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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

As of April 28, 2004, the registrant had outstanding 50,686,926 shares of Class A Common Stock and 97,577,207 shares of Class B Common Stock. The aggregate market value of the Class A Common Stock held by non-affiliates of the registrant was $584,914,032 computed by reference to the closing price of the Class A Common Stock on August 29, 2003 as reported by the New York Stock Exchange. Although there is no quoted market for registrant’s Class B Common Stock, shares of Class B Common Stock may be converted at any time into an equal number of shares of Class A Common Stock. Using the closing price of the Class A Common Stock on August 29, 2003, as reported by the New York Stock Exchange as the basis of computation, the aggregate market value of the Class B Common Stock held by non-affiliates was $920,044,830.

Portions of the registrant’s definitive proxy statement for its 2004 Annual Meeting of Shareholders, to be held on June 24, 2004, are incorporated by reference in Part III of this Form 10-K.

The following business overview is qualified in its entirety by the more detailed information included elsewhere or incorporated by reference in this Annual Report on Form 10-K (“Report”). As used in this Report, unless otherwise expressly stated or the context otherwise requires, all references to “Steelcase,” “we,” “our,” “the Company” and similar references are to Steelcase Inc. and its consolidated subsidiaries. Unless the context otherwise indicates, reference to a year relates to a fiscal year, ended in February of the year indicated, rather than a calendar year. Additionally, Q1 2004 references the first quarter of fiscal 2004. All amounts are in millions, except per share data, data presented as a percentage or unless otherwise indicated.

Steelcase is the world’s leading designer and manufacturer of office furniture, with 2004 revenue of approximately $2.3 billion. Founded and incorporated in 1912 as the Metal Office Furniture Company, we are a global company headquartered in Grand Rapids, Michigan. We employ approximately 14,200 employees, have manufacturing facilities in over 35 locations and distribute products through a network of independent dealers in more than 900 locations around the world.

We operate on a worldwide basis within three reportable segments: North America, the Steelcase Design Partnership (“SDP”) and International, plus an “Other” category. Previously, we reported under four reportable segments, plus an “Other” category. However, beginning in Q1 2004, our Financial Services business was no longer reported as a separate segment since its results and asset base were below the threshold requirements. For comparative purposes, prior year information has been restated to reflect the new segmentation of the Company. See further information about our segments below.

On August 29, 2003, the Company sold substantially all of the net assets of its marine hardware and accessories business (previously reported under the Other category). In accordance with generally accepted accounting principles, the operating results of this business have been segregated as discontinued operations for all periods presented. See further information regarding this disposition in Note 18 to the consolidated financial statements.

Additional information about our reportable segments, including financial information about geographic areas, is contained in this Report under Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 17 to the consolidated financial statements.

Our North America segment consists of manufacturing and sales operations in the United States and Canada. This segment includes 16 manufacturing facilities, represents approximately 8,000 employees and serves customers through a network of over 330 independent dealer locations. Our offerings in North America include architecture, furniture and technology products, as described below, under the Steelcase and Turnstone brands. For example, Pathways is an evolving portfolio of integrated architecture, furniture and technology products that enable customers to create flexible, user-centered work environments. In 2004, the North America segment accounted for $1,280.4, or 54.6% of our total revenue.

The SDP includes the following companies and their brands: Brayton International, The Designtex Group, Office Details Inc., Metropolitan Furniture Corporation and Vecta. These companies operate autonomously and report to the president of the SDP. They focus on higher-end design furniture products and niche applications for lobby and reception areas, conference rooms, private offices, health care and learning environments, as well as the design and distribution of surface materials and ergonomic tools for the workplace. The SDP segment has approximately 1,200 employees and distributes its products through many of the same dealers as the North America segment. In 2004, SDP accounted for $275.6, or 11.7% of our total revenue.

Our International segment includes all sales and manufacturing operations of the Steelcase and Werndl brands outside the United States and Canada. It develops and manufactures most of the products it sells. The International segment includes 12 manufacturing facilities located in 8 countries, over 3,500 employees and serves customers through a network of approximately 570 independent dealer locations. We hold the market leadership position in Europe and leading positions in several individual countries. In 2004, our International segment accounted for $539.2, or 23.0% of our total revenue.

The Other category includes our Financial Services, PolyVision and IDEO subsidiaries, ventures and unallocated corporate expenses. Steelcase Financial Services Inc. provides leasing services to customers primarily in North America to facilitate the purchase of our products and provides selected financing services to our dealers. PolyVision Corporation designs and manufactures visual communications products, such as static and electronic whiteboards, for learning environments and office settings. IDEO Inc. provides product design and innovation services. Approximately 85% of corporate expenses representing shared services are charged to the operating segments as part of a corporate allocation. Unallocated expenses are reported within the Other category. In 2004, the Other category accounted for $250.4, or 10.7% of our total revenue.

We are a global work effectiveness company, focused on providing knowledge, products and services that enable our customers to create work environments that help people in offices work more effectively while helping organizations utilize space more efficiently.

Because of this focus, we have a broad offering of products with a variety of aesthetic options and performance features, and at various price points that address the three core elements of a work environment: architecture, furniture and technology. Our reportable segments generally offer similar products under some or all of the categories listed below:

Panel-based and freestanding furniture systems. Moveable and reconfigurable furniture components used to create individual workstations and complete work environments. Systems furniture provides visual and acoustical privacy, accommodates power and data cabling, and supports technology and other worktools.

Storage. Lateral and vertical files, cabinets, bins and shelves, carts, file pedestals and towers.

Seating. High-performance, ergonomic, executive, guest, lounge, team, health care, stackable and general use chairs.

Textiles and surface materials. Seating upholstery, panel fabric and wall coverings.

Worktools. Computer support, technology management, information management products and portable whiteboards.

Interior architecture. Full and partial height walls and doors with a variety of surface materials, raised floors and modular post and beam products.

Lighting. Task, ambient and accent lighting with energy efficient and user control features.

Infrastructure. Infrastructure products, such as modular communications, data and power cabling.

Appliances. Group communication tools, such as interactive whiteboards, image capturing devices and web-based interactive space-scheduling devices.

The Company’s manufacturing materials are available from a significant number of sources within the United States, Canada, Europe and Asia. Through collaboration, our goal is for both our suppliers and Steelcase to prosper by continuously improving our products and manufacturing processes. To date, we have not experienced difficulties obtaining raw materials, which include steel and other metals, lumber, paper, paint, plastics, laminates, particleboard, veneers, glass, fabrics, leathers and upholstery filling material. These raw materials are not unique to the industry nor are they rare. Steel and other metal prices have significantly increased in recent months due to unprecedented changes in global supply and demand. There is some risk that these changes could lead to future supply interruptions although we do not expect nor have we experienced any such interruptions. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of raw materials prices.

Our product development process begins with research aimed at identifying emerging patterns of user behavior in the workplace and changes in the ways people work. Our research methods include on-site observation of people working in their offices, human factor studies, and often include collaboration with universities and other companies. Our research activity is a corporate function and occurs primarily in North America and Europe.

Understanding patterns of work enables us to identify and anticipate user needs. Our design teams develop prototypical solutions to address these needs. These solutions are sometimes single products and/or enhancements to existing products, and are sometimes integrated architecture, furniture and technology solutions. Design work is organizationally distributed across our major businesses and can involve outside design services. At times, we also utilize IDEO, a design and innovations subsidiary, in the development of new and enhanced products.

Our marketing team evaluates product concepts using several criteria, including financial return metrics, and chooses which products will be developed and launched. Next, designers work closely with our engineers and outside suppliers to co-develop products and processes that lead to more efficient manufacturing while incorporating innovative user features. Products are tested for performance, quality and compliance with applicable standards and regulations.

Exclusive of royalty payments, we have invested approximately $150.0 in research, design and development activities over the past three years. Royalties are sometimes paid to outside designers of our products as the products are sold and are not included in the research, design and development costs since they are variable based on product sales. See Note 2 to the consolidated financial statements for more information regarding research, design and development costs.

We manufacture our products in more than 35 locations throughout the world, with facilities predominantly in North America and Europe. Substantially all of our manufacturing facilities “assemble to order” rather than to “forecast,” which minimizes finished goods inventory levels and emphasizes continuous improvement and delivery time to customers. We have an extensive physical distribution system in North America and Europe and utilize both our company-owned trucking fleet and commercial transport and delivery services.

We are implementing lean manufacturing principles in many of our plants. Lean manufacturing involves smaller batch sizes, cellular or team-based manufacturing, flow and pull methods of managing work in process, and other world-class production techniques. We are also implementing enhanced planning and scheduling systems to help coordinate production of a given order across multiple plants and multiple delivery times. We explore opportunities to outsource certain manufacturing processes when suppliers can offer additional efficiencies or other performance benefits. These strategies along with other initiatives are helping us create the new “Steelcase Production System.” As we continue with implementation, we expect to improve our productivity, increase the effective capacity of each plant, improve inventory turns, and create a less capital-intensive industrial model. For example, over the past two fiscal years we have sold or closed properties representing approximately 4.3 million square feet, including current property which is held for sale or idle. In 2004 alone, approximately 1.5 million square feet of facilities were closed and 1.0 million square feet were sold. See Item 2: Properties for additional information regarding real estate held for sale and idle property. We will continue to examine opportunities to consolidate manufacturing and distribution operations and dispose of assets that represent excess capacity.

Our receivables are primarily from our dealers, and to a lesser degree, direct sell customers. Payment terms vary by country and region. The terms of our North America and SDP segments, and certain markets within the International segment, encourage prompt payment. Other International markets have, by market convention, longer payment terms. We are not aware of any special or unusual practices or conditions related to working capital items, including accounts receivable, inventory and accounts payable, which are significant to understanding our business or the industry at large.

Our products are generally manufactured and shipped within four to six weeks following receipt of order; therefore, we do not view the amount of backlog at any particular time as a meaningful indicator of longer-term shipments.

Our wholly-owned subsidiary, Steelcase Development Corporation, acquires, manages, licenses, and enforces our intellectual property rights.

We own approximately 1,400 designs and patents throughout the world. Of these, we have over 640 active utility and design patents for current and anticipated products in the United States. We own the remaining designs and patents in a number of other countries. The average remaining life of the utility patents in our United States portfolio is approximately 11 years. We occasionally enter into license agreements under which we pay a royalty to third parties for the use of patented products, designs or process technology.

We have also registered various trademarks and service marks in the United States and other countries. Collectively, we hold registrations for approximately 150 United States and 1,340 foreign trademarks. We have established a global network of intellectual property licenses with our affiliates. We also selectively license our intellectual property to third parties as a revenue source. For example, our Leap® seating technology has been licensed for use in automotive and aircraft seating, and we are pursuing other licensing opportunities for this technology.

We do not believe that any material part of our business is dependent on the continued availability of any one or all of our patents or trademarks, or that our business would be materially adversely affected by the loss of any, except the “Brayton,” “Designtex,” “Details,” “Leap,” “Metro,” “Pathways,” “PolyVision,” “Steelcase,” “Vecta” and “Werndl” trademarks.

We primarily sell our products through a network of independent dealers. Each dealership has its own sales force, supported by our sales representatives, who work closely with dealers throughout the sales process. We have historically experienced minimal turnover in our dealer network. No single dealer accounted for more than 2.8% of our consolidated revenue for 2004. The five largest dealers collectively accounted for approximately 9.5% of our consolidated revenue. We do not believe our business is dependent on any single dealer, the loss of which would have a material effect upon our business. However, temporary disruption of dealer coverage within a specific local market due to financial failure or the inability to smoothly transition ownership could temporarily have an adverse impact on our business within the affected market. See Notes 9 and 16 to the consolidated financial statements for further discussion.

Our largest end-use customer accounted for approximately 1.0% of our consolidated revenue and our five largest customers accounted for approximately 4.0% of consolidated revenue. However, these percentages do not include revenue from various government agencies and other entities purchasing under the General Services Administration (“GSA”) contract, which in the aggregate accounted for approximately 2.0% of our consolidated revenue. We do not believe our business is dependent on any single or small number of end-user customers, the loss of which would have a material effect upon our business.

Historically, our North America and SDP segments experience seasonal patterns with second and third quarter revenue levels higher than first and fourth quarter revenue levels. However, this seasonal trend was not as evident during the office furniture industry recession of the past few years. Our International segment experiences seasonal patterns with lower revenue in the second quarter.

The United States and Canadian office furniture markets are highly competitive, with a number of competitors offering similar categories of product. In these markets, companies compete on price, delivery and service, product design and features, product quality, strength of dealers and other distributors, and relationships with customers, architects and designers. We have held the position as the United States revenue leader in our industry for nearly 30 years. Our most significant competitors are Haworth, Inc., Herman Miller, Inc., HNI Corporation (f/k/a HON Industries Inc.) and Knoll, Inc. Together with Steelcase, these companies represent approximately 55% of the market share of the United States office furniture market.

The international office furniture market is highly competitive and fragmented. We compete with many different local or regional manufacturers in many different markets. In most cases, these competitors focus their strengths on selected product categories. We also compete with certain North American based competitors. No single company competes with us in all markets.

We are subject to a variety of federal, state, local and foreign laws and regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment (“Environmental Laws”). Subject to the matters noted below and under Item 3, Legal Proceedings, we believe our operations are in substantial compliance with all Environmental Laws. Additionally, we do not believe that existing Environmental Laws and regulations have had or will have any material effects upon the capital expenditures, earnings or competitive position of the Company.

On June 18 and 19, 2002, the United States Environmental Protection Agency (“EPA”) and Michigan Department of Environmental Quality (“MDEQ”) conducted an inspection of the energy centers and other air emission sources at the Steelcase facilities in Kentwood and Grand Rapids, Michigan. Following the inspection, the EPA requested stack testing of emissions from the two energy centers. MDEQ subsequently requested additional stack testing at the Grand Rapids energy center to confirm compliance with air emission permit requirements because of anomalous results for sulfur dioxide and nitrogen oxide in portions of the initial testing. The additional testing confirmed that a supplier providing coal not meeting Steelcase’s purchase specifications caused the anomalous results. To avoid future occurrences, Steelcase has changed the process for testing coal prior to its delivery to the Company. Although the MDEQ has concurred informally with our assessment of the last round of testing and the changes in coal testing, it is possible that a notice of violation, together with penalties or other costs could be sought by MDEQ or EPA based on the initial anomalous tests results. Potential penalties or costs cannot be estimated at this time.

Under certain Environmental Laws, Steelcase could be held liable, without regard to fault, for the costs of remediation associated with our existing or historical operations. We could also be held responsible for third-party

property and personal injury claims or for violations of Environmental Laws relating to contamination. Steelcase is a party to, or otherwise involved in, legal proceedings relating to several contaminated properties being investigated and remediated under Environmental Laws. Based on our information regarding the nature and volume of wastes allegedly disposed of or released at these properties, the number of other financially viable potentially responsible parties and the total estimated cleanup costs, we do not believe that the costs to us associated with these properties will be material, either individually or in the aggregate. The Company has established reserves we believe are adequate to cover our anticipated remediation costs. However, certain events could cause actual costs or losses to vary from the established reserves. These events include, but are not limited to: a change in governmental regulations and/or cleanup standards or requirements; undiscovered information regarding the nature and volume of wastes allegedly disposed of or released at these properties; and other factors increasing the cost of remediation or the loss of other potentially responsible parties that are financially capable of contributing towards cleanup costs.

As of February 28, 2004, Steelcase had approximately 14,200 employees, including approximately 8,000 hourly, 5,500 salaried and 500 temporary workers. Over 10,500 workers are located in the United States, Canada and Mexico, approximately 6.5% of which are covered by collective bargaining agreements in the United States.

We file annual reports, quarterly reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street NW, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers, including Steelcase, that file electronically with the SEC.

We also make available free of charge through our Internet website, http://www.steelcase.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after we electronically file such reports with or furnish them to the SEC. In addition, the Company’s governance guidelines and the charters for the Audit, Compensation, Investment and Nominating and Corporate Governance Committees are available free of charge through our website or by writing to Investor Relations, PO Box 1967, Grand Rapids, Michigan 49501-1967.

The Company adopted a code of ethics, known as the Steelcase Inc. Code of Ethics for Chief Executive and Senior Financial Officers, which applies to our chief executive officer, chief financial officer, controller and other persons performing similar functions. In addition, the Company adopted the Steelcase Inc. Code of Business Conduct, which applies to all directors and employees worldwide. These codes, including future amendments, are available free of charge through our website or by writing to Investor Relations, PO Box 1967, Grand Rapids,

We are not including the information contained on our website as a part of, or incorporating it by reference into, this Report.

The Company, including joint ventures, has operations at locations throughout the United States and around the world. Our North America and SDP segments operate approximately 25 manufacturing and distribution facilities in 12 states, Canada and Mexico, while our International segment operates 12 manufacturing and distribution facilities in 8 countries.

Our office, showroom, manufacturing and distribution facilities total approximately 24.0 million square feet, including real estate held for sale, idle property and approximately 5.0 million square feet of leased space. None of our owned properties is held in fee or is held subject to any significant encumbrance. We believe our facilities are in good operating condition and sufficient to meet current volume needs and future volume increases.

Due to restructuring and plant rationalizations over the past several years, we are currently holding for sale several facilities that are no longer in use. These facilities represent approximately 560,000 square feet and 260 acres and are reported as real estate held for sale included in Other Current Assets on our Consolidated Balance Sheets.

In addition, approximately 1.5 million square feet of manufacturing and office space is idle and does not qualify as real estate held for sale since we do not expect to sell the space within the next twelve months or are not currently marketing the space. We are currently evaluating our options with regards to these properties. See Note 4 of our consolidated financial statements for further information on property.

We are involved in litigation from time to time in the ordinary course of our business. Based on known information, we believe we are not a party to any lawsuit or proceeding that is likely to have a material adverse effect on the Company.

Notwithstanding the above, in February 2003, the diameter of the exhaust stack at the Company’s Grand Rapids Energy Center was questioned. The interior diameter of the stack was measured and found to be wider than the diameter specified in the permit. The Company subsequently discovered that in 1984, a larger diameter-reducing cone was installed when a boiler was added to the energy center. On April 24, 2003, MDEQ issued a letter of violation based on the non-compliant stack diameter. Steelcase conducted emission modeling and concluded that the difference in stack diameter had not resulted in a violation of the permit’s emissions requirements. The MDEQ agreed with that conclusion. Although these developments are positive, the MDEQ and/or the EPA could seek to impose penalties or other costs in connection with the April 2003 notice of violation. Penalties, costs or assessments have not been sought and cannot be estimated at this time.

For a description of other matters relating to our compliance with applicable environmental laws, rules and regulations, see Environmental Matters in Item 1 of this Report.

In addition to the above, on October 14, 1999, Propulsion Technologies, Inc. d/b/a PowerTech! Marine Propellers (“PowerTech”) filed a civil action against Steelcase Inc. and its subsidiary, AW Corporation (“AW”) (f/k/a Attwood Corporation) in the United States District Court, Southern District of Texas, Brownsville Division. AW had supplied certain propeller castings to PowerTech, but discontinued the arrangement when it closed its Reynosa, Mexico plant. Among other things, PowerTech contended that AW’s termination of the supply arrangement without having supplied a full 12-month advance notice breached a requirement in the supply arrangement between the parties. The trial judge dismissed all claims against Steelcase. However, at the conclusion of the trial, the jury ruled in favor of PowerTech against AW. In August 2002, the judge entered judgment against AW in the amount of approximately $7.1, which included compensatory damages of approximately $2.0 and punitive damages of approximately $5.1. AW filed an appeal to the United States Court of Appeals for the Fifth Circuit asserting numerous claims, and PowerTech filed a cross-appeal. Oral arguments were heard on the appeal on March 3, 2004. However, litigation is inherently uncertain and we can give no assurance that we will be successful in the appeal. AW is vigorously prosecuting the appeal, and believes that its appeal grounds are meritorious.

The Class A Common Stock of Steelcase Inc. is listed on the New York Stock Exchange under the symbol “SCS”. Our Class B Common Stock is neither registered under the Securities Act of 1933 nor publicly traded. See Note 12 to the consolidated financial statements for further discussion of our common stock. As of April 28, 2004, we had outstanding 148,264,133 shares of common stock with 11,568 shareholders of record. Of these

The declaration and payment of dividends are subject to the discretion of the Board and to compliance with applicable law. Dividends in 2004 were declared and paid quarterly. The amount and timing of future dividends depends upon our results of operations, financial condition, cash requirements, future business prospects, general business conditions and other factors that the Board may deem relevant at the time.


(2)	As of March 31, 1999 Steelcase S.A. became a wholly owned subsidiary, the results of which are included in our consolidated statements.

(3)	Income and gain from discontinued operations relate to the disposition of our Attwood subsidiary. See the Consolidated Statements of Income and Note 18 to the consolidated financial statements for more information.

(4)	Cumulative effect of accounting change for the fiscal year ended February 27, 2004 relates to our adoption of FASB Interpretation Number (“FIN”) 46(R), Consolidation of Variable Interest Entities. See Note 2 to the consolidated financial statements for more information. Cumulative effect of accounting change for the fiscal year ended February 28, 2003 relates to our adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. See Note 8 to the consolidated financial statements for more information.

The following review of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included within this Form 10-K.

The office furniture industry has experienced about a 36% decline in shipments over the past three years in the United States, as reported by the Business and Institutional Furniture Manufacturer’s Association (“BIFMA”) International. In response to this decline, we implemented several operational, organizational and financial restructuring activities including plant rationalizations and workforce reductions. Through these actions we have reduced our cost structure significantly, but not enough to offset the dramatic decline in revenue, therefore, we reported losses in 2004 and 2003.

Revenue declined annually 7.3% in 2004, 16.7% in 2003 and 23.8% in 2002. Our acquisitions of PolyVision Corporation and Custom Cable Industries, both completed in the second half of fiscal 2002, contributed $168.7 to our total revenue in 2004, $174.0 in 2003 and $47.9 in 2002. The dealer transition completed during 2003 contributed $46.6 to our total revenue in 2004 and $24.3 in 2003.

Revenue in 2004 benefited by $77.1 from favorable currency translation in the Company’s International segment when compared to 2003 revenue. Revenue in 2003 benefited from an extra week in the fourth quarter, which we estimate added $44.6 in revenue.

Although there appears to be an overall economic recovery underway in the United States, we believe the lack of sustained job growth has delayed a similar recovery for the office furniture industry. There has been some recent improvement in United States job growth, which if continued, could be an important driver for renewed growth in our United States’ markets in the coming year. Many of our major international markets are not showing signs of growth and may lag a United States recovery.

Gross margins declined to 26.2% of revenue in 2004 because of higher cost of sales and increased restructuring costs. Cost of sales increased to 72.0% of sales in 2004 primarily because of underabsorption of fixed overhead. Our efforts to consolidate operations and reduce excess capacity are having an impact, but not quickly enough to offset the decline in volume. Additionally, intense competition for project business increased product discounts in all markets during the second half of the year. In the North America segment alone, higher discounts decreased revenue and thus gross margins by nearly $13.0 compared to 2003. The restructuring costs related to the consolidation activity described above were $42.3 or 1.8% of revenue, a significant increase in these charges versus the prior year.

We expect to continue to incur restructuring charges related to manufacturing operations as we continue to take steps to transform our industrial model. However, the cost of these activities in 2005 is expected to be less than in 2004. We expect additional plant consolidation activity in 2005, though not at the same level as in 2004. We also expect to continue to expand implementation of lean manufacturing principles in our plants.

Operating expenses declined significantly in 2004 despite a $24.6 unfavorable currency translation effect. Operating expenses were also lower as a percent of revenue. These reductions reflect the savings from restructuring activities, including headcount reductions, which took place in the current and prior years.

Current year restructuring costs related to operating expenses were $11.2, a significant decrease compared to the prior year, because the number of salaried workforce reductions was lower in 2004.

In total, we recorded net pre-tax operating charges for restructuring items totaling $53.5 in 2004, $61.2 in 2003 and $50.3 in 2002. The net charges in 2004 consisted of $28.4 in severance charges for workforce reductions completed or underway and $25.1 in other restructuring charges, primarily for asset impairments. We also recorded a net pre-tax gain of $8.1, of which $4.4 was included in Non-operating items, net, primarily for gains on the sale of real estate and a curtailment gain related to our post-retirement medical and pension benefit plans. The net charges in 2003 consisted of $48.3 in severance charges for workforce reductions and $12.9 in other restructuring charges, primarily for business exit costs. Other items recorded in 2003 totaling a net pre-tax gain of $27.5, of which $16.9 was included in Non-operating items, net, were primarily for gains on the sale of real estate and a curtailment gain related to our post-retirement medical and pension benefit plans. See further discussion and detail of all these items in the Segment Disclosure analysis below and in Note 19 and Note 20 to the consolidated financial statements.

During Q4 2004, we recorded $15.9 of favorable tax adjustments, which are included in the 2004 income tax benefit in the table above. These adjustments consisted of two items. Based on the results of a recently completed IRS tax audit, we recorded a net adjustment of $5.3 reversing reserves that were no longer necessary related to the years that were audited. As of February 27, 2004, we feel the level of remaining reserves appropriately reflects our probable income tax exposures. In addition, we recorded a $10.6 favorable adjustment to income tax expense related to the Q4 2004 review of the annual tax provision and related liability. Although our effective tax rate for 2004 relating to continuing operations is calculated to be 55%, we expect our long-term effective tax rate to remain between 37% and 38%.

As mentioned in the General section of Part I, Item 1, during Q2 2004, we sold substantially all of the net assets of our marine hardware and accessories business. In accordance with SFAS No. 144, the operating results of this business have been segregated as discontinued operations for all periods presented. See further discussion and detail in Note 18 to the consolidated financial statements.

The cumulative effect of accounting change in 2004 represents the net after-tax charge related to our adoption of FIN 46(R), Consolidation of Variable Interest Entities. See further discussion and detail in Note 2 to the consolidated financial statements. The cumulative effective of accounting change in 2003 represents the net after-tax charge related to our adoption of SFAS No. 142, Goodwill and Other Intangible Assets. See Note 8 to the consolidated financial statements for more information regarding goodwill and other intangible assets.

In February 2004, we initiated a change in our participative control of eight dealers where we hold a majority position in the voting stock. Accordingly, we consolidated the balance sheets of these dealers as of February 27, 2004. The consolidation of these dealers had the effect of increasing our total assets and liabilities by $10.9. There was no effect on equity as we previously accounted for these dealers as equity investments on our balance sheets. The results of operations of these dealers will be included in our consolidated results beginning in Q1 2005. We expect these newly consolidated dealers will add approximately $60 to $100 of revenue in 2005, with no corresponding impact on net income because we either do not share in the earnings or, where we do share in the earnings, we previously accounted for the dealer under the equity method of accounting and our share of the earnings were included within Other Income (Expense), net.

Market prices for steel have risen up to 50% over the past several months due to unprecedented changes in global supply and demand. We did not experience any material effect of the rise in these prices during 2004 because much of our steel purchases were on fixed-priced contracts that were put in place prior to the rise in prices. However, we expect our quarterly steel costs will rise $5.0 to $7.0 pre-tax by Q2 2005 as we enter into new contracts. We have taken actions to partially offset the impact of these price increases, including announcing a temporary surcharge on North America customer orders placed after April 25, 2004. Because customers may place orders earlier than they otherwise would have, the temporary surcharge could positively impact Q1 2005 orders and revenue with a corresponding negative impact to Q2 2005 orders and revenue. We anticipate the revenue from the temporary surcharge to largely offset the steel price increase beginning in Q2 2005. The surcharge will continue until steel prices fall below certain thresholds.

The majority of the Company’s debt over the past several years is related to term notes with fixed interest rates. Because the balance of the term notes has been stable, and the interest rates are fixed, interest expense has been relatively stable since 2002.

Interest income has declined over the past three years primarily due to lower average short-term interest rates.

Losses on dealer transitions relate to uncollectible funds loaned to or invested in dealers to finance ownership changes. The majority of the loss recorded in 2004 related to an International dealer transition investment originally made in 1999. We took over full ownership of this dealer during 2004 and reduced the carrying value of the investment to the net book value of the underlying tangible assets, which approximated its fair value. During 2003, we recognized losses on dealer transitions primarily related to two International dealers that were significantly affected by the office furniture recession in their markets. During 2002, we recognized losses on dealer transitions primarily related to a North America dealer whose operating results deteriorated due to a significant decline in business activity in its local market and several other performance issues. As a result, this dealer was restructured and ownership was transitioned to new dealer principals. Losses on dealer transitions do not include write-offs of receivables that have arisen as a result of product sales. Charges for write-offs associated with trade receivables from these affiliates are recorded as operating expenses.

We carefully monitor the financial condition of dealers in ownership transition. Most of the dealers that have transition financing from Steelcase have successfully reduced costs and taken other steps to manage through the downturn. Some individual dealers are facing difficult financial challenges. We believe our reserves adequately reflect these credit risks. However, if these dealers experience prolonged or deepening reduction in revenues, the likelihood of losses would increase and we would record additional charges or reserves, as necessary.

During 2004, we recorded a gain on disposal of property and equipment primarily related to property sold in the United Kingdom for net cash proceeds of about $11.5 and a pre-tax non-operating gain of $7.0. This facility was idle for about three years as a result of prior restructuring activities. The gain in 2003 was primarily related to the sale of our Tustin, California manufacturing facility following the relocation of the operations to a smaller, more efficient facility. We received net cash proceeds of $35.7 and recorded a gain of $15.1 on the Tustin facility sale.

Our income tax benefit is a function of actual taxable loss earned by the Company in different countries, the tax rates in various countries and tax planning strategies we implement. We expect these strategies to result in a long-term effective tax rate of between 37% and 38%.

See more information regarding segments in Part I Item 1 and Note 17 of the consolidated financial statements included with this Report.

Revenue in 2004 declined 14.5% in the North America segment following a 22.4% decline from 2002 to 2003. It is important to note 2003 contained an extra week.

The decline in North America revenue was deeper than our other segments, and reflects differences in the customer base and product mix for this business. North America traditionally serves larger customers who, we believe, have continued to tightly control their spending on facilities and to delay hiring during the early phases of the economic recovery. The North America product mix has a high proportion of systems furniture, which has declined as a category across the industry during the downturn. We believe these two trends are related since large customers represent a major portion of the installed base of systems furniture and are therefore an important driver of demand for those products. We expect to see these trends reverse if the economic recovery continues and larger companies begin expanding their workforce.

Cost of sales continued to be negatively impacted by higher discounts due to intense competition, underabsorption of overhead due to lower volume, disruption caused by consolidation activity and excess plant

capacity. In fact, discounts increased about one percent point, decreasing revenue and thus gross margins by nearly $13.0 compared to 2003. Steel commodity prices began to increase late in 2004, but we do not believe this had a material impact on cost of sales in 2004.

As volume declined during the year, North America took additional steps to reduce the fixed component of cost of sales. North America reduced the hourly and salaried manufacturing workforces, rationalized and consolidated facilities and continued to implement lean manufacturing. However, the benefits from these actions did not fully offset the underabsorption of fixed manufacturing overhead.

Restructuring costs included within 2004 cost of sales included $7.6 of severance costs for workforce reductions and $14.0 for asset impairments. Also included within cost of sales during 2004 were curtailment gains of $1.7 for post-retirement medical and pension benefits. Restructuring items included within 2003 and 2002 cost of sales primarily consisted of severance costs for workforce reductions and asset impairment charges. Also included within 2003 cost of sales were curtailment gains of $10.2 for post-retirement medical and pension benefits.

In 2005, we expect gross margins as a percent of revenue to continue to be pressured by high discounts, excess capacity and rising steel prices, as discussed above under the Overview section. Restructuring activities are expected to continue, but at a lesser pace and cost than in 2004. For example, we expect to consolidate our wood manufacturing from three plants to one. However, as the pace of restructuring activity declines, we expect plant operations will stabilize and productivity improvements will be more evident. Therefore, we expect to see reduced cost of sales as a percent of revenue in 2005.

Operating expenses decreased 27.5% since 2002. This decrease is a result of salaried workforce reductions, restructuring activities and reductions in discretionary and external spending, including elimination of bonuses and reduction of retirement contributions. Restructuring charges included within 2004, 2003 and 2002 operating expenses represented severance costs for workforce reductions. Also included within 2004 and 2003 operating expenses were curtailment gains of $1.2 and $4.2, respectively, for post-retirement medical and pension benefits.

We maintain loss reserves related to dealer trade receivables, and we closely monitor the financial condition of our dealers. Generally, Steelcase dealers in North America have successfully reduced costs and taken other steps to manage through the industry downturn. We have processes that allow us to monitor and react quickly to changes in the credit quality of our dealers. We believe our reserves adequately reflect the credit risks associated with the dealer trade receivables. However, if our dealers experience a prolonged or deeper reduction in revenues, the likelihood of losses would increase and additional charges or reserves would be necessary.

Revenue for the SDP segment declined 5.4% in 2004 following an 11.9% decline in 2003. It is important to note 2003 contained an extra week. For the two-year period the decline for SDP was approximately 17% and was less than our consolidated decline of nearly 23%. SDP revenue is generally less dependent on large project orders and is less affected by declines in business capital spending due to its differentiated, design-oriented product portfolio and focus on niche applications.

SDP margins are higher than our other segments’ margins. Gross margins as a percent of revenue decreased over the past two years due to higher reserves for slow moving inventory in the fabric and wall covering business, restructuring costs for workforce reductions and underabsorption of fixed overhead costs.

By reducing operating expense spending over the past two years, we held operating expenses as a percent of revenue relatively constant. Restructuring costs recorded within operating expenses in 2004 included $0.7 for lease impairments and $0.2 of severance charges for workforce reductions. Restructuring charges in 2003 and 2002 related to workforce reductions.

International revenue increased 11.0% in 2004 due to the benefit of $77.1 from favorable currency translation effects. It is important to note 2003 contained an extra week. This increase follows a decrease of 18.6% from 2002 to 2003.

International revenue is closely linked to economic conditions in key European countries. Certain of these countries are seeing ongoing weakness and others are experiencing instability related to geopolitical factors. We believe a recovery in these international markets may lag the United States recovery.

Cost of sales of 71.1% was relatively flat compared to 71.0% in the prior year. International shipped some large, unusual and low-margin projects during the year which masked modest improvements in underlying cost of sales performance driven by previous restructuring efforts.

Gross margins as a percent of revenue declined in 2004 primarily due to higher restructuring costs. These restructuring costs consisted primarily of costs associated with the closure or consolidation of manufacturing facilities, including workforce reductions of 425 employees or approximately 10.5%. International gross margins remained relatively flat in 2003 compared to 2002 due to the implementation of social plans and workforce reduction efforts launched in 2002, which resulted in a workforce reduction of 16% in 2003, the completion of the divestiture of two under-performing businesses in Q1 2003, both of which generated negative margins in 2002 and the implementation of additional cost reduction efforts aimed at lean manufacturing initiatives. Restructuring costs in 2003 and 2002 primarily related to charges for workforce reductions and business exit costs. Other selected charges included in 2003 cost of sales were costs of $4.0 related to asset impairments. We expect to continue consolidation activity in 2005 including actions that have already been announced related to our French operations. We expect these actions will continue to improve our competitiveness.

Operating expenses in absolute terms increased in 2004, because of $24.6 of currency translation effects. Operating expenses as a percent of revenue declined compared to 2003 primarily due to the realization of cost reductions related to previous restructuring efforts. Compared to 2002, operating expenses in 2003 decreased both in absolute terms and as a percent of revenue. The decrease can be attributed to a $13.0 reduction in

charges related to dealer credit issues, a $7.7 reduction in amortization expense due to the change in accounting for goodwill, and cost reductions related to restructuring activities completed during 2002 and 2003, including workforce reductions. Restructuring costs included in operating expenses in 2004, 2003 and 2002 primarily consisted of charges related to workforce reductions and business exit costs.

Economic conditions in certain countries continue to put pressure on some of our dealers. We continue to monitor the financial condition of dealers for changes in credit quality. We believe our reserves adequately reflect these credit risks. However, if dealers experience a deeper reduction in revenues, the likelihood of losses would increase and additional charges or reserves would be necessary.

As mentioned in Part I, Item 1, our Other category includes our Financial Services, PolyVision and IDEO subsidiaries, ventures and unallocated corporate expenses. The increase in revenue from 2002 to 2003 was largely due to the acquisition of PolyVision in late 2002.

The reduction in operating loss from 2003 to 2004 was due to several factors including:


	•	the divestiture of an unprofitable business venture in 2003;

	•	improvements in the operating results of Financial Services primarily due to lower credit charges in 2004; and

	•	improvements in the operating results of IDEO, partially offset by a decline in profitability at PolyVision.

Approximately 85% of corporate expenses representing shared services are charged to the operating segments as part of a corporate allocation. The unallocated portion of these expenses is considered general corporate costs and is reported within the Other category. Revenue and costs of exploring new business opportunities within new market niches or areas related to, but not part of, our core business activities are considered ventures, and are reported in the Other category.

Restructuring costs included in 2004 operating results included $3.5 of severance costs for workforce reductions. Also included in 2004 operating results were curtailment gains of $0.8 related to post-retirement benefits. Restructuring costs included in 2003 operating results included $8.0 for business exit costs related to a venture and $2.6 of severance costs for workforce reductions. Also included in 2003 operating results were

Our Financial Services subsidiary provides lease financing to end customers and various forms of financing primarily to North America dealers. Our underlying net investment in leases represents multiple sales to individual end customers and there are some concentrations of credit risk with certain customers. We have processes that allow us to monitor and react quickly to changes in the credit quality of our lease customers. While the overall credit quality of our portfolio remained stable in 2004, our risk of exposure decreased as leased assets were sold and customers became more financially stable. We closely monitor our receivable exposure and the overall financial condition of the dealers in North America to whom we extend financing. Although we believe reserves are adequate in total, deterioration in the financial stability of larger customers and dealers would likely require us to record additional charges and reserves. During Q1 2004, we outsourced lease fundings to a third party, therefore we no longer carry credit or residual risk for new leases.

We increased cash and cash equivalents by $133.3 during 2004 to a balance of $262.2 as of February 27, 2004, our highest level of cash since 1998. Of our total cash, 79.1% was located in the United States and the remaining 20.9% was located outside of the United States, primarily Europe and Canada. These funds, in addition to cash generated from future operations and available credit facilities, are expected to be sufficient to finance our known or foreseeable liquidity and capital needs. The increase in cash and cash equivalents was due to a number of factors. Operating activities generated cash as depreciation and amortization is added back to the net loss. Depreciation and amortization continue to be much higher than current levels of capital

We look at various scenarios for cash planning purposes. In one possible scenario— a substantial and rapid increase in revenue in a short period of time— we anticipate we would likely experience a corresponding rapid increase in accounts receivables and inventories. This rapid increase in required working capital would represent a significant use of cash and is the primary reason we are holding a relatively large cash balance.

Cash flow provided by operating activities was sufficient to fund our capital expenditure needs for 2004 and we expect this trend to continue.

Most of the year-to-year change in cash generated from operating activities is reflected in changes in operating assets and liabilities, specifically working capital, primarily caused by the decline in revenue. See further discussion regarding the cash impact of discontinued operations in the Cash provided by (used in) investing activities section below. During 2004, accounts receivable decreased $43.4, inventories decreased $19.4 and accounts payable decreased $2.9. The decrease in accounts receivable is primarily a reflection of decreased revenue during the year. Inventory decreased due to lower manufacturing volume, plant consolidations and our continuing implementation of lean manufacturing principles throughout the organization. Accounts payable decreased primarily due to timing and amount of year-end accruals offset by some changes in supplier terms.

In 2003, we saw a relatively small decline in receivables and inventories, net of payables, before translation adjustments. However, there was a substantial net decrease in other operating assets, net of other operating liabilities. This decrease was primarily caused by a curtailment of the post-retirement medical and pension benefit plans and reductions in other employee benefit liabilities related to reduction in force. We also used cash during 2003 for restructuring costs that had been accrued during 2002.

In 2002, operating assets less operating liabilities decreased by $71.2. The dramatic reduction in revenue from Q4 2001 to Q4 2002 drove a similar decline in receivables, inventories and payables, which is reflected in this line.

Proceeds from the sales of leased assets, fixed assets and discontinued operations were the primary contributors to our net cash provided by investing activities in 2004 and 2003. In preparation for its new strategy, our Financial Services subsidiary sold a large portion of its lease portfolio in 2003 and continued to sell a portion of the remaining leased assets during 2004. Under its new strategy, Financial Services continues to originate leases for customers, but uses a third party to provide lease funding. See Note 6 to the consolidated financial statements for more detail regarding leases. The proceeds from the disposal of fixed assets in 2004 were primarily from the sale of property located in the United Kingdom as discussed in the Interest Expense; Other Income (Expense), Net; and Income Taxes section. As mentioned in the General section of Part I, Item 1, during Q2 2004, we sold substantially all of the net assets of our marine hardware and accessories business for cash proceeds of $47.9, resulting in a pre-tax net gain of $31.9 or $20.0 after-tax. See further discussion and detail in Note 18 to the consolidated financial statements. While we expect to receive some cash from the sales of leased assets and fixed assets in the future, we do not expect the primary sources of cash provided by investing activities to continue to be from the sales of leased assets, fixed assets and discontinued operations.

The significant reductions in capital spending over the past two years reflect an emphasis on limiting new projects to those that meet key economic metrics and deliver short payback cost savings or support critical strategic initiatives such as product development. At the end of 2004, our committed capital expenditures totaled $24.2 and related to numerous equipment, facility and software projects. We expect cash flows from operating activities will provide the funds to fulfill these commitments.

The primary use of cash in investing activities during 2002 was for strategic acquisitions and capital expenditures. Acquisitions included PolyVision Corporation, Custom Cable Inc. and Steelcase Artwright Manufacturing. See Note 18 to the consolidated financial statements for further discussion. In addition, we experienced a substantial decrease in dealer notes receivable during 2002. Dealers required less working capital because of the downturn in the office furniture industry.

We paid common stock dividends of $0.24 per share in 2004, $0.24 per share in 2003 and $0.39 per share in 2002. The dividend declared by the Board of Directors was $0.06 per share in each quarter of 2004.

We issued common stock in 2004 for proceeds of $1.6 related to the exercise of employee stock options. See Note 13 of the consolidated financial statements for further discussion regarding the Company’s stock incentive plans.

The Board of Directors has authorized share repurchases of up to 11 million shares. We did not repurchase any common shares during 2004 or 2003. In 2002, we repurchased 343,000 shares for $4.4 million, including 200,000 shares of Class A Common Stock for $2.6 million and 143,000 shares of Class B Common Stock for $1.8 million. Approximately 3.8 million shares remain available for repurchase under the program and we have no outstanding share repurchase commitments. Since the inception of our repurchase program, 7.2 million shares have been repurchased for $112.7 million. The reduction in share repurchase activity since 2001 was due in part to a shift towards retaining excess cash and reducing debt.

We are contingently liable under loan guarantees for certain Steelcase dealers and joint ventures in the event of default or non-performance of the financial repayment of the liability. We are also party to performance bonds for certain installation or construction activities of certain Steelcase dealers and a joint venture. Due to the contingent nature of guarantees and performance bonds, the full value of the guarantees and performance bonds are not recorded on our consolidated balance sheets; however, we have reserves recorded to cover potential

Total consolidated debt as of February 27, 2004 was $354.0, including $48.0 related to our synthetic lease structure required to be recorded on our balance sheet in compliance with FIN 46(R). Also included in long-term debt and short-term borrowings are capital lease obligations totaling $3.8. The $30.0 increase in total debt from 2003 was driven by the addition of our synthetic lease structure (see below and Note 2 and Note 10 to the consolidated financial statements for more information) offset by a reduction in our other debt. Our debt to capital ratio was 22.7% at year-end. Of our total debt, $249.3 is in the form of term notes due November 2006.

Of the $34.4 of debt payments due in 2005 (as presented in the contractual obligations table above), $22.8 relates to foreign currency notes payable and revolving credit facility obligations and the remaining $11.6 balance relates to United States dollar notes payable obligations.

The Company has commitments related to certain sales offices, showrooms, and equipment under non-cancelable operating leases that expire at various dates through 2020. Minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year are presented in the contractual obligation table above.

Committed capital expenditures represent obligations we have related to property, plant and equipment purchases. See more detail under the Cash provided by (used in) investing activities section.

We define purchase obligations as non-cancelable signed contracts to purchase goods or services beyond the needs of meeting current backlog or production.

Other long-term liabilities represent contribution and benefit payments expected to be made for our defined contribution, deferred compensation, pension and post-retirement benefit plans. It should be noted our obligations related to post-retirement benefit plans are not contractual and the plans could be amended at the

discretion of the Compensation Committee of the Board of Directors. We limited our disclosure of contributions and benefit payments to 10 years as information beyond this time period was not available. See Note 11 to the consolidated financial statements for further discussion regarding these plans.

The contractual obligations table above is current as of February 27, 2004. The amounts of these obligations could change materially over time as new contracts or obligations are initiated and existing contracts or obligations are terminated or modified.

During Q2 2004, we finalized a new $250 million 3-year global committed bank facility. Our obligations under this facility are unsecured and unsubordinated. As of February 27, 2004, we had no borrowings against this facility. This facility replaced our $200 million 3-year global committed bank facility that was scheduled to expire in April 2004 and our $200 million 364-day global committed bank facility that we allowed to expire in April 2003. The Company may, at its option, and subject to customary conditions, request to increase the aggregate commitment by up to $100 million by obtaining at least one commitment from one or more lenders. This facility and certain of our other financing and lease facilities require us to satisfy financial covenants including a minimum net worth covenant, a maximum debt ratio covenant, a minimum interest coverage ratio covenant and an asset coverage ratio covenant. In October 2003, Moody’s Investor Services lowered its rating on the Company to Ba1, thus activating the asset ratio covenant. Although we have $371.7 of available capacity, our maximum debt ratio covenant would limit additional borrowings to approximately $84.0 as of February 27, 2004. As of February 27, 2004, we were in compliance with all covenants under this facility and our other financing and lease facilities. The amounts available to us under the various uncommitted lines are subject to change or cancellation by the banks at any time. Our long-term debt rating is BBB- from Standard & Poor’s and Ba1 from Moody’s Investor Service.

Management’s Discussion and Analysis of Results of Operations and Financial Condition is based upon our consolidated financial statements and accompanying notes. The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Although these estimates are based on historical data and management’s

knowledge of current events and actions it may undertake in the future, actual results may differ from the estimates if different conditions occur. The accounting policies that typically involve a higher degree of judgment, estimates and complexity are listed and explained below. These policies were discussed with the Audit Committee and affect all segments of the Company.

Goodwill represents the difference between the purchase price and the related underlying tangible and identifiable intangible net asset values resulting from business acquisitions. Annually, or if conditions indicate an earlier review is necessary, the carrying value of the reporting unit is compared to an estimate of its fair value. As discussed in Note 2 to the consolidated financial statements, if the estimated fair value is less than the carrying value, goodwill is impaired, and will be written down to its estimated fair value. Goodwill is assigned to and the fair value is tested at the reporting unit level. We evaluate goodwill using five reporting units— North America, SDP, International, PolyVision and IDEO. As of February 27, 2004, we had $210.2 of goodwill recorded on our balance sheet. Of this amount, $45.1 was recorded in North America, $63.2 in SDP, $42.5 in International, $53.4 in PolyVision and $6.0 in IDEO.

During Q4 2004, we performed our annual impairment assessment of goodwill in our reporting units consistent with the prior year. In testing for potential impairment, we measured the estimated fair value of our reporting units using a combination of two methods based upon a discounted cash flow valuation (“DCF”) and a market value approach (“MVA”). The first method used a 100% weighting factor based on DCF while the second valuation was based upon 50% of DCF and 50% of MVA. In either case, we concluded no impairment existed in any reporting unit.

The DCF analysis was based on the present value of projected cash flows and a residual value and used the following assumptions:


	•	A business is worth today what it can generate in future cash to its owners;

	•	Cash received today is worth more than an equal amount of cash received in the future; and

	•	Future cash flows can be reasonably estimated.

The MVA used a set of four comparable companies to derive a range of market multiples for the last twelve months’ revenue and earnings before interest, taxes, depreciation and amortization.

As of the valuation date, the enterprise value available for goodwill determined by each method described above is in excess of the book value by reporting unit as follows:

For each reporting unit, this excess is primarily driven by the residual value of future years. Thus, increasing the discount rate from 11.5% to 12.5%, leaving all other assumptions unchanged, would reduce the excess amounts above to the following amounts:

We also perform impairment analyses on our other intangible assets not subject to amortization in a manner consistent with our goodwill impairment analysis. These intangible assets primarily consist of trademarks within the PolyVision reporting unit. As of the valuation date, the fair market value approximated the book value. A 5% decrease in projected revenue would have resulted in an impairment in these intangible assets of approximately $2.0. In addition, a 1% increase in the discount rate would also result in an impairment in these intangible assets of approximately $5.5.

For our intangible assets subject to amortization and our other long-lived assets including property, plant and equipment, an impairment analysis is performed at least annually. In accordance with SFAS No. 144, an impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and its carrying amount exceeds its fair value. In testing for impairment, we first determined if the asset was recoverable. We then compared the undiscounted cash flows over the asset’s remaining life to the carrying value.

See Note 2, Note 4 and Note 8 to the consolidated financial statements for more information regarding goodwill, other intangible assets and property, plant and equipment.

The determination of the obligation and expense for pension and other post-retirement benefits is dependent on the selection of certain actuarial assumptions used in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation and health care costs. These assumptions are reviewed and updated annually based on relevant external and internal factors and information, including but not limited to, long-term expected fund returns, expenses paid from the fund, rates of termination, medical inflation, technology and quality care changes, regulatory requirements, plan changes and governmental coverage changes. See Note 11 to the consolidated financial statements for more information regarding employee benefit plan obligations including a sensitivity analysis.

The allowance for credit losses is maintained at a level considered by management to be adequate to absorb an estimate of probable future losses existing at the balance sheet date. In estimating probable losses, we review accounts that are past due, non-performing, or in bankruptcy. We also review accounts that may have higher credit risk using information available about the customer or dealer, such as financial statements, news reports, and published credit ratings. We also use general information regarding industry trends, the general economic environment and information gathered through our network of field based employees. Using an estimate of current fair market value of the collateral and other credit enhancements, such as third party guarantees, we arrive at an estimated loss for specific accounts and estimate an additional amount for the remainder of the trade balance based on historical trends. Our projection of credit losses is based on estimates, and as a result we cannot predict with certainty the amount of such losses. Changes in economic conditions, the risk characteristics and composition of the portfolio, bankruptcy laws or regulatory policies and other factors could impact our actual and projected credit losses and the related allowance for possible credit losses. If we had made different assumptions about probable credit losses, our financial position and results of operations could have differed. Uncollectible receivable balances are written off when we determine that the balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance when received. See further discussion regarding concentrations of credit risk in Note 16 of the consolidated financial statements.

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.

The Company has after-tax operating loss carryforwards of $103.0 and after-tax tax credit carryforwards of $27.6 available in certain jurisdictions to reduce future taxable income. Future tax benefits for these carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. It is considered more likely than not that a benefit of $104.4 will be realized on these carryforwards. This

determination is based on the expectation that related operations will be sufficiently profitable or various tax, business and other planning strategies will enable us to utilize the carryforwards. To the extent that available evidence raises doubt about the realization of a deferred income tax asset, a valuation allowance is established. We cannot be assured that we will be able to realize these future tax benefits or that future valuation allowances will not be required. As of February 27, 2004, we recorded valuation allowances of $21.4 and $4.8 for operating loss and tax credit carryforwards, respectively. A 10% decrease in the expected amount of benefit to be realized on the carryforwards would result in a decrease in net income of approximately $10.5.

From time to time, in written reports and oral statements, the company discusses its expectations regarding future events. Statements and financial discussion and analysis contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to the company, based on current beliefs of management as well as assumptions made by, and information currently available to, Steelcase. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” or other similar words, phrases or expressions. Although Steelcase believes these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary. Important factors that could cause actual results to differ materially from the forward-looking statements include, without limitation: competitive and general economic conditions and uncertainty domestically and internationally; delayed or lost sales and other impacts related to acts of terrorism, acts of war or governmental action; changes in domestic or international laws, rules and regulations, including the impact of changed environmental laws, rules or regulations; major disruptions at our key facilities or in the supply of any key raw materials, components or finished goods; competitive pricing pressure; pricing changes by the company, its competitors or suppliers; currency fluctuations; changes in customer demand and order patterns; changes in the financial stability of customers, dealers (including changes in their ability to pay for product and services, dealer financing and other amounts owed to the company) or suppliers; changes in relationships with customers, suppliers, employees and dealers; the mix of products sold and of customers purchasing (including large project business); the success (including product performance and customer acceptance) of new products, current product innovations and platform simplification, and their impact on the company’s manufacturing processes; the company’s ability to successfully: reduce its costs, including actions such as workforce reduction, facility rationalization, disposition of excess assets (including real estate) at more than book value and/or related impairments, consolidate production, cull products and increase global sourcing; the company’s ability to successfully: implement a surcharge relating to cost increases in steel, implement technology initiatives, integrate acquired businesses, migrate to a less vertically integrated model, initiate and manage alliances, and manage consolidated dealers; possible acquisitions or divestitures by the company; changes in business strategies and decisions; and other risks detailed in the company’s other filings with the Securities and Exchange Commission. The factors identified

above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material adverse effects on the company. All forward-looking statements included in this report are expressly qualified in their entirety by the foregoing cautionary statements. Except as required by law, rule or regulation, Steelcase undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

See Note 2 of the Consolidated Financial Statements filed as part of this Report.

The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which we are exposed include foreign exchange risk, interest rate risk and equity price risk.

Operating in international markets involves exposure to the possibility of volatile movements in foreign exchange rates. These exposures may impact future earnings and/or cash flows. Revenue from foreign locations (primarily Europe and Canada) represented approximately 26% and 22% of our consolidated revenue in 2004 and 2003, respectively. We actively manage the foreign currency exposures that are associated with committed foreign currency purchases and sales created in the normal course of business at the local entity level. Exposures that cannot be naturally offset within a local entity to an immaterial amount are hedged with foreign currency derivatives. We also have a significant amount of foreign currency net asset exposures. We do not hold any derivatives contracts that hedge our foreign currency net asset exposures because we believe there is no long-term economic benefit in doing so.

Changes in foreign exchange rates that had the largest impact on translating our international operating profit for 2004 related to the euro and the Canadian dollar versus the U.S. dollar. We estimate that a 10% devaluation of the U.S. dollar against the local currencies would have increased our operating loss by approximately $2.0 in both 2004 and 2003, assuming no changes other than the exchange rate itself. However, this quantitative measure has inherent limitations. The sensitivity analysis disregards the possibility that rates can move in opposite directions and that gains from one currency may or may not be offset by losses from another currency.

The translation of the assets and liabilities of our International subsidiaries is made using the foreign exchange rates as of the end of the year. Translation adjustments are not included in determining net income but are disclosed and accumulated in Other Comprehensive Income within shareholders’ equity until sale or substantially complete liquidation of the net investment in the International subsidiary takes place. In certain markets, the Company could recognize a significant gain or loss related to unrealized cumulative translation

Foreign exchange gains and losses reflect transaction gains and losses. Transaction gains and losses arise from monetary assets and liabilities denominated in currencies other than a business unit’s functional currency. For 2004, transaction losses amounted to $4.6.

We are exposed to interest rate risk primarily on our notes receivable, investments in company owned life insurance, short-term borrowings and long-term debt. Substantially all of our interest rates on our term borrowings were fixed during 2004; thus our interest rate risk was minimized. A portion of our company owned life insurance is invested in fixed income securities. The valuation of these securities is sensitive to changes in market interest rates. We estimate that a 1% change in interest rates would not have had a material impact on our results of operations for 2004 or 2003.

See Notes 2 and 16 of the consolidated financial statements for further discussion of interest rate swaps and derivative instruments. See Note 7 in the consolidated financial statements for further discussion of our investments in company owned life insurance.

We are exposed to equity price risk from the markets in the United States primarily on our investments in company owned life insurance. We estimate that a 10% adverse change in the broader United States equity markets would have increased our operating loss by approximately $2.0 in both 2004 and 2003. This quantitative measure has inherent limitations since not all of our equity investments are in similar asset classes. In addition, the investment managers actively manage certain equity investments and their results could be better or worse than the broader United States equity markets returns.

See Note 7 in the consolidated financial statements for further discussion of our investments in company owned life insurance.

[Continued from above table, first column(s) repeated]




	Total
	Comprehensive
	Income (Loss)


February 23, 2001
Common stock conversion
Common stock issuance
Common stock repurchases
Other comprehensive loss	$	(17.4	)
Dividends paid
Subsidiaries’ year end change(1)
Net income		1.0

February 22, 2002	$	(16.4	)

Common stock conversion
Common stock issuance
Other comprehensive income (loss)	$	(2.7	)
Dividends paid
Net loss		(266.1	)

February 28, 2003	$	(268.8	)

Common stock conversion
Common stock issuance
Issuance of restricted stock
Amortization of deferred compensation
Other comprehensive income (loss)	$	6.6
Dividends paid
Net loss		(23.2	)

February 27, 2004	$	(16.6	)

Steelcase Inc. is the world’s leading designer and manufacturer of office furniture. Founded in 1912, we are headquartered in Grand Rapids, Michigan, employ approximately 14,200 people and operate manufacturing facilities in over 35 locations. We distribute products through a network of independent dealers in more than 900 locations throughout the world and have led the global office furniture industry in revenue every year since 1974. We operate under three reportable segments: North America, Steelcase Design Partnership (“SDP”) and International, plus an “Other” category. Additional information about our reportable segments is contained in Note 17.

The consolidated financial statements include the accounts of Steelcase Inc. and its majority-owned subsidiaries, except as noted below in Majority-owned Dealer Transitions. Prior to fiscal 2002, several of our International subsidiaries were accounted for on a two-month lag versus our fiscal year-end. Beginning in fiscal 2002, these subsidiaries were accounted for using our fiscal year-end. The impact of this change on year-end results was not material (see Consolidated Statements of Changes in Shareholders’ Equity). All significant transactions and balances between our businesses and subsidiaries have been eliminated in consolidation.

Our fiscal year consists of 52 or 53 weeks, ending on the last Friday in February.

Unless the context otherwise indicates, reference to a year relates to a fiscal year rather than a calendar year. Additionally, Q1 2004 references the first quarter of fiscal 2004. All amounts are in millions, except per share data, data presented as a percentage or unless otherwise indicated.

Certain amounts in the prior years’ financial statements have been reclassified to conform to the current year presentation.

From time to time, we obtain equity interests in dealers that we intend to resell as soon as practicable (“dealer transitions”). We use the equity method of accounting for majority-owned dealers with a transition plan in place and where the nature of the relationship is one in which we do not exercise participative control. Our investments in these unconsolidated dealers are included in Other Assets in the accompanying Consolidated Balance Sheets (see Note 9 for further information). These investments are carried at the lower of cost or estimated market value. We do not adjust our carrying value for profits and losses for certain of these dealers because the investments are structured such that we do not share in profits and losses. Where we share in profits and losses, we recognize our appropriate share of earnings and losses in Equity in Net Income of Joint Ventures and Dealer Transitions included within Other Income (Expense), Net.

In February 2004, we initiated a change in our participative control of eight dealers where we hold a majority position in the voting stock of the dealer. Accordingly, we consolidated the balance sheets of these dealers as of February 27, 2004. The consolidation of these dealers had the effect of increasing our total assets and liabilities by $10.9 and had no effect on equity. The results of operations of these dealers will be included in our consolidated results beginning in Q1 2005.

During 2003, we completed a transaction to help transition a dealer to new ownership. We own 100% of one class of stock, and control the Board of Directors of the dealer. As a result, the balance sheet and results of operations of the dealer were consolidated within our North America segment, which added $46.6 and $24.3 of revenue and $1.6 and $1.1 of operating income to our 2004 and 2003 results, respectively. However, since earnings do not accrue to the class of stock we own, 100% of the operating profits was eliminated in Other Income (Expense), net. As a result, there was no effect on net income.

For most international operations, local currencies are considered their functional currencies. We translate assets and liabilities to United States dollar equivalents at exchange rates in effect as of the balance sheet date. We translate Consolidated Statements of Income accounts at average rates for the period. Translation adjustments are not included in determining net income but are disclosed and accumulated in Other Comprehensive Income within the Consolidated Statements of Changes in Shareholders’ Equity until sale or substantially complete liquidation of the net investment in the International subsidiary takes place. Foreign currency transaction gains and losses are recorded in Other Income (Expense), Net and are not material.

Revenue consists substantially of product sales and related service revenues. We also have finance revenue associated with our Financial Services subsidiary. However, due to a change in strategy within this subsidiary, finance revenue significantly decreased in 2004. See Note 6 for additional information.

Product sales are reported net of applicable provisions for discounts, returns and allowances and are recognized when title and risks associated with ownership have passed to the customer. Typically, this is when the product ships. Service and finance revenue are not material.

Cash equivalents include demand bank deposits and short-term investments which are highly liquid in nature, with an original maturity of three months or less at the time of purchase. Cash equivalents are reported at amortized cost, which approximates fair value, and were $256.9 as of February 27, 2004 and $119.8 as of February 28, 2003.

The Company has accounts receivable for products sold to various unconsolidated affiliates on terms generally similar to those prevailing with unrelated third parties. Affiliates include unconsolidated dealers discussed in Note 9 and minority interests in unconsolidated joint ventures. Notes receivable from affiliates include dealer financing to unconsolidated dealers, including project financing, asset-based lending and term financing as discussed in Note 5 and Note 9.

Notes receivable and net investment in leases on non-accrual status were $19.9 and $41.5 as of February 27, 2004 and February 28, 2003, respectively. Of these, $6.4 are current with payments as of February 27, 2004.

remainder of the trade balance based on historical trends. This process is based on estimates, and ultimate losses may differ from those estimates. Receivable balances are written off when we determine that the balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance when received. We consider an accounts receivable balance past due when payment has not been received within the stated terms. We consider a note receivable past due when any installment of the note is unpaid for more than 30 days. Accounts past due over 90 days and still accruing interest as of February 27, 2004 were $1.9.

Inventories are stated at the lower of cost or market. The North America segment primarily uses the last in, first out method to value its inventories. Companies in the SDP segment primarily use the first in, first out or the average cost inventory valuation methods. Companies in the International segment value their inventories using the first in, first out method.

Property and equipment, including some internally-developed internal use software, is stated at cost. Major improvements that materially extend the useful life of the asset are capitalized. Expenditures for repairs, maintenance and software training are charged to expense as incurred. Depreciation is provided using the straight-line method over the estimated useful life of the assets.

We review the carrying value of our long-lived assets held and used and assets to be disposed of using estimates of future undiscounted cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.

Due to the restructuring and plant consolidation activities over the past several years, we are currently holding for sale several facilities that are no longer in use. These assets are stated at the lower of cost or net realizable value in accordance with SFAS No. 144 and are included within Other Current Assets on the Consolidated Balance Sheets since we expect them to be sold within one year. See Note 4 for further information.

Products are sold to our independent dealers who resell the products to the end-use customer. Prior to 2004, we originated leases with some dealers and end-use customers and the remaining lease balance is recorded on our balance sheet. The net investment in leases includes both direct financing and operating leases. This investment will decrease over the next five years as the underlying lease schedules run-off. During Q1 2004,

we began utilizing a third party to provide lease funding. As a result, we no longer have credit or residual risk related to those leases funded by the third party.

The net investment in direct financing leases consists of the present value of the future minimum lease payments receivable (typically over three to seven years) plus the present value of the estimated residual value. The net investment in operating lease assets consists of the equipment cost, less accumulated depreciation. Depreciation on the underlying equipment is recognized on a straight-line basis over the lease term to the estimated residual value and is included as part of operating expenses.

Residual value for lease assets is an estimate at the inception of the lease term of what the fair market value of the leased equipment will be at the end of the lease term. We record and annually review and adjust residual values based on historical experience and market studies conducted by independent third parties primarily based on the economic life of the products, type of products and the availability of a secondary market.

Long-term investments primarily include privately-held equity securities and are carried at the lower of cost or estimated fair value. For these non-quoted investments, we review the assumptions underlying the performance of the privately-held companies and if a determination is made that a decline in fair value below the cost basis is other than temporary, the investment is written down to its estimated fair value.

Goodwill represents the difference between the purchase price and the related underlying tangible net asset values resulting from business acquisitions. Annually, or more frequently if conditions indicate an earlier review is necessary, the carrying value of the goodwill of a reporting unit is compared to an estimate of its fair value. If the estimated fair value is less than the carrying value, goodwill is impaired, and is written down to its estimated fair value.

Other intangible assets subject to amortization consist primarily of proprietary technology, trademarks and non-compete agreements and are amortized over their estimated useful economic lives using the straight-line method. Other intangible assets not subject to amortization are accounted for and evaluated for potential impairment in a manner consistent with goodwill. See Note 8 for additional discussion of goodwill and other intangible assets.

We are self-insured for certain losses relating to workers’ compensation claims, product liability costs and the majority of employee medical benefits. We have purchased insurance coverage to reduce our exposure to significant levels of workers’ compensation and product liability claims. Self-insured losses are accrued based upon estimates of the aggregate liability for uninsured claims incurred at the balance sheet date using certain actuarial assumptions followed in the insurance industry and our historical experience.

Other accrued expenses in the accompanying Consolidated Balance Sheets include a reserve for estimated future product liability costs of $9.9 incurred as of February 27, 2004 and February 28, 2003.

We maintain a Voluntary Employees’ Beneficiary Association (“VEBA”) to fund self-insured employee medical claims. The estimates for incurred but not reported medical claims, which are fully funded in the VEBA, were $5.7 as of February 27, 2004 and $7.7 as of February 28, 2003.

We offer a lifetime warranty on most Steelcase and Turnstone brand products delivered in the United States and Canada, subject to certain exceptions. For products delivered in the rest of the world, we offer a 15-year warranty for most Steelcase and Werndl brand products and a 10-year warranty for most Turnstone brand products, subject to certain exceptions. These warranties provide for the free repair or replacement of any covered product, part or component that fails during normal use because of a defect in materials or workmanship. For all other brands, warranties range from one year to lifetime. The accrued liability for warranty costs is based on an estimated amount needed to cover future warranty obligations incurred as of the balance sheet date determined by historical product data and management’s knowledge of current events and actions.

Environmental expenditures related to current operations are expensed or capitalized as appropriate. Expenditures related to an existing condition allegedly caused by past operations, that are not associated with current or future revenue generation, are expensed. Liabilities are recorded when material environmental

assessments and remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with completion of a feasibility study or our commitment to a formal plan of action. The accrued liability for environmental contingencies included in other accrued expenses in the accompanying Consolidated Balance Sheets was $5.8 as of February 27, 2004 and $7.4 as of February 28, 2003. Based on our ongoing evaluation of these matters, we believe we have accrued sufficient reserves to absorb the costs of all known environmental assessments and the remediation costs of all known sites.

Research and development expenses, which are expensed as incurred, were $43.0 for 2004, $45.5 for 2003 and $61.0 for 2002.

The Company has net operating loss carryforwards available in certain jurisdictions to reduce future taxable income. Future tax benefits for net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. This determination is based on the expectation that related operations will be sufficiently profitable or various tax, business and other planning strategies will enable us to utilize the operating loss carryforwards. We cannot be assured that we will be able to realize these future tax benefits or that future valuation allowances will not be required. To the extent that available evidence raises doubt about the realization of a deferred income tax asset, a valuation allowance is established.

Basic earnings per share is based on the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of additional common shares that would have been outstanding if the shares under our stock incentive plans had been issued and the dilutive effect of restricted shares to the extent those shares have not vested (see Note 13).

Diluted earnings per share includes the effects of shares and potential shares issued under our stock incentive plans. However, diluted earnings per share does not reflect the effects of 5.2 million options for 2004,

10.9 million options for 2003 and 2.6 million options for 2002 because those shares or potential shares were not dilutive,

Prior to 2004, we accounted for our stock incentive plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Given the terms of the Company’s plans, no stock-based employee compensation cost was recognized, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

Effective at the beginning of 2004, our policy is to expense stock-based compensation under SFAS No. 123, Accounting for Stock-Based Compensation, using the fair value based method of accounting for all awards granted, modified or settled on or after March 1, 2003. Fair value is measured on the grant date of the related equity instrument using the Black-Scholes option-pricing model and is recognized as compensation expense over the applicable vesting period. There have been no stock options granted in 2004.

