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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA

RICHARD EIZENGA, CIVIL ACTION INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATE D

VERSUS NO : 99-2572 C/W 99-26 , 99-2663, 99-2672, 99-2687, 99-2716, 99-2753, 99-2773, 99-2858, 99-2864 , 99-2888, 99-2891, 99-2915, 99-3043, 99-308 4

STEWART ENTERPRISES , INC . ET SECTION : 'IS" (2 ) AL .

ORDER AND REASONS

IT IS HEREBY ORDERED that the motion of Stewart Enterprises ,

Inc ., Frank B . Stewart, Jr ., William E . Rowe, and Joseph P .

Henican, III to dismiss the complaint for failure to state a

claim, pursuant to Rule 12(b)(6) of the Federal Rules of Civil

Procedure, is GRANTED . (Document #17) .

IT IS FURTHER ORDERED that the Rule 12(b)(6) motion of Bear ,

Stearns & Co ., Inc . ; Merrill Lynch & Co . ; and Johnson Rice &

Company L .L .C . to dismiss the complaint for failure to state a

claim is GRANTED . (Document #18) .

DEC 0 7 2000 DATE OF ENTRY o~aAO. I . OVERVIE W

Before the court are Rule 12(b)(6) motions to dismiss a

consolidated amended complaint by two shareholder classes against

a corporation, certain corporate officers individually, and the

underwriters who prepared the prospectus and the registration

statement for a secondary offering, containing statements

allegedly materially false and misleading, or omitting facts necessary to make them not misleading . Defendants contend that

the complaint fails to state a claim upon which relief can be granted because the identified statements were forward-looking

statements and general statements of optimism protected under the

safe harbor provision of the Private Securities Litigation Reform

Act of 1995 (the Reform Act or PSLRA) and that the allegations

fail to comply with the heightened pleading requirements of the

Act .

II . BACKGROUND

In 1910, the Stewart family founded a funeral and cemetery products and services business in Louisiana, which was incorporated as Stewart Enterprises, Inc . (the Company) .

In 1991, the Company first sold shares to the public . By acquisition, between November 1, 1991, and December 31, 1998, it grew from 43 funeral homes and 29 cemeteries in six states to 575 funeral homes and 143 cemeteries in 29 states and Puerto Rico and ten foreign countries, becoming the third largest provider o f

2 funeral and cemetery products and services in North America .

Between October 1, 1998, and August 12, 1999, the perio d

relevant to this case, Frank B . Stewart, Jr . was the chairman of

the Board of Directors, William E . Rowe was the president and

chief operating officer, and Joseph P . Henican, III was the chief

executive officer of the Company . These officers are,

collectively, "the individual defendants . "

On December 15, 1998, the Company released financial result s

for its fiscal year 1998, showing a 32% increase over 1997 in

earnings and a 21% increase in ea rnings per diluted share, from

$ .78 to $ .94 . One day later, the Netherlands' largest bank, ABN

Amro, forecast earnings per share for fiscal year 1999 of $1 .13

(quarterly, $ .27, $ .30, $ .30, and $ .26) .

The Company offered for sale in a secondary offerin g

11,850,000 shares of its Class A common stock, and the Stewart

Trust, established by Stewart and his wife, offered 650,000 shares of Class A common stock, at a public offering price of

$16 .75 per share . The offering was announced in an amended registration statement, a December 31, 1998 prospectus and a

January 27, 1999 supplement (Exhibit A) prepared by investment bankers Bear, Stearns & Co ., Inc ., Merrill Lynch & Co ., and

Johnson Rice & Company L .L .C . (collectively, the underwriter defendants) .

On February 2, 1999, the offering having been oversubscribe d

3 and the underwriters having exercised an overallotment option,

14,375,000 shares were sold . The Company realized $219,130,200 net proceeds for its 13,627,500 shares . Stewart Trust realized

$12,019,800 net proceeds for its 747,500 shares .

On August 12, 1999, six months later and when the price o f the stock was 10 1/16, the Company issued a news releas e concerning the expected earnings estimates for the third an d fourth quarters of 1999 as follows :

[The Company] expects to report earnings per share of $ .25 to $ .27 for the third quarter ended July 31, 1999 compared to $ .25 for the same period in 1998 . The Company also announced that it expects to report earnings per share of $ .17 to $ .19 for the fourth quarter of 1999 compared to $ .22 for the same period i n 1998 .

Earnings per share for fiscal year 2000 are expected to increase about 5% compared to fiscal year 1999 earnings, and the Company currently anticipates earnings per share growth of 10 to 12 percent going forward from there, as compared with the 20 percent growth rates achieved in recent years . Notwithstanding those expectations, the Company stated that it will continue to initiate innovative business strategies with a goal of returning to higher sustainable growth rates . The Company anticipates announcing earnings and conducting its usual conference call for the quarter ended July 31, 1999, during the week of September 6, 1999 .

In explaining the reasons for its downward revisions of anticipated growth rates, the Company stated that it believes that the fundamentals of its business and the long-term prospects of the death care industry remain strong, but recent changes in industry trends and the Company's ability to respond to those trends in the short term have caused management to revise its short and medium-term expectations .

Those trends are the intense and growing pric e

4 competition from low-cost funeral providers and casket stores in selected markets, the continuing and accelerating trend toward cremation and a shift by customers to lower-priced services and merchandise, all of which have negatively affected at-need funeral revenues in certain markets . Although intense competition is normal in every facet of the death care business, the recent shortfalls in funeral revenue produced by the combination of these events have caused management to reassess their long-term implications and the Company's strategies for responding to these changing competitive conditions . Furthermore, in selected key markets such as Miami, Dallas, and Buenos Aires, the Company has not achieved preneed sales targets . As a result, management has made key sales management changes and provided additional sales support in these markets .

On the next trading day after the August 12, 1999, news release,

the price of the Company stock dropped 38 .5% to $6 3/16, and the

Wall Street firm of Josephthal & Co ., Inc . revised it s

recommendation from "buy" to "hold . "

On December 1, 1999, the stock closed at $5 .156 per share .

On December 13, 1999, a consolidated amended class action

complaint' was filed against the Company, the individual defendants, and the underwriter defendants on behalf of two

classes of purchasers of the Company's common stock between

October 1, 1998 and August 12, 1999 (the 10(b) plaintiffs and the

1 Additional plaintiffs, each of whom is a named plaintiff in one of the actions that comprises the consolidated action are Thomas J . Aubrey, Harris Blackman, Ralph Casey, Robert W . Conrad, Creciente Oceanica Armadora S .A ., Jim A . Darby, Richard Eizenga, Steven Eline, Phil Hensley, Diane Hirschberg, Daryll Inman , Rebecca Inman, Leon Kramer, Macdil Enterprises, Inc ., Simche Margolies, Julie Thorpe and Jayne Vaughn, Sandy Weinzweig, and Jacob Weiss .

5 secondary offering plaintiffs) .

The secondary offering plaintiffs allege that the

underwriter defendants and the individual defendants as

"controlling persons" are responsible for statements in the

secondary offering registration statement and final prospectus

(Exhibit A) and that those statements are materially false and

misleading, or omit facts that are necessary to make the

statements not misleading, in violation of sections 11, 12(a)(2)

and 15 of the Securities Act of 1933, 15 U .S .C . § 77k, 771(2),

and 770 (counts one, two, and three) . 2

The 10(b) plaintiffs allege that the Company and th e

individual defendants, by use of the mails and in interstate

commerce, participated in a continuous course of conduct to make materially false and misleading statements about the Company's

financial condition, and engaged in schemes to defraud investors,

in violation of sections 10(b) and 20(a) of the Securities

Exchange Act of 1934, 15 U .S .C . § 78j(b) and 78t(a) and Rule 10b-

5 of the Rules promulgated by the Securities and Exchange

Commission, 17 C .F .R . § 240 .10b-5 (counts four and five) . The

10(b) plaintiffs allege that the Company and the individual

defendants either 1) had actual knowledge of the misrepresentations and omissions of material fact or 2) acte d

2 The plaintiffs expressly exclude from counts one, two, and three all allegations of fraud .

6 with reckless disregard for the truth and had motive and

opportunity to keep the stock's price artificially high because

of the recurring need to raise new capital and their influence

upon the wording of the prospectus and the registration

statement . The 10(b) plaintiffs assert that the individual

defendants were controlling persons within the meaning of § 20 of

the Exchange Act .

The underwriter defendants filed a Rule 12(b)(6) motion to

dismiss the secondary offering plaintiffs' claims in counts one

and two, in which the individual defendants joined . The Company

and the individual defendants filed a motion to dismiss counts

one through five for failure to state a claim . Fed . R . Civ . P .

12(b)(6) .

II . DISCUSSIO N

A . The standard

Rule 12(b)(6) of the Federal Rules of Civil Procedure

authorizes a court to dismiss a claim on the basis of a

dispositive issue of law . Neitzke v . Williams , 109 S .Ct . 1827,

1832 (1989) . The complaint is liberally construed in favor of

the plaintiff, and all facts pleaded in the complaint are taken as true . See Campbell v . Wells Fargo Bank , 781 F .2d 440, 442

(5th Cir . 1986) . This Court does not dismiss a complaint under

Rule 12(b)(6) "unless it appears beyond doubt that the plaintiff

can prove no set of facts in support of his claim which woul d

7 entitle him to relief ." Conley v . Gibson , 78 S .Ct . 99, 101-02

(1957) .

B . Motion to dismiss secondary offering plaintiffs, claims relating to a false registration statement under § 11, 15 U .S .C . § 77k, and prospectus under § 12(a)(2 ), 15 U .S .C . § 771(a)( 2) and controlling persons liability under § 15, 15 U .S .C . § 77o (counts one, two and three )

The underwriter defendants move to dismiss the plaintiffs '

claims based on allegations that the secondary offering

registration statement and prospectus contained untrue statements

of material facts, omitted facts necessary to make the statements made not misleading, and failed to disclose material facts . The underwriter defendants argue that 1) the plaintiffs do not allege how or why the statements were false or misleading when made, 2)

the forward-looking statements concerning management's plans for

the future are expressly protected, and 3) generalized statements

of optimism concerning opportunities and expectations are

immaterial and not actionable as a matter of law under the safe harbor provision of the Reform Act .

The plaintiffs specify six statements in the prospectus an d

registration statement as false and misleading when made .

Plaintiffs allege : 1) that the statement that, although the death

rate was declining slightly, "the aging of the population . . .

represents . . . a significant opportunity . . . to expand [the]

customer base" was misleading because the declining death rate was already affecting revenue and growth ; 2) that "the Company' s

8 practice of clustering facilities and sharing services enabled it

to decrease costs and expand marketing and sales" was misleading because the clustering practice resulted in increased competition with existing Company funeral homes ; 3) that "combined operations

resulted in lower average operating costs and expanded sale s

opportunities" was misleading because competition from wholesale

and discount casket vendors who sold caskets at reduced prices

cut the profitability of the operations ; 4) that "extensive marketing of prearranged products produced a backlog of future business" was misleading because the backlog was the result of

declining death rates ; 5) "the strong emphasis on prearranged

sales distinguished the Company from its competition" was misleading because the sales of pre-need funeral services had

slowed because of an increased trend toward cremation ; and 6)

"the Company expected to continue to increase its annual earnings per share at an annual rate of 20% each year" was misleading because the whole death care industry was experiencing a slowdown

and the Company was suffering from the same adverse effects as

its competitors . 3

3 "[T]he particularity requirement of Rule 9( b) does not apply to claims under § 11 of the Securities Act because proof of fraud or mistake is not a prerequisite to establishing liability under L 11 ." In re Nationsmart Corp . Sec . Litig . , 130 F .3d 309, 314 (8 h Cir . 1997) . In Melder v . Morris , 27 F .3d 1094, 1100 n .6 (5th Cir . 1994), the Court of Appeals applied Rule 9(b)' s heightened pleading standard because all of the claims were grounded in fraud . The §§ 11 and 12(a)(2) claims do not allege that the defendants were liable for fraudulent conduct .

9 The prospectus, in describing the "death care industry, " stated :

Our management believes that the death care industry has several attractive fundamental characteristics . The industry is relatively stable, business failures are uncommon and the market served by death care providers is expanding . According to the United States Bureau of the Census, the number of deaths in the United States is expected to increase by approximately 1% per year from 2 .38 million in 1998 to 2 .64 million in 2010 . In addition, industry studies indicate that while the death rate is declining slightly, the average age of the population in the United States is increasing . The aging of the population, particularly the "baby boomers" who have only recently begun to turn 50, represents a significant opportunity for firms such as our company to expand their customer base and secure a portion of their future market share by actively marketing prearranged property, merchandise and services . According to the Bureau of the Census, the United States population over 50 years of age will increase from 72 .7 million in 1998 to 96 .4 million in 2010 . Our principal target market for sales of prearranged cemetery property, merchandise and services is customers who are age 50 and above .

Traditionally, death care businesses in the United States have been relatively small, family-owned enterprises that have passed through successive generations within the family . . . .

Our management believes it can be difficult for new competitors to successfully enter existing markets by opening new funeral homes and cemeteries .

The prospectus proceeds to explain the operations of the Company in various regards, including clustering, combined operations , and prearragements :

Clustering . We operate most of our funeral homes and cemeteries in "clusters ." Clusters are groups of funeral homes and cemeteries located close enough to each other that their operations can be integrated t o

10 achieve economies of scale . For example, clustered facilities can share vehicles, embalming services, inventories of caskets and other merchandise and, most significantly, personnel, including our prearrangement sales force ; thus, we are able to decrease our costs and expand our marketing and sales efforts at each location . By virtue of their proximity to each other, clustered facilities also create opportunities for more integrated and sophisticated management of their operations .

Combined Funeral Home and Cemetery Operations . A combined operation is a funeral home located on a cemetery site where both are operated together . Combined operations help to increase market share by allowing us to offer families the convenience of complete funeral home and cemetery planning and services from a single location at a competitive price at the time of need or on a prearranged basis . In addition, combined operations enhance our purchasing power, enable us to employ more sophisticated management systems, and allow us to share facilities, equipment, personnel and a prearrangement sales force, resulting in lower average operating costs and expanded marketing and sales opportunities .

Approximately 45% of our cemeteries have a funeral home on site that is operated in conjunction with that cemetery . Many of our combined operations are in key markets, including New Orleans, Louisiana ; Dallas, Fort Worth and Houston, Texas ; Miami, Orlando, Tampa and St . Petersburg, Florida ; and San Diego, California .

In addition to pursuing combined operations as part of our acquisition strategy, we have developed several internal growth strategies that employ the use of combined operations . One such strategy is to create combined operations by constructing funeral homes on the grounds of our cemeteries, and we plan to construct approximately three funeral homes per fiscal year on our cemetery locations . Another such strategy is to enter into operating partnerships in which we construct funeral homes on the grounds of unaffiliated cemeteries, which allows us to enjoy the benefits of a combined operation without the capital investment of purchasing the cemetery .

11 Although it generally takes several years before a newly constructed funeral home becomes profitable, our experience with combined operations has demonstrated that the combination of a funeral home with a cemetery can significantly increase the market share and profitability of both .

Prearrangements . We market death care products and services on a prearranged basis through a staff of approximately 3,500 commission sales counselors . Prearranged plans enable families to establish in advance and prepay for the type of service to be performed and the products to be used . The cost of such products and services is set at prices prevailing at the time the agreement is signed, rather than when the products and services are delivered . Prearranged plans also permit families to eliminate the emotional strain of making death care decisions at the time of need .

We believe that extensive marketing prearranged products and services produces a backlog of future business and builds current and future market share . On average, over the past five years, we have sold nearly three prearranged funeral services for every one we have delivered from our backlog . During the fiscal year ended October 31, 1998, we sold approximately 66,500 prearranged funeral services, and as of October 31, 1998, we had a backlog of approximately 400,000 prearranged funeral services to be delivered in the future .

The prospectus explains the Company's plan for internal an d external growth and distinguishes the strategy from that of it s competitors . In general, the growth strategy is summarized a s follows :

In pursuit of our ultimate goal of enhancing shareholder value, we plan to continue to increase our earnings per share at an annual rate of 20% each year through a balanced strategy of internal and external growth . Our internal growth strategy involves consistent improvement in both revenues and costs a t

12 existing and acquired operations, construction of new funeral homes and cemeteries, and innovative initiatives such as the use of operating partnerships and alternative service firms as described below . Our external growth strategy involves an aggressive, but disciplined, domestic and international acquisition program and the rapid and effective assimilation of the businesses we acquire .

In addition to the challenged statements concerning the

strength of the death care industry, the operation of the funeral homes and cemeteries in clusters, the combined funeral home and

cemetery operations, the marketing of prearranged products and

services, and the goal of increasing earnings per share at an

annual rate of 20% each year, the prospectus concluded with a

forward looking statement in the "Business" section :

Forward-Looking Statement s

Certain statements made in this prospectus supplement and base prospectus that are not historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 . Our actual results could differ materially due to several important factors including the following :

Our ability to sustain recent levels of acquisition activity and enter new markets , including foreign market s

The economy, death rate and competition in our market s

Financial market conditions, including stock and bond prices and interest rate s

Our ability to achieve economies of scale, manage growth and efficiently assimilate acquired operations

The performance of acquired businesses .

13 Such factors, and others, are more fully described in Item 5 of our Quarterly Report on Form 10-Q for the quarter ended July 31, 1998 .

The prospectus refers the reader to its annual, quarterly,

and special reports, proxy statements, and other information

filed with the SEC, which the SEC permits to be incorporated by

reference into the prospectus . The prospectus offers to provide a free copy of the relevant filings and, alternatively, provides

the address, phone number, and internet address of the SEC to obtain such information . The following cautionary statement is also included : "You should rely only on information incorporated by reference or provided in this prospectus and any prospectus

supplement . We have not authorized anyone else to provide you with different information . "

Section 11 creates a private cause of action to addres s misstatements or material omissions contained in the registration statement, and § 12(a)(2) creates a private cause of action against those persons who offer or sell securities by means of misstatements or material omissions contained in a prospectus .

See Klein v . General Nutrition Co ., Inc . , 186 F .3d 338, 342 (3rd

Cir . 1999) . To establish a prima facie claim, the plaintiffs must allege that they bought the security based upon a misstatement or material omission . In re Nationsmart Corp . Sec .

Litig . , 130 F .3d 309, 315 (8th Cir . 1997) . "Both § 77k and §

77(a)(2) require that an undisclosed fact be material at the time

14 of offering in order for liability to attach ." Klein , 186 F .3 d

at 342 .

Most often, whether liability is imposed depends on whether the predictive statement was "false" when it was made . The answer to this inquiry, however, does not turn on whether the prediction in fact proved to b e wrong ; instead falsity is determined by examining the nature of the prediction with the emphasis on whether the prediction suggested reliability, bespoke caution, was made in good faith, or had a sound factual or historical basis .

Isquith v . Middle South Utils ., Inc . , 847 F .2d 186, 203-04 (5t h

Cir . 1988) .

Congress enacted the Reform Act4 "to deter opportunisti c

private plaintiffs from filing abusive securities fraud claims,

in part by raising the pleading standards for private securities

fraud plaintiffs ." In re Silicon Graphics Inc . Securities

Litigation , 183 F .3d 970, 973 (9th Cir . 1999) . Under the PSLRA,

a person shall not be liable with respect to any written forward

looking statement to the extent tha t

(A) the forward-looking statement is- (i) identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward- looking statement ; or (ii) immaterial ; or

(B) the plaintiff fails to prove that the forward- looking statement-

4 The Reform Act amends the Securities Exchange Act of 1934 and applies to private class actions . In re Silicon Graphics Inc . Securities Litigation , 183 F .3d 970, 973 n .2 (9th Cir . 1999) .

15 (i) if made by a natural person, was made with actual knowledge by that person that the statement was false or misleading ; o r (ii) if made by a business entity ; was- (I) made by or with the approval of an executive officer of that entity ; and (II) made or approved by such officer with actual knowledge by that officer that the statement was false or misleading .l5 U .S .C . § §§ 78u-5(c) (1) (A) - (B) . A statement is forward looking if it is "a statement of future economic performance" or "any statement of the assumptions underlying or relating to [that] statement . "

15 U .S .C . §§ 78u-5(I)(C)-(D) . "An omitted fact is material if

there is a substantial likelihood that a reasonable [investor]

would consider it important in deciding how to [act] ." Donald J .

Trump Casino Sec . Litig . , 7 F .3d 357, 369 (3rd Cir . 1993) .

