LONE STAR STEAKHOUSE & SALOON INC
S-1, 1996-05-21
EATING PLACES
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<PAGE>
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1996 
                                                      REGISTRATION NO. 333- 
==============================================================================
                      SECURITIES AND EXCHANGE COMMISSION 
                            WASHINGTON, D.C. 20549 
                                  ------------
                                   FORM S-1 
                            REGISTRATION STATEMENT 
                                    UNDER 
                          THE SECURITIES ACT OF 1933 
                                  ------------
                     LONE STAR STEAKHOUSE & SALOON, INC. 
            (Exact name of Registrant as specified in its charter) 
<TABLE>
<CAPTION>
<S>                                         <C>                                       <C>
          Delaware                                   5812                           48-1109495 
(State or other jurisdiction of            (Primary Standard Industrial            (I.R.S. Employer 
incorporation or organization)              Classification Code Number)         Identification Number) 
</TABLE>
 
                           224 EAST DOUGLAS, SUITE 700
                            WICHITA, KANSAS 67202 
                                (316) 264-8899 
(Address, including zip code, and telephone number, including area code, of 
                  Registrant's principal executive offices) 
                                  ------------
                               JAMIE B. COULTER 
                     CHAIRMAN AND CHIEF EXECUTIVE OFFICER 
                     LONE STAR STEAKHOUSE & SALOON, INC. 
                         224 EAST DOUGLAS, SUITE 700 
                            WICHITA, KANSAS 67202 
                                (316) 264-8899 
(Name, address, including zip code, and telephone number, including area 
                          code, of agent of service) 
                                  ------------
                                  Copies to: 
       Steven Wolosky, Esq.                          Jeffrey D. Saper, Esq. 
       Kenneth A. Schlesinger, Esq.              J. Robert Suffoletta, Esq. 
       Olshan Grundman Frome & Rosenzweig LLP       Wilson Sonsini Goodrich 
       505 Park Avenue                                       & Rosati, P.C. 
       New York, New York 10022                          650 Page Mill Road 
       (212) 753-7200                           Palo Alto, California 94304 
                                                             (415) 493-9300 
                                  ------------
Approximate date of commencement of proposed sale to the public: As soon as 
practicable after this Registration Statement becomes effective. 
                                  ------------
   If this Form is filed to register additional securities for an offering 
pursuant to Rule 462(b) under the Securities Act, please check the following 
box and list the Securities Act registration statement number of the earlier 
effective registration statement for the same offering. [ ] 
   If this Form is a post-effective amendment filed pursuant to Rule 462(c) 
under the Securities Act, check the following box and list the Securities Act 
registration statement number of the earlier effective registration statement 
for the same offering. [ ] 
   If delivery of the Prospectus is expected to be made pursuant to Rule 434, 
please check the following box. [ ] 
   If any of the securities being registered on this Form are to be offered 
on a delayed or continuous basis pursuant to Rule 415 under the Securities 
Act of 1933, check the following box. [ ] 

                       CALCULATION OF REGISTRATION FEE 
==============================================================================
  Title of Each Class           Proposed                        Amount of 
 of Securities to be       Maximum  Aggregate               Registration Fee 
 Registered                  OfferingPrice(1)
- -----------------------------------------------------------------------------
Common Stock, $.01 
 par value(2)  ........       $183,425,000                       $63,250 
- ----------------------------------------------------------------------------- 
(1) Estimated solely for purposes of calculating the registration fee 
    pursuant to Rule 457(c) under the Securities Act of 1933. 
(2) Includes Common Stock issuable upon exercise of the Underwriters' 
    over-allotment option. 
The Registrant hereby amends this Registration Statement on such date or 
dates as may be necessary to delay its effective date until the Registrant 
shall file a further amendment which specifically states that this 
Registration Statement shall thereafter become effective in accordance with 
Section 8(a) of the Securities Act of 1933, as amended, or until the 
Registration Statement shall become effective on such date as the Commission, 
acting pursuant to said Section 8(a), may determine. 
==============================================================================

                                      2 
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
                            CROSS REFERENCE SHEET 

          Pursuant to Item 501(b) of Regulation S-K Showing Location 
          in Prospectus of Information Required by Items of Form S-1 

<TABLE>
<CAPTION>
 Item Number and Heading in Form S-1 Registration Statement    Caption or Location in Prospectus 
- -------------------------------------------------------------   ------------------------------------------------- 
<S>       <C>                                                  <C>
1.        Forepart of the Registration Statement and Outside 
          Front Cover Page of Prospectus....................   Forepart of the Registration Statement; Outside 
                                                               Front Cover Page of Prospectus 
2.        Inside Front and Outside Back Cover Pages of 
          Prospectus ......................................    Inside Front and Outside Back Cover Pages of 
                                                               Prospectus 
3.        Summary Information, Risk Factors and Ratio of 
          Earnings to Fixed Charges .......................    Prospectus Summary; Risk Factors 
4.        Use of Proceeds .................................    Use of Proceeds 
5.        Determination of Offering Price .................    Underwriting 
6.        Dilution ........................................    * 
7.        Selling Security Holders ........................    Principal and Selling Stockholders 
8.        Plan of Distribution ............................    Underwriting 
9.        Description of Securities to be Registered ......    Description of Capital Stock; Dividend Policy 
10.       Interests of Named Experts and Counsel ..........    Legal Matters; Experts 
11.       Information with Respect to the Registrant ......    Front Cover Page of Prospectus; Prospectus 
                                                               Summary; Risk Factors; The Company; Use of 
                                                               Proceeds; Dividend Policy; Capitalization; 
                                                               Selected Historical and Pro Forma Financial Data; 
                                                               Management's Discussion and Analysis of Financial 
                                                               Condition and Results of Operations; Business; 
                                                               Management; Certain Relationships and Related 
                                                               Transactions; Principal and Selling Stockholders; 
                                                               Description of Capital Stock; Underwriting; 
                                                               Available Information; Experts; Legal Matters; 
                                                               Consolidated Financial Statements 
12.       Disclosure of Commission Position on 
          Indemnification for Securities Act Liabilities ...   * 

</TABLE>

- ------ 
* Not applicable. 

<PAGE>
Information contained herein is subject to completion or amendment. A 
registration statement relating to these securities has been filed with the 
Securities and Exchange Commission. These securities may not be sold nor may 
offers to buy be accepted prior to the time the registration statement 
becomes effective. This prospectus shall not constitute an offer to sell or 
the solicitation of an offer to buy nor shall there be any sale of these 
securities in any State in which such offer, solicitation or sale would be 
unlawful prior to registration or qualification under the securities laws of 
any such State. 

                  SUBJECT TO COMPLETION, DATED MAY 21, 1996 
                               4,000,000 SHARES

                                    (LOGO) 

                                 COMMON STOCK 


   Of the 4,000,000 shares of Common Stock offered hereby, 2,500,000 shares 
are being sold by Lone Star Steakhouse & Saloon, Inc. (the "Company") and 
1,500,000 shares are being sold by the Selling Stockholders. See "Principal 
and Selling Stockholders." The Company will not receive any of the proceeds 
from the sale of shares by the Selling Stockholders. 

   The Company's Common Stock is traded on the Nasdaq National Market under 
the symbol "STAR." On May 17, 1996, the last sale price of the Common Stock 
as reported on the Nasdaq National Market was $39 7/8 per share. See "Price 
Range of Common Stock." 

   See "Risk Factors" beginning on page 6 for a discussion of certain factors 
that should be considered by prospective purchasers of the Common Stock 
offered hereby. 
                                  ------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND 
  EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 
    SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION 
      PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY 
       REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 


<TABLE>
<CAPTION>
=============================================================================================
                       Price          Underwriting       Proceeds to         Proceeds to
                     to Public         Discount(1)        Company(2)    Selling Stockholders 
- ---------------------------------------------------------------------------------------------
<S>                    <C>            <C>               <C>                   <C>           
Per Share  ...         $                 $                  $                    $ 
Total (3)  ...        $                 $                  $                   $ 
=============================================================================================
</TABLE>

(1) See "Underwriting" for information concerning indemnification of the 
    Underwriters and other matters. 
(2) Before deducting expenses of the offering estimated at $400,000, all of 
    which are payable by the Company. 
(3) The Company and the Selling Stockholders have granted to the Underwriters 
    a 30-day option to purchase up to an additional 600,000 shares of Common 
    Stock at the Price to Public less the Underwriting Discount solely to 
    cover over-allotments, if any. If the Underwriters exercise this option 
    in full, the Price to Public will total $    , the Underwriting Discount 
    will total $    , the Proceeds to Company will total $     and the 
    Proceeds to Selling Stockholders will total $    . See "Underwriting." 


   The shares of Common Stock are offered by the Underwriters when, as and if 
delivered to and accepted by the Underwriters and subject to their right to 
reject any order in whole or in part. It is expected that delivery of 
certificates representing the shares will be made against payment therefor at 
the office of Montgomery Securities on or about      , 1996. 

                                  ------------

MONTGOMERY SECURITIES 
                              SMITH BARNEY INC. 
                                                   WESSELS, ARNOLD & HENDERSON 

                                       , 1996 

<PAGE>

                       THE TRADENAME LOGOS OF THE COMPANY


   IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR 
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE 
PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE 
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS 
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE 
COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER 
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." 

<PAGE>

                              PROSPECTUS SUMMARY 

   The following summary is qualified in its entirety by reference to, and 
should be read in conjunction with, the more detailed information and the 
Consolidated Financial Statements (including the notes thereto) appearing 
elsewhere in this Prospectus. In August 1995, the Company acquired 11 Lone 
Star Steakhouse & Saloon restaurants. All financial and restaurant 
information herein reflects this acqisition. Unless otherwise indicated, all 
information in this Prospectus assumes no exercise of the Underwriters' 
over-allotment option. 

                                 THE COMPANY 

   Lone Star Steakhouse & Saloon, Inc. ("Lone Star" or the "Company") has 
positioned itself as "The Steak Company" which will operate three distinct 
steakhouse restaurant concepts. The primary growth vehicle will be the Lone 
Star Steakhouse & Saloon restaurant concept which operates in the mid-scale 
steak segment ("Lone Star Restaurants"). The Company is also developing two 
restaurant concepts in the upscale steakhouse market, Del Frisco's Double 
Eagle Steak House ("Del Frisco's") and Sullivan's Steakhouse ("Sullivan's"). 

   The Company currently owns and operates 168 Lone Star Restaurants in the 
United States. Internationally, the Company's Australian joint venture owns 
and operates 11 restaurants in Australia. The Lone Star Restaurants are 
mid-priced, full service casual dining restaurants which embrace a 
Texas-style concept featuring Texas artifacts and country and western music. 
The Lone Star Restaurants serve mesquite grilled steaks, ribs, chicken and 
fish. The exciting and vibrant atmosphere created by the Lone Star 
Restaurants' "Texas Roadhouse" ambiance is enhanced by free buckets of 
roasted peanuts, neon beer signs and peanut-shell-littered floors. Lone Star 
Restaurants are further distinguished by its high quality, USDA choice-graded 
steaks which are hand- cut fresh daily at each restaurant and mesquite 
grilled to order. Meals are served in generous "Texas-sized" portions and 
full liquor and bar service is available. The Lone Star Restaurants serve 
both lunch and dinner with an average check per customer for 1995 of 
approximately $8.50 at lunch and $18.50 at dinner. 

   Lone Star opened its first restaurant in 1989 and currently operates in 32 
states.The Company is continuing its domestic expansion program pursuant to 
which it opened 36 Lone Star Restaurants in 1993, 48 restaurants in 1994 and 
45 restaurants in 1995. In addition, in August 1995, the Company acquired 11 
Lone Star Restaurants which had been operated under the Lone Star name 
pursuant to a trademark license granted by the Company with respect to 
certain areas of North Carolina (the "1995 Lone Star Acquisition"). As of May 
20, 1996, the Company had opened eight of the 45 restaurants it intends to 
open in 1996. New restaurants are expected to be located within the Company's 
existing markets as well as in new markets. In addition, the Company expects 
that its Australian joint venture will open seven to nine new restaurants in 
1996. 

   The Company currently operates three Lone Star Restaurants in Europe pursuant
to a joint venture agreement. On May 20, 1996, the Company's Board of Directors
approved a plan to discontinue the European joint venture. The Company
anticipates closing its European restaurants as early as the second quarter of
fiscal 1996; however, the Company may seek to sell or license such restaurants.
The Company expects to incur a non-recurring pre-tax charge in the second
quarter of fiscal 1996 in the range of $9,000,000 to $11,000,000. See "Risk
Factors -- Discontinuance of European Operations."

                                       3

<PAGE>

   In connection with the Company's strategy to become "The Steak Company," the
Company recently decided to develop additional steak restaurant concepts in the
upscale segment. The Company entered this market in September 1995 by acquiring
the intellectual property rights, marks and tradename of Del Frisco's Double
Eagle Steak House restaurant, the existing Del Frisco's located in Dallas,
Texas, and a Del Frisco's under construction in Fort Worth, Texas (collectively,
the "Del Frisco's Acquisition") which opened in April 1996. The average check
per customer for the Del Frisco's concept is approximately $60. The Company
expects to open one or two additional Del Frisco's in the United States in 1996.

   The Company is developing another upscale steak restaurant concept under 
the tradename Sullivan's Steakhouse. The average check per customer for the 
Sullivan's concept is anticipated to be $35 to $40. The Company opened its 
first Sullivan's in May 1996 and expects to open one to three additional 
Sullivan's in the United States in 1996. 


                                 THE OFFERING 

<TABLE>
<CAPTION>
<S>                                            <C>
Common Stock offered by the Company  ........  2,500,000 shares 
Common Stock offered by the Selling
  Stockholders...............................  1,500,000 shares 
Common Stock to be outstanding after
  the Offering ..............................  40,427,580 shares (1) 
Use of Proceeds  ............................  To finance the development of additional 
                                               restaurants and for general corporate purposes, 
                                               including potential acquisitions. 
Nasdaq National Market symbol  ..............  STAR 

</TABLE>


- ------ 
(1) Does not include (i) 6,623,284 shares reserved for issuance under the 
    Company's 1992 Stock Option Plan (the "Plan"), of which options to 
    purchase 4,726,636 shares are currently outstanding, (ii) 329,334 shares 
    reserved for issuance under the Company's 1992 Directors Stock Option 
    Plan (the "Directors Plan"), of which options to purchase 146,000 shares 
    are currently outstanding, and (iii) 200,000 shares reserved for issuance 
    pursuant to options granted in connection with the Australian joint 
    venture. See "Capitalization." 


                                       4 
<PAGE>
              SUMMARY PRO FORMA AND CONSOLIDATED FINANCIAL DATA 
                 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 

<TABLE>
<CAPTION>
                                                                                                           Twelve Weeks Ended(1) 
                                                   Year Ended December 31,(1)                          ---------------------------
                               ---------------------------------------------------------------------     March 21,     March 19, 
                                  1991         1992(2)        1993           1994         1995(3)          1995           1996 
                              ---------   ------------    ------------   ------------   ------------   ------------   ------------ 
<S>                           <C>         <C>             <C>            <C>            <C>            <C>             <C>
Income Statement Data:  
   Net sales ..............   $  9,231    $    40,602     $   112,263    $   215,800    $   340,857    $    69,393     $ 106,375 
   Income from operations .        209          6,918          23,643         45,810         70,773         14,393        20,094 
   Net income .............        128          4,512          16,371         30,173         47,568          9,237        12,936 
   Primary net income per
     share ................   $   0.22    $      0.16     $      0.49    $      0.87    $      1.27    $      0.26     $    0.33 
   Primary weighted average 
     shares outstanding  ..    580,433     28,872,151      33,339,007     34,608,610     37,537,891     34,931,291    38,797,073 
                                         
Pro Forma Income 
   Statement Data(4): ..... 
   Income before income taxes, 
     net of minority interest $    128    $     7,277     $    25,483    $    47,073    $    74,388    $    14,552  
   Pro forma provision for 
     income taxes  ........         50          2,813           9,696         17,884         27,653          5,682 
                              ---------   ------------    ------------   ------------   ------------   ------------ 
   Pro forma net income ...         78          4,464          15,787         29,189         46,735          8,870 
   Pro forma primary net
     income per share  ....   $   0.14    $      0.15     $      0.47    $      0.84    $      1.25    $      0.25 

Restaurant Operating Data: 
   Average sales per 
     restaurant on an 
     annualized basis  ....   $  1,556    $     2,389     $     2,502    $     2,481    $     2,536    $     2,587     $   2,664 
   Number of restaurants 
    at end of period(5)  ..          7             32              68            116            175            121           180 
   Number of full restaurant 
     periods open(6)  .....         78            241             569          1,114          1,521            351           529 

</TABLE>

                                                    March 19, 1996 
                                       ----------------------------------
                                         Actual            As Adjusted(7) 
                                       ---------           ------------- 
Balance Sheet Data:  
   Working capital .............        $ 54,972             $150,272 
   Total assets ................         370,530              465,830 
   Stockholders' equity ........         336,238              431,538 

- ------ 
(1) The Company operates on a 52 or 53 week fiscal year ending the last 
    Tuesday in December. The fiscal quarters for the Company consist of 
    accounting periods of 12, 12, 12, and 16 or 17 weeks, respectively. The 
    Company's 1991 fiscal year ended on December 31 and its 1992, 1993, 1994, 
    and 1995 fiscal years ended on December 29, 28, 27 and 26, respectively. 
(2) Reflects the operations of eight restaurants acquired on March 19, 1992 
    from Lone Star Steakhouse & Saloon Group concurrently with the Company's 
    initial public offering in an exchange transaction whereby the Company 
    issued 5,308,432 shares of its Common Stock. The acquisition was 
    accounted for using the purchase method of accounting. 
(3) In June 1995, the Company increased its ownership interest in the 
    Australian joint venture from 50% to 65%. The operations of the joint 
    venture are included in the Company's consolidated operating results 
    since the date of the change of control. 
(4) Pro Forma Income Statement Data is based upon unaudited information 
    providing for income taxes on pooled S Corporations from a group of 
    related entities which were operated under common control (collectively, 
    the "CCC Group") prior to acquisition at the estimated effective tax 
    rate. 
(5) Includes all restaurants for which restaurant sales are included in the 
    Company's net sales amounts for the period. 
(6) Full restaurant periods are four-week accounting periods within the 
    fiscal year (excluding the first partial accounting period of operations) 
    that a restaurant was open. 
(7) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered 
    by the Company hereby at an assumed public offering price of $39 7/8 per 
    share and the application of the estimated net proceeds therefrom. See 
    "Use of Proceeds" and "Capitalization." 


                                       5 
<PAGE>
                                 RISK FACTORS 

   Prospective purchasers should carefully consider the following risk 
factors in addition to the other information contained in this Prospectus in 
evaluating an investment in the Common Stock of the Company. 

   Aggressive Expansion Strategy. The Company opened its first restaurant in 
October 1989 and to date has opened 168 Lone Star Restaurants in the United 
States. In addition, the Company's Australian joint venture has opened 11 
restaurants in Australia and its European joint venture has opened three 
restaurants in Holland. The Company's ability to expand will depend on a 
number of factors, including identification of suitable locations, 
negotiation of favorable real estate acquisition or lease terms, 
availability, staffing, training and retention of skilled management 
personnel, securing required governmental approvals and permits, adequately 
supervising construction, securing adequate financing and other factors, some 
of which are beyond the control of the Company. There can be no assurance 
that the Company will be able to open all of its planned new restaurants or 
that such newly opened restaurants can be operated profitably. While the 
Company has experienced significant growth in net sales and net income since 
inception, there can be no assurance that the Company will be able to sustain 
such growth or profitability in the future. See "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" and "Business -- 
Expansion Strategy." 

   New Upscale Strategy. The Company has recently decided to develop two 
upscale steak restaurant concepts, Del Frisco's and Sullivan's. Prior to the 
Del Frisco's Acquisition in September 1995, the Company did not operate in 
the upscale segment. The Sullivan's concept has been internally developed by 
the Company and the first Sullivan's opened in May 1996. There can be no 
assurance that the Company will choose to develop additional Del Frisco's or 
Sullivan's beyond those currently planned, or that any such restaurants, if 
and when developed or operated, will achieve profitability or prove to be 
successful. See "Business -- Expansion into Upscale Markets." 

   International Operations. The Company intends to selectively evaluate
international expansion opportunities through joint ventures licensing or other
corporate partnership arrangements. The Australian joint venture (the
"Australian Joint Venture") presently owns and operates 11 restaurants in
Australia and expects to open an additional seven to nine restaurants in 1996. A
licensed Lone Star Restaurant opened in Guam in mid-1995. There can be no
assurance that the Australian Joint Venture or any other joint venture will
be successful. In addition, it is unlikely that the profit margins or return on
investment of the Company's international operations will be at the levels of
the Company's domestic operation. There can be no assurance that any such
restaurants developed and operated in foreign countries, whether through the
Australian Joint Venture or otherwise, will achieve profitability. See "Business
- -- Expansion Strategy."

   Discontinuance of European Joint Venture. The Company currently operates
three Lone Star Restaurants in Europe pursuant to a joint venture agreement (the
"European Joint Venture"). The first two restaurants opened by the European
Joint Venture in Amsterdam in 1995 have operated substantially below the
Company's expectations, and are currently incurring losses at the restaurant
level. The European Joint Venture opened a third restaurant in Rotterdam in May
1996. In addition, the European Joint Venture is scheduled to open a fourth
restaurant in Cologne, Germany in June 1996. On May 20, 1996, the Board of
Directors of the Company approved a plan to discontinue the European Joint
Venture. The Company anticipates closing its European restaurants as early as
the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge in the second quarter of fiscal 1996 in the range of $9,000,000 to
$11,000,000. The actual amount and the timing of such charge may vary depending
upon the timing and methods the Company utilizes in exiting its current European
operations. In addition, at the current time, the Company is unable to determine
what contingent liabilities, if any, may be associated with the discontinuance
of such operations, including resolution of any disputes with its European Joint
Venture partner. The proposed closing of the Company's European restaurants
reflects the risks associated with international operations.

                                       6

<PAGE>

   Competition. Competition in the restaurant industry is increasingly 
intense. The Company competes primarily on the basis of quality of food and 
service, ambiance, location and price-value relationship. The Company 
believes that its concepts, attractive price-value relationship and quality 
of food and service differentiate the Company from its competitors. The 
Company also competes with restaurants and retail establishments for sites.
The Company is only a recent entrant in the upscale steakhouse segment and has
recently begun operating two different upscale steakhouse concepts and, 
consequently, has not theretofore competed directly in such markets. Many of the
Company's competitors are well established in the upscale and mid-scale steak
segments and certain competitors have substantially greater financial, marketing
and other resources than the Company. See "Business -- Competition."

