<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999
REGISTRATION NO. 333-17515
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 3
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>
BLUE BIRD BODY COMPANY
[LOGO]
$100,000,000 10 3/4% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B
------------------
MATURITY:
- - November 15, 2008
REDEMPTION:
- - We may redeem the notes at any time after November 15, 2001.
- - Before November 15, 1999, we may redeem up to $25 million of the notes with
the proceeds of certain public offerings of equity in our company that we
make.
CHANGE OF CONTROL TRIGGERING EVENT:
- - If we experience specific kinds of changes in control, note holders can
require us to repurchase the notes.
GUARANTOR:
- - If we cannot make payments on the notes when due, our parent company has
guaranteed payment on an unsecured, senior subordinated basis.
RANKING:
- - These notes are senior subordinated debts. They rank behind all of our current
and future indebtedness (other than trade payables) unless the terms of any
future indebtedness expressly provide otherwise.
INTEREST:
- - Fixed annual rate of 10 3/4%.
- - Paid every six months on May 15 and November 15.
SEE "RISK FACTORS," BEGINNING ON PAGE 7, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THESE NOTES.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR PASSED UPON THE ADEQUACY
OR ACCURACY 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. MERRILL LYNCH MAY
DISCONTINUE ITS MARKET-MAKING ACTIVITIES ANY TIME WITHOUT NOTICE, AT ITS SOLE
DISCRETION. THE COMPANY WILL RECEIVE NO PORTION OF THE PROCEEDS OF THE SALE OF
SUCH EXCHANGE NOTES AND WILL BEAR EXPENSES INCIDENT TO THE REGISTRATION THEREOF.
------------------------
MERRILL LYNCH & CO.
The date of this Prospectus is February , 1999.
<PAGE>
PROSPECTUS SUMMARY
ON THE COVER PAGE, IN THIS SUMMARY AND IN THE "RISK FACTORS" SECTION, THE
WORDS "COMPANY," "BLUE BIRD," "WE," "OUR," "OURS" AND "US" REFER ONLY TO BLUE
BIRD BODY COMPANY AND NOT TO ANY OF OUR SUBSIDIARIES OR TO BLUE BIRD
CORPORATION, WHICH OWNS ALL OF THE COMMON STOCK OF THE COMPANY. ALSO, THE WORDS
"EXCHANGE NOTES" AND "NOTES" REFER TO THE NOTES BEING OFFERED IN THIS
PROSPECTUS. WHEN WE USE THE TERM "FISCAL YEAR", WE MEAN THE 52- OR 53- WEEK
PERIOD ENDING ON THE SATURDAY NEAREST OCTOBER 31 OF THAT YEAR. UNLESS STATED
OTHERWISE, MARKET SHARE AND OTHER DATA GIVEN FOR A PARTICULAR YEAR REFER TO THE
COMPANY'S FISCAL YEAR. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT
THIS OFFERING. IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT
TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS OFFERING, WE ENCOURAGE YOU TO
READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED YOU TO.
THE COMPANY
The Company is the leading manufacturer of school buses in North America.
Approximately 77% of the Company's net sales in fiscal 1998 were derived from
sales of school bus products. The Company also makes commercial buses and
recreational vehicles, which target purchasers of buses other than for school
transportation. Approximately 18% of the Company's fiscal 1998 net sales were
for commercial vehicles and 5% were for recreational vehicles. For fiscal year
1998, net sales were $626.4 million and earnings before income taxes,
depreciation and amortization were $78.1 million.
We manufacture both steel bus bodies that are mounted on chassis made by
others and complete bus units (both body and chassis). A chassis usually
consists of a frame with an engine, transmission, drive train, axles, wheels,
power steering, brakes and fuel cells. We market our products through a network
of about 65 independent distributors, who resell our products to customers. Our
customers include municipalities, states, transportation- contracting companies,
churches and other organizations. We estimate that a total of 33,400 school bus
units were sold in the United States during fiscal year 1998. During fiscal year
1998, the Company sold approximately 14,310 school bus units and believes that
it had a 42% market share.
We also provide lease financing alternatives, principally to our tax-exempt
customers, through our special-purpose lease financing subsidiary, Blue Bird
Capital Corporation. We believe that offering alternative lease packages to our
customers gives us a significant competitive advantage.
The Company's business strategy is to use its leading market position in the
school bus market as a platform to expand its product offerings to other
transportation market segments, such as the shuttle bus market, the small urban
bus market and the "line haul" or inter-city coach market. In the school bus
market, we will continue to strengthen our distributor network, reflecting our
belief that distributor sales, as opposed to direct sales to states and large
transportation contracting companies, provide the greater potential for growth
and profit opportunities.
The Company's principal executive offices are located at 3920 Arkwright
Road, Macon, Georgia 31210 and our telephone number is (912) 757-7100.
THE RECAPITALIZATION
On November 19, 1996, the Company completed an overall recapitalization in
which we refinanced approximately $86 million in debt and paid a special cash
dividend to our parent company, Blue Bird Corporation, of $201.4 million. Blue
Bird Corporation in turn immediately declared a special cash dividend in the
total amount of $201.4 million on all of its shares of common stock and on
options to puchase its common stock. Holders of Blue Bird Corporation common
stock options were not required to exercise their options to receive the special
cash dividend, and therefore did not receive an antidilution adjustment to the
exercise price for their options.
1
<PAGE>
Of the $86 million in indebtedness refinanced in the recapitalization, $50
million principal amount of the Company's 11 3/4% Senior Subordinated Notes due
2002, Series B, were purchased for $53.7 million (including accrued interest)
and $36 million outstanding under the Company's then-existing bank credit
agreement was replaced with an amended and restated credit agreement. Under this
new credit agreement, up to $255 million was made available to the Company, of
which $175 million was structured as a term loan and $80 million was structured
as a revolving loan. In the recapitalization, the Company also sold $100,000,000
in principal amount of 10 3/4% Senior Subordinated Notes due 2002 (the "144A
Notes"). The Company used amounts received from the sale of the 144A Notes, the
borrowings under the new credit agreement and cash on hand to purchase the
11 3/4% Senior Subordinated Notes due 2002, Series B, refinance the old credit
agreement and pay the cash dividend referred to above.
Under the terms of the sale of the 144A Notes, the purchasers of these notes
were entitled to exchange the 144A Notes for the Exchange Notes and to register
the Exchange Notes under the Securities Act of 1933.
THE OFFERING
THE EXCHANGE NOTES HAVE THE SAME TERMS AND CONDITIONS AS THE 144A NOTES,
EXCEPT THE EXCHANGE NOTES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT AND
EXCHANGE NOTE HOLDERS DO NOT HAVE ANY FURTHER REGISTRATION RIGHTS.
<TABLE>
<S> <C>
Total Amount of Exchange Notes Offered....... $100,000,000 million in principal amount of
10 3/4% Senior Subordinated Notes due 2006,
Series B.
Maturity..................................... November 15, 2006.
Interest..................................... Annual Rate--10 3/4%
Payment Frequency: every six months on May 15
and November 15.
First payment: May 15, 1997
Optional Redemption.......................... On or after November 15, 2001, the Company
may redeem some or all of the Exchange Notes
at any time at the redemption prices listed
in the section "Description of Exchange
Notes" under the heading "Optional
Redemption."
Before November 15, 1999, we may redeem up to
$25 million of the Exchange Notes with the
proceeds of certain public offerings of
equity in our Company at the price listed in
the section "Description of Notes" under the
heading "Optional Redemption."
Change of Control Triggering Event........... If a change of control of the Company occurs,
an Exchange Note holder can require the
Company to purchase some or all of the notes
at the price listed in the section
"Description of Notes" under the heading
"Change of Control Triggering Event."
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Ranking...................................... These notes are unsecured, senior
subordinated debts. They rank behind all of
our current and future indebtedness, except
for trade payables and indebtedness that
expresly provides that it is not senior to
these notes, and are structurally subordinate
to the indebtedness of our special purpose
leasing subsidiary.
ASSUMING WE HAD COMPLETED THIS OFFERING ON
OCTOBER 31, 1998 AND APPLIED THE PROCEEDS AS
INTENDED, THESE NOTES:
- would have been subordinate to $154.4
million of Senior Debt;
- would have been structurally
subordinate to $94.5 million of debt of
our special purpose lease financing
subsidiary.
Guarantor.................................... Our parent company, Blue Bird Corporation,
has guaranteed the payment of the Exchange
Notes on an unsecured, senior subordinated
basis.
Basic Covenants of Indenture................. The Exchange Notes were issued under an
indenture with The Chase Manhattan Bank. The
indenture will, among other things, restrict
our ability to:
- Borrow money;
- Make certain restricted payments;
- Sell certain assets
- Use assets as security in other
transactions;
- Make guarantees; and
- Pay dividends.
Some of these restrictions apply to our
parent company and subsidiaries. For more
details, see the section "Description of the
Exchange Notes" under the heading "Certain
Covenants."
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Trading Market for the Notes................. There is no established trading market for
these Notes. Merrill Lynch has told us that
it intends to make a market for these notes,
but it is not obligated to do so and it can
stop its marketing-making activities at any
time without notice. We have not applied, and
do not intend to apply, for listing of these
notes on any securities exchange or for
quotation through the NASDQ National Market
System or any other quotation system.
Use of Proceeds.............................. This Prospectus is delivered in connection
with market-making activities by Merrill
Lynch. The Company will not receive any
proceeds from those activities.
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
OCTOBER 31, 1998
---------------------
<S> <C>
Ratio of earnings to fixed Charges............................................................ 1.9x
</TABLE>
See the section "Risk Factors" beginning on page 7 for a discussion of
certain factors you should consider before deciding to purchase the notes.
4
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below is certain summary historical consolidated financial
information for BBC as of and for the fiscal years 1998, 1997 and 1996. 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 31,
1998 NOVEMBER 1, 1997 NOVEMBER 2, 1996
--------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales.................................................. $ 626.4 $ 576.1 $ 570.2
Cost of goods sold......................................... 515.1 473.4 474.1
------ ------ ------
Gross profit............................................... 111.3 102.7 96.1
Selling, general and administrative expenses............... 48.0 62.4 42.6
Amortization of goodwill and noncompete agreements......... 3.8 3.8 3.8
------ ------ ------
Operating income........................................... 59.5 36.5 49.7
Interest income............................................ 7.4 6.3 7.0
Interest expense........................................... (34.6) (33.8) (16.9)
Other income, net.......................................... 1.0 1.9 .2
------ ------ ------
Income before income taxes................................. 33.3 10.9 40.0
Provision (benefit) for income taxes....................... 11.6 (2.7) 14.8
------ ------ ------
Net income before extraordinary item....................... 21.7 13.6 25.2
Loss on extinguishment of debt............................. 0 (3.0) (1.4)
------ ------ ------
Net Income............................................... $ 21.7 $ 10.6 $ 23.8
OTHER FINANCIAL DATA AND RATIOS:
EBITDA(a).................................................. $ 78.1 $ 54.5 $ 66.3
Adjusted EBITDA (b)........................................ 77.6 53.8 61.2
Capital expenditures....................................... 4.7 5.4 7.3
Ratio of Adjusted EBITDA to Adjusted Cash Interest Expense
(b)...................................................... 2.8x 1.9x 5.3x
Ratio of earnings to fixed charges(c)...................... 1.9x 1.2x 3.3x
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
OCTOBER 31, NOVEMBER 1,
1998 1997
--------------- -----------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Working capital................................................................ $ 113.7 $ 99.3
Total assets................................................................... 450.0 412.5
Total long-term debt, excluding current maturities............................. 329.7 339.6
Redeemable common stock, net................................................... 48.4 20.7
Stockholders' equity (deficit)................................................. (52.6) (45.1)
</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), 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
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT,
INCLUDING, IN PARTICULAR, THE STATEMENTS ABOUT THE COMPANY'S PLANS, STRATEGIES,
AND PROSPECTS UNDER THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
ALTHOUGH WE BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR
SUGGESTED BY SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO
ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS ARE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE FOLLOWING CAUTIONARY STATEMENTS.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THE
FINANCIAL HEALTH OF THE COMPANY AND PREVENT US FROM FULFILLING OUR OBLIGATIONS
UNDER THESE NOTES.
