Document:

exv10w3

 

Exhibit 10.3

Confirmation of OTC Convertible Note Hedge

	 	 	 	 	 
	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 International (“MLI”)
	 
	 	 	 	 
	 

	 	Address:
	 	Merrill Lynch International
	 

	 	 	 	Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ
	 

	 	Attention:
	 	Manager, Fixed Income Settlements
	 

	 	Facsimile No.:
	 	44 207 995 2004
	 

	 	Telephone No.:
	 	44 207 995 3769

MLI 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, MLI 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 purposes of the
Equity Definitions and a “Swap Transaction” for the purposes of the Swap 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 the 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 parties acknowledge that this Confirmation is entered into on the date hereof with the
understanding that the provisions of the Note Indenture (as defined below) that are referred to
herein will conform to the descriptions thereof in the Offering Memorandum dated June 21, 2007 (the
“Offering Memorandum”) relating to the Reference Notes (as defined below). The parties agree that
in the event of any inconsistency between the Note

 

 

Indenture and Offering Memorandum, the parties
will amend this Confirmation in good faith to preserve the intent
of the parties.

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

     General Terms: 

	 	 	 
	Trade Date:

	 	June 21, 2007
	 
	 	 
	Effective Date:

	 	The date of issuance of the Reference Notes.
	 
	 	 
	Option Style:

	 	Modified American, as described under “Settlement Terms” below.
	 
	 	 
	Option Type:

	 	Call
	 
	 	 
	Seller:

	 	MLI
	 
	 	 
	Buyer:

	 	Counterparty
	 
	 	 
	Shares:

	 	The shares of Class A common stock, no par value, of
Counterparty (Security Symbol: “STEI”) or such other securities
or property into which the Reference Notes are convertible on
the date of determination.
	 
	 	 
	Number of Options:

	 	The number of Convertible Notes in denominations of USD1,000
principal amount issued by Counterparty on the closing date for
the initial issuance of the Convertible Notes.
	 
	 	 
	Number of Shares:

	 	The product of the Number of Options, the Applicable Percentage
and the Conversion Rate (as defined in the Note Indenture).
	 
	 	 
	Premium:

	 	$32,500,000.00. 
	 
	 	 
	Premium Payment Date:

	 	The date of issuance of the Reference Notes.
	 
	 	 
	Exchange:

	 	NASDAQ
	 
	 	 
	Related Exchange(s):

	 	All Exchanges
	 
	 	 
	Reference Notes:

	 	3.375%. Convertible Senior Notes due 2016 of Counterparty
	 
	 	 
	Applicable Percentage:

	 	100%. For the avoidance of doubt, the Calculation Agent shall,
as it deems necessary, take into account the Applicable
Percentage in determining or calculating any delivery or
payment obligations hereunder, whether upon a Conversion Date
(as defined below) or otherwise.
	 
	 	 
	Note Indenture:

	 	The indenture, dated as of closing of the issuance of the
Reference Notes, between Counterparty and U.S. Bank, N.A., as
trustee relating to the Reference Notes, as the same may be
amended, modified or supplemented from time to time. Certain
defined terms used herein have the meanings assigned to them

 Confirmation OTC Convertible Note Hedge

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	 	in the Note Indenture.
	 
	 	 
	Procedures for Exercise:
	 	 
	 
	 	 
	Potential Exercise Dates:

	 	Each Conversion Date.
	 
	 	 
	Conversion Date:

	 	Each “conversion date” for any Reference Note pursuant to the
terms of the Note Indenture occurring before the Expiration
Date.
On each Conversion Date, a number of Options equal to the
number of Convertible Notes in denominations of $1,000
principal amount submitted for conversion on such Conversion
	 
	 	 
	Required Exercise on Conversion 

Dates:

	 	Date in accordance with the terms of the Note Indenture shall
be automatically exercised.
	 
	 	 
	Exercise Period:

	 	The period from and excluding the Effective Date to and
including the Expiration Date.
	 
	 	 
	Expiration Date:

	 	The earliest of (i) the maturity date of the Reference Notes,
(ii) the first day on which none of such Reference Notes remain
outstanding, whether by virtue of conversion, issuer repurchase
or otherwise and (iii) the occurrence of an Additional
Termination Event and designation of an Early Termination Date
hereunder in respect of the termination of the Transaction in
whole but not in part.
	 
