SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
LONE STAR STEAKHOUSE & SALOON, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1. Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
3. Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
--------------------------------------------------------------------
4. Proposed maximum aggregate value transaction:
--------------------------------------------------------------------
5. Total fee paid:
--------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration number, or the Form or Schedule and the
date of its filing.
1. Amount previously paid:
---------------------------------------------------------------
2. Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
3. Filing Party:
---------------------------------------------------------------
4. Date Filed:
---------------------------------------------------------------
-2-
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202-3414
------------------------
NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS
to be held on July 15, 2002
------------------------
To the Stockholders:
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of Stockholders (the
"Meeting") of LONE STAR STEAKHOUSE & SALOON, INC., a Delaware corporation (the
"Company"), will be held on July 15, 2002 at the Del Frisco's Double Eagle
Steak House restaurant located at 1221 Avenue of the Americas, New York, New
York 10020, 9:00 a.m. local time, for the following purposes:
1. To elect two (2) members of the Board of Directors to serve until either
(i) the 2003 Annual Meeting of Stockholders if Proposal II is approved or (ii)
the 2005 Annual Meeting of Stockholders if Proposal II is NOT approved, and
until their successors have been duly elected and qualified;
2. To vote upon a proposal to amend the Company's Certificate of
Incorporation and By-laws which will declassify the organization of the Board
of Directors;
3. To ratify the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 31, 2002; and
4. 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 June 7, 2002 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.
A complete list of stockholders entitled to vote at the Meeting will be
available for inspection at the Company's corporate office at 224 East
Douglas, Suite 700, Wichita, Kansas 67202-3414, during normal business hours
for ten days prior to the Meeting. The list also will be available at the
Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. WE URGE YOU
TO PROMPTLY SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE.
ANY STOCKHOLDER GIVING A PROXY MAY REVOKE IT AT ANY TIME BEFORE THE PROXY IS
VOTED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF THE COMPANY,
BY SUBMITTING A LATER-DATED PROXY, OR BY ATTENDING THE MEETING AND VOTING IN
PERSON.
By Order of the Board of Directors
/s/ GERALD T. AARON
GERALD T. AARON, Secretary
Dated: June 19, 2002
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE THAT IS PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
LONE STAR STEAKHOUSE & SALOON, INC.
224 East Douglas
Suite 700
Wichita, Kansas 67202-3414
------------------------
PROXY STATEMENT
FOR
2002 ANNUAL MEETING OF STOCKHOLDERS
July 15, 2002
------------------------
INTRODUCTION
This Proxy Statement and the accompanying proxy are 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 2002 Annual Meeting of Stockholders of
the Company (the "Meeting") to be held at the Del Frisco's Double Eagle Steak
House restaurant located at 1221 Avenue of the Americas, New York, New York,
10020 on July 15, 2002 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 June 19, 2002.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on June 7, 2002, 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 25,022,098 outstanding shares of
the Company's common stock, $.01 par value (the "Common Stock"). Subsequent to
the Record Date, the Company purchased 4,000,000 shares of its Common Stock in
a modified Dutch auction tender offer. Each outstanding share of Common Stock
is entitled to one vote. There was no other class of voting securities of the
Company outstanding on the Record Date. A majority of the outstanding shares
of Common Stock present in person or by proxy is required for a quorum.
VOTING OF PROXIES
A stockholder may ensure that its shares are voted at the Meeting in
accordance with the Board of Directors' recommendations by completing,
signing, dating, and returning the enclosed proxy in the envelope provided.
Submitting your proxy will not affect your right to attend the Meeting and
vote in person. If the proxy is signed and returned without any direction
given, shares will be voted in accordance with the recommendations of the
Board of Directors as described in this Proxy Statement with respect to
Proposal I and Proposal III and will not be voted with respect to Proposal II.
Any stockholder giving a proxy may revoke it at any time before the proxy is
voted by giving written notice of revocation to the Secretary of the Company,
by submitting a later-dated proxy, or by attending the Meeting and voting in
person.
The Board of Directors is soliciting votes FOR election to the Board of
Directors of its nominees, Messrs. Fred B. Chaney and William B. Greene, Jr.,
and FOR approval of the appointment of Ernst & Young, LLP as its auditors. The
Board of Directors is also submitting a proposal to amend the Company's
Certificate of Incorporation and By-laws to declassify the organization of the
Board of Directors. The Board of Directors is not making any recommendation on
how you should vote with respect to this proposal and proxies signed and
returned without any direction given with respect to this proposal will not be
voted with respect to this proposal. The Board of Directors urges you to sign,
date, and return the enclosed proxy today.
If you have any questions, or need any assistance in voting your shares,
please call 888-750-5834 and the Company's proxy solicitors will be happy to
help you.
If your shares are held in "street-name", only your bank or broker can vote
your shares and only upon receipt of your specific instructions. Please
contact the person responsible for your account and instruct that individual
to vote the proxy card as soon as possible.
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 (other than in the election for the Board of Directors
and ratification of independent auditors). 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 and ratification of independent auditors). 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 to 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, but
whose shares are present on at least one matter. The Company intends to count
such shares as Votes Present for the purpose of determining whether a quorum
is present. Broker non-votes will have the same effect as a vote against the
proposal to amend the Company's Certificate of Incorporation and By-laws to
declassify the organization of the Board of Directors.
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" for 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.
The Company's Amended and Restated By-laws and Certificate of Incorporation
provide that a proposal to declassify the Board of Directors must be approved
either by (i) at least 75% of the members of the Board of Directors and at
least a majority vote of the outstanding shares entitled to vote in the
election of directors or (ii) at least a majority of the Board of Directors
and at least 80% of the outstanding shares entitled to vote in the election of
directors. Since a majority of the members of the Board of Directors, but less
than 75% of the members of the Board of Directors, approved the proposal to
declassify the Board of Directors, the affirmative vote of at least 80% of the
outstanding shares of Common Stock is required to declassify the Board of
Directors. A vote to "ABSTAIN" and a broker non-vote will have the same effect
as a vote against such proposal.
A plurality of the total Votes Cast by holders of Common Stock is required
to ratify the selection of Ernst & Young, LLP as the Company's independent
auditors for the fiscal year ending December 31, 2002. A vote to "ABSTAIN"
will have no other effect on the outcome of the vote on the ratification of
Ernst & Young, LLP.
