Document:

exv10w5

 

Exhibit 10.5

Confirmation of OTC Warrant Transaction

	 	 	 
	Date:

	 	June 21 2007
	 
	 	 
	To:

	 	Stewart Enterprises, Inc. (“Counterparty”)
	 

	 	Attention: Thomas M. Kitchen, Chief Financial Officer
	 

	 	Facsimile No.: (504) 729-1407
	 

	 	Telephone No.:(504) 729-1425
	 
	 	 
	From:

	 	Merrill Lynch Financial Markets, Inc. (“MLFM”)
	 

	 	4 World Financial Center 5th Floor
	 

	 	New York, New York 10080
	 

	 	Attention: Corporate Derivatives
	 

	 	Facsimile No.: (212) 738-1069
	 

	 	Telephone No.: (212) 449-6763

MLFM Reference:

Dear Sir / Madam:

     The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and
conditions of the above-referenced transaction entered into among Counterparty, MLFM and Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the “Agent” or “MLPFS”) on the Trade Date specified
below (the “Transaction”). This Confirmation constitutes a “Confirmation” as referred to
in the Agreement specified below.

     The definitions and provisions contained in the 2000 ISDA Definitions (the “Swap
Definitions”) and the 2002 ISDA Equity Derivatives Definitions (the “Equity
Definitions” and, together with the Swap Definitions, the “Definitions”), in each case
as published by the International Swaps and Derivatives Association, Inc., are incorporated into
this Confirmation. In the event of any inconsistency between the Swap Definitions and the Equity
Definitions, the Equity Definitions will govern, and in the event of any inconsistency between the
Definitions and this Confirmation, this Confirmation will govern. References herein to a
“Transaction” shall be deemed to be references to a “Share Option Transaction” for the purposes of
the Equity Definitions and to a “Swap Transaction” for the purposes of the Swap Definitions. For
purposes of this Transaction, “Warrant Style”, “Warrant Type”, “Number of Warrants” and “Warrant
Entitlement” (each as defined below) shall be used herein as if such terms were referred to as
“Option Style”, “Option Type”, “Number of Options” and “Option Entitlement”, respectively, in the
Definitions.

     This Confirmation evidences a complete binding agreement between you and us as to the terms of
the Transaction to which this Confirmation relates. This Confirmation (notwithstanding anything to
the contrary herein), shall be subject to, and form part of, an agreement in the 1992 form of the
ISDA Master Agreement (Multicurrency Cross Border) (the “Master Agreement” or
“Agreement”) as if we had executed an agreement in such form (but without any Schedule and
with elections specified in the “ISDA Master Agreement” Section of this Confirmation) on the Trade
Date. In the event of any inconsistency between the provisions of that Agreement and this
Confirmation, this Confirmation will prevail for the purpose of this Transaction. The parties
hereby agree that the Transaction evidenced by this Confirmation shall be the only Transaction
subject to and governed by the Agreement.

     The terms of the particular Transaction to which this Confirmation relates are as follows:

Confirmation OTC Warrant

 

 

General Terms:

	 	 	 
	Trade Date:

	 	June 21 2007
	 
	 	 
	Effective Date:

	 	June 27 2007 subject to cancellation of the OTC Warrant Transaction prior
to 5:00 p.m. (New York City time) on such date by the Counterparty. In
the event of such cancellation, any payments previously made hereunder,
including the Premium, shall be returned to the person making such
payment.
	 
	 	 
	Warrant Style:

	 	The Warrants shall be exercisable as set forth under “Procedures for
Exercise” below.
	 
	 	 
	Warrant Type:

	 	Call
	 
	 	 
	Seller:

	 	Counterparty
	 
	 	 
	Buyer:

	 	MLFM
	 
	 	 
	Shares:

	 	Shares of Class A common stock, no par value, of Counterparty (Security
Symbol: “STEI”).
	 
	 	 
	Number of Warrants:

	 	 11,311,700
	 
	 	 
	Daily Number of Warrants:

	 	For any day, the unexercised Number of Warrants on such day divided by the
remaining number of Expiration Dates (including such day) and rounded down
to the nearest whole number, with the balance of the Number of Warrants
exercised on the final Expiration Date.
	 
	 	 
	Warrant Entitlement:

	 	One (1) Share per Warrant
	 
	 	 
	Strike Price:

	 	 $ 13.7610
	 
	 	 
	Premium:

	 	 $23,437,500
	 
	 	 
	Premium Payment Date:

	 	The Effective Date; provided no cancellation of the Transaction has
occurred prior to 5:00 p.m. (New York City time) on such date by the
Counterparty.
	 
	 	 
	Exchange:

	 	NASDAQ
	 
	 	 
	Related Exchange(s):

	 	All Exchanges
	 
	 	 
	Full Exchange Business Day:

	 	A Scheduled Trading Day that has a scheduled closing time for its regular
trading session at 4:00 p.m. (New York City time) or the then standard
closing time for regular trading on the Exchange and is not a Disrupted
Day.
	 
	 	 
	Procedures for Exercise:
	 
	 	 
	Expiration Time:

	 	11:59 p.m. (New York City time).
	 
	 	 
	Expiration Dates:

	 	The 100 consecutive Full Exchange Business Days beginning on and including
October 13, 2016 each shall be the Expiration Date for a number of
Warrants equal to the Daily Number of Warrants on such date.
	 
	 	 
	Exercise Dates:

	 	Each Expiration Date shall be an Exercise Date for a number of Warrants
equal to

Confirmation OTC Warrant

2

 

	 	 	 
	 

	 	the Daily Number of Warrants on such date.
	 
	 	 
	Automatic Exercise:

	 	Applicable; provided that Section 3.4(a) of the Equity Definitions shall
apply to Cash Settlement and Net Physical Settlement; and provided further
that, unless all Warrants have been previously exercised hereunder, a
number of Warrants for each Expiration Date equal to the Daily Number of
Warrants for such Expiration Date shall be deemed to be automatically
exercised.
	 
	 	 
	 

	 	Address: Stewart Enterprises, Inc.
	Counterparty’s Telephone

	 	              
   1333 S. Clearview Parkway
	Number and Telex and/or

	 	              
   Jefferson, LA 70121
	Facsimile Number and

	 	Attention: Thomas M. Kitchen, Chief Financial Officer
	Contact Details for

	 	Facsimile No.: (504)-729-1407
	purpose of Giving Notice:

	 	Telephone No.: (504) 729-1425
	 
	 	 
	Valuation:
	 	 
	 
	 	 
	Valuation Dates:

	 	Each Exercise Date
	 
	 	 
	Settlement Terms:
	 	 
	 
	 	 
	Cash Settlement:

	 	Applicable; provided that it shall be a condition of Counterparty’s right
to elect Cash Settlement that on the date of the Cash Settlement election,
none of Counterparty, its directors, executive officers, or any person
controlling, or exercising influence over, its decision to elect Cash
Settlement is in possession of any material non-public information with
respect to Counterparty or the Shares. If Counterparty elects to settle
the Transaction by Cash Settlement, Counterparty represents and agrees
that:
	 

	 	(i) Counterparty is not, on the date of the Cash Settlement election, and
will not be, on any day during the period from and including the first
Expiration Date to and including the final Expiration Date, engaged in a
distribution, as such term is used in Regulation M under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”); and
	 
	 	 
	 

	 	(ii) during the period from and including the first Expiration Date to and
including the final Expiration Date, without the prior written consent of
MLFM, the Counterparty shall not, and shall cause its affiliates and
affiliated purchasers (each as defined in Rule 10b-18 under the Exchange
Act) not to, directly or indirectly (including, without limitation, by
means of a derivative instrument) purchase, offer to purchase, place any
bid or limit order that would effect a purchase of, or commence any tender
offer relating to, any Shares (or equivalent interest, including a unit of
beneficial interest in a trust or limited partnership or a depository
share) or any security convertible into or exchangeable for the Shares.
	 
	 	 
	Settlement Currency:

	 	USD
	 
	 	 
	Settlement Price:

	 	For each Valuation Date, the Rule 10b-18 Dollar Volume Weighted Average
Price of the Shares (“VWAP”) calculated from 9:45 a.m. to 3:45 p.m., as
observed under the heading Bloomberg “VWAP” on Bloomberg page STEI.Q
<equity> AQR (or any successor thereto) (or if such volume-weighted
average price is unavailable, the market value of one Share on such
Valuation Date, as

Confirmation OTC Warrant

3

 

	 	 	 
	 

	 	determined by the Calculation Agent); provided that if
the scheduled weekday closing time of the Exchange for any Valuation Date
is later than 4:00 p.m. (without regard to after hours or any other
trading outside of the regular trading session hours) the VWAP shall be
calculated for such Valuation Date from 9:45 a.m. until 15 minutes prior
to such later closing time of the Exchange.
	 
	 	 
	 

	 	Section 6.3(a) of the Equity Definitions is hereby amended by replacing
clause (ii) in its entirety with “(ii) an Exchange Disruption, or” and
inserting immediately following clause (iii) the phrase “; in each case
that the Calculation Agent determines is material.”
	 
	 	 
	Cash Settlement Payment 

Date:

	 	With respect to each Valuation Date, three (3) Currency Business Days
after the final Valuation Date.
	 
	 	 
	Settlement Method Election:

	 	Applicable with respect to Cash Settlement or Net Physical Settlement only.
	 
	 	 
	Electing Party:

	 	Counterparty
	 
	 	 
	Settlement Method Election 

Date:

	 	Ten (10) Business Days prior to the first Expiration Date
	 
	 	 
	Default Settlement Method:

	 	Net Physical Settlement.
	 
	 	 
	Net Physical Settlement:

	 	In the event that the Counterparty elects to settle this Transaction by
Net Physical Settlement, Counterparty shall deliver to MLFM on the
Settlement Date a number of Shares (the “Delivered Shares”) equal to the
Share Delivery Quantity, provided that in the event that the number of
Shares calculated comprises any fractional Share, only whole Shares shall
be delivered and an amount in cash equal to the value of such fractional
share shall be payable by the Counterparty to MLFM in lieu of such
fractional Share.
	 
	 	 
	Share Delivery Quantity:

	 	For each Exercise Date, a number of Shares, as calculated by the
Calculation Agent, equal to the Net Physical Settlement Amount for such
Exercise Date divided by the Settlement Price on the Valuation Date in
respect of such Settlement Date plus an amount in cash in lieu of any
fractional shares (based on the applicable Settlement Price).
	 
	 	 
	Net Physical Settlement 

Amount:

	 	For any Exercise Date, an amount equal to the product of (i) the Number of
Warrants being exercised on the relevant Exercise Date, (ii) the Strike
Price Differential for such Exercise Date and (iii) the Warrant
Entitlement.
	 
	 	 
	Strike Price Differential:

	 	For any Valuation Date, (i) if the Settlement Price is greater than the
Strike Price, an amount equal to the excess of such Settlement Price over
the Strike Price for such Valuation Date or (ii) if such Settlement Price
is less than or equal to the Strike Price, zero.
	 
	 	 
	Settlement Date:

	 	Settlement with respect to each Exercise Date shall occur on the third
(3rd) Full Exchange Business Day following the final Valuation Date,
provided that MLFM shall have the right to request by prior written notice
to Counterparty a Settlement Date with respect to any Exercise Date and
the related Share Delivery Quantity that is three (3) Full Exchange
Business Days following such Exercise Date. Such request shall not
unreasonably be denied.
	 
	 	 
	Limitations on Net 

Physical Settlement by 

Counterparty:

	 	Notwithstanding anything herein or in the Agreement to the contrary, the
number of Shares that may be delivered at settlement by Counterparty shall
not exceed

Confirmation OTC Warrant

4

 

	 	 	 
	 

	 	10,000,000 at any time (“Maximum Deliverable Share Amount”), as
adjusted by Calculation Agent to account for any subdivision, stock-split,
stock combination, reclassification or similar dilutive or anti-dilutive
event with respect to the Shares.
	 
	 	 
	 

	 	Counterparty represents and warrants that the number of Available Shares
as of the Trade Date is greater than the Maximum Deliverable Share Amount.
Counterparty covenants and agrees that (i) Counterparty shall not take any
action of corporate governance or otherwise to reduce the number of
Available Shares below the Maximum Deliverable Share and (ii) Counterparty
shall use its reasonable efforts to cause the number of Available Shares
at all times to be greater than the Maximum Deliverable Share Amount.
	 
	 	 
	 

	 	For this purpose, “Available Shares” means the number of Shares
Counterparty currently has authorized (but not issued and outstanding)
less the maximum number of Shares that may be required to be issued by
Counterparty in connection with stock options, convertibles, and other
commitments of Counterparty that may require the issuance or delivery of
Shares in connection therewith.
	 
	 	 
	Dividends:
	 	 
	 
	 	 
	Dividends:

	 	If at any time during the period from and including the Trade Date, to and
including the date on which Counterparty has fully performed its
obligations to deliver Shares hereunder, an ex-dividend date for a cash
dividend occurs with respect to the Shares (an “Ex-Dividend Date”), and
that dividend is different from the Regular Dividend on a per Share basis,
then the Calculation Agent will, in its reasonable discretion, adjust the
Strike Price, the Number of Warrants, the Daily Number of Warrants, the
Warrant Entitlement and any other variable it deems appropriate to
preserve the fair value of the Warrants after taking into account such
dividend, on the assumption that Counterparty will pay future regular
dividends equal to the New Dividend Amount.
	 
	 	 
	Regular Dividend:

	 	Initially USD $0.025 per Share per quarter in respect of the Shares. In
the event that, in any quarter, a regular quarterly Ex-Dividend Date
occurs for which the amount of the corresponding cash dividend is
different (the “New Dividend Amount”) from the Regular Dividend or no
Ex-Dividend Date occurs (in which case the New Dividend Amount shall be
zero), then following the adjustment by the Calculation Agent pursuant to
“Dividends” above, the Regular Dividend shall equal the New Dividend
Amount.
	 
