Document:

exv4w1

 

Exhibit 4.1

LEAR CORPORATION

LONG-TERM STOCK INCENTIVE PLAN

(As Amended and Restated Effective May 3, 2001)

Conformed Copy through Fourth Amendment

 

 

LEAR CORPORATION

LONG-TERM STOCK INCENTIVE PLAN

(As Amended and Restated Effective May 3, 2001)

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	Article 1. Establishment, Objectives and Duration
	 	 	1	 
	Article 2. Definitions
	 	 	2	 
	Article 3. Administration
	 	 	7	 
	Article 4. Shares Subject to the Plan and Maximum Awards
	 	 	8	 
	Article 5. Eligibility and Participation
	 	 	10	 
	Article 6. Stock Options
	 	 	10	 
	Article 7. Stock Appreciation Rights
	 	 	12	 
	Article 8. Restricted Stock, Restricted Stock Units and Restricted Units
	 	 	14	 
	Article 9. Performance Units and Performance Shares
	 	 	16	 
	Article 10. Performance Measures
	 	 	18	 
	Article 11. Beneficiary Designation
	 	 	19	 
	Article 12. Deferrals
	 	 	20	 
	Article 13. Rights of Employees
	 	 	20	 
	Article 14. Change in Control
	 	 	20	 
	Article 15. Amendment, Modification and Termination
	 	 	21	 
	Article 16. Withholding
	 	 	22	 
	Article 17. Indemnification
	 	 	23	 
	Article 18. Successors
	 	 	23	 
	Article 19. Legal Construction
	 	 	24	 

 

 

LEAR CORPORATION

LONG-TERM STOCK INCENTIVE PLAN

(AS AMENDED AND RESTATED EFFECTIVE MAY 3, 2001)

Article 1. Establishment, Objectives and Duration

     1.1 Establishment of the Plan. Lear Corporation, a Delaware corporation, hereby amends and
restates its long-term incentive compensation plan, to be known as the “Lear Corporation Long-Term
Stock Incentive Plan (As Amended and Restated Effective May 3, 2001)” as set forth in this
document. Capitalized terms used but not otherwise defined herein will have the meanings given to
them in Article 2. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights, Restricted Stock, Restricted Units, Restricted Stock Units,
Performance Shares and Performance Units. In addition, the Plan provides the opportunity for the
deferral of the payment of salary, bonuses and other forms of incentive compensation.

     The Plan, as amended and restated is effective as of May 3, 2001, and will remain in effect as
provided in Section 1.3 hereof.

     1.2 Objectives of the Plan. The objectives of the Plan are to optimize the profitability and
growth of the Company through long-term incentives that are consistent with the Company’s
objectives and that link the interests of Participants to those of the Company’s shareholders; to
provide Participants with an incentive for excellence in individual performance; to promote
teamwork among Participants; and to give the Company a significant advantage in attracting and
retaining officers, key employees and directors.

     The Plan is further intended to provide flexibility to the Company in its ability to motivate,
attract and retain the services of Participants who make significant contributions to the Company’s
success, and to allow Participants to share in the success of the Company.

     1.3 Duration of the Plan. This amendment and restatement of the Plan will commence on the
Effective Date, as described in Section 1.1, and will remain in effect, subject to the right of the
Committee to amend or terminate the Plan at any time pursuant to Article 15, until all Shares
subject to it pursuant to Article 4 have been issued or transferred according to the Plan’s
provisions. In no event may an Award be granted under the Plan on or after May 3, 2011.

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Article 2. Definitions

     Whenever used in the Plan, the following terms have the meanings set forth below, and when the
meaning is intended, the initial letter of the word is capitalized:

     “Affiliates” means any corporation (or partnership, joint venture, or other enterprise) of
which the Company owns or controls, directly or indirectly, at least fifty percent of the
outstanding shares of stock normally entitled to vote for the election of directors (or comparable
equity participation and voting power). Notwithstanding the foregoing, for purposes of determining
whether an employee has terminated employment with the Company and all Affiliates, “Affiliates”
means any corporation (or partnership, joint venture, or other enterprise) of which the Company
owns or controls, directly or indirectly, at least ten percent of the outstanding shares of stock
normally entitled to vote for the election of directors (or comparable equity participation and
voting power).

     “Award” means, individually or collectively, a grant under this Plan to a Participant of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Restricted Units, Restricted Stock Units, Performance Shares and Performance Units.

     “Award Agreement” means an agreement entered into by the Company and a Participant setting
forth the terms and provisions applicable to an Award or Awards granted to the Participant or the
terms and provisions applicable to an election to defer compensation under Section 8.2.

     “Beneficial Owner” or “Beneficial Ownership” has the meaning ascribed to that term in Rule
13d-3 of the General Rules and Regulations under the Exchange Act.

     “Board” or “Board of Directors” means the Board of Directors of the Company.

     “Cause” has the meaning set forth in any unexpired employment or severance agreement between
the Participant and the Company or an Affiliate. If there is no such agreement, “Cause” means:

	 	(a)	 	the willful and continued failure of the Participant substantially to perform
his or her duties with or for the Company or an Affiliate;
	 
	 	(b)	 	the Participant’s engaging in conduct that is significantly injurious to the
Company or an Affiliate, monetarily or otherwise;

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	 	(c)	 	the Participant’s commission of a crime that is significantly injurious to the
Company or an Affiliate, monetarily, reputationally or otherwise;
	 
	 	(d)	 	the Participant’s abuse of illegal drugs or other controlled substances; or
	 
	 	(e)	 	the Participant’s habitual intoxication.

Unless otherwise defined in the Participant’s employment or severance agreement, an act or omission
is “willful” for this purpose if it was knowingly done, or knowingly omitted to be done, by the
Participant not in good faith and without reasonable belief that the act or omission was in the
best interest of the Company or an Affiliate. For purposes of this Plan, if a Participant is
convicted of a crime or pleads nolo contendere to a criminal charge, he or she will conclusively be
deemed to have committed the crime. The Committee has the discretion, in other circumstances, to
determine in good faith, from all the facts and circumstances reasonably available to it, whether a
Participant who is under investigation for, or has been charged with, a crime will be deemed to
have committed it for purposes of this Plan.

     “Change in Control” of the Company will be deemed to have occurred (as of a particular day, as
specified by the Board) as of the first day any one or more of the following paragraphs is
satisfied.

	 	(a)	 	Any Person (other than the Company or a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a corporation owned
directly or indirectly by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company) becomes the Beneficial Owner,
directly or indirectly, of securities of the Company, representing more than twenty
percent of the combined voting power of the Company’s then outstanding securities.
	 
	 	(b)	 	During any period of twenty-six consecutive months beginning on or after the
Effective Date, individuals who at the beginning of the period constituted the Board
cease for any reason (other than death, Disability or voluntary Retirement) to
constitute a majority of the Board. For this purpose, any new Director whose election
by the Board, or nomination for election by the Company’s shareholders, was approved by
a vote of at least two-thirds of the Directors then still in office, and who either
were Directors at the beginning of the period or whose election or nomination for
election was so approved, will be deemed to have been a Director at the beginning of
any twenty-six month period under consideration.

