<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1998
REGISTRATION NO. 333-17515
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 2
ON
FORM S-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:
<TABLE>
<S> <C>
ANDREW R. BROWNSTEIN, ESQ. MICHAEL ROSENZWEIG, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ ROGERS & HARDIN
51 WEST 52ND STREET 2700 INTERNATIONAL TOWER
NEW YORK, NEW YORK 10019 PEACHTREE CENTER
(212) 403-1000 229 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303-1601
(404) 522-4700
</TABLE>
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>
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 AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED FEBRUARY 3, 1998
PROSPECTUS
BLUE BIRD BODY COMPANY
[LOGO]
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 1, 1997,
the Company had approximately $167.1 million of Senior Indebtedness outstanding.
In addition, at November 1, 1997, the aggregate amount of indebtedness and other
liabilities of subsidiaries of the Company to which holders of the Exchange
Notes are structurally subordinated is approximately $85.5 million (which is
comprised principally of liabilities of the Company's special purpose lease
financing subsidiary).
SEE "RISK FACTORS," BEGINNING ON PAGE 7, 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
<PAGE>
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 FEBRUARY , 1998.
<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.
i
<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 7 OF THIS PROSPECTUS, AND ANY
PERSON CONSIDERING AN INVESTMENT IN THE EXCHANGE NOTES IS URGED TO CAREFULLY
CONSIDER SUCH FACTORS.
ii
<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 78% of the Company's net sales in fiscal 1997 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 17% and 5%, respectively, of the Company's
fiscal 1997 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 60 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
1, 1997, the Company had $576.1 million in net sales and $54.5 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 75% of the estimated 444,000 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 1997 totaled approximately 33,400 units. This estimate is based in part
on information in industry trade publications as well as information gathered by
the Company's distributors based on reviews of public school bus bid
documentation. In addition, management estimates that in fiscal 1997, 3,500
units was the total market demand for the types of school bus and commercial bus
products that the Company manufactures and sells to countries outside of North
America. In fiscal 1997, the Company sold approximately 13,800 school bus units
and estimates that it had approximately 41% market share.
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.
1
<PAGE>
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 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.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
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 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 1, 1997, the
Company had $167.1 million of Senior
Indebtedness. In addition, at November 1,
1997 the aggregate amount of indebtedness and
other liabilities of subsidiaries of the
Company to which Holders of Notes are
structurally subordinated was $85.5 million
(which was composed principally of
liabilities of the Company's special purpose
lease financing subsidiary).
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
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 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 7 for a discussion of certain factors
which should be considered by participants in the Exchange Offer.
4
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is certain summary historical consolidated financial
information for BBC as of and for the fiscal years 1997, 1996 and 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 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>
OCTOBER 28,
NOVEMBER 1, 1997 NOVEMBER 2, 1996 1995
----------------- ----------------- ---------------
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales.................................................. $ 576.1 $ 570.2 $ 517.4
Cost of goods sold......................................... 473.4 474.1 430.6
------ ------ ------
Gross profit............................................... 102.7 96.1 86.8
Selling, general and administrative expenses............... 62.4 42.6 39.8
Amortization of goodwill and noncompete agreements......... 3.8 3.8 4.7
------ ------ ------
Operating income........................................... 36.5 49.7 42.3
Interest income............................................ 6.3 7.0 4.6
Interest expense........................................... (33.8) (16.9) (18.5)
Other income, net.......................................... 1.9 .2 .1
------ ------ ------
Income before income taxes................................. 10.9 40.0 28.5
Provision (benefit) for income taxes....................... (2.7) 14.8 11.6
------ ------ ------
Net income before extraordinary item....................... 13.6 25.2 16.9
Loss on extinguishment of debt............................. (3.0) (1.4) --
------ ------ ------
Net Income............................................... $ 10.6 $ 23.8 $ 16.9
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(a).................................................. $ 54.5 $ 66.3 $ 57.3
Adjusted EBITDA (b)........................................ 53.8 61.2 54.4
Capital expenditures....................................... 5.4 7.3 3.6
Ratio of Adjusted EBITDA to Adjusted Cash Interest Expense
(b)...................................................... 1.9x 5.3x 4.1x
Ratio of earnings to fixed charges(c)...................... 1.2x 3.3x 2.5x
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 1, 1997 NOVEMBER 2, 1996
----------------- -----------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Working capital.............................................................. $ 99.3 $ 80.4
Total assets................................................................. 412.5 391.0
Total long-term debt, excluding current maturities........................... 339.6 131.4
Redeemable common stock, net................................................. 20.7 29.3
Stockholders' equity (deficit)............................................... (45.1) 118.2
</TABLE>
- ------------------------
(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),
5
<PAGE>
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) 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.
6
<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 1, 1997, the aggregate total outstanding indebtedness of the Company
was $352.3 million and the stockholders' deficit was $45.1 million. See
"Capitalization." The ratio of earnings to fixed charges was 1.2:1 for fiscal
1997. At November 1, 1997 the Company had the ability to borrow an additional
$94.5 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 1, 1997 the
Company had $167.1 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 1, 1997 the aggregate amount of indebtedness and other
liabilities of the Company's subsidiaries was $86.3 million (which was 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 $14.5 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 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,
7
<PAGE>
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 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
8
<PAGE>
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. During 1997, the
National Highway Traffic Safety Administration (the "NHTSA") tested a Blue Bird
Type D (as herein defined) model which failed crash tests when fuel tanks were
punctured upon impact. The Company is evaluating with the NHTSA the scope of a
proposed product recall as a result of the NHTSA's noncompliance determination.
If a product recall is issued, management estimates that the cost of repairs
required to be paid by the Company to bring the vehicle into compliance will not
be material. Manufacturing defects or the failure to comply with applicable
regulatory standards can serve as the basis for a variety of claims from
customers of the Company and bus passengers who use the Company's products.
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 not be
material to the Company's financial position or results of operations, there can
be no assurance that this will be true or that the amount of losses and expenses
relating to any claim or
9
<PAGE>
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"), Freightliner Custom Chassis Corp.
("Freightliner") and Navistar International Corporation ("Navistar"). Navistar,
which accounts for approximately 60% of the chassis market, owns AmTran of
Illinois, Inc. ("AmTran"), a bus manufacturer that is one of the Company's major
competitors. Since its acquisition of 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
10
<PAGE>
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
were 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.
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
11
<PAGE>
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.
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.
12
<PAGE>
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.
13
<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."
14
<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.
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of BBC as of November 1, 1997. There are no material
differences between the capitalization of the Company and BBC, except as set
forth in footnotes (a) and (b). 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 1, 1997
------------------
<S> <C>
(DOLLARS IN
MILLIONS)
Cash and cash equivalents..................................................................... $ 31.0
-------
-------
Short-term debt (including current portion of long-term debt)................................. $ 12.8
-------
-------
Long-term debt:
New Credit Agreement (excluding current portion)............................................ 151.6
Exchange Notes(a)........................................................................... 99.7
LaSalle Credit Facility..................................................................... 85.5
Industrial development bonds................................................................ 2.7
-------
Total long-term debt.......................................................................... 339.5
Redeemable common stock(b).................................................................... 20.7
Stockholders' equity:
Common stock; $.01 par value; 25,000,000 shares authorized; 8,434,778 shares issued and
outstanding............................................................................... .1
Additional paid-in capital.................................................................... 77.0
Retained earnings (deficit)................................................................... (119.2)
Cumulative translation adjustments(c)......................................................... (3.0)
-------
Total stockholders' equity (deficit).......................................................... (45.1)
-------
Total capitalization.................................................................... $ 315.1
-------
-------
</TABLE>
- ------------------------
(a) Represents the $100 million principal amount of the Notes less unamortized
discount of $.3 million.
(b) Redeemable common stock represents 730,000 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 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."
(c) 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.