	 	 
	Multiple Exercise:

	 	Applicable, as provided above under “Required Exercise on
Conversion Dates”.
	 
	 	 
	Minimum Number of Options:

	 	Zero
	 
	 	 
	Maximum Number of Options:

	 	Number of Options
	 
	 	 
	Automatic Exercise:

	 	As provided above under “Required Exercise on Conversion Dates”.
	 
	 	 
	Exercise Notice:

	 	Notwithstanding the exercise of any Options hereunder, Buyer
shall be entitled to receive the deliveries provided under
“Settlement Terms” below only if Buyer shall have notified
Seller in writing prior to 5:00 PM, New York City time, on the
“Business Day”, as defined in the Note Indenture, prior to the
first Scheduled Trading Day of the “Conversion Reference
Period”, as defined in the Note Indenture, relating to the
Convertible Notes converted on the Conversion Date relating to
the relevant Exercise Date (such time, the “Notice Deadline”)
of (i) the number of Options being exercised, (ii) the
scheduled settlement date under the Note Indenture for the
Convertible Notes converted on the Conversion Date occurring on
the Exercise Date for such exercise and (iii) the applicable
“Cash Percentage”, as defined in the Note Indenture, for such
Convertible Notes; provided that, notwithstanding the
foregoing, such notice (and the related automatic exercise of
Options) shall be effective if given after the relevant Notice
Deadline but prior to 5:00 PM New York City time, on the fifth
Exchange Business Day of such “Conversion Reference Period”, as
defined in the Note Indenture, in which event the Calculation
Agent shall have the right to adjust the Delivery Obligation
(as defined below) as appropriate to reflect the additional
costs (including, but not limited to, hedging mismatches and
market losses) and reasonable expenses incurred by Seller in
connection with its hedging activities (including the unwinding
of any hedge position) as a result of its not having received
such notice prior to the applicable Notice Deadline.
Notwithstanding the foregoing, in respect of Options with a
related Exercise Date on or after the 42nd “Scheduled Trading
Day”, as defined in the Note Indenture, occurring prior to the
“Maturity Date”, as defined in the Note

 Confirmation OTC Convertible Note Hedge

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	 	Indenture, then, in
lieu of the notice described in the preceding sentence, Buyer
shall notify Seller of the applicable “Cash Percentage”, as
defined in the Note Indenture, in respect of the “Conversion
Reference Period” for such Convertible Notes on the date it
notifies the “Trustee”, as defined in the Note Indenture,
thereof; provided that in the event that Buyer does not notify
the Trustee of the Cash Percentage pursuant to the Note
Indenture, then the notice by Buyer to Seller otherwise
required by this sentence shall be deemed to have been provided
and the applicable Cash Percentage shall be deemed to be zero.
	 
	 	 
	Seller’s Telephone Number and
Telex and/or Facsimile Number
and Contact Details for purpose
of Giving Notice:

	 	Address: Merrill Lynch International

Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ

Attention: Manager, Fixed Income Settlements Facsimile No.: +44
207 995 2004

Telephone No.: +44 207 995 3769
	 
	 	 
	Settlement Terms:
	 	 
	 
	 	 
	Settlement Date

	 	As defined in the Note Indenture.
	 
	 	 
	Delivery Obligation:

	 	In lieu of the obligations set forth in Sections 8.1 and 9.1 of
the Equity Definitions, and subject to “Exercise Notice” above,
in respect of an Exercise Date occurring on a Conversion Date,
Seller will deliver to Buyer on the related Settlement Date (x)
the product of the Applicable Percentage and a number of Shares
equal to the aggregate number of Shares, if any (and cash in
lieu of fractional shares, if any) and (y) the product of the
Applicable Percentage and the amount of cash, if any, in lieu
of the “Daily Share Amount”, as defined in the Note Indenture,
in each case, that Buyer is obligated to deliver or pay, as the
case may be, to the holder(s) of the Convertible Notes
converted on such Conversion Date pursuant to Section 4.02 or
Section 4.12 of the Note Indenture (such Shares and cash,
collectively, the “Convertible Obligation”).
	 
	 	 
	Other Applicable Provisions:

	 	To the extent Seller is obligated to deliver Shares hereunder,
the provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11 (except
that the Representation and Agreement contained in Section 9.11
of the Equity Definitions shall be modified by excluding any
representations therein relating to restrictions, obligations,
limitations or requirements under applicable securities laws as
a result of the fact that Buyer is the issuer of the Shares)
and 9.12 of the Equity Definitions will be applicable as if
“Physical Settlement” applied to the Transaction.
	 
