Edgar Filing: LONE STAR STEAKHOUSE & SALOON INC

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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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

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NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 21, 2005

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To the Stockholders:

NOTICE IS HEREBY GIVEN that the 2005 Annual Meeting of Stockholders (the
"Meeting") of LONE STAR STEAKHOUSE & SALOON, INC., a Delaware corporation (the
"Company"), will be held on June 21, 2005 at the Del Frisco's Double Eagle
Steak House restaurant located at 1221 Sixth Avenue, New York, New York 10020,
at 9:00 a.m. local time, for the following purposes:

-- To elect two (2) members of the Board of Directors to serve
until the 2008 Annual Meeting of Stockholders, and until their
successors have been duly elected and qualified;

-- To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 27,
2005; and

-- 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 May 9, 2005 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 our 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. Our stockholder list also will be available
at the Meeting.

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. WE URGE YOU
TO PROMPTLY SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
ENVELOPE.

ANY STOCKHOLDER GIVING A PROXY MAY REVOKE IT AT ANY TIME BEFORE THE PROXY IS
VOTED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF THE COMPANY,
BY SUBMITTING A LATER-DATED PROXY, OR BY ATTENDING THE MEETING AND VOTING IN
PERSON.

By Order of the Board of Directors

/s/ GERALD T. AARON
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GERALD T. AARON, Secretary

Dated: May 16, 2005

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

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PROXY STATEMENT
FOR
2005 ANNUAL MEETING OF STOCKHOLDERS
JUNE 21, 2005

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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 2005 Annual Meeting of Stockholders of
the Company (the "Meeting") to be held on Tuesday, June 21, 2005 at the Del
Frisco's Double Eagle Steak House restaurant located at 1221 Sixth Avenue, New
York, New York 10020, at 9:00 a.m., local time, or at any adjournments
thereof.

The principal executive offices of the Company are located at 224 East
Douglas, Suite 700, Wichita, Kansas 67202-3414. The approximate date on which
this Proxy Statement and the accompanying proxy will first be sent or given to
stockholders is on or about May 16, 2005.

RECORD DATE AND VOTING SECURITIES

Only stockholders of record at the close of business on May 9, 2005, 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 20,569,397 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 their 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 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. William B. Greene, Jr. and Fred B. Chaney,
Ph.D. and FOR approval of the appointment of Ernst & Young LLP as its
independent auditors. 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

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 they determine, in
their 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. In addition, the broker is permitted to vote such shares on the
proposals to be considered at the Meeting.

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.

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 27, 2005. A vote to "ABSTAIN"
will have no other effect on the outcome of the vote on the ratification of
Ernst & Young LLP.

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. The percentage of shares owned is based on
20,569,397 shares outstanding as of May 9, 2005.

SHARES
NAME AND ADDRESS BENEFICIALLY PERCENTAGE
OF BENEFICIAL OWNER HELD OF CLASS
-------------------- ------------ ----------
Jamie B. Coulter .................................. 3,557,782(1) 16.4%
John D. White ..................................... 848,025(2) 4.0%
Gerald T. Aaron ................................... 412,707(3) 2.0%
Tomlinson D. O'Connell ............................ 89,449(4) *
Deidra Lincoln ................................... 84,576(5) *
Fred B. Chaney .................................... 2,000 *
William B. Greene, Jr. ............................ 64,300(6) *
Clark R. Mandigo .................................. 43,600(7) *
Mark G. Saltzgaber ................................ 39,300(8) *
Thomas C. Lasorda ................................. 38,100(9) *
Michael A. Ledeen, Ph.D. .......................... 46,800(10) *
Anthony Bergamo ................................... 3,194 *
Dimensional Fund Advisors Inc. .................... 1,810,903(11) 8.8%
Barclays Global Investors, NA and Barclays Global
Fund Advisors.................................... 1,232,717(12) 6.0%
Pioneer Global Asset Management ................... 1,318,000(13) 6.4%
All directors and executive officers as a group
(12 persons) (1-10).............................. 5,229,833(14) 22.6%

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* Less than 1%
(1) Includes presently exercisable options to purchase 1,162,389 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 700,000 shares of
Common Stock.
(3) Includes presently exercisable options to purchase 375,000 shares of
Common Stock.
(4) Includes presently exercisable options to purchase 88,449 shares of
Common Stock.
(5) Includes presently exercisable options to purchase 79,576 shares of
Common Stock.
(6) Includes presently exercisable options to purchase 13,600 shares of
Common Stock.
(7) Includes presently exercisable options to purchase 13,600 shares of
Common Stock.
(8) Includes presently exercisable options to purchase 31,800 shares of
Common Stock.
(9) Includes presently exercisable options to purchase 36,800 shares of
Common Stock.
(10) Includes presently exercisable options to purchase 46,800 shares of
Common Stock.
(11) Based on a Schedule 13G filed in February 2005, Dimensional Fund Advisors
Inc. beneficially holds 1,810,903 shares of the Company's Common Stock.
Dimensional Fund Advisors Inc. disclaims beneficial ownership to the
1,810,903 shares of the Company's Common Stock due to its role as an
investment advisor or manager to numerous funds. The address of
Dimensional Fund Advisors Inc. is 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401.
(12) Based on a Schedule 13G filed in February 2005, Barclays Global
Investors, N.A. beneficially holds sole voting power over 573,285 and
sole dispositive power over 756,326 shares of the Company's common stock
and Barclays Global Fund Advisors beneficially holds 476,391 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 2,548,014 shares of
Common Stock.