15
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial data
for BBC for fiscal years 1997, 1996, 1995, 1994 and 1993. The selected
historical consolidated financial data as of and for the fiscal years indicated
were derived from the financial statements of BBC and subsidiaries which were
audited by Arthur Andersen LLP. 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.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------------------
NOVEMBER 1, NOVEMBER 2, OCTOBER 28, OCTOBER 29, OCTOBER 30,
1997 1996 1995 1994 1993
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales.............................................. $ 576.1 $ 570.2 $ 517.4 $ 476.2 $ 413.5
Cost of goods sold..................................... 473.4 474.1 430.6 392.9 340.5
------ ------ ----------- ----------- -----------
Gross profit........................................... 102.7 96.1 86.8 83.3 73.0
Selling, general and administrative expenses........... 62.4 42.6 39.8 39.0 36.3
Amortization of goodwill and non-compete agreements.... 3.8 3.8 4.7 5.6 5.6
------ ------ ----------- ----------- -----------
Operating income....................................... 36.5 49.7 42.3 38.7 31.1
Interest income........................................ 6.3 7.0 4.6 4.1 2.9
Interest expense....................................... (33.8) (16.9) (18.5) (17.4) (18.2)
Other income (expense)................................. 1.9 0.2 0.1 0.2 0.7
------ ------ ----------- ----------- -----------
Income before income taxes............................. 10.9 40.0 28.5 25.6 16.5
Provision (benefit) for income taxes................... (2.7) 14.8 11.6 10.2 6.9
------ ------ ----------- ----------- -----------
Net income before extraordinary item................... 13.6 25.2 16.9 15.4 9.6
Loss on extinguishment of debt......................... (3.0) (1.4) -- -- --
------ ------ ----------- ----------- -----------
Net income............................................. $ 10.6 $ 23.8 $ 16.9 $ 15.4 $ 9.6
------ ------ ----------- ----------- -----------
------ ------ ----------- ----------- -----------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital........................................ $ 99.3 $ 80.4 $ 61.7 $ 65.3 $ 52.7
Total assets........................................... 412.5 391.0 379.8 332.8 342.1
Long-term debt, excluding current maturities........... 339.6 131.4 113.8 125.8 135.8
Redeemable common stock, net........................... 20.7 29.3 20.9 17.5 11.0
Stockholders' equity (deficit)......................... (45.1) 118.2 102.6 88.8 80.7
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Approximately 78% of the Company's fiscal 1997 net sales are derived from
school bus sales and approximately 17% and 5% of the Company's fiscal 1997 net
sales are derived from the sale of commercial and recreational vehicles,
respectively. From fiscal 1993 to fiscal 1997, the Company's gross profit, and
with the exception of fiscal 1997, operating income, have risen primarily due to
increasing sales volume. Fiscal 1997 operating income was affected by a one time
charge of $16.1 million related to the Recapitalization. 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 will 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.
In 1993 the Company initiated a project to review its computer hardware and
software to ensure that its computer applications will not fail or create
erroneous results as a result of the use of two digits in various program date
fields (the "Year 2000 issue"). The Company's cost of addressing the Year 2000
issue is not expected to be material. While the consequences of an incomplete or
untimely resolution of the Year 2000 issue could be expected to have a negative
effect on the future financial results of the Company, the Company expects that
its Year 2000 issues will be satisfactorily resolved well before the year 2000.
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 1, NOVEMBER 2, OCTOBER 28,
1997 1996 1995
------------- ------------- -------------
Net sales................................................................ 100.0% 100.0% 100.0%
Cost of goods sold....................................................... (82.2) (83.1) (83.2)
Gross profit............................................................. 17.8 16.9 16.8
Selling, general and administrative expense.............................. (10.8) (7.5) (7.7)
Operating income......................................................... 6.3% 8.7% 8.2%
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1996. Net sales increased to $576.1 million
in fiscal 1997 from $570.2 million in fiscal 1996, an increase of $5.9 million
or 1.0%. This increase was primarily due to increased sales volume of the Type C
units.
Gross profit increased to $102.7 million in fiscal 1997 compared to $96.1
million in fiscal 1996, an increase of $6.6 million or 6.9%. The increase was
primarily due to increased gross margin. The gross margin increased to 17.8%
from 16.8% in 1996. The margin increase was due to selling more higher gross
margin Type C units as compared to fiscal 1996.
17
<PAGE>
Selling, general and administrative expenses increased to $62.4 million in
fiscal 1997 compared to $42.6 million in fiscal 1996, an increase of $19.8
million or 46.5%. The increase was primarily due to a $16.1 million distribution
paid as a result of the Recapitalization to certain members of management as
stock option holders which was recorded as compensation. The remaining
difference was due mainly to increased engineering costs as well as a negotiated
settlement in a product liability case.
Interest income decreased to $6.3 million compared to $7.0 million in fiscal
1996. The decrease was due in part to lower investment income resulting from
lower cash available for investment during 1997 as compared to 1996. Other
interest income, excluding interest related to leasing, was also lower.
Interest expense increased to $33.8 million in fiscal 1997 as compared to
$16.9 million in fiscal 1996. The increase was due primarily to the higher debt
and interest rates resulting from the Recapitalization.
For fiscal 1997, there was an income tax benefit of $2.7 million compared to
an income tax provision of $14.8 million for fiscal 1996. The decrease was due
in part to income before income taxes being significantly lower in fiscal 1997
than fiscal 1996. In addition, due to the deductibility of the distributions
paid to management shareholders from the Recapitalization, the resulting income
tax benefit more than offset the income tax provision on operating income,
resulting in a net income tax benefit for fiscal 1997.
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.
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.
18
<PAGE>
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.
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.
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, of which the Company anticipates approximately $6.1
million for fiscal 1998.
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 $85.5 million was
outstanding as of November 1, 1997. Following the Recapitalization, the
Company's liquidity needs 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. As of November 1, 1997, the
Company had total consolidated indebtedness of approximately $352.3 million,
consisting primarily of $99.7 million principal amount of the 144A Notes,
borrowings of $164.4 million under the New Credit Agreement and $85.5 million of
borrowings under the LaSalle Credit Facility. The Company would also have had
the ability to borrow an additional $14.5 million under the LaSalle Credit
Facility to finance school bus leases and $80.0 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
19
<PAGE>
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"). 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 $12.8 million in fiscal 1998, $16.8 million
in fiscal 1999, and $20.8 million in fiscal 2000. 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 1, 1997, the Company had
approximately $7.5 million of such leases in its lease portfolio. In addition,
as of such date, Blue Bird Capital had approximately $94.7 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 1, 1997, was
$6.3 million compared to $59.6 million in fiscal 1996. This difference was
primarily the result of significant decreases in net income, trade accounts
payable and income taxes payable as well as an increase in inventory. There were
no net borrowings under the Company's working capital facility in fiscal 1997 or
fiscal 1996. Net borrowing under the LaSalle Credit Facility were $26.9 during
the current year compared to $22.9 in fiscal 1996. 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 $31.0 at November 1, 1997, compared to $46.3
million at the end of fiscal 1996. Net working capital was $99.3 million at
November 1, 1997, an increase of $18.9 million during the current fiscal year.
Significant factors affecting working capital were increases in trade
receivables, leases receivable, inventory and accrued liabilities of $3.1
million, $9.8 million, $6.6 million and $6.0 million, respectively, with
decreases in cash, accounts payable and income taxes payable of $15.2 million,
$6.0 million and $9.2 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."
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>
1997 1996 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter................................................................... 14.6% 16.3% 14.8% 18.5%
Second Quarter.................................................................. 16.5 18.7 20.4 17.0
Third Quarter................................................................... 33.6 25.7 26.5 30.0
Fourth Quarter.................................................................. 35.3 39.3 38.3 34.5
--------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
20
<PAGE>
GENERAL
Blue Bird is the leading manufacturer of school buses in North America.
Approximately 78% of the Company's net sales in fiscal 1997 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 17% and 5%, respectively, of the Company's
fiscal 1997 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 60 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 48% of the Company's school bus sales in
1997, 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 safety standards and incremental needs due to pupil population
growth, factors which influence the need
21
<PAGE>
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 75% of the estimated 444,000 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 1997 totaled approximately 33,400 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 1997.
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 transportation needs. Management believes that rural and urban public
transit authorities are beginning to
22
<PAGE>
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, the market demand
is 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 1997 Blue Bird derived approximately 17% of its net sales from the sale
of its various school bus body models and 56% 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 $10,500 to $16,000.
