<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1997
REGISTRATION NO. 333-17515
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
BLUE BIRD BODY COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 3713 58-0813156
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
3920 ARKWRIGHT ROAD
MACON, GEORGIA 31210
(912) 757-7100
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
BLUE BIRD CORPORATION
(Exact name of Co-Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE NOT APPLICABLE 13-3638126
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
3920 ARKWRIGHT ROAD
MACON, GEORGIA 31210
(912) 757-7100
(Address, including zip code, and telephone number, including
area code, of Co-Registrant's principal executive offices)
--------------------------
BOBBY G. WALLACE
VICE PRESIDENT,
TREASURER AND SECRETARY
BLUE BIRD CORPORATION
3920 ARKWRIGHT ROAD
MACON, GEORGIA 31210
(912) 757-7100
(Address, including zip code, and telephone number, including
area code, of agents for service of process)
--------------------------
COPIES OF ALL COMMUNICATIONS TO:
ANDREW R. BROWNSTEIN, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
THE REGISTRANT AND THE CO-REGISTRANT (THE "REGISTRANTS") HEREBY AMEND THIS
REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
Filed herewith is an amendment ("the Amendment") to the Prospectus dated
December 12, 1996 (the "Prospectus") relating to the offer (the "Exchange
Offer") to exchange an aggregate of up to $100,000,000 principal amount of
10 3/4% Senior Subordianted Notes due 2006, Series B (the "Exchange Notes") of
Blue Bird Body Company ("Blue Bird"), for an identical face amount of the issued
and outstading 10 3/4% Senior Subordinated Notes due 2006 (the "144A Notes" and,
together with the Exchange Notes, the "Notes"), together with a separate
market-making prospectus (the "Market-Making Prospectus") relating to certain
market-making transactions with respect to the Exchange Notes which may be
carried out by Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"). The Amendment follows immediately after this Explanatory Note, and is
followed by the original Prospectus and the Market-Making Prospectus. The
purpose of the Amendment is to provide the holders of 144A Notes certain
information relating to results of Blue Bird Corporation ("BBC") and Blue Bird
for the fiscal year ended November 2, 1996. This information includes (1) a
revised section entitled "SUMMARY FINANCIAL DATA", (2) a revised section
entitled "SELECTED FINANCIAL DATA", (3) a revised section entitled "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
(4) audited consolidated financial statements for the year ended November 2,
1996 of BBC and Blue Bird. Following such Amendment is the complete
Market-Making Prospectus.
The Market-Making Prospectus contains all of the foregoing information as
well as certain pages relating to market-making transactions, which pages
replace certain pages of the Prospectus. These include a new cover page, a new
"USE OF PROCEEDS" section (which is also included in the "PROSPECTUS SUMMARY"),
a new paragraph captioned "Trading Market for the Exchange Notes" inserted in
the section captioned "RISK FACTORS" in lieu of the paragraph captioned "Absence
of Public Market for the Notes," (which change has also been made in the
"PROSPECTUS SUMMARY"), a new "PLAN OF DISTRIBUTION" section, a new "LEGAL
MATTERS" section and a new back cover page. The Market-Making Prospectus omits
the following captions (or the information set forth under such captions) which
were included in the Prospectus: "PROSPECTUS SUMMARY--The 144A Note Offering,"
"--The Exchange Offer," and "--Summary of Terms of the Exchange Notes--Exchange
Offer; Registration Rights," "RISK FACTORS--Exchange Offer Procedures," and
"--Restrictions on Transfer," "THE EXCHANGE OFFER," "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE OFFER," and "EXCHANGE OFFER; REGISTRATION RIGHTS."
In addition, in the "PROSPECTUS SUMMARY" the paragraph captioned "Interest
Payments" in the Prospectus has been appended to the beginning of the paragraph
captioned "Interest Payment Dates" in the Market-Making Prospectus. Certain
immaterial conforming changes to the "Prospectus Summary", "Business",
"Management", and "Ownership of Capital Stock" sections of the Market-Making
Prospectus reflecting year-end information have also been made. All other pages
of the Prospectus for the Exchange Offer were used in the Market-Making
Prospectus.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 9, 1997
AMENDMENT TO PROSPECTUS DATED DECEMBER 12, 1996
OFFER TO EXCHANGE
ALL OUTSTANDING
10 3/4% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B
[LOGO]
FOR ANY AND ALL OF THE OUTSTANDING
10 3/4% SENIOR SUBORDINATED NOTES DUE 2006
OF
BLUE BIRD BODY COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON JANUARY , 1997, UNLESS EXTENDED.
Pursuant to a Prospectus dated December 12, 1996 (the "Prospectus"), Blue
Bird Body Company, a Georgia corporation (the "Company"), has offered, upon the
terms and subject to the conditions set forth in the Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal" and, together
with the Prospectus, the "Exchange Offer"), to exchange an aggregate of up to
$100,000,000 principal amount of 10 3/4% Senior Subordinated Notes due 2006,
Series B (the "Exchange Notes") which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a registration
statement of which the Prospectus forms a part, for an identical face amount of
the issued and outstanding 10 3/4% Senior Subordinated Notes due 2006 (the "144A
Notes" and, together with the Exchange Notes, the "Notes") of the Company from
the Holders (as defined herein) thereof in integral multiples of $1,000. As of
the date of the Prospectus, there were $100,000,000 aggregate principal amount
of the 144A Notes outstanding. The terms of the Exchange Notes are identical in
all material respects to the 144A Notes, except that the Exchange Notes have
been registered under the Securities Act, and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing for
an increase in the interest rate payable on the 144A Notes under certain
circumstances relating to the Registration Rights Agreement (as defined herein),
which provisions will terminate as to all of the Notes upon the consummation of
the Exchange Offer. The Exchange Notes will be obligations of the Company
evidencing the same indebtedness as the 144A Notes, and will be entitled to the
benefits of the same indenture. See "The Exchange Offer." Capitalized terms used
and not defined herein shall have the meaning given them in the Prospectus.
This Amendment contains certain information relating to the results of Blue
Bird Corporation ("BBC") and the Company for the fiscal year ended November 2,
1996, and specifically includes (1) a revised section entitled "SUMMARY
FINANCIAL DATA", (2) a revised section entitled "SELECTED FINANCIAL DATA", (3) a
revised section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", and (4) audited consolidated financial
statements for the year ended November 2, 1996 of BBC and Blue Bird. THIS
AMENDMENT, INCLUDING THE FOREGOING, SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS, THE CONTENTS OF WHICH ARE INCORPORATED IN THEIR ENTIRETY BY THIS
REFERENCE.
In connection with the foregoing, the Exchange Offer has been extended, and
will now expire at 5:00 p.m., New York City time, on [10 business days from date
of mailing], unless extended.
The Company will accept for exchange any and all validly tendered 144A Notes
on or prior to the Expiration Date (as defined herein). Tenders of 144A Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. The Exchange Offer is
not conditioned upon any minimum principal amount of 144A Notes being tendered
for exchange. For certain conditions to the Exchange Offer, see "The Exchange
Offer--Conditions."
The Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such 144A Notes where such 144A Notes were acquired by
such broker-dealer for its own account as a result of market-making activities
or other trading activities (other than 144A Notes acquired directly from the
Company). The Company has agreed that, for a period of 180 days after the date
of the Prospectus, it will make the Prospectus available to any broker-dealer
for use in connection with any such resale.
Copies of the Amendment, the Prospectus and accompanying Letter of
Transmittal, and certain other documents relating to the Exchange Offer may be
obtained from the information agent, MacKenzie Partners at the following
address:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, NY 10010
SEE "RISK FACTORS," BEGINNING ON PAGE 13 OF THE PROSPECTUS, FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS AMENDMENT IS JANUARY , 1997.
UNTIL MARCH , 1997 (90 DAYS AFTER THE DATE OF THIS AMENDMENT), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
<PAGE>
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THE PROSPECTUS AND THIS AMENDMENT UNDER
"PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN
STATEMENTS CONTAINED ELSEWHERE IN THE PROSPECTUS AND THIS AMENDMENT, ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND ARE THUS PROSPECTIVE. SUCH FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS,
UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS,"
BEGINNING ON PAGE 13 OF THE PROSPECTUS, AND HOLDERS OF 144A NOTES ARE URGED TO
CAREFULLY CONSIDER SUCH FACTORS.
2
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is certain summary historical consolidated financial
information for BBC as of and for the fiscal years 1996, 1995, and 1994. The
summary historical consolidated financial information of BBC and subsidiaries as
of and for the full fiscal years indicated were derived from the financial
statements of BBC and its subsidiaries which were audited by Arthur Andersen
LLP, independent accountants ("Arthur Andersen"). The PRO FORMA information is
unaudited. The PRO FORMA other financial data and ratios are based on the
summary historical consolidated financial information for BBC, adjusted to give
effect to the Recapitalization as if it occurred on October 29, 1994. The PRO
FORMA balance sheet data is based on the summary historical consolidated
financial information for BBC, adjusted to give effect to the Recapitalization
as if it occurred on November 2, 1996. The summary historical financial
information set forth below should be read in conjunction with the consolidated
financial statements of BBC and the notes thereto included elsewhere in this
Prospectus, see "Index to Consolidated Financial Statements," as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
<S> <C> <C> <C>
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
------------- ----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................................ $ 570.2 $ 517.4 $ 476.2
Cost of goods sold....................................................... 474.1 430.6 392.9
------ ----------- -----------
Gross profit............................................................. 96.1 86.8 83.3
Selling, general and administrative expenses............................. 42.6 39.8 39.0
Amortization of goodwill and noncompete agreements....................... 3.8 4.7 5.6
------ ----------- -----------
Operating income......................................................... 49.7 42.3 38.7
Interest income.......................................................... 7.0 4.6 4.1
Interest expense......................................................... (16.9) (18.5) (17.4)
Other income, net........................................................ .2 .1 .2
------ ----------- -----------
Income before income taxes............................................... 40.0 28.5 25.6
Provision for income taxes............................................... 14.8 11.6 10.2
------ ----------- -----------
Net income before extraordinary item..................................... $ 25.2 $ 16.9 $ 15.4
------ ----------- -----------
------ ----------- -----------
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(a)................................................................ $ 66.3 $ 57.3 $ 54.2
Adjusted EBITDA (b)...................................................... 61.2 54.4 51.5
Capital expenditures..................................................... 7.3 3.6 8.6
Ratio of Adjusted EBITDA to Adjusted Cash Interest Expense (b)........... 5.3x 4.1x 3.9x
Pro forma ratio of Adjusted EBITDA to Adjusted Cash Interest Expense
(b)(c)................................................................. 2.0x 1.9x --
Ratio of earnings to fixed charges(d).................................... 3.3x 2.5x 2.4x
Pro forma ratio or deficiency of earnings to fixed charges(c)(d)(e)...... 1.2x --
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 2, 1996
------------------------
<S> <C> <C> <C> <C> <C>
HISTORICAL PRO FORMA
----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 80.4 $ 80.9(f)
Total assets............................................. 391.0 382.5(g)
Total long-term debt, excluding current maturities....... 131.4 327.2(h)
Redeemable common stock, net............................. 29.3 16.6(i)
Stockholders' equity (deficit)........................... 118.2 (56.8)(j)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
3
<PAGE>
- --------------------------
(a) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of income before income taxes plus interest expense
(including amortization of debt issue costs), depreciation and amortization.
EBITDA is presented here to provide additional information about the
Company's ability to meet its future debt service, capital expenditure and
working capital requirements. EBITDA is not a measure of financial
performance under generally accepted accounting principles ("GAAP") and
should not be considered as an alternative either to net income as an
indicator of the Company's operating performance, or to cash flows as a
measure of the Company's liquidity.
(b) Adjusted EBITDA and Adjusted Cash Interest Expense exclude interest income
and interest expense (which includes amortization of debt issue costs),
respectively, associated with the Company's lease financing activities.
These activities have been conducted principally by Blue Bird Capital since
October 1995. The associated interest expense of Blue Bird Capital is
incurred under the LaSalle Credit Facility (as defined herein), which is
recourse only against Blue Bird Capital. Blue Bird Capital is treated as an
"Unrestricted Subsidiary" under the Indenture. Adjusted Cash Interest
Expense also excludes the amortization of debt issue costs which is included
in interest expense.
(c) Presented on a PRO FORMA basis as though the Recapitalization had occurred
at the beginning of the periods presented. In making the PRO FORMA
calculation of Adjusted EBITDA to Adjusted Cash Interest Expense, the
following additional adjustments have been made: (i) Adjusted EBITDA
excludes the impact of the one-time compensation charge of $16.1 million
related to that portion of the Distribution paid to management optionholders
and is therefore deemed compensation expense and (ii) PRO FORMA Adjusted
Cash Interest Expense excludes the interest expense of $2.9 million related
to the $25 million of Old Notes repaid for the fiscal year ended October 28,
1995. On a PRO FORMA basis, Adjusted Cash Interest Expense would have been
$30.4 million and $28.9 million for the fiscal years ended November 2, 1996
and October 28, 1995, respectively.
(d) For the purpose of computing the ratios of earnings to fixed charges,
"earnings" consists of operating income before income taxes and fixed
charges, and "fixed charges" consists of interest expense and the portion of
rental expense deemed representative of the interest factor.
(e) On a PRO FORMA basis after giving effect to the Recapitalization for the
fiscal year ended October 28, 1995, the deficiency of the earnings to fixed
charges was $4.8 million.
(f) Reflects (i) the receipt of gross proceeds from the 144A Note Offering of
($99.7 million), borrowings under the Term Facility of the New Credit
Agreement ($175 million); (ii) the retirement of indebtedness (including
accrued interest) under the Old Credit Agreement ($36 million) and the Old
Notes ($50.3 million); (iii) the payment of fees and expenses associated
with the Recapitalization ($9.1 million) and the costs (including premium)
associated with the retirement and amendment of the Old Notes ($3.4
million); (iv) the payment of the Distribution ($201.4 million); (v) the
proceeds from the repayment of the Management Notes (as defined herein) from
the BBC Distribution to the management shareholders ($3.8 million); and (vi)
the tax benefits associated with the Recapitalization ($14.7 million). See
"Capitalization."
(g) Reflects all of the items discussed in footnote (f) above; the write off of
the debt issue costs related to the indebtedness being retired ($1.4
million) and the capitalization of debt issue costs for the 144A Note
Offering and the New Credit Agreement ($9.1 million).
(h) Reflects the incremental borrowings necessary to effect the
Recapitalization.
(i) Redeemable common stock represents 720,000 issued and outstanding shares of
BBC Common Stock purchased by members of management (the "Management
Investors"), primarily in conjunction with the 1992 Acquisition (as defined
herein). The Management Investors have the right, prior to the earlier of an
initial public offering of equity securities of BBC or the tenth anniversary
of the Stockholders' Agreement (as defined herein), to put these shares to
BBC in the event of their disability, involuntary termination not for cause,
retirement (as such terms are defined in the Stockholders' Agreement), or
death for a fair value price (as defined in the Stockholders' Agreement).
The redeemable stock of BBC was recorded at fair value on the date of
issuance. The excess of the fair value price over the original fair value is
being accreted by periodic charges to retained earnings. The amounts
recorded in the balance sheets represent the estimated maximum amount
payable if all Management Investors met the specified criteria and exercised
their put rights.
(j) Reflects (i) the Distribution, net of tax benefit ($188.6 million); (ii)
the adjustment to the fair value of the redeemable common stock ($16.5
million); (iii) the costs associated with the retirement and amendment of
the Old Notes, net of tax benefit ($2 million); and (iv) the write-off of
the debt issue costs related to the indebtedness being retired, net of tax
benefit ($1 million).
4
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial data
for BBC for fiscal years 1996, 1995, 1994 and 1993, and for the six months ended
October 31, 1992, as well as selected historical consolidated financial
information for BBC prior to the 1992 Acquisition (the "Predecessor") as of and
for the six months ended April 30, 1992. The selected historical consolidated
financial data as of and for the full fiscal years indicated were derived from
the financial statements of BBC and subsidiaries which were audited by Arthur
Andersen. Currently, BBC conducts no independent operations and has no
significant assets other than the capital stock of Blue Bird. The selected
historical financial data set forth below should be read in conjunction with the
consolidated financial statements of BBC and the notes thereto included
elsewhere in this Prospectus. Separate historical financial data for the
Predecessor are not included in this Prospectus. Subsequent consolidated
financial data of BBC reflect the purchase accounting treatment of the 1992
Acquisition. Accordingly, the financial data of the Predecessor and BBC are not
comparable in all material respects, since such data reflect financial positions
and results of operations of these two separate entities.
<TABLE>
<CAPTION>
BBC
-----------------------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS
---------------------------------------------------- ENDED
NOVEMBER 2, OCTOBER 28, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1996 1995 1994 1993 1992
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales.................................................. $ 570.2 $ 517.4 $ 476.2 $ 413.5 $ 244.4
Cost of goods sold......................................... 474.1 430.6 392.9 340.5 198.4
------ ----------- ----------- ----------- -----------
Gross profit............................................... 96.1 86.8 83.3 73.0 46.0
Selling, general and administrative expenses(a)............ 42.6 39.8 39.0 36.3 20.1
Amortization of goodwill and
non-compete agreements................................... 3.8 4.7 5.6 5.6 9.3
------ ----------- ----------- ----------- -----------
Operating income (loss).................................... 49.7 42.3 38.7 31.1 16.6
Interest income............................................ 7.0 4.6 4.1 2.9 1.4
Interest expense........................................... (16.9) (18.5) (17.4) (18.2) (9.5)
Other income (expense)(b).................................. 0.2 0.1 0.2 0.7 (0.5)
------ ----------- ----------- ----------- -----------
Income (loss) before income taxes.......................... 40.0 28.5 25.6 16.5 8.0
Provision (benefit) for income taxes....................... 14.8 11.6 10.2 6.9 4.3
------ ----------- ----------- ----------- -----------
Net income before extraordinary item....................... 25.2 16.9 15.4 9.6 3.7
Loss on extinguishment of debt............................. (1.4) -- -- -- --
------ ----------- ----------- ----------- -----------
Net income (loss).......................................... $ 23.8 $ 16.9 $ 15.4 $ 9.6 $ 3.7
------ ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- -----------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital............................................ $ 80.4 $ 61.7 $ 65.3 $ 52.7 $ 31.9
Total assets............................................... 391.0 379.8 332.8 342.1 337.3
Long-term debt, excluding current maturities............... 131.4 113.8 125.8 135.8 143.8
Redeemable common stock, net............................... 29.3 20.9 17.5 11.0 8.0
Stockholders' equity....................................... 118.2 102.6 88.8 80.7 83.8
<CAPTION>
PREDECESSOR
-----------
SIX MONTHS
ENDED
APRIL 30,
1992
-----------
<S> <C>
INCOME STATEMENT DATA:
Net sales.................................................. $ 120.8
Cost of goods sold......................................... 98.7
-----------
Gross profit............................................... 22.1
Selling, general and administrative expenses(a)............ 34.2
Amortization of goodwill and
non-compete agreements................................... --
-----------
Operating income (loss).................................... (12.1)
Interest income............................................ 5.7
Interest expense........................................... (1.7)
Other income (expense)(b).................................. 1.7
-----------
Income (loss) before income taxes.......................... (6.4)
Provision (benefit) for income taxes....................... (3.0)
-----------
Net income before extraordinary item....................... (3.4)
Loss on extinguishment of debt............................. --
-----------
Net income (loss).......................................... $ (3.4)
-----------
-----------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital............................................ $ 69.4
Total assets............................................... 253.8
Long-term debt, excluding current maturities............... 39.4
Redeemable common stock, net............................... --
Stockholders' equity....................................... 137.0
</TABLE>
- ------------------------
(a) Includes expenses of the Predecessor incurred prior to the 1992 Acquisition
which the Company no longer incurs, including salaries of the Predecessor's
principal stockholders prior to the 1992 Acquisition, commission paid
relating to a Domestic International Sales Corporation (DISC) owned by such
principal stockholders, the amortization of contracts in process, and
severance and restructuring costs. Such amounts totaled $6.6 million and
$1.1 million for the six month periods ended October 31, 1992 and April 30,
1992, respectively.
(b) Includes charitable contributions made prior to the 1992 Acquisition which
BBC has reduced following the 1992 Acquisition. Such contributions totaled
$.6 million for the six-month period ended April 30, 1992.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Approximately 80% of the Company's fiscal 1996 net sales are derived from
school bus sales and approximately 14% and 6% of the Company's fiscal 1996 net
sales are derived from the sale of commercial and recreational vehicles,
respectively. Between fiscal 1994 and fiscal 1996, the Company's operating
income has risen primarily due to increased sales volume. Over the same period,
gross profit margins have decreased slightly, principally due to an increase in
the number of Type C buses sold with GM chassis. The Company's operations are
affected by trends in the number of students enrolled in grades kindergarten
through 12 and overall educational spending by local and state governments as
well as by the federal government. In addition to incremental needs due to pupil
population growth and replacement requirements based on changes in safety
standards, factors which influence the need to purchase school buses include the
age of the existing school bus fleet, changes in school bus travel routes,
regulatory changes such as compliance with new emissions standards,
extracurricular activity usage and changes in the education structure in the
United States such as the development of preschool "head start" programs,
special education programs and magnet schools. The Company's experience has been
that during periods of stable or increasing student enrollment, demand for its
core school bus products has also remained stable or increased.
On a PRO FORMA basis, assuming the Recapitalization had been effected on
November 2, 1996, the Company's total consolidated indebtedness was increased by
approximately $188.7 million, to $336 million. The primary effects of the
Recapitalization on the Company's future operating results include reduced
reported profitability to the extent interest expense is above historical
amounts resulting from higher debt levels. The Company expects to generate
sufficient cash from operations to fund its working capital and capital
expenditure needs and make required interest and principal payments on its
indebtedness. See "Risk Factors--Leverage and Debt Service" and "--Restrictive
Covenants and Asset Encumbrances," and "--Liquidity and Capital Resources."
RESULTS OF OPERATIONS
The discussion of results of operations that follows is based upon and
should be read in conjunction with the financial statements, including the notes
thereto, included elsewhere in this Prospectus. Although the financial
statements are consolidated financial statements of BBC, the Company's parent,
BBC is a holding company and, as such, there would be no material differences in
the operating results of BBC, as compared with the Company. The following table
sets forth certain operating results as a percentage of net sales for the
historical periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
<S> <C> <C> <C>
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
--------------- ------------- -------------
Net sales............................................ 100.0% 100.0% 100.0%
Cost of goods sold................................... (83.1) (83.2) (82.5)
Gross profit......................................... 16.9 16.8 17.5
Selling, general and administrative expense.......... (7.5) (7.7) (8.1)
Operating income..................................... 8.7% 8.2% 8.1%
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995. Net sales increased to $570.2 million
in fiscal 1996 from $517.4 million in fiscal 1995, an increase of $52.8 million
or 10.2%. This increase was due to increased sales volume of the Type C, Type D,
CS and Q-Bus units.
6
<PAGE>
Gross profit increased to $96.1 million in fiscal 1996 compared to $86.8
million in fiscal 1995, an increase of $9.3 million or 10.7%. The increase was
due to increased sales volume. The gross margin of 16.8% was unchanged compared
to fiscal 1995.
Selling, general and administrative expenses increased to $42.6 million in
fiscal 1996 compared to $39.8 million in fiscal 1995, an increase of $2.8
million or 7.0%. The increase was due primarily to higher engineering, marketing
and selling expenses.
Amortization expense decreased to $3.8 million in fiscal 1996 from $4.7
million in 1995. The decrease reflects completion in fiscal 1995 of the
amortization of certain non-compete agreements related to the 1992 Acquisition.
Interest income increased to $7.0 million compared to $4.6 million in fiscal
1995. The increase was due primarily to a higher average dollar amount of leases
in the lease portfolio in fiscal 1996 as compared to fiscal 1995.
Interest expense decreased to $16.9 million in fiscal 1996 as compared to
$18.5 million in fiscal 1995. This was due to lower interest rates on bank debt
as well as lower debt levels due to the repurchase of $25 million of the Old
Notes in December, 1995.
The provision for income taxes increased to $14.8 million in fiscal 1996
from $11.6 million in fiscal 1995. The increase was due to increased taxable
income resulting from higher net sales and operating income. The provision for
income taxes in fiscal 1996 decreased as a percentage of income before taxes as
compared to fiscal 1995. The decrease was due to increased tax-exempt lease
income as well as lower non-deductible amortization items related to the 1992
Acquisition.
On December 14, 1995, the Company repurchased, for cash on the open market,
$25 million in principal amount of outstanding Old Notes for the purchase price
(expressed as a percentage of principal amount) of 106.500% plus accrued
interest to the purchase date. An extraordinary loss of $1.4 million net of a
tax benefit of $.8 million occurred during the 1996 period due to the early
extinguishment of such Old Notes.
FISCAL 1995 COMPARED TO FISCAL 1994. Net sales increased to $517.4 million
in fiscal 1995 from $476.2 million in fiscal 1994, an increase of $41.2 million,
or 8.7%. This increase was due to increased sales of Type D, Q-Bus and CS units,
as well as increased sales of Type C units.
Gross profit increased to $86.8 million in fiscal 1995 compared to $83.3
million in fiscal 1994, an increase of $3.5 million, or 4.2%. The increase was
due to increased sales volume. Gross margin decreased to 16.8% in fiscal 1995
from 17.5% in fiscal 1994. The reduced margin was due primarily to increased
sales of Type C units, on which the Company generally realizes lower margins due
to the inclusion of GM chassis.
Selling, general and administrative expenses were $39.8 million in fiscal
1995 compared to $39 million in fiscal 1994, an increase of 2.0%. The increase
was due primarily to higher expenses related to engineering and product
development.
Amortization expense decreased to $4.7 million in fiscal 1995 compared to
$5.6 million in fiscal 1994. The amortization of certain non-compete agreements
was completed during the first half of fiscal 1995.
Interest income increased to $4.6 million in fiscal 1995 compared to $4.1
million in fiscal 1994. The increase was due to a higher average dollar amount
of leases held in the lease portfolio in fiscal 1995 compared to fiscal 1994.
Interest expense increased to $18.5 million in fiscal 1995 from $17.4
million fiscal 1994, an increase of $1.1 million. The increase was due to a
higher interest rate on credit facility borrowings as compared to fiscal 1994.
7
<PAGE>
The provision for income taxes increased to $11.6 million in fiscal 1995
from $10.2 million in fiscal 1994. The increase was due to increased taxable
income resulting from higher net sales and operating income.
FISCAL 1994 COMPARED TO FISCAL 1993. Net sales increased to $476.2 million
in fiscal 1994 from $413.5 million in fiscal 1993, an increase of $62.7 million,
or 15.2%. This increase was due to increased sales of Type D units, increased
sales of chassis as part of the sale of an integrated Type C bus, as well as to
sales of the new BMC and CS units. The Type D unit has a higher average selling
price than the Type C unit.
Gross profit increased to $83.3 million in fiscal 1994 compared to $73
million in fiscal 1993, an increase of $10.3 million, or 14.1%. The increase was
due to increased sales volume. Gross margin decreased to 17.5% from 17.7% in
fiscal 1993. The reduced margin was due primarily to increased sales of Type C
units, on which the Company generally realizes lower margins due to the
inclusion of GM chassis.
Selling, general and administrative expenses increased to $39 million in
fiscal 1994 compared to $36.3 million in fiscal 1993, an increase of 7.4%. The
increase was due to expenses related to the development, introduction and
advertising of new products.
Interest income (which is primarily associated with income earned on the
Company's lease portfolio) increased to $4.1 million in fiscal 1994 from $2.9
million in fiscal 1993, an increase of $1.2 million, or 41.4%. During fiscal
1994, the average dollar amount of leases held in the lease portfolio was higher
as compared to the average fiscal 1993 portfolio amounts. In addition, the
average rate earned by the portfolio was higher in fiscal 1994 as compared to
fiscal 1993.
Interest expense decreased to $17.4 million in fiscal 1994 from $18.2
million in fiscal 1993, a decrease of $.8 million. The decrease was due to a
combination of lower average outstanding balances on credit facilities as well
as a lower average interest rate as compared to fiscal 1993.
Other income decreased to $.2 million in fiscal 1994 from $.7 million in
fiscal 1993. The decrease was due primarily to reduced gains on sales of lease
paper to LaSalle compared to the prior year.
The provision for income taxes decreased as a percentage of income before
income taxes in fiscal 1994 compared to fiscal 1993. The amortization of certain
costs related to the 1992 Acquisition was essentially unchanged from fiscal 1993
to fiscal 1994. Due to the increase in taxable income, the relative effect of
the non-deductibility of the amortization items on the effective tax rate was
smaller, thereby reducing the effective tax rate in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from funding working
capital needs, which consist primarily of inventory and accounts receivable, and
principal and interest payments on indebtedness. The Company also requires funds
for capital expenditures, for which the Company anticipates approximately $6
million for fiscal 1997.
BBC is a holding company that conducts all of its business operations
through the Company, which is a wholly-owned subsidiary. In connection with any
liquidity needs, including needs arising out of the BBC Guarantee, BBC is
dependent entirely upon cash generated by the Company.
Historically, the Company has funded its working capital needs through cash
generated from operations and borrowings under the Old Credit Agreement. In
addition, the LaSalle Credit Facility provides Blue Bird Capital with a
revolving credit facility to finance school bus leases of up to a maximum
aggregate principal amount of $100 million, of which $58.6 million was
outstanding as of November 2, 1996. Following the Recapitalization, the
Company's liquidity needs will arise primarily from debt service on the
substantial indebtedness incurred in connection with the Recapitalization, as
well as from the
8
<PAGE>
funding of inventory and accounts receivable. Assuming the Recapitalization was
completed as of November 2, 1996, the Company would have had total consolidated
indebtedness at such date of approximately $336 million, consisting primarily of
$99.7 million principal amount of the 144A Notes, borrowings of $175 million
under the New Credit Agreement and $58.6 million of borrowings under the LaSalle
Credit Facility. The Company would also have had the ability to borrow an
additional $41.4 million under the LaSalle Credit Facility to finance school bus
leases and $80 million under the New Credit Agreement (assuming all of such
funds would have been available under the borrowing base calculation under the
Revolving Facility of the New Credit Agreement). Such Revolving Facility will be
available to meet future working capital and other business needs of the
Company. The maximum amount available to be borrowed under such facility is
based on the sum of 85% of Eligible Accounts Receivable (as defined in the New
Credit Agreement) and 60% of Eligible Inventory (as defined in the New Credit
Agreement) of the Company (the "Borrowing Base"). These provisions have the
effect of limiting the ability of the Company to utilize in operations or
satisfy other debt obligations with free cash flow and will limit the amount of
cash the Company has on hand at any given time. See "Description of Debt
Facilities." and "Risk Factors--Leverage and Debt Service."
The Company's interest expense as a result of the Recapitalization is
substantially higher than immediately prior to such transactions. Loans under
the New Credit Agreement bear interest at floating rates based upon the interest
rate option selected by the Company. With respect to the term loan borrowings
under the New Credit Agreement, the Company will be required to make scheduled
principal payments of approximately $8.8 million in fiscal 1997, $12.8 million
in fiscal 1998 and $16.8 million in fiscal 1999. See "Risk Factors--Restrictive
Covenants and Asset Encumbrances." For a schedule of payments due under the New
Credit Agreement, see "Description of Debt Facilities--Senior Bank Financing."
Under the New Credit Agreement, the Company is permitted to accumulate up to
$40 million in its lease portfolio of leases for its own account in addition to
leases held by Blue Bird Capital. As of November 2, 1996, the Company had
approximately $6.3 million of such leases in its lease portfolio. In addition,
as of such date, Blue Bird Capital had approximately $67.7 million in its lease
portfolio. Blue Bird Capital is required to maintain certain financial ratios,
including a ratio of Total Liabilities to Tangible Net Worth (as such terms are
defined in the LaSalle Credit Facility) that cannot exceed 10 to 1. See
"Business--Leasing" and "Description of Debt Facilities--LaSalle Credit
Agreement."
Net cash provided by operations during the year ended November 2, 1996, was
$59.6 million compared to $21.3 million in fiscal 1995. This difference was
primarily the result of an increase in net income and significant reductions in
inventory and trade receivables. There were no net borrowings under the
Company's working capital facility in fiscal 1996 or fiscal 1995. Net borrowing
under the LaSalle Credit Facility were $22.9 during the current year compared to
$35.7 in fiscal 1995. The early extinguishment of $25 million of outstanding Old
Notes (see "--Results of Operations--Fiscal 1996 Compared to Fiscal 1995") was
funded primarily from internally generated cash and partially from an increase
in the working capital revolver.
Cash and cash equivalents were $46.3 at November 2, 1996, compared to $21.5
million at the end of fiscal 1995. Net working capital was $80.4 million at
November 2, 1996, an increase of $18.7 million during the current fiscal year.
Significant factors affecting working capital were a $24.8 million increase in
cash, decreases in current leases receivable, inventory and trade receivables of
$15.0 million, $13.6 million and $5.4 million respectively, offset by a decrease
of $35.7 million in current portion of the LaSalle revolver. In accordance with
the revised terms of LaSalle Credit Facility, as amended in March 1996, the
LaSalle revolver has been reclassified entirely as long term debt as of November
2, 1996.
As a result of the Recapitalization, the Company's future operating
performance and ability to service or refinance the Notes and to repay, extend
or refinance the New Credit Agreement are subject to future economic conditions
and to financial, business and other factors, many of which are beyond the
Company's
9
<PAGE>
control. The Company's liquidity may also be impacted by product liability
claims and environmental matters. See "Risk Factors."
The Company's business is seasonal in nature. A majority of the Company's
sales occur in the third and fourth quarters of the fiscal year, a pattern
typical for the industry. The Company's working capital needs increase during
the second and third quarters as production activity increases in response to
the higher seasonal sales volume. Working capital needs decrease toward the end
of this period, although beginning in December or January, working capital and
related bank borrowings begin to increase as parts for assembly into buses are
manufactured and distributed to the assembly plants. Inventory is at its highest
during July and August prior to heavy seasonal school deliveries. The following
table shows the percentages of the Company's net sales per quarter for the last
four fiscal years.
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter.......................................... 16.3% 14.8% 18.5% 16.0%
Second Quarter......................................... 18.7 20.4 17.0 15.7
Third Quarter.......................................... 25.7 26.5 30.0 30.4
Fourth Quarter......................................... 39.3 38.3 34.5 37.9
----- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
----- --------- --------- ---------
----- --------- --------- ---------
</TABLE>
10
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................... F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of November 2, 1996 and October 28, 1995.................................. F-3
Consolidated Statements of Income for the Years Ended November 2, 1996, October 28, 1995 and October 29,
1994................................................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended November 2, 1996, October
28, 1995 and October 29, 1994.......................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended November 2, 1996, October 28, 1995 and October
29, 1994............................................................................................... F-7
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS......................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Blue Bird Corporation:
We have audited the accompanying consolidated balance sheets of BLUE BIRD
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of November 2, 1996 and
October 28, 1995 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended November 2, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Blue Bird Corporation and
subsidiaries as of November 2, 1996 and October 28, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended November 2, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Atlanta, Georgia
December 5, 1996
F-2
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 2, 1996 AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 46,253,258 $ 21,452,114
Trade receivables.............................................................. 13,442,724 18,865,820
Leases receivable.............................................................. 32,214,649 47,222,024
Inventories.................................................................... 69,775,802 83,346,271
Other current assets........................................................... 5,304,168 6,946,710
-------------- --------------
Total current assets....................................................... 166,990,601 177,832,939
-------------- --------------
LEASES RECEIVABLE, noncurrent.................................................... 41,862,478 15,000,000
-------------- --------------
PROPERTY, PLANT, AND EQUIPMENT:
Land........................................................................... 4,090,351 4,079,545
Buildings...................................................................... 17,678,238 16,898,812
Machinery and equipment........................................................ 28,883,888 26,782,544
Automobiles, trucks, and airplane.............................................. 7,758,985 4,847,494
Office furniture and equipment................................................. 5,178,814 4,844,284
Construction in progress....................................................... 1,008,435 1,419,916
-------------- --------------
64,598,711 58,872,595
Less accumulated depreciation.................................................. (25,709,736) (21,860,349)
-------------- --------------
Net property, plant, and equipment......................................... 38,888,975 37,012,246
-------------- --------------
OTHER ASSETS:
Deferred debt issuance costs, net of accumulated amortization of $8,733,592 and
$7,764,807 in 1996 and 1995, respectively.................................... 1,424,137 4,111,690
Goodwill, net of accumulated amortization of $17,397,500 and $13,567,500 in
1996 and 1995, respectively.................................................. 135,294,106 139,124,106
Land and idle facilities....................................................... 2,000,000 2,723,347
Other assets................................................................... 4,570,450 3,987,332
-------------- --------------
Total other assets......................................................... 143,288,693 149,946,475
-------------- --------------
Total assets............................................................... $ 391,030,747 $ 379,791,660
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
NOVEMBER 2, 1996 AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility...................................................... $ 0 $ 35,661,573
Current portion of long-term debt.............................................. 16,000,000 12,000,000
Trade accounts payable......................................................... 27,704,475 25,743,234
Deposits and amounts due to customers.......................................... 1,344,852 4,021,274
Income taxes payable........................................................... 9,269,833 6,926,161
Accrued warranty............................................................... 5,603,021 5,455,110
Other accrued liabilities...................................................... 17,571,052 16,766,138
Deferred income taxes.......................................................... 9,079,975 9,534,962
-------------- --------------
Total current liabilities.................................................. 86,573,208 116,108,452
-------------- --------------
LONG-TERM LIABILITIES:
Long-term debt................................................................. 128,600,000 111,000,000
Bonds payable.................................................................. 2,750,000 2,750,000
Accrued pension expense........................................................ 8,288,463 8,435,662
Deferred income taxes.......................................................... 5,306,392 5,898,112
Other long-term liabilities.................................................... 12,019,864 12,100,213
-------------- --------------
Total long-term liabilities................................................ 156,964,719 140,183,987
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
REDEEMABLE COMMON STOCK, $.01 par value; 720,000 shares issued and outstanding in
1996 and 1995 (Note 8)......................................................... 33,105,000 24,672,000
STOCK SUBSCRIPTIONS RECEIVABLE (Note 8).......................................... (3,800,000) (3,800,000)
-------------- --------------
29,305,000 20,872,000
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000 shares authorized, 7,704,778 shares
issued and outstanding in 1996 and 1995...................................... 77,048 77,048
Additional paid-in capital..................................................... 77,022,956 77,022,956
Retained earnings.............................................................. 43,227,960 27,895,901
Cumulative translation adjustments............................................. (2,140,144) (2,368,684)
-------------- --------------
Total stockholders' equity................................................. 118,187,820 102,627,221
-------------- --------------
Total liabilities and stockholders' equity................................. $ 391,030,747 $ 379,791,660
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES....................................................... $ 570,184,841 $ 517,444,172 $ 476,240,848
COST OF GOODS SOLD.............................................. 474,066,847 430,667,432 392,938,251
-------------- -------------- --------------
GROSS PROFIT.................................................... 96,117,994 86,776,740 83,302,597
-------------- -------------- --------------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES................... 42,568,911 39,795,821 39,038,361
AMORTIZATION OF GOODWILL AND NONCOMPETE AGREEMENTS.............. 3,830,000 4,692,867 5,567,000
-------------- -------------- --------------
46,398,911 44,488,688 44,605,361
-------------- -------------- --------------
OPERATING INCOME................................................ 49,719,083 42,288,052 38,697,236
INTEREST INCOME................................................. 6,998,830 4,618,315 4,056,013
INTEREST EXPENSE................................................ (16,889,261) (18,537,244) (17,405,932)
OTHER INCOME, net............................................... 224,052 168,554 217,613
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES...................................... 40,052,704 28,537,677 25,564,930
PROVISION FOR INCOME TAXES...................................... 14,872,343 11,686,056 10,157,248
-------------- -------------- --------------
NET INCOME BEFORE EXTRAORDINARY ITEM............................ 25,180,361 16,851,621 15,407,682
LOSS ON EXTINGUISHMENT OF DEBT, net of taxes of $838,364 (Note
4)............................................................ (1,415,302) 0 0
-------------- -------------- --------------
NET INCOME...................................................... $ 23,765,059 $ 16,851,621 $ 15,407,682
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
<TABLE>
<CAPTION>
MINIMUM
ADDITIONAL CUMULATIVE CUMULATIVE PENSION
COMMON PAID-IN RETAINED TRANSLATION LIABILITY
STOCK CAPITAL EARNINGS ADJUSTMENTS ADJUSTMENT
--------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 30, 1993................... $ 77,000 $ 76,923,000 $ 5,526,998 $ (1,822,344) $ 0
Net income................................ 0 0 15,407,682 0 0
Issuance of common stock.................. 48 99,956 0 0 0
Accretion of redeemable common stock...... 0 0 (6,566,400) 0 0
Translation adjustments................... 0 0 0 (431,695) 0
Minimum pension liability adjustment...... 0 0 0 0 (400,000)
--------- ------------- ------------- ------------- -----------
BALANCE, OCTOBER 29, 1994................... 77,048 77,022,956 14,368,280 (2,254,039) (400,000)
Net income................................ 0 0 16,851,621 0 0
Accretion of redeemable common stock...... 0 0 (3,324,000) 0 0
Translation adjustments................... 0 0 0 (114,645) 0
Minimum pension liability adjustment...... 0 0 0 0 400,000
--------- ------------- ------------- ------------- -----------
BALANCE, OCTOBER 28, 1995................... 77,048 77,022,956 27,895,901 (2,368,684) 0
Net income................................ 0 0 23,765,059 0 0
Accretion of redeemable common stock...... 0 0 (8,433,000) 0 0
Translation adjustments................... 0 0 0 228,540 0
--------- ------------- ------------- ------------- -----------
BALANCE, NOVEMBER 2, 1996................... $ 77,048 $ 77,022,956 $ 43,227,960 $ (2,140,144) $ 0
--------- ------------- ------------- ------------- -----------
--------- ------------- ------------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $23,765,059 $16,851,621 $15,407,682
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary loss on extinguishment of debt.............................. 2,253,666 0 0
Depreciation and amortization............................................. 11,517,766 12,558,707 13,521,452
Increase in cash surrender value of life insurance........................ (110,113) (234,103) (116,467)
Deferred income taxes..................................................... (1,046,707) 5,011 (1,707,636)
Changes in assets and liabilities:
Trade receivables....................................................... 5,423,096 (4,602,234) 3,927,301
Inventories............................................................. 13,570,469 (7,561,501) (591,991)
Trade accounts payable.................................................. 1,961,241 689,604 1,088,116
Income taxes payable.................................................... 2,343,672 5,180,641 1,201,942
Other current liabilities............................................... (1,723,597) (1,778,792) 3,055,578
Other................................................................... 1,632,686 185,669 640,166
----------- ----------- -----------
Total adjustments..................................................... 35,822,179 4,443,002 21,018,461
----------- ----------- -----------
Net cash provided by operating activities............................. 59,587,238 21,294,623 36,426,143
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions................................. (7,280,958) (3,648,833) (8,594,212)
Increases in leases receivable.............................................. (11,855,103) (32,230,390) (1,331,603)
----------- ----------- -----------
Net cash used in investing activities................................. (19,136,061) (35,879,223) (9,925,815)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under bank credit agreements and revolving
credit line............................................................... (14,061,573) 25,661,573 (26,100,000)
Debt prepayment premium..................................................... (1,625,000) 0 0
Other....................................................................... (192,000) 0 100,004
----------- ----------- -----------
Net cash (used in) provided by financing activities................... (15,878,573) 25,661,573 (25,999,996)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE FLUCTUATIONS.......................................... 228,540 (114,645) (431,695)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................................... 24,801,144 10,962,328 68,637
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................ 21,452,114 10,489,786 10,421,149
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR...................................... $46,253,258 $21,452,114 $10,489,786
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................................. $11,935,717 $14,959,218 $13,856,104
----------- ----------- -----------
----------- ----------- -----------
Income taxes.............................................................. $12,725,475 $ 4,038,000 $10,224,110
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
1. NATURE OF BUSINESS
Blue Bird Corporation and subsidiaries ("BBC" or the "Company") are engaged
in the manufacture and assembly of school and transit buses and recreational
vehicles. BBC has facilities in the United States, Canada, and Mexico.
FISCAL YEAR
BBC's fiscal year ends on the Saturday nearest October 31 of each year,
generally referred to as a "52-/53-week year." Fiscal year 1996 contained 53
weeks. Fiscal years 1995 and 1994 contained 52 weeks.
ACQUISITION ACCOUNTING AND VALUATION
On April 15, 1992, BBC acquired all of the outstanding capital stock of Blue
Bird Body Company and subsidiaries (the "Predecessor") through the merger of BB
Acquisition Corp., a wholly owned subsidiary of BBC, with and into the
Predecessor, with the Predecessor as the surviving corporation. The acquisition
was accounted for as a purchase. The excess purchase price over the fair value
of the net assets, as adjusted, of $152,691,606 was allocated to goodwill. The
goodwill is being amortized using the straight-line method over 40 years. BBC
periodically reviews the value assigned to goodwill to determine whether it has
been permanently impaired by adverse conditions affecting BBC. The Company uses
an estimate of its undiscounted cash flows over the remaining life of the
goodwill in measuring whether the goodwill is recoverable. Management is of the
opinion that there has been no diminution in the value assigned to goodwill.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Blue Bird Corporation and its domestic and foreign subsidiaries (owned 100% by
BBC). All significant intercompany transactions and accounts have been
eliminated in consolidation.
TRANSLATION AND REMEASUREMENT OF FOREIGN CURRENCIES
For the purpose of consolidation, the accounts for certain foreign
subsidiaries and foreign branches of domestic subsidiaries of the U.S. parent
are translated into U.S. dollars. Foreign currency assets and liabilities are
translated using the exchange rates in effect at the balance sheet dates.
Results of operations are translated using the weighted average exchange rates
in effect during the period. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
accumulated as part of the cumulative translation adjustments in the statements
of stockholders' equity.
One foreign subsidiary (the "Subsidiary") of the U.S. parent transacts sales
denominated in U.S. dollars, while the Company provides inventory and financing.
Accordingly, the U.S. dollar is deemed to be the functional currency. The
Subsidiary does not maintain its books in U.S. dollars but remeasures its
monetary assets and liabilities at balance sheet date rates, its nonmonetary
items at historical rates, and income and expense amounts at the weighted
average rates in effect for the period, except for depreciation and cost of
goods sold, which use historical rates. The effects of exchange rate
fluctuations on the
F-8
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
1. NATURE OF BUSINESS (CONTINUED)
remeasurement of the Subsidiary's financial statements are recognized as
exchange gains or losses on the statements of income.
The Company recognizes exchange gains and losses from foreign currency
transactions as other income or expense for the period. A loss of approximately
$54,000 was recorded in fiscal 1996. A loss of approximately $617,000 and a gain
of approximately $5,000 were recorded in fiscal years 1995 and 1994,
respectively.
FINANCIAL INSTRUMENTS
BBC's financial instruments consist primarily of cash and cash equivalents,
trade receivables, leases receivable, accounts payable, a revolving credit
facility, long-term debt, and certain interest rate agreements (Note 4). In
management's opinion, the carrying amounts of all financial instruments
approximate their fair values at November 2, 1996.
REVENUE RECOGNITION
BBC recognizes revenue on sales when the related product has been delivered
to the customer and title has passed or when full payment has been received from
the customer and the product is completed and awaiting customer pickup.
CASH AND CASH EQUIVALENTS
BBC considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
on the last-in, first-out ("LIFO") basis. Such costs include raw materials,
direct labor, and manufacturing overhead.
If the first-in, first-out method had been used, inventories would have been
approximately $71,900,000 at November 2, 1996 and approximately $85,900,000 at
October 28, 1995.
The components of inventory as of November 2, 1996 and October 28, 1995
consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Raw materials.................................................. $ 18,847,481 $ 32,463,235
Work in process................................................ 22,915,908 22,830,735
Finished goods................................................. 28,012,413 28,052,301
------------- -------------
Total inventories (LIFO cost).............................. $ 69,775,802 $ 83,346,271
------------- -------------
------------- -------------
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment were stated at their fair market values at
the date of acquisition. Assets purchased since the acquisition are stated at
cost. All assets are being depreciated on a straight-line basis over their
estimated useful lives.
F-9
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
1. NATURE OF BUSINESS (CONTINUED)
The following represent the estimated useful lives of the assets:
<TABLE>
<S> <C>
20-33
Buildings....................................................... years
Machinery and equipment......................................... 5-10 years
Automobiles, trucks, and airplane............................... 3-5 years
Office furniture and equipment.................................. 3-10 years
</TABLE>
Expenditures for property and repair costs which substantially increase
useful lives are capitalized. Currently, normal maintenance and repair costs are
charged to expense as incurred. Gains and losses on disposals of property,
plant, and equipment are reflected in current income.
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. The
Company capitalized net interest costs of $0 for the year ended November 2, 1996
and $208,237 for the year ended October 28, 1995.
Depreciation expense of $5,516,894, $5,575,840, and $5,608,035 was recorded
for the years ended November 2, 1996, October 28, 1995, and October 29, 1994,
respectively.
LAND AND IDLE FACILITIES
BBC currently has land and idle facilities held for sale located in Buena
Vista, Virginia. The estimated fair value of the land and facilities is included
as land and idle facilities in the accompanying balance sheets.
PRODUCT WARRANTY COSTS
The provision for estimated warranty costs is recorded in the year the unit
is sold. Warranty costs totaled $6,185,115, $5,313,438, and $6,679,409 for the
years ended November 2, 1996, October 28, 1995, and October 29, 1994,
respectively.
NONCOMPETE AGREEMENTS
BBC assigned $5,000,000 to noncompete agreements with the former owners. The
related assets were amortized over three years. Amortization expense totaled $0,
$833,000, and $1,667,000 for the years ended November 2, 1996, October 28, 1995,
and October 29, 1994, respectively.
ACCOUNTING STANDARDS YET TO BE ADOPTED
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." In June 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." The Company is required to adopt both of these standards in
fiscal year 1997.
SFAS No. 123 requires companies to estimate the value of all stock-based
compensation using a recognized pricing model. Companies have the option to
recognize this value as an expense or to disclose its pro forma effects on net
income. SFAS No. 125 requires companies to use consistent standards for
F-10
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
1. NATURE OF BUSINESS (CONTINUED)
distinguishing between transfers of assets classified as sales and transfers of
assets classified as secured borrowings.
The Company's management has not yet determined its method of adoption or
the financial statement impact of adopting SFAS No. 123 and SFAS No. 125. Other
issued but not yet required FASB standards are not currently applicable to the
Company's operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain October 28, 1995 balances have been reclassified to conform with the
November 2, 1996 presentation.
2. LEASES RECEIVABLE
Under the terms of the Bank Credit Agreement discussed in Note 4, BBC is
required to sell leases receivable to a bank once certain levels of lease
receivables are exceeded. Under the original agreement, as leases were sold, the
purchaser established a holdback reserve. During 1994, the agreement was
modified such that the holdback reserve was replaced with a letter of credit.
The letter of credit fluctuates based on the amount of sold leases and was
$1,053,000 and $1,000,000 at November 2, 1996 and October 28, 1995,
respectively.
During 1995, BBC amended the Bank Credit Agreement to allow BBC to hold more
leases receivable. As part of the amendment, BBC created a new subsidiary, Blue
Bird Capital Corporation ("Blue Bird Capital"), for the purpose of expanding the
availability of lease financing alternatives to customers of its school bus
products.
BBC finances the sale of buses to school districts, other tax-exempt
municipalities, and contractors under sales-type leases. Lease terms range from
one to seven years and contain a bargain purchase option at the end of the lease
term. Under the lease terms, the lessee bears substantially all risks of
ownership. BBC retains a lien on the title until all lease payments have been
made.
The net investment in leases arising from these arrangements as of November
2, 1996 and October 28, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Leases receivable.............................................. $ 82,889,596 $ 71,803,080
Unearned interest revenue...................................... (8,812,469) (9,581,056)
------------- -------------
Net leases receivable.......................................... $ 74,077,127 $ 62,222,024
------------- -------------
------------- -------------
</TABLE>
F-11
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
2. LEASES RECEIVABLE (CONTINUED)
Interest income recognized on leases receivable was $4,947,064, $2,914,928,
and $2,652,570 for the years ended November 2, 1996, October 28, 1995, and
October 29, 1994, respectively. The primary expenses associated with the
Company's finance lease activities relate to the interest expense from the
revolving credit facility of Blue Bird Capital (Note 4). Identifiable assets of
the Company's finance lease activities include the total leases receivable
balance included on the face of the financial statements and as discussed above.
3. NET CASH SURRENDER VALUE OF LIFE INSURANCE
Details of the net cash surrender value of life insurance on the lives of
individuals in whom BBC has an insurable interest as of November 2, 1996 and
October 28, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Cash values.................................................... $ 7,302,352 $ 7,193,239
Less life insurance loans.................................... (4,457,000) (4,458,000)
------------- -------------
Net cash surrender value, included in other assets............. $ 2,845,352 $ 2,735,239
------------- -------------
------------- -------------
</TABLE>
4. DEBT
Outstanding debt at November 2, 1996 and October 28, 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Bank term loan, principal and interest payable in quarterly installments through
October 31, 1998; interest payable at the option of BBC at either the prime
rate plus .75% or the Eurodollar rate plus 1.75%; interest rate at 8.25% on
November 2, 1996; collateralized by all real, personal, and mixed property, as
defined........................................................................ $ 36,000,000 $ 48,000,000
11.75% Series B senior subordinated notes, due April 15, 2002; interest payable
semiannually; sinking fund deposits of $18,750,000 due on April 15, 2000 and
April 15, 2001; subordinated to senior debt.................................... $ 50,000,000 $ 75,000,000
Revolving credit facility with final maturity on March 31, 1999; interest payable
quarterly at either the prime rate or the Eurodollar rate plus 1.125%, at the
option of BBC; collateralized by all Blue Bird Capital stock................... 58,600,000 35,661,573
Industrial development bonds, due March 2001; interest payable quarterly;
interest rate at 3.6% on November 2, 1996; secured by a letter of credit....... 2,750,000 2,750,000
-------------- --------------
147,350,000 161,411,573
Less:
Current portion of debt........................................................ 16,000,000 12,000,000
Revolving credit facility...................................................... 0 35,661,573
-------------- --------------
Long-term debt and bonds payable................................................. $ 131,350,000 $ 113,750,000
-------------- --------------
-------------- --------------
</TABLE>
F-12
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
4. DEBT (CONTINUED)
On April 15, 1992, BBC entered into a $170,000,000 bank credit agreement
with Bankers Trust Company (the "Bank Credit Agreement"), secured by the capital
stock of BBC and 66% of the capital stock of Canadian Blue Bird Coach, Ltd. (a
wholly owned subsidiary of BBC). The Bank Credit Agreement provides for a term
loan and a revolving credit facility comprised of working capital loans and
swing line loans. The revolving credit facility matures in October 1998 and
requires interest payable quarterly. Interest rates on the working capital loans
are, at the option of BBC, at the prime rate plus .75% or the Eurodollar rate
plus 1.75% and are the prime rate plus .25% on the swing line loans. The
weighted average interest rate of the revolving credit facility for the years
ended November 2, 1996 and October 28, 1995 was 7.03% and 8.65%, respectively.
The revolving credit facility is collateralized by all real, personal, and mixed
property, as defined. No amounts were outstanding under this revolving credit
facility at November 2, 1996 or October 28, 1995. The Bank Credit Agreement
contains certain restrictive covenants. The most restrictive covenants include
(a) a maximum leverage ratio, as defined, (b) a minimum fixed charge coverage
ratio, as defined, (c) a minimum interest coverage ratio, as defined, (d)
limitations of capital expenditures, and (e) certain restrictions on dividend
distributions, as defined. All of these covenants have been met as of November
2, 1996.
The maximum available borrowing amount on the Bank Credit Agreement
revolving credit facility, as amended, is $77,000,000. The revolving credit
facility requires quarterly payment of a commitment fee equal to .375% per annum
of the daily unused portion.
In connection with the creation of Blue Bird Capital (Note 2), BBC
negotiated a new credit facility (the "New Facility") with LaSalle National
Bank. The maximum capacity of the New Facility is $100,000,000, subject to
meeting certain covenants, as defined. The New Facility requires quarterly
payments of a commitment fee equal to .15% at November 2, 1996 (not to exceed
.275%) per annum of the daily unused portion of the credit commitment. The New
Facility contains certain restrictive covenants, including net income, tangible
net worth, and interest coverage ratio. All of these financial ratios have been
met as of November 2, 1996.
In connection with the Bank Credit Agreement and the New Facility, BBC
purchased interest rate caps with notional principal amounts totaling
$86,000,000 in order to reduce the impact of changes in interest rates on its
floating rate long-term debt. The interest rate agreements mature at dates
ranging from April 1997 to April 1999.
The industrial development bonds accrue interest based on a variable weekly
interest rate, with interest payments due quarterly. An irrevocable letter of
credit backing the bonds has been issued by Wachovia Bank of Georgia, N.A. This
letter of credit requires adherence to certain terms and financial ratios which
are the same or less restrictive than those under the revolving credit
facilities and term loan, all of which have been met as of November 2, 1996.
F-13
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
4. DEBT (CONTINUED)
The future minimum principal payments by fiscal year of outstanding debt at
November 2, 1996 are as follows:
<TABLE>
<S> <C>
1997.......................................................... $16,000,000
1998.......................................................... 20,000,000
1999.......................................................... 58,600,000
2000.......................................................... 0
2001.......................................................... 2,750,000
Thereafter.................................................... 50,000,000
-----------
$147,350,000
-----------
-----------
</TABLE>
In December 1995, the Company repurchased $25,000,000 principal amount of
Series B senior subordinated notes. As a result, the Company recorded an
extraordinary loss of $1,415,302, net of a tax benefit of $838,364.
5. INCOME TAXES
BBC follows the provisions of SFAS No. 109, "Accounting for Income Taxes,"
for financial reporting purposes. SFAS No. 109 requires, among other things, the
determination of deferred income taxes using the liability method, under which
deferred tax assets and liabilities are determined based on the differences
between the financial accounting and tax bases of assets and liabilities.
Deferred tax assets or liabilities at the end of each period are determined
using the currently enacted tax rates to apply to taxable income in the periods
in which the deferred tax asset or liability is expected to be settled or
realized.
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Total deferred tax liabilities............................... $ 31,400,496 $ 31,759,029
Total deferred tax assets.................................... (17,014,129) (16,325,955)
-------------- --------------
Net deferred tax liability................................... $ 14,386,367 $ 15,433,074
-------------- --------------
-------------- --------------
</TABLE>
F-14
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
5. INCOME TAXES (CONTINUED)
The sources of and differences between the financial accounting and tax
bases of BBC's assets and liabilities which give rise to the deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Stepped-up basis in net assets............................... $ 20,625,370 $ 20,633,323
Depreciation................................................. 1,984,361 2,520,201
Other........................................................ 8,790,765 8,605,505
------------- -------------
$ 31,400,496 $ 31,759,029
------------- -------------
------------- -------------
Deferred tax assets:
Warranty reserves............................................ $ 5,247,237 $ 5,198,629
Pension reserve.............................................. 1,726,652 1,935,666
Deferred compensation reserve................................ 3,346,739 3,053,529
Workers' compensation reserve................................ 1,761,631 1,656,866
Other........................................................ 4,931,870 4,481,265
------------- -------------
$ 17,014,129 $ 16,325,955
------------- -------------
------------- -------------
</TABLE>
The components of the provision (benefit) for income taxes are as follows as
of November 2, 1996, October 28, 1995, and October 29, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal........................................................... $ 13,871,802 $ 9,945,714 $ 10,956,249
Foreign........................................................... 596,516 542,000 410,894
State............................................................. 1,450,732 1,193,331 1,072,741
------------- ------------- -------------
Total current................................................... 15,919,050 11,681,045 12,439,884
------------- ------------- -------------
Deferred:
Federal and state................................................. (1,043,058) 5,011 (2,278,490)
Foreign........................................................... (3,649) 0 (4,146)
------------- ------------- -------------
Deferred, net....................................................... (1,046,707) 5,011 (2,282,636)
------------- ------------- -------------
Tax provision, net.................................................. $ 14,872,343 $ 11,686,056 $ 10,157,248
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Income (loss) from foreign subsidiaries was approximately $825,000,
$(201,000), and $1,410,000 for the years ended November 2, 1996, October 28,
1995, and October 29, 1994, respectively.
F-15
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
5. INCOME TAXES (CONTINUED)
The income tax provision as of November 2, 1996, October 28, 1995, and
October 29, 1994 differs from the amount computed by applying the statutory
rates for U.S. federal income taxes to income before income taxes because of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Income tax computed at statutory rates.......... $ 14,018,446 $ 9,988,188 $ 8,947,726
Foreign tax impact.............................. 317,070 (119,078) (86,608)
Tax-exempt interest income...................... (1,372,866) (700,359) (286,294)
State income taxes, net of federal income tax
effect........................................ 942,976 775,665 562,360
Goodwill amortization........................... 1,296,524 1,307,024 1,321,381
Other........................................... (329,807) 434,616 (301,317)
------------- ------------- -------------
$ 14,872,343 $ 11,686,056 $ 10,157,248
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
U.S. income taxes have not been provided for the undistributed earnings of
foreign subsidiaries. These amounts will be offset largely by foreign tax
credits which will arise when this income is recognized for U.S. income tax
purposes.
6. BENEFIT PLANS
PENSION PLANS
BBC has several defined benefit pension plans and a defined contribution
plan covering substantially all domestic employees and a defined contribution
plan for Canadian employees. Total pension expenses amounted to $3,857,044,
$3,399,151, and $2,785,030 for the years ended November 2, 1996, October 28,
1995, and October 29, 1994, respectively.
The board of directors adopted a supplemental excess retirement plan
effective January 1, 1991. This plan is restricted to certain key executives, is
not qualified under the Employee Retirement Income Security Act of 1974
("ERISA"), as amended, and is unfunded.
The board of directors adopted a supplemental excess retirement plan in the
form of a rabbi trust (a grantor trust set up to fund deferred compensation for
certain individuals as allowed under the Internal Revenue Code) effective
November 1, 1995. This plan is restricted to certain executives, is not
qualified under ERISA, and is not funded.
BBC's funding policy is to contribute the net periodic pension cost accrued
each year to the U.S. salaried and hourly defined benefit plans. However, the
contribution will not be less than the minimum required contribution under ERISA
or greater than the maximum tax-deductible contribution.
F-16
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
6. BENEFIT PLANS (CONTINUED)
Net pension cost for the U.S. defined benefit plans includes the following
as of November 2, 1996, October 28, 1995, and October 29, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Service costs/benefits earned during the period................. $ 1,860,568 $ 1,337,279 $ 1,246,107
Interest costs on projected benefit obligations................. 3,486,859 3,320,053 3,025,245
Return on plan assets........................................... (8,793,737) (8,189,694) (1,069,849)
Net amortization and deferral................................... 5,377,327 5,453,920 (1,630,964)
------------- ------------- -------------
Net periodic pension costs...................................... $ 1,931,017 $ 1,921,558 $ 1,570,539
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The following table sets forth these plans' funded status at November 2,
1996:
<TABLE>
<CAPTION>
DEFINED
BENEFIT
PENSION UNQUALIFIED RABBI
PLANS PLAN TRUST
-------------- ------------- -----------
<S> <C> <C> <C>
Pension benefit obligation:
Vested benefits................................................. $ (39,873,315) $ (2,644,567) $ (200,000)
Nonvested benefits.............................................. (901,310) 0 0
-------------- ------------- -----------
Accumulated benefit obligation.................................... $ (40,774,625) $ (2,644,567) $ (200,000)
-------------- ------------- -----------
-------------- ------------- -----------
Projected benefit obligation...................................... $ (46,968,270) $ (2,644,567) $ (200,000)
Market value of plan assets....................................... 51,367,964 0 0
-------------- ------------- -----------
Overfunded (unfunded) projected benefit obligation................ 4,399,694 (2,644,567) (200,000)
Unrecognized net gain............................................. (9,189,120) 0 0
Unrecognized prior service costs.................................. 22,639 0 0
Other adjustment.................................................. (12,672) 0 0
-------------- ------------- -----------
Pension liability recognized in balance sheets.................... $ (4,779,459) $ (2,644,567) $ (200,000)
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
Assets of the salaried and hourly plans are invested primarily in U.S.
government securities, common stock funds, cash management funds, and insurance
company group annuity contracts. For 1996 and 1995, the discount rate and
expected long-term rate of return on assets were both approximately 8%. The
expected average rate of increase in future compensation levels used was 4.8%
and 5% for 1996 and 1995, respectively.
The 401(k) plan for domestic employees and the pension plan covering
Canadian employees are defined contribution plans. Such actuarial information as
presented above is not applicable to these plans. Total expenses under such
plans for the years ended November 2, 1996, October 28, 1995, and October 29,
1994 amounted to $1,926,026, $1,477,593, and $1,214,491, respectively.
POSTRETIREMENT BENEFITS
The Predecessor discontinued its postretirement health care and dental
benefits in 1991. Coverage was available and will continue only for employees
over age 55 who had elected early retirement and are currently entitled to such
benefits, which are subject to certain limitations. BBC has recorded a liability
of
F-17
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
6. BENEFIT PLANS (CONTINUED)
approximately $800,000 at November 2, 1996 and October 28, 1995, which
represents management's best estimate of expected future benefits.
MEDICAL, DENTAL, AND ACCIDENT AND SICKNESS BENEFITS
BBC provides and is partially self-insured for medical, dental, and accident
and sickness benefits. BBC maintains a voluntary employee benefit association
trust through which all cash used to pay claims is processed. The trust is fully
funded at year-end to cover incurred but not reported claims. Therefore, neither
the trust's assets nor the liability for claims is reported in the accompanying
balance sheets.
7. DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT BENEFITS
At November 2, 1996 and October 28, 1995, the accompanying financial
statements reflect liabilities for anticipated payment of deferred compensation
and supplemental retirement benefits described above in the amounts of
$1,077,086 and $1,157,435, respectively.
8. REDEEMABLE COMMON STOCK AND STOCK SUBSCRIPTIONS RECEIVABLE
Redeemable common stock represents shares of common stock purchased by
members of management ("Management Investors"), primarily in conjunction with
the acquisition. The Management Investors have the right, prior to the earlier
of an initial public offering of equity securities or the tenth anniversary of
the stockholders' agreement, to put these shares to BBC in the event of their
disability, involuntary termination not for cause, retirement (all as defined in
the stockholders' agreement), or death for a fair value price, as defined in the
stockholders' agreement. The redeemable common stock was recorded at fair value
on the date of issuance. The excess of the fair value price over the original
fair value is being accreted by periodic charges to retained earnings. The
amounts recorded in the balance sheets represent the estimated maximum amount
payable if all management investors met the specified criteria and exercised
their put rights.
Stock subscriptions receivable represent notes due from members of
management for stock issued in April 1992 in conjunction with the acquisition.
The notes bear interest at an 8% interest rate. Interest is payable annually.
9. DIVIDENDS DECLARED
No dividends were declared for the years ended November 2, 1996, October 28,
1995, and October 29, 1994.
10. LEASES
BBC has no capitalized leases in which it is the lessee. Rental expenses for
operating leases were approximately $1,194,880, $1,625,000, and $1,562,000 for
the years ended November 2, 1996, October 28, 1995, and October 29, 1994,
respectively. Operating leases relate primarily to computer equipment and
F-18
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
10. LEASES (CONTINUED)
software, office space, and miscellaneous office equipment. The future minimum
lease payments under operating leases by fiscal year as of November 2, 1996 are
approximately as follows:
<TABLE>
<S> <C>
1997............................................................ $ 619,602
1998............................................................ 606,675
1999............................................................ 484,841
2000............................................................ 48,880
2001 and thereafter............................................. 0
---------
$1,759,998
---------
---------
</TABLE>
11. CONTINGENCIES
As of November 2, 1996, BBC had a number of product liability and other
cases pending. At the date of this report, neither the outcome of the cases nor
the amounts of any company liabilities related to these cases are known.
Management believes that, considering BBC's insurance coverage and its intention
to vigorously defend its position, the ultimate resolution of these matters will
not have a material adverse impact on BBC's financial position or results of
operations.
12. MANAGEMENT STOCK OPTION PLAN
Effective April 15, 1992, BBC's board of directors adopted a nonqualified
management stock option plan (the "Plan") which provided for the granting of
options to key employees of BBC to purchase up to 850,000 shares of common
stock. Pursuant to the Plan, on April 15, 1992, key employees were granted
options (the "Vested Options") to purchase an aggregate of 400,000 shares of
common stock at an exercise price equal to $10 per share (the fair value of the
stock at the grant date, as determined by the board of directors). The Vested
Options were fully vested at the time of grant. Additionally, on April 15, 1992,
key employees were granted options (the "Performance Options") to purchase an
aggregate of 400,000 shares at an exercise price equal to $10 per share. The
Performance Options vest ratably over the next five years based on BBC's
achieving certain levels of earnings performance, as defined in the Plan, and in
any case ten years from the date of grant. During the year ended October 30,
1993, options for 70,000 shares were canceled and options for 10,000 shares were
issued. As of November 2, 1996 and October 28, 1995, 720,000 options to purchase
shares were outstanding.
13. SUBSEQUENT EVENT
In November 1996, the Company effected a recapitalization, pursuant to which
the Company refinanced approximately $90,000,000 of its indebtedness and paid a
special cash dividend of $201,400,000 on all shares of its common stock (the
"Recapitalization"). Holders of the Company's options received cash payments on
an as-exercised basis. They were not required to exercise their options to
receive their PRO RATA portions of the dividend distribution discussed above,
nor were they entitled to any antidilution adjustment to the exercise price for
their options.
As part of the Recapitalization, holders of $50,000,000 of the Company's
outstanding 11.75% Series B subordinated notes (the "Old Notes") agreed to sell
their Old Notes to the Company and consented to certain amendments to the
indenture governing the Old Notes for aggregate payments (including accrued
F-19
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
13. SUBSEQUENT EVENT (CONTINUED)
interest) of approximately $54,000,000. The Company's existing Bank Credit
Agreement has been replaced and refinanced by an amended credit agreement (the
"New Credit Agreement") which will provide for aggregate availability of
$255,000,000, including $175,000,000 of term loan facilities and $480,000,000 of
revolving credit facilities.
In addition to the New Credit Agreement, the Company sold $100,000,000 of
10.75% senior subordinated notes due November 15, 2006 (the "Offering").
Proceeds from the Offering, borrowings under the New Credit Agreement, and cash
on hand were used to fund the retirement of the Old Notes, the refinancing of
the Bank Credit Agreement, the payment of the dividend distribution discussed
above, and the payment of related fees and expenses.
As a result of the Recapitalization, the redeemable common stock accretion
(as discussed in Note 8) will result in a significantly lower value being
assigned to the redeemable common stock. Additionally, as part of the
Recapitalization, management will be required to repay the stock subscriptions
receivable with the proceeds from the distribution. The Recapitalization will
also result in a compensation charge to earnings of approximately $16,000,000 in
fiscal 1997.
F-20
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
10 3/4% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B
[LOGO]
FOR ANY AND ALL OF THE OUTSTANDING
10 3/4% SENIOR SUBORDINATED NOTES DUE 2006
OF
BLUE BIRD BODY COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON JANUARY 14, 1997, UNLESS EXTENDED.
Blue Bird Body Company, a Georgia corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange an aggregate of up to $100,000,000 principal amount of 10 3/4% Senior
Subordinated Notes due 2006, Series B (the "Exchange Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement of which this Prospectus forms a part, for
an identical face amount of the issued and outstanding 10 3/4% Senior
Subordinated Notes due 2006 (the "144A Notes" and, together with the Exchange
Notes, the "Notes") of the Company from the Holders (as defined herein) thereof
in integral multiples of $1,000. As of the date of this Prospectus, there are
$100,000,000 aggregate principal amount of the 144A Notes outstanding. The terms
of the Exchange Notes are identical in all material respects to the 144A Notes,
except that the Exchange Notes have been registered under the Securities Act,
and therefore will not bear legends restricting their transfer and will not
contain certain provisions providing for an increase in the interest rate
payable on the 144A Notes under certain circumstances relating to the
Registration Rights Agreement (as defined herein), which provisions will
terminate as to all of the Notes upon the consummation of the Exchange Offer.
The Exchange Notes will be obligations of the Company evidencing the same
indebtedness as the 144A Notes, and will be entitled to the benefits of the same
indenture. See "The Exchange Offer."
Interest on the Exchange Notes will be payable semi-annually in arrears on
May 15 and November 15 of each year, commencing May 15, 1997. The Exchange Notes
will be redeemable at the option of the Company, in whole or in part, at any
time on or after November 15, 2001, at the redemption prices set forth herein,
together with accrued and unpaid interest to the date of redemption. In
addition, on or prior to November 15, 1999, the Company may redeem up to 25% of
the originally issued Exchange Notes, at a price of 110.75% of the principal
amount thereof, together with accrued and unpaid interest to the redemption
date, with the net proceeds of a Public Equity Offering (as defined herein),
PROVIDED that not less than $75 million in principal amount of Exchange Notes is
outstanding immediately after giving effect to such redemption. Upon the
occurrence of a Change of Control Triggering Event (as defined herein), each
holder of Exchange Notes will, subject to the limitations described herein, have
the right to require the Company to purchase all or a portion of such holder's
Exchange Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase. See
"Description of the Exchange Notes."
The Exchange Notes will represent unsecured senior subordinated obligations
of the Company and will be subordinated in right of payment to all existing and
future Senior Indebtedness (as defined herein) of the Company. The Exchange
Notes will be guaranteed (the "BBC Guarantee") on an unsecured senior
subordinated basis by Blue Bird Corporation ("BBC"), which owns all of the
capital stock of the Company. As of September 28, 1996, on a PRO FORMA basis
after giving effect to the Recapitalization (as defined herein), the Company
would have had approximately $181.3 million of Senior Indebtedness outstanding.
In addition, at September 28, 1996, after giving effect to the Recapitalization,
the aggregate amount of indebtedness and other liabilities of subsidiaries of
the Company to which holders of Notes are structurally subordinated would have
been approximately $63 million (which were composed principally of liabilities
of the Company's special purpose lease financing subsidiary).
(COVER TEXT CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS," BEGINNING ON PAGE 13, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 12, 1996.
UNTIL MARCH 12, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
<PAGE>
The Company will accept for exchange any and all validly tendered 144A Notes
on or prior to the Expiration Date (as defined herein). Tenders of 144A Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date; otherwise such tenders are irrevocable. The Exchange Offer is
not conditioned upon any minimum principal amount of 144A Notes being tendered
for exchange. For certain conditions to the Exchange Offer, see "The Exchange
Offer--Conditions."
The 144A Notes were issued and sold on November 19, 1996 in a transaction
not registered under the Securities Act in reliance upon the exemption provided
in Section 4(2) of the Securities Act. In general, the 144A Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. The
Company has agreed to pay the expenses of the Exchange Offer. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for 144A Notes may be offered for resale, resold or otherwise
transferred by any Holder thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, PROVIDED that such Exchange Notes are acquired
in the ordinary course of such Holder's business and such Holder does not intend
to participate and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. In some cases, certain
broker-dealers may be required to deliver a prospectus in connection with the
resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such 144A Notes where such 144A Notes were acquired by
such broker-dealer for its own account as a result of market-making activities
or other trading activities (other than 144A Notes acquired directly from the
Company). The Company has agreed that, for a period of 180 days after the date
of this Prospectus, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale.
Prior to this Exchange Offer, there has been no public market for the 144A
Notes or Exchange Notes. If a market for the Exchange Notes should develop, the
Exchange Notes could trade at a discount from their principal amount. The
Company does not intend to list the Exchange Notes on any securities exchange
nor does the Company intend to apply for quotation of the Exchange Notes through
the NASDAQ System. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") has indicated to the Company that it intends to make a market in the
Notes, but is not obligated to do so and such market-making activities may be
discontinued at any time. As a result, no assurance can be given that an active
trading market for the Exchange Notes will develop. If Merrill Lynch conducts
any market-making activities, it may be required to deliver a "market-making
prospectus" when effecting offers and sales in the Exchange Notes.
The Exchange Notes issued pursuant to this Exchange Offer will be issued in
the form of Global Exchange Notes (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depository" or "DTC")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Exchange Notes representing the Exchange Notes will be
shown on, and transfers thereof will be effected through, records maintained by
the DTC and its participants. Notwithstanding the foregoing, 144A Notes held in
certificated form will be exchanged solely for Certificated Exchange Notes (as
defined herein). After the initial issuance of the Global Exchange Notes,
Certificated Exchange Notes will be issued in exchange for the Global Exchange
Notes only on the terms set forth in the Indenture (as defined herein). See
"Description of the Exchange Notes" and "Book-Entry, Delivery and Form."
2
<PAGE>
AVAILABLE INFORMATION
The Company and BBC have jointly filed with the Commission a Registration
Statement on Form S-4 (together with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement" or "Exchange Offer
Registration Statement") under the Securities Act with respect to the Exchange
Notes being offered hereby and the related BBC Guarantee. This Prospectus, which
forms a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement. For further information
with respect to the Company, BBC, the Exchange Notes and the related BBC
Guarantee offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. Copies of the Registration Statement may be examined without
charge at the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the web site maintained by the
Commission (http://www.sec.gov.) and at the Commission's Regional Offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any portion of the Registration Statement can be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
Pursuant to a contractual obligation to the purchasers of the Old Notes (as
defined herein), the Company was, prior to November 19, 1996, subject to certain
of the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, filed periodic
reports and other information with the Commission.
The Company is not currently subject to the informational requirements of
the Exchange Act. Upon completion of the Exchange Offer, the Company will be
subject to the informational requirements of the Exchange Act, and, in
accordance therewith, will file periodic reports and other information with the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of any
material so filed, in addition to periodic reports and other information
previously filed with the Commission pursuant to the above-described contractual
obligation of the Company, can be obtained from the Public Reference Section of
the Commission, upon payment of certain fees prescribed by the Commission.
In addition, pursuant to the Indenture covering the Notes, the Company has
agreed to file with the Commission, and provide to the Holders, the annual
reports and the information, documents and other reports otherwise required
pursuant to Section 13 of the Exchange Act. Such requirements may be satisfied
through the filing and provision of such documents and reports which would
otherwise be required pursuant to Section 13 of the Exchange Act in respect of
the Company.
UNTIL MARCH 12, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3
<PAGE>
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS
PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST
SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER
THE HEADING "RISK FACTORS," BEGINNING ON PAGE 13 OF THIS PROSPECTUS, AND HOLDERS
OF 144A NOTES ARE URGED TO CAREFULLY CONSIDER SUCH FACTORS.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO THE
"COMPANY" OR "BLUE BIRD" REFER TO BLUE BIRD BODY COMPANY AND ITS SUBSIDIARIES
AND REFERENCES TO "BBC" REFER TO BLUE BIRD CORPORATION, WHICH OWNS ALL OF THE
COMMON STOCK OF THE COMPANY. AS USED HEREIN, THE "FISCAL YEAR" OF THE COMPANY IS
THE 52- OR 53-WEEK PERIOD ENDING ON THE SATURDAY NEAREST OCTOBER 31 OF SUCH
YEAR. UNLESS OTHERWISE INDICATED, ANNUAL MARKET SHARE AND OTHER DATA INCLUDED
HEREIN REFER TO THE APPLICABLE FISCAL YEAR OF THE COMPANY.
THE COMPANY
The Company is the leading manufacturer of school buses in North America.
Approximately 79% of the Company's net sales in fiscal 1995 were derived from
sales of school bus products. The Company also manufactures the Q-Bus and
Commercial Shuttle ("CS"), which target purchasers of medium-sized buses for
commercial uses, and two luxury recreational vehicle ("RV") models, the
Wanderlodge and the Blue Bird Motor Coach ("BMC"). Commercial and recreational
vehicles accounted for approximately 14% and 7%, respectively, of the Company's
fiscal 1995 net sales. The Company manufactures both quality steel bus bodies
for mounting on chassis manufactured by third parties and complete bus units
(body and chassis). Chassis generally consist of frames with engines,
transmissions, drive trains, axles, wheels, power steering, brakes and fuel
cells. The Company markets its products primarily through a network of
approximately 63 independent distributors, which resell the products to
customers, including municipalities, states, transportation contracting
companies, churches and other independent organizations. Through its special
purpose lease financing subsidiary, Blue Bird Capital Corporation ("Blue Bird
Capital"), the Company provides lease financing alternatives, principally to
tax-exempt customers of its school bus products. Management believes that
providing a variety of alternative leasing packages to its customers creates a
significant competitive advantage for the Company. For the 12-month period ended
July 27, 1996, the Company had $544.1 million in net sales and $61.1 million in
EBITDA (as defined herein).
Purchasers of school buses are categorized into two ownership groups: (i)
public (consisting of states and school districts); and (ii) private (consisting
of independent transportation contracting companies and other private entities).
In the United States, approximately 78% of the estimated 410,000 school buses
currently in operation are publicly owned, with the remainder being privately
owned. Management estimates that deliveries of school buses in North America in
fiscal 1995 totaled approximately 30,600 units. In addition, management
estimates that the market demand for the types of school bus and commercial bus
products that the Company manufactures and sells to countries outside of North
America totaled approximately 3,500 units in fiscal 1995. In fiscal 1995, the
Company sold 12,250 school bus units and estimates that it had approximately 40%
market share in the $1.3 billion North American market for school buses.