	 	 
	Adjustments:
	 	 
	 
	 	 
	Method of Adjustment:

	 	Calculation Agent Adjustment; provided that, notwithstanding
Section 11.2 of the Equity Definitions, the terms of this
Transaction shall be adjusted in a manner corresponding to the
adjustments of the Conversion Rate of the Reference Notes as
provided in the Note Indenture.
	 
	 	 
	Potential Adjustment Event:

	 	Notwithstanding Section 11.2(e) of the Equity Definitions, a
“Potential Adjustment Event” means the occurrence of an event
or condition set forth in Section 4.06 of the Note Indenture.
	 
	 	 
	Extraordinary Events:
	 	 
	 
	 	 
	Merger Events:

	 	Notwithstanding Section 12.1(b) of the Equity Definitions, a
“Merger Event”

 Confirmation OTC Convertible Note Hedge

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	 	means the occurrence of any event or condition
to which Section 4.10(a) of the Note Indenture applies.
	 
	 	 
	Consequences for Merger Events:
	 	 
	 
	 	 
	     Share-for-Share:

	 	The Transaction will be adjusted in a manner corresponding to
the adjustments to the Reference Notes as provided in the Note
Indenture.
	 
	 	 
	     Share-for-Other:

	 	The Transaction will be adjusted in a manner corresponding to
the adjustments to the Reference Notes as provided in the Note
Indenture.
	 
	 	 
	     Share-for-Combined:

	 	The Transaction will be adjusted in a manner corresponding to
the adjustments to the Reference Notes as provided in the Note
Indenture.
	 
	 	 
	Notice of Merger Consideration:

	 	Upon the occurrence of a Merger Event that causes the Shares to
be converted into the right to receive more than a single type
of consideration (determined based in part upon any form of
stockholder election), Buyer shall reasonably promptly (but in
any event prior to the third Exchange Business Day prior to the
effective date of such Merger Event) notify the Calculation
Agent of the weighted average of the types and amounts of
consideration received by the holders of Shares entitled to
receive cash, securities or other property or assets with
respect to or in exchange for such Shares in any Merger Event
who affirmatively make such an election.
	 
	 	 
	Tender Offer:

	 	Applicable, subject to “Consequences of Tender Offers” below.
Notwithstanding Section 12.1(d) of the Equity Definitions,
“Tender Offer” means the occurrence of any event or condition
set forth in Section 4.06(e) of the Note Indenture.
	 
	 	 
	Consequences of Tender Offers:

	 	The Transaction will be adjusted in a manner corresponding to
the adjustments to the Reference Notes as provided in the Note
Indenture.
	 
	 	 
	Nationalization, Insolvency and
Delisting:

	 	Not Applicable
	 
	 	 
	Additional Disruption Events:
	 	 
	 
	 	 
	     Change in Law:

	 	Not Applicable
	 
	 	 
	     Failure to Deliver:

	 	Not Applicable.
	 
	 	 
	     Insolvency Filing:

	 	Not Applicable
	 
	 	 
	     Hedging Disruption
	 	 
	 
	 	 
	     Event:

	 	Not Applicable
	 
	 	 
	     Increased Cost of
	 	 
	 
	 	 
	     Hedging:

	 	Not Applicable
	 
	 	 
	     Loss of Stock Borrow:

	 	Not Applicable
	 
	 	 
	     Increased Cost of
	 	 
	 
	 	 
	     Stock Borrow:

	 	Not Applicable

 Confirmation OTC Convertible Note Hedge

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	Non-Reliance:

	 	Applicable
	 
	 	 
	Agreements and Acknowledgments
	 	 
	 
	 	 
	Regarding Hedging Activities:

	 	Applicable
	 
	 	 
	Additional Acknowledgments:

	 	Applicable

Additional Agreements, Representations and Covenants 

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

	 	a.	 	it will effect (and cause any “affiliated purchaser” (as defined in Rule 10b-18
promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) to effect) any purchases, direct or indirect (including by means of any
cash-settled or other derivative instrument), of Shares or any security convertible
into or exchangeable or exercisable for Shares solely through Agent in a manner that
would not cause any purchases by Seller of its hedge in connection with this
Transaction not to comply applicable securities laws;
	 
	 	b.	 	it will not engage in, or be engaged in, any “distribution,” as such term is
defined in Regulation M promulgated under the Exchange Act, other than a distribution
meeting the requirements of the exceptions set forth in sections 101(b)(10) and
102(b)(7) of Regulation M (it being understood that Buyer makes no representation
pursuant to this clause in respect of any action or inaction taken by Seller or any
initial purchaser of the Reference Notes); and
	 
	 	c.	 	Buyer has publicly disclosed all material information necessary for Buyer to be
able to purchase or sell Shares in compliance with applicable federal securities laws.