   Restaurant Industry. The restaurant industry is often affected by changes 
in consumer tastes, national, regional and local economic conditions, 
demographic trends, traffic patterns, weather and the type, number and 
location of competing restaurants. In addition, factors such as inflation, 
increased food, labor and employee benefit costs and the availability of 
experienced management and hourly employees may also adversely affect the 
restaurant industry in general and the Company's restaurants in particular. 
See "Management's Discussion and Analysis of Financial Condition and Results 
of Operations" and "Business -- Competition." 

   Changes in Food Costs. The Company's profitability is dependent in large 
measure on its ability to anticipate and react to changes in food costs. 
Various factors beyond the Company's control, including adverse weather 
conditions, may affect food costs. While management has been able to 
anticipate and react to changing food costs to date through its purchasing 
practices and menu price adjustments, there can be no assurance that it will 
be able to do so in the future. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations." 

   Government Regulation. The restaurant industry is subject to various 
federal, state and local government regulations, including those relating to 
the sale of food and alcohol beverages. While the Company to date has not 
experienced any material difficulties in obtaining necessary governmental 
approvals, the failure to obtain or retain food and liquor licenses or any 
other governmental approvals could have a material adverse effect on the 
Company's operating results. In addition, restaurant operating costs are 
affected by increases in the minimum hourly wage, unemployment tax rates, 
sales taxes and similar matters over which the Company has no control. In 
this regard, there are proposals under consideration in the United States 
Congress to increase the minimum wage hourly requirements from $4.25 to $5.15 
per hour. These and other initiatives could adversely affect the Company's 
operating results. The Company also may be subject in certain states to "dram 
shop" statutes, which generally provide a person injured by an intoxicated 
person the right to recover damages from an establishment that wrongfully 
served alcoholic beverages to the intoxicated person. Additionally, "tied- 
house" laws in certain states may limit or delay the Company in obtaining 
liquor licenses. See "Business -- Government Regulation." 

   Dependence on Senior Management. The success of the Company's business 
will continue to be highly dependent upon the services of Jamie B. Coulter, 
Chairman of the Board and Chief Executive Officer, and certain other 
executive officers of the Company. The loss of the services of Mr. Coulter or 
other executive officers could adversely affect the Company's business and 
development. The Company's growth will also continue to depend upon its 
ability to attract and retain additional skilled management personnel. See 
"Management." 

                                       7


<PAGE>

   Staggered Board; Blank-Check Preferred Stock. The Company's Certificate of 
Incorporation provides for three classes of directors, to be elected on a 
staggered basis, which also enables existing management to exercise 
significant control over the Company's affairs. In addition, the Board of 
Directors has the authority without further action by the stockholders to 
issue up to 2,000,000 shares of Preferred Stock in one or more series and to 
fix the rights, preferences, privileges and restrictions thereof. See 
"Description of Capital Stock -- Preferred Stock." 

   Stock Price Volatility.  Quarterly operating results of the Company or 
other restaurant companies, changes in general conditions in the economy, the 
financial markets or the restaurant industry, natural disasters, changes in 
earnings estimates or recommendations by research analysts, or other 
developments affecting the Company or its competitors could cause the market 
price of the Common Stock to fluctuate substantially. In addition, in recent 
years the stock market and the restaurant industry in particular have 
experienced extreme price and volume fluctuations. This volatility has had a 
significant effect on the market prices of securities issued by many 
companies for reasons unrelated to the operating performance of these 
companies. 

   Risks Associated with Forward Looking Statements. This Prospectus contains 
certain forward-looking statements within the meaning of Section 27A of the 
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of 
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which 
are intended to be covered by the safe harbors created thereby. Investors are 
cautioned that all forward-looking statements involve risks and uncertainty, 
including without limitation, the ability of the Company to continue its 
aggressive expansion strategy, changes in costs of food, labor, and employee 
benefits, the ability of the Company to continue to acquire prime locations 
at acceptable lease or purchase terms, as well as general market conditions, 
competition and pricing. Although the Company believes that the assumptions 
underlying the forward-looking statements contained herein are reasonable, 
any of the assumptions could be inaccurate, and therefore, there can be no 
assurance that the forward-looking statements included in this Prospectus 
will prove to be accurate. In light of the significant uncertainties inherent 
in the forward-looking statements included herein, the inclusion of such 
information should not be regarded as a representation by the Company or any 
other person that the objectives and plans of the Company will be achieved. 


                                 THE COMPANY 

   The Company was incorporated in February 1991 as Texas Lone Star, Ltd., a 
Nevada corporation ("Lone Star-Nevada"). Lone Star Steakhouse & Saloon, Inc., 
a Delaware corporation ("Lone Star Delaware"), was formed in January 1992 as 
part of a corporate reorganization, pursuant to which Lone Star-Nevada was 
merged into Lone Star-Delaware, with the successor corporation changing its 
name to Lone Star Steakhouse & Saloon, Inc. The Company currently operates 
separate subsidiary corporations in the states in which it has restaurants. 
Unless the context requires otherwise, references to the Company and Lone 
Star in this Prospectus shall mean Lone Star Steakhouse & Saloon, Inc. and 
its subsidiaries. The Company's principal executive offices are located at 
224 East Douglas, Suite 700, Wichita, Kansas 67202. The Company's telephone 
number is (316) 264-8899. 


   Lone Star Steakhouse & Saloon(R), Lone Star Cafe(R), Del Frisco's(R) and 
Double Eagle Steak House(R) are registered marks of the Company. This 
Prospectus also includes trademarks of corporations other than the Company. 


                                       8 
<PAGE>
                               USE OF PROCEEDS 


   The net proceeds to the Company from the sale of the 2,500,000 shares of 
Common Stock offered by the Company hereby (at an assumed public offering 
price of $39 7/8 per share) are estimated to be approximately $95,300,000 
($101,585,250 if the Underwriters' over-allotment option is exercised in 
full). The Company expects to use the net proceeds to finance the development 
of additional Lone Star, Del Frisco's and Sullivan's restaurants (including 
the purchase of fee and leasehold interests). A portion of such net proceeds 
is expected to be used to finance the development of additional restaurants 
outside the United States, primarily through joint venture, licensing or 
other corporate partnership arrangements. The Company may also utilize 
certain of the net proceeds to acquire and develop multi-unit restaurant 
operations with formats and concepts complementary to those of the Company or 
to acquire existing restaurants for conversion to the Company's existing 
concepts. The Company does not presently have any agreements, commitments, 
plans or understandings concerning any specific acquisition. See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations--Liquidity and Capital Resources" and "Business--Expansion 
Strategy" and "-- Expansion into Upscale Markets." Pending such uses, the 
Company will invest the net proceeds of this offering in short-term, 
investment grade, interest-bearing securities. 


   The Company will not receive any proceeds from the sale of shares of 
Common Stock offered by the Selling Stockholders hereby. 

                         PRICE RANGE OF COMMON STOCK 

   The Company's Common Stock is traded on the Nasdaq National Market under 
the symbol "STAR." The following table sets forth, for the periods indicated, 
the high and low sale prices for the Common Stock, as reported on the Nasdaq 
National Market. 

             Calendar 1994                    High         Low 
             -------------                   ------       ----- 
First Quarter  ........................     $ 29 1/4     $ 19 1/2 
Second Quarter  .......................       24 1/4       16 1/2 
Third Quarter  ........................       26 1/2       17 1/2 
Fourth Quarter  .......................       27 1/2       18 1/4 

Calendar 1995 
- ------------- 
First Quarter  ........................     $ 30 3/8      $ 18 1/2 
Second Quarter  .......................       34            27 1/8 
Third Quarter  ........................       45            29 7/8 
Fourth Quarter  .......................       42 3/4        34 7/8 

Calendar 1996 
- -------------
First Quarter  ........................     $ 41 1/4      $ 30 1/2 
Second Quarter (through May 17, 1996)..       45            36 7/8 

   On May 17, 1996, the last reported sale price of the Common Stock on the 
Nasdaq National Market was $39 7/8 . As of May 17, 1996, there were 
approximately 750 holders of record of the Company's Common Stock. The 
Company believes that there are in excess of 7,000 beneficial owners of the 
Company's Common Stock. 

                                       9 
<PAGE>
                                CAPITALIZATION 

   The following table sets forth the capitalization of the Company at March 
19, 1996 and as adjusted to reflect the issuance and sale of the 2,500,000 
shares of Common Stock offered by the Company hereby (at an assumed public 
offering price of $39 7/8 per share), after deduction of the underwriting 
discount and estimated offering expenses payable by the Company. 

<TABLE>
<CAPTION>
                                                                                March 19, 1996
                                                                          --------------------------- 
                                                                             Actual       As Adjusted 
                                                                           ----------   ------------- 
                                                                             (Dollars in thousands) 
<S>                                                                          <C>             <C>
Long-term debt  .......................................................     $    372         $    372
                                                                            --------         -------- 
Stockholders' equity:                                                     
     Preferred Stock, $0.01 par value, 2,000,000 shares                   
       authorized;  none outstanding ..................................           --               -- 
     Common Stock, $0.01 par value, 98,000,000 shares authorized;         
        37,635,158 shares issued and outstanding; 40,135,158 shares       
        issued and outstanding, as adjusted(1) ........................          377              402 
     Additional paid-in capital  ......................................      229,207          324,482 
     Retained earnings  ...............................................      107,076          107,076 
     Translation adjustment  ..........................................         (422)            (422) 
                                                                           ---------         -------- 
      Total stockholders' equity  .....................................      336,238          431,538 
                                                                           ---------         -------- 
               Total capitalization  ..................................    $ 336,610         $431,910 
                                                                           =========         ========
    
</TABLE>


- ------ 
(1) Does not include at March 19, 1996: (i) 6,895,706 shares reserved for 
    issuance under the Plan, of which options to purchase 4,999,058 shares 
    were outstanding, (ii) 344,334 shares reserved for issuance under the 
    Directors Plan, of which options to purchase 155,000 shares were 
    outstanding, and (iii) 220,000 shares reserved for issuance pursuant to 
    options granted in connection with the Australian Joint Venture. 


                               DIVIDEND POLICY 

   The Company anticipates that all future earnings will be retained to 
support operations and to finance expansion. The Company does not intend to 
pay cash dividends on its Common Stock for the foreseeable future. The 
payment of cash dividends in the future will be at the discretion of the 
Company's Board of Directors and will depend upon such factors as earnings 
levels, capital requirements, the Company's financial condition and other 
factors deemed relevant by the Company's Board of Directors. 

                                      10 
<PAGE>
               SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA 
                 (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) 


   The following table sets forth selected consolidated financial data. The 
selected consolidated data of the Company as of December 29, 1992, December 
28, 1993, December 27, 1994, and December 26, 1995, and for each of the four 
years in the period ended December 26, 1995, were derived from the Company's 
audited consolidated financial statements. The selected consolidated 
financial data as of December 31, 1991 and for the year then ended and as of 
March 19, 1996 and for the 12 weeks ended March 19, 1996 and March 21, 1995 
are derived from unaudited consolidated financial statements of the Company. 
In the opinion of management, the unaudited consolidated financial statements 
reflect all adjustments (consisting of normal recurring adjustments) 
necessary for a fair presentation of the consolidated financial position and 
results of operations for the unaudited periods. The pro forma data set forth 
below for the periods presented are unaudited and have been prepared by 
management solely to facilitate period-to-period comparison and do not 
represent the actual results of operations for the periods presented. Said 
pro forma adjustments reflect the income tax provisions at the estimated 
effective federal and state income tax rates applicable to the operations of 
the CCC Group (see Note 2 to the Company's Consolidated Financial Statements) 
which were taxed as S Corporations for income tax purposes prior to their 
acquisition by the Company in August 1995. Operations for the 12 week period 
ended March 19, 1996 are not necessarily indicative of the results that may 
be expected for the remainder of fiscal 1996. 


                                      11 
<PAGE>
   The following table should be read in conjunction with the Consolidated 
Financial Statements including the notes thereto appearing elsewhere in this 
Prospectus. 

<TABLE>
<CAPTION>
                                                                                                          
                                                                                                              Twelve Weeks Ended(1) 
                                                          Year Ended December 31,(1)                       ------------------------ 
                                   ----------------------------------------------------------------------     March 21,   March 19, 
                                       1991       1992(2)         1993           1994           1995(3)         1995        1996 
                                   ---------   ------------    ------------   ------------   ------------   ------------  ---------
<S>                                <C>          <C>            <C>            <C>            <C>            <C>             <C> 
Income Statement Data: 
Net sales  .....................   $  9,231    $    40,602    $   112,263    $   215,800   $   340,857    $    69,393     $ 106,375 
Costs and expenses: 
   Costs of sales ..............      3,512         14,941         40,981         76,888       120,871         24,845        37,584 
   Restaurant operating expenses      5,125         15,726         36,979         71,996       116,703         23,212        37,719 
   General and administrative 
     expenses  .................        216          1,359          3,916          8,117        12,693          2,978         4,665 
   Depreciation and amortization        169          1,658          6,744         12,989        19,817          3,965         6,313 
                                   --------    -----------    -----------    -----------   -----------    -----------     --------- 
Total costs and expenses  ......      9,022         33,684         88,620        169,990       270,084         55,000        86,281 
                                   --------    -----------    -----------    -----------   -----------    -----------     --------- 
Income from operations  ........        209          6,918         23,643         45,810        70,773         14,393        20,094 
Other income (expense), net  ...        (81)           359          1,840          1,263         2,910            159           634 
                                   --------    -----------    -----------    -----------   -----------    -----------     --------- 
Income before provision for 
   income taxes and minority         
   interest ....................        128          7,277         25,483         47,073        73,683         14,552        20,728
Provision for income taxes  ....         --          2,765          9,112         16,900        26,820          5,315         8,184 
Minority interest  .............         --             --             --             --           705             --           392 
                                   --------    -----------    -----------    -----------   -----------    -----------     --------- 
Net income  ....................   $    128    $     4,512    $    16,371    $    30,173   $    47,568    $     9,237     $  12,936 
                                   ========    ===========    ===========    ===========   ===========    ===========     =========
Primary net income per share  ..   $   0.22    $      0.16    $      0.49    $      0.87   $      1.27    $      0.26     $    0.33 
                                   ========    ===========    ===========    ===========   ===========    ===========     =========
Primary weighted average shares 
   outstanding .................    580,433     28,872,151     33,339,007     34,608,610    37,537,891     34,931,291    38,797,073 
Pro Forma Income Statement
  Data(4): 
Income before income taxes, net 
   of minority interest ........   $    128    $     7,277    $    25,483    $    47,073   $    74,388    $    14,552 
Pro forma provision for 
   income taxes ................         50          2,813          9,696         17,884        27,653          5,682 
                                   ---------   -----------    -----------    -----------   -----------    ----------- 
Pro forma net income  ..........   $     78    $     4,464    $    15,787    $    29,189   $    46,735    $     8,870 
                                   ========    ===========    ===========    ===========   ===========    =========== 
Pro forma primary net income per 
   share .......................   $   0.14    $      0.15    $      0.47    $      0.84   $      1.25    $      0.25 
                                   ========    ===========    ===========    ===========   ===========    =========== 

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                                December 31,(1)                             
                                        --------------------------------------------------------------    March 19,
                                           1991         1992         1993         1994          1995        1996 
                                        ----------   ---------    ----------   ----------   ----------   ----------- 
<S>                                     <C>          <C>          <C>          <C>          <C>          <C>
Balance Sheet Data: 
Working capital (deficit)  ..........    $(2,066)     $39,131     $ 83,606     $ 37,618      $ 59,880     $ 54,972 
Total assets  .......................      3,062       71,029      164,763      204,028       358,218      370,530 
Long-term debt, including current 
  portion ...........................      2,412        3,350        2,953        4,318           387          372 
Stockholders' equity (deficit)  .....       (442)      61,891      151,768      180,072       322,811      336,238 

</TABLE>

- ------ 
(1) The Company operates on a 52 or 53 week fiscal year ending the last 
    Tuesday in December. The fiscal quarters for the Company consist of 
    accounting periods of 12, 12, 12, and 16 or 17 weeks, respectively. The 
    Company's 1991 fiscal year ended on December 31 and its 1992, 1993, 1994 
    and 1995 fiscal years ended on December 29, 28, 27 and 26, respectively. 
(2) Reflects the operations of eight restaurants acquired on March 19, 1992, 
    from Lone Star Steakhouse & Saloon Group concurrently with the Company's 
    initial public offering in an exchange transaction whereby the Company 
    issued 5,308,432 shares of its Common Stock. The acquisition was 
    accounted for using the purchase method of accounting. 
(3) In June 1995, the Company increased its ownership interest in the 
    Australian joint venture from 50% to 65%. The operations of the joint 
    venture are included in the Company's consolidated operating results 
    since the date of the change of control. 
(4) Pro Forma Income Statement Data is based upon unaudited information based 
    upon providing for income taxes on pooled S Corporations of the CCC Group 
    prior to acquisition at the estimated effective tax rate. 


                                      12 





<PAGE>
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

GENERAL 

   The following discussion and analysis should be read in conjunction with 
the information set forth under "Selected Historical and Pro Forma Financial 
Data" and the Consolidated Financial Statements and notes thereto included 
elsewhere herein. 

   The Company began 1993 with 32 domestic restaurants, opened 36 restaurants 
during 1993, 48 restaurants during 1994 and 45 restaurants during the year 
ended December 26, 1995 and five restaurants during the 12 week period ended 
March 19, 1996. In August 1995, the Company completed the 1995 Lone Star 
Acquisition, pursuant to which it acquired 11 licensed Lone Star Restaurants 
as well as three additional restaurants, from a group of related entities 
which were operated under common control (collectively, the "CCC Group"). The 
transaction was accounted for as a pooling of interests and, accordingly, the 
accompanying consolidated financial statements and Management's Discussion 
and Analysis of Financial Condition and Results of Operations have been 
restated to include the accounts and operations of the CCC Group for all 
periods prior to the acquisition. 

   In September 1995, the Company acquired the rights to operate the Del
Frisco's located in Dallas, Texas, a Del Frisco's under construction in Fort
Worth, Texas (which opened in April 1996), and the right to further develop Del
Frisco's. The Company also became the licensor of two Del Frisco's in Houston,
Texas and Orlando, Florida. In consideration for these transactions, the Company
paid $14.6 million in cash and issued an aggregate of 206,250 shares of Common
Stock. The Company expects to open one or two additional Del Frisco's in 1996.
The average check per customer at Del Frisco's is approximately $60.

   The Company is developing another upscale steak restaurant concept under 
the tradename Sullivan's Steakhouse. The average check per customer at a 
Sullivan's is anticipated to be $35 to $40. The Company opened its first 
Sullivan's in May 1996 and expects to develop one to three additional 
Sullivan's in 1996. 

   Pre-opening costs include labor costs, costs of hiring and training 
personnel and certain other costs relating to opening new restaurants, and 
are capitalized and amortized over a 12 month period, beginning in the period 
that the restaurants opens. 

                                      13 
<PAGE>
RESULTS OF OPERATIONS 

   The following table sets forth for the periods indicated (i) the 
percentages which certain items included in the Consolidated Statements of 
Income bear to net sales, and (ii) other selected operating data: 

<TABLE>
<CAPTION>
                                                                  Years Ended(1)                      Twelve Weeks Ended(1)  
                                                ------------------------------------------------     ------------------------ 
                                                 December 28,      December 27,     December 26,     March 21,     March 19, 
                                                     1993             1994             1995            1995          1996 
                                                --------------   --------------    --------------   -----------   ----------- 
<S>                                             <C>              <C>               <C>              <C>           <C>              
Income Statement Data: 
Net sales  ..................................         100.0%           100.0%           100.0%          100.0%        100.0% 
Costs and expenses: 
   Costs of sales ...........................          36.5             35.6             35.5            35.8          35.3 
   Restaurant operating expense .............          32.9             33.4             34.2            33.5          35.5 
   Depreciation and amortization ............           6.0              6.0              5.8             5.7           5.9 
                                                --------------   --------------    --------------   -----------   ----------- 
   Restaurant costs and expenses ............          75.4             75.0             75.5            75.0          76.7 
                                                --------------   --------------    --------------   -----------   ----------- 
Restaurant operating income  ................          24.6             25.0             24.5            25.0          23.3 
General and administrative expenses  ........           3.5              3.8              3.7             4.2           4.4 
                                                --------------   --------------    --------------   -----------   ----------- 
Income from operations  .....................          21.1             21.2             20.8            20.8          18.9 
Other income, and minority interest  ........           1.6              0.6              1.0             0.2           1.0 
                                                --------------   --------------    --------------   -----------   ----------- 
Income before provision for income taxes  ...          22.7             21.8             21.8            21.0          19.9 
Pro forma and historical provision for income 
   taxes(2) .................................           8.6              8.3              8.1             8.2           7.7 
                                                --------------   --------------    --------------   -----------   ----------- 
Pro forma and historical net income(2)  .....          14.1%            13.5%            13.7%           12.8%         12.2% 
                                                ==============   ==============    ==============   ===========   =========== 

Restaurant Operating Data: 
Average sales per restaurant on an annualized 
   basis($000s)(3) ..........................        $2,502           $2,481           $2,536          $2,587        $2,664 
Number of restaurants at end of period(4)  ..            68              116              175             121           180 
Number of full restaurant periods open(5)  ..           569            1,114            1,521             351           529 

</TABLE>

- ------ 
(1) The Company operates on a 52 or 53 week fiscal year ending the last 
    Tuesday in December. The fiscal quarters for the Company consist of 
    accounting periods of 12, 12, 12 and 16 or 17 weeks, respectively. 

(2) Gives pro forma effect to providing for income taxes on pooled S 
    Corporations of the CCC Group prior to the August 1995 Lone Star 
    Acquisition at the estimated effective tax rate; thus the provision for 
    income taxes and net income amounts are pro forma for all periods 
    presented except for the 12 weeks ended March 19, 1996, which is 
    historical. 

(3) Average sales per restaurant on an annualized basis are computed by 
    dividing a restaurant's total sales for full accounting periods by the 
    number of full accounting periods open in the reporting period, and 
    annualizing the result. 

(4) Includes all restaurants for which restaurant sales are included in the 
    Company's net sales amounts for the period. 

(5) Full restaurant periods are four-week accounting periods within the 
    fiscal year (excluding the first partial accounting period of operations) 
    that a restaurant was open. 

TWELVE WEEKS ENDED MARCH 19, 1996 COMPARED TO TWELVE WEEKS ENDED MARCH 21, 
1995 

   Net sales increased $36,982,000 (53%) for the 12 weeks ended March 19, 
1996 compared to the comparable period in 1995 principally attributable to 
$28,897,000 in sales from the 45 new domestic restaurants opened since March 
1995, in addition to sales from the Australian Joint Venture and the European 
Joint Venture. Same store sales increased 0.9% primarily due to growth in 
customer counts. 

