CalPERS vs. Lonestar Steakhouse & Saloon
Chronology of Events
|Date |Event | |2/22/00 |CalPERS releases Focus 10 List featuring Lonestar | |7/11/01 |Dissident shareholder Guy Adams, endorsed by CalPERS, is | | |elected to the Board and replaces CEO and Chairman Jamie | | |Coulter | |10/18/01 |CalPERS files a lawsuit against Lonestar for acts of | | |“self-dealing” | |12/20/02 |Court dismisses some of CalPERS “self-dealing” claims on | | |Lonestar |
The active investment program started on February 22, 2000 when the California Public Employee’s Retirement System (CalPERS) released its Focus 10 list. The nation’s largest pension fund, whose assets total more than $175 billion, broadcasts this list annually to serve as the focal point of their strategies to correct corporate governance, stock performance, and economic evaluation in 10 U.S. companies it deems as underperforming. On this announcement, Lonestar Steakhouse & Saloon (STAR) finds itself a part of CalPERS’ agenda in the year 2000. This comes after some of the worst performance in the restaurant industry as well as some corporate governance problems that needed to be addressed. In the following outline of the program, the many changes that were made by STAR to satisfy the likes of its shareholders are summarized.
Prior to the release of the Focus 10 list by CalPERS, Lonestar addressed some concerns of the pension fund by agreeing to perform annual evaluations of the CEO, to form a nominating committee consisting of independent board members, and to study the current compensation of the Board. Unfortunately, STAR did not fulfill CalPERS’ requests to add two independent directors to the Board, appoint a lead independent director, or institute a Board self-evaluation. Shortly after actually making the governance adjustments, STAR cut-off contact with CalPERS. In turn, CalPERS filed a shareholder proposal to amend Lonestar’s bylaws; this revision would require the Board to be comprised of a majority of independent directors, therefore enhancing independence. Therefore, as announced on May 30, 2000, both Proxy Monitor and the Institutional Shareholder Services, proxy advisory firms, recommended that clients support CalPERS shareholder approval. This endorsements came after careful consideration of the advisory firms where they investigated whether this proposal was necessary.
In their analysis of the reasons behind the shareholder proposal requested by CalPERS, the proxy advisory firms looked at two key facts. The first was that the Board of Directors of Lonestar had repriced stock options about four times since April of 1997, accounting for 14.5 million shares. The second was that the most recent repricing that occured in January 2000 was one that benefitted Jamie Coulter, CEO and Chairman of the Board, greatly. STAR repriced about 4.2 million of Coulter’s shares to $8.46 down from $18.25. Although it was seen that three out of the five directors for Lonestar were considered outsiders, the proxy advisory firms still concluded that CalPERS request for a more independent board was justified after considering these facts.
On May 2, 2001, after almost a year of reflecting upon the interests of...
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