SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. ___)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Lone Star Steakhouse & Saloon, Inc.
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rulrs 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (set forth the amount in which the
filing fee is calculated and state how it was determined)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration No.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202
--------------------------
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
to be held on May 27, 1998
---------------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders (the
"Meeting") of LONE STAR STEAKHOUSE & SALOON, INC., a Delaware corporation (the
"Company"), will be held at the Sullivan's Steakhouse restaurant located at 300
Colorado Street, Austin, Texas 78701, 10:00 a.m. local time, for the following
purposes:
1. To elect one (1) member of the Board of Directors to serve until the
2001 Annual Meeting of Stockholders and until his successor has been
duly elected and qualified;
2. To ratify the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 29, 1998; and
3. To transact such other business as may properly be brought before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 21, 1998 as
the record date for the Meeting. Only stockholders of record on the stock
transfer books of the Company at the close of business on that date are entitled
to notice of, and to vote at, the Meeting.
By Order of the Board of Directors
/s/ GERALD T. AARON
-------------------
GERALD T. AARON
Secretary
Dated: April 27, 1998.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE
URGED TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ENVELOPE THAT IS PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202
--------------------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
May 27, 1998
--------------------------
INTRODUCTION
This Proxy Statement is being furnished to stockholders by the Board of
Directors of Lone Star Steakhouse & Saloon, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of the accompanying Proxy for
use at the 1998 Annual Meeting of Stockholders of the Company (the "Meeting") to
be held at its Sullivan's Steakhouse restaurant located at 300 Colorado Street,
Austin, Texas 78701, on May 27, 1998 at 10:00 a.m., local time, or at any
adjournments thereof.
The principal executive offices of the Company are located at 224 East
Douglas, Suite 700, Wichita, Kansas 67202. The approximate date on which this
Proxy Statement and the accompanying Proxy will first be sent or given to
stockholders is April 27, 1998.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on April 21, 1998, the
record date (the "Record Date") for the Meeting, will be entitled to notice of,
and to vote at, the Meeting and any adjournments thereof. As of the close of
business on the Record Date, there were outstanding 41,197,969 shares of the
Company's common stock, $.01 par value (the "Common Stock"). Each outstanding
share of Common Stock is entitled to one vote. There was no other class of
voting securities of the Company outstanding on the Record Date. A majority of
the outstanding shares of Common Stock present in person or by proxy is required
for a quorum.
ATTENDANCE AT THE ANNUAL MEETING
For admission to the Meeting, stockholders who own shares of Common Stock
in their own names should come to the stockholders check-in table, where their
ownership will be verified. Those who have beneficial ownership of Common Stock
that is held of record by a bank or broker (often referred to as "holding in
street name") should also come to the stockholders check-in table; they must
bring account statements or letters from their banks or brokers indicating that
they owned the Company's Common stock as of the Record Date.
The doors to the Sullivan's Steakhouse restaurant will be opened at 9:30
a.m. and the Company's Annual Meeting will begin at 10:00 a.m.
VOTING OF PROXIES
Shares of Common Stock represented by Proxies, which are properly executed,
duly returned and not revoked, will be voted in accordance with the instructions
contained therein. If no specification is indicated on the Proxy, the shares of
Common Stock represented thereby will be voted (i) for the election as Directors
of the persons who have been nominated by the Board of Directors, (ii) for the
ratification of the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 29, 1998 and (iii) for
any other matter that may properly be brought before the Meeting in accordance
with the judgment of the person or persons voting the Proxy. The execution of a
Proxy will in no way affect a stockholder's right to attend the Meeting and vote
in person. Any Proxy executed and returned by a stockholder may be revoked at
any time thereafter if written notice of revocation is given to the Secretary of
the Company prior to the vote to be taken at the Meeting, or by execution of a
subsequent proxy which is presented to the Meeting, or if the stockholder
attends the Meeting and votes by ballot, except as to any matter or matters upon
which a vote shall have been cast pursuant to the authority conferred by such
Proxy prior to such revocation. For purposes of determining the presence of a
quorum for transact-
1
<PAGE>
ing business at the Meeting, abstentions and broker "non-voters" (i.e., proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted.
The cost of solicitation of the Proxies being solicited on behalf of the
Board of Directors will be borne by the Company. In addition to the use of the
mails, proxy solicitation may be made by telephone, telegraph and personal
interview by officers, directors and employees of the Company. The Company will,
upon request, reimburse brokerage houses and persons holding Common Stock in the
names of their nominees for their reasonable expenses in sending soliciting
material to their principals.
SECURITY OWNERSHIP
The following table sets forth information concerning ownership of the
Company's Common Stock, as of April 21, 1998, by each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, each director, each executive officer as defined in Item 402(a)(3) of
Regulation S-K ("Item 402(a)(3)") and by all directors and executive officers of
the Company as a group. Unless otherwise indicated, the address for five percent
stockholders, directors and executive officers of the Company is 224 East
Douglas, Suite 700, Wichita, Kansas 67202.