   Costs of sales, primarily food and beverages, decreased as a percentage of 
net sales to 35.3% for the 12 weeks ended March 19, 1996, from 35.8% for the 
comparable period in 1995 due to slightly lower beef prices. 

   Restaurant operating expenses for the 12 weeks ended March 19, 1996 
increased $14,507,000 (63%) to $37,719,000, and such expenses increased as a 
percentage of net sales from 33.5% to 35.5%. Labor costs increased as a 
percentage of net sales due to staffing requirements for the opening of new 
restaurants. 


                                      14 
<PAGE>
   Depreciation and amortization increased $2,349,000 (59%) in the 12 weeks 
ended March 19, 1996 from the comparable period in 1995, principally 
reflecting the amortization of capitalized pre-opening expenses relating to 
the opening of 45 new restaurants since March 1995 and increases in 
depreciation related to additional owned properties. General and 
administrative expenses for the 12 weeks ended March 19, 1996, increased 
$1,688,000 (57%) from the comparable period in 1995, reflecting costs 
associated with the additional locations as well as increased legal and third 
party consulting expenses. 

   Certain accounting and administrative services are contracted from Coulter 
Enterprises, Inc. ("Coulter Enterprises"), a restaurant management services 
company owned by the Company's Chairman of the Board and Chief Executive 
Officer. The service agreement provides for specified accounting and 
administration services to be provided on a cost pass-through basis under 
which the Company paid a fixed annual charge of $837,000, plus an additional 
fee of $406 per restaurant per 28-day accounting period and reimbursement of 
out-of-pocket costs and expenses during the fiscal year ended December 26, 
1995. The service agreement was renewed for fiscal 1996 with the fixed annual 
charge increasing to $1,272,000 and the per restaurant, per accounting period 
fee increasing to $416. The increase in the fixed charge is due to the 
increase in the number of restaurants operated by the Company. Should the 
service agreement not be renewed in the future, the Company would incur 
direct costs for accounting and administration, personnel, rent and other 
costs associated with a separate office; however, the Company believes that 
such direct costs would not be materially different than the costs under the 
contractual arrangement. 

   Other income, principally interest, for the 12 weeks ended March 19, 1996, 
was $634,000, an increase of $476,000 from the comparable period in 1995, 
reflecting increased interest income from the investment of the net proceeds 
of the Company's public offering in April 1995. 

   The effective income tax rate for the 12 weeks ended March 19, 1996 and 
the effective pro forma tax rate for the 12 weeks ended March 21, 1995 was 
38.7% and 39.0%, respectively. The decrease in the rate is primarily the 
result of an increase in tax-exempt interest income. 

YEAR ENDED DECEMBER 26, 1995 COMPARED TO YEAR ENDED DECEMBER 27, 1994 

   Net sales increased $125,057,000 (58%) for the year ended December 26, 
1995 compared to the fiscal year ended December 27, 1994. A 1.6% increase in 
the comparable sales of restaurants open more than 18 months, plus 
$71,075,000 in additional sales for the 48 restaurants which were opened in 
1994, and $41,324,000 in sales for the 45 new domestic restaurants opened in 
1995 accounted for the increase. Price increases were negligible. In 
addition, since June 1995, the Company included the results of its Australian 
Joint Venture in its Consolidated Financial Statements. 

   Costs of sales, primarily food and beverages, decreased slightly as a 
percentage of sales to 35.5% for the year ended December 26, 1995, from 35.6% 
due to slightly lower beef prices. 

   Restaurant operating expenses for the year ended December 26, 1995 
increased $44,707,000 (62%) to $116,703,000. Such expenses increased as a 
percentage of net sales to 34.2% from 33.4%. The increase is due in part to 
slightly higher labor rates, and the consolidation of the Company's 
international operations which have higher restaurant operating expense rates 
than domestic units. Prior to the third quarter of 1995, international 
operations were accounted for using the equity method. 

   Depreciation and amortization increased $6,828,000 (53%) in the year ended 
December 26, 1995, principally reflecting the amortization of capitalized 
pre-opening expenses relating to the opening of 45 new restaurants in 1995 
and increases in depreciation related to additional owned properties. General 
and administrative expenses for the year ended December 26, 1995 increased 
$4,576,000 (56%), reflecting the costs associated with new store opening 
personnel and the district manager positions being in existence for all of 
1995 as well as increased legal and third party consulting expenses. 

   Pursuant to the Company's service agreement with Coulter Enterprises, the 
Company paid a fixed annual charge of $837,000, plus an additional fee of 
$406 per restaurant per 28-day accounting period and reimbursement of 
out-of-pocket costs and expenses during the fiscal year ended December 26, 
1995. 


                                      15 
<PAGE>

   Other income, principally interest, for the year ended December 26, 1995, 
increased $1,646,000 to $2,910,000 compared to $1,263,000 in 1994. This 
increase is attributable to the investment of the net proceeds of the 
Company's public offering in April 1995. 

   The effective pro forma income tax rate for the years ended December 26, 
1995 and December 27, 1994 was 37.1% and 38.0%, respectively. The decrease in 
the rate is primarily the result of a decrease in the effective state income 
tax rate. 

YEAR ENDED DECEMBER 27, 1994 COMPARED TO YEAR ENDED DECEMBER 28, 1993 

   Net sales increased $103,537,000 (92%) in the fiscal year ended December 
27, 1994 compared to 1993. A 6.6% increase in the comparable sales of 
restaurants open more than 18 months, plus $54,783,000 in additional sales 
for the 36 units which were opened in 1993, and $44,684,000 in sales for the 
48 new restaurants opened in 1994 accounted for the increase. Price increases 
were negligible. 

   Costs of sales, primarily food and beverages, decreased as a percentage of 
net sales from 36.5% in the fiscal year ended December 28, 1993 to 35.6% for 
1994. This decrease was primarily attributable to lower beef costs. 

   Restaurant operating expenses in the fiscal year ended December 27, 1994 
increased $35,017,000 (95%) to $71,996,000, and such expenses increased as a 
percentage of net sales from 32.9% to 33.4%. Labor costs as a percentage of 
net sales increased primarily due to staffing requirements for the opening of 
48 restaurants during the year. 

   Depreciation and amortization increased $6,246,000 (93%) in the fiscal 
year ended December 27, 1994, principally reflecting the amortization of 
capitalized pre-opening costs relating to the opening of 48 new units since 
December 28, 1993, and the increase in depreciation related to additional 
owned properties. 

   Pursuant to the Company's service agreement with Coulter Enterprises, Lone 
Star paid a fixed annual charge of $394,000, plus an additional fee of $396 
per restaurant per 28 day accounting period and reimbursement of 
out-of-pocket costs and expenses. 

   Other income, principally interest, for the fiscal year ended December 27, 
1994 was $1,263,000, a decrease of $577,000 from 1993, reflecting decreased 
interest income from the investment of the remaining net proceeds of the 
Company's public offering in May 1993. 

   The effective pro forma income tax rate for the years ended December 27, 
1994 and December 28, 1993 was 38.0% in each year. 

IMPACT OF INFLATION 

   The primary inflationary factors affecting the Company's operations 
include food and labor costs. A significant number of the Company's 
restaurant personnel are paid at federal and state established minimum wage 
levels and, accordingly, changes in such wage levels affect the Company's 
labor costs. In this regard, there are proposals under consideration in the 
United States Congress to increase the minimum wage hourly requirements from 
$4.25 to $5.15. As costs of food and labor have increased, the Company has 
historically been able to offset these increases through economies of scale 
and improved operating procedures, although there is no assurance that such 
offsets will continue. To date, inflation has not had a material impact on 
operating margins. 


                                      16 
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES 

   The following table presents a summary of the Company's cash flows for the 
fiscal years 1993, 1994 and 1995 and for the 12 weeks ended March 19, 1996: 

<TABLE>
<CAPTION>
                                                                                                              Twelve Weeks 
                                                          Year Ended        Year Ended       Year Ended          Ended 
                                                         December 28,      December 27,     December 26,       March 19, 
                                                             1993             1994              1995              1996 
                                                        --------------   --------------    ---------------   -------------- 
<S>                                                     <C>              <C>               <C>               <C>
Net cash provided by operating activities  ..........    $ 18,487,864     $ 41,571,882     $  63,824,777     $ 20,469,304 
Net cash used in investment activities  .............     (48,413,943)     (78,839,427)     (124,028,705)     (22,282,983) 
Net cash provided by (used in) financing activities .      72,321,775         (504,561)       82,052,141          628,411 
Net increase (decrease) in cash  ....................      42,395,696      (37,772,106)       21,563,850       (1,469,631) 

</TABLE>

   During the year ended December 26, 1995, the Company's investment in 
property and equipment was $104,787,000 and during the 12-week period ended 
March 19, 1996, such investment was $23,891,000. 

   The Company has opened 129 domestic Lone Star Restaurants in the past 
three fiscal years, of which 48 opened in 1994 and an additional 45 opened 
during the year ended December 26, 1995. The Company opened an additional 
five restaurants during the 12 weeks ended March 19, 1996. The Company does 
not have significant receivables or inventory and receives trade credit based 
upon negotiated terms in purchasing food and supplies. Because funds 
available from cash sales are not needed immediately to pay for food and 
supplies, or to finance inventory, they may be considered as a source of 
financing for noncurrent capital expenditures. 

   Through March 19, 1996, the Company had entered into four leases for new 
locations. In addition, at such date the Company had acquired 17 sites and 
signed contracts or options to purchase 13 sites. The Company was also 
actively negotiating the purchase or lease of approximately 16 additional 
sites. In the future, the Company anticipates that the vast majority of its 
new Lone Star Restaurant locations will be purchased rather than leased. The 
Company expects to expend approximately $100,000,000 in development costs to 
open new restaurants through the remainder of fiscal 1996. 

   At March 19, 1996, the Company had $65,955,000 in cash and cash 
equivalents. The Company believes that the net proceeds of this offering, 
together with its existing cash resources and its cash flow generated from 
operations will be sufficient to satisfy its cash needs for at least the next 
12 months. While the Company has not established a credit facility, the 
Company believes it could establish a facility on suitable terms. 

DISCONTINUANCE OF EUROPEAN JOINT VENTURE 

   The Company currently operates three Lone Star Restaurants in Europe pursuant
to the European Joint Venture. The first two restaurants were opened by the
European Joint Venture in Amsterdam in 1995 have operated substantially below
the Company's expectations, and are currently incurring losses at the restaurant
level. The European Joint Venture opened a third restaurant in Rotterdam in May
1996. In addition, the European Joint Venture is scheduled to open a fourth
restaurant in Cologne, Germany in June 1996. On May 20, 1996 the Board of
Directors of the Company approved a plan to discontinue the European Joint
Venture. The Company anticipates closing its European restaurants as early as
the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge in the second quarter of fiscal 1996 in the range of $9,000,000 to
$11,000,000. The actual amount and the timing of such charge may vary depending
upon the timing and methods the Company utilizes in exiting its current European
operations. In addition, at the current time the Company is unable to determine
what contingent liabilities, if any, may be associated with the discontinuance
of such operations, including resolution of any disputes with its European Joint
Venture partner. The proposed closing of the Company's European restaurants
reflects the risks associated with international operations. See "Risk Factors
- -- Discontinuance of European Joint Venture."

                                       17

<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS 

   In March 1995, the FASB issued Statement No. 121, Accounting for the 
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, 
which requires impairment losses to be recorded on long-lived assets used in 
operations when indicators of impairment are present and the undiscounted 
cash flows estimated to be generated by those assets are less than the 
assets' carrying amount. Statement 121 also addresses the accounting for 
long-lived assets that are expected to be disposed of. The Company adopted 
Statement 121 in the first quarter of 1996 and such adoption had no material 
effect to its financial position or results of operations. 

FORWARD LOOKING STATEMENTS 


   This Prospectus contains certain forward-looking statements within the 
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange 
Act which are intended to be covered by the safe harbors created thereby. 
Although the Company believes that the assumptions underlying the 
forward-looking statements contained herein are reasonable, any of the 
assumptions could be inaccurate, and therefore, there can be no assurance 
that the forward-looking statements included in this Prospectus will prove to 
be accurate. Factors that could cause actual results to differ from the 
results discussed in the forward-looking statements include, but are not 
limited to, those discussed in "Risk Factors." In light of the significant 
uncertainties inherent in the forward-looking statements included herein, the 
inclusion of such information should not be regarded as a representation by 
the Company or any other person that the objectives and plans of the Company 
will be achieved. 


                                      18 
<PAGE>
                                   BUSINESS 

BACKGROUND 

   The Company currently owns and operates 168 mid-priced, full service, 
casual dining restaurants located in the United States. Internationally, the 
Australian Joint Venture operates 11 restaurants in Australia and the 
European Joint Venture owns and operates three restaurants in Holland. The 
Lone Star Restaurants embrace a Texas-style concept featuring Texas artifacts 
and country and western music. The Lone Star Restaurants serve mesquite grilled 
steaks, ribs, chicken and fish. Company management believes that this niche 
is a dynamic growth area within the restaurant industry that offers 
significant growth opportunity for the Company. To attract and retain 
experienced restaurant managers, the Company grants an incentive stock option 
with an aggregate exercise price of $50,000 with a five year vesting period 
to each general manager of its restaurants. The Company also grants selected 
general managers additional options based on their performance. 

   In connection with the Company's strategy to become "The Steak Company," 
the Company recently decided to develop additional steak restaurant concepts 
in the upscale segment. The Company entered the upscale steakhouse market in 
September 1995 through the Del Frisco's Acquisition. The Company is 
developing another upscale steakhouse concept under the tradename of 
Sullivan's Steakhouse. The Company opened its first Sullivan's in May 1996. 

   Americans consumed an estimated 68 pounds of beef on a per capita basis in 
1995 (Source: Agricultural Department), up from an estimated 63 pounds of 
beef in 1993 and steak continues to be one of the most frequently ordered 
dinner entrees at restaurants. Company management believes the limited menu 
of its Lone Star Restaurants, which concentrates primarily on high quality, 
USDA choice-graded steaks, and the appeal of its "Texas Roadhouse" ambiance, 
distinguishes the Lone Star Restaurants and provides the Company with a 
competitive advantage. 

CORPORATE STRATEGY 

   The Company has positioned itself as "The Steak Company," which will 
operate three distinct steakhouse restaurant concepts. The primary growth 
vehicle will be the Lone Star Restaurant concept which operates in the 
mid-scale steak segment. Lone Star Restaurants emphasize the following 
strategic elements: 

   o  Positioning in the mid-priced, full-service casual dining segment of 
      the restaurant industry. 

   o  The popular brand of Texas provides a unique and enduring attraction to 
      a broad and diverse demographic and socio-economic mix of customers in 
      the 25 to 54 age group. 

   o  Generous "Texas-sized" portions offered at moderate prices. 

   o  High quality and attentive service with each waitperson generally being 
      assigned to no more than three tables at dinner to ensure customer 
      satisfaction. 

   o  Consistent high quality food products through careful ingredient 
      selection, food preparation and aging of steaks. 

   The Company believes that it can distinguish itself in the upscale market 
by employing many of the strategies that have been successful in the 
mid-priced market. The Company will continue to emphasize attentive service 
and consistent, high quality food products. The Company expects that it can 
successfully apply its restaurant operations and management systems to the 
upscale markets, although there can be no assurance in this regard, nor can 
there be any assurance that the restaurants it develops in these markets, if 
they are successful, will be as successful as those it has developed in the 
mid-priced, casual dining market. 


                                      19 
<PAGE>
RESTAURANT CONCEPTS 

   Lone Star Restaurants are positioned as "destination restaurants" that 
attract loyal clientele. Lone Star Restaurants embrace a Texas-style concept 
that features Texas artifacts and country and western music. The authentic 
"Texas Roadhouse" concept was developed to capitalize on the enduring 
popularity of Texas related themes. The exciting and vibrant atmosphere 
created by the restaurants' "Texas Roadhouse" ambiance is enhanced by free 
buckets of roasted peanuts, specially selected upbeat country western music, 
neon beer signs and peanut-shell-littered floors. The decor includes planked 
wooden floors, dim lighting, flags and other Texas memorabilia, all of which 
enhance the casual dining experience and establish a distinct identity for 
the Lone Star Restaurant chain. Lone Star Restaurants are further 
distinguished by their high quality, USDA choice-graded steaks which are 
hand-cut fresh daily at each restaurant and mesquite grilled to order. A meat 
counter visible from the dining area enables customers to have the 
opportunity to view and personally select their own steaks. Meals are served 
in generous "Texas-sized" portions and full liquor and bar service is 
available. The Lone Star Restaurants serve both lunch and dinner with an 
average check per customer for 1995 of approximately $8.50 at lunch and 
$18.50 at dinner. 

   Del Frisco's is designed to serve a sophisticated clientele, including 
business related dining occasions. The Del Frisco's concept embraces an 
elegant and timeless early twentieth century motif. The concept features 
traditional methods of cooking, such as master broiling and roasting. Del 
Frisco's decor and ambiance include dark woods, fabric walls, fireplaces, and 
soft background music featuring old favorites. All of these elements enhance 
the dining experience and establish a distinct identity for Del Frisco's. Del 
Frisco's is further distinguished by featuring its high quality, USDA 
prime-graded steaks which are hand-cut fresh daily. Del Frisco's serve dinner 
only and are open Monday through Saturday with an average guest check of 
approximately $60. 

   Sullivan's embraces a 1940's steakhouse theme with nostalgic art deco 
influences that feature music from the big band era. The decor includes wood 
paneling, carpeted floors, warm lighting and white table cloths. Sullivan's 
is further distinguished by its high quality Certified Angus Beef(TM) steaks, 
chops and seafood. Sullivan's serve dinner only and are open Monday through 
Saturday. Sullivan's average guest check is anticipated to be between $35 to 
$40. 

UNIT ECONOMICS 

   The Company's management team focuses on selecting locations with the 
potential of producing significant revenues while controlling capital 
expenditures and rent as a percentage of net sales. The Company's Lone Star 
Restaurants have historically generated a sales to investment ratio of 1.6:1, 
assuming that the average minimum annual rents pursuant to operating leases 
were capitalized for purposes of determining the investment. The Company's 
restaurants averaged approximately $2.5 million in net sales on an annualized 
basis during 1995. Of the 165 domestic Lone Star Restaurants open at March 
19, 1996, 85 were leased facilities and had an average cash investment of 
$943,000 and 80 were owned and had an average cost for land acquisition, 
construction, equipment and pre-opening expenses of $2,018,000. Assuming 
average minimum annual rents pursuant to operating leases were capitalized 
for 15 years at a rate of 10.5% per annum, total implied capital cost for the 
leased units averaged $1,410,000. In the future, the Company anticipates that 
a greater proportion of its new Lone Star Restaurant locations will be 
purchased rather than leased, and anticipates an average total cost per unit 
of between $1.3 million and $2.2 million. 

   The Company cannot at the present time determine with any certainty what 
the average total investment per restaurant for Del Frisco's and Sullivan's 
will be, but expects that the sales to investment ratio will be similar to 
that of Lone Star Restaurants. The Company anticipates that the majority of 
its Del Frisco's and Sullivan's will be leased. 


                                      20 
<PAGE>
MENU 

   The dinner menu at a Lone Star Restaurant features a limited selection of 
high quality, specially seasoned and mesquite grilled steaks, ribs, chicken 
and fish. All dinners offer a complete meal including salad, bread and butter 
and a choice of baked potato, baked sweet potato, steak fries or Texas rice. 
The lunch menu offers a selection of hamburgers, chicken sandwiches, luncheon 
steaks, ribs, soups and salads. Depending on local availability and quality, 
a fresh fish selection is also offered at lunch and dinner. The lunch and 
dinner menus also include appetizers and desserts, together with a full bar 
service. Alcoholic beverage service accounts for approximately 15% of the 
Company's net sales. 

   The menu at Del Frisco's features high quality USDA prime-graded steaks 
and seafood. The menu at Sullivan's features high quality Certified Black 
Angus(TM) steaks, chops and seafood. 

SITE SELECTION 

   The Company believes the site selection process is critical in determining 
the potential success of a particular restaurant and senior management 
devotes significant time and resources to analyzing each prospective site. A 
variety of factors are considered in the site selection process, including 
local market demographics, site visibility and accessibility and proximity to 
significant generators of potential customers such as major retailers, retail 
centers and office complexes, office and hotel concentrations and 
entertainment centers (stadiums, arenas, theaters, etc.). The Company also 
reviews potential competition and attempts to analyze the profitability of 
other national chain restaurants operating in the area. 

   Of the 168 existing domestic Lone Star Restaurants at May 20, 1996, 86 
were leased and 82 were owned locations. As of May 20, 1996, the Company had 
19 restaurants under construction, two of which were leased and 17 owned. As 
of that date, the Company had entered into agreements for 25 additional 
locations by either lease or purchase, subject to satisfaction of certain 
contingencies. Leases are negotiated generally with initial terms of three to 
five years, with multiple renewal options. The Company has generally required 
approximately 150 to 280 days after the signing of a lease, or the closing of 
a purchase to complete construction and open a new restaurant. Additional 
time is sometimes required to obtain certain government approvals and 
licenses, such as liquor licenses. 

RESTAURANT LAYOUT 

   The Company believes that the decor and interior design of its restaurants 
are significant factors in its success. Lone Star Restaurants' open layout 
permits dining customers to view the bar and Texas memorabilia and enhance 
the casual dining atmosphere. The Company also designs its kitchen space for 
efficiency of work flow, thereby minimizing the amount of space required. 

   Lone Star Restaurants currently average approximately 5,700 square feet 
and include a dining area with seating for approximately 190 customers. In 
addition, a bar area is located adjacent to the dining room primarily to 
accommodate customers waiting for dining tables or to accommodate overflow. 
In some restaurants, an outside patio area can provide additional seating. 
The Company anticipates that future Lone Star Restaurants will average 
approximately 5,500 square feet. 

   The Del Frisco's located in Dallas, Texas, which was acquired by the 
Company in the Del Frisco's Acquisition, is approximately 10,000 square feet 
and seats approximately 350 persons. Future Del Frisco's will be 
approximately 6,000-7,000 square feet and will include a dining area for 
approximately 175-200 customers. Sullivan's are expected to average 
approximately 6,000-7,000 square feet and include a dining area for 
approximately 180-200 customers. In addition, for both Del Frisco's and 
Sullivan's, a bar area is located adjacent to the dining room primarily to 
accommodate customers waiting for dining tables. 


