In Re Stewart Enterprises, Inc. Securities Litigation, No. 01-30035 on the docket of the United States Court of Appeal for the Fifth Circuit. During the fall of 1999, 16 putative securities class action lawsuits were filed in the United States District Court for the Eastern District of Louisiana against the Company, certain of its directors and officers and the lead underwriters of the Company’s January 1999 common stock offering. The suits were consolidated, and the court appointed lead plaintiffs as well as lead and liaison counsel for the plaintiffs, who filed a consolidated amended complaint.

The consolidated amended complaint alleges violations of Section 11, 12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder on behalf of purchasers of the Company’s common stock during the period October 1, 1998 through August 12, 1999. Plaintiffs generally allege that the defendants made false and misleading statements and failed to disclose allegedly material information in the prospectus relating to the January 1999 common stock offering and in certain of the Company’s other public filings and announcements. The plaintiffs also allege that these allegedly false and misleading statements and omissions permitted the Chairman of the Company to sell Company common stock during the class period at inflated market prices. The plaintiffs seek remedies including certification of the putative class, unspecified damages, attorneys’ fees and costs, rescission to the extent any members of the class still hold the Company’s common stock, and such other relief as the court may deem proper.

On December 7, 2000, the District Court granted motions to dismiss, filed by the Company and the other defendants, dismissing the complaint against all defendants for failure to state a claim. On January 4, 2001, the plaintiffs filed a notice of appeal.

The outcome and the costs of defending this litigation cannot be predicted at this time. The Company believes that the claims are without merit and intends to defend itself vigorously.

The Company and certain of its subsidiaries are parties to a number of other legal proceedings that have arisen in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

The Company carries insurance with coverages and coverage limits that it believes to be adequate. Although there can be no assurance that such insurance is sufficient to protect the Company against all contingencies, management believes that its insurance protection is reasonable in view of the nature and scope of the Company’s operations.

As of October 31, 2000, the Company had advanced approximately $1,411, including accrued interest, to fund premiums on a split-dollar “second-to-die” life insurance policy on behalf of the Company’s Chairman, Mr. Frank B. Stewart, Jr., and Mrs. Stewart. The advances are collateralized by the assignment of other insurance policies and the pledge of Class A common stock of the Company. In 1992, the Company agreed to continue to advance such premiums for a twelve-year period and will be repaid at the earliest of (a) the surrender of the policy, (b) the deaths of Mr. and Mrs. Stewart, or (c) 60 days following payment in full of all premiums on the policy.

The Company has noncancellable operating leases, primarily for land and buildings, that expire over the next 1 to 23 years, except for nine leases that expire between 2032 and 2072. Rent expense under these leases was $9,527, $8,042 and $7,805 for the years ended October 31, 2000, 1999 and 1998, respectively. Through July of 2000, the Company leased office space from an affiliated company. Rental payments to the affiliated company were approximately $479, $534, and $636 for the years ended October 31, 2000, 1999 and 1998, respectively. The Company now leases a smaller portion of the office space from a non-affiliated company. Rental payments to the non-affiliated company were $132 for the year ended October 31, 2000.

The Company’s future minimum lease payments as of October 31, 2000 are $8,528, $7,165, $5,693, $4,585, $3,810 and $34,749 for the years ending October 31, 2001, 2002, 2003, 2004, 2005 and later years, respectively. Additionally, the Company has entered into non-compete agreements with prior owners of acquired subsidiaries that expire through 2012. The Company’s future non-compete payments as of October 31, 2000 for the same periods are $6,969, $6,312, $5,625, $4,437, $3,075 and $5,838, respectively.

With potential long-term debt maturities of $557,482, $228,528 and $112,087 in fiscal years 2002, 2003 and 2004, respectively, management of liquidity and capitalization represents a significant short- and medium-term priority for the Company. The Company believes that its ability to meet its future capital requirements will depend primarily upon the successful implementation of its strategies to provide cash from operations and generate cash from other sources, such as the possible sale of some or all of its foreign operations, and its ability to refinance its revolving credit facility and public debt prior to or at their maturities.