Name and Address Shares Percentage
of Beneficial Owner Beneficially Owned of Class
------------------- ------------------ ----------
Jamie B. Coulter .............................. 3,763,727(1) 8.8
John D. White ................................. 714,692(2) 1.7
Michael J. Archer ............................. 354,333(3) *
Gerald T. Aaron ............................... 367,706(4) *
Dennis L. Thompson ............................ 1,986,843(5) 4.8
Clark R. Mandigo .............................. 60,000(6) *
Fred B. Chaney ................................ 50,000(7) *
H. Gilliland Nickel ........................... 13,834(8) *
William H. Tilley ............................. 50,400(9) *
First Pacific Advisors, Inc. ..................
FPA Paramount Fund, Inc. ...................... 4,200,900(10) 10.2
All directors and officers as a group
(11) persons (1) (2) (3) (4) (5) (6) (11) ... 7,703,873(11) 17.1
- ----------
* Less than 1%
(1) Excludes shares held of record by the adult children of Mr. Coulter. Mr.
Coulter disclaims beneficial ownership of these shares. Includes presently
exercisable options to purchase 1,733,334 shares of Common Stock.
(2) Includes presently exercisable options to purchase 566,667 shares of Common
Stock.
(3) Includes presently exercisable options to purchase 354,333 shares of Common
Stock.
(4) Includes presently exercisable options to purchase 349,999 shares of Common
Stock.
(5) Excludes shares held of record by the wife and adult children of Mr.
Thompson. Mr. Thompson disclaims beneficial ownership of these shares.
Includes presently exercisable options to purchase 386,111 shares of Common
Stock.
(6) Includes presently exercisable options to purchase 30,000 shares of Common
Stock.
(7) Includes presently exercisable options to purchase 46,000 shares of Common
Stock.
(8) Includes presently exercisable options to purchase 13,334 shares of Common
Stock.
(9) Includes 10,400 shares of Common Stock owned by a California corporation of
which Mr. Tilley is the principal stockholder.
(10) Based on a joint Schedule 13G filed in February, 1998, First Pacific
Advisors, Inc. and FPA Paramount Fund, Inc. beneficially hold 4,200,900
shares of the Company's Common Stock. The address of First Pacific
Advisors, Inc., and FPA Paramount Fund, Inc. is 11400 West Olympic
Boulevard, Suite 1200, Los Angeles, CA 90064.
(11) Includes 342,337 shares of Common Stock, including presently exercisable
options to purchase 338,704 shares held by Robert M. Kendall and Frank E.
Furstenberg, Jr., executive officers, who are not named in the Security
Ownership table pursuant to Item 402(a)(3).
2
<PAGE>
PROPOSAL I - ELECTION OF DIRECTORS
Article Fifth, Paragraph A of the Certificate of Incorporation of the
Company, and Article Two, Section 2.2 of its By-Laws provide for the
organization of the Board of Directors into three classes. The number of
Directors is established by the By-Laws pursuant to Board authorization.
Currently the Board is composed of eight (8) Directors, but will be reduced to
seven (7) Directors as of the date of the meeting since Mr. Thompson has
voluntarily decided not to seek re-election as a Director of the Company. The
nominee for Director is currently a director of the Company. William H. Tilley
was appointed to the Board of Directors on December 3, 1997. All Directors are
chosen for a full three-year term to succeed those whose terms expire. It is
therefore proposed that one (1) Director be elected to serve until the Annual
Meeting of Stockholders to be held in 2001 and until his successor is elected
and shall have qualified.
Unless otherwise specified, all Proxies received will be voted in favor of
the election of Jamie B. Coulter, the only nominee. Directors shall be elected
by a plurality of the votes cast, in person or by proxy, at the Meeting.
Abstentions from voting and broker nonvotes on the election of directors will
have no effect since they will not represent votes cast at the Annual Meeting
for the purpose of electing directors. The terms of the nominees expire at the
Meeting and when their successors are duly elected and shall have qualified.
Management has no reason to believe that any of the nominees will be unable or
unwilling to serve as a director, if elected. Should any of the nominees not
remain a candidate for election at the date of the Meeting, the Proxies will be
voted in favor of those nominees who remain candidates and may be voted for
substitute nominees selected by the Board of Directors.
The following table sets forth the ages and terms of office of the Directors of
the Company:
Term of Office
Name Age as Director Expires
------ --- -------------------
Jamie B. Coulter ............................... 57 1998
John D. White .................................. 50 2000
Dennis L. Thompson ............................. 53 1998
Michael J. Archer .............................. 37 1999
H. Gilliland Nickel ............................ 58 2000
Fred B. Chaney ................................. 61 1999
Clark R. Mandigo ............................... 54 1999
William H. Tilley .............................. 58 2000
Jamie B. Coulter has served as Chairman and Chief Executive Officer of the
Company since January 1992 and President of the Company from January, 1992 to
June, 1995 (and has been a director and executive officer of various
subsidiaries of the Company since 1991). From 1980 to May, 1997, Mr. Coulter had
been the sole stockholder, Chairman, Chief Executive Officer and President of
various Pizza Hut entities operating more than 100 Pizza Hut restaurants in 11
states. Since 1980, Mr. Coulter has been the sole stockholder and President of
Coulter Enterprises, Inc., a management consulting company that provides
accounting and administrative services for certain affiliated and non-affiliated
businesses and the Company. Mr. Coulter has served as Chairman of the Board of
Total Entertainment Restaurant Corp. since February 7, 1997.