	 	 
	Extraordinary Dividends:

	 	Any dividend other than Regular Dividends. For the avoidance of doubt, if
more than one Ex-Dividend Date occurs in a quarter, the Calculation Agent
shall designate any cash dividend other than a Regular Dividend as an
Extraordinary Dividend and will, in its reasonable discretion, adjust the
Strike Price, the Number of Warrants, the Daily Number of Warrants, the
Warrant Entitlement and any other variable it deems appropriate to
preserve the fair value of the Warrants after taking into account such
Extraordinary Dividend, on the assumption that Counterparty will not pay
such Extraordinary Dividend, in future quarterly periods.

Confirmation OTC Warrant

5

 

	 	 	 
	Adjustments:
	 	 
	 
	 	 
	Method of Adjustment:

	 	Calculation Agent Adjustment
	 
	 	 
	Extraordinary Events:
	 	 
	 
	 	 
	 

	 	(a) Share-for-Share:      Modified Calculation Agent Determination)
	 
	 	 
	 

	 	(b) Share-for-Other:      Cancellation and Payment (Calculation Agent
Determination)
	 
	 	 
	Consequences of Merger
Events:

	 	(c) Share-for-Combined: Component Adjustment (Calculation Agent

Determination)
	 
	 	 
	Tender Offer:

	 	Applicable; provided that Section 12.1(d) of the Equity Definitions is
hereby amended by replacing the words “10%” in the third line thereof with
“50%.”
	 
	 	 
	Consequences of Tender
Offers:

	 	(a) Share-for-Share:      Modified Calculation Agent Adjustment
	 
	 	 
	 

	 	(b) Share-for-Other:      Cancellation and Payment (Calculation Agent
Determination)
	 
	 	 
	 

	 	(b) Share-for-Combined: Component Adjustment (Calculation Agent

Determination)
	 
	 	 
	 

	 	With respect to any Extraordinary Events hereunder, upon the occurrence of
Cancellation and Payment in whole or in part, the parties agree that the
amount to be paid, in accordance with the Equity Definitions, shall
constitute a Transaction Early Termination Amount, subject to satisfaction
by the payment or delivery of Shares or cash as set forth in the Early
Termination section below.
	 
	 	 
	Nationalization, 

Insolvency or Delisting:

	 	Cancellation and Payment (Calculation Agent Determination) (subject to
satisfaction by payment or delivery of Shares or cash as set forth in
“Early Termination” below). In addition to the provisions of Section
12.6(a)(iii) of the Equity Definitions, it will also constitute a
Delisting if the Exchange is located in the United States and the Shares
are not immediately re-listed, re-traded or re-quoted on any of the New
York Stock Exchange, the American Stock Exchange, the NASDAQ Global Market
or the NASDAQ Global Select Market (or their respective successors); if
the Shares are immediately re-listed, re-traded or re-quoted on any such
exchange or quotation system, such exchange or quotation system shall
thereafter be deemed to be the Exchange.
	 
	 	 
	Determining Party:

	 	MLFM
	 
	 	 
	Additional Disruption 

Events:
	 	 
	 
	 	 
	Change in Law:

	 	Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is
hereby amended by deleting clause (Y) thereof in its entirety.
	 
	 	 
	Failure to Deliver:

	 	Not Applicable
	 
	 	 
	Insolvency Filing:

	 	Applicable
	 
	 	 
	Hedging Disruption Event:

	 	Applicable

Confirmation OTC Warrant

6

 

	 	 	 
	Increased Cost of Hedging:

	 	Not Applicable
	 
	 	 
	Loss of Stock Borrow:

	 	Applicable. Section 12.9(b)(iv) of the Equity Definitions is hereby
amended by deleting the text from and including “(A)” to and including
“(B)” and by deleting the words “in each case”.
	 
	 	 
	Maximum Stock Loan Rate:

	 	 0.60 %

Confirmation OTC Warrant

7

 

	 	 	 
	Increased Cost of Stock
Borrow:

	 	Applicable; provided that Section 12.9(b)(v) of the
Equity Definitions is hereby amended by deleting the
text from and including “(X)” to and including “(Y)”.
	 
	 	 
	Initial Stock Loan Rate:

	 	 0.25%
	 
	 	 
	Hedging Party:

	 	MLFM
	 
	 	 
	Determining Party:

	 	MLFM
	 
	 	 
	Non-Reliance:

	 	Applicable
	 
	 	 
	Agreements and
Acknowledgments Regarding
Hedging Activities:

	 	Applicable
	 
	 	 
	Additional Acknowledgments:

	 	Applicable
	 
	 	 
	Other Provisions:
	 	 
	Additional Agreements:

	 	If Counterparty would be obligated to pay cash to
MLFM pursuant to the terms of this Agreement for any
reason without having had the right (other than
pursuant to this paragraph) to elect to deliver
Shares in satisfaction of such payment obligation,
then Counterparty may elect to deliver to MLFM a
number of Shares (whether registered or unregistered)
having a cash value equal to the amount of such
payment obligation. Such number of Shares to be
delivered shall be the number of Shares, determined
by the Calculation Agent, sufficient for MLFM to
realize the cash equivalent of such payment
obligation from proceeds of the sale of such number
of Shares over a reasonable period of time taking
into account any applicable discount (determined in a
commercially reasonable manner) to reflect any
restrictions on transfer as well as the market value
of the Shares). Settlement relating to any delivery
of Shares pursuant to this paragraph shall occur
within a reasonable period of time. The number of
Shares delivered pursuant to this paragraph shall not
exceed the Maximum Deliverable Share Amount and shall
be subject to the provisions under “Early
Termination” hereof regarding Proceeds Amount and the
provisions set forth in subsection (c) under
“Additional Agreements, Representations and Covenants
of Counterparty, Etc.” below.
	 
	 	 
	Early Termination:

	 	Notwithstanding any provision to the contrary, upon
the designation of an Early Termination Date or the
occurrence of Cancellation and Payment in whole or in
part hereunder, Counterparty’s payment obligation in
respect of this Transaction (which shall, in the case
of an Early Termination Date be determined in
accordance with Second Method and Loss) (the
“Transaction Early Termination Amount”) may, at the
option of Counterparty, be satisfied by the delivery
of a number of Shares equal to the Transaction Early
Termination Amount divided by the Termination Price
(“Early Termination Stock Settlement”); provided,
however, that Counterparty must notify MLFM of its
election of Early Termination Stock Settlement by the
close of business on the day that is two Exchange
Business Days following the day that the notice
designating the Early Termination Date, or notice
that an Extraordinary Event has resulted in the
cancellation or termination of the Transaction in
whole or in part, is effective. “Termination Price”
means the market value per Share on the Early

Confirmation OTC Warrant

8

 

	 	 	 
	 

	 	Termination Date, as determined by the Calculation
Agent in a commercially reasonable manner taking into
account any applicable discount to reflect any
restrictions on transfer.
	 
	 	 
	 

	 	A number of Shares calculated as being due in respect
of any Early Termination Stock Settlement will be
deliverable on the third Clearance System Business
Day following the date that notice specifying the
number of Shares deliverable is effective. Section
6(d)(i) of the Agreement is hereby amended by adding
the following words after the word “paid” in the
fifth line thereof: “or any delivery is to be made,
as applicable.”
	 
	 	 
	 

	 	On or prior to the Early Termination Date or date on
which notice that an Extraordinary Event has resulted
in the cancellation or termination of the Transaction
in whole or in part is effective, as applicable, if
Early Termination Stock Settlement is elected and if
so requested by MLFM upon advice of counsel,
Counterparty shall (subject to its right to make the
election described in the immediately succeeding
paragraph) enter into a registration rights agreement
with MLFM in form and substance reasonably acceptable
to MLFM which agreement will contain among other
things, customary representations and warranties and
indemnification, restrictions on sales during
“blackout dates”
as provided for in the Registration
Rights Agreement and shall satisfy the conditions
contained therein and Counterparty shall file and
diligently pursue to effectiveness a Registration
Statement pursuant to Rule 415 under the Securities
Act. If and when such Registration Statement shall
have been declared effective by the Securities and
Exchange Commission, Counterparty shall have made
available to MLFM such Prospectuses as MLFM may
reasonably request to comply with the applicable
prospectus delivery requirements for the resale by
MLFM of such number of Shares as MLFM shall specify
(or, if greater, the number of Shares that
Counterparty shall specify). Such Registration
Statement shall be effective and Prospectus shall be
current until the earliest of the date on which (i)
all Shares delivered by Counterparty in connection
with an Early Termination Date have been sold, (ii)
both parties have determined that such Registration
Statement need not be effective any longer or (iii)
all remaining Shares could be sold by MLFM without
registration pursuant to Rule 144 promulgated under
the Securities Act (the “Termination Registration
Period”). It is understood that the Registration
Statement and Prospectus will cover a number of
Shares equal to the aggregate number of Shares (if
any) reasonably estimated by MLFM to be potentially
deliverable by Counterparty in connection with Early
Termination Stock Settlement hereunder, but in no
event exceeding the Maximum Deliverable Share Amount.
On each day during the Termination Registration
Period Counterparty shall represent that each of its
filings under the Securities Act, the Exchange Act or
other applicable securities laws that are required to
be filed have been filed and that, as of the
respective dates thereof and as of the date of this
representation, they do not contain any untrue
statement of a material fact or omission of a
material fact required to be stated therein or
necessary to make the statements made, in the light
of the circumstances under which they were made, not
misleading.
	 
	 	 
	 

	 	If Counterparty elects not to deliver Shares subject
to an effective Registration Statement (or if some or
all of the Shares delivered cannot be used to close
out stock loans in the shares of Counterparty entered
into to establish or maintain short positions by MLFM
in connection with this Transaction without a
prospectus being required by applicable law to be
delivered to such lender), then promptly following
such notification from MLFM

Confirmation OTC Warrant

9

 

	 	 	 
	 

	 	(a) Counterparty shall afford MLFM and any potential
institutional purchaser of any Shares identified by
MLFM a reasonable opportunity to conduct a due
diligence investigation with respect to Counterparty
that is customary in scope for private placements of
equity securities subject to execution of any
customary confidentiality agreements;

	 
	 	 
	 

	 	(b) Counterparty shall enter into an agreement (a
“Private Placement Agreement”) with MLFM on
commercially reasonable terms in connection with the
private placement of such Shares by Counterparty to
MLFM or an affiliate and the private resale of such
shares by MLFM or such affiliate, substantially
similar to private placement purchase agreements
customary for private placements of equity
securities, in form and substance commercially
reasonably satisfactory to MLFM and Counterparty,
which Private Placement Agreement shall include
provisions relating to the indemnification of, and
contribution in connection with the liability of,
MLFM and its affiliates, shall provide for the
payment by Counterparty of all expenses in connection
with such resale, including all reasonable and
documented fees and expenses of counsel for MLFM,
shall contain representations, warranties and
agreements of Counterparty reasonably necessary or
advisable to establish and maintain the availability
of an exemption from the registration requirements of
the Securities Act for such resales, and shall use
commercially reasonable efforts to provide for the
delivery of accountants’ “comfort letters” to MLFM or
such affiliate with respect to the financial
statements and certain financial information
contained in or incorporated by reference into the
offering memorandum prepared for the resale of such
Shares;

	 
	 	 
	 

	 	(c) MLFM shall sell the Shares delivered by
Counterparty in a commercially reasonable manner
until the amount received by MLFM for the sale of the
Shares (the “Proceeds Amount”) is equal to the
Transaction Early Termination Amount. Any remaining
Shares shall be returned to Counterparty. If the
Proceeds Amount is less than the Transaction Early
Termination Amount, Counterparty shall promptly
deliver upon notice from MLFM additional Shares to
MLFM until the dollar amount from the sale of such
Shares by MLFM equals the difference between the
Transaction Early Termination Amount and the Proceeds
Amount. In no event shall Counterparty be required to
deliver to MLFM a number of Shares greater than the
Maximum Deliverable Share Amount.

	 
	 	 
	 

	 	Notwithstanding the foregoing: (I) if Counterparty
has elected to deliver Shares and either (a)
Counterparty does not provide for the sale of the
Shares under the Registration Statement as provided
in the Registration Rights Agreement or (b) some
Shares cannot be registered under the Registration
Statement due to Rule 415(a)(4) under the Securities
Act, then the provisions of the preceding paragraph
shall apply to the extent Counterparty has not
satisfied its obligations hereunder. (II) If the
preceding paragraph is applicable and Counterparty
fails to satisfy its obligations under such
paragraph, then Counterparty may deliver unregistered
Shares of equivalent value to the Transaction Early
Termination Amount (or, if applicable, the
unsatisfied portion thereof). The value of any
unregistered Shares so delivered shall be discounted
to reflect an appropriate liquidity discount
(determined by MLFM in a commercially reasonable
manner, taking into account MLFM’s policies and
determinations with respect to any transfer
restrictions that

Confirmation OTC Warrant

10

 

	 	 	 
	 

	 	MLFM deems it advisable to observe
in connection with sales of such Shares). (III) If
some or all of the Shares cannot be used to close out
stock loans in the shares of Counterparty entered
into to establish or maintain short positions by MLFM
in connection with this Transaction without a
prospectus being required by applicable law to be
delivered to such lender, then the value of any such
Shares shall reflect the cost (determined by MLFM in
good faith and in a commercially reasonable manner)
to MLFM of trading Shares in order to close out its
hedge position if any, in all cases for purposes of
calculating the number of Shares deliverable by
Counterparty. In no event shall Counterparty be
required to (i) top-up the delivery in cash or (ii)
deliver to MLFM a number of Shares greater than the
Maximum Deliverable Share Amount.
	 
	 	 
	Compliance With Securities 

Laws:

	 	Counterparty represents and agrees that it has
complied, and will comply, in connection with this
Transaction and all related or contemporaneous sales
and purchases of Shares, with the applicable
provisions of the Securities Act, the Exchange Act
and the rules and regulations promulgated thereunder,
including, without limitation, Rule 10b-5 and 13e and
Regulation M under the Exchange Act.
	 
