UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(Rule
14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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(Amendment No. )
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Preliminary Proxy Statement
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Under Rule 14a-12
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FIESTA RESTAURANT GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
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JCP INVESTMENT PARTNERSHIP, LP
JCP SINGLE-ASSET PARTNERSHIP, LP
JCP INVESTMENT PARTNERS, LP
JCP INVESTMENT HOLDINGS, LLC
JCP INVESTMENT MANAGEMENT, LLC
JAMES C. PAPPAS
BLR PARTNERS LP
BLRPART, LP
BLRGP INC.
FONDREN MANAGEMENT, LP
FMLP INC.
BRADLEY L. RADOFF
BANDERA MASTER FUND L.P.
BANDERA PARTNERS LLC
GREGORY BYLINSKY
JEFFERSON GRAMM
LAKE TRAIL MANAGED INVESTMENTS LLC
LAKE TRAIL CAPITAL LP
LAKE TRAIL CAPITAL GP LLC
THOMAS W. PURCELL, JR.
JOSHUA E. SCHECHTER
JOHN B. MORLOCK
ALAN VITULI
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JCP Investment Management,
LLC, together with the other participants named herein (collectively, “JCP”), has made a definitive filing with the
Securities and Exchange Commission of a proxy statement and accompanying
GOLD
proxy card to be used to solicit votes for
the election of JCP’s slate of highly qualified director nominees to the Board of Directors of Fiesta Restaurant Group, Inc.,
a Delaware corporation (the “Company”), at the Company’s upcoming 2017 annual meeting of stockholders, or any
other meeting of stockholders held in lieu thereof, and any adjournments, postponements, reschedulings or continuations thereof.
On May 25, 2017,
JCP issued the following press release, which was also posted to
www.FixFiesta.com
:
JCP SETS THE RECORD STRAIGHT ON
FIESTA RESTAURANT GROUP’S MISLEADING PRESENTATION
Highlights False and Misleading
Statements in Fiesta’s May 23, 2017 Presentation
Demonstrates JCP’s Track
Record of Value Creation
Encourages Stockholders to vote
the
GOLD
Proxy to Elect John B. Morlock and James C. Pappas
HOUSTON, TX, May 25, 2017 –
JCP Investment Management, LLC, together with its affiliates and the other participants in its solicitation (collectively, “JCP”
or “we”), collectively one of the largest stockholders of Fiesta Restaurant Group, Inc. (“Fiesta” or the
“Company”) (NASDAQ:FRGI), with aggregate ownership of approximately 9.0% of the Company’s outstanding shares,
has deemed it necessary to address Fiesta’s May 23, 2017 presentation in connection with the annual meeting to be held on
June 7, 2017. JCP believes that the Company’s presentation contains a number of false and misleading statements with respect
to Fiesta and JCP that must be addressed.
FIESTA FICTION #1:
The Company’s
Board of Directors (the “Board”) has proactively taken steps to address Fiesta’s underperformance.
FACTS:
The Board has taken
defensive and reactionary
measures
after
our public involvement.
The indisputable truth is that
each of the following occurred
after
our public involvement:
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CEO was replaced – but given
the 5-month gap without a permanent CEO, it is evident the Board was not prepared with a succession plan
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Notably, new CEO Rich Stockinger
was not added to the Board upon his appointment as CEO – but he was added after JCP questioned his lack of addition during
settlement discussions
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3 new directors with restaurant
industry experience were added to the Board (including the CEO) – but no non-executive director has stepped down from the
Board
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Fiesta’s “Strategic
Renewal Plan” was released
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The first purchase of Fiesta
shares by an incumbent director was made
Also occurring after our involvement
have been a number of personal attacks with untrue statements that do not warrant repeating, which we believe demonstrates the
lengths the incumbents will go to continue their pattern of entrenchment.
While Fiesta has attempted to portray
JCP as being unreasonable in settlement discussions, the simple truth is that JCP could not in good faith enter into any agreement
that served to further entrench the incumbent directors – which is exactly what JCP feared a 2-year standstill and no incumbent
director coming off the Board would do.