John D. White has been the Chief Financial Officer and a Director of the
Company since January 1992, a director and executive officer of various
subsidiaries of the Company since 1991 and Executive Vice President since June,
1995. Prior to joining the Company, Mr. White was employed for eleven years as
Senior Vice President of Finance for Coulter Enterprises, Inc. From 1970 to
1980, Mr. White was a certified public accountant with Arthur Young & Company.
Dennis L. Thompson was Senior Vice President - Real Estate between January,
1992 and December, 1997 and a Director of the Company since January, 1992. From
1985 to August, 1995 he had been an executive officer, director and stockholder
of Creative Culinary Concepts Inc., a company which along with other corporate
entities owned and operated eleven Lone Star Steakhouse & Saloon restaurants. In
August, 1995, the Company acquired the restaurants owned by Creative Culinary
Concepts, Inc., and other affiliated entities. Mr. Thompson is a Director of
Total Entertainment Restaurant Corp. Mr. Thompson's term as a director expires
in May, 1998 and he is not seeking re-election.
3
<PAGE>
Michael J. Archer, has been Chief Operating Officer - Del
Frisco's/Sullivan's since August, 1996 and a Director of the Company since
September, 1996. From April, 1995 until August, 1996 Mr. Archer had been Senior
Vice President Operations of the Company. Prior to joining the Company, Mr.
Archer was employed in various capacities, including President, of Morton's of
Chicago, Inc., a subsidiary of Quantum Restaurant Group, Inc. for thirteen
years.
Fred B. Chaney, Ph.D, has been a director of the Company since May, 1995.
Dr. Chaney was President and Chief Executive Officer of TEC's parent company,
Vedax Sciences Corporation, until March of 1998 when he sold his interest. Dr.
Chaney through the TEC organization had formed a network of various management
organizations in several countries, including the United States where
approximately 4,000 presidents of companies meet on a quarterly basis. Dr.
Chaney's early business career was with the Boeing Company and Rockwell, where
he implemented management systems and quality motivational programs. In 1968 he
co-authored the book Human Factors in Quality Assurance with Dr. D. H. Harris.
Dr. Chaney has authored numerous publications and professional papers and has
taught management classes for the University of Southern California. Dr. Chaney
is a board member of Hobie Sports.
Clark R. Mandigo has been a Director of the Company since March 1992. Mr.
Mandigo has been a Papa John's Pizza franchisee since 1995. From 1986 to 1991,
he was President, Chief Executive Officer and Director of Intelogic Trace, Inc.,
a corporation engaged in the sale, lease and support of computer and
communications systems and equipment. From 1985 to 1997, Mr. Mandigo served on
the Board of Directors of Physician Corporation of America, a managed health
care company and from 1993 to 1997, Mr. Mandigo served on the Board of Palmer
Wireless, Inc., a cellular telephone system operator. Mr. Mandigo currently
serves on the Board of Directors of Horizon Organic Holdings Corporation and as
a Trustee of Accolade Funds.
H. Gilliland Nickel has been a Director of the Company since April, 1997.
Mr. Nickel is owner and Chairman of the Board of Far Niente Winery in Napa,
California, which he purchased in 1979. In 1991 Mr. Nickel established Dolce
Winery also in Napa Valley. A physicist by education, Mr. Nickel and his brother
own and serve as Co-Chairman of the Board of Greenleaf Nursery Co., Inc. in
Oklahoma and Texas, which is the second largest family owned wholesale and
ornamental shrub nursery in the world.
William H. Tilley has been a Director of the Company since December, 1997.
Mr. Tilley currently serves as Chairman and Chief Executive Officer of The
Jacmar Companies which was founded in 1964. Mr. Tilley also founded Pacific
Ventures, Ltd., a restaurant operating company in the United States Territory of
Guam. Pacific Ventures, Ltd. has license agreements with Taco Bell, Sizzler and
the Company to operate restaurants in Guam. Mr. Tilley is the principal
stockholder of California Star Restaurants, Inc., a licensee of the Company,
which has the right to operate three (3) Lone Star restaurants in California,
one of which is open. Mr. Tilley also teaches graduate business courses at USC
and UCLA.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEE.
Meetings
For the fiscal year ended December 30, 1997, there were seven meetings of
the Board of Directors. From time to time, the members of the Board of Directors
act by unanimous written consent pursuant to the laws of the State of Delaware.
The Board of Directors does not have a standing nominating committee.