-2-
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 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) 18.1%
John D. White .................................... 1,148,025(2) 4.4%
Gerald T. Aaron .................................. 612,707(3) 2.4%
Tomlinson D. O'Connell ........................... 147,957(4) *
Jeff Bracken ..................................... 111,983(5) *
Fred B. Chaney ................................... 76,401(6) *
William B. Greene, Jr. ........................... 34,868(7) *
Clark R. Mandigo ................................. 86,401(8) *
Anthony Bergamo .................................. 1,000 *
Mark G. Saltzgaber ............................... -- --
Thomas C. Lasorda ................................ -- --
Michael A. Ledeen ................................ -- --
Dimensional Fund Advisors Inc. ................... 2,026,300(9) 8.1%
Barclays Global Investors, N.A. .................. 1,247,579(10) 5.0%
Pioneer Global Asset Management .................. 1,318,000(11) 5.3%
All directors and executive officers as a
group (14) .................................... 7,555,380(12) 25.2%
---------------
* 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 146,957 shares of Common
Stock.
(5) Includes presently exercisable options to purchase 109,763 shares of Common
Stock.
(6) Includes presently exercisable options to purchase 72,401 shares of Common
Stock.
(7) Includes presently exercisable options to purchase 33,468 shares of Common
Stock.
(8) Includes presently exercisable options to purchase 56,401 shares of Common
Stock.
(9) Based on a Schedule 13G filed in January, 2002, Dimensional Fund Advisors
Inc. beneficially holds 2,026,300 shares of the Company's Common Stock. The
address of Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401.
(10) Based on a Schedule 13G filed in February 2002, Barclays Global Investors,
N.A. beneficially holds 1,247,579 shares of the Company's Common Stock. The
address of Barclays Global Investors, N.A. is 45 Fremont Street, San
Francisco, CA 94105.
(11) Based on a Schedule 13G filed in December 2001, Pioneer Global Asset
Management beneficially holds 1,318,000 shares of the Company's Common
Stock. The address of Pioneer Global Fund Asset Management is Galleria San
Carlo 6, 20122 Milan Italy.
(12) Includes presently exercisable options to purchase 4,927,185 shares of
Common Stock, which includes presently exercisable options to purchase
333,195 shares of Common Stock held by executive officers, who are not
specifically identified in the Security Ownership Table above.
-3-
PROPOSAL I
ELECTION OF THE BOARD OF DIRECTORS
The Board of Directors is currently composed of eight (8) directors, divided
into three classes. Each class of directors is elected for a term of office to
expire at the third succeeding annual meeting of stockholders of the Company
after their election and until their respective successors are elected and
qualified. The terms of two directors are expiring at the Meeting and the
Nomination Committee of the Board of Directors, consisting of Independent
Directors, have nominated Messrs. Fred B. Chaney and William B. Greene, Jr.,
currently serving as directors of the Company since May 1995 and August 1999,
respectively, as nominees for reelection to the Board of Directors. If
elected, the term of the Board of Directors' nominees expires at (i) the 2003
Annual Meeting if the Certificate of Incorporation and By-laws of the Company
are amended under Proposal II, or (ii) the 2005 Annual Meeting as Class II
directors, if Proposal II is NOT approved, and when their respective
successors are duly elected and shall have qualified.
Guy W. Adams resigned as a director of the Company effective May 29, 2002.
The Board of Directors appointed Mr. Anthony Bergamo to fill the vacancy
created by Guy Adams' resignation effective May 29, 2002. Mr. Bergamo
satisfies the definition of "independent director" as defined in the Company's
Amended and Restated By-laws.
Unless otherwise specified, all of the Proxies received will be voted in
favor of the election of Messrs. Chaney and Greene. The 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 a director. Management has no reason to
believe that either of the Board of Directors' nominees will be unable or
unwilling to serve as directors, if elected. Should any of the nominees not
remain a candidate for election at the date of the Meeting, the proxies may be
voted for a substitute nominee selected by the Board of Directors.
The following table sets forth the ages and terms of office of the directors
of the Company:
Term of Office as
Name Age Director Expires
---- --- ----------------
*Clark R. Mandigo ..................... 58 2003
John D. White ........................ 54 2003
*Fred B. Chaney ....................... 65 2002
*William B. Greene, Jr. ............... 64 2002
*Anthony Bergamo ...................... 55 2004
*Thomas C. Lasorda .................... 74 2003
*Michael A. Ledeen .................... 60 2004
*Mark G. Saltzgaber ................... 34 2004
---------------
* Independent Director
Clark R. Mandigo has been the Chairman of the Board of the Company since
July 2001 and 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 and U.S. Global Investors Funds.
John D. White is Executive Vice President, Treasurer and a Director of the
Company, and was the Chief Financial Officer from 1992 to 1999. Prior to
joining the Company, Mr. White was employed as Senior Vice President of
Finance for Coulter Enterprises, Inc. Prior to that, Mr. White was a principal
of Arthur Young & Company and taught management development and computer
auditing seminars in their National Training Program. Mr. White earned a BBA
in accounting from Wichita State University in 1970 and is a graduate of the
Stanford Executive Program.
-4-
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 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 1999. At the age of 26, Mr. Greene was the youngest bank President and
CEO in the United States and formed the first statewide banking organization
in the history of Tennessee, United Tennessee Bancshares Corporation. He also
served as a director of the Northwestern Financial Corporation that
spearheaded the first major banking consolidation in America with the merger
of Northwestern Bank and First Union Bank now referred to as the First Union
Corporation, soon to become Wachovia. Mr. Greene is Chairman of the Wake
Forest University Board of Trustees and Chairman of the Wake Forest University
Trustee Investment Policy Committee for the last eight years, which oversees
the University's billion-dollar endowment. Mr. Greene is also a member of the
Board of Trustees of Milligan College where he recently received his Honorary
Doctor of Economics. Mr. Greene was a member of the Young Presidents'
Organization for eighteen years and in 1998 served as International President
of the World Presidents' Organization, the graduate school of YPO. Mr. Greene
is a graduate of Wake Forest University with a B.S. Degree in Philosophy,
Psychology and History. Mr. Greene did post graduate work at Wake Forest
University, the University of Illinois, and Harvard University. He is a
graduate of the Bank Marketing and Public Relations School at Northwestern
University, and a graduate of the Stonier Graduate School of Banking at
Rutgers University. Mr. Greene is a Director of the JDN Corporation, a Real
Estate Investment Trust on the New York Stock Exchange where he is Chairman of
the Compensation Committee.
Anthony Bergamo has been a Director of the Company since May 29, 2002.
Mr. Bergamo has been Managing Director of Milstein Hotel Group since April
1996, Chief Executive Officer of Niagra Falls Redevelopment, Ltd. since August
1998 and Senior Vice President of MB Real Estate, a property management
company primarily based in New York City and Chicago, since April 1996.