During 2004, 220,000 restricted shares of common stock were granted to key employees. These restricted shares vest in three years and may be forfeited if a participant leaves the Company for reasons other than retirement, disability or death prior to the vesting date. During 2004, compensation expense of $0.7 was recognized in connection with these shares.

The following table illustrates the effect on net income (loss) and earnings (loss) per share if we had applied the fair value recognition provisions of SFAS No. 123 to all outstanding awards. Further disclosure of our stock incentive plans is presented in Note 13.

The carrying amount of our financial instruments, consisting of cash equivalents, investments, accounts and notes receivable, accounts and notes payable, short-term borrowings and certain other liabilities, approximate their fair value due to their relatively short maturities. The carrying amount of our long-term debt approximates fair value since the stated rate of interest approximates a market rate of interest.

We recognize all derivative instruments on our balance sheet in Other Long-term Liabilities at fair value and establish criteria for designation and effectiveness of hedging relationships. A cash flow hedge requires that the effective portion of the change in the fair value of a derivative instrument be recognized in Other Comprehensive Income, net of tax, and reclassified into earnings in the period or periods during which the hedged transaction affects earnings. Any ineffective portion of a derivative instrument’s change in fair value is immediately recognized in earnings. A fair value hedge requires that the effective portion of the change in the fair value of a derivative instrument be offset against the change in the fair value of the underlying asset, liability, or firm commitment being hedged through earnings.

We use derivative financial instruments principally to manage two types of risk:


	•	the fair value of our debt obligations, or

	•	the amount of our future interest payments.


	2.	The risk that unremitted or future cash flows owed to (by) us for the sale (purchase) or anticipated sale (purchase) of products abroad and other cash inflows (outflows) may be adversely affected by changes in the foreign currency rates.

We formally document the relationship between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific forecasted transactions. We also formally assess, both at the inception of the hedge and on an ongoing basis, whether the derivative instruments used are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined the derivative instrument is not highly effective as a hedge, hedge accounting is discontinued. We use the Change in Variable Cash Flows method for testing the effectiveness of our hedges. This method compares the present value of the cash flow stream using the interest rate obtained at the inception of the agreements to the present value of the cash flow stream at current market interest rates. As of February 27, 2004, our testing proved that our hedges remained effective. See Note 16 for further information on derivatives.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts and disclosures in the consolidated financial statements and accompanying notes. Although these estimates are based on historical data and management’s knowledge of current events and actions it may undertake in the future, actual results may differ from these estimates under different assumptions or conditions.

SFAS No. 132(R), Disclosures about Pensions and Other Postretirement Benefits, requires additional disclosures about pensions and other postretirement benefits. These disclosures include: information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows and components of net periodic benefit cost recognized during interim periods. We have included the additional disclosures for both domestic and foreign plans beginning with this Report (see Note 11).

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. In response to this new law, the Financial Accounting Standards Board (“FASB”) released FASB Staff Position (“FSP”) No. 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which permits deferral of any accounting for the effects of the Act pending further consideration of the underlying accounting issues, unless a sponsor significantly amends its plan. We sponsor a postretirement health care plan (the “plan”) that provides prescription drug benefits. In accordance with this FSP, any measures of the accumulated postretirement benefit obligation or net periodic postretirement benefit cost in the financial statements or accompanying notes do not reflect the effects of the Act on the plan. We are currently evaluating any effects the Act may have on the plan and our financial statements.

FASB Interpretation Number (“FIN”) 46(R), Consolidation of Variable Interest Entities, requires that if a business enterprise has a controlling financial interest in a variable interest entity (“VIE”), the assets, liabilities and results of the activities of the VIE shall be included in the consolidated financial statements of the business enterprise. FIN 46(R) was effective for us beginning Q4 2004 as it relates to our synthetic lease structure for corporate aircraft.

In May 2000, we began leasing aircraft through a synthetic lease structure that meets the FIN 46(R) definition of a special-purpose entity. As of February 27, 2004, the aircraft was capitalized on our balance sheet and the related obligation was recorded as debt as required by the provisions of FIN 46(R). This change increased fixed assets by $41.3 and debt by $48.0. We also recorded a $6.7 pre-tax, or $4.2 after-tax, charge as a cumulative effect of accounting change in our statement of operations. There was no cash effect from this change in accounting and we do not expect any significant impact on our reported results on an on-going basis. Three of our four debt covenants are not impacted by any additional debt recorded on the balance sheet related to this lease structure. Reported interest expense will increase beginning Q1 2005 and this will affect our fourth covenant, the interest coverage covenant, but we expect to remain in compliance. See additional information related to our covenants in Note 10 and in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FIN 46(R) is effective in Q1 2005 for other types of VIEs that are not defined as special-purpose entities. We are completing our evaluation of our unconsolidated dealers where we have provided either equity or debt financing to determine whether those dealers are VIEs as defined by FIN 46(R). Based on our evaluation to date, we do not believe any of the dealers to which we provided financing will require consolidation pursuant to FIN 46(R).

The portion of inventories determined by the LIFO method aggregated $46.3 and $61.6 as of February 27, 2004 and February 28, 2003, respectively. The effect of LIFO liquidations on net income was an increase of $1.9 after-tax for 2004 and was immaterial for 2003 and 2002.

The net book value of capitalized software was $41.8 and $54.3 as of February 27, 2004 and February 28, 2003, respectively. The majority of capitalized software has an estimated useful life of 3 to 5 years. Approximately 25% of the gross value of capitalized software relates to the Company’s core enterprise resource planning system, which has an estimated useful life of 10 years.

Depreciation and amortization expense on property and equipment approximated $131.4 for 2004, $145.1 for 2003 and $148.1 for 2002.

The estimated cost to complete construction in progress as of February 27, 2004 was $37.6 and consists of numerous equipment, facility and software projects.

Included in Other Current Assets on our Consolidated Balance Sheets is property, plant and equipment classified as real estate held for sale, which totaled $6.2 as of February 27, 2004 and $11.3 as of February 28, 2003.

Notes receivable includes activity related to our Financial Services subsidiary and other trade notes related to other operating segments. Our Financial Services subsidiary provides dealer financing under three distinct programs: project financing, asset-based lending and term financing. Through these programs, we provide dealers with interim financing, working capital lines of credit, financing of ownership changes and restructuring of debt.

Project financing is secured by the specific underlying dealer inventory and accounts receivable in an effort to minimize credit exposure. Our asset-based lending (“ABL”) program to dealers includes total outstanding commitments of $68.9. The amount of the commitment is further limited to a percentage of available collateral at any point in time. The availability formula is based on a percentage of accounts receivable and inventory. At year-end, the maximum commitment as limited by available collateral was approximately $49.8. These ABL commitments generally expire in one year and are reviewed periodically for renewal. During 2004, we developed a plan to exit ABL. We are working closely with each participating dealer to transition them to a local banking

relationship as soon as practicable. Of the 30 dealers in the program, we believe approximately half will be able to transition to a local banking relationship over the next 12 to 18 months. Term financing is generally secured by certain dealer assets and, in some cases, the common stock and personal guarantees of dealer principals.

The terms of notes receivable related to dealer financing range from a few months for project financing to 11 years for certain term financing. The most common terms are from three to five years. Interest rates are both floating and fixed; the average interest rate on term loans was 6.6% as of February 27, 2004.

Term financing related to dealer transitions is not considered an operating activity of Financial Services. A majority of the provision expense and the accounts written off in the past three years relate to restructuring of dealer transitions. Accordingly, these charges have been recorded in non-operating expense (see Note 14).

Our Financial Services segment provides furniture leasing services to customers primarily in North America, and more recently in Europe. During Q1 2004, we implemented a new strategy in which we originate leases for customers and earn an origination fee for that service. We use a third party to provide lease funding. As a result, we no longer have credit or residual risk related to those leases.

We sold a substantial portion of our leasing portfolio as we implemented our new funding strategy. Leases with a book value of $45.5 and $289.4 were sold for proceeds of $48.8 and $302.0 during 2004 and 2003, respectively. We recorded a net gain of $3.3 in 2004 and $0.8 in 2003 after settling interest rate hedges related to these leases and transaction costs. The proceeds from these sales were primarily used to retire debt incurred to fund the leases.

Approximately 27% of direct financing leases call for transfer of ownership to customers at lease-end. The original equipment cost at lease inception for leases in effect as of February 27, 2004 is $156.1 for direct financing leases and $16.0 for operating leases.

Credit loss reserves are monitored and regularly updated based on the quality of credits in the lease portfolio and our historical loss experience. In 2004, we reduced loss provisions due to run-off of our lease portfolio and strengthening of existing lease credit exposure. During 2003, certain larger customers experienced defaults or declines in credit quality. As a result, higher loss provisions were recorded in 2003 to reflect the increased risk. See discussion of concentration of credit risk in Note 16.

Direct financing lease receivables include an estimated residual value as discussed in Note 2. Most customers buy the furniture at the end of the lease term or extend their leases, although some customers return the furniture. On an overall basis, we have historically realized gains on booked residuals. However, there is

some risk we could experience a decline in residual results if the rate at which leasing customers return furniture were to increase, and if the prices in the used furniture market were to decline.

Operating lease assets consist of the equipment cost less accumulated depreciation. Depreciation is recognized on a straight-line basis over the lease term to the estimated residual value, which is determined on the same basis as direct financing leases as set forth above.

Investments in company owned life insurance policies were made with the intention of utilizing them as a long-term funding source for post-retirement medical benefits, deferred compensation and supplemental retirement plan obligations aggregating $241.2 as of February 27, 2004 (see Note 11). However, the assets do not represent a committed funding source. They are subject to claims from creditors and can be redesignated by us to another purpose at any time. The policies are recorded at their net cash surrender values, as reported by the four issuing insurance companies, whose Standard & Poor’s credit ratings range from AA to AAA, and totaled $177.9 as of February 27, 2004 and $161.2 as of February 28, 2003.

Investments in company owned life insurance consist of approximately $86.0 in traditional whole life policies and approximately $91.9 in variable life insurance policies. In the traditional whole life policies, the investments return a set dividend rate that is periodically adjusted by the insurance companies based on the performance of their long-term investment portfolio. While the amount of the dividend can vary, the investments are not at risk to market declines in that the insurance companies guarantee a minimum dividend rate on these investments. In the variable life policies, we are able to allocate the investments across a set of choices provided by the insurance companies. As of February 27, 2004, the investments in the variable life policies were allocated 52% in fixed income securities and 48% in equity securities. The valuation of these investments is sensitive to changes in market interest rates and equity values. The annual net changes in market valuation, normal insurance expenses and any death benefit gains are reflected in the accompanying Consolidated Statements of Income.

The net effect of these changes in 2004 resulted in a gain of approximately $15.0, recorded as 60% cost of sales and 40% operating expenses to offset the expense originally recorded. For 2003 and 2002, the net effect of these changes was immaterial.

Goodwill is assigned to and the fair value is tested at the reporting unit level. Goodwill impairment exists if the net book value of a reporting unit exceeds its estimated fair value. We evaluated goodwill using five reporting units—North America, SDP, International, PolyVision and IDEO. PolyVision and IDEO are included in the “Other” category for operating segment reporting purposes.

Upon adoption of SFAS No. 142 in 2003, we recorded a non-cash charge of $229.9 related to the impairment of goodwill in our International reporting unit. This charge is reflected as a cumulative effect of an accounting change in the accompanying Consolidated Statements of Income. In calculating the impairment charge, the fair value of the International reporting unit was determined by using a combined discounted cash flow and market value approach. The decline in the fair value of our International reporting unit was primarily attributable to the decline in revenue and profitability of the unit, which is primarily the result of the industry-wide decline in office furniture revenue. This decline led to a significant reduction in our three to five year projection of operating income for the International unit.

We evaluated goodwill during Q4 2004 and no impairment was necessary for any reporting unit.

A summary of changes in goodwill during 2004, by business segment, is as follows:

During 2004, the Company consolidated eight dealers into its financial statements that resulted in an increase of goodwill amounting to $4.3 (see Note 2 for further discussion of these dealers). Also in 2004, we reversed $3.3 of pre-acquisition contingency reserves related to the acquisition of PolyVision against goodwill, with no impact to net income.

Had we not amortized goodwill in 2002, our reported net income and basic and diluted net income per common share would have been the adjusted amounts indicated below:

As of February 27, 2004 and February 28, 2003, our other intangible assets and related accumulated amortization consisted of the following:

For 2004, we recorded amortization expense of $10.0 on intangible assets subject to amortization compared to $12.3 for 2003 and $10.3 for 2002. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows:

As events, such as acquisitions, dispositions or impairments, occur in the future, these amounts may vary.

From time to time, we obtain equity interests in dealers that we intend to resell as soon as practicable (“dealer transitions”). We use the equity method of accounting for majority-owned dealers with a transition plan in place and where the nature of the relationship is one in which we do not exercise participative control. These investments are carried at the lower of cost or estimated market value. We do not adjust our carrying value for profits and losses for certain of these dealers because the investments are structured such that we do not share in profits and losses. Where we share in profits and losses, we recognize our appropriate share of earnings and losses in Other Income (Expense), net on the Consolidated Statements of Income.

As described in Note 18, the nature of the company’s control regarding eight dealer transitions changed to one of participative control in February, 2004. Accordingly, we have consolidated the balance sheets of these dealers as of February 27, 2004. The results of operations of these dealers will be included in our consolidated results beginning in Q1 2005.

Long-term investments primarily include privately held equity securities and are carried at the lower of cost or estimated fair value.

Equity investments in joint ventures are comprised of joint ventures in the United States, Saudi Arabia and Japan. Equity investments in joint ventures also include a minority interest in a joint venture involved in construction activities. In addition to our investment, we periodically are party to performance bonds related to the construction activities. See Note 16 for further information related to performance bonds and guarantees. Net income from joint ventures was $2.2 for 2004, $2.7 for 2003 and $3.3 for 2002 and is included with Other Income (Expense), net on the Consolidated Statements of Income.


	basis at the treasury rate plus 35 basis points, plus, in both cases, accrued and unpaid interest. The original notes were priced at 99.48% of par. The discount is being amortized on a straight-line basis over the term of the senior notes.

(2)	Notes payable represents amounts payable to various banks and other creditors, a portion of which is collateralized by the underlying assets.

	In May 2000, we began leasing aircraft through a synthetic lease structure that meets the FIN 46(R) definition of a special-purpose entity. As of February 27, 2004, the aircraft was capitalized on our balance sheet and the related obligation of $48.0 was recorded as debt as required by the provisions of FIN 46(R). This debt is secured by the aircraft and matures in May 2005.

	Certain agreements contain financial covenants that include, among others, a minimum net worth, a minimum interest coverage ratio and a minimum debt ratio. As of February 27, 2004, we were in compliance with all covenants under these facilities.

	Approximately $10.7 of notes payable as of February 27, 2004 and $15.0 of notes payable as of February 28, 2003 are collateralized by lease receivables.

(3)	During Q2 2004, we finalized a new $250 million 3-year global committed bank facility. Our obligations under this facility are unsecured and unsubordinated. As of February 27, 2004, we had no borrowings against this facility. This facility replaced our $200 million 3-year global committed bank facility and our $200 million 364-day global committed bank facility, neither of which had borrowings against them at February 28, 2003. The Company may, at its option, and subject to certain conditions, request to increase the aggregate commitment by up to $100 million by obtaining at least one commitment from one or more lenders. We can use borrowings under this facility for general corporate purposes, including friendly acquisitions. Maturities range from overnight to six months as determined by us, subject to certain limitations. Interest on borrowings of a term of one month or greater is based on LIBOR plus a margin or a base rate, as selected by us. Interest on borrowings of a term of less than one month is based on prime rate plus a margin or a base rate. This facility requires us to satisfy financial covenants including a minimum net worth covenant, a maximum debt ratio covenant, a minimum interest coverage ratio covenant and an asset coverage ratio covenant. In October 2003, Moody’s Investor Services lowered its rating on the Company to Ba1, thus activating the asset coverage ratio covenant. As of February 27, 2004, we were in compliance with all covenants under this facility.

	Additionally, we have entered into agreements with certain financial institutions, which provide for borrowings on unsecured non-committed short-term credit facilities of up to $35.0 of U.S. dollar obligations and $95.3 of foreign currency obligations as of February 27, 2004. Interest rates are variable and determined by agreement at the time of borrowing. These agreements expire within one year, and subject


	to certain conditions may be renewed annually. Borrowings on these facilities as of February 27, 2004 were $8.6 and as of February 28, 2003 were $8.2.

Total cash paid for interest on short-term borrowings and long-term debt amounted to $20.8 for 2004, $26.2 for 2003 and $31.9 for 2002.

Substantially all United States employees are covered under defined contribution retirement plans, primarily the Steelcase Inc. Retirement Plan (the “Retirement Plan”). Company contributions and 401(k) pre-tax employee contributions fund the Retirement Plan. All contributions are made to a trust, which is held for the sole benefit of participants. The Retirement Plan requires minimum annual Company contributions of 5% of eligible annual compensation. Additional Company contributions for this plan are discretionary and declared by the

Compensation Committee at the end of each fiscal year. As of February 27, 2004, the Company-funded portion of the trust had net assets of approximately $1.1 billion.

Contributions for similar subsidiary plans are discretionary and declared by management. Total expense under all defined contribution retirement plans was $18.7 for 2004, $19.1 for 2003 and $24.8 for 2002. We expect to contribute approximately $15.3 to our defined contribution plans in 2005.

Certain of our subsidiaries have unfunded post-retirement benefit plans that provide medical and life insurance benefits to retirees and eligible dependents. We accrue the cost of post-retirement insurance benefits during the service lives of employees based on actuarial calculations for each plan. These plans are unfunded, but we have purchased company owned life insurance policies with the intention of utilizing them as a long-term funding source for post-retirement medical benefits and other obligations (see Note 7). However, likely over the next several years annual inflows to the policies will not be sufficient to meet annual outflows for the benefit plans. The difference would represent a use of cash.

During 2003, we adopted plan amendments limiting certain benefits. These plan amendments resulted in the establishment of a deferred actuarial gain that was to be amortized over the remaining service life of the affected plan participants. Due to the significant workforce reductions in 2004 and 2003, curtailment accounting rules were triggered and we recognized plan curtailment gains of $3.8 and $16.4, respectively.

Our defined benefit pension plans include various qualified domestic and foreign retirement plans as well as non-qualified supplemental retirement plans that are limited to a select group of management or highly compensated employees. The funded status of our defined benefit pension plans is as follows:

The following tables summarize the required disclosures related to our defined benefit pension and post-retirement plans. We used a measurement date of December 31, 2003 for our foreign pension plans, and February 27, 2004 for our domestic pension plans, non-qualified supplemental retirement plans and foreign and domestic post-retirement plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS— (Continued)






	Year Ended




	Pension Plans


Components of Expense and
Weighted-Average	February 27,			February 28,			February 22,
Assumptions	2004			2003			2002


Components of expense:
Service cost	$	2.2		$	2.4		$	3.3
Interest cost		4.3			4.3			4.2
Amortization of prior year service cost (gain)		0.7			1.5			0.3
Expected return on plan assets		(2.6	)		(3.0	)		(2.8	)
Adjustment due to plan curtailment		0.1			1.3			—
Adjustment due to plan settlement		(0.3	)		1.3			—
Amortization of transition obligation		—			—			—
Amortization of unrecognized net actuarial loss		0.3			0.3			—

Net expense	$	4.7		$	8.1		$	5.0

Weighted-average assumptions used to determine benefit obligations:
Discount rate		5.75	%		6.00	%		6.75	%
Expected return on plan assets		7.25	%		7.65	%		7.75	%
Rate of salary progression		3.00	%		3.90	%		4.25	%

[Continued from above table, first column(s) repeated]






	Year Ended




	Post-retirement Plans


Components of Expense and
Weighted-Average	February 27,			February 28,			February 22,
Assumptions	2004			2003			2002


Components of expense:
Service cost	$	4.3		$	4.5		$	6.2
Interest cost		14.5			15.3			17.6
Amortization of prior year service cost (gain)		(3.9	)		(5.2	)		(0.2	)
Expected return on plan assets		—			—			—
Adjustment due to plan curtailment		(3.8	)		(16.4	)		—
Adjustment due to plan settlement		—			—			—
Amortization of transition obligation		—			—			0.2
Amortization of unrecognized net actuarial loss		3.7			2.9			1.8

Net expense	$	14.8		$	1.1		$	25.6

Weighted-average assumptions used to determine benefit obligations:
Discount rate		6.10	%		6.50	%		7.25	%
Expected return on plan assets		—			—			—
Rate of salary progression		—			4.50	%		4.50	%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS— (Continued)

Year Ended

Pension Plans

Components of Expense and

Weighted-Average

February 27,

February 28,

February 22,

Assumptions

2004

2003

2002

Weighted-average assumptions used to determine net periodic benefit cost (1):

Discount rate

5.75

n/a

Expected return on plan assets

7.25

n/a

Rate of salary progression

3.75

n/a

[Continued from above table, first column(s) repeated]

Year Ended

Post-retirement Plans

Components of Expense and

Weighted-Average

February 27,

February 28,

February 22,

Assumptions

2004

2003

2002

Weighted-average assumptions used to determine net periodic benefit cost (1):

Discount rate

6.41

n/a

Expected return on plan assets

—

n/a

Rate of salary progression

4.50

n/a

In evaluating the expected return on plan assets, we have considered the expected long-term rate of return on plan assets, an analysis of current market conditions and the views of leading financial advisors and economists.

The assumed health care cost trend was 11.0% as of February 27, 2004, gradually declining to 4.5% in 2012 and thereafter. A one percentage point change in assumed health care cost trend rates would have the following effects:

Our pension plans weighted-average investment allocation strategies and weighted-average target asset allocations by asset category as of February 27, 2004 are in the following table. The target allocations are established by the investment committees of each plan. The targets are established in an effort to provide a return corresponding with the underlying risk of the investments. We have one domestic and one foreign pension plan, which are frozen. The target allocations in these plans reflect a shift from equity securities to less risky

investments to better match the projected benefit payouts. The actual allocation percentages will reflect this shift in strategy over time.

We expect to contribute approximately $4.2 to our pension plans and $8.8 to our post-retirement plans in 2005. Our estimated future benefit payments under our pension and post-retirement plans are as follows:

We also have deferred compensation obligations to certain employees in return for agreeing not to receive part of their compensation for a period of three to five years. This deferred compensation liability is unfunded, but we have purchased company owned life insurance policies, with the intention of utilizing them as a future funding source for the deferred compensation obligation and other obligations (see further discussion in Note 7). Deferred compensation expense approximated $5.2 for 2004, $4.7 for 2003 and $5.2 for 2002.

The holders of Common Stock are generally entitled to vote as a single class on all matters upon which shareholders have a right to vote, subject to the requirements of the applicable laws and the rights of any series of Preferred Stock to a separate class vote. Each share of Class A Common Stock entitles its holder to one vote, and each share of Class B Common Stock entitles its holder to 10 votes. The Class B Common Stock is convertible into Class A Common Stock on a share-for-share basis (i) at the option of the holder at any time, (ii) upon transfer to a person or entity which is not a Permitted Transferee (as defined in the Second Restated Articles of Incorporation), (iii) with respect to shares of Class B Common Stock acquired after the recapitalization of our Common Stock approved in 1998, at such time as a corporation, partnership, limited liability company, trust or charitable organization holding such shares ceases to be 100% controlled by Permitted Transferees and (iv) on the date on which the number of shares of Class B Common Stock outstanding is less than 15% of the then outstanding shares of Common Stock (without regard to voting rights).

Except for the voting and conversion features, the terms of Class A Common Stock and Class B Common Stock are generally similar. That is, the holders are entitled to equal dividends when declared by the Board and generally will receive the same per share consideration in the event of a merger, and be treated on an equal per share basis in the event of a liquidation or winding up of the Company. In addition, the Company is not entitled to issue additional shares of Class B Common Stock, or issue options, rights or warrants to subscribe for additional shares of Class B Common Stock, except that the Company may make a pro rata offer to all holders of Common Stock of rights to purchase additional shares of the class of Common Stock held by them.

The Second Restated Articles of Incorporation authorize the Board, without any vote or action by the shareholders, to create one or more series of Preferred Stock up to the limit of the Company’s authorized but unissued shares of Preferred Stock and to fix the designations, preferences, rights, qualifications, limitations and restrictions thereof, including the voting rights, dividend rights, dividend rate, conversion rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series.

Our stock incentive plans include the Steelcase Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”) and the Steelcase Inc. Incentive Compensation Plan (the “Incentive Compensation Plan”), which includes the issuance of restricted shares and stock options.

We reserved a maximum of 1,500,000 shares of Class A Common Stock for use under the Stock Purchase Plan, which is intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). Pursuant to the Stock Purchase Plan, each eligible employee, as of the start of any purchase period, is granted an option to purchase a designated number of shares of Class A Common Stock. The purchase price of shares of Class A Common Stock to participating employees is designated by the Compensation Committee but in no event shall be less than 85% of the lower of the fair market values of such shares on the first and last trading days of the relevant purchase period. However, no employee may purchase shares under the Stock Purchase Plan in any calendar year with an aggregate fair market value (as determined on the first day of the relevant purchase period) in excess of $25,000. As of February 27, 2004, 454,721 shares remain available for purchase under the Stock Purchase Plan. The Board may at any time amend or terminate the Stock Purchase Plan.

The Compensation Committee or its designee has full authority, subject to the provisions of the Incentive Compensation Plan, to determine:


	•	persons to whom awards under the Incentive Compensation Plan will be made;

	•	exercise price;

	•	vesting;

	•	size and type of such awards; and

	•	specific performance goals, restrictions on transfer and circumstances for forfeiture applicable to awards.

Awards may be made to our employees and non-employee directors or others as designated by the Compensation Committee. A variety of awards may be granted under the Incentive Compensation Plan including stock options, stock appreciation rights (“SARs”), restricted stock (as discussed below), performance shares, performance units, cash-based awards, phantom shares and other share-based awards as the Compensation Committee may determine. Awards under the Incentive Compensation Plan vest over a period of three to five years. Stock options granted under the Incentive Compensation Plan may be either incentive stock options intended to qualify under Section 422 of the Code or non-qualified stock options not so intended. The Board may amend or terminate the Incentive Compensation Plan.

In the event of a “change of control”, as defined in the Incentive Compensation Plan,


	•	all outstanding options and SARs granted under the Incentive Compensation Plan will become immediately exercisable and remain exercisable throughout their entire term;

	•	any performance-based conditions imposed with respect to outstanding awards shall be deemed to be fully earned and a pro rata portion of each such outstanding award granted for all outstanding performance periods shall become payable in shares of Class A Common Stock, in the case of awards denominated in shares of Class A Common Stock, and in cash, in the case of awards denominated in cash, with the remainder of such award being canceled for no value; and

	•	all restrictions imposed on restricted stock that are not performance-based shall lapse.

Under the Steelcase Inc. Incentive Compensation Plan, the Compensation Committee of the Board of Directors approved and granted 220,000 restricted shares of stock and 48,000 restricted stock units (“RSUs”) during 2004 to key employees. These restricted stock shares and RSUs vest in three years and will be forfeited if a participant leaves the Company for reasons other than retirement, disability or death prior to the vesting date. During 2004, 1,400 restricted shares were forfeited. The aggregate market value of the restricted stock shares at the date of issuance of $2.1 was recorded as deferred compensation, a separate component of shareholders’ equity, and is being amortized over the three-year vesting period of the grants. The RSUs are expensed over the three-year vesting period based on the current market value of the shares to be granted.

Since inception of the Incentive Compensation Plan in 1998, we have reserved for issuance 21,000,000 shares of Class A Common Stock (see further discussion of stock-based compensation in Note 2). We also issued an Employee Stock Grant in 1998, of 149,540 shares of Class A Common Stock, to certain of our employees.

Information relating to our stock options, which pursuant to APB Opinion No. 25 did not result in any compensation expense recognized by us, is as follows:

The price per share of options outstanding ranged from $10.50 to $36.50 as of February 27, 2004, February 28, 2003 and February 22, 2002. As of February 27, 2004, there were 9,818,686 shares available for future issuances under our Incentive Compensation Plan.

The fair value of each option grant was estimated using the Black-Scholes option-pricing model.

Losses on dealer transitions relate to uncollectible funds loaned to or invested in dealers to finance ownership changes and are classified as non-operating. These losses do not include write-offs of receivables that have arisen as a result of product sales. Charges for write-offs associated with trade receivables from these affiliates are recorded as operating expenses.

The majority of the loss recorded in 2004 related to an International dealer transition. During Q2 2004, we assumed control of the dealership and reduced the carrying value of our investment in the dealer to the net book value of the dealer’s underlying tangible assets, which approximated its fair value. After assuming control of the dealer, its financial statements were included in our consolidated financial statements. During 2003, we recognized losses on dealer transitions primarily related to two International dealers that were significantly

affected by the office furniture recession in their markets. During 2002, we recognized losses on dealer transitions primarily related to a North America dealer whose operating results deteriorated due to a significant decline in business activity in its local market and several other performance issues. As a result, this dealer was restructured and ownership was transitioned to new dealer principals.

During 2004, the gain on disposal of property and equipment primarily related to excess real estate in our International segment which was sold for net cash proceeds of $11.5 and a pre-tax non-operating gain of $7.0. The gain in 2003 primarily related to the sale of our Tustin, California manufacturing facility and write-off of related equipment following the relocation of the operations to a smaller, more efficient facility. We received net proceeds of $35.7 and recorded a net gain of $15.1.

The provision (benefit) for income taxes on income from continuing operations consists of:

The total income tax benefit we recognized is reconciled to that computed under the federal statutory tax rate of 35% as follows:

Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between tax bases of an asset or liability and its reported amount in the financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in

each of the jurisdictions in which the Company has operations. The significant components of deferred income taxes are as follows:

The total amount of undistributed earnings of foreign subsidiaries, which are deemed to be permanently invested, amounted to $74.4 as of February 27, 2004. No provision has been made for foreign withholding taxes or United States income taxes which may become payable if undistributed earnings of foreign subsidiaries were paid as dividends to us because it is not practicable to estimate the amount of those taxes. Subject to certain limitations, withholding taxes on foreign dividends would be available for use as credit against the United States tax liability.

As of February 27, 2004, we had $265.9 of foreign and domestic operating loss carryforwards and $27.6 of tax credit carryforwards. Future tax benefits for operating loss and tax credit carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. It is considered more likely than not

that a benefit of $104.4 will be realized on these carryforwards. This determination is based on the expectation that related operations will be sufficiently profitable or various tax, business and other planning strategies available to us will enable us to utilize the carryforwards. We cannot be assured that we will be able to realize these future tax benefits or that future valuation allowances will not be required. The operating loss and tax credit carryforwards expire as follows:

Financial instruments, which potentially subject us to concentrations of investment and credit risk, primarily consist of cash and equivalents, investments, accounts and notes receivable, direct finance lease receivables, company owned life insurance policies, accounts payable and short-term borrowings and long-term debt. We place our cash and equivalents with high-quality financial institutions and invest in high-quality securities and commercial paper. By investment policy, we limit our exposure to any one financial institution or debtor.

We use derivative financial instruments, principally forward contracts and swaps and interest rate swaps and caps, primarily to reduce our exposure to adverse fluctuations in foreign currency exchange rates and interest rates. We do not use derivative financial instruments for speculative or trading purposes.

In some circumstances, interest rate swap contracts are used to adjust debt that is subject to variable interest rates to the amount of underlying assets also subject to variable interest rates. Certain contracts are designated as hedges against possible changes in the amount of future cash flows associated with interest

payments of the existing variable-rate obligations. See Note 2 for more information regarding interest rate swaps and caps. The net effect on our operating results is that interest expense on the variable-rate debt being hedged is recorded based on fixed interest rates.

The notional amounts shown above do not necessarily represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure from our use of derivatives. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, exchange rates or other financial indices.

Foreign exchange contracts are primarily used to hedge the risk that unremitted or future revenue owed to us for the sale or anticipated sale, and the risk that future payments by us for the purchase or anticipated purchase of products abroad, may be adversely affected by changes in foreign currency exchange rates. As part of our overall strategy to manage the level of exposure to the risk of foreign exchange rate fluctuations, we hedge net estimated foreign currency exposures that principally relate to cash flows to be remitted to or paid by International segment operations over the ensuing twelve-month period. To hedge this exposure, we use foreign exchange contracts that have maturities ranging from one to twelve months, which are renewed or adjusted within the year to provide continuing coverage throughout the year. The fair value and notional amounts of foreign exchange contracts were immaterial as of February 27, 2004 and February 28, 2003.

We recognized a pre-tax loss of $7.7 related to the settlement of certain swap agreements in connection with the sale of leased assets in 2003 (see Note 6).

Other comprehensive income (loss) related to derivatives consisted of the following components:

Prior to the adoption of SFAS No. 133, gains and losses on foreign exchange contracts were generally included as a component of Other Income (Expense), net in our Consolidated Statements of Income.

Our trade receivables are primarily due from independent dealers, who in turn carry receivables from their customers. We monitor and manage the credit risk associated with individual dealers. Dealers, rather than the Company, are responsible for assessing and assuming credit risk of their customers, and may require their customers to provide deposits, letters of credit or other credit enhancement measures. Occasionally, a sales contract may be structured such that the customer payment or obligation is direct to the Company. In those cases, the Company assumes the credit risk. Since we primarily “assemble-to-order”, trade receivables are, with few exceptions, related to specific customer orders which we believe reduces our credit risk. Whether from dealers or customers, our trade credit exposures are not concentrated with any particular entity.

We also have net investments in lease assets related to furniture leases originated and funded by the Financial Services segment. Because the underlying net investment in leases represents multiple orders from individual customers, there are some concentrations of credit risk with certain customers. Our 10 largest lease customers make up $47.0 of gross lease receivables at the end of 2004. Although we believe that reserves are adequate in total, a deterioration of one of these larger credit exposures would likely require additional charges and reserves.

We lease certain sales offices, showrooms and equipment under non-cancelable operating leases that expire at various dates through 2020. During the normal course of business, we have entered into several sale-leaseback arrangements for certain equipment and facilities. In accordance with GAAP, these leases are

accounted for as operating leases and any gains from the sale of the original properties were recorded as deferred gains and are amortized over the lease term. The deferred gains are included as a component of Other Long-term Liabilities, and amounted to $27.2 as of February 27, 2004 and $29.8 as of February 28, 2003.

Rent expense under all operating leases was $56.3 for 2004, $57.4 for 2003 and $55.4 for 2002.

We are contingently liable under loan guarantees for certain Steelcase dealers and joint ventures in the event of default or non-performance of the financial repayment of the liability. The guarantees generally have terms ranging from one to ten years. No losses have been experienced; however, reserves totaling $0.7 are recorded as of February 27, 2004 to cover potential losses for loan guarantees entered into subsequent to December 31, 2002, in accordance with FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others.

We are also party to performance bonds for certain installation or construction activities of certain Steelcase dealers and a joint venture. Under these agreements, we are liable to make financial payments if the installation or construction activities are not completed under their specified guidelines and claims are filed. Projects with performance bonds have completion dates ranging from one to three years. Approximately $60.0 in performance bonds relate to a construction project that is completed and being used as intended, however, we have not received final approval from the customer. We estimate that our actual exposure from these performance bonds is less than $1.0.

Where we have supplied performance bonds related to a joint venture, we require any significant subcontractors to supply us with performance bonds to provide coverage in the event they cause a performance failure or delay. Performance bonds supplied by subcontractors totaled $40.0 as of February 27, 2004, which reduces our risk of exposure. Additionally, our joint venture agreement requires our partner to share in any losses

related to these performance bonds. Where we have supplied performance bonds for dealers, we have the ability to step in and cure performance failures by the dealers thereby mitigating our potential losses. No loss has been experienced under these performance bonds; however, reserves totaling $0.9 are recorded as of February 27, 2004 to cover potential losses.

The maximum amount of future payments (undiscounted and without reduction for any amounts that may possibly be recovered from third parties) we could be required to make under the guarantees and performance bonds are as follows:

We depend on our independent dealers to represent us to customers in individual geographic markets, which can be defined as a country, region, or major metropolitan area. We believe this network of independent dealers is a significant source of competitive advantage. There are some geographic markets where we are represented by a single dealer, or where business is highly concentrated in a single dealer. In those situations, the loss of the dealer could negatively affect our ability to maintain market share and compete for new business in that market while a new dealer is established. There are other situations where an individual dealer principal, partnership or corporation may own multiple dealerships in various markets. Therefore, we have, in the past, sometimes elected to make debt and equity investments or guarantees to facilitate ownership transitions to avoid a disruption in the operation of the dealership. We have also, in the past, sometimes elected to assume, provide or guarantee credit for dealerships and dealer owners experiencing economic difficulty. All such contractual obligations, guarantees and contingencies are disclosed in the financial statements and notes. However, it is possible that we may have additional non-contractual contingent exposures related to our dependence on individual dealers in key markets and certain dealer owners, as described above. It is not practicable to estimate this exposure.

We are continuing actions to implement the Steelcase Production System, which involves consolidation of plants, relocation of products between plants, new processes, and adoption of new supply chain strategies.

There is some risk that these actions could lead to temporary disruptions or increased costs. We have planned our implementation carefully to avoid those risks, and have successfully mitigated those risks in the past.

Many of our operations are relatively vertically integrated which has given us better control over the factors of production. However, this may also expose us to business interruption risk if a key operation is lost due to casualty. We have taken steps to reduce this risk through contingency planning, and through business interruption insurance.

We routinely launch new products and periodically remove older products from our offering. In general, we expect new products to help us gain market share, and we expect customers to move from older products to our newer offerings. There is some risk that new products will not be successful and related fixed asset investments could be impaired. There is also some risk that we lose customers, and therefore market share, when we cull a product from our line. We take steps, including phased implementations and migration strategies, to reduce these risks.

We have several discretionary incentive compensation plans that cover the majority of our employees. These plans are based on factors such as Economic Value Added and other financial profitability and performance measures. Annual bonuses are payable after the end of the fiscal year and therefore, are included in accrued Employee Compensation expense in the accompanying Consolidated Balance Sheets.

We are involved in litigation from time to time in the ordinary course of business. Based on known information, management believes we are not currently a party to any material litigation.

We operate under three reportable segments: North America, SDP and International plus an “Other” category.

The North America segment consists of manufacturing and sales operations in the United States and Canada. This segment includes 16 manufacturing facilities, approximately 8,000 employees and serves customers through a network of over 330 dealer locations.

approximately 1,200 employees and distributes its products through many of the same dealers as the North America segment.

The International segment includes all sales and manufacturing operations of the Steelcase and Werndl brands outside the United States and Canada. Today, the International segment includes 12 manufacturing facilities located in 8 countries, over 3,500 employees and serves customers through a network of approximately 570 dealer locations.

The Other category includes Financial Services, PolyVision and IDEO subsidiaries, ventures and unallocated corporate expenses. Steelcase Financial Services Inc. provides leasing services to customers primarily in North America to facilitate the purchase of our products and provides selected financing services to our dealers. PolyVision Corporation, acquired during 2002, designs and manufactures visual communications products, such as static and electronic whiteboards, for learning environments and office settings. IDEO Inc. provides product design and innovation services. Approximately 85% of corporate expenses, which represent shared services, are charged to the operating segments as part of a corporate allocation. Unallocated expenses are reported within the Other category.

We evaluate performance and allocate resources based on operating income. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies included in Note 2.

During 2004, we sold substantially all of the net assets of our marine hardware and accessories business, Attwood Corporation. The operating results of this business, formerly included within the Other category, have been segregated and reported as discontinued operations for all periods presented.

On November 14, 2001, we acquired 100% of PolyVision Corporation for approximately $182.3. The purchase price included approximately $72.9 of cost of equity, $103.2 in assumed debt and $6.2 of transaction costs. The acquisition was accounted for under the purchase method of accounting. Accordingly, their results of operations after November 14, 2001 have been consolidated with ours. Goodwill and intangible assets acquired in the transaction amounted to $141.9.

Effective July 31, 2001, we acquired 100% of Custom Cable Industries, a designer of data and voice cabling and fabricator of data and telecommunication network cable assemblies for $21.5. The transaction was accounted for under the purchase method of accounting. Accordingly, their results of operations after July 31, 2001 have been consolidated within our North America segment. Intangible assets acquired in the transaction amounted to $14.7.

Effective February 7, 2002, we acquired a 75% equity interest in Steelcase Artwright Manufacturing SDN BHD, a joint venture with Artwright Holdings Berhad, a leading office furniture company in Southeast Asia. The joint venture manufactures furniture for office environments primarily in Southeast Asia. The transaction was accounted for under the purchase method of accounting. Accordingly, their results of operations after February 7, 2002 have been consolidated with ours. The transaction was completed for $13.1 in cash, and resulted in intangible assets of $6.3 being recorded. Additionally, as part of our joint venture agreement, we loaned our joint venture partner $4.4 for a term of five years at a 6.375% interest rate. The Note is secured by the underlying common stock of our joint venture partner.

On August 29, 2003, the Company sold substantially all of the net assets of its marine hardware and accessories business (previously reported under the Other category) for cash proceeds of $47.9, resulting in a pre-tax net gain of $31.9 or $20.0 after-tax. The operating results of this business have been segregated as discontinued operations for all periods presented and include the amounts indicated in the following table:

During 2004, we continued efforts to reduce our cost structure by restructuring certain areas of our business. Restructuring activities include, but are not limited to, workforce reductions, facility consolidations, relocation of production lines and the exit of certain businesses. Costs associated with these activities include,

but are not limited to, severance, asset impairments and lease impairments. Restructuring costs are summarized in the following table:

Below is a summary of the charges and payments during 2003 and 2004 that have been applied against the reserve as of February 27, 2004.

During 2002, we reserved for approximately 1,300 identified salaried workforce reductions, all of which occurred as of February 28, 2003. During 2003, our restructuring for workforce reductions related to 1,425 positions, all of which occurred as of February 27, 2004. During 2004, our restructuring for workforce reductions

related to 1,537 positions, of which 716 occurred as of February 27, 2004. The remaining terminations are expected to take place in 2005.

Following is a summary of the pre-tax restructuring and other selected charges (gains) included in our quarterly results above:

We have audited the accompanying consolidated balance sheets of Steelcase Inc. and subsidiaries as of February 27, 2004 and February 28, 2003, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended February 27, 2004. Our audits also included the financial statement schedule for the three years in the period ended February 27, 2004 as listed in Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. 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 Steelcase Inc. and subsidiaries as of February 27, 2004 and February 28, 2003 and the results of their operations and their cash flows for each of the three years in the period ended February 27, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein.

As discussed in Note 8, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, in the year-ended February 28, 2003. As discussed in Note 2, the Company adopted FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, in the year-ended February 27, 2004.

The consolidated financial statements and other financial information contained in this annual report were prepared by management in conformity with accounting principals generally accepted in the United States of America. In preparing these financial statements, reasonable estimates and judgments have been made when necessary.

Management is responsible for establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of the financial records. The concept of reasonable assurance recognizes that there are inherent limitations in any control system and that the cost of maintaining a control system should not exceed the expected benefits to be derived therefrom. Management believes its system of internal control effectively meets its objective of reliable financial reporting.

The Audit Committee of the Board of Directors meets periodically with management and the independent accountants to review and discuss audit findings and other financial and accounting matters. The independent accountants have free access to the Audit Committee, with and without management present, to discuss the results of their audit work.

The Company’s independent accountants are engaged to audit the Company’s consolidated financial statements and schedule, in accordance with generally accepted auditing standards for the purpose of expressing an opinion on the financial statements and schedule.

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended), as of February 27, 2004. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of February 27, 2004, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

(b) Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The information required by Item 10 that is not included below is contained in Part I, Item 1 under the Available Information section or in our 2004 Proxy Statement under the captions “Proposal Requiring Your Vote— Election of Directors,” “Our Board of Directors,” “Corporate Governance” and “Other Matters— Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated into this Report by reference.

Mark A. Baker has been Senior Vice President, Operations since November 2001. Mr. Baker served as Vice President, Manufacturing Operations from March to November 2001. From 1999 to 2001, Mr. Baker served as Vice President, Marketing. From 1998 to 1999, Mr. Baker served as Vice President and General Manager, Turnstone.

Robert W. Black has been President, International since October 2000. Mr. Black was Senior Vice President, Steelcase International from 1999 to 2000. From 1998 to 1999, Mr. Black served as Vice President, European Ventures.

Jon D. Botsford has been Senior Vice President, Secretary and Chief Legal Officer since June 2000. Mr. Botsford served as Senior Vice President, General Counsel and Secretary from 1999 to 2000. From 1998 to 1999, Mr. Botsford served as Vice President, General Counsel and Secretary.

Mark T. Greiner has been Senior Vice President, WorkSpace Futures since November 2002. Mr. Greiner was Senior Vice President, Research & Development, Concepts and Ventures from 2001 to 2002. From 1999 to 2001, Mr. Greiner held the position of Senior Vice President, Global E-Business and Chief Information Officer. Mr. Greiner served as Vice President, Chief Information Officer from 1996 to 1999.

James P. Hackett has been President, Chief Executive Officer and Director of the Company since December 1994. Mr. Hackett also serves as a Board Member to Northwestern Mutual Life Insurance Company and Fifth Third Bancorp.

Nancy W. Hickey has been Senior Vice President, Chief Administrative Officer since November 2001. Ms. Hickey served as Senior Vice President, Global Human Resources from March to November 2001. From 1999 to 2001, Ms. Hickey served as Vice President, Human Resources. Ms. Hickey served as Vice President, Corporate Human Resources from May to November 1999. From 1994 to 1999, Ms. Hickey served as Vice President, Dealer and Customer Alliances.

James P. Keane has been Senior Vice President, Chief Financial Officer since April 2001. Mr. Keane served as Senior Vice President, Finance and Corporate Strategy from February to April 2001. From 1999 to 2001, Mr. Keane served as Senior Vice President, Corporate Strategy, Research and Development. Mr. Keane served as Vice President, Corporate Strategy, Research and Development from 1997 to 1999.

Michael I. Love has been President and Chief Executive Officer, Steelcase Design Partnership since May 2000. Mr. Love was President of Vecta, a division of Steelcase, from 1994 to 2000.

Frank H. Merlotti, Jr. has been President, Steelcase North America since September 2002. From 1999 to 2002, Mr. Merlotti was President and Chief Executive Officer of G&T Industries, a manufacturer and distributor of fabricated foam and soft-surface materials. Mr. Merlotti was President and Chief Executive Officer of Metropolitan Furniture Corporation, a subsidiary of Steelcase, from 1991 to 1999.

The information required by Item 11 is contained in our 2004 Proxy Statement, under the captions “Directors’ Compensation,” “Report of the Compensation Committee,” “Executive Compensation, Retirement Programs and Other Arrangements,” “Compensation Committee Interlocks and Insider Participation,” and “Stock Performance Graph” and is incorporated into this Report by reference.

The information required by Item 12 that is not listed below is contained in our 2004 Proxy Statement, under the caption “Stock Ownership of Management and Certain Beneficial Owners” and is incorporated into this Report by reference.

Securities authorized for issuance under equity compensation plans as of February 27, 2004 are as follows:

All stock options were awarded under our Incentive Compensation Plan, which was first approved by our shareholders in December 1997.

The information required by Item 13 is contained in our 2004 Proxy Statement, under the caption “Compensation Committee Interlocks and Insider Participation” and is incorporated into this Report by reference.

The information required by Item 14 is contained in our 2004 Proxy Statement under the caption “Fees Paid to Principal Independent Auditor” and is incorporated into this Report by reference.

The following consolidated financial statements of the Company are filed as part of this Report:


	•	Consolidated Statements of Income for the Years Ended February 27, 2004, February 28, 2003 and February 22, 2002

	•	Consolidated Balance Sheets as of February 27, 2004 and February 28, 2003

	•	Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended February 27, 2004, February 28, 2003 and February 22, 2002

	•	Consolidated Statements of Cash Flows for the Years Ended February 27, 2004, February 28, 2003 and February 22, 2002

	•	Notes to Consolidated Financial Statements

	•	Report of Independent Certified Public Accountants

	•	Management’s Responsibility for Financial Reporting

All other schedules required by Form 10-K have been omitted because they are not applicable or the required information is disclosed elsewhere in this Report.

A Current Report on Form 8-K was filed December 18, 2003 under Item 12, Results of Operations and Financial Condition, regarding Steelcase Inc.’s third quarter fiscal 2004 earnings release.

The response to this portion of Item 15 is submitted as a separate section of this Report. See Item 15(a)(3) above.

The response to this portion of Item 15 is submitted as a separate section of this Report. See Item 15(a)(2) above.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ JAMES P. KEANE



	James P. Keane
	Senior Vice President,
	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on this 6th day of May, 2004:


	(3)	Incorporated by reference to the like numbered exhibit to Amendment 2 to the Company’s Registration Statement on Form S-1 (#333-41647) as filed with the Commission on January 20, 1998.

	(4)	Not used.

	(5)	Filed as Exhibit No. 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 1998, as filed with the Commission on May 28, 1998, and incorporated herein by reference.

	(6)	Filed as Exhibit No. 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended August 27, 1999, as filed with the Commission on October 12, 1999, and incorporated herein by reference.

	(7)	Filed as Exhibit No. 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 26, 1999, as filed with the Commission on January 10, 2000, and incorporated herein by reference.

	(8)	Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated April 22, 1999, as filed with the Commission on May 7, 1999, and incorporated herein by reference.

	(9)	Incorporated by reference to the like numbered exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended February 25, 2000, as filed with the Commission on May 25, 2000.


(10)	Incorporated by reference to the like numbered exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 26, 2000, as filed with the Commission on July 10, 2000.

(11)	Incorporated by reference to the like numbered exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 24, 2002, as filed with the Commission on July 8, 2002.

(12)	Incorporated by reference to the like numbered exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 25, 2001, as filed with the Commission on July 9, 2001.

(13)	Not used.

(14)	Incorporated by reference to the like numbered exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 23, 2001, as filed with the Commission on January 7, 2002.

(15)	Incorporated by reference to the like numbered exhibit to the Company’s S-4 filing, as filed with the Commission on February 22, 2002.

(16)	Filed as Exhibit No. 10.27 in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 24, 2002, as filed with the Commission on July 8, 2002, and incorporated herein by reference.

(17)	Filed as Exhibit No. 10.28 in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 24, 2002, as filed with the Commission on July 8, 2002, and incorporated herein by reference.

(18)	Filed as Exhibit No. 10.29 in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 24, 2002, as filed with the Commission on July 8, 2002, and incorporated herein by reference.

(19)	Filed as Exhibit No. 10.30 in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 24, 2002, as filed with the Commission on July 8, 2002, and incorporated herein by reference.


(20)	Filed as Exhibit No. 10.31 in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 24, 2002, as filed with the Commission on July 8, 2002, and incorporated herein by reference.

(21)	Filed as Exhibit No. 10.32 in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 22, 2002, as filed with the Commission on January 6, 2003, and incorporated herein by reference.

(22)	Filed as Exhibit No. 10.26 in the Company’s S-4 filing, as filed with the Commission on February 22, 2002, and incorporated herein by reference.

(23)	Filed as Exhibit No. 4.10 in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 23, 2001, as filed with the Commission on January 7, 2002, and incorporated herein by reference.

(24)	Filed as Exhibit No. 4.11 in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 23, 2001, as filed with the Commission on January 7, 2002, and incorporated herein by reference.

(25)	Filed as Exhibit No. 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 26, 2000, as filed with the Commission on July 10, 2000, and incorporated herein by reference.

(26)	Filed as Exhibit No. 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 25, 2001, as filed with the Commission on July 9, 2001, and incorporated herein by reference.

(27)	Filed as Exhibit No. 10.22 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 25, 2001, as filed with the Commission on July 9, 2001, and incorporated herein by reference.

(28)	Filed as Exhibit No. 10.23 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 25, 2001, as filed with the Commission on July 9, 2001, and incorporated herein by reference.

(29)	Filed as Exhibit No. 10.24 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 25, 2001, as filed with the Commission on July 9, 2001, and incorporated herein by reference.

(30)	Filed as Exhibit No. 4.31 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 22, 2002, as filed with the Commission on January 6, 2003, and incorporated herein by reference.

(31)	Filed as Exhibit No. 4.32 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 22, 2002, as filed with the Commission on January 6, 2003, and incorporated herein by reference.

(32)	Filed as Exhibit No. 4.33 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 22, 2002, as filed with the Commission on January 6, 2003, and incorporated herein by reference.

(33)	Filed as Exhibit No. 4.34 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 22, 2002, as filed with the Commission on January 6, 2003, and incorporated herein by reference.


(34)	Filed as Exhibit No. 4.35 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 22, 2002, as filed with the Commission on January 6, 2003, and incorporated herein by reference.

(35)	Filed as Exhibit No. 4.36 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 22, 2002, as filed with the Commission on January 6, 2003, and incorporated herein by reference.

(36)	Filed as Exhibit No. 4.37 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 22, 2002, as filed with the Commission on January 6, 2003, and incorporated herein by reference.

(37)	Filed as Exhibit No. 4.38 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 30, 2003, as filed with the Commission on July 14, 2003, and incorporated herein by reference.

(38)	Filed as Exhibit No. 4.39 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 30, 2003, as filed with the Commission on July 14, 2003, and incorporated herein by reference.

(39)	Filed as Exhibit No. 4.40 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 30, 2003, as filed with the Commission on July 14, 2003, and incorporated herein by reference.

(40)	Filed as Exhibit No. 4.41 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 30, 2003, as filed with the Commission on July 14, 2003, and incorporated herein by reference.

(41)	Filed as Exhibit No. 4.42 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended May 30, 2003, as filed with the Commission on July 14, 2003, and incorporated herein by reference.

(42)	Filed as Exhibit No. 4.43 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended August 29, 2003, as filed with the Commission on October 10, 2003, and incorporated herein by reference.

(43)	Filed as Exhibit No. 4.44 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended August 29, 2003, as filed with the Commission on October 10, 2003, and incorporated herein by reference.

(44)	Incorporated by reference to the like numbered exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2003, as filed with the Commission on May 16, 2003.

(45)	Filed as Exhibit No. 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended August 29, 2003, as filed with the Commission on October 10, 2003, and incorporated herein by reference.

E-8 EX-4.36 2 k84627exv4w36.txt MASTER AIRCRAFT LEASE AGREEMENT Exhibit 4.36 MASTER AIRCRAFT LEASE AGREEMENT (Steelcase Trust No. 2000-1) Dated as of May 26, 2000 among FIRST SECURITY BANK, NATIONAL ASSOCIATION not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1, as Lessor, and STEELCASE INC., as Lessee CERTAIN OF THE RIGHT, TITLE AND INTEREST OF LESSOR IN AND TO THIS LEASE AND THE RENT DUE AND TO BECOME DUE HEREUNDER (EXCLUDING THE EXCLUDED AMOUNTS) HAVE BEEN ASSIGNED AS COLLATERAL SECURITY TO, AND ARE SUBJECT TO A SECURITY INTEREST GRANTED BY LESSOR, AS DEBTOR, IN FAVOR OF, FIRST SECURITY TRUST COMPANY OF NEVADA, AS ADMINISTRATIVE AGENT FOR THE BENEFIT OF THE LENDERS AND CERTIFICATE HOLDERS, AS SECURED PARTY. INFORMATION CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM FIRST SECURITY TRUST COMPANY OF NEVADA, AS ADMINISTRATIVE AGENT, AT ITS ADDRESS SET FORTH IN THE PARTICIPATION AGREEMENT. SEE SECTION 25.2 OF THIS LEASE FOR INFORMATION CONCERNING THE RIGHTS OF THE HOLDERS OF THE VARIOUS COUNTERPARTS HEREOF INCLUDING WITHOUT LIMITATION THE ORIGINAL CHATTEL PAPER COPY HEREOF. TABLE OF CONTENTS

i SECTION 11. Insurance......................................................................................... 19 11.1 Bodily injury liability and property damage liability insurance................................... 19 11.2 Insurance against loss or damage to an Aircraft................................................... 19 11.3 Reports, Etc...................................................................................... 20 11.4 Self-Insurance.................................................................................... 20 11.5 Additional Insurance by Lessor and Lessee......................................................... 20 11.6 Indemnification by government in lieu of insurance................................................ 21 11.7 Terms of insurance policies....................................................................... 21 SECTION 12. Inspection........................................................................................ 22 SECTION 13. Events of Default................................................................................. 22 SECTION 14. Remedies.......................................................................................... 23 14.1 Remedies.......................................................................................... 23 SECTION 15. Further Assurances; Expenses...................................................................... 25 15.1 Further Assurances................................................................................ 25 15.2 Expenses.......................................................................................... 25 SECTION 16. Lessor's Right to Perform......................................................................... 25 SECTION 17. Assignment by Lessor.............................................................................. 25 SECTION 18. Net Lease, Etc.................................................................................... 26 SECTION 19. Notices........................................................................................... 27 SECTION 20. Assignment, Sublease or Transfer.................................................................. 27 SECTION 21. Early Termination Options; Obligation to Purchase; Substitution................................... 27 21.1 Early Termination Options......................................................................... 27 21.2 Required Purchase................................................................................. 29 21.3 Replacement of Aircraft........................................................................... 29 SECTION 22. End of Term Options; Early Purchase Options....................................................... 30 22.1 End of Term Options............................................................................... 30 22.2 Election of Options............................................................................... 30 22.3 Renewal Options................................................................................... 31 SECTION 23. Sale Option....................................................................................... 31 23.1 Sale Option Procedures............................................................................ 31 23.2 Sale.............................................................................................. 32 23.3 Application of Sale Proceeds and Recourse Payments in Connection with the Sale Option............. 33

ii SECTION 24. Limitation of Lessor's Liability.................................................................. 33 SECTION 25. Miscellaneous..................................................................................... 34 25.1 Governing Law; Waiver of Jury Trial; Severability................................................. 34 25.2 Execution in Counterparts......................................................................... 35 25.3 Amendments and Waivers............................................................................ 35 25.4 Business Days..................................................................................... 35 25.5 Directly or Indirectly............................................................................ 35 25.6 Uniform Commercial Code........................................................................... 35 25.7 TRUTH IN LEASING.................................................................................. 36