The Board of Directors has created an Audit Committee, a Compensation
Committee and a Stock Option Committee. The Audit Committee is composed of all
of the independent directors and is charged with reviewing the Company's annual
audit and meeting with the Company's independent auditors to review the
Company's internal controls and financial management practices. The Compensation
Committee, which is also composed of all of the independent directors,
recommends to the Board of Directors compensation for the Company's key
employees. The Stock Option Committee also consists of all of the independent
directors and administers the Company's 1992 Incentive and Non-Qualified Stock
Option Plan, as amended, (the "Plan") and awards stock options thereunder. The
members of the Audit Committee and Compensation Committee are Messrs. Chaney,
Mandigo, and Nickel and as of December 3, 1997 William H. Tilley. The members of
the Stock Option Committee are Messrs. Chaney, Mandigo and Nickel. During 1997,
and up to March 31, 1998, there were three meetings of the Audit Committee, two
meetings of the Compensation Committee and three meetings of the Stock Option
Committee.
4
<PAGE>
Other Executive Officers
Gerald T. Aaron, 57, has been Senior Vice President - Counsel and Secretary
of the Company since January 1994. From November 1991 to January 1994, Mr. Aaron
was employed as General Counsel for Coulter Enterprises, Inc. From March 1989 to
November 1991, Mr. Aaron operated a franchise consultant practice. From 1969 to
1984 Mr. Aaron was Vice President -- Counsel for Pizza Hut, Inc. and from 1984
to 1989, Mr. Aaron was President of International Pizza Hut Franchise Holders
Association.
Robert M. Kendall, 37, has been Chief Operating Officer - Lone Star
Steakhouse & Saloon, Inc. since June 1997. From June 1995 to June 1997, Mr.
Kendall was Senior Vice President - Operations. From September, 1993 until June,
1995 Mr. Kendall served as Vice President - Operations. From March 1992 to
September 1993, he assisted in new store development for the Company.
Frank E. Furstenberg, Jr. 51 has been Vice President - New Store
Development since January 1994. From March 1992 to January 1994, he assisted in
new store development for the Company. Mr. Furstenberg has been a Pizza Hut
franchisee since 1979, although his restaurants are operated under a management
contract with Coulter Enterprises, Inc.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the four most highly compensated executive officers of the Company
(collectively with the CEO the "Named Executive Officers") other than the CEO
whose salary and bonus exceeded $100,000 with respect to the fiscal year ended
December 30, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
----------------------------- ----------------------------------------
Number of
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus($) Compensation Options(#) Compensation(1)
------------------------- ---- ------ -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter .....................
Chairman of the Board 1997 $275,000 -- -- -- --
and Chief Executive 1996 $250,000 -- -- 1,200,000 --
Officer 1995 $210,000 -- -- 200,000 --
John D. White ........................
Executive Vice President 1997 $259,600 -- -- -- --
Chief Financial Officer 1996 $236,000 -- -- 600,000 --
and Treasurer 1995 $186,000 -- -- 100,000 --
Dennis L. Thompson (2) ...............
Former - Senior Vice 1997 $235,400 -- -- -- --
President - Real Estate 1996 $230,000 -- -- 133,333 --
1995 $180,000 -- -- 100,000 --
Michael J. Archer ....................
Chief Operating Officer 1997 $220,000 $100,000(3) -- -- --
Del/Frisco's/Sullivan's 1996 $214,000 -- -- 400,000 --
1995 $180,000 -- -- 75,000 --
Gerald T. Aaron ......................
Senior Vice President- 1997 $209,000 -- -- -- --
Counsel & Secretary 1996 $190,000 -- -- 300,000 --
1995 $168,000 -- -- 75,000 --
- ---------------------
</TABLE>
(1) Perquisites and other personal benefits, securities or property received by
each executive officer did not exceed the lesser of $50,000 or 10% of such
executive officer's annual salary and bonus.
(2) Mr. Thompson voluntarily resigned as an officer effective December 31,
1997.
(3) In August, 1996, the Company provided Mr. Archer with a $100,000
non-interest bearing loan payable upon demand. In April, 1997, the Company
agreed to cancel the debt and treat the $100,000 as 1997 employee
compensation.
5
<PAGE>
Option Grants
The Company granted no stock options to the CEO and other Named Executive
Officers during the fiscal year ended December 30, 1997.
Option Exercise Table
No options were exercised by the CEO and the other Named Executive Officers
during the fiscal year ended December 30, 1997. The following table sets forth
certain information concerning unexercised options held as of December 30, 1997
by the CEO and the other Named Executive Officers.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at December 30, 1997 Options at December 30, 1997($)(1)
------------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
----- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Jamie B. Coulter ..................... 1,733,334 866,666 -0- -0-
John D. White ........................ 566,667 433,333 -0- -0-
Michael J. Archer .................... 297,334 348,666 -0- -0-
Dennis L. Thompson ................... 386,111 122,222 -0- -0-
Gerald T. Aaron ...................... 349,999 225,001 -0- -0-
- ---------------------
</TABLE>
(1) Such amounts are based on the closing price of a share of Common Stock
($17.438) as reported by the Nasdaq National Market ("NASDAQ") on December
30, 1997.