The Company's business strategy is to continue to utilize its leading market
position in the school bus market as a platform from which to expand its product
offerings. The Company will continue to focus on its core school bus business,
while seeking to expand its commercial bus product offerings to various markets,
including the shuttle bus market, the smaller urban bus market and the "line
haul" or inter-city coach market. Within the school bus market, the Company will
continue to emphasize sales to distributors, as opposed to states and large
transportation contracting companies, reflecting its belief that the former
market provides greater growth and profit opportunities. The Company will also
seek to expand its international bus sales, particularly in developing
countries.
THE RECAPITALIZATION
On November 19, 1996, the Company completed an overall recapitalization
pursuant to which the Company refinanced approximately $90 million (as of
September 28, 1996) of its indebtedness and paid a
5
<PAGE>
special cash dividend to BBC of $201.4 million (the "Blue Bird Dividend") on all
shares of its common stock, $.10 par value per share ("Blue Bird Common Stock").
Immediately after the declaration of the Blue Bird Dividend, the Board of
Directors of BBC declared a special cash dividend and made payments in the
aggregate amount of $201.4 million on all shares of its common stock, $.01 par
value per share ("BBC Common Stock") and in respect of options to purchase BBC
Common Stock (collectively, the "BBC Distribution" and, together with the Blue
Bird Dividend, the "Distribution"). Holders of BBC options received cash
payments and were not required to exercise their options to receive their PRO
RATA portion of the BBC Distribution, nor were they entitled to any antidilution
adjustment to the exercise price for their options.
As part of the Recapitalization, holders of $50 million aggregate principal
amount (or 100%) of the Company's then outstanding 11 3/4% Senior Subordinated
Notes due 2002, Series B (the "Old Notes") ("Selling Holders") sold their Old
Notes to the Company for aggregate payments (including accrued interest) of
approximately $56.1 million. The Company's then-existing bank credit agreement
(the "Old Credit Agreement"), under which $40 million of indebtedness was
outstanding at September 28, 1996, was replaced and refinanced by an amended and
restated credit agreement (the "New Credit Agreement"), which provides for,
among other things, aggregate availability of $255 million, including $175
million of Term Facilities (as defined herein) and an $80 million of Revolving
Facility (as defined herein). In addition, the Company offered and sold
$100,000,000 aggregate principal amount of 144A Notes (the "144A Note
Offering"). Proceeds from the 144A Note Offering, borrowings under the New
Credit Agreement and cash on hand were used to fund the retirement of the Old
Notes, the refinancing of the Old Credit Agreement and the Distribution, and to
pay related fees and expenses. The 144A Notes Offering, the retirement of the
Old Notes, the replacement of the Old Credit Agreement with the New Credit
Agreement and the Distribution are collectively referred to herein as the
"Recapitalization." See "The Recapitalization."
The Company's principal executive offices are located at 3920 Arkwright
Road, Macon, Georgia 31210 and its telephone number is (912) 757-7100.
THE 144A NOTE OFFERING
<TABLE>
<S> <C>
The 144A Notes............... The 144A Notes were sold by the Company in the 144A Note
Offering on November 19, 1996, and were subsequently resold
to Qualified Institutional Buyers (as defined herein)
pursuant to Rule 144A under the Securities Act and to
institutional investors that are Accredited Investors (as
defined herein) in a manner exempt from registration under
the Securities Act.
Registration Rights
Agreement.................. In connection with the 144A Note Offering, the Company
entered into the Registration Rights Agreement, which grants
Holders of the 144A Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy such
exchange and registration rights, which generally terminate
upon the consummation of the Exchange Offer.
</TABLE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered........... $100,000,000 aggregate principal amount of its 10 3/4%
Senior Subordinated Notes due 2006, Series B.
The Exchange Offer........... $1,000 principal amount of the Exchange Notes in exchange
for each $1,000 principal amount of 144A Notes. As of the
date hereof,
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
$100,000,000 aggregate principal amount of 144A Notes are
outstanding. The Company will issue the Exchange Notes to
Holders on or promptly after the Expiration Date. The terms
of the Exchange Notes are substantially identical in all
material respects (including principal amount, interest rate
and maturity) to the terms of the 144A Notes for which they
may be exchanged pursuant to the Exchange Offer, except that
the Exchange Notes are freely transferrable by holders
thereof (other than as provided herein), and are not subject
to any covenant regarding registration under the Securities
Act. See "The Exchange Offer." Other than compliance with
applicable federal and state securities laws, including the
requirement that the Registration Statement be declared
effective by the Commission, there are no material federal
or state regulatory requirements to be complied with in
connection with the Exchange Offer.
Interest Payments............ The Exchange Notes will bear interest from November 19,
1996, the date of issuance of the 144A Notes that are
tendered in exchange for the Exchange Notes (or the most
recent Interest Payment Date (as defined herein) to which
interest on such 144A Notes has been paid. Accordingly,
Holders of 144A Notes that are accepted for exchange will
not receive interest on the 144A Notes that is accrued but
unpaid at the time of tender, but such interest will be
payable on the first Interest Payment Date after the
Expiration Date.
Minimum Condition............ The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of 144A Notes being tendered for
exchange.
Expiration Date.............. 5:00 p.m., New York City time, on January 14, 1997 unless
the Exchange Offer is extended, in which case the term
"Expiration Date" means the latest date and time to which
the Exchange Offer is extended.
Exchange Date................ The date of acceptance for exchange of the 144A Notes will
be the first business day following the Expiration Date.
Withdrawal Rights............ Tenders may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. See "The Exchange
Offer-- Withdrawal of Tenders."
Acceptance of 144A Notes and
Delivery of Exchange
Notes...................... The Company will accept for exchange any and all 144A Notes
which are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See "The
Exchange Offer-- Conditions."
Procedures for Tendering 144A
Notes...................... To tender in the Exchange Offer, a Holder must complete,
sign and date the accompanying Letter of Transmittal, or a
facsimile thereof,
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
have the signatures therein guaranteed if required by
instruction 4 of the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with the 144A Notes and any other
required documentation to the Exchange Agent (as defined
herein) at the address set forth herein prior to 5:00 p.m.,
New York City time, on the Expiration Date. See "The
Exchange Offer-- Procedures for Tendering" and "Plan of
Distribution." By executing the Letter of Transmittal, each
Holder will represent to the Company that, among other
things, the Holder or the person receiving such Exchange
Notes, whether or not such person is the Holder, is
acquiring the Exchange Notes in the ordinary course of
business and that neither the Holder nor any such other
person intends to participate or has any arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes. In lieu of physical
delivery of the certificates representing 144A Notes,
tendering Holders may transfer 144A Notes pursuant to the
procedure for book-entry transfer as set forth under "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose 144A Notes are registered in the
name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender in the Exchange Offer
should contact such registered holder promptly and instruct
such registered holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial owner must,
prior to completing and executing the Letter of Transmittal
and delivering the 144A Notes, either make appropriate
arrangements to register ownership of the 144A Notes in such
beneficial owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered
ownership may take considerable time. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures................. Holders of 144A Notes who wish to tender their 144A Notes
and whose 144A Notes are not immediately available or who
cannot deliver their 144A Notes, the Letter of Transmittal
or any other documents required by the Letter of Transmittal
to the Exchange Agent (or comply with the requirements for
book-entry transfer) prior to the Expiration Date must
tender their 144A Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer-- Guaranteed
Delivery Procedures."
Federal Income Tax
Consequences............... The issuance of the Exchange Notes to Holders pursuant to
the terms set forth in this Prospectus will not constitute
an exchange for federal income tax purposes. Consequently,
no gain or loss would be recognized by Holders upon receipt
of the Exchange Notes. See "Certain U.S. Federal Income Tax
Consequences."
Use of Proceeds.............. There will be no proceeds to the Company from the exchange
of 144A Notes pursuant to the Exchange Offer.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Exchange Agent............... The Chase Manhattan Bank is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange Offer. See
"The Exchange Offer--Exchange Agent."
</TABLE>
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the 144A Notes (which they replace) except that (i) the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) the holders of Exchange Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the 144A Notes and will be entitled to the benefits of the Indenture. See
"Description of the Exchange Notes."
<TABLE>
<S> <C>
Securities Offered........... $100,000,000 aggregate principal amount of 10 3/4% Senior
Subordinated Notes due 2006, Series B.
Maturity Date................ November 15, 2006.
Interest Payment Dates....... Interest on the Exchange Notes will be payable semi-annually
in arrears on May 15 and November 15 of each year,
commencing May 15, 1997.
Optional Redemption.......... The Exchange Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
November 15, 2001, at the redemption prices set forth
herein, together with accrued and unpaid interest, if any,
to the date of redemption. See "Description of the Exchange
Notes--Optional Redemption."
In addition, on or prior to November 15, 1999, the Company
may redeem up to 25% of the originally issued Notes, at a
price of 110.75% of the principal amount thereof, together
with accrued and unpaid interest to the redemption date,
with the net proceeds of a Public Equity Offering; PROVIDED
that not less than $75 million in principal amount of Notes
is outstanding immediately after giving effect to such
redemption.
Change of Control Triggering
Event...................... Upon the occurrence of a Change of Control Triggering Event,
each holder of Exchange Notes will have the right to require
the Company to purchase all or a portion of such holder's
Exchange Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of purchase. See "Description of
the Exchange Notes--Change of Control Triggering Event."
Ranking...................... The Exchange Notes will represent unsecured senior
subordinated obligations of the Company and will be
subordinated in right of payment to all existing and future
Senior Indebtedness of the Company. As of September 28,
1996, on a PRO FORMA basis, after giving effect to the
Recapitalization, the Company would have had approximately
$181.3 million of Senior Indebtedness. In addition, at
September 28, 1996 after giving effect to the
Recapitalization, the aggregate amount of indebtedness and
other liabilities of subsidiaries of the Company to
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
which Holders of Notes are structurally subordinated would
have been approximately $63 million (which was composed
principally of liabilities of the Company's special purpose
lease financing subsidiary).
Exchange Note Guarantee...... The Exchange Notes will be guaranteed on an unsecured senior
subordinated basis by BBC, which owns all of the outstanding
capital stock of the Company.
Certain Covenants............ The Indenture pursuant to which the 144A Notes were issued
and the Exchange Notes will be issued contains certain
covenants, including, among others, covenants with respect
to the following matters: (i) limitation on indebtedness;
(ii) limitation on restricted payments; (iii) limitation on
certain transactions with affiliates; (iv) disposition of
proceeds of asset sales; (v) limitation on liens; (vi)
limitation on other senior subordinated indebtedness; (vii)
limitation of guarantees by subsidiaries; and (ix)
limitation on dividends and other payment restrictions
affecting subsidiaries. See "Description of the Exchange
Notes--Certain Covenants."
Exchange Offer; Registration
Rights..................... In the event that applicable law or interpretations of the
staff of the Commission do not permit the Company to effect
the Exchange Offer, or if certain Holders of the 144A Notes
are not permitted to participate in, or do not receive the
benefit of, the Exchange Offer, the Registration Rights
Agreement provides that the Company and the Guarantor (as
defined herein) will use all reasonable efforts to cause to
become effective a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of the
144A Notes and to keep such Shelf Registration Statement
effective until three years after the Issue Date (as defined
herein) or such shorter period ending when all the 144A
Notes have been sold thereunder. The interest rate on the
144A Notes is subject to increase under certain
circumstances if the Company and the Guarantor are not in
compliance with their obligations under the Registration
Rights Agreement. See "Exchange Offer; Registration Rights."
Absence of a Public Market
for the Notes.............. The Exchange Notes will be new securities for which there is
currently no established trading market. Although Merrill
Lynch has informed the Company that they currently intend to
make a market in the Exchange Notes, they are not obligated
to do so and any such market-making may be discontinued at
any time without notice, at their sole discretion.
Accordingly, there can be no assurance as to the development
or the liquidity of any market for the Exchange Notes. The
Company does not intend to apply for listing of the Exchange
Notes on any securities exchange or for quotation through
the NASDAQ National Market or any other quotation system.
</TABLE>
RISK FACTORS
See "Risk Factors" beginning on page 13 for a discussion of certain factors
which should be considered by participants in the Exchange Offer.
10
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is certain summary historical consolidated financial
information for BBC as of and for the fiscal years 1995, 1994 and 1993 and as of
and for the nine months ended July 27, 1996 and July 29, 1995. The summary
historical consolidated financial information of BBC and subsidiaries as of and
for the full fiscal years indicated were derived from the financial statements
of BBC and its subsidiaries which were audited by Arthur Andersen LLP,
independent accountants ("Arthur Andersen"). The data for the nine months ended
July 27, 1996 and July 29, 1995 and the historical balance sheet data as of
September 28, 1996 are unaudited but, in the opinion of BBC's management,
reflect all adjustments necessary for a fair presentation of the results of
operations for such periods. The PRO FORMA information is unaudited. The results
for the nine months ended July 27, 1996 may not be indicative of the results to
be expected for the year ending November 2, 1996 because, among other things,
Blue Bird's business is seasonal, with the majority of sales occurring in the
third and fourth quarters. The PRO FORMA other financial data and ratios are
based on the summary historical consolidated financial information for BBC,
adjusted to give effect to the Recapitalization as if it occurred on October 29,
1994. The PRO FORMA balance sheet data is based on the summary historical
consolidated financial information for BBC, adjusted to give effect to the
Recapitalization as if it occurred on September 28, 1996. The summary historical
financial information set forth below should be read in conjunction with the
consolidated financial statements of BBC and the notes thereto included
elsewhere in this Prospectus, see "Index to Consolidated Financial Statements,"
as well as "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C>
JULY 27, JULY 29, OCTOBER 28, OCTOBER 29, OCTOBER 30,
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................................... $ 346.1 $ 319.5 $ 517.4 $ 476.2 $ 413.5
Cost of goods sold............................ 287.4 264.1 430.6 392.9 340.5
----------- ----------- ----------- ----------- -----------
Gross profit.................................. 58.7 55.4 86.8 83.3 73.0
Selling, general and administrative expenses.. 31.5 29.5 39.8 39.0 36.3
Amortization of goodwill and noncompete
agreements.................................. 2.8 3.7 4.7 5.6 5.6
----------- ----------- ----------- ----------- -----------
Operating income.............................. 24.4 22.2 42.3 38.7 31.1
Interest income............................... 5.3 3.0 4.6 4.1 2.9
Interest expense.............................. (12.8) (14.0) (18.5) (17.4) (18.2)
Other income, net............................. .5 .4 .1 .2 .7
----------- ----------- ----------- ----------- -----------
Income before income taxes.................... 17.4 11.6 28.5 25.6 16.5
Provision for income taxes.................... 6.8 4.9 11.6 10.2 6.9
----------- ----------- ----------- ----------- -----------
Net income before extraordinary item.......... $ 10.6 $ 6.7 $ 16.9 $ 15.4 $ 9.6
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(a)..................................... $ 37.1 $ 33.3 $ 57.3 $ 54.2 $ 46.4
Adjusted EBITDA (b)........................... 33.4 31.4 54.4 51.5 44.6
Capital expenditures.......................... 2.6 2.8 3.6 8.6 1.1
Ratio of Adjusted EBITDA to Adjusted Cash
Interest Expense (b)........................ 4.2x 3.1x 4.1x 3.9x 3.1x
Pro forma ratio of Adjusted EBITDA to Adjusted
Cash Interest Expense (b)(c)................ 1.5x 1.9x
Ratio of earnings to fixed charges(d)......... 2.2x 1.6x 2.5x 2.4x 1.9x
Pro forma deficiency of earnings to fixed
charges(c)(d)(e)............................ -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 28, 1996
------------------------
<S> <C> <C> <C> <C> <C>
HISTORICAL PRO FORMA
----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 65.8 $ 59.6(f)
Total assets............................................. 395.4 385.3(g)
Total long-term debt, excluding current maturities....... 119.9 308.8(h)
Redeemable common stock, net............................. 20.4 11.5(i)
Stockholders' equity (deficit)........................... 123.1 (56.0)(j)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
11
<PAGE>
- --------------------------
(a) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of income before income taxes plus interest expense
(including amortization of debt issue costs), depreciation and amortization.
EBITDA is presented here to provide additional information about the
Company's ability to meet its future debt service, capital expenditure and
working capital requirements. EBITDA is not a measure of financial
performance under generally accepted accounting principles ("GAAP") and
should not be considered as an alternative either to net income as an
indicator of the Company's operating performance, or to cash flows as a
measure of the Company's liquidity.
(b) Adjusted EBITDA and Adjusted Cash Interest Expense exclude interest income
and interest expense (which includes amortization of debt issue costs),
respectively, associated with the Company's lease financing activities.
These activities have been conducted principally by Blue Bird Capital since
October 1995. The associated interest expense of Blue Bird Capital is
incurred under the LaSalle Credit Facility (as defined herein), which is
recourse only against Blue Bird Capital. Blue Bird Capital will be treated
as an "Unrestricted Subsidiary" under the Indenture. Adjusted Cash Interest
Expense also excludes the amortization of debt issue costs which is included
in interest expense.
(c) Presented on a PRO FORMA basis as though the Recapitalization had occurred
at the beginning of the periods presented. In making the PRO FORMA
calculation of Adjusted EBITDA to Adjusted Cash Interest Expense, the
following additional adjustments have been made: (i) Adjusted EBITDA
excludes the impact of the one-time compensation charge of $16.1 million
related to that portion of the Distribution paid to management optionholders
and is therefore deemed compensation expense and (ii) PRO FORMA Adjusted
Cash Interest Expense excludes the interest expense of $2.9 million related
to the $25 million of Old Notes repaid for the fiscal year ended October 28,
1995. On a PRO FORMA basis, Adjusted Cash Interest Expense would have been
$22.5 million and $28.9 million for the nine months ended July 27, 1996 and
the fiscal year ended October 28, 1995, respectively.
(d) For the purpose of computing the ratios of earnings to fixed charges,
"earnings" consists of operating income before income taxes and fixed
charges, and "fixed charges" consists of interest expense and the portion of
rental expense deemed representative of the interest factor.
(e) On a PRO FORMA basis after giving effect to the Recapitalization for the
nine months ended July 27, 1996 and fiscal year ended October 28, 1995, the
deficiency of the earnings to fixed charges was $12.7 million and $4.8
million, respectively.
(f) Reflects (i) the receipt of gross proceeds from the 144A Note Offering of
($99.7 million), borrowings under the Term Facility of the New Credit
Agreement ($175 million) and borrowings under the Revolving Facility of the
New Credit Agreement ($3.6 million); (ii) the retirement of indebtedness
(including accrued interest) under the Old Credit Agreement ($40 million)
and the Old Notes ($52.7 million); (iii) the payment of fees and expenses
associated with the Recapitalization ($9.1 million) and the costs (including
premium) associated with the retirement and amendment of the Old Notes ($3.4
million); (iv) the payment of the Distribution ($201.4 million); (v) the
proceeds from the repayment of the Management Notes (as defined herein) from
the BBC Distribution to the management shareholders ($3.8 million); and (vi)
the tax benefits associated with the Recapitalization ($14.9 million). At
July 27, 1996, the Company's cash balance was $5.3 million. The cash balance
at September 28, 1996 was $24.5 million and was $43 million immediately
prior to the Recapitalization. See "Capitalization."
(g) Reflects all of the items discussed in footnote (f) above; the write off of
the debt issue costs related to the indebtedness being retired ($1.9
million) and the capitalization of debt issue costs for the 144A Note
Offering and the New Credit Agreement ($9.1 million).
(h) Reflects the incremental borrowings necessary to effect the
Recapitalization.
(i) Redeemable common stock represents 720,000 issued and outstanding shares of
BBC Common Stock purchased by members of management (the "Management
Investors"), primarily in conjunction with the 1992 Acquisition (as defined
herein). The Management Investors have the right, prior to the earlier of an
initial public offering of equity securities of BBC or the tenth anniversary
of the Stockholders' Agreement (as defined herein), to put these shares to
BBC in the event of their disability, involuntary termination not for cause,
retirement (as such terms are defined in the Stockholders' Agreement), or
death for a fair value price (as defined in the Stockholders' Agreement).
The redeemable stock of BBC was recorded at fair value on the date of
issuance. The excess of the fair value price over the original fair value is
being accreted by periodic charges to retained earnings. The amounts
recorded in the balance sheets represent the estimated maximum amount
payable if all Management Investors met the specified criteria and exercised
their put rights.
(j) Reflects (i) the Distribution, net of tax benefit ($188.6 million); (ii)
the adjustment to the fair value of the redeemable common stock ($12.7
million); (iii) the costs associated with the retirement and amendment of
the Old Notes, net of tax benefit ($2 million); and (iv) the write-off of
the debt issue costs related to the indebtedness being retired, net of tax
benefit ($1.2 million).
12
<PAGE>
RISK FACTORS
HOLDERS OF 144A NOTES SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS BEFORE DECIDING
TO TENDER 144A NOTES IN THE EXCHANGE OFFER. THE RISK FACTORS SET FORTH BELOW ARE
GENERALLY APPLICABLE TO THE 144A NOTES AS WELL AS THE EXCHANGE NOTES.
LEVERAGE AND DEBT SERVICE
As a result of the Recapitalization, the Company is highly leveraged. At
September 28, 1996, on a PRO FORMA basis, after giving effect to the
Recapitalization, the aggregate total outstanding indebtedness of the Company
would have been approximately $336.5 million and the stockholders' deficit would
have been $56 million. See "Capitalization." On a PRO FORMA basis after giving
effect to the Recapitalization, for fiscal 1995 and the nine-month period ended
July 27, 1996, the deficiency of the earnings to fixed charges was $4.8 million
and $12.7 million, respectively. Furthermore, at September 28, 1996, after
giving effect to the Recapitalization, the Company had the ability to borrow an
additional $120.9 million under credit facilities to which it or Blue Bird
Capital are parties. The New Credit Agreement provides, among other things, that
the Company is obligated to prepay the lenders thereunder out of its free cash
flow after satisfying certain mutually agreed upon fixed charge obligations. See
"Description of Debt Facilities--Senior Bank Financing." The Company's ability
to make scheduled payments of principal of or interest on, or to refinance, its
indebtedness (including the Notes) depends on its future operating performance,
which to a certain extent is subject to economic, financial, competitive and
other factors beyond its control.
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including: (i) the Company's increased
vulnerability to adverse general economic and industry conditions; (ii) the
Company's ability to obtain additional financing for future working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be limited; (iii) the dedication of a substantial portion of the Company's
cash flow from operations to the payment of principal of and interest on
indebtedness, thereby reducing the funds available for operations and future
business opportunities; and (iv) the Company's increased vulnerability to higher
interest rates as a result of the fact that its borrowings under the New Credit
Agreement are at variable rates of interest. In addition, all of the
indebtedness incurred in connection with the New Credit Agreement matures prior
to the maturity of the Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources."
SUBORDINATION
The payment of principal, premium, if any, and interest on the Exchange
Notes will be subordinated in right of payment to the prior payment in full to
all existing and future Senior Indebtedness of the Company, including
indebtedness incurred under the New Credit Agreement. As of September 28, 1996,
after giving effect to the Recapitalization, the Company would have had
approximately $181.3 million of Senior Indebtedness and the ability (subject to
applicable conditions) to borrow up to an additional $76.4 million of Senior
Indebtedness under the New Credit Agreement. In addition, the claims of holders
of Exchange Notes will be effectively subordinated to the claims of creditors
(including trade creditors) of the Company's subsidiaries. The foreign and lease
finance operations of the Company are conducted primarily through subsidiaries
of the Company. The claims of creditors of such subsidiaries effectively will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of the Company and its creditors, including holders of the Exchange
Notes. At September 28, 1996, after giving effect to the Recapitalization, the
aggregate amount of indebtedness and other liabilities of the Company's
subsidiaries would have been approximately $63 million (which were composed
principally of liabilities of the Company's special purpose lease financing
subsidiary), and the Company's subsidiaries had the ability to borrow an
additional $44.5 million. See "Description of Debt Facilities." In addition, the
Company's Canadian subsidiary, Canadian Blue Bird Coach Ltd. ("Canadian Blue
Bird"), may borrow funds from the Company and issue a senior promissory note
secured by the real and personal property of Canadian Blue
13
<PAGE>
Bird, which would be pledged to the lenders under the New Credit Agreement as
security. In effect, holders of Exchange Notes will also be structurally
subordinated to any claims by the lenders under the New Credit Agreement in
respect of such secured note. Subject to certain restrictions, exceptions and
financial tests set forth in its debt instruments, the Company and its
subsidiaries may also incur additional indebtedness in the future which ranks
prior to claims of holders of the Exchange Notes.
The subordination provisions of the Indenture provide that, upon any payment
or distribution of the Company's assets to creditors upon any dissolution,
winding-up, liquidation, reorganization, bankruptcy, insolvency, receivership or
other proceedings relating to the Company, whether voluntary or involuntary,
holders of the Senior Indebtedness will be entitled first to receive payment in
full of all amounts due thereon before the holders of Exchange Notes will be
entitled to receive any payment with respect to the Exchange Notes. In the event
of any default in the payment in respect of any Senior Indebtedness, no payment
with respect to the Exchange Notes may be made by the Company unless and until
such default has been cured or waived. In addition, upon the occurrence of any
other default entitling the holders of Designated Senior Indebtedness (as
defined herein) to accelerate the maturity thereof and receipt by the trustee
under the Indenture of written notice of such occurrence from such holders, no
payment in respect of the Exchange Notes may be made by the Company for a
maximum of 179 days. See "Description of the Exchange Notes--Subordination."
BBC will guarantee the Exchange Notes on an unsecured senior subordinated
basis. Currently, BBC conducts no business other than holding the capital stock
of the Company and has no significant assets other than the capital stock of the
Company. The BBC Guarantee will be subordinated in right of payment to the
guarantee provided by BBC under the New Credit Agreement. The Indenture contains
no restrictions on the activities of BBC. See "Description of the Exchange
Notes--Note Guarantees." Therefore, there are not expected to be any resources
to support the BBC Guarantee that would be incremental to those to which holders
of the Exchange Notes will already have access as direct creditors of the
Company. Under certain circumstances, subsidiaries of the Company may be
required to guarantee the Exchange Notes, in which case, claims in respect of
such guarantee would be subordinated in right of payment to Guarantor Senior
Indebtedness (as defined in the BBC Guarantee) in the same manner as the
Exchange Notes are subordinated to Senior Indebtedness.
RESTRICTIVE COVENANTS AND ASSET ENCUMBRANCES
The New Credit Agreement contains certain financial and other covenants,
including covenants requiring the Company to maintain certain financial ratios
and restricting the ability of BBC and its subsidiaries to incur indebtedness or
to create or suffer to exist certain liens. The amortization schedule and
mandatory prepayment provisions under the New Credit Agreement also require that
significant portions of indebtedness thereunder be repaid prior to maturity in
2003. The ability of the Company to comply with such provisions may be affected
by events beyond its control. Should the Company be unable to comply with the
financial or other restrictive covenants under the New Credit Agreement at any
time in the future there can be no assurance that the lenders would agree to any
necessary amendments or waivers. In such a case, the failure to obtain
amendments or waivers could have a material adverse effect upon the Company and
its ability to meet its obligations in respect of the Exchange Notes. A failure
to make any required payment under the New Credit Agreement or to comply with
any of the financial and operating covenants included in the New Credit
Agreement could result in an event of default thereunder, permitting the lenders
to accelerate the maturity of the indebtedness under the New Credit Agreement
and to foreclose upon their collateral, and, depending upon the action taken by
such lenders, delaying or precluding payment of principal of, premium, if any,
or interest on the Exchange Notes. Such an acceleration could also result in the
acceleration of the other indebtedness of the Company and its subsidiaries which
contain cross-acceleration or cross-default provisions. See "Description of Debt
Facilities." The Indenture also has certain covenants which, if not complied
with, would result in an Event of
14
<PAGE>
Default (as defined herein) thereunder permitting holders of the Exchange Notes,
under certain circumstances, to accelerate the Exchange Notes. Any such Event of
Default or acceleration could also result in an event of default or acceleration
of other indebtedness of the Company. In addition, the obligations of the
Company under the New Credit Agreement will be secured by substantially all of
the Company's assets. In the event of an event of default under the New Credit
Agreement, the lenders under the New Credit Agreement would be entitled to
exercise the remedies available to a secured lender under applicable law.
Therefore, in addition to being entitled to the benefits of the subordination
provisions contained in the Indenture, the secured lenders will have a prior
claim on the assets of BBC and its subsidiaries securing their indebtedness. If
the lenders under the New Credit Agreement accelerate the maturity of the Senior
Indebtedness thereunder there can be no assurance that the Company will have
sufficient assets to satisfy its obligations under the Exchange Notes. In
addition, other indebtedness of the Company and its subsidiaries that may be
incurred in the future may contain financial or other covenants more restrictive
than those applicable to the New Credit Agreement or the Exchange Notes. See "--
Subordination."
Blue Bird Capital entered into a Loan Agreement, dated October 18, 1995, as
amended and restated on March 29, 1996 (as so amended and restated, the "LaSalle
Credit Agreement") with LaSalle National Bank, as agent for itself and other
lenders ("LaSalle"). Revolving loans under the LaSalle Credit Agreement (the
"LaSalle Credit Facility") are used to finance the lease financing operations of
Blue Bird Capital. The LaSalle Credit Agreement contains financial and other
covenants, including covenants requiring Blue Bird Capital to maintain certain
financial ratios and restricting the ability of Blue Bird Capital to incur
indebtedness or to create or suffer to exist certain liens. The LaSalle Credit
Agreement also requires that certain amounts of indebtedness thereunder be
repaid by specified dates. A failure to make any required payment under the
LaSalle Credit Agreement or to comply with any of the financial and operating
covenants included therein could have a material adverse effect on the Company
and its ability to meet its obligations in respect of the Exchange Notes. See
"Description of Debt Facilities-- LaSalle Credit Agreement," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Leasing."
The Company's indebtedness under the New Credit Agreement will bear interest
at rates that will fluctuate with changes in certain prevailing interest rates
(although such rates may be fixed for limited periods of time). The New Credit
Agreement may require the Company to enter into interest rate protection
arrangements with respect to a portion of the lenders' commitments under each of
the term loan facilities thereunder. The indebtedness of Blue Bird Capital under
the LaSalle Credit Facility also bears interest at rates that will fluctuate
with changes in certain prevailing interest rates (although such rates may be
fixed for limited periods of time). See "Description of Debt Facilities."
PRODUCT LIABILITY CLAIMS AND INSURANCE COVERAGE
The Company is subject to various product liability claims for personal
injuries and other matters allegedly relating to the use of products
manufactured or sold by it. The Company is also subject to recalls of its bus
products from customers to cure manufacturing defects or in the event of a
failure to comply with applicable regulatory standards. In August 1996, the
National Highway Traffic Safety Administration (the "NHTSA") announced its
determination that approximately 11,500 school buses were not in compliance with
federal requirements for fuel systems. Of the affected buses, 11,300 were Blue
Bird Type D (as defined herein) models in which the chassis were manufactured by
the Company, which failed crash tests when fuel tanks were punctured upon
impact. The Company is currently evaluating the scope of the proposed product
recall with the NHTSA as a result of the NHTSA's non-compliance determination.
If all 11,300 buses were to be recalled, management estimates that the cost of
repairs required to be paid by the Company to bring the vehicles into compliance
would not be material. However, manufacturing defects or the failure to comply
with applicable regulatory standards can also serve as the basis for a variety
of claims
15
<PAGE>
from customers of the Company and bus passengers who use the Company's products.
As such, there can be no assurance as to the ultimate outcome of this matter.
Management considers product liability litigation to be in the ordinary
course of its business. The ultimate outcome of the claims, or potential future
claims, against it cannot presently be determined and the amount of the
Company's product liability insurance coverage with respect to such claims
varies from year to year. While the Company believes that any losses and
expenses (including defense costs) resulting from such claims will be within the
applicable insurance coverage and financial statement reserves established to
cover retention liability and defense costs and other related expenses, there
can be no assurance that this will be true or that the amount of losses and
expenses relating to any claim or claims will not have a material adverse effect
on the Company and thereby on the ability of the Company to meet its obligations
in respect of the Notes. While the Company expects to continue to be able to
obtain adequate insurance coverage at acceptable rates, there can be no
certainty that such coverage will ultimately be available to the Company at
acceptable rates or at all, that future rate increases might not make such
insurance uneconomical for the Company to maintain, that current levels of
deductibles will continue to be available, or that the Company's insurers will
be financially viable if and when payment of a claim is required. The inability
of the Company to obtain adequate insurance coverage at acceptable rates is
likely to have a material adverse effect on the Company. In addition, the
running of statutes of limitations for personal injuries to minor children
typically is suspended during the children's legal minority. Therefore, it is
possible that accidents causing injuries to minor children on school buses may
not give rise to lawsuits until a number of years later. See "Business--Legal
Proceedings."
For a discussion of other contingent liabilities, including potential
environmental liabilities, see "Business--Environmental Matters" and note 11 to
the Notes to Audited Consolidated Financial Statements included elsewhere in
this Prospectus.
GOVERNMENTAL REGULATION
The Company's products must satisfy certain standards applicable to vehicles
established by the NHTSA. Certain of its products must also satisfy
specifications established by other federal, state and local regulatory
agencies, primarily dealing with safety standards applicable to school buses.
The cost of compliance with existing regulations results in an incremental cost
of doing business to the Company and the cost of compliance with future
regulations cannot be predicted with any degree of certainty and may
significantly affect the Company's operations. Further, a substantial change in
any such regulation could have a significant impact on the business of the
Company. In addition, the scheduled effectiveness in 1998 of more restrictive
United States Environmental Protection Agency ("EPA") emissions standards may
impact upon the Company's operations. See "--Product Liability Claims and
Insurance Coverage" and "Business--Government Regulation."
LIMITED NUMBER OF CHASSIS SUPPLIERS
In general, buses consist of a body mounted on a chassis, which includes the
bus engine. A substantial portion of the units sold by the Company are Type C
(as defined herein) buses for which the Company does not manufacture a chassis.
The Company offers an "integrated" Type C bus by purchasing a chassis pursuant
to the GM Chassis Agreement (as defined herein) and assembling it with the
Company's Type C bus body. In addition, the Company sells Type C bus bodies for
assembly on non-GM chassis. Because of the importance of the Type C bus to the
Company, obtaining an adequate supply of chassis could thus become critical to
the Company's ability to compete in the school bus market.
There are only three major chassis manufacturers in the United States:
General Motors Corporation ("GM"), Ford Motor Company ("Ford") and Navistar
International Corporation ("Navistar"). Navistar, which accounts for
approximately 60% of the chassis market, recently purchased AmTran of Illinois,
Inc. ("AmTran"), a bus manufacturer that is one of the Company's major
competitors. Since its acquisition of
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AmTran, Navistar has continued to make its chassis available to AmTran's
competitors as well as to school districts and other purchasers who wish to
combine Navistar chassis with other bus bodies, such as those made by the
Company. There can be no assurance that Navistar will continue to make its
chassis available to purchasers other than AmTran.
On May 6, 1991, the Company entered into a chassis supply agreement (the "GM
Chassis Agreement") with GM to secure a steady supply of chassis. This agreement
may be terminated by GM or by the Company upon two years' notice to the other
party. There can be no assurance that GM will not terminate the GM Chassis
Agreement. If the GM Chassis Agreement were to be terminated or if, for any
reason, GM were to (i) cease manufacturing chassis or (ii) cease selling them to
the Company and/or school districts and other customers who combine GM chassis
with Blue Bird bodies, there also can be no assurances that (i) Blue Bird would
be able to purchase sufficient quantities of chassis from Navistar and the
remaining suppliers to fill orders or (ii) school districts or other customers
would continue to order bodies from Blue Bird if such customers cannot be
assured of being able to obtain chassis. If the Company were required to
manufacture more chassis for its own use, it would likely materially effect its
future results of operations and, potentially, its profitability.
FRAUDULENT CONVEYANCE RISKS
The incurrence by the Company of indebtedness, including indebtedness
incurred under the New Credit Agreement and the Notes, the proceeds of which
will be used, in part, to pay the Blue Bird Dividend to fund the BBC Dividend,
is subject to review under relevant federal and state fraudulent conveyance
statutes in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of the Company.
Under these fraudulent conveyance statutes, if a court were to find that, at the
time the Notes were issued, (i) the Company issued the Notes with the intent of
hindering, delaying or defrauding current or future creditors or (ii) (a) the
Company received less than reasonably equivalent value or fair consideration for
issuing the Notes and (b) the Company (1) was insolvent or was rendered
insolvent by reason of the Recapitalization and related transactions, including
the incurrence of the indebtedness related thereto, (2) was engaged in a
business or transaction for which its assets constituted unreasonably small
capital, (3) intended to incur, or believed that it would incur, obligations
beyond its ability to pay as such obligations matured (as the foregoing terms
are defined in or interpreted under the fraudulent conveyance statutes) or (4)
was a defendant in an action for money damages, or had a judgment for money
damages docketed against it (if, in either case, after final judgment the
judgment is unsatisfied), such court could subordinate the Notes to presently
existing and future indebtedness of the Company (in addition to the Senior
Indebtedness to which the Notes are expressly subordinated) or take other action
detrimental to the holders of the Notes, including invalidating the Notes.
In addition, the BBC Guarantee which applies to the Notes, is subject to
review under relevant federal and state fraudulent conveyance statutes. Under
these fraudulent conveyance statutes, if a court were to find that, at the time
the BBC Guarantee was given, (i) BBC guaranteed the Notes with the intent of
hindering, delaying or defrauding current or future creditors or (ii) (a) BBC
received less than reasonably equivalent value or fair consideration for
guaranteeing the Notes, and (b) BBC (1) was insolvent or was rendered insolvent
by reason of such guarantee, (2) was engaged in a business or transaction for
which its assets constituted unreasonably small capital, (3) intended to incur,
or believed that it would incur, obligations beyond its ability to pay as such
obligations matured (as the foregoing terms are defined in or interpreted under
the fraudulent conveyance statutes), or (4) was a defendant in an action for
money damages, or had a judgment for money damages docketed against it (if in
either case, after final judgment the judgment is unsatisfied), such court could
subordinate the claim under the BBC Guarantee to presently existing and future
indebtedness of BBC (in addition to the Guarantor Senior Indebtedness to which
the BBC Guarantee is expressly subordinated) or take other action detrimental to
the holders of the Notes, including invalidating the BBC Guarantee.
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The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law that is being applied in any such proceeding.
Generally, however, Blue Bird or BBC would be considered insolvent if (i) the
sum of their debts, including contingent liabilities, were greater than the fair
saleable value of all of their assets at a fair valuation or if the present fair
market value (or fair saleable value) of their assets were less than the amount
that would be required to pay their probable liability on their existing debts,
including contingent liabilities, as they become absolute or mature or (ii) they
were incurring obligations beyond their ability to pay as such obligations
mature or become due.
BBC believes that at the time of the issuance of the BBC Guarantee and upon
consummation of the Recapitalization, BBC was (i) neither insolvent nor rendered
insolvent thereby, (ii) in possession of sufficient capital to meet its
obligations as the same mature or become due and to operate its business
effectively, and (iii) incurring debts within its ability to pay as the same
mature or become due. Blue Bird believes that upon consummation of the
Recapitalization and upon the issuance of the Notes, Blue Bird will (i) be (a)
neither insolvent nor rendered insolvent thereby, (b) in possession of
sufficient capital to run its business effectively, and (c) incurring debts
within its ability to pay as the same mature or become due and (ii) will have
sufficient assets to satisfy any probable money judgment against it in any
pending action. In reaching these conclusions, BBC and Blue Bird relied upon
various valuations and cash flow estimates which necessarily involve a number of
assumptions, including choices of methodology and assumptions based on economic,
market, financial and other conditions. No assurance can be given, however, that
the assumptions and methodologies chosen by BBC and Blue Bird would be adopted
by a court or that a court would concur with such conclusions as to their
solvency.
CONTROL BY MLCP; CHANGE OF CONTROL
BBC holds all of the capital stock of the Company and, in turn, is owned by
affiliates (the "ML Entities") of Merrill Lynch Capital Partners, Inc. ("MLCP"),
certain directors of BBC and the Company and certain members of management of
the Company, who together acquired the Company in a leveraged buyout transaction
in 1992 (the "1992 Acquisition"). The ML Entities own approximately 91% of the
BBC Common Stock, with certain directors of BBC and the Company and management
of the Company owning the balance. The interests of MLCP as equity holders of
BBC may differ from the interests of holders of Exchange Notes and, as such,
conflicts of interests between the ML Entities and holders of Exchange Notes may
arise. See "Ownership of Capital Stock."
There can also be no assurance that the ML Entities will continue to control
BBC. A "change of control," as defined in various agreements, including the New
Credit Agreement, would impose substantial financial obligations on the Company
and would require the Company to refinance substantial amounts of its
indebtedness. A change of control would be an Event of Default under the New
Credit Agreement, permitting the lenders under the New Credit Agreement to
exercise remedies, and would, under certain additional circumstances, require
the Company to make an offer to purchase all of the outstanding Exchange Notes
under the Indenture. The inability to repay indebtedness under the New Credit
Agreement, if accelerated, or to purchase all of the Exchange Notes, would also
constitute an Event of Default under the Indenture. See "Description of Debt
Facilities" and "Description of the Exchange Notes-- Change of Control
Triggering Event." In addition, a number of the Company's compensation
arrangements may require it to make cash payments following a change of control.
See "Certain Relationships and Related Transactions" and "Management--Executive
Compensation." No assurance can be given that the Company will be able to comply
with all of its obligations under its various agreements in the event of a
change of control or to refinance any of these or other obligations that might
become due by the reason of these provisions. Thus, in the event the Company was
unable to meet its obligations, there may not be any resources available to meet
claims for payment on the Exchange Notes.
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LACK OF PRIOR MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the Holders of the 144A Notes. The
144A Notes were offered and sold in November 1996 to a small number of
"Qualified Institutional Buyers" and "Accredited Investors" (as defined in Rule
144A and Rule 501(a) (1), (2), (3) or (7) under the Securities Act,
respectively) and are eligible for trading in the Private Offerings, Resale and
Trading through Automatic Linkages ("PORTAL") Market.
The Exchange Notes will constitute a new class of securities with no
established trading market. Although the Exchange Notes will generally be
permitted to be resold or otherwise transferred by nonaffiliates of the Company
without compliance with the registration requirements under the Securities Act,
the Company does not intend to apply for a listing of the Exchange Notes on any
securities exchange or to arrange for the Exchange Notes to be quoted on the
NASDAQ National Market or other quotation system. As a result, there can be no
assurance as to the liquidity of markets that may develop for the Exchange
Notes, the ability of the holders of the Exchange Notes to sell their Exchange
Notes or the price at which such holders would be able to sell their Exchange
Notes. If such markets were to exist, the Exchange Notes could trade at prices
that may be lower than the initial market values thereof depending on many
factors, including prevailing interest rates and the markets for similar
securities. Although there is currently no market for the Exchange Notes,
Merrill Lynch has advised the Company that it currently intends to make a market
in the Exchange Notes. However, Merrill Lynch is not obligated to do so, and any
market-making with respect to the Exchange Notes may be discontinued at any time
without notice. In addition, if Merrill Lynch conducts any market-making
activities in respect of the Exchange Notes, it may be required to deliver a
"market-making prospectus" when effecting offers and sales in the Exchange
Notes, because of the equity ownership of affiliates of Merrill Lynch. The ML
Entities in the aggregate hold approximately 91% of the BBC Common Stock. For so
long as a market-making prospectus is required to be delivered, the ability of
Merrill Lynch to make a market in the Exchange Notes may, in part, be dependent
on the ability of the Company to maintain a current market-making prospectus.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes for 144A Notes pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of such 144A Notes,
a properly completed, duly executed Letter of Transmittal and all other required
documents. Therefore, Holders desiring to tender their 144A Notes in exchange
for Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respects to the tenders of 144A Notes for exchange. Any 144A Notes that are not
tendered or are tendered but not accepted will, following the consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, upon consummation of the Exchange Offer, the registration
rights under the Registration Rights Agreement generally will terminate. In
addition, any Holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes for
its own account in exchange for 144A Notes, where such 144A Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "The Exchange Offer."
RESTRICTIONS ON TRANSFER
The 144A Notes were offered and sold by the Company in a private offering
exempt from registration pursuant to the Securities Act and have been resold
pursuant to Rule 144A under the Securities Act and to a limited number of other
institutional Accredited Investors. As a result, the 144A Notes may not be
reoffered or resold by purchasers except pursuant to an effective registration
statement under the
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Securities Act, or pursuant to an applicable exemption from such registration,
and the 144A Notes are legended to restrict transfer as aforesaid. Each Holder
(other than any Holder who is an affiliate or promoter of the Company) who duly
exchanges 144A Notes for Exchange Notes in the Exchange Offer will receive
Exchange Notes that are freely transferable under the Securities Act. Holders
who participate in the Exchange Offer should be aware, however, that if they
accept the Exchange Offer for the purpose of engaging in a distribution, the
Exchange Notes may not be publicly reoffered or resold without complying with
the registration and prospectus delivery requirements of the Securities Act. As
a result, each Holder accepting the Exchange Offer will be deemed to have
represented, by its acceptance of the Exchange Offer, that it acquired the
Exchange Notes in the ordinary course of business and that it is not engaged in,
and does not intend to engage in, a distribution of the Exchange Notes. If
existing Commission interpretations permitting free transferability of the
Exchange Notes following the Exchange Offer are changed prior to consummation of
the Exchange Offer, the Company will use its best efforts to register the 144A
Notes for resale under the Securities Act. See "Prospectus Summary--The Exchange
Offer" and "Exchange Offer; Registration Rights."
The 144A Notes currently may be sold pursuant to the restrictions set forth
in Rule 144A under the Securities Act or pursuant to another available exemption
under the Securities Act without registration under the Securities Act. To the
extent that 144A Notes are tendered and accepted in the Exchange Offer, the
trading market for the untendered and tendered but unaccepted 144A Notes could
be adversely affected.
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THE EXCHANGE OFFER
THE FOLLOWING DISCUSSION SETS FORTH OR SUMMARIZES WHAT THE COMPANY BELIEVES
ARE THE MATERIAL TERMS OF THE EXCHANGE OFFER, INCLUDING THOSE SET FORTH IN THE
LETTERS OF TRANSMITTAL DISTRIBUTED WITH THIS PROSPECTUS. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE DOCUMENTS
UNDERLYING THE EXCHANGE OFFER, COPIES OF WHICH ARE FILED AS EXHIBITS TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART, AND ARE INCORPORATED
BY REFERENCE HEREIN.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of 144A Notes pursuant to the Purchase Agreement
dated November 13, 1996 (the "Purchase Agreement"), between the Company, BBC,
and the purchasers of 144A Notes (the "Buyers"), the Buyers became entitled to
the benefits of a Registration Rights Agreement dated as of November 19, 1996
(the "Registration Rights Agreement").
Under the Registration Rights Agreement, the Company and BBC must use their
best efforts to (a) file a registration statement in connection with a
registered exchange offer within 60 days after November 19, 1996, the date the
144A Notes were issued (the "Issue Date"), (b) cause such registration statement
to become effective under the Securities Act within 120 days of the Issue Date
and (c) cause such registered exchange offer to be consummated within 150 days
after the Issue Date. Within the applicable time periods, the Company and BBC
will endeavor to register under the Securities Act all of the Exchange Notes
pursuant to a registration statement under which the Company will offer each
Holder of 144A Notes the opportunity to exchange any and all of the outstanding
144A Notes held by such Holder for Exchange Notes in an aggregate principal
amount equal to the aggregate principal amount of 144A Notes tendered for
exchange by such Holder. Subject to limited exceptions, the Exchange Offer being
made hereby, if commenced and consummated within such applicable time periods,
will satisfy those requirements under the Registration Rights Agreement. In such
event, the 144A Notes would remain outstanding and would continue to accrue
interest, but would not retain any rights under the Registration Rights
Agreement. Holders of 144A Notes seeking liquidity in their investment would
have to rely on exemptions to registration requirements under the securities
laws, including the Securities Act. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The term "Holder" with respect to the Exchange Offer means
any person in whose name the 144A Notes are registered on the books of the
Company or any other person who has obtained a properly completed bond power
from the registered holder.
Because the Exchange Offer is for any and all 144A Notes, the number of 144A
Notes tendered and exchanged in the Exchange Offer will reduce the principal
amount of 144A Notes outstanding. Following the consummation of the Exchange
Offer, Holders who did not tender their 144A Notes generally will not have any
further registration rights under the Registration Rights Agreement, and such
144A Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such 144A Notes could be adversely
affect. The 144A Notes are currently eligible for sale pursuant to Rule 144A
through the PORTAL System. Because the Company anticipates that most Holders of
144A Notes will elect to exchange such 144A Notes for Exchange Notes due to the
absence of restrictions on the resale of Exchange Notes under the Securities
Act, the Company anticipates that the liquidity of the market for any 144A Notes
remaining after the consummation of the Exchange Offer may be substantially
limited. See "Description of the Exchange Notes--Registration Rights."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all 144A
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
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of Exchange Notes in exchange for each $1,000 principal amount of outstanding
144A Notes accepted in the Exchange Offer. Holders may tender some or all of
their 144A Notes pursuant to the Exchange Offer.
The form and terms of the Exchange Notes are the same as the form and terms
of the 144A Notes except that (i) the Exchange Notes have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the Exchange Notes generally will not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the 144A Notes and will be entitled to the
benefits of the Indenture.
Holders of 144A Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered 144A Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of 144A Notes for the purposes of receiving the Exchange Notes from the Company
and delivering Exchange Notes to such Holders.
If any tendered 144A Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted 144A Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders of 144A Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of 144A Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer shall remain open for acceptance for a period of not less
than 30 days after notice is mailed to Holders (the "Exchange Period"). The
Expiration Date will be 5:00 p.m., New York City time, on January 14, 1997,
unless the Company, in its sole discretion, extends the Exchange Offer, in which
case the Expiration Date will be the latest business day to which the Exchange
Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
Holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. Such
announcement may state that the Company is extending the Exchange Offer for a
specified period of time.
The Company reserves the right (i) to delay accepting any 144A Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept 144A
Notes not previously accepted if any of the conditions set forth under
"--Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the Holders of such
amendment and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to
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publish, advertise, or otherwise communicate any such public announcement, other
than by making a timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from November 19, 1996, payable
semiannually on May 15 and November 15 of each year at the rate of 10 3/4% PER
ANNUM. Accordingly, Holders of 144A Notes that are accepted for exchange will
not receive interest that is accrued but unpaid on the 144A Notes at the time of
tender, but such interest will be payable in respect of the Exchange Notes
delivered in exchange for such 144A Notes on the first Interest Payment Date
after the Expiration Date.
PROCEDURES FOR TENDERING
Only a Holder of 144A Notes may tender such 144A Notes in the Exchange
Offer. To tender in the Exchange Offer, a Holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by instruction 4 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the 144A Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the 144A
Notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the Exchange Agent prior to the Expiration Date.
The tender by a Holder of 144A Notes and the acceptance thereof by the
Company will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF 144A NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR 144A NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH HOLDERS.
Any beneficial holder whose 144A Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such beneficial holder must, prior to completing and
executing the Letter of Transmittal and delivering his 144A Notes, either make
appropriate arrangements to register ownership of the 144A Notes in such
holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution") unless the 144A Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be by an Eligible Institution.
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If the Letter of Transmittal is signed by a person other than the registered
holder of any 144A Notes listed therein, such 144A Notes must be endorsed or
accompanied by appropriate bond powers and a proxy which authorizes such person
to tender the 144A Notes on behalf of the registered holder, in each case signed
as the name of the registered holder or holders appears on the 144A Notes with
the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any 144A Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the 144A
Notes at the DTC for the purpose of facilitating the Exchange Offer, and subject
to the establishment thereof, any financial institution that is a participant in
the DTC may make book-entry delivery of the 144A Notes by causing the DTC to
transfer such 144A Notes into the Exchange Agent's account with respect to the
144A Notes in accordance with the DTC's procedures for such transfer. Although
delivery of the 144A Notes may be effected through book-entry transfer into the
Exchange Agent's account at the DTC, a Letter of Transmittal properly completed
and duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the DTC does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered 144A Notes and withdrawal of the tendered 144A
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all 144A Notes not properly tendered or any 144A Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular 144A Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including, the instructions
in the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of 144A Notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of 144A Notes,
nor shall any of them incur any liability for failure to give such notification.
Tenders of 144A Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any 144A Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such Holder by the Exchange Agent to the tendering Holders of 144A Notes, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their 144A Notes and (i) whose 144A Notes are not
immediately available, or (ii) who cannot deliver their 144A Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if:
a. the tender is made through an Eligible Institution;
b. prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail
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or hand delivery) setting forth the name and address of the holder of the
144A Notes, the certificate or registration number or numbers of such 144A
Notes and the principal amount of 144A Notes tendered, stating that the
tender is being made thereby, and guaranteeing that, within five business
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the 144A Notes to be
tendered in proper form for transfer (or a confirmation of book-entry
transfer of such 144A Notes into the Exchange Agent's account at the
Depository) and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
c. such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered 144A Notes in proper form for transfer (or a confirmation of
book-entry transfer of such 144A Notes into the Exchange Agent's account at
the Depository) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of 144A Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of 144A Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the 144A Notes to be withdrawn (the "Depositor"),
(ii) identify the 144A Notes to be withdrawn (including the certificate or
registration number(s) and principal amount of such 144A Notes, or, in the case
of notes transferred by book-entry transfer, the name and number of the account
at the DTC to be credited), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such 144A Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee (as defined herein) with
respect to the 144A Notes register the transfer of such 144A Notes into the name
of the Depositor withdrawing the tender and (iv) specify the name in which any
such 144A Notes are to be registered, if different from that of the Depositor,
(v) include a statement that such Holder is withdrawing his election to have
such 144A Notes exchanged. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any 144A Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the 144A Notes so withdrawn are validly retendered.
Any 144A Notes which have been tendered but which are not accepted for payment
will be returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn 144A Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any 144A
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such 144A Notes, if:
(i) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
25
<PAGE>
(ii) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any 144A
Notes and return all tendered 144A Notes to the tendering Holders, (ii) extend
the Exchange Offer and retain all 144A Notes tendered prior to the expiration of
the Exchange Offer subject, however, to the rights of Holders to withdraw such
144A Notes (see "--Withdrawals of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
144A Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
Holders, and, depending upon the significance of the waiver and the manner of
disclosure to the registered Holders, the Company will extend the Exchange Offer
for a period of five to ten business days if the Exchange Offer would otherwise
expire during such five to ten business-day period.
EXCHANGE AGENT
The Chase Manhattan Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
BY MAIL, HAND OR OVERNIGHT
DELIVERY:
<S> <C> <C>
The Chase Manhattan Bank
55 Water Street
Room 234
North Building
New York, New York 10041
Attention: Carlos Esteves
FACSIMILE TRANSMISSION:
(212) 638-7375
(212) 344-9367
CONFIRM BY TELEPHONE:
(212) 638-0828
Carlos Esteves
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone or in person by officers and regular employees of
the Company, BBC and their affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the Trustee, filing fees, blue sky fees and printing and
distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of 144A Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or 144A Notes for principal
26
<PAGE>
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
holder of the 144A Notes tendered, or if tendered 144A Notes are registered in
the name of any person other than the person signing the Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the exchange of 144A
Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the 144A
Notes, which is the aggregate principal amount of the 144A Notes, as reflected
in the Company's accounting records on the date of exchange. Accordingly, no
gain or loss for accounting purposes will be recognized in connection with the
Exchange Offer. The expense of the Exchange Offer will be amortized over the
term of the Exchange Notes.
RESALE OF THE EXCHANGE NOTES
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer by any holder of such
Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 of the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
PROVIDED that such Exchange Notes acquired pursuant to the Exchange Offer are
obtained in the ordinary course of such holder's business, and such holder does
not intend to participate, and has no arrangement or understanding to
participate in the distribution of such Exchange Notes. Any holder who tenders
into the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Exchange Notes may not rely on the
position of the staff of the SEC enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988) or MORGAN STANLEY & CO., INCORPORATED
(available June 5, 1991) or similar interpretive letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders information required by Item 507 of Regulation S-K
of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for 144A Notes, where such 144A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Company has agreed, for period for 180 days after consummation of the Exchange
Offer, to make available a prospectus meeting the requirements of the Securities
Act to any such broker-dealer for use in connection with any resale of any
Exchange Notes acquired in the Exchange Offer. A broker-dealer which delivers
such a prospectus to purchasers in connection with such resales will be subject
to certain of the civil liability provisions under the Securities Act and will
be bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations).
By tendering in the Exchange Offer, each Holder will represent to the
Company, among other things, (i) the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of its business, (ii)
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of the Exchange Notes and
(iii) the holder and any such other person acknowledge that if they participate
in the Exchange Offer for the purpose of distributing the Exchange Notes (a)
they must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements
27
<PAGE>
in such instance could result in such holder incurring liability under the
Securities Act for which such holder is not indemnified by the Company. Further,
by tendering in the Exchange Offer, each holder that may be deemed an
"affiliate" (as defined in Rule 405 of the Securities Act), of the Company will
represent to the Company that such holder understands and acknowledges that the
Exchange Notes may not be offered for resale, resold, or otherwise transferred
by that Holder without registration under the Securities Act or an exemption
therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act. Merrill Lynch has
indicated to the Company that it intends to effect offers and sales of the
Exchange Notes, acting as principal or agent, in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale. If
Merrill Lynch conducts any market making activities, it may be required to
deliver a "market-making prospectus" when effecting offers and sales in the
Exchange Notes because of the equity ownership of MLCP and its affiliates of the
Company. MLCP is an affiliate of Merrill Lynch. MLCP and its affiliates in the
aggregate hold approximately 90% of the Blue Bird Common Stock.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of 144A Notes who do not tender their 144A Notes generally will not have
any further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any Holder that does not exchange such Holder's 144A
Notes for Exchange Notes will continue to hold the untendered 144A Notes and
will be entitled to all the rights and limitations applicable thereto under the
Indenture, except to the extent that such rights or limitations, by their terms,
terminate or cease to have further effectiveness as a result of the Exchange
Offer.
The 144A Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such 144A Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) pursuant to an effective registration statement under the Securities Act,
(iii) so long as the 144A Notes are eligible for resale pursuant to Rule 144A
under the Securities Act, to a Qualified Institutional Buyer in a transaction
meeting the requirements of Rule 144A, (iv) outside the United States to a
foreign person pursuant to the exemption from the registration requirements of
the Securities Act provided by Regulation S thereunder, (v) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
thereunder (if available) or (vi) to an Accredited Investor in a transaction
exempt from the registration requirements of the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United States
or other applicable jurisdiction. See "Risk Factors--Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders are urged to consult their
financial and tax advisors in making their own decision on what action to take.
The Company may in the future seek to acquire untendered 144A Notes, to the
extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any 144A Notes that are not tendered in the Exchange
Offer or to file a registration statement to permit resales of any untendered
144A Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such state.
28
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the 144A Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Each Holder of a
144A Note should consult his, her or its own tax advisor as to the particular
tax consequences of exchanging such Holder's 144A Notes for Exchange Notes,
including the applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the 144A Notes pursuant to
the terms set forth in this Prospectus will not constitute an exchange for
United States federal income tax purposes. Consequently, no gain or loss would
be recognized by Holders of the 144A Notes upon receipt of the Exchange Notes,
and ownership of the Exchange Notes will be considered a continuation of
ownership of the 144A Notes. For purposes of determining gain or loss upon the
subsequent sale or exchange of the Exchange Notes, a Holder's basis in the
Exchange Notes should be the same as such Holder's basis in the 144A Notes
exchanged therefor. A Holder's holding period for the Exchange Notes should
include the Holder's holding period for the 144A Notes exchanged therefor. The
issue price, original issue discount inclusion and other tax characteristics of
the Exchange Notes should be identical to the issue price, original issue
discount inclusion and other tax characteristics of the 144A Notes exchanged
therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes."
29
<PAGE>
THE RECAPITALIZATION
On November 19, 1996, the Company consummated the Recapitalization which
included the 144A Note Offering, the retirement of the Old Notes, the
replacement and refinancing of the Old Credit Agreement with the New Credit
Agreement and the Distribution. As part of the Recapitalization, the Board of
Directors of the Company declared the Blue Bird Dividend and the Board of
Directors of BBC declared the BBC Distribution. Holders of BBC options received
cash payments on an as-exercised basis and were not required to exercise their
options to receive their PRO RATA portion of the BBC Distribution, nor were they
entitled to any antidilution adjustment to the exercise price for their options.
Selling Holders of approximately $50 million principal amount (or 100%) of the
outstanding Old Notes sold their Old Notes to the Company, subject to certain
conditions, and consented to certain amendments to the indenture governing the
Old Notes for aggregate payments (including repayment of principal) of
approximately $56.1 million, which included accrued and unpaid interest (as of
September 28, 1996). The Old Credit Agreement was replaced and refinanced by the
New Credit Agreement, which provided for aggregate availability of $255 million,
including $175 million of Term Facility and an $80 million Revolving Facility.
See "Use of Proceeds."
The following table sets forth the cash sources and uses of funds for the
Recapitalization.
<TABLE>
<CAPTION>
AMOUNT
-------------------
<S> <C>
(DOLLARS IN
MILLIONS)
SOURCES OF FUNDS:
Cash on hand............................................................ $ 24.5
Revolving loans under New Credit Agreement.............................. 3.6
Term loans under New Credit Agreement................................... 175.0
Notes offered hereby.................................................... 99.7
Proceeds from repayment of Management Notes(a).......................... 3.8
-------
Total............................................................... $ 306.6
-------
-------
USES OF FUNDS:
Distribution............................................................ $ 201.4
Repayment of Old Credit Agreement....................................... 40.0
Retirement of Old Notes(b).............................................. 56.1
Estimated fees and expenses............................................. 9.1
Total............................................................... $ 306.6
-------
-------
</TABLE>
- ------------------------
(a) The Management Notes (as defined herein) will be repaid by management
shareholders out of the proceeds of the Distribution. See "Certain
Relationships and Related Transactions."
(b) Includes costs associated with the retirement of the Old Notes and the
amendment of the indenture relating thereto, including payment of accrued
interest.
The LaSalle Credit Facility to which Blue Bird Capital is a party remains
outstanding following the Recapitalization. The Selling Holders sold their Old
Notes at a price based upon a premium over the applicable U.S. Treasury rate
and, in connection with their agreement to sell their Old Notes to the Company,
the Selling Holders consented to amendments to the indenture governing the Old
Notes that would have eliminated substantially all of the material restrictive
covenants contained therein had such indenture remained in effect.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Debt Facilities."
30
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange of Notes pursuant
to the Exchange Offer.
The net proceeds to the Company from the sale of the 144A Notes were
approximately $96.7 million. All of such proceeds, together with the proceeds of
borrowings under the New Credit Agreement and cash held by the Company, were
used to effect the Recapitalization and to pay fees and expenses incurred in
connection with the Recapitalization. See "The Recapitalization."
31
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of BBC as of September 28, 1996 (i) on an historical
basis and (ii) on a PRO FORMA basis to give effect to the Recapitalization as if
it had occurred on September 28, 1996. There are no material differences between
the capitalization of the Company and BBC, except as set forth in footnotes (c)
and (d). This information should be read in conjunction with the information set
forth under "Selected Financial Data" and in the audited financial statements of
BBC appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 28, 1996
------------------------
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
(DOLLARS IN MILLIONS)
Cash and cash equivalents.............................................................. $ 24.5 $ --(a)
----------- -----------
----------- -----------
Short-term debt (including current portion of long-term debt).......................... $ 28.4 $ 27.7(b)
----------- -----------
----------- -----------
Long-term debt:
Old Credit Agreement (excluding current portion)..................................... 27.0 --
New Credit Agreement (excluding current portion)..................................... -- 166.2
Old Notes............................................................................ 50.0 --
144A Notes (c)....................................................................... -- 99.7
LaSalle Credit Facility.............................................................. 40.2 40.2
Industrial development bonds......................................................... 2.7 2.7
----------- -----------
Total long-term debt................................................................... 119.9 308.8
Redeemable common stock(d)............................................................. 24.2 11.5
Stock subscriptions receivable(e)...................................................... (3.8) --
Stockholders' equity:
Common stock; $.01 par value; 25,000,000 shares authorized; 8,424,778 shares issued
and outstanding.................................................................... .1 .1
Additional paid-in capital............................................................. 77.0 77.0
Retained earnings...................................................................... 48.5 (130.6)(f)
Cumulative translation adjustments (g)................................................. (2.5) (2.5)
----------- -----------
Total stockholders' equity (deficit)................................................... 123.1 (56.0)
----------- -----------
Total capitalization........................................................... $ 263.4 $ 264.3
----------- -----------
----------- -----------
</TABLE>
- --------------------------
(a) Reflects (i) the receipt of gross proceeds from the 144A Note Offering
($99.7 million), borrowings under the Term Facility of the New Credit
Agreement ($175 million) and borrowings under the Revolving Facility of the
New Credit Agreement ($3.6 million); (ii) the retirement of indebtedness
(including accrued interest) under the Old Credit Agreement ($40 million)
and the Old Notes ($52.7 million); (iii) the payment of fees and expenses
associated with the Recapitalization ($9.1 million) and the costs (including
premium) associated with the retirement and amendment of the Old Notes ($3.4
million); (iv) the payment of the Distribution ($201.4 million); and (v) the
proceeds from the repayment of the Management Notes from the BBC
Distribution to the management shareholders ($3.8 million). Cash was
approximately $43 million immediately prior to the Recapitalization.
(b) Reflects (i) the retirement of the current portion of indebtedness under the
Old Credit Agreement ($13 million); and (ii) the current portion of
long-term debt and revolving credit borrowings under the New Credit
Agreement ($12.4 million). Includes $15.3 million of indebtedness under the
LaSalle Credit Agreement.
(c) Represents the $100 million principal amount of the Notes less unamortized
discount of $.3 million.
(d) Redeemable common stock represents 720,000 issued and outstanding shares of
BBC Common Stock purchased by the Management Investors, primarily in
connection with the 1992 Acquisition. The Management Investors have
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
32
<PAGE>
the right, prior to the earlier of an initial public offering of equity
securities of BBC or the tenth anniversary of the Stockholders' Agreement,
to put these shares to BBC in the event of their disability, involuntary
termination not for cause, retirement, or death for a fair value price. The
redeemable common stock of BBC was recorded at fair value on the date of
issuance. The excess of the fair value price over the original fair value is
being accreted by periodic charges to retained earnings. The amounts
recorded in the balance sheets represent the estimated maximum amount
payable if all Management Investors met the specified criteria and exercised
their put rights. See "Certain Relationships and Related Transactions."
(e) Stock subscriptions receivable represent notes due from Management Investors
to BBC for stock issued in April 1992 in connection with the 1992
Acquisition. The Management Notes bear interest at an 8% interest rate.
Interest is payable annually. The Management Notes were repaid by management
optionholders out of the proceeds of the Distribution.
(f) Reflects (i) the Distribution, net of tax benefit ($188.6 million); (ii) the
adjustment to the fair value of the redeemable common stock ($12.7 million);
(iii) the costs associated with the retirement and amendment of the Old
Notes, net of tax benefit ($2 million); and (iv) the write-off of the debt
issue costs related to the indebtedness being retired, net of tax benefit
($1.2 million).
(g) Reflects the effects of exchange rate fluctuations on translating foreign
currency assets and liabilities into U.S. dollars for the foreign
subsidiaries and branches of the Company.
33
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial data
for BBC as of and for the nine months ended July 27, 1996 and July 29, 1995,
fiscal years 1995, 1994 and 1993, and for the six months ended October 31, 1992,
as well as selected historical consolidated financial information for BBC prior
to the 1992 Acquisition (the "Predecessor") as of and for the six months ended
April 30, 1992 and the year ended November 2, 1991. The selected historical
consolidated financial data as of and for the full fiscal years indicated were
derived from the financial statements of BBC and subsidiaries which were audited
by Arthur Andersen. The data for the nine months ended July 27, 1996 and July
29, 1995 are unaudited but, in the opinion of BBC's management, reflect all
adjustments necessary for a fair presentation of the results of operations for
such periods. Currently, BBC conducts no independent operations and has no
significant assets other than the capital stock of Blue Bird. The results for
the nine months ended July 27, 1996 may not be indicative of the results to be
expected for the year ending November 2, 1996 because, among other things, Blue
Bird's business is seasonal, with a majority of sales occurring in the third and
fourth quarters. The selected historical financial data set forth below should
be read in conjunction with the consolidated financial statements of BBC and the
notes thereto included elsewhere in this Prospectus. Separate historical
financial data for the Predecessor are not included in this Prospectus.
Subsequent consolidated financial data of BBC reflect the purchase accounting
treatment of the 1992 Acquisition. Accordingly, the financial data of the
Predecessor and BBC are not comparable in all material respects, since such data
reflect financial positions and results of operations of these two separate
entities.
<TABLE>
<CAPTION>
BBC
----------------------------------------------------------------------------
NINE MONTHS
ENDED FISCAL YEAR ENDED SIX MONTHS
------------------------ ------------------------------------- ENDED
JULY 27, JULY 29, OCTOBER 28, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1996 1995 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales................................. $ 346.1 319.5 $ 517.4 $ 476.2 $ 413.5 $ 244.4
Cost of goods sold........................ 287.4 264.1 430.6 392.9 340.5 198.4
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.............................. 58.7 55.4 86.8 83.3 73.0 46.0
Selling, general and administrative
expenses(a)............................. 31.5 29.5 39.8 39.0 36.3 20.1
Amortization of goodwill and
non-compete agreements.................. 2.8 3.7 4.7 5.6 5.6 9.3
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)................... 24.4 22.2 42.3 38.7 31.1 16.6
Interest income........................... 5.3 3.0 4.6 4.1 2.9 1.4
Interest expense.......................... (12.8) (14.0) (18.5) (17.4) (18.2) (9.5)
Other income (expense)(b)................. 0.5 0.4 0.1 0.2 0.7 (0.5)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes......... 17.4 11.6 28.5 25.6 16.5 8.0
Provision (benefit) for income taxes...... 6.8 4.9 11.6 10.2 6.9 4.3
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)......................... $ 10.6 $ 6.7 $ 16.9 $ 15.4 $ 9.6 $ 3.7
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital........................... $ 57.7 $ 67.3 $ 61.7 $ 65.3 $ 52.7 $ 31.9
Total assets.............................. 439.5 412.3 379.8 332.8 342.1 337.3
Long-term debt, excluding current
maturities.............................. 118.4 115.0 113.8 125.8 135.8 143.8
Redeemable common stock, net.............. 20.4 14.2 20.9 17.5 11.0 8.0
Stockholders' equity...................... 112.1 98.8 102.6 88.8 80.7 83.8
<CAPTION>
PREDECESSOR
--------------------------
SIX MONTHS FISCAL YEAR
ENDED ENDED
APRIL 30, NOVEMBER 2
1992 1991
----------- -------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................. $ 120.8 $ 428.0
Cost of goods sold........................ 98.7 345.6
----------- ------
Gross profit.............................. 22.1 82.4
Selling, general and administrative
expenses(a)............................. 34.2 48.6
Amortization of goodwill and
non-compete agreements.................. -- --
----------- ------
Operating income (loss)................... (12.1) 33.8
Interest income........................... 5.7 11.5
Interest expense.......................... (1.7) (4.3)
Other income (expense)(b)................. 1.7 (2.3)
----------- ------
Income (loss) before income taxes......... (6.4) 38.7
Provision (benefit) for income taxes...... (3.0) 12.1
----------- ------
Net income (loss)......................... $ (3.4) $ 26.6
----------- ------
----------- ------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital........................... $ 69.4 $ 64.9
Total assets.............................. 253.8 235.8
Long-term debt, excluding current
maturities.............................. 39.4 30.8
Redeemable common stock, net.............. -- --
Stockholders' equity...................... 137.0 143.6
</TABLE>
- ------------------------
(a) Includes expenses of the Predecessor incurred prior to the 1992 Acquisition
which the Company no longer incurs, including salaries of the Predecessor's
principal stockholders prior to the 1992 Acquisition, commission paid
relating to a Domestic International Sales Corporation (DISC) owned by such
principal stockholders, the amortization of contracts in process, and
severance and restructuring costs. Such amounts totaled $6.6 million and
$1.1 million for the six month periods ended October 31, 1992 and April 30,
1992, respectively, and $5.9 million, for fiscal year 1991.
(b) Includes charitable contributions made prior to the 1992 Acquisition which
BBC has reduced following the 1992 Acquisition. Such contributions totaled
$.6 million for the six-month period ended April 30, 1992 and $.8 million
for fiscal year 1991.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Approximately 79% of the Company's fiscal 1995 net sales are derived from
school bus sales and approximately 14% and 7% of the Company's fiscal 1995 net
sales are derived from the sale of commercial and recreational vehicles,
respectively. Between fiscal 1993 and fiscal 1995, the Company's operating
income has risen primarily due to increased sales volume. Over the same period,
gross profit margins have decreased slightly, principally due to an increase in
the number of Type C buses sold with GM chassis. The Company's operations are
affected by trends in the number of students enrolled in grades kindergarten
through 12 and overall educational spending by local and state governments as
well as by the federal government. In addition to incremental needs due to pupil
population growth and replacement requirements based on changes in safety
standards, factors which influence the need to purchase school buses include the
age of the existing school bus fleet, changes in school bus travel routes,
regulatory changes such as compliance with new emissions standards,
extracurricular activity usage and changes in the education structure in the
United States such as the development of preschool "head start" programs,
special education programs and magnet schools. The Company's experience has been
that during periods of stable or increasing student enrollment, demand for its
core school bus products has also remained stable or increased.
On a PRO FORMA basis, assuming the Recapitalization had been effected on
September 28, 1996, the Company's total consolidated indebtedness was increased
by approximately $188.2 million, to $336.5 million. The primary effects of the
Recapitalization on the Company's future operating results include reduced
reported profitability to the extent interest expense is above historical
amounts resulting from higher debt levels. The Company expects to generate
sufficient cash from operations to fund its working capital and capital
expenditure needs and make required interest and principal payments on its
indebtedness. See "Risk Factors--Leverage and Debt Service" and "--Restrictive
Covenants and Asset Encumbrances," and "--Liquidity and Capital Resources."
RESULTS OF OPERATIONS
The discussion of results of operations that follows is based upon and
should be read in conjunction with the financial statements, including the notes
thereto, included elsewhere in this Prospectus. Although the financial
statements are consolidated financial statements of BBC, the Company's parent,
BBC is a holding company and, as such, there would be no material differences in
the operating results of BBC, as compared with the Company. The following table
sets forth certain operating results as a percentage of net sales for the
historical periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED
------------------------ -------------------------------------------
<S> <C> <C> <C> <C> <C>
JULY 27, JULY 29, OCTOBER 28, OCTOBER 29, OCTOBER 30,
1996 1995 1995 1994 1993
----------- ----------- ------------- ------------- -------------
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................. (83.0) (82.6) (83.2) (82.5) (82.3)
Gross profit....................... 17.0 17.4 16.8 17.5 17.7
Selling, general and administrative
expense.......................... (9.9) (9.2) (7.7) (8.1) (8.8)
Operating income................... 7.0% 6.9% 8.2% 8.1% 7.5%
</TABLE>
NINE MONTHS ENDED JULY 27, 1996 COMPARED TO NINE MONTHS ENDED JULY 29,
1995. Net sales for the nine months ended July 27, 1996, were $346.1 million,
an increase of $26.7 million or 8.4% compared to the same period in 1995. This
increase was due primarily to the delivery of more Type C units during the 1996
period as compared to the 1995 period.
35
<PAGE>
Gross profit increased to $58.7 million for the nine months ended July 27,
1996 as compared to $55.4 million in the same period in 1995, an increase of
$3.3 million or 6.0%. The increased gross profit was due primarily to the higher
sales volume offset in part by the higher cost of goods sold associated with the
shift in the Company's product mix.
Selling, general and administrative expenses increased to $31.5 million for
the nine months ended July 27, 1996 from $29.5 million in the 1995 period, an
increase of $2 million or 6.8%. This increase was due primarily to budgeted
increases in engineering and marketing costs, as well as to higher selling
expenses.
Interest income increased to $5.3 million for the nine months ended July 27,
1996, compared to $3 million for the same period in 1995. The increase was due
mainly to a higher average dollar amount of leases held in the lease portfolio
for the first nine months of 1996 as compared to the same period in 1995.
Interest and debt issue expenses decreased to $12.8 million for the nine
months ended July 27, 1996 from $14 million in the prior year's similar period
due to lower interest rates on bank debt as well as lower debt levels due to the
repurchase of $25 million of the Old Notes in December, 1995. The resulting
lower interest expense was partially offset by interest expense associated with
the LaSalle Credit Facility. The LaSalle Credit Facility for Blue Bird Capital
was not in place during the 1995 period.
The provision for income taxes was $6.8 million for the nine months ended
July 27, 1996 compared to $4.9 million for the same period in 1995. The
effective tax rate for the current period was 39.1% compared to 42.4% during the
prior year period. The effective tax rate for both periods is higher than the
statutory rate primarily due to the effect of certain nondeductible amortization
charges, principally goodwill.
On December 14, 1995, the Company repurchased, for cash on the open market,
$25 million in principal amount of outstanding Old Notes for the purchase price
(expressed as a percentage of principal amount) of 106.500% plus accrued
interest to the purchase date. An extraordinary loss of $1.4 million net of a
tax benefit of $.8 million occurred during the 1996 period due to the early
extinguishment of such Old Notes.
FISCAL 1995 COMPARED TO FISCAL 1994. Net sales increased to $517.4 million
in fiscal 1995 from $476.2 million in fiscal 1994, an increase of $41.2 million,
or 8.7%. This increase was due to increased sales of Type D, Q-Bus and CS units,
as well as increased sales of Type C units.
Gross profit increased to $86.8 million in fiscal 1995 compared to $83.3
million in fiscal 1994, an increase of $3.5 million, or 4.2%. The increase was
due to increased sales volume. Gross margin decreased to 16.8% in fiscal 1995
from 17.5% in fiscal 1994. The reduced margin was due primarily to increased
sales of Type C units, on which the Company generally realizes lower margins due
to the inclusion of GM chassis.
Selling, general and administrative expenses were $39.8 million in fiscal
1995 compared to $39 million in fiscal 1994, an increase of 2.0%. The increase
was due primarily to higher expenses related to engineering and product
development.
Amortization expense decreased to $4.7 million in fiscal 1995 compared to
$5.6 million in fiscal 1994. The amortization of certain non-compete agreements
was completed during the first half of fiscal 1995.
Interest income increased to $4.6 million in fiscal 1995 compared to $4.1
million in fiscal 1994. The increase was due to a higher average dollar amount
of leases held in the lease portfolio in fiscal 1995 compared to fiscal 1994.
Interest expense increased to $18.5 million in fiscal 1995 from $17.4
million fiscal 1994, an increase of $1.1 million. The increase was due to a
higher interest rate on credit facility borrowings as compared to fiscal 1994.
36
<PAGE>
The provision for income taxes increased to $11.6 million in fiscal 1995
from $10.2 million in fiscal 1994. The increase was due to increased taxable
income resulting from higher net sales and operating income.
FISCAL 1994 COMPARED TO FISCAL 1993. Net sales increased to $476.2 million
in fiscal 1994 from $413.5 million in fiscal 1993, an increase of $62.7 million,
or 15.2%. This increase was due to increased sales of Type D units, increased
sales of chassis as part of the sale of an integrated Type C bus, as well as to
sales of the new BMC and CS units. The Type D unit has a higher average selling
price than the Type C unit.
Gross profit increased to $83.3 million in fiscal 1994 compared to $73
million in fiscal 1993, an increase of $10.3 million, or 14.1%. The increase was
due to increased sales volume. Gross margin decreased to 17.5% from 17.7% in
fiscal 1993. The reduced margin was due primarily to increased sales of Type C
units, on which the Company generally realizes lower margins due to the
inclusion of GM chassis.
Selling, general and administrative expenses increased to $39 million in
fiscal 1994 compared to $36.3 million in fiscal 1993, an increase of 7.4%. The
increase was due to expenses related to the development, introduction and
advertising of new products.
Interest income (which is primarily associated with income earned on the
Company's lease portfolio) increased to $4.1 million in fiscal 1994 from $2.9
million in fiscal 1993, an increase of $1.2 million, or 41.4%. During fiscal
1994, the average dollar amount of leases held in the lease portfolio was higher
as compared to the average fiscal 1993 portfolio amounts. In addition, the
average rate earned by the portfolio was higher in fiscal 1994 as compared to
fiscal 1993.
Interest expense decreased to $17.4 million in fiscal 1994 from $18.2
million in fiscal 1993, a decrease of $.8 million. The decrease was due to a
combination of lower average outstanding balances on credit facilities as well
as a lower average interest rate as compared to fiscal 1993.
Other income decreased to $.2 million in fiscal 1994 from $.7 million in
fiscal 1993. The decrease was due primarily to reduced gains on sales of lease
paper to LaSalle compared to the prior year.
The provision for income taxes decreased as a percentage of income before
income taxes in fiscal 1994 compared to fiscal 1993. The amortization of certain
costs related to the 1992 Acquisition was essentially unchanged from fiscal 1993
to fiscal 1994. Due to the increase in taxable income, the relative effect of
the non-deductibility of the amortization items on the effective tax rate was
smaller, thereby reducing the effective tax rate in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from funding working
capital needs, which consist primarily of inventory and accounts receivable, and
principal and interest payments on indebtedness. The Company also requires funds
for capital expenditures, for which the Company anticipates approximately $7.3
million for fiscal 1996, and approximately $6 million for fiscal 1997.