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
Nominating Committee of the Board of Directors, solely consisting of
independent directors, has nominated Messrs. William B. Greene, Jr. and Fred
B. Chaney, Ph.D, currently serving as directors of the Company since August
1999 and April 1995, respectively, as nominees for reelection to the Board of
Directors. If elected, the term of the Board of Directors' nominees expires at
the 2008 Annual Meeting, and when their respective successors are duly elected
and shall have qualified.

Unless otherwise specified, all of the Proxies received will be voted in
favor of the election of Messrs. William B. Greene, Jr. and Fred B. Chaney,
Ph.D. 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 any 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:

NAME AGE TERM OF OFFICE AS DIRECTOR EXPIRES
---- --- ----------------------------------

* William B. Greene, Jr............. 67 2005
* Anthony Bergamo................... 58 2007
* Fred B. Chaney, Ph.D.............. 68 2005
* Thomas C. Lasorda................. 77 2006
* Michael A. Ledeen, Ph.D........... 63 2007
* Clark R. Mandigo.................. 62 2006
* Mark G. Saltzgaber................ 37 2007
John D. White..................... 57 2006

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* Independent Director

William B. Greene, Jr. has been Chairman of the Board since July 14, 2003
and a Director of the Company since August 1999. Mr. Greene has been Chairman,
Chief Executive Officer and President of BancTenn Corp since 1974 and
Chairman, Chief Executive Officer and President of Carter County BancCorp
since 1972. 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.
Mr. Greene is the immediate past Chairman of the Wake Forest University Board
of Trustees and Chairman of the Wake Forest University Trustee Investment
Policy Committee for the last nine 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 and the
University of Illinois. 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 served in a variety of capacities with Milstein Hotel Group
since April 1996, most recently as Vice Chairman and has been Chief Executive
Officer of Niagara Falls Redevelopment, Ltd. since August 1998. Mr. Bergamo
has held various positions with MB Real Estate, a property management company
based in New York City and Chicago since April 1996, including the position of
Vice Chairman since May 2003. Mr. Bergamo has also been a Director since 1995,
a Trustee since 1986 and currently is Chairman of the Audit Committee 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.

Fred B. Chaney, Ph.D., has been a Director of the Company since April 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 program, formed a worldwide network of CEO's and key
executives serving over 8,000 mid-sized growth companies. 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 been a guest lecturer on customer service at UCLA, Loyola, University of
Southern California and University of Colorado Business Schools. Dr. Chaney
previously served as a Director of Rusty Pelican Seafood, Inc. Dr. Chaney
earned his Bachelors (1959), Masters (1960), and Ph.D. (1962) in managerial
psychology at Purdue University. He also completed a National Science
Foundation Post-Doctorial Fellowship at University of London in 1964.

Thomas C. Lasorda has been a Director of the Company since November 2001.
Mr. Lasorda, a member of the Baseball Hall of Fame, was recently appointed as
Special Advisor to the Chairman of the Los Angeles Dodgers and was previously
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, Ph.D., has been a Director of the Company since November
2001. Dr. Ledeen has been a resident scholar in the Freedom Chair at the
American Enterprise Institute since 1989 and was the Vice Chairman of the
U.S.-China Security Review Commission from 2001 to 2004. An expert in
contemporary history and international affairs, Dr. Ledeen is a frequent
contributor to the Wall Street Journal, the Weekly Standard, National Review,
and Commentary and serves as a contributing editor to the National Review
Online. During the Reagan administration, from 1981 to 1987, Dr. 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. Dr. Ledeen is the author of
eighteen books, including most recently "The War Against the Terror Masters"
(St. Martin's Press, 2003).

Clark R. Mandigo served as the Chairman of the Board of the Company from
July 2001 through July 14, 2003 and has been a Director of the Company since
March 1992. Mr. Mandigo has been a Papa John's Pizza franchisee since 1995.
From 1986 to 1991, he was President, Chief Executive Officer and Director of
Intelogic Trace, Inc., a corporation engaged in the sale, lease and support of
computer and communications systems and equipment. From 1985 to 1997,
Mr. Mandigo served on the Board of Directors of Physician Corporation of
America, a managed health care company. From 1993 to 1997, Mr. Mandigo served
on the Board of Palmer Wireless, Inc., a cellular telephone system operator,
and from 1995 to February 2004, Mr. Mandigo served on the Board of Horizon
Organic Holdings Corporation. Mr. Mandigo currently serves as a Trustee of
Accolade Funds and U.S. Global Investors Funds.

Mark G. Saltzgaber has been a Director of the Company since November 2001.
Mr. Saltzgaber is an experienced investment banker, consultant and private
equity investor in the restaurant industry. He is currently an independent
consultant to emerging restaurant chains and private equity firms.
Mr. Saltzgaber was previously a Venture Partner until March 2004 of Dorset
Capital Management, LLC ("Dorset Capital"), 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 at Montgomery Securities. Mr. Saltzgaber
is currently a director of Pasta Pomodoro, Inc.

John D. White is Executive Vice President, Treasurer and a Director of the
Company, and was the Chief Financial Officer from 1992 to 1999 and has been
the Chief Financial Officer since September 2004. 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.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF ITS
NOMINEES.

CORPORATE GOVERNANCE

The Company is proud of its corporate governance initiatives and believes
its corporate governance profile compares favorably with other leading
companies.

CONSTITUTION OF THE BOARD OF DIRECTORS

The Company has determined that seven out of its eight members of the Board
of Directors meet the current independence standards under (i) the current
NASD rules for The NASDAQ Stock Market ("Nasdaq"), (ii) the Sarbanes-Oxley Act
of 2002 (the "Sarbanes-Oxley Act") and other rules and regulations of the
Securities and Exchange Commission ("SEC"), (iii) Rule 162(m) of the Internal
Revenue Code of 1986, as amended, and (iv) the Company's By-laws. The Company
has determined that all the members of the Audit Committee, are "financial
experts" as defined by the rules promulgated under the Sarbanes-Oxley Act. The
Company currently rotates the position of the Chairman of the Board. Mr. Greene
was appointed Chairman of the Board on July 14, 2003.