Directors Compensation
Directors who are not employees of the Company receive an annual fee of
$5,000 and a fee of $1,250 for each Board of Directors meeting attended and are
reimbursed for their expenses. Employees who are Directors are not entitled to
any compensation for their service as a Director. Non-employee Directors are
also entitled to receive grants of options under the Company's 1992 Directors
Stock Option Plan (the "Directors Plan"). Generally, upon election to the Board,
each director who is not an executive officer is granted a one-time stock option
to acquire 40,000 shares of Common Stock and receives an annual grant upon
anniversary date of 6,000 shares. The exercise price for such shares is equal to
the closing sale price of the Common Stock as reported on the NASDAQ on the
closing date of grant. Currently, options to purchase 176,400 shares of Common
Stock are outstanding under the Directors Plan at exercise prices ranging from
$17.94 per share to $40.00 per share. In 1997, the Company's outside Directors
were automatically granted options to purchase 92,000 shares of Common under the
Directors Plan at exercise prices of $17.94, $19.625, $21.625, and $27.75. On
September 16, 1997 the Board of Directors, with outside, non-employee directors
abstaining from voting: (1) increased the annual grant upon anniversary date
from 6,000 shares to 6,800 shares; and (2) re-priced certain outstanding options
held by outside non-employee directors of the Company, including options granted
in the last fiscal year, so that such re-priced options now have an exercise
price of $18.81, the closing market price of the Company's Common Stock on
September 16, 1997.
Employment Agreements
The Company has entered into separate employment agreements, with each of
Messrs. White, Archer, Kendall and Aaron, dated as of February 1, 1998,
providing for the employment of such individuals as Executive Vice President and
Chief Financial Officer, Chief Operating Officer - Del Frisco's/Sullivan's,
Chief Operating Officer - Lone Star Steakhouse & Saloon, and Senior Vice
President - Counsel, respectively. Each employment agreement provides that the
officer shall devote substantially all of his professional time to the business
of the Company. Salary adjustments effective January 1, 1998 provide for 1998
annual base salaries of $283,000, $250,000, $250,000, and $228,000,
respectively, for Messrs. White, Archer, Kendall, and Aaron, subject to
increases as determined by the Board of Directors. Each agreement terminates in
February, 2001, but the Company has the option to extend the term annually for
additional one year periods. Each agreement contains non-competition,
confidentiality and non-solicitation provisions which apply for eighteen months
after cessation of employment.
Messrs. Coulter and Thompson have also entered into non-competition,
confidentiality and non-solicitation agreements with the Company.
6
<PAGE>
Joint Report by the Compensation Committee and the
Stock Option Committee on Executive Compensation
General
The Compensation Committee determines the cash and other incentive
compensation (with the exception of stock options which are granted by the Stock
Option Committee), if any, to be paid to the Company's executive officers and
key employees. Messrs. Chaney, Mandigo, Nickel, and as of December 3, 1997,
William H. Tilley, non-employee directors of the Company, serve as members of
the Compensation Committee and Audit Committee. Messrs. Chaney, Mandigo and
Nickel serve as members of the Stock Option Committee and are "disinterested
directors" (within the meaning of Rule 16b-3 under the Act). Mr. Mandigo serves
as Chairman of the Compensation Committee and of the Stock Option Committee.
During fiscal 1997 and through March 31, 1998, there were two meetings of the
Compensation Committee, and three meetings of the Stock Option Committee.
Compensation Philosophy
The Compensation Committee's executive compensation philosophy is to base
management's pay, in part, on the achievement of the Company's annual and
long-term performance goals, to provide competitive levels of compensation, to
recognize individual initiative, achievement and length of service to the
Company, and to assist the Company in attracting and retaining qualified
management. The Compensation Committee historically established executives' base
salaries at relatively low levels. However, the Compensation Committee has
decided to increase executives' base salaries closer to the median for the
restaurant industry. It is the philosophy of the Compensation Committee in
tandem with the Stock Option Committee to provide officers with the opportunity
to realize potentially significant financial gains through the grants of stock
options. The Compensation Committee also believes that the potential for equity
ownership by management is beneficial in aligning management's and stockholders'
interest in the enhancement of stockholder value. However, the decision to
ultimately grant stock options is based primarily on the criteria set forth
under "Stock Option Plan" below.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), prohibits a publicly held corporation, such as the Company, from
claiming a deduction on its federal income tax return for compensation in excess
of $1 million paid for a given fiscal year to the chief executive officer (or
person acting in that capacity) at the close of the corporation's fiscal year
and the four most highly compensated officers of the corporation, other than the
chief executive officer, at the end of the corporation's fiscal year. The $1
million compensation deduction limitation does not apply to "performance-based
compensation." The Company believes that any compensation received by executive
officers in connection with the exercise of options granted under the Plan
qualifies as "performance-based compensation." Accordingly, the Company has not
established a policy with respect to Section 162(m) of the Code because the
Company has not and does not currently anticipate paying compensation in excess
of $1 million per annum to any employee.