BBC is a holding company that conducts all of its business operations
through the Company, which is a wholly-owned subsidiary. In connection with any
liquidity needs, including needs arising out of the BBC Guarantee, BBC is
dependent entirely upon cash generated by the Company.
Historically, the Company has funded its working capital needs through cash
generated from operations and borrowings under the Old Credit Agreement. In
addition, the LaSalle Credit Facility provides Blue Bird Capital with a
revolving credit facility to finance school bus leases of up to a maximum
aggregate principal amount of $100 million, of which $58.2 million was
outstanding as of July 27, 1996. Following the Recapitalization, the Company's
liquidity needs will arise primarily from debt service on the substantial
indebtedness incurred in connection with the Recapitalization, as well as from
the funding of inventory and accounts receivable. Assuming the Recapitalization
was completed as of September 28,
37
<PAGE>
1996, the Company would have had total consolidated indebtedness at such date of
approximately $336.5 million, consisting primarily of $99.7 million principal
amount of the 744A Notes, borrowings of $175 million under the New Credit
Agreement and $55.5 million of borrowings under the LaSalle Credit Facility. The
Company would also have had the ability to borrow an additional $44.5 million
under the LaSalle Credit Facility to finance school bus leases and $76.4 million
under the New Credit Agreement (assuming all of such funds would have been
available under the borrowing base calculation under the Revolving Facility of
the New Credit Agreement). Such Revolving Facility will be available to meet
future working capital and other business needs of the Company. The maximum
amount available to be borrowed under such facility is based on the sum of 85%
of Eligible Accounts Receivable (as defined in the New Credit Agreement) and 60%
of Eligible Inventory (as defined in the New Credit Agreement) of the Company
(the "Borrowing Base"). These provisions have the effect of limiting the ability
of the Company to utilize in operations or satisfy other debt obligations with
free cash flow and will limit the amount of cash the Company has on hand at any
given time. See "Description of Debt Facilities." and "Risk Factors--Leverage
and Debt Service."
The Company's interest expense as a result of the Recapitalization is
substantially higher than immediately prior to such transactions. Loans under
the New Credit Agreement bear interest at floating rates based upon the interest
rate option selected by the Company. With respect to the term loan borrowings
under the New Credit Agreement, the Company will be required to make scheduled
principal payments of approximately $8.8 million in fiscal 1997, $12.8 million
in fiscal 1998 and $16.8 million in fiscal 1999. See "Risk Factors--Restrictive
Covenants and Asset Encumbrances." For a schedule of payments due under the New
Credit Agreement, see "Description of Debt Facilities--Senior Bank Financing."
Under the New Credit Agreement, the Company is permitted to accumulate up to
$40 million in its lease portfolio of leases for its own account in addition to
leases held by Blue Bird Capital. As of July 27, 1996, the Company had
approximately $11.6 million of such leases in its lease portfolio. In addition,
as of such date, Blue Bird Capital had approximately $60.2 million in its lease
portfolio. Blue Bird Capital is required to maintain certain financial ratios,
including a ratio of Total Liabilities to Tangible Net Worth (as such terms are
defined in the LaSalle Credit Facility) that cannot exceed 10 to 1. See
"Business--Leasing" and "Description of Debt Facilities--LaSalle Credit
Agreement."
Net cash used in operating activities during the nine-month period ended
July 27, 1996 was $18.6 million compared to $38.6 million in the corresponding
nine-month period in fiscal 1995. This difference was primarily the result of
reduced accounts receivable and increased accounts payable. Net borrowings under
the Company's working capital facilities, including the LaSalle Credit Facility
were $49.5 million during the current nine-month period compared to $49.9
million in the corresponding nine-month period in fiscal 1995. The early
extinguishment of $25 million of outstanding Old Notes (see "--Results of
Operations-- Nine Months Ended July 27, 1996 compared to Nine Months Ended July
29, 1995") was funded primarily from internally generated cash and partially
from an increase in the working capital revolver.
Cash and cash equivalents were $5.3 million at July 27, 1996, compared to
$21.5 million at the end of fiscal 1995 and $2 million at the end of the
corresponding nine-month period in fiscal 1995. Net working capital decreased
$9.6 million during the nine-month period compared to the corresponding
nine-month period in fiscal 1995. Significant factors affecting working capital
were a $22.9 million decrease in indebtedness under the revolving portion of the
Old Credit Agreement, offset in part by a $19.5 million increase in the LaSalle
Credit Facility, a $6.9 million decrease in leases receivable, and increases in
cash, inventory and accounts payable of $3.3 million, $6.8 million and $9.1
million, respectively.
As a result of the Recapitalization, the Company's future operating
performance and ability to service or refinance the Notes and to repay, extend
or refinance the New Credit Agreement are subject to future economic conditions
and to financial, business and other factors, many of which are beyond the
Company's control. The Company's liquidity may also be impacted by product
liability claims and environmental matters. See "Risk Factors."
38
<PAGE>
The Company's business is seasonal in nature. A majority of the Company's
sales occur in the third and fourth quarters of the fiscal year, a pattern
typical for the industry. The Company's working capital needs increase during
the second and third quarters as production activity increases in response to
the higher seasonal sales volume. Working capital needs decrease toward the end
of this period, although beginning in December or January, working capital and
related bank borrowings begin to increase as parts for assembly into buses are
manufactured and distributed to the assembly plants. Inventory is at its highest
during July and August prior to heavy seasonal school deliveries. The following
table shows the percentages of the Company's net sales per quarter for the last
three fiscal years and estimated data for fiscal 1996.
<TABLE>
<CAPTION>
1996(A) 1995 1994 1993
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter.......................................... 16.8% 14.8% 18.5% 16.0%
Second Quarter......................................... 19.3 20.4 17.0 15.7
Third Quarter.......................................... 26.6 26.5 30.0 30.4
Fourth Quarter......................................... 37.3 38.3 34.5 37.9
----- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
----- --------- --------- ---------
----- --------- --------- ---------
</TABLE>
- ------------------------
(a) Estimated due to the unavailability of information for the fourth quarter of
fiscal 1996.
39
<PAGE>
BUSINESS
GENERAL
Blue Bird is the leading manufacturer of school buses in North America.
Approximately 79% of the Company's net sales in fiscal 1995 were derived from
sales of school bus products. The Company also manufactures the Q-Bus and CS,
which target purchasers of medium-sized buses for commercial uses, and two
upscale RV models, the Wanderlodge and the BMC. Commercial and recreational
vehicles accounted for approximately 14% and 7%, respectively, of the Company's
fiscal 1995 net sales. The Company manufactures both quality steel bus bodies
for mounting on chassis manufactured by third parties and complete bus units
(body and chassis). Chassis generally consist of frames with engines,
transmissions, drive trains, axles, wheels, power steering, brakes and fuel
cells. The Company markets its products primarily through a network of
approximately 63 independent distributors, which resell the products to
customers, including municipalities, states, transportation contracting
companies, churches and other independent organizations. Management believes
that this distribution network results in an important competitive advantage as
it allows the Company to maintain, through its distributors, strong sales
relationships with the ultimate end-users of its products, which provide the
Company with an important source of localized market knowledge. Through its
subsidiary, Blue Bird Capital, which was formed in October 1995, the Company
provides a variety of lease financing alternatives principally to tax-exempt
customers of its school bus products. The Company also continues to provide
taxable lease financing through its Blue Bird Credit division.
The Company's business strategy is to continue to utilize its leading market
position in the school bus market as a platform from which to expand its product
offerings. The Company will continue to focus on its core school bus business,
while seeking to expand its commercial bus product offerings to various markets,
including the shuttle bus market, the smaller urban bus market and the "line
haul" or inter-city coach market. Within the school bus market, the Company will
continue to emphasize sales to distributors, as opposed to states and large
transportation contracting companies, reflecting its belief that the former
market provides greater growth and profit opportunities. The Company will also
seek to expand its international bus sales, particularly in developing
countries.
The Company's principal executive offices are located at 3920 Arkwright
Road, Macon, Georgia 31210. The Company is organized under the laws of the state
of Georgia and BBC is organized under the laws of the state of Delaware.
INDUSTRY OVERVIEW
SCHOOL BUSES. The two principal components of a school bus are the body and
chassis. Bodies and chassis are sold either as integrated units, provided by a
single supplier, or separately, in which case end-users purchase bodies and
chassis from different suppliers and have the two components assembled by the
bus body manufacturer. Approximately 57% of the Company's school bus sales in
1995, on a unit basis, were of integrated units. The ability to provide
integrated units enables manufacturers to submit bids on completed school bus
units to school bus end-users. The Company believes that integrated sales permit
school bus body manufacturers to offer end-users a lower cost complete school
bus while increasing their share of the profits realized on any sale of a unit.
Many end-users, particularly those that participate in a state bid process for
school bus purchases, however, may prefer to purchase the body and chassis
separately.
School bus purchasing is typically a centralized process involving orders of
multiple units. Purchasers of school buses are categorized into two ownership
groups: public (I.E., states and school districts); and private (I.E.,
independent transportation contracting companies and other private entities). It
has been management's experience that the transportation director of a state or
school district, or the chief procurement officer of a transportation
contracting company, as the case may be, will typically determine transportation
needs on an annual basis. In addition to replacement requirements based on
changes in
40
<PAGE>
safety standards and incremental needs due to pupil population growth, factors
which influence the need to purchase school buses include the age of the
existing school bus fleet, changes in school bus travel routes, regulatory
changes such as compliance with new emissions standards, extracurricular
activity usage and changes in the education structure in the United States such
as the development of preschool "head start" programs, special education
programs and magnet schools. In the case of public purchasers, the
transportation director may also be affected by certain budgetary constraints,
and will consider the availability of financing in making the purchasing
decision.
Once the decision relating to the purchase of replacement or new school
buses is finalized, the transportation director or the chief procurement officer
will decide on the type and brand of product to be purchased. Product
performance, manufacturer reputation, the manufacturer's ability to accommodate
specifications regarding bus design, relationships with distributors, price, the
availability of financing alternatives (E.G., leasing options), fleet
standardization and post-sale support and service are all key factors
influencing the decision to purchase a particular product. While price is an
important factor, it is not the sole determinant of the purchase decision, and
the lowest bid is not necessarily awarded the contract. As a result,
manufacturer and distributor relationships are critical to the sale of school
bus products.
Florida, Kentucky, North Carolina, South Carolina and West Virginia award
contracts for school buses based on a state bid process, with the state
generally serving as the aggregate purchaser on behalf of all of its school
districts. State officials compile the total number of buses their districts
require and then solicit bids from bus body and chassis manufacturers. This
process is much more competitive and price sensitive than the local bidding
process, and manufacturers generally must be the low bidder to win the contract.
Bus body and chassis manufacturers typically bid these purchases on a direct
basis, rather than through distributors, and view these contracts as low margin,
incremental volume. The Company estimates that approximately 15% of annual U.S.
public school bus purchases are awarded through these bids.
In the United States, approximately 78% of the estimated 410,000 school
buses currently in operation are publicly owned, with the remainder privately
owned. The Company estimates that approximately 50% of the privately owned
school buses in operation in the U.S. are owned by the five largest national
contractors. These contracting companies are fleet buyers and, therefore,
pricing in this segment of the market is highly competitive. In addition to
these large national transportation contractors, local contracting companies are
also classified as private purchasers of school buses. As is the case with
individual school districts, these smaller institutions typically purchase buses
through distributors.
Management estimates that deliveries of school buses in North America in
fiscal 1995 totaled approximately 30,600 units. In addition, management
estimates that the market demand for school bus and commercial products that the
Company manufactures and sells to countries outside of North America totaled
approximately 3,500 units in fiscal 1995.
COMMERCIAL VEHICLES. Management divides the commercial bus transportation
market into three segments, consisting of (i) public transportation, (ii)
shuttle transportation and (iii) tour, charter and commuter uses. The public
transportation sector consists of several vehicle markets, including vans,
medium-duty buses under 35 feet in length, heavy-duty buses up to 40 feet,
articulated buses up to 60 feet, and inter-city coaches designed to transport
passengers from suburbs to cities. The shuttle market is broader with users such
as airports, car rental agencies, "park-and-ride" operators, hotels, educational
and religious institutions, and providers of employee and health care-related
transportation. The tour, charter and commuter segment of the market typically
requires large over-the-road coaches ranging from 40 feet to 45 feet in length.
The Company's participation in the broad commercial bus market is limited,
as the Company produces only medium-sized commercial buses as well as shuttle
products. See "--Products." Medium-sized buses are purchased by public
transportation authorities and by tour, charter and commuter operators to
supplement a fleet of large vehicles or to facilitate smaller scale charter and
contract
41
<PAGE>
transportation needs. Management believes that rural and urban public transit
authorities are beginning to reevaluate their traditional preference, especially
in urban areas, for fleets consisting primarily of large buses. Management
further believes a trend is developing toward purchases of the medium-sized
buses similar to those built by the Company, in part because medium-sized buses
are more economical and easier to operate. The Company believes it is well
positioned to benefit from this trend. The shuttle market is served by a variety
of products which include a variety of vans, "cutaway" vans (a fiberglass body
on a van chassis), small and medium-sized coaches and some hybrid van and bus
products. Management believes that the shuttle segment will grow as airports
grow larger and move further away from cities and the number of elderly citizens
requiring shuttle transportation increases.
RECREATIONAL VEHICLES. The Company participates in the luxury niche of the
recreational motor home vehicle market. This segment of the market is small,
relatively stable, and consists of a limited number of competitors. Although
this segment of the market is profitable for the Company, it is not expected to
grow significantly. Management estimates that in a given year, there are likely
to be approximately 400 luxury motor home products similar to those manufactured
by the Company sold in the United States and believes that in order for the
Company to increase sales, it will need to increase its market share relative to
its competitors.
PRODUCTS
SCHOOL BUS PRODUCTS
GENERAL. Blue Bird produces a full range of school bus models and it is the
largest manufacturer of both conventional and transit school bus bodies in the
industry. In addition, Blue Bird sells complete Type D buses by integrating its
Type D bodies with chassis manufactured by the Company.
In 1995 Blue Bird derived approximately 13% of its net sales from the sale
of its various school bus body models and 62% of its net sales from the sale of
its integrated school buses. For classification purposes, the school bus
industry has categorized these different models into the following four general
product designations:
TYPE A. A "Type A" school bus is a conversion of a van or a body
constructed on a van-type compact truck chassis, with a gross vehicle weight
("GVW") rating of 10,000 pounds or less, designed to carry up to 21 passengers.
The engine is located in front of the windshield and the entrance door is
located behind the front wheels. The Company offers one model in this category,
the Micro-Bird, which can be ordered in several configurations. The Company does
not manufacture chassis for the Micro-Bird. Chassis are purchased by the
customer and delivered to the Company, which in turn installs the bus body.
Wholesale selling prices for Type A vehicle bus bodies typically range from
approximately $10,000 to $15,000.
TYPE B. A "Type B" school bus is a body constructed and installed on a
van-type or stripped chassis, with a GVW rating of more than 10,000 pounds,
designed to carry up to 38 passengers. Part of the engine is located beneath
and/or behind the windshield and next to the driver's seat and the entrance door
on a Type B bus is located behind the front wheels. The Company offers one model
in this category, the Mini-Bird, which can be ordered in several configurations.
The Company does not manufacture a Type B chassis. Chassis are purchased by the
customer and delivered to the Company, which in turn installs the bus body.
Wholesale selling prices for Type B vehicle bus bodies typically range from
approximately $12,000 to $20,000.
TYPE C. "Type C" school buses are the Company's largest-selling product,
accounting for more than half of the vehicles sold by Blue Bird in 1995. The
Type C bus, which is a "traditional" full-size school bus, is a body installed
on a flat back "cowl" chassis, with a GVW rating of more than 10,000 pounds,
designed to carry up to 77 passengers. The engine is located in front of the
windshield and the entrance door is located behind the front wheels. The Company
offers two models in this category, the Conventional and an
42
<PAGE>
integrated unit sold with a GM chassis, each of which can be ordered in several
configurations. Wholesale selling prices for Type C vehicle bus bodies typically
range from approximately $12,000 to $25,000, while prices for integrated
products range from approximately $40,000 to $55,000.
TYPE D. "Type D" school buses accounted for approximately one third of the
vehicles sold by the Company in 1995. A Type D school bus is a transit-type
(flat front) body installed on a chassis, with a GVW rating of more than 10,000
pounds, designed to carry up to 90 passengers. Type D buses are sold only on an
integrated basis with a chassis manufactured by the Company. The engine is
located behind the windshield and may be mounted next to the driver's seat, at
the rear of the bus, or midship between the front and rear axles. The entrance
door on a Type D bus is located ahead of the front wheels. The Company's models
in this category include the TC/2000 and the All American, each of which can be
ordered in several configurations. Wholesale selling prices for Type D vehicle
buses (including chassis) typically range from approximately $50,000 to $95,000.
COMMERCIAL VEHICLE PRODUCTS
Q-BUS. The "Q-Bus," a 37 foot long coach introduced in 1992, enables the
Company to compete in the medium-duty tour, charter and commuter markets. The
unit offers bus operators a medium-duty bus with many of the "big bus" features,
including seating capacities for up to 45 passengers, restroom, audio and visual
systems, luggage capacity of up to 240 cubic feet and engine options up to 300
horsepower. In 1996 the Company introduced a larger version of the Q-Bus with
seating capacity for up to 47 passengers, additional luggage capacity and a
400-horsepower diesel engine. This unit is designed to compete with more
expensive over-the-road coaches such as those used by operators to carry
commuters from suburban locations to urban work offices. Management believes the
Company's medium-sized bus products to be a viable alternative to larger
vehicles for a variety of reasons, including the fact that the medium-sized
buses offer lower operating costs and flexibility in terms of matching bus size
to passenger load demands. Wholesale selling prices for the Q-Bus typically
range from approximately $113,000 to $210,000.
CS. The CS series coach is designed primarily for the shuttle market. It is
offered in ten models ranging from 24 feet to 39 feet in length. In 1995, to
address a growing market segment for the airport to city/hotels commutes, the
Company introduced a CS coach known as the EZLoader. The EZLoader is designed
with a low-floor rear-end luggage compartment to allow the operator fast and
easy access for luggage handling. The unit seats up to 30 passengers. In 1996,
to meet the growing "demand response" market in the public transportation
sector, in which riders such as disabled and elderly persons call a shuttle
service for door-to-door pick-up and drop-off services (such as from home to the
hospital), the Company introduced the TranShuttle CS, a 25-foot coach with a
flat floor for multiple wheelchair accessibility. This product has been designed
to compete with the lightweight bus and cutaway van while providing greater
durability than is typical of those products. Wholesale selling prices for CS
series coaches typically range from approximately $51,000 to $89,000.
MODIFIED SCHOOL BUS PRODUCTS. The Company has taken advantage of its high
volume purchases for school bus components, and its rapid assembly-line
efficiencies, to produce and market an adaptation of the Type C and Type D
school bus in commercial form. The bus, known as the "Activity Bus," offers
basic "no-frills" transportation for commuter, shuttle, churches, colleges, and
universities. The product offers basic paint schemes, diesel and natural gas
engine options, and very functional interiors for passenger comfort. Wholesale
selling prices for the Activity Bus typically range from approximately $12,000
for non-integrated products to $70,000 for integrated products.
WORK STATION Q AND QMC. The Company's Work Station Q unit and the QMC are
designed to service the executive and corporate transport markets, and can
include features such as luxury seating, a small galley, and a restroom. Both
products are designed to carry a limited number of passengers in comfort and
style. Wholesale selling prices for the Work Station Q and the QMC typically
range from approximately $150,000 to $250,000.
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<PAGE>
RECREATIONAL VEHICLE PRODUCTS
GENERAL. The Company manufactures complete motor homes by integrating the
motor home shell with Blue Bird-manufactured chassis. The Company offers two
luxury motor home products, both of which are targeted for the premium and mid-
to high-end markets.
WANDERLODGE. The Wanderlodge is a premium motor home manufactured by the
Company. The Wanderlodge is available in two models, 41 and 43 feet in length,
with a capacity of up to six passengers and sleeping accommodations for four.
Key features of the unit include (i) the ultra-premium design of the product,
(ii) steel body construction and a body-on-chassis design, (iii) a wide
selection of optional equipment available to the purchaser, and (iv) the
extensive product support capability provided by Blue Bird's two RV
distributors. During fiscal year 1995, 57% of recreational vehicles delivered by
the Company were Wanderlodge units. Suggested retail prices for the Wanderlodge
range from approximately $550,000 to $650,000.
BLUE BIRD MOTOR COACH. The BMC is offered as a 37- or 40-foot long
motorcoach designed to meet product demand for the expanding middle-to-high-end
segment of the luxury recreational vehicle market. Like the Wanderlodge, it
features steel body construction and a body-on-chassis design. During fiscal
year 1995, 43% of RVs delivered by the Company were BMC units. The BMC has a
suggested retail price ranging from approximately $350,000 to $465,000.
SERVICE PARTS
All of Blue Bird's distributors maintain parts inventories to service owners
of Blue Bird products. Many of such distributors purchase parts from Blue Bird's
Service Parts Group (the "Parts Group"). In addition to these sales to
distributors, the Parts Group sells parts to fleet accounts on a direct basis.
These direct sales accounts include the U.S. General Services Administration
(the "GSA"), the national transportation contracting companies and other
accounts in southern Georgia, South Carolina and Kentucky. The Company currently
operates an 80,000-square foot facility in Fort Valley, Georgia to house the
Parts Group.
MARKETING AND DISTRIBUTION
The Company sells its bus products through distributors (87% of 1995 net
sales) and directly to end-users (13% of 1995 net sales). During 1995, no
customer accounted for as much as 10% of Blue Bird's net sales. Direct sales
customers include states, transportation contracting companies, the GSA and all
export buyers. All other sales are made through the Company's distributors.
Direct sales typically involve bids for large contracts, which are highly
competitive. Accordingly, direct sales margins are typically lower than
distributor sales margins.
Blue Bird has approximately 63 independent distributors in the U.S. and
Canada, including RV distributors. Approximately 27 of the Company's 28
commercial bus distributors also distribute the Company's school bus products.
The Company's two RV distributors together have five locations. One of these
distributors, Buddy Gregg Motor Homes, Inc., accounts for approximately 70% of
the Company's RV unit volume.
Many of Blue Bird's school bus distributors have close and longstanding
relationships with transportation directors of states and school districts. The
Company believes that its distributors are well situated to understand the needs
and specifications of local school districts. In 1995, no single distributor
accounted for more than 6% of the Company's sales of school bus products.
Blue Bird distributors are bound by the terms of a distributor contract,
pursuant to which distributors are granted a non-exclusive right to sell the
Company's buses and service parts in a designated territory. Distributors are
restricted from selling other products which compete with Blue Bird's products.
The
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<PAGE>
Company's distributor contract also requires distributors to service Blue Bird
products. Sales to distributors are on a cash-at-delivery basis. Sales by
distributors to end-users, such as school boards, are also usually on a
cash-at-delivery basis.
Blue Bird's sales organization services all of its distributors and direct
sales customers. Six regional sales managers work exclusively with distributors
in their respective regions and are responsible for coordinating sales and
marketing campaigns, pricing policies, strategic market planning and related
functions. These regional sales managers regularly visit distributors in order
to disseminate product knowledge, supply marketing advice and serve as direct
distributor support. The regional managers often accompany distributors'
salespeople to meetings with prospective purchasers. The Company sponsors an
annual international sales meeting to bring all of its distributors together,
and regional sales meetings are also conducted annually to focus on regional
strategic planning, advertising and other issues. Additionally, Blue Bird
management meets with a Dealer Advisory Council on a regular basis to discuss
strategic product and market issues, and to assist in the Company's long-term
planning process.
The Company's advertisements are run in national and regional trade journals
for the transportation and education industries. Representatives of the Company
attend national and regional product conventions as well as conventions for
educational trade groups such as the National School Board Association, the
National Association of Pupil Transportation and the National School
Transportation Association. Blue Bird also utilizes its network of independent
distributors to promote its products and disseminate product literature.
Distributors attend these conventions at the state level and are usually
accompanied by a representative of the Company.
LEASING
The Company has provided lease financing to school bus customers since 1984,
principally through its leasing division, Blue Bird Credit ("Blue Bird Credit").
On October 26, 1995, the Company formed a wholly-owned subsidiary, Blue Bird
Capital, for the purpose of expanding the availability of lease financing
alternatives to customers of its school bus products. Blue Bird Capital has
since become the Company's principal provider of leasing alternatives focusing
on tax-exempt lessees. Generally, upon receipt of orders for municipal lease
customers, the Company provides buses to be delivered by Blue Bird Capital to
the appropriate distributor, who in turn delivers the buses to municipal
customers pursuant to leases. Upon receipt of lease documents, Blue Bird Capital
borrows approximately 90% of the lease amount pursuant to the LaSalle Credit
Facility in order to pay the Company. Under the typical Blue Bird Capital lease
with a tax exempt lessee, title is held by the lessee with a lien held by Blue
Bird Capital. The average lease term is approximately three years and the
lessee's down payment is typically 10% of the lease amount. The Company accounts
for the lease as a sale and the related borrowings as long-term or short-term
debt, as applicable. Under the LaSalle Credit Facility, Blue Bird Capital is
required to maintain certain financial ratios, including a ratio of Total
Liabilities to Tangible Net Worth, that cannot exceed 10 to 1. See "Description
of Debt Facilities--LaSalle Credit Agreement." Blue Bird Capital pays the
Company as promptly as possible and generally does not carry unsold inventory.
Leases held by Blue Bird Capital are generally tax-exempt and accrue interest at
rates ranging from 4.75% to 8.0%. The Company and Blue Bird Capital have entered
into an Income Taxes Agreement whereby the Company reimburses Blue Bird Capital
for the tax benefit generated by the tax free leases.
MANUFACTURING PROCESS
The production of Blue Bird's extensive line of bus models involves various
assembly processes. The bus body assembly process begins with the assembly of
floor panels on a carriage that will carry the body assembly along the
production line. Roof bows, internal and external metal panels are rivited in
place and front and rear sections are added prior to painting. Windows, seats,
flooring and other finishing items are added prior to attaching the bus body to
the chassis. Each Blue Bird chassis is manufactured for a specific body, and a
copy of the production order travels through the production process with the
chassis. All of the
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chassis built by Blue Bird are for use with a Type D bus body. Some of these
transit-type buses require the engine to be mounted in the front of the chassis,
and others specify mounting in the rear. All Blue Bird chassis are tested to
check the gauges, speedometer, fluid systems and electrical connections for the
bus body components.
The construction of both bodies and chassis must conform to various state
and federal regulations. The most significant and comprehensive of these
regulations is set forth in the Federal Motor Vehicle Safety Standards
("FMVSS"), which apply to all school buses built during and after 1977. The
FMVSS specify requirements for a variety of vehicle components including
controls and displays, automatic transmission, defrost/defog systems, windshield
wipers, braking systems, reflectors and lights, mirrors, vehicle identification
numbers, tires and wheels, accelerator controls, warning devices, occupant
protection systems, steering systems, glazing materials, seats, windshields and
windows, rollover protection, body joints and fuel systems.
INTERNATIONAL
Other than maintaining a manufacturing facility in Canada, which accounted
for sales of approximately 1,200 buses to Canadian customers in 1995
(approximately $32.9 million in net sales), and a new facility (first production
units delivered in 1995) in Monterrey, Mexico, the Company's operations are
based in the United States. The Company exported approximately 575 bus products
in 1995, primarily to developing countries. Since foreign purchases of Blue Bird
buses are typically non-school-related, the Company is unable to rely on the
perceived strengths and marketability of its traditional school bus products.
However, the Company believes that there are opportunities to grow its export
business, particularly in developing countries, as these countries begin to
demand additional basic transportation products. In general, the Company plans
to increase its focus on the export segment of its businesses by developing
modified school bus and commercial products which meet the specifications of
purchasers in the Middle East, Africa, Europe, Mexico and Central and South
America.
In Mexico, the easing of import restrictions on new trucks and buses in
connection with the North American Free Trade Agreement may present a
significant opportunity for Blue Bird to expand its export business in that
region; however, Blue Bird's ability to expand its business in Mexico depends
largely on the stability of Mexico's economy. The opening of this marketplace
could generate opportunities in other Latin American countries as well as
enhance the reputation of Blue Bird's products throughout the region. Blue
Bird's Mexican plant is currently used to produce vehicles which are imported
into the United States, but could be used in the future to service Latin
American markets.
The Q-Bus and CS bus may also provide opportunities overseas, particularly
in Western Europe where conventional North American school bus bodies and
chassis are not marketable. In Eastern Europe, the Company's current product
line may be salable as the region becomes accessible to exporters. In addition,
the Company has developed a prototype right-hand drive chassis which will be
used with the Q-Bus body as a product for selected Western European and African
countries. Deliveries to these regions were minimal during 1995.
NEW PRODUCT DEVELOPMENT
Blue Bird's research and development program studies bus sales trends to
identify potential growth opportunities for the business and designs products to
exploit these growth opportunities. This process includes evaluating potential
new materials and components for use in existing products as well as developing
new product designs, especially for the Company's commercial and RV product
lines. Developmental projects are currently underway for expanded product
offerings in the commercial market. Blue Bird's manufacturing processes
incorporate sufficient production flexibility to enable Blue Bird to produce new
designs with minimum lead time. Current projects are underway to develop
alternative fuel buses
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based on electric and compressed natural gas power. Approximately 20
electrically powered buses were delivered in 1996.
COMPETITION
SCHOOL BUS MARKET. Four major school bus manufacturers, Blue Bird, Thomas
Built Buses, Inc. ("Thomas"), and CBW, Inc., which are privately owned
companies, and AmTran, which was acquired by Navistar in the fourth quarter of
1995, account for substantially all dollar sales of school buses. All of these
companies manufacture bus bodies which are mounted on a chassis supplied by GM,
Ford and Navistar, although GM has agreed to supply chassis for Type C bus
bodies exclusively to Blue Bird pursuant to the GM Chassis Agreement. See "--Raw
Materials and Components." The Company and Thomas, which together accounted for
approximately two-thirds of aggregate domestic school bus sales in 1995,
manufacture chassis as well as bodies for certain of their bus models.
Competition in the industry is intense, as all four manufacturers typically
compete for each significant contract that comes up for bid.
The three major school bus chassis manufacturers are GM, Ford and Navistar.
Of these, Navistar is the leading manufacturer, accounting for approximately 60%
of sales in 1995. The Company does not believe the Navistar's recent acquisition
of AmTran will have a material impact on the Company's business. In the
conventional chassis market, Navistar currently continues to make its chassis
available to all bus body manufacturers. See "Risk Factors--Limited Number of
Chassis Suppliers."
Since Blue Bird does not manufacture discrete chassis units for sale to
third-party purchasers, the Company does not directly compete with other chassis
manufacturers. However, the Company has experienced indirect competition with
some of these manufacturers, particularly Navistar, in the integrated bidding
process.
COMMERCIAL MARKET. The Company has different competitors in each of the
major commercial market segments. In the medium-duty tour, charter, and commuter
market, the Company's principal competitors include Eldorado National, a
business of Thor Industries, Inc. ("Eldorado"), and Metrotrans Corporation
("Metrotrans"). Its competitors in the shuttle market are Champion Motor Coach,
Inc. ("Champion"), Eldorado, Goshen Coach, Metrotrans, Supreme Corporation and
Thomas. In the urban and rural transit market, the Company's principal
competitors are Eldorado, Champion and Thomas.
RV MARKET. In the motor home market, the Company considers its competition
to be those companies building high-end motor homes on over-the-road coaches
such as those produced by Prevost Car, Inc., Motor Coach Industries, Inc.,
Marathon Coach, Inc., Liberty Coach, Inc., Vantare International, Inc., Country
Coach, Inc., Mitchell Coach Mfg. Co., and Custom Coach Corp. An additional
competitor, Newell Coach, Inc., is the only high-end manufacturer that builds on
its own chassis and body similar to the Wanderlodge. There are several other
small competitors who periodically enter and exit the market. Although the BMC
has a steel body construction like the Wanderlodge, it also competes with motor
home products made by Monaco Coach, Inc., Beaver Motor Coach, Inc., Country
Coach, Inc., American Eagle by Fleetwood Enterprises, Inc., and Foretravel, Inc.
RAW MATERIALS AND COMPONENTS
The largest production-related expense incurred by the Company is the cost
of purchased materials. In fiscal year 1995, material purchases represented
approximately 70% of total production costs. The Company purchases raw materials
and components from over 2,500 suppliers. Other than GM, the Company's principal
chassis supplier, no one supplier accounts for more than 10% of the Company's
aggregate expenditures on raw materials and/or components. Since Blue Bird does
not manufacture engines and does not manufacture chassis for its Type A, Type B
and Type C bus products, the cost of engines, purchased chassis and components
for Company-manufactured chassis constitute the largest components of the
Company's material expense.
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Because Type A and Type B bus purchasers obtain their chassis separately and
look to the Company only for a bus body, chassis supply is relevant for these
product lines only to the extent that it may impact the number of Type A and
Type B bus bodies ultimately sold. The Company manufactures all of its Type D
chassis, with the result that chassis components constitute a major portion of
Type D production costs.
The three major school bus Type C chassis manufacturers are GM, Ford and
Navistar. Navistar is the industry leader with a market share estimated by
market researchers of in excess of 60% in 1995. In late 1990, management of Blue
Bird was concerned about the possibility that Ford and GM might decide to
discontinue supplying Type C chassis, resulting in a situation in which Navistar
might become the sole supplier of these Type C chassis and thus be in a position
to exert increased influence over school bus manufacturers. Type C school buses
represent approximately 57% of the total units sold by the Company. In addition,
a trend toward integrated bidding (body and chassis) among school bus purchasers
caused Blue Bird to consider establishing a formal relationship with a Type C
chassis supplier to enhance the Company's competitive position in the Type C bus
segment of the market. Blue Bird and GM entered into the GM Chassis Agreement in
May 1991. The agreement can be terminated by either party on two years' notice.
As of the date of this Prospectus neither party has given notice of termination.
In general, management does not believe that termination of the GM Chassis
Agreement would have a material adverse effect upon the Company's operations,
because management believes that chassis would be available from other
suppliers. However, there can be no assurance that, given the limited number of
chassis suppliers, the Company will not be materially adversely affected in its
manufacturing efforts. See "Risk Factors--Limited Number of Chassis Suppliers."
Under the terms of the GM Chassis Agreement, GM supplies its medium-duty
chassis for Type C school buses to Blue Bird on an exclusive basis, and Blue
Bird purchases the Type C chassis model exclusively from GM. Nothing in the GM
Chassis Agreement precludes the Company from mounting its bus bodies on other
makes of chassis if the chassis are purchased by Blue Bird's customers or
distributors. In addition, the Company is not required to purchase a minimum
number of chassis from GM under the GM Chassis Agreement. The Company believes
that offering an integrated Type C product permits the Company to offer a
competitively priced product while allowing it to realize a profit on the sale
of the chassis, thereby increasing the total amount of profit that the Company
realizes on the sale of each unit. Blue Bird's arrangements with GM make it the
only current supplier of gasoline-powered Type C and Type D school buses in the
industry. The Company's distributors and GM's 750 medium-duty truck dealers
participate in servicing the end user after the initial sale. This enhanced
network provides the Blue Bird/ GM product with broad post-sale servicing and
support.
GOVERNMENT REGULATION
School bus manufacturers must conform to vehicle guidelines imposed by the
FMVSS, as well as to state and local specifications. FMVSS regulations have in
the past directly affected manufacturers of school bus bodies and chassis, as
well as end-users, by altering specifications and, as a result, increasing
costs.
With respect to environmental regulation, the most immediate issue facing
the school bus industry will be the effectiveness in 1998 of more restrictive
EPA emissions standards. These regulations will mandate certain engine changes
and result in increased costs to both manufacturers and end-users of school
buses. Blue Bird management believes that the general public will continue to
mandate improved safety standards and ongoing resolution of environmental issues
beyond 1998, and thereby will generate continuing demand for new school bus
models over the long term. See "--Legal Proceedings" for a discussion of a
pending recall of certain of the Company's products.
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BACKLOG ORDERS
As of July 27, 1996, the dollar amount of backlog orders believed by the
Company to be firm totaled $348 million. It is expected that approximately
two-thirds of such orders will be filled in the fourth quarter of fiscal year
1996. As of July 29, 1995, the dollar amount of backlog orders believed by the
Company to be firm was $318 million. Approximately two-thirds of such orders
were filled in the fourth quarter of fiscal year 1995.
PATENTS, LICENSES AND TRADEMARKS
The Company owns and maintains registrations for the Blue Bird trademark and
variations thereof in 49 countries, including the United States and Canada and
monitors the status of its trademark registrations to maintain them in force and
to renew them as required. Management believes that the Blue Bird trademarks are
valuable because of the Company's strong presence in the bus market.
Accordingly, the Company seeks to eliminate any infringement thereon. The
Company is not currently aware of any such infringement. In addition, the
Company has obtained patent protection in the United States on two safety-
related components used in its buses. One component is related to an auxiliary
heat system (which patent protection will expire in 2009) and the second
component is related to a window opening mechanism (which patent protection will
expire in 2010). The expiration of the patent protection of these two components
is not expected to have a material adverse effect on the Company's financial
condition or result of operations. The Company also takes steps, including legal
action, to protect its patent, trademark and trade name rights and proprietary
rights respecting product design and technology when circumstances warrant such
action.
SEASONALITY
The Company's sales show seasonal variation which is typical of the general
industry seasonality. A majority of the Company's sales occur in the third and
fourth quarters of the fiscal year, a pattern typical for the industry. For
additional data on the seasonal nature of the Company's sales, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
EMPLOYEES
As of September 28, 1996, the Company had approximately 2,577 employees, of
whom approximately 2,112 were hourly workers. Blue Bird's U.S. and Canadian
employees are not represented by any collective bargaining group. Blue Bird's
Mexican employees are required by local law to be members of a union. The
Company historically provided a competitive wage and benefit program and has an
active communications program with its employees. Blue Bird has a four-day,
10-hour-per-day work week, which management believes is viewed as a positive
feature by its labor force. The Company believes that its relationship with its
employees is satisfactory.
PROPERTIES
Blue Bird owns and operates seven facilities, six of which are manufacturing
facilities, in five different locations in the U.S., Canada and Mexico. In the
aggregate, these plants have approximately 1.8 million square feet of production
area. Blue Bird management considers all of these facilities to be
state-of-the-art in the school bus manufacturing industry.
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The table below provides summary descriptions of each of the plants.
<TABLE>
<CAPTION>
SQUARE
PLANT LOCATION PRODUCTS FEET EMPL.(A)
- ----------------------------- ----------------------------- ----------------------------- ---------- -----------
<S> <C> <C> <C> <C>
Blue Bird Body Company Fort Valley, Georgia TC/2000, Q-Bus All- American, 730,000 1,389
parts fabrication
Service Parts Fort Valley, Georgia Parts 80,000 N.A.(b)
Wanderlodge Fort Valley, Georgia Wanderlodge, parts 216,000 243
fabrication
Blue Bird North Georgia LaFayette, Georgia Conventional, TC/2000 216,000 262
Blue Bird Midwest Mt. Pleasant, Iowa Conventional, Mini-Bird, 227,400 263
TC/2000, Micro-Bird
Blue Bird Canada Brantford, ON (Canada) TC/2000, Conventional, 251,395 271
Micro-Bird, parts
fabrication
Blue Bird de Mexico Monterrey, Mexico Conventional 118,310 149
---------- -----
Total Company
1,839,105 2,577
---------- -----
---------- -----
</TABLE>
- ------------------------
(a) As of September 28, 1996.
(b) Included in the number of employees for Blue Bird facility in Fort Valley,
Georgia.
If Blue Bird operated all of its assembly plants at "maximum capacity,"
defined as two eight-hour shifts per day, five days per week, 250 days per year,
the Company could manufacture approximately 27,300 units per year. The Company's
capacity to fabricate all of the parts needs to build the buses is a constraint
as the Company's present fabrication facilities have the capacity to support the
production of approximately 25,000 units per year. With an investment of
approximately $2.5 million in additional equipment, Blue Bird's fabrication
capacity could support approximately 28,500 units per year.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to numerous federal,
state, local and international laws and regulations, including those governing
the use, storage, handling, transportation, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes
(collectively, "Hazardous Materials"), the remediation of contaminated soil and
groundwater, and the health and safety of employees (collectively,
"Environmental Laws"). Violation of such Environmental Laws, even if
inadvertent, could have an adverse impact on the operations, business or
financial results of the Company. As such, the nature of the Company's
operations exposes it to the risk of claims with respect to such matters and
there can be no assurance that material costs or liabilities will not be
incurred in connection with such claims.
The Company maintains an inactive landfill site at its Fort Valley, Georgia,
location which is subject to regulation pursuant to the U.S. Resource
Conservation and Recovery Act, as amended ("RCRA"). RCRA is administered in
Georgia by the Environmental Protection Division of the Georgia Department of
Natural Resources ("EPD"). The Company has closed its Fort Valley landfill site
pursuant to a permit from the EPD that contains certain conditions, including
30-year post-closure groundwater monitoring. In connection with such permit, the
Company maintains a letter of credit to cover the expected cost of monitoring
over the life of the monitoring requirement. The Company currently estimates
post-closure costs for the site at $434,700. The Company's estimate of
post-closure costs is subject to periodic adjustment based on EPD regulations.
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Monitoring by the Company has detected increased levels of solvents in
groundwater near its Fort Valley site, and the Company has so advised the EPD.
Continued monitoring and testing is required to ascertain the source of these
solvents. If it is determined that the Company's landfill is the source of such
solvents, corrective action will be required. The Company believes that the cost
of any corrective action that might be required will not be material to its
results of operations or financial condition.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA"), and similar state laws provide for responses to and
strict liability for releases of certain Hazardous Materials into the
environment. These obligations are imposed on certain potentially responsible
parties ("PRPs"), including any person who arranged for the treatment or
disposal of Hazardous Materials at a facility. Generally, liability to the
government under CERCLA is joint and several. The Company has been named a PRP
at the Des Moines barrel and drum site in Des Moines, Iowa and the Seaboard
chemical site in Jamestown, North Carolina. In both instances, the Company is
considered a DE MINIMIS PRP. In 1993, the Company settled its liability for
cleanup costs at the Des Moines barrel and drum site for $5,250. The settlement
contains a re-opener provision in the event future cleanup costs are required,
but the Company is not aware of any anticipated cleanup costs in addition to
those covered in the settlement agreement. In 1995, the Company executed an
administrative Order on Consent among the North Carolina Department of
Environment, Health and Natural Resources, the Seaboard PRP Group II, and the
City of High Point, North Carolina, covering the investigation of cleanup
alternatives at the Seaboard chemical site. The Company anticipates that it will
have the opportunity to enter into a DE MINIMIS buy-out relating to cleanup
costs within the next two years, which buyout is expected to provide a release
from any further liability in connection with the Seaboard site. Although the
cost of such buyout is not currently known, it is not expected to be material.
Based upon its experience to date, the Company believes that the future cost
of compliance with existing Environmental Laws, and liability for known
environmental claims pursuant to such Environmental Laws, will not have a
material effect on the Company's capital expenditures, earnings or competitive
position. However, future events, such as new information, changes in existing
Environmental Laws or their interpretation, and more vigorous enforcement
policies of regulatory agencies, may give rise to additional expenditures or
liabilities that could be material.
LEGAL PROCEEDINGS
Blue Bird currently is a defendant in approximately 17 product liability
suits. The Company aggressively defends product liability cases and insists that
component manufacturers and chassis manufacturers such as GM and Navistar and
smaller parts suppliers stand behind their portions of the product by either
asserting a breach of warranty claim against such supplier or manufacturer, or
claiming a right of indemnification for such supplier or manufacturer pursuant
to the terms of the Company's standard purchase order agreements or the relevant
supplier agreement. The Company manufactures certain components itself and
assembles the various components into the completed vehicle, which may give rise
to independent liabilities. Moreover, the Company's manufacture of chassis for
its Type D school buses may expose the Company to liability associated with such
chassis. The amount of product liability insurance that the Company has in place
has varied significantly from year to year. The Company's policies generally
provide that the Company is responsible for the costs of defending product
liability claims, although Blue Bird's recent insurance plan has included some
participation by insurers in such costs at certain levels.
As of the date of this Prospectus, neither the outcome of the Company's
pending product liability cases nor the amounts of any company liabilities
related to these cases are known. The Company's insurance coverage for
occurrences in each of the past several years has been $25 million in excess of
a $2.5 million deductible (exclusive of excess liability coverage). There is no
certainty that the currently available coverage will remain available to the
Company in the future or at all, that future rate increases might not make such
insurance economically impractical for the Company to maintain, that current
deductible levels
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will be maintained, or that the Company's insurers will be financially viable if
and when payment of a claim is required.
In addition, the statute of limitations for injuries to minor children
(which varies between one and six years, depending on the state) does not
generally begin to run until the child reaches majority; therefore, there may be
potential claims of which Blue Bird is not aware (or accidents of which Blue
Bird was aware, but which did not produce any lawsuit) involving accidents going
back for a number of years. In the ordinary course of events, Blue Bird believes
that it receives notice of most potential claims within a reasonable time of the
occurrence, but there can be no assurance that Blue Bird is aware of all such
potential claims.
Management believes that, considering, among other things, the Company's
insurance coverage, the ultimate resolution of these matters will not have a
material adverse impact on the Company's financial position or results of
operations, and that any losses and expenses (including defense costs) resulting
from product liability claims will be within the applicable insurance coverage.
However, there can be no assurance that this will be true or that the amount of
losses and expenses relating to any claim or claims will not have a material
adverse effect on the Company.
Several owners of motor homes made by Blue Bird have asserted claims under
state laws addressing new vehicle defects. Such claims typically seek a refund
of the purchase price of the vehicle. Management believes that the resolution of
such claims, which are not insured, will not have a material effect on the
Company.
Blue Bird, like other vehicle manufacturers, is also subject to recalls of
its products in the event of manufacturing defects or non-compliance with
applicable regulatory standards. Such recalls can engender claims. In August
1996, the NHTSA announced its determination that approximately 11,500 school
buses were not in compliance with federal requirements for fuel systems. Of the
affected buses, 11,300 were Blue Bird Type D models in which the chassis are
manufactured by the Company, which failed crash tests when fuel tanks were
punctured upon impact. The Company is currently evaluating the scope of the
proposed product recall with the NHTSA as a result of the NHTSA's non-compliance
determination. If all 11,300 buses were to be recalled, management estimates
that the cost to the Company of the repairs required to bring the vehicles into
compliance would not be material to its results of operations or financial
condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who are executive officers and directors of the Company and BBC as of December
4, 1996; all information is provided as of such date:
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul E. Glaske....................................... 63 Chairman of the Board and President of the Company
and BBC; director of the Company and BBC. At the time
the 1992 Acquisition was consummated (the "Effective
Time"), Mr. Glaske was appointed Chairman of the
Board and President of the Company and BBC and a
director of BBC. Mr. Glaske has served as President
of the Company since 1986 and a director of the
Company since 1984. He is also a director of
Borg-Warner Automotive, Inc.
Bobby G. Wallace..................................... 62 Vice President--Finance and Administration, Treasurer
and Secretary of the Company; Vice President,
Treasurer and Secretary of BBC; director of the
Company and BBC. At the Effective Time, Mr. Wallace
was appointed to his current positions with the
Company and BBC. Mr. Wallace has served as the Vice
President-- Finance and Administration of the Company
since 1987. In 1986, he was named Vice
President--Controller.
James H. Grantham.................................... 55 Vice President--Manufacturing of the Company. In
1990, Mr. Grantham was promoted to his current
position. In 1988, he was named Vice
President--Materials, and, in 1987, became Vice
President--Canadian Operations. In 1983, he became
General Manager of Blue Bird's plant in Lafayette,
Georgia, a promotion from his former position of
Production Manager of such plant. Mr. Grantham joined
Blue Bird in 1965.
Richard E. Maddox.................................... 44 Vice President--Sales of the Company. In 1990, Mr.
Maddox was promoted to his current position from his
prior position of Director-- U.S. Sales, to which he
was appointed in 1988. In 1986, he was named
Manager--U.S. Sales, and, in 1982, he was appointed
Manager--Field Sales. Mr. Maddox joined Blue Bird in
1974 and has held various positions in sales since
that time.
Wilbur C. Rumph...................................... 67 Vice President--Engineering, Research & Development
of the Company. Mr. Rumph was
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
appointed to his present position in 1968. He joined
Blue Bird in 1948, where he has held various
positions in the engineering area.
<S> <C> <C>
William G. Milby..................................... 50 Vice President and General Manager-- Canadian Blue
Bird, Mr. Milby assumed his present position in 1989.
In 1985, he was named Vice President and General
Manager of the Wanderlodge division. Mr. Milby joined
the Company in 1971 as an engineer. Mr. Milby is also
a director of Canadian Blue Bird.
B. Richard Benedict.................................. 53 Vice President and General Manager--Blue Bird
Midwest. Mr. Benedict was promoted to his current
position in 1988 from General Manager, to which he
was appointed in 1984. In 1977, Mr. Benedict was
named Production Manager. Mr. Benedict joined the
Company in 1962.
Gerald S. Armstrong.................................. 53 Director of the Company and BBC. Mr. Armstrong served
as Vice President, Treasurer and Secretary of BBC
prior to the 1992 Acquisition. Mr. Armstrong is a
Partner and a director of Stonington Partners, Inc.,
a private investment firm, a position that he has
held since 1993. He has also been a member of the
Board of Directors of MLCP, an affiliate of Merrill
Lynch since 1988. He was a Partner of MLCP from 1993
to July 1994 and an Executive Vice President of MLCP
from 1988 to 1994. MLCP is the general partner of
several limited partnerships which indirectly own
shares of BBC Common Stock. Mr. Armstrong was also a
Managing Director of the Investment Banking Division
of Merrill Lynch from 1988 to 1994. Mr. Armstrong is
also a director of AnnTaylor Stores Corporation,
First USA, Inc., Goss Graphic Systems, Inc.,
Wherehouse Entertainment, Inc. and World Color Press,
Inc.
Alexis P. Michas..................................... 38 Director of the Company and BBC. Mr. Michas served as
Chairman of the Board and President of BBC from its
inception until the Effective Time. Mr. Michas is a
Managing Partner and a director of Stonington
Partners, Inc., a private investment firm, a position
that he has held since 1993. He has also been a
member of the Board of Directors of MLCP since 1989.
He was a Partner of MLCP from 1993 to 1994 and Senior
Vice President of MLCP from 1989 to 1993. MLCP is the
general partner of several limited partnerships which
indirectly own shares of BBC
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
Common Stock. Mr. Michas was also a Managing Director
of the Investment Banking Division of Merrill Lynch
from 1991 to July 1994 and a director in the
Investment Banking Division of Merrill Lynch from
1990 to 1991. Mr. Michas is also a Director of
Borg-Warner Automotive, Inc., Borg-Warner Security
Corporation, Dictaphone Corporation, Goss Graphic
Systems, Inc., Pathmark Stores, Inc. and Supermarkets
General Holdings Corporation.
<S> <C> <C>
Alfred C. Daugherty.................................. 73 Director of the Company and BBC. Mr. Daugherty served
as a director of Blue Bird prior to the 1992
Acquisition. Mr. Daugherty was Chairman of Duracell
International, Inc., a manufacturer of premium
batteries, and Executive Vice President of Dart
Industries, Inc., a maker of consumer products and
chemical specialties, as well as a director of both
companies, until his retirement on January 1, 1995.
Mr. Daugherty is also a director of A. Duda and Sons,
Inc., Atlantic Acquaculture Technologies, Inc., Goss
Graphic Systems, Inc. and GGS Holdings, Inc.
Donald C. Trauscht................................... 62 Director of the Company and BBC. Mr. Trauscht was
elected to the Board of Directors in December 1993.
Since January 1996, Mr. Trauscht has been Chairman of
BW Capital Corp., a private investment company. From
February 1993 to December 1995, he was Chairman and
Chief Executive Officer of Borg-Warner Security
Corporation, an electronic and physical security
company. From December 1991 to January 1993, he was
Chairman and Chief Executive Officer of Borg-Warner
Corporation, a diversified corporation. Prior to
December 1991, he was President of Borg-Warner
Corporation and held various other executive
positions since 1967. He is currently a director of
Baker Hughes Inc., Thiokol Corp., IMO Industries,
Inc., Borg-Warner Automotive, Inc., Borg-Warner
Security Corporation, ESCO Electronics Corp. and
Hydac International Corp.
</TABLE>
Each director of the Company and BBC is elected annually and serves until
the next annual meeting or until his successor is duly elected and qualified.
Each executive officer of the Company and BBC serves at the discretion of the
Boards of Directors of the Company and BBC, respectively.
55
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table sets
forth, for fiscal years 1995, 1994 and 1993, the cash compensation paid by BBC
and its subsidiaries, as well as certain other compensation paid or accrued for
fiscal years 1995, 1994, and 1993, to each of the five most highly compensated
executive officers of BBC (considering Messrs. Grantham, Maddox and Rumph, Vice
Presidents of the Company, to be executive officers of BBC) (collectively, the
"named executive officers") in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
---------------------------
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS/ALL OTHER
FISCAL ------------------------ ---------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY (A) BONUS SARS COMPENSATION
- ---------------------------------------------- ----------- ------------ ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Paul E. Glaske................................ 1995 $ 466,898 $ 428,606 -- $ 19,753(b)
Chairman of the Board and President and 1994 $ 449,041 $ 282,287 -- $ 19,303(b)
Director 1993 $ 424,923 $ 317,500 -- $ 139,573(c)
Bobby G. Wallace.............................. 1995(d) $ 265,388 $ 168,175 -- $ 4,050(f)
Vice President--Finance and Admin., 1994 $ 203,379 $ 101,369 $ 10,000(e) $ 3,600(g)
Treasurer, Secretary and Director 1993 $ 205,738 $ 143,711 -- $ 64,917(h)
James H. Grantham............................. 1995 $ 171,006 $ 123,008 -- $ 4,050(f)
Vice President--Manufacturing of the Company 1994 $ 161,274 $ 75,830 -- $ 3,696(g)
1993 $ 144,355 $ 84,714 -- $ 19,324(i)
Richard E. Maddox............................. 1995 $ 151,996 $ 110,707 -- $ 6,159(f)
Vice President--Sales of the Company 1994 $ 144,055 $ 68,522 -- $ 1,609(g)
1993 $ 129,832 $ 84,714 -- $ 22,941(j)
Wilbur C. Rumph............................... 1995 $ 119,674 $ 42,176 -- $ 4,074(f)
Vice President--Engineering 1994 $ 113,748 $ 29,925 -- $ 3,600(g)
1993 $ 112,725 $ 24,929 -- $ 3,148(k)
</TABLE>
- ------------------------------
(a) Includes amounts deferred at the election of the named executive officer
pursuant to the Company's 401(k) plan. Employees may contribute up to 15% of
their salaries to the 401(k) plan on a pre-tax basis, not to exceed $9,240
in 1995, $9,240 in 1994, and $8,994 in 1993.
(b) Represents life and disability insurance premiums of $15,703 paid by the
Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
matching contributions equal to 40% of the first 6% of each participant's
pre-tax contribution for 1994 and 45% of the first 6% of each participant's
pre-tax contribution for 1995.
(c) Represents $121,169 paid to Mr. Glaske in respect of stock appreciation
rights ("SARs") exercised in connection with the 1992 Acquisition (which
constituted a change of control under the Company's SAR plan) which were
held in escrow in accordance with the terms of an escrow agreement entered
into in connection with the 1992 Acquisition, matching contributions of
$3,148 to the Company's 401(k) plan made by the Company on behalf of Mr.
Glaske and life and disability insurance premiums of $15,256 paid by the
Company. Under the 401(k) plan, the Company makes matching contributions
equal to 35% of the first 6% of each participant's pre-tax contribution.
(d) On April 15, 1993, the Company and BBC entered into an employment agreement
with Mr. Wallace (the "Wallace Employment Agreement") pursuant to which Mr.
Wallace agreed to reduce the amount of his business time devoted to
rendering executive services on behalf of the Company on the Company's
premises or while traveling on behalf of the Company from 100% of such time
to 50% of such time in exchange for a reduction in annual compensation and
investment in BBC. Pursuant to an agreement
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
56
<PAGE>
dated October 31, 1994, the Wallace Employment Agreement was amended to
provide for a return to 100% time devoted to Company business and full
compensation.
(e) The number of shares subject to an option to purchase previously awarded to
Mr. Wallace were reduced from 100,000 to 50,000 pursuant to the Wallace
Employment Agreement. In 1994, Mr. Wallace was granted an option to purchase
10,000 shares of BBC Common Stock.
(f) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 40% of the
first 6% of each participant's pre-tax contribution.
(g) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 45% of the
first 6% of each participant's pre-tax contribution.
(h) Represents $61,769 paid to Mr. Wallace in respect of SARs exercised in
connection with the 1992 Acquisition (which constituted a change of control
under the Company's SAR plan) which were held in escrow in accordance with
the terms of an escrow agreement entered into in connection with the 1992
Acquisition and matching contributions of $3,148 to the Company's 401(k)
plan made by the Company on behalf of Mr. Wallace. Under the 401(k) plan,
the Company makes matching contributions equal to 35% of the first 6% of
each participant's pre-tax contribution.
(i) Represents $16,176 paid to Mr. Grantham in respect of SARs exercised in
connection with the 1992 Acquisition (which constituted a change of control
under the Company's SAR plan) which were held in escrow in accordance with
the terms of an escrow agreement entered into in connection with the 1992
Acquisition and matching contributions of $3,148 to the Company's 401(k)
plan made by the Company on behalf of Mr. Grantham. Under the 401(k) plan,
the Company makes matching contributions equal to 35% of the first 6% of
each participant's pre-tax contribution.
(j) Represents $20,386 paid to Mr. Maddox in respect of SARs exercised in
connection with the 1992 Acquisition (which constituted a change of control
under the Company's SAR plan) which were held in escrow in accordance with
the terms of an escrow agreement entered into in connection with the 1992
Acquisition and matching contributions of $1,645 to the Company's 401(k)
plan made by the Company on behalf of Mr. Maddox. Under the 401(k) plan, the
Company makes matching contributions equal to 35% of the first 6% of each
participant's pre-tax contribution.
(k) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 35% of the
first 6% of each participant's pre-tax contribution.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. No stock options or SARs were
granted in fiscal year 1995.
OPTION/SAR EXERCISES AND HOLDINGS. None of the named executives exercised
any options and/or SARs during the last fiscal year. The following table sets
forth information with respect to the named executive officers concerning the
value of unexercised options and SARs held as of the end of the last fiscal
year:
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FISCAL YEAR-END (A)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ------------ ------------
Paul E. Glaske............................................ 315,000 35,000 $ 7,645,050 $ 849,450
Bobby G. Wallace.......................................... 55,000 5,000 1,334,850 121,350
James H. Grantham......................................... 72,000 8,000 1,747,440 194,160
Richard E. Maddox......................................... 72,000 8,000 1,747,440 194,160
Wilbur C. Rumph........................................... 18,000 2,000 434,860 48,540
</TABLE>
- ------------------------------
(a) Computed using net proceeds value of $24.27 per share at October 28, 1995,
determined by formula in the Blue Bird Corporation Management Stock Option
Plan (the "Management Stock Option Plan").
57
<PAGE>
PENSION PLANS. Blue Bird maintains a qualified defined benefit pension
plan (the "Pension Plan") which covers all U.S. salaried employees. Benefits are
determined under a formula (which is integrated with Social Security) calculated
with reference to an employee's five-year final average earnings and such
employee's years of service. The amount of estimated annual benefits payable
under the Pension Plan based upon various levels of compensation and years of
service, determined before application of the limitations imposed by Sections
401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended (the
"Code"), is set forth below:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL FIVE YEARS OF SERVICE
YEAR ANNUAL --------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 29,569 $ 39,425 $ 49,281 $ 59,138 $ 59,138
150,000 35,944 47,925 59,906 71,888 71,888
175,000 42,319 56,425 70,531 84,638 84,638
200,000 48,694 64,925 81,156 97,388 97,388
225,000 55,069 73,425 91,781 110,138 110,138
250,000 61,444* 81,925* 102,406* 122,888* 122,888*
300,000 74,194* 98,925* 123,656* 148,388* 148,388*
400,000 99,694* 132,925* 166,156* 199,388* 199,388*
500,000 125,194* 166,925* 208,656* 250,388* 250,388*
1,000,000 252,694* 336,925* 421,156* 505,388* 505,328*
2,000,000 507,694* 676,925* 846,156* 1,015,388* 1,015,388*
4,000,000 1,017,694* 1,356,925* 1,696,156* 2,035,388* 2,035,388*
</TABLE>
- ------------------------
* Determined before application of current limitations of Sections 401(a)(17)
and 415 of the Code.
Compensation covered by the Pension Plan is limited to gross wages reported
on Form W-2. Such covered compensation includes all compensation reported in the
Summary Compensation Table (other than amounts representing Company matching
contributions to the 401(k) plan) plus the value, if any, realized upon the
exercise of SARs in connection with the 1992 Acquisition. The covered
compensation for Messrs. Glaske, Wallace, Grantham, Maddox and Rumph does not
differ by more than 10% from that set forth in the Summary Compensation Table.
The estimated credited years of service for each of the named executive officers
is as follows: Mr. Glaske (10 years), Mr. Wallace (10 years), Mr. Grantham (29
years), Mr. Maddox (20 years) and Mr. Rumph (30 years). Benefits from the
Pension Plan, which are integrated with Social Security but are not offset by
any other amounts, are payable in the form of a straight life annuity or, in the
case of married participants, an actuarially equivalent joint and survivor
annuity.
In addition, Blue Bird adopted a non-qualified supplemental retirement plan
(the "SERP") effective January 1, 1991 for selected executive officers to
restore the cutback in benefits under the Pension Plan on account of certain
limitations imposed by Code Sections 401(a)(17) and 415. The SERP provides a
lump sum payout upon retirement.
58
<PAGE>
COMPENSATION OF DIRECTORS
Two of the four non-employee directors of the Company and BBC receive annual
retainers of $24,000 and meeting fees of $1,500 per meeting for up to four
meetings per year for services as directors of the Company and BBC. The
remaining directors of the Company and BBC do not receive compensation for their
services as directors and none of the directors of the Company and BBC receive
compensation for their services as members of the committees of the Boards of
Directors of the Company and BBC.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Glaske's current employment agreement with the Company provides for a
three-year term with an annual base salary of $500,000, plus participation in an
incentive bonus program, the SERP and other employee benefit plans sponsored by
the Company. If Mr. Glaske's employment is terminated by the Company without
good cause or by Mr. Glaske for good reason (as such terms are defined in the
employment agreement), the Company's obligation for the duration of the
employment agreement for salary, employee benefits, supplemental benefits and
various perquisites shall continue without mitigation. Under the terms of the
employment agreement, Mr. Glaske agrees not to disclose confidential information
for so long a such information remains competitively sensitive. During the term
of the employment agreement and for three years after its termination, Mr.
Glaske agrees not to render services to, or have greater than a 2% equity
interest in, any business which is competitive with the Company. Mr. Glaske's
employment agreement does not contain any change of control provisions.
Mr. Wallace's employment agreement with the Company provides for a one-year
term, renewable annually, with an annual base salary of $282,000, plus
participation in an incentive bonus program, the SERP and other employee benefit
plans sponsored by the Company. The employment agreement may be terminated by
either party at the end of any given 12-month period. Under the terms of the
employment agreement, Mr. Wallace agrees not to disclose confidential
information for so long as such information remains competitively sensitive.
During the term of the employment agreement and for three years after its
termination, Mr. Wallace agrees not to render services to, or have greater than
a 2% equity interest in, any business which is competitive with the Company. Mr.
Wallace's employment agreement does not contain any change of control
provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committees of the Company's and BBC's Boards
of Directors during fiscal year 1995 were Messrs. Michas, Armstrong and
Daugherty. During such time, Mr. Glaske served as the Chairman of the Board and
President of the Company and BBC.
The Stockholders' Agreement provides that in the event that Messrs.
Armstrong, Michas, Glaske and Wallace are unwilling or unable to serve, or
otherwise cease to serve, as directors of BBC, the ML Entities shall be entitled
to fill the resulting vacancies on the Board of Directors. In addition, the
Stockholders' Agreement provides that the ML Entities are entitled to nominate
successors for all BBC directors and that the stockholders of BBC will cooperate
in any removal of directors proposed by the ML Entities.
At the time of the 1992 Acquisition, Messrs. Armstrong and Michas were each
executive officers of MLCP and Managing Directors of Merrill Lynch. MLCP is an
affiliate of Merrill Lynch. In connection with the 1992 Acquisition, Merrill
Lynch served as placement agent for the Old Notes and BBC issued 7,700,000
shares of BBC Common Stock (or approximately 91% of the BBC Common Stock
outstanding as of the Effective Time) to the ML Entities.
59
<PAGE>
OWNERSHIP OF CAPITAL STOCK
The Blue Bird Common Stock is the only class of capital stock that the
Company has outstanding. BBC owns 10 shares, which represent 100% of the issued
and outstanding shares of the Company's common stock. The BBC Common Stock is
the only class of capital stock of BBC outstanding. The issued and outstanding
number of shares of BBC Common Stock is 8,424,778. The following table sets
forth the number and percentage of shares of BBC Common Stock beneficially owned
by (i) each person known to BBC to be the beneficial owner of more than 5% of
the outstanding shares of BBC Common Stock, (ii) each director of BBC, (iii)
each named executive officer, and (iv) all directors and executive officers of
BBC as a group. Unless otherwise indicated in a footnote, each person listed
below possesses sole voting and investment power with respect to the shares
indicated as beneficially owned by them. The ML Entities, Management Investors
and BBC are parties to a stockholders' agreement described under "Certain
Relationships and Related Transactions."
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL SHARES OF BBC
BENEFICIAL OWNER OWNERSHIP COMMON STOCK*
- ---------------------------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
ML Entities(a).................................................................... 7,665,000 91.0%
Paul E. Glaske(b)................................................................. 665,000(c) 7.6%
Blue Bird Body Company
3920 Artwright Road
Macon, Georgia 31210
Bobby G. Wallace(b)............................................................... 105,000(d) 1.2%
Blue Bird Body Company
3920 Artwright Road
Macon, Georgia 31210
James H. Grantham(b).............................................................. 152,000(e) 1.8%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Richard E. Maddox(b).............................................................. 152,000(f) 1.8%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Wilbur C. Rumph................................................................... 38,000(g) 0.5%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Donald C. Trauscht(b)............................................................. 4,778 0.1%
Borg-Warner Security Corporation
200 South Michigan Avenue
Chicago, Illinois 60604
A. Clark Daugherty(b)............................................................. 25,000 0.3%
321 Indian Harbor Road
Vero Beach, Florida 32963
Gerald S. Armstrong (h)........................................................... 0 --
Stonington Partners, Inc.
767 Fifth Avenue
New York, New York 10153
Alexis P. Michas (h).............................................................. 0 --
Stonington Partners, Inc.
767 Fifth Avenue
New York, New York 10153
All directors and executive officers as a group
(9 persons)..................................................................... 1,141,778(i) 12.7%
</TABLE>
- ------------------------
* Calculated in accordance with Rule 13d-3 under the Exchange Act.
(FOOTNOTES ON FOLLOWING PAGE)
60
<PAGE>
(a) Shares of BBC Common Stock beneficially owned by the ML Entities are owned
of record as follows: 3,740,188 by Merrill Lynch Capital Appreciation
Partnership No. B-XV, L.P., 2,370,278 by ML Offshore LBO Partnership No.
B-XV, 1,300,619 by ML IBK Positions, Inc., 42,500 by Merrill Lynch KECALP
L.P. 1989, 150,000 by Merrill Lynch KECALP L.P. 1991 and 61,415 by MLCP
Associates L.P. No. II. The address for the ML Entities other than ML
Offshore LBO Partnership No. B-XV is 225 Liberty Street, World Financial
Center--South Tower, New York, New York 10080. The address for ML Offshore
LBO Partnership No. B-XV is P.O. Box 25, Roseneath, The Grange, St. Peter
Port, Guernsey Channel Island, British Isles. Each entity disclaims
beneficial ownership of the shares not owned of record by it.
(b) Messrs. Glaske and Wallace are directors and executive officers of the
Company and BBC. Messrs. Grantham, Maddox and Rumph are executive officers
of the Company who perform policy making functions for BBC and are therefore
deemed executive officers of BBC. Messrs. Trauscht and Daugherty are
directors of the Company and BBC.
(c) Includes 175,000 shares subject to vested options and 140,000 shares subject
to performance options granted to Mr. Glaske under the Management Stock
Option Plan which are currently exercisable. Does not include 35,000 shares
subject to performance options granted to Mr. Glaske under the Management
Stock Option Plan which are not currently exercisable.
(d) Includes 35,000 shares subject to vested options and 20,000 shares subject
to performance options granted to Mr. Wallace under the Management Stock
Option Plan which are currently exercisable. Does not include 5,000 shares
subject to performance options granted to Mr. Wallace under the Management
Stock Option Plan which are not currently exercisable.
(e) Includes 40,000 shares subject to vested options and 32,000 shares subject
to performance options granted to Mr. Grantham under the Management Stock
Option Plan which are currently exercisable. Does not include 8,000 shares
subject to performance options granted to Mr. Grantham under the Management
Stock Option Plan which are not currently exercisable.
(f) Includes 40,000 shares subject to vested options and 32,000 shares subject
to performance options granted to Mr. Maddox under the Management Stock
Option Plan which are currently exercisable. Does not include 8,000 shares
subject to performance options granted to Mr. Maddox under the Management
Stock Option Plan which are not currently exercisable.
(g) Includes 10,000 shares subject to vested options and 8,000 shares subject to
performance options granted to Mr. Rumph under the Management Stock Option
Plan which are currently exercisable. Does not include 2,000 shares subject
to performance options granted to Mr. Rumph under the Management Stock
Option Plan which are not currently exercisable.
(h) Messrs. Armstrong and Michas are directors of the Company, BBC and MLCP.
Messrs. Armstrong and Michas are limited partners of the general partner
("LBO") of Merrill Lynch Capital Appreciation Partnership No. B-XV, L.P. and
ML Offshore LBO Partnership No. B-XV. MLCP is the general partner of LBO.
Messrs. Armstrong and Michas each disclaim beneficial ownership of shares
beneficially owned by the ML Entities.
(i) Includes 300,000 shares subject to vested options and 232,000 shares subject
to performance options granted to executive officers of BBC as a group under
the Management Stock Option Plan which are currently exercisable. Does not
include 58,000 shares subject to performance options granted to executive
officers of BBC under the Management Stock Option Plan which are not
currently exercisable. Does not include any shares beneficially owned by the
ML Entities.
61
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Merrill Lynch, one of the Initial Purchasers (as defined herein), is an
affiliate of the Company and BBC. Two of the directors of the Company and BBC
are partners and directors of Stonington Partners, Inc. and act as consultants
to MLCP.
The Management Investors' purchase of BBC Common Stock in connection with
the 1992 Acquisition was funded through a combination of (i) $200,000 in cash,
(ii) the rollover of approximately $3.65 million of SARs on a pre-tax basis, and
(iii) nonrecourse promissory notes of the Management Investors (the "Management
Notes") in an aggregate principal amount of $4.15 million. Cash distributions
received in respect of the shares of BBC Common Stock purchased with the
proceeds of borrowings under the Management Notes were required to be applied
toward repayment of such notes. The Management Notes were repaid as a result of
the Recapitalization.
Pursuant to the terms of the Stockholders' Agreement entered into on April
15, 1992 by BBC, the Management Investors and the ML Entities (the
"Stockholders' Agreement"), all shares of BBC Common Stock purchased at the
closing of the 1992 Acquisition by the Management Investors and issued upon
exercise of options are subject to certain restrictions on transfer and certain
put and call arrangements in the event that the holder of such shares terminates
his employment with BBC or any of its subsidiaries.
Management Investors will have the right to require BBC to purchase their
shares and options in the event of death, disability, retirement or involuntary
termination for a fair value price determined pursuant to a formula based upon a
multiple of BBC's earnings before interest and taxes. BBC will have the right to
require a Management Investor to sell such Management Investor's shares and
options if such Management Investor's employment terminates at prices determined
by formulas varying under different circumstances, but in no event will such
price be higher than the greater of the initial purchase price and the fair
value price. Payments under the puts and calls are subject to certain
restrictions under the Existing Credit Agreement and the indenture for the Old
Notes, and will be subject to certain restrictions under the New Credit
Agreement and the Indenture, as applicable.
The Stockholders' Agreement also provides that in the event that Messrs.
Armstrong, Michas, Glaske and Wallace are unwilling or unable to serve, or
otherwise cease to serve, as directors of BBC, then the ML Entities shall be
entitled to fill the resulting vacancies on the Board of Directors of BBC. In
addition, the Stockholders' Agreement provides that the ML Entities are entitled
to nominate successors to all BBC directors and that the stockholders of BBC
will cooperate in any removal of directors proposed by the ML Entities.
For certain other information concerning the relationships between the
Initial Purchasers and Merrill Lynch and the Company, see "Plan of
Distribution."
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DESCRIPTION OF DEBT FACILITIES
SENIOR BANK FINANCING
In connection with the Recapitalization, the Company and BBC entered into
the New Credit Agreement, which provides senior bank financing in the maximum
aggregate principal amount of up to $255 million. The Company is the borrower
under the New Credit Agreement.
Under the New Credit Agreement, the Agent Banks (as defined herein) have
provided senior bank financing of up to $255 million pursuant to three
facilities. These facilities, which are described below, are hereinafter
referred to as the "Senior Bank Facility." Borrowings under the Senior Bank
Facility are hereinafter referred to as "Loans." The New Credit Agreement
provides that the Agent Banks may syndicate the Senior Bank Facility to other
lenders (the Agent Banks, together with any such lenders, will hereinafter be
referred to as the "Banks").
The following is a summary description of certain provisions of the New
Credit Agreement:
THE SENIOR BANK FACILITY. The New Credit Agreement provides a six-year term
loan facility (the "Tranche A Term Facility") in an aggregate principal amount
of $100 million and a seven-year term loan facility (the "Tranche B Term
Facility" and, together with the Tranche A Term Facility, the "Term Facilities")
in an aggregate principal amount of $75 million. As part of the
Recapitalization, the Term Facilities were used, among other things, to (i)
finance the purchase of the Old Notes, (ii) refinance the Existing Credit
Agreement, (iii) make the Distribution and (iv) pay certain fees and expenses in
connection with the Recapitalization. The Tranche A Term Facility matures on
November 19, 2002 with the first quarterly installment due on May 19, 1997. The
Tranche B Term Facility matures on November 19, 2003 with the first installment
due on February 19, 1997. The Term Facilities will be repaid in quarterly
installments in the following aggregate annual amounts:
<TABLE>
<CAPTION>
FISCAL YEAR
- ------------- AMOUNT TO BE REPAID
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
1997 $ 8.8
1998 12.8
1999 16.8
2000 20.8
2001 22.8
2002 22.8
2003 70.5
</TABLE>
The New Credit Agreement also provides for a working capital facility (the
"Revolving Facility") of up to $80 million to be used for working capital
requirements and other general corporate purposes. The maximum amount available
under the Revolving Facility is based on the Borrowing Base. The Revolving
Facility includes a subfacility for the issuance of letters of credit in a
maximum aggregate of $20,000,000. The New Credit Agreement requires that for 30
consecutive days, at any time, during each 12-month period, borrowings under the
Revolving Facility shall not exceed $15,000,000. The Revolving Facility will
terminate on November 15, 2002 or upon the repayment of borrowings under the
Term Facilities.
INTEREST PAYMENTS. Interest on Loans under the Senior Bank Facility is
payable at one of the following rates, at the Company's option: (i) with respect
to Loans under the Revolving Facility and the Tranche A Term Facility, (a) the
Base Rate (as defined in the New Credit Agreement) plus 1.50% PER ANNUM or (b)
the Adjusted Eurodollar Rate (as defined in the New Credit Agreement) plus 2.50%
PER ANNUM, available for one-, two-, three-, six-, and, if available, in the
discretion of Banks, nine-month periods and (ii) with respect to Loans under the
Tranche B Term Facility, (a) the Base Rate plus 2.00% PER ANNUM or (b) the
Adjusted Eurodollar Rate plus 3.00% PER ANNUM, available for one-, two-, three-,
six-, and, if available, in the discretion of Banks, nine-month periods;
PROVIDED that the applicable rates may be reduced from time
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to time upon satisfaction of leverage and interest coverage tests to be set
forth in the New Credit Agreement. Interest is payable quarterly with respect to
Loans bearing interest based on the Base Rate and on the last day of selected
interest periods (and at the end of every three months, in the case of interest
periods of longer than three months) with respect to Loans bearing interest
based on the Adjusted Eurodollar Rate and, in each case, upon pre-payment.
Interest on Loans is payable in arrears and computed on the basis of a 360-day
year.
PREPAYMENTS. The New Credit Agreement requires prepayment of the Loans in
amounts equal to (i) 75% of excess cash flow (as determined under the New Credit
Agreement), (ii) the net cash proceeds of certain asset sales with cash proceeds
in excess of the amount specified in the New Credit Agreement, (iii) the net
cash proceeds from the issuance or sale of equity or debt of the Company or BBC
other than the sale of BBC Common Stock to the Company's management in the
ordinary course of business, (iv) the value of surplus assets for a pension plan
returned to BBC or any of its subsidiaries, net of transaction costs (including
taxes payable thereon) incurred in obtaining any such return and (v) the amount
necessary to reduce borrowings and letters of credit issued under the Revolving
Facility to a level commensurate with the Company's Borrowing Base. Such
mandatory prepayments will be applied first to pay interest on the principal
amount so prepaid, second to pay down scheduled repayments of principal in
reverse order of maturity under the Term Facility and third to permanently
prepay and reduce the Revolving Facility commitment. Prepayments of the Term
Facilities will be PRO RATA based on the outstanding principal amounts of the
Term Facilities; PROVIDED that prepayments allocated to Tranche B Term Facility
will be offered to Banks holding such Loans and, to the extent such Banks reject
the prepayment, 75% will be applied to the Tranche A Term Facility and 25% will
be available for the general corporate purposes of the Company. In the case of a
mandatory prepayment resulting from an asset sale, the Company will have the
option of permanently prepaying and reducing the Revolving Facility to the
extent that such asset sale reduces the Borrowing Base. In addition, the Company
may voluntarily prepay amounts outstanding under the Senior Bank Facility in
whole or in part at any time without premium or penalty (PROVIDED that
Eurodollar Rate Loans are prepayable only on the last day of the related
interest period), subject to compliance with certain notice requirements and
minimum prepayment amounts.
SECURITY INTERESTS. As security for the Senior Bank Facility, the Banks
have been granted, among other things, (i) a first priority pledge by BBC of the
capital stock of the Company and 66% of the capital stock of Canadian Blue Bird,
and (ii) a first priority lien on all or substantially all of BBC's and the
Company's assets, including intangibles, machinery, equipment, fixtures,
inventory, receivables and mortgages on all of the real property and leaseholds
owned, directly or indirectly, by BBC and Blue Bird Body Company as requested by
the Agent Banks.
GUARANTEES. BBC has guaranteed all payments and performance obligations of
Blue Bird Body Company with respect to the Senior Bank Facility. Such guarantee
is senior to the BBC Guarantee.
COVENANTS. The New Credit Agreement contains certain covenants, including
the following: (i) BBC and its subsidiaries will not incur indebtedness in
excess of specified amounts set forth in the New Credit Agreement; (ii) BBC and
its subsidiaries will not pay any dividend, or make any redemption or sinking
fund payments to its shareholders, other than (a) dividends solely in shares of
stock to the holders of that class of stock, (b) dividends to BBC to repurchase
BBC Common Stock from Management Investors in accordance with certain
subscription agreements, not to exceed an amount per fiscal year specified in
the New Credit Agreement, or (c) dividends or intercompany loans to BBC to pay
operating expenses, not exceeding $300,000 per fiscal year; (iii) in any fiscal
year, BBC and its subsidiaries will not make any expenditures to purchase or
otherwise acquire property, plant or equipment in excess of an amount specified
for each fiscal year in the New Credit Agreement; PROVIDED that, to the extent
that any unutilized part of that amount is no greater than 10% of that year's
capital expenditure allocation, such unutilized part may be used in the
following year to make such purchases; (iv) BBC and its subsidiaries will not
incur guarantees or contingent liabilities in an aggregate principal amount
exceeding amounts specified in the
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New Credit Agreement except for guarantees relating to the endorsement of
negotiable instruments made in the ordinary course of business; (v) the Company
will not make any repayments on the Notes, other than required interest
payments; (vi) BBC and its subsidiaries will not grant any security interest,
lien, charge of encumbrance, other than pursuant to permitted purchase money
obligations incurred in the ordinary course of business, liens on inventory in
favor of General Motors Acceptance Corp. to secure the purchase price of such
inventory and other specifically permitted liens; and (vii) the Company will not
make any investments except (a) investments in cash equivalents, (b) investments
existing at closing as set forth in the New Credit Agreement, (c) certain
intercompany loans made by the Company to Canadian Blue Bird for working capital
purposes, not to exceed an amount to be specified in the New Credit Agreement,
(d) investments in lease receivables not to exceed $40 million at any one time,
and (e) other investments not to exceed an aggregate of $250,000 at any time.
