LONE STAR STEAKHOUSE & SALOON INC
8-A12G, 1997-10-09
EATING PLACES
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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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


                                    FORM 8-A


                FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
                    PURSUANT TO SECTION 12(b) OR 12(g) OF THE
                         SECURITIES EXCHANGE ACT OF 1934




                       LONE STAR STEAKHOUSE & SALOON, INC.
- - --------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


         Delaware                                         48-1109495
- - --------------------------------------------------------------------------------
(State or other jurisdiction of                        (I.R.S. employer 
 incorporation or organization)                       identification no.)


224 East Douglas, Suite 700, Wichita, Kansas                67202
- - --------------------------------------------------------------------------------
(Address of principal executive offices)                  (Zip code)

If this Form relates to the  registration  of a class of debt  securities and is
effective upon filing pursuant to General Instruction A(c)(1),  please check the
following box. / /


If this Form relates to the  registration  of a class of debt  securities and is
effective  simultaneously  with the  effectiveness of a concurrent  registration
statement  under the  Securities  Act of 1933  pursuant  to General  Instruction
A(c)(2), please check the following box. / /


Securities registered pursuant to Section 12(b) of the Act:

                                      None

Securities to be registered pursuant to Section 12(g) of the Act:



         Title of each class               Name of each exchange on which each
         to be so registered                  class is to be registered
- - --------------------------------           -----------------------------------

Preference Share Purchase Rights               Nasdaq National Market
<PAGE>
ITEM 1.           DESCRIPTION OF SECURITIES TO BE REGISTERED.

                  In  September,  1997,  the  Board of  Directors  of Lone  Star
Steakhouse & Saloon,  Inc. (the "Company") declared a dividend of one preference
share purchase right (a "Right") for each outstanding share of common stock, par
value $.01 per share (the  "Common  Shares"),  of the  Company.  The dividend is
payable on October 10, 1997 (the "Record Date") to the stockholders of record on
that date.  Each Right  entitles  the  registered  holder to  purchase  from the
Company one one-hundredth of a share of Series A Participating Preference stock,
par value $.01 per share (the "Preference Shares"), of the Company at a price of
$80 per one one-hundredth of a Preference Share (the "Purchase Price"),  subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement  (the "Rights  Agreement"),  dated as of October 3, 1997,  between the
Company and First Union National Bank, as Rights Agent (the "Rights Agent").

                  Until the  earlier to occur of (i) 10 days  following a public
announcement  that a person or group of  affiliated  or  associated  persons (an
"Acquiring  Person")  has  acquired  beneficial  ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors  prior to such time as any person
or group of  affiliated  persons  becomes an  Acquiring  Person)  following  the
commencement  of, or  announcement  of an  intention  to make, a tender offer or
exchange  offer  the  consummation  of  which  would  result  in the  beneficial
ownership by a person or group of 15% or more of the  outstanding  Common Shares
(the earlier of such dates being  called the  "Distribution  Date"),  the Rights
will  be  evidenced,  with  respect  to  any of the  Common  Share  certificates
outstanding as of the Record Date, by such Common Share  certificate with a copy
of the Summary of Rights attached thereto.

                  The Rights  Agreement  provides that,  until the  Distribution
Date (or earlier  redemption or  expiration  of the Rights),  the Rights will be
transferred with and only with the Common Shares.  Until the  Distribution  Date
(or  earlier  redemption  or  expiration  of  the  Rights),   new  Common  Share
certificates  issued  after the Record  Date upon  transfer  or new  issuance of
Common  Shares will  contain a notation  incorporating  the Rights  Agreement by
reference.  Until the Distribution Date (or earlier  redemption or expiration of
the Rights),  the surrender for transfer of any  certificates  for Common Shares
outstanding  as of the Record Date,  even without such notation or a copy of the
Summary of Rights being attached  thereto,  will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate. As
soon as  practicable  following the  Distribution  Date,  separate  certificates
evidencing  the Rights (the "Right  Certificates")  will be mailed to holders of
record of the Common Shares as of the close of business on the Distribution Date
and such separate Right Certificates alone will evidence the Rights.

                                       -2-
<PAGE>
                  The Rights are not exercisable  until the  Distribution  Date.
The Rights will expire on October 10, 2007 (the "Final Expiration Date"), unless
the Final  Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company, in each case, as described below.

                  The  Purchase  Price  payable,  and the  number of  Preference
Shares or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent  dilution (i) in the event of
a stock dividend on, or a subdivision,  combination or reclassification  of, the
Preference  Shares,  (ii) upon the grant to holders of the Preference  Shares of
certain rights or warrants to subscribe for or purchase  Preference  Shares at a
price, or securities convertible into Preference Shares with a conversion price,
less than the then-current  market price of the Preference  Shares or (iii) upon
the   distribution  to  holders  of  the  Preference   Shares  of  evidences  of
indebtedness or assets  (excluding  regular  periodic cash dividends paid out of
earnings or retained earnings or dividends  payable in Preference  Shares) or of
subscription rights or warrants (other than those referred to above).

                  The  number  of  outstanding  Rights  and  the  number  of one
one-hundredths  of a Preference  Share  issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares or
a stock dividend on the Common Shares payable in Common Shares or  subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.

                  Preference Shares purchasable upon exercise of the Rights will
not  be  redeemable.  Each  Preference  Share  will  be  entitled  to a  minimum
preferential  quarterly dividend payment of $1 per share but will be entitled to
an aggregate  dividend of 100 times the dividend  declared per Common Share.  In
the event of liquidation,  the holders of the Preference Shares will be entitled
to a  minimum  preferential  liquidation  payment  of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Common Share.
Each  Preference  Share will have 100  votes,  voting  together  with the Common
Shares. Finally, in the event of any merger,  consolidation or other transaction
in which Common Shares are exchanged,  each Preference Share will be entitled to
receive  100 times the  amount  received  per  Common  Share.  These  rights are
protected by customary antidilution provisions.

                  Because  of the  nature of the  Preference  Shares'  dividend,
liquidation and voting rights, the value of the one one-hundredth  interest in a
Preference Share purchasable upon exercise of each Right should  approximate the
value of one Common Share.

                  In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its

                                       -3-
<PAGE>
consolidated assets or earning power are sold after a person or group has become
an Acquiring  Person,  proper  provisions  will be made so that each holder of a
Right will  thereafter have the right to receive,  upon the exercise  thereof at
the then current  exercise  price of the Right,  that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right. In the event that any
person or group of affiliated or associated persons becomes an Acquiring Person,
proper provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter  have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.

                  At any time  after any person or group  becomes  an  Acquiring
Person and prior to the  acquisition  by such  person or group of 50% or more of
the  outstanding  Common  Shares,  the Board of  Directors  of the  Company  may
exchange the Rights (other than Rights owned by such person or group, which will
have  become  void),  in whole or in part,  at an  exchange  ratio of one Common
Share, or one  one-hundredth  of a Preference Share (or of a share of a class or
series of the Company's  preference stock having equivalent rights,  preferences
and privileges), per Right (subject to adjustment).

                  With certain  exceptions,  no adjustment in the Purchase Price
will be required until cumulative  adjustments require an adjustment of at least
1% in such Purchase Price. No fractional Preference Shares will be issued (other
than fractions which are integral multiples of one one-hundredth of a Preference
Share,  which may, at the  election of the Company,  be evidenced by  depositary
receipts) and in lieu  thereof,  an adjustment in cash will be made based on the
market price of the Preference  Shares on the last trading day prior to the date
of exercise.

                  At any time prior to the  acquisition  by a person or group of
affiliated or associated  persons of beneficial  ownership of 15% or more of the
outstanding  Common Shares, the Board of Directors of the Company may redeem the
Rights in whole,  but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time on such
basis with such  conditions as the Board of Directors in its sole discretion may
establish.  Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.

                  The  terms  of the  Rights  may be  amended  by the  Board  of
Directors  of the  Company  without  the  consent of the  holders of the Rights,
including an amendment to lower certain  thresholds  described above to not less
than the  greater  of (i) the sum of .001%  and the  largest  percentage  of the
outstanding  Common Shares then known to the Company to be beneficially owned by
any person or

                                       -4-
<PAGE>
group of  affiliated or  associated  persons and (ii) 10%,  except that from and
after  such time as any  person or group of  affiliated  or  associated  persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights.

                  Until a Right is exercised,  the holder thereof, as such, will
have no rights as a stockholder of the Company,  including,  without limitation,
the right to vote or to receive dividends.

                  The Rights have certain anti-takeover effects. The Rights will
cause  substantial  dilution  to a person or group that  attempts to acquire the
Company  on terms not  approved  by the  Company's  Board of  Directors,  except
pursuant  to an offer  conditioned  on a  substantial  number  of  Rights  being
acquired.  The Rights  should not  interfere  with any merger or other  business
combination  approved by the Board of Directors since the Rights may be redeemed
by the Company at the Redemption  Price prior to the time that a person or group
has acquired beneficial ownership of 15% or more of the Common Shares.

                  The Rights Agreement, dated as of October 3, 1997, between the
Company and First Union National Bank, as Rights Agent,  specifying the terms of
the Rights and including the form of the  Certificate  of  Designations  setting
forth the terms of the  Preference  Shares as an  exhibit  thereto  is  attached
hereto as an exhibit and is  incorporated  herein by  reference.  The  foregoing
description  of the Rights is  qualified  in its  entirety by  reference to such
exhibit.

ITEM 2.           EXHIBITS.

                  1.       Rights Agreement, dated as of October 3, 1997,
                           between Lone Star Steakhouse & Saloon, Inc. and
                           First Union National Bank, which includes the Form
                           of Certificate of Designations setting forth the
                           terms of the Series A Participating Preference
                           Stock, par value $.01 per share, as Exhibit A, and
                           the Summary of Rights to Purchase Preference Shares
                           as Exhibit B.

                           Pursuant  to  the  Rights  Agreement,  printed  Right
                           Certificates  will  not be  mailed  until  as soon as
                           practicable  after the earlier of the tenth day after
                           public  announcement  that  a  person  or  group  has
                           acquired  beneficial  ownership of 15% or more of the
                           Common  Shares  or the  tenth  business  day (or such
                           later  date as may be  determined  by  action  of the
                           Board  of  Directors)  after a person  commences,  or
                           announces its  intention to commence,  a tender offer
                           or  exchange  offer the  consummation  of which would
                           result in the beneficial ownership by a

                                       -5-
<PAGE>
                           person or group of 15% or more of the Common
                           Shares.

                  2.       Form of Letter  from the Board of  Directors  of Lone
                           Star Steakhouse & Saloon,  Inc. to Stockholders to be
                           mailed with copies of the Summary of Rights appearing
                           as Exhibit B to Exhibit 1 hereto.

                                       -6-
<PAGE>
                                    SIGNATURE

                  Pursuant to the  requirements  of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized.

Dated:  October 9, 1997               LONE STAR STEAKHOUSE & SALOON, INC.



                                      By:/S/JAMIE B. COULTER
                                      Name: Jamie B. Coulter
                                      Title: Chairman of the Board and
                                      Chief Executive Officer

                                       -7-
<PAGE>
                                  EXHIBIT LIST


1.   Rights Agreement, dated as of October 3, 1997, between Lone Star Steakhouse
     & Saloon,  Inc. and First Union National  Bank,  which includes the form of
     Certificate  of  Designations  setting  forth  the  terms  of the  Series A
     Participating Preference Stock, par value $.01 per share, as Exhibit A, and
     the Summary of Rights to Purchase Preference Shares as Exhibit B.

2.   Form of  Letter  from the Board of  Directors  of Lone  Star  Steakhouse  &
     Saloon,  Inc.  to  Stockholders  to be mailed with copies of the Summary of
     Rights appearing as Exhibit B to Exhibit 1 hereto.


                                       -8-

                       LONE STAR STEAKHOUSE & SALOON, INC.


                                       and


                            FIRST UNION NATIONAL BANK

                                  Rights Agent


                                Rights Agreement

                           Dated as of October 3, 1997


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




<PAGE>

                  Agreement,  dated as of  October 3,  1997,  between  Lone Star
Steakhouse & Saloon,  Inc., a Delaware  corporation (the  "Company"),  and First
Union National Bank (the "Rights Agent").

                  The Board of  Directors  of the  Company  has  authorized  and
declared a dividend of one preference  share purchase right (a "Right") for each
Common Share (as hereinafter  defined) of the Company outstanding on October 10,
1997 (the  "Record  Date"),  each Right  representing  the right to purchase one
one-hundredth of a Preference Share (as hereinafter defined), upon the terms and
subject  to the  conditions  herein  set forth.  The Board of  Directors  of the
Company has  further  authorized  and  directed  the  issuance of one Right with
respect to each Common  Share that shall become  outstanding  between the Record
Date and the earliest of the  Distribution  Date,  the  Redemption  Date and the
Final Expiration Date (as such terms are hereinafter defined).