	 	 
	 

	 	Each party acknowledges that the offer and sale of
the Transaction to it is intended to be exempt from
registration under the Securities Act by virtue of
Section 4(2) thereof. Accordingly, each party
represents and warrants to the other party that (i)
it has the financial ability to bear the economic
risk of its investment in the Transaction and is able
to bear a total loss of its investment, (ii) it is an
“accredited investor” as that term is defined in
Regulation D as promulgated under the Securities Act
and (iii) the disposition of the Transaction is
restricted under this Confirmation, the Securities
Act and state securities laws.
	 
	 	 
	 

	 	Counterparty further represents and warrants that:
	 
	 	 
	 

	 	(a) Counterparty is not entering into this
Transaction to create actual or apparent trading
activity in the Shares (or any security convertible
into or exchangeable for Shares) or to raise or
depress or otherwise manipulate the price of the
Shares (or any security convertible into or
exchangeable for Shares);
	 
	 	 
	 

	 	(b) Counterparty represents and acknowledges that as
of the date hereof and without limiting the
generality of Section 13.1 of the Equity Definitions,
MLFM is not making any representations or warranties
with respect to the treatment of the Transaction
under FASB Statements 149 or 150, EITF Issue No.
00-19 (or any successor issue statements) or under
FASB’s Liabilities & Equity Project;
	 
	 	 
	 

	 	(c) Counterparty is not, and after giving effect to
the Transaction contemplated hereby, will not be, an
“investment company” as such term is defined in the
Investment Company Act of 1940, as amended;
	 
	 	 
	 

	 	(d) As of the Trade Date and each date on which a
payment of cash is made by Counterparty hereunder,
(i) the assets of Counterparty at their fair
valuation exceed the liabilities of Counterparty,
including contingent liabilities; (ii) the capital of
Counterparty is adequate to conduct its business; and
(iii) Counterparty has the ability to pay its debts
and other obligations as such obligations mature and
does not intend to, or believe that it will, incur
debt or other obligations beyond its ability to pay
as such obligations mature.
	 
	 	 
	Account Details:

	 	Account for payments to Counterparty:
	 

	 	     SunTrust Bank

Confirmation OTC Warrant

11

 

	 	 	 
	 

	 	     Atlanta, Georgia
	 

	 	    ABA #061000104
	 

	 	     Credit Stewart Enterprises, Inc
	 

	 	      1000032706300
	 

	 	     SWIFT Code (for international wires): SNTRUS3A
	 
	 	 
	 

	 	Account for payments to MLFM:
	 

	 	     To be advised.
	 
	 	 
	 

	 	Account for delivery of Shares to MLFM:
	 

	 	     To be advised.
	 
	 	 
	Agreement Regarding Shares:

	 	Counterparty agrees that, in respect of any Shares
delivered to MLFM, such Shares shall be, upon such
delivery, duly and validly authorized, issued and
outstanding, fully paid and non-assessable and
subject to no adverse claims of any other party. The
issuance of such Shares does not and will not require
the consent, approval, authorization, registration or
qualification of any government authority, except
such as shall have been obtained on or before the
delivery date of any Shares or as may be required in
connection with any Registration Statement filed with
respect to any Shares.
	 
	 	 
	Bankruptcy Rights:

	 	In the event of Counterparty’s bankruptcy, MLFM’s
rights in connection with this Transaction shall not
exceed those rights held by common shareholders. For
the avoidance of doubt, the parties acknowledge and
agree that MLFM’s rights with respect to any other
claim arising from this Transaction prior to
Counterparty’s bankruptcy shall remain in full force
and effect and shall not be otherwise abridged or
modified in connection herewith.
	 
	 	 
	Set-Off:

	 	Each party waives any and all rights it may have to
set-off, whether arising under any agreement,
applicable law or otherwise.
	 
	 	 
	Any Transfer:

	 	Neither party may transfer its rights or delegate its
obligations under this Transaction without the prior
written consent of the other party, except that MLFM,
after payment in full of the Premium, may assign its
rights and delegate its obligations hereunder, in
whole or in part, to any other person (an “Assignee”)
without the prior consent of the Counterparty, so
long as (i) Assignee makes to Counterparty the
representations set forth in the second paragraph
under “Compliance with Securities Laws,” effective
(the “Transfer Effective Date”) upon delivery to
Counterparty of an executed acceptance and assumption
by the Assignee (an “Assumption”) of the transferred
obligations of MLFM under this Transaction (the
“Transferred Obligations”), (ii) Assignee informs the
Counterparty of the jurisdiction of its incorporation
and (iii) Assignee either (X) confirms the
representation contained in clause (i) under “Tax
Representations (II) Payee Representations” below, or
(Y) the gross-up specified in Section 2(d) of the
Master Agreement shall not apply as to such Assignee.
Notwithstanding any other provision in this
Confirmation to the contrary requiring or allowing
MLFM to purchase, sell, receive or deliver any Shares
or other securities to or from Counterparty, MLFM may
designate any of its affiliates to purchase, sell,
receive or deliver such Shares or other securities
and otherwise to perform MLFM’s obligations in
respect of this Transaction and any such designee may
assume such obligations. MLFM shall be discharged of
its obligations to Counterparty to the extent of any
such performance.

Confirmation OTC Warrant

12

 

Additional Agreements, Representations and Covenants of Counterparty, Etc.: 

	(a)	 	Counterparty hereby represents and warrants to MLFM, on each day from the Trade Date to and
including the earlier of (i) July 27, 2007 and (ii) the date by which MLFM is able to
initially complete a hedge of its position created by this Transaction, that:

	 	(1)	 	it will not, and will not permit any person or entity subject to its control
to, bid for or purchase Shares during such period except pursuant to transactions or
arrangements which have been approved by MLFM or an affiliate of MLFM; and
	 
	 	(2)	 	it has publicly disclosed all material information necessary for it to be able
to purchase or sell Shares in compliance with applicable federal securities laws.

	(b)	 	No collateral shall be required by either party for any reason in connection with this
Transaction.
	 
	(c)	 	Notwithstanding anything to the contrary herein, MLFM shall not be entitled to exercise any
Warrant or receive any Shares deliverable hereunder, and Automatic Exercise shall not apply
with respect to any Warrant to the extent (but only to the extent) that after such receipt of
any Shares upon the exercise of such Warrant or otherwise hereunder MLFM, or its ultimate
parent entity would, directly or indirectly, be the beneficial owner (as such term is defined
for purposes of Section 13(d) of the Exchange Act) at any time of more than 8.0 percent of the
class of the Counterparty’s outstanding equity securities that is comprised of the Shares (an
“Excess Share Owner”).
	 
	 	 	MLFM shall provide prior notice to Counterparty if the exercise of any Warrant or delivery of
Shares hereunder would cause MLFM to become directly or indirectly, an Excess Share Owner;
provided that the failure of MLFM to provide such notice shall not alter the
effectiveness of the provisions set forth in the preceding sentence and any purported
exercise or delivery in violation of such provisions shall be void and have no effect. If any
delivery owed to MLFM hereunder is not made, in whole or in part, as a result of this
provision, Counterparty’s obligation to make such delivery shall not be extinguished and
Counterparty shall make such delivery as promptly as practicable after MLFM gives notice that
such delivery would not result in MLFM being an Excess Share Owner.
	 
	 	 	If MLFM is not entitled to exercise any Warrant because such exercise would cause MLFM to
become, directly or indirectly, an Excess Share Owner and MLFM thereafter disposes of Shares
owned by it or any action is taken that would then permit MLFM to exercise such Warrant
without such exercise causing it to become, directly or indirectly, an Excess Share Owner,
then MLFM shall provide notice of the taking of such action to Counterparty and such Warrant
shall then become exercisable by MLFM to the extent such Warrant is otherwise or had
otherwise become exercisable hereunder. In such event, the Expiration Date with respect to
such Warrant shall be the date on which Counterparty receives such notice from MLFM, and the
related Settlement Date shall be as soon as reasonably practicable after receipt of such
notice but no more than three (3) Exchange Business Days thereafter (but in no event shall
the Settlement Date occur prior to the date on which it would have otherwise occurred but for
the provisions of this subsection); provided that the related Net Physical Settlement
Amount shall be the same as the Net Physical Settlement Amount but for the provisions of this
subsection.

Additional Representations of MLFM:

MLFM represents and warrants to Counterparty that:

1. The Premium paid hereunder was determined as a result of the application of models and
procedures regularly employed by MLFM in similar arm’s-length transactions with companies entering
into derivative

Confirmation OTC Warrant

13

 

transactions on their own stock and was determined independently of any underwriting or other
services provided by MLFM;

2. As of the date hereof, MLFM believes that it is unlikely an event constituting a Loss of Stock
Borrow or an Increased Cost of Stock Borrow under this Confirmation will occur; and

3. To the best of its knowledge and belief, there is no legal, contractual or economic compulsion
requiring MLFM to hold the Warrants purchased hereunder (other than by reason of any transfer
restrictions contained in this Confirmation) during the period of time the Warrants are
outstanding.

Matters Relating to Agent: 

	1.	 	MLPFS will be responsible for the operational aspects of the Transactions effected through
it, such as record keeping, reporting, and confirming Transactions to Counterparty and MLFM;

	2.	 	Unless Counterparty is a “major U.S. institutional investor,” as defined in Rule 15a-6 of the
Exchange Act, neither Counterparty nor MLFM will contact the other without the direct
involvement of MLPFS;

	3.	 	MLPFS’s sole role under this Agreement and with respect to any Transaction is as an agent of
Counterparty and MLFM on a disclosed basis and MLPFS shall have no responsibility or liability
to Counterparty or MLFM hereunder except for gross negligence or willful misconduct in the
performance of its duties as agent. MLPFS is authorized to act as agent for MLFM, but only to
the extent expressly required to satisfy the requirements of Rule 15a-6 under the Exchange Act
in respect of the Options described hereunder. MLPFS shall have no authority to act as agent
for Counterparty generally or with respect to transactions or other matters governed by this
Agreement, except to the extent expressly required to satisfy the requirements of Rule 1 5a-6
or in accordance with express instructions from Counterparty.

ISDA Master Agreement: 

With respect to the Agreement, MLFM and Counterparty each agree as follows:

“Specified Entity” means in relation to Seller and in relation to Counterparty for purposes of this
Transaction: Not applicable.

The definition of “Specified Transaction” in Section 14 of this Agreement is hereby amended by
adding the text “commodity transaction, credit derivative transaction, repurchase or reverse
purchase transaction, securities lending transaction, futures transaction, prime brokerage or
margin lending transaction” after the words “foreign exchange transaction” in the sixth line
thereof and by replacing the words “any other similar transaction” in the eighth line thereof with
the text “any other transaction between the parties”. “Specified Transaction” shall exclude any
default under a Specified Transaction if caused solely by the general unavailability of the
currency in which payments under such Specified Transaction are denominated due to exchange
controls or other governmental action.

The “Cross Default” provisions of Section 5(a)(vi) of the Agreement will not apply to Buyer
and will apply to Counterparty.

“Threshold Amount” means, with respect to Counterparty, $15,000,000.

The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the Agreement will not
apply to MLFM or to
Counterparty.

Confirmation OTC Warrant

14

 

Additional Termination Event.

The occurrence of any of the following shall constitute an Additional Termination Event with
respect to which the Transaction shall be the sole Affected Transaction and Issuer shall be the
sole Affected Party; provided that with respect to any Additional Termination Event, MLFM may
choose to treat part of the Transaction as the sole Affected Transaction, and, upon the termination
of the Affected Transaction, a Transaction with terms identical to those set forth herein except
with a Number of Warrants equal to the unaffected number of Warrants shall be treated for all
purposes as the Transaction, which shall remain in full force and effect:

     (i) within the period commencing on the Trade Date and ending on the second anniversary
of the Premium Payment Date (or at the end of such shorter period as specified in Rule 144(k)
under the Securities Act or any successor rule), Buyer reasonably determines that it is
advisable to terminate a portion of the Transaction so that Buyer’s related hedging activities
will comply with applicable securities laws, rules or regulations;

     (ii) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have beneficial ownership of all
shares that such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of voting stock
representing 50% or more of the total voting power of all outstanding voting stock of
Counterparty;

     (iii) Counterparty consolidates with, or merges with or into, another person or the
company sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, other than any such transaction where
immediately after such transaction the person or persons that “beneficially owned” (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act) immediately prior to such transaction,
directly or indirectly, voting stock representing a majority of the total voting power of all
outstanding voting stock of the company, “beneficially own or owns” (as so determined),
directly or indirectly, voting stock representing a majority of the total voting power of the
outstanding voting stock of the surviving or transferee person;

     (iv) during any consecutive two year period, the continuing directors cease for any
reason to constitute a majority of the board of directors of Counterparty;

     (v) the adoption of a plan of liquidation or dissolution of Counterparty; or

     (vi) the Shares cease to be listed on a United States national securities exchange or
approved for quotation and trading on a national automated dealer quotation system or
established automated over the counter trading market in the United States or cease to be so
traded or quoted in contemplation of a delisting or withdrawal of approval, other than as a
result of a transaction described in (iii) above.

“Continuing directors” means, as of any date of determination, any member of the board of directors
of Counterparty who was (a) a member of such board of directors on the Effective Date or (b)
nominated for election or elected to such board of directors with the approval of a majority of the
continuing directors who were members of such board at the time of such nomination or election.

     Notwithstanding the foregoing, a transaction described in clause (ii), (iii), (iv) or (v)
above will not constitute an Additional Termination Event if at least 90% of the consideration for
the Shares (excluding cash payments for fractional shares and cash payments made in respect of
dissenters’ appraisal rights) in such transaction or transactions consists of common stock and any
associated rights listed on a United States national securities exchange or quoted on a national
automated dealer quotation system, or which will be so traded or quoted when issued or exchanged in
connection with such transaction.

The “Automatic Early Termination” provision of Section 6(a) of the Agreement will not apply
to MLFM or to
Counterparty.

Confirmation OTC Warrant

15

 

Payments on Early Termination. For the purpose of Section 6(e) of the Agreement: (i) Loss
shall apply; and (ii) the Second Method shall apply.