In addition, BBC and its subsidiaries are required to satisfy certain
financial covenants including maintenance of consolidated EBITDA and a ratio of
EBITDA to cash interest expense at minimum levels to be specified for each
fiscal quarter in the New Credit Agreement; and maintenance of a ratio of total
debt to consolidated EBITDA at less than or equal to a level to be specified for
each fiscal quarter in the New Credit Agreement. Such terms are defined in the
New Credit Agreement.
EVENTS OF DEFAULT. The New Credit Agreement contains certain events of
default, including, without limitation, the following: (i) the failure of the
BBC or its subsidiaries to pay principal on the Loans when due or failure to pay
any interest or other amounts due under the New Credit Agreement within five
days after the due date; (ii) any failure by BBC or its subsidiaries to pay
principal or interest on any indebtedness or contingent obligation in an
individual or aggregate principal amount in excess of $2.5 million or more,
after any applicable grace period, or any breach or default by BBC or its
subsidiaries of any term of any indebtedness or contingent obligation in an
individual or aggregate principal amount of $2.5 million or more, that gives the
holder of such indebtedness or contingent obligation a right to accelerate such
indebtedness or obligation; (iii) any default by BBC or its subsidiaries in the
performance or observance of certain conditions and covenants of the New Credit
Agreement; (iv) any representation or warranty made by BBC or its subsidiaries
in any document delivered in connection with the New Credit Agreement proving to
be false in any material respect; (v) the rendering of a judgment which remains
unvacated, unbonded or unstayed for a period of 60 days against, or a voluntary
settlement by, BBC or any of its subsidiaries which exceeds, in any individual
amount, $2.5 million; (vi) certain events of bankruptcy or insolvency of BBC or
its subsidiaries; (vii) the occurrence of a change of control of BBC or the
Company (as determined under the New Credit Agreement); (viii) any default by
BBC or its subsidiaries in the performance of or compliance with any term in the
New Credit Agreement, other than those specifically referred to in other events
of default therein, which has not been cured or waived by the Banks after
30-days notice of such default; (ix) any order decreeing the dissolution of BBC
or the Company or any of their respective subsidiaries that remains in full
force and effect for over 60 days; (x) an ERISA Event (as determined under the
New Credit Agreement) that results in liability to BBC in excess of $100,000,
(xi) the existence of unfunded benefit liabilities exceeding $100,000; (xii) any
guaranty granted by any party in connection with the New Credit Agreement ceases
to be in full force and effect or any guarantor denies that it has liability
under a guaranty granted in connection with the New Credit Agreement; (xiii) the
security interests or priority thereof granted pursuant to or in connection with
the New Credit Agreement are or become impaired; and (xiv) the failure of the
Company or any obligee of the Notes to comply with the subordination provisions
contained in the documents relating to the issuance of the Notes.
FEES. The Company has agreed to pay (i) a commitment fee of .50% PER ANNUM
on the unused portion of the Revolving Facility, payable quarterly in arrears,
and at maturity, and computed on the basis of a 360-day year and (ii) certain
fees, including without limitation a financing fee, an annual administrative fee
and a PER ANNUM letter of credit fee equal to the applicable spread on Loans
bearing interest based on the Adjusted Eurodollar Rate plus .25% PER ANNUM.
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<PAGE>
OLD CREDIT AGREEMENT. As part of the Recapitalization, the Old Credit
Agreement with Bankers Trust Company ("BTCo.") was replaced and refinanced by
the New Credit Agreement.
LASALLE CREDIT AGREEMENT
Blue Bird Capital maintains the LaSalle Credit Facility with LaSalle, as
agent for itself and other lenders, pursuant to the LaSalle Credit Agreement.
The LaSalle Credit Facility is used to finance the lease financing operations of
Blue Bird Capital. Loans from LaSalle to Blue Bird Capital are secured by a
limited recourse pledge from the Company to LaSalle of all of the common stock
of Blue Bird Capital. Indebtedness of Blue Bird Capital to the Company is
subordinated to indebtedness to LaSalle. The LaSalle Credit Facility terminates
on March 31, 1999 and may be extended for up to two one-year periods. Blue Bird
Capital may borrow up to a maximum aggregate principal amount of $100 million
under the LaSalle Credit Facility, subject to certain limitations as set forth
in the LaSalle Credit Agreement.
The LaSalle Credit Agreement contains financial and other covenants,
including covenants requiring Blue Bird Capital to maintain certain financial
ratios and restricting the ability of Blue Bird Capital to incur indebtedness or
to create or suffer to exist certain liens. The LaSalle Credit Agreement also
requires that certain amounts of indebtedness thereunder be repaid by specified
dates.
The indebtedness of Blue Bird Capital under LaSalle Credit Facility bears
interest at rates that will fluctuate with changes in certain prevailing
interest rates (although such rates may be fixed for limited period of time).
The loans under the LaSalle Credit Facility as of September 26, 1996 bear
interest at the rate of 6.5% PER ANNUM. As of September 26, 1996, there was
$55.5 million outstanding under the LaSalle Credit Facility.
OLD NOTES
As a result of the Recapitalization, no Old Notes remain outstanding.
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DESCRIPTION OF THE EXCHANGE NOTES
The 144A Notes were issued and the Exchange Notes will be issued under the
Indenture dated as of November 15, 1996, (the "Indenture") among the Company,
BBC, as a guarantor, and The Chase Manhattan Bank, as trustee (the "Trustee").
For purposes of this section, the "Company" means Blue Bird Body Company. The
following summary of the material provisions of the Indenture does not purport
to be complete and is subject to, and qualified by, reference to the provisions
of the Indenture, including the definitions of certain terms contained therein
and those terms made part of the Indenture by reference to the Trust Indenture
Act of 1939, as amended, as in effect on the date of the Indenture. The
definition of certain terms used in the following summary are set forth under
"--Certain Definitions."
GENERAL
The Exchange Notes will be unsecured senior subordinated obligations of the
Company limited to $100,000,000 aggregate principal amount. The Exchange Notes
will be issued solely in exchange for an equal principal amount of outstanding
144A Notes pursuant to the Exchange Offer. The terms of the Exchange Notes will
be identical to the 144A Notes, but since the Exchange Notes will have been
registered under the Securities Act, they will generally be freely tradeable by
holders thereof who are not Affiliates of the Company. References in this
Section to the "Notes" will be references to the 144A Notes and/or Exchange
Notes, depending upon which are outstanding. The Exchange Notes will be issued
only in fully registered form without coupons, in denominations of $1,000 and
integral multiples thereof. Principal of, premium, if any, and interest on the
Notes are payable, and the Notes are exchangeable and transferable, at the
office or agency of the Company in the City of New York maintained for such
purposes (which initially will be the corporate trust office of the Trustee).
See "Book-Entry, Delivery and Form." No service charge will be made for any
registration of transfer, exchange or redemption of the Notes, except in certain
circumstances for any tax or other governmental charge that may be imposed in
connection therewith.
BBC has guaranteed, and the Company will cause its Domestic Subsidiaries
under certain circumstances (including whenever a Domestic Subsidiary becomes a
guarantor or obligor under the New Credit Agreement) to guarantee payment of the
Notes on an unsecured senior subordinated basis. See "--Note Guarantees."
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on November 15, 2006. Interest on the Notes will
accrue at the rate of 10 3/4% PER ANNUM and will be payable semi-annually on
each May 15 and November 15, commencing May 15, 1997, to the holders of record
of Notes at the close of business on the May 1 and November 1 immediately
preceding such interest payment date. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the Issue Date. Interest will be computed on the basis of a year
comprised of twelve 30-day months.
OPTIONAL REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after November 15, 2001, at the
redemption prices (expressed as percentages of
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principal amount), set forth below, plus accrued interest to the redemption
date, if redeemed during the 12-month period beginning November 15 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------- -----------
<S> <C>
2001......................................................... 105.375%
2002......................................................... 103.583%
2003......................................................... 101.792%
2004 and thereafter.......................................... 100.000%
</TABLE>
In addition, as described below, in the event of a Change of Control
Triggering Event, the Company is obligated to make an offer to purchase all
outstanding Notes at a redemption price of 101% of the principal amount thereof,
plus accrued and unpaid interest to the date of purchase. The Company is also
obligated to make offers to purchase a portion (calculated as set forth below)
of the Notes at a redemption price of 100% of principal amount plus accrued and
unpaid interest to the date of purchase with a portion of the net cash proceeds
of certain sales or other dispositions of assets. See "--Change of Control
Triggering Event" and "--Certain Covenants--Disposition of Proceeds of Asset
Sales."
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING. On or prior to November
15, 1999, the Company may, at its option, use the net proceeds of a Public
Equity Offering to redeem up to an aggregate of 25% of the principal amount of
Notes originally issued from the holders of Notes, on a PRO RATA basis (or as
nearly PRO RATA as practicable), at a redemption price equal to 110.75% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of redemption; PROVIDED that not less than $75 million in aggregate principal
amount of Notes is outstanding following such redemption. In order to effect the
foregoing redemption with the net proceeds of a Public Equity Offering, the
Company shall send the redemption notice not later than 60 days after the
consummation of the Public Equity Offering.
As used herein, a "Public Equity Offering" means an underwritten public
offering of Capital Stock (other than Redeemable Capital Stock) of the Company
or BBC made on a primary basis by the Company or BBC pursuant to a registration
statement filed with and declared effective by the Commission in accordance with
the Securities Act; PROVIDED that, in the event of an offering by BBC, BBC shall
contribute as equity to the Company proceeds from the Public Equity Offering of
not less than the amount necessary to redeem the Notes under the provisions
described above.
SELECTION AND NOTICE. In the event that less than all of the Notes are to
be redeemed at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed
on a national securities exchange, on a PRO RATA basis, by lot or by such method
as the Trustee will deem fair and appropriate; PROVIDED that no Notes of a
principal amount of $1,000 or less will be redeemed in part; PROVIDED, FURTHER,
that any such redemption pursuant to the provisions relating to a Public Equity
Offering shall be made on a PRO RATA basis or on as nearly a PRO RATA basis as
practicable (subject to the procedures of The Depository Trust Company or any
other depositary). Notice of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note will state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption.
CHANGE OF CONTROL TRIGGERING EVENT
The Indenture provides that, upon the occurrence of a Change of Control
Triggering Event (the date of such occurrence being the "Change of Control
Date"), the Company will be obligated to make an offer
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to purchase (a "Change of Control Offer"), on a business day (the "Change of
Control Purchase Date") not more than 40 nor less than 20 business days
following the Change of Control Date, all of the then outstanding Notes at a
purchase price (the "Change of Control Purchase Price") equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the Change
of Control Purchase Date. The Company will be required to purchase all Notes
properly tendered into the Change of Control Offer and not withdrawn. Prior to
the mailing of the notice to holders provided for below, the Company shall have
(i) repaid in full all Indebtedness under the New Credit Agreement, or offered
to repay and have repaid the lenders under the New Credit Agreement to the
extent such offer has been accepted under the provisions of the New Credit
Agreement, or (ii) obtained the requisite consents under the New Credit
Agreement to permit the repurchase of the Notes as provided for under this
covenant. Failure to mail the notice on the date specified below or to have
satisfied the foregoing condition precedent by the date that the notice is
required to be mailed shall constitute a covenant Default under clause (iii) of
"--Events of Default." The Company shall have no obligation to effect a
repurchase of Notes if a notice has been mailed and such condition precedent has
not been satisfied. A majority of Holders may waive this condition. It should be
noted that the New Credit Agreement may not permit lenders thereunder to accept
an offer of repayment other than on a PRO RATA basis, in which case it may not
be possible to satisfy such condition precedent absent a repayment of all of the
Indebtedness under the New Credit Agreement. See "--Amendments and Waivers."
In order to effect such Change of Control Offer, the Company will, not later
than the 20th business day after the Change of Control Date, be obligated to
mail to each Holder of Notes notice of the Change of Control Offer, which notice
will govern the terms of the Change of Control Offer and will state, among other
things, the procedures that holders must follow to accept the Change of Control
Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of Notes
seeking to accept the Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the "Change of Control" provisions of the Indenture, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under such provisions of the Indenture
by virtue thereof.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the Notes
is subordinated as described below in right of payment to the prior payment in
full in cash or cash equivalents of all Senior Indebtedness.
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company or
its assets, or any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary, or any assignment for the benefit of creditors
or other marshalling of assets or liabilities of the Company, all Senior
Indebtedness must be paid in full before any payment or distribution (excluding
certain permitted equity or subordinated securities) is made on account of the
principal of, premium, if any, or interest on the Notes.
During the continuance of any default in the payment of any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
beyond any applicable grace period and after receipt by the Trustee from
representatives of holders of such Designated Senior Indebtedness of written
notice of such default, no payment or distribution of any assets of the Company
of any kind or character (excluding certain permitted equity or subordinated
securities) will be made on account of the principal of,
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<PAGE>
premium, if any, or interest on, or the purchase, redemption or other
acquisition of, the Notes unless and until such default has been cured or waived
or has ceased to exist or such Designated Senior Indebtedness will have been
discharged or paid in full.
During the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (a "Non-payment Default") and after the receipt by the Trustee from
the representatives of holders of such Designated Senior Indebtedness of a
written notice of such Non-payment Default, no payment or distribution of any
assets of the Company of any kind or character (excluding certain permitted
equity or subordinated securities) may be made by the Company on account of the
principal of, premium, if any, or interest on or the purchase, redemption or
other acquisition of, the Notes for the period specified below (the "Payment
Blockage Period").
The Payment Blockage Period will commence upon the receipt of notice of a
Non-payment Default by the Trustee from the representatives of holders of
Designated Senior Indebtedness and will end on the earlier to occur of the
following events: (i) 179 days will have elapsed since the receipt of such
notice (PROVIDED that such Designated Senior Indebtedness will not theretofore
have been accelerated), (ii) such default is cured or waived or ceases to exist
or such Designated Senior Indebtedness is discharged or (iii) such Payment
Blockage Period will have been terminated by written notice to the Company or
the Trustee from the representatives of holders of Designated Senior
Indebtedness initiating such Payment Blockage Period, after which the Company
will promptly resume making any and all required payments in respect of the
Notes, including any missed payments. In no event will a Payment Blockage Period
extend beyond 179 days from the date of the receipt by the Trustee of the notice
initiating such Payment Blockage Period. Only one Payment Blockage Period with
respect to the Notes may be commenced within any 365-day period. No Non-payment
Default with respect to Designated Senior Indebtedness that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period will be, or can be, made the basis for the commencement of a second
Payment Blockage Period, unless such default has been cured or waived for a
period of not less than 90 consecutive days. In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt of the
notice referred to above and there must be a 186-consecutive-day period in any
365-consecutive-day period during which no Payment Blockage Period is in effect.
In the event that, notwithstanding the foregoing, the Company makes any payment
or distribution to the Trustee or any holder of any Note prohibited by the
subordination provision of the Indenture, then such payment or distribution will
be required to be paid over and delivered to the holders (or their
representative) of Designated Senior Indebtedness.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "--Events of Default."
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes and funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and
the Company may be unable to meet its obligations fully with respect to the
Notes.
As of September 28, 1996, on a PRO FORMA basis after giving effect to the
Recapitalization, Senior Indebtedness of the Company with respect to the Notes
would have been approximately $181.3 million. The Indenture limits, but does not
prohibit, the incurrence by the Company of additional Indebtedness which is
senior to the Notes, but prohibits the incurrence of any Indebtedness
contractually subordinated in right of payment to any other Indebtedness of the
Company and senior in right of payment to the Notes. The foreign and lease
finance operations of the Company are conducted primarily through subsidiaries
of the Company. The claims of creditors of such subsidiaries effectively will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of the Company and its creditors, including holders
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of the Notes. See "Risk Factors--Subordination" and "--Restrictive Covenants and
Asset Encumbrances."
NOTE GUARANTEES
BBC has guaranteed the Company's obligations under the Notes. In addition,
if any Domestic Subsidiary of the Company becomes a guarantor or obligor in
respect of Indebtedness of the Company or any of its Restricted Subsidiaries,
the Company's obligations under the Notes will be guaranteed by such Domestic
Subsidiary. See "--Certain Covenants--Limitation on Guarantees by Restricted
Subsidiaries." Subject to the subordination provisions described above, if the
Company defaults in payment of the principal of, premium, if any, or interest on
the Notes, BBC and each other Guarantor will be obligated to duly and punctually
pay the same.
The Indebtedness evidenced by each Note Guarantee (including the payment of
principal of, premium, if any, and interest on the Notes) is subordinated on the
same basis to Guarantor Senior Indebtedness (defined with respect to the
Indebtedness of a Guarantor) as the Notes are subordinated to Senior
Indebtedness. See "--Subordination." As of September 28, 1996, on a PRO FORMA
basis after giving effect to the Recapitalization, Guarantor Senior Indebtedness
with respect to BBC was approximately $178.6 million.
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
LIMITATION ON INDEBTEDNESS. The Indenture provides that the Company will
not, and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee or in any manner become liable,
contingently or otherwise (in each case, to "incur"), for the payment of any
Indebtedness (including any Acquired Indebtedness); PROVIDED that (i) the
Company and any Subsidiary Guarantor will be permitted to incur Indebtedness
(including Acquired Indebtedness) and (ii) a Restricted Subsidiary will be
permitted to incur Acquired Indebtedness, if immediately after giving PRO FORMA
effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Company is
at least equal to 2.00:1.00.
Notwithstanding the foregoing, the Company and, to the extent specifically
set forth below, the Restricted Subsidiaries may incur each and all of the
following:
(i) Indebtedness of the Company or any Subsidiary Guarantor under the
New Credit Agreement in an aggregate principal amount at any one time
outstanding not to exceed the sum of (a) $175,000,000 with respect to
Indebtedness under the Term Facilities, less principal payments made by the
Company in respect of the Term Facilities, (b) $80,000,000 in the aggregate
with respect to Indebtedness under the Revolving Facility and the letter of
credit facility, less the amount by which the aggregate commitment under the
Revolving Facility has been permanently reduced to the extent that any
repayments required to be made in connection with effecting such permanent
reduction have been made and (c) any Indebtedness incurred under the New
Credit Agreement pursuant to and in compliance with the provisions described
under either (1) the proviso of the first paragraph of this covenant or (2)
clause (xii) below;
(ii) Indebtedness of the Company or any Subsidiary Guarantor under the
Indenture, the Notes and any Note Guarantees;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
otherwise referred to in this paragraph that is outstanding on the Issue
Date, except Indebtedness to be repaid as described under "Use of Proceeds;"
(iv) Indebtedness of the Company or any Restricted Subsidiary in respect
of performance bonds, bankers' acceptances, letters of credit of the Company
or any Restricted Subsidiary and surety bonds provided by the Company or any
Restricted Subsidiary in the ordinary course of business, not to exceed at
any given time $10,000,000 in the aggregate;
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(v) subject to the covenant described under "--Limitation on Restricted
Payments," Indebtedness of any Restricted Subsidiary to the Company or any
Restricted Subsidiary which is not subordinated in right of payment to any
Indebtedness of such Restricted Subsidiary;
(vi) Indebtedness of the Company to any Restricted Subsidiary which is
unsecured and subordinated in right of payment from and after such time as
the Notes shall become due and payable (whether at Stated Maturity, by
acceleration or otherwise) to the payment and performance of the Company's
obligations under the Indenture or the Notes;
(vii) any guarantees of Indebtedness by a Restricted Subsidiary entered
in compliance with the covenant under the Indenture described under
"--Limitations on Guarantees by Restricted Subsidiaries;"
(viii) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary covering Indebtedness of the Company or any Restricted
Subsidiary (which Indebtedness (a) bears interest at fluctuating interest
rates and (b) is otherwise permitted to be incurred under this covenant) to
the extent the notional principal amount of such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness to
which such Interest Rate Protection Obligations relate;
(ix) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements relating to (a) Indebtedness of the Company or a
Restricted Subsidiary and/or (b) obligations to purchase or sell assets or
properties or, in each case, incurred in the ordinary course of business of
the Company or any Restricted Subsidiary; PROVIDED that such Currency
Agreements do not increase the Indebtedness or other obligations of the
Company and the Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(x) Capitalized Lease Obligations of the Company or any Restricted
Subsidiary in an aggregate amount not exceeding $7,500,000 outstanding at
any time;
(xi) (a) Indebtedness of the Company or any Subsidiary Guarantor to the
extent the proceeds thereof are used to Refinance Indebtedness of the
Company or any Subsidiary Guarantor (including all or a portion of the
Notes) or any Restricted Subsidiary and (b) Indebtedness of any Restricted
Subsidiary that is not a Subsidiary Guarantor to the extent the proceeds
thereof are used to Refinance Indebtedness of any Restricted Subsidiary that
is not a Subsidiary Guarantor, in each case, other than the Indebtedness to
be Refinanced as described under "Use of Proceeds" and Indebtedness incurred
under clauses (i), (ii) or (v) above; PROVIDED that, in the case of either
clause (a) or (b), (1) the principal amount of Indebtedness incurred
pursuant to this clause (xi) (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness) shall not exceed the sum of the principal amount
of Indebtedness so Refinanced (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness plus any accreted value attributable thereto
since the original issuance of such Indebtedness) plus the amount of any
premium required to be paid in connection with such Refinancing pursuant to
the terms of such Indebtedness or the amount of any premium reasonably
determined by the Company or a Restricted Subsidiary, as applicable, as
necessary to accomplish such Refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of expenses in connection
therewith; and (2) except in the case of Refinancing or replacement of
Senior Indebtedness or Guarantor Senior Indebtedness or of any Indebtedness
of any Restricted Subsidiary that is not a Subsidiary Guarantor, does not
reduce the Average Life to Stated Maturity of such Indebtedness; and
(xii) additional Indebtedness of the Company or any Restricted Subsidiary
not described by any other clause of this definition, not to exceed an
aggregate principal amount at any time outstanding of $25,000,000 (less the
aggregate principal amount of Indebtedness incurred under the New Credit
Agreement under subclause (i)(c)(1) above).
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LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of the Restricted Subsidiaries to, directly or
indirectly:
(i) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any payment made
to the direct or indirect holders (in their capacities as such) of Capital
Stock of the Company (other than dividends or distributions payable solely
in rights to purchase Capital Stock of the Company (other than Redeemable
Capital Stock)); or
(ii) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company (other than any such Capital Stock owned by
a Restricted Subsidiary); or
(iii) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any such
Subordinated Indebtedness owed to a Restricted Subsidiary); or
(iv) make any Investment (other than a Permitted Investment) in any
person;
(such payments or Investments described in the preceding clauses (i), (ii),
(iii) and (iv) are collectively referred to as "Restricted Payments"), unless,
at the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than in cash, shall be the Fair
Market Value of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment),
(a) no Default shall have occurred and be continuing, (b) the aggregate amount
of all Restricted Payments declared or made from and after the Issue Date would
not exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period (treated as one
accounting period) beginning on September 29, 1996 and ending on the last day of
the fiscal quarter of the Company immediately preceding the date of such
proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net
Income of the Company for such period shall be a deficit, minus 100% of such
deficit) PLUS (2) the aggregate net cash proceeds received by the Company either
(x) as capital contributions in the form of common equity to the Company after
the Issue Date or (y) from the issuance or sale of Capital Stock (excluding
Redeemable Capital Stock but including Capital Stock issued upon the conversion
of convertible Indebtedness, in exchange for outstanding Indebtedness or from
the exercise of options, warrants or rights to purchase Capital Stock (other
than Redeemable Capital Stock)) of the Company to any person (other than to a
Restricted Subsidiary of the Company) after the Issue Date plus (3) in the case
of the disposition or repayment of any Investment constituting a Restricted
Payment made after the Issue Date, an amount equal to the lesser of the return
of capital with respect to such Investment and the initial amount of such
Investment, in either case, less the cost of the disposition of such Investment
and (iii) the Company could incur $1.00 of additional Indebtedness under the
first paragraph of "--Limitation on Indebtedness." For purposes of the preceding
clause (b)(2), upon the issuance of Capital Stock either from the conversion of
convertible Indebtedness or exchange for outstanding Indebtedness or upon the
exercise of options, warrants or rights, the amount counted as net cash proceeds
received will be the cash amount received by the Company at the original
issuance of the Indebtedness that is so converted or exchanged or from the
issuance of options, warrants or rights, as the case may be, plus the
incremental amount of cash received by the Company, if any, upon the conversion,
exchange or exercise thereof.
None of the foregoing provisions of this covenant will prohibit (i) the
payment of any dividend within 60 days after the date of its declaration, if at
the date of declaration such payment would be permitted by the provisions of the
Indenture; (ii) so long as no Default shall have occurred and be continuing, the
redemption, repurchase or other acquisition or retirement of any shares of any
class of Capital Stock of the Company in exchange for, or out of the net
proceeds of, a substantially concurrent issue and sale of other shares of
Capital Stock (other than Redeemable Capital Stock) of the Company to any person
(other than to a Restricted Subsidiary); PROVIDED that such net proceeds are
excluded from clause (b)(2) of the preceding paragraph; (iii) so long as no
Default shall have occurred and be continuing, any redemption, repurchase or
other acquisition or retirement of Subordinated Indebtedness made by exchange
for, or out
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of the net proceeds of, a substantially concurrent issue and sale of (a) Capital
Stock (other than Redeemable Capital Stock) of the Company or (b) Indebtedness
of the Company or any Guarantor so long as such Indebtedness (1) is subordinated
to Senior Indebtedness and the Notes or Guarantor Senior Indebtedness and the
Note Guarantees of such Guarantor, as the case may be, at least to the same
extent as the Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired and (2) has no Stated Maturity earlier than the
Stated Maturity for the final scheduled principal payment of the Notes; (iv)
dividends paid or intercompany loans made by the Company to BBC for the purpose
of paying operating expenses of BBC arising in the ordinary course of business,
including, without limitation, for the payment of taxes; (v) Investments
constituting Restricted Payments made as a result of the receipt of non-cash
consideration from any Asset Sale made pursuant to and in compliance with the
covenant described under "--Disposition of Proceeds of Asset Sales"; (vi) the
making of the Distribution in connection with the Recapitalization or (vii)
payment made by the Company under the Income Taxes Agreement. In computing the
amount of Restricted Payments previously made for purposes of clause (b) of the
preceding paragraph, Restricted Payments under the immediately preceding clauses
(i) and (v) shall be included.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indenture provides that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, conduct any business or enter into or suffer to exist
any transaction or series of related transactions with, or for the benefit of,
any Affiliate of the Company (other than a Restricted Subsidiary so long as no
Affiliate of the Company or beneficial holder of 5% or more of any class or
series of Capital Stock of the Company shall beneficially own any Capital Stock
in such Restricted Subsidiary) or any beneficial holder of 10% or more of any
class of Capital Stock of the Company except (i) on terms that are no less
favorable to the Company or the Restricted Subsidiary, as the case may be, than
those which could have been obtained in a comparable transaction at such time
from persons who do not have such a relationship with the Company, and (ii) with
respect to any transaction or series of related transactions involving aggregate
payments or value equal to or greater than $1,000,000, the Company shall have
delivered an officer's certificate to the Trustee certifying that such
transaction or series of related transactions comply with the preceding clause
(i) and, with respect to any transaction or series of transactions involving
aggregate payments or value equal to or greater than $5,000,000, further
certifying that such transaction or series of transactions have been approved by
a majority of the Board of Directors of the Company, including a majority of the
disinterested directors of the Board of Directors of the Company. For the
purposes of the foregoing, a director of the Company shall not be considered
"interested" with respect to a transaction solely by virtue of being a director
of the other party to such transaction. The Company shall be deemed to have
complied with the foregoing provisions if it has obtained a written opinion from
an Independent Financial Advisor stating that the terms of such transaction or
series of transactions are fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view. This foregoing covenant shall
not apply to (i) the payment of reasonable and customary fees to directors of
the Company, (ii) any customary provision for the indemnification of officers or
directors of the Company, (iii) any transactions with a Wholly-Owned
Unrestricted Subsidiary in connection with a Lease Financing Transaction
(including pursuant to the Income Taxes Agreement) and (d) transactions related
to the Recapitalization.
DISPOSITION OF PROCEEDS OF ASSET SALES. The Indenture provides that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
make any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the shares and/or assets subject to such Asset Sale and (ii) at
least 75% of the consideration for any such Asset Sale is cash and/or Cash
Equivalents (PROVIDED that the following shall be deemed cash for purposes of
this provision and be treated as Net Cash Proceeds, subject to application as
hereinafter provided: the amount of any liabilities (as shown on the balance
sheet or in the notes thereto of the Company or such Restricted Subsidiary) of
the Company or such Restricted Subsidiary that are assumed (and from which the
Company or such Restricted Subsidiary is unconditionally released) in connection
with such Asset Sale by the transferee or purchaser of such assets or on behalf
of such transferee or
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purchaser by a third party). To the extent the Net Cash Proceeds of any Asset
Sale are not required to be applied to repay, and permanently reduce the
commitments under, any outstanding Indebtedness under the New Credit Agreement
as required by the terms thereof or are not so applied, then the Company may,
within 12 months of the Asset Sale, invest Net Cash Proceeds in properties and
assets which replace the properties and assets that were the subject of the
Asset Sale or in properties and assets (including inventory) that will be used
in the business of the Company and the Restricted Subsidiaries existing on the
Issue Date or in businesses reasonably related thereto.
The amount of such Net Cash Proceeds in excess of the amount (i) used to
repay Indebtedness under the New Credit Agreement and (ii) permitted to be
invested and so invested as set forth above is referred to herein as "Excess
Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000,
the Company will be obligated to make an offer (an "Asset Sale Offer") to
purchase from all holders of the Notes, on a day not more than 40 business days
thereafter, the maximum principal amount (expressed as a multiple of $1,000) of
Notes that may be purchased with the aggregate Excess Proceeds at a price,
payable in cash, equal to 100% of the principal amount of the Notes plus accrued
and unpaid interest, if any, to the date of purchase (the "Asset Sale Offer
Price"). An Asset Sale Offer will be required to be kept open for a period of at
least 20 business days. To the extent that an Asset Sale Offer is not fully
subscribed to, the Company will be entitled to retain the unutilized portion of
the Excess Proceeds. Whenever Excess Proceeds received by the Company exceed
$10,000,000, such Excess Proceeds will, prior to the purchase of Notes, be set
aside by the Company in a separate account pending (i) deposit with the
depositary of the amount required to purchase the Notes tendered in an Asset
Sale Offer or (ii) delivery by the Company of the Asset Sale Offer Price to the
holders of the Notes validly tendered and not withdrawn pursuant to an Asset
Sale Offer. Such Excess Proceeds may be invested in Cash Equivalents, as
directed by the Company, having a maturity date which is not later than the
earliest possible date for purchase or redemption of Notes pursuant to the Asset
Sale Offer. The Company will be entitled to any interest or dividends accrued,
earned or paid on such Cash Equivalents.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other securities laws or regulations
in connection with the purchase of Notes pursuant to an Asset Sale Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Disposition of Proceeds of Asset Sales" provisions of the Indenture, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under such provisions of the
Indenture by virtue thereof.
LIMITATION ON LIENS. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien of any kind, upon any of its property or assets, whether now
owned or acquired after the Issue Date, or any proceeds therefrom, which secure
either (i) Subordinated Indebtedness unless the Notes and the Note Guarantees,
as applicable, are secured by a Lien on such property, assets or proceeds that
is senior in priority to the Liens securing such Subordinated Indebtedness or
(ii) Pari Passu Indebtedness unless the Notes and the Note Guarantees, as
applicable, are equally and ratably secured with the Liens securing such Pari
Passu Indebtedness.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
provides that neither the Company nor any Guarantor will create, incur, assume,
guarantee or in any other manner become liable with respect to any Indebtedness
(other than the Notes and the Note Guarantees) that is subordinate in right of
payment to any Indebtedness of the Company or of such Guarantor, as the case may
be, unless such Indebtedness is either (i) PARI PASSU in right of payment with
the Notes or such Note Guarantee, as the case may be, or (ii) subordinate in
right of payment to, the Notes or such Note Guarantee, as the case may be, in
the same manner and at least to the same extent as the Notes are subordinated to
Senior Indebtedness or as such Note Guarantee is subordinated to Guarantor
Senior Indebtedness, as the case may be.
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LIMITATION ON GUARANTEES BY RESTRICTED SUBSIDIARIES. The Indenture provides
that the Company will not permit any of the Domestic Subsidiaries, directly or
indirectly, to guarantee the payment of any Indebtedness of BBC, the Company or
any Restricted Subsidiary unless such Domestic Subsidiary (i) is a Subsidiary
Guarantor or (ii) simultaneously executes and delivers a supplemental indenture
to the Indenture pursuant to which it will become a Subsidiary Guarantor under
the Indenture. Notwithstanding the foregoing, any Note Guarantee by a Restricted
Subsidiary will provide by its terms that it will be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any person not an Affiliate of the Company, of all of the Capital Stock of such
Restricted Subsidiary, or all or substantially all the assets of such Restricted
Subsidiary, pursuant to a transaction which is in compliance with the Indenture.
The Indenture further provides that the Company may, at any time, cause a
Restricted Subsidiary to become a Subsidiary Guarantor by executing and
delivering a supplemental indenture providing for the guarantee of payment of
the Notes by such Restricted Subsidiary on the basis provided in the Indenture.
RESTRICTIONS ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Indenture
provides that the Company will not permit any of the Restricted Subsidiaries to
issue any Preferred Stock (other than to the Company or to a Wholly-Owned
Restricted Subsidiary) or permit any person (other than the Company or a Wholly-
Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted
Subsidiary.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist, or enter into any agreement with any person that would
cause to become effective, any consensual encumbrance or restriction of any
kind, on the ability of any Restricted Subsidiary to (i) pay dividends, in cash
or otherwise, or make any other distribution on or in respect of its Capital
Stock or any other interest or participation in, or measured by, its profits,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary, except (a) any encumbrance or restriction existing
under the security documentation for the New Credit Agreement as in effect on
the Issue Date relating to assets subject to a Lien created thereby; (b) any
encumbrance or restriction, with respect to a Restricted Subsidiary that is not
a Restricted Subsidiary on the Issue Date, in existence at the time such person
becomes a Restricted Subsidiary (but not created in contemplation thereof); and
(c) any encumbrance or restriction existing under any agreement that refinances
or replaces the agreements containing the restrictions in the foregoing clauses
(a) and (b); PROVIDED that the terms and conditions of any such restrictions
permitted under this clause (c) are not materially less favorable to the holders
of the Notes than those under or pursuant to the agreement evidencing the
Indebtedness being refinanced.
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Indenture
provides that the Company may designate any Subsidiary of the Company (other
than a Subsidiary Guarantor) as an "Unrestricted Subsidiary" under the Indenture
(a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the Capital Stock of such Subsidiary on such date; and
(iii) the Company would be permitted under the Indenture to incur $1.00
of additional Indebtedness pursuant to the first paragraph of the covenant
described under "--Limitation on Indebtedness" at the time of Designation
(assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture further provides
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that (i) the Company shall not and shall not permit any Restricted Subsidiary
to, at any time (a) provide credit support for, or a guarantee of, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (b) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (c) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except in the case of
clause (a) or (b) to the extent permitted under the covenant described under
"--Limitation on Restricted Payments" and to the extent set forth in the first
parenthetical in the definition of "Lease Financing Transaction" and (ii) no
Unrestricted Subsidiary shall at any time guarantee or otherwise provide credit
support for any obligation of the Company or any Restricted Subsidiary.
The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of the Indenture;
All Designations and Revocations must be evidenced by board resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Blue Bird Capital is treated as an Unrestricted Subsidiary under the
Indenture as of the Issue Date.
REPORTING REQUIREMENTS. The Indenture requires that the Company file with
the Commission the annual reports, quarterly reports and other documents
required to be filed with the Commission pursuant to Sections 13 and 15 of the
Exchange Act, whether or not the Company has a class of securities registered
under the Exchange Act. The Company is required to file with the Trustee within
15 days after it files such reports and documents with the Commission copies of
such reports and documents.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture provides that the Company will not, in any transaction or
series of related transactions, merge or consolidate with or into, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to, any person or persons, and that the Company
will not permit any of the Restricted Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company or of the Company and the Restricted
Subsidiaries, taken as whole, to any other person or persons, unless (i) either
(a)(1) if the transaction or transactions is a merger or consolidation involving
the Company, the Company shall be the surviving person of such merger or
consolidation or (2) if the transaction or transactions is a merger or
consolidation involving a Restricted Subsidiary, such Restricted Subsidiary
shall be the surviving person of such merger or consolidation and such surviving
person shall be a Restricted Subsidiary, or (b)(1) the person formed by such
consolidation or into which the Company or such Restricted Subsidiary is merged
or to which the properties and assets of the Company or such Restricted
Subsidiary, as the case may be, are transferred (any such surviving person or
transferee person being the "Surviving Entity") shall be a corporation organized
and existing under the laws of the United States of America, any State thereof
or the District of Columbia and (2)(A) in the case of a transaction involving
the Company, the Surviving Entity shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture,
and in each case, the Indenture shall remain in full force and effect, or (B) in
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the case of a transaction involving a Restricted Subsidiary that is a Subsidiary
Guarantor, the Surviving Entity shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of such Restricted Subsidiary under its Note
Guarantee and related supplemental indenture, and in each case, such Note
Guarantee and supplemental indenture shall remain in full force and effect; and
(ii) immediately after giving effect to such transaction or series of related
transactions on a PRO FORMA basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default shall have
occurred and be continuing and the Company, or the Surviving Entity, as the case
may be, after giving effect to such transaction or series of transactions on a
PRO FORMA basis, could incur $1.00 of additional Indebtedness under the first
paragraph of "--Limitation on Indebtedness."
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, transfer, lease or other disposition and the
supplemental indenture in respect thereof comply with the requirements under the
Indenture. In addition, each Subsidiary Guarantor, unless it is the other party
to the transaction or unless its Note Guarantee will be released and discharged
in accordance with its terms as a result of the transaction, will be required to
confirm, by supplemental indenture, that its Note Guarantee will continue to
apply to the obligations of the Company or the Surviving Entity under the
Indenture.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, in which the
Company or the Restricted Subsidiary, as the case may be, is not the continuing
corporation, the successor corporation formed by such a consolidation or into
which the Company or such Restricted Subsidiary is merged or to which such
transfer is made, will succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Restricted Subsidiary, as the case
may be, under the Indenture with the same effect as if such successor
corporation had been named as the Company or such Restricted Subsidiary therein;
and thereafter, except in the case of (i) a lease or (ii) any sale, assignment,
conveyance, transfer, lease or other disposition to a Restricted Subsidiary of
the Company, the Company or such Guarantor, as the case may be, shall be
discharged from all obligations and covenants under the Indenture and the Notes.
The Indenture provides that for all purposes of the Indenture and the Notes
(including the provision of this covenant and the covenants described under
"--Limitation on Indebtedness," "--Limitation on Restricted Payments" and
"--Limitation on Liens"), Subsidiaries of any Surviving Entity will, upon such
transaction or series of related transactions, become Restricted Subsidiaries or
Unrestricted Subsidiaries as provided pursuant to the covenant described under
"--Limitation on Designations of Unrestricted Subsidiaries" and all
Indebtedness, and all Liens on property or assets, of the Company and the
Restricted Subsidiaries in existence immediately prior to such transaction or
series of related transactions will be deemed to have been incurred upon such
transaction or series of related transactions.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes (at its Stated Maturity, upon optional
redemption, required purchase, scheduled principal payment or otherwise); or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days; or
(iii) the Company or any Guarantor fails to comply with any of its
obligations described under "--Consolidation, Merger, Sale of Assets, ETC.,"
"--Change of Control Triggering Event" or "--Certain Covenants--Disposition
of Proceeds of Asset Sales;" or
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(iv) the Company or any Guarantor fails to perform or observe any other
term, covenant or agreement contained in the Notes, the Note Guarantees or
the Indenture (other than a default specified in (i), (ii) or (iii) above)
for a period of 30 days after written notice of such failure requiring the
Company to remedy the same shall have been given (a) to the Company by the
Trustee or (b) to the Company and the Trustee by the holders of 25% in
aggregate principal amount of the Notes then outstanding; or
(v) default or defaults under any agreement, indenture or instrument
under which the Company or any Restricted Subsidiary then has outstanding
Indebtedness in excess of $5,000,000 in the aggregate and either (a) such
Indebtedness is already due and payable in full or (b) such default or
defaults results in the acceleration of the maturity of such Indebtedness;
or
(vi) any Note Guarantee ceases to be in full force and effect or is
declared null and void or any Guarantor denies that it has any further
liability under any Note Guarantee, or gives notice to such effect (other
than by reason of the termination of the Indenture or the release of any
such Note Guarantee in accordance with "--Certain Covenants--Limitation on
Guarantees by Restricted Subsidiaries") and such condition shall have
continued for a period of 30 days after written notice of such condition
shall have been given (a) to the Company by the Trustee or (b) to the
Company and the Trustee by the holders of 25% in aggregate principal amount
of the Notes then outstanding; or
(vii) one or more judgments, orders or decrees of any court or regulatory
or administrative agency for the payment of money in excess of $5,000,000
either individually or in the aggregate, shall have been entered against the
Company or any Restricted Subsidiary or any of their respective properties
and shall not have been discharged and either (a) any creditor shall have
commenced an enforcement proceeding upon such judgment, order or decree or
(b) there shall have been a period of 60 consecutive days during which a
stay of enforcement of such judgment, order or decree, by reason of a
pending appeal or otherwise, will not be in effect; or
(viii) certain events of bankruptcy, insolvency or reorganization with
respect to BBC, the Company or any Material Subsidiary of the Company shall
have occurred; or
(ix) either (a) the collateral agent under the New Credit Agreement or
(b) if the New Credit Agreement shall no longer be in force and effect, any
holder of at least $5,000,000 in aggregate principal amount of Indebtedness
of the Company or any Restricted Subsidiary shall commence judicial
proceedings to foreclose upon assets of the Company or any of its Restricted
Subsidiaries having an aggregate Fair Market Value, individually or in the
aggregate, in excess of $5,000,000 or shall have exercised any right under
applicable law or applicable security documents to take ownership of any
such assets in lieu of foreclosure.
If an Event of Default (other than as specified in clause (viii) with
respect to the Company), shall occur and be continuing, the Trustee, by notice
to the Company, or the holders of at least 25% in aggregate principal amount of
the Notes then outstanding, by notice to the Trustee and the Company, may
declare the principal of, premium, if any, and accrued interest on all of the
outstanding Notes due and payable immediately, upon which declaration, all
amounts payable in respect of the Notes will be immediately due and payable;
PROVIDED, HOWEVER, that so long as the New Credit Agreement shall be in force
and effect, if an Event of Default shall have occurred and be continuing (other
than an Event of Default under clause (viii) with respect to the Company), any
such acceleration shall not be effective until the earlier to occur of (i) five
business days following delivery of a notice of such acceleration to the agent
under the New Credit Agreement and (ii) the acceleration of any Indebtedness
under the New Credit Agreement. If an Event of Default specified in clause
(viii) above with respect to the Company occurs and is continuing, then the
principal of, premium, if any, and accrued interest on all of the outstanding
Notes will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of Notes.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default specified in
clause (v) shall have occurred and be continuing, such
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declaration of acceleration will be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or paid (if
permitted by the terms thereof and the Indenture) or the requisite holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge of rescission, as the case
may be, shall have been given to the Trustee by the Company and by the requisite
holders of such Indebtedness or a trustee, fiduciary or agent for such holders,
within 60 days after such declaration of acceleration in respect of the Notes
and no other Event of Default has occurred which has not been cured or waived
during such 60-day period.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of the outstanding Notes, by written
notice to the Company and the Trustee, may rescind such declaration if (i) the
Company has paid or deposited with the Trustee a sum sufficient to pay (a) all
sums paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (b) all overdue interest on all Notes, (c) the principal of and
premium, if any, on any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the Notes,
and (d) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes; and (ii) all Events of Default,
other than the non-payment of principal of, premium, if any, and interest on the
Notes that has become due solely by such declaration of acceleration, have been
cured or waived.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of, premium, if any, or interest on any Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default will occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders
unless such holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee under the Indenture.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Guarantors of their
respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within five
business days of any event which is, or after notice or lapse of time or both
would become, an Event of Default.
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DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company and the Guarantors with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company will be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payment in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency for
payments in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to terminate
the obligations of the Company and any Guarantor with respect to certain
covenants that are set forth in the Indenture, some of which are described under
"--Certain Covenants," and any omission to comply with such obligations will not
constitute a Default or an Event of Default with respect to the Notes ("covenant
defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes to redemption or maturity; (ii) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred (in the case of defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default shall have
occurred and be continuing on the date of such deposit; (iv) such defeasance or
covenant defeasance shall not cause the Trustee to have a conflicting interest
with respect to any securities of the Company or any Guarantor; (v) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, any material agreement or instrument to which the
Company or any Guarantor is a party or by which it is bound; (vi) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that (a)
the trust funds will not be subject to any rights of holders of Senior
Indebtedness, including, without limitation, those arising under the Indenture
and (b) after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; and (vii) the Company
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that all conditions precedent under the Indenture to
either defeasance or covenant defeasance, as the case may be, have been complied
with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company or any Guarantor has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the
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date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company or any Guarantor has paid all
other sums payable under the Indenture by the Company and the Guarantors; and
(iii) the Company and each of the Guarantors have delivered to the Trustee an
officers' certificate and an opinion of counsel each stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Guarantors, when authorized by
resolutions of their Boards of Directors, and the Trustee may, without the
consent of the holders of any outstanding Notes, amend, waive or supplement the
Indenture or the Notes for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act of
1939, as amended, or making any change that does not materially adversely affect
the legal rights of any holder; PROVIDED, HOWEVER, that the Company has
delivered to the Trustee an Opinion of Counsel (as defined in the Indenture)
stating that such change does not materially adversely affect the legal rights
of any holder. Other amendments and modifications of the Indenture or the Notes
may be made by the Company, the Guarantors and the Trustee with the consent of
the holders of not less than a majority of the aggregate principal amount of the
outstanding Notes; PROVIDED, HOWEVER, that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby, (i) reduce the principal amount of, extend the fixed maturity of or
alter the redemption provisions of, the Notes, (ii) change the currency in which
any Notes or any premium or the interest thereon is payable, (iii) reduce the
percentage in principal amount of outstanding Notes that must consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture or the Notes, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes, (v) waive a default
in payment with respect to the Notes in accordance with the Indenture, (vi) upon
the failure to mail or the mailing of the notice required for a Change of
Control Offer following, in either case, satisfaction of the condition precedent
to the mailing of such notice or upon the occurrence of an Asset Sale, alter the
Company's obligation to purchase the Notes in accordance with the Indenture or
waive any default in the performance thereof, (vii) reduce or change the rate or
time for payment of interest on the Notes, (viii) affect the ranking of the
Notes or (ix) except in compliance with the express provisions of the Indenture,
release any Guarantor from any of its obligations under its Note Guarantee or
the Indenture.
THE TRUSTEE
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions, provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict within 90 days or resign.
The holders of a majority in principle amount of the then outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, subject to certain exceptions. The Indenture provides
that, except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the Indenture. During
the existence of an Event of Default, the Trustee will exercise such rights and
powers vested in it by the Indenture, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. The Trustee may
require reasonable indemnity against costs, expenses or liabilities likely to be
incurred prior to proceeding with any investigation requested by at least a
majority of Holders.
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GOVERNING LAW
The Indenture and the Notes are governed by the laws of the State of New
York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness of a person (i) assumed in
connection with an Asset Acquisition from such person or (ii) existing at the
time such person becomes a Restricted Subsidiary of any other person (other than
any Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such person becoming such a Restricted Subsidiary).
"AFFILIATE" means, with respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person or (ii) any other person that
owns, directly or indirectly, 5% or more of any class or series of such
person's, or the parent of such person's, Capital Stock or any officer, director
or Affiliate of any such other person or, with respect to any other natural
person, any person having a relationship with such other person by blood,
marriage or adoption not more remote than first cousin. For the purposes of this
definition, "control" when used with respect to any specified person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"ASSET ACQUISITION" means (i) an Investment by the Company or any Restricted
Subsidiary in any other person pursuant to which such person will become a
Restricted Subsidiary or will be merged with the Company or any Restricted
Subsidiary or (ii) the acquisition by the Company or any Restricted Subsidiary
of the assets of any person which constitute all or substantially all of the
assets of such person, or any division or line of business of such person.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition to any person other than the Company or a
Restricted Subsidiary, in one or a series of related transactions, of (i) any
Capital Stock of any Restricted Subsidiary of the Company; (ii) all or
substantially all of the assets of any division or line of business of the
Company or any Restricted Subsidiary; or (iii) any other properties or assets of
the Company or any Restricted Subsidiary other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" will not
include (i) any sale, issuance, conveyance, transfer, lease or other disposition
of properties or assets that is governed by the provisions described under
"Consolidation, Merger, Sale of Assets, ETC.," (ii) the sale of lease portfolio
assets pursuant to the terms of any Lease Portfolio Documents or (iii) sales of
property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary, as the case may be. For purposes of the covenant
described under "--Certain Covenants--Disposition of Proceeds of Asset Sales,"
the term "Asset Sale" shall not include any sale, conveyance, transfer, lease or
other disposition of any property or asset, whether in one transaction or a
series of related transactions, either (I) involving assets with a Fair Market
Value not in excess of the equivalent of $250,000 or (II) in connection with a
Capitalized Lease Obligation.
"AVERAGE LIFE TO STATED MATURITY" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (b) the amount
of each such principal payment by (ii) the sum of all such principal payments.
"CAPITAL STOCK" means, with respect to any person, any and all shares,
interests, participation, rights in or other equivalents (however designated) of
such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
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"CAPITALIZED LEASE OBLIGATION" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"CASH EQUIVALENTS" means, at any time, (i) any evidence of Indebtedness with
a maturity of one year or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(PROVIDED that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of one year or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) commercial paper with a maturity of
one year or less issued by a corporation that is not an Affiliate of the Company
(other than Merrill Lynch and its Affiliates) organized under the laws of any
state of the United States or the District of Columbia and rated at least A-1 by
Standard & Poor's Corporation ("Standard & Poor's") or at least P-1 by Moody's
Investor Services, Inc. ("Moody's"); and (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the government of the United States of America or
issued by any agency thereof and backed by the full faith and credit of the
United States of America, in each case, maturing within one year from the date
of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) other than Permitted Holders is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a person will be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of a
majority of the total Voting Stock of the Company or BBC, as the case may be;
(ii) the Company or BBC, as the case may be, consolidates with, or merges with
or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, the Company or BBC, as the
case may be, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company or BBC, as the case may be, is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of the Company or BBC, as the
case may be, is converted into or exchanged for Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation and (b) the
holders of the Voting Stock of the Company or BBC, as the case may be,
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving or transferee corporation
immediately after such transaction; (iii) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company or BBC (together with any new directors whose election
by such Boards of Directors or whose nomination for election by the stockholders
of the Company or BBC was approved by a vote of 66 2/3% of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) or such
other directors as have been appointed by MLCP cease for any reason to
constitute a majority of the Board of Directors of the Company or BBC, as the
case may be, then in office; or (iv) any order, judgment or decree shall be
entered against the Company or BBC decreeing the dissolution or split up of the
Company or BBC and such order shall remain undischarged or unstayed for a period
in excess of 60 days.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a Change
of Control and a Rating Decline.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" means, for any period,
(i) the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income, (b) Consolidated
Non-cash Charges, (c) to the extent reducing Consolidated Net Income,
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Consolidated Interest Expense, and (d) to the extent reducing Consolidated Net
Income, Consolidated Income Tax Expense less (ii) other non-cash items
increasing Consolidated Net Income for such period.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means the ratio of the aggregate
amount of Consolidated Cash Flow Available for Fixed Charges of the Company for
the four full fiscal quarters immediately preceding the date of the transaction
(the "Transaction Date") giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred
to herein as the "Four Quarter Period") to the aggregate amount of Consolidated
Fixed Charges of the Company for the Four Quarter Period. For purposes of this
definition, if the Transaction Date occurs prior to the first anniversary of the
Issue Date, "Consolidated Cash Flow Available for Fixed Charges" and
"Consolidated Fixed Charges" will be calculated, in the case of the Company,
after giving effect on a PRO FORMA basis as if the Recapitalization occurred on
the first day of the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated Cash Flow
Available for Fixed Charges" and "Consolidated Fixed Charges" will be
calculated, without duplication, after giving effect on a PRO FORMA basis for
the period of such calculation to (i) the incurrence of any Indebtedness of the
Company or any of the Restricted Subsidiaries during the period commencing on
the first day of the Four Quarter Period to and including the Transaction Date
(the "Reference Period"), including, without limitation, the incurrence of the
Indebtedness giving rise to the need to make such calculation, as if such
incurrence occurred on the first day of the Reference Period, (ii) an adjustment
to eliminate or include, as applicable, the Consolidated Cash Flow Available for
Fixed Charges and Consolidated Fixed Charges of the Company directly
attributable to assets which are the subject of any Asset Sale or Asset
Acquisition (including, without limitation, any Asset Acquisition giving rise to
the need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) occurring during the Reference
Period, as if such Asset Sale or Asset Acquisition occurred on the first day of
the Reference Period and (iii) the retirement of Indebtedness during the
Reference Period which cannot thereafter be reborrowed occurring as if retired
on the first day of the Reference Period. For purposes of calculating
Consolidated Fixed Charges for this definition of "Consolidated Fixed Charge
Coverage Ratio," interest on Indebtedness incurred during the Four Quarter
Period under any revolving credit facility which can be borrowed and repaid
without reducing the commitments thereunder shall be the actual interest during
the Four Quarter Period. Furthermore, in calculating Consolidated Fixed Charges
for purposes of determining the denominator (but not the numerator) of this
definition of "Consolidated Fixed Charge Coverage Ratio," (i) interest on
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter will be deemed to accrue at a
fixed rate PER ANNUM equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (ii) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Reference
Period; and (iii) notwithstanding clause (i) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate Protection Obligations, will be deemed to
accrue at the rate PER ANNUM resulting after giving effect to the operation of
such agreements. If the Company or any Restricted Subsidiary, directly or
indirectly, guarantees Indebtedness of a third person, the above definition will
give effect to the incurrence of such guaranteed Indebtedness as if the Company
or any Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum of, without
duplication, the amounts for such period of (i) Consolidated Interest Expense;
and (ii) the aggregate amount of cash dividends and other distributions paid or
accrued during such period in respect of Redeemable Capital Stock.
"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and the Restricted
Subsidiaries for such period as determined on a
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consolidated basis in accordance with GAAP. To the extent that Blue Bird Capital
is an Unrestricted Subsidiary during such period and to the extent payments
under the Income Taxes Agreement reduce Consolidated Net Income, Consolidated
Income Tax Expense shall include such payments under the Income Taxes Agreement.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, without duplication,
the sum of (i) the interest expense of the Company and the Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (a) any amortization of debt discount
attributable to such period, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all accrued interest, and (ii) all but the principal component
of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period and as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net income
(or loss) of the Company and the Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted, to the extent included in
calculating such net income (or loss), by excluding, without duplication, (i)
all extraordinary gains or losses (net of fees and expenses relating to the
transaction giving rise thereto), (ii) the portion of net income (or loss) of
the Company and the Restricted Subsidiaries allocable to minority interests in
unconsolidated persons to the extent that cash dividends or distributions have
not actually been received by the Company or one of the Restricted Subsidiaries,
(iii) net income (or loss) of any person combined with the Company or one of the
Restricted Subsidiaries in a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss, net of taxes,
realized upon the termination of any employee pension benefit plan, (v) gains or
losses in respect of any Asset Sales by the Company or one of the Restricted
Subsidiaries (net of fees and expenses relating to the transaction giving rise
thereto), and (vi) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Restricted Subsidiary or its stockholders. Consolidated Net Income shall not be
reduced for any charges arising out of any transaction undertaken as part of the
Recapitalization, but shall be reduced by dividends described under clause (iv)
of the last paragraph of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments."
"CONSOLIDATED NON-CASH CHARGES" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and the
Restricted Subsidiaries reducing net income for such period, determined on a
consolidated basis in accordance with GAAP.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company against fluctuations in currency values.
"DEFAULT" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) all Senior Indebtedness under the
New Credit Agreement and (ii) any other Senior Indebtedness which, at the time
of the incurrence of such Indebtedness, is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"DESIGNATION" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"DESIGNATION AMOUNT" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
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"DOMESTIC SUBSIDIARY" means a Restricted Subsidiary organized under the laws
of the United States, any State or territory thereof or the District of
Columbia.
"EVENT OF DEFAULT" will have the meaning ascribed to such term under
"--Events of Default."
"FAIR MARKET VALUE" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction. Fair Market Value will be determined by
the board of directors of the Company acting in good faith evidenced by a Board
Resolution thereof delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the Issue Date and
are consistently applied.
"GUARANTEE" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"GUARANTOR" means each issuer of a Note Guarantee.
"GUARANTOR SENIOR INDEBTEDNESS" means, with respect to the Indebtedness of
any Guarantor, any such Indebtedness represented by a guarantee by such
Guarantor of any Senior Indebtedness.
"INCOME TAXES AGREEMENT" means the agreement between the Company and Blue
Bird Capital, dated October 18, 1995, as in effect on the Issue Date or as
modified, amended or supplemented in any respect that is not materially adverse
in any respect to the Company.
"INDEBTEDNESS" means, with respect to any person, without duplication, (i)
all indebtedness of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payable and other accrued
current liabilities incurred in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such person in
connection with any letters of credit, bankers acceptance or other similar
credit transaction and in connection with any agreement to purchase, redeem,
exchange, convert or otherwise acquire for value any Capital Stock of such
person, or any warrants, rights or options to acquire such Capital Stock, now or
hereafter outstanding, (ii) all obligations of such person evidenced by bonds,
notes, debentures or other similar instruments, (iii) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations of such person, (v) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (vi) all guarantees of Indebtedness by such person,
(vii) all Redeemable Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
(viii) all obligations under or in respect of currency exchange contracts and
Interest Rate Protection Obligations of such person, and (ix) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of
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the types referred to in clauses (i) through (viii) above. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price will be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness will be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such fair market value to be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not have, a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INTEREST RATE PROTECTION OBLIGATIONS" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such person
calculated by applying a fixed or a floating rate of interest on the same
notional amount or any other arrangement involving payments by or to such person
based upon fluctuations in interest rates.
"INVESTMENT" means, with respect to any person, any direct or indirect
advance, loan or other extension of credit (including by means of a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others or otherwise), or any purchase or acquisition by such person of any
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by any other person. Investments will exclude extensions of
trade credit on commercially reasonable terms in accordance with normal trade
practices. In addition to the foregoing, any foreign exchange contract, currency
swap, Interest Rate Protection Obligation or similar agreement shall constitute
an Investment.
"LEASE FINANCING TRANSACTION" means any transaction that may be entered into
by the Company or any Restricted Subsidiary on an arm's-length basis and with no
recourse to the Company or a Restricted Subsidiary (other than (i) recourse
limited to the Capital Stock of an Unrestricted Subsidiary pledged by the
Company or a Restricted Subsidiary in connection with a Lease Financing
Transaction and (ii) recourse limited to circumstances where a governmental
authority fails to allocate funds to a lease in its budget) involving (a) the
sale by the Company or a Subsidiary of the Company of lease receivables
(including a sale to any Unrestricted Subsidiary and securitization
transactions); (b) the sale by any Subsidiary of the Company of lease
receivables (including securitization transactions); (c) the sale by the Company
of buses and related equipment to any Subsidiary of the Company to facilitate
such Subsidiary subsequently selling or otherwise financing the lease
receivables arising from such buses and related equipment; (d) the sale or lease
by any Subsidiary of the Company of buses and related equipment for which the
receivables arising from such sales and leases will be sold or financed by such
Subsidiary; or (e) the financing of any of the foregoing.
"LEASE PORTFOLIO DOCUMENTS" means (i) the Amended and Restated Loan
Agreement dated March 29, 1996 by and between Blue Bird Capital Corporation and
LaSalle National Bank and all agreements executed pursuant thereto, as the same
may be amended, renewed, extended, substituted, replaced, supplemented or
otherwise modified from time to time, or (ii) any documentation relating to any
other Lease Financing Transaction.
"LIEN" means any mortgage, charge, pledge, lien (statutory or other),
privilege, security interest, hypothecation, cessation and transfer, lease of
real property, assignment for security, claim, deposit arrangement, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, whether real, personal or mixed, movable or immovable, now owned or
hereafter acquired. A person
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will be deemed to own subject to a Lien any property which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"MATERIAL SUBSIDIARY" means Canadian Blue Bird and each other Restricted
Subsidiary of the Company that is a "significant subsidiary" as defined in Rule
1-02 of Regulation S-X under the Securities Act and the Exchange Act (as such
regulation is in effect on the Issue Date).
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage
commissions and other reasonable fees and expenses (including fees and expenses
of legal counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in or having a Lien on the assets
subject to the Asset Sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP consistently applied against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"NEW CREDIT AGREEMENT" means the First Amended and Restated Credit Agreement
among the Company, BBC, BTCo., as Administrative Agent, Merrill Lynch & Co., as
Syndication Agent (and BTCo. and Merrill Lynch & Co., together, the "Agent
Banks"), and the other financial institutions signatory thereto, as in effect on
the Issue Date, and as such agreement may be amended, renewed, extended,
substituted, refinanced, replaced, supplemented or otherwise modified from time
to time, and includes any agreement (i) extending the maturity of all or any
portion of the Indebtedness thereunder, (ii) adding additional borrowers or
guarantors thereunder and (iii) increasing the amount to be borrowed thereunder;
PROVIDED that in the case of clauses (i), (ii) and (iii), any such agreement is
not prohibited by the Indenture.
"NOTE GUARANTEE" means the guarantee by BBC and any additional guarantees
created pursuant to the provisions of the Indenture of the Company's Indenture
Obligations pursuant to the guarantee included in the Indenture.
"PARI PASSU INDEBTEDNESS" means any Indebtedness of the Company or any
Subsidiary Guarantor ranking PARI PASSU in right of payment with the Notes or
the Note Guarantees, as applicable.
"PERMITTED HOLDERS" means MLCP or any other person, directly or indirectly,
controlling, controlled by or under direct or indirect common control with MLCP.
"PERMITTED INVESTMENT" means (i) Investments in any of the Notes; (ii)
Investments in Cash Equivalents; (iii) Investments by the Company or any
Restricted Subsidiary in a Restricted Subsidiary or another person, if as a
result of such Investment (a) such other person becomes a Restricted Subsidiary
or (b) such other person is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to, the Company or a Restricted
Subsidiary; (iv) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers, in each case
arising in the ordinary course of business; (v) Investments in lease
receivables, with respect to leases on terms consistent with the Company's prior
practices; (vi) Investments in any Subsidiary of the Company pursuant to the
terms of any Lease Portfolio Documents on a basis consistent with past practice;
PROVIDED that such Subsidiary is engaged solely in the business of financing or
carrying lease receivables related to the Company's products; (vii) Investments
in Interest Rate Protection Obligations and currency exchange contracts
permitted by the covenant described under "--Limitation on Indebtedness;" (viii)
loans or advances to officers or employees of the Company and the Restricted
Subsidiaries in the ordinary course of business for BONA FIDE business purposes
of the
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Company and the Restricted Subsidiaries (including travel and moving expenses)
not in excess of $500,000 in the aggregate at any one time outstanding; and (ix)
Investments not otherwise described in this definition in an aggregate amount
not exceeding $5,000,000 at any time outstanding.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of such
person's preferred or preference stock whether now outstanding, or issued after
the date of the Indenture, and including, without limitation, all classes and
series of preferred or preference stock.
"RATING AGENCIES" means (i) Standard & Poor's, (ii) Moody's and (iii) if
Standard & Poor's or Moody's or both shall not make a rating of the Notes
publicly available, a nationally recognized securities rating agency or
agencies, as the case may be, selected by the Company, which shall be
substituted for Standard & Poor's or Moody's or both, as the case may be.
"RATING CATEGORY" means (i) with respect to Standard & Poor's, any of the
following categories: BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories: Ba,
B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the
equivalent of any such category of Standard & Poor's or Moody's used by another
Rating Agency. In determining whether the rating of the Securities has decreased
by one or more gradations, gradations within Rating Categories (+ and - for
Standard & Poor's; 1, 2 and 3 for Moody is; or the equivalent gradations for
another Rating Agency) shall be taken into account (E.G., with respect to
Standard & Poor's, a decline in a rating from BB+ to BB, as well as from BB- to
B+, will constitute a decrease of one gradation).
"RATING DATE" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention by the Company or any Permitted Holder to effect a
Change of Control.
"RATING DECLINE" means the decrease (as compared with the Rating Date) by
one or more gradations (including gradations within Rating Categories as well as
between Rating Categories) of the rating of the Notes by either Rating Agency
on, or within six months after, the date of public notice of the occurrence of a
Change of Control or of the intention by the Company or any Permitted Holder to
effect a Change of Control (which period shall be extended for so long as the
rating of the Notes is under publicly announced consideration for possible
downgrade by any of the Rating Agencies).
"REDEEMABLE CAPITAL STOCK" means, with respect to any person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, except to the extent exchangeable
at the option of such person subject to the terms of any debt instrument to
which such person is a party), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is exchangeable for Indebtedness (other than at the option of such person), or
is redeemable at the option of the holder thereof, in whole or in part, in any
such case, on or prior to the final maturity date of the Notes.
"REFINANCE" means, with respect to any Indebtedness, any refinancing,
redemption, retirement, renewal, extension or refunding of such Indebtedness.
"RESTRICTED PAYMENT" has the meaning set forth under "--Certain
Covenants--Limitation on Restricted Payments."
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a board resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants--
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Limitation on Designations of Unrestricted Subsidiaries." Any such designation
may be revoked by a board resolution of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"REVOCATION" has the meaning ascribed to that term under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Indebtedness" will include the principal of, premium,
if any, and interest (including interest that would accrue but for the filing of
a petition initiating any proceeding under any state or federal bankruptcy laws,
whether or not such claim is allowable in such proceeding) on all obligations of
every nature of the Company from time to time owed to the lenders under the New
Credit Agreement, including, without limitation, principal of and interest on,
and all fees and expenses payable under the New Credit Agreement.
Notwithstanding the foregoing, "Senior Indebtedness" does not include, to the
extent constituting Indebtedness, (i) Indebtedness evidenced by the Notes, (ii)
Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of the Company, (iii) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to the Company, (iv) Indebtedness which is represented by
Redeemable Capital Stock, (v) Indebtedness for goods, materials or services
purchased in the ordinary course of business or Indebtedness consisting of trade
payable or other current liabilities (other than any current liabilities owing
under the New Credit Agreement or the current portion of any long-term
Indebtedness which would constitute Senior Indebtedness but for the operation of
this clause (v)), (vi) Indebtedness of or amounts owed by the Company for
compensation to employees or for services rendered to the Company, (vii) any
liability for federal, state, local or other taxes owed or owing by the Company,
(viii) Indebtedness of the Company to a Restricted Subsidiary of the Company or
any other Affiliate of the Company or any of such Affiliate's Restricted
Subsidiaries, other than Indebtedness owed to Merrill Lynch or an Affiliate
thereof by reason of its ownership of securities of the Company acquired in the
ordinary course of its trading or underwriting activities, whether such
securities are held by it for its own account or as nominee, (ix) that portion
of any Indebtedness which at the time of issuance is issued in violation of the
Indenture and (x) amounts owing under leases (other than Capitalized Lease
Obligations).
"STATED MATURITY" means, with respect to any Note or any installment of
interest thereon, the dates specified in such Note as the fixed date on which
the principal of such Note or such installment of interest is due and payable,
and when used with respect to any other Indebtedness, means the date specified
in the instrument governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or any installment of interest thereon is due and
payable.
"SUBSIDIARY" means, with respect to any person, any other person of which a
majority of the equity ownership or the Voting Stock is, at the time, owned,
directly or indirectly, by such person.
"SUBSIDIARY GUARANTOR" mean each Subsidiary of the Company that in the
future executes a supplemental indenture in which such Subsidiary agrees to be
bound by the terms of the Indenture as a Guarantor.
"SUBORDINATED INDEBTEDNESS" means, with respect to the Company, Indebtedness
of the Company which is expressly subordinated in right of payment to the Notes
or, with respect to any Subsidiary Guarantor, Indebtedness of such Subsidiary
Guarantor which is expressly subordinated in right of payment to the Note
Guarantee of such Subsidiary Guarantor.
"UNRESTRICTED SUBSIDIARY" means a Subsidiary of the Company (other than a
Subsidiary Guarantor) designated as such pursuant to and in compliance with the
covenant described under "--Certain Covenants--Limitation on Designations of
Unrestricted Subsidiaries." Any such designation may be revoked by
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a board resolution of the Company delivered to the Trustee, subject to the
provisions of such covenant. Blue Bird Capital will be treated as an
Unrestricted Subsidiary under the Indenture as of the Issue Date.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any persons (irrespective of whether or not, at the time, stock of any other
class or classes will have, or might have, voting power by reason of the
happening of any contingency).
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company and/or
another Wholly-Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a Restricted
Subsidiary.
"WHOLLY-OWNED UNRESTRICTED SUBSIDIARY" means any Unrestricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company and/or a
Wholly-Owned Restricted Subsidiary and/or another Wholly-Owned Unrestricted
Subsidiary. For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be disregarded
in determining the ownership of an Unrestricted Subsidiary.
EXCHANGE OFFER; REGISTRATION RIGHTS
In the event that applicable law or interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer, or if certain
Holders of the 144A Notes are not permitted to participate in, or do not receive
the benefit of, the Exchange Offer, the Registration Rights Agreement provides
that the Company and the Guarantor will use all reasonable efforts to cause to
become effective a shelf registration statement with respect to the resale of
the 144A Notes and to keep such shelf registration statement effective until
three years after the Issue Date or such shorter period ending when all the 144A
Notes have been sold thereunder. The interest rate on the 144A Notes is subject
to increase under certain circumstances if the Company and the Guarantor are not
in compliance with their obligations under the Registration Rights Agreement.
See "Exchange Offer; Registration Rights."
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DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the 144A Notes or
the Exchange Notes by a United States Holder (as defined below). This summary
deals only with United States Holders that will hold the 144A Notes or the
Exchange Notes as capital assets. The discussion does not cover all aspects of
federal taxation that may be relevant to, or the actual tax effect that any of
the matters described herein will have on, the acquisition, ownership or
disposition of the 144A Notes or the Exchange Notes by particular investors, and
does not address state, local, foreign or other tax laws. In particular, this
summary does not discuss all of the tax considerations that may be relevant to
certain types of investors subject to special treatment under the federal income
tax laws (such as banks, insurance companies, investors liable for the
alternative minimum tax, individual retirement accounts and other tax-deferred
accounts, tax-exempt organizations, dealers in securities or currencies,
investors that will hold the 144A Notes or the Exchange Notes as part of
straddles, hedging transactions or conversion transactions for federal tax
purposes or investors whose functional currency is not United States Dollars).
Furthermore, the discussion below is based on provisions of the Code, and
regulations, rulings, and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
U.S. federal income tax consequences different from those discussed below.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, OR DISPOSITION OF EXCHANGE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING JURISDICTION.
As used herein, the term "United States Holder" means a beneficial owner of
the 144A Notes or the Exchange Notes that is (i) a citizen or resident of the
United States for United States federal income tax purposes, (ii) a corporation
created or organized under the laws of the United States or any State thereof,
(iii) a person or entity that is otherwise subject to United States federal
income tax on a net income basis in respect of income derived from the 144A
Notes of the Exchange Notes, or (iv) a partnership to the extent the interest
therein is owned by a person who is described in clause (i), (ii) or (iii) of
this paragraph.
INTEREST
Interest (including any additional interest paid because of failure to
satisfy the requirements of the Registration Rights Agreement ("Additional
Interest")) paid on a 144A Note or an Exchange Note will be taxable to a United
States Holder as ordinary income at the time it is received or accrued,
depending on the holder's method of accounting for tax purposes.
ACQUISITION PREMIUM
If a United States Holder acquires an Exchange Note or has acquired a 144A
Note, in each case, for an amount more than its redemption price, the Holder may
elect to amortize such bond premium on a yield to maturity basis.
PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE EXCHANGE NOTES
In general, a United States Holder's tax basis in an Exchange Note will
equal the price paid for the 144A Notes for which such Exchange Note was
exchanged pursuant to the Exchange Offer. A United States Holder generally will
recognize gain or loss on the sale, exchange, retirement, redemption or other
disposition of a 144A Note or an Exchange Note (or portion thereof) equal to the
difference between the amount realized on such disposition and the United States
Holder's tax basis in the 144A Note or the Exchange Note (or portion thereof).
Except to the extent attributable to accrued but unpaid interest, gain or loss
recognized on such disposition of a 144A Note or an Exchange Note will be
capital gain or loss and
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<PAGE>
will be long-term capital gain or loss if such 144A Note or Exchange Note was
held for more than one year. Any such gain will generally be United States
source gain.
The purchase of an Exchange Note or 144A Note in a subsequent resale may be
affected by the market discount provisions of the Code. These rules generally
provide that, subject to a statutorily defined DE MINIMIS exception, if a United
States Holder purchases an Exchange Note (or purchased a 144A Note) at a "market
discount," as defined below, and thereafter recognizes gain upon a disposition
of the Exchange Note (including dispositions by gift or redemption), the lesser
of such gain (or appreciation, in the case of a gift) or the portion of the
market discount that has accrued ("accrued market discount") while the Exchange
Note (and its predecessor 144A Note, if any) was held by such United States
Holder will be treated as ordinary interest income at the time of disposition
rather than as capital gain. For an Exchange Note or a 144A Note, "market
discount" is the excess of the stated redemption price at maturity over the tax
basis immediately after its acquisition by a United States Holder. Market
discount generally will accrue ratably during the period from the date of
acquisition to the maturity date of the Exchange Note, unless the United States
Holder elects to accrue such discount on the basis of the constant yield method.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a 144A Note acquired at a market discount)
may elect to include the accrued market discount in income currently either
ratably or using the constant yield method. Once made, such an election applies
to all other obligations that the United States Holder purchases at a market
discount during the taxable year for which the election is made and in all
subsequent taxable years of the United States Holder, unless the Internal
Revenue Service consents to a revocation of the election. If an election is made
to include accrued market discount in income currently, the basis of an Exchange
Note in the hands of the United States Holder will be increased by the accrued
market discount thereon, as it is includible in income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest (including any Additional Interest) and principal on,
and the proceeds of sale or other disposition of the 144A Notes or the Exchange
Notes payable to a United States Holder may be subject to information reporting
requirements, and backup withholding at a rate of 31% will apply to such
payments if the United States Holder fails to provide an accurate taxpayer
identification number or to report all interest and dividends required to be
shown on its federal income tax returns. Certain United States Holders
(including, among others, corporations) are not subject to backup withholding.
United States Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
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BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form, without coupons. Except as described below, the Exchange Notes
will be deposited with, or on behalf of, The Depository Trust Company, New York,
New York ("DTC"), and registered in the name of Cede & Co. ("Cede") as DTC's
nominee, in the form of a global Exchange Note certificate (the "Global Exchange
Note") or will remain in the custody of the Trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the Trustee.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form a certificated Exchange Note ("Certificated Exchange Note").
Upon the transfer of any Certificated Exchange Note initially issued to a
Non-Global Holder, such Certificated Exchange Note will, unless the transferee
requests otherwise or the Global Exchange Note has previously been exchanged in
whole for Certificated Exchange Notes, be exchanged for an interest in the
Global Exchange Note.
THE GLOBAL EXCHANGE NOTE. The Company expects that, pursuant to procedures
established by DTC, (a) upon deposit of the Global Exchange Note, DTC or its
custodian will credit on its internal system the principal amount at maturity of
Exchange Notes of the individual beneficial interests represented by such Global
Exchange Note to the respective accounts of persons who have accounts with DTC
and (b) ownership of beneficial interests in the Global Exchange Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
Participants (as defined herein)) and the records of Participants (with respect
to interests of persons other than Participants). Ownership of beneficial
interests in the Global Exchange Note will be limited to persons who have
accounts with DTC ("Participants") or persons who hold interests through
Participants. Qualified Institutional Buyers may hold their interests in the
Global Note directly through DTC if they are Participants in such system, or
indirectly through organizations which are Participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner and holder of the Exchange Notes represented by such Global Exchange
Note for all purposes under the Indenture. No beneficial owner of an interest in
the Global Exchange Note will be able to transfer such interest except in
accordance with DTC's procedures, in addition to those provided for under the
Indenture with respect to the Exchange Notes.
Payments of the principal of or premium and interest on the Global Exchange
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any paying agent under the
Indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Exchange Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of or premium and interest on the Global Exchange Note, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Exchange
Note as shown on the records of DTC or its nominee. The Company also expects
that payments by Participants to owners of beneficial interests in the Global
Exchange Note held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
95
<PAGE>
Transfers between Participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in federal funds. If a holder requires physical delivery of a
Certificated Exchange Note for any reason, including to sell Exchange Notes to
persons in states which require physical delivery of the Exchange Notes or to
pledge such securities, such holder must transfer its interest in the Global
Exchange Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
Participants to whose account the DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Exchange Note for Certificated Exchange Notes,
which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Exchange Notes among Participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED EXCHANGE NOTES. If DTC is at any time unwilling or unable to
continue as a depository for the Global Exchange Note and a successor depository
is not appointed by the Company within 90 days, the Company will issue
Certificated Exchange Notes in exchange for the Global Exchange Note.
96
<PAGE>
EXCHANGE OFFER; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement with the Initial Purchasers,
the Company agreed to file with the Commission the Exchange Offer Registration
Statement of which this Prospectus is a part on an appropriate form under the
Securities Act with respect to an offer to exchange the Notes for the Exchange
Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the holders of 144A Notes who are able to make certain
representations the opportunity to exchange their 144A Notes for Exchange Notes.
If (i) the Company is not permitted to file the Exchange Offer Registration
Statement or to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy, (ii) the Exchange Offer is not
for any other reason consummated within 150 days after the Issue Date, (iii) any
holder of 144A Notes notifies the Company within a specified time period that
(a) due to a change in law or policy it is not entitled to participate in the
Exchange Offer, (b) due to a change in law or policy it may not resell the
Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
holder or (c) it is a broker-dealer and owns 144A Notes acquired directly from
the Company or an affiliate of the Company or (iv) the holders of a majority of
the 144A Notes may not resell the Exchange Notes acquired by them in the
Exchange Offer to the public without restriction under the Securities Act and
without restriction under applicable blue sky or state securities laws, the
Company will file with the Commission the Shelf Registration Statement to cover
resales of the Transfer Restricted Notes (as defined herein) by the holders
thereof. The Company will use its best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Notes" means
each 144A Note until (i) the date on which such Note has been exchanged by a
person other than a broker-dealer for an Exchange Note in the Exchange Offer,
(ii) following the exchange by a broker-dealer in the Exchange Offer of a 144A
Note for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such 144A Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement, (iv) the date on which such 144A Note is distributed to
the public pursuant to Rule 144(k) under the Securities Act (or any similar
provision then in force, but not Rule 144A under the Securities Act), (v) such
144A Note shall have been otherwise transferred by the holder thereof and a new
Note not bearing a legend restricting further transfer shall have been delivered
by the Company and subsequent disposition of such Note shall not require
registration or qualification under the Securities Act or any similar state law
then in force or (vi) such 144A Note ceases to be outstanding.
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer without further
registration under the Securities Act; PROVIDED that in the case of
broker-dealers participating in the Exchange Offer, a prospectus meeting the
requirements of the Securities Act must be delivered upon resale by such
broker-dealers in connection with resales of the Exchange Notes. The Company has
agreed, for period of 180 days after consummation of the Exchange Offer, to make
available a prospectus meeting the requirements of the Securities Act to any
such broker-dealer for use in connection with any resale of any Exchange Notes
acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus
to purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). In addition, the Company has agreed
separately with Merrill Lynch to use its best efforts to maintain a
market-making prospectus to enable Merrill Lynch to make a market in the Notes,
although Merrill Lynch is not obligated to do so.
Each holder of 144A Notes that wishes to exchange such 144A Notes for
Exchange Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any
97
<PAGE>
Exchange Notes to be received by it will be acquired in the ordinary course of
its business, (ii) it has no arrangement with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of the Company, or if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes that were acquired as a result
of market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
The Company has agreed to pay all expenses incident to the Exchange Offer
and will indemnify the Initial Purchasers against certain liabilities, including
liabilities under the Securities Act.
The Registration Rights Agreement provides that: (i) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the Company
will use its best efforts to file the Exchange Offer Registration Statement with
the Commission on or prior to 60 days after the Issue Date, (ii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will use its best efforts to have the Exchange Offer Registration
Statement declared effective by the Commission on or prior to 120 days after the
Issue Date, (iii) unless the Exchange Offer would not be permitted by applicable
law or Commission policy, the Company will commence the Exchange Offer and use
its best efforts to issue on or prior to 150 days after the Issue Date, Exchange
Notes in Exchange for all 144A Notes tendered prior thereto in the Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Company will use its best efforts to file prior to the later of (a) 90 days
after the Issue Date or (b) 30 days after such filing obligation arises and use
their best efforts to cause the Shelf Registration Statement to be declared
effective by the Commission on or prior to 60 days after such obligation arises;
PROVIDED that if the Company has not consummated the Exchange Offer within 150
days of the Issue Date, then the Company will file the Shelf Registration
Statement with the Commission on or prior to the 151st day after the Issue Date.
The Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended until the third anniversary (or
such shorter period as required by Rule 144(k) under the Securities Act) of the
effective date of the Shelf Registration Statement or such shorter period that
will terminate when all the Transfer Restricted Notes covered by the Shelf
Registration Statement have been sold pursuant thereto. If (i) the Company fails
to file any of the registration statements required by the Registration Rights
Agreement on or before the date specified for such filing, (ii) any of such
registration statements are not declared effective by the Commission on or prior
to the date specified for such effectiveness (the "Effectiveness Target Date"),
subject to certain limited exceptions, (iii) the Company fails to consummate the
Exchange Offer within 30 days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement, or (iv) the Shelf Registration
Statement is declared effective but thereafter, subject to certain limited
exceptions, ceases to be effective or usable in connection with resales of
Transfer Restricted Notes, as the case may be, during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (i)
through (iv) above, a "Registration Default"), then the interest rate on
Transfer Restricted Notes will accrue at a rate PER ANNUM equal to an additional
one quarter of one percent (0.25%) of the principal amount of the Notes upon the
occurrence of each Registration Default, which rate will increase by one quarter
of one percent (0.25%) each 90-day period that such additional interest
continues to accrue under any such circumstance, with an aggregate maximum
increase in the interest rate equal to one percent (1%) PER ANNUM. Following the
cure of all Registration Defaults, the accrual of additional interest will cease
and the interest rate will revert to the original rate.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of the form of which will be available upon request to the
Company.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
("Participating Broker-Dealer") pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of
Exchange Notes received in exchange for 144A Notes where such 144A Notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that it will make this Prospectus, as amended or
supplemented, available to any Participating Broker-Dealer for use in connection
with any such resale and Participating Broker-Dealers shall be authorized to
deliver this Prospectus for a period not exceeding 180 days after the Expiration
Date. In addition, until March 12, 1997 (90 days after the date of this
Prospectus), all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account pursuant
to the Exchange Offer. Any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any omissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
MLCP, an affiliate of Merrill Lynch, holds together with its affiliates in
the aggregate approximately 91% of the outstanding shares of BBC Common Stock.
If Merrill Lynch conducts any market-making activities in the Exchange Notes, it
may be required to deliver a "market-making prospectus," registered with the
Commission, when effecting offers and sales in the Exchange Notes because of
such equity ownership of the Company by MLCP. Merrill Lynch has no obligation to
make a market in the 144A Notes or the Exchange Notes, and may discontinue its
market-making activities at any time without notice, at its sole discretion. BT
Securities Corporation is an affiliate of BTCo., the agent and a lender under
both the Existing Credit Agreement and the New Credit Agreement, and BTCo. has
received and will receive customary fees in connection therewith.
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LEGAL MATTERS
The validity of the Notes and the Note Guarantees offered hereby will be
passed upon for the Company and BBC by Wachtell, Lipton, Rosen & Katz, New York,
New York. Wachtell, Lipton, Rosen & Katz will rely upon an opinion provided by
Rogers & Hardin, Atlanta, Georgia, as to certain matters of Georgia law.
EXPERTS
The consolidated financial statements of the Company as of October 28, 1995
and October 29, 1994, and for each of the three years in the period ended
October 28, 1995, included in this Prospectus have been audited by Arthur
Andersen, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
100
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BLUE BIRD CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................... F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of October 28, 1995 and October 29, 1994.................................. F-3
Consolidated Statements of Income for the Years Ended October 28, 1995, October 29, 1994 and October 30,
1993................................................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended October 28, 1995, October
29, 1994 and October 30, 1993.......................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended October 28, 1995, October 29, 1994 and October
30, 1993............................................................................................... F-7
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS......................................................... F-8
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as of July 27, 1996 and October 28, 1995................. F-20
Unaudited Condensed Consolidated Statements of Income for the
three-month and nine-month periods ended July 27, 1996 and July 29, 1995............................... F-21
Unaudited Condensed Consolidated Statements of Cash Flows for the
nine-month periods ended July 27, 1996 and July 29, 1995............................................... F-22
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................. F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Blue Bird Corporation:
We have audited the accompanying consolidated balance sheets of BLUE BIRD
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of October 28, 1995 and
October 29, 1994 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended October 28, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Blue Bird Corporation and
subsidiaries as of October 28, 1995 and October 29, 1994 and the results of
their operations and their cash flows for each of the three years in the period
ended October 28, 1995 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Atlanta, Georgia
December 14, 1995
F-2
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 28, 1995 AND OCTOBER 29, 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- --------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 21,452,114 $ 10,489,786
Trade receivables.............................................................. 18,865,820 14,263,586
Leases receivable.............................................................. 47,222,024 29,991,634
Inventories.................................................................... 83,346,271 75,784,770
Other current assets........................................................... 6,946,710 7,381,495
-------------- --------------
Total current assets....................................................... 177,832,939 137,911,271
-------------- --------------
LEASES RECEIVABLE, noncurrent.................................................... 15,000,000 0
-------------- --------------
PROPERTY, PLANT, AND EQUIPMENT:
Land........................................................................... 4,079,545 2,168,957
Buildings...................................................................... 16,898,812 13,907,637
Machinery and equipment........................................................ 26,782,544 24,109,830
Automobiles, trucks, and airplane.............................................. 4,847,494 4,488,983
Office furniture and equipment................................................. 4,844,284 4,332,150
Construction in progress....................................................... 1,419,916 6,216,205
-------------- --------------
58,872,595 55,223,762
Less accumulated depreciation.................................................. (21,860,349) (16,308,088)
-------------- --------------
Net property, plant, and equipment......................................... 37,012,246 38,915,674
OTHER ASSETS:
Deferred debt issuance costs, net of accumulated amortization of $7,764,807 and
$5,519,628 in 1995 and 1994, respectively.................................... 4,111,690 5,606,869
Goodwill, net of accumulated amortization of $13,567,500 and $9,707,500 in 1995
and 1994, respectively....................................................... 139,124,106 142,984,106
Noncompete agreement, net of accumulated amortization of $5,000,000 and
$4,167,133 in 1995 and 1994, respectively.................................... 0 832,867
Land and idle facilities....................................................... 2,723,347 2,723,347
Other assets................................................................... 3,987,332 3,882,464
-------------- --------------
Total other assets......................................................... 149,946,475 156,029,653
-------------- --------------
Total assets............................................................... $ 379,791,660 $ 332,856,598
-------------- --------------
-------------- --------------
</TABLE>
F-3
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
OCTOBER 28, 1995 AND OCTOBER 29, 1994
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- --------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving credit facility...................................................... $ 35,661,573 $ 0
Current portion of long-term debt.............................................. 12,000,000 10,000,000
Trade accounts payable......................................................... 25,743,234 25,053,630
Deposits and amounts due customers............................................. 4,021,274 3,893,705
Income taxes payable........................................................... 6,926,161 1,745,520
Accrued warranty............................................................... 5,455,110 6,055,110
Other accrued liabilities...................................................... 16,766,138 17,074,140
Deferred income taxes.......................................................... 9,534,962 8,795,783
-------------- --------------
Total current liabilities.................................................. 116,108,452 72,617,888
-------------- --------------
LONG-TERM LIABILITIES:
Long-term debt................................................................. 111,000,000 123,000,000
Bonds payable.................................................................. 2,750,000 2,750,000
Accrued pension expense........................................................ 8,435,662 7,906,453
Deferred compensation.......................................................... 1,157,435 1,244,959
Deferred income taxes.......................................................... 5,898,112 6,632,280
Other long-term liabilities.................................................... 10,942,778 12,342,773
-------------- --------------
Total long-term liabilities................................................ 140,183,987 153,876,465
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
REDEEMABLE COMMON STOCK, $.01 par value; 720,000 shares issued and outstanding in
1995 and 1994 (Note 8)......................................................... 24,672,000 21,348,000
STOCK SUBSCRIPTIONS RECEIVABLE (Note 8).......................................... (3,800,000) (3,800,000)
-------------- --------------
20,872,000 17,548,000
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 25,000,000 shares authorized, 7,704,778 shares
issued and outstanding in 1995 and 1994...................................... 77,048 77,048
Additional paid-in capital..................................................... 77,022,956 77,022,956
Retained earnings.............................................................. 27,895,901 14,368,280
Minimum pension liability adjustment........................................... 0 (400,000)
Cumulative translation adjustments............................................. (2,368,684) (2,254,039)
-------------- --------------
Total stockholders' equity................................................. 102,627,221 88,814,245
-------------- --------------
Total liabilities and stockholders' equity................................. $ 379,791,660 $ 332,856,598
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES....................................................... $ 517,444,172 $ 476,240,848 $ 413,492,427
COST OF GOODS SOLD.............................................. 430,667,432 392,938,251 340,513,350
-------------- -------------- --------------
GROSS PROFIT.................................................... 86,776,740 83,302,597 72,979,077
-------------- -------------- --------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................... 39,795,821 39,038,361 36,225,471
AMORTIZATION OF GOODWILL AND NONCOMPETE AGREEMENTS.............. 4,692,867 5,567,000 5,656,802
-------------- -------------- --------------
44,488,688 44,605,361 41,882,273
-------------- -------------- --------------
OPERATING INCOME................................................ 42,288,052 38,697,236 31,096,804
INTEREST INCOME................................................. 4,618,315 4,056,013 2,944,582
INTEREST EXPENSE................................................ (18,537,244) (17,405,932) (18,183,788)
OTHER INCOME, NET............................................... 168,554 217,613 667,142
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES...................................... 28,537,677 25,564,930 16,524,740
PROVISION FOR INCOME TAXES...................................... (11,686,056) (10,157,248) (6,929,861)
-------------- -------------- --------------
NET INCOME...................................................... $ 16,851,621 $ 15,407,682 $ 9,594,879
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
<TABLE>
<CAPTION>
MINIMUM
ADDITIONAL CUMULATIVE CUMULATIVE PENSION
COMMON PAID-IN RETAINED TRANSLATION LIABILITY
STOCK CAPITAL EARNINGS ADJUSTMENTS ADJUSTMENT
--------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, October 31, 1992................... $ 77,000 $ 76,923,000 $ (518,001) $ (628,192) $ 0
Net income.............................. 0 0 9,594,879 0 0
Purchase of redeemable common stock..... 0 0 150,920 0 0
Accretion of redeemable common stock.... 0 0 (3,700,800) 0 0
Translation adjustments................. 0 0 0 (1,194,152) 0
--------- ------------- ------------- ------------- -----------
BALANCE, October 30, 1993................... 77,000 76,923,000 5,526,998 (1,822,344) 0
Net income.............................. 0 0 15,407,682 0 0
Issuance of common stock................ 48 99,956 0 0 0
Accretion of redeemable common stock.... 0 0 (6,566,400) 0 0
Translation adjustments................. 0 0 0 (431,695) 0
Minimum pension liability adjustment.... 0 0 0 0 (400,000)
--------- ------------- ------------- ------------- -----------
BALANCE, October 29, 1994................... 77,048 77,022,956 14,368,280 (2,254,039) (400,000)
Net income.............................. 0 0 16,851,621 0 0
Accretion of redeemable common stock.... 0 0 (3,324,000) 0 0
Translation adjustments................. 0 0 0 (114,645) 0
Minimum pension liability adjustment.... 0 0 0 0 400,000
--------- ------------- ------------- ------------- -----------
BALANCE, October 28, 1995................... $ 77,048 $ 77,022,956 $ 27,895,901 $ (2,368,684) $ 0
--------- ------------- ------------- ------------- -----------
--------- ------------- ------------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 16,851,621 $ 15,407,682 $ 9,594,879
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 12,558,707 13,521,452 14,038,249
Increase in cash surrender value of life insurance......... (234,103) (116,467) (144,443)
Deferred income taxes...................................... 5,011 (1,707,636) 4,715,018
Other...................................................... 0 0 (560,248)
Changes in assets and liabilities:
Trade receivables........................................ (4,602,234) 3,927,301 3,156,949
Inventories.............................................. (7,561,501) (591,991) (5,545,987)
Trade accounts payable................................... 689,604 1,088,116 8,442,150
Income taxes payable..................................... 5,180,641 1,201,942 (6,755,617)
Other current liabilities................................ (1,778,792) 3,055,578 (8,393,861)
Other.................................................... 185,669 640,166 692,621
Total adjustments...................................... 4,443,002 21,018,461 9,644,831
-------------- -------------- --------------
Net cash provided by operating activities.............. 21,294,623 36,426,143 19,239,710
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions.................... (3,648,833) (8,594,212) (1,127,374)
Increases in leases receivable................................. (32,230,390) (1,331,603) (9,070,155)
-------------- -------------- --------------
Net cash (used in) investing activities................ (35,879,223) (9,925,815) (10,197,529)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under bank credit agreements and
revolving credit line........................................ 25,661,573 (26,100,000) 4,100,000
Payment of escrow note payable................................. 0 0 (9,725,163)
Stock redemption............................................... 0 0 (522,480)
Other.......................................................... 0 100,004 0
-------------- -------------- --------------
Net cash provided by (used in) financing activities.... 25,661,573 (25,999,996) (6,147,643)
-------------- -------------- --------------
EFFECT OF EXCHANGE RATE FLUCTUATIONS............................. (114,645) (431,695) (1,194,152)
-------------- -------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................ 10,962,328 68,637 1,700,386
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................... 10,489,786 10,421,149 8,720,763
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR......................... $ 21,452,114 $ 10,489,786 $ 10,421,149
-------------- -------------- --------------
-------------- -------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest....................................................... $ 14,959,218 $ 13,856,104 $ 16,517,235
-------------- -------------- --------------
-------------- -------------- --------------
Income taxes................................................... $ 4,038,000 $ 10,224,110 $ 8,830,514
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
1. NATURE OF BUSINESS
Blue Bird Corporation and subsidiaries ("BBC" or the "Company") are engaged
in the manufacture and assembly of school buses, commercial buses, and
recreational vehicles. BBC has facilities in the United States, Canada, and
Mexico.
FISCAL YEAR
BBC's fiscal year ends on the Saturday nearest October 31 of each year,
generally referred to as a "52-/53-week year." Fiscal years 1995, 1994, and 1993
contained 52 weeks.
ACQUISITION ACCOUNTING AND VALUATION
On April 15, 1992, BBC acquired all of the outstanding capital stock of Blue
Bird Body Company and subsidiaries (the "Predecessor") through the merger of BB
Acquisition Corp., a wholly owned subsidiary of BBC, with and into the
Predecessor, with the Predecessor as the surviving corporation. The acquisition
was accounted for as a purchase. The excess purchase price over the fair value
of the net assets, as adjusted, of $152,691,606 was allocated to goodwill. The
goodwill is being amortized using the straight-line method over 40 years. BBC
periodically reviews the value assigned to goodwill to determine whether it has
been permanently impaired by adverse conditions affecting BBC. The Company uses
an estimate of its undiscounted net income over the remaining life of the
goodwill in measuring whether the goodwill is recoverable. Management is of the
opinion that there has been no diminution in the value assigned to goodwill.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
BBC and its domestic and foreign subsidiaries (owned 100% by BBC). All
significant intercompany transactions and accounts have been eliminated in
consolidation.
TRANSLATION AND REMEASUREMENT OF FOREIGN CURRENCIES
For the purpose of consolidation, the accounts for certain foreign
subsidiaries and foreign branches of domestic subsidiaries of the U.S. parent
are translated into U.S. dollars. Foreign currency assets and liabilities are
translated using the exchange rates in effect at the balance sheet date. Results
of operations are translated using the weighted average exchange rates in effect
during the period. The effects of exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are accumulated as
part of the cumulative translation adjustments in the stockholders' equity
section.
One foreign subsidiary (the "Subsidiary") of the U.S. parent transacts sales
denominated in U.S. dollars, while the Company provides inventory and financing.
Accordingly, the U.S. dollar is deemed to be the functional currency. The
Subsidiary does not maintain its books in U.S. dollars but remeasures its
monetary assets and liabilities at balance sheet date rates, its nonmonetary
items at historical rates, and income and expense amounts at the weighted
average rates in effect for the period, except for depreciation and cost of
goods sold which use historical rates. The effects of exchange rate fluctuations
on the
F-8
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
1. NATURE OF BUSINESS (CONTINUED)
remeasurement of the Subsidiary's financial statements are recognized as
exchange gains or losses on the statement of income.
The Company recognizes exchange gains and losses from foreign currency
transactions as other income or expense for the period. A loss of approximately
$617,000 was recorded in fiscal 1995. A gain of approximately $5,000 and a loss
of approximately $499,000 were recorded in fiscal years 1994 and 1993,
respectively.
FINANCIAL INSTRUMENTS
BBC's financial instruments consist primarily of cash and cash equivalents,
trade receivables, leases receivable, accounts payable, revolving credit
facility, long-term debt, and certain interest rate agreements (Note 4). At
October 28, 1995, the estimated fair value of BBC's senior subordinated debt was
$79,875,000. The fair value of the senior subordinated debt was based on the
discounted values of their related cash flows at current market interest rates.
In management's opinion, the carrying amounts of all other financial instruments
approximate their fair values at October 28, 1995.
REVENUE RECOGNITION
BBC recognizes revenue on sales when the related product has been delivered
to the customer and title has passed or full payment has been received from the
customer and the product is completed and awaiting customer pickup.
CASH AND CASH EQUIVALENTS
BBC considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
on the last-in, first-out ("LIFO") basis. Such costs include raw materials,
direct labor, and manufacturing overhead.
If the first-in, first-out method had been used, inventories would have been
approximately $85,900,000 at October 28, 1995 and approximately $75,100,000 at
October 29, 1994.
The components of inventory as of October 28, 1995 and October 29, 1994
consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Raw materials.................................................. $ 32,463,235 $ 28,013,874
Work in process................................................ 22,830,735 25,515,795
Finished goods................................................. 28,052,301 22,255,101
------------- -------------
Total inventories (LIFO cost).............................. $ 83,346,271 $ 75,784,770
------------- -------------
------------- -------------
</TABLE>
F-9
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
1. NATURE OF BUSINESS (CONTINUED)
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment were stated at their fair market values at the
date of acquisition. Assets purchased since the acquisition are stated at cost.
All assets are being depreciated on a straight-line basis over their estimated
useful lives.
The following represent the estimated useful lives of the assets:
<TABLE>
<S> <C>
20-33
Buildings....................................................... years
Machinery and equipment......................................... 5-10 years
Automobiles, trucks, and airplane............................... 3-5 years
Office furniture and equipment.................................. 3-10 years
</TABLE>
Expenditures for property and repair costs which substantially increase
useful lives are capitalized. Currently, normal maintenance and repair costs are
charged to expense as incurred. Gains and losses on disposals of property,
plant, and equipment are reflected in current income.
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. The
Company capitalized net interest costs of approximately $208,237 for the year
ended October 28, 1995 and $145,000 for the year ended October 29, 1994.
Depreciation expense of $5,575,840, $5,608,035, and $5,951,843 was recorded
for the years ended October 28, 1995, October 29, 1994, and October 30, 1993,
respectively.
LAND AND IDLE FACILITIES
BBC currently has land and idle facilities held for sale located in Buena
Vista, Virginia. The estimated fair value of the land and facilities is included
as land and idle facilities in the accompanying balance sheets.
PRODUCT WARRANTY COSTS
The provision for estimated warranty costs is recorded in the year the unit
is sold. Warranty costs totaled $5,313,438, $6,679,409, and $5,247,913 for the
years ended October 28, 1995, October 29, 1994, and October 30, 1993,
respectively.
NONCOMPETE AGREEMENTS
BBC assigned $5,000,000 to noncompete agreements with the former owners. The
related assets were amortized over three years. Amortization expense totaled
$833,000, $1,667,000, and $1,667,000 for the years ended October 28, 1995,
October 29, 1994, and October 30, 1993, respectively.
ACCOUNTING STANDARDS YET TO BE ADOPTED
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," which the Company is required to adopt in fiscal year
1997. SFAS No. 123 requires companies to estimate the value of all
F-10
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
1. NATURE OF BUSINESS (CONTINUED)
stock-based compensation using a recognized pricing model. Companies have the
option to recognize this value as an expense to disclose its pro forma effects
on net income. The Company's management has not yet determined its method of
adoption or the financial statement impact of adopting SFAS No. 123. Other
issued but not yet required FASB standards are not currently applicable to the
Company's operations.
RECLASSIFICATIONS
Certain October 29, 1994 balances have been reclassified to conform with the
October 28, 1995 presentation.
2. LEASES RECEIVABLE
Under the terms of the Bank Credit Agreement discussed in Note 4, BBC is
required to sell leases receivable to a bank once certain levels of lease
receivables are exceeded. Under the original agreement, as leases were sold, the
purchaser established a holdback reserve. However, during 1994, the agreement
was modified such that the holdback reserve has been replaced with a letter of
credit. The letter of credit fluctuates based on the amount of sold leases and
was $1,000,000 and $1,500,000 at October 28, 1995 and October 29, 1994,
respectively.
During 1995, BBC amended the Bank Credit Agreement to allow BBC to hold more
leases receivable. As part of the amendment, BBC created a new subsidiary, Blue
Bird Capital Corporation ("Blue Bird Capital") which acts as the holding agent
and administrator of the incremental leases allowed by the amended credit
agreement.
BBC finances the sale of buses to school districts, other tax-exempt
municipalities, and contractors under sales-type leases. Lease terms range from
one to seven years and contain a bargain purchase option at the end of the lease
term. Under the lease terms, the lessee bears substantially all risks of
ownership. BBC retains a lien on the title until all lease payments have been
made.
The net investment in leases arising from these arrangements as of October
28, 1995 and October 29, 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Leases......................................................... $ 71,803,080 $ 34,887,109
Unearned interest revenue...................................... (9,581,056) (4,895,475)
------------- -------------
Net leases receivable.......................................... $ 62,222,024 $ 29,991,634
------------- -------------
------------- -------------
</TABLE>
Interest income recognized on leases receivable was $2,914,928, $2,652,570,
and $1,797,073 for the years ended October 28, 1995, October 29, 1994, October
30, 1993, respectively.
F-11
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
3. NET CASH SURRENDER VALUE OF LIFE INSURANCE
Details of the net cash surrender value of life insurance on the lives of
individuals in whom BBC has an insurable interest as of October 28, 1995 and
October 29, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash values..................................................... $ 7,193,239 $ 6,959,136
Less life insurance loans..................................... (4,458,000) (4,458,000)
------------- -------------
Net cash surrender value, included in other assets.............. $ 2,735,239 $ 2,501,136
------------- -------------
------------- -------------
</TABLE>
4. DEBT
Outstanding debt at October 28, 1995 and October 29, 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Bank term loan, principal and interest payable in quarterly installments through
October 15, 1998; interest payable at the option of BBC at either the prime
rate plus .75% or the Eurodollar rate plus 1.75%; interest rate at 7.625% on
October 28, 1995; collateralized by all real, personal, and mixed property, as
defined........................................................................ $ 48,000,000 $ 58,000,000
11.75% Series B senior subordinated notes, due April 15, 2002; interest payable
semiannually; sinking fund deposits of $18,750,000 due on April 15, 2000 and
April 15, 2001; subordinated to senior debt.................................... 75,000,000 75,000,000
Revolving credit facility with final maturity on September 15, 1997; interest
payable quarterly at the option of BBC at either the prime rate or the
Eurodollar rate plus 1.25%; collateralized by all Blue Bird Capital stock...... 35,661,573 0
Industrial development bonds, due March 2001; interest payable quarterly;
interest rate at 3.95% on October 28, 1995; secured by a letter of credit...... 2,750,000 2,750,000
-------------- --------------
161,411,573 135,750,000
Less:
Current portion of debt........................................................ 12,000,000 10,000,000
Revolving credit facility...................................................... 35,661,573 0
-------------- --------------
Long-term debt and bonds payable................................................. $ 113,750,000 $ 125,750,000
-------------- --------------
-------------- --------------
</TABLE>
On April 15, 1992, BBC entered into a $170,000,000 bank credit agreement
with Bankers Trust Company (the "Bank Credit Agreement"), secured by the capital
stock of BBC and 66% of the capital stock of Canadian Blue Bird Coach, Ltd. (a
wholly-owned subsidiary of BBC). The Bank Credit Agreement provides for a term
loan and a revolving credit facility comprised of working capital loans and
swing line loans. The revolving credit facility matures in October 1998 and
requires interest payable quarterly at the option of BBC. Interest rates on the
working capital loans is the prime rate plus .75% or the Eurodollar rate plus
1.75% and is the prime rate plus .25% on the swing line loans. The weighted
average interest rate of the revolving credit facility for the years ended
October 28, 1995 and October 29, 1994 was
F-12
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
4. DEBT (CONTINUED)
8.65% and 7.03%, respectively. The revolving credit facility is collateralized
by all real, personal, and mixed property, as defined. No amounts were
outstanding under this revolving credit facility at October 28, 1995 or October
29, 1994. The Bank Credit Agreement contains certain restrictive covenants. The
most restrictive covenants include (a) a maximum leverage ratio, as defined, (b)
a minimum fixed charge coverage ratio, as defined, (c) a minimum interest
coverage ratio, as defined, (d) limitations of capital expenditures, and (e)
certain restrictions on dividend distributions, as defined. All of these
covenants have been met as of October 28, 1995.
The maximum available borrowing amount on the Bank Credit Agreement
revolving credit facility, as amended, is $77,000,000. The revolving credit
facility requires quarterly payment of a commitment fee equal to .375% per annum
of the daily unused portion.
In connection with the creation of Blue Bird Capital (Note 2), BBC
negotiated a new credit facility (the "New Facility") with LaSalle National
Bank. The maximum capacity of the New Facility is $50,000,000 subject to meeting
certain covenants, as defined. The New Facility requires quarterly payments of a
commitment fee equal to .125% PER ANNUM of the daily unused portion and contains
certain restrictive covenants. The most restrictive covenants include net
income, tangible net worth, and interest coverage ratio. All of these financial
ratios have been met as of October 28, 1995.
In connection with the Bank Credit Agreement, BBC purchased interest rate
caps with notional principal amounts totaling $76,000,000 in order to reduce the
impact of changes in interest rates on its floating rate long-term debt. The
interest rate agreements mature at dates ranging from April 1996 to April 1998.
The industrial development bonds accrue interest based on a variable weekly
interest rate, with interest payments due quarterly. An irrevocable letter of
credit backing the bonds has been issued by Wachovia Bank of Georgia, N.A. This
letter of credit requires adherence to certain terms and financial ratios which
are the same or less restrictive than those under the revolving credit
facilities and term loan, all of which have been met as of October 28, 1995.
The future minimum principal payments by fiscal year of outstanding debt at
October 28, 1995 are as follows:
<TABLE>
<S> <C>
1996.......................................................... $47,661,573
1997.......................................................... 16,000,000
1998.......................................................... 20,000,000
1999.......................................................... 0
2000.......................................................... 18,750,000
Thereafter.................................................... 59,000,000
-----------
$161,411,573
-----------
-----------
</TABLE>
5. INCOME TAXES
BBC follows the provisions of SFAS No. 109, "Accounting for Income Taxes,"
for financial reporting purposes. SFAS No. 109 requires, among other things, the
determination of deferred income taxes using
F-13
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
5. INCOME TAXES (CONTINUED)
the liability method, under which deferred tax assets and liabilities are
determined based on the differences between the financial accounting and tax
bases of assets and liabilities. Deferred tax assets or liabilities at the end
of each period are determined using the currently enacted tax rates to apply to
taxable income in the periods in which the deferred tax asset or liability is
expected to be settled or realized.
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Total deferred tax liabilities................................ $ 31,759,029 $ 32,025,470
Total deferred tax assets..................................... (16,325,955) (16,597,407)
-------------- --------------
Net deferred tax liability.................................... $ 15,433,074 $ 15,428,063
-------------- --------------
-------------- --------------
</TABLE>
The sources and differences between the financial accounting and tax basis
of BBC's assets and liabilities which give rise to the deferred tax liabilities
are as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Stepped-up basis in net assets............................... $ 20,633,323 $ 20,297,173
Depreciation................................................. 2,520,201 3,149,033
Other........................................................ 8,603,505 8,579,264
------------- -------------
$ 31,757,029 $ 32,025,470
------------- -------------
------------- -------------
Deferred tax assets:
Warranty reserves............................................ $ 5,198,629 $ 5,443,466
Pension reserve.............................................. 1,935,666 2,144,950
Deferred compensation reserve................................ 3,053,529 2,617,997
Workers' compensation reserve................................ 1,656,866 1,589,726
Foreign tax credit carryovers................................ 0 575,000
Other........................................................ 4,481,265 4,226,268
------------- -------------
$ 16,325,955 $ 16,597,407
------------- -------------
------------- -------------
</TABLE>
F-14
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
5. INCOME TAXES (CONTINUED)
The components of the provision (benefit) for income taxes are as follows as
of October 28, 1995, October 29, 1994, and October 30, 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Current:
Federal............................................................ $ 9,945,714 $ 10,956,249 $ 1,334,417
Foreign............................................................ 542,000 410,894 711,889
State.............................................................. 1,193,331 1,072,741 168,537
------------- ------------- ------------
Current, total....................................................... 11,681,045 12,439,884 2,214,843
------------- ------------- ------------
Deferred:
Federal and state.................................................. 5,011 (2,278,490) 4,773,018
Foreign............................................................ 0 (4,146) (58,000)
------------- ------------- ------------
Deferred, net........................................................ 5,011 (2,282,636) 4,715,018
------------- ------------- ------------
Tax provision, net................................................... $ 11,686,056 $ 10,157,248 $ 6,929,861
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
BBC had available U.S. foreign tax credit carryovers of approximately $0,
$575,000 and $1,916,000 at October 28, 1995, October 29, 1994, and October 30,
1993, respectively. Income from foreign operations was approximately $340,000,
$1,410,000, and $1,575,000 for the years ended October 28, 1995, October 1994,
and October 30, 1993, respectively.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. At the
acquisition date, there was significant uncertainty regarding the Company's
ability to generate enough foreign source taxable income to enable it to utilize
the foreign tax credit carryovers existing at that date. Therefore, at the
acquisition date, the Company's management established a valuation allowance
equal to the foreign tax credit carryovers.
As a result of improved economic conditions in the Company's domestic and
international markets during 1994, the Company began generating sufficient
foreign source taxable income to allow the utilization of approximately
$1,341,000 of the foreign tax credit carryovers. Further, management believed
that the remaining foreign tax credit carryovers of $575,000 were more likely
than not to be realized. Therefore, during 1994, the Company decreased the
valuation allowance by $1,916,000. In accordance with SFAS No. 109, the change
in the valuation allowance was recorded as a reduction in goodwill rather than
as a reduction in the provision for income taxes.
F-15
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
5. INCOME TAXES (CONTINUED)
The income tax provision as of October 28, 1995, October 29, 1994, and
October 30, 1993 differs from the amount computed by applying the statutory
rates for U.S. federal income taxes to income before income taxes because of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Income tax computed at statutory rates..................... $ 9,988,188 $ 8,947,726 $ 5,618,412
Foreign tax impact......................................... (119,078) (86,608) 116,943
Tax-exempt interest income................................. (700,359) (286,294) (276,503)
State income taxes, net of federal income tax effect....... 775,665 562,360 612,968
Goodwill amortization...................................... 1,307,024 1,321,381 1,313,880
Other...................................................... 434,616 (301,317) (455,839)
------------- ------------- ------------
$ 11,686,056 $ 10,157,248 $ 6,929,861
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
6. BENEFIT PLANS
PENSION PLANS
BBC has several defined benefit pension plans and a defined contribution
plan covering substantially all domestic employees and a defined contribution
plan for Canadian employees. Total pension expenses amounted to $3,399,151,
$2,785,030, and $2,537,613 for the years ended October 28, 1995, October 29,
1994, and October 30, 1993, respectively.
The board of directors adopted a supplemental excess retirement plan
effective January 1, 1991. This plan is restricted to certain key executives and
is not qualified under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and is unfunded.
The board of directors adopted a supplemental excess retirement plan in the
form of a rabbi trust (a grantor trust set up to fund deferred compensation for
certain individuals as allowed under the Internal Revenue Code of 1986, as
amended) effective November 1, 1995. This plan is restricted to certain
executives and is not qualified under ERISA and is not funded.
BBC's funding policy is to contribute the net periodic pension cost accrued
each year to the U.S. salaried and hourly defined benefit plans. However, the
contribution will not be less than the minimum required contribution under ERISA
or greater than the maximum tax-deductible contribution.
Net pension cost for the U.S. defined benefit plans includes the following
as of October 28, 1995, October 29, 1994 and October 30, 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Service costs/benefits earned during the period............... $ 1,337,279 $ 1,246,107 $ 1,107,207
Interest costs on projected benefit obligations............... 3,320,053 3,025,245 2,877,482
Return on plan assets......................................... (8,189,694) (1,069,849) (2,504,009)
Net amortization and deferral................................. 5,453,920 (1,630,964) 0
------------ ------------ ------------
Net periodic pension costs.................................... $ 1,921,558 $ 1,570,539 $ 1,480,680
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-16
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
6. BENEFIT PLANS (CONTINUED)
The following table sets forth these plans' funded status at October 28,
1995:
<TABLE>
<CAPTION>
PLAN
PLAN ASSETS ACCUMULATED
IN EXCESS OF BENEFITS IN
ACCUMULATED EXCESS OF UNQUALIFIED RABBI
BENEFITS ASSETS PLAN TRUST
-------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Pension benefit obligation:
Vested Benefits........................... $ (26,042,529) $ (12,187,890) $ (1,890,539) $ (55,079)
Nonvested benefits........................ (94,224) (765,474) 0 0
-------------- -------------- ------------- ----------
Accumulated benefit obligation.............. $ (26,136,753) $ (12,953,364) $ (1,890,539) $ (55,079)
-------------- -------------- ------------- ----------
-------------- -------------- ------------- ----------
Projected benefit obligation................ $ (31,740,630) $ (12,953,364) $ (1,890,539) $ (55,079)
Market value of plan assets................. 31,169,464 11,345,581 0 0
-------------- -------------- ------------- ----------
Unfunded projected benefit obligation....... (571,166) (1,607,783) (1,890,539) (55,079)
Unrecognized net (gain) loss................ (3,491,025) 873,517 0 0
Unrecognized prior service costs............ (629,471) (1,211,507) 0 0
Other adjustment............................ (12,672) 0 0 0
Adjustment required to recognize minimum
liability................................. 0 337,990 0 0
-------------- -------------- ------------- ----------
Pension liability recognized in balance
sheets.................................... $ (4,704,334) $ (1,607,783) $ (1,890,539) $ (55,079)
-------------- -------------- ------------- ----------
-------------- -------------- ------------- ----------
</TABLE>
Assets of the salaried and hourly plans are invested primarily in U.S.
government securities, common stock funds, cash management funds, and insurance
company group annuity contracts. For 1995 and 1994, the discount rate and
expected long-term rate of return on assets were both approximately 8%. The
expected average rate of increase in future compensation levels used was 5%.
Pursuant to the provisions of SFAS No. 87, "Employers' Accounting for
Pensions," the Company recorded in accrued pension expense an additional minimum
pension liability adjustment of $337,990 as of October 28, 1995, representing
the amount by which the accumulated benefit obligation exceeded the fair value
of plan assets plus accrued amounts previously recorded. The additional
liability has been offset by an intangible asset to the extent of previously
unrecognized prior service cost. During 1994, the amount in excess of previously
unrecognized prior service cost was recorded as a reduction of stockholders'
equity in the amount of $400,000. As of October 28, 1995, there was no amount in
excess of previously unrecognized prior service cost recorded as a reduction of
stockholders' equity.
The 401(k) plan for domestic employees and the pension plan covering
Canadian employees are defined contribution plans. Such actuarial information as
presented above is not applicable to these plans. Total expenses under such
plans for the years ended October 28, 1995, October 29, 1994, and October 30,
1993 amounted to $1,477,593, $1,214,491, and $1,056,433, respectively.
F-17
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
6. BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFITS
The Predecessor discontinued its postretirement health care and dental
benefits in 1991. Coverage was available and will continue only for employees
over age 55 who had elected early retirement and are currently entitled to such
benefits, which are subject to certain limitations. BBC has recorded a liability
of approximately $800,000 at October 28, 1995 and October 29, 1994, which
represents management's best estimate of expected future benefits.
MEDICAL, DENTAL, AND ACCIDENT AND SICKNESS BENEFITS
BBC provides and is partially self-insured for medical, dental, and accident
and sickness benefits. BBC maintains a voluntary employee benefit association
trust through which all cash used to pay claims is processed. The trust is fully
funded at year-end to cover incurred but not reported claims. Therefore, neither
the trust's assets nor the liability for claims is reported in the accompanying
balance sheets.
7. DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT BENEFITS
At October 28, 1995 and October 29, 1994, the accompanying financial
statements reflect liabilities for anticipated payment of deferred compensation
and supplemental retirement benefits described above in the amounts of
$1,157,435 and $1,244,959, respectively.
8. REDEEMABLE COMMON STOCK AND STOCK SUBSCRIPTIONS RECEIVABLE
Redeemable common stock represents shares of common stock purchased by
members of management ("Management Investors"), primarily in conjunction with
the acquisition. The Management Investors have the right, prior to the earlier
of an initial public offering of equity securities or the tenth anniversary of
the stockholders' agreement, to put these shares to BBC in the event of their
disability, involuntary termination, not for cause, retirement (all as defined
in the stockholders' agreement), or death for a fair value price, as defined in
the stockholders' agreement. The redeemable common stock was recorded at fair
value on the date of issuance. The excess of the fair value price over the
original fair value is being accreted by periodic charges to retained earnings.
The amounts recorded in the balance sheets represent the estimated maximum
amount payable if all management investors met the specified criteria and
exercised their put rights.
Stock subscriptions receivable represent notes due from members of
management for stock issued in April 1992 in conjunction with the acquisition.
The notes bear interest at an 8% interest rate. Interest is payable annually.
9. DIVIDENDS DECLARED
No dividends were declared for the years ended October 28, 1995, October 29,
1994, and October 30, 1993.
F-18
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 28, 1995, OCTOBER 29, 1994,
AND OCTOBER 30, 1993
10. LEASES
BBC has no capitalized leases in which it is the lessee. Rental expenses for
operating leases were approximately $1,625,000, $1,562,000, and $1,343,000 for
the years ended October 28, 1995, October 29, 1994, and October 30, 1993,
respectively. Operating leases relate primarily to computer equipment and
software, office space, and miscellaneous office equipment. The future minimum
lease payments under operating leases by fiscal year as of October 28, 1995 are
approximately as follows:
<TABLE>
<S> <C>
1996............................................................... $ 570,000
1997............................................................... 585,000
1998............................................................... 484,000
1999............................................................... 453,000
2000 and thereafter................................................ 49,000
---------
$2,141,000
---------
---------
</TABLE>
11. CONTINGENCIES
As of October 28, 1995, BBC had a number of product liability and other
cases pending. At the date of this report, neither the outcome of the cases nor
the amounts of any company liabilities related to these cases are known.
Management believes that, considering BBC's insurance coverage and its intention
to vigorously defend its position, the ultimate resolution of these matters will
not have a material adverse impact on BBC's financial position or results of
operations.
12. MANAGEMENT STOCK OPTION PLAN
Effective April 15, 1992, BBC's board of directors adopted a nonqualified
management stock option plan (the "Plan") which provided for the granting of
options to key employees of BBC to purchase up to 850,000 shares of common
stock. Pursuant to the Plan, on April 15, 1992, key employees were granted
options (the "Vested Options") to purchase an aggregate of 400,000 shares of
common stock at an exercise price equal to $10 per share (the fair value of the
stock at the grant date as determined by the board of directors). The Vested
Options were fully vested at the time of grant. Additionally, on April 15, 1992,
key employees were granted options (the "Performance Options") to purchase an
aggregate of 400,000 shares at an exercise price equal to $10 per share. The
Performance Options vest ratably over the next five years based on BBC's
achieving certain levels of earnings performance, as defined in the Plan, and in
any case ten years from the date of grant. During the year ended October 30,
1993, options for 70,000 shares were canceled and options for 10,000 shares were
issued. As of October 28, 1995 and October 29, 1994, 720,000 options to purchase
shares were outstanding.
13. SUBSEQUENT EVENT
On December 14, 1995, the Company acquired $25,000,000 principal amount of
its 11.75% Series B senior subordinated notes (the "Series B Notes"), due April
15, 2002 for a purchase price equal to 106.5% of the principal amount plus
accrued interest. The purchase will result in a one-time, after-tax
extraordinary charge of approximately $1,415,000 in the first quarter of fiscal
year 1996. All of the Series B Notes are included in long-term debt on the
accompanying consolidated balance sheets.
F-19
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 27, 1996 AND OCTOBER 28, 1995
($ IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 28,
1995
JULY 27, -----------
1996
-----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 5,260 $ 21,452
Trade receivables..................................................................... 20,067 18,866
Leases receivable..................................................................... 33,125 47,222
Inventories........................................................................... 156,756 83,346
Prepaid expenses...................................................................... 1,579 1,020
Other current assets.................................................................. 2,914 5,927
----------- -----------
Total current assets................................................................ 219,701 177,833
LEASES RECEIVABLE, NONCURRENT........................................................... 38,654 15,000
PROPERTY, PLANT, AND EQUIPMENT.......................................................... 61,170 58,872
Less accumulated depreciation......................................................... (25,986) (21,860)
----------- -----------
Property, plant, and equipment, net................................................. 35,184 37,012
----------- -----------
GOODWILL AND OTHER INTANGIBLE ASSETS.................................................... 163,733 165,594
Less accumulated amortization......................................................... (24,714) (21,712)
----------- -----------
Goodwill & other intangible assets, net............................................. 139,019 143,882
----------- -----------
OTHER ASSETS............................................................................ 6,935 6,065
----------- -----------
Total assets........................................................................ $ 439,493 $ 379,792
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facilities........................................................... $ 46,547 $ 35,662
Current portions of long-term debt.................................................... 13,000 12,000
Accounts payable...................................................................... 58,600 25,743
Income taxes payable.................................................................. 1,764 6,926
Deferred income taxes................................................................. 8,442 9,535
Other current liabilities............................................................. 33,644 26,242
----------- -----------
Total current liabilities........................................................... 161,997 116,108
LONG-TERM DEBT.......................................................................... 118,404 113,750
DEFERRED INCOME TAXES................................................................... 5,550 5,898
OTHER LIABILITIES....................................................................... 21,017 20,536
REDEEMABLE COMMON STOCK, NET............................................................ 20,431 20,872
----------- -----------
Total liabilities................................................................... 327,399 277,164
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000 shares authorized; 7,704,778 and 7,704,778
outstanding respectively............................................................ 77 77
Additional paid-in capital............................................................ 77,023 77,023
Retained earnings..................................................................... 37,553 27,896
Other stockholders' equity............................................................ (2,559) (2,368)
----------- -----------
Total stockholders' equity.......................................................... 112,094 102,628
----------- -----------
Total liabilities and stockholders' equity.......................................... $ 439,493 $ 379,792
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
F-20
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED JULY 27,1996 AND JULY 29,1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
<S> <C> <C> <C> <C>
JULY 27, JULY 29, JULY 27, JULY 29,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales................................................... $ 146,788 $ 137,340 $ 346,115 $ 319,445
Cost of goods sold.......................................... 122,141 113,037 287,427 264,085
----------- ----------- ----------- -----------
Gross profit.......................................... 24,647 24,303 58,688 55,360
Selling, general and administrative expenses................ 10,612 9,499 31,501 29,462
Amortization of goodwill and other intangibles.............. 940 965 2,820 3,728
----------- ----------- ----------- -----------
Operating income............................................ 13,095 13,839 24,367 22,170
Interest income............................................. 1,845 1,016 5,353 2,993
Interest and debt issue expense............................. (4,425) (5,332) (12,796) (14,005)
Other income (expense)...................................... 110 613 543 475
----------- ----------- ----------- -----------
Income before income taxes.................................. 10,625 10,136 17,467 11,633
Provision for income taxes.................................. 4,049 4,330 6,835 4,929
----------- ----------- ----------- -----------
Net income before extraordinary items....................... 6,576 5,806 10,632 6,704
Extraordinary item--loss on extinguishment of debt (net of
income tax benefit of $838)............................... 0 0 (1,416) 0
----------- ----------- ----------- -----------
Net income............................................ $ 6,576 $ 5,806 $ 9,216 $ 6,704
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
F-21
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED JULY 27, 1996 AND JULY 29, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
<S> <C> <C>
JULY 27, JULY 29,
1996 1995
----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................................... $ 9,216 $ 6,704
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Extraordinary loss on extinguishment of debt....................................... 2,254 0
Depreciation and amortization...................................................... 8,694 9,452
Increase in cash surrender value of life insurance................................. (47) (71)
Deferred income taxes.............................................................. (1,441) (1,971)
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables........................................... (1,201) (6,597)
(Increase) decrease in inventories................................................. (73,410) (74,177)
(Increase) decrease in prepaid expenses............................................ (559) (109)
Increase (decrease) in accounts payable............................................ 32,857 24,449
Increase (decrease) in income taxes payable........................................ (5,162) 974
Other.............................................................................. 10,220 2,730
----------- -----------
Total adjustments................................................................ (27,795) (45,320)
----------- -----------
Net cash used in operating activities............................................ (18,579) (38,616)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions.......................................... (2,587) (2,762)
Leases receivable.................................................................... (9,557) (9,991)
----------- -----------
Net cash used in investing activities............................................ (12,144) (12,753)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing on working capital revolvers........................................... 49,539 49,900
Repayment of long-term debt.......................................................... (33,000) (6,000)
Debt prepayment premium.............................................................. (1,625) 0
Other................................................................................ (192) (949)
----------- -----------
Net cash (used in) provided by financing activities.............................. 14,722 42,951
----------- -----------
EFFECT OF EXCHANGE RATE FLUCTUATION.................................................... (191) (95)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............................................. (16,192) (8,513)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................................... 21,452 10,490
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................. $ 5,260 $ 1,977
----------- -----------
----------- -----------
SUPPLEMENTAL INFORMATION:
Cash interest paid................................................................... $ 10,790 $ 11,818
----------- -----------
----------- -----------
Cash income taxes paid............................................................... $ 8,351 $ 5,928
----------- -----------
----------- -----------
</TABLE>
F-22
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENTS AND FORMATION AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements of
Blue Bird Corporation and subsidiaries ("BBC") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the joint annual report of BBC and Blue Bird Body Company (the "Predecessor")
(see "Acquisition" below) on Form 10-K for the fiscal year ended October 28,
1995.
The accompanying unaudited financial statements include, in the opinion of
management, all adjustments, which are of a normal recurring nature, necessary
for a fair presentation for the periods presented. Results for the interim
periods presented are not necessarily indicative of results that may be expected
for a full fiscal year.
FISCAL YEAR
BBC's fiscal year ends on the Saturday nearest October 31 of each year,
generally referred to as a "52-/53-week year." Fiscal year 1996 contains 53
weeks and fiscal year 1995 contains 52 weeks.
ACQUISITION
On April 15, 1992, BBC (formerly B B Holding Corp.) acquired all of the
outstanding capital stock of the Predecessor through the merger of B B
Acquisition Corp., a wholly-owned subsidiary of BBC, with and into the
Predecessor (the "Acquisition"), with the Predecessor as the surviving
corporation. The Acquisition was accounted for as a purchase.
2. INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
on the last-in, first-out basis. If the first-in, first-out method had been
used, inventories would have been approximately $4,000,000 higher at July 27,
1996 and approximately $2,600,000 higher at October 28, 1995.
The components of inventory consist of the following at July 27, 1996 and
October 28, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Raw materials.......................................................... $ 29,024 $ 32,463
Work in process........................................................ 47,473 22,831
Finished goods......................................................... 80,259 28,052
---------- ---------
$ 156,756 $ 83,346
---------- ---------
---------- ---------
</TABLE>
3. CONTINGENCIES
PENDING LITIGATION AND INSURANCE PROGRAM
As of July 27, 1996, a number of product liability cases were pending
against a subsidiary of BBC. Neither the outcome of certain cases nor the
amounts of any liabilities related to these certain cases are known, however,
management believes that the ultimate resolution of these matters will not have
a material adverse impact on BBC's financial position or results of operations.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY THE INITIAL PURCHASERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION TO BUY, THE EXCHANGE
NOTES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information............................. 3
Prospectus Summary................................ 5
Summary Financial Data............................ 11
Risk Factors...................................... 13
The Exchange Offer................................ 21
Certain Federal Income Tax Consequences of the
Exchange Offer.................................. 29
The Recapitalization.............................. 30
Use of Proceeds................................... 31
Capitalization.................................... 32
Selected Financial Data........................... 34
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 35
Business.......................................... 40
Management........................................ 53
Ownership of Capital Stock........................ 60
Certain Relationships and Related Transactions.... 62
Description of Debt Facilities.................... 63
Description of the Exchange Notes................. 67
Description of Certain Federal Income Tax
Consequences of an Investment in the Exchange
Notes........................................... 93
Book-Entry, Delivery and Form..................... 95
Exchange Offer; Registration Rights............... 97
Plan of Distribution.............................. 99
Legal Matters..................................... 100
Experts........................................... 100
Index to Consolidated Financial Statements........ F-1
</TABLE>
[LOGO]
BLUE BIRD BODY COMPANY
OFFER TO EXCHANGE
$100,000,000
10 3/4% SENIOR SUBORDINATED
NOTES DUE 2006
FOR
10 3/4% SENIOR SUBORDINATED
NOTES DUE 2006, SERIES B
-------------
PROSPECTUS
-------------
DECEMBER 12, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 9, 1997
PRELIMINARY PROSPECTUS
[LOGO]
BLUE BIRD BODY COMPANY
10 3/4% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B
---------------------
The 10 3/4% Senior Subordinated Notes due 2006, Series B (the "Exchange
Notes") were issued in exchange for the 10 3/4% Senior Subordinated Notes due
2006 (the "144A Notes" and, together with the Exchange Notes, the "Notes") by
the Blue Bird Body Company, a Georgia corporation (the "Company"). The Exchange
Notes are guaranteed on a senior subordinated basis by Blue Bird Corporation, a
Delaware corporation ("BBC" or the "Guarantor") of which the Company is a
wholly-owned subsidiary. See "Description of the Exchange Notes."
Interest on the Exchange Notes is payable semi-annually in arrears on May 15
and November 15 of each year, commencing May 15, 1997. The Exchange Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after November 15, 2001, at the redemption prices set forth herein, together
with accrued and unpaid interest to the date of redemption. In addition, on or
prior to November 15, 1999, the Company may redeem up to 25% of the originally
issued Notes, at a price of 110.75% of the principal amount thereof, together
with accrued and unpaid interest to the date of redemption, with the net
proceeds of a Public Equity Offering (as defined herein); PROVIDED that not less
than $75 million in principal amount of Notes is outstanding immediately after
giving effect to such redemption. Upon the occurrence of a Change of Control
Triggering Event (as defined herein), each holder of Exchange Notes will,
subject to the limitations described herein, have the right to require the
Company to purchase all or a portion of such holder's Exchange Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. See "Description of the
Exchange Notes."
The Exchange Notes are unsecured senior subordinated obligations of the
Company and are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined herein) of the Company. As of November 2, 1996,
on a PRO FORMA basis after giving effect to the Recapitalization (as defined
herein), the Company would have had approximately $177.7 million of Senior
Indebtedness outstanding. In addition, at November 2, 1996, after giving effect
to the Recapitalization, the aggregate amount of indebtedness and other
liabilities of subsidiaries of the Company to which holders of the Exchange
Notes are structurally subordinated would have been approximately $67 million
(which is comprised principally of liabilities of the Company's special purpose
lease financing subsidiary).
SEE "RISK FACTORS," BEGINNING ON PAGE 10, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is to be used by Merrill Lynch, Pierce, Fenner & Smith
("Merrill Lynch") in connection with offers and sales in market-making
transactions at negotiated prices related to prevailing market price at the time
of sale. Merrill Lynch may act as principal or agent in such transactions and
has no obligation to make a market in the Exchange Notes, and may discontinue
its market-making activities any time without notice, at its sole discretion.
The Company will receive no portion of the proceeds of the sale of such Exchange
Notes and will bear expenses incident to the registration thereof.
------------------------
MERRILL LYNCH & CO.
The date of this Prospectus is January , 1997.
<PAGE>
No dealer, salesperson, or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or Merrill Lynch. This prospectus
does not constitute an offer to sell or the solicitation of an offer to buy any
security other than the Exchange Notes offered hereby, nor does it constitute an
offer to sell or the solicitation of an offer to buy any of the Exchange Notes
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation to such person. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
AVAILABLE INFORMATION
The Company and BBC have jointly filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Exchange Notes being offered hereby and
the related BBC Guarantee (as defined herein). This Prospectus, which forms a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement. For further information with respect to the
Company, BBC, the Exchange Notes and the related BBC Guarantee offered hereby,
reference is made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and, where such contract or other document is an exhibit
to the Registration Statement, each such statement is qualified in all respects
by the provisions in such exhibit, to which reference is hereby made. Copies of
the Registration Statement may be examined without charge at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the web site (http://www.sec.gov.) maintained by
the Commission and at the Commission's Regional Offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the Registration Statement can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Upon the effectiveness of the Registration Statement, the Company became
subject to the informational requirements of the Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, will file periodic
reports and other information with the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of any material so filed can be obtained from the
Public Reference Section of the Commission, upon payment of certain fees
prescribed by the Commission. In addition, pursuant to the Indenture (as defined
herein) covering the Notes, the Company has agreed to file with the Commission
and provide to the Holders the annual reports and the information, documents and
other reports otherwise required pursuant to Section 13 of the Exchange Act.
Such requirements may be satisfied through the filing and provision of such
documents and reports which would otherwise be required pursuant to Section 13
in respect of the Company.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
to the Commission to (i) the Trustee (as defined herein) and (ii) the holders of
the Notes. The Company has agreed that, even if it is not required under the
Exchange Act to furnish such information to the Commission, it will nonetheless
continue to furnish such information that would be required to be furnished by
the Company by Section 13 of the Exchange Act to the Trustee and the holders of
the Notes as if they were subject to such periodic reporting requirements.
2
<PAGE>
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IN ADDITION TO CERTAIN STATEMENTS CONTAINED
ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS
PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST
SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER
THE HEADING "RISK FACTORS," BEGINNING ON PAGE 10 OF THIS PROSPECTUS, AND ANY
PERSON CONSIDERING AN INVESTMENT IN THE EXCHANGE NOTES IS URGED TO CAREFULLY
CONSIDER SUCH FACTORS.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO THE
"COMPANY" OR "BLUE BIRD" REFER TO BLUE BIRD BODY COMPANY AND ITS SUBSIDIARIES
AND REFERENCES TO "BBC" REFER TO BLUE BIRD CORPORATION, WHICH OWNS ALL OF THE
COMMON STOCK OF THE COMPANY. AS USED HEREIN, THE "FISCAL YEAR" OF THE COMPANY IS
THE 52- OR 53-WEEK PERIOD ENDING ON THE SATURDAY NEAREST OCTOBER 31 OF SUCH
YEAR. UNLESS OTHERWISE INDICATED, ANNUAL MARKET SHARE AND OTHER DATA INCLUDED
HEREIN REFER TO THE APPLICABLE FISCAL YEAR OF THE COMPANY.
THE COMPANY
The Company is the leading manufacturer of school buses in North America.
Approximately 80% of the Company's net sales in fiscal 1996 were derived from
sales of school bus products. The Company also manufactures the Q-Bus and
Commercial Shuttle ("CS"), which target purchasers of medium-sized buses for
commercial uses, and two luxury recreational vehicle ("RV") models, the
Wanderlodge and the Blue Bird Motor Coach ("BMC"). Commercial and recreational
vehicles accounted for approximately 14% and 6%, respectively, of the Company's
fiscal 1996 net sales. The Company manufactures both quality steel bus bodies
for mounting on chassis manufactured by third parties and complete bus units
(body and chassis). Chassis generally consist of frames with engines,
transmissions, drive trains, axles, wheels, power steering, brakes and fuel
cells. The Company markets its products primarily through a network of
approximately 63 independent distributors, which resell the products to
customers, including municipalities, states, transportation contracting
companies, churches and other independent organizations. Through its special
purpose lease financing subsidiary, Blue Bird Capital Corporation ("Blue Bird
Capital"), the Company provides lease financing alternatives, principally to
tax-exempt customers of its school bus products. Management believes that
providing a variety of alternative leasing packages to its customers creates a
significant competitive advantage for the Company. For the year ended November
2, 1996, the Company had $570.2 million in net sales and $66.3 million in EBITDA
(as defined herein).
Purchasers of school buses are categorized into two ownership groups: (i)
public (consisting of states and school districts); and (ii) private (consisting
of independent transportation contracting companies and other private entities).
In the United States, approximately 78% of the estimated 410,000 school buses
currently in operation are publicly owned, with the remainder being privately
owned. Management estimates that deliveries of school buses in North America in
fiscal 1996 totaled approximately 32,000 units. In addition, management
estimates that the market demand for the types of school bus and commercial bus
products that the Company manufactures and sells to countries outside of North
America totaled approximately 3,500 units in fiscal 1996. In fiscal 1996, the
Company sold approximately 13,800 school bus units and estimates that it had
approximately 43% market share in the approximately $1.3 billion North American
market for school buses.
The Company's business strategy is to continue to utilize its leading market
position in the school bus market as a platform from which to expand its product
offerings. The Company will continue to focus on its core school bus business,
while seeking to expand its commercial bus product offerings to various markets,
including the shuttle bus market, the smaller urban bus market and the "line
haul" or inter-city coach market. Within the school bus market, the Company will
continue to emphasize sales to distributors, as opposed to states and large
transportation contracting companies, reflecting its belief that the former
market provides greater growth and profit opportunities. The Company will also
seek to expand its international bus sales, particularly in developing
countries.
THE RECAPITALIZATION
On November 19, 1996, the Company completed an overall recapitalization
pursuant to which the Company refinanced approximately $86 million (as of
November 2, 1996) of its indebtedness and paid a
4
<PAGE>
special cash dividend to BBC of $201.4 million (the "Blue Bird Dividend") on all
shares of its common stock, $.10 par value per share ("Blue Bird Common Stock").
Immediately after the declaration of the Blue Bird Dividend, the Board of
Directors of BBC declared a special cash dividend and made payments in the
aggregate amount of $201.4 million on all shares of its common stock, $.01 par
value per share ("BBC Common Stock") and in respect of options to purchase BBC
Common Stock (collectively, the "BBC Distribution" and, together with the Blue
Bird Dividend, the "Distribution"). Holders of BBC options received cash
payments and were not required to exercise their options to receive their PRO
RATA portion of the BBC Distribution, nor were they entitled to any antidilution
adjustment to the exercise price for their options.
As part of the Recapitalization, holders of $50 million aggregate principal
amount (or 100%) of the Company's then outstanding 11 3/4% Senior Subordinated
Notes due 2002, Series B (the "Old Notes") ("Selling Holders") sold their Old
Notes to the Company for aggregate payments (including accrued interest) of
approximately $53.7 million. The Company's then-existing bank credit agreement
(the "Old Credit Agreement"), under which $36 million of indebtedness was
outstanding at November 2, 1996, was replaced and refinanced by an amended and
restated credit agreement (the "New Credit Agreement"), which provides for,
among other things, aggregate availability of $255 million, including $175
million of Term Facilities (as defined herein) and an $80 million of Revolving
Facility (as defined herein). In addition, the Company offered and sold
$100,000,000 aggregate principal amount of 144A Notes (the "144A Note
Offering"). Proceeds from the 144A Note Offering, borrowings under the New
Credit Agreement and cash on hand were used to fund the retirement of the Old
Notes, the refinancing of the Old Credit Agreement and the Distribution, and to
pay related fees and expenses. The 144A Notes Offering, the retirement of the
Old Notes, the replacement of the Old Credit Agreement with the New Credit
Agreement and the Distribution are collectively referred to herein as the
"Recapitalization." See "The Recapitalization." In connection with the sale of
144A Notes pursuant to the Purchase Agreement dated November 13, 1996, between
the Company, BBC, Merrill Lynch & Co., Merrill Lynch, and BT Securities
Corporation (collectively, with Merrill Lynch, the "Initial Purchasers") the
Initial Purchasers became entitled to the benefits of the Registration Rights
Agreement dated as of November 19, 1996 (the "Registration Rights Agreement").
The Company's principal executive offices are located at 3920 Arkwright
Road, Macon, Georgia 31210 and its telephone number is (912) 757-7100.
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the 144A Notes (which they replace) except that (i) the Exchange Notes have
been registered under the Securities Act and, therefore, do not bear legends
restricting the transfer thereof, and (ii) the holders of Exchange Notes
generally are not entitled to further registration rights under the Registration
Rights Agreement, which rights generally were satisfied when the Exchange Offer
is consummated. The Exchange Notes evidence the same debt as the 144A Notes and
are entitled to the benefits of the Indenture. See "Description of the Exchange
Notes."
<TABLE>
<S> <C>
Securities Offered........... $100,000,000 aggregate principal amount of 10 3/4% Senior
Subordinated Notes due 2006, Series B.
Maturity Date................ November 15, 2006.
Interest Payments............ The Exchange Notes bear interest from November 19, 1996, the
date of issuance of the 144A Notes that were tendered in
exchange for the Exchange Notes (or the most recent Interest
Payment Date (as defined herein) to which interest on such
144A Notes has been paid). Accordingly, Holders (as defined
herein) of 144A Notes that were
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
accepted for exchange will not receive interest on the 144A
Notes that is accrued but unpaid at the time of tender, but
such interest will be payable on the first Interest Payment
Date after the Expiration Date. Interest on the Exchange
Notes is payable semi-annually in arrears on May 15 and
November 15 of each year ("Interest Payment Dates"),
commencing May 15, 1997.
Optional Redemption.......... The Exchange Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after
November 15, 2001, at the redemption prices set forth
herein, together with accrued and unpaid interest, if any,
to the date of redemption. See "Description of the Exchange
Notes--Optional Redemption."
In addition, on or prior to November 15, 1999, the Company
may redeem up to 25% of the originally issued Notes, at a
price of 110.75% of the principal amount thereof, together
with accrued and unpaid interest to the redemption date,
with the net proceeds of a Public Equity Offering; PROVIDED
that not less than $75 million in principal amount of Notes
is outstanding immediately after giving effect to such
redemption.
Change of Control Triggering
Event...................... Upon the occurrence of a Change of Control Triggering Event,
each holder of Exchange Notes will have the right to require
the Company to purchase all or a portion of such holder's
Exchange Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of purchase. See "Description of
the Exchange Notes--Change of Control Triggering Event."
Ranking...................... The Exchange Notes represent unsecured senior subordinated
obligations of the Company and are subordinated in right of
payment to all existing and future Senior Indebtedness of
the Company. As of November 2, 1996, on a PRO FORMA basis,
after giving effect to the Recapitalization, the Company
would have had approximately $177.7 million of Senior
Indebtedness. In addition, at November 2, 1996 after giving
effect to the Recapitalization, the aggregate amount of
indebtedness and other liabilities of subsidiaries of the
Company to which Holders of Notes are structurally
subordinated would have been approximately $67 million
(which was composed principally of liabilities of the
Company's special purpose lease financing subsidiary).
Exchange Note Guarantee...... The Exchange Notes are guaranteed on an unsecured senior
subordinated basis by BBC (the "BBC Guarantee"), which owns
all of the outstanding capital stock of the Company.
Certain Covenants............ The Indenture pursuant to which the Notes were issued
contains certain covenants, including, among others,
covenants with respect to the following matters: (i)
limitation on indebtedness; (ii) limitation on restricted
payments; (iii) limitation on certain transactions with
affiliates; (iv) disposition of proceeds of asset sales; (v)
limitation on liens; (vi) limitation on other senior
subordinated indebtedness; (vii) limitation of guarantees by
subsidiaries; and (ix) limitation on
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
dividends and other payment restrictions affecting
subsidiaries. See "Description of the Exchange
Notes--Certain Covenants."
Trading Market for the
Exchange Notes............. There is currently no established trading market for the
Exchange Notes. Although Merrill Lynch has informed the
Company that it currently intends to make a market in the
Exchange Notes, it is not obligated to do so and any such
market-making may be discontinued at any time without
notice, at the sole discretion of Merrill Lynch.
Accordingly, there can be no assurance as to the development
or the liquidity of any market for the Exchange Notes. The
Company does not intend to apply for listing of the Exchange
Notes on any securities exchange or for quotation through
the NASDAQ National Market or any other quotation system.
Use of Proceeds.............. This Prospectus is delivered in connection with the sale of
the Exchange Notes by Merrill Lynch in market-making
transactions. The Company will not receive any proceeds from
such transactions.
</TABLE>
RISK FACTORS
See "Risk Factors" beginning on page 10 for a discussion of certain factors
which should be considered by participants in the Exchange Offer.
7
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is certain summary historical consolidated financial
information for BBC as of and for the fiscal years 1996, 1995, and 1994. The
summary historical consolidated financial information of BBC and subsidiaries as
of and for the full fiscal years indicated were derived from the financial
statements of BBC and its subsidiaries which were audited by Arthur Andersen
LLP, independent accountants ("Arthur Andersen"). The PRO FORMA information is
unaudited. The PRO FORMA other financial data and ratios are based on the
summary historical consolidated financial information for BBC, adjusted to give
effect to the Recapitalization as if it occurred on October 29, 1994. The PRO
FORMA balance sheet data is based on the summary historical consolidated
financial information for BBC, adjusted to give effect to the Recapitalization
as if it occurred on November 2, 1996. The summary historical financial
information set forth below should be read in conjunction with the consolidated
financial statements of BBC and the notes thereto included elsewhere in this
Prospectus, see "Index to Consolidated Financial Statements," as well as
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
<S> <C> <C> <C>
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
------------- ----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................................. $ 570.2 $ 517.4 $ 476.2
Cost of goods sold.................................................... 474.1 430.6 392.9
------ ----------- -----------
Gross profit.......................................................... 96.1 86.8 83.3
Selling, general and administrative expenses.......................... 42.6 39.8 39.0
Amortization of goodwill and noncompete agreements.................... 3.8 4.7 5.6
------ ----------- -----------
Operating income...................................................... 49.7 42.3 38.7
Interest income....................................................... 7.0 4.6 4.1
Interest expense...................................................... (16.9) (18.5) (17.4)
Other income, net..................................................... .2 .1 .2
------ ----------- -----------
Income before income taxes............................................ 40.0 28.5 25.6
Provision for income taxes............................................ 14.8 11.6 10.2
------ ----------- -----------
Net income before extraordinary item.................................. $ 25.2 $ 16.9 $ 15.4
------ ----------- -----------
------ ----------- -----------
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(a)............................................................. $ 66.3 $ 57.3 $ 54.2
Adjusted EBITDA (b)................................................... 61.2 54.4 51.5
Capital expenditures.................................................. 7.3 3.6 8.6
Ratio of Adjusted EBITDA to Adjusted Cash Interest Expense (b)........ 5.3x 4.1x 3.9x
Pro forma ratio of Adjusted EBITDA to Adjusted Cash Interest Expense
(b)(c).............................................................. 2.0x 1.9x --
Ratio of earnings to fixed charges(d)................................. 3.3x 2.5x 2.4x
Pro forma ratio or deficiency of earnings to fixed charges(c)(d)(e)... 1.2x --
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 2, 1996
------------------------
<S> <C> <C> <C> <C> <C>
HISTORICAL PRO FORMA
----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 80.4 $ 80.9(f)
Total assets............................................. 391.0 382.5(g)
Total long-term debt, excluding current maturities....... 131.4 327.2(h)
Redeemable common stock, net............................. 29.3 16.6(i)
Stockholders' equity (deficit)........................... 118.2 (56.8)(j)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
8
<PAGE>
- --------------------------
(a) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents the sum of income before income taxes plus interest expense
(including amortization of debt issue costs), depreciation and amortization.
EBITDA is presented here to provide additional information about the
Company's ability to meet its future debt service, capital expenditure and
working capital requirements. EBITDA is not a measure of financial
performance under generally accepted accounting principles ("GAAP") and
should not be considered as an alternative either to net income as an
indicator of the Company's operating performance, or to cash flows as a
measure of the Company's liquidity.
(b) Adjusted EBITDA and Adjusted Cash Interest Expense exclude interest income
and interest expense (which includes amortization of debt issue costs),
respectively, associated with the Company's lease financing activities.
These activities have been conducted principally by Blue Bird Capital since
October 1995. The associated interest expense of Blue Bird Capital is
incurred under the LaSalle Credit Facility (as defined herein), which is
recourse only against Blue Bird Capital. Blue Bird Capital is treated as an
"Unrestricted Subsidiary" under the Indenture. Adjusted Cash Interest
Expense also excludes the amortization of debt issue costs which is included
in interest expense.
(c) Presented on a PRO FORMA basis as though the Recapitalization had occurred
at the beginning of the periods presented. In making the PRO FORMA
calculation of Adjusted EBITDA to Adjusted Cash Interest Expense, the
following additional adjustments have been made: (i) Adjusted EBITDA
excludes the impact of the one-time compensation charge of $16.1 million
related to that portion of the Distribution paid to management optionholders
and is therefore deemed compensation expense and (ii) PRO FORMA Adjusted
Cash Interest Expense excludes the interest expense of $2.9 million related
to the $25 million of Old Notes repaid for the fiscal year ended October 28,
1995. On a PRO FORMA basis, Adjusted Cash Interest Expense would have been
$30.4 million and $28.9 million for the fiscal years ended November 2, 1996
and October 28, 1995, respectively.
(d) For the purpose of computing the ratios of earnings to fixed charges,
"earnings" consists of operating income before income taxes and fixed
charges, and "fixed charges" consists of interest expense and the portion of
rental expense deemed representative of the interest factor.
(e) On a PRO FORMA basis after giving effect to the Recapitalization for the
fiscal year ended October 28, 1995, the deficiency of the earnings to fixed
charges was $4.8 million.
(f) Reflects (i) the receipt of gross proceeds from the 144A Note Offering of
($99.7 million), borrowings under the Term Facility of the New Credit
Agreement ($175 million); (ii) the retirement of indebtedness (including
accrued interest) under the Old Credit Agreement ($36 million) and the Old
Notes ($50.3 million); (iii) the payment of fees and expenses associated
with the Recapitalization ($9.1 million) and the costs (including premium)
associated with the retirement and amendment of the Old Notes ($3.4
million); (iv) the payment of the Distribution ($201.4 million); (v) the
proceeds from the repayment of the Management Notes (as defined herein) from
the BBC Distribution to the management shareholders ($3.8 million); and (vi)
the tax benefits associated with the Recapitalization ($14.7 million). See
"Capitalization."
(g) Reflects all of the items discussed in footnote (f) above; the write off of
the debt issue costs related to the indebtedness being retired ($1.4
million) and the capitalization of debt issue costs for the 144A Note
Offering and the New Credit Agreement ($9.1 million).
(h) Reflects the incremental borrowings necessary to effect the
Recapitalization.
(i) Redeemable common stock represents 720,000 issued and outstanding shares of
BBC Common Stock purchased by members of management (the "Management
Investors"), primarily in conjunction with the 1992 Acquisition (as defined
herein). The Management Investors have the right, prior to the earlier of an
initial public offering of equity securities of BBC or the tenth anniversary
of the Stockholders' Agreement (as defined herein), to put these shares to
BBC in the event of their disability, involuntary termination not for cause,
retirement (as such terms are defined in the Stockholders' Agreement), or
death for a fair value price (as defined in the Stockholders' Agreement).
The redeemable stock of BBC was recorded at fair value on the date of
issuance. The excess of the fair value price over the original fair value is
being accreted by periodic charges to retained earnings. The amounts
recorded in the balance sheets represent the estimated maximum amount
payable if all Management Investors met the specified criteria and exercised
their put rights.
(j) Reflects (i) the Distribution, net of tax benefit ($188.6 million); (ii)
the adjustment to the fair value of the redeemable common stock ($16.5
million); (iii) the costs associated with the retirement and amendment of
the Old Notes, net of tax benefit ($2 million); and (iv) the write-off of
the debt issue costs related to the indebtedness being retired, net of tax
benefit ($1 million).
9
<PAGE>
RISK FACTORS
ANYONE CONSIDERING AN INVESTMENT IN THE EXCHANGE NOTES SHOULD CONSIDER
CAREFULLY, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
THE FOLLOWING FACTORS BEFORE DECIDING TO INVEST IN THE EXCHANGE NOTES. THE RISK
FACTORS SET FORTH BELOW ARE GENERALLY APPLICABLE TO THE 144A NOTES AS WELL AS
THE EXCHANGE NOTES.
LEVERAGE AND DEBT SERVICE
As a result of the Recapitalization, the Company is highly leveraged. At
November 2, 1996, on a PRO FORMA basis, after giving effect to the
Recapitalization, the aggregate total outstanding indebtedness of the Company
would have been approximately $336 million and the stockholders' deficit would
have been $56.8 million. See "Capitalization." On a PRO FORMA basis after giving
effect to the Recapitalization, for fiscal 1995, the deficiency of the earnings
to fixed charges was $4.8 million. Furthermore, at November 2, 1996, after
giving effect to the Recapitalization, the Company had the ability to borrow an
additional $121.4 million under credit facilities to which it or Blue Bird
Capital are parties. The New Credit Agreement provides, among other things, that
the Company is obligated to prepay the lenders thereunder out of its free cash
flow after satisfying certain mutually agreed upon fixed charge obligations. See
"Description of Debt Facilities--Senior Bank Financing." The Company's ability
to make scheduled payments of principal of or interest on, or to refinance, its
indebtedness (including the Notes) depends on its future operating performance,
which to a certain extent is subject to economic, financial, competitive and
other factors beyond its control.
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including: (i) the Company's increased
vulnerability to adverse general economic and industry conditions; (ii) the
Company's ability to obtain additional financing for future working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes
may be limited; (iii) the dedication of a substantial portion of the Company's
cash flow from operations to the payment of principal of and interest on
indebtedness, thereby reducing the funds available for operations and future
business opportunities; and (iv) the Company's increased vulnerability to higher
interest rates as a result of the fact that its borrowings under the New Credit
Agreement are at variable rates of interest. In addition, all of the
indebtedness incurred in connection with the New Credit Agreement matures prior
to the maturity of the Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources."
SUBORDINATION
The payment of principal, premium, if any, and interest on the Exchange
Notes will be subordinated in right of payment to the prior payment in full to
all existing and future Senior Indebtedness of the Company, including
indebtedness incurred under the New Credit Agreement. As of November 2, 1996,
after giving effect to the Recapitalization, the Company would have had
approximately $177.7 million of Senior Indebtedness and the ability (subject to
applicable conditions) to borrow up to an additional $80 million of Senior
Indebtedness under the New Credit Agreement. In addition, the claims of holders
of Exchange Notes will be effectively subordinated to the claims of creditors
(including trade creditors) of the Company's subsidiaries. The foreign and lease
finance operations of the Company are conducted primarily through subsidiaries
of the Company. The claims of creditors of such subsidiaries effectively will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of the Company and its creditors, including holders of the Exchange
Notes. At November 2, 1996, after giving effect to the Recapitalization, the
aggregate amount of indebtedness and other liabilities of the Company's
subsidiaries would have been approximately $67 million (which were composed
principally of liabilities of the Company's special purpose lease financing
subsidiary), and the Company's subsidiaries had the ability to borrow an
additional $41.4 million. See "Description of Debt Facilities." In addition, the
Company's Canadian subsidiary, Canadian Blue Bird Coach Ltd. ("Canadian Blue
Bird"), may borrow funds from the Company and issue a senior promissory note
secured by the real and personal property of Canadian Blue
10
<PAGE>
Bird, which would be pledged to the lenders under the New Credit Agreement as
security. In effect, holders of Exchange Notes will also be structurally
subordinated to any claims by the lenders under the New Credit Agreement in
respect of such secured note. Subject to certain restrictions, exceptions and
financial tests set forth in its debt instruments, the Company and its
subsidiaries may also incur additional indebtedness in the future which ranks
prior to claims of holders of the Exchange Notes.
The subordination provisions of the Indenture provide that, upon any payment
or distribution of the Company's assets to creditors upon any dissolution,
winding-up, liquidation, reorganization, bankruptcy, insolvency, receivership or
other proceedings relating to the Company, whether voluntary or involuntary,
holders of the Senior Indebtedness will be entitled first to receive payment in
full of all amounts due thereon before the holders of Exchange Notes will be
entitled to receive any payment with respect to the Exchange Notes. In the event
of any default in the payment in respect of any Senior Indebtedness, no payment
with respect to the Exchange Notes may be made by the Company unless and until
such default has been cured or waived. In addition, upon the occurrence of any
other default entitling the holders of Designated Senior Indebtedness (as
defined herein) to accelerate the maturity thereof and receipt by the trustee
under the Indenture of written notice of such occurrence from such holders, no
payment in respect of the Exchange Notes may be made by the Company for a
maximum of 179 days. See "Description of the Exchange Notes--Subordination."
BBC will guarantee the Exchange Notes on an unsecured senior subordinated
basis. Currently, BBC conducts no business other than holding the capital stock
of the Company and has no significant assets other than the capital stock of the
Company. The BBC Guarantee will be subordinated in right of payment to the
guarantee provided by BBC under the New Credit Agreement. The Indenture contains
no restrictions on the activities of BBC. See "Description of the Exchange
Notes--Note Guarantees." Therefore, there are not expected to be any resources
to support the BBC Guarantee that would be incremental to those to which holders
of the Exchange Notes will already have access as direct creditors of the
Company. Under certain circumstances, subsidiaries of the Company may be
required to guarantee the Exchange Notes, in which case, claims in respect of
such guarantee would be subordinated in right of payment to Guarantor Senior
Indebtedness (as defined in the BBC Guarantee) in the same manner as the
Exchange Notes are subordinated to Senior Indebtedness.
RESTRICTIVE COVENANTS AND ASSET ENCUMBRANCES
The New Credit Agreement contains certain financial and other covenants,
including covenants requiring the Company to maintain certain financial ratios
and restricting the ability of BBC and its subsidiaries to incur indebtedness or
to create or suffer to exist certain liens. The amortization schedule and
mandatory prepayment provisions under the New Credit Agreement also require that
significant portions of indebtedness thereunder be repaid prior to maturity in
2003. The ability of the Company to comply with such provisions may be affected
by events beyond its control. Should the Company be unable to comply with the
financial or other restrictive covenants under the New Credit Agreement at any
time in the future there can be no assurance that the lenders would agree to any
necessary amendments or waivers. In such a case, the failure to obtain
amendments or waivers could have a material adverse effect upon the Company and
its ability to meet its obligations in respect of the Exchange Notes. A failure
to make any required payment under the New Credit Agreement or to comply with
any of the financial and operating covenants included in the New Credit
Agreement could result in an event of default thereunder, permitting the lenders
to accelerate the maturity of the indebtedness under the New Credit Agreement
and to foreclose upon their collateral, and, depending upon the action taken by
such lenders, delaying or precluding payment of principal of, premium, if any,
or interest on the Exchange Notes. Such an acceleration could also result in the
acceleration of the other indebtedness of the Company and its subsidiaries which
contain cross-acceleration or cross-default provisions. See "Description of Debt
Facilities." The Indenture also has certain covenants which, if not complied
with, would result in an Event of
11
<PAGE>
Default (as defined herein) thereunder permitting holders of the Exchange Notes,
under certain circumstances, to accelerate the Exchange Notes. Any such Event of
Default or acceleration could also result in an event of default or acceleration
of other indebtedness of the Company. In addition, the obligations of the
Company under the New Credit Agreement will be secured by substantially all of
the Company's assets. In the event of an event of default under the New Credit
Agreement, the lenders under the New Credit Agreement would be entitled to
exercise the remedies available to a secured lender under applicable law.
Therefore, in addition to being entitled to the benefits of the subordination
provisions contained in the Indenture, the secured lenders will have a prior
claim on the assets of BBC and its subsidiaries securing their indebtedness. If
the lenders under the New Credit Agreement accelerate the maturity of the Senior
Indebtedness thereunder there can be no assurance that the Company will have
sufficient assets to satisfy its obligations under the Exchange Notes. In
addition, other indebtedness of the Company and its subsidiaries that may be
incurred in the future may contain financial or other covenants more restrictive
than those applicable to the New Credit Agreement or the Exchange Notes. See "--
Subordination."
Blue Bird Capital entered into a Loan Agreement, dated October 18, 1995, as
amended and restated on March 29, 1996 (as so amended and restated, the "LaSalle
Credit Agreement") with LaSalle National Bank, as agent for itself and other
lenders ("LaSalle"). Revolving loans under the LaSalle Credit Agreement (the
"LaSalle Credit Facility") are used to finance the lease financing operations of
Blue Bird Capital. The LaSalle Credit Agreement contains financial and other
covenants, including covenants requiring Blue Bird Capital to maintain certain
financial ratios and restricting the ability of Blue Bird Capital to incur
indebtedness or to create or suffer to exist certain liens. The LaSalle Credit
Agreement also requires that certain amounts of indebtedness thereunder be
repaid by specified dates. A failure to make any required payment under the
LaSalle Credit Agreement or to comply with any of the financial and operating
covenants included therein could have a material adverse effect on the Company
and its ability to meet its obligations in respect of the Exchange Notes. See
"Description of Debt Facilities-- LaSalle Credit Agreement," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Leasing."