"Materiality is traditionally a question for the trier o f

fact . However, if the alleged omissions are so obviously unimportant to an investor that reasonable minds cannot differ on

the question of materiality, the court may rule them immaterial

as a matter of law ." Klein , 186 F .3d at 342 (internal quotation

and citation omitted) . "A determination of 'materiality' takes

into account considerations as to the certainty of the

information, its availability in the public domain, and the need

for the information in light of cautionary statements being made ." Id .

The court has considered the statements contained in the prospectus and the registration statement . In addition to

Exhibit A, the court has studied the Company's Annual Report fo r

16 fiscal year ending October 31, 1998, as reflected in Form 10-K

filed with the Securities and Exchange Commission (SEC) on

January 21, 1999 ; Forms 10-Q filed with the SEC ; and the reports

of the Wall Street analysts .

The representations in the prospectus are consistent wit h

the independent opinion of Wall Street analysts Josephthal & Co . quoted by the plaintiffs in the amended complaint . Considering the comments made by Henican and Rowe in October 1998 after a

September decline in the stock price, Josephthal gave the Company a "BUY" recommendation for the following reasons :

Management confirms that Wall Street's consensus estimate (including Josephthal) of $0 .94 this fiscal year (ending October 31) is solid, and it remains comfortable with the consensus estimate of $1 .13 next fiscal year . Because the death care industry is highly recession-resistant and should not be affected by the Far East's problems, Stewart's earnings are more predictable than those of most companies . Furthermore, STEI's strong position in the cemetery business and in selling pre-need cemetery and funeral products and services gives the company an even stronger immunity to many potential problems .

Consistent with Josephthal's predictions, by October 15, 1998, the stock rebounded from $16 per share to $19 per share .

On December 15, 1998, the Company released the results for fiscal year 1998 :

Revenues increased 22 percent to 648 .4 million from 532 .6 million, earnings increased 32 percent to $92 .2 million from $69 .7 million, and diluted EPS [earnings per share] increased 21 percent to $ .94 from $ .78, before giving effect to the $50 .3 million or $ .51 per diluted share, after-tax, previously announced non- recurring, non-cash stock option charge recorded durin g

17 the second quarter of fiscal year 1998, and before the $2 .3 million, or $0 .3 per diluted share, after-tax, charge for cumulative effect of the change in accounting principles recorded in fiscal year 1997 . Including the effect of the stock option charge, the Company reported earnings of $41 .9 million, or $ .43 per share, for the fiscal year .

(Emphasis added . )

The revenue and earnings results for fiscal year 199 8 confirmed the Wall Street analysts' recommendation, and the

Company's stock closed its fiscal year on October 21, 1998, at

$21 15/16 . On December 16, 1998, Joshua Rosen of ABN Amro issued a report on the Company reiterating the forecast of earnings per share of $1 .13 for fiscal year 1999 and a three-to-five-year earnings growth rate of 20% . Rosen commented on ABN Amro's view of the improving acquisition environment and its impact on the death care industry :

We still hold that the acquisition environment is improving, reiterating our statements after [Stewart Enterprises'] STEI's July quarter earnings announcement in September, "as a result of recent events amongst the publicly traded death care consolidators Equity Corporation (NYSE : EQU - BUY rated) merging into Service Corporation (NYSE : SRV - BUY rated) and The Loewen Group's (NYSE : LWN - HOLD rated) (internal challenges), it is our belief that the domestic acquisition environment is likely to modestly improve over the course of the next twelve to eighteen months, benefitting STEI as well as SRV and Carriage Services (NYSE : SCV - BUY rated) ." We believe this improving environment contributed to the acquisition momentum experienced by STEI in the second half of FY98, and gives us conviction that FY99 should also be a strong year for acquisitions . Thus far in FY99 STEI has spent or committed to spend approximately $195 million on acquisition, putting the company well on pace to meet or exceed our $230 million projection .

18 We are maintaining our FY99 estimate of $1 .13 . We remain comfortable with our 20+% YTY growth projections in FY99 revenue, gross profit, operating income an d EPS . STEI should benefit in FY99 both as its FY98 acquisitions begin to mature, as well as the improving acquisitions environment .

Analyst Lee Wilder of J .C . Bradford & Co . also issued a

report on the Company on December 16, 1998 . The report stated

that

STEI management expects acquisition valuations to decline over the next year but notes that premier properties will remain competitive bid situations .

On January 7, 1999, the Company's stock traded at $23 11/1 6 per share, while, on January 26, 1999, Service Corporation, a

competitor which enjoyed a BUY rating with ABN AMRO only weeks before, announced that their earnings for 1998 had bee n

disappointing and that they would miss earnings estimates .

Stewart Enterprises representatives expressed a belief to the market that they were not having the same problems as its

competitors, Service Corporation and the Loewen Group . On

January 29, 1999, the secondary offering price was $16 .75 per

share .

In support of this motion, the defendants introduced form s

10-Q for the periods ending January 31, 1999, and April 30, 1999 .

In addition, the court takes judicial notice of form 10-Q for the period ending July 31, 1998 ( Exhibit B ), which was referenced in

the "forward-looking statement " of the prospectus . The forward-

looking statements and the cautionary statements in Item 5 of th e

19 three 10-Q reports contain essentially the same information . The following cautionary statement, in relevant part, appears in form

10-Q for the period ending July 31, 1998 :

CAUTIONARY STATEMENT S

The Company cautions readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company' s actual consolidated results and could cause the Company's actual consolidated results in the future to differ materially from the projections made in the forward-looking statements above and in any other forward-looking statements made by or on behalf of the Company .

(1) Achieving projected revenue growth depends upon sustaining the level of acquisition activity experienced by the Company in the last three fiscal years . Higher levels of acquisitions activity will increase anticipated revenues, and lower levels will decrease anticipated revenues . . . .

(a) The Company may be unable to find a sufficient number of businesses for sale at prices the Company is willing to pay .

(b) In most of its existing markets and in many new markets, including foreign markets, that the Company desires to enter, the Company competes for acquisitions with the other publicly-traded death care firms . These competitors, and others, may be willing to pay higher prices for businesses than the Company or may cause the Company to pay more to acquire a business than the Company would otherwise have to pay in the absence of such competition . . . .

(c) Achieving the Company's projected acquisition activity depends on the Company's ability to enter new markets, including foreign markets . Due in part to the Company's lack of experience operating in new areas and to the presence of competitors who have been in certain markets longer than the Company, such entry may be more difficult or expensive than anticipated by the Company .

(2) The level of revenues also is affected by the

20 volume and prices of the properties, products and services sold . . . . The ability of the Company to achievE, volume or price increases at any location depends on numerous factors, including the local economy, the local death rate and competition .

(3) Another important component of revenue is earnings from the Company's trust funds and escrow accounts, which are determined by the size of, and returns (which include dividends, interest and realize d capital gains) on the funds . . . .

(4) Future revenue also is affected by the level of prearranged sales in prior periods . The level of prearranged sales may be adversely affected by numerous factors, including deterioration in the economy, which causes individuals to have less discretionary income .

(5) The Company first entered foreign markets in the fourth quarter of fiscal year 1994, and no assurance can be given that the Company will continue to be successful in expanding in foreign markets, or that any expansion in foreign markets will yield results comparable to those realized through the Company's expansion in the United States .

(6) In addition to the factors discussed above, earnings per share may be affected by other important factors, including the following :

(a) The ability of the Company to achieve projected economies of scale in markets where it has "clusters" or combined facilities .

(b) Whether acquired businesses perform at pro forma levels used by management in the valuation process and whether, and the rate at which, management is able to increase the profitability of acquired businesses .

(c) The ability to the Company to manage its growth in terms of implementing internal controls and information gathering systems, and retaining or attracting key personnel, among other things .

(d) The amount and rate of growth in the Company's corporate general and administrative expenses .

21 (e) Changes in interest rates, which can increase or decrease the amount the Company pays on borrowings with variable rates of interest .

(f) The Company's debt-to-equity ratio, the number of shares of common stock outstanding and the portion of the Company's debt that has fixed or variable interest rates .

(g) The impact on the Company's financial statements of nonrecurring accounting charges that may result from the Company's ongoing evaluation of its business strategies, asset valuations and organizational structures .

(h) Changes in government regulation, including tax rates and structure .

(I) Changes in inflation and other general economic conditions both domestically and internationally, affecting financial markets (e .g . marketable security values as well as exchange rate fluctuations) .

(j) Unanticipated outcomes of legal proceedings .

(k) Changes in accounting policies and practices adopted voluntarily or required to be adopted b y generally accepted accounting principles .

(1) The ability of the Company and third parties to achieve Year 2000 compliance on a timely basis .

The court concludes that the statements in the prospectu s and the incorporated form l0-Q are not actionable under the

Reform Act because they are forward-looking statements, accompanied by meaningful cautionary statements, which are not misleading and do not contain material omissions . The plaintiffs' conclusory allegations that the declining death rate was already affecting revenue and growth are insufficient to allege that there were material omissions that would have bee n

22 important to an investor . The death rate estimates are based on statistics provided by the United States Bureau of the Census and industry studies . The Company informed investors that, eve n though the overall death rate was declining, the actual number of deaths would increase 1% per year for the next twelve years because of the number of aging "baby boomers" who were turning

50 . The Company addresses the statistics in terms of a

"significant opportunity . . . to expand," and the forward- looking statement specifically identifies the death rate as a factor that could materially alter actual results . The statement identifies management's beliefs and assumptions underlying the future planning of the Company .

The statements concerning clustering, combined operations , and plans to market prearranged services, as well as statements distinguishing the Company from its competitors are not misleading because of the sound factual basis on which they rest .

The earnings reports for fiscal year 1998 indicate that the

Company's strategy was producing increased earnings . In late

1998, the Wall Street analysts recognized the problems in the industry, but continued to rate the major companies as a "BUY", except for the Loewen Group that maintained a "HOLD" rating . The industry as a whole was favored because it was not affected by market trends in the Far East . It was the consensus of the wall

Street analysts that Stewart's earnings were more predictabl e

23 than those of most non-death-care-industry companies . Further, the forward looking statements of the prospectus and the SEC filings incorporated by reference recognize that the projections depend on the Company's ability to achieve economies of scale, manage growth, assimilate acquired operations, and operate acquired businesses profitably .

As to projected earnings for fiscal year 1999, financia l reports subsequent to the preparation of the prospectus and the secondary offering support the statements made by Henican and

Rowe and the positive expectations of the Wall Street analysts .

On March 9, 1999, the Company reported its first quarter results for fiscal year 1999 (three months ending January 31st) :

[R]evenues for the first quarter of 1999 as compared to the first quarter of 1998 increased 23 percent to $182 .9 million from $149 .3 million, net earnings increased 21 percent to $26 .5 million from $21 .9 million, and diluted earnings per share increased 2 3 percent to $ .27 from $ .22 .

(Emphasis added .) On June 9, 1999, the Company announced tha t

revenues for the second quarter of 1999 [three months ending April 30th] as compared to the second quarter of 1998 increased 31 percent to $202 .3 million from 154 .6 million . Operating earnings increased 35 percent to $61 .3 million from $45 .4 million, net earnings increased 33 percent to $32 .2 million from $24 .3 million, and diluted earnings per share increased 16 percent to $ .29 from $ .25, exclusive of the $76 .8 million ($50 .3 million or $ .51 per share, after tax) non-recurring, non-cash stock option charge recorded in the second quarter of 1998 in connection with the vesting of the Company's performance-based stock options .

(Emphasis added .)

24 The court concludes that the defendants outlined in the

prospectus the problems facing the industry and referred

potential purchasers of the stock to consistent public documents

filed with the SEC . The defendants presented their expectations

and strategy for achieving their future goals and gave reasons

for believing, at the time the statements were made, that their

situation was different from competitors who were not able to

adjust to the negative industry trends . The defendants

identified their statements as forward looking and gave reasons

for the assumption and why results could differ materially from

projections . The predictive statements had a sound factual or

historical basis and cautioned that "actual results could differ materially due to several important factors ." Further, it was

the consensus of independent Wall Street analysts that the

Company's projections were sound and that it was uniquely

situated in the death care industry .5 A reasonable investor

received important facts from the prospectus concerning the death

care industry and the negative trends in the industry that would

aid in deciding how to act and was directed to the Company's

filings with the SEC to obtain further detailed information .

Accordingly, the plaintiffs have failed to state a vali d

5 The plaintiffs do not allege tha t there wa s "entanglement" between a Company insider and the Wall Street analysts . See Elkind v . Leggett & Myers Inc . , 635 F .2d 156, 163 (2d Cir . 1980) . They merely allege that the analysts' reports were based on statements made by Henican and Rowe .

25 claim under 15 U .S .C . § 77k or § 771 . Because controlling person

liability under § 77o hinges on liability under either § 77k or §

771, the § 77o claims also fail . See Klein , 186 F .3d at 344 .

The motion to dismiss these claims is granted .

C . Motion to dismiss 10 ( b) plaintiffs' securities fraud claims under §§ 10 (b) and 20 ( a), 15 U .S .C . H 78j (b) and 78t(a), and Rule 10 (b)-5 (counts four and five )

1 . Heightened pleading requiremen t

The Company and the individual defendants contend that th e

10(b) plaintiffs have failed to allege with particularity that a misstatement or omission of material fact was made with scienter

or that the statements6 were materially false or misleading at

the time they were made . The Company and the individual

defendants argue that the plaintiffs' claims are based on

forward-looking statements which are not actionable under the

safe harbor created by the Reform Act . Further, they assert

that, because there is no primary violation, there can be no

claim under § 20(a) .

Section 10(b) and Rule 10b-5 prohibit fraudulent activitie s

6 The 10(b) plaintiffs challenge essentially the same subject matter as the secondary offering plaintiffs : statements concerning negative industry trends, the aging of the population, the descriptions of financial strength, the Company' recession resistance, reasons for the lower cost of acquisitions, the backlog of prearranged sales of funeral services, the strategy to cluster and combine operations to decrease costs and expand marketing efforts, and earnings estimates and forecasts .

26 in connection with securities transactions .7 "The elements of fraud [under 10(b) and Rule 10b-51 include : 1) a misstatement or omission ; 2) of material fact ; 3) made with the intent to defraud ; 4) on which the plaintiff relied ; and 5) which proximately caused the plaintiff's injury ." Id . Section 20(a) defines controlling person liability . 15 U .S .C . § 78t(a) . If the plaintiffs fail to adequately plead a primary violation of §

10(b), the court dismisses the claim of secondary liability under

§ 20(a) . Shields v . Citytrust Bancorp ., Inc . , 25 F .3d 1124, 1132

(2d Cir . 1994) .

The first sentence of Rule 9(b) of the Federal Rules o f

Civil Procedure imposes a heightened pleading standard for fraud claims : "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated wit h particularity ." Tuchman v . DSC Communications Corp . , 14 F .3d

1061, 1067 (5th Cir . 1994) . Although Rule 9(b) applies t o

7 Section 10(b) makes it unlawful : To use or employ, in connection with the purchase or sale of any security . . ., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors .

Rule lob-5 specifically prohibits the following : To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading . . . .

27 securities fraud, see Williams v . WMX Technologies, Inc . , 112

F .3d 175, 177 (5th Cir . 1997), the PSLRA goes further than Rule

9(b) by heightening the standard for pleading scienter to require allegations supporting a strong inference of scienter rather than a merely reasonable inference of scienter . See Bryant v . Avado

Brands, Inc . , 100 F .Supp .2d 1368, 1374 (M .D . Ga . 2000)

(dismissing the plaintiff's complaint after remand for failing to allege scienter with particularity) (citing Greebel v . FTP

Software, Inc . , 194 F . 3d 185, 188 and 196 n .9 (1st Cir . 1999)) .

"[A]rticulating the elements of fraud with particularit y requires a plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent ." Williams , 112 F .3d at 177 (agreeing with the Second

Circuit's approach) ; 15 U .S .C . § 78u-4(b)(1) . The failure to identify specific statements made by a defendant is fatal to the action because it deprives the defendants of notice . Id . at 179 .

"Where multiple defendants must respond to allegations of fraud, the complaint should inform each defendant of the nature of his alleged participation in the fraud ." Thornton v . Micrografx,

Inc . , 878 F .Supp . 931, 938 (N .D . Tex . 1995) (citing DiVittorio v .

Equidyne Extractive Indus ., Inc . , 822 F .2d 1242, 1247 (2d Cir .

1987)) . "Where pleading is permitted on information and belief, the complaint must adduce specific facts supporting a stron g

28 inference of fraud or it will not satisfy even a relaxed pleading

standard ." Wexner v . First Manhattan Co . , 902 F .2d 169, 172 (2d

Cir . 1990) . If claims are based upon "an investigation o f

counsel," they are viewed as being based on information and belief if the sources do not provide the plaintiffs with personal knowledge . See In re Silicon Graphics, Inc . Sec . Litig . , 970

F .Supp . 746, 763 (N .D . Cal . 1997) .

Additionally, the plaintiffs must allege facts t o

demonstrate that the defendants acted with scienter . See

McNamara v . Bre-X Minerals Ltd . , 57 F .Supp .2d 396, 404 (E .D . Tex .

1999) . "Scienter is a mental state embracing intent to deceive, manipulate, or defraud ." Id . The statute provides :

In any private action arising under this chapter in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind .

15 U .S .C . § 78u-4(b)(2) . However, the Reform Act "does not

delineate what facts suffice to establish a 'strong inference' of

fraudulent intent ." The Fifth Circuit has not addressed this

issue, and federal courts that have addressed the issue have

reached different conclusions in interpreting the intent of

Congress . 8

8 See Symposium on Recent Circuit Court Decisions : Press, Silicon, Advanta and Comshare, 7 Securities Reform Act Litigatio n

29 The Ninth Circuit has held "that a private securities plaintiff proceeding under the PSLRA must plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct ." In re Silicon

Graphics Inc . Sec . Lit . , 183 F . 3d 970, 973 (9th Cir . 1999) . The holding reflects the court's conclusion "that Congress intended to elevate the pleading requirement above the Second Circuit standard requiring plaintiffs merely to provide facts showing simple recklessness or a motive to commit fraud and opportunity to do so ." Id . The court stated that the "deliberate recklessness standard best serves the PSLRA's purpose ." Id . at

975 .

In Press v . Chemical Inv . Servs . Corp . , 166 F .3d 529, 53 8

(2d Cir . 1999) (quotations omitted), the Second Circuit stated that a plaintiff must either "(a) allege facts to show that defendants had both motive and opportunity to commit fraud or (b) allege facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness ." The Second Circuit concludes "that the PSLRA effectively raised the nationwide pleading standard to that previously existing in this circuit and no higher (with the exception of the "with particularity" requirement) ." Novak v . Kasaks , 2000 WL 796300 at *9 (2nd Cir .

Reporter, 537-549 (Number 4 July 1999) (discussing the test for scienter under the heightened pleading standards) .

30 June 21, 2000) . The Sixth Circuit has held that "plaintiff may survive a motion to dismiss by pleading facts that give rise to a strong inference of recklessness ." In re Comshare, Inc . Sec .

Litig ., 183 F . 3d 543 (6th Cir . 1999) . The Third Circuit held that "it remains sufficient for plaintiffs plead [sic] scienter by alleging facts establishing a motive and an opportunity to commit fraud or by setting forth facts that constitute circumstantial evidence of either reckless or conscious behavior ." In re Advanta Corp . Sec . Litig . , 180 F .3d 525 (3d

Cir . 1999) .

In McNamara v . Bre-X Minerals Ltd . , 57 F .Supp .2d at 411, the court agreed with the majority approach and "determined that scienter may be adequately plead by alleging facts constituting strong circumstantial evidence of conscious misbehavior or recklessness ." The court agreed "with cases holding that motive facts can be considered in determining whether the complaint raises a strong inference of scienter, even though satisfaction of the motive test alone does not conclusively establish an inference of the required state of mind under the Reform Act ."

Id . The court reasoned as follows :

Congress would not abolish the well established use of recklessness as permissible scienter under the securities laws without expressly stating so in the language of the statute . The Court also agrees with cases holding that satisfaction of the pre-Reform Act motive test does not automatically give rise to a strong inference that the defendant acted with the required state of mind [acknowledging in a footnot e

31 that the Second Circuit seemed to reach a different conclusion in Press ] . However, this does not mean that in occasional cases the inference drawn solely from motive and opportunity allegations will not be sufficiently strong to withstand a motion to dismiss, but merely that it will not always do so . Finally, even if the recklessness and motive tests are not satisfied, motive and recklessness facts should still be considered in determining if the totality of the allegations gives rise to a strong inference of the defendant's fraudulent intent .