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 $13,000 to $22,000.
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 1997. 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 integrated unit sold
with a GM chassis, each of which can be ordered in several configurations.
Wholesale
23
<PAGE>
selling prices for Type C vehicle bus bodies typically range from approximately
$12,500 to $25,000, while prices for integrated products range from
approximately $42,000 to $55,000.
TYPE D. "Type D" school buses accounted for approximately 20% of the
vehicles sold by the Company in 1997. 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 $45,000 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 $85,000 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 1997, 69% 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 1997, 31% 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 (89% of 1997 net
sales) and directly to end-users (11% of 1997 net sales). During 1997, 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 60 independent distributors in the U.S. and
Canada, including RV distributors. One of the Company's 26 commercial bus
distributors also distributes 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 1997, no single distributor
accounted for more than 7% 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 5.06% to 8.00%. 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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<PAGE>
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 1,040 buses to Canadian customers in 1997
(approximately $32.7 million in net sales), and a facility in Monterrey, Mexico,
the Company's operations are based in the United States. The Company exported
approximately 530 bus products in 1997, 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 1997.
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. Research and development costs for 1997 were $.7
million.
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<PAGE>
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 1997,
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, Freightliner and
Navistar. Of these, Navistar is the leading manufacturer, accounting for
approximately 60% of sales in 1997. 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 1997, material purchases represented
approximately 71% 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.
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
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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, Freightliner
and Navistar. Navistar is the industry leader with a market share estimated by
market researchers of in excess of 60% in 1997. 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 63% 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.
BACKLOG ORDERS
As of November 1, 1997, the dollar amount of backlog orders believed by the
Company to be firm totaled approximately $314 million. It is expected that all
such orders will be filled during fiscal year 1998.
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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 January 1, 1998, the Company had approximately 2,636 employees, of
whom approximately 2,170 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.
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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. All of these
facilities are subject to liens in form of Bankers Trust Company, as agent for
itself and other lenders, pursuant to the terms and provisions of the New Credit
Agreement. See "Description of Debt Facilities."
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, CS, All- 730,000 1,354
American, parts fabrication
Service Parts................ Fort Valley, Georgia Parts 80,000 N.A.(b)
Wanderlodge.................. Fort Valley, Georgia Wanderlodge, BMC, parts 216,000 260
fabrication
Blue Bird North Georgia...... LaFayette, Georgia Conventional, TC/2000 216,000 289
Blue Bird Midwest............ Mt. Pleasant, Iowa Conventional, Mini-Bird, 227,400 291
TC/2000, Micro-Bird
Blue Bird Canada............. Brantford, ON (Canada ) TC/2000, Conventional, 251,395 319
Micro-Bird, parts fabrication
Blue Bird de Mexico.......... Monterrey, Mexico Conventional 118,310 123
---------- -----
Total Company................ 1,839,105 2,636
---------- -----
---------- -----
</TABLE>
- ------------------------
(a) As of January 1, 1998.
(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
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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 $456,000. The Company's estimate of post-closure costs is subject to
periodic adjustment based on EPD regulations.
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 Company has discovered petroleum contamination on a portion of its Fort
Valley facility leased to the Fort Valley Utilities Commission (the "Utilities
Commission"). The contamination apparently originated from underground storage
tanks operated by the Utilities Commission in connection with an electrical
generating facility. The Utilities Commission has reported the contamination to
EPD and is financing site investigation and cleanup.
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
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<PAGE>
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 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. During 1997,
the NHTSA tested a Blue Bird Type D (as herein defined) model which failed crash
tests when fuel tanks were punctured upon impact. The Company is evaluating with
the NHTSA the scope of a proposed product recall as a result of the NHTSA's
noncompliance determination. If a product recall is issued, management estimates
that the cost of repairs required to be paid by the Company to bring the vehicle
into compliance will not be material.
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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 November
1, 1997; all information is provided as of such date:
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul E. Glaske....................................... 64 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..................................... 63 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.................................... 56 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.................................... 45 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.
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
Wilbur C. Rumph...................................... 68 Vice President--Engineering, Research & Development
of the Company. Mr. Rumph was appointed to his
present position in 1968. He joined Blue Bird in
1948, where he has held various positions in the
engineering area.
William G. Milby..................................... 51 Vice President of Product Planning and Development.
Mr. Milby was promoted to his present position in
1997 from Vice President and General
Manager--Canadian Blue Bird, to which he was
appointed 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.
William T. Gourley................................... 52 Vice President--Controller of the Company. In 1996,
Mr. Gourley was promoted to his current position from
his prior position of Corporate Controller, to which
he was appointed in 1992. Mr. Gourley joined Blue
Bird in 1976 and has held various positions in
finance since that time.
B. Richard Benedict.................................. 54 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.................................. 54 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 and
World Color Press, Inc.
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
Alexis P. Michas..................................... 40 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 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., and Packard
BioScience Company.
Alfred C. Daugherty.................................. 74 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.
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
Donald C. Trauscht................................... 63 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.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table sets
forth, for fiscal years 1997, 1996 and 1995, the cash compensation paid by BBC
and its subsidiaries, as well as certain other compensation paid or accrued for
fiscal years 1997, 1996 and 1995, to each of the five most highly compensated
executive officers of BBC (considering Messrs. Grantham, Maddox and Gourley,
Vice Presidents of the Company, to be executive officers of BBC) (collectively,
the "named executive officers") in all capacities in which they served:
37
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
FISCAL ---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (A) BONUS OPTIONS COMPENSATION
- ---------------------------------------------------------- ----------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Paul E. Glaske............................................ 1997 $ 544,709 $ 500,000 -- $ 23,933(b)
Chairman of the Board and President and Director 1996 506,410 438,485 -- 20,203(c)
1995 466,898 428,606 -- 19,753(c)
Bobby G. Wallace.......................................... 1997 312,983 225,600 40,000(d) 4,750(e)
Vice President--Finance and Admin., Treasurer, Secretary 1996 289,094 196,746 -- 4,500(e)
and Director 1995 265,388 168,175 -- 4,050(f)
James H. Grantham......................................... 1997 201,648 144,000 -- 4,750(e)
Vice President--Manufacturing of the Company 1996 185,847 127,732 -- 4,500(e)
1995 171,006 123,008 -- 4,050(f)
Richard E. Maddox......................................... 1997 177,857 130,400 -- 5,124(e)
Vice President--Sales of the Company 1996 164,997 115,150 -- 5,196(e)
1995 151,996 110,707 -- 6,159(f)
William T. Gourley........................................ 1997 135,308 41,760 -- 6,110(e)
Vice President--Controller of the Company 1996 111,762 38,434 -- 4,346(e)
1995 101,842 36,902 -- 3,862(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 1997, $9,500 in 1996, and $9,240 in 1995.
(b) Represents life and disability insurance premiums of $19,183 paid by the
Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
matching contributions equal to 50% of the first 6% of each participant's
pre-tax contribution for 1996.
(c) Represents life and disability insurance premiums of $15,703 paid by the
Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
matching contributions equal to 45% of the first 6% of each participant's
pre-tax contribution for 1995, and 50% of the first 6% of each participant's
pre-tax contribution for 1996.
(d) In 1997, Mr. Wallace was granted an option to purchase 40,000 shares of BBC
Common Stock.
(e) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 50% of the
first 6% of each participant's pre-tax contribution.
(f) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 45% of the
first 6% of each participant's pre-tax contribution.
38
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. The following table sets forth
stock options granted in fiscal 1997 to the named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS/SARS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM
UNDERLYING OPTIONS/ EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME SARS GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ------------------------------ ------------------- -------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bobby G. Wallace.............. 40,000(a) 100.0% $ 9.00 4/16/02 $ 99,461 $ 219,784
</TABLE>
(a) Represents options that were fully vested on the date of grant. Such options
are non-transferable and terminate (subject to certain put and call
arrangements) upon termination of employment with BBC or an affiliate of
BBC.
