SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-6402-1


SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)

                 TEXAS                                        74-1488375
    (State or other jurisdiction of                        (I.R.S. employer
     incorporation or organization)                      identification no.)

           1929 ALLEN PARKWAY
             HOUSTON, TEXAS                                     77019
(Address of principal executive offices)                      (Zip code)

Registrant's telephone number, including area code: 713/522-5141

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                                    NAME OF EACH EXCHANGE
      TITLE OF EACH CLASS                            ON WHICH REGISTERED
      -------------------                           ---------------------
  Common Stock ($1 par value)                      New York Stock Exchange
Preferred Share Purchase Rights                    New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of the common stock held by non-affiliates of the registrant (assuming that the registrant's only affiliates are its officers and directors) is $3,989,412,852 based upon a closing market price of $14.875 on March 30, 1999 of a share of common stock as reported on the New York Stock Exchange -- Composite Transactions Tape.

The number of shares outstanding of the registrant's common stock as of March 30, 1999 was 271,968,548 (excluding treasury shares).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement in connection with its 1999 Annual Meeting of Shareholders (Part III)



PART I

ITEM 1. BUSINESS.

Service Corporation International was incorporated in Texas on July 5, 1962. The term "Company" or "SCI" includes the registrant and its subsidiaries, unless the context indicates otherwise.

The Company is the largest provider of death care services in the world. At December 31, 1998, the Company operated 3,442 funeral service locations, 433 cemeteries and 191 crematoria located in 20 countries on five continents. The Company conducts funeral operations in all of the business locales in which it operates, cemetery operations in all regions except France, and financial services operations in North America and France. For financial information about the Company's reportable segments, see Note Fifteen to the consolidated financial statements in Item 8 of this Form 10-K.

The Company has continued to expand through the acquisition of funeral service locations, cemeteries and crematoria, both domestically and internationally. In 1998, the Company acquired 308 funeral service locations, 47 cemeteries, 18 crematoria, and two insurance companies. The Company has acquired most of its present operations through acquisitions. For information regarding acquisitions, see Note Three to the consolidated financial statements in Item 8 of this Form 10-K. Although the Company is continuing to make acquisitions, the Company is curtailing its acquisition activity as discussed in the third paragraph of Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K.

FUNERAL AND CEMETERY OPERATIONS

The funeral and cemetery operations consist of the Company's funeral service locations, cemeteries and related businesses. The operations are organized into a North American division covering the United States and Canada and an international division responsible for all operations in Europe, the Pacific Rim and South America. Each division is under the direction of divisional executive management with substantial industry experience. Local funeral service location and cemetery managers, under the direction of the divisional management, receive support and resources from the Company's headquarters in Houston, Texas and have substantial autonomy with respect to the manner in which services are conducted.

The majority of the Company's funeral service locations and cemeteries are managed in groups called clusters. Clusters are established primarily in metropolitan areas to take advantage of operational efficiencies, including the sharing of service personnel, vehicles, preparation services, clerical staff and certain building facility costs.

The Company has multiple funeral service locations and cemeteries in a number of metropolitan areas. Within individual metropolitan areas, the funeral service locations and cemeteries operate under various names because most operations were acquired as existing businesses and generally continue to be operated under the same name as before acquisition.

Funeral Service Locations. The funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral service locations sell caskets, coffins, burial vaults, cremation receptacles, flowers and burial garments, and certain funeral service locations also operate crematoria. At December 31, 1998, the Company owned 156 funeral service location/cemetery combinations and operated 49 flower shops engaged principally in the design and sale of funeral floral arrangements. These flower shops provide floral arrangements to some of the Company's funeral homes and cemeteries.

In addition to selling its services and products to client families at the time of need, the Company also sells prearranged funeral services in most of its service markets, including several foreign markets. Funeral prearrangement is a means through which a customer contractually agrees to the terms of a funeral to be performed in the future. The funds collected from prearranged funeral contracts are placed in trust accounts (pursuant to applicable law) or are used to pay premiums on life insurance policies from third party insurers or the Company's wholly owned insurance subsidiaries. At December 31, 1998, the total value of the Company's


unperformed prearranged funeral contracts was $3.752 billion, of which approximately $368 million is estimated to be fulfilled in 1999. For additional information concerning prearranged funeral activities, see "Prearranged Funeral Services" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K and Note Four to the consolidated financial statements in Item 8 of this Form 10-K.

The death rate tends to be somewhat higher in the winter months and the Company's funeral service locations generally experience a higher volume of business during those months.

Since 1984, the Company has operated under the Federal Trade Commission's ("FTC") comprehensive trade regulation rule for the funeral industry. The rule contains minimum guidelines for funeral industry practices, requires extensive price and other affirmative disclosures and imposes mandatory itemization of funeral goods and services. From time to time in connection with acquisitions, the Company has entered into consent orders with the FTC that have required the Company to dispose of certain operations to proceed with acquisitions or have limited the Company's ability to make acquisitions in specified areas. The trade regulation rule and the various consent orders have not had a materially adverse effect on the Company's operations.

Cemeteries. The Company's cemeteries sell cemetery interment rights (including mausoleum spaces and lawn crypts) and certain merchandise including stone and bronze memorials and burial vaults. The Company's cemeteries also perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries also operate crematoria.

Cemetery sales are often made on a preneed basis pursuant to installment contracts providing for monthly payments. A portion of the proceeds from cemetery sales is generally required by law to be paid into perpetual care trust funds. Earnings of perpetual care trust funds are used to defray the maintenance cost of cemeteries. In addition, all or a portion of the proceeds from the sale of preneed cemetery merchandise may be required by law to be paid into trust until the merchandise is purchased on behalf of the customer. For additional information regarding cemetery trust funds, see Notes Two and Six to the consolidated financial statements in Item 8 of this Form 10-K.

Death Care Industry. The funeral industry is characterized by a large number of locally owned, independent operations. The Company believes that based on the total number of funeral services performed in 1998, the Company, including companies acquired by it, performed approximately 11%, 28%, 14% and 25% of the funeral services in North America, France, the United Kingdom and Australia, respectively.

To compete successfully, the Company's funeral service locations must maintain competitive prices, attractive, well-maintained and conveniently located facilities, a good reputation and high professional standards. In addition, heritage and tradition can provide an established funeral home with the opportunity for repeat business from client families. Furthermore, an established firm can generate future volume and revenues by marketing prearranged funeral services.

The cemetery industry is also characterized by a large number of locally owned independent operations. The Company's cemetery properties compete with other cemeteries in the same general area. To compete successfully, the Company's cemeteries must maintain competitive prices, attractive and well-maintained properties, a good reputation, an effective sales force and high professional standards.

FINANCIAL SERVICES OPERATIONS

The financial services division represents a combination of the Company's prearranged funeral and cemetery trust accounting and administration, investment management, life insurance operations and the lending activities of Provident Services, Inc., a wholly-owned subsidiary of the Company ("Provident").

The Company's insurance operations include ownership of a French life insurance company (Auxia) and a U.S. life insurance company (American Memorial Life Insurance Company). These wholly-owned subsidiaries assist in funding contracts written by Company owned funeral service locations. For additional information concerning the Company's financial services and insurance operations, see Management's

2

Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K and Notes Two, Four and Five to the consolidated financial statements in Item 8 of this Form 10-K.

Since 1988, Provident has provided secured financing to independent funeral home and cemetery operators. The majority of Provident's loans are made to clients seeking to finance funeral home or cemetery acquisitions. Additionally, Provident provides construction loans for funeral home or cemetery improvement and expansion. Loan packages take traditional forms of secured financing comparable to arrangements offered by leading commercial banks. Provident's loans are generally made at interest rates which float with the prime lending rate. At December 31, 1998, Provident had $270 million in loans outstanding and $31 million of unfunded loan commitments. At December 31, 1997, Provident had $198 million in loans outstanding and $50 million of unfunded loan commitments. Provident obtains its funds primarily from the Company's variable interest rate credit facilities.

EMPLOYEES

At December 31, 1998, the Company employed 27,618 (16,627 in the United States) persons on a full time basis and 12,410 (9,148 in the United States) persons on a part time basis. Of the full time employees, 26,567 were in the funeral and cemetery operations, 397 were in financial services operations and 654 were in corporate services. All of the Company's eligible United States employees who so elect are covered by the Company's group health and life insurance plans. Eligible United States employees are participants in retirement plans of the Company or various subsidiaries, while foreign employees are covered by other Company defined or government mandated benefit plans. Although labor disputes are experienced from time to time, in general relations with employees are considered satisfactory.

REGULATION

The Company's various operations are subject to regulations, supervision and licensing under various U.S. federal, state and foreign statutes, ordinances and regulations. The Company believes that it is in substantial compliance with the significant provisions of such statutes, ordinances and regulations. See discussion of FTC funeral industry trade regulation and consent orders in "Funeral Service Locations" above.

The French funeral services industry has undergone significant regulatory change in recent years. Historically, the French funeral services industry has been controlled, as provided by national legislation, either (i) directly by municipalities through municipality-operated funeral establishments ("Municipal Monopoly"), or (ii) indirectly by the remaining municipalities that have contracted for funeral service activities with third party providers, such as SCI's French operations ("Exclusive Municipal Authority"). Legislation has been passed that will generally end municipal control of the French funeral service business and will allow the public to choose their funeral service provider. Under such legislation, the Exclusive Municipal Authority was abolished in January 1996, and the Municipal Monopoly was eliminated in January 1998. Cemeteries in France, however, are and will continue to be controlled by municipalities and religious organizations, with third parties, such as SCI, providing cemetery merchandise such as markers and monuments.

ITEM 2. PROPERTIES.

The Company's executive headquarters are located at 1929 Allen Parkway, Houston, Texas 77019, in a 12-story office building. A wholly owned subsidiary of the Company owns an undivided one-half interest in the building and its parking garage. The property consists of approximately 1.3 acres, 250,000 square feet of office space in the building and 160,000 square feet of parking space in the garage. The Company leases all of the office space in the building pursuant to a lease that expires June 30, 2005 providing for monthly rent of $43,000 through July 2000 and $59,000 thereafter. The Company pays all operating expenses. One half of the rent is paid to the wholly owned subsidiary and the other half is paid to the owners of the remaining undivided one-half interest. The Company owns and utilizes two additional buildings located in Houston, Texas containing a total of approximately 167,000 square feet of office space.

3

At December 31, 1998, the Company owned the real estate and buildings of 3,187 of its funeral service and cemetery locations and leased facilities in connection with 879 of such operations. In addition, the Company leased five aircraft pursuant to cancelable leases. At December 31, 1998, the Company operated 13,190 vehicles, of which 11,012 were owned and 2,178 were leased. For additional information regarding leases, see Note Eleven to the consolidated financial statements in Item 8 of this Form 10-K.

At December 31, 1998, the Company's 433 cemeteries contain a total of approximately 31,186 acres, of which approximately 53% are developed.

The specialized nature of the Company's businesses requires that its facilities be well-maintained and kept in good condition. Management believes that these standards are met.

ITEM 3. LEGAL PROCEEDINGS.

Since January 26, 1999, several lawsuits have been commenced on behalf of persons who (i) acquired shares of Company common stock in the merger of a wholly owned subsidiary of the Company into Equity Corporation International ("ECI"), (ii) purchased shares of Company common stock during certain specified class periods or (iii) owned employee stock options in ECI. As of March 24, 1999, 20 class action lawsuits that had been originally filed in federal district court in Houston had been consolidated into one action pending in that court, and one additional class action lawsuit that had been originally filed in the federal district court in Lufkin, Texas was still pending in that court. These lawsuits allege violations of federal securities laws and name as defendants the Company and certain of its officers and directors. As of the same date, two former state court lawsuits, one of which was a class action, naming the Company as defendant and alleging fraud and violations of Texas securities and common law had been removed to the federal district court in Lufkin. The lawsuits generally refer to the Company's January 26, 1999 public announcement that the Company's diluted earnings per share for the fourth quarter of 1998 and for the year ended December 31, 1998 would be lower than analyst expectations. The lawsuits seek, among other things, to recover unspecified damages. Since the litigation is in its very preliminary stages, no discovery has been taken, and the Company cannot quantify its ultimate liability, if any, for the payment of damages in these lawsuits. However, the Company believes that the allegations in the lawsuits do not provide a basis for the recovery of damages because the Company has made all the required disclosures on a timely basis. The Company is seeking to transfer the lawsuits pending in Lufkin and consolidate them with the action pending in federal district court in Houston. The Company intends to aggressively defend the foregoing lawsuits. A list of (x) the styles of the pending class action litigation matters, (y) the identities of the officers and directors of SCI who have not been expressly excluded from the class designations relating to former ECI stockholders and option holders and (z) the identities of officers and directors of SCI who have been named as individual defendants in certain pending litigation are set forth in Exhibit 99.1 to this report, which Exhibit 99.1 is hereby incorporated by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

4

EXECUTIVE OFFICERS OF THE COMPANY

Pursuant to General Instruction G to Form 10-K, the information regarding executive officers of the Company called for by Item 401 of Regulation S-K is hereby included in Part I of this report.

The following table sets forth as of March 30, 1999 the name and age of each executive officer of the Company, the office held, and the date first elected an officer.

                                                                                      YEAR FIRST
                                                                                        BECAME
            OFFICER NAME               AGE                  POSITION                  OFFICER(1)
            ------------               ----                 --------                  ----------
R. L. Waltrip........................  (68)   Chairman of the Board, Chief              1962
                                              Executive Officer and President
George R. Champagne..................  (45)   Executive Vice President Chief            1989
                                              Financial Officer
John W. Morrow, Jr...................  (63)   Executive Vice President North            1989
                                              American Operations
Jerald L. Pullins....................  (57)   Executive Vice President                  1992
                                              International Operations
W. Blair Waltrip.....................  (44)   Executive Vice President                  1980
Gregory L. Cauthen...................  (41)   Senior Vice President                     1995
Glenn G. McMillen....................  (56)   Senior Vice President Assistant to        1993
                                              Chairman
Richard T. Sells.....................  (59)   Senior Vice President Preneed Sales       1987
James M. Shelger.....................  (49)   Senior Vice President General Counsel     1987
                                              and Secretary
Jack L. Stoner.......................  (53)   Senior Vice President Administration      1992
T. Craig Benson......................  (37)   Vice President International              1990
                                              Operations
J. Daniel Garrison...................  (47)   Vice President International              1998
                                              Operations
W. Cardon Gerner.....................  (44)   Vice President Controller                 1999
W. Mark Hamilton.....................  (34)   Vice President                            1996
Lowell A. Kirkpatrick, Jr. ..........  (40)   Vice President Operations, Finance        1994
                                              and Development
Stephen M. Mack......................  (47)   Vice President Operations                 1998
Todd A. Matherne.....................  (44)   Vice President Treasurer                  1996
Thomas L. Ryan.......................  (33)   Vice President International Finance      1999
Vincent L. Visosky...................  (51)   Vice President                            1989
Michael R. Webb......................  (41)   Vice President International              1998
                                              Corporate Development
Henry M. Nelly, III..................  (54)   President -- Provident Services,          1989
                                              Inc., a subsidiary of the Company


(1) Indicates the year a person was first elected as an officer although there were subsequent periods when certain persons ceased being officers of the Company.

