SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
LONE STAR STEAKHOUSE & SALOON, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
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<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202-3414
------------------------------
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
to be held on June 9, 2000
------------------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders (the
"Meeting") of LONE STAR STEAKHOUSE & SALOON, INC., a Delaware corporation (the
"Company"), will be held on June 9, 2000 at the Sullivan's Steakhouse restaurant
located at 300 Colorado Street, Austin, Texas 78701, 9:00 a.m. local time, for
the following purposes:
1. To elect two (2) members of the Board of Directors to serve until the
2003 Annual Meeting of Stockholders and until their successors have been duly
elected and qualified;
2. To approve amendments to the Company's 1992 Directors' Stock Option
Plan (the "Directors Plan") increasing the number of shares of Common Stock,
$.01 par value, that may be subject to options granted thereunder from 400,000
to 700,000 and to provide that the options granted under the Directors Plan may
expire up to 10 years from the date of grant;
3. To ratify the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 26, 2000;
4. To consider and act upon a proposal by a shareholder requesting that
the Board of Directors be comprised of a majority of Independent Directors, who
meet specific criteria;
5. To consider and act upon a proposal by a shareholder requesting that
the Board of Directors take the necessary steps to declassify the Board of
Directors so that all directors are elected annually; and
6. To transact such other business as may properly be brought before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 14, 2000
as the record date for the Meeting. Only stockholders of record on the stock
transfer books of the Company at the close of business on that date are entitled
to notice of, and to vote at, the Meeting.
By Order of the Board of Directors
GERALD T. AARON, Secretary
Dated: May 1, 2000
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE THAT IS
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202-3414
------------------------------
PROXY STATEMENT
FOR
2000 ANNUAL MEETING OF STOCKHOLDERS
June 9, 2000
------------------------------
INTRODUCTION
This Proxy Statement is being furnished to stockholders by the Board of
Directors of Lone Star Steakhouse & Saloon, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of the accompanying Proxy for
use at the 2000 Annual Meeting of Stockholders of the Company (the "Meeting") to
be held at its Sullivan's Steakhouse restaurant located at 300 Colorado Street,
Austin, Texas 78701, on June 9, 2000 at 9:00 a.m., local time, or at any
adjournments thereof.
The principal executive offices of the Company are located at 224 East
Douglas, Suite 700, Wichita, Kansas 67202-3414. The approximate date on which
this Proxy Statement and the accompanying Proxy will first be sent or given to
stockholders is on or about May 1, 2000.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on April 14, 2000,
the record date (the "Record Date") for the Meeting, will be entitled to notice
of, and to vote at, the Meeting and any adjournments thereof. As of the close of
business on the Record Date, there were outstanding 26,354,322 shares of the
Company's common stock, $.01 par value (the "Common Stock"). Each outstanding
share of Common Stock is entitled to one vote. There was no other class of
voting securities of the Company outstanding on the Record Date. A majority of
the outstanding shares of Common Stock present in person or by proxy is required
for a quorum.
ATTENDANCE AT THE ANNUAL MEETING
Only stockholders, their proxy holders and the Company's invited guests
may attend the Meeting. For admission to the meeting, stockholders who own
shares of Common Stock in their own names should come to the stockholders
check-in table, where their ownership will be verified. Those who have
beneficial ownership of Common Stock that is held of record by a bank or broker
(often referred to as "holding in street name") should also come to the
stockholders check-in table; they must bring account statements or letters from
their banks or brokers indicating that they are the beneficial owner of the
Company's Common Stock as of the Record Date.
The doors to Sullivan's Steakhouse will be opened at 8:30 a.m. and the
Meeting will begin at 9:00 a.m.
VOTING OF PROXIES
Shares of Common Stock represented by Proxies, which are properly
executed, duly returned and not revoked, will be voted in accordance with the
instructions contained therein. If no specification is indicated on the Proxy,
the shares of Common Stock represented thereby will be voted (i) for the
election as Directors of the persons who have been nominated by the Board of
Directors, (ii) for the approval of amendments to the Company's 1992 Directors'
Stock Option Plan (the "Directors Plan"); (iii) for the ratification of the
appointment of Ernst & Young, LLP as the Company's independent auditors for the
fiscal year ending December 26, 2000; (iv) against the shareholder proposal from
California Public Employees' Retirement System ("CalPERS") requesting that the
Board of Directors be comprised of a majority of Independent Directors who meet
specific criteria as not being in the best of interest of the Company and its
stockholders; (v) against the shareholder proposal from
<PAGE>
Amalgamated Bank of New York Long View Midcap 400 Index, requesting the
declassification of the Company's Board of Directors as not being in the best of
interest of the Company or its stockholders; and (vi) for any other matter that
may properly be brought before the Meeting in accordance with the judgment of
the person or persons voting the Proxy. The execution of a Proxy will in no way
affect a stockholder's right to attend the Meeting and vote in person. Any Proxy
executed and returned by a stockholder may be revoked at any time thereafter if
written notice of revocation is given to the Secretary of the Company prior to
the vote to be taken at the Meeting, or by execution of a subsequent proxy which
is presented to the Meeting, or if the stockholder attends the Meeting and votes
by ballot, except as to any matter or matters upon which a vote shall have been
cast pursuant to the authority conferred by such Proxy prior to such revocation.
The cost of solicitation of the Proxies being solicited on behalf of the
Board of Directors will be borne by the Company. In addition to the use of the
mails, proxy solicitation may be made by telephone, telegraph and personal
interview by officers, directors and employees of the Company. The Company will,
upon request, reimburse brokerage houses and persons holding Common Stock in the
names of their nominees for their reasonable expenses in sending soliciting
material to their principals.
The Company has retained Innisfree M&A Inc. ("Innisfree") to solicit
proxies at a cost of approximately $6,000, plus certain out-of-pocket expenses.
If the Company requests Innisfree to perform additional services, Innisfree will
bill the Company at its usual rates.
QUORUM
In order to conduct any business at the Meeting, a quorum must be present
in person or represented by valid proxies. A quorum consists of a majority of
the shares of Common Stock issued and outstanding on the Record Date (excluding
treasury stock). All shares that are voted "FOR", "AGAINST" or "WITHHOLD
AUTHORITY" on any matter will count for purposes of establishing a quorum and
will be treated as shares entitled to vote at the Meeting (the "Votes Present").
ABSTENTIONS
Abstentions will count as Votes Present and shall have the same effect as
a vote against a matter. While there is no definitive statutory or case law
authority in Delaware, the Company's state of incorporation, as to the proper
treatment of abstentions, the Company believes that abstentions should be
counted for purposes of determining both: (i) the total number of Votes Present,
for the purpose of determining whether a quorum is present; and (ii) the total
number of Votes Present that are cast ("Votes Cast") with respect to a matter
(other than in the election of the Board of Directors). In the absence of
controlling precedent to the contrary, the Company intends to treat abstentions
in this manner.
BROKER NON-VOTES
Shares of Common Stock held in street name that are present by proxy will
be considered as Votes Present for purposes of determining whether a quorum is
present. With regard to certain proposals, the holder of record of shares of
Common Stock held in street name is permitted to vote as it determines, in its
discretion, in the absence of direction from the beneficial holder of the shares
of Common Stock.
