UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended Commission file number
MARCH 23, 1999 0-19907
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 Number)
224 EAST DOUGLAS, SUITE 700
WICHITA, KANSAS 67202
(Address of principal executive offices) (Zip code)
(316) 264-8899
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
/X/ YES / / NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
COMMON STOCK, $.01 PAR VALUE 35,812,766 SHARES
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 23, 1999 AND DECEMBER 29, 1998 2
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME FOR THE TWELVE WEEKS ENDED
MARCH 23, 1999 AND MARCH 24, 1998 3
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE TWELVE WEEKS ENDED
MARCH 23, 1999 AND MARCH 24, 1998 4
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS 13
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5 HAVE BEEN OMITTED
SINCE THE ITEMS ARE EITHER INAPPLICABLE OR THE
ANSWER IS NEGATIVE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 23,1999 December 29, 1998
------------- -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 64,933 $ 89,847
Inventories 14,398 15,894
Other current assets 6,156 6,565
--------- ---------
Total current assets 85,487 112,306
Property and equipment, net 472,035 461,065
Intangible and other assets, net 35,095 35,212
--------- ---------
Total assets $ 592,617 $ 608,583
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,786 $ 10,545
Other current liabilities 33,122 34,168
--------- ---------
Total current liabilities 44,908 44,713
Deferred income taxes 12,406 10,429
Other non-current liabilities
Stockholders' Equity:
Preferred stock -- --
Common stock 358 386
Additional paid-in capital 287,542 314,366
Retained earnings 256,303 248,522
Accumulated other comprehensive income (loss) (8,900) (9,833)
--------- ---------
Total stockholders' equity 535,303 553,441
--------- ---------
Total liabilities and stockholders' equity $ 592,617 $ 608,583
========= =========
</TABLE>
See accompanying notes.
-2-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the twelve weeks ended
-----------------------------
March 23, 1999 March 24, 1998
-------------- --------------
(Restated)
<S> <C> <C>
Net sales $ 139,938 $ 153,514
Costs and expenses:
Costs of sales 50,386 57,215
Restaurant operating expenses 61,630 61,234
Depreciation and amortization 7,232 6,179
--------- ---------
Restaurant costs and expenses 119,248 124,628
--------- ---------
Restaurant operating income 20,690 28,886
General and administrative expenses 8,289 5,442
--------- ---------
Income from operations 12,401 23,444
Other income, principally interest 247 1,455
--------- ---------
Income before income taxes and minority interest 12,648 24,899
Provision for income taxes (4,867) 8,772
--------- ---------
Income before cumulative effect of a change
in accounting principle 7,781 16,127
Cumulative effect of change in accounting principle
(net of income tax) -- (6,904)
--------- ----------
Net Income $ 7,781 $ 9,223
========= ==========
Basic earnings per share:
Income before cumulative effect of a change
in accounting principle $ 0.21 $ 0.39
Cumulative effect of change in accounting principle -- (0.17)
--------- ---------
Basic earnings per share $ 0.21 $ 0.22
========= =========
Diluted earnings per share:
Income before cumulative effect of a change
in accounting principle $ 0.21 $ 0.38
Cumulative effect of change in accounting principle -- (0.16)
--------- ---------
Diluted earnings per share $ 0.21 $ 0.22
========= =========
</TABLE>
See accompanying notes.
-3-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the twelve weeks ended
----------------------------------------------
March 23, 1999 March 24 1998
--------------- -----------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 7,781 $ 9,223
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,232 6,179
Cumulative effect of accounting change - 6,904
Net change in operating assets and liabilities:
Change in operating assets 1,948 1,258
Change in operating liabilities 2,172 (3,749)
-------- -----------
Net cash provided by operating activities 19,133 19,815
Cash flows from investing activities:
Purchases of property and equipment (16,801) (17,836)
Other (408) (1,769)
--------- -----------
Net cash used in investing activities (17,209) (19,605)
Cash flows from financing activities:
Net proceeds from issuance of common stock 12 406
Common stock repurchased and retired (26,864) -
--------- -----------
Net cash provided by (used) financing activities (26,852) 406
Effect of exchange rate on cash 14 66
-------- -----------
Net increase (decrease) in cash and cash equivalents (24,914) 682
Cash and cash equivalents at beginning of period 89,847 135,997
-------- -----------
Cash and cash equivalents at end of period $ 64,933 $ 136,679
======== ===========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 2,713 $ 1,504
</TABLE>
See accompanying notes.
-4-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include all
adjustments, consisting of normal, recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for the periods presented. The results of the twelve weeks
ended March 23, 1999 are not necessarily indicative of the results to be
expected for the full year ending December 28, 1999. This quarterly report on
Form 10-Q should be read in conjunction with the Company's audited consolidated
financial statements in its 1998 Form 10-K.
The 1998 condensed consolidated financial statements have been restated to
reflect the adoption of SOP 98 Reporting the Costs of Start-Up Activities.
2. COMPREHENSIVE INCOME
As of December 31, 1997 the Company adopted Statement of Financial
Accounting Standards 130 (SFAS 130), Reporting Comprehensive Income. SFAS 130
established new rules for the reporting comprehensive income and its components;
however, this statement had no impact upon the Company's net income or
stockholders' equity. The statement requires the Company to report separately
the foreign currency translation adjustments in stockholders' equity and to
include the current year adjustments for such amounts in comprehensive income.
Comprehensive income is comprised of the following (in thousands):
FOR THE TWELVE WEEKS ENDED
MARCH 23, 1999 MARCH 24, 1998
-------------- --------------
Net Income $7,781 $ 9,223
Foreign currency
translation adjustments 933 1,756
------- -------
$8,714 $10,979
======= =======
3. EARNINGS PER SHARE
Basic earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. The number of weighted average
shares outstanding for the twelve week periods ended March 23, 1999 and March
24, 1998 were 37,513,971 and 41,165,028, respectively.
For purposes of diluted computations, the number of shares that would be
issued from the exercise of stock options has been reduced by the number of
shares which could have been purchased from the proceeds at the average market
price of the Company's stock or the price of the Company's stock on the exercise
date if options were exercised during the period presented. The number of shares
resulting from this computation of diluted earnings per share for the twelve
weeks ended March 23, 1999 and March 24, 1998 was 37,681,381 and 42,235,190,
respectively.
-5-
<PAGE>
4. ACCOUNTING CHANGE
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-Reporting the Costs of Start-Up Activities, requiring the costs
related to start-up activities be expensed as incurred. Prior to 1998, the
Company capitalized certain pre-opening costs incurred in connection with the
opening of new restaurant locations. The Company adopted the provisions of the
SOP in its financial statements for the year ended December 29, 1998, and
retroactoively made it effective the beginning of 1998. The effect of the
adoption of the SOP resulted in a charge for the cumulative effect of the
accounting change of $6,904,000, net of income taxes of $2,922,000 ($0.17 per
share), to expense costs that had been capitalized prior to 1998, this is
reflected in the restated condensed consolidated statements of income and cash
flows for the twelve weeks ended March 23, 1998.
5. TREASURY STOCK TRANSACTIONS
In 1998 the Board of Directors authorized the Company to purchase up to
5,900,000 shares of the Company's common stock in the open market or in
privately negotiated transactions. Pursuant to the authorization, the Company
purchased 2,798,000 shares of its common stock during the twelve weeks ended
March 23, 1999 at an average price of $9.60 per share. The Company is accounting
for the purchases using the constructive retirement method of accounting wherein
the aggregate par value of the stock is charged to the common stock account and
the excess of cost over par value is charged to paid-in capital.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 the FASB issued Statement No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities, which is required to be adopted
in years beginning after June 15, 1999. The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Company expects
to adopt the new Statement effective December 29, 1999. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives not considered hedges must be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedged asset, liability or firm commitment through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earning. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company does not
anticipate the adoption of the Statement will have a significant effect on its
results of operations or financial position.
-6-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included elsewhere in this Form 10-Q.
In May 1998 the Company temporarily suspended development of new Lone Star
restaurants other than properties which had been committed for or were under
construction. During 1998 the Company substantially completed
remodel/construction of twelve additional restaurants (including one that was
damaged by fire and rebuilt), and anticipates opening all twelve in 1999. The
Company opened 45 domestic restaurants in 1995, 45 restaurants in 1996, 60
restaurants in 1997, and two in 1998. As of March 23, 1999, the Company had not
opened any new restaurants, but had sites for eight additional restaurants, six
of which were acquired by purchase and two by lease. The Company does not
anticipate that any of the eight sites will be constructed or opened in 1999.