Because of the Recapitalization, we have had, currently have and will
continue to have a significant amount of indebtedness. The following chart shows
certain important credit statistics and is presented as of the dates or at the
beginning of the periods specified below:
<TABLE>
<CAPTION>
AT OCTOBER 31,
1998
------------------
<S> <C>
Total indebtedness........................................................ $ 346.5 million
Stockholders' equity (deficit)............................................ $ (52.6) million
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
OCTOBER 31, 1998
---------------------
<S> <C>
Ratio of earnings to fixed
Charges................................................................... 1.9x
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example it could:
- make it more difficult for us to satisfy our obligations with respect to
these notes;
- increase our vulnerability to general economic and industry conditions;
- limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development costs and other general corporate
requirements;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- increase our vulnerability to higher interest rates as a result of our
borrowings under the new credit agreement, which has variable interest
rates;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, our ability to borrow additional funds. And, failing to
comply with those covenants could result in an event of default which, if
not cured or waived, could have a material adverse effect on us.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Liquidity and Capital Resources."
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
7
<PAGE>
Our ability to make payments on and to refinance our indebtedness, including
these notes, and to fund planned capital expenditures and research and
development costs will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our credit facility will be adequate to meet our
future liquidity needs for at least the next few years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our credit facility in an amount sufficient to enable us
to pay our indebtedness, including these notes, or to fund our other liquidity
needs. Because the new credit facility matures before the maturity date of these
notes, we will need to refinance all or a portion of our indebtedness before the
maturity of these notes. We cannot assure you that we will be able to refinance
any of our indebtedness, including the new credit facility and these notes, on
commercially reasonable terms or at all.
ADDITIONAL BORROWINGS AVAILABLE--DESPITE CURRENT INDEBTEDNESS LEVELS, WE, OUR
PARENT COMPANY AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY
MORE DEBT. THIS COULD FURTHER INCREASE THE RISKS DESCRIBED ABOVE.
We, our parent company and our subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of the indenture do not fully
prohibit us, our parent company or our subsidiaries from doing so. The new
credit facility permits additional borrowing of up to $80.0 as of October 31,
1998, and all of those borrowings would be senior to these notes and the parent
company guarantee. If new debt is added to our collective debt levels, the
related risks that we and they now face could intensify.
See "Capitalization," "Selected Financial Data," "Description of the
Exchange Notes--Change of Control Triggering Event" and "Description of Debt
Facilities."
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR
EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE
GUARANTEE OF THESE NOTES IS JUNIOR TO OUR PARENT COMPANY'S EXISTING INDEBTEDNESS
AND POSSIBLY TO ALL OF ITS FUTURE BORROWINGS.
These notes and our parent company's guarantee rank behind all of our and
our parent company's existing indebtedness (other than trade payables and
similar obligations). They may also rank behind all of our and our parent
company's future borrowings (other than trade payables and similar obligations),
except any future indebtedness that expressly provides that it ranks equally
with, or is subordinated in right of payment to, these notes and the guarantee.
In addition, claims of Exchange Note holders will be effectively subordinated to
the claims of creditors (including trade creditors) of our subsidiaries,
including our foreign and lease finance subsidiaries. Thus, creditors, including
trade creditors, of these subsidiaries will have payment priority with respect
to the assets and earnings of these subsidiaries over the claims of the Company
and our creditors, including holders of these notes. As a result, upon any
distribution to our creditors, our parent company's creditors or our
subsidiaries' creditors in a bankruptcy, liquidation or reorganization or
similar proceeding relating to us, our parent company, our subsidiaries or our
respective property, the holders of senior debt will be entitled to be paid in
full in cash before any payments may be made on these notes or on the parent
company guarantee.
If any payments or distributions of our assets are made to creditors in any
bankruptcy, liquidation or reorganization or similar proceeding, senior debt
holders will receive payment in full first before the holders of these notes
receive any payments. If we default in payment of any senior debt, we cannot
make any payments on these notes unless and until the default is cured or
waived. If we default for other reasons under the senior debt and the holders of
that debt are then entitled to accelerate the maturity date of that debt, no
payments may be made on these notes for up to 179 days.
8
<PAGE>
Our parent company, Blue Bird Corporation, has guaranteed these notes on an
unsecured, subordinated basis. Currently, our parent company conducts no
business other than holding our capital stock and has no other significant
assets. Its guarantee is subordinated in right of payment to the guarantee it
provided under the new credit agreement. There are no additional resources of
our parent company to which the holders of these notes may look for payment
under our parent company guarantee than are available to them directly from us.
As of October 31, 1998, these notes and the parent company guarantee are
subordinated to $154.4 million of senior debt and approximately $80.0 million
was available for borrowing as additional senior debt under the new credit
facility. We will be permitted to borrow substantial additional indebtedness,
including senior debt, in the future under the terms of the indenture.
See "Description of Debt Facilities," "Description of the Exchange
Notes--Subordination" and "Description of Exchange Notes--Note Guarantees."
NEW CREDIT AGREEMENT RESTRICTIONS--THE NEW CREDIT AGREEMENT RESTRICTS OUR AND
OUR PARENT COMPANY'S ABILITY TO INCUR INDEBTEDNESS OR PLEDGE ASSETS TO SECURE
SUCH INDEBTEDNESS. WE AND OUR PARENT COMPANY HAVE PLEDGED SUBSTANTIALLY ALL OF
OUR ASSETS TO SECURE THE OBLIGATIONS UNDER THE NEW CREDIT AGREEMENT.
The new credit agreement contains financial and other covenants that require
us to maintain certain financial ratios and limit our and our parent company's
ability to incur additional debt or to pledge any of our or their assets. The
amortization schedule under the new credit agreement also requires us to make
substantial prepayments prior to maturity. Our ability to comply with these
types of provisions may be affected by events beyond our control. If we cannot
comply with these provisions, we cannot assure you that we will be able to
obtain waivers of, or amendments to, such provisions. Failure to obtain such
waivers or amendments could have a material adverse effect upon us and our
ability to meet our obligations under these notes. Failure to make payments
required under the new credit agreement, or to comply with financial and
operating covenants, could result in a default under that agreement, which would
permit the lenders to accelerate maturity of the indebtedness under the new
credit agreement and foreclose upon the collateral pledged. Depending upon
actions taken by the lenders under the new credit agreement in such cases, we
could be delayed or precluded from making payments on these notes. Such an
acceleration could also result in the acceleration of other indebtedness that
contains cross-acceleration or cross-default provisions. The indenture also
contains certain covenants which, if we do not comply with them, would result in
a default under the indenture. Such a default would permit holders of these
notes to accelerate the maturity date. Any such default or acceleration could
also result in default or acceleration of our other indebtedness.
Our obligations under the new credit agreement are secured by substantially
all of our assets. If we default under the new credit agreement, the lenders
under that agreement could foreclose on our assets. In such circumstances, the
new credit agreement lenders would not only have the benefits of subordination
with respect to the notes but also have a prior claim on our, and our parent
company's assets. If the lenders under the new credit agreement accelerate the
maturity of such indebtedness, we cannot assure you that we will have sufficient
assets to satisfy our obligations under these notes.
Our special purpose leasing subsidiary, Blue Bird Capital Corporation, is a
party to a credit facility agreement with LaSalle National Bank, as agent for
itself and other lenders. Revolving loans under the LaSalle facility are used to
finance lease financing operations of Blue Bird Capital. Loans from LaSalle to
Blue Bird Capital are secured by a limited recourse pledge by us to LaSalle of
all of the common stock of Blue Bird Capital. We have also agreed to subordinate
any indebtedness owed to us by Blue Bird Capital to obligations Blue Bird
Capital owes to LaSalle. This facility contains financial and other covenants,
including covenants requiring Blue Bird Capital to maintains certain financial
ratios and limiting its ability to borrow money or pledge its assets. The
facility also requires Blue Bird Capital to repay certain amounts of the debt by
certain dates. If Blue Bird Capital fails to make the required payments or
comply with the
9
<PAGE>
financial and operating covenants, that failure could have a material adverse
effect on us and our ability to meet our obligations under these notes.
Our debt under the new credit agreement bears interest at variable rates,
based upon changes in certain prevailing interest rates. The new credit
agreement may require us to enter into interest rate protection arrangements for
a portion of the term loan facility contained in the agreement. The LaSalle
facility also bears interest at variable rates, based upon changes in certain
prevailing interest rates, although the rate may be fixed for limited periods of
time.
See "Description of Debt Facilities--Senior Bank Financing," and
"Description of Debt Facilities-- LaSalle Credit Agreement," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Leasing."
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO FURTHER SUBORDINATE OR INVALIDATE THESE NOTES OR TO
VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS.
Because a portion of the funds that we received from the new credit
agreement and the 144A Notes in the recapitalization were used to pay dividends
to our parent company, which in turn paid a dividend to it common stock and
common stock option holders, it is possible that a court could review these
notes under federal and state fraudulent conveyance laws in a bankruptcy or
similar proceeding or in a lawsuit brought by one of our unpaid creditors. Under
these fraudulent conveyance laws, if a court found that at the time these notes
were issued, we:
- issued them with the intent of hindering, delaying or defrauding any
current or future creditor; or
- received less than reasonably equivalent value or fair consideration for
issuing these notes; AND
- were insolvent or were made insolvent because of the recapitalization
and related transactions; or
- were engaged in a business or transaction for which our assets
constituted unreasonably small capital; or
- intended to incur, or believed that we would incur, debts beyond our
ability to pay as they matured; or
- were a defendant in an action for money damages or had a judgment for
money damages docketed against us, which was unsatisfied
then the court could subordinate these notes to our present and future
indebtedness or take other detrimental actions, including invalidating these
notes.
Our parent company's guarantee of these notes could be similarly
subordinated or invalidated if a court found that at the time the guarantee was
given, our parent company:
- guaranteed the notes with the intent of hindering, delaying or defrauding
any current or future creditor; or
- received less than reasonably equivalent value or fair consideration for
guaranteeing these notes; AND
- were insolvent or were made insolvent because of the recapitalization
and related transactions; or
- was engaged in a business or transaction for which our assets
constituted unreasonably small capital; or
10
<PAGE>
- intended to incur, or believed that we would incur, debts beyond its
ability to pay as they matured; or
- were a defendant in an action for money damages or had a judgment for
money damages docketed against us, which was unsatisfied.
In addition, any payment by the parent company as guarantor under the
guarantee could be voided and required to be repaid to our parent company or to
a fund for the benefit of the creditors of our parent company.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, the Company or the
parent company would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets, or
- the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature, or
- it could not pay its debts as they become due.
Our parent company believes that at the time it gave its guarantee and when
the recapitalization was completed, it was not insolvent, it had sufficient
capital to meet its obligations as they matured and to operate its business
effectively and it had not incurred debts beyond its ability to pay as they
matured. We believe that at the time the recapitalization was completed and
these notes were issued, we were not insolvent, we had sufficient capital to run
our business effectively, we had not incurred debts beyond our ability to pay as
they matured and we had sufficient assets to satisfy all probable money
judgements against us in any pending action. In making these determinations,
both we and our parent company relied upon various valuations and cash flow
estimates, which involved a number of assumptions, including methodology and
economic, market, financial and other conditions. We cannot assure you, however,
that a court would apply the same or similar standards in making a determination
or that a court would agree with our conclusions in this regard.
NO PRIOR MARKET FOR NOTES--YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL
DEVELOP FOR THESE NOTES.
There is no public market for these notes. Merrill Lynch has informed us
that it intends to make a market in these notes; however, it is under no
obligation to do so and could discontinue market-making activities for these
notes at any time without notice to us or to any noteholders. We have not
applied, and do not intend to apply, for listing of these notes on any
securities exchange or for quotation through the NASDAQ National Market System
or any other quotation system. In addition, the liquidity of the trading market
in these notes, and the market price quoted for these notes, may be adversely
affected by changes in the overall market for high yield securities and by
changes in our financial performance or prospects or in the prospects for
companies in our industry. As a result, you cannot be sure that an active
trading market will develop for these notes.
If Merrill Lynch conducts market-making activities for these notes, it may
be required to deliver a "market-making prospectus" when making offers and sales
in these notes, because its affiliated companies own approximately 91% of the
common stock of our parent company. As long as a market-making prospectus must
be delivered, Merrill Lynch's ability to make a market for these notes may
depend on our ability to maintain a current market-making prospectus. We cannot
assure you of the liquidity of, or trading market for, these notes.