The term "broker non-vote" refers to shares held in street name that are
not voted with respect to a particular matter, generally because the beneficial
owner did not give any instructions to the broker as how to vote such shares and
the broker is not permitted under applicable rules to vote such shares in its
discretion because of the subject matter of the proposal. The Company intends to
count broker non-votes as Votes Present for the purpose of determining whether a
quorum is present. Broker non-votes will not be counted as Votes Cast with
respect to matters as to which the record holder has expressly not voted.
Accordingly, broker non-votes will have no effect upon the outcome of voting on
any of the business matters set forth in this Proxy Statement.
2
<PAGE>
VOTES REQUIRED FOR APPROVAL
A plurality of the total Votes Cast by holders of Common Stock is required
for the election of Directors. A vote to "WITHHOLD AUTHORITY" any nominee for
Director will be counted for purposes of determining the Votes Present, but will
have no other effect on the outcome of the vote on the election of Directors.
Other Proposals. Other than the election of Directors, the vote required
for all other business matters set forth in this Proxy Statement is the
affirmative vote of a majority of the Votes Cast.
SECURITY OWNERSHIP
The following table sets forth information concerning ownership of the
Company's Common Stock, as of the Record Date, by each person known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, each director, each executive officer as defined in Item 402(a)(3) of
Regulation S-K ("Item 402(a)(3)") and by all directors and executive officers of
the Company as a group. Unless otherwise indicated, the address for five percent
stockholders, directors and executive officers of the Company is 224 East
Douglas, Suite 700, Wichita, Kansas 67202-3414.
Shares
Name and Address Beneficially Percentage
of Beneficial Owner Held of Class
------------------ ---------- ---------
Jamie B. Coulter 4,995,393(1) 17.3%
John D. White 1,148,025(2) 4.2%
Gerald T. Aaron 612,707(3) 2.3%
Deidra Lincoln 80,194(4) *
T. D. O'Connell 25,588(5) *
Fred B. Chaney 56,267(6) *
William B. Greene, Jr. -0- *
Clark R. Mandigo 72,801(7) *
Lazard Freres & Co., LLC 1,737,500(8) 5.25%
Dimensional Fund Advisors, Inc. 1,905,200(9) 5.76%
All directors and executive officers as
a group (11) persons (1-7) 7,058,621(10) 22.9%
* Less than 1%
(1) Includes presently exercisable options to purchase 2,600,000 shares of
Common Stock.
(2) Includes presently exercisable options to purchase 1,000,000 shares of
Common Stock.
(3) Includes presently exercisable options to purchase 575,000 shares of
Common Stock.
(4) Includes presently exercisable options to purchase 75,194 shares of Common
Stock.
(5) Includes presently exercisable options to purchase 25,588 shares of Common
Stock
(6) Includes presently exercisable options to purchase 52,267 shares of Common
Stock.
(7) Includes presently exercisable options to purchase 42,801 shares of Common
Stock.
(8) Based on a Schedule 13G filed in February, 2000, Lazard Freres & Co., LLC
beneficially holds 1,737,500 shares of the Company's Common Stock. The
address of Lazard Freres & Co., LLC is 30 Rockefeller Plaza, New York, NY
10020.
(9) Based on a Schedule 13G filed in February, 2000, Dimensional Fund Advisors
beneficially holds 1,905,200 shares of the Company's Common Stock. The
address of Dimensional Fund Advisors is 1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401.
(10) Includes presently exercisable options to purchase 4,433,946 shares of
Common Stock, which includes presently exercisable options to purchase
63,096 shares of Common Stock held by executive officers, who are not
specifically identified in the Security Ownership Table above.
3
<PAGE>
PROPOSAL I - ELECTION OF DIRECTORS
Article Fifth, Paragraph A of the Certificate of Incorporation of the
Company, and Article Two, Section 2.2 of its By-Laws provide for the
organization of the Board of Directors into three classes. The number of
Directors is established by the By-Laws pursuant to Board authorization.
Currently, the Board is composed of five (5) Directors. The nominees for
Directors are currently directors of the Company. Clark R. Mandigo and John D.
White were appointed to the Board in March, 1992. All Directors are chosen for a
full three-year term to succeed those whose terms expire. It is therefore
proposed that two (2) Directors be elected to serve until the Annual Meeting of
Stockholders to be held in 2003 and until their successors are elected and shall
have qualified.
Unless otherwise specified, all Proxies received will be voted in favor of
the election of Clark R. Mandigo and John D. White, the nominees. Directors
shall be elected by a plurality of the votes cast, in person or by proxy, at the
Meeting. Abstentions from voting and broker non-votes on the election of
directors will have no effect since they will not represent votes cast at the
Meeting for the purpose of electing directors. The terms of the nominees expire
at the Meeting and when their successors are duly elected and shall have
qualified. Management has no reason to believe that any of the nominees will be
unable or unwilling to serve as a director, if elected. Should any of the
nominees not remain a candidate for election at the date of the Meeting, the
Proxies will be voted in favor of those nominees who remain candidates and may
be voted for substitute nominees selected by the Board of Directors.
The following table sets forth the ages and terms of office of the
Directors of the Company:
Name Age Offices Held
----- --- -----------
Jamie B. Coulter 59 2001
John D. White 52 2000
Fred B. Chaney 63 2002
William B. Greene, Jr 62 2002
Clark R. Mandigo 56 2000
Jamie B. Coulter has served as Chairman and Chief Executive Officer of the
Company since January 1992 and President of the Company from January, 1992 to
June, 1995.
John D. White has been an Executive Vice President since June, 1995, a
Director of the Company since January, 1992 and served as Chief Financial
Officer from January, 1992 until February 3, 2000.
Fred B. Chaney, Ph.D., has been a director of the Company since May, 1995.
Dr. Chaney was President and Chief Executive Officer of TEC's parent company,
Vedax Sciences Corporation, until March, 1998 when he sold his interest. Dr.
Chaney through the TEC organization had formed a network of various management
organizations in several countries, including the United States where
approximately 4,000 presidents of companies meet on a quarterly basis. Dr.
Chaney's early business career was with the Boeing Company and Rockwell, where
he implemented management systems and quality motivational programs. In 1968 he
co-authored the book Human Factors in Quality Assurance with Dr. D. H. Harris.
Dr. Chaney has authored numerous publications and professional papers and has
taught management classes for the University of Southern California. Dr. Chaney
is a board member of Hobie Sports. Dr. Chaney previously served as a Director of
Rusty Pelican Seafood, Inc.
William B. Greene, Jr. has been a member of the Board of Directors since
August 18, 1999. Mr. Greene served on the Board of Directors of the Nashville
City Bank in Nashville, Tennessee for fourteen years. Mr. Greene is the founder
of Bank of Tennessee in Kingsport, Tennessee, and has served as Chairman of the
bank since 1974. In addition, Mr. Greene has been Chairman of BancTenn Corp.,
which owns 100% of Bank of Tennessee since 1980. Mr. Greene has also served as
Chairman and Chief Executive Officer of Carter County BanCorp, since 1972. Mr.