Although the Company believes considerable opportunities exist in the
upscale steakhouse market, the Company has temporarily curtailed the development
of its upscale steakhouse concepts. Future development will be evaluated on a
site- by site basis with no current commitments to open additional upscale units
beyond the two Del Frisco's restaurants and three Sullivan's restaurants
scheduled to open in 1999, as described below.
The Company is currently operating three Del Frisco's restaurants and has
two additional restaurants under construction; one with approximately 16,000
square feet of space in Rockefeller Plaza in New York City and one in Las Vegas,
Nevada. The Company expects to open both of these restaurants in 1999.
As of March 23, 1999 the Company was operating twelve Sullivan's
steakhouse restaurants. In the first quarter of 1999, restaurants were opened in
Denver, Colorado and Palm Desert, California. The Company expects to open three
more Sullivan's restaurants in 1999 in Chicago, Illinois, Raleigh, North
Carolina, and Tucson, Arizona.
Internationally, there are 41 Lone Star Steakhouse & Saloon restaurants,
40 in Australia, operated through a joint venture, and one in Guam operated by a
licensee. Although there are currently no plans for further international
development, the Company believes that all of its concepts have international
development potential.
-7-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated (i) the
percentages which certain items included in the condensed consolidated statement
of income bear to net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED (1)
MARCH 23, MARCH 24,
1999 1998
---- (Restated)
----
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
<S> <C> <C>
Net Sales 100.0% 100.0%
Costs and expenses:
Costs of sales................................... 36.0 37.3
Restaurant operating expenses.................... 44.0 39.9
Depreciation and amortization.................... 5.2 4.0
----- -----
Restaurant costs and expenses............... 85.2 81.2
----- -----
Restaurant operating income............................ 14.8 18.8
General and administrative expenses.................... 5.9 3.5
----- -----
Income from operations................................. 8.9 15.3
Other income, principally interest..................... 0.2 0.9
Income before provision for income taxes .............. 9.1 16.2
Provision for income taxes............................. 3.5 5.7
----- -----
Income before cumulative effect of change
in accounting principle ......................... 5.6 10.5
Cumulative effect of change in accounting principle.... - (4.5)
----- -----
Net Income............................................. 5.6% 6.0%
===== =====
</TABLE>
RESTAURANT OPERATING DATA:
Average sales per restaurant on an annualized basis (2) $1,877 $2,137
Number of restaurants at end of the period 324 312
(1) The Company operates on a fifty-two or fifty-three week fiscal year ending
the last Tuesday in December. The fiscal quarters for the Company consist
of accounting periods of twelve, twelve, twelve and sixteen or seventeen
weeks, respectively.
(2) Average sales per restaurant on an annualized basis are computed by
dividing a restaurant's total sales for full accounting periods open
during the reporting period, and annualizing the result.
-8-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
TWELVE WEEKS ENDED MARCH 23, 1999 COMPARED TO TWELVE WEEKS ENDED MARCH 24, 1998
Net sales decreased $13,536,000 (8.8%) to $139,938,000 for the twelve
weeks ended March 23, 1999 compared to $153,514,000 for the twelve weeks ended
March 24, 1998 principally attributable to a decline in average sales per
restaurant resulting from lower customer counts during the period. The decrease
was partially offset by additional sales of $7,619,000 from five new Lone Star
restaurants in Australia, and seven Sullivan's restaurants opened since March of
1998.
Costs of sales, primarily food and beverages, decreased as a percentage of
sales to 36.0% from 37.3% due primarily to lower beef prices. During 1999, the
Company began to purchase beef under contracted prices that cover approximately
70% of the Company's estimated usage for the remainder of the year.
Restaurant operating expenses for the twelve weeks ended March 23, 1999
increased $396,000 from $61,234,000 in the twelve weeks ended March 24, 1998 to
$61,630,000, and increased as a percentage of net sales from 39.9% to 44.0%. The
absolute dollar increase reflects primarily the impact of operating cost for the
twelve new restaurants opened since March of 1998, as well as increased costs
related to certain uninsured claim amounts. The increases were partially offset
by decreases in labor costs related to cost control measures taken to improve
operating efficiencies at the restaurants and by a decrease in advertising
expenses. The increase as a percentage of sales primarily reflects the fixed
cost components of restaurant operating expenses on lower average restaurant
sales experienced in the quarter.
Depreciation and amortization increased $1,053,000 (17.0%) in the twelve
weeks ended March 23, 1999 over the twelve weeks ended March 24, 1998. The
increase is attributable primarily to the twelve restaurants opened since March
1998.
General and administrative expenses increased $2,847,000 (52.3%) as
compared to 1998. The increases in general and administrative expenses were
attributable primarily to increased legal costs of $157,000, increased travel
and recruiting costs of $1,047,000 related to the recruitment of new managers
and increased costs of $431,000 related to expenses incurred in connection with
the installation of the new point-of-sale systems as well as the new database
information systems. Various other costs increased as a result of the variable
costs associated with the increase in the number of restaurants opened since
March 1998.
Other income, principally interest, for the twelve weeks ended March 23,
1999 was $247,000, as compared to $1,455,000 in 1998. The decrease is
attributable to reduced funds available for short term investment purposes.
The effective income tax rates for the twelve weeks ended March 23, 1999
and the twelve weeks ended March 24, 1998 were 38.4% and 38.8%, respectively.
The cumulative effect of change in accounting principle represents the
effect of adoption of Statement of Position 98-5, "Reporting on Costs of Start
Up Activities". The adoption of this statement impacted accounting for
pre-opening costs and as a result the Company began to report pre-opening costs
as a component of restaurant operating expenses effective December 31, 1997. The
cumulative effect of the change in accounting of $6,904,000, net of taxes was
recorded on a one time charge in the first quarter of 1998.
-9-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
IMPACT OF INFLATION
The primary inflationary factors affecting the Company's operations
include food and labor costs. A large number of the Company's restaurant
personnel are paid at the federal and state established minimum wage levels and,
accordingly, changes in such wage levels affect the Company's labor costs. Since
the majority of personnel are tipped employees, minimum wage changes will have
little effect on labor costs. As costs of food and labor have increased, the
Company has historically been able to offset these increases through economies
of scale, although there is no assurance that such offsets will continue. To
date, inflation has not had a material impact on operating margins.
YEAR 2000 COMPUTER ISSUE
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company has instituted a Year 2000 project to prepare its computer
systems and communication systems for the Year 2000. The project includes
identification and assessment of all software, hardware and equipment that could
potentially be affected by the Year 2000 issue and remedial action and further
testing, if necessary.
In the fourth quarter of 1998 the Company committed to a program to
install new point-of-sale devices and systems in most of its restaurants. In
addition, the Company is installing a new data base information system that will
provide significant enhancements to its capabilities to process and analyze data
provided by the new point-of-sale systems. The Company expects these systems to
be fully implemented by mid-1999. The hardware and software providers of the new
systems have warranted that the new systems are Year 2000 compliant. The Company
believes that certain existing software, hardware and equipment which will
continue to be utilized with the new systems are substantially Year 2000
compliant, but will require some modification and replacement; however, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 issue could have a significant impact on the operations of the
Company.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. To date, the
Company has fully completed its assessment of all systems that, it believes,
could be significantly affected by the year 2000. The completed assessment
indicated that certain parts of the Company's significant information technology
systems could be affected, particularly the financial reporting systems. In
addition, the Company is gathering information about the year 2000 compliance
status of its significant suppliers and service providers and continues to
monitor their compliance.
For its information technology exposures, to date the Company estimates
that it is 90% complete on the remediation phase and expects to complete
software reprogramming and replacement no later than June 30, 1999. Once
software is reprogrammed or replaced for a system, the Company begins testing
and implementation. These phases run concurrently for different systems. To
date, the Company has completed 90% of its testing and has implemented 85% of
its remediated systems. Completion of the testing phase for all significant
systems is expected by May
-10-
<PAGE>
15, 1999, with all recommended systems fully tested and implemented by May 31,
1999, with 100% completion targeted for July 31, 1999.