11
<PAGE>
PRODUCT LIABILITY CLAIMS AND INSURANCE COVERAGE--WE ARE SUBJECT TO PRODUCT
LIABILITY CLAIMS FOR PERSONAL INJURIES. YOU CANNOT BE SURE THAT THE COMPANY WILL
BE SUCCESSFUL IN THE DEFENSE OF SUCH CLAIMS OR THAT INSURANCE COVERAGE FOR SUCH
CLAIMS WILL CONTINUE TO BE AVAILABLE.
We are subject to product liability claims for personal injuries and other
matters alleged to be related to the use of products that we manufactured. We
are also subject to recalls of our products to remedy manufacturing defects or
for failure to comply with applicable regulatory standards. Manufacturing
defects or failures to comply with regulatory standards have served as the bases
for a variety of claims from customers of the Company and passengers in buses
that we manufacture. In addition, most of our products are used as school buses,
and thus the primary passengers in such vehicles are minors. The statutes of
limitations for personal injuries to minor children typically are suspended
during the children's legal minority. It is therefore possible that accidents
causing injuries to minor children on school buses may not give rise to lawsuits
against us until a number of years after they occur.
We consider product liability claims to be an expected part of our business.
The ultimate outcome of these claims, or any future claims, cannot be determined
at this time and our insurance coverage for such claims varies from year to
year. Although we believe that any losses and expenses related to any such
claims will not be material to our financial position or operating results, we
cannot assure you that this will be the case or that the amount of losses and
expenses relating to such claims will not have a material adverse effect on us
and our ability to meet our obligations under these notes. Although we also
expect that we will continue to be able to secure adequate insurance coverage at
acceptable rates, we cannot assure you that coverage will be available to us at
acceptable rates, or at all. We also cannot assure you that future rate
increases would be economical to maintain, that current deductibles will
continue to be available or that our insurer's will be financially viable if and
when payment of a claim is required. Our inability to obtain adequate insurance
coverage at acceptable rates would likely have a material adverse effect on us.
See "Business--Legal Proceedings."
GOVERNMENT REGULATION--WE ARE SUBJECT TO THE NATIONAL HIGHWAY TRAFFIC SAFETY
ADMINISTRATION AND OTHER SPECIFICATION STANDARDS ESTABLISHED BY FEDERAL, STATE
AND LOCAL REGULATORY AGENCIES.
Our products must satisfy applicable standards established under the
National Highway Traffic Safety Administration. Our products must also meet
specifications established by other federal, state and local regulatory
agencies, primarily dealing with safety standards applicable to school buses, as
well as environmental matters. There is an incremental cost of such compliance,
and we cannot estimate the cost of complying with future regulations with any
certainty. These costs could have a significant impact on our cost of doing
business. In addition, the more restrictive emissions standards adopted by the
U.S. Environmental Protection Agency during 1998 mandate certain engine changes
that will result in increased costs to us and to our customers.
See "Business--Government Regulation" and "Business--Environmental Matters."
LIMITED NUMBER OF CHASSIS SUPPLIERS--THERE ARE ONLY THREE THIRD-PARTY SUPPLIERS
OF CHASSIS FOR A SIGNIFICANT PRODUCT THAT WE MAKE.
Buses consist of a body mounted on a chassis, which includes the bus engine.
A substantial number of the products that we sell are so-called Type C buses (as
more fully described in the Section "Business" under the heading "Products").
Because we do not manufacture a chassis for Type C buses, we purchase a chassis
from a third-party supplier and assemble it with our own Type C bus body. We
also sell Type C bus bodies to customers who obtain their own chassis from
third-party chassis suppliers. Our ability to obtain Type C chassis could be
critical to our ability to compete in the school bus market.
There are only three major manufacturers of Type C chassis in the United
States: General Motors Corporation, Freightliner Custom Chassis Corp. and
Navistar International Corporation. Navistar, which
12
<PAGE>
accounts for approximately 65% of the chassis market, owns AmTran of Illinois,
Inc., and Freightliner, which accounts for less than 10% of the chassis market,
owns Thomas Built Bus Company. Both AmTran and Thomas are competitors of ours.
Navistar has continued to make its chassis available to AmTran's competitors as
well as to customers who want to combine other manufactures' bus bodies, such as
those made by the Company, with the Navistar chassis. Freightline only recently
completed its acquisition of Thomas and to date has continued to make its
chassis available to Thomas' competitors. Nevertheless, we cannot assure you
that Navistar or Freightliner will continue to make their chassis available to
purchasers other than AmTran or Thomas, respectively.
To secure our chassis supply, on May 6, 1991, we entered into a chassis
supply agreement with General Motors, under which General Motors has agreed to
supply us with Type C chassis on an exclusive basis. Either General Motors or we
can terminate the agreement after giving twelve months advance notice. We cannot
assure you that General Motors will not terminate this agreement. If the
agreement were terminated, or if General Motors stopped manufacturing chassis or
stopped selling chassis to us or to our customers who combine their chassis with
our bus bodies, it is uncertain whether we would be able to purchase enough
chassis from other suppliers to fill orders or whether our customers would
continue to order bus bodies from us. If we were required to manufacture our own
Type C chassis, this factor would likely have a material effect on our future
operating results and potentially our profitability.
See "Business--Raw Materials and Components" and "Business--Competition."
CHANGE OF CONTROL--OUR PARENT COMPANY IS CLOSELY HELD, WITH APPROXIMATELY 91% OF
ITS CAPITAL STOCK HELD BY MERRILL LYNCH-RELATED ENTITIES, WHICH MAY HAVE
INTERESTS DIFFERENT FROM YOURS; A CHANGE OF CONTROL COULD RESULT IN ACCELERATION
OF VARIOUS OBLIGATIONS.
Blue Bird Corporation, our parent company, owns all of our capital stock.
Its capital stock is in turn owned by affiliates of Merrill Lynch, certain
members of our parent company's board of directors and certain members of our
management. These holders acquired us in a leveraged buyout transaction in 1992.
The Merrill Lynch-related entities own approximately 91% of our parent company's
common stock. Their interest may differ from your interests as noteholders and,
as such, conflicts of interest may arise.
We also cannot assure you that the Merrill Lynch-related entities will
continue to own and control our parent company. A "change of control" as defined
in various agreements, including the new credit agreement, would place
substantial financial obligations on us and would require us to refinance
substantial amounts of our debt. A change of control would also be a default
under the new credit agreement, which would allow the lenders under the new
credit agreement to exercise remedies under that agreement. Under certain
related circumstances, we might be required to make an offer to purchase all of
the Exchange Notes that are outstanding. If, upon a change of control, the
maturity of the new credit agreement were accelerated by the lenders and we were
unable to repay the lenders, or if we were required to purchase all of the
Exchange Notes and were unable to do so, we would be in default under the
indenture. A change of control would also require us to make cash payments to
certain of our executives under the terms of their compensation arrangements. We
cannot assure you that we will be able to meet all of our obligations under our
various agreements if a change of control should occur, or that we will be able
to refinance any of these or other obligations that might become due because of
a change of control. If we were unable to meet or refinance our obligations, we
may lack sufficient resources available to meet payment claims under these
notes.
13
<PAGE>
THE RECAPITALIZATION
On November 19, 1996, Blue Bird Body Company (the "Company" or "Blue Bird")
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 Blue Bird Corporation ("BBC"), of which the Company
is wholly-owned subsidiary, 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 "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 overall recapitalization of the Company, holder 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
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 expense. The 144A Note Offering, the retirement of the Old
Notes, the replacement of the Old Credit Agreement with the New Credit Agreement
and their Distribution are collectively referred to herein as 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, 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").
14
<PAGE>
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.
Blue Bird Capital Corporation, the Company's special-purpose lease financing
subsidiary ("Blue Bird Capital") entered into a Loan Agreement, dated October
18, 1995, as amended and restated on February 25, 1998 (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 Facility remained
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 "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Liquidity and Capital Resources" and "Description of Debt
Facilities."
15
<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 October 31, 1998. 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
OCTOBER 31, 1998
------------------
<S> <C>
(DOLLARS IN
MILLIONS)
Cash and cash equivalents..................................................................... 54.6
-------
-------
Short-term debt (including current portion of long-term debt)................................. 16.8
-------
-------
Long-term debt:
New Credit Agreement (excluding current portion)............................................ 134.8
Exchange Notes(a)........................................................................... 99.7
LaSalle Credit Facility..................................................................... 92.4
Industrial development bonds................................................................ 2.8
-------
Total long-term debt.......................................................................... 329.7
Redeemable common stock(b).................................................................... 48.4
Stockholders' equity:
Common stock; $.01 par value; 25,000,000 shares authorized; 9,204,778 shares issued and
outstanding............................................................................... .1
Additional paid-in capital.................................................................... 77.0
Retained earnings (deficit)................................................................... (125.3)
Cumulative translation adjustments(c)......................................................... (4.4)
-------
Total stockholders' equity (deficit).......................................................... (52.6)
-------
Total capitalization.................................................................... 325.5
-------
-------
</TABLE>
- ------------------------
(a) Represents the $100 million principal amount of the Notes less unamortized
discount of $.3 million.
(b) Redeemable common stock represents 1,500,000 issued and outstanding shares
of BBC Common Stock purchased by the members of the Company's management who
participated in the 1992 Acquisition (as defined herein) (the "Management
Investors"). The Management Investors have the right, prior to the earlier
of an initial public offering of equity securities of BBC or the tenth
anniversary of the Stockholders' Agreement (as defined herein), to put these
shares to BBC in the event of their disability, involuntary termination not
for cause, retirement, 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.
16
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial data
for BBC for fiscal years 1998, 1997, 1996, 1995 and 1994. 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
-------------------------------------------------------------------
OCTOBER 31, NOVEMBER 1, NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1998 1997 1996 1995 1994
----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA:
Net sales.............................................. $ 626.4 $ 576.1 $ 570.2 $ 517.4 $ 476.2
Cost of goods sold..................................... 515.1 473.4 474.1 430.6 392.9
----------- ------ ------ ----------- -----------
Gross profit........................................... 111.3 102.7 96.1 86.8 83.3
Selling, general and administrative expenses........... 48.0 62.4 42.6 39.8 39.0
Amortization of goodwill and non-compete agreements.... 3.8 3.8 3.8 4.7 5.6
----------- ------ ------ ----------- -----------
Operating income....................................... 59.5 36.5 49.7 42.3 38.7
Interest income........................................ 7.4 6.3 7.0 4.6 4.1
Interest expense....................................... (34.6) (33.8) (16.9) (18.5) (17.4)
Other income (expense)................................. 1.0 1.9 0.2 0.1 0.2
----------- ------ ------ ----------- -----------
Income before income taxes............................. 33.3 10.9 40.0 28.5 25.6
Provision (benefit) for income taxes................... 11.6 (2.7) 14.8 11.6 10.2
----------- ------ ------ ----------- -----------
Net income before extraordinary item................... 21.7 13.6 25.2 16.9 15.4
Loss on extinguishment of debt......................... -- (3.0) (1.4) -- --
----------- ------ ------ ----------- -----------
Net income............................................. 21.7 $ 10.6 $ 23.8 $ 16.9 $ 15.4
----------- ------ ------ ----------- -----------
----------- ------ ------ ----------- -----------
BALANCE SHEET DATA (AS OF END OF PERIOD):
Working capital........................................ $ 113.7 $ 99.3 $ 80.4 $ 61.7 $ 65.3
Total assets........................................... 450.0 412.5 391.0 379.8 332.8
Long-term debt, excluding current maturities........... 329.7 339.6 131.4 113.8 125.8
Redeemable common stock, net........................... 48.4 20.7 29.3 20.9 17.5
Stockholders' equity (deficit)......................... (52.6) (45.1) 118.2 102.6 88.8
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Approximately 77% of the Company's fiscal 1998 net sales are derived from
school bus sales and approximately 18% and 5% of the Company's fiscal 1998 net
sales are derived from the sale of commercial and recreational vehicles,
respectively. From fiscal 1994 to fiscal 1998, 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.
YEAR 2000 COMPLIANCE
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, information systems that have
date sensitive software may be unable to properly recognize and process dates
and date-sensitive information on and beyond January 1, 2000 (the "Year 2000
Problem"). The Year 2000 Problem, which is common to most businesses, could, if
not resolved, have a detrimental effect on the Company's operations, and
interfere with the Company's ability to engage in normal business activities. If
unremedied, the Year 2000 Problem could result in systems failures or
miscalculations causing disruptions, including, among other things, a temporary
slowdown of manufacturing operations due to parts shortages and, consequently, a
temporary inability to delivery buses to customers.
