JCP Investment Letter To Fiesta Restaurant Group $FRGI

As you know, we own approximately 8.7% of the outstanding shares of Fiesta Restaurant Group, Inc. ("Fiesta" or the "Company"), making us the Company's third largest stockholder. Dating back to August of last year, we have sought to work constructively with Fiesta's Board of Directors (the "Board") and management team in an effort to drive stockholder value and improve the Company's corporate governance. Following the Company's apparent unwillingness to entertain serious discussions regarding Board refreshment, we nominated a slate of three highly qualified individuals for election to the Board at the upcoming annual meeting that we believe would greatly enhance the Board.

Despite our nomination, we continued to seek an amicable resolution with the Board in an effort to avoid an expensive and time consuming proxy contest. Unfortunately, we do not believe that the Board's recent offer adequately addresses the shortcomings of the composition of the Board or protects the best interests of the Company's stockholders.

The driving factor behind our belief is the makeup of the current seven-member Board. Six of the seven incumbent directors have overseen a 60%+ decline in Fiesta's share price from its 2015 peak, and under their leadership, the Company's total shareholder returns have been negative over the past one, two and three-year periods. These same directors authorized the expenditure of more than $70 million on the failed expansion of Pollo Tropical into Texas and oversaw a corporate structure with bloated SG&A expenses, including three corporate centers. In addition, the recent performance of the Company is concerning, with transaction counts down 4.5% and 7.3%, respectively, at Taco Cabana and Pollo Tropical in the fourth quarter of 2016.  

Furthermore, the Board consists largely of directors with little to no industry operating experience nor any personal investment in Fiesta stock. In fact, Paul E. Twohig, who was just appointed as a director effective February 28, 2017, is the only director who has made an open market purchase of Fiesta shares.1 In addition, we note that three of the seven directors are affiliated with Jefferies, including directors Barry J. Alperin and Brian P. Friedman, who are up for election at the upcoming annual meeting. It should be noted that Jefferies sold its entire position in 2013 after previously owning approximately 28.3% of the Company at the time of its spin-off in 2012.

While we welcome the appointment of Mr. Twohig to the Board, who we believe is independent and brings considerable industry expertise, we do not think his addition alone is sufficient to offset the lack of industry experience and apparent misalignment of interests between the incumbent directors and Fiesta's stockholders.

As such, we find the Board's recent offer contemplating the addition of one of our candidates now and a separate individual to be identified by the Board at a later date to be unacceptable given the lack of assurance that the person selected would be mutually agreeable to both parties. In addition, we are unwilling to commit ourselves to a multi-year standstill period given the current classified Board structure because we believe this would effectively serve to further entrench the incumbent directors who have overseen significant destruction of stockholder value.  

We strongly believe that any potential agreement must involve the immediate addition of two highly qualified director candidates, who together will bring significant operating experience and an owner's perspective into the boardroom. We believe adding such individuals to the Board would remedy the Board's apparent lack of restaurant expertise and avoid a seemingly unnecessary election contest, which we believe could only benefit the entrenched directors who we do not believe belong on the Board. Therefore, to simplify the choice for stockholders at the upcoming annual meeting, we intend to withdraw our nomination of Joshua E. Schechter and seek the election of our remaining candidates James C. Pappas and John B. Morlock, both of whom have significant experience in the restaurant industry, in opposition to Messrs. Alperin and Friedman.

While we remain open to a collaborative process regarding Board composition, we are fully prepared to see this through to a vote at the upcoming annual meeting, if necessary, to ensure that stockholders have the opportunity to vote for the most highly qualified candidates to represent their interests.