BOARD COMMITTEES AND DIRECTOR MEETINGS

Directors are expected to attend all Board meetings and meetings of
committees on which they serve, and each annual stockholders' meeting. In 2004
all of the Directors attended the Company's annual meeting of stockholders.

For the fiscal year ended December 28, 2004, there were nine meetings or
actions by unanimous written consent of the Board of Directors. Each Director
attended more than 75% of the total number of meetings of the Board and
committees on which he served.

From time to time the Board of Directors has reviewed and enhanced its
corporate governance initiatives in response to changing regulatory
requirements and the concerns of the Company's stockholders and other
constituents. At each Board of Directors meeting, the independent members of
the Board of Directors meet in executive session without the presence of the
Chief Executive Officer or any other officer or employee of the Company.

The Board of Directors has an Executive Committee, an Audit Committee, a
Corporate Governance Committee, a Compensation/Stock Option Committee, and a
Nominating Committee. All committees have charters and all the charters and
the Company's Statement on Corporate Governance are available for review on
the Company web site, www.lonestarsteakhouse.com. Each of the Board of
Directors, the Executive Committee, the Audit Committee, the Corporate
Governance Committee, the Compensation/Stock Option Committee, and the
Nominating Committee may seek legal or other expert advice from outside
services. The Board of Directors views the selection of a Chief Executive
Officer as one of its most important responsibilities and has approved a
policy for Chief Executive Officer succession.

The Executive Committee is composed of two (2) independent directors and one
(1) director who is an employee of the Company. The Executive Committee has
the authority and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Company, but
the Executive Committee does not have such power or authority in reference to
the following matters: (i) approving or adopting or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval; or (ii)
adopting, amending or repealing any By-law of the Company. All matters
approved by the Executive Committee are brought for approval or ratified by
the Board of Directors.

The Audit Committee is composed of three (3) of the Company's independent
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 and other
responsibilities as discussed in the Audit Committee Charter. The Audit
Committee is also responsible for engaging, overseeing and compensating the
Company's independent auditors.

The Corporate Governance Committee, which is composed of three (3) of the
Company's independent directors, develops and recommends to the Board
principles of corporate governance, and ensures that there is compliance with
such corporate governance principles. The Corporate Governance Committee
encourages all of the Directors of the Company to attend various seminars to
insure that its members are regularly updated on the most recent developments
in corporate governance.

The Compensation/Stock Option Committee which is composed of five (5) of the
Company's independent directors, recommends to the Board of Directors
compensation for the Company's key employees and administers the Company's
2004 Stock Option Plan (the "2004 Plan") and the Company's 1992 Incentive and
Non-Qualified Stock Option Plan, as amended (the "1992 Plan"). As described in
"Executive Compensation -- Report by the Compensation/Stock Option Committee
on Executive Compensation -- Stock Option Plan," the 1992 Plan has expired. In
December 2004, at the recommendation of the Board of Directors, the Company's
stockholders approved the 2004 Plan.

The Nominating Committee is composed of three (3) of the Company's
independent directors and is charged with identifying prospective candidates
to serve as directors by reviewing candidates credentials and qualifications,
and interviewing prospective candidates before submitting their respective
names to the Board.

The members of the Executive Committee are Messrs. Greene, Mandigo and
White. The members of the Audit Committee are Messrs. Bergamo, Greene and
Mandigo. The members of the Corporate Governance Committee are Messrs.
Bergamo, Ledeen and Saltzgaber. The members of the Compensation/Stock Option
Committee are Messrs. Chaney, Greene, Lasorda, Mandigo and Saltzgaber. The
members of the Nominating Committee are Messrs. Chaney, Lasorda and Ledeen.

During fiscal 2004, there were seven meetings or actions by unanimous
written consent of the Executive Committee, 11 meetings or actions by
unanimous written consent of the Audit Committee, three meetings or actions by
unanimous written consent of the Corporate Governance Committee, five meetings
or actions by unanimous written consent of the Compensation/Stock Option
Committee and two meetings or actions by unanimous written consent of the
Nominating Committee.

STATEMENT ON CORPORATE GOVERNANCE

The Company is committed to maintaining high corporate governance standards,
including director independence, continuing education, and, evaluation of CEO
performance.

DIRECTOR ORIENTATION AND CONTINUING EDUCATION

The Company provides new Directors with a director orientation program to
familiarize each new Director with the Company's business, significant
financial, accounting and risk management issues, compliance, code of business
conduct and ethics, corporate governance guidelines, principal officers and
independent auditors. In addition, Messrs. Greene and Chaney have participated
in continuing educational programs.

LOAN POLICY

The Company does not provide any type of loans to the Company's executive
officers or Directors to pay the exercise price of stock options held by them.

SUCCESSION PLAN

The Board has evaluated a succession policy and has a plan currently in
place for the position of CEO.

CODE OF CONDUCT AND ETHICS

The Company has adopted a code of conduct and ethics (the "Code") that
applies to all directors, officers and employees. The Code is reasonably
designed to deter wrongdoing and promote (i) honest and ethical conduct,

including the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships, (ii) full, fair, accurate,
timely and understandable disclosure in reports and documents filed with, or
submitted to, the SEC and in other public communications made by the Company,
(iii) compliance with applicable governmental laws, rules and regulations,
(iv) the prompt internal reporting of violations of the Code to appropriate
persons identified in the Code, and (v) accountability for adherence to the
Code. Amendments to the Code and any grant of a waiver from a provision of the
Code requiring disclosure under applicable SEC rules will be disclosed on the
Company's website at www.lonestarsteakhouse.com. The Code is also available on
the Company's website.