In 1993, the Company began a company-wide assessment of the vulnerability of
its systems to the Year 2000 Problem and began modifying all affected software.
Approximately 90% of the software used by the Company was developed and is
maintained in-house. All software systems have been reviewed to determine Year
2000 compliance. As of January 1, 1999, the Company estimates that it has
completed approximately 95% of the necessary revisions and testing. Hardware and
network systems review is scheduled for completion in early 1999. The Company is
also in the process of surveying major vendors and customers to determine their
efforts toward resolution of the Year 2000 Problem. The Company currently has no
specific written contingency plan in the event either the Company or its
significant vendors or customers have not remedied the Year 2000 Problem;
however, management of the Company is in the process of developing a contingency
plan and anticipates completing such plan in 1999.
Since 1993, the Company has treated the costs associated with modifying
affected systems as on-going software maintenance, and estimates that
approximately $.4 million has been expended in connection therewith through
fiscal 1998. The Company believes that the remaining costs associated with
completion of the internal resolution of the Year 2000 Problem will be
approximately $.2 million.
Although the Company believes that it will be able to modify or replace its
affected systems in time to minimize any detrimental effects on its operations
caused by the Year 2000 Problem, it can make no assurance that the Company will
be successful in such efforts, or that its major vendors or customers will
successfully modify or replace their affected systems or that such failures
would not have a material
18
<PAGE>
adverse effect on the Company's consolidated results of operations, liquidity or
capital resources in the future.
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>
OCTOBER 31, NOVEMBER 1, NOVEMBER 2,
1998 1997 1996
------------- ------------- -------------
Net sales................................................................ 100.0% 100.0% 100.0%
Cost of goods sold....................................................... (82.2) (82.2) (83.1)
Gross profit............................................................. (17.8) 17.8 16.9
Selling, general and administrative expense.............................. (7.7) (10.8) (7.5)
Operating income......................................................... 9.5 6.3 8.7
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997.
Net sales increased to $626.4 million in fiscal 1998 from $576.1 million in
fiscal 1997, an increase of $50.3 million or 8.7%. The increase was primarily
due to increased sales volume of the Type D product lines.
Gross profit increased to $111.3 million in fiscal 1998 compared to $102.7
million in fiscal 1997, an increase of $8.6 million or 8.4%. The increase was
due to increased sales volume. The gross margin of 17.8% was the same as the
1997 gross margin.
Selling, general and administrative expenses decreased to $48.0 million in
fiscal 1998 compared to $62.4 million in fiscal 1997, a decrease of $14.4
million or 23.1%. The decrease 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 in fiscal 1997.
Interest income increased to $7.4 million compared to $6.3 million in fiscal
1997. The increase was primarily due to increased interest income from the
Company's lease portfolio which increased in size during fiscal 1998.
Interest expense increased to $34.6 million in 1998 from $33.8 million in
fiscal 1997 due to increased borrowing to support a larger lease portfolio.
For fiscal 1998, there was tax provision of $11.6 million compared to a tax
benefit of $2.7 million in fiscal 1997. During fiscal 1997, the deductibility of
the distributions paid to management shareholders from the Recapitalization
created a tax benefit which more than offset the income tax provision on
operating income.
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
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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.
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
leveraged buyout of the Company in 1992 (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
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of a tax benefit of $.8 million occurred during the 1996 period due to the early
extinguishment of such Old Notes.
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 $6.3
million for fiscal 1999.
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, LaSalle provides Blue Bird Capital with revolving loans under the
LaSalle Credit Facility, which are used to finance school bus leases up to a
maximum aggregate principal amount of $100.0 million, of which $92.4 million was
outstanding as of October 31, 1998. Blue Bird Capital expects to increase the
maximum borrowing amount of the LaSalle Credit Facility during 1999. Management
expects no difficulty in obtaining approval of the increase.
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 October 31, 1998, the Company had total
consolidated indebtedness of approximately $346.5 million, consisting primarily
of $99.7 million principal amount of the 144A Notes, borrowings of $151.6
million under the New Credit Agreement and $92.4 million of borrowings under the
LaSalle Credit Facility. The Company had the ability to borrow an additional
$7.6 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 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--Substantial Leverage" and"--Ability to Service Debt."
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 $16.8 million in fiscal 1999, $20.8 million
in fiscal 2000 and dollars 22.8 million in fiscal 2001. See "Risk Factors--New
Credit Agreement Restrictions." 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 October 31, 1998, the Company had
approximately $7.9 million of such leases in its lease portfolio. In addition,
as of such date, Blue Bird Capital had approximately $103.6 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 Agreement) 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 October 31, 1998 was
$44.5 million compared to $6.3 million in fiscal 1997. This difference was
primarily the result of significant increases in net income,
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trade accounts payable and income taxes payable. There were no net borrowings
under the Company's working capital facility in fiscal 1998 or fiscal 1997. Net
borrowing under the LaSalle Credit Facility were $6.9 during the current year
compared to $26.9 in fiscal 1997. 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 $54.6 at October 31, 1998, compared to $31.0
million at the end of fiscal 1997. Net working capital was $113.7 million at
October 31, 1998, an increase of $14.4 million during the current fiscal year.
Significant factors affecting working capital were increases in cash, leases
receivable and inventory, offset by increases in trade accounts payable, income
taxes payable and other accrued liabilities.
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>
1998 1997 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter................................................................... 14.5% 14.6% 16.3% 14.8%
Second Quarter.................................................................. 16.4 16.5 18.7 20.4
Third Quarter................................................................... 32.0 33.6 25.7 26.5
Fourth Quarter.................................................................. 37.1 35.3 39.3 38.3
--------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
22
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BUSINESS
GENERAL
Blue Bird is the leading manufacturer of school buses in North America.
Approximately 77% of the Company's net sales in fiscal 1998 were derived from
sales of school bus products. The Company also manufactures commercial buses and
recreational vehicles, which target purchasers of buses for applications other
than school transportation. Commercial and recreational vehicles accounted for
approximately 18% 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 65 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 47% of the Company's school bus sales in
1998, 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 to purchase school buses include the
age of the existing school bus fleet, changes in school bus travel
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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.
In the states of Florida, Kentucky, North Carolina and West Virginia and in
the Canadian Maritimes and Province of Manitoba, contract awards for school
buses are based on a bid process, with the state/ province generally serving as
the aggregate purchaser on behalf of all of its school districts. 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 North America public school
bus purchases are awarded through these bids.
In the United States, approximately 75% of the estimated 450,000 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 four 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 1998 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 1998.
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 participates in the commercial bus market with its line of
medium-duty buses and over-the-road coaches. See "Products." Medium-duty buses
are purchased by public transportation authorities, private contractors,
corporations (for shuttle use), and by charter and commuter operators. The
Company's over-the-road coaches are positioned to compete in the larger coach
tour/charter market. As a result of record transit funding by the U.S.
Government, rural and urban public transit authorities are re-evaluating their
traditional preferences for larger buses, especially in urban areas, for fleets
consisting
24
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primarily of large- and medium-duty buses similar to those built by the Company,
in part because medium duty buses are more economical and easier to operate. The
Company believes it is well positioned to benefit from this trend. The shuttle
market is serviced by a variety of products which include a variety of vans,
"cutaway" vans (a fiberglass body on a van chassis), small- and medium- duty
buses 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 as
well as the growing 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. Customers
for this product are well financed and demand custom designed interiors and
quality performing products. Management estimates that in a given year, the
market demand is approximately 350 to 400 luxury motor home products similar to
those manufactured by the Company in the United States. Management believes that
in order for the Company to increase sales, it will need to increase its market
share relative to 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 1998 Blue Bird derived approximately 17% of its net sales from the sale
of its various school bus body models and 54% of its net sales from the sale of
its integrated school buses. For classification purposes, the school bus
industry has categorized these different models into the following four general
product designations:
TYPE A. A "Type A" school bus is a conversion of a van or a body
constructed on a van-type compact truck chassis, with a gross vehicle weight
("GVW") rating of 10,000 pounds or less, designed to carry up to 21 passengers.
The engine is located in front of the windshield and the entrance door is
located behind the front wheels. The Company offers one model in this category,
the Micro-Bird, which can be ordered in several configurations. The Company does
not manufacture chassis for the Micro-Bird. Chassis are purchased by the
customer and delivered to the Company, which in turn installs the bus body.
Wholesale selling prices for Type A vehicle bus bodies typically range from
approximately $10,000 to $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 $12,000 to $18,000.
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 1998. 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 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.
25
<PAGE>
TYPE D. "Type D" school buses accounted for approximately 23% of the
vehicles sold by the Company in 1998. 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
MEDIUM-DUTY COACH. A 37 foot long coach introduced in 1992 enabled the
Company to compete in the medium-duty 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.
OVER-THE-ROAD COACH. In 1997, the Company introduced a 40 foot
over-the-road coach with seating capacity for up to 47 passengers including
lavatory, 300 cubic feet of 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 tour, charter and commuter operators traveling from the
suburban locations to urban work offices. Management believes the Company's
coach products to be a viable alternative to 45 foot vehicles for a variety of
reasons. The 40 foot coach is designed with the same running gear as the 45 foot
coach; however, the technique to manufacture the Company's 40 foot coach offers
cost savings not offered in the larger coaches. Also, the Company's 40 foot
coach is manufactured in the U.S., while the 45 foot coaches are foreign made,
adding import costs. Wholesale prices for the Company's coaches typically range
from approximately $125,000 to $230,000.
The Company also manufacturers medium-duty buses configured for shuttle,
transit, and demand response applications. These products, offered in models
ranging from 24 feet to 39 feet in length, are designed to offer customers
durable, affordable alternatives to lightweight products such as cutaway vans
(fiberglass body on a van chassis) and heavy duty, expensive transit buses.
Wholesale selling prices for these medium-duty buses typically range from
approximately $55,000 to $150,000.
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 adaptations of the Type A, B, C and D school
bus in commercial form. These buses, known as "Activity Buses," offer basic
transportation for churches, colleges, universities, commuter, shuttle,
government agencies, and international customers. These products offer basic
paint schemes, diesel and natural gas engine options, and very functional
interiors for passenger comfort. Wholesale selling prices for the Activity Buses
typically range from approximately $15,000 for non-integrated products to
$100,000 for integrated products.
RECREATIONAL VEHICLE PRODUCTS
GENERAL. The Company manufactures complete motor homes by integrating the
motor home shell with Blue Bird-manufactured chassis. The Company offers three
luxury motor home models, all of which are targeted for the premium high-end
market.
WANDERLODGE. The Wanderlodge is a premium motor home manufactured by the
Company. The Wanderlodge is available in three models, 40 foot, 41 foot and 43
foot. In 1997, the Company redesigned its line of motor coaches to project a
more European look. The 40 foot LX unit is the Company's production coach that
is available with upscale interiors, giving the customer 6 floor plans and a
variety of paint designs. The 41 foot and 43 foot LXi is the Company's custom
coach offering the customer numerous choices in materials, components and
colors. An added benefit to the Company's LXi coach line is a room expanding
slide out feature, giving the owner additional living space while on location.
The Company's
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slide out model is designed to increase the size of the gally/living room and
also the bedroom. Key features of the Wanderlodge units 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 interior equipment
available to the purchaser, and (iv) the extensive product support capability
provided by Blue Bird's RV distributors. Suggested retails prices for the
Wanderlodge range from approximately $550,000 to $650,000.
SERVICE PARTS
All of Blue Bird's distributors maintain parts inventories to service owners
of Blue Bird products. Many of such distributors purchase parts from Blue Bird's
Service Parts Group (the "Parts Group"). In addition to these sales to
distributors, the Parts Group sells parts to fleet accounts on a direct basis.
These direct sales accounts include the U.S. General Services Administration
(the "GSA"), the national transportation contracting companies and other
accounts in southern Georgia, South Carolina and Kentucky. The Company currently
operates an 80,000-square foot facility in Fort Valley, Georgia to house the
Parts Group.
MARKETING AND DISTRIBUTION
The Company sells its bus products through distributors (87% of 1998 net
sales) and directly to end-users (13% of 1998 net sales). During 1998, 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 65 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 69% 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 1998, no single distributor
accounted for more than 7.5% 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 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. Ten regional sales managers work exclusively with distributors
in their respective regions and are responsible for coordinating sales and
marketing campaigns, pricing policies, strategic market and product 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.
Regional sales meetings are also conducted annually to focus on regional
strategic planning, advertising and other issues.