                  Accordingly,  in  consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:

                  Section 1.  Certain Definitions.  For purposes of this
Agreement, the following terms have the meanings indicated:

                  (a) "Acquiring  Person" shall mean any Person (as such term is
hereinafter  defined) who or which,  together with all Affiliates and Associates
(as such terms are hereinafter  defined) of such Person,  after the date hereof,
shall become the Beneficial  Owner (as such term is hereinafter  defined) of 15%
or more of the Common Shares of the Company then outstanding, but shall not

                                       -2-

<PAGE>
include the Company, any Subsidiary (as such term is hereinafter defined) of the
Company,  any employee  benefit plan of the Company or of any  Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the terms of any
such plan.  Notwithstanding the foregoing,  no Person shall become an "Acquiring
Person" as the result of an  acquisition  of Common Shares by the Company which,
by reducing the number of shares outstanding, increases the proportionate number
of shares  beneficially owned by such Person to 15% or more of the Common Shares
of the Company  then  outstanding;  provided,  however,  that if a Person  shall
become the  Beneficial  Owner of 15% or more of the Common Shares of the Company
then  outstanding by reason of share  purchases by the Company and shall,  after
such  share  purchases  by the  Company,  become  the  Beneficial  Owner  of any
additional Common Shares of the Company,  then such Person shall be deemed to be
an "Acquiring Person".  Notwithstanding the foregoing, if the Board of Directors
of the Company  determines in good faith that a Person who would otherwise be an
"Acquiring  Person",  as defined  pursuant to the  foregoing  provisions of this
paragraph  (a),  has  become  such  inadvertently,  and such  Person  divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an "Acquiring  Person," as defined  pursuant to the foregoing
provisions of this  paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.

                  (b)  "Affiliate"  and  "Associate"  shall have the  respective
meanings ascribed to such terms in Rule 12b-2 of the

                                       -3-

<PAGE>
General  Rules and  Regulations  under the  Securities  Exchange Act of 1934, as
amended (the "Exchange Act"), as in effect on the date of this Agreement.

                  (c) A Person  shall be deemed  the  "Beneficial  Owner" of and
shall be deemed to "beneficially own" any securities:

                           (i)  which  such  Person  or  any  of  such  Person's
                  Affiliates  or  Associates   beneficially  owns,  directly  or
                  indirectly;

                           (ii)  which  such  Person  or  any of  such  Person's
                  Affiliates or Associates has (A) the right to acquire (whether
                  such  right  is  exercisable  immediately  or only  after  the
                  passage of time)  pursuant to any  agreement,  arrangement  or
                  understanding   (other  than  customary  agreements  with  and
                  between underwriters and selling group members with respect to
                  a bona  fide  public  offering  of  securities),  or upon  the
                  exercise of conversion rights,  exchange rights, rights (other
                  than  these  Rights),   warrants  or  options,  or  otherwise;
                  provided,  however,  that a Person  shall  not be  deemed  the
                  Beneficial  Owner  of,  or  to  beneficially  own,  securities
                  tendered  pursuant to a tender or exchange offer made by or on
                  behalf of such Person or any of such  Person's  Affiliates  or
                  Associates  until such  tendered  securities  are accepted for
                  purchase or exchange; or (B) the right to vote pursuant to any
                  agreement,  arrangement or understanding;  provided,  however,
                  that a Person shall not be deemed the

                                       -4-

<PAGE>

                  Beneficial  Owner of, or to  beneficially  own,  any  security
                  pursuant to this clause (B) if the  agreement,  arrangement or
                  understanding  to vote such  security (1) arises solely from a
                  revocable proxy or consent given to such Person in response to
                  a public proxy or consent  solicitation  made pursuant to, and
                  in  accordance  with,  the  applicable  rules and  regulations
                  promulgated  under the  Exchange  Act and (2) is not also then
                  reportable  on  Schedule  13D under the  Exchange  Act (or any
                  comparable or successor report); or

                           (iii)  which  are  beneficially  owned,  directly  or
                  indirectly,  by any other Person with which such Person or any
                  of such Person's  Affiliates or Associates  has any agreement,
                  arrangement or understanding  (other than customary agreements
                  with and between  underwriters  and selling group members with
                  respect to a bona fide public  offering of securities) for the
                  purpose of acquiring,  holding,  voting  (except to the extent
                  contemplated  by  the  proviso  to  Section   1(c)(ii)(B))  or
                  disposing of any  securities  of the Company.  Notwithstanding
                  anything in this definition of Beneficial

Ownership  to the  contrary,  the  phrase  "then  outstanding,"  when  used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually  issued and  outstanding  which such
Person would be deemed to own beneficially hereunder.

                                       -5-

<PAGE>
                  (d) "Business Day" shall mean any day other than a Saturday, a
Sunday,  or a day on which banking  institutions  in the State of North Carolina
are authorized or obligated by law or executive order to close.

                  (e)  "Close of  business"  on any given  date  shall mean 5:00
P.M., Charlotte,  North Carolina time, on such date; provided,  however, that if
such date is not a Business Day it shall mean 5:00 P.M.,  New York City time, on
the next succeeding Business Day.

                  (f) "Common  Shares"  when used with  reference to the Company
shall mean the shares of common stock, par value $.01 per share, of the Company.
"Common  Shares"  when used with  reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of another Person,
the Person or Persons which ultimately control such first-mentioned Person.

                  (g)  "Distribution  Date"  shall have the meaning set forth in
Section 3 hereof.

                  (h) "Final  Expiration  Date" shall have the meaning set forth
in Section 7 hereof.

                  (i) "Person" shall mean any individual,  firm,  corporation or
other  entity,  and shall include any successor (by merger or otherwise) of such
entity.

                  (j)  "Preference   Shares"  shall  mean  shares  of  Series  A
Participating  Preference Stock, par value $.01 per share, of the Company having
the rights and preferences set forth in the Form of

                                       -6-

<PAGE>
Certificate of Designations attached to this Agreement as EXHIBIT A.

                  (k)  "Redemption  Date"  shall have the  meaning  set forth in
Section 7 hereof.

                  (l)  "Shares  Acquisition  Date"  shall mean the first date of
public  announcement  by the Company or an  Acquiring  Person that an  Acquiring
Person has become such.

                  (m)  "Subsidiary"  of any Person shall mean any corporation or
other  entity of which a  majority  of the  voting  power of the  voting  equity
securities or equity interest is owned, directly or indirectly, by such Person.

                  Section 2.  Appointment  of Rights Agent.  The Company  hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights  (who,  in  accordance  with  Section  3  hereof,   shall  prior  to  the
Distribution  Date also be the holders of the Common Shares) in accordance  with
the terms and  conditions  hereof,  and the Rights  Agent  hereby  accepts  such
appointment.  The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.

                  Section 3. Issue of Right Certificates.  (a) Until the earlier
of (i) the  tenth  day  after  the  Shares  Acquisition  Date or (ii) the  tenth
Business Day (or such later date as may be  determined by action of the Board of
Directors  prior to such time as any Person  becomes an Acquiring  Person) after
the date,  of the  commencement  by any  Person  (other  than the  Company,  any
Subsidiary of the Company, any employee benefit plan of the Company or of any

                                       -7-

<PAGE>

Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the  terms of any such  plan) of, or of the  first  public  announcement  of the
intention of any Person (other than the Company,  any Subsidiary of the Company,
any employee  benefit plan of the Company or of any Subsidiary of the Company or
any entity  holding Common Shares for or pursuant to the terms of any such plan)
to commence,  a tender or exchange offer the  consummation of which would result
in any Person becoming the Beneficial Owner of Common Shares  aggregating 15% or
more of the then  outstanding  Common Shares  (including  any such date which is
after the date of this  Agreement  and prior to the issuance of the Rights;  the
earlier of such dates being herein referred to as the "Distribution  Date"), (x)
the Rights will be evidenced  (subject to the provisions of Section 3(b) hereof)
by the  certificates  for Common  Shares  registered in the names of the holders
thereof (which  certificates shall also be deemed to be Right  Certificates) and
not by  separate  Right  Certificates,  and  (y)  the  right  to  receive  Right
Certificates will be transferable only in connection with the transfer of Common
Shares.  As soon as practicable  after the Company has notified the Rights Agent
of the  occurrence  of the  Distribution  Date,  the  Company  will  prepare and
execute,  the Rights Agent will countersign,  and the Company will send or cause
to be sent (and the Rights  Agent  will,  if  requested,  send) by  first-class,
insured,  postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Distribution  Date, at the address of such holder shown
on the records of the Company, a Right

                                       -8-

<PAGE>

Certificate,  evidencing  one Right  for each  Common  Share so held.  As of the
Distribution   Date,  the  Rights  will  be  evidenced   solely  by  such  Right
Certificates.

                  (b) On the Record Date, or as soon as practicable  thereafter,
the  Company  will send a copy of a Summary  of  Rights to  Purchase  Preference
Shares, in substantially the form of EXHIBIT B hereto (the "Summary of Rights"),
by first-class,  postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Record Date, at the address of such holder shown
on the records of the Company.  With respect to  certificates  for Common Shares
outstanding as of the Record Date, until the Distribution  Date, the Rights will
be  evidenced  by such  certificates  registered  in the  names  of the  holders
thereof. Until the earliest of the Distribution Date, the Redemption Date or the
Final  Expiration Date, the surrender for transfer of any certificate for Common
Shares  outstanding on the Record Date, with or without a copy of the Summary of
Rights  attached  thereto,  shall also  constitute  the  transfer  of the Rights
associated with the Common Shares represented thereby.

                  (c)  Certificates  for Common Shares which become  outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this  paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have  impressed  on,  printed on,  written on or  otherwise  affixed to them the
following legend:

                                       -9-

<PAGE>
                  This certificate also evidences and entitles the holder hereof
                  to certain rights as set forth in a Rights  Agreement  between
                  Lone Star  Steakhouse & Saloon,  Inc. and First Union National
                  Bank,  dated as of October 3, 1997 (the  "Rights  Agreement"),
                  the terms of which are hereby incorporated herein by reference
                  and a copy of  which  is on file  at the  principal  executive
                  offices of Lone Star  Steakhouse & Saloon,  Inc. Under certain
                  circumstances,  as set  forth in the  Rights  Agreement,  such
                  Rights will be evidenced by separate  certificates and will no
                  longer be evidenced by this certificate.  Lone Star Steakhouse
                  & Saloon,  Inc. will mail to the holder of this  certificate a
                  copy of the Rights Agreement without charge after receipt of a
                  written request therefor. Under certain circumstances,  as set
                  forth in the Rights Agreement, Rights issued to any Person who
                  becomes  an  Acquiring   Person  (as  defined  in  the  Rights
                  Agreement)  may  become  null and void.

         With respect to such  certificates  containing  the  foregoing  legend,
until the  Distribution  Date,  the Rights  associated  with the  Common  Shares
represented by such certificates shall be evidenced by such certificates  alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company  purchases  or acquires  any Common  Shares after the
Record Date but prior to the Distribution  Date, any Rights associated with such
Common  Shares shall be deemed  cancelled  and retired so that the Company shall
not be entitled to exercise any Rights  associated  with the Common Shares which
are no longer outstanding.

                  Section 4. Form of Right Certificates.  The Right Certificates
(and the forms of election to purchase Preference Shares and of assignment to be
printed on the reverse  thereof)  shall be  substantially  the same as EXHIBIT B
hereto  and may  have  such  marks of  identification  or  designation  and such
legends,

                                      -10-

<PAGE>

summaries or endorsements  printed  thereon as the Company may deem  appropriate
and as are not inconsistent with the provisions of this Agreement,  or as may be
required to comply with any applicable  law or with any rule or regulation  made
pursuant  thereto or with any rule or regulation of any stock  exchange on which
the Rights may from time to time be listed,  or to conform to usage.  Subject to
the provisions of Section 22 hereof,  the Right  Certificates  shall entitle the
holders  thereof to purchase such number of one  one-hundredths  of a Preference
Share as shall be set forth  therein  at the price  per one  one-hundredth  of a
Preference  Share set forth therein (the  "Purchase  Price"),  but the number of
such one  one-hundredths  of a Preference  Share and the Purchase Price shall be
subject to adjustment as provided herein.

                  Section  5.  Countersignature  and  Registration.   The  Right
Certificates  shall be executed on behalf of the Company by its  Chairman of the
Board, its Chief Executive Officer,  its President,  its Chief Financial Officer
or any Executive Vice President either manually or by facsimile signature, shall
have affixed  thereto the Company's  seal or a facsimile  thereof,  and shall be
attested by the  Secretary  or an Assistant  Secretary  of the  Company,  either
manually or by facsimile  signature.  The Right  Certificates  shall be manually
countersigned  by an  authorized  signatory of the Rights Agent and shall not be
valid  for any  purpose  unless so  countersigned.  In case any  officer  of the
Company  who shall have signed any of the Right  Certificates  shall cease to be
such  officer of the Company  before  countersignature  by the Rights  Agent and
issuance and

                                      -11-

<PAGE>

delivery  by  the  Company,  such  Right  Certificates,   nevertheless,  may  be
countersigned  by an  authorized  signatory  of the Rights  Agent and issued and
delivered by the Company with the same force and effect as though the person who
signed such Right Certificates had not ceased to be such officer of the Company;
and any Right  Certificate  may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Right  Certificate,  shall be a
proper  officer of the Company to sign such Right  Certificate,  although at the
date of the  execution of this Rights  Agreement any such person was not such an
officer.

                  Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal  office,  books for registration and transfer
of the Right Certificates issued hereunder.  Such books shall show the names and
addresses of the  respective  holders of the Right  Certificates,  the number of
Rights  evidenced on its face by each of the Right  Certificates and the date of
each of the Right Certificates.