“Termination Currency” means USD.

Tax Representations.

	(I)	 	Payer Representations. For the purpose of Section 3(e) of the Agreement, each party
represents to the other party that it is not required by any applicable law, as modified by
the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to
make any deduction or withholding for or on account of any Tax from any payment (other than
interest under Section 2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by it to the other
party under the Agreement. In making this representation, each party may rely on (i) the
accuracy of any representations made by the other party pursuant to Section 3(f) of the
Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of
the Agreement, and the accuracy and effectiveness of any document provided by the other party
pursuant to Section 4(a)(i) or 4(a)(iii) of the Agreement, and (iii) the satisfaction of the
agreement of the other party contained in Section 4(d) of the Agreement; provided that
it will not be a breach of this representation where reliance is placed on clause (ii) above
and the other party does not deliver a form or document under Section 4(a)(iii) of the
Agreement by reason of material prejudice to its legal or commercial position.

	(II)	 	Payee Representations. For the purpose of Section 3(f) of the Agreement, each party makes the
following representations to the other party:

	 	(i)	 	MLFM or any Assignee represents that it is a company incorporated in a jurisdiction
within the United States.
	 
	 	(ii)	 	Counterparty represents that it is a corporation incorporated in Louisiana.

Delivery Requirements. For the purpose of Sections 4(a)(i) and (ii) of the
Agreement, each party agrees to deliver the following documents:

	(a)	 	Tax forms, documents or certificates to be delivered are:
	 
	 	 	MLFM agrees to complete (accurately and in a manner reasonably satisfactory to
Counterparty), execute, and deliver to Counterparty, United States Internal Revenue Service
Form W-9 and all required attachments, or any successor of such form(s): (i) before the
first payment date under this agreement; (ii) promptly upon reasonable demand by
Counterparty; and (iii) promptly upon learning that any such Form previously provided by
MLFM has become obsolete or incorrect.
	 
	 	 	Counterparty agrees to complete (accurately and in a manner reasonably satisfactory to
MLFM), execute, and deliver to MLFM, United States Internal Revenue Service Form W-9, or any
successor of such form(s): (i) before the first payment date under this agreement; (ii)
promptly upon reasonable demand by MLFM; and (iii) promptly upon learning that any such
form(s) previously provided by Counterparty has become obsolete or incorrect.

Confirmation OTC Warrant

16

 

(b) Other documents to be delivered:

	 	 	 	 	 	 	 
	 	 	 	 	 	 	Covered by
	Party Required to	 	 	 	 	 	Section 3(d)
	Deliver Document	 	Document Required to be Delivered	 	When Required	 	Representation
	Counterparty

	 	Evidence of the authority and true
signatures of each official or
representative signing this
Confirmation
	 	Upon or before execution
and delivery of this
Confirmation
	 	Yes
	 
	 	 	 	 	 	 
	Counterparty

	 	Certified copy of the resolution of the
Board of Directors or equivalent
document authorizing the execution and
delivery of this Confirmation and such
other certificate or certificates as
MLFM shall reasonably request
	 	Upon or before execution
and delivery of this
Confirmation
	 	Yes
	 
	 	 	 	 	 	 
	MLFM

	 	Guarantee of its Credit Support
Provider, substantially in the
form of Exhibit A attached
hereto, together with evidence
of the authority and true
signatures of the signatories,
if applicable
	 	Upon or before execution
and delivery of this
Confirmation
	 	Yes

Addresses for Notices: For the purpose of Section 12(a) of the Agreement:

Address for notices or communications to MLFM for all purposes:

	 	 	 
	Address:

	 	Merrill Lynch Financial Markets, Inc.
	 

	 	4 World Financial Center, 17th Floor
	 

	 	New York, New York 10080
	 

	 	Merrill Lynch Financial Centre
	Attention:

	 	Manager of Equity Documentation
	Facsimile No.:

	 	(917) 778-0835
	Telephone No.:

	 	(212) 449-1951

Address for notices or communications to Counterparty for all purposes:

	 	 	 	 	 
	 

	 	Address:
	 	Stewart Enterprises, Inc.
	 

	 	 	 	 1333 S. Clearview Parkway
	 

	 	 	 	Jefferson, LA 70121
	 

	 	Attention:
	 	Thomas M. Kitchen, Chief Financial Officer
	 

	 	Facsimile No.:
	 	 (504)-729-1407
	 

	 	Telephone No.:
	 	 (504) 729-1425
	 
	 	 	 	 
	 	 	In addition, in the case of notices or communications relating to Section 5, 6, 11 or 13 of
this Agreement, a second copy of any such notice or communication shall be addressed to the
attention of Counterparty’s General Counsel as follows:
	 
	 	 	 	 
	 

	 	Address:
	 	Jones, Walker, Waechter, Poitevent,
	 

	 	 	 	Carrère and Denègre, L.L.P.
	 

	 	 	 	201 St. Charles Avenue
	 

	 	 	 	New Orleans, LA 70170-5100

Confirmation OTC Warrant

17

 

	 	 	 	 	 
	 

	 	Attention:
	 	Dionne M. Rousseau
	 

	 	Facsimile No.:
	 	(504) 589-8338
	 

	 	Telephone No.:
	 	(504) 582-8338

Process Agent: For the purpose of Section 13(c) of the Agreement, MLFM appoints as its process agent:

	 	 	 	 	 
	 

	 	Address:
	 	Merrill Lynch, Pierce, Fenner & Smith Incorporated
	 

	 	 	 	222 Broadway, 16th Floor
	 

	 	 	 	New York, New York 10038
	 

	 	Attention:
	 	Litigation Department
	 
	 	 	 	 
	 	 	Counterparty does not appoint a Process Agent.

Multibranch Party. For the purpose of Section 10(c) of the Agreement: Neither MLFM nor
Counterparty is a Multibranch Party.

Calculation Agent. “Calculation Agent” means MLFM; provided that all determinations made by the
Calculation Agent shall be made in good faith and in a commercially reasonable manner. Following
any calculation by the Calculation Agent hereunder, upon a prior written request by Counterparty,
the Calculation Agent will provide to Counterparty by e-mail to the e-mail address provided by
Counterparty in such a prior written request a report (in a commonly used file format for the
storage and manipulation of financial data) displaying in reasonable detail the basis for such
calculation; and provided further that no transferee of the Transaction in accordance with the
terms of this Confirmation that is not an affiliate of MLFM shall act as Calculation Agent with
respect to such transferred Transaction without the prior consent of Counterparty, such consent not
to be unreasonably withheld.

Credit Support Document.

MLFM: Guarantee of ML & Co. in the form attached hereto as Exhibit A.

Counterparty: Not Applicable

Credit Support Provider.

With respect to MLFM:

With respect to Counterparty: Not Applicable.

Governing Law. This Confirmation will be governed by, and construed in accordance with, the laws of
the State of New York.

Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any
right it may have to a trial by jury in respect of any suit, action or proceeding relating to this
Transaction. Each party (i) certifies that no representative, agent or attorney of the other party
has represented, expressly or otherwise, that such other party would not, in the event of such a
suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and
the other party have been induced to enter into this Transaction, as applicable, by, among other
things, the mutual waivers and certifications provided herein.

Netting of Payments. The provisions of Section 2(c) of the Agreement shall not be
applicable to this Transaction.

Basic Representations. Section 3(a) of the Agreement is hereby amended by the deletion of
“and” at the end of Section 3(a)(iv); the substitution of a semicolon for the period at the
end of Section 3(a)(v) and the addition of Sections 3(a)(vi), as follows:

Eligible Contract Participant; Line of Business. Each party agrees and represents that it is
an “eligible

Confirmation OTC Warrant

18

 

contract participant” as defined in Section 1 (a)(12) of the U.S. Commodity
Exchange Act, as amended (“CEA”), this Agreement and the Transaction thereunder are subject
to individual negotiation by the parties and have not been executed or traded on a “trading
facility” as defined in Section 1(a)(33) of the CEA, and it has entered into this
Confirmation and this Transaction in connection with its business or a line of business
(including financial intermediation), or the financing of its business.

Acknowledgements:

	(a)	 	The parties acknowledge and agree that there are no other representations, agreements or
other undertakings of the parties in relation to this Transaction, except as set forth in this
Confirmation.
	 
	(b)	 	The parties hereto intend for:

	 	(i)	 	Buyer to be a “financial institution” as defined in Section 101(22) of Title 11
of the United States Code (the “Bankruptcy Code”) and this Transaction to be a
“securities contract” as defined in Section 741(7) of the Bankruptcy Code and a “swap
agreement” as defined in Section 101(53C) of the Bankruptcy Code, qualifying for the
protections of, among other sections, Sections 362(b)(6), 362 (b)(17), 546(e), 546(g),
555 and 560 of the Bankruptcy Code;
	 
	 	(ii)	 	a party’s right to liquidate this Transaction and to exercise any other
remedies upon the occurrence of any Event of Default under the Agreement with respect
to the other party to constitute a “contractual right” as defined in the Bankruptcy
Code;
	 
	 	(iii)	 	all payments for, under or in connection with this Transaction, all payments
for the Shares and the transfer of such Shares to constitute “settlement payments” as
defined in the Bankruptcy Code.

	(c)	 	The parties acknowledge and agree that in the event of an Early Termination Date as a result
of an Event of Default that is within Counterparty’s control, the amount payable under the
Agreement will be a cash amount calculated as described therein and that any delivery
specified in this Transaction will no longer be required.

Amendment of Section 6(d)(ii). Section 6(d)(ii) of the Agreement is modified by deleting
the words “on the day” in the second line thereof and substituting therefor “on the day that is
three Local Business Days after the day”. Section 6(d)(ii) is further modified by deleting
the words “two Local Business Days” in the fourth line thereof and substituting therefor “three
Local Business Days.”

Amendment of Definition of Reference Market-Makers. The definition of “Reference Market-Makers” in
Section 14 is hereby amended by adding in clause (a) after the word “credit” and before the
word “and” the words “or to enter into transactions similar in nature to the Transactions.”

Consent to Recording. Each party consents to the recording of the telephone conversations of
trading and marketing personnel of the parties and their Affiliates in connection with this
Confirmation. To the extent that one party records telephone conversations (the “Recording Party”)
and the other party does not (the “Non-Recording Party”), the Recording Party shall in the event of
any dispute, make a complete and unedited copy of such party’s tape of the entire day’s
conversations with the Non-Recording Party’s personnel available to the Non-Recording Party. The
Recording Party’s tapes may be used by either party in any forum in which a dispute is sought to be
resolved and the Recording Party will retain tapes for a consistent period of time in accordance
with the Recording Party’s policy unless one party notifies the other that a particular transaction
is under review and warrants further retention.

Disclosure. Each party hereby acknowledges and agrees that MLFM has authorized Counterparty to
disclose this Transaction and any related hedging transaction between the parties if and to the
extent that Counterparty reasonably determines (after consultation with MLFM) that such disclosure
is required by law or by the rules of any relevant
securities exchange or trading platform. Notwithstanding the foregoing, effective from the date of
commencement

Confirmation OTC Warrant

19

 

of discussions concerning the Transaction, Counterparty and each of its employees,
representatives, or other agents may disclose to any and all persons, without limitation of any
kind, the tax treatment and tax structure of the Transaction and all materials of any kind
(including opinions or other tax analyses) that are provided to Counterparty relating to such tax
treatment and tax structure.

Severability. If any term, provision, covenant or condition of this Confirmation, or the
application thereof to any party or circumstance, shall be held to be invalid or unenforceable in
whole or in part for any reason, the remaining terms, provisions, covenants, and conditions hereof
shall continue in full force and effect as if this Confirmation had been executed with the invalid
or unenforceable provision eliminated, so long as this Confirmation as so modified continues to
express, without material change, the original intentions of the parties as to the subject matter
of this Confirmation and the deletion of such portion of this Confirmation will not substantially
impair the respective benefits or expectations of parties to this Agreement; provided, however,
that this severability provision shall not be applicable if any provision of Section 2,
5, 6 or 13 of the Agreement (or any definition or provision in Section
14 to the extent that it relates to, or is used in or in connection with any such Section)
shall be so held to be invalid or unenforceable.

Affected Parties. For purposes of Section 6(e) of the Agreement, each party shall be deemed
to be an Affected Party in connection with Illegality and any Tax Event.

Certain Important Information. MLFM is an OTC Derivatives Dealer registered with the U.S.
Securities and Exchange Commission (SEC). Applicable SEC rules require us to provide you with the
following information regarding SEC regulation of OTC Derivatives Dealers: MLFM is exempt from the
provisions of the Securities Investor Protection Act of 1970 (SIPA), including membership in the
Securities Investor Protection Corporation (SIPC). Therefore, your Merrill Lynch account is not
covered by SIPA protection. Except as otherwise agreed in writing by you and us, MLFM may repledge
and otherwise use in its business collateral you have pledged to MLFM under the Agreement.
Collateral you have pledged to MLFM will not be subject to the requirements of Securities Exchange
Act Rules: 8c-1 and 15c2-1 regarding hypothecation of collateral; 15c3-2 regarding free credit
balances; or 15c3-3 regarding custody of securities and calculations of a reserve formula
applicable to a fully regulated SEC registered broker or dealer. In the event of MLFM’s failure (by
insolvency or otherwise), you would likely be considered to be an unsecured creditor of MLFM as to
any collateral pledged to MLFM under the Agreement.

MLFM is incorporated in Delaware and is a direct, wholly owned subsidiary of ML&Co. MLFM has
entered into this transaction as principal through Merrill Lynch, Pierce, Fenner & Smith
Incorporated as its agent. The time of this Transaction shall be notified to the Counterparty upon
request.

[Signatures follow on separate page]

Confirmation OTC Warrant

20

 

     Please confirm that the foregoing correctly sets forth the terms of our agreement by
executing the copy of this Confirmation enclosed for that purpose and returning it to us.