Unless otherwise indicated below, the persons listed above have been executive officers or employees for more than five years.

Mr. Gerner joined the Company in January 1999 in connection with the acquisition of ECI and in March 1999 was promoted to Vice President Controller. Before the acquisition, Mr. Gerner had been Senior Vice President and Chief Financial Officer of ECI since March 1995. Prior thereto, Mr. Gerner was a partner with Ernst & Young LLP.

5

Mr. Matherne joined the Company in April 1995 as Managing Director Investor Relations and was promoted in May 1996 to Vice President Investor Relations and in February 1998 to Vice President Operations, Finance and Development. Prior thereto, Mr. Matherne was Vice President and General Manager of Baker Hughes Treatment Services, an environmental services business.

Mr. Ryan joined the Company in June 1996 as Director of Financial Reporting. Since then, Mr. Ryan has served as Director of Investor Relations and Managing Director and Chief Financial Officer of International Operations. Mr. Ryan was promoted to Vice President International Finance in February 1999. Prior to joining the Company, Mr. Ryan was a certified public accountant with Coopers & Lybrand L.L.P. for more than five years.

Each officer of the Company is elected by the Board of Directors and holds his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner prescribed in the Bylaws of the Company. Each officer of a subsidiary of the Company is elected by the subsidiary's board of directors and holds his office until his successor is elected and qualified or until his earlier death, resignation or removal in the manner prescribed in the bylaws of the subsidiary. W. Blair Waltrip is a son of R.L. Waltrip.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's common stock has been traded on the New York Stock Exchange since May 14, 1974. On December 31, 1998, there were 7,613 holders of record of the Company's common stock.

The Company has declared 103 consecutive quarterly dividends on its common stock since it began paying dividends in 1974. The dividend rate is currently $.09 per share per quarter, or an indicated annual rate of $.36 per share. For the three years ended December 31, 1998, dividends per share were $.36, $.30 and $.24, respectively.

The table below shows the Company's quarterly high and low common stock prices:

                                                 YEARS ENDED DECEMBER 31,
                                    ---------------------------------------------------
                                         1998              1997              1996
                                    ---------------   ---------------   ---------------
                                     HIGH     LOW      HIGH     LOW      HIGH     LOW
                                    ------   ------   ------   ------   ------   ------
First.............................  $43.69   $35.69   $33.88   $26.88   $24.75   $19.44
Second............................   44.63    38.94    36.00    29.63    30.13    24.13
Third.............................   45.88    31.88    35.75    29.81    29.44    27.63
Fourth............................   39.25    29.81    38.00    27.88    30.75    26.50

On March 26, 1999, the closing price of the Company's common stock was $14.75 per share.

SRV is the New York Stock Exchange ticker symbol for the common stock of the Company. Options in the Company's common stock are traded on the Philadelphia Stock Exchange under the symbol SRV.

6

ITEM 6. SELECTED FINANCIAL DATA.

                                                      YEARS ENDED DECEMBER 31,
                                   --------------------------------------------------------------
                                      1998         1997         1996         1995         1994
                                   ----------   ----------   ----------   ----------   ----------
                                         (IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS)
Revenues.........................  $2,875,090   $2,535,865   $2,355,342   $1,652,126   $1,117,175
Income before extraordinary
  loss...........................     342,142      374,552      265,298      183,588      131,045
Net income.......................     342,142      333,750      265,298      183,588      131,045
Earnings per share:
  Income before extraordinary
     loss
     Basic.......................        1.34         1.53         1.13          .92          .76
     Diluted.....................        1.31         1.47         1.08          .86          .71
  Net income
     Basic.......................        1.34         1.36         1.13          .92          .76
     Diluted.....................        1.31         1.31         1.08          .86          .71
Dividends per share..............         .36          .30          .24          .22          .21
Total assets.....................  13,266,158   10,514,930    9,020,778    7,768,982    5,196,690
Long-term debt...................   3,764,590    2,634,699    2,048,737    1,712,464    1,330,177
Convertible preferred securities
  of SCI Finance LLC.............          --           --      172,500      172,500      172,500
Stockholders' equity.............   3,154,102    2,726,004    2,235,317    1,975,345    1,196,622
Shares outstanding...............     259,201      252,924      236,193      234,542      189,714
Ratio of earnings to fixed
  charges*.......................        3.42         4.29         3.24         2.84         3.13


* For purposes of computing the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes, less undistributed income of equity investees which are less than 50% owned, plus the minority interest of majority-owned subsidiaries with fixed charges and plus fixed charges (excluding capitalized interest). Fixed charges consist of interest expense, whether capitalized or expensed, amortization of debt costs, dividends on preferred securities of SCI Finance LLC and one-third of rental expense which the Company considers representative of the interest factor in the rentals.

7

Equity Corporation International

In January 1999, a wholly-owned subsidiary of the Company acquired ECI. The combination occurred through a stock-for-stock transaction in which ECI stockholders received approximately 15,500,584 shares of Company common stock.

Set forth below is certain summary financial information for ECI (Dollars in thousands):

                                                          YEARS ENDED DECEMBER 31,
                                                      ---------------------------------
                                                         1998         1997       1996
                                                      -----------   --------   --------
                                                      (UNAUDITED)
Revenues............................................   $190,056     $135,073   $ 91,974
                                                       --------     --------   --------
Gross profit........................................     51,003       37,660     26,137
                                                       --------     --------   --------
Net income..........................................   $ 16,247     $ 14,699   $ 10,326
                                                       --------     --------   --------

Current assets......................................   $ 61,692     $ 34,766   $ 29,558
Non-current assets..................................    917,523      682,934    414,333
                                                       --------     --------   --------
Total assets........................................   $979,215     $717,700   $443,891
                                                       --------     --------   --------
Current liabilities.................................   $ 31,019     $ 17,100   $ 10,379
Non-current liabilities.............................    690,722      474,068    256,048
                                                       --------     --------   --------
Total liabilities...................................   $721,741     $491,168   $266,427
                                                       --------     --------   --------
Stockholders' equity................................   $257,474     $226,532   $177,464
                                                       --------     --------   --------

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES AND PER SHARE DATA)

The Company is the largest provider of death care services in the world. At December 31, 1998, the Company operated 3,442 funeral service locations, 433 cemeteries and 191 crematoria located in 20 countries on five continents. The Company conducts funeral operations in all of its business locales, cemetery operations in all regions except France, and financial services operations in North America and France. As of December 31, 1998, the Company's largest markets are North America and France, which when combined, represent approximately 87% of the Company's consolidated revenue, 90% of consolidated income from operations and 75% of the Company's total operating locations.

The majority of the Company's funeral service locations and cemeteries are managed in groups called clusters. Clusters are established primarily in metropolitan areas to take advantage of operational efficiencies, particularly the sharing of operating expenses such as service personnel, vehicles, preparation services, clerical staff and certain building facility costs. Personnel costs, the largest operating expense for the Company, is the cost component most beneficially affected by clustering. The sharing of employees, as well as the other costs mentioned, allows the Company to more efficiently utilize its operating facilities due to the traditional fluctuation in the number of funeral services and cemetery interments performed in a given period.

Historically, the Company's growth has been largely attributable to acquisitions. In light of prevailing market prices for available acquisition candidates, the Company is curtailing its acquisition activity. Additionally, because of the current size of the Company, it is becoming increasingly difficult to support the historical earnings growth rate through acquisitions. Therefore, the Company intends to focus its efforts on maximizing the profitability of existing clusters of facilities rather than the historically heavy emphasis on acquisitions. The Company, though, will continue to acquire domestic and foreign facilities where operating strategies and pricing considerations are properly aligned.

RESULTS OF OPERATIONS -- FOURTH QUARTER 1998 COMPARED TO FOURTH QUARTER 1997:

Funeral and cemetery revenues were $687,996 in the fourth quarter 1998, compared to $637,654 in the prior year quarter, a 7.9% increase. Funeral and cemetery gross margins were $131,781 in the fourth quarter 1998 compared to $180,615 in the prior year quarter, a 27.0% decrease. The large decrease in the funeral and cemetery gross margins contributed significantly to the consolidated net income and diluted earnings per share declines, quarter over quarter, of 35.6% and 36.1%, respectively. A 40.5% increase in interest expense, quarter over quarter, was primarily responsible for the remainder of the declines. Though total funeral and cemetery revenues increased quarter over quarter, the rate of growth was less than expected. At the same time, costs and expenses had been structured for an expected higher level of sales. Major items contributing to the earnings decline included:

- A 2.7% decline in funeral revenues, quarter over quarter, at locations owned before October 1, 1997. This represented approximately $11,000 and was caused by weak death rates and lower average sales prices. The lower average sales prices were due to a changing profile in the sales mix reflecting an increased proportion of performed funerals from lower average prearranged sales and an increased proportion of lower average cremations.

- Approximately $19,000, or 6.3%, in additional funeral costs incurred at locations acquired before October 1, 1997 due to higher merchandise, personnel, facility and public relations costs primarily in North America and the United Kingdom.

- Weak operating performances by locations acquired after September 30, 1997.

- Approximately $10,000, or 10.4%, in increased cemetery costs for locations acquired before October 1, 1997 due to higher merchandise, maintenance and administrative expenses primarily in North America. Revenues at these locations grew by approximately $1,000, or .9%.

- Increased overhead costs included in the funeral and cemetery gross margins, partially due to an anticipated higher level of revenues, increased approximately $13,000, or 60.1%.

9

RESULTS OF OPERATIONS:

The operating results for the Company in 1998 compared to 1997 were below expectations primarily as the result of disappointing fourth quarter funeral and cemetery revenue and a cost structure that was geared toward a higher expected level of revenue. These issues were discussed above and are discussed in more detail below. Current expectations for the Company's 1999 outlook point to continued pressure on operating margins as costs are expected to grow at a faster percentage than revenues due primarily to the following issues. Revenue growth is expected to continue to be negatively affected by potentially weak death rates in several of the Company's major markets. In addition, cemetery preneed sales are not expected to grow appreciably over 1998 levels due primarily to continued sales staffing difficulties. The funeral business has a high fixed cost structure (approximately 80%-90% of funeral costs) that does not easily lend itself to reductions during periods of slower revenue growth. The acquisition in January 1999 of Equity Corporation International (ECI), previously the fourth largest death care company in North America, will exert downward pressure on operating margins due to ECI's historically lower volume operations.

Year ended 1998 compared to 1997

                                       YEARS ENDED DECEMBER 31,                           PERCENTAGE
                                   --------------------------------           INCREASE     INCREASE
                                      1998                 1997              (DECREASE)   (DECREASE)
                                   -----------          -----------          ----------   ----------
Revenues:
  Funeral........................  $ 1,829,136          $ 1,720,291           $108,845        6.3%
  Cemetery.......................      846,601              724,862            121,739       16.8
  Financial services.............      199,353               90,712            108,641      119.8
                                   -----------          -----------           --------      -----
                                     2,875,090            2,535,865            339,225       13.4
Costs and expenses:
  Funeral........................   (1,444,529)          (1,318,920)           125,609        9.5
  Cemetery.......................     (540,440)            (452,965)            87,475       19.3
  Financial services.............     (171,351)             (76,368)            94,983      124.4
                                   -----------          -----------           --------      -----
                                    (2,156,320)          (1,848,253)           308,067       16.7
Gross profit margin and
  percentage:
  Funeral........................      384,607   21.0%      401,371   23.3%    (16,764)      (4.2)
  Cemetery.......................      306,161   36.2       271,897   37.5      34,264       12.6
  Financial services.............       28,002   14.0        14,344   15.8      13,658       95.2
                                   -----------   ----   -----------   ----    --------      -----
                                   $   718,770   25.0%  $   687,612   27.1%   $ 31,158        4.5%
                                   ===========   ====   ===========   ====    ========      =====

Funeral

Funeral revenues were as follows:

                                       YEARS ENDED DECEMBER 31,                           PERCENTAGE
                                   --------------------------------           INCREASE     INCREASE
                                      1998                 1997              (DECREASE)   (DECREASE)
                                   -----------          -----------          ----------   ----------
North America....................  $ 1,006,654          $   970,749           $ 35,905        3.7%
France...........................      524,418              480,473             43,945        9.1
Other European...................      241,114              203,479             37,635       18.5
Other foreign....................       56,950               65,590             (8,640)     (13.2)
                                   -----------          -----------           --------      -----
          Total funeral
            revenues.............  $ 1,829,136          $ 1,720,291           $108,845        6.3%
                                   ===========          ===========           ========      =====

The $35,905 increase in revenues from North American operations was primarily the result of a $34,499 increase in revenues from existing clusters (existing clusters represent geographic areas entered prior to January 1, 1997). Included in the existing cluster increase was a $60,724 increase from locations acquired since January 1, 1997, offset by a $26,225 decrease from locations acquired prior to 1997. The number of funeral services performed by existing clusters in North America increased 4.1% (259,071 compared to

10

248,781), while the average sales price decreased slightly by .5% ($3,817 compared to $3,836). The sales price decrease occurred because of continuing changes in the Company's sales mix resulting from a higher proportion of funerals from prearranged contracts being serviced and an increase in the number of cremations performed both of which typically carry lower sales price averages than traditional at need funeral services. The prearranged sales average has been historically lower than the current at need sales average primarily due to the servicing of older, lower average contracts typically sold by funeral homes that have been acquired by the Company. In addition, the Company has lowered sales prices in certain markets for competitive reasons. Locations included in existing clusters, that were acquired since January 1, 1997 performed 25,999 funeral services compared to 10,378 in 1997, while locations acquired before 1997 performed 2.2% fewer funeral services in 1998 (233,072 compared to 238,403).

The increasing proportion of people over age 65 in the Company's primary North American markets could increase demand for funeral services in the decades to come. It is believed the Company currently performs approximately 11% of the funeral services in North America.