The Company has queried its significant suppliers and service providers
(external agents) that do not share information systems with the Company. To
date, the Company is not aware of any external agent with a year 2000 issue that
would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that external
agents will be year 2000 ready. The inability of external agents to complete
their year 2000 resolution process in a timely fashion could materially impact
the Company. The effect of non-compliance by external agents is not
determinable.
The Company will utilize both internal and external resources to
reprogram, replace, test and implement the software and hardware equipment for
year 2000 modifications. The total cost of the Year 2000 Issue is estimated to
be less than $100,000 and the Company expects that most of the costs will be
expensed. All costs are being funded through operating cash flow. The projected
costs do not include the costs of the new point-of-sale devices and systems and
the costs of equipment, software, and installation of the new data base
information system previously discussed.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 project. In the event
that the Company does not complete any additional phases, the Company might be
unable to process transactional and financial reporting information. In
addition, disruptions in the economy generally resulting from the year 2000
issues could also materially adversely affect the Company. The Company could be
subject to litigation for computer systems product failure, for example,
equipment shutdown or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds, increasing inventories, and adjusting staffing
strategies.
-11-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of the Company's cash flows for
each of the twelve weeks ended March 23, 1999 and March 24, 1998 (in thousands).
Twelve weeks ended
March 23, March 24,
1999 1998
---- ----
(Restated)
Net cash provided by operating activities.. $ 19,133 $ 19,815
Net cash used in investment activities....... (17,209) (19,605)
Net cash provided by (used) financing
activities.................................. (26,852) 406
Effect of exchange rate on cash............... 14 66
-------- --------
Net increase (decrease) in cash............... $(24,914) $ 682
======== ========
During the twelve week period ended March 23, 1999, the Company's investment in
property and equipment was $16,801,000.
The Company does not have significant receivables or inventory and
receives trade credit based upon negotiated terms in purchasing food and
supplies. Because funds available from cash sales are not needed immediately to
pay for food and supplies, or to finance inventory, they may be considered as a
source of financing for noncurrent capital expenditures.
At March 23, 1999, the Company had $64,933,000 in cash and cash
equivalents. While the Company has not established a credit facility, the
Company believes it could establish a facility on suitable terms. The Company
has entered into three lease agreements for new locations. The Company is not
actively negotiating purchase or lease of additional sites.
During 1998, the Company's Board of Directors authorized the purchase of
up to 5,900,000 shares of the Company's common stock from time to time in the
open market or in privately negotiated transactions. During the current year the
Company has purchased 2,798,000 shares at a cost of $26,864,000 and since
inception of the program it has purchased 5,408,000 shares with a cumulative
cost of approximately $63,239,000.
Beginning in the fourth quarter of 1998, the Company began utilizing
derivative financial instruments in the form of commodity futures contracts to
manage market risks and reduce its exposure resulting from fluctuations in the
prices of meat. The Company uses live beef cattle futures contracts to
accomplish its objective. Realized and unrealized changes in the fair values of
the derivative instruments are recognized in income in the period in which the
change occurs. Realized and unrealized gains and losses for the period have not
been significant. As of March 23, 1999, the Company's exposure for open
positions in futures contracts was not significant.
-12-
<PAGE>
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, amended. Stockholders are cautioned that all
forward-looking statements involve risks and uncertainty, including without
limitation, the ability of the Company to open new restaurants, general market
conditions, competition and pricing. Although the Company believes the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements contained in the report will
prove to be accurate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable.
-13-
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT 10.2 EMPLOYMENT AGREEMENT DATED JANUARY 1, 1999 BY AND
BETWEEN THE COMPANY AND JOHN D. WHITE
EXHIBIT 10.6 AMENDMENT TO NON-COMPETITION, CONFIDENTIALITY AND
NON-SOLICITATION AGREEMENT BETWEEN THE COMPANY AND
JAMIE B. COULTER DATED JANUARY 1, 1999
EXHIBIT 10.7 EMPLOYMENT AGREEMENT DATED JANUARY 1, 1999 BY AND
BETWEEN THE COMPANY AND MICHAEL J. ARCHER
EXHIBIT 10.8 EMPLOYMENT AGREEMENT DATED JANUARY 1, 1999 BY AND
BETWEEN GERALD T. AARON
EXHIBIT 27 FINANCIAL DATA SCHEDULE
(B) FORMS ON 8-K NONE
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
LONE STAR STEAKHOUSE & SALOON, INC.
(Registrant)
Date May 7, 1999 /S/ John D. White
------------------------------------
John D. White
Chief Financial and Principal Accounting
Officer, Executive Vice President,
Treasurer and Director
-15-
EMPLOYMENT AGREEMENT
This Agreement is entered into effective as of this 1st day of
January, 1999, by and between Lone Star Steakhouse & Saloon, Inc., a Delaware
corporation (the "Corporation") and John D. White ("Employee").
RECITALS
WHEREAS, the Employee is currently serving as a Executive Vice
President and Chief Financial Officer of the Corporation and various
subsidiaries of the Corporation; and
WHEREAS, Employee is a principal officer of the Corporation and an
integral part of its management;
WHEREAS, the Corporation desires to continue the services of
Employee, whose experience, knowledge and abilities with respect to the business
and affairs of the Corporation are extremely valuable to the Corporation; and
WHEREAS, the parties hereto desire to enter into this Agreement
setting forth the terms and conditions of the continued employment relationship
of the Corporation and Employee.
NOW THEREFORE, it is agreed as follows:
ARTICLE I
Employment Agreement. The Employment Agreement dated February 1
1998, executed by the Corporation and the Employee is hereby terminated and
shall be superseded by this Agreement.
ARTICLE II
2.1 Term of Employment. The Corporation shall initially employ
Employee for a period of three years from the date hereof (the "Initial Term").
2.2 Extension of Initial Term. Upon each annual anniversary date of
this Agreement, this Agreement shall be extended automatically for successive
terms of one year each, unless either the Corporation or the Employee gives
contrary written notice to the other not later than 90 days prior to the annual
anniversary date thereof.
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ARTICLE III
Duties of the Employee
General Duties. Employee shall serve as Executive Vice President and
Chief Financial Officer of the Corporation. He shall do and perform all
services, acts, or things necessary or advisable to manage and conduct the
business of the Corporation consistent with such position subject to such
policies and procedures as may be established by the Board.
Employee shall: (i) devote his or her entire business time,
attention, and energies to the business of the Corporation, and, (ii) faithfully
and competently perform his duties hereunder; and, Employee shall not, during
the term of this Agreement, engage in any other business activity except as
permitted by Article 9.
ARTICLE IV
Compensation
4.1 Salary. For Employee's services to the Corporation as Executive
Vice President and Chief Financial Officer, Employee shall be paid a salary at
the annual rate of $283,000.00 (herein referred to as "Salary") payable in
twenty-four equal installments on the first and fifteenth day of each month. On
the first day of each calendar year during the term of this Agreement with the
Corporation, Employee shall be eligible for an increase in Salary based on
recommendations made by the Compensation Committee of the Board.
4.2 Bonus. Employee is eligible to participate in the stock option
plan of the employer and all bonus compensation plans which may be offered from
time to time.
ARTICLE V
Employee Benefits
5.1 Use of Automobile. The Corporation shall provide, at the option
of Employee, with either the use of an automobile for business and personal use
or a car allowance of to be specified by the Corporation which complies with
I.R.S. Guidelines. The Corporation shall pay all expenses of operating,
maintaining and repairing the automobile and shall procure and maintain
automobile liability insurance in respect thereof, with such coverage insuring
each Employee for bodily injury and property damage.
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5.2 Medical, Life and Disability Insurance Benefits. The Corporation
shall provide employee with the medical, life and disability insurance benefits
in accordance with the established benefit policies of the Corporation.
5.3 Business Expenses. Employee shall be authorized to incur
reasonable expenses for promoting the business of the Corporation including
expenses for entertainment, travel, and similar items. The Corporation shall
reimburse Employee for all such expenses upon the presentation by Employee, from
time to time, of an itemized account of such expenditures.
5.4 Vacations. Employee shall be entitled to an annual paid vacation
commensurate with the Corporation's established vacation policy for executive
officers. The timing of paid vacations shall be scheduled in a reasonable manner
by the Employee.
5.5 Disability. Upon disability (as defined herein) of the Employee,
the Employee shall be entitled to receive an amount equal to 50% of his salary
(in addition to any disability insurance benefits received pursuant to Section
5.2 herein), such amount being paid semi-monthly in twelve equal installments.