                  Section 6.  Transfer,  Split Up,  Combination  and Exchange of
Right  Certificates;  Mutilated,  Destroyed,  Lost or Stolen Right Certificates.
Subject to the  provisions of Section 14 hereof,  at any time after the close of
business on the  Distribution  Date, and at or prior to the close of business on
the  earlier of the  Redemption  Date or the Final  Expiration  Date,  any Right
Certificate or Right Certificates  (other than Right  Certificates  representing
Rights that have become void pursuant to Section  11(a)(ii)  hereof or that have
been exchanged pursuant to Section 24 hereof) may be

                                      -12-

<PAGE>

transferred,  split up,  combined or exchanged for another Right  Certificate or
Right Certificates, entitling the registered holder to purchase a like number of
one  one-hundredths  of a  Preference  Share as the Right  Certificate  or Right
Certificates  surrendered then entitled such holder to purchase.  Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent,  and shall  surrender the Right  Certificate or Right  Certificates to be
transferred,  split up,  combined or  exchanged at the  principal  office of the
Rights Agent.  Thereupon the Rights Agent shall  countersign  and deliver to the
person entitled thereto a Right Certificate or Right  Certificates,  as the case
may be, as so requested.  The Company may require payment of a sum sufficient to
cover any tax or governmental  charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.  Upon receipt
by the Company and the Rights Agent of evidence reasonably  satisfactory to them
of the loss, theft,  destruction or mutilation of a Right  Certificate,  and, in
case of  loss,  theft  or  destruction,  of  indemnity  or  security  reasonably
satisfactory  to them,  and,  at the  Company's  request,  reimbursement  to the
Company and the Rights Agent of all reasonable expenses incidental thereto,  and
upon surrender to the Rights Agent and cancellation of the Right  Certificate if
mutilated,  the Company  will make and deliver a new Right  Certificate  of like
tenor to the Rights Agent for

                                      -13-

<PAGE>

delivery  to the  registered  holder in lieu of the Right  Certificate  so lost,
stolen, destroyed or mutilated.

                  Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.  (a) The registered  holder of any Right Certificate may exercise the
Rights  evidenced  thereby (except as otherwise  provided herein) in whole or in
part at any time  after  the  Distribution  Date  upon  surrender  of the  Right
Certificate,  with the form of election to purchase on the reverse  side thereof
duly executed,  to the Rights Agent at the principal office of the Rights Agent,
together  with payment of the  Purchase  Price for each one  one-hundredth  of a
Preference  Share as to  which  the  Rights  are  exercised,  at or prior to the
earliest of (i) the close of business on October 10, 2007 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section 23
hereof  (the  "Redemption  Date"),  or (iii) the time at which  such  Rights are
exchanged as provided in Section 24 hereof.

                  (b)  The  Purchase  Price  for  each  one  one-hundredth  of a
Preference Share purchasable pursuant to the exercise of a Right shall initially
be $80.00,  and shall be subject to adjustment  from time to time as provided in
Section  11 or 13 hereof  and shall be  payable  in lawful  money of the  United
States of America in accordance with paragraph (c) below.

                  (c)  Upon   receipt  of  a  Right   Certificate   representing
exercisable  Rights,  with the  form of  election  to  purchase  duly  executed,
accompanied  by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable

                                      -14-

<PAGE>

transfer  tax  required  to be paid by the holder of such Right  Certificate  in
accordance  with Section 9 hereof by certified  check,  cashier's check or money
order  payable to the order of the  Company,  the Rights  Agent shall  thereupon
promptly (i) (A)  requisition  from any transfer agent of the Preference  Shares
certificates for the number of Preference Shares to be purchased and the Company
hereby  irrevocably  authorizes  its  transfer  agent  to  comply  with all such
requests,  or (B)  requisition  from the depositary  agent  depositary  receipts
representing  such number of one  one-hundredths of a Preference Share as are to
be purchased (in which case certificates for the Preference  Shares  represented
by such receipts  shall be deposited by the transfer  agent with the  depositary
agent) and the Company hereby  directs the depositary  agent to comply with such
request, (ii) when appropriate,  requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional  shares in accordance  with Section
14 hereof,  (iii) after receipt of such  certificates  or  depositary  receipts,
cause the same to be delivered to or upon the order of the registered  holder of
such Right Certificate, registered in such name or names as may be designated by
such holder and (iv) when  appropriate,  after receipt,  deliver such cash to or
upon the order of the registered holder of such Right Certificate.

                  (d) In case the  registered  holder of any  Right  Certificate
shall  exercise  less  than  all  the  Rights  evidenced  thereby,  a new  Right
Certificate  evidencing  Rights  equivalent to the Rights remaining  unexercised
shall be issued by the Rights

                                      -15-

<PAGE>

Agent  to the  registered  holder  of  such  Right  Certificate  or to his  duly
authorized assigns, subject to the provisions of Section 14 hereof.

                  Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise,  transfer, split
up,  combination or exchange  shall,  if surrendered to the Company or to any of
its agents,  be delivered to the Rights Agent for  cancellation  or in cancelled
form, or, if  surrendered to the Rights Agent,  shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement.  The Company shall deliver to
the Rights Agent for cancellation and retirement,  and the Rights Agent shall so
cancel and retire,  any other  Right  Certificate  purchased  or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all  cancelled  Right  Certificates  to the  Company,  or shall,  at the written
request of the Company,  destroy such cancelled Right Certificates,  and in such
case shall deliver a certificate of destruction thereof to the Company.

                  Section 9.  Availability  of  Preference  Shares.  The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued  Preference  Shares or any Preference Shares held in
its treasury,  the number of Preference Shares that will be sufficient to permit
the exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as

                                      -16-

<PAGE>

may be necessary to ensure that all Preference Shares delivered upon exercise of
Rights shall,  at the time of delivery of the  certificates  for such Preference
Shares  (subject  to  payment  of the  Purchase  Price),  be  duly  and  validly
authorized and issued and fully paid and nonassessable shares.

                  The Company further covenants and agrees that it will pay when
due and payable any and all federal and state  transfer  taxes and charges which
may be payable in respect of the issuance or delivery of the Right  Certificates
or of any Preference Shares upon the exercise of Rights.  The Company shall not,
however,  be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right  Certificates  to a person other than,  or the
issuance or delivery of certificates  or depositary  receipts for the Preference
Shares  in a name  other  than  that of,  the  registered  holder  of the  Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary  receipts for Preference Shares upon the exercise
of any  Rights  until  any such tax  shall  have  been  paid (any such tax being
payable by the holder of such Right  Certificate  at the time of  surrender)  or
until it has been established to the Company's  reasonable  satisfaction that no
such tax is due.

                  Section 10.  Preference  Shares  Record  Date.  Each person in
whose name any certificate for Preference  Shares is issued upon the exercise of
Rights  shall for all  purposes be deemed to have become the holder of record of
the Preference  Shares  represented  thereby on, and such  certificate  shall be
dated, the date upon

                                      -17-

<PAGE>
which the Right  Certificate  evidencing  such Rights was duly  surrendered  and
payment of the  Purchase  Price (and any  applicable  transfer  taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the  Preference  Shares  transfer  books of the Company  are closed,  such
person  shall be deemed to have become the record  holder of such shares on, and
such certificate  shall be dated, the next succeeding  Business Day on which the
Preference  Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby,  the holder of a Right Certificate shall not be
entitled  to any  rights of a holder of  Preference  Shares for which the Rights
shall be  exercisable,  including,  without  limitation,  the right to vote,  to
receive dividends or other  distributions or to exercise any preemptive  rights,
and shall not be  entitled  to  receive  any  notice of any  proceedings  of the
Company, except as provided herein.

                  Section 11. Adjustment of Purchase Price,  Number of Shares or
Number of Rights. The Purchase Price, the number of Preference Shares covered by
each Right and the number of Rights  outstanding  are subject to adjustment from
time to time as provided in this Section 11.

                  (a) (i) In the event the  Company  shall at any time after the
date of this Agreement (A) declare a dividend on the  Preference  Shares payable
in Preference  Shares,  (B) subdivide the  outstanding  Preference  Shares,  (C)
combine the  outstanding  Preference  Shares into a smaller number of Preference
Shares or (D) issue any shares of its capital stock in a reclassification of the

                                      -18-

<PAGE>

Preference  Shares  (including any such  reclassification  in connection  with a
consolidation  or merger in which the  Company is the  continuing  or  surviving
corporation),  except as otherwise  provided in this Section 11(a), the Purchase
Price in  effect  at the time of the  record  date for such  dividend  or of the
effective date of such  subdivision,  combination or  reclassification,  and the
number  and kind of shares of capital  stock  issuable  on such  date,  shall be
proportionately  adjusted so that the holder of any Right  exercised  after such
time shall be  entitled to receive  the  aggregate  number and kind of shares of
capital stock which, if such Right had been exercised  immediately prior to such
date and at a time when the Preference Shares transfer books of the Company were
open,  he would have owned upon such  exercise  and been  entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; provided,
however,  that in no event shall the  consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right.

                  (ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, each holder of a Right shall thereafter have
a right to receive,  upon exercise  thereof at a price equal to the then current
Purchase Price  multiplied by the number of one  one-hundredths  of a Preference
Share for which a Right is then  exercisable,  in  accordance  with the terms of
this Agreement and in lieu of Preference Shares, such number of Common Shares of
the Company as shall equal the result

                                      -19-

<PAGE>

obtained by (x) multiplying the then current Purchase Price by the number of one
one-hundredths  of a Preference  Share for which a Right is then exercisable and
dividing  that  product by (y) 50% of the then current per share market price of
the Company's Common Shares (determined pursuant to Section 11(d) hereof) on the
date of the occurrence of such event.  In the event that any Person shall become
an Acquiring Person and the Rights shall then be outstanding,  the Company shall
not take any action which would  eliminate or diminish the benefits  intended to
be afforded by the Rights.

                  From and after the  occurrence of such event,  any Rights that
are or were  acquired  or  beneficially  owned by any  Acquiring  Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights  shall  thereafter  have no right to exercise  such Rights under any
provision of this Agreement.  No Right  Certificate  shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an Acquiring Person whose
Rights  would be void  pursuant to the  preceding  sentence or any  Associate or
Affiliate  thereof;  no Right  Certificate  shall be issued at any time upon the
transfer  of any  Rights  to an  Acquiring  Person  whose  Rights  would be void
pursuant to the preceding  sentence or any Associate or Affiliate  thereof or to
any nominee of such  Acquiring  Person,  Associate or  Affiliate;  and any Right
Certificate  delivered to the Rights  Agent for transfer to an Acquiring  Person
whose  Rights  would  be  void  pursuant  to the  preceding  sentence  shall  be
cancelled.

                                      -20-

<PAGE>

                  (iii) In the event that there shall not be  sufficient  Common
Shares  issued but not  outstanding  or  authorized  but  unissued to permit the
exercise in full of the Rights in  accordance  with the  foregoing  subparagraph
(ii),  the Company  shall take all such action as may be  necessary to authorize
additional  Common Shares for issuance upon exercise of the Rights. In the event
the Company shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional  Common Shares,  the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right,  a number of  Preference  Shares or fraction  thereof  such that the
current per share market price of one Preference Share multiplied by such number
or fraction is equal to the current per share  market  price of one Common Share
as of the date of issuance of such Preference Shares or fraction thereof.

                  (b) In case  the  Company  shall  fix a  record  date  for the
issuance of rights,  options or warrants  to all  holders of  Preference  Shares
entitling them (for a period  expiring within 45 calendar days after such record
date) to subscribe for or purchase  Preference Shares (or shares having the same
rights,  privileges  and  preferences  as  the  Preference  Shares  ("equivalent
preference  shares"))  or  securities  convertible  into  Preference  Shares  or
equivalent  preference  shares at a price  per  Preference  Share or  equivalent
preference  share  (or  having a  conversion  price  per  share,  if a  security
convertible into Preference  Shares or equivalent  preference  shares) less than
the then current per share

                                      -21-

<PAGE>

market  price of the  Preference  Shares (as  defined in Section  11(d)) on such
record date,  the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record  date by a  fraction,  the  numerator  of which  shall be the  number  of
Preference Shares  outstanding on such record date plus the number of Preference
Shares which the  aggregate  offering  price of the total  number of  Preference
Shares  and/or  equivalent  preference  shares  so to  be  offered  (and/or  the
aggregate  initial  conversion  price  of the  convertible  securities  so to be
offered)  would  purchase at such current  market price and the  denominator  of
which shall be the number of Preference  Shares  outstanding on such record date
plus the number of additional  Preference  Shares and/or  equivalent  preference
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible);  provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the  aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration  part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company,  whose determination shall be described in a statement
filed with the Rights Agent.  Preference Shares owned by or held for the account
of the  Company  shall not be deemed  outstanding  for the  purpose  of any such
computation. Such

                                      -22-

<PAGE>

adjustment shall be made successively  whenever such a record date is fixed; and
in the event that such  rights,  options  or  warrants  are not so  issued,  the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

                  (c) In case the Company shall fix a record date for the making
of a distribution  to all holders of the Preference  Shares  (including any such
distribution  made in  connection  with a  consolidation  or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preference Shares) or subscription  rights or warrants (excluding those referred
to in Section  11(b)  hereof),  the  Purchase  Price to be in effect  after such
record date shall be  determined  by  multiplying  the Purchase  Price in effect
immediately  prior to such  record date by a fraction,  the  numerator  of which
shall be the then  current per share market  price of the  Preference  Shares on
such record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company,  whose  determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or evidences
of indebtedness so to be distributed or of such subscription  rights or warrants
applicable to one  Preference  Share and the  denominator of which shall be such
current per share market price of the Preference Shares; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of

                                      -23-

<PAGE>

the shares of capital  stock of the  Company to be issued  upon  exercise of one
Right. Such adjustments  shall be made successively  whenever such a record date
is fixed;  and in the event that such  distribution is not so made, the Purchase
Price shall again be  adjusted to be the  Purchase  Price which would then be in
effect if such record date had not been fixed.