	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	MERRILL LYNCH FINANCIAL MARKETS, INC.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 

Confirmed as of the date first above written:

	 	 	 	 	 
	STEWART ENTERPRISES, INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	Name:

	 	 

	 	 
	Title:
	 	 	 	 

Confirmation OTC Warrant

 

Acknowledged and agreed as to matters to the Agent:

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED

Solely in its capacity as Agent hereunder

	 	 	 	 	 
	By:
	 	 	 	 
	Name:

	 	 

	 	 
	Title:
	 	 	 	 

Confirmation OTC Warrant

 

EXHIBIT A

GUARANTEE OF MERRILL LYNCH & CO., INC.

     FOR VALUE RECEIVED, receipt of which is hereby acknowledged, MERRILL LYNCH & CO., INC., a
corporation duly organized and existing under the laws of the State of Delaware (“ML & Co.”),
hereby unconditionally guarantees to Stewart Enterprises, Inc. (the “Company”), the due and
punctual payment of any and all amounts payable by Merrill Lynch Financial Markets, Inc., a company
incorporated in Delaware (“ML”), under the terms of the Confirmation of OTC Warrant Transaction
between the Company and ML (ML as Buyer), dated as of June 21, 2007 (the “Confirmation”),
including, in case of default, interest on any amount due, when and as the same shall become due
and payable, whether on the scheduled payment dates, at maturity, upon declaration of termination
or otherwise, according to the terms thereof. In case of the failure of ML punctually to make any
such payment, ML & Co. hereby agrees to make such payment, or cause such payment to be made,
promptly upon demand made by the Company to ML & Co.; provided, however that delay by the Company
in giving such demand shall in no event affect ML & Co.’s obligations under this Guarantee. This
Guarantee shall remain in full force and effect or shall be reinstated (as the case may be) if at
any time any payment guaranteed hereunder, in whole or in part, is rescinded or must otherwise be
returned by the Company upon the insolvency, bankruptcy or reorganization of ML or otherwise, all
as though such payment had not been made.

     ML & Co. hereby agrees that its obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Confirmation; the absence of any action to
enforce the same; any waiver or consent by the Company concerning any provisions thereof; the
rendering of any judgment against ML or any action to enforce the same; or any other circumstances
that might otherwise constitute a legal or equitable discharge of a guarantor or a defense of a
guarantor. ML covenants that this guarantee will not be discharged except by complete payment of
the amounts payable under the Confirmation. This Guarantee shall continue to be effective if ML
merges or consolidates with or into another entity, loses its separate legal identity or ceases to
exist.

     ML & Co. hereby waives diligence; presentment; protest; notice of protest, acceleration, and
dishonor; filing of claims with a court in the event of insolvency or bankruptcy of ML; all demands
whatsoever, except as noted in the first paragraph hereof; and any right to require a proceeding
first against ML.

     ML & Co. hereby certifies and warrants that this Guarantee constitutes the valid obligation of
ML & Co. and complies with all applicable laws.

     This Guarantee shall be governed by, and construed in accordance with, the laws of the State
of New York.

     This Guarantee becomes effective concurrent with the effectiveness of the Confirmation,
according to its terms.

Confirmation OTC Warrant

 

     IN WITNESS WHEREOF, ML & Co. has caused this Guarantee to be executed in its corporate name by
its duly authorized representative.

	 	 	 	 	 
	 	MERRILL LYNCH & CO., INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 	 	Date: 	 	 
	 

Confirmation OTC Warrantexv10w4

 

Exhibit 10.4

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

OFFICE LEASE

     1. PARTIES. This lease, dated June 9, 2006 for reference purposes only, is made by and
between JZM LLC, a California limited liability Company (“Landlord”), and LiveWorld, Inc., a
Delaware Corporation (“Tenant”).

     2. BASIC LEASE TERMS

	 	 	 	 	 	 	 
	 
	 	(a)	 	Property:	 	4340 Stevens Creek Blvd., San Jose, CA
	 
	 	 	 	 	 	 
	 
	 	(b)	 	Floor:	 	First
	 
	 	 	 	 	 	 
	 
	 	(c)	 	Suite Number:	 	101
	 
	 	 	 	 	 	 
	 
	 	(d)	 	Rentable Area:	 	2,142 Square Feet
	 
	 	 	 	 	 	 
	 
	 	(e)	 	Scheduled Commencement	 	 
	 
	 	 	 	Date:	 	August 14, 2006
	 
	 	 	 	 	 	 
	 
	 	(f)	 	Expiration Date:	 	The end of the thirty-sixth (36) full month after
	 
	 	 	 	 	 	the Rent Commencement Date
	 
	 	 	 	 	 	 
	 
	 	(g)	 	Rent Following	 	 
	 
	 	 	 	Rent Commencement Date:	 	Months 01-12:          $[***] per Month
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	Months 13-24:          $[***] per Month
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	Months 25-36:          $[***] per Month
	 
	 	 	 	 	 	 
	 
	 	(h)	 	Security Deposit:	 	$[***]
	 
	 	 	 	 	 	 
	 
	 	(i)	 	Use:	 	General Office
	 
	 	 	 	 	 	 
	 
	 	(j)	 	Landlord’s Address	 	 
	 
	 	 	 	for Payment:	 	JZM LLC
	 
	 	 	 	 	 	4300 Stevens Creek Blvd., Suite 180
	 
	 	 	 	 	 	San Jose, CA 95129
	 
	 	 	 	 	 	 
	 
	 	(k)	 	Broker:	 	Wayne Mascia Associates
	 
	 	 	 	 	 	 
	 
	 	(l)	 	Exhibit A, Attachment 1:	 	Construction Rider

 

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

     3. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, upon
the terms and subject to the conditions of this Lease, that certain space located in the suite and
floor of the Property, and containing the approximate rentable area set forth in Section 2 above
(the “Premises”).

     4. TERM; POSSESSION. The term of this Lease shall commence on the date (the “Commencement
Date”) which is the later of (A) the Scheduled Commencement Date or (B) the date by which all of
the following have occurred (1) Landlord tenders possession of the Premises to Tenant in good,
vacant broom clean condition, with all building systems in good working order and, with all of
Landlord’s construction obligations, if any, “Substantially Completed” as provided in the
Construction Rider attached as Exhibit “A”. The parties anticipate that the Commencement
Date will occur on or about the Scheduled Commencement Date set forth in Section 2(e) above. The
term of this Lease shall end on the Expiration Date set forth in Section 2(e) above. If Landlord,
for any reason whatsoever, cannot deliver possession of the Premises to Tenant on the Scheduled
Commencement Date, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant
for any loss or damage resulting therefrom, but in that event no rent shall be payable until the
date on which Landlord delivers possession. The Rent payable by Tenant under this Lease shall not
commence until the Rent Commencement Date (as defined below). In addition, notwithstanding the
foregoing, if the Commencement Date (as the same may be extended for Tenant Delays (as provided
below)) has not occurred on or before the Scheduled Commencement Date, then the Rent Commencement
Date shall be delayed by one day beyond the date it would have otherwise.

     5. RENT. Commencing on the day which is the [***] day following the Commencement Date (e.g.
[***] if the Commencement Date is August 14, 2006) (herein the “Rent Commencement Date”) Tenant
agrees to pay to Landlord as rent for the Premises, without prior notice or demand, offset or
deduction, the sum(s) set forth in Section 2(f) above, on the first day of each and every
successive calendar month during the Lease term, except that the first month’s Rent following the
Rent Commencement Date shall be paid upon the Commencement Date. Rent for any period during the
Lease term that is for less than one (1) month shall be prorated based on a thirty (30) day month.
Rent shall be paid in lawful money of the United States of America to Landlord at the address
specified in Section 2(j) above, or to such other person or at such other place as Landlord may
from time to time designate in writing. All amounts payable or reimbursable by Tenant to Landlord
under this Lease, including amounts payable as late charges or interest, shall constitute rent and
shall be payable and recoverable as rent in the manner provided in this Lease.

     6. SECURITY DEPOSIT. Tenant has deposited with Landlord cash in the amount of the Security
Deposit set forth in Section 2(h) above, which shall be held by Landlord as security for the
faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept
and performed by Tenant. If Tenant defaults with respect to any provision of this Lease, including
but not limited to the provisions relating to the payment of rent, Landlord may (but shall not be
required to) use, apply or retain all or any part of this security deposit for the payment of any
rent or for the payment of any amount that Landlord may incur by reason of Tenant’s default. If
any portion of such deposit is so used or applied, Tenant shall, within five (5) days after demand
therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its
original amount. Landlord shall not be required to keep the Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on such deposit. If Tenant shall fully
and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or
any balance

-2-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

thereof shall be returned to Tenant at the expiration of the Lease term. Upon termination of
Landlord’s interest in the Property, whether by sale of the Property or otherwise, Landlord shall
have no further obligation to Tenant with respect to the Security Deposit or any other sums due
hereunder and prepaid by Tenant upon transfer of the Security Deposit and such other sums to
Landlord’s successor in interest.

     7. USE AND COMPLIANCE WITH LAWS.

          (a) The Premises shall be used for the purposes set forth in Section 2 above and for no other
business or purpose.

          (b) Tenant shall not use the Premises or permit anything to be done in or about the Premises
that will in any way conflict with any law, statute, ordinance or governmental rule or regulation
now in force or that may hereafter be enacted or promulgated (collectively, “Legal Requirements”).
Tenant shall, at its sole cost and expense, promptly comply with all Legal Requirements, and with
the requirements of any board of fire insurance underwriters or other similar bodies now or
hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises,
excluding structural changes and other improvements to the Premises not related to or affected by
Tenant’s improvements or acts. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any Legal Requirement, shall be conclusive of that fact as between Landlord and
Tenant.

          (c) Tenant shall not do or permit anything to be done in or about the Premises nor bring or
keep anything therein that will in any way increase the existing rate of or affect any fire or
other insurance upon the Property or any of its contents, or cause cancellation of any insurance
policy covering the Property or any part thereof or any of its contents. Tenant shall not do or
permit anything to be done in or about the Premises that will in any way obstruct or interfere with
the rights of ether tenants or occupants of the Property or injure or annoy them, or use or allow
the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not
commit or allow to be committed any waste in or upon the Premises.

          (d) No material or substance that is regulated as a hazardous or toxic waste, substance,
pollutant or contaminant under any Legal Requirement (collectively, “Hazardous Materials”) shall be
used, stored, handled, released or disposed of by Tenant or its employees, agents, contractors or
representatives (collectively, and applicable to either Tenant or Landlord, “Representatives”) or
customers, guests, visitors or invitees (collectively, and applicable to either Tenant or Landlord,
‘Visitors”) at or about the Premises or Property without Landlord’s prior written consent, which
consent may be granted, denied, or conditioned upon compliance with Landlord’s requirements, all in
Landlord’s absolute discretion. Notwithstanding the foregoing, normal quantities and use of those
Hazardous Materials customarily used in the conduct of general office activities, such as copier
fluids and cleaning supplies, may be used and stored at the Premises without Landlord’s prior
consent. Tenant’s activities at or about the Premises and Property with respect to Hazardous
Materials, including the removal thereof, shall comply at all times with all Legal Requirements.
At the expiration or termination of the Lease, as required by applicable environmental laws, Tenant
shall promptly remove all Hazardous Materials introduced by Tenant or its Representatives or
Visitors (“Tenant’s Hazardous

-3-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

Materials”) at the Premises or the Property, including all traces, residue and contaminated
portions of the Premises or Property.

          (e) Tenant shall not make or allow to be made any alterations, additions or Improvements
(“Alterations”) to the Premises or any part thereof without Landlord’s prior written consent.
Tenant shall keep the Premises and the property on which the Premises are situated free from any
liens arising out of any work performed, materials furnished or obligations incurred by Tenant. If
any such lien attaches to the Premises or the Property, and Tenant does not cause the same to be
released by payment, bonding or otherwise within ten (10) days after the attachment thereof,
Landlord shall have the right but not the obligation to cause the same to be released by such means
as it shall deem proper, and any sums expended by Landlord in connection therewith shall be payable
by Tenant on demand. Notwithstanding anything to the contrary herein: (i) Tenant may construct
Alterations in the Premises which do not adversely effect the structure or the building operating
systems, without Landlord’s prior approval, if the cost of any such project does not exceed [***];
(ii) Alterations and Tenant’s trade fixtures, furniture, equipment and other personal property
installed in the Premises (“Tenant’s Property”) shall at all times be and remain Tenant’s property
and may be removed from the Premises at any time by Tenant provided that Tenant repairs all damage
caused by such removal and provided that Tenant is not in default of the Lease; iii) Landlord shall
have no right to require Tenant to remove any alterations unless it notifies Tenant at the time it
consents to such alteration that it shall require such alteration to be removed.

     8. CONDITION OF PREMISES. Except for the obligations of Landlord expressly set forth in this
Lease, by taking possession of the Premises, Tenant shall be deemed to have accepted the Premises
as being in good order, condition and repair and accepts the Premises in their “as is” condition.
During the Lease term Tenant, at Tenant’s sole cost and expense, shall keep the Premises and every
part thereof, and upon the expiration or sooner termination of this Lease shall surrender the
Premises to Landlord, in good condition and repair, ordinary wear and tear excepted. Landlord
shall have no obligation whatsoever to alter, remodel, improve, repair, decorate or paint the
Premises or any part thereof except as expressly set forth in this Lease. The parties hereto
affirm that Landlord has made no representations to Tenant respecting the condition of the Premises
or the Property.

     9. ASSIGNMENT AND SUBLETTING.

          (a) General.