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	 	(c)	 	The shareholders of the Company approve: (i) a plan of complete liquidation or
dissolution of the Company; or (ii) an agreement for the sale or disposition of all or
substantially all the Company’s assets; or (iii) a merger, consolidation or
reorganization of the Company with or involving any other corporation, other than a
merger, consolidation or reorganization that would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least eighty percent of the combined voting power of the voting
securities of the Company (or such surviving entity) outstanding immediately after
such merger, consolidation, or reorganization.

     Notwithstanding the foregoing, to the extent necessary to avoid subjecting Participants to
interest and additional tax under Section 409A of the Code, no “Change in Control” will be deemed
to occur unless and until paragraph (a), (b) or (c), above, is satisfied and Section
409A(a)(2)(A)(v) of the Code is satisfied.

     “Code” means the Internal Revenue Code of 1986, as amended from time to time.

     “Committee” means, as specified in Article 3, the Compensation Committee of the Board or such
other committee as may be appointed by the Board to administer the Plan.

     “Company” means Lear Corporation, a Delaware corporation, and any successor thereto as
provided in Article 17.

     “Director” means any individual who is a member of the Board of Directors.

     “Disability” means (a) long-term disability as defined under the long-term disability plan of
the Company or an Affiliate that covers that individual, or (b) if the individual is not covered by
such a long-term disability plan, disability as defined for purposes of eligibility for a
disability award under the Social Security Act. Notwithstanding the foregoing, for purposes of
determining the period of time after termination of employment during which a Participant may
exercise an ISO, “Disability” will have the meaning set forth in Section 22(e)(3) of the Code,
which is, generally, that the Participant is unable to engage in any substantial gainful activity
by reason of a medically determinable physical or mental impairment that can be expected to result
in death or that has lasted or can be expected to last for a continuous period of at least twelve
months.

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     Notwithstanding the foregoing, to the extent necessary to avoid subjecting an individual to
interest and additional tax under Section 409A of the Code, such individual shall not be deemed to
have a Disability unless and until Section 409A(a)(2)(C) is satisfied.

     “Effective Date” means May 3, 2001 for purposes of this amendment and restatement of the Plan.
The Plan was originally effective January 1, 1996.

     “Eligible Employee” means any employee of the Company or any of its Affiliates. Directors who
are not employed by the Company or its Affiliates will be considered Eligible Employees under this
Plan, but only for purposes of Awards of Nonqualified Stock Options.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any
successor act thereto.

     “Exercise Price” means the price at which a Share may be purchased by a Participant pursuant
to an Option.

     “Fair Market Value” means:

	 	(a)	 	the closing trading price of the Shares on the New York Stock Exchange or, if
the Shares are not traded on the New York Stock Exchange, on the NASDAQ Stock Market or
any other exchange on which they are traded; or
	 
	 	(b)	 	if the Shares are not traded on any exchange, the mean between the closing bid
and asked prices of the Shares in the over-the-counter market; or
	 
	 	(c)	 	if those bid and asked prices are not available, then the fair market value as
reported by any nationally recognized quotation service selected by the Committee or as
determined by the Committee.

     “Freestanding SAR” means an SAR that is granted independently of any Options, as described in
Article 7.

     “Incentive Stock Option” or “ISO” means an option to purchase Shares granted under Article 6
that is designated as an Incentive Stock Option and that is intended to meet the requirements of
Code Section 422.

     “Nonqualified Stock Option” or “NQSO” means an option to purchase Shares granted under Article
6 that is not intended to meet the requirements of Code Section 422.

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     “Option” means an Incentive Stock Option or a Nonqualified Stock Option, as described in
Article 6.

     “Participant” means an Eligible Employee who has been selected by the Committee to participate
in the Plan pursuant to Section 5.2 and who has outstanding an Award granted under the Plan. The
term “Participant” will include Directors who are not employees of the Company or an Affiliate only
if they are chosen to receive Awards of Nonqualified Stock Options, and only for purposes of
Nonqualified Stock Options.

     “Performance-Based Exception” means the performance-based exception from the tax deductibility
limitations of Code Section 162(m) and any regulations promulgated thereunder.

     “Performance Period” means the time period during which performance objectives must be met in
order for a Participant to earn Performance Units or Performance Shares granted under Article 9.

     “Performance Share” means an Award with an initial value equal to the Fair Market Value on the
date of grant which is based on the Participant’s attainment of performance objectives, as
described in Article 9.

     “Performance Unit” means an Award with an initial value established by the Committee at the
time of grant which is based on the Participant’s attainment of performance objectives, as
described in Article 9.

     “Person” has the meaning ascribed to that term in Section 3(a)(9) of the Exchange Act and used
in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.

     “Plan” means the Lear Corporation Long-Term Stock Incentive Plan, as set forth in this
document.

     “Prior Plan” means the Lear Corporation 1994 Stock Option Plan or the Lear Corporation 1996
Stock Option Plan.

     “Restriction Period” means the period during which the transfer of Shares of Restricted Stock
is limited in some way (based on the passage of time, the achievement of performance objectives, or
the occurrence of other events as determined by the Committee, at its discretion) or the Restricted
Stock is not vested.

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     “Restricted Stock” means a contingent grant of stock awarded to a Participant pursuant to
Article 8.

     “Restricted Stock Unit” means a Restricted Unit granted to a Participant, as described in
Article 8, that is payable in Shares.

     “Restricted Unit” means a notional account established pursuant to an Award granted to a
Participant, as described in Article 8, that is (a) credited with amounts equal to Shares or some
other unit of measurement specified in the Award Agreement, (b) subject to restrictions and (c)
payable in cash or Shares.

     “Retirement” means termination of employment on or after (a) reaching the age established by
the Company as the normal retirement age in any unexpired employment agreement between the
Participant and the Company or an Affiliate, or, in the absence of such an agreement, the normal
retirement age under the tax-qualified defined benefit retirement plan or, if none, the
tax-qualified defined contribution retirement plan, sponsored by the Company or an Affiliate in
which the Participant participates, or (b) reaching age sixty-two with ten years of service with
the Company or an Affiliate, provided the retirement is approved by the Chief Executive Officer of
the Company, unless the Participant is an officer subject to Section 16 of the Exchange Act, in
which case the retirement must be approved by the Committee.

     “Shares” means the shares of common stock, $0.01 par value, of the Company, including their
associated preferred share purchase rights, if applicable.

     “Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with a
related Option, designated as an SAR pursuant to the terms of Article 7.

     “Tandem SAR” means an SAR that is granted in connection with a related Option pursuant to
Article 7, the exercise of which requires forfeiture of the right to purchase a Share under the
related Option (and when a Share is purchased under the Option, the Tandem SAR will similarly be
canceled).

Article 3. Administration

     3.1 The Committee. The Plan will be administered by the Compensation Committee of the Board,
or by any other Committee appointed by the Board, which Committee (unless otherwise determined by
the Board) will satisfy the “nonemployee director” requirements of Rule 16b-3 under the Exchange
Act

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and the regulations of Rule 16b-3 under the Exchange Act and the “outside director” provisions
of Code Section 162(m), or any successor regulations or provisions. The members of the Committee
will be appointed from time to time by, and serve at the discretion of, the Board of Directors.
The Committee will act by a majority of its members at the time in office and eligible to vote on
any particular matter, and Committee action may be taken either by a vote at a meeting or in
writing without a meeting.