Greene has been a Director of JDN, a Real Estate Investment Trust listed on the
New York Stock Exchange since 1994. Mr. Greene also serves on the Board of
Trustees for Wake Forest University and is presently Chairman of the
University's Investment Committee. Mr. Greene is a Trustee of Milligan College
and served as International President of the World Presidents' Organization, the
graduate school of Young Presidents' Organization in 1998. Mr. Greene is a
retired Captain in the U.S. Army Infantry.
4
<PAGE>
Clark R. Mandigo has been a Director of the Company since March 1992. Mr.
Mandigo has been a Papa John's Pizza franchisee since 1995. From 1986 to 1991,
he was President, Chief Executive Officer and Director of Intelogic Trace, Inc.,
a corporation engaged in the sale, lease and support of computer and
communications systems and equipment. From 1985 to 1997, Mr. Mandigo served on
the Board of Directors of Physician Corporation of America, a managed health
care company and from 1993 to 1997, Mr. Mandigo served on the Board of Palmer
Wireless, Inc., a cellular telephone system operator. Mr. Mandigo currently
serves on the Board of Directors of Horizon Organic Holdings Corporation and as
a Trustee of Accolade Funds.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES.
Meetings
For the fiscal year ended December 28, 1999, there were 14 meetings of the
Board of Directors. From time to time, the members of the Board of Directors act
by unanimous written consent pursuant to the laws of the State of Delaware.
The Board of Directors has created an Audit Committee, a Compensation
Committee, a Stock Option Committee and a Nominating Committee. The Audit
Committee is composed of all of the Company's non-management directors and is
charged with reviewing the Company's annual audit and meeting with the Company's
independent auditors to review the Company's internal controls and financial
management practices. The Compensation Committee, which is also composed of all
of the Company's non-management directors, recommends to the Board of Directors
compensation for the Company's key employees. The Stock Option Committee also
consists of all of the non-management directors and administers the Company's
1992 Incentive and Non-Qualified Stock Option Plan, as amended (the "Plan") and
awards stock options thereunder. The Nominating Committee is composed of
independent Directors and is charged with recommending candidates to stand for
election to the Board of Directors. The members of the Audit Committee,
Compensation Committee, Stock Option Committee and Nominating Committee are
Messrs. Chaney, Greene and Mandigo. During 1999, there were three meetings of
the Audit Committee, one meeting of the Compensation Committee two meetings of
the Stock Option Committee and three meetings of the Nominating Committee.
Other Executive Officers
Gerald T. Aaron, 59, has been Senior Vice President - Counsel and
Secretary of the Company since January 1994.
Jeff Bracken, 34, has been Vice President of Operations - Lone Star
Steakhouse & Saloon since May 27, 1999. Mr. Bracken has worked for the Company
since 1996, previously as a Regional Manager. Prior to joining the Company, Mr.
Bracken functioned in various operational capacities for various Pizza Hut
restaurants owned and operated by Mr. Coulter from 1989 to 1996, most recently
as Senior District Manager.
Deidra Lincoln, 40, has been Vice President of Del Frisco's since January,
2000. Ms. Lincoln is the co-founder of Del Frisco's Double Eagle Steak House
("Del Frisco's"), which was acquired by the Company in 1995. Since 1995, Ms.
Lincoln has served in various managerial capacities and is responsible for all
of the Company's Del Frisco's operations.
Robert Martin, 69, has been Senior Vice President of Marketing - Lone Star
Steakhouse & Saloon since February, 2000. Mr. Martin formerly served as a
Director for Applebee's Neighborhood Grills from 1989 to 1999. Mr. Martin also
served Applebee's Neighborhood Grills as Vice President of Marketing from 1991
to 1994, Senior Vice President of Marketing from 1994 to 1996 and Executive Vice
President of Marketing from 1996 to 1999. From 1990 to April, 1991 Mr. Martin
served as President of Kayemar Enterprises, a Kansas City, Missouri-based
marketing consulting firm. From 1983 to January, 1990 Mr. Martin served as
President, Chief Operating Officer and a director of Juneau Holding Co. From
July 1977 to June, 1981 Mr. Martin served as President of United
5
<PAGE>
Vintners Winery and prior to that time he was employed for twenty-five (25)
years by Schlitz Brewing Company, most recently in the position of Senior Vice
President of Sales and Marketing.
T. D. O'Connell, 31, has been Senior Vice President of Operations - Lone
Star Steakhouse & Saloon since December, 1999. Mr. O'Connell has been with the
Company since March, 1995 and has previously functioned in various operating and
administrative positions. Prior to joining the Company, Mr. O'Connell worked for
the Ritz Carlton Hotel Company from 1992 to 1995, most recently as Director of
Guest Services. Mr. O'Connell is a graduate of the Hotel and Restaurant
Management School at the University of Nevada at Las Vegas.
Randall H. Pierce, 60, has been Chief Financial Officer of the Company
since February, 2000. Mr. Pierce is a CPA and was a former partner of Ernst &
Young, LLP from 1962 to 1997. During Mr. Pierce's tenure in the Wichita, Kansas
office with Ernst & Young, LLP, Mr. Pierce served as an audit engagement partner
from 1974 to 1997 and Office Managing Partner from 1996 to 1997. Mr. Pierce
served as Office Director of Accounting and Auditing from 1974 through 1997. Mr.
Pierce's duties included serving clients in both the public and private sectors
in matters related to accounting, auditing and business matters as well as
providing technical advice and consultation to other accounting professionals in
the office. From 1997 through January, 2000, Mr. Pierce has served as a
financial and business consultant focusing on advising and negotiating merger
and acquisition transactions, sale and disposition transactions and general
business strategies.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the four most highly compensated executive officers of the Company
(collectively with the CEO the "Named Executive Officers") other than the CEO
whose salary and bonus exceeded $100,000 with respect to the fiscal year ended
December 28, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------- ----------------------------
Number of
Other Annual Securities
Compensation Underlying All Other
Name and Principal Position Year Salary Bonus($) (1) Options(#) Compensation
- ------------------------- ------ ---------- --------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jamie B. Coulter 1999 $300,000 -- $110,219 -- --
Chairman of the Board 1998 $300,000 -- -- -- --
and Chief Executive 1997 $275,000 -- -- -- --
Officer
John D. White 1999 $283,000 -- $6,681 -- --
Executive Vice President 1998 $283,000 -- -- -- --
Chief Financial Officer 1997 $259,600 -- -- -- --
and Treasurer
Gerald T. Aaron 1999 $228,000 -- $3,946 -- --
Senior Vice President - 1998 $228,000 -- -- -- --
Counsel & Secretary 1997 $209,000 -- -- -- --
Deidra Lincoln 1999 $240,000 -- $5,548 117,672 --
Vice President of Del 1998 $235,000 -- -- -- --
Frisco's 1997 $220,000 -- -- -- --
T. D. O'Connell 1999 $139,773 -- $3,381 81,479 --
Senior Vice President of 1998 $ 92,069 -- -- -- --
Operations 1997 $ 66,981 -- -- -- --
</TABLE>
- ----------
(1) Represents for 1999 fifty percent matching contributions by the Company
pursuant to the Company's Deferred Compensation Plan, which became
effective October 7, 1999. As to Mr. Coulter, the total also includes
perquisites and other personal benefits, securities or property received
of $103,000. As to other executive officers, perquisites and other
personal benefits, securities or property received by each executive
officer did not exceed the lesser of $50,000 or 10% of such executive
officer's annual salary and bonus.