Id . (internal quotations and citations omitted) .

The court agrees with those decisions that conclude that, i n addition to deliberate recklessness or conscious misconduct, although not sufficient in and of itself to establish a strong inference of fraudulent intent, motive and opportunity to commit fraud are factors that should be considered in determining whether the plaintiffs have established a strong inference of fraudulent intent . It is within this framework that the court proceeds with its analysis of the issues .

2) Failure to plead scienter with particularit y

In the amended complaint, the plaintiffs made the following scienter allegations :

Actual Knowledge and/or Reckless Disreqard

134 . As the top executives of Stewart Enterprises, Defendants Stewart, Henican, and Rowe ran Stewart Enterprises as "hands-on" managers . The Individual . Defendants closely monitored the Company's performance via detailed reports that were generated on a daily, weekly and monthly basis . Stewart Enterprises' finance department also distributed monthly financial reports comparing actual financial results to projected results . Thus, the Individual Defendants knew where the Company stood in terms of the sale of and deman d

32 for its products as well as actual results compared to budget .

135 . In addition, because of their top executive positions and intimate involvement in the day-to-day management of its business, the Individual Defendants actually knew, from internal corporate documents and conversations with other corporate officers and employees and their attendance at management and Board meetings, the adverse non-public information about Stewart Enterprises, including the adverse impact of declining death rates and price reductions, the problems with the Company expansion program and deteriorating revenue, gross profit margin and earnings prospects as pleaded herein . Thus, the Individual Defendants actually knew or recklessly disregarded that the public statements about the Company pleaded herein were false and misleading when made .

Motive and Opportunit y

136 . Because of Stewart Enterprises' very rapid expansion program which entailed its acquiring large numbers of new funeral homes, Stewart was consuming large amounts of cash . In order to sustain the Company, its existing business model and the illusion of growth, defendants consistently needed to raise new equity capital by selling stock to the public . Subsequent to its initial public offering, Stewart had several secondary offerings to raise cash, as set forth below :

Public Offerings of Stoc k

Date Share Price Net Proceeds Underwriters

10/94 15,750,000 $ 8 .50 $65 .4M Goldman Sachs & Co . Johnson Rice & Co .

5/95 10,500,000 $ 9 .00 $103 .3M Bear Stearns Goldman Sachs & Co . The Chicago Corp . Johnson Rice & Co .

6/97 11, 400,000 $18 .19 $ 211M Bear Stearns

33 Goldman Sachs & Co . ABN AMRO Chicago Johnson Rice & Co .

137 . Stewart Enterprises' top insiders realized that it was imperative that they take action to maintain Stewart's stock price high enough so that they could pull off a secondary stock offering before the adverse impact the undisclosed negative factors discussed herein were having on Stewart's business could no longer be concealed and would have to be revealed-- which would drive Stewart's stock price even lower . Such a large stock offering would be Stewart's last chance to raise the millions in additional capital which it knew it needed to buffer Stewart's business against the downturn that Stewart's top insiders knew was already underway .

138 . Stewart insiders knew that certain negative conditions were having an adverse impact on Stewart's growth and profitability and that when these adverse conditions became publicly known, Stewart's stock price would decline sharply . In order to raise capital for Stewart on favorable terms before this negative information became public, defendants decided to undertake a large secondary offering of millions of share of Stewart stock . By selling share in this way, Stewart could maximize its stock sale proceeds because it could condition the market for the stock offering by issuing very positive statements and forecasts and push the stock up to higher levels, including making roadshow presentations before the Secondary Offering to disseminate favorable information to potential stock purchasers .

139 . The key element of defendants' scheme was to push Stewart stock artificially higher so that the Secondary Offering would raise larger amounts of money fo r Stewart and the Stewart insider who sold shares in the offering, and so that the stock offering by Stewart would be non-dilutive, thus minimizing the adverse impact of the offering on Stewart's earnings per share power going forward . Thus, Stewart Enterprises and the Individual Defendants mounted a major campaign, disseminating extremely favorable, but false, information to the marketplace about Stewart, while concealing the adverse conditions affecting Stewart's business .

34 140 . As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of the Company's securities was artificially inflated during the Class Period . In ignorance of the materially false and misleading nature of the reports and statements described above, the 10(b) Plaintiffs and the other members of the 10(b) Class relied, to their damage, on the reports and statements described above and/or on the integrity of the market price of the Company's securities and the completeness and accuracy of the information disseminated to the Company's investors in connection with their purchase of the Company's securities . While defendants failed to reveal to the 10(b) Plaintiffs and the 10(b) Class information known to them about the Company's revenue problems, defendant F .B . Stewart availed himself of his inside knowledge by selling 747,500 share of his Stewart Enterprises stock holdings at inflated prices .

141 . At the time of said misrepresentations and omissions, the 10(b) Plaintiffs and the other members of the 10(b) Class were ignorant of their falsity, and believed them to be true . The 10(b) Plaintiffs and the other 10(b) Class members could not in the exercise of reasonable diligence have known the actual facts . In reliance on said misrepresentations and in reliance upon the superior knowledge and expertise of defendants, the 10(b) Plaintiffs and the other members of the 10(b) Class were induced to, and did, purchase the Company's securities at artificially inflated prices . Had the 10(b) plaintiffs and the other members of the 10(b) Class known the truth, they would not have taken such action .

The defendants argue that the allegation that the individua l defendants were "hands-on" managers who monitored performance through detailed reports is inadequate to plead particularized allegations of knowledge or reckless disregard . They argue that the allegation of motivation to maintain an artificially high stock price in order to complete the secondary offerin g

35 successfully has been rejected by numerous courts as the basis for alleging knowledge or reckless disregard . The defendants argue that to allow that allegation to suffice would force every company and its officer to defend a securities fraud action any time there was a downturn in the stock's price following a public offering . Further, the defendants contend that the allegations of motive and opportunity to commit fraud fail to raise a strong inference of scienter . The Company and individual defendants argue that Stewart's sale of 747,500 shares in the secondary offering does not raise a strong inference of fraudulent intent because there is no particularized allegation that the size and the timing of the sale was suspicious . The defendants argue that

Stewart sold less than 6 .7% of his stock and continued to hold

93 .3% of the Company's stock ; he sold his shares at $16 .75 per share, below the $24 .75 price at which the shares traded just a few weeks earlier, and he had sold shares in five out of the

Company's six public offerings .

The plaintiffs argue that they have alleged both actua l knowledge and reckless disregard . They assert that the defendants admit that they had knowledge of the severe problems in the death care industry that the problems were affecting competitors and that they knowingly or recklessly made assurances that the Company was impervious to the negative industry trends .

The plaintiffs refer to Henican's comments on January 26, 1999 ,

36 denying that the Company was affected by problems plaguing its competitors (amended complaint, ¶ 56), statements by Henican and

Rowe to analysts, following the March 9, 1999, press release on first quarter earnings, that the competitors' problems were positive for the Company (amended complaint, ¶ 74), and Henican's interview with The Wall Street Transcript on April 5, 1999, in which he described the consolidation phase of the industry as a positive change and expressed that the Company expected to grow at the rate of 20% per year (amended complaint ¶ 83) . The plaintiffs argue that the defendants ultimately revealed in the

10-K filed on January 27, 2000, after the class period, that the only difference between the Company and its competitors is that it chose to conceal and deny the effects of the negative trends in the industry . 9

The plaintiffs assert that they have adequately alleged facts to support the alleged fraud based on the Company's desperate need to raise cash through the secondary offering to fund the aggressive expansion program and to mask the lack of cash flow from operations . The plaintiffs argue that ,

9 The plaintiffs ask the court to take judicial notice of the 1999 10-K filed with the SEC on January 27, 2000, in which the defendants admit that the Company's operations were adversely affected in 1999 by "(1) intense and growing price competition from low-cost funeral providers and casket stores in some markets, (2) the continuing and accelerating trend toward cremation, and (3) a shift by consumers to lower-priced services and merchandise ."

37 notwithstanding the small percentage of total holdings, the

$12,000,000 sale was significant and represented 5% of the overall offering . The plaintiffs speculate that "Stewart likel y knew that if he were to sell a larger portion of his holdings, the price of Stewart stock would plummet" and that "[i]f F .B .

Stewart could have sold his shares at a high price, he would have . "

The court concludes that the plaintiffs have not allege d particularized facts to support the allegations that the defendants knew or recklessly disregarded signs that the problems affecting the industry in general were contemporaneously affecting the Company . Plaintiffs are not allowed to proceed with allegations of "fraud by hindsight ." Novak v . Kasaks , 2000

WL 79630 at *8 (2nd Cir . 2000) . "Corporate officials need not be clairvoyant ; they are only responsible for revealing those material facts reasonably available to them . Thus, allegations that defendants should have anticipated future events and made certain disclosures earlier than they actually did do not suffice to make out a claim of securities fraud ." Id . If the plaintiffs contend that the defendants had contrary information, they must identify the reports that contained the information . Id .

The statements referred to by the plaintiffs as the source of information do not support their allegations of knowledge and recklessness which constitute a strong inference of an intent t o

38 defraud . The financial reports for fiscal 1998 and the first two quarters of 1999 indicate an increase in the Company' s revenues .

Moreover, the defendants disclosed that they would maintain their opportunistic approach to acquisitions and revealed the concerns in the marketplace through a disclaimer in news releases on March

9, 1999 and June 9, 1999, prior to the August 12, 1999, new s release :

Statements made herein that are not historical facts are forward-looking statements . The Company's actual results could differ materially due to severa l important factors including the following : the Company's ability to sustain recent levels of acquisition activity and enter new markets ; the economy, death rate and competition in the Company's markets ; financial market conditions, including stock and bond prices and interest rates ; the Company's ability to achieve economies of scale and manage growth ; and the performance of acquired businesses .

The March 9 press release refers the reader to forward-looking statements and cautionary statements in Item 7 of the Company's form 10-K for the fiscal year ended October 31, 1998, and the

June 9 press release refers the reader to the forward-looking statements and cautionary statements in Item 5 of the Company's form 10-Q for the quarter ended January 31, 1999 . The defendants' statements containing simple economic projections, statements of optimism, and other puffery are insufficient to support a strong inference of an intent to defraud . See Novak ,

2000 WL 79630 at *15 .

Further, the court concludes that the particular fact s

39 pleaded by the plaintiffs concerning motive and opportunity,

coupled with allegations of deliberate recklessness or conscious misconduct, do not give rise to a strong inference of fraudulent

intent . "[A]ssertions that would almost universally be true,

such as the desire to raise capital, or successfully to bring a

public offering to fruition, economic self-interest, and the

desire to . . . protect one's executive position are inadequate

of themselves to plead motive ." Coates v . Heartland Wireless

Communications, Inc . , 55 F .Supp .2d 628, 644 (N .D .Tex . 1999)

(internal citations omitted) . Further, Stewart's trading

activity is not so unusual as to permit an inference of scienter,

and the fact that other officers did not sell shares during the

relevant period undermines the plaintiffs' motive theory . Id . at

920 .

3) Alleged "Misleading Statements " are not actionabl e

The defendants do not dispute that the plaintiffs have

identified what statements are contended to be fraudulent, who

made the statements, and when and where the statements were made .

However . the defendants argue that the statements fail to state a

claim upon which relief can be granted because the identified

statements are not actionable . The defendants argue that,

because the statements alleged are not actionable as a matter of

law, the court need not permit the plaintiffs an opportunity to

amend the complaint to replead the allegations concerning thos e

40 statements .

"Misguided optimism is not a cause of action and does no t support an inference of fraud ." Shields v . Citytrust Bancorp .,

Inc . , 25 F .3d 1124, 1129 (2d Cir . 1994) . "Vague, optimistic statements are not actionable because reasonable investors do not rely on them in making investment decisions ." Grossman v .

Novell, Inc . , 120 F .3d 1112, 1119 (10th Cir . 1997) . Investors

"rely on facts in determining the value of a security, not mere expressions of optimism from company spokesmen ." Raab v . General

Physics Corp . , 4 F . 3d 286, 290 (4th Cir . 1993) .

For essentially the same reasons stated in the analysis o f the secondary offering plaintiffs' allegations under §§ 11,

12(a)(2), and 15, the statements made by the Company upon which the 10(b) plaintiffs rely to support their claim are protected under the safe harbor provisions of the Reform Act . Accordingly, the plaintiffs have not adequately alleged facts in support of their claims that would entitle them to relief .

Because the plaintiffs have not adequately alleged a primary violation, the § 20(a)1° claims for controlling person liabilit y

10 Section 78t(a) provides for liability of controlling persons : Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the sam e extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did no t

41 are also dismissed . See Lovelace v . Software Spectrum, Inc . , 78

F .3d 1015, 1021 n .8 (5th Cir . 1996) ("Because the Plaintiffs have failed to state a claim for any predicate securities frau d offense under § 10(b), Plaintiffs have necessarily failed to state a claim against [the defendants] for 'controlling person' 1 liability under § 20 (a) . ") .1

III . CONCLUSION

Accordingly, viewing the complaint in favor of the plaintiffs and taking all of the facts pleaded in the complaint as true, the court concludes that the plaintiffs can prove no set of facts which would entitle them to relief . The motion to dismiss the secondary offering plaintiffs' claims relating to a false registration statement and prospectus is hereby granted, and the motion to dismiss the 10(b) plaintiffs' securities fraud claims is hereby granted .

New Orleans, Louisiana, this day of December, 2000 .

L gwv,~~ MA A VIAL LEMMOW UNITE STATES DISTRICT JUDG E

directly or indirectly induce the act or acts constituting the violation or cause of action .

11 The plaintiffs do not seek an opportunity to amend the complaint .

42 Prospective investors may rely only on the information contained in this prospectus supplement and the accompanying base prospectus. Neither Stewart Enterprises, Inc nor the Underwriters have authorized anyone to provide prospective investors with different or additional information. This prospectus supplement and the accompanying base prospectus is not an offer to sell, nor is either seeldng an offer to Stewart buy these securities in any jurisdiction where the offer or sale is not permitted. The Enterprises, information contained in this prospectus supplement and the base prospectus is Inc. correct only as of the date of this prospectus supplement, regardless of the time of the delivery of this prospectus supplement and base prospectus or any sale of these 12,500,000 Shares securities Class A Common Stock

TABLE OF CONTENTS PROSPECTUS SUPPLEMENT

Prospechis Supplement Prospectus Supplement ...... S.3 Bear, Stearns & Co. Inc. ► Use of Proceeds ...... S-8 Price Ranee of Common Stockand Div idend Policy ...... 54 Capitallz los . S-10 Merrill Lynch & Co. Btu ...... S.11 Selling Shareholder ...... S-18 Underwriting ...... 5.19 l.e8ai Matte...... S20 Johnson Rice & Company Prospector- L.L.C. Where You Can Find Mate kdormatim ...... 2 The Company ...... 3 Use of Pt~oceeds ...... 3 Se g solders ...... 3 ...... Ratio of Earnings to Flmd Chugs. . . 4 January 27, 1999 Description of Class A Common Stock ...... 5 Description of Preferred Stock ...... 5 Descrip tion of Debt Securities ...... 6 Plan of Distribution ...... 17 Legal Matters ...... 18 Experts ...... is PROSPECTUS SUPPLEMWff (To prospectus dated December 31, 1998) 12,500,000 Shares Stewart Enterprises, Inc. Class A Common Stock

We are offering and selling 11,850,000 shares of our Class A Common Stock, and a shareholder (the "Selling Shareholder") is offering and selling 650,000 shares of our Class A Common Stock. We will not receive any proceeds from the sale by the Selling Shareholdee. Our Class A Common Stock is traded under the symbol "ST Er on the Nasdaq National Market The last reported sale price on January 27, 1999, was $16 .8125 per awe lee "Price Range of Common Stock and Dividend Policy." We have two classes of common stock, Class A and Class B. The holders of Class A and Class B Common Stock have e y ideritical rigli>a except that holders of Clan A Common Stock have one vole per share and holders of Class B Common Stock have Len votes per share . The Class B Common Stock may be transferred only to catain transferees, but is conve!ttble at any time into an equal number of sham of Glass A Common Stock . The Class A Common Stock is freely transferable and not convertible

Neither the Securities and Exchange Commission nor any cute securities commission has approved or disapproved these securities or passed on the adequacy or accuracy of this prospectus supplement and base prospectus. Any representation to the contrary Is a criminal offense.

Per Stara Total Public offering price ...... $1675 $209,375,000 Underwriting discount...... $ 0.67 S 8,375,000 Proceeds to Stewart Enterprisa„In ...... $1608 $190,548,000 Proceeds to Selling Shareholdee ...... $16.08 $ 10,452000

Under cent lu ---- s banes, the underwriters may purchase from us and the Selling Shareholder up to 1,875,000 additional shares of Class A Common Stock at the public oft ft price less the underwriting dhoam, solely to coves over a lotments.

The underwriters are severalb► underwriting the shares being oared. The underwriters are offering the shams when, as and if delivered to and accepted by them, subject to various prior conditlaos, thdr right to reject orders in whole or is part The underwriters expect to deliver, the shares in acd wo for payment in New York, New York as February 2,199 &

Bear, Stearns & Co. Inc.. . . Merrill Lynch & Coi. Johnson Rice & Company L.L.C.

The date of this prospectus supplement is January 27, 1999. PROSPECTUS SUPPLEMENT SUMMAR Y This summary highlights certain information contained elsewhere in this prospectus supplement, the base prospectus and the documents incorporated by refarnce into this prospectus supplement and the base prospectus as described under the heading "Where You Can Find More Information. " To fully understand this offering, you should read all of these documents.

The Company We are the third largest provider of funeral and cemetery products and services in the death care industry in North America. We provide a complete range of death care products and services both at and prior to the time of need. We are also a leader in the industry's trend toward consolidation. From November 1 . 1991 through December 31, 1998. we have grown from 43 funeral homes and 29 cemeteries in six states to 575 funeral homes and 143 cemeteries in 29 states, Puerto Rico and 10 foreign countries. Our growth in terms of number of properties has been principally through acquisitions . Our acquisition activity from November 1, 1997 through December 31 . 1998. consisted of the following: • In fiscal year 1998, we acquired 153 funeral homes and nine cemeteries for an aggregate purchase price of approximately $266.3 million • From November 1 . 1998 through December 31, 1998, we acquired, or entered into letters of hum or definitive agreements to acquire, 54 funeral homes and 26 cemeteries for an aggregate purchase price of $196.6 million

We believe that we operate one or more of the premier death care facilities in each of our principal markets. We also believe that we are an industry leader in the marketing and sale of prearranged funeral and cemetery services and products. Generally, we integrate the operations of funeral homes and cemeteries that are located close to each other, which we refer to as "clusters." in order to achieve operating efficiencies . We also create combined operations by building funeral haanes on out cemetery properties and operating both facilities together . We have entered into several partnerships with unaffiliated cemetery operators which allow us to build and operate a funeral home on the cemetery's grounds . These arrangements enable us to realize the benefits of a combined facility without having to make a capital investment in the cemetery.

We have an experienced management tam many of whom joined us through acquisitions . Our decentralized organizational structure allows our local funeral home directors and cemetery managers to best serve the needs of their particular markets.

Our ultimate goal is to enhance shareholder value. To achieve this goal. we have three principal objective : Provide the highest level of quality, service and value to each family we serve Attract, retain and reward highly qualified individuals to operate our businesses Provide an above average and sustainable retu rn to our shareholders

The Stewart family founded our business in 1910, and we were incorporated as a Louisiana corporation in 1970. The address and phone number of our principal executive offices is.

110 Veterans Memorial Boulevard Metairie, Louisiana 70005 (504) 837-5880

S-3 The Merf8t C Securities offered ...... 11 .850.000 shapes of Class A Common Stock by us 650.000 shares of Class A Common Stock by the Selling Shareholder

Common Stock outstanding prior to the offering ...... 94.522,739 shares of Class A Common Stock 3.555.020 shares of Class B Common Stoc k

Common Stock to be outstanding after the offering ...... 106,372,739 shares of Class A Common Stock 3.555.020 shams of Class B Cow== Stock

Rights of holders of Class A and Class B Common Stock:

• Voting rights ...... Class A: one vote per shar# Class B: ten votes per dwe-

• Other rights ...... The other rights of holde rs of Class A and Class B Common Stock an essentially identiai. except that the Chan B Common Stock may be transferred only to certain persons and is convertible at any time into an equal number of :hares of Class A Common Suck. The Class A Co=WG Stock is freely transferable and not convertible.