ARTICLE VI
Termination
6.1 Death. Employee's employment hereunder shall be terminated upon
the Employee's death.
6.2 Disability. The Corporation may terminate Employee's employment
hereunder in the event Employee is disabled and such disability continues for
more than 180 days. Disability shall be defined as the inability of Employee to
render the services required of him under this Agreement as a result of physical
or mental incapacity.
6.3 Cause.
(a) The Corporation may terminate Employee's employment hereunder
for Cause. For the purpose of this Agreement, "Cause" shall mean the (i) willful
and intentional failure by Employee to substantially perform his duties
hereunder, other than any failure resulting from Employee's incapacity due to
physical or mental incapacity, or (ii) commission by Employee, in connection
with his employment by the Corporation, of an illegal act or any act (though not
illegal) which is not in the ordinary course of the Employee's responsibilities
and which exposes
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the Corporation to a significant level of undue liability. For purposes of this
paragraph, no act or failure to act on Employee's part shall be considered to
have met either of the preceding tests unless done or omitted to be done by
Employee not in good faith without a reasonable belief that his action or
omission was in the best interest of the Corporation.
(b) Notwithstanding the foregoing, Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to Employee a copy of a resolution, duly adopted by the majority vote of the
Board of Directors.
6.4 Compensation Upon Termination for Cause or Upon Resignation by
Employee. Except as otherwise set forth in Section 5.6 hereof, if Employee's
employment shall be terminated for Cause or if Employee shall resign his
position with the Corporation, the Corporation shall pay Employee's compensation
only through the last day of Employee's employment by the Corporation. The
Corporation shall then have no further obligation to Employee under this
Agreement.
6.5 Involuntary Termination. If:
(i) the Employee is terminated by Corporation at any
time prior to the termination of this Agreement for
reasons other than Cause (as defined herein), (ii) if
Corporation gives notice to the Employee, in accordance
with Section 1.2 herein, that this Agreement will not be
renewed;
Employee shall be paid, over the ensuing six (6) month period, a sum
equal to the cash compensation paid to him excluding all bonuses of
any kind by Corporation for the six (6) month period immediately
preceding such termination or non-renewal. Such six (6) month
period, as the case may be, shall begin: (i) on the date of
termination in the case of termination of Employee's employment; and
(ii) on the date notice of non-renewal is given in the case of
termination of this Agreement not accompanied by simultaneous
termination of Employee's employment with the Corporation.
ARTICLE VII
No Obligation to Mitigate Damages; No Effect
on Other Contractual Rights
7.1 No Mitigation. Employee shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any
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compensation earned by Employee as the result of employment by another employer
after Employee's termination or resignation.
7.2 Other Contractual Rights. The provisions of this Agreement, and
any payment provided for hereunder, shall not reduce any amount otherwise
payable, or in any way diminish Employee's existing rights, or rights which
would accrue solely as a result of passage of time under any employee benefit
plan or other contract, plan or arrangement of which Employee is a beneficiary
or in which he participates.
ARTICLE VIII
Successors to the Corporation
Employee's Successors and Assigns. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee or
other designee or, if there be no such designee, to Employee's estate.
ARTICLE IX
Restrictions on Employee
9.1 Non-Disclosure; Non-Solicitation. Except in the performance of
his duties hereunder, at no time during the Term of Employment , and for
eighteen (18) months after the termination hereof, shall Employee, individually
or jointly with others, for the benefit of Employee or any third party, publish,
disclose, use, or authorize anyone else to publish, disclose, or use, any secret
or confidential material or information relating to any aspect of the business
or operations of the Corporation, including, without limitation, any secret or
confidential information relating to the business, customers, trade or
industrial practices, trade secrets, technology, recipes or know-how of the
Corporation. Except in the performance of his duties hereunder, at no time
during the term or six (6) months thereafter, shall Employee for himself or on
behalf of any other person or entity contact any employee of the Corporation for
the purpose of hiring, diverting or otherwise soliciting the employee.
9.2 Non-Competition. During the Term of Employment and for eighteen
(18) months thereafter, regardless of any termination pursuant to Article VI or
any voluntary termination or resignation by Employee, Employee shall not,
individually or jointly with others, directly or
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indirectly, whether for his own account or for that of any other person or
entity, be employed by, engage in, own, or hold any ownership interest in any
person or entity engaged in a restaurant business the same as or similar to any
restaurant business of the Corporation without the Corporation's written
consent.
ARTICLE X
Miscellaneous
10.1 Indemnification. To the full extent permitted by law, the Board
shall authorize the payment of expenses incurred by or shall satisfy judgments
or fines rendered or levied against Employee in any action brought by a
third-party against Employee (whether or not the Corporation is joined as a
party defendant) to impose any liability or penalty on Employee for any act
alleged to have been committed by Employee while employed by the Corporation
unless Employee was acting with gross negligence or willful misconduct. Payments
authorized hereunder shall include amounts paid and expenses incurred in
settling any such action or threatened action.
10.2 Notices. All notices, requests, demands and other
communications hereunder, including notice of termination by the Employee under
Article 11.1 of this Agreement must be in writing and shall be deemed to have
been duly given upon receipt if delivered by hand, sent by telecopier or
courier, and three (3) days after such communication is mailed within the
continental United States by first class certified mail, return receipt
requested, postage prepaid, to the other party.
10.3 Arbitration. The parties agree that any disputes, claims or
controversy of any kind arising out of this agreement or out of the employment
relationship between Employee and the Corporation shall be submitted to
arbitration. Employee simultaneously with execution of this agreement agrees to
execute the Receipt acknowledging receipt of the Corporation's Mandatory
Arbitration Policy.
10.4 Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by any party.
10.5 Amendment. No amendment or modification of this Agreement shall
be deemed effective unless or until executed in writing by the parties hereto.
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10.6 Validity. This Agreement, having been executed and delivered in
the State of Kansas, its validity, interpretation, performance and enforcement
will be governed by the laws of that state.
10.7 Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.8 Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
10.9 Legal Fees. Except in the event of termination for Cause, and
only in the event a change of control of the Corporation has occurred, the
Corporation shall pay all legal fees and expenses which Employee may incur as a
result of the Corporation's contesting the validity, enforceability or
Employee's interpretation of, or determination under, this Agreement.
10.10 Exclusivity. Specific arrangements referred to in this
Agreement are not intended to exclude Employee's participation in any other
benefits available to executive personnel generally or to preclude other
compensation or benefits as may be authorized by the Board from time to time.
10.11 Partial Invalidity. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
ARTICLE XI
11.1 Change of Control. The Employee shall have the right to
terminate his employment hereunder, upon 10 days notice to the Corporation
within six months of Change of Control. For the purposes of this Agreement, a
"Change of Control" means (i) the direct or indirect, sale, lease, exchange or
other transfer of all or substantially all (50% or more) of the assets of the
Corporation to any Person or Group of Persons other than an Affiliate or an
entity controlled by an Affiliate, (ii) the merger, consolidation or other
business combination of the Corporation with or into another corporation with
the effect that the shareholders of the Corporation immediately prior to the
business combination hold 50% or less of the combined voting power of the then
outstanding securities of the surviving Person of such merger ordinarily (and
apart from rights accruing under special circumstances) having the right to vote
in the election of directors, (iii) the replacement of a majority of the Board
of the Corporation over any period of two years or less, from the directors who
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constituted the Board of the Corporation at the beginning of such period, and
such replacement(s) shall not have been approved by the Board of the Corporation
as constituted at the beginning of such period, (iv) a Person or Group of
Persons other than an Affiliate or an entity controlled by an Affiliate, shall,
as a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") of securities of the Corporation representing 50%
or more of the combined voting power of the then outstanding securities of the
Corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors. A
transaction constituting a Change of Control shall be deemed to have occurred
upon the closing of the transaction. Notwithstanding the foregoing, a
transaction shall not constitute a Change of Control under this Agreement if the
transaction is approved by (i) at least a majority of the Board of the
Corporation as constituted immediately prior to the transaction and (ii) Jamie
B. Coulter, the Chairman of the Board of the Corporation.
For the purposes of this Agreement, an "Affiliate" of the
Corporation shall mean any person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with the Corporation, including but not limited to the executive officer and
directors of the Corporation.