     3.2 Authority of the Committee. Except as limited by law and subject to the provisions of
this Plan, the Committee will have full power to: select Eligible Employees to participate in the
Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a
manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend or waive rules and regulations for the Plan’s
administration; and (subject to the provisions of Article 15) amend the
terms and conditions of any outstanding Award to the extent they are within the discretion of
the Committee as provided in the Plan. Further, the Committee will make all other determinations
that may be necessary or advisable to administer the Plan. As permitted by law and consistent with
Section 3.1, the Committee may delegate some or all of its authority under the Plan.

     3.3 Decisions Binding. All determinations and decisions made by the Committee pursuant to the
provisions of the Plan will be final, conclusive and binding on all persons, including, without
limitation, the Company, its Board of Directors, its shareholders, all Affiliates, employees,
Participants and their estates and beneficiaries.

Article 4. Shares Subject to the Plan and Maximum Awards

     4.1 Number of Shares Available for Grants. Subject to adjustment as provided in Sections 4.2
and 4.3, the number of Shares that may be issued or transferred to Participants under the Plan is
14,690,000, plus any Shares that are or become available for grants of awards under any of the
Prior Plans on or after the Effective Date. On and after the Effective Date, any Shares that are
or become available for grants of awards under the Prior Plans will be subject to Awards under this
Plan only, and no additional awards will be made under any of the Prior Plans. In addition to
the maximum Awards described above, remaining Shares available will be reduced by 2.15 for each
Share awarded pursuant to Restricted Stock, Restricted Units, Restricted Stock Units, Performance
Shares, Performance Units or other Awards with value denominated in full Shares. Each
Share-settled SAR will count as one Share, notwithstanding the fact that the net Shares delivered
upon exercise may be less than the number of Share-settled SARs granted.

     Subject to adjustment as provided in Section 4.3, the maximum number of Shares and Share
equivalent units that may be granted during any calendar year to any one Participant under

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Options, Freestanding SARs, Restricted Stock, Restricted Units or Performance Shares is 300,000, which limit
will apply regardless of whether the compensation is paid in Shares or in cash. The maximum number
of Shares that may be issued by Options intended to be ISOs is 2,000,000.

     The Shares with respect to which Awards may be made will include authorized but unissued
Shares, and Shares that are currently held or subsequently acquired by the Company as treasury
Shares, including Shares purchased in the open market or in private transactions.

     4.2 Lapsed Awards. If any Award granted under this Plan is canceled, terminates, expires or
lapses for any reason, any Shares subject to the Award will again be available for the grant of an
Award under the Plan. In addition, if a Share subject to an Award is not delivered because the
award is settled in cash, then that Share will thereafter be deemed to be available for
grant. If a Share subject to an Award is not delivered because it is used to satisfy a tax
withholding obligation or used to pay the Exercise Price of an Option, then that Share will not
thereafter be deemed to be available for grant.

     4.3 Adjustments in Authorized Shares.

	 	(a)	 	If the Shares, as currently constituted, are changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company or of
another corporation (whether because of merger, consolidation, recapitalization,
reclassification, split, reverse split, combination of shares, or otherwise) or if the
number of Shares is increased through the payment of a stock dividend, then the
Committee will substitute for or add to each Share previously appropriated, later
subject to, or which may become subject to, an Award, the number and kind of shares of
stock or other securities into which each outstanding Share was changed for which each
such Share was exchanged, or to which each such Share is entitled, as the case may be.
The Committee will also appropriately amend outstanding Awards as to price and other
terms, to the extent necessary to reflect the events described above. If there is any
other change in the number or kind of the outstanding Shares, of any stock or other
securities into which the outstanding Shares have been changed, or for which they have
been exchanged, the Committee may, in its sole discretion, appropriately adjust any
Award already granted or which may be afterward granted.
	 
	 	(b)	 	Fractional Shares resulting from any adjustment in Awards pursuant to this
section may be settled in cash or otherwise as the Committee determines. The

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	 	 	 	Company will give notice of any adjustment to each Participant who holds an Award that has been
adjusted and the adjustment (whether or not that notice is given) will be effective and
binding for all Plan purposes.

Article 5. Eligibility and Participation

     5.1 Eligibility. All Eligible Employees, including Eligible Employees who are members of the
Board, are eligible to participate in this Plan.

     5.2 Actual Participation. Subject to the provisions of the Plan, the Committee will, from
time to time, select those Eligible Employees to whom Awards will be granted, and will determine
the nature and amount of each Award.

Article 6. Stock Options

     6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted
to Eligible Employees in the number, and upon the terms, and at any time and from time to time, as
determined by the Committee.

     6.2 Award Agreement. Each Option grant will be evidenced by an Award Agreement that specifies
the Exercise Price, the duration of the Option, the number of Shares to which the Option pertains,
the manner, time and rate of exercise or vesting of the Option, and such other provisions as the
Committee determines. The Award Agreement will also specify whether the Option is intended to be
an ISO or an NQSO, and whether reload options will be granted.

     6.3 Exercise Price. The Exercise Price for each share subject to an Option will be at least
one hundred percent of the Fair Market Value on the date the Option is granted.

     6.4 Duration of Options. Each Option will expire at the time determined by the Committee at
the time of grant, but no later than the tenth anniversary of the date of its grant.

     6.5 No Dividend Equivalents. The Committee may not grant payments in connection with Options
that are equivalent to dividends declared and paid on the Shares underlying the Options.

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     6.6 Exercise of Options. Options will be exercisable at such times and be subject to
such restrictions and conditions as the Committee in each instance approves, which need not be the
same for each Award or for each Participant.

     6.7 Payment. The holder of an Option may exercise the Option only by delivering a written
notice of exercise to the Company setting forth the number of Shares as to which the Option is to
be exercised, together with full payment at the Exercise Price for the Shares and any withholding
tax relating to the exercise of the Option.

     The Exercise Price and any related withholding taxes will be payable to the Company in full
either: (a) in cash, or its equivalent, in United States dollars; (b) if permitted in the
governing Award Agreement, by tendering Shares owned by the Participant and duly endorsed for
transfer to the Company, Shares issuable to the Participant upon exercise of the Option, or any
combination of cash, certified or cashier’s check and Shares described in this clause (b); or (c)
by any other means the Committee determines to be consistent with the Plan’s purposes and
applicable law. Cashless exercise must meet the requirements of the Federal Reserve Board’s
Regulation T and any applicable securities law restrictions. In a “cashless” exercise, the
Participant notifies the Company it will exercise, and the Company is instructed to deliver the
Share issuable on exercise to a broker, who sells the Shares and holds back the exercise price
(and, often, the federal and state withholdings). No more than the minimum required withholding
may be satisfied by the tender of Shares.

     6.8 Reload Options. The Committee may provide for reload options in the Award Agreement
evidencing an Option. Any reload feature will be subject to the following requirements:

	 	(a)	 	it must not be added to an already outstanding Option, but must be part of the
Option as originally granted;
	 
	 	(b)	 	the reload must be automatic, not subject to the discretion of the Committee or
anyone else;
	 
	 	(c)	 	it must have an Exercise Price at least equal to the Fair Market Value of a
Share at the time of reload;
	 
	 	(d)	 	it may be granted with respect only to previously-owned Shares used to pay the
Exercise Price of the original Option, and only if the Participant has owned the Shares
used to pay the Exercise Price for at least six months;

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	 	(e)	 	the Award Agreement that contains the reload feature must not permit multiple
reloads (i.e., no reload Options may be granted on Shares acquired through reload
Options) and must subject any Option granted on reload to a vesting period of at least
six months; and
	 
	 	(f)	 	it must limit the duration of reload Options, by providing that an Option
granted on reload expires at the same time as the initial Option would have.