SARBANES-OXLEY ACT

The Company has taken a number of measures to ensure compliance with the
Sarbanes-Oxley Act. The Board of Directors, Officers, regional and district
managers, and members of the Company's finance and legal staffs receive
regular updates on the Sarbanes-Oxley Act and Nasdaq regulations. The Company
has enhanced its disclosure controls and procedures so that its periodic
disclosures to the SEC are reviewed by many more persons than in the past. In
addition, the Company has instituted a sub-certification procedure, that
requires the appropriate responsible employees to review and certify full
compliance with all internal controls and the accuracy of periodic reports to
be filed with the SEC. The Audit Committee has instituted policies and
procedures to pre-approve audit and non-audit services performed by Ernst &
Young LLP, the Company's independent auditors.

OTHER EXECUTIVE OFFICERS

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

Jamie B. Coulter, 64, 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 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, 36, joined the Company in 1995, and has been
President of Lone Star Restaurants since September 2002 and Chief Operating
Officer of Lone Star Restaurants since December 2003. From December 1999 to
September 2002, Mr. O'Connell was Senior Vice President of Operations of Lone
Star Steakhouse & Saloon, Inc. Mr. O'Connell is currently responsible for the
operation of all 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. 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, 64, 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.

Deidra Lincoln, 45, 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.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Based solely upon a review of Forms 3 and 4 and amendments thereto, all
directors, officers and beneficial owners of more than 10 percent of the
Company's beneficial securities timely filed their Forms 3, 4 and 5.

EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the four most highly compensated executive officers of the Company
(collectively with the CEO the "Named Executive Officers") other than the CEO
whose salary and bonus exceeded $100,000 with respect to the fiscal year ended
December 28, 2004.

ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------- -------------------------------------
NUMBER OF
SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) COMPENSATION (1) (# OF SHARES) COMPENSATION (2)
--------------------------- ---- -------- ---------- ---------------- ------------------ ----------------

Jamie B. Coulter ..................... 2004 $856,731 $ 414,000(3) $148,162(4) 65,000 $110,823
Chief Executive Officer 2003 $823,558 $ 145,493 $110,104(4) -- $ 95,318
2002 $750,000 $1,051,500 $109,848(4) -- $180,150

John D. White ........................ 2004 $623,077 $ 176,500 $ 93,878(5) 60,000 $ 79,958
Chief Financial Officer, Executive 2003 $600,000 $ 158,583 $ 61,047(5) -- $ 74,704
Vice President and Treasurer 2002 $600,000 $ 270,353 $ 50,522(5) -- $ 87,035

Tomlinson D. O'Connell ............... 2004 $363,462 $ 176,500 $ 68,361(6) 100,000 $ 53,996
President and Chief Operating 2003 $347,115 $ 151,500 -- -- $ 49,189
Officer of Lone Star Restaurants 2002 $200,000 $ 301,500 $ 57,785(6) -- $ 50,150

Deidra Lincoln ....................... 2004 $270,000 $ 42,500 -- 20,000 $ 31,250
Vice President of Del Frisco's 2003 $260,000 $ 34,035 -- -- $ 28,904
2002 $260,000 $ 70,918 -- -- $ 33,092

Gerald T. Aaron ...................... 2004 $259,615 $ 74,000 -- 35,000 $ 33,362
Senior Vice President, Counsel & 2003 $250,000 $ 66,951 -- -- $ 31,214
Secretary 2002 $250,000 $ 80,189 -- -- $ 25,000

---------------
(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) Of such bonus $162,500 was paid in 2005 for services performed in 2004.
(4) During the fiscal years ended December 28, 2004, December 30, 2003 and
December 31, 2002, Mr. Coulter received benefits primarily relating to tax,
accounting and administrative services provided by Company personnel of
$80,136, $87,038 and $82,850, respectively. The balance was primarily for
reimbursement for certain medical insurance premiums and expenses.
(5) During the fiscal year ended December 28, 2004, Mr. White received benefits
primarily relating to personal use of the Company's airplane ($28,962). The
balance was primarily for reimbursement for certain medical insurance
premiums and expenses. During the fiscal year ended December 30, 2003,
Mr. White received benefits primarily relating to personal use of the
Company's airplane ($38,209). The balance was primarily for reimbursement
for certain medical insurance premiums and expenses. During the fiscal year
ended December 31, 2002, Mr. White received benefits primarily relating to
certain medical insurance premiums and expenses ($28,909). The balance was
primarily for the personal use of the Company's airplane.
(6) During the fiscal years ended December 28, 2004 and December 31, 2002,
Mr. O'Connell received benefits primarily relating to the personal use of
the Company's airplane ($37,230) and ($54,396), respectively. The balance
was primarily for certain medical insurance premiums, car allowances and
other miscellaneous expenses.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information regarding stock option
grants made to the CEO and the other Named Executive Officers for services
performed during the fiscal year ended December 28, 2004.

