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Filed pursuant to Rule 424(b) and (c)
Reg. No. 333-28231
Supplement No. 3 dated September 3, 1997 to Prospectus
dated July 23, 1997
On August 27, 1997, the Company reported in its Quarterly Report on Form
10-Q for the quarter ended July 13, 1997 that the Boston Market system has
experienced a decline in weekly per store average ("WPSA") revenue. WPSA revenue
represents the weekly per store average revenue for all stores based upon the
actual number of days the stores are open in the reporting period. Net WPSA
revenue is gross WPSA revenue after customer coupons and employee discounts.
Gross WPSA revenue per Boston Market store decreased 7.2% from $23,826 for the
second quarter of 1996 to $22,114 for the second quarter of 1997. Net WPSA
revenue per Boston Market store decreased 9.3% from $22,420 for the second
quarter of 1996 to $20,334 for the second quarter of 1997. The Company believes
the decrease in WPSA revenue was due to the continuation, through most of the
second quarter of 1997, of its former marketing strategy that was characterized
by increasingly ineffective price-promoted offers and high levels of
discretionary media spending, the cannibalistic effect of those price-promoted
offers on its core individual meal business and the relative ineffectiveness of
the Extreme Carver and Kids Market product offerings. These factors compare with
the successful Boston Carver product introduction, commencement of network
advertising and initiation of dual message advertising, all of which favorably
contributed to WPSA revenue in the comparable period of 1996. The Company
believes that reducing the level of price-promoted offers and utilizing a
unified message to market both its lunch and dinner products will enable it to
significantly reduce discretionary marketing spending systemwide while achieving
the overall brand positioning it desires. The Company began to implement its new
strategy in the third quarter of 1997. The Company expects the decline in WPSA
revenue to bottom out in the third quarter of 1997 as the anticipated benefits
of its new marketing strategy begin to take effect; however, there can be no
assurance that the Company's new marketing strategy will favorably impact store
sales. See "Special Note Regarding Forward Looking Statements" on page 6 of the
Prospectus.
The Company further reported that, as a general matter, it believes that
the recent decline in store performance levels does not currently indicate a
trend which would affect area developer loan recoverability; however, if such
decline is more prolonged or severe than currently anticipated, it can be
expected to adversely impact the Company's loan recoverability analysis. As a
result of the recent decline in store performance, one or more of the Company's
area developers may not generate sufficient store cash flow to pay royalties,
interest on loans with the Company and franchise and other fees when due.
Failure of any area developer to make such required payments will impact the
Company's analysis of the recoverability of such area developer's loan and
potentially result in the Company classifying such loan as impaired or
establishing a provision for loan loss for such loan. In addition, any such
prolonged decline in store performance, failure of any area developer to make
required payments to the Company or the Company establishing loan loss
provisions would negatively impact the Company's earnings and liquidity and may
result in violations of certain financial covenants contained in the Company's
senior credit facilities. In addition, the Company and its area developers are
in the process of amending their loan agreements to extend the draw and
repayment periods to correspond to the extended store development schedules
reflecting the reduced rate of store development, which will delay liquidity
resulting from the loan repayments. See "Special Note Regarding Forward Looking
Statements" on page 6 of the Prospectus.
The Company anticipates its financed area developers will continue to incur
losses during a significant portion of their rapid expansion phase. The ability
to recover such losses and the timing of such recovery will vary by area
developer. Such recovery will depend upon, among other things, the reversal of
the recent decline in store performance, increases in store revenue and
profitability through continued product and service enhancements, completion of
additional store development, which will require continued access to equity
development capital, the level of debt and related fixed charges, lower
investment overhead, greater economies of scale, the intensity of competition
and the quality of management. There can be no assurance that such losses will
be recovered. Although the Company believes its current financed area developers
can achieve profitability, in the event the foregoing strategy does not come to
fruition or an area developer otherwise fails to achieve a sufficient level of
profitability subsequent to the completion of its rapid expansion phase, such
event could have a material adverse impact
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on the Company's financial position and results of operations. See "Special Note
Regarding Forward Looking Statements" on page 6 of the Prospectus.
