Edgar Filing: LONE STAR STEAKHOUSE & SALOON INC

sec document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--
FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 2002
-----------------

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ______ to ______

Commission file number 0-19907

LONE STAR STEAKHOUSE & SALOON, INC.
(Exact name of Registrant as specified in its charter)

Delaware 48-1109495
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

224 East Douglas, Suite 700
Wichita, Kansas 67202
(Address of principal executive offices) (Zip code)

(316) 264-8899
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes /X/ No / /

Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-20). Yes /X/ No / /

As of June 11, 2002, the aggregate market value of the Registrant's
Common Stock held by non-affiliates of the Registrant was $485,735,766. Solely
for the purpose of this calculation, shares held by directors and officers of
the Registrant have been excluded. Such exclusion should not be deemed a
determination by or an admission by the Registrant that such individuals are, in
fact, affiliates of the Registrant.

As of March 10, 2003, there were 21,263,052 shares outstanding of
the Registrant's Common Stock.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names and ages of the Directors
of the Company:

Term of Office

Name Age

Clark R. Mandigo 59

John D. White 55

Fred B. Chaney 66

William B. Greene, Jr. 65

Anthony Bergamo 56

Thomas C. Lasorda 75

Michael A. Ledeen 61

Mark G. Saltzgaber 35

Clark R. Mandigo has been the Chairman of the Board of the Company
since July 2001 and a Director of the Company since March 1992. Mr. Mandigo has
been a Papa John's Pizza franchisee since 1995. From 1986 to 1991, he was
President, Chief Executive Officer and Director of Intelogic Trace, Inc., a
corporation engaged in the sale, lease and support of computer and
communications systems and equipment. From 1985 to 1997, Mr. Mandigo served on
the Board of Directors of Physician Corporation of America, a managed health
care company and from 1993 to 1997, Mr. Mandigo served on the Board of Palmer
Wireless, Inc., a cellular telephone system operator. Mr. Mandigo currently
serves on the Board of Directors of Horizon Organic Holdings Corporation and as
a Trustee of Accolade Funds.

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 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.

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 Niagara 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. Mr. Lasorda is also an
internationally renowned motivational speaker. He was the manager of the gold
medal winning United States Baseball Team for the 2000 Summer Olympic Games in
Sydney, Australia and was the manager of the Los Angeles Dodgers for 20 years.

Michael A. Ledeen has been a director of the Company since November
2001. Mr. Ledeen has been a resident scholar in the Freedom Chair at the
American Enterprise Institute since 1989 and the Vice Chairman of the U.S.-China
Security Review Commission since 2001. An expert in contemporary history and
international affairs, Mr. Ledeen is a frequent contributor to the Wall Street
Journal, the Weekly Standard, National Review, and Commentary and serves as a
foreign affairs editor of the American Spectator. During the Reagan
administration, from 1981 to 1987, Mr. Ledeen held numerous positions including
a consultant to the National Security Adviser, the Office of the Secretary of
Defense, and the State Department and was a special adviser to the Secretary of
State. Mr. Ledeen is the author of seventeen books, including most recently
Tocqueville on American Character (St. Martin's Press, 2000).

Mark G. Saltzgaber has been a director of the Company since November
2001. Mr. Saltzgaber is an experienced investment banker, advisor and private
equity investor in the restaurant industry. He is currently an independent
consultant to emerging restaurant chains and a venture partner of Dorset Capital
Management, LLC, 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. and Stir Crazy Enterprises, LLC

In addition to Mr. White, the other Executive Officers of the
Company are as follows:

Jamie B. Coulter, 62, 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. In
1993, Mr. Coulter was inducted into the Pizza Hut Hall of Fame and was named
INC. Magazine's Midwest Region Master Entrepreneur of the year. Mr. Coulter
received the Nation's Restaurant News Golden Chain Award in 1995 and was
Restaurants & Institutions CEO of the year in 1996. In 1997, Mr. Coulter
received the Nation's Restaurant News Hot Concept Award. 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 is a graduate of the Stanford
University Executive Program.

Tomlinson D. O'Connell, 34, joined the Company in 1995, and has been
President - Lone Star Restaurants since September 2002. From December 1999 to
September 2002, Mr. O'Connell was Senior Vice President of Operations - Lone
Star Steakhouse & Saloon, Inc. Mr. O'Connell is currently responsible for the
operation of all domestic and international 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, 62, 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, 37, has been Chief Operating Officer - Lone Star
Restaurants since September 2002. Mr. Bracken has worked for the Company since
1996, previously as Vice President of Operations - Lone Star Steakhouse & Saloon
from May 1999 to September 2002 and prior thereto as a Regional Manager.