                                      21 
<PAGE>
RESTAURANT LOCATIONS 

   The following table sets forth the locations of the Company's existing 168 
domestic Lone Star Restaurants as of May 20, 1996: 


ALABAMA              ILLINOIS           MISSOURI          OKLAHOMA          
Birmingham           Bloomington        Branson           Oklahoma City        
Huntsville           Chicago (8)        Springfield       Tulsa                
Mobile               Peoria             St. Louis (4)                       
Montgomery           Rockford                             PENNSYLVANIA         
Tuscaloosa           Springfield        NEBRASKA          Allentown             
                                        Lincoln           Harrisburg        
ALASKA               INDIANA            Omaha (2)         Lancaster         
Anchorage            Evansville                           Pittsburgh (3)       
                     Fort Wayne         NEVADA            Pottstown            
ARIZONA              Indianapolis (4)   Las Vegas (4)     Wilkes-Barre        
Phoenix (2)          Lafayette                            York                
                     South Bend         NEW JERSEY                            
ARKANSAS                                Bridgewater       S. CAROLINA         
Ft. Smith            IOWA               Cherry Hill       Greenville          
Little Rock (2)      Cedar Rapids       Hazlet            Myrtle Beach (2)    
Springdale           Coralville         Marlton                               
                     Davenport          Turnersville      S. DAKOTA           
COLORADO             Des Moines         Wayne             Sioux Falls         
Colorado Springs     Waterloo                                                 
Denver (3)                              N. CAROLINA       TENNESSEE           
Fort Collins         KENTUCKY           Asheville         Johnson City        
Loveland             Bowling Green      Charlotte (4)     Memphis (3)        
                     Florence           Durham                               
DELAWARE             Lexington          Fayetteville      UTAH               
Dover                Louisville         Greensboro (2)    Layton             
Wilmington (2)                          Greenville        Salt Lake City     
                     LOUISIANA          Jacksonville                         
FLORIDA              Baton Rouge        Raleigh (3)       VIRGINIA           
Bradenton            New Orleans        Winston-Salem     Alexandria         
Clearwater           Shreveport                           Centreville        
Coral Springs                           N. DAKOTA         Chesapeake         
Fort Lauderdale      MARYLAND           Fargo             Falls Church       
Fort Myers           Laurel                               Fredericksburg     
Gainesville          Waldorf            OHIO              Herndon            
Lakeland                                Akron             Norfolk            
Ocala                MICHIGAN           Canton            Potomac Mills      
Pensacola            Ann Arbor          Cincinnati (3)    Richmond (2)       
Port Richey          Detroit (6)        Cleveland (3)     Virginia Beach     
Sarasota             Grand Rapids       Columbus (4)                         
St. Petersburg                          Dayton (2)        W. VIRGINIA          
Tampa                                   Middletown        Charleston           
Orlando              MISSISSIPPI        Niles                                  
                     Jackson            Toledo (2)        WISCONSIN        
GEORGIA                                 Youngstown        Appleton         
Augusta                                                   Racine           
                                                             
                                                             
                                                          

                                      22 
<PAGE>
EXPANSION STRATEGY 

   The Company is continuing its domestic Lone Star Restaurant expansion 
program pursuant to which it opened 36 restaurants in 1993, 48 restaurants in 
1994, 45 restaurants in 1995 and intends to open at least 45 Lone Star 
Restaurants in 1996, all of which are expected to be Company-owned and 
operated. The Company plans to develop such new restaurants in its existing 
markets and expand into new markets that meet the Company's criteria. As of 
May 20, 1996, the Company had 19 restaurants under construction, two of which 
were leased and 17 owned. As of that date, the Company had entered into 
agreements for 25 additional locations by either lease or purchase, subject 
to satisfaction of certain contingencies. In addition to the Lone Star 
Restaurants opened by the Company in 1995, the Company in August 1995, 
acquired 11 Lone Star Restaurants in the 1995 Lone Star Acquisition. These 
restaurants had been operated by a group of corporations which had been 
granted, pursuant to a trademark license agreement, the exclusive right by 
the Company to operate restaurants under the "Lone Star Steakhouse & Saloon" 
name in the designated marketing areas of Wilmington, Greenville, New Bern, 
Washington, Raleigh/Durham and Charlotte, North Carolina. 

   The Company intends to selectively evaluate international expansion
opportunities. The Australian Joint Venture owns and operates 11 restaurants and
expects to open an additional seven to nine restaurants in 1996. A licensed Lone
Star Restaurant opened in Guam in mid-1995. It is unlikely that international
profit margins or return on investment on the Company's international operations
will be at the levels of the Company's domestic operations. The Company is also
contemplating entering into restaurant development joint venture, licensing or
other corporate partnership arrangements in other foreign countries. The
European Joint Venture owns and operates three Lone Star Restaurants in Holland
and is scheduled to open a fourth restaurant in Cologne, Germany in June 1996.
On May 20, 1996, the Board of Directors of the Company approved a plan to
discountinue the European Joint Venture. See "Risk Factors-Discountinuance of
European Joint Venture."

EXPANSION INTO UPSCALE MARKETS 

   While the Company intends to continue to have a substantial and increasing 
presence in the mid-priced, full service, casual dining steakhouse 
restaurant market, the Company believes that expansion opportunities exist in 
the upscale steakhouse markets. 

   To enter the upscale market, in September 1995, the Company acquired the
intellectual property rights, marks and tradename of Del Frisco's Steak House,
the existing Del Frisco's located in Dallas, Texas, and a Del Frisco's under
construction in Fort Worth, Texas (which opened in April 1996). The Company also
became the licensor of two Del Frisco's in Houston, Texas and Orlando, Florida.
The Company plans to develop the Del Frisco's concept, where the average check
is approximately $60. The Company expects to open either one or two
additional Del Frisco's in the United States in 1996.

   The Company is also developing a second upscale steak restaurant concept 
under the tradename Sullivan's Steakhouse, where the average check per 
customer is anticipated to be $35 to $40 and its first 
Sullivan's in May 1996. The Company expects to develop one to three 
additional Sullivan's in the United States in 1996. 

MARKETING 

   Lone Star Restaurants are "destination location restaurants." The Company has
relied principally on its commitment to customer service, an excellent
price-value relationship and the unique "Texas Roadhouse" ambiance of its Lone
Star Restaurants to attract and retain customers. Accordingly, the Company has
focused its resources on providing its customers with superior service, value
and an exciting and vibrant atmosphere, and has relied primarily on word of
mouth to attract new customers. The Company also utilizes radio and billboard
advertising to promote its restaurants and build customer awareness. The Company
intends to utilize a similar strategy for Del Frisco's and Sullivan's. The
Company also employs some print and direct mail advertising, and conducts some


                                      23 
<PAGE>
local restaurant promotions. To create additional Lone Star name recognition
and customer identification, the Company sells T-shirts and other items bearing
the Lone Star name and logo. In 1995, the Company's marketing expenses were less
than 1% of net sales.

RESTAURANT OPERATIONS AND MANAGEMENT 

   The Lone Star Restaurant concept has evolved from various steakhouse 
restaurants that certain of the Company's principal stockholders have 
operated since 1985. In addition, the restaurant operations and management 
systems are an outgrowth of systems and controls that were developed by the 
Company's senior management and have been successfully used to manage a large 
number of affiliated restaurants located in numerous states. Management 
intends to apply the restaurant operations and management systems, as 
appropriate, to its new Del Frisco's and Sullivan's upscale concepts. 

   The Company strives to maintain quality and consistency in its restaurants 
through careful hiring, training and supervision of personnel and the 
establishment of standards relating to food and beverage preparation, 
maintenance of facilities and conduct of personnel. 

   The Company maintains financial and accounting controls for each of its 
restaurants through the use of centralized accounting and management 
information systems. Sales information is collected daily from each 
restaurant, and restaurant managers are provided with daily, weekly and 
28-day period operating statements for their locations. Cash is controlled 
through daily deposits of sales proceeds in local operating accounts, the 
balances of which are wire transferred weekly to the Company's principal 
operating account. Most of the Company's Lone Star Restaurants are open daily 
from 11:00 A.M. to 10:00 P.M. weekdays and until 11:00 P.M. on weekends. The 
bar customarily remains open for an additional hour. 

   The management team for a typical Lone Star Restaurant consists of one 
general manager and four managers. Newly-developed Lone Star Restaurants will 
have one general manager and three managers. Each restaurant also employs a 
staff consisting of approximately 50 to 90 hourly employees, many of whom 
work part-time. Typically, each general manager reports directly to a 
district manager who, in turn, reports to the Company's senior vice president 
of operations. Restaurant managers complete an eight week training program 
during which they are instructed in areas including food quality and 
preparation, customer satisfaction, alcoholic beverage service, governmental 
regulations compliance, liquor liability avoidance and employee relations. 
Restaurant management is also provided with a proprietary operations manual 
relating to food and beverage preparation, all areas of restaurant management 
and compliance with governmental regulations. Working in concert with 
restaurant managers, the Company's senior management defines operations and 
performance objectives for each restaurant and monitors implementation. An 
incentive cash bonus program has been established in which each restaurant's 
management team participates. Awards under the incentive plan are tied to 
achievement of specified operating targets. Senior management regularly 
visits the Company's restaurants and meets with the respective management 
teams to ensure that the Company's strategies and standards of quality are 
being met in all respects of restaurant operations and personnel development. 

   The Company utilizes a comprehensive peer review reporting system for its 
general managers and district managers. Within seven days after the close of 
each 28-day accounting period, profit and loss statements are produced and, 
subsequently, the district managers and the Company's senior management meet 
in person to review operating results for each district. The next week a 
meeting is arranged during which the general manager of each restaurant 
reviews the profit and loss statement of the restaurant with a district 
manager and other general managers who report to the district manager. The 
participants offer each other feedback on their respective performances and 
suggest ways of improving profitability. The Company believes that the peer 
review system enables each general manager to benefit from the collective 
experience of all of the Company's management. 


                                      24 
<PAGE>
   The Company believes that customer service and satisfaction are keys to 
the success of restaurant operations. The Company's commitment to customer 
service and satisfaction is evidenced by several Company practices and 
policies, including periodic visits by restaurant management to customers' 
tables, active involvement of restaurant management in responding to customer 
comments and assigning waitpersons to a limited number of tables, generally 
three for dinner and four for lunch. Teamwork is emphasized through a runner 
system for delivering food to the tables that is designed to serve customers 
in an efficient and timely manner. 

   Each new restaurant employee of the Company participates in a training 
program during which the employee works under the close supervision of a 
restaurant manager, or experienced key employee. Management strives to 
instill enthusiasm and dedication in its employees and to create a 
stimulating and rewarding working environment where employees know what is 
expected of them in measurable terms. Management continuously solicits 
employee feedback concerning restaurant operations and strives to be 
responsive to the employees' concerns. 

PURCHASING 

   The Company negotiates directly with suppliers for food and beverage 
products to ensure consistent quality and freshness of products and to obtain 
competitive prices. The Company purchases substantially all food and beverage 
products from local or national suppliers. Food and supplies are shipped 
directly to the restaurants, although invoices for purchases are sent to the 
Company for payment. The Company does not maintain a central product 
warehouse or commissary. The Company has not experienced any significant 
delays in receiving restaurant supplies and equipment. 

   From time to time, the Company engages in forward pricing and may consider 
other hedging strategies with regard to its meat and other food costs in 
order to minimize the impact of potential fluctuations in prices. This 
practice could help stabilize the Company's food costs during times of 
fluctuating prices. 

MANAGEMENT INFORMATION SYSTEMS 

   The Company utilizes an in-store computer-based management support system 
which is designed to improve labor scheduling and food cost management, 
provide corporate management quicker access to financial data and reduce the 
restaurant manager's administrative time. Each general manager uses the 
system for production planning, labor scheduling and food cost variance 
analysis. The system generates reports on sales, bank deposit data and 
variance data to the Company's management on a daily basis. 

   The Company generates weekly consolidated sales reports and food and labor 
cost variance reports at its corporate headquarters, as well as detailed 
profit and loss statements for each restaurant every four weeks. 
Additionally, the Company monitors the average check, customer count, product 
mix and other sales trends on a daily basis. 

ACCOUNTING AND ADMINISTRATIVE SERVICES 

   The Company utilizes certain accounting and administrative services 
provided by Coulter Enterprises pursuant to the terms of a services 
agreement. These services were provided to the Company during 1995 at an 
annual fee of $837,000, plus an additional fee of $406 per restaurant per 
28-day period, and reimbursement of all out-of-pocket costs and expenses. For 
1996, the fixed annual charge is $1,272,000 and the per restaurant per 28-day 
period fee is $416. The increase in the fixed charge is due to an increase in 
the number of restaurants operated by the Company. In the future, the Company 
may satisfy its accounting and administrative needs by hiring employees 
directly; however, the Company believes that such direct costs would not be 
materially different than the costs under the contractual arrangement. See 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations." 

                                      25 
<PAGE>
COMPETITION 

   Competition in the restaurant industry is increasingly intense. The 
Company competes primarily on the basis of quality of food and service, 
ambiance, location and price-value relationship. The Company also competes 
with a number of restaurants within its markets, including both locally owned 
restaurants and regional or national chains. The Company believes that its 
"Texas Roadhouse" concept, attractive price-value relationship and quality of 
food and service enable it to differentiate itself from its competitors. The 
Company has limited operating experience in the upscale steakhouse markets. 
While the Company believes that its restaurants are distinctive in design and 
operating concept, it is aware of restaurants that operate with similar 
concepts. The Company also competes with other restaurants and retail 
establishments for sites. Many of the Company's competitors are well- 
established in the mid-priced and upscale dining segments and certain 
competitors have substantially greater financial, marketing and other 
resources than the Company. The Company believes that its ability to compete 
effectively will continue to depend upon its ability to offer high quality, 
competitively priced food in a full service, distinctive dining environment. 

GOVERNMENT REGULATION 

   The Company's restaurants are subject to numerous federal, state and local 
laws affecting health, sanitation, safety and ADA accessibility standards, as 
well as to state and local licensing regulation of the sale of alcoholic 
beverages. Each restaurant has appropriate licenses from regulatory 
authorities allowing it to sell liquor, beer and wine, and each restaurant 
has food service licenses from local health authorities. The Company's 
licenses to sell alcoholic beverages must be renewed annually and may be 
suspended or revoked at any time for cause, including violation by the 
Company or its employees of any law or regulation pertaining to alcoholic 
beverage control, such as those regulating the minimum age of patrons or 
employees, advertising, wholesale purchasing, and inventory control. The 
failure of a restaurant to obtain or retain liquor or food service licenses 
could have a material adverse effect on its operations. In order to reduce 
this risk, each restaurant is operated in accordance with standardized 
procedures designed to assure compliance with all applicable codes and 
regulations. 

   The Company may be subject in certain states to "dram-shop" statutes, 
which generally provide a person injured by an intoxicated person the right 
to recover damages from an establishment that wrongfully served alcoholic 
beverages to the intoxicated person. The Company carries liquor liability 
coverage as part of its existing comprehensive general liability insurance 
and has never been named as a defendant in a lawsuit involving "dram-shop" 
statutes. 

   A stockholder of the Company is also the owner of a wholesale liquor 
distributorship in the State of Kansas. Because of this relationship, 
"tied-house" laws may prohibit the Company from obtaining liquor licenses in 
certain states. However, the Company has not experienced difficulties in 
obtaining licenses except in the State of Kansas, where it has not been able 
to obtain a license. The Company does not believe that its relationship with 
such stockholder will have a material adverse effect on the Company's future 
operations. 

   The development and construction of additional restaurants will be subject 
to compliance with applicable zoning, land use and environmental regulations. 
The Company's restaurant operations are also subject to federal and state 
minimum wage laws governing such matters as working conditions, overtime and 
tip credits and other employee matters. Significant numbers of the Company's 
food service and preparation personnel are paid at rates related to the 
federal minimum wage which is currently $4.25 per hour and, accordingly, 
further increases in the minimum wage, such as the proposed increase in the 
minimum wage to $5.15 per hour, could increase the Company's labor costs. 

TRADEMARKS 

   The Company regards its marks, Lone Star Steakhouse & Saloon(R), Lone Star
Cafe(R), Del Frisco's(R) and Double Eagle Steak House(R), as having significant
value and as being important factors in the marketing of its restaurants. The

                                      26 
<PAGE>
Company also has an application pending for its Sullivan's service mark. The
Company is aware of names and marks similar to the service marks of the Company
used by other persons in certain geographic areas. However, the Company believes
such uses will not have a material adverse effect on the Company. The Company's
policy is to pursue registration of its marks whenever possible and to oppose
vigorously any infringement of its marks.

   In April 1996, the Company settled a declaratory judgment action brought 
by the Company against Max Shayne, Inc., a licensee of the Company, who had 
certain rights to operate up to two nightclub restaurants in the New York 
City metropolitan area utilizing the mark Lone Star Cafe. The settlement 
terminates the Trademark License Agreement dated January 22, 1992 entered 
into between the Company and Max Shayne, Inc. and provides that Max Shayne, 
Inc. assign all of its rights, title and interest in the Lone Star Cafe mark 
to the Company. 

   In December 1993, the Company filed a trademark infringement suit against 
a restaurant operator who operated two steakhouse restaurants in metropolitan 
Atlanta utilizing the mark and tradename Lone Star Steaks. By Order dated 
April 24, 1995, the United States District Court for the Northern District of 
Georgia, entered a permanent injunction barring the Company from using or 
displaying the "Lone Star Steakhouse & Saloon name, trademark or service 
mark" or any similar imitation of that mark or the "Lone Star Steaks" mark in 
connection with the operation of any restaurant in Georgia. The permanent 
injunction also encompasses any other acts within that state that unfairly 
compete with Lone Star Steaks, Inc., trade off that company's reputation or 
goodwill, or unlawfully injure its business reputation in any manner. The 
permanent injunction also encompasses the Company's use of its mark in 
connection with clothing within the state of Georgia. The Court further 
awarded $60,000 in compensatory and liquidated damages and approximately 
$113,000 in attorney's fees and costs. The Company is permitted to continue 
to operate its restaurant in Augusta, Georgia, under the name Lone Star Cafe. 
The Company has filed an appeal with the United States Court of Appeals for 
the Eleventh Circuit, and briefing has been completed. 

LEGAL MATTERS 

   Other than litigation in the ordinary course of business, the Company is 
not a party to any material litigation. 

EMPLOYEES 

   As of May 20, 1996, the Company employed approximately 14,000 persons, 
eight of whom are executive officers, 15 of whom are district managers, 
approximately 940 of whom are restaurant management personnel and the 
remainder of whom are hourly restaurant personnel. None of the Company's 
employees are covered by a collective bargaining agreement. The Company 
considers its employee relations to be good. 

PROPERTIES 

   As of May 20, 1996, the Company leased 86 and owned 82 of its domestic 
Lone Star Restaurant locations. All of the Company's leases provide for a 
minimum annual rent, and some leases provide for additional rent based on 
sales volume at the particular location over specified minimum levels. 
Generally, the leases are net leases which require the Company to pay the 
costs of insurance, taxes and a pro rata portion of lessors' common area 
costs. The Company anticipates that the majority of its Del Frisco's and 
Sullivan's will be leased. 

   The Company's executive offices are located at 224 East Douglas, Suite 
700, Wichita, Kansas, which space is provided pursuant to the terms of the 
existing management agreement with Coulter Enterprises. The Company believes 
that there is sufficient office space available at favorable leasing terms in 
the Wichita, Kansas area to satisfy the additional needs of the Company that 
may result from future expansion. 

                                      27 
<PAGE>
                                  MANAGEMENT 

EXECUTIVE OFFICERS AND DIRECTORS 

   The following table sets forth certain information concerning the 
executive officers and Directors of the Company: 

<TABLE>
<CAPTION>
                                                                                
                                                                                
                                                                                  Term of Office     
          Name               Age                        Position                 as Director Expires 
          ----               ---                        --------                 ------------------- 
<S>                         <C>     <C>                                        <C>
Jamie B. Coulter  .......    55       Chairman of the Board and Chief Executive       1998 
                                        Officer 
John D. White  ..........    48       Chief Financial Officer, Executive Vice         1997 
                                        President, Treasurer and Director 
Scott M. Somes (1)  .....    38       Chief Operating Officer                          -- 
Michael J. Archer  ......    35       Senior Vice President of Operations              -- 
Dennis L. Thompson  .....    52       Senior Vice President of Real Estate and        1998 
                                        Director 
Gerald T. Aaron  ........    55       Senior Vice President, Counsel and               -- 
                                        Secretary 
Robert M. Kendall  ......    35       Senior Vice President of Operations              -- 
Frank E. Furstenberg, Jr .   49       Vice President of New Store Development          -- 
Clark R. Mandigo (2)  ...    52       Director                                        1996 
C. Robert Buford (2)  ...    62       Director                                        1997 
Fred B. Chaney (2)  .....    59       Director                                        1996 

</TABLE>

- ------ 
(1) Mr. Somes is the son-in-law of Jamie B. Coulter. 
(2) Member of Audit Committee and Compensation Committee. 

   Jamie B. Coulter has served as Chairman and Chief Executive Officer of the 
Company since January 1992 (and has been a director and executive officer of 
various subsidiaries of the Company since 1991) and President of the Company 
from January 1992 to June 1995. Between 1965 and 1980, Mr. Coulter and his 
partners developed and operated Pizza Hut and Kentucky Fried Chicken 
restaurants as one of the largest franchisees of both systems. From 1980 to 
the present, Mr. Coulter has been and continues to be the sole stockholder, 
Chairman, Chief Executive Officer and President of various Pizza Hut entities 
operating more than 100 Pizza Hut restaurants in 11 states. Since 1980, Mr. 
Coulter has been the sole stockholder and President of Coulter Enterprises 
(and its predecessor company), a management company that provides management, 
accounting and administrative services for Mr. Coulter's Pizza Hut 
franchises, other affiliated and non-affiliated businesses and the Company. 

   John D. White has been an Executive Vice President since June 1995, the 
Chief Financial Officer and a Director of the Company since January 1992 and 
a director and executive officer of various subsidiaries of the Company since 
1991. Prior to joining the Company, Mr. White was employed for 11 years as 
Senior Vice President of Finance for Coulter Enterprises. From 1970 to 1980, 
Mr. White was a certified public accountant with Arthur Young & Company. 

   Scott M. Somes, has been Chief Operating Officer since June 1995 and 
served as Senior Vice President of Operations of the Company from January 
1992 until June 1995. Prior to joining the Company, Mr. Somes was employed in 
various capacities, including President, of several Pizza Hut operating 
entities owned by Mr. Coulter, and as an officer in various subsidiaries of 
the Company. 

   Michael J. Archer, has been Senior Vice President of Operations of the 
Company since April 1995. Prior to joining the Company, Mr. Archer was 
employed in various capacities, including President, of Morton's of Chicago, 
Inc., a subsidiary of Morton's Restaurant Group, Inc. for 13 years. 

                                      28 
<PAGE>

   Dennis L. Thompson has been Senior Vice President of Real Estate and a 
Director of the Company since January 1992 and has been an executive officer 
and a director of various subsidiaries of the Company since 1989. From 1985 
to August 1995, he had been an executive officer, director and stockholder of 
Creative Culinary Concepts, Inc. ("CCC"), a company which along with other 
corporate entities owned and operated 11 Lone Star Restaurants. In August 
1995, the Company acquired the restaurants owned by CCC and other affiliated 
entities. See "Certain Relationships and Related Transactions." 