               (i) Without the prior written consent of Landlord, which may be granted or withheld in
Landlord’s reasonable discretion (and subject to Landlord’s right of Recapture under this Article),
Tenant may not sublease, assign, mortgage, or otherwise transfer or permit the transfer of this
Lease or the encumbering of Tenant’s interest, by operation of Law or otherwise or permit the use
or occupancy of the Premises, or any part thereof, by anyone other than Tenant. Tenant agrees that
the provisions governing sublease and assignment set forth in this Article shall be deemed to be
reasonable. If Tenant desires to enter into any sublease of the Premises or assignment of this
Lease, Tenant shall deliver written notice thereof to Landlord (“Tenant’s Notice”), together with
the identity of the proposed subtenant or assignee and the proposed principal terms thereof and
financial and other information sufficient for Landlord to make an

-4-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

informed judgment with respect to such proposed subtenant or assignee at least thirty (30)
days prior to the commencement date of the term of the proposed sublease or assignment. If Tenant
proposes to sublease less than all of the Premises, the space proposed to be sublet and the space
retained by Tenant must each be a marketable unit as reasonably determined by Landlord and
otherwise in compliance with all Laws. Landlord shall notify Tenant in writing of its approval or
disapproval of the proposed sublease or assignment or its decision to exercise its rights to
recapture the space within fifteen (15) days after receipt of Tenant’s Notice (and all required
information).

               (ii) With respect to Landlord’s consent to an assignment or sublease, the reasons for which
Landlord’s denial shall be deemed to be reasonable shall include, without limitation, the
following:

                    (1) the business reputation or creditworthiness of any proposed subtenant or assignee is not
reasonably acceptable to Landlord; or

                    (2) in Landlord’s reasonable judgment the proposed assignee or sublessee would diminish the
value or reputation of the Building or Landlord; or

                    (3) any proposed assignee’s or sublessee’s use of the Premises would violate the permitted
uses for the Building; or

                    (4) the proposed assignee or subtenant is a governmental authority or agency an organization
or person enjoying sovereign or diplomatic immunity, or any user that will attract a volume
frequency or type of visitor or employee to the Building which is not, in Landlord’s reasonable
judgment consistent with the standards of the Building;

                    (5) in Landlord’s reasonable judgment, the use of the Premises by the proposed assignee or
subtenant would entail any alterations which would not be permitted by this Lease;

                    (6) Landlord (or any affiliate of Landlord) is in litigation with the proposed assignee or
subtenant; or,

                    (7) Tenant is in default past any applicable notice and cure period of any obligation of
Tenant under this Lease and such default is not cured prior to or concurrently with the
consummation of the transfer.

               (iii) Any sublessee or assignee shall be expressly subject to the terms and conditions of this
Lease and shall execute such documents as Landlord may reasonably require to evidence such
subtenant or assignee’s assumption of the obligations and liabilities of Tenant under this Lease,
including an agreement by any subtenant to attorn to Landlord on Landlord’s standard and reasonable
form. Tenant shall deliver to Landlord a copy of all agreements executed by Tenant and the
proposed subtenant and assignee with respect to the Premises. Landlord’s approval of a sublease,
assignment, hypothecation, transfer or third party use or occupancy shall not constitute a waiver
of Tenant’s obligation to obtain Landlord’s consent to further assignments or subleases.

-5-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

               (iv) If Tenant is a corporation, limited liability company, partnership or similar entity
Landlord s consent shall not be required with respect to an assignment or subletting of this lease
(A) to an Affiliate of Tenant (i.e. a company which owns, is owned by or is under common ownership
with Tenant), (B) to an entity related to Tenant by merger, consolidation, nonbankruptcy
reorganization, or government action provided the requirements of subpart, or (C) to a purchaser of
a substantial portion of Tenant’s assets provided; that (i) the assignee or subtenant is a
reputable entity of good character, (ii) a duplicate original instrument of assignment or sublease
agreement in form and substance reasonably satisfactory to Landlord, duly executed by Tenant and
such assignee or subtenant, shall have been delivered to Landlord at least fifteen (15) days prior
to the effective date of any such assignment or subletting, (iii) in the case of an assignment, an
instrument in form and substance reasonably satisfactory to Landlord, duly executed by the
assignee, in which such assignee assumes observance and performance of, and agrees to be personally
bound by, all of the terms, covenants and conditions of this Lease on Tenant’s part to be performed
and observed shall have been delivered to Landlord at least fifteen (15) days prior to the
effective date of such assignment, (iv) in the case of an assignment, such assignment is for a
legitimate business purpose and not principally for the purpose of avoiding the restrictions on
assignment otherwise applicable under this Article and (v) in the case of an assignment where
Tenant does not survive as a separate operating entity with the same net worth Tenant had
immediately prior to the transfer, such assignee has a Net Worth (as hereinafter defined), computed
in accordance with generally accepted accounting principles at least equal to or greater than
Tenant’s Net Worth as of the date of the transfer. “Net Worth” of Tenant for purposes of this
Article shall be the net worth of Tenant (excluding any guarantors) established under generally
accepted accounting principles consistently applied.

               (v) For purposes of this Article Ten, an assignment shall be deemed to include (i) a change in
the majority control of Tenant, resulting from any transfer, sale or assignment of shares of stock
of Tenant occurring by operation of Law or otherwise if Tenant is a corporation whose shares of
stock are not traded publicly or a partnership or limited liability company, (ii) the involvement
by Tenant or its assets in any transaction, or series of transactions (by way of merger, sale,
acquisition, financing, refinancing, transfer leveraged buy-out or otherwise) whether or not a
formal assignment or hypothecation of this Lease or Tenant’s assets occurs, which results or will
result in a reduction of the Net Worth of Tenant, by an amount equal to or greater than [***] of
such Net Worth of Tenant immediately prior to such transaction (or series of transactions).
Notwithstanding the foregoing, transfers of stock in a corporation whose shares are traded in the
“over-the-counter” market or any recognized national securities exchange or the sale or issuance of
Tenant’s capital stock shall not constitute an assignment for purposes of this Lease provided that
the principal purpose of such transfer or transfers is not to avoid the restrictions on assignment
otherwise applicable under this Article.

          (b) Recapture. Landlord shall have the option to exclude from the Premises covered by
this Lease (“Recapture”) the space proposed to be sublet or subject to the assignment, effective as
of the proposed commencement date of such sublease or assignment. If Landlord elects to Recapture,
Tenant shall surrender possession of the space proposed to be subleased or subject to the
assignment to Landlord on the effective date of Recapture of such space from the Premises, such
date being the Termination Date for such space. Effective as of the date of Recapture of any
portion of the Premises pursuant to this section the Monthly Base Rent, Rentable Area of the
Premises and Tenant’s Share shall be adjusted accordingly.

-6-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

          (c) Excess Rent. Except in the case of an assignment or subletting permitted under
subpart (a)(iv) of this Section (a “Permitted Transfer”), Tenant shall pay Landlord on the first
day of each month during the term of the sublease or assignment, [***] of the amount by which the
sum of all rent and other consideration (direct or indirect) due from the subtenant or assignee for
such month exceeds: (i) that portion of the Base Rental and Additional Rent due under this Lease
for said month which is allocable to the space sublet or assigned; and (ii) the following costs and
expenses for the subletting or assignment of such space, including without limitation: (1)
brokerage commissions and attorneys’ fees and expenses, (2) the actual costs paid in making any
improvements or substitutions in the Premises required by any sublease or assignment; and (3) the
actual costs of moving costs or other out of pocket expenses paid to subtenant or assignee or
Incurred by Tenant. All such costs and expenses shall be amortized over the sublease term and
applied on a monthly basis against any such excess rent. Notwithstanding the foregoing, the
provisions of this Section 9(b) shall not apply to a sublease or assignment of less then [***]of
the Premises. All such costs and expenses shall be amortized over the term of the sublease or
assignment pursuant to sound accounting principles.

          (d) Tenant Liability. In the event of any sublease or assignment, whether or not with
Landlord’s consent, Tenant shall not be released or discharged from any liability, whether past,
present or future under this Lease. Tenant’s liability shall remain primary, and in the event of
default by any subtenant, assignee or successor of Tenant in performance or observance of any of
the covenants or conditions of this Lease, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against Tenant without the necessity of exhausting remedies
against said subtenant, assignee or successor. After any assignment, Landlord may consent to
subsequent assignments or subletting of this Lease and such action shall not relieve Tenant or any
successor of Tenant of liability under this Lease. If Landlord grants consent to such sublease or
assignment, Tenant shall pay all reasonable attorneys’ fees and expenses incurred by Landlord with
respect to such assignment or sublease up to a maximum of [***].

     10. INDEMNIFICATION OF LANDLORD; WAIVER. Tenant shall indemnify, protect, defend and hold
Landlord harmless from and against any claims, liabilities, losses, suits, actions, damages, costs
or expenses, including reasonable attorneys’ fees and costs incurred in defending against the same
(collectively, “Claims”), arising from (a) the acts or omissions of Tenant or its Representatives
or Visitors in or about the Property, or (b) any construction or other work undertaken by Tenant on
the Premises, or (c) any breach or default under this Lease by Tenant, or (d) any loss, accident
injury or damage, howsoever and by whomsoever caused, to any person or property, occurring in the
Premises during the Lease term; excepting only such Claims to the extent they are caused by the
willful misconduct or gross negligence of Landlord or its respective Representatives and Visitors.
The foregoing indemnity shall survive the expiration or termination of this Lease. Except to the
extent caused by the willful misconduct or gross negligence of Landlord or its respective
Representatives and Visitors, Tenant hereby assumes all risk of, and hereby waives alt claims
against Landlord with respect to, loss, injury or other damage to any person or property
(including, but not limited to, Tenant or Tenant’s Personal Property) in or about the Premises from
any cause (including, but not limited to: defects in the Property or in any equipment in the
Property, fire, explosion or other casualty; bursting, rupture, leakage or overflow of any plumbing
or other pipes or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above, or
about the Premises or the Property; or acts of other tenants in the Property). Notwithstanding any
other provision of this Lease, in no event shall Landlord or its

-7-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

Representatives be liable for any loss or damage to property by theft or otherwise, for any
injury to or damage to property entrusted to employees of the Property, for interference with
light, air or access, for loss of business or profits by Tenant, or for any latent defect in the
Premises or the Property. Tenant shall give prompt notice to Landlord in case of fire or accidents
in the Premises or the Property, or of defects therein or in the fixtures or equipment therein.

     11. INSURANCE. Tenant shall maintain, at its own cost and at all times during the term of the
Lease valid, effective and collectible insurance of the following types: (i) Worker’s Compensation
Insurance complying with applicable laws and Employer’s Liability Insurance with limits of not less
than $[***] for bodily injury by accident and $[***] for bodily injury by disease; (ii) Commercial
General Liability Insurance, written on an “occurrence form” basis, with limits of not less than
$[***] in the aggregate and for each occurrence; such other types, increased amounts or broadened
coverage of insurance as is legally required in the state where the Property is located or is
generally maintained by other prudent persons or businesses in that state that are comparable in
size and in the same business or profession as Tenant, as such may change from time to time. The
Commercial General Liability Insurance shall contain a provision that defense costs are paid in
addition to and do not deplete any of the policy limits. The limits of insurance set forth herein
for Tenant shall not limit Tenant’s liability under this Lease. If Tenant fails to procure and
maintain such insurance, Landlord may, but shall not be obligated to, procure and maintain the same
at the expense of Tenant.

     Tenant’s Insurance shall not be terminated, be permitted to expire, be subject to non-renewal,
nor be materially altered, except on 30 days’ prior written notice to Landlord. Such insurance
shall be maintained with deductible amounts with insurers, and on forms reasonably acceptable to
Landlord and shall name Landlord and its property manager for the Property, if any, as additional
insureds, with coverage provided such additional insureds as broad as provided to the named
insured; provided, however, that the foregoing shall not apply with respect to the Worker’s
Compensation or Employer’s Liability Insurance or the insurance on the Tenant s property. The
endorsement effecting such additional insured status shall be at least as broad as additional
insured endorsement form numbers CG 20 10 11-85 or CG 20 26 11-85 promulgated by the Insurance
Services Office or otherwise reasonably acceptable to Landlord. All insurance policies required
shall be issued by companies licensed in the state where the Property is located who hold a current
Policy Holder Alphabetic Category Rating of not less than “A-” and Financial Size Category Rating
of not less than “VII” according to the latest edition of Best’s Key Rating Guide. Prior to Tenant
commencing occupancy of the Premises, it shall furnish Landlord with certificates of insurance, on
forms reasonably acceptable to Owner evidencing that insurance policies are in full force and
effect that provide the required coverages and amounts of insurance, with a copy of the endorsement
providing the required additional insured coverage. Any other insurance earned by Landlord or its
Representatives, which may be applicable, shall be deemed to be excess insurance and Tenant’s
insurance shall contain a provision that it is deemed primary and non-contributing with any
Insurance carried by Landlord or its Representatives. Each required insurance policy with Landlord
as an additional insured shall contain a Cross-liability or Separation of Insureds provision that
provides that the insurance applies separately to each insured against whom a claim is filed and
that the policies do not exclude coverage for claims or suits by one insured against the other.
Tenant’s insurance may be provided on the basis of primary and umbrella/excess coverage as long as
the primary coverage is a

-8-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

minimum of $[***] and the umbrella/excess coverage is at least as broad as the coverage under
the primary policy, including the coverage for all additional insureds.

     Tenant hereby waives all rights of recovery against Landlord and its Representatives on
account of loss or damage occasioned to Tenant or its Representatives or Visitors to the extent
such loss or damage is insured against under any of Tenant’s insurance policies that may be in
force at the time of the loss or damage or would have been insured against if Tenant had complied
with its obligations under this Section.

     To the extent permitted by their respective policies of property insurance, Landlord and
Tenant each hereby waive any right of recovery against the other and the authorized Representatives
of the other for any loss or damage that is covered by any policy of property insurance maintained
by either party with respect to the Premises or the Property. If any policy of property insurance
relating to the Premises or the Property does not permit the foregoing waiver or if the coverage
under any such policy would be invalidated as a result of such waiver, the party maintaining such
policy shall, if possible, obtain from the insurer under such policy a waiver of all right of
recovery by way of subrogation against either party in connection with any claim, loss or damage
covered by such policy. If either party is not able to obtain such waiver, then such party shall
have the other party named as an additional insured on all such policies of property insurance.