Revenues from the Company's operations in France increased $43,945 in 1998 due primarily to acquisitions, since January 1, 1997, added to existing French clusters. Also contributing to this increase was a 3.0% increase in average sales prices and higher merchandise sales in 1998 at existing locations. The total number of funeral services performed by the Company's French operations during 1998 was 147,994, compared to 148,223 in 1997.

The $37,635 increase in revenues from other European operations is primarily due to a 14.4% increase in the total number of funeral services performed (117,776 compared to 102,985). Revenue from locations acquired since January 1, 1997, increased $43,912 in 1998 ($57,514 compared to $13,602), while volumes at these locations increased to 30,903 in 1998, compared to 7,140 in 1997. In 1998, the Company entered into new markets, including Norway and expanded existing markets in Spain, Portugal and the Netherlands.

The decrease in revenues from other foreign operations is primarily due to a 15.4% decline in the Australian to US currency exchange rates, offset by increased revenues from a full year of operations in Argentina. The number of funeral services performed by other foreign operations were 29,946 compared to 29,278 in 1997.

During the year ended December 31, 1998, the Company sold (net of cancellations) approximately $490,000 of prearranged funeral services compared to approximately $527,000 for the same period in 1997. The obligations are funded through both trust funded and insurance backed contracts. These prearranged funeral services are deferred and will be reflected in funeral revenues in the periods that the funeral services are performed. The Company expects to continue the emphasis on selling prearranged funerals.

Funeral gross margins were as follows:

                                    YEARS ENDED DECEMBER 31,
                             ---------------------------------------                PERCENTAGE
                                         % OF                 % OF      INCREASE     INCREASE
                               1998     REVENUE     1997     REVENUE   (DECREASE)   (DECREASE)
                             --------   -------   --------   -------   ----------   ----------
North America..............  $284,332    28.2%    $297,586    30.7%     $(13,254)      (4.5)%
France.....................    60,810    11.6       48,620    10.1        12,190       25.1
Other European.............    27,731    11.5       38,097    18.7       (10,366)     (27.2)
Other foreign..............    11,734    20.6       17,068    26.0        (5,334)     (31.3)
                             --------    ----     --------    ----      --------      -----
          Total funeral
            gross margin...  $384,607    21.0%    $401,371    23.3%     $(16,764)      (4.2)%
                             ========    ====     ========    ====      ========      =====

The decrease in gross margin percentage in North America is due to an increase in costs and expenses of 7.3% while revenues increased 3.7%, as discussed above. The increased costs and expenses are primarily due to higher costs at locations acquired since January 1, 1997. Typically, acquisitions will temporarily exhibit slightly lower gross profit margins than those experienced by the Company's existing locations at least until such time as these locations are assimilated into the Company's cluster management strategy. Costs for locations acquired prior to 1997 were flat with the prior year.

11

The France gross margin increase is attributable to a revenue increase of 9.1%, while the corresponding increase in costs and expenses were 7.4%. The Company continues to improve its French sales and merchandising efforts while implementing additional cost efficiencies.

Despite increased revenues, the other European gross margin percentage decreased due to a disproportionate increase in costs and expenses of 29.0% ($213,383 compared to $165,381). The increased costs and expenses are primarily related to additional costs in the United Kingdom and operating costs incurred by acquisitions made throughout Europe during the year.

The decrease in other foreign gross margin percentage is primarily due to the Company's Australian operations. Excluding a 15.4% decline in the Australian to US currency exchange rates, Australian revenue declined approximately 1.6%, while Australian costs and expenses increased approximately 6.0%.

Cemetery

Cemetery revenues were as follows:

                                                 YEARS ENDED
                                                DECEMBER 31,
                                             -------------------              PERCENTAGE
                                               1998       1997     INCREASE    INCREASE
                                             --------   --------   --------   ----------
North America..............................  $768,228   $671,112   $ 97,116      14.5%
Other European.............................    25,565     21,609      3,956      18.3
Other foreign..............................    52,808     32,141     20,667      64.3
                                             --------   --------   --------      ----
          Total cemetery revenues..........  $846,601   $724,862   $121,739      16.8%
                                             ========   ========   ========      ====

The $97,116 increase in revenues from North American cemetery operations is primarily due to an increase of $95,153 from existing clusters. Included in the existing cluster increase was $69,483 from locations acquired since January 1, 1997, while revenues from existing cluster locations acquired before 1997 increased $25,670. Factors contributing to the total increase were increases in preneed and at need sales of property and merchandise ($66,629), higher investment earnings on trusted amounts ($18,594) and increased revenue from sales of excess property ($11,893).

The increase in revenues from other foreign operations is primarily due to the inclusion of a full year of cemetery operations in Argentina $24,365, offset by a $3,698 decrease in cemetery revenue in Australia.

Cemetery gross margins were as follows:

                                    YEARS ENDED DECEMBER 31,
                             ---------------------------------------                PERCENTAGE
                                         % OF                 % OF      INCREASE     INCREASE
                               1998     REVENUE     1997     REVENUE   (DECREASE)   (DECREASE)
                             --------   -------   --------   -------   ----------   ----------
North America..............  $282,754    36.8%    $251,993    37.5%     $30,761        12.2%
Other European.............     7,936    31.0        8,275    38.3         (339)       (4.1)
Other foreign..............    15,471    29.3       11,629    36.2        3,842        33.0
                             --------    ----     --------    ----      -------        ----
          Total cemetery
            gross margin...  $306,161    36.2%    $271,897    37.5%     $34,264        12.6%
                             ========    ====     ========    ====      =======        ====

North American cemetery gross margin increased $30,761 in 1998, primarily due to corresponding growth in revenue discussed above. The 1998 decrease in cemetery gross margin percentage (36.8% compared to 37.5%) is due to higher costs at locations acquired since January 1, 1997 and higher overhead costs. Recently acquired cemeteries will usually have lower gross margins than the Company's existing cemeteries until a formal selling program can be developed and until operating costs can be more efficiently managed through the cluster management approach. Costs at existing cemeteries were .3% higher in 1998 versus 1997.

The decrease in other foreign gross profit margin percentage is due to the inclusion of a full year of cemetery operations in Argentina. The gross profit margin percentage from operations in Argentina was approximately 19.4% in 1998, compared to 39.2% for the Company's operations in Australia. The Argentina

12

gross margin is consistent with the Company's expectations. These operations have historically produced lower gross margins than the Company's operations in North America or Australia. Australia's gross profit margin percentages were flat with 1997.

Financial Services

Financial services represents a combination of the Company's lending subsidiary, Provident Services, Inc. (Provident), and the Company's wholly-owned insurance subsidiaries.

Financial services revenues were as follows:

                                                 YEARS ENDED
                                                 DECEMBER 31,
                                              ------------------              PERCENTAGE
                                                1998      1997     INCREASE    INCREASE
                                              --------   -------   --------   ----------
Insurance:
  North America.............................  $ 81,832   $    --   $ 81,832        --%
  France....................................    96,941    74,175     22,766      30.7
                                              --------   -------   --------     -----
  Total insurance...........................   178,773    74,175    104,598     141.0
Provident (North America)...................    20,580    16,537      4,043      24.4
                                              --------   -------   --------     -----
          Total financial services
            revenues........................  $199,353   $90,712   $108,641     119.8%
                                              ========   =======   ========     =====

The 1998 increase in insurance revenues is due primarily to the North American acquisition of American Memorial Life Insurance Company (AML) effective July 1998. Insurance revenues from the Company's French operations increased due to increased premium revenue and investment earnings due to increases in the sales of prearranged funerals. Revenue from Provident increased as a result of a corresponding increase in its average loan portfolio during 1998 ($228,279 compared to $182,375).

Financial services gross margins were as follows:

                                      YEARS ENDED DECEMBER 31,
                                -------------------------------------
                                           % OF                % OF                PERCENTAGE
                                 1998     REVENUE    1997     REVENUE   INCREASE    INCREASE
                                -------   -------   -------   -------   --------   ----------
Insurance:
  North America...............  $ 7,872     9.6%    $    --      --%    $ 7,872         --%
  France......................   10,689    11.0       6,712     9.0       3,977       59.3
                                -------    ----     -------    ----     -------      -----
  Total insurance.............   18,561    10.4       6,712     9.0      11,849      176.5
Provident (North America).....    9,441    45.9       7,632    46.2       1,809       23.7
                                -------    ----     -------    ----     -------      -----
          Total financial
            services gross
            margin............  $28,002    14.0%    $14,344    15.8%    $13,658       95.2%
                                =======    ====     =======    ====     =======      =====

The increase in North American insurance gross margin is due to the acquisition of AML as discussed above, while the increase in French insurance gross margin is primarily due to increased revenues.

Provident reported a gross profit of $9,441 for the year ended December 31, 1998 compared to $7,632 for the same period in 1997. The increase in gross profit is due to the increase in Provident's average outstanding loan portfolio, partially offset by a decrease in the average interest rate spread (3.14% this year compared to 3.18% last year).

Other Income and Expenses

The Company's general and administrative expenses remained stable in 1998 ($66,839 compared to $66,781). Expressed as a percentage of revenues, these expenses decreased slightly to 2.3% in 1998 compared to 2.6% in 1997.

Interest expense, which excludes the amount incurred by financial service operations, increased $40,333 or 29.5% during 1998. The average borrowings during 1998 were $3,340,708 compared to $2,434,808 in 1997,

13

primarily due to additional borrowings for acquisitions. The average interest rate in 1998 was 6.15% compared to 6.03% in 1997.

Other income was $43,649 in 1998, compared to $100,244 in 1997. This decrease reflects a gain on the sale of the Company's equity interest in ECI ($68,077) recorded in 1997 (see note nineteen to the consolidated financial statements).

The provision for income taxes reflects a 34.0% effective tax rate for 1998, compared to a 35.4% effective tax rate in 1997. The decrease in the effective tax rate is due primarily to lower taxes from international operations. Both years included tax benefits relating to enacted tax rate changes in certain foreign tax jurisdictions.

RESULTS OF OPERATIONS:

Year Ended 1997 Compared to 1996

                                       YEARS ENDED DECEMBER 31,                           PERCENTAGE
                                   --------------------------------           INCREASE     INCREASE
                                      1997                 1996              (DECREASE)   (DECREASE)
                                   -----------          -----------          ----------   ----------
Revenues:
  Funeral........................  $ 1,720,291          $ 1,656,736           $ 63,555        3.8%
  Cemetery.......................      724,862              612,421            112,441       18.4
  Financial services.............       90,712               86,185              4,527        5.3
                                   -----------          -----------           --------       ----
                                     2,535,865            2,355,342            180,523        7.7
Costs and expenses:
  Funeral........................   (1,318,920)          (1,282,546)            36,374        2.8
  Cemetery.......................     (452,965)            (397,700)            55,265       13.9
  Financial services.............      (76,368)             (70,644)             5,724        8.1
                                   -----------          -----------           --------       ----
                                    (1,848,253)          (1,750,890)            97,363        5.6
Gross profit margin and
  percentage:
  Funeral........................      401,371   23.3%      374,190   22.6%     27,181        7.3
  Cemetery.......................      271,897   37.5       214,721   35.1      57,176       26.6
  Financial services.............       14,344   15.8        15,541   18.0      (1,197)      (7.7)
                                   -----------   ----   -----------   ----    --------       ----
                                   $   687,612   27.1%  $   604,452   25.7%   $ 83,160       13.8%
                                   ===========   ====   ===========   ====    ========       ====

Funeral

Funeral revenues were as follows:

                                          YEAR ENDED DECEMBER 31,                PERCENTAGE
                                          -----------------------    INCREASE     INCREASE
                                             1997         1996      (DECREASE)   (DECREASE)
                                          ----------   ----------   ----------   ----------
North America...........................  $  970,749   $  883,876    $ 86,873        9.8%
France..................................     480,473      532,543     (52,070)      (9.8)
Other European..........................     203,479      169,660      33,819       19.9
Other foreign...........................      65,590       70,657      (5,067)      (7.2)
                                          ----------   ----------    --------       ----
          Total funeral revenues........  $1,720,291   $1,656,736    $ 63,555        3.8%
                                          ==========   ==========    ========       ====

The $86,873 increase in revenues from North American operations was primarily the result of a $75,796 increase in revenues from existing clusters. The number of funeral services performed by existing clusters in North America increased 5.2% (245,633 compared to 233,383), while the average sales price increased 3.3% ($3,833 compared to $3,710). Included in the existing cluster increase was a $70,894 increase from locations acquired since January 1, 1996 and an increase of $4,902 from locations acquired prior to 1996. Locations acquired since January 1, 1996 performed 30,418 funeral services during 1997 compared to 12,385 in 1996, while the average sales price increased 6.5% ($3,773 compared to $3,543). The increase from locations

14

acquired prior to 1996 is primarily due to a 3.3% higher average sales price ($3,842 compared to $3,720), offset by a 2.6% decrease in the number of funeral services performed.

Revenues from French operations decreased $52,070 due to a 12.3% decline in the French franc to US dollar currency exchange rate and a 1.4% decline in the total funeral services performed (148,223 compared to 150,269). These declines were partially offset by increased average sales prices (excluding the impact of currency exchange rates discussed above).The $33,819 increase in revenues from other European operations was primarily the result of an 11.3% increase in the number of funeral services performed (102,985 compared to 92,491) as well as improved average sales prices during 1997. This volume increase reflects a 5.9% increase in volume reported by the Company's United Kingdom operations and the effect of continued growth through acquisitions in Europe.

The decrease in revenues from other foreign operations is due primarily to a 5.0% decline in the Australian to US currency exchange rate. The number of funeral services performed by the Company's Australian operations declined 4.9% in 1997, while average prices increased slightly (excluding the impact from currency discussed above).

During the year ended December 31, 1997, the Company sold (net of cancellations) approximately $527,000 of prearranged funeral services compared to approximately $512,000 for the same period in 1996. These prearranged funeral services are deferred and will be reflected in funeral revenues in the periods that the funeral services are performed.

Funeral gross margins were as follows:

                                     YEARS ENDED DECEMBER 31,                             PERCENTAGE
                         -------------------------------------------------    INCREASE     INCREASE
                           1997     % OF REVENUE     1996     % OF REVENUE   (DECREASE)   (DECREASE)
                         --------   ------------   --------   ------------   ----------   ----------
North America..........  $297,586       30.7%      $275,119       31.1%       $22,467         8.2%
France.................    48,620       10.1         47,655        8.9            965         2.0
Other European.........    38,097       18.7         30,657       18.1          7,440        24.3
Other foreign..........    17,068       26.0         20,759       29.4         (3,691)      (17.8)
                         --------       ----       --------       ----        -------       -----
          Total funeral
            gross
            margin.....  $401,371       23.3%      $374,190       22.6%       $27,181         7.3%
                         ========       ====       ========       ====        =======       =====

The slight decrease in gross margin percentage in North America is due to lower margins reported by businesses acquired since January 1, 1996. Typically acquisitions will temporarily exhibit slightly lower gross profit margins than those experienced by the Company's existing locations until these locations are assimilated into the Company's cluster management strategy. Margins at businesses acquired before 1996 were virtually equal with the prior year.