EXHIBIT A Lease Supplement iii MASTER AIRCRAFT LEASE AGREEMENT (Steelcase Trust No. 2000-1) THIS MASTER AIRCRAFT LEASE AGREEMENT (Steelcase Trust No. 2000-1) is dated as of May 26, 2000 (as amended, modified, supplemented, restated and/or replaced from time to time, the "Lease") among FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 (together with its successors and assigns permitted hereunder, the "Lessor") and STEELCASE INC., a Michigan corporation (together with its successors and assigns permitted hereunder, "Lessee"). W I T N E S S E T H : SECTION 1. DEFINITIONS. Unless the context otherwise requires, all capitalized terms used herein without definition shall have the respective meanings set forth in Appendix A of that certain Participation Agreement (Steelcase Trust No. 2000-1) dated as of the date hereof (the "Participation Agreement"), among the Lessor (in its individual and trust capacities), Steelcase Inc., as Lessee, First Security Trust Company of Nevada, in its individual capacity and as Administrative Agent, Hatteras Funding Corporation, as CP Lender, the persons named on Schedule I thereto as Certificate Holders, the persons named on Schedule II thereto as Facility Lenders and Bank of America, National Association as Administrator, for all purposes of this Lease. The General Provisions of Appendix A of the Participation Agreement are hereby incorporated by reference herein. SECTION 2. ACCEPTANCE AND LEASING OF AIRCRAFT. Subject to the satisfaction of the conditions set forth in Section 4 of the Participation Agreement, Lessor agrees to accept delivery of and simultaneously lease to Lessee hereunder, and Lessee agrees to lease from Lessor, hereunder, on each Delivery Date the Aircraft delivered on such date as evidenced by the execution by Lessor and Lessee of a Lease Supplement (substantially in the form of Exhibit A hereto) covering such Aircraft. Lessor hereby authorizes Lessee or an authorized representative of Lessee to act on behalf of Lessor to accept delivery of each Aircraft, all in accordance with Section 2.3(c) of the Participation Agreement. Lessee hereby agrees that acceptance of delivery of any Aircraft by it or its authorized representative on behalf of Lessor shall, without further act, irrevocably constitute acceptance by Lessee of such Aircraft for all purposes of this Lease. SECTION 3. LEASE TERM AND RENT. 3.1 LEASE TERM. The base term of this Lease (the "Base Term") for any Aircraft shall commence on the Base Term Commencement Date for such Aircraft and, subject to earlier termination pursuant to Sections 10, 14 or 21 shall expire on the Base Term Expiration Date for such Aircraft. Subject and pursuant to Section 22.1, the Lessee may elect to extend the Lease of any or all Aircraft in each case for up to two (2) successive additional one-year terms beyond the respective Base Term for such Aircraft (each a "Renewal Term"). With respect to any Aircraft, the Base Term together with any Renewal Term actually entered into shall be referred to herein as the "Lease Term" for such Aircraft. 3.2 BASIC RENT. Lessee hereby agrees to pay Basic Rent to Lessor for each Aircraft in consecutive installments payable in arrears on each Payment Date throughout the Lease Term of such Aircraft. 3.3 SUPPLEMENTAL RENT. Lessee hereby agrees to pay to Lessor, or to such other Person to which such payment shall be required to be paid hereunder or in accordance with the other Operative Documents, in any case without duplication of amounts paid by Lessee under any other Operative Document, any and all Supplemental Rent owing pursuant to any Operative Document, on the date due and owing, or where no due date is specified, upon written demand by the Person entitled thereto, and in the event of any failure on the part of Lessee to pay any Supplemental Rent, Lessor (or such other Person, as the case may be) shall have all rights, powers and remedies provided for herein or by applicable law or equity or otherwise as in the case of nonpayment of Basic Rent. In clarification of the foregoing and not in limitation of Lessee's general obligation to pay all amounts of Supplemental Rent due and owing by it from time to time, Lessee hereby agrees to pay as Supplemental Rent (a) on demand, to the extent permitted by Applicable Laws and Regulations, an amount equal to interest at the applicable Overdue Rate on (i) any part of any installment of Basic Rent not paid when due for any period for which the same shall be overdue and (ii) any payment of Supplemental Rent not paid when due for the period from such due date until the same shall be paid, (b) an amount equal to the applicable Break Funding Amount, if any, payable by the Certificate Trustee under the Loan Agreement or the Trust Agreement, (c) all fees, costs and expenses which are indicated to be paid by the Certificate Trustee under the Operative Documents and (d) the indemnities and obligations assumed by the Lessee in Section 7 of the Participation Agreement. 3.4 MANNER OF PAYMENTS. All Rent (excluding Excluded Amounts) shall be paid by Lessee to the Administrative Agent at the Administrative Agent's Payment Office or at such other account or location in the United States as may be specified by the Administrative Agent by not less than five (5) Business Days written notice from time to time hereafter. All Rent and other amounts payable hereunder from time to time shall be paid by Lessee in funds consisting of lawful currency of the United States, which shall be immediately available to the recipient not later than 11:00 A.M. (Eastern time) on the date of such payment. Subsequent to the discharge of the Loan Agreement pursuant to its terms, and receipt by Lessee of written notification thereof from the Administrative Agent, all Rent payable to the Administrative Agent pursuant to the first sentence of this Section 3.4 2 shall be paid to Lessor (or its designee) to an account or location in the United States as may be specified by such Person by not less than five (5) Business Days written notice from time to time hereafter. Excluded Amounts shall be paid by Lessee or such other Person to the Person to whom payable at such Person's Payment Office specified in Schedule III to the Participation Agreement or at such other account or location in the United States as may be specified by such Person by not less than five (5) Business Days written notice from time to time hereafter. SECTION 4. FINANCE LEASE. 4.1 FINANCE LEASE. (a) Finance Lease. Lessor and Lessee intend this Lease to constitute a finance lease and not a true lease. Lessor and Lessee further intend and agree that, for the purpose of securing the Lessee's obligations hereunder, (i) this Lease shall be deemed to be a security agreement and financing statement within the meaning of Article 9 of the Uniform Commercial Code with respect to each of the Aircraft and all proceeds (including without limitation insurance proceeds thereof) of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property, whether in the form of cash, investments, securities or other property, (ii) Lessee hereby grants to Lessor, a Lien on all of Lessee's right, title and interest in and to the Aircraft and all proceeds (including without limitation insurance proceeds thereof) of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property, whether in the form of cash, investments, securities or other property and (iii) notifications to Persons holding such property, and acknowledgments, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of Lessee shall be deemed to have been given for the purpose of perfecting such Lien under applicable law. Lessor and Lessee shall promptly take such reasonable actions as may be necessary or advisable in either party's reasonable opinion (including without limitation the filing of this Lease and the various Lease Supplements) to ensure that the Lien on the items referenced above will be deemed to be a perfected Lien of first priority (subject to Permitted Liens) under Applicable Law and Regulations and will be maintained as such throughout the Lease Term of each Aircraft; provided, however, that Lessee agrees to pay all costs associated with such perfection. In addition to and without limiting the foregoing, the Lessor and Lessee hereby acknowledge, and agree, to the provisions of Section 2.5 of the Participation Agreement. (b) Power of Attorney. Subject to the provisions hereof, Lessee does hereby constitute Lessor the true and lawful attorney of Lessee, irrevocably, coupled with an interest and with full power of substitution, and with full power (in the name of Lessee or otherwise) during the occurrence and continuation of a Lease Event of Default after written notice to Lessee thereof to ask for, require, demand, and receive, any and all monies and claims for monies (in each case including insurance and requisition proceeds except as herein otherwise provided) due and to become due under or arising out of any agreement assigned or pledged under clause (a) above, and all other property now or hereafter pledged herein, to endorse any checks or other instruments or orders in connection therewith and to file any claims or to take any action or to institute any proceedings which Lessor or the Administrative Agent may deem to be necessary or advisable to exercise its remedies hereunder. Without limiting the provisions of the foregoing, during the continuance of any Lease Event of Default and after written notice to the Lessee 3 thereof but subject to the terms hereof, Lessor shall have the right under such power of attorney to sue for, compound and give acquittance for, to accept any offer of any purchaser to purchase any Aircraft as provided herein and upon such purchase to execute and deliver in the name of and on behalf of the Lessee an appropriate bill of sale and other instruments of transfer relating to such Aircraft, when purchased by such purchaser, and to perform all other necessary or appropriate acts with respect to any such purchase, and in its discretion to file any claim or take any other action or proceedings, either in its own name or in the name of the Lessee or otherwise, which Lessor or the Administrative Agent may reasonably deem necessary or appropriate to protect and preserve the right, title and interest of Lessor and the Administrative Agent in and to the Aircraft and such rents and other sums and the security intended to be afforded hereby; provided, no action of Lessor pursuant to this paragraph shall increase the obligations or liabilities of Lessee to any Person beyond those obligations and liabilities specifically set forth in this Lease and the other Operative Documents. SECTION 5. DISCLAIMER OF WARRANTIES; QUIET ENJOYMENT. LESSEE ACKNOWLEDGES AND AGREES THAT, AS BETWEEN LESSEE AND LESSOR, (A) EACH AIRCRAFT IS OF A SIZE, DESIGN, CAPACITY AND MANUFACTURE SELECTED BY AND ACCEPTABLE TO LESSEE, (B) LESSEE IS SATISFIED THAT EACH AIRCRAFT IS SUITABLE FOR ITS PURPOSES, (C) NEITHER LESSOR, ANY PARTICIPANT, ANY CERTIFICATE HOLDER NOR THE ADMINISTRATIVE AGENT IS A MANUFACTURER OR A DEALER IN PROPERTY SIMILAR TO SUCH AIRCRAFT, (D) EACH AIRCRAFT IS LEASED HEREUNDER SUBJECT TO ALL APPLICABLE LAWS NOW IN EFFECT OR HEREAFTER ADOPTED, (E) LESSOR LEASES AND LESSEE TAKES EACH AIRCRAFT "AS-IS", "WHERE-IS" AND "WITH ALL FAULTS", IN WHATEVER CONDITION IT MAY BE, AND LESSEE ACKNOWLEDGES THAT NEITHER LESSOR, AS LESSOR OR IN ITS INDIVIDUAL CAPACITY, ANY PARTICIPANT, ANY CERTIFICATE HOLDER NOR THE ADMINISTRATIVE AGENT MAKES NOR SHALL BE DEEMED TO HAVE MADE, AND EACH EXPRESSLY DISCLAIMS, ANY AND ALL WARRANTIES OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, CONDITION, FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN, OPERATION, MERCHANTABILITY THEREOF OR AS TO THE TITLE OF ANY SUCH AIRCRAFT, THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREOF OR CONFORMITY THEREOF TO SPECIFICATIONS, FREEDOM FROM PATENT, COPYRIGHT OR TRADEMARK INFRINGEMENT, THE ABSENCE OF ANY LATENT OR OTHER DEFECT, WHETHER OR NOT DISCOVERABLE, OR AS TO THE ABSENCE OF ANY OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER WITH RESPECT THERETO AND (F) LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING WITHOUT LIMITATION INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY ANY AIRCRAFT OR BY LESSEE'S LOSS OF USE THEREOF FOR ANY REASON WHATSOEVER; WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSOR SHALL NOT BE LIABLE OR RESPONSIBLE FOR ANY DEFECTS, EITHER PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE), IN ANY AIRCRAFT, OR FOR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR 4 PROPERTY RESULTING THEREFROM, OR FOR LESSEE'S LOSS OF USE OF ANY AIRCRAFT OR FOR ANY INTERRUPTION IN LESSEE'S BUSINESS CAUSED BY LESSEE'S INABILITY TO USE ANY AIRCRAFT FOR ANY REASON WHATSOEVER, except that (i) Lessor and the Trust Company represent and warrant that on each Delivery Date, Lessor shall have received the title to the Aircraft delivered on such date conveyed to Lessor by the applicable Seller and each such Aircraft will be free of Certificate Trustee Liens attributable to Lessor or to the Trust Company, and (ii) each of Lessor and the Trust Company hereby covenants that it will not, through its own actions or inactions, interfere in the quiet enjoyment, use, operation or possession of any Aircraft by Lessee unless a Lease Event of Default shall have occurred and be continuing. Lessor hereby appoints and constitutes Lessee as its agent during the Lease Term to assert and enforce, from time to time, in the name and for the account of Lessor and Lessee, as their interests may appear, but in all cases at the sole cost and expense of the Lessee, whatever claims and rights that Lessor may have against the manufacturers, suppliers, or any prior owners or lessees of the Aircraft and Lessee hereby accepts such appointment; provided, however, that if at any time a Lease Event of Default or Significant Default shall have occurred and be continuing, at Lessor's option, such agency shall terminate, and Lessor may assert and enforce, at Lessee's sole cost and expense, such claims and rights. Lessee's delivery of a Lease Supplement shall be conclusive evidence as between Lessee and Lessor that any Aircraft described therein is in all the foregoing respects satisfactory to Lessee. SECTION 6. DELIVERY OF AIRCRAFT; CONDITION OF AIRCRAFT; DELIVERY TO LESSOR. 6.1 DELIVERY OF AIRCRAFT. On the Expiration Date in respect of any Aircraft and assuming Lessee has not purchased such Aircraft in accordance with the terms of this Lease, Lessee will deliver possession of such Aircraft to the Person that is purchasing such Aircraft (or the Lessor, as applicable) in the condition required by this Section 6 at facilities suitable for storage of such Aircraft at a location designated by such Person (or the Lessor, as applicable) in the continental United States (a "Return Location"). All costs and expenses for delivery of such Aircraft shall be borne by the Lessee. In addition, Lessee shall upon request of the purchaser (or the Lessor, as applicable) of any Aircraft, assign any and all of Lessee's title to such Aircraft and all of Lessee's rights under any manufacturer's or supplier's warranties with respect to such Aircraft to such Person. 6.2 GENERAL CONDITION OF AIRCRAFT AND AIRFRAMES. (a) Registration and General Condition. With respect to any Aircraft, at the time of such delivery such Aircraft will be registered under the laws of the United States of America. In addition, at the time of delivery pursuant to this Section 6.1, each Aircraft shall satisfy each of the following requirements, as applicable, and any other applicable requirements of the Operative Documents: (i) Such Aircraft shall be certified as an airworthy aircraft by the Federal Aviation Administration and shall be equipped so as to be eligible for operations, in each case, under Part 91 of the Federal Aviation Regulations; 5 (ii) Such Aircraft shall be free and clear of all Liens (other than Certificate Trustee Liens); (iii) Such Aircraft shall be in as good an operating condition as when delivered to Lessee hereunder (ordinary wear and tear excepted) and in compliance with the Maintenance Program for such Aircraft; (iv) Such Aircraft shall be clean with all systems and components operable; (v) Such Aircraft shall have all of Lessee's and any sublessee's exterior markings removed or painted over with the areas thereof refinished to match adjacent areas; (vi) Any appliance, part, instrument, appurtenance, accessory, furnishing or other equipment leased by the Lessee from a third party (other than Lessor) and incorporated in such Aircraft shall be removed prior to the date of such return without any damage to such Aircraft and without diminishing or impairing the value, utility, remaining useful life or condition which such Aircraft would have had at such time had such equipment not been installed, and Lessee shall make all repairs which are required as a result of such removal; and (vii) Such Aircraft shall have installed thereon all Related Engines and, unless removed and not replaced as permitted under the terms of this Lease, all Parts installed thereon on the Delivery Date or replacements therefor made in accordance with the terms of this Lease. (b) Other Conditions. Upon delivery of an Aircraft at the expiration or early termination of the Lease with respect to such Aircraft, such Aircraft shall be in the condition required by Section 8 hereof and satisfy the following requirements: (i) The Related Airframe will have completed the next scheduled heaviest maintenance inspection within 25 hours of return; (ii) All airworthiness directives will be terminated, and all service bulletins complied with, in each case applicable to the Related Airframe, any Related Engine and any Part thereof or the related records; (iii) All aspects of the applicable corrosion control program will be complete to date; (iv) All landing gear will have been overhauled within three months prior to return; (v) All hard time components will have been overhauled or refurbished within 25 hours of return; and 6 (vi) The Related Engines shall not have been used more than 25 hours or cycles since a complete overhaul or refurbishment. 6.3 RETURN OF OTHER ENGINES WITH AIRFRAME. (a) Replacement Engine. In the event that any engine which is not a Related Engine shall be delivered with an Airframe, such engine shall be the same make and model as the Related Engine (or an improved model engine manufactured by Engine Manufacturer) or an engine of another manufacturer, in each case suitable for installation and use on such Airframe and fully compatible with the other Related Engine(s) or engine(s) installed on such Airframe having an economic value, residual value, utility and remaining useful life at least equal to, and be in as good operating condition and repair as, the Related Engine so replaced (assuming such Related Engine had an economic value, residual value, utility, and remaining useful life as maintained in accordance with the terms of the Lease). At the time of such replacement, such engine shall be airworthy and at the time such Airframe is delivered shall fully comply with all the requirements of this Lease which are applicable to Related Engines. (b) Conveyance of Title. Upon delivery of an Aircraft pursuant to Section 6.1, the Lessee shall duly convey to the Person purchasing such Aircraft (or the Lessor, as applicable), good title to any such replacement engine, free and clear of Liens other than Certificate Trustee Liens; and upon such conveyance and as a condition thereto, Lessee will (a) furnish, or cause to be furnished, to the Person purchasing such Aircraft (or the Lessor, as applicable), a full warranty bill of sale as to title with respect to any such replacement engine, in form and substance reasonably satisfactory to the Person purchasing such Aircraft (or the Lessor, as applicable), together with an opinion of counsel to the effect that such bill of sale has been duly authorized and delivered and is enforceable in accordance with its terms (subject to customary exceptions), and (b) take such other action as the Person purchasing such Aircraft (or the Lessor, as applicable), may reasonably request in order that title to such replacement engine may be duly and properly vested in the Person purchasing such Aircraft (or the Lessor, as applicable) to the same extent as the Related Engine replaced thereby. Upon compliance by the Lessee with the foregoing, Lessor will, so long as no Lease Event of Default or Lease Default has occurred and is continuing, transfer to Lessee or its designee all of Lessor's right, title and interest in and to any Related Engine which is not installed on the Airframe to which it relates at the time of the delivery of such Airframe by a bill of sale "as is", "where is", without recourse or warranty (except for a warranty as to the absence of Certificate Trustee Liens). 6.4 MANUALS AND SERVICE BULLETIN KITS. (a) Manuals. When delivering each Aircraft to the Person purchasing the same (or the Lessor, as applicable) Lessee shall deliver or cause to be delivered to such Person) (i) all logs, manuals, data, and inspection, maintenance, modification, and overhaul records (a) received by Lessee from the Manufacturer of such Aircraft and (b) required to be maintained for such Aircraft under the applicable rules and regulations of the FAA, (ii) all other maintenance service, inspection and overhaul records maintained and retained by Lessee for such Aircraft which are reasonably necessary to transition such Aircraft to a new operator, updated through the date of return and (iii) all current and historical records delivered with such Aircraft by the 7 Manufacturer and Engine Manufacturer, and records acquired or prepared by Lessee or any sublessee during the Lease Term therefor, including time logs showing Related Engine hours and cycles on any given date, documents, manuals (revised up to and including the most current revisions issued by the manufacturer and accurately reflecting the status of such Aircraft or Related Engine), data, and overhaul records, log books, original engine delivery documents, serviceable parts tags (including teardown reports for time-controlled Parts that have been overhauled), FAA forms, modification records, inspection records, and all other documentation pertaining to each Related Engine and Part and/or any other engine then installed thereon. All records shall be in English or have official English translations (which may be by microfilm or microfiche, as permitted), and any records discrepancies shall be corrected, and any missing records shall be reconstructed, by Lessee on or prior to the return of such Aircraft. (b) Service Bulletin Kits. All service bulletin kits received by or on behalf of Lessee from Manufacturer, Engine Manufacturer or vendors for the respective Aircraft and not incorporated therein shall be returned at no charge to Lessor as cargo on board such Aircraft at the time of its return. 6.5 SALE INSPECTION; STORAGE. (a) Sale Inspection. Prior to the end of the Lease Term with respect to any Aircraft, the Person that is purchasing such Aircraft (or Lessor, as applicable) shall have the right to inspect (at the sole cost and expense of the Lessee) any such Aircraft that are to be delivered pursuant to this Section 6 to ensure that such Aircraft is in compliance with the conditions set forth herein. Such inspections shall be in accordance with the provisions of Section 12 hereof. (b) Storage. Lessee will, if requested by the Person purchasing any Aircraft (or the Lessor, as applicable) in writing, at Lessee's sole cost and expense arrange parking facilities for such Aircraft at the Return Location for a period of ninety (90) days from the Expiration Date of such Aircraft (or such longer period as shall be necessary for Lessor to sell or re-lease such Aircraft in the event of a return pursuant to Section 14 hereof). During such period the Lessee (i) will insure, maintain and keep such Aircraft in good order and repair in accordance with the provisions of the Operative Documents, and (ii) upon prior notice during business hours will permit the Person purchasing such Aircraft (or the Lessor, as applicable) or a designee thereof, including without limitation the authorized representative or representatives of any prospective purchaser, lessee or user of such Aircraft, to inspect the same. 6.6 INJUNCTIVE RELIEF. The provisions of this Section 6 are of the essence of this Lease, and upon application to any court of equity having jurisdiction, Lessor shall be entitled to a decree against Lessee requiring specific performance of the covenants of Lessee set forth in this Section 6. SECTION 7. LIENS. Lessee will not directly or indirectly create, incur, assume, permit or suffer to exist any Lien on or with respect to any Airframe, Related Engine, or Part or Lessee's leasehold interest 8 therein under this Lease, except Permitted Liens, and Lessee shall promptly, at its sole cost and expense, take such action or cause such action to be taken as may be necessary to duly discharge to the reasonable satisfaction of Lessor and the Administrative Agent (by bonding or otherwise) any such Lien not excepted above, whether now existing or arising at any time after the date of this Lease. SECTION 8. MAINTENANCE; REGISTRATION; SUBLEASING; OPERATION; INSIGNIA. 8.1 MAINTENANCE; REGISTRATION; SUBLEASING. (a) Maintenance and Registration Lessee agrees not to maintain, repair, overhaul, use or operate any Aircraft, any Related Engine or any Part in violation of any Applicable Laws and Regulations of any Authority having jurisdiction (domestic or foreign) over Lessee or such Aircraft, or in violation of any airworthiness certificate, license or registration relating to such Aircraft issued by any such Authority. If such Applicable Laws and Regulations require alteration of the Airframe, any Related Engine or any Part of such Aircraft, Lessee will conform thereto or obtain conformance therewith at no expense to Lessor and will maintain the same in proper operating condition under such Applicable Laws and Regulations. Lessee also agrees not to fly any Aircraft, or suffer any Aircraft to be flown or any Related Engine to be located (i) in any area excluded from coverage by any insurance required by Section 11, (ii) in any country with which the United States does not maintain diplomatic relations, or (iii) in any area of actual or threatened armed hostilities unless fully covered to Lessor's reasonable satisfaction by war risk insurance or unless such Aircraft is operated or used under contract with the United States under which contract the United States assumes liability and provides indemnity in an amount not less than the amount of insurance and providing coverage, supported by the full faith and credit of the United States, as full and complete as otherwise required by Section 11 for any damage, loss, destruction or failure to return possession thereof at the end of the term of such contract and for injury to Persons and damage to property of others. Each Aircraft shall at all times be and remain registered in accordance with the laws of the United States. (b) Subleasing. Lessee shall not sublease, or otherwise in any manner deliver, relinquish or transfer possession of the Aircraft or any Related Engine or any Part thereof or any part of Lessee's rights hereunder to any Person without the prior written consent of Lessor; provided, however that, if no Significant Default or Lease Event of Default exists, Lessee may, without the prior written consent of Lessor, (i) deliver possession of any Aircraft or any Related Engine to the manufacturer thereof for testing or other similar purposes or to any organization for service, repair, maintenance or overhaul work or for alterations or modifications of or additions to such Aircraft or Related Engines, to the extent required or permitted by this Lease, (ii) subject any Related Engine or any Part to normal pooling or similar arrangements provided, in the case of a Related Engine, that such arrangements do not result in the transfer of title to the Related Engine, (iii) transfer possession of any Related Engine or Part to any Person for the purpose of shipment (in the ordinary course of business) not otherwise permitted hereby; and (iv) sublease any Aircraft to wholly owned Subsidiaries of the Lessee and to any other Person (x) headquartered in the United States, Canada, Great Britain, France or Germany and (y) with its senior long-term unsecured debt rated at least BBB- by S&P and Baa3 by Moody's at the time such sublease is entered into. 9 The rights of any transferee who receives possession by reason of a transfer permitted by this Section 8.1(b) shall be subject and subordinate to, and any sublease shall be made expressly subject to, all the terms of this Lease, and to Lessor's rights, powers, and remedies hereunder and thereunder, including, without limitation, the right to repossession pursuant to Section 14.1 hereof and to void such sublease upon repossession. Notwithstanding any language contained herein to the contrary, (i) the respective Aircraft shall all times remain registered with the FAA under the laws of the United States, and (ii) Lessee shall remain primarily liable hereunder for the performance of all the terms of this Lease to the same extent as if such sublease or transfer had not occurred. Lessee shall deliver to Lessor, within five Business Days after execution of any sublease, a written representation that such sublease is in compliance with the provisions of this Section 8.1(b). No sublease, transfer, or other relinquishment of possession of any Aircraft shall in any way discharge or diminish any of Lessee's obligations to Lessor hereunder. 8.2 OPERATION. During the Lease Term of any Aircraft, Lessee, at its own cost and expense, shall: (i) service, repair, maintain, test and overhaul such Aircraft so as to keep such Aircraft in good operating condition and, ordinary wear and tear excepted, in the same condition as when delivered to Lessee hereunder, and so as to comply with each of the following standards: (A) to establish and keep such Aircraft in compliance with (1) Lessee's FAA-approved maintenance program, which shall include a corrosion control program (the "Maintenance Program"), that is, with respect to the Related Airframe, either a phased maintenance program (a "Phased Maintenance Program") or a periodic medium and heavy block-hour interval overhaul program (a "Block-Time Maintenance Program") and that provides for all FAA required inspection, servicing, overhaul and replacement of all components thereof; (2) all applicable airworthiness directives issued by the FAA; and (3) all manufacturer's mandatory service bulletins; (B) to keep such Aircraft in such condition as may be necessary to enable the airworthiness certification of such Aircraft to be maintained in good standing at all times under the Federal Aviation Act; and (C) to keep the Aircraft maintained, serviced, repaired, tested or overhauled in at least the same manner and with the same care as used by Lessee with similar aircraft owned or leased by Lessee and maintained under the Maintenance Program; (ii) not install replacement components with excessive wear or exchange components on or of such Aircraft for other aircraft components in Lessee's possession for use on aircraft that will remain in Lessee's possession after such return in order to reduce or avoid future maintenance requirements; and 10 (iii) maintain in the English language all records, logs and other materials required by the FAA, and any other Authority having jurisdiction over such Aircraft or Lessee, to be maintained in respect of such Aircraft, so as to enable operation of such Aircraft under the laws of the United States, which records logs and materials will conform to good commercial practice for records regarding all maintenance carried out with respect to the Aircraft. 8.3 INSIGNIA. Lessee shall for each Aircraft and Related Engine leased by it, on or prior to the Delivery Date therefor (or, with respect to the Aircraft delivered on the Closing Date, within ninety (90) days of such Closing Date), affix placards bearing the inscription "This [aircraft] [engine] is owned by First Security Bank, National Association, not in its individual capacity, but solely as Certificate Trustee, and subject to a security interest in favor of First Security Trust Company of Nevada, as Administrative Agent" and assure such placards remain on each Airframe and Related Engine; provided that so long as no Lease Event of Default or Significant Default shall have occurred and be continuing, any Aircraft may be placarded identifying the interests of the Lessee in addition thereto. Except as otherwise specified pursuant to the preceding paragraph Lessee will not allow the name of any Person other than the Lessor, the Administrative Agent, or their respective successors or assigns, to be placed on any Airframe or Related Engine as a designation that might be interpreted as a claim of ownership or of any security interest therein, provided that Lessee may cause or permit an Airframe or Related Engine to be lettered, painted or marked in an appropriate manner for convenience of identification of the interest of Lessee (including without limitation the customary colors and insignia of the Lessee). SECTION 9. REPLACEMENT OF PARTS; ALTERATIONS, MODIFICATIONS AND ADDITIONS. 9.1 REPLACEMENT OF PARTS. Lessee shall promptly replace, or cause to be replaced, all Parts which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair, or permanently rendered unfit for use for any reason whatsoever, except as otherwise provided in Section 9.3. In addition, in the ordinary course of maintenance, service, repair, overhaul, or testing, Lessee may remove a Part, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair, or permanently rendered unfit for use provided that, except as otherwise provided in Section 9.3, Lessee shall promptly replace such Part. All replacement Parts shall be free and clear of all Liens, except Permitted Liens, and shall have an economic value, residual value, utility and remaining useful life at least equal to the original Parts replaced, assuming such original replaced Parts were in the condition and repair required to be maintained by the terms hereof. Notwithstanding the requirements of Section 9.3 or this Section 9.1, but without limiting the provisions of Section 6, as the case may be, Lessee may on a non-discriminatory basis install 11 or permit the installation of an engine or part on a Related Airframe or a part on a Related Airframe or a Related Engine by way of substitution or replacement if: (i) there shall not have been available to Lessee at the time and in the place that such engine or part was required to be installed on such Related Airframe or Related Engine, a replacement engine or replacement part complying with the requirements of Section 8.1 or this Section 9.1, as the case may be; and (ii) it would have resulted in a disruption of the operation of the Aircraft to have grounded such Aircraft and/or to have permitted the Related Engine or the relevant Part to continue to be unserviceable or unrepaired until such time as another engine or part complying with the requirements of Section 8.1, Section 9.3 or this Section 9.1, as the case may be, became available for installation on such Related Airframe or Related Engine; and (iii) such engine or part (A) is suitable for installation and use on the Related Airframe or Related Engine, and (B) is operationally compatible with the Related Airframe or Related Engines; and (iv) as soon as practicable, but in any event within the earlier of sixty (60) days or the end of the Lease Term after installation of the same on such Related Airframe or Related Engine, Lessee shall cause any such engine or part not complying with the requirements of Section 8.1, Section 9.3 or this Section 9.1, as the case may be, to be removed and replaced or substituted by a part complying with the requirements of Section 8.1, Section 9.3 or this Section 9.1, as the case may be. 9.2 TITLE TO REPLACED AND REPLACEMENT PARTS. All Parts removed from any Aircraft shall remain the property of Lessor, and subject to this Lease and the Lien of the Security Agreement, no matter where located, until such time as such Parts shall be replaced by Parts which have been incorporated in such Aircraft and which meet the requirements for replacement Parts specified above. Immediately upon any replacement Part's becoming incorporated in an Aircraft as above provided, without further act (i) title to the replaced Part shall vest in Lessee, free and clear of all rights of Lessor and the other Financing Parties; (ii) such replaced Part shall no longer be deemed a Part hereunder; (iii) title to the replacement Part shall thereupon vest in Lessor (subject to no Lien other than Permitted Liens), and (iv) such replacement Part shall become subject to this Lease and be deemed to be a Part hereunder and subject to the Lien of the Security Agreement to the same extent as the Parts originally incorporated in such Aircraft. 9.3 ALTERATIONS, MODIFICATIONS, AND ADDITIONS. Lessee will make (or cause to be made) such alterations, modifications and additions to each Aircraft as may be required during the Lease Term of such Aircraft to comply with the applicable standards of the FAA or any other Applicable Laws and Regulations ("Required Alterations"). In addition, Lessee may from time to time make such alterations and 12 modifications in and additions to an Aircraft as Lessee may deem desirable in the proper conduct of its business, including removal of Parts which Lessee deems to be obsolete or no longer suitable or appropriate for use on such Aircraft; provided that no such alteration, modification, removal or addition impairs the condition or airworthiness of such Aircraft, or diminishes the economic value, residual value, utility and remaining useful life of such Aircraft assuming such Aircraft was then in the condition required to be maintained by the terms of this Lease ("Improvements"). All parts incorporated or installed in or attached or added to any Aircraft as the result of such alteration, modification or addition (except those parts which Lessee has leased from others and Parts which may be removed by Lessee pursuant to the next sentence) (the "Additional Part" or "Additional Parts") shall, without further act, become the property of Lessor and subject to the Lien of the Security Agreement. Notwithstanding the foregoing, Lessee may, at any time during the Lease Term of any Aircraft, so long as no Lease Event of Default shall have occurred and be continuing, remove any Additional Part, provided that such Additional Part (i) is in addition to, and not in replacement of or substitution for, any Part originally incorporated or installed in or attached to such Aircraft at the time of delivery thereof hereunder or any Part in replacement of or substitution for any such Part, (ii) is not required to be incorporated or installed in or attached or added to such Aircraft pursuant to the terms of Section 8 hereof or the first sentence of this Section 9.3, and (iii) can be removed from such Aircraft without impairing the airworthiness of such Aircraft or diminishing the economic value, residual values utility and remaining useful life of such Aircraft which such Aircraft would have had at such time had such alteration, modification or addition not occurred. Upon the removal thereof as provided above, such Additional Part shall no longer be deemed the property of Lessor, subject to the Lien of the Security Agreement or part of the Aircraft from which it was removed. Any Additional Part not removed as above provided prior to the delivery of an Aircraft to Lessor or any other Person under the terms of Section 6.1 of this Lease shall remain the property of Lessor or such other Person. SECTION 10. LOSS, DESTRUCTION, REQUISITION, ETC. 10.1 RISK OF LOSS, DAMAGE OR DESTRUCTION. Lessee hereby assumes all risk of loss, damage, theft, taking, destruction, confiscation, requisition or commandeering, partial or complete, of or to any Aircraft, however caused or occasioned, such risk to be borne by Lessee with respect to such Aircraft from the Delivery Date with respect to such Aircraft, and continuing until such Aircraft has been delivered in accordance with the provisions of Section 6 hereof or purchased in accordance with Sections 21, 22 or 23 hereof. Lessee agrees that no occurrence specified in the preceding sentence shall impair, in whole or in part, any obligation of Lessee under this Agreement, including without limitation the obligation to pay Rent. 10.2 PAYMENT OF LEASE BALANCE. Upon the occurrence of an Event of Loss with respect to an Airframe, or such Airframe and the Related Engines and/or any other engine then installed thereon, during the Lease Term of such Airframe, the Lessee shall forthwith (and in any event within ten (10) Business Days after such occurrence) give Lessor and the Administrative Agent written notice of such Event of Loss 13 and of its election to perform one of the following options (it being agreed that if Lessee shall not have given Lessor and the Administrative Agent written notice of such election within such ten (10) Business Days after such occurrence, Lessee shall be deemed to have elected to perform the option set forth in the following clause (ii), provided that Lessee shall not have the right to select the option set forth in the following clause (i) if a Lease Event of Default or a Section 13(a), (d), or (f) Lease Default shall have occurred and be continuing and in such circumstance shall be deemed to have selected the option set forth in the following clause (ii): (i) As promptly as practicable, and in any event within sixty (60) days of the occurrence of such Event of Loss, the Lessee shall (x) with respect to an Event of Loss of an Airframe, convey or cause to be conveyed to Lessor pursuant to Section 10.3, and to be leased by Lessee hereunder in replacement for such Airframe, a Replacement Airframe, and (y) with respect to an Event of Loss to a Related Engine convey or cause to be conveyed to Lessor a replacement engine pursuant to Section 10.4 in replacement of such Related Engine, such Replacement Airframe or replacement engine to be free and clear of all Liens (other than Permitted Liens); provided that, if Lessee shall not perform its obligation to effect such replacement under this clause (i) during the period of time provided herein, then Lessee shall promptly give notice to Lessor, and shall be deemed (whether or not Lessee shall have so given such notice) to have elected to perform the option set forth in clause (ii) below by the date and pursuant to the terms specified in said clause (notwithstanding such Event of Loss, Lessee's obligation to pay Rent shall continue). (ii) On the Payment Date next following the earlier of sixty (60) days after the occurrence of such Event of Loss and the date of receipt of insurance proceeds in respect of such occurrence (the "Loss Payment Date"), Lessee shall pay Lessor the sum of (a) the Lease Balance of such Aircraft as of such Payment Date, plus (b) the Basic Rent due for such Aircraft on such Payment Date, plus (c) all accrued and unpaid Basic Rent therefor, plus (d) all Supplemental Rent, if any, then due and payable thereon. Upon payment in full of the amounts specified in clauses (a) through (d) of the preceding sentence, (1) the obligation of Lessee to pay Basic Rent hereunder with respect to such Aircraft shall terminate, (2) the Lease Term of such Aircraft shall end and (3) Lessor will transfer to Lessee, or Lessee's designee, at Lessee's expense, its title to such Aircraft on an "as-is, where-is and with all faults" basis, without recourse or any warranty, expressed or implied. 10.3 REPLACEMENT AIRFRAME. Prior to or at the time of any conveyance of a Replacement Airframe Lessee, at its own expense, will furnish, or cause to be furnished, to the Lessor and the Administrative Agent the following documents (in form and substance satisfactory to Lessor and the Administrative Agent) which shall have been duly authorized, executed and delivered by the respective parties thereto and shall be in full force and effect on the date of such conveyance: (i) a Lease Supplement and Security Agreement Supplement covering such Replacement Airframe which shall have been duly filed for recordation with the FAA; 14 (ii) a full warranty bill of sale (as to title) covering such Replacement Airframe and an FAA Bill of Sale covering such Replacement Airframe executed by the owner thereof in favor of Lessor; (iii) such Uniform Commercial Code financing statements as are deemed necessary or desirable by counsel for Lessor to protect the interests of Lessor and the Administrative Agent in such Replacement Airframe and in any sublease; (iv) an officer's certificate of Lessee certifying that such Replacement Airframe is in as good operating condition and repair as the Airframe it replaces assuming such Airframe had been maintained in the operating condition and repair required hereunder ; and (v) furnish a certificate signed by a duly authorized officer of Lessee providing; (i) a description of the Airframe which shall be identified by manufacturer, model, U.S. registration number and manufacturer's serial number; (ii) provides a description of the replacement airframe to be received (including the manufacturer, model, U.S. registration number and manufacturer's serial number); (iii) that on the date of the Lease Supplement relating to the Replacement Airframe Lessor will be the owner of such Replacement Airframe and that such Replacement Airframe will be subject to the Lien of the Security Agreement, in each case, free and clear of all Liens Permitted Liens and that such Replacement Airframe has been or, substantially concurrently therewith, will be duly registered under the Federal Aviation Act and that an airworthiness certificate has been duly issued under such Federal Aviation Act with respect to such Replacement Airframe, and that such registration and certificate is in full force and effect, and that Lessee will have the full right and authority to use such Replacement Airframe; (iv) the existence of the insurance (or self insurance) required by Section 11 hereof with respect to such Replacement Airframe and the payment of all premiums then due on any such insurance and (v) that each of the conditions specified in this Section 10.3 with respect to such Replacement Airframe have been satisfied. (vi) furnish the appropriate instruments assigning to Lessor the benefit of all manufacturer's and vendor's warranties generally available with respect to such replacement airframe or replacement engine. (vii) deliver a certificate from GRA Aviation Specialists, Inc. or another firm of independent aircraft appraisers reasonably satisfactory to Lessor with respect to the appraised economic value, residual value, utility and remaining useful life of the Replacement Aircraft and Administrative Agent. (viii) upon request by Lessor, Lessee shall furnish Lessor with (1) an opinion of counsel, to the effect that such bill of sale is sufficient to convey title to such Replacement Airframe to Lessor, free and clear of Liens (other than Permitted Liens), (2) an opinion of qualified FAA counsel as to the due recordation of the Lease Supplement and Security Agreement Supplement (in each case, if necessary) and all 15 other documents or instruments the recordation of which is necessary to perfect and protect the rights of Lessor and the Administrative Agent in such Replacement Airframe and Related Engines and (3) such evidence of compliance with the insurance provisions of Section 11 with respect to such Replacement Airframe as Lessor or the Administrative Agent may reasonably request. Upon full compliance by the Lessee with the terms of this Section 10.3, Lessor shall convey to Lessee, at Lessee's cost and expense, all of Lessor's right, title and interest, "as-is, where-is and with all faults", without recourse or warranty, express or implied, in and to such replaced Airframe, with respect to which such Event of Loss occurred and such replaced Airframe shall no longer be deemed an Airframe hereunder and shall cooperate with the Lessee in having the Administrative Agent release the Lien of the Security Documents with respect to such Aircraft and take such further action as reasonably requested by Lessee and at Lessee's sole cost and expense, to effect such transfer, including the transfer of any manufacturer's and maintenance provider's warranties covering such Aircraft. No Event of Loss with respect to an Airframe under the circumstances contemplated by the terms of this Section 10.3 shall result in any reduction in Rent or Lessee's obligation to pay Rent hereunder. The Lessee further agrees to take such further action as Lessor or the Administrative Agent may reasonably request with respect to such Replacement Airframe to perfect the interest of Lessor and the Administrative Agent in such Replacement Airframe. 10.4 EVENT OF LOSS WITH RESPECT TO A RELATED ENGINE. Upon the occurrence of an Event of Loss with respect to a Related Engine under circumstances in which there has not occurred an Event of Loss with respect to the Related Airframe (or an Event of Loss has occurred with respect to the Related Airframe and such Related Airframe is being replaced pursuant to Section 10.2(i)) then, the Lessee shall forthwith (and in any event within ten (10) Business Days after such occurrence) give Lessor written notice thereof and shall, within sixty (60) days after the occurrence of such Event of Loss, convey or cause to be conveyed to Lessor, as replacement for the Related Engine with respect to which such Event of Loss occurred, title to another engine of the same make and model as such Related Engine (or an engine of the same or another manufacturer of an equivalent or an improved model and in the case of a Related Engine, suitable for installation and use on its Related Airframe and compatible with the other Related Engine to such Related Airframe leased hereunder) free and clear of all Liens (other than Permitted Liens) and having an economic value, residual value, utility and remaining useful life at least equal to, and being in as good an operating condition, as the Related Engine subject to such Event of Loss (assuming that such Related Engine had been maintained in accordance with this Lease). Prior to or at the time of any such conveyance, Lessee will; (i) furnish Lessor with a warranty bill of sale, in form and substance reasonably satisfactory to Lessor and Administrative Agent, with respect to such replacement engine, 16 (ii) cause a Lease Supplement and Security Agreement Supplement with respect to such replacement engine to be duly executed and filed for recording pursuant to the Federal Aviation Act and take such further actions, including the filing of Uniform Commercial Code financing statements, necessary to protect the interest of the Lessor and the Administrative Agent in such Related Engine, (iii) furnish Lessor and Administrative Agent with an opinion of Lessee's counsel to the effect that such bill of sale is sufficient to transfer title to such engine, (iv) furnish a certificate signed by a duly authorized officer of Lessee providing (1) a description of the Related Engine which shall be identified by manufacturer's serial number; (2) a description of the replacement engine (including the manufacturer's name and serial number); (3) that on the date of the Lease Supplement relating to the replacement engine the Lessor will be the owner of such replacement engine and that such replacement engine will be subject to the Lien of the Security Agreement, in each case, free and clear of all Liens except Permitted Liens; and (4) that each of the conditions specified in this Section 10.4 below with respect to such replacement engine have been satisfied, and (v) furnish Lessor with such evidence of compliance with the insurance provisions of Section 11 hereof with respect to such replacement engine as Lessor may reasonably request. Upon full compliance by Lessee with all of the terms of this Section 10.4, Lessor will convey to Lessee, at Lessee's cost and expense, all of Lessor's right, title and interest, "as-is, where-is and with all faults", without recourse or warranty expressed or implied, in and to such Related Engine with respect to which such Event of Loss occurred and such replaced Related Engine shall no longer be deemed an Related Engine hereunder and shall cooperate with Lessee in having the Administrative Agent release the Lien of the Security Documents with respect to such Related Engine and take such further action as reasonably requested by Lessee and at Lessee's sole cost and expense to effect such transfer, including the transfer of any manufacturer's and maintenance provider's warranties covering such Related Engine. No Event of Loss with respect to a Related Engine under the circumstances contemplated by the terms of this Section 10.4 shall result in any reduction of Rent or Lessee's obligation to pay Rent hereunder. 10.5 APPLICATION OF OTHER PAYMENTS UPON EVENT OF LOSS. Except as set forth in Section 10.8 hereof, any payments (including without limitation insurance proceeds) received at any time by Lessor, Administrative Agent or by Lessee from any insurer, governmental authority or other party or insurer as a result of the occurrence of an Event of Loss will be applied as follows: (i) any such payments which in the aggregate are less than $2,000,000 shall be paid to or retained by the Lessee to satisfy its obligations under Section 10.2 hereof; and (ii) any such payments received at any time by Lessee which in the aggregate are greater than $2,000,000 shall be promptly paid to the Administrative Agent and so much of such payments as shall not exceed the amount of the Lease Balance for the Aircraft suffering such 17 Event of Loss and other amounts required to be paid by Lessee pursuant to Section 10.2 hereof shall be applied by the Administrative Agent in reduction of Lessee's obligation to pay such amounts, if not already paid by Lessee, or, if already paid by Lessee, shall be applied to reimburse Lessee for its payment of such amounts and the balance, if any, of such payments remaining thereafter shall be paid to or retained by Lessee. 10.6 APPLICATION OF PAYMENTS NOT RELATING TO AN EVENT OF LOSS. Any payments (including without limitation insurance proceeds) received at any time by Lessor, Administrative Agent or Lessee from any insurer, governmental authority or other party with respect to any condemnation, confiscation, theft or seizure of, or requisition of title to or use of, or loss or damage to any Airframe or Related Engine not constituting an Event of Loss, will be applied directly in payment of repairs or for replacement of property in accordance with the provisions of Sections 8 and 9 hereof, if not already paid by the Lessee, or if already paid by Lessee and subject to the provisions of Section 10.8 hereof, shall be applied to reimburse Lessee for such payment, and any balance remaining after compliance with said Sections with respect to such loss or damage shall be paid to Lessee. 10.7 REQUISITION FOR USE. In the event of a requisition for use by any government during the Lease Term (so long as it shall not constitute an Event of Loss) of any Aircraft, Lessee shall promptly notify Lessor and the Administrative Agent of such requisition and all of Lessee's obligations under this Lease shall continue to the same extent as if such requisition had not occurred. Subject to the provisions of Section 10.8 hereof, any payments received by Lessor or Lessee from such government with respect to such requisition of use during such Lease Term shall be paid over to, or retained by, Lessee. In the event of an Event of Loss of an Airframe or Related Engine resulting from the requisition for use by a government of such Airframe or Related Engine, the Lessee may, if it shall be so entitled to pursuant to the provisions of Section 10, replace such Airframe or Related Engine hereunder by complying with the terms of Sections 10.3 and 10.4, as applicable, and any payments received by Lessor or Lessee from such government with respect to such requisition shall be paid over to, or retained by, Lessee; provided that, Lessor may hold any such payment as security for the performance of Lessee's obligations under Sections 10.3 and 10.4, as applicable, with respect to such Event of Loss and shall release the same upon completion of, or in connection with a closing for, such replacement. 10.8 APPLICATION OF PAYMENTS DURING EXISTENCE OF SIGNIFICANT DEFAULTS AND LEASE EVENTS OF DEFAULT. Any amount referred to in this Section 10 which is payable to or retainable by Lessee shall not be paid to or retainable by Lessee if at the time of such payment or retention a Significant Default or a Lease Event of Default shall have occurred and be continuing, but shall be held by or paid over to the Administrative Agent as security for the obligations of the Lessee under this Lease and upon the written request of the applicable Lessee, or at the option of the Lessor, applied against such obligations as and when due. At such time as there shall not be continuing any such Significant Default or Lease Event of Default or after the exercise of 18 remedies hereunder all of the obligations of Lessee hereunder and under the other Operative Documents shall have been fully and indefeasably satisfied, such amount shall be paid to the applicable Lessee to the extent not previously applied in accordance with the preceding sentence. SECTION 11. INSURANCE. 11.1 BODILY INJURY LIABILITY AND PROPERTY DAMAGE LIABILITY INSURANCE. Subject to the right to self insure to the extent permitted by Section 11.4, Lessee will at all times throughout the Lease Term for each Aircraft carry and maintain or cause to be carried and maintained with insurers of recognized responsibility with respect to such Aircraft, comprehensive aircraft liability insurance including passenger legal liability, property damage liability, and contractual liability (exclusive of manufacturer's product liability insurance) in an amount not less than $50,000,000 per occurrence for each Aircraft of the type and covering the same risks and in the same amounts as from time to time applicable to aircraft owned or leased by Lessee and customary for corporations in the industry for similarly situated lessees. 11.2 INSURANCE AGAINST LOSS OR DAMAGE TO AN AIRCRAFT. Subject to the provisions of Section 11.4 permitting self-insurance, Lessee shall at all times throughout the Lease Term for each Aircraft carry and maintain or cause to be carried and maintained in effect with insurers of recognized responsibility, with respect to such Aircraft, "all risk" aircraft hull insurance covering such Aircraft including coverage of Related Engines and Parts while temporarily removed from such Aircraft and not replaced by similar components, including, without limitation, war risk and governmental confiscation and expropriation and hijacking insurance, if and to the extent (x) the same is maintained by Lessee (or any sublessee) with respect to other aircraft owned, leased, or operated by Lessee (or such sublessee) on the same routes or (y) such Aircraft is operated in any recognized or threatened areas of hostilities, and fire, transit and extended coverage with respect to any Related Engines while removed from such Aircraft provided, that such insurance shall at all times while such Aircraft is subject to this Lease be for an amount (taking into account self-insurance to the extent permitted by Section 11.4) not less than the Lease Balance for such Aircraft. In the case of a loss with respect to an engine (other than a Related Engine) installed on an Airframe, Lessor shall hold any payment received by it of any insurance proceeds in respect of such loss for the account of Lessee or any other third party to the extent Lessee or such third party is entitled to receive such proceeds. Except during a period when a Lease Event of Default or a Significant Default has occurred and is continuing (in which case all losses will be adjusted by the loss payee), all losses will be adjusted with the insurers by Lessee. As between Lessor, the Administrative Agent and Lessee it is agreed that all insurance payments received as the result of an Event of Loss will be applied in accordance with the provisions of Section 10 hereof. 19 11.3 REPORTS, ETC. Lessee will furnish, or cause to be furnished, to Lessor and each other Additional Insured on or before the Delivery Date of any Aircraft and on or before the renewal dates of Lessee's (or the sublessee's) relevant insurance policies during the Lease Term, a report, signed by (a) recognized independent firm of insurance brokers, which brokers may be regularly retained by Lessee (the "Insurance Brokers"), describing in reasonable detail the hull and liability insurance (and property insurance for detached engines and Related Engines) then carried and maintained with respect to the Aircraft. Lessee will cause such Insurance Brokers to agree to advise Lessor and each other Additional Insured in writing of any default in the payment of premium and to advise Lessor and each other Additional Insured at least thirty (30) days (seven (7) days in the case of any war risk and allied perils coverage) prior to the cancellation or material adverse change of any insurance maintained pursuant to this Section 11, provided that if the notice period specified above is not obtainable, the Insurance Brokers shall provide for as long a period of prior notice as shall then be obtainable. In addition, Lessee will also cause such Insurance Broker to deliver to Lessor and each other Additional Insured on or prior to the date of expiration of any insurance policy referenced in a previously delivered certificate of insurance, a new certificate of insurance, substantially the same as delivered by Lessee to such parties on the Delivery Date of the Aircraft to which it relates except for the changes in the report or the coverage consistent with the terms hereof. In the event that Lessee shall fail to maintain or cause to be maintained insurance as herein provided, Lessor may at its sole option provide such insurance and, in such event, Lessee shall, upon demand, reimburse Lessor as Supplemental Rent for the cost thereof. 11.4 SELF-INSURANCE. Lessee may self-insure, by way of deductible, premium adjustment provisions in insurance policies, or otherwise, under a program applicable to all aircraft in Lessee's fleet, the risks required to be insured against pursuant to Sections 11.1 and 11.2 but in no case shall the self-insurance with respect to any Aircraft exceed $500,000 per occurrence; provided, however, that nothing contained in this Section 11.4 limiting Lessee's right to self-insure shall be deemed to apply to any minimum per aircraft (or, if applicable, per policy period or per annum), hull or liability insurance deductible imposed by the hull or liability insurers. 11.5 ADDITIONAL INSURANCE BY LESSOR AND LESSEE. Lessee may at its own expense carry insurance with respect to its interest in an Aircraft in amounts in excess of that required to be maintained by this Section 11 and proceeds of such insurance shall be payable directly to Lessee. The Lessor and any other Additional Insured each may carry for its own account at its sole cost and expense insurance with respect to its interest in an Aircraft, provided that such insurance does not prevent Lessee from carrying the insurance required or permitted by this Section 11 or adversely affect such insurance provided hereunder or the cost thereof. 20 11.6 INDEMNIFICATION BY GOVERNMENT IN LIEU OF INSURANCE. Notwithstanding any provisions of this Section 11 requiring insurance, Lessor agrees to accept, in lieu of insurance against any risk with respect to an Aircraft, indemnification from, or insurance provided by, the government of the United States of America or any agency or instrumentality thereof the obligations of which are supported by the full faith and credit of the government of the United States of America, against such risk in an amount which, when added to the amount of insurance against such risk maintained by Lessee shall be at least equal to the amount of insurance against such risk otherwise required by this Section 11 (taking into account self insurance permitted by Section 11.4). Lessee shall furnish, in advance of attachment of such indemnity or insurance, if practical to do so, a certificate of a responsible financial or legal officer of Lessee confirming in reasonable detail the amount and scope of such indemnification or insurance and that such indemnification or insurance complies with the preceding sentence. 11.7 TERMS OF INSURANCE POLICIES. Any policies carried in accordance with Sections 11.1 and 11.2 covering an Aircraft, and any policies taken out in substitution or replacement for any such policies, as applicable, (1) shall name the Lessor and each other Financing Party as additional insureds (the "Additional Insureds"), as their interests may appear, (2) shall name the Administrative Agent as sole loss payee to the extent provided in clause (12) below, (3) may provide for self-insurance to the extent permitted in Section 11.4, (4) shall provide that if the insurers cancel such insurance for any reason whatsoever or if any material change is made in the insurance which adversely affects the interest of any Additional Insured, such cancellation or change shall not be effective as to the Additional Insureds for thirty (30) days after receipt by (but, in the case of any war risk and allied perils coverage, and failure to pay premium seven (7) days and ten (10) days, respectively, after sending to) the Additional Insureds of written notice by such insurers of such cancellation or change, provided, however, that if any notice period specified above is not obtainable, such policies shall provide for as long a period of prior notice as shall then be obtainable, (5) shall provide that in respect of the Additional Insureds' interest in such policies the insurance shall not be invalidated by any action or inaction of Lessee (or any sublessee) and shall insure the respective interests of the Additional Insureds regardless of any breach or violation of any warranty, declaration or condition contained in such policies by Lessee (or any sublessee), (6) shall be primary without any right of contribution from any other insurance which is carried by any Additional Insured, (7) shall expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if a separate policy covered each insured, (8) shall waive any right of the insurers of subrogation or to set-off or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of any Additional Insured, (9) shall provide that losses (other than for total loss of the Aircraft) shall be adjusted with Lessee (or, if a Lease Event of Default or Significant Default shall have occurred and be continuing, with the Administrative Agent), (10) shall provide that the Additional Insureds are not liable for any insurance premiums, (11) shall be effective with respect to both domestic and international operations, (12) shall provide that (i) except as specified in subclause (ii) of this clause (12), in the event of a loss involving proceeds in excess of $2,000,000, all proceeds in respect of such loss shall be payable to the Administrative Agent to be held by the Administrative Agent (whether such payment is made to Lessee (or any sublessee) 21 or any third party) and applied in accordance with the provisions of Section 10.5 hereof, it being understood and agreed that in the case of any proceeds payable to the Administrative Agent other than in respect of an Event of Loss of the Aircraft, the Administrative Agent shall, upon receipt of evidence reasonably satisfactory to it that the damage giving rise to such payment shall have been repaired or that such payment shall then be required to pay for repairs then being made or the replacement of property, apply the amount of such proceeds in accordance with the provisions of Section 10.6, and (ii) notwithstanding any language to the contrary contained herein, if a Significant Default or Lease Event of Default shall have occurred and be continuing and the insurers have been notified thereof by the Administrative Agent, all proceeds of loss shall be payable to the Administrative Agent and (13) if war risk coverage is maintained, shall contain a 50/50 clause per AVS 103. SECTION 12. INSPECTION. During the Lease Term with respect to any Aircraft, Lessee shall furnish to Lessor and any Participant such information as Lessee possesses or is available to it concerning the location, condition, use, and operation of such Aircraft as Lessor or such Participant reasonably requests. Lessee shall permit, and use reasonable efforts to cause each sublessee to permit, any person designated in writing by Lessor, at Lessor's expense (except during the occurrence and continuation of a Lease Event of Default or a Significant Default, in which case at Lessee's cost and expense), to visit and inspect (at any reasonable time upon reasonable notice, provided that such inspection shall not unreasonably interfere in any respect with Lessee's operation or maintenance of any Aircraft and provided further that, unless a Lease Event of Default or a Significant Default is continuing, Lessor shall be limited to one such inspection during any period of twelve (12) consecutive months) each Aircraft and the records maintained in connection therewith and except, at Lessor's expense (except during the occurrence and continuation of a Lease Event of Default or a Significant Default, in which case at Lessee's cost and expense), to make copies of such records as Lessor may reasonably designate. Neither Lessor nor any Participant shall have any duty to make any such inspection or incur any liability or obligation by reason of not making any such inspection. Upon written request from Lessor or the Administrative Agent, Lessee shall provide Lessor or the Administrative Agent, as the case may be, with the anticipated dates of any scheduled maintenance visit involving any Aircraft within the four-month period following such request. SECTION 13. EVENTS OF DEFAULT. The term "Lease Event of Default", wherever used herein, shall mean any of the following events under this Lease, whatever the reason for such Lease Event of Default and whether it shall be voluntary or involuntary, or come about or be effected by operation of law, or be pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation or any administrative or governmental body: (a) Payment. Lessee shall fail to make (i) any payment of Basic Rent within three (3) Business Days after the same is due and payable or (ii) any payment of Supplemental Rent within ten (10) days after receipt of written notice to Lessee that the same is due and payable; or 22 (b) Certain Covenants. Lessee shall fail to observe or perform any of the covenants or agreements of Lessee set forth in Sections 6, 10.2(ii), 11, 21, 22 or 23 hereof; or (c) Other Covenants. Lessee shall fail to perform or observe any other covenant, condition, or agreement to be performed or observed by it under this Lease, or in any agreement or certificate executed and delivered by Lessee to any Financing Party in connection with the transactions evidenced by the Operative Documents, and such failure shall continue unremedied for 30 days after written notice to Lessee specifying such failure and demanding the same to be remedied; provided, however, that if Lessee shall have undertaken to cure any such failure and, notwithstanding the reasonable diligence of Lessee in attempting to cure such failure, such failure is not cured within said 30 days period but is curable with future due diligence, there shall exist no Lease Event of Default under this Section 13 for such further time, not to exceed 30 days, as may reasonably be required to effect such cure, so long as Lessee is proceeding with due diligence to cure such failure; or (d) Bankruptcy; Insolvency. An Insolvency Event with respect to Lessee shall occur; or (e) Misrepresentation. Any representation, warranty, statement or certification made by Lessee under this Lease or in any other Operative Document to which Lessee is a party or in any document or certificate executed and delivered by Lessee to any Financing Party in connection herewith or pursuant hereto shall prove to be untrue or incorrect in any material respect when made, or shall be breached in any material respect and, in each case, shall remain material at the time of discovery; or (f) Cross Default. An "Event of Default" (as therein defined) under the Credit Agreement shall have occurred and be continuing. SECTION 14. REMEDIES. 14.1 REMEDIES. (a) Remedial Options. Upon and after the occurrence and during the continuance of any Lease Event of Default, Lessor may, at its option, at any time thereafter, exercise one or more of the following remedies, as Lessor in its sole discretion shall lawfully elect (and in any event, upon the occurrence of an Insolvency Event, clause (i) below shall apply without demand by Lessor): (i) demand that Lessee forthwith pay as liquidated damages, for loss of a bargain and not as a penalty, an amount equal to the aggregate Lease Balance for all the Aircraft then subject to this Lease and leased by it together with all Rent and other amounts due and payable by it for all periods up to and including the Payment Date following the date on which such Lease Event of Default occurred and upon receipt of such payment thereof, Lessor shall promptly transfer "as is," "where is," all of its right, title and interest in and to such Aircraft to Lessee free of Certificate Trustee Liens; (ii) demand that Lessee pay, and Lessee shall thereafter promptly pay, all amounts due for failure to maintain and/or return the Aircraft as provided herein and cause Lessee to assign to Lessor Lessee's rights under any warranty in force for the Aircraft; (iii) proceed by appropriate court action, either at law or in equity, to enforce the performance by 23 Lessee of the applicable covenants, agreements, or other obligations of the Operative Documents or to recover damages for breach hereof; (iv) by notice in writing terminate this Lease, whereupon all rights of the Lessee to use of the Aircraft shall absolutely cease and terminate, and Lessee shall forthwith deliver the Aircraft to Lessor or its designees in accordance with Section 6; (v) lawfully enter the premises, with or without legal process, where any Aircraft is believed to be and take possession thereof; (vi) sell or otherwise dispose of any Aircraft in accordance with the Uniform Commercial Code of New York at private or public sale, in bulk or in parcels, with or without notice, and without having such Aircraft present at the place of sale; (vii) lease or keep idle all or part of any Aircraft; and (viii) collect from the Lessee all costs, charges and expenses, including reasonable legal fees and disbursements, incurred by Lessor and any other Financing Party by reason of the occurrence of any Lease Event of Default or the exercise of Lessor's remedies with respect thereto. In the event that Lessor sells the Aircraft pursuant to this section and receives net proceeds therefrom in excess of all amounts due hereunder and under the Operative Documents, Lessee shall be entitled to its respective valuable interest in such excess. (b) Cumulative Remedies. The foregoing remedies are cumulative, and any or all thereof may be exercised in lieu of or in addition to each other or any remedies at law, in equity, or under statute. (c) Application of Proceeds from Aircraft. Lessor shall have the right to receive for application any proceeds of sale, lease or other disposition of any Aircraft, if any, and shall have the right to apply same in the following order of priorities: (i) to pay all of any Financing Party's costs, charges and expenses incurred in enforcing its respective rights hereunder or in taking, removing, holding, repairing, selling, leasing or otherwise disposing of the Aircraft; then, (ii) to the extent not previously paid by Lessee, to pay all sums due and owing or accrued from Lessee pursuant to the Operative Documents; then (iii) any remaining balance shall be paid to Lessee. (d) Limited Effect of Waiver. Waiver of any Lease Event of Default shall not be a waiver of any other or subsequent Lease Event of Default. Lessor's effecting compliance in accordance with Section 16 hereof shall not constitute a waiver of a Lease Event of Default. The failure or delay of Lessor in exercising any rights granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by Lessor shall not exhaust the same or constitute a waiver of any other right provided for in this Lease. (e) Obligation for Supplemental Rent. In addition, Lessee shall be liable in accordance with the provisions of Section 3.3 hereof for any and all unpaid Supplemental Rent due hereunder before or during the exercise of any of the foregoing remedies, and for reasonable legal fees and other costs and expenses incurred by any Financing Party by reason of the occurrence of any Lease Event of Default or the exercise of Lessor's remedies with respect thereto, including without limitation the repayment in full of any costs and expenses necessary to be expended in repairing any Aircraft in order to cause it to be in compliance with all maintenance standards imposed by this Lease and all Applicable Laws and Regulations and all other costs and expenses, including without limitation reasonable legal fees, involved in any 24 appearance by any Financing Party in any bankruptcy or insolvency proceeding with respect to Lessee. SECTION 15. FURTHER ASSURANCES; EXPENSES. 15.1 FURTHER ASSURANCES. Lessee will duly execute and deliver to the Lessor and the Administrative Agent such further documents and assurances and take such further action as may be required by Applicable Laws and Regulations in order to effectively establish and protect the rights and remedies created in favor of such parties hereunder and under the Operative Documents, including without limitation the execution and delivery of supplements or amendments hereto and to the Operative Documents in recordable form and such filings as are required or desirable to Lessor or the Administrative Agent to maintain the right, title and interest of Lessor in and to the Aircraft and the remainder of the Trust Estate and to maintain the validity and perfection of the Lien of the Security Agreement on the Collateral, or as Lessor or the Administrative Agent may from time to time deem reasonably advisable; provided, that in connection with the foregoing Lessee shall also take such further action as is reasonably requested by Lessor or the Administrative Agent. 15.2 EXPENSES. Lessee will pay all reasonable out of pocket costs, charges and expenses (including without limitation reasonable attorneys' fees and expenses) incident to any filing, refiling, recording and rerecording or depositing and redepositing of any instruments or incident to the taking of action in accordance with Section 15.1. SECTION 16. LESSOR'S RIGHT TO PERFORM. If Lessee fails to make any payment required to be made by it hereunder or fails to perform or comply with any of its other agreements contained herein which requires the payment of money, Lessor may itself make such payment or perform or comply with such agreement which requires the payment of money, after giving prior written notice thereof to Lessee, but Lessor shall not be obligated hereunder to do so, and the amount of such payment, together with interest thereon at the Overdue Rate, to the extent permitted by Applicable Laws and Regulations, shall be deemed to be Supplemental Rent, payable by Lessee to Lessor within 30 days after written demand. SECTION 17. ASSIGNMENT BY LESSOR. Lessee and Lessor hereby confirm that concurrently with the execution and delivery of this Lease, Lessor has executed and delivered, to the Administrative Agent, the Security Agreement, which is intended to assign as collateral security and grant a Lien in favor of the Administrative Agent in, to and under (among other things) this Lease and the Rent payable hereunder (excluding Excluded Amounts), all as more explicitly set forth in the Security Agreement. Lessor agrees that it shall not otherwise assign or convey its right, title and interest in and to this Lease and the Rent payable hereunder or any other part of the Collateral, except (a) 25 as expressly permitted by and subject to the provisions of the Participation Agreement, the Trust Agreement and the Security Agreement or (b) following the discharge of the Lien of the Security Agreement in accordance with its terms. Lessee hereby consents to such assignment and to the creation of such Lien and consents to the terms and provisions thereof. Lessee (x) acknowledges that the Security Agreement provides for the exercise by the Administrative Agent of all rights of Lessor hereunder to give any consents, approvals, waivers, notices or the like, to make any elections, demands or the like (excluding with regard to the Excluded Amounts), (y) acknowledges receipt of an executed counterpart of the Security Agreement as in effect on the date hereof and consents to all of the provisions thereof and (z) agrees that, to the extent provided in the Security Agreement, the Administrative Agent shall have all the rights of Lessor hereunder (excluding such rights relating to any Excluded Amounts) as if the Administrative Agent had originally been named as Lessor herein, to the extent provided in the Security Agreement. Notwithstanding any provision of this Lease or any other Operative Document but without prejudice to Lessor's rights expressly provided for in the Security Agreement, so long as Lessor's interest in this Lease and the Rent payable hereunder (excluding the Excluded Amounts) is subject to the Lien of the Security Agreement, Lessee shall make all payments of Rent (excluding Excluded Amounts) to the Administrative Agent to such account as the Administrative Agent may specify to the Lessee from time to time for distribution in accordance with the terms of the Operative Documents, and the obligation of Lessee to make all such payments shall not be subject to any defense, counterclaim, setoff or other right or claim of any kind which Lessee may be able to assert against Lessor, or any other Financing Party in any action regarding this Lease or otherwise. SECTION 18. NET LEASE, ETC. This Lease is a net lease and Lessee's respective obligation to pay all Rent payable by it hereunder shall be absolute, unconditional and irrevocable and shall not be affected by any circumstance of any character including without limitation (a) any set-off, abatement, counterclaim, suspension, recoupment, reduction, rescission, defense or other right that Lessee may have against Lessor or any other Person for any reason whatsoever, (b) any defect in title, merchantability, condition, design, compliance with specifications, operation or fitness for use of all or any part of any Aircraft, or any interruption or cessation in or prohibition of the use or possession of any Aircraft for any reason whatsoever, (c) any damage to, or removal, abandonment, requisition, taking, condemnation, loss, theft or destruction of all or any part of any Aircraft or any interference, interruption, restriction, curtailment or cessation in the use or possession of any Aircraft by Lessee or any other Person for any reason whatsoever or of whatever duration, (d) any insolvency, bankruptcy, reorganization or similar proceeding by or against Lessee, Lessor or any other Person, (e) the invalidity, illegality or unenforceability of this Lease, any other Operative Document, or any other instrument referred to herein or therein or any other infirmity herein or therein or any lack of right, power or authority of Lessee to enter into this Lease or any other Operative Document to which it is a party or to perform the obligations hereunder or thereunder or consummate the transactions contemplated hereby or thereby or any doctrine of force majeure, impossibility, frustration or failure of consideration, or (f) any other circumstance or happening whatsoever, foreseeable or unforeseeable, whether or not similar to any of the foregoing. To the extent permitted by Applicable Laws and 26 Regulations, Lessee hereby waives any and all rights which it may now have or which at any time thereafter may be conferred upon it, by law or otherwise, to terminate, cancel, quit or surrender this Lease with respect to any Aircraft, except in accordance with the express terms hereof. Each payment of Rent made by Lessee hereunder shall be final and Lessee shall not seek or have any right to recover all or any part of such payment from Lessor or any other Person for any reason whatsoever. If for any reason whatsoever this Lease shall be terminated by operation of law or otherwise except as expressly provided herein, Lessee shall nonetheless pay an amount equal to each Rent payment at the time and in the manner that such payment would become due and payable hereunder if this Lease had not been terminated. SECTION 19. NOTICES. Unless otherwise specifically provided herein, all notices required or permitted by the terms hereof shall be given in the manner provided in the Participation Agreement. SECTION 20. ASSIGNMENT, SUBLEASE OR TRANSFER. EXCEPT AS OTHERWISE PROVIDED HEREIN, LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR AND THE ADMINISTRATIVE AGENT (WHICH SHALL BE GIVEN OR WITHHELD IN SUCH PARTY'S REASONABLE DISCRETION), ASSIGN, SUBLEASE OR OTHERWISE TRANSFER ITS RIGHTS OR OBLIGATIONS WITH RESPECT TO ANY AIRCRAFT, HEREUNDER OR UNDER ANY OF THE OTHER OPERATIVE DOCUMENTS EXCEPT AS EXPRESSLY PERMITTED BY THE TERMS OF THIS LEASE, AND ANY ATTEMPTED ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE WITHOUT SUCH CONSENT SHALL BE NULL AND VOID. SECTION 21. EARLY TERMINATION OPTIONS; OBLIGATION TO PURCHASE; SUBSTITUTION. 21.1 EARLY TERMINATION OPTIONS. (a) Without limitation of Lessee's purchase obligation pursuant to Section 21.2, provided no Lease Default under Section 13(d) hereof or Lease Event of Default shall have occurred and be continuing, Lessee may on any Payment Date after the first anniversary of the Closing Date (or such earlier Payment Date if an Insolvency Event (as such term is defined in the LAPA) occurs with respect to the CP Lender or if the Commercial Paper Notes are not rated at least A-1 by S&P and P-1 by Moody's) terminate the Lease Term with respect to all or any Aircraft upon providing written notice of the date of such termination (the "Voluntary Termination Date") to Lessor at least thirty (30) days (but no more than 45 days) prior to the Voluntary Termination Date. Lessee may exercise such early termination option (the "Voluntary Termination Option") to the extent on the Voluntary Termination Date designated for such sale, the Lessee pays to Lessor the Purchase Amount for such Aircraft (in good, immediately available funds). Upon receipt of all funds then due and owing to Lessor hereunder, Lessor shall transfer all of its right, title and interest in and to such Aircraft to Lessee on an "as-is," "where-is" and "with all faults" basis free of Certificate Trustee Liens and deliver a bill of sale and all other 27 documentation reasonably necessary to transfer all of Lessor's right, title and interest in and to such Aircraft and shall cooperate with the Lessee in having the Administrative Agent release the Lien of the Security Documents with respect to such Aircraft and take such further action as reasonably requested by Lessee and at Lessee's sole cost and expense to effect such transfer, including the transfer of any manufacturer's and maintenance provider's warranties covering such Aircraft. (b) Provided no Lease Default under Section 13(d) hereof or Lease Event of Default shall have occurred and be continuing, the Lessee may, upon providing Lessor with thirty (30) days (but no more than 45 days) irrevocable prior written notice, on any Payment Date (the "Early Sale Option Date"), terminate the Lease Term with respect to all or any Aircraft and sell such Aircraft on behalf of Lessor for cash to a purchaser or purchasers on an "as-is", "where-is" and "with all faults" basis, without recourse to or representation or warranty by Lessor, except for a warranty against Certificate Trustee Liens. Lessee shall within five (5) Business Days of the Early Sale Option Date of any Aircraft certify to Lessor in writing the amount and terms of such sale and the name and address of the party or parties acquiring such Aircraft. Any sale of any Aircraft pursuant to this Section 21.1(b) shall be completed on the Early Sale Option Date for such Aircraft and if such sale is not completed on such date, Lessee shall be deemed to have elected the Voluntary Termination Option with respect to such Aircraft for such date and comply with the provisions of Section 21.1(a) hereof as if such option had been elected. Lessee shall bear its own expense and pay the reasonable expenses of Lessor and each Financing Party in connection with any such sale process pursuant to this Section 21.1(b). None of the foregoing costs or expenses shall be deducted from the Sale Proceeds or serve to reduce the purchase price to be paid for any Aircraft. On the Early Sale Option Date with respect to any Aircraft, the Lessor shall, at the Lessee's expense, and subject to receipt by the Lessor and each other Financing Party of all amounts due and owing to it by the Lessee hereunder and under the other Operative Documents, convey to the Lessee or its designee all right, title and interest of Lessor in and to such Aircraft, "as-is", "where-is", and "with all faults", without recourse to or representation or warranty by Lessor, except for a warranty against Certificate Trustee Liens, and shall execute and deliver to Lessee or its designee bills of sale and such other appropriate instruments of transfer reasonably requested by Lessee to evidence such conveyance and shall cooperate with the Lessee in having the Administrative Agent release the Lien of the Security Documents with respect to such Aircraft and take such further action as reasonably requested by Lessee and at Lessee's sole cost and expense to effect such transfer, including the transfer of any manufacturer's and maintenance provider's warranties covering such Aircraft. Lessee may make any other representation or warranty to the buyer at Lessee's own risk. All sale proceeds shall be paid to Lessor. As a condition to Lessee's rights hereunder, Lessee shall obtain all necessary governmental consents and approvals and make all governmental filings required by Lessee or Lessor in connection with such sale. No Financing Party shall have any responsibility for procuring any purchaser. On the Early Sale Option Date of any Aircraft, Lessee shall pay to Lessor all Rent then due together with all other amounts due and payable by Lessee to Lessor, any Financing Party or any Indemnitee under the Operative Documents. Lessor shall retain from the aggregate net Sale Proceeds with respect to any Aircraft an amount equal to the aggregate outstanding Lease Balance for such Aircraft as of such Early Sale Option Date (as determined after the payment of 28 all Rent due on such date). If the net Sale Proceeds with respect to any Aircraft actually and irrevocably received by Lessor exceed the Lease Balance for such Aircraft as of the relevant Expiration Date plus any unpaid Rent due and owing on such date, Lessor shall pay to the Lessee the portion of such net Sale Proceeds in excess thereof. If the net Sale Proceeds with respect to any Aircraft are less than the aggregate outstanding Lease Balance for such Aircraft, the Lessee shall pay or shall cause to be paid to Lessor, as Supplemental Rent, on the Early Sale Option Date, in addition to such net Sale Proceeds, an amount equal to the amount by which the Lease Balance for such Aircraft exceeds such net Sale Proceeds actually and irrevocably received by Lessor. The obligation of Lessee to pay the amounts determined pursuant to this Section 21.1(b) shall be recourse obligations of Lessee. 21.2 REQUIRED PURCHASE. Provided that Lessor has not exercised any other remedy inconsistent therewith, Lessee shall be obligated to purchase the Aircraft then subject to this Lease for the Purchase Amount (a) automatically and without notice upon the occurrence and during the continuation of any Lease Event of Default arising as a result of an Insolvency Event and (b) immediately upon written demand of Lessor upon the occurrence and during the continuation of any other Lease Event of Default. Upon payment to the Lessor of the Purchase Amount, Lessor shall transfer its right, title and interest in such Aircraft to the Lessee pursuant to Section 23.2 hereof. 21.3 REPLACEMENT OF AIRCRAFT. Lessee shall have the option, provided no Significant Default or Lease Event of Default shall have occurred and be continuing, to replace an Aircraft originally leased under this Lease upon providing written notice of the date of such replacement (the "Replacement Date") to Lessor at least ninety (90) days (but no more than 120 days) prior to the Replacement Date. On the Replacement Date, Lessee shall convey or cause to be conveyed to Lessor, in accordance with Sections 10.3 and 10.4 hereof, as if an Event of Loss had occurred to the Aircraft being replaced, a Replacement Airframe and replacement engines, free and clear of all Liens (other than Permitted Liens). Upon full compliance by Lessee with the terms of this Section 21.3, Lessor shall convey to Lessee, at Lessee's cost and expense, all of Lessor's right, title and interest, "as is", "where is" and "with all faults" without recourse or warranty, express or implied, in and to such Aircraft being replaced, and such Aircraft shall no longer be deemed an "Aircraft" hereunder, and shall cooperate with the Lessee in having the Administrative Agent release the Lien of the Security Documents with respect to such Aircraft and take such further action as reasonably requested by Lessee and at Lessee's sole cost and expense to effect such transfer, including the transfer of any manufacturer's and maintenance provider's warranties covering such Aircraft. No replacement of an Aircraft pursuant to this Section 21.3 shall result in any reduction of Rent or Lessee's obligation to pay Rent hereunder. 29 SECTION 22. END OF TERM OPTIONS; EARLY PURCHASE OPTIONS. 22.1 END OF TERM OPTIONS. At least ninety (90) days before the scheduled expiration date of the Lease Term of any Aircraft, Lessee shall, by delivery of written notice to Lessor and the Administrative Agent, exercise one of the following options with respect to such Aircraft: (a) Renew this Lease with respect to such Aircraft for an additional one-year Renewal Term (the "Renewal Option") on the terms and conditions set forth herein and in the other Operative Documents; provided that the Renewal Option shall not be available for any Aircraft at the end of the second (2nd) Renewal Term of such Aircraft; or (b) Purchase for cash in the amount of the Purchase Amount for such Aircraft on the last day of the Lease Term for such Aircraft (the "Purchase Option"); and if Lessee shall have elected the Purchase Option, with respect to such Aircraft Lessor shall, upon the payment to Lessor of the Purchase Amount for each such Aircraft, convey to Lessee or its designee all right, title and interest of Lessor in and to such Aircraft, "as-is", "where-is", and "with all faults", without recourse to or representation or warranty by Lessor, except for a warranty against Certificate Trustee Liens, and shall execute and deliver to Lessee or its designee bills of sale and such other appropriate instruments of transfer reasonably requested by Lessee to evidence such conveyance and shall cooperate with the Lessee in having the Administrative Agent release the Lien of the Security Documents with respect to such Aircraft. (c) Sell on behalf of Lessor for cash to a purchaser or purchasers not in any way affiliated with Lessee or any of its Affiliates such Aircraft then subject to this Lease (and not subject to an Event of Loss or subject to an event or condition which with notice or lapse of time or both would become an Event of Loss) on the last day of the Lease Term for such Aircraft and simultaneously pay the Lessor all of the proceeds of such sale (the "Sale Option"). Lessee's right to sell any Aircraft pursuant to the Sale Option shall be conditioned upon and subject to (i) the fulfillment by Lessee of each of the terms and conditions set forth in Section 23 and (ii) there not being at the time of such sale any existing subleases relating to such Aircraft. Following Lessee's election of the Sale Option, Lessee shall not remove any Additional Parts. 22.2 ELECTION OF OPTIONS. To the extent that the Renewal Option is available for any Aircraft, and unless Lessee shall have affirmatively elected in accordance with the provisions hereof the Purchase Option or the Sale Option with respect to any Aircraft with the same Base Term Expiration Date, Lessee shall be deemed to have elected the Renewal Option for such Aircraft. To the extent that the Renewal Option is not available for any reason, unless Lessee shall have (a) affirmatively elected the Sale Option within the time period provided for in Section 22.1 and (b) satisfied each of the requirements in Section 23, Lessee shall be deemed to have elected the Purchase Option with respect to such Aircraft. In addition, the Sale Option shall automatically be revoked, if there exists and there shall be continuing a Lease Default or a Lease Event of Default at any time after the Sale Option is properly elected or Lessee fails to comply with each of the terms and 30 conditions set forth in Section 22 and Lessor shall be entitled to exercise all rights and remedies provided in Section 14. No Lessee may elect the Sale Option if there exists and there shall be continuing on the date the election is made a Lease Default or a Lease Event of Default. 22.3 RENEWAL OPTIONS. The exercise of any Renewal Option with respect to any Aircraft by Lessee shall be subject to satisfaction of the following conditions: (i) on the Expiration Date then in effect for such Aircraft and on the date Lessee gives notice of its exercise of the Renewal Option, no Significant Default or Lease Event of Default shall have occurred and be continuing; and (ii) Lessee shall not have exercised the Sale Option or the Purchase Option with respect to such Aircraft. Lessee's exercise of a Renewal Option shall be deemed to be a representation by Lessee that on both the applicable Expiration Date and the date Lessee gives notice of its exercise of the Renewal Option, no Significant Default or Lease Event of Default shall have occurred and be continuing. SECTION 23. SALE OPTION. 23.1 SALE OPTION PROCEDURES. If Lessee elects the Sale Option with respect to any Aircraft, Lessee shall use its best commercial efforts as nonexclusive agent for Lessor for the remainder of the Lease Term of such Aircraft to obtain the highest all cash purchase price for the purchase of such Aircraft, and in the event Lessee receives any bid, Lessee shall within five (5) Business Days after receipt thereof, and at least twenty (20) Business Days prior to the applicable Expiration Date, certify to Lessor in writing the amount and terms of such bid, the name and address of the party or parties (who shall not be Lessee or any Affiliate of Lessee or any Person with whom Lessee has an understanding or arrangement regarding their future use, possession or ownership of the Aircraft), but who may be any Financing Party, any Affiliate thereof, or any Person contacted by any Financing Party (other than any Person referred to in the foregoing parenthetical) submitting such bid. Any sale of any Aircraft pursuant to the Sale Option shall be completed on the Expiration Date for such Aircraft. Unless, pursuant to the terms of the bids submitted the Sale Proceeds shall exceed the aggregate outstanding Lease Balance of the Aircraft being sold pursuant to the Sale Option as of the Expiration Date, any Financing Party may submit a bid to the Lessee not later than five (5) Business Days prior to the applicable Expiration Date. Lessee shall bear its own expense and pay the reasonable expenses of Lessor and each Financing Party in connection with any such bidding and sale process pursuant to this Section 23.1 as well as all reasonable costs and expenses incurred by any party (including a buyer or potential buyer) to place any Aircraft in the condition required by Section 6. None of the foregoing costs or expenses shall be deducted from the Sale Proceeds or serve to reduce the purchase price to be paid for any Aircraft. After the Lessee shall have certified to Lessor all bids received, if all such bids received on an all cash basis are for less than the aggregate outstanding Lease Balance for the Aircraft being sold pursuant to the Sale Option as of the applicable Expiration Date, any 31 Financing Party, any Affiliate thereof, or any Person contacted by any Financing Party may submit a further bid or bids to Lessee not later than five (5) Business Days prior to such Expiration Date. On or before the applicable Expiration Date, so long as no Lease Event of Default or Lease Default shall have occurred and be continuing: (i) Lessor shall transfer all of Lessor's right, title and interest in the Aircraft so sold, or cause such Aircraft to be transferred, to the bidder, if any, which shall have submitted the highest bid therefor at least twenty (20) Business Days (or in the case of a Financing Party, any Affiliate thereof or Person contacted by a Financing Party, five (5) Business Days) prior to such Expiration Date, in the same manner and in the same condition and otherwise in accordance with all of the terms of this Lease; (ii) subject to the prior or current payment by the Lessee of all amounts due under clause (iii) of this sentence, Lessor shall comply with any conditions to transfer set forth in Section 23.2 in order to transfer Lessor's right, title and interest in and to the relevant Aircraft for cash to such bidder; and (iii) Lessee shall simultaneously pay to Lessor all of the amounts required pursuant to Section 23.3. All reasonable costs related to a sale and delivery pursuant to this Section 23.1 including the cost of sales agents retained by Lessee, Lessor or the Financing Parties, delivery of documents, filing and documentary transfer fees, Taxes relating to or arising as a result of such transfer, legal costs, costs of notices, any advertisement or other similar costs shall be borne entirely by the Lessee, without regard to whether such costs were incurred by Lessor, Lessee or any potentially qualified buyer, and shall in no event be paid by the purchaser of any Aircraft or from any of the Sale Proceeds or as a reduction to the purchase price. No Financing Party shall have any responsibility for procuring any purchaser; provided, however, that Lessor and its designees may, at the direction of the Administrative Agent, engage in activities to market and sell the Aircraft at Lessee's cost and expense. Any such activities undertaken by Lessor pursuant to this Section 23.1 shall not reduce Lessee's obligations under this Section 23.1 to use its best commercial efforts to sell the Aircraft in accordance with the requirements of this Section 23. 23.2 SALE. Lessor shall, on the respective Expiration Date of any Aircraft at the Lessee's expense, and subject to receipt by the Lessor and each other Financing Party of all amounts due and owing to it by the Lessee hereunder and under the other Operative Documents and the provisions of Section 23.4, convey to the Lessee or its designee all right, title and interest of Lessor in and to such Aircraft, "as-is", "where-is", and "with all faults", without recourse to or representation or warranty by Lessor, except for a warranty against Certificate Trustee Liens, and shall execute and deliver to Lessee or its designee bills of sale and such other appropriate instruments of transfer reasonably requested by Lessee to evidence such conveyance and shall cooperate with the Lessee in having the Administrative Agent release the Lien of the Security Documents with respect to such Aircraft. Lessee may make any other representation or warranty to the buyer at Lessee's own risk. All sale proceeds shall be paid to Lessor. As a condition to Lessee's rights hereunder, Lessee shall obtain all necessary governmental consents and approvals and make all governmental filings required by Lessee or Lessor in connection with any third party sale. Lessee shall cooperate with the purchaser of any Aircraft in order to facilitate the ownership and operation of such Aircraft by such purchaser after the date of the sale or transfer, including providing all books, reports and records regarding the maintenance, repair and ownership of such Aircraft. As a further condition to Lessee's rights hereunder, Lessee shall pay the total cost for all Required Alterations or Improvements commenced or required to be commenced prior to the 32 respective Expiration Date and for the repair and rebuilding of any Aircraft so that on the date of sale such Aircraft is in the condition required by Section 6 hereof. All Required Alterations or Improvements and all such repairs and rebuilding shall be completed prior to the date of Lessee's election of the Sale Option. The obligations of Lessee under this Section 23.2 shall survive the expiration or termination of this Lease. Unless Lessee shall have exercised or been deemed to have exercised its Purchase Option with respect to any Aircraft, Lessor shall at the Lessee's expense be entitled to perform such investigation, including obtaining reports of appraisers as to the condition and state of repair and maintenance of such Aircraft required by this Section 23.2 and as to the compliance of such Aircraft with Applicable Laws and Regulations, as it deems appropriate. Lessee, at its sole cost and expense, shall cause the repair or other remediation of any discrepancies between the actual condition of any Aircraft and the condition required by Section 6 hereof, such repair or remediation to be completed not later than the Expiration Date of such Aircraft. 23.3 APPLICATION OF SALE PROCEEDS AND RECOURSE PAYMENTS IN CONNECTION WITH THE SALE OPTION. (a) On the Expiration Date of any Aircraft in connection with an exercise of the Sale Option with respect to such Aircraft, Lessee shall pay to Lessor all Rent then due together with all other amounts due and payable by Lessee to Lessor, any Financing Party or any Indemnitee. Lessor shall retain from the aggregate net Sale Proceeds with respect to any Aircraft an amount equal to the aggregate outstanding Lease Balance for such Aircraft as of such Expiration Date (as determined after the payment of all Rent due on such date). If the net Sale Proceeds with respect to any Aircraft actually and irrevocably received by Lessor exceed the Lease Balance for such Aircraft as of the relevant Expiration Date plus any unpaid Rent due and owing on such date, Lessor shall pay to the Lessee the portion of such net Sale Proceeds in excess thereof. If the net Sale Proceeds with respect to any Aircraft are less than the aggregate outstanding Lease Balance for such Aircraft, the Lessee shall pay or shall cause to be paid to Lessor, as Supplemental Rent, on the Expiration Date, in addition to such net Sale Proceeds, an amount equal to the lesser of (x) the Sale Recourse Amount for the Aircraft so sold and (y) the amount by which the Lease Balance for such Aircraft exceeds such net Sale Proceeds actually and irrevocably received by Lessor. The provisions of this Section 23.3(a) shall not apply with respect to the early termination options under Section 21.1. (b) The obligation of Lessee to pay the amounts determined pursuant to Section 23.3(a) shall be recourse obligations of Lessee, and such payments by Lessee shall not limit any other obligation of Lessee under the Operative Documents, including pursuant to Section 7 of the Participation Agreement. SECTION 24. LIMITATION OF LESSOR'S LIABILITY. It is expressly agreed and understood that all representations, warranties and undertakings of Lessor hereunder (except as expressly provided herein) shall be binding upon Lessor only in its capacity as Certificate Trustee under the Trust Agreement and in no case shall the Trust Company be personally liable for or on account of, any statements, representations, warranties, covenants or obligations stated to be those of Lessor hereunder, except that the Trust Company 33 (or any successor Certificate Trustee) shall be personally liable for its gross negligence, fraud or willful misconduct or the failure to use ordinary care in the handling of funds and for its breach of its covenants, representations and warranties contained herein to the extent covenanted or made in its individual capacity. SECTION 25. MISCELLANEOUS. 25.1 GOVERNING LAW; WAIVER OF JURY TRIAL; SEVERABILITY. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW YORK; WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE (EXCEPT TITLE 14 OF ARTICLE 5 OF THE NEW YORK GENERAL OBLIGATIONS LAW) PROVIDED, THAT THE PARTIES SHALL BE ENTITLED TO ALL RIGHTS CONFERRED BY ANY APPLICABLE FEDERAL LAW. EACH OF THE LESSOR AND THE LESSEE, (I) HEREBY IRREVOCABLY SUBMITS FOR ITSELF AND ITS PROPERTY TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN NEW YORK COUNTY, AND TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT TO WHICH IT IS A PARTY, THE SUBJECT MATTER OF ANY THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY BROUGHT BY ANY PARTY OR PARTIES THERETO, OR THEIR SUCCESSORS OR ASSIGNS, (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT TO WHICH IT IS A PARTY OR THE SUBJECT MATTER OF ANY THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY MAY NOT BE ENFORCED IN OR BY SUCH COURTS AND (III) HEREBY WAIVES ITS RIGHT TO A JURY TRIAL. EACH OF THE LESSOR AND THE LESSEE CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PARTY AT ITS ADDRESS SPECIFIED IN THE PARTICIPATION AGREEMENT. LESSEE AND LESSOR HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THAT THEY MAY EFFECTIVELY DO SO THE RIGHT TO A TRIAL BY JURY. Whenever possible, each provision of this Lease shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Lease shall be prohibited by or invalid under the laws of any jurisdiction, such provision, as to such jurisdiction, shall be, to the extent permitted by law, ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Lease in any other jurisdiction. 34 25.2 EXECUTION IN COUNTERPARTS. This Lease may be executed in any number of counterparts, each executed counterpart constituting an original and in each case such counterparts shall constitute but one and the same instrument; provided, that to the extent this Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code) no Lien on this Lease may be created through the transfer or possession of any counterpart hereof other than the counterpart bearing the receipt therefor executed by the Administrative Agent on the signature page hereof, which counterpart shall constitute the only "original" hereof for purposes of the Uniform Commercial Code. 25.3 AMENDMENTS AND WAIVERS. No term, covenant, agreement or condition of this Lease may be terminated, amended or compliance therewith waived (either generally or in a particular instance, retroactively or prospectively) except by an instrument or instruments in writing executed by each party hereto and except as may be permitted by the terms of the other Operative Documents. 25.4 BUSINESS DAYS. If any payment is to be made hereunder or any action is to be taken hereunder on any date that is not a Business Day, such payment or action otherwise required to be made or taken on such date shall be made or taken on the immediately succeeding Business Day with the same force and effect as if made or taken on such scheduled date and as to any payment; provided, any such payment is made on such succeeding Business Day; provided, further notwithstanding the foregoing, (a) where the next succeeding Business Day falls in the next succeeding calendar month such payment shall be made on the next preceding Business Day, (b) no Payment Date shall extend beyond the Maturity Date and (c) where a rent period (for purposes of calculation of installments of Basic Rent) begins on a day for which there is no numerically corresponding day in the calendar month in which such rent period is to end, such rent period shall end on the last Business Day of such calendar month. 25.5 DIRECTLY OR INDIRECTLY. Where any provision in this Lease refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 25.6 UNIFORM COMMERCIAL CODE. The parties hereto intend that this Lease be construed as a "finance lease" under Article 2-A of the New York Uniform Commercial Code. Notwithstanding any other provision herein to the contrary, the parties hereto agree that, to the extent permitted by law, Article 2-A-401 of the Uniform Commercial Code of the State of New York shall not be applicable to this Lease or the obligations of the parties hereunder. 35 25.7 TRUTH IN LEASING. THE AIRCRAFT, AS EQUIPMENT, BECAME SUBJECT TO THE MAINTENANCE REQUIREMENTS OF PART 91 OF THE FEDERAL AVIATION REGULATIONS ("FARS") UPON THE REGISTRATION OF THE AIRCRAFT WITH THE FAA. LESSEE CERTIFIES THAT DURING THE 12 MONTHS (OR PORTION THEREOF DURING WHICH THE AIRCRAFT HAS BEEN SUBJECT TO U.S. REGISTRATION) PRECEDING THE EXECUTION OF THIS LEASE, THE AIRCRAFT HAS BEEN MAINTAINED AND INSPECTED UNDER PART 91 OF THE FARS. LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 91 OF THE FARS FOR OPERATIONS TO BE CONDUCTED UNDER THE LEASE. UPON EXECUTION OF THIS LEASE, AND DURING THE TERM HEREOF, THE LESSEE CERTIFIES THAT THE LESSEE SHALL BE RESPONSIBLE FOR THE OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THE LEASE. THE LESSEE FURTHER CERTIFIES THAT IT UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH APPLICABLE FARS. AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FARS CAN BE OBTAINED FROM THE NEAREST FEDERAL AVIATION FLIGHT STANDARD DISTRICT OFFICE, GENERAL AVIATION DISTRICT OFFICE OR AIR CARRIER DISTRICT OFFICE. [The remainder of this page is intentionally left blank] 36 IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be duly executed and delivered by their respective officers as of the day and year first above written. LESSOR: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 By: /s/ Val T. Orton ------------------------------------- Name: Val T. Orton Title: Vice President LESSEE: STEELCASE INC. By: /s/ Alwyn Rougier-Chapman ------------------------------------- Name: Alwyn Rougier-Chapman Title: Sr. VP - Finance and CFO *Receipt of the original counterpart of the foregoing Lease is hereby acknowledged on this 26th day of May, 2000. FIRST SECURITY TRUST COMPANY OF NEVADA, as Administrative Agent By: /s/ Val T. Orton ------------------------------------- Name: Val T. Orton Title: Trust Officer - ---------------- * This acknowledgment is executed in the original counterpart only. Steelcase Trust No. 2000-1 EXHIBIT A LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE NO. __ (Steelcase Trust No. 2000-1) LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE NO. __ (Steelcase Trust No. 2000-1) dated as of _______________ ____, ______ (as amended, modified, supplemented, restated and/or replaced from time to time, the "Lease Supplement") between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 (together with its successors and assigns permitted hereunder, the "Lessor"), and Steelcase Inc., a Michigan corporation (together with its successors and assigns permitted under the Lease referred to below, the "Lessee"); W I T N E S S E T H: Lessor and Lessee have heretofore entered into that certain Master Aircraft Lease Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (as amended, modified, supplemented, restated and/or replaced from time to time, the "Lease"). The Lease provides for the execution and delivery of a Lease Supplement substantially in the form hereof for the purpose of confirming the acceptance and lease of the Aircraft under the Lease as and when delivered by Lessor to Lessee in accordance with the terms thereof. Unless otherwise defined herein, capitalized terms used herein shall have the meanings specified in or by reference in, the Lease. For purposes of this Lease Supplement, "Aircraft" shall refer to the Aircraft identified on Schedule 1 attached hereto. NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: 1. Lessee hereby acknowledges and confirms Section 5 of the Lease, with respect to the Aircraft. 2. Lessor hereby confirms delivery and lease to Lessee, and Lessee hereby confirms acceptance and lease from Lessor, under the Lease as hereby supplemented, the Aircraft. 3. Lessee hereby represents and warrants that to the best of its knowledge no Event of Loss has occurred with respect to the Aircraft set forth on Schedule 1 hereto as of the date hereof. 4. The Equipment Cost of the Aircraft leased hereunder is set forth in Schedule 1 herein. 5. The Base Term Commencement Date for the Aircraft is ___________, _____. The Base Term Expiration Date for the Aircraft is ___________ ___, _____. The Fixed Basic Rent for the Aircraft is set forth in Schedule 2 attached hereto. A-1 6. The Sale Recourse Amount, for the Aircraft subject to this Lease Supplement is an amount equal to the Equipment Cost for such Aircraft multiplied by ____% on the Base Term Expiration Date; ____%, on last day of the first Renewal Term, if any; and ____% on the last day of the second Renewal Term, if any. 7. The Delivery Date for the Aircraft subject to this Lease Supplement is [THE DATE HEREOF] [__________________, 2000]. 8. All of the terms and provisions of the Lease are hereby incorporated by reference into this Lease Supplement and Lessee hereby confirms its agreement, in accordance with the Lease as supplemented by this Lease Supplement, to pay Rent to Lessor or such other Person, as appropriate, as provided for in the Lease. 9. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Lease Supplement may refer to the "Master Aircraft Lease Agreement, dated as of May 26, 2000", the "Lease Agreement, dated as of May 26, 2000," or the "Lease, dated as of May 26, 2000," or may identify the Lease in any other respect without making specific reference to this Lease Supplement, but nevertheless all such references shall be deemed to include this Lease Supplement, unless the context shall otherwise require. 10. This Lease Supplement shall be construed in connection with and as part of the Lease, and all terms, conditions and covenants contained in the Lease (a) are hereby incorporated herein by reference as though restated in their entirety and (b) shall be and remain in full force and effect. 11. This Lease Supplement may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. 12. This Lease Supplement shall in all respects, including without limitation all matters of construction, validity and performance, be governed by and construed in accordance with the internal laws of the State of New York without regard to conflict of laws principles of such state (except Title 14 of Article 5 of the New York General Obligations Laws). [The remainder of this page is intentionally left blank] A-2 IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. ____ to be duly executed and delivered by their respective officers as of the day and year first above written. LESSOR: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 By: _____________________________________ Name: ___________________________________ Title: __________________________________ LESSEE: STEELCASE INC., By: _____________________________________ Name: ___________________________________ Title: __________________________________ *Receipt of the original counterpart of the foregoing Lease Supplement is hereby acknowledged on this _____ day of _____________________, ______. FIRST SECURITY TRUST COMPANY OF NEVADA, as Administrative Agent By: _____________________________________ Name: ___________________________________ Title: __________________________________ - --------------------- * This acknowledgment is executed in the original counterpart only. A-3 Schedule 1 to Lease Supplement No. ___ (Steelcase Trust No. 2000-1) Description of the Aircraft/Equipment Cost A-4 Schedule 2 to Lease Supplement No. ___ (Steelcase Trust No. 2000-1) Fixed Basic Rent Schedule Schedule II-1 EX-4.37 3 k84627exv4w37.txt LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE NO. 1 Exhibit 4.37 LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE NO. 1 (Steelcase Trust No. 2000-1) LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE NO. 1 (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (as amended, modified, supplemented, restated and/or replaced from time to time, the "Lease Supplement") between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 (together with its successors and assigns permitted hereunder, the "Lessor"), and Steelcase Inc., a Michigan corporation (together with its successors and assigns permitted under the Lease referred to below, the "Lessee"); W I T N E S S E T H: Lessor and Lessee have heretofore entered into that certain Master Aircraft Lease Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (as amended, modified, supplemented, restated and/or replaced from time to time, the "Lease"). The Lease provides for the execution and delivery of a Lease Supplement substantially in the form hereof for the purpose of confirming the acceptance and lease of the Aircraft under the Lease as and when delivered by Lessor to Lessee in accordance with the terms thereof. Unless otherwise defined herein, capitalized terms used herein shall have the meanings specified in or by reference in, the Lease. For purposes of this Lease Supplement, "Aircraft" shall refer to the Aircraft identified on Schedule 1 attached hereto. NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: 1. Lessee hereby acknowledges and confirms Section 5 of the Lease, with respect to the Aircraft. 2. Lessor hereby confirms delivery and lease to Lessee, and Lessee hereby confirms acceptance and lease from Lessor, under the Lease as hereby supplemented, the Aircraft. 3. Lessee hereby represents and warrants that to the best of its knowledge no Event of Loss has occurred with respect to the Aircraft set forth on Schedule 1 hereto as of the date hereof. 4. The Equipment Cost of the Aircraft leased hereunder is set forth in Schedule 1 herein. 5. The Base Term Commencement Date for the Aircraft is May 26, 2000. The Base Term Expiration Date for the Aircraft is May 26, 2003. The Fixed Basic Rent for the Aircraft is set forth in Schedule 2 attached hereto. 6. The Sale Recourse Amount, for the Aircraft subject to this Lease Supplement is an amount equal to the Equipment Cost for such Aircraft multiplied by 80.29% on the Base Term Expiration Date; 79.64%, on last day of the first Renewal Term, if any; and 78.59% on the last day of the second Renewal Term, if any. 7. The Delivery Date for the Aircraft subject to this Lease Supplement is the date hereof. 8. All of the terms and provisions of the Lease are hereby incorporated by reference into this Lease Supplement and Lessee hereby confirms its agreement, in accordance with the Lease as supplemented by this Lease Supplement, to pay Rent to Lessor or such other Person, as appropriate, as provided for in the Lease. 9. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Lease Supplement may refer to the "Master Aircraft Lease Agreement, dated as of May 26, 2000", the "Lease Agreement, dated as of May 26, 2000," or the "Lease, dated as of May 26, 2000," or may identify the Lease in any other respect without making specific reference to this Lease Supplement, but nevertheless all such references shall be deemed to include this Lease Supplement, unless the context shall otherwise require. 10. This Lease Supplement shall be construed in connection with and as part of the Lease, and all terms, conditions and covenants contained in the Lease (a) are hereby incorporated herein by reference as though restated in their entirety and (b) shall be and remain in full force and effect. 11. This Lease Supplement may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. 12. This Lease Supplement shall in all respects, including without limitation all matters of construction, validity and performance, be governed by and construed in accordance with the internal laws of the State of New York without regard to conflict of laws principles of such state (except Title 14 of Article 5 of the New York General Obligations Laws). [The remainder of this page is intentionally left blank] 2 IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. 1 to be duly executed and delivered by their respective officers as of the day and year first above written. LESSOR: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 By: /s/ Val T. Orton ------------------------------------- Name: Val T. Orton Title: Vice President LESSEE: STEELCASE INC., By: /s/ Alwyn Rougier-Chapman ------------------------------------- Name: Alwyn Rougier-Chapman Title: Sr. VP - Finance and CFO *Receipt of the original counterpart of the foregoing Lease Supplement is hereby acknowledged on this 26th day of May, 2000. FIRST SECURITY TRUST COMPANY OF NEVADA, as Administrative Agent By: /s/ Val T. Orton ------------------------------------- Name: Val T. Orton Title: Trust Officer - ------------------ * This acknowledgment is executed in the original counterpart only. 3 Schedule 1 to Lease Supplement No. 1 (Steelcase Trust No. 2000-1) Description of the Aircraft/Equipment Cost One 1996 Dassault Aviation Falcon 2000 aircraft bearing manufacturer's serial number 24 and U.S. Registration No. N376SC with two (2) CFE Model 738-1-1B engines installed thereon, bearing manufacturer's serial numbers P105163 and P105160, respectively. Equipment Cost: $19,000,000.00 4 Schedule 2 to Lease Supplement No. 1 (Steelcase Trust No. 2000-1) Fixed Basic Rent Schedule
Lease Year Rent Number Fixed Basic Rent Balance - ---- ----------- ---------------- ----------- 1 1 $19,792 $18,980,208 2 $19,792 $18,960,417 3 $19,792 $18,940,625 4 $19,792 $18,920,833 5 $19,792 $18,901,042 6 $19,792 $18,881,250 7 $19,792 $18,861,458 8 $19,792 $18,841,667 9 $19,792 $18,821,875 10 $19,792 $18,802,083 11 $19,792 $18,782,292 12 $19,792 $18,762,500 2 13 $19,792 $18,742,708 14 $19,792 $18,722,917 15 $19,792 $18,703,125 16 $19,792 $18,683,333 17 $19,792 $18,663,542 18 $19,792 $18,643,750 19 $19,792 $18,623,958 20 $19,792 $18,604,167 21 $19,792 $18,584,375 22 $19,792 $18,564,583 23 $19,792 $18,544,792 24 $19,792 $18,525,000 3 25 $19,792 $18,505,208 26 $19,792 $18,485,417 27 $19,792 $18,465,625 28 $19,792 $18,445,833 29 $19,792 $18,426,042 30 $19,792 $18,406,250 31 $19,792 $18,386,458 32 $19,792 $18,366,667 33 $19,792 $18,346,875 34 $19,792 $18,327,083 35 $19,792 $18,307,292 36 $19,792 $18,287,500 4 37 $19,792 $18,267,708
Schedule II-1
Lease Year Rent Number Fixed Basic Rent Balance - ---- ----------- ---------------- ----------- 38 $19,792 $18,247,917 39 $19,792 $18,228,125 40 $19,792 $18,208,333 41 $19,792 $18,188,542 42 $19,792 $18,168,750 43 $19,792 $18,148,958 44 $19,792 $18,129,167 45 $19,792 $18,109,375 46 $19,792 $18,089,583 47 $19,792 $18,069,792 48 $19,792 $18,050,000 5 49 $19,792 $18,030,208 50 $19,792 $18,010,417 51 $19,792 $17,990,625 52 $19,792 $17,970,833 53 $19,792 $17,951,042 54 $19,792 $17,931,250 55 $19,792 $17,911,458 56 $19,792 $17,891,667 57 $19,792 $17,871,875 58 $19,792 $17,852,083 59 $19,792 $17,832,292 60 $17,832,292 $17,812,500
Schedule II-2 EX-4.38 4 k84627exv4w38.txt LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE NO. 2 Exhibit 4.38 LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE NO. 2 (Steelcase Trust No. 2000-1) LEASE SUPPLEMENT AND ACCEPTANCE CERTIFICATE NO. 2 (Steelcase Trust No. 2000-1) dated as of August 23, 2000 (as amended, modified, supplemented, restated and/or replaced from time to time, the "Lease Supplement") between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 (together with its successors and assigns permitted hereunder, the "Lessor"), and Steelcase Inc., a Michigan corporation (together with its successors and assigns permitted under the Lease referred to below, the "Lessee"); W I T N E S S E T H: Lessor and Lessee have heretofore entered into that certain Master Aircraft Lease Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (as amended, modified, supplemented, restated and/or replaced from time to time, the "Lease"), a counterpart of which was recorded by the FAA on July 17, 2000 and assigned conveyance number H099653. The Lease provides for the execution and delivery of a Lease Supplement substantially in the form hereof for the purpose of confirming the acceptance and lease of the Aircraft under the Lease as and when delivered by Lessor to Lessee in accordance with the terms thereof. Unless otherwise defined herein, capitalized terms used herein shall have the meanings specified in or by reference in, the Lease. For purposes of this Lease Supplement, "Aircraft" shall refer to the Aircraft identified on Schedule 1 attached hereto. NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: 1. Lessee hereby acknowledges and confirms Section 5 of the Lease, with respect to the Aircraft. 2. Lessor hereby confirms delivery and lease to Lessee, and Lessee hereby confirms acceptance and lease from Lessor, under the Lease as hereby supplemented, the Aircraft. 3. Lessee hereby represents and warrants that to the best of its knowledge no Event of Loss has occurred with respect to the Aircraft set forth on Schedule 1 hereto as of the date hereof. 4. The Equipment Cost of the Aircraft leased hereunder is set forth in Schedule 1 herein. 5. The Base Term Commencement Date for the Aircraft is August 23, 2000. The Base Term Expiration Date for the Aircraft is May 26, 2003. The Fixed Basic Rent for the Aircraft is set forth in Schedule 2 attached hereto. 6. The Sale Recourse Amount, for the Aircraft subject to this Lease Supplement is an amount equal to the Equipment Cost for such Aircraft multiplied by 78.39% on the Base Term Expiration Date; 77.17%, on last day of the first Renewal Term, if any; and 75.35% on the last day of the second Renewal Term, if any. 7. The Delivery Date for the Aircraft subject to this Lease Supplement is the date hereof. 8. All of the terms and provisions of the Lease are hereby incorporated by reference into this Lease Supplement and Lessee hereby confirms its agreement, in accordance with the Lease as supplemented by this Lease Supplement, to pay Rent to Lessor or such other Person, as appropriate, as provided for in the Lease. 9. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Lease Supplement may refer to the "Master Aircraft Lease Agreement, dated as of May 26, 2000", the "Lease Agreement, dated as of May 26, 2000," or the "Lease, dated as of May 26, 2000," or may identify the Lease in any other respect without making specific reference to this Lease Supplement, but nevertheless all such references shall be deemed to include this Lease Supplement, unless the context shall otherwise require. 10. This Lease Supplement shall be construed in connection with and as part of the Lease, and all terms, conditions and covenants contained in the Lease (a) are hereby incorporated herein by reference as though restated in their entirety and (b) shall be and remain in full force and effect. 11. This Lease Supplement may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. 12. This Lease Supplement shall in all respects, including without limitation all matters of construction, validity and performance, be governed by and construed in accordance with the internal laws of the State of New York without regard to conflict of laws principles of such state (except Title 14 of Article 5 of the New York General Obligations Laws). [The remainder of this page is intentionally left blank] 2 IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Supplement No. 2 to be duly executed and delivered by their respective officers as of the day and year first above written. LESSOR: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 By: /s/ Val T. Orton ------------------------------------- Name: Val T. Orton Title: Vice President LESSEE: STEELCASE INC., By: /s/ Gary P. Malburg ------------------------------------- Name: Gary P. Malburg Title: VP - Finance and Treasurer *Receipt of the original counterpart of the foregoing Lease Supplement is hereby acknowledged on this 23rd day of August, 2000. FIRST SECURITY TRUST COMPANY OF NEVADA, as Administrative Agent By: /s/ Val T. Orton ------------------------------------- Name: Val T. Orton Title: Trust Officer - ---------------- * This acknowledgment is executed in the original counterpart only. 3 Schedule 1 to Lease Supplement No. 2 (Steelcase Trust No. 2000-1) Description of the Aircraft/Equipment Cost One Dassault Aviation Falcon 900EX aircraft bearing manufacturer's serial number 66 and U.S. Registration No. N377SC with three (3) AlliedSignal Model TFE 731-60 engines installed thereon, bearing manufacturer's serial numbers P112311, P112312 and P112313, respectively, and all logs, manuals and data, and inspection, maintenance, modification and overhaul records as are required to be maintained with respect to such Aircraft pursuant to Section 8 of the Lease. Equipment Cost: $32,308,650.00 4 Schedule 2 to Lease Supplement No. 2 (Steelcase Trust No. 2000-1) Fixed Basic Rent Schedule
Lease Rent Number Principal Balance - ----------- --------- ---------- 1 0 32,308,650 2 58,046 32,250,604 3 58,046 32,192,557 4 58,046 32,134,511 5 58,046 32,076,464 6 58,046 32,018,418 7 58,046 31,960,371 8 58,046 31,902,325 9 58,046 31,844,278 10 58,046 31,786,232 11 58,046 31,728,185 12 58,046 31,670,139 13 58,046 31,612,092 14 58,046 31,554,046 15 58,046 31,495,999 16 58,046 31,437,953 17 58,046 31,379,906 18 58,046 31,321,860 19 58,046 31,263,813 20 58,046 31,205,767 21 58,046 31,147,720 22 58,046 31,089,674 23 58,046 31,031,627 24 58,046 30,973,581 25 58,046 30,915,534 26 58,046 30,857,488 27 58,046 30,799,441 28 58,046 30,741,395 29 58,046 30,683,348 30 58,046 30,625,302 31 58,046 30,567,255 32 58,046 30,509,209 33 58,046 30,451,162 34 58,046 30,393,116 35 58,046 30,335,069 36 58,046 30,277,023 37 58,046 30,218,976
Schedule II-1
Lease Rent Number Principal Balance - ----------- --------- ---------- 38 58,046 30,160,930 39 58,046 30,102,883 40 58,046 30,044,837 41 58,046 29,986,790 42 58,046 29,928,744 43 58,046 29,870,697 44 58,046 29,812,651 45 58,046 29,754,604 46 58,046 29,696,558 47 58,046 29,638,511 48 58,046 29,580,465 49 58,046 29,522,418 50 58,046 29,464,372 51 58,046 29,406,325 52 58,046 29,348,279 53 58,046 29,290,232 54 58,046 29,232,186 55 58,046 29,174,140 56 58,046 29,116,093 57 58,046 29,058,047 58 29,058,047 0
Schedule II-2 EX-4.39 5 k84627exv4w39.txt PARTICIPATION AGREEMENT Exhibit 4.39 PARTICIPATION AGREEMENT (Steelcase Trust No. 2000-1) Dated as of May 26, 2000 among STEELCASE INC., as Lessee FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee, FIRST SECURITY TRUST COMPANY OF NEVADA, not in its individual capacity, except as expressly stated herein, but solely as Administrative Agent, HATTERAS FUNDING CORPORATION, as CP Lender, THE PERSONS NAMED ON THE SCHEDULE I HERETO, as Certificate Holders, THE PERSONS NAMED ON SCHEDULE II HERETO, as Facility Lenders and Liquidity Banks and BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrator BANC OF AMERICA LEASING & CAPITAL, LLC, as Arranger TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS; INTERPRETATION OF THIS AGREEMENT.................................................. 2 1.1 Definitions.................................................................................... 2 1.2 Directly or Indirectly......................................................................... 2 SECTION 2. SALE AND PURCHASE; PARTICIPATION IN THE EQUIPMENT COST; CLOSING................................ 2 2.1 Sale and Purchase.............................................................................. 2 2.2 Fundings....................................................................................... 3 2.3 Closing Date and Delivery Dates; Procedure for Participation................................... 4 2.4 Direction to the Certificate Trustee and Administrative Agent; Satisfaction of Conditions...... 5 2.5 Nature of Transaction.......................................................................... 6 2.6 Amounts Due Under Lease........................................................................ 6 2.7 Computations................................................................................... 7 2.8 Determination of Interest and Yield............................................................ 7 2.9 Obligations Several............................................................................ 7 2.10 Highest Lawful Rate............................................................................ 8 SECTION 3. REPRESENTATIONS AND WARRANTIES................................................................. 9 3.1 Representations and Warranties of the Trust Company and the Certificate Trustee................ 9 3.2 Representations and Warranties of Lessee....................................................... 11 3.3 Representations and Warranties of each Participant............................................. 15 3.4 Representations and Warranties of Administrative Agent......................................... 17 SECTION 4. CLOSING CONDITIONS............................................................................. 18 4.1 Conditions Precedent to Closing Date........................................................... 18 4.2 Subsequent Delivery Dates...................................................................... 20 4.3 Additional Conditions for each Delivery Date................................................... 22 4.4 Subsequent Enforcement of Conditions Precedent................................................. 24 SECTION 5. COVENANTS OF THE LESSEE........................................................................ 24 5.1 Covenants of the Lessee........................................................................ 24 SECTION 6. OTHER COVENANTS AND AGREEMENTS................................................................. 30 6.1 Cooperation with Lessee........................................................................ 30 6.2 Covenants of Participants, Agents, Certificate Trustee and the Trust Company................... 30 6.3 Transfer of Participant's Interests; Assignments............................................... 33 6.4 Participations................................................................................. 35 6.5 Disclosure of Information; Pledge Under Regulation A........................................... 35 6.6 Assignment of CP Lender's Interest in Loan to Liquidity Banks.................................. 36 6.7 Replacement of Owner Trustee................................................................... 36 6.8 Replacement of a Certificateholder............................................................. 36 SECTION 7. INDEMNIFICATION................................................................................ 37 7.1 General Indemnification........................................................................ 37
7.2 General Tax Indemnity.......................................................................... 39 7.3 Withholding Taxes Exemption.................................................................... 44 7.4 LIBO Rate Illegal, Unavailable or Impracticable................................................ 45 7.5 Increased Costs................................................................................ 46 7.6 Funding Losses................................................................................. 46 7.7 Intentionally Omitted.......................................................................... 47 7.8 Funding Office; Substitution of Certificate Holder and Facility Lender......................... 47 7.9 Aircraft....................................................................................... 47 SECTION 8 ADMINISTRATIVE AGENT........................................................................... 47 8.1 Appointment.................................................................................... 47 8.2 Delegation of Duties........................................................................... 48 8.3 Exculpatory Provisions......................................................................... 48 8.4 Reliance by Administrative Agent............................................................... 48 8.5 Notice of Default.............................................................................. 49 8.6 Non-Reliance on Administrative Agent and Other Lenders......................................... 49 8.7 Indemnification................................................................................ 50 8.8 Administrative Agent in Its Individual Capacity................................................ 50 8.9 Successor Administrative Agent................................................................. 50 SECTION 9. MISCELLANEOUS.................................................................................. 51 9.1 Survival of Agreements......................................................................... 51 9.2 No Broker, etc................................................................................. 51 9.3 Notices........................................................................................ 52 9.4 Counterparts................................................................................... 52 9.5 Amendments..................................................................................... 52 9.6 Headings, etc.................................................................................. 53 9.7 Parties in Interest............................................................................ 54 9.8 Governing Law.................................................................................. 54 9.9 Payment of Transaction Costs and Other Costs................................................... 54 9.10 Severability................................................................................... 55 9.11 Limited Liability of Certificate Trustee....................................................... 55 9.12 Limited Liability of the Agents................................................................ 55 9.13 Liabilities of the Participants................................................................ 56 9.14 Submission to Jurisdiction; Waivers............................................................ 56 9.15 Reproduction of Documents...................................................................... 57 9.16 Role of Arranger............................................................................... 57 9.17 Consequential Damages.......................................................................... 57 9.18 Confidentiality................................................................................ 58 9.19 Non-Petition................................................................................... 59 9.20 Limited Recourse............................................................................... 59 9.21 Benefit of the Parties......................................................................... 59 9.22 Deliveries to Participants..................................................................... 60 9.23 Role of Bank of America........................................................................ 60 SECTION 10 FEES........................................................................................... 60 10.1 Facility Fee................................................................................... 60 10.2 Upfront Fee.................................................................................... 60