     6.9 Restrictions on Share Transferability. The Committee may impose such restrictions on any
Shares acquired through exercise of an Option as it deems necessary or advisable, including,
without limitation, restrictions under applicable federal securities laws, under the requirements
of any stock exchange or market upon which the Shares are then listed or traded, and under any blue
sky or state securities laws applicable to the Shares.

     6.10 Termination of Employment. Each Option Award Agreement will set forth the extent to
which the Participant has the right to exercise the Option after his or her termination of
employment with the Company and all Affiliates. These terms will be determined by the Committee in
its sole discretion, need not be uniform among all Options, and may reflect, among other things,
distinctions based on the reasons for termination of employment.

     6.11 Nontransferability of Options. Except as otherwise provided in a Participant’s Award
Agreement, no Option granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution,
or pursuant to a domestic relations order (as defined in Code Section 414(p)). In no event may an
Option be transferred to a third party for value or consideration without prior approval of the
Company’s shareholders. Further, except as otherwise provided in a Participant’s Award Agreement,
all Options will be exercisable during the Participant’s lifetime only by the Participant or his or
her guardian or legal representative. The Committee may, in its discretion, require a
Participant’s guardian or legal representative to supply it with the evidence the Committee deems
necessary to establish the authority of the guardian or legal representative to act on behalf of
the Participant.

Article 7. Stock Appreciation Rights

     7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to
Participants at any time and from time to time, as determined by the Committee. The Committee may
grant Freestanding SARs, Tandem SARs or any combination of the two.

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     Within the limits of Article 4, the Committee will have sole discretion to determine the
number of SARs granted to each Participant and, consistent with the provisions of the Plan, to
determine the terms and conditions pertaining to SARs.

     The grant price of a Freestanding SAR will equal the Fair Market Value on the date of grant of
the SAR. The grant price of a Tandem SAR will equal the per Share Exercise Price of the Option to
which it relates.

     7.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares
subject to the related Option, upon the surrender of the right to exercise the equivalent portion
of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its
related Option is then exercisable.

     7.3 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes.

     7.4 Award Agreement. Each SAR grant will be evidenced by an Award Agreement that specifies
the grant price, the term of the SAR and such other provisions as the Committee determines.

     7.5 Term of SARS. The term of an SAR will be determined by the Committee, in its sole
discretion, but may not exceed ten years.

     7.6 Payment of SAR Amount. Upon exercise of an SAR, a Participant will be entitled to receive
payment from the Company in an amount determined by multiplying:

	 	(a)	 	the excess (or some portion of the excess as determined at the
time of the grant by the Committee) if any, of the Fair Market Value on the
date of exercise of the SAR over the grant price specified in the Award
Agreement; by
	 
	 	(b)	 	the number of Shares as to which the SAR is exercised.

The payment upon SAR exercise may be made in cash, in Shares of equivalent Fair Market Value or in
some combination of the two, as specified in the Award Agreement.

     7.7 Termination of Employment. Each SAR Award Agreement will set forth the extent to which
the Participant has the right to exercise the SAR after his or her termination of employment with
the Company and all Affiliates. These terms will be determined by the Committee in its sole
discretion, need not be uniform among all SARs issued under the Plan, and

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may reflect, among other things, distinctions based on the reasons for termination of employment.

     7.8 Nontransferability of SARs. Except as otherwise provided in a Participant’s Award
Agreement, no SAR may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution, or pursuant to a
domestic relations order (as defined in Code Section 414(p)). In no event may an SAR be
transferred to a third party for value or consideration without prior approval of the Company’s
shareholders. Further, except as otherwise provided in a Participant’s Award Agreement, all SARs
will be exercisable during the Participant’s lifetime only by the Participant or the Participant’s
guardian or legal representative. The Committee may, in its discretion, require a Participant’s
guardian or legal representative to supply it with evidence the Committee deems necessary to
establish the authority of the guardian or legal representative to act on behalf of the
Participant.

     7.9 No Dividend Equivalents. The Committee may not grant payments in connection with SARs
that are equivalent to dividends declared and paid on the Shares underlying the SARs.

Article 8. Restricted Stock, Restricted Stock Units and Restricted Units

     8.1 Grant of Restricted Stock, Restricted Stock Units or Restricted Units. Subject to the
terms and provisions of the Plan, the Committee may, at any time and from time to time, grant
Restricted Stock, Restricted Stock Units or Restricted Units to Participants in such amounts as it
determines.

     8.2 Deferral of Compensation into Restricted Stock Units. Subject to the terms and provisions
of the Plan, the Committee may, at any time and from time to time, allow (or require, as to
bonuses) selected Eligible Employees to defer the payment of any portion of their salary or annual
bonuses or both pursuant to this section. A Participant’s deferral under this section will be
credited to the Participant in the form of Shares of Restricted Stock Units. The Committee will
establish rules and procedures for the deferrals, as it deems appropriate.

     In consideration for forgoing compensation, the dollar amount deferred by a Participant may be
increased by fifty percent (or such lesser percentage as the Committee may determine) for purposes
of determining the number of Restricted Stock Units to grant the Participant. If a Participant’s
compensation is deferred under this Section 8.2, he or she will be credited, as of the date
specified in the Award Agreement, with a number of Restricted Stock Units equal to the

- 14 -

 

amount of the deferral (increased as described above) divided by the Fair Market Value on that date.

     8.3 Award Agreement. Each grant of Restricted Stock, Restricted Units or Restricted Stock
Units will be evidenced by an Award Agreement that specifies the Restriction Periods, the number of
Shares or Share equivalent units granted, and such other provisions as the Committee determines.

     8.4 Nontransferability. Restricted Stock, Restricted Units and Restricted Stock Units granted
herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution, or pursuant to a domestic relations
order (as defined in Code Section 414(p)), until the end of the applicable Restriction Period as
specified in the Award Agreement, or upon earlier satisfaction of any other conditions specified by
the Committee in its sole discretion and set forth in the Award Agreement. Without prior approval
of the Company’s shareholders, in no event may Restricted Stock, Restricted Units or Restricted
Stock Units be transferred to a third party for value or consideration unless and until such Award
has vested or the Shares underlying such Awards have been issued and the applicable Restriction
Period has ended. All rights with respect to Restricted Stock, Restricted Units and Restricted
Stock Units will be available during the Participant’s lifetime only to the Participant or the
Participant’s guardian or legal representative. The Committee may, in its discretion, require a
Participant’s guardian or legal representative to supply it with evidence the Committee deems
necessary to establish the authority of the guardian or legal representative to act on behalf of
the Participant.

     8.5 Other Restrictions. Subject to Article 11, the Committee may impose such other conditions
or restrictions on any Restricted Stock, Restricted Units or Restricted Stock Units as it deems
advisable including, without limitation, restrictions based upon the achievement of specific
performance objectives (Company-wide, business unit, individual, or any combination of them),
time-based restrictions on vesting following the attainment of the performance objectives, and
restrictions under applicable federal or state securities laws. The Committee may provide that
restrictions established under this Section 8.5 as to any given Award will lapse all at once or in
installments.