The increase in other European gross margin percentage is primarily due to improved results from the Company's United Kingdom operations in 1997, compared to 1996.

The decrease in other foreign gross margin is primarily due to the decrease in funeral revenues mentioned above and a 5.0% unfavorable change in the Australian to US currency exchange rates.

Cemetery

Cemetery revenues were as follows:

                                           YEARS ENDED DECEMBER 31,
                                           -------------------------              PERCENTAGE
                                              1997           1996      INCREASE    INCREASE
                                           ----------     ----------   --------   ----------
North America............................   $671,112       $566,671    $104,441      18.4%
Other European...........................     21,609         15,285       6,324      41.4
Other foreign............................     32,141         30,465       1,676       5.5
                                            --------       --------    --------      ----
          Total cemetery revenues........   $724,862       $612,421    $112,441      18.4%
                                            ========       ========    ========      ====

15

The $104,441 increase in North American cemetery revenue is due primarily to a $93,858 increase in revenues from existing clusters. Included in the existing cluster increase was $49,781 from locations acquired since January 1, 1996. Locations owned before January 1, 1996 contributed $44,077. Factors contributing to the total increase included increased sales of preneed and at need property and merchandise ($87,625), investment earnings on trusted amounts ($27,837), offset partially by fewer sales of excess property ($3,021).

The $6,324 increase in other European cemetery revenues is primarily due to a $5,740 increase in revenues from locations acquired prior to 1996 in the United Kingdom.

Cemetery gross margins were as follows:

                                      YEARS ENDED DECEMBER 31,                             PERCENTAGE
                          -------------------------------------------------    INCREASE     INCREASE
                            1997     % OF REVENUE     1996     % OF REVENUE   (DECREASE)   (DECREASE)
                          --------   ------------   --------   ------------   ----------   ----------
North America...........  $251,993       37.5%      $198,210       35.0%       $53,783        27.1%
Other European..........     8,275       38.3          4,315       28.2          3,960        91.8
Other foreign...........    11,629       36.2         12,196       40.0           (567)       (4.6)
                          --------       ----       --------       ----        -------        ----
          Total cemetery
            gross
            margin......  $271,897       37.5%      $214,721       35.1%        57,176        26.6%
                          ========       ====       ========       ====        =======        ====

The increase in gross margin from the Company's North American cemetery operations is due to the increase in cemetery revenues from preneed and at need cemetery sales, as well as increased trust investment income.

The increase in other European cemetery gross margin is due to the increase in cemetery revenues as mentioned above at the Company's United Kingdom cemetery locations.

Financial Services

Financial services revenues were as follows:

                                                     YEARS ENDED
                                                    DECEMBER 31,                   PERCENTAGE
                                                  -----------------    INCREASE     INCREASE
                                                   1997      1996     (DECREASE)   (DECREASE)
                                                  -------   -------   ----------   ----------
French insurance subsidiary.....................  $74,175   $67,799     $6,376         9.4%
Provident (North America).......................   16,537    18,386     (1,849)      (10.1)
                                                  -------   -------     ------       -----
          Total financial services revenues.....  $90,712   $86,185     $4,527         5.3%
                                                  =======   =======     ======       =====

Financial services gross margins were as follows:

                                      YEARS ENDED DECEMBER 31,                            PERCENTAGE
                           -----------------------------------------------    INCREASE     INCREASE
                            1997     % OF REVENUE    1996     % OF REVENUE   (DECREASE)   (DECREASE)
                           -------   ------------   -------   ------------   ----------   ----------
French insurance
  subsidiary.............  $ 6,712        9.0%      $ 6,651        9.8%       $    61         0.9%
Provident (North
  America)...............    7,632       46.2         8,890       48.3         (1,258)      (14.2)
                           -------       ----       -------       ----        -------       -----
          Total financial
            services
            gross
            margin.......  $14,344       15.8%      $15,541       18.0%       $(1,197)       (7.7)%
                           =======       ====       =======       ====        =======       =====

Provident's average outstanding loan portfolio during 1997 decreased to $182,375 compared to $190,936 in 1996, and the average interest rate spread also decreased to 3.18% compared to 3.64% in 1996.

Other Income and Expenses

General and administrative expenses increased by approximately $3,566 or 5.6% during 1997 primarily due to increases in personnel costs and technology costs. Expressed as a percentage of revenues, these expenses were 2.6% in 1997 compared to 2.7% in 1996.

16

Interest expense, which excludes the amount incurred by financial service operations, decreased $1,837 or 1.3% during 1997. The decreased interest expense is primarily attributable to the Company's 1997 refinancing of certain long-term debt and hedging programs, which lowered the Company's average interest rate to 6.03% in 1997, compared to 7.10% in 1996. The average borrowings during 1997 were $2,434,808, compared to $2,068,072 in 1996.

Other income was $100,244 in 1997, compared to $21,982 in 1996, an increase of $78,262. This increase reflects a gain on the sale of the Company's equity interest in ECI ($68,077) recorded in 1997.

The provision for income taxes reflected a 35.4% effective tax rate for 1997 as compared to a 35.9% effective tax rate in 1996.

FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 1998:

General

Historically, the Company has funded its working capital needs and capital expenditures primarily through cash provided by operating activities and borrowings under bank revolving credit agreements and commercial paper. Funding required for the Company's acquisition program has been generated through public and private offerings of debt and the issuance of equity securities supplemented by the Company's revolving credit agreements and additional registered securities. The Company believes cash from operations, additional funds available under its revolving credit agreements, and proceeds from public and private offerings of securities will be sufficient to continue its anticipated acquisition program and policies.

At December 31, 1998, the Company had net working capital of $578,755 and a current ratio of 1.92:1, compared to working capital of $275,966 and a current ratio of 1.52:1 at December 31, 1997. The Company had a cash and cash equivalents balance at December 31, 1998 of $358,210, compared to $46,877 at December 31, 1997. Approximately, $160,000 of the December 31, 1998 cash balance was contemplated to be used to repay ECI's revolving credit facility and other cash needs. The Company purchased ECI in January 1999 (see "Other Matters" for further information).

Revolving Credit Agreements

The Company has various revolving credit facilities and lines of credit which currently provide for aggregate borrowings of approximately $1,800,000. At Dec ember 31, 1998, approximately $1,149,000 was available under these facilities. These facilities have financial compliance provisions that contain certain restrictions on levels of net worth, debt, liens and guarantees (see note eight to the consolidated financial statements for further information).

Sources and Uses of Cash

Cash Flows from Operating Activities: Net cash provided by operating activities was $329,647 for the year ended December 31, 1998, compared to $299,436 for the same period in 1997, an increase of $30,211. This increase was primarily due to increases in net income and non-cash adjustments for depreciation and amortization and deferred taxes, offset by growth in the Company's receivables. The primary source of growth in the Company's receivables is from increased sales of cemetery products and merchandise on a preneed basis.

Cash Flows from Investing Activities: Net cash used in investing activities was $1,059,875 for the year ended December 31, 1998, compared to $633,444 for the same period in 1997, an increase of $426,431. This increase was primarily due to a $310,037 increase in cash used in acquisitions and $22,692 of increased capital expenditures including new construction of facilities and major improvements to existing properties. Cash used relating to prearranged funeral activities includes amounts expended in the current year on prearranged marketing efforts. The prior year included $147,700 in cash provided by the sale of the Company's equity interest in ECI.

17

Cash Flows from Financing Activities: Net cash provided by financing activities was $1,041,561 for the year ended December 31, 1998 compared to $336,754 for the same period in 1997, an increase of $704,807. This increase is mainly the result of two 1998 public issuances of long term notes totaling $1,100,000, compared to a 1997 debt issuance for $650,000 and debt extinguishment of approximately $450,000. Total cash provided by debt financing activities was approximately $1,124,000 in 1998, compared to $413,043 in 1997.

As of December 31, 1998, the Company's debt to capitalization ratio was 55.0% compared to 49.8% at December 31, 1997. The interest rate coverage ratio for the year ended December 31, 1998 was 3.72:1, compared to 4.43:1 for the same period in 1997 (1997 ratio excludes the gain on the sale of the Company's investment in ECI). Though the level of acquisition activity is expected to slow from the 1998 level, the Company still believes that the acquisition of funeral and cemetery operations funded with debt or Company common stock is a prudent business strategy given the stable cash flow generated and the low failure rate exhibited by these types of businesses. The Company believes these acquired firms are capable of servicing the additional debt and providing a sufficient return on the Company's investment.

The Company expects adequate sources of funds to be available to finance its future operations and acquisitions through internally generated funds, borrowings under credit facilities and the issuance of securities. At December 31, 1998, the Company had approximately $1,149,000 of available borrowings under various revolving credit facilities and lines of credit. At December 31, 1998, the Company had the ability to issue $900,000 in securities under a shelf registration. In addition, 12,870,000 shares of common stock and a total of $187,000 of guaranteed promissory notes and convertible debentures are registered under a separate shelf registration to be used exclusively for future acquisitions.

Prearranged Funeral Services

The Company has a marketing program to sell prearranged funeral contracts and the funds collected are generally held in trust or are used to purchase life insurance or annuity contracts. The amounts paid into trust funds or premiums paid on insurance contracts on such prearranged funeral contracts will be received in cash by a Company funeral service location at the time the funeral is performed. Earnings on trust funds and increasing benefits under insurance and annuity funded contracts also increase the amount of cash to be received upon performance of the funeral.

The Company has an investment program which entails the ongoing consolidation of multiple trustees, the use of institutional managers with differing investment styles and consolidated performance monitoring and tracking. This program targets a real return in excess of the amount necessary to cover future increases in the cost of providing a price guaranteed funeral service as well as any selling costs. This is accomplished by allocating the portfolio mix to the appropriate investments that more accurately match the anticipated maturity of the contracts. The Company anticipates an asset allocation of approximately 65% equity and 35% fixed income. The Company's North American prearranged trust portfolio earned a return of 18.0% in 1998 and 12.5% in 1997 (including realized gains).

Marketing costs incurred with the sale of prearranged funeral contracts are a current use of cash which is partially offset with cash retained, pursuant to state laws, from amounts trusted and certain commissions earned by the Company for sales of insurance products. The Company sells prearranged funerals in most of its service markets including its major foreign markets. AML, which was acquired by the Company in 1998, has been a provider of insurance and annuity products used to fund Company prearranged funerals for several years. The Company's French life insurance subsidiary primarily sells insurance products used to fund prearranged funerals to be performed by the Company's French funeral service locations. Prearranged funeral service sales afford the Company the opportunity to both protect current market share and mix as well as expand market share in certain markets. The Company believes this will stimulate future revenue growth. Prearranged funeral services fulfilled as a percent of the total North American funerals performed annually approximates 26.3% (25.1% in 1997) and is expected to grow, thereby making the total number of funerals performed more predictable, which will be recognized as funeral revenues in future periods.

18

The total value of unperformed prearranged funeral contracts are trust funded or insurance funded and represent the original contract value plus any accumulated trust earnings or increasing insurance benefits. As of December 31, 1998 and 1997, unperformed prearranged funeral contracts are composed of the following:

                                                                 1998         1997
                                                              ----------   ----------
Deferred prearranged funeral contract revenues..............  $2,819,794   $2,805,429
Contracts funded by company owned insurance subsidiaries....     932,056      565,995
                                                              ----------   ----------
                                                              $3,751,850   $3,371,424
                                                              ==========   ==========

The following table summarizes the changes in the total value of unperformed prearranged funeral contracts.

                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                                 1998          1997
                                                              -----------   -----------
Beginning balance...........................................  $3,371,424    $2,876,778
  Net sales.................................................     490,289       526,919
  Acquisitions/dispositions.................................     138,976       102,346
  Realized earnings and increasing insurance benefits.......     129,484       164,853
  Maturities................................................    (274,107)     (251,054)
  Change in cancellation reserve............................     (16,608)      (33,481)
  Effect of foreign currency and other......................     (87,608)      (14,937)
                                                              ----------    ----------
Ending balance..............................................  $3,751,850    $3,371,424
                                                              ==========    ==========

The recognition of the total value of unperformed prearranged funeral revenues is estimated to occur in the following years.

1999........................................................   $  367,783
2000........................................................      334,239
2001........................................................      271,540
2002........................................................      281,612
2003........................................................      254,819
2004 through 2008...........................................      962,042
2009 and thereafter.........................................    1,279,815
                                                               ----------
                                                               $3,751,850
                                                               ==========

Cremations

In recent years there has been steady, gradual growth in the number of cremations that have been chosen as an alternative to traditional methods of disposal of human remains. In 1998, 34.5% (33.3% in 1997) of all families served by the Company's North American funeral service locations selected the cremation alternative, substantially more than the 20% national average according to industry studies. The Company has a significant number of operating locations in Florida and the west coast of North America where the cremation alternative continues to gain acceptance. Based on industry studies, the Company believes that cremations account for approximately 60-70% of all dispositions of human remains in Australia and the United Kingdom. It is estimated that cremations account for approximately 17% of all dispositions of human remains in France. Though a cremation typically results in fewer sales dollars than a traditional funeral service, the Company believes that funeral operations which are predominantly cremation businesses typically have higher gross profit margin percentages than those exhibited at traditional funeral operations. Cremation memorialization has long been a tradition in the Australian and United Kingdom markets. The Company has expanded its product alternatives in these markets which has resulted in higher average sales. The Company has also established markets in select areas within North America and believes that memorialization of cremated remains represents a source of revenue and margin growth.

19

Other Matters

In January, 1999, a wholly-owned subsidiary of the Company acquired ECI in a stock for stock transaction valued at approximately $578,000 with assumed debt of $252,000. ECI owned 326 funeral homes and 81 cemeteries in North America.

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. Changes in the fair value of derivatives will be recorded either in earnings or in other comprehensive income, based on the type of risk for which the instrument is determined to be an effective hedge. Any change in fair value of an instrument that is not designated as a hedge, or any portion of a change in fair value of a hedging instrument that is deemed ineffective, will be immediately recognized in earnings. The Company expects to adopt the standard in the first quarter of fiscal year 2000 and is currently assessing the impact that adoption will have on its consolidated financial statements.