6
<PAGE>
Option Grant Table
The following table sets forth certain information regarding stock option
grants to Named Executive Officers for services performed during the fiscal year
ended December 28, 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------- Potential Realizable Value at
% of Total Assumed Rates of
Number Options Stock Price Appreciation
of Securities Granted to for Option Term
Underlying Employees Exercise or (1)(2)
Options (#of in Fiscal Base Price Expiration ---------------------------
Name shares) Year(3) ($/Sh) Date 5% 10%
- ----- ----------- -------- ------ -------- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Deidra Lincoln 25,000 2.3% $8.188 02/02/09 $128,735 $326,239
92,672 8.3% $8.46875 01/07/10 $493,567 $1,250,795
T. D. O'Connell 60,000 5.4% $8.188 02/02/09 $308,963 $782,974
21,479 2.0% $8.46875 01/07/10 $114,369 $289,902
</TABLE>
- ----------
(1) The options indicated vest ratably over a three-year period commencing
February 2, 2000 and January 7, 2001 respectively. The options issued on
January 7, 2000 were for past services.
(2) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of
employment, nontransferability or differences in vesting periods.
Regardless of the theoretical value of an option, its ultimate value will
depend on the market value of the Common Stock at a future date, and that
value will depend on a variety of factors, including the overall condition
of the stock market and the Company's results of operations and financial
condition. There can be no assurance that the values reflected in this
table will be achieved.
(3) Includes options granted during Fiscal 1999 and options granted on January
7, 2000 for past services in 1999.
Option Exercise Table
No options were exercised by the CEO and the other Named Executive
Officers during the fiscal year ended December 28, 1999. The following table
sets forth certain information concerning unexercised options held as of
December 28, 1999 by the CEO and the other Named Executive Officers. At December
28, 1999, the closing price of the Company's Common Stock, as reported by the
Nasdaq National Market, was $8.938.
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at December 28, 1999 December 28, 1999 ($) (1)
-------------------------- ------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----- ---------- ------------ ---------- -----------
Jamie B. Coulter 2,200,000 400,000 -0- -0-
John D. White 800,000 200,000 -0- -0-
Gerald T. Aaron 475,000 100,000 -0- -0-
Deidra Lincoln 66,860 73,218 $22,615 $45,228
T. D. O'Connell 5,588 71,176 $ 5,242 $55,483
Directors Compensation
Directors who are not employees of the Company receive an annual fee of
$5,000 and a fee of $1,250 for each Board of Directors meeting attended and are
reimbursed for their expenses. Employees who are Directors are not entitled to
any compensation for their service as a Director. Non-employee Directors are
also entitled to receive grants of options under the Directors Plan. Upon
election to the Board, each director who is not an executive officer is granted
a one-time stock option to acquire 40,000 shares of Common Stock and receives an
annual grant at the beginning of each fiscal year of 6,800 shares. The Company
has amended the Directors Plan to provide that the annual grant for all Board
members will be one day after the end of the Company's fiscal year. The exercise
7
<PAGE>
price for such shares is equal to the closing sale price of the Common Stock as
reported on the NASDAQ National Market on the date of grant. Currently, options
to purchase an aggregate of 262,400 shares of Common Stock are outstanding under
the Directors Plan at exercise prices ranging from $6.688 per share to $18.81
per share. In 1999, the Company's outside Directors were automatically granted
options to purchase an aggregate of 53,600 shares of Common Stock under the
Directors Plan at exercise prices ranging from $6.688 to $10.125 per share. On
September 10, 1999, the Board of Directors with outside, non-employee directors
abstaining from voting: (1) re-priced certain outstanding options held by
outside non-employee directors of the Company, including options previously
re-priced and options granted in the last fiscal year, so that such re-priced
options now have an exercise price of $7.94 per share, the closing market price
of the Company's Common Stock on September 10, 1999; and (2) adjusted the
expiration date to five (5) years from September 10, 1999. As discussed under
"Proposal II - Amendments to the 1992 Directors' Stock Option Plan", the Company
is seeking stockholder approval to increase the number of shares reserved for
issuance under the Directors Plan from 400,000 to 700,000 and provide that the
options granted under the Directors Plan may expire 10 years from the date of
grant.
Employment Agreements
The Company has entered into separate employment agreements, with each of
Messrs. White, Aaron, Bracken, Martin, O'Connell and, Pierce, dated as of March
22, 2000, providing for the employment of such individuals as Executive Vice
President, Senior Vice President - Counsel, Vice President of Operations, Senior
Vice President of Marketing, Senior Vice President of Operations, and Chief
Financial Officer, respectively. Each employment agreement provides that the
officer shall devote substantially all of his professional time to the business
of the Company. The Employment Agreements provide base salaries in the amount of
$600,000, $228,000, $175,000, $180,000, $200,000, and $200,000, respectively,
for Messrs. White, Aaron, Bracken, Martin, O'Connell, and Pierce, subject to
increases as determined by the Board of Directors. Ms. Lincoln's base salary is
$260,000. In addition, Mr. Martin's agreement provides for a signing bonus of
$250,000, which was paid to Mr. Martin on January 3, 2000. The agreements for
Messrs. Martin and Pierce also provide for stock option grants of 20,000 shares
and 100,000 shares respectively. Each agreement terminates in March, 2003, but
the Company has the option to extend the term annually for additional one year
periods. Each agreement contains non-competition, confidentiality and
non-solicitation provisions which apply for twenty-four months after cessation
of employment.
Mr. Coulter has also entered into a non-competition, confidentiality and
non-solicitation agreement with the Company. (See "Compensation of Chief
Executive Officer" for information relative to Mr. Coulter's salary).
Joint Report by the Compensation Committee and the
Stock Option Committee on Executive Compensation
General
The Compensation Committee determines the cash and other incentive
compensation (with the exception of stock options which are granted by the Stock
Option Committee), if any, to be paid to the Company's executive officers and
key employees. Messrs. Chaney, Greene and Mandigo, non-employee directors of the
Company, serve as members of the Compensation Committee and the Stock Option
Committee and are "disinterested directors" (within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended). Mr. Mandigo serves as
Chairman of the Compensation Committee and of the Stock Option Committee. During
fiscal 1999, there was one meeting of the Compensation Committee and two
meetings of the Stock Option Committee.