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
27
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product literature. Distributors attend these conventions at the state level and
are usually accompanied by a representative of the Company.
LEASING
The Company has provided lease financing to school bus customers since 1984,
principally through its leasing division, Blue Bird Credit ("Blue Bird Credit").
On October 26, 1995, the Company formed a wholly-owned subsidiary, Blue Bird
Capital, for the purpose of expanding the availability of lease financing
alternatives to customers of its school bus products. Blue Bird Capital has
since become the Company's principal provider of leasing alternatives focusing
on tax-exempt lessees. Generally, upon receipt of orders for municipal lease
customers, the Company provides buses to be delivered by Blue Bird Capital to
the appropriate distributor, who in turn delivers the buses to municipal
customers pursuant to leases. Upon receipt of lease documents, Blue Bird Capital
borrows approximately 90% of the lease amount pursuant to the LaSalle Credit
Facility in order to pay the Company. Under the typical Blue Bird Capital lease
with a tax exempt lessee, title is held by the lessee with a lien held by Blue
Bird Capital. The average lease term is approximately three years and the
lessee's down payment is typically 10% of the lease amount. The Company accounts
for the lease as a sale and the related borrowings as long-term or short-term
debt, as applicable. Under the LaSalle Credit Facility, Blue Bird Capital is
required to maintain certain financial ratios, including a ratio of Total
Liabilities to Tangible Net Worth, that cannot exceed 10 to 1. See "Description
of Debt Facilities--LaSalle Credit Agreement." Blue Bird Capital pays the
Company as promptly as possible and generally does not carry unsold inventory.
Leases held by Blue Bird Capital are generally tax-exempt and accrue interest at
rates ranging from 4.99% 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 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 1,500 buses to Canadian customers in 1998
(approximately $41 million in net sales), and a facility in Monterrey, Mexico,
the Company's operations are based in the United States. The Company exported
approximately 800 bus products in 1998, 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
28
<PAGE>
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, Mexico and Central and South America. However, the Company's
ability to increase export sales will be affected by world wide economic
conditions.
In Mexico, the easing of import restrictions on new trucks and buses in
connection with the North American Free Trade Agreement presented an 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.
In addition, for international markets, the Company has developed right-hand
drive chassis for its integrated products and assembly parts for both bodies and
integrated products.
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 1998 were $.6
million.
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 of Illinois, Inc. ("AmTran") account for substantially all dollar
sales of school buses. All of these companies manufacture bus bodies which are
mounted on a chassis supplied by General Motors Corporation ("GM"), Freightliner
Custom Chassis Corp. ("Freightliner") and Navistar International Corporation
("Navistar"), although GM has agreed to supply chassis for Type C bus bodies
exclusively to Blue Bird pursuant to the May 1991 Chassis Supply Agreement (the
"GM Chassis Supply Agreement"). See "--Raw Materials and Components." The
Company and Thomas, which together accounted for approximately 70% of aggregate
domestic school bus sales in 1998, 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 of Type C chassis are GM,
Freightliner and Navistar. Of these, Navistar is the leading manufacturer,
accounting for approximately 65% of sales in 1998. The Company does not believe
the Navistar's recent acquisition of AmTran will have a material impact on the
Company's business. Navistar has continued to make its chassis available to all
bus body manufacturers. Freightliner, which recently acquired Thomas, currently
is offering its chassis to all bus body manufacturers as well. 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.
29
<PAGE>
COMMERCIAL MARKET. The Company has different competitors in each of the
major commercial market segments. In the large over-the-road coach area of the
tour, charter and commuter markets, the Company's principal competitors include
MCI, Van Hool and Prevost. In the medium-duty bus market, competition includes
Eldorado National ("Eldorado") and Champion Motor Coach, Inc. ("Champion"), both
businesses of Thor Industries, Inc., Metrotrans Corporation ("Metrotrans"),
Goshen Coach, Supreme Corporation and Thomas. In the medium-duty urban and rural
public 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 highline motor homes such as those converted by
Marathon Coach, Inc., Liberty Coach, Inc., Vantare International, Inc., Country
Coach, Inc. and Custom Coach Corp. These convertors build on coaches made by
Prevost Car and MCI. An additional competitor, Newell Coach, Inc. is the only
highline 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.
RAW MATERIALS AND COMPONENTS
The largest production-related expense incurred by the Company is the cost
of purchased materials. In fiscal year 1998, material purchases represented
approximately 72% of total production costs. The Company purchases raw materials
and components from over 2,500 suppliers. Other than GM, the Company's principal
chassis supplier, no one supplier accounts for more than 10% of the Company's
aggregate expenditures on raw materials and/or components. Since Blue Bird does
not manufacture engines and does not manufacture chassis for its Type A, Type B
and Type C bus products, the cost of engines, purchased chassis and components
for Company-manufactured chassis constitute the largest components of the
Company's material expense.
Because Type A and Type B bus purchasers obtain their chassis separately and
look to the Company only for a bus body, chassis supply is relevant for these
product lines only to the extent that it may impact the number of Type A and
Type B bus bodies ultimately sold. The Company manufactures all of its Type D
chassis, with the result that chassis components constitute a major portion of
Type D production costs.
The three major school bus Type C chassis manufacturers are GM, Freightliner
and Navistar. Navistar is the industry leader with a market share estimated by
market researchers of in excess of 65% in 1998. In late 1990, management of Blue
Bird was concerned about the possibility that Ford and GM might decide to
discontinue supplying Type C chassis, resulting in a situation in which Navistar
might become the sole supplier of these Type C chassis and thus be in a position
to exert increased influence over school bus manufacturers. Type C school buses
represent approximately 57% of the total units sold by the Company. In addition,
a trend toward integrated bidding (body and chassis) among school bus purchasers
caused Blue Bird to consider establishing a formal relationship with a Type C
chassis supplier to enhance the Company's competitive position in the Type C bus
segment of the market. Blue Bird and GM entered into the GM Chassis Agreement in
May 1991. The agreement can be terminated by either party on twelve months
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
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<PAGE>
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. The Company's distributors
and GM's 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.
The most immediate issue facing the school bus industry involves more
restrictive emissions standards issued by the U.S. Enviromental Protection
Agency ("EPA") that went into effect in 1998. These regulations mandate certain
engine changes and result in increased costs to both manufacturers and end-users
of 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.
BACKLOG ORDERS
As of October 31, 1998, the dollar amount of backlog orders believed by the
Company to be firm totaled approximately $391 million. It is expected that all
such orders will be filled during fiscal year 1999.
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, 1999, the Company had approximately 2,877 employees, of
whom approximately 2,385 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 two 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, LTC-40, 843,000 1,518
parts fabrication
Service Parts................ Fort Valley, Georgia Parts 80,000 N.A.(b)
Wanderlodge.................. Fort Valley, Georgia Wanderlodge, parts fabrication 216,000 306
Blue Bird North Georgia...... LaFayette, Georgia Conventional, TC/2000 226,000 293
Blue Bird Midwest............ Mt. Pleasant, Iowa Conventional, Mini-Bird 227,400 299
Blue Bird Canada............. Brantford, ON (Canada ) TC/2000, Conventional, 270,300 331
Micro-Bird, parts fabrication
Blue Bird de Mexico.......... Monterrey, Mexico Conventional 118,300 130
---------- -----
Total Company................ 1,981,000 2,877
---------- -----
---------- -----
</TABLE>
- ------------------------
(a) As of January 1, 1999.
(b) Included in the number of employees for Blue Bird facility in Fort Valley,
Georgia.
If Blue Bird operated all of its assembly plants at "maximum capacity," defined
as two eight-hour shifts per day, five days per week, 250 days per year, the
Company could manufacture approximately 27,300 units per year. The Company's
capacity to fabricate all of the parts needs to build the buses is a constraint
as the Company's present fabrication facilities have the capacity to support the
production of approximately 25,000 units per year. With an investment of
approximately $2.5 million in additional equipment, Blue Bird's fabrication
capacity could support approximately 28,500 units per year.
ENVIRONMENTAL MATTERS
The Company's operations and properties are subject to numerous federal,
state, local and international laws and regulations, including those governing
the use, storage, handling, transportation, generation, treatment, emission,
release, discharge and disposal of certain materials, substances and wastes
(collectively, "Hazardous Materials"), the remediation of contaminated soil and
groundwater, and the health and safety of employees (collectively,
"Environmental Laws"). Violation of such Environmental Laws, even if
inadvertent, could have an adverse impact on the operations, business or
financial results of the Company. As such, the nature of the Company's
operations exposes it to the risk of claims with respect to such matters and
there can be no assurance that material costs or liabilities will not be
incurred in connection with such claims.
The Company maintains an inactive landfill site at its Fort Valley, Georgia,
location which is subject to regulation pursuant to the U.S. Resource
Conservation and Recovery Act, as amended ("RCRA"). RCRA is administered in
Georgia by the Environmental Protection Division of the Georgia Department of
Natural Resources ("EPD"). The Company has closed its Fort Valley landfill site
pursuant to a permit from the EPD that contains certain conditions, including
30-year post-closure groundwater monitoring. In
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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, the Seaboard
chemical site in Jamestown, North Carolina and the Four County Landfill in
DeLong, Indiana. In each instance, 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 CERCLA
liability in connection with the Seaboard site. Although the cost of such buyout
is not currently known, it is not expected to be material.
In December, 1998, the Company received correspondence from the Four County
Landfill PRP Group (the "PRP Group") demanding that the Company provide
reimbusement in the amount of $20,208.00 for certain past soil remediation
costs. The PRP Group also demanded that the Company agree to fund a portion of
future studies to determine the extent of groundwater contamination at the Four
County Landfill. The Company is currently evaluating the merits of these claims.
If the claims are found to be meritorious, it is not expected that any resulting
costs to the Company will 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 28 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
33
<PAGE>
asserting a breach of warranty claim against such supplier or manufacturer, or
claiming a right of indemnification for such supplier or manufacturer pursuant
to the terms of the Company's standard purchase order agreements or the relevant
supplier agreement. The Company manufactures certain components itself and
assembles the various components into the completed vehicle, which may give rise
to independent liabilities. Moreover, the Company's manufacture of chassis for
its Type D school buses may expose the Company to liability associated with such
chassis. The amount of product liability insurance that the Company has in place
has varied significantly from year to year. The Company's policies generally
provide that the Company is responsible for the costs of defending product
liability claims, although Blue Bird's recent insurance plan has included some
participation by insurers in such costs at certain levels.
As of the date of this Prospectus, neither the outcome of the Company's
pending product liability cases nor the amounts of any company liabilities
related to these cases are known. The Company's insurance coverage for
occurrences in each of the past several years has been $25 million in excess of
a $2 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.
The Company has sued one of its suppliers of power trains. The suit charges
defective, late and undelivered power trains. The supplier has counterclaimed,
alleging default by the Company in its obligations. Management believes that the
outcome of the litigation will not have a material adverse effect on the
Company; however, there can be no assurance that the amount of expense of
pursuing the claim or the losses or expenses relating to the defense of the
counterclaim will not have a material adverse 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 National Highway Traffic Safety Administration ("NHTSA") tested a Blue Bird
Type D (as herein defined) model which failed crash tests when fuel tanks were
punctured upon impact. During 1998, the Company recalled the affected models as
a result of the NHTSA's noncompliance determination and made the repairs
required to bring the vehicle into compliance. A reserve for the cost of such
repairs, which were not material, was established during fiscal 1997.
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<PAGE>
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 Securities 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 of the Notes 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.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who are executive officers and directors of the Company and BBC as of October
31, 1998; all information is provided as of such date:
<TABLE>
<CAPTION>
NAME AGE POSITION AND EXPERIENCE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Paul E. Glaske....................................... 65 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..................................... 64 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.................................... 57 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.................................... 46 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.
William T. Gourley................................... 53 Vice President--Controller of the Company. In 1996,
Mr. Gourley was promoted to his current position from
his prior position of Corporate
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
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.
Gerald S. Armstrong.................................. 55 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 the
Managing Partner of Arena Capital Partners, Inc., a
private investment firm that he established in 1998.
Prior thereto, he was a Partner and a director of
Stonington Partners, Inc., a private investment firm,
from 1993 until 1997. He has also been a member of
the Board of Directors of Merrill Lynch Capitol
Partners, Inc. ("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.
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.