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
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONSH/SARS IN-THE-MONEY OPTIONS/SARS
------------------------------ AT FISCAL YEAR-END (A)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Paul E. Glaske............................................ 350,000 -0- $ 6,412,000 -0-
Bobby G. Wallace.......................................... 100,000 -0- 1,832,000 -0-
James H. Grantham......................................... 80,000 -0- 1,465,600 -0-
Richard E. Maddox......................................... 80,000 -0- 1,465,600 -0-
William T. Gourley........................................ 20,000 -0- 366,400 -0-
</TABLE>
- ------------------------
(a) Computed using net proceeds value of $18.32 per share at November 1, 1997,
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:
39
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL FIVE
YEAR ANNUAL
COMPENSATION 15 20 25 30 35
- ------------- ------------ ------------ ------------ ------------ ------------
YEARS OF SERVICE
--------------------------------------------------------------------
<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.
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 Gourley 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 (11 years), Mr. Wallace (11 years), Mr. Grantham (30
years), Mr. Maddox (22 years) and Mr. Gourley (21 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 $560,000, 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
40
<PAGE>
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 $330,000, 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 1997 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.
41
<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 8,434,778. 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 90.9%
Paul E. Glaske(b).............................................................. 580,557(c) 6.6%
Blue Bird Body Company
3920 Artwright Road
Macon, Georgia 31210
Bobby G. Wallace(b)............................................................ 170,000(d) 2.0%
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
William T. Gourley............................................................. 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
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL SHARES OF BBC
BENEFICIAL OWNER OWNERSHIP COMMON STOCK*
- ------------------------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
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).................... 1,140,335(i) 12.6%
</TABLE>
- ------------------------
* Calculated in accordance with Rule 13d-3 under the Exchange Act.
(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 Gourley 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 75,000 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. Gourley 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 340,000 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.
43
<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."
44
<PAGE>
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
- ------------------------------------------------------------------------- ---------------------
<S> <C>
(DOLLARS IN MILLIONS)
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 Blue Bird de Mexico, S.A., 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, 2000 and may be extended for an additional one-year period. 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 1, 1997 bear interest
at the rate of 7.0% PER ANNUM. As of November 1, 1997, there was $85.5 million
outstanding under the LaSalle Credit Facility.
OLD NOTES
As a result of the Recapitalization, no Old Notes remain outstanding.
48
<PAGE>
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
49
<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,
51
<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 1, 1997 Senior Indebtedness of the Company with respect to
the Notes was approximately $167.1 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
52
<PAGE>
and its creditors, including holders 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;"
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(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;
(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
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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).
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.
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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 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.
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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 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.
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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.
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;
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(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 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
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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
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.
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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
(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
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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 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
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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.
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.
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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 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
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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.
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
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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.
"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
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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,
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
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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 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.
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"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."
"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
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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 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
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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 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.
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"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 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
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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-- 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.
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"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 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
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United States Holder purchases a Note at a "market discount," as defined below,
and thereafter 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.
76
<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 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. 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 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 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.
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 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
77
<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.
78
<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.
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 1, 1997
and November 2, 1998, and for each of the three years in the period ended
November 1, 1997, 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.
79
<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 1, 1997 and November 2, 1996.................................. F-3
Consolidated Statements of Income for the Years Ended November 1, 1997, November 2, 1996 and October 28,
1995................................................................................................... F-5
Consolidated Statements of Changes in Stockholders' Deficit for the Years Ended November 1, 1997,
November 2, 1996 and October 28, 1995.................................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended November 1, 1997, November 2, 1996 and October
28, 1995............................................................................................... 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 1, 1997 and
November 2, 1996 and the related consolidated statements of income, changes in
stockholders' deficit, and cash flows for each of the three years in the period
ended November 1, 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Blue Bird
Corporation and subsidiaries as of November 1, 1997 and November 2, 1996 and the
results of their operations and their cash flows for each of the three years in
the period ended November 1, 1997 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
December 4, 1997
F-2
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 1, 1997 AND NOVEMBER 2, 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 31,030,559 $ 46,253,258
Trade receivables.............................................................. 16,515,026 13,442,724
Leases receivable.............................................................. 43,115,861 32,214,649
Inventories.................................................................... 76,384,544 69,775,802
Other current assets........................................................... 3,314,652 5,304,168
-------------- --------------
Total current assets....................................................... 170,360,642 166,990,601
-------------- --------------
LEASES RECEIVABLE, noncurrent.................................................... 59,206,508 41,862,478
-------------- --------------
PROPERTY, PLANT, AND EQUIPMENT:
Land........................................................................... 4,070,400 4,090,351
Buildings...................................................................... 18,918,620 17,678,238
Machinery and equipment........................................................ 31,727,883 28,883,888
Automobiles, trucks, and airplane.............................................. 7,574,041 7,758,985
Office furniture and equipment................................................. 4,705,375 5,178,814
Construction in progress....................................................... 1,607,419 1,008,435
-------------- --------------
68,603,738 64,598,711
Less accumulated depreciation.................................................... (30,502,810) (25,709,736)
-------------- --------------
Net property, plant, and equipment......................................... 38,100,928 38,888,975
-------------- --------------
OTHER ASSETS:
Deferred debt issuance costs, net of accumulated amortization of $1,257,000 and
$8,733,592 in 1997 and 1996, respectively.................................... 8,514,749 1,424,137
Goodwill, net of accumulated amortization of $21,237,500 and $17,397,500 in
1997 and 1996, respectively.................................................. 131,454,106 135,294,106
Land and idle facilities....................................................... 0 2,000,000
Other assets................................................................... 4,862,642 4,570,450
-------------- --------------
Total other assets......................................................... 144,831,497 143,288,693
-------------- --------------
Total assets............................................................... $ 412,499,575 $ 391,030,747
-------------- --------------
-------------- --------------
</TABLE>
F-3
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 1, 1997 AND NOVEMBER 2, 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.............................................. $ 12,750,000 $ 16,000,000
Trade accounts payable......................................................... 21,708,489 27,704,475
Deposits and amounts due customers............................................. 2,923,252 1,344,852
Income taxes payable........................................................... 41,580 9,269,833
Accrued warranty............................................................... 5,609,247 5,603,021
Accrued interest............................................................... 5,871,716 623,844