                  (d) (i) For the  purpose  of any  computation  hereunder,  the
"current per share market price" of any security (a  "Security"  for the purpose
of this  Section  11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30  consecutive  Trading
Days (as such  term is  hereinafter  defined)  immediately  prior to such  date;
provided,  however, that in the event that the current per share market price of
the Security is determined  during a period  following the  announcement  by the
issuer of such  Security  of (A) a dividend  or  distribution  on such  Security
payable in shares of such Security or securities  convertible  into such shares,
or (B) any  subdivision,  combination or  reclassification  of such Security and
prior to the expiration of 30 Trading Days after the  ex-dividend  date for such
dividend or distribution,  or the record date for such subdivision,  combination
or  reclassification,  then, and in each such case, the current per share market
price shall be  appropriately  adjusted to reflect the current  market price per
share  equivalent of such Security.  The closing price for each day shall be the
last sale price,  regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way,

                                      -24-

<PAGE>

in either case as reported in the principal  consolidated  transaction reporting
system with  respect to  securities  listed or admitted to trading on the Nasdaq
National  Market or, if the Security is not listed or admitted to trading on the
Nasdaq National Market,  as reported in the principal  consolidated  transaction
reporting  system with respect to securities  listed on the  principal  national
securities  exchange on which the  Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national  securities
exchange,  the last quoted  price or, if not so quoted,  the average of the high
bid and low asked  prices in the  over-the-counter  market,  as  reported by the
National  Association of Securities  Dealers,  Inc. Automated  Quotations System
("NASDAQ")  or such  other  system  then in use,  or,  if on any  such  date the
Security is not quoted by any such organization,  the average of the closing bid
and asked prices as furnished by a professional  market maker making a market in
the  Security  selected  by the  Board of  Directors  of the  Company.  The term
"Trading  Day"  shall  mean a day on which  the  principal  national  securities
exchange on which the  Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to trading
on any national securities exchange, a Business Day.

                  (ii)  For  the  purpose  of  any  computation  hereunder,  the
"current per share market price" of the Preference Shares shall be determined in
accordance  with the  method set forth in Section  11(d)(i).  If the  Preference
Shares are not publicly traded, the

                                      -25-

<PAGE>

"current per share market price" of the Preference  Shares shall be conclusively
deemed  to be the  current  per  share  market  price of the  Common  Shares  as
determined pursuant to Section 11(d)(i)  (appropriately  adjusted to reflect any
stock split,  stock  dividend or similar  transaction  occurring  after the date
hereof),  multiplied  by one  hundred.  If  neither  the  Common  Shares nor the
Preference  Shares are publicly held or so listed or traded,  "current per share
market price" shall mean the fair value per share as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the rights.

                  (e) No  adjustment  in the  Purchase  Price  shall be required
unless such  adjustment  would require an increase or decrease of at least 1% in
the Purchase Price;  provided,  however, that any adjustments which by reason of
this  Section  11(e) are not  required  to be made shall be carried  forward and
taken into account in any subsequent  adjustment.  All  calculations  under this
Section  11  shall  be  made to the  nearest  cent or to the  nearest  one  one-
millionth  of a  Preference  Share or one  ten-thousandth  of any other share or
security as the case may be.  Notwithstanding the first sentence of this Section
11(e),  any  adjustment  required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the  transaction  which requires
such  adjustment or (ii) the date of the expiration of the right to exercise any
Rights.

                                      -26-

<PAGE>

                  (f) If as a result of an  adjustment  made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive  any shares of capital  stock of the  Company  other than  Preference
Shares,  thereafter the number of such other shares so receivable  upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly  equivalent as practicable to the provisions with respect to the
Preference  Shares  contained in Section 11(a) through (c),  inclusive,  and the
provisions  of Sections 7, 9, 10 and 13 with  respect to the  Preference  Shares
shall apply on like terms to any such other shares.

                  (g) All Rights originally issued by the Company  subsequent to
any adjustment  made to the Purchase Price hereunder shall evidence the right to
purchase,  at the adjusted Purchase Price, the number of one one-hundredths of a
Preference  Share  purchasable  from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

                  (h) Unless the Company  shall have  exercised  its election as
provided in Section  11(i),  upon each  adjustment  of the  Purchase  Price as a
result  of  the  calculations  made  in  Sections  11(b)  and  (c),  each  Right
outstanding  immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase,  at the adjusted  Purchase Price, that number of
one  one-hundredths  of a  Preference  Share  (calculated  to  the  nearest  one
one-millionth of a Preference  Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to

                                      -27-

<PAGE>
this  adjustment by (y) the Purchase Price in effect  immediately  prior to such
adjustment  of the Purchase  Price and (ii)  dividing the product so obtained by
the Purchase Price in effect  immediately  after such adjustment of the Purchase
Price.

                  (i)  The  Company  may  elect  on or  after  the  date  of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any  adjustment in the number of one  one-hundredths  of a Preference  Share
purchasable upon the exercise of a Right.  Each of the Rights  outstanding after
such  adjustment of the number of Rights shall be exercisable  for the number of
one  one-hundredths  of a  Preference  Share for  which a Right was  exercisable
immediately  prior to such  adjustment.  Each Right held of record prior to such
adjustment  of  the  number  of  Rights  shall  become  that  number  of  Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect  immediately  prior to adjustment  of the Purchase  Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights,  indicating  the record  date for the  adjustment,  and, if known at the
time, the amount of the adjustment to be made.  This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued,  shall be at least 10 days later than the date of
the public  announcement.  If Right  Certificates  have been  issued,  upon each
adjustment of the number of Rights  pursuant to this Section 11(i),  the Company
shall, as promptly as practicable, cause to be

                                      -28-

<PAGE>

distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing,  subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment,  or, at the
option of the Company,  shall cause to be  distributed to such holders of record
in substitution and replacement for the Right  Certificates held by such holders
prior to the date of adjustment,  and upon surrender thereof, if required by the
Company, new Right Certificates  evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued,  executed and  countersigned  in the manner provided for herein
and  shall  be  registered  in the  names  of the  holders  of  record  of Right
Certificates on the record date specified in the public announcement.

                  (i)  Irrespective  of any adjustment or change in the Purchase
Price or the number of one  one-hundredths  of a Preference  Share issuable upon
the exercise of the Rights,  the Right  Certificates  theretofore and thereafter
issued  may  continue  to  express  the  Purchase  Price  and the  number of one
one-hundredths  of a Preference  Share which were expressed in the initial Right
Certificates issued hereunder.

                  (j) Before  taking any action that would  cause an  adjustment
reducing the Purchase Price below one  one-hundredth  of the then par value,  if
any, of the Preference Shares issuable upon exercise of the Rights,  the Company
shall take any  corporate  action which may, in the opinion of its  counsel,  be
necessary in order

                                      -29-

<PAGE>

that the Company may  validly  and  legally  issue fully paid and  nonassessable
Preference Shares at such adjusted Purchase Price.

                  (k) In any case in which this Section 11 shall require that an
adjustment  in the  Purchase  Price be made  effective as of a record date for a
specified  event,  the Company may elect to defer until the  occurrence  of such
event the issuing to the holder of any Right exercised after such record date of
the Preference  Shares and other capital stock or securities of the Company,  if
any,  issuable upon such exercise over and above the Preference Shares and other
capital stock or securities of the Company,  if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however,  that the  Company  shall  deliver  to such  holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

                  (l)   Anything   in   this   Section   11  to   the   contrary
notwithstanding,  the Company  shall be entitled to make such  reductions in the
Purchase  Price,  in addition to those  adjustments  expressly  required by this
Section 11, as and to the extent that it in its sole discretion  shall determine
to be advisable in order that any consolidation or subdivision of the Preference
Shares,  issuance  wholly  for cash of any  Preference  Shares  at less than the
current  market  price,  issuance  wholly  for  cash  of  Preference  Shares  or
securities  which  by their  terms  are  convertible  into or  exchangeable  for
Preference  Shares,  dividends on Preference Shares payable in Preference Shares
or issuance of rights, options or

                                      -30-

<PAGE>

warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preference Shares shall not be taxable to such stockholders.

                  (m) In the  event  that at any  time  after  the  date of this
Agreement and prior to the  Distribution  Date, the Company shall (i) declare or
pay any dividend on the Common Shares  payable in Common Shares or (ii) effect a
subdivision,   combination   or   consolidation   of  the   Common   Shares  (by
reclassification  or otherwise  than by payment of  dividends in Common  Shares)
into a greater or lesser number of Common Shares,  then in any such case (A) the
number of one  one-hundredths of a Preference Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preference Share so purchasable  immediately prior to
such event by a fraction,  the numerator of which is the number of Common Shares
outstanding  immediately  before such event and the  denominator of which is the
number of Common Shares  outstanding  immediately after such event, and (B) each
Common  Share  outstanding  immediately  after such event shall have issued with
respect  to it that  number  of  Rights  which  each  Common  Share  outstanding
immediately  prior to such event had issued with respect to it. The  adjustments
provided for in this Section  11(m) shall be made  successively  whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.

         Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in

                                      -31-

<PAGE>

Section 11 or 13 hereof,  the Company  shall  promptly (a) prepare a certificate
setting forth such adjustment, and a brief statement of the facts accounting for
such adjustment, (b) file with the Rights Agent and with each transfer agent for
the Common Shares or the Preference  Shares a copy of such  certificate  and (c)
mail a brief summary thereof to each holder of a Right Certificate in accordance
with Section 25 hereof.  The Rights Agent shall be fully protected in relying on
any such  certificate  and on any adjustment  therein and shall not be deemed to
have  knowledge of any such  adjustment  unless and until it shall have received
such a certificate as provided under section 12 of this Agreement.

                  Section  13.  Consolidation,  Merger  or Sale or  Transfer  of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person,  (b) any Person shall consolidate with
the  Company,  or merge with and into the Company  and the Company  shall be the
continuing or surviving  corporation of such merger and, in connection with such
merger,  all or part of the Common Shares shall be changed into or exchanged for
stock or other  securities  of any other  Person (or the Company) or cash or any
other property,  or (c) the Company shall sell or otherwise  transfer (or one or
more of its  Subsidiaries  shall  sell or  otherwise  transfer),  in one or more
transactions,  assets or earning power  aggregating 50% or more of the assets or
earning  power of the  Company  and its  Subsidiaries  (taken as a whole) to any
other Person other than the Company or

                                      -32-

<PAGE>
one or more of its  wholly-owned  Subsidiaries,  then,  and in each  such  case,
proper  provision  shall be made so that (i) each  holder of a Right  (except as
otherwise provided herein) shall thereafter have the right to receive,  upon the
exercise  thereof at a price equal to the then current Purchase Price multiplied
by the number of one  one-hundredths  of a Preference Share for which a Right is
then exercisable,  in accordance with the terms of this Agreement and in lieu of
Preference Shares,  such number of Common Shares of such other Person (including
the Company as successor thereto or as the surviving corporation) as shall equal
the result obtained by (A)  multiplying  the then current  Purchase Price by the
number of one  one-hundredths  of a  Preference  Share for which a Right is then
exercisable  and dividing  that product by (B) 50% of the then current per share
market price of the Common Shares of such other Person  (determined  pursuant to
Section 11(d) hereof) on the date of consummation of such consolidation, merger,
sale or  transfer;  (ii) the issuer of such Common  Shares shall  thereafter  be
liable for, and shall assume, by virtue of such  consolidation,  merger, sale or
transfer,  all the  obligations  and  duties  of the  Company  pursuant  to this
Agreement;  (iii) the term "Company" shall thereafter be deemed to refer to such
issuer;  and (iv) such issuer shall take such steps (including,  but not limited
to, the  reservation  of a sufficient  number of its Common Shares in accordance
with Section 9 hereof) in connection with such  consummation as may be necessary
to assure that the provisions  hereof shall thereafter be applicable,  as nearly
as reasonably may be, in relation to the Common Shares

                                      -33-

<PAGE>

thereafter  deliverable  upon the exercise of the Rights.  The Company shall not
consummate any such consolidation, merger, sale or transfer unless prior thereto
the Company and such issuer  shall have  executed  and  delivered  to the Rights
Agent a  supplemental  agreement so providing.  The Company shall not enter into
any  transaction  of the kind  referred to in this  Section 13 if at the time of
such  transaction  there are any rights,  warrants,  instruments  or  securities
outstanding  or  any  agreements  or  arrangements  which,  as a  result  of the
consummation of such transaction,  would eliminate or substantially diminish the
benefits  intended to be afforded by the Rights.  The provisions of this Section
13 shall similarly  apply to successive  mergers or  consolidations  or sales or
other transfers.

                  Section 14. Fractional Rights and Fractional  Shares.  (a) The
Company  shall not be required  to issue  fractions  of Rights or to  distribute
Right Certificates which evidence  fractional Rights. In lieu of such fractional
Rights,  there shall be paid to the registered holders of the Right Certificates
with regard to which such  fractional  Rights would  otherwise  be issuable,  an
amount in cash equal to the same fraction of the current market value of a whole
Right.  For the purposes of this Section  14(a),  the current  market value of a
whole  Right  shall be the  closing  price of the  Rights  for the  Trading  Day
immediately  prior to the date on which such  fractional  Rights would have been
otherwise issuable.  The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average

                                      -34-

<PAGE>

of the closing bid and asked prices,  regular way, in either case as reported in
the  principal  consolidated   transaction  reporting  system  with  respect  to
securities  listed or admitted to trading on the Nasdaq  National  Market or, if
the Rights are not listed or admitted to trading on the Nasdaq National  Market,
as reported in the  principal  consolidated  transaction  reporting  system with
respect to securities listed on the principal  national  securities  exchange on
which the  Rights are listed or  admitted  to trading  or, if the Rights are not
listed or  admitted to trading on any  national  securities  exchange,  the last
quoted  price or, if not so  quoted,  the  average of the high bid and low asked
prices in the  over-the-counter  market,  as  reported  by NASDAQ or such  other
system then in use or, if on any such date the Rights are not quoted by any such
organization,  the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the  Company.  If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.

