B. Coulter, is currently a Director of the Company, and was
appointed to the Board of Directors in January, 1992. All Directors are chosen
for a full three-year term to succeed those whose terms expire. It is therefore
proposed that Mr. Coulter be elected to serve until the Annual Meeting of
Stockholders to be held in 2004 and until his successor is elected and shall
have qualified.
Pursuant to the Company's By-Laws, the Company has been notified by
Guy Adams that he intends to stand for election at the Meeting. Mr. Adams has
filed proxy materials indicating that he will solicit the vote of the Company's
stockholders for his election to the Board of Directors.
Additionally, on April 20, 2001, the Company commenced an action in
the United States District Court for the District of Kansas against Mr. Adams
and other unnamed defendants alleging violations of Section 14(a) and 10(b) of
the Securities Exchange Act of 1934. The Complaint alleges that Mr. Adams and
others are conducting an unlawful proxy solicitation by, among other things,
failing to disclose the "participants" who are providing financial and other
support for Mr. Adams' efforts, by making false and materially misleading
statements regarding the Company and its independent directors, and by making
false and materially misleading statements regarding alleged "support" garnered
by Mr. Adams. The Company was granted discovery on an expedited basis and is
planning to move at an early opportunity for injunctive relief. Mr. Adams is
seeking to stay discovery pending determination of his motion to dismiss the
action on the basis that the United States District Court for the District of
Kansas lacks jurisdiction over Mr. Adams.
THE BOARD OF DIRECTORS URGES YOU NOT TO SIGN ANY PROXY CARD SENT TO
YOU BY GUY ADAMS. IF YOU HAVE ALREADY DONE SO, YOU MAY REVOKE YOUR PREVIOUSLY
SIGNED PROXY BY SUBMITTING A LATER DATED WHITE PROXY.
Unless otherwise specified, all of the WHITE Proxies received will
be voted in favor of the election of Jamie B. Coulter, the nominee. The Director
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. The term of the Board of
Directors' nominee expires at the Meeting and when his successor is duly elected
and shall have qualified. Management has no reason to believe that the Board of
Directors' nominee will be unable or unwilling to serve as a director, if
elected. Should the nominee not remain a candidate for election at the date of
the Meeting, the WHITE 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
Name Age as Director Expires
---- --- -------------------
Jamie B. Coulter 60 2001
John D. White 53 2003
*Fred B. Chaney 64 2002
*William B. Greene , Jr. 63 2002
*Clark R. Mandigo 57 2003
-------------------
* Independent Director
Jamie B. Coulter has served as Chairman and Chief Executive Officer
of the Company since January 1992 and served as President of the Company from
January, 1992 to June, 1995. Mr. Coulter received the Nation's Restaurant News
Golden Chain Award in
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1995 and its Hot Concept Award in 1997. Mr. Coulter was inducted into the Pizza
Hut Hall of Fame in 1993, received INC. Magazine's Midwest Region Master
Entrepreneur of the Year in 1993, and was Restaurants & Institutions CEO of the
Year in 1996.
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 was a graduate of the Stanford University Executive Program in 1990.
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 partner with 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.
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. 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 the First Union Corporation, soon
to become 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. Mr. Greene is a
Director of the JDN Corporation, a Real Estate Investment Trust on the New York
Stock Exchange where he is Chairman of the Compensation Committee.
Clark R. Mandigo 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 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.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF JAMIE
B. COULTER.
BOARD COMMITTEES AND DIRECTOR MEETINGS
For the fiscal year ended December 26, 2000, there were four (4)
meetings of the Board of Directors. From time to time, the members of the Board
of Directors acted by unanimous written consent pursuant to the laws of the
State of Delaware.
The Board of Directors has an Audit Committee, a Compensation
Committee, a Stock Option Committee and a Nominating Committee. The Audit
Committee is composed of all of the Company's non-management directors. The
principal responsibility of the Audit Committee is described in the Audit
Committee Charter that was approved by the Company's Board of Directors and is
attached as Appendix A to this Proxy Statement. 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. The Compensation Committee, which is also composed of all
of the Company's non-management directors, recommends to the Board of Directors
compensation for the Company's key employees. The Stock Option Committee also
consists of all of the non-management directors and
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administers the Company's 1992 Incentive and Non-Qualified Stock Option Plan, as
amended (the "Plan") and awards stock options thereunder. The Nominating
Committee is composed of 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. The members of the Audit Committee,
Compensation Committee, Stock Option Committee and Nominating Committee are
Messrs. Chaney, Greene and Mandigo. During 2000, there were three (3) meetings
of the Audit Committee, three (3) meetings of the Compensation Committee, three
(3) meetings of the Stock Option Committee and three (3) meetings of the
Nominating Committee.
OTHER EXECUTIVE OFFICERS
Gerald T. Aaron, 60, 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, 35, has been Vice President of Operations - Lone Star
Steakhouse & Saloon since May 1999. Mr. Bracken has worked for the Company since
1996, previously as a Regional Manager.
