<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
LONE STAR STEAKHOUSE & SALOON, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on May 23, 1997
---------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Meeting") of LONE STAR STEAKHOUSE & SALOON, INC., a Delaware corporation (the
"Company"), will be held at the Sullivan's Steakhouse restaurant located at 300
Colorado Street, Austin, Texas 78701, 10:00 a.m. local time, for the following
purposes:
1. To elect two (2) members of the Board of Directors to serve until the
2000 Annual Meeting of Stockholders and until their successors have been duly
elected and qualified;
2. To ratify the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 30, 1997; and
3. To transact such other business as may properly be brought before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 29, 1997 as
the record date for the Meeting. Only stockholders of record on the stock
transfer books of the Company at the close of business on that date are entitled
to notice of, and to vote at, the Meeting.
By Order of the Board of Directors
GERALD T. AARON
Secretary
Dated: May 2, 1997.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE
THE URGED TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY
IN ENVELOPE THAT IS PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202
---------------------
PROXY STATEMENT
FOR
1997 ANNUAL MEETING OF STOCKHOLDERS
May 23, 1997
---------------------
INTRODUCTION
This Proxy Statement is being furnished to stockholders by the Board of
Directors of Lone Star Steakhouse & Saloon, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of the accompanying Proxy for
use at the 1997 Annual Meeting of Stockholders of the Company (the "Meeting") to
be held at the Sullivan's Steakhouse restaurant located at 300 Colorado Street,
Austin, Texas 78701, on May 23, 1997 at 10:00 a.m., local time, or at any
adjournments thereof.
The principal executive offices of the Company are located at 224 East
Douglas, Suite 700, Wichita, Kansas 67202. The approximate date on which this
Proxy Statement and the accompanying Proxy will first be sent or given to
stockholders is May 2, 1997.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on April 29, 1997, the
record date (the "Record Date") for the Meeting, will be entitled to notice of,
and to vote at, the Meeting and any adjournments thereof. As of the close of
business on the Record Date, there were outstanding 40,997,119 shares of the
Company's common stock, $.01 par value (the "Common Stock"). Each outstanding
share of Common Stock is entitled to one vote. There was no other class of
voting securities of the Company outstanding on the Record Date. A majority of
the outstanding shares of Common Stock present in person or by proxy is required
for a quorum.
VOTING OF PROXIES
Shares of Common Stock represented by Proxies, which are properly executed,
duly returned and not revoked, will be voted in accordance with the instructions
contained therein. If no specification is indicated on the Proxy, the shares of
Common Stock represented thereby will be voted (i) for the election as Directors
of the persons who have been nominated by the Board of Directors, (ii) for the
ratification of the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 30, 1997 and (iii) for
any other matter that may properly be brought before the Meeting in accordance
with the judgment of the person or persons voting the Proxy. The execution of a
Proxy will in no way affect a stockholder's right to attend the Meeting and vote
in person. Any Proxy executed and returned by a stockholder may be revoked at
any time thereafter if written notice of revocation is given to the Secretary of
the Company prior to the vote to be taken at the Meeting, or by execution of a
subsequent proxy which is presented to the Meeting, or if the stockholder
attends the Meeting and votes by ballot, except as to any matter or matters upon
which a vote shall have been cast pursuant to the authority conferred by such
Proxy prior to such revocation. For purposes of determining the presence of a
quorum for transacting business at the Annual Meeting, abstentions and broker
"non-voters" (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
persons entitled to vote shares on a particular matter with respect to which the
brokers or nominees do not have discretionary power) will be treated as shares
that are present but which have not been voted.
The cost of solicitation of the Proxies being solicited on behalf of the
Board of Directors will be borne by the Company. In addition to the use of the
mails, proxy solicitation may be made by telephone, telegraph and personal
interview by officers, directors and employees of the Company. The Company will,
upon request, reimburse brokerage houses and persons holding Common Stock in the
names of their nominees for their reasonable expenses in sending soliciting
material to their principals.
1
<PAGE>
SECURITY OWNERSHIP
The following table sets forth information concerning ownership of the
Company's Common Stock, as of April 29, 1997, by each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, each director, each executive officer as defined in Item 402(a)(3) of
Regulation S-K ("Item 402(a)(3)") and by all directors and executive officers of
the Company as a group. Unless otherwise indicated, the address for five percent
stockholders, directors and executive officers of the Company is 224 East
Douglas, Suite 700, Wichita, Kansas 67202.
