sec document
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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Filed by a Party other than the Registrant |_|
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|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
|_| 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.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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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 [_______________________],
10:00 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 approve 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
GERALD T. AARON, Secretary
Dated: June ___, 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
[_____________________] on July [15], 2002 at 10:00 a.m., local time, or at any
adjournments thereof.
The principal executive offices of the Company are located at 224
East Douglas, Suite 700, Wichita, Kansas 67202-3414. 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 ____, 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 [24,910,037] outstanding 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.
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.
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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 of Beneficial Owner Beneficially Held Percentage of Class
------------------------------------ ----------------- -------------------
Jamie B. Coulter 4,995,393(1) [18.2%]
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 Saltzgaber - -
Thomas Lasorda - -
Michael 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) 7,556,380(12) [25.3%]
* 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.
-3-
(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.
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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
*Tommy Lasorda 74 2003
*Michael A. Ledeen 60 2004
*Mark 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
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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.
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,
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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, 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 Corporation, but the Executive
Committee does not have such power or authority in reference to the following
matters: (i) approving or adopting or recommending 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 Corporation. 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:
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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.
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.
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PROPOSAL II
AMENDMENT TO CERTIFICATE OF INCOROPATION 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
-9-
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 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 SUMBISSION 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.
-10-
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 $100,000 with respect to the fiscal year ended
December 25, 2001.
Summary Compensation Table
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Number of
Securities
Underlying
Other Options All Other
Name and Principal Position Year Salary Bonus($) Annual Compensation (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 and 2000 $600,000 $181,500(4) - - $57,842
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 Operations 2000 $200,000 $53,753(4) - _ $23,106
1999 $139,773 $45,000(5) - 81,479 $ 3,381
Gerald T. Aaron 2001 $250,000 $76,500(3) - - $25,000
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
-11-
No options were exercised by the CEO and the other Named Executive
Officers during the fiscal year ended December 25, 2001 except by T.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 $14.37.
FISCAL YEAR-END OPTION VALUES
Shares
Acquired Number of Securities Value of Unexercised
on Value Underlying Unexercised In-the-Money Options at
Exercise Realized(1) Options at December 25, 2001 December 25, 2001 ($)
--------- ----------- ---------------------------- -----------------------------
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
("Director's 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 and Senior Vice President of Operations - Lone
Star Steakhouse & Saloon, 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
-12-
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.
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. 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
-13-
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."
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
-14-
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
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 Fred B. Chaney, William B. Greene, Jr. and Clark R. Mandigo.
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
[Insert Graph]
Base
Company/Index Period 30-Dec-97 29-Dec-98 28-Dec-99 26-Dec-00 25-Dec-01
---------------------- ------ --------- --------- --------- --------- ---------
Lone Star Steakhouse & 100 65.42 29.44 33.41 31.68 58.72
Saloon, Inc.
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.
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
-15-
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 were
$91,546 and $88,862, respectively.
The Company and Mark 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 Bruckman, 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.
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.
-16-
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.
Fred B. Chaney
William B. Greene, Jr.
Clark R. Mandigo
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 [___________].
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 [____________] 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
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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.
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
("Innisfree") 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,
GERALD T. AARON
Secretary
Dated: Wichita, Kansas
___________, 2002
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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.
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Appendix I
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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 Remova1. 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.
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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 10:00 a.m., local time on July [15], 2002 at
[___________________], 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.
Nominees: Fred B. Chaney William B. Greene, Jr.
|__| FOR all nominees listed below |__| WITHHOLD AUTHORITY
(except as marked to the contrary below.) to vote for all nominees listed below.
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 that Company's
independent auditors for the fiscal year ending December 30, 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)
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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
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