Deidra Lincoln, 41, has been Vice President of Operations--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.
Robert Martin, 70, has been Senior Vice President of Marketing -
Lone Star Steakhouse & Saloon since February, 2000. Mr. Martin formerly served
as a Director for Applebee's Neighborhood Grills from 1989 to 1999. Mr. Martin
also served Applebee's Neighborhood Grills as Vice President of Marketing from
1991 to 1994, Senior Vice President of Marketing from 1994 to 1996 and Executive
Vice President of Marketing from 1996 to 1999. From 1990 to April, 1991 Mr.
Martin served as President of Kayemar Enterprises, a Kansas City, Missouri-based
marketing consulting firm. From 1983 to January, 1990 Mr. Martin served as
President, Chief Operating Officer and a director of Juneau Holding Co. From
July 1977 to June, 1981 Mr. Martin served as President of United Vintners Winery
and prior to that time he was employed for twenty-five (25) years by Schlitz
Brewing Company, most recently in the position of Senior Vice President of Sales
and Marketing.
Tomlinson D. O'Connell, 32, joined the Company in 1995, and has been
Senior Vice President of Operations - Lone Star Steakhouse & Saloon, Inc. since
December of 1999. Mr. O'Connell is currently responsible for the operation of
243 domestic 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.
Randall H. Pierce, 61, 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. During Mr. Pierce's tenure in the Wichita, Kansas
office with Ernst & Young, LLP, Mr. Pierce served 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. Mr.
Pierce's duties included serving clients in both the public and private sectors
in matters related to accounting, auditing and business matters as well as
providing technical advice and consultation to other accounting professionals in
the office. 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.
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 $100,000 with respect to the fiscal year ended
December 26, 2000.
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SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Number of
Securities
Other Annual Underlying Options All Other
Name and Principal Position Year Salary Bonus($) Compensation(1) (# of Shares) Compensation
--------------------------- ---- ------ -------- --------------- ------------------ ------------
Jamie B. Coulter 2000 $750,000 $226,642(2) $72,265 - -
Chairman of the Board and 1999 $300,000 - $ 7,219 - -
Chief Executive Officer 1998 $300,000 - - - -
-
John D. White 2000 $600,000 $181,500(2) $57,842 - -
Executive Vice President 1999 $283,000 - $ 6,681 - -
and Treasurer 1998 $283,000 - - - -
Gerald T. Aaron 2000 $250,000 $76,500(2) $24,039 - -
Senior Vice President 1999 $228,000 - $ 3,946 - -
Counsel & Secretary 1998 $228,000 - - - -
Deidra Lincoln 2000 $260,000 $78,004(2) $25,000 - -
Vice President of Operations - 1999 $240,000 $64,000(3) $ 5,548 117,672 -
Del Frisco's 1998 $235,000 - - - -
Tomlinson D. O'Connell 2000 $200,000 $53,753(2) $23,106 - -
Senior Vice President of Operations - 1999 $139,773 $45,000(3) $ 3,381 81,479 -
Lone Star Steakhouse & Saloon 1998 $ 92,069 - - - -
-------------------
(1) Represents for 2000 and 1999 fifty percent matching contributions by
the Company pursuant to the Company's Deferred Compensation Plan, which
became effective October 7, 1999. As to Named Executive Officers,
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) Such bonus was paid in 2001 for services performed in 2000.
(3) Such bonus was paid in 2000 for services performed in 1999.
OPTION GRANTS
No options were granted to the CEO or any Named Executive Officer
for services rendered during the fiscal year ended December 26, 2000. As
previously reported in the Company's Proxy Statement for its 2000 Annual Meeting
of Stockholders, the Company granted stock options to Deidra Lincoln and
Tomlinson D. O'Connell in 2000 for services rendered in 1999.
FISCAL YEAR END OPTION VALUES
No options were exercised by the CEO and the other Named Executive Officers
during the fiscal year ended December 26, 2000. The following table sets forth
certain information concerning unexercised options held as of December 26, 2000
by the CEO and the other Named Executive Officers. At December 26, 2000, the
closing price of the Company's Common Stock, as reported by the Nasdaq National
Market, was $8.125.