Mr. Bergamo has also been a Director since 1995 and a Trustee since 1986 of
Dime Community Bancorp. Mr. Bergamo is also the Founder and Chairman of the
Federal Law Enforcement Foundation since 1988, a foundation that provides
economic assistance to both federal and local law enforcement officers
suffering from serious illness and to communities recovering from natural
disasters. Mr. Bergamo earned a B.S. in History from Temple University in 1968
and a J.D. from New York Law School in 1973.
Thomas C. Lasorda has been a Director of the Company since November 2001.
Mr. Lasorda, a member of the Baseball Hall of Fame, has been a Senior Vice
President of the Los Angeles Dodgers since February 1998 and prior thereto was
a Vice President of such team since July 1996. He was the manager of the gold
medal winning United States Baseball Team for the 2000 Summer Olympic Games in
Sydney, Australia and was the manager of the Los Angeles Dodgers for 20 years.
Michael A. Ledeen has been a Director of the Company since November 2001.
Mr. Ledeen has been a resident scholar in the Freedom Chair at the American
Enterprise Institute since 1989 and the Vice Chairman of the U.S.-China
Security Review Commission since 2001. An expert in contemporary history and
international affairs, Mr. Ledeen is a frequent contributor to the Wall Street
Journal, the Weekly Standard, National Review, and Commentary and serves as a
foreign affairs editor of the American Spectator. During the Reagan
administration, from 1981 to 1987, Mr. Ledeen held numerous positions
including a consultant to the National Security Adviser, the Office of the
Secretary of Defense, and the State Department and was a special adviser to
the Secretary of State. Mr. Ledeen is the author of seventeen books, including
most recently Tocqueville on American Character (St. Martin's Press, 2000).
Mark G. Saltzgaber has been a Director of the Company since November 2001.
Mr. Saltzgaber is an experienced investment banker, advisor and private equity
investor in the restaurant industry. He is currently an independent consultant
to emerging restaurant chains and a venture partner of Dorset Capital
Management, LLC,
-5-
a consumer-focused private equity firm he co-founded in 1999. Prior to Dorset
Capital, Mr. Saltzgaber was a Managing Director in the Equity Capital Markets
Department at Montgomery Securities where he was responsible for advising
consumer growth companies. Prior to that, Mr. Saltzgaber was also a Principal
and Co-Director of the restaurant investment banking practice group at
Montgomery Securities. Mr. Saltzgaber is currently a director of Pasta
Pomodoro, Inc.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF ITS
NOMINEES.
Board Committees and Director Meetings
For the fiscal year ended December 25, 2001, there were seven meetings of
the Board of Directors. From time to time, the members of the Board of
Directors acted by unanimous written consent pursuant to the laws of the State
of Delaware.
The Board of Directors has an Executive Committee, an Audit Committee, a
Compensation/Stock Option Committee, and a Nominating Committee. The Executive
Committee is composed of two (2) Independent Directors and one (1) Director
who is an employee of the Company. The Executive Committee has the authority
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Company, but the Executive
Committee does not have such power or authority in reference to the following
matters: (i) approving or adopting or recommending to the stockholders, any
action or matter expressly required by the Delaware General Corporation Law to
be submitted to stockholders for approval; or (ii) adopting, amending or
repealing any By-Law of the Company. The Audit Committee is composed of
certain of the Company's non-management directors. The principal
responsibility of the Audit Committee is described in the Audit Committee
Charter that was approved by the Board of Directors. The Audit Committee 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/Stock Option Committee, which
is composed of certain of the Company's non-management directors, recommends
to the Board of Directors compensation for the Company's key employees 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 certain of the Company's non-management directors and
is charged with (i) recommending candidates to stand for election to the Board
of Directors, and (ii) reviewing and making recommendations to the Board of
Directors with respect to the composition of the Board of Directors. The
members of the Executive Committee are Messrs. Mandigo, White and Greene. The
members of the Audit Committee, Compensation/ Stock Option Committee and
Nominating Committee are Messrs. Chaney, Greene and Mandigo. During fiscal
2001, there were five meetings or actions by unanimous written consent of the
Executive Committee, three meetings or actions by unanimous written consent of
the Audit Committee, two meetings or actions by unanimous written consent of
the Compensation/Stock Option Committee, and four meetings or actions by
unanimous written consent of the Nominating Committee. During fiscal 2001, the
Compensation and Stock Option Committees combined to form the Compensation/
Stock Option Committee. Prior to such combination, during fiscal 2001, there
were two meetings of the Compensation Committee and two meetings of the Stock
Option Committee.
Other Executive Officers
In addition to Mr. White, the other Executive Officers of the Company are as
follows:
Jamie B. Coulter, 61, has served as Chief Executive Officer of the Company
since January 1992, served as President of the Company from January, 1992 to
June, 1995 and served as Chairman from January 1992 to July 2001. Mr. Coulter
received the Nation's Restaurant News Golden Chain Award in 1995 and its Hot
Concept Award in 1997. Mr. Coulter was inducted into the Pizza Hut Hall of
Fame in 1993, received INC. Magazine's Midwest Region Master Entrepreneur of
the Year in 1993, and was Restaurants & Institutions CEO of the Year in 1996.
-6-
Mr. Coulter currently serves as a director of the Federal Law Enforcement
Foundation and Empower America. Mr. Coulter has previously served as Chairman
of the Board of Directors of the Young Presidents' Organization. Mr. Coulter
received a BS degree in Business from Wichita State University in 1963 and was
a graduate of the Stanford University Executive Program in 1990.
Tomlinson D. O'Connell, 33, joined the Company in 1995, and has been Senior
Vice President of Operations -- Lone Star Steakhouse & Saloon, Inc. since
December of 1999. Mr. O'Connell is currently responsible for the operation of
249 domestic Lone Star Steakhouse & Saloon restaurants. Mr. O'Connell was with
the Ritz-Carlton Hotel Company from 1992 to 1995. During his tenure there the
company was awarded the Malcolm Baldrige Award. Additionally, Mr. O'Connell
was selected to be a member of the opening team for the Ritz-Carlton Hotel in
Seoul, Korea. Mr. O'Connell graduated from the University of Nevada at Las
Vegas in 1992 with a Bachelor of Science degree in Hotel Administration.
Gerald T. Aaron, 61, has been Senior Vice President -- Counsel and Secretary
of the Company since January 1994. From November 1991 to January 1994,
Mr. Aaron was employed as General Counsel for Coulter Enterprises, Inc. From
March 1989 to November 1991, Mr. Aaron operated a franchise consultant
practice. From 1969 to 1984 Mr. Aaron was Vice President -- Counsel for Pizza
Hut, Inc. and from 1984 to 1989, Mr. Aaron was President of International
Pizza Hut Franchise Holders Association.