Other accrued liabilities...................................................... 17,711,915 16,947,208
Deferred income taxes.......................................................... 4,473,765 9,079,975
-------------- --------------
Total current liabilities.................................................. 71,089,964 86,573,208
-------------- --------------
LONG-TERM LIABILITIES:
Long-term debt................................................................. 336,813,159 128,600,000
Bonds payable.................................................................. 2,750,000 2,750,000
Accrued pension expense........................................................ 9,788,085 8,288,463
Deferred income taxes.......................................................... 4,612,383 5,306,392
Other long-term liabilities.................................................... 11,889,106 12,019,864
-------------- --------------
Total long-term liabilities................................................ 365,852,733 156,964,719
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
REDEEMABLE COMMON STOCK, $.01 par value; 730,000 and 720,000 shares issued and
outstanding in 1997 and 1996, respectively (Note 9)............................ 20,676,000 33,105,000
STOCK SUBSCRIPTIONS RECEIVABLE (Note 9).......................................... 0 (3,800,000)
-------------- --------------
20,676,000 29,305,000
-------------- --------------
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $.01 par value; 25,000,000 shares authorized, 7,704,778 shares
issued and outstanding in 1997 and 1996...................................... 77,048 77,048
Additional paid-in capital..................................................... 77,022,956 77,022,956
Accumulated (deficit) earnings................................................. (119,205,789) 43,227,960
Cumulative translation adjustments............................................. (3,013,337) (2,140,144)
-------------- --------------
Total stockholders' (deficit) equity....................................... (45,119,122) 118,187,820
-------------- --------------
Total liabilities and stockholders' (deficit) equity....................... $ 412,499,575 $ 391,030,747
-------------- --------------
-------------- --------------
</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 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES....................................................... $ 576,110,139 $ 570,184,841 $ 517,444,172
COST OF GOODS SOLD.............................................. 473,402,463 474,066,847 430,667,432
-------------- -------------- --------------
GROSS PROFIT.................................................... 102,707,676 96,117,994 86,776,740
-------------- -------------- --------------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES................... 62,349,085 42,568,911 39,795,821
AMORTIZATION OF GOODWILL........................................ 3,840,000 3,830,000 4,692,867
-------------- -------------- --------------
66,189,085 46,398,911 44,488,688
-------------- -------------- --------------
OPERATING INCOME................................................ 36,518,591 49,719,083 42,288,052
INTEREST INCOME................................................. 6,255,934 6,998,830 4,618,315
INTEREST EXPENSE................................................ (33,754,249) (16,889,261) (18,537,244)
OTHER INCOME, net............................................... 1,858,539 224,052 168,554
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES...................................... 10,878,815 40,052,704 28,537,677
(BENEFIT) PROVISION FOR INCOME TAXES............................ (2,704,014) 14,872,343 11,686,056
-------------- -------------- --------------
NET INCOME BEFORE EXTRAORDINARY ITEM............................ 13,582,829 25,180,361 16,851,621
LOSS ON EXTINGUISHMENT OF DEBT, net of tax benefit of
$1,768,686, $838,364, and $0 in 1997, 1996, and 1995
respectively (Note 5)......................................... (2,985,845) (1,415,302) 0
-------------- -------------- --------------
NET INCOME...................................................... $ 10,596,984 $ 23,765,059 $ 16,851,621
-------------- -------------- --------------
-------------- -------------- --------------
</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' DEFICIT
FOR THE YEARS ENDED NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
RETAINED MINIMUM
ADDITIONAL EARNINGS CUMULATIVE PENSION
COMMON PAID-IN (ACCUMULATED TRANSLATION LIABILITY
STOCK CAPITAL DEFICIT) ADJUSTMENTS ADJUSTMENT
--------- ------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
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
Net income.............................. 0 0 10,596,984 0 0
Dividend distribution................... 0 0 (185,345,533) 0 0
Accretion of redeemable common stock.... 0 0 12,314,800 0 0
Translation adjustments................. 0 0 0 (873,193) 0
--------- ------------- --------------- ------------- -----------
BALANCE, November 1, 1997................. $ 77,048 $ 77,022,956 $ (119,205,789) $ (3,013,337) $ 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 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 10,596,984 $ 23,765,059 $ 16,851,621
--------------- -------------- --------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary loss on extinguishment of debt................ 4,754,531 2,253,666 0
Depreciation and amortization............................... 11,178,984 11,517,766 12,558,707
Increase in cash surrender value of life insurance.......... (152,519) (110,113) (234,103)
Deferred income taxes....................................... (5,300,219) (1,046,707) 5,011
Gain on sale of assets...................................... (628,320) 0 0
Changes in assets and liabilities:
Trade receivables......................................... (3,072,302) 5,423,096 (4,602,234)
Inventories............................................... (6,608,742) 13,570,469 (7,561,501)
Trade accounts payable.................................... (5,995,986) 1,961,241 689,604
Income taxes payable...................................... (9,228,523) 2,343,672 5,180,641
Accrued interest.......................................... 5,247,872 (1,411,558) 382,653
Other current liabilities................................. 2,349,333 (312,039) (1,163,088)
Other..................................................... 3,136,379 1,632,686 (812,688)
--------------- -------------- --------------
Total adjustments....................................... (4,319,242) 35,822,179 4,443,002
--------------- -------------- --------------
Net cash provided by operating activities............... 6,277,742 59,587,238 21,294,623
--------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions, net.............. (5,358,015) (7,280,958) (3,648,833)
Increases in leases receivable................................ (28,245,242) (11,855,103) (32,230,390)
Proceed from sale of assets................................... 2,797,699 0 0
--------------- -------------- --------------
Net cash used in investing activities................... (30,805,558) (19,136,061) (35,879,223)
--------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.................................. 274,699,000 0 0
Repayments of long-term debt.................................. (96,650,000) (37,000,000) (10,000,000)
Net borrowings (repayments) under revolving credit
agreements.................................................. 26,900,000 22,938,427 35,661,573
Debt prepayment premium....................................... (3,369,323) (1,625,000) 0
Debt issuance costs........................................... (9,741,634) 0 0
Dividend paid................................................. (185,345,533) 0 0
Other......................................................... 3,685,800 (192,000) 0
--------------- -------------- --------------
Net cash provided by (used in) financing activities..... 10,178,310 (15,878,573) 25,661,573
--------------- -------------- --------------
EFFECT OF EXCHANGE RATE FLUCTUATIONS............................ (873,193) 228,540 (114,645)
--------------- -------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (15,222,699) 24,801,144 10,962,328
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................. 46,253,258 21,452,114 10,489,786
--------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................ $ 31,030,559 $ 46,253,258 $ 21,452,114
--------------- -------------- --------------
--------------- -------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................... $ 27,534,402 $ 11,935,717 $ 14,959,218
Income taxes................................................ $ 10,166,964 $ 12,725,475 $ 4,038,000
</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 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
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 years 1997, 1996, and 1995
contained 52, 53, and 52 weeks, respectively.
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 of 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 included in the consolidated
statement of changes in stockholders' deficit.
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 remeasurement of the Subsidiary's financial statements are recognized as
exchange gains or losses in the consolidated statements of income.
The Company recognizes exchange gains and losses from foreign currency
transactions as other income or expense for the period. Losses of approximately
$331,000, $54,000 and $617,000 were recorded in fiscal years 1997, 1996, and
1995, respectively.
FINANCIAL INSTRUMENTS
BBC's financial instruments consist primarily of cash and cash equivalents,
trade receivables, leases receivable, accounts payable, revolving credit
facilities, long-term debt, and certain interest rate agreements (Note 5). In
management's opinion, the carrying amounts of all financial instruments
approximate their fair values at November 1, 1997 and November 2, 1996.
F-8
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
1. NATURE OF BUSINESS (CONTINUED)
The Company uses interest rate exchange agreements in the normal course of
business to manage and reduce the risk inherent in interest rate fluctuations.
Under the interest rate exchange agreements, the Company makes payments to
counterparties at fixed interest rates and, in turn, receives payments at
variable rates. The net settlement amount under the exchange agreements is
reported as an adjustment to interest expense.
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 $79,300,000 and $71,900,000 at November 1, 1997 and November 2,
1996, respectively.
The components of inventory as of November 1, 1997 and November 2, 1996
consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Raw materials........................................ $ 22,170,000 $ 18,847,481
Work in process...................................... 26,695,000 22,915,908
Finished goods....................................... 27,519,544 28,012,413
------------- -------------
Total inventories (LIFO cost).................... $ 76,384,544 $ 69,775,802
------------- -------------
------------- -------------
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
All assets are being depreciated on a straight-line basis over their
estimated useful lives. The following represents 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 income.
F-9
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
1. NATURE OF BUSINESS (CONTINUED)
Depreciation expenses of $5,975,024, $5,516,894, and $5,575,840 were
recorded for the years ended November 1, 1997, November 2, 1996, and October 28,
1995, respectively.
GOODWILL
On April 15, 1992, BBC acquired all of the outstanding capital stock of Blue
Bird Body Company and subsidiaries. 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.
LAND AND IDLE FACILITIES
In fiscal year 1996, BBC had land and idle facilities held for sale located
in Buena Vista, Virginia. During 1997, the land was sold at a gain of
approximately $635,000, which is included in other income in the accompanying
consolidated statements of income.
PRODUCT WARRANTY COSTS
The Company's products are warranted against defects in material and
workmanship for a period of one to five years. The Company provides for future
warranty costs based on the relationship of sales in prior periods to actual
warranty costs incurred with respect to those sales. The provision for estimated
warranty costs is recorded in the year the unit is sold. Warranty costs totaled
$5,688,688, $6,185,115, and $5,313,438 for the years ended November 1, 1997,
November 2, 1996, and October 28, 1995, respectively.
ACCOUNTING STANDARDS YET TO BE ADOPTED
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 129, "Disclosures of
Information about Capital Structure," which will be effective for fiscal 1998.
In June, 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income."
Also in June, 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 130 and No. 131 will be
effective for fiscal 1999.