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
----------------------------------------------------------- -----------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO
(# OF EMPLOYEES IN EXERCISE OR EXPIRATION
NAME SHARES)(1) FISCAL YEAR BASE PRICE (#/SH) DATE 5% 10%
---- ---------- ------------ ----------------- ---------- ---------- ----------

Jamie B. Coulter ........................ 65,000 4.9 $27.80 12/28/14 $1,136,413 $2,879,893
John D. White ........................... 60,000 4.6 $27.80 12/28/14 $1,048,996 $2,658,362
Tomlinson D. O'Connell .................. 100,000 7.6 $27.80 12/28/14 $1,748,327 $4,430,604
Deidra Lincoln .......................... 20,000 1.5 $27.80 12/28/14 $ 349,665 $ 886,121
Gerald T. Aaron ......................... 35,000 2.7 $27.80 12/28/14 $ 611,914 $1,550,711

---------------
(1) The options indicated were granted on December 28, 2004 and vest ratably
over a four-year period. Such options were granted pursuant to the 2004
Plan.
(2) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
These numbers do not take into account provisions of certain options
providing for termination of the option following termination of
employment, nontransferability or differences in vesting periods.
Regardless of the theoretical value of an option, its ultimate value will
depend on the market value of the Common Stock at a future date, and that
value will depend on a variety of factors, including the overall condition
of the stock market and the Company's results of operations and financial
condition. There can be no assurance that values reflected in this table
will be achieved.

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 28, 2004, and also sets forth certain information concerning
unexercised options held as of December 28, 2004 by the CEO and the other
Named Executive Officers. At December 28, 2004, the closing price of the
Company's Common Stock, as reported by Nasdaq, was $27.80.

FISCAL YEAR-END OPTION VALUES

SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME EXERCISE REALIZED($) (1) DECEMBER 28, 2004 DECEMBER 28, 2004($) (2)
-------------------------------------- -------- --------------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------

Jamie B. Coulter ...................... 737,611 13,819,253 1,162,389 65,000 22,470,432 --
John D. White ......................... 125,000 2,040,932 700,000 60,000 13,531,875 --
Tomlinson D. O'Connell ................ -- -- 88,449 100,000 1,676,806 --
Deidra Lincoln ........................ 28,174 597,226 79,576 20,000 1,528,147 --
Gerald T. Aaron ....................... 100,000 1,648,650 375,000 35,000 7,249,219 --

---------------
(1) Based on the difference between the exercise price of the options and the
fair market value of a share of Common Stock at the date of exercise, as
reported on Nasdaq.
(2) All of the unexerciseable options held by the CEO and the other Named
Executive Officers were granted on December 28, 2004 and have an exercise
price equal to $27.80, the closing price of the Company's Common Stock on
such date.

EQUITY COMPENSATION PLAN INFORMATION

The Company previously issued options under 1992 Directors Stock Option Plan
(the "Directors Plan") and the 1992 Plan. The ability to issue options under
both plans has expired. In December 2004, the Company's stockholders approved
the adoption of the 2004 Plan. The following table provides information about
stock option awards under the Directors Plan, the 1992 Plan and the 2004 Plan
as of December 28, 2004. The 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 28, 2004.

NUMBER OF
SECURITIES
NUMBER OF REMAINING AVAILABLE
SECURITIES TO BE FOR FUTURE ISSUANCE
ISSUED UPON WEIGHTED-AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OUTSTANDING (EXCLUDING
OPTIONS, WARRANTS OPTIONS, WARRANTS SECURITIES REFLECTED
AND RIGHTS AND RIGHTS IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- ----------------- ----------------- --------------------

Equity compensation plans approved by security holders............ 4,596,335 $15.02 1,547,500
Equity compensation plans not approved by security holders........ -- -- --
--------- ------ ---------
Total......................................................... 4,596,335 $15.02 1,547,500
========= ====== =========

DIRECTORS COMPENSATION

Directors who are not employees receive an annual fee of $20,000; each
Chairman of a Committee receives an additional annual fee of $5,000; each
member of the Audit Committee receives an additional annual fee of $5,000;
directors who are not employees 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 is paid a Chairman's fee of $100,000 per year. The Company revised the
directors' fees as a result of the additional time and effort required from
the directors to ensure that they are fulfilling their increased obligations
under the Sarbanes-Oxley Act. The Company previously granted options to non-
employee directors under the Directors Plan and the 2004 Plan. Currently,
options to purchase an aggregate of 438,700 shares of Common Stock are
outstanding and granted to Directors under the Directors Plan and the 2004
Plan at exercise prices ranging from $7.438 per share to $27.59 per share.

Upon the effectiveness of the 2004 Plan, each non-employee director received
options to purchase 15,000 shares of Common Stock, any non-employee directors
first elected or appointed to the Board of Directors since the expiration of
the Directors Plan received options to purchase 40,000 shares of Common Stock
and each non-employee director received and shall receive an annual grant of
options to purchase 7,500 shares of Common Stock. Upon the effectiveness of
the 2004 Plan, the Chairman of the Audit Committee received options to
purchase 2,500 shares of Common Stock and shall receive an annual grant of
options to purchase 2,500 shares of Common Stock. In addition, upon a new non-
employee director being elected or appointed to the Board of Directors such
non-employee director shall receive options to purchase 40,000 shares of
Common Stock and upon the appointment of a new Audit Committee Chairman, such
new Chairman shall receive options to purchase 2,500 shares of Common Stock
and an annual grant of options to purchase 2,500 shares of Common Stock.

EMPLOYMENT AGREEMENTS

The Company entered into separate employment agreements, with Ms. Lincoln
and with each of Messrs. White, Aaron, and O'Connell, on April 29, 2003,
providing for the employment of these individuals as Executive Vice President,
Senior Vice President -- Counsel and Secretary and President of Lone Star
Restaurants, respectively. Each employment agreement with Messrs. White,
Aaron, and O'Connell provides that the officer shall devote their entire
business 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 Compensation/ Stock
Option Committee and ratified by the Board of Directors. Each employment
agreement with Messrs. White, Aaron, and O'Connell terminates in April 2006.
Additionally, each agreement contains non-competition and non-solicitation
provisions which apply for twenty-four months after cessation of employment
and confidentiality provisions which apply for ten years after cessation of
employment. Mr. Coulter does not have an employment, non-competition, non-
solicitation or confidentiality agreement with the Company. Mr. Coulter's non-
competition and non-solicitation agreement expired in 2001. In 2001,
Mr. Coulter was not re-elected to the Board of Directors of 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, 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 2004, there were five meetings or actions by
unanimous written consent 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 to retain and attract the best qualified
management, and to enhance long term stockholder value. In retaining and
attracting the best qualified management personnel, the Company targets
offering compensation and benefits that place it near the top quartile of its
industry.