     The Company will retain the certificates representing Shares of Restricted Stock in its
possession until all conditions and restrictions applicable to the Shares have been satisfied.

     8.6 Payment of Awards. Except as otherwise provided in this Article 8, Shares covered by each
Restricted Stock grant will become freely transferable by the Participant after

- 15 -

 

the last day of the applicable Restriction Period, and Share equivalent units covered by a Restricted Unit will be paid
out in cash or Shares to the Participant following the last day of the applicable Restriction
Period, or on a later date provided in the Award Agreement.

     8.7 Voting Rights. During the Restriction Period, Participants holding Shares of Restricted
Stock may exercise full voting rights with respect to those Shares.

     8.8 Dividends and Other Distributions. During the Restriction Period, Participants awarded
Shares of Restricted Stock, Restricted Units or Restricted Stock Units hereunder will be credited
with regular cash dividends or dividend equivalents paid on those Shares or with respect to those
Share equivalent units. Dividends may be paid currently, accrued as contingent cash obligations,
or converted into additional Shares of Restricted Stock, upon such terms as the Committee
establishes.

     The Committee may apply any restrictions it deems advisable to the crediting and payment of
dividends and other distributions. Without limiting the generality of the preceding sentence, if
the grant or vesting of Restricted Stock is designed to qualify for the Performance-Based
Exception, the Committee may apply any restrictions it deems appropriate to the payment of
dividends declared with respect to the Restricted Stock, so that the dividends and the Restricted
Stock continue to be eligible for the Performance-Based Exception.

     8.9 Termination of Employment. Each Award Agreement will set forth the extent to which the
Participant has the right to retain unvested Restricted Stock or Restricted Units after his or her
termination of employment with the Company or an Affiliate. These terms will be determined by the
Committee in its sole discretion, need not be uniform among all Awards of Restricted Stock, and may
reflect, among other things, distinctions based on the reasons for termination of employment.

Article 9. Performance Units and Performance Shares

     9.1 Grant of Performance Units or Performance Shares. Subject to the terms of the Plan,
Performance Units or Performance Shares may be granted to Participants in such amounts and upon
such terms, and at any time and from time to time, as the Committee determines.

     9.2 Value of Performance Units and Performance Shares. Each Performance Unit will have an
initial value established by the Committee at the time of grant. Each Performance Share will have
an initial value equal to the Fair Market Value on the date of grant. The

- 16 -

 

Committee will set performance objectives in its discretion which, depending on the extent to which they are met, will
determine the number or value (or both) of Performance Units or Performance Shares that will be
paid out to the Participant. For purposes of this Article 9, the time period during which the
performance objectives must be met will be called a “Performance Period” and will be set by the
Committee in its discretion.

     9.3 Earning of Performance Units and Performance Shares. Subject to the terms of this Plan,
after the applicable Performance Period has ended, the holder of Performance Units or Performance
Shares will be entitled to receive payout on the number and value of Performance Units or
Performance Shares earned by the Participant over the Performance Period, to be determined as a
function of the extent to which the corresponding performance objectives have been achieved.

     9.4 Award Agreement. Each grant of Performance Units or Performance Shares will be evidenced
by an Award Agreement specifying the material terms and conditions of the Award (including the form
of payment of earned Performance Units or Performance Shares), and such other provisions as the
Committee determines.

     9.5 Form and Timing of Payment of Performance Units and Performance Shares. Except as
provided in Article 12, payment of earned Performance Units and Performance Shares will be made as
soon as practicable after the close of the applicable Performance Period, in a manner determined by
the Committee in its sole discretion. The Committee will pay earned Performance Units and
Performance Shares in the form of cash, in Shares, or in a combination of cash and Shares, as
specified in the Award Agreement. Performance Shares may be paid subject to any restrictions
deemed appropriate by the Committee.

     9.6 Termination of Employment Due to Death or Disability. Unless determined otherwise by the
Committee and set forth in the Participant’s Award Agreement, if a Participant’s employment is
terminated by reason of death or Disability during a Performance Period, the Participant will
receive a prorated payout of the Performance Units or Performance Shares, as specified by the
Committee in its discretion in the Award Agreement. Payment of earned Performance Units and
Performance Shares will be made at a time specified by the Committee in its sole discretion and set
forth in the Participant’s Award Agreement.

     9.7 Termination of Employment for Other Reasons. If a Participant’s employment terminates
during a Performance Period for any reason other than death or Disability, the

- 17 -

 

Participant will forfeit all Performance Units and Performance Shares to the Company, unless the Participant’s Award
Agreement provides otherwise.

     9.8 Nontransferability. Except as otherwise provided in a Participant’s Award Agreement,
Performance Units and Performance Shares may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, other than by will or by the laws of descent and
distribution, or pursuant to a domestic relations order (as defined in Code Section 414(p)).
Without prior approval of the Company’s shareholders, in no event may Performance Units or
Performance Shares be transferred to a third party for value or consideration prior to the vesting
of such Award or the issuance of Shares in respect of such Award. Further, except as otherwise
provided in a Participant’s Award Agreement, a Participant’s rights under the Plan will be
exercisable during the Participant’s lifetime only by the Participant or Participant’s guardian or
legal representative. The Committee may, in its discretion, require a Participant’s guardian or
legal representative to supply it with evidence the Committee deems necessary to establish the
authority of the guardian or legal representative to act on behalf of the Participant.

Article 10. Performance Measures

     Unless and until the Committee proposes and the Company’s shareholders approve a change in the
general performance measures set forth in this Article 10, the performance measure(s) to be used
for purposes of Awards (both those granted on or prior to the date of the 2006 annual meeting of
the Company’s shareholders and those granted after the date of such meeting) designed to qualify
for the Performance-Based Exception will be chosen from among the following alternatives:

	 	(a)	 	net earnings;
	 
	 	(b)	 	operating earnings or income;
	 
	 	(c)	 	earnings growth;
	 
	 	(d)	 	net income (absolute or competitive growth rates comparative);
	 
	 	(e)	 	net income applicable to Common Stock;
	 
	 	(f)	 	cash flow, including operating cash flow, free cash flow, discounted cash flow
return on investment, and cash flow in excess of cost of capital;
	 
	 	(g)	 	earnings per Common share;

- 18 -

 

	 	(h)	 	return on shareholders equity (absolute or peer-group comparative);
	 
	 	(i)	 	stock price (absolute or peer-group comparative);
	 
	 	(j)	 	absolute and/or relative return on common shareholders equity;
	 
	 	(k)	 	absolute and/or relative return on capital;
	 
	 	(l)	 	absolute and/or relative return on assets;
	 
	 	(m)	 	economic value added (income in excess of cost of capital);
	 
	 	(n)	 	customer satisfaction;
	 
	 	(o)	 	expense reduction; and
	 
	 	(p)	 	ratio of operating expenses to operating revenues.

     The Committee will have the discretion to adjust targets set for preestablished performance
objectives; however, Awards designed to qualify for the Performance-Based Exception may not be
adjusted upward, except to the extent permitted under Code Section 162(m), to reflect accounting
changes or other events.

     If Code Section 162(m) or other applicable tax or securities laws change to allow the
Committee discretion to change the types of performance measures without obtaining shareholder
approval, the Committee will have sole discretion to make such changes without obtaining
shareholder approval. In addition, if the Committee determines it is advisable to grant Awards
that will not qualify for the Performance-Based Exception, the Committee may grant Awards that do
not so qualify.