	2.	 	If Buyer would be obligated to pay cash (other than payment of the Premium) to, or receive
cash from, Seller pursuant to the terms of this Agreement for any reason without having had
the right (other than pursuant to this paragraph (2)) to elect to deliver or receive Shares in
satisfaction of such payment obligation, then Buyer may elect (by giving notice to Seller no
later than 8 a.m. New York time on the Exchange Business Day immediately following the date of
occurrence of the event giving rise to such payment obligation) that such payment obligation
shall be satisfied by the delivery of a number of Shares (or, if the Shares have been
converted into other securities or property in connection with an Extraordinary Event, a
number or amount of such other securities or property as a holder of Shares would be entitled
to receive upon the consummation or closing of such Extraordinary Event) having a cash value
equal to the amount of such payment obligation. Such number or amount of Shares or other
securities or property to be delivered shall be determined by the Calculation Agent to be the
number of Shares or number or amount of such other securities or property that could be
purchased or sold, as applicable, over a reasonable period of time with the cash equivalent of
such payment obligation). Settlement relating to any delivery of Shares or other securities or
property pursuant to this paragraph (2) shall occur within a reasonable period of time.
Notwithstanding anything herein or in the Agreement to the contrary, the aggregate number of
Shares that Counterparty may be required to deliver to MLI under this Transaction shall not
exceed 10,000,000 Shares, as adjusted by the Calculation Agent to account for any subdivision,
stock-split, stock combination, reclassification or similar dilutive or anti-dilutive event
with respect to the Shares.

	3.	 	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.

Confirmation OTC Convertible Note Hedge

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	4.	 	As of the Trade Date and each date on which a payment or delivery 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.

	5.	 	The representations and warranties set forth in Section 1 of the Purchase Agreement (as
defined below) are hereby deemed to be repeated to MLI as if set forth herein.

	6.	 	Seller hereby represents and warrants to Buyer that the Premium paid hereunder was determined
as a result of the application of models and procedures regularly employed by Seller in
similar arm’s-length transactions with companies entering into derivative transactions on
their own stock and was determined independently of any underwriting or other services
provided to Buyer in connection with the issuance of the Reference Notes.

Additional Termination Events: 

The occurrence of an Amendment Event or a Repayment Event shall be an Additional Termination Event
with respect to which the Transaction is the sole Affected Transaction and Counterparty is the sole
Affected Party, except that Counterparty (in addition to Seller) shall be entitled to designate an
Early Termination Date in respect of such Additional Termination Event if Counterparty provides
Seller such representations, warranties and covenants with respect to securities laws as Seller may
reasonably request; provided that in the case of a Repayment Event, the Transaction shall be
subject to termination only in respect of the number of Convertible Notes that cease to be
outstanding in connection with or as a result of such Repayment Event:

	1.	 	“Amendment Event” means that the Counterparty, without MLI’s consent, amends,
modifies, supplements or obtains a waiver of (a) any term of the Note Indenture (as in effect
prior to such amendment, modification, supplement or waiver) or the Reference Notes relating
to the principal amount, coupon, maturity, repurchase obligation of the Counterparty or
redemption right of the Counterparty, (b) any term relating to conversion of the Reference
Notes, including, without limitation, any changes to the conversion price, conversion
settlement dates or conversion conditions or (c) any term that would require consent of the
holders of 100% of the principal amount of the Reference Notes to amend.
	 