11.2 Termination of Non-Compete and Non-Solicitation. In the event
the Employee elects to terminate this Agreement in connection with a Change of
Control under the terms of Article 11.1, the provisions of Article 9.2
Non-Solicitation and 9.3 Non-Competition shall be deemed to have expired and be
of no further force or effect as of the date of termination of the Employee.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and its seal affixed hereto by its officers thereunto duly authorized;
and the Employee has executed this Agreement, as of the day and year first above
written.
"CORPORATION" LONE STAR STEAKHOUSE &
Attest SALOON, INC.
By
- -------------------------- ----------------------------------------
Gerald T. Aaron, Secretary Jamie B. Coulter, Chairman and
Chief Executive Officer
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Witness "EMPLOYEE"
- ------------------------------ ------------------------------------------
John D. White
9
AMENDMENT TO
NON-COMPETITION, CONFIDENTIALITY AND
NON-SOLICIATION AGREEMENT
This Agreement is entered into effective as of January 1, 1999 by
and between Lone Star Steakhouse & Saloon, Inc., a corporation (the
"Corporation") and Jamie B. Coulter ("Director").
WHEREAS, the Corporation and Director entered into an
Non-Competition, Confidentiality and Non-Solicitation Agreement "Agreement"
dated March 12, 1992; and
WHEREAS, the parties hereto desire to enter into this Amendment
setting forth the terms and conditions of the continued employment relationship
of the Corporation and Director.
NOW THEREFORE, it is agreed as follows:
1. Section 5.1 of the Agreement shall be deleted and the following new
Section 5.1 substituted therefore:
5.1 Notices. All notices, requests, demands and other communications
hereunder, including notice of termination by the Director under Section 5.1 of
this Agreement must be in writing and shall be deemed to have been duly given
upon receipt if delivered by hand, sent by telecopier or courier, and three (3)
days after such communication is mailed within the continental United States by
first class certified mail, return receipt requested, postage prepaid, to the
other party.
2. A new section, Section 6. shall be added as follows:
SECTION 6.
6.1 Change of Control. The Director shall have the right to
terminate his employment hereunder, upon 10 days notice to the Corporation
within three (3) years of Change of Control. For the purposes of this Agreement,
a "Change of Control" means (i) the direct or indirect, sale, lease, exchange or
other transfer of all or substantially all (50% or more) of the assets of the
Corporation to any Person or Group of Persons other than an Affiliate or an
entity controlled by an Affiliate, (ii) the merger, consolidation or other
business combination of the Corporation with or into another corporation with
the effect that the shareholders of the Corporation immediately prior to the
business combination hold 50% or less of the combined voting power of the then
outstanding securities of the surviving Person of such merger ordinarily (and
apart from rights accruing under special circumstances) having the right to vote
in the election of directors, (iii) the replacement of a majority of the Board
of the
<PAGE>
Corporation over any period of two years or less, from the directors who
constituted the Board of the Corporation at the beginning of such period, and
such replacement(s) shall not have been approved by the Board of the Corporation
as constituted at the beginning of such period, (iv) a Person or Group of
Persons other than an Affiliate or an entity controlled by an Affiliate, shall,
as a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") of securities of the Corporation representing 50%
or more of the combined voting power of the then outstanding securities of the
Corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors. A
transaction constituting a Change of Control shall be deemed to have occurred
upon the closing of the transaction. Notwithstanding the foregoing, a
transaction shall not constitute a Change of Control under this Agreement if the
transaction is approved by (i) at least a majority of the Board of the
Corporation as constituted immediately prior to the transaction and (ii) Jamie
B. Coulter, the Chairman of the Board of the Corporation.
For the purposes of this Agreement, an "Affiliate" of the
Corporation shall mean any person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with the Corporation, including but not limited to the executive officer and
directors of the Corporation.
6.2 Termination of Non-Compete and Non-Solicitation. In the event
the Director elects to terminate this Agreement in connection with a Change of
Control under the terms of Section 6.1, the provisions of Section 2.
Non-Competition and Section 4. Non-Solicitation shall be deemed to have expired
and be of no further force or effect as of the date of termination of the
Director.
3. Other than as hereby amended, the Agreement is hereby ratified and
confirmed.
"CORPORATION" LONE STAR STEAKHOUSE
& SALOON, INC.
Attest
___________________________ By___________________________________
Gerald T. Aaron, Secretary John D. White, Executive Vice
President and CFO
Witness "DIRECTOR"
- --------------------------- -------------------------------------
Jamie B. Coulter
EMPLOYMENT AGREEMENT
This Agreement is entered into effective as of this 1st day of
January, 1999, by and between Lone Star Steakhouse & Saloon, Inc., a Delaware
corporation (the "Corporation") and Michael J. Archer ("Employee").
RECITALS
WHEREAS, the Employee is currently serving as a Chief Operating
Officer - Sullivan's/Del Frisco's of the Corporation and various subsidiaries of
the Corporation; and
WHEREAS, Employee is a principal officer of the Corporation and an
integral part of its management;
WHEREAS, the Corporation desires to continue the services of
Employee, whose experience, knowledge and abilities with respect to the business
and affairs of the Corporation are extremely valuable to the Corporation; and
WHEREAS, the parties hereto desire to enter into this Agreement
setting forth the terms and conditions of the continued employment relationship
of the Corporation and Employee.
NOW THEREFORE, it is agreed as follows:
ARTICLE I
Employment Agreement. The Employment Agreement dated February 1
1998, executed by the Corporation and the Employee is hereby terminated and
shall be superseded by this Agreement.
ARTICLE II
2.1 Term of Employment. The Corporation shall initially employ
Employee for a period of three years from the date hereof (the "Initial Term").
2.2 Principal Place of Employment. The Corporation acknowledges that
the Employee's principal residence is currently located in Dallas, Texas. The
Corporation acknowledges and agrees that the Employee shall
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be employed by the Corporation at an office to be established by Employee on
behalf of the Corporation in Dallas, Texas (the "Dallas Office").
Employee may hire a secretary or secretarial services, upon such
salary terms and other terms and conditions which are acceptable to the
Corporation, which such acceptance will not be unreasonably withheld.
The Corporation shall be responsible to pay or immediately reimburse
Employee for any and all costs and expenses incurred in establishing and
operating the Dallas Office, including without limitation, any and all costs and
expenses arising out of any of the activities and items contemplated hereby.
2.3 Extension of Initial Term. Upon each annual anniversary date of
this Agreement, this Agreement shall be extended automatically for successive
terms of one year each, unless either the Corporation or the Employee gives
contrary written notice to the other not later than 90 days prior to the annual
anniversary date thereof.
ARTICLE III
Duties of the Employee
General Duties. General Duties. Employee shall serve as Chief
Operating Officer - Del Frisco's/Sullivan's of the Corporation. In close
coordination and cooperation with the Corporation, Employee shall continue to
have the responsibility for the development of the Corporation's upscale
steakhouse restaurant concept with an average meal check price in excess of
$18.00 (the "Division"). Employee shall continue to be responsible for marketing
and growth of the Division. Employee shall be responsible for the management and
day-to-day operations of the Division. He shall do and perform all services,
acts, or things necessary or advisable to manage and conduct the business of the
Corporation consistent with such position subject to such policies and
procedures as may be established by the Board.
Employee shall: (i) devote his or her entire business time,
attention, and energies to the business of the Corporation, and, (ii) faithfully
and competently perform his duties hereunder; and, Employee shall not, during
the term of this Agreement, engage in any other business activity except as
permitted by Article 9.
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ARTICLE IV
Compensation
4.1 Salary. For Employee's services to the Corporation as Chief
Operating Officer - Sullivan's/Del Frisco's, Employee shall be paid a salary at
the annual rate of $250,000.00, (herein referred to as "Salary") payable in
twenty-four equal installments on the first and fifteenth day of each month. On
the first day of each calendar year during the term of this Agreement with the
Corporation, Employee shall be eligible for an increase in Salary based on
recommendations made by the Compensation Committee of the Board.
4.2 Bonus. Employee is eligible to participate in the stock option
plan of the employer and all bonus compensation plans which may be offered from
time to time.