Deidra Lincoln, 43, has been Vice President of Del Frisco's since
January, 2000. Ms. Lincoln is the co-founder of Del Frisco's Double Eagle Steak
House ("Del Frisco's"), which was acquired by the Company in 1995. Since 1995,
Ms. Lincoln has served in various managerial capacities and is responsible for
all of the Company's Del Frisco's operations.

Randall H. Pierce, 63, 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. Mr. Pierce served in the Wichita, Kansas office 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. 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.

ITEM 11. 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 31, 2002.

SUMMARY COMPENSATION TABLE

Annual Compensation Long Term Compensation

Number of
Other Securities All Other
Annual Compensation Underlying Options Compensation
Name and Principal Position Year Salary Bonus($) (1) (# of Shares) (2)
--------------------------- ---- ------ -------- ------------------- ---------------- ------------

Jamie B. Coulter 2002 $750,000 $1,051,500 $109,848(5) - $180,150
Chief Executive Officer 2001 $750,000 $ 226,500(3) $ 97,473(6) - $ 97,650
2000 $750,000 $ 226,642(4) $ 87,787(7) - $ 72,265
- -

John D. White 2002 $600,000 $ 270,353 - - $ 87,035
Executive Vice President and 2001 $600,000 $ 181,500(3) - - $ 78,150
Treasurer 2000 $600,000 $ 181,500(4) - - $ 57,842

Tomlinson D. O'Connell 2002 $200,000 $ 301,500 $ 57,785(8) _ $ 50,150
President - Lone Star Restaurants 2001 $200,000 $ 301,500(3) - _ $ 50,150
2000 $200,000 $ 53,753(4) - _ $ 23,106

Gerald T. Aaron 2002 $250,000 $ 80,189 - - $ 25,000
Senior Vice President 2001 $250,000 $ 76,500(3) - - $ 25,000
Counsel & Secretary 2000 $250,000 $ 76,500(4) - - $ 24,039
-

Deidra Lincoln 2002 $260,000 $ 70,918 - - $ 33,092
Vice President of Del Frisco's 2001 $260,000 - - - $ 26,000
2000 $260,000 $ 142,004(4) - - $ 26,000

-------------------

(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) During the fiscal year ended December 31, 2002, Mr. Coulter received
benefits primarily relating to tax and accounting services provided
by Company personnel ($82,850) and the balance was primarily for
reimbursement for certain medical insurance premiums and expenses.
(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 primarily 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 primarily for
reimbursement for certain medical insurance premiums and expenses.
(8) During the fiscal year ended December 31, 2002, Mr. O'Connell
received benefits primarily relating to the personal use of the
Company's airplane ($54,396) and the balance was primarily for
certain medical premiums.

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 31, 2002.

OPTION EXERCISE TABLE

The following table provides information with respect to the
exercise of stock options by Named Executive Officers during the fiscal year
ended December 31, 2002. The following table also sets forth certain information
concerning unexercised options held as of December 31, 2002 by the CEO and the
other Named Executive Officers. At December 31, 2002, the closing price of the
Company's Common Stock, as reported by the Nasdaq National Market, was $19.34.

FISCAL YEAR-END OPTION VALUES

Shares
Acquired Value Number of Securities Value of Unexercised
On Realized Underlying Unexercised In-the-Money Options at
Exercise (1) Options at December 31, 2002 December 31, 2002 ($)
-------- -------- ---------------------------- ----------------------

Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- ------------

Jamie B. Coulter -- -- 2,600,000 -0- $28,265,250 -0-

John D. White 150,000 $2,009,273 850,000 -0- $ 9,240,563 -0-

Tomlinson D. O'Connell 100,000 $1,351,483 46,957 41,492 $ 491,405 $437,122

Gerald T. Aaron 100,000 $1,259,582 475,000 -0- $ 5,163,844 -0-

Deidra Lincoln 150,000 $1,946,988 68,527 39,223 $ 738,203 423,018

(1) Based on the difference between the exercise price of the options
and the fair market value of a share of Common Stock at exercise, as
reported on the Nasdaq National Market.