   Gerald T. Aaron, 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. 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. 

   Robert M. Kendall, has been Senior Vice President of Operations since June 
1995 and was Vice President of Operations of the Company from September 1993 
until June 1995. From March 1992 to September 1993, he assisted in new store 
development for the Company. Prior thereto, he was a General Manager of 
various restaurants owned or operated by CCC for more than two years. 

   Frank E. Furstenberg, Jr. has been Vice President of New Store Development 
since January 1994. From March 1992 to January 1994, he was involved in 
various aspects of new store development for the Company. Mr. Furstenberg has 
been a Pizza Hut franchisee since 1979, although his restaurants are operated 
under a management contract with Coulter Enterprises. 

   Clark R. Mandigo has been a Director of the Company since March 1992. Mr. 
Mandigo is currently self-employed as a business consultant and has an 
interest in a Papa John's Pizza Franchise. 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. Mr. Mandigo currently serves on the 
board of directors of Physician Corporation of America, a managed healthcare 
company, and Palmer Wireless, Inc., a cellular telephone system operator, and 
as a Trustee of Accolade Funds. 

   C. Robert Buford has been a Director of the Company since March 1992. Mr. 
Buford has served as Managing Partner of Grand Bluffs Development Company, a 
real estate development company, since December 1985. Mr. Buford has served 
as Chairman of the Board and President of Zenith Drilling Corporation of 
Wichita, Kansas since February 1966 and is its principal stockholder. Mr. 
Buford is a director of Intrust Bank, N.A. of Wichita, Kansas and a director 
of Barrett Resources Corporation of Denver, Colorado. 

   Fred B. Chaney, Ph.D has been a Director of the Company since May 1995. Dr.
Chaney is President and Chief Executive Officer of TEC's Parent Company, Vedax
Sciences Corporation. Dr. Chaney through the TEC organization has 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 International, 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 is a board member of Hobie Sports.

MEETINGS OF DIRECTORS AND DIRECTORS COMPENSATION 

   The Board of Directors has created an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee is composed of all
of the independent directors and 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 independent directors,
recommends to the Board of Directors compensation for the Company's key

                                      29 
<PAGE>
employees. The Stock Option Committee also consists of all of the independent
directors and administers the Plan and awards stock options thereunder. The
members of the Audit Committee, Compensation Committee and Stock Option
Committee are Messrs. Buford, Chaney and Mandigo.

   Directors who are not employees of the Company receive an annual fee of 
$3,000 and a fee of $500 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 "Directors Plan"), a formula stock option 
plan. As of May 14, 1996, options to purchase 186,000 shares of Common Stock 
have been granted to non-employee Directors under the Directors Plan at 
exercise prices ranging from $3.375 per share to $40.00 per share, of which 
options to purchase 40,000 shares of Common Stock have been exercised. In 
1995, the Company's outside Directors were each automatically granted options 
to purchase 6,000 shares of Common Stock under the Directors Plan. The 
exercise price of such options was $27.00 per share. The Company also granted 
options to purchase 40,000 shares to Fred Chaney at an exercise price of 
$30.50 per share upon his election to the Board of Directors. 

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, 1995. 

                          Summary Compensation Table 

<TABLE>
<CAPTION>
                                                                             
                                                                            Long Term Compensation  
                                                  Annual Compensation        ----------------------  
                                           ------------------------------     Number of Securities   
Name and Principal Position                  Year      Salary       Bonus      Underlying Options 
- ---------------------------                 ------   ----------    -------   ---------------------- 
<S>                                        <C>       <C>           <C>       <C>
Jamie B. Coulter  .......................    1995     $210,000        --          200,000 
 Chairman of the Board                       1994      175,000        --          500,000 
 and Chief Executive Officer                 1993      145,000        --          400,000

S. Douglas Glendenning  .................    1995     $192,000        --          100,000 
 Former President(1)                         1994      160,000        --          125,000 
                                             1993      135,000        --          100,000
 
John D. White  ..........................    1995     $186,000        --          100,000 
 Chief Financial Officer, Executive Vice     1994      155,000        --          125,000 
 President and Treasurer                     1993      130,000        --          100,000
 
Scott M. Somes  .........................    1995     $180,000        --          100,000 
 Chief Operating Officer                     1994      150,000        --          125,000 
                                             1993      125,000        --          100,000
 
Dennis L. Thompson  .....................    1995     $180,000        --          100,000 
 Senior Vice President of                    1994      150,000        --          125,000 
 Real Estate                                 1993      108,000        --          100,000 
</TABLE>

- ------ 

(1) Mr. Glendenning resigned on April 2, 1996. 

                                      30 
<PAGE>
OPTION GRANT TABLE 

   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 26, 1995. 

                      OPTION GRANTS IN LAST FISCAL YEAR 

<TABLE>
<CAPTION>
                                     Individual Grants           
                                ---------------------------                                    Potential Realizable Value  
                                                % of Total                                      at Assumed Rates of Stock  
                                 Number of       Options                                         Price Appreciation for    
                                Securities      Granted to      Exercise                           Option Term (1)(2)      
                                Underlying      Employees in     or Base       Expiration     ---------------------------- 
Name                            Options(3)      Fiscal Year    Price ($/Sh)       Date            5%               10% 
- ----                            ----------      -----------    ------------    ----------     ----------       -----------
<S>                           <C>               <C>           <C>              <C>            <C>              <C>
Jamie B. Coulter  .........       200,000          12.7%       $32.625           1/31/06      $4,103,536       $10,399,168 
S. Douglas Glendenning (4) .      100,000           6.3         32.625           1/31/06       2,051,768         5,199,584 
John D. White  ............       100,000           6.3         32.625           1/31/06       2,051,768         5,199,584 
Scott M. Somes  ...........       100,000           6.3         32.625           1/31/06       2,051,768         5,199,584 
Dennis L. Thompson  .......       100,000           6.3         32.625           1/31/06       2,051,768         5,199,584 

</TABLE>

- ------ 

(1) The options indicated vest ratably over a three-year period commencing 
    January 31, 1997. 

(2) The potential realizable 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 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. 

(3) Does not include options to purchase Common Stock which were awarded in 
    January 1995 for services performed in 1994. 

(4) Mr. Glendenning resigned April 2, 1996 and these options, which were not 
    vested, were cancelled in accordance with the terms of the Plan. 

OPTION EXERCISE TABLE 

   No options were exercised by the CEO and the other Named Executive 
Officers during the fiscal year ended December 26, 1995. The following table 
sets forth certain information concerning unexercised options held as of 
December 26, 1995 by the CEO and the other Named Executive Officers. 


                                      31 
<PAGE>

                 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
                       AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
                         Number of Securities Underlying Unexercised          Value of Unexercised In-the-Money 
                             Options at December 26, 1995                      Options at December 26, 1995(1) 
                         -------------------------------------------          --------------------------------- 
Name                       Exercisable           Unexercisable                Exercisable       Unexercisable 
- -----------                ------------          -------------                ------------      --------------- 
<S>                        <C>                    <C>                         <C>               <C>
Jamie B. Coulter  ......      333,334               866,666                   $  6,249,994       $   17,225,000 
S. Douglas Glendenning .       83,334               216,666                      1,562,494            4,306,256 
John D. White  .........       83,334               216,666                      1,562,494            4,306,256 
Scott M. Somes  ........       83,334               191,666                      1,562,494            3,781,256 
Dennis L. Thompson  ....       83,334               191,666                      1,562,494            3,781,256 
</TABLE>


- ------ 
(1) Based on the closing price of a share of Common Stock ($40.00) as 
    reported by the Nasdaq National Market on December 26, 1995. 

EMPLOYMENT AGREEMENTS 

   The Company has separate employment agreements with each of Messrs. White 
and Somes providing for the employment of such individuals as Chief Financial 
Officer and Senior Vice President of Operations, respectively. In June 1995, 
Messrs. White and Somes were appointed Executive Vice President and Chief 
Financial Officer and Chief Operating Officer, respectively. Each employment 
agreement provides that the officer shall devote substantially all of his 
professional time to the business of the Company. The agreements provided for 
a 1995 annual base salary of $186,000 and $180,000 for Messrs. White and 
Somes, respectively. For 1996, the annual base salaries for Messrs. White and 
Somes were established at $236,000, and $230,000, respectively. Each 
agreement terminates in February 1998, but the Company has the option to 
extend the term for an additional one-year period. The Company had a similar 
employment agreement with Mr. Glendenning which contained non-competition and 
non-solicitation provisions which apply for eighteen months after cessation 
of his employment. Messrs. Coulter and Thompson have also entered into 
non-competition, confidentiality and non-solicitation agreements with the 
Company. Messrs. Coulter's and Thompson's base salaries for 1996 have been 
established at $250,000 and $214,000, respectively. 

COMPENSATION COMMITTEE INTERLOCKS 

   The Compensation Committee consists of Messrs. Buford, Chaney and Mandigo. 
None of such Directors was a party to any transaction with the Company which 
constitutes an interlock with another entity. 


                                      32 
<PAGE>
                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 

SERVICES AGREEMENT 

   The Company has entered into a services agreement with Coulter Enterprises 
pursuant to which the Company utilizes certain accounting and administrative 
services provided by Coulter Enterprises. The services agreement initially 
expired on December 31, 1992 and is renewable thereafter on a year-to-year 
basis. For fiscal year 1995, the fixed annual charge was $837,000 and the per 
restaurant per 28-day accounting period fee was $406, plus reimbursement of 
all direct out-of-pocket costs and expenses. For the fiscal years ended 
December 28, 1993 and December 27, 1994, the Company incurred fees of 
$308,057 and $792,913 under the services agreement. For the fiscal year ended 
December 26, 1995, the Company incurred fees of $1,443,312 under the services 
agreement. For fiscal year 1996, the fixed annual charge is $1,272,000 and 
the per restaurant per 28-day accounting period fee is $416, plus 
reimbursement of all direct out-of-pocket costs and expenses. All of the 
disinterested Directors voted to renew the services agreement and approve the 
new fee arrangements thereunder. The amount of the services fee will be 
reviewed annually and will be subject to approval by a majority of the 
disinterested directors of the Company. See "Management's Discussion and 
Analysis of Financial Condition and Results of Operations." 

1995 LONE STAR ACQUISITION 

   In August 1995, the Company acquired 11 Lone Star Restaurants which had 
been operated by a group of corporations which had been granted, pursuant to 
a trademark license agreement, the exclusive right by the Company to operate 
restaurants under the "Lone Star Steakhouse & Saloon" name in certain 
marketing areas of North Carolina. In such transaction, the Company also 
acquired three other restaurants. In consideration for these transactions, 
the Company issued 580,433 shares of Common Stock to the stockholders of the 
various acquired entities. Dennis Thompson, a Director, executive officer and 
5% stockholder of the Company, received 215,961 shares of Common Stock as 
part of such transaction. 

OTHER TRANSACTIONS 

   Jamie B. Coulter, Chairman of the Board and Chief Executive Officer of the 
Company, owns, through controlled entities, an aircraft that, on occasion, is 
used for Company business. The Company believes that the charges incurred by 
the Company for its usage of this aircraft are at least as favorable as the 
charges that would have been incurred for similar services received from 
unaffiliated third parties. The cost of such services in 1995 was $27,907 and 
in 1994 was $70,500. In 1993, the cost of such services was less than 
$60,000. 

   In December 1995, the Company purchased from an unaffiliated third party 
an aircraft for $1,550,000 that such party recently acquired from an entity 
controlled by Mr. Coulter. The purchase price was at fair market value as 
determined by three separate appraisals. 

   The Company believes that the foregoing transactions were in its best 
interests. It is the Company's current policy that all transactions by the 
Company with officers, directors, 5% stockholders and their affiliates will 
be entered into only if such transactions are approved by a majority of the 
disinterested independent Directors, are on terms no less favorable to the 
Company than could be obtained from unaffiliated parties and are reasonably 
expected to benefit the Company. 


                                      33 
<PAGE>
                      PRINCIPAL AND SELLING STOCKHOLDERS 

   The following table sets forth certain information regarding the 
beneficial ownership of Common Stock as of May 20, 1996, and as adjusted to 
reflect the sale of the Common Stock offered hereby, by (i) each Director, 
(ii) each of the Named Executive Officers, (iii) all Directors and executive 
officers as a group, (iv) each person known by the Company to beneficially 
own 5% or more of its Common Stock and (v) each of the Selling Stockholders. 
Unless otherwise indicated, the address for 5% stockholders, officers and 
directors of the Company and each of the Selling Stockholders is 224 E. 
Douglas, Suite 700, Wichita, Kansas 67202. Except as specified, the named 
beneficial owner has sole voting and investment power with respect to the 
shares beneficially owned by such person. 

<TABLE>
<CAPTION>
                                                                  Shares to be 
                                    Shares Beneficially Owned       Sold in        Shares Beneficially Owned 
     Name of Beneficial Owner           Prior to Offering           Offering            After Offering 
- ------------------------------------ ------------------------------ -----------     ------------------------
                                       Number    Percentage                          Number     Percentage 
                                   -----------   ------------                     -----------   ------------ 
<S>                                <C>           <C>             <C>              <C>           <C>
Jamie B. Coulter(1)  ...........    4,428,037        11.5%         1,000,000      3,428,037          8.5% 
John D. White(2)  ..............      441,359         1.2            110,000        331,359           * 
Scott M. Somes(3)  .............      348,365          *              50,000        298,365           * 
Clark R. Mandigo(4)  ...........       38,000          *                  --         38,000           * 
C. Robert Buford(5)  ...........       84,000          *                  --         84,000           * 
Dennis L. Thompson(6)  .........    2,640,793         6.9            250,000      2,390,793          5.8 
Fred B. Chaney(7)  .............       13,333          *                  --         13,333           * 
Gerald T. Aaron(8)  ............      138,649          *              20,000        118,649           * 
Frank E. Furstenberg, Jr.(9)  ..       80,958          *              20,000         60,958           * 
Christie Somes..................      144,911          *              50,000         94,911           *
Janus Capital Corporation 
   Thomas H. Bailey 
   Janus Twenty Fund(10) .......    3,184,640         8.4                 --      3,184,640          7.9 
Fred Alger Management, Inc. 
   Fred M. Alger, III(11) ......    3,101,618         8.2                 --      3,101,618          7.7 
All directors and executive officer 
  group (11 persons) 
 (1)(2)(3)(4)(5)(6)(7)(8)(9)(12)    8,339,281        22.0%         1,450,000      6,889,281         16.4% 
</TABLE>

- ------ 
*  Less than 1%. 

(1) Excludes 359,939 shares held by Gayla W. Coulter, Mr. Coulter's wife. 
    Also excludes shares held by Mr. Coulter's adult children, Jay Coulter, 
    Christie Somes and Lynnie Coulter. Mr. Coulter disclaims beneficial 
    ownership of these shares. Includes presently exercisable options to 
    purchase 733,334 shares of Common Stock. 

(2) Includes presently exercisable options to purchase 183,334 shares of 
    Common Stock. 

(3) Excludes 144,911 shares held by Christie Somes who is the daughter of Mr. 
    Coulter and the wife of Mr. Somes. Mr. Somes disclaims beneficial 
    ownership of these shares. Includes presently exercisable options to 
    purchase 175,000 shares of Common Stock. 

(4) Includes presently exercisable options to purchase 18,000 shares of 
    Common Stock. 

(5) Includes 6,000 shares held by Mr. Buford's wife and presently exercisable 
    options to purchase 58,000 shares of Common Stock. 

(6) Includes shares held by a limited partnership for the benefit of Mr. 
    Thompson, his wife and minor children. Mr. Thompson has been a Director 
    and Senior Vice President of the Company since January 1992. Includes 
    presently exercisable options to purchase 175,000 shares of Common Stock. 

(7) Represents presently exercisable options to purchase 13,333 shares of 
    Common Stock. 

(8) Includes presently exercisable options to purchase 100,000 shares of 
    Common Stock. 

(9) Includes presently exercisable options to purchase 57,500 shares of 
    Common Stock. 

                                      34 
<PAGE>
(10) Based on a joint Schedule 13G filed in February 1996, Janus Capital 
     Corporation ("Janus"), Thomas H. Bailey ("Bailey") and the Janus Twenty 
     Fund ("Janus Twenty") and related entities collectively beneficially 
     hold 3,184,640 shares of Common Stock. The address of Janus, Bailey and 
     Janus Twenty is 100 Filmore Street, Suite 300, Denver, Colorado 
     80206-4923. Janus and Bailey disclaim beneficial ownership of these 
     shares. 

(11) Based on a joint Schedule 13G filed in February 1996, Fred Alger 
     Management, Inc. and Fred M. Alger, III collectively beneficially hold 
     3,101,618 shares of the Company's Common Stock. The Address of Fred 
     Alger Management, Inc.and Fred M. Alger, III is 75 Maiden Lane, New 
     York, New York 10038. 

(12) Excludes shares held by Christie Somes and Gayla Coulter and includes 
     175 shares of Common Stock and presently exercisable options to purchase 
     125,612 shares of Common Stock held by executive officers who are not 
     specified in the above table. 


                                      35 
<PAGE>
                         DESCRIPTION OF CAPITAL STOCK 

   The authorized capital stock of the Company consists of 98,000,000 shares 
of Common Stock, $0.01 par value, and 2,000,000 shares of Preferred Stock, 
$0.01 par value. 

   The following summary of certain terms of the Common Stock and Preferred 
Stock does not purport to be complete and is subject to, and qualified in its 
entirety by, the provisions of the Company's Certificate of Incorporation and 
By-laws, which are included as exhibits to the Registration Statement of 
which this Prospectus is a part, and the provisions of applicable law. 

COMMON STOCK 

   At May 17, 1996, there were 37,927,580 shares of Common Stock outstanding, 
owned by approximately 750 stockholders of record. Holders of Common Stock 
are entitled to one vote for each share held of record on all matters 
submitted to a vote of the stockholders. Subject to preferences that may be 
applicable to any then outstanding Preferred Stock, holders of Common Stock 
are entitled to receive ratably such dividends as may be declared by the 
Board of Directors out of funds legally available therefor. See "Dividend 
Policy." In the event of a liquidation, dissolution or winding up of the 
Company, holders of Common Stock are entitled to share ratably in all assets 
remaining after payment of liabilities and the liquidation preference of any 
then outstanding Preferred Stock. Holders of Common Stock have no right to 
convert their Common Stock into any other securities. The Common Stock has no 
preemptive or other subscription rights. There are no redemption or sinking 
fund provisions applicable to the Common Stock. All outstanding shares of 
Common Stock are duly authorized, validly issued, fully paid and 
nonassessable. 

PREFERRED STOCK 

   The Board of Directors has the authority, without further action by the 
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or 
more series and to fix the rights, preferences, privileges, and restrictions 
thereof, including dividend rights, conversion rights, voting rights, terms 
of redemption, liquidation preferences and the number of shares constituting 
any series or the designation of such series. The issuance of Preferred Stock 
could adversely affect the voting power of holders of Common Stock and could 
have the effect of delaying, deferring or preventing a change in control of 
the Company. The Company has no present plan to issue any shares of Preferred 
Stock. 

TRANSFER AGENT AND REGISTRAR 

   The transfer agent and registrar for the Common Stock is First Union 
National Bank, Charlotte, North Carolina. 

                                      36 
<PAGE>
                                 UNDERWRITING 

   The Underwriters named below (the "Underwriters") have severally agreed, 
subject to the terms and conditions contained in the underwriting agreement 
by and among the Company, the Selling Stockholders and the Underwriters (the 
"Underwriting Agreement"), to purchase from the Company and the Selling 
Stockholders the number of shares of Common Stock indicated below opposite 
their respective names at the public offering price less the underwriting 
discount set forth on the cover page of this Prospectus. The Underwriting 
Agreement provides that the obligations of the Underwriters are subject to 
certain conditions precedent and that the Underwriters are committed to 
purchase all of the shares if they purchase any. 


                                                             Number of
                                                            Shares to be 
            Underwriters                                     Purchased 
            ------------                                    ------------
Montgomery Securities  ............ 
Smith Barney Inc.  ................ 
Wessels, Arnold & Henderson, L.L.C. 
                                                            ----------
  Total  ..........................                         4,000,000 
                                                            ==========

   The Underwriters have advised the Company and the Selling Stockholders 
that the Underwriters propose initially to offer the Common Stock to the 
public at the public offering price set forth on the cover page of this 
Prospectus. The Underwriters may allow to selected dealers a concession of 
not more than $    per share; and the Underwriters may allow, and such 
dealers may reallow, a concession of not more than $    per share to certain 
other dealers. After the commencement of the offering, the public offering 
price, allowances, concessions and other selling terms may be changed by the 
Underwriters. The Common Stock is offered subject to receipt and acceptance 
by the Underwriters and to certain other conditions, including the right to 
reject orders in whole or in part. 

   The Company and the Selling Stockholders have granted an option to the 
Underwriters, exercisable during the 30-day period after the date of this 
Prospectus, to purchase up to a maximum of 600,000 additional shares of 
Common Stock to cover over-allotments, if any, at the same price per share as 
the initial shares to be purchased by the Underwriters. To the extent that 
the Underwriters exercise this option, the Underwriters will be committed, 
subject to certain conditions, to purchase such additional shares in 
approximately the same proportion as set forth in the above table. The 
Underwriters may purchase shares only to cover over-allotments made in 
connection with this offering. 

   The Underwriting Agreement provides that the Company and the Selling 
Stockholders will indemnify the Underwriters against certain liabilities, 
including civil liabilities under the Securities Act, or will contribute to 
payments the Underwriters may be required to make in respect thereof. 

   All of the Company's executive officers and Directors and each of the 
Selling Stockholders have agreed that, for a period of 90 days after the date 
of this Prospectus, they will not, without the prior written consent of 
Montgomery Securities, directly or indirectly offer to sell, contract to sell 
or otherwise sell or dispose of any shares of Common Stock (except for the 
shares offered hereby by the Selling Stockholders) or any securities 
convertible or exchangeable for shares of Common Stock. In addition, the 
Company has agreed that for a period of 90 days after the date of this 
Prospectus, it will not, without the prior written consent of Montgomery 
Securities, directly or indirectly offer to sell, issue, distribute or 
otherwise dispose of any equity securities or securities convertible into or 
exchangeable for equity securities or any options, rights, or warrants with 
respect to any equity securities except (i) shares of Common Stock offered by 
the Company hereby, (ii) shares of Common Stock issued pursuant to exercise 
of outstanding options disclosed in this Prospectus or (iii) options granted 
after the date of this Prospectus under the 1992 Stock Option Plan and the 
Directors Plan. 