Article 11. Beneficiary Designation

     Each Participant may, from time to time, name any beneficiary or beneficiaries (who may be
named contingently or successively) to whom any benefit under the Plan is to be paid in case the
Participant should die before receiving any or all of his or her Plan benefits. Each beneficiary
designation will revoke all prior designations by the same Participant, must be in a form
prescribed by the Committee, and must be made during the Participant’s lifetime. If the
Participant’s designated beneficiary predeceases the Participant or no beneficiary has been

- 19 -

 

designated, benefits remaining unpaid at the Participant’s death will be paid to the Participant’s
estate or other entity described in the Participant’s Award Agreement.

Article 12. Deferrals

     The Committee may permit or require a Participant to defer receipt of cash or Shares that
would otherwise be due to him or her by virtue of an Option or SAR exercise, the lapse or waiver of
restrictions on Restricted Stock, or the satisfaction of any requirements or objectives with
respect to Performance Units or Performance Shares. If any such deferral election is permitted or
required, the Committee will, in its sole discretion, establish rules and procedures for such
deferrals. Notwithstanding the foregoing, the Committee in its sole discretion may defer payment
of cash or the delivery of Shares that would otherwise be due to a Participant under the Plan if
payment or delivery would result in the Company’s or an Affiliate’s being unable to deduct
compensation under Code Section 162(m). Deferral of payment or delivery by the Committee may
continue until the Company or Affiliate is able to deduct the payment or delivery under the Code.

Article 13. Rights of Employees

     13.1 Employment. Nothing in the Plan will interfere with or limit in any way the right of the
Company or any affiliate of the Company (as defined in federal securities laws) to terminate any
Participant’s employment at any time, or confer upon any Participant any right to continue in the
employ of the Company or any Affiliate.

     13.2 Participation. No Eligible Employee will have the right to receive an Award under this
Plan, or, having received any Award, to receive a future Award.

Article 14. Change in Control

     14.1 Treatment of Outstanding Awards. Upon the occurrence of a Change in Control, unless
otherwise specifically prohibited under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchanges:

	 	(a)	 	any and all outstanding Options and SARs will become immediately exercisable,
and will remain exercisable throughout their entire term;

- 20 -

 

	 	(b)	 	any Restriction Periods or other restrictions imposed on Restricted Stock,
Restricted Stock Units and Restricted Units will lapse, except that the degree of
vesting associated with those awards that is conditioned on the achievement of
performance conditions will be determined as set forth in Section 14.1(c);
	 
	 	(c)	 	except as otherwise provided in the Award Agreement, the vesting of all
Performance Units and Performance Shares will be accelerated as of the effective date
of the Change in Control, and Participants will be paid in cash, within thirty days
after the effective date of the Change in Control, a pro rata amount based on an
assumed achievement of all relevant performance objectives at target levels, and upon
the length of time within the Performance Period that elapsed prior to the effective
date of the Change in Control; and
	 
	 	(d)	 	notwithstanding the foregoing, if the Committee determines that actual
performance to the effective date of the Change in Control exceeds target levels, the
prorated payouts made pursuant to Sections 14.1(b) and (c) will be made at levels
commensurate with the actual performance (determined by extrapolating the actual
performance to the end of the Performance Period) based on the length of time within
the Performance Period that elapsed prior to the Change in Control.

     14.2 Termination, Amendment and Modifications of Change in Control Provisions.
Notwithstanding any other provision of this Plan or any provision in an Award Agreement, this
Article 14 may not be terminated, amended or modified on or after the effective date of a Change in
Control in a way that would adversely affect any Award theretofore granted to a Participant, unless
the Participant gives his or her prior written consent to the amendment.

Article 15. Amendment, Modification and Termination

     15.1 Amendment, Modification and Termination. Subject to Section 14.2, the Committee may at
any time and from time to time, alter, amend, modify or terminate the Plan in whole or in part.
The Committee will not, however, increase the number of Shares that may be issued or transferred to
Participants under the Plan, as described in the first sentence of Section 4.1 (and subject to
adjustment as provided in Sections 4.2 and 4.3).

     Subject to the terms and conditions of the Plan, the Committee may modify, extend or renew
outstanding Awards under the Plan, or accept the surrender of outstanding Awards (to the extent not
already exercised) and grant new Awards in substitution of them (to the extent not already
exercised). Except as provided in Sections 4.3 and 15.2, the Committee will not,

- 21 -

 

however, modify any outstanding Option or SAR so as to specify a lower Exercise Price or grant price (and will not
cancel an Option or SAR and substitute for it an Option or SAR with a lower Exercise price or grant
price), without the approval of the Company’s shareholders. In addition, except as provided in
Sections 4.3 and 15.2, the Committee may not cancel an outstanding Option or SAR whose Exercise
Price or grant price is equal to or greater than the current Fair Market Value of a Share and
substitute for it another Award without the prior approval of the Company’s stockholders.
Notwithstanding the foregoing, no modification of an Award will, without the prior written consent
of the Participant, alter or impair any rights or obligations under any Award already granted under
the Plan.

     15.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. In
recognition of unusual or nonrecurring events (including, without limitation, the events described
in Section 4.3) affecting the Company or its financial statements, or in recognition of changes in
applicable laws, regulations, or accounting principles, and, whenever the Committee determines that
adjustments are appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, the Committee may, using
reasonable care, make adjustments in the terms and conditions of, and the criteria included in,
Awards. In case of an Award designed to qualify for the Performance-Based Exception, the Committee
will take care not to make an adjustment that would disqualify the Award.

     15.3 Awards Previously Granted. No termination, amendment or modification of the Plan will
adversely affect in any material way any Award already granted, without the written consent of the
Participant who holds the Award.

     15.4 Compliance with Code Section 162(m). Awards will comply with the requirements of Code
Section 162(m), unless the Committee determines that such compliance is not desired with respect to
an Award available for grant under the Plan. In addition, if changes are made to Code Section
162(m) to permit greater flexibility as to any Award available under the Plan, the Committee may,
subject to this Article 15, make any adjustments it deems appropriate.

Article 16. Withholding

     16.1 Tax Withholding. The Company will have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and
local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any
taxable event arising under this Plan. No Award Agreement will permit

- 22 -

 

reload options to be granted in connection with any Shares used to pay a tax withholding obligation.

     16.2 Share Withholding. With respect to withholding required upon the exercise of Options or
SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising
as a result of Awards granted hereunder, the Company may satisfy the minimum
withholding requirement for supplemental wages, in whole or in part, by withholding Shares having a Fair Market
Value (determined on the date the Participant recognizes taxable income on the Award) equal to the
minimum withholding tax required to be collected on the transaction. The Participant may elect,
subject to the approval of the Committee, to deliver the necessary funds to satisfy the withholding
obligation to the Company, in which case there will be no reduction in the Shares otherwise
distributable to the Participant.