Jeff Bracken, 36, has been Vice President of Operations -- Lone Star
Steakhouse & Saloon since May 1999. Mr. Bracken has worked for the Company
since 1996, previously as a Regional Manager.
Deidra Lincoln, 42, has been Vice President of Operations -- 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.
Randall H. Pierce, 62, has been Chief Financial Officer of the Company since
February, 2000. Mr. Pierce is a CPA and was a partner of Ernst & Young, LLP
from 1974 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
served as a financial and business consultant focusing on advising and
negotiating merger and acquisition transactions, sale and disposition
transactions and general business strategies.
-7-
PROPOSAL II
AMENDMENT TO CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED
BY-LAWS TO DECLASSIFY ORGANIZATION OF THE BOARD OF DIRECTORS
Article Fifth, Paragraphs B, C, D and E of the Certificate of Incorporation
of the Company, and Article Two, Sections 2.2, 2.3, 2.5 and 6.1 of the Amended
and Restated By-laws of the Company provide that the Board of Directors be
divided into three classes with the number of Directors in each class being as
nearly equal as possible. This means that approximately one-third of the
Directors are elected annually and serve a three-year term. Proposal II is an
amendment to the Company's Certificate of Incorporation and Amended and
Restated By-laws to declassify the organization of the Board of Directors and
provide for annual election of all directors. The proposed amendments to
Article Fifth, Paragraphs B, C, D and E of the Certificate of Incorporation,
and Article Two, Sections 2.2, 2.3, 2.5 and 6.1 of the Amended and Restated
By-laws are set forth on Appendix I of this Proxy Statement.
The adoption by the Company--and many other major corporations--of a
classified board reflects widespread concern over hostile and non-negotiated
attempts to acquire corporations to the disadvantage of stockholders. A
classified board has been widely viewed as discouraging proxy contests for the
election of directors, or acquisitions of substantial blocks of stock, by a
person or group seeking to acquire control of a company, because the extended
and staggered terms of directors could operate to prevent changing the
composition of, or the acquisition of control of, the board in a relatively
short period of time. In a hostile takeover attempt, for example, a classified
board may encourage a person seeking control of the Company to initiate arm's
length discussions with the Board of Directors, which may be in a position to
negotiate a higher price or more favorable terms for stockholders or to try
and prevent a takeover that the Board of Directors believes is not in the best
interest of the stockholders.
A classified board has also been viewed as promoting stability and may help
to maintain a greater continuity of experience because the majority of
directors at any given time will have at least one year of experience with the
Company. This continuity may assist a company in long-term strategic planning.
Some investors have, however, come to view classified boards as having the
effect of insulating directors from being accountable to the corporation's
stockholders. A classified board of directors, for example, limits the ability
of stockholders to elect all directors on an annual basis and exercise
influence over the Company, and may discourage proxy contests in which
stockholders have an opportunity to vote for a competing slate of nominees.
The election of directors is the primary means for stockholders to influence
corporate governance policies and to hold management accountable for its
implementation of those policies. At the Company's 2000 Annual Meeting of
Stockholders, the Company's stockholders approved a non-binding resolution
which requests that the Board of Directors take the necessary steps in
accordance with Delaware law to declassify the Board of Directors. In keeping
with its goal of ensuring that the Company's corporate governance policies
maximize management accountability to stockholders and to allow stockholders
to vote on a binding proposal to amend the Company's Certificate of
Incorporation so that stockholders have the opportunity each year to register
their views on the performance of the Board of Directors and management of the
Company, a majority of the Board of Directors has determined that stockholders
should be allowed to vote on a binding proposal declassifying the organization
of the Board of Directors and, if approved by the requisite vote of the
stockholders as set forth below, the Certificate of Incorporation and Amended
and Restated By-laws shall be amended to declassify the Board of Directors.
Such Directors, while recognizing the benefits to the Company of a classified
Board of Directors, nevertheless believe that stockholders should, at the 2002
Annual Meeting, be given the opportunity to vote on a binding proposal
declassifying the organization of the Board of Directors. The Directors who
oppose declassifying the Board of Directors do not believe that declassifying
the Board of Directors would better serve the best interests of the Company
and its stockholders at the present time and agree with the concerns expressed
in the second and third paragraphs of this Proposal II.
The Certificate of Incorporation and Amended and Restated By-laws of the
Company currently provide that as long as the organization of the Board is
classified, Directors may only be removed by the stockholders for cause and
that such removal requires the affirmative vote of 80% of the voting power of
all of the then outstanding shares. If the proposed amendment is approved,
such provisions would also be deleted and any or all Directors would be able
to be removed by stockholders with or without cause with the approval of a
majority of
-8-
the voting power of all of the then outstanding shares. The Certificate of
Incorporation and Amended and Restated By-laws also currently contain
supermajority voting requirements in order to amend provisions relating to the
classified Board of Directors. If the proposed amendment is approved, the
supermajority voting requirements would also be deleted.
The proposed amendment would not reduce the term of any Director elected
prior to its effectiveness. It would, however, if approved by the
stockholders, apply to the Directors elected at this 2002 Annual Meeting.
Therefore if the proposed amendment is approved by the stockholders, then all
Directors of the Company, including Directors elected at this 2002 Annual
Meeting of Stockholders, would be required to stand for re-election at the
2003 Annual Meeting of Stockholders and thereafter.
In accordance with the Company's Certificate of Incorporation and Amended
and Restated By-laws, since this proposal was approved by a majority of the
Board of Directors but less than 75% of the members of the Board of Directors,
Proposal II requires the affirmative vote of at least 80% of the voting power
of all shares of the Company entitled to vote generally in the election of
Directors. Under Delaware law, in determining whether such proposal has
received the requisite number of affirmative votes, abstentions and broker
nonvotes will be counted and will have the same effect as a vote against the
proposal.
Recommendation of the Board of Directors
A MAJORITY OF THE MEMBERS BUT LESS THAN 75% OF THE MEMBERS OF THE BOARD OF
DIRECTORS HAS APPROVED THE SUBMISSION TO A STOCKHOLDER VOTE OF THE PROPOSAL TO
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-
LAWS TO DECLASSIFY THE ORGANIZATION OF THE BOARD OF DIRECTORS. SINCE NOT ALL
OF THE COMPANY'S DIRECTORS HAVE APPROVED THE SUBMISSION OF THIS PROPOSAL, THE
BOARD OF DIRECTORS IS NOT MAKING ANY RECOMMENDATION ON HOW YOU SHOULD VOTE FOR
THIS PROPOSAL.
-9-
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 $100,000 with respect to the fiscal year ended
December 25, 2001.