	2.	 	“Repayment Event” means that (a) any Reference Notes are repurchased (whether in
connection with or as a result of a fundamental change or change of control, howsoever
defined, or for any other reason) by the Counterparty, (b) any Reference Notes are delivered
to the Counterparty in exchange for delivery of any property or assets of the Counterparty or
any of its subsidiaries (howsoever described), other than as a result of and in connection
with a Conversion Date, (c) any principal of any of the Reference Notes is repaid prior to the
Final Maturity Date (as defined in the Note Indenture) (whether following acceleration of the
Reference Notes or otherwise), provided that no payments of cash made in respect of the
conversion of a Reference Note shall be deemed a payment of principal under this clause (c),
(d) any Reference Notes are exchanged by or for the benefit of the holders thereof for any
other securities of the Counterparty or any of its Affiliates (or any other property, or any
combination thereof) pursuant to any exchange offer or similar transaction or (e) any of the
Reference Notes is surrendered by Counterparty to the trustee for cancellation, other than
registration of a transfer of such Reference Notes or as a result of and in connection with a
Conversion Date.
	 
	3.	 	Initial Purchase Event. If an Initial Purchase Event (as defined below) occurs, this
Transaction shall terminate automatically in its entirety and, notwithstanding anything to the
contrary herein, only the payments specified below shall be required hereunder in connection
with such Initial Purchase Event.
	 
	 	 	“Initial Purchase Event” means that the transactions contemplated by the Purchase
Agreement shall fail to close for any reason by the closing date for the offering of the
Reference Notes as specified in the Purchase Agreement.

Confirmation OTC Convertible Note Hedge

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	 	 	If an Initial Purchase Event occurs due to a breach of the Purchase Agreement by
Counterparty, then all payments previously made hereunder shall be returned to the person
making such payment, including the Premium, less an amount equal to the product of (a)
11,311,700 Shares, (b) 0.30 and (c) an amount equal to the excess, if any, of the closing
price of the Shares on the Trade Date over the closing price of the Shares on the date of
the Termination Event (the “Break Expense”); provided that any negative amount shall
be replaced by zero and provided further that to the extent the Premium has not been paid,
Buyer shall promptly pay Seller the Break Expense. Seller and Buyer agree that actual
damages would be difficult to ascertain under these circumstances and that the amount of
liquidated damages resulting from the determination in the preceding sentence is a good
faith estimate of such damages and not a penalty.
	 
	 	 	If an Initial Purchase Event occurs for any reason other than due to a breach of the
Purchase Agreement by Counterparty, then all payments previously made hereunder, including
the Premium, promptly shall be returned to the person making such payment and no payments
shall be required hereunder in connection with such Initial Purchase Event.

Staggered Settlement: 

If Seller determines reasonably and in good faith that the number of Shares required to be
delivered to Buyer hereunder on any Settlement Date would exceed 9.1% of all outstanding Shares,
then Seller may, by notice to Buyer on or prior to such Settlement Date (a “Nominal Settlement
Date”), elect to deliver the Shares comprising the related Net Share Settlement Amount on two
or more dates (each, a “Staggered Settlement Date”) or at two or more times on the Nominal
Settlement Date as follows:

	1.	 	in such notice, Seller will specify to Buyer the related Staggered Settlement Dates (each of
which will be on or prior to such Nominal Settlement Date, but not more than 30 days prior to
such Nominal Settlement Date) or delivery times and how it will allocate the Shares it is
required to deliver hereunder among the Staggered Settlement Dates or delivery times; and
	 
	2.	 	the aggregate number of Shares that Seller will deliver to Buyer hereunder on all such
Staggered Settlement Dates or delivery times will equal the number of Shares that Seller would
otherwise be required to deliver on such Nominal Settlement Date.

Buyer agrees to credit all such early deliveries against Seller’s obligations hereunder in the
direct order in which such obligations arise. No such early delivery of Shares will accelerate or
otherwise affect any of Buyer’s obligations to Seller hereunder.

Disposition of Hedge Shares: 

Counterparty hereby agrees that if, in the reasonable judgment of Seller or Buyer based on advice
of counsel, the Shares acquired by Seller for the purpose of hedging its obligations pursuant to
the Transaction (the “Hedge Shares”) cannot be sold in the U.S. public market by Seller
without registration under the Securities Act, Counterparty shall, at its election: (i) in order to
allow Seller to sell the Hedge Shares in a registered offering, make available to Seller an
effective registration statement under the Securities Act to cover the resale of such Hedge Shares
and (a) enter into an agreement, in form and substance satisfactory to Seller, substantially in the
form of an underwriting agreement for a registered offering, (b) provide accountant’s “comfort”
letters in customary form for registered offerings of equity securities, (c) provide disclosure
opinions of nationally recognized outside counsel to Counterparty reasonably acceptable to Seller,
(d) provide other customary opinions, certificates and closing documents customary in form for
registered offerings of equity securities and (e) afford Seller a reasonable opportunity to conduct
a “due diligence” investigation with respect to Counterparty customary in scope for underwritten
offerings of equity securities; provided, however, that if Seller, in its sole reasonable
discretion, is not satisfied with access to due diligence materials, the results of its due
diligence investigation, or the procedures and documentation for the registered offering referred
to above, then clause (ii) or clause (iii) of this Section shall apply at the election of
Counterparty; (ii) in order to allow Seller to sell the Hedge Shares in a private placement, enter
into a private placement agreement substantially similar to private placement purchase agreements
customary for private