<TABLE>
<CAPTION>
Name and Address Shares Percentage
of Beneficial Owner Beneficially Owned of Class
--------------------- --------------------- ------------
<S> <C> <C>
Jamie B. Coulter ............................................................... 3,539,556(1) 8.4
John D. White .................................................................. 439,692(2) 1.1
Dennis L. Thompson ............................................................ 2,285,123(3) 5.5
Clark R. Mandigo ............................................................... 44,000(4) *
Fred B. Chaney .................................................................. 19,333(5) *
Michael J. Archer ............................................................... 82,000(6) *
H. Gilliland Nickel ............................................................ -0- *
Firstar Investment Research & Management Company
Firstar Corporation ............................................................ 2,222,261(7) 5.4
First Pacific Advisors, Inc. ................................................... 2,154,000(8) 5.2
Fred Alger Management, Inc.
Fred Alger, III ............................................................... 3,759,618(9) 9.2
FMR Corp. ..................................................................... 2,714,500(10) 6.6
All directors and executive officers as a group (11) persons (1) (2) (3) (4) (5)
(6) (11) ........................................................................ 6,824,217(11) 15.8
</TABLE>
- ------------
* Less than 1%
(1) Excludes shares held of record by the wife and adult children of Mr.
Coulter. Mr. Coulter disclaims beneficial ownership of these shares.
Includes presently exercisable options to purchase 1,100,000 shares of
Common Stock.
(2) Includes presently exercisable options to purchase 291,667 shares of Common
Stock.
(3) Includes 1,896,876 shares held by a limited partnership for the benefit of
Mr. Thompson, his wife and children. Includes presently exercisable options
to purchase 275,000 shares of Common Stock.
(4) Includes presently exercisable options to purchase 24,000 shares of Common
Stock.
(5) Includes presently exercisable options to purchase 15,333 shares of Common
Stock.
(6) Includes presently exercisable options to purchase 82,000 shares of Common
Stock.
(7) Based on a joint Schedule 13G filed in February, 1997, Firstar Corporation
and Firstar Investment Research & Management Company and related entities
collectively beneficially hold 2,222,261 shares of the Company's Common
Stock. The address of Firstar Corporation and Firstar Investment Research &
Management Company is 777 E. Wisconsin Avenue, Milwaukee, Wisconsin 53202.
(8) Based on a Schedule 13G filed in February, 1997, First Pacific Advisors,
Inc. beneficially holds 2,154,000 shares of the Company's Common Stock. The
address of First Pacific Advisors, Inc., is 11400 West Olympic Boulevard,
Suite 1200, Los Angeles, CA 90064.
(9) Based on a joint Schedule 13G filed in February, 1997, Fred Alger,
Management, Inc. and Fred M. Alger, III collectively beneficially hold
3,759,618 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.
(10) Based on a joint Schedule 13G filed in February, 1997, FMR Corp. and
related entities collectively beneficially hold 2,714,500 shares of the
Company's Common Stock. The address of FMR Corp. is 82 Devonshire Street,
Boston, Massachusetts 02109.
2
<PAGE>
(11) Includes 414,513 shares of Common Stock, including presently exercisable
options to purchase 393,173 shares held by Gerald T. Aaron, Mark S. Eason,
Frank E. Furstenberg, Jr. and Robert M. Kendall, executive officers, who
are not named in the Security Ownership table pursuant to Item 402(a)(3).
PROPOSAL I - ELECTION OF DIRECTORS
Article Fifth, Paragraph A of the Certificate of Incorporation of the
Company, and Article Two, Section 2.2 of its By-Laws provide for the
organization of the Board of Directors into three classes. The number of
Directors is established by the By-Laws pursuant to Board authorization.
Currently the By-Laws provide for seven (7) Directors. All nominees for Director
are currently directors of the Company. Michael J. Archer and H. Gilliland
Nickel were appointed to the Board of Directors in September, 1996 and April,
1997 respectively. All Directors are chosen for a full three-year term to
succeed those whose terms expire. It is therefore proposed that two (2)
Directors be elected to serve until the Annual Meeting of Stockholders to be
held in 2000 and until their successors are elected and shall have qualified.
Unless otherwise specified, all Proxies received will be voted in favor of
the election of John D. White and H. Gilliland Nickel, the two (2) nominees.