SFAS No. 129 requires the Company to disclose information about its capital
structure. SFAS No. 130 requires the disclosure of comprehensive income, which
includes all changes in the equity of an enterprise other than transactions with
owners. SFAS No. 131 requires information regarding the segments of a business.
SFAS No. 129 and No. 130 are not expected to have a material effect on the
Company's financial statements or disclosures. The Company has not yet
determined the impact that SFAS No. 131 will have on its financial statements or
disclosures. Other issued but not yet required FASB standards are not currently
applicable to the Company's operations.
F-10
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
1. NATURE OF BUSINESS (CONTINUED)
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 November 2, 1996 and October 28, 1995 balances have been
reclassified to conform with the November 1, 1997 presentation.
2. LEASES RECEIVABLE
During 1995, 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. In addition, the
Company has the ability, at its discretion, to sell leases to a bank. However,
no leases have been sold since fiscal 1995. The Company is required as part of
its agreement with the bank to hold a letter of credit relating to the leases it
has sold to the bank. The letter of credit was $428,000 and $1,053,000 at
November 1, 1997 and November 2, 1996, respectively.
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
1, 1997 and November 2, 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Leases receivable.................................... $ 115,028,226 $ 82,889,596
Unearned interest revenue............................ (12,705,857) (8,812,469)
-------------- -------------
Net leases receivable................................ $ 102,322,369 $ 74,077,127
-------------- -------------
-------------- -------------
</TABLE>
Interest income recognized on leases receivable was $5,309,199, $4,947,064,
and $2,914,928 for the years ended November 1, 1997, November 2, 1996, and
October 28, 1995, 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 5).
F-11
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
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 1, 1997 and
November 2, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash values.......................................... $ 7,455,511 $ 7,302,352
Less life insurance loans.......................... (4,458,000) (4,457,000)
------------- -------------
Net cash surrender value, included in other assets... $ 2,997,511 $ 2,845,352
------------- -------------
------------- -------------
</TABLE>
4. RECAPITALIZATION
On November 19, 1996, the Company completed an overall recapitalization
pursuant to which the Company refinanced approximately $86,000,000 of its
indebtedness, paid a special cash dividend of approximately $185,346,000 on all
shares of its common stock, including $15,840,000 paid to management as owners
of redeemable common stock, and paid a distribution to BBC option holders of
$16,060,000. The dividend paid is recorded as a reduction to retained earnings
in the consolidated statements of changes in stockholders' deficit. The
distribution paid to BBC option holders was recorded as compensation expense and
is included in selling, general, and administrative expenses in the accompanying
consolidated statements of income.
F-12
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
5. LONG-TERM DEBT
Outstanding debt at November 1, 1997 and November 2, 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
10.75% senior subordinated notes, due November 15, 2006; interest payable
semiannually; subordinated to Senior Credit Facility, as defined............... $ 99,713,159 $ 0
Senior Credit Facility term loan, principal and interest payable in quarterly
installments through November 19, 2002; interest payable at the option of BBC
at either the prime rate plus 1.5% or the Eurodollar rate plus 2.5%; at
November 1, 1997 the Company had approximately $5,100,000 at 10% and
$85,000,000 at 8.31%; collateralized by all of the capital stock of the
Company, 66% of the capital stock of Canadian Blue Bird, and substantially all
of the assets of the Company................................................... 90,100,000 0
Senior Credit Facility term loan, principal and interest payable in quarterly
installments through November 19, 2002; interest payable at the option of BBC
at either the prime rate plus 2% or the Eurodollar rate plus 3%; at November 1,
1997 the Company had approximately $6,250,000 at 10.5% and $68,000,000 at
8.81%; collateralized by all of the capital stock of the Company, 66% of the
capital stock of Canadian Blue Bird, and substantially all of the assets of the
Company........................................................................ 74,250,000 0
Blue Bird Capital revolving credit facility with final maturity on March 31,
2000; interest payable quarterly at the option of BBC at either the prime rate
or the Eurodollar rate plus 1.125%; collateralized by all the capital stock of
Blue Bird Capital.............................................................. $ 85,500,000 $ 58,600,000
Industrial development bonds, due March 2001; interest payable quarterly;
interest rate at 3.65% on November 1, 1997; secured by a letter of credit...... 2,750,000 2,750,000
Bank term loan, extinguished as part of the recapitalization..................... 0 36,000,000
11.75% Series B senior subordinated notes, extinguished as part of the
recapitalization............................................................... 0 50,000,000
-------------- --------------
352,313,159 147,350,000
Less current portion of debt..................................................... 12,750,000 16,000,000
-------------- --------------
Long-term debt and bonds payable................................................. $ 339,563,159 $ 131,350,000
-------------- --------------
-------------- --------------
</TABLE>
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
interest) of approximately $54,000,000. The Company recognized an extraordinary
loss of $2,985,845, net of tax benefit, related to the Company's purchase of the
Old Notes, which is included in the accompanying consolidated statements of
income. Holders of the $36,000,000 bank term loan were also paid as part of the
recapitalization.
F-13
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
5. LONG-TERM DEBT (CONTINUED)
The Company's previous bank credit agreement was replaced and refinanced by
an amended credit agreement (the "Senior Credit Facility") which provides for an
aggregate availability of $255,000,000, including $175,000,000 of term loan
facilities and $80,000,000 of revolving credit facilities. The Senior Credit
Facility provides for two term loans and a revolving credit facility. The
revolving credit facility matures in November 2003 and requires interest payable
quarterly at the Company's option of the prime rate plus 1.5% or the Eurodollar
rate plus 2.5%. The weighted average interest rate of the revolving credit
facility was 8.68% for the year ended November 1, 1997. In addition, the
revolving credit facility requires quarterly payments of a commitment fee equal
to .50% per annum of the daily unused portion. No amounts were outstanding under
this revolving credit facility at November 1, 1997. The Senior Credit Facility
contains certain restrictive covenants. The most restrictive covenants include
(1) limitations on indebtedness of the Company, as defined, (2) certain
restrictions on dividend distributions, as defined, (3) limitations on capital
expenditures, (4) minimum interest coverage ratio, as defined, and (5) a maximum
ratio of total debt to earnings before interest, taxes, depreciation, and
amortization. As of November 1, 1997, the Company was in compliance with all of
its covenants.
In addition to the Senior Credit Facility, the Company sold $100,000,000 of
10.75% senior subordinated notes (the "New Notes"). Proceeds from the New Notes,
borrowings under the Senior Credit Facility, and cash on hand were used to fund
the retirement of the Old Notes, the retirement of the $36,000,000 bank term
loan, the payment of the dividend and distribution discussed in Note 4, and the
payment of related fees and expenses. The New Notes are unsecured and contain
certain restrictive covenants. The most restrictive covenants include (1)
limitation of indebtedness, as defined and (2) certain restrictions on dividend
distributions, as defined. As of November 1, 1997, the Company was in compliance
with all of its covenants.
Also, Blue Bird Capital has a revolving credit facility (the "Blue Bird
Capital Revolver"). The maximum capacity of the Blue Bird Capital Revolver is
$100,000,000 subject to meeting certain covenants, as defined. The Blue Bird
Capital Revolver requires quarterly payments of a commitment fee equal to .15%
and .15% as of November 1, 1997 and November 2, 1996, respectively, not to
exceed .275% per annum of the daily unused portion of the credit commitment. The
Blue Bird Capital Revolver contains certain covenants, including net income,
tangible net worth, and interest coverage ratios. All of these covenants have
been met as of November 1, 1997.
In connection with the Senior Credit Facility, BBC purchased interest rate
cap agreements with notional principal amounts totaling $37,000,000 in order to
reduce the impact of fluctuations in interest rates on its variable rate debt.
The interest rate agreements mature at dates ranging from April 1998 to April
1999.
The Company entered into interest rate exchange agreements to hedge its
exposure to fluctuating interest rates related to its variable rate debt. As of
November 1, 1997, the exchanges carry notional principal amounts totaling
$190,000,000 and have an estimated fair value of $300,000, which is calculated
based on the estimated amount the Company would have to pay to terminate the
agreements.
