SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
LONE STAR STEAKHOUSE & SALOON, INC.
(Name of Registrant as Specified in its Charter)
GUY W. ADAMS
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee
paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party: Guy W. Adams
4) Date Filed: 04/09/2001
(These materials are intended to be released to one or more shareholders, along
with the Definitive Proxy Statement currently on file, on or about April 11,
2001)
Dear Fellow Shareholders,
Who is Guy W. Adams?
My name is Guy Adams. I have a Bachelor's Degree from Louisiana State
University and an MBA from Harvard Business School and have been in the business
of analyzing and making investments in public companies for over 13 years. I am
running as an INDEPENDENT candidate against Jamie B. Coulter for election to the
Board of Directors of Lone Star Steakhouse & Saloon, Inc. I have no current or
past affiliations with Lone Star, other than my ownership of Lone Star stock,
and I am completely independent of management. Mr. Coulter has been the
Chairman and Chief Executive Officer of Lone Star since 1992 and is currently
paid over $750,000 annually.
Who are Guy W. Adams' supporters?
In my preliminary conversations, a number of institutional and individual
stockholders, have told me orally that they would vote for my election to the
Board. Among those indicating their support are:
California Public Employee's Retirement System (assets: $165 Billion), and
The Amalgamated Bank Longview MidCap 400 Index Fund (assets: $100 Million)
To date, the holders of over 13% of the shares outstanding have advised me that
they intend to vote for me and against Mr. Coulter.
Why is Guy W. Adams running for the Lone Star Board of Directors?
I am disappointed with the Company's stock performance and operating
performance. For the fiscal year ending December 28, 1999 the Company suffered:
- A 3-year stock price DECLINE of 66.6%
- 3 consecutive years of declining EBITDA* margins
- 3 consecutive years of declining Same-Stores-Sales
- 2 consecutive years of declining Operating Income Before Impairment
Charges **
- A 5-year comparison performance against its Industry Peer Group, in which
the Company's stock UNDERPERFORMED its peer group by 81%
* Earning Before Interest, Tax and Depreciation, and before asset
impairment charges
** Operating Income plus impairment and store closing charges
I am also disappointed with the performance of the three "independent" Directors
currently sitting on the Board of Directors. Following the above stock
performance and operating performance, these independent Directors and the Board
in early fiscal year 2000:
- Increased Mr. Coulter's base pay from $300,000 to $750,000 per annum.
(12/29/99)
- Increased Mr. White's (Executive Vice President) base pay from $283,000
to $600,000 per annum. (3/22/00)
- Approved the repricing of 4,591,757 options from $18.25/sh to $8.47/sh.
A concentrated portion (90.9%) of this repricing was to the benefit of Mr.
Coulter (2.6 million shares), Mr. White (1.0 million shares) and Mr. Aaron,
Sr. Vice President (0.6 million shares). (1/7/00)
Following the above compensation rewards, for the year ending December 26, 2000,
the Company suffered:
- Another year of DECLINING: Revenues, Same-Stores-Sales, and
Operating Income Before Impairment Charges **
- ANOTHER 4 (8 total) consecutive quarters of declining EBITDA* margins
- A further stock price DECLINE of 8.8%
* Earning Before Interest, Tax and Depreciation, and before asset
impairment charges
** Operating Income plus impairment and store closing charges
Are the above actions of the 3 independent Directors and the Board
consistent with the Company's stock performance
or operating performance???
During the last 4 years, the Company has reported in its public documents a
variety of Related-Party Transactions between Mr. Coulter and Lone Star, some
of which are summarized below:
- Payments made to a Coulter owned entity for "accounting and administ-
rative services" to Lone Star
- Loans made to a Coulter owned entity
- Borrowings obtained from a Coulter owned entity bearing an undisclosed
rate of interest
- Payment of $10.5 million to Mr. Coulter for the purchase of Coulter
Enterprises
- Payments to a Coulter owned entity for use of airplane and pilot services
- Lease payments to a Coulter owned entity for meeting rooms, storage
space, and parking
- Purchases of "business gifts and awards" from a Coulter owned entity
I am disappointed with Mr. Coulter's performance as Chairman over the last 4
years, as reported in the Company's public documents and partially summarized
in the 4-Year Table attached (Appendix A).