~~10.3 Other Fees..................................................................................... 61~~

Schedule I - Certificate Holders' Commitments Schedule II - Lenders' Commitments Schedule III - Notice Information, Payment Offices, Applicable Lending Offices Schedule IV - Aircraft Schedule 3.2(r) - Filings Schedule 5.1(j) - Existing Liens Exhibit A - Form of Assignment and Acceptance Agreement Appendix A - Definitions PARTICIPATION AGREEMENT \ Steelcase Trust No. 2000-1 THIS PARTICIPATION AGREEMENT (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (as amended, modified, supplemented, restated and/or replaced from time to time, the "Agreement" or the "Participation Agreement"), among (i) STEELCASE INC., a Michigan corporation (herein, together with its successors and assigns permitted hereunder, called "Lessee"), (ii) FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association (the "Trust Company"), not in its individual capacity except as expressly provided herein, but solely as Certificate Trustee under the Trust Agreement (herein in such capacity, together with its successors and assigns permitted hereunder, called the "Certificate Trustee"), (iii) FIRST SECURITY TRUST COMPANY OF NEVADA, not in its individual capacity, except as expressly stated herein, but solely as Administrative Agent ("Administrative Agent"), (iv) the persons named on Schedule I hereto (each herein, together with its successors and assigns permitted hereunder, called a "Certificate Holder" and collectively, the "Certificate Holders"), (v) HATTERAS FUNDING CORPORATION, a Delaware corporation (the "CP Lender"), (vi) the persons named on Schedule II hereto as Facility Lenders and Liquidity Banks (each herein, together with its successors and assigns permitted hereunder, as a Facility Lender called a "Facility Lender" and collectively, the "Facility Lenders" and as a Liquidity Bank under the LAPA, a "Liquidity Bank" and collectively, the "Liquidity Banks"), and (vii) BANK OF AMERICA, NATIONAL ASSOCIATION, not in its individual capacity but solely as Administrator (together with its successors and assigns in such capacity from time to time, the "Administrator") for the CP Lender (collectively, the "Lenders"). W I T N E S S E T H : WHEREAS, concurrently with the execution and delivery of this Agreement, the Certificate Holders have entered into that certain Trust Agreement (Steelcase Trust No. 2000-1) dated as of the date hereof (as amended, modified, supplemented, restated and/or replaced from time to time, the "Trust Agreement") with the Certificate Trustee pursuant to which the Certificate Trustee agrees, among other things, (a) to hold the Trust Estate for the benefit of the Certificate Holders thereunder on the terms specified in the Trust Agreement and (b) subject to the terms and conditions hereof, to purchase the Aircraft from the applicable Seller and concurrently therewith lease such Aircraft to the Lessee; WHEREAS, pursuant to the terms of the Trust Agreement, the Certificate Trustee is authorized and directed by the Certificate Holders, (a) to accept delivery of the Aircraft and (b) to execute and deliver the Lease relating to the Aircraft pursuant to which the Certificate Trustee agrees to lease to Lessee, and Lessee agrees to lease from the Certificate Trustee, the Aircraft to be delivered on the respective Delivery Dates therefor, such lease to be evidenced by the execution and delivery of a Lease Supplement to the Lease; WHEREAS, concurrently with the execution and delivery of this Agreement, the Certificate Trustee has entered into (a) the Loan Agreement with the Administrative Agent, the CP Lender and the Facility Lenders pursuant to which the Certificate Trustee agrees, among other things, to issue the Notes to the Lenders as evidence of the Certificate Trustee's indebtedness, and (b) the Security Agreement with the Administrative Agent and Lessee pursuant to which the Certificate Trustee grants to the Administrative Agent for the benefit of the Participants a security interest in its right, title and interest in, to and under the Aircraft and certain of the Lessee's obligations under the Lease; WHEREAS, the proceeds from the Loans will be applied, together with the equity contributions made by the Certificate Holders pursuant to this Agreement and the Trust Agreement, to effect the purchase of the Aircraft by the Certificate Trustee contemplated hereby; and WHEREAS, if for any reason the CP Lender elects not to issue Commercial Paper and lend such proceeds, the Facility Lenders are willing, subject to the terms and conditions of this Participation Agreement, to provide financing for the Aircraft to be Funded on a Delivery Date; NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS; INTERPRETATION OF THIS AGREEMENT 1.1 DEFINITIONS. The capitalized terms used in this Agreement (including the foregoing recitals) and not otherwise defined herein shall have the respective meanings specified in Appendix A hereto, unless the context hereof shall otherwise require. The "General Provisions" of Appendix A hereto are hereby incorporated by reference herein. The capitalized terms used in this Agreement and not defined herein or in Appendix A hereto shall have the meanings assigned thereto in Schedule 2 to the LAPA. 1.2 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. SECTION 2. SALE AND PURCHASE; PARTICIPATION IN THE EQUIPMENT COST; CLOSING 2.1 SALE AND PURCHASE. Subject to the terms and conditions hereof and on the basis of the representations and warranties set forth herein, the Certificate Trustee agrees to purchase from the applicable Seller on each Delivery Date one of the Aircraft described on Schedule IV hereto and referred to in the Notice of Delivery given pursuant to Section 2.3(b) and in connection therewith, the Certificate Trustee agrees to pay to the applicable Seller the Equipment Cost of the Aircraft being delivered on such date; provided, however, that the Certificate Trustee shall not be obligated to purchase on a Delivery Date any Aircraft that is destroyed, damaged, defective, in unsuitable condition or 2 otherwise unacceptable to Lessee for lease pursuant to the Lease. The applicable Seller shall deliver the Aircraft to the Certificate Trustee (or its designee) and the Certificate Trustee (or its designee) shall accept such delivery of the Aircraft on the relevant Delivery Date; provided the parties hereto agree that (i) there shall be no more than two Delivery Dates, (ii) the initial Delivery Date shall be the Closing Date and (iii) unless the parties to this Agreement hereinafter agree in writing otherwise, the subsequent Delivery Date shall occur on a Business Day on or prior to September 15, 2000. 2.2 FUNDINGS. (a) Amount of Fundings. Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, upon receipt of a Notice of Delivery, on the related Delivery Date each Certificate Holder shall acquire its interest in the Trust Estate and fund in accordance with Section 2.1 of the Trust Agreement, and each Lender (subject to the provisions of clause (b) below) shall assist in funding the Equipment Cost of the Aircraft being delivered on such date, in each case by making available to the Certificate Trustee by wire transfer in accordance with instructions set forth in the Notice of Delivery an amount equal to such Participant's Commitment Percentage of the aggregate amount of the Equipment Cost of the Aircraft being delivered on such date. Notwithstanding the foregoing, (i) the Funding by each Participant on such Delivery Date shall not exceed such Participant's Available Commitment and (ii) the aggregate amount of the Equipment Cost of the Aircraft being delivered on the Closing Date to be paid by Certificate Trustee to the applicable Seller on such Closing Date shall not exceed $19,500,000, (iii) the aggregate amount of the Equipment Cost of the Aircraft being delivered on the subsequent Delivery Date shall not exceed $33,500,000, and (iv) the aggregate amount of the Equipment Cost of all the Aircraft delivered and paid for by the Certificate Trustee shall not exceed $53,000,000. The failure of a Certificate Holder or Facility Lender to fund its Commitment shall not release it from any liability to the Lessee for its failure to comply with its obligations under the Operative Documents. (b) CP Lender. Subject to the terms and conditions hereof and of the Loan Agreement, the CP Lender may, in its sole discretion, make CP Loans to the Certificate Trustee on any Delivery Date. If the CP Lender elects not to, or otherwise fails to, make available to the Administrative Agent on the applicable Delivery Date an amount equal to the CP Lender's Commitment Percentage of the aggregate amount of the Equipment Cost required by the terms hereof to be funded on such Delivery Date, upon receipt by the applicable Facility Lenders of a notice from the Administrator pursuant to Section 2.2 of the Loan Agreement, such Facility Lenders shall, subject to the terms and conditions hereof and in the Loan Agreement, make available to Administrative Agent amounts equal to their respective Commitment Percentages of the amount of the Equipment Cost required by the terms hereof to be funded on such Delivery Date pursuant to the Loan Agreement. The parties hereto acknowledge that the CP Lender shall not be obligated to make a Funding on any Delivery Date notwithstanding the use of the term "Commitment", "Available Commitment" or "Commitment Percentage" in relation to the CP Lender, or any other language indicating an obligation of the CP Lender to make a Funding on a Delivery Date. 3 (c) Notes and Certificates. Each Lender's Loan for any Aircraft shall be evidenced by a separate Note issued to such Lender (or the Administrative Agent for the ratable benefit of the Lenders) and repayable in accordance with and with Interest accruing pursuant to the terms of the Loan Agreement. The Certificate Amounts advanced for any Aircraft by each Certificate Holder shall be evidenced by a separate Certificate issued by Certificate Trustee to each Certificate Holder. Each Certificate shall accrue Yield at the Yield Rate on the Certificate Amounts thereof and shall be payable as more fully set forth in the Trust Agreement. (d) Termination of Commitments. Notwithstanding anything in this Participation Agreement to the contrary, the Commitments shall terminate and Certificate Trustee shall not be obligated to make payment to the Seller, and no party hereto shall be obligated to make any Fundings towards the delivery of Aircraft, and no Delivery Date may occur after the earlier of (v) 2:00 P.M. New York time on September 15, 2000, (w) a Lease Default or an Event of Default shall have occurred and be continuing and written notice of such effect shall have been given by the Agent to the Lessee, (x) the final Delivery Date, (y) any Liquidity Purchase by a Liquidity Provider under the LAPA, or (z) any conversion of a CP Loan to a Facility Loan under Section 2.12 of the Loan Agreement. 2.3 CLOSING DATE AND DELIVERY DATES; PROCEDURE FOR PARTICIPATION. (a) Document Delivery. All documents and instruments required to be delivered on the Closing Date or any Delivery Date shall be delivered on or prior to such date at the office of Moore & Van Allen, PLLC, 100 N. Tryon Street, Floor 47, Charlotte, North Carolina 28202-4003 or at such other location as may be determined by the Certificate Trustee, the Administrative Agent and the Lessee. (b) Notice of Delivery. Not later than 5:00 P.M., Eastern time, on the fifth Business Day preceding each Delivery Date, the Lessee shall give the Administrative Agent notice (a "Notice of Delivery") by facsimile or other form of telecommunication or telephone (to be promptly confirmed in writing) of the Delivery Date of such Aircraft (which shall be a Business Day), which Notice of Delivery shall specify in reasonable detail the Aircraft to be delivered on such date, the Equipment Cost for such Aircraft, wire instructions for the disbursements of the appropriate amount of the funds to the applicable Seller and the respective amounts of the Commitments required to be funded with respect to such Aircraft. Prior to 11:00 A.M., Eastern time, on the respective Delivery Date, (i) each Certificate Holder shall make its Commitment required to be funded on such Delivery Date available to the Administrative Agent, and (ii) subject to Section 2.2(b), each Lender shall make its Commitment required to be funded on such Delivery Date available to the Administrative Agent, in each case, by transferring or delivering such amounts, in funds immediately available on such Delivery Date, to the Administrative Agent; provided, that if the terms and conditions set forth herein for making such Commitment available on such Delivery Date have not been satisfied prior to 11:00 A.M. Eastern time on such Delivery Date, no Participant shall be obligated to maintain the availability of its funds unless such Participant receives a satisfactory indemnity for the overnight investment of such funds. Delivery of any Notice of Delivery shall be deemed to be a certification from Lessee as of the date of such Notice of Delivery that the representations and warranties of Lessee contained herein or in any other Operative Document shall be true and correct in all material 4 respects as though made on and as of such date, except that any such representation or warranty which is expressly made only as of an earlier date need be true only as of such date. (c) Delivery Date Occurrences. Upon receipt by the Administrative Agent on the respective Delivery Date of the full amount of the Commitments in respect of the Aircraft delivered on such date, the Administrative Agent on behalf of the Certificate Trustee shall, subject to the conditions set forth in Section 4 having been fulfilled to the satisfaction of the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders, the Lessee and the Administrative Agent or waived by such parties as appropriate, pay to the applicable Seller from the funds then held by the Administrative Agent, in immediately available funds, an amount equal to the Equipment Cost for the Aircraft delivered on such Delivery Date, and simultaneously therewith, (i) the Lessee, individually and as authorized representative of the Certificate Trustee (the making available by each Certificate Holder of its Commitment to be paid on such Delivery Date shall constitute an agreement to permit Lessee to act as the authorized representative of the Certificate Trustee with respect to such Aircraft), shall confirm acceptance of such Aircraft from the applicable Seller for all purposes as among the Certificate Trustee and Seller (except that there shall not be any waiver of claims by any Person as against the applicable Seller as a result thereof), such confirmation to be conclusively evidenced by the execution and delivery by Lessee of a Lease Supplement covering such Aircraft, (ii) the Seller shall deliver the Bill(s) of Sale to the Certificate Trustee covering such Aircraft, (iii) the Certificate Trustee shall, pursuant to the Lease, lease such Aircraft to the Lessee, and Lessee, pursuant to the Lease, shall accept delivery of such Aircraft under the Lease (such lease, delivery and acceptance of such Aircraft under the Lease being conclusively evidenced by the execution and delivery by the Lessee and the Certificate Trustee of a Lease Supplement covering such Aircraft), and (iv) the Certificate Trustee shall execute and deliver Certificates to the Certificate Holders (on the Closing Date only) and Notes to the Lenders (on the Closing Date only). Each of the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders, the Administrative Agent and Lessee hereby agree to take all actions required to be taken by it in connection therewith and pursuant to this Section 2.3(c). 2.4 DIRECTION TO THE CERTIFICATE TRUSTEE AND ADMINISTRATIVE AGENT; SATISFACTION OF CONDITIONS. (a) Each Certificate Holder agrees that the making available to the Administrative Agent of its respective portion of its Commitment on a Delivery Date in accordance with the terms of this Section 2 shall constitute, without further act, authorization and direction by such Certificate Holder to the Certificate Trustee, subject, on such Delivery Date, to the conditions set forth in Section 4 with respect to such Delivery Date having been fulfilled to the satisfaction of such Certificate Holder, to take the actions specified in this Agreement and the Trust Agreement with respect to the Aircraft delivered on such Delivery Date. (b) Each Lender agrees that the making available to the Administrative Agent of its respective portion of its Commitment on a Delivery Date in accordance with the terms of this Section 2 shall constitute the direction of such Lender to the Administrative Agent, without further act, authorization and direction by such Lender to the Administrative Agent, subject, on such Delivery Date, to the conditions set forth in Section 4 with respect to such Delivery Date having been fulfilled to the satisfaction of such Lender, to take the actions specified in this 5 Agreement and the Loan Agreement with respect to the Aircraft delivered on such Delivery Date. 2.5 NATURE OF TRANSACTION. It is the intention of the parties that notwithstanding any provision of this Agreement to the contrary: (a) the Overall Transaction constitutes an operating lease from Certificate Trustee to the Lessee for purposes of Lessee's financial reporting; (b) for federal and state income tax, property tax, bankruptcy including the substantive law upon which bankruptcy proceedings are based) and Uniform Commercial Code purposes: (i) the Overall Transaction constitutes a financing by the Participants to the Lessee, and beneficial ownership in the Aircraft shall be deemed to be held by, and the Overall Transaction preserves beneficial ownership in the Aircraft in, the Lessee and the obligations of Lessee to pay the Interest and Yield portions of Basic Rent shall be treated as payments of interest to the Participants, and the payment by Lessee of any amounts in respect of the Lease Balance shall be treated as payments of principal to the Participants; (ii) the Certificate Trustee's holding of any title in the Aircraft shall be as security for Lessee's obligations under the Operative Documents, and the Lease grants a security interest or a lien, as the case may be, in the Aircraft and the other Lease Collateral in favor of the Certificate Trustee, and for the benefit of the Participants; and (iii) the Security Agreement creates liens and security interests in the Collateral defined therein for the benefit of all of the Participants. Nevertheless, the Lessee and each Financing Party acknowledges and agrees that none of such entities has made any representations or warranties concerning the tax, accounting or legal characteristics of the Operative Documents or any aspect of the Overall Transaction and that each such entity has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents and the Overall Transaction as such party deems appropriate. 2.6 AMOUNTS DUE UNDER LEASE. Anything else herein or elsewhere to the contrary notwithstanding, it is the intention of Lessee, Certificate Trustee, and Participants that from and after the Closing Date: (i) the amount and timing of installments of Basic Rent due and payable from time to time from the Lessee under the Lease on a Payment Date shall be equal to the aggregate payments due and payable in respect of principal and accrued Interest on the Notes and redemptions of Certificate Amount and accrued Yield on the Certificates on such Payment Date; (ii) if Lessee becomes obligated to purchase an Aircraft under the Lease, the principal of the corresponding Loans, Certificate Amounts, all accrued and unpaid Interest and all accrued and unpaid Yield thereon and all other obligations of the Lessee owing to the Financing Parties with respect thereto shall be paid in full by the Lessee in accordance with Sections 21 and 22 of the Lease; (iii) if Lessee properly elects 6 the Sale Option with respect to any Aircraft and remarkets such Aircraft in accordance with Section 23 of the Lease, on the Expiration Date Lessee shall only be required to pay the Sale Proceeds of the sale of such Aircraft and, if the Sale Proceeds are less than the Lease Balance of such Aircraft, the amount of such difference but not more than the Sale Recourse Amount for such Aircraft, all in accordance with Section 23 of the Lease, and any other amounts due pursuant to Section 7.9 hereof and such Section 23 of the Lease (which aggregate amounts may be less than the Lease Balance of such Aircraft); and (iv) upon a Lease Event of Default resulting in an acceleration of the Lessee's obligation to purchase the Aircraft under the Lease, the amounts then due and payable by the Lessee under Section 14 of the Lease shall include all amounts necessary to pay in full the outstanding principal under the Loans, the Certificate Amounts and all accrued Interest and Yield thereon, plus all other amounts then payable by the Lessee to the Financing Parties under the Operative Documents. 2.7 COMPUTATIONS. For all purposes under the Operative Documents, all computations of Interest, Yield and other accrued amounts (including, without limitation, the Overdue Rate) shall be made on the basis of a 360-day year and the actual days elapsed, subject to the last sentence in Section 2.8 hereof, Section 2.5 of the Trust Agreement and Section 2.7 of the Loan Agreement, as applicable. 2.8 DETERMINATION OF INTEREST AND YIELD. The amount of principal outstanding on the Loans shall accrue Interest as provided in Section 2.6(a) of the Loan Agreement. The amount of Certificate Amounts outstanding from time to time shall accrue Yield at the per annum rate equal to the Yield Rate. Administrative Agent shall as soon as practicable, but in no event later than 11:00 A.M., New York time, two Business Days prior to the effectiveness of each LIBO Rate, notify Borrower, Lessee and the Participants of such LIBO Rate, the corresponding rate of interest per annum (if such Interest is calculated by reference to the LIBO Rate) and Yield Rate and the applicable Payment Period, as applicable, but failure to so notify shall not affect the obligations of the parties hereunder or under the other Operative Documents. If all or any portion of the principal under the Loans, the Certificate Amounts, any accrued Interest or Yield payable thereon or any other amount payable hereunder shall not be paid when due (whether at stated maturity, acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is equal to the Overdue Rate and shall be payable by Certificate Trustee (and an equal amount of Supplemental Rent shall be due and payable at such time by the Lessee) from time to time on demand. If at any time the rate on which either Interest or Yield accrue is determined by reference to the LIBO Rate and such rate cannot be determined by reference to a LIBO Rate (or if such rate becomes unavailable or illegal) then the rate on which Interest and Yield accrues, as applicable, shall be determined as provided in Section 7.4 hereof. 2.9 OBLIGATIONS SEVERAL. The obligations of the Participants hereunder or elsewhere in the Operative Documents shall be several and not joint; and no Participant shall be liable or responsible for the acts or defaults of any other party hereunder or under any other Operative Document. 7 2.10 HIGHEST LAWFUL RATE. It is the intention of the parties hereto to conform strictly to applicable usury laws and, anything herein to the contrary notwithstanding, the obligations of (x) Lessee to Certificate Trustee under this Participation Agreement and the Lease, (y) Certificate Trustee to the Certificate Holders under the Trust Agreement and the Certificates and to the Lenders under the Loan Agreement and the Notes, and (z) either Lessee or the Certificate Trustee or any other party under any other Operative Document shall be subject to the limitation that payments of interest or of other amounts constituting interest under Applicable Laws and Regulations shall not be required to the extent that receipt thereof would be in excess of the Highest Lawful Rate (as defined below), or otherwise contrary to provisions of law applicable to the recipient limiting rates of interest which may be charged or collected by the recipient. Accordingly, if the transactions or the amount paid or otherwise agreed to be paid for the use, forbearance or detention of money under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or any other Operative Document would exceed the Highest Lawful Rate or otherwise be usurious under Applicable Laws and Regulations (including without limitation the federal and state laws of the United States of America, or of any other jurisdiction whose laws may be mandatorily applicable) with respect to the recipient of any such amount, then, in that event, notwithstanding anything to the contrary in this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or any other Operative Document, it is agreed as follows as to the recipient of any such amount: (a) the provisions of this Section 2.10 shall govern and control over any other provision in this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other Operative Document and each provision set forth therein is hereby so limited; (b) the aggregate of all consideration which constitutes interest under Applicable Laws and Regulations that is contracted for, charged or received under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or any other Operative Document shall under no circumstances exceed the maximum amount of interest allowed by Applicable Laws and Regulations (such maximum lawful interest rate, if any, with respect to such recipient herein called the "Highest Lawful Rate"), and all amounts owed under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other Operative Document shall be held subject to reduction and: (i) the amount of interest which would otherwise be payable to the recipient hereunder and under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other Operative Document, shall be automatically reduced to the amount allowed under Applicable Laws and Regulations, and (ii) any unearned interest accrued, payable or paid in excess of the Highest Lawful Rate shall be credited to the payor by the recipient (or, if such obligation shall have been paid in full, refunded to the payor); (c) all sums paid, or agreed to be paid for the use, forbearance and detention of the money under this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes or any other Operative Document shall, to the extent permitted by Applicable Laws and Regulations, be amortized, prorated, allocated and spread throughout the 8 full term of such indebtedness until payment in full so that the actual rate of interest is uniform throughout the full term thereof; (d) if at any time the interest, together with any other fees, late charges and other sums payable pursuant to or in connection with this Participation Agreement, the Lease, the Trust Agreement, the Certificates, the Loan Agreement, the Notes and any other Operative Document executed in connection herewith or therewith and deemed interest under Applicable Laws and Regulations, exceeds that amount which would have accrued at the Highest Lawful Rate, the amount of interest and any such fees, charges and sums to accrue to the recipient of such interest, fees, charges and sums pursuant to the Operative Documents shall be limited, notwithstanding anything to the contrary in the Operative Documents, to that amount which would have accrued at the Highest Lawful Rate for the recipient, but any subsequent reductions, as applicable, shall not reduce the interest to accrue pursuant to the Operative Documents below the recipient's Highest Lawful Rate until the total amount of interest payable to the recipient (including all consideration which constitutes interest) equals the amount of interest which would have been payable to the recipient (including all consideration which constitutes interest), plus the amount of fees which would have been received but for the effect of this Section 2.10. SECTION 3. REPRESENTATIONS AND WARRANTIES 3.1 REPRESENTATIONS AND WARRANTIES OF THE TRUST COMPANY AND THE CERTIFICATE TRUSTEE. Each of the Certificate Trustee and the Trust Company, in its individual capacity, represent and warrant to the other parties to this Agreement, notwithstanding the provisions of Section 9.11 or any similar provision in any other Operative Document, that, as of the Closing Date and each Delivery Date: (a) Chief Executive Office. Its chief executive office or place of business (if it has only one place of business) and the place where the documents, accounts and records relating to the Overall Transaction are kept are located at its address set forth in Schedule III attached hereto. (b) Due Organization, etc. The Trust Company is a national banking association duly organized and validly existing in good standing under the laws of the United States and has full corporate power and authority to execute, deliver and perform its obligations: (i) in its individual capacity under the Trust Agreement and, to the extent it is a party hereto in its individual capacity, this Participation Agreement, and (ii) acting as Certificate Trustee under the Trust Agreement, under this Participation Agreement and each other Operative Document to which it is or will be a party as Certificate Trustee. (c) Due Authorization; Enforceability, etc. This Participation Agreement and each other Operative Document to which the Trust Company is or will be a party have been or will be (to the extent it is to be a party thereto in its individual capacity), duly authorized, executed and delivered by or on behalf of the Trust Company (in its individual capacity) and are, or upon execution and delivery will be, legal, valid and binding obligations of the Trust Company (in its individual capacity), enforceable against it in accordance with their respective terms, except as 9 such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors' rights generally and by general equitable principles. The Operative Documents to which Certificate Trustee is a party (assuming the due authorization, execution and delivery of the Trust Agreement by the Certificate Holders) have been duly authorized, executed and delivered and constitute the legal, valid and binding obligation of Certificate Trustee (acting solely as Certificate Trustee under the Trust Agreement, and not in its individual capacity), enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general equitable principles. (d) No Conflict. The execution and delivery by (i) the Trust Company, in its individual capacity, of the Trust Agreement and, to the extent it is a party hereto in its individual capacity, this Participation Agreement and (ii) the Certificate Trustee of each Operative Document to which Certificate Trustee is or will be a party, are not and will not be, and the performance by the Trust Company, in its individual capacity, or the Certificate Trustee, as the case may be, of its obligations under each are not and will not be, inconsistent with the articles of association or by-laws of the Trust Company, do not and will not contravene any Applicable Laws and Regulations of the United States of America or the State of Utah relating to the banking or trust powers of the Trust Company and do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, loan or credit arrangement or other agreement or instrument to which the Trust Company is a party or by which it or its properties may be bound or affected. (e) No Approvals, etc. Neither the execution and delivery by the Trust Company in its individual capacity or (assuming the due authorization, execution and delivery of the Trust Agreement by each Certificate Holder) as Certificate Trustee, as the case may be, of any of the Operative Documents to which it is a party requires the consent or approval of, or the giving of notice to or registration with, or the taking of any other action in respect of, any United States of America or Utah Authority governing its banking practices. (f) Certificate Trustee Liens. Each Aircraft and the Lease and other Collateral are free and clear of all Certificate Trustee Liens attributable to the Trust Company or the Certificate Trustee and no act or omission has occurred which would give rise to a Certificate Trustee Lien attributable to the Trust Company or the Certificate Trustee. (g) Litigation. There is no action, proceeding or investigation pending or, to the best knowledge of the Trust Company, threatened against the Trust Company or Certificate Trustee which questions the validity of any of the Operative Documents, and there is no action, proceeding or investigation pending or, to the best knowledge of the Trust Company, threatened which is likely to result, either in any case or in the aggregate, in any material adverse change in the ability of the Trust Company or Certificate Trustee to perform its obligations under the Operative Documents to which it is a party. (h) Securities Act. Neither the Trust Company nor Certificate Trustee nor any Person authorized to act on its behalf has offered or sold any interest in the Notes or Certificates, or in any similar security relating to the Aircraft, or in any security, the offering of which for the purposes of the Securities Act would be deemed to be part of the same offering as the offering of 10 the aforementioned securities, to, or solicited any offer to acquire any of the same from, any Person other than, in the case of the Notes, the Lenders, and in the case of the Certificates, the Certificate Holders, each of whom was offered a portion thereof at private sale for investment, and neither the Trust Company nor Certificate Trustee nor any Person authorized to act on its behalf will take any action which would require registration of the offer or sale of any interest in the Notes or Certificates pursuant to the provisions of Section 5 of the Securities Act or any state securities laws. (i) No Taxes. There are no Taxes payable by the Certificate Trustee or the Trust Company imposed by the State of Utah or any political subdivision thereof or by the United States of America in connection with the execution and delivery by the Trust Company of the Trust Agreement, and the execution and delivery by the Trust Company or the Certificate Trustee, as the case may be, of this Agreement or the other Operative Documents to which it is a party solely because the Trust Company is a national banking association with its principal place of business in Salt Lake City, Utah and performs certain of its duties as the Certificate Trustee in the State of Utah; and there are no Taxes payable by the Certificate Trustee or the Trust Company imposed by the State of Utah or any political subdivision thereof or by the United States of America in connection with the acquisition of its interest in the Trust Estate (other than franchise or other Taxes based on or measured by any fees or compensation received by the Trust Company for services rendered in connection with the transactions contemplated hereby) solely because the Trust Company is a national banking association with its principal place of business in Salt Lake City, Utah and performs certain of its duties as the Certificate Trustee in the State of Utah. 3.2 REPRESENTATIONS AND WARRANTIES OF LESSEE. The Lessee hereby represents and warrants to the other parties to this Agreement that, as of the Closing Date and each Delivery Date: (a) Due Organization, Etc. The Lessee is a corporation duly organized, validly existing and in good standing under the laws of the State of Michigan. Each Material Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation in which failure to be so duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation would have a Material Adverse Effect. The Lessee and each of its Material Subsidiaries are qualified to do business in and are in good standing under the laws of each jurisdiction in which failure to be so qualified would have a Material Adverse Effect. (b) Due Authorization, etc. The execution, delivery and performance by the Lessee of the Operative Documents (i) are within the Lessee's corporate powers and have been duly authorized by all necessary corporate action or (ii) do not contravene the Lessee's Certificate of Incorporation, applicable law or any material contractual restriction binding on or affecting the Lessee or any of its Material Subsidiaries. (c) Governmental Consent. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Lessee of this Agreement and the other Operative 11 Documents, other than those that have been, or contemporaneously with the delivery of the Aircraft will be, obtained, all of which are listed on Schedule 3.2(c). (d) Validity. The Operative Documents to which the Lessee is a party constitute legal, valid and binding obligations of the Lessee enforceable against the Lessee in accordance with their terms subject to the effect of applicable bankruptcy, insolvency, arrangement, moratorium and other similar laws affecting creditors' rights generally and to the application of general principles of equity. (e) Condition of the Lessee. (i) The consolidated balance sheet of the Lessee and its Subsidiaries as of February 26, 1999, and the related consolidated statements of income and retained earnings of the Lessee and its Subsidiaries for the fiscal year then ended, copies of which have been previously furnished to the Administrative Agent and the Participants, fairly present the consolidated financial condition of the Lessee and its Subsidiaries as at such date and the results of the operations of the Lessee and its Subsidiaries for the periods ended on such dates, all in accordance with GAAP consistently applied, and (ii) since February 26, 1999, there has been no material adverse change in the business, condition (financial or otherwise), results of operations or prospects of the Lessee and its Subsidiaries, taken as a whole. (f) Litigation. (i) There is no pending action or proceeding against the Lessee or any of its Subsidiaries before any court, governmental agency or arbitrator, and (ii) to the knowledge of the Lessee, there is no pending or threatened action or proceeding affecting the Lessee or any of its Subsidiaries before any court, governmental agency or arbitrator, which in either case, affects any Aircraft or in the reasonable judgment of the Lessee could reasonably be expected to have a Material Adverse Effect. (g) Margin Regulations. The Lessee is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Funding will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock in any manner that violates, or would cause a violation of Regulation T, Regulation U or Regulation X. Less than 10 percent of the fair market value of the assets of (i) the Lessee or (ii) the Lessee and its Subsidiaries consists of Margin Stock. (h) Payment of Taxes. The Lessee and each of its Subsidiaries have filed or caused to be filed all material tax returns (federal, state, local and foreign) required to be filed and paid all material amounts of taxes shown thereon to be due, including interest and penalties, except for such taxes as are being contested in good faith and by proper proceedings and with respect to which appropriate reserves are being maintained by the Lessee or any such Subsidiary, as the case may be. (i) Governmental Regulation. The Lessee is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940, each as amended, or to any Federal or state statute or regulation limiting its ability to incur indebtedness for money borrowed. No Subsidiary of the Lessee is subject to any regulation that would limit the ability of the Lessee to enter into or perform its obligations under this Agreement. 12 (j) ERISA. (i) No ERISA Event which might result in liability of the Lessee or any of its ERISA Affiliates in excess of $10,000,000 (or, in the case of an event described in clause (v) of the definition of ERISA Event, $750,000) (other than for premiums payable under Title IV of ERISA) has occurred or is reasonably expected to occur with respect to any Pension Plan. (ii) Schedule B (Actuarial Information) to the most recently completed annual report prior to the Closing Date (Form 5500 Series) for each Plan, which report has been filed with the Internal Revenue Service by the Lessee or an ERISA Affiliate, copies of which have been furnished to the Administrative Agent and the Participants, is complete and, to the best knowledge of the Lessee, accurate, and since the date of such Schedule B there has been no material adverse change in the funding status of any such Plan. (iii) Neither the Lessee nor any ERISA Affiliate has incurred, or, to the best knowledge of the Lessee, is reasonably expected to incur, any Withdrawal Liability to any Multiemployer Plan which has not been satisfied or which is or might be in excess of $10,000,000. (iv) Neither the Lessee nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and, to the best knowledge of the Lessee, no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated within the meaning of Title IV of ERISA. (k) Environmental Matters. (i) The Lessee and each of its Subsidiaries is in compliance in all material respects with all Environmental Laws the non-compliance with which could reasonably be expected to have a Material Adverse Effect and (ii) there has been no "release or threatened release of a hazardous substance" (as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq.) or any other release, emission or discharge into the environment of any hazardous or toxic substance, pollutant or other materials from the Lessee's or its Subsidiaries' property other than as permitted under applicable Environmental Law and other than those which would not have a Material Adverse Effect. Other than disposals (A) for which the Lessee has been indemnified in full or (B) which would not have a Material Adverse Effect, all "hazardous waste" (as defined by the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (1976) and the regulations thereunder, 40 CFR Part 261 ("RCRA")) generated at the Lessee's or any Subsidiaries' properties have in the past been and shall continue to be disposed of at sites which maintain valid permits under RCRA and any applicable state or local Environmental Law. (l) Disclosure. As of the Closing Date, to the best of the Lessee's knowledge, no representation or warranty of the Lessee or any of its Subsidiaries contained in this Agreement or any other Operative Document or in any other document, certificate or written statement furnished to the Administrative Agent or to the Participants by or on behalf of the Lessee or any of its Subsidiaries contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such agreements, documents, 13 certificates and statements not misleading in light of the circumstances in which the same were made. (m) No Default. No Lease Event of Default or Lease Default exists or would result from the Lessee entering into and performing the Operative Documents to which it is a party. No Event of Loss has occurred with respect to any Aircraft to be delivered on the Delivery Date with respect to which this representation or warranty is made. (n) Chief Executive Office. Lessee's chief executive office, as such term is used in Section 9-103(3) of the UCC, is located in Grand Rapids, Michigan. (o) Private Offering. Excluding the effect of any failure of the representations and warranties set forth in Sections 3.1(h) and 3.3(f), (g) and (i) to be true and correct, the issuance, sale and delivery of the Certificates, the Notes and the interests in the Operative Documents under the circumstances contemplated hereby do not require the registration or qualification of such Certificates, Notes or interests under the Securities Act, any state securities laws, or the Trust Indenture Act of 1939, as amended. Neither Lessee nor anyone authorized to act on its behalf has, directly or indirectly, solicited any offers to acquire, offered or sold: (i) any interest in the Certificates, Notes, the Aircraft, the Lease or the Operative Documents in violation of Section 5 of the Securities Act or any state securities laws, or (ii) any interest in any security or lease the offering of which, for purposes of the Securities Act or any state securities laws, would be deemed to be part of the same offering as the offering of the aforementioned interests. Neither Lessee nor anyone authorized to act on its behalf was involved in (y) offering or soliciting offers for the Certificates, Notes or any similar securities or (z) selling Certificates, Notes or any similar securities to any Person other than the Certificate Holders and the Lenders, respectively, identified and contacted by the Arranger and not more than 35 Institutional Investors. (p) Aircraft. With respect to the Aircraft to be delivered on such Delivery Date to Lessee: (i) Such Aircraft is free and clear of all Liens (other than Permitted Liens). Neither Lessee nor any Affiliate of Lessee is a party to any other contract or agreement to sell, transfer or encumber any interest in the Aircraft or any part thereof other than pursuant to or permitted by the Operative Documents or in connection with Permitted Liens. (ii) Such Aircraft and any present use and presently anticipated future use thereof by Lessee and/or its agents, assignees, employees, invitees, lessees and licensees complies with all Applicable Laws and Regulations (including Environmental Laws) and insurance requirements, except for such instances of non-compliance that would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or a material adverse effect on such Aircraft. No notices, complaints or orders of violation or non-compliance or liability have been issued or, to the best of its knowledge, threatened by any Person with respect to any Aircraft or the present or intended future use thereof, except for such violations and instances of non-compliance as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse 14 Effect or a material adverse effect on such Aircraft, and Lessee is not aware of any circumstances which could give rise to the issuance of any such notices, complaints or orders which could reasonably be expected to have a Material Adverse Effect or a material adverse effect on such Aircraft. (iii) Except for the filings and recordings listed in Schedule 3.2(c) no other filings or recordings are necessary to validly and effectively convey to the Administrative Agent, for the benefit of the Participants a valid and enforceable first priority Lien (subject to Permitted Liens) on the Aircraft and other Collateral in the United States of America, and upon such filings or recordings listed on Schedule 3.2(c), the Administrative Agent, for the benefit of the Participants will have a valid and enforceable first priority Lien (subject to Permitted Liens) for the benefit of the Participants in the Aircraft and other Collateral in the United States of America. (iv) Taken as a whole, the information provided by Lessee and its Affiliates to the Appraiser was true and correct in all material respects when provided and when provided did not omit any information regarding the title, physical condition, or use of the Aircraft which it or any of its Affiliates knew was necessary to make the information provided not materially misleading. (q) Transfer Taxes. On such date all sales, use or transfer Taxes due and payable upon the purchase of the Aircraft delivered on such date by the Certificate Trustee and on the lease thereof to Lessee will have been paid by Lessee or Lessee shall be liable for the payment thereof. (r) No Brokers Fees. Except as expressly contemplated by the Operative Documents, no broker's or finder's or placement fee or commission will be payable with respect to the purchase and sale or leasing of the Aircraft to any Person retained by or acting as an agent for Lessee or any Affiliate of Lessee other than those paid on or prior to the Delivery Date of such Aircraft and Lessee agrees that it will hold the other parties to this Agreement harmless from any claim, demand or liability for any such broker's or finder's or placement fees or commissions incurred or alleged to have been incurred. 3.3 REPRESENTATIONS AND WARRANTIES OF EACH PARTICIPANT. Each Participant represents and warrants, severally and only as to itself, to the other parties to this Agreement, that, as of the Closing Date and each Delivery Date: (a) ERISA. Such Participant is not and will not be making its Loans or funding Certificate Amounts hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or "plan" (as defined in Section 4975(e)(1) of the Code). (b) Status. Such Participant is a commercial bank, branch or agency of a foreign bank or other similar financial institution, or an Affiliate thereof, or in the case of the CP Lender, a company engaged in the business of issuing asset-backed commercial paper and using the proceeds thereof to purchase, make loans secured by, or otherwise acquire interests in, receivables and other financial assets, including the making of loans such as the CP Loans. 15 (c) Power and Authority; Validity. Such Participant has the requisite power and authority to enter into and perform its obligations under the Operative Documents to which it is a party and the Operative Documents to which it is a party constitute legal, valid and binding obligations of such Participant enforceable against such Participant in accordance with their terms, subject to the effect of applicable bankruptcy, insolvency, arrangement, moratorium and other similar laws affecting creditor rights generally and to the application of general principals of equity. (d) Certificate Trustee Liens. There are no Certificate Trustee Liens attributable to such Participant on the Lease, the Aircraft or the other Collateral. (e) Organization, etc. Such Participant is a corporation or banking association duly organized, validly existing and in good standing under the laws of the State or jurisdiction of its organization. (f) Investment. The Certificate or Note being acquired by such Participant (and in the case of a Facility Lender, its rights and obligations under the LAPA) is being acquired by such Participant for its own account for investment and not with a view to or in connection with the resale or distribution of such interest or any part thereof, but without prejudice, however, to the right of such Participant at all times to sell or otherwise dispose of all or any part of such interest under a registration available under the Securities Act or under an exemption from such registration available under the Securities Act, it being understood that (subject to the Securities Act) the disposition by the undersigned of the Certificate or Note to be purchased by such Participant shall, at all times, remain entirely within its control. (g) Offers of Securities, etc. Neither such Participant nor any Person authorized to act on its behalf has offered or sold any interest in the Notes or Certificates, or in any similar security relating to the Aircraft, or in any security, the offering of which for the purposes of the Securities Act would be deemed to be part of the same offering as the offering of the aforementioned securities, to, or solicited any offer to acquire any of the same from, any Person other than, in the case of the Notes, the Lenders, and in the case of the Certificates, the Certificate Holders, each of whom was offered a portion thereof at private sale for investment. (h) No Registration. Such Participant understands and acknowledges that (1) neither the Notes nor the Certificates have been or will be registered under the Securities Act, in reliance upon the exemption provided in Section 4(2) of the Securities Act, (2) neither the Notes nor the Certificates have been or will be registered or qualified under the securities or "blue sky" laws of any jurisdiction, (3) the Notes and the Certificates may be resold (which resale is not currently contemplated, except for any assignment or participation to the Facility Lenders pursuant to the LAPA) or otherwise transferred only if so registered or qualified or if an exemption from registration or qualification is available, (4) neither the Lessee, the Certificate Trustee nor either of the Agents is required to register the Notes or the Certificates, and (5) any transfer must comply with the provisions of the Operative Documents relating thereto. Such Participant will comply with all applicable federal and state securities laws in connection with any subsequent resale of the Notes or the Certificates held by it. 16 (i) Institutional Investor. Such Participant is a sophisticated institutional investor and is an "accredited investor" as defined in paragraph (1), (2), (3) or (7) of Rule 501(a) of the Securities Act, and has substantial knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of its investment in the Notes or the Certificates and is able to bear the economic risk of such investment for an indefinite period of time. Such Participant has been given all such information concerning the Notes and the Certificates, the other Operative Documents, the Aircraft, Certificate Trustee and Lessee as it has requested. (j) Legend. Such Participant understands and acknowledges that the Note or Certificate which it is acquiring will bear a legend as set forth in the form of CP Note or form of Facility Note included in the Loan Agreement or the form of Certificate included in the Trust Agreement, as applicable. (k) Tax Status and Forms. Either (1) such Participant is a "United States person" within the meaning of Section 7701(a)(3) of the Code, (2) the taxable income of such Participant from the transactions contemplated by the Operative Documents is effectively connected with the conduct of a trade or business within the United States within the meaning of Section 882(a)(1) of the Code, or (3) such Participant will comply with Section 7.3. The making of any Loan or the advancing of any Certificate Amount on any Delivery Date, the purchase of any interest in any Loan by any Facility Lender, as a Liquidity Bank, under the LAPA, and any assignment or conversion of any Facility Loan to any CP Loan or vice versa under the LAPA or the Loan Agreement shall constitute an affirmation by the subject assignee or acquiring Participant of each of the preceding representations and warranties. 3.4 REPRESENTATIONS AND WARRANTIES OF ADMINISTRATIVE AGENT. First Security Trust, in its individual capacity and not as Agent, hereby represents and warrants to each of the other parties hereto that as of the Closing Date and each Delivery Date: (a) Organization and Authority. It is duly organized as a trust company under the laws of the State of Nevada and has the corporate power and authority to enter into and perform its obligations under the Operative Documents. (b) Authorization; Binding Effect. The Operative Documents to which Administrative Agent is or will be a party have been or will be, on the date required to be delivered hereby, duly authorized, executed and delivered by Administrative Agent, and this Participation Agreement is, and such other Operative Documents are, or, when so executed and delivered by Administrative Agent will be, valid, legal and binding agreements of Administrative Agent, enforceable against Administrative Agent in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity. (c) Non-Contravention. Neither the execution and delivery by Administrative Agent of the Operative Documents to which it is or will be a party, either in its individual capacity, or as Administrative Agent, or both, nor compliance with the terms and provisions thereof, conflicts with, results in a breach of, constitutes a default under (with or without the giving of notice or 17 lapse of time or both), or violates any of the terms, conditions or provisions of: (i) its charter documents or bylaws; (ii) any bond, debenture, note, mortgage, indenture, agreement, lease or other instrument to which it is now a party or by which it or its property, either in its individual capacity, or as Administrative Agent, or both, is bound or affected, where such conflict, breach, default or violation would be reasonably likely to materially and adversely affect the ability of Administrative Agent, either in its individual capacity, or as Administrative Agent, or both, to perform its obligations under any Operative Document to which it is or will be a party, either in its individual capacity, or as Administrative Agent, or both; or (iii) any of the terms, conditions or provisions of any law, rule, regulation, order, injunction or decree of any federal or Authority of Nevada applicable to it in its individual capacity or as Administrative Agent, or both, where such conflict, breach, default or violation would be reasonably likely to materially and adversely affect the ability of Administrative Agent, either in its individual capacity, or as Administrative Agent, or both, to perform its obligations under any Operative Document to which it is or will be a party. (d) Absence of Litigation, etc. There is no litigation (including derivative actions), arbitration or governmental proceedings pending or, to the best knowledge of Administrative Agent, threatened against it which would be reasonably likely to adversely affect Administrative Agent's ability to perform its obligations under the Operative Documents to which it is or will be a party. (e) Governmental Approvals. No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required by Administrative Agent in connection with the Overall Transaction, except those which have been made or obtained or will be obtained on a timely basis in the ordinary course of Administrative Agent's business, and which are in full force and effect. SECTION 4. CLOSING CONDITIONS 4.1 CONDITIONS PRECEDENT TO CLOSING DATE. The obligations of Certificate Trustee (through Administrative Agent) to make payment of the Equipment Cost to the applicable Seller on the Closing Date, the obligations of the Certificate Holders to Fund the related Certificate Amounts on the Closing Date and the obligation of the Lenders to make the related Funding of their Loans on the Closing Date are subject to each of the following conditions precedent (except that (i) the obligation of any such party shall not be subject to such party's own performance or compliance and (ii) the conditions specified below as being only for the benefit of a specified party or parties need be fulfilled only to the satisfaction of, or waived by, such party or parties): (a) Each of the Operative Documents to be executed and delivered on such date shall be satisfactory in form and substance to the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Agents, shall have been duly authorized, executed and delivered by the parties thereto, shall each be in full force and effect and executed counterparts of each shall have been delivered to the Administrative Agent or its designee (on behalf of the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the 18 Administrator) on or before such date and no event shall have occurred and be continuing that constitutes a Lease Default or a Lease Event of Default. (b) On such date, the representations and warranties of the parties hereto referenced in Section 3 shall be true and correct with the same effect as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date (in which case such representations and warranties were true and correct on and as of such earlier date), and the parties to this Agreement shall have received an Officer's Certificate dated such date from the Lessee, the Administrative Agent and the Certificate Trustee, certifying as to the foregoing with respect to itself and stating that no Default or Event of Default has occurred and is continuing with respect to it. (c) The Lessee shall have caused (i) Financing Statements to have been filed in such places as any Participant or the Administrative Agent may reasonably request no later than five (5) Business Days prior to such date and (ii) all documents necessary to protect the Certificate Trustee's and the Administrative Agent's interest in the Aircraft delivered on such date to have been filed with the FAA. (d) The parties to this Agreement shall have received the favorable written opinion of each of (i) James Hopewell, Esq., Corporate Counsel for the Lessee, (ii) Baker & McKenzie, special counsel for the Lessee, (iii) Ray, Quinney & Nebeker, counsel for the Certificate Trustee and Administrative Agent, and (iv) Daugherty, Fowler, Peregrin & Haught, special FAA counsel, in each case in form and substance satisfactory to it. (e) The Administrative Agent, for the benefit of the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Agents, shall have received certificates of insurance in form and substance reasonably satisfactory to the Administrative Agent signed by the insurer or by an independent insurance broker evidencing insurance coverages required pursuant to Section 11 of the Lease with respect to the Aircraft delivered on such date. (f) The Lessee shall deliver or cause to be delivered to the Administrative Agent, for the benefit of the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Agents, the following, each, unless otherwise noted, dated such Closing Date and in form and substance satisfactory to them, (i) certified copies of its certificate of incorporation, together with a good standing certificate, from the State of Michigan, each dated a recent date prior to such Closing Date, (ii) copies of its articles of incorporation, by-laws and the resolution of its Board of Directors by which the Lessee has the authority to enter into the transactions contemplated hereby and to execute and deliver, and to perform its obligations under the Operative Documents to which it is or will be a party, certified as of the Closing Date by its corporate secretary or assistant secretary as being in full force and effect without modification or amendment, and (iii) incumbency certificates of its officers executing the Operative Documents to which it is a party. (g) The Trust Company shall deliver or cause to be delivered to the Certificate Holders, the CP Lender, the Facility Lenders and the Agents the following, each unless otherwise noted dated the Closing Date and in form and substance satisfactory to them, (i) a 19 certificate of good standing from the office of the Comptroller of the Currency dated a recent date prior to such Closing Date, (ii) a certified copy of its articles of association, by-laws and the resolution of its Board of Directors or applicable committee thereof approving and authorizing the execution, delivery and performance of the Operative Documents to which it is or will be a party, certified as of such Closing Date by an authorized officer as being in full force and effect without modification or amendment, and (iii) incumbency certificates of its officers executing the Operative Documents to which it is a party. (h) The Administrative Agent shall deliver or cause to be delivered to the Certificate Holders, the CP Lender, the Facility Lenders and the Administrator the following, each unless otherwise noted dated the Closing Date and in form and substance satisfactory to them, (i) a certificate of good standing from the State of Nevada dated a recent date prior to such Closing Date, (ii) a certified copy of its articles of association, by-laws and the resolution of its Board of Directors or applicable committee thereof approving and authorizing the execution, delivery and performance of the Operative Documents to which it is or will be a party, certified as of such Closing Date by an authorized officer as being in full force and effect without modification or amendment, and (iii) incumbency certificates of its officers executing the Operative Documents to which it is a party. (i) The Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Agents shall have received the Notice of Delivery required pursuant to Section 2.3(b). (j) Each Certificate Holder shall have made available its respective portion of its Commitment in the amount specified in, and otherwise in accordance with, Section 2.2 and the CP Lender (or each of the Facility Lenders, as the case may be), shall have made available its respective Commitment in the amount specified in, and otherwise in accordance with, Section 2.2. (k) The Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Administrative Agent shall have received the opinion of the Appraiser with respect to the Aircraft to be delivered on such date, in form and substance satisfactory to all such parties. (l) The Administrative Agent shall have received evidence satisfactory to it that the Transaction Costs and all Fees due and payable on or prior to such date have been paid. (m) There shall have been duly issued and delivered by the Certificate Trustee to the CP Lender (or the Facility Lenders, as the case may be), against payment therefor, the Notes and to the Certificate Holders, the Certificates, each dated the Closing Date. (n) The Administrative Agent and the Lessee shall have received a certificate, from the Arranger dated the Closing Date with respect to offerees of the Notes and Certificates. 4.2 SUBSEQUENT DELIVERY DATES. The obligations of Certificate Trustee (through Administrative Agent) to make payment of the Equipment Cost to the applicable Seller on any Delivery Date subsequent to the Closing 20 Date, the obligations of the Certificate Holders to Fund the related Certificate Amounts on such Delivery Date and the obligation of the Lenders to make the related Funding of their Loans on such Delivery Date are subject to each of the following conditions precedent (except that (i) the obligation of any such party shall not be subject to such party's own performance or compliance and (ii) the conditions specified below as being only for the benefit of a specified party or parties need be fulfilled only to the satisfaction of, or waived by, such party or parties): (a) Each of the Operative Documents to be executed and delivered on such date shall be satisfactory in form and substance to the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Agents, shall have been duly authorized, executed and delivered by the parties thereto, shall each be in full force and effect and executed counterparts of each shall have been delivered to the Administrative Agent or its designee (on behalf of the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Administrator) on or before such date and no event shall have occurred and be continuing that constitutes a Lease Default or a Lease Event of Default. (b) On such date, the representations and warranties of the parties hereto referenced in Section 3 shall be true and correct with the same effect as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date (in which case such representations and warranties were true and correct on and as of such earlier date), and the parties to this Agreement shall have received an Officer's Certificate dated such date from the Lessee, the Administrative Agent and the Certificate Trustee, certifying as to the foregoing with respect to itself and stating that no Default or Event of Default has occurred and is continuing with respect to it. (c) The parties to this Agreement shall have received the favorable written opinion of Daugherty, Fowler, Peregrin & Haught, special FAA counsel, in each case in form and substance satisfactory to it. (d) The Lessee shall have caused (i) Financing Statements to have been filed in such places as any Participant or the Administrative Agent may reasonably request no later than five (5) Business Days prior to such date and (ii) all documents necessary to protect the Certificate Trustee and the Administrative Agents interests in the Aircraft delivered on such date to have been filed with the FAA. (e) The Administrative Agent, for the benefit of Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Agents, shall have received certificates of insurance in form and substance reasonably satisfactory to the Administrative Agent signed by the insurer or by an independent insurance broker evidencing insurance coverages required pursuant to Section 11 of the Lease with respect to the Aircraft delivered on such date. (f) The Lessee shall deliver or cause to be delivered to the Administrative Agent for the benefit of the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Agents, a good standing certificate, from the State of Michigan, dated a recent date prior to such Delivery Date. 21 (g) The Trust Company and the Administrative Agent shall deliver or cause to be delivered to the Certificate Holders, the CP Lender, the Facility Lenders and the Agents a certificate of good standing from the office of the Comptroller of the Currency and the State of Nevada, respectively, dated a recent date prior to such Delivery Date. (h) The Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Agents shall have received the Notice of Delivery required pursuant to Section 2.3(b). (i) Each Certificate Holder shall have made available its respective portion of its Commitment in the amount specified in, and otherwise in accordance with, Section 2.2 and the CP Lender (or each of the Facility Lenders, as the case may be), shall have made available its respective Commitment in the amount specified in, and otherwise in accordance with, Section 2.2. (j) The Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders and the Administrative Agent shall have received the opinion of the Appraiser with respect to the Aircraft to be delivered on such date, in form and substance satisfactory to all such parties. (k) The Administrative Agent shall have received evidence satisfactory to it that the Transaction Costs and all Fees due and payable on or prior to such date have been paid. 4.3 ADDITIONAL CONDITIONS FOR EACH DELIVERY DATE. In addition to the conditions set forth in Section 4.1 and 4.2 hereof, the obligations of Certificate Trustee (through Administrative Agent) to make payment of the Equipment Cost to the applicable Seller on any Delivery Date, the obligations of the Certificate Holders to Fund the related Certificate Amounts on such Delivery Date and the obligation of the Lenders to make the related Funding of their Loans on such Delivery Date are subject to each of the following conditions precedent (except that (i) the obligation of any such party shall not be subject to such party's own performance or compliance and (ii) the conditions specified below as being only for the benefit of a specified party or parties need be fulfilled only to the satisfaction of, or waived by, such party or parties): (a) On each such date, no action or proceeding shall have been instituted nor shall governmental action be threatened before any court or governmental agency, nor shall any order, judgment or decree have been issued or proposed to be issued by any court or governmental agency at such date, to set aside, restrain, enjoin or prevent the completion and consummation of this Agreement or the transactions contemplated hereby. (b) No change shall have occurred after the date of the execution and delivery of this Agreement in Applicable Laws and Regulations or interpretations thereof by regulatory authorities that, in the reasonable opinion of counsel for the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders or the Agents would make it illegal for such party to enter into any transaction contemplated by the Operative Agreements or otherwise would prohibit the consummation of any transaction contemplated by the Operative Documents or expand in any material respect the duties, obligations and risks of such party. 22 (c) On each such date, all approvals and consents of any trustees or holders of any Indebtedness or obligations of the Lessee which are required to be obtained prior to such date in connection with the transactions contemplated by this Agreement, shall have been duly obtained and be in full force and effect. (d) On each such date, all Governmental Action, if any, required to have been taken by any Authority (including, without limitation, the FAA or with respect to deliveries of Aircraft, the applicable aviation authority of the country of registry of such Aircraft) on or prior to such date in connection with the transactions contemplated by this Agreement on such date shall have been taken by such Authority and all Governmental Requirements required to be in effect on or prior to such date in connection with the transactions contemplated by this Agreement shall have been issued, and all such Governmental Requirements shall be in full force and effect, on such date. (e) (i) The aggregate Equipment Cost for all of the Aircraft accepted by Lessee and then subject to the Lease will not exceed the $53,000,000; (ii) the Funding by any Certificate Holder on such Delivery Date, when added to all other Fundings by such Certificate Holder, will not exceed such Certificate Holder's Commitment; (iii) the Funding by any Lender of a Loan on such Delivery Date, when added to all other Funding of Loans by such Lender, will not exceed such Lender's Commitment, and (iv) the Aircraft to be accepted by the Lessee under the Lease on such date will be free and clear of all Liens (other than Permitted Liens) and, contemporaneous with such acceptance will be registered in the name of the Lessee in the United States of America. (f) All Taxes (other than Taxes on gross or net income of Financing Parties), if any, due and payable in connection with the execution, delivery, recording and filing of the Operative Documents and the transactions contemplated to be consummated on the Delivery Date shall have been paid in full or satisfactory arrangements for payment shall have been made. (g) Prior to, and immediately after giving effect to, the applicable Funding, there shall not have occurred or occur (i) any material adverse change with respect to the Aircraft or (ii) any change in the financial condition of Lessee which could reasonably be expected to have a Material Adverse Effect in the reasonable judgment of the Required Participants. (h) On each such date, the Certificate Trustee, the Certificate Holders, the CP Lender, the Facility Lenders, the Liquidity Provider and the Agents shall have received such other documents, appraisals, certificates, financing statements and other items, in form and substance satisfactory to such parties, as any such party may reasonably request no later than five (5) Business Days prior to such date. (i) The Fixed Basic Rent and the Sale Recourse Amount for any Aircraft to be accepted by Lessee under the Lease on such date shall have been calculated to provide that at the end of the Base Term and each Renewal Term that the fair market value of such Aircraft, as set forth in the Appraisal with respect to such Aircraft on such date, shall be at least four times the Maximum Lessor Risk Amount for such Aircraft on such date and such amounts of the Fixed Basic Rent and the Sales Recourse Amount shall be reasonably acceptable to Lessee. 23 4.4 SUBSEQUENT ENFORCEMENT OF CONDITIONS PRECEDENT. Unless any condition precedent with regard to any matter described in Sections 4.1 through 4.3 has been expressly waived in writing by the Administrative Agent (pursuant to the instructions of the Required Participants), any such condition precedent may be subsequently enforced and the satisfaction thereof shall be a covenant undertaken by the Lessee. SECTION 5. COVENANTS OF THE LESSEE 5.1 COVENANTS OF THE LESSEE. The Lessee hereby covenants and agrees with Certificate Trustee, Agents, the Arranger and each of the Participants that during the Lease Term it shall, unless the Required Participants shall otherwise consent in writing: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, (i) complying with all Environmental Laws and (ii) paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent contested in good faith, except where failure to so comply or pay would not have a Material Adverse Effect. (b) Reporting Requirements. Furnish to the Administrative Agent (in sufficient quantity for delivery to each Participant) for prompt distribution by the Administrative Agent to the Participants: (i) as soon as available and in any event within 55 days after the end of each of the first three quarters of each fiscal year of the Lessee, consolidated balance sheets as of the end of such quarter and consolidated statements of source and application of funds of the Lessee and its Subsidiaries and consolidated statements of income and retained earnings of the Lessee and its Subsidiaries for such quarter and the period commencing at the end of the previous fiscal year and ending with the end of such quarter and certified by the chief financial officer or chief accounting officer of the Lessee; (ii) as soon as available and in any event within 100 days after the end of each fiscal year of the Lessee, a copy of the annual audit report for such year for the Lessee and its Subsidiaries, containing financial statements (including a consolidated balance sheet and consolidated statement of income and cash flows of the Lessee and its Subsidiaries) for such year, certified by and accompanied by an opinion of BDO Seidman, LLP or other nationally recognized independent public accountants. The opinion shall be unqualified (as to going concern, scope of audit and disagreements over the accounting or other treatment of offsets) and shall state that such consolidated financial statements present fairly in all material respects the financial position of the Lessee and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; 24 (iii) together with each delivery of the report of the Lessee and its Subsidiaries pursuant to subsections (i) and (ii) above, a copy of the Compliance Certificate for the relevant accounting period executed by the chief financial officer, treasurer or assistant treasurer of the Lessee issued under the Credit Agreement and an additional certificate from such officer stating that the signer does not have knowledge of the existence as at the date of such certificate, of any condition or event that constitutes a Lease Default or a Lease Event of Default or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Lessee has taken, is taking and proposes to take with respect thereto; (iv) as soon as possible and in any event within five days after obtaining Actual Knowledge of the occurrence of each Lease Default or Lease Event of Default (and each "Event of Default" and each "Potential Event of Default" (as such terms are defined in the Credit Agreement)), continuing on the date of such statement, a statement of an authorized financial officer of the Lessee setting forth details of such Lease Default or Lease Event of Default (or "Event of Default" or "Potential Default") and the action which the Lessee has taken and proposes to take with respect thereto; (v) promptly after any material change in accounting policies or reporting practices, notice and a description in reasonable detail of such change; (vi) promptly and in any event within 30 days after the Lessee or any ERISA Affiliate knows or has reason to know that any ERISA Event referred to in clause (i) of the definition of ERISA Event with respect to any Pension Plan has occurred which might result in liability to the PBGC in excess of $500,000 a statement of the chief accounting officer of the Lessee describing such ERISA Event and the action, if any, that the Lessee or such ERISA Affiliate has taken or proposes to take with respect thereto; (vii) promptly and in any event within 15 days after the Lessee or any ERISA Affiliate knows or has reason to know that any ERISA Event (other than an ERISA Event referred to in (vi) above) with respect to any Pension Plan has occurred which might result in liability to the PBGC in excess of $500,000, a statement of the chief accounting officer of the Lessee describing such ERISA Event and the action, if any, that the Lessee or such ERISA Affiliate has taken or proposes to take with respect thereto; (viii) promptly and in any event within five Business Days after receipt thereof by the Lessee or any ERISA Affiliate from the PBGC, copies of each notice from the PBGC of its intention to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan; (ix) promptly and in any event within 15 days after receipt thereof by the Lessee or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Lessee or any ERISA Affiliate concerning (w) the imposition of Withdrawal Liability by a Multiemployer Plan in excess of $500,000, (x) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (y) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA or (z) the amount of liability incurred, or expected to be 25 incurred, by the Lessee or any ERISA Affiliate in connection with any event described in clause (w), (x) or (y) above; (x) promptly after the commencement thereof, notice of all material actions, suits and proceedings before any court, government agency or arbitrator, domestic or foreign, affecting the Lessee or any of its Subsidiaries, of the type described in Section 3.2(f); (xi) promptly after the occurrence thereof, notice of (A) any event which makes any of the representations contained in Section 3.2(k) inaccurate in any material respect or (B) the receipt by the Lessee of any notice, order, directive or other communication from a governmental authority alleging violations of or noncompliance with any Environmental Law which could reasonably be expected to have a Material Adverse Effect; (xii) promptly after any change in the rating established by S&P or Moody's, as applicable, with respect to Long-Term Debt, a notice of such change, which notice shall specify the new rating, the date on which such change was publicly announced, and such other information with respect to such change as any Participant may reasonably request; (xiii) promptly after the sending or filing thereof, copies of all reports which the Lessee sends to any of its public security holders, and copies of all reports and registration statements which the Lessee files with the SEC or any national security exchange; (xiv) promptly after the Lessee or any ERISA Affiliate creates any employee benefit plan to provide health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of the Lessee or any of its ERISA Affiliates (except as provided in Section 4980B of the Code and except as provided under the terms of any employee welfare benefit plans provided pursuant to the terms of collective bargaining agreements) under the terms of which the Lessee and/or any of its ERISA Affiliates are not permitted to terminate such benefits, a notice detailing such plan; and (xv) such other information respecting the condition or operations, financial or otherwise, of the Lessee or any of its Subsidiaries as any Participant may from time to time reasonably request. (c) Corporate Existence, Etc. The Lessee will, and will cause each of its Material Subsidiaries to, at all times preserve and maintain its fundamental business and preserve and keep in full force and effect its corporate existence (except as permitted under Section 5.1(h) hereof) and all rights, franchises and licenses necessary or desirable in the normal conduct of its business; provided, however, that this paragraph (c) shall not apply in any case when, in the good faith business judgment of the Lessee, such preservation or maintenance is neither necessary nor appropriate for the prudent management of the business of the Lessee. (d) Inspection. The Lessee will permit and will cause each of its Material Subsidiaries to permit any authorized representative designated by the Administrative Agent or 26 any Participant; at the expense of such Administrative Agent or such Participant, to visit and inspect any of the properties of the Lessee or any of its Material Subsidiaries, including its and their financial and accounting records, and to take copies and to take extracts therefrom, and discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all during normal hours, upon reasonable notice and as often as may be reasonably requested. (e) Insurance. The Lessee will maintain and will cause each of its Material Subsidiaries to maintain insurance to such extent and coveting such risks as is usual for companies engaged in the same or similar business and on request will advise the Administrative Agent and the Participants of all insurance so carried. (f) Taxes. The Lessee will and will cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (x) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (y) all lawful claims that, if unpaid, might by law become a lien upon their property; provided, however, that neither the Lessee nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge or levy (A) that is being contested in good faith and by proper proceedings and for which appropriate reserves are being maintained, or (B) the failure to pay or discharge which would not have a Material Adverse Effect. (g) Maintenance of Books, Etc. The Lessee will, and will cause each of its Subsidiaries to, keep proper books of records and accounts, in which full and correct entries shall be made of all financial transactions and the assets and business of the Lessee and each of its domestic Subsidiaries in accordance with GAAP and with respect to foreign Subsidiaries in accordance with customary accounting standards in the applicable jurisdiction, in each case consistently applied and consistent with prudent business practices. (h) Restrictions on Fundamental Changes. The Lessee will not merge or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or a substantial portion of its assets (whether now owned or hereafter acquired) to any Person, or enter into any partnership, joint venture, syndicate, pool or other combination, unless no Lease Event of Default has occurred and is continuing or would result therefrom and, in the case of a merger or consolidation of the Lessee, (i) the Lessee is the surviving entity or (ii) the surviving entity assumes all of the Lessee's obligations under the Operative Documents in a manner satisfactory to the Required Participants. (i) Further Actions. The Lessee, at its own cost and expense, will cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as Certificate Trustee, Administrative Agent or the Required Participants reasonably may request from time to time in order to carry out more effectively the intent and purposes of this Agreement and the other Operative Documents and the Overall Transaction. Lessee, at its cost and expense, will cause all Financing Statements (including precautionary financing statements) and other documents, to be recorded or filed at such places and times in such manner, and will take all such other actions or cause such actions to be taken, as may be necessary or as may be reasonably requested by Administrative Agent, the Required Participants or Certificate Trustee in order to establish, preserve, protect and perfect the title and Lien of 27 Certificate Trustee and/or the Administrative Agent in the Aircraft and the Administrative Agent in the other Collateral and Certificate Trustee's, Agents', and/or any Participant's rights under this Agreement and the other Operative Documents. (j) Change of Name or Address. Lessee shall provide Administrative Agent fifteen days' prior written notice of any change in name, or the address of its chief executive office or the office where it keeps its records concerning its accounts, the Aircraft and the other Collateral. (k) Securities. Lessee shall not, nor shall it permit anyone authorized to act on its behalf to, take any action which would subject the issuance or sale of the Notes or Certificates, the Aircraft, the other Collateral or the Operative Documents, or any security or lease the offering of which, for purposes of the Securities Act or any state securities laws, would be deemed to be part of the same offering as the offering of the aforementioned items to the registration requirements of Section 5 of the Securities Act or any state securities laws. (l) Rates. With respect to each determination of Loans, Certificate Amounts, Interest and Yield pursuant to this Agreement, the Loan Agreement, and the Trust Agreement, and Basic Rent under the Lease, Lessee agrees to be bound by Sections 2.3, 2.5, 2.6 and 2.7 of the Loan Agreement, Sections 2.1(c), 2.4 and 2.5 of the Trust Agreement, and 2.7 and 2.8 hereof and the applicable definitions in Appendix A. (m) Appraisal Requirement Upon Sale of Aircraft to Third Party. If Lessee shall have elected the Sale Option with respect to any Aircraft, Lessee shall no later than 90 days (or if shorter, the number of days required by the Lessee to give notice of such Sale Option) prior to the Expiration Date of such Aircraft, cause an appraisal in form and substance reasonably satisfactory to the Required Participants to be delivered to each of the Participants. Such appraisal shall establish the Fair Market Value of such Aircraft as of such Expiration Date, (ii) be prepared using techniques and assumptions utilized in preparing the Appraisal and (iii) be performed by an independent appraisal company chosen by the Required Participants. (n) Trust Agreement Reimbursements. Lessee hereby agrees and consents to the provisions of Section 7.1 of the Trust Agreement with respect to Lessee's obligation to reimburse Certificate Trustee for certain fees and expenses as more particularly referenced in such Section 7.1. (o) Incorporation of Covenants. Reference is made to the Credit Agreement and the covenants contained in Section 5.02(d), (e) and (f) of the Credit Agreement (hereinafter referred to as the "Incorporated Covenants"). The Lessee agrees with and for the benefit of the Financing Parties that, not withstanding any language to the contrary contained in this Agreement or any other Operative Document, if the Credit Agreement is terminated or expires and is not replaced, then the Incorporated Covenants (and all other relevant provisions of the Credit Agreement related thereto, including without limitation the defined terms which are used in the Incorporated Covenants, hereinafter referred to as the "Additional Incorporated Terms") shall (i) remain in effect in the respective form thereof as of such date of termination or expiration of the Credit Agreement (giving effect to any waiver, amendment, modification and/or replacement of the Credit Agreement or any term or provision of the Incorporated Covenants or the Additional Incorporated Terms occurring subsequent to the date of this Agreement but subject to the 28 following sentence) and (ii) be incorporated by reference into this Agreement to the same extent and with the same effect as if set forth fully herein and inure to the benefit of the Financing Parties hereto and the parties to the other Operative Documents. In the event of any replacement of the Credit Agreement with a similar credit facility (each such replacement credit facility may be referred to as a "New Facility") the relevant covenants and additional terms in the New Facility which correspond to the covenants contained in Section 5.02(d), (e) and (f) and the additional terms shall automatically replace the prior Incorporated Covenants and Additional Incorporated Terms and become the Incorporated Covenants and Additional Incorporated Terms hereunder. Notwithstanding the foregoing, in the event that any such Incorporated Covenants or Additional Incorporated Terms conflict with the covenants and agreements of the Lessee under the Operative Documents, the provisions of the Operative Documents shall govern to the extent of such conflict. (p) Liens, Etc. The Lessee will not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien, upon or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, in each case to secure or provide for the payment of any Debt of any Person, unless the Lessee's obligations hereunder shall be secured equally and ratably with, or prior to, any such Debt; provided however that the foregoing restriction shall not apply to the following Liens which are permitted: (i) Liens on assets of any Subsidiary of the Borrower existing at the time such Person becomes a Subsidiary (other than any such Lien created in contemplation of becoming a Subsidiary); (ii) purchase money Liens upon or in any property acquired or held by the Lessee or any Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition of such property (provided that the amount of Debt secured by such Lien does not exceed 100% of the purchase price of such property and transaction costs relating to such acquisition) and Liens existing on such property at the time of its acquisition (other than any such Lien created in contemplation of such acquisition); and the interest of the lessor thereof in any property that is subject to a Capital Lease; (iii) any Lien securing Debt that was incurred prior to or during construction or improvement of property for the purpose of financing all or part of the cost of such construction or improvement, provided that the amount of Debt secured by such Lien does not exceed 100% of the fair market value of such property after giving effect to such construction or improvement; (iv) any Lien securing Debt of a Subsidiary owing to the Lessee; (v) Liens resulting from any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Debt secured by any Lien referred to in clauses (i), (ii) and (iii) above so long as (x) the aggregate principal amount of such Debt shall not increase as a result of such extension, renewal or replacement and (y) Liens resulting from any extension, renewal or replacement shall cover only such property which secured the Debt that is being extended, renewed or replaced; 29 (vi) Liens on accounts receivable resulting from the sale of such accounts receivable by the Lessee or a Subsidiary of the Lessee, so long as, at any time, the aggregate outstanding amount of cash advanced to Borrower or such Subsidiary, as case may be, and attributable to the sale of such accounts receivable does not exceed $200,000,000; (vii) Liens other than Liens described in clauses (i) through (vi) hereof, whether now existing or hereafter arising, securing Debt in an aggregate amount not exceeding $50,000,000; and (viii) Liens permitted under Section 7 of the Lease. For purposes of this Section 5.1(p) the following terms have the following meanings: "Capital Lease" means, with respect to any Person, any lease of any property by that Person as lessee which would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person. Debt" means (i) indebtedness for borrowed money or for the deferred purchase price of property or services, (ii) obligations as lessee under Capital Leases, or (iii) obligations under guarantees in respect of indebtedness or in respect of obligations of others of the kinds referred to in clause (i) or (ii) above. SECTION 6. OTHER COVENANTS AND AGREEMENTS 6.1 COOPERATION WITH LESSEE. Certificate Trustee, the Agents and each other Financing Party shall, to the extent reasonably requested by Lessee (but without assuming additional liability on account thereof), at such party's cost and expense, cooperate to allow Lessee to (a) perform its covenants contained in Section 5 including, without limitation, at any time and from time to time, to promptly and duly execute and deliver any and all such further instruments, documents and financing statements (and continuation statements related thereto) as Lessee may reasonably request in order to perform such covenants and (b) perform Lessee's requirements as a lessee of an Aircraft. 6.2 COVENANTS OF PARTICIPANTS, AGENTS, CERTIFICATE TRUSTEE AND THE TRUST COMPANY. (a) Certificate Trustee Liens. Each of the Participants (severally and not jointly with any other Participants), the Agents, the Certificate Trustee and the Trust Company hereby agrees that so long as this Participation Agreement is in effect it: (i) will not create, incur, assume or suffer to exist any Certificate Trustee Lien attributable to it upon the Lease, the Aircraft or other Collateral; (ii) will remove any Certificate Trustee Lien created or incurred by it and use its best efforts to remove any Certificate Trustee Lien attributable to it assumed or 30 suffered to exist by it upon the Lease, the Aircraft or other Collateral; provided, however, that any action taken pursuant to this clause (ii) shall not limit Lessee's rights or remedies under any of the Operative Documents. In the event of any Certificate Trustee Lien attributable to Certificate Trustee or the Trust Company, in addition to complying with its obligations under this clause (ii), the Certificate Trustee or the Trust Company, as the case may be, will cause in its individual capacity restitution to be made to the Trust Estate in the amount of any diminution of the value thereof as a result of such Certificate Trustee Lien; and (iii) will not, through its own actions or inactions, interfere in the quiet enjoyment, use, operation or possession of any Aircraft by Lessee unless a Lease Event of Default shall have occurred and be continuing. (b) Trust Agreement. Without prejudice to any right under the Trust Agreement of the Trust Company to resign as Certificate Trustee, or the Certificate Holders' rights under the Trust Agreement to remove Certificate Trustee, each of the Certificate Holders hereby agrees with Lessee (so long as no Event of Default shall have occurred and be continuing), the Lenders and the Agents (i) not to terminate or revoke the trust created by the Trust Agreement, except as permitted by the Trust Agreement, prior to the later of the Expiration Date or the payment in full of the obligations under the Notes and Certificates, (ii) not to amend, supplement, terminate or revoke or otherwise modify any provision of the Trust Agreement prior to the Expiration Date in such a manner as to materially and adversely affect the rights of any such party, (iii) except as otherwise expressly authorized under the Operative Documents, not to withdraw from the Trust Estate any funds other than amounts payable to it by Certificate Trustee as distributions of Basic Rent and Supplemental Rent without the prior written consent of each such party and (iv) to comply with all of the terms of the Trust Agreement and the other Operative Documents applicable to it, the nonperformance of which is reasonably likely to adversely affect such party. (c) Successor Certificate Trustee. Certificate Trustee or any successor may resign or be removed by the Required Certificate Holders as Certificate Trustee, a successor Certificate Trustee may be appointed, and a corporation may become Certificate Trustee under the Trust Agreement, only in accordance with the provisions of the Trust Agreement. Notwithstanding anything to the contrary contained in this Participation Agreement or the Trust Agreement, so long as no Event of Default shall be continuing, the appointment of a successor Certificate Trustee shall be subject to the consent of the Lessee (such consent not to be unreasonably withheld or delayed). (d) Indebtedness; Other Business. The Trust Company agrees that it, in its capacity as Certificate Trustee, shall not, on behalf of the Trust, contract for, create, incur or assume any Indebtedness, or other obligation or contractual commitment or enter into any business or other activity, other than pursuant to or under the Operative Documents and, for the benefit of Lessee, Agents and the Lenders, the Trust Company agrees in such capacity to be bound by Section 1.2(b) of the Trust Agreement. (e) Change of Principal Place of Business. The Trust Company agrees that it, in its capacity as Certificate Trustee, shall give prompt notice to the Certificate Holders, Lessee and Agents, if Certificate Trustee's principal place of business or chief executive office (if it has 31 more than one place of business), or the office where the records concerning the accounts or contract rights relating to the Overall Transaction are kept, shall cease to be located at the address in the State of Utah set forth on Schedule III, or if it shall change its name or identity. (f) Loan Agreement. For the benefit of Lessee, the Trust Company and each Participant hereby agree that, so long as the Lease is in effect, Certificate Trustee shall not consent to or permit any amendment of the terms and provisions of the Loan Agreement, the Security Agreement or any Note, whether or not any Event of Default shall have occurred and be continuing, if any such amendment or action would have the effect of increasing the obligations of Lessee or decreasing the rights of Lessee or would otherwise adversely affect Lessee, in each case without the prior written consent of Lessee. (g) Depreciation. Prior to the Expiration Date (and thereafter unless the Lease shall have terminated and Lessor shall not have conveyed title to the Aircraft to any other Person), neither Certificate Trustee nor any Participant shall claim any federal or state tax attributes or benefits (including depreciation) relating to the Aircraft unless required to do so by an appropriate taxing authority or after a clearly applicable change in Applicable Laws or as a protective response to a proposed adjustment by an Authority; provided, however, that if an appropriate taxing authority shall require Certificate Trustee or any Participant to claim any such federal or state tax attributes or benefits, such Person shall promptly notify the Lessee thereof and shall permit Lessee to contest such requirement in a manner similar to the contest rights provided in, and subject to any applicable limitation to a contest contained in, Section 7.2(b). (h) Insolvency Proceedings. Each of the Participants, Certificate Trustee, in its individual capacity, each Agent, in its respective individual capacity, and Lessee covenants as to itself, not jointly with any other Person, that it shall not (i) commence any action, proceeding or other case with respect to Certificate Trustee under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, winding up, liquidation, dissolution, composition or other relief with respect to indebtedness, (ii) seek appointment of a receiver, trustee, custodian or other similar official with respect to Certificate Trustee and for all or any substantial benefit of the creditors of Certificate Trustee, or (iii) take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in this clause (h), except in each case, as expressly permitted pursuant to the Loan Agreement upon the occurrence of a Loan Event of Default. (i) Release of Documents. Administrative Agent hereby agrees that, upon a sale of the Aircraft pursuant to the terms of the Lease and payment of all amounts due and owing from Lessee under the Operative Documents or repayment in full of all Loans and Certificate Amounts and all other amounts due and owing from Lessee under the Operative Documents to Administrative Agent and the Participants, Administrative Agent shall promptly execute and deliver to the Lessee a release of the Security Agreement, and releases of all other Liens created by the Operative Documents, and termination statements for any financing statements relating to the Aircraft which are then of record naming Administrative Agent as secured party or assignee thereof. 