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FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at December 26, 2000 December 26, 2000 ($)
---------------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- ------------
Jamie B. Coulter 2,600,000 -0- -0- -0-
John D. White 1,000,000 -0- -0- -0-
Gerald T. Aaron 575,000 -0- -0- -0-
Deidra Lincoln 99,303 158,447 -0- -0-
Tomlinson D. O'Connell 31,176 170,067 -0- -0-
DIRECTORS COMPENSATION
Directors who are not employees of the Company receive 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 compensation for their service as a Director. Non-employee Directors are
also entitled to receive grants of options under the Company's 1992 Directors
Stock Option Plan (the "Director's Plan"). Upon election to the Board of
Directors, each director who is not an executive officer is granted a one-time
stock option to acquire 40,000 shares of Common Stock and receives an annual
grant of 6,800 shares one day after the end of the Company's fiscal year. The
exercise price for such shares is equal to the closing sale price of the Common
Stock as reported on the Nasdaq National Market on the date of grant. Currently,
options to purchase an aggregate of 262,400 shares of Common Stock are
outstanding under the Directors Plan at exercise prices ranging from $6.688 per
share to $18.81 per share. On December 29, 1999, the Company's outside Directors
were automatically granted options to purchase an aggregate of 20,400 shares of
Common Stock under the Directors Plan at an exercise price of $9.375 per share.
EMPLOYMENT AGREEMENTS
The Company has entered into separate employment agreements, with
each of Messrs. White, Aaron, Bracken, Martin, O'Connell and Pierce, dated as of
March 22, 2000, providing for the employment of such individuals as Executive
Vice President, Senior Vice President - Counsel, Vice President of Operations -
Lone Star Steakhouse & Saloon, Senior Vice President of Marketing - Lone Star
Steakhouse & Saloon, Senior Vice President of Operations - Lone Star Steakhouse
& Saloon, and Chief Financial Officer, 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 amount of $600,000, $228,000, $175,000, $180,000, $200,000, and
$200,000, respectively, for Messrs. White, Aaron, Bracken, Martin, O'Connell,
and Pierce, subject to increases as determined by the Board of Directors. Ms.
Lincoln's base salary is $260,000. In addition, Mr. Martin received a signing
bonus of $250,000, which was paid to Mr. Martin on January 3, 2000. Each
agreement terminates in March, 2003, but the Company has the option to extend
the term annually for additional one year periods. Each agreement contains
non-competition, confidentiality and non-solicitation provisions which apply for
twenty-four months after cessation of employment.
Mr. Coulter has also entered into a non-competition, confidentiality
and non-solicitation agreement with the Company. (See "Compensation of Chief
Executive Officer" for information relative to Mr. Coulter's salary).
SEVERANCE AGREEMENTS
The Company has entered into a Change of Control Contract with Jamie
B. Coulter, dated as of January 3, 2001 that provides for severance pay and
incidental benefits if there is a change in control of the Company (as defined
in the Change of Control Contract). The payment is a lump sum payment equal to
2.99 times one year's annual compensation. The agreement also provides Mr.
Coulter with the right to replace all stock options whether vested or not with
fully vested stock options (all of Mr. Coulter's stock options are fully
vested), or alternatively the right to receive a cash payment for surrendering
the options equal to the difference between the full exercise price of each
option surrendered and the greater of the price per share paid by the acquirer
in the change of control transaction or the market price of the Company's Common
Stock on the date of the change of control. The benefits also include
transferring ownership of any Company automobile which is primarily used by Mr.
Coulter and life and medical insurance coverage for up to two years or such
longer period if previously agreed to. Finally, the agreement provides that if
any excise taxes are imposed on Mr. Coulter by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company will make him whole.
The Company has also entered into Change of Control Contracts with Messrs.
White, Aaron, Bracken, O'Connell, Pierce and Ms. Lincoln. Unlike Mr. Coulter's
Change of Control Contract, severance payments and benefits (other than the
stock option benefit) require a second event to occur within 730 days from the
change of control before severance payments are due. The second event includes
any of the following, involuntary termination (other than for cause, death or
disability), relocation or a diminution in the responsibility, authority or
compensation of the executive officer. If there is a change of control and any
such second event occurs, Messrs. White, Aaron, Bracken, O'Connell, Pierce and
Ms. Lincoln have the right to receive benefits substantially similar to those
described above.
JOINT REPORT BY THE COMPENSATION COMMITTEE AND THE
STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
-11-
GENERAL
The Compensation Committee determines the cash and other incentive
compensation (with the exception of stock options which are granted by the Stock
Option Committee), if any, to be paid to the Company's executive officers and
key employees. Messrs. Chaney, Greene and Mandigo, non-employee directors of the
Company, serve as members of the Compensation Committee and the Stock Option
Committee and are "non-employee directors" (within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended). Mr. Mandigo serves as
Chairman of the Compensation Committee and of the Stock Option Committee. During
fiscal 2000, there were three (3) meetings of the Compensation Committee and
three (3) meetings of the Stock Option Committee.
COMPENSATION PHILOSOPHY
The Compensation 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 place it among the top half of its
industry, including 401(k) and deferred compensation plans adopted in the fourth
quarter of 1999. The Compensation Committee strongly believes that the caliber
of the management personnel makes a significant difference in the Company's long
term success, as a result it is the philosophy of the Compensation Committee in
tandem with the Stock Option Committee to provide officers with the opportunity
to realize potentially significant financial gains through the grants of stock
options. The Compensation Committee also believes that the potential for equity
ownership by management is beneficial in aligning management's and stockholders'
interest in the enhancement of stockholder value. However, the decision to
ultimately grant stock options is based primarily on the criteria set forth
under "Stock Option Plan" below.