Salaries
Base salaries for the Company's executive officers are determined initially
by evaluating the responsibilities of the position held and the experience of
the individual, food service and management experience, and by reference to the
competitive marketplace for management talent, including a comparison of base
salaries for comparable positions at comparable companies within the Company's
industry, which includes companies which comprise the Company's Peer Group, (as
defined herein). Such companies are comparable in that they are fast-growth
companies in the casual dining segment of the restaurant industry. The Company
believes salaries for its officers remain below average as compared to the
companies reviewed. Annual salary adjustments are determined in descending level
of importance by (i) evaluating the financial results achieved by the Company,
which includes revenues, earnings, unit growth and profit margins of the
Company, (ii) the performance of the executive particularly with respect to the
ability to manage growth and profitability of the Company, (iii) the length of
the executive's service to the Company and (iv) any increased responsibilities
assumed by the executive. There are no restrictions on salary adjustments of the
Company. The Company has employment agreements with Messrs. White, Archer,
Kendall, and Aaron, which set the base salaries for such individuals. These base
salaries are based on and are reviewed annually in accordance with the factors
described in this paragraph and the terms of the employment agreements. See
"Executive Compensation -- Employment Agreements."
7
<PAGE>
Annual Bonuses
The Company does not currently have a formal bonus plan for its executives
and no bonuses were paid to executives for the 1997 fiscal year despite the
Company's achievements with the exception of Mr. Archer who is entitled to
receive a bonus up to sixty percent (60%) of his salary for any annual period.
The bonus is paid at the discretion of the Company and is based upon Mr.
Archer's achieving certain goals and objectives agreed upon between Mr. Archer
and the Company. The Company may in the future adopt an executive bonus plan. As
indicated under "Stock Option Plan" below, the Company has granted options in
the past to the Named Executive Officers in part to reward their performance,
but no options were granted for the 1997 fiscal year.
Compensation of Chief Executive Officer
Mr. Coulter's base salary in 1997 was $275,000. Mr. Coulter was awarded a
9.1% increase in his base salary to $300,000 effective January 1, 1998. Mr.
Coulter's base salary is based upon the factors described in the "Salaries"
paragraph above. Mr. Coulter's salary, by design, is below average as compared
to the salaries of executive officers of companies reviewed by the Company. As
noted above, the Company does not presently have a formal bonus plan for
executives and no bonus was paid to Mr. Coulter for the 1997 fiscal year.
Stock Option Plan
It is the philosophy of the Stock Option Committee to tie a significant
portion of an executives' total opportunity for financial gain to increases in
stockholder value, thereby aligning the long-term interest of the stockholders
with the executives and to retain such key employee.
All salaried employees, including executives and part-time employees, of
the Company and its subsidiaries, are eligible for grants of stock options
pursuant to the Plan. In addition, because the executives' base salaries are
currently set below the average of similar positions in comparable companies
within the Company's industry, which includes companies which comprise the
Company's Peer Group and because the Company presently maintains neither a
qualified retirement program nor a bonus plan for executives, the Plan is
intended to provide executives with opportunities to supplement their base
compensation.
On April 25, 1997 the Stock Option Committee of the Board of Directors
repriced certain outstanding options held by employees of the Company, including
options held by the CEO and other named executive officers, so that all
outstanding options then held by such persons would have an exercise price of
$18.25 per share, the closing market price of the Company's Common Stock on
April 24, 1997, as reported by NASDAQ. The Committee believes that the repricing
is consistent with the Company's compensation policy which is to base
compensation on the achievement of the Company's performance goals, by utilizing
stock options to attract and retain qualified employees with the same long-term
interests as the Company's stockholders. The Committee believes that without the
repricing the Company could lose key management personnel and restaurant general
managers at a time when the Company's operating performance continues to be
strong.
Compensation Committee: Clark R. Mandigo, Chairman
Fred B. Chaney
H. Gilliland Nickel
William H. Tilley
Option Committee: Clark R. Mandigo, Chairman
Fred B. Chaney
H. Gilliland Nickel
8
<PAGE>
Compensation Committee Interlocks
The Compensation Committee consists of Messrs. Chaney, Mandigo, Nickel and
Tilley. Except as set forth in "Certain Relationships and Related Transactions -
Other Affiliated Transactions," none of such Directors was a party to any
transaction with the Company which requires disclosure under Item 402(j) of
Regulation S-K.
Repricing of Stock Options
The following table sets forth certain information with respect to the
repricing of stock options.