32 6.3 TRANSFER OF PARTICIPANT'S INTERESTS; ASSIGNMENTS. (a) All or any part of the interest of any Lender in, to or under this Participation Agreement, the other Operative Documents, the Aircraft or the Notes may be assigned or transferred by such Lender at any time to any Person; provided, however, that (i) no such assignment or transfer shall be effective unless such assignee or transferee has complied with the obligations set forth in Section 7.3 hereof; (ii) each assignment or transfer shall comply with all applicable securities laws; (iii) each assignment or transfer shall consist of a transfer of equivalent portions of such Lender's Notes, and equivalent portions of such Lender's rights and obligations under the Loan Agreement (if applicable to such Lender) and the LAPA; (iv) each assignment or transfer of Loans shall be in a minimum aggregate amount of $10,000,000 and $1,000,000 integral multiples in excess thereof (or, if less, the aggregate amount of Loans then held by the assignor or transferor Lender), unless such assignment or transfer is to a then existing Participant, or by the CP Lender to an Eligible CP Lender; (v) unless the assignee or transferee is a then existing Participant, a then existing lender under any credit agreement with Lessee or its Affiliates or an Affiliate of a Lender (in each case solely with respect to transfers by a Facility Lender) or an Eligible CP Lender (solely with respect to transfers by a CP Lender) or satisfies clause (vi) below, or in any case if an Event of Default has occurred and is continuing, the transferee or assignee shall be a Person consented to in writing by Lessee, such consent not to be unreasonably withheld or delayed; (vi) in the case of an assignment by a Facility Lender, the transferee or assignee shall be an Eligible Assignee; (vii) Administrative Agent shall have received from assignee/transferee or the assignor/transferor a transfer fee in the amount of $2,500; (viii) each assignment or transfer shall comply with Section 10.1 of the LAPA, (ix) Lessee shall have received evidence reasonably satisfactory to it that the requirements of this Section 6.3(a) have been satisfied, and (x) each assignee or transferee shall (A) acknowledge in writing, addressed and delivered to each of the parties to this Participation Agreement, that the obligations to be performed from and after the date of such transfer or assignment under this Participation Agreement and all other Operative Documents are its obligations, including the obligations imposed by this Section 6.3(a) (and except for an assignment from the CP Lender to the applicable Liquidity Banks under the LAPA, the transferor and transferee Participant shall deliver to Lessee, Administrative Agent and Certificate Trustee an Assignment Agreement and an Investor's Letter, each executed by the assignee or transferee) and (B) further represents and warrants to Certificate Trustee, each Agent, each Participant and Lessee in writing each of the representations and warranties as set forth in Section 3.3 mutatis mutandis and that: (w) it has the requisite power and authority to accept such assignment or transfer; (x) it will not transfer any Note unless the proposed transferee makes the foregoing representations and covenants; (y) it will not take any action with respect to such Note that would violate any applicable securities laws; and (z) it will not assign or transfer any interest in its Note except in compliance with this Section 6.3(a). 33 Any transfer or assignment made in violation of the above requirements shall not be effective against the other parties to this Participation Agreement until such requirements are satisfied. No sale; assignment or transfer contemplated by Section 2.2(e) hereof shall be subject to the restrictions contained in this Section 6.3. (b) Any Certificate Holder may assign or transfer all or any part of its interest in, to and under this Participation Agreement, the other Operative Documents and the Aircraft at any time to any Person; provided, however, that (i) no such assignment or transfer shall be effective unless such assignee or transferee has complied with the obligations set forth in Section 7.3 hereof, (ii) unless the assignee or transferee satisfies clause (v) below or an Event of Default has occurred and is continuing, the assignee or transferee shall be a Person consented to in writing by Lessee, such consent not to be unreasonably withheld or delayed; (iii) each assignment or transfer shall comply with all applicable securities laws; (iv) unless the assignee or transferee is a then existing Participant or a then existing lender under the Credit Agreement, the assignee or transferee shall be an Eligible Assignee; (v) the assignee or transferee shall be (A) a bank or other financial institution with its senior unsecured long-term debt rated at least BBB- by S&P or Baa3 by Moody's, or (B) any Subsidiary of such a bank, financial institution or corporation, provided that such bank, financial institution or corporation furnishes a guaranty with respect to the transferee's obligations as a Participant; (vi) Lessee receives evidence reasonably satisfactory to it that the requirements of this Section 6.3(b) have been satisfied; and (vii) each assignee or transferee (A) acknowledges that the obligations to be performed from and after the date of such transfer or assignment under this Participation Agreement and all other Operative Documents are its obligations, including the obligations imposed by this Section 6.3(b) (and the transferor and transferee Certificate Holder shall deliver to Lessee, Certificate Trustee and the Administrative Agent an Assignment Agreement and an Investor's Letter, executed by the assignee or transferee) and (B) further represents and warrants to Lessee, Certificate Trustee, each Agent and each Participant as set forth in Section 3.3 mutatis mutandis and that: (v) it has the requisite power and authority to accept such assignment or transfer and to engage in the Overall Transaction; (w) it will not take any action with respect to its Certificate that would violate any applicable securities laws; (x) it will not assign or transfer any Certificate except in compliance with this Section 6.3(b); and (y) it will not transfer any Certificate unless the proposed transferee makes the foregoing representations and covenants. 34 6.4 PARTICIPATIONS. Any Participant may at any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Sub-Participant") participating interests in all or a portion of its rights and obligations under this Participation Agreement, the other Operative Documents, or its Notes or Certificates (including, without limitation, all or portion of the Rent owing to it); provided, however, that: (a) no such participation shall be effective unless such Sub-participant complies with the obligations set forth in Section 7.3 hereof; (b) no participation contemplated in this Section 6.4 shall relieve such Participant from its obligations hereunder or under any other Operative Document; (c) such Participant shall remain solely responsible for the performance of its Commitment and such other obligations; (d) Lessee shall continue to deal solely and directly with such Participant in connection with such Participant's rights and obligations under this Participation Agreement and each of the other Operative Documents; (e) each such Sub-Participant will make representations and warranties to the Participant that are consistent with Section 3.3, mutatis mutandis; (f) no Sub-Participant shall be entitled to have any right to vote or grant or withhold consents or otherwise to require such Participant or Lessee to take or refrain from taking any action hereunder or under any other Operative Document; and (g) no Sub-Participant shall be entitled to the benefits of Sections 7.4 through 7.6 hereof in excess of the right of the Participant selling the relevant participating interest. Notwithstanding the provisions of Section 6.3 and the foregoing provisions of this Section 6.4, any sale of a percentage interest from the CP Lender to any Liquidity Bank pursuant to the LAPA shall not be subject to the provisions of Section 6.3 or the foregoing provisions of this Section 6.4, but instead the provisions of the LAPA and the applicable provisions of this Participation Agreement, other than the provisions of Section 6.3 and the foregoing provisions of this Section 6.4, shall be applicable. 6.5 DISCLOSURE OF INFORMATION; PLEDGE UNDER REGULATION A. (a) Subject to Section 9.18 hereof, any Participant, any Agent or Certificate Trustee may, in connection with any assignment or participation or proposed assignment or participation pursuant to Sections 6.3 or 6.4 or this Section 6.5 hereof, disclose to the assignee or participant or proposed assignee or participant any information relating to Lessee. (b) Anything in Sections 6.3, or 6.4 or this Section 6.5 hereof to the contrary notwithstanding, any Lender may, without the consent of Lessee, assign and pledge all or any portion of the Notes held by it to any Federal Reserve Bank, the United States Treasury or to any 35 other financial institution as collateral security pursuant to Regulation A of the F.R.S. Board and any operating circular issued by the Federal Reserve System and/or the Federal Reserve Bank or otherwise, but no such assignment shall relieve any Lender of its obligations hereunder. 6.6 ASSIGNMENT OF CP LENDER'S INTEREST IN LOAN TO LIQUIDITY BANKS. In the event the CP Lender (i) exercises its option to sell all of its interests under its Loans to the Liquidity Banks pursuant to Section 3.2(a) of the LAPA or (ii) is required to sell all of its interests under its Loans to the Liquidity Banks pursuant to Section 3.2(g) of the LAPA, the CP Lender, without further act, will be deemed to have assigned to the Liquidity Banks on a several basis in accordance with their Percentage Interests all of its right, title and interest in the Operative Documents, and the Liquidity Banks will be deemed to have assumed as of the date of transfer on a several basis as aforesaid all obligations of the CP Lender arising on or after the date of transfer. In the event the CP Lender assigns all or a portion of its Loan and its rights and interests under the LAPA in accordance with provisions of Section 10.1(a) of the LAPA, then the CP Lender, without further act, will be deemed to have assigned to such assignee all or a portion, as applicable, of its right, title and interest in the Operative Documents and such assignee will be deemed to have assumed all or a portion, as applicable, of the obligations of the CP Lender arising on or after the date of such assignment. Administrator shall promptly notify Lessee of any assignment pursuant to this Section 6.6. 6.7 REPLACEMENT OF OWNER TRUSTEE. The Participants, Administrative Agent and Certificate Trustee agree that, at Lessee's sole cost and expense, if at any time the Trust Company shall not have either a combined capital and surplus of at least $100,000,000 or have its senior unsecured long-term debt rated at least BBB- by S&P and Baa3 by Moody's (or shall not otherwise be guaranteed by a Person with such capital and surplus and with such ratings), so long as no Lease Event of Default shall have occurred and be continuing, upon Lessee's written request to take whatever action reasonably necessary to remove and replace the Trust Company as Certificate Trustee in accordance with the provisions of Section 4.10 of the Trust Agreement. 6.8 REPLACEMENT OF A CERTIFICATEHOLDER. Each Certificate Holder hereby agrees, at Lessee's sole cost and expense, that if such Certificate Holder's senior unsecured long-term debt is not rated at least BBB- by S&P or Baa3 by Moody's, then, so long as no Lease Event of Default shall have occurred and be continuing, the Lessee may require such Certificate Holder to transfer or assign, in whole, its Certificate in accordance with the provisions of Section 6.3(b) to another Person with senior unsecured long-term debt rated BBB- by S&P or Baa3 by Moody's (a "Replacement Party") identified by the Lessee who is ready, willing and able to assume the rights and obligations of such Certificate Holder; provided that (i) the Lessee or such Replacement Party, shall have paid to such Certificate Holder in immediately available funds all amounts owed to it under the Operative Documents (including without limitation all unpaid Certificate Amounts and Yield and amounts payable pursuant to 7.6 hereof) and (ii) such assignment does not conflict with any Applicable Laws or Regulations of any Authority. 36 SECTION 7. INDEMNIFICATION 7.1 GENERAL INDEMNIFICATION. (a) General Indemnity. Lessee agrees, whether or not any of the transactions contemplated hereby shall be consummated, to indemnify, protect, defend, save and keep harmless on an After-Tax Basis each Indemnitee from and against any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee in any way relating to or arising out of (a) any of the Operative Documents or any of the transactions contemplated thereby or any investigation, litigation or proceeding in connection therewith, and any amendment, modification or waiver in respect thereof; or (b) any Aircraft leased by it or any part thereof or interest therein; or (c) the acquisition, mortgaging, design, construction, preparation, installation, inspection, delivery, non-delivery, abandonment, acceptance, rejection, purchase, ownership, possession, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, operation, condition, sale (including, without limitation, any sale or other transfer pursuant to Sections 21, 22 or 23 of the Lease), return or other disposition of all or any part of any interest in any Aircraft leased by it or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (i) Claims or penalties arising from any violation of law or in tort (strict liability or otherwise), (ii) any defect in any Aircraft arising from the material or any articles used therein or from the design, testing or use thereof or from any maintenance, service, repair, overhaul or testing of such Aircraft, (iii) latent or other defects, whether or not discoverable, (iv) any Environmental Claims arising from or relating to the construction, use, operation, ownership, maintenance, leasing or redelivery or other transfer of any Aircraft leased by it, (v) the manufacturing of the Aircraft leased by it, and (vi) any Claim for patent, trademark or copyright infringement relating to the Aircraft leased by it; (d) the offer, issuance, sale, transfer, conversion or delivery of the Notes or Certificates whether pursuant to Operative Documents or otherwise; (e) the breach by Lessee of any representation or warranty made by it or deemed made by it in any Operative Document; (f) the transactions contemplated hereby or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code, or (g) any other agreement entered into or assumed by Lessee or its Affiliates in connection with the Aircraft. Notwithstanding the foregoing provisions of this Section 7.1(a), Lessee shall not be obligated to indemnify an Indemnitee under this Section 7.1(a) for any Claim to the extent that it is attributable to any of the following: (i) Taxes, loss of tax benefits and the cost and expense of tax controversies (whether or not indemnified by Lessee under Section 7.2), other than a payment necessary to make payments under this Section 7.1(a) on an After-Tax Basis; provided, that the exclusion set forth in this clause (i) does not apply to any taxes or penalties included in Claims against which the Indemnitee is provided an indemnification under clause (f) of this Section 7.1(a); (ii) the gross negligence or willful misconduct of such Indemnitee or its Affiliates; (iii) the breach by such Indemnitee of its representations and warranties in any Operative Document as the case may be, or the breach by an Indemnitee of its covenants in any Operative Document; (iv) without limiting any other provision of the Operative Documents, a Claim for which the obligation of Lessee to indemnify such Indemnitee otherwise is determined pursuant to another provision of this Agreement or any other Operative Document; (v) a Certificate Trustee Lien attributable to such Indemnitee; or (vi) a Claim that has been incurred by such Indemnitee because it has engaged in 37 transactions or activities other than those contemplated by this Agreement or any other Operative Document and such Claim would be imposed even if such Indemnitee had not engaged in the transactions or activities contemplated by this Agreement or any other Operative Document. (b) Contests. In respect of the indemnification provided under Section 7.1(a), promptly after receipt by an Indemnitee of notice of any pending or threatened Claim, such Indemnitee shall, if a claim in respect thereof is to be made against Lessee by such Indemnitee, give notice thereof to Lessee. So long as no Lease Event of Default is continuing, the Lessee, at its own expense, may elect to assume the defense of any such Claim through its own counsel, which shall be subject to the reasonable approval of the Administrative Agent, on behalf of the Indemnitee (with full right of subrogation to the Indemnitee's rights and defenses). Notwithstanding any of the foregoing to the contrary, the Lessee shall not be entitled to assume the defense of any Claim if such proceedings in the good faith opinion of the Indemnitee could entail any risk of criminal liability or unindemnified civil liability. Lessee shall indicate its election to assume such defense by written notice to the Indemnitee; provided that prior to Lessee's assuming such defense Lessee shall acknowledge in writing to such Indemnitee its obligation to fully indemnify such Indemnitee for such Claim by written notice to the Indemnitee within 30 days following receipt of Indemnitee's notice of the Claim, or in the case of a third party claim which requires a shorter time for response then within such shorter period. If Lessee admits liability but elects not to assume the defense thereof, such Indemnitee shall defend such Claim (with Lessee paying the reasonable cost of such defense). If Lessee denies liability or fails to respond to the notice within the time period set forth above, the Indemnitee may defend or compromise the Claim as it deems appropriate without prejudice to any of Indemnitee's rights hereunder and with no further obligation to inform Lessee of the status of the Claim (unless requested in writing as to the then status of such Claim) and no right of Lessee to approve or disapprove any actions taken in connection therewith by the Indemnitee. If Lessee shall have elected to assume the defense of any such Claim, then upon the request of Lessee, the Indemnitee requesting payment of indemnity under Section 7.1(a) shall promptly furnish Lessee with copies of any records or documents pertaining to the matter to be indemnified and, to the extent known by such Indemnitee, a reasonably detailed explanation of the circumstances giving rise to the claim of indemnification and the determination of the amount of the requested indemnity payment. Upon payment in full to Indemnitee of any indemnity pursuant to Section 7.1(a), the Lessee shall be subrogated to any right of Indemnitee in respect of the matter against which such indemnity has been paid. If Lessee shall have elected to assume the defense of any such Claim, upon the written request at any time and from time to time of Lessee, Indemnitee shall, at the expense of Lessee, take such reasonable actions and execute such documents as are necessary or reasonably appropriate to assist Lessee in the preservation and enforcement against third parties of Lessee's right of subrogation hereunder. The Indemnitee may employ separate counsel in any such Claim in which Lessee shall have elected to assume the defense and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnitee unless the Indemnitee shall have been advised in writing by its counsel that there exists a conflict of interest in such counsel's representation of the Indemnitee and Lessee. All fees and expenses of such contests shall be paid periodically as incurred. Lessee shall not, without the prior written consent (not to be unreasonably withheld) of the Indemnitee, effect any settlement of any such Claim unless such settlement includes an unconditional release of the Indemnitee from all liabilities that are the subject of such Claim. The parties agree to cooperate in any defense or settlement of any such Claim and to give each other reasonable access to all 38 information relevant thereto subject to appropriate confidentiality agreements. The parties will similarly cooperate in the prosecution of any claim or lawsuit against any third party. 7.2 GENERAL TAX INDEMNITY. (a) Tax Indemnity. Lessee, on written demand, shall indemnify and hold each Indemnitee harmless from and against, on an After-Tax Basis, any and all Taxes, that are imposed, on or with respect to such Indemnitee, by the United States or by any state or local government or other taxing authority in the United States, or by any taxing authority outside the United States, in connection with or in any way relating to: (i) the manufacture, acquisition, mortgaging, design, construction, preparation, installation, inspection, delivery, non-delivery, transport, location, acceptance, rejection, purchase, ownership, possession, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition, substitution, storage, transfer of title, redelivery, use, financing, refinancing, operation, condition, purchase, repurchase, sale, return, abandonment, importation, exportation or other application or disposition of all or any part of any Aircraft leased by it or the imposition of any Lien (or incurrence of any liability to refund or pay over any amount as a result of any Lien) thereon, (ii) Basic Rent or Supplemental Rent or the hire, receipts, income or earnings arising from or received with respect to any Aircraft or any part thereof leased by it, or any interest therein or any applications or dispositions thereof, (iii) any other amount paid or payable pursuant to the Certificates, the Notes or any other Operative Documents, the property or the income or other proceeds with respect to the property held in the Trust Estate, (iv) any Aircraft or any part thereof leased by it or any interest therein, (v) all or any of the Operative Documents, any other documents contemplated thereby and any amendments and supplements thereto, and (vi) otherwise with respect to or in connection with the transactions contemplated by the Operative Documents or the enforcement thereof; provided, however, that the indemnification obligation of this Section 7.2(a) shall not apply to: (1) Taxes (including franchise taxes) in respect of the overall net income or capital gains of an Indemnitee (other than Taxes imposed on the Certificate Trustee, the Trust or the Trust Estate) imposed by (x) any governmental or taxing authority of the jurisdiction in which such Indemnitee is organized and, in the case of a Lender, the jurisdiction in which its LIBOR Office is located or (y) any other governmental or taxing authority; provided, however, that in the case of Taxes imposed by a government or taxing authority not described in clause (x), such Taxes shall not be excluded from the indemnification obligation of this Section 7.2(a) to the extent that such Taxes would have been imposed had (A) the location, possession or use of any Aircraft, any Airframe, or any Related Engine in, the location or the operation of the Lessee or any use of any Aircraft, any Airframe or any Related Engine in, or the making of payments under the Operative Documents from, the jurisdiction imposing such Taxes and/or (B) the activities of any one or more of the Indemnitees in the jurisdiction imposing the Taxes in connection with its or their enforcement of remedies under the Operative Documents, been the sole connection between such Indemnitee and the jurisdiction imposing such Taxes; provided further, that this clause (1) shall not be interpreted to prevent a payment from being made on an After-Tax Basis if such payment is otherwise required to be so made; (2) Taxes that result from (x) a voluntary transfer, assignment, participation or other voluntary disposition by the Indemnitee or any of its Affiliates of all or any portion of its interest in any Aircraft, any Airframe, any Related Engine, any Collateral, the Trust Estate, any Indemnitee, the Certificates or the Operative Documents (other than a transfer or disposition resulting from (A) an Indemnitee's exercise of remedies under the Lease during the occurrence 39 and continuation of a Lease Event of Default, (B) Lessee's exercise of the Sale Option or Purchase Option under the Lease, (C) any other transfer to Lessee or its Affiliates under the Operative Documents, or (D) any transfer made at the request of the Lessee) or (y) an involuntary transfer, any participation or other involuntary disposition by the Indemnitee or any of its Affiliates of all or any part of an interest in any Aircraft, any Airframe, any Related Engine, the Trust Estate, any Indemnitee, the Certificates or the Operative Documents (other than any such transfer or disposition that occurs while a Lease Event of Default has occurred and is continuing) in connection with any bankruptcy or other proceeding for the relief of debtors in which an Indemnitee or any of its Affiliates is the debtor or any foreclosure by a creditor of an Indemnitee or any of its Affiliates that is in each case unrelated to the transactions contemplated by the Operative Documents; (3) Taxes (other than those to the extent necessary to make a payment on an After-Tax Basis) imposed on or against or payable by such Indemnitee to the extent of the excess of such Taxes over the amount of such Taxes that would have been imposed and indemnified hereunder had there not been a transfer by the original Indemnitee (from which such Indemnitee derives its interest) of any interest in any Aircraft, any Airframe, any Related Engine, the Certificates, the Trust Estate, any Indemnitee or the Operative Documents, unless such transferee acquired its interest during the occurrence and continuation of a Lease Event of Default or as the result of the substitution of the Certificate Trustee or unless the transfer of such interest to such transferee was made at the request of Lessee; (4) Taxes imposed with respect to any period (except during the occurrence and continuance of a Lease Event of Default) after the expiration or earlier termination of the Lease (but not to the extent attributable to events occurring on or prior to such date); (5) Taxes resulting from (x) the gross negligence, willful misconduct or fraud of the Indemnitee or any of its Affiliates or (y) the inaccuracy or breach of a representation or warranty or covenant of such Indemnitee under the Operative Documents (unless such inaccuracy or breach is caused by Lessee's breach of any representation, warranty or covenant under the Operative Documents); (6) Taxes that would not have been imposed had such Indemnitee complied with the requirements of Section 7.3; and (7) any interest, penalties or additions to Tax that result from the failure of an Indemnitee to file any return properly and timely, unless such failure is caused by the failure of Lessee to fulfill its obligations, if any, under this Agreement with respect to such return. (b) Contests. Lessee shall pay on or before the time or times prescribed by law any Taxes that Lessee is liable for hereunder. If any claim or claims is or are made against any Indemnitee for any Tax which is subject to indemnification as provided in Section 7.2(a), Indemnitee shall as soon as practicable, but in no event more than 30 days after receipt of formal written notice of the Tax or proposed Tax, notify the Lessee. If requested by Lessee in writing within 30 days of Lessee's receipt of such notice from the Indemnitee, such Indemnitee shall contest (including all judicial appeals other than to the United States Supreme Court), at the expense of Lessee, in the name of such Indemnitee (or such Indemnitee, in its sole discretion, may require Lessee, if permitted by Applicable Laws and Regulations, to contest in the name of Lessee or such Indemnitee) the validity, applicability or amount of such Tax; provided that such contest shall be required only if (i) in the reasonable opinion of Lessee and its tax counsel reasonably acceptable to such Indemnitee, there exists a reasonable basis, within the meaning of ABA Formal Opinion No. 85-352, to contest such Tax, (ii) no Lease Event of Default has occurred and is continuing, (iii) Lessee has acknowledged in writing its liability for the Tax at issue to the extent the contest is not successful, (iv) the contest will not result in a risk of criminal liability of an Indemnitee or a material risk of sale, loss or forfeiture of the Aircraft or any part 40 thereof or interest therein, (v) the amount of the Tax exceeds $25,000, and (vi) Lessee pays all reasonable expenses incurred by the Indemnitee in contesting any such Tax (including, without limitation, all reasonable attorneys' and accountants' fees), upon demand by the Indemnitee. Lessee shall have the right to participate in the conduct of any proceedings controlled by the Indemnitee to the extent that such participation by such Person does not interfere with the Indemnitee's control of such contest and Lessee shall in all events be kept informed, to the extent practicable, of material developments relative to such proceedings. The Indemnitee shall have the right to participate in the conduct of any proceedings controlled by Lessee to the extent that such participation by such Person does not interfere with Lessee's control of such contest, and the Indemnitee shall in all events be kept informed, to the extent practicable, of material developments relative to such proceedings. The Indemnitees agree that a contested claim for which Lessee would be required to make a reimbursement payment hereunder will not be settled or compromised without Lessee's good faith prior written consent unless the Indemnitee waives its right to indemnification hereunder and repays the Taxes advanced by Lessee as a non-interest bearing loan by Lessee to such Indemnitee (as provided below) with interest at the Overdue Rate from the date of payment until receipt thereof by Lessee. Indemnitee shall endeavor to settle or compromise any such contested claim in accordance with written instructions received from the Lessee; provided, that (x) Lessee on or before the date the Indemnitee executes a settlement or compromise pays the contested Tax to the extent agreed upon or makes an indemnification payment to the Indemnitee in an amount acceptable to the Indemnitee; and (y) the settlement or compromise does not, in the reasonable opinion of the Indemnitee, adversely affect the right of the Certificate Trustee or such Indemnitee to receive Rent or the Lease Balance or any other payment pursuant to the Operative Documents, or involve a material risk of sale, forfeiture or loss of any Aircraft or any interest therein. The failure of an Indemnitee to contest timely a claim against it for any Tax which is subject to indemnification under Section 7.2(a) and for which it has an obligation to Lessee to contest under this Section 7.2(b) in the manner required by Applicable Laws and Regulations where Lessee has timely requested that such Indemnitee contest such claim shall relieve Lessee of its obligations to such Indemnitee under Section 7.2(a) with respect to such claim only to the extent such failure results in the loss of an effective contest. If Applicable Laws and Regulations require the payment of a contested Tax as a condition to, or regardless of, its being contested (or if the Indemnitee controls such contest and decides to pursue such contest by paying the Tax and seeking a refund thereof), and Lessee chooses to contest such Tax or to direct the Indemnitee to contest such Tax in accordance with this Section, then Lessee shall provide the Indemnitee with the funds to pay such Tax, such provision of funds to be deemed a non-interest bearing loan by Lessee to the Indemnitee to be repaid by any recovery of such Tax from such contest and remaining unpaid amount not recovered to offset Lessee's obligation to indemnify the Indemnitee for such Tax. Lessee shall indemnify the Indemnitee on an After-Tax Basis in accordance with Section 7.7 for and against any adverse consequences of any such interest-free loan. In the event that the Indemnitee receives a refund (or like adjustment) in respect of any Tax for which the Indemnitee has been reimbursed by Lessee, the Indemnitee shall promptly remit the amount of such refund (or like adjustment), plus any interest received thereon, to Lessee, net of all reasonable costs and expenses incurred by such Indemnitee in connection therewith; provided, however, that the Indemnitee shall not be required to remit any amount pursuant to this sentence in excess of the amounts previously paid by Lessee to, or on behalf of, such Indemnitee with respect to such Tax pursuant to this Section 7, plus any interest received thereon; provided, further, that Indemnitee 41 shall not be required to remit any amount pursuant to this sentence for so long as a Lease Event of Default has occurred and is continuing. (c) Payments. Subject to Section 7.2(b), any Tax indemnifiable under Section 7.2(a) shall be paid by Lessee directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted, is not practicable or is otherwise not made, any amount payable to an Indemnitee pursuant to Section 7.2(a) shall be paid within thirty days after receipt of a written demand therefor from such Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable, but not before the date that is five Business Days prior to the date that the relevant Taxes are due. Any payments made pursuant to Section 7.2(a) directly to the Indemnitee entitled thereto or Lessee, as the case may be, shall be made in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in this Participation Agreement. Upon the request of any Indemnitee with respect to a Tax that Lessee is required to pay, Lessee shall furnish to such Indemnitee the original or a certified copy of a receipt for Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Indemnitee. (d) Reports. If any report, return or statement is required to be filed with respect to any Taxes that are subject to indemnification under Section 7.2(a), Lessee shall, if Lessee is permitted by Applicable Laws and Regulations, timely prepare and file such report, return or statement; provided, however, that if Lessee is not permitted by Applicable Laws and Regulations to file any such report, return or statement, Lessee will promptly so notify the appropriate Indemnitee, in which case the Indemnitee, at Lessee's expense, will file any such report after preparation thereof by Lessee. (e) Calculation of Payments. If an Indemnitee or any Affiliate of such Indemnitee who files any tax return on a combined, consolidated, unitary or similar basis with such Indemnitee shall actually realize any saving of any Tax (net of any related Tax detriment) not indemnifiable by Lessee pursuant to the Operative Documents (by way of credit (including any foreign tax credit), deduction, exclusion from income or otherwise) by reason of any amount with respect to which Lessee has indemnified such Indemnitee pursuant to this Section 7.2, and such net Tax saving was not taken into account in determining the amount payable by Lessee on account of such indemnification, such Indemnitee shall pay to Lessee, so long as no Lease Event of Default shall have occurred and be continuing (but shall be required to make such payment at such time as the Lease Event of Default shall have been cured) within 10 days after such Indemnitee shall have actually realized such net Tax saving, the amount of such saving, together with the amount of any net Tax saving resulting from any payment pursuant to this sentence (provided that such payments by such Indemnitee shall not exceed the amount of the payments made by Lessee to or for such Indemnitee which gave rise to such savings and payment by such Indemnitee). (f) Refund. If an Indemnitee shall receive a refund of (or receive a credit against or any other current reduction in, any Tax not indemnified or paid by Lessee under this Section 7.2, in respect of) all or part of any Taxes which Lessee shall have paid on behalf of such Indemnitee or for which Lessee shall have reimbursed, advanced funds to or indemnified such Indemnitee 42 (or would have received such a refund, credit or reduction but for a counterclaim or other claim not indemnified by Lessee hereunder (a "deemed refund")), within 10 days of such receipt (or, in the case of a deemed refund, within 30 days of the final determination of such deemed refund), such Indemnitee shall pay or repay to Lessee an amount equal to the amount of such refund or deemed refund, plus any net tax benefit (taking into account any Taxes incurred by such Indemnitee by reason of the receipt of such refund, credit or reduction or deemed refund) realized by such Indemnitee as a result of any payment by such Indemnitee made pursuant to this sentence (provided that such payments by such Indemnitee shall not exceed the amount of the payments made by Lessee to or for such Indemnitee which gave rise to such refund and payment by such Indemnitee). If, in addition to such refund, credit or reduction or deemed refund, as the case may be, such Indemnitee shall receive (or would have received but for a counterclaim or other claim not indemnified by Lessee hereunder) an amount representing interest on the amount of such refund, credit or reduction, or deemed refund, as the case may be, such Indemnitee shall pay to Lessee within 10 days of such receipt or, in the case of a deemed refund, within 10 days of the final determination of such deemed refund, that proportion of such interest that shall be fairly attributable to Taxes paid, reimbursed or advanced by Lessee prior to the receipt of such refund or deemed refund. Notwithstanding the foregoing, such Indemnitee shall not be required to make any payment to Lessee under this Section 7.2(f) so long as a Lease Event of Default shall have occurred and be continuing (but shall be required to make such payment at such time as the Lease Event of Default shall have been cured). (g) Non-Parties. If an Indemnitee is not a party to this Agreement, the Lessee may require the Indemnitee to agree in writing, in a form reasonably acceptable to Lessee, to the terms of this Section 7.2 prior to making any payment to such Indemnitee under this Section 7.2. (h) Verification. The results of all computations required under this Section 7.2, together with a statement describing in reasonable detail the manner in which such computations were made, shall be delivered to the Lessee in writing. If Lessee so requests within 30 days after receipt of such computations, any determination shall be reviewed by a nationally recognized independent public accounting firm mutually acceptable to the relevant Indemnitee and the Lessee, who shall be asked to verify, after consulting with Lessee and the relevant Indemnitee whether the relevant Indemnitee's computations are correct, and to report its conclusions to both Lessee and the relevant Indemnitee. Subject to satisfactory confidentiality agreements, the relevant Indemnitee and Lessee hereby agree to provide such accountants with all information and materials as shall be reasonably necessary or desirable in connection herewith. The fees of the accountants in verifying an adjustment pursuant to this Section 7.2 shall be paid by the Lessee, unless such verification discloses an error adverse to Lessee in an amount greater than 10% of the amount of the indemnity payment as determined by the accounting firm, in which case such fees shall be paid by the relevant Indemnitee. Any information provided to such accountants by any Person shall be and remain the exclusive property of such Person and shall be deemed by the parties to be (and the accountants will confirm in writing that they will treat such information as) the private, proprietary and confidential property of such Person, and no Person other than such Person and the accountants shall be entitled thereto, and all such materials shall be returned to such Person. Such accounting firm shall be requested to make its determination within 30 days of the Lessee's request to such accounting firm for review. In the event such independent public accounting firm shall determine that such computations are incorrect, then such firm shall determine what it believes to be the correct computations. The computations of 43 the independent public accounting firm shall be final, binding and conclusive upon, the Lessee and the relevant Indemnitee and Lessee shall not have any right to inspect the books, records, tax returns or other documents of or relating to the relevant Indemnitee to verify such computations or for any other purpose. The parties hereby agree that the independent public accounting firm's sole responsibility shall be to verify the computation of any amounts payable under this Section 7.2 and that matters of interpretation of this Agreement and the other Operative Documents are not within the scope of such independent public accounting firm's responsibilities. (i) Restructuring For Withholding Taxes. Each party covered by this Section 7.2 agrees to use reasonable efforts to investigate alternatives for reducing any withholding Taxes that are indemnified against hereunder or imposed on Rent (whether or not indemnifiable hereunder) and to use reasonable efforts to reduce any withholding Taxes that are indemnified against hereunder, but no Party shall be obligated to take any such action as such Party determines in its sole discretion will be adverse to its business or financial or commercial interests. 7.3 WITHHOLDING TAXES EXEMPTION. If any Participant or any assignee of, or Sub-Participant in, any Note or Certificate (each such assignee or Sub-Participant, a "Transferee") is organized under the laws of any jurisdiction other than the United States or any State thereof, then such Participant or Transferee, as applicable, shall (as a condition precedent to acquiring or participating in any Loan or Certificate and as a continuing obligation to Certificate Trustee and Lessee) (i) furnish to Certificate Trustee, the CP Lender, the Agents and Lessee in duplicate, for each taxable year of such Participant or Transferee during the Term, a properly completed and executed copy of either Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 and Internal Revenue Service Form W-8 or Internal Revenue Service Form W-9 and any additional form (or such other form) as is necessary to claim complete exemption from United States withholding taxes on all payments hereunder, and (ii) provide to Certificate Trustee, the Agents and Lessee a new Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 and Internal Revenue Service Form W-8 or Internal Revenue Service Form W-9 and any such additional form (or any successor form or forms) upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable United States laws and regulations and amendments duly executed and completed by such Participant or Transferee, and to comply from time to time with all applicable United States laws and regulations with regard to such withholding tax exemption. By its acceptance of a participation or assignment of a Participant's Note or Certificate, each Transferee shall be deemed bound by the provisions set forth in Sections 6.3, 6.4 and this Section 7.3. No Participant or Transferee that fails to comply with the requirements of this Section 7.3 shall be entitled to the benefit of any tax indemnity for gross-up of payments in respect of withholding taxes pursuant to Section 7.2 . 44 7.4 LIBO RATE ILLEGAL, UNAVAILABLE OR IMPRACTICABLE. (a) If any Participant shall determine in good faith (which determination shall, upon notice thereof to Lessee, be conclusive and binding on Lessee) that (i) a change after the Closing Date in any Governmental Requirement or the interpretation thereof by any governmental authority, court, bureau or agency charged with the administration or interpretation thereof (whether or not having the force of law) makes it unlawful, or the applicable central bank or other applicable Authority asserts that it is unlawful, for such Participant or its principal bank Affiliate to make, continue or maintain any amount of such Participant's investment in the Notes or Certificates on a LIBO Rate basis, or (ii) deposits in Dollars (in the applicable amounts) are not being offered to such Participant or its principal bank Affiliate in the relevant market for the applicable Payment Period, or that, by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the applicable LIBO Rate, or (b) If the Administrative Agent determines in good faith (which determination shall, upon notice thereof to Lessee, be conclusive and binding upon Lessee) that the LIBO Rate, as determined by the Administrative Agent, will not adequately and fairly reflect the cost to any Participant or its principal bank Affiliate of maintaining or funding its investments for the applicable Payment Period, or that the making or funding of such Participant's investment hereunder on a LIBO Rate basis has become impracticable as a result of an event occurring after the date hereof which in the opinion of such Participant materially changes such investment, or (c) If an Event of Default shall have occurred and be continuing, then the obligations of such Participant to make, continue or maintain any such investment in the Notes or Certificates on a LIBO Rate basis shall, upon such determination (and with respect to 7.4(a) and (b) above, upon notice thereof to Lessee), forthwith be suspended until such Participant shall notify Lessee that such circumstances no longer exist, and all Interest and Yield included in Basic Rent (and Interest and Yield) allocable to such Participant shall automatically be determined on a Reference Rate basis (plus any applicable basis points) beginning on the next immediately succeeding Payment Date with respect thereto or sooner, if required by such law, assertion or determination. (d) As used herein, "Reference Rate" shall mean, for any day, the higher of: (i) 0.50% per annum above the latest Federal Funds Rate; or (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America, as its "reference rate." (The "reference rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate.) Any change in the reference rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. 45 7.5 INCREASED COSTS. From and after the Closing Date, without duplication of any amounts otherwise payable under the Operative Documents, Lessee agrees to reimburse each Participant, within ten days after receipt of written notice from such party, for any increase in its cost or decrease in its effective rate of return incurred after the Closing Date (which shall include, but not be limited to, taxes (other than income or similar taxes), fees, charges or reserves) directly or indirectly resulting from the making of any Funding to or for the benefit of Lessee or maintaining of its Commitment, and arising as a result of: (a) any change after the Closing Date in any Governmental Requirement or the interpretation thereof by any governmental authority, court, bureau or agency charged with the administration or interpretation thereof (whether or not having the force of law); or (b) any capital or similar requirements imposed on any Participant or any corporation controlling any such party against assets or liabilities (or against any class thereof or any required change in the amount thereof) of, or commitments or extensions of credit by, any such party (including, without limitation, any such party's obligation to make Fundings hereunder). Such reimbursement shall be made to the applicable Participant within ten days after the receipt by Lessee of notice from such party setting forth the nature and amount of such loss, decrease in its effective rate of return, or expense and an explanation as to how such amounts were calculated by such party, said notice to be conclusive and binding in the absence of manifest error. Lessee will pay all amounts required pursuant to this Section 7.5 to the applicable Participant in immediately available funds. Notwithstanding the foregoing provisions of this Section 7.5, if any Participant fails to notify Lessee of any event or circumstance which will entitle such Participant to compensation pursuant to this Section 7.5 within 60 days of such Participant obtaining knowledge of such event or circumstance, then such Participant shall not be entitled to compensation from Lessee for any amount arising prior to the date which is 60 days before the date on which such Participant notifies Lessee of such event or circumstance. 7.6 FUNDING LOSSES. Lessee shall pay to Certificate Trustee, as Supplemental Rent, such amounts as may be necessary to reimburse any Participant for any loss or expense (including, without limitation, any administration costs) incurred (i) by reason of the liquidation or reemployment of deposits or other funds acquired by such Participant to make, continue or maintain any portion of its investment in any Note or Certificate on a LIBO Rate or CP Rate basis or (ii) as a result of any payment of all or any portion of the Lease Balance for any reason on a date other than a Payment Date, including, without limitation, by reason of acceleration (the amount of such loss or expense is called the "Break Funding Amount"). Any Participant shall promptly notify Certificate Trustee and Administrative Agent in writing of the amount of any claim under this Section 7.6, the reason or reasons therefor and the additional amount required fully to compensate such Participant for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on Lessee. 46 7.7 Intentionally Omitted. 7.8 FUNDING OFFICE; SUBSTITUTION OF CERTIFICATE HOLDER AND FACILITY LENDER. (a) If Lessee is required to pay additional amounts to or for the account of any Participant pursuant to Sections 7.4 or 7.5, to the extent applicable, then such Participant will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the sole judgment of such Participant, is not otherwise disadvantageous to such Participant. (b) Upon receipt by Lessee from any Certificate Holder or Facility Lender of a claim for compensation under Section 7.5 or a notice of the type described in Sections 7.4(a), 7.4(b) or 7.6 Lessee may arrange for one or more banks satisfying the requirements set forth in Section 6.3 for an assignee of such Certificate Holder or Facility Lender, as the case may be, to acquire and assume all or a ratable part of all of such affected Certificate Holder's or Facility Lender's Certificate Amount or Loans, respectively; provided however, that any designation of a replacement Certificate Holder or Facility Lender, as the case may be, shall be subject to the prior written consent of the Administrative Agent (which consent shall not be unreasonably withheld). 7.9 AIRCRAFT In the event that (a) Lessee elects the Sale Option with respect to any Aircraft; and (b) after paying to Certificate Trustee, for the benefit of the Participants, any amounts due under Section 23 of the Lease, the Lease Balance for such Aircraft shall not have been reduced to zero, then Lessee shall promptly pay over to Certificate Trustee on the Expiration Date for such Aircraft the shortfall unless Lessee delivers a report from an appraiser selected by the Required Participants in form and substance reasonably satisfactory to the Required Participants and using approved methods substantially the same as those used in the Appraisal to the Required Participants which establishes that the reasons for the actual Fair Market Value of such Aircraft as of the Expiration Date being less than the Fair Market Value of such Aircraft anticipated for such date in the Appraisal delivered pursuant to Section 4.1(i) was not due to any of the following events, circumstances or conditions, whether or not permitted under the Lease: (i) the failure to maintain such Aircraft as required by the Lease and the other Operative Documents, and in at least the condition required under Section 6 of the Lease; (ii) the carrying out of any modification and Improvements or the failure to undertake any Required Alterations whether or not permitted pursuant to the Operative Documents; (iii) the existence of any environmental condition at or affecting such Aircraft whether or not such condition existed on the applicable Delivery Date; (iv) any defect, exception or other encumbrance on or title to such Aircraft whether or not created or existing on the Delivery Date of such Aircraft; or (v) any other cause or condition within the power of Lessee to control or affect other than ordinary wear and tear. SECTION 8 ADMINISTRATIVE AGENT 8.1 APPOINTMENT. Each Participant hereby irrevocably designates and appoints Administrative Agent as the agent of such Participant under this Participation Agreement and the other Operative Documents, 47 and each such Participant irrevocably authorizes Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Participation Agreement and the other Operative Documents and to exercise such powers and perform such duties as are expressly delegated to Administrative Agent by the terms of this Participation Agreement and the other Operative Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Participation Agreement, Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein and in the other Operative Documents, or any fiduciary relationship with any Participant or any other party to the Operative Documents, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Participation Agreement or any other Operative Document or otherwise exist against Administrative Agent. 8.2 DELEGATION OF DUTIES. Administrative Agent may execute any of its duties under this Participation Agreement and the other Operative Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.3 EXCULPATORY PROVISIONS. Neither Administrative Agent (in its capacity as such) nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Participation Agreement or any other Operative Document, except for its or such Person's own willful misconduct or gross negligence (or negligence in the handling of funds) or (b) responsible in any manner to any of the Participants or any other party to the Operative Documents for any recitals, statements, representations or warranties made by Certificate Trustee or Lessee or any officer thereof contained in this Participation Agreement or any other Operative Document or in any certificate, report, statement or other document referred to or provided for in, or received by Administrative Agent under or in connection with, this Participation Agreement or any other Operative Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Participation Agreement or any other Operative Document or for any failure of Certificate Trustee or Lessee to perform its obligations hereunder or thereunder. Administrative Agent shall not be under any obligation to any Lender or any other party to the Operative Documents to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Participation Agreement or any other Operative Document, or to inspect the properties, books or records of Certificate Trustee or Lessee. 8.4 RELIANCE BY ADMINISTRATIVE AGENT. Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, Certificate, writing, resolution, notice, consent, certificate, affidavit, letter, facsimile message, statement, order or other document or other written communication believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to 48 Certificate Trustee or Lessee), independent accountants and other experts selected by Administrative Agent. Administrative Agent may deem and treat the payee of any Note or Certificate as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with Administrative Agent. Administrative Agent shall be fully justified in failing or refusing to take any action under this Participation Agreement or any other Operative Document unless it shall first receive the advice or concurrence of the Required Participants, or it shall first be indemnified to its satisfaction by the applicable Participants against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Participation Agreement and the other Operative Documents in accordance with a request of the Required Participants, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Participants and all future holders of the applicable Notes or Certificates. Subject to the provisions of Section 9.5, wherever in the Operative Documents the consent or approval of Administrative Agent is required, such consent or approval may be given by Administrative Agent only upon its receipt of such consent or approval from the Required Participants. 8.5 NOTICE OF DEFAULT. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless Administrative Agent has received notice from a Participant or Certificate Trustee referring to this Participation Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that Administrative Agent receives such a notice, Administrative Agent shall promptly give notice thereof to the Participants, Certificate Trustee and Lessee. Administrative Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Required Participants; provided, however, that unless and until Administrative Agent shall have received such directions, Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Participants. 8.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Participant expressly acknowledges that neither Administrative Agent, Administrator nor the Arranger, nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates, has made any representations or warranties to it and that no act by Administrative Agent, Administrator or the Arranger hereinafter taken, including any review of the affairs of Certificate Trustee or Lessee, shall be deemed to constitute any representation or warranty by Administrative Agent, Administrator or the Arranger to any Participant. Each Participant represents to Administrative Agent, Administrator and the Arranger that it has, independently and without reliance upon Administrative Agent, Administrator, the Arranger or any other Participant, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of Certificate Trustee and Lessee and made its own decision to enter into this Participation Agreement. Each Participant also represents that it will, independently and without reliance upon Administrative Agent, Administrator, the Arranger or any other Participant, and based on such documents and information as it shall deem 49 appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Participation Agreement and the other Operative Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of Certificate Trustee and Lessee. Except for notices, reports and other documents expressly required to be furnished to the Participants by Administrative Agent hereunder, neither Administrative Agent, Administrator nor the Arranger shall have any duty or responsibility to provide any Participant with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of Certificate Trustee or Lessee which may come into the possession of Administrative Agent, Administrator, the Arranger or any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. 8.7 INDEMNIFICATION. Administrative Agent agrees to look solely to Lessee under Section 7 hereof, and not to any other party hereto, for any claim for indemnification which may arise hereunder or under any other Operative Document. 8.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. Each Participant acknowledges that First Security Trust is acting as Administrative Agent hereunder. First Security Trust and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Certificate Trustee, Lessee and their Affiliates as though it was not Administrative Agent hereunder and under the other Operative Documents and without notice to or consent of the Participants. Each Participant acknowledges that, pursuant to such activities, First Security Trust or its Affiliates may receive information regarding Lessee, Certificate Trustee or their Affiliates (including information that may be subject to confidentiality obligations in favor of Lessee, Certificate Trustee or their Affiliates) and acknowledges that such Persons shall be under no obligation to provide such information to them. 8.9 SUCCESSOR ADMINISTRATIVE AGENT. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, Administrative Agent may resign at any time by giving notice thereof to each Participant and Lessee or may be removed at any time by written notice from the Required Participants, such resignation or removal to be effective only upon appointment of a successor as herein provided and such successor's acceptance of such appointment. Upon any such resignation or removal, the Required Participants at the time of the resignation or removal shall have the right to appoint a successor Administrative Agent which shall be a commercial bank organized under the laws of the United States of America or any State thereof or under the laws of another country which is doing business in the United States of America that is reasonably acceptable to Lessee (other than during the occurrence and continuation of a Significant Default or a Lease Event of Default) and that has a combined capital, surplus and undivided profits of at least $500,000,000. If, within 30 calendar days after the retiring Administrative Agent's giving of notice of resignation or receipt of a written notice of removal, a successor Administrative 50 Agent is not so appointed and does not accept such appointment, then the retiring or removed Administrative Agent may appoint a successor Administrative Agent and transfer to such successor Administrative Agent all rights and obligations of the retiring Administrative Agent. Such successor Administrative Agent shall be a commercial bank organized under the laws of the United States of America or any State thereof or under the laws of another country which is doing business in the United States of America that is reasonably acceptable to Lessee (other than during the occurrence and continuation of a Significant Default or a Lease Event of Default) and that has a combined capital, surplus and undivided profits of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the retiring or removed Administrative Agent shall be discharged from duties and obligations as Administrative Agent thereafter arising hereunder and under any related document without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Participation Agreement or any holders of the Notes or the Certificates. If the retiring Administrative Agent does not appoint a successor, Lessee may do so, or any Participant shall be entitled to apply to a court of competent jurisdiction for such appointment, and in any such case the successor so appointed shall act until such time, if any, as a successor shall have been appointed as above provided. After any retiring Administrative Agent's resignation as Administrative Agent, all of the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Participation Agreement and the other Operative Documents. SECTION 9. MISCELLANEOUS 9.1 SURVIVAL OF AGREEMENTS. The representations, warranties and indemnities of the parties provided for in the Operative Documents shall survive the execution and delivery and the termination or expiration of this Agreement and any of the Operative Documents, the transfer of the interest in the Aircraft as provided herein or in any other Operative Documents (and shall not be merged into any conveyance or transfer document), any disposition of any interest of Certificate Trustee in the Aircraft, the purchase and sale of the Notes or Certificates, payment therefor and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party hereto or to any of the other Operative Documents and the fact that any such party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents. 9.2 NO BROKER, ETC. Except for Lessee's dealing with the Arranger, each of the parties hereto represents to the others that it has not retained or employed any arranger, broker, finder or financial advisor to act on its behalf in connection with this Agreement, nor has it authorized any arranger, broker, finder or financial adviser retained or employed by any other Person so to act, nor has it incurred any fees or commissions to which Certificate Trustee, the Agents or any Participant might be subjected by virtue of their entering into the transactions contemplated by this Agreement. Any 51 party who is in breach of this representation shall indemnify and hold the other parties harmless from and against any liability arising out of such breach of this representation. 9.3 NOTICES. Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given: (i) in the case of notice by letter, the earlier of when delivered to the addressee by hand or courier if delivered during normal business hours on a Business Day and, if not delivered on a Business Day, the first Business Day thereafter or on the third Business Day after depositing the same with any nationally recognized overnight courier service or on the seventh Business Day after depositing the same in the mails, registered or certified, postage prepaid, return receipt requested, and (ii) in the case of notice by facsimile, when receipt is confirmed if delivered on a Business Day during normal business hours and, if not delivered on a Business Day, the first Business Day thereafter, addressed as provided on Schedule III hereto, or to such other address as any of the parties hereto may designate by written notice. 9.4 COUNTERPARTS. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same agreement. 9.5 AMENDMENTS. No Operative Document nor any of the terms thereof may be terminated, amended, supplemented, waived or modified without the written agreement or consent of Certificate Trustee, the Agents (but only to the extent any such termination, amendment, supplement, waiver or modification adversely affects the rights and/or obligations of such Agent), Lessee and the Required Participants; provided, however, that Section 9.16 and 10.4(iii) hereof may not be terminated, amended, supplemented, waived or modified without the written agreement or consent of the Arranger; and provided, further, that such termination, amendment, supplement, waiver or modification shall require the written agreement or consent of each affected Participant (or in the case of clause (b) below, each affected Certificate Holder) if such termination, amendment, supplement, waiver or modification would: (a) modify any of the provisions of this Section 9.5, change the definition of "Required Participants", or modify or waive any provision of any Operative Document requiring action by all of the Participants; (b) change the definition of "Required Certificate Holders" or modify or waive any provision of any Operative Document requiring action by each Certificate Holder; (c) reduce the amount or change the time of payment of any amount of principal owing or payable under any Note, Certificate or Interest or Yield owing or payable on any Note or Certificate, modify any of the provisions of Article III of the Loan Agreement or Article III of the Trust Agreement; 52 (d) modify, amend, waive or supplement any of the provisions of Sections 4.1(a), 10, 11, 13(a), 13(b), 13(f), 13(g), 22 and 23 of the Lease, or the provisions of Section 2.2 hereof; (e) reduce, modify, amend or waive any fees, yield protection or indemnities in favor of such Participant (except that any Person may consent to any reduction, modification, amendment or waiver of any indemnity payable to it); (f) modify, postpone, reduce or forgive, in whole or in part, any payment of Rent (other than pursuant to the terms of the Operative Documents), any Loan or Certificate Amount, Lease Balance, Fees, Loan Balance, Sale Recourse Amount, Maximum Lessor Risk Amount, amounts due pursuant to Section 22 or 23 of the Lease, Interest or Yield (except that any Person may consent to any modification, postponement, reduction or forgiveness of any payment of any such amount payable to it) or, subject to clause (d) above, any other amount payable under the Lease or this Participation Agreement, or modify the definition or method of calculation of Rent (other than pursuant to the terms of the Operative Documents), Loans or Certificate Amounts, Lease Balance, Fees, Loan Balance, Sale Recourse Amount, Maximum Lessor Risk Amount, Applicable Percentage or any other definition which would affect the amounts to be advanced or which are payable under the Operative Documents; (g) consent to any assignment of the Lease by Lessee, releasing Lessee from its obligations in respect of the payments of Rent, or changing the absolute and unconditional character of such obligations; or (h) release any Lien granted by Lessee or Certificate Trustee under the Operative Documents, except as provided in the Operative Documents or waive or forbear any Event of Default resulting from Lessee's failure to comply with the provisions of Section 23 of the Lease; Notwithstanding the foregoing, the Agents, the Certificate Trustee and the Lessee may, at any time and from time to time, without the consent of any Participant, enter into any amendment, modification, supplement or replacement to this Agreement or any other Operative Document or one or more agreements supplemental hereto, in form reasonably satisfactory to the Agents to cure any ambiguity, correct or supplement any provision in this Agreement or any other Operative Document that may be defective or inconsistent with any other provision herein or therein; provided that any such action contemplated hereby shall not adversely affect the interests of the Participants and a copy of any such amendment, modification, supplement or agreement supplemental hereto is sent to the Participants by reputable commercial overnight delivery service or by telecopy not later than ten (10) days prior to the execution thereof by the Agents and the Certificate Trustee. 9.6 HEADINGS, ETC. The Table of Contents and headings of the various Articles and Sections of this Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. 53 9.7 PARTIES IN INTEREST. Except as expressly provided herein, none of the provisions of this Agreement is intended for the benefit of any Person except the parties hereto, their successors and permitted assigns. 9.8 GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF, THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE (EXCEPT TITLE 14 OF ARTICLE 5 OF THE NEW YORK GENERAL OBLIGATIONS LAW), EXCEPT THAT THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIEN ON THE AIRCRAFT TO THE EXTENT REQUIRED BY APPLICABLE LAW SHALL BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION. 9.9 PAYMENT OF TRANSACTION COSTS AND OTHER COSTS. (a) Transaction Costs. As and when any portion of Transaction Costs becomes due and payable, such Transaction Costs shall be paid by the Lessee as Supplemental Rent. The Lessee shall promptly make payment of such Transaction Costs to the Person or Persons entitled to payment promptly following presentation of bills or invoices for the amount of such payment. (b) Continuing Expenses. The continuing fees, expenses and disbursements (including reasonable out-of-pocket counsel fees) of (i) Certificate Trustee, under the Lease and as trustee under the Trust Agreement with respect to the administration of the Trust Estate and (ii) the Agents under the Operative Documents, shall be paid (subject to the exclusions expressly set forth in the provisions of Section 7 of this Agreement) directly by the Lessee as Supplemental Rent. (c) Amendments, Supplements and Appraisal. Without limitation of the foregoing, from and after the Closing Date, the Lessee agrees to pay to the Participants, Certificate Trustee and the Agents all reasonable out-of-pocket costs and expenses (including reasonable legal fees and expenses of special counsel to the Agents and Certificate Trustee and document counsel) incurred by any of them in connection with: (i) the considering, evaluating, investigating, negotiating and entering into or giving or withholding of any amendments or supplements or waivers or consents with respect to any Operative Document; (ii) any Event of Loss, or termination of the Lease or any other Operative Document; (iii) the negotiation and documentation of any restructuring or "workout," whether or not consummated, of any Operative Document; (iv) the enforcement of the rights or remedies under the Operative Documents; (v) any transfer by Certificate Trustee or a Participant of any interest in the Operative Documents during the continuance of a Lease Event of Default; or (vi) any Delivery Date. (d) Other Costs. Subject to the exclusions expressly set forth in the provisions of Section 7 of this Agreement, the Lessee agrees to pay when due as Supplemental Rent all Fees and any other amounts payable by the Certificate Trustee under the Operative Documents (which other amounts payable by the Certificate Trustee are hereby expressly stated to be paid by the Lessee as Supplemental Rent). 54 9.10 SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 9.11 LIMITED LIABILITY OF CERTIFICATE TRUSTEE. The parties hereto agree that the Certificate Trustee, in its individual capacity, shall have no personal liability whatsoever to Lessee, the Agents or the Participants or any of their respective successors and assigns for any Claim based on or in respect of this Agreement or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby; provided, however, that the Certificate Trustee shall be liable in its individual capacity (a) for its own willful misconduct or gross negligence (or negligence in the handling of funds) and, to each Participant for the breach of its obligations to the Participants in respect of the Trust Agreement and the Trust Estate, (b) for liabilities that may result from the incorrectness of any representation or warranty expressly made by it in its individual capacity in Section 3.1 or a breach of its covenants in Section 6.2 hereof, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for actions contemplated by the Operative Documents. The Certificate Trustee (in its individual capacity and as Lessor, Borrower and Certificate Trustee) shall have no responsibility for construction of the Aircraft or for the accuracy, sufficiency or adequacy of any of the information or documents submitted in connection with each Funding or upon delivery of the Aircraft. 9.12 LIMITED LIABILITY OF THE AGENTS. The parties hereto agree that each Agent, in its individual capacity, shall have no personal liability whatsoever to Lessee, the Participants, the other Agent, Certificate Trustee or any of their respective successors and assigns for any Claim based on or in respect of this Participation Agreement or any of the other Operative Documents or arising in any way from the Overall Transaction; provided, however, that each Agent shall be liable in its individual capacity: (a) for its own willful misconduct or gross negligence (or negligence in the handling of funds) and, to each Participant for the breach of its obligations to such Participant in respect of the Operative Documents, (b) for liabilities that may result from the incorrectness of any representation or warranty expressly made by it in this Participation Agreement or from its failure to perform the covenants and agreements set forth in this Participation Agreement or any other Operative Document, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for actions contemplated by the Operative Documents. It is understood and agreed that, except as provided in the preceding proviso, the Agents shall have no personal liability under any of the Operative Documents as a result of acting pursuant to and consistent with any of the Operative Documents. 55 9.13 LIABILITIES OF THE PARTICIPANTS. No Participant shall have any obligation to any other Participant or to Lessee, Certificate Trustee or the Agents with respect to the transactions contemplated by the Operative Documents except those obligations of such Participant expressly set forth in the Operative Documents or except as set forth in the documents delivered in connection therewith, and no Participant shall be liable for performance by any other party hereto of such other party's obligations under the Operative Documents except as otherwise so set forth. 9.14 SUBMISSION TO JURISDICTION; WAIVERS. (a) Each party hereto irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding solely for purposes of any legal action or proceeding relating to this Agreement or any other Operative Document, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in the borough of Manhattan, and appellate courts from any thereof; (ii) consents that any such action or proceedings may be brought to such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth on Schedule III or at such other address of which the other parties hereto shall have been notified pursuant to Section 9.3; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. (b) THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PARTICIPATION AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY OF THE PARTIES HERETO AND THERETO. THE PARTIES HERETO HEREBY AGREE THAT THEY WILL NOT SEEK TO CONSOLIDATE ANY SUCH LITIGATION WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL HAS NOT OR CANNOT BE WAIVED. THE PROVISIONS OF THIS SECTION 9.14(b) HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND SHALL BE SUBJECT TO NO EXCEPTIONS. LESSEE ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER OPERATIVE 56 DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTICIPANTS ENTERING INTO THIS PARTICIPATION AGREEMENT AND EACH OTHER OPERATIVE DOCUMENT. 9.15 REPRODUCTION OF DOCUMENTS. This Agreement, all documents constituting an Appendix, Schedule or Exhibit hereto, and all documents relating hereto received by a party hereto, including, without limitation: (a) consents, waivers and modifications that may hereafter be executed; (b) documents received by the Participants or Certificate Trustee in connection with the receipt and/or acquisition of the Aircraft; and (c) financial statements, certificates, and other information previously or hereafter furnished to Certificate Trustee, the Agents or any Participant may be reproduced by the party receiving the same by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. Each of the parties hereto agrees and stipulates that, to the extent permitted by law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such party in the regular course of business) and that, to the extent permitted by law, any enlargement, facsimile, or further reproduction of such reproduction shall likewise be admissible in evidence. 9.16 ROLE OF ARRANGER. Each party hereto acknowledges hereby that it is aware of the fact that the Arranger has acted as an "arranger" with respect to the Overall Transactions. The parties hereto acknowledge and agree that Arranger and its Affiliates, including Bank of America, National Association, have not made any representations or warranties concerning, and that they have not relied upon Arranger as to, the tax, accounting or legal characterization or validity of (i) the Operative Documents or (ii) any aspect of the Overall Transaction. The parties hereto acknowledge and agree that Arranger has no duties, express or implied, under the Operative Documents in its capacity as Arranger. 9.17 CONSEQUENTIAL DAMAGES. Notwithstanding anything in any Operative Document to the contrary, no party to this Agreement shall have any liability for any consequential, indirect, punitive, exemplary, or special damages, including without limitation loss of business, opportunities, revenue or profits. 57 9.18 CONFIDENTIALITY. Each Financing Party agrees (individually, but not on a joint and several basis) to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all non-public information provided to it by the Lessee in connection with the Operative Documents and agrees and undertakes that no such Financing Party nor any of its respective Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by the Operative Documents or in connection with other business now or hereafter existing or contemplated with the Lessee or any Subsidiary of the Lessee. Each Financing Party may disclose such information: (a) at the request of any Authority or in connection with an examination of such Financing Party by any such Authority; (b) to such Financing Party's independent auditors, counsel and other professional advisors; (c) pursuant to subpoena or other court process or when required to do so in accordance with the provisions of any applicable law or at the express direction of any agency of any State of the United States of America or of any other jurisdiction in which such Financing Party conducts its business; (d) in connection with the defense of any litigation or other proceeding brought against it arising out of the transactions contemplated by the Operative Documents and related documents when the disclosure is necessary for its defense; (e) in connection with the enforcement of the rights and remedies of such Financing Party under the Operative Documents when the disclosure is necessary for enforcement; (f) to its Subsidiaries and Affiliates; and (g) to the extent that such information was or becomes generally available to the public other than as a result of disclosure by such Financing Party. Notwithstanding the foregoing in this Section 9.18, (i) the Lessee authorizes each Financing Party to disclose to any participant, assignee, prospective participant, prospective assignee or such Financing Party's investment banking affiliates, such financial and other information in such Financing Party's possession concerning Lessee or any of its Subsidiaries that has been delivered to such Financing Party; provided, that such participant, assignee, prospective participant, prospective assignee or such Financing Party's investment banking affiliates, as the case may be, agrees to keep such information confidential to the same extent required of such Financing Party hereunder and (ii) the CP Lender and the Administrator may disclose: (A) to the CP Lender's commercial paper dealers or placement agents and to investors and prospective investors in such commercial paper, information concerning the Overall Transaction, as required by the CP Lender's agreements with such dealers or placement agents; 58 (B) to Moody's, S&P and Duff & Phelps Credit Rating Co. (or any successor that maintains a rating of the CP Lender's commercial paper), any information, in connection with such rating agency's review and maintenance of its rating of such commercial paper; and (C) to any entity that issues a financial guaranty insurance policy or other credit enhancement facility for the account of the CP Lender or any provider of corporate management services to the CP Lender, and the CP Lender's certified public accountants, any information, in connection with the provision and administration of credit facilities or corporate management services or accounting services, as applicable, to or on behalf of the CP Lender; provided, that each such Person agrees to be bound by the provisions of this Section 9.18. 9.19 NON-PETITION. Each of the parties hereto other than the CP Lender hereby agrees that it shall not institute against, or join or assist any other Person in instituting against, any CP Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law, or any other action that would constitute an Insolvency Event (as defined in the LAPA) of the CP Lender, for one year and a day after the latest maturing commercial paper note issued by that CP Lender is paid. This Section shall survive the termination of this Participation Agreement and the replacement of any of the parties referred to herein. 9.20 LIMITED RECOURSE. Notwithstanding any provisions contained in this Participation Agreement to the contrary, the CP Lender shall not, and shall not be obligated to, pay any amount pursuant to this Agreement unless (i) the CP Lender has received funds which may be used to make such payment and which funds are not required to repay any of the Commercial Paper Notes issued by the CP Lender when due and (ii) after giving effect to such payment, either (x) there is sufficient liquidity availability (determined in accordance with the program documents governing such CP Lender's securitization program) under all of the CP Lender's liquidity facilities to pay the face amount of all such outstanding Commercial Paper Notes when due or (y) all such Commercial Paper Notes are paid in full. Prior to the commencement of any Insolvency Proceeding by or against the CP Lender, any amount which the CP Lender does not pay pursuant to the operation of the preceding sentence shall not constitute a claim (as defined in Section 101 of the Bankruptcy Code) against or corporate obligation of such CP Lender for any such insufficiency unless and until such payment may be made in accordance with clauses (i) and (ii) above. 9.21 BENEFIT OF THE PARTIES. Nothing in this Participation Agreement, whether express or implied, shall be construed to give any Person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Participation Agreement. 59 9.22 DELIVERIES TO PARTICIPANTS. Lessee may fulfill its obligations hereunder and under each of the other Operative Documents to provide any item (other than any notices) to any Participant by providing sufficient copies of such item directly to Administrative Agent, along with the costs of postage, with instructions to Administrative Agent to deliver such item to such Participant. 9.23 ROLE OF BANK OF AMERICA. Each party hereto acknowledges that Bank of America, is acting as Administrator hereunder and under the other Operative Documents and as Administrator under the LAPA, and that it is also a Facility Lender and that one of its Affiliates is a Certificate Holder. Bank of America, and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Trust Company, First Security Trust, Lessee and their respective Affiliates as though Bank of America, was not Administrator or Liquidity Agent hereunder and under the other Operative Documents and without notice to or consent of any Participant or any other party hereto or to the other Operative Documents. Each party hereto acknowledges that, pursuant to such activities, Bank of America and its Affiliates may receive information regarding Lessee, the Trust Company, First Security Trust or their respective Affiliates (including information that may be subject to confidentiality obligations in favor of Lessee, the Bank, First Security Trust or their respective Affiliates) and acknowledges that such Persons shall be under no obligation to provide such information to them. With respect to any Loans or Certificate Amounts made available or renewed by it and any Note or Certificate issued to it or its Affiliates, Bank of America, shall have the same rights and powers hereunder and under the other Operative Documents as any Participant and may exercise the same as though it were not Administrator or the Liquidity Agent. SECTION 10 FEES. 10.1 FACILITY FEE. A fee rounded up to the nearest thousand dollars (the "Facility Fee") equal to the product of (x) the applicable percentage for the Facility Fee determined in accordance with the definition of Applicable Percentage, (y) the aggregate Commitments (as such term is defined in the LAPA) of the Liquidity Banks under the LAPA less the amounts set forth in clauses (iii), (iv) and (v) of the definition of Available Commitment set forth in the LAPA, and (z) the number of days in the applicable period divided by 360, shall be payable by the Lessee to the Administrative Agent in arrears on each Payment Date for distribution ratably to the Liquidity Banks based on the respective Commitments of such Liquidity Banks. 10.2 UPFRONT FEE. On the Closing Date, the Lessee shall pay as Supplemental Rent a fee (the "Upfront Fee") in an amount equal to the product of (a) 0.175% multiplied by (b) the Facility Amount to the Administrative Agent for ratable distribution among the Certificate Holders and Facility Lenders based on their respective commitments. 60 10.3 OTHER FEES. The Lessee hereby agrees to pay as Supplemental Rent (i) the Program Fee, the Dealer Fee and the Non-Use Fee directly to the CP Lender, in accordance with the terms of the Conduit Fee Letter and (ii) the Arrangement Fee directly to the Arranger in accordance with the terms of the Arrangement Fee Letter. [The remainder of this page is intentionally left blank.] 61 IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first above written. STEELCASE INC., as Lessee By: /s/ Alwyn Rougier-Chapman ----------------------------------------- Name: Alwyn Rougier-Chapman Title: Sr. VP - Finance and CFO BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrator and as a Facility Lender By: /s/ Robert Mauriello ----------------------------------------- Name: Robert Mauriello Title: Vice President BANC OF AMERICA LEASING & CAPITAL, LLC, as Arranger and as a Certificate Holder By: /s/ Herbert T. Thurau ----------------------------------------- Name: Herbert T. Thurau Title: Senior Vice President FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity except as otherwise expressly provided herein, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 By: /s/ Val T. Orton ----------------------------------------- Name: Val T. Orton Title: Vice President FIRST SECURITY TRUST COMPANY OF NEVADA, not in its individual capacity except as expressly provided herein, but solely as Administrative Agent By: /s/ Val T. Orton ----------------------------------------- Name: Val T. Orton Title: Trust Officer HATTERAS FUNDING CORPORATION, as CP Lender By: /s/ Chris T. Burt ---------------------------------------- Name: Chris T. Burt Title: Vice President OLD KENT BANK, as Facility Lender By: /s/ Seth W. Watson III ----------------------------------------- Name: Seth W. Watson III Title: Vice President THE NORTHERN TRUST COMPANY, as Facility Lender By: /s/ Roger McDougal ----------------------------------------- Name: Roger McDougal Title: Officer THE BANK OF NOVA SCOTIA, as Facility Lender By: /s/ F.C.H. Ashby ----------------------------------------- Name: F.C.H. Ashby Title: Senior Manager Loan Operations SCOTIABANC INC., as a Certificate Holder By: /s/ W.J. Brown ----------------------------------------- Name: W. J. Brown Title: Managing Director SCHEDULE I Certificate Holders' Commitments
Certificate Holder Commitment Commitment Percentage ------------------ ---------- --------------------- Banc of America Leasing & Capital, LLC $ 927,479.82 1.7836150% Scotiabanc Inc. $ 927,479.82 1.7836150% TOTAL $ 1,854,959.64 3.567230%
SCHEDULE II Lenders' Commitments
Facility Lender Commitment Commitment Percentage --------------- ---------- --------------------- Bank of America, N.A. $ 10,029,008.07 19.286554% The Bank of Nova Scotia $ 10,029,008.07 19.286554% The Northern Trust Company $ 10,029,008.07 19.286554% Old Kent Bank $ 20,058,016.15 38.573108% CP Lender Hatteras Funding Corporation $ 50,145,040.36 96.432770%
SCHEDULE III Notice Information, Payment Offices, Applicable Lending Offices (If different from Payment Offices) Lessee: Payment Office: - ------ -------------- Steelcase Inc. The Northern Trust Company 901 44th Street S.E. 50 S. LaSalle Grand Rapids, MI 49508 Chicago, IL 60675 Attn: Treasurer ABA #: 071-000-152 Telephone: (616) 247-5300 Account #: 68349 Telecopy: (616) 247-5053 Account Name: Steelcase Inc. Text: Attention Dan White Certificate Trustee: Payment Office: - ------------------- -------------- First Security Bank, National First Security Bank, NA Association Corporate Trust Services 79 South Main St., 3rd Floor 79 South Main St., 3rd Floor Salt Lake City, UT 84111 Salt Lake City, UT 84111 Attn: Val T. Orton Attn: DeAnn Madsen Corporate Trust Counsel Assistant Trust Officer Telephone: (801) 246-5300 Telephone: (801) 246-5809 Facsimile: (801) 246-5053 Facsimile: (801) 246-5053 ABA#: 124000012 Account: 0510922115 Account Name: Corporate Trust Reference: Steelcase Trust No. 2000-1 Administrative Agent: Payment Office: - -------------------- -------------- First Security Trust Company of Nevada First Security Trust Company of Nevada 79 South Main St., 3rd Floor Corporate Trust Services Salt Lake City, UT 84111 79 South Main St., 3rd Floor Attn: Val T. Orton Salt Lake City, UT 84111 Telephone: (801) 246-5300 Attn: DeAnn Madsen Facsimile: (801) 246-5053 Assistant Trust Officer Telephone: (801) 246-5809 Facsimile: (801) 246-5053 ABA#: 124000012 Account: 0510922115 Account Name: Corporate Trust Reference: Steelcase Trust No. 2000-1 CP Lender: Payment Office: - --------- -------------- Hatteras Funding Corporation Hatteras Funding Corporation 114 West 47th St., Suite 1715 U.S. Bank Trust, N.A. New York, NY 10036 100 Wall St., Suite 1600 Attn: Andrew L. Stidd New York, NY 10005 Telephone: (212) 302-5151 Attn: R. Radich Facsimile: (212) 302-8767 Telephone: (212) 361-2524 Facsimile: (212) 509-3384 ABA#: 091-000-022 Account: 1731-0185-1827 Account Name: Hatteras Funding Corporation Account: Accutrust, 770-864-71 Reference: Steelcase Trust No. 2000-1 Attn: R. Callendar/R. Radich Applicable Lending Office: ------------------------- Hatteras Funding Corporation 114 West 47th St., Suite 1715 New York, NY 10036 Attn: Andrew L. Stidd Telephone: (212) 302-5151 Facsimile: (212) 302-8767 ABA#: 091-000-022 Account: 1731-0185-1827 Account Name: Hatteras Funding Corporation Account: Accutrust, 770-864-71 Reference: Steelcase Trust No. 2000-1 Attn: R. Callendar/R. Radich Participant: Payment Office: - ----------- -------------- Banc of America Leasing & Capital, LLC Banc of America Leasing & Capital, LLC 555 California Street, 4th Floor 555 California Street, 4th Floor San Francisco, CA 94104 San Francisco, CA 94104 Attn: CA5-705-04-01 Attn: CA5-705-04-01 Telephone: (415) 765-7390 Telephone: (415) 765-7390 Facsimile: (415) 765-7373 Facsimile: (415) 765-7373 ABA#: 121000358 BALLC Acct# 0656857503 Reference: Steelcase Trust No. 2000-1 Participant: Payment Office: - ----------- -------------- Bank of America, NA Bank of America, NA 100 North Tryon Street, 17th Floor 100 N. Tryon Street, 17th Floor Charlotte, NC 28255-0001 Charlotte, NC 28255-0001 Attn: Robert Mauriello Attn: Michael D'Amico Telephone: (704) 386-9134 Telephone: (704) 386-3781 Facsimile: (704) 388-0960 Facsimile: (704) 409-0066 ABA#: 053000196 Account: 1366212250600 Account Name: Credit Services Ref: Steelcase Inc. Participant: Payment Office: - ----------- -------------- The Bank of Nova Scotia The Bank of Nova Scotia, New York 600 Peachtree St. N.E., Suite 2700 Agency Atlanta, GA 30308 600 Peachtree St. N.E., Suite 2700 Attn: Allyson Mohan Atlanta, GA 30308 Telephone: (404) 877-1549 Attn: Allyson Mohan Facsimile: (404) 888-8998 Telephone: (404) 877-1549 Facsimile: (404) 888-8998 ABA #: 026002532 Account: 0606634 Attn: Chicago Team Ref: Steelcase Participant: Payment Office: - ----------- -------------- Scotiabanc Inc. Scotiabanc Inc. 600 Peachtree St. N.E., Suite 2700 600 Peachtree St. N.E., Suite 2700 Atlanta, GA 30308 Atlanta, GA 30308 Attn: Donna Gardner Attn: Donna Gardner Telephone: (404) 877-1559 Telephone: (404) 877-1559 Facsimile: (404) 888-8998 Facsimile: (404) 888-8998 ABA #: 026002532 Account: 0735639 Ref: Steelcase Participant: Payment Office: - ----------- -------------- The Northern Trust Company The Northern Trust Company 50 S. LaSalle 50 S. LaSalle Chicago, IL 60675 Chicago, IL 60675 Attn: Roger McDougal Attn: Melinda Subido Telephone: (312) 444-4196 Telephone: (312) 557-9748 Facsimile: (312) 630-6062 Facsimile: (312) 630-1566 ABA #: 071000152 Account: 5186401000 Account Name: Commercial Loan Dept. Ref: Steelcase Inc. Participant: Payment Office: - ----------- -------------- Old Kent Bank Old Kent Bank 111 Lyon Street NW 111 Lyon Street NW Grand Rapids, MI 49503 Grand Rapids, MI 49503 Attn: Seth W. Watson Attn: Seth W. Watson Telephone: (616) 771-5443 Telephone: (616) 771-5443 Facsimile: (616) 771-4641 Facsimile: (616) 771-4641 ABA #: 072400052 Account: 21521-180001 Account Name: Steelcase Inc. Schedule IV Aircraft 1. One 1996 Dassault Aviation Falcon 2000 aircraft bearing manufacturer's serial number 24 and U.S. Registration No. N376SC with two (2) CFE Model 738-1-1B engines installed thereon, bearing manufacturer's serial numbers P105163 and P105160 respectively. 2. One new Dassault Aviation Falcon 900 EX Aircraft. Schedule 3.2(c) (Filings) 1. UCC-1 Uniform Commercial Code financing statements with the Lessee, as Debtor, and the Administrative Agent, as Secured Party, filed with the Secretary of State of Michigan. 2. A copy of the Trust Agreement, the Lease, each applicable Lease Supplement, the Security Agreement and each applicable Security Agreement Supplement, filed with the FAA in Oklahoma City, Oklahoma. EXHIBIT A TO PARTICIPATION AGREEMENT [FORM OF] ASSIGNMENT AND ACCEPTANCE AGREEMENT (Lender) THIS ASSIGNMENT AND ACCEPTANCE dated as of _______ (as amended, modified, supplemented, restated and/or replaced from time to time, the "Assignment and Acceptance") is between [________________] (the "Assignor") and [LENDER] (the "Assignee"). Reference is made to that certain Loan Agreement (Steelcase Trust No. 2000-1), dated as of May 26, 2000 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as the Certificate Trustee, FIRST SECURITY TRUST COMPANY OF NEVADA, as Administrative Agent, certain other parties thereto and Assignor. Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in or pursuant to the Loan Agreement. The Assignor and the Assignee agree as follows: 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), a [___%] interest in and to the Assignor's rights and obligations under the Loan Agreement, its Notes, if any, and the Operative Documents, in each case, solely as a [FACILITY] [CP] Lender (the "Assigned Interest"). 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Agreement or any other Operative Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Agreement, any other Operative Document or any other instrument or document furnished pursuant thereto, other than that (i) its Commitment Percentage, Loan Commitment and Facility Loans immediately prior to the execution and delivery by it of this Assignment and Acceptance on the Effective Date are as shown on Schedule 1 hereto, (ii) it is the legal and beneficial owners of the interests being assigned hereunder and (iii) it has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Certificate Trustee, Lessee or any other obligor or the performance or observance by such parties, or any other obligor of any of their respective obligations under the Loan Agreement or any other Operative Document or any other instrument or document furnished pursuant hereto or thereto; and (c) requests that upon any further request from Assignor or Assignee, as the case may be, the Certificate Trustee issue a new [FACILITY] [CP] Note, [IF ANY,] payable to the Assignee and a new [FACILITY] [CP] Note[, if any,] payable to the A-1 Assignor in the respective amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance and that it has the requisite power and authority to accept the assignment being made hereby; (b) confirms that it has received copies of the Operative Documents requested by it, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Agreement, the other Operative Documents or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Administrative Agent to take such action as agent on its behalf as [FACILITY] [CP] Lender and to exercise such powers and discretion under the Loan Agreement, the other Operative Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Loan Agreement and the other Operative Documents to which Assignee is a party as [FACILITY] [CP] Lender and will perform in accordance herewith all the obligations which by the terms of the Loan Agreement and the other Operative Documents to which Assignee is a party are required to be performed by it as a [FACILITY] [CP] Lender including without limitation, if it is organized under the laws of a jurisdiction outside the U.S., its obligation pursuant to Section 7.3 of the Participation Agreement. 4. The effective date of this Assignment and Acceptance shall be __________ (the "Effective Date"). 5. From and after the Effective Date, the Administrative Agent shall make, or cause to be made, all payments in respect of the Assigned Interest (including without limitation payments of required repayments of the principal interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (a) the Assignee shall be a party to the Loan Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a [FACILITY] [CP] Lender thereunder and under the other Operative Documents and shall be bound by the provisions thereof as a [FACILITY] [CP] Lender and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Agreement and the other Operative Documents as a [FACILITY] [CP] Lender. 7. This Assignment and Acceptance may be executed in one or more counterparts, each of which shall be an original but all of which, taken together, shall constitute one and the same instrument. A-2 8. THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. A-3 IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers. [ASSIGNOR] By: ____________________________________ Name:___________________________________ Title: _________________________________ [LENDER] By: ____________________________________ Name: __________________________________ Title: _________________________________ Notwithstanding any provision in any Operative Document to the contrary, the undersigned hereby consent to the foregoing: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Certificate Trustee under Steelcase Trust No. 2000-1 By: ____________________________________ Name: __________________________________ Title: _________________________________ FIRST SECURITY TRUST COMPANY OF NEVADA, as the Administrative Agent By: ____________________________________ Name: __________________________________ Title: _________________________________ A-4 STEELCASE INC. By: ____________________________________ Name: __________________________________ Title: _________________________________ BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrator By: ____________________________________ Name: __________________________________ Title: _________________________________ A-5 SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE Name of Assignor: [ASSIGNOR] Name of Assignee: [LENDER] Effective Date of Assignment:_________________________
Existing [FACILITY][CP] Existing Commitment Existing Loan Loans Percentage Commitment ~~$___________ ______________% $_____________~~