The Company's indebtedness under the New Credit Agreement will bear interest
at rates that will fluctuate with changes in certain prevailing interest rates
(although such rates may be fixed for limited periods of time). The New Credit
Agreement may require the Company to enter into interest rate protection
arrangements with respect to a portion of the lenders' commitments under each of
the term loan facilities thereunder. The indebtedness of Blue Bird Capital under
the LaSalle Credit Facility also bears interest at rates that will fluctuate
with changes in certain prevailing interest rates (although such rates may be
fixed for limited periods of time). See "Description of Debt Facilities."
PRODUCT LIABILITY CLAIMS AND INSURANCE COVERAGE
The Company is subject to various product liability claims for personal
injuries and other matters allegedly relating to the use of products
manufactured or sold by it. The Company is also subject to recalls of its bus
products from customers to cure manufacturing defects or in the event of a
failure to comply with applicable regulatory standards. In August 1996, the
National Highway Traffic Safety Administration (the "NHTSA") announced its
determination that approximately 11,500 school buses were not in compliance with
federal requirements for fuel systems. Of the affected buses, 11,300 were Blue
Bird Type D (as defined herein) models in which the chassis were manufactured by
the Company, which failed crash tests when fuel tanks were punctured upon
impact. The Company recently completed evaluating the scope of the proposed
product recall with the NHTSA as a result of the NHTSA's non-compliance
determination. The Company plans to issue a recall of the affected buses in
mid-January, 1997, and management estimates that the cost of repairs required to
be paid by the Company to bring the vehicles into compliance will not be
material. However, manufacturing defects or the failure to comply with
applicable regulatory standards can also serve as the basis for a variety of
claims from customers of the Company and bus
12
<PAGE>
passengers who use the Company's products. As such, there can be no assurance as
to the ultimate outcome of this matter.
Management considers product liability litigation to be in the ordinary
course of its business. The ultimate outcome of the claims, or potential future
claims, against it cannot presently be determined and the amount of the
Company's product liability insurance coverage with respect to such claims
varies from year to year. While the Company believes that any losses and
expenses (including defense costs) resulting from such claims will be within the
applicable insurance coverage and financial statement reserves established to
cover retention liability and defense costs and other related expenses, there
can be no assurance that this will be true or that the amount of losses and
expenses relating to any claim or claims will not have a material adverse effect
on the Company and thereby on the ability of the Company to meet its obligations
in respect of the Notes. While the Company expects to continue to be able to
obtain adequate insurance coverage at acceptable rates, there can be no
certainty that such coverage will ultimately be available to the Company at
acceptable rates or at all, that future rate increases might not make such
insurance uneconomical for the Company to maintain, that current levels of
deductibles will continue to be available, or that the Company's insurers will
be financially viable if and when payment of a claim is required. The inability
of the Company to obtain adequate insurance coverage at acceptable rates is
likely to have a material adverse effect on the Company. In addition, the
running of statutes of limitations for personal injuries to minor children
typically is suspended during the children's legal minority. Therefore, it is
possible that accidents causing injuries to minor children on school buses may
not give rise to lawsuits until a number of years later. See "Business--Legal
Proceedings."
For a discussion of other contingent liabilities, including potential
environmental liabilities, see "Business--Environmental Matters" and note 11 to
the Notes to Audited Consolidated Financial Statements included elsewhere in
this Prospectus.
GOVERNMENTAL REGULATION
The Company's products must satisfy certain standards applicable to vehicles
established by the NHTSA. Certain of its products must also satisfy
specifications established by other federal, state and local regulatory
agencies, primarily dealing with safety standards applicable to school buses.
The cost of compliance with existing regulations results in an incremental cost
of doing business to the Company and the cost of compliance with future
regulations cannot be predicted with any degree of certainty and may
significantly affect the Company's operations. Further, a substantial change in
any such regulation could have a significant impact on the business of the
Company. In addition, the scheduled effectiveness in 1998 of more restrictive
United States Environmental Protection Agency ("EPA") emissions standards may
impact upon the Company's operations. See "--Product Liability Claims and
Insurance Coverage" and "Business--Government Regulation."
LIMITED NUMBER OF CHASSIS SUPPLIERS
In general, buses consist of a body mounted on a chassis, which includes the
bus engine. A substantial portion of the units sold by the Company are Type C
(as defined herein) buses for which the Company does not manufacture a chassis.
The Company offers an "integrated" Type C bus by purchasing a chassis pursuant
to the GM Chassis Agreement (as defined herein) and assembling it with the
Company's Type C bus body. In addition, the Company sells Type C bus bodies for
assembly on non-GM chassis. Because of the importance of the Type C bus to the
Company, obtaining an adequate supply of chassis could thus become critical to
the Company's ability to compete in the school bus market.
There are only three major chassis manufacturers in the United States:
General Motors Corporation ("GM"), Ford Motor Company ("Ford") and Navistar
International Corporation ("Navistar"). Navistar, which accounts for
approximately 60% of the chassis market, recently purchased AmTran of Illinois,
Inc. ("AmTran"), a bus manufacturer that is one of the Company's major
competitors. Since its acquisition of
13
<PAGE>
AmTran, Navistar has continued to make its chassis available to AmTran's
competitors as well as to school districts and other purchasers who wish to
combine Navistar chassis with other bus bodies, such as those made by the
Company. There can be no assurance that Navistar will continue to make its
chassis available to purchasers other than AmTran.
On May 6, 1991, the Company entered into a chassis supply agreement (the "GM
Chassis Agreement") with GM to secure a steady supply of chassis. This agreement
may be terminated by GM or by the Company upon two years' notice to the other
party. There can be no assurance that GM will not terminate the GM Chassis
Agreement. If the GM Chassis Agreement were to be terminated or if, for any
reason, GM were to (i) cease manufacturing chassis or (ii) cease selling them to
the Company and/or school districts and other customers who combine GM chassis
with Blue Bird bodies, there also can be no assurances that (i) Blue Bird would
be able to purchase sufficient quantities of chassis from Navistar and the
remaining suppliers to fill orders or (ii) school districts or other customers
would continue to order bodies from Blue Bird if such customers cannot be
assured of being able to obtain chassis. If the Company were required to
manufacture more chassis for its own use, it would likely materially effect its
future results of operations and, potentially, its profitability.
FRAUDULENT CONVEYANCE RISKS
The incurrence by the Company of indebtedness, including indebtedness
incurred under the New Credit Agreement and the Notes, the proceeds of which
will be used, in part, to pay the Blue Bird Dividend to fund the BBC Dividend,
is subject to review under relevant federal and state fraudulent conveyance
statutes in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of the Company.
Under these fraudulent conveyance statutes, if a court were to find that, at the
time the Notes were issued, (i) the Company issued the Notes with the intent of
hindering, delaying or defrauding current or future creditors or (ii) (a) the
Company received less than reasonably equivalent value or fair consideration for
issuing the Notes and (b) the Company (1) was insolvent or was rendered
insolvent by reason of the Recapitalization and related transactions, including
the incurrence of the indebtedness related thereto, (2) was engaged in a
business or transaction for which its assets constituted unreasonably small
capital, (3) intended to incur, or believed that it would incur, obligations
beyond its ability to pay as such obligations matured (as the foregoing terms
are defined in or interpreted under the fraudulent conveyance statutes) or (4)
was a defendant in an action for money damages, or had a judgment for money
damages docketed against it (if, in either case, after final judgment the
judgment is unsatisfied), such court could subordinate the Notes to presently
existing and future indebtedness of the Company (in addition to the Senior
Indebtedness to which the Notes are expressly subordinated) or take other action
detrimental to the holders of the Notes, including invalidating the Notes.
In addition, the BBC Guarantee which applies to the Notes, is subject to
review under relevant federal and state fraudulent conveyance statutes. Under
these fraudulent conveyance statutes, if a court were to find that, at the time
the BBC Guarantee was given, (i) BBC guaranteed the Notes with the intent of
hindering, delaying or defrauding current or future creditors or (ii) (a) BBC
received less than reasonably equivalent value or fair consideration for
guaranteeing the Notes, and (b) BBC (1) was insolvent or was rendered insolvent
by reason of such guarantee, (2) was engaged in a business or transaction for
which its assets constituted unreasonably small capital, (3) intended to incur,
or believed that it would incur, obligations beyond its ability to pay as such
obligations matured (as the foregoing terms are defined in or interpreted under
the fraudulent conveyance statutes), or (4) was a defendant in an action for
money damages, or had a judgment for money damages docketed against it (if in
either case, after final judgment the judgment is unsatisfied), such court could
subordinate the claim under the BBC Guarantee to presently existing and future
indebtedness of BBC (in addition to the Guarantor Senior Indebtedness to which
the BBC Guarantee is expressly subordinated) or take other action detrimental to
the holders of the Notes, including invalidating the BBC Guarantee.
14
<PAGE>
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law that is being applied in any such proceeding.
Generally, however, Blue Bird or BBC would be considered insolvent if (i) the
sum of their debts, including contingent liabilities, were greater than the fair
saleable value of all of their assets at a fair valuation or if the present fair
market value (or fair saleable value) of their assets were less than the amount
that would be required to pay their probable liability on their existing debts,
including contingent liabilities, as they become absolute or mature or (ii) they
were incurring obligations beyond their ability to pay as such obligations
mature or become due.
BBC believes that at the time of the issuance of the BBC Guarantee and upon
consummation of the Recapitalization, BBC was (i) neither insolvent nor rendered
insolvent thereby, (ii) in possession of sufficient capital to meet its
obligations as the same mature or become due and to operate its business
effectively, and (iii) incurring debts within its ability to pay as the same
mature or become due. Blue Bird believes that upon consummation of the
Recapitalization and upon the issuance of the Notes, Blue Bird (i) was (a)
neither insolvent nor rendered insolvent thereby, (b) in possession of
sufficient capital to run its business effectively, and (c) incurring debts
within its ability to pay as the same mature or become due and (ii) has
sufficient assets to satisfy any probable money judgment against it in any
pending action. In reaching these conclusions, BBC and Blue Bird relied upon
various valuations and cash flow estimates which necessarily involve a number of
assumptions, including choices of methodology and assumptions based on economic,
market, financial and other conditions. No assurance can be given, however, that
the assumptions and methodologies chosen by BBC and Blue Bird would be adopted
by a court or that a court would concur with such conclusions as to their
solvency.
CONTROL BY MLCP; CHANGE OF CONTROL
BBC holds all of the capital stock of the Company and, in turn, is owned by
affiliates (the "ML Entities") of Merrill Lynch Capital Partners, Inc. ("MLCP"),
certain directors of BBC and the Company and certain members of management of
the Company, who together acquired the Company in a leveraged buyout transaction
in 1992 (the "1992 Acquisition"). The ML Entities own approximately 91% of the
BBC Common Stock, with certain directors of BBC and the Company and management
of the Company owning the balance. The interests of MLCP as equity holders of
BBC may differ from the interests of holders of Exchange Notes and, as such,
conflicts of interests between the ML Entities and holders of Exchange Notes may
arise. See "Ownership of Capital Stock."
There can also be no assurance that the ML Entities will continue to control
BBC. A "change of control," as defined in various agreements, including the New
Credit Agreement, would impose substantial financial obligations on the Company
and would require the Company to refinance substantial amounts of its
indebtedness. A change of control would be an Event of Default under the New
Credit Agreement, permitting the lenders under the New Credit Agreement to
exercise remedies, and would, under certain additional circumstances, require
the Company to make an offer to purchase all of the outstanding Exchange Notes
under the Indenture. The inability to repay indebtedness under the New Credit
Agreement, if accelerated, or to purchase all of the Exchange Notes, would also
constitute an Event of Default under the Indenture. See "Description of Debt
Facilities" and "Description of the Exchange Notes-- Change of Control
Triggering Event." In addition, a number of the Company's compensation
arrangements may require it to make cash payments following a change of control.
See "Certain Relationships and Related Transactions" and "Management--Executive
Compensation." No assurance can be given that the Company will be able to comply
with all of its obligations under its various agreements in the event of a
change of control or to refinance any of these or other obligations that might
become due by the reason of these provisions. Thus, in the event the Company was
unable to meet its obligations, there may not be any resources available to meet
claims for payment on the Exchange Notes.
15
<PAGE>
TRADING MARKET FOR THE EXCHANGE NOTES
There is currently no established market for the Exchange Notes and there
can be no assurance as to the liquidity of markets that may develop for the
Exchange Notes, the ability of the holders of the Exchange Notes to sell their
Exchange Notes or the price at which such holders would be able to sell their
Exchange Notes. If such markets were to exist, the Exchange Notes could trade at
prices that may be lower than the initial market values thereof depending on
many factors, including prevailing interest rates and the markets for similar
securities. Although there is currently no market for the Exchange Notes,
Merrill Lynch has advised the Company that it currently intends to make a market
in the Exchange Notes. However, Merrill Lynch is not obligated to do so, and any
market-making with respect to the Exchange Notes may be discontinued at any
time, for any reason, without notice at the sole discretion of Merrill Lynch.
In addition, if Merrill Lynch conducts any market-making activities in
respect of the Exchange Notes, it may be required to deliver a "market-making
prospectus" when effecting offers and sales in the Exchange Notes, because of
the equity ownership of affiliates of Merrill Lynch. The ML Entities in the
aggregate hold approximately 91% of the BBC Common Stock. For so long as a
market-making prospectus is required to be delivered, the ability of Merrill
Lynch to make a market in the Exchange Notes may, in part, be dependent on the
ability of the Company to maintain a current market-making prospectus.
Therefore, no assurance can be given as to the liquidity of, or the trading
market for, the Exchange Notes.
16
<PAGE>
THE RECAPITALIZATION
On November 19, 1996, the Company consummated the Recapitalization which
included the 144A Note Offering, the retirement of the Old Notes, the
replacement and refinancing of the Old Credit Agreement with the New Credit
Agreement and the Distribution. As part of the Recapitalization, the Board of
Directors of the Company declared the Blue Bird Dividend and the Board of
Directors of BBC declared the BBC Distribution. Holders of BBC options received
cash payments on an as-exercised basis and were not required to exercise their
options to receive their PRO RATA portion of the BBC Distribution, nor were they
entitled to any antidilution adjustment to the exercise price for their options.
Selling Holders of approximately $50 million principal amount (or 100%) of the
outstanding Old Notes sold their Old Notes to the Company, subject to certain
conditions, and consented to certain amendments to the indenture governing the
Old Notes for aggregate payments (including repayment of principal) of
approximately $53.7 million, which included accrued and unpaid interest (as of
November 2, 1996). The Old Credit Agreement was replaced and refinanced by the
New Credit Agreement, which provided for aggregate availability of $255 million,
including $175 million of Term Facility and an $80 million Revolving Facility.
See "Use of Proceeds."
The following table sets forth the cash sources and uses of funds for the
Recapitalization.
<TABLE>
<CAPTION>
AMOUNT
-------------------
<S> <C>
(DOLLARS IN
MILLIONS)
SOURCES OF FUNDS:
Cash on hand............................................................ $ 21.7
Term loans under New Credit Agreement................................... 175.0
Notes offered hereby.................................................... 99.7
Proceeds from repayment of Management Notes(a).......................... 3.8
-------
Total............................................................... $ 300.2
-------
-------
USES OF FUNDS:
Distribution............................................................ $ 201.4
Repayment of Old Credit Agreement....................................... 36.0
Retirement of Old Notes(b).............................................. 53.7
Estimated fees and expenses............................................. 9.1
-------
Total............................................................... $ 300.2
-------
-------
</TABLE>
- ------------------------
(a) The Management Notes (as defined herein) were repaid by management
shareholders out of the proceeds of the Distribution. See "Certain
Relationships and Related Transactions."
(b) Includes costs associated with the retirement of the Old Notes and the
amendment of the indenture relating thereto, including payment of accrued
interest.
The LaSalle Credit Facility to which Blue Bird Capital is a party remains
outstanding following the Recapitalization. The Selling Holders sold their Old
Notes at a price based upon a premium over the applicable U.S. Treasury rate
and, in connection with their agreement to sell their Old Notes to the Company,
the Selling Holders consented to amendments to the indenture governing the Old
Notes that would have eliminated substantially all of the material restrictive
covenants contained therein had such indenture remained in effect.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Debt Facilities."
17
<PAGE>
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the Exchange
Notes by Merrill Lynch in market-making transactions. The Company will not
receive any of the proceeds from such transactions.
18
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of BBC as of November 2, 1996 (i) on an historical basis
and (ii) on a PRO FORMA basis to give effect to the Recapitalization as if it
had occurred on November 2, 1996. There are no material differences between the
capitalization of the Company and BBC, except as set forth in footnotes (c) and
(d). This information should be read in conjunction with the information set
forth under "Selected Financial Data" and in the audited financial statements of
BBC appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 2, 1996
------------------------
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
(DOLLARS IN MILLIONS)
Cash and cash equivalents.............................................................. $ 46.3 $ 24.6(a)
----------- -----------
----------- -----------
Short-term debt (including current portion of long-term debt).......................... $ 16.0 $ 8.8(b)
----------- -----------
----------- -----------
Long-term debt:
Old Credit Agreement (excluding current portion)..................................... 20.0 --
New Credit Agreement (excluding current portion)..................................... -- 166.2
Old Notes............................................................................ 50.0 --
144A Notes (c)....................................................................... -- 99.7
LaSalle Credit Facility.............................................................. 58.6 58.6
Industrial development bonds......................................................... 2.7 2.7
----------- -----------
Total long-term debt................................................................... 131.3 327.2
Redeemable common stock(d)............................................................. 33.1 16.6
Stock subscriptions receivable(e)...................................................... (3.8) --
Stockholders' equity:
Common stock; $.01 par value; 25,000,000 shares authorized; 8,424,778 shares issued
and outstanding.................................................................... .1 .1
Additional paid-in capital............................................................. 77.0 77.0
Retained earnings...................................................................... 43.2 (131.8)(f)
Cumulative translation adjustments (g)................................................. (2.1) (2.1)
----------- -----------
Total stockholders' equity (deficit)................................................... 118.2 (56.8)
----------- -----------
Total capitalization........................................................... $ 278.8 $ 287.0
----------- -----------
----------- -----------
</TABLE>
- --------------------------
(a) Reflects (i) the receipt of gross proceeds from the 144A Note Offering
($99.7 million), borrowings under the Term Facility of the New Credit
Agreement ($175 million); (ii) the retirement of indebtedness (including
accrued interest) under the Old Credit Agreement ($36 million) and the Old
Notes ($50.3 million); (iii) the payment of fees and expenses associated
with the Recapitalization ($9.1 million) and the costs (including premium)
associated with the retirement and amendment of the Old Notes ($3.4
million); (iv) the payment of the Distribution ($201.4 million); and (v) the
proceeds from the repayment of the Management Notes from the BBC
Distribution to the management shareholders ($3.8 million).
(b) Reflects (i) the retirement of the current portion of indebtedness under the
Old Credit Agreement ($16 million); and (ii) the current portion of
long-term debt and revolving credit borrowings under the New Credit
Agreement ($8.8 million).
(c) Represents the $100 million principal amount of the Notes less unamortized
discount of $.3 million.
(d) Redeemable common stock represents 720,000 issued and outstanding shares of
BBC Common Stock purchased by the Management Investors, primarily in
connection with the 1992 Acquisition. The Management Investors have the
right, prior to the earlier of an initial public offering of equity
securities of BBC or the tenth anniversary of the Stockholders' Agreement,
to put these shares to BBC in the event of their disability, involuntary
termination not
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
19
<PAGE>
for cause, retirement, or death for a fair value price. The redeemable
common stock of BBC was recorded at fair value on the date of issuance. The
excess of the fair value price over the original fair value is being
accreted by periodic charges to retained earnings. The amounts recorded in
the balance sheets represent the estimated maximum amount payable if all
Management Investors met the specified criteria and exercised their put
rights. See "Certain Relationships and Related Transactions."
(e) Stock subscriptions receivable represent notes due from Management Investors
to BBC for stock issued in April 1992 in connection with the 1992
Acquisition. The Management Notes bear interest at an 8% interest rate.
Interest is payable annually. The Management Notes were repaid by management
optionholders out of the proceeds of the Distribution.
(f) Reflects (i) the Distribution, net of tax benefit ($188.6 million); (ii) the
adjustment to the fair value of the redeemable common stock ($16.5 million);
(iii) the costs associated with the retirement and amendment of the Old
Notes, net of tax benefit ($2 million); and (iv) the write-off of the debt
issue costs related to the indebtedness being retired, net of tax benefit
($1 million).
(g) Reflects the effects of exchange rate fluctuations on translating foreign
currency assets and liabilities into U.S. dollars for the foreign
subsidiaries and branches of the Company.
20
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial data
for BBC for fiscal years 1996, 1995, 1994 and 1993, and for the six months ended
October 31, 1992, as well as selected historical consolidated financial
information for BBC prior to the 1992 Acquisition (the "Predecessor") as of and
for the six months ended April 30, 1992. The selected historical consolidated
financial data as of and for the full fiscal years indicated were derived from
the financial statements of BBC and subsidiaries which were audited by Arthur
Andersen. Currently, BBC conducts no independent operations and has no
significant assets other than the capital stock of Blue Bird. The selected
historical financial data set forth below should be read in conjunction with the
consolidated financial statements of BBC and the notes thereto included
elsewhere in this Prospectus. Separate historical financial data for the
Predecessor are not included in this Prospectus. Subsequent consolidated
financial data of BBC reflect the purchase accounting treatment of the 1992
Acquisition. Accordingly, the financial data of the Predecessor and BBC are not
comparable in all material respects, since such data reflect financial positions
and results of operations of these two separate entities.
<TABLE>
<CAPTION>
BBC
-----------------------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS
---------------------------------------------------- ENDED
NOVEMBER 2, OCTOBER 28, OCTOBER 29, OCTOBER 30, OCTOBER 31,
1996 1995 1994 1993 1992
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales.................................................. $ 570.2 $ 517.4 $ 476.2 $ 413.5 $ 244.4
Cost of goods sold......................................... 474.1 430.6 392.9 340.5 198.4
------ ----------- ----------- ----------- -----------
Gross profit............................................... 96.1 86.8 83.3 73.0 46.0
Selling, general and administrative expenses(a)............ 42.6 39.8 39.0 36.3 20.1
Amortization of goodwill and
non-compete agreements................................... 3.8 4.7 5.6 5.6 9.3
------ ----------- ----------- ----------- -----------
Operating income (loss).................................... 49.7 42.3 38.7 31.1 16.6
Interest income............................................ 7.0 4.6 4.1 2.9 1.4
Interest expense........................................... (16.9) (18.5) (17.4) (18.2) (9.5)
Other income (expense)(b).................................. 0.2 0.1 0.2 0.7 (0.5)
------ ----------- ----------- ----------- -----------
Income (loss) before income taxes.......................... 40.0 28.5 25.6 16.5 8.0
Provision (benefit) for income taxes....................... 14.8 11.6 10.2 6.9 4.3
------ ----------- ----------- ----------- -----------
Net income before extraordinary item....................... 25.2 16.9 15.4 9.6 3.7
Loss on extinguishment of debt............................. (1.4) -- -- -- --
------ ----------- ----------- ----------- -----------
Net income (loss).......................................... $ 23.8 $ 16.9 $ 15.4 $ 9.6 $ 3.7
------ ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- -----------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital............................................ $ 80.4 $ 61.7 $ 65.3 $ 52.7 $ 31.9
Total assets............................................... 391.0 379.8 332.8 342.1 337.3
Long-term debt, excluding current maturities............... 131.4 113.8 125.8 135.8 143.8
Redeemable common stock, net............................... 29.3 20.9 17.5 11.0 8.0
Stockholders' equity....................................... 118.2 102.6 88.8 80.7 83.8
<CAPTION>
PREDECESSOR
-----------
SIX MONTHS
ENDED
APRIL 30,
1992
-----------
<S> <C>
INCOME STATEMENT DATA:
Net sales.................................................. $ 120.8
Cost of goods sold......................................... 98.7
-----------
Gross profit............................................... 22.1
Selling, general and administrative expenses(a)............ 34.2
Amortization of goodwill and
non-compete agreements................................... --
-----------
Operating income (loss).................................... (12.1)
Interest income............................................ 5.7
Interest expense........................................... (1.7)
Other income (expense)(b).................................. 1.7
-----------
Income (loss) before income taxes.......................... (6.4)
Provision (benefit) for income taxes....................... (3.0)
-----------
Net income before extraordinary item....................... (3.4)
Loss on extinguishment of debt............................. --
-----------
Net income (loss).......................................... $ (3.4)
-----------
-----------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital............................................ $ 69.4
Total assets............................................... 253.8
Long-term debt, excluding current maturities............... 39.4
Redeemable common stock, net............................... --
Stockholders' equity....................................... 137.0
</TABLE>
- ------------------------
(a) Includes expenses of the Predecessor incurred prior to the 1992 Acquisition
which the Company no longer incurs, including salaries of the Predecessor's
principal stockholders prior to the 1992 Acquisition, commission paid
relating to a Domestic International Sales Corporation (DISC) owned by such
principal stockholders, the amortization of contracts in process, and
severance and restructuring costs. Such amounts totaled $6.6 million and
$1.1 million for the six month periods ended October 31, 1992 and April 30,
1992, respectively.
(b) Includes charitable contributions made prior to the 1992 Acquisition which
BBC has reduced following the 1992 Acquisition. Such contributions totaled
$.6 million for the six-month period ended April 30, 1992.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Approximately 80% of the Company's fiscal 1996 net sales are derived from
school bus sales and approximately 14% and 6% of the Company's fiscal 1996 net
sales are derived from the sale of commercial and recreational vehicles,
respectively. Between fiscal 1994 and fiscal 1996, the Company's operating
income has risen primarily due to increased sales volume. Over the same period,
gross profit margins have decreased slightly, principally due to an increase in
the number of Type C buses sold with GM chassis. The Company's operations are
affected by trends in the number of students enrolled in grades kindergarten
through 12 and overall educational spending by local and state governments as
well as by the federal government. In addition to incremental needs due to pupil
population growth and replacement requirements based on changes in safety
standards, factors which influence the need to purchase school buses include the
age of the existing school bus fleet, changes in school bus travel routes,
regulatory changes such as compliance with new emissions standards,
extracurricular activity usage and changes in the education structure in the
United States such as the development of preschool "head start" programs,
special education programs and magnet schools. The Company's experience has been
that during periods of stable or increasing student enrollment, demand for its
core school bus products has also remained stable or increased.
On a PRO FORMA basis, assuming the Recapitalization had been effected on
November 2, 1996, the Company's total consolidated indebtedness was increased by
approximately $188.7 million, to $336 million. The primary effects of the
Recapitalization on the Company's future operating results include reduced
reported profitability to the extent interest expense is above historical
amounts resulting from higher debt levels. The Company expects to generate
sufficient cash from operations to fund its working capital and capital
expenditure needs and make required interest and principal payments on its
indebtedness. See "Risk Factors--Leverage and Debt Service" and "--Restrictive
Covenants and Asset Encumbrances," and "--Liquidity and Capital Resources."
RESULTS OF OPERATIONS
The discussion of results of operations that follows is based upon and
should be read in conjunction with the financial statements, including the notes
thereto, included elsewhere in this Prospectus. Although the financial
statements are consolidated financial statements of BBC, the Company's parent,
BBC is a holding company and, as such, there would be no material differences in
the operating results of BBC, as compared with the Company. The following table
sets forth certain operating results as a percentage of net sales for the
historical periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
<S> <C> <C> <C>
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
--------------- ------------- -------------
Net sales............................................ 100.0% 100.0% 100.0%
Cost of goods sold................................... (83.1) (83.2) (82.5)
Gross profit......................................... 16.9 16.8 17.5
Selling, general and administrative expense.......... (7.5) (7.7) (8.1)
Operating income..................................... 8.7% 8.2% 8.1%
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995. Net sales increased to $570.2 million
in fiscal 1996 from $517.4 million in fiscal 1995, an increase of $52.8 million
or 10.2%. This increase was due to increased sales volume of the Type C, Type D,
CS and Q-Bus units.
22
<PAGE>
Gross profit increased to $96.1 million in fiscal 1996 compared to $86.8
million in fiscal 1995, an increase of $9.3 million or 10.7%. The increase was
due to increased sales volume. The gross margin of 16.8% was unchanged compared
to fiscal 1995.
Selling, general and administrative expenses increased to $42.6 million in
fiscal 1996 compared to $39.8 million in fiscal 1995, an increase of $2.8
million or 7.0%. The increase was due primarily to higher engineering, marketing
and selling expenses.
Amortization expense decreased to $3.8 million in fiscal 1996 from $4.7
million in 1995. The decrease reflects completion in fiscal 1995 of the
amortization of certain non-compete agreements related to the 1992 Acquisition.
Interest income increased to $7.0 million compared to $4.6 million in fiscal
1995. The increase was due primarily to a higher average dollar amount of leases
in the lease portfolio in fiscal 1996 as compared to fiscal 1995.
Interest expense decreased to $16.9 million in fiscal 1996 as compared to
$18.5 million in fiscal 1995. This was due to lower interest rates on bank debt
as well as lower debt levels due to the repurchase of $25 million of the Old
Notes in December, 1995.
The provision for income taxes increased to $14.8 million in fiscal 1996
from $11.6 million in fiscal 1995. The increase was due to increased taxable
income resulting from higher net sales and operating income. The provision for
income taxes in fiscal 1996 decreased as a percentage of income before taxes as
compared to fiscal 1995. The decrease was due to increased tax-exempt lease
income as well as lower non-deductible amortization items related to the 1992
Acquisition.
On December 14, 1995, the Company repurchased, for cash on the open market,
$25 million in principal amount of outstanding Old Notes for the purchase price
(expressed as a percentage of principal amount) of 106.500% plus accrued
interest to the purchase date. An extraordinary loss of $1.4 million net of a
tax benefit of $.8 million occurred during the 1996 period due to the early
extinguishment of such Old Notes.
FISCAL 1995 COMPARED TO FISCAL 1994. Net sales increased to $517.4 million
in fiscal 1995 from $476.2 million in fiscal 1994, an increase of $41.2 million,
or 8.7%. This increase was due to increased sales of Type D, Q-Bus and CS units,
as well as increased sales of Type C units.
Gross profit increased to $86.8 million in fiscal 1995 compared to $83.3
million in fiscal 1994, an increase of $3.5 million, or 4.2%. The increase was
due to increased sales volume. Gross margin decreased to 16.8% in fiscal 1995
from 17.5% in fiscal 1994. The reduced margin was due primarily to increased
sales of Type C units, on which the Company generally realizes lower margins due
to the inclusion of GM chassis.
Selling, general and administrative expenses were $39.8 million in fiscal
1995 compared to $39 million in fiscal 1994, an increase of 2.0%. The increase
was due primarily to higher expenses related to engineering and product
development.
Amortization expense decreased to $4.7 million in fiscal 1995 compared to
$5.6 million in fiscal 1994. The amortization of certain non-compete agreements
was completed during the first half of fiscal 1995.
Interest income increased to $4.6 million in fiscal 1995 compared to $4.1
million in fiscal 1994. The increase was due to a higher average dollar amount
of leases held in the lease portfolio in fiscal 1995 compared to fiscal 1994.
Interest expense increased to $18.5 million in fiscal 1995 from $17.4
million fiscal 1994, an increase of $1.1 million. The increase was due to a
higher interest rate on credit facility borrowings as compared to fiscal 1994.
23
<PAGE>
The provision for income taxes increased to $11.6 million in fiscal 1995
from $10.2 million in fiscal 1994. The increase was due to increased taxable
income resulting from higher net sales and operating income.
FISCAL 1994 COMPARED TO FISCAL 1993. Net sales increased to $476.2 million
in fiscal 1994 from $413.5 million in fiscal 1993, an increase of $62.7 million,
or 15.2%. This increase was due to increased sales of Type D units, increased
sales of chassis as part of the sale of an integrated Type C bus, as well as to
sales of the new BMC and CS units. The Type D unit has a higher average selling
price than the Type C unit.
Gross profit increased to $83.3 million in fiscal 1994 compared to $73
million in fiscal 1993, an increase of $10.3 million, or 14.1%. The increase was
due to increased sales volume. Gross margin decreased to 17.5% from 17.7% in
fiscal 1993. The reduced margin was due primarily to increased sales of Type C
units, on which the Company generally realizes lower margins due to the
inclusion of GM chassis.
Selling, general and administrative expenses increased to $39 million in
fiscal 1994 compared to $36.3 million in fiscal 1993, an increase of 7.4%. The
increase was due to expenses related to the development, introduction and
advertising of new products.
Interest income (which is primarily associated with income earned on the
Company's lease portfolio) increased to $4.1 million in fiscal 1994 from $2.9
million in fiscal 1993, an increase of $1.2 million, or 41.4%. During fiscal
1994, the average dollar amount of leases held in the lease portfolio was higher
as compared to the average fiscal 1993 portfolio amounts. In addition, the
average rate earned by the portfolio was higher in fiscal 1994 as compared to
fiscal 1993.
Interest expense decreased to $17.4 million in fiscal 1994 from $18.2
million in fiscal 1993, a decrease of $.8 million. The decrease was due to a
combination of lower average outstanding balances on credit facilities as well
as a lower average interest rate as compared to fiscal 1993.
Other income decreased to $.2 million in fiscal 1994 from $.7 million in
fiscal 1993. The decrease was due primarily to reduced gains on sales of lease
paper to LaSalle compared to the prior year.
The provision for income taxes decreased as a percentage of income before
income taxes in fiscal 1994 compared to fiscal 1993. The amortization of certain
costs related to the 1992 Acquisition was essentially unchanged from fiscal 1993
to fiscal 1994. Due to the increase in taxable income, the relative effect of
the non-deductibility of the amortization items on the effective tax rate was
smaller, thereby reducing the effective tax rate in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from funding working
capital needs, which consist primarily of inventory and accounts receivable, and
principal and interest payments on indebtedness. The Company also requires funds
for capital expenditures, for which the Company anticipates approximately $6
million for fiscal 1997.
BBC is a holding company that conducts all of its business operations
through the Company, which is a wholly-owned subsidiary. In connection with any
liquidity needs, including needs arising out of the BBC Guarantee, BBC is
dependent entirely upon cash generated by the Company.
Historically, the Company has funded its working capital needs through cash
generated from operations and borrowings under the Old Credit Agreement. In
addition, the LaSalle Credit Facility provides Blue Bird Capital with a
revolving credit facility to finance school bus leases of up to a maximum
aggregate principal amount of $100 million, of which $58.6 million was
outstanding as of November 2, 1996. Following the Recapitalization, the
Company's liquidity needs will arise primarily from debt service on the
substantial indebtedness incurred in connection with the Recapitalization, as
well as from the
24
<PAGE>
funding of inventory and accounts receivable. Assuming the Recapitalization was
completed as of November 2, 1996, the Company would have had total consolidated
indebtedness at such date of approximately $336 million, consisting primarily of
$99.7 million principal amount of the 144A Notes, borrowings of $175 million
under the New Credit Agreement and $58.6 million of borrowings under the LaSalle
Credit Facility. The Company would also have had the ability to borrow an
additional $41.4 million under the LaSalle Credit Facility to finance school bus
leases and $80 million under the New Credit Agreement (assuming all of such
funds would have been available under the borrowing base calculation under the
Revolving Facility of the New Credit Agreement). Such Revolving Facility will be
available to meet future working capital and other business needs of the
Company. The maximum amount available to be borrowed under such facility is
based on the sum of 85% of Eligible Accounts Receivable (as defined in the New
Credit Agreement) and 60% of Eligible Inventory (as defined in the New Credit
Agreement) of the Company (the "Borrowing Base"). These provisions have the
effect of limiting the ability of the Company to utilize in operations or
satisfy other debt obligations with free cash flow and will limit the amount of
cash the Company has on hand at any given time. See "Description of Debt
Facilities." and "Risk Factors--Leverage and Debt Service."
The Company's interest expense as a result of the Recapitalization is
substantially higher than immediately prior to such transactions. Loans under
the New Credit Agreement bear interest at floating rates based upon the interest
rate option selected by the Company. With respect to the term loan borrowings
under the New Credit Agreement, the Company will be required to make scheduled
principal payments of approximately $8.8 million in fiscal 1997, $12.8 million
in fiscal 1998 and $16.8 million in fiscal 1999. See "Risk Factors--Restrictive
Covenants and Asset Encumbrances." For a schedule of payments due under the New
Credit Agreement, see "Description of Debt Facilities--Senior Bank Financing."
Under the New Credit Agreement, the Company is permitted to accumulate up to
$40 million in its lease portfolio of leases for its own account in addition to
leases held by Blue Bird Capital. As of November 2, 1996, the Company had
approximately $6.3 million of such leases in its lease portfolio. In addition,
as of such date, Blue Bird Capital had approximately $67.7 million in its lease
portfolio. Blue Bird Capital is required to maintain certain financial ratios,
including a ratio of Total Liabilities to Tangible Net Worth (as such terms are
defined in the LaSalle Credit Facility) that cannot exceed 10 to 1. See
"Business--Leasing" and "Description of Debt Facilities--LaSalle Credit
Agreement."
Net cash provided by operations during the year ended November 2, 1996, was
$59.6 million compared to $21.3 million in fiscal 1995. This difference was
primarily the result of an increase in net income and significant reductions in
inventory and trade receivables. There were no net borrowings under the
Company's working capital facility in fiscal 1996 or fiscal 1995. Net borrowing
under the LaSalle Credit Facility were $22.9 during the current year compared to
$35.7 in fiscal 1995. The early extinguishment of $25 million of outstanding Old
Notes (see "--Results of Operations--Fiscal 1996 Compared to Fiscal 1995") was
funded primarily from internally generated cash and partially from an increase
in the working capital revolver.
Cash and cash equivalents were $46.3 at November 2, 1996, compared to $21.5
million at the end of fiscal 1995. Net working capital was $80.4 million at
November 2, 1996, an increase of $18.7 million during the current fiscal year.
Significant factors affecting working capital were a $24.8 million increase in
cash, decreases in current leases receivable, inventory and trade receivables of
$15.0 million, $13.6 million and $5.4 million respectively, offset by a decrease
of $35.7 million in current portion of the LaSalle revolver. In accordance with
the revised terms of LaSalle Credit Facility, as amended in March 1996, the
LaSalle revolver has been reclassified entirely as long term debt as of November
2, 1996.
As a result of the Recapitalization, the Company's future operating
performance and ability to service or refinance the Notes and to repay, extend
or refinance the New Credit Agreement are subject to future economic conditions
and to financial, business and other factors, many of which are beyond the
Company's
25
<PAGE>
control. The Company's liquidity may also be impacted by product liability
claims and environmental matters. See "Risk Factors."
The Company's business is seasonal in nature. A majority of the Company's
sales occur in the third and fourth quarters of the fiscal year, a pattern
typical for the industry. The Company's working capital needs increase during
the second and third quarters as production activity increases in response to
the higher seasonal sales volume. Working capital needs decrease toward the end
of this period, although beginning in December or January, working capital and
related bank borrowings begin to increase as parts for assembly into buses are
manufactured and distributed to the assembly plants. Inventory is at its highest
during July and August prior to heavy seasonal school deliveries. The following
table shows the percentages of the Company's net sales per quarter for the last
four fiscal years.
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter.......................................... 16.3% 14.8% 18.5% 16.0%
Second Quarter......................................... 18.7 20.4 17.0 15.7
Third Quarter.......................................... 25.7 26.5 30.0 30.4
Fourth Quarter......................................... 39.3 38.3 34.5 37.9
----- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
----- --------- --------- ---------
----- --------- --------- ---------
</TABLE>
26
<PAGE>
BUSINESS
GENERAL
Blue Bird is the leading manufacturer of school buses in North America.
Approximately 80% of the Company's net sales in fiscal 1996 were derived from
sales of school bus products. The Company also manufactures the Q-Bus and CS,
which target purchasers of medium-sized buses for commercial uses, and two
upscale RV models, the Wanderlodge and the BMC. Commercial and recreational
vehicles accounted for approximately 14% and 6%, respectively, of the Company's
fiscal 1996 net sales. The Company manufactures both quality steel bus bodies
for mounting on chassis manufactured by third parties and complete bus units
(body and chassis). Chassis generally consist of frames with engines,
transmissions, drive trains, axles, wheels, power steering, brakes and fuel
cells. The Company markets its products primarily through a network of
approximately 63 independent distributors, which resell the products to
customers, including municipalities, states, transportation contracting
companies, churches and other independent organizations. Management believes
that this distribution network results in an important competitive advantage as
it allows the Company to maintain, through its distributors, strong sales
relationships with the ultimate end-users of its products, which provide the
Company with an important source of localized market knowledge. Through its
subsidiary, Blue Bird Capital, which was formed in October 1995, the Company
provides a variety of lease financing alternatives principally to tax-exempt
customers of its school bus products. The Company also continues to provide
taxable lease financing through its Blue Bird Credit division.
The Company's business strategy is to continue to utilize its leading market
position in the school bus market as a platform from which to expand its product
offerings. The Company will continue to focus on its core school bus business,
while seeking to expand its commercial bus product offerings to various markets,
including the shuttle bus market, the smaller urban bus market and the "line
haul" or inter-city coach market. Within the school bus market, the Company will
continue to emphasize sales to distributors, as opposed to states and large
transportation contracting companies, reflecting its belief that the former
market provides greater growth and profit opportunities. The Company will also
seek to expand its international bus sales, particularly in developing
countries.
The Company's principal executive offices are located at 3920 Arkwright
Road, Macon, Georgia 31210. The Company is organized under the laws of the state
of Georgia and BBC is organized under the laws of the state of Delaware.
INDUSTRY OVERVIEW
SCHOOL BUSES. The two principal components of a school bus are the body and
chassis. Bodies and chassis are sold either as integrated units, provided by a
single supplier, or separately, in which case end-users purchase bodies and
chassis from different suppliers and have the two components assembled by the
bus body manufacturer. Approximately 50% of the Company's school bus sales in
1996, on a unit basis, were of integrated units. The ability to provide
integrated units enables manufacturers to submit bids on completed school bus
units to school bus end-users. The Company believes that integrated sales permit
school bus body manufacturers to offer end-users a lower cost complete school
bus while increasing their share of the profits realized on any sale of a unit.
Many end-users, particularly those that participate in a state bid process for
school bus purchases, however, may prefer to purchase the body and chassis
separately.
School bus purchasing is typically a centralized process involving orders of
multiple units. Purchasers of school buses are categorized into two ownership
groups: public (I.E., states and school districts); and private (I.E.,
independent transportation contracting companies and other private entities). It
has been management's experience that the transportation director of a state or
school district, or the chief procurement officer of a transportation
contracting company, as the case may be, will typically determine transportation
needs on an annual basis. In addition to replacement requirements based on
changes in
27
<PAGE>
safety standards and incremental needs due to pupil population growth, factors
which influence the need to purchase school buses include the age of the
existing school bus fleet, changes in school bus travel routes, regulatory
changes such as compliance with new emissions standards, extracurricular
activity usage and changes in the education structure in the United States such
as the development of preschool "head start" programs, special education
programs and magnet schools. In the case of public purchasers, the
transportation director may also be affected by certain budgetary constraints,
and will consider the availability of financing in making the purchasing
decision.
Once the decision relating to the purchase of replacement or new school
buses is finalized, the transportation director or the chief procurement officer
will decide on the type and brand of product to be purchased. Product
performance, manufacturer reputation, the manufacturer's ability to accommodate
specifications regarding bus design, relationships with distributors, price, the
availability of financing alternatives (E.G., leasing options), fleet
standardization and post-sale support and service are all key factors
influencing the decision to purchase a particular product. While price is an
important factor, it is not the sole determinant of the purchase decision, and
the lowest bid is not necessarily awarded the contract. As a result,
manufacturer and distributor relationships are critical to the sale of school
bus products.
Florida, Kentucky, North Carolina, South Carolina and West Virginia award
contracts for school buses based on a state bid process, with the state
generally serving as the aggregate purchaser on behalf of all of its school
districts. State officials compile the total number of buses their districts
require and then solicit bids from bus body and chassis manufacturers. This
process is much more competitive and price sensitive than the local bidding
process, and manufacturers generally must be the low bidder to win the contract.
Bus body and chassis manufacturers typically bid these purchases on a direct
basis, rather than through distributors, and view these contracts as low margin,
incremental volume. The Company estimates that approximately 15% of annual U.S.
public school bus purchases are awarded through these bids.
In the United States, approximately 78% of the estimated 410,000 school
buses currently in operation are publicly owned, with the remainder privately
owned. The Company estimates that approximately 50% of the privately owned
school buses in operation in the U.S. are owned by the five largest national
contractors. These contracting companies are fleet buyers and, therefore,
pricing in this segment of the market is highly competitive. In addition to
these large national transportation contractors, local contracting companies are
also classified as private purchasers of school buses. As is the case with
individual school districts, these smaller institutions typically purchase buses
through distributors.
Management estimates that deliveries of school buses in North America in
fiscal 1996 totaled approximately 32,000 units. In addition, management
estimates that the market demand for school bus and commercial products that the
Company manufactures and sells to countries outside of North America totaled
approximately 3,500 units in fiscal 1996.
COMMERCIAL VEHICLES. Management divides the commercial bus transportation
market into three segments, consisting of (i) public transportation, (ii)
shuttle transportation and (iii) tour, charter and commuter uses. The public
transportation sector consists of several vehicle markets, including vans,
medium-duty buses under 35 feet in length, heavy-duty buses up to 40 feet,
articulated buses up to 60 feet, and inter-city coaches designed to transport
passengers from suburbs to cities. The shuttle market is broader with users such
as airports, car rental agencies, "park-and-ride" operators, hotels, educational
and religious institutions, and providers of employee and health care-related
transportation. The tour, charter and commuter segment of the market typically
requires large over-the-road coaches ranging from 40 feet to 45 feet in length.
The Company's participation in the broad commercial bus market is limited,
as the Company produces only medium-sized commercial buses as well as shuttle
products. See "--Products." Medium-sized buses are purchased by public
transportation authorities and by tour, charter and commuter operators to
supplement a fleet of large vehicles or to facilitate smaller scale charter and
contract
28
<PAGE>
transportation needs. Management believes that rural and urban public transit
authorities are beginning to reevaluate their traditional preference, especially
in urban areas, for fleets consisting primarily of large buses. Management
further believes a trend is developing toward purchases of the medium-sized
buses similar to those built by the Company, in part because medium-sized buses
are more economical and easier to operate. The Company believes it is well
positioned to benefit from this trend. The shuttle market is served by a variety
of products which include a variety of vans, "cutaway" vans (a fiberglass body
on a van chassis), small and medium-sized coaches and some hybrid van and bus
products. Management believes that the shuttle segment will grow as airports
grow larger and move further away from cities and the number of elderly citizens
requiring shuttle transportation increases.
RECREATIONAL VEHICLES. The Company participates in the luxury niche of the
recreational motor home vehicle market. This segment of the market is small,
relatively stable, and consists of a limited number of competitors. Although
this segment of the market is profitable for the Company, it is not expected to
grow significantly. Management estimates that in a given year, there are likely
to be approximately 400 luxury motor home products similar to those manufactured
by the Company sold in the United States and believes that in order for the
Company to increase sales, it will need to increase its market share relative to
its competitors.
PRODUCTS
SCHOOL BUS PRODUCTS
GENERAL. Blue Bird produces a full range of school bus models and it is the
largest manufacturer of both conventional and transit school bus bodies in the
industry. In addition, Blue Bird sells complete Type D buses by integrating its
Type D bodies with chassis manufactured by the Company.
In 1996 Blue Bird derived approximately 16% of its net sales from the sale
of its various school bus body models and 59% of its net sales from the sale of
its integrated school buses. For classification purposes, the school bus
industry has categorized these different models into the following four general
product designations:
TYPE A. A "Type A" school bus is a conversion of a van or a body
constructed on a van-type compact truck chassis, with a gross vehicle weight
("GVW") rating of 10,000 pounds or less, designed to carry up to 21 passengers.
The engine is located in front of the windshield and the entrance door is
located behind the front wheels. The Company offers one model in this category,
the Micro-Bird, which can be ordered in several configurations. The Company does
not manufacture chassis for the Micro-Bird. Chassis are purchased by the
customer and delivered to the Company, which in turn installs the bus body.
Wholesale selling prices for Type A vehicle bus bodies typically range from
approximately $10,000 to $15,000.
TYPE B. A "Type B" school bus is a body constructed and installed on a
van-type or stripped chassis, with a GVW rating of more than 10,000 pounds,
designed to carry up to 38 passengers. Part of the engine is located beneath
and/or behind the windshield and next to the driver's seat and the entrance door
on a Type B bus is located behind the front wheels. The Company offers one model
in this category, the Mini-Bird, which can be ordered in several configurations.
The Company does not manufacture a Type B chassis. Chassis are purchased by the
customer and delivered to the Company, which in turn installs the bus body.
Wholesale selling prices for Type B vehicle bus bodies typically range from
approximately $12,000 to $20,000.
TYPE C. "Type C" school buses are the Company's largest-selling product,
accounting for more than half of the vehicles sold by Blue Bird in 1996. The
Type C bus, which is a "traditional" full-size school bus, is a body installed
on a flat back "cowl" chassis, with a GVW rating of more than 10,000 pounds,
designed to carry up to 77 passengers. The engine is located in front of the
windshield and the entrance door is located behind the front wheels. The Company
offers two models in this category, the Conventional and an
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integrated unit sold with a GM chassis, each of which can be ordered in several
configurations. Wholesale selling prices for Type C vehicle bus bodies typically
range from approximately $12,000 to $25,000, while prices for integrated
products range from approximately $40,000 to $55,000.
TYPE D. "Type D" school buses accounted for approximately one third of the
vehicles sold by the Company in 1996. A Type D school bus is a transit-type
(flat front) body installed on a chassis, with a GVW rating of more than 10,000
pounds, designed to carry up to 90 passengers. Type D buses are sold only on an
integrated basis with a chassis manufactured by the Company. The engine is
located behind the windshield and may be mounted next to the driver's seat, at
the rear of the bus, or midship between the front and rear axles. The entrance
door on a Type D bus is located ahead of the front wheels. The Company's models
in this category include the TC/2000 and the All American, each of which can be
ordered in several configurations. Wholesale selling prices for Type D vehicle
buses (including chassis) typically range from approximately $50,000 to $95,000.
COMMERCIAL VEHICLE PRODUCTS
Q-BUS. The "Q-Bus," a 37 foot long coach introduced in 1992, enables the
Company to compete in the medium-duty tour, charter and commuter markets. The
unit offers bus operators a medium-duty bus with many of the "big bus" features,
including seating capacities for up to 45 passengers, restroom, audio and visual
systems, luggage capacity of up to 240 cubic feet and engine options up to 300
horsepower. In 1996 the Company introduced a larger version of the Q-Bus with
seating capacity for up to 47 passengers, additional luggage capacity and a
400-horsepower diesel engine. This unit is designed to compete with more
expensive over-the-road coaches such as those used by operators to carry
commuters from suburban locations to urban work offices. Management believes the
Company's medium-sized bus products to be a viable alternative to larger
vehicles for a variety of reasons, including the fact that the medium-sized
buses offer lower operating costs and flexibility in terms of matching bus size
to passenger load demands. Wholesale selling prices for the Q-Bus typically
range from approximately $113,000 to $210,000.
CS. The CS series coach is designed primarily for the shuttle market. It is
offered in ten models ranging from 24 feet to 39 feet in length. In 1995, to
address a growing market segment for the airport to city/hotels commutes, the
Company introduced a CS coach known as the EZLoader. The EZLoader is designed
with a low-floor rear-end luggage compartment to allow the operator fast and
easy access for luggage handling. The unit seats up to 30 passengers. In 1996,
to meet the growing "demand response" market in the public transportation
sector, in which riders such as disabled and elderly persons call a shuttle
service for door-to-door pick-up and drop-off services (such as from home to the
hospital), the Company introduced the TranShuttle CS, a 25-foot coach with a
flat floor for multiple wheelchair accessibility. This product has been designed
to compete with the lightweight bus and cutaway van while providing greater
durability than is typical of those products. Wholesale selling prices for CS
series coaches typically range from approximately $51,000 to $89,000.
MODIFIED SCHOOL BUS PRODUCTS. The Company has taken advantage of its high
volume purchases for school bus components, and its rapid assembly-line
efficiencies, to produce and market an adaptation of the Type C and Type D
school bus in commercial form. The bus, known as the "Activity Bus," offers
basic "no-frills" transportation for commuter, shuttle, churches, colleges, and
universities. The product offers basic paint schemes, diesel and natural gas
engine options, and very functional interiors for passenger comfort. Wholesale
selling prices for the Activity Bus typically range from approximately $12,000
for non-integrated products to $70,000 for integrated products.
WORK STATION Q AND QMC. The Company's Work Station Q unit and the QMC are
designed to service the executive and corporate transport markets, and can
include features such as luxury seating, a small galley, and a restroom. Both
products are designed to carry a limited number of passengers in comfort and
style. Wholesale selling prices for the Work Station Q and the QMC typically
range from approximately $150,000 to $250,000.
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RECREATIONAL VEHICLE PRODUCTS
GENERAL. The Company manufactures complete motor homes by integrating the
motor home shell with Blue Bird-manufactured chassis. The Company offers two
luxury motor home products, both of which are targeted for the premium and mid-
to high-end markets.
WANDERLODGE. The Wanderlodge is a premium motor home manufactured by the
Company. The Wanderlodge is available in two models, 41 and 43 feet in length,
with a capacity of up to six passengers and sleeping accommodations for four.
Key features of the unit include (i) the ultra-premium design of the product,
(ii) steel body construction and a body-on-chassis design, (iii) a wide
selection of optional equipment available to the purchaser, and (iv) the
extensive product support capability provided by Blue Bird's two RV
distributors. During fiscal year 1996, 59% of recreational vehicles delivered by
the Company were Wanderlodge units. Suggested retail prices for the Wanderlodge
range from approximately $550,000 to $650,000.
BLUE BIRD MOTOR COACH. The BMC is offered as a 37- or 40-foot long
motorcoach designed to meet product demand for the expanding middle-to-high-end
segment of the luxury recreational vehicle market. Like the Wanderlodge, it
features steel body construction and a body-on-chassis design. During fiscal
year 1996, 41% of RVs delivered by the Company were BMC units. The BMC has a
suggested retail price ranging from approximately $350,000 to $465,000.
SERVICE PARTS
All of Blue Bird's distributors maintain parts inventories to service owners
of Blue Bird products. Many of such distributors purchase parts from Blue Bird's
Service Parts Group (the "Parts Group"). In addition to these sales to
distributors, the Parts Group sells parts to fleet accounts on a direct basis.
These direct sales accounts include the U.S. General Services Administration
(the "GSA"), the national transportation contracting companies and other
accounts in southern Georgia, South Carolina and Kentucky. The Company currently
operates an 80,000-square foot facility in Fort Valley, Georgia to house the
Parts Group.
MARKETING AND DISTRIBUTION
The Company sells its bus products through distributors (91% of 1996 net
sales) and directly to end-users (9% of 1996 net sales). During 1996, no
customer accounted for as much as 10% of Blue Bird's net sales. Direct sales
customers include states, transportation contracting companies, the GSA and all
export buyers. All other sales are made through the Company's distributors.
Direct sales typically involve bids for large contracts, which are highly
competitive. Accordingly, direct sales margins are typically lower than
distributor sales margins.
Blue Bird has approximately 63 independent distributors in the U.S. and
Canada, including RV distributors. Approximately 27 of the Company's 28
commercial bus distributors also distribute the Company's school bus products.
The Company's two RV distributors together have five locations. One of these
distributors, Buddy Gregg Motor Homes, Inc., accounts for approximately 70% of
the Company's RV unit volume.
Many of Blue Bird's school bus distributors have close and longstanding
relationships with transportation directors of states and school districts. The
Company believes that its distributors are well situated to understand the needs
and specifications of local school districts. In 1996, no single distributor
accounted for more than 6% of the Company's sales of school bus products.
Blue Bird distributors are bound by the terms of a distributor contract,
pursuant to which distributors are granted a non-exclusive right to sell the
Company's buses and service parts in a designated territory. Distributors are
restricted from selling other products which compete with Blue Bird's products.
The
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Company's distributor contract also requires distributors to service Blue Bird
products. Sales to distributors are on a cash-at-delivery basis. Sales by
distributors to end-users, such as school boards, are also usually on a
cash-at-delivery basis.
Blue Bird's sales organization services all of its distributors and direct
sales customers. Six regional sales managers work exclusively with distributors
in their respective regions and are responsible for coordinating sales and
marketing campaigns, pricing policies, strategic market planning and related
functions. These regional sales managers regularly visit distributors in order
to disseminate product knowledge, supply marketing advice and serve as direct
distributor support. The regional managers often accompany distributors'
salespeople to meetings with prospective purchasers. The Company sponsors an
annual international sales meeting to bring all of its distributors together,
and regional sales meetings are also conducted annually to focus on regional
strategic planning, advertising and other issues. Additionally, Blue Bird
management meets with a Dealer Advisory Council on a regular basis to discuss
strategic product and market issues, and to assist in the Company's long-term
planning process.
The Company's advertisements are run in national and regional trade journals
for the transportation and education industries. Representatives of the Company
attend national and regional product conventions as well as conventions for
educational trade groups such as the National School Board Association, the
National Association of Pupil Transportation and the National School
Transportation Association. Blue Bird also utilizes its network of independent
distributors to promote its products and disseminate product literature.
Distributors attend these conventions at the state level and are usually
accompanied by a representative of the Company.
LEASING
The Company has provided lease financing to school bus customers since 1984,
principally through its leasing division, Blue Bird Credit ("Blue Bird Credit").
On October 26, 1995, the Company formed a wholly-owned subsidiary, Blue Bird
Capital, for the purpose of expanding the availability of lease financing
alternatives to customers of its school bus products. Blue Bird Capital has
since become the Company's principal provider of leasing alternatives focusing
on tax-exempt lessees. Generally, upon receipt of orders for municipal lease
customers, the Company provides buses to be delivered by Blue Bird Capital to
the appropriate distributor, who in turn delivers the buses to municipal
customers pursuant to leases. Upon receipt of lease documents, Blue Bird Capital
borrows approximately 90% of the lease amount pursuant to the LaSalle Credit
Facility in order to pay the Company. Under the typical Blue Bird Capital lease
with a tax exempt lessee, title is held by the lessee with a lien held by Blue
Bird Capital. The average lease term is approximately three years and the
lessee's down payment is typically 10% of the lease amount. The Company accounts
for the lease as a sale and the related borrowings as long-term or short-term
debt, as applicable. Under the LaSalle Credit Facility, Blue Bird Capital is
required to maintain certain financial ratios, including a ratio of Total
Liabilities to Tangible Net Worth, that cannot exceed 10 to 1. See "Description
of Debt Facilities--LaSalle Credit Agreement." Blue Bird Capital pays the
Company as promptly as possible and generally does not carry unsold inventory.
Leases held by Blue Bird Capital are generally tax-exempt and accrue interest at
rates ranging from 4.75% to 7.0%. The Company and Blue Bird Capital have entered
into an Income Taxes Agreement whereby the Company reimburses Blue Bird Capital
for the tax benefit generated by the tax free leases.
MANUFACTURING PROCESS
The production of Blue Bird's extensive line of bus models involves various
assembly processes. The bus body assembly process begins with the assembly of
floor panels on a carriage that will carry the body assembly along the
production line. Roof bows, internal and external metal panels are rivited in
place and front and rear sections are added prior to painting. Windows, seats,
flooring and other finishing items are added prior to attaching the bus body to
the chassis. Each Blue Bird chassis is manufactured for a specific body, and a
copy of the production order travels through the production process with the
chassis. All of the
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chassis built by Blue Bird are for use with a Type D bus body. Some of these
transit-type buses require the engine to be mounted in the front of the chassis,
and others specify mounting in the rear. All Blue Bird chassis are tested to
check the gauges, speedometer, fluid systems and electrical connections for the
bus body components.
The construction of both bodies and chassis must conform to various state
and federal regulations. The most significant and comprehensive of these
regulations is set forth in the Federal Motor Vehicle Safety Standards
("FMVSS"), which apply to all school buses built during and after 1977. The
FMVSS specify requirements for a variety of vehicle components including
controls and displays, automatic transmission, defrost/defog systems, windshield
wipers, braking systems, reflectors and lights, mirrors, vehicle identification
numbers, tires and wheels, accelerator controls, warning devices, occupant
protection systems, steering systems, glazing materials, seats, windshields and
windows, rollover protection, body joints and fuel systems.
INTERNATIONAL
Other than maintaining a manufacturing facility in Canada, which accounted
for sales of approximately 1,130 buses to Canadian customers in 1996
(approximately $30.5 million in net sales), and a new facility (first production
units delivered in 1995) in Monterrey, Mexico, the Company's operations are
based in the United States. The Company exported approximately 350 bus products
in 1996, primarily to developing countries. Since foreign purchases of Blue Bird
buses are typically non-school-related, the Company is unable to rely on the
perceived strengths and marketability of its traditional school bus products.
However, the Company believes that there are opportunities to grow its export
business, particularly in developing countries, as these countries begin to
demand additional basic transportation products. In general, the Company plans
to increase its focus on the export segment of its businesses by developing
modified school bus and commercial products which meet the specifications of
purchasers in the Middle East, Africa, Europe, Mexico and Central and South
America.
In Mexico, the easing of import restrictions on new trucks and buses in
connection with the North American Free Trade Agreement may present a
significant opportunity for Blue Bird to expand its export business in that
region; however, Blue Bird's ability to expand its business in Mexico depends
largely on the stability of Mexico's economy. The opening of this marketplace
could generate opportunities in other Latin American countries as well as
enhance the reputation of Blue Bird's products throughout the region. Blue
Bird's Mexican plant is currently used to produce vehicles which are imported
into the United States, but could be used in the future to service Latin
American markets.
The Q-Bus and CS bus may also provide opportunities overseas, particularly
in Western Europe where conventional North American school bus bodies and
chassis are not marketable. In Eastern Europe, the Company's current product
line may be salable as the region becomes accessible to exporters. In addition,
the Company has developed a prototype right-hand drive chassis which will be
used with the Q-Bus body as a product for selected Western European and African
countries. Deliveries to these regions were minimal during 1996.
NEW PRODUCT DEVELOPMENT
Blue Bird's research and development program studies bus sales trends to
identify potential growth opportunities for the business and designs products to
exploit these growth opportunities. This process includes evaluating potential
new materials and components for use in existing products as well as developing
new product designs, especially for the Company's commercial and RV product
lines. Developmental projects are currently underway for expanded product
offerings in the commercial market. Blue Bird's manufacturing processes
incorporate sufficient production flexibility to enable Blue Bird to produce new
designs with minimum lead time. Current projects are underway to develop
alternative fuel buses
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based on electric and compressed natural gas power. Approximately 20
electrically powered buses were delivered in 1996.
COMPETITION
SCHOOL BUS MARKET. Four major school bus manufacturers, Blue Bird, Thomas
Built Buses, Inc. ("Thomas"), and CBW, Inc., which are privately owned
companies, and AmTran, which was acquired by Navistar in the fourth quarter of
1995, account for substantially all dollar sales of school buses. All of these
companies manufacture bus bodies which are mounted on a chassis supplied by GM,
Ford and Navistar, although GM has agreed to supply chassis for Type C bus
bodies exclusively to Blue Bird pursuant to the GM Chassis Agreement. See "--Raw
Materials and Components." The Company and Thomas, which together accounted for
approximately two-thirds of aggregate domestic school bus sales in 1996,
manufacture chassis as well as bodies for certain of their bus models.
Competition in the industry is intense, as all four manufacturers typically
compete for each significant contract that comes up for bid.
The three major school bus chassis manufacturers are GM, Ford and Navistar.
Of these, Navistar is the leading manufacturer, accounting for approximately 60%
of sales in 1996. The Company does not believe the Navistar's recent acquisition
of AmTran will have a material impact on the Company's business. In the
conventional chassis market, Navistar currently continues to make its chassis
available to all bus body manufacturers. See "Risk Factors--Limited Number of
Chassis Suppliers."
Since Blue Bird does not manufacture discrete chassis units for sale to
third-party purchasers, the Company does not directly compete with other chassis
manufacturers. However, the Company has experienced indirect competition with
some of these manufacturers, particularly Navistar, in the integrated bidding
process.
COMMERCIAL MARKET. The Company has different competitors in each of the
major commercial market segments. In the medium-duty tour, charter, and commuter
market, the Company's principal competitors include Eldorado National, a
business of Thor Industries, Inc. ("Eldorado"), and Metrotrans Corporation
("Metrotrans"). Its competitors in the shuttle market are Champion Motor Coach,
Inc. ("Champion"), Eldorado, Goshen Coach, Metrotrans, Supreme Corporation and
Thomas. In the urban and rural transit market, the Company's principal
competitors are Eldorado, Champion and Thomas.
RV MARKET. In the motor home market, the Company considers its competition
to be those companies building high-end motor homes on over-the-road coaches
such as those produced by Prevost Car, Inc., Motor Coach Industries, Inc.,
Marathon Coach, Inc., Liberty Coach, Inc., Vantare International, Inc., Country
Coach, Inc., Mitchell Coach Mfg. Co., and Custom Coach Corp. An additional
competitor, Newell Coach, Inc., is the only high-end manufacturer that builds on
its own chassis and body similar to the Wanderlodge. There are several other
small competitors who periodically enter and exit the market. Although the BMC
has a steel body construction like the Wanderlodge, it also competes with motor
home products made by Monaco Coach, Inc., Beaver Motor Coach, Inc., Country
Coach, Inc., American Eagle by Fleetwood Enterprises, Inc., and Foretravel, Inc.
RAW MATERIALS AND COMPONENTS
The largest production-related expense incurred by the Company is the cost
of purchased materials. In fiscal year 1996, material purchases represented
approximately 72% of total production costs. The Company purchases raw materials
and components from over 2,500 suppliers. Other than GM, the Company's principal
chassis supplier, no one supplier accounts for more than 10% of the Company's
aggregate expenditures on raw materials and/or components. Since Blue Bird does
not manufacture engines and does not manufacture chassis for its Type A, Type B
and Type C bus products, the cost of engines, purchased chassis and components
for Company-manufactured chassis constitute the largest components of the
Company's material expense.
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Because Type A and Type B bus purchasers obtain their chassis separately and
look to the Company only for a bus body, chassis supply is relevant for these
product lines only to the extent that it may impact the number of Type A and
Type B bus bodies ultimately sold. The Company manufactures all of its Type D
chassis, with the result that chassis components constitute a major portion of
Type D production costs.
The three major school bus Type C chassis manufacturers are GM, Ford and
Navistar. Navistar is the industry leader with a market share estimated by
market researchers of in excess of 60% in 1996. In late 1990, management of Blue
Bird was concerned about the possibility that Ford and GM might decide to
discontinue supplying Type C chassis, resulting in a situation in which Navistar
might become the sole supplier of these Type C chassis and thus be in a position
to exert increased influence over school bus manufacturers. Type C school buses
represent approximately 56% of the total units sold by the Company. In addition,
a trend toward integrated bidding (body and chassis) among school bus purchasers
caused Blue Bird to consider establishing a formal relationship with a Type C
chassis supplier to enhance the Company's competitive position in the Type C bus
segment of the market. Blue Bird and GM entered into the GM Chassis Agreement in
May 1991. The agreement can be terminated by either party on two years' notice.
As of the date of this Prospectus neither party has given notice of termination.
In general, management does not believe that termination of the GM Chassis
Agreement would have a material adverse effect upon the Company's operations,
because management believes that chassis would be available from other
suppliers. However, there can be no assurance that, given the limited number of
chassis suppliers, the Company will not be materially adversely affected in its
manufacturing efforts. See "Risk Factors--Limited Number of Chassis Suppliers."
Under the terms of the GM Chassis Agreement, GM supplies its medium-duty
chassis for Type C school buses to Blue Bird on an exclusive basis, and Blue
Bird purchases the Type C chassis model exclusively from GM. Nothing in the GM
Chassis Agreement precludes the Company from mounting its bus bodies on other
makes of chassis if the chassis are purchased by Blue Bird's customers or
distributors. In addition, the Company is not required to purchase a minimum
number of chassis from GM under the GM Chassis Agreement. The Company believes
that offering an integrated Type C product permits the Company to offer a
competitively priced product while allowing it to realize a profit on the sale
of the chassis, thereby increasing the total amount of profit that the Company
realizes on the sale of each unit. Blue Bird's arrangements with GM make it the
only current supplier of gasoline-powered Type C and Type D school buses in the
industry. The Company's distributors and GM's 750 medium-duty truck dealers
participate in servicing the end user after the initial sale. This enhanced
network provides the Blue Bird/ GM product with broad post-sale servicing and
support.
GOVERNMENT REGULATION
School bus manufacturers must conform to vehicle guidelines imposed by the
FMVSS, as well as to state and local specifications. FMVSS regulations have in
the past directly affected manufacturers of school bus bodies and chassis, as
well as end-users, by altering specifications and, as a result, increasing
costs.
With respect to environmental regulation, the most immediate issue facing
the school bus industry will be the effectiveness in 1998 of more restrictive
EPA emissions standards. These regulations will mandate certain engine changes
and result in increased costs to both manufacturers and end-users of school
buses. Blue Bird management believes that the general public will continue to
mandate improved safety standards and ongoing resolution of environmental issues
beyond 1998, and thereby will generate continuing demand for new school bus
models over the long term. See "--Legal Proceedings" for a discussion of a
pending recall of certain of the Company's products.
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BACKLOG ORDERS
As of November 2, 1996, the dollar amount of backlog orders believed by the
Company to be firm totaled approximately $199 million. It is expected that all
such orders will be filled during fiscal year 1997.
PATENTS, LICENSES AND TRADEMARKS
The Company owns and maintains registrations for the Blue Bird trademark and
variations thereof in 49 countries, including the United States and Canada and
monitors the status of its trademark registrations to maintain them in force and
to renew them as required. Management believes that the Blue Bird trademarks are
valuable because of the Company's strong presence in the bus market.
Accordingly, the Company seeks to eliminate any infringement thereon. The
Company is not currently aware of any such infringement. In addition, the
Company has obtained patent protection in the United States on two safety-
related components used in its buses. One component is related to an auxiliary
heat system (which patent protection will expire in 2009) and the second
component is related to a window opening mechanism (which patent protection will
expire in 2010). The expiration of the patent protection of these two components
is not expected to have a material adverse effect on the Company's financial
condition or result of operations. The Company also takes steps, including legal
action, to protect its patent, trademark and trade name rights and proprietary
rights respecting product design and technology when circumstances warrant such
action.
SEASONALITY
The Company's sales show seasonal variation which is typical of the general
industry seasonality. A majority of the Company's sales occur in the third and
fourth quarters of the fiscal year, a pattern typical for the industry. For
additional data on the seasonal nature of the Company's sales, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
EMPLOYEES
As of December 7, 1996, the Company had approximately 2,505 employees, of
whom approximately 2,043 were hourly workers. Blue Bird's U.S. and Canadian
employees are not represented by any collective bargaining group. Blue Bird's
Mexican employees are required by local law to be members of a union. The
Company historically provided a competitive wage and benefit program and has an
active communications program with its employees. Blue Bird has a four-day,
10-hour-per-day work week, which management believes is viewed as a positive
feature by its labor force. The Company believes that its relationship with its
employees is satisfactory.
PROPERTIES
Blue Bird owns and operates seven facilities, six of which are manufacturing
facilities, in five different locations in the U.S., Canada and Mexico. In the
aggregate, these plants have approximately 1.8 million square feet of production
area. Blue Bird management considers all of these facilities to be
state-of-the-art in the school bus manufacturing industry.
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The table below provides summary descriptions of each of the plants.
<TABLE>
<CAPTION>
SQUARE
PLANT LOCATION PRODUCTS FEET EMPL.(A)
- ----------------------------- ----------------------------- ----------------------------- ---------- -----------
<S> <C> <C> <C> <C>
Blue Bird Body Company Fort Valley, Georgia TC/2000, Q-Bus All- American, 730,000 1,326
parts fabrication
Service Parts Fort Valley, Georgia Parts 80,000 N.A.(b)
Wanderlodge Fort Valley, Georgia Wanderlodge, parts 216,000 260
fabrication
Blue Bird North Georgia LaFayette, Georgia Conventional, TC/2000 216,000 257
Blue Bird Midwest Mt. Pleasant, Iowa Conventional, Mini-Bird, 227,400 271
TC/2000, Micro-Bird
Blue Bird Canada Brantford, ON (Canada) TC/2000, Conventional, 251,395 259
Micro-Bird, parts
fabrication
Blue Bird de Mexico Monterrey, Mexico Conventional 118,310 132
---------- -----
Total Company
1,839,105 2,505
---------- -----
---------- -----
</TABLE>
- ------------------------
(a) As of December 7, 1996.
(b) Included in the number of employees for Blue Bird facility in Fort Valley,
Georgia.
If Blue Bird operated all of its assembly plants at "maximum capacity,"
defined as two eight-hour shifts per day, five days per week, 250 days per year,
the Company could manufacture approximately 27,300 units per year. The Company's
capacity to fabricate all of the parts needs to build the buses is a constraint
as the Company's present fabrication facilities have the capacity to support the
production of approximately 25,000 units per year. With an investment of
approximately $2.5 million in additional equipment, Blue Bird's fabrication
capacity could support approximately 28,500 units per year.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to numerous federal,
state, local and international laws and regulations, including those governing
the use, storage, handling, transportation, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes
(collectively, "Hazardous Materials"), the remediation of contaminated soil and
groundwater, and the health and safety of employees (collectively,
"Environmental Laws"). Violation of such Environmental Laws, even if
inadvertent, could have an adverse impact on the operations, business or
financial results of the Company. As such, the nature of the Company's
operations exposes it to the risk of claims with respect to such matters and
there can be no assurance that material costs or liabilities will not be
incurred in connection with such claims.
The Company maintains an inactive landfill site at its Fort Valley, Georgia,
location which is subject to regulation pursuant to the U.S. Resource
Conservation and Recovery Act, as amended ("RCRA"). RCRA is administered in
Georgia by the Environmental Protection Division of the Georgia Department of
Natural Resources ("EPD"). The Company has closed its Fort Valley landfill site
pursuant to a permit from the EPD that contains certain conditions, including
30-year post-closure groundwater monitoring. In connection with such permit, the
Company maintains a letter of credit to cover the expected cost of monitoring
over the life of the monitoring requirement. The Company currently estimates
post-closure costs for the site at $434,700. The Company's estimate of
post-closure costs is subject to periodic adjustment based on EPD regulations.
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Monitoring by the Company has detected increased levels of solvents in
groundwater near its Fort Valley site, and the Company has so advised the EPD.
Continued monitoring and testing is required to ascertain the source of these
solvents. If it is determined that the Company's landfill is the source of such
solvents, corrective action will be required. The Company believes that the cost
of any corrective action that might be required will not be material to its
results of operations or financial condition.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA"), and similar state laws provide for responses to and
strict liability for releases of certain Hazardous Materials into the
environment. These obligations are imposed on certain potentially responsible
parties ("PRPs"), including any person who arranged for the treatment or
disposal of Hazardous Materials at a facility. Generally, liability to the
government under CERCLA is joint and several. The Company has been named a PRP
at the Des Moines barrel and drum site in Des Moines, Iowa and the Seaboard
chemical site in Jamestown, North Carolina. In both instances, the Company is
considered a DE MINIMIS PRP. In 1993, the Company settled its liability for
cleanup costs at the Des Moines barrel and drum site for $5,250. The settlement
contains a re-opener provision in the event future cleanup costs are required,
but the Company is not aware of any anticipated cleanup costs in addition to
those covered in the settlement agreement. In 1995, the Company executed an
administrative Order on Consent among the North Carolina Department of
Environment, Health and Natural Resources, the Seaboard PRP Group II, and the
City of High Point, North Carolina, covering the investigation of cleanup
alternatives at the Seaboard chemical site. The Company anticipates that it will
have the opportunity to enter into a DE MINIMIS buy-out relating to cleanup
costs within the next two years, which buyout is expected to provide a release
from any further liability in connection with the Seaboard site. Although the
cost of such buyout is not currently known, it is not expected to be material.
Based upon its experience to date, the Company believes that the future cost
of compliance with existing Environmental Laws, and liability for known
environmental claims pursuant to such Environmental Laws, will not have a
material effect on the Company's capital expenditures, earnings or competitive
position. However, future events, such as new information, changes in existing
Environmental Laws or their interpretation, and more vigorous enforcement
policies of regulatory agencies, may give rise to additional expenditures or
liabilities that could be material.
LEGAL PROCEEDINGS
Blue Bird currently is a defendant in approximately 17 product liability
suits. The Company aggressively defends product liability cases and insists that
component manufacturers and chassis manufacturers such as GM and Navistar and
smaller parts suppliers stand behind their portions of the product by either
asserting a breach of warranty claim against such supplier or manufacturer, or
claiming a right of indemnification for such supplier or manufacturer pursuant
to the terms of the Company's standard purchase order agreements or the relevant
supplier agreement. The Company manufactures certain components itself and
assembles the various components into the completed vehicle, which may give rise
to independent liabilities. Moreover, the Company's manufacture of chassis for
its Type D school buses may expose the Company to liability associated with such
chassis. The amount of product liability insurance that the Company has in place
has varied significantly from year to year. The Company's policies generally
provide that the Company is responsible for the costs of defending product
liability claims, although Blue Bird's recent insurance plan has included some
participation by insurers in such costs at certain levels.
As of the date of this Prospectus, neither the outcome of the Company's
pending product liability cases nor the amounts of any company liabilities
related to these cases are known. The Company's insurance coverage for
occurrences in each of the past several years has been $25 million in excess of
a $2.5 million deductible (exclusive of excess liability coverage). There is no
certainty that the currently available coverage will remain available to the
Company in the future or at all, that future rate increases might not make such
insurance economically impractical for the Company to maintain, that current
deductible levels
38
<PAGE>
will be maintained, or that the Company's insurers will be financially viable if
and when payment of a claim is required.
In addition, the statute of limitations for injuries to minor children
(which varies between one and six years, depending on the state) does not
generally begin to run until the child reaches majority; therefore, there may be
potential claims of which Blue Bird is not aware (or accidents of which Blue
Bird was aware, but which did not produce any lawsuit) involving accidents going
back for a number of years. In the ordinary course of events, Blue Bird believes
that it receives notice of most potential claims within a reasonable time of the
occurrence, but there can be no assurance that Blue Bird is aware of all such
potential claims.
Management believes that, considering, among other things, the Company's
insurance coverage, the ultimate resolution of these matters will not have a
material adverse impact on the Company's financial position or results of
operations, and that any losses and expenses (including defense costs) resulting
from product liability claims will be within the applicable insurance coverage.
However, there can be no assurance that this will be true or that the amount of
losses and expenses relating to any claim or claims will not have a material
adverse effect on the Company.
Several owners of motor homes made by Blue Bird have asserted claims under
state laws addressing new vehicle defects. Such claims typically seek a refund
of the purchase price of the vehicle. Management believes that the resolution of
such claims, which are not insured, will not have a material effect on the
Company.
Blue Bird, like other vehicle manufacturers, is also subject to recalls of
its products in the event of manufacturing defects or non-compliance with
applicable regulatory standards. Such recalls can engender claims. In August
1996, the NHTSA announced its determination that approximately 11,500 school
buses were not in compliance with federal requirements for fuel systems. Of the
affected buses, 11,300 were Blue Bird Type D models in which the chassis are
manufactured by the Company, which failed crash tests when fuel tanks were
punctured upon impact. The Company recently completed evaluating the scope of
the proposed product recall with the NHTSA as a result of the NHTSA's
non-compliance determination. The Company plans to issue a recall of the
affected buses in mid-January, 1997, and management estimates that the cost to
the Company of the repairs required to bring the vehicles into compliance will
not be material to its results of operations or financial condition.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who are executive officers and directors of the Company and BBC as of December
4, 1996; all information is provided as of such date:
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul E. Glaske....................................... 63 Chairman of the Board and President of the Company
and BBC; director of the Company and BBC. At the time
the 1992 Acquisition was consummated (the "Effective
Time"), Mr. Glaske was appointed Chairman of the
Board and President of the Company and BBC and a
director of BBC. Mr. Glaske has served as President
of the Company since 1986 and a director of the
Company since 1984. He is also a director of
Borg-Warner Automotive, Inc.
Bobby G. Wallace..................................... 62 Vice President--Finance and Administration, Treasurer
and Secretary of the Company; Vice President,
Treasurer and Secretary of BBC; director of the
Company and BBC. At the Effective Time, Mr. Wallace
was appointed to his current positions with the
Company and BBC. Mr. Wallace has served as the Vice
President-- Finance and Administration of the Company
since 1987. In 1986, he was named Vice
President--Controller.
James H. Grantham.................................... 55 Vice President--Manufacturing of the Company. In
1990, Mr. Grantham was promoted to his current
position. In 1988, he was named Vice
President--Materials, and, in 1987, became Vice
President--Canadian Operations. In 1983, he became
General Manager of Blue Bird's plant in Lafayette,
Georgia, a promotion from his former position of
Production Manager of such plant. Mr. Grantham joined
Blue Bird in 1965.
Richard E. Maddox.................................... 44 Vice President--Sales of the Company. In 1990, Mr.