4.3 Bonus. Employee shall be eligible to receive a bonus (the
"Bonus"), which Bonus will be equal to sixty percent (60%) of the Employee's
then Salary, for any annual period hereunder. The Bonus shall be paid at the
discretion of the Corporation. Employee and the Corporation agree to establish
mutually and in good faith within sixty (60) days following the date of this
Agreement, goals and objectives, in writing, for the Employee for each annual
period of this Agreement, which such goals and objective shall be described in
as measurable and objective standards and criteria as practicable. In the event
that Employee does not fully achieve the goals and objectives upon which the
Bonus is based in any annual period, Employee shall nonetheless be entitled to
receive a proportionate amount of the full amount of the Bonus that would
otherwise have been paid to Employee for such annual period if Employee had
fully achieved the goals and objective. The determination of the proportionate
amount of the Bonus to which Employee shall be entitled shall correspond to the
level, percentage or degree of Employee's achievement of goals and objective,
and shall not be an "all or nothing" test.
ARTICLE V
Employee Benefits
5.1 Use of Automobile. The Corporation shall provide, at the option
of Employee, with either the use of an automobile for business and personal use
or a car allowance of to be specified by the Corporation which complies with
I.R.S. Guidelines. The Corporation shall pay all expenses of operating,
maintaining and repairing the automobile and shall procure and maintain
automobile liability insurance in respect thereof, with such coverage insuring
each Employee for bodily injury and property damage.
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5.2 Medical, Life and Disability Insurance Benefits. The Corporation
shall provide employee with the medical, life and disability insurance benefits
in accordance with the established benefit policies of the Corporation. In
addition, the Corporation shall pay or reimburse Employee for payment of those
certain (i) life insurance and (ii) long term disability insurance policies of
Employee in effect as of the date hereof, which such payments in the aggregate
equal approximately $4,700 annually.
5.3 Business Expenses. Employee shall be authorized to incur
reasonable expenses for promoting the business of the Corporation including
expenses for entertainment, travel, and similar items. The Corporation shall
reimburse Employee for all such expenses upon the presentation by Employee, from
time to time, of an itemized account of such expenditures.
5.4 Vacations. Employee shall be entitled to an annual paid vacation
commensurate with the Corporation's established vacation policy for executive
officers. The timing of paid vacations shall be scheduled in a reasonable manner
by the Employee.
5.5 Disability. Upon disability (as defined herein) of the Employee,
the Employee shall be entitled to receive an amount equal to 50% of his salary
(in addition to any disability insurance benefits received pursuant to Section
5.2 herein), such amount being paid semi-monthly in twelve equal installments.
ARTICLE VI
Termination
6.1 Death. Employee's employment hereunder shall be terminated upon
the Employee's death.
6.2 Disability. The Corporation may terminate Employee's employment
hereunder in the event Employee is disabled and such disability continues for
more than 180 days. Disability shall be defined as the inability of Employee to
render the services required of him under this Agreement as a result of physical
or mental incapacity.
6.3 Cause.
(a) The Corporation may terminate Employee's employment hereunder
for Cause. For the purpose of this Agreement, "Cause" shall
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mean the (i) willful and intentional failure by Employee to substantially
perform his duties hereunder, other than any failure resulting from Employee's
incapacity due to physical or mental incapacity, or (ii) commission by Employee,
in connection with his employment by the Corporation, of an illegal act or any
act (though not illegal) which is not in the ordinary course of the Employee's
responsibilities and which exposes the Corporation to a significant level of
undue liability. For purposes of this paragraph, no act or failure to act on
Employee's part shall be considered to have met either of the preceding tests
unless done or omitted to be done by Employee not in good faith without a
reasonable belief that his action or omission was in the best interest of the
Corporation.
(b) Notwithstanding the foregoing, Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to Employee a copy of a resolution, duly adopted by the majority vote of the
Board of Directors.
6.4 Compensation Upon Termination for Cause or Upon Resignation by
Employee. Except as otherwise set forth in Section 5.6 hereof, if Employee's
employment shall be terminated for Cause or if Employee shall resign his
position with the Corporation, the Corporation shall pay Employee's compensation
only through the last day of Employee's employment by the Corporation. The
Corporation shall then have no further obligation to Employee under this
Agreement.
6.5 Involuntary Termination. If:
(i) the Employee is terminated by Corporation at any
time prior to the termination of this Agreement for
reasons other than Cause (as defined herein), (ii) if
Corporation gives notice to the Employee, in accordance
with Section 1.2 herein, that this Agreement will not be
renewed;
Employee shall be paid, over the ensuing six (6) month period, a sum
equal to the cash compensation paid to him excluding all bonuses of
any kind by Corporation for the six (6) month period immediately
preceding such termination or non-renewal. Such six (6) month
period, as the case may be, shall begin: (i) on the date of
termination in the case of termination of Employee's employment; and
(ii) on the date notice of non-renewal is given in the case of
termination of this Agreement not accompanied by simultaneous
termination of Employee's employment with the Corporation.
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ARTICLE VII
No Obligation to Mitigate Damages; No Effect
on Other Contractual Rights
7.1 No Mitigation. Employee shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by
Employee as the result of employment by another employer after Employee's
termination or resignation.
7.2 Other Contractual Rights. The provisions of this Agreement, and
any payment provided for hereunder, shall not reduce any amount otherwise
payable, or in any way diminish Employee's existing rights, or rights which
would accrue solely as a result of passage of time under any employee benefit
plan or other contract, plan or arrangement of which Employee is a beneficiary
or in which he participates.
ARTICLE VIII
Successors to the Corporation
Employee's Successors and Assigns. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee or
other designee or, if there be no such designee, to Employee's estate.
ARTICLE IX
Restrictions on Employee
9.1 Non-Disclosure; Non-Solicitation. Except in the performance of
his duties hereunder, at no time during the Term of Employment , and for
eighteen (18) months after the termination hereof, shall Employee, individually
or jointly with others, for the benefit of Employee or any third party, publish,
disclose, use, or authorize anyone else to publish, disclose, or use, any secret
or confidential material or information relating to any aspect of the business
or operations of the Corporation, including, without
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limitation, any secret or confidential information relating to the business,
customers, trade or industrial practices, trade secrets, technology, recipes or
know-how of the Corporation. Except in the performance of his duties hereunder,
at no time during the term or six (6) months thereafter, shall Employee for
himself or on behalf of any other person or entity contact any employee of the
Corporation for the purpose of hiring, diverting or otherwise soliciting the
employee.
9.2 Non-Competition. During the Term of Employment and for eighteen
(18) months thereafter, regardless of any termination pursuant to Article VI or
any voluntary termination or resignation by Employee, Employee shall not,
individually or jointly with others, directly or indirectly, whether for his own
account or for that of any other person or entity, be employed by, engage in,
own, or hold any ownership interest in any person or entity engaged in a
restaurant business the same as or similar to any restaurant business of the
Corporation without the Corporation's written consent.
ARTICLE X
Miscellaneous
10.1 Indemnification. To the full extent permitted by law, the Board
shall authorize the payment of expenses incurred by or shall satisfy judgments
or fines rendered or levied against Employee in any action brought by a
third-party against Employee (whether or not the Corporation is joined as a
party defendant) to impose any liability or penalty on Employee for any act
alleged to have been committed by Employee while employed by the Corporation
unless Employee was acting with gross negligence or willful misconduct. Payments
authorized hereunder shall include amounts paid and expenses incurred in
settling any such action or threatened action.
10.2 Notices. All notices, requests, demands and other
communications hereunder, including notice of termination by the Employee under
Article 11.1 of this Agreement must be in writing and shall be deemed to have
been duly given upon receipt if delivered by hand, sent by telecopier or
courier, and three (3) days after such communication is mailed within the
continental United States by first class certified mail, return receipt
requested, postage prepaid, to the other party.
10.3 Arbitration. The parties agree that any disputes, claims or
controversy of any kind arising out of this agreement or out of the employment
relationship between Employee and the Corporation shall be submitted to
arbitration. Employee simultaneously with execution of this
7
<PAGE>
agreement agrees to execute the Receipt acknowledging receipt of the
Corporation's Mandatory Arbitration Policy.
10.4 Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by any party.
10.5 Amendment. No amendment or modification of this Agreement shall
be deemed effective unless or until executed in writing by the parties hereto.
10.6 Validity. This Agreement, having been executed and delivered in
the State of Kansas, its validity, interpretation, performance and enforcement
will be governed by the laws of that state.
10.7 Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.8 Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
10.9 Legal Fees. Except in the event of termination for Cause, and
only in the event a change of control of the Corporation has occurred, the
Corporation shall pay all legal fees and expenses which Employee may incur as a
result of the Corporation's contesting the validity, enforceability or
Employee's interpretation of, or determination under, this Agreement.