JCP is committed to seeking the
election of direct stockholder representatives with restaurant industry experience who will improve the Company’s corporate
governance practices and represent the best interests of all stockholders.
FIESTA FICTION #2:
The Board does not believe James C. Pappas will serve stockholders well.
FACTS:
The Board offered to add
Mr. Pappas to the Board – indicating a belief that Mr. Pappas’ addition to the Board would benefit stockholders. As
shown in the table below, Mr. Pappas has a demonstrable track record of creating stockholder value after becoming publicly involved
with a company.
TICKER
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NAME
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IRR
|
% RETURN
|
PERIOD
(1)
(MOS)
|
ENTERPRISE VALUE
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JAX
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J. Alexander's Corporation
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256%
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112%
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7
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$92m
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PTRY
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The Pantry, Inc.
|
210%
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138%
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9
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$1.7b
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MRFD
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Morgan's Foods, Inc.
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120%
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488%
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27
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$48m
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CWST
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Casella Waste Systems, Inc.
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54%
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144%
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25
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$1.1b
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AMRE
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AmREIT, Inc.
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52%
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21%
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5
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$764m
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CST
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CST Brands, Inc.
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39%
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25%
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8
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$5.2b
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VVI
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Viad Corp.
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25%
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61%
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25
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$1.1b
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HTM
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US Geothermal Inc.
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14%
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18%
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15
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$170m
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TLF
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Tandy Leather Factory, Inc.
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11%
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11%
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12
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$67m
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JMBA
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Jamba, Inc.
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-28%
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-54%
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28
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$107m
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AVERAGE
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75%
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96%
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16
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$1.0b
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(1)Performance
calculated from date of public involvement or joining board, as applicable, until May 23, 2017 (unless company was acquired).
Although Fiesta would like to harp on Jamba, Inc., its performance to date is clearly the outlier for JCP’s portfolio companies,
and Mr. Pappas’ efforts to drive stockholder value remain ongoing. We find it ironic that Fiesta has emphasized the fact
that Jamba made a notification of late filing (“NT Filing”) with the SEC considering that since Fiesta director (and
former Chairman) Jack A. Smith became a director and chairman of the audit committee of Omagine, Inc. (OTC:OMAG) in September 2015,
it has made
6 such NT Filings
and is
down over 83%
.
1
FIESTA FICTION #3:
Mr. Pappas’ interests are not aligned with stockholders, and he does not have the time to devote
to Fiesta.
FACTS:
Fiesta represents JCP’s
largest investment
in terms of invested capital. JCP, an investment firm representing more than 60 clients (from university
endowments, pension funds, family offices and other institutions) across the capital structure, believes the investment opportunity
at Fiesta is significant. Like all of Fiesta's other stockholders, we will only be able to achieve a return on our investment upon
the appreciation in value of Fiesta's stock. With Fiesta representing JCP’s largest investment, Mr. Pappas has an added incentive
to dedicate his maximum time and effort to maximizing value for Fiesta’s stockholders.
1
Calculated from August 31, 2015 (day prior to Mr. Smith joining Omagine) to May 24, 2017.
Fiesta’s strategy to question
Mr. Pappas’ interest alignment with stockholders and his time availability is quite interesting considering:
-
Prior to recently appointed director
Paul E. Twohig’s purchase in March 2017,
no incumbent director had ever purchased a single Fiesta share
2
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The lack of personal investment by
the incumbents raises questions as to their interest alignment with stockholders and magnifies the need for direct stockholder
representation on the Board
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The aggregate number of shares beneficially
owned by the incumbent directors has
drastically declined
since the completion of the Company’s spin-off in May 2012
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Brian P. Friedman’s beneficial
ownership alone has
declined by over 83%
(even including recent purchases by Leucadia)
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Barry J. Alperin and Mr. Friedman,
the two Jefferies-affiliated directors we are opposing, both serve on more boards of directors than Mr. Pappas
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Mr. Pappas serves on 3 boards while
Messrs. Alperin and Friedman
serve on at least 4 and 5 boards
, respectively, while Mr. Friedman also serves as President
of a multi-billion dollar holding company
Stockholders should ask themselves
who appears to have a greater incentive and capacity to represent their best interests. Also, if the Board really believes that
Mr. Pappas’ interests are not aligned with stockholders, then why was he offered a Board seat?