Commitment Percentage Assigned and Assignee's Aggregate [FACILITY][CP] Resulting Commitment Loans Assigned Percentage Loan Commitment Assigned ~~$____________ __________% $_____________~~
[ASSIGNOR] By: ________________________________ Name: ______________________________ Title: _____________________________ [LENDER] By: ________________________________ Name: ______________________________ Title: _____________________________ A-6 SCHEDULE II TO ASSIGNMENT AND ACCEPTANCE AGREEMENT [FORM OF] INVESTOR'S LETTER [Date] [Name and address of Certificate Trustee] [Name and address of Administrative Agent] [Name and address of Lessee] [Name and address of transferring Lender] Ladies and Gentlemen: Unless the context otherwise requires, capitalized terms used in this letter and not otherwise defined herein shall have the meanings assigned thereto in that certain Participation Agreement dated as of May 26, 2000 among Steelcase Inc., as Lessee, First Security Bank, National Association, not in its individual capacity except as expressly stated therein, but solely as Certificate Trustee, First Security Trust Company of Nevada, as Administrative Agent, the persons named on Schedule I thereto as Certificate Holders, Hatteras Funding Corporation, as CP Lender, the persons named on Schedule II thereto as Facility Lenders and Bank of America, National Association, as Administrator (as so amended and as such may be further amended, modified, restated and/or replaced from time to time, the "Participation Agreement"). The undersigned has agreed to purchase, effective as of ____________, ____ (the "Effective Date"), the [___%] interest of ___________________ as a [FACILITY] [CP] Lender under the Loan Agreement and the other Operative Documents (the "Assigned Interest"), and desires that (a) Certificate Trustee execute and deliver new [FACILITY] [CP] Notes, [IF ANY,] evidencing the [FACILITY] [CP] Loans, [IF ANY,] of the undersigned and the revised [FACILITY] [CP] Loans of ___________________, and (b) Certificate Trustee deliver to the undersigned and to each Participant a new Schedule II to the Participation Agreement evidencing the aggregate Commitment of the Lenders, the Commitment of the undersigned and the revised Commitment of ___________________. The undersigned hereby represents, warrants and agrees as of the date hereof to the addressees hereof as follows: (a) the undersigned confirms that it has the requisite power and authority to accept the transfer of the Assigned Interest and that it has received a copy of the Participation Agreement and the other Operative Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to execute and deliver this letter; A-7 (b) the undersigned will not transfer the Assigned Interest except in accordance with Section 6.3 and 6.4 of the Participation Agreement and unless the proposed transferee makes the representations and covenants contained in this letter; (c) the undersigned hereby confirms the accuracy of the representations and warranties set forth in Section 3.3 of the Participation Agreement with respect to the undersigned (other than as such representation or warranty relates to the execution and delivery of the Operative Documents) and that it is a [insert manner in which Assignee satisfies Section 6.3 of Participation Agreement]; and (d) the undersigned agrees that it will, independently and without reliance upon Administrative Agent or any Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Operative Documents. (e) the undersigned confirms that it will not assign or transfer any interests in its Notes except in compliance with Section 6.3(a). (f) the undersigned's notice information address and payment office for purposes of Schedule III to the Participation Agreement are set forth on Annex 1 hereto. The undersigned agrees to be bound by the terms of the Loan Agreement and the Participation Agreement as a [FACILITY] [CP] Lender. [To the extent legally entitled to do so, the undersigned attaches the forms described in Section 7.3 of the Participation Agreement.(1)] The undersigned understands that the Assigned Interest has not been and will not be registered or qualified under the Securities Act, or under any state securities or "blue sky" laws, and that no Person has an obligation to effect such registration or otherwise assist in the Assigned disposition of the Assigned Interest. The transfer of the Assigned Interest shall be effective as of the Effective Date, provided that this letter has been acknowledged by the transferring [FACILITY] [CP] Lender and, if required by the Participation Agreement, consented to by Lessee. Very truly yours, ___________________________________ By:________________________________ Name:______________________________ Title:_____________________________ - --------------------- (1) If the transferee investor is organized under the laws of a jurisdiction outside the United States. A-8 Acknowledged: [Transferring Lender] By:_________________________________ Name:_______________________________ Title:______________________________ [Lessee agrees to the foregoing transfer.(2)] STEELCASE INC. By:_________________________________ Name:_______________________________ Title:______________________________ - ------------------- (2) If Lessee approval is required by Section 6.3 of the Participation Agreement. A-9 Annex 1 to Investor's Letter Notice Address Payment Address ____________________________ ______________________________ ____________________________ ______________________________ ____________________________ ______________________________ A-10 EX-4.40 6 k84627exv4w40.txt APPENDIX A TO PARTICIPATION AGREEMENT Exhibit 4.40 APPENDIX A to Participation Agreement (Steelcase Trust No. 2000-1) I. General Provisions. In the Participation Agreement and each other Operative Document, unless the context otherwise requires: (a) any term defined below by reference to another instrument or document shall continue to have the meaning ascribed thereto whether or not such other instrument or document remains in effect; (b) words importing the singular include the plural and vice versa; (c) words importing a gender include any gender; (d) a reference to a part, clause, section, article, exhibit or Schedule is a reference to a part, clause, Section and article of, and exhibit and Schedule to, such Operative Document; (e) a reference to any statute, regulation, proclamation, ordinance or law includes all statutes, regulations, proclamations, ordinances or laws amending, supplementing, supplanting, varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations and ordinances issued or otherwise applicable under that statute; (f) a reference to a document includes any amendment or supplement to, or replacement or novation of, that document; (g) a reference to a party to a document includes any successor or permitted assign of such person pursuant to the terms of the Operative Documents; and (h) references to "including" means including without limiting the generality of any description preceding such term and for purposes hereof the rule of ejusdem generis shall not be applicable to limit a general statement followed by or referable to an enumeration of specific matters to matters similar to those specifically mentioned. Further, each of the parties to the Operative Documents and their counsel have reviewed and revised the Operative Documents, or requested revisions thereto, and the usual rule of construction that any ambiguities are to be resolved against the drafting party shall be inapplicable in construing and interpreting the Operative Documents. II. Definitions. "Accounts" shall have the meaning provided in Section 1 of the Security Agreement. "Acquired Plan" means any Plan which was originally established and maintained by a Person other than the Lessee or an ERISA Affiliate and which became, or hereafter becomes, a Plan as a result of an Acquisition by the Lessee or any Subsidiary of the Lessee. "Actual Knowledge" shall mean, as to any matter with respect to any Person, the actual knowledge of such matter by a Responsible Officer of such Person. "Additional Costs" shall mean the amounts payable by the relevant Lessee pursuant to Sections 7.4, 7.5, and 7.6 of the Participation Agreement. "Additional Insureds" shall mean the Financing Parties. "Additional Parts" shall have the meaning specified in Section 9.3 of the Lease. "Administrative Agent" shall mean First Security Trust Company of Nevada, not in its individual capacity but solely as administrative agent. "Administrator" shall have the meaning specified on Schedule 2 of the LAPA. "Affiliate" of any Person shall mean any other Person directly or indirectly controlling, controlled by or under common control with such Person. For purposes of this definition, the term "control" (including the correlative meanings of the terms "controlling," "controlled by," and "under common control with") as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities or by contract or otherwise; provided (but without limiting the foregoing) that no pledge of voting securities of any Person without the current right to exercise voting rights with respect thereto shall by itself be deemed to confer control over such Person upon the pledgee. "After-Tax Basis" shall mean, with respect to any payment to be received, actually or constructively, the amount of such payment increased so that, after reduction by the amount of all taxes required to be paid by the recipient calculated at the then maximum marginal rates generally applicable to Persons of the same type as the recipients with respect to the receipt by the recipient of such amounts (less any actual tax savings realized as a result of the payment of the indemnified amount), such increased payment (as so reduced) is equal to the payment otherwise required to be made. "Agents" means collectively, the Administrative Agent and the Administrator. "Aircraft" means any Airframe together with its Related Engines, whether or not such Related Engines are installed on such Airframe or any other airframe and, all logs, manuals and data, and inspection, maintenance, modification and overhaul records as are required to be maintained with respect to such Aircraft pursuant to Section 8 of the Lease. "Airframe" means (i) any airframe specified in a Lease Supplement, (ii) any Airframe which may from time to time be substituted pursuant to the terms of the Lease for any Airframe and (iii) any and all Parts which may from time to time be incorporated or installed in or attached to such airframe or until replaced, if not so incorporated or installed or attached to such airframe. 2 "Applicable Laws and Regulations" shall mean as of any date all applicable laws, rules, regulations (including Environmental Laws), statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by, any Authority, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction, including those pertaining to health, safety or the environment and those pertaining to the maintenance, use, ownership and leasing of the Aircraft. "Applicable Lending Office" mean, for each Participant, the office of such Participant set forth as the Applicable Lending Office for such Participant on Schedule III to the Participation Agreement, or such other office of such Participant (or of an Affiliate of such Participant) as such Participant may from time to time specify to the Administrative Agent and Lessee by written notice as the office from which its Loans or Certificate Amounts, as applicable, accruing Interest or Yield, as applicable, at the LIBO Rate (Reserve Adjusted) are made available and maintained. "Applicable Percentage" shall mean for LIBOR Loans, Certificate Amounts and the Facility Fee the appropriate applicable percentages corresponding to the senior unsecured credit rating for the Lessee as of the most recent Calculation Date as shown below:
Pricing LIBOR Certificate Facility Level Senior Unsecured Credit Rating Loan Amount Fee - ------- -------------------------------------------------- ----- ----------- -------- I A or higher from S&P and A2 or higher from Moody's 0.38% 2.00% 0.145% II A- from S&P and A3 from Moody's 0.445% 2.00% 0.155% III BBB+ from S&P and Baa1 from Moody's 0.60% 2.00% 0.175% IV BBB from S&P and Baa2 from Moody's 0.70% 2.00% 0.20% V BBB - from S&P and Baa3 from Moody's 0.975% 2.00% 0.30% VI None of the above 1.00% 2.00% 0.40%
The Applicable Percentage for LIBOR Loans, Certificate Amounts and the Facility Fee shall, in each case, be determined and adjusted monthly effective on the first day of each Payment Period (each a "Calculation Date"); provided, however, that (i) until the earlier to occur of (x) the date on which the credit rating on Lessee's Long-Term Debt is established by S&P and Moody's or (y) September 15, 2000, the Applicable Percentage, in each case, shall be based on Pricing Level III (as shown above) and, thereafter, the Pricing Level shall be determined by the senior unsecured credit rating established by Moody's and S&P for Lessee's Long-Term Debt, and (ii) if, on any Calculation Date to occur on or after September 15, 2000, Lessee's Long-Term Debt is not rated by Moody's and S&P (except as otherwise provided above), the Applicable Percentage, in each case, from such Calculation Date shall be based on Pricing Level VI until such time as Lessee's Long-Term Debt is so rated whereupon the Pricing Level shall be 3 determined by the then current senior unsecured credit rating for Lessee's Long-Term Debt as established by Moody's and S&P. Except as provided in clause (ii) above, each Applicable Percentage shall be effective from one Calculation Date until the next Calculation Date. If the senior unsecured credit ratings of the Lessee established by Moody's and S&P fall within different Pricing Levels, the Applicable Percentage shall be determined by reference to the lower Pricing Level unless the credit ratings differ by more than one Pricing Level, in which case the Applicable Percentage shall be determined by reference to the Pricing Level one above the lowest which would otherwise apply. "Appraisal" shall mean with respect to any Aircraft the appraisal delivered pursuant to Sections 4.1(k) and 4.2(j) of the Participation Agreement. "Appraiser" means Aviation Solutions Inc. or such other appraisal firm reasonably acceptable to the Administrative Agent. "Arrangement Fee" shall mean the arrangement fee payable to Arranger pursuant to the Arrangement Fee Letter. "Arrangement Fee Letter" means that certain letter agreement among Banc of America Leasing & Capital, LLC, and Steelcase Inc., dated May 26, 2000. "Arranger" shall mean Banc of America Leasing & Capital, LLC, a Delaware limited liability company. "Assets" shall have the meaning provided in Section 2 of the Security Agreement. "Assignment Agreement" means, with respect to any Lender, an assignment agreement substantially in the form of Exhibit A to the Participation Agreement and with respect to any Certificate Holder, an assignment agreement substantially in the form of Exhibit B to the Trust Agreement. "Authority" shall mean any applicable foreign, United States, federal, state, county, municipal or other government or governmental, quasi-governmental or regulatory authority, agency, board, body, commission, instrumentality, court or tribunal, or any political subdivision of any thereof, or arbitrator or panel of arbitrators. "Available Commitment" means (i) with respect to each Certificate Holder, (A) the amount of its Certificate Commitment, less (B) the aggregate of the Certificate Amounts that it has Funded, and (ii) with respect to each Lender, the amount of (A) its Loan Commitment, less (B) the aggregate principal amount of the Loans that it has Funded. "Bank of America" shall mean Bank of America, National Association, a national banking association. "Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978. "Base Term" shall have the meaning with respect to any Aircraft provided in Section 3.1 of the Lease. 4 "Base Term Commencement Date" shall have the meaning, with respect to any Aircraft, set forth in the Lease Supplement with respect to such Aircraft. "Base Term Expiration Date" shall mean with respect to any Aircraft, the meaning set forth in the Lease Supplement with respect to such Aircraft. "Basic Rent" shall mean with respect to any Aircraft for any Payment Date, an amount equal to the sum of (A) the aggregate amount of principal and accrued and unpaid interest payable on such date on the Loans, plus (B) the aggregate amount of distributions of Certificate Amount and Yield payable on such date on the Certificates, in each case with respect to such Aircraft all as determined by the Administrative Agent, which determination shall be binding on the Lessee absent manifest error. "Benefitted Lender" shall have the meaning provided in Section 7.4 of the Loan Agreement. "Bills of Sale" shall mean the FAA Bills of Sale and the Warranty Bills of Sale. "Board of Directors" shall mean, with respect to a corporation, either the board of directors or any duly authorized committee of that board of directors which, pursuant to the by-laws of such corporation, has the same authority as that board of directors as to the matter at issue. "Borrower" shall have the meaning provided in the preamble to the Loan Agreement. "Break Funding Amount" shall have the meaning provided in Section 7.6 of the Participation Agreement. "Business Day" means (i) each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in New York, New York, Salt Lake City, Utah, Grand Rapids, Michigan, or San Francisco, California are generally authorized or obligated, by law or executive order, to close and (ii) relative to any determination of the LIBO Rate, any day which is a Business Day under clause (i) and is also a day on which dealings in Dollars are carried on in the London interbank eurodollar market. "Calculation Date" shall have the meaning provided in the definition of "Applicable Percentage". "Certificate" shall have the meaning provided in Section 2.1 of the Trust Agreement. "Certificate Amount" shall mean with respect to any Aircraft, for any Certificate and with respect to any Certificate Holder as of any date of determination, the amount advanced by such Certificate Holder under such Certificate pursuant to Section 2.2 of the Participation Agreement with respect to such Aircraft, net of any distributions (other than distributions of Yield) with respect thereto. "Certificate Commitment" means the Commitment of each Certificate Holder to make available Certificate Amounts on a Delivery Date in an aggregate principal amount outstanding 5 not to exceed the amount with respect to such Certificate Holder set forth on Schedule I of the Participation Agreement applicable to it. "Certificate Holder" shall have the meaning provided in the preamble to the Trust Agreement. "Certificate Register" shall have the meaning provided in Section 2.8(a) of the Trust Agreement. "Certificate Trustee" or "Trustee" shall mean First Security Bank, National Association, a national banking association, not in its individual capacity but solely as trustee under the Trust Agreement. "Certificate Trustee Lien" shall mean any Lien on or against the Aircraft, the Lease, the Trust Estate or any payment of Rent (a) which results from, or arises in connection with, any act of, or any Claim against Certificate Trustee (in its individual capacity or in its trustee capacity), any Agent, or any other Financing Party, in any case, unrelated to the transactions contemplated by the Operative Documents, (b) which results from any Tax imposed on Certificate Trustee (in its individual capacity or in its trustee capacity), any Agent, or any other Financing Party, except any Tax for which Lessee is obligated to indemnify such Persons pursuant to any Operative Document or (c) which results from any act or omission of the Certificate Trustee (in its individual or in its trustee capacity), any Agent, or any other Financing Party that is in breach of such Person's covenants or agreements under the Operative Documents. "Certificates" shall mean those certain certificates issued to the Certificate Holders pursuant to the Trust Agreement, substantially in the form of Exhibit A thereto, and any and all Certificates issued in replacement or exchange therefor. "Chattel Paper" shall have the meaning provided in Section 1 of the Security Agreement. "Claims" shall mean liabilities, obligations, damages, losses, penalties, fines, claims, actions, suits, judgments, settlements, charges, costs, fees, expenses and disbursements (including, without limitation, legal fees and expenses and costs of investigation which, in the case of counsel or investigators retained by an Indemnitee, shall be reasonable) of any kind and nature whatsoever. "Closing Date" shall mean May 26, 2000. "Code" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "Collateral" shall mean, as applicable, the property and rights and interests defined as "Collateral" in the Security Agreement. "Commercial Paper" means short term debt obligations of the CP Lender issued to fund its portion of the making or holding its portion of the Loans. "Commitment" means (i) as to any Lender, its Loan Commitment, and (ii) as to any Certificate Holder, its Certificate Commitment. 6 "Commitment Percentage" means, as to any Participant, the percentage set forth opposite such Participant's name under the heading "Commitment Percentage" on Schedule I, with respect to the Certificate Holders, or Schedule II, with respect to the Lenders, to the Participation Agreement. "Compliance Certificate" shall have the meaning provided thereto in the Credit Agreement. "Conduit Fee Letter" shall mean that certain letter agreement dated as of the Closing Date among the Lessee and Bank of America, as Administrator, for the CP Lender. "CP Lender" means Hatteras Funding Corporation, in its capacity as CP Lender under the Loan Agreement, and any other Eligible CP Lender which becomes a CP Lender by virtue of an assignment from any CP Lender pursuant to Section 6.3 of the Participation Agreement. "CP Loans" is defined in Section 2.1 of the Loan Agreement. "CP Note" is defined in Section 2.3(a) of the Loan Agreement. "CP Rate" shall mean, for any Payment Period for any CP Loans, the per annum rate equivalent to the "daily weighted average rate" (as defined below) of Commercial Paper outstanding on any day during such Payment Period; such rate to be reported by CP Lender to Lessee on a monthly basis in sufficient detail; provided, however, that if any component of such rate is a discount rate, in calculating the "CP Rate" for such Payment Period, the CP Lender shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum. As used in this definition, the CP Lender's "daily weighted average rate" shall consist of (x) the daily weighted average interest rate of Commercial Paper outstanding on any day paid to purchasers of the Commercial Paper, together with the Dealer Fee, and (y) any incremental carrying costs incurred with respect to Commercial Paper maturing on dates other than those on which corresponding funds are received by the CP Lender (it being understood and agreed that the amount in clause (y) shall not include additional costs incurred as a result of drawing on the LAPA prior to the maturity of Commercial Paper to be paid with the proceeds of such drawing). "Credit Agreement" means that certain Amended and Restated Credit Agreement (Short Term Facility) dated as of May 20, 1999 between Lessee and the banks named therein with Citicorp USA, Inc. as administrative agent. "Dealer Fee" is defined in the Conduit Fee Letter. "Delivery Date" shall mean with respect to any Aircraft, the date set forth on the Lease Supplement with respect to such Aircraft. "Documents" shall have the meaning provided in Section 1 of the Security Agreement. "Eligible Assignee" means any bank or financial institution with a debt rating of at least A-1 by S&P and P-1 by Moody's; provided, however, that any such Person above shall also satisfy the provisions of the LAPA if it is receiving an assignment or transfer from a Facility Lender thereunder. 7 "Eligible CP Lender" means a special purpose, bankruptcy remote company which is administered by Bank of America, or by an Affiliate thereof, and which has activities generally similar to the original CP Lender. "Engine Manufacturer" means with respect to any Related Engine, the original manufacturer of such engine and any successor entity thereto. "Environmental Claims" means all written claims, however asserted, by any Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release of injury to the environment. "Environmental Law" means any and all statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions of any federal, state or local governmental authority within the United States or any State or territory thereof and which relate to the environment or the release of any materials into the environment. "Equipment Cost" shall mean, with respect to any Aircraft, the cost allocable to such Aircraft and set forth on the Lease Supplement with respect to such Aircraft and, collectively, the aggregate sum of such costs. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 and the regulations promulgated thereunder. "ERISA Affiliate" means any Person who for purposes of Title IV of ERISA is a member of the Lessee's controlled group, or under common control with the Lessee, within the meaning of Section 414 of the Code and the regulations promulgated and rulings issued thereunder. "ERISA Event" means (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto has been waived by the PBGC; (ii) the provision by the administrator of any Pension Plan of a notice of intent to terminate such Pension Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (iii) the cessation of operations at a facility by the Lessee or an ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (iv) the withdrawal by the Lessee or an ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (v) the failure by the Lessee or any ERISA Affiliate to make a payment to a Pension Plan required under Section 302(f)(1) of ERISA, which Section imposes a lien for failure to make required payments; (vi) the adoption of an amendment to a Pension Plan requiring the provision of security to such Pension Plan, pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of proceedings to terminate a Pension Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition which, in the reasonable judgment of the Lessee, might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, a Pension Plan. "Event of Default" means either or both, as the context may require, of a Loan Event of Default or a Lease Event of Default. 8 "Event of Loss" with respect to any Aircraft, Airframe or Related Engine means any of the following events whether existing at the expiration or earlier termination of the Lease: (i) loss of such property or of the use thereof for sixty (60) consecutive days or for a period extending beyond the Lease Term of such property, in each case due to theft or disappearance during the Lease Term of such property; (ii) destruction, damage beyond repair, or rendition of any such property permanently unfit for normal use for any reason whatsoever; (iii) any damage to any such property which results in an insurance settlement with respect to such property on the basis of a total loss; (iv) the condemnation, confiscation, seizure, or requisition of title to any such property by any governmental authority under the power of eminent domain or otherwise or the requisition of use of any such property for a period in excess of 180 days or which extends beyond the remainder of the Lease Term of such property; or (v) as a result of any law, rule, regulation, order or other action by the FAA (or other similar governmental body having jurisdiction over such property), use of such type of property in the normal course of business of air transportation shall have been prohibited for a period of 180 days (or, if shorter, the remainder of the Lease Term of such property). An Event of Loss with respect to an Aircraft shall be deemed to have occurred if an Event of Loss occurs with respect to the Related Airframe unless such Airframe is replaced pursuant to the provisions of Section 9 of the Lease. "Excluded Amounts" shall mean: (a) all indemnity payments and expenses to which Certificate Trustee, each Agent in its individual capacity or any Participant (or any of their respective successors, assigns, agents, officers, directors or employees) is entitled pursuant to the Operative Documents; (b) any amounts payable under any Operative Documents to reimburse Certificate Trustee, each Agent or any Participant (including the reasonable expenses incurred in connection with any such payment) for performing or complying with any of the obligations of Lessee under and as permitted by any Operative Document; (c) any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) under liability policies payable to Certificate Trustee, any Agent in its individual capacity or any Participant (or their respective successors, assigns, agents, officers, directors or employees); (d) any insurance proceeds under policies maintained by Certificate Trustee, any Agent or any Participant and not required to be maintained by Lessee for the benefit of Lessee under the Lease; (e) any payments of interest or yield on payments referred to in clauses (a) through (d) above. "Expiration Date" shall mean for any Aircraft the last day of the Lease Term of such Aircraft, or any other date on which the Lease is terminated with respect to such Aircraft. "FAA" means the Federal Aviation Administration, or any Person, governmental department, bureau, commission or agency succeeding to the functions thereof. 9 "FAA Bill of Sale" shall mean each bill of sale on FAA form 8050-2 issued in favor of the Lessor from time to time with respect to an Aircraft. "Facility Amount" shall mean an aggregate amount equal to the sum of (i) the Commitments referenced on Schedule I to the Participation Agreement plus (ii) the product obtained by multiplying 102% times the aggregate Commitments of the Facility Lenders set forth on Schedule II to the Participation Agreement. "Facility Fee" is defined in Section 10.1 of the Participation Agreement. "Facility Lenders" means collectively, the various financial institutions that are or may from time to time become parties to the Loan Agreement as Facility Lenders. "Facility Loan" is defined in Section 2.1(b) of the Loan Agreement. "Facility Note" is defined in Section 2.3(b) of the Loan Agreement. "Fair Market Value" shall mean with respect to any Aircraft as of the date of the determination, the fair market value (which in any event shall not be less than zero) as determined by an independent appraiser chosen by Certificate Trustee (at the direction of the Required Participants) and reasonably acceptable to the Lessee that would be obtained in an arm's-length transaction between an informed and willing buyer (other than a buyer currently in possession) and an informed and willing seller, under no compulsion to buy or sell, and neither of which is related to Certificate Trustee, the Administrative Agent or the Lessee or any Affiliate thereof, for the purchase of such Aircraft. Such fair market value shall be calculated as the value for the use of such Aircraft, assuming, in the determination of such fair market value, that such Aircraft is in the condition and repair required to be maintained by the terms of the Lease (unless such fair market value is being determined for purposes of the Appraisal to be delivered prior to the Closing Date or Section 7.9 of the Participation Agreement, in which case this assumption shall not be made). "Federal Aviation Act" means Part A of Subtitle VII of Title 49 of the United States Code. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. "Fees" shall mean, collectively, the Arrangement Fee, the Program Fee, the Dealer Fee, the Non-Use Fee, the Facility Fee and the Upfront Fee. "Financing Parties" shall mean the Certificate Trustee, the Trust Company, the Agents, the Arranger, the CP Lender, each Certificate Holder and each Facility Lender. 10 "Financing Statements" shall mean all such UCC-1 Financing Statements required by the Administrative Agent or Certificate Trustee to be executed by the Lessee or Certificate Trustee in connection with the perfection of any security interests granted by Certificate Trustee or Lessee, as the case may be, under the Operative Documents. "Fixed Basic Rent" shall mean, for any Payment Date and with respect to any Aircraft, the amount set forth opposite such Payment Date under the heading "Fixed Basic Rent" on Schedule 2 to the Lease Supplement of such Aircraft. "First Security Trust" means First Security Trust Company of Nevada, a trust company organized under the laws of the State of Nevada, in its individual capacity. "F.R.S. Board" means the Board of Governors of the Federal Reserve System, or any successor thereto. "Fund", "Funded" or "Funding" shall mean each funding by a Participant of a portion of the principal under its Note or a portion of its Certificate Amount (as the case may be) constituting a portion of any payment of Equipment Cost as described in Section 2.2 of the Participation Agreement. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principals Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "General Intangibles" shall have the meaning provided in Section 1 of the Security Agreement. "Governmental Action" shall mean all applicable permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Authority, or required by any Applicable Laws and Regulations, and shall include, without limitation, all citing, environmental permits and operating permits and licenses that are required for the use, and operation of any Aircraft. "Government Requirement" means any law, statute, code, ordinance, order, rule, regulation, guideline, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other direction or requirement (including, without limitation, any of the foregoing that relate to environmental standards or controls, energy regulations and occupational, safety and health standards or controls) of any Authority. "Guaranty Obligation" means, as to any Person, any (a) guaranty by that Person of Indebtedness of, or other obligation payable or performable by, any other Person or (b) assurance, agreement, letter of responsibility, letter of awareness, undertaking or arrangement given by that Person to an obligee of any other Person with respect to the payment or performance of an obligation by, or the financial condition of, such other Person, whether direct, 11 indirect or contingent, including any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any "keep-well" or other arrangement of whatever nature given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; provided, however, that the term Guaranty Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, covered by such Guaranty Obligation or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the Person in good faith. "Highest Lawful Rate" shall have the meaning provided in Section 2.10(b) of the Participation Agreement. "Improvement" shall have the meaning specified in Section 9.3 of the Lease. "Indebtedness" of any Person shall mean, without duplication: (a) all indebtedness of such Person for borrowed money; (b) all obligations issued, undertaken or assumed by such Person as the deferred purchase price of property or services (other than trade payables entered into and accrued expenses arising in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to surety instruments; (d) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments; (e) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by such Person (even though 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); (f) all obligations of such Person with respect to capital leases; (g) all indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts receivable and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (h) all Guaranty Obligations of such Person in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above. "Indemnitee" shall mean each Participant, the Certificate Trustee (in its individual capacity and as trustee), each Agent (in its individual capacity and as Agent or Administrator), the Arranger, the Liquidity Agent (in its individual capacity and as Liquidity Agent), any additional, separate or co-trustee or co-agent appointed in accordance with the terms of the Trust Agreement or the Participation Agreement, and the respective contractors, servants, employees, officers, directors, shareholders, partners, participants, representatives and agents of each of the foregoing Persons; provided, however, that in no event shall Lessee or its Affiliates be an Indemnitee. 12 "Insolvency Event" shall mean the occurrence of any one or more of the following events with respect to any Person: (a) Such Person: (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (b) Any involuntary Insolvency Proceeding is commenced or filed against such Person, or any writ, judgment, warrant of attachment, warrant of execution or similar process is issued or levied against a substantial part of such Person's properties, and such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, warrant of execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; such Person admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in respect of such Person in any Insolvency Proceeding; or such Person acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor) or other similar Person for itself or a substantial portion of its property or business. "Insolvency Proceeding" shall mean, with respect to any Person, (a) any case, action or proceeding with respect to such Person before any court or other Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of such Person's creditors generally or any substantial portion of such creditors; in each case undertaken under any U.S. Federal, State or foreign law, including the Bankruptcy Code. "Institutional Investor" shall mean (a) any Person which is an original Participant, (b) any Person holding more than 5% of the aggregate principal amount of the Notes and Certificates then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "Instruments" shall have the meaning provided in Section 1 of the Security Agreement. "Interest" means the interest accruing on the Loans as computed and payable in accordance with the terms of the Loan Agreement (including, without limitation, in accordance with Section 2.6 of the Loan Agreement). "Investment Property" shall have the meaning provided in Section 1 of the Security Agreement. "Investor's Letter" shall mean with respect to any Lender, an Investor's Letter substantially in the form of Schedule III to Exhibit A of the Participation Agreement and with respect to any Certificate Holder, an Investor's Letter substantially in the form of Schedule II to Exhibit B of the Trust Agreement. 13 "LAPA" means that certain Liquidity Asset Purchase Agreement, dated May 26, 2000, by and among Hatteras Funding Corporation, a Delaware corporation, each bank listed on the signature page thereto under the caption "Liquidity Banks" and Bank of America, as Liquidity Agent. "Lease" shall mean that certain Master Aircraft Lease Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000, among Certificate Trustee as Lessor and Lessee, together with any Lease Supplements thereto. "Lease Balance" shall mean, with respect to any Aircraft as of any date of determination, an amount equal to the aggregate sum of the outstanding principal amount of the Loans of all of the Lenders and the outstanding Certificate Amounts of all of the Certificate Holders in each case Funded with respect to such Aircraft, as determined by the Administrative Agent, which determination shall be binding upon the Lessee absent manifest error. "Lease Collateral" shall mean all of the Lessee's right, title and interest in (i) the Aircraft, (ii) all purchase agreements relating to the Aircraft, (iii) all insurance coverages required pursuant to Section 11.2 of the Lease as such coverage is applied the Aircraft, (iv) all warranties, indemnitees and contract rights against vendors and manufacturers, in each case as such apply to the Aircraft and (v) the proceeds of any of the foregoing. "Lease Default" shall mean any event, condition or failure which, with notice or lapse of time or both, would become a Lease Event of Default. "Lease Event of Default" shall mean any event condition or failure designated as a "Lease Event of Default" in Section 13 of the Lease. "Lease Supplement" shall mean a Lease Supplement substantially in the form of Exhibit A to the Lease together with all attachments and schedules thereto. "Lease Term" shall have the meaning with respect to any Aircraft provided in Section 3.1 of the Lease. "Lenders" shall mean collectively, the CP Lender and each Facility Lender. "Lessee" shall have the meaning provided in Section 1 of the Lease. "Lessor" shall mean Certificate Trustee. "LIBO Rate" means with respect to any Payment Period at any time, the applicable London interbank offered rate for deposits in U.S. dollars appearing on Telerate Page 3750 as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Payment Period, and having a maturity approximately equal to such Payment Period; or if no London interbank offered rate of such maturity then appears on Telerate Page 3750, then the rate equal to the London interbank offered rate for deposits in U.S. dollars maturing immediately before or immediately after such maturity, whichever is higher, as determined by the Administrative Agent from Telerate Page 3750; or if Telerate Page 3750 is not available, the applicable LIBO Rate for the relevant Payment Period shall be the rate determined by the Administrative Agent to be the arithmetic average of the rates at which Bank of America offers to place deposits in U.S. dollars 14 with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Payment Period, in the approximate amount of Bank of America's (and with respect to the Certificate Amounts, its Affiliate's), relevant portion of the aggregate outstanding principal amount of the Notes and Certificate Amounts and having a maturity approximately equal to such Payment Period. "LIBOR Loan" shall mean each Loan bearing interest based on the LIBO Rate. "LIBOR Office" shall mean initially, the funding office of each Participant designated as such in Schedule III to the Participation Agreement; and thereafter, such other office of such Participant, if any, which shall be making or maintaining such Participant's investment in Notes or the Certificates, as applicable. "Lien" shall mean any lien (statutory or other), mortgage, deed of trust, encumbrance, pledge, charge, lease, easement, servitude, right of others or security interest of any kind, including any thereof arising under any conditional sale or other title retention agreement. "Liquidity Agent" is defined in Schedule 2 of the LAPA. "Liquidity Banks" means the several financial institutions named as such from time to time and party to the LAPA. "Loan Agreement" shall mean the Loan Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000, among Certificate Trustee, Administrative Agent and the Lenders. "Loan Commitment" means the Commitment of each Lender to make Loans to the Borrower on a Delivery Date in an aggregate principal amount outstanding not to exceed the amount with respect to such Lender set forth on Schedule II to the Participation Agreement applicable to it. "Loan Documents" shall mean the Loan Agreement, the Security Agreement and the Notes. "Loan Event of Default" shall mean any event, condition or failure designated as a "Loan Event of Default" in Section 6.1 of the Loan Agreement. "Loans" means collectively, the CP Loans and the Facility Loans, and with respect to any Aircraft, the CP Loans and the Facility Loans, in each case Funded by the applicable Lenders with respect to such Aircraft. "Long-Term Debt" means senior, unsecured, long-term debt securities of the Lessee. "Loss Payment Date" shall have the meaning provided thereto in Section 10.2(i) of the Lease. "Maintenance Program" means with respect to any Aircraft an FAA-approved maintenance program for such Aircraft. 15 "Manufacturer" means with respect to any Aircraft, the original manufacturer of such Aircraft, and any successor entity thereto. "Margin Stock" has the meaning assigned to that term in Regulation U promulgated by the F.R.S. Board. "Material Adverse Effect" means a material adverse effect on (i) the business, properties, condition (financial or otherwise), results of operations, or prospects of the Lessee and its Subsidiaries taken as a whole, (ii) the ability of the Lessee to pay and perform its obligations under the Operative Documents to which it is a party, (iii) the validity or enforceability of any of the Operative Documents or the rights or remedies of the Agent or the Participants thereunder. "Material Subsidiary" means any Subsidiary of the Lessee having total assets in excess of $20,000,000. "Maturity Date" shall mean with respect to any Loan or Certificate Amount the earlier of (i) the Base Term Expiration Date of the Aircraft to which it relates unless such date is extended in accordance with the express terms of the Operative Documents, or (ii) the Expiration Date of the Aircraft to which it relates. "Maximum Lessor Risk Amount" shall mean with respect to any Aircraft, an amount equal to the difference between the Lease Balance of such Aircraft less the Sale Recourse Amount for such Aircraft. "Maximum Commitment Amount" shall mean $53,000,000. "Moody's" shall mean Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Lessee or any ERISA Affiliate of the Lessee is making, or is obligated to make, contributions or has Withdrawal Liability. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Lessee or an ERISA Affiliate and at least one Person other than the Lessee and its ERISA Affiliates or (ii) was so maintained and in respect of which the Lessee or an ERISA Affiliate could have liability under Section 4063, 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "New Facility" have the meaning set forth in Section 5.1(o) of the Participation Agreement. "Non-Use Fee" is defined in the Conduit Fee Letter. "Notes" means collectively, the CP Note and the Facility Note. "Notice of Delivery" shall have the meaning provided thereto in Section 2.3(b) of the Participation Agreement. "Obligations" shall have the meaning provided in Section 1 of the Security Agreement. 16 "Officer's Certificate" of a Person shall mean a certificate signed by any Responsible Officer in respect of such Person. "Operative Documents" means the following: (a) the Participation Agreement; (b) the Lease; (c) the Loan Agreement; (d) the Notes; (e) the Certificates; (f) the Security Agreement; (g) the LAPA; (h) the Trust Agreement; (i) the Conduit Fee Letter; (j) the Arrangement Fee Letter; and (k) the Bills of Sale. "Organization Documents" means (i) for any corporation, the certificate of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation, (ii) for any partnership or joint venture, the partnership or joint venture agreement and any other organizational document of such entity, (iii) for any limited liability company, the certificate or articles of organization, the operating agreement and any other organizational document of such limited liability company, (iv) for any trust, the declaration of trust, the trust agreement and any other organizational document of such trust and (v) for any other entity, the document or agreement pursuant to which such entity was formed and any other organizational document of such entity. "Overall Transaction" shall mean all the transactions and activities referred to in or contemplated by the Operative Documents. "Overdue Rate" shall mean the lesser of (a) the highest interest rate permitted by Applicable Laws and Regulations and (b) an interest rate per annum equal to, in the case of the Notes, the rate of interest otherwise payable with respect thereto plus 2% and, in the case of the Certificates, the Yield Rate plus 2%. "Participants" shall mean the Certificate Holders, the CP Lender and the Facility Lenders. "Participation" shall have the meaning provided in Section 6.4 of the Participation Agreement. "Participation Agreement" shall mean the Participation Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000, among Lessee, Certificate Trustee, the Agents, CP Lender, the Certificate Holders, the Facility Lenders and the Administrator. "Parts" shall mean all appliances, parts, components, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (other than complete Related Engines or engines) which may from time to time be incorporated or installed in or attached to 17 any Airframe or Related Engine or until replaced, if not so incorporated or installed, on such Airframe or Related Engine. "Payment Date" shall mean the twenty-sixth (26th) day of each month (or if such day is not a Business Day, the immediately succeeding Business Day). "Payment Default" shall mean a Lease Event of Default as described at Section 13(a) of the Lease. "Payment Office" means with respect to any Financing Party, the office of such party identified on Schedule III to the Participation Agreement as its Payment Office. "Payment Period" shall mean with respect to any Loan or Certificate Amount (i) for any Loan bearing interest by reference to the CP Rate, the calendar month immediately preceding a Payment Date, or a portion of such month during which such Loan bears interest by reference to the CP Rate, with the initial such Payment Period commencing on the date such Loan was Funded and (ii) for any Loan or Certificate Amount bearing Interest or Yield by reference to either the LIBO Rate or the Reference Rate, all or any portion of the period from and including a Payment Date to but excluding the next succeeding Payment Date during which such Loan or Certificate bears interest by reference to such rate, with the initial such Payment Period commencing on the date such Loan or Certificate Amount was Funded. "PBGC" means the U.S. Pension Benefit Guaranty Corporation. "Pension Plan" means a Single Employer Plan or a Multiple Employer Plan, or both. "Percentage Interests" is defined in Schedule 2 of the LAPA. "Permitted Investments" shall mean (i) direct obligations of the United States of America and agencies thereof for which the full faith and credit of the United States is pledged, (ii) obligations fully guaranteed by the United States of America, (iii) certificates of deposit issued by, or bankers acceptances of, or time deposits with, any bank, trust company or national banking association incorporated or doing business under the Laws of the United States of America or one of the States thereof having combined capital and surplus and retained earnings of at least $500,000,000 (including without limitation any Lender and the Certificate Trustee if such conditions are met) and having a rating assigned to the long-term unsecured debt of such institutions by S&P and Moody's at least equal to AA and Aa2, respectively, (iv) commercial paper of companies, banks, trust companies or national banking associations incorporated or doing business under the Laws of the United States of America or one of the States thereof and in each case having a rating assigned to such commercial paper by S&P or Moody's (or, if neither such organization shall rate such commercial paper at any time, by any nationally recognized rating organization in the United States of America) equal to the highest rating assigned by such organization, and (v) a money market fund registered under the Investment Company Act of 1940, as amended, the portfolio of which is limited to the investments described in clauses (i) through (iv) above; provided that if all of the above investments are unavailable, the entire amount to be invested may be used to purchase federal funds from an entity described in (iii) above; and provided further that no investment shall be eligible as a "Permitted Investment" unless the final maturity or date of return of such investment is 90 days or less from the date of purchase thereof. 18 "Permitted Liens" shall mean (a) the respective rights and interests of Lessee and the Financing Parties, as provided in the Operative Documents, (b) Certificate Trustee Liens, (c) Liens for Taxes either not yet due or being contested in good faith and by appropriate proceedings diligently conducted so long as (i) such proceedings shall not involve any material risk of the sale, forfeiture or loss of any Aircraft, the Trust Estate, title thereto or any interest therein and shall not interfere in any material respect with the use or disposition of any Aircraft, the Trust Estate or the payment of Rent and (ii) any reserve or other appropriate provision required by GAAP shall have been made in respect of the Lien, (d) materialmen's, mechanics', workers', repairmen's, employees' or other like Liens arising in the ordinary course of business for amounts either not yet due or being contested in good faith and by appropriate proceedings so long as (i) such proceedings shall not involve any material risk of the sale, forfeiture or loss of any Aircraft, the Trust Estate, title thereto or any interest therein and shall not materially interfere with the use or disposition of any Aircraft, the Trust Estate, or meaningfully interfere with the payment of Rent and (ii) any reserve or other appropriate provision required by GAAP shall have been made in respect of the Lien, and (e) Liens arising after the Closing Date out of judgments or awards not otherwise constituting a Lease Event of Default and with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith and either (x) have been reserved for to the extent required by GAAP, or (y) the enforcement of such Lien has been stayed pending such appeal or review and (f) salvage or similar rights of insurers under insurance policies maintained in accordance with the Operative Documents. "Person" shall mean an individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or Authority. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Lessee or any member of the controlled group may have any liability. "Program Fee" is defined in the Conduit Fee Letter. "Purchase Amount" shall mean, as of any date of determination, an amount equal to the sum of (a) the outstanding Lease Balance, plus (b) all accrued but unpaid Interest and Yield, plus (c) Break Funding Amount, if any, payable by the Borrower under the Operative Documents, plus (d) all other sums then due and payable under the Operative Documents by Lessee, including without limitation all Rent and any amounts due and owing pursuant to Section 7 of the Participation Agreement. "Purchase Option" shall have the meaning provided in Section 22.1(b) of the Lease. "Rating Agency" is defined in the LAPA. "Reference Rate" shall have the meaning provided in Section 7.4(d) of the Participation Agreement. "Regulations" shall mean the income tax regulations promulgated from time to time under and pursuant to the Code. 19 "Related Airframe" means with respect to any Aircraft or Related Engine, the Airframe relating to such Aircraft or Related Engine as set forth on the Lease Supplement with respect to such Aircraft or Related Engine. "Related Engine" means (i) each engine set forth on the Lease Supplement with respect to any Airframe (which Lease Supplement shall identify the Airframe to which such Related Engine relates) whether or not from time to time installed on an Airframe or installed on any other airframe (except as otherwise provided in the Lease), (ii) any engine which may from time to time be substituted, pursuant to the terms of the Lease, for any Related Engine, (iii) all Parts so long as the same shall be installed on, attached to or made a part of such Related Engine (so long as title thereto is, now, or hereafter shall be, vested in Lessor) and (iv) the engine stand, if any, with respect to such Related Engine. "Renewal Option" shall have the meaning with respect to any Aircraft set forth in Section 22.1(a) of the Lease. "Renewal Term" shall have the meaning with respect to any Aircraft provided in Section 3.1 of the Lease. "Rent" shall mean Basic Rent and Supplemental Rent, collectively. "Replacement Airframe" means an airframe of the same make and same or improved model and having a value, utility and remaining useful life at least equal to and being in as good operating condition and state of maintenance as the Airframe so replaced immediately prior to the occurrence of such Event of Loss (assuming such Airframe was in a condition and repair in which it is required to be maintained by the terms of the Lease), and which shall have become subject to the Lease pursuant to Section 10.2 or 21.3 thereof. "Required Alteration" shall have the meaning specified in Section 9.3 of the Lease. "Required Certificate Holders" shall mean, as of the date of the determination, Certificate Holders having unpaid Certificate Amounts equal to more than 66 2/3% of the aggregate unpaid Certificate Amounts. "Required Facility Lenders" shall mean as of a particular date of determination, with respect to any action or decision of the Facility Lenders, the Facility Lenders holding or having an obligation to purchase or assume more than 66 2/3% of the right, title and interest in and to and obligations under the Notes from the CP Lender pursuant to the terms of the LAPA. "Required Participants" shall mean, as of the date of the determination, Lenders and Certificate Holders having aggregate investments in the Overall Transaction (as measured by the outstanding principal amount of the Notes then outstanding and the Certificate Amounts then outstanding) equal to more than 66 2/3% of the aggregate total of all such investments. "Responsible Officer" of any Person shall mean the Chairman or Vice Chairman of the Board of Directors, the Chairman or Vice Chairman of the Executive Committee of the Board of Directors, the President, any Senior Vice President or Executive Vice President, any Vice President, the Secretary, the Treasurer, any Assistant Treasurer or the Controller. 20 "Return Location" is defined in Section 6.1 of the Lease. "S&P" shall mean Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. "Sale Option" shall have the meaning provided in Section 22.1(c) of the Lease. "Sale Proceeds" shall mean the gross sale proceeds from the sale of the applicable Aircraft pursuant to Section 14 or 23 of the Lease; which shall be an amount not less than the amount bid by the purchaser or purchasers of such Aircraft whose bid is accepted pursuant to Section 23 of the Lease. "Sale Recourse Amount" shall have the meaning as of any date with respect to any Aircraft set forth in the Lease Supplement with respect to such Aircraft on such date. "SEC" shall mean the United States Securities and Exchange Commission. "Secured Instrument" shall have the meaning provided in Section 2(i) of the Security Agreement. "Secured Party" shall have the meaning provided in the preamble of the Security Agreement. "Securities Act" shall mean the Securities Act of 1933. "Securities Exchange Act" shall mean the Securities Exchange Act of 1934. "Security Agreement" shall mean the Security Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000, among the Certificate Trustee, Lessee and the Administrative Agent, as agent for the Certificate Holders and the Lenders together with any Security Agreement Supplements thereto. "Security Agreement Supplement" means a Security Agreement Supplement substantially in the form of Exhibit A to the Security Agreement. "Security Documents" means collectively the Security Agreement, the Lease and the Financing Statements. "Seller" means with respect to any Aircraft the Person providing the Certificate Trustee with Bills of Sale with respect to such Aircraft. "Settlement Actions" shall have the meaning provided in Section 6.2 of the Trust Agreement. "Significant Default" means any Lease Default under Section 13(a), 13(d) or 13(f) of the Lease. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the Lessee or any ERISA Affiliate and no Person other than the Lessee and its ERISA Affiliates or (ii) was so maintained and in respect of 21 which the Lessee or an ERISA Affiliate could have liability under Section 4062 or 4069 of ERISA in the event such plan has been or were to be terminated. "Subsidiary" of a Person shall mean, as of any time of determination, any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the total voting stock, membership interests or other equity interests is owned or controlled, directly or indirectly, by such Person, or one or more of the Subsidiaries of such Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Lessee. "Supplemental Rent" shall mean any and all amounts, liabilities and obligations other than Basic Rent which Lessee assumes or agrees or is otherwise obligated to pay under the Lease or any other Operative Document (whether or not designated as Supplemental Rent) to Certificate Trustee, the Administrative Agent, Arranger, Liquidity Agent, any Participant, or any other Person, including, without limitation, Lease Balance, Purchase Amount, Break Funding Amounts, Additional Costs, Sale Recourse Amount, Fees and indemnities and damages for breach of any covenants, representations, warranties or agreements. "Taxes" and "Tax" shall mean any and all fees (including, without limitation, documentation, recording, license and registration fees), taxes (including, without limitation, income (whether net, gross or adjusted gross), gross receipts, sales, rental, use, turnover, value-added, property, excise and stamp taxes), levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever, together with any penalties, fines or interest thereon or additions thereto. "Transaction Costs" shall mean reasonable out of pocket transaction costs and expenses incurred by the Arranger, the Certificate Trustee and the Agents in connection with the consummation of the transactions contemplated by the Operative Documents, and the preparation, negotiation, execution and delivery of the Operative Documents, including (1) the reasonable fees, expenses and disbursements of Moore & Van Allen, PLLC, document counsel, Cadwalader, Wickersham & Taft, special counsel to the CP Lender, Daugherty, Fowler, Peregrin & Haught, special FAA counsel and Baker & McKenzie, special counsel to the Lessee; (2) the initial and ongoing fees and reasonable expenses of the Certificate Trustee (other than the initial and ongoing agreed upon fees of the Certificate Trustee), and the Agents (other than the initial and ongoing agreed upon fees of the Administrative Agent) and their special counsel; (3) all appraisal fees and reasonable appraisal expenses with respect to the Aircraft; and (4) all recording and filing fees incurred in connection with the filing of all Financing Statements and any other documents, with respect to the Aircraft or the Security Documents. "Trust" shall mean the trust created by the Trust Agreement. "Trust Agreement" shall mean the Trust Agreement (Steelcase Trust No. 2000-1), dated as of May 26, 2000, among the Trust Company and the Certificate Holders. "Trust Company" shall mean First Security Bank, National Association, a national banking association, in its individual capacity. "Trust Estate" shall have the meaning provided in Section 1.2(c) of the Trust Agreement. 22 "UCC" shall mean the Uniform Commercial Code of New York, or any other applicable jurisdiction. "Unfunded Liabilities" means the aggregate unfunded value of accumulated benefits under all Single Employer Plans, all determined in accordance with Agreement Accounting Principles as of the then most recent valuation date for such Plans. "Upfront Fee" shall have the meaning provided in Section 10.2 of the Participation Agreement. "Warranty Bill of Sale" each warranty bill of sale issued in favor of the Lessor from time to time with respect to an Aircraft, in each case in form and substance satisfactory to the Lessor and each other Financing Party. "Withdrawal Liability" has the meaning given such term under Part I of Subtitle E of Title IV of ERISA. "Yield" shall mean with respect to each Payment Period (a) the Yield Rate for such Payment Period multiplied by (b) the applicable Certificate Amount for which such Yield is being calculated. "Yield Rate" shall mean, with respect to each Payment Period, the applicable rate per annum at which Yield shall accrue and be payable from time to time on the Certificate Amounts, which rate shall be the rate per annum equal to the sum of (i) the LIBO Rate for such Payment Period plus (ii) the Applicable Percentage per annum. 23 EX-4.41 7 k84627exv4w41.txt SECURITY AGREEMENT DATED AS OF MAY 26, 2000 Exhibit 4.41 SECURITY AGREEMENT (Steelcase Trust No. 2000-1) Dated as of May 26, 2000 from FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Certificate Trustee, as Borrower to FIRST SECURITY TRUST COMPANY OF NEVADA, not in its individual capacity, but as Administrative Agent for the Lenders and the Certificate Holders and accepted and agreed to by STEELCASE INC., as the Lessee
TABLE OF CONTENTS 1. Definitions.................................................................................... 2 2. Grant of Security Interest..................................................................... 3 3. Payment of Obligations......................................................................... 5 4. Other Covenants................................................................................ 6 5. Default; Remedies.............................................................................. 6 6. Remedies Not Exclusive......................................................................... 6 7. Performance by the Administrative Agent of the Borrower's Obligations.......................... 7 8. Duty of the Administrative Agent............................................................... 7 9. Powers Coupled with an Interest................................................................ 7 10. Execution of Financing Statements.............................................................. 8 11. Security Agreement Under UCC................................................................... 8 12. Authority of the Administrative Agent.......................................................... 9 13. Notices........................................................................................ 9 14. Severability................................................................................... 9 15. Amendment in Writing; No Waivers; Cumulative Remedies.......................................... 9 16. Section Headings............................................................................... 10 17. Successors and Assigns......................................................................... 10 18. The Borrower's Waiver of Rights................................................................ 10 19. GOVERNING LAW.................................................................................. 11 20. Obligations Are Without Recourse............................................................... 11 21. Partial Release; Full Release.................................................................. 11 22. Miscellaneous.................................................................................. 11 23. Conflicts with Participation Agreement......................................................... 12 24. Lessee as a Party.............................................................................. 12