Confirmation OTC Convertible Note Hedge

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placements of equity securities, in form and substance satisfactory to Seller, including customary
representations, covenants, blue sky and other governmental filings and/or registrations,
indemnities to Seller, due diligence rights (for Seller or any designated buyer of the Hedge Shares
from Seller), opinions and certificates and such other documentation as is customary for private
placements agreements, all reasonably acceptable to Seller (in which case, the Calculation Agent
shall make any adjustments to the terms of the Transaction that are necessary to compensate Seller
for any discount from the public market price of the Shares incurred on the sale of Hedge Shares in
a private placement; provided that any such adjustment shall not reduce the number of Shares
otherwise required to be delivered pursuant to “Delivery Obligation” above by more than 19%);or
(iii) purchase the Hedge Shares from Seller at the VWAP Price on such Exchange Business Days, and
in the amounts, requested by Seller. “VWAP Price” means, on any Exchange Business Day, the
per Share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on
Bloomberg page STEI.Q <equity> AQR (or any successor thereto) in respect of the period from
9:30 a.m. to 4:00 p.m. (New York City time) on such Exchange Business Day (or if such
volume-weighted average price is unavailable, the market value of one Share on such Exchange
Business Day, as determined by the Calculation Agent using a volume-weighted method).

Conversion Rate Adjustment Notices

In connection with any adjustments to the Conversion Rate under the terms of the Note Indenture,
Counterparty shall provide to MLI a copy of the notice of adjustment required to be delivered to
the Trustee pursuant to Section 4.08 of the Note Indenture concurrently with filing of such notice
with the Trustee.

	 	 	 	 	 
	Compliance with 

Securities Laws:	 	Each party represents and agrees that, in connection with this Transaction and all related or
contemporaneous sales and purchases of Shares by either party, Buyer, or in the case of Seller,
the person(s) that directly influences the specific trading decisions of Seller, has complied and
will comply with the applicable provisions of the Securities Act of 1933, as amended (the
“Securities Act”), and the Exchange Act, and the rules and regulations each thereunder,
including, without limitation, Section 9(a) of, and Rules 10b-5 and 13e and Regulation M under,
the Exchange Act; provided that each party shall be entitled to rely conclusively on any
information communicated by the other party concerning such other party’s market activities.

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, Buyer
represents and warrants to Seller 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.
	 
	 	 	 	 
	 	 	Buyer further represents:
	 	 	(a) Buyer 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) Buyer acknowledges that as of the date hereof and without limiting the generality of Section
13.1 of the Equity Definitions, Seller 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.
	 
	 	 	 	 
	 

	 	Account for payments to Buyer:
	 	SunTrust Bank

 Confirmation OTC Convertible Note Hedge

- 9 -

 

	 	 	 	 	 
	 

	 	 	 	Atlanta, Georgia

ABA #061000104

Credit Stewart Enterprises, Inc

1000032706300

SWIFT Code (for international wires): SNTRUS3A
	 
	 	 	 	 
	 

	 	Account for payment to Seller:
	 	JP Morgan Chase Bank, New York

ABA 021000021

FAO: MLI EQUITY DERIVATIVES

Acct: 066213118
	 
	 	 	 	 
	Account Details:

	 	Accounts for deliveries of Shares:
	 	To be advised
	 
	 	 	 	 
	Bankruptcy Rights:	 	In the event of Buyer’s bankruptcy, Seller’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 Seller’s rights with respect to any other claim arising from this
Transaction prior to Buyer’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.
	 
	 	 	 	 
	Collateral:

	 	None.	 	 
	 