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ------------------------------------
Number of
Securities
Other Annual Compensation Underlying Options All Other
Name and Principal Position Year Salary Bonus($) (1) (# of Shares) Compensation(2)
--------------------------- ---- ------ -------- ------------------------- ------------------ ---------------
Jamie B. Coulter ............... 2001 $750,000 $226,500(3) $97,473(6) -- $97,650
Chief Executive Officer 2000 $750,000 $226,642(4) $87,787(7) -- $72,265
1999 $300,000 -- -- -- $ 7,219
John D. White .................. 2001 $600,000 $181,500(3) -- -- $78,150
Executive Vice President 2000 $600,000 $181,500(4) -- -- $57,842
and Treasurer 1999 $283,000 -- -- -- $ 6,681
Tomlinson D. O'Connell ......... 2001 $200,000 $301,500(3) $56,551(8) -- $50,150
Senior Vice President of 2000 $200,000 $ 53,753(4) -- -- $23,106
Operations 1999 $139,773 $ 45,000(5) -- 81,479 $ 3,381
Gerald T. Aaron ................ 2001 $250,000 $ 76,500(3) -- -- $26,400
Senior Vice President 2000 $250,000 $ 76,500(4) -- -- $24,039
Counsel & Secretary 1999 $228,000 -- -- -- $ 3,946
Jeff Bracken ................... 2001 $175,000 $ 89,000(3) -- -- $17,332
Vice President of Operations- 2000 $175,000 $ 93,914(4) -- -- $29,875
Lone Star Steakhouse Saloon 1999 $145,000 -- -- 106,429 $ 3,381
---------------
(1) As to Named Executive Officers, except as set forth herein, perquisites
and other personal benefits, securities or property received by each Named
Executive Officer did not exceed the lesser of $50,000 or 10% of such
Named Executive Officer's annual salary and bonus.
(2) Represents fifty percent matching contributions by the Company pursuant to
the Company's Deferred Compensation Plan which became effective October 7,
1999.
(3) Such bonus was paid in 2002 for services performed in 2001.
(4) Such bonus was paid in 2001 for services performed in 2000.
(5) Such bonus was paid in 2000 for services performed in 1999.
(6) During the fiscal year ended December 25, 2001, Mr. Coulter received
benefits primarily relating to tax and accounting services provided by
Company personnel ($67,700) and the balance was for reimbursement for
certain medical insurance premiums and expenses.
(7) During the fiscal year ended December 26, 2000, Mr. Coulter received
benefits primarily relating to tax and accounting services provided by
Company personnel ($78,287) and the balance was for reimbursement for
certain medical insurance premiums.
(8) During the fiscal year ended December 25, 2001, Mr. O'Connell received
benefits primarily relating to the personal use of the Company's airplane
($30,437) and the balance was primarily for reimbursement of country club
dues and construction services provided by Company personnel.
Option Grants in Last Fiscal Year
No options were granted to the CEO or any Named Executive Officer for
services rendered during the fiscal year ended December 25, 2001.
Option Exercise Table
No options were exercised by the CEO and the other Named Executive Officers
during the fiscal year ended December 25, 2001 except by Tomlinson D.
O'Connell. The following table sets forth certain information concerning the
options exercised by Mr. O'Connell and unexercised options held as of
December 25, 2001 by the CEO and the other Named Executive Officers. At
December 24, 2001 (the market was closed on December 25, 2001), the closing
price of the Company's Common Stock, as reported by the Nasdaq National
Market, was $14.37.
-10-
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Acquired Underlying Unexercised In-the-Money Options at
on Exercise Value Realized(1) Options at December 25, 2001 December 25, 2001($)
--------------- ----------------- ---------------------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Jamie B. Coulter ............. -- -- 2,600,000 -0-- $15,343,250 -0--
John D. White ................ -- -- 1,000,000 -0-- $ 5,901,250 -0--
Tomlinson D. O'Connell ....... 12,794 $31,768 85,464 102,985 $ 586,777 $585,410
Gerald T. Aaron .............. -- -- 575,000 -0-- $ 3,393,219 -0--
Jeff Bracken ................. -- -- 86,430 39,999 $ 507,018 $224,374
---------------
(1) Based on the difference between the exercise price of the options and the
closing price of a share of Common Stock on April 19, 2001, the date of
exercise, as reported on the Nasdaq National Market.
Directors Compensation
Directors who are not employees of the Company are reimbursed for their
expenses and receive an annual fee of $5,000 and a fee of $1,250 for each
Board of Directors meeting attended in person or telephonically. Members of
Committees of the Board of Directors also receive a fee of $1,250 for each
Committee meeting attended in person or telephonically to the extent such
meeting is not held on the same day as a meeting of the Board of Directors.
Employees who are Directors are not entitled to any compensation for their
service as a Director. Non-employee Directors were also entitled to receive
grants of options under the Company's 1992 Directors Stock Option Plan the
("Directors Plan"). Upon election to the Board of Directors, each director who
is not an executive officer was granted a one-time stock option to acquire
40,000 shares of Common Stock and received an annual grant of 6,800 shares one
day after the end of the Company's fiscal year. The exercise 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. The Directors Plan has
expired and the Company has not made a determination as to whether to adopt a
new plan, subject to requisite approval. Currently, options to purchase an
aggregate of 488,400 shares of Common Stock are outstanding under the
Directors Plan at exercise prices ranging from $6.688 per share to $18.81 per
share. On December 26, 2001, the Company's outside Directors were
automatically granted options to purchase an aggregate of 47,600 shares of
Common Stock under the Directors Plan at an exercise price of $14.80 per
share.
Employment Agreements
The Company has entered into separate employment agreements, with each of
Messrs. White, Aaron, O'Connell and Bracken, dated as of March 22, 2000,
providing for the employment of such individuals as Executive Vice President,
Senior Vice President -- Counsel, Senior Vice President of Operations -- Lone
Star Steakhouse & Saloon and Vice President of Operations -- Lone Star
Steakhouse & Saloon, Inc., 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, $200,000 and $175,000, respectively, for
Messrs. White, Aaron, O'Connell and Bracken, subject to increases as
determined by the Board of Directors. 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 and confidentiality
agreement with the Company.
Severance Agreements
The Company has entered into a Change of Control Contract with Jamie B.
Coulter, dated as of January 3, 2001 that provides for severance pay and
incidental benefits if there is a change in control of the Company (as defined
in the Change of Control Contract). The payment is a lump sum payment equal to
2.99 times one year's annual compensation. The agreement also provides
Mr. Coulter with the right to replace all stock options whether vested or not
with fully vested stock options (all of Mr. Coulter's stock options are fully
vested), or alternatively the right to receive a cash payment for surrendering
the options equal to the difference between the full exercise price of each
option surrendered and the greater of the price per share paid by the acquirer
in the change of control transaction or the market price of the Company's
Common Stock on the date of the change of control.