Section 162(m) of the 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 any compensation received by executive
officers in connection with the exercise of options granted under the Plan
qualifies as "performance-based compensation." The Company has not established a
policy with respect to Section 162(m) of the Code because historically the
Company has not paid compensation in excess of $1 million per annum to any
employee.
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 in the top half of the industry).
Positioning executive officers' base salaries at these levels is necessary for
attracting, retaining and motivating executive officers with the essential
qualifications for managing the Company. The Company defines the relevant labor
market through the use of third-party executive salary surveys that reflect both
the chain 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. These base
salaries are based on and are reviewed annually in accordance with the factors
described in this paragraph and the terms of the employment agreements.
See "Executive Compensation - Employment Agreements."
ANNUAL BONUSES
The Company evaluates the performance of its executives on an annual
basis. Messrs. White, Aaron, O'Connell and Ms. Lincoln received bonuses of
$181,500, $76,500, $53,753 and $78,004, respectively for fiscal
-12-
2000. These bonuses were based, first, upon the Company's performance and,
second, upon the level of personal achievement by participants. The Company may
in the future adopt an executive bonus plan.
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, change in control of the Company, disability
or retirement. 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 OF CHIEF EXECUTIVE OFFICER
Mr. Coulter's base salary in 2000 was $750,000. Mr. Coulter's base
salary is based upon the factors described in the "Salaries" paragraph above.
Mr. Coulter's salary has been increased to be more comparable to the higher
range of salaries of chief executive officers of companies of similar size
reviewed by the Company. Mr. Coulter was awarded a bonus of $226,642 for
services performed in fiscal 2000. Mr. Coulter's bonus is based upon the factors
described in the "Annual Bonuses" paragraph above.
STOCK OPTION PLAN
It is the philosophy of the 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 Plan.
Except for options granted to Ms. Lincoln and Mr. O'Connell for services
rendered in 1999, the Company did not grant any stock options to any of the
Named Executive Officers for the fiscal year ended December 26, 2000 but as
described below under "Report on Repricing of Options" repriced stock options
held by such individuals.
This report is submitted by the members of the Compensation
Committee and the Stock Option Committee Fred B. Chaney, William B. Greene, Jr.
and Clark R. Mandigo.
REPORT ON THE REPRICING OF OPTIONS / SARS
In response to, among other things, aggressive recruiting and
solicitation efforts, effective January 7, 2000, the Stock Option Committee of
the Board of Directors reduced the exercise price of all outstanding stock
options of current employees, which had an exercise price in excess of $8.46875
to $8.46875 per share, which was the closing price of the Company's Common Stock
as reported by the Nasdaq National Market on such date. The reduction affected
options held by all employees of the Company then holding options in excess of
$8.46875 per share, including options held by Messrs. Coulter, White, Aaron and
Ms. Lincoln. The total number of options held by Messrs. Coulter, White, Aaron
and Ms. Lincoln that were repriced were 2,600,000, 1,000,000, 575,000 and 42,750
respectively, all at an exercise price of $18.25 per share.
The Stock Option Committee believes that the reduction in exercise
price is consistent with the Company's compensation philosophy, by utilizing
stock options to attract and retain qualified employees with the same long-term
interests as the Company's stockholders. The Stock Option Committee believed
that without the reduction in exercise price the Company would lose a
significant number of key management personnel and restaurant general managers.
On December 21, 2000, the Company received a stockholder proposal
from the Amalgamated Bank of New York, LongView MidCap 400 Index Fund
("Amalgamated") to be included in this Proxy Statement (the "Amalgamated
Proposal"). The Amalgamated Proposal, sought stockholder approval for an
amendment to the Company's By-Laws prohibiting the (i) repricing of any stock
options already issued and outstanding to a lower exercise price, and (ii)
issuance of replacement options that would allow eligible individuals to
purchase stock at a
-13
lower price than the exercise price of previously issued and outstanding
options, without obtaining the prior approval of stockholders.
As a result of discussions with Amalgamated concerning the
Amalgamated Proposal and after a detailed evaluation of the matter, the Board of
Directors on April 30, 2001 has unanimously adopted and approved Board
resolutions which prohibit the (i) repricing of any stock options held by
officers and Directors, and (ii) issuance of any replacement options to officers
and Directors, unless the option repricing or replacement options are approved
by the stockholders of the Company. These restrictions on option repricing and
replacement options apply to any options granted or to be granted under any
current or future stock option plan of the Company, and may not be amended or
terminated without stockholder approval. As a result of the adoption of this
policy, the Amalgamated Proposal has been withdrawn.