10.10 Exclusivity. Specific arrangements referred to in this
Agreement are not intended to exclude Employee's participation in any other
benefits available to executive personnel generally or to preclude other
compensation or benefits as may be authorized by the Board from time to time.
10.11 Partial Invalidity. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
ARTICLE XI
11.1 Change of Control. The Employee shall have the right to
terminate his employment hereunder, upon 10 days notice to the Corporation
within six months of Change of Control. For the purposes of this Agreement, a
"Change of Control" means (i) the direct or indirect, sale,
8
<PAGE>
lease, exchange or other transfer of all or substantially all (50% or more) of
the assets of the Corporation to any Person or Group of Persons other than an
Affiliate or an entity controlled by an Affiliate, (ii) the merger,
consolidation or other business combination of the Corporation with or into
another corporation with the effect that the shareholders of the Corporation
immediately prior to the business combination hold 50% or less of the combined
voting power of the then outstanding securities of the surviving Person of such
merger ordinarily (and apart from rights accruing under special circumstances)
having the right to vote in the election of directors, (iii) the replacement of
a majority of the Board of the Corporation over any period of two years or less,
from the directors who constituted the Board of the Corporation at the beginning
of such period, and such replacement(s) shall not have been approved by the
Board of the Corporation as constituted at the beginning of such period, (iv) a
Person or Group of Persons other than an Affiliate or an entity controlled by an
Affiliate, shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") of securities
of the Corporation representing 50% or more of the combined voting power of the
then outstanding securities of the Corporation ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors. A transaction constituting a Change of Control shall be deemed to
have occurred upon the closing of the transaction. Notwithstanding the
foregoing, a transaction shall not constitute a Change of Control under this
Agreement if the transaction is approved by (i) at least a majority of the Board
of the Corporation as constituted immediately prior to the transaction and (ii)
Jamie B. Coulter, the Chairman of the Board of the Corporation.
For the purposes of this Agreement, an "Affiliate" of the
Corporation shall mean any person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with the Corporation, including but not limited to the executive officer and
directors of the Corporation.
11.2 Termination of Non-Compete and Non-Solicitation. In the event
the Employee elects to terminate this Agreement in connection with a Change of
Control under the terms of Article 11.1, the provisions of Article 9.2
Non-Solicitation and 9.3 Non-Competition shall be deemed to have expired and be
of no further force or effect as of the date of termination of the Employee.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and its seal affixed hereto by its officers thereunto duly
9
<PAGE>
authorized; and the Employee has executed this Agreement, as of the day and year
first above written.
"CORPORATION" LONE STAR STEAKHOUSE &
Attest SALOON, INC.
By
- --------------------------- -------------------------------------
Gerald T. Aaron, Secretary Jamie B. Coulter, Chairman and
Chief Executive Officer
Witness "EMPLOYEE"
- --------------------------- ---------------------------------------
Michael J. Archer
10
EMPLOYMENT AGREEMENT
This Agreement is entered into effective as of this 1st day of
January, 1999, by and between Lone Star Steakhouse & Saloon, Inc., a Delaware
corporation (the "Corporation") and Gerald T. Aaron ("Employee").
RECITALS
WHEREAS, the Employee is currently serving as a Senior Vice
President - Counsel of the Corporation and various subsidiaries of the
Corporation; and
WHEREAS, Employee is a principal officer of the Corporation and an
integral part of its management;
WHEREAS, the Corporation desires to continue the services of
Employee, whose experience, knowledge and abilities with respect to the business
and affairs of the Corporation are extremely valuable to the Corporation; and
WHEREAS, the parties hereto desire to enter into this Agreement
setting forth the terms and conditions of the continued employment relationship
of the Corporation and Employee.
NOW THEREFORE, it is agreed as follows:
ARTICLE I
Employment Agreement. The Employment Agreement dated February 1
1998, executed by the Corporation and the Employee is hereby terminated and
shall be superseded by this Agreement.
ARTICLE II
2.1 Term of Employment. The Corporation shall initially employ
Employee for a period of three years from the date hereof (the "Initial Term").
2.2 Extension of Initial Term. Upon each annual anniversary date of
this Agreement, this Agreement shall be extended automatically for successive
terms of one year each, unless either the Corporation or the Employee gives
contrary written notice to the other not later than 90 days prior to the annual
anniversary date thereof.
1
<PAGE>
ARTICLE III
Duties of the Employee
General Duties. Employee shall serve as Senior Vice President -
Counsel of the Corporation. He shall do and perform all services, acts, or
things necessary or advisable to manage and conduct the business of the
Corporation consistent with such position subject to such policies and
procedures as may be established by the Board.
Employee shall: (i) devote his or her entire business time,
attention, and energies to the business of the Corporation, and, (ii) faithfully
and competently perform his duties hereunder; and, Employee shall not, during
the term of this Agreement, engage in any other business activity except as
permitted by Article 9.
ARTICLE IV
Compensation
4.1 Salary. For Employee's services to the Corporation as Senior
Vice President - Counsel, Employee shall be paid a salary at the annual rate of
$228,000.00 (herein referred to as "Salary") payable in twenty-four equal
installments on the first and fifteenth day of each month. On the first day of
each calendar year during the term of this Agreement with the Corporation,
Employee shall be eligible for an increase in Salary based on recommendations
made by the Compensation Committee of the Board.
4.2 Bonus. Employee is eligible to participate in the stock option
plan of the employer and all bonus compensation plans which may be offered from
time to time.
ARTICLE V
Employee Benefits
5.1 Use of Automobile. The Corporation shall provide, at the option
of Employee, with either the use of an automobile for business and personal use
or a car allowance of to be specified by the Corporation which complies with
I.R.S. Guidelines. The Corporation shall pay all expenses of operating,
maintaining and repairing the automobile and shall procure and maintain
automobile liability insurance in respect thereof, with such coverage insuring
each Employee for bodily injury and property damage.
2
<PAGE>
5.2 Medical, Life and Disability Insurance Benefits. The Corporation
shall provide employee with the medical, life and disability insurance benefits
in accordance with the established benefit policies of the Corporation.
5.3 Business Expenses. Employee shall be authorized to incur
reasonable expenses for promoting the business of the Corporation including
expenses for entertainment, travel, and similar items. The Corporation shall
reimburse Employee for all such expenses upon the presentation by Employee, from
time to time, of an itemized account of such expenditures.
5.4 Vacations. Employee shall be entitled to an annual paid vacation
commensurate with the Corporation's established vacation policy for executive
officers. The timing of paid vacations shall be scheduled in a reasonable manner
by the Employee.
5.5 Disability. Upon disability (as defined herein) of the Employee,
the Employee shall be entitled to receive an amount equal to 50% of his salary
(in addition to any disability insurance benefits received pursuant to Section
5.2 herein), such amount being paid semi-monthly in twelve equal installments.
ARTICLE VI
Termination
6.1 Death. Employee's employment hereunder shall be terminated upon
the Employee's death.
6.2 Disability. The Corporation may terminate Employee's employment
hereunder in the event Employee is disabled and such disability continues for
more than 180 days. Disability shall be defined as the inability of Employee to
render the services required of him under this Agreement as a result of physical
or mental incapacity.
6.3 Cause.
(a) The Corporation may terminate Employee's employment hereunder
for Cause. For the purpose of this Agreement, "Cause" shall mean the (i) willful
and intentional failure by Employee to substantially perform his duties
hereunder, other than any failure resulting from Employee's incapacity due to
physical or mental incapacity, or (ii) commission by Employee, in connection
with his employment by the Corporation, of an illegal act or any act (though not
illegal) which is not in the ordinary course of the Employee's responsibilities
and which exposes
3
<PAGE>
the Corporation to a significant level of undue liability. For purposes of this
paragraph, no act or failure to act on Employee's part shall be considered to
have met either of the preceding tests unless done or omitted to be done by
Employee not in good faith without a reasonable belief that his action or
omission was in the best interest of the Corporation.
(b) Notwithstanding the foregoing, Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to Employee a copy of a resolution, duly adopted by the majority vote of the
Board of Directors.
6.4 Compensation Upon Termination for Cause or Upon Resignation by
Employee. Except as otherwise set forth in Section 5.6 hereof, if Employee's
employment shall be terminated for Cause or if Employee shall resign his
position with the Corporation, the Corporation shall pay Employee's compensation
only through the last day of Employee's employment by the Corporation. The
Corporation shall then have no further obligation to Employee under this
Agreement.