Several countries in which the Company operates will adopt usage of the Euro in 1999. The Euro is a common currency being adopted by many of the countries within the European community. The Company has established plans to address operational and information system issues related to the Euro conversion. The Company does not expect that the Euro conversion will have a material adverse impact on the Company's consolidated financial position, results of operations or cash flows.

The Company intends to repurchase the floating-rate notes, due 2011 and putable in 1999, in the amount of $200,000. This debt instrument is expected to be refinanced under the Company's commercial paper program before April 15, 1999. As of March 12, 1999, the Company estimates this repurchase will result in an extraordinary charge of approximately $22,100 in 1999 ($14,300, net of tax).

In association with the review and analysis of its operating cost structure, the Company anticipates recording a special charge to earnings in the quarter ended March 31, 1999. Items being considered are: severance for employee terminations; lease costs and asset write-offs for various offices and operations to be closed; and costs related to construction projects that will not be completed. The amount of the charge is expected to be between $80,000 and $90,000 on a pre-tax basis.

Since January 26, 1999, several lawsuits have been commenced on behalf of persons who (i) acquired shares of Company common stock in the merger of a wholly owned subsidiary of the Company into ECI, (ii) purchased shares of Company common stock during certain specified class periods or (iii) owned employee stock options in ECI. As of March 24, 1999, 20 class action lawsuits that had been originally filed in federal district court in Houston had been consolidated into one action pending in that court, and one additional class action lawsuit that had been originally filed in the federal district court in Lufkin, Texas was still pending in that court. These lawsuits allege violations of federal securities laws and name as defendants the Company and certain of its officers and directors. As of the same date, two former state court lawsuits, one of which was a class action, naming the Company as defendant and alleging fraud and violations of Texas securities and common law had been removed to the federal district court in Lufkin. The lawsuits generally refer to the Company's January 26, 1999 public announcement that the Company's diluted earnings per share for the fourth quarter of 1998 and for the year ended December 31, 1998 would be lower than analyst expectations. The lawsuits seek, among other things, to recover unspecified damages. Since the litigation is in its very preliminary stages, no discovery has been taken, and the Company cannot quantify its ultimate liability, if any, for the payment of damages in these lawsuits. However, the Company believes that the allegations in the lawsuits do not provide a basis for the recovery of damages because the Company has made all the required disclosures on a timely basis. The Company is seeking to transfer the lawsuits pending in Lufkin and consolidate them with the action pending in federal district court in Houston. The Company intends to aggressively defend the foregoing litigation.

20

Year 2000 Issue

The Year 2000 issue, also known as "Y2K," refers to the inability of some computer programs and computer-based microprocessors to correctly interpret the century from a date in which the year is represented by only two digits (e.g., 98). As a result, on or before January 1, 2000, computer systems used by companies throughout the world may experience operating difficulties unless they are modified or upgraded to properly process date related information. The Y2K issue can arise at any point in a company's supply, manufacturing, processing, distribution, or financial chains.

The Company has established Y2K Program Offices at its corporate offices in Houston, Texas and Birmingham, England. These program offices, under the direction of senior management, are responsible for advising and monitoring the numerous facets of the Company's Y2K preparations. The Company has engaged an external consulting firm to assist in oversight of the Company's Y2K preparations and various assessment activities associated with discovering the seriousness of the Y2K issue in the Pacific Rim and South America. Additionally, the Company is utilizing internal personnel, contract project managers, programmers and testers, as well as vendors, to identify Y2K issues, test and implement the chosen solutions.

In order to adequately address the Y2K issue, efforts have been directed to the following categories: production systems, networks, desktops, user developed applications, vendor supplied software, facilities and telecommunications, and the Company's supply chain. The following phases are common to all of these categories: inventory and determination of criticality, discovery to determine Y2K problems, analysis to determine corrective action, correction, testing, and implementation. In addition to these activities, promotion of Y2K awareness and development of contingency plans are part of the Company's Y2K preparation effort.

STATE OF READINESS:

The majority of the Company's internal Y2K exposure exists at the corporate office locations where the accounting and processing of the Company's business transactions takes place. Individual operating locations (primarily funeral homes and cemeteries) are substantially technology independent and thus face few Y2K risks from internal systems.

Production systems: In 1998, in order to improve access to business information through a common, integrated computing system across the company, the Company began a worldwide computer systems replacement project utilizing systems from Oracle Corporation (Oracle). While this project has begun at the Company's Australian and European headquarters, global implementation will not be achieved prior to the turn of the century. Therefore, all computer programs expected to be replaced by Oracle are being made Y2K ready. The only exception to this is in the United Kingdom where the implementation of Oracle is proceeding in order to achieve Y2K readiness. In general, the Company's production systems have progressed through the inventory, discovery, and analysis phases and are in various stages of correction and testing. Production systems make up the majority of the Company's "mission critical systems" and are expected to be Y2K ready by mid-1999, with deployment completed by late-1999.

In many cases, deployment of the Y2K ready production systems to the Company's many operating locations in North America will require new desktop computers. At this point, it is the short time available for deployment, and not the need for corrective action, that poses the largest risk to the Company. See the section on Risks for more details.

Networks: Inventory, discovery and analysis of critical networks have been completed at all of the Company's headquarter and regional locations and these networks are in various stages of correction and testing. Accomplishing Y2K readiness in this category has been complicated by Microsoft's recent change in its position on the Y2K readiness of Windows NT 4.0, requiring customers to install another software update to be considered fully Y2K compliant. Some non-critical networks exist at individual operating locations and will be assessed and made Y2K ready as time allows. Expectations are that all critical networks will be Y2K ready by mid-1999.

Desktops: Testing has been conducted to determine the extent to which the Y2K problem associated with desktops will affect the Company's ability to conduct business. As none of the Company's critical

21

computer systems directly access date information from the desktop's real time clock, it has been determined that very few desktops will pose a Y2K issue. Coincidentally, as part of ongoing technology refresh programs and new production systems' deployment, desktops are being upgraded, as needed, to better meet the Company's business needs. As part of contingency planning, personnel will be instructed on how to verify each desktop's date, and reset if necessary, after January 1, 2000.

User developed applications: Inventory and discovery for items in this category have been achieved. Very few critical applications were found to have date dependencies. Those that do are being remediated and tested to ensure no problems arise because of Y2K issues. Readiness should be achieved by mid-1999.

Vendor supplied software: It is the policy of the Company to query each manufacturer of critical "off-the-shelf" software to ascertain the vendor's statement regarding the Y2K readiness of their products. Once the vendor's statement is obtained, upgrades, replacements and testing will be implemented to minimize the risk of Y2K issues arising from the software. Accomplishing Y2K readiness in this category is becoming increasingly challenging as vendors are modifying previously stated positions on existing software, requiring customers to install patches or upgrades to achieve full Y2K readiness. This has occurred with at least three critical vendor supplied software packages the Company currently uses. Given the moving target posed by the vendor's changing statements, the Company has changed its expectations for critical items in this category and plans to be using the latest vendor supplied patches and upgrades by late-1999.

Facilities and telecommunications: The Company recognizes the potential for Y2K issues to arise from embedded technology systems which may be in use at its numerous facilities. Inventory, discovery and analysis are complete at the Company's headquarters and most international operating locations. North American operating locations are expected to complete these phases by mid-1999. Telecommunications equipment has proven the most vulnerable, and plans are in place to upgrade and/or replace equipment as necessary. Planning has begun to obtain inventories from the remaining operating locations. All critical facilities and telecommunication systems are expected to be Y2K ready by late-1999.

Supply chain: Due to the Company's disparate locations and methods of operation, assessing the Y2K readiness of the Company's supply chain must occur at both the corporate level (for core supply chain relationships) and the local level (for those relationships unique to a location). Inventory and discovery have been completed at a number of operating locations and is ongoing at the Company's headquarters. In general, responses to the Company's inquiries have been less than informative, with many companies failing to respond. Planning has begun to assign criticality to both corporate and local supply relationships and additional efforts will be expended to ascertain the Y2K readiness of critical suppliers. Contingency plans for critical suppliers are expected to be in place by late-1999.

COSTS:

The aggregate costs for the Company to achieve Y2K readiness are not expected to exceed $20,000 of which $4,800 represents lease payments which will be incurred from 2000-2002. The $5,000 reduction from the September 30, 1998 estimate is primarily due to lower than anticipated Y2K issues in embedded technology systems. All costs associated with Y2K readiness will be funded from operating cash flows. The Company's actual costs incurred associated with Y2K readiness through December 31, 1998 are estimated at $3,500.

In an effort to report material costs related to the Company's Y2K effort, the Company has adopted a policy of capturing all costs of one thousand dollars or more, all contractor expenses, and internal costs for dedicated resources (those working exclusively on Y2K issues). As such the Company acknowledges that there are many internal resources working part-time on Y2K-related issues for which no payroll or overhead costs are being reported.

RISKS:

The majority of the Company's internal Y2K exposure exists at its corporate offices where the Company's production systems operate. The failure to correct a material Y2K problem at these locations could result in

22

an interruption of certain normal corporate business activities. Such a failure would not, however, render the Company's various operating locations unable to deliver goods and services.

The Company believes that the greatest risks continue to arise from the uncertainty of the Y2K readiness of critical third party suppliers, both private businesses and government entities, especially in the Company's international markets. The possible consequences of critical third party suppliers not being Y2K ready by January 1, 2000 could include temporary location closings, delays in the delivery of goods and services, delays in the receipt of goods and invoice and collection errors. Continued efforts by the Company to ascertain the Y2K status of critical third party suppliers is expected to significantly reduce the Company's level of uncertainty as the year 2000 approaches and, through the use of contingency planning, the possibility of significant interruptions in normal operations should be reduced.

At this time, the Company has no substantiated reason to believe that one or more key third party suppliers will not be able to meet their obligations to the Company after January 1, 2000; therefore, the Company believes that the "most reasonably likely worst case scenario" would occur if deployment of the Company's newly remediated proprietary funeral home financial system to all North American locations was not completed by December 31, 1999. Such an occurrence would not be materially disruptive to the Company. Contingencies for this include modifying deployment schedules in late 1999 to ensure at least one location is installed in each cluster and forwarding all transactions to be input to the new system.

CONTINGENCY PLANS:

Because of the many uncertainties that exist, it is part of the Company's Y2K preparation methodology that contingency plans be established for critical systems in each of the categories outlined above. Contingency planning is progressing at different stages at the Company's various locations. Contingency plans for all critical production systems and plans for all individual operating locations are expected to be in place by late-1999.

Quantitative and Qualitative Disclosures about Market Risk

The information presented below should be read in conjunction with Notes Nine and Ten to the consolidated financial statements.

The Company uses derivatives primarily in the form of interest rate swaps and cross-currency interest rate swaps in combination with local currency borrowings in order to manage its mix of fixed and floating rate debt and to substantially hedge the Company's net investment in foreign assets. The derivative instruments held by the Company are for hedging purposes and are neither leveraged nor speculative in nature. The company expects no material change in these policies in the coming year.

Movements in currency rates that impact the swaps are generally offset by a corresponding movement in the value of the underlying assets being hedged. Movements in interest rates that impact the fair value of the interest rate swaps are generally offset by a corresponding movement in the value of the underlying debt being hedged. Similarly, currency movements that impact foreign interest expense due under the cross-currency interest rate swaps are generally offset by a corresponding movement in the earnings of the foreign operation.

At December 31, 1998, after giving effect to the interest rate swaps, the Company's total debt consists of approximately 74% of fixed interest rate debt at a weighted average rate of 6.17% and approximately 26% of floating interest rate debt at a weighted average rate of 6.15%. At December 31, 1997, the Company's total debt consisted of approximately 44% of fixed interest rate debt at a weighted average rate of 7.00% and approximately 56% of floating interest rate debt at a weighted average rate of 5.50%. The Company's overall sensitivity to floating interest rates is diversified in that approximately 47% of the Company's floating rate exposure, as of December 31, 1998, is based in eight markets other than the United States.

In general, the Company hedges up to 100% of its net investment in foreign assets when such investment is considered significant and when it is reasonably cost efficient to do so. Approximately 33.1% of the Company's net investment and 23.2% of its operating income are denominated in foreign currencies. Due to the cross-currency hedges described above, approximately 13.3% of the Company's net assets and approximately 3.5% of the Company's operating earnings are subject to translation risk.

23

Marketable Equity and Debt Securities -- Price Risk

In connection with insurance operations, prearranged funeral operations and preneed cemetery merchandise sales, the Company owns investments in equity securities and mutual funds which are sensitive to current market prices. Cost and market values as of December 31, 1998 and 1997, are presented in notes four, five and six to the consolidated financial statements.

Market-Rate Sensitive Instruments -- Interest Rate and Currency Risk

The Company's financial instruments that are subject to interest rate and currency risk consist of debt instruments, U.S. dollar interest rate swaps, and cross-currency interest rate swaps. The Company performs sensitivity analyses to assess the impact of these risks on earnings. This analysis reflects the impact of a hypothetical 10% adverse change in market rates. In actuality, market rate volatility is dependent on many factors that are impossible to forecast. Therefore, adverse changes described below could differ substantially from the hypothetical 10% impact. The analysis conducted below does not include Provident assets or those of the insurance subsidiary. Instead, these are referenced separately in tabular format below.

A sensitivity analysis of those instruments with variable interest rate components is modeled to assess the impact that changing interest rates could have on pre-tax earnings. The sensitivity analysis assumes an instantaneous 10% adverse change to the then prevailing interest rates with all other variables held constant. Given this model, the Company's pre-tax earnings, on an annual basis, would be negatively impacted by $5,657 on December 31, 1998, and $7,624 on December 31, 1997.

A similar model is used to assess the impact of changes in foreign currencies on interest expense. The Company's debt and derivative exposure is primarily associated with the French franc, British pound, Canadian dollar, Australian dollar, Spanish peseta, and the Norwegian krone. A 10% adverse change in the U.S. dollar against these currencies would have negatively impacted the Company's pre-tax earnings, on an annual basis, by $12,229 on December 31, 1998 and $10,838 on December 31, 1997.