Significant Shareholder

• Prior to the offering ...... As of December 31 . 1998. Fran IF. StewartJr., the chairman of our board of duecwc; bed owned 7,743.934 shares (appr,co 8.2%) of our Class; A Comm= Stock, including the :rasa being offend by theSelling Shareholder, and 3.555,020 shares (100%) of our Class B Comm= S`oc . Because holders of Class B Common Stock have tea vows per share. Mr. Stewart held approximately 33.3% of the voting power mcibutabk to our common stock as of December 31. 1998.

• After the offering ...... Mr. Stewart will own 7,093,934 shares (approximately 6.7%) of our Class A Common Stock and 3.555,020 shares (100%) of our Class B Common Stock, and will hold approximately 30.1 % of the voting power auributeW to our coax ~ :rock..

Use of Proceed...... We will use the net proceeds received by us to fund our continuing acquisi tion program and for general ca porn purposes. Pending use for such purposes. we will use the net proceeds to repay debt or to invest in short-term ii 1 bearing securities.

Nasdaq National Market Symbol ...... STET

S-4 Summary Finandnl and Operating Data (Doha to Memnd% cww per rare mMma)

The balance sheet data set forth below as of October 31, 1997 and 1998 and the statement of earnings data for each of the years in the three-year period ended October 31 . 1998 are derived from audited financial statement that are incorporated into this prospectus supplement and base prospectus by reference to our most recent report on Fom, 10-K. The balance sheet data as of October 31 . 1994. 1995 and 1996 and the statement of earnings data for the years ended October 31, 1994 and 1995 are derived from audited financial statements that are not included in . or incorporated by reference into. this prospectus supplement or base prospectus .

Yew Badrd October 31. (1) 1914 1913 1996 1991 1918 Stateroom of ]EAndup War Revenues: Funeral ...... $116.266 $188.991 3223.461 $291.649 $379.093 Cemetery...... 138.092 179.831 207.926 240.937 269 .270 Total revenues ...... 234.33 368.622 433.387 332.586 648.363 Grose profit Funeral ...... 31 .783 33.309 72.239 89.235 118.426 Cemetery ...... 25.812 34.434 45.879 67.937 77.331

Total gross profit ...... 35797` 89.74) 111.116 137.172 195.984 Corporate general and a ative apmar ...... (8.137) (11.113) (14.0%) (15.402) (16.621) sod 0perad earnings berms p..( ui a-bred apims ...... 49.440' 78.630 104.022 141 .770 17963 Performance-based stock options ...... - (17.232) - - (76.762) Operating earnings ...... 49.440 61.37$ (2) 104.022 141,770 102.601(3) Interest apow ...... (8.878 (22.813) (26.031) (38.031) (43.821 ) lnvestae and other income ...... 1.635 2.937 4.104 2.733 6.184 Earnings before iei taxes and emuulaove effees of change is aaoornr Principles ...... $ 4219t S 41.300 (27 S 82.075 $106.477 S 64.964(3)

Ea rnings before cumulative effect ofchange in ao principles ...... $ 27.233 S 26.143 (2) S 31 .297 S 69.742 S 41 .902 (3) Cumulative effect of change in mmotie$ I i 'I is (nrt of52.230 iaooms tun bendk)(1) ...... (2.324) - Net earnings ...... S 27.253 , S 26.143 (2) S 31 .297 S 67.418 S 41 .902 (3 ) Per Share Data: (4) Basic earnings per show Earnings, before a tsohnive s!l of cheap in aorouat ng principles ...... $ .43 S -36(2)S .62 S .79 S .43 (3 ) Cumulative dibet d chop in sot L, P PI- (1) ...... -- - -- (.03) - Net earnings ...... S .43 S .36 (2) S .62 S .76 S .43 (3) Diluted earnings per slums Earnings before cumulative a le t of t in aooou iu.g principle ...... S .42 f -35(2) S .61 S .78 $ .43(3) Cunulaiw e!1'ea ofdot in as x Freda (1) ...... -- - - ( .03) - Net earnimp ...... S .47 S 35(2) f .61 S .73 S .43 (3) Weighted average shares oumandiy (in droeendr): Basic ...... 63.820 72.772 82.821 88 .778 97 .691

Diluted ...... 64.463 73.691 83.939 89 .675 98 .444 Dividends per shunt ...... S .014 S .017 S .033- S .04 S .06

Pro fats amounts assioubg this the chop in nemwitiet j: i Pip' was evuectivel)r. Net arn.up...... S 28.649 S 30.671 (2) S 49.959 S 69.742 Basic earning per share (4) ...... S .43 S .42 (2) S .60 S .79

Diluted earning per share (4) ...... S .44 S .42(2)S .6a S .78 asps

$-s Ooabar 31, 19% 1995 1996 1997 1998 As galsm Shed DOW Mod AdjUNed(S) ASSM ...... 3759.390 51 .072.435 51,360.913 S1,637,23$ 52 .071 .802 52.071 .802 LMS-tem debt. I= . . • ...... 260,913 317.451 313.901 524.331 913213 722.977 .370 839.290 1 .029.328 Ste' ...... 325.671 483.971 347,44? 819 Yw Ended Oelstwr 31. 19% 1999 1996 1997 1990 Operatbn Dow Funay hom" lu p~ a(p~ ...... 103 161 29` 401 558 Ai-need fwnwals performed ...... 23.339 37.263 38.331-- 61 .682 87.653 ...... PrearranSW ftmerab performed 7-571 9=5 13.422 18.970 23363 .488 33 Total funeeela performed ...... 31 .110 46 .773 80.652 111 .216 ...... 637 33.787 Prearnm"d Nowak mW . . . 26 37,343 48.676 66,368 god of pew . . . . . 183.886 222332 294,429 330.031 397,023 8wkk Of PMMMr4Wd fumfsk at Cenuum" in operision at end ofperiod ...... 90 103 120 129 140 ...... 30.415 39 Interm"s performed .662 43.129 46.782 30.201

(1 } Effective November 1 . 1996, we changed certain of our accounting p mneiplee as follows: (a} prearranged funeral trust funds and escrow accounts : • Since November 1. 1996: We defer a portion of the earnings realized by irrevocable prearranged funeral trust foods and escrow accounts in order to offset the estimated effects of inflation on the future cost of performing prearranged funeral services . We recognize on, a current basis earningw realized in excess of those we defer, except in those jurisdictions where earnings revert to a customer if a p=ranged funeral service contract is cancele d t • Prior to November I. 1996: We recognized all ea r as eplindt except in those jurisdictions where earnings revert to a customer if a prearranged funeral service contract is canceled . (b) Prearranged sales of cemetery interment rights and related products: • Since Nown*er 1. 1996: We nxord all revenues and costs amtbut" eft aged sales of cemetery interment rights and related products when clamaar contracts are signed We provide allowances for customer cancellations and refunds at the date of sale based on our past experiencsr- • Prior to November 1. 1996: In general, we applied accounting principles prescribed for sales of nil estate and defarad revenues and direct costs attributable to these sales until 20% of the conaau amount had been collected . (c) Cemeay burial sips oparinp and closings:

• Awe No►exbw f.199& We record revenues and related coats attributable to cemetery burial sirs opening and closings at the time of sale . We provide allowances for customer cancellations aid refu der at the dace of sale based on our past e> aaa~ • Prior to November 1.1991 We deferred revenues and covers attributable to these sales until delivery of the Services, . Information gir d for And years 1997 and 1998 reflects the c sage in accounting principles described above. Information press red for fiscal years 1994 through 1996 reflects results as originally reported under the prior accounting methods-

S-6 (2) Includes a non-recurring . non-cub charge of $17.3 million ($10.9 million. or S.15 per share. of er.tax) recorded during the third quarter of fiscal year 1995 in connection with the vesting of pe formance .based stock options. Excluding that charge, for fiscal year 1995:

(a) earnings before income taxes and cutnulative effe ct of the change in accounting principles were $58.8 million; (b) earnings before cumulative effort of the change in accounting principles were $37 .0 million; (c) net earnings were S37 .0 million; and (d) basic earnings per share were S.51 and diluted earnings per share were $.30. (3) Includes a non-recurrin& non-cash charge of $76.8 million (SS0.3 million, or S.5 1 per share, after-tax) recorded during the second quarter of fiscal year 1998 in connection with the vesting of performance. based stock options. Excluding that charge, for fiscal year 1998: (a) earnings before income taxes and cumulative effect of the change in accounting principles were $141.7 million; (b) earnings before cumulative effect of the change in accounting principle were $92.2 million; (c) net earnings were 592.2 million; and (d) basic and diluted earnings per share were 5.94. (4) Adjusted to reflect a three-for-two common stock split effected June 21, 1996 and a two -for-one common stock split effected April 24, 1998. (5) Adjusted to reflect the sale by us of the Class A Common Stock offence in. this prospectus supplement and base prospectus and the application of the proceeds of the sale. Sea "Use of Proceeds" and "Capitalization."

S-7 USE OF P1tOCE1r1De apP° ' $1902 million from this offering. We will receive We will receive net proceeds of approximately $218.8 million if the undo wrims exercise their over-allottow option in fn11 . We estimate that our total expenses for the offering. including the estimated underwriting discount, will be approximately $8.3 million assuming the the underwriters do not exercise their over allotmem option,

We will not receive any promxk from the sale of our stock by the Selling Shareholder. We will use substantially all of the net proceeds to fund our continuing acquisition program and for general corporate purposes. Pending such use, we will use the net ptoaeds to n the balances outstanding on our revolving credit facilities or to invest in short-term interest bearing securities. As of December 31, 1998, $520.0 million was outstanding under our $600 million revolving credit facility and $83 million was outstanding under our S10 million revolving c r e d i t f a c i l i t y . As of December 31, 1998, $3.9 million in standby letters of credit were outstanding under our $600 trillion facility, and these amomte count as advances for purposes of determining the availability of funds under that facility .

The $600 million revolving credit facility: • Beats interest ac • the lead hank's prime rate; or • at certain optional rates at our election (a weighted average rate of approximately 5 .6% at December 31, 1998); • Mans s on Apri130. 2002: and • Requires us to pay as annual facility fee of 123 basis points. or $750,000.

The $10 million revolving credit facilit : • Bears interest at • the lending bank's prime Pete; or • at certain optional rata at our election (6.1 % at December 31, 1998); and • Maw= on Match 31, 1999

The most restrictive of our debt agreements require us to maintain a debt-to-equity ratio of not more than 1 .25 to 1 .0. After application of the net proceeds of this offering, our additional borrowing capacity would be approximately $524.1 million under this ratio

Most of the funds drawn on our revolving credit facilities in the last 12 months were used to fund our continuing acquisition program . the construction of new funeral homes and the growth in our installment contact receivables.

As of December 31. 199& pending acquisitions consisted of 36 funeral homes and 23 cemeteries for an aggregate purchase price of $162.5 million.

S-8- PRICE RANGE OF COMMON STOCK AND DIVIDEND POLIC Y

Our Class A Common Stock is traded on the Nasdaq National Market under the symbol STET. The following table sets fortk for the periods indicated, the range of high and low sales price& as reported by the Nasdaq National Market. and the per sbam dividends declared . Prices and dividend amounts for fiscal year 1997 and the first two quarters of fiscal year 1998 have been adjusted to reflect a two-for-one common stock split effected in the form of a 100% stock dividend on April 24, 1998 .

5todc A avweads H10 L&, Mdared Fiscal Year 1997 First Quarter ...... 19'b 163A 5.01 Second Quarter ...... 19 16 .01 Third Quarter ...... 23 16% .01 Fourth Quarter ...... 2214% J&%,6 .01 Fiscal Year 1998 first Quarter ...... 24l 19!1 5.0 1 Second Quarter ...... 29 21 .01 Third Quarter ...... 2844 22 W .02 Fourth Quarter ...... 2444 15% .02 Fiscal Year 1999 First Quarter (through Jarmary 27,19M ...... 2434 16% 5.02

We intend to continue out current policy of declaring quarterly cash dividends on the Class A and Class B Common stock in the amount of S.02 per share. Our board of directors has the discretion to declare and pay dividends and will consider our results of operations, financial condition, cash tequirem nts. future prospects and other factors deemed relevant by them from time to time in establishing out dividend policy. The most restrictive of our debt agreements restricts the declaration and payment of dividends within any period of four consecutive quarters to 50% or less of our consolidated net earnings for chose four quartets. The same debt agreement limits the purchase, redemption or retirement of any shares of our capital stock to 5% or less of our consolidated net worth on the payment date.

S-9 CAPITALIZATION The following table sets forth our ca pitalization as of October 31 . 1998. and as adjusted to reflect the sale by us of the Class A Common Stock offered hereby and the application of the estimated net proceeds of $190.2 million to repay a portion of the balance outaunding under our revolving lines of credit as d escribed under "Use of Proceeds, " assuming that the underwriters do not exercise their ova-allotment option. _ ».1 9M Actool As Adju.1.i (In _'o"" ) Current maturities of long-term debt ...... $ 11.219 S 11 .219 Long-term debt. excluding current maturities(l) Revolving lines of credit ...... S 492,000 $ 301.762 Senior notes ...... 95,714 95,71 4 6.70% Notes due 2003 ...... 100,000 100.000 6.40% ROARS due 2013 (remarketing date 2003) ...... 205,164 205.164 Other, principally seller financing of acquired operations or debt assumed in acquisitions. and partially secured ...... 20.337 20.337 Total long-term debt ...... 913.215 722.977 Shareholders' equity : Preferred stock. $1 .00 par value. 5,000,000 shares authorized; no shapes issued . . . . . - - Common stock. $1 .00 stated value: Class A Common Stock. no par value. 150.000.000 shafts authorized; 94.477.844 shares issued and oustanding; 106.322.844 smuts as adjusted . . . 94,473 106323 Class B Common Stock, no par value, 5,000,000 shares authorized; 3.555.020 shares issued and outstanding:; 10 votes per sham amble into an equal number of Class A shares ...... 3.555 3.555 Additional paid-in capital ...... 492.177 670,565 Retained earnings ...... 315.140 315.140 Cumulative foreign tea elation adjustment ...... (64.887) (64.887) Unrealized won of inve stments ...... (1.168) (1 .168) Total shareholders' equity ...... 839.290 1 .029.528 Total capitalization ...... $1.752.505 $1,752„.505

(1) All of our long-term debt is unsecured. except for $3.0 million at October 31 . 1998 ($2.8 million at Decembe r 31 . 1998) secured by liens an the asses or stock of our subsidiaries. which were incurred or assumed in connection with acquisitions. Our long-term debt outstanding at October 31. 1998 (excluding current maturities) included $492.0 million under our revolving credit facilities (see "Use of Proceed:" for a description of these facilities) and the following: (a) Senior notes. including: $35.7 million of senior notes bearing interest at 6.04% and maturing on November 30.2003, with principal payments, of $7.14 million due on November 30 of each year prior to maturity, which paynsena commenced on November 30. 1997; $50 million of Series B notes due November 1. 2002 with principal payments of $16.7 million due on each of November 1 .2000 and 2001 , and $16.6 million due November 1.2002, bearing interest at 8.44%: and $10 million of Series C notes due November 1 . 2W6 beating inteiat at 8.72%; (b) $100 million of notes due December 1 .2003 bearing interest at 6.70%. and (c) $200 million of Remarketable or Redeemable Securities ("ROARS") due May 1. 2013 (remarketing date May 1 .2003) bearing interest at 6.40%. Additionally, the amount shown for the ROARS includes $5 .2 million representing the unamortized portion of the option premium we received from the remarketing agent when we issued these securities.

S-10 BUSINESS

The Company

We are the third largest provider of funeral and cemetery products and services in the death ca re industry, in North America. As of December 31, 1998. we owned and operated 575 funeral homes and 143 cemeteries in 29 states within the United States, and in Puerto Rico, Mexico, Australia , New Zealand , Canada, Spain, Portugal, the Netherlands. France, Belgium and Argentina. We are a leader in the industry's trend toward consolidation. Our growth in terms of number of properties has been principally through acquisi tions.

We provide a complete range of death cane products and services both at and prior to the time of need . Our funeral homes and cemeteries are located primarily in metropolitan areas and generally are organized in -clusters," which are integrated groups of funeral homes and cemeteries that share certain assets, personnel and services. We also create combined operations by building funeral homes on cemetery properties and operating the facilities together. We believe that we own and operate one at more of the premier death care facilities in each of our principal markets. We also believe that we an an industry leader in the marketing and sale of prearranged funeral and cemetery services and products.

We have an experienced management team and a decentralized organizational structure that allows our local funeral home directors and cemetery managers to best serve their locations' particular needs. Our ultimate goal is to enhance shareholder value. To achieve this goal, we have three principal objectives: • Provide the highest level of quality, service and value to each family we serve • Attract, retain and reward highly qualified individuals to operate our businesses Provide an above average and sustainable retu rn to our shareholders

The Death Care Induce Our management believes that the death care industry has several attractive fundamental characteristics. The industry is relatively stable, business failures are uncommon and the market served by death cane providers is expanding. According to the United States Bureau of the Census, the number of deaths in the United States is expected to increase by approximately 1% per year from 2 .38 million in 1998 to 2.64 million in 2010. In addition, industry studies indicate that while the death rate is declining slightly, the average age of the population in the United States is increasing. The aging of the population particularly the "baby boomers" who have only recently begun to turn 50, represents a significant opportunity for firms such as our company to expand their customer base and secure a portion of their future market share by actively marketing prearranged property, merchandise and services. According to the Bureau of the Census, the United States population over 50 years of age will increase from 72.7 million in 1998 to 96.4 million in 2010. Our principal target market for sales of prearranged cemetery property, merchandise and services is customers who are age 50 and above.

Traditionally, death care businesses in the United States have been relatively small, family-owned enterprises that have passed through successive generations within the family . Currently, however, the industry in the United States and in certain foreign countries is undergoing a transition in which family-owned firms are consolidating with larger organizations such as our company. Our management believes this trend primarily results from the desire of owners to address management succession and estate planning issues and to achieve liquidity and diversification of their investments. Our management believes this trend also results from consolidators offering attractive prices under the belief that they can improve profit margins through improved marketing and sales initiatives and economies of scal e:

Our management believes it can be difficult for new competitors to successfully enter existing markets by opening new funeral homes and cemeteries. Several factors make it difficult for new facilities to compete successfully, including the importance to families of reputation and goodwill developed over time regulatory complexities. zoning restrictions and the existence of an adequate number of facilities serving mature markets .

S-11 Operations Premier Facilities. We believe that we operate one or more of the premier death care facilities in each of our principal marketts. In our view, a "prettier" facility is one that is among the most bighly regarded facilities in its market area in terms of tradition, heritage, reputation. physical size. volume of business, available inventory, name recognition, aesthetics and potential for development or expansion. Clartermg. We operaoe most of our funeral homes and cemeteries in "clustem • Clusters are groups of funeral homes and cemeteries located close enough to each other that t him operations can be integrated to achieve economies of sale. For example, clustered facilities can share vehicles, embalming services, inventories of caskets and other merchandise and. most significantly, personnel. including our prearrangement sales force thus, we are able to decrease our costs and expand our marketing and sales efforts at each location. By virtue of their proximity to each other, clustered facilities also crease opportunities for more integrated and sophisticated management of their operations.

Funeral Operation . Funeral operations accounted for approximately 58% of our revenues for the fiscal year ended October 31, 1998. Our funeral homes offer a complete range of funeral services and products at the time of need or on a prearranged basis. Our services and products include family consultation, removal and preparation of remains, the use of funeral home facilities for visitation, worship and funeral se vices, transportation service& flowers and caskets. In addition to t aditional funeral services, a ll of our funeral homes offer cremation products and services. Most of our funeral homes have a, chapel on the premises, which permits family visitation and religious services to aloe place at the same location. Cemetery Operations. Cemetery operations accounted for approximately 42% of one revenues for the fiscal year ended October 31 . 1998. Our cemetery operations involve the sale of cememy property and related merchandise. including lots. lawn crypts . family and community mansolwm monuments, memorials and burial vaults, along with the sale of burial site openings and closings . Cemetery property and merchandise sales are made at the time of need or on a prearranged basis. We also maintain cemetery grounds under perpetual care contracts and local laws.

