Page 7 of 12 – SEC Filing
The following constitutes
Amendment No. 2 to the Schedule 13D filed by the undersigned (“Amendment No. 2”). This Amendment No. 2 amends the Schedule
13D as specifically set forth herein.
| Item 3. | Source and Amount of Funds or Other Consideration. |
Item 3 is hereby amended
and restated to read as follows:
The Shares purchased
by each of Partners LP and Focus Fund were purchased with working capital (which may, at any given time, include margin loans made
by brokerage firms in the ordinary course of business) in open market purchases. The aggregate purchase price of the 800,000 Shares
beneficially owned by Partners LP is approximately $8,184,184, excluding brokerage commissions. The aggregate purchase price of
the 120,000 Shares beneficially owned by Focus Fund is approximately $1,225,098, excluding brokerage commissions.
| Item 4. | Purpose of Transaction. |
Item 4 is hereby
amended to add the following:
On December 6, 2017,
Marathon Partners delivered a third letter to the Issuer’s board of directors (the “Board”) following its review
of the amended preliminary merger proxy statement (the “Proxy”) filed by the Issuer on November 17, 2017 in connection
with the Special Meeting of Shareholders that will be held to consider the proposed merger (the “Transaction”) between
the Issuer and 99 Restaurants, LLC (“99 Restaurants”). In the letter, Marathon Partners reiterated its strong opposition
to the Transaction based on the Board’s conflicts of interest and the Transaction’s increasingly incompatible economic
terms. As such, Marathon Partners believes that the Transaction is not in the best interests of shareholders and raised concerns
including significant industry headwinds, unrealistically ambitious projections, and its belief that likely third party interest
in the Issuer is being stymied by the unusual, entrenching no-shop provision that the Issuer unnecessarily agreed to in the Merger
Agreement.
Marathon Partners
noted the continued deterioration of 99 Restaurants’ financial performance based on its declining year-over-year guest traffic,
down 2.1% versus last year, and identified its price-sensitive customer base as a major vulnerability given its low average check
size and the rising labor costs in the industry. Marathon Partners also highlighted 99 Restaurants’ inability to meaningfully
increase guest check size over the past decade.
Marathon Partners
stated that 99 Restaurants is poorly positioned to adapt effectively to headwinds facing the casual dining industry, such as changes
in dining habits, industry overcapacity and rising labor costs. Marathon Partners estimated that labor inflation alone would set
99 Restaurants’ operating profits back by $3 million to $4.5 million in 2018, absent other mitigating factors, thereby reducing
its EBITDA and operating income by 14% and 24%, respectively, at the midpoint versus estimated 2017 results.
Marathon Partners
cited the overly optimistic revenue projections for 99 Restaurants, noting that it would need to grow sales by 10% in Q4 2017 to
meet management’s 2017 revenue projections, an increasingly challenging target in light of slowing sales growth at existing
restaurants.
Marathon Partners
further stated that if the Transaction is voted down by shareholders, it is confident that third-party sponsors would likely approach
the Issuer to inquire about a potential buyout. Marathon Partners believes that an arms-length transaction with a third party
acquirer would yield a much better outcome for shareholders compared to the Issuer relinquishing control of J. Alexander’s
in exchange for a poorly positioned and profit-challenged casual dining concept such as 99 Restaurants.
| 7 |