                  (b) The Company  shall not be required to issue  fractions  of
Preference  Shares  (other than  fractions  which are integral  multiples of one
one-hundredth  of a  Preference  Share)  upon  exercise  of  the  Rights  or  to
distribute  certificates which evidence fractional Preference Shares (other than
fractions  which are  integral  multiples of one  one-hundredth  of a Preference
Share). Fractions of Preference Shares in integral multiples of one one-

                                      -35-

<PAGE>

hundredth  of a  Preference  Share  may,  at the  election  of the  Company,  be
evidenced by depositary receipts,  pursuant to an appropriate  agreement between
the Company and a depositary selected by it; provided, that such agreement shall
provide that the holders of such depositary  receipts shall have all the rights,
privileges and  preferences  to which they are entitled as beneficial  owners of
the  Preference  Shares  represented  by such  depositary  receipts.  In lieu of
fractional   Preference   Shares  that  are  not   integral   multiples  of  one
one-hundredth  of a Preference  Share,  the Company shall pay to the  registered
holders of Right  Certificates  at the time such Rights are  exercised as herein
provided  an amount in cash equal to the same  fraction  of the  current  market
value of one  Preference  Share.  For the  purposes of this Section  14(b),  the
current  market  value of a  Preference  Share shall be the  closing  price of a
Preference  Share (as  determined  pursuant  to the second  sentence  of Section
11(d)(i)  hereof)  for the  Trading  Day  immediately  prior to the date of such
exercise.

                  (c) The  holder  of a Right  by the  acceptance  of the  Right
expressly  waives his right to receive any  fractional  Rights or any fractional
shares upon exercise of a Right (except as provided above).

                  Section 15. Rights of Action.  All rights of action in respect
of this  Agreement,  excepting  the rights of action  given to the Rights  Agent
under Section 18 hereof, are vested in the respective  registered holders of the
Right  Certificates (and, prior to the Distribution Date, the registered holders
of the Common

                                      -36-

<PAGE>

Shares);  and any registered  holder of any Right  Certificate (or, prior to the
Distribution  Date,  of the Common  Shares),  without  the consent of the Rights
Agent  or of the  holder  of any  other  Right  Certificate  (or,  prior  to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit,  enforce, and may institute and maintain any suit, action or proceeding
against  the Company to enforce,  or  otherwise  act in respect of, his right to
exercise the Rights  evidenced by such Right  Certificate in the manner provided
in such Right Certificate and in this Agreement.  Without limiting the foregoing
or  any  remedies  available  to  the  holders  of  Rights,  it is  specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the  obligations  under,  and  injunctive  relief  against  actual or threatened
violations of the obligations of any Person subject to, this Agreement.

                  Section 16.  Agreement  of Right  Holders.  Every  holder of a
Right,  by  accepting  the same,  consents  and agrees  with the Company and the
Rights Agent and with every other holder of a Right that:

                  (a)  prior  to the  Distribution  Date,  the  Rights  will  be
transferable only in connection with the transfer of the Common Shares;

                  (b) after the  Distribution  Date, the Right  Certificates are
transferable only on the registry books of the Rights Agent if

                                      -37-

<PAGE>

surrendered  at the  principal  office of the Rights  Agent,  duly  endorsed  or
accompanied by a proper instrument of transfer;

                  (c) the  Company  and the Rights  Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution  Date,
the associated  Common Shares  certificate)  is registered as the absolute owner
thereof and of the Rights evidenced  thereby  (notwithstanding  any notations of
ownership or writing on the Right  Certificates or the associated  Common Shares
certificate  made by anyone other than the Company or the Rights  Agent) for all
purposes  whatsoever,  and neither  the  Company  nor the Rights  Agent shall be
affected by any notice to the contrary; and

                  (d)   notwithstanding   anything  in  this  Agreement  to  the
contrary,  neither the Company nor the Rights Agent shall have any  liability to
any holder of a Right or other  Person as a result of its  inability  to perform
any of its  obligations  under this  Agreement by reason of any  preliminary  or
permanent  injunction  or other  order,  decree or  ruling  issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission,  or any statute,  rule, regulation or executive order promulgated
or enacted by any governmental  authority,  prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise  overturned
as soon as possible.

                  Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be

                                      -38-

<PAGE>

entitled to vote,  receive  dividends or be deemed for any purpose the holder of
the  Preference  Shares or any other  securities of the Company which may at any
time be issuable on the exercise of the Rights  represented  thereby,  nor shall
anything  contained  herein or in any Right  Certificate  be construed to confer
upon the  holder  of any  Right  Certificate,  as such,  any of the  rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof,  or to give or
withhold  consent to any corporate  action,  or to receive notice of meetings or
other actions affecting  stockholders (except as provided in Section 25 hereof),
or to receive dividends or subscription rights, or otherwise, until the Right or
Rights  evidenced  by such  Right  Certificate  shall  have  been  exercised  in
accordance with the provisions hereof.

                  Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable  compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent,  its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this  Agreement and the exercise and  performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent, its directors,
officers,  employees and agents, for, and to hold each of them harmless against,
any loss,  liability,  or expense,  incurred  without  negligence,  bad faith or
willful  misconduct  on the part of the Rights  Agent or such other  indemnified
party, for anything done or omitted by the Rights Agent, or such other

                                      -39-

<PAGE>
indemnified  party, in connection with the acceptance and administration of this
Agreement or the existence or performance of its duties hereunder, including the
costs and expenses of defending against any claim of liability in the premises.

                  The Rights Agent shall be fully  protected  and shall incur no
liability  for, or in respect of any action taken,  suffered or omitted by it in
connection  with,  its  administration  of this  Agreement  or the  existence or
performance of its duties  hereunder,  in reliance upon any Right Certificate or
certificate for the Preference  Shares or Common Shares or for other  securities
of the  Company,  instrument  of  assignment  or  transfer,  power of  attorney,
endorsement,   affidavit,  letter,  notice,  direction,   consent,  certificate,
statement,  or other  paper or  document  believed by it to be genuine and to be
signed, executed and, where necessary,  verified or acknowledged,  by the proper
person or  persons,  or  otherwise  upon the  advice of  counsel as set forth in
Section 20 hereof.

                  Section  19.  Merger  or  Consolidation  or  Change of Name of
Rights  Agent.  Any  corporation  into which the Rights  Agent or any  successor
Rights  Agent  may be  merged  or  with  which  it may be  consolidated,  or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the  stock  transfer  or  corporate  trust  powers  of the  Rights  Agent or any
successor  Rights  Agent,  shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper

                                      -40-

<PAGE>

or any further act on the part of any of the parties hereto; provided, that such
corporation  would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof.  In case at the time such successor  Rights
Agent shall succeed to the agency  created by this  Agreement,  any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the  countersignature of the predecessor Rights Agent and
deliver such Right  Certificates so countersigned;  and in case at that time any
of the  Right  Certificates  shall not have been  countersigned,  any  successor
Rights Agent may countersign such Right  Certificates  either in the name of the
predecessor  Rights Agent or in the name of the successor  Rights Agent;  and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.

                  In case at any  time  the name of the  Rights  Agent  shall be
changed  and at  such  time  any of  the  Right  Certificates  shall  have  been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right  Certificates  so  countersigned;  and in
case  at  that  time  any  of  the  Right   Certificates  shall  not  have  been
countersigned,  the Rights Agent may countersign such Right Certificates  either
in its prior  name or in its  changed  name;  and in all such  cases  such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.

                                      -41-

<PAGE>

                  Section  20.  Duties  of  Rights   Agent.   The  Rights  Agent
undertakes  the  duties  and  obligations  imposed  by this  Agreement  upon the
following terms and  conditions,  by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:

                  (a) The Rights Agent may consult  with legal  counsel (who may
be legal  counsel for the  Company),  and the written  advice or opinion of such
counsel shall be full and complete  authorization  and  protection to the Rights
Agent as to any action  taken or  suffered  or omitted to be taken by it in good
faith and in accordance with such written advice or opinion.

                  (b)  Whenever  in the  performance  of its  duties  under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or  established by the Company prior to taking or suffering any
action hereunder,  such fact or matter (unless other evidence in respect thereof
be herein  specifically  prescribed) may be deemed to be conclusively proved and
established by a certificate  signed by any one of the Chairman of the Board and
the Chief  Executive  Officer,  the Chief  Financial  Officer and Executive Vice
President or the Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full  authorization to the Rights Agent for any action
taken  or  suffered  or  omitted  to be taken  in good  faith  by it  under  the
provisions of this Agreement in reliance upon such certificate.

                                      -42-

<PAGE>
                  (c) The Rights Agent shall be liable  hereunder to the Company
and any other  Person  only for its own gross  negligence,  bad faith or willful
misconduct.

                  (d) The Rights  Agent  shall not be liable for or by reason of
any of the statements of fact or recitals  contained in this Agreement or in the
Right  Certificates  (except  its  countersignature  thereof)  or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.

                  (e) The Rights Agent shall not be under any  responsibility in
respect of the validity of any provision of this  Agreement or the execution and
delivery  hereof  (except the due  execution  hereof by the Rights  Agent) or in
respect of the  validity  or  execution  of any Right  Certificate  (except  its
countersignature  thereof);  nor shall it be  responsible  for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights  (including  the Rights  becoming void pursuant to Section  11(a)(ii)
hereof) or any  adjustment  in the terms of the Rights  (including  the  manner,
method or amount thereof)  provided for in this Agreement or the ascertaining of
the existence of facts that would require any such change or adjustment  (except
with respect to the exercise of Rights  evidenced  by Right  Certificates  after
actual notice that such change or  adjustment is required);  nor shall it by any
act  hereunder  be  deemed  to make any  representation  or  warranty  as to the
authorization or reservation

                                      -43-

<PAGE>

of any  Preference  Shares to be issued  pursuant to this Agreement or any Right
Certificate or as to whether any Preference Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.

                  (f)  The  Company  agrees  that  it  will  perform,   execute,
acknowledge  and deliver or cause to be performed,  executed,  acknowledged  and
delivered  all such further and other acts,  instruments  and  assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.

                  (g) The Rights  Agent is hereby  authorized  and  directed  to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board,  the Chief Executive  Officer,  President,
the Chief Financial Officer,  any Executive Vice President,  any Vice President,
or the  Secretary  of the Company,  and to apply to such  officers for advice or
instructions in connection  with its duties,  and it shall not be liable for any
action  taken  or  suffered  or  omitted  to be  taken  by it in good  faith  in
accordance  with  instructions  of any such  officer  or for any delay in acting
while waiting for those  instructions.  Any  application by the Rights Agent for
written  instructions  from the Company may, at the option of the Rights  Agent,
set forth in writing  any action  proposed  to be taken or omitted by the Rights
Agent under this  Agreement  and the date on or after which such action shall be
taken or such omission shall be effective.  The Rights Agent shall not be liable
for any action taken by, or

                                      -44-

<PAGE>

omission of, the Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date shall
not be less than five  Business  Days after the date any  officer of the Company
actually receives such application, unless any such officer shall have consented
in writing to an earlier date)  unless,  prior to taking any such action (or the
effective date in the case of an omission), the Rights Agent shall have received
written instructions in response to such application specifying the action to be
taken or omitted.

                  (h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the  Company  may be  interested,  or  contract  with or lend money to the
Company or otherwise  act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.

                  (i) The  Rights  Agent may  execute  and  exercise  any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through  its  attorneys  or agents,  and the Rights  Agent shall not be
answerable or  accountable  for any act,  default,  neglect or misconduct of any
such attorneys or agents or for any loss to the Company  resulting from any such
act, default,  neglect or misconduct,  provided reasonable care was exercised in
the selection and continued employment thereof.

                                      -45-

<PAGE>

                  (j) The Rights Agent  undertakes  only the express  duties and
obligations imposed on it by this Agreement and no implied duties or obligations
shall be read into this Agreement against the Rights Agent.

                  (k)    Anything   in   this    Agreement   to   the   contrary
notwithstanding,  in no event  shall the  Rights  Agent be liable  for  special,
indirect or consequential  loss or damage of any kind whatsoever  (including but
not limited to lost profits).

                  (l) No provision of this  Agreement  shall  require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the  performance  of any of its duties  hereunder  or in the  exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds  or  adequate  indemnification  against  such  risk  or  liability  is not
reasonably assured to it.

                  Section 21.  Change of Rights  Agent.  The Rights Agent or any
successor  Rights Agent may resign and be discharged  from its duties under this
Agreement  upon 30 days'  notice in writing  mailed to the  Company  and to each
transfer  agent of the  Common  Shares or  Preference  Shares by  registered  or
certified  mail,  and to the holders of the Right  Certificates  by  first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days'  notice in  writing,  mailed to the Rights  Agent or  successor  Rights
Agent,  as the case may be, and to each  transfer  agent of the Common Shares or
Preference  Shares by  registered or certified  mail,  and to the holders of the
Right Certificates by first-class mail.