FIESTA FICTION #4:
John B. Morlock has a consistent history of destroying stockholder value.
FACTS:
Mr. Morlock is a talented restaurant operator that will prove invaluable in the implementation and execution of a
precise plan to drive stockholder value.
During Mr. Morlock’s tenure
with Potbelly Corporation, the restaurant experienced exponential growth from a local sandwich shop to a publicly traded company
with more than 400 locations.
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2002
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2016
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Increase
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CAGR
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Revenue
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~$24,000
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$407,131
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17.0x
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19%
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Adjusted EBITDA
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~$2,000
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$48,000
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24.0x
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22%
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Stores
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16
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411
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25.7x
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22%
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$ in thousands
2
JCP acknowledges that Leucadia National Corporation, a multi-billion dollar holding company of which director Brian P. Friedman serves as President and a director, purchased shares one week before Mr. Twohig.
At the time of his departure, Potbelly’s
Chairman and CEO Aylwin Lewis had this to say about Mr. Morlock in a company-wide email:
“
I am sad to convey that
John Morlock SVP, Ops Growth has informed me that after 14 years with the Potbelly Nation he will be moving on to another opportunity.
Words alone can't express how grateful I am for the multitude of contributions John has made to operating our shops. John joined
Potbelly in December of 2002 as SVP, Chief Operating Officer reporting to Bryant Keil. He started when the company had just 18
shops. His previous work at SpinCycle, Einstein's, Boston Chicken and Blockbuster prepared him well! He is one of the three key
people who have really driven this brand over the years - Bryant, Carl and John.
I have personally appreciated
his business knowledge and his partnership during our ‘road warrior’ years. When I first got here I leaned on him a
lot - he's been like a brother. We spent a lot of time on the road and talked every day. His support of the culture has been outstanding.
Even last year when he asked to step back, he continued to help drive the growth strategy in domestic franchising.
John will forever be a big player
in the history books of Potbelly. He will be inducted into the Potbelly Hall of Fame.
”
While Fiesta would like stockholders
to think that Mr. Morlock is responsible for the destruction of companies, the truth is he is frequently brought aboard distressed
companies facing extreme challenges to implement turnaround plans. For instance, at Spin Cycle, Inc., Mr. Morlock was hired for
a 2.5 year turnaround plan but completed the process in 1.5 years in a manner benefiting stockholders. John H. Muehlstein, a founding
investor in Spin Cycle and Clubhouse International, had this to say with respect to Mr. Morlock’s involvement at both companies:
“
After both concepts [Spin
Cycle and Clubhouse] ran into serious operating difficulties, I introduced John to the Boards of both businesses in an effort to
implement turnaround plans. John was hired by both Boards to replace existing failed management. One of the Board members of Spin
Cycle who hired John was a representative of CS First Boston, the major bondholder. In both situations, John was hired long after
the concepts had begun to collapse.
”
Stockholders will greatly benefit
from the addition of Mr. Morlock to the Board.
FIESTA FICTION #5:
Fiesta has the right Board to drive stockholder value.
FACTS:
Fiesta’s incumbent
directors have presided over prolonged underperformance and must be held accountable for the massive destruction of value that
has occurred under their watch.