Although profit margins of cemetery operatics typically are slightly lower than those of funeral home operations, we believe that our cemetery properties help us to maintain market share. as families often return to a cemetery location where their ancestors are buried. In addition. our clustering and combined operations strategies help to improve the profi tability of out individual cemetery loatioo

Combated Funeral Home and Cemetery Operations. A combined op eration is a funeral home located on a cemetery site where both an aperaled together. Combined operations help to increase market share by allowing us to offer families the convenience of complete funeral home and eememy planing and services from a single location at a competitive price at the time of need or on a I get basis. In additiian, combined operation auhanca our punch power, enable us to employ more-sophisticated management system and allow us to share faciilitiea. eq personnel and a prearrangement sa les formi resulting in lower average operating costs and expanded marketing and sales opportunities. Apppoai umly 45% of our cam aeries have a funeral home on site that is operated in conjunction with that cemetery. Many of out oomI i P ' operation we in key markets, including New Orleans . Louisiana; Dallas, Fort Worth and Housew Tens, Mimi. Orlando, Tampa and St. Petersburg. Florida; and San Diego. California

In addition to pursuing combined operations as part of our acquisition straugy. we have developed several internal growth mategies that employ the use of combined operations. One such strategy is to create combined operations by constructing funeral homes on the grounds of our cemetcries, and we plan to construc t approximately three funeral, homes per fiscal year on our cemetery locations. Another such strategy is to enter into operating paramrships is which we construct funeral homes on the grounds of unaffiiiased cemeteries, which allows us to enjoy the benefits of a combined operation without the capital investment of purchasing the cemetery.

S-12 Although it generally takes several years before a newly consmzcted f metal home becomes profitable. our experience with combined operations has demonstrated that the combination of a funeral home with a cemetery can significantly increase the market share and profitability of both.

Cremation. In fiscal year 1998, 35% of the funeral services we performed in the United States and Puerto Rico were cremations. Cremation rates at our foreign funeral homes ate higher on average than those at our domestic funeral homes although they vary substantially from country to country. For fiscal year 1998 , the cremation rates at our foreign funeral homes varied from 6% in Portugal to 64% in New Zealand. While cremations in the United States often result in lower average revenue than traditional funeral services . they generally produce higher gross profit margins . In the foreign markets in which we operate. cremations generally produce revenues and gross profit margins comparable to those of traditional funeral services in those countries .

The cremation rate in the United States has been increasing. and by the year 2000 cremations are expected to represent 25% of the United States burial market, according to industry estimates, We have been addressing this trend by providing cremation products and services at all of our funeral homes. including traditional funeral services and memorialization options for families choosing crema tion. Additionally. we plan to expand on the model developed by Sentinel Cremation Societies, Inc.. which we acquired in fiscal year 1997, and which is discussed below under the heading "Internal Growth."

Prearrangements, We market death care products and services on a prearranged basis through a staff of approximately 3,500 commission sales counselors. Prearranged plans enable fami li es to establish in advance - and prepay for the type of service to be performed and the product s to be used. The cost of such products and services is set at prices prevailing at the time the agreement is signed . rather than when the products and services are delivered. Prearranged plans also permit families to eliminate the emotional strain of making death care decisions at the time of need.

We believe that extensive marketing of prearranged produ cts and services produces a backlog of future business and builds current and future market shar e. On average. over the pant five years. we have sold nearly three prearranged funeral services for every one we have de livered from our backlog. During the fiscal year ended October 31 . 1998. we sold approximately 66,500 prearranged funeral services; and as of October 31, 1998, we had a backlog of approximately 400,000 prearranged funeral services to be delivered in the future.

Trust Funds and Escrow Accomtt . Prearranged funeral plans am funded either through trust funds or escrow accounts established by us, or (to a lesser exte nt) through insurance, depending on the regulatory requirements in the relevant jurisdiction. When tent or escrow funding is used. we place into a trust fund or escrow account a percentage (which varies by jurisdiction) of the sale price which is often paid in installments. We retain the remainder of the sale price to defray costs related to the sale. We withdraw the amount placed in the trust fund or escrow account when the service is performed to cover the cost of providing the funeral service. When insurance funding is use4 we apply the customers' payments to pay premiums on insurance policies designed to cover the cost of providing the funeral service in the flame .

Generally, principal and earnings (including interest. dividends and net realized capital gains) on the trust funds and escrow accounts. and insurance proceeds are paid to us only when the fungal service is performed. In limited cir ances, we receive principal amounts from prearranged funeral trust funds or escrow accounts upon cancellation of the contract by the customer. In certain jurisdictions, we are permitted to withdraw earnings on a current basis from prearranged funeral tout funds and escrow accounts. As of October 31 . 1998, our prearranged funeral mist funds and escrow accounts waded approximately $525.9 million.

We also establish trust funds and es crow accounts to fund the cost of delivering prearranged cemetery merchandise. Generally. we withdraw the principal and earnings from these funds and accounts only when the merchandise is delivered or contracts are canceled. As of October 31, 1998, our cemetery merchandise trust funds and escrow accounts totaled approximately $188 .5 million.

S-13 We fund our obligations to maintain cry groin by placing a Porton• generally 10% . of the proceeds from cemetery property sales into perpetual care trust funds o[ escrow accounts. Income from these funds is withdraws and used for maintenance of the dies. but ptincipaj including in some jurisdictions net realized capital gains, generally must be held in perpetuity . As of October 31 . 1998, our perpetual care trust funds and escrow accounts waded approximately $167.5 million

The accounting methods used to reflect our prearranged funeral. merchandise and perpetual care trust funds and escrow accounts we complex and an described in the notes to our consolidated financial statements included in Item 8 of out Annual Report on Form 10-K for the fiscal year ended October 31, 1997.

Our management believes that balances in our am funds and escrow accounts, along with insurance proceeds and installment payments due under contracts. will be sufficient to cover our estimated cost of providing the related prearranged services and products in the future.

Management We have an experienced management team . many of whom joined us through acquisi tions. Our management structure is designed to allow local fimeral home directors and cemetery managers substantial flexibility in deciding bow their firms will be managed and their products and services will be p riced and merchandised. At the same time. financial goals are established by our manage m at the corporate lev a and we maintain centralized supervisory controls. Finally, we provide business support services primarily through our Shared Services Center. which provides centralized and standardized accounting. payroll. contract processing, collection and other services for all of our domestic facilities, including those in Puerto Rico.

Currently. we are divided into faQ operating divisions in North America. each of which is managed by a division president and chief financial officer. These divisions are fortber divided into regions. each of which is managed by a regional chief operating offices. Our operations in Europe, South America and Australasia am- not considered separate operating divisions . but are managed by local regional executives who report to certain of our executive offices. In fiscal year 1998, in order to meet the needs of our growing European operations and to enable us to take advantage of other long-term opportunities in Europe, we established our European headquarters in Amsterdam Holland: From time to time, we may increase or realign the divisions and regions to accommodate expansion of our operations. We also have a Corporate Development Division. which manages our acquisition program. and a Corporate Division, which manages our corporate services. accounting and financial operations and strategic planning ..

We use two types of stock options to align the interest: of our managers with the long-term interests of our shareholders. Our mace traditional options vest over time. Our pe fonnance-based options vest only if we achieve a stock price objective. which, has generally been a 20% compounded annual growth rate in the stock price over a five-year period. Is April 1998` we achieved the stock price objective applicable to th e performance-based options granted in 1995. Accordingly. those options, vested and. with our encouragement, were exercised by the opdooees. In July 1998, we granted new options to 190 managers . Two-thirds of those options are performance-based. and sae-third vest over time at the rate of 20% per year over five years. The performance-based options become exercisable only if the average of do closing sale prices of a share of Class A Common Stock over 20 costive trading days prior to July 17. 2003 equals or exceeds $67 .81. otherwise the options will be forfeited. Generally accepted accounting principles require that a charge to earnings be recorded for the perfarmaooa-based options for the difference between the exercise price and the then current stock price when achievement of the performance objective becomes probable. All of these options expire on July 31.

Foreign Operat}om we first entered foreign markets in fiscal yew 1994 and. through December 31 . 1998. we have acquired a total of277 pt+openies outside the United States and Puerto Rico. For the fiscal year ended October 31 . 1998, our propstties in foreign countries generated approximately 18% of our consolidated total revenues. -

S-1n. Growth Strategy

Geru►aL In pursuit of our ultimate goal of enhancing shareholder value. we plan to continue to increas l our e earnings per share at an annual rate of 20% each year through a balanced suategy of internal and externa growth. Our internal growth strategy involves consistent improvement in both revenues and costs at existinS and acquired operations, construction of new funeral homes and cemeteries, and innovative initiatives such as the use of operating partnerships and alternative service firms as described below . Our external growth stately involves an aggressive, but disciplined domestic and international acquisition program and the rapid and effective assimilation of the businesses we acquire.

Internal Growth Prearranged Services. We believe that we can be distinguished from our competitors through our strong emphasis on, and our mutt than 50-year history of success with. prearranged sales. We also believe that we are an industry leader in marketing pr hanged funeral and cemetery services and products through hig hly qualified commission sales counselors. Extensive prearranged marketing produces current revenues and a significant backlog of future funeral business and builds current and future market share . Our backlog of prearranged funeral services has grown at a compounded annual rate of 21 % over the la st four years and represented over $1.3 billion in future revenues at October 31, 1998.

Imvroved Merchandising, We frequently expand our product and service offerings, adjust the mix of products and services offered in individual markets. take advantage of enhanced pricing opportunities, and implement selective marketing programs to incase revenue and improve profit margins .

New Funeral Home and Cemetery Consnvction: We create combined operations by building funeral homes on our cemetery properties and operating both facilities together. In fiscal year 1998, we completed the construction of funeral homes on three of our cemetery properties. Additionally, in limited instances, such as in newly developed and rapidly growing communities, we may construct new funeral homes and create new cemeteries as stand-alone facilities . In fiscal year 1998, we opened two smid-alone funeral homes and one stand-alone cemetery.

Operating Parmershioa. We expect to gain market share and-improve, profitability th rough operating partnerships with unaffiliated patties.

Through our operating partnership with the Catholic Archdiocese of Now Orient . we constructed a mausoleum for the Catholic Church on the grounds of our combined operation in New Orleans. We own the mausoleum and manage the sales relating to the mausoleum for the church. Additionally, through an operating partnership with the Fireman's Charitable and Benevolent Association, a non-profit organization, w e constructed a funeral home and mausoleum on the grounds of their cemetery in New Orleans. We own and operate the funeral home in combination with that cemetery. and we manage sales for the mausoleum. We recently entered into an agreement with the Archdiocese of Los Angeles under which we will construct and operate six funeral homes on land leased by us from the Archdiocese at the site of six cemeteries owned and operated by the Andbdiocese. Subsequently, during fiscal year 1998 . we entered into similar agreements with the Archdiocese of Los Angeles for the construction and operation of three additional funeral homes. Over the lass 50 years through our mausoleum construction busittw, we have developed relationships with the Catholic Church in approximately 70 dioceses in 39 states, We anticipate building on those relationships as we expand our use of operating partnerships .

We also plan to develop operating partnerships with non-profit secular entities as we did in fiscal year 1998 when we entered into an agreement with the Wyuka Cemetery Board of Trustees . Under that agreement, we will manage the cemetery sales and construct and operate a funeral home on the grounds, of that state- owned cemetery in Lincoln, Nebraska

S-15 PPP'

Our management believes that these partnerships allow us to enjoy the benefits of operating a funeral home on the grounds of a cemetery without the capital investment of purchasing the cemetery . We also believe that partnerships such as these benefit the third parties by allowing them to compete with other cemeteries in their market that have funeral homes on their properties . We we pursuing similar partnership opportunities with other cemetery ope ators-

Although it generally takes several years before a newly constructed funeral home becomes profitable, our experience with combined operations has demonstrated that the combumon of a funeral home with a cemetery can significantly increase the market share and profitability of both.

Alternative Service Fans. During fiscal year 1997, we acquired Sentinel Cremation Societies, Inc .. of California ("Sentinel") which owned and operated thirteen service centers offering cremations and related products and services. At the time of its acquisition. Sentinel's cremation societies, Neptune and Telophase, had more than 104,000 members. Members in the cremation society pay a small membership fee and receive a membership card indicating their wish to be cremated. Became Sentinel's offices generally operate from leased locations with a small stalt they have lower overhead than traditional funeral home :. The cost to the family for death care arrangements at a Sentinel location generally is less than the cost at a traditional funeral home .

Since the Sentinel acquisition was completed in March 1997. we have opened four additional service center location The expansion of the Sentinel model is an example of ow effort to address the growing cremation market. and it offers a cost-saving alternative to the construction of a traditional funeral home. We plan to open additional service capers similar to the Sentinel model. although n ne expects this expansion to occur slowly while we further develop and test the con epE in new markets . Results from the four locations opened have exceeded our initial expectations.

During fiscal year 1998, we acquired Desert Memorial Cron and BurW Society in Las Vegas. Nevada, the state with the highest cremation rate in the United Suter This acquisition complements our alternative services strategy and provides an additional vehicle far expan sion, particularly in the high cremation markets of the western United States.

Cost Control In addition to our strategies for increasing revenues . we plan to continue to improve our operating margin by achieving economics of scale. improving efficiencies and controlling costs through a variety of measures including the following • Obtaining volume discounts from suppliers • Levesagint opmatitt f cost: through clustering and the development of combined operations • Consolidating our u.s: beck office operations at our Shared Services Center • Improving the odlixat ow of our sales force

We believe that one inert growth strategies including our cost control efforts have been major contributors to our increased operating earnings (before stock option charge.) over the last five years .

Everno! Gmwvk Acauiaitiae From November L 1991 through December 31. 19M we have grown (torn 43 funeral homes and 29 cemeteries in six states to 571 funeral homes and 143 cemeteries in 29 sums, Puerto Rico and 10 foreign countries. Our growth in »s of number of prop erties has. been principally dmmgh acquisitions.

At the time of our initial public offering in October 1991 . was owned funeral homes and cemeteries in Louisiana Texas. Florids Vitt West Virginia and Maryland. Since tbak timer. we have expanded domestically. primarily lit the Southett4 Mid-Atlantic, Midwest and Pacify stapes and is Puerto Rico . In addition; we have expanded internationally by entering Mexico in fiscal yew 1994 . Australia. New Zealand and

S-16. Canada in fiscal years 1995 and 1996, Spain and Portugal in fiscal year 1997 and the Netherlands. France and Belgium in fiscal year 1998. Since 1994, we have acquired a total of 277 funeral homes ~n~' cemeteries outside the U.S. and Puerto Rico, and we believe that at tractive expansion oppor tunities exist in those and other foreign countries.

The following table sets forth certain information with respect to our completed and pending acquisition activity:

Nuxlbff of Funeral Home Puri"-- prks

Properties owned as of October 31. 1991 ...... 72 $ Completed acquisitions(l) : Fiscal year 1992 ...... 11 30.0 Fiscal year 1993 ...... 49 94.6 Fiscal year 1994 ...... 60 177.6 Fiscal year 1993 ...... 70 154.4 Fiscal year 1996 ...... 149 179.0 Fiscal year 1997 ...... 114 184.5 Fiscal year 1998 ...... 162 266.3 November 1. 1998 through December 31, 1998 ...... 21 34. 1 Pending acquisitions as of December 31, 1998 ...... 59 162.5 (1) Excludes funeral homes that we constructed.

Acquisition Strateav. Marc than 85% of the approximately 22,000 funeral homes and 9,600 cemeteries in the United States we privately or family owned. and those funeral homes and cemeteries generate approximately 75% of domestic funeral home and cemetery revenues. We believe that a substantial number of these businesses are suitable acquisition candidates . We actively pursue acquisition opportunities both domestically and internationally and plan to continue doing so . Where feasible. we seek to acquire premier firms that may be integrated with an existing cluster or serve as a base for the formation of a new cluster . We also seek firms that have strong managers who are willing to remain with us. In evaluating a potential acquisition. we also consider factors such as the size of the community the property saves and the potential for increasing the property's profitability through increased prearranged marketing efforts and other means . We expect most of our expansion to continue to occur domestically, although we continue to pursue international acquisitions, primarily in Europe. Latin America and the Pacific Rim

Our management believes strongly in a disciplined approach to acquisi tions. Currently, our objective is to pay no more than eight times management's estimate of what the acquired firm's EBIT (earnings before interest and taxes) will be for d w that twelve months after the acquisition, although we sometimes pay somewhat higher prices for strategic reasons. Our objective is for the acquired fnn to be additive to our earnings per share in the first twelve months after its acquisition.

We created our Corporate Development Division in fiscal year 1995 to further coordinate our acquisition activities, In 1997, we expanded this division to include, in addition to our fu ll-time corporate employee& commissioned field reprea utatives to focus on domestic and foreign acquisition candidates . These representatives devote their full time to, identifying and developing acquisition candidates and assisting in negotiations. Our divisional and regional management also work with the Corporate Development Division in identifyingand developing acquisition candidates and assisting in negotiation .

Assimilation of Acquired Comeanies. We frequently am into management or consulting aFeements and non-compete agreements with owners and key managers of acquired companies in order to assure the

S-17 continuation of the acquired fin's goodwill. In addition. we generally c ..e yo operate acquired businesse s under their existing names. In general. acquired firms initially have lower g p margins than our existing (• businesses. We strive to improve the margins of acquired businesses primarily by • Increasing prearranged sales • Integrating the firm into our marketing progra m • Assisting local managers in evaluating merchandising and pricing strategies • Standardizing and centralizing certain business support functions through our Shared Services Center

Our management believes that we have been improving our ability to rapidly and effectively assimilate acquired fines and improve their margins.

Forward-Looking Stat.menia

Certain statements made in this prospectus supplement and base prospectus that an not historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1993. Our actual results could differ mucrially this to several important factors including the following: • Our ability to sustain recent levels of acquisition activity aodeaurnew meekness. including foreign markets • The economy, death rate and competition in our markets • Financial marker condidons. including stock and bond prices and interest ram • Our ability to achieve economies of scale, manage growth andefikiently as inflate acquired C The performance of acquired businesses "T -

Such factors, and others. are more fully described is Item SofourQoarmly Report on Form 10-Q for the quarter ended July 31, 1998.

SELL NG SHAREHOLDM

Of the 12.500,000 shares of Clan A Common Stock offend Mrsonor to this prospectus supplement. 11.850,000 shares are being sold by us and 650,000 shares are being ollbee+d by the Stewart Revocable Trust (tlw ..Selling SMrdso ''X; a trust established by Mr. Frank[ B. Smut Jr.. the can of our board of director& and Ids wiffir -

Prior to the ottaim the Selling Shareholder owned 747.500 shim (0.8%) of our Class A Common Stock . 97,500 of which we subject to the underwriters' over- allonnak.opdoa Following th offering, the Selling Shareholder will owe 97400 shares of our Class A Common Storrs. ustistang t eundaw.it= do not exercise chess over-allotment opooni If the underwriters exercise their over-allosmiuc option, the Selling Shareholder will not own any sh ares of our Class A or Class B Co~mnoo Stool

Mr. Stewart beneficially owns all of the shares owned by the. Selliog,S6end older Following the offering. Mr. Stewart will beneficially own 7.095.934 shares (approximately 6.7%) of our Class A Common Stock and 3.555,020 sham (100%) of our Class B Common Stock and will bold app nIlmatdy 30.1% of the voting power attributable to our cannon stock, assuming theunderwriters do not exercise their over-allotment option.

S-18 C. UNDERWRITING

Bear, Stearns & Co. Inc.. Merrill Lynch, Pierre. Penner & Smith Incorporated. and Johnson Rice & Company L.L.C. are representing the underwriters listed below (collectively, the "Underwriters"). Subject to the terms and conditions of a Terms Agreement, dated January 27. 1999. which incorporates by reference the terms and conditions of an Underwriting Agreement Basic Provisions. dated January 6. 1999 (collectively. the "Underwriting Agreement"). the Underwriters have severally agreed to purchase from us and the Selling Shareholder the number of shares of Class A Common Stock set forth opposite their names below:

Number UnderwrIes of Stars Bear. Stearns & Co. Inc...... 3,625.000 Merrill Lynch. Pierce, Fenner & Smith Incorporated ...... 3,625,000 Johnson Rice & Company L.L.C...... 3,625.000 NationsBanc Montgomery Securities LLC ...... 250,000 PaineWebber Incorporated ...... 250,000 Raymond James & Associates. Inc...... 250,000 Salomon Smith Barney Inc...... 250,000 Wasserstein Perella Securities. Inc...... 250,000 J. C. Bradford & Co...... 125,000 Doley Securities, Inc...... 125,000 Josephthal & Co . Inc...... 125.000 Total ...... 12.500,000

The Underwriting Agreement provides that the obligations of the several Underwriters to purchase and accept delivery of the shares of Class A Common Stock offered by this prospectus supplement are subject to approval by their counsel and to certain other conditions. The Underwriters are obligated to purchase and accept delivery of all the shares of Class A Common Stock offered by this prospectus supplement, other than shares covered by the over-allotment option. if any are purchased.