                                      -46-

<PAGE>

If the  Rights  Agent  shall  resign or be  removed  or shall  otherwise  become
incapable of acting,  the Company shall appoint a successor to the Rights Agent.
If the Company  shall fail to make such  appointment  within a period of 30 days
after giving  notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right  Certificate (who shall,  with such notice,  submit his
Right Certificate for inspection by the Company),  then the registered holder of
any Right  Certificate may apply to any court of competent  jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court,  shall be a legal business  entity  organized
and doing  business  under the laws of the United  States or of the State of New
York (or of any  other  state of the  United  States  so long as such  entity is
authorized to do business in the State of New York, in good standing,  having an
office in the State of New York, which is authorized under such laws to exercise
corporate  trust or stock  transfer  powers  and is subject  to  supervision  or
examination  by  federal  or state  authority)  and which has at the time of its
appointment  as Rights  Agent a  combined  capital  and  surplus of at least $25
million. After appointment,  the successor Rights Agent shall be vested with the
same powers,  rights,  duties and  responsibilities as if it had been originally
named as Rights Agent without  further act or deed; but the  predecessor  Rights
Agent shall deliver and transfer to the  successor  Rights Agent any property at
the time held by it

                                      -47-

<PAGE>

hereunder,  and execute and deliver any further  assurance,  conveyance,  act or
deed  necessary for the purpose.  Not later than the effective  date of any such
appointment   the  Company  shall  file  notice  thereof  in  writing  with  the
predecessor  Rights  Agent  and each  transfer  agent of the  Common  Shares  or
Preference  Shares,  and mail a notice  thereof  in  writing  to the  registered
holders of the Right  Certificates.  Failure to give any notice  provided for in
this Section 21, however,  or any defect therein,  shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.

                  Section   22.    Issuance    of   New   Right    Certificates.
Notwithstanding  any of the provisions of this Agreement or of the Rights to the
contrary,  the  Company  may,  at  its  option,  issue  new  Right  Certificates
evidencing  Rights in such form as may be approved by its Board of  Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other  securities  or  property  purchasable  under the Right
Certificates made in accordance with the provisions of this Agreement.

                  Section  23.  Redemption.  (a) The Board of  Directors  of the
Company may, at its option, at any time prior to such time as any Person becomes
an  Acquiring  Person,  redeem  all but not less  than all the then  outstanding
Rights  at a  redemption  price of $.01 per  Right,  appropriately  adjusted  to
reflect any stock split, stock dividend or similar  transaction  occurring after
the date hereof

                                      -48-

<PAGE>

(such redemption price being hereinafter referred to as the "Redemption Price").
The  redemption of the Rights by the Board of Directors may be made effective at
such time,  on such basis and with such  conditions as the Board of Directors in
its sole discretion may establish.

                  (b)  Immediately  upon the action of the Board of Directors of
the Company  ordering the redemption of the Rights  pursuant to paragraph (a) of
this  Section 23, and without  any  further  action and without any notice,  the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the  Redemption  Price.  The Company shall
promptly give public notice of any such redemption;  provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such  redemption.  Within 10 days after such action of the Board of Directors
ordering  the  redemption  of the  Rights,  the  Company  shall mail a notice of
redemption  to all the  holders  of the then  outstanding  Rights at their  last
addresses as they appear upon the  registry  books of the Rights Agent or, prior
to the  Distribution  Date, on the registry  books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption  will state the method by which the payment of the  Redemption  Price
will be made.  Neither the Company nor any of its  Affiliates or Associates  may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that

                                      -49-

<PAGE>

specifically  set forth in this  Section 23 or in  Section 24 hereof,  and other
than in connection with the purchase of Common Shares prior to the  Distribution
Date.

                  Section  24.  Exchange.  (a) The  Board  of  Directors  of the
Company  may, at its option,  at any time after any Person  becomes an Acquiring
Person,  exchange all or part of the then  outstanding  and  exercisable  Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section  11(a)(ii)  hereof)  for Common  Shares at an  exchange  ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar  transaction  occurring after the date hereof (such exchange
ratio being hereinafter  referred to as the "Exchange  Ratio").  Notwithstanding
the  foregoing,  the Board of  Directors  shall not be  empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together  with  all  Affiliates  and  Associates  of such  Person,  becomes  the
Beneficial Owner of 50% or more of the Common Shares then outstanding.

                  (b)  Immediately  upon the action of the Board of Directors of
the Company  ordering  the exchange of any Rights  pursuant to paragraph  (a) of
this Section 24 and without any further action and without any notice, the right
to exercise  such Rights  shall  terminate  and the only right  thereafter  of a
holder of such Rights shall be to receive that number of Common Shares equal

                                      -50-

<PAGE>

to the number of such  Rights  held by such holder  multiplied  by the  Exchange
Ratio.  The Company  shall  promptly  give public  notice of any such  exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the  validity of such  exchange.  The Company  promptly  shall mail a
notice of any such  exchange  to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given,  whether or
not the holder receives the notice.  Each such notice of exchange will state the
method by which the  exchange  of the Common  Shares for Rights will be effected
and, in the event of any partial  exchange,  the number of Rights  which will be
exchanged.  Any partial  exchange shall be effected pro rata based on the number
of Rights (other than Rights which have become void  pursuant to the  provisions
of Section 11(a)(ii) hereof) held by each holder of Rights.

                  (c) In the event that  there  shall not be  sufficient  Common
Shares  issued but not  outstanding  or  authorized  but  unissued to permit any
exchange  of Rights as  contemplated  in  accordance  with this  Section 24, the
Company  shall take all such action as may be necessary to authorize  additional
Common Shares for issuance upon exchange of the Rights. In the event the Company
shall,  after good  faith  effort,  be unable to take all such  action as may be
necessary  to  authorize  such  additional  Common  Shares,  the  Company  shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preference Shares or fraction

                                      -51-

<PAGE>

thereof  such that the current per share market  price of one  Preference  Share
multiplied  by such number or fraction is equal to the current per share  market
price of one Common Share as of the date of issuance of such  Preference  Shares
or fraction thereof.

                  (d) The Company  shall not be required to issue  fractions  of
Common Shares or to distribute  certificates  which evidence  fractional  Common
Shares. In lieu of such fractional  Common Shares,  the Company shall pay to the
registered  holders  of  the  Right  Certificates  with  regard  to  which  such
fractional  Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current  market value of a whole Common Share.  For the
purposes of this paragraph (d), the current market value of a whole Common Share
shall be the  closing  price of a Common  Share (as  determined  pursuant to the
second  sentence of Section  11(d)(i)  hereof)  for the Trading Day  immediately
prior to the date of exchange pursuant to this Section 24.

                  Section 25. Notice of Certain Events.  (a) In case the Company
shall  propose  (i) to pay any  dividend  payable  in stock of any  class to the
holders  of its  Preference  Shares  or to make any  other  distribution  to the
holders of its Preference Shares (other than a regular quarterly cash dividend),
(ii) to offer to the  holders of its  Preference  Shares  rights or  warrants to
subscribe for or to purchase any additional Preference Shares or shares of stock
of any class or any other  securities,  rights or  options,  (iii) to effect any
reclassification  of  its  Preference  Shares  (other  than  a  reclassification
involving only the subdivision of

                                      -52-

<PAGE>

outstanding  Preference Shares), (iv) to effect any consolidation or merger into
or with,  or to effect any sale or other  transfer  (or to permit one or more of
its  Subsidiaries  to  effect  any  sale  or  other  transfer),  in one or  more
transactions,  of 50% or more of the assets or earning  power of the Company and
its  Subsidiaries  (taken as a whole)  to, any other  Person,  (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any  dividend  on the  Common  Shares  payable  in Common  Shares or to effect a
subdivision,   combination   or   consolidation   of  the   Common   Shares  (by
reclassification  or otherwise  than by payment of dividends in Common  Shares),
then,  in each such  case,  the  Company  shall  give to each  holder of a Right
Certificate,  in  accordance  with Section 26 hereof,  a notice of such proposed
action,  which  shall  specify  the record  date for the  purposes of such stock
dividend,  or  distribution  of rights or  warrants,  or the date on which  such
reclassification,    consolidation,   merger,   sale,   transfer,   liquidation,
dissolution,  or  winding  up is to take  place  and the  date of  participation
therein by the holders of the Common Shares  and/or  Preference  Shares,  if any
such date is to be fixed,  and such notice  shall be so given in the case of any
action  covered by clause (i) or (ii) above at least 10 days prior to the record
date for  determining  holders of the  Preference  Shares for  purposes  of such
action,  and in the case of any such other action, at least 10 days prior to the
date of the taking of such proposed action or the date of participation  therein
by the holders of the Common Shares and/or Preference Shares, whichever shall be
the earlier.

                                      -53-

<PAGE>

                  (b) In case the event set forth in  Section  11(a)(ii)  hereof
shall occur,  then the Company shall as soon as practicable  thereafter  give to
each holder of a Right  Certificate,  in  accordance  with Section 26 hereof,  a
notice of the  occurrence of such event,  which notice shall describe such event
and the consequences of such event to holders of Rights under Section  11(a)(ii)
hereof.

                  Section 26.  Notices.  Notices or demands  authorized  by this
Agreement  to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently  given or made if sent by
first-class mail, postage prepaid,  addressed (until another address is filed in
writing with the Rights Agent) as follows:

                  Lone Star Steakhouse & Saloon, Inc.
                  224 East Douglas, Suite 700
                  Wichita, Kansas 67202
                  Attention: Gerald T. Aaron, Esq.

                  Subject to the provisions of Section 21 hereof,  any notice or
demand authorized by this Agreement to be given or made by the Company or by the
holder of any Right  Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class  mail,  postage  prepaid,  addressed (until
another address is filed in writing with the Company) as follows:

                  First Union National Bank
                  Two First Union Center
                  Charlotte, North Carolina 28288
                  Attention: Shareholder Services


                  Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of

                                      -54-

<PAGE>

any Right Certificate shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed to such holder at the address of such holder as
shown on the registry books of the Company.

                  Section 27.  Supplements and Amendments.  The Company may from
time to time  supplement  or amend this  Agreement  without the  approval of any
holders  of Right  Certificates  in order to cure any  ambiguity,  to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions  herein,  or to make any other provisions with respect
to the Rights which the Company may deem  necessary or desirable,  provided that
no supplement or amendment that changes the rights or duties of the Rights Agent
shall be effective  without the consent of the Company and the Rights Agent and,
provided,  however,  that from and  after  such time as any  Person  becomes  an
Acquiring Person,  this Agreement shall not be amended in any manner which would
adversely  affect the interests of the holders of Rights.  Without  limiting the
foregoing,  the Company may at any time prior to such time as any Person becomes
an Acquiring  Person amend this  Agreement to lower the  thresholds set forth in
Sections  1(a) and 3(a) to not less than the greater of (i) the sum of .001% and
the  largest  percentage  of the  outstanding  Common  Shares  then known by the
Company to be  beneficially  owned by any Person  (other than the  Company,  any
Subsidiary  of the  Company,  any  employee  benefit  plan of the Company or any
Subsidiary of the Company, or any entity

                                      -55-

<PAGE>

holding  Common  Shares for or  pursuant to the terms of any such plan) and (ii)
10%.

                  Section 28.  Successors.  All the covenants and  provisions of
this  Agreement  by or for the benefit of the Company or the Rights  Agent shall
bind and  inure  to the  benefit  of their  respective  successors  and  assigns
hereunder.

                  Section  29.  Benefits  of  this  Agreement.  Nothing  in this
Agreement shall be construed to give to any person or corporation other than the
Company,  the Rights Agent and the registered  holders of the Right Certificates
(and, prior to the Distribution  Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive  benefit of the Company,  the Rights Agent and the registered
holders of the Right  Certificates  (and,  prior to the  Distribution  Date, the
Common Shares).

                  Section 30. Severability.  If any term, provision, covenant or
restriction  of this Agreement is held by a court of competent  jurisdiction  or
other  authority  to be invalid,  void or  unenforceable,  the  remainder of the
terms, provisions,  covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.

                  Section  31.  Governing  Law.  This  Agreement  and each Right
Certificate  issued  hereunder  shall be deemed to be a contract  made under the
laws of the  State of New York and for all  purposes  shall be  governed  by and
construed in accordance with the laws of

                                      -56-

<PAGE>

such State applicable to contracts to be made and performed entirely within such
State.

                  Section 32.  Counterparts.  This  Agreement may be executed in
any number of counterparts and each of such counterparts  shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

                  Section 33. Descriptive Headings.  Descriptive headings of the
several  Sections of this Agreement are inserted for convenience  only and shall
not  control or affect  the  meaning or  construction  of any of the  provisions
hereof.


                                      -57-

<PAGE>

                  IN WITNESS  WHEREOF,  the  parties  hereto  have  caused  this
Agreement  to be duly  executed and  attested,  all as of the day and year first
above written.


                                     LONE STAR STEAKHOUSE & SALOON, INC.



                                     By /s/
                                        ------------------------------
                                              Name:
                                              Title: President


                                     FIRST UNION NATIONAL BANK


                                     By /s/
                                        ------------------------------
                                              Name:
                                              Title:


                                      -58-

<PAGE>
                                                                       Exhibit A

                         CERTIFICATE OF DESIGNATIONS OF
                   SERIES A PARTICIPATING PREFERENCE STOCK OF
                       LONE STAR STEAKHOUSE & SALOON, INC.

                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)


         Lone Star  Steakhouse  & Saloon,  Inc.,  a  corporation  organized  and
existing  under  the  Business   Corporation   Law  of  the  State  of  Delaware
(hereinafter  called the  "Corporation"),  hereby  certifies  that the following
resolution was adopted by the Board of Directors of the  Corporation as required
by Section 151 of the Business Corporation Law at a meeting duly called and held
on September 17, 1997:

         WHEREAS,  the Board of  Directors  of the  Corporation  (the  "Board of
Directors"  or the  "Board") is  authorized  to provide for the  issuance of the
shares of preferred stock in series, and by filing a certificate pursuant to the
applicable  law of the State of  Delaware,  to  establish  from time to time the
number  of  shares  to  be  included  in  each  such  series,  and  to  fix  the
designations,  powers,  preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof;

         WHEREAS,  the Board of Directors desires,  pursuant to its authority as
aforesaid,  to  designate  a new series of  preferred  stock,  set the number of
shares constituting such series and fix the rights, preferences,  privileges and
restrictions of such series.