	 	 	 	 
	Transfer:	 	Buyer shall have the right to assign its rights and delegate its obligations hereunder with
respect to any portion of this Transaction, subject to Seller’s consent, such consent not to be
unreasonably withheld; provided that such assignment or transfer shall be subject to receipt by
Seller of opinions and documents reasonably satisfactory to Seller and effected on terms
reasonably satisfactory to the Seller with respect to any legal and regulatory requirements
relevant to the Seller; provided further that Buyer shall not be released from its obligation to
deliver any Exercise Notice or its obligations pursuant to “Disposition of Hedge Shares”,
“Repurchase Notices” or “Conversion Rate Adjustment Notices” above.
	 
	 	 	 	 
	 	 	Seller may transfer any of its rights or delegate its obligations under this Transaction with the
prior written consent of Buyer, which consent shall not be unreasonably withheld.
	 
	 	 	 	 
	Regulation:	 	Seller is regulated by The Securities and Futures Authority Limited.

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 Buyer and Seller;
	 
	2.	 	Unless Buyer is a “major U.S. institutional investor,” as defined in Rule 15a-6 of the
Exchange Act, neither Buyer nor Seller 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
Buyer and Seller on a disclosed basis and MLPFS shall have no responsibility or liability to
Buyer or Seller hereunder except for gross negligence or willful misconduct in the performance
of its duties as agent. MLPFS is authorized to act as agent for Buyer, 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 Buyer
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 15a-6 or in

Confirmation OTC Convertible Note Hedge

- 10 -

 

	 	 	accordance with express instructions from Buyer.

ISDA Master Agreement: 

With respect to the Agreement, Seller 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
Seller and will not apply to Counterparty.

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

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

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.

	(a)	 	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.
	 
	(b)	 	Payee Representations. For the purpose of Section 3(f) of the Agreement, each party makes the
following representations to the other party:
	 
	 	 	(i) MLI represents that it is a company organized under the laws of England and Wales.
	 
	 	 	(ii) MLI represents that it is a “non-withholding foreign partnership” for United States
Federal income tax purposes and each partner of MLI is a “non-U.S. branch of a foreign
person” for purposes of section 1.1441-4(a)(3)(ii) of the United States Treasury Regulations
and a “foreign person” for purposes of section 1.6041-4(a)(4) of the United States Treasury
Regulations.

Confirmation OTC Convertible Note Hedge

- 11 -

 

	 	 	(iii) MLI represents that no partner of MLI is (i) a bank that has entered into this
Agreement in the ordinary course of its trade or business of making loans, as described in
section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the “Code”), (ii) a
10% shareholder of Counterparty within the meaning of Code section 871(h)(3)(B), or (iii) a
controlled foreign corporation with respect to Counterparty within the meaning of Code
section 881(c)(3)(C).
	 
	 	 	(iv) 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:
	 
	 	 	MLI agrees to complete (accurately and in a manner reasonably satisfactory to Counterparty),
execute, and deliver to Counterparty, United States Internal Revenue Service Form W-8 IMY
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 MLI has become obsolete or
incorrect.
	 
	 	 	Counterparty agrees to complete (accurately and in a manner reasonably satisfactory to MLI),
execute, and deliver to MLI, United States Internal Revenue Service Form W-9 or W-8 BEN, or
any successor of such form(s): (i) before the first payment date under this agreement; (ii)
promptly upon reasonable demand by MLI; and (iii) promptly upon learning that any such
form(s) previously provided by Counterparty has become obsolete or incorrect.
	 
	(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
certificates as Seller shall
reasonably request
	 	Upon or before
execution and
delivery of this
Confirmation
	 	Yes
	 
	 	 	 	 	 	 
	Seller

	 	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

Additional Notice Requirements. Counterparty hereby agrees to promptly deliver to Seller a copy of
all notices and other communications required or permitted to be given to the holders of any
Reference Notes pursuant to the terms of the Note Indenture on the dates so required or permitted
in the Note Indenture and all other notices given and other communications made by Counterparty in
respect of the Reference Notes to holders of any Reference Notes. Counterparty further covenants to
Seller that it shall promptly notify Seller of each Conversion Date, Amendment Event (including in
such notice a detailed description of any such amendment) and Repayment Event (identifying in such
notice the nature of such Repayment Event and the principal amount at maturity of Reference Notes
being paid).