Not only has Fiesta
materially
underperformed its peers and relevant indices
over the past 5 years, Fiesta has produced
negative total shareholder
returns
over the last 1, 2 and 3-year periods.
|
Share Price Performance (1)
|
|
1-Year
|
2-Year
|
3-Year
|
5-Year
|
Buffalo Wild Wings Inc
|
11%
|
-3%
|
9%
|
85%
|
Popeyes Louisiana Kitchen Inc
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52%
|
40%
|
116%
|
350%
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Panera Bread Co
|
51%
|
68%
|
104%
|
119%
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El Pollo Loco Holdings Inc
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28%
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-39%
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-
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-
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Average of Most Similar Competitors (2)
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36%
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16%
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76%
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185%
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S&P 500 Index
|
17%
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12%
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27%
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84%
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Russell 2000 Restaurants Index
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15%
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4%
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34%
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117%
|
2016 FRGI Proxy Group (3)
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11%
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0%
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27%
|
143%
|
Fiesta Restaurant Group Inc
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-3%
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-53%
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-37%
|
98%
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Underperformance vs. Average of Most Similar Competitors
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-38%
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-69%
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-113%
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-86%
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Underperformance vs. Russell 2000 Restaurants Index
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-18%
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-57%
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-71%
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-19%
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Underperformance vs. 2016 FRGI Proxy Group
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-13%
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-53%
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-64%
|
-45%
|
|
|
|
|
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Source: Bloomberg as of May 19, 2017.
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1. Figures are adjusted for dividends
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2. BWLD, PLKI, PNRA, LOCO. PNRA’s acquisition by JAB Holdings announced April 5, 2017.
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3. Used 2016 Proxy Group as FRGI eliminated the Proxy Group in 2017.
|
|
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The same incumbent directors that approved the squandering of more than $70 million expanding Pollo Tropical into Texas (while
neglecting the core Florida market) somehow want stockholders to believe that they are the right choice to enhance stockholder
value
. While Fiesta has attempted to frame its total shareholder return in a positive light by stopping the calculation in
2015 and excluding certain peers, we are confident that our fellow stockholders see through this ploy.
FIESTA FICTION #6:
Fiesta is committed to strong corporate governance practices.
FACTS:
Fiesta maintains a classified
Board structure and many other stockholder unfriendly provisions that are inconsistent with corporate governance best practices
that serve to entrench the incumbents, including:
-
Stockholders cannot act by written
consent;
-
Stockholders cannot call special
meetings;
-
Supermajority voting requirement
to amend organizational documents;
3
and
-
Directors may only be removed for cause
by a supermajority vote.
3
Including all Bylaw provisions and stockholder unfriendly provisions in the Charter.
While Fiesta claims to have a focus
on Board refreshment, it should be noted that each of the Board’s
unilateral appointments
occurred since the end of
February 2017,
after
our public involvement. Notably, no non-executive director has stepped down and none of the recently
appointed directors are up for election at the Annual Meeting.
FIESTA STOCKHOLDERS – DO
NOT BE MISLED BY THE COMPANY’S FALSE AND MISLEADING STATEMENTS
It is evident that our campaign has inspired reactionary changes at Fiesta, but there is more work to be done. If elected, our
nominees will bring increased stockholder oversight into the boardroom to ensure increased accountability and that decisions are
made with stockholders’ best interests in mind.
If elected, our nominees eagerly
look forward to working with the new CEO and the other members of the Board to deliver stockholder value, as JCP has repeatedly
done with its portfolio companies.
We encourage stockholders to visit
our website at
www.FixFiesta.com
to review our detailed investor presentation.
The
time for accountability is
now
. We urge stockholders to send a clear message to the Board that Fiesta’s continued underperformance and pattern of
entrenchment will not be tolerated by voting the
GOLD
proxy to elect our highly qualified candidates John B. Morlock
and James C. Pappas.
VOTE THE
GOLD
PROXY CARD TO
ELECT JOHN B. MORLOCK AND JAMES C. PAPPAS
TODAY
If you have any questions, or
require assistance with your vote, please contact InvestorCom, toll-free at (877) 972-0090, call direct at (203) 972-9300
About JCP Investment Management:
JCP Investment Management, LLC
is an investment firm headquartered in Houston, TX that engages in value-based investing across the capital structure. JCP follows
an opportunistic approach to investing across different equity, credit and distressed securities largely in North America.
Investor Contacts:
James C. Pappas
JCP Investment Management, LLC
(713) 333-5540
John Glenn Grau
InvestorCom
(203) 972-9300
Media
Contact:
Gotham Communications
Bill
Douglass, (646) 504-0890
bill@gothamcomm.com
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