   In connection with this offering, the Underwriters may engage in passive
market-making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in this offering, in accordance
with Rule 10b-6A under the Exchange Act. Passive market-making consists of
displaying bids on the Nasdaq National Market limited by the bid prices of


                                      37 
<PAGE>
independent market-makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market-maker on each day are
limited to a specified percentage of the passive market-maker's average daily
trading volume in the Common Stock during a specified prior period and must be
discontinued when such limit is reached. Passive market-making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.

                            AVAILABLE INFORMATION 

   The Company is subject to the informational requirements of the Exchange 
Act and in accordance therewith files reports, proxy statements and other 
information with the Securities and Exchange Commission (the "Commission"). 
Such reports, proxy statements and other information can be inspected and 
copied at the public reference facilities maintained by the Commission at 
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, 
as well as at the following regional offices: 14th Floor, Seven World Trade 
Center, New York, New York 10048, and 500 West Madison Street, Suite 1400, 
Chicago, Illinois 60661. Copies of such material can also be obtained from 
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The 
Company's Common Stock is traded on the Nasdaq National Market. The foregoing 
material also should be available for inspection at the National Association 
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. 

   The Company has also filed with the Commission a Registration Statement on 
Form S-1 (together with all amendments and exhibits thereto, the 
"Registration Statement") under the Securities Act with respect to the shares 
offered hereby. This Prospectus does not contain all of the information set 
forth in the Registration Statement, certain parts of which are omitted in 
accordance with the rules and regulations of the Commission. For further 
information, reference is made to the Registration Statement, copies of which 
may be obtained from the Public Reference Section of the Commission at Room 
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon 
payment of the fees prescribed by the Commission. Copies of such Registration 
Statement may also be requested from the Company, attention Mr. John D. 
White, Executive Vice President, Chief Financial Officer and Treasurer, 224 
East Douglas, Suite 700, Wichita, Kansas 67202. 

   The Company intends to furnish its stockholders with annual reports 
containing financial statements audited and reported upon by its independent 
accounting firm and quarterly reports containing unaudited interim financial 
information for the first three quarters of each year. 

                                   EXPERTS 

   The consolidated financial statements of Lone Star Steakhouse & Saloon, 
Inc. at December 27, 1994 and December 26, 1995 and for each of the three 
years in the period ended December 26, 1995, appearing in this Prospectus and 
Registration Statement have been audited by Ernst & Young LLP, independent 
auditors, as set forth in their report thereon appearing elsewhere herein and 
in the Registration Statement, and are included in reliance upon such report 
given upon the authority of such firm as experts in accounting and auditing. 

                                LEGAL MATTERS 

   The validity of the shares of Common Stock offered hereby will be passed 
upon for the Company and the Selling Stockholders by Olshan Grundman Frome & 
Rosenzweig LLP, New York, New York. Certain legal matters arising in 
connection with this offering will be passed upon for the Underwriters by 
Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. 


                                      38





<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
                        INDEX TO FINANCIAL STATEMENTS 

<TABLE>
<CAPTION>
                                                                                                  Pages 
                                                                                                --------- 
<S>                                                                                             <C>    

Report of Independent Auditors  ..................................................................      F-2 
Consolidated Balance Sheets as of December 27, 1994 and December 26, 1995  .......................      F-3 
Consolidated Statements of Income for the years ended December 28, 1993, December 27, 1994, and 
  December 26, 1995 ..............................................................................      F-5 
Consolidated Statements of Stockholders' Equity for the years ended December 28, 1993, December 
  27, 1994, and December 26, 1995 ................................................................      F-6 
Consolidated Statements of Cash Flows for the years ended December 28, 1993, December 27, 1994, 
  and December 26, 1995 ..........................................................................      F-7 
Notes to Consolidated Financial Statements  ......................................................      F-8 
Condensed Consolidated Balance Sheets as of December 26, 1995 and March 19, 1996 (unaudited) .....     F-16 
Consolidated Statements of Income for the twelve weeks ended March 21, 1995 and March 19, 1996 
  (unaudited) ....................................................................................     F-17 
Condensed Consolidated Statements of Cash Flows for the twelve weeks ended March 21, 1995 and 
  March 19, 1996 (unaudited) .....................................................................     F-18 
Notes to Condensed Consolidated Financial Statements (unaudited)  ................................     F-19 
</TABLE>

                                       F-1
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders 
Lone Star Steakhouse & Saloon, Inc. 

We have audited the accompanying consolidated balance sheets of Lone Star 
Steakhouse & Saloon, Inc. as of December 27, 1994 and December 26, 1995, and 
the related consolidated statements of income, stockholders' equity and cash 
flows for each of the three years in the period ended December 26, 1995. 
These financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these financial 
statements based on our audits. 

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion. 

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the consolidated financial position of Lone Star 
Steakhouse & Saloon, Inc. at December 27, 1994 and December 26, 1995, and the 
consolidated results of its operations and its cash flows for each of the 
three years in the period ended December 26, 1995, in conformity with 
generally accepted accounting principles. 

                                                           ERNST & YOUNG LLP 
Wichita, Kansas 
January 18, 1996 

                                       F-2
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
                         CONSOLIDATED BALANCE SHEETS 



                                          December 27, 1994   December 26, 1995 
                                          -----------------   ----------------- 
                 ASSETS 
Current assets: Cash and cash equivalents    $ 45,861,034        $ 67,424,884 
   Accounts receivable .................          786,722           1,308,865 
   Inventories .........................        2,495,134           4,156,355 
   Pre-opening costs, net ..............        6,593,015          10,328,686 
   Refundable income taxes .............        2,638,658           5,006,856 
   Other current assets ................        1,016,610              90,092 
                                           -----------------   ----------------
     Total current assets  .............       59,391,173          88,315,738 
Property and equipment:   
   Land ................................       37,834,664          68,887,543 
   Buildings ...........................       54,660,662          94,712,993 
   Leasehold improvements ..............       27,417,209          55,209,000 
   Equipment ...........................       22,906,565          37,159,906 
   Furniture and fixtures ..............        5,962,676           8,598,569 
                                           -----------------   ----------------
                                              148,781,776         264,568,011 
   Less: accumulated depreciation and 
     amortization  .....................       10,201,089          19,233,055 
                                           -----------------   ----------------
                                              138,580,687         245,334,956 
Other assets: 
   Investment in and advances to joint 
     venture (Note 4)  .................        2,436,614                  -- 
   Intangible and other assets, net 
     (principally goodwill in 1995)  ...        3,619,212          24,567,805 
                                           -----------------   ----------------
     Total other assets  ...............        6,055,826          24,567,805 
                                           -----------------   ----------------
     Total assets  .....................     $204,027,686        $358,218,499 
                                           =================   ================


               See notes to consolidated financial statements. 

                                       F-3
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
                         CONSOLIDATED BALANCE SHEETS 
                                 (CONTINUED) 

                                          December 27, 1994   December 26, 1995 
                                          -----------------   ----------------- 
LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:  ................ 
   Accounts payable ..................     $  8,744,996        $  9,245,331 
   Other current liabilities: ........ 
     Sales tax payable  ..............        1,215,295           1,367,263 
     Accrued payroll  ................        1,868,031           4,824,664 
     Gift certificates  ..............        2,551,699           4,677,964 
     Deferred income taxes (Note 11) .          875,322           1,817,159 
     Current portion of long term debt 
        (Note 10) ....................        3,874,836                  -- 
     Current portion of capitalized 
        lease obligation (Note 8) ....           55,356              64,550 
     Other  ..........................        2,587,509           6,438,362 
                                         -----------------   ----------------- 
        Total current liabilities ....       21,773,044          28,435,293 
Capitalized lease obligation (Note 8).          387,330             322,781 
Deferred income taxes (Note 11)  .....        1,795,490           3,966,968 
Minority interest  ...................               --           2,682,914 
Commitments (Note 12)  ...............               --                  -- 
Stockholders' Equity: (Notes 3, 5, 6)  
   Preferred stock, $.01 par value, 
     2,000,000 shares authorized; none 
     issued (Note 5)  ................               --                  -- 
   Common stock, $.01 par value, 
     98,000,000 shares authorized; 
     37,587,974 shares issued and 
     outstanding (34,302,568 in 1994).          343,025             375,879 
   Additional paid-in capital ........      131,482,689         228,578,790 
   Retained earnings .................       48,246,108          94,140,238 
   Translation adjustment ............               --            (284,364) 
                                         -----------------   ----------------- 
        Total stockholders' equity ...      180,071,822         322,810,543 
                                         -----------------   ----------------- 
        Total liabilities and 
          stockholders' equity  ......     $204,027,686        $358,218,499 
                                         =================   ================= 



                 See notes to consolidated financial statements.

                                       F-4
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                 For the year ended  
                                             -------------------------------------------------------------
                                             December 28, 1993     December 27, 1994     December 26, 1995 
                                             -----------------     -----------------     ----------------- 
<S>                                        <C>                 <C>                 <C>   
Net sales  ...............................     $112,263,334          $215,800,477         $340,857,223 
Costs and expenses:  
   Costs of sales ........................       40,980,953            76,887,928          120,870,646 
   Restaurant operating expenses .........       36,979,001            71,996,039          116,703,192 
   Depreciation and amortization .........        6,743,650            12,989,178           19,816,823 
                                               ------------          ------------         ------------ 
Restaurant costs and expenses  ...........       84,703,604           161,873,145          257,390,661 
                                               ------------          ------------         ------------ 
Restaurant operating income  .............       27,559,730            53,927,332           83,466,562 
General and administrative expenses:  
   Related parties (Note 7) ..............          308,057               792,913            1,443,312 
   Other .................................        3,608,946             7,324,744           11,249,957 
                                               ------------          ------------         ------------ 
Income from operations  ..................       23,642,727            45,809,675           70,773,293 
Other income (expense): 
   Other income, net (principally interest)       1,976,980             1,538,443            3,137,760 
   Interest expense ......................         (136,764)             (275,033)            (228,532) 
                                               ------------          ------------         ------------ 
                                                  1,840,216             1,263,410            2,909,228 
                                               ------------          ------------         ------------ 
Income before income taxes and minority 
   interest ..............................       25,482,943            47,073,085           73,682,521 
Provision for income taxes (Note 11)  ....       (9,112,078)          (16,900,130)         (26,819,591) 
Minority interest  .......................               --                    --              705,160 
                                               ------------          ------------         ------------ 
Net income  ..............................     $ 16,370,865          $ 30,172,955         $ 47,568,090 
                                               ------------          ------------         ------------ 
Primary net income per share  ............     $       0.49          $       0.87         $       1.27 
                                               ============          ============         ============ 
Fully diluted net income per share  ......     $       0.49          $       0.87         $       1.26 
                                               ============          ============         ============ 
Unaudited pro forma information based on 
   providing for income taxes on pooled S 
   Corporations prior to acquisition at
    the estimated effective tax rate: 
     Income before income taxes, net of 
        minority interest ................     $ 25,482,943          $ 47,073,085         $ 74,387,681 
     Pro forma provision for income taxes         9,695,820            17,883,699           27,652,784 
                                               ------------          ------------         ------------ 
     Pro forma net income  ...............     $ 15,787,123          $ 29,189,386         $ 46,734,897 
                                               ============          ============         ============ 
     Pro forma primary net income per share    $       0.47          $       0.84         $       1.25 
                                               ============          ============         ============ 
     Pro forma fully diluted net income per 
        share ............................     $       0.47          $       0.84         $       1.23 
                                               ============          ============         ============ 

</TABLE>

                 See notes to consolidated financial statements.

                                       F-5
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                   Common Stock              
                              Preferred    ----------------------------    Additional       Translation    Retained
                                Stock          Number         Amount     Paid-in-Capital     Adjustment    Earnings       Total     
                             -----------   ------------    -----------   ---------------   ------------- -----------     ------- 
<S>                         <C>           <C>             <C>           <C>                <C>             <C>        <C>

Balance, December 29, 1992 
  as previously reported .     $      --    30,622,728      $306,228        $ 57,571,533    $        --   $ 4,392,343   $62,270,104
Pooling of interests with 
  CCC Group (Note 2) .....            --       580,433         5,804              23,535             --      (408,442)     (379,103)
                               ---------    ----------      --------        ------------    -----------   -----------   -----------
Balance, as restated  ....                  31,203,161       312,032          57,595,068                    3,983,901    61,891,001
Stock options exercised  .            --       210,294         2,102           2,949,324             --            --     2,951,426 
Tax benefit related to 
  options exercised ......            --            --            --             787,500             --            --       787,500
Shares issued in public 
  offering ...............            --     2,875,000        28,750          69,968,572             --            --    69,997,322 
Dividends paid by pooled 
  companies ..............            --            --            --                  --             --      (230,000)     (230,000)
Net income  ..............            --            --            --                  --             --    16,370,865    16,370,865 
                               ---------    ----------      --------        ------------    -----------   -----------   -----------
Balance, December 28, 1993            --    34,288,455       342,884         131,300,464             --    20,124,766   151,768,114
Stock options exercised  .            --        14,113           141              97,666             --            --        97,807
Capital contributions of 
  pooled companies .......            --            --            --              84,559             --            --        84,559 
Dividends paid by pooled 
  companies ..............            --            --            --                  --             --    (2,051,613)   (2,051,613)
Net income  ..............            --            --            --                  --             --    30,172,955    30,172,955
                               ---------    ----------      --------        ------------    -----------   -----------   -----------
Balance, December 27, 1994            --    34,302,568       343,025         131,482,689             --    48,246,108   180,071,822
Shares issued in public 
  offering ...............            --     2,906,710        29,067          85,638,616             --            --    85,667,683
Translation adjustment  ..            --            --            --                  --       (284,364)           --      (284,364)
Stock options exercised  .            --       172,446         1,724           1,970,382             --            --     1,972,106
Tax benefit related to 
  options exercised ......            --            --            --           1,239,166             --            --     1,239,166
S Corporation deferred taxes          --            --            --                  --             --       (16,503)      (16,503)
Shares issued for Del Frisco 
  Group ..................            --       206,250         2,063           8,247,937             --            --     8,250,000
Dividends paid by pooled 
  companies ..............            --            --            --                  --             --    (1,657,457)   (1,657,457)
Net income  ..............            --            --            --                  --             --    47,568,090    47,568,090
                               ---------    ----------      --------        ------------    -----------   -----------  ------------
Balance, December 26, 1995     $      --    37,587,974      $375,879      $  228,578,790    $  (284,364)  $94,140,238  $322,810,543
                              ==========    ==========      ========      ==============    ===========   ===========  ============
</TABLE>

                 See notes to consolidated financial statements.

                                       F-6
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                                                  For the years ended  
                                                              ----------------------------------------------------------------- 
                                                                December 28, 1993     December 27, 1994      December 26, 1995 
                                                              --------------------    -----------------      -----------------
<S>                                                            <C>                  <C>                    <C>    
Cash flows from operating activities: 
   Net income .............................................       $ 16,370,865           $ 30,172,955          $  47,568,090 
   Adjustments to reconcile net income to net cash provided 
     by operating activities: 
     Depreciation and amortization  .......................          6,743,650             12,989,178             19,816,823 
     Deferred compensation  ...............................            306,905               (422,760)                    -- 
     Equity in net loss from investment in joint venture  .                 --                     --                311,282 
     Deferred income taxes  ...............................          1,198,275              1,322,187              3,113,315 
     Minority interest  ...................................                 --                     --               (705,160) 
     Net change in operating assets and liabilities: 
        Accounts receivable ...............................           (140,239)              (243,028)              (467,868) 
        Inventories .......................................           (818,769)              (892,826)            (1,510,680) 
        Pre-opening costs .................................         (6,439,921)            (9,480,268)           (13,060,622) 
        Refundable income taxes ...........................         (1,370,716)              (480,442)            (2,368,198) 
        Other current assets ..............................           (111,215)               (89,586)             1,491,275
        Accounts payable ..................................            720,548              4,773,994               (560,084) 
        Other current liabilities .........................          2,028,481              3,922,478             10,196,604 
                                                                  ------------           ------------          ------------- 
        Net cash provided by operating activities  ........         18,487,864             41,571,882             63,824,777 
Cash flows from investing activities: 
   Purchases of property and equipment ....................        (45,750,421)           (76,909,289)          (104,787,485) 
   Purchase of assets of Del Frisco's (Note 13) ...........                 --                     --            (14,600,000) 
   Contribution to capital by minority interest ...........                 --                     --              1,748,189 
   Cash acquired in consolidation of joint venture (Note 4)                 --                     --                495,873 
   Investment in joint venture ............................           (521,078)            (1,105,198)            (2,436,689) 
   Other ..................................................         (2,142,444)              (824,940)            (4,448,593) 
                                                                  ------------           ------------           ------------ 
        Net cash used in investing activities  ............        (48,413,943)           (78,839,427)          (124,028,705) 
Cash flows from financing activities: 
   Net proceeds from issuance of common stock .............         72,948,748                 97,807             87,639,789 
   Additions to long-term debt ............................            456,531              2,160,517                     -- 
   Payment of notes payable and capital lease obligation on 
     company acquired  ....................................           (853,504)              (795,831)            (3,930,191) 
   Capital contributions by pooled companies ..............                 --                 84,559                     -- 
   Dividends on prior S Corporation income ................           (230,000)            (2,051,613)            (1,657,457) 
                                                                  ------------           ------------           ------------ 
        Net cash provided by (used in) financing activities         72,321,775               (504,561)            82,052,141 
                                                                  ------------           ------------           ------------ 
Effect of exchange rate changes on cash  ..................                 --                     --               (284,363) 
        Net increase (decrease) in cash and cash equivalents        42,395,696            (37,772,106)            21,563,850 
Cash and cash equivalents at beginning of period  .........         41,237,444             83,633,140             45,861,034 
                                                                  ------------           ------------           ------------ 
Cash and cash equivalents at end of period  ...............       $ 83,633,140           $ 45,861,034          $  67,424,884 
                                                                  ============           ============          ============= 
Supplemental disclosure of cash flow information:
   Cash paid for interest .................................       $    136,764           $    275,033          $      75,170 
   Cash paid for income taxes .............................       $  8,736,989           $ 16,058,385          $  23,282,127 
</TABLE>

Supplemental schedule of noncash investing and financing activities: 
  As described in Note 13, in September 1995, the Company issued 206,250 
  shares of common stock having a market value of $8,250,000 in connection 
  with the acquisition of Del Frisco Group. 


                 See notes to consolidated financial statements.


                                       F-7
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
1. BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES 
   Background 

   Lone Star Steakhouse & Saloon, Inc. (the "Company") currently owns and 
operates a chain of mid-priced full service, casual dining restaurants in the 
United States, as well as in Australia and Europe through participation in 
international joint ventures. The restaurants serve mesquite-grilled steaks, 
ribs, chicken and fish in a "Texas Roadhouse" atmosphere that are positioned 
to attract local clientele. During 1995, the Company expanded into the 
upscale steakhouse market with the acquisition of Del Frisco's Double Eagle 
Steak House and the development of Sullivan's Steakhouse. As of December 26, 
1995, the Company owns and operates 160 Lone Star Steakhouse & Saloons in the 
United States as well as nine in connection with the joint venture in 
Australia and two in connection with the joint venture in Europe. In 
addition, the Company owns and operates one Del Frisco's Double Eagle Steak 
House and one Sullivan's Steakhouse is under development. 

   Significant Accounting Policies 

   o  Principles of Consolidation 

   The consolidated financial statements include the accounts of Lone Star 
Steakhouse & Saloon, Inc., its wholly-owned subsidiaries and its majority 
owned foreign joint ventures. All significant intercompany accounts and 
transactions have been eliminated in consolidation. 

   o  Concentration of Credit Risk 

   The Company's financial instruments that are exposed to concentration of 
credit risk consist primarily of cash and short-term investments (cash 
equivalents). The Company places its cash with high credit quality financial 
institutions and, at times, such cash may be in excess of the Federal 
Depository insurance limit. The Company has cash equivalents in investment 
grade securities with municipal, State and U.S. government agencies of 
approximately $37,843,000 and $46,361,000 at December 27, 1994 and December 
26, 1995, respectively. 

   o  Use of estimates 

   The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect the amounts reported in the financial statements and 
accompanying notes. Actual results could differ from estimates. 

   o  Income Taxes 

   The Company accounts for income taxes under the liability method in 
accordance with FASB Statement No. 109 "Accounting for Income Taxes." 

   o  Cash and Cash Equivalents 

   The Company considers cash and cash equivalents to include currency on 
hand, demand deposits with banks or other financial institutions, and 
short-term investments with maturities of three months or less when 
purchased. Cash and cash equivalents are carried at cost, which approximates 
fair value. 

   o  Inventories 

   Inventories consist of food and beverages, and are stated at the lower of 
cost (first-in, first-out) or market. 

   o  Property and Equipment 

   Property and equipment are stated at cost. Maintenance, repairs and 
renewals which do not enhance the value of, or increase the life of, the 
assets are expensed as incurred. 

                                       F-8
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  - (Continued) 

1. Background and Significant Accounting Policies  - (Continued) 

   Buildings are depreciated using the straight-line method over twenty 
years, which is the estimated useful life of the assets. Leasehold 
improvements are amortized on the straight-line method over the lesser of the 
maximum life of the lease or twenty years, or the estimated useful lives of 
the assets. Equipment and furniture and fixtures are depreciated using the 
straight-line method over seven years, which is the estimated useful life of 
the assets. 

   In March 1995, the FASB issued Statement No. 121, Accounting for the 
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, 
which requires impairment losses to be recorded on long-lived assets used in 
operations when indicators of impairment are present and the undiscounted 
cash flows estimated to be generated by those assets are less than the 
assets' carrying amount. Statement 121 also addresses the accounting for 
long-lived assets that are expected to be disposed of. The Company will adopt 
Statement 121 in the first quarter of 1996 and, based on current 
circumstances, does not believe the effect of adoption will be material. 

   o  Pre-opening Costs 

   Labor costs and costs of hiring and training personnel and certain other 
costs relating to opening new restaurants are capitalized until the 
restaurant is open and then amortized over the subsequent twelve months. 
Accumulated amortization related to stores opened during 1994 and 1995 was 
approximately $3,141,000 and $9,236,000 at December 27, 1994 and December 26, 
1995, respectively. 

   o  Intangibles and Other Assets 

   Intangibles and other assets principally represent goodwill in 1995. Such 
goodwill represents the excess of the cost of companies acquired over the 
fair value of their net assets at dates of acquisition and is being amortized 
on a straight-line method over twenty years. The remaining intangibles and 
other assets are being amortized by the straight-line method over the 
estimated useful life of the related assets. Accumulated amortization for 
intangibles and other assets as of December 27, 1994 and December 26, 1995, 
is $39,165 and $351,144, respectively. 

   o  Stock based compensation 

   The Company accounts for its stock compensation arrangements under the 
provisions of APB 25, "Accounting for Stock Issued to Employees," and intends 
to continue to do so. 