A. Clark Daugherty................................... 75 Director of the Company and BBC. Mr. Daugherty served
as a director of Blue Bird prior to the 1992
Acquisition. Mr. Daugherty was
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C>
Chairman of Duracell International, Inc., a
manufacturer of premium batteries, and Executive Vice
President of Dart Industries, Inc., a maker of
consumer products and chemical specialties, as well
as a director of both companies, until his retirement
on January 1, 1995. Mr. Daugherty is also a director
of A. Duda and Sons, Inc., Atlantic Acquaculture
Technologies, Inc., Goss Graphic Systems, Inc. and
GGS Holdings, Inc.
Donald C. Trauscht................................... 64 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 1998, 1997 and 1996, the cash compensation paid by BBC
and its subsidiaries, as well as certain other compensation paid or accrued for
fiscal years 1998, 1997 and 1996, 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:
38
<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............................................ 1998 $ 578,602 $ 497,427 $ 24,128(b)
Chairman of the Board and President and Director 1997 544,709 500,000 -- $ 23,933(c)
1996 506,410 438,485 -- 20,203(d)
Bobby G. Wallace.......................................... 1998 339,600 225,250 -- 5,280(b)
Vice President--Finance and Admin., 1997 312,983 225,600 40,000(e) 4,750(f)
Treasurer, Secretary and Director 1996 289,094 196,746 -- 4,500(f)
James H. Grantham......................................... 1998 219,273 146,413 -- 5,280(b)
Vice President--Manufacturing of the Company 1997 201,648 144,000 -- 4,750(f)
1996 185,847 127,732 -- 4,500(f)
Richard E. Maddox......................................... 1998 200,099 131,396 -- 5,280(b)
Vice President--Sales of the Company 1997 177,857 130,400 -- 5,124(f)
1996 164,997 115,150 -- 5,196(f)
William T. Gourley........................................ 1998 141,914 45,050 -- 5,280(b)
Vice President--Controller of the Company 1997 135,308 41,760 -- 6,110(f)
1996 111,762 38,434 -- 4,346(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 $10,000
in 1998, $9,500 in 1997 and $9,500 in 1996.
(b) Represents life and disability insurance premiums of $18,848 paid by the
Company on behalf of Mr. Glaske and the Company's matching contribution
under its 401(k) Plan of 55% of the first 6% of each participant's pre-tax
contribution for 1998, up to a maximum of $5,280 per participant.
(c) 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 1997.
(d) Represents life and disability insurance premiums of $15,703 paid by the
Company on behalf of Mr. Glaske. Under the 401(k) plan, the Company makes
matching contributions equal to 50% of the first 6% of each participant's
pre-tax contribution for 1996.
(e) In 1997, Mr. Wallace was granted an option to purchase 40,000 shares of BBC
Common Stock.
(f) The amounts shown represent matching contributions to the Company's 401(k)
plan made by the Company on behalf of the named executive officer. Under the
401(k) plan, the Company makes matching contributions equal to 50% of the
first 6% of each participant's pre-tax contribution.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. No stock options were granted
by the Company during fiscal year 1998 to any of the named executives.
OPTION/SAR EXERCISES AND HOLDINGS. The following table sets forth
information with respect to the named executive officers concerning the exercise
of options held by such executives during 1998.
39
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
SHARES OPTIONS/SARS FISCAL YEAR-END
ACQUIRED ON VALUE ----------------- ---------------------
EXERCISE REALIZED ($) EXERCISABLE/ EXERCISABLE/
NAME (#) (A) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------- ----------- ------------ ----------------- ---------------------
<S> <C> <C> <C> <C>
Paul E. Glaske......................................... 350,000 $ 9,600,500 0/0 0/0
Bobby G. Wallace....................................... 100,000 2,743,000 0/0 0/0
James H. Grantham...................................... 80,000 2,194,400 0/0 0/0
Richard E. Maddox...................................... 80,000 2,194,400 0/0 0/0
William T. Gourley..................................... 20,000 548,600 0/0 0/0
</TABLE>
- ------------------------
(a) Computed using net proceeds value of $27.43 per share at October 31, 1998,
determined by formula in the Blue Bird Corporation Management Stock Option
Plan (the "Management Stock Option Plan").
During 1998, all outstanding stock options held by the named executives and
all executives and employees of the Company were exercised. As of October 31,
1998, no options under the Management Stock Option Plan were outstanding or
available for issuance.
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:
40
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
FINAL FIVE YEARS OF SERVICE
YEAR ANNUAL --------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 29,445 $ 39,260 $ 49,075 $ 58,890 $ 58,890
150,000 35,820 47,760 59,700 71,640 71,640
175,000 42,195* 56,260* 70,325* 84,390* 84,390*
200,000 48,570* 64,760* 80,950* 97,140* 97,140*
225,000 54,945* 73,260* 91,575* 109,890* 109,890*
250,000 61,320* 81,760* 102,200* 122,640* 122,640*
300,000 74,070* 98,760* 123,450* 148,140* 148,140*
400,000 99,570* 132,760* 165,950* 199,140* 199,140*
500,000 125,070* 166,760* 208,450* 250,140* 250,140*
1,000,000 252,570* 336,760* 420,950* 505,140* 505,140*
2,000,000 507,570* 676,760* 846,950* 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 (12 years), Mr. Wallace (12 years), Mr. Grantham (30
years), Mr. Maddox (24 years) and Mr. Gourley (22 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 $625,000, 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
41
<PAGE>
employment agreement), the Company's obligation for the duration of the
employment agreement for salary, employee benefits, supplemental benefits and
various perquisites shall continue without mitigation. Under the terms of the
employment agreement, Mr. Glaske agrees not to disclose confidential information
for so long a such information remains competitively sensitive. During the term
of the employment agreement and for three years after its termination, Mr.
Glaske agrees not to render services to, or have greater than a 2% equity
interest in, any business which is competitive with the Company. Mr. Glaske's
employment agreement does not contain any change of control provisions.
Mr. Wallace's employment agreement with the Company provides for a one-year
term, renewable annually, with an annual base salary of $375,000, 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 1998 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, affiliates of MLCP (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.
42
<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 9,204,778. 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 6.6%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Bobby G. Wallace(b)............................................................ 170,000 2.0%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
James H. Grantham(b)........................................................... 160,000 1.9%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Richard E. Maddox(b)........................................................... 160,000 1.9%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
William T. Gourley(b).......................................................... 40,000 0.5%
Blue Bird Body Company
3920 Arkwright Road
Macon, Georgia 31210
Donald C. Trauscht(b).......................................................... 4,778 0.1%
BW Capital Corporation
200 South Michigan Avenue
Chicago, Illinois 60604
A. Clark Daugherty(b).......................................................... 25,000 0.3%
321 Indian Harbor Road
Vero Beach, Florida 32963
</TABLE>
43
<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>
Gerald S. Armstrong (c)........................................................ 0 --
Stonington Partners, Inc.
767 Fifth Avenue
New York, New York 10153
Alexis P. Michas (c)........................................................... 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(d) 12.6%
</TABLE>
- ------------------------
* Unless otherwise indicated, all such ownership is direct.
** 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) 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 disclaims beneficial ownership of shares
beneficially owned by the ML Entities.
(d) Does not include any shares beneficially owned by the ML Entities.
44
<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."
45
<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)
1999..................................................................... 16.8
2000..................................................................... 20.8
2001..................................................................... 22.8
2002..................................................................... 20.9
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 to time upon
satisfaction of leverage and interest coverage tests to be set forth in the New
Credit
46
<PAGE>
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) the net cash proceeds of certain asset sales with cash
proceeds in excess of the amount specified in the New Credit Agreement, (ii) 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, (iii) 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 (iv)
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 New Credit Agreement except for guarantees
relating to the endorsement of negotiable instruments made
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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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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 October 31, 1998 bear interest
at the rate of 6.5% PER ANNUM. As of October 31, 1998, there was $92.4 million
outstanding under the LaSalle Credit Facility.
OLD NOTES
As a result of the Recapitalization, no Old Notes remain outstanding.
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DESCRIPTION OF THE EXCHANGE NOTES
The 144A Notes and the Exchange Notes were 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
are issuable solely in exchange for an equal principal amount of outstanding
144A Notes pursuant to the Exchange Offer. The terms of the Exchange Notes are
identical to the 144A Notes, but since the Exchange Notes 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 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>
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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 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
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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, 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
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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 October 31, 1998, Senior Indebtedness of the Company with respect to
the Notes was approximately $154.4 million. The Indenture limits, but does not
prohibit, the incurrence by the Company of additional Indebtedness which is
senior to the Notes, but prohibits the incurrence of any Indebtedness
contractually subordinated in right of payment to any other Indebtedness of the
Company and senior in right of payment to the Notes. The foreign and lease
finance operations of the Company are conducted primarily through subsidiaries
of the Company. The claims of creditors of such subsidiaries effectively will
have priority with respect to the assets and earnings of such subsidiaries over
the claims of the Company and its creditors, including holders 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."
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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
"Recapitalization;"
(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
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(whether at Stated Maturity, by acceleration or otherwise) to the payment
and performance of the Company's obligations under the Indenture or the
Notes;
(vii) any guarantees of Indebtedness by a Restricted Subsidiary entered
in compliance with the covenant under the Indenture described under
"--Limitations on Guarantees by Restricted Subsidiaries;"
(viii) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary covering Indebtedness of the Company or any Restricted
Subsidiary (which Indebtedness (a) bears interest at fluctuating interest
rates and (b) is otherwise permitted to be incurred under this covenant) to
the extent the notional principal amount of such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness to
which such Interest Rate Protection Obligations relate;
(ix) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements relating to (a) Indebtedness of the Company or a
Restricted Subsidiary and/or (b) obligations to purchase or sell assets or
properties or, in each case, incurred in the ordinary course of business of
the Company or any Restricted Subsidiary; PROVIDED that such Currency
Agreements do not increase the Indebtedness or other obligations of the
Company and the Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(x) Capitalized Lease Obligations of the Company or any Restricted
Subsidiary in an aggregate amount not exceeding $7,500,000 outstanding at
any time;
(xi) (a) Indebtedness of the Company or any Subsidiary Guarantor to the
extent the proceeds thereof are used to Refinance Indebtedness of the
Company or any Subsidiary Guarantor (including all or a portion of the
Notes) or any Restricted Subsidiary and (b) Indebtedness of any Restricted
Subsidiary that is not a Subsidiary Guarantor to the extent the proceeds
thereof are used to Refinance Indebtedness of any Restricted Subsidiary that
is not a Subsidiary Guarantor, in each case, other than the Indebtedness to
be Refinanced as described under "Use of Proceeds" and Indebtedness incurred
under clauses (i), (ii) or (v) above; PROVIDED that, in the case of either
clause (a) or (b), (1) the principal amount of Indebtedness incurred
pursuant to this clause (xi) (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness) shall not exceed the sum of the principal amount
of Indebtedness so Refinanced (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness plus any accreted value attributable thereto
since the original issuance of such Indebtedness) plus the amount of any
premium required to be paid in connection with such Refinancing pursuant to
the terms of such Indebtedness or the amount of any premium reasonably
determined by the Company or a Restricted Subsidiary, as applicable, as
necessary to accomplish such Refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of expenses in connection
therewith; and (2) except in the case of Refinancing or replacement of
Senior Indebtedness or Guarantor Senior Indebtedness or of any Indebtedness
of any Restricted Subsidiary that is not a Subsidiary Guarantor, does not
reduce the Average Life to Stated Maturity of such Indebtedness; and
(xii) additional Indebtedness of the Company or any Restricted
Subsidiary not described by any other clause of this definition, not to
exceed an aggregate principal amount at any time outstanding of $25,000,000
(less the aggregate principal amount of Indebtedness incurred under the New
Credit Agreement under subclause (i)(c)(1) above).
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:
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(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.
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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
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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.