Directors shall be elected by a plurality of the votes cast, in person or by
proxy, at the Meeting. Abstentions from voting and broker nonvotes on the
election of directors will have no effect since they will not represent votes
cast at the Annual Meeting for the purpose of electing directors. The terms of
the nominees expire at the Meeting and when their successors are duly elected
and shall have qualified. Management has no reason to believe that any of the
nominees will be unable or unwilling to serve as a director, if elected. Should
any of the nominees not remain a candidate for election at the date of the
Meeting, the Proxies will be voted in favor of those nominees who remain
candidates and may be voted for substitute nominees selected by the Board of
Directors.
The following table sets forth the ages and terms of office of the
Directors of the Company:
Term of Office
Name Age as Director Expires
------ ------ ---------------------
Jamie B. Coulter ................... 56 1998
John D. White ...................... 49 1997
Dennis L. Thompson ................ 53 1998
H. Gilliland Nickel ................ 57 1997
Mike Archer ......................... 36 1999
Fred B. Chaney ...................... 60 1999
Clark R. Mandigo ................... 53 1999
Jamie B. Coulter has served as Chairman and Chief Executive Officer of the
Company since January 1992 and President of the Company from January, 1992 to
June, 1995 (and has been a director and executive officer of various
subsidiaries of the Company since 1991). 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,
Inc., ("Coulter Enterprises"), a management company that provides accounting and
administrative services for Mr. Coulter's Pizza Hut franchises, other affiliated
and non-affiliated businesses and the Company. Mr. Coulter has served as
Chairman of the Board of Total Entertainment Restaurant Corp. since February 7,
1997. Total Entertainment Restaurant Corp. filed a Form S-1 with the Securities
and Exchange Commission on March 14, 1997. Total Entertainment Restaurant Corp.
currently owns and operates twelve entertainment restaurant locations under the
Fox & Hound and Bailey's Sports Grille brand names. Mr. Coulter has made no
future specific time commitment to Total Entertainment Restaurant Corp.
John D. White has been the Chief Financial Officer and a Director of the
Company since January 1992, a director and executive officer of various
subsidiaries of the Company since 1991 and Executive Vice President since June,
1995. Prior to joining the Company, Mr. White was employed for eleven 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.
3
<PAGE>
Dennis L. Thompson has been Senior Vice President - 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., a company which along with other corporate
entities owned and operated eleven Lone Star Steakhouse & Saloon restaurants. In
August, 1995, the Company acquired the restaurants owned by Creative Culinary
Concepts, Inc., and other affiliated entities. Mr. Thompson has served on the
Board of Directors of Total Entertainment Restaurant Corp. since February 7,
1997. Mr. Thompson has made no future specific time commitment to Total
Entertainment Restaurant Corp.
Michael J. Archer has been Chief Operating Officer - Del
Frisco's/Sullivan's since August, 1996 and a Director of the Company since
September, 1996. From April, 1995 until August, 1996 Mr. Archer had been Senior
Vice President - Operations of the Company. Prior to joining the Company, Mr.
Archer was employed in various capacities, including President, of Morton's of
Chicago, Inc., a subsidiary of Quantum Restaurant Group, Inc. for thirteen
years.
Fred B. Chaney, Ph.D, has been a director of the Company since May, 1995.
Dr. Chaney is currently President and Chief Executive Officer of Vedax Sciences
Corporation, parent company to The Executive Committee (TEC). Dr. Chaney is a
board member of Hobie Sports.
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 health care company and Palmer Wireless, Inc.,
a cellular telephone system operator, and as a Trustee of Accolade Funds.
H. Gilliland Nickel is owner and Chairman of the Board of Far Niente Winery
in Napa, California, which he purchased in 1979. In 1991 Mr. Nickel established
Dolce Winery also in Napa Valley. A physicist by education, Mr. Nickel and his
brother own and serve as Co-Chairman of the Board of Greenleaf Nursery Co., Inc.
in Oklahoma and Texas, which is the second largest family owned wholesale and
ornamental shrub nursery in the world.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES.
Meetings
For the fiscal year ended December 31, 1996, there were eight meetings of
the Board of Directors. From time to time, the members of the Board of Directors
act by unanimous written consent pursuant to the laws of the State of Delaware.
The Board of Directors does not have a standing nominating committee.
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 and non-employee 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 employees. The Stock Option Committee also consists of all of the
independent and non-employee directors and administers the Company's 1992
Incentive and Non-Qualified Stock Option Plan, as amended, (the "Plan") and
awards stock options thereunder. The members of the Audit Committee,
Compensation Committee and Stock Option Committee are Messrs. Chaney and Mandigo
and as of April 3, 1997 H. Gilliland Nickel. During 1996, there were no meetings
of the Audit Committee, one meeting of the Compensation Committee and five
meetings of the Stock Option Committee.