 Confirmation OTC Convertible Note Hedge

- 12 -

 

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

Address for notices or communications to
Seller for all purposes:

	 	 	 	 	 
	 

	 	Address:
	 	Merrill Lynch International

Merrill Lynch Financial Centre

2 King Edward Street

London EC1A 1HQ
	 
	 	 	 	 
	 

	 	Attention:
	 	Manager, Fixed Income Settlements
	 

	 	Facsimile No.:
	 	44 207 995 2004 
	 

	 	Telephone No.:
	 	44 207 995 3769

Additionally, a copy of all notices pursuant to Sections 5, 6, and 7 as
well as any changes to Counterparty’s address, telephone number or facsimile number should be sent
to:

	 	 	 	 	 
	 

	 	Address:
	 	GMI Counsel

Merrill Lynch World Headquarters

4 World Financial Center

New York, New York 10080
	 
	 	 	 	 
	 

	 	Attention:
	 	Global Equity Derivatives
	 

	 	Facsimile No.:
	 	(212) 449-6576
	 

	 	Telephone No.:
	 	(212) 449-6309

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

	 

	 	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, Seller 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 Seller nor Counterparty

 Confirmation OTC Convertible Note Hedge

- 13 -

 

	 	 	 
	 

	 	is a Multibranch Party.
	 
	 	 
	Calculation Agent.

	 	Seller; 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 Buyer, the Calculation Agent will provide to Buyer by e-mail to the e-mail
address provided by Buyer 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 MLI shall act as Calculation Agent with respect to such
transferred Transaction without the prior consent of Buyer, such consent not to be unreasonably
withheld.

Credit Support Document.

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

Counterparty: Not Applicable

Credit Support Provider.

With respect to Seller: ML&Co.

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 contract participant” as defined in Section 1a(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 1a(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:

Confirmation OTC Convertible Note Hedge

- 14 -

 

	 	(i)	 	Seller 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.

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 therefore “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 therefore “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 Transaction.”

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 Seller 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 Seller) 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 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.

[Signatures follow on separate page]

Confirmation OTC Convertible Note Hedge

- 15 -

 

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 INTERNATIONAL	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 

	 	 	 	 	 
	Confirmed as of the date first above
written:	 	 
	 
	 	 	 	 
	STEWART ENTERPRISES, INC.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	Name:

	 	 

	 	 
	Title:
	 	 	 	 
	 
	 	 	 	 
	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:
	 	 	 	 

 

 

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 International, a company organized
under the laws of England and Wales (“ML”), under the terms of the Confirmation of OTC Convertible
Note Hedge between the Company and ML (ML as Seller), 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.

 

 

     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:exv10w4

 

Exhibit 10.4

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:

	 	 $ 12.9270
	 
	 	 
	Premium:

	 	 $ 20,412,500
	 
	 	 
	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, 2014 each shall be the Expiration Date for a number of
Warrants equal to the Daily Number of Warrants on such date.

Confirmation OTC Warrant

2

 

	 	 	 	 	 
	Exercise Dates:	 	Each Expiration Date shall be an Exercise Date for a number of Warrants
equal to 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
Number and Telex and/or
Facsimile Number and
Contact Details for
purpose of Giving Notice:

	 	
Attention: 

Facsimile No.: 

Telephone No.:
	 	1333 S. Clearview Parkway 

Jefferson, LA 70121

Thomas M. Kitchen, Chief Financial Officer

(504)-729-1407
(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

 Confirmation OTC Warrant

3

 

	 	 	 
	 

	 	<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 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.

Confirmation OTC Warrant

4

 

	 	 	 
	 

	 	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 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.
	 
	 	 
	Limitations on Net 

Physical Settlement by 

Counterparty:

	 	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:
	 	 
	 
	 	 
	Consequences of Merger
Events:

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

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

(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:
Nationalization,
Insolvency or Delisting:

	 	(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. 

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

Confirmation OTC Warrant

6

 

	 	 	 
	Hedging Disruption Event:

	 	Applicable
	 
	 	 
	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

Confirmation OTC Warrant

14

 

Counterparty.

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

Confirmation OTC Warrant

15

 

Counterparty.

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.
	 
	(b)	 	Other documents to be delivered:

Confirmation OTC Warrant

16

 

	 	 	 	 	 	 	 
	 	 	 	 	 	 	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
	 

	 	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:

Confirmation OTC Warrant

17

 

	 	 	 	 	 
	 

	 	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
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.

 Confirmation OTC Warrant

18

 

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
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

Confirmation OTC Warrant

19

 

 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:
	 	 	 	 
	 
	 	 	 	 
	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 Warrant

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