This report is submitted by the members of the Compensation
Committee and the Stock Option Committee Fred B. Chaney, William B. Greene, Jr.
and Clark R. Mandigo.
The following provides information on the change in exercise price
of stock options held by current and former executives of the Company within the
past ten years.
Length of
original
Number of option term
securities Market price of Exercise price remaining at
underlying stock at time of at time of New date of
options repriced repricing or repricing or exercise repricing or
Date of or amended amendment amendment price amendment
Name repricing (#) ($) ($) ($) (years)
----------------- --------- ---------------- ---------------- -------------- -------- ------------
Jamie B. Coulter................ 1/7/00 300,000 8.46875 18.25 8.46875 3
1/7/00 400,000 8.46875 18.25 8.46875 4
1/7/00 500,000 8.46875 18.25 8.46875 5
1/7/00 200,000 8.46875 18.25 8.46875 6
1/7/00 1,200,000 8.46875 18.25 8.46875 7
John D. White................... 1/7/00 75,000 8.46875 18.25 8.46875 3
1/7/00 100,000 8.46875 18.25 8.46875 4
1/7/00 125,000 8.46875 18.25 8.46875 5
1/7/00 100,000 8.46875 18.25 8.46875 6
1/7/00 600,000 8.46875 18.25 8.46875 7
Gerald T. Aaron................. 1/7/00 100,000 8.46875 18.25 8.46875 4
1/7/00 100,000 8.46875 18.25 8.46875 5
1/7/00 75,000 8.46875 18.25 8.46875 6
1/7/00 300,000 8.46875 18.25 8.46875 7
Deidra Lincoln.................. 1/7/00 42,750 8.46875 18.25 8.46875 5
Jeff Bracken.................... 1/7/00 45,000 8.46875 18.25 8.46875 7
1/7/00 11,429 8.46875 18.25 8.46875 7
-14-
Length of
original
Number of option term
securities Market price of Exercise price remaining at
underlying stock at time of at time of New date of
options repriced repricing or repricing or exercise repricing or
Date of or amended amendment amendment price amendment
Name repricing (#) ($) ($) ($) (years)
------------------ --------- ---------------- ---------------- -------------- -------- ------------
Jamie B. Coulter 4/25/97 300,000 18.25 20.75 18.25 6
4/25/97 400,000 18.25 22.00 18.25 7
4/25/97 500,000 18.25 19.00 18.25 8
4/25/97 200,000 18.25 32.625 18.25 9
4/25/97 1,200,000 18.25 28.375 18.25 10
John D. White 4/25/97 75,000 18.25 20.75 18.25 6
4/25/97 100,000 18.25 22.00 18.25 7
4/25/97 125,000 18.25 19.00 18.25 8
4/25/97 100,000 18.25 32.625 18.25 9
4/25/97 600,000 18.25 28.375 18.25 10
Gerald T. Aaron 4/25/97 100,000 18.25 22.00 18.25 7
4/25/97 100,000 18.25 19.00 18.25 8
4/25/97 75,000 18.25 32.625 18.25 9
4/25/97 300,000 18.25 28.375 18.25 10
Michael J. Archer * 4/25/97 171,000 18.25 31.00 18.25 8
4/25/97 75,000 18.25 32.625 18.25 9
4/25/97 400,000 18.25 28.375 18.25 10
Dennis L. Thompson ** 4/25/97 75,000 18.25 20.75 18.25 6
4/25/97 100,000 18.25 22.00 18.25 7
4/25/97 100,000 18.25 19.00 18.25 8
4/25/97 100,000 18.25 32.625 18.25 9
4/25/97 133,333 18.25 28.375 18.25 10
* Such individual is no longer employed by the Company and all of the stock
options held by such individual expired before they were exercised.
** Such individual is no longer employed by the Company and none of such stock
options have been exercised.
COMPENSATION COMMITTEE INTERLOCKS
The Compensation Committee consists of Messrs. Chaney, Greene and
Mandigo. None of such Directors was a party to any transaction with the Company
which requires disclosure under Item 402(j) of Regulation S-K.
-15-
COMMON STOCK PERFORMANCE
The following graph compares the total return on the Company's
Common Stock from December 27, 1995, to December 26, 2000, the total returns of
the Standard & Poor's Mid-Cap 400 Index and the Standard & Poor's Restaurant
Industry Index (the "Peer Group").
COMPARISON OF TOTAL RETURN FROM DECEMBER 27, 1995
TO DECEMBER 26, 2000 AMONG LONE STAR STEAKHOUSE & SALOON, INC.,
THE STANDARD & POOR'S MID-CAP 400 INDEX AND THE PEER GROUP
[Insert Graph]
INDEXED RETURNS
Years Ending
Base
Company/Index Period 31-Dec-96 30-Dec-97 29-Dec-98 28-Dec-99 26-Dec-00
------------- ------ --------- --------- --------- --------- ---------
Lone Star Steakhouse & Saloon, Inc. 100 69.71 45.60 20.52 23.29 22.08
S&P Midcap 400 Index 100 114.20 157.65 204.77 242.38 277.49
Restaurants-500 100 98.80 106.09 166.26 169.38 151.85
Assumes $100 invested on December 27, 1995 in the Company's Common
Stock, the Standard & Poor's Mid-Cap 400 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.