<TABLE>
<CAPTION>
Length of
Number Market original
of securities price option term
underlying of stock at Exercise price remaining
options time of at time of New at date of
repriced or repricing or repricing or exercise repricing or
Name Date amended(#) amendment($) amendment($) price($) amendment
- ----- -------- ----------- ------------ ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter ............. 4/25/97 300,000 $18.25 $20.75 $18.25 6 years
4/25/97 400,000 $18.25 $22.00 $18.25 7 years
4/25/97 500,000 $18.25 $19.00 $18.25 8 years
4/25/97 200,000 $18.25 $32.625 $18.25 9 years
4/25/97 1,200,000 $18.25 $28.375 $18.25 10 years
John D. White ................ 4/25/97 75,000 $18.25 $20.75 $18.25 6 years
4/25/97 100,000 $18.25 $22.00 $18.25 7 years
4/25/97 125,000 $18.25 $19.00 $18.25 8 years
4/25/97 100,000 $18.25 $32.625 $18.25 9 years
4/25/97 600,000 $18.25 $28.375 $18.25 10 years
Michael J. Archer ............ 4/25/97 171,000 $18.25 $31.00 $18.25 8 years
4/25/97 75,000 $18.25 $32.625 $18.25 9 years
4/25/97 400,000 $18.25 $28.375 $18.25 10 years
Dennis L. Thompson ........... 4/25/97 75,000 $18.25 $20.75 $18.25 6 years
4/25/97 100,000 $18.25 $22.00 $18.25 7 years
4/25/97 100,000 $18.25 $19.00 $18.25 8 years
4/25/97 100,000 $18.25 $32.625 $18.25 9 years
4/25/97 133,333 $18.25 $28.375 $18.25 10 years
Gerald T. Aaron .............. 4/25/97 100,000 $18.25 $22.00 $18.25 7 years
4/25/97 100,000 $18.25 $19.00 $18.25 8 years
4/25/97 75,000 $18.25 $32.625 $18.25 9 years
4/25/97 300,000 $18.25 $28.375 $18.25 10 years
</TABLE>
9
<PAGE>
Common Stock Performance
The following graph compares the total return on the Company's Common Stock
from January 1, 1993, to the total returns of the Standard & Poor's Mid-Cap 400
Index and the Standard & Poor's Restaurant Industry Index (the "Peer Group").
COMPARISON OF TOTAL RETURN
FROM JANUARY 1, 1993 TO DECEMBER 30, 1997
AMONG
LONE STAR STEAKHOUSE & SALOON, INC.
THE STANDARD & POOR'S MID-CAP 400 INDEX AND THE PEER GROUP
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
1/JAN/93 To 31/DEC/92
<TABLE>
<CAPTION>
RETURN RETURN RETURN RETURN RETURN
Base Period TO TO TO TO TO
Company/Index Name DEC 92 DEC 93 DEC 94 DEC 95 DEC 96 DEC 97
-------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
The Company .................. $100.00 146.18 104.99 212.63 148.22 96.97
Peer Group ................... $100.00 116.74 115.84 170.84 168.79 181.23
S&P MIDCAP 400 Index ......... $100.00 113.95 109.39 142.79 170.21 225.11
</TABLE>
Assumes $100 invested on January 1, 1993 in the Company's Common Stock, the
Standard & Poor's Mid-Cap 400 Index and the Peer Group. The calculations in the
table were made on a dividends reinvested basis.
There can be no assurance that the Company's Common Stock performance will
continue with the same or similar trends depicted in the above graph.
10
<PAGE>
PROPOSAL II -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 29, 1998. Although the
selection of independent auditors does not require ratification, the Board of
Directors has directed that the appointment of Ernst & Young, LLP be submitted
to stockholders for ratification due to the significance of their appointment to
the Company. If stockholders do not ratify the appointment of Ernst & Young, LLP
as the Company's independent auditors, the Board of Directors will consider the
appointment of other certified public accountants. A representative of Ernst &
Young, LLP will be present at the Meeting and will be available to respond to
appropriate questions. The approval of the proposal to ratify the appointment of
Ernst & Young, LLP requires the affirmative vote of a majority of the votes cast
by all shareholders represented and entitled to vote thereon. An abstention,
withholding of authority to vote or broker non-vote, therefore, will not have
the same legal effect as an "against" vote and will not be counted in
determining whether the proposal has received the required stockholder vote.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 29, 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Services Agreement
The Company has entered into a services agreement with Coulter Enterprises,
Inc. pursuant to which the Company utilizes certain accounting and
administrative services provided by Coulter Enterprises, Inc. The services
agreement initially expired on December 31, 1992 and is renewable thereafter on
a year-to-year basis. For fiscal year 1997, the fixed annual charge was
$2,010,000 and the per restaurant per 28-day accounting period fee was $440,
plus reimbursement of all direct out-of-pocket costs and expenses. For the
fiscal year ended December 30, 1997 the Company incurred fees of $3,366,080
under the services agreement. For fiscal year 1998, the fixed annual charge is
$3,737,000 and the per restaurant per 28-day accounting period fee is $466 plus
reimbursement of all direct out-of-pocket costs and expenses. All of the
disinterested Directors voted to renew the services agreement and approve the
new fee arrangements thereunder. The amount of the services fee will be reviewed
annually and will be subject to approval by a majority of the disinterested
directors of the Company.