     12. SERVICES AND UTILITIES.

          (a) Landlord agrees to furnish to the Premises, during hours of 8:00 AM to 6:00 PM Monday
through Friday, except generally recognized holidays to be determined by Landlord at its sole
discretion (“Business Hours”), and subject to the rules and regulations of the Property,
commercially reasonable amounts of heat, ventilation, and air conditioning and janitorial and trash
pickup service consistent with a general office use for the Premises, and the utilities and
services provided by other landlords of properties comparable to and in the vicinity of the
Property for general office use (“Building Standard”). Landlord shall provide Tenant with access
to the Property twenty-four (24) hours a day, seven days a week. Upon request by Tenant in
accordance with the procedures established by Landlord from time to time for furnishing services at
times other than Business Hours for the Property and other than Building Standard, Landlord shall
furnish such services to Tenant and Tenant shall pay for such services on an hourly basis at the
then prevailing rate established for the Property by Landlord. Landlord shall also maintain and
keep lighted the common stairs, common entries and toilet rooms in the Property. No interruption,
failure or inability to provide any service or utility, regardless of its duration, shall
constitute an eviction of Tenant, constructive or otherwise, or impose upon Landlord any liability
whatsoever, including, but not limited to, liability for consequential damages or loss of business
by Tenant, or entitle Tenant to an abatement of rent.

          (b) Tenant shall not use any apparatus or device in the Premises that will increase the amount
of electricity usually furnished or supplied for the use of the Premises as general office space,
nor connect with electric current any apparatus or device except through existing electrical
outlets in the Premises. If Tenant s usage of electricity, water or any other utility exceeds the
Property Standard use of such utility, then to the extent permitted by Legal Requirements, Landlord
may determine the amount of such excess use by any reasonable means (including, but not limited to,
the installation at Landlord’s request but at Tenant’s expense of a separate meter or other
measuring device) and charge Tenant for the cost thereof.

-9-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

          (c) Landlord shall make available to Tenant, on an unassigned and non-exclusive basis for use
by Tenant and Tenant’s Representatives and Visitors, at the users’ sole risk, one (1) parking space
for each [***] rentable square feet of office space leased to Tenant at the Property under this
Lease. Such parking spaces shall be in the parking areas on the Property (the “Parking Areas”).
The parking spaces to be made available to Tenant hereunder may contain a reasonable mix of spaces
for compact cars and up to [***] of the unassigned spaces may also be designated by Landlord as
visitors’ parking. Landlord does not guarantee the availability of the parking spaces at all times
against the actions of other tenants of the Property and users of the Parking Areas. Landlord
retains the right to revoke the parking privileges of any user of the Parking Areas who violates
the rules and regulations governing use of the Parking Areas established by Landlord (and Tenant
shall be responsible for causing any employee of Tenant or other person using parking spaces
allocated to Tenant to comply with all parking rules and regulations).

          (d) Commencing on the first anniversary of the Commencement Date, Tenant shall pay Landlord,
monthly, in addition to all other amounts due under this Lease, an amount to offset anticipated
increases in operating expenses and taxes for the Property (the “Operating Expense Escalation
Payment”). For the twelve-month period commencing on the first anniversary of the Commencement
Date, the Operating Expense Escalation Payment shall be equal to the product of (x) [***]
multiplied by (y) the rentable square footage of the Premises. On each subsequent anniversary of
the Commencement Date, the Operating Expense Escalation Payment shall be increased to be equal to
the product of (x) [***] multiplied by (y) the rentable square footage of the Premises, multiplied
by (z) the number of years that have elapsed since the Commencement Date.

     13. CASUALTY. If the Premises shall be partially or totally destroyed by fire or other
casualty such that the Premises cannot be used for the purposes set forth in Section 2 above for a
period of more than ninety (90) days, this Lease shall terminate effective upon the expiration of
such ninety-day period.

     14. TENANT’S TAXES. Tenant shall pay, or cause to be paid, before delinquency, any and all
taxes levied or assessed and that become payable during the Lease term upon all of Tenant’s
equipment, furniture, fixtures and personal property located in the Premises (collectively,
Tenant’s Property”). If any or all of Tenant’s Property shall be assessed and taxed with the
Property, Tenant shall pay to Landlord its share of such taxes within ten (10) days after delivery
to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable
to Tenant’s Property.

     15. RULES AND REGULATIONS. Tenant shall comply with the rules and regulations that Landlord
shall from time to time promulgate with respect to the Property. Landlord reserves the right from
time to time to make all reasonable modifications to such rules, which shall be binding upon Tenant
upon delivery of a copy to Tenant. Landlord shall not be liable to Tenant for the nonperformance
of any rules or regulations by any other tenants or occupants, but Landlord shall enforce the rules
and regulations in a non-discriminatory manner.

     16. HOLDING OVER. If Tenant remains in possession of the Premises or any part thereof after
the expiration or termination of this Lease, such possession shall be on the basis of a tenancy at
the sufferance of Landlord, and Tenant shall continue to comply with or perform all the terms and
obligations of Tenant

-10-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

under this Lease, except that the rent during Tenant’s holding over shall be [***] the rent
payable in the last month prior to such expiration or termination. Acceptance by Landlord of rent
after such termination shall not constitute a renewal or extension of this Lease; and nothing
contained in this provision shall be deemed to waive Landlord’s right of re-entry or any other
right hereunder or at law. Tenant shall indemnify, defend and hold Landlord harmless from and
against all Claims arising or resulting directly or indirectly from Tenant’s failure to timely
surrender the Premises, including (i) any rent payable by or any loss, cost, or damages claimed by
any prospective tenant of the Premises, and (ii) Landlord’s damages as a result of such prospective
tenant rescinding or refusing to enter into the prospective lease of the Premises by reason of such
failure to timely surrender the Premises.

     17. SURRENDER. Upon the expiration or termination of this Lease, Tenant shall surrender the
Premises and all Tenant’s improvements to Landlord broom-clean and in the Required Condition (as
above defined); provided, however, that prior to the expiration or termination of this Lease Tenant
shall remove all telephone and other cabling installed in or about the Property by Tenant, shall
remove from the Premises all Tenant’s personal property and trade fixtures and shall remove all of
Tenant’s improvements that Landlord has notified Tenant must be removed and repair any damage
caused by such removal. If such removal is not completed before the expiration or termination of
the Lease, Landlord shall have the right (but no obligation) to remove the same, and Tenant shall
pay Landlord on demand for all costs of removal and storage thereof and for the rental value of the
Premises for the period from the end of the Lease term through the end of the time reasonably
required for such removal. Landlord shall also have the right to retain or dispose of all or any
portion of such property if Tenant does not pay all such costs and retrieve the property within ten
(10) days after notice from Landlord (in which event title to all such property described in
Landlord’s notice shall be transferred to and vest in Landlord). Tenant waives all Claims against
Landlord for any damage or loss to Tenant resulting from Landlord’s removal, storage, retention, or
disposition of any such property pursuant to this Lease. Upon expiration or termination of this
Lease or of Tenant’s possession, whichever is earliest, Tenant shall surrender all keys to the
Premises or any other part of the Property and shall deliver to Landlord all keys for or make known
to Landlord the combination of locks on all safes, cabinets and vaults that may be located in the
Premises. Tenant’s obligations under this Section shall survive the expiration or termination of
this Lease.

     18. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have the right to
enter the Premises, inspect the same, and supply janitorial service and any other service to be
provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers, lenders
or tenants, and to alter, improve or repair the Premises as required by this Lease, and any portion
of the Properly that Landlord may deem necessary or desirable, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the character of the work
to be performed; provided, however, that the entrance to the Premises shall not be blocked thereby,
and provided further that Landlord shall use reasonable efforts to avoid any unreasonable
interference with the business of Tenant. Landlord shall at all times have a key with which to
unlock all of the doors in, upon and about the Premises (excluding Tenant’s vaults, safes and
files), for the foregoing purposes. In addition, Landlord shall have the right, without liability
to Tenant, to use any and all means that Landlord may deem proper to open such doors in an
emergency, in order to obtain entry to the Premises. Any entry to the Premises obtained by
Landlord by any of such means shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises,

-11-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

or an eviction from the Premises or any portion thereof, and Tenant hereby waives any claim
for damages or for any injury or inconvenience to or interference with Tenant’s business, any loss
of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby.

     19. DEFAULT. The occurrence of any one or more of the following events shall constitute an
“Event of Default” under this Lease by Tenant:

          (a) The failure by Tenant to make any payment of rent when due.

          (b) The failure by Tenant to observe or perform any of the covenants, conditions or provisions
of this Lease to be observed or performed by Tenant, other than the payment of rent, which is
covered by Section (a) above, where such failure continues for a period of ten (10) days after
notice thereof by Landlord to Tenant.

          (c) The making by Tenant of any general assignment or general arrangement for the benefit of
creditors; or the filing by or against Tenant of a petition to have Tenant adjudged bankrupt, or a
petition or reorganization or arrangement under any law relating to bankruptcy (unless, in the ease
of a petition filed against Tenant, the same is dismissed within sixty (60) days); or the
appointment of a trustee or a receiver to take possession of substantially all of Tenant’s assets
located at the Premises or of Tenant’s interest In this Lease, where possession is not restored to
Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of
substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease,
where such seizure is not discharged in thirty (30) days.

     Upon the occurrence of an Event of Default, Landlord shall have and may pursue any and all
remedies now or hereafter available to Landlord under law, including without limitation, the right
to terminate Tenants right to possession of the Premises at any time by written notice to Tenant.
Tenant expressly acknowledges that in the absence of such written notice from Landlord, no other
act of Landlord, including re-entry into the Premises, efforts to relet the Premises, reletting of
the Premises for Tenant’s account storage of Tenant’s personal property and trade fixtures,
acceptance of keys to the Premises from Tenant or exercise of any other rights and remedies under
this Section, shall constitute an acceptance of Tenant’s surrender of the Premises or constitute a
termination of this Lease or of Tenant’s right to possession of the Premises. Upon such
termination in writing of Tenant’s right to possession of the Premises, as herein provided, this
Lease shall terminate and Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord arising from or related to Tenant’s default, including without limitation, costs of
obtaining possession, attorneys fees, interest at the Interest Rate (as defined in Section 22(e)
below) on all sums paid by Landlord and all amounts permitted under any applicable existing or
future laws providing for recovery of damages for such breach, including the worth at the time of
award of the amount by which the rent that would be payable by Tenant hereunder for the remainder
of the term after the date of the award of damages exceeds the amount of such rental loss as Tenant
proves could have been reasonably avoided, discounted if and as provided by applicable laws. In
addition, Landlord may cure the Event of Default at Tenant’s expense. If Landlord pays any sum or
incurs any expense in curing the Event of Default, Tenant shall reimburse Landlord upon demand for
the amount of such payment or expense with interest at the Interest Rate from the date the sum is
paid or the expense is incurred until Landlord is reimbursed by Tenant

-12-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

     20. BROKERS. Tenant warrants that it has had no dealings with any real estate broker or
agents in connection with the negotiation of this Lease other than the Broker identified in Section
2(k) above, if any, and it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease. Tenant agrees to indemnify and hold Landlord harmless
from any Claims incurred by Landlord asserted by any other broker or finder for a fee or commission
based upon any dealings with or statements made by Tenant or its Representatives. Tenant shall
have not liability for, and Landlord shall pay any commission or other compensation owing to the
Broker identified in Section 2(k) above.

     21. RELOCATION OF PREMISES. Landlord shall have the right from time to time during the term
of this Lease to relocate the Premises within the Property, provided that (a) the rentable and
usable area of the new Premises is of equivalent size to the existing Premises, subject to a
variation of up to ten percent (10%), (b) Landlord shall pay the cost of providing tenant
improvements in the new Premises, which shall be substantially comparable in layout to those in the
existing Premises, and (c) Landlord shall pay reasonable costs (to the extent such costs are
submitted in writing to Landlord and approved in writing by Landlord prior to such move) of moving
Tenant’s trade fixtures and personal property to the new Premises. Landlord shall deliver to
Tenant written notice of Landlord’s election to relocate the Premises, specifying the new location
and the amount of rent payable therefore, at least sixty (60) days prior to the date the relocation
is to be effective. Notwithstanding the foregoing, this provision shall only apply one time during
the initial term of the Lease.

     22. GENERAL PROVISIONS.

          (a) Waiver. The waiver by Landlord of any term, covenant or condition herein contained shall
not be deemed to be a waiver of such term, covenant or condition on any subsequent breach of the
same or of any other term, covenant or condition herein contained. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant to pay the
particular rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the
time of the acceptance of such rent.

          (b) Notices. All notices, demands, consents or other formal communications to be given under
this Lease must be in writing and will be effective (i) immediately upon delivery in or (ii) upon
the earlier of actual delivery confirmed by executed receipt by the recipient or the next business
day after deposit (in time for next-day delivery) with a commercial courier or delivery service for
hand delivery, provided delivery is made during regular business hours or receipt is acknowledged
by a person reasonably believed by the delivering party to be employed by the recipient; or (iii)
three (3) business days after deposit (before the last pick-up time) with the United States Postal
Service, certified mail, return receipt requested, postage prepaid. The inability to deliver
because of a changed address of which no notice was given, or rejection or other refusal to accept
any notice, shall be deemed to be the receipt of the notice as of the date of such inability to
deliver or rejection or refusal to accept. Any notice to be given by any party hereto may be given
by the counsel for such party. Any notice required pursuant to any laws may be incorporated into,
given concurrently with or given separately from any notice required under this Lease. All notices
must be properly addressed and delivered to the parties at the addresses set forth below their
signature, or at such other addresses as either party may designate by written notice.

-13-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

          (c) Successors and Assigns. The covenants and conditions herein contained, subject to the
provisions of Section 9 above (Assignment and Subletting) and Section (i) below (Landlord’s
Liability), shall inure to the benefit of and be binding upon the heirs, successors, executors,
administrators and assigns of the parties hereto.

          (d) Quiet Possession. Upon Tenant paying the rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant’s part to be observed and
performed hereunder, Tenant shall have quiet possession of the Premises for the entire term hereof,
subject to all the provisions of this Lease and all matters of record, including all covenants,
conditions and restrictions of record.