Maddox was promoted to his current position from his
prior position of Director-- U.S. Sales, to which he
was appointed in 1988. In 1986, he was named
Manager--U.S. Sales, and, in 1982, he was appointed
Manager--Field Sales. Mr. Maddox joined Blue Bird in
1974 and has held various positions in sales since
that time.
Wilbur C. Rumph...................................... 67 Vice President--Engineering, Research & Development
of the Company. Mr. Rumph was
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
appointed to his present position in 1968. He joined
Blue Bird in 1948, where he has held various
positions in the engineering area.
<S> <C> <C>
William G. Milby..................................... 50 Vice President and General Manager-- Canadian Blue
Bird, Mr. Milby assumed his present position in 1989.
In 1985, he was named Vice President and General
Manager of the Wanderlodge division. Mr. Milby joined
the Company in 1971 as an engineer. Mr. Milby is also
a director of Canadian Blue Bird.
B. Richard Benedict.................................. 53 Vice President and General Manager--Blue Bird
Midwest. Mr. Benedict was promoted to his current
position in 1988 from General Manager, to which he
was appointed in 1984. In 1977, Mr. Benedict was
named Production Manager. Mr. Benedict joined the
Company in 1962.
Gerald S. Armstrong.................................. 53 Director of the Company and BBC. Mr. Armstrong served
as Vice President, Treasurer and Secretary of BBC
prior to the 1992 Acquisition. Mr. Armstrong is a
Partner and a director of Stonington Partners, Inc.,
a private investment firm, a position that he has
held since 1993. He has also been a member of the
Board of Directors of MLCP, an affiliate of Merrill
Lynch since 1988. He was a Partner of MLCP from 1993
to July 1994 and an Executive Vice President of MLCP
from 1988 to 1994. MLCP is the general partner of
several limited partnerships which indirectly own
shares of BBC Common Stock. Mr. Armstrong was also a
Managing Director of the Investment Banking Division
of Merrill Lynch from 1988 to 1994. Mr. Armstrong is
also a director of AnnTaylor Stores Corporation,
First USA, Inc., Goss Graphic Systems, Inc.,
Wherehouse Entertainment, Inc. and World Color Press,
Inc.
Alexis P. Michas..................................... 38 Director of the Company and BBC. Mr. Michas served as
Chairman of the Board and President of BBC from its
inception until the Effective Time. Mr. Michas is a
Managing Partner and a director of Stonington
Partners, Inc., a private investment firm, a position
that he has held since 1993. He has also been a
member of the Board of Directors of MLCP since 1989.
He was a Partner of MLCP from 1993 to 1994 and Senior
Vice President of MLCP from 1989 to 1993. MLCP is the
general partner of several limited partnerships which
indirectly own shares of BBC
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
Common Stock. Mr. Michas was also a Managing Director
of the Investment Banking Division of Merrill Lynch
from 1991 to July 1994 and a director in the
Investment Banking Division of Merrill Lynch from
1990 to 1991. Mr. Michas is also a Director of
Borg-Warner Automotive, Inc., Borg-Warner Security
Corporation, Dictaphone Corporation, Goss Graphic
Systems, Inc., Pathmark Stores, Inc. and Supermarkets
General Holdings Corporation.
<S> <C> <C>
Alfred C. Daugherty.................................. 73 Director of the Company and BBC. Mr. Daugherty served
as a director of Blue Bird prior to the 1992
Acquisition. Mr. Daugherty was Chairman of Duracell
International, Inc., a manufacturer of premium
batteries, and Executive Vice President of Dart
Industries, Inc., a maker of consumer products and
chemical specialties, as well as a director of both
companies, until his retirement on January 1, 1995.
Mr. Daugherty is also a director of A. Duda and Sons,
Inc., Atlantic Acquaculture Technologies, Inc., Goss
Graphic Systems, Inc. and GGS Holdings, Inc.
Donald C. Trauscht................................... 62 Director of the Company and BBC. Mr. Trauscht was
elected to the Board of Directors in December 1993.
Since January 1996, Mr. Trauscht has been Chairman of
BW Capital Corp., a private investment company. From
February 1993 to December 1995, he was Chairman and
Chief Executive Officer of Borg-Warner Security
Corporation, an electronic and physical security
company. From December 1991 to January 1993, he was
Chairman and Chief Executive Officer of Borg-Warner
Corporation, a diversified corporation. Prior to
December 1991, he was President of Borg-Warner
Corporation and held various other executive
positions since 1967. He is currently a director of
Baker Hughes Inc., Thiokol Corp., IMO Industries,
Inc., Borg-Warner Automotive, Inc., Borg-Warner
Security Corporation, ESCO Electronics Corp. and
Hydac International Corp.
</TABLE>
Each director of the Company and BBC is elected annually and serves until
the next annual meeting or until his successor is duly elected and qualified.
Each executive officer of the Company and BBC serves at the discretion of the
Boards of Directors of the Company and BBC, respectively.
42
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table sets
forth, for fiscal years 1996, 1995 and 1994, the cash compensation paid by BBC
and its subsidiaries, as well as certain other compensation paid or accrued for
fiscal years 1996, 1995 and 1994, to each of the five most highly compensated
executive officers of BBC (considering Messrs. Grantham, Maddox and Rumph, Vice
Presidents of the Company, to be executive officers of BBC) (collectively, the
"named executive officers") in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
---------------------------
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS/ALL OTHER
FISCAL ------------------------ ---------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY (A) BONUS SARS COMPENSATION
- ---------------------------------------------- ----------- ------------ ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Paul E. Glaske................................ 1996 $ 506,410 $ 438,485 -- $ 20,203(b)
Chairman of the Board and President and 1995 $ 466,898 $ 428,606 -- $ 19,753(b)
Director 1994 $ 449,041 $ 282,287 -- $ 19,303(b)
Bobby G. Wallace.............................. 1996 $ 289,094 $ 196,746 -- $ 4,500(d)
Vice President--Finance and Admin., 1995 $ 265,388 $ 168,175 -- $ 4,050(e)
Treasurer, Secretary and Director 1994 $ 203,379 $ 101,369 $ 10,000(c) $ 3,600(f)
James H. Grantham............................. 1996 $ 185,847 $ 127,732 -- $ 4,500(d)
Vice President--Manufacturing of the Company 1995 $ 171,006 $ 123,008 -- $ 4,050(e)
1994 $ 161,274 $ 75,830 -- $ 3,696(f)
Richard E. Maddox............................. 1996 $ 164,997 $ 115,150 -- $ 5,196(d)
Vice President--Sales of the Company 1995 $ 151,996 $ 110,707 -- $ 6,159(e)
1994 $ 144,055 $ 68,522 -- $ 1,609(f)
Wilbur C. Rumph............................... 1996 $ 123,640 $ 43,925 -- $ 4,601(d)
Vice President--Engineering 1995 $ 119,674 $ 42,176 -- $ 4,074(e)
1994 $ 113,748 $ 29,925 -- $ 3,600(f)
</TABLE>
- ------------------------------
(a) Includes amounts deferred at the election of the named executive officer
pursuant to the Company's 401(k) plan. Employees may contribute up to 15% of
their salaries to the 401(k) plan on a pre-tax basis, not to exceed $9,500
in 1996, $9,240 in 1995, and $9,240 in 1994.
(b) Represents life and disability insurance premiums of $15,703 paid by the
Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
matching contributions equal to 40% of the first 6% of each participant's
pre-tax contribution for 1994, 45% of the first 6% of each participant's
pre-tax contribution for 1995, and 50% of the first 6% of each participant's
pre-tax contribution for 1996.
(c) In 1994, Mr. Wallace was granted an option to purchase 10,000 shares of BBC
Common Stock.
(d) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 50% of the
first 6% of each participant's pre-tax contribution.
(e) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 45% of the
first 6% of each participant's pre-tax contribution.
(f) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 40% of the
first 6% of each participant's pre-tax contribution.
43
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. No stock options or SARs were
granted in fiscal year 1996.
OPTION/SAR EXERCISES AND HOLDINGS. None of the named executives exercised
any options and/or SARs during the last fiscal year. The following table sets
forth information with respect to the named executive officers concerning the
value of unexercised options and SARs held as of the end of the last fiscal
year:
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FISCAL YEAR-END (A)
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------- ------------
Paul E. Glaske........................................... 350,000 -0- $ 12,593,000 -0-
Bobby G. Wallace......................................... 60,000 -0- 2,158,800 -0-
James H. Grantham........................................ 80,000 -0- 2,878,400 -0-
Richard E. Maddox........................................ 80,000 -0- 2,878,400 -0-
Wilbur C. Rumph.......................................... 20,000 -0- 719,600 -0-
</TABLE>
- ------------------------------
(a) Computed using net proceeds value of $35.98 per share at November 2, 1996,
determined by formula in the Blue Bird Corporation Management Stock Option
Plan (the "Management Stock Option Plan").
PENSION PLANS. Blue Bird maintains a qualified defined benefit pension
plan (the "Pension Plan") which covers all U.S. salaried employees. Benefits are
determined under a formula (which is integrated with Social Security) calculated
with reference to an employee's five-year final average earnings and such
employee's years of service. The amount of estimated annual benefits payable
under the Pension Plan based upon various levels of compensation and years of
service, determined before application of the limitations imposed by Sections
401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended (the
"Code"), is set forth below:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL FIVE YEARS OF SERVICE
YEAR ANNUAL --------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 29,445 $ 39,260 $ 49,075 $ 58,890 $ 58,890
150,000 35,820 47,760 59,700 71,640 71,640
175,000 42,195* 56,260* 70,325* 84,390* 84,390*
200,000 48,570* 64,760* 80,950* 97,140* 97,140*
225,000 54,945* 73,260* 91,575* 109,890* 109,890*
250,000 61,320* 81,760* 102,200* 122,640* 122,640*
300,000 74,070* 98,760* 123,450* 148,140* 148,140*
400,000 99,570* 132,760* 165,950* 199,140* 199,140*
500,000 125,070* 166,760* 208,450* 250,140* 250,140*
1,000,000 252,570* 336,760* 420,950* 505,140* 505,140*
2,000,000 507,570* 676,760* 845,950* 1,015,140* 1,015,140*
4,000,000 1,017,570* 1,356,760* 1,695,950* 2,035,140* 2,035,140*
</TABLE>
- ------------------------
* Determined before application of current limitations of Sections 401(a)(17)
and 415 of the Code.
44
<PAGE>
Compensation covered by the Pension Plan is limited to gross wages reported
on Form W-2. Such covered compensation includes all compensation reported in the
Summary Compensation Table (other than amounts representing Company matching
contributions to the 401(k) plan) plus the value, if any, realized upon the
exercise of SARs in connection with the 1992 Acquisition. The covered
compensation for Messrs. Glaske, Wallace, Grantham, Maddox and Rumph does not
differ by more than 10% from that set forth in the Summary Compensation Table.
The estimated credited years of service for each of the named executive officers
is as follows: Mr. Glaske (10 years), Mr. Wallace (10 years), Mr. Grantham (29
years), Mr. Maddox (20 years) and Mr. Rumph (30 years). Benefits from the
Pension Plan, which are integrated with Social Security but are not offset by
any other amounts, are payable in the form of a straight life annuity or, in the
case of married participants, an actuarially equivalent joint and survivor
annuity.
In addition, Blue Bird adopted a non-qualified supplemental retirement plan
(the "SERP") effective January 1, 1991 for selected executive officers to
restore the cutback in benefits under the Pension Plan on account of certain
limitations imposed by Code Sections 401(a)(17) and 415. The SERP provides a
lump sum payout upon retirement.
COMPENSATION OF DIRECTORS
Two of the four non-employee directors of the Company and BBC receive annual
retainers of $24,000 and meeting fees of $1,500 per meeting for up to four
meetings per year for services as directors of the Company and BBC. The
remaining directors of the Company and BBC do not receive compensation for their
services as directors and none of the directors of the Company and BBC receive
compensation for their services as members of the committees of the Boards of
Directors of the Company and BBC.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Glaske's current employment agreement with the Company provides for a
three-year term with an annual base salary of $530,000, plus participation in an
incentive bonus program, the SERP and other employee benefit plans sponsored by
the Company. If Mr. Glaske's employment is terminated by the Company without
good cause or by Mr. Glaske for good reason (as such terms are defined in the
employment agreement), the Company's obligation for the duration of the
employment agreement for salary, employee benefits, supplemental benefits and
various perquisites shall continue without mitigation. Under the terms of the
employment agreement, Mr. Glaske agrees not to disclose confidential information
for so long a such information remains competitively sensitive. During the term
of the employment agreement and for three years after its termination, Mr.
Glaske agrees not to render services to, or have greater than a 2% equity
interest in, any business which is competitive with the Company. Mr. Glaske's
employment agreement does not contain any change of control provisions.
Mr. Wallace's employment agreement with the Company provides for a one-year
term, renewable annually, with an annual base salary of $300,000, plus
participation in an incentive bonus program, the SERP and other employee benefit
plans sponsored by the Company. The employment agreement may be terminated by
either party at the end of any given 12-month period. Under the terms of the
employment agreement, Mr. Wallace agrees not to disclose confidential
information for so long as such information remains competitively sensitive.
During the term of the employment agreement and for three years after its
termination, Mr. Wallace agrees not to render services to, or have greater than
a 2% equity interest in, any business which is competitive with the Company. Mr.
Wallace's employment agreement does not contain any change of control
provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committees of the Company's and BBC's Boards
of Directors during fiscal year 1995 were Messrs. Michas, Armstrong and
Daugherty. During such time, Mr. Glaske served as the Chairman of the Board and
President of the Company and BBC.
45
<PAGE>
The Stockholders' Agreement provides that in the event that Messrs.
Armstrong, Michas, Glaske and Wallace are unwilling or unable to serve, or
otherwise cease to serve, as directors of BBC, the ML Entities shall be entitled
to fill the resulting vacancies on the Board of Directors. In addition, the
Stockholders' Agreement provides that the ML Entities are entitled to nominate
successors for all BBC directors and that the stockholders of BBC will cooperate
in any removal of directors proposed by the ML Entities.
At the time of the 1992 Acquisition, Messrs. Armstrong and Michas were each
executive officers of MLCP and Managing Directors of Merrill Lynch. MLCP is an
affiliate of Merrill Lynch. In connection with the 1992 Acquisition, Merrill
Lynch served as placement agent for the Old Notes and BBC issued 7,700,000
shares of BBC Common Stock (or approximately 91% of the BBC Common Stock
outstanding as of the Effective Time) to the ML Entities.
46
<PAGE>
OWNERSHIP OF CAPITAL STOCK
The Blue Bird Common Stock is the only class of capital stock that the
Company has outstanding. BBC owns 10 shares, which represent 100% of the issued
and outstanding shares of the Company's common stock. The BBC Common Stock is
the only class of capital stock of BBC outstanding. The issued and outstanding
number of shares of BBC Common Stock is 8,424,778. The following table sets
forth the number and percentage of shares of BBC Common Stock beneficially owned
by (i) each person known to BBC to be the beneficial owner of more than 5% of
the outstanding shares of BBC Common Stock, (ii) each director of BBC, (iii)
each named executive officer, and (iv) all directors and executive officers of
BBC as a group. Unless otherwise indicated in a footnote, each person listed
below possesses sole voting and investment power with respect to the shares
indicated as beneficially owned by them. The ML Entities, Management Investors
and BBC are parties to a stockholders' agreement described under "Certain
Relationships and Related Transactions."
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL SHARES OF BBC
BENEFICIAL OWNER OWNERSHIP COMMON STOCK*
- ---------------------------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
ML Entities(a).................................................................... 7,665,000 91.0%
Paul E. Glaske(b)................................................................. 580,557(c) 6.7%
Blue Bird Body Company
3920 Artwright Road
Macon, Georgia 31210
Bobby G. Wallace(b)............................................................... 110,000(d) 1.3%
Blue Bird Body Company
3920 Artwright Road
Macon, Georgia 31210
James H. Grantham(b).............................................................. 160,000(e) 1.9%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Richard E. Maddox(b).............................................................. 160,000(f) 1.9%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Wilbur C. Rumph................................................................... 40,000(g) 0.5%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Donald C. Trauscht(b)............................................................. 4,778 0.1%
Borg-Warner Security Corporation
200 South Michigan Avenue
Chicago, Illinois 60604
A. Clark Daugherty(b)............................................................. 25,000 0.3%
321 Indian Harbor Road
Vero Beach, Florida 32963
Gerald S. Armstrong (h)........................................................... 0 --
Stonington Partners, Inc.
767 Fifth Avenue
New York, New York 10153
Alexis P. Michas (h).............................................................. 0 --
Stonington Partners, Inc.
767 Fifth Avenue
New York, New York 10153
All directors and executive officers as a group
(9 persons)..................................................................... 1,080,335(i) 12.1%
</TABLE>
- --------------------------
* Calculated in accordance with Rule 13d-3 under the Exchange Act.
(FOOTNOTES ON FOLLOWING PAGE)
47
<PAGE>
(a) Shares of BBC Common Stock beneficially owned by the ML Entities are owned
of record as follows: 3,740,188 by Merrill Lynch Capital Appreciation
Partnership No. B-XV, L.P., 2,370,278 by ML Offshore LBO Partnership No.
B-XV, 1,300,619 by ML IBK Positions, Inc., 42,500 by Merrill Lynch KECALP
L.P. 1989, 150,000 by Merrill Lynch KECALP L.P. 1991 and 61,415 by MLCP
Associates L.P. No. II. The address for the ML Entities other than ML
Offshore LBO Partnership No. B-XV is 225 Liberty Street, World Financial
Center--South Tower, New York, New York 10080. The address for ML Offshore
LBO Partnership No. B-XV is P.O. Box 25, Roseneath, The Grange, St. Peter
Port, Guernsey Channel Island, British Isles. Each entity disclaims
beneficial ownership of the shares not owned of record by it.
(b) Messrs. Glaske and Wallace are directors and executive officers of the
Company and BBC. Messrs. Grantham, Maddox and Rumph are executive officers
of the Company who perform policy making functions for BBC and are therefore
deemed executive officers of BBC. Messrs. Trauscht and Daugherty are
directors of the Company and BBC.
(c) Includes 175,000 shares subject to vested options and 175,000 shares subject
to performance options granted to Mr. Glaske under the Management Stock
Option Plan which are currently exercisable.
(d) Includes 35,000 shares subject to vested options and 25,000 shares subject
to performance options granted to Mr. Wallace under the Management Stock
Option Plan which are currently exercisable.
(e) Includes 40,000 shares subject to vested options and 40,000 shares subject
to performance options granted to Mr. Grantham under the Management Stock
Option Plan which are currently exercisable.
(f) Includes 40,000 shares subject to vested options and 40,000 shares subject
to performance options granted to Mr. Maddox under the Management Stock
Option Plan which are currently exercisable.
(g) Includes 10,000 shares subject to vested options and 10,000 shares subject
to performance options granted to Mr. Rumph under the Management Stock
Option Plan which are currently exercisable.
(h) Messrs. Armstrong and Michas are directors of the Company, BBC and MLCP.
Messrs. Armstrong and Michas are limited partners of the general partner
("LBO") of Merrill Lynch Capital Appreciation Partnership No. B-XV, L.P. and
ML Offshore LBO Partnership No. B-XV. MLCP is the general partner of LBO.
Messrs. Armstrong and Michas each disclaim beneficial ownership of shares
beneficially owned by the ML Entities.
(i) Includes 300,000 shares subject to vested options and 290,000 shares subject
to performance options granted to executive officers of BBC as a group under
the Management Stock Option Plan which are currently exercisable. Does not
include any shares beneficially owned by the ML Entities.
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Merrill Lynch, one of the Initial Purchasers, is an affiliate of the Company
and BBC. Two of the directors of the Company and BBC are partners and directors
of Stonington Partners, Inc. and act as consultants to MLCP.
The Management Investors' purchase of BBC Common Stock in connection with
the 1992 Acquisition was funded through a combination of (i) $200,000 in cash,
(ii) the rollover of approximately $3.65 million of SARs on a pre-tax basis, and
(iii) nonrecourse promissory notes of the Management Investors (the "Management
Notes") in an aggregate principal amount of $4.15 million. Cash distributions
received in respect of the shares of BBC Common Stock purchased with the
proceeds of borrowings under the Management Notes were required to be applied
toward repayment of such notes. The Management Notes were repaid as a result of
the Recapitalization.
Pursuant to the terms of the Stockholders' Agreement entered into on April
15, 1992 by BBC, the Management Investors and the ML Entities (the
"Stockholders' Agreement"), all shares of BBC Common Stock purchased at the
closing of the 1992 Acquisition by the Management Investors and issued upon
exercise of options are subject to certain restrictions on transfer and certain
put and call arrangements in the event that the holder of such shares terminates
his employment with BBC or any of its subsidiaries.
Management Investors will have the right to require BBC to purchase their
shares and options in the event of death, disability, retirement or involuntary
termination for a fair value price determined pursuant to a formula based upon a
multiple of BBC's earnings before interest and taxes. BBC will have the right to
require a Management Investor to sell such Management Investor's shares and
options if such Management Investor's employment terminates at prices determined
by formulas varying under different circumstances, but in no event will such
price be higher than the greater of the initial purchase price and the fair
value price. Payments under the puts and calls are subject to certain
restrictions under the New Credit Agreement and the Indenture, as applicable.
The Stockholders' Agreement also provides that in the event that Messrs.
Armstrong, Michas, Glaske and Wallace are unwilling or unable to serve, or
otherwise cease to serve, as directors of BBC, then the ML Entities shall be
entitled to fill the resulting vacancies on the Board of Directors of BBC. In
addition, the Stockholders' Agreement provides that the ML Entities are entitled
to nominate successors to all BBC directors and that the stockholders of BBC
will cooperate in any removal of directors proposed by the ML Entities.
For certain other information concerning the relationships between the
Initial Purchasers and Merrill Lynch and the Company, see "Plan of
Distribution."
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DESCRIPTION OF DEBT FACILITIES
SENIOR BANK FINANCING
In connection with the Recapitalization, the Company and BBC entered into
the New Credit Agreement, which provides senior bank financing in the maximum
aggregate principal amount of up to $255 million. The Company is the borrower
under the New Credit Agreement.
Under the New Credit Agreement, the Agent Banks (as defined herein) have
provided senior bank financing of up to $255 million pursuant to three
facilities. These facilities, which are described below, are hereinafter
referred to as the "Senior Bank Facility." Borrowings under the Senior Bank
Facility are hereinafter referred to as "Loans." The New Credit Agreement
provides that the Agent Banks may syndicate the Senior Bank Facility to other
lenders (the Agent Banks, together with any such lenders, will hereinafter be
referred to as the "Banks").
The following is a summary description of certain provisions of the New
Credit Agreement:
THE SENIOR BANK FACILITY. The New Credit Agreement provides a six-year term
loan facility (the "Tranche A Term Facility") in an aggregate principal amount
of $100 million and a seven-year term loan facility (the "Tranche B Term
Facility" and, together with the Tranche A Term Facility, the "Term Facilities")
in an aggregate principal amount of $75 million. As part of the
Recapitalization, the Term Facilities were used, among other things, to (i)
finance the purchase of the Old Notes, (ii) refinance the Old Credit Agreement,
(iii) make the Distribution and (iv) pay certain fees and expenses in connection
with the Recapitalization. The Tranche A Term Facility matures on November 19,
2002 with the first quarterly installment due on May 19, 1997. The Tranche B
Term Facility matures on November 19, 2003 with the first installment due on
February 19, 1997. The Term Facilities will be repaid in quarterly installments
in the following aggregate annual amounts:
<TABLE>
<CAPTION>
FISCAL YEAR
- ------------- AMOUNT TO BE REPAID
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
1997 $ 8.8
1998 12.8
1999 16.8
2000 20.8
2001 22.8
2002 22.8
2003 70.5
</TABLE>
The New Credit Agreement also provides for a working capital facility (the
"Revolving Facility") of up to $80 million to be used for working capital
requirements and other general corporate purposes. The maximum amount available
under the Revolving Facility is based on the Borrowing Base. The Revolving
Facility includes a subfacility for the issuance of letters of credit in a
maximum aggregate of $20,000,000. The New Credit Agreement requires that for 30
consecutive days, at any time, during each 12-month period, borrowings under the
Revolving Facility shall not exceed $15,000,000. The Revolving Facility will
terminate on November 15, 2002 or upon the repayment of borrowings under the
Term Facilities.
INTEREST PAYMENTS. Interest on Loans under the Senior Bank Facility is
payable at one of the following rates, at the Company's option: (i) with respect
to Loans under the Revolving Facility and the Tranche A Term Facility, (a) the
Base Rate (as defined in the New Credit Agreement) plus 1.50% PER ANNUM or (b)
the Adjusted Eurodollar Rate (as defined in the New Credit Agreement) plus 2.50%
PER ANNUM, available for one-, two-, three-, six-, and, if available, in the
discretion of Banks, nine-month periods and (ii) with respect to Loans under the
Tranche B Term Facility, (a) the Base Rate plus 2.00% PER ANNUM or (b) the
Adjusted Eurodollar Rate plus 3.00% PER ANNUM, available for one-, two-, three-,
six-, and, if available, in the discretion of Banks, nine-month periods;
PROVIDED that the applicable rates may be reduced from time
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<PAGE>
to time upon satisfaction of leverage and interest coverage tests to be set
forth in the New Credit Agreement. Interest is payable quarterly with respect to
Loans bearing interest based on the Base Rate and on the last day of selected
interest periods (and at the end of every three months, in the case of interest
periods of longer than three months) with respect to Loans bearing interest
based on the Adjusted Eurodollar Rate and, in each case, upon pre-payment.
Interest on Loans is payable in arrears and computed on the basis of a 360-day
year.
PREPAYMENTS. The New Credit Agreement requires prepayment of the Loans in
amounts equal to (i) 75% of excess cash flow (as determined under the New Credit
Agreement), (ii) the net cash proceeds of certain asset sales with cash proceeds
in excess of the amount specified in the New Credit Agreement, (iii) the net
cash proceeds from the issuance or sale of equity or debt of the Company or BBC
other than the sale of BBC Common Stock to the Company's management in the
ordinary course of business, (iv) the value of surplus assets for a pension plan
returned to BBC or any of its subsidiaries, net of transaction costs (including
taxes payable thereon) incurred in obtaining any such return and (v) the amount
necessary to reduce borrowings and letters of credit issued under the Revolving
Facility to a level commensurate with the Company's Borrowing Base. Such
mandatory prepayments will be applied first to pay interest on the principal
amount so prepaid, second to pay down scheduled repayments of principal in
reverse order of maturity under the Term Facility and third to permanently
prepay and reduce the Revolving Facility commitment. Prepayments of the Term
Facilities will be PRO RATA based on the outstanding principal amounts of the
Term Facilities; PROVIDED that prepayments allocated to Tranche B Term Facility
will be offered to Banks holding such Loans and, to the extent such Banks reject
the prepayment, 75% will be applied to the Tranche A Term Facility and 25% will
be available for the general corporate purposes of the Company. In the case of a
mandatory prepayment resulting from an asset sale, the Company will have the
option of permanently prepaying and reducing the Revolving Facility to the
extent that such asset sale reduces the Borrowing Base. In addition, the Company
may voluntarily prepay amounts outstanding under the Senior Bank Facility in
whole or in part at any time without premium or penalty (PROVIDED that
Eurodollar Rate Loans are prepayable only on the last day of the related
interest period), subject to compliance with certain notice requirements and
minimum prepayment amounts.
SECURITY INTERESTS. As security for the Senior Bank Facility, the Banks
have been granted, among other things, (i) a first priority pledge by BBC of the
capital stock of the Company and 66% of the capital stock of Canadian Blue Bird,
and (ii) a first priority lien on all or substantially all of BBC's and the
Company's assets, including intangibles, machinery, equipment, fixtures,
inventory, receivables and mortgages on all of the real property and leaseholds
owned, directly or indirectly, by BBC and Blue Bird Body Company as requested by
the Agent Banks.
GUARANTEES. BBC has guaranteed all payments and performance obligations of
Blue Bird Body Company with respect to the Senior Bank Facility. Such guarantee
is senior to the BBC Guarantee.
COVENANTS. The New Credit Agreement contains certain covenants, including
the following: (i) BBC and its subsidiaries will not incur indebtedness in
excess of specified amounts set forth in the New Credit Agreement; (ii) BBC and
its subsidiaries will not pay any dividend, or make any redemption or sinking
fund payments to its shareholders, other than (a) dividends solely in shares of
stock to the holders of that class of stock, (b) dividends to BBC to repurchase
BBC Common Stock from Management Investors in accordance with certain
subscription agreements, not to exceed an amount per fiscal year specified in
the New Credit Agreement, or (c) dividends or intercompany loans to BBC to pay
operating expenses, not exceeding $300,000 per fiscal year; (iii) in any fiscal
year, BBC and its subsidiaries will not make any expenditures to purchase or
otherwise acquire property, plant or equipment in excess of an amount specified
for each fiscal year in the New Credit Agreement; PROVIDED that, to the extent
that any unutilized part of that amount is no greater than 10% of that year's
capital expenditure allocation, such unutilized part may be used in the
following year to make such purchases; (iv) BBC and its subsidiaries will not
incur guarantees or contingent liabilities in an aggregate principal amount
exceeding amounts specified in the
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<PAGE>
New Credit Agreement except for guarantees relating to the endorsement of
negotiable instruments made in the ordinary course of business; (v) the Company
will not make any repayments on the Notes, other than required interest
payments; (vi) BBC and its subsidiaries will not grant any security interest,
lien, charge of encumbrance, other than pursuant to permitted purchase money
obligations incurred in the ordinary course of business, liens on inventory in
favor of General Motors Acceptance Corp. to secure the purchase price of such
inventory and other specifically permitted liens; and (vii) the Company will not
make any investments except (a) investments in cash equivalents, (b) investments
existing at closing as set forth in the New Credit Agreement, (c) certain
intercompany loans made by the Company to Canadian Blue Bird for working capital
purposes, not to exceed an amount to be specified in the New Credit Agreement,
(d) investments in lease receivables not to exceed $40 million at any one time,
and (e) other investments not to exceed an aggregate of $250,000 at any time.
In addition, BBC and its subsidiaries are required to satisfy certain
financial covenants including maintenance of consolidated EBITDA and a ratio of
EBITDA to cash interest expense at minimum levels to be specified for each
fiscal quarter in the New Credit Agreement; and maintenance of a ratio of total
debt to consolidated EBITDA at less than or equal to a level to be specified for
each fiscal quarter in the New Credit Agreement. Such terms are defined in the
New Credit Agreement.
EVENTS OF DEFAULT. The New Credit Agreement contains certain events of
default, including, without limitation, the following: (i) the failure of the
BBC or its subsidiaries to pay principal on the Loans when due or failure to pay
any interest or other amounts due under the New Credit Agreement within five
days after the due date; (ii) any failure by BBC or its subsidiaries to pay
principal or interest on any indebtedness or contingent obligation in an
individual or aggregate principal amount in excess of $2.5 million or more,
after any applicable grace period, or any breach or default by BBC or its
subsidiaries of any term of any indebtedness or contingent obligation in an
individual or aggregate principal amount of $2.5 million or more, that gives the
holder of such indebtedness or contingent obligation a right to accelerate such
indebtedness or obligation; (iii) any default by BBC or its subsidiaries in the
performance or observance of certain conditions and covenants of the New Credit
Agreement; (iv) any representation or warranty made by BBC or its subsidiaries
in any document delivered in connection with the New Credit Agreement proving to
be false in any material respect; (v) the rendering of a judgment which remains
unvacated, unbonded or unstayed for a period of 60 days against, or a voluntary
settlement by, BBC or any of its subsidiaries which exceeds, in any individual
amount, $2.5 million; (vi) certain events of bankruptcy or insolvency of BBC or
its subsidiaries; (vii) the occurrence of a change of control of BBC or the
Company (as determined under the New Credit Agreement); (viii) any default by
BBC or its subsidiaries in the performance of or compliance with any term in the
New Credit Agreement, other than those specifically referred to in other events
of default therein, which has not been cured or waived by the Banks after
30-days notice of such default; (ix) any order decreeing the dissolution of BBC
or the Company or any of their respective subsidiaries that remains in full
force and effect for over 60 days; (x) an ERISA Event (as determined under the
New Credit Agreement) that results in liability to BBC in excess of $100,000,
(xi) the existence of unfunded benefit liabilities exceeding $100,000; (xii) any
guaranty granted by any party in connection with the New Credit Agreement ceases
to be in full force and effect or any guarantor denies that it has liability
under a guaranty granted in connection with the New Credit Agreement; (xiii) the
security interests or priority thereof granted pursuant to or in connection with
the New Credit Agreement are or become impaired; and (xiv) the failure of the
Company or any obligee of the Notes to comply with the subordination provisions
contained in the documents relating to the issuance of the Notes.
FEES. The Company has agreed to pay (i) a commitment fee of .50% PER ANNUM
on the unused portion of the Revolving Facility, payable quarterly in arrears,
and at maturity, and computed on the basis of a 360-day year and (ii) certain
fees, including without limitation a financing fee, an annual administrative fee
and a PER ANNUM letter of credit fee equal to the applicable spread on Loans
bearing interest based on the Adjusted Eurodollar Rate plus .25% PER ANNUM.
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<PAGE>
OLD CREDIT AGREEMENT. As part of the Recapitalization, the Old Credit
Agreement with Bankers Trust Company ("BTCo.") was replaced and refinanced by
the New Credit Agreement.
LASALLE CREDIT AGREEMENT
Blue Bird Capital maintains the LaSalle Credit Facility with LaSalle, as
agent for itself and other lenders, pursuant to the LaSalle Credit Agreement.
The LaSalle Credit Facility is used to finance the lease financing operations of
Blue Bird Capital. Loans from LaSalle to Blue Bird Capital are secured by a
limited recourse pledge from the Company to LaSalle of all of the common stock
of Blue Bird Capital. Indebtedness of Blue Bird Capital to the Company is
subordinated to indebtedness to LaSalle. The LaSalle Credit Facility terminates
on March 31, 1999 and may be extended for up to two one-year periods. Blue Bird
Capital may borrow up to a maximum aggregate principal amount of $100 million
under the LaSalle Credit Facility, subject to certain limitations as set forth
in the LaSalle Credit Agreement.
The LaSalle Credit Agreement contains financial and other covenants,
including covenants requiring Blue Bird Capital to maintain certain financial
ratios and restricting the ability of Blue Bird Capital to incur indebtedness or
to create or suffer to exist certain liens. The LaSalle Credit Agreement also
requires that certain amounts of indebtedness thereunder be repaid by specified
dates.
The indebtedness of Blue Bird Capital under LaSalle Credit Facility bears
interest at rates that will fluctuate with changes in certain prevailing
interest rates (although such rates may be fixed for limited period of time).
The loans under the LaSalle Credit Facility as of November 2, 1996 bear interest
at the rate of 6.5% PER ANNUM. As of November 2, 1996, there was $58.6 million
outstanding under the LaSalle Credit Facility.
OLD NOTES
As a result of the Recapitalization, no Old Notes remain outstanding.
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<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Notes were issued under the Indenture dated as of November 15, 1996,
(the "Indenture") among the Company, BBC, as guarantor, and The Chase Manhattan
Bank, as trustee (the "Trustee"). For purposes of this section, the "Company"
means Blue Bird Body Company. The following summary of the material provisions
of the Indenture does not purport to be complete and is subject to, and
qualified by, reference to the provisions of the Indenture, including the
definitions of certain terms contained therein and those terms made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended, as in
effect on the date of the Indenture. The definition of certain terms used in the
following summary are set forth under "--Certain Definitions."
GENERAL
The Exchange Notes are unsecured senior subordinated obligations of the
Company limited to $100,000,000 aggregate principal amount. The Exchange Notes
were issued solely in exchange for an equal principal amount of outstanding 144A
Notes pursuant to the Exchange Offer. The terms of the Exchange Notes are
identical to the 144A Notes, but since the Exchange Notes have been registered
under the Securities Act, they are generally freely tradeable by holders thereof
who are not Affiliates of the Company. References in this Section to the "Notes"
refer to the 144A Notes and/or Exchange Notes, depending upon which are
outstanding. The Exchange Notes will be issued only in fully registered form
without coupons, in denominations of $1,000 and integral multiples thereof.
Principal of, premium, if any, and interest on the Notes are payable, and the
Notes are exchangeable and transferable, at the office or agency of the Company
in the City of New York maintained for such purposes (which initially will be
the corporate trust office of the Trustee). The term "Holder" means any person
is whose name the Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. See "Book-Entry, Delivery and Form." No service charge will be made for
any registration of transfer, exchange or redemption of the Notes, except in
certain circumstances for any tax or other governmental charge that may be
imposed in connection therewith.
BBC has guaranteed, and the Company will cause its Domestic Subsidiaries
under certain circumstances (including whenever a Domestic Subsidiary becomes a
guarantor or obligor under the New Credit Agreement) to guarantee payment of the
Notes on an unsecured senior subordinated basis. See "--Note Guarantees."
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on November 15, 2006. Interest on the Notes accrues at
the rate of 10 3/4% PER ANNUM and is payable semi-annually on each May 15 and
November 15, commencing May 15, 1997, to the holders of record of Notes at the
close of business on the May 1 and November 1 immediately preceding such
interest payment date. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
Issue Date. Interest will be computed on the basis of a year comprised of twelve
30-day months.
OPTIONAL REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after November 15, 2001, at the
redemption prices (expressed as percentages of
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<PAGE>
principal amount), set forth below, plus accrued interest to the redemption
date, if redeemed during the 12-month period beginning November 15 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------- -----------
<S> <C>
2001......................................................... 105.375%
2002......................................................... 103.583%
2003......................................................... 101.792%
2004 and thereafter.......................................... 100.000%
</TABLE>
In addition, as described below, in the event of a Change of Control
Triggering Event, the Company is obligated to make an offer to purchase all
outstanding Notes at a redemption price of 101% of the principal amount thereof,
plus accrued and unpaid interest to the date of purchase. The Company is also
obligated to make offers to purchase a portion (calculated as set forth below)
of the Notes at a redemption price of 100% of principal amount plus accrued and
unpaid interest to the date of purchase with a portion of the net cash proceeds
of certain sales or other dispositions of assets. See "--Change of Control
Triggering Event" and "--Certain Covenants--Disposition of Proceeds of Asset
Sales."
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERING. On or prior to November
15, 1999, the Company may, at its option, use the net proceeds of a Public
Equity Offering to redeem up to an aggregate of 25% of the principal amount of
Notes originally issued from the holders of Notes, on a PRO RATA basis (or as
nearly PRO RATA as practicable), at a redemption price equal to 110.75% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of redemption; PROVIDED that not less than $75 million in aggregate principal
amount of Notes is outstanding following such redemption. In order to effect the
foregoing redemption with the net proceeds of a Public Equity Offering, the
Company shall send the redemption notice not later than 60 days after the
consummation of the Public Equity Offering.
As used herein, a "Public Equity Offering" means an underwritten public
offering of Capital Stock (other than Redeemable Capital Stock) of the Company
or BBC made on a primary basis by the Company or BBC pursuant to a registration
statement filed with and declared effective by the Commission in accordance with
the Securities Act; PROVIDED that, in the event of an offering by BBC, BBC shall
contribute as equity to the Company proceeds from the Public Equity Offering of
not less than the amount necessary to redeem the Notes under the provisions
described above.
SELECTION AND NOTICE. In the event that less than all of the Notes are to
be redeemed at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed
on a national securities exchange, on a PRO RATA basis, by lot or by such method
as the Trustee will deem fair and appropriate; PROVIDED that no Notes of a
principal amount of $1,000 or less will be redeemed in part; PROVIDED, FURTHER,
that any such redemption pursuant to the provisions relating to a Public Equity
Offering shall be made on a PRO RATA basis or on as nearly a PRO RATA basis as
practicable (subject to the procedures of The Depository Trust Company or any
other depositary). Notice of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note will state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption.
CHANGE OF CONTROL TRIGGERING EVENT
The Indenture provides that, upon the occurrence of a Change of Control
Triggering Event (the date of such occurrence being the "Change of Control
Date"), the Company will be obligated to make an offer
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<PAGE>
to purchase (a "Change of Control Offer"), on a business day (the "Change of
Control Purchase Date") not more than 40 nor less than 20 business days
following the Change of Control Date, all of the then outstanding Notes at a
purchase price (the "Change of Control Purchase Price") equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the Change
of Control Purchase Date. The Company will be required to purchase all Notes
properly tendered into the Change of Control Offer and not withdrawn. Prior to
the mailing of the notice to holders provided for below, the Company shall have
(i) repaid in full all Indebtedness under the New Credit Agreement, or offered
to repay and have repaid the lenders under the New Credit Agreement to the
extent such offer has been accepted under the provisions of the New Credit
Agreement, or (ii) obtained the requisite consents under the New Credit
Agreement to permit the repurchase of the Notes as provided for under this
covenant. Failure to mail the notice on the date specified below or to have
satisfied the foregoing condition precedent by the date that the notice is
required to be mailed shall constitute a covenant Default under clause (iii) of
"--Events of Default." The Company shall have no obligation to effect a
repurchase of Notes if a notice has been mailed and such condition precedent has
not been satisfied. A majority of Holders may waive this condition. It should be
noted that the New Credit Agreement may not permit lenders thereunder to accept
an offer of repayment other than on a PRO RATA basis, in which case it may not
be possible to satisfy such condition precedent absent a repayment of all of the
Indebtedness under the New Credit Agreement. See "--Amendments and Waivers."
In order to effect such Change of Control Offer, the Company will, not later
than the 20th business day after the Change of Control Date, be obligated to
mail to each Holder of Notes notice of the Change of Control Offer, which notice
will govern the terms of the Change of Control Offer and will state, among other
things, the procedures that holders must follow to accept the Change of Control
Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of Notes
seeking to accept the Change of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the "Change of Control" provisions of the Indenture, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under such provisions of the Indenture
by virtue thereof.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on, the Notes
is subordinated as described below in right of payment to the prior payment in
full in cash or cash equivalents of all Senior Indebtedness.
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company or
its assets, or any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary, or any assignment for the benefit of creditors
or other marshalling of assets or liabilities of the Company, all Senior
Indebtedness must be paid in full before any payment or distribution (excluding
certain permitted equity or subordinated securities) is made on account of the
principal of, premium, if any, or interest on the Notes.
During the continuance of any default in the payment of any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
beyond any applicable grace period and after receipt by the Trustee from
representatives of holders of such Designated Senior Indebtedness of written
notice of such default, no payment or distribution of any assets of the Company
of any kind or character (excluding certain permitted equity or subordinated
securities) will be made on account of the principal of,
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<PAGE>
premium, if any, or interest on, or the purchase, redemption or other
acquisition of, the Notes unless and until such default has been cured or waived
or has ceased to exist or such Designated Senior Indebtedness will have been
discharged or paid in full.
During the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated (a "Non-payment Default") and after the receipt by the Trustee from
the representatives of holders of such Designated Senior Indebtedness of a
written notice of such Non-payment Default, no payment or distribution of any
assets of the Company of any kind or character (excluding certain permitted
equity or subordinated securities) may be made by the Company on account of the
principal of, premium, if any, or interest on or the purchase, redemption or
other acquisition of, the Notes for the period specified below (the "Payment
Blockage Period").
The Payment Blockage Period will commence upon the receipt of notice of a
Non-payment Default by the Trustee from the representatives of holders of
Designated Senior Indebtedness and will end on the earlier to occur of the
following events: (i) 179 days will have elapsed since the receipt of such
notice (PROVIDED that such Designated Senior Indebtedness will not theretofore
have been accelerated), (ii) such default is cured or waived or ceases to exist
or such Designated Senior Indebtedness is discharged or (iii) such Payment
Blockage Period will have been terminated by written notice to the Company or
the Trustee from the representatives of holders of Designated Senior
Indebtedness initiating such Payment Blockage Period, after which the Company
will promptly resume making any and all required payments in respect of the
Notes, including any missed payments. In no event will a Payment Blockage Period
extend beyond 179 days from the date of the receipt by the Trustee of the notice
initiating such Payment Blockage Period. Only one Payment Blockage Period with
respect to the Notes may be commenced within any 365-day period. No Non-payment
Default with respect to Designated Senior Indebtedness that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period will be, or can be, made the basis for the commencement of a second
Payment Blockage Period, unless such default has been cured or waived for a
period of not less than 90 consecutive days. In no event shall a Payment
Blockage Period extend beyond 179 days from the date of the receipt of the
notice referred to above and there must be a 186-consecutive-day period in any
365-consecutive-day period during which no Payment Blockage Period is in effect.
In the event that, notwithstanding the foregoing, the Company makes any payment
or distribution to the Trustee or any holder of any Note prohibited by the
subordination provision of the Indenture, then such payment or distribution will
be required to be paid over and delivered to the holders (or their
representative) of Designated Senior Indebtedness.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "--Events of Default."
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes and funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and
the Company may be unable to meet its obligations fully with respect to the
Notes.
As of November 2, 1996, on a PRO FORMA basis after giving effect to the
Recapitalization, Senior Indebtedness of the Company with respect to the Notes
would have been approximately $177.7 million. The Indenture limits, but does not
prohibit, the incurrence by the Company of additional Indebtedness which is
senior to the Notes, but prohibits the incurrence of any Indebtedness
contractually subordinated in right of payment to any other Indebtedness of the
Company and senior in right of payment to the Notes. The foreign and lease
finance operations of the Company are conducted primarily through subsidiaries
of the Company. The claims of creditors of such subsidiaries effectively will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of the Company and its creditors, including holders
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of the Notes. See "Risk Factors--Subordination" and "--Restrictive Covenants and
Asset Encumbrances."
NOTE GUARANTEES
BBC has guaranteed the Company's obligations under the Notes. In addition,
if any Domestic Subsidiary of the Company becomes a guarantor or obligor in
respect of Indebtedness of the Company or any of its Restricted Subsidiaries,
the Company's obligations under the Notes will be guaranteed by such Domestic
Subsidiary. See "--Certain Covenants--Limitation on Guarantees by Restricted
Subsidiaries." Subject to the subordination provisions described above, if the
Company defaults in payment of the principal of, premium, if any, or interest on
the Notes, BBC and each other Guarantor will be obligated to duly and punctually
pay the same.
The Indebtedness evidenced by each Note Guarantee (including the payment of
principal of, premium, if any, and interest on the Notes) is subordinated on the
same basis to Guarantor Senior Indebtedness (defined with respect to the
Indebtedness of a Guarantor) as the Notes are subordinated to Senior
Indebtedness. See "--Subordination." As of November 2, 1996, on a PRO FORMA
basis after giving effect to the Recapitalization, Guarantor Senior Indebtedness
with respect to BBC was approximately $175 million.
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
LIMITATION ON INDEBTEDNESS. The Indenture provides that the Company will
not, and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee or in any manner become liable,
contingently or otherwise (in each case, to "incur"), for the payment of any
Indebtedness (including any Acquired Indebtedness); PROVIDED that (i) the
Company and any Subsidiary Guarantor will be permitted to incur Indebtedness
(including Acquired Indebtedness) and (ii) a Restricted Subsidiary will be
permitted to incur Acquired Indebtedness, if immediately after giving PRO FORMA
effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Company is
at least equal to 2.00:1.00.
Notwithstanding the foregoing, the Company and, to the extent specifically
set forth below, the Restricted Subsidiaries may incur each and all of the
following:
(i) Indebtedness of the Company or any Subsidiary Guarantor under the
New Credit Agreement in an aggregate principal amount at any one time
outstanding not to exceed the sum of (a) $175,000,000 with respect to
Indebtedness under the Term Facilities, less principal payments made by the
Company in respect of the Term Facilities, (b) $80,000,000 in the aggregate
with respect to Indebtedness under the Revolving Facility and the letter of
credit facility, less the amount by which the aggregate commitment under the
Revolving Facility has been permanently reduced to the extent that any
repayments required to be made in connection with effecting such permanent
reduction have been made and (c) any Indebtedness incurred under the New
Credit Agreement pursuant to and in compliance with the provisions described
under either (1) the proviso of the first paragraph of this covenant or (2)
clause (xii) below;
(ii) Indebtedness of the Company or any Subsidiary Guarantor under the
Indenture, the Notes and any Note Guarantees;
(iii) Indebtedness of the Company or any Restricted Subsidiary not
otherwise referred to in this paragraph that is outstanding on the Issue
Date, except Indebtedness to be repaid as described under "Use of Proceeds;"
(iv) Indebtedness of the Company or any Restricted Subsidiary in respect
of performance bonds, bankers' acceptances, letters of credit of the Company
or any Restricted Subsidiary and surety bonds provided by the Company or any
Restricted Subsidiary in the ordinary course of business, not to exceed at
any given time $10,000,000 in the aggregate;
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(v) subject to the covenant described under "--Limitation on Restricted
Payments," Indebtedness of any Restricted Subsidiary to the Company or any
Restricted Subsidiary which is not subordinated in right of payment to any
Indebtedness of such Restricted Subsidiary;
(vi) Indebtedness of the Company to any Restricted Subsidiary which is
unsecured and subordinated in right of payment from and after such time as
the Notes shall become due and payable (whether at Stated Maturity, by
acceleration or otherwise) to the payment and performance of the Company's
obligations under the Indenture or the Notes;
(vii) any guarantees of Indebtedness by a Restricted Subsidiary entered
in compliance with the covenant under the Indenture described under
"--Limitations on Guarantees by Restricted Subsidiaries;"
(viii) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary covering Indebtedness of the Company or any Restricted
Subsidiary (which Indebtedness (a) bears interest at fluctuating interest
rates and (b) is otherwise permitted to be incurred under this covenant) to
the extent the notional principal amount of such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness to
which such Interest Rate Protection Obligations relate;
(ix) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements relating to (a) Indebtedness of the Company or a
Restricted Subsidiary and/or (b) obligations to purchase or sell assets or
properties or, in each case, incurred in the ordinary course of business of
the Company or any Restricted Subsidiary; PROVIDED that such Currency
Agreements do not increase the Indebtedness or other obligations of the
Company and the Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(x) Capitalized Lease Obligations of the Company or any Restricted
Subsidiary in an aggregate amount not exceeding $7,500,000 outstanding at
any time;
(xi) (a) Indebtedness of the Company or any Subsidiary Guarantor to the
extent the proceeds thereof are used to Refinance Indebtedness of the
Company or any Subsidiary Guarantor (including all or a portion of the
Notes) or any Restricted Subsidiary and (b) Indebtedness of any Restricted
Subsidiary that is not a Subsidiary Guarantor to the extent the proceeds
thereof are used to Refinance Indebtedness of any Restricted Subsidiary that
is not a Subsidiary Guarantor, in each case, other than the Indebtedness to
be Refinanced as described under "Use of Proceeds" and Indebtedness incurred
under clauses (i), (ii) or (v) above; PROVIDED that, in the case of either
clause (a) or (b), (1) the principal amount of Indebtedness incurred
pursuant to this clause (xi) (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness) shall not exceed the sum of the principal amount
of Indebtedness so Refinanced (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness plus any accreted value attributable thereto
since the original issuance of such Indebtedness) plus the amount of any
premium required to be paid in connection with such Refinancing pursuant to
the terms of such Indebtedness or the amount of any premium reasonably
determined by the Company or a Restricted Subsidiary, as applicable, as
necessary to accomplish such Refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of expenses in connection
therewith; and (2) except in the case of Refinancing or replacement of
Senior Indebtedness or Guarantor Senior Indebtedness or of any Indebtedness
of any Restricted Subsidiary that is not a Subsidiary Guarantor, does not
reduce the Average Life to Stated Maturity of such Indebtedness; and
(xii) additional Indebtedness of the Company or any Restricted Subsidiary
not described by any other clause of this definition, not to exceed an
aggregate principal amount at any time outstanding of $25,000,000 (less the
aggregate principal amount of Indebtedness incurred under the New Credit
Agreement under subclause (i)(c)(1) above).
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LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of the Restricted Subsidiaries to, directly or
indirectly:
(i) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any payment made
to the direct or indirect holders (in their capacities as such) of Capital
Stock of the Company (other than dividends or distributions payable solely
in rights to purchase Capital Stock of the Company (other than Redeemable
Capital Stock)); or
(ii) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company (other than any such Capital Stock owned by
a Restricted Subsidiary); or
(iii) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any such
Subordinated Indebtedness owed to a Restricted Subsidiary); or
(iv) make any Investment (other than a Permitted Investment) in any
person;
(such payments or Investments described in the preceding clauses (i), (ii),
(iii) and (iv) are collectively referred to as "Restricted Payments"), unless,
at the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than in cash, shall be the Fair
Market Value of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment),
(a) no Default shall have occurred and be continuing, (b) the aggregate amount
of all Restricted Payments declared or made from and after the Issue Date would
not exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period (treated as one
accounting period) beginning on September 29, 1996 and ending on the last day of
the fiscal quarter of the Company immediately preceding the date of such
proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net
Income of the Company for such period shall be a deficit, minus 100% of such
deficit) PLUS (2) the aggregate net cash proceeds received by the Company either
(x) as capital contributions in the form of common equity to the Company after
the Issue Date or (y) from the issuance or sale of Capital Stock (excluding
Redeemable Capital Stock but including Capital Stock issued upon the conversion
of convertible Indebtedness, in exchange for outstanding Indebtedness or from
the exercise of options, warrants or rights to purchase Capital Stock (other
than Redeemable Capital Stock)) of the Company to any person (other than to a
Restricted Subsidiary of the Company) after the Issue Date plus (3) in the case
of the disposition or repayment of any Investment constituting a Restricted
Payment made after the Issue Date, an amount equal to the lesser of the return
of capital with respect to such Investment and the initial amount of such
Investment, in either case, less the cost of the disposition of such Investment
and (iii) the Company could incur $1.00 of additional Indebtedness under the
first paragraph of "--Limitation on Indebtedness." For purposes of the preceding
clause (b)(2), upon the issuance of Capital Stock either from the conversion of
convertible Indebtedness or exchange for outstanding Indebtedness or upon the
exercise of options, warrants or rights, the amount counted as net cash proceeds
received will be the cash amount received by the Company at the original
issuance of the Indebtedness that is so converted or exchanged or from the
issuance of options, warrants or rights, as the case may be, plus the
incremental amount of cash received by the Company, if any, upon the conversion,
exchange or exercise thereof.
None of the foregoing provisions of this covenant will prohibit (i) the
payment of any dividend within 60 days after the date of its declaration, if at
the date of declaration such payment would be permitted by the provisions of the
Indenture; (ii) so long as no Default shall have occurred and be continuing, the
redemption, repurchase or other acquisition or retirement of any shares of any
class of Capital Stock of the Company in exchange for, or out of the net
proceeds of, a substantially concurrent issue and sale of other shares of
Capital Stock (other than Redeemable Capital Stock) of the Company to any person
(other than to a Restricted Subsidiary); PROVIDED that such net proceeds are
excluded from clause (b)(2) of the preceding paragraph; (iii) so long as no
Default shall have occurred and be continuing, any redemption, repurchase or
other acquisition or retirement of Subordinated Indebtedness made by exchange
for, or out
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of the net proceeds of, a substantially concurrent issue and sale of (a) Capital
Stock (other than Redeemable Capital Stock) of the Company or (b) Indebtedness
of the Company or any Guarantor so long as such Indebtedness (1) is subordinated
to Senior Indebtedness and the Notes or Guarantor Senior Indebtedness and the
Note Guarantees of such Guarantor, as the case may be, at least to the same
extent as the Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired and (2) has no Stated Maturity earlier than the
Stated Maturity for the final scheduled principal payment of the Notes; (iv)
dividends paid or intercompany loans made by the Company to BBC for the purpose
of paying operating expenses of BBC arising in the ordinary course of business,
including, without limitation, for the payment of taxes; (v) Investments
constituting Restricted Payments made as a result of the receipt of non-cash
consideration from any Asset Sale made pursuant to and in compliance with the
covenant described under "--Disposition of Proceeds of Asset Sales"; (vi) the
making of the Distribution in connection with the Recapitalization or (vii)
payment made by the Company under the Income Taxes Agreement. In computing the
amount of Restricted Payments previously made for purposes of clause (b) of the
preceding paragraph, Restricted Payments under the immediately preceding clauses
(i) and (v) shall be included.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indenture provides that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, conduct any business or enter into or suffer to exist
any transaction or series of related transactions with, or for the benefit of,
any Affiliate of the Company (other than a Restricted Subsidiary so long as no
Affiliate of the Company or beneficial holder of 5% or more of any class or
series of Capital Stock of the Company shall beneficially own any Capital Stock
in such Restricted Subsidiary) or any beneficial holder of 10% or more of any
class of Capital Stock of the Company except (i) on terms that are no less
favorable to the Company or the Restricted Subsidiary, as the case may be, than
those which could have been obtained in a comparable transaction at such time
from persons who do not have such a relationship with the Company, and (ii) with
respect to any transaction or series of related transactions involving aggregate
payments or value equal to or greater than $1,000,000, the Company shall have
delivered an officer's certificate to the Trustee certifying that such
transaction or series of related transactions comply with the preceding clause
(i) and, with respect to any transaction or series of transactions involving
aggregate payments or value equal to or greater than $5,000,000, further
certifying that such transaction or series of transactions have been approved by
a majority of the Board of Directors of the Company, including a majority of the
disinterested directors of the Board of Directors of the Company. For the
purposes of the foregoing, a director of the Company shall not be considered
"interested" with respect to a transaction solely by virtue of being a director
of the other party to such transaction. The Company shall be deemed to have
complied with the foregoing provisions if it has obtained a written opinion from
an Independent Financial Advisor stating that the terms of such transaction or
series of transactions are fair to the Company or such Restricted Subsidiary, as
the case may be, from a financial point of view. This foregoing covenant shall
not apply to (i) the payment of reasonable and customary fees to directors of
the Company, (ii) any customary provision for the indemnification of officers or
directors of the Company, (iii) any transactions with a Wholly-Owned
Unrestricted Subsidiary in connection with a Lease Financing Transaction
(including pursuant to the Income Taxes Agreement) and (d) transactions related
to the Recapitalization.
DISPOSITION OF PROCEEDS OF ASSET SALES. The Indenture provides that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
make any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the shares and/or assets subject to such Asset Sale and (ii) at
least 75% of the consideration for any such Asset Sale is cash and/or Cash
Equivalents (PROVIDED that the following shall be deemed cash for purposes of
this provision and be treated as Net Cash Proceeds, subject to application as
hereinafter provided: the amount of any liabilities (as shown on the balance
sheet or in the notes thereto of the Company or such Restricted Subsidiary) of
the Company or such Restricted Subsidiary that are assumed (and from which the
Company or such Restricted Subsidiary is unconditionally released) in connection
with such Asset Sale by the transferee or purchaser of such assets or on behalf
of such transferee or
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purchaser by a third party). To the extent the Net Cash Proceeds of any Asset
Sale are not required to be applied to repay, and permanently reduce the
commitments under, any outstanding Indebtedness under the New Credit Agreement
as required by the terms thereof or are not so applied, then the Company may,
within 12 months of the Asset Sale, invest Net Cash Proceeds in properties and
assets which replace the properties and assets that were the subject of the
Asset Sale or in properties and assets (including inventory) that will be used
in the business of the Company and the Restricted Subsidiaries existing on the
Issue Date or in businesses reasonably related thereto.
The amount of such Net Cash Proceeds in excess of the amount (i) used to
repay Indebtedness under the New Credit Agreement and (ii) permitted to be
invested and so invested as set forth above is referred to herein as "Excess
Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000,
the Company will be obligated to make an offer (an "Asset Sale Offer") to
purchase from all holders of the Notes, on a day not more than 40 business days
thereafter, the maximum principal amount (expressed as a multiple of $1,000) of
Notes that may be purchased with the aggregate Excess Proceeds at a price,
payable in cash, equal to 100% of the principal amount of the Notes plus accrued
and unpaid interest, if any, to the date of purchase (the "Asset Sale Offer
Price"). An Asset Sale Offer will be required to be kept open for a period of at
least 20 business days. To the extent that an Asset Sale Offer is not fully
subscribed to, the Company will be entitled to retain the unutilized portion of
the Excess Proceeds. Whenever Excess Proceeds received by the Company exceed
$10,000,000, such Excess Proceeds will, prior to the purchase of Notes, be set
aside by the Company in a separate account pending (i) deposit with the
depositary of the amount required to purchase the Notes tendered in an Asset
Sale Offer or (ii) delivery by the Company of the Asset Sale Offer Price to the
holders of the Notes validly tendered and not withdrawn pursuant to an Asset
Sale Offer. Such Excess Proceeds may be invested in Cash Equivalents, as
directed by the Company, having a maturity date which is not later than the
earliest possible date for purchase or redemption of Notes pursuant to the Asset
Sale Offer. The Company will be entitled to any interest or dividends accrued,
earned or paid on such Cash Equivalents.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act, and any other securities laws or regulations
in connection with the purchase of Notes pursuant to an Asset Sale Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Disposition of Proceeds of Asset Sales" provisions of the Indenture, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under such provisions of the
Indenture by virtue thereof.
LIMITATION ON LIENS. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien of any kind, upon any of its property or assets, whether now
owned or acquired after the Issue Date, or any proceeds therefrom, which secure
either (i) Subordinated Indebtedness unless the Notes and the Note Guarantees,
as applicable, are secured by a Lien on such property, assets or proceeds that
is senior in priority to the Liens securing such Subordinated Indebtedness or
(ii) Pari Passu Indebtedness unless the Notes and the Note Guarantees, as
applicable, are equally and ratably secured with the Liens securing such Pari
Passu Indebtedness.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
provides that neither the Company nor any Guarantor will create, incur, assume,
guarantee or in any other manner become liable with respect to any Indebtedness
(other than the Notes and the Note Guarantees) that is subordinate in right of
payment to any Indebtedness of the Company or of such Guarantor, as the case may
be, unless such Indebtedness is either (i) PARI PASSU in right of payment with
the Notes or such Note Guarantee, as the case may be, or (ii) subordinate in
right of payment to, the Notes or such Note Guarantee, as the case may be, in
the same manner and at least to the same extent as the Notes are subordinated to
Senior Indebtedness or as such Note Guarantee is subordinated to Guarantor
Senior Indebtedness, as the case may be.
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LIMITATION ON GUARANTEES BY RESTRICTED SUBSIDIARIES. The Indenture provides
that the Company will not permit any of the Domestic Subsidiaries, directly or
indirectly, to guarantee the payment of any Indebtedness of BBC, the Company or
any Restricted Subsidiary unless such Domestic Subsidiary (i) is a Subsidiary
Guarantor or (ii) simultaneously executes and delivers a supplemental indenture
to the Indenture pursuant to which it will become a Subsidiary Guarantor under
the Indenture. Notwithstanding the foregoing, any Note Guarantee by a Restricted
Subsidiary will provide by its terms that it will be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any person not an Affiliate of the Company, of all of the Capital Stock of such
Restricted Subsidiary, or all or substantially all the assets of such Restricted
Subsidiary, pursuant to a transaction which is in compliance with the Indenture.
The Indenture further provides that the Company may, at any time, cause a
Restricted Subsidiary to become a Subsidiary Guarantor by executing and
delivering a supplemental indenture providing for the guarantee of payment of
the Notes by such Restricted Subsidiary on the basis provided in the Indenture.
RESTRICTIONS ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Indenture
provides that the Company will not permit any of the Restricted Subsidiaries to
issue any Preferred Stock (other than to the Company or to a Wholly-Owned
Restricted Subsidiary) or permit any person (other than the Company or a Wholly-
Owned Restricted Subsidiary) to own any Preferred Stock of any Restricted
Subsidiary.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or otherwise
cause or suffer to exist, or enter into any agreement with any person that would
cause to become effective, any consensual encumbrance or restriction of any
kind, on the ability of any Restricted Subsidiary to (i) pay dividends, in cash
or otherwise, or make any other distribution on or in respect of its Capital
Stock or any other interest or participation in, or measured by, its profits,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary, except (a) any encumbrance or restriction existing
under the security documentation for the New Credit Agreement as in effect on
the Issue Date relating to assets subject to a Lien created thereby; (b) any
encumbrance or restriction, with respect to a Restricted Subsidiary that is not
a Restricted Subsidiary on the Issue Date, in existence at the time such person
becomes a Restricted Subsidiary (but not created in contemplation thereof); and
(c) any encumbrance or restriction existing under any agreement that refinances
or replaces the agreements containing the restrictions in the foregoing clauses
(a) and (b); PROVIDED that the terms and conditions of any such restrictions
permitted under this clause (c) are not materially less favorable to the holders
of the Notes than those under or pursuant to the agreement evidencing the
Indebtedness being refinanced.
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Indenture
provides that the Company may designate any Subsidiary of the Company (other
than a Subsidiary Guarantor) as an "Unrestricted Subsidiary" under the Indenture
(a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the Fair
Market Value of the Capital Stock of such Subsidiary on such date; and
(iii) the Company would be permitted under the Indenture to incur $1.00
of additional Indebtedness pursuant to the first paragraph of the covenant
described under "--Limitation on Indebtedness" at the time of Designation
(assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture further provides
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that (i) the Company shall not and shall not permit any Restricted Subsidiary
to, at any time (a) provide credit support for, or a guarantee of, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (b) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (c) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except in the case of
clause (a) or (b) to the extent permitted under the covenant described under
"--Limitation on Restricted Payments" and to the extent set forth in the first
parenthetical in the definition of "Lease Financing Transaction" and (ii) no
Unrestricted Subsidiary shall at any time guarantee or otherwise provide credit
support for any obligation of the Company or any Restricted Subsidiary.
The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of the Indenture;
All Designations and Revocations must be evidenced by board resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Blue Bird Capital is treated as an Unrestricted Subsidiary under the
Indenture as of the Issue Date.
REPORTING REQUIREMENTS. The Indenture requires that the Company file with
the Commission the annual reports, quarterly reports and other documents
required to be filed with the Commission pursuant to Sections 13 and 15 of the
Exchange Act, whether or not the Company has a class of securities registered
under the Exchange Act. The Company is required to file with the Trustee within
15 days after it files such reports and documents with the Commission copies of
such reports and documents.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Indenture provides that the Company will not, in any transaction or
series of related transactions, merge or consolidate with or into, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to, any person or persons, and that the Company
will not permit any of the Restricted Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company or of the Company and the Restricted
Subsidiaries, taken as whole, to any other person or persons, unless (i) either
(a)(1) if the transaction or transactions is a merger or consolidation involving
the Company, the Company shall be the surviving person of such merger or
consolidation or (2) if the transaction or transactions is a merger or
consolidation involving a Restricted Subsidiary, such Restricted Subsidiary
shall be the surviving person of such merger or consolidation and such surviving
person shall be a Restricted Subsidiary, or (b)(1) the person formed by such
consolidation or into which the Company or such Restricted Subsidiary is merged
or to which the properties and assets of the Company or such Restricted
Subsidiary, as the case may be, are transferred (any such surviving person or
transferee person being the "Surviving Entity") shall be a corporation organized
and existing under the laws of the United States of America, any State thereof
or the District of Columbia and (2)(A) in the case of a transaction involving
the Company, the Surviving Entity shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture,
and in each case, the Indenture shall remain in full force and effect, or (B) in
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the case of a transaction involving a Restricted Subsidiary that is a Subsidiary
Guarantor, the Surviving Entity shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of such Restricted Subsidiary under its Note
Guarantee and related supplemental indenture, and in each case, such Note
Guarantee and supplemental indenture shall remain in full force and effect; and
(ii) immediately after giving effect to such transaction or series of related
transactions on a PRO FORMA basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default shall have
occurred and be continuing and the Company, or the Surviving Entity, as the case
may be, after giving effect to such transaction or series of transactions on a
PRO FORMA basis, could incur $1.00 of additional Indebtedness under the first
paragraph of "--Limitation on Indebtedness."
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, transfer, lease or other disposition and the
supplemental indenture in respect thereof comply with the requirements under the
Indenture. In addition, each Subsidiary Guarantor, unless it is the other party
to the transaction or unless its Note Guarantee will be released and discharged
in accordance with its terms as a result of the transaction, will be required to
confirm, by supplemental indenture, that its Note Guarantee will continue to
apply to the obligations of the Company or the Surviving Entity under the
Indenture.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, in which the
Company or the Restricted Subsidiary, as the case may be, is not the continuing
corporation, the successor corporation formed by such a consolidation or into
which the Company or such Restricted Subsidiary is merged or to which such
transfer is made, will succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Restricted Subsidiary, as the case
may be, under the Indenture with the same effect as if such successor
corporation had been named as the Company or such Restricted Subsidiary therein;
and thereafter, except in the case of (i) a lease or (ii) any sale, assignment,
conveyance, transfer, lease or other disposition to a Restricted Subsidiary of
the Company, the Company or such Guarantor, as the case may be, shall be
discharged from all obligations and covenants under the Indenture and the Notes.
The Indenture provides that for all purposes of the Indenture and the Notes
(including the provision of this covenant and the covenants described under
"--Limitation on Indebtedness," "--Limitation on Restricted Payments" and
"--Limitation on Liens"), Subsidiaries of any Surviving Entity will, upon such
transaction or series of related transactions, become Restricted Subsidiaries or
Unrestricted Subsidiaries as provided pursuant to the covenant described under
"--Limitation on Designations of Unrestricted Subsidiaries" and all
Indebtedness, and all Liens on property or assets, of the Company and the
Restricted Subsidiaries in existence immediately prior to such transaction or
series of related transactions will be deemed to have been incurred upon such
transaction or series of related transactions.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes (at its Stated Maturity, upon optional
redemption, required purchase, scheduled principal payment or otherwise); or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days; or
(iii) the Company or any Guarantor fails to comply with any of its
obligations described under "--Consolidation, Merger, Sale of Assets, ETC.,"
"--Change of Control Triggering Event" or "--Certain Covenants--Disposition
of Proceeds of Asset Sales;" or
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(iv) the Company or any Guarantor fails to perform or observe any other
term, covenant or agreement contained in the Notes, the Note Guarantees or
the Indenture (other than a default specified in (i), (ii) or (iii) above)
for a period of 30 days after written notice of such failure requiring the
Company to remedy the same shall have been given (a) to the Company by the
Trustee or (b) to the Company and the Trustee by the holders of 25% in
aggregate principal amount of the Notes then outstanding; or
(v) default or defaults under any agreement, indenture or instrument
under which the Company or any Restricted Subsidiary then has outstanding
Indebtedness in excess of $5,000,000 in the aggregate and either (a) such
Indebtedness is already due and payable in full or (b) such default or
defaults results in the acceleration of the maturity of such Indebtedness;
or
(vi) any Note Guarantee ceases to be in full force and effect or is
declared null and void or any Guarantor denies that it has any further
liability under any Note Guarantee, or gives notice to such effect (other
than by reason of the termination of the Indenture or the release of any
such Note Guarantee in accordance with "--Certain Covenants--Limitation on
Guarantees by Restricted Subsidiaries") and such condition shall have
continued for a period of 30 days after written notice of such condition
shall have been given (a) to the Company by the Trustee or (b) to the
Company and the Trustee by the holders of 25% in aggregate principal amount
of the Notes then outstanding; or
(vii) one or more judgments, orders or decrees of any court or regulatory
or administrative agency for the payment of money in excess of $5,000,000
either individually or in the aggregate, shall have been entered against the
Company or any Restricted Subsidiary or any of their respective properties
and shall not have been discharged and either (a) any creditor shall have
commenced an enforcement proceeding upon such judgment, order or decree or
(b) there shall have been a period of 60 consecutive days during which a
stay of enforcement of such judgment, order or decree, by reason of a
pending appeal or otherwise, will not be in effect; or
(viii) certain events of bankruptcy, insolvency or reorganization with
respect to BBC, the Company or any Material Subsidiary of the Company shall
have occurred; or
(ix) either (a) the collateral agent under the New Credit Agreement or
(b) if the New Credit Agreement shall no longer be in force and effect, any
holder of at least $5,000,000 in aggregate principal amount of Indebtedness
of the Company or any Restricted Subsidiary shall commence judicial
proceedings to foreclose upon assets of the Company or any of its Restricted
Subsidiaries having an aggregate Fair Market Value, individually or in the
aggregate, in excess of $5,000,000 or shall have exercised any right under
applicable law or applicable security documents to take ownership of any
such assets in lieu of foreclosure.
If an Event of Default (other than as specified in clause (viii) with
respect to the Company), shall occur and be continuing, the Trustee, by notice
to the Company, or the holders of at least 25% in aggregate principal amount of
the Notes then outstanding, by notice to the Trustee and the Company, may
declare the principal of, premium, if any, and accrued interest on all of the
outstanding Notes due and payable immediately, upon which declaration, all
amounts payable in respect of the Notes will be immediately due and payable;
PROVIDED, HOWEVER, that so long as the New Credit Agreement shall be in force
and effect, if an Event of Default shall have occurred and be continuing (other
than an Event of Default under clause (viii) with respect to the Company), any
such acceleration shall not be effective until the earlier to occur of (i) five
business days following delivery of a notice of such acceleration to the agent
under the New Credit Agreement and (ii) the acceleration of any Indebtedness
under the New Credit Agreement. If an Event of Default specified in clause
(viii) above with respect to the Company occurs and is continuing, then the
principal of, premium, if any, and accrued interest on all of the outstanding
Notes will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of Notes.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default specified in
clause (v) shall have occurred and be continuing, such
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declaration of acceleration will be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or paid (if
permitted by the terms thereof and the Indenture) or the requisite holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge of rescission, as the case
may be, shall have been given to the Trustee by the Company and by the requisite
holders of such Indebtedness or a trustee, fiduciary or agent for such holders,
within 60 days after such declaration of acceleration in respect of the Notes
and no other Event of Default has occurred which has not been cured or waived
during such 60-day period.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of the outstanding Notes, by written
notice to the Company and the Trustee, may rescind such declaration if (i) the
Company has paid or deposited with the Trustee a sum sufficient to pay (a) all
sums paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (b) all overdue interest on all Notes, (c) the principal of and
premium, if any, on any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the Notes,
and (d) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes; and (ii) all Events of Default,
other than the non-payment of principal of, premium, if any, and interest on the
Notes that has become due solely by such declaration of acceleration, have been
cured or waived.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may on behalf of the holders of all the Notes waive any past
defaults under the Indenture, except a default in the payment of the principal
of, premium, if any, or interest on any Note, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default will occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders
unless such holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee under the Indenture.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company and the Guarantors of their
respective obligations under the Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within five
business days of any event which is, or after notice or lapse of time or both
would become, an Event of Default.
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DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company and the Guarantors with respect to the outstanding Notes
("defeasance"). Such defeasance means that the Company will be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding
Notes, except for (i) the rights of holders of outstanding Notes to receive
payment in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency for
payments in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to terminate
the obligations of the Company and any Guarantor with respect to certain
covenants that are set forth in the Indenture, some of which are described under
"--Certain Covenants," and any omission to comply with such obligations will not
constitute a Default or an Event of Default with respect to the Notes ("covenant
defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes to redemption or maturity; (ii) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred (in the case of defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default shall have
occurred and be continuing on the date of such deposit; (iv) such defeasance or
covenant defeasance shall not cause the Trustee to have a conflicting interest
with respect to any securities of the Company or any Guarantor; (v) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, any material agreement or instrument to which the
Company or any Guarantor is a party or by which it is bound; (vi) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that (a)
the trust funds will not be subject to any rights of holders of Senior
Indebtedness, including, without limitation, those arising under the Indenture
and (b) after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; and (vii) the Company
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that all conditions precedent under the Indenture to
either defeasance or covenant defeasance, as the case may be, have been complied
with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company or any Guarantor has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the
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date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company or any Guarantor has paid all
other sums payable under the Indenture by the Company and the Guarantors; and
(iii) the Company and each of the Guarantors have delivered to the Trustee an
officers' certificate and an opinion of counsel each stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Guarantors, when authorized by
resolutions of their Boards of Directors, and the Trustee may, without the
consent of the holders of any outstanding Notes, amend, waive or supplement the
Indenture or the Notes for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act of
1939, as amended (the "TIA"), or making any change that does not materially
adversely affect the legal rights of any holder; PROVIDED, HOWEVER, that the
Company has delivered to the Trustee an Opinion of Counsel (as defined in the
Indenture) stating that such change does not materially adversely affect the
legal rights of any holder. Other amendments and modifications of the Indenture
or the Notes may be made by the Company, the Guarantors and the Trustee with the
consent of the holders of not less than a majority of the aggregate principal
amount of the outstanding Notes; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the holder of each outstanding Note
affected thereby, (i) reduce the principal amount of, extend the fixed maturity
of or alter the redemption provisions of, the Notes, (ii) change the currency in
which any Notes or any premium or the interest thereon is payable, (iii) reduce
the percentage in principal amount of outstanding Notes that must consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture or the Notes, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes, (v) waive a default
in payment with respect to the Notes in accordance with the Indenture, (vi) upon
the failure to mail or the mailing of the notice required for a Change of
Control Offer following, in either case, satisfaction of the condition precedent
to the mailing of such notice or upon the occurrence of an Asset Sale, alter the
Company's obligation to purchase the Notes in accordance with the Indenture or
waive any default in the performance thereof, (vii) reduce or change the rate or
time for payment of interest on the Notes, (viii) affect the ranking of the
Notes or (ix) except in compliance with the express provisions of the Indenture,
release any Guarantor from any of its obligations under its Note Guarantee or
the Indenture.
THE TRUSTEE
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions, provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict within 90 days or resign.
The holders of a majority in principle amount of the then outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee, subject to certain exceptions. The Indenture provides
that, except during the continuance of an Event of Default, the Trustee will
perform only such duties as are specifically set forth in the Indenture. During
the existence of an Event of Default, the Trustee will exercise such rights and
powers vested in it by the Indenture, and use the same degree of care and skill
in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs. The Trustee may
require reasonable indemnity against costs, expenses or liabilities likely to be
incurred prior to proceeding with any investigation requested by at least a
majority of Holders.
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GOVERNING LAW
The Indenture and the Notes are governed by the laws of the State of New
York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness of a person (i) assumed in
connection with an Asset Acquisition from such person or (ii) existing at the
time such person becomes a Restricted Subsidiary of any other person (other than
any Indebtedness incurred in connection with, or in contemplation of, such Asset
Acquisition or such person becoming such a Restricted Subsidiary).
"AFFILIATE" means, with respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person or (ii) any other person that
owns, directly or indirectly, 5% or more of any class or series of such
person's, or the parent of such person's, Capital Stock or any officer, director
or Affiliate of any such other person or, with respect to any other natural
person, any person having a relationship with such other person by blood,
marriage or adoption not more remote than first cousin. For the purposes of this
definition, "control" when used with respect to any specified person means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"ASSET ACQUISITION" means (i) an Investment by the Company or any Restricted
Subsidiary in any other person pursuant to which such person will become a
Restricted Subsidiary or will be merged with the Company or any Restricted
Subsidiary or (ii) the acquisition by the Company or any Restricted Subsidiary
of the assets of any person which constitute all or substantially all of the
assets of such person, or any division or line of business of such person.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition to any person other than the Company or a
Restricted Subsidiary, in one or a series of related transactions, of (i) any
Capital Stock of any Restricted Subsidiary of the Company; (ii) all or
substantially all of the assets of any division or line of business of the
Company or any Restricted Subsidiary; or (iii) any other properties or assets of
the Company or any Restricted Subsidiary other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" will not
include (i) any sale, issuance, conveyance, transfer, lease or other disposition
of properties or assets that is governed by the provisions described under
"Consolidation, Merger, Sale of Assets, ETC.," (ii) the sale of lease portfolio
assets pursuant to the terms of any Lease Portfolio Documents or (iii) sales of
property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary, as the case may be. For purposes of the covenant
described under "--Certain Covenants--Disposition of Proceeds of Asset Sales,"
the term "Asset Sale" shall not include any sale, conveyance, transfer, lease or
other disposition of any property or asset, whether in one transaction or a
series of related transactions, either (I) involving assets with a Fair Market
Value not in excess of the equivalent of $250,000 or (II) in connection with a
Capitalized Lease Obligation.
"AVERAGE LIFE TO STATED MATURITY" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (b) the amount
of each such principal payment by (ii) the sum of all such principal payments.
"CAPITAL STOCK" means, with respect to any person, any and all shares,
interests, participation, rights in or other equivalents (however designated) of
such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
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"CAPITALIZED LEASE OBLIGATION" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"CASH EQUIVALENTS" means, at any time, (i) any evidence of Indebtedness with
a maturity of one year or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(PROVIDED that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of one year or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) commercial paper with a maturity of
one year or less issued by a corporation that is not an Affiliate of the Company
(other than Merrill Lynch and its Affiliates) organized under the laws of any
state of the United States or the District of Columbia and rated at least A-1 by
Standard & Poor's Corporation ("Standard & Poor's") or at least P-1 by Moody's
Investor Services, Inc. ("Moody's"); and (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the government of the United States of America or
issued by any agency thereof and backed by the full faith and credit of the
United States of America, in each case, maturing within one year from the date
of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) other than Permitted Holders is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a person will be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of a
majority of the total Voting Stock of the Company or BBC, as the case may be;
(ii) the Company or BBC, as the case may be, consolidates with, or merges with
or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, the Company or BBC, as the
case may be, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company or BBC, as the case may be, is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (a) the outstanding Voting Stock of the Company or BBC, as the
case may be, is converted into or exchanged for Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation and (b) the
holders of the Voting Stock of the Company or BBC, as the case may be,
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving or transferee corporation
immediately after such transaction; (iii) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company or BBC (together with any new directors whose election
by such Boards of Directors or whose nomination for election by the stockholders
of the Company or BBC was approved by a vote of 66 2/3% of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) or such
other directors as have been appointed by MLCP cease for any reason to
constitute a majority of the Board of Directors of the Company or BBC, as the
case may be, then in office; or (iv) any order, judgment or decree shall be
entered against the Company or BBC decreeing the dissolution or split up of the
Company or BBC and such order shall remain undischarged or unstayed for a period
in excess of 60 days.