For certain assets, the tables below present principal cash flows that exist by maturity date and the related average interest rates:

AS OF DECEMBER 31, 1998:

                                                                                                     FAIR VALUE
                                   1999      2000      2001       2002      2003     THEREAFTER   ASSET/(LIABILITY)
                                  -------   -------   -------   --------   -------   ----------   -----------------
Provident receivables...........  $33,007   $14,369   $44,501   $107,117   $27,238    $ 43,297        $269,529
Average rate....................     7.70%     9.24%     8.54%      8.12%     8.97%       8.38%
Insurance subsidiaries
  investments in debt
  securities....................   85,316    70,369    76,233    108,416    74,231     503,804         918,369
Average rate....................     5.85%     5.38%     5.84%      5.42%     5.90%       4.93%

AS OF DECEMBER 31, 1997:

                                                                                                     FAIR VALUE
                                    1998      1999      2000      2001      2002     THEREAFTER   ASSET/(LIABILITY)
                                   -------   -------   -------   -------   -------   ----------   -----------------
Provident receivables............  $15,922   $22,528   $21,264   $52,917   $58,218    $ 27,072        $197,921
Average rate.....................     9.34%    7.58%      9.99%     9.96%     8.48%       8.67%
Insurance subsidiaries
  investments in debt
  securities.....................    2,809    17,014    59,739    24,300    67,522     142,901         314,285
Average rate.....................     5.97%    5.97%      6.30%     6.82%     6.16%       6.16%

The unrealized gain on debt securities principally reflects changes in interest rates. To reduce exposure to interest rate changes, portfolio investments are selected so the weighted average duration of the investments approximates the duration of associated policyholder liabilities. The insurance companies are subject to reinvestment risk upon either sale or maturity of the debt securities. Management believes that absence of any material amounts of "high-yield" or "non-investment grade" investments in the portfolios of its insurance subsidiaries enhances the ability of the insurance companies to provide security to their policyholders.

24

Cautionary Statement on Forward-Looking Statements

The statements contained in this Annual Report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe," "estimate," "expect," "anticipate," or "predict," that convey the uncertainty of future events or outcomes. These statements are based on assumptions that the Company believes are reasonable; however many important factors could cause the Company's actual results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company. Important factors which could cause actual results to differ materially from those in forward-looking statements include, among others, the following:

1) Changes in general economic conditions both domestically and internationally impacting financial markets (e.g. marketable security values as well as currency and interest rate fluctuations).

2) Changes in domestic and international political and/or regulatory environments in which the Company operates, including tax and accounting policies. Changes in regulations may impact the Company's ability to enter or expand new markets.

3) Changes in consumer demand for the Company's services caused by several factors, such as changes in local death rates, cremation rates, competitive pressures and local economic conditions.

4) The Company's ability to identify and complete additional acquisitions on terms that are favorable to the Company, to successfully integrate acquisitions into the Company's business and to realize expected cost savings in connection with such acquisitions. The Company's future results may be materially impacted by changes in the level of acquisition activity.

5) The ability of the Company, or its critical third party suppliers, to adequately complete Y2K preparation efforts.

The Company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See "Quantitative and Qualitative Disclosures About Market Risk" set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K.

25

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS AND RELATED SCHEDULE

                                                               PAGE
                                                               ----
Report of Independent Accountants...........................    27
Consolidated Statement of Income for the three years ended
  December 31, 1998.........................................    28
Consolidated Balance Sheet as of December 31, 1998 and
  1997......................................................    29
Consolidated Statement of Cash Flows for the three years
  ended December 31, 1998...................................    30
Consolidated Statement of Stockholders' Equity for the three
  years ended December 31, 1998.............................    31
Notes to Consolidated Financial Statements..................    32
Financial Statement Schedule:
II -- Valuation and Qualifying Accounts.....................    61

All other schedules have been omitted because the required information is not applicable or is not present in amounts sufficient to require submission or because the information required is included in the consolidated financial statements or the related notes thereto.

26

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of Service Corporation International

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Service Corporation International at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Houston, Texas
March 24, 1999

27

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF INCOME

                                                                 YEARS ENDED DECEMBER 31,
                                                     ------------------------------------------------
                                                         1998              1997              1996
                                                     ------------      ------------      ------------
                                                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues...........................................   $2,875,090        $2,535,865        $2,355,342
Costs and expenses.................................   (2,156,320)       (1,848,253)       (1,750,890)
                                                      ----------        ----------        ----------
Gross profit.......................................      718,770           687,612           604,452
General and administrative expenses................      (66,839)          (66,781)          (63,215)
                                                      ----------        ----------        ----------
Income from operations.............................      651,931           620,831           541,237
Interest expense...................................     (177,053)         (136,720)         (138,557)
Dividends on preferred securities of SCI Finance
  LLC..............................................           --            (4,382)          (10,781)
Other income.......................................       43,649           100,244            21,982
                                                      ----------        ----------        ----------
                                                        (133,404)          (40,858)         (127,356)
                                                      ----------        ----------        ----------
Income before income taxes and extraordinary
  loss.............................................      518,527           579,973           413,881
Provision for income taxes.........................     (176,385)         (205,421)         (148,583)
                                                      ----------        ----------        ----------
Income before extraordinary loss...................      342,142           374,552           265,298
Extraordinary loss on early extinguishment of debt
  (net of income taxes of $23,383).................           --           (40,802)               --
                                                      ----------        ----------        ----------
Net income.........................................   $  342,142        $  333,750        $  265,298
                                                      ==========        ==========        ==========
Earnings per share:
Basic:
  Income before extraordinary loss.................   $     1.34        $     1.53        $     1.13
  Extraordinary loss on early extinguishment of
     debt..........................................           --             (0.17)               --
                                                      ----------        ----------        ----------
          Net income...............................   $     1.34        $     1.36        $     1.13
                                                      ==========        ==========        ==========
Diluted:
  Income before extraordinary loss.................   $     1.31        $     1.47        $     1.08
  Extraordinary loss on early extinguishment of
     debt..........................................           --             (0.16)               --
                                                      ----------        ----------        ----------
          Net income...............................   $     1.31        $     1.31        $     1.08
                                                      ==========        ==========        ==========
Basic weighted average number of shares............      256,271           245,470           235,299
                                                      ==========        ==========        ==========
Diluted weighted average number of shares..........      262,520           257,781           252,870
                                                      ==========        ==========        ==========

(See notes to consolidated financial statements)

28

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED BALANCE SHEET

                                                                      DECEMBER 31,
                                                              -----------------------------
                                                                  1998            1997
                                                              -------------   -------------
                                                              (DOLLARS IN THOUSANDS, EXCEPT
                                                                   PER SHARE AMOUNTS)
                                          ASSETS
Current assets:
  Cash and cash equivalents.................................   $   358,210     $    46,877
  Receivables, net of allowances............................       565,552         557,481
  Inventories...............................................       189,070         172,169
  Other.....................................................        96,248          34,881
                                                               -----------     -----------
          Total current assets..............................     1,209,080         811,408
                                                               -----------     -----------
Investments -- insurance subsidiaries.......................     1,234,678         574,728
Prearranged funeral contracts...............................     2,588,806       2,628,104
Long-term receivables.......................................     1,408,076         981,121
Cemetery property, at cost..................................     2,035,897       1,636,859
Property, plant and equipment, at cost (net)................     1,824,979       1,644,137
Deferred charges and other assets...........................     1,151,430         740,457
Names and reputations (net).................................     1,813,212       1,498,116
                                                               -----------     -----------
                                                               $13,266,158     $10,514,930
                                                               ===========     ===========

                            LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities..................   $   452,354     $   425,631
  Current maturities of long-term debt......................        96,067          64,570
  Income taxes..............................................        81,904          45,241
                                                               -----------     -----------
          Total current liabilities.........................       630,325         535,442
                                                               -----------     -----------
Long-term debt..............................................     3,764,590       2,634,699
Reserves and annuity benefits -- insurance subsidiaries.....     1,207,169         565,995
Deferred prearranged funeral contract revenues..............     2,819,794       2,805,429
Deferred income taxes.......................................       797,086         701,221
Other liabilities...........................................       893,092         546,140
Commitments and contingencies...............................            --              --
Stockholders' equity:
  Common stock, $1 per share par value, 500,000,000 shares
     authorized, 259,201,104 and 252,923,784, respectively,
     issued and outstanding.................................       259,201         252,924
  Capital in excess of par value............................     1,646,765       1,493,246
  Retained earnings.........................................     1,232,758         983,353
  Accumulated other comprehensive income (loss).............        15,378          (3,519)
                                                               -----------     -----------
          Total stockholders' equity........................     3,154,102       2,726,004
                                                               -----------     -----------
                                                               $13,266,158     $10,514,930
                                                               ===========     ===========

(See notes to consolidated financial statements)

29

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF CASH FLOWS

                                                               YEARS ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           1998          1997          1996
                                                        -----------   -----------   -----------
                                                                (DOLLARS IN THOUSANDS)
Cash flows from operating activities:
  Net income..........................................  $   342,142   $   333,750   $   265,298
  Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization....................      202,277       157,550       129,819
     Provision for deferred income taxes..............       56,308        19,212        56,902
     Extraordinary loss on early extinguishment of
       debt, net of income taxes......................           --        40,802            --
     Gains from dispositions (net)....................      (30,627)      (89,252)       (9,930)
     Realized (gains) losses on sale of investments...      (23,287)           --            --
     Change in assets and liabilities net of effects
       from acquisitions:
       Increase in receivables........................     (228,325)     (174,429)     (167,338)
       Increase in other assets.......................      (71,824)      (24,904)      (36,781)
       Increase (decrease) in other liabilities.......       86,501        36,045       (26,365)
       Other..........................................       (3,518)          662        (1,748)
                                                        -----------   -----------   -----------
Net cash provided by operating activities.............      329,647       299,436       209,857
                                                        -----------   -----------   -----------
Cash flows from investing activities:
  Capital expenditures................................     (253,224)     (230,532)     (193,152)
  Changes in prearranged funeral contracts and
     associated deferred revenues.....................      (35,521)       (5,537)      (51,485)
  Purchases of securities -- insurance subsidiaries...   (1,225,955)   (1,407,588)   (1,212,305)
  Sales of securities -- insurance subsidiaries.......    1,200,334     1,383,934     1,177,499
  Proceeds from sales of property and equipment.......       43,793        46,908        30,121
  Acquisitions, net of cash acquired..................     (719,768)     (409,731)     (279,320)
  Loans issued by finance subsidiary..................     (142,017)      (98,446)      (86,858)
  Principal payments received on loans by finance
     subsidiary.......................................       70,178        45,915       156,064
  Proceeds from sale of equity investment.............           --       147,700            --
  Purchases of equity investments.....................       (6,968)      (87,643)      (39,752)
  Other...............................................        9,273       (18,424)       19,062
                                                        -----------   -----------   -----------
Net cash used in investing activities.................   (1,059,875)     (633,444)     (480,126)
                                                        -----------   -----------   -----------
Cash flows from financing activities:
  Increase in borrowings under revolving credit
     agreements.......................................      100,294       304,505        96,441
  Long-term debt issued...............................    1,100,000       650,000       300,000
  Early extinguishment of debt........................           --      (449,998)           --
  Payments of debt....................................      (76,329)      (91,464)     (109,458)
  Dividends paid......................................      (88,360)      (69,888)      (55,262)
  Bank overdrafts and other...........................        5,956        (6,401)       25,195
                                                        -----------   -----------   -----------
Net cash provided by financing activities.............    1,041,561       336,754       256,916
                                                        -----------   -----------   -----------
Net increase (decrease) in cash and cash
  equivalents.........................................      311,333         2,746       (13,353)
Cash and cash equivalents at beginning of period......       46,877        44,131        57,484
                                                        -----------   -----------   -----------
Cash and cash equivalents at end of period............  $   358,210   $    46,877   $    44,131
                                                        ===========   ===========   ===========

(See notes to consolidated financial statements)

30

SERVICE CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                                                  ACCUMULATED
                                                       CAPITAL IN                    OTHER
                                             COMMON    EXCESS OF     RETAINED    COMPREHENSIVE
                                             STOCK     PAR VALUE     EARNINGS    INCOME (LOSS)     TOTAL
                                            --------   ----------   ----------   -------------   ----------
                                                   (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Balance at December 31, 1995..............  $234,542   $1,214,708   $  518,562     $  7,533      $1,975,345
Comprehensive income:
  Net income..............................                             265,298                      265,298
  Other comprehensive income:
  Foreign currency translation............                                           20,568          20,568
  Unrealized gain on securities...........                                            5,132           5,132
                                                                                                 ----------
         Total other comprehensive
           income.........................                                                           25,700
                                                                                                 ----------
Comprehensive income......................                                                          290,998
Common Stock issued:
  Stock option exercises and stock
    grants................................       723        6,940                                     7,663
  Acquisitions............................       811       15,012          796                       16,619
  Debenture conversions...................       117        1,123                                     1,240
Dividends on common stock ($.24 per
  share)..................................                             (56,548)                     (56,548)
                                            --------   ----------   ----------     --------      ----------
Balance at December 31, 1996..............   236,193    1,237,783      728,108       33,233       2,235,317
Comprehensive income:
  Net income..............................                             333,750                      333,750
  Other comprehensive income:
  Foreign currency translation............                                          (29,795)        (29,795)
  Unrealized loss on securities...........                                           (6,957)         (6,957)
                                                                                                 ----------
         Total other comprehensive
           income.........................                                                          (36,752)
                                                                                                 ----------
Comprehensive income......................                                                          296,998
Common Stock issued:
  Stock option exercises and stock
    grants................................       820        9,296                                    10,116
  Acquisitions............................     3,958       79,215       (3,832)                      79,341
  Debenture conversions...................       492        5,925                                     6,417
  Conversion of convertible preferred
    securities of SCI Finance LLC.........    11,461      161,027                                   172,488
Dividends on common stock ($.30 per
  share)..................................                             (74,673)                     (74,673)
                                            --------   ----------   ----------     --------      ----------
Balance at December 31, 1997..............   252,924    1,493,246      983,353       (3,519)      2,726,004
Comprehensive income:
  Net income..............................                             342,142                      342,142
  Other comprehensive income:
  Foreign currency translation............                                            8,748           8,748
  Unrealized gain on securities...........                                           10,149          10,149
                                                                                                 ----------
         Total other comprehensive
           income.........................                                                           18,897
                                                                                                 ----------
Comprehensive income......................                                                          361,039
Common Stock issued:
  Stock option exercises and stock
    grants................................     3,593       56,485                                    60,078
  Acquisitions............................     2,499       94,625                                    97,124
  Debenture conversions...................       185        2,409                                     2,594
Dividends on common stock ($.36 per
  share)..................................                             (92,737)                     (92,737)
                                            --------   ----------   ----------     --------      ----------
Balance at December 31, 1998..............  $259,201   $1,646,765   $1,232,758     $ 15,378      $3,154,102
                                            ========   ==========   ==========     ========      ==========

(See notes to consolidated financial statements)

31

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE ONE

NATURE OF OPERATIONS

The Company is the largest provider of death care services in the world. At December 31, 1998, the Company operated 3,442 funeral service locations, 433 cemeteries and 191 crematoria located in 20 countries on five continents.