4
<PAGE>
Other Executive Officers
Gerald T. Aaron, 56, 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, 36, has been Senior Vice President - Operations since
June, 1995. From September, 1993 until June, 1995 Mr. Kendall served as Vice
President - Operations. From March 1992 to September 1993, he assisted in new
store development for the Company.
Frank E. Furstenberg, Jr. 50 has been Vice President - New Store
Development since January 1994. From March 1992 to January 1994, he assisted in
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, Inc.
Mark S. Eason, 40, has been Regional Vice President since September, 1996.
From January, 1994 to September, 1996 Mr. Eason served as District Manager for
the Company. Prior to January, 1994 Mr. Eason served as a General Manager in the
Company's restaurant in Wilmington, Delaware for more than two years.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the four most highly compensated executive officers of the Company
(collectively with the CEO the "Named Executive Officers") other than the CEO
whose salary and bonus exceeded $100,000 with respect to the fiscal year ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------------- ------------------------------------------------
Number of
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus($) Compensation Options(#) Compensation
--------------------------- ------- ----------- ----------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter .................. 1996 $250,000 -- -- 1,200,000 --
Chairman of the Board 1995 $210,000 -- -- 200,000 --
and Chief Executive Officer 1994 $175,000 -- -- 500,000 --
John D. White ..................... 1996 $236,000 -- -- 600,000 --
Executive Vice President 1995 $186,000 -- -- 100,000 --
Chief Financial Officer and Treasurer 1994 $155,000 -- -- 125,000 --
Scott M. Somes (2) .................. 1996 $230,000 -- -- -- --
Former -- Chief Operating Officer 1995 $180,000 -- -- 100,000 --
1994 $150,000 -- -- 100,000 --
Dennis L. Thompson .................. 1996 $214,000 -- -- 133,333 --
Senior Vice President -- 1995 $180,000 -- -- 100,000 --
Real Estate 1994 $150,000 -- -- 100,000 --
Michael J. Archer .................. 1996 $200,000 -- -- 400,000 --
Chief Operating Officer 1995 $180,000 -- -- 246,000 --
Del Frisco's/Sullivan's 1994 -- -- -- -- --
</TABLE>
- ------------
(1) Perquisites and other personal benefits, securities or property received by
each executive officer did not exceed the lesser of $50,000 or 10% of such
executive officer's annual salary and bonus.
(2) Mr. Somes resigned on December 31, 1996.
(3) Mr. Archer was employed by the Company commencing April, 1996.
5
<PAGE>
Option Grant Table
The following table sets forth certain information regarding stock option
grants made to the CEO and other Named Executive Officers for services performed
during the fiscal year ended December 31, 1996.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Rates of Stock Price
Individual Grants Appreciation for Option Term (1)(2)
---------------------------------- -----------------------------------
Number % of Total
of Securities Options Exercise
Underlying Granted to or Base
Options (# of Employees Price Expiration
Name shares) (3) in Fiscal Year (#/Sh)(4) Date 5% 10%
- --------------------------- ---------------- ----------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter ......... 1,200,000 29.54% $28.375 01/03/07 $21,396,000 $54,252,000
John D. White ............ 600,000 14.77% $28.375 01/03/07 $10,698,000 $27,126,000
Dennis L. Thompson ...... 133,333 3.28% $28.375 01/03/07 $ 2,377,327 $ 6,027,985
Michael J. Archer ...... 400,000 9.85% $28.375 01/03/07 $ 7,132,000 $11,350,000
</TABLE>
- ------------
(1) The options indicated vest ratably over a three-year period commencing
January 3, 1998.
(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 Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of employment,
nontransferability or differences in vesting periods. Regardless of the
theoretical value of an option, its ultimate value will depend on the market
value of the Common Stock at a future date, and that value will depend on a
variety of factors, including the overall condition of the stock market and
the Company's results of operations and financial condition. There can be no
assurance that the values reflected in this table will be achieved.
(3) Does not include options to purchase Common Stock which were awarded in
January, 1996 for services performed in 1995.