Over the last four years, the Board of Directors have authorized, and the
Company has repurchased, approximately 17 millions shares of stock, utilizing
$162 million of corporate assets (cash). This buy-back represented more that
41% of the shares outstanding at the beginning of fiscal 1997. During this
period, the stock price declined by 69%. Over this same interval, the market
capitalization of the Company declined by $890 million. As the stock price
declined, the Board of Directors repriced options four times, affecting 13.6
million shares of stock.
As a result of these stock repurchases and option repricings, the holders of
these options - primarily Management and the Board - have increased their
potential ownership (on a fully diluted basis) in the Company from 10.4% to
24.4%.
Who has benefited the most from the Stock Buy-Backs and Option Repricings
- Management or Shareholders???
As of fiscal year end December 26, 2000, the Company reported a Book Value of
over $18.00 per share, of which $1.20 per share was in cash. The year end
cashflow from operations (commonly referred to as EBITDA*) was over $54 million,
or $2.22 per share. The Company has no debt. With sales of $576 million, if
the Company were to be valued at 1.0 times sales, the stock price would be over
$20 per share. Today (4/5/01) the stock is currently trading at $9.50 per
share.
I believe the Company's shares are currently, significantly undervalued by the
market.
* Earning Before Interest, Tax and Depreciation, and before asset impairment
charges
January 3, 2001 Golden Parachute
I am shocked by the golden parachute contracts recently given to Mr. Coulter
and his management team. It is unclear what, if anything, the Company received
in exchange for these agreements. In particular, I am shocked that the current
directors of the Company have given away rights that can be triggered by the
stockholders of the Company simply exercising their rights under Delaware Law
to nominate and elect directors. IF THESE RIGHTS ARE TRIGGERED, THE LIABILITY
TO THE COMPANY, AT CURRENT STOCK PRICES, WOULD BE IN EXCESS OF $65,000,000
(at $13 per share, the liability would be over $85,000,000).
Management's rights under the so called "Change of Control Contract" are
triggered by:
(1) The coming together of any group of stockholders to share costs for the
purpose of supporting even a single candidate for election to the Board of
Directors in opposition to the Board's slate, if that group has as its members,
people who own 30% or more of the Company's stock. In other words, the
incumbent directors can spend the Company's money to get themselves re-elected,
but if a significant group of stockholders gets together to pool their
resources to support even a single candidate in opposition to the incumbent
directors, Mr. Coulter's rights under the Golden Parachute contract are
triggered.
(2) The simple failure of the stockholders of this Company to re-elect 3 of
the currently sitting directors (or other nominees approved by the "Existing
Directors"). In other words, if this year you decide to elect me, rather
than Mr. Coulter, then next year you must elect at least one of the directors
approved by the Board, or Mr. Coulter's rights under the Golden Parachute
contract are triggered.
Mr. Coulter's benefits under the Golden Parachute contract are substantial.
He would be entitled, at any time up to five years from the date of any such
triggering event, elect to receive:
- a lump sum severance payment equal to approximately three years pay
(calculated to include certain benefits and bonus payments). If 2000 were
the base year, this would produce a payment to Mr. Coulter of over $2,300,000.
- either new unrestricted and fully vested options to replace any and all
options that he held on the trigger date, or cash equal to the number of stock
options held multiplied by the mean between the high and low selling price of
such stock on the Nasdaq National Market on the date when Mr. Coulter elects
to exercise his Golden Parachute Rights.
NOTE, THE GOLDEN PARACHUTE DOES NOT PROVIDE FOR ANY DEDUCTION OR OFFSET FOR
THE EXERCISE PRICE OF THE OPTIONS SURRENDERED. As of last year's proxy,
Mr. Coulter held options to acquire 2,600,000 shares of the Company's common
stock. IF THIS PROVISION WERE TO BE TRIGGERED AND EXERCISED TODAY, MR. COULTER
WOULD BE ENTITLED TO RECEIVE A CASH PAYMENT OF $24,700,000 IN CONSIDERATION OF
THE SURRENDER OF THOSE OPTIONS. The other participants would be entitled to
receive over $17,900,000 in cash.
Furthermore, this agreement calls for the company to gross up this payment to
Mr. Coulter to make him whole for any excise taxes imposed by the Internal
Revenue Code on excessive golden parachute payments. With a 20% excise tax
and assuming a 40% tax rate, the Company would have to pay out over $38,000,000
to satisfy this agreement with Mr. Coulter. For all participants, at current
prices this contract will cost the company over $65,000,000; at $13 per share
it will cost over $85,000,000. None of this amount can be claimed as an expense
by the Company to offset corporate taxes.