-11-
The benefits also include transferring ownership of any Company automobile
which is primarily used by Mr. Coulter and life and medical insurance coverage
for up to two years or such longer period if previously agreed to. Finally,
the agreement provides that if any excise taxes are imposed on Mr. Coulter by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
the Company will make him whole. The Company has also entered into Change of
Control Contracts with Messrs. White, Aaron, O'Connell and Bracken. Unlike
Mr. Coulter's Change of Control Contract, severance payments and benefits
(other than the stock option benefit) require a second event to occur within
730 days from the change of control before severance payments are due. The
second event includes any of the following, involuntary termination (other
than for cause, death or disability), relocation or a diminution in the
responsibility, authority or compensation of the executive officer. If there
is a change of control and any such second event occurs, Messrs. White, Aaron,
O'Connell and Bracken have the right to receive benefits substantially similar
to those described above.
Compensation Committee Interlocks
The Compensation/Stock Option Committee consists of Messrs. Chaney, Mandigo
and Greene. See "Certain Relationships and Related Transactions" for a
description of a transaction between Mr. Mandigo's son and the Company.
Report by the Compensation/Stock Option Committee on Executive Compensation
General
The Compensation/Stock Option Committee determines the cash and other
incentive compensation, 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 /Stock Option Committee
and are independent Directors in accordance with the definition of
"independent director" pursuant to the Company's Amended and Restated By-laws.
Mr. Mandigo serves as Chairman of the Compensation/Stock Option Committee.
During fiscal 2001, there were two meetings of the Compensation/Stock Option
Committee. During fiscal 2001, the Compensation and Stock Option Committees
combined to form the Compensation/Stock Option Committee. Prior to such
combination, during fiscal 2001, there were two meetings of the Compensation
Committee and two meetings of the Stock Option Committee.
Compensation Philosophy
The Compensation/Stock Option Committee's executive compensation philosophy
is to base management's pay, in part, on the achievement of the Company's
performance goals, to provide competitive levels of compensation, to recognize
and reward individual initiative, achievement and length of service to the
Company, to assist the Company in retaining and attracting the best qualified
management, and to enhance long term stockholder value. To meet the
competitive pressures of retaining and attracting the best qualified
management personnel, the Company is offering compensation and benefits that
place it among the top half of its industry, including 401(k) and deferred
compensation plans adopted in the fourth quarter of 1999. The Compensation/
Stock Option Committee strongly believes that the caliber of the management
personnel makes a significant difference in the Company's long term success,
as a result it is the philosophy of the Compensation/Stock Option Committee to
provide officers with the opportunity to realize potentially significant
financial gains through the grants of stock options. The Compensation/Stock
Option 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 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," or any contributions by
the Company pursuant to the Company's Deferred Compensation Plan (the
"Deferred Plan"). 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."
-12-
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 (base salaries are
targeted to be competitive in the top half of the industry). Positioning
executive officers' base salaries at these levels is necessary for attracting,
retaining and motivating executive officers with the essential qualifications
for managing the Company. The Company defines the relevant labor market
through the use of third-party executive salary surveys that reflect both the
chain restaurant industry as well as a broader cross-section of companies from
many industries. 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 other than
Mr. Coulter, 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 evaluates the performance of its executives on an annual basis.
Messrs. White, O'Connell, Aaron and Bracken received bonuses of $181,500,
$301,500, $76,500 and $89,000, respectively for fiscal 2001. These bonuses
were based, first, upon the Company's performance, including, but not limited
to, improved same store sales, an increase in adjusted net income (net income
before unusual charges and credits, including non-cash stock compensation) of
52% to $27,677,000 or $1.15 per share for the fiscal year ended December 25,
2001 compared to $18,162,000 or $.69 per share for the previous year, and,
second, upon the level of personal achievement by participants.
Deferred Compensation Plan
The Deferred Plan is a non-qualified deferred compensation plan. Deferred
Plan participants elect the percentage of pay they wish to defer into their
Deferred Plan account. They also elect the percentage of their deferral
account to be allocated among various investment options. The Deferred Plan
permits highly compensated employees or any employee at the level of District
Manager or higher to defer a portion of their annual compensation into
unfunded accounts with the Company. Participants in the Deferred Plan are
considered a select group of management and highly compensated employees
according to the Department of Labor. A participant's account balance will be
paid in cash upon death, termination of employment, change in control of the
Company, disability or retirement. The Company's contribution vests annually
in four equal installments commencing in the second year of employment with
the Company. All executive officers who participate in the Deferred Plan have
been employed by the Company for more than four (4) years.
Compensation of Chief Executive Officer
Mr. Coulter's base salary in fiscal 2001 was $750,000. Mr. Coulter's base
salary is based upon the factors described in the "Salaries" paragraph above.
Mr. Coulter's salary was increased in fiscal 2000 to be more comparable to the
higher range of salaries of chief executive officers of companies of similar
size reviewed by the Company. Mr. Coulter's salary was not increased in fiscal
2001. Mr. Coulter was awarded a bonus of $226,500 for services performed in
fiscal 2001. Mr. Coulter's bonus is based upon the factors described in the
"Annual Bonuses" paragraph above.
Stock Option Plan
It has historically been the philosophy of the Compensation/Stock Option
Committee to tie a significant portion of an executive's 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, were eligible for
-13-
grants of stock options pursuant to the Plan. The Company did not grant any
stock options to any of the Named Executive Officers for the fiscal year ended
December 25, 2001. In addition, the Plan has expired and the Company has no
other Stock Option Plans in effect for employees including executive officers.
Although the Company is not currently considering adopting a new stock option
plan for employees, the Company may decide to adopt a new stock option plan
for employees in the future, and if it does, will submit such plan for
approval to the Company's stockholders.
This report is submitted by the members of the Compensation/Stock Option
Committee Clark R. Mandigo, Chairman, Fred B. Chaney and William B. Greene,
Jr.
Common Stock Performance
The following graph compares the total return on the Company's Common Stock
from January 1, 1997, to December 25, 2001, 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, 1997
TO DECEMBER 25, 2001 AMONG LONE STAR STEAKHOUSE & SALOON, INC.,
THE STANDARD & POOR'S MID-CAP 400 INDEX AND THE PEER GROUP
[LINE CHART OMITTED]
Base
Company/Index Period 30-Dec-97 29-Dec-98 28-Dec-99 26-Dec-00 25-Dec-01
------------- ------ --------- --------- --------- --------- ---------
Lone Star Steakhouse & Saloon, Inc. 100 65.42 29.44 33.41 31.68 58.72
S&P Midcap 400 Index 100 132.25 171.78 203.34 232.79 214.78
Restaurants-500 100 107.38 168.28 171.43 153.69 138.49
Assumes $100 invested on January 1, 1997 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.