Compensation Philosophy
The Compensation Committee's executive compensation philosophy is to base
management's pay, in part, on the achievement of the Company's annual and
long-term performance goals, to provide competitive levels of compensation, to
recognize individual initiative, achievement and length of service to the
Company, and to assist the Company in retaining and attracting qualified
management. To meet the competitive pressures of retaining and attracting
management personnel, the Company is offering compensation and benefits that
place it among the industry leaders, including 401(k) and deferred compensation
plans adopted in the fourth quarter of 1999. It is the philosophy of the
Compensation Committee in tandem with the Stock Option Committee to provide
officers
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with the opportunity to realize potentially significant financial gains through
the grants of stock options. The Compensation Committee also believes that the
potential for equity ownership by management is beneficial in aligning
management's and stockholders' interest in the enhancement of stockholder value.
However, the decision to ultimately grant stock options is based primarily on
the criteria set forth under "Stock Option Plan" below.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), prohibits a publicly held corporation, such as the Company, from
claiming a deduction on its federal income tax return for compensation in excess
of $1 million paid for a given fiscal year to the chief executive officer (or
person acting in that capacity) at the close of the corporation's fiscal year
and the four most highly compensated officers of the corporation, other than the
chief executive officer, at the end of the corporation's fiscal year. The $1
million compensation deduction limitation does not apply to "performance-based
compensation." The Company believes that any compensation received by executive
officers in connection with the exercise of options granted under the Plan
qualifies as "performance-based compensation." Accordingly, the Company has not
established a policy with respect to Section 162(m) of the Code because the
Company has not paid compensation in excess of $1 million per annum to any
employee.
Salaries
Base salaries for the Company's executive officers are determined
initially by evaluating the responsibilities of the position held and the
experience of the individual, food service and management experience, and by
reference to the competitive marketplace for management talent, including a
comparison of base salaries for comparable positions at other companies. Annual
salary adjustments are determined by (i) considering various factors, tangible
and intangible achieved by the Company; (ii) the overall performance of the
executive; (iii) the length of the executive's service to the Company; and (iv)
any increased responsibilities assumed by the executive. There are no
restrictions on salary adjustments of the Company. The Company has employment
agreements with its executive officers, which set the base salaries for such
individuals. These base salaries are based on and are reviewed annually in
accordance with the factors described in this paragraph and the terms of the
employment agreements. See "Executive Compensation - Employment Agreements."
Annual Bonuses
The Company does not currently have a formal bonus plan for its executives
and no bonuses were paid to executives for the 1999 fiscal year The Company may
in the future adopt an executive bonus plan. As indicated under "Stock Option
Plan" below, the Company has granted options in the past to the Named Executive
Officers in part to reward their performance. Options were granted in the 1999
fiscal year to Ms. Lincoln and Mr. O'Connell, but to no other Named Executive
Officer.
Compensation of Chief Executive Officer
Mr. Coulter's base salary in 1999 was $300,000. Mr. Coulter was awarded a
150% increase in his base salary to $750,000 effective December 29, 1999. Mr.
Coulter's base salary is based upon the factors described in the "Salaries"
paragraph above. Mr. Coulter's salary has been increased to be more comparable
to the higher range of salaries of executive officers of companies of similar
size reviewed by the Company. As noted above, the Company does not presently
have a formal bonus plan for executives and no bonus was paid to Mr. Coulter for
the 1999 fiscal year.
Stock Option Plan
It is the philosophy of the Stock Option Committee to tie a significant
portion of an executives' total opportunity for financial gain to increases in
stockholder value, thereby aligning the long-term interest of the stockholders
with the executives and to retain such key employee.
All salaried employees, including executives and part-time employees, of
the Company and its subsidiaries, are eligible for grants of stock options
pursuant to the Plan. In October 1999, the Company implemented a Deferred
Compensation Plan for its higher compensated employees.
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Effective January 7, 2000, the Board of Directors re-priced all
outstanding stock options of current employees, which had an exercise price in
excess of $8.46875 to $8.46875 per share. The repricing affected options held by
48 individuals including options held by Messrs. Coulter, White, Aaron and Ms.
Lincoln. The total number of options held by Messrs. Coulter, White, Aaron and
Ms. Lincoln that were repriced were 2,600,000, 1,000,000, 575,000 and 42,750,
respectively, all at an exercise price of $18.25 per share.
The Stock Option Committee awarded stock options to Ms. Lincoln and Mr.
O'Connell for services performed in 1999. The size of these awards to each such
Named Executive Officer was based generally on the factors described in the
"Salaries" paragraph above and specifically on each of their performances.
Compensation Committee Interlocks
The Compensation Committee consists of Messrs. Chaney, Greene and Mandigo.
None of such Directors was a party to any transaction with the Company which
requires disclosure under Item 402(j) of Regulation S-K.
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Common Stock Performance
The following graph compares the total return on the Company's Common
Stock from January 1, 1995, to the total returns of the Standard & Poor's
Mid-Cap 400 Index and the Standard & Poor's Restaurant Industry Index (the "Peer
Group").
COMPARISON OF TOTAL RETURN FROM JANUARY 1, 1995
TO DECEMBER 28, 1999 AMONG LONE STAR STEAKHOUSE & SALOON, INC.
THE STANDARD & POOR'S MID-CAP 400 INDEX AND THE PEER GROUP
<TABLE>
<CAPTION>
INDEXED RETURNS
Years Ending
Base
Company / Index Period 26-Dec-95 Dec96 Dec97 29-Dec-98 28-Dec-99
- --------------- -------- --------- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
LONE STAR STEAKHOUSE SALOON 100 202.53 141.18 92.36 41.56 47.17
S&P MIDCAP 400 INDEX 100 130.53 155.59 205.78 267.28 316.38
RESTAURANTS-500 100 147.47 145.70 156.45 245.18 249.78
</TABLE>
Assumes $100 invested on January 1, 1995 in the Company's Common Stock,
the Standard & Poor's Mid-Cap 400 Index and the Peer Group. The calculations in
the table were made on a dividends reinvested basis.
There can be no assurance that the Company's Common Stock performance will
continue with the same or similar trends depicted in the above graph.
PROPOSAL II - APPROVAL OF THE AMENDMENTS TO
THE COMPANY'S 1992 DIRECTORS STOCK OPTION PLAN
General
The Board has approved amendments to the Directors Plan, whereby (i) the
number of shares reserved for issuance pursuant to the exercise of options
granted under the Directors Plan will be increased from 400,000 shares
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<PAGE>
of Common Stock to 700,000 shares of Common Stock, and (ii) the term of options
granted under the Directors Plan will be increased from five years to ten years
from the grant date. The Board further recommended that these items be submitted
to the Company's stockholders at the Meeting for their ratification.
The Directors Plan is designed to advance the interests of the Company by
securing for the Company and its stockholders the benefits arising from stock
ownership by its non-employee Directors.
Summary of Amendments to the 1992 Directors Plan
The amendments to the Directors Plan, if approved by the stockholders,
will (i) increase from 400,000 to 700,000 the number of shares of Common Stock
authorized for issuance upon exercise of options granted pursuant to the
Directors Plan, and (ii) increase from five years to ten years the term of
options granted pursuant to the Directors Plan. The Board believes that the
proposed amendments to the Directors Plan are necessary to continue the
effectiveness of the Directors Plan in inducing persons who are not employed by
the Company and who are of outstanding ability and potential to join and remain
with the Company as Directors.