         NOW,  THEREFORE,  BE IT RESOLVED,  that the Board of  Directors  hereby
creates a series of preferred  stock,  par value $.01 per share (the "Preference
Stock"),  of the  Corporation  and hereby states the  designation  and number of
shares, and fixes the relative rights, preferences,  and limitations thereof, in
addition to the provisions set forth in the Certificate of  Incorporation of the
Corporation which are applicable to Preference Stock of all series, as follows:

                  Series A Participating Preference Stock:

                  Section 1.  Designation,  Amount and Par Value.  The series of
Preference  Stock  shall be  designated  as "Series A  Participating  Preference
Stock" (the "Series A Preference Stock"), and the number of shares so designated
shall be  1,000,000.  The par value of each share of  Preferred  Stock  shall be
$.01.  Such number of shares may be increased or decreased by  resolution of the
Board of Directors; provided, that no decrease shall reduce the number of shares
of Series A Preference Stock to a number less than the


                                      -59-
<PAGE>
number of shares  then  outstanding  plus the  number  of  shares  reserved  for
issuance upon the exercise of  outstanding  options,  rights or warrants or upon
the  conversion  of  any  outstanding   securities  issued  by  the  Corporation
convertible into Series A Preference Stock.

                  Section 2.  Dividends and Distributions.

                  (A)  Subject to the rights of the holders of any shares of any
         series of  Preference  Stock (or any similar  stock)  ranking prior and
         superior to the Series A Preference  Stock with  respect to  dividends,
         the holders of shares of Series A Preference  Stock,  in  preference to
         the  holders of Common  Stock,  par value  $.01 per share (the  "Common
         Stock"),  of the Corporation,  and of any other junior stock,  shall be
         entitled to receive, when, as and if declared by the Board of Directors
         out of funds  legally  available for the purpose,  quarterly  dividends
         payable in cash on the first day of March, June, September and December
         in each year (each such date being  referred to herein as a  "Quarterly
         Dividend  Payment Date"),  commencing on the first  Quarterly  Dividend
         Payment Date after the first issuance of a share or fraction of a share
         of Series A Preference  Stock,  in an amount per share  (rounded to the
         nearest  cent)  equal to the greater of (a) $1.00 or (b) subject to the
         provision for adjustment hereinafter set forth, 100 times the aggregate
         per share amount of all cash dividends, and 100 times the aggregate per
         share  amount  (payable  in kind) of all  non-cash  dividends  or other
         distributions,  other than a dividend payable in shares of Common Stock
         or a  subdivision  of  the  outstanding  shares  of  Common  Stock  (by
         reclassification or otherwise),  declared on the Common Stock since the
         immediately  preceding Quarterly Dividend Payment Date or, with respect
         to the first Quarterly  Dividend Payment Date, since the first issuance
         of any share or fraction of a share of Series A  Preference  Stock.  In
         the event the Corporation shall at any time declare or pay any dividend
         on the  Common  Stock  payable in shares of Common  Stock,  or effect a
         subdivision or combination or consolidation  of the outstanding  shares
         of Common Stock (by  reclassification or otherwise than by payment of a
         dividend in shares of Common  Stock) into a greater or lesser number of
         shares of  Common  Stock,  then in each  such case the  amount to which
         holders  of  shares  of  Series  A  Preference   Stock  were   entitled
         immediately  prior to such  event  under  clause  (b) of the  preceding
         sentence  shall be adjusted by  multiplying  such amount by a fraction,
         the  numerator  of  which is the  number  of  shares  of  Common  Stock
         outstanding  immediately  after such event and the denominator of which
         is  the  number  of  shares  of  Common  Stock  that  were  outstanding
         immediately prior to such event.

                  (B) The  Corporation  shall declare a dividend or distribution
         on the Series A Preference Stock as provided in

                                      -60-
<PAGE>
         paragraph (A) of this Section  immediately after it declares a dividend
         or distribution  on the Common Stock (other than a dividend  payable in
         shares of Common  Stock);  provided  that,  in the event no dividend or
         distribution  shall have been  declared on the Common  Stock during the
         period  between  any  Quarterly  Dividend  Payment  Date  and the  next
         subsequent  Quarterly  Dividend  Payment  Date, a dividend of $1.00 per
         share on the Series A Preference Stock shall nevertheless be payable on
         such subsequent Quarterly Dividend Payment Date.

                  (C)  Dividends  shall  begin to accrue  and be  cumulative  on
         outstanding  shares of Series A  Preference  Stock  from the  Quarterly
         Dividend  Payment Date next preceding the date of issue of such shares,
         unless the date of issue of such shares is prior to the record date for
         the first Quarterly  Dividend  Payment Date, in which case dividends on
         such  shares  shall  begin  to  accrue  from  the date of issue of such
         shares,  or unless the date of issue is a  Quarterly  Dividend  Payment
         Date or is a date  after  the  record  date  for the  determination  of
         holders of shares of Series A  Preference  Stock  entitled to receive a
         quarterly  dividend and before such Quarterly Dividend Payment Date, in
         either of which  events  such  dividends  shall  begin to accrue and be
         cumulative  from such  Quarterly  Dividend  Payment  Date.  Accrued but
         unpaid dividends shall not bear interest.  Dividends paid on the shares
         of Series A Preference Stock in an amount less than the total amount of
         such  dividends at the time accrued and payable on such shares shall be
         allocated pro rata on a  share-by-share  basis among all such shares at
         the time outstanding.  The Board of Directors may fix a record date for
         the  determination  of holders of shares of Series A  Preference  Stock
         entitled  to receive  payment of a dividend  or  distribution  declared
         thereon,  which record date shall be not more than 60 days prior to the
         date fixed for the payment thereof.

                  Section 3.  Voting Rights.  The holders of shares of
Series A Preference Stock shall have the following voting rights:


             (A) Subject to the provision for adjustment  hereinafter set forth,
         each  share of Series A  Preference  Stock  shall  entitle  the  holder
         thereof  to  100  votes  on all  matters  submitted  to a  vote  of the
         stockholders of the Corporation.  In the event the Corporation shall at
         any time  declare or pay any  dividend on the Common  Stock  payable in
         shares of Common  Stock,  or effect a  subdivision  or  combination  or
         consolidation   of  the   outstanding   shares  of  Common   Stock  (by
         reclassification  or otherwise  than by payment of a dividend in shares
         of Common  Stock)  into a greater or lesser  number of shares of Common
         Stock,  then in each such  case the  number of votes per share to which
         holders  of  shares  of  Series  A  Preference   Stock  were   entitled
         immediately prior to such event shall be adjusted by

                                      -61-
<PAGE>
         multiplying  such number by a fraction,  the  numerator of which is the
         number of shares of Common  Stock  outstanding  immediately  after such
         event and the  denominator  of which is the  number of shares of Common
         Stock that were outstanding immediately prior to such event.

                  (B)  Except  as  otherwise   provided  herein,  in  any  other
         Certificate of  Designations  creating a series of Preference  Stock or
         any  similar  stock,  or by law,  the  holders  of  shares  of Series A
         Preference  Stock and the  holders  of  shares of Common  Stock and any
         other capital stock of the  Corporation  having  general  voting rights
         shall vote together as one class on all matters  submitted to a vote of
         stockholders of the Corporation.

                  (C) Except as set forth in the Certificate of Incorporation or
         herein, or as otherwise provided by law, holders of Series A Preference
         Stock shall have no special  voting  rights and their consent shall not
         be  required  (except  to the  extent  they are  entitled  to vote with
         holders of Common Stock as set forth  herein) for taking any  corporate
         action.

                  Section  4.  Reacquired   Shares.   Any  shares  of  Series  A
Preference  Stock  purchased or  otherwise  acquired by the  Corporation  in any
manner whatsoever shall be retired and cancelled  promptly after the acquisition
thereof.  All such shares shall upon their  cancellation  become  authorized but
unissued shares of Preference  Stock and may be reissued as part of a new series
of Preference  Stock subject to the conditions and  restrictions on issuance set
forth herein, in the Certificate of  Incorporation,  or in any other Certificate
of Designations creating a series of Preference Stock or any similar stock or as
otherwise required by law.

                  Section 5.  Liquidation,  Dissolution  or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the  holders  of shares of stock  ranking  junior  (either  as to
dividends  or upon  liquidation,  dissolution  or  winding  up) to the  Series A
Preference  Stock  unless,  prior  thereto,  the  holders  of shares of Series A
Preference  Stock shall have  received  $100 per share,  plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such  payment,  provided  that the  holders of shares of Series A
Preference  Stock shall be entitled  to receive an  aggregate  amount per share,
subject to the  provision for  adjustment  hereinafter  set forth,  equal to 100
times the aggregate  amount to be distributed  per share to holders of shares of
Common  Stock,  or (2) to the  holders  of shares of stock  ranking  on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preference  Stock,  except  distributions  made ratably on the Series A
Preference Stock and all such parity stock in proportion to the total amounts to
which the  holders  of all such  shares  are  entitled  upon  such  liquidation,
dissolution or winding

                                      -62-

<PAGE>
up. In the event the  Corporation  shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common  Stock,  or effect a subdivision
or combination or  consolidation  of the outstanding  shares of Common Stock (by
reclassification  or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common  Stock,  then in each
such case the aggregate amount to which holders of shares of Series A Preference
Stock were entitled  immediately prior to such event under the proviso in clause
(1) of the preceding  sentence shall be adjusted by multiplying such amount by a
fraction  the  numerator  of which is the  number  of  shares  of  Common  Stock
outstanding  immediately  after such event and the  denominator  of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

                  Section 6. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation,  merger, combination or other transaction in
which the shares of Common Stock are  exchanged  for or changed into other stock
or securities,  cash and/or any other property, then in any such case each share
of Series A Preference  Stock shall at the same time be  similarly  exchanged or
changed  into an amount  per  share,  subject to the  provision  for  adjustment
hereinafter  set  forth,  equal to 100  times  the  aggregate  amount  of stock,
securities,  cash and/or any other property  (payable in kind),  as the case may
be, into which or for which each share of Common Stock is changed or  exchanged.
In the event the  Corporation  shall at any time  declare or pay any dividend on
the Common Stock payable in shares of Common Stock,  or effect a subdivision  or
combination  or  consolidation  of the  outstanding  shares of Common  Stock (by
reclassification  or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common  Stock,  then in each
such case the amount set forth in the  preceding  sentence  with  respect to the
exchange or change of shares of Series A  Preference  Stock shall be adjusted by
multiplying  such amount by a fraction,  the numerator of which is the number of
shares  of  Common  Stock  outstanding  immediately  after  such  event  and the
denominator  of  which is the  number  of  shares  of  Common  Stock  that  were
outstanding immediately prior to such event.

                  Section 7. No  Redemption.  The shares of Series A  Preference
Stock shall not be redeemable.

                  Section 8. Rank.  The Series A  Preference  Stock  shall be of
equal rank in respect of the preference as to dividends and to payments upon the
liquidation, dissolution or winding up, whether voluntary or involuntary, of the
Corporation, with all shares of Preference Stock of all series.

                  Section 9.  Amendment.  The Certificate of Incorporation
of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special

                                      -63-
<PAGE>
rights of the Series A Preference  Stock so as to affect them adversely  without
the  affirmative  vote of the holders of at least  two-thirds of the outstanding
shares of Series A Preference Stock, voting together as a single class.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGE FOLLOWS]

                                      -64-

<PAGE>
                  IN  WITNESS  WHEREOF,  this  Certificate  of  Designations  is
executed  on behalf of the  Corporation  by its  Chairman of the Board and Chief
Executive Officer and attested by its Secretary this __ day of October, 1997.

                                     LONE STAR STEAKHOUSE & SALOON,
                                     INC.


                                     By:___________________________
                                        Jamie B. Coulter, Chairman
                                        of the Board and Chief
                                        Executive Officer


Attest:


By:___________________________
     Gerald T. Aaron, Secretary

                                      -65-
<PAGE>
                                                                       Exhibit B


                          SUMMARY OF RIGHTS TO PURCHASE
                                PREFERENCE SHARES

                  In  September  1997,  the  Board  of  Directors  of Lone  Star
Steakhouse & Saloon,  Inc. (the "Company")  declared a dividend  distribution of
one preference  share purchase right (a "Right") for each  outstanding  share of
common stock, par value $.001 per share (the "Common  Shares"),  of the Company.
The dividend  distribution is payable on October 10, 1997 (the "Record Date") to
the  stockholders  of record on that date.  Each Right  entitles the  registered
holder to purchase  from the Company  one  one-hundredth  of a share of Series A
Participating Preference Stock, par value $.001 share (the "Preference Shares"),
of the Company at a price of $80.00 per one  one-hundredth of a Preference Share
(the "Purchase Price"), subject to adjustment.  The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights  Agreement") between the
Company and First Union National Bank, as Rights Agent (the "Rights Agent").

                  Until the  earlier to occur of (i) 10 days  following a public
announcement  that a person or group of  affiliated  or  associated  persons (an
"Acquiring  Person")  have acquired  beneficial  ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors  prior to such time as any person
or group of  affiliated  persons  becomes an  Acquiring  Person)  following  the
commencement  of, or  announcement  of an  intention  to make, a tender offer or
exchange  offer  the  consummation  of  which  would  result  in the  beneficial
ownership by a person or group of 15% or more of the  outstanding  Common Shares
(the earlier of such dates being  called the  "Distribution  Date"),  the Rights
will  be  evidenced,  with  respect  to  any of the  Common  Share  certificates
outstanding as of the Record Date, by such Common Share  certificate with a copy
of this Summary of Rights attached thereto.