DIRECTORS COMPENSATION

Directors who are not employees of the Company have received an
annual fee of $5,000 and a fee of $1,250 for each Board of Directors meeting
attended and are reimbursed for their expenses. Employees who are Directors are
not entitled to any compensation for their service as a Director. Effective
April 7, 2003, the Company revised Director's Compensation as follows: Directors
who are not employees will receive an annual fee of $20,000; each Chairman of a
Committee will receive an additional annual fee of $5,000; each member of the
Audit Committee will receive an additional annual fee of $5,000; each Director
who is not an employee will also receive $1,000 for each telephonic meeting,
$2,000 for each Committee Meeting attended (if no Board of Directors Meeting is
being held on the same day) and $2,500 for attending Board and Committee
Meetings held on the same day. In addition, the Chairman of the Board will not
be an employee of the Company and will serve a two year term for total
compensation of $200,000. The Company previously granted options to non-employee
Directors under the Company's 1992 Directors Stock Option Plan (the "Directors
Pan"). 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 364,400 shares of Common Stock
are outstanding under the Directors Plan at exercise prices ranging from $6.688
per share to $18.81 per share.

The Company and Mark G. Saltzgaber, a Director of the Company,
entered into an agreement dated as of April 29, 2002, whereby Mr. Saltzgaber
received a Director's fee of $250,000 in consideration of providing certain
services in connection with a proposed transaction (the "Proposed Transaction")
between the Company and 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.

EMPLOYMENT AGREEMENTS

The Company has entered into separate employment agreements, with
each of Messrs. White, Aaron, and O'Connell, dated as of April 29, 2003,
providing for the employment of such individuals as Executive Vice President,
Senior Vice President - Counsel and Secretary and President - Lone Star
Restaurants, 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 amounts of
$600,000, $250,000 and $350,000, respectively, for Messrs. White, Aaron and
O'Connell, subject to increases as determined by the Board of Directors. Each
agreement contains non-competition, confidentiality and non-solicitation
provisions which apply for twenty-four months after cessation of employment.

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, Lasorda, Mandigo and
Saltzgaber, 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. Saltzgaber serves as Chairman of the
Compensation/Stock Option Committee. During fiscal 2002, there were four (4)
meetings of the Compensation/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 attempt to
place it among the top quartile of its industry.

In November 2002, the Company engaged Hay Group, Inc. ("Hay Group")
to review its compensation programs and to make any recommendations it deemed
necessary to ensure that such programs were in line with its stated philosophy.
Hay Group is one of the five largest management consulting firms in the world
primarily focused on human resources. They possess in excess of 50 years of
experience and have worked with approximately half of the "Fortune 1000"
companies in the United States. Furthermore, Hay Group has extensive knowledge

of the restaurant industry and partners with the Chain Restaurant Compensation
Association ("CRCA") to conduct an annual compensation survey. In its evaluation
of the Company's executive compensation programs, Hay Group analyzed and
measured the Company's executive positions using their own proprietary job
evaluation methodology. They then compared the base salaries, total cash
compensation and total direct compensation (including long-term incentives such
as stock options) for these positions to similar positions of a 12-company peer
group and the CRCA. Hay Group's study concluded that, especially in light of the
expiration of the Company's Stock Option Plan, total direct compensation for
most of the Company's executive officers fell below the median for both the peer
group and the CRCA.

The Compensation/Stock Option Committee strongly believes that the
caliber of the management personnel makes a significant difference in the
Company's long term success, as a result it is the philosophy of the
Compensation/Stock Option Committee to provide officers with the opportunity to
realize potentially significant financial gains through the grants of stock
options. The Compensation/Stock Option Committee also believes that the
potential for equity ownership by management is beneficial in aligning
management and stockholders' interest in the enhancement of stockholder value.
However, despite the philosophy of the Compensation/Stock Option Committee that
stock options are an important part of compensation, the Compensation/Stock
Option Committee was unable to grant stock options in fiscal 2002 due to the
expiration of the Company's Stock Option Plan.