6.5 Involuntary Termination. If:
(i) the Employee is terminated by Corporation at any
time prior to the termination of this Agreement for
reasons other than Cause (as defined herein), (ii) if
Corporation gives notice to the Employee, in accordance
with Section 1.2 herein, that this Agreement will not be
renewed;
Employee shall be paid, over the ensuing six (6) month period, a sum
equal to the cash compensation paid to him excluding all bonuses of
any kind by Corporation for the six (6) month period immediately
preceding such termination or non-renewal. Such six (6) month
period, as the case may be, shall begin: (i) on the date of
termination in the case of termination of Employee's employment; and
(ii) on the date notice of non-renewal is given in the case of
termination of this Agreement not accompanied by simultaneous
termination of Employee's employment with the Corporation.
ARTICLE VII
No Obligation to Mitigate Damages; No Effect
on Other Contractual Rights
7.1 No Mitigation. Employee shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by
4
<PAGE>
any compensation earned by Employee as the result of employment by another
employer after Employee's termination or resignation.
7.2 Other Contractual Rights. The provisions of this Agreement, and
any payment provided for hereunder, shall not reduce any amount otherwise
payable, or in any way diminish Employee's existing rights, or rights which
would accrue solely as a result of passage of time under any employee benefit
plan or other contract, plan or arrangement of which Employee is a beneficiary
or in which he participates.
ARTICLE VIII
Successors to the Corporation
Employee's Successors and Assigns. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee or
other designee or, if there be no such designee, to Employee's estate.
ARTICLE IX
Restrictions on Employee
9.1 Non-Disclosure; Non-Solicitation. Except in the performance of
his duties hereunder, at no time during the Term of Employment , and for
eighteen (18) months after the termination hereof, shall Employee, individually
or jointly with others, for the benefit of Employee or any third party, publish,
disclose, use, or authorize anyone else to publish, disclose, or use, any secret
or confidential material or information relating to any aspect of the business
or operations of the Corporation, including, without limitation, any secret or
confidential information relating to the business, customers, trade or
industrial practices, trade secrets, technology, recipes or know-how of the
Corporation. Except in the performance of his duties hereunder, at no time
during the term or six (6) months thereafter, shall Employee for himself or on
behalf of any other person or entity contact any employee of the Corporation for
the purpose of hiring, diverting or otherwise soliciting the employee.
9.2 Non-Competition. During the Term of Employment and for eighteen
(18) months thereafter, regardless of any termination pursuant to Article VI or
any voluntary termination or resignation by Employee, Employee shall not,
individually or jointly with others, directly or
5
<PAGE>
indirectly, whether for his own account or for that of any other person or
entity, be employed by, engage in, own, or hold any ownership interest in any
person or entity engaged in a restaurant business the same as or similar to any
restaurant business of the Corporation without the Corporation's written
consent.
ARTICLE X
Miscellaneous
10.1 Indemnification. To the full extent permitted by law, the Board
shall authorize the payment of expenses incurred by or shall satisfy judgments
or fines rendered or levied against Employee in any action brought by a
third-party against Employee (whether or not the Corporation is joined as a
party defendant) to impose any liability or penalty on Employee for any act
alleged to have been committed by Employee while employed by the Corporation
unless Employee was acting with gross negligence or willful misconduct. Payments
authorized hereunder shall include amounts paid and expenses incurred in
settling any such action or threatened action.
10.2 Notices. All notices, requests, demands and other
communications hereunder, including notice of termination by the Employee under
Article 11.1 of this Agreement must be in writing and shall be deemed to have
been duly given upon receipt if delivered by hand, sent by telecopier or
courier, and three (3) days after such communication is mailed within the
continental United States by first class certified mail, return receipt
requested, postage prepaid, to the other party.
10.3 Arbitration. The parties agree that any disputes, claims or
controversy of any kind arising out of this agreement or out of the employment
relationship between Employee and the Corporation shall be submitted to
arbitration. Employee simultaneously with execution of this agreement agrees to
execute the Receipt acknowledging receipt of the Corporation's Mandatory
Arbitration Policy.
10.4 Waiver of Breach. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by any party.
10.5 Amendment. No amendment or modification of this Agreement shall
be deemed effective unless or until executed in writing by the parties hereto.
6
<PAGE>
10.6 Validity. This Agreement, having been executed and delivered in
the State of Kansas, its validity, interpretation, performance and enforcement
will be governed by the laws of that state.
10.7 Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.8 Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
10.9 Legal Fees. Except in the event of termination for Cause, and
only in the event a change of control of the Corporation has occurred, the
Corporation shall pay all legal fees and expenses which Employee may incur as a
result of the Corporation's contesting the validity, enforceability or
Employee's interpretation of, or determination under, this Agreement.
10.10 Exclusivity. Specific arrangements referred to in this
Agreement are not intended to exclude Employee's participation in any other
benefits available to executive personnel generally or to preclude other
compensation or benefits as may be authorized by the Board from time to time.
10.11 Partial Invalidity. If any provision in this Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force without being
impaired or invalidated in any way.
ARTICLE XI
11.1 Change of Control. The Employee shall have the right to
terminate his employment hereunder, upon 10 days notice to the Corporation
within six months of Change of Control. For the purposes of this Agreement, a
"Change of Control" means (i) the direct or indirect, sale, lease, exchange or
other transfer of all or substantially all (50% or more) of the assets of the
Corporation to any Person or Group of Persons other than an Affiliate or an
entity controlled by an Affiliate, (ii) the merger, consolidation or other
business combination of the Corporation with or into another corporation with
the effect that the shareholders of the Corporation immediately prior to the
business combination hold 50% or less of the combined voting power of the then
outstanding securities of the surviving Person of such merger ordinarily (and
apart from rights accruing under special circumstances) having the right to vote
in the election of directors, (iii) the replacement of a majority of the Board
of the Corporation over any period of two years or less, from the directors who
7
<PAGE>
constituted the Board of the Corporation at the beginning of such period, and
such replacement(s) shall not have been approved by the Board of the Corporation
as constituted at the beginning of such period, (iv) a Person or Group of
Persons other than an Affiliate or an entity controlled by an Affiliate, shall,
as a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") of securities of the Corporation representing 50%
or more of the combined voting power of the then outstanding securities of the
Corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors. A
transaction constituting a Change of Control shall be deemed to have occurred
upon the closing of the transaction. Notwithstanding the foregoing, a
transaction shall not constitute a Change of Control under this Agreement if the
transaction is approved by (i) at least a majority of the Board of the
Corporation as constituted immediately prior to the transaction and (ii) Jamie
B. Coulter, the Chairman of the Board of the Corporation.
For the purposes of this Agreement, an "Affiliate" of the
Corporation shall mean any person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with the Corporation, including but not limited to the executive officer and
directors of the Corporation.
11.2 Termination of Non-Compete and Non-Solicitation. In the event
the Employee elects to terminate this Agreement in connection with a Change of
Control under the terms of Article 11.1, the provisions of Article 9.2
Non-Solicitation and 9.3 Non-Competition shall be deemed to have expired and be
of no further force or effect as of the date of termination of the Employee.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and its seal affixed hereto by its officers thereunto duly authorized;
and the Employee has executed this Agreement, as of the day and year first above
written.
"CORPORATION" LONE STAR STEAKHOUSE &
Attest SALOON, INC.
By /S/
- ---------------------------- --------------------------------
Gerald T. Aaron, Secretary Jamie B. Coulter, Chairman and
Chief Executive Officer
8
<PAGE>
Witness "EMPLOYEE"
- ------------------------- ---------------------------------
Gerald T. Aaron
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 23, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1999
<PERIOD-START> DEC-30-1998
<PERIOD-END> MAR-23-1999
<CASH> 64,933
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 14,400
<CURRENT-ASSETS> 85,487
<PP&E> 472,035
<DEPRECIATION> 0
<TOTAL-ASSETS> 592,617
<CURRENT-LIABILITIES> 44,908
<BONDS> 0
0
0
<COMMON> 358
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 535,303
<SALES> 139,938
<TOTAL-REVENUES> 139,938
<CGS> 50,386
<TOTAL-COSTS> 119,248
<OTHER-EXPENSES> 8,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247
<INCOME-PRETAX> 12,648
<INCOME-TAX> 4,867
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<NET-INCOME> 7,781
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</TABLE>