The funeral service locations and cemetery operations consist of the Company's funeral homes, cemeteries, crematoria and related businesses. Company personnel at the funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral related merchandise is sold at funeral service locations and certain funeral service locations contain crematoria. The Company sells prearranged funeral services whereby a customer contractually agrees to the terms of a funeral to be performed in the future. The Company's cemeteries provide cemetery interment rights (including mausoleum spaces and lawn crypts) and sell cemetery related merchandise. Cemetery items are sold on an at need or preneed basis. Company personnel at cemeteries perform interment services and provide management and maintenance of cemetery grounds. Certain cemeteries also operate crematoria. There are 156 combination locations that contain a funeral service location within a Company owned cemetery.

The financial services division represents a combination of the Company's prearranged funeral and cemetery trust accounting and administration, investment management, life insurance operations, and the lending activities of Provident Services, Inc. (Provident), which provides capital financing for independent funeral home and cemetery operations.

NOTE TWO

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements include the accounts of Service Corporation International and all majority-owned subsidiaries (the "Company"). Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years to conform to current period presentation with no effect on the consolidated financial position, results of operations or cash flows.

Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventories and Cemetery Property: Funeral merchandise and cemetery property and merchandise are stated at the lower of average cost or market.

Depreciation and Amortization: Depreciation of property, plant and equipment is provided using the straight line method over the estimated useful lives of the various classes of assets. Property and plant are depreciated over a period ranging from seven to fifty years, equipment is depreciated over a period from five to twenty years and leasehold improvements are depreciated over a range of five to fifty years. For the three years ended December 31, 1998, depreciation expense was $115,195, $87,571, and $74,854, respectively. Maintenance and repairs are charged to expense whereas renewals and major replacements are capitalized. Prepaid management, consultative and non-competition agreements, primarily with former owners and key employees of businesses acquired, are amortized on a straight-line basis over the lives (generally from five to ten years) of the respective contracts.

Funeral Operations: Funeral revenue is recognized when the funeral service is performed. The Company's trade receivables consist primarily of funeral services already performed. An allowance for doubtful accounts has been provided based on historical experience. The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices

32

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

prevailing when the agreements are signed. Revenues associated with sales of prearranged funeral contracts (which include accumulated trust earnings and increasing insurance benefits) are deferred until such time that the funeral services are performed (see Note Four).

Cemetery Operations: All cemetery interment right sales, together with associated merchandise sales, are recorded as income at the time contracts are signed. Costs related to the sales of interment rights include property and other costs related to cemetery development activities, and are charged to operations using the specific identification method. Allowances for customer cancellations are provided at the date of sale based upon historical experience. Costs related to merchandise are based on actual costs incurred or estimates of future costs necessary to purchase the merchandise, including provisions for inflation when required. Pursuant to state law, all or a portion of the proceeds from the sale of cemetery merchandise may also be required to be paid into trust funds until such merchandise is purchased by the Company for the customer. Merchandise funds trusted at December 31, 1998 and 1997 were $662,564 and $515,051, respectively (see Note Six). The Company recognizes realized trust income on these merchandise trusts in current cemetery revenues as trust earnings accrue to defray inflation costs recognized related to the unpurchased cemetery merchandise. Additionally, a portion of the proceeds from the sale of cemetery property is required by state law to be paid into perpetual care trust funds. Earnings from these trusts are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs, which are expensed as incurred. Perpetual care funds trusted at December 31, 1998 and 1997 were $418,109 and $371,984, respectively, which approximates fair value. The principal of such perpetual care trust funds generally cannot be withdrawn by the Company and therefore is not included in the consolidated balance sheet. For the three years ended December 31, 1998, the earnings recognized from all cemetery trusts were $97,280, $74,971, and $51,601, respectively.

Insurance Operations: Effective in July 1998, the Company acquired American Memorial Life Insurance Company (AML), an established funding entity for prearranged funeral contracts. The Company accounts for AML under generally accepted accounting principles for life insurance companies. The Company has reclassified amounts included in the consolidated income statement and balance sheet to conform the presentation of the results of operations and financial condition of its French insurance subsidiary to the current approach. These reclassifications had no effect on consolidated stockholders' equity, net income or cash flows.

For traditional life products, premiums are recognized as revenue when due from policyholders. Benefits and acquisition expenses are recognized as a constant percentage of earned premiums. Computations of life insurance reserves are based on anticipated investment yields (primarily 3% for the French insurance company and 5.8% for the U.S. insurance companies), mortality, surrenders, and provisions for unfavorable deviations.

For annuity products, premiums are recorded in a policyholder account which is recorded to "Reserves and annuity benefits -- insurance subsidiaries". Amounts assessed against the policyholder account for contract expenses and mortality coverage are recorded as revenue in proportion to estimated gross profits of the annuity contracts.

To the extent recoverable, certain costs incurred related to the acquisition of new business are deferred. Such costs consist primarily of commissions, underwriting, policy issuance and direct marketing. Such expenses are referred to as deferred policy acquisition costs (DPAC). DPAC related to different products is amortized at a constant percentage over the life of the book of contracts as follows: over the expected premium paying period for traditional life insurance; based on the present value of the estimated gross margin amounts, with interest at the percentage used to calculate the assumed investment yield, for participating life insurance; and based on the present value of estimated gross profit amounts, with interest at the rate of interest that accrues to the policyholder balances, for annuities. DPAC is included within "Deferred charges and other assets" on the consolidated balance sheet.

33

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Also included within "Deferred charges and other assets" is the present value of future profits (PVP) on business in force of acquired insurance companies. Such amount represents the portion of costs to acquire such companies that is allocated to the value of the right to receive future cash flows from insurance contracts existing at the date of acquisition. PVP is amortized as follows: over the expected premium paying period for traditional life insurance; and over the estimated remaining life for annuities and participating life insurance.

Investment income, net of investment expenses, and realized gains and losses related to "Investments -- insurance subsidiaries" are included within "Revenues" (see Note Five). Debt securities and marketable equity securities are classified as available-for-sale and are carried at quoted market value, if readily marketable, or at management's estimated fair value, if not readily marketable. The change in the unrealized gain or loss, net of deferred income tax, is recorded as a separate component of other comprehensive income in the consolidated statement of stockholders' equity. Realized gains and losses on investment transactions are determined on the specific identification basis. When a decline in the value of a specific investment is considered to be other than temporary, a provision for impairment is charged to earnings and the carrying value of the investment is reduced. Premiums and discounts on fixed debt securities are amortized over their expected average lives using the interest method. Mortgage loans and real estate are generally carried at amortized cost. Policy loans are stated at the aggregate unpaid balance.

Names and Reputations: The excess of purchase price over the fair value of identifiable net assets acquired in transactions accounted for as purchases are included in "Names and reputations" and generally amortized on a straight line basis over 40 years which, in the opinion of management, is not necessarily the maximum period benefited. Fair values determined at the date of acquisition are determined by management or independent appraisals. Many of the Company's acquired funeral service locations have been providing high quality service to client families for many years. Such loyalty often forms the basic valuation of the funeral business. Additionally, the death care industry has historically exhibited stable cash flows as well as a low failure rate. The Company monitors the recoverability of names and reputations based on projections of future undiscounted cash flows of the acquired businesses. The amortization charged against income was $45,350, $37,649, and $33,836 for the three years ended December 31, 1998, respectively. Accumulated amortization of names and reputations as of December 31, 1998 and 1997 was $179,803 and $136,398, respectively.

Derivatives: Amounts to be paid or received under interest rate swaps, including the interest rate provisions of the cross-currency swaps, are recorded on the accrual basis over the life of the swap agreements as an adjustment to interest expense. The related net amounts payable to, or receivable from, the counterparties are included in accrued liabilities or current receivables, respectively. Gains and losses resulting from currency movements on the cross-currency swaps that hedge the Company's net foreign investments are reflected in stockholders' equity, with the related net amounts due to, or from, the counterparties included in other liabilities, or other assets, respectively. Net deferred gains and losses on early termination of interest rate swaps are amortized into interest expense over the remaining lives of the original agreements.

Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

34

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE THREE

ACQUISITIONS

The Company acquired certain funeral, cemetery, crematoria and insurance operations both domestically and internationally during the years ended December 31, 1998 and 1997 (see Note Nineteen regarding the January 1999 purchase of Equity Corporation International). The operating results of these acquisitions have been included since their respective dates of acquisition. The following table is a summary of the acquisitions made during the two years ended December 31, 1998:

                                                                1998       1997
                                                              --------   --------
Number acquired:
  Funeral service locations.................................       308        294
  Cemeteries................................................        47         51
  Crematoria................................................        18         19
  Insurance operations......................................         2         --
Purchase price..............................................  $784,000   $643,000

The purchase price in both years consisted primarily of combinations of cash, Company common stock, issued and assumed debt.

The effect of the above acquisitions on the consolidated balance sheet at December 31, was as follows:

                                                                1998        1997
                                                              ---------   ---------
Current assets..............................................  $  52,339   $  38,569
Investments -- insurance subsidiaries.......................    622,379          --
Prearranged funeral contracts...............................     51,990      86,452
Long-term receivables.......................................     91,299      31,522
Cemetery property...........................................    266,591     298,466
Property, plant and equipment...............................    108,152     162,992
Deferred charges and other assets...........................    422,299      13,417
Names and reputations.......................................    354,772     215,204
Current liabilities.........................................    (84,562)    (67,464)
Long-term debt..............................................    (53,609)    (63,307)
Deferred income taxes and other liabilities.................   (365,692)   (120,340)
Reserves and annuity benefits -- insurance subsidiaries.....   (594,848)         --
Deferred prearranged funeral contract revenues..............    (54,218)   (106,439)
Stockholders' equity........................................    (97,124)    (79,341)
                                                              ---------   ---------
          Cash used for acquisitions........................  $ 719,768   $ 409,731
                                                              =========   =========

NOTE FOUR

PREARRANGED FUNERAL ACCOUNTING

The Company sells price guaranteed prearranged funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Payments under these contracts are placed in trust accounts (pursuant to applicable law) or are used to pay premiums on life insurance policies.

Unperformed price guaranteed prearranged funeral contracts that are not funded through Company owned insurance subsidiaries are included in the consolidated balance sheet as "Prearranged funeral contracts." This balance represents amounts due from trust funds, customer receivables, or third party insurance companies. A corresponding credit is recorded to "Deferred prearranged funeral contract revenues."

35

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amounts paid by a customer under a prearranged funeral contract is recognized in funeral revenue at the time the funeral service is performed. Trust earnings and increasing insurance benefits are accrued and deferred until the services are performed, at which times these funds are also recognized in funeral revenues and are intended to cover future increases in the cost of providing a price guaranteed funeral service. Net obtaining costs incurred pursuant to the sales of trust funded and third party insurance funded prearrangements are included in "Deferred charges and other assets". These obtaining costs include sales commissions and certain other direct costs which are deferred and amortized over a period representing the actuarially determined life of the prearranged contracts. The aggregate net costs deferred as of December 31, 1998 and 1997 were $263,429 and $190,595, respectively.

Prearranged funeral contracts may also be funded by insurance policies written by the Company's wholly-owned insurance subsidiaries. These insurance subsidiaries follow generally accepted accounting principles for life insurance companies (see Note Two). At December 31, 1998, approximately $397,363 of the reserves and annuity benefits are associated with policies funding prearranged funerals at non-Company owned funeral locations. Policy acquisition costs are deferred as "Deferred charges and other assets" and amortized as prescribed by generally accepted accounting principles for life insurance companies (see note two). The aggregate net costs deferred as of December 31, 1998 and 1997 were $13,832 and $2,495, respectively.

As of December 31, 1998, the total value of unperformed prearranged funeral revenues expected to be recognized in future periods was $3,751,850 ($3,371,424 at December 31, 1997). The total value of unperformed prearranged funeral contracts are trust funded or insurance funded and represent the original contract value plus accumulated trust earnings or increasing insurance benefits.

Prearranged Funeral Contracts

The following table summarizes the components of prearranged funeral contracts on the Company's consolidated balance sheet:

                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
Trusts:
  Trust assets..............................................  $1,173,905    $  979,315
  Receivables from customers................................     280,005       326,310
  Allowance for cancellation................................    (115,206)     (108,749)
                                                              ----------    ----------
          Net trust related assets..........................   1,338,704     1,196,876
Third Party Insurance:
  Receivables from third party insurance companies..........   1,349,674     1,549,972
  Allowance for cancellation................................     (99,572)     (118,744)
                                                              ----------    ----------
          Net insurance related assets......................   1,250,102     1,431,228
                                                              ----------    ----------
Prearranged funeral contracts...............................  $2,588,806    $2,628,104
                                                              ==========    ==========

The allowance for cancellation is based on historical experience and is equivalent to approximately 8% of the total balance. Accumulated earnings from trust funds and increasing insurance benefits of third party insurance companies have been included to the extent that they have accrued through December 31, 1998. The cumulative trust funded total has been reduced by allowable cash withdrawals for trust earnings and amounts retained by the Company pursuant to various state laws.

36

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the activity in prearranged funeral contracts:

                                                              YEARS ENDED DECEMBER 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
Beginning balance...........................................  $2,628,104    $2,149,917
  Net sales.................................................     285,931       447,023
  Acquisitions/dispositions.................................     142,808        80,800
  Realized earnings and increasing insurance benefits for
     third party insurance companies........................     105,866       116,462
  Maturities................................................    (196,960)     (195,919)
  Change in cancellation reserve............................      (6,848)      (33,481)
  1998 reclassification of wholly-owned insurance
     companies..............................................    (232,209)           --
  Distributed earnings, effect of foreign currency and
     other..................................................    (137,886)       63,302
                                                              ----------    ----------
Ending balance..............................................  $2,588,806    $2,628,104
                                                              ==========    ==========

The cost and market value associated with the assets held in the trust funds underlying the Company's prearranged funeral contracts are as follows:

                                           DECEMBER 31, 1998        DECEMBER 31, 1997
                                        -----------------------   ---------------------
                                           COST        MARKET       COST       MARKET
                                        ----------   ----------   --------   ----------
Debt securities:
  Government..........................  $  323,831   $  356,853   $320,148   $  345,046
  Corporate...........................     103,835      106,190    113,007      115,372
Equity securities.....................     503,821      554,256    405,108      451,862
Money market/other....................     242,418      228,085    141,052      131,197
                                        ----------   ----------   --------   ----------
                                        $1,173,905   $1,245,384   $979,315   $1,043,477
                                        ==========   ==========   ========   ==========

Deferred Prearranged Funeral Contract Revenues

"Deferred prearranged funeral contract revenues" on the consolidated balance sheet includes the contract amount of all price guaranteed prearranged funeral service contracts for trust funded and third party insurance contracts as well as the accrued trust earnings and increasing insurance benefits. The Company defers trust earnings and increasing benefits of insurance contracts as they are earned until the performance of the funeral service. Upon performance of the funeral service, the Company recognizes the fixed contract price as well as total accumulated trust earnings and increasing insurance benefits as funeral revenues.