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 25, 2001.
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.
Fees billed to the Company by Ernst & Young, LLP during fiscal 2000
were as follows:
AUDIT FEES:
Audit fees and related services billed to the Company by Ernst &
Young, LLP during the Company's 2000 fiscal year for the audit of the Company's
annual financial statements and the review of those financial statements
included in the Company's quarterly reports on Form 10-Q totaled approximately
$168,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES:
The Company did not engage Ernst & Young, LLP to provide advice to
the Company regarding financial information systems design and implementation
during the fiscal year ended December 26, 2000.
-16-
ALL OTHER FEES:
Fees billed to the Company by Ernst & Young, LLP during the
Company's 2000 fiscal year for all other non-audit services rendered to the
Company, primarily tax related services totaled approximately $273,000. 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," "Report of the Audit
Committee," and Appendix A.
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 25, 2001.
PROPOSAL III
STOCKHOLDER PROPOSAL
MAXIMIZE VALUE RESOLUTION
William Steiner, an individual residing at 4 Radcliff Drive, Great
Neck, New York 11024, beneficial owner of 1550 shares of Common Stock of the
Company has notified the Company that he intends to present the following
proposal at the Meeting:
Resolved that the stockholders of Lone Star Steakhouse & Saloon,
Inc. urge the Lone Star Steakhouse & Saloon, Inc. Board of Directors to arrange
for the prompt sale of Lone Star Steakhouse & Saloon, Inc. to the highest
bidder.
The purpose of the Maximize Value Resolution is to give all Lone
Star Steakhouse & Saloon, Inc. stockholders the opportunity to send a message to
the Lone Star Steakhouse & Saloon, Inc. Board that they support the prompt sale
of Lone Star Steakhouse & Saloon, Inc. to the highest bidder. A strong and or
majority vote by the stockholders would indicate to the Board the displeasure
felt by the stockholders of the stockholder returns over many years and the
drastic action that should be taken. Even if it is approved by the majority of
the Lone Star Steakhouse & Saloon, Inc. shares represented and entitled to vote
at the annual meeting, the Maximize Value Resolution will not be binding on the
Lone Star Steakhouse & Saloon, Inc. Board. The proponent however believes that
if this resolution receives substantial support from the stockholders, the Board
may choose to carry out the request set forth in the resolution.
The prompt auction of Lone Star Steakhouse & Saloon, Inc. should be
accomplished by any appropriate process the Board chooses to adopt including a
sale to the highest bidder whether in cash, stock, or a combination of both. It
is expected that the Board will uphold its fiduciary duties to the utmost during
the process.
The proponent further believes that if the resolution is adopted,
the management and the Board will interpret such adoption as a message from the
company's stockholder's that it is no longer acceptable for the Board to
continue with its current management plan and strategies.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION
BOARD OF DIRECTORS' STATEMENT IN OPPOSITION TO STOCKHOLDER PROPOSAL
For the reasons set forth below, the Board of Directors of the
Company believes that the approval of the proposed resolution would not be in
the best interest of the Company or its stockholders.
The proponent of the proposed resolution appears to be interested in
a quick, self-vindicating profit, rather than the long term economic health of
the Company. In fact, the proponent of the proposed resolution has made it a
practice to submit similar stockholder proposals to be included in the proxy
statements of various companies.
The proposed resolution calls for the prompt sale of the Company to
the highest bidder without regard to the adequacy of the consideration and
without regard to the relative benefits to stockholders of other alternatives.
-17-
The implementation of the proposed resolution would be totally inconsistent with
the Board of Directors' duty to maximize stockholder value and protect the
interests of all of the Company's stockholders.
Consistent with its fiduciary duty, the Board of Directors seeks to
manage the Company's affairs in a manner it believes to be in the best interests
of the Company and its stockholders. To this end, the Board of Directors will
carefully consider any bona fide proposal which it believes has the potential to
increase stockholder value, including a bona fide proposal for the acquisition
of the Company. However, the Board of Directors believes it can only function
effectively and be in a position to maximize stockholder value if matters
pertaining to strategic planning of the Company (i.e., disposition of the
Company) is conducted confidentially.
Therefore, in the future should it become apparent to the Board of
Directors that the disposition of the Company and/or its assets would be in the
best interest of the Company and its stockholders, then such plans can be
developed discreetly, without the fear of adverse disruptions of the public
market for the Company's stock and without disturbing ongoing valuable
relationships that the Company maintains.