If the amendments to the Directors Plan are approved, the first sentence
of Article IV of the Directors Plan will read as follows:
"Subject to adjustment in accordance with Article IX an aggregate of
700,000 Shares is reserved for issuance under this Plan."
Further, Article VI, Section 6.1, of the Directors Plan will read as
follows:
Term. The term of the Option shall be ten (10) years from the Grant Date
of each Option, subject to earlier termination in accordance with Articles VI
and X.
Summary of Plan
The purpose of the Directors Plan is to promote the growth and
profitability of the Company, to provide directors of the Company with an
incentive to achieve the long-term objectives of the Company, to attract and
retain non-employee directors of outstanding competence and to provide them with
an opportunity to acquire an equity interest in the Company.
The Directors Plan provides for the granting of options ("Options" or
"Nonqualified Stock Options") which are not intended to satisfy the requirements
of Section 422 of the Code. An aggregate of 400,000 shares of Common Stock
(subject to adjustment in the event of certain corporate events) have been
reserved for issuance under the Directors Plan, which number of shares will be
increased to 700,000 if the proposed amendment is approved.
The Directors Plan is intended to be "formula award" plan and the
Directors Plan will be administered accordingly. To the extent consistent with
such intent, the Directors Plan shall be administered by the Board. Awards of
Options under the Directors Plan are automatic.
Each member of the Board who is not also an employee of the Company (each,
for purposes of the Directors Plan, an "Eligible Director") is eligible to
receive Options under the Directors Plan.
All Options granted under the Directors Plan will be exercisable as to
one-third of the shares of Common Stock one year after the grant date, an
additional one-third two years after the grant date and the balance three years
after the grant date. Options currently expire on the earlier of (i) five years
from the date of grant or (ii) one year following the date on which the Eligible
Director ceases to serve in such capacity for any reason. As part of the
proposal, the Company is seeking to amend subsection (i) above to ten years from
the date of grant.
The exercise price for Options is the fair market value of the Common
Stock on the date of grant. An Option granted under the Directors Plan may be
exercised by delivering to the Company payment of the full purchase price of
such shares as provided for in the Directors Plan.
As of April 14, 2000, three Directors were eligible to participate in the
Directors Plan. As of April 14, 2000, Options to purchase 215,600 shares of
Common Stock, at exercise prices ranging from $3.375 to $9.375 per share have
been granted under the Directors Plan to the three Directors eligible to
participate in the Directors Plan, of
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<PAGE>
which options to purchase 175,600 shares of Common Stock are outstanding. In
addition,options to purchase 86,800 shares of Common Stock issued to former
Directors under the Directors Plan remain outstanding under the Directors Plan.
There were no options exercised in 1999 and in 2000 under the Directors Plan
through the Record Date.
The following table sets forth the total number of options granted under the
Directors Plan during the 1999 and 2000 fiscal years and the dollar value of
such Options as of the Record Date based on the closing trading price of the
Common Stock on such date.
NEW PLAN BENEFITS - 1992 DIRECTORS PLAN
Number of Options
Granted in Fiscal 1999
Name of Director Dollar Value ($) and 2000
- --------------- ---------------- ----------------------
Fred B. Chaney ...................... $117,742 13,600
William B. Greene, Jr. .............. $381,350 46,800
Clark R. Mandigo .................... $117,742 13,600
Registration of Shares
The Company has filed a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to 400,000 shares of
Common Stock issuable pursuant to the Directors Plan. The Company intends to
file an additional registration statement under the Securities Act with respect
to the additional 300,000 shares of Common Stock issuable pursuant to the
amendment subsequent to the amendment's approval by the Company's stockholders.
Required Vote
Approval of this proposal requires the affirmative vote of a majority of
the total votes cast on the proposal in person or by proxy.
Recommendation of the Board of Directors
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL OF THE AMENDMENTS TO
THE 1992 DIRECTORS PLAN
PROPOSAL III -RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 26, 2000. Although the
selection of independent auditors does not require ratification, the Board of
Directors has directed that the appointment of Ernst & Young, LLP be submitted
to stockholders for ratification due to the significance of their appointment to
the Company. If stockholders do not ratify the appointment of Ernst & Young, LLP
as the Company's independent auditors, the Board of Directors will consider the
appointment of other certified public accountants. A representative of Ernst &
Young, LLP will be present at the Meeting and will be available to respond to
appropriate questions. The approval of the proposal to ratify the appointment of
Ernst & Young, LLP requires the affirmative vote of a majority of the votes cast
by all shareholders represented and entitled to vote thereon. An abstention,
withholding of authority to vote or broker non-vote, therefore, will not have
the same legal effect as an "against" vote and will not be counted in
determining whether the proposal has received the required stockholder vote.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG, LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 26, 2000.
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<PAGE>
PROPOSAL IV - SHAREHOLDER PROPOSAL FOR THE BOARD TO BE
COMPRISED OF INDEPENDENT DIRECTORS WHO MEET SPECIFIC CRITERIA.
SHAREHOLDER PROPOSAL
The California Public Employees' Retirement System ("CalPERS"), Lincoln
Plaza, 400 P Street, Sacramento, CA 95814, beneficial owner of 381,200 shares of
Common Stock of the Company has notified the Company that it intends to present
the following proposal at the Annual Meeting:
RESOLVED, that the stockholders of Lone Star Steakhouse & Saloon, Inc.
(the "Company") amend the Company's Bylaws to require that, at the earliest
practical date, a majority of the Board be comprised of Independent Directors.
For purposes of this proposal, the term "Independent Director" shall mean a
director who:
(1) has not been employed by the Company in an executive capacity within
the last five years;
(2) is not, and is not affiliated with a company that is, an advisor or
consultant to the Company, or a significant customer or supplier of
the company;
(3) has no personal services contract(s) with the Company or the
Company's senior management;
(4) is not affiliated with a not-for-profit entity that receives
significant contributions from the Company;
(5) within the last five years, has not had any business relationship
with the Company that the Company has been required to disclose
under the Securities and Exchange Commission disclosure regulations;
(6) is not employed by a public company at which an executive officer of
the Company serves as a director;
(7) has not had a relationship described in (i) through (vi) above with
any affiliate of the Company; and
(8) is not a member of the immediate family of any person described in
(i) through (vii) above.
SUPPORTING STATEMENT
How important is the Board of Directors? As a trust fund with
approximately 381,200 shares of the Company's Stock, held for the benefit of our
1 million fund participants, the California Public Employees' Retirement System
(CalPERS) believes that the Board is of paramount importance. Through this
proposal, we seek to promote strong, objective leadership on the Board.
The benefits of independent directors are generally well accepted. A
November 1992 survey of 600 directors of Fortune 1,000 corporations, conducted
by Directorship and endorsed by the Business Roundtable, found that 93 percent
believed that a majority of the Board should be composed of outside, independent
directors. A majority also believed that the nominating committee should consist
entirely of outside, independent directors. We agree.
We are concerned that inter-locking positions raise the potential for
conflicts of interest. While this Company's board may currently be comprised of
a majority of independent directors, we believe that the best way to ensure that
this Company's shareholders are always considered first is to require
independence - independence from the other affiliated companies.