The Company also reported that it currently has availability under its
senior revolving credit facility. However, such facility contains a financial
covenant requiring systemwide gross WPSA revenue of not less than $20,500 per
accounting period. As a result of the change in the Company's marketing
strategy, which is designed to reduce the level of customer discounts, the
Company believes that a more relevant measure of store performance is net WPSA
revenue. As such, the Company is currently in the process of discussing with the
agent lenders under the senior credit facilities the modification of such
covenant to reflect net WPSA revenue at levels consistent with recent store
performance. The Company believes that based upon its initial conversations with
the agent lenders it will be able to obtain the necessary modification of the
covenant; however, there can be no assurance that such modification will be
obtained. To the extent systemwide gross WPSA revenue drops below $20,500 and
the Company is unable to obtain modification of the covenant, the Company will
be in violation of the senior credit facilities. Any such violation would
prohibit the Company from drawing on its revolving credit facility and, upon
action of the required number of lenders, result in a default of the facilities
agreement and an acceleration of the approximately $171 million outstanding
principal balance under the Company's 1996 master lease facility. Any such
acceleration would also permit holders of other senior and subordinated debt of
the Company to exercise their remedies, which may include acceleration of their
debt. See "Special Note Regarding Forward Looking Statements" on page 6 of the
Prospectus.
The Company also reported that ENBC and its area developers have commenced
their annual development planning process for 1998, which will take into account
various factors, including changes in the competitive environment and the effect
of the current pace of development on store operations and performance. As a
result of such review, the rate of store development for ENBC and its area
developers for 1998 relative to the current pace of store development may be
reduced.
In August 1997, the Company purchased a portion of the equity interests in
PFCI owned by Scott Beck, the Company's Chairman of the Board and President and
Chief Executive Officer, and Saad Nadhir, the former Co-Chairman of the Board
and President of the Company, and agreed to purchase the balance of their
interests for a purchase price equal to their original cost plus an 8% interest
factor, resulting in the Company currently owning an 85% equity interest in
PFCI. The Company purchased the equity interests in PFCI in part because it
believes there are significant additional opportunities in home meal replacement
through the introduction of fresh, chilled prepared foods in Boston Market
stores and because of PFCI's ownership of proprietary technology which could be
useful in exploring those opportunities. The Company also announced that the
Board of Directors of the Company had determined that effective October 1, 1997,
the number of directors of the Company will increase to ten and Mr. Nadhir will
be appointed as a director and Co-chairman of the Company, in each case, without
further action by the Board. In addition to the Company's acquisition of an
equity interest in PFCI, the Company has purchased from BCE West, L.P., the
Company's area developer in the southwest U.S., 16 Boston Market stores in the
Denver metropolitan area for use in testing the introduction of fresh, chilled
prepared foods in the Boston Market concept in an entire geographic market.
Also in August 1997, the Company converted its loan to Mayfair Partners,
L.P. ("Mayfair") into a majority equity interest in Mayfair, which added 53
Boston Market stores operating in Washington, D.C., northern Virginia and
portions of Maryland to the Company store base. As of the date of conversion,
total loan advances to Mayfair were $56 million. The Company desired to convert
the Mayfair loan primarily to concentrate its ownership of stores in the
northeast portion of the United States and to gain operational and financial
control over the business and the market. Mayfair's waiver of the loan
conversion moratorium was the result of arms' length negotiations between the
Company and Mayfair.
Finally, in August 1997, the Company purchased the remaining equity
interests in Mid-Atlantic, resulting in Mid-Atlantic becoming a wholly-owned
subsidiary of the Company.
These transactions will be accounted for as purchases, and accordingly, the
purchase prices will be allocated to identified assets and liabilities based
upon their values at the date of the respective transaction, which will result
in a portion of the purchase prices being allocated to goodwill. In addition,
given recent store performance levels and other factors, the Company expects
these transactions to have a negative impact on the Company's earnings.