The initiation of a "prompt sale" in the manner contemplated by the
proposed resolution would, in the opinion of the Board of Directors, be
inconsistent with the stockholders' interests. In the Board of Directors'
opinion, the initiation of such action could create an atmosphere which could
have the effect of reducing the perceived value of the Company to a "going out
of business" level, thus forcing the Company to negotiate with bidders from a
position of weakness. Moreover, the uncertainty created by a publicly announced
"prompt sale" could adversely affect the Company's existing relationships and
reputation in the industry, thus potentially further lowering the value of the
Company.
Management welcomes input from the Company's stockholders and will
carefully consider meaningful suggestions it receives to increase or maximize
stockholder value. However, for the reasons set forth above, the Board of
Directors unanimously urges a vote against the foregoing proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS STRONGLY RECOMMENDS A VOTE "AGAINST" THE
STOCKHOLDER PROPOSAL.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 2000, the Company purchased business gifts and awards in the
amount of $56,000 from a retail establishment owned by Mr. Coulter. The Company
also leases certain meeting room space, parking lot space and document storage
space from entities owned by Mr. Coulter. Total rent fees paid to the related
entities in 2000 for the meeting room space, parking lot space and document
storage space were $63,600. The Company believes the charges reimbursed are at
least as favorable as charges that would have been incurred for similar services
or purchases from an unaffiliated third party.
AUDIT COMMITTEE REPORT
The members of the Audit Committee from December 28, 1999 to
December 26, 2000 were Messrs. Chaney, Greene and Mandigo, all of whom are
"independent directors" (as "independent director" is defined pursuant to the
National Association of Securities Dealers Marketplace Rule 4200(a)(14)(D)). The
Audit Committee met three (3) 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 adopted a written charter during fiscal 2000, a
copy of which is attached to this Proxy Statement as Appendix A. 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.
-18-
In connection with the audit of Company's financial statements for
the year ended December 26, 2000, 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.
In June 2000, 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 26, 2000 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 26, 2000.
Fred B. Chaney
William B. Greene, Jr.
Clark R. Mandigo
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 January 18, 2002.
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 2002 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 3, 2002 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
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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.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. The
Company currently estimates that it will spend a total of approximately $150,000
for its solicitation of proxies. This estimate excludes salaries and wages of
regular employees and officers and normal expenses of an uncontested proxy
solicitation for the election of a Director. As of May 16, 2001, the Company had
expended approximately $65,000 in connection with its proxy solicitation. The
transfer agent and registrar for the Company's Common Stock, First Union
National Bank, 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 ("Innisfree") for a fee not to exceed $150,000, plus
reimbursement of reasonable out-of-pocket expenses to assist in the solicitation
of proxies and revocations. The Company estimates that approximately 75
employees of Innisfree will be involved in the solicitation of proxies and
revocations on behalf of the Company. 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.
INFORMATION CONCERNING PERSONS WHO MAY SOLICIT PROXIES
Under applicable Securities and Exchange Commission rules, the
following individuals, all of whom are Directors or executive officers of the
Company, may be deemed to be participants in the solicitation of proxies on
behalf of the Company: Jamie B. Coulter (Chairman and Chief Executive Officer),
John D. White (Executive Vice President, Treasurer and Director), Gerald T.
Aaron (Senior Vice President - Counsel and Secretary), Deidra Lincoln (Vice
President of Operations--Del Frisco's), Randall H. Pierce (Chief Financial
Officer), Tomlinson D. O'Connell (Senior Vice President of Operations - Lone
Star Steakhouse & Saloon, Inc.), Robert Martin (Senior Vice President of
Marketing - Lone Star Steakhouse & Saloon, Inc.), Jeff Bracken (Vice President
of Operations - Lone Star Steakhouse & Saloon, Inc.), Fred B. Chaney (Director,
903 West 9th Street, Glenwood Springs, CO 81601), William B. Greene, Jr.
(Director, Carter County Bank, 601 East Elk Avenue, Elizabethtown, Tenn. 37643),
Clark R. Mandigo (Director, 15050 Jones Maltzberger, Suite 2, San Antonio, TX
78247). The address for each of Messrs. White, Aaron, Pierce, O'Connell, Martin,
Bracken and Ms. Lincoln is 224 East Douglas, Suite 700, Wichita, Kansas
67202-3414. The address of Jamie B. Coulter is 5251 Spring Valley Road, Dallas,
Texas 75240.