          (e) Late Charges and Interest. Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult to ascertain. Such costs include, but are not limited
to, processing and accounting charges, and late charges that may be imposed upon Landlord by terms
of any mortgages or trust deed covering the Property. If any payment of rent is not received by
Landlord when due, Tenant shall pay to Landlord on demand as a late charge an additional amount
equal to [***] percent of the overdue payment. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the cost that Landlord will incur by reason of the
late payment by Tenant. Acceptance of any late charge by Landlord shall in no event constitute a
waiver of Tenant’s default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In addition to the late charges
referred to above, which are intended to defray Landlord’s costs resulting from late payments, any
late payment of rent shall, at Landlord’s option, bear interest from the due date of any such
payment to the date same is paid at a rate of [***] per annum or the maximum lawful rate that
Landlord may charge to Tenant under applicable laws, whichever is less (the “Interest Rate”).

          (f) Entire Agreement. This Lease, including any exhibits or addenda attached hereto or
documents referred to herein, constitutes the entire agreement between Landlord and Tenant with
respect to the leasing of space by Tenant in the Property, and supersedes all prior or
contemporaneous agreements, understandings, proposals and other representations by or between
Landlord and Tenant, whether written or oral. Neither Landlord nor Landlord’s agents have made any
representations or warranties with respect to the Premises, the Property or this Lease except as
expressly set forth herein, and no rights, easements or licenses shall be acquired by Tenant by
implication or otherwise unless expressly set forth herein. The submission of this Lease for
examination does not constitute an option for the Premises and this Lease shall become effective as
a binding agreement only upon execution and delivery thereof by Landlord to Tenant. No provision
of this Lease may be amended or added to except by an agreement in writing signed by the parties
hereto.

          (g) Inability to Perform. This Lease and the obligations of Landlord or Tenant hereunder
shall not be affected or impaired because Landlord or Tenant is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay is caused by reason of
strike, labor troubles, act of God or any other cause beyond the reasonable control of Landlord or
Tenant.

-14-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

          (h) Attorneys’ Fees. In the event of any dispute between Landlord and Tenant in any way
related to this Lease, and whether involving contract and/or tort claims, the non-prevailing party
shall pay to the prevailing party all reasonable attorneys’ fees and costs and expenses of any
type, without restriction by statute, court rule or otherwise, incurred by the prevailing party in
connection with any action or proceeding (including any appeal and the enforcement of any judgment
or award), whether or not the dispute is litigated or prosecuted to final judgment (collectively,
“Fees”). The “prevailing party” shall be determined based upon an assessment of which party’s
major arguments or positions taken in the action or proceeding could fairly be said to have
prevailed (whether by compromise, settlement, abandonment by the other party of its claim or
defense, final decision, after any appeals, or otherwise) over the other party’s major arguments or
positions on major disputed issues. Any Fees incurred in enforcing a judgment shall be recoverable
separately from any other amount included in the judgment and shall survive and not be merged in
the judgment. The Fees shall be deemed an “actual pecuniary loss” within the meaning of Bankruptcy
Code Section 365(b)(1)(B), and notwithstanding the foregoing, all Fees incurred by either party in
any bankruptcy case filed by or against the other party, from and after the order for relief until
this Lease is rejected or assumed in such bankruptcy case, will be “obligations of the debtor” as
that phrase is used in Bankruptcy Code Section 365(d)(3).

          (i) Landlord’s Liability. The term “Landlord,” as used in this Lease, shall mean only the
owner or owners of the Property at the time in question. Notwithstanding any other term or
provision of this Lease, the liability of Landlord for its obligations under this Lease is limited
solely to Landlord’s interest in the Property, as the same may from time to time be encumbered, and
no personal liability shall at any time be asserted or enforceable against any other assets of
Landlord or against any of Landlord’s constituent owners or any of their directors, officers,
stockholders, partners, members or managers on account of any of Landlord’s obligations or actions
under this Lease. In addition, in the event of any conveyance of title to the Property, then from
and after the date of such conveyance, Landlord shall be relieved of all liability with respect to
Landlord’s obligations to be performed under this Lease after the date of such conveyance. Upon
any conveyance of title to the Property or this Lease, the grantee or transferee, by accepting such
conveyance, shall be deemed to have assumed Landlord’s obligations to be performed under this Lease
from and after the date of transfer, subject to the limitations on liability set forth above in
this Section.

          (j) Subordination, Attainment. This Lease is expressly made subject and subordinate to any
present or future mortgage, deed of trust, ground lease, underlying lease or like encumbrance
affecting any part of the Property or any interest of Landlord therein that is now existing or
hereafter executed or recorded (“Encumbrance”). If the interest of Landlord in the Property is
transferred to any person (“Purchaser”) pursuant to or in lieu of proceedings for enforcement of
any Encumbrance, Tenant shall immediately and automatically attorn to the Purchaser, and this Lease
shall continue in full force and effect as a direct lease between the Purchaser and Tenant on the
terms and conditions set forth in this Lease.

          (k) Waiver of Right to Jury Trial. Landlord and Tenant waive their respective rights to trial
by jury of any contract or tort claim, counterclaim, cross-complaint, or cause of action in any
action, proceeding, or hearing brought by either party against the other on any matter arising out
of or in any way connected with this Lease, the relationship of Landlord and Tenant, or Tenant’s
use or occupancy of the

-15-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

Premises, including any claim of injury or damage or the enforcement of any remedy under any
current or future law, statute, regulation, code, or ordinance.

          (l) Estoppel Certificates. Within ten (10) days after written request therefor, Tenant shall
execute and deliver to Landlord, in a form provided by or satisfactory to Landlord, a certificate
stating that this Lease is in full force and effect, describing any amendments or modifications
hereto, acknowledging that this Lease is subordinate or prior, as the case may be, to any
Encumbrance and stating any other information Landlord may reasonably request, including the term,
the monthly base rent, the date to which rent has been paid, the amount of any security deposit or
prepaid rent, whether either party hereto is in default under the terms of the Lease, and whether
Landlord has completed its construction obligations hereunder (if any). Tenant irrevocably
constitutes, appoints and authorizes Landlord, as Tenant’s special attorney-in-fact and for such
purpose, to complete, execute and deliver such certificate if Tenant fails timely to execute and
deliver such certificate as provided above. Any person or entity purchasing, acquiring an interest
in or extending financing with respect to the Property shall be entitled to rely upon any such
certificate.

          (m) Miscellaneous. The determination that any provisions hereof may be void, invalid, illegal
or unenforceable shall not impair any other provisions hereof and all such other provisions of this
Lease shall remain in full force and effect. The unenforceability, invalidity or illegality of any
provision of this Lease under particular circumstances shall not render unenforceable, invalid or
illegal other provisions of this Lease or the same provisions under other circumstances. This
Lease shall be construed and interpreted in accordance with the laws (excluding conflict of laws
principles) of the State in which the Property is located. The provisions of this Lease shall be
construed in accordance with the fair meaning of the language used and shall not be strictly
construed against either party, even if such party drafted the provision in question. When required
by the context of this Lease, the singular includes the plural. Wherever the term “including” is
used in this Lease, it shall be interpreted as meaning “including, but not limited to” the matter
or matters thereafter enumerated. The captions contained in this Lease are for purposes of
convenience only and are not to be used to interpret or construe this Lease. This Lease may be
executed in any number of original counterparts, all of which evidence only one agreement. If more
than one person or entity is identified as Tenant hereunder, the obligations of each and all of
them under this Lease shall be joint and several. Time is of ,the essence with respect to this
Lease, except as to the conditions relating to the delivery of possession of the Premises to
Tenant. Neither Landlord not Tenant shall record this Lease or any memorandum thereof. Each of
the individuals executing this Lease on behalf of a party individually represents and warrants on
behalf of the company for which he or she is a signatory, that he or she has been validly
authorized to do so and has the power to bind the party for whom they are signing and that that
party is a duly organized and validly existing entity and has full right and authority to enter
into this Lease.

-16-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

     IN WITNESS WHEREOF, the parties hereto have entered into this Lease as of the date first
written above.

	 	 	 	 	 	 	 	 	 	 	 
	“TENANT”	 	 	 	“LANDLORD”
	 
	 	 	 	 	 	 	 	 	 	 
	LiveWord, Inc., a Delaware Corporation	 	 	 	JZM LLC, a California limited liability Company
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	/s/ Peter Friedman 	 	 	 	By:	 	/s/ Thomas G. Keene 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Name: Peter Friedman, CEO	 	 	 	Name: Thomas G. Keene
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Notice address:	 	 	 	Notice Address:
	4340 Stevens Creek Blvd. 	 	 	 	1000 Sansome Street, Suite 180
	San Jose, CA	 	 	 	San Francisco, CA 94111
	Telephone: (408) 871-5202	 	 	 	Telephone: (415) 951-0500
	Facsimile: (408) 871-5202	 	 	 	Facsimile: (415) 273-2901

 

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

EXHIBIT “A”

ATTACHED TO AND FORMING A PART OF

LEASE AGREEMENT

DATED AS OF JUNE 9, 2006

BETWEEN

JZM, LLC (“LANDLORD”) AND LIVEWORLD, INC (TENANT)

CONSTRUCTION RIDER

1. TENANT IMPROVEMENTS. Subject to the other terms of this Lease, Tenant accepts the Premises in
its current “as-is” condition. Notwithstanding the foregoing, the Landlord agrees, at its sole
cost, to:

	 	A.	 	Construct new demising wall,

	 
	 	B.	 	Construct six (6) private offices with entry doors and 24” sidelights,
	 
	 	 	 	–  install three (3) electrical duplexes in each private office
	 
	 	C.	 	Construct one (1) conference room with entry door and 24” sidelight
	 
	 	 	 	–  Install four (4) electrical duplexes in the conference room
	 
	 	D.	 	Construct one (1) server/storage room with entry door and VCT flooring,
	 
	 	 	 	–  server/storage room to have one (1) dedicated electrical circuit
	 
	 	 	 	–  install three (3) electrical duplexes in server/storage room
	 
	 	 	 	–  Landlord will allow Tenant, at Tenant’s sole cost and using
Landlord approved contractor, to install plumbing for a small kitchenette in
server/storage room
	 
	 	E.	 	Install deadbolt lock and flush lockset blank on interior side of three (3) suite entry
doors,
	 
	 	F.	 	Install new building standard carpet throughout the suite in color acceptable to Tenant, and
	 
	 	G.	 	Paint entire suite using building standard paint.

     All Landlord work shall be completed using materials and labor at least comparable to existing
space displayed to Tenant. All such Landlord work shall be completed during normal business hours,
or during after-hours if necessary and prior to the Commencement Date.

     2. CHANGES. If Tenant requests any change, addition or alteration to any of the Plans and
Specifications (‘Changes”) and Landlord consents, at its sole discretion, to such Changes, Tenant
shall pay the cost of preparing additional Plans and Specifications for the Changes within ten (10)
days after receipt of Landlord’s invoice therefor. As soon as practicable after the completion of
such additional Plans and Specifications, Landlord shall notify Tenant of the estimated cost of the
Changes. Within three (3) working days after receipt of such cost estimate, Tenant shall deliver
to Landlord the full amount of such estimated cost (the “Estimated Cost Deposit”). If Tenant
delivers the Estimated Cost Deposit Landlord shall proceed with the Changes if the total additional
costs resulting from the Changes are less than the Estimated Cost Deposit, Landlord shall promptly
refund the excess to Tenant after the Tenant Improvements, as modified by the Changes, are
completed and all charges therefor have been invoiced and paid. If Tenant fails to deliver

 

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

the Estimated Cost Deposit within such three (3) day period construction of the Tenant
Improvements shall proceed as provided in accordance with the original Plans and Specifications and
without the Change(s).

     3. INTERIOR DECORATION. Any interior decorating services, such as selection of wall paint
colors and/or wall coverings, fixtures, non-building standard carpet, and any or all other
decorator items required by Tenant in the performance and said work shall be at Tenant’s sole cost
and expense.

     4. SUBSTANTIAL COMPLETION. The Tenant Improvements shall be deemed to be “Substantially
Completed when they have been completed in accordance with the Plans and Specifications except for
finishing details, minor omissions, decorations and mechanical adjustments of the type normally
found on an architectural “punch list”. All improvements will be completed with building-standard
labor and materials during normal Business Hours. Following Substantial Completion of the Tenant
Improvements and before Tenant takes possession of the Premises (or as soon thereafter as may be
reasonably practicable and in any event within 30 days after Substantial Completion), Landlord and
Tenant shall inspect the Premises and jointly prepare a “punch list” of agreed items of
construction remaining to be completed. Landlord shall complete the items set forth in the punch
list as soon as reasonably possible. Tenant shall cooperate with and accommodate Landlord and
Landlord’s contractor in completing the items on the punch list.

-2-

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

Attachment 1

Plans and Specifications

	 	A.	 	Construct new demising wall,
	 
	 	B.	 	Construct six (6) private offices with entry doors and 24” sidelights,
	 
	 	 	 	–  install three (3) electrical duplexes in each private office
	 
	 	C.	 	Construct one (1) conference room with entry door and 24” sidelight,
	 
	 	 	 	–  Install four (4) electrical duplexes in the conference room
	 
	 	D.	 	Construct one (1) server/storage room with entry door and VCT flooring,
	 
	 	 	 	–  server/storage room to have one (1) dedicated electrical circuit
	 
	 	 	 	–  install three (3) electrical duplexes in server/storage room

 

 

PORTIONS DENOTED WITH [***] HAVE BEEN

OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO A REQUEST FOR CONFIDENTIAL

TREATMENT.

	 	 	 	–  Landlord will allow Tenant, at Tenant’s sole cost and using
Landlord approved contractor, to install plumbing for a small kitchenette in
server/storage room
	 
	 	E.	 	Install deadbolt lock and flush lockset blank on interior side of three (3) suite entry
doors
	 
	 	F.	 	Install new building standard carpet throughout the suite in color acceptable to Tenant, and
	 
	 	G.	 	Paint entire suite using building standard paint.

-2-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00125-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00125-of-00352.parquet"}]]