i SECURITY AGREEMENT This SECURITY AGREEMENT, dated as of May 26, 2000 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, this "Security Agreement"), is made between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not individually, but solely as Certificate Trustee under Steelcase Trust No. 2000-1 (the "Borrower"), and FIRST SECURITY TRUST COMPANY OF NEVADA, a Nevada banking corporation (individually, "FSTCN"), as the administrative agent for (a) the Lenders (hereinafter defined) under the Loan Agreement dated as of the date hereof (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Loan Agreement") by and among the Borrower, the lending institutions and commercial paper conduits from time to time parties thereto (the "Lenders"), FSTCN, as the Administrative Agent for the Lenders and Bank of America, National Association, as administrator for the CP Lender (the "Administrator") and (b) the purchasers of the certificates issued pursuant to the Trust Agreement dated as of the date hereof (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Trust Agreement") among the certificate holders from time to time parties thereto (the "Certificate Holders") and the Borrower, in its individual capacity thereunder and in its capacity as Certificate Trustee thereunder. The Lenders, the Certificate Holders, the Administrative Agent and the Administrator, together with their successors and permitted assigns, are collectively referred to hereinafter as the "Secured Parties". FSTCN, in its capacity as Administrative Agent for the Secured Parties is referred to hereinafter as the "Administrative Agent". This Security Agreement is accepted and agreed to by STEELCASE INC., a Michigan corporation (from time to time referred to as the "Lessee"). Preliminary Statement Pursuant to the Loan Agreement and the Participation Agreement (hereinafter defined), the Lenders have severally agreed to make Loans to the Borrower in an aggregate amount not to exceed their respective Loan Commitments upon the terms and subject to the conditions set forth therein, to be evidenced by the Notes issued by the Borrower under the Loan Agreement. Pursuant to the Trust Agreement, the Certificate Holders have agreed to purchase the ownership interests of the Trust created thereby in an aggregate amount not to exceed their respective Certificate Commitments upon the terms and subject to the conditions set forth therein, to be evidenced by the Certificates issued by the Borrower under the Trust Agreement. It is a condition, among others, to the obligation of the Lenders to make their respective Loans to the Borrower under the Loan Agreement and the Certificate Holders to make their respective Fundings under the Trust Agreement and each Facility Lender and the Administrator to undertake their respective obligations under the Operative Documents that the Borrower shall have executed and delivered this Security Agreement to the Administrative Agent, for the benefit of the Secured Parties. NOW, THEREFORE, in consideration of the foregoing and to induce the Lenders to make their respective Loans under the Loan Agreement and to induce the Certificate Holders to make their respective Certificate Holder advances under the Trust Agreement, the Borrower hereby agrees with the Administrative Agent, for the benefit of the Secured Parties, as follows: 1. DEFINITIONS. (a) As used herein, the following terms shall have the following respective meanings: "Accounts" shall mean all "accounts," as such term is defined in the UCC, now owned or hereafter acquired by the Borrower, including without limitation (i) all accounts receivable, other receivables, book debts and other forms of obligations now owned or hereafter received or acquired by or belonging or owing to the Borrower, whether arising out of goods sold or leased or services rendered by it or from any other transaction (including without limitation any such obligations which may be characterized as an account under the UCC), (ii) all of the Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, (iii) all of the Borrower's rights to any goods represented by any of the foregoing (including without limitation unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (iv) all monies due or to become due to the Borrower under all purchase orders and contracts for the sale or lease of goods or the performance of services or both by the Borrower (whether or not yet earned by performance on the part of the Borrower now) or hereafter in existence, including without limitation the right to receive the proceeds of said purchase orders and contracts, and (v) all collateral security and guarantees of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Certificate Holders" shall have the meaning specified in the first paragraph of this Security Agreement. "Chattel Paper" shall mean any and all "chattel paper," as such term is defined in the UCC, now owned or hereafter acquired by the Borrower, wherever located. "Documents" shall mean any and all "documents", as such term is defined in the UCC, now owned or hereafter acquired by the Borrower, wherever located, including without limitation each bill of lading, dock warrant, dock receipt, warehouse receipt or order for the delivery of goods, and also any other document which in the regular course of business or financing is treated as adequately evidencing that the person in possession of it is entitled to receive, hold and dispose of the document and the goods it covers. "General Intangibles" shall mean any and all "general intangibles," as such term is defined in the UCC, now owned or hereafter acquired by the Borrower, including without limitation all contracts, undertakings, or agreements in or under which the Borrower may now or hereafter have any right (other than any right evidenced by Chattel Paper, Documents or Instruments), title or interest, including without limitation any agreements relating to the terms of payment or the terms of performance of any Account. 2 "Instruments" shall mean any and all "instruments", as such term is defined in the UCC, now owned or hereafter acquired by the Borrower, wherever located, including without limitation all certificated securities, all certificates of deposit, and all notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Investment Property" shall mean any and all "investment property," as such term is defined in the UCC, now owned or hereafter acquired by the Borrower, wherever located. "Lenders" shall have the meaning specified in the first paragraph of this Security Agreement. "Lessee" shall have the meaning specified in the first paragraph of this Security Agreement and, in addition, shall include the successors, permitted assigns and permitted transferees of the Lessee. "Obligations" shall mean (i) repayment of the Notes (including without limitation the principal of and interest thereon as provided thereunder) according to the terms thereof, (ii) repayment of the Certificates (including without limitation the principal of and yield thereon as provided thereunder) according to the terms thereof, (iii) payment of all the Fees, (iv) the performance of all obligations of the Borrower or Lessee under the Operative Documents and (v) the payment of all such other sums that may hereinafter be secured by this Security Agreement in accordance with the terms hereof. (b) Capitalized terms used but not otherwise defined in this Security Agreement shall have the respective meanings specified in Appendix A to the Participation Agreement dated as of the date hereof (as amended, modified, extended, supplemented, restated and/or replaced from time to time in accordance with the applicable provisions thereof, the "Participation Agreement") among the Lessee, the Borrower, the Certificate Holders thereunder, the CP Lender thereunder, the Facility Lenders thereunder, and FSTCN, as the Administrative Agent for the Lenders and the Certificate Holders under the Security Documents, to the extent of their interests, and the Administrator thereunder. (c) The rules of usage set forth in Appendix A to the Participation Agreement shall apply to this Agreement. 2. GRANT OF SECURITY INTEREST. To secure, (i) payment by Borrower of all the amounts advanced under the Loan Agreement and the Trust Agreement, including all indebtedness, loans and certificate amounts evidenced by the Notes, the Certificates and the other Security Documents (collectively, the "Secured Instruments"); 3 (ii) payment of accrued Interest and Yield on clause (i) above and all other sums, with Interest and Yield, becoming due or payable under the provisions hereof or under the Loan Agreement or the Trust Agreement or under any other document or instrument evidencing, securing or pertaining to the indebtedness, loans and certificate amounts evidenced by the Secured Instruments; (iii) payment by Borrower of such additional sums, with Interest and Yield thereon, which may hereafter be loaned or advanced to Borrower, or its successors or assigns, by Participants or any of them, in accordance with the terms of the Operative Documents, when evidenced by a promissory note or notes, certificate or certificates, or other instrument or instruments, in each case reciting that they are secured by this Security Agreement; (iv) due, prompt and complete observance, performance and discharge of each and every obligation, covenant and agreement of Lessee under the Lease (including the obligation to pay Rent, the Lease Balance and any other amounts payable pursuant to the Lease), the Loan Agreement and the Trust Agreement and under any other Security Documents, as the same may be amended or extended; (v) due, prompt and complete observance, performance and discharge of each and every obligation, covenant and agreement of Borrower contained in this Security Agreement, the Loan Agreement, the Trust Agreement and any other Security Documents, and all supplements, amendments and modifications thereto and all extensions and renewals thereof, or in any other instrument heretofore or hereafter executed by Borrower having reference to or arising out of the loans, certificate amounts, Interest and Yield represented by the Notes or Certificates; and (vi) payment of all sums advanced by Administrative Agent to protect the Collateral or any portion thereof, whether or not any such advance is specifically authorized by the provisions of this Security Agreement, the Loan Agreement, the Trust Agreement or any of the other Security Documents, with interest thereon at the overdue rate and to the extent not referenced above, payment and performance of all Obligations and payment of all other amounts and performance of all other obligations due to the Secured Parties pursuant to the Operative Documents, Borrower hereby conveys, grants, assigns, transfers, hypothecates, mortgages and sets over to the Administrative Agent for the benefit of the Secured Parties, a security interest in and lien on all present and future right, title and interest of Borrower, in, to and under the following (whether now existing or hereafter acquired) but excluding all Excluded Amounts: (A) any Aircraft listed on any supplement to this Security Agreement (each a "Security Agreement Supplement") in form and substance substantially similar to Exhibit A attached hereto (collectively all such Aircraft referred to as the "Assets"); (B) all books and records relating to or used in connection with the operation of the Assets or any part thereof; 4 (C) all insurance policies required to be maintained by Lessee pursuant to the Lease; (D) all consents, licenses and other governmental approvals relating to use or operation of the Assets or any part thereof; (E) all Rent and all other rents, payments, purchase prices, receipts, revenues, issues and profits payable under the Lease or pursuant to any other lease with respect to the Assets; (F) all (i) Accounts, General Intangibles, Chattel Paper, deposit accounts, money, Investment Property, Instruments and Documents relating to or otherwise arising in connection with or derived from the Assets, (ii) refunds, rebates, reserves, deferred payments, deposits, cost savings, and payments of any kind due from or payable by (a) any Authority, or (b) any insurance or utility company, relating in either case to any or all of the Assets, (iii) refunds, rebates and payments of any kind due from or payable by any Authority for any taxes, assessments, or governmental or quasi-governmental charges or levies imposed upon Borrower with respect to or upon any or all of the Assets, and (iv) cash collateral accounts (if any) maintained pursuant to any of the Security Documents; (G) all right, title and interest of the Borrower in and to the Operative Documents now existing or hereafter acquired by the Borrower (including without limitation all rights to payment and indemnity rights of the Borrower under the Participation Agreement) (all of the foregoing in this paragraph (G) being referred to as the "Rights in Operative Documents"); and (H) all proceeds, both cash and noncash, of the foregoing. (All of the foregoing property and rights and interests now owned or held or subsequently acquired by Borrower and described in the foregoing clauses (A) through (H) are collectively referred to as the "Collateral"); TO HAVE AND TO HOLD the Collateral and the rights and privileges hereby granted unto the Administrative Agent (for the benefit of the Secured Parties) its successors and assigns for the uses and purposes set forth in this Agreement, until all of the Obligations are paid in full. 3. PAYMENT OF OBLIGATIONS. The Borrower shall pay all Obligations in accordance with the terms of the Loan Agreement, the Notes, the Trust Agreement, the Certificates and the other Operative Documents and perform each term to be performed by it under the Loan Agreement, the Notes, the Trust Agreement, the Certificates and the other Operative Documents. 5 4. OTHER COVENANTS. At any time and from time to time, upon the written request of the Administrative Agent, and at the expense of the Borrower, the Borrower will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Administrative Agent reasonably may request for the purposes of obtaining or preserving the full benefits of this Security Agreement and of the rights and powers granted by this Security Agreement. 5. DEFAULT; REMEDIES. (a) If a Loan Event of Default has occurred and is continuing: (i) the Administrative Agent, in addition to all other remedies available at law or in equity, shall have the right, subject to the rights of the Lessee under the Lease, forthwith to enter upon any property where any component of any Assets is located at such time, without charge, and take possession of all or any portion of the Collateral, and receive the rents, issues and profits thereof, to make repairs and to apply said rentals and profits, after payment of all necessary or proper charges and expenses, on account of the amounts hereby secured; and (ii) the Administrative Agent, shall, as a matter of right, be entitled to the appointment of a receiver for the Collateral, and the Borrower hereby consents to such appointment and waives notice of any application therefor. (b) If a Loan Event of Default has occurred and is continuing, the Administrative Agent may, subject to the rights of the Lessee under the Lease, proceed by an action at law, suit in equity or other appropriate proceeding, to protect and enforce its rights, whether for the foreclosure of the Lien of this Security Agreement, or for the specific performance of any agreement contained herein or for an injunction against the violation of any of the terms hereof. The proceeds of any sale of any of the Collateral shall be applied pursuant to Section 3.3 of the Loan Agreement. In addition, the Administrative Agent may proceed under Section 11 hereof. 6. REMEDIES NOT EXCLUSIVE. The Administrative Agent shall be entitled to enforce payment of the indebtedness and performance of the Obligations and to exercise all rights and powers under this Security Agreement or under any of the other Operative Documents or other agreements or any laws now or hereafter in force, notwithstanding some or all of the Obligations may now or hereafter be otherwise secured, whether by deed of trust, mortgage, security agreement, pledge, Lien, assignment or otherwise. Neither the acceptance of this Security Agreement nor its enforcement, shall prejudice or in any manner affect the Administrative Agent's right to realize upon or enforce any other security now or hereafter held by the Administrative Agent, it being agreed that the Administrative Agent shall be entitled to enforce this Security Agreement and any other 6 security now or hereafter held by the Administrative Agent in such order and manner as the Administrative Agent may determine in its absolute discretion. No remedy conferred hereunder or under any other Operative Document upon or reserved to the Administrative Agent is intended to be exclusive of any other remedy herein or therein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Documents to the Administrative Agent or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Administrative Agent. In no event shall the Administrative Agent, in the exercise of the remedies provided in this Security Agreement (including without limitation in connection with the assignment of Rents to the Administrative Agent or the appointment of a receiver), be deemed a "mortgagee in possession" or a "pledgee in possession," and the Administrative Agent shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies. 7. PERFORMANCE BY THE ADMINISTRATIVE AGENT OF THE BORROWER'S OBLIGATIONS. If the Borrower fails to perform or comply with any of its agreements contained herein the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement after giving prior written notice thereof to Borrower and Lessee. The reasonable out of pocket expenses of the Administrative Agent incurred in connection with actions undertaken as provided in this Section 7, together with interest thereon at a rate per annum equal to the Overdue Rate, from the date of payment by the Administrative Agent to the date reimbursed by the Borrower, shall be payable by the Borrower to the Administrative Agent on demand and constitutes part of the Obligations secured hereby. 8. DUTY OF THE ADMINISTRATIVE AGENT. The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of any Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent, any Lender, any Certificate Holder nor any of their respective directors, officers, employees, shareholders, partners or Administrative Agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Borrower or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. 9. POWERS COUPLED WITH AN INTEREST. All powers, authorizations and agencies contained in this Security Agreement are coupled with an interest and are irrevocable until this Security Agreement is terminated and the Liens created hereby are released. 7 10. EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the UCC, the Borrower authorizes the Administrative Agent, at the expense of the Borrower, to file financing statements with respect to the Collateral under this Security Agreement without the signature of the Borrower in such form and in such filing offices as the Administrative Agent reasonably determines (pursuant to instruction from one or more Participants, such instruction to be delivered in the reasonable discretion of each such Participant) appropriate to perfect the security interests of the Administrative Agent under this Security Agreement. A carbon, photographic or other reproduction of this Security Agreement shall be sufficient as a financing statement for filing in any jurisdiction. For purposes of such financing statement, the Borrower shall be deemed to be the debtor, and the Administrative Agent shall be deemed to be the secured party. The address of the Borrower is 79 South Main Street, Third Floor, Salt Lake City, Utah 84111, Attention: Val T. Orton, Vice President, and the address of the Administrative Agent is First Security Trust Company of Nevada, 79 South Main Street, Third Floor, Salt Lake City, Utah 84111, Attention: Val T. Orton, Vice President. 11. SECURITY AGREEMENT UNDER UCC. (a) It is the intention of the parties hereto that this Security Agreement as it relates to matters of the grant, perfection and priority of security interests the subject hereof, shall constitute a security agreement within the meaning of the UCC. If a Loan Event of Default shall occur and be continuing, then in addition to having any other right or remedy available at law or in equity, the Administrative Agent may, subject to the rights of the Lessee under the Lease, proceed under the UCC and exercise such rights and remedies as may be provided to a secured party by the UCC with respect to all or any portion of the Collateral which is personal property (including without limitation taking possession of and selling such property). If the Administrative Agent shall elect to proceed under the UCC, then fifteen (15) days' notice of sale of the personal property shall be deemed reasonable notice and the reasonable expenses of retaking, holding, preparing for sale, selling and the like incurred by the Administrative Agent shall include, but not be limited to, attorneys' fees and legal expenses. If a Loan Event of Default shall have occurred and be continuing, at the Administrative Agent's request, the Borrower shall, subject to the rights of the Lessee under the Lease, assemble such personal property and make it available to the Administrative Agent at one or more places designated by the Administrative Agent which is reasonably convenient to both parties. (b) The Borrower, upon reasonable request by the Administrative Agent from time to time, shall execute, acknowledge and deliver to the Administrative Agent one (1) or more separate security agreements, in form satisfactory to the Administrative Agent, covering all or any part of the Collateral and will further execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any financing statement, affidavit, continuation statement or certificate or other document as the Administrative Agent may reasonably request in order to perfect, preserve, maintain, continue or extend the security interest under, and the priority of the Liens granted by, this Security Agreement and such security instrument. The Borrower further agrees to pay to the 8 Administrative Agent on demand all reasonable costs and expenses incurred by the Administrative Agent in connection with the preparation, execution, recording, filing and re-filing of any such document and all reasonable costs and expenses of any record searches for financing statements the Administrative Agent shall reasonably require. The filing of any financing or continuation statements in the records relating to personal property or chattels shall not be construed as in any way impairing the right of the Administrative Agent to proceed against any property encumbered by this Security Agreement. 12. AUTHORITY OF THE ADMINISTRATIVE AGENT. The Borrower acknowledges that the rights and responsibilities of the Administrative Agent under this Security Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Security Agreement shall be governed by Section 8 of the Participation Agreement and by such other agreements with respect thereto as may exist from time to time (until such time as all amounts due and owing to the Secured Parties and the Administrative Agent under the Operative Documents have been paid in full), but the Administrative Agent shall be conclusively presumed to be acting as Administrative Agent for the Secured Parties with full and valid authority so to act or refrain from acting, and the Borrower shall be under no obligation, or entitlement, to make any inquiry respecting such authority. 13. NOTICES. All notices required or permitted to be given under this Security Agreement shall be in writing and delivered as provided in Section 9.3 of the Participation Agreement. Copies of all notices of any material matter delivered pursuant to this Security Agreement shall be delivered to the Lessee. 14. SEVERABILITY. Any provision of this Security Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 15. AMENDMENT IN WRITING; NO WAIVERS; CUMULATIVE REMEDIES. (a) None of the terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified except in accordance with the terms of Section 9.5 of the Participation Agreement. (b) No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or 9 privilege. A waiver by the Administrative Agent of any right or remedy hereunder on any one (1) occasion shall not be construed as a bar to any right or remedy which the Administrative Agent would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. (d) Upon the prior written consent of the Required Participants and unless such matter is a matter requiring the unanimous consent of all Participants, the Administrative Agent may release any portion of the Collateral or any other security, and grant such extensions and indulgences in relation to the Obligations secured hereby without in any manner affecting the priority of the Lien hereof on any part of the Collateral. 16. SECTION HEADINGS. The section headings used in this Security Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 17. SUCCESSORS AND ASSIGNS. This Security Agreement shall be binding upon the successors of the Borrower, and the Borrower shall not assign any of its rights or obligations hereunder or with respect to any of the Collateral without the prior written consent of the Administrative Agent. This Security Agreement shall inure to the benefit of the Administrative Agent, the Lenders, the Certificate Holders, the Lessee and their respective successors and assigns, in accordance with their respective interest herein. 18. THE BORROWER'S WAIVER OF RIGHTS. Except as otherwise set forth herein, to the fullest extent permitted by law, the Borrower waives the benefit of all laws now existing or that may subsequently be enacted providing for (a) any appraisement before sale of any portion of the Collateral, (b) any extension of the time for the enforcement of the collection of the indebtedness or the creation or extension of a period of redemption from any sale made in collecting such debt and (c) exemption of any portion of the Collateral from attachment, levy or sale under execution or exemption from civil process. Except as otherwise set forth herein, to the fullest extent the Borrower may do so, the Borrower agrees that the Borrower will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, exemption, extension or redemption, or requiring foreclosure of this Security Agreement before exercising any other remedy granted hereunder and the Borrower, for the Borrower and its successors and assigns, and for any and all Persons ever claiming any interest in the Collateral, to the extent permitted by law, hereby waives and releases all rights of redemption, valuation, 10 appraisement, stay of execution, notice of election to mature or declare due the whole of the Obligations and marshalling in the event of foreclosure of the Liens hereby created. 19. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN SECTION 11(a) HEREOF, THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE (EXCEPT TITLE 14 OF ARTICLE 5 OF THE NEW YORK GENERAL OBLIGATIONS LAW). 20. OBLIGATIONS ARE WITHOUT RECOURSE. The provisions of the Participation Agreement and the other Operative Documents relating to limitations on liability are hereby incorporated by reference herein, mutatis mutandis. 21. PARTIAL RELEASE; FULL RELEASE. The Administrative Agent may release for such consideration as it may require any portion of the Collateral without (as to the remainder of the Collateral) in any way impairing or affecting the Lien, security interest and priority herein provided for the Administrative Agent compared to any other Lien holder or secured party. Further, the Administrative Agent shall execute and deliver to the Borrower and the Lessee, if necessary, such documents and instruments as may be required to release the Lien and security interest created by this Security Agreement or the Lease with respect to the Assets as may be required upon the expiration or early termination of the Lease with respect to such Assets, including, without limitation, upon the expiration or early termination of a Lease Supplement. 22. MISCELLANEOUS. (a) This Security Agreement is one of the documents which create Liens and security interests that secure payment and performance of the Obligations. The Administrative Agent, at its election, may commence or consolidate in a single action all proceedings to realize upon all such Liens and security interests. The Borrower hereby waives (i) any objections to the commencement or continuation of an action to foreclose the Lien of this Security Agreement or exercise of any other remedies hereunder based on any action being prosecuted or any judgment entered with respect to the Obligations or any Liens or security interests that secure payment and performance of the Obligations and (ii) any objections to the commencement of, continuation of, or entry of a judgment in any such other action based on any action or judgment connected to this Security Agreement. Subject to the terms hereof, in case of a foreclosure sale, the Collateral may be sold, at the Administrative Agent's election, in one (1) unit or in more than one (1) unit and the Administrative Agent is specifically empowered (without being required to do so, and in its sole and absolute discretion) to cause successive sales of portions of the Collateral to be held. 11 (b) THE PROVISIONS OF THE PARTICIPATION AGREEMENT RELATING TO SUBMISSION TO JURISDICTION, VENUE ARE HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS. 23. CONFLICTS WITH PARTICIPATION AGREEMENT. Notwithstanding any other provision hereof, in the event of any conflict between the terms of this Security Agreement and the Participation Agreement, the terms of the Participation Agreement shall govern. 24. LESSEE AS A PARTY. Lessee has executed this Security Agreement for the purpose of subjecting to the security interests granted hereunder all of its respective right, title, and interest, if any, in and to the Collateral to secure the obligations of Lessee under the Operative Documents. Accordingly, Lessee hereby grants to the Administrative Agent (for the benefit of the Secured Parties) a security interest in and to all of its respective right, title and interest, if any, in and to the Collateral to secure the respective obligations of Lessee under the Operative Documents. Lessee acknowledges and agrees that, upon the occurrence of a Lease Event of Default, the Administrative Agent shall have the right to exercise any or all of its remedies hereunder as against any such right, title, or interest of Lessee in or to the Collateral subject to the provisions of the Lease. [Signature pages follow] 12 IN WITNESS WHEREOF, each of the undersigned have caused the Security Agreement to be duly executed and delivered as of the date first above written. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Certificate Trustee under Steelcase Trust No. 2000-1 By: /s/ Val T. Orton -------------------------------------- Name: Val T. Orton Title: Vice President FIRST SECURITY TRUST COMPANY OF NEVADA, as the Administrative Agent for the Lenders and the Certificate Holders By: /s/ Val T. Orton -------------------------------------- Name: Val T. Orton Title: Trust Officer Accepted and Agreed to: STEELCASE INC. By: /s/ Alwyn Rougier-Chapman ---------------------------------------------- Name: Alwyn Rougier-Chapman Title: Sr. VP - Finance and CFO EXHIBIT A SECURITY AGREEMENT SUPPLEMENT NO. ___ (Steelcase Trust No. 2000-1) This SECURITY AGREEMENT SUPPLEMENT NO. (Steelcase Trust No. 2000-1), dated ________, 2000 (herein called this "Supplement") between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Certificate Trustee (herein called the "Borrower"), under the Steelcase Trust No. 2000-1 and, FIRST SECURITY TRUST COMPANY OF NEVADA, as Administrative Agent (the "Administrative Agent") and is filed with the Federal Aviation Administration ("FAA") as a Supplement to the Security Agreement (defined herein) a counterpart of which [is attached hereto and made a part hereof] [was filed with the FAA on _____________ and assigned conveyance number _________________.] This Supplement is accepted and agreed to by STEELCASE INC., a [_______________] corporation (the "Lessee"). Capitalized terms used herein without definition shall have the meanings set forth in Appendix A to the Participation Agreement as such term is defined in the Security Agreement. WITNESSETH: WHEREAS, the Borrower, the Administrative Agent and the Lessee have entered into that certain Security Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (the "Security Agreement") which provides for the execution and delivery of a supplement thereto substantially in the form hereof, which shall particularly describe the Aircraft constituting part of the Collateral; WHEREAS, the Security Agreement relates to the Related Airframe and Related Engines described below, [and a counterpart of the Security Agreement is attached hereto and made a part hereof and this Supplement, together with such counterpart of the Security Agreement, is being filed for recordation on the date hereof with the FAA as one document]; NOW, THEREFORE, Borrower and Lessee hereby convey, grant, assign, transfer, hypothecate, mortgage and set over to the Administrative Agent for the benefit of the Secured Parties, a security interest in and lien on all present and future right, title and interest of Borrower or Lessee, in, to and under the following (whether now existing or hereafter acquired) but excluding all Excluded Amounts: [AIRCRAFT] The following Related Airframe identified as follows:
[FAA Registration Manufacturer's Manufacturer Model Number] Serial Number ------------ ----- ------------ ------------- ~~__________________ _____________ N____________ ______________~~
together with all Parts from time to time thereto belonging, owned by the Borrower or Lessee and installed in or attached to said Airframe. [RELATED ENGINES] The following aircraft engines, each such engine having 750 or more rated take-off horsepower or the equivalent thereof, whether or not such engines shall be installed in or attached to its Related Airframe or any other airframe identified as follows:
[Airframe FAA Registration Manufacturer's Number] Manufacturer Model Serial Number -------- ------------ ----- -------------
together with all Parts belonging, by whomsoever manufactured, owned by the Borrower or Lessee and installed in or attached to said aircraft engines. Together with all substitutions, renewals and replacements of and additions, improvements, accessions and accumulations to the property above described for which title vests in the Borrower or Lessee under the Operative Documents. As further security for the obligations referred to above and secured by the Security Agreement and hereby, the Borrower and the Lessee hereby confirm that the Lien of the Security Agreement over the Collateral includes the Lease Supplement dated the date hereof and executed by the Lessee covering the property described above. TO HAVE AND TO HOLD all and singular the aforesaid property unto the Administrative Agent, its successors and assigns, for the security and benefit of the Lenders and the Certificate Holders from time to time, and for the uses and purposes and subject to the terms and provisions set forth in the Security Agreement. This Supplement shall be construed as supplemental to the Security Agreement and shall form a part of it, and the Security Agreement is hereby incorporated by reference herein and is hereby ratified, approved and confirmed. AND, FURTHER, the Borrower hereby acknowledges that the delivered Assets referred to in this Supplement and the aforesaid Lease Supplement have been delivered to the Borrower and are included in the property of the Borrower covered by all the terms and conditions of the Trust Agreement, subject to the pledge and mortgage thereof under the Security Agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]. IN WITNESS WHEREOF, the parties thereto have caused this Supplement to be duly executed by one of their respective officers, thereunto duly authorized, on the day and year first above written. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Certificate Trustee under Steelcase Trust No. 2000-1 By:______________________________________ Name:____________________________________ Title:___________________________________ FIRST SECURITY TRUST COMPANY OF NEVADA, as the Administrative Agent for the Lenders and the Certificate Holders By:______________________________________ Name:____________________________________ Title:___________________________________ Accepted and Agreed to: STEELCASE INC. By:____________________________________ Name:__________________________________ Title:_________________________________ EX-4.42 8 k84627exv4w42.txt SECURITY AGREEMENT SUPPLEMENT NO. 1 Exhibit 4.42 SECURITY AGREEMENT SUPPLEMENT NO. 1 (Steelcase Trust No. 2000-1) This SECURITY AGREEMENT SUPPLEMENT NO. 1 (Steelcase Trust No. 2000-1), dated May 26, 2000 (herein called this "Supplement") between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Certificate Trustee (herein called the "Borrower"), under the Steelcase Trust No. 2000-1 and, FIRST SECURITY TRUST COMPANY OF NEVADA, as Administrative Agent (the "Administrative Agent") and is filed with the Federal Aviation Administration ("FAA") as a Supplement to the Security Agreement (defined herein) a counterpart of which is attached hereto and made a part hereof. This Supplement is accepted and agreed to by STEELCASE INC., a Michigan corporation (the "Lessee"). Capitalized terms used herein without definition shall have the meanings set forth in Appendix A to the Participation Agreement as such term is defined in the Security Agreement. WITNESSETH: WHEREAS, the Borrower, the Administrative Agent and the Lessee have entered into that certain Security Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (the "Security Agreement") which provides for the execution and delivery of a supplement thereto substantially in the form hereof, which shall particularly describe the Aircraft constituting part of the Collateral; WHEREAS, the Security Agreement relates to the Related Airframe and Related Engines described below, and a counterpart of the Security Agreement is attached hereto and made a part hereof and this Supplement, together with such counterpart of the Security Agreement, is being filed for recordation on the date hereof with the FAA as one document; NOW, THEREFORE, Borrower and Lessee hereby convey, grant, assign, transfer, hypothecate, mortgage and set over to the Administrative Agent for the benefit of the Secured Parties, a security interest in and lien on all present and future right, title and interest of Borrower or Lessee, in, to and under the following (whether now existing or hereafter acquired) but excluding all Excluded Amounts: AIRCRAFT The following Related Airframe identified as follows:
FAA Registration Manufacturer's Manufacturer Model Number Serial Number - ----------------- ----------- ------------ -------------- Dassault Aviation Falcon 2000 N376SC #24 - ----------------- ----------- ------ ---
together with all Parts from time to time thereto belonging, owned by the Borrower or Lessee and installed in or attached to said Airframe. RELATED ENGINES The following aircraft engines, each such engine having 750 or more rated take-off horsepower or the equivalent thereof, whether or not such engines shall be installed in or attached to its Related Airframe or any other airframe identified as follows:
Airframe FAA Registration Manufacturer's Number Manufacturer Model Serial Number ------- ------------ ----- ------------- ~~N376SC CFE 738-1-1B P105163 CFE 738-1-1B P105160~~
together with all Parts belonging, by whomsoever manufactured, owned by the Borrower or Lessee and installed in or attached to said aircraft engines. Together with all substitutions, renewals and replacements of and additions, improvements, accessions and accumulations to the property above described for which title vests in the Borrower or Lessee under the Operative Documents. As further security for the obligations referred to above and secured by the Security Agreement and hereby, the Borrower and the Lessee hereby confirm that the Lien of the Security Agreement over the Collateral includes the Lease Supplement dated the date hereof and executed by the Lessee covering the property described above. TO HAVE AND TO HOLD all and singular the aforesaid property unto the Administrative Agent, its successors and assigns, for the security and benefit of the Lenders and the Certificate Holders from time to time, and for the uses and purposes and subject to the terms and provisions set forth in the Security Agreement. This Supplement shall be construed as supplemental to the Security Agreement and shall form a part of it, and the Security Agreement is hereby incorporated by reference herein and is hereby ratified, approved and confirmed. AND, FURTHER, the Borrower hereby acknowledges that the delivered Assets referred to in this Supplement and the aforesaid Lease Supplement have been delivered to the Borrower and are included in the property of the Borrower covered by all the terms and conditions of the Trust Agreement, subject to the pledge and mortgage thereof under the Security Agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]. IN WITNESS WHEREOF, the parties thereto have caused this Supplement to be duly executed by one of their respective officers, thereunto duly authorized, on the day and year first above written. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Certificate Trustee under Steelcase Trust No. 2000-1 By: /s/ Val T. Orton -------------------------------------- Name: Val T. Orton Title: Vice President FIRST SECURITY TRUST COMPANY OF NEVADA, as the Administrative Agent for the Lenders and the Certificate Holders By: /s/ Val T. Orton -------------------------------------- Name: Val T. Orton Title: Trust Officer Accepted and Agreed to: STEELCASE INC. By: /s/ Alwyn Rougier-Chapman -------------------------------------------------- Name: Alwyn Rougier-Chapman Title: Sr. VP - Finance and CFO EX-4.43 9 k84627exv4w43.txt SECURITY AGREEMENT SUPPLEMENT NO. 2 Exhibit 4.43 SECURITY AGREEMENT SUPPLEMENT NO. 2 (Steelcase Trust No. 2000-1) This SECURITY AGREEMENT SUPPLEMENT NO. 2 (Steelcase Trust No. 2000-1), dated August 23, 2000 (herein called this "Supplement") between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Certificate Trustee (herein called the "Borrower"), under the Steelcase Trust No. 2000-1 and, FIRST SECURITY TRUST COMPANY OF NEVADA, as Administrative Agent (the "Administrative Agent") and is filed with the Federal Aviation Administration ("FAA") as a Supplement to the Security Agreement (defined herein) a counterpart of which was recorded by the FAA on July 17, 2000 and assigned conveyance number H099652. This Supplement is accepted and agreed to by STEELCASE INC., a Michigan corporation (the "Lessee"). Capitalized terms used herein without definition shall have the meanings set forth in Appendix A to the Participation Agreement as such term is defined in the Security Agreement. WITNESSETH: WHEREAS, the Borrower, the Administrative Agent and the Lessee have entered into that certain Security Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (the "Security Agreement") which provides for the execution and delivery of a supplement thereto substantially in the form hereof, which shall particularly describe the Aircraft constituting part of the Collateral; WHEREAS, the Security Agreement relates to the Related Airframe and Related Engines described below, and a counterpart of the Security Agreement is attached hereto and made a part hereof and this Supplement, together with such counterpart of the Security Agreement, is being filed for recordation on the date hereof with the FAA as one document; NOW, THEREFORE, Borrower and Lessee hereby convey, grant, assign, transfer, hypothecate, mortgage and set over to the Administrative Agent for the benefit of the Secured Parties, a security interest in and lien on all present and future right, title and interest of Borrower or Lessee, in, to and under the following (whether now existing or hereafter acquired) but excluding all Excluded Amounts: AIRCRAFT The following Related Airframe identified as follows:
FAA Registration Manufacturer's Manufacturer Model Number Serial Number - ----------- ----- ------------ -------------- ~~Dassault Falcon 900EX N377C 66~~
together with all Parts from time to time thereto belonging, owned by the Borrower or Lessee and installed in or attached to said Airframe. RELATED ENGINES The following aircraft engines, each such engine having 750 or more rated take-off horsepower or the equivalent thereof, whether or not such engines shall be installed in or attached to its Related Airframe or any other airframe identified as follows:
Related Airframe FAA Registration Manufacturer's Number Manufacturer Model Serial Number - ------------ ------------ ----- -------------- N377SC AlliedSignal TFE 731-60 P112311 N377SC AlliedSignal TFE 731-60 P112312 N377SC AlliedSignal TFE 731-60 P112313
together with all Parts belonging, by whomsoever manufactured, owned by the Borrower or Lessee and installed in or attached to said aircraft engines. Together with all substitutions, renewals and replacements of and additions, improvements, accessions and accumulations to the property above described for which title vests in the Borrower or Lessee under the Operative Documents. As further security for the obligations referred to above and secured by the Security Agreement and hereby, the Borrower and the Lessee hereby confirm that the Lien of the Security Agreement over the Collateral includes the Lease Supplement dated the date hereof and executed by the Lessee covering the property described above and all right, title and interest, now existing or hereafter acquired of the Borrower in and to that certain Purchase Agreement Assignment dated the date hereof and executed by the Lessee, Borrower and Dassault Falcon Jet Corp. TO HAVE AND TO HOLD all and singular the aforesaid property unto the Administrative Agent, its successors and assigns, for the security and benefit of the Lenders and the Certificate Holders from time to time, and for the uses and purposes and subject to the terms and provisions set forth in the Security Agreement. This Supplement shall be construed as supplemental to the Security Agreement and shall form a part of it, and the Security Agreement is hereby incorporated by reference herein and is hereby ratified, approved and confirmed. This Supplement may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. AND, FURTHER, the Borrower hereby acknowledges that the delivered Assets referred to in this Supplement and the aforesaid Lease Supplement have been delivered to the Borrower and are included in the property of the Borrower covered by all the terms and conditions of the Trust Agreement, subject to the pledge and mortgage thereof under the Security Agreement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]. IN WITNESS WHEREOF, the parties thereto have caused this Supplement to be duly executed by one of their respective officers, thereunto duly authorized, on the day and year first above written. FIRST SECURITY BANK, NATIONAL ASSOCIATION, not individually, but solely as the Certificate Trustee under Steelcase Trust No. 2000-1 By: /s/ Val T. Orton -------------------------------------- Name: Val T. Orton Title: Vice President FIRST SECURITY TRUST COMPANY OF NEVADA, as the Administrative Agent for the Lenders and the Certificate Holders By: /s/ Val T. Orton -------------------------------------- Name: Val T. Orton Title: Trust Officer Accepted and Agreed to: STEELCASE INC. By: /s/ Gary P. Malburg ---------------------------------------------- Name: Gary P. Malburg Title: VP - Finance and Treasurer EX-4.44 10 k84627exv4w44.txt NOTICE OF DELIVERY PURSUANT TO SECTION 2.3(B) Exhibit 4.44 NOTICE OF DELIVERY PURSUANT TO Section 2.3(b) of the Participation Agreement (Steelcase Trust No. 2000-1), dated as of May 26, 2000 (as amended and supplemented through the date hereof, the "Participation Agreement") among Steelcase Inc., as lessee ("Lessee"), First Security Bank, National Association (the "Trust Company"), in its individual capacity and as Certificate Trustee (in such capacity, the "Certificate Trustee"), First Security Trust Company of Nevada, as Administrative Agent, Hatteras Funding Corporation, as CP Lender, the persons named on Schedule I of the Participation Agreement, as Certificate Holders, the persons named on Schedule II of the Participation Agreement, as Facility Lenders, and the Bank of America, National Association, as administrator, Lessee hereby provides the Administrative Agent with notice that: 1. the Lessee shall cause the Aircraft set forth on Exhibit A hereto (the "Aircraft") to be delivered to the Certificate Trustee on May 26, 2000 (the "Closing Date"); 2. the Equipment Cost for the Aircraft is $19,000,000; 3. the disbursement of the Equipment Cost to Lessee as payment for the Aircraft delivered on the Closing Date should be wired to Lessee in accordance with the wiring instructions set forth on the attached Exhibit B; 4. the aggregate Equipment Cost to be funded on the Closing Date is $19,000,000.00; 5. the respective amounts of the Commitments required to be funded on the Closing Date with respect to the Aircraft is as follows: (a) $338,887.00 by Banc of America Leasing & Capital, LLC, and $338,887.00 by the Bank of Nova Scotia, as Certificate Holders; (b) $18,322,226.00 by Hatteras Funding Corporation, as CP Lender. 6. Capitalized Terms used herein and not otherwise defined herein have the meanings provided thereto in Appendix A to the Participation Agreement. [Remainder of page intentionally left blank] EXECUTED this 19th day of May, 2000 by: STEELCASE INC. By: /s/ Alwyn Rougier-Chapman ------------------------------------- Its: Senior VP Finance and CFO Name: Alwyn Rougier-Chapman 2 EXHIBIT A DESCRIPTION OF AIRCRAFT One 1996 Dassault Aviation Falcon 2000 aircraft bearing manufacturer's serial number 24 and U.S. Registration No. N376SC with two (2) CFE Model 738-1-1B engines installed thereon, bearing manufacturer's serial numbers P105163 and P105160, respectively, and all logs, manuals and data, and inspection, maintenance, modification and overhaul records as are required to be maintained with respect to such Aircraft pursuant to Section 8 of the Lease. 3 EXHIBIT B WIRING INSTRUCTIONS The Northern Trust Company ABA No.: 071000152 Account No.: 68349 Account Name: Steelcase Inc. 4 EX-4.45 11 k84627exv4w45.txt NOTICE OF DELIVERY PURSUANT TO SECTION 2.3(B) Exhibit 4.45 NOTICE OF DELIVERY PURSUANT TO Section 2.3(b) of the Participation Agreement (Steelcase Trust No. 2000-1), dated as of May 26, 2000 (as amended and supplemented through the date hereof, the "Participation Agreement") among Steelcase Inc., as lessee ("Lessee"), First Security Bank, National Association (the "Trust Company"), in its individual capacity and as Certificate Trustee (in such capacity, the "Certificate Trustee"), First Security Trust Company of Nevada, as Administrative Agent, Hatteras Funding Corporation, as CP Lender, the persons named on Schedule I of the Participation Agreement, as Certificate Holders, the persons named on Schedule II of the Participation Agreement, as Facility Lenders, and the Bank of America, National Association, as administrator, Lessee hereby provides the Administrative Agent with notice that: 1. the Lessee shall cause the Aircraft set forth on Exhibit A hereto (the "Aircraft") to be delivered to the Certificate Trustee on August 23, 2000 (the "Closing Date"); 2. the Equipment Cost for the Aircraft is $32,308,650.00; 3. the disbursement of the Equipment Cost to Steelcase Inc. as payment for the Aircraft delivered on the Closing Date should be wired to Steelcase Inc. in accordance with the wiring instructions set forth on the attached Exhibit B; 4. the aggregate Equipment Cost to be funded on the Closing Date is $32,308,650.00; 5. the respective amounts of the Commitments required to be funded on the Closing Date with respect to the Aircraft is as follows: (a) $576,262.00 by Banc of America Leasing & Capital, LLC, and $576,262.00 by the Bank of Nova Scotia, as Certificate Holders; (b) $31,156,126.00 by Hatteras Funding Corporation, as CP Lender. 6. Capitalized Terms used herein and not otherwise defined herein have the meanings provided thereto in Appendix A to the Participation Agreement. [Remainder of page intentionally left blank] EXECUTED this 17th day of August, 2000 by: STEELCASE INC. By: /s/ Gary P. Malburg ------------------------------------- Its: VP - Finance and Treasurer Name: Gary P. Malburg 2 EXHIBIT A DESCRIPTION OF AIRCRAFT One Dassault Aviation Falcon 900EX aircraft bearing manufacturer's serial number 66 and U.S. Registration No. N377SC three (3) AlliedSignal Model TFE 731-60 engines installed thereon, bearing manufacturer's serial numbers P112311, P112312 and P112313, respectively, and all logs, manuals and data, and inspection, maintenance, modification and overhaul records as are required to be maintained with respect to such Aircraft pursuant to Section 8 of the Lease. 3 EXHIBIT B WIRING INSTRUCTIONS The Northern Trust Company ABA No.: 071000152 Account No.: 68349 Account Name: Steelcase Inc. 4 EX-4.46 12 k84627exv4w46.txt FIRST AMENDMENT TO PARTICIPATION AGREEMENT EXECUTION VERSION EXHIBIT 4.46 FIRST AMENDMENT (STEELCASE TRUST NO. 2000-1) THIS FIRST AMENDMENT TO PARTICIPATION AGREEMENT (Steelcase Trust No. 2000-1) (this "Amendment"), dated as of June 8, 2001, is by and among Steelcase Inc., a Michigan corporation ("Lessee"), Wells Fargo Bank Northwest, N.A. (formerly known as First Security Bank, National Association), a national banking association, not in its individual capacity, but solely as Certificate Trustee ("Certificate Trustee"), First Security Trust Company of Nevada, not in its individual capacity, but solely as Administrative Agent (the "Administrative Agent"), Hatteras Funding Corporation, a Delaware corporation ("CP Lender"), the parties signatory hereto as Certificate Holders (collectively, the "Certificate Holders") and the parties signatory hereto as Facility Lenders (collectively, the "Facility Lenders"). RECITALS WHEREAS, Lessee, Certificate Trustee, Administrative Agent, CP Lender, the persons named on Schedule I thereto, the persons named on Schedule II thereto and Bank of America, National Association, not in its individual capacity but solely as Administrator, are parties to that certain Participation Agreement (Steelcase Trust No. 2000-1) dated as of May 26, 2000 (as amended hereby and as from time to time further amended, restated, supplemented or otherwise modified and in effect, the "Participation Agreement"), pursuant to which Certificate Trustee has purchased the Aircraft and has concurrently leased the Aircraft to Lessee; and WHEREAS, Lessee has requested that the parties to this Amendment amend certain provisions of the Participation Agreement, and the parties hereto are willing to so amend the Participation Agreement pursuant to the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Participation Agreement. 2. Amendment of Participation Agreement. The Participation Agreement is hereby amended as follows: (a) Section 5.1(o). The phrase "Section 5.02(d), (e) and (f)" that appears twice in Section 5.1(o) of the Participation Agreement is hereby deleted in each place in which it appears and replaced in each place with the phrase "Section 5.02(c), (d) and (e)." (b) Section 5.1(p). Section 5.1(p) is hereby deleted in its entirety and replaced with the following new Section 5.1(p): "(p) Liens, Etc. The Lessee will not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien upon or with respect to any of the properties, income or assets of the Lessee or such Subsidiary, whether now owned or hereafter acquired, in each case to secure or provide for the payment of any Debt of any Person, unless the obligations of the Lessee hereunder shall be secured equally and ratably with, or prior to, any such Debt; provided however that the foregoing restriction shall not apply to the following Liens which are permitted: (i) Liens on any property, income or asset of any Subsidiary of the Lessee existing at the time such Person becomes a Subsidiary (other than any such Lien created in contemplation of becoming a Subsidiary); (ii) purchase money Liens upon or in any property or asset acquired or held by the Lessee or any Subsidiary in the ordinary course of business to secure the purchase price of such property or asset or to secure Debt incurred solely for the purpose of financing the acquisition of such property or asset (provided that the amount of Debt secured by such Lien does not exceed 100% of the purchase price of such property and transaction costs relating to such acquisition) and Liens existing on such property or asset at the time of its acquisition (other than any such Lien created in contemplation of such acquisition); and the interest of the lessor thereof in any property that is subject to a Capital Lease; (iii) any Lien securing Debt that was incurred prior to or during construction or improvement of property or within 365 days after the completion of such construction or improvement for the purpose of financing all or part of the cost of such construction or improvement, provided that (A) any such Lien shall extend solely to such property constructed or improved and (B) the amount of Debt secured by such Lien does not exceed 100% of the fair market value of such property after giving effect to such construction or improvement; (iv) any Lien securing Debt that was incurred for the purpose of financing all or part of the manufacturing facility currently under construction in Kent County, Michigan, provided that (A) any such Lien shall extend solely to such facility and the property related thereto and (B) the amount of Debt secured by such Lien does not exceed an amount equal to the lesser of $70,000,000 and 100% of the fair market value of such facility and property after giving effect to completion of such construction; (v) any Lien securing Debt of a Subsidiary owing to the Lessee; (vi) Liens resulting from any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Debt secured by any Lien referred to in clauses (i), (ii), (iii) and (iv) above so long as (x) the aggregate principal amount of such Debt shall not exceed the amount otherwise permitted in clauses (i), (ii), (iii) or (iv), as relevant, as a result of such extension, renewal or replacement and (y) Liens resulting from any such extension, renewal or replacement - 2 - shall cover only such property which secured the Debt that is being extended, renewed or replaced; (vii) Liens on receivables securing Debt of Steelcase Financial Services Inc., a Michigan corporation ("SFSI") or any Subsidiary of SFSI, so long as the obligations of SFSI or such Subsidiary secured by such Liens are nonrecourse to the Lessee or any of its Subsidiaries other than SFSI or such Subsidiary, provided that the Lessee may enter into, and be liable in respect to, a limited performance guaranty regarding the accuracy of any customary representations and warranties made by SFSI or such Subsidiary in respect of such receivables and the billing, monitoring and collection functions of SFSI or such Subsidiary, as servicer, in respect of such receivables, and provided further that at any time, the aggregate outstanding amount of Debt of SFSI and its Subsidiaries that is secured by such receivables does not exceed $500,000,000; (viii) Liens permitted under Section 7 of the Lease; and (ix) Liens other than Liens permitted in clauses (i) through (viii) hereof, whether now existing or hereafter arising, securing Debt in an aggregate amount not exceeding $75,000,000. For purposes of this Section 5.1(p) the following terms have the following meanings: "Capital Lease" means, with respect to any Person, any lease of any property by that Person as lessee which would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person. "Debt" means (i) indebtedness for borrowed money or for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business no more than 60 days past due), (ii) obligations as lessee under Capital Leases, or (iii) obligations under guarantees in respect of indebtedness or in respect of obligations of others of the kinds referred to in clause (i) or (ii) above." (c) Appendix A. The definition of "Credit Agreement" in Appendix A to the Participation Agreement is hereby deleted in its entirety and replaced with the following definition: "Credit Agreement" means that certain Credit Agreement (Long Term Multicurrency Revolving Credit Facility) dated as of April 5, 2001 among Lessee, the banks named therein as Lenders and Citicorp USA, Inc., as administrative agent." 3. Representations and Warranties of Lessee. In order to induce the parties hereto to enter into this Amendment, Lessee hereby represents and warrants to the parties hereto that: - 3 - (a) Power; Authority. It is validly existing under the laws of the State of Michigan; it has the power and authority to enter into this Amendment; and this Amendment constitutes its legal, valid and binding obligations and is enforceable against it in accordance with its terms. (b) No Default. After giving effect to this Amendment, no Event of Default shall have occurred and be continuing. 4. Ratification. Except as specifically amended hereby, each of the Participation Agreement and the other Operative Documents shall remain unchanged and continue in full force and effect. After the execution of this Amendment by the Lessee, the Certificate Trustee and the Required Participants, any reference to the Participation Agreement (including Appendix A thereto) in any Operative Document shall be to the Participation Agreement, as amended hereby. 5. Release. In consideration of entering into this Amendment, except with respect to obligations expressly set forth in the Operative Documents, the Lessee releases the other parties hereto and each of their respective Affiliates, Subsidiaries, officers, employees, representatives, agents, counsel and directors from any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the foregoing arises from any action or failure to act with respect to this Amendment or any other Operative Document, on or prior to the date hereof. 6. Miscellaneous. (a) Successors and Assigns. This Amendment shall be binding upon and shall be enforceable by the parties hereto and their respective permitted successors and assigns. The terms and provisions of this Amendment are for the purpose of defining the relative rights and obligations of Lessee, Certificate Trustee and the Required Participants with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Amendment. (b) Entire Agreement. This Amendment and all documents referred to herein constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede any prior expressions of intent or understandings with respect to this Amendment. (d) Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. (e) Severability. Wherever possible, each provision of this Amendment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under applicable - 4 - law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment. (g) Counterparts. This Amendment may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment. (h) Direction. The Certificate Holders hereby direct the Certificate Trustee and the Facility Lenders hereby direct the Administrative Agent to enter into this Amendment. [signature pages follow] - 5 - IN WITNESS WHEREOF, this First Amendment to Participation Agreement has been duly executed as of the date first written above. STEELCASE INC., as Lessee By: /s/ Gary P. Malburg --------------------------------------- Name: Gary P. Malburg Title: VP, Finance and Treasurer WELLS FARGO BANK NORTHWEST, N.A., not in its individual capacity but solely as Certificate Trustee By: /s/ Val T. Orton --------------------------------------- Name: Val T. Orton Title: Vice President FIRST SECURITY TRUST COMPANY OF NEVADA, not in its individual capacity but solely as Administrative Agent By: /s/ Val T. Orton --------------------------------------- Name: Val T. Orton Title: Trust Officer HATTERAS FUNDING CORPORATION, as CP Lender By: /s/ Chris T. Burt --------------------------------------- Name: Chris T. Burt Title: Vice President [First Amendment to Participation Agreement] BANC OF AMERICA LEASING & CAPITAL, LLC, as a Certificate Holder By: /s/ Albert Z. Nofona --------------------------------------- Name: Albert Z. Nofona Title: Vice President SCOTIABANC INC., as a Certificate Holder By: /s/ William E. Zarrett --------------------------------------- Name: William E. Zarrett Title: Managing Director BANK OF AMERICA, NATIONAL ASSOCIATION, as a Facility Lender By: /s/ Robert Mauriello --------------------------------------- Name: Robert Mauriello Title: Vice President OLD KENT BANK, as a Facility Lender By: /s/ Seth W. Watson III --------------------------------------- Name: Seth W. Watson III Title: Vice President THE NORTHERN TRUST COMPANY, as a Facility Lender By: --------------------------------------- Name: Title: [First Amendment to Participation Agreement] THE BANK OF NOVA SCOTIA, as a Facility Lender By: /s/ William E. Zarrett --------------------------------------- Name: William E. Zarrett Title: Managing Director [First Amendment to Participation Agreement] EX-10.23 13 k84627exv10w23.txt 2004-2 AMENDMENT TO THE STEELCASE BENEFIT PLAN Exhibit 10.23 2004-2 AMENDMENT TO THE STEELCASE BENEFIT PLAN FOR OUTSIDE DIRECTORS (EFFECTIVE AS OF MARCH 1, 1999) This 2004-2 Amendment to the STEELCASE BENEFIT PLAN FOR OUTSIDE DIRECTORS ("Plan") is adopted by STEELCASE INC. to be effective as of March 1, 2004. Pursuant to Section 1.3 of the Plan, Steelcase Inc. amends the Plan as follows: A. Section 1.5(bb) is amended as follows: (bb) NURSE PRACTITIONER: A person who is licensed or certified to practice as a nurse practitioner and fulfills all of the following requirements: (i) The person is licensed by a board of nursing as a registered nurse; (ii) The person has completed a program approved by the state for the preparation of nurse practitioners; and (iii) The person is working under the direct supervision of a Physician. Nurse Practitioners are payable on the same Eligible Expenses as given by a Physician. B. Article VI is amended as follows: ARTICLE VI PLAN'S RIGHT TO REIMBURSEMENT AND SUBROGATION RIGHT 6.1 PLAN'S RIGHT TO REIMBURSEMENT. If the Plan pays benefits and another party (other than the Participant or the Plan) is or may be liable for the expenses, the Plan has a right of reimbursement which entitles it to recover from the Participant or another party 100% of the amount of benefits paid by the Plan to or on behalf of the Participant. The Plan's right to 100% reimbursement applies: (a) Not only to any recovery the Participant receives or is entitled to receive from the other party but also to any recovery the Participant receives or is entitled to receive from the other party's insurer or a plan under which the other party has coverage. (b) To any recovery from the Participant's own insurance policy, including, but not limited to, coverage under any uninsured or underinsured policy provisions. (c) Even if the other party is not found to be legally at fault for causing the Participant to incur the expenses paid or payable by the Plan. (d) Even if the damages recovered or recoverable from the other party, its insurer or plan or the Participant's policy are not for the same charges or types of losses and damages as those for which benefits were paid by the Plan. (e) To any full or partial recovery, regardless whether the recovery fully compensates the Participant for his Injuries and regardless whether the Participant is made whole by the recovery. (f) To the entire amount of the recovery. The Plan disavows any obligation to pay all or any portion of the Participant's attorneys fees or costs in obtaining the recovery. 6.2 PLAN'S SUBROGATION RIGHT TO INITIATE LEGAL ACTION. If a Participant does not bring an action against the other party who caused the need for benefits paid by the Plan within a reasonable period of time after the claim arises, the Plan shall have the right to bring an action against the other party to enforce and protect its right to reimbursement as described in this Article. In this circumstance, the Plan shall be responsible for its own attorneys' fees. 6.3 COOPERATION OF PARTICIPANT. A Participant shall do whatever is necessary and shall cooperate fully to secure the rights of the Plan described in this Article. This includes assigning the Participant's rights against any other party to the Plan and executing any other legal documents that may be required by the Plan. -2- 6.4 PLAN'S RIGHT TO WITHHOLD PAYMENT. The Plan may withhold payment of benefits when it appears that a party other than the Participant or the Plan may be liable for the expenses until such liability is legally determined. Further, as a pre-condition to paying benefits when it appears that the need for the benefits paid by the Plan was caused by another party, the Plan may withhold the payment of benefits until the Participant signs an agreement furnished by the Plan Administrator setting forth the Plan's right to reimbursement and subrogation right. 6.5 PRECONDITIONS TO PARTICIPATION AND THE RECEIPT OF BENEFITS. All of the following rules are preconditions to an individual's participation in the Plan and the receipt of Plan benefits: (a) The Participant agrees not to raise any make-whole, common fund or other apportionment claim or defense to any action or case involving reimbursement or subrogation in connection with the Plan, and acknowledges that the Plan expressly disavows such claims or defenses. (b) The Participant agrees not to raise any ERISA jurisdictional or procedural issue which would defeat the Plan's claim to reimbursement or subrogation in connection with the Plan. (c) The Participant specifically acknowledges the Plan's fiduciary right to bring an equitable reimbursement recovery action under Section 502 of ERISA should the Participant obtain or be entitled to obtain a recovery from another party who is or may be liable for the expenses paid by the Plan. In connection with such an action, the Participant agrees that the Plan shall have a constructive trust over (1) any recovery obtained or sought by the Participant; (2) any real or personal property purchased with any such recovery; and/or (3) any real or personal property owned by the Participant of equal value to any such recovery. (d) The Participant specifically recognizes that the Plan has the right to intervene in any third party action to enforce its reimbursement rights. The Participant consents to such intervention. (e) The Participant specifically agrees that the Plan has the right to obtain injunctive relief prohibiting the Participant from accepting or receiving any settlement or other recovery related to the expenses paid by the Plan until the Plan's right to reimbursement is fully satisfied. The Participant consents to such injunctive relief. -3- 6.6 NOTICE AND SETTLEMENT OF CLAIM. A Participant shall give the Plan Administrator written notice of any claim against another party as soon as the Participant becomes aware that he may recover damages from another party. A Participant shall be deemed to be aware that he may recover damages from another party upon the earliest of the following events: (a) The date the Participant retains an attorney in connection with the claim; and (b) The date a written notice of the claim is presented to another party or the other party's insurer or attorney by the Participant or the Participant's insurer or attorney. A Participant shall not compromise or settle any claim against another party without the prior written consent of the Plan Administrator. If a Participant fails to provide the Plan Administrator with written notice of a claim as required in this Section or if a Participant compromises or settles a claim without prior written consent as required in this Section, the Plan Administrator shall deem the Participant to have committed fraud or misrepresentation in a claim for benefits and accordingly, shall terminate the Participant's participation in the Plan. C. The Deductible in Section 8.2 shall be increased from $200 (as revised by the 2003-1 Amendment) to $250. D. Section 8.4(d) is amended as follows: (d) CHIROPRACTIC TREATMENT. Charges for chiropractic services are reimbursed at 60%, up to a maximum benefit of $625 per Participant per Plan Year (See Section 8.7(q)). E. Subsections (d), (h), (i), (p), (q) and (s) of Section 8.7 are amended as follows: (d) NURSING AND THERAPY. Charges made by a registered nurse, Nurse Practitioner, licensed practical nurse or physical, occupational, or speech therapist for nursing care or treatment, including cardiac rehabilitation. Coverage is for medical restorative purposes only and not for learning disabilities. -4- (i) For physical therapy, Developmental Treatment and sports-related training is not eligible. (ii) For occupational therapy, Developmental Treatment and cognitive treatment is not eligible. (iii) For speech therapy, Developmental Treatment and cognitive treatment is not eligible. (H) MISCELLANEOUS. Charges for the following services and supplies: (i) X ray examinations, and microscopic laboratory tests; (ii) Anesthesia, oxygen and their administration; (iii) X ray and radioactive isotope therapy; (iv) Drugs and medicines dispensed by a Physician; (v) Blood, blood derivatives and their administration; (vi) Casts, splints, trusses, braces, crutches, surgical dressings, ostomy supplies and initial artificial limbs or eyes; (vii) Repair and adjustment of artificial limbs and braces where the repair or adjustment is due to wear and tear, accident, or when Medically Necessary; (viii) Replacement of artificial limbs or braces subject to the following conditions: (A) The replacement must be due to wear and tear or accident and the device is beyond repair, or replacement is Medically Necessary; (B) The replacement device must be the same as or equivalent to the device being replaced; and (C) The device shall be replaced only once per Plan Year; (ix) Surgically implanted internal prosthetic devices and special appliances/devices that are worn externally, when the appliances or devices temporarily or permanently replace all or part of the functions of an inoperative or malfunctioning body organ, or an external body part, lost, weakened or deformed as a result of an Illness or Injury. When an appliance or device is covered, the -5- Plan shall repair or replace it if that need arises because of normal growth or normal wear and tear. Coverage is for standard prosthetics and orthotic/support devices only. (x) Rental (or purchase, if economically justified), of non life sustaining equipment such as a wheelchair, hospital type bed, and equipment for the administration of oxygen. Wheelchairs are covered if the patient's condition would otherwise cause them to be bed or chair-confined. An electric wheelchair is covered if the patient is unable to operate a wheelchair manually; (xi) Charges for kidney, dialysis and other similar treatment; (xii) Charges for chemotherapy and anesthetics; and (xiii) Charges for allergy testing, evaluations and injections, including serum costs to the extent not covered under the Prescription Drug program (see subsection (u)). (i) MENTAL OR NERVOUS DISORDERS. Charges for the treatment of a Mental or Nervous Disorder, where services are rendered on an inpatient, partial hospitalization or outpatient basis, subject to the special Deductible, Copayment and maximum benefit rules described in Section 8.4. Treatment which is precertified and case managed by the URP, is an Eligible Expense if the Participant is treated by one of the following: (i) An individual certified or licensed as a social worker by appropriate governmental authority where such person renders services; (ii) A Nurse Practitioner with a master's degree in psychiatric nursing; or (iii) A clinical psychologist who is licensed and certified as a psychologist by the appropriate governmental authority where such person renders service. Charges for the outpatient treatment of a Mental or Nervous Disorder may also include intensive outpatient treatment and home care provided by a psychiatric mental health nurse who has experience in the field of psych/mental health, medical/surgical nursing and home care, working under the direction of a Physician. Charges for non-medical services (other than marital or family counseling) are not covered. Charges related to long-term therapy are not covered. The Plan Administrator or its agent or contractor reserves the right to determine the original or continuing eligibility of expenses for the treatment of Mental or Nervous Disorders. Such determination shall be made by a Physician or consulting psychologist of the Company's choice. Failure of the Participant to agree to such an -6- examination shall result in termination or denial of his or her claim for the treatment of Mental or Nervous Disorders. Services not case-managed by the URP shall be paid at a reduced rate. (p) PREVENTIVE CARE. 100% of the Reasonable and Customary Charge (no Deductible or Copayment shall apply) for preventive testing expenses (minus a diagnosis) for health risk appraisals, physical exams, immunizations, blood pressure readings, blood chemistry, EKG testing, hemocults, pap smears, mammography screenings (once per Plan Year for women age 35 and over), sigmoidoscopies, colonoscopies, PSA testing, prostate exams, and laboratory services, up to a Plan Year total of $500 in Eligible Expenses per person. Any cancer screening tests recommended by the American Cancer Society will be a covered preventive care benefit in the frequency recommended by the American Cancer Society (unless the Plan specifies a more generous frequency). Services over $500 per Participant per Plan Year shall not be considered for payment. If a new diagnosis is found as a result of a wellness physical exam, the eligible charges shall be paid at the preventive care level. (q) CHIROPRACTIC EXPENSES. Chiropractic expenses are payable at 60%, subject to a limit of $625 per Participant per Plan Year, for the detection and correction, by manual or mechanical means (including incidental x-rays) of a structural imbalance, distortion or subluxation for the removal of nerve interference where such interference is the result of or related to distortions or subluxations of misalignment of the vertebrae column. Care is not to be used in conjunction with physical or occupational therapy, Chronic Treatment or Preventive Care. (s) INFERTILITY EXPENSES. Tests or procedures to diagnose the cause of infertility are Medically Necessary as are drug therapy and Surgical Procedures to treat the cause of infertility. Covered services include the following: (i) DIAGNOSTIC WORK-UP FOR FEMALES: (A) Antibody testing; (B) Laparoscopy/hysteroscopy; (C) Hysterosalpingram; (D) Serology; and (E) Other miscellaneous laboratory services. (ii) DIAGNOSTIC WORK-UP FOR MALES: (A) Same laboratory tests as females; (B) Semen analysis; -7- (C) Sperm count; and (D) Post coital test. (iii) COVERED SURGICAL PROCEDURES: (A) Tuboplasty, except to reverse previous voluntary sterilization; (B) Salpingoplasty, except to reverse previous voluntary sterilization; (C) Surgical correction of a congenital deformity of the reproductive system; and (D) Cervical cerclage. Drug therapy is covered for four cycles and if pregnancy has not occurred, additional medical documentation must be provided before allowing ongoing treatment. This consists of office notes during the past four cycles, lab values (including FSH and LH) and ultrasound results. Fertility drugs are only covered if obtained through the mail-order program (see subsection (u)). F. Section 8.7(u), as most recently amended by the 2003-1 Amendment, is amended as follows: (u) PRESCRIPTION DRUGS. If specifically indicated in an Appendix, prescription drugs shall constitute an Eligible Expense under the medical options and the normal Deductible and Copayment rules shall apply. Otherwise, a Participant may only fill orders and refills for prescription drugs through the prescription drug card program. Under the prescription drug card program, the Plan shall pay 100% of the Reasonable and Customary Charge, in excess of the prescription Copayment amount, for each prescription or refill of a prescription drug pursuant to the Company's mail-order and retail pharmacy options. For this purpose, except as specifically indicated in an Appendix, the prescription Copayment amount is as follows: -8- Mail-order copay (for supply of $30 per generic drug three months or more) $60 per formulary brand-name drug $90 per non-formulary brand-name drug Participating retail pharmacy copay $15 per generic drug (for supply of 30 days or less) $30 per formulary brand-name drug $45 per non-formulary brand-name drug Further, the prescription drug provider (i.e., the mail-order program or participating retail pharmacy) shall be directed to dispense generic drugs whenever possible. If an equivalent generic is unavailable, the prescription drug provider shall be directed to dispense a formulary brand-name drug whenever possible (i.e., an equivalent formulary brand-name drug is available). The only exception to this general rule is if the Physician's order for the prescription drug specifies a non-formulary brand-name drug where a generic or formulary brand-name drug is available or specifies a formulary brand-name where a generic drug is available. This is known as the "dispensed as written" or DAW prescription order rule. If the Physician's order is not labeled DAW and the Participant requests that a formulary or non-formulary brand-name drug be dispensed when an equivalent lesser cost generic prescription drug is available, the Participant must pay the difference in cost between the brand-name prescription drug ordered and the generic equivalent prescription drug, in addition to the generic prescription Copayment amount. G. A new subsection (w) is added to Section 8.7 to read as follows: (w) DIABETES. The following treatment for diabetes, to the extent not covered under the Prescription Drug Benefit (see subsection (u)): (i) Blood glucose monitors, including monitors for the legally blind; (ii) Test strips for glucose monitors, visual reading and urine testing strips, lancets and spring powered lancet devices; (iii) Mechanical injection aids; (iv) Cartridges for the legally blind; (v) Syringes; (vi) Insulin pumps and related appurtenances; (vii) Insulin infusion devices; -9- (viii) Oral agents for controlled blood sugar and other medications if filled by a pharmacist; (ix) Diabetes self-management training, including information on medical nutrition therapy; (x) Medications prescribed by a podiatrist used in the treatment of foot ailments, infections and other medical conditions of the foot, ankle or nails associated with diabetes; and (xi) Diabetes self-management training provided by a podiatrist to insure that persons with diabetes are trained as to the proper self-management and treatment of their diabetic condition related to conditions of the foot, ankle, and nails attributable to diabetes. H. Sections (a) and (i) of Article IX are amended as follows: (a) Services or supplies received as a result of an act of declared or undeclared war (including resistance to armed aggression) occurring while a Participant. This exclusion shall not apply to acts of terrorism and shall only apply where the Participant is serving in the military forces of the U.S.A. or another federal government. (i) Charges for cosmetic care, custodial care, Maintenance Treatment or experimental care. However, charges for reconstructive surgery to correct a congenital birth defect or the effects of any Illness or Injury shall be eligible for coverage. I. In all other respects, the Plan shall be unchanged. IN WITNESS OF WHICH, Steelcase Inc. has executed this 2004-2 Amendment to the Plan. STEELCASE INC. Dated: February 4, 2004 By /s/ Nancy W. Hickey ----------------------------------------- Its Sr. Vice President, Global Strategic Resources & Chief Administrative Officer -10- EX-21.1 14 k84627exv21w1.txt SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT 1. Steelcase Canada, Ltd., a Canadian corporation 2. Office Details Inc., a Michigan corporation 3. Steelcase SAS, a French "simplified" corporation 4. Steelcase S.A., a French corporation 5. AF Steelcase S.A., a Spanish corporation EX-23.1 15 k84627exv23w1.txt CONSENT OF BDO SEIDMAN, LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements for the Company's Steelcase Inc. Deferred Compensation Plan (Registration No. 333-84689), Steelcase Inc. 401(k) Retirement Plan (Registration No. 333-84251), Steelcase Inc. Incentive Compensation Plan (Registration No. 333-46711), Steelcase Inc. Employee Stock Purchase Plan (Registration No. 333-46713) and Steelcase Inc. Public Debt Offering (Registration No. 333-83264) of our report dated March 26, 2004 relating to the consolidated financial statements and schedule, which appears in this Form 10-K. BDO SEIDMAN, LLP GRAND RAPIDS, MICHIGAN MAY 6, 2004 EX-31.1 16 k84627exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER SARBANES - OXLEY ACT SECTION 302 I, James P. Hackett, President and Chief Executive Officer of Steelcase Inc., certify that: 1) I have reviewed this annual report on Form 10-K of Steelcase Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ JAMES P. HACKETT -------------------- Name: James P. Hackett Title: President and Chief Executive Officer May 6, 2004 EX-31.2 17 k84627exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER SARBANES - OXLEY ACT SECTION 302 I, James P. Keane, Senior Vice President, Chief Financial Officer of Steelcase Inc., certify that: 1) I have reviewed this annual report on Form 10-K of Steelcase Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ JAMES P. KEANE ------------------ Name: James P. Keane Title: Senior Vice President, Chief Financial Officer May 6, 2004 EX-32.1 18 k84627exv32w1.txt CERTIFICATION OF CEO AND CFO PURSUANT TO SEC. 906 EXHIBIT 32.1 CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Steelcase Inc. (the "Company") for the year ended February 27, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), James P. Hackett, as Chief Executive Officer of the Company, and James P. Keane, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxLEy Act of 2002, that, based on his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ JAMES P. HACKETT -------------------- Name: James P. Hackett Title: President and Chief Executive Officer May 6, 2004 /s/ JAMES P. KEANE ------------------ Name: James P. Keane Title: Senior Vice President, Chief Financial Officer May 6, 2004 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----