The Underwriters pomp gas to offer the shahs of Class A Common Stock to the public initially at the public offering price set forth on the cover page of this prospectus supplement and in part to certain dealers, including the Underwriters, at such price less a concession not to exceed $0.40 per share. The Underwriters may allow, and such dealers may reallow. to certain other dealers a concession not in excess of S0.10 per share. After the initial offering to the public. the public offering price and other selling terms may be changed by the Representatives at any time without notice. The Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority .

We and the Selling Shareholder have granted to the Underwriters an option to purchase up to 1 .875.000 additional shares of Class A Common Stock at the public offering price less the underwriting discount set forth on the cover page of this prospectus supplement solely for the purpose of covering over-allotments, if any. Such option may be exercised at any time until 30 days after the date of this prospectus supplement. To the extent that the Underwriters exercise such option. each Underwriter will become obligated. subject to certain conditions. to purchase a number of additional shares proportionate to such Underwriter ' s initial commitment as indicated in the preceding table.

We have agreed to indemnify the Underwriters against ce rtain liabilities. including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof.

We. our directors and executive officers, and the Selling Shareholder, who beneficially own in the aggregate approximately 11 .7% of the Class A Common Stock and 100% of the Class B Common Stock, have agreed that we will not sell, contract to sell or otherwise dispose of any shares of our capital stock for a perio d

S-19 of this prospectus supplemem without the prior written consent of the Underwrite rs of 90 days after the dam . s offered pursuant to this pp en .000 sham of Class A except for e sh prospectu's su le "Mimatdy 40 common Stockth beneficiaare lly owned by ow of our npa.employee tit , WUKX= or sales upon the exercise of outstanding stock options, grants of employee stock options. or issuances or salt by us in connection with acquisition&

In order to facilitate the offering, certain persons participating in the offering may engage in transactions that stabilize. maintain or otherwise affect the pries of the Class A Common Stock during and after the offering. Specifically, the Underwriters may ova allot or otherwise create a short position in the Class A Common Stock for their own account by selling more shares of Class A Common Stock than have been sold to them by us and the Selling Shareholder. The Underwriters may elect to cover any such short position by purchasing shares of Class A Common Stock in the open market or by exercising the over-allotment option . In addition, such persons may stabilize or maintain the price of the Class A Common Stock by bidding for or purchasing shares of Class A Common Stock in the open market and may impose penalty bids . under which selling concessions allowed to syndicate members or other btu-deniers participating in the offering are reclaimed if shares of Clan A Common Stock previously distributed in the offering we repurchased in connection with stabilization transactions or otherwise . The effect of tea transactions may be to stabilize or maintain the market price of the Class A Common Stock at a level above the level that might otherwise prevail in the open market The imposition of a penalty bid may also affect the price of the Class A Common Stock to the extent that it discourages resales. No ration is made as to the magnitude or effect of any such stabilization or other transactions. Such transactions. if commenced. may be discontinued at any time.

Michael 0. Read. a member of our board of directors, is a brother-in-law of a partner of Johnson Rice & Company L.L.C.. one of the Underwriters . Johnson Rice & Company L.LC will be paid a portion of the underwriting discount in connection with this offering. Certain of the Underwriters have engaged in transactions with and performed various investment banking and otherservices for as in the past, and may do so from time to time in the future.

LEGAL MATTERS

The validity of the Class A Common Stock offered hereby will be passed upon for.the Company by Jones. Walker, Waechter. Poitevent. Carrl ze & Dentgre, LL.P., New Odea a. Lott Certain legal matters in connection with this offering will be passed upon for the Underwriters by Jeakens & Gildtrist ; P.C.

S-20 pus $750,000,000 Stewart Enterprises, Inc. Class A Common Stock, Preferred Stock, Debt Securities

We may offer securities from time to time in an aggregate amount not to exceed $750.000.000. The securities may consist of any of the following :

Shares of our class A common stock . which are currently traded under the symbol "STEI" on the Nasdaq National Market

Shares of our preferred stock

Our debt securities consisting of debentures. notes or other evidences of indebtedness ranking equally with all of our other unsubordinated and unsecured indebtedness

In addition. Frank B. Stewart. Jr., the chairman of our board of directom may offer and sell . and, with our consent. his transfer and successors in interest may offer and sell. up to 2000.000 shares of our class A common stock from time to time.

We will receive all of the net proceeds from the sale of securities offered by us. We will not receive any proceeds from the sale of class A common stock by selling shareholders.

The securities may be offered separately or together, in one or more series or classes. in amounts. at prices and on terns to be determined at the time of sale and set forth in a prospectus supplement that will accompany this prospectus. The specific terms of the offered securities will be described in the prospectus supplement .

We and the selling shareholders may sell securities directly to one or more purchasers at to or through unde write s. dealers or agents. If any underwriters. dealers or agents are involved in the sale of securities. the accompanying prospectus supplement will set forth their names, the principal amounts. if any. to be purchased by underwriters. any applicable fees commissions or discounts. and the net proceeds to be received by us and the selling shareholders.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these sawrittes or passed on the adequacy or accuracy of this prospectus . Any representation to the contrary is a crin off ens..

This prospectus may not be used to sell securities unless accompanied by a prospectus supplement

The date of this prospectus is December 31.199L Certain persons participating in this offering may ettpge in &MOSedois that stabWze, maintain or otherwise affect the price of our securities including over-allotment, sftbillzing and short-covering transactions and the imposition of penalty bides Certain persons participating is this offering may also engage in pod" market making transactions in our securities on the Nasdaq National Market. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports . proxy statements and other information with the Securities and Exchange Commission (the "Commission") . You can inspect and copy that information at the public reference room of the Commission at 450 Fifth Street. NW, Washington. D.C. 20549. You may call the Commission at I -800-SEC-0330 for more information about the public reference, room . The Commission also maintains an Internet site that contains reports. proxy and information statements and other information regarding registrants. like us. that file reports with the Commission electronically. The Commission's Internet address is http://www.sec.gov. We have filed a registration statement and related exhibits with the Commission under the Securities Act of 1933, as amended The registration statement contains additional information about us and our securities. You may inspect the registration statement and exhibits without charge at the Commission's public reference room. and you may obtain copies from the Commission at prescribed rates. The Commission allows us to "incorporate by reference" the iofatmation we file with it. which means that we can disclose important information to you by referring to documents on file with the Commission. Certain information that we currently have on file is incorporated by reference and is an important part of this prospectus. Certain information that we file later with the Commission will automatically update and supersede this information.

We incorporate by reference the following documents that, we have filed with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"): • Annual Report on Form 10-K for the fiscal year ended October 31, 1997 (filed January 29, 1998); • Description of our class A common stock set forth in our Registration Statement on Form 8-A dated September S . 1991 : • Quarterly Reports on Form 10-Q for the quarter ended January 31 . 1998 (filed March 17, 1998); for the quarter ended April 30L 1998 (filed Juts J5.1998); and The the.quatter ended July 31, 1998 (filed September 14.1998).-, • Current Reports on Form 8-K . dated December 17. 1997 (filed December 18 ► 1997). dated March 10. 1998 (filed March 1061998); dated April 8; I998 (filed April 9: 1998f dated April 17. 1998 (filed April 17. 1998% dated Ap ril 21, 1998 (filed April 246 1998): dazed May 15. 1998 (filed May 1 5. 1998): dated June 9. 1998 (filed June 10. 1998): dated September 9, 1999. (Sled September 11 . 1998); and dated December 15,1998 (filed December I& 1998): and • All documents filed by us with the Commission pursuant to Sections 13(a). 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and prior to the termination of this offering . At your request. wt will provide you with a free copy of any of these filings (except for exhibits, unless the exhibits we specifically incorporated by reference into the filing). You may request copies by writing or telephoning us at Stewart Enterprises. Inc. 110 Veterans Memorial Boulevard Metairie, Louisiana 70005 Attention: Martin R. delautea l (504) 837-5880 You should rely only on information incorporated by reference or provided In this prospectus and any prospectus supplement. We have not authorized. anyone eke to provide you with different information. TAE COMPANY

We are the third largest provider of funeral and cemetery products and services in the death care industry in North America. We currently operate funeral homes and cemeteries in North America. South America, Europe and the Pacific Rim. We provide a complete range of death care products and services both at and prior to the time of need. We are a leader in the industry's trend toward consolidation. Our growth in terms of number of properties has been principally through acquisitions.

We believe that we operate one or more of the premier death care facilities in each of our principal markets. We also believe that we are an industry leader in the marketing and sale of prearranged funeral and cemetery services and products.

Generally, we integrate the operations of clusters of nearby funeral homes and cemeteries in order to achieve operating efficiencies. We also create combined operations by building funeral homes on our cemetery properties and operating both facilities together.

We have an experienced management team, many of whom joined us through acquisitions . Our decentralized organizational structure allows our local funeral home directors and cemetery managers to best serve the needs of their particular markets.

Our ultimate goal is to enhance shareholder value. To achieve this goal. we have three principal objectives:

• Provide the highest level of quality, service and value to each family we serve

Attract. retain and reward highly qualified individuals to operate our businesse s Provide an above average and sustainable return to our shareholders

The Stewart family founded our business in 1910 and we were formed as a Louisiana corporation in 1970. The address and telephone number of our principal execu tive offices is:

110 Veterans Memorial Boulevard Metairie, Louisiana 70005 (504) 837-5884

USE OF PROCEEDS

Unless otherwise described in the accompanying prospectus supplement, we will use the net proceeds from the sale of securities for general corporate purposes, which may include the repayment of indebtedness. acquisitions, capital expenditures and working capital. We will not receive any proceeds from the sale of class A common stock by selling shareholdem

SELLING SHAREHOLDER S

Frank B. Stewart, Jr.. the chairman of our board of directors. may use this prospectus to offer and sell shares of class A common stock With our consent, his transferees and successors in interest. including the Frank B. Stewart, Jr. Foundation mentioned in footnote (1) below, may do the same. The maximum aggregate number of shares that may be sold by the selling shareholders is 2,000 .000 shares. As of December 4.-1998, Mr. Stewart' s beneficial ownership of our common stock was as follows:

PW=M Namber of of Shan CIM Class A 7,772,372(1 ) Class B 3,555,020 100.0% (1) Includes 453.800 shares owned by the Frank B . Stewart. Jr. Foundation (a non-profit corporation), with respect to which Mr. Stewart shares voting and investment power.

By virtue of that ownership, Mr. Stewart held approximately 33.3% of the voting power att ributable to our common stock.

In the case of an offering of class A common stock by selling shareholders. a prospectus supplement will disclose: • The identity of the selling shareholders • The number of shares of class A common stock offered by the selling shareholder s • The amount and percentage of class A common stock to be owned by each selling shareholder following the offering • The percentage voting power to be held by each selling shareholder following the offerin g

RATIO OF EARNINGS TO FDMD CHARGES

Our ratio of earnings to fixed charges was as follows for the years and period indicated:

Niee mo .tis me.a Yens eadsd October 34 July 31, 1913 1994 1995 199$ 1997 199$ 5.15 5.30 2.72(1) 3.98 3.65(2) 1 .94(3) (1) Pretax earnings from continuing operations for fiscal year 1995 includes a non-recurring. non-cash charge of 517.3 million in connection with the vesting of performance-based stock options. Excluding the charge, our ratio of earnings to fixed charges for fiscal year 1995 would have been 3 .43. (2) Excludes the cumulative effect of a change in accounting principles . (3) Pretax earnings from continuing oper ations for the nine months ended July 31, 1998 includes a non- recturing, nonce charge of $76.8 million in connection with the ve sting of performance-based stock options. Excluding the charge, our ratio of earnings to fixed charges for the period would have been 4 .26.

For purposes of computing the ratio of earnings to fixed charges. earnings consists of pretax earnings from continuing operations plus fixed charges (excluding interest capitalized during the period ). Fixed charges consist of interest expense, capitalized interest. amortization of debt expense and discount or premium relating to any indebtedness. and the portion of rental expense th at managealen believes to be representative of interest.

During the periods presented, we had no preferred stock c oiling. Tbe:efou the ratio of earnings to combined fixed charges and preference dividends was- the same as the ratio of earnings to fixed charges for each of the periods presented.

4 DESCRIPTION OF CLASS A COMMON STOCK

General As of the date of this prospectus, our articles of incorporation authorized us to issue up to 150,000,000 shares of class A common stock and 5.000.000 shares of class B common stock. As of December 4, 1998 . 94,472,844 shares of class A common stock and 3 .555,020 shares of clan B common stock were outstanding.

Class A and Class B Common Stock Voting Rights. With respect to all matters submitted to a vote of our shareholders, the record holders of class A common stock have one vote per share and the =Ord holders of clas s, B common stock have ten votes per share. Except in limited circumstances, the holders of the class A and class B common stock vote together as a single class.

Our articles of incorporation do not provide for cumulative voting in the election of directors. Accordingly, the holders of more than 50% of the total voting power can, if they choose to, elect all of our directors. As of December 4. 1998. Frank B. Stewart, Jr.. the chairman of our board of directors . held approximately 33.3% of the total voting power attributable to our common stock.

Other Rights. Subject to the rights of the holders of any outstanding shares of preferred stock. holders of class A and class B common stock may receive such dividend& in cash. securities or property, as may from time to time be declared by our board of directors. In the event of a voluntary or involuntary liquida tion. dissolution, or winding up of our company, prior to any distributions to the holders of our common stock. the holders of preferred stock will receive any payments to which they are entitled. Subsequent to those payments, the holders of our class A and class B common stock will share ratably. according to the number of shares held by them, in our remaining assets, if any. Shares of our class A and class B common stock are not redeemable and have no subscription, conversion (except as described below) of preemptive rights.

Transferability and Convertibility. TThe class A common stock is freely transferable. The transfer of class B common stock is prohibited by our ar ticles of incorporation unless such stock is transferred to a "permitted transferee." A permitted transferee is defined in our ar ticles of incorporation to include. among others, the spouse, lineal descendants and executor of any authorized holder of class B common stock.

Our articles of incorporation provide that each share of class B common stock is convertible at any time at the option of the nxad holder into one share of class A common stock . A shareholder wishing to sell class B common stock may convert the class B common stock into class A common stock and sell the sha res of class A common stock. Upon transfer to any person other than a permitted transfenx, shares of class B common stock will be converted automatically into an equal number of shares of class A common stock. When converted, shares of class B common stock will be canceled and may not be reissued.

DESCRIPTION OF PREFERRED STOCK

Our articles of incorporation authorize us to issue up to 5 .000.000 shares of preferred stock. As of the due of this prospectus. no sh of preferred stock were outstanding. Our board of directors may at any time issue one or more series of preferred stock. determine the designation and sizes of any such series, and establish the rights and preferences of the shares of any series. The particular terms of any series of preferred stock offered hereunder will be so forth in an amendment to our articles of incorporation (which will not require the approval of our shareholders ) and described in a prospectus suppletaem

The summary of terms of our preferred stock contained in this prospectus is not complete. We urge you to read the provisions of our articles of incorporation and the articles of amendment rela ting to each series for a more complete description of our preferred stock.

5 If we choose to issue preferred stock our board of directors will determine, and the applicable prospectus supplement will describe:

• The respective preferences. limitations and relative rights of the series of preferred stock as compared with the clan A and class B common stock • Variations in the preferences, limitations and relative rights of the series of preferred stock being offered as compared with any other series of preferred stock then outstanding

DESCRIPTION OF DEBT SECURITJFS

The debt securities will be issued under an Indenture dated as of December 1 . 1996, between us and Citibank. N.A., as trustee (the "Trustee"), as supplemented by the First Supplemental Indenture dated as of April 24. 1998. between us and the Trustee (as supplemented. the "Indenture"). The following description of the debt securities sets forth certain general terms and provisions of the debt securities to which any prospectus supplement may relate ("Offered Debt Securities") . The particular terms of the Offered Debt Securities and the extent to which such general provisions may apply will be described in a prospectus supplement relating to the Offered Debt Securities.

The following description is a summary of the material provisions of the Ind g and the debt securities. It does not restate the Indenture in its entirety. We urge you to read the Indent= beat, it , and not this description. defines your rights as a holder of debt securities. We have Sled copies of the Indenture and will file copies of any supplemental indentures as exhibits to the registration samingan that inciude this prospectus.

In this summary description of the debt securitim we have used term that ate defined in the Indenmm which terms are capitalized in this prospectus. Wherever such terms are used or particular provisions of the Indenture are referred to in this summary, such terms or provisions are incorporated by reference as pact of the statements made in this prospectus and this summary is qualified in its entirety by such refenmce. The italicized parenthetical references refer to the section numbers in the Indaatillft . -- C

General. The Indenture does not limit the aggregate principal antoust of debt secu rities that can be issued under the Indenture. Debt securities may be issued under the Ittdentawfiom time to amt in one or more series. in such form and with such terms as am established for such series in Board Resolutions or supplementa l indentures. (Sections 201 and 30!) The aggregate principal atneun of debt securities currently outstanding under the Indenture is S300.000,000 The aggregate principal amount of deb - ,, Wu that may be offered and sold pursuaritto this prosperous is limited to $7SO.OOQ000, whisk is dwamount ofsea We registered under the registration statements that include this prospectus. All debt securities will be our unsecured obligations, will rank senior in priority eo ay of one subordinated indebtednes , aed Wirth rank equally with all of our other unsecured indebtedness.

We we a holding company and conduct substantially all of out bnf iot s through our Subsidiaries. Accordingly, ow abaft to mat our obligations under the Indent and the debt securities will depend primarily on the earnings of our Subsidiaries and on our receipt of dividends or other payments from our Subsidiaries All of our Subsidiaries are permitted under the Indtaaoee to enter into agreements limiting their ability to malts distributions to uL Our obligations under the debt P, id, will not be guacanteed by any of our Subsidiaries. Our rigb s as pm cipsce in any distribution of the assets of one Subsidiaries upon their liquidation. reamer or insolvency would be subject to the prior calms of creditors, including trade creditor:. and pnefa.ed stockholde s, if any, of such Subsidiaries, eft to the exiew that our claims as a creditor or preferred stockholder may be recognized. As a resuk the deb securities will be structurally subordinated to any indebtedness or preferred stock of our Subsidiaries . Except as described below. the Indenture does not limit our, or our Subs', ability to incur indelodeesr. issue securities. eater into transactions with affiliates. make moons to stockholders. make investments or assets to Subsidiaries.

6 prospectus Unless otherwise indicated in a supplement; the debt sectttities wi ll not benefit from any covenant or other provision that would afford Holders of such debt securities special protection in the event of either a change in control or a highly leveraged transaction involving us . except for any such Protection provided by the provisions described below under "-Limitation on Lien'' or --unutadon on Saled.easeback Transactions."

Reference is made to the prospectus supplement for the following terms of the Offered Debt Secant : • The title and aggregate principal amount of the Offered Debt Securitie s • The date or dates on which the Offered Debt Securities will mature • The rate of rates (which may be fixed or variable) per annum, if any, at which the offered Debt Securities will bear interest or the method of determining such rate or rata • The date or dates from which such interest . if any. will accrue, the date or dates at which such interest. if any, will be payable and the record date or dates for the interest payable on any offered Debt Securities on any interest payment date • The place or places at which and the manner in which the principal of, or premium or interest on, the Offered Debt Securities will be payable and the place or places at which the Offered Debt Securities may be surrendered for transfer or registratio n • The price or prices (expressed as a percentage of the aggregate principal amount thereof) at which the Offered Debt Securities will be offere d • The terms for redemption or early payment. if any, including any mandatory or optional sinking fund or analogous provision, and (if applicable) provisions relating to the assignment of our rights under the Indenture • Whether the Offered Debt Securities will be issued in fully registered form or in bearer form or any combination thereof • Whether the Offered Debt Securities will be issued in the form of one or atone global securities and whether such global securities are to be issuable in tempontry global form or permanent global form • The denominations in which the Offered Debt Securities will be issuable • If other than U .S. dollars. the currency or currencies or currency unit or units in which the Offered Debt Securities will be denominated and in which the principal of, and premium, if any, and interest on, the Offered Debt Securities will be payable • Whether. and the terms and conditions on which, we or a Holder may elect that payment of principal of. or premium or interest on. such Offered Debt Securities is to be made in a currency or currencies or currency unit or unit other than that in which such Offered Debt Securities are denominate d • If the amount of payments of principal of. or premium or interest on, the Offered Debt Securities may be determined with reference to an index . the manner in which such amounts shall be determine d • Information with respect to book-entry procedures, if an y • If the Offered Debt Securities are sold for any foreign currency or currency unit or if the principal of, or premium or interest on, the Offered Debt Securities is payable in any foreign currency or currency unit, the restrictions. elections, tax consequences, specific terms and other information with respect to such foreign currency or currency unit • Any other specific terms of the Offered Debt Securities (which terms shall not be inconsistent with the provisions of the Indenture )

Reference is also made to the prospectus supplement for information with respect to any additional covenants that may be included in the terms of the Offered Debt Securities. (Section 301) offered Debt Securities may be sold at a discount-(whicb may be substantial) below their stated principal amount and may bear no int st or interest at a rate which at the time of issuance is below market rates . Any material United States federal income tax consequences and other special considerations applicable thereto will be described in the prospectus supplement.