   The Company operates on a fifty-two or fifty-three week fiscal year ending 
the last Tuesday in December. The fiscal quarters for the Company consist of 
accounting periods of twelve, twelve, twelve and sixteen or seventeen weeks, 
respectively. 

2. ACQUISITION OF CCC GROUP 

   On August 6, 1995, the Company completed the acquisition of 11 licensed Lone
Star Steakhouse & Saloon restaurants as well as three additional restaurants
from a group of related entities which were operated under common control,
collectively hereinafter referred to as the "CCC Group." The transaction was
accounted for as a pooling of interests and, accordingly, the accompanying
financial statements have been restated to include the accounts and operations
of the CCC Group for all periods presented prior to the acquisition. The Company
exchanged 580,433 shares of its Common Stock for all of the Common Stock and
related net assets of the various entities acquired. Net sales and net income
included in the Company's consolidated statements of income attributable to the
acquisition are as follows:

                                       F-9
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  - (Continued)
 
2. Acquisition of CCC Group  - (Continued) 

<TABLE>
<CAPTION>
                                                        For the years ended  
                                        ------------------------------------------------- 
                                         December 28,      December 27,     December 26, 
                                             1993             1994             1995 
                                        --------------   --------------    -------------- 
                                                       (Dollars in thousands)
<S>                                     <C>              <C>              <C>   
Net Sales:  
     Lone Star Steakhouse & Saloon,        $  95,767          $194,632         $313,052 
     Inc. CCC Group  ................         16,496            21,168           27,805 
Net Income:  
     Lone Star Steakhouse & Saloon, Inc.      14,912            27,714           43,934 
     CCC Group (unaudited pro forma) (1)         875             1,475            2,801 

</TABLE>

- ------ 
(1) Pro forma net income reflects the pro forma income taxes applicable to 
    CCC Group as the entities were operated as S Corporations or Partnerships 
    and were not subject to income taxes. 

3. ADDITIONAL PUBLIC OFFERINGS 

   On June 2, 1993, the Company completed an offering of 2,875,000 additional
shares of its Common Stock (the "June 1993 Offering") at $25.75 per share. Total
net proceeds to the Company of approximately $70 million were used for
restaurant development.
 
   On April 12, 1995, the Company completed an offering of 2,906,710 additional
shares of its Common Stock at $31.00 per share. Total net proceeds to the
Company of approximately $86 million are being used for continued development
and funding of the Company's new upscale steakhouse concept.
 
4. INVESTMENT IN AND ADVANCES TO JOINT VENTURE 

   During 1992, the Company, through its wholly-owned subsidiary Lone Star
Steakhouse & Saloon of Las Vegas, Inc., entered into a joint venture agreement
with an unrelated third party to build and operate a chain of restaurants in
Australia under the Company's trademark "Lone Star." The Company owned a 50%
interest in the joint venture and accounted for its investment using the equity
method of accounting. The Company's equity portion of the results of operations,
which are not significant, are included in the accompanying financial statements
for the year ended December 27, 1994 and for the 24 weeks ended June 13, 1995.
 
   In June 1995, the Company increased its ownership interest in the Australian
joint venture from 50% to 65%. The Company consolidated the accounts of the
joint venture effective with the change in control.
 
   During 1995, the Company entered into a second joint venture agreement with
an unrelated third party to build and operate a chain of restaurants in Europe
under the Company's trademark "Lone Star." The Company owns a 65% interest in
the joint venture and, accordingly, its net assets and operations have been
consolidated with the Company in the accompanying consolidated financial
statements.

5. PREFERRED STOCK 

   The Company's Board of Directors has the authority to issue up to 2,000,000
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preference
and the numbers of shares constituting any series or the designation of such
series.

                                      F-10
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  - (Continued) 

6. STOCK OPTIONS 

   o  1992 Stock Option Plan 

   In January 1992, the Board of Directors adopted a stock option plan (the
"Plan") which was amended in May 1995, which provides for incentive and
non-qualified stock options pursuant to which up to 7,000,000 shares of Common
Stock are available for issuance.
 
   o  Directors Stock Option Plan

   In January 1992, the Board of Directors adopted a stock option plan providing
for nondiscretionary grants to non-employee Directors pursuant to which up to
400,000 shares of Common Stock are available for issuance.
 
   o  Other Options 

   In connection with the Australian joint venture agreement, options to acquire
513,800 shares of Common Stock were granted to certain individuals of the
unrelated third party. The exercise price of such options granted was $14.50 per
share which was the fair market value of the Common Stock on the date of grant.
 
   A summary of changes in Common Stock options during 1993, 1994 and 1995 is as
follows:

                                             Number                 Price 
                                            of shares             per share 
                                           -----------          -------------- 
Outstanding at December 29, 1992 .            864,914           $ 3.38 - 17.25 
  Granted  .......................            796,014            16.25 - 28.88 
  Exercised  .....................           (210,294)            3.38 - 15.75 
  Cancelled  .....................            (19,286)           14.50 - 25.75 
                                           -----------          -------------- 
Outstanding at December 28, 1993 .          1,431,348             3.38 - 28.88 
  Granted  .......................          1,317,253            16.25 - 26.88 
  Exercised  .....................            (14,113)            3.38 - 17.25 
  Cancelled  .....................            (77,006)            3.38 - 28.88 
                                           -----------          -------------- 
Outstanding at December 27, 1994 .          2,657,482             3.38 - 28.88 
  Granted  .......................          2,140,937            19.00 - 43.25 
  Exercised  .....................           (172,446)            3.38 - 28.88 
  Cancelled  .....................            (51,386)           14.50 - 39.88 
                                           -----------          -------------- 
Outstanding at December 26, 1995 .          4,574,587             3.38 - 43.25 
                                           ===========       
Options exerciseable at:  ........ 
  December 26, 1995  .............          1,208,791 
Available for grant at:  ......... 
  December 26, 1995  .............          2,928,560 


7. RELATED PARTY TRANSACTIONS

   The Company utilizes an affiliate to provide certain accounting, computer and
administrative services. The Company incurred fees of $308,057, $792,913, and
$1,443,312, related to such services for fiscal years 1993, 1994, and 1995,
respectively.
 
8. LEASES

   The Company leases one restaurant facility which is accounted for as a
capital lease and other facilities under noncancelable operating leases having
terms expiring between 1996 and 2022. The leases have renewal clauses of 5 to 

                                      F-11
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  - (Continued)
 
8. Leases  - (Continued)
 
20 years, exercisable at the option of the lessee. In addition, certain leases
contain escalation clauses based upon a fixed percentage increase and provisions
for contingent rentals based on a percentage of gross revenues, as defined.
Total rental expense for the years ended December 28 1993, December 27, 1994,
and December 26, 1995, was $2,485,565, $3,847,077, and $4,962,163, respectively,
including contingent rentals of approximately $254,327, $316,601, and $419,357,
respectively.
 
   Information regarding the Company's leasing activities at December 26, 1995, 
are as follows: 
                                                 Capital          Operating 
                                                  Leases            Leases 
                                                -----------     -------------- 
1996  ......................................     $ 120,000       $ 4,834,713 
1997  ......................................       120,000         4,057,926 
1998  ......................................       120,000         3,267,919 
1999  ......................................       120,000         2,221,017 
2000  ......................................        60,000         1,830,495 
Thereafter  ................................            --         3,473,613 
                                                -----------     -------------- 
Total minimum lease payments  ..............       540,000       $19,685,683 
                                                                ============== 
Less imputed interest  .....................      (152,669) 
                                                ----------- 
Present value of capital lease obligations .       387,331 
Less current portion  ......................       (64,550) 
                                                ----------- 
Long-term portion  .........................     $ 322,781 
                                                =========== 

   The net carrying value of assets under capital lease at December 27, 1994,
and December 26, 1995, is $322,664, and $267,308, respectively (net of
accumulated amortization of $566,124 and $621,480, respectively).


9. EARNINGS PER SHARE
 
   Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be outstanding
assuming exercise of dilutive stock options which are considered to be common
stock equivalents. The number of shares that would be issued from the exercise
of stock options has been reduced by the number of shares that could have been
purchased from such proceeds at the average market price of the Company's stock.
The number of shares resulting from this computation for 1993, 1994, and 1995
was 33,339,007, 34,608,610, and 37,537,891, respectively.

   For purposes of fully diluted computations, the number of shares that would
be issued from the exercise of stock options has been reduced by the number of
shares which could have been purchased from such proceeds at the market price of
the Company's stock on the last day of the fiscal year because that price was
higher than the average market prices during the year. The number of shares
resulting from this computation of fully diluted earnings per share for 1993,
1994, and 1995, were 33,392,556, 34,608,693, and 37,867,716, respectively.

                                      F-12
<PAGE>
                       LONE STAR STEAKHOUSE & SALOON, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10. LONG-TERM DEBT 

<TABLE>
<CAPTION>
                                                                                             1994 
                                                                                        -------------
<S>                                                                                    <C>   

    The following is a summary of long-term debt at December 27, 1994: 
         Three unsecured notes payable to bank, due in monthly installments 
            ranging from $6,667 to $11,667, plus interest payable at the 
            bank's prime rate; final maturity in August 2000. ..................           $1,370,000 
         Notes payable to stockholders of CCC Group.  ..........................            1,548,443 
         Note payable to bank, due in monthly installments of $6,366 including 
            interest at 7.25% through November 2005, collateralized by a 
            building with a carrying value of approximately $642,000 at 
            December 27, 1994. .................................................              577,926 
         Note payable to bank, due in monthly installments of $7,917 plus 
            interest payable at the bank's prime rate plus 1/2%; 
            collateralized by accounts receivable, inventory, property and 
            equipment, and a life insurance policy on a shareholder, payable 
            in full in November 1996. ..........................................              183,333 
         Six notes payable to bank, due in monthly installments ranging 
            from $1,136 to $1,202 plus interest ranging from 8.56% to 10.15%; 
            collateralized by computer equipment; ultimately payable in 
            full in September 1997. ............................................              195,134 
                                                                                         ------------ 
                                                                                            3,874,836 
         Less current portion  .................................................            3,874,836 
                                                                                         ------------ 
         Long-term portion  ....................................................         $         -- 
                                                                                        ============= 
</TABLE>

   All of the related long-term debt described above relates to activities of
the CCC Group prior to its acquisition by the Company. Such indebtedness was
repaid by the Company in August 1995, and accordingly, all such indebtedness at
December 27, 1994 was classified as current in the accompanying consolidated
balance sheet.

11. INCOME TAXES
 
   As discussed in Note 1, the Company accounts for income taxes in accordance
with FAS 109. Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                                         For the years ended  
                                       ----------------------------------------------------------- 
                                       December 28, 1993    December 27, 1994    December 26, 1995 
                                       -----------------    -----------------    -----------------
<S>                                    <C>                  <C>                  <C>    
Current tax expense:  
  Federal  .......................        $6,423,415         $12,410,595          $20,145,697 
  State  .........................         1,490,388           3,167,348            3,560,579 
                                          ----------         -----------          ----------- 
    Total current  ...............         7,913,803          15,577,943           23,706,276 
Deferred tax expense:
  Federal  .......................         1,057,325           1,123,188            2,976,342 
  State  .........................           140,950             198,999              136,973 
                                          ----------         -----------          ----------- 
    Total deferred  ..............         1,198,275           1,322,187            3,113,315 
                                          ----------         -----------          ----------- 
Total provision for income taxes .        $9,112,078         $16,900,130          $26,819,591 
                                          ==========         ===========          =========== 

</TABLE>

                                      F-13
<PAGE>
                      LONE STAR STEAKHOUSE & SALOON, INC. 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  - (Continued) 

  11. Income Taxes  - (Continued) 

   The difference between the reported provision for income taxes and a tax 
determined by applying the applicable U.S. federal statutory income tax rate 
to income before taxes, is reconciled as follows. 

<TABLE>
<CAPTION>
                                                                          For the years ended  
                                                     ---------------------------------------------------------------------- 
                                                     December 28, 1993         December 27, 1994          December 26, 1995 
                                                     -----------------         -----------------          ----------------- 
                                                     Amount      Rate           Amount     Rate           Amount      Rate 
                                                     ------     ------          ------    ------          ------     ------ 
<S>                                                  <C>       <C>             <C>        <C>             <C>       <C>

Income tax expense at federal statutory rate     $8,919,030       35%        $16,475,580      35%        $25,788,882    35% 
State tax expense, net  ..................        1,202,076        5           2,464,990       5           2,403,409     3 
Effect of income tax related to CCC Group which 
  were not taxed because of S Corporation status   (583,742)      (2)           (983,369)     (2)           (833,193)   (1) 
Other items, net, none of which individually 
  exceeds 5% of federal taxes at statutory rate    (425,286)      (2)         (1,057,071)     (2)           (539,507)   (1) 
                                                  ---------   ------         -----------   ------        -----------  ----- 
Actual provision for income taxes  .......       $9,112,078       36%        $16,900,130      36%        $26,819,591    36% 
                                                 ==========   ======         ===========   ======        ===========  ===== 
</TABLE>

   The tax effects of temporary differences that give rise to significant 
portions of deferred tax liabilities are presented below: 

                                          December 27,           December 26,
                                             1994                    1995 
                                         --------------         -------------- 
Deferred tax liabilities:  ..... 
     Pre-opening costs  ........          $  875,322             $1,817,159 
     Property and equipment  ...           1,795,490              3,966,968 
                                         --------------         -------------- 
       Total deferred tax 
        liability ..............          $2,670,812             $5,784,127 
                                         ==============         ============== 

12. COMMITMENTS 

   As of December 26, 1995, the Company has entered into purchase or option
contracts to purchase 25 additional sites for future restaurant locations. Such
contracts aggregate approximately $20,089,000. The Company has also entered into
operating lease agreements, subject to certain contingencies, on two additional
sites. Such leases generally have initial lease terms of five years and the
aggregate future minimum lease payments total approximately $520,000.
 
   Subsequent to December 26, 1995, the Company has entered into purchase
contracts, subject to certain contingencies, for ten additional sites totaling
approximately $5,865,000. The Company also has entered into operating lease
agreements on two additional sites. Such leases generally have initial lease
terms of five years and the aggregate future minimum lease payments total
approximately $1,285,000.

13. ACQUISITION OF THE DEL FRISCO GROUP 

   On September 16, 1995, the Company acquired substantially all the operating
assets, real estate and related operations that comprised Del Frisco's Double
Eagle Steak House Group in Dallas, Texas, including a restaurant under
construction in Fort Worth, Texas, for an aggregate purchase price of $22.8
million, consisting of $14.6 million of internally generated cash and 206,250
shares of the Company's Common Stock. The Company accounted for the transaction
using the purchase method of accounting. In connection with the purchase price
allocation, the Company recorded goodwill of approximately $16.5 million which
is being amortized over a period of twenty years. The following supplemental pro
forma information presents the combined results of operations of the Company as
though the acquisition had occurred at the beginning of periods presented. The
pro forma information is unaudited and not necessarily indicative of the results
of the Company had the acquisition occurred at the beginning of such periods.

                                      F-14
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  - (Continued)
 
13. Acquisition of The Del Frisco Group  - (Continued) 

                                                For the years ended
                                     ----------------------------------------- 
                                     December 27, 1994       December 26, 1995 
                                     -----------------       ----------------- 
                               (Dollars in thousands, except per share amounts)
                                                                  
Revenues  ....................         $ 225,163                   $347,630 
Net income  ..................            31,162                     48,494 
Primary net income per share .         $     .90                   $   1.29 


14. QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)

   Summarized quarterly financial data for 1994 and 1995 are as follows: 

<TABLE>
<CAPTION>
                                                  1st Quarter(a)   2nd Quarter(a)    3rd Quarter     4th Quarter  
                                                 ---------------- ---------------- --------------- --------------- 
                                                                  (In thousands, except per share amounts)
<S>                                              <C>              <C>              <C>             <C>    
1994  
Net Sales  ...................................      $40,335          $45,922          $53,067         $ 76,476 
Restaurant operating income  .................       10,014           11,185           12,690           20,038 
Pro forma net income (b)  ....................        5,575            6,104            6,954           10,556 
Pro forma primary net income per share  ......      $  0.16          $  0.18          $  0.20         $   0.30 
Pro forma fully diluted net income per share .         0.16             0.18             0.20             0.30 

1995   
Net Sales  ...................................      $69,393          $71,695          $81,633         $118,136 
Restaurant operating income  .................       17,371           17,498           20,569           28,029 
Pro forma net income (b)  ....................        8,870            9,615           11,845           16,405 
Pro forma primary net income per share  ......      $  0.26          $  0.26          $  0.31         $   0.42 
Pro forma fully diluted net income per share .         0.25             0.26             0.30             0.42 

</TABLE>


(a) Results for the first and second quarters of 1994 and 1995 differ from 
    the results issued in the Company's quarterly reports on Form 10-Q, due 
    to such results being restated to account for the pooling of the CCC 
    Group which occurred during 1995. The net sales, restaurant operating 
    income, net income, and earnings per share for these quarters have 
    increased from amounts previously reported as follows: 


                    Increase resulting from pooling of CCC Group
                                                 1st Quarter    2nd Quarter 
                                             --------------- --------------- 
                                       (In thousands, except per share amounts)
  1994  
  Net sales  ..............................     $  4,168           $4,623 
  Restaurant operating income  ............          885              855 
  Net income  .............................          321              317 
  Pro forma primary net income per share ..           --           $ 0.01 
  Pro forma fully diluted net income per 
     share ................................           --             0.01 
  1995 
  Net sales  ..............................     $  6,212           $6,553 
  Restaurant operating income  ............        1,280            1,125 
  Net income  .............................          551              442 
  Pro forma primary net income per share ..     $   0.01               -- 
  Pro forma fully diluted net income per 
     share ................................         0.01               -- 




(b) Pro forma net income gives effect to providing for income taxes at the 
    estimated tax rate on pooled S Corporations of the CCC Group prior to the 
    acquisition of the CCC Group in 1995. 


                                      F-15
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
                    CONDENSED CONSOLIDATED BALANCE SHEETS 
                                 (UNAUDITED) 

                                             December 26, 1995   March 19, 1996 
                                             ----------------    -------------- 
                   ASSETS 
Current assets:  ........................... 
   Cash and cash equivalents ...............     $ 67,424,884      $ 65,955,253 
   Accounts receivable .....................        1,308,865         1,357,263 
   Inventories .............................        4,156,355         5,138,067 
   Pre-opening costs, net ..................       10,328,686         9,407,344 
   Refundable income taxes .................        5,006,856                -- 
   Other current assets ....................           90,092           300,765 
                                               ----------------   -------------
          Total current assets  ............       88,315,738        82,158,692 
Property and equipment, net  ...............      245,334,956       266,381,463 
Intangible and other assets, net  ..........       24,567,805        21,989,543 
                                               ----------------   -------------
          Total assets  ....................     $358,218,499      $370,529,698 
                                               ================   =============
    LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:  ...................... 
   Accounts payable ........................     $  9,245,331      $  7,224,257 
   Income taxes payable ....................               --         1,527,980 
   Deferred income taxes ...................        1,817,159         2,053,409 
   Other current liabilities ...............       17,372,803        16,381,011 
                                               ----------------   -------------
          Total current liabilities  .......       28,435,293        27,186,657 
Deferred income taxes  .....................        3,966,968         4,509,818 
Minority interest  .........................        2,682,914         2,290,673 
Capitalized lease obligation  ..............          322,781           305,033 
Stockholders' equity:  ..................... 
   Preferred stock .........................               --                -- 
   Common stock ............................          375,879           376,351 
   Additional paid-in capital ..............      228,578,790       229,206,729 
   Retained earnings .......................       94,140,238       107,076,319 
   Translation adjustment ..................         (284,364)         (421,882)
                                               ----------------   -------------
          Total stockholders' equity  ......      322,810,543       336,237,517 
                                               ----------------   -------------
          Total liabilities and stockholders' 
             equity ........................     $358,218,499      $370,529,698 
                                               ================   =============

                             See accompanying notes

                                      F-16
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
                      CONSOLIDATED STATEMENTS OF INCOME 
                                 (UNAUDITED) 

<TABLE>
<CAPTION>
                                                                     For the twelve weeks ended 
                                                                -------------------------------------- 
                                                                  March 21, 1995        March 19, 1996 
                                                                ----------------        --------------
<S>                                                             <C>                     <C>    
Net sales  .................................................      $69,392,857            $106,375,328 
Costs and expenses:  ........................................ 
   Costs of sales ...........................................      24,844,939              37,584,027 
   Restaurant operating expenses ............................      23,212,444              37,718,967 
   Depreciation and amortization ............................       3,964,520               6,313,030 
                                                                --------------           ------------ 
Restaurant costs and expenses  ..............................      52,021,903              81,616,024 
                                                                --------------           ------------ 
Restaurant operating income  ................................      17,370,954              24,759,304 
General and administrative expenses  ........................       2,977,621               4,665,802 
                                                                --------------           ------------ 
Income from operations  .....................................      14,393,333              20,093,502 
Other income, principally interest  .........................         158,584                 634,194 
                                                                --------------           ------------ 
Income before income taxes and minority interest  ...........      14,551,917              20,727,696 
Provision for income taxes  .................................      (5,315,103)             (8,183,856) 
Minority interest  ..........................................              --                 392,241 
                                                                --------------           ------------ 
Net income  .................................................     $ 9,236,814            $ 12,936,081 
                                                                ==============           ============ 
Primary net income per share  ...............................     $      0.26            $       0.33 
                                                                ==============           ============ 
Fully diluted net income per share  .........................     $      0.26            $       0.33 
                                                                ==============           ============ 
Unaudited pro forma information based on providing for income 
   taxes on pooled S Corporations prior to acquisition at the 
   estimated effective tax rate: ............................ 
     Income before income taxes  ...........................      $14,551,917 
     Pro forma provision for income taxes  ..................      (5,682,332) 
                                                                  ----------- 
     Pro forma net income  ..................................     $ 8,869,585 
                                                                  =========== 
     Pro forma primary net income per share  ................     $      0.25 
                                                                  =========== 
     Pro forma fully diluted net income per share  ..........     $      0.25 
                                                                  =========== 
</TABLE>

                             See accompanying notes

                                      F-17
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
               INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 
                                 (UNAUDITED) 

<TABLE>
<CAPTION> 
                                                                        For the twelve weeks ended
                                                                   ------------------------------------ 
   
                                                                    March 21, 1995        March 19, 1996 
                                                                    --------------        --------------
<S>                                                                 <C>                  <C>    

Cash flows from operating activities:  .................... 
   Net income .............................................          $ 9,236,814          $ 12,936,081 
   Adjustments to reconcile net income to net cash provided 
     by operating activities:  ............................ 
     Depreciation and amortization  .......................            3,964,520             6,313,030 
     Net change in operating assets and liabilities:  ..... 
        Change in operating assets ........................             (383,418)            2,342,621 
        Change in operating liabilities ...................              240,090            (1,122,428) 
                                                                     -----------           ----------- 
        Net cash provided by operating activities  ......             13,058,006            20,469,304 
Cash flows from investing activities:  .................... 
   Purchases of property and equipment ....................          (12,700,269)          (23,890,992) 
   Other ..................................................             (288,083)            1,608,009 
                                                                     -----------           ----------- 
        Net cash used in investing activities  ..........            (12,988,352)          (22,282,983) 
Cash flows from financing activities: 
   Net proceeds from issuance of common stock .............               84,395               628,411 
   Payment of notes payable on company acquired ...........             (307,130)                   -- 
   Dividends on prior S Corporation income ................             (270,000)                   -- 
                                                                     -----------           ----------- 
        Net cash provided by (used in) financing activities             (492,735)              628,411 
                                                                     -----------           ----------- 
Effect of exchange rate changes on cash  ..................                   --              (284,363) 
          Net decrease in cash and cash equivalents  ......             (423,081)           (1,469,631) 
Cash and cash equivalents at beginning of period  .........           45,861,034            67,424,884 
                                                                    ------------          ------------ 
Cash and cash equivalents at end of period  ..............          $ 45,437,953          $ 65,955,253 
                                                                    ============          ============ 
Supplemental disclosure of cash flow information:  ........ 
   Cash paid for interest ................................          $     68,484         $          -- 
   Cash paid for income taxes .............................            3,536,876               869,920 
</TABLE>

                            See accompanying notes 

                                      F-18
<PAGE>
                     LONE STAR STEAKHOUSE & SALOON, INC. 
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
                                 (Unaudited) 

(NOTE 1) BASIS OF PRESENTATION 

   The unaudited financial statements include all adjustments, consisting of 
normal, recurring accruals, which the Company considers necessary for a fair 
presentation of the financial position and the results of operations for the 
periods presented. The results of the twelve weeks ended March 19, 1996, are 
not necessarily indicative of the results to be expected for the full year 
ending December 31, 1996. 