Michigan (State of incorporation)		38-0819050 (IRS employer identification number)

901 44th Street SE Grand Rapids, Michigan (Address of principal executive offices)		49508 (Zip Code)




				Page No.


	Part I
		Item 1.	Business		1
		Item 2.	Properties		9
		Item 3.	Legal Proceedings		9
		Item 4.	Submission of Matters to a Vote of Security Holders		10
	Part II
		Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		10
		Item 6.	Selected Financial Data		12
		Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
		Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		33
		Item 8.	Financial Statements and Supplementary Data		35
		Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		92
		Item 9A.	Controls and Procedures		92
	Part III
		Item 10.	Directors and Executive Officers of the Registrant		92
		Item 11.	Executive Compensation		94
		Item 12.	Security Ownership of Certain Beneficial Owners and Management		94
		Item 13.	Certain Relationships and Related Transactions		94
		Item 14.	Principal Accounting Fees and Services		95
	Part IV
		Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		95
Signatures					97
Schedule II					S-1
Index of Exhibits					E-1
Master Aircraft Lease Agreement
Lease Supplement and Acceptance Certificate No. 1
Lease Supplement and Acceptance Certificate No. 2
Participation Agreement
Appendix A to Participation Agreement
Security Agreement dated as of May 26, 2000
Security Agreement Supplement No. 1
Security Agreement Supplement No. 2
Notice of Delivery pursuant to Section 2.3(b)
Notice of Delivery pursuant to Section 2.3(b)
First Amendment to Participation Agreement
2004-2 Amendment to the Steelcase Benefit Plan
Subsidiaries
Consent of BDO Seidman, LLP
Certification of CEO pursuant to Section 302
Certification of CFO pursuant to Section 302
Certification of CEO and CFO pursuant to Sec. 906




		First		Second		Third		Fourth
Class A Common Stock End of Day Per Share Price Range		Quarter		Quarter		Quarter		Quarter


Fiscal 2004
	High	$	10.58	$	12.43	$	13.55	$	14.50
	Low	$	8.64	$	10.60	$	11.23	$	12.84

Fiscal 2003
	High	$	17.65	$	16.10	$	13.80	$	11.27
	Low	$	15.02	$	12.39	$	8.55	$	8.96





Total Dividends Paid


2004	$	35.5
2003	$	35.4




		February 27,			February 28,			February 22,			February 23,			February 25,
Financial Highlights		2004			2003 (1)			2002			2001			2000 (2)


Operating Results
Revenue		$	2,345.6		$	2,529.9		$	3,038.3		$	3,989.2		$	3,401.0
Revenue increase (decrease)			(7.3	)%		(16.7	)%		(23.8	)%		17.3	%		21.7	%
Gross profit		$	615.3		$	728.1		$	918.2		$	1,295.2		$	1,103.7
Gross profit— % of revenue			26.2	%		28.8	%		30.2	%		32.5	%		32.5	%
Income (loss) from continuing operations before income tax benefit		$	(92.0	)	$	(65.6	)	$	(5.3	)	$	301.0		$	298.9
Income (loss) from continuing operations before income tax benefit— % of revenue			(3.9	)%		(2.6	)%		(0.2	)%		7.5	%		8.8	%
Income (loss) from continuing operations after income tax benefit		$	(41.4	)	$	(40.9	)	$	(2.1	)	$	191.5		$	183.7
Income (loss) from continuing operations after income tax benefit— % of revenue			(1.8	)%		(1.6	)%		(0.1	)%		4.8	%		5.4	%
Income and gain from discontinued operations(3)		$	22.4		$	4.7		$	3.1		$	2.2		$	0.5
Cumulative effect of accounting change(4)		$	(4.2	)	$	(229.9	)		—			—			—
Net income (loss)		$	(23.2	)	$	(266.1	)	$	1.0		$	193.7		$	184.2
Net income (loss)— % of revenue			(1.0	)%		(10.5	)%		0.0	%		4.9	%		5.4	%
Share and Per Share Data
Earning (loss) from continuing operations— basic and diluted		$	(0.28	)	$	(0.28	)	$	(0.01	)	$	1.28		$	1.20
Income and gain from discontinued operations:
	Basic	$	0.15		$	0.04		$	0.02		$	0.02		$	0.01
	Diluted	$	0.15		$	0.04		$	0.02		$	0.01		$	0.01
Cumulative effect of accounting change— basic and diluted		$	(0.03	)	$	(1.56	)		—			—			—
Earnings (loss):
	Basic	$	(0.16	)	$	(1.80	)	$	0.01		$	1.30		$	1.21
	Diluted	$	(0.16	)	$	(1.80	)	$	0.01		$	1.29		$	1.21
Dividends declared— common stock		$	0.24		$	0.24		$	0.39		$	0.44		$	0.44
Financial Condition
Working capital		$	398.7		$	334.3		$	208.9		$	319.8		$	200.1
Total assets		$	2,350.4		$	2,350.6		$	2,967.5		$	3,157.0		$	3,037.6
Long-term debt		$	319.6		$	294.2		$	433.6		$	327.5		$	257.8




Title of each class		Name of each exchange on which registered


Class A Common Stock		New York Stock Exchange


Item 4.	Submission of Matters to a Vote of Security Holders:


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:


(1)	The fiscal year ended February 28, 2003 contained 53 weeks. All other years shown contained 52 weeks.


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations:





	Year Ended



Income Statement Data —
Consolidated	February 27,					February 28, 2003					February 22,
	2004					(1)					2002


Revenue	$	2,345.6		100.0	%	$	2,529.9		100.0	%	$	3,038.3		100.0	%
Cost of sales		1,688.0		72.0			1,785.3		70.6			2,090.3		68.8
Restructuring costs		42.3		1.8			16.5		0.6			29.8		1.0

Gross profit		615.3		26.2			728.1		28.8			918.2		30.2
Operating expenses		677.6		28.9			744.5		29.4			883.2		29.1
Restructuring costs		11.2		0.4			44.7		1.8			20.5		0.6

Operating income (loss)		(73.5	)	(3.1	)		(61.1	)	(2.4	)		14.5		0.5
Non-operating items, net		(18.5	)	(0.8	)		(4.5	)	(0.2	)		(19.8	)	(0.7	)

Loss from continuing operations before income tax benefit		(92.0	)	(3.9	)		(65.6	)	(2.6	)		(5.3	)	(0.2	)
Income tax benefit		(50.6	)	(2.1	)		(24.7	)	(1.0	)		(3.2	)	(0.1	)

Loss from continuing operations		(41.4	)	(1.8	)		(40.9	)	(1.6	)		(2.1	)	(0.1	)
Discontinued operations, net		22.4		1.0			4.7		0.2			3.1		0.1

Income (loss) before cumulative effect of accounting change		(19.0	)	(0.8	)		(36.2	)	(1.4	)		1.0		—
Cumulative effect of accounting change		(4.2	)	(0.2	)		(229.9	)	(9.1	)		—		—

Net income (loss)	$	(23.2	)	(1.0	)%	$	(266.1	)	(10.5	)%	$	1.0		0.0	%





	Year Ended




Income Statement Data—North America	February 27, 2004					February 28, 2003					February 22, 2002



Revenue	$	1,280.4		100.0	%	$	1,497.9		100.0	%	$	1,930.0	100.0	%
Cost of sales		981.2		76.6			1,121.2		74.9			1,408.6	73.0
Restructuring costs		21.6		1.7			9.2		0.6			19.0	1.0

Gross profit		277.6		21.7			367.5		24.5			502.4	26.0
Operating expenses		319.1		24.9			360.4		24.1			440.1	22.8
Restructuring costs		5.4		0.4			26.2		1.7			10.7	0.5

Operating income (loss)	$	(46.9	)	(3.6	)%	$	(19.1	)	(1.3	)%	$	51.6	2.7	%





	Payments Due by Period


			Less than		1-3		3-5		After 5
Contractual Obligations	Total		1 Year		Years		Years		Years


Long-term debt and short-term borrowings	$	354.0	$	34.4	$	318.2	$	1.4	$	—
Operating leases		284.3		49.5		76.7		47.8		110.3
Committed capital expenditures		24.2		7.9		16.3		—		—
Purchase obligations		5.2		3.4		1.8		—		—
Other long-term liabilities		256.8		51.5		42.4		43.3		119.6

Total	$	924.5	$	146.7	$	455.4	$	92.5	$	229.9




		Amount


Global committed bank facility		$	250.0
Various uncommitted lines			130.3

	Total credit lines available		380.3
Less: borrowings outstanding			8.6

Available capacity (subject to covenant constraints)		$	371.7


	*Impairment of Goodwill, Other Intangible Assets and Long-Lived Assets*


Item 1.	Business:


	*North America Segment*


	*Steelcase Design Partnership Segment*


	*International Segment*




	Discounted		Market
	Cash Flow		Value
Reporting Unit	Valuation		Approach


North America	$	478.2	$	560.2
Steelcase Design Partnership		144.8		141.8
International		93.6		93.6
PolyVision		27.7		n/a	(1)
IDEO		2.6		n/a	(1)


(1)	The MVA was not calculated for PolyVision or IDEO as there is no comparable market data available to make these calculations meaningful.


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk:





							Accumulated Other Comprehensive
	Common Stock						Income (Loss)



							Foreign												Deferred
							Currency			Minimum			Derivative						Compensation—			Total
							Translation			Pension			Adjustments,			Retained			Restricted			Shareholders’
	Class A			Class B			Adjustments			Liability			net of tax			Earnings			Stock			Equity


February 23, 2001	$	69.5		$	216.7		$	(30.2	)	$	0.2		$	—		$	1,380.3		$	—		$	1,636.5
Common stock conversion		7.7			(7.7	)																	—
Common stock issuance		0.5																					0.5
Common stock repurchases		(2.6	)		(1.8	)																	(4.4	)
Other comprehensive loss								(9.4	)					(8.0	)								(17.4	)
Dividends paid																	(57.5	)					(57.5	)
Subsidiaries’ year end change(1)																	(3.2	)					(3.2	)
Net income																	1.0						1.0

February 22, 2002		75.1			207.2			(39.6	)		0.2			(8.0	)		1,320.6			—			1,555.5
Common stock conversion		14.7			(14.7	)																	—
Common stock issuance		3.8																					3.8
Other comprehensive income (loss)								(0.7	)		(6.7	)		4.7									(2.7	)
Dividends paid																	(35.4	)					(35.4	)
Net loss																	(266.1	)					(266.1	)

February 28, 2003		93.6			192.5			(40.3	)		(6.5	)		(3.3	)		1,019.1			—			1,255.1
Common stock conversion		25.9			(25.9	)																	—
Common stock issuance		1.6																					1.6
Issuance of restricted stock		2.1																		(2.1	)		—
Amortization of deferred compensation																				0.7			0.7
Other comprehensive income (loss)								6.6			(0.6	)		0.6									6.6
Dividends paid																	(35.5	)					(35.5	)
Net loss																	(23.2	)					(23.2	)

February 27, 2004	$	123.2		$	166.6		$	(33.7	)	$	(7.1	)	$	(2.7	)	$	960.4		$	(1.4	)	$	1,205.3


(1)	Net loss for the two-month period ended February 23, 2001 was $3.2. Revenue for the same period was $102.0 (see Note 2).




Fiscal Year	Year-end Date		Number of weeks


2004		February 27		52
2003		February 28		53	(1)
2002		February 22		52


(1)	Quarters 1 through 3 contained 13 weeks while quarter 4 contained 14 weeks.




	February 27,			February 28,
Product Warranty	2004			2003


Balance at beginning of period	$	26.0		$	26.0
Accruals for warranty charges		8.5			8.4
Settlements/adjustments		(13.6	)		(8.4	)

Balance at end of period	$	20.9		$	26.0


(1)	The denominator for basic EPS is used for calculating EPS for all years presented because potentially dilutive shares and diluted EPS are not applicable when a loss from continuing operations is reported.




	February 27,			February 28,
Inventories	2004			2003


Finished goods	$	58.3		$	63.1
Work in process		29.7			27.4
Raw materials		51.7			72.9

		139.7			163.4
LIFO reserve		(25.3	)		(33.6	)

	$	114.4		$	129.8




	Estimated
	Useful Lives		February 27,			February 28,
Property and Equipment	(Years)		2004			2003


Land		—	$	62.0		$	66.2
Buildings and improvements		10 – 50		736.1			737.2
Machinery and equipment		3 – 15		1,151.9			1,222.0
Furniture and fixtures		5 – 8		90.5			96.4
Leasehold improvements		3 – 10		68.1			62.9
Capitalized software		3 – 10		126.7			119.8
Construction in progress		—		17.3			22.9

				2,252.6			2,327.4
Accumulated depreciation and amortization				(1,538.8	)		(1,553.4	)

			$	713.8		$	774.0




		February 27,			February 28,
Notes Receivable		2004			2003


Notes receivable:
	Project financing	$	10.6		$	8.2
	Asset-based lending		31.2			26.9
	Term financing		30.5			45.6
	Other		15.8			10.7
	Allowance for losses		(17.9	)		(20.3	)

			70.2			71.1
Current portion			51.5			47.1

Long-term portion		$	18.7		$	24.0


(1)	Other adjustments relate to the consolidation of eight dealers as of February 27, 2004. See Note 2.




Year ending February	Amount


2005	$	66.4
2006		5.3
2007		7.9
2008		7.4
2009		0.1
Thereafter		1.0

	$	88.1




		February 27,			February 28,
Investment in Leases		2004			2003


Direct financing leases:
	Minimum lease payments receivable	$	62.4		$	137.5
	Estimated residual value		22.4			25.1
	Unearned revenue		(10.8	)		(24.6	)

Total direct financing leases			74.0			138.0

Operating leases:
	Operating lease assets		16.0			31.4
	Accumulated depreciation		(11.2	)		(17.7	)

	Net operating leases		4.8			13.7

Total net investment in leases			78.8			151.7
Reserve for credit losses			(7.8	)		(12.0	)

			71.0			139.7
Current portion			23.9			37.8

Long-term portion		$	47.1		$	101.9




	Direct
	Financing		Operating
Future Minimum Lease Payments Receivable	Leases		Leases


2005	$	29.2	$	1.0
2006		19.8		0.5
2007		8.7		0.4
2008		4.2		0.4
2009		0.5		0.2
Thereafter		—		0.1

	$	62.4	$	2.6





	Goodwill



	February 28,				Dispositions &			February 27,
Business Segment	2003		Acquisitions		Adjustments			2004


North America	$	41.3	$	3.8	$	—		$	45.1
Steelcase Design Partnership		63.2		—		—			63.2
International		42.0		0.5		—			42.5
Other		63.3		—		(3.9	)		59.4

Total	$	209.8	$	4.3	$	(3.9	)	$	210.2





	Year Ended February 22, 2002



			Net income per
			basic and diluted
	Net income		common share


As reported	$	1.0	$	0.01
Add: Goodwill amortization		8.8		0.06

As adjusted	$	9.8	$	0.07





Estimated Amortization Expense



Year Ending February	Amount


2005	$	10.2
2006		9.8
2007		5.8
2008		5.8
2009		5.6




	February 27,		February 28,
Other Assets	2004		2003


Equity investment in dealer transitions	$	12.6	$	21.2
Long-term investments		7.8		8.5
Equity investments in joint ventures		6.2		6.0
Other		9.2		23.6

	$	35.8	$	59.3