                  The Rights  Agreement  provides that,  until the  Distribution
Date (or earlier  redemption or  expiration  of the Rights),  the Rights will be
transferred with and only with the Common Shares.  Until the  Distribution  Date
(or  earlier  redemption  or  expiration  of  the  Rights),   new  Common  Share
certificates  issued  after the Record  Date upon  transfer  or new  issuance of
Common  Shares will  contain a notation  incorporating  the Rights  Agreement by
reference.  Until the Distribution Date (or earlier  redemption or expiration of
the Rights),  the surrender for transfer of any  certificates  for Common Shares
outstanding as of the Record Date,  even without such notation or a copy of this
Summary of Rights being attached  thereto,  will also constitute the transfer of
the Rights associated with the Common Shares represented by such

<PAGE>
certificate.  As soon as practicable  following the Distribution Date,  separate
certificates  evidencing  the Rights  ("Right  Certificates")  will be mailed to
holders  of record of the  Common  Shares  as of the  close of  business  on the
Distribution Date and such separate Right  Certificates  alone will evidence the
Rights.

                  The Rights are not exercisable  until the  Distribution  Date.
The Rights will expire on October 10, 2007 (the "Final Expiration Date"), unless
the Final  Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company, in each case, as described below.

                  The  Purchase  Price  payable,  and the  number of  Preference
Shares or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent  dilution (i) in the event of
a stock dividend on, or a subdivision,  combination or reclassification  of, the
Preference  Shares,  (ii) upon the grant to holders of the Preference  Shares of
certain rights or warrants to subscribe for or purchase  Preference  Shares at a
price, or securities convertible into Preference Shares with a conversion price,
less than the then-current  market price of the Preference  Shares or (iii) upon
the   distribution  to  holders  of  the  Preference   Shares  of  evidences  of
indebtedness or assets  (excluding  regular  periodic cash dividends paid out of
earnings or retained earnings or dividends  payable in Preference  Shares) or of
subscription rights or warrants (other than those referred to above).

                  The  number  of  outstanding  Rights  and  the  number  of one
one-hundredths  of a Preference  Share  issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares or
a stock dividend on the Common Shares payable in Common Shares or  subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.

                  Preference Shares purchasable upon exercise of the Rights will
not  be  redeemable.  Each  Preference  Share  will  be  entitled  to a  minimum
preferential  quarterly dividend payment of $1.00 per share but will be entitled
to an aggregate dividend of 100 times the dividend declared per Common Share. In
the event of liquidation,  the holders of the Preference Shares will be entitled
to a  minimum  preferential  liquidation  payment  of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Common Share.
Each  Preference  Share will have 100  votes,  voting  together  with the Common
Shares. Finally, in the event of any merger,  consolidation or other transaction
in which Common Shares are exchanged,  each Preference Share will be entitled to
receive  100 times the  amount  received  per  Common  Share.  These  rights are
protected by customary antidilution provisions.


                                       B-2
<PAGE>
                  Because  of the  nature of the  Preference  Shares'  dividend,
liquidation and voting rights, the value of the one one-hundredth  interest in a
Preference Share purchasable upon exercise of each Right should  approximate the
value of one Common Share.

                  In the event that the Company is acquired in a merger or other
business  combination  transaction or 50% or more of its consolidated  assets or
earning  power are sold after a person or group has become an Acquiring  Person,
proper  provision  will be made so that each  holder of a Right will  thereafter
have the  right  to  receive,  upon the  exercise  thereof  at the then  current
exercise  price of the  Right,  that  number of  shares  of common  stock of the
acquiring company which at the time of such transaction will have a market value
of two times the  exercise  price of the Right.  In the event that any person or
group of affiliated or associated  persons becomes an Acquiring  Person,  proper
provision  shall be made so that  each  holder  of a Right,  other  than  Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter  have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.

                  At any time  after any person or group  becomes  an  Acquiring
Person and prior to the  acquisition  by such  person or group of 50% or more of
the  outstanding  Common  Shares,  the Board of  Directors  of the  Company  may
exchange the Rights  (other than Rights owned by such person or group which will
have  become  void),  in whole or in part,  at an  exchange  ratio of one Common
Share, or one  one-hundredth  of a Preference Share (or of a share of a class or
series of the Company's  preference stock having equivalent rights,  preferences
and privileges), per Right (subject to adjustment).

                  With certain  exceptions,  no adjustment in the Purchase Price
will be required until cumulative  adjustments require an adjustment of at least
1% in such Purchase Price. No fractional Preference Shares will be issued (other
than fractions which are integral multiples of one one-hundredth of a Preference
Share,  which may, at the  election of the Company,  be evidenced by  depositary
receipts) and in lieu  thereof,  an adjustment in cash will be made based on the
market price of the Preference  Shares on the last trading day prior to the date
of exercise.

                  At any time prior to the  acquisition  by a person or group of
affiliated or associated  persons of beneficial  ownership of 15% or more of the
outstanding  Common Shares, the Board of Directors of the Company may redeem the
Rights in whole,  but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time on such
basis with such  conditions as the Board of Directors in its sole discretion may
establish.  Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.

                                       B-3

<PAGE>
                  The  terms  of the  Rights  may be  amended  by the  Board  of
Directors  of the  Company  without  the  consent of the  holders of the Rights,
including an amendment to lower certain  thresholds  described above to not less
than the  greater  of (i) the sum of .001%  and the  largest  percentage  of the
outstanding  Common Shares then known to the Company to be beneficially owned by
any person or group of  affiliated or  associated  persons and (ii) 10%,  except
that from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring  Person no such amendment may adversely  affect the
interests of the holders of the Rights.

                  Until a Right is exercised,  the holder thereof, as such, will
have no rights as a stockholder of the Company,  including,  without limitation,
the right to vote or to receive dividends.

                  A copy  of the  Rights  Agreement  has  been  filed  with  the
Securities and Exchange Commission as an Exhibit to a Registration  Statement on
Form 8-A dated October 9, 1997. A copy of the Rights Agreement is available free
of charge from the  Company.  This  summary  description  of the Rights does not
purport to be complete  and is  qualified  in its  entirety by  reference to the
Rights Agreement, which is hereby incorporated herein by reference.



                                       B-4


Form of Letter to Stockholders

                 LONE STAR STEAKHOUSE & SALOON, INC. LETTERHEAD

                                                                October 10, 1997


To Our Stockholders:

          The  Company  has  recently   declared  a  dividend   distribution  of
Preference Share Purchase Rights (the "Rights"),  thereby creating a Stockholder
Rights Plan (the "Plan").  This letter describes the Plan and the reasons of the
Company's Board of Directors (the "Board") for adopting it.

           The Rights contain provisions to protect stockholders in the event of
an unsolicited attempt to acquire the Company,  including a gradual accumulation
of shares in the open market,  a partial or two-tier  tender offer that does not
treat all stockholders  equally, a squeeze-out merger and other abusive takeover
tactics which the Board believes are not in the best interests of  stockholders.
These  tactics  unfairly  pressure  stockholders,  squeeze  them  out  of  their
investment  without  giving them any real  choice and  deprive  them of the full
value of their shares.

           Over 1,700 companies,  including  approximately  half of the Business
Week 1000  companies  and Fortune 500  companies,  have issued rights to protect
their  stockholders  against these tactics.  We consider the Plan to be the best
available means of protecting  both your right to retain your equity  investment
in Lone Star  Steakhouse & Saloon,  Inc. and the full value of that  investment,
while not foreclosing a fair acquisition bid for the Company.

           The Rights are not  intended to prevent a takeover of the Company and
will not do so. However, they should deter any attempt to acquire the Company in
a manner or on terms not approved by the Board.  The Rights are designed to deal
with the very serious problem of another person or company using abusive tactics
to deprive the Company's Board and its  stockholders of any real  opportunity to
determine the destiny of the Company.

           The Rights may be  redeemed by the Board for one cent per Right prior
to the accumulation, through open-market purchases, a tender offer or otherwise,
of 15% or more of the Company's shares by a single acquiror or group. Because of
the  redemption  feature,  the Rights  should not  interfere  with any merger or
business combination approved by the Board prior to that time.

           The Board  believes  that the  issuance of the Rights does not in any
way weaken the financial  strength of the Company or interfere with its business
plans. The issuance of the Rights has

<PAGE>
no dilutive effect,  will not affect reported earnings per share, is not taxable
to the Company or to you, and will not change the way in which you can presently
trade the Company's  shares.  As explained in detail below, the Rights will only
be  exercisable  if and when the problem  arises which they were created to deal
with. They will then operate to protect you against being deprived of your right
to share in the full measure of your Company's long-term potential.

          The Board was aware  when it acted  that  some  people  have  advanced
arguments  that  securities  of  the  sort  we  are  issuing  deter   legitimate
acquisition  proposals.  We carefully  considered these views and concluded that
the arguments are speculative and do not justify  leaving  stockholders  without
any  protection  against  unfair  treatment by an acquiror,  who,  after all, is
seeking his own company's  advantage,  not yours.  The Board believes that these
Rights  represent a sound and reasonable  means of addressing the complex issues
of corporate policy created by the current takeover environment.

           The Rights were issued on October 10, 1997 to  stockholders of record
on that date and will  expire in ten years.  Initially,  the Rights  will not be
exercisable,  certificates  will  not be  sent  to  you,  and  the  Rights  will
automatically trade with the common shares.  However, ten days after a person or
group  acquires 15% or more of the  Company's  shares,  or ten business days (or
such later  date as may be  determined  by the Board  prior to a person or group
acquiring 15% or more of the Company's shares) after a person or group announces
an offer the  consummation  of which would result in such person or group owning
15% or more of the shares (even if no purchases actually occur), the Rights will
become  exercisable and separate  certificates  representing  the Rights will be
distributed.  We expect that the Rights will begin to trade  independently  from
the  Company's  shares at that time.  At no time will the Rights have any voting
power.

          When the Rights first become exercisable,  unless a holder is a person
or group who has acquired 15% or more of the Company's shares,  that holder will
be entitled to buy from the Company one one-hundredth of a share of a new series
of participating  preference  stock for $80.00.  If the Company is involved in a
merger or other business  combination with a person or group or affiliate at any
time  after  that  person or group  has  acquired  15% or more of the  Company's
shares,  the  Rights  will  entitle a holder to buy a number of shares of common
stock of the acquiring company having a market value of twice the exercise price
of each Right.  For  example,  if at the time of the  business  combination  the
acquiring company's stock has a per share value of $60, the holder of each Right
would be entitled to receive 4 shares of the  acquiring  company's  common stock
for $120, i.e., at a 50% discount.


                                       -2-
<PAGE>
          If any  person  or  group  acquires  15%  or  more  of  the  Company's
outstanding  common  stock,  the  "flip-in"  provision  of the  Rights  will  be
triggered  and the Rights will  entitle a holder  (other than such person or any
member of such group) to buy a number of  additional  shares of common  stock of
the Company  having a market  value of twice the  exercise  price of each Right.
Thus, if at the time of the 15%  acquisition  the Company's stock were to have a
market  value per share equal to $10,  the holder of each Right (other than such
person or any member of such group) would be entitled to receive 4 shares of the
Company's common stock for $20.

           Following  the  acquisition  by any person or group of 15% or more of
the Company's  common stock,  but only prior to the  acquisition  by a person or
group of a 50% stake,  the Board  will also have the  ability  to  exchange  the
Rights  (other than  Rights held by such person or group),  in whole or in part,
for one share of common stock (or one one-hundredth of a share of the new series
of  participating  preference  stock) per  Right.  This  provision  will have an
economically  dilutive  effect on the  acquiror,  and  provide  a  corresponding
benefit  to the  remaining  rightsholders,  that is  comparable  to the  flip-in
without  requiring  rightsholders  to go  through  the  process  and  expense of
exercising their Rights.

          While,  as noted  above,  the  distribution  of the Rights will not be
taxable to you or the Company,  stockholders  may recognize  taxable income upon
the occurrence of certain subsequent events.

          In addition  to  authorizing  the  purchase  rights,  your Board today
authorized the new series of  participating  preference  stock  purchasable upon
exercise of the Rights. The shares of the new series of participating preference
stock  will be  nonredeemable.  Each  preference  share will be  entitled  to an
aggregate  dividend  equal  to the  greater  of $1 per  share or 100  times  the
dividend declared on the common shares. In the event of liquidation, the holders
of the  preference  shares will be entitled to receive an aggregate  liquidation
payment  equal to the greater of $100 or 100 times the payment made per share of
common stock.  Each preference  share will have 100 votes,  voting together with
the common shares.  Finally, in the event of any merger,  consolidation or other
transaction in which common shares are exchanged,  each preference share will be
entitled to receive 100 times the amount of  consideration  received  per common
share. These rights are protected by customary anti-dilution  provisions. In the
event of issuance of preference  shares upon exercise of the Rights, in order to
facilitate trading a depositary receipt may be issued for each one one-hundredth
of a preference  share.  The dividend,  liquidation  and voting rights,  and the
nonredemption  feature,  of the preference shares are designed so that the value
of the one-hundredth  interest in a preference share purchasable with each right
will approximate the value of one share of common stock.


                                       -3-

<PAGE>
           In declaring the Rights dividend, we have expressed our confidence in
the future of the Company and our determination  that you, our stockholders,  be
given every opportunity to participate fully in that future.

                                        On behalf of the Board of Directors,


                                        By /S/ JAMIE B. COULTER
                                           ------------------------





                                       -4-


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