(4) On April 25, 1997, the Stock Option Committee of the Board of Directors,
which consists of non-employee independent Directors, repriced certain
outstanding options held by employees of the Company, including the options
granted in the last fiscal year to the CEO and other Named Executive
Officers, so that such repriced options now have an exercise price of
$18.25, the closing market price of the Company's Common Stock on April 24,
1997. As a result of the repricing, and assuming a fair market value for the
common stock of $18.25 per share the potential realizable value at 5%
stock price appreciation would be $13,772,792, $6,886,386, $1,530,306 and
$4,590,931, respectively for Messrs. Coulter, White, Thompson and Archer
and at a 10% stock price appreciation would be $34,902,960, $17,451,480,
$3,878,097 and $11,634,320, respectively for Messrs. Coulter, White,
Thompson and Archer.
6
<PAGE>
Option Exercise Table
No options were exercised by the CEO and the other Named Executive Officers
during the fiscal year ended December 31, 1996. The following table sets forth
certain information concerning unexercised options held as of December 31, 1996
by the CEO and the other Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at December 31, 1996(1) Options at December 31, 1996($) (2)
------------------------------------------- -------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- -------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Jamie B. Coulter ......... 733,334 666,666 $4,358,330 $3,216,671
John D. White ............ 183,334 216,666 $1,089,580 $ 804,171
Scott M. Somes ......... 175,001 199,999 $1,025,007 $ 674,994
Michael J. Archer ...... 57,000 189,000 -- --
Dennis L. Thompson ...... 175,000 200,000 $1,025,007 $ 674,994
</TABLE>
- ------------
(1) This table does not include information with respect to options granted in
January, 1997 which were part of the CEO's and the other Named Executive
Officers Compensation for 1996 and which are reported in the Option Grant
Table above.
(2) Such amounts are based on the closing price of a share of Common Stock
($26.75) as reported by the Nasdaq National Market ("NASDAQ") on December
31, 1996.
Directors Compensation
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"). Currently, options to purchase 39,333
shares of Common Stock are outstanding under the Directors Plan at exercise
prices ranging from $22.00 per share to $40.00 per share. In 1996, the Company's
outside Directors were automatically granted options to purchase 6,000 shares of
Common under the Directors Plan at exercise prices of $36.00 per share and
$40.00 per share.
Employment Agreements
The Company has entered into separate employment agreements, with each of
Messrs. White and Archer, dated as of February 1, 1995 and April 20, 1995
respectively, providing for the employment of such individuals as Executive Vice
President and Chief Financial Officer and Chief Operating Officer - Del
Frisco's/Sullivan's 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 1996 annual base salaries of
$236,000 and $200,000, respectively, for Messrs. White and Archer, subject to
increases as determined by the Board of Directors. Each agreement terminates in
February 1998, but the Company has the option to extend the term for an
additional one year period. Each agreement contains non-competition and
non-solicitation provisions which apply for eighteen months after cessation of
employment. Messrs. Coulter and Thompson have also entered into non-competition,
confidentiality and non-solicitation agreements with the Company.
Joint Report by the Compensation Committee and the
Stock Option Committee on Executive Compensation
General
The Compensation Committee determines the cash and other incentive
compensation (with the exception of stock options which are granted by the Stock
Option Committee), if any, to be paid to the Company's executive officers and
key employees. Messrs. Chaney, Mandigo, and as of April 3, 1997, H. Gilliland
Nickel, non-
7
<PAGE>
employee directors of the Company, serve as members of the Compensation
Committee and the Stock Option Committee and are "disinterested directors"
(within the meaning of Rule 16b-3 under the Act). Mr. Mandigo serves as Chairman
of the Compensation Committee and of the Stock Option Committee. During fiscal
1996, there was one meeting of the Compensation Committee and five meetings of
the Stock Option Committee. Mr. C. Robert Buford, a former director, was a
member of the Compensation Committee and also served as Chairman of the Stock
Option Committee until his resignation on January 2, 1997.
Compensation Philosophy
The Compensation Committee's executive compensation philosophy is to base
management's pay, in part, on the achievement of the Company's annual and
long-term performance goals, to provide competitive levels of compensation, to
recognize individual initiative, achievement and length of service to the
Company, and to assist the Company in attracting and retaining qualified
management. The Compensation Committee establishes executive's base salaries at
relatively low levels. It is the philosophy of the Compensation Committee in
tandem with the Stock Option Committee to provide officers with the opportunity
to realize potentially significant financial gains through the grants of stock
options. The Compensation Committee also believes that the potential for equity
ownership by management is beneficial in aligning management's and stockholders'
interest in the enhancement of stockholder value. However, the decision to
ultimately grant stock options is based primarily on the criteria set forth
under "Stock Option Plan" below.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), prohibits a publicly held corporation, such as the Company, from
claiming a deduction on its federal income tax return for compensation in excess
of $1 million paid for a given fiscal year to the chief executive officer (or
person acting in that capacity) at the close of the corporation's fiscal year
and the four most highly compensated officers of the corporation, other than the
chief executive officer, at the end of the corporation's fiscal year. The $1
million compensation deduction limitation does not apply to "performance-based
compensation." The Company believes that any compensation received by executive
officers in connection with the exercise of options granted under the Plan
qualifies as "performance-based compensation." Accordingly, the Company has not
established a policy with respect to Section 162(m) of the Code because the
Company has not and does not currently anticipate paying compensation in excess
of $1 million per annum to any employee.