79
<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 October 31, 1998
and November 1, 1997 and for each of the three years in the period ended October
31, 1998, included in this Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
80
<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 October 31, 1998, and November 1, 1997................................. F-3
Consolidated Statements of Income for the Years Ended October 31, 1998, November 1, 1997 and November 2,
1996................................................................................................... F-5
Consolidated Statements of Changes in Stockholders' Deficit for the Years Ended October 31, 1998,
November 1, 1997 and November 2, 1996.................................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended October 31, 1998, November 1, 1997 and November
2, 1996................................................................................................ 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 October 31, 1998 and
November 1, 1997 and the related consolidated statements of income, changes in
stockholders' deficit, and cash flows for each of the three years in the period
ended October 31, 1998. 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 October 31, 1998 and November 1, 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1998 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
December 3, 1998
F-2
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND NOVEMBER 1, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 54,558 $ 31,031
Trade receivables....................................................................... 20,226 16,515
Leases receivable....................................................................... 48,262 43,116
Inventories............................................................................. 85,148 76,385
Other current assets.................................................................... 3,062 3,314
Total current assets.................................................................. 211,256 170,361
---------- ----------
63,205 59,207
---------- ----------
LEASES RECEIVABLE, NONCURRENT
PROPERTY, PLANT, AND EQUIPMENT:
Land.................................................................................... 4,164 4,070
Buildings............................................................................... 19,236 18,919
Machinery and equipment................................................................. 33,202 31,728
Automobiles, trucks, and airplane....................................................... 7,336 7,574
Office furniture and equipment.......................................................... 5,269 4,706
Construction in progress................................................................ 1,976 1,607
---------- ----------
71,183 68,604
Less accumulated depreciation........................................................... (35,293) (30,503)
---------- ----------
Net property, plant, and equipment.................................................... 35,890 38,101
---------- ----------
OTHER ASSETS:
Deferred debt issuance costs, net of accumulated amortization of $2,513 and $1,257 in
1998 and 1997, respectively........................................................... 7,250 8,515
Goodwill, net of accumulated amortization of $25,078 and $21,238 in 1998 and 1997,
respectively.......................................................................... 127,614 131,454
Other assets............................................................................ 4,743 4,862
---------- ----------
Total other assets.................................................................... 139,607 144,831
---------- ----------
Total assets.......................................................................... $ 449,958 $ 412,500
---------- ----------
---------- ----------
</TABLE>
F-3
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1998 AND NOVEMBER 1, 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt....................................................... $ 16,750 $ 12,750
Trade accounts payable.................................................................. 29,763 21,708
Deposits and amounts due customers...................................................... 1,694 2,923
Income taxes payable.................................................................... 7,444 42
Accrued warranty........................................................................ 5,647 5,609
Accrued interest........................................................................ 5,712 5,872
Other accrued liabilities............................................................... 25,206 17,713
Deferred income taxes................................................................... 5,356 4,474
---------- ----------
Total current liabilities............................................................. 97,572 71,091
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt.......................................................................... 326,983 336,813
Bonds payable........................................................................... 2,750 2,750
Accrued pension expense................................................................. 10,042 9,788
Deferred income taxes................................................................... 4,844 4,612
Other long-term liabilities............................................................. 11,883 11,889
---------- ----------
Total long-term liabilities........................................................... 356,502 365,852
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 11)
REDEEMABLE COMMON STOCK, $.01 PAR VALUE; 1,500,000 AND 730,000 SHARES ISSUED AND
OUTSTANDING IN 1998 AND 1997, RESPECTIVELY (NOTE 9)..................................... 56,145 20,676
MANAGEMENT NOTES (NOTE 13).............................................................. (7,700) 0
---------- ----------
48,445 20,676
---------- ----------
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value; 25,000,000 shares authorized, 7,704,778 shares issued and
outstanding in 1998 and 1997.......................................................... 77 77
Additional paid-in capital.............................................................. 77,023 77,023
Accumulated deficit..................................................................... (125,309) (119,206)
Other stockholders' equity.............................................................. (4,352) (3,013)
---------- ----------
Total stockholders' deficit........................................................... (52,561) (45,119)
---------- ----------
Total liabilities and stockholders' deficit........................................... $ 449,958 $ 412,500
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1998, NOVEMBER 1, 1997,
AND NOVEMBER 2, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES.................................................................... $ 626,445 $ 576,110 $ 570,185
COST OF GOODS SOLD........................................................... 515,158 473,402 474,067
---------- ---------- ----------
GROSS PROFIT................................................................. 111,287 102,708 96,118
---------- ---------- ----------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES................................ 47,985 62,349 42,569
AMORTIZATION OF GOODWILL..................................................... 3,840 3,840 3,830
---------- ---------- ----------
51,825 66,189 46,399
---------- ---------- ----------
OPERATING INCOME............................................................. 59,462 36,519 49,719
INTEREST INCOME.............................................................. 7,429 6,256 6,999
INTEREST EXPENSE............................................................. (34,556) (33,754) (16,889)
OTHER INCOME, NET............................................................ 998 1,858 224
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................................................... 33,333 10,879 40,053
PROVISION (BENEFIT) FOR INCOME TAXES......................................... 11,666 (2,704) 14,872
---------- ---------- ----------
NET INCOME BEFORE EXTRAORDINARY ITEM......................................... 21,667 13,583 25,181
LOSS ON EXTINGUISHMENT OF DEBT, NET OF TAX BENEFIT OF $0, $1,767, AND $838 IN
1998, 1997, AND 1996, RESPECTIVELY (NOTE 5)................................ 0 (2,986) (1,416)
---------- ---------- ----------
NET INCOME................................................................... $ 21,667 $ 10,597 $ 23,765
---------- ---------- ----------
---------- ---------- ----------
</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 OCTOBER 31, 1998, NOVEMBER 1, 1997,
AND NOVEMBER 2, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS CUMULATIVE
COMMON PAID-IN (ACCUMULATED TRANSLATION
STOCK CAPITAL DEFICIT) ADJUSTMENTS
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 28, 1995....................................... $ 77 $ 77,023 $ 27,896 $ (2,369)
Net income.................................................... 0 0 23,765 0
Accretion of redeemable common stock.......................... 0 0 (8,433) 0
Translation adjustments....................................... 0 0 0 229
--- ----------- ------------ -----------
BALANCE, NOVEMBER 2, 1996....................................... 77 77,023 43,228 (2,140)
Net income.................................................... 0 0 10,597 0
Dividend distribution......................................... 0 0 (185,346) 0
Accretion of redeemable common stock.......................... 0 0 12,315 0
Translation adjustments....................................... 0 0 0 (873)
--- ----------- ------------ -----------
BALANCE, NOVEMBER 1, 1997....................................... 77 77,023 (119,206) (3,013)
Net income.................................................... 0 0 21,667 0
Accretion of redeemable common stock.......................... 0 0 (27,770) 0
Translation adjustments....................................... 0 0 0 (1,339)
--- ----------- ------------ -----------
BALANCE, OCTOBER 31, 1998....................................... $ 77 $ 77,023 $ (125,309) $ (4,352)
--- ----------- ------------ -----------
--- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998, NOVEMBER 1, 1997,
AND NOVEMBER 2, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 21,667 $ 10,597 $ 23,765
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary loss on extinguishment of debt..................................... 0 4,755 2,254
Depreciation and amortization.................................................... 11,439 11,179 11,518
Increase in cash surrender value of life insurance............................... (148) (153) (110)
Deferred income taxes............................................................ 1,114 (5,300) (1,047)
Gain on sale of assets........................................................... (37) (628) 0
Changes in assets and liabilities:
Trade receivables.............................................................. (3,711) (3,072) 5,423
Inventories.................................................................... (8,763) (6,609) 13,570
Trade accounts payable......................................................... 8,055 (5,996) 1,961
Income taxes payable........................................................... 7,402 (9,229) 2,344
Accrued interest............................................................... (160) 5,248 (1,412)
Other current liabilities...................................................... 6,070 2,349 (312)
Other.......................................................................... 1,529 3,137 1,633
--------- --------- ---------
Total adjustments............................................................ 22,790 (4,319) 35,822
--------- --------- ---------
Net cash provided by operating activities.................................... 44,457 6,278 59,587
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant, and equipment acquisitions, net................................... (4,680) (5,358) (7,281)
Increases in leases receivable..................................................... (9,144) (28,245) (11,855)
Proceed from sale of assets........................................................ 83 2,798 0
--------- --------- ---------
Net cash used in investing activities........................................ (13,741) (30,805) (19,136)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt....................................................... 0 274,699 0
Repayments of long-term debt....................................................... (12,750) (96,650) (37,000)
Net borrowings (repayments) under revolving credit agreements...................... 6,900 26,900 22,938
Debt prepayment premium............................................................ 0 (3,369) (1,625)
Debt issuance costs................................................................ 0 (9,741) 0
Dividend paid...................................................................... 0 (185,346) 0
Other.............................................................................. 0 3,686 (192)
--------- --------- ---------
Net cash (used in) provided by financing activities.......................... (5,850) 10,179 (15,879)
--------- --------- ---------
EFFECT OF EXCHANGE RATE FLUCTUATIONS................................................. (1,339) (874) 229
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. 23,527 (15,222) 24,801
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................................... 31,031 46,253 21,452
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................. $ 54,558 $ 31,031 $ 46,253
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest......................................................................... $ 32,187 $ 27,534 $ 11,936
--------- --------- ---------
--------- --------- ---------
Income taxes..................................................................... $ 2,226 $ 10,167 $ 12,725
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
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 1998, 1997, and 1996
contained 52, 52, and 53 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
$565,000, $331,000, and $54,000 were recorded in fiscal years 1998, 1997, and
1996, 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 October 31, 1998 and November 1, 1997.
F-8
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
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 $88,062,000 and $79,300,000 at October 31, 1998 and November 1,
1997, respectively.
The components of inventory as of October 31, 1998 and November 1, 1997
consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 23,923 $ 22,170
Work in process......................................................... 31,956 26,695
Finished goods.......................................................... 29,269 27,520
--------- ---------
Total inventories (LIFO cost)....................................... $ 85,148 $ 76,385
--------- ---------
--------- ---------
</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>
Buildings....................................................... 20-33
years
Machinery and equipment......................................... 5-10 years
Automobiles, trucks, and airplane............................... 3-5 years
Office furniture and equipment.................................. 3-10 years
</TABLE>
F-9
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
1. NATURE OF BUSINESS (CONTINUED)
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.
Depreciation expenses of approximately $6,183,000, $5,975,000, and
$5,517,000 were recorded for the years ended October 31, 1998, November 1, 1997,
and November 2, 1996, 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 approximately $152,692,000 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
approximately $5,770,000, $5,689,000, and $6,185,000 for the years ended October
31, 1998, November 1, 1997, and November 2, 1996, respectively.
ACCOUNTING STANDARDS YET TO BE ADOPTED
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is designed to improve the reporting of changes in
equity from period to period. SFAS No. 130 is effective for the Company's 1999
year-end financial statements. Since this statement requires only additional
disclosure, there will be no effect on the Company's results of operations or
financial position.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 requires that an
enterprise disclose certain information about operating segments. SFAS No. 131
is effective for the Company's 1999 year-end financial statements. Since this
statement requires only additional disclosure, there will be no effect on the
Company's results of operations or financial position.
F-10
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
1. NATURE OF BUSINESS (CONTINUED)
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosure About
Pension and Other Post-Retirement Benefits." This statement revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
is effective for the Company's 1999 year-end financial statements. Since this
statement requires only additional disclosure, there will be no effect on the
Company's results of operations or financial position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Management does not expect
SFAS No. 133 to have a significant impact on the Company's financial condition
or results of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 approximately $177,000 and
$428,000 at October 31, 1998 and November 1, 1997, 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 October
31, 1998 and November 1, 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Leases receivable..................................................... $ 124,499 $ 115,028
Unearned interest..................................................... (13,032) (12,706)
---------- ----------
Net leases receivable................................................. $ 111,467 $ 102,322
---------- ----------
---------- ----------
</TABLE>
Interest income recognized on leases receivable was approximately
$6,438,000, $5,309,000, and $4,947,000 for the years ended October 31, 1998,
November 1, 1997, and November 2, 1996, respectively.
F-11
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
2. LEASES RECEIVABLE (CONTINUED)
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).
3. NET CASH SURRENDER VALUE OF LIFE INSURANCE
Details of the net cash surrender value of life insurance on the lives of
individuals in whom BBC has an insurable interest as of October 31, 1998 and
November 1, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash values.................................................................................... $ 7,604 $ 7,456
Less life insurance loans.................................................................... (4,458) (4,458)
--------- ---------
Net cash surrender value, included in other assets............................................. $ 3,146 $ 2,998
--------- ---------
--------- ---------
</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 approximately $15,840,000 paid to
management as owners of redeemable common stock; and paid a distribution to BBC
option holders of approximately $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.