I also find it interesting that the Directors choose to grant these rights on
January 3, 2001. Mr. Coulter has been Chairman and CEO of the Company since
January 1992. What was it that occurred in late 2000 that caused the Directors
to be suddenly concerned about a possible change of control transaction? Was
there an offer made or a transaction proposed? It is also interesting to note
that between the end of fiscal year 2000 and March 19, 2001 the Company has
purchased over 244,000 shares of its outstanding common stock.
It seems to me that this Golden Parachute agreement is excessive, and a totally
inappropriate response to a simple exercise by stockholders of their democratic
right to vote for the candidates of their choice. It is, in my opinion, an
abuse of discretion by the Board of Directors. I believe such conduct is
particularly outrageous in light of the Company's dismal performance described
above.
What would Guy W. Adams do if elected to the Board of Directors?
If elected, I would be completely independent of Management and provide a voice
for prudent oversight of Board decisions. Further, if elected, I currently
intend to make the following proposals for immediate consideration by the Board
of Directors:
1) That Lone Star's By-laws and Certificate of Incorporation be amended:
a) to prohibit transactions between Lone Star and its Management (or their
respective affiliates), without the unanimous approval of the independent
directors,
b) to declassify the board of directors so that all directors are elected
annually; such declassification to be carried out in a manner that does not
affect the unexpired terms of directors previously elected (such a proposal
was voted upon at last year's Annual Shareholder Meeting on June 9,
2000 and was approved by 69% of all such votes cast, but the Board has
thus far refused to adopt it), and
c) to provide for an independent Chairman of the Board, thus separating
the position of the Chief Executive Officer and the Chairman, and that an
executive search be immediately begun for an independent Chairman;
2) That Lone Star immediately retain an investment banking firm of national
reputation to review and advise on strategic alternatives for maximizing
stockholder values; and
3) That there be an immediate moratorium on the repricing of existing stock
options and the issuance of new stock options, except in the case of new hires
or until there is a clear turnaround in the Company's stock price.
Obviously, if elected, I would only be one of five votes on the Board of
Directors. Accordingly, I cannot give you any assurances than I would be able
to accomplish anything as a director, only that I would work hard to improve
shareholder value.
Vote for Guy W. Adams and bring accountability to the Board and Management!
Please vote your (color) proxy card for Guy W. Adams
I urge you to date and mark your (color) proxy card FOR me, GUY W. ADAMS, and
return it to me at 550 S. Hope St., Ste 1825, Los Angeles, CA 90071. To keep
abreast of developments, check my Web site at ____________________.
To request additional proxy cards, please contact me at ______________.
Thank you for your consideration of my candidacy.
Very truly yours,
/s/ Guy W. Adams
------------
Guy W. Adams
Appendix A
4-Year Table
(FIGURES IN 1,000s except $/sh and percentage)
5 Yr. Price
Fiscal Yr. Stock Stock Decline Comparison to
Ending Price/ Sh Yr. Over Yr. Peer Group
-------------------------------------------------------------------------------
Dec 30, '97 $ 17.41 - 34.9% - 46.5%
Dec 29, '98 $ 7.88 - 54.8% - 87.7%
Dec 28, '99 $ 8.91 + 13.1% - 81.1%
Dec 26, '00 $ 8.13 - 8.8% Unknown
-------
4 Year Stock Price Decline - 69.6%
Fiscal Yr. Options Total Options Weighted Ave
Ending Repriced Outstanding Exercise Price/ Sh
-------------------------------------------------------------------------------
Dec 31, '96 - 4,739 $28.69
Dec 30, '97 8,124 8,154 $18.08
Dec 29, '98 768 6,982 $16.91
Dec 28, '99 148 6,456 $16.57
Dec 26, '00 4,592 * 7,827 $ 9.57
Fiscal Yr. -- Options Repriced-- ------ Repurchase of Shares ------
Ending Amount Exercise $/Sh No. Shares Cost Ave Price/ Sh
Dec 30, '97 8,124 $ 18.25 - - -
Dec 29, '98 768 $ 8.00 2,610 $ 36,357 $ 13.93
Dec 28, '99 148 $ 7.94 8,758 $ 76,488 $ 8.73
Dec 26, '00 4,592 * $ 8.47 5,605 $ 49,261 $ 8.79
-------------------------------------------------------------
4 Year Totals 13,632 16,973 $162,106 $ 9.55
Potential
Outstanding
Fiscal Yr. Options at Shares With Exercise Options as % of
Ending Yr. End Outstanding Of Options Potential Outstanding
-------------------------------------------------------------------------------
Dec 31, '96 4,739 40,703 45,442 10.4%
Dec 30, '97 8,154 41,156 49,280 16.5%
Dec 29, '98 6,982 38,608 45,590 15.3%
Dec 28, '99 6,456 29,859 36,315 17.8%
Dec 26, '00 7,827 24,276 32,103 24.4%
* 4,592 repriced and an additional 1,393 (net) granted which are not
included.