Article 17. Indemnification

     Each person who is or has been a member of the Committee or the Board will be indemnified and
held harmless by the Company from and against any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or as a result of any claim,
action, suit or proceeding to which he or she may be a party or in which he or she may be involved
by reason of any action taken, or failure to act, under the Plan. Each such person will also be
indemnified and held harmless by the Company from and against any and all amounts paid by him or
her in a settlement approved by the Company, or paid by him or her in satisfaction of any judgment,
of or in a claim, action, suit or proceeding against him or her and described in the previous
sentence, so long as he or she gives the Company an opportunity, at its own expense, to handle and
defend the claim, action, suit or proceeding before he or she undertakes to handle and defend it.
The foregoing right of indemnification will not be exclusive of any other rights of indemnification
to which a person who is or has been a member of the Committee or the Board may be entitled under
the Company’s Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or any power
that the Company may have to indemnify him or her or hold him or her harmless.

Article 18. Successors

     All obligations of the Company under the Plan or any Award Agreement will be binding on any
successor to the Company, whether the existence of the successor results from a direct or indirect
purchase of all or substantially all of the business or assets of the Company or both, or a merger,
consolidation, or otherwise.

- 23 -

 

Article 19. Legal Construction

     19.1 Number. Except where otherwise indicated by the context, any plural term used in this
Plan includes the singular and a singular term includes the plural.

     19.2 Severability. If any provision of the Plan is held illegal or invalid for any reason,
the illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be
construed and enforced as if the illegal or invalid provision had not been included.

     19.3 Requirements of Law. The granting of Awards and the issuance of Share or cash payouts
under the Plan will be subject to all applicable laws, rules, and regulations, and to any approvals
by governmental agencies or national securities exchanges as may be required.

     19.4 Securities Law Compliance. As to any individual who is, on the relevant date, an
officer, director or ten percent beneficial owner of any class of the Company’s equity securities
that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of
the Exchange Act, transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 under the Exchange Act, or any successor rule. To the extent any
provision of the Plan or action by the Committee fails to so comply, it will be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.

     19.5 Awards to Foreign Nationals and Employees Outside the United States. To the extent the
Committee deems it necessary, appropriate or desirable to comply with foreign law of practice and
to further the purposes of this Plan, the Committee may, without amending the Plan, (i) establish
rules applicable to Awards granted to Participants who are foreign nationals, are employed outside
the United States, or both, including rules that differ from those set forth in this Plan, and (ii)
grant Awards to such Participants in accordance with those rules.

     19.6 Unfunded Status of the Plan. The Plan is intended to constitute an “unfunded” plan for
incentive and deferred compensation. With respect to any payments or deliveries of Shares not yet
made to a Participant by the Company, the Participant’s rights are no greater than those of a
general creditor of the Company. The Committee may authorize the establishment of trusts or other
arrangements to meet the obligations created under the Plan, so long as the arrangement does not
cause the Plan to lose its legal status as an unfunded plan.

     19.7 Governing Law. To the extent not preempted by federal law, the Plan and all agreements
hereunder will be construed in accordance with and governed by the laws of the State of Michigan.

* * * * *

- 24 -exv10w1

 

Exhibit 10.1

RETIREMENT AGREEMENT

     This Retirement Agreement (the “Agreement”) is made and entered into this 26th day of October,
2006, by and between Stewart Enterprises, Inc., a Louisiana corporation (the “Company”) and Everett
N. Kendrick (“Employee”).

     WHEREAS, the Company entered into an Employment Agreement with Employee effective as of
November 1, 2004, as amended by Amendment No. 1 to Appendix A effective July 14, 2005 and as
supplemented by Attachment 1 to Appendix A regarding the 2006 Bonus Calculation (as amended and
supplemented, the “Employment Agreement”);

     WHEREAS, the Company entered into a Change of Control Agreement with Employee effective as of
November 1, 2004 (the “Change of Control Agreement”);

     WHEREAS, the Employee and the Company have agreed that Employee will retire from his
employment with the Company and that Employee will assist the Company with an orderly transition,
as provided herein; and

     WHEREAS, Employee and the Company wish to confirm their mutual understanding regarding the
benefits payable to Employee as a result of his retirement and have agreed in certain cases on
benefits that vary from those that might otherwise be provided under the Employment Agreement or
under other existing agreements or plans relating to Employee’s employment.

     NOW THEREFORE, in consideration of the mutual promises herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending
to be legally bound hereby, the parties hereto agree as follows:

     1. Employment. Employee shall continue to be employed by the Company on a full-time
basis, and shall continue to hold the title of Chief Operating Officer, Executive Vice President
and President – Sales and Marketing Division through midnight on December 31, 2006 (the “Retirement
Date”). Thereafter, commencing at 12:01 a.m. on January 1, 2007, Employee shall be fully retired.
More specifically, effective at midnight on the Retirement Date, Employee hereby resigns and
retires from all positions with the Company and its subsidiaries, and from the board of directors
of any and all of the Company’s subsidiaries. Up to and including the Retirement Date, Employee’s
duties shall be to assist the Company in effecting an orderly transition and to perform such other
duties as may be reasonably requested by the Company’s Board of Directors.

     2. Pre-Retirement Compensation and Benefits. (a) Employee’s compensation and benefits
shall remain unchanged through the Retirement Date, except that Employee shall not be eligible to
receive any bonus for the fiscal year ending October 31, 2007. In particular, Employee shall
continue to receive the base salary provided for in the Employment Agreement through the Retirement
Date and shall be paid for his accrued and unused vacation time, up to a

 

 

maximum of 240 hours (or six weeks), pursuant to the Company’s vacation policy.

     (b) As Employee’s bonus with respect to the fiscal year ending October 31, 2006, the Company
shall pay Employee $244,500 in a lump sum in cash on or before January 5, 2007. Employee shall not
be entitled to any other bonus pursuant to his Employment Agreement.

     3. Post-Retirement Payments. In accordance with the terms of the Employment Agreement
applicable to a termination of employment by Employee for “Good Reason,” the Company shall pay to
Employee an amount equal to a single year’s Base Salary (as defined in the Employment Agreement) in
effect on the Retirement Date, which amount is agreed to be $350,000. Such amount shall be payable
in equal installments over a two-year period beginning on the first regular payroll date of the
Company that is more than six months after the Retirement Date, and continuing thereafter at such
intervals as other salaried employees of the Company are paid. Employee’s spouse, Brenna D.
Bennett, is to receive any remaining payments due under this paragraph 3(a) if Employee should die
prior to the completion of the payment term.

     4. Post-Retirement Health Insurance. Subject to the conditions described in this
paragraph 4, Employee shall be entitled to continue to participate through December 31, 2006 in the
Company’s group health insurance program on the same terms as are applicable to the Company’s
executive officers. Employee shall be offered COBRA continuation coverage with the COBRA
continuation coverage period beginning on January 1, 2007, and if Employee elects continued
coverage under COBRA, the Company shall pay, or reimburse Employee for the payment of, the premiums
payable for the first 12 months or until Employee obtains other employment offering similar group
health insurance coverage, whichever occurs first. Employee shall pay the premiums for any
coverage that he elects to continue thereafter. Employee understands that in order to avoid the
application of Section 409A of the Internal Revenue Code to medical benefits provided through
December 31, 2007, all medical expenses incurred through December 31, 2007 must be reimbursed by
December 31, 2008. Employee agrees to submit (or cause providers to submit) for payment or
reimbursement all medical expenses incurred as of December 31, 2007 no later than July 1, 2008, and
Company agrees to pay or reimburse such expenses by December 31, 2008. Employee acknowledges that
if medical expenses incurred between January 1, 2007 and December 31, 2007 are not submitted for
payment or reimbursement by July 1, 2008, Employee may be assessed taxes and penalties under
Internal Revenue Code Section 409A.