No service charge will be made for any registration of transfer or exchange of the debt securities . but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. (Section 305) The Indenture and the Offered Debt Securities will be governed by and construed in accordance with the laws of the State of New York. (Section 113)

Limitation on Liens. The Indenture provides that we and our Subsidiaries will not issue, create, incur. assume or suffer to exist any Lien securing Debt on any property or asset without making effective provision whereby any and all debt securities of any series then or thereafter outstanding will be secured by a Lien equally and ratably with (or, at our option, prior to) any and all obligations thereby secured for so long as any such obligations shall be so secured. The foregoing restriction will not, however. apply to us and our Subsidiaries with respect to: (1) Liens existing on the date of the Indenture (or provided for in after-acquired property clauses under the terms of agreements existing on such date); (2) Liens on any property or ocher assets to secure Debt incurred for the purpose oft (a) financing all or any part of the consideration used to acquite such property or other assets and incurred prior to, at the time of, or within 12 months after, such acquisition o r (b) financing all or any part of the cost of construction, improvement. development or expansion of such property or other assets including. without limitation. Liens to secure Debt incurred in connection with the construction. installation or financing of pollution control or abatement facilities or other forms of industrial revenue or development bond financing, which Liens (~ extend solely to the property that is the subject thereof; (3) Liens on any property or other assets existing at the time of acquisition thereof by us or our Subsidiaries, including acquisition through 'm erger, consolidation or the purchase of prop erty or other assets. provided that such Liens do not extend to other property or our assets or the assets of our Subsidiaries; (4) Liens resulting from a judgment or award contested in good faith: (5) Liens to secure Debt issued or guaranteed by the United States or any state or any department. agency or inso umenu lily of the United States or any state, which Liens extend solely to the property that is the subject dteteof; (6) Liens upon receivablue and other assets or properties and the proceeds thereof that may be granted or arise in connection with the transfer. securitization or factoring of some or all of our and our Subsidiaries' receivables; - (7) Liens that secure only Debt owing to us by a Subsidiary or by us to a Subsidiary or by a Subsidiary to another Subsidiazy (8) Liens required by any contact or statute in order to permit us or any of our Subsidia ries to perform any contract or subcontract made by it with or at the request of the United States. any State or any department, agency or instrumentality of either. (9) Liens arising out of pledges or deposits under worker's compensation laws. unemployment insurance. old age pensions or other social security or retirement benefits or similar legislation. (10) Liens imposed by law, such as carriers'. warehousemen's. landlords'. matetialmen's. repairmen's and mechanics' liens and other similar liens arising in the ordinary course of business: (11) Certain Liens for taxes. assessments or governmental charges or levies: and

(12) Liens to secure Debt incurred to extend, refinance, renew, replace or refund (or successive extensions. refinancings, renewals. replacements or refundings ) of any Debt secured by any Lien referred to in the foregoing clauses so long as the principal amount of such Debt so secured is not increased. (Section 1005)

Notwithstanding the foregoin& we and our Subsidiaries may, without equally and ratably securing the debt securities of any series. issue, assume or guarantee Debt secumd by Liens in addition to those permitted by the foregoing paragraph and renew, extend or replace such Liens, provided that the aggregate principal mount of Debt so secured by any such Lien plus any Attributable Debt (as defined below) does not at any one time exceed 15% of Consolidated Net Tangible Assets as shown on our balance sheet as of the end of the most recent fiscal quarter prior to the in=MW= of the Debt for which a balance sheet is available.

"Capitalized Lease Obligation" of any Person means any obligation that is required to be classified and accounted for as a capital lease on a balance sheet of such person in accordance with generally accepted accounting principles. (Section 101)

-Consolidated Net Tangible Assets" means the total amount of our asses and the asset: of our Subsidiaries (less applicable reserves and other properly deductible item :) on a consolidated basis after deducting therefrom: (1) all current liabilities (excluding any thereof which we by their terms extendable or renewable at the option of the obligor thereon to a time more than twelve months after the time as of which the amount thereof is being computed) and (2) all goodwill, trade names, trademarks, patents . unamonized debt discount and other like intangible assets. (Section 101)

"Debt" means (without duplication). with respect to us and our Subsidiaries. (1) all of our obligations and the obligations of our Subsidiaries . whether evidenced by bonds. d 'ex notes or other similar inanvments, for repayment of borrowed money, provided. that if the Debt is nonrecoorm the amount of Debt shall be limited to the value of the assets securing the Debt : (2) all of our and our Subsidiaries' Capitalized Lease Obligations, (3) all Debt of other Persons secured by a Lien on any of our or our Subsidiaries' assets, whether or not such Debt is assumed by us or our Subsidiaries :.and (4) all Debt of other Pierson guaranteed, directly or indirectly, by us or our Subsidiaries to the extent of such guarantee: (Section 101 1

"Lien" means, with respect to any property or assem any mortgage or deed of frost . pledge. charge. security intent . assignment . encumbrance. conditional sale or other title retention agreement: provided, however. that Lien shall not include a trust established for the purpose of defeasing any Debt pursuant to the tents evidencing or providing for the issuance of such Debt if the assets of such taut are limited to cash and U.S. Government Obligations. (Section 101 )

"Senior Indebtedness" means our Debt that ranks at least equally with the debt securities. (Section 101)

"Subsidiary" of a Person means (1) any corporation more than 50% of the outstanding securities having ordinary voting power of which is owned. directly or indirectly, by such Person or by one or more of its Subsidiaz a. or by such Penman and one or more of its Subsidiaries . at (2) any partnership or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned.

For the purposes of this definition, securities or ownership interests "having ordinary voting power" means securities or other equity interests that ordinarily have voting power for the election of directors, or persons having management power with respect to the Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency. (Section 101 1

9 Linaration on Sale/leasebac~t Transactront The Indenture provides that we and our Subsidiaries will not ,., enter into any Sale/Leaseback Transaction with any Person (other than us and out Subsidiaries) unless either: (1) We and our Subsidiaries would be entitled to incur Debt. in a principal amount equal to the Attributable Debt with respect to such Salk Transaction . secured by a Lien on the property subject to such Sale/Leaseback Transaction pursuant to the covenant described under "-Limitation on Liens" above without equally and ratably securing the debt securities pursuant to such covenant; (2) After the date of the original issuance of the Offered Debt Securi ties and within a period commencing six months prior to the effective date of such S~ Transaction and ending six months thereafter, we or our Subsidiaries have expended or w ill expend for any property (including amounts expended for the acquisition thereof, and for additions, alterations. improvements and repairs thereto) an amount equal to all or a portion of the net proceeds received from such transaction and elect to designate such amount as a credit against the application of the restrictions set forth hereunder and under "-Limitation on Liens " to such transaction (with any such amount not being so designated to be applied as set forth in (3) below); or- (3) We. during or immediately after the expiration of the six months after the effective date of any such SaleI .easeback Transactiom apply to the voluntary defeasance or of the debt securities of any series or any of our other Senior Indebtedness an amount equal to the gre ater of the net proceeds of the sale or transfer of the property leased in such transaction at the Am lutable Debt as determined by us in an officer's certificate delivered to the Trustee at the time of entering into such transaction (in either case adjusted to reflect the remaining term of the lease and any amount utilized by us or our Subsidiaries as set forth in (2) above). less an amount equal to the principal amount of the debt securities of any series delivered within six moods after the deer of such arrangement to the Trustee for retirement and cancellation, excluding ra of debt securities of any series or of any Senior Indebtedness pursuant to mandatory sinking fund or mandatory prepayment provisions or by payment at maturity. (Section 1006) - "Attributable Debt." when used in connection with a SeleMeasebeck Transactim means at the time of determination, the then present value of the total net amount of rent required to be paid under the lease in respect of such Sale/fl ck Transaction during the remaining terra thereof (including any period for which such lease has been extended) or until the earlier date on which the lessee may terminate such lease upon payment of a penalty of a lump-sum termination payment (in which case the total net rent shall include such penalty or termination payment). ca ed by discounting from the respective due dates to such dates such total net amount of net at the actual inter est factor included in such rent or implicit in the terms of the 4 applicable Saleli,easeback Transactionk as determined in good faith by us. For purposes of the foregoing definition. ran shalt not include amounts required to be paid by the lean whether or not designated as rent or additional n on account of or contingent upon the amount of sa les or deliveries maintenance and repair, insurance. taxes6 assessments, water rues and similar charges; (Section' 101) "SalelLeaseback Transaction" means any arrangement with any Person providing for the leasing by us or our Subsidiaries, for a period of more than three years of any property or assets, which property or assets have been or are to be sold or by as or our Subsidiaries to such Person in contemplation of such leasing . (Section 10I) Everts of Default Unless otherwise provided in a prospectus supplement with respect to any series of debt securities, the following shall constitute Events of Default under the lndenwrs with n pect to the debt securities of such series issued under such Indenture : (1) Failure to pay principal of. or premium, if any. on. any debt security of such series when due at final maturity: (2) Failure to pay any interim principal payment or any interest on any debt security of such series when due. and continuance of such default for a period of 30 days (3) Failure to deposit any mandsmory sinking find payment or analogous obligati m when due, in respect of the debt securities of such series. and continuance of such default for a period of 30 days;

10 (4) ' Failure to observe or perform any other covenant in the Indenture (other than a covenant included in the Indenture for the benefit of a series of debt securities other than such series), continued for a period of 60 days after written notice of such failure as provided in the Indenture ; (5) Certain events of bankruptcy, insolvency or reorganization . (6) Failure to pay at final maturity. or upon the declaration of acceleration of payment of. our or our Subsidiaries' Debt for borrowed money (other than a failure to pay being contested in good faith by us or our Subsidiaries with respect to Debt consisting of an obligation to pay all or part of the acquisition consideration of an acquired business or asset) of $10 million or more (whether the Debt now exists or is hereafter created) as a result of the occurrence of one or more events of default as defined in any mortgages. indentures or instruments under which such Debt may have been issued or by which such Debt may have been secured, and the failure to pay is not cured or the acceleration is not rescinded. annulled or cured, in any case prior to the expiration of 30 days after the date the failure to pay or acceleration occurred. and (7) Any other Event of Default as may be specified with respect to debt securities of such series. (Section 501 ) If an Event of Default (except for an Event of Default described in clause (5) above) with respect to any outstanding series of debt securities occurs and is continuing, either the Trustee or the Holders of at least 25% in principal amount of the outstanding debt securities of such series may declare the unpaid principal amount (or. if the debt securities of that series are discounted debt securities, such portion of the principal amount as may be specified in the terms of that series) of all the debt securities of the applicable series and the interest, if any, accrued thereon to be due and payable immediately . If an Event of Default with respect to debt securities of any series at any time outstanding described in clause (5) above occurs and is continuing, then the principal amount of all the debt securities of such series will be immediately due and payable without any act on the pan of the Trustee or any Holder. At any time after a declaration or occurrence of acceleration has been made, but before a judgment or decree based on acceleration has been obtained . the Holders of a majority in principal amount of the outstanding debt securities of such series may. under certain cinvmstances, rescind and annul such acceleration and its consequences ; provided that no such rescission or annulment shall extend to or otherwise affect any subsequent default or impair any right consequent thereon . (Section 502) Depending on the terms of our other indebtedness outstanding from time to time. an Event of Default under the Indenture may give rise to cross defaults on such other indebtedness. The Indenture provides that the Trustee will, within. 90 days after the occurrence of a default (defined herein) in respect of any series of debt securities. give to the Holders of the debt securities of such series notice of all uncured and unwaived defaults known to it provided . however. that, except in the case of a default in the payment of the principal of, or premium, if any. or any interest on. or any sinking fund installment with respect to, any debt securities of such series. the Trustee will be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interest of the Holders of the debt securities of such series; and provided. further, that such notice shall not be given until at least 30 days after the occurrence of a default in the perfamancn, or breach, of any covenant or warranty under such Indenture other than for the payment of the principal of (or premium. if any) or any interest on. or any sinking fund installment with respect to, any debt securities of such series. For the purpose of this provision . "default" with respect to debt securities of any series meatus any event that is . or after notice or lapse of time. or both, would become, an Event of Default with respect to the debt securities of such series. (Section 602) The Holders of a majority in principal amount of the outstanding debt securities of any series (or. in certain cases. all outstanding debt securities under the Indenture) have the right. subject to certain limitations, to direct the time. method and place of conducting any proceeding for any remedy available to the Trustee or exercising any rust or power conferred on the Trustee with respect to the debt securities of such series (or of all outstanding debt securities under the Indenture). (Section 511) The Indenture provides that in case an Event of Default shall occur and be continuing . the Trustee shall exercise such of its rights and powers under the Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs . (Section 601) Subject to such provisions, th e

II Trustee'will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders of the debt securities unless they shall have offered to the Trustee reasonable security or indemnity against the coshexpenses, and liabilities that might be incurred by it in compliance with such request or direction. (Section 6031

The Holders of a majority in principal amount of the outstanding debt securities of any series (or . in certain case. all debt securities outstanding under the Indenture ) may. on behalf of the Holders of all debt securities of such series (or of all debt securities outstanding under the Indenture). waive any past default under the Indenture, except a default in the payment of the principal of, or premium, if any, or interest on any debt security or in respect of a provision. which under the Indenture cannot be modified or amended without the consent of the Holder of each outstanding debt security affected . (Section 512) The Holders of a majority in principal amount of the outstanding debt securities affected thereby may, on behalf of the Holders of all such debt securities. waive compliance by as with certain restrictive provisions of the Indenture. (Section 1008)

We are required to furnish to the Trustee annually a statement as to our perfomgnce of ce rtain of our obligations under the Indenture and as to any default in such perfor mance. (Section 1007)

Modification of the Indv tirrw Modifications of and amendments to the Indenture may be made by us and the Trustee with the consent of the Holders of a majority in princip al amount of the outstanding debt securities under the Indenture affected thereby; provided. however, that. without the contest of the Holder of each outstanding debt security affected. no such modification or amenilment may-. (1) Change the Stated Maturity date of the principal of. or any inwllmeat of principal of or interest on. any debt security; (2) Reduce the principal amount of, or the ptemint t . if any. or interest on, any debt security ; (3) Change the place of payment whem or the coin, currency or currencies. or currency unit or units of payment in winch . any principal of. or ptemiu , if any. or Tamest on . any debt security is payable ; (4) Alter the method of computation of any amount payable on redempdae, repayment or purchase, if any. (5) Impair the right to institute suit for the enforcement of any payment on or with respect to any debt security; or (6) Reduce the percentage in principal amount of outstanding debt securities the consent of the Holders of which is trecptited for modification or amendment-of the Indenture or for waiver of compliance with certain provisions of the Indenture or for waiver of certain de[anltL (Section 902 )

The Indenture provides that we and the Trustee may . without the consent of any Holders of debt securities . enter into supplemental indentures in order to: (1) Add to out cuiminuts or add additional Events of Default for the protec ion of the Holders of the debt sea ws;7 (2) Establish the form or tens of debt securities of any series : (3) Evidence the acceptance of appointment by a successor trustee: (4) Secure debt secu rities of any series; (5) Evidence the assumption by a successor Person of out obligations; (6) Cure ambiguities or inconsistencies in the Indenture. provided that action to cure ambiguities or inconsistencies shalt not adversely affect the interim of the Holders of the debt securities . (Section 901)

12 Limitations on Mergers. Consolidations and Sale of Assets The Indenture provides that we will not consolidate with or merge into any Person, or sell, lease, convey, transfer or otherwise dispose of all or substantially all of our assets to any. Person, unless: (1) The Peron formed by or surviving such consolidation or merger (if other than us). to which such sale, lease, conveyance. transfer or other disposi tion shall be made (collec tively, the "Successor") . is a corporation, partnership or must organized and existing under the laws of the United States or any State thereof or the District of Columbia. and the Successor assumes by supplemental indenture in a form satisfactory to the Trustee all of our obligations under the Indenture and the debt securities; (2) Immediately after giving effect to such transac tion and treating any Debt that becomes an obliga tion of us or our Subsidiaries as a result thereof as having been incurred by us or our Subsidiaries at the time of such transaction. no Event of Default; and no event that, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing; (3) If. as a result of such transaction. our property or assets or those of our Subsidiaries would become subject to a Lien prohibited by the provisions described under "-Limitation on Liens," we or our Successor shall have secured the debt secu rities as required by that covenant; and (4) We shall have delivered to the Trustee an Officer's Certificate and Opinion of Counsel. each stating that such merger, consolidation. sale or conveyance and such supplemental indenture , if any. complies with the Indenture. (Section 801) Upon any such consolidation, merger or asset transfer, the Successor shall be substituted for us. and thereafter (except in the case of a lease) we shall be relieved of all obligations and covenants under the Indenture and the debt securities. (Section 802) Discharge and Defeasance. We may terminate our obligations under the Indenture, other than our obligation to pay the principal of, and premium, if any, and interest on the debt securi ties of any series and certain other obligations, if we: (1) Irrevocably deposit or cause to be irrevocably deposited with the Trustee as trust funds (a) cash or (b) U.S. Government Obligations. or (c) a combination of cash and U.S. Government Obligations. maturing as to principal and interest in such amounts and at such times as will be sufficient to pay the principal of, any premium on, any interest on, and any mandatory sinking fund payments in ne %pect of. all outstanding debt securities of such series on the Stated Maturity of such payments or on any Redemption Data (2) Deliver to the Trustee an Opinion of Counsel to the effe ct that the Holden of debt securities of such series willnot recognize income. gain or loss for United States federal income tax purposes as a result of such deposit, satisfaction and discharge and will be subject to United States federal income tax on the same amount and is the same manner and at the same time as would have been the case if such deposit, sa tisfaction and discharge had not occurred; and (3) Comply with any additional conditions specified to be applicable with respect to the covenant defeasance of debt securities of such series . (Section 401 ) The terms of any series of debt securities may also provide for legal defeasance. In such case . if we: (1) Irrevocably deposit, or cause to be irrevocably deposited'. (a) cash or (b) U.S. Government Obligations or (c) a combination thereof as described above : (2) Deliver to the Trustee the Opinion of Counsel as described above, except that the opinion must states that it is based on a ruling by the Internal Revenue Service or other change since the date of the Indenture under applicable Federal income tax law: (3) Make a request to the Trustee to be discharged from our obligations on the debt securities of such series; and. (4)- Comply with any additional conditions specified to be applicable with respect to legal defeasance of debt securities of such series;

13 then we shall be deemed to have paid and discfiarged the entire indebtedness on all the outstanding debt securities of such series. and our obligations under the Indenture and the debt securities of such series to pay the principal of, and premium. if any, and interest on the debt securities of such series shall cease. terminate and be completely discharged. and the Holders thereof shall thereafter be entitled only to payment out of the cash or U.S. Government Obligations deposited with the Trustee as aforesaid. unless our obligations are revived and reinstated because the Tnutee is unable to apply such am fmd by reason of any legal proceeding. order or judgment (Sections 403 and 404)

Notwithstanding the foregoing. no discharge or defeasanee described above shall affect the following obligations to or rights of the Holders of any series of debt securities : (I) Rights of registration of transfer and exchange of debt securities ofsuch series: (2) Rights of substitution of mutilated, defaced . destroyed. lost or stolen debt securities of such series, if applicable : (3) Rights of Holders of debt securities of such series to receive payments of principal thereof and premium and interest. if any, thereon when due and to receive mandatory sinking fund payments, if any, thereon when due from the trust funds held by the Trustee :' (4) The rights. obligations. duties and immunities of the Trustee; (5) The rights of holders of debt securities of such series as beneficiaries with respect to property deposited with the Trustee payable to all or any of them; and- (6) Our obligations to maintain an office or agency in respect of debt securities of such series.