Help us send a message to this Board. Please VOTE ON THIS PROPOSAL.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE AGAINST THIS
PROPOSAL FOR THE REASONS SET FORTH BELOW:
The Board opposes this stockholder proposal. The Board believes that this
proposal loses sight of the primary objective in Board composition. Directors
should be chosen on the basis of their qualifications and ability to exercise
sound business judgment. The Board understands and appreciates the contribution
that independent directors make, but does not believe that the composition of
the Board should be determined on the basis of arbitrary quotas such as those
suggested in this proposal.
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<PAGE>
The Board believes that it already has significant independent
representation. Presently, out of the five members of the Board of Directors,
three Directors, Fred B. Chaney, Ph.D, William B. Greene, Jr. and Clark R.
Mandigo or a majority of the Board, satisfy the criteria for independent
Director set forth in the proposal - a confirmation of the Company's commitment
to securing qualified independent Directors. Nevertheless, the Company believes
that the proposal is unduly restrictive. The Company's outside Directors have
been selected based on criteria including overall business experience and
specific expertise, giving due consideration to any relationship with the
Company. The Board of Directors believes that its other two Directors, Jamie B.
Coulter and John White, bring direct knowledge of the Company's operations and
strategies in the very competitive restaurant industry. They also have
significant stockholdings in the Company which the Board of Directors believes
is beneficial to the Company because their interest is directly in line with the
other stockholders of the Company. The proposal's definition of "independent" is
broad and arbitrary and would needlessly restrict the Company's ability to
include as Board members highly qualified individuals whose advice and counsel
would benefit the Company and its stockholders. For example, individuals who
have previously served as executive officers in the past five years do not
necessarily lack the independence and objectivity to function effectively on the
Company's Board and protect the interests of the Company's stockholders. The
Board believes that the requirements contained in the stockholder's proposal are
unduly restrictive, and would exclude many people with sound qualifications and
abilities. The Company also believes that there is already sufficient safeguards
in place to ensure that the Board will maintain significant independent
representation. The Board recently formalized the creation of a nominating
committee, consisting of independent Directors, which recommends candidates to
stand for election to the Board of Directors. The Nominating Committee attempts
to seek out and present to the Board for its consideration qualified
individuals, with an emphasis on individuals who would constitute "independent
directors" if elected to the Board. Moreover, the Nasdaq National Market, on
which the Company's Common Stock is listed, requires that all listed companies
have at least three independent directors. The Company meets this requirement.
Accordingly, the Board believes that imposition of additional constraints on the
director selection process beyond the recognized corporate governance standards
embraced by the Nasdaq National Market is both unnecessary and unwarranted.
The Board of Directors believes that the Company has always sought to add
to the Board eminently qualified individuals who provide substantial benefit and
give guidance to the Company. The overly narrow definition of "independent"
contained in the proposal, in the Board's view, would preclude the Company from
seeking as directors many persons who, through past or present relationships
with the Company, are most capable of furthering the interests of the Company
and its stockholders.
For the foregoing reasons, the Board of Directors strongly recommends a
vote AGAINST the adoption of the stockholder proposal which is designated as
Item No. 4. on the enclosed proxy.
PROPOSAL V - SHAREHOLDER PROPOSAL TO DECLASSIFY THE BOARD OF DIRECTORS.
The Amalgamated Bank of New York Long View MidCap 400 Index, 11-15 Union
Square, New York, NY 10003 is beneficial owner of 1,000 shares of Common Stock
of the Company, has notified the Company that it intends to present the
following proposal at the Meeting:
SHAREHOLDER RESOLUTION
RESOLVED: The stockholders of Lone Star Steakhouse & Saloon, Inc. request
that the board of directors take the necessary steps in accordance with Delaware
law to declassify the board of directors so that all directors are elected
annually, such declassification to be carried out in a manner that does not
affect the unexpired terms of directors previously elected.
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<PAGE>
SUPPORTING STATEMENT
The election of directors is the primary avenue for shareholders to
influence corporate governance policies and to hold management accountable for
its implementation of those policies. We believe that classification of the
board of directors, which results in only a portion of the board being elected
annually, is not in the best interests of our Company and its stockholders.
Our Company's board of directors is divided into three classes, with
approximately one-third of all directors elected annually to three-year terms.
Eliminating this classification system would require each director to stand for
election annually and would give stockholders an opportunity to register their
view on the performance of the board collectively and each director
individually.
We believe that electing directors in this manner is one of the best
methods available to stockholders to ensure that the Company will be managed in
a manner that is in the best interest of stockholders. We believe that this step
is warranted both as a matter of sound corporate governance and in light of the
Company's disappointing performance.
(i) The Company's stock has lost 60% of its value over the past five
years and is down more than 80% from its high of 45 in April 1996.
(ii) The Company's stock has underperformed all seven of its industry
peers in the S&P MidCap 400 restaurants group for the five year
period ending December 15, 1999.
We therefore urge our fellow stockholders to support this reform. A number
of companies have declassified boards. We regard as unfounded the concern
expressed by some that the annual election of all directors could leave
companies without experienced directors in the event that all incumbents are
voted out by stockholders. In the unlikely event that stockholders do vote to
replace all directors, such a decision would express a dissatisfaction with the
incumbent directors and would reflect the need for change.
WE URGE YOU TO VOTE ON THIS PROPOSAL.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE AGAINST THE
PROPOSAL FOR THE REASONS SET FORTH BELOW:
The Board opposes this stockholder proposal. The Company's Certificate of
Incorporation (the "Certificate") and the Company's Bylaws (the "Bylaws") both
provide for a classified Board of Directors. The Board firmly believes that such
a classified Board is in the best interests of its stockholders.
The Board believes that classification gives the Board a greater
continuity, since at any one time, at least one-third of the Board will usually
be in its third year of experience. This experience enables the directors to
plan in a reasonable manner for the future of the Company and to judge the
performance of management against long-term goals established by the Board.
Moreover, the existence of three-year, as opposed to one-year, terms for
directors assists the Company in attracting director candidates who are willing
to make longer-term commitments to serving the Company, which in turn increases
the overall knowledge and experience of the Board with respect to the Company's
operations. Directors who are elected for three-year terms are no less
accountable to stockholders than directors elected annually because the same
standards of performance apply regardless of the length of a director's term.
The Board also strongly supports classification because it serves as an
obstacle to any sudden attempt to obtain control of the Company. Such an attempt
is likely to be highly disruptive to the Company's business and to adversely
affect the Company's relationships with its employees, customers, business
partners and others, all to the detriment of stockholders. The Board believes
that, if declassification were to occur, its ability to negotiate effectively
and, in an appropriate case, to realize full value for stockholders in any
transaction involving the Company would be severely impaired. The classified
structure may give the Board an extra opportunity to
16
<PAGE>
negotiate, on behalf of all of the Company's stockholders, intelligently
evaluated alternatives and otherwise take action in the best interest of the
Company and its stockholders.
The Company's current system of electing directors to three-year terms is
quite common and is permitted by the laws of the State of Delaware.
Approximately half of the Fortune 500 companies provide for the staggered
election of directors.