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 which 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 1, 1997.
F-14
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
5. LONG-TERM DEBT (CONTINUED)
The future minimum principal payments by fiscal year of outstanding debt at
November 1, 1997 are as follows:
<TABLE>
<S> <C>
1998.......................................................... $12,750,000
1999.......................................................... 16,750,000
2000.......................................................... 106,250,000
2001.......................................................... 25,500,000
2002.......................................................... 20,850,000
Thereafter.................................................... 170,213,159
-----------
$352,313,159
-----------
-----------
</TABLE>
6. INCOME TAXES
BBC follows the provisions of SFAS No. 109, "Accounting for Income Taxes,"
for financial reporting purposes. 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>
1997 1996
-------------- --------------
<S> <C> <C>
Total deferred tax liabilities................................ $ 30,600,079 $ 31,400,496
Total deferred tax assets..................................... (21,513,931) (17,014,129)
-------------- --------------
Net deferred tax liability.................................... $ 9,086,148 $ 14,386,367
-------------- --------------
-------------- --------------
</TABLE>
The sources of and differences between the financial accounting and tax
basis of BBC's assets and liabilities which give rise to the net deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Stepped-up basis in net assets................................................... $ 20,578,607 $ 20,625,370
Depreciation..................................................................... 1,326,208 1,984,361
Other............................................................................ 8,695,264 8,790,765
------------- -------------
$ 30,600,079 $ 31,400,496
------------- -------------
------------- -------------
Deferred tax assets:
Warranty reserves................................................................ $ 5,189,217 $ 5,247,237
Pension reserve.................................................................. 2,148,331 1,726,652
Deferred compensation reserve.................................................... 3,591,086 3,346,739
Workers' compensation reserve.................................................... 1,769,930 1,761,631
Net operating loss carryforward.................................................. 4,241,789 0
Other............................................................................ 4,573,578 4,931,870
------------- -------------
$ 21,513,931 $ 17,014,129
------------- -------------
------------- -------------
</TABLE>
F-15
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
6. INCOME TAXES (CONTINUED)
The components of the (benefit) provision for income taxes as of November 1,
1997, November 2, 1996, and October 28, 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal........................................................... $ 0 $ 13,117,275 $ 9,945,714
Foreign........................................................... 827,519 596,516 542,000
State............................................................. 0 1,366,895 1,193,331
------------- ------------- -------------
Total current................................................... 827,519 15,080,686 11,681,045
------------- ------------- -------------
Deferred:
Federal and state................................................. (5,300,219) (1,043,058) 5,011
Foreign........................................................... 0 (3,649) 0
------------- ------------- -------------
Deferred, net..................................................... (5,300,219) (1,046,707) 5,011
------------- ------------- -------------
Tax (benefit) provision, net........................................ $ (4,472,700) $ 14,033,979 $ 11,686,056
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Income from foreign operations was approximately $1,586,000, $1,630,000, and
$340,000 for the years ended November 1, 1997, November 2, 1996, and October 28,
1995, respectively.
The Company has net operating loss carryforwards of approximately
$12,000,000 which expire in 2012.
The income tax (benefit) provision as of November 1, 1997, November 2, 1996,
and October 28, 1995 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>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Income tax computed at statutory rates.............................. $ 3,807,585 $ 14,018,446 $ 9,988,188
Foreign tax impact.................................................. 0 0 (119,078)
Tax-exempt interest income.......................................... (1,684,033) (1,372,866) (700,359)
State income taxes, net of federal income tax effect................ (271,219) 942,976 775,665
Tax benefit for dividend on redeemable common stock................. (5,551,000) 0 0
Goodwill amortization............................................... 1,300,024 1,296,524 1,307,024
Other............................................................... (305,371) (12,737) 434,616
------------- ------------- -------------
(2,704,014) 14,872,343 11,686,056
Extraordinary item.................................................. (1,768,686) (838,364) 0
------------- ------------- -------------
$ (4,472,700) $ 14,033,979 $ 11,686,056
------------- ------------- -------------
------------- ------------- -------------
</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.
F-16
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
7. 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 $3,333,846,
$3,857,044, and $3,399,151, for the years ended November 1, 1997, November 2,
1996, and October 28, 1995, respectively.
The board of directors adopted a supplemental excess retirement plan (the
"Unqualified 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 (the "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.
Net pension cost for the U.S. defined benefit plans includes the following
as of November 1, 1997, November 2, 1996, and October 28, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Service costs/benefits earned during the period..................... $ 1,822,381 $ 1,860,568 $ 1,337,279
Interest costs on projected benefit obligations..................... 3,716,925 3,486,859 3,320,053
Return on plan assets............................................... (13,413,777) (8,793,737) (8,189,694)
Net amortization and deferral....................................... 9,152,326 5,377,327 5,453,920
-------------- ------------- -------------
Net periodic pension costs.......................................... $ 1,277,855 $ 1,931,017 $ 1,921,558
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-17
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
7. BENEFIT PLANS (CONTINUED)
The following table sets forth these plans' funded status at November 1,
1997:
<TABLE>
<CAPTION>
DEFINED
BENEFIT UNQUALIFIED RABBI
PENSION PLANS PLAN TRUST
-------------- ------------- -----------
<S> <C> <C> <C>
Pension benefit obligation:
Vested benefits..................................................... $ (47,205,512) $ (3,284,588) $ (300,000)
Nonvested benefits.................................................. (995,309) 0 0
-------------- ------------- -----------
Accumulated benefit obligation........................................ $ (48,200,821) $ (3,284,588) $ (300,000)
-------------- ------------- -----------
-------------- ------------- -----------
Projected benefit obligation.......................................... $ (54,775,650) $ (3,284,588) $ (300,000)
Market value of plan assets........................................... 62,162,848 0 0
-------------- ------------- -----------
Overfunded (unfunded) projected benefit obligation.................... 7,387,198 (3,284,588) (300,000)
Unrecognized net gain................................................. (13,098,229) 0 0
Unrecognized prior service costs...................................... 30,359 0 0
-------------- ------------- -----------
Pension liability recognized in balance sheets........................ $ (5,680,672) $ (3,284,588) $ (300,000)
-------------- ------------- -----------
-------------- ------------- -----------
</TABLE>
Assets of the salaried and hourly plans are invested primarily in U.S.
government securities, common stock funds, and cash management funds. For 1997,
1996, and 1995, the discount rate and expected long-term rate of return on
assets were both approximately 8.0%. The expected average rate of increase in
future compensation levels used is 4.8%.
The 401(k) plan for domestic employees and the pension plan covering
Canadian employees are defined contribution plans. Total expenses under such
plans for the years ended November 1, 1997, November 2, 1996, and October 28,
1995 amounted to $2,055,991, $1,926,026, and $1,477,593, respectively.
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
consolidated balance sheets.
8. DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT BENEFITS
At November 1, 1997 and November 2, 1996, the accompanying financial
statements reflect liabilities for anticipated payment of deferred compensation
and supplemental retirement benefits described above in the amounts of $992,151
and $1,077,086, respectively.
9. REDEEMABLE COMMON STOCK AND STOCK SUBSCRIPTIONS RECEIVABLE
Redeemable common stock represents shares of common stock purchased by
members of management ("Management Investors"). 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
F-18
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
9. REDEEMABLE COMMON STOCK AND STOCK SUBSCRIPTIONS RECEIVABLE (CONTINUED)
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.
During 1997, the Company redeemed 10,000 shares of redeemable common stock
at the accreted value. In addition, the Company issued 20,000 shares of
redeemable common stock. As a result, the number of redeemable common shares
outstanding as of November 1, 1997 and November 2, 1996 was 730,000 and 720,000,
respectively.
Stock subscriptions receivable represented notes due from members of
management. Interest was payable annually at a rate of 8%. The stock
subscription receivable was paid as part of the recapitalization (Note 4).