Salaries
Base salaries for the Company's executive officers are determined initially
by evaluating the responsibilities of the position held and the experience of
the individual, food service and management experience, and by reference to the
competitive marketplace for management talent, including a comparison of base
salaries for comparable positions at comparable companies within the Company's
industry, which includes companies which comprise the Company's Peer Group, as
defined herein. Such companies are comparable in that they are fast-
growth companies in the casual dining segment of the restaurant industry. The
Company believes salaries for its officers are below average as compared to the
companies reviewed. Annual salary adjustments are determined in descending level
of importance by (i) evaluating the financial results achieved by the Company,
which includes revenues, earnings, unit growth and profit margins of the
Company, (ii) the performance of the executive particularly with respect to the
ability to manage growth and profitability of the Company, (iii) the length of
the executive's service to the Company and (iv) any increased responsibilities
assumed by the executive. The Company continued its outstanding performance with
respect to revenues, earnings, and unit growth. There are no restrictions on
salary adjustments of the Company. The Company has employment agreements with
Messrs. White and Archer which set the base salaries for such individuals. These
base salaries are based on and are reviewed annually in accordance with the
factors described in this paragraph and the terms of the employment agreements.
See "Summary Compensation Table -- Employment Agreements."
Annual Bonuses
The Company does not currently have a formal bonus plan for its executives
and no bonuses were paid to executives for the 1996 fiscal year despite the
Company's achievements. The Company may in the future adopt an executive bonus
plan. As indicated under "Stock Option Plan" below, the Company has granted
options to the Named Executive Officers in part to reward their performance.
8
<PAGE>
Compensation of Chief Executive Officer
Mr. Coulter's base salary in 1996 was $250,000. Mr. Coulter's base salary
is based upon the factors described in the "Salaries" paragraph above. Mr.
Coulter's salary, by design, is below average as compared to the salaries of
executive officers of companies reviewed by the Company, particularly given the
success achieved by the Company. As noted above, the Company does not presently
have a formal bonus plan for executives and no bonus was paid to Mr. Coulter for
the 1996 fiscal year. See "Option Grant Table" for options granted to Mr.
Coulter in January, 1997.
Stock Option Plan
It is the philosophy of the Stock Option Committee to tie a significant
portion of an executives' total opportunity for financial gain to increases in
stockholder value, thereby aligning the long-term interest of the stockholders
with the executives and to retain such key employee.
All salaried employees, including executives and part-time employees, of
the Company and its subsidiaries, are eligible for grants of stock options
pursuant to the Plan. In addition, because the executives' base salaries are
currently set below the average of similar positions in comparable companies
within the Company's industry, which includes companies which comprise the
Company's Peer Group and because the Company presently maintains neither a
qualified retirement program nor a bonus plan for executives, the Plan is
intended to provide executives with opportunities to supplement their base
compensation.
The Stock Option Committee awarded stock options to Messrs. Coulter, White,
Thompson and Archer, for services performed in 1996. The size of these awards to
each such Named Executive Officer was based generally on the factors described
in the "Salaries" paragraph above and specifically on each of their performances
in assisting the Company in achieving record levels of profitability, including
an increase in revenues of 44.3%, increase in earnings of 28.5%, which includes
divestiture of the European Joint Venture, and as a percentage of sales was 14%
net after tax. The earnings were achieved in an extremely competitive
environment with most restaurant chains experiencing negative comparable sales.