"CHANGE OF CONTROL TRIGGERING EVENT" means the occurrence of both a Change
of Control and a Rating Decline.
"CONSOLIDATED CASH FLOW AVAILABLE FOR FIXED CHARGES" means, for any period,
(i) the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income, (b) Consolidated
Non-cash Charges, (c) to the extent reducing Consolidated Net Income,
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Consolidated Interest Expense, and (d) to the extent reducing Consolidated Net
Income, Consolidated Income Tax Expense less (ii) other non-cash items
increasing Consolidated Net Income for such period.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means the ratio of the aggregate
amount of Consolidated Cash Flow Available for Fixed Charges of the Company for
the four full fiscal quarters immediately preceding the date of the transaction
(the "Transaction Date") giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred
to herein as the "Four Quarter Period") to the aggregate amount of Consolidated
Fixed Charges of the Company for the Four Quarter Period. For purposes of this
definition, if the Transaction Date occurs prior to the first anniversary of the
Issue Date, "Consolidated Cash Flow Available for Fixed Charges" and
"Consolidated Fixed Charges" will be calculated, in the case of the Company,
after giving effect on a PRO FORMA basis as if the Recapitalization occurred on
the first day of the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated Cash Flow
Available for Fixed Charges" and "Consolidated Fixed Charges" will be
calculated, without duplication, after giving effect on a PRO FORMA basis for
the period of such calculation to (i) the incurrence of any Indebtedness of the
Company or any of the Restricted Subsidiaries during the period commencing on
the first day of the Four Quarter Period to and including the Transaction Date
(the "Reference Period"), including, without limitation, the incurrence of the
Indebtedness giving rise to the need to make such calculation, as if such
incurrence occurred on the first day of the Reference Period, (ii) an adjustment
to eliminate or include, as applicable, the Consolidated Cash Flow Available for
Fixed Charges and Consolidated Fixed Charges of the Company directly
attributable to assets which are the subject of any Asset Sale or Asset
Acquisition (including, without limitation, any Asset Acquisition giving rise to
the need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) occurring during the Reference
Period, as if such Asset Sale or Asset Acquisition occurred on the first day of
the Reference Period and (iii) the retirement of Indebtedness during the
Reference Period which cannot thereafter be reborrowed occurring as if retired
on the first day of the Reference Period. For purposes of calculating
Consolidated Fixed Charges for this definition of "Consolidated Fixed Charge
Coverage Ratio," interest on Indebtedness incurred during the Four Quarter
Period under any revolving credit facility which can be borrowed and repaid
without reducing the commitments thereunder shall be the actual interest during
the Four Quarter Period. Furthermore, in calculating Consolidated Fixed Charges
for purposes of determining the denominator (but not the numerator) of this
definition of "Consolidated Fixed Charge Coverage Ratio," (i) interest on
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter will be deemed to accrue at a
fixed rate PER ANNUM equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (ii) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Reference
Period; and (iii) notwithstanding clause (i) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate Protection Obligations, will be deemed to
accrue at the rate PER ANNUM resulting after giving effect to the operation of
such agreements. If the Company or any Restricted Subsidiary, directly or
indirectly, guarantees Indebtedness of a third person, the above definition will
give effect to the incurrence of such guaranteed Indebtedness as if the Company
or any Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum of, without
duplication, the amounts for such period of (i) Consolidated Interest Expense;
and (ii) the aggregate amount of cash dividends and other distributions paid or
accrued during such period in respect of Redeemable Capital Stock.
"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and the Restricted
Subsidiaries for such period as determined on a
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consolidated basis in accordance with GAAP. To the extent that Blue Bird Capital
is an Unrestricted Subsidiary during such period and to the extent payments
under the Income Taxes Agreement reduce Consolidated Net Income, Consolidated
Income Tax Expense shall include such payments under the Income Taxes Agreement.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, without duplication,
the sum of (i) the interest expense of the Company and the Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, (a) any amortization of debt discount
attributable to such period, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all accrued interest, and (ii) all but the principal component
of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period and as
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net income
(or loss) of the Company and the Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted, to the extent included in
calculating such net income (or loss), by excluding, without duplication, (i)
all extraordinary gains or losses (net of fees and expenses relating to the
transaction giving rise thereto), (ii) the portion of net income (or loss) of
the Company and the Restricted Subsidiaries allocable to minority interests in
unconsolidated persons to the extent that cash dividends or distributions have
not actually been received by the Company or one of the Restricted Subsidiaries,
(iii) net income (or loss) of any person combined with the Company or one of the
Restricted Subsidiaries in a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss, net of taxes,
realized upon the termination of any employee pension benefit plan, (v) gains or
losses in respect of any Asset Sales by the Company or one of the Restricted
Subsidiaries (net of fees and expenses relating to the transaction giving rise
thereto), and (vi) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Restricted Subsidiary or its stockholders. Consolidated Net Income shall not be
reduced for any charges arising out of any transaction undertaken as part of the
Recapitalization, but shall be reduced by dividends described under clause (iv)
of the last paragraph of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments."
"CONSOLIDATED NON-CASH CHARGES" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Company and the
Restricted Subsidiaries reducing net income for such period, determined on a
consolidated basis in accordance with GAAP.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company against fluctuations in currency values.
"DEFAULT" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) all Senior Indebtedness under the
New Credit Agreement and (ii) any other Senior Indebtedness which, at the time
of the incurrence of such Indebtedness, is specifically designated in the
instrument evidencing such Senior Indebtedness as "Designated Senior
Indebtedness" by the Company.
"DESIGNATION" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"DESIGNATION AMOUNT" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
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"DOMESTIC SUBSIDIARY" means a Restricted Subsidiary organized under the laws
of the United States, any State or territory thereof or the District of
Columbia.
"EVENT OF DEFAULT" will have the meaning ascribed to such term under
"--Events of Default."
"FAIR MARKET VALUE" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction. Fair Market Value will be determined by
the board of directors of the Company acting in good faith evidenced by a Board
Resolution thereof delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the Issue Date and
are consistently applied.
"GUARANTEE" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
"GUARANTOR" means each issuer of a Note Guarantee.
"GUARANTOR SENIOR INDEBTEDNESS" means, with respect to the Indebtedness of
any Guarantor, any such Indebtedness represented by a guarantee by such
Guarantor of any Senior Indebtedness.
"INCOME TAXES AGREEMENT" means the agreement between the Company and Blue
Bird Capital, dated October 18, 1995, as in effect on the Issue Date or as
modified, amended or supplemented in any respect that is not materially adverse
in any respect to the Company.
"INDEBTEDNESS" means, with respect to any person, without duplication, (i)
all indebtedness of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payable and other accrued
current liabilities incurred in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such person in
connection with any letters of credit, bankers acceptance or other similar
credit transaction and in connection with any agreement to purchase, redeem,
exchange, convert or otherwise acquire for value any Capital Stock of such
person, or any warrants, rights or options to acquire such Capital Stock, now or
hereafter outstanding, (ii) all obligations of such person evidenced by bonds,
notes, debentures or other similar instruments, (iii) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all Capitalized Lease
Obligations of such person, (v) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (vi) all guarantees of Indebtedness by such person,
(vii) all Redeemable Capital Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
(viii) all obligations under or in respect of currency exchange contracts and
Interest Rate Protection Obligations of such person, and (ix) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of
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the types referred to in clauses (i) through (viii) above. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price will be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness will be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such fair market value to be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not have, a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INTEREST RATE PROTECTION OBLIGATIONS" means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such person
calculated by applying a fixed or a floating rate of interest on the same
notional amount or any other arrangement involving payments by or to such person
based upon fluctuations in interest rates.
"INVESTMENT" means, with respect to any person, any direct or indirect
advance, loan or other extension of credit (including by means of a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others or otherwise), or any purchase or acquisition by such person of any
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by any other person. Investments will exclude extensions of
trade credit on commercially reasonable terms in accordance with normal trade
practices. In addition to the foregoing, any foreign exchange contract, currency
swap, Interest Rate Protection Obligation or similar agreement shall constitute
an Investment.
"LEASE FINANCING TRANSACTION" means any transaction that may be entered into
by the Company or any Restricted Subsidiary on an arm's-length basis and with no
recourse to the Company or a Restricted Subsidiary (other than (i) recourse
limited to the Capital Stock of an Unrestricted Subsidiary pledged by the
Company or a Restricted Subsidiary in connection with a Lease Financing
Transaction and (ii) recourse limited to circumstances where a governmental
authority fails to allocate funds to a lease in its budget) involving (a) the
sale by the Company or a Subsidiary of the Company of lease receivables
(including a sale to any Unrestricted Subsidiary and securitization
transactions); (b) the sale by any Subsidiary of the Company of lease
receivables (including securitization transactions); (c) the sale by the Company
of buses and related equipment to any Subsidiary of the Company to facilitate
such Subsidiary subsequently selling or otherwise financing the lease
receivables arising from such buses and related equipment; (d) the sale or lease
by any Subsidiary of the Company of buses and related equipment for which the
receivables arising from such sales and leases will be sold or financed by such
Subsidiary; or (e) the financing of any of the foregoing.
"LEASE PORTFOLIO DOCUMENTS" means (i) the Amended and Restated Loan
Agreement dated March 29, 1996 by and between Blue Bird Capital Corporation and
LaSalle National Bank and all agreements executed pursuant thereto, as the same
may be amended, renewed, extended, substituted, replaced, supplemented or
otherwise modified from time to time, or (ii) any documentation relating to any
other Lease Financing Transaction.
"LIEN" means any mortgage, charge, pledge, lien (statutory or other),
privilege, security interest, hypothecation, cessation and transfer, lease of
real property, assignment for security, claim, deposit arrangement, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, whether real, personal or mixed, movable or immovable, now owned or
hereafter acquired. A person
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will be deemed to own subject to a Lien any property which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"MATERIAL SUBSIDIARY" means Canadian Blue Bird and each other Restricted
Subsidiary of the Company that is a "significant subsidiary" as defined in Rule
1-02 of Regulation S-X under the Securities Act and the Exchange Act (as such
regulation is in effect on the Issue Date).
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary) net of (i) brokerage
commissions and other reasonable fees and expenses (including fees and expenses
of legal counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in or having a Lien on the assets
subject to the Asset Sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP consistently applied against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"NEW CREDIT AGREEMENT" means the First Amended and Restated Credit Agreement
among the Company, BBC, BTCo., as Administrative Agent, Merrill Lynch & Co., as
Syndication Agent (and BTCo. and Merrill Lynch & Co., together, the "Agent
Banks"), and the other financial institutions signatory thereto, as in effect on
the Issue Date, and as such agreement may be amended, renewed, extended,
substituted, refinanced, replaced, supplemented or otherwise modified from time
to time, and includes any agreement (i) extending the maturity of all or any
portion of the Indebtedness thereunder, (ii) adding additional borrowers or
guarantors thereunder and (iii) increasing the amount to be borrowed thereunder;
PROVIDED that in the case of clauses (i), (ii) and (iii), any such agreement is
not prohibited by the Indenture.
"NOTE GUARANTEE" means the guarantee by BBC and any additional guarantees
created pursuant to the provisions of the Indenture of the Company's Indenture
Obligations pursuant to the guarantee included in the Indenture.
"PARI PASSU INDEBTEDNESS" means any Indebtedness of the Company or any
Subsidiary Guarantor ranking PARI PASSU in right of payment with the Notes or
the Note Guarantees, as applicable.
"PERMITTED HOLDERS" means MLCP or any other person, directly or indirectly,
controlling, controlled by or under direct or indirect common control with MLCP.
"PERMITTED INVESTMENT" means (i) Investments in any of the Notes; (ii)
Investments in Cash Equivalents; (iii) Investments by the Company or any
Restricted Subsidiary in a Restricted Subsidiary or another person, if as a
result of such Investment (a) such other person becomes a Restricted Subsidiary
or (b) such other person is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to, the Company or a Restricted
Subsidiary; (iv) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers, in each case
arising in the ordinary course of business; (v) Investments in lease
receivables, with respect to leases on terms consistent with the Company's prior
practices; (vi) Investments in any Subsidiary of the Company pursuant to the
terms of any Lease Portfolio Documents on a basis consistent with past practice;
PROVIDED that such Subsidiary is engaged solely in the business of financing or
carrying lease receivables related to the Company's products; (vii) Investments
in Interest Rate Protection Obligations and currency exchange contracts
permitted by the covenant described under "--Limitation on Indebtedness;" (viii)
loans or advances to officers or employees of the Company and the Restricted
Subsidiaries in the ordinary course of business for BONA FIDE business purposes
of the
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Company and the Restricted Subsidiaries (including travel and moving expenses)
not in excess of $500,000 in the aggregate at any one time outstanding; and (ix)
Investments not otherwise described in this definition in an aggregate amount
not exceeding $5,000,000 at any time outstanding.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of such
person's preferred or preference stock whether now outstanding, or issued after
the date of the Indenture, and including, without limitation, all classes and
series of preferred or preference stock.
"RATING AGENCIES" means (i) Standard & Poor's, (ii) Moody's and (iii) if
Standard & Poor's or Moody's or both shall not make a rating of the Notes
publicly available, a nationally recognized securities rating agency or
agencies, as the case may be, selected by the Company, which shall be
substituted for Standard & Poor's or Moody's or both, as the case may be.
"RATING CATEGORY" means (i) with respect to Standard & Poor's, any of the
following categories: BB, B, CCC, CC, C and D (or equivalent successor
categories); (ii) with respect to Moody's, any of the following categories: Ba,
B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the
equivalent of any such category of Standard & Poor's or Moody's used by another
Rating Agency. In determining whether the rating of the Securities has decreased
by one or more gradations, gradations within Rating Categories (+ and - for
Standard & Poor's; 1, 2 and 3 for Moody is; or the equivalent gradations for
another Rating Agency) shall be taken into account (E.G., with respect to
Standard & Poor's, a decline in a rating from BB+ to BB, as well as from BB- to
B+, will constitute a decrease of one gradation).
"RATING DATE" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention by the Company or any Permitted Holder to effect a
Change of Control.
"RATING DECLINE" means the decrease (as compared with the Rating Date) by
one or more gradations (including gradations within Rating Categories as well as
between Rating Categories) of the rating of the Notes by either Rating Agency
on, or within six months after, the date of public notice of the occurrence of a
Change of Control or of the intention by the Company or any Permitted Holder to
effect a Change of Control (which period shall be extended for so long as the
rating of the Notes is under publicly announced consideration for possible
downgrade by any of the Rating Agencies).
"REDEEMABLE CAPITAL STOCK" means, with respect to any person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable, except to the extent exchangeable
at the option of such person subject to the terms of any debt instrument to
which such person is a party), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is exchangeable for Indebtedness (other than at the option of such person), or
is redeemable at the option of the holder thereof, in whole or in part, in any
such case, on or prior to the final maturity date of the Notes.
"REFINANCE" means, with respect to any Indebtedness, any refinancing,
redemption, retirement, renewal, extension or refunding of such Indebtedness.
"RESTRICTED PAYMENT" has the meaning set forth under "--Certain
Covenants--Limitation on Restricted Payments."
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a board resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants--
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Limitation on Designations of Unrestricted Subsidiaries." Any such designation
may be revoked by a board resolution of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"REVOCATION" has the meaning ascribed to that term under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Indebtedness" will include the principal of, premium,
if any, and interest (including interest that would accrue but for the filing of
a petition initiating any proceeding under any state or federal bankruptcy laws,
whether or not such claim is allowable in such proceeding) on all obligations of
every nature of the Company from time to time owed to the lenders under the New
Credit Agreement, including, without limitation, principal of and interest on,
and all fees and expenses payable under the New Credit Agreement.
Notwithstanding the foregoing, "Senior Indebtedness" does not include, to the
extent constituting Indebtedness, (i) Indebtedness evidenced by the Notes, (ii)
Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of the Company, (iii) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to the Company, (iv) Indebtedness which is represented by
Redeemable Capital Stock, (v) Indebtedness for goods, materials or services
purchased in the ordinary course of business or Indebtedness consisting of trade
payable or other current liabilities (other than any current liabilities owing
under the New Credit Agreement or the current portion of any long-term
Indebtedness which would constitute Senior Indebtedness but for the operation of
this clause (v)), (vi) Indebtedness of or amounts owed by the Company for
compensation to employees or for services rendered to the Company, (vii) any
liability for federal, state, local or other taxes owed or owing by the Company,
(viii) Indebtedness of the Company to a Restricted Subsidiary of the Company or
any other Affiliate of the Company or any of such Affiliate's Restricted
Subsidiaries, other than Indebtedness owed to Merrill Lynch or an Affiliate
thereof by reason of its ownership of securities of the Company acquired in the
ordinary course of its trading or underwriting activities, whether such
securities are held by it for its own account or as nominee, (ix) that portion
of any Indebtedness which at the time of issuance is issued in violation of the
Indenture and (x) amounts owing under leases (other than Capitalized Lease
Obligations).
"STATED MATURITY" means, with respect to any Note or any installment of
interest thereon, the dates specified in such Note as the fixed date on which
the principal of such Note or such installment of interest is due and payable,
and when used with respect to any other Indebtedness, means the date specified
in the instrument governing such Indebtedness as the fixed date on which the
principal of such Indebtedness or any installment of interest thereon is due and
payable.
"SUBSIDIARY" means, with respect to any person, any other person of which a
majority of the equity ownership or the Voting Stock is, at the time, owned,
directly or indirectly, by such person.
"SUBSIDIARY GUARANTOR" mean each Subsidiary of the Company that in the
future executes a supplemental indenture in which such Subsidiary agrees to be
bound by the terms of the Indenture as a Guarantor.
"SUBORDINATED INDEBTEDNESS" means, with respect to the Company, Indebtedness
of the Company which is expressly subordinated in right of payment to the Notes
or, with respect to any Subsidiary Guarantor, Indebtedness of such Subsidiary
Guarantor which is expressly subordinated in right of payment to the Note
Guarantee of such Subsidiary Guarantor.
"UNRESTRICTED SUBSIDIARY" means a Subsidiary of the Company (other than a
Subsidiary Guarantor) designated as such pursuant to and in compliance with the
covenant described under "--Certain Covenants--Limitation on Designations of
Unrestricted Subsidiaries." Any such designation may be revoked by
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a board resolution of the Company delivered to the Trustee, subject to the
provisions of such covenant. Blue Bird Capital will be treated as an
Unrestricted Subsidiary under the Indenture as of the Issue Date.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any persons (irrespective of whether or not, at the time, stock of any other
class or classes will have, or might have, voting power by reason of the
happening of any contingency).
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company and/or
another Wholly-Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a Restricted
Subsidiary.
"WHOLLY-OWNED UNRESTRICTED SUBSIDIARY" means any Unrestricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company and/or a
Wholly-Owned Restricted Subsidiary and/or another Wholly-Owned Unrestricted
Subsidiary. For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be disregarded
in determining the ownership of an Unrestricted Subsidiary.
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DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE NOTES
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Notes by a
United States Holder (as defined below). This summary deals only with United
States Holders that will hold the Notes as capital assets. The discussion does
not cover all aspects of federal taxation that may be relevant to, or the actual
tax effect that any of the matters described herein will have on, the
acquisition, ownership or disposition of the Notes by particular investors, and
does not address state, local, foreign or other tax laws. In particular, this
summary does not discuss all of the tax considerations that may be relevant to
certain types of investors subject to special treatment under the federal income
tax laws (such as banks, insurance companies, investors liable for the
alternative minimum tax, individual retirement accounts and other tax-deferred
accounts, tax-exempt organizations, dealers in securities or currencies,
investors that will hold the Notes as part of straddles, hedging transactions or
conversion transactions for federal tax purposes or investors whose functional
currency is not United States Dollars). Furthermore, the discussion below is
based on provisions of the Code, and regulations, rulings, and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in U.S. federal income tax
consequences different from those discussed below. PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP, OR DISPOSITION OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF
THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS
OF ANY STATE, LOCAL OR INTERNATIONAL TAXING JURISDICTION.
As used herein, the term "United States Holder" means a beneficial owner of
the Notes that is (i) a citizen or resident of the United States for United
States federal income tax purposes, (ii) a corporation created or organized
under the laws of the United States or any State thereof, (iii) a person or
entity that is otherwise subject to United States federal income tax on a net
income basis in respect of income derived from the Notes, or (iv) a partnership
to the extent the interest therein is owned by a person who is described in
clause (i), (ii) or (iii) of this paragraph.
INTEREST
Interest (including any additional interest paid because of failure to
satisfy the requirements of the Registration Rights Agreement ("Additional
Interest")) paid on a Note will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes.
ACQUISITION PREMIUM
If a United States Holder acquires a Note for an amount more than its
redemption price, the Holder may elect to amortize such bond premium on a yield
to maturity basis.
PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE NOTES
In general, a United States Holder's tax basis in a Note will equal the
price paid for the Note. A United States Holder generally will recognize gain or
loss on the sale, exchange, retirement, redemption or other disposition of a
Note (or portion thereof) equal to the difference between the amount realized on
such disposition and the United States Holder's tax basis in the Note (or
portion thereof). Except to the extent attributable to accrued but unpaid
interest, gain or loss recognized on such disposition of a Note will be capital
gain or loss and will be long-term capital gain or loss if such Note was held
for more than one year. Any such gain will generally be United States source
gain.
The purchase of a Note in a subsequent resale may be affected by the market
discount provisions of the Code. These rules generally provide that, subject to
a statutorily defined DE MINIMIS exception, if a United States Holder purchases
a Note at a "market discount," as defined below, and thereafter
80
<PAGE>
recognizes gain upon a disposition of the Note (including dispositions by gift
or redemption), the lesser of such gain (or appreciation, in the case of a gift)
or the portion of the market discount that has accrued ("accrued market
discount") while the Note was held by such United States Holder will be treated
as ordinary interest income at the time of disposition rather than as capital
gain. For a Note, "market discount" is the excess of the stated redemption price
at maturity over the tax basis immediately after its acquisition by a United
States Holder. Market discount generally will accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue such discount on the basis of the constant yield
method.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of a Note acquired at a market discount may
elect to include the accrued market discount in income currently either ratably
or using the constant yield method. Once made, such an election applies to all
other obligations that the United States Holder purchases at a market discount
during the taxable year for which the election is made and in all subsequent
taxable years of the United States Holder, unless the Internal Revenue Service
consents to a revocation of the election. If an election is made to include
accrued market discount in income currently, the basis of a Note in the hands of
the United States Holder will be increased by the accrued market discount
thereon, as it is includible in income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest (including any Additional Interest) and principal on,
and the proceeds of sale or other disposition of the Notes payable to a United
States Holder may be subject to information reporting requirements, and backup
withholding at a rate of 31% will apply to such payments if the United States
Holder fails to provide an accurate taxpayer identification number or to report
all interest and dividends required to be shown on its federal income tax
returns. Certain United States Holders (including, among others, corporations)
are not subject to backup withholding. United States Holders should consult
their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
81
<PAGE>
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes are issued in fully
registered form, without coupons. Except as described below, the Exchange Notes
have been deposited with, or on behalf of, The Depository Trust Company, New
York, New York ("DTC"), and registered in the name of Cede & Co. ("Cede") as
DTC's nominee, in the form of a global Exchange Note certificate (the "Global
Exchange Note") or remain in the custody of the Trustee pursuant to the FAST
Balance Certificate Agreement between DTC and the Trustee.
Holders of Exchange Notes who elected to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") were issued in
registered form a certificated Exchange Note ("Certificated Exchange Note").
Upon the transfer of any Certificated Exchange Note initially issued to a
Non-Global Holder, such Certificated Exchange Note will, unless the transferee
requests otherwise or the Global Exchange Note has previously been exchanged in
whole for Certificated Exchange Notes, be exchanged for an interest in the
Global Exchange Note.
THE GLOBAL EXCHANGE NOTE. Pursuant to procedures established by DTC, (a)
upon deposit of the Global Exchange Note, DTC or its custodian credited its
internal system the principal amount at maturity of Exchange Notes of the
individual beneficial interests represented by such Global Exchange Note to the
respective accounts of persons who have accounts with DTC and (b) ownership of
beneficial interests in the Global Exchange Note is shown on, and the transfer
of ownership thereof is effected only through, records maintained by DTC or its
nominee (with respect to interests of Participants (as defined herein)) and the
records of Participants (with respect to interests of persons other than
Participants). Ownership of beneficial interests in the Global Exchange Note is
limited to persons who have accounts with DTC ("Participants") or persons who
hold interests through Participants. Qualified Institutional Buyers may hold
their interests in the Global Note directly through DTC if they are Participants
in such system, or indirectly through organizations which are Participants in
such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner and holder of the Exchange Notes represented by such Global Exchange
Note for all purposes under the Indenture. No beneficial owner of an interest in
the Global Exchange Note will be able to transfer such interest except in
accordance with DTC's procedures, in addition to those provided for under the
Indenture with respect to the Exchange Notes.
Payments of the principal of or premium and interest on the Global Exchange
Note are made to DTC or its nominee, as the case may be, as the registered owner
thereof. None of the Company, the Trustee or any paying agent under the
Indenture have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in
the Global Exchange Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of or premium and interest on the Global Exchange Note, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Exchange
Note as shown on the records of DTC or its nominee. The Company also expects
that payments by Participants to owners of beneficial interests in the Global
Exchange Note held through such Participants will be governed by standing
instructions and customary practice as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments are the responsibility of such Participants.
Transfers between Participants in DTC are effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and are settled
in federal funds. If a holder requires physical delivery of a Certificated
Exchange Note for any reason, including to sell Exchange Notes to persons in
82
<PAGE>
states which require physical delivery of the Exchange Notes or to pledge such
securities, such holder must transfer its interest in the Global Exchange Note
in accordance with the normal procedures of DTC and with the procedures set
forth in the Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
Participants to whose account the DTC interests in the Global Exchange Note are
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange the Global Exchange Note for Certificated Exchange Notes,
which it will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Exchange Notes among Participants of DTC, it
is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED EXCHANGE NOTES. If DTC is at any time unwilling or unable to
continue as a depository for the Global Exchange Note and a successor depository
is not appointed by the Company within 90 days, the Company will issue
Certificated Exchange Notes in exchange for the Global Exchange Note.
83
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus is to be used by Merrill Lynch in connection with offers and
sales of the Exchange Notes in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale. Merrill Lynch may act
as principal or agent in such transactions, has no obligation to make a market
in the Exchange Notes, and may discontinue its market-making activities at any
time without notice, at its sole discretion.
Merrill Lynch is an affiliate of entities that beneficially own a majority
of the voting power of the capital stock of BBC, the Company's parent company.
Merrill Lynch acted as an Initial Purchaser in connection with the original
offering of the Exchange Notes and received an Initial Purchasers' discount in
the aggregate amount of $3,000,000 in connection therewith. For information
regarding the involvement of Merrill Lynch and its affiliates in connection with
the Company and the recapitalization and the equity ownership by Merrill Lynch
and its affiliates of BBC, see "Certain Relationships and Related Transactions."
The Company and BBC have agreed, jointly and severally, to indemnify Merrill
Lynch against certain liabilities, including civil liabilities under the
Securities Act or to contribute to payments Merrill Lynch may be required to
make in respect thereof.
Merrill Lynch and the Company have entered into a Registration Rights
Agreement with respect to the use by Merrill Lynch of this Prospectus. Pursuant
to such agreement, the Company has agreed to bear all registration expenses
incurred under such agreement, and the Company has agreed to indemnify Merrill
Lynch against certain liabilities, including liabilities under the Securities
Act.
84
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the sale of the Exchange Notes were
passed upon for the Company and BBC by Wachtell, Lipton, Rosen & Katz, New York,
New York, and certain legal matters in connection with the sale of the Exchange
Notes were passed upon for Merrill Lynch by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York.
EXPERTS
The consolidated financial statements of the Company as of November 2, 1996
and October 28, 1995, and for each of the three years in the period ended
November 2, 1996, included in this Prospectus have been audited by Arthur
Andersen LLP, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
85
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................................... F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of November 2, 1996 and October 28, 1995.................................. F-3
Consolidated Statements of Income for the Years Ended November 2, 1996, October 28, 1995 and October 29,
1994................................................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended November 2, 1996, October
28, 1995 and October 29, 1994.......................................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended November 2, 1996, October 28, 1995 and October
29, 1994............................................................................................... F-7
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS......................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Blue Bird Corporation:
We have audited the accompanying consolidated balance sheets of BLUE BIRD
CORPORATION (a Delaware corporation) AND SUBSIDIARIES as of November 2, 1996 and
October 28, 1995 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended November 2, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Blue Bird Corporation and
subsidiaries as of November 2, 1996 and October 28, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended November 2, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Atlanta, Georgia
December 5, 1996
F-2
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 2, 1996 AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 46,253,258 $ 21,452,114
Trade receivables.............................................................. 13,442,724 18,865,820
Leases receivable.............................................................. 32,214,649 47,222,024
Inventories.................................................................... 69,775,802 83,346,271
Other current assets........................................................... 5,304,168 6,946,710
-------------- --------------
Total current assets....................................................... 166,990,601 177,832,939
-------------- --------------
LEASES RECEIVABLE, noncurrent.................................................... 41,862,478 15,000,000
-------------- --------------
PROPERTY, PLANT, AND EQUIPMENT:
Land........................................................................... 4,090,351 4,079,545
Buildings...................................................................... 17,678,238 16,898,812
Machinery and equipment........................................................ 28,883,888 26,782,544
Automobiles, trucks, and airplane.............................................. 7,758,985 4,847,494
Office furniture and equipment................................................. 5,178,814 4,844,284
Construction in progress....................................................... 1,008,435 1,419,916
-------------- --------------
64,598,711 58,872,595
Less accumulated depreciation.................................................. (25,709,736) (21,860,349)
-------------- --------------
Net property, plant, and equipment......................................... 38,888,975 37,012,246
-------------- --------------
OTHER ASSETS:
Deferred debt issuance costs, net of accumulated amortization of $8,733,592 and
$7,764,807 in 1996 and 1995, respectively.................................... 1,424,137 4,111,690
Goodwill, net of accumulated amortization of $17,397,500 and $13,567,500 in
1996 and 1995, respectively.................................................. 135,294,106 139,124,106
Land and idle facilities....................................................... 2,000,000 2,723,347
Other assets................................................................... 4,570,450 3,987,332
-------------- --------------
Total other assets......................................................... 143,288,693 149,946,475
-------------- --------------
Total assets............................................................... $ 391,030,747 $ 379,791,660
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
NOVEMBER 2, 1996 AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility...................................................... $ 0 $ 35,661,573
Current portion of long-term debt.............................................. 16,000,000 12,000,000
Trade accounts payable......................................................... 27,704,475 25,743,234
Deposits and amounts due to customers.......................................... 1,344,852 4,021,274
Income taxes payable........................................................... 9,269,833 6,926,161
Accrued warranty............................................................... 5,603,021 5,455,110
Other accrued liabilities...................................................... 17,571,052 16,766,138
Deferred income taxes.......................................................... 9,079,975 9,534,962
-------------- --------------
Total current liabilities.................................................. 86,573,208 116,108,452
-------------- --------------
LONG-TERM LIABILITIES:
Long-term debt................................................................. 128,600,000 111,000,000
Bonds payable.................................................................. 2,750,000 2,750,000
Accrued pension expense........................................................ 8,288,463 8,435,662
Deferred income taxes.......................................................... 5,306,392 5,898,112
Other long-term liabilities.................................................... 12,019,864 12,100,213
-------------- --------------
Total long-term liabilities................................................ 156,964,719 140,183,987
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
REDEEMABLE COMMON STOCK, $.01 par value; 720,000 shares issued and outstanding in
1996 and 1995 (Note 8)......................................................... 33,105,000 24,672,000
STOCK SUBSCRIPTIONS RECEIVABLE (Note 8).......................................... (3,800,000) (3,800,000)
-------------- --------------
29,305,000 20,872,000
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 25,000,000 shares authorized, 7,704,778 shares
issued and outstanding in 1996 and 1995...................................... 77,048 77,048
Additional paid-in capital..................................................... 77,022,956 77,022,956
Retained earnings.............................................................. 43,227,960 27,895,901
Cumulative translation adjustments............................................. (2,140,144) (2,368,684)
-------------- --------------
Total stockholders' equity................................................. 118,187,820 102,627,221
-------------- --------------
Total liabilities and stockholders' equity................................. $ 391,030,747 $ 379,791,660
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES....................................................... $ 570,184,841 $ 517,444,172 $ 476,240,848
COST OF GOODS SOLD.............................................. 474,066,847 430,667,432 392,938,251
-------------- -------------- --------------
GROSS PROFIT.................................................... 96,117,994 86,776,740 83,302,597
-------------- -------------- --------------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES................... 42,568,911 39,795,821 39,038,361
AMORTIZATION OF GOODWILL AND NONCOMPETE AGREEMENTS.............. 3,830,000 4,692,867 5,567,000
-------------- -------------- --------------
46,398,911 44,488,688 44,605,361
-------------- -------------- --------------
OPERATING INCOME................................................ 49,719,083 42,288,052 38,697,236
INTEREST INCOME................................................. 6,998,830 4,618,315 4,056,013
INTEREST EXPENSE................................................ (16,889,261) (18,537,244) (17,405,932)
OTHER INCOME, net............................................... 224,052 168,554 217,613
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES...................................... 40,052,704 28,537,677 25,564,930
PROVISION FOR INCOME TAXES...................................... 14,872,343 11,686,056 10,157,248
-------------- -------------- --------------
NET INCOME BEFORE EXTRAORDINARY ITEM............................ 25,180,361 16,851,621 15,407,682
LOSS ON EXTINGUISHMENT OF DEBT, net of taxes of $838,364 (Note
4)............................................................ (1,415,302) 0 0
-------------- -------------- --------------
NET INCOME...................................................... $ 23,765,059 $ 16,851,621 $ 15,407,682
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
<TABLE>
<CAPTION>
MINIMUM
ADDITIONAL CUMULATIVE CUMULATIVE PENSION
COMMON PAID-IN RETAINED TRANSLATION LIABILITY
STOCK CAPITAL EARNINGS ADJUSTMENTS ADJUSTMENT
--------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 30, 1993................... $ 77,000 $ 76,923,000 $ 5,526,998 $ (1,822,344) $ 0
Net income................................ 0 0 15,407,682 0 0
Issuance of common stock.................. 48 99,956 0 0 0
Accretion of redeemable common stock...... 0 0 (6,566,400) 0 0
Translation adjustments................... 0 0 0 (431,695) 0
Minimum pension liability adjustment...... 0 0 0 0 (400,000)
--------- ------------- ------------- ------------- -----------
BALANCE, OCTOBER 29, 1994................... 77,048 77,022,956 14,368,280 (2,254,039) (400,000)
Net income................................ 0 0 16,851,621 0 0
Accretion of redeemable common stock...... 0 0 (3,324,000) 0 0
Translation adjustments................... 0 0 0 (114,645) 0
Minimum pension liability adjustment...... 0 0 0 0 400,000
--------- ------------- ------------- ------------- -----------
BALANCE, OCTOBER 28, 1995................... 77,048 77,022,956 27,895,901 (2,368,684) 0
Net income................................ 0 0 23,765,059 0 0
Accretion of redeemable common stock...... 0 0 (8,433,000) 0 0
Translation adjustments................... 0 0 0 228,540 0
--------- ------------- ------------- ------------- -----------
BALANCE, NOVEMBER 2, 1996................... $ 77,048 $ 77,022,956 $ 43,227,960 $ (2,140,144) $ 0
--------- ------------- ------------- ------------- -----------
--------- ------------- ------------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $23,765,059 $16,851,621 $15,407,682
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Extraordinary loss on extinguishment of debt.............................. 2,253,666 0 0
Depreciation and amortization............................................. 11,517,766 12,558,707 13,521,452
Increase in cash surrender value of life insurance........................ (110,113) (234,103) (116,467)
Deferred income taxes..................................................... (1,046,707) 5,011 (1,707,636)
Changes in assets and liabilities:
Trade receivables....................................................... 5,423,096 (4,602,234) 3,927,301
Inventories............................................................. 13,570,469 (7,561,501) (591,991)
Trade accounts payable.................................................. 1,961,241 689,604 1,088,116
Income taxes payable.................................................... 2,343,672 5,180,641 1,201,942
Other current liabilities............................................... (1,723,597) (1,778,792) 3,055,578
Other................................................................... 1,632,686 185,669 640,166
----------- ----------- -----------
Total adjustments..................................................... 35,822,179 4,443,002 21,018,461
----------- ----------- -----------
Net cash provided by operating activities............................. 59,587,238 21,294,623 36,426,143
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions................................. (7,280,958) (3,648,833) (8,594,212)
Increases in leases receivable.............................................. (11,855,103) (32,230,390) (1,331,603)
----------- ----------- -----------
Net cash used in investing activities................................. (19,136,061) (35,879,223) (9,925,815)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under bank credit agreements and revolving
credit line............................................................... (14,061,573) 25,661,573 (26,100,000)
Debt prepayment premium..................................................... (1,625,000) 0 0
Other....................................................................... (192,000) 0 100,004
----------- ----------- -----------
Net cash (used in) provided by financing activities................... (15,878,573) 25,661,573 (25,999,996)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE FLUCTUATIONS.......................................... 228,540 (114,645) (431,695)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................................... 24,801,144 10,962,328 68,637
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................ 21,452,114 10,489,786 10,421,149
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR...................................... $46,253,258 $21,452,114 $10,489,786
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................................. $11,935,717 $14,959,218 $13,856,104
----------- ----------- -----------
----------- ----------- -----------
Income taxes.............................................................. $12,725,475 $ 4,038,000 $10,224,110
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
1. NATURE OF BUSINESS
Blue Bird Corporation and subsidiaries ("BBC" or the "Company") are engaged
in the manufacture and assembly of school and transit buses and recreational
vehicles. BBC has facilities in the United States, Canada, and Mexico.
FISCAL YEAR
BBC's fiscal year ends on the Saturday nearest October 31 of each year,
generally referred to as a "52-/53-week year." Fiscal year 1996 contained 53
weeks. Fiscal years 1995 and 1994 contained 52 weeks.
ACQUISITION ACCOUNTING AND VALUATION
On April 15, 1992, BBC acquired all of the outstanding capital stock of Blue
Bird Body Company and subsidiaries (the "Predecessor") through the merger of BB
Acquisition Corp., a wholly owned subsidiary of BBC, with and into the
Predecessor, with the Predecessor as the surviving corporation. The acquisition
was accounted for as a purchase. The excess purchase price over the fair value
of the net assets, as adjusted, of $152,691,606 was allocated to goodwill. The
goodwill is being amortized using the straight-line method over 40 years. BBC
periodically reviews the value assigned to goodwill to determine whether it has
been permanently impaired by adverse conditions affecting BBC. The Company uses
an estimate of its undiscounted cash flows over the remaining life of the
goodwill in measuring whether the goodwill is recoverable. Management is of the
opinion that there has been no diminution in the value assigned to goodwill.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Blue Bird Corporation and its domestic and foreign subsidiaries (owned 100% by
BBC). All significant intercompany transactions and accounts have been
eliminated in consolidation.
TRANSLATION AND REMEASUREMENT OF FOREIGN CURRENCIES
For the purpose of consolidation, the accounts for certain foreign
subsidiaries and foreign branches of domestic subsidiaries of the U.S. parent
are translated into U.S. dollars. Foreign currency assets and liabilities are
translated using the exchange rates in effect at the balance sheet dates.
Results of operations are translated using the weighted average exchange rates
in effect during the period. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
accumulated as part of the cumulative translation adjustments in the statements
of stockholders' equity.
One foreign subsidiary (the "Subsidiary") of the U.S. parent transacts sales
denominated in U.S. dollars, while the Company provides inventory and financing.
Accordingly, the U.S. dollar is deemed to be the functional currency. The
Subsidiary does not maintain its books in U.S. dollars but remeasures its
monetary assets and liabilities at balance sheet date rates, its nonmonetary
items at historical rates, and income and expense amounts at the weighted
average rates in effect for the period, except for depreciation and cost of
goods sold, which use historical rates. The effects of exchange rate
fluctuations on the
F-8
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
1. NATURE OF BUSINESS (CONTINUED)
remeasurement of the Subsidiary's financial statements are recognized as
exchange gains or losses on the statements of income.
The Company recognizes exchange gains and losses from foreign currency
transactions as other income or expense for the period. A loss of approximately
$54,000 was recorded in fiscal 1996. A loss of approximately $617,000 and a gain
of approximately $5,000 were recorded in fiscal years 1995 and 1994,
respectively.
FINANCIAL INSTRUMENTS
BBC's financial instruments consist primarily of cash and cash equivalents,
trade receivables, leases receivable, accounts payable, a revolving credit
facility, long-term debt, and certain interest rate agreements (Note 4). In
management's opinion, the carrying amounts of all financial instruments
approximate their fair values at November 2, 1996.
REVENUE RECOGNITION
BBC recognizes revenue on sales when the related product has been delivered
to the customer and title has passed or when full payment has been received from
the customer and the product is completed and awaiting customer pickup.
CASH AND CASH EQUIVALENTS
BBC considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
on the last-in, first-out ("LIFO") basis. Such costs include raw materials,
direct labor, and manufacturing overhead.
If the first-in, first-out method had been used, inventories would have been
approximately $71,900,000 at November 2, 1996 and approximately $85,900,000 at
October 28, 1995.
The components of inventory as of November 2, 1996 and October 28, 1995
consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Raw materials.................................................. $ 18,847,481 $ 32,463,235
Work in process................................................ 22,915,908 22,830,735
Finished goods................................................. 28,012,413 28,052,301
------------- -------------
Total inventories (LIFO cost).............................. $ 69,775,802 $ 83,346,271
------------- -------------
------------- -------------
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment were stated at their fair market values at
the date of acquisition. Assets purchased since the acquisition are stated at
cost. All assets are being depreciated on a straight-line basis over their
estimated useful lives.
F-9
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
1. NATURE OF BUSINESS (CONTINUED)
The following represent the estimated useful lives of the assets:
<TABLE>
<S> <C>
20-33
Buildings....................................................... years
Machinery and equipment......................................... 5-10 years
Automobiles, trucks, and airplane............................... 3-5 years
Office furniture and equipment.................................. 3-10 years
</TABLE>
Expenditures for property and repair costs which substantially increase
useful lives are capitalized. Currently, normal maintenance and repair costs are
charged to expense as incurred. Gains and losses on disposals of property,
plant, and equipment are reflected in current income.
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. The
Company capitalized net interest costs of $0 for the year ended November 2, 1996
and $208,237 for the year ended October 28, 1995.
Depreciation expense of $5,516,894, $5,575,840, and $5,608,035 was recorded
for the years ended November 2, 1996, October 28, 1995, and October 29, 1994,
respectively.
LAND AND IDLE FACILITIES
BBC currently has land and idle facilities held for sale located in Buena
Vista, Virginia. The estimated fair value of the land and facilities is included
as land and idle facilities in the accompanying balance sheets.
PRODUCT WARRANTY COSTS
The provision for estimated warranty costs is recorded in the year the unit
is sold. Warranty costs totaled $6,185,115, $5,313,438, and $6,679,409 for the
years ended November 2, 1996, October 28, 1995, and October 29, 1994,
respectively.
NONCOMPETE AGREEMENTS
BBC assigned $5,000,000 to noncompete agreements with the former owners. The
related assets were amortized over three years. Amortization expense totaled $0,
$833,000, and $1,667,000 for the years ended November 2, 1996, October 28, 1995,
and October 29, 1994, respectively.
ACCOUNTING STANDARDS YET TO BE ADOPTED
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." In June 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." The Company is required to adopt both of these standards in
fiscal year 1997.
SFAS No. 123 requires companies to estimate the value of all stock-based
compensation using a recognized pricing model. Companies have the option to
recognize this value as an expense or to disclose its pro forma effects on net
income. SFAS No. 125 requires companies to use consistent standards for
F-10
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
1. NATURE OF BUSINESS (CONTINUED)
distinguishing between transfers of assets classified as sales and transfers of
assets classified as secured borrowings.
The Company's management has not yet determined its method of adoption or
the financial statement impact of adopting SFAS No. 123 and SFAS No. 125. Other
issued but not yet required FASB standards are not currently applicable to the
Company's operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain October 28, 1995 balances have been reclassified to conform with the
November 2, 1996 presentation.
2. LEASES RECEIVABLE
Under the terms of the Bank Credit Agreement discussed in Note 4, BBC is
required to sell leases receivable to a bank once certain levels of lease
receivables are exceeded. Under the original agreement, as leases were sold, the
purchaser established a holdback reserve. During 1994, the agreement was
modified such that the holdback reserve was replaced with a letter of credit.
The letter of credit fluctuates based on the amount of sold leases and was
$1,053,000 and $1,000,000 at November 2, 1996 and October 28, 1995,
respectively.
During 1995, BBC amended the Bank Credit Agreement to allow BBC to hold more
leases receivable. As part of the amendment, BBC created a new subsidiary, Blue
Bird Capital Corporation ("Blue Bird Capital"), for the purpose of expanding the
availability of lease financing alternatives to customers of its school bus
products.
BBC finances the sale of buses to school districts, other tax-exempt
municipalities, and contractors under sales-type leases. Lease terms range from
one to seven years and contain a bargain purchase option at the end of the lease
term. Under the lease terms, the lessee bears substantially all risks of
ownership. BBC retains a lien on the title until all lease payments have been
made.
The net investment in leases arising from these arrangements as of November
2, 1996 and October 28, 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Leases receivable.............................................. $ 82,889,596 $ 71,803,080
Unearned interest revenue...................................... (8,812,469) (9,581,056)
------------- -------------
Net leases receivable.......................................... $ 74,077,127 $ 62,222,024
------------- -------------
------------- -------------
</TABLE>
F-11
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
2. LEASES RECEIVABLE (CONTINUED)
Interest income recognized on leases receivable was $4,947,064, $2,914,928,
and $2,652,570 for the years ended November 2, 1996, October 28, 1995, and
October 29, 1994, respectively. The primary expenses associated with the
Company's finance lease activities relate to the interest expense from the
revolving credit facility of Blue Bird Capital (Note 4). Identifiable assets of
the Company's finance lease activities include the total leases receivable
balance included on the face of the financial statements and as discussed above.
3. NET CASH SURRENDER VALUE OF LIFE INSURANCE
Details of the net cash surrender value of life insurance on the lives of
individuals in whom BBC has an insurable interest as of November 2, 1996 and
October 28, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Cash values.................................................... $ 7,302,352 $ 7,193,239
Less life insurance loans.................................... (4,457,000) (4,458,000)
------------- -------------
Net cash surrender value, included in other assets............. $ 2,845,352 $ 2,735,239
------------- -------------
------------- -------------
</TABLE>
4. DEBT
Outstanding debt at November 2, 1996 and October 28, 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Bank term loan, principal and interest payable in quarterly installments through
October 31, 1998; interest payable at the option of BBC at either the prime
rate plus .75% or the Eurodollar rate plus 1.75%; interest rate at 8.25% on
November 2, 1996; collateralized by all real, personal, and mixed property, as
defined........................................................................ $ 36,000,000 $ 48,000,000
11.75% Series B senior subordinated notes, due April 15, 2002; interest payable
semiannually; sinking fund deposits of $18,750,000 due on April 15, 2000 and
April 15, 2001; subordinated to senior debt.................................... $ 50,000,000 $ 75,000,000
Revolving credit facility with final maturity on March 31, 1999; interest payable
quarterly at either the prime rate or the Eurodollar rate plus 1.125%, at the
option of BBC; collateralized by all Blue Bird Capital stock................... 58,600,000 35,661,573
Industrial development bonds, due March 2001; interest payable quarterly;
interest rate at 3.6% on November 2, 1996; secured by a letter of credit....... 2,750,000 2,750,000
-------------- --------------
147,350,000 161,411,573
Less:
Current portion of debt........................................................ 16,000,000 12,000,000
Revolving credit facility...................................................... 0 35,661,573
-------------- --------------
Long-term debt and bonds payable................................................. $ 131,350,000 $ 113,750,000
-------------- --------------
-------------- --------------
</TABLE>
F-12
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
4. DEBT (CONTINUED)
On April 15, 1992, BBC entered into a $170,000,000 bank credit agreement
with Bankers Trust Company (the "Bank Credit Agreement"), secured by the capital
stock of BBC and 66% of the capital stock of Canadian Blue Bird Coach, Ltd. (a
wholly owned subsidiary of BBC). The Bank Credit Agreement provides for a term
loan and a revolving credit facility comprised of working capital loans and
swing line loans. The revolving credit facility matures in October 1998 and
requires interest payable quarterly. Interest rates on the working capital loans
are, at the option of BBC, at the prime rate plus .75% or the Eurodollar rate
plus 1.75% and are the prime rate plus .25% on the swing line loans. The
weighted average interest rate of the revolving credit facility for the years
ended November 2, 1996 and October 28, 1995 was 7.03% and 8.65%, respectively.
The revolving credit facility is collateralized by all real, personal, and mixed
property, as defined. No amounts were outstanding under this revolving credit
facility at November 2, 1996 or October 28, 1995. The Bank Credit Agreement
contains certain restrictive covenants. The most restrictive covenants include
(a) a maximum leverage ratio, as defined, (b) a minimum fixed charge coverage
ratio, as defined, (c) a minimum interest coverage ratio, as defined, (d)
limitations of capital expenditures, and (e) certain restrictions on dividend
distributions, as defined. All of these covenants have been met as of November
2, 1996.
The maximum available borrowing amount on the Bank Credit Agreement
revolving credit facility, as amended, is $77,000,000. The revolving credit
facility requires quarterly payment of a commitment fee equal to .375% per annum
of the daily unused portion.
In connection with the creation of Blue Bird Capital (Note 2), BBC
negotiated a new credit facility (the "New Facility") with LaSalle National
Bank. The maximum capacity of the New Facility is $100,000,000, subject to
meeting certain covenants, as defined. The New Facility requires quarterly
payments of a commitment fee equal to .15% at November 2, 1996 (not to exceed
.275%) per annum of the daily unused portion of the credit commitment. The New
Facility contains certain restrictive covenants, including net income, tangible
net worth, and interest coverage ratio. All of these financial ratios have been
met as of November 2, 1996.
In connection with the Bank Credit Agreement and the New Facility, BBC
purchased interest rate caps with notional principal amounts totaling
$86,000,000 in order to reduce the impact of changes in interest rates on its
floating rate long-term debt. The interest rate agreements mature at dates
ranging from April 1997 to April 1999.
The industrial development bonds accrue interest based on a variable weekly
interest rate, with interest payments due quarterly. An irrevocable letter of
credit backing the bonds has been issued by Wachovia Bank of Georgia, N.A. This
letter of credit requires adherence to certain terms and financial ratios which
are the same or less restrictive than those under the revolving credit
facilities and term loan, all of which have been met as of November 2, 1996.
F-13
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
4. DEBT (CONTINUED)
The future minimum principal payments by fiscal year of outstanding debt at
November 2, 1996 are as follows:
<TABLE>
<S> <C>
1997.......................................................... $16,000,000
1998.......................................................... 20,000,000
1999.......................................................... 58,600,000
2000.......................................................... 0
2001.......................................................... 2,750,000
Thereafter.................................................... 50,000,000
-----------
$147,350,000
-----------
-----------
</TABLE>
In December 1995, the Company repurchased $25,000,000 principal amount of
Series B senior subordinated notes. As a result, the Company recorded an
extraordinary loss of $1,415,302, net of a tax benefit of $838,364.
5. INCOME TAXES
BBC follows the provisions of SFAS No. 109, "Accounting for Income Taxes,"
for financial reporting purposes. SFAS No. 109 requires, among other things, the
determination of deferred income taxes using the liability method, under which
deferred tax assets and liabilities are determined based on the differences
between the financial accounting and tax bases of assets and liabilities.
Deferred tax assets or liabilities at the end of each period are determined
using the currently enacted tax rates to apply to taxable income in the periods
in which the deferred tax asset or liability is expected to be settled or
realized.
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Total deferred tax liabilities............................... $ 31,400,496 $ 31,759,029
Total deferred tax assets.................................... (17,014,129) (16,325,955)
-------------- --------------
Net deferred tax liability................................... $ 14,386,367 $ 15,433,074
-------------- --------------
-------------- --------------
</TABLE>
F-14
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
5. INCOME TAXES (CONTINUED)
The sources of and differences between the financial accounting and tax
bases of BBC's assets and liabilities which give rise to the deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Stepped-up basis in net assets............................... $ 20,625,370 $ 20,633,323
Depreciation................................................. 1,984,361 2,520,201
Other........................................................ 8,790,765 8,605,505
------------- -------------
$ 31,400,496 $ 31,759,029
------------- -------------
------------- -------------
Deferred tax assets:
Warranty reserves............................................ $ 5,247,237 $ 5,198,629
Pension reserve.............................................. 1,726,652 1,935,666
Deferred compensation reserve................................ 3,346,739 3,053,529
Workers' compensation reserve................................ 1,761,631 1,656,866
Other........................................................ 4,931,870 4,481,265
------------- -------------
$ 17,014,129 $ 16,325,955
------------- -------------
------------- -------------
</TABLE>
The components of the provision (benefit) for income taxes are as follows as
of November 2, 1996, October 28, 1995, and October 29, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal........................................................... $ 13,871,802 $ 9,945,714 $ 10,956,249
Foreign........................................................... 596,516 542,000 410,894
State............................................................. 1,450,732 1,193,331 1,072,741
------------- ------------- -------------
Total current................................................... 15,919,050 11,681,045 12,439,884
------------- ------------- -------------
Deferred:
Federal and state................................................. (1,043,058) 5,011 (2,278,490)
Foreign........................................................... (3,649) 0 (4,146)
------------- ------------- -------------
Deferred, net....................................................... (1,046,707) 5,011 (2,282,636)
------------- ------------- -------------
Tax provision, net.................................................. $ 14,872,343 $ 11,686,056 $ 10,157,248
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Income (loss) from foreign subsidiaries was approximately $825,000,
$(201,000), and $1,410,000 for the years ended November 2, 1996, October 28,
1995, and October 29, 1994, respectively.
F-15
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
5. INCOME TAXES (CONTINUED)
The income tax provision as of November 2, 1996, October 28, 1995, and
October 29, 1994 differs from the amount computed by applying the statutory
rates for U.S. federal income taxes to income before income taxes because of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Income tax computed at statutory rates.......... $ 14,018,446 $ 9,988,188 $ 8,947,726
Foreign tax impact.............................. 317,070 (119,078) (86,608)
Tax-exempt interest income...................... (1,372,866) (700,359) (286,294)
State income taxes, net of federal income tax
effect........................................ 942,976 775,665 562,360
Goodwill amortization........................... 1,296,524 1,307,024 1,321,381
Other........................................... (329,807) 434,616 (301,317)
------------- ------------- -------------
$ 14,872,343 $ 11,686,056 $ 10,157,248
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
U.S. income taxes have not been provided for the undistributed earnings of
foreign subsidiaries. These amounts will be offset largely by foreign tax
credits which will arise when this income is recognized for U.S. income tax
purposes.
6. BENEFIT PLANS
PENSION PLANS
BBC has several defined benefit pension plans and a defined contribution
plan covering substantially all domestic employees and a defined contribution
plan for Canadian employees. Total pension expenses amounted to $3,857,044,
$3,399,151, and $2,785,030 for the years ended November 2, 1996, October 28,
1995, and October 29, 1994, respectively.
The board of directors adopted a supplemental excess retirement plan
effective January 1, 1991. This plan is restricted to certain key executives, is
not qualified under the Employee Retirement Income Security Act of 1974
("ERISA"), as amended, and is unfunded.
The board of directors adopted a supplemental excess retirement plan in the
form of a rabbi trust (a grantor trust set up to fund deferred compensation for
certain individuals as allowed under the Internal Revenue Code) effective
November 1, 1995. This plan is restricted to certain executives, is not
qualified under ERISA, and is not funded.
BBC's funding policy is to contribute the net periodic pension cost accrued
each year to the U.S. salaried and hourly defined benefit plans. However, the
contribution will not be less than the minimum required contribution under ERISA
or greater than the maximum tax-deductible contribution.
F-16
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
6. BENEFIT PLANS (CONTINUED)
Net pension cost for the U.S. defined benefit plans includes the following
as of November 2, 1996, October 28, 1995, and October 29, 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Service costs/benefits earned during the period................. $ 1,860,568 $ 1,337,279 $ 1,246,107
Interest costs on projected benefit obligations................. 3,486,859 3,320,053 3,025,245
Return on plan assets........................................... (8,793,737) (8,189,694) (1,069,849)
Net amortization and deferral................................... 5,377,327 5,453,920 (1,630,964)
------------- ------------- -------------
Net periodic pension costs...................................... $ 1,931,017 $ 1,921,558 $ 1,570,539
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The following table sets forth these plans' funded status at November 2,
1996:
<TABLE>
<CAPTION>
DEFINED
BENEFIT
PENSION UNQUALIFIED RABBI
PLANS PLAN TRUST
-------------- ------------- -----------
<S> <C> <C> <C>
Pension benefit obligation:
Vested benefits................................................... $ (39,873,315) $ (2,644,567) $ (200,000)
Nonvested benefits................................................ (901,310) 0 0
-------------- ------------- -----------
Accumulated benefit obligation.................................... $ (40,774,625) $ (2,644,567) $ (200,000)
-------------- ------------- -----------
-------------- ------------- -----------
Projected benefit obligation...................................... $ (46,968,270) $ (2,644,567) $ (200,000)
Market value of plan assets....................................... 51,367,964 0 0
-------------- ------------- -----------
Overfunded (unfunded) projected benefit obligation................ 4,399,694 (2,644,567) (200,000)
Unrecognized net gain............................................. (9,189,120) 0 0
Unrecognized prior service costs.................................. 22,639 0 0
Other adjustment.................................................. (12,672) 0 0
-------------- ------------- -----------
Pension liability recognized in balance sheets.................... $ (4,779,459) $ (2,644,567) $ (200,000)
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
Assets of the salaried and hourly plans are invested primarily in U.S.
government securities, common stock funds, cash management funds, and insurance
company group annuity contracts. For 1996 and 1995, the discount rate and
expected long-term rate of return on assets were both approximately 8%. The
expected average rate of increase in future compensation levels used was 4.8%
and 5% for 1996 and 1995, respectively.
The 401(k) plan for domestic employees and the pension plan covering
Canadian employees are defined contribution plans. Such actuarial information as
presented above is not applicable to these plans. Total expenses under such
plans for the years ended November 2, 1996, October 28, 1995, and October 29,
1994 amounted to $1,926,026, $1,477,593, and $1,214,491, respectively.
POSTRETIREMENT BENEFITS
The Predecessor discontinued its postretirement health care and dental
benefits in 1991. Coverage was available and will continue only for employees
over age 55 who had elected early retirement and are currently entitled to such
benefits, which are subject to certain limitations. BBC has recorded a liability
of
F-17
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
6. BENEFIT PLANS (CONTINUED)
approximately $800,000 at November 2, 1996 and October 28, 1995, which
represents management's best estimate of expected future benefits.
MEDICAL, DENTAL, AND ACCIDENT AND SICKNESS BENEFITS
BBC provides and is partially self-insured for medical, dental, and accident
and sickness benefits. BBC maintains a voluntary employee benefit association
trust through which all cash used to pay claims is processed. The trust is fully
funded at year-end to cover incurred but not reported claims. Therefore, neither
the trust's assets nor the liability for claims is reported in the accompanying
balance sheets.
7. DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT BENEFITS
At November 2, 1996 and October 28, 1995, the accompanying financial
statements reflect liabilities for anticipated payment of deferred compensation
and supplemental retirement benefits described above in the amounts of
$1,077,086 and $1,157,435, respectively.
8. REDEEMABLE COMMON STOCK AND STOCK SUBSCRIPTIONS RECEIVABLE
Redeemable common stock represents shares of common stock purchased by
members of management ("Management Investors"), primarily in conjunction with
the acquisition. The Management Investors have the right, prior to the earlier
of an initial public offering of equity securities or the tenth anniversary of
the stockholders' agreement, to put these shares to BBC in the event of their
disability, involuntary termination not for cause, retirement (all as defined in
the stockholders' agreement), or death for a fair value price, as defined in the
stockholders' agreement. The redeemable common stock was recorded at fair value
on the date of issuance. The excess of the fair value price over the original
fair value is being accreted by periodic charges to retained earnings. The
amounts recorded in the balance sheets represent the estimated maximum amount
payable if all management investors met the specified criteria and exercised
their put rights.
Stock subscriptions receivable represent notes due from members of
management for stock issued in April 1992 in conjunction with the acquisition.
The notes bear interest at an 8% interest rate. Interest is payable annually.
9. DIVIDENDS DECLARED
No dividends were declared for the years ended November 2, 1996, October 28,
1995, and October 29, 1994.
10. LEASES
BBC has no capitalized leases in which it is the lessee. Rental expenses for
operating leases were approximately $1,194,880, $1,625,000, and $1,562,000 for
the years ended November 2, 1996, October 28, 1995, and October 29, 1994,
respectively. Operating leases relate primarily to computer equipment and
F-18
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
10. LEASES (CONTINUED)
software, office space, and miscellaneous office equipment. The future minimum
lease payments under operating leases by fiscal year as of November 2, 1996 are
approximately as follows:
<TABLE>
<S> <C>
1997............................................................ $ 619,602
1998............................................................ 606,675
1999............................................................ 484,841
2000............................................................ 48,880
2001 and thereafter............................................. 0
---------
$1,759,998
---------
---------
</TABLE>
11. CONTINGENCIES
As of November 2, 1996, BBC had a number of product liability and other
cases pending. At the date of this report, neither the outcome of the cases nor
the amounts of any company liabilities related to these cases are known.
Management believes that, considering BBC's insurance coverage and its intention
to vigorously defend its position, the ultimate resolution of these matters will
not have a material adverse impact on BBC's financial position or results of
operations.
12. MANAGEMENT STOCK OPTION PLAN
Effective April 15, 1992, BBC's board of directors adopted a nonqualified
management stock option plan (the "Plan") which provided for the granting of
options to key employees of BBC to purchase up to 850,000 shares of common
stock. Pursuant to the Plan, on April 15, 1992, key employees were granted
options (the "Vested Options") to purchase an aggregate of 400,000 shares of
common stock at an exercise price equal to $10 per share (the fair value of the
stock at the grant date, as determined by the board of directors). The Vested
Options were fully vested at the time of grant. Additionally, on April 15, 1992,
key employees were granted options (the "Performance Options") to purchase an
aggregate of 400,000 shares at an exercise price equal to $10 per share. The
Performance Options vest ratably over the next five years based on BBC's
achieving certain levels of earnings performance, as defined in the Plan, and in
any case ten years from the date of grant. During the year ended October 30,
1993, options for 70,000 shares were canceled and options for 10,000 shares were
issued. As of November 2, 1996 and October 28, 1995, 720,000 options to purchase
shares were outstanding.
13. SUBSEQUENT EVENT
In November 1996, the Company effected a recapitalization, pursuant to which
the Company refinanced approximately $90,000,000 of its indebtedness and paid a
special cash dividend of $201,400,000 on all shares of its common stock (the
"Recapitalization"). Holders of the Company's options received cash payments on
an as-exercised basis. They were not required to exercise their options to
receive their PRO RATA portions of the dividend distribution discussed above,
nor were they entitled to any antidilution adjustment to the exercise price for
their options.
As part of the Recapitalization, holders of $50,000,000 of the Company's
outstanding 11.75% Series B subordinated notes (the "Old Notes") agreed to sell
their Old Notes to the Company and consented to certain amendments to the
indenture governing the Old Notes for aggregate payments (including accrued
F-19
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 2, 1996, OCTOBER 28, 1995, AND OCTOBER 29, 1994
13. SUBSEQUENT EVENT (CONTINUED)
interest) of approximately $54,000,000. The Company's existing Bank Credit
Agreement has been replaced and refinanced by an amended credit agreement (the
"New Credit Agreement") which will provide for aggregate availability of
$255,000,000, including $175,000,000 of term loan facilities and $480,000,000 of
revolving credit facilities.
In addition to the New Credit Agreement, the Company sold $100,000,000 of
10.75% senior subordinated notes due November 15, 2006 (the "Offering").
Proceeds from the Offering, borrowings under the New Credit Agreement, and cash
on hand were used to fund the retirement of the Old Notes, the refinancing of
the Bank Credit Agreement, the payment of the dividend distribution discussed
above, and the payment of related fees and expenses.
As a result of the Recapitalization, the redeemable common stock accretion
(as discussed in Note 8) will result in a significantly lower value being
assigned to the redeemable common stock. Additionally, as part of the
Recapitalization, management will be required to repay the stock subscriptions
receivable with the proceeds from the distribution. The Recapitalization will
also result in a compensation charge to earnings of approximately $16,000,000 in
fiscal 1997.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR MERRILL LYNCH. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information............................. 2
Prospectus Summary................................ 4
Summary Financial Data............................ 8
Risk Factors...................................... 10
The Recapitalization.............................. 17
Use of Proceeds................................... 18
Capitalization.................................... 19
Selected Financial Data........................... 21
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 22
Business.......................................... 27
Management........................................ 40
Ownership of Capital Stock........................ 47
Certain Relationships and Related Transactions.... 49
Description of Debt Facilities.................... 50
Description of the Exchange Notes................. 54
Description of Certain Federal Income Tax
Consequences of an Investment in
the Notes....................................... 80
Book-Entry, Delivery and Form..................... 82
Plan of Distribution.............................. 84
Legal Matters..................................... 85
Experts........................................... 85
Index to Consolidated Financial Statements........ F-1
</TABLE>
[LOGO]
BLUE BIRD BODY COMPANY
OFFER TO EXCHANGE
$100,000,000
10 3/4% SENIOR SUBORDINATED
NOTES DUE 2006
FOR
10 3/4% SENIOR SUBORDINATED
NOTES DUE 2006, SERIES B
-------------
PROSPECTUS
-------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and By-Laws provide for
indemnification to the full extent permitted by the Georgia Business Corporation
Code against and with respect to threatened, pending or completed actions, suits
or proceedings to which any individual is made a party by reason of such
individual being or having been a director or executive officer of the Company
or who, while a director or executive officer of the Company, served or is
serving at the Company's request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, PROVIDED, in general, that such
individual acted in good faith and in the best interests of the Company.
BBC's Certificate of Incorporation provides for indemnification to the full
extent permitted by the General Corporation Law of the State of Delaware against
and with respect to actions, suits or proceedings to which any individual is
made or threatened to be made a party by reason of such individual being or
having been a director or officer of BBC or who served or is serving at BBC's
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
PROVIDED that the basis of such action, suit or proceeding is alleged action
occurring while such individual was a director, officer, employee or agent.
Generally, under Delaware law, indemnification will only be available where an
officer or director can establish that he or she acted in good faith and in a
manner that he or she reasonably believed to be in or not opposed to the best
interests of the corporation.
The Company maintains a directors' and officers' liability insurance policy
which insures directors and officers of the Company and its subsidiaries for
losses as a result of claims based upon their acts or omissions in the discharge
of their duties as directors and officers of the Company and its subsidiaries.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1 No. 33-49544 filed September 11, 1992).
3.3 Restated Certificate of Incorporation of BBC (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
3.4 By-laws of BBC (incorporated by reference to Exhibit 3.4 to the Registrant's Registration Statement on
Form S-1 No. 33-49544 filed September 11, 1992).
4.1 Indenture dated as of November 15, 1996 by and among the Company, BBC and the Chase Manhattan Bank, as
Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-4
No. 333-17515 filed December 9, 1996).
4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit A-2 thereto).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.3 Purchase Agreement dated November 13, 1996 by and among the Company, BBC and Merrill Lynch and BT
Securities Corporation (incorporated by reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-4 No. 333-17515 filed December 9, 1996).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz (incorporated by reference to Exhibit 5.1 to Amendment No. 1
to the Registrant's Registration Statement on Form S-4 No. 333-17515 filed December 12, 1996).
5.2 Opinion of Rogers & Hardin (incorporated by reference to Exhibit 5.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 No. 333-17515 filed December 12, 1996).
10.1 Registration Rights Agreement dated as of November 19, 1996 by and among the Company, BBC and Merrill
Lynch, Pierce, Fenner & Smith Incorporated and BT Securities Corporation (incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 No. 333-17515 filed December 9,
1996).
10.2 First Amended and Restated Credit Agreement dated as of November 15, 1996 by and among the Company, BBC,
the lenders listed on the signature pages thereto and Bankers Trust Company, as Administrative Agent and
Merrill Lynch & Co., as Syndication Agent, including all exhibits thereto (incorporated by reference to
Exhibit 10.2 to the Registrant's Registration Statement on Form S-4 No. 333-17515 filed December 9,
1996).
10.3 Amended and Restated Loan Agreement by and among Blue Bird Capital Corporation and LaSalle National
Bank, as agent, and the several financial institutions from time to time parties to the agreement dated
as of March 29, 1996 (incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-Q No.
033-49544 filed June 11, 1996).
10.4 Executive Employment Agreement dated April 15, 1992 between Paul E. Glaske and the Company (incorporated
by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed
September 11, 1992).
10.5 Supplemental Retirement Plan of the Company (incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.6 Form of Noncompetition and Nonsolicitation Agreement with Albert L. Luce, Jr. and Joseph P. Luce
(incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 No.
33-49544 filed September 11, 1992).
10.7 ML Stock Subscription Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit 10.10
to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.8 Management Stock Subscription Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit
10.11 to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.9 Stockholders' Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.10 BBC Management Stock Option Plan (incorporated by reference to Exhibit 10.15 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.11 Form of Vested Option Agreement (incorporated by reference to Exhibit 10.16 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.12 Form of Performance Option Agreement (incorporated by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.13 Chassis Supply Agreement dated as of May 8, 1991 between the Company and General Motors Corporation
(incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-1 No.
33-49544 filed September 11, 1992).
10.14 Executive Employment Agreement dated April 15, 1993 between Bobby G. Wallace and the Company
(incorporated by reference to Exhibit 10.19 to the Registrant's Report on Form 10-K for the fiscal year
ended October 30, 1993 filed January 28, 1994).
10.15 Amendment dated October 15, 1994, amending Executive Employment Agreement dated April 15, 1993 between
Bobby G. Wallace and the Company (incorporated by reference to Exhibit 10.20 to the Registrant's Report
on Form 10-K for the fiscal year ended October 29, 1994 and filed January 27, 1995).
10.16 Amended and Restated Vested Option Agreement dated September 13, 1994 between Bobby G. Wallace and the
Company (incorporated by reference to Exhibit 10.21 to the Registrant's Report on Form 10-K for the
fiscal year ended October 29, 1994 filed January 27, 1995).
12.1 Statements re Computation of Ratios (incorporated by reference to Exhibit 12.1 to Registrant's
Registration Statement on Form S-4 No. 333-17515 filed December 9, 1996).
21.1 Subsidiaries of BBC and the Company (incorporated by reference to Exhibit 21.1 to Registrant's
Registration Statement on Form S-4 No. 333-17515 filed December 9, 1996).
23.1 Consent of Arthur Andersen LLP (superceding Consent filed as Exhibit 23.1 to the Registrant's
Registration Statement on Form S-4 No. 333-17515 filed on December 9, 1996).*
23.2 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.1).
23.3 Consent of Rogers & Hardin (included in Exhibit 5.2).
24.1 Powers of Attorney of Directors and Officers of Blue Bird Corporation (incorporated by reference to the
signature pages in Part II of the Registrant's Registration Statement on Form S-4 No. 333-17515 filed
December 9, 1996).
24.2 Powers of Attorney of Directors and Officers of Blue Bird Body Company (incorporated by reference to the
signature pages in Part II of the Registrant's Registration Statement on Form S-4 No. 333-17515 filed
December 9, 1996).
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of The Chase Manhattan Bank under the
Trust Indenture Act of 1939 (incorporated by reference to Exhibit 25.1 to Registrant's Registration
Statement on Form S-4 No. 333-17515 filed December 9, 1996).
99.1 Form of Letter of Transmittal for the 10 3/4% Senior Subordinated Notes due 2006 (incorporated by
reference to Exhibit 99.1 to Registrant's Registration Statement on Form S-4 No. 333-17515 filed on
December 9, 1996).
99.2 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (incorporated by
reference to Exhibit 99.2 to Registrant's Registration Statement on Form S-4 No. 333-17515 filed on
December 9, 1996).
99.3 Form of Notice of Guaranteed Delivery (incorporated by reference to Exhibit 99.3 to Registrant's
Registration Statement on Form S-4 No. 333-17515 filed on December 9, 1996).
</TABLE>
- ------------------------
* Filed herewith.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
Each of the undersigned registrants hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
(d) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each Registrant
has duly caused this registration statement or amendment thereto to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Macon,
State of Georgia, on January 8, 1997.
BLUE BIRD BODY COMPANY
BY: /S/ PAUL E. GLASKE
-----------------------------------------
Paul E. Glaske
CHAIRMAN OF THE BOARD
AND PRESIDENT AND DIRECTOR
BLUE BIRD CORPORATION
BY: /S/ PAUL E. GLASKE
-----------------------------------------
Paul E. Glaske
CHAIRMAN OF THE BOARD
AND PRESIDENT AND DIRECTOR
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed below by the
following persons in the capacities and on January 8, 1997.
BLUE BIRD BODY COMPANY
SIGNATURE TITLE
- ------------------------------ ---------------------------
Chairman of the Board and
/s/ PAUL E. GLASKE President and Director
- ------------------------------ (Principal Executive
Paul E. Glaske Officer)
Vice President--Finance and
Administration, Treasurer
* and Secretary and
- ------------------------------ Director (Principal
Bobby G. Wallace Financial and Accounting
Officer)
* Director
- ------------------------------
Gerald S. Armstrong
* Director
- ------------------------------
Alexis P. Michas
* Director
- ------------------------------
Donald C. Trauscht
* Director
- ------------------------------
Alfred C. Daugherty
*By /s/ PAUL E. GLASKE
- ------------------------------
(Attorney-in-Fact)
II-6
<PAGE>
BLUE BIRD CORPORATION
SIGNATURE TITLE
- ------------------------------ ---------------------------
Chairman of the Board and
/s/ PAUL E. GLASKE President and Director
- ------------------------------ (Principal Executive
Paul E. Glaske Officer)
Vice President and
* Treasurer and Secretary
- ------------------------------ and Director (Principal
Bobby G. Wallace Financial and Accounting
Officer)
* Director
- ------------------------------
Gerald S. Armstrong
* Director
- ------------------------------
Alexis P. Michas
* Director
- ------------------------------
Donald C. Trauscht
* Director
- ------------------------------
Alfred C. Daugherty
*By /s/ PAUL E. GLASKE
- ------------------------------
(Attorney-in-Fact)
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
3.1 Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1 No. 33-49544 filed September 11, 1992).
3.3 Restated Certificate of Incorporation of BBC (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
3.4 By-laws of BBC (incorporated by reference to Exhibit 3.4 to the Registrant's Registration
Statement on Form S-1 No. 33-49544 filed September 11, 1992).
4.1 Indenture dated as of November 15, 1996 by and among the Company, BBC and the Chase Manhattan
Bank, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-4 No. 333-17515 filed December 9, 1996).
4.2 Form of Exchange Note (contained in Exhibit 4.1 as Exhibit A-2 thereto).
4.3 Purchase Agreement dated November 13, 1996 by and among the Company, BBC and Merrill Lynch and BT
Securities Corporation (incorporated by reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-4 No. 333-17515 filed December 9, 1996).
5.1 Opinion of Wachtell, Lipton, Rosen & Katz (incorporated by reference 5.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 No. 333-17515 filed December 12, 1996).
5.2 Opinion of Rogers & Hardin (incorporated by reference to Exhibit 5.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 No. 333-17515 filed December 12, 1996).
10.1 Registration Rights Agreement dated as of November 19, 1996 by and among the Company, BBC and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and BT Securities Corporation (incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-4 No. 333-17515
filed December 9, 1996).
10.2 First Amended and Restated Credit Agreement dated as of November 15, 1996 by and among the
Company, BBC, the lenders listed on the signature pages thereto and Bankers Trust Company, as
Administrative Agent and Merrill Lynch & Co., as Syndication Agent, including all exhibits thereto
(incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-4
No. 333-17515 filed December 9, 1996).
10.3 Amended and Restated Loan Agreement by and among Blue Bird Capital Corporation and LaSalle
National Bank, as agent, and the several financial institutions from time to time parties to the
agreement dated as of March 29, 1996 (incorporated by reference to Exhibit 10.22 to the
Registrant's Form 10-Q No. 033-49544 filed June 11, 1996).
10.4 Executive Employment Agreement dated April 15, 1992 between Paul E. Glaske and the Company
(incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1
No. 33-49544 filed September 11, 1992).
10.5 Supplemental Retirement Plan of the Company (incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
10.6 Form of Noncompetition and Nonsolicitation Agreement with Albert L. Luce, Jr. and Joseph P. Luce
(incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1
No. 33-49544 filed September 11, 1992).
10.7 ML Stock Subscription Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit
10.10 to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11,
1992).
10.8 Management Stock Subscription Agreement dated as of April 15, 1992 (incorporated by reference to
Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September
11, 1992).
10.9 Stockholders' Agreement dated as of April 15, 1992 (incorporated by reference to Exhibit 10.14 to
the Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.10 BBC Management Stock Option Plan (incorporated by reference to Exhibit 10.15 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.11 Form of Vested Option Agreement (incorporated by reference to Exhibit 10.16 to the Registrant's
Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.12 Form of Performance Option Agreement (incorporated by reference to Exhibit 10.17 to the
Registrant's Registration Statement on Form S-1 No. 33-49544 filed September 11, 1992).
10.13 Chassis Supply Agreement dated as of May 8, 1991 between the Company and General Motors
Corporation (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement
on Form S-1 No. 33-49544 filed September 11, 1992).
10.14 Executive Employment Agreement dated April 15, 1993 between Bobby G. Wallace and the Company
(incorporated by reference to Exhibit 10.19 to the Registrant's Report on Form 10-K for the fiscal
year ended October 30, 1993 filed January 28, 1994).
10.15 Amendment dated October 15, 1994, amending Executive Employment Agreement dated April 15, 1993
between Bobby G. Wallace and the Company (incorporated by reference to Exhibit 10.20 to the
Registrant's Report on Form 10-K for the fiscal year ended October 29, 1994 and filed January 27,
1995).
10.16 Amended and Restated Vested Option Agreement dated September 13, 1994 between Bobby G. Wallace and
the Company (incorporated by reference to Exhibit 10.21 to the Registrant's Report on Form 10-K
for the fiscal year ended October 29, 1994 filed January 27, 1995).
12.1 Statements re Computation of Ratios (incorporated by reference to Exhibit 12.1 to Registrant's
Registration Statement on Form S-4 No. 333-17515 filed December 9, 1996).
21.1 Subsidiaries of BBC and the Company (incorporated by reference to Exhibit 21.1 to Registrant's
Registration Statement on Form S-4 No. 333-17515 filed December 9, 1996).
23.1 Consent of Arthur Andersen LLP (superceding Consent filed as Exhibit 23.1 to the Registrant's
Registratioon Statement on Form S-4 No. 333-17515 filed on December 9, 1996).*
23.2 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5.1).
23.3 Consent of Rogers & Hardin (included in Exhibit 5.2).
24.1 Powers of Attorney of Directors and Officers of Blue Bird Corporation (incorporated by reference
to the signature pages in Part II of the Registrant's Registration Statement on Form S-4 No.
333-17515 filed December 9, 1996).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
24.2 Powers of Attorney of Directors and Officers of Blue Bird Body Company (incorporated by reference
to the signature pages in Part II of the Registrant's Registration Statement on Form S-4 No.
333-17515 filed December 9, 1996).
25.1 Statement of Eligibility and Qualification of Trustee on Form T-1 of The Chase Manhattan Bank
under the Trust Indenture Act of 1939 (incorporated by reference to Exhibit 25.1 to Registrant's
Registration Statement on Form S-4 No. 333-17515 filed December 9, 1996).
99.1 Form of Letter of Transmittal for the 10 3/4% Senior Subordinated Notes due 2006 (incorporated by
reference to Exhibit 99.1 to Registrant's Registration Statement on Form S-4 No. 333-17515 filed
on December 9, 1996).
99.2 Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9
(incorporated by reference to Exhibit 99.2 to Registrant's Registration Statement on Form S-4 No.
333-17515 filed on December 9, 1996).
99.3 Form of Notice of Guaranteed Delivery (incorporated by reference to Exhibit 99.3 to Registrant's
Registration Statement on Form S-4 No. 333-17515 filed on December 9, 1996).
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
[Letterhead of Arthur Andersen LLP]
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this Registration Statement of our report dated December 5, 1996 on the
financial statements of Blue Bird Corporation and subsidiaries as of November 2,
1996 and October 28, 1995 and for the three years in the period ended November
2, 1996 and to all references to our firm included in this Registration
Statement.
Arthur Andersen LLP
Atlanta, Georgia
January 6, 1997