10. LEASES
Rental expenses for operating leases were approximately $1,616,032,
$1,194,880, and $1,625,000 for the years ended November 1, 1997, November 2,
1996, and October 28, 1995, respectively. Operating leases relate primarily to
warehouse equipment. The future minimum lease payments under operating leases by
fiscal year as of November 1, 1997 are approximately as follows:
<TABLE>
<S> <C>
1998............................................................ $ 946,587
1999............................................................ 824,543
2000............................................................ 385,051
2001............................................................ 322,675
2002............................................................ 237,674
---------
$2,716,530
---------
---------
</TABLE>
11. CONTINGENCIES
As of November 1, 1997, 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 is 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
F-19
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 1, 1997, NOVEMBER 2, 1996, AND OCTOBER 28, 1995
12. MANAGEMENT STOCK OPTION PLAN (CONTINUED)
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 vested ratably over five years based on BBC's achieving
certain levels of earnings performance, as defined in the Plan, and are fully
vested as of November 1, 1997. During the year ended November 1, 1997, options
for 10,000 shares were exercised, and options for 40,000 shares were granted.
The 10,000 options exercised were for redeemable common stock and were
subsequently redeemed by the Company at the accreted value. As a result, the
Company had 760,000 and 730,000 options to purchase shares outstanding as of
November 1, 1997 and November 2, 1996, respectively.
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value-based method of accounting for an
employee stock option plan. However, it also allows an entity to continue to
measure compensation cost using the method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities electing to remain with the accounting in APB Opinion
No. 25 must make pro forma disclosures of net income as if the fair value-based
method of accounting had been applied.
The Company has elected to account for its stock-based compensation plan
under APB Opinion No. 25 and has computed its pro forma disclosures using the
appropriate assumptions in accordance with SFAS No. 123. As such, the value of
the options granted since the establishment of SFAS No. 123 and their related
costs would have caused the Company to recognize additional expense of $38,000
on a pro forma basis.
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..................................................... i
Prospectus Summary........................................................ 1
Summary Financial Data.................................................... 5
Risk Factors.............................................................. 7
The Recapitalization...................................................... 14
Use of Proceeds........................................................... 15
Capitalization............................................................ 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 17
Business..................................................................
Management................................................................ 34
Ownership of Capital Stock................................................ 42
Certain Relationships and Related Transactions............................ 44
Description of Debt Facilities............................................ 45
Description of the Exchange Notes......................................... 49
Description of Certain Federal Income Tax Consequences of an Investment in
the Notes............................................................... 75
Book-Entry, Delivery and Form............................................. 77
Plan of Distribution......................................................
Legal Matters............................................................. 79
Experts................................................................... 79
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
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Inapplicable.
ITEM 14. 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 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Securities sold.
As part of the Recapitalization, the Selling Holders sold their Old Notes to
the Company for aggregate payments (including accrued interest) of approximately
$53.7 million. The Old Credit Agreement, under which $36 million of indebtedness
was outstanding at November 2, 1996, was replaced and refinanced by the New
Credit Agreement, which provides for, among other things, aggregate availability
of $255 million, including $175 million of term loan facilities and an $80
million working capital facility. In addition, the Company offered and sold
$100,000,000 aggregate principal amount of 10 3/4% Senior Subordinated Notes due
2006 (the "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.
As a result of the Recapitalization, no Old Notes remain outstanding.
As of January 26, 1997, all of the 144A Notes have been exchanged for the
Exchange Notes. The Exchange Notes are registered securities of the Company. No
144A Notes remain outstanding.
(b) Underwriters and other purchasers.
II-1
<PAGE>
There were no underwriters involved in the sales of securities described in
(a) above. Merrill Lynch acted as placement agent in connection with the sale of
the 144A Notes.
(c) Consideration.
See (a) above.
(d) Exemption from registration claimed.
The 144A Notes were not offered or sold in transactions involving any public
offering and, accordingly, were exempt from registration under Section 4(2) of
the Securities Act of 1933. Purchasers of the 144A Notes represented to the
Company that such purchasers were accredited investors as such term is defined
in Regulation D of the Securities Act.
ITEM 16. 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).
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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
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).
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.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
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-4
<PAGE>
ITEM 17. 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) 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-5
<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 30, 1998.
<TABLE>
<S> <C> <C>
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
</TABLE>
II-6
<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 30, 1998.
BLUE BIRD BODY COMPANY
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------------------ ---------------------------------------------
<C> <S>
/S/ PAUL E. GLASKE
---------------------------------------------------- Chairman of the Board and President and
Paul E. Glaske Director (Principal Executive Officer)
Vice President--Finance and Administration,
/s/ BOBBY G. WALLACE Treasurer and Secretary and Director
---------------------------------------------------- (Principal Financial and Accounting
Bobby G. Wallace Officer)
/s/ GERALD S. ARMSTRONG
---------------------------------------------------- Director
Gerald S. Armstrong
/s/ ALEXIS P. MICHAS
---------------------------------------------------- Director
Alexis P. Michas
/s/ DONALD C. TRAUSCHT
---------------------------------------------------- Director
Donald C. Trauscht
/s/ ALFRED C. DAUGHERTY
---------------------------------------------------- Director
Alfred C. Daugherty
</TABLE>
II-7
<PAGE>
BLUE BIRD CORPORATION
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------------------ ---------------------------------------------
<C> <S>
/S/ PAUL E. GLASKE
---------------------------------------------------- Chairman of the Board and President and
Paul E. Glaske Director (Principal Executive Officer)
/s/ BOBBY G. WALLACE Vice President and Treasurer and Secretary
---------------------------------------------------- and Director (Principal Financial and
Bobby G. Wallace Accounting Officer)
/s/ GERALD S. ARMSTRONG
---------------------------------------------------- Director
Gerald S. Armstrong
/s/ ALEXIS P. MICHAS
---------------------------------------------------- Director
Alexis P. Michas
/s/ DONALD C. TRAUSCHT
---------------------------------------------------- Director
Donald C. Trauscht
/s/ ALFRED C. DAUGHERTY
---------------------------------------------------- Director
Alfred C. Daugherty
</TABLE>
II-8
<PAGE>
INDEX TO 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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
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.*
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.
<PAGE>
February 3, 1998
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Re: Blue Bird Body Company Post-Effective
Amendment No. 2 on Form S-1 to Registration Statement
on Form S-4 File No. 333-17515
Originally Filed December 9, 1996
Ladies and Gentlemen:
On behalf of Blue Bird Body Company, a Georgia corporation ("Blue Bird"),
submitted for filing under the Securities Act of 1933, as amended (the
"Securities Act"), is a Post-Effective Amendment No. 2 on Form S-1 (the
"Post-Effective Amendment") to Blue Bird's Registration Statement on Form S-4,
including exhibits (the "Registration Statement"), relating to Blue Bird's 10
3/4% Senior Subordinated Notes, Series B (the "Exchange Notes"). Blue Bird
Corporation, a Delaware Corporation and the owner of 100% of the capital stock
of Blue Bird, also registered under the Registration Statement its guarantee of
the Exchange Notes (the "Guarantee"). The Post-Effective Amendment is being
submitted electronically pursuant to Item 101(a)(1)(i) of Regulation S-T.
THE PURPOSE OF THIS POST-EFFECTIVE AMENDMENT IS (1) TO UPDATE THE
REGISTRATION STATEMENT TO REFLECT YEAR-END FINANCIAL INFORMATION FOR BLUE BIRD
AND BLUE BIRD CORPORATION AND (2) TO FILE A MARKET-MAKING PROSPECTUS SO THAT
MERRILL LYNCH & CO. CAN EFFECT MARKET-MAKING TRANSACTIONS IN THE EXCHANGE NOTES.
It is our hope that the Staff will be able to declare this Post-Effective
Amendment effective immediately. Accordingly, it would be helpful if you would
advise us as soon as possible concerning the review status of the Post-Effective
Amendment.
If you have any questions about this filing or require any additional
information or documents, please direct them to the undersigned at (404)
522-4700. We appreciate your prompt attention to this matter.
Very truly yours,
/s/ MICHAEL ROSENZWEIG
--------------------------------------
Michael Rosenzweig
Enclosures
cc: Blue Bird Corporation
Blue Bird Body Company
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made part of this
Registration Statement.
Arthur Andersen LLP
Atlanta, Georgia
January 30, 1998