Other Affiliated Transactions
In 1997, the Company paid Coulter Enterprises, Inc. $804,198 for use of an
airplane which airplane is leased by Coulter Enterprises, Inc. from Prairie
Aviation, Inc. Mr. Coulter owns 100% of the stock of Coulter Enterprises, Inc.
and Prairie Aviation, Inc. The Company believes that the charges incurred by the
Company for its usage of this aircraft are at least as favorable as the charges
that would have been incurred for similar services received from unaffiliated
third parties.
In December, 1997, the Company provided Michael J. Archer with a $400,000
loan bearing interest at the rate of 7.5% per annum, payable on demand. The loan
is secured by a mortgage on real estate and improvements.
Mr. Tilley, a director, is owner of a majority interest in Pacific
Ventures, Ltd., which is a fifty percent owner of Restaurants of Micronesia,
which is a licensee of the Company and operates a Lone Star restaurant in the
United States Territory of Guam.
Mr. Tilley is the principal stockholder of California Star Restaurants,
Inc., a licensee of the Company and has the right to operate three Lone Star
restaurants in California. The first unit opened on February 10, 1998. During
1997, the licensee paid the Company $40,000 in initial license fees.
11
<PAGE>
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next Annual Meeting of Stockholders of the
Company, stockholder proposals for such meeting must be submitted to the Company
no later than December 21, 1998.
ANNUAL REPORT
All stockholders of record as of April 21, 1998 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for the
fiscal year ended December 30, 1997. Such report contains certified consolidated
financial statements of the Company and its subsidiaries for the fiscal year
ended December 30, 1997.
By Order of the Company,
/S/ GERALD T. AARON
-------------------
GERALD T. AARON
Secretary
Dated: Wichita, Kansas
April 27, 1998.
The Company will furnish, without charge, a copy of its Annual Report on Form
10-K for the fiscal year ended December 30, 1997 (without exhibits) as filed
with the Securities and Exchange Commission to stockholders of record on the
Record Date who make written request therefor to Gerald T. Aaron, Secretary,
Lone Star Steakhouse & Saloon, Inc., 224 E. Douglas, Suite 700, Wichita, Kansas
67202.
12
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of Lone Star Steakhouse & Saloon, Inc., a
Delaware corporation (the "Company"), does hereby appoint Jamie B. Coulter and
John D. White and each of them, the true and lawful attorneys and proxies with
full power of substitution, for and in the name, place and stead of the
undersigned, to vote all of the shares of Common Stock of the Company which the
undersigned would be entitled to vote if personally present at the 1998 Annual
Meeting of Stockholders of the Company to be held at the Sullivan's Steakhouse
restaurant located at 300 Colorado Street, Austin, Texas 78701, on Wednesday,
May 27, 1998 at 10:00 a.m. local time, or at any adjournment or adjournments
thereof.
The undersigned hereby instructs said proxies or their substitutes:
1. ELECTION OF DIRECTORS: The election of the following director: Jamie B.
Coulter, to serve until the 2001 annual meeting of stockholders and until
his successor has been duly elected and qualified.
|_| FOR |_| WITHHOLD VOTE WITHHOLD AUTHORITY to vote for any
nominee(s), print name(s) below
--------------------------------------
2. RATIFICATION OF APPOINTMENT OF AUDITORS: To ratify the appointment of Ernst
& Young, LLP as the independent auditors of the Company for the fiscal year
ending December 29, 1998.
|_| FOR |_| AGAINST |_| ABSTAIN
3. DISCRETIONARY AUTHORITY: To vote with discretionary authority with respect
to all other matters which may come before the Meeting.
(Continued and to be signed and dated, on the reverse side)
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH ANY DIRECTIONS HEREINBEFORE GIVEN
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED TO ELECT THE NOMINEE AS
DIRECTOR, TO RATIFY THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES OR
PROXY WITH RESPECT TO ANY OTHER BUSINESS TRANSACTED AT THE ANNUAL MEETING.
The undersigned hereby revokes any proxy
or proxies heretofore given and ratifies
and confirms that all the proxies
appointed hereby, or any of them, or
their substitutes, may lawfully do or
cause to be done by virtue hereof. The
undersigned hereby acknowledges receipt
of a copy of the Notice of Annual
Meeting and Proxy Statement, both dated
April 27, 1998, and a copy of the
Company's Annual Report for the fiscal
year ended December 30, 1997.
Dated: _________________________ , 1998
___________________________________(L.S)
___________________________________(L.S)
Signature(s)
NOTE: Your signature should appear the same as your name appears hereon. In
signing as attorney, executor, administrator, trustee or guardian, please
indicate the capacity in which signing. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a corporation,
it should be signed by an authorized officer and the corporate seal affixed. No
postage is required if mailed in the United States.