Further, stockholders should bear in mind that the proposal does not
itself repeal the board classification provisions found in the Company's
Certificate and Bylaws. If approved, the proposal would serve as a
recommendation to the Board of Directors to take steps to eliminate the
classified Board. Actual repeal of the classified board provision in the
Company's Certificate then would have to be approved in one of two ways: (i) by
a majority of the Board and by stockholders holding at least 80% of the
then-outstanding shares of voting stock of the Company at a future stockholder's
meeting, or (ii) by at least 75% of the Board of Directors, followed by the
approval of at least a majority of the then-outstanding shares of voting stock
of the Company at a future stockholder's meeting.
The Board believes that its obligation is to enhance the Company's
business competitiveness for the long term, so as to provide a strong long-term
return to stockholders. While the Company's performance over the last few years
have been disappointing, the Board believes this had nothing to do with the
existence of a classified Board and the Board of Directors believes the Company
has addressed the business reasons for the underperformance in the Company's
stock. The Board continues to believe that the present system of a classified
Board elected to serve three-year terms is in the best interest of the
stockholders, and urges the stockholders to oppose all efforts to eliminate the
classified Board.
For the foregoing reasons, the Board of Directors strongly recommends a
vote AGAINST the adoption of the stockholder proposal which is designated as
Item No. 5. on the enclosed proxy.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other Affiliated Transactions
In 1999, the Company purchased business gifts and awards in the amount of
$8,172 from a retail establishment owned by Mr. Coulter.
STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next Annual Meeting of Stockholders of the
Company, stockholder proposals for such meeting must be submitted to the Company
no later than December 21, 2000.
On May 21, 1998 the Securities and Exchange Commission adopted an
amendment to Rule 14a-4, as promulgated under the Securities and Exchange Act of
1934, as amended. The amendment to Rule 14a-4(c)(1) governs the Company's use of
its discretionary proxy voting authority with respect to a stockholder proposal
which is not addressed in the Company's proxy statement. The amendment provides
that if the Company does not receive notice of the proposal at least 45 days
prior to the first anniversary of the date of mailing of the prior year's proxy
statement, then the Company will be permitted to use its discretionary voting
authority when the proposal is raised at the annual meeting, without any
discussion of the matter in the proxy statement.
With respect to the Company's year 2001 Annual Meeting of Stockholders, if
the Company is not provided notice of a stockholder proposal, which has not been
timely submitted, for inclusion in the Company's proxy statement by March 5,
2001, the Company will be permitted to use it discretionary voting authority as
outlined above.
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ANNUAL REPORT
All stockholders of record as of April 14, 2000 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for the
fiscal year ended December 28, 1999. Such report contains certified consolidated
financial statements of the Company and its subsidiaries for the fiscal year
ended December 28, 1999.
By Order of the Company,
GERALD T. AARON
Secretary
Dated: Wichita, Kansas
May 1, 2000.
The Company will furnish, without charge, a copy of its Annual Report on
Form 10-K for the fiscal year ended December 28, 1999 (without exhibits) as
filed with the Securities and Exchange Commission to stockholders of record on
the Record Date who make written request therefor to Gerald T. Aaron, Secretary,
Lone Star Steakhouse & Saloon, Inc., 224 E. Douglas, Suite 700, Wichita, Kansas
67202-3414.
The Company will furnish, without charge, a copy of its Annual Report on
Form 10-K for the fiscal year ended December 28, 1999 (without exhibits) as
filed with the Securities and Exchange Commission to stockholders of record on
the Record Date who make written request therefor to Gerald T. Aaron, Secretary,
Lone Star Steakhouse & Saloon, Inc., 224 E. Douglas, Suite 700, Wichita, Kansas
67202-3414.
18
<PAGE>
LONE STAR STEAKHOUSE & SALOON, INC.
ANNUAL MEETING OF STOCKHOLDERS -- JUNE 9, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Lone Star Steakhouse & Saloon, Inc., a
Delaware Corporation (the "Company"), hereby appoints Jamie B. Coulter and John
D. White with full power of substitution and to each substitute appointed
pursuant to such power, as proxy or proxies, to cast all votes as designated
hereon, which the undersigned stockholder is entitled to cast at the Annual
Meeting of the Stockholders (the "Annual Meeting") of Lone Star Steakhouse &
Saloon, Inc., to be held at 9:00 am., local time on June 9, 2000 at the
Sullivan's Steakhouse restaurant located at 300 Colorado Street, Austin, Texas
78701, and at any and all adjournments and postponements thereof, with all
powers which the undersigned would possess if personally present (i) as
designated below with respect to the matters set forth below and described in
the accompanying Notice and Proxy Statement, and (ii) in their discretion with
respect to any other business that may properly come before the Annual
Meeting.The undersigned stockholder hereby revokes any proxy or proxies
heretofore given by the undersigned to others for such Annual Meeting.
This proxy when property executed and returned will be voted in the manner
directed by the undersigned stockholder. If no direction is made, this proxy
will be voted (1) FOR the election of all nominees listed in Proposal 1; (2) FOR
the amendments to the Company's 1992 Directors' Stock Option Plan; (3) FOR the
ratification of Ernst & Young, LLP as the Company's independent auditors; (4)
AGAINST Proposal 4; and (5) AGAINST Proposal 5.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3.
1. Election of nominees named below to the Board of Directors of the Company.
Nominees: Clark R. Mandigo John D. White
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below.) listed below.
INSTRUCTION: To withold authority to vote for any individual nominee, write that
nominee's name in the space provided below.
- --------------------------------------------------------------------------------
2. Approved amendments to the Company's 1992 Directors' Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To ratify the appointment of Ernst & Young, LLP as that Company's independent
auditors for the fiscal year ended December 26, 2000.
|_| FOR |_| AGAINST |_| ABSTAIN
(Continued and to be signed and dated, on the reverse side.)
<PAGE>
THE BOARD RECOMMENDS A VOTE "AGAINST" PROPOSALS 4 AND 5.
4. California Public Employees' Retirement System's proposal that the Company's
Bylaws be amended to require that a majority of the Board be comprised of
Independent Directors, who shalt meet specific criteria.
|_| FOR |_| AGAINST |_| ABSTAIN
5. The Amalgamated Bank of New York Long View MidCap 400 Index's proposal that
the Board of Directors take the necessary steps to declassify the Board of
Directors so that all directors are elected annually.
|_| FOR |_| AGAINST |_| ABSTAIN
This proxy may be revoked prior to the time it is voted by delivering to the
Secretary of the Company either a written revocation or a proxy bearing a later
date or by appearing at the Annual Meeting and voting in person.
The Board of Directors recommends you vote FOR Proposal 1; FOR Proposal 2; FOR
Proposal 3; AGAINST Proposal 4; and AGAINST Proposal 5.
DATED: ____________________________, 2000
___________________________________, (L.S.)
(Signature)
___________________________________, (L.S.)
(Signature)
Please date and sign as name appears hereon.
When signing as attorney, administrator,
trustee or guardian, give full title as such
and when stock has been issued in the name
of two or more persons, all must sign.
PLEASE ACT PROMPTLY
PLEASE SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE TODAY