"U.S. Government Obligation" is defined in the Indenture as direct noncaflable obligations of. or noncallable obligations the payment of principal of and interest on which is guaranteed by. the United States of America, or to the payment of which obligations or guarantees the full faith and credit of the United States of America is pledged: or beneficial interests in a trust the corpus of which consists exclusively of money or such obligations or a combination thereof. (Section 101)

Form. Exchange, Registration and Trmrsfer. Debt securities an issuabie is definitive form as Registered Debt Securitim as Beam Debt Securities or both. (Section 301) Reference is made to the prospectus supplement for the terms relating to the form exchange, registration and transfer of Bea rer Debt Securities (which may be more or less restrictive than terms described herein for Registered Debt Securities) and debt securities issuable is temporary or. permanent global forts .

Registered Debt Securities of any series will be exchangeable far other Registered Debt Securities of the same series and of a like aggregate principal amount and tenor of different authorized denominations. (Section 305)

Registered Debt Securities may be presented for registration of transfer (with ft fart of tnmsfer endorsed thereort duly executed) at the oflke of the Security Registrar or at the office of any transfer agent designated by us for such purpose with respect to any series of debt securities and refereed to in the applicable prospectus supplement. without service charge and upon payment of any taxes and other governmental charges as described in the Indenture. Such transfer or exchange will be effected upon the Security Registrar in accordance with the terms of the Indenture. We have appointed the Trustee as Security Registrar (SecrioR 305) If a prospectus supplement refers to any transfer agents (in addition to the Security Registrar) initially designated by us with respect to any series of debt securities, we may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent a m except that if debt securities of a series are issuable solely as Registered Debt Securities. we will be required to maintain a transfer agent in each Pim of Payment for such series. We may at any titre designate additional transfer agents with respect to any series of debt securities. (Section 1002)

14 In the event of any redemption in part, we shall not be required to: (1) Issue, register the transfer of. or exchange Registered Debt Securities of any series during a period beginning at the opening of business 15 days prior to the mailing of a notice of redemption and ending on the close of business on the day of mailing of the relevant no tice of redemption; or (2) Register the transfer of or exchange any Registered Debt Security , or portion thereof, called for redemption. except the unredeemed portion of any Registered Debt Security being redeemed in part . (Section 305) Payment and Paying Agents Unless otherwise indicated in an applicable prospectus supplement, payment of principal of and any premium and interest on Registered Debt Securities will be made in the designated currency or currency unit at the office of such Paying Agent or Paying Agents as we may designate from time to time, except that. at our option. payment of any interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Unless otherwise indicated in an applicable prospectus supplement. Payment of any installment of inter st on Registered Debt Securities will be made to the Person in whose name such Registered Debt Security is registered at the close of business on the Regular Record Date for such interest. (Section 307) Unless otherwise indicated in an applicable prospectus supplement, the Corporate Trust Office of the Trustee in New York. New York will be designated by us as a Paying Agent for payments with respect to debt securities which are issuable solely as Registered Debt Securities. We may at any time designate additional Paying Agents or rescind the designation of any Paying Agent or approve a change in the office through which any Paying Agent acts, except that we will be required to maintain a Paying Agent in each Place of Payment for such series. (Section 1002) All moneys paid by to to a Paying Agent for the payment of principal of and any premium or interest on any debt security that remain unclaimed at the end of two years after such principal. premium or interest shall have become due and payable will (subject to applicable escheat laws) be repaid to us, and the Holder of such debt security or any coupon will thereafter look only to us for payment thereof. (Section 1003) Global Securities. The Offered Debt Securities of a series may be issued in whole or in pan in the form of one or more global securities ("Global Securities") that will be issued to and registered in the name of the depositary (the . .Depositary") identified in the prospectus supplement, or its nominee, relating to such series . Global Securities may be issued in either registered or beater form and in either temporary or permanent form . Unless and until a Global Security is exchanged in whole or in pan for the individual debt securities represented thereby, such Global Security may not be transferred except as a whole by the Depositary to its nominee. or by a nominee of such Depositary to such Depositary or another nominee of such Depositary, or by such Depositary or any such nominee to a successor Depositary or nominee of such successor Depositary . (Section 204) The specific terms of the depositary arrangement with respect to a series of Offered Debt Securities will be described in the prospectus supplement relating to such series. We anticipate that the following provisions will generally apply to depositary arrangements . Upon the issuance of a Global Security, the Depositary or its nominee will credit, on its book-entry registration and transfer system, the respective principal amounts of the individual debt securities represented by such Global Security to the accounts of persons that have accounts with the Depositary . Such accounts shall be designated by the dealers, underwriters or agents with respect to such debt securities or by us if such debt securities are offered and sold directly by us. Ownership of beneficial interests in a Global Security will be limited to persons that have accounts with the Depositary ("Participants") or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Security will be shown on . and the transfer of that ownership will be effected only through, records maintained by the Depositary or its nominee (with respect to interests of Participants) and the records of Participants (with respect to interests of persons other than Participants). The laws of some states require that certain purchases= of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Security.

15 So long as the Depositary or its nominee is the registered owner of a Global Security, such registered owner will be considered the sole owner or holder of the debt securities represented by such Global Security for all purposes under the Indentu Except as provided below. owners of beneficial interests in a Global Security will not be entitled to have any of the individual debt securities represented by such Global Security registered in their names. will not receive or be entitled to receive physical delivery of any such debt securities in definitive form and will not be considered the owners or holders thereof under the indenture . Payments of principal of and premium, if any, and interest. if any. on debt securities represented by a Global Security registered in the name of the Depositary or its nominee will be made to the Depositary or its nominee, as the can may be, as the registered owner of the Global Security representing such debt securities . None of us. the Trustee, any Paying Agent or the Security Registrar for such debt securities will have any responsibility or liability for any aspect of the records relating to or paynem made on account of beneficial ownership interests of the Global Security for such debt securities or form erg. supervising or reviewing any records relating to such beneficial ownership intaesn.

We expect that the Depositary or its nominee. immediately upon receipt of any payment of principal . premium or interest in respect of a Global Security, will credit the Pa rticipants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Security as shown on the records of the Depositary or its nominee . We also expect that payments by participants to owners of beneficial interest in such Global Security held through such Par icipaotr will be governed by standing instructions and customary practices. a is now the can with securities held for t e accounts of customers in . bearer form or registered in "street name." Such payments will be the sole responsibility of such Participants.

We have no control over the practices of the Depositary or the Participants. and thane can be no assurance that these practices will not be changed If the Depositary for a series of debt securities is at any time unwilling. unable or ineligible to cond= as depositary and a successor depositary is not appointed by us by the effective date of the resignation of the Depositary. we will issue individual debt securities of such series in exchange for the Global Security representing such series of debt securities. In addkio4 we may at any time and in our sole discretion. subject se any limitations described in the praspeaus supplement elating to such debt securities, determine not to have any debt securities of a series repseaen" d by one or more Global Securities and. in such event, will issue individual debt securities of such series in exchange for the Global Security rep ting such series of debt securities. In any such instance, an owner of & beneficial interest in & Global Security will be entitled to physical delivery of individual debt secuzftin of the series represented by such Global Security equal in principal amount to such beneficial sneers and to have such debt securities registeereed in its name. Individual debt securities of such series so issued will be issued in denominations. unless otherwise specified by us; of 51.000 red integral multiples thereof.

Meetings. The Indenture contains, provisions for convening meetings of the Holders of debt securities of a series. (Section 1301) A meeting may be called at any time by the Trusser: and also, upon request. by us or the Holders of at least 100 in principal amount of the Outstanding Debt Securities of such series . in any such case upon notice given as described under "--Notices" below. (Section 1302) Except for any consent that must be given by the Holder of each Outstanding Debt Security affected thereby, as described under "--Modification of the Indenture" abov% any resolution presented at a meeting or adjourned meeting as which a quorum is present may be adopted by We eve vote of the Holders of a majority in principal amount of the Outstanding Debt Securities of time series; provided. however, that except for any consent that must be given by the Holder of each Outstanding Debt Security affected thereby, as described under "-Modification of the Indenture " above, any resolution with respect to any request, deman& authorization,direction, notice, consent. waiver or other action that may be made, given or taken by the Holders of a specified percentage, which is less than a majority in principal amount of the Outstanding Debt Securities of a swie:, may be adopted at a meeting or adjourned mating duly reconvened at which a quorum is present by the a ve voce of the Holders of such specified pamentage in principal amount of the Ou tstanding Debt Securities of dw series. Subject to the proviso set forth above, any resolution passed or decisimi taken at any meeting of Holders of debt securities of any series duly held in accordance with the Indenture will be binding on all Holders of debt securities of that

16 series and any related coupons. The quorum at any meeting called to adopt -a resolution. and at any reconvened meeting. will be Persons holding or representing a majority in principal amount of the Outstanding Debt Securities of a series . (Section 1304) Notice: Notices to Holders of Registered Debt Securities will be given by mail to the addresses of such Holders as they appear in the Security Register. (Section 107) The Trustee. The Indenture contains certain limitations on the right of the Trustee, as our creditor, to obtain payment of claims in certain cases and to realize on certain property received with respect to any such claims. as security or otherwise. (Section 613) The Trustee is permitted to engage in other transactions, except that if it acquires any conflicting interest (as defined). it must eliminate such conflict or resign. (Section 608) The Trustee may make loans to us and our Subsidiaries and affiliates from time to time in the ordinary course of business and at prevailing interest rues. In addition, the Trustee may from time to time serve as a depositary of funds of, and perform other services for. us and our Subsidiaries and affiliates.

PLAN OF DISTRIBUTION We and the selling shareholders may sell securities directly to one or more purchasers or to or through underwriters. dealers or agents. The prospectus supplement relating to such securities will set forth the terms of the offering. including the name or names of any underwriters. the purchase price and proceeds to us from such sale, any underwriting discounts and other items constituting underwriters' compensation. the initial public offering price and any discounts or concessions allowed, reallowed or paid to dealers, and any securities exchanges on which the securities may be listed . Securities may be distributed from time to time in one or more transactions at a fixed price or prices (which may be changed). at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. The applicable prospectus supplement will describe the method of distribution . If underwriters are used in the sale. the underwriters will acquire the securities for their own account and may resell them from time to time in one or more transactions. including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Securities may be offered to the public through underwriting syndicates represented by one or more managing underwriters or directly by one or more underwriters without a syndicate. If an underwriting syndicate is used. the managing underwriter or underwriters will be named on the cover of the prospectus supplement . Unless otherwise set forth in the prospectus supplement. the obligations of the underwriters to purchase securities will be subject to certain conditions precedent. and the underwriters will be obligated to purchase all securities offered if any are purchased Any initial public offering price and any discounts or concessions allowed . reallowed or paid to dealers may be changed from time to time. If a dealer is used in an offering of securities . we or the selling shareholders will sell such securities to the dealer, as principal. The dealer may then resell such securities to the public at varying prices to be determined by the dealer at the time of sal- The terms of the transaction will be set forth in the applicable prospectus supplement. Commissions payable by us or the selling shareholders to any agent involved in the offer or sale of securities (or the method by which such commissions may be determined) will be set forth in the applicable prospectus supplement. Unless otherwise indicated in the prospectus supplement. any such agent will be acting on a beat efforts basis If so indicated in the prospectus supplement. we or the selling shareholders will authorize underwriters, dealers or agents to solicit offers by certain specified institutions to purchase securities from us or the selling shareholders at the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. Such contracts will be subject only to those conditions set forth in the prospectus supplement. and the prospectus supplement will set forth the commission payable by us or the selling shareholders for solicitation of such contracts.

17 Dealers and agents named in a pfospecros supplemdtrmay be deemsd to be under riters of the securities within the meaning of the Securities Act. Underwriters, dealers and agettd may be entitled under agreements entered into with us to indemnification by us or the selling shareholders against certain civil liabilities. including liabilities under the Securities Act, or to contribution with respect to payments that the underwriters, dealers or agents may be required to make in respect thereof Underwriters, dealers and agents may be customers of, engage in transactions with. or perform services for us or the selling shareholders in the ordinary course of business.

Except for our class A common stock, which is currently traded an the Nasdaq National Market, each series of securities will be a new issue of securities with no established trading market. Any underwriters to whom securities are sold may make a market in such securities . but will not be obligated to do so and may discontinue their market making activities at any tine. Accordingly. there can be no assurance that a secondary market will be created for any of the securities or that any market created will continue .

LEGAL MATi'ERS

The validity of the securities will be passed upon for as by loom Walker. Waechter, Poitevent. Carttte & Denhgrc. LL.P.. New Orleans. Louisiana

Our consolidated balance sheets as of October 31 . 1996 and 1997 and the m1wd consolidated statements of earnings, shareholders' equity and cash flows for each of the thrive years in the period ended October 31 . 1997, and the financial statement schedule incorporated by reference in this registration statement. have been audited by I.L.P. independent accountants. as stated in their reports with respect thereto. which are incorporated by reference herein in telianoa upon the ambority of such firm as expects in 4 accounting and auditing, C'

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41 18 4L httpJ/waw.se.gDv1ArcbiveWedgaddaWMS 8-000I49.U i

PART II . OTHER INFORMATION

ITEM 1 . LEGAL PROCEEDINGS

There has been no change in the status of the Company's material legal proceedings during the quarter ended July 31, 1998 .

ITEM 5 . OTHER INFORMATION

FORWARD-LOOKING STATEMENTS

Certain statements made herein or elsewhere by, or on behalf of, the Company that are not historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 .

The company's goals for fiscal year 1998 include : (i) revenue growth of at least 20% ; and (ii) earnings per share growth of 208 excluding the performance based stock option change recorded in fiscal year 1998 . The Company also projects approximately $250-$275 million in acquisitions, which represents an increase over the $185 million, $179 million, and $154 million achieved- in fiscal years 1997, 1996 and 1995, respectively . For fiscal year 1998, the Company projects gross margin improvement of approximately 150 to 160 basis points over its fiscal year 1997 gross margin .

The Company's strategic plan for the future includes the following goals : (i) achievement of $1 billion in revenue by fiscal year 2001 ; and (ii) earnings per share growth of 20% annually .

Forward-looking statements are based on assumptions about future events and are therefore inherently uncertain ; actual -,results may differ materially from those projected . See "Cautionary Statements" below .

CAUTIONARY STATEMENTS

The Company cautions readers that the following important- factors, among others , in some cases have affected, and in the future could affect, the Company ' s actual consolidated results and could cause the Company 's actual consolidated results in the future to differ materially from the projections made in the forward-looking statements above and in any other forward-looking statements made by, or on behalf of, the Company.

(1) Achieving projected revenue growth depends upon sustaining the level of acquisition activity experienced by the Company in the last three fiscal years . Higher levels of acquisitio n, activity will increase anticipated revenues, and lower levels of acquisition activity will decrease anticipated revenues . The level of acquisition activity depends not only on the number of properties acquired , but also on the size of the acquisitions ; for example , one large acquisition could increase substantially the level of acquisition activity and, consequently, revenues . Several important factors , among others , affect the company's ability to consummate acquisitions :

(a)The Company may be unable to find a sufficient number of businesses for sale at prices the company is willing to pay.

(b)In most of its existing markets and in many new markets , including foreign markets , that the Company desires to enter , the Company • competes for acquisitions with the other publicly-traded death car e firms . These competitors, and others, may be willing to pay i he r EXHIBIT hnp//wwwAw4 ArchivededpddaZ /8785271000090628x98 -OW149.ug

prices for businesses than tha Company or may cause the Company to pay more to acquire a business than the Company would otherwise have to pay in the absence of such competition . Thus, the aggressiveness of the Company ' s competitors in pricing acquisitions affects the Company 's ability to complete acquisitions at prices it finds attractive.

(c)Achieving the company's projected acquisition activity depends on the Company's ability to enter new markets, including foreign markets . Due in part to the Company's lack of experience operating in new areas and to the presence of competitors who have been in certain markets longer than the Company, such entry may be more difficult or expensive than anticipated by the Company.

(2) The level of revenues also is affected by the volume and prices of the properties, products and services sold . The annual sales targets set by the Company are very aggressive, and the inability of the Company to achieve planned increases in volume or prices could cause the Company not to meet anticipated levels of revenue . The ability of the Company to achieve volume or price increases at any location depends on numerous factors, including the local economy, the local death rate and competition .

(3) Another important component of revenue is earnings from the company's trust funds and escrow accounts, which are determined by the size of, and returns (which include dividends, interest and realized capital gains) on, the funds . The performance of the funds is related primarily to market conditions that are not within the Company's control . The size of the funds depends on- the level of sales, funds added through acquisitions and the amount of returns that may be reinvested .

(4) Future revenue also is affected by the level of prearranged sales in prior periods . The level of prearranged sales may be adversely affected by numerous factors, including deterioration in the economy, which causes individuals to have less discretionary income .

(5) The Company first entered foreign „markets in the fourth quarter of fiscal year 1994, and no assurance can be given that the Company will continue to be successful in expanding in foreign markets, or that any expansion in foreign markets will yield results comparable to those realized as a result of the Company's expansion in the United states .

(6) In addition to the factors discussed above , earnings per share may be affected by other important factors, including the following :

(a)The ability of the Company to achieve projected economies of scale in markets where it hask"clusters" or combined facilities .

(b)Whether acquired businesses perform at pro forma levels used by management in the valuation process and whether, and the rate at which, management is able to increase the profitability of acquired businesses .

(c)The ability of the Company to manage its growth in terms of implementing internal controls and information gathering systems, and retaining or attracting key personnel, among other things .

(d)The amount and rate of growth in the Company' s corporate general and administrative expenses .

(e)Changes in interest rates, which can increase or decrease the amount the Company pays on borrowings with variable rates of interest .

(f)The Company's debt-to-equity ratio, the number of shares of common stock outstanding and the portion of the Company's debt that has fixed or variable interest rates . - h!tr.t/www.aeq ao'Atehivesbdpaldata/87852210000906280A8.000149AJ

(g)The impact on the Company's financia) . statements of nonrecurring accounting charges that may result from the Company's ongoing evaluation of its business strategies , asset valuations and organizational structures .

(h)Changes in government regulation, including tax rates and structures .

(i)Changes in inflation and other general economic conditions bot h domestically and internationally impacting financial markets (e .g . marketable security values as well as exchange rate fluctuations) .

(j) Unanticipated outcomes of legal proceedings .

(k)Changes in accounting policies and practices adopted voluntarily or required to be adopted by generally accepted accounting principles .

(1) The ability of the Company and third parties to achieve Year 2000 compliance on a timely basis . For additional information, see "Year 2000 Issues " in Management ' s Discussion and Analysis of Financial Condition and Results of Operations .

The Company also cautions readers that it assumes no obligation to update or publicly release any revisions to forward-looking statements made herein or any other forward-looking statements made by, or on behalf of, the Company .

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

;.~ (a) Exhibits

3 .1 Amended and Restated Articles of Incorporation of the company, as amended (incorporated by reference to Exhibit 3 .1 to the Company's Quarterly Report on Form 10-Q for the quarter ended January 31, 1996 )

3 .2 By-laws of the Company, as amended (incorporated by reference to Exhibit 3 .2 to the company's Annual Report on Form 10-K for the fiscal year ended October 31, 1997 )

4 .1 See Exhibits 3 .1 and 3 .2 for provisions of the Company's Amended and Restated Articles of Incorporation, as amended, and By-laws, as amended, defining the rights of holders of Class A and Class .B Coon Stoc k

4 .2 Specimen of Class A Common stock certificate (incorporated by reference to Exhibit 4 .2 to Amendment No . 3 to the Company's Registration Statement on Form S-1 (Registration No . 33-42336) filed with the Commission on October 7, 1991 )

4 .3 Indenture dated as of December 1, 1996 by and between the Company and Citibank, N .A. as Trustee (incorporated by reference to Exhibit 4 .1 to the Company's Current Report on Form 8-K dated December 5, 1996 )

4 .4 Supplemental Indenture dated April 24, 1998 between the Company and Citibank, N .A. as Trustee (incorporated by reference to Exhibit 4 .1 to the Company's Current Report on Form 8-K dated April 21, 1998 )

4 .5 Form of 6 .701 Note due 2003 (incorporated by reference to Exhibit 4 .2 to the Company's Current Report on Form 8-K dated December 5, 1996 )

4 .6 Form of 6 .40% Remarketable Or Redeemable Securities (ROARS) Due May 1, 2013 ( Remarketing Date May 1 „ 2003) (incorporated by reference to Exhibit 4 .2 to the Company's Current Repo rt on Form 8-K dated April 21, 1998)