In addition, the Company opened 45 new Lone Star Steakhouse & Saloon restaurants
in 1996, which represents an increase of 28%. The Company also opened one new
Del Frisco's Double Eagle Steak House restaurant and two Sullivan's Steakhouse
restaurants in 1996, including its first Sullivan's Steakhouse which opened in
Austin, Texas in May, 1996. In addition, the Stock Option Committee considered
the extensive nature and the significant services rendered by the executive
officers, their seasoned managerial skills and the fact that the executives'
base salaries are below the average of similar positions in comparable
companies. Mr. Coulter received options to purchase more shares than the other
Named Executive Officers due to his outstanding leadership of the Company and
his coordination and supervision of the Company's management team. Mr. Coulter
and the Executive Officers were also able to maintain the Company's superior
operating margins and levels of profitability in spite of the Company's rapid
growth.
Compensation Committee: Clark R. Mandigo, Chairman
Fred B. Chaney
H. Gilliland Nickel
Option Committee: Clark R. Mandigo, Chairman
Fred B. Chaney
H. Gilliland Nickel
Compensation Committee Interlocks
The Compensation Committee consists of Messrs. Chaney, Mandigo and Nickel.
None of such Directors was a party to any transaction with the Company which
requires disclosure under Item 402(j) of Regulation S-K.
9
<PAGE>
Common Stock Performance
The following graph compares the total return on the Company's Common Stock
from the commencement of trading of the Company's Common Stock on March 12, 1992
to the total returns of the Standard & Poor's Mid-Cap 400 Index and the Standard
& Poor's Restaurant Industry Index (the "Peer Group").
COMPARISON OF TOTAL RETURN
FROM MARCH 12, 1992 TO DECEMBER 31, 1996
AMONG
LONE STAR STEAKHOUSE & SALOON, INC.
THE STANDARD & POOR'S MID-CAP 400 INDEX AND THE PEER GROUP
-------------------------
TOTAL SHAREHOLDER RETURNS
-------------------------
1200|-------------------------------------------------------------|
| |
1100|-------------------------------------------------------------|
| |
1000|-------------------------------------------------------------|
| |
D 900|-------------------------------------------------------------|
o | |
l 800|-------------------------------------------------------------|
l | |
a 700|-------------------------------------------------------------|
r | |
s 600|-------------------------------------------------------------|
| |
500|-------------------------------------------------------------|
| |
400|-------------------------------------------------------------|
| |
300|-------------------------------------------------------------|
| |
200|-------------------------------------------------------------|
| |
100|-------------------------------------------------------------|
| |
0|----|----------|---------|-----------|-----------|-----------|
12-Mar-92 Dec-92 Dec-93 27-Dec-24 28-Dec-96 Dec-96
Years Ending
- ------------------------------------------------------------------------------
LONE STAR STEAKHOUSE SALOON -0- S&P RESTAURANTS INDEX -0- S&P MIDCAP 400 INDEX
- ------------------------------------------------------------------------------
Prepared by Standard & Poor's Corporation
Custom Production Division - 4/20/97
<TABLE>
<CAPTION>
RETURN RETURN RETURN RETURN RETURN
Base Period 12/MAR/92 To 12/MAR/92 12/MAR/92 12/MAR/92 12/MAR/92
Company/Index Name 12/MAR/92 31/DEC/92 To 28/DEC/93 To 27/DEC/94 To 26/DEC/95 To 31/DEC/96
- ----------------------------- -------------- --------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
The Company ............... $100.00 $557.41 $770.37 $585.19 $1,185.19 $824.95
S&P MIDCAP 400 Index ...... $100.00 $111.88 $127.48 $122.39 $159.75 $194.63
Peer Group ............... $100.00 $115.10 $134.37 $133.34 $196.98 $190.43
</TABLE>
Assumes $100 invested on March 12, 1992 in the Company's Common Stock, the
Standard & Poor's Mid-
Cap 400 Index and the Peer Group. The calculations in the table were made on a
dividends reinvested basis.
There can be no assurance that the Company's Common Stock performance will
continue with the same or similar trends depicted in the above graph.
10
<PAGE>
PROPOSAL II -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 30, 1997. Although the
selection of independent auditors does not require ratification, the Board of
Directors has directed that the appointment of Ernst & Young, LLP be submitted
to stockholders for ratification due to the significance of their appointment to
the Company. If stockholders do not ratify the appointment of Ernst & Young, LLP
as the Company's independent auditors, the Board of Directors will consider the
appointment of other certified public accountants. A representative of Ernst &
Young, LLP will be present at the Meeting and will be available to respond to
appropriate questions. The approval of the proposal to ratify the appointment of
Ernst & Young, LLP requires the affirmative vote of a majority of the votes cast
by all shareholders represented and entitled to vote thereon. An abstention,
withholding of authority to vote or broker non-vote, therefore, will not have
the same legal effect as an "against" vote and will not be counted in
determining whether the proposal has received the required stockholder vote.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 30, 1997.