Appendix B
Document Footnotes:
Source For Page 1:
Telescan, Inc. - Data Services
Market Guide - Data Services
Company Press Release 2/6/2001
Form 10-K Filed 3/30/1999 Pg. 22
Form 10-K Filed 3/21/2000 Pg. 20, 21
Form 10-K Filed 3/26/2001 Pg. 13
Definitive Proxy Filed 5/1/2000 Pg. 11
Source for Page 2:
Definitive Proxy Filed 4/30/1997 Pg. 11
Definitive Proxy Filed 4/28/1998 Pg. 11
Definitive Proxy Filed 4/28/1999 Pg. 7, 11, 12
Definitive Proxy Filed 5/1/2000 Pg. 6,8,9, 10, 17
Form 10-K/A Filed 4/2/1998 Pg. F-16
Form 10-K Filed 3/30/1999 Pg. F-13, F-17, F-18
Form 10-K Filed 3/31/2000 Pg. F-12, F-17, F-18, F-24
Form 10-K Filed 3/26/2001 Pg. 13, 16, 17, F-4, F-12, F-18
Company Press Release 2/6/2001
Market Guide - Data Services
Telescan, Inc. - Data Services
Source for Page 3:
Telescan, Inc. - Data Services
Company Press Release 2/6/2001
Form 10-K Filed 3/26/2001 Pg. F-2-4
Source for Pages 3-4-5:
Definitive Proxy Filed 5/1/2000 Pg. 6, 8, 9
Form 10-Q Filed 7/28/2000 Pg. 14
Form 10-K Filed 3/26/2001 - Pg F-3 and Exhibits:
10.5 Non-Competition, Confidentiality and Non-Solicitation Agreement
between the Company and Jamie B. Coulter, dated March 12, 1992.
10.6 Amended Agreement dated January 1, 1999 between the Company
and Jamie B. Coulter.
10.7 Employment Agreement between the Company and Gerald T. Aaron,
dated March 22, 2000.
10.12 Employment Agreement between the Company and John D. White,
dated March 22, 2000.
Change of Control Agreement between the Company and : Pg 2, 3, 4, 6, 7, 8, 9
10.13 Jamie B. Coulter dated January 3, 2001.
10.14 Gerald T. Aaron dated January 3, 2001.
10.15 Randall H. Pierce dated January 3, 2001.
10.16 T. D. O'Connell dated January 3, 2001.
10.17 Jeffrey Bracken dated January 3, 2001.
10.18 John D. White dated January 3, 2001.
10.19 Deidra Lincoln dated January 3, 2001.
Document Footnotes - Continued
Source for Page 7 - Appendix A:
Telescan, Inc. - Data Services
Definitive Proxy Filed 4/28/1998 Pg. 10
Definitive Proxy Filed 4/28/1999 Pg. 10
Definitive Proxy Filed 5/1/2000 Pg. 11
Form 10-K/A Filed 4/2/1998 Pg. F-4, F-16
Form 10-K Filed 3/30/1999 Pg. 24, F-14, F-15, F-17
Form 10-K Filed 3/31/2000 Pg. 23, F-3, F-13, F-16, F-17, F-24
Form 10-K Filed 3/26/2001 Pg. 18, F-2-5, F-13, F-16, F-17
Form 10-Q Filed 3/5/2000 Pg. 6, 11
Form 10-Q Filed 7/28/2000 Pg. 7, 12
Form 10-Q Filed 10/20/2000 Pg. 7, 13
Company Press Release 2/6/2001