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 and 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. Towards that
goal, the Compensation/Stock Option Committee recommended to the Board of
Directors that the Board submit the 2004 Plan to a vote of the Company's
stockholders. On December 15, 2004, the Company's stockholders approved the
2004 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 1992 Plan qualifies
as "performance-based compensation." During 2004, Mr. Coulter exercised
options to purchase 737,611 shares of Common Stock. The compensation received
by Mr. Coulter upon the exercise of these options does not qualify as
"performance-based compensation." 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.

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, 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 with the top
quartile of the industry). The Company believes that it is necessary to
position executive officers' base salaries at or above these levels in order
to attract, retain and motivate its executive officers. 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 sets the
base salaries and other terms and conditions of employment for such
individuals. The base salaries (before taking into account the fact that in
fiscal 2003 the Company's compensation was based on a 51 week period as
opposed to a 52 week period in fiscal 2004) of the Company's senior management
did not increase from 2003 to 2004. The Compensation/Stock Option Committee
has increased the base salary of the Named Executive Officers for fiscal 2005.
These increases were based on the overall positive performance of the Company
and the role, performance and development of each individual.

ANNUAL BONUSES

The Compensation/Stock Option Committee evaluates the performance of the
Company's executives on an annual basis. Messrs. White, O'Connell and Aaron
received bonuses of $176,500, $176,500 and $74,000, respectively, for fiscal
2004. Ms. Lincoln received a bonus of $42,500 for fiscal 2004. The bonuses
paid to the Company's executives for the fiscal year ended December 28, 2004
were increased from the bonuses paid for the fiscal year ended December 30,
2003. These bonuses were based upon the level of personal achievement by
individual participants and 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) the Company's actual performance as
compared to the Company's projected performance goals for fiscal 2004, (c) the
continued strong results of Sullivan's Steakhouse restaurants and Del Frisco's
restaurants and (d) the successful acquisition and integration of Texas Land &
Cattle ("TXLC").

COMPENSATION OF CHIEF EXECUTIVE OFFICER

Mr. Coulter's base salary is, among other things, based upon the factors
described in the "Salaries" paragraph above. Mr. Coulter was awarded a bonus
of $414,000 for services performed in fiscal 2004. 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 2004 and his leadership role in successfully acquiring
and integrating TXLC. For these reasons, the Compensation/Stock Option
Committee also increased Mr. Coulter's base salary for 2005. Mr. Coulter's
base salary (before taking into account the fact that in fiscal 2003 the
Company's compensation was based on a 51 week period as opposed to a 52 week
period in fiscal 2004) did not increase from 2003 to 2004. Mr. Coulter was not
present during the Compensation/Stock Option Committee's deliberation of his
compensation.

STOCK OPTION PLAN

It is 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, are eligible for grants of stock options
pursuant to the 2004 Plan. Prior to the adoption of the 2004 Plan the Company
was unable to grant any stock options for over two years. During 2004, the
Company granted options to the Named Executive Officers pursuant to the 2004
Plan as described above under "Option Grants in Last Fiscal Year." In
determining

the number of options to grant to the Named Executive Officers, the
Compensation/Stock Option Committee based its determination on the factors
fully described in "Salaries" and "Annual Bonuses" paragraphs above. With
respect to options granted to T.D. O'Connell, the Compensation/Stock Option
Committee also considered that when he was appointed President of Lone Star
restaurants the Company lacked a stock option plan or other basis to award
non-cash equity based compensation.

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 or retirement and, subject
to certain penalty provisions, while the participant is employed by the
Company. In addition, at the request of the participant, if the committee
administering the Deferred Plan, in its sole discretion, determines that a
participant has suffered an unforeseen financial emergency, such committee may
first modify the participant's deferral election and then may distribute to
the participant that portion of the participant's account balance necessary to
alleviate the participant's hardship. 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/STOCK OPTION COMMITTEE

This report by the Compensation/Stock Option Committee on Executive
Compensation is submitted by the members of the Compensation/Stock Option
Committee:

Mark G. Saltzgaber, Chairman
Fred B. Chaney, Ph.D.
William B. Greene, Jr.
Thomas C. Lasorda
Clark R. Mandigo

COMPENSATION COMMITTEE INTERLOCKS

The Compensation/Stock Option Committee consists of Messrs. Chaney, Greene,
Lasorda, Mandigo and Saltzgaber. There were no transactions between any member
of the Compensation/Stock Option Committee and the Company during the fiscal
year ended December 28, 2004. No member of the Compensation/Stock Option
Committee was an officer or employee of the Company or any subsidiary of the
Company during fiscal 2004.

COMPARISON OF TOTAL RETURN FROM DECEMBER 29, 1999
TO DECEMBER 28, 2004 AMONG LONE STAR STEAKHOUSE & SALOON, INC.,
THE STANDARD & POOR'S SMALL-CAP 600 INDEX AND THE STANDARD &
POOR'S 500 RESTAURANTS INDUSTRY INDEX (THE "PEER GROUP").