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 1996, the fixed annual charge was $1,272,000 and the per
restaurant per 28-day accounting period fee was $416, plus reimbursement of all
direct out-of-pocket costs and expenses. For the fiscal year ended December 31,
1996 the Company incurred fees of $2,215,467 under the services agreement. For
fiscal year 1997, the fixed annual charge is $2,010,000 and the per restaurant
per 28-day accounting period fee is $440 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.
Other Affiliated Transactions
In 1996, the Company paid Coulter Enterprises $501,325 for use of an
airplane which airplane is leased by Coulter Enterprises from Prairie Aviation,
Inc. Mr. Coutler owns 100% of the stock of Coulter Enterprises and Prairie
Aviation, Inc. 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.
In August, 1996, the Company provided Michael J. Archer with a $100,000
non-interest bearing loan, payable on demand. In April, 1997, the Company agreed
to cancel the debt and treat the $100,000 as 1997 employee compensation.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next Annual Meeting of Stockholders of the
Company, stockholder proposals for such meeting must be submitted to the Company
no later than December 21, 1997.
11
<PAGE>
ANNUAL REPORT
All stockholders of record as of April 29, 1997 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for the
fiscal year ended December 31, 1996. Such report contains certified consolidated
financial statements of the Company and its subsidiaries for the fiscal year
ended December 31, 1996.
By Order of the Company,
GERALD T. AARON
Secretary
Dated: Wichita, Kansas
May 2, 1997
The Company will furnish, without charge, a copy of its Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (without exhibits) as filed
with the Securities and Exchange Commission to stockholders of record on the
Record Date who make written request therefor to Gerald T. Aaron, Secretary,
Lone Star Steakhouse & Saloon, Inc., 224 E. Douglas, Suite 700, Wichita, Kansas
67202.
12
<PAGE>
- -------------------------------------------------------------------------------
LONE STAR STEAKHOUSE & SALOON, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of Lone Star Steakhouse & Saloon, Inc., a
Delaware Corporation (the "Company"), does hereby appoint Jamie B. Coulter and
John D. White and each of them, the true and lawful attorneys and proxies with
full power of substitution, for and in the name, place and stead of the
undersigned, to vote all of the shares of Common Stock of the Company which the
undersigned would be entitled to vote if personally present at the 1997 Annual
Meeting of Stockholders of the Company to be held at the Sullivan's Steakhouse
restaurant located at 300 Colorado Street, Austin, Texas 78701, on Friday, May
23, 1997 at 10:00 a.m. local time, or at any adjournment or adjournments
thereof.
The undersigned hereby instructs said proxies or their substitutes:
1. ELECTION OF DIRECTORS: The election of the following directors: John D.
White and H. Gilliland Nickel, to serve until the 2000 annual meeting of
stockholders and until their successors have been duly elected and
qualified.
FOR [ ] WITHHOLD VOTE [ ] WITHHOLD AUTHORITY to vote for any
nominee(s), print name(s) below
------------------------------------------
2. RATIFICATION OF APPOINTMENT OF AUDITORS: To ratify the appointment of Ernst
& Young, LLP as the independent auditors of the Company for the fiscal year
ending December 30, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. DISCRETIONARY AUTHORITY: To vote with discretionary authority with respect
to all other matters which may come before the Meeting.
(Continued and to be signed and dated, on the reverse side.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Continued from other side)
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREINBEFORE GIVEN
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO ELECT THE NOMINEES AS
DIRECTORS, TO RATIFY THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES OR
PROXY WITH RESPECT TO ANY OTHER BUSINESS TRANSACTED AT THE ANNUAL MEETING.
The undersigned hereby revokes any proxy
or proxies heretofore given and ratifies
and confirms that all the proxies
appointed hereby, or any of them, or their
substitutes, may lawfully do or cause to
be done by virtue hereof. The undersigned
hereby acknowledges receipt of a copy of
the Notice of Annual Meeting and Proxy
Statement, both dated April 29, 1997, and
a copy of the Company's Annual Report for
the fiscal year ended December 31, 1996.
DATED -------------------------------, 1997
-------------------------------------, (L.S.)
-------------------------------------, (L.S.)
Signature(s)
NOTE: Your signature should appear the same as your name appears hereon. In
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which signing. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer and the corporate seal affixed. No
postage is required if mailed in the United States.