Section 162(m) of the Internal Revenue 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, with certain exceptions,
any compensation received by executive officers in connection with the exercise
of options granted under the Plan qualifies as "performance-based compensation."
In September 2002, the Company adopted the Lone Star Steakhouse & Saloon, Inc.
Stock Option Deferred Compensation Plan (the "Stock Deferred Plan"). In
connection with the implementation of the Stock Deferred Plan, Mr. Coulter
agreed to the Company's request to defer receipt of income he was entitled to
receive upon the exercise of options to purchase 300,000 shares of Common Stock
until 30 days after the termination of his employment with the Company. As a
result, the Company believes that the payment of such income to Mr. Coulter,
after his employment with the Company terminates, will not be subject to the tax
deductibility limitation of Section 162(m). To the extent that Mr. Coulter
agrees to a similar deferral upon the exercise of options in the future, the
compensation paid to Mr. Coulter will not be subject to the limitations imposed
by Section 162(m). The policy of the Compensation/Stock Option Committee is to
the extent reasonable to qualify the Company's executive officers' compensation
for deductibility under Section 162(m) and other applicable tax laws. However,
the Compensation/Stock Option Committee believes that providing an appropriate
level of cash compensation and maintaining flexibility in determining
compensation are also important issues which must be balanced with preserving a
tax deduction for amounts in excess of $1,000,000. For 2002, a portion of the
bonus paid to Mr. Coulter was not deductible under Section 162(m).

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 quartile 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. In addition, the Compensation/Stock
Option Committee considers the recommendations of the Company's Chief Executive
Officer and its Executive Vice President. The Company defines the relevant labor
market through the use of third-party executive salary surveys that reflect both
the 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.

ANNUAL BONUSES

The Compensation/Stock Option Committee evaluates the performance of
the Company's executives on an annual basis. Messrs. White, O'Connell, Aaron and
Ms. Lincoln received bonuses of $270,353, $301,500, $80,189 and $70,918,
respectively for fiscal 2002. These bonuses were based, first, upon the
Company's performance, including, but not limited to, (a) the Company's actual
stock price performance and stock price performance relative to its peers, (b)
an increase in net income of 71% to $39,209,000 or $1.49 per share on a diluted
basis for the fiscal year ended December 31, 2002 compared to $22,902,000 or
$.90 per share for the previous year and (c) the Company's actual performance as
compared to the Company's budgeted goals for fiscal 2002 and, second, upon the
level of personal achievement by participants.

COMPENSATION OF CHIEF EXECUTIVE OFFICER

Mr. Coulter's base salary in fiscal 2002 was $750,000. Mr. Coulter's
base salary is based upon the factors described in the "Salaries" paragraph
above. Mr. Coulter's salary was not increased in fiscal 2002 or 2001. Mr.
Coulter was awarded a bonus of $1,051,500 for services performed in fiscal 2002.
Mr. Coulter's bonus is based upon the factors described in the "Annual Bonuses"
paragraph above and his role as Chief Executive Officer in enabling the Company
to achieve its performance in fiscal 2002.

STOCK OPTION PLAN

It had 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 was unable to grant
any stock options to any of the Named Executive Officers for the fiscal year
ended December 31, 2002 since 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 submit a new stock option plan for employees
in the future subject to approval of the Company's stockholders.

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.

This report is submitted by the members of the Compensation/Stock
Option Committee: Fred B. Chaney, William B. Greene, Jr., Thomas C. Lasorda,
Clark R. Mandigo and Mark G. Saltzgaber.

COMPENSATION COMMITTEE INTERLOCKS

The Compensation/Stock Option Committee consists of Messrs. Chaney,
Greene, LaSorda, Mandigo and Saltzgaber. See "Certain Relationships and Related
Transactions" for a description of a transaction between Mr. Mandigo's son and
the Company. No member of the Compensation/Stock Option Committee was an officer
or employee of the Company or any subsidiary of the Company during fiscal 2002.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth information concerning ownership of
the Company's Common Stock, as of April 15, 2003, by each person known by the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock, $.01 par value (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. The percentage of shares owned is
based on 21,348,329 shares outstanding as of April 15, 2003. 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 4,695,393(1) 19.9%
John D. White 998,025(2) 4.5%
Gerald T. Aaron 512,707(3) 2.3%
Tomlinson D. O'Connell 89,449(4) *
Deidra Lincoln 112,750(5) *
Fred B. Chaney 37,201(6) *
William B. Greene, Jr. 57,501(7) *
Clark R. Mandigo 93,201(8) *
Mark Saltzgaber 18,101(9) *
Thomas LaSorda 16,901(9) *
Michael Ledeen 15,601(9) *
Anthony Bergamo 3,000 *
Dimensional Fund Advisors Inc. 1,709,945(10) 8.0%
Kennedy Capital Management, Inc. 1,594,154(11) 7.5%
Barclays Global Investors, NA and 1,402,063(12) 6.6%
Barclays Global Fund Advisors
Pioneer Global Asset Management 1,318,000(13) 6.2%
All directors and executive officers as
a group (14) persons (1-9) 6,811,074(14) 26.7%

* Less than 1%

(1) Includes presently exercisable options to purchase 2,300,000 shares
of Common Stock. Does not include 177,145 shares held by Intrust
Bank as Trustee of a Rabbi Trust for the Company. Under the terms of
a Deferred Compensation Agreement, Mr. Coulter defers receipt of the
value of his deferred compensation account until 30 days after the
termination of his employment with the Company.