[GRAPHIC OMITTED]

BASE
COMPANY/INDEX PERIOD 26-DEC-00 25-DEC-01 31-DEC-02 30-DEC-03 28-DEC-04
---------------------------------------------------------- ------ --------- --------- --------- --------- ---------

Lone Star Steakhouse & Saloon, Inc. ....................... 100 94.81 175.73 243.83 300.22 372.85
S&P Small-Cap 600 Index ................................... 100 109.57 121.22 104.12 146.86 177.64
S&P 500 Restaurants ....................................... 100 86.91 79.90 61.49 92.15 132.63

Assumes $100 invested on December 29, 1999 in the Company's Common Stock,
the Standard & Poor's Small-Cap 600 Index and the Peer Group.

The calculations in the table were made on a dividends reinvested basis.

There can be no assurance that the Company's Common Stock performance will
continue with the same or similar trends depicted in the above graph.

PROPOSAL II
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The Audit Committee of the Board of Directors has appointed Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending
December 27, 2005. 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 Audit Committee of the Board of Directors will consider the
appointment of other certified public accountants. A representative of Ernst &
Young LLP will be present at the Meeting, will be available to respond to
appropriate questions and will have the opportunity to make a statement if
they desire. 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.

Aggregate fees for professional services rendered to the Company by Ernst &
Young LLP for the years ended December 28, 2004 and December 30, 2003, were:

2004 2003
---------- --------
Audit ................................................. $951,807 $297,317
Audit Related ......................................... 120,790 89,360
Tax ................................................... 316,437 232,948
Other ................................................. -- --
---------- --------
Total ............................................. $1,389,034 $619,625
========== ========

AUDIT FEES

Audit fees for 2004 and 2003 were for professional services rendered for the
audits of the consolidated financial statements of the Company, statutory and
subsidiary audits, timely reviews of quarterly financial statements, consents
and assistance with review of documents filed with the SEC.

AUDIT RELATED FEES

Audit related fees for 2004 were primarily for matters related to Sarbanes-
Oxley Act advisory services. Audit Related fees for 2003 were primarily for
consultations relating to Stock-Repurchase and matters related to Sarbanes-
Oxley Act advisory services.

TAX FEES

Tax fees for 2004 and 2003 were for services related to (i) tax compliance
($221,425 for the fiscal year ended December 28, 2004 and $159,428 for the
fiscal year ended December 30, 2003), including the preparation of tax returns
and (ii) tax planning and tax advice related primarily to the Company's 2004
acquisition of Texas Land & Cattle Steak House and the Company's Australian
operations which were discontinued in December 2003.

ALL OTHER FEES

There were no other fees paid to Ernst & Young LLP for the fiscal years
ended December 28, 2004 and December 30, 2003.

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.

PRE-APPROVAL POLICIES AND PROCEDURES

All audit and non-audit services to be performed by the Company's
independent accountant must be approved in advance by the Audit Committee.
Consistent with applicable law, limited amounts of services, other

than audit, review or attest services, may be approved by one or more members
of the Audit Committee pursuant to authority delegated by the Audit Committee,
provided each such approved service is reported to the full Audit Committee at
its next meeting.

All of the engagements and fees for the Company's fiscal year ended
December 28, 2004 were approved by the Audit Committee. In connection with the
audit of the Company's Financial Statements for the Fiscal Years ended
December 28, 2004 and December 30, 2003, Ernst & Young LLP only used full-
time, permanent employees.

The Audit Committee of the Board of Directors considered whether the
provision of non-audit services by Ernst & Young LLP was compatible with its
ability to maintain independence from an audit standpoint and concluded that
Ernst & Young LLP's independence was not compromised.

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 27, 2005.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For the fiscal year ended December 28, 2004, there were no transactions that
were required to described under "Certain Relationships and Related
Transactions."

AUDIT COMMITTEE REPORT

The members of the Audit Committee at December 28, 2004 were Messrs.
Bergamo, Greene and Mandigo, all of whom are "independent directors" (as
"independent director" is defined pursuant to Nasdaq Marketplace Rule
4200(a)(15) and the Sarbanes-Oxley Act). During fiscal 2004, there were 11
meetings or actions by unanimous written consent of the Audit Committee. The
composition of the Audit Committee, the attributes of its members and the
responsibilities of the Audit Committee are intended to be in accordance with
applicable requirements for corporate audit committees.

The Audit Committee adopted a written charter, which is available at the
Company's website at www.lonestarsteakhouse.com. 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 28, 2004, 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.

On June 1, 2004, 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 28, 2004 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 28, 2004.

Anthony Bergamo., Chairman
William B. Greene, Jr.
Clark R. Mandigo

STOCKHOLDER PROPOSALS AND NOMINATING COMMITTEE REPORT

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 January 16, 2006.

On May 21, 1998 the SEC 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 2006 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 April 2,
2006 the Company will be permitted to use its discretionary voting authority
as outlined above.

The By-laws of the Company establish procedures for stockholder nominations
for elections of directors of the Company and bringing business before any
annual meeting or special meeting of stockholders of the Company. Any
stockholder entitled to vote generally in the election of directors may
nominate one or more persons for election as directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Company, not less than 90 days
nor more than 120 days prior to the meeting; provided, however, that in the
event that if and only if the annual meeting is not scheduled to be held
within a period that commences thirty days after such anniversary date (the
"Other Meeting Date"), such Stockholder Notice shall be given in the manner
provided by the later of (i) the close of business on the date ninety days
prior to such Other Meeting Date or (ii) the close of business on the tenth
day following the date on which such Other Meeting Date is first publicly
announced or disclosed. Any notice to the Secretary must include: (i) the name
and address of record of the stockholder who intends to make the nomination;
(ii) a representation that the stockholder is a holder of record of shares of
the Company entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice; (iii) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the SEC; 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.