The number of shares of Common Stock of the Company owned by each
participant (other than Randall H. Pierce, Robert Martin and Jeff Bracken) are
set forth in the table under "Security Ownership." Except as otherwise disclosed
in this Proxy Statement, the shares set forth in that table opposite such
participant's name are owned of record and beneficially by such participant. As
of the date of this Proxy Statement, Messrs. Pierce, Martin and Bracken owned
2,595, 0 and 2,220 shares respectively of Common Stock of the Company, and held
presently
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exercisable options to acquire 33,334, 10,001 and 86,430 shares, respectively,
under the Company's stock option plans. Within the past two years, none of the
participants have purchased or sold any shares of Common Stock of the Company
except that (i) Mr. O'Connell purchased 1,000 shares of Common Stock on December
12, 2000 at the purchase price of $7.75 per share; (ii) Mr. Pierce purchased 595
shares on September 7, 1999 at the purchase price of $7.48 per share and 2,000
shares on October 18, 1999 at the purchase price of $7.75 per share and (iii)
Mr. Greene purchased 1,400 shares of Common Stock on April 18, 2001 at the
purchase price of $10.85 per share.
Except as described in this Proxy Statement, none of the
participants nor any of their respective affiliates or associates (together, the
"participant affiliates") (i) directly or indirectly beneficially owns any
securities of the Company or (ii) has had any relationship with the Company in
any capacity other than as a stockholder, employee, officer or Director.
Furthermore, except as described in this Proxy Statement, no participant or
participant affiliate is or was either a party to any transaction or series of
transactions since the beginning of fiscal 2000 or has knowledge of any
currently proposed transaction or series of transactions (i) to which the
Company was or is to be a party, (ii) in which the amount involved exceeds
$60,000 and (iii) in which any participant or participant affiliate had or will
have a direct or indirect material interest. Except as described in this Proxy
Statement, no participant or participant affiliate has entered into any
agreement or understanding with any person respecting any (i) future employment
by the Company or its affiliates or (ii) any transaction to which the Company or
any of its affiliates will or maybe a party. Except as described in this Proxy
Statement, there are no contracts, arrangements or understandings by any
participant or participant affiliate within the past year with any person with
respect to any securities of the Company.
ANNUAL REPORT
All stockholders of record as of May 11, 2001 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for the
fiscal year ended December 26, 2000. Such report contains certified consolidated
financial statements of the Company and its subsidiaries for the fiscal year
ended December 26, 2000.
By Order of the Company,
GERALD T. AARON
Secretary
Dated: Wichita, Kansas
May 18, 2001
The Company will furnish, without charge, a copy of its Annual
Report on Form 10-K for the fiscal year ended December 26, 2000 (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.
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APPENDIX A
LONE STAR STEAKHOUSE & SALOON, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee. The committee shall
review and reassess the charter at least annually and obtain the approval of the
board of directors. The committee shall be appointed by the board of directors
and shall comprise at least three directors, each of whom are independent of
management and the Company. 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 audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, 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 audit 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 processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate.
o The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of
the Company's shareholders. The committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate,
replace the independent auditors. The committee shall discuss with the
auditors their independence from management and the Company and the
matters included in the written disclosures required by the
Independence Standards Board. Annually, the committee shall review and
recommend to the board the selection of the Company's independent
auditors, subject to shareholders' approval.
o The committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
committee shall discuss with management, the internal auditors, 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.
Further, the committee shall meet separately with the internal auditors
and the independent auditors, with and without management present, to
discuss the results of their examinations.
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o The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss 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. The chair of the
committee may represent the entire committee for the purposes of this
review.
o The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report
on Form 10-K (or the annual report to shareholders if distributed prior
to the filing of 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. Also, the committee shall
discuss 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.
LONE STAR STEAKHOUSE & SALOON, INC.
ANNUAL MEETING OF STOCKHOLDERS - JULY 6, 2001
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 am., local time on July 6, 2001 at the
Sullivan's Steakhouse restaurant located at 300 Colorado Street, Austin, Texas
78701, 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 as follows: (1) Proposal 1 - FOR the election of the Board
of Directors' nominee; (2) Proposal 2 - FOR the ratification of Ernst & Young,
LLP as the Company's independent auditors; and (3) Proposal 3 - AGAINST the
Stockholder Proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. Election of nominee named below to the Board of Directors of the Company.
Nominee: Jamie B. Coulter
|_| FOR nominee listed above |_| WITHHOLD AUTHORITY
to vote for the nominee
listed above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
2. To ratify the appointment of Ernst & Young, LLP as that Company's
independent auditors for the fiscal year ending December 25, 2001.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 3.
3. Stockholder Proposal.
|_| FOR |_| AGAINST |_| ABSTAIN
(Continued and to be signed and dated, on the reverse side.)
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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.
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR PROPOSAL 1; FOR PROPOSAL 2; AND
AGAINST PROPOSAL 3.
DATED:____________________________________ , 2001
__________________________________________, (L.S.)
(Signature)
__________________________________________, (L.S.)
(Signature)
Please date and sign as name appears hereon.
When signing as attorney, administrator,
trustee or guardian, give full title as such
and when stock has been issued in the name of
two or more persons, all must sign.
PLEASE ACT PROMPTLY
PLEASE SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE TODAY
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