(2) Includes presently exercisable options to purchase 850,000 shares of
Common Stock.

(3) Includes presently exercisable options to purchase 475,000 shares of
Common Stock.

(4) Includes presently exercisable options to purchase 88,449 shares of
Common Stock.

(5) Includes presently exercisable options to purchase 107,750 shares of
Common Stock.

(6) Includes presently exercisable options to purchase 33,201 shares of
Common Stock.

(7) Includes presently exercisable options to purchase 53,601 shares of
Common Stock.

(8) Includes presently exercisable options to purchase 63,201 shares of
Common Stock.

(9) Includes or consists of presently exercisable options to purchase
15,601 shares of Common Stock.

(10) Based on a Schedule 13G filed in December, 2001, 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.

(11) Based on a Schedule 13G filed in February 2003, Kennedy Capital
Management, Inc. beneficially holds 1,594,154 shares of the
Company's Common Stock. The address of Kennedy Capital Management,
Inc. is 10829 Olive Blvd, St. Louis, MO 63141.

(12) Based on a Schedule 13G filed in February 2003, Barclays Global
Investors, N.A. has sole dispositive and voting power with respect
to 1,097,791 shares of the Company's Common Stock and Barclays
Global Fund Advisors has sole dispositive and voting power with
respect to 304,272 shares of the Company's Common Stock. The address
of Barclays Global Investors, N.A. and Barclays Global Fund Advisors
is 45 Fremont Street, San Francisco, CA 94105.

(13) 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 Asset Management is
Galleria San Carlo 6, 20122 Milan Italy.

(14) Includes presently exercisable options to purchase 4,174,434 shares
of Common Stock, which includes presently exercisable options to
purchase 156,429 shares of Common Stock held by executive officers,
who are not specifically identified in the Security Ownership Table
above. The executive officers who are not specifically identified in
the Security Ownership Table also collectively own an additional
4,815 shares of Common Stock.

EQUITY COMPENSATION PLAN INFORMATION

The Company previously maintained the Directors Plan and the 1992
Incentive and Non-Qualified Stock Option Plan (the "Plan"). Both the Directors
Plan and the Plan have terminated. The following table gives information about
stock option awards under these plans as of December 31, 2002. These plans are
discussed further in Note 6 to the Company's Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.

Number of securities
available for remaining
Number of securities to be Weighted-average exercise future issuance under
issued upon exercise of price of outstanding equity compensation plans
outstanding options, options, warrants and (excluding securities
warrants and rights rights reflected in column (a))
Plan Category (a) (b) (c)
------------- -------------------------- ------------------------- -------------------------

Equity compensation plans
approved by security holders 5,083,114 $ 8.98 0
Equity compensation plans
not approved by security
holders 0 - 0
--------- ------------ ---------
Total 5,083,114 $ 8.98 0
========= ============ =========

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The adult son of Clark R. Mandigo was employed by the Company as a
general manager until December 2002 and the adult son of Gerald T. Aaron is
employed by the Company as a district manager. The Company has a total of 270
general managers and 33 district managers. Total compensation in 2002 payable to
the adult sons of Messrs. Mandigo and Aaron were $107,987 and $110,709,
respectively.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

LONE STAR STEAKHOUSE & SALOON, INC.

By: /s/ Randall H. Pierce
------------------------------------------
Randall H. Pierce, Chief Financial Officer

Dated: April 30, 2003

CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14

I, Jamie B. Coulter, certify that:

1. I have reviewed this annual report on Form 10-KA of Lone Star
Steakhouse & Saloon, Inc.;

2. Based on my knowledge, this annual report on Form 10-KA does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

Date: April 30, 2003

/s/ Jamie B. Coulter
----------------------------------
Jamie B. Coulter
Chief Executive Officer

CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14

I, Randall H. Pierce, certify that:

1. I have reviewed this annual report on Form 10-KA of Lone Star
Steakhouse & Saloon, Inc.;

Date: April 30, 2003

/s/ Randall H. Pierce
---------------------------
Randall H. Pierce
Chief Financial Officer