The Nominating Committee identifies prospective candidates to serve as
directors by reviewing candidates credentials and qualifications, and
interviewing prospective candidates before submitting their respective names
to the Board. In addition, The Nominating Committee adopted a written charter,
which is available at the Company's website at www.lonestarsteakhouse.com. The
members of the Nominating Committee on December 28, 2004 were Fred B. Chaney
Ph.D., Thomas C. Lasorda and Michael A. Ledeen Ph.D. During fiscal 2004, there
were two meetings or actions by unanimous written consent of the Nominating
Committee, and each of the members of the Nominating Committee was present at
that meeting. Each member of the Nominating

Committee meets the criteria for being "independent" set forth under
Section 4200(a)(15)of Nasdaq's listing standards.

The Nominating Committee considers recommendations for director nominees
from a wide variety of sources, including members of the Company's Board,
business contacts, community leaders, other third-party sources and members of
management. The Nominating Committee also considers shareholder
recommendations for director nominees that are properly received in accordance
with the Company's By-laws and applicable rules and regulations of the SEC.

The Board believes that all of its directors should have the highest
personal integrity and have a record of exceptional ability and judgment. The
Board also believes that its directors should ideally reflect a mix of
experience and other qualifications. There is no firm requirement of minimum
qualifications or skills that candidates must possess. The Nominating
Committee evaluates director candidates based on a number of qualifications,
including their independence, judgment, leadership ability, expertise in the
industry, experience developing and analyzing business strategies, financial
literacy, risk management skills, and, for incumbent directors, his or her
past performance.

The Nominating Committee initially evaluates a prospective nominee on the
basis of his or her resume and other background information that has been made
available to the Committee. A member of the Nominating Committee will contact
for further review and interview those candidates who the Committee believes
are qualified, who may fulfill a specific Board need and who would otherwise
best make a contribution to the Board. If, after further discussions with the
candidate, and other review and consideration as necessary, the Nominating
Committee believes that it has identified a qualified candidate, it will
consider making a recommendation to the Board.

PROCEDURES FOR CONTACTING DIRECTORS

The Board of Directors has established a process for stockholders to send
communications to the Board. Stockholders may communicate with the Board
generally or a specific director at any time by writing to: Gerald T. Aaron,
Secretary, Lone Star Steakhouse & Saloon, Inc., 224 East Douglas, Suite 700,
Wichita, Kansas 67202-3414. The Secretary reviews all messages received, and
forwards any message that reasonably appears to be a communication from a
stockholder about a matter of stockholder interest that is intended for
communication to the Board. Communications are sent as soon as practicable to
the director to whom they are addressed, or if addressed to the Board
generally, to the Chairman of the Nominating Committee. Because other
appropriate avenues of communication exist for matters that are not of
stockholder interest, such as general business complaints or employee
grievances, communications that do not relate to matters of stockholder
interest are not forwarded to the Board. The Secretary has the right, but not
the obligation, to forward such other communications to appropriate channels
within the Company.

PROXY SOLICITATION

The cost of soliciting proxies will be borne by the Company. The transfer
agent and registrar for the Company's Common Stock, Wachovia Bank, N.A., as a
part of its regular services and for no additional compensation other than
reimbursement for out-of-pocket expenses, has been engaged to assist in the
proxy solicitation. The Company has retained Innisfree M&A Incorporated for a
fee not to exceed $6,500, 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 May 9, 2005 have been sent, or are
concurrently herewith being sent, a copy of the Company's Annual Report for
the fiscal year ended December 28, 2004. Such report contains certified
consolidated financial statements of the Company and its subsidiaries for the
fiscal year ended December 28, 2004.

By Order of the Company,

/s/ GERALD T. AARON
-------------------------------------
GERALD T. AARON
Secretary

Dated: Wichita, Kansas
May 16, 2005

The Company will furnish, without charge, a copy of its Annual Report on
Form 10-K for the fiscal year ended December 28, 2004 (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.

LONE STAR STEAKHOUSE & SALOON, INC.
ANNUAL MEETING OF STOCKHOLDERS - JUNE 21, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

P The undersigned stockholder of Lone Star Steakhouse & Saloon, Inc., a
R Delaware Corporation (the "Company"), hereby appoints Jamie B. Coulter and
O John D. White with full power of substitution and to each substitute
X appointed pursuant to such power, as proxy or proxies, to cast all votes as
Y designated hereon, which the undersigned stockholder is entitled to cast at
the Annual Meeting of the Stockholders (the "Annual Meeting") of Lone Star
Steakhouse & Saloon, Inc., to be held at 9:00 a.m., local time on June 21,
2005 at the Del Frisco's Double Eagle Steak House restaurant located at 1221
Sixth Avenue, New York, New York, 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.

(Continued and to be signed on reverse side)

[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE USING
DARK INK ONLY. THE BOARD RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.

1. Election of nominees named below to the Board of
Directors of the Company. FOR ALL NOMINEES LISTED WITHHOLD AUTHORITY
BELOW (EXCEPT AS MARKED TO VOTE FOR ALL NOMINEES
TO THE CONTRARY BELOW). LISTED BELOW.
Nominees: William B. Greene, Jr., Fred B. Chaney, Ph.D. [ ] [ ]

INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name in the space
provided below.

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

2. To ratify the appointment of Ernst & Young, LLP as the Company's FOR AGAINST ABSTAIN
independent auditors for the fiscal year ending December 27, 2005. [ ] [ ] [ ]

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.

Date _______________________________________, 2005

__________________________________________________
(Signature)

Your signature should appear the same as your name
appears hereon. If 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 THIS PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE TODAY