(NOTE 2) STOCK OPTIONS 

   During the twelve week period ended March 19, 1996, the Company granted 
stock options for 1,201,394 shares of Common Stock at prices ranging from 
$31.75 to $37.75 per share pursuant to its 1992 stock option plan for 
employees. 

(NOTE 3) EARNINGS PER SHARE 

   Primary earnings per share amounts are computed based on the weighted 
average number of shares actually outstanding plus the shares that would be 
outstanding assuming exercise of dilutive stock options which are considered 
to be common stock equivalents. The number of shares that would be issued 
from the exercise of stock options has been reduced by the number of shares 
that could have been purchased from such proceeds at the average market price 
of the Company's stock. The number of shares resulting from this computation 
for the twelve weeks ended March 21, 1995 and March 19, 1996, was 34,931,291 
and 38,797,073, respectively. 

   For purposes of fully diluted computations, the number of shares that 
would be issued from the exercise of stock options has been reduced by the 
number of shares which could have been purchased from such proceeds at the 
market price of the Company's stock on the last day of the fiscal year 
because that price was higher than the average market prices during the year. 
The number of shares resulting from this computation of fully diluted 
earnings per share for the twelve weeks ended March 21, 1995, and March 19, 
1996, was 35,203,281 and 39,132,621, respectively. 

(NOTE 4) SUBSEQUENT EVENT -- DISCONTINUANCE OF EUROPEAN JOINT VENTURE

   The Company currently operates three Lone Star Restaurants in Europe pursuant
to a joint venture agreement (the "European Joint Venture"). On May 20, 1996 the
Board of Directors of the Company approved a plan to discontinue the European
Joint Venture. The Company anticipates closing its European restaurants as early
as the second quarter of fiscal 1996; however, the Company may seek to sell or
license such restaurants. The Company expects to incur a non-recurring pre-tax
charge in the second quarter of fiscal 1996 in the range of $9,000,000 to
$11,000,000. The actual amount and the timing of such charge may vary depending
upon the timing and methods the Company utilizes in exiting its current European
operations. In addition, at the current time the Company is unable to determine
what contingent liabilities, if any, may be associated with the discontinuance
of such operations, including resolution of any disputes which may arise with
its European Joint Venture partner.
 
                                      F-19
<PAGE>
==============================================================================

No dealer, salesman or any other person is authorized to give any information 
or to make any representations in connection with this offering not contained 
in this Prospectus and, if given or made, such information or representations 
must not be relied upon as having been authorized by the Company or any 
Selling Stockholder. This Prospectus does not constitute an offer to sell or 
solicitation of any offer to buy any security other than the registered 
securities to which it relates or an offer to sell or solicitation of an 
offer to buy such securities in any circumstances in which such offer or 
solicitation is unlawful. Neither the delivery of this Prospectus nor any 
sale made hereunder shall, under any circumstances, create any implication 
that there has been no change in the affairs of the Company since the date 
hereof or that information contained herein is correct as of any time 
subsequent to the date hereof. 

                                    ------ 

                              TABLE OF CONTENTS 

                                    ------ 

                                                                        Page 
                                                                      -------- 
Prospectus Summary  .............................                         3 
Risk Factors  ...................................                         6 
The Company  ....................................                         8 
Use of Proceeds  ................................                         9 
Price Range of Common Stock  ....................                         9 
Capitalization  .................................                        10 
Dividend Policy  ................................                        10 
Selected Historical and Pro Forma Financial Data .                       11 
Management's Discussion and Analysis of Financial 
  Condition and Results of Operations ...........                        13 
Business  .......................................                        19 
Management  .....................................                        28 
Certain Relationships and Related Transactions  .                        33 
Principal and Selling Stockholders  .............                        34 
Description of Capital Stock  ...................                        36 
Underwriting  ...................................                        37 
Available Information  ..........................                        38 
Experts  ........................................                        38 
Legal Matters  ..................................                        38 
Index to Consolidated Financial Statements  .....                       F-1 


==============================================================================
                                      
<PAGE>

==============================================================================

                               4,000,000 SHARES



 

                                    [LOGO] 
                                 COMMON STOCK 





                                    ------ 

                                  PROSPECTUS 

                                    ------ 






                            MONTGOMERY SECURITIES 
                              SMITH BARNEY INC. 
                              WESSELS, ARNOLD & 
                                  HENDERSON






                                       , 1996 

                                      
==============================================================================


<PAGE>
 .
                    INFORMATION NOT REQUIRED IN PROSPECTUS 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. 

   The Registrant estimates that expenses payable by it in connection with 
the offering described in this registration statement (other than the 
underwriting discount and commissions) will be as follows: 


     SEC Registration Fee  .............................         $ 63,250.00 
     NASD Filing Fee  ..................................           18,842.50 
     Nasdaq National Market Fee  .......................           17,500.00 
     Printing and engraving expenses  ..................              * 
     Accounting fees and expenses  .....................              * 
     Legal fees and expenses  ..........................              * 
     Blue sky qualification fees and expenses ..........              * 
     Transfer Agent's fees and expenses ................              * 
     Miscellaneous.  ...................................              * 
                                                                 -----------
     Total  ............................................         $400,000.00 
                                                                 ===========


* To Be Completed By Amendment. 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. 

   The Certificate of Incorporation of the Registrant provides that the 
Registrant shall indemnify to the extent permitted by Delaware law any person 
whom it may indemnify thereunder, including directors, officers, employees 
and agents of the Registrant. Such indemnification (other than an order by a 
court) shall be made by the Registrant only upon a proper determination that 
the individual met the applicable standard of conduct. Advances of such 
indemnification may be made pending such determination. Such determination 
shall be made by a majority vote of a quorum consisting of disinterested 
directors, or by independent legal counsel or by the stockholders. In 
addition, the Registrant's Certificate of Incorporation eliminates, to the 
extent permitted by Delaware law, personal liability of directors to the 
Registrant and its stockholders for monetary damages for breach of fiduciary 
duty as directors. 

   The Registrant also maintains a directors and officers insurance and 
company reimbursement policy. The policy insures directors and officers 
against unindemnified loss arising from certain wrongful acts in their 
capacities and reimburses the Registrant for such loss for which the 
Registrant has lawfully indemnified the directors and officers. The policy 
contains various exclusions, none of which relates to the offering hereunder. 

   Section 145(a) of the Delaware Corporation Law (the "DGCL") provides in 
relevant part that "a corporation may indemnify any person who was or is a 
party or is threatened to be made a party to any threatened, pending or 
completed action, suit or proceeding, whether civil, criminal, administrative 
or investigative (other than an action by or in the right of the 
corporation), by reason of the fact that he is or was a director, officer, 
employee or agent of the corporation, or is or was serving at the request of 
the corporation as a director, officer, employee or agent of another 
corporation, partnership, joint venture, trust or other enterprise, against 
expenses (including attorneys' fees), judgments, fines and amounts paid in 
settlement actually and reasonably incurred by him in connection with such 
action, suit or proceeding if he acted in good faith and in a manner he 
reasonably believed to be in or not opposed to the best interests of the 
corporation, unlawful." With respect to derivative actions, Section 145(b) of 
the DGCL provides in relevant part that "[a] corporation may indemnify any 
person who was or is a party or is threatened to be made a party to any 
threatened, pending or completed action or suit by or in the right of the 
corporation to procure a judgment in its favor . . . [by reason of his 
service in one of the capacities specified in the preceding sentence] against 
expenses (including attorneys' fees) actually and reasonably incurred by him 
in connection with the defense or settlement of such action or suit if he 
acted in good faith and in a manner he reasonably believed to be in or not 

                                      II-1
<PAGE>

opposed to the best interests of the corporation and except that no 
indemnification shall be made in respect of any claim, issue or matter as to 
which such person shall have been adjudged to be liable to the corporation 
unless and only to the extent that the Court of Chancery or the court in 
which such action or suit was brought shall determine upon application that, 
despite the adjudication of liability but in view of all the circumstances of 
the case, such person is fairly and reasonably entitled to indemnity for such 
expenses which the Court of Chancery or such other court shall deem proper." 

   The Registrant has entered into an Indemnification Agreement with each of 
its directors and officers whereby is has agreed to indemnify each director 
and officer from and against any and all expenses, losses, claims, damages 
and liability incurred by such director or officer for or as a result of 
action taken or not taken while such director was acting in his capacity as a 
director, officer, employee or agent of the Registrant. 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. 

   1. In connection with the 1995 Lone Star Acquisition, on August 8, 1995, 
the Company issued the following shares of Common Stock: 

       Leslie Rudd ...................... 231,504 shares 
       Dennis Thompson .................. 215,961 shares 
       James F. Haun ..................... 76,060 shares 
       James C. Verney ................... 54,742 shares 
       Daniel M. Kammerer ................. 1,083 shares 
       Thomas A. Hager .................... 1,083 shares 

   2. In connection with the 1995 Del Frisco Acquisition, on September 15, 
1995, the Company issued the following shares of Common Stock: 

       Dale F. Wamstad ................. 181,500 shares 
       Dee Lincoln ...................... 24,750 shares 

   Such shares were issued pursuant to the exemption from registration 
contained in Section 4(2) of the Securities Act. 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT OF SCHEDULES. 

   (a) Exhibits: 

      Exhibit 
      ------- 
      Number  
      -------  
       *******1.1    Form of Underwriting Agreement 
           ***3.1    Company's Certificate of Incorporation as amended 
           ***3.2    Company's By-Laws 
           ***4.1    Form of Common Stock Certificate 
       *******5.1    Opinion of Olshan Grundman Frome & Rosenzweig LLP with
                     respect to legality of the Common Stock. 
       ******10.1    Services Agreement as amended between the Company and
                     Coulter Enterprises, Inc., dated February 8, 1996 
        *****10.2    Employment Agreement between the Company and John D. White,
                     dated February 1, 1995 
        *****10.3    Employment Agreement between the Company and Scott M.
                     Somes, dated February 1, 1995 
         ****10.4    1992 Lone Star Steakhouse & Saloon, Inc. Incentive and 
                     Non-qualified Stock Option Plan (the "Plan") as amended 
          ***10.5    Form of Indemnification Agreement for officers and 
                     directors of the Company 
          ***10.6    Non-Competition, Confidentiality and Non-Solicitation 
                     Agreement between the Company and Jamie B. Coulter, dated
\                    March 12, 1992 

                                      II-2


<PAGE>
 
      Exhibit 
      -------
      Number
      -------
       **10.7        Non-Competition, Confidentiality and Non-Solicitation 
                     Agreement between the Company and Dennis L. Thompson,
                     dated March 12, 1992 
         11.1        Statement regarding Computation of Per Share Earnings 
   ******21.0        Subsidiaries of the Company 
        *23.1        Consent of Ernst & Young LLP 
  *******23.2        Consent of Olshan Grundman Frome & Rosenzweig LLP, 
                     included in Exhibit No. 5. 
        *24          Power of Attorney, included in Part II of the Registration
                     Statement 


- ----------

      * Filed herewith. 

     ** Incorporated by reference to the Company's Registration Statement on 
        Form S-1, filed with the Commission on October 1, 1992 (Commission 
        File No. 33-52678) as amended. 

    *** Incorporated by reference to the Company's Registration Statement on 
        Form S-1, filed with the Commission on January 31, 1992 (Commission 
        File No. 33-45399), as amended. 

   **** Incorporated by reference to the Company's Registration Statement on 
        Form S-8, filed with the Commission on January 12, 1996 (Commission 
        File No. 333-280), as amended. 

  ***** Incorporated by reference to the Company's Form 10-K for the year 
        ended December 27, 1994. 

 ****** Incorporated by reference to the Company's Form 10-K for the year 
        ended December 26, 1995.


******* To be filed by amendment. 


   All schedules for which provision is made in the applicable accounting 
regulations of the Commission are not required under the related instructions 
or are not applicable, and therefore have been omitted. 

ITEM 17. UNDERTAKINGS. 

   (a) Insofar as indemnification for liabilities arising under the 
Securities Act of 1933 may be permitted to directors, officers and 
controlling persons of the Registrant pursuant to the foregoing provisions, 
or otherwise, the Registrant has been advised that in the opinion of the 
Securities and Exchange Commission such indemnification is against public 
policy as expressed in the Act and is, therefore, unenforceable. In the event 
that a claim for indemnification against such liabilities (other than the 
payment by the Registrant of expenses incurred or paid by a director, officer 
or controlling person of the Registrant in the successful defense of an 
action, suit or proceeding) is asserted by such director, officer or 
controlling person in connection with the securities being registered, the 
Registrant will, unless in the opinion of its counsel the matter has been 
settled by controlling precedent, submit to a court of appropriate 
jurisdiction the question whether such indemnification by it is against 
public policy as expressed in the Act and will be governed by the final 
adjudication of such issue. 

   (b) The undersigned Registrant hereby undertakes that: 

       (1) For purposes of determining any liability under the Securities Act 
   of 1933, the information omitted from the form of prospectus filed as part 
   of this Registration Statement in reliance upon Rule 430A and contained in 
   a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) of 
   (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part 
   of this Registration Statement as of the time it was declared effective. 

       (2) For the purpose of determining any liability under the Securities 
   Act of 1933, each post-effective amendment that contains a form of 
   prospectus shall be deemed to a new registration statement relating to the 
   securities offered therein, and the offering of such securities at that 
   time shall be deemed to be the initial bona fide offering thereof. 

                                      II-3



<PAGE>
          
                                   SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933, the Registrant 
has duly caused this report to be signed on its behalf by the undersigned, 
thereunto duly authorized, in the City of Wichita, State of Kansas, on the 
20th day of May, 1996. 

                                             LONE STAR STEAKHOUSE & SALOON, INC.

                                          By:  /s/ Jamie B. Coulter 
                                              ------------------------------- 
                                              Jamie B. Coulter, Chairman of 
                                              the Board and Chief Executive 

                              POWER OF ATTORNEY 

   KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears 
below constitutes and appoints Jamie B. Coulter and John D. White, and each 
of them, his true nd lawful attorney-in-fact and agent, with full power of 
substitution and resubstitution, for him and in his name, place and stead, in 
any and all capacities, to sign any and all amendments (including 
post-effective amendments) to this Registration Statement, and to file the 
same with all exhibits thereto, and other documents in connection therewith, 
with the Securities and Exchange Commission, granting unto said 
attorneys-in-fact and agents, and each of them, full power and authority to 
do and perform each and every act and thing requisite and necessary to be 
done, as fully to all intents and purposes as he might or could do in person, 
hereby ratifying and confirming all that said attorney-in-fact and agent or 
his substitute may lawfully do or cause to be done by virtue thereof. 

   Pursuant to the requirements of the Securities Act of 1933, this 
registration statement has been signed by the following persons in the 
capacities and on the date indicated. 

<TABLE>
<CAPTION>

          Signature                            Title                         Date 
          ----------                           -----                         ---- 
<S>                          <C>                                       <C>
   /s/ Jamie B. Coulter      Chairman of the Board and Chief             May 20, 1996 
  -------------------------  Executive Officer (Principal Executive 
      Jamie B. Coulter       Officer) 

     /s/ John D. White       Executive Vice President, Chief             May 20, 1996 
  -------------------------  Financial Officer and (Principal 
        John D. White        Accounting Officer), Treasurer and 
                             Director 

  /s/ Dennis L. Thompson     Senior Vice President-Real Estate and       May 20, 1996 
  -------------------------  Director 
     Dennis L. Thompson 

   /s/ Clark R. Mandigo      Director                                    May 20, 1996 
  ------------------------- 
      Clark R. Mandigo

   /s/ C. Robert Buford      Director                                    May 20, 1996 
  ------------------------- 
      C. Robert Buford 

     /s/ Fred B. Chaney      Director                                    May 20, 1996
  ------------------------- 
       Fred B. Chaney 
</TABLE>
                                      II-4



<PAGE>
                              INDEX TO EXHIBITS 

<TABLE>
<CAPTION>
   Exhibit Number                                   Exhibit                                   Page Number 
   --------------                                   -------                                   ----------- 
<S>                  <C>                                                                   <C>
       *******1.1    Form of Underwriting Agreement 
           ***3.1    Company's Certificate of Incorporation as amended 
           ***3.2    Company's By-Laws 
           ***4.1    Form of Common Stock Certificate 
       *******5.1    Opinion of Olshan Grundman Frome & Rosenzweig LLP with respect to 
                     legality of the Common Stock. 
       ******10.1    Services Agreement as amended between the Company and Coulter 
                     Enterprises, Inc., dated February 8, 1996 
        *****10.2    Employment Agreement between the Company and John D. White, dated 
                     February 1, 1995 
        *****10.3    Employment Agreement between the Company and Scott M. Somes, dated 
                     February 1, 1995 
         ****10.4    1992 Lone Star Steakhouse & Saloon, Inc. Incentive and Non- 
                     qualified Stock Option Plan (the "Plan") as amended 
          ***10.5    Form of Indemnification Agreement for officers and directors of 
                     the Company 
          ***10.6    Non-Competition, Confidentiality and Non-Solicitation Agreement 
                     between the Company and Jamie B. Coulter, dated March 12, 1992 
           **10.7    Non-Competition, Confidentiality and Non-Solicitation Agreement 
                     between the Company and Dennis L. Thompson, dated March 12, 1992 
             11.1    Statement regarding Computation of Per Share Earnings 
       ******21.0    Subsidiaries of the Company 
            *23.1    Consent of Ernst & Young LLP 
      *******23.2    Consent of Olshan Grundman Frome & Rosenzweig LLP, included in 
                     Exhibit No. 5. 
             *24     Power of Attorney, included in Part II of the Registration 
                     Statement 

</TABLE>

- ------ 
      * Filed herewith. 

     ** Incorporated by reference to the Company's Registration Statement on 
        Form S-1, filed with the Commission on October 1, 1992 (Commission 
        File No. 33-52678) as amended. 

    *** Incorporated by reference to the Company's Registration Statement on 
        Form S-1, filed with the Commission on January 31, 1992 (Commission 
        File No. 33-45399), as amended. 

   **** Incorporated by reference to the Company's Registration Statement on 
        Form S-8, filed with the Commission on January 12, 1996 (Commission 
        File No. 33-00280), as amended. 

  ***** Incorporated by reference to the Company's Form 10-K for the year 
        ended December 27, 1994. 

 ****** Incorporated by reference to the Company's Form 10-K for the year 
        ended December 26, 1995. 

******* To be filed by amendment.

 



<PAGE>
          

                                 EXHIBIT 11.1 

                      COMPUTATION OF PER SHARE EARNINGS 
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 


<TABLE>
<CAPTION>
                                                   For the Years Ended              For the Twelve Weeks Ended 
                                         -------------------------------------   --------------------------------- 
                                             1993         1994          1995      March 21, 1995    March 19, 1996 
                                         ----------   ----------    ----------   ---------------    -------------- 
Primary: 
<S>                                      <C>            <C>          <C>            <C>               <C>
Average weighted shares outstanding  .     32,983         34,296      36,433         34,314            37,597 
Net effect of dilutive stock options-                                           
 based on the treasury stock method                                             
 using average market price ..........        356            313       1,105            617             1,200 
                                          -------        -------     -------        -------           -------
Total  ...............................     33,339         34,609      37,538         34,931            38,797 
                                           ======         ======      ======         ======            ====== 
                                                                                
Net Income  ..........................    $16,371        $30,173     $47,568        $ 9,237           $12,936 
                                          =======        =======     =======        =======           ======= 
                                                                                
Per share amount  ....................    $  0.49        $  0.87     $  1.27        $  0.26           $  0.33 
                                          =======        =======     =======        =======           ======= 
                                                                                
Fully Diluted:                                                                  
Average weighted shares outstanding  .     32,983         34,296      36,433         34,314            37,597 
Net effect of dilutive stock options-                                           
 based on the treasury stock method                                             
 using period-end market price, if                                              
 higher than average market price ....        410            313       1,435            889             1,536 
                                          -------        -------     -------        -------           -------
Total  ...............................     33,393         34,609      37,868         35,203            39,133 
                                          =======        =======     =======        =======           =======
Net Income  ..........................    $16,371        $30,173     $47,568        $ 9,237           $12,936 
                                          =======        =======     =======        =======           =======
Per share amount  ....................    $  0.49        $  0.87     $  1.26        $  0.26           $  0.33 
                                          =======        =======     =======        =======           =======
</TABLE>                                                           




<PAGE>
                                                                  EXHIBIT 23.1 

                       CONSENT OF INDEPENDENT AUDITORS 

We consent to the reference to our firm under the caption "Experts" and to 
the use of our report dated January 18, 1996, with respect to the 
consolidated financial statements of Lone Star Steakhouse & Saloon, Inc. 
included in the Registration Statement (Form S-1) and related Prospectus of 
Lone Star Steakhouse & Saloon, Inc. for the registration of 4,000,000 shares 
of its common stock. 

                                                ERNST & YOUNG LLP 



Wichita, Kansas 
May 20, 1996 










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