5. LONG-TERM DEBT
Outstanding debt at October 31, 1998 and November 1, 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
10.75% senior subordinated notes, due November 15, 2006; interest payable semiannually;
subordinated to Senior Credit Facility, as defined...................................... $ 99,733 $ 99,713
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%; interest rate at 7.75% on October 31,
1998; collateralized by all of the capital stock of the Company, 66% of the capital
stock of Canadian Blue Bird Coach, Ltd. and Blue Bird de Mexico, and substantially all
of the assets of the Company............................................................ 78,100 90,100
</TABLE>
F-12
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
5. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Senior Credit Facility term loan, principal and interest payable in quarterly installments
through November 19, 2003; interest payable at the option of BBC at either the prime
rate plus 2% or the Eurodollar rate plus 3%; interest rate at 8.25% on October 31, 1998;
collateralized by all of the capital stock of the Company, 66% of the capital stock of
Canadian Blue Bird Coach, Ltd. and Blue Bird de Mexico, and substantially all of the
assets of the Company 73,500 74,250
Blue Bird Capital revolving credit facility with final maturity on March 31, 2001;
interest payable quarterly at the option of BBC at either the prime rate or the
Eurodollar rate plus 1.125%; weighted average interest rate at 6.32% on October 31,
1998; collateralized by all the capital stock of Blue Bird Capital 92,400 85,500
Industrial development bonds, due March 2001; interest payable quarterly; interest rate at
3.15% on October 31, 1998; secured by a letter of credit................................ 2,750 2,750
---------- ----------
346,483 352,313
Less current portion of debt.............................................................. 16,750 12,750
---------- ----------
Long-term debt and bonds payable.......................................................... $ 329,733 $ 339,563
---------- ----------
---------- ----------
</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 approximately $2,986,000, 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.
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 8.74% for the year ended October 31, 1998. In addition, the
revolving credit facility requires quarterly payments of a commitment fee equal
to .5% 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 October 31, 1998, the Company was in compliance with all of
its covenants.
F-13
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
5. LONG-TERM DEBT (CONTINUED)
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 October 31, 1998, 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%
as of October 31, 1998 and November 1, 1997, 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 October
31, 1998.
In connection with the Blue Bird Capital Revolver, Blue Bird Capital
purchased interest rate cap agreements with notional principal amounts totaling
$65,000,000 in order to reduce the impact of fluctuations in interest rates on
its variable rate debt. The interest rate agreements mature in April 1999.
The Blue Bird Capital also entered into interest rate exchange agreements to
hedge its exposure to fluctuating interest rates related to its variable rate
debt. As of October 31, 1998, the exchanges carry notional principal amounts
totaling $21,000,000 and have an estimated fair value of approximately $214,000,
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 October 31, 1998.
The future minimum principal payments by fiscal year of outstanding debt at
October 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 16,750
2000.............................................................. 20,750
2001.............................................................. 115,150
2002.............................................................. 23,600
2003.............................................................. 70,500
Thereafter........................................................ 99,733
---------
$ 346,483
---------
---------
</TABLE>
F-14
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
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 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Total deferred tax liabilities.......................................... $ 29,077 $ 30,600
Total deferred tax assets............................................... (18,877) (21,514)
--------- ---------
Net deferred tax liability.............................................. $ 10,200 $ 9,086
--------- ---------
--------- ---------
</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 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Stepped-up basis in net assets.......................................... $ 20,532 $ 20,579
Depreciation............................................................ 730 1,326
Other................................................................... 7,815 8,695
--------- ---------
$ 29,077 $ 30,600
--------- ---------
--------- ---------
Deferred tax assets:
Warranty reserves....................................................... $ 5,103 $ 5,189
Pension reserve......................................................... 2,148 2,148
Deferred compensation reserve........................................... 2,272 3,591
Workers' compensation reserve........................................... 1,866 1,770
Net operating loss carryforward......................................... 0 4,242
Other................................................................... 7,488 4,574
--------- ---------
$ 18,877 $ 21,514
--------- ---------
--------- ---------
</TABLE>
F-15
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
6. INCOME TAXES (CONTINUED)
The components of the provision (benefit) for income taxes as of October 31,
1998, November 1, 1997, and November 2, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................... $ 9,092 $ 0 $ 13,117
Foreign.................................................... 582 829 597
State...................................................... 878 0 1,367
--------- --------- ---------
Total current............................................ 10,552 829 15,081
--------- --------- ---------
Deferred:
Federal and state.......................................... 1,114 (5,300) (1,043)
Foreign.................................................... 0 0 (4)
--------- --------- ---------
Deferred, net.............................................. 1,114 (5,300) (1,047)
--------- --------- ---------
Tax provision (benefit), net................................. $ 11,666 $ (4,471) $ 14,034
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income from foreign operations was approximately $1,193,000, $1,586,000, and
$1,630,000 for the years ended October 31, 1998, November 1, 1997, and November
2, 1996, respectively.
The income tax provision (benefit) as of October 31, 1998, November 1, 1997,
and November 2, 1996 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 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax computed at statutory rates....................... $ 11,666 $ 3,808 $ 14,018
Foreign tax impact........................................... (35) 0 0
Tax-exempt interest income................................... (1,983) (1,684) (1,373)
State income taxes, net of federal income tax effect......... 595 (271) 943
Tax benefit for dividend on redeemable common stock.......... 0 (5,551) 0
Goodwill amortization........................................ 1,300 1,300 1,297
Other........................................................ 123 (306) (13)
--------- --------- ---------
11,666 (2,704) 14,872
Extraordinary item........................................... 0 (1,767) (838)
--------- --------- ---------
$ 11,666 $ (4,471) $ 14,034
--------- --------- ---------
--------- --------- ---------
</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)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
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 approximately
$3,050,000, $3,334,000, and $3,857,000 for the years ended October 31, 1998,
November 1, 1997, and November 2, 1996, 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 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 October 31, 1998, November 1, 1997, and November 2, 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Service costs/benefits earned during the period................ $ 1,968 $ 1,822 $ 1,861
Interest costs on projected benefit obligations................ 4,221 3,717 3,487
Return on plan assets.......................................... (9,128) (13,414) (8,794)
Net amortization and deferral.................................. 3,653 9,152 5,377
--------- ---------- ---------
Net periodic pension costs..................................... $ 714 $ 1,277 $ 1,931
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
F-17
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
7. BENEFIT PLANS
PENSION PLANS (CONTINUED)
The following table sets forth these plans' funded status at October 31,
1998 (in thousands):
<TABLE>
<CAPTION>
DEFINED
BENEFIT
PENSION UNQUALIFIED RABBI
PLANS PLAN TRUST
---------- ----------- ---------
<S> <C> <C> <C>
Pension benefit obligation:
Vested benefits................................................................. $ (59,592) $ (3,197) $ (403)
Nonvested benefits.............................................................. (1,122) 0 0
---------- ----------- ---------
Accumulated benefit obligation.................................................. $ (60,714) $ (3,197) $ (403)
---------- ----------- ---------
---------- ----------- ---------
Projected benefit obligation.................................................... $ (68,729) $ (3,197) $ (403)
Market value of plan assets..................................................... 69,721 0 0
---------- ----------- ---------
Overfunded (unfunded) projected benefit obligation.............................. 992 (3,197) (403)
Unrecognized net gain........................................................... (5,948) 0 0
Unrecognized prior service costs................................................ 38 0 0
---------- ----------- ---------
Pension liability recognized in balance sheets.................................. $ (4,918) $ (3,197) $ (403)
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
Assets of the salaried and hourly plans are invested primarily in U.S.
government securities, common stock funds, and cash management funds. For 1998,
1997, and 1996, the discount rate was approximately 6.75%, 8%, and 8%,
respectively. The expected long-term rate of return on assets was 8% for 1998,
1997, and 1996. 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 October 31, 1998, November 1, 1997, and November 2,
1996 amounted to approximately $2,084,000, $2,056,000, and $1,926,000
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 October 31, 1998 and November 1, 1997, the accompanying financial
statements reflect liabilities for the anticipated payment of deferred
compensation and supplemental retirement benefits described above in the amounts
of approximately $950,000 and $992,000, respectively.
F-18
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
9. REDEEMABLE COMMON STOCK
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 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 1998, the Company issued 770,000 shares of redeemable common stock
associated with the exercise of options by management (Note 12). As a result,
the number of redeemable common shares outstanding as of October 31, 1998 and
November 1, 1997 was 1,500,000 and 730,000, respectively.
10. LEASES
Rental expenses for operating leases were approximately $1,911,000,
$1,616,000, and $1,195,000 for the years ended October 31, 1998, November 1,
1997, and November 2, 1996, respectively. Operating leases relate primarily to
manufacturing and warehouse equipment. The future minimum lease payments under
operating leases by fiscal year as of October 31, 1998 are approximately as
follows (in thousands):
<TABLE>
<S> <C>
1999................................................................... $ 1,189
2000................................................................... 914
2001................................................................... 778
2002................................................................... 272
2003................................................................... 7
---------
$ 3,160
---------
---------
</TABLE>
11. CONTINGENCIES
As of October 31, 1998, 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 employees were granted options (the "Performance Options") to purchase an
aggregate of 400,000 shares
F-19
<PAGE>
BLUE BIRD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998, NOVEMBER 1, 1997, AND NOVEMBER 2, 1996
12. MANAGEMENT STOCK OPTION PLAN (CONTINUED)
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 October 31,
1998. During the year ended October 31, 1998, options for 10,000 shares were
granted, and options for 770,000 shares were exercised. The options exercised
were for redeemable common stock and the proceeds of $7,700,000 were financed by
the Company through full recourse notes granted to the employees (Note 13). As a
result, the Company had 0 and 760,000 options to purchase shares outstanding as
of October 31, 1998 and November 1, 1997, 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
approximately $0 on a pro forma basis for the year ended October 31, 1998.
13. MANAGEMENT NOTES
During 1998, certain employees exercised their options to purchase
redeemable common shares at an aggregate exercise price of $7,700,000. In order
to facilitate the exercise, the Company financed the exercise through the
issuance of three-year notes expiring October 2001. The notes are full recourse
and bear interest at a rate that approximates the market rate for a similar
investment.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THE PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF FEBRUARY , 1999.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................
Summary Financial Data....................................................
Risk Factors..............................................................
The Recapitalization......................................................
Use of Proceeds...........................................................
Capitalization............................................................
Selected Financial Data...................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations..............................................................
Business..................................................................
Available Information.....................................................
Management................................................................
Ownership of Capital Stock................................................
Certain Relationships and Related Transactions............................
Description of Debt Facilities............................................
Description of the Exchange Notes.........................................
Description of Certain Federal Income Tax Consequences of an Investment in
the Notes...............................................................
Book-Entry, Delivery and Form.............................................
Plan of Distribution......................................................
Legal Matters.............................................................
Experts...................................................................
Index to Consolidated Financial Statements................................
</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
---------------------
FEBRUARY , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.*
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 , 1999.
<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 , 1999.
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.*
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>
EXHIBIT 12.1
BLUE BIRD CORPORATION AND SUBSIDIARIES
BLUE BIRD BODY COMPANY AND SUBSIDIARIES
STATEMENTS RE COMPUTATION OF EARNINGS TO FIXED CHARGES
FOR THE YEARS ENDED OCTOBER 31, 1998, NOVEMBER 1, 1997,
NOVEMBER 2, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
(In Thousands Except Ratios)
BBC
<TABLE>
<CAPTION>
OCTOBER 31, NOVEMBER 1, NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest expense...................... $ 33,300 $ 32,488 $ 16,455 $ 16,282 $ 15,224
Interest element of rentals........... 637 539 473 536 521
Amortization of debt issuance costs... 1,265 1,266 2,688 2,245 2,209
------- ------- ------- ------- -------
$ 35,202 $ 34,293 $ 19,616 $ 19,063 $ 17,954
------- ------- ------- ------- -------
------- ------- ------- ------- -------
EARNINGS:
Net income (loss)..................... $ 21,667 $ 10,597 $ 23,765 $ 16,852 $ 15,408
Provision (benefit) for income
taxes............................... 11,666 (4,473) 14,034 11,686 10,157
Fixed charges......................... 35,202 34,293 19,616 19,063 17,954
Interest capitalized.................. -0- -0- -0- (208) (145)
------- ------- ------- ------- -------
$ 68,535 $ 40,417 $ 57,415 $ 47,393 $ 43,374
RATIO OF EARNINGS TO FIXED CHARGES.... 1.9X 1.2X 2.9X 2.5X 2.4X
</TABLE>
<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 28, 1999