     5. Options and Restricted Stock. Employee’s stock options and restricted stock shall
remain in effect in accordance with their terms, it being acknowledged that those options and
restricted stock not vested on or before the Retirement Date shall be forfeited.

     6. Post-Employment Benefits. Upon his retirement on the Retirement Date, Employee
shall be entitled to the benefits under other Company benefit plans in which he is a participant
that are applicable to a voluntary termination of his employment on such date in accordance with
the terms and conditions of such plans, including such benefits as he may be entitled to receive
under the Company’s Supplemental Executive Retirement Plan (the “SERP”), Supplemental Retirement
and Deferred Compensation Plan (the “Deferred Compensation Plan”) and 401(k) plan, except that in
order that Employee may avoid the imposition of interest and additional tax under Section 409A of
the Internal Revenue Code of 1986, as amended, no payments shall be made to Employee under the SERP
or the Deferred Compensation Plan (with

 

 

the exception of the portion of the Deferred Compensation Plan that is not subject to Code
Section 409A) until the Company’s first regular payroll date that is more than six months after the
Retirement Date, but the first payment made to the Employee under the SERP shall be equal to the
total payments that Employee would have been entitled to receive under the terms of such plan and
the Employee’s election as to form of payment, if any, from the Retirement Date through the first
regular payroll date that is more than six months after the Retirement Date. With respect to the
Deferred Compensation Plan, for avoidance of doubt and assuming Employee remains employed through
the Retirement Date as provided herein, (a) Employee shall receive the Company matching
contribution and the discretionary contribution (if any) for calendar year 2006, and (b) interest
shall continue to accrue for so long as Employee has a balance in the plan through the date
immediately preceding the date of the final distribution of his account.

     7. Other Benefits. All compensation, fringe benefits, perquisites and participation
in any bonus or incentive plan shall cease as of the close of business on the Retirement Date,
unless otherwise specifically provided herein.

     8. Nondisclosure, Noncompetition and Proprietary Rights. The provisions of Article V
(Nondisclosure, Noncompetition and Proprietary Rights) of the Employment Agreement and the related
Appendix B thereto shall remain in full force and effect, and Employee hereby agrees to such
provisions as of the date hereof, as if they were set forth in this Agreement in their entirety,
except that Employment Term shall mean the term of Employee’s employment hereunder and Date of
Termination shall mean the Retirement Date hereunder. The remedies provided for in such Article V
shall apply to the payments provided for in paragraph 3 hereof to the same extent as such remedies
would apply to a payment under Article IV, Section 3 of the Employment Agreement.

     9. Nondisparagement. During and after his employment by the Company hereunder, the
Employee agrees to refrain from making any statements and from taking any actions that disparage or
could reasonably be expected to harm the reputation of the Company and its subsidiaries or any of
their directors, officers or employees, and agrees that he will not voluntarily assist or otherwise
participate in any action or proceeding undertaken by any other person that disparages or could
reasonably be expected to materially harm the reputation of the Company and its subsidiaries or any
of their directors, officers or employees. Similarly, the Company agrees that its directors and
officers shall refrain from making any statements and from taking any actions that disparage or
could reasonably be expected to harm the reputation of the Employee and agrees that its directors
and officers will not voluntarily assist or otherwise participate in any action or proceeding
undertaken by any other person that disparages or could reasonably be expected to materially harm
the reputation of the Employee. Should the Employee materially breach this paragraph 9 during or
after his employment, he shall, among other remedies available to the Company, forfeit the right to
any further payments pursuant to paragraph 3.

     10. Press Release. The Company shall afford the Employee the opportunity to review,
comment on and suggest changes to any press release to be issued by the Company regarding the
matters addressed in this Agreement.

 

 

     11. Release. The Employee hereby and forever, irrevocably and unconditionally, waives
and releases any and all rights, claims and causes of action against the Company and its
subsidiaries of whatever kind or nature, known or unknown, asserted or unasserted, that may have
arisen prior to or that may exist as of the date of the Employee’s execution and delivery of this
Agreement. It is understood and agreed that the parties covered by the Employee’s release include
the Company’s and its subsidiaries’ present and former shareholders, officers, directors,
employees, agents, insurers, assigns, predecessors and successors, and that any reference to the
Company and its subsidiaries in this paragraph is understood to include all of the foregoing
persons or entities. It is expressly understood and agreed that the claims covered by Employee’s
release include, but are not limited to, any and all claims or rights arising or that could be
asserted under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq., Title VII of
the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000e et seq., the Older Workers’ Benefits
Protection Act and the Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq., the
Americans with Disabilities Act, 42 U.S.C. §§ 12101 et seq., claims for wrongful discharge, breach
of any express or implied employment contract or agreement, breach of any covenant of good faith
and fair dealing, fraud, defamation, intentional infliction of emotional distress, any personal or
emotional injury, any and all damages, including attorney’s fees, and any other federal, state, or
local statute, law, rule, or regulation concerning the terms, conditions, or benefits of employment
or the separation thereof.

     12. Indemnity Agreement. The Indemnity Agreement dated as of December 23, 2004 by and
between the Company and Employee shall survive this Agreement and remain in full force and effect
in accordance with its terms.

     13. Effect on Employment Agreement and Change of Control Agreement. Except as
modified hereby, the Employment Agreement, including without limitation, the nondisclosure,
noncompetition and proprietary rights covenants contained therein, shall remain in full force and
effect. The Change of Control Agreement shall terminate effective as of the execution and delivery
of this Agreement.

     14. Withholding. Employee agrees that the Company has the right to withhold from the
amounts payable pursuant to this Agreement all amounts required to be withheld under applicable
income and/or employment tax laws.

     15. Advice of Counsel. Employee acknowledges that he has read and fully understands
each paragraph of this Agreement, that he has been advised by the Company to consult with an
attorney and told that he could take up to twenty-one (21) days within which to consider this
Agreement, and that he has considered this Agreement and consulted with legal or other counsel to
the full extent desired.

     16. Revocation. Employee has seven (7) days following the execution and delivery of
this Agreement within which to exercise a right of revocation, and this Agreement will not be
enforceable or effective until the expiration of this seven (7) day period. Any such revocation of
this Agreement must be communicated in writing and delivered in person or by facsimile to Thomas M.
Kitchen fax number (504) 729-1407 before the close of business on the seventh day following the
execution and delivery of this Agreement. After that time, any attempt by Employee to revoke this
Agreement will have no force or effect.

 

 

     17. Miscellaneous. This Agreement and the benefits provided in this Agreement are in
no way an admission by the Company of any fault or liability owed to Employee arising out of or in
any way connected with Employee’s employment or the termination of such employment. This Agreement
sets forth the entire agreement between Employee and the Company concerning Employee’s separation
from Employer, and there are no other agreements or understandings concerning such separation.

[Signatures are on following page.]

 

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in
duplicate original as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	STEWART ENTERPRISES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Thomas M. Kitchen
 

Thomas M. Kitchen
	 	 
	 

	 	 	 	Acting Chief Executive Officer	 	 
	 

	 	 	 	Chief Financial Officer and Director	 	 
	 
	 	 	 	 	 	 
	 	 	EMPLOYEE:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Everett N. Kendrick
	 	 
	 	 	   	 	 
	 	 	Everett N. Kendrick

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