-14-
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 31, 2002. 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 stockholders represented and entitled
to vote thereon.
Fees billed to the Company by Ernst & Young, LLP during fiscal 2001 were as
follows:
Audit Fees:
Audit fees and related services billed to the Company by Ernst & Young, LLP
during the Company's 2001 fiscal year for the audit of the Company's annual
financial statements and the review of those financial statements included in
the Company's quarterly reports on Form 10-Q totaled approximately $134,000.
Financial Information Systems Design and Implementation Fees:
The Company did not engage Ernst & Young, LLP to provide advice to the
Company regarding financial information systems design and implementation
during the fiscal year ended December 25, 2001.
All Other Fees:
Fees billed to the Company by Ernst & Young, LLP during the Company's 2001
fiscal year for all other non-audit services rendered to the Company,
primarily tax related services totaled approximately $362,000. The Audit
Committee reviews audit and non-audit services performed by Ernst & Young, LLP
as well as the fees charged by Ernst & Young, LLP for such services. In its
review of non-audit service fees, the Audit Committee considers, among other
things, the possible effect of the performance of such services on the
auditor's independence. Additional information concerning the Audit Committee
and its activities with Ernst & Young, LLP can be found in the following
sections of this proxy statement: "Board Committees and Director Meetings,"
and "Audit Committee Report."
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 31, 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The adult sons of each of Clark R. Mandigo and Gerald T. Aaron are employed
by the Company as a general manager and district manager, respectively. The
Company has a total of 280 general managers and 31 district managers. Total
compensation in 2001 payable to the adult sons of Messrs. Mandigo and Aaron
was $91,546 and $88,862, respectively.
The Company and Mark G. Saltzgaber, a Director of the Company, entered into
an agreement dated as of April 29, 2002, whereby Mr. Saltzgaber received a
Director's fee of $250,000 in consideration of providing certain services in
connection with a proposed transaction (the "Proposed Transaction") between
the Company and Bruckmann, Rosser, Sherrill & Co., Inc. including, but not
limited to, assisting the Company in its analysis of the Proposed Transaction
and acting as the lead negotiator for the Company in its consideration of the
Proposed Transaction.
-15-
AUDIT COMMITTEE REPORT
The members of the Audit Committee from December 27, 2000 to December 25,
2001 were Messrs. Chaney, Greene and Mandigo, all of whom are "independent
directors" (as "independent director" is defined pursuant to the National
Association of Securities Dealers Marketplace Rule 4200(a)(14)(D)). The Audit
Committee met three times during the fiscal year. The composition of the Audit
Committee, the attributes of its members and the responsibilities of the Audit
Committee are intended to be in accordance with applicable requirements for
corporate audit committees.
The Audit Committee adopted a written charter during fiscal 2001, a copy of
which was attached to the Company's Proxy Statement in connection with the
2001 Annual Meeting of Stockholders. The Company's independent auditors are
responsible for auditing the financial statements. The activities of the
Committee are in no way designed to supersede or alter those traditional
responsibilities. The Audit Committee serves a broad-level oversight role, in
which it provides advice, counsel and direction to management and the auditors
on the basis of the information it receives, discussions with management and
the auditors and the experience of the Audit Committee's members in business,
financial and accounting matters. The Committee's role does not provide any
special assurances with regard to the Company's financial statements, nor does
it involve a professional evaluation of the quality of the audits performed by
the independent auditors.
In connection with the audit of Company's financial statements for the year
ended December 25, 2001, the Audit Committee met with representatives from
Ernst & Young, LLP, the Company's independent auditors. The Audit Committee
reviewed and discussed with Ernst & Young, LLP, the Company's financial
management and financial structure, as well as the matters relating to the
audit required to be discussed by Statements on Auditing Standards 61 and 90.
In July 2001, the Audit Committee received from Ernst & Young, LLP the
written disclosures and the letter regarding Ernst & Young, LLP's independence
required by Independence Standards Board of Standard No. 1.
In addition, the Audit Committee reviewed and discussed with the Company's
management the Company's audited financial statements relating to fiscal year
ended December 25, 2001 and has discussed with Ernst & Young, LLP the
independence of Ernst & Young, LLP.
Based upon review and discussions described above, the Audit Committee
recommended to the Board of Directors that the Company's financial statements
audited by Ernst & Young, LLP be included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 25, 2001.
William B. Greene, Jr., Chairman
Fred B. Chaney
Clark R. Mandigo
-16-
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 February 19, 2003.
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 2003 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 May 5,
2003 the Company will be permitted to use it discretionary voting authority as
outlined above.
The By-laws of the Company establish procedures for stockholder nominations
for elections of Directors of the Company and bringing business before any
annual meeting or special meeting of stockholders of the Company. Any
stockholder entitled to vote generally in the election of Directors may
nominate one or more persons for election as Directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Company, not less than 90 days
nor more than 120 days prior to the meeting; provided, however, that in the
event that if and only if the annual meeting is not scheduled to be held
within a period that commences thirty days after such anniversary date (the
"Other Meeting Date"), such Stockholder Notice shall be given in the manner
provided by the later of (i) the close of business on the date ninety days
prior to such Other Meeting Date or (ii) the close of business on the tenth
day following the date on which such Other Meeting Date is first publicly
announced or disclosed. Any notice to the Secretary must include: (i) the name
and address of record of the stockholder who intends to make the nomination;
(ii) a representation that the stockholder is a holder of record of shares of
the Company entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice; (iii) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and
(iv) the consent of each nominee to serve as a Director of the Company if so
elected. The Company may require any proposed nominee to furnish such other
information as may reasonably by required by the Company to determine the
eligibility of such proposed nominee to serve as a Director of the Company.
The presiding officer of the meeting may, if the facts warrant, determine that
a nomination was not made in accordance with the foregoing procedure, in which
event, the officer will announce that determination to the meeting and the
defective nomination will be disregarded.
To be brought before an annual meeting by a stockholder, business must be
appropriate for consideration at an annual meeting and must be properly
brought before the meeting. Business will have been properly brought before
the annual meeting by a stockholder if the stockholder has given timely notice
thereof in writing to the Secretary of the Company and has complied with any
other applicable requirements. To be timely, each such notice must be given,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Company, not less than 90 days nor more than 120 days prior
to the meeting; provided, however, that in the event that if and only if the
annual meeting is on the "Other Meeting Date", such Stockholder Notice shall
be given in the manner provided by the later of (i) the close of business on
the date ninety days prior to such Other Meeting Date or (ii) the close of
business on the tenth day following the date on which such Other Meeting Date
is first publicly announced or disclosed. Any notice to the Secretary must
include as to each matter the stockholder proposes to bring before the annual
meeting (w) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (x) the name and address of record of the stockholder proposing such
business, (y) the name, class or series and number of shares of the Company
that are owned by the stockholder, and (z) any material interest of the
stockholder in such business.
-17-
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. The transfer
agent and registrar for the Company's Common Stock, Wachovia Bank, N.A., as a
part of its regular services and for no additional compensation other than
reimbursement for out-of-pocket expenses, has been engaged to assist in the
proxy solicitation. The Company has retained Innisfree M&A Incorporated for a
fee not to exceed $7,500, plus reimbursement of reasonable out-of-pocket
expenses to assist in the solicitation of proxies and revocations. Proxies may
be solicited through the mail and through telephonic or telegraphic
communications to, or by meetings with, stockholders or their representatives
by directors, officers, and other employees of the Company who will receive no
additional compensation therefor.
The Company requests persons such as brokers, nominees, and fiduciaries
holding stock in their names for others, or holding stock for others who have
the right to give voting instructions, to forward proxy material to their
principals and to request authority for the execution of the proxy, and the
Company will reimburse such persons for their reasonable expenses.
ANNUAL REPORT
All stockholders of record as of June 7, 2002 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for
the fiscal year ended December 25, 2001. Such report contains certified
consolidated financial statements of the Company and its subsidiaries for the
fiscal year ended December 25, 2001.
By Order of the Company,
/s/ GERALD T. AARON
GERALD T. AARON
Secretary
Dated: Wichita, Kansas
June 19, 2002
The Company will furnish, without charge, a copy of its Annual Report on
Form 10-K for the fiscal year ended December 25, 2001 (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-
Appendix I
Certificate of Incorporation
Article Fifth, Paragraphs B, C, D and E
B. Election and Terms of Directors. The directors of the Corporation shall
be elected by a plurality of the votes cast to hold office until the next
annual meeting of stockholders and until their respective successors are
elected and qualify.
C. (1) [Deleted]
(2) Subject to the rights of the holders of any series of Preferred
Stock, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal
from office or other cause (other than a vacancy resulting from removal
by the stockholders, in which case such vacancy shall be filled by the
stockholders) shall be filled only by a majority vote of the directors
then in office, though less than a quorum, and a director so chosen shall
hold office until the next annual meeting of stockholders and until his
respective successor is elected and qualified. No decrease in the number
of authorized directors constituting the entire Board of Directors shall
shorten the term of any incumbent director.
D. [Deleted]
E. Removal. Subject to the rights of the holders of Preferred Stock and the
provisions of Delaware law, any one or more directors may be removed, with or
without cause, by the vote or written consent of the holders of a majority of
the shares entitled to vote at an election of directors, or the affirmative
vote of at least a majority of the Whole Board.
Amended and Restated By-laws
Sections 2.2, 2.3, 2.5 and 6.1
SECTION 2.2 Election and Term of Directors. The directors of the Corporation
shall be elected by a plurality of the votes cast to hold office, subject to
Sections 2.4 and 2.5, until the next annual meeting of stockholders and until
their respective successors are elected and qualify.
SECTION 2.3 Newly Created Directorships and Vacancies.
(a) [Deleted]
(b) Subject to the rights of the holders of any series of Preferred
Stock, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal
from office or other cause (other than a vacancy resulting from removal
by the stockholders, in which case such vacancy shall be filled by the
stockholders) shall be filled only by a majority vote of the directors
then in office, though less than a quorum, and a director so chosen shall
hold office until the next annual meeting of stockholders and until his
respective successor is elected and qualified. No decrease in the number
of authorized directors constituting the entire Board of Directors shall
shorten the term of any incumbent director.
SECTION 2.5 Removal. Subject to the rights of the holders of Preferred Stock
and the provisions of Delaware law, any one or more directors may be removed,
with or without cause, by the vote or written consent of the holders of a
majority of the shares entitled to vote at an election of directors, or the
affirmative vote of at least a majority of the Whole Board.
SECTION 6.1 Amendment. The By-Laws may be altered, amended or repealed by
the stockholders or by the Board of Directors by a majority vote.
I-1
LONE STAR STEAKHOUSE & SALOON, INC.
ANNUAL MEETING OF STOCKHOLDERS -- JULY 15, 2002
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 Clark R. Mandigo 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 a.m., local time on July 15, 2002 at the Del
Frisco's Double Eagle Steak House restaurant located at 1221 Avenue of the
Americas, New York, New York 10020, 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 properly 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 ratification of Ernst & Young, LLP as the Company's independent auditors;
and (3) in accordance with the discretion of the proxies or proxy with respect
to any other business transacted at the Annual Meeting. If no direction is made,
this proxy will not be voted with respect to the amendments to the Company's
Certificate of Incorporation and Amended and Restated By-laws to eliminate
classification of the Board of Directors of the Company.
THE BOARD RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 3. THE BOARD IS NOT MAKING
ANY RECOMMENDATION ON HOW YOU SHOULD VOTE FOR PROPOSAL 2.
1. Election of nominees named below to the Board of Directors of the
Company.
|_| FOR all nominees listed below (except as marked to the contrary
below).
|_| WITHHOLD AUTHORITY to vote for all nominees listed below.
Nominees: Fred B. Chaney William B. Greene, Jr.
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
--------------------------------------------------------------------------------
2. To approve the amendments to the Certificate of Incorporation and Amended
and Restated By-laws of the Company to eliminate classification of the
Board of Directors of the Company.
FOR |_| AGAINST |_| ABSTAIN |_|
3. To ratify the appointment of Ernst & Young, LLP as the Company's
independent auditors for the fiscal year ending December 31, 2002.
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.
DATED: ___________________, 2002
________________________, (L.S.)
(Signature)
________________________, (L.S.)
(Signature)
Your signature should appear
the same as your name appears
hereon. In signing as
attorney, executor,
administrator, trustee or
guardian, please indicate the
capacity in which signing.
When signing as joint tenants,
all parties in the joint
tenancy must sign. When a
proxy is given by a
corporation, it should be
signed by an authorized
officer and the corporate seal
affixed. No postage is
required if mailed in the
United States.
PLEASE ACT PROMPTLY
PLEASE SIGN AND DATE THE REVERSE SIDE OF THIS PROXY CARD
AND RETURN IT IN THE ENCLOSED ENVELOPE TODAY