The following table summarizes the activity in deferred prearranged funeral contract revenues:

                                                              YEARS ENDED DECEMBER 31,
                                                              -------------------------
                                                                 1998          1997
                                                              -----------   -----------
Beginning balance...........................................  $2,805,429    $2,282,838
  Net sales.................................................     292,972       466,001
  Acquisitions/dispositions.................................     138,422        99,897
  Realized earnings and increasing insurance benefits from
     third party insurance companies........................     106,353       113,716
  Maturities................................................    (192,817)     (203,178)
  Change in cancellation reserve............................      (6,848)      (33,481)
  1998 reclassification of wholly-owned insurance
     companies..............................................    (232,209)           --
  Effect of foreign currency and other......................     (91,508)       79,636
                                                              ----------    ----------
Ending balance..............................................  $2,819,794    $2,805,429
                                                              ==========    ==========

37

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE FIVE

INSURANCE OPERATIONS

The Company acquired AML effective July, 1998. In addition, the Company has owned a French life insurance company for several years. The primary purpose of these life insurance subsidiaries is to assist in funding the Company's prearranged funeral program.

Investments -- Insurance Subsidiaries

As part of the Company's funding of prearranged funeral contracts, the Company's wholly-owned life insurance subsidiaries invest in securities which are considered as "available-for-sale." The cost, market value and unrealized gains or losses related to debt and equity securities for December 31, 1998 and 1997 were as follows:

                                                         DECEMBER 31, 1998
                                           ---------------------------------------------
                                           AMORTIZED                      UNREALIZED
                                              COST      MARKET VALUE    GAINS    LOSSES
                                           ----------   ------------   -------   -------
Debt securities:
  U.S. treasury..........................  $    8,841    $    9,137    $   296   $    --
  French government......................     241,033       251,187     10,545      (391)
  Other foreign government (primarily
     European)...........................     131,151       132,876      1,725        --
  Corporate..............................     338,181       341,191      5,895    (2,885)
  Mortgage-backed........................     145,790       147,254      1,757      (293)
  Asset-backed...........................      32,340        32,925        704      (119)
  Redeemable preferred stock.............       3,879         3,799          4       (84)
Equity securities:
  Nonredeemable preferred stock..........       1,246         1,335         89        --
  Common stock...........................      85,439       117,493     33,483    (1,429)
Mutual funds:
  Equity.................................      74,707        81,998      7,291        --
  Debt...................................      59,058        60,783      1,725        --
Mortgage loans...........................       1,301         1,301         --        --
Real estate, net of accumulated
  depreciation and amortization..........      34,636        34,636         --        --
Policy loans.............................      18,763        18,763         --        --
                                           ----------    ----------    -------   -------
                                           $1,176,365    $1,234,678    $63,514   $(5,201)
                                           ==========    ==========    =======   =======

38

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                                                          DECEMBER 31, 1997
                                             --------------------------------------------
                                             AMORTIZED                     UNREALIZED
                                               COST      MARKET VALUE    GAINS    LOSSES
                                             ---------   ------------   -------   -------
Debt securities:
  Foreign government.......................  $292,991      $296,320     $ 3,503   $  (174)
  Corporate................................    17,883        17,965          95       (13)
Equity securities..........................   141,512       162,129      23,640    (3,023)
Mutual funds:
  Money market/other.......................    13,945        14,153         208        --
  Debt.....................................    53,276        53,276          --        --
Real estate, net of accumulated
  depreciation and amortization............    30,885        30,885          --        --
                                             --------      --------     -------   -------
                                             $550,492      $574,728     $27,446   $(3,210)
                                             ========      ========     =======   =======

The contractual maturities of debt securities as of December 31, 1998 were as follows:

                                                                      1998
                                                              --------------------
                                                              AMORTIZED    MARKET
                                                                COST       VALUE
                                                              ---------   --------
Within one year.............................................  $ 85,830    $ 85,316
After one year through five years...........................   325,388     329,249
After five years through ten years..........................   309,189     315,457
After ten years.............................................   180,808     188,347
                                                              --------    --------
                                                              $901,215    $918,369
                                                              ========    ========

Net investment income for the three years ended December 31, 1998 was as follows:

                                                           1998      1997      1996
                                                          -------   -------   -------
Debt securities.........................................  $35,941   $14,247   $17,985
Equity securities.......................................    4,717     3,539     1,595
Other...................................................    2,066        --        --
                                                          -------   -------   -------
          Total investment income.......................   42,724    17,786    19,580
Investment expenses.....................................    4,131     3,053       870
                                                          -------   -------   -------
          Net investment income.........................  $38,593   $14,733   $18,710
                                                          =======   =======   =======

The gross realized gains and gross realized losses from sales of securities for the three years ended December 31, 1998 were as follows:

                            DECEMBER 31, 1998              DECEMBER 31, 1997           DECEMBER 31, 1996
                       ----------------------------   ---------------------------   ------------------------
                        GAIN       LOSS       NET      GAIN      LOSS       NET      GAIN     LOSS     NET
                       -------   --------   -------   -------   -------   -------   -------   ----   -------
Debt securities......  $42,493   $(27,391)  $15,102   $20,192   $(3,617)  $16,575   $ 5,116   $--    $ 5,116
Equity securities....   22,820    (14,635)    8,185    17,516    (3,755)   13,761     5,210    --      5,210
                       -------   --------   -------   -------   -------   -------   -------   ---    -------
Realized gain
  (loss).............  $65,313   $(42,026)  $23,287   $37,708   $(7,372)  $30,336   $10,326   $--    $10,326
                       =======   ========   =======   =======   =======   =======   =======   ===    =======

The amount of net investment income and realized gain (loss) which are allocable to policyholders but included above is $36,887, $19,015 and $30,740 for the three years ended December 31, 1998, respectively, and is included as "Costs and expenses".

39

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in unrealized gain on investments for the three years ended December 31, 1998 were as follows:

                                                           1998      1997      1996
                                                          -------   -------   -------
Fixed income securities.................................  $13,930   $ 3,744   $19,497
Equity securities.......................................   20,147    21,172     4,986
                                                          -------   -------   -------
Change in unrealized gain on investments................  $34,077   $24,916   $24,483
                                                          =======   =======   =======

Present Value of Future Profits -- Insurance Subsidiaries

An analysis of PVP is provided as follows:

                                                                DECEMBER 31,
                                                              -----------------
                                                               1998      1997
                                                              -------   -------
Balance at beginning of year................................  $13,070   $13,957
Additions due to acquisitions...............................   36,630        --
Amortization, net of interest accrued.......................   (4,518)     (887)
                                                              -------   -------
Balance at end of year......................................  $45,182   $13,070
                                                              =======   =======

It is anticipated that PVP will be reduced by the following amounts in future years:

1999........................................................   $ 6,451
2000........................................................     6,079
2001........................................................     5,447
2002........................................................     4,636
2003........................................................     3,633
Thereafter..................................................    18,936
                                                               -------
                                                               $45,182
                                                               =======

Statutory Financial Information -- Insurance Subsidiaries

The Company's insurance companies are required to file financial statements with state (for U.S. companies) or national (for the French company) insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis). Certain statutory amounts were as follows as of and for the year ended December 31, 1998:

                                                              UNITED STATES   FRANCE
                                                              -------------   -------
Capital and surplus.........................................     $45,624      $73,014
Net income..................................................         888        5,747

Under statutory regulations, AML must maintain certain minimum amounts of statutory capital and statutory surplus. AML is also regulated by state regulatory authorities as to amounts of dividends which can be paid without prior approval of regulatory authorities.

Participating Life Insurance -- Insurance Subsidiaries

Participating policies represented approximately 33% and 100% of total life insurance in force at December 31, 1998 and 1997, respectively. Participating policies represented approximately 51% and 100% of premium income for 1998 and 1997, respectively. Dividends on participating policies amounted to $25,548 in 1998. The amount of dividends is determined through contract provision (within French legal requirements)

40

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for all life insurance policies issued by Auxia, the Company's French insurance subsidiary, and by the contract provisions of policies issued by AML.

NOTE SIX

CEMETERY MERCHANDISE TRUST FUNDS

The cost and market value associated with the assets held in the cemetery merchandise trust funds (included in current and long-term receivables, at cost) were as follows:

                                              DECEMBER 31, 1998     DECEMBER 31, 1997
                                             -------------------   -------------------
                                               COST      MARKET      COST      MARKET
                                             --------   --------   --------   --------
Debt securities:
  Government...............................  $204,277   $201,399   $169,823   $172,440
  Corporate................................    83,845     84,503     64,474     65,468
Equity securities..........................   295,210    291,222    227,424    230,931
Money market/other.........................    79,232     79,284     53,330     53,254
                                             --------   --------   --------   --------
                                             $662,564   $656,408   $515,051   $522,093
                                             ========   ========   ========   ========

NOTE SEVEN

INCOME TAXES

The provision for income taxes includes United States income taxes, determined on a consolidated return basis, foreign, state and local income taxes.

Income before income taxes:

                                                          YEARS ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1998       1997       1996
                                                       --------   --------   --------
United States........................................  $419,450   $474,478   $309,431
Foreign..............................................    99,077    105,495    104,450
                                                       --------   --------   --------
                                                       $518,527   $579,973   $413,881
                                                       ========   ========   ========

Income tax expense (benefit) consisted of the following:

                                                          YEARS ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1998       1997       1996
                                                       --------   --------   --------
Current:
  United States......................................  $100,110   $157,450   $ 65,709
  Foreign............................................    10,881      7,022     14,158
  State and local....................................     9,086     21,737     11,814
                                                       --------   --------   --------
                                                        120,077    186,209     91,681
                                                       --------   --------   --------
Deferred:
  United States......................................    48,861     15,045     45,330
  Foreign............................................      (697)     1,432      3,238
  State and local....................................     8,144      2,735      8,334
                                                       --------   --------   --------
                                                         56,308     19,212     56,902
                                                       --------   --------   --------
          Total provision............................  $176,385   $205,421   $148,583
                                                       ========   ========   ========

41

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company made income tax payments of approximately $126,000, $155,400, and $99,400, for the three years ended December 31, 1998, respectively.

The differences between the U.S. federal statutory tax rate and the Company's effective rate were as follows:

                                                          YEARS ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1998       1997       1996
                                                       --------   --------   --------
Computed tax provision at the applicable federal
  statutory income tax rate..........................  $181,485   $202,991   $144,858
State and local taxes, net of federal income tax
  benefits...........................................    11,199     15,906     13,097
Dividends received deduction and tax exempt
  interest...........................................    (1,178)    (1,618)    (2,108)
Amortization of names and reputations................     6,423      5,622      4,765
Enacted tax rate change..............................    (2,218)    (5,491)        --
Foreign jurisdiction tax rate difference.............   (18,576)   (12,909)   (11,849)
Other................................................      (750)       920       (180)
                                                       --------   --------   --------
          Provision for income taxes.................  $176,385   $205,421   $148,583
                                                       ========   ========   ========
          Total effective tax rate...................      34.0%      35.4%      35.9%
                                                       ========   ========   ========

The tax effects of temporary differences and carry-forwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:

                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1997
                                                              --------   --------
Receivables, principally due to sales of cemetery interment
  rights and related products...............................  $224,614   $186,900
Inventories and cemetery property, principally due to
  purchase accounting adjustments...........................   501,974    460,592
Property, plant and equipment, principally due to
  depreciation and to purchase accounting adjustments.......    91,831    129,796
Other.......................................................    99,744     40,773
                                                              --------   --------
Deferred tax liabilities....................................   918,163    818,061
                                                              --------   --------
Deferred revenue on prearranged funeral contracts,
  principally due to earnings from trust funds..............   (27,270)   (50,862)
Accrued liabilities.........................................    (2,927)   (24,768)
Carry-forwards and foreign tax credits......................   (36,789)   (21,053)
                                                              --------   --------
Deferred tax assets.........................................   (66,986)   (96,683)
                                                              --------   --------
Valuation allowance.........................................    13,058     15,327
                                                              --------   --------
Net deferred income taxes...................................  $864,235   $736,705
                                                              ========   ========

During the three years ended December 31, 1998, tax expense resulting from allocating certain tax benefits directly to capital in excess of par value totaled $42,794, $3,799, and $2,410, respectively.

Current refundable income taxes and foreign current deferred tax assets are included in other current assets, with current taxes payable and current deferred taxes being reflected as "Income taxes" on the consolidated balance sheet.

At December 31, 1998 and 1997, United States income taxes had not been provided on $333,890 and $252,369, respectively, of undistributed earnings of foreign subsidiaries since it is the Company's intention to

42

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

permanently reinvest such earnings. Although it is not practicable to determine the deferred tax liability on the unremitted earnings, credits for income taxes paid by the company's foreign subsidiaries will be available to significantly reduce any U.S. tax if these foreign earnings are remitted.

As of December 31, 1998 the Company has United States foreign tax credit carry-forwards of $2,811 which will expire in the years 1999 through 2001. Various subsidiaries have federal and state operating loss carry-forwards of $50,197 with expiration dates through 2013. The Company believes that some uncertainty exists with respect to future realization of these tax credit and loss carry-forwards, therefore a valuation allowance has been established for the carry-forwards not expected to be realized. The decrease in the valuation allowance is primarily attributable to foreign tax credits and indexation benefit.

NOTE EIGHT

DEBT

Debt was as follows:

                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1998         1997
                                                              ----------   ----------
Bank revolving credit agreements and commercial paper.......  $  650,596   $  616,589
6.375% notes due in 2000....................................     150,000      150,000
6.75% notes due in 2001.....................................     150,000      150,000
8.72% amortizing notes due in 2002..........................     114,259      141,108
8.375% notes due in 2004....................................      51,840       51,840
7.375% notes due in 2004....................................     250,000      250,000
6.0% notes due in 2005......................................     600,000           --
7.2% notes due in 2006......................................     150,000      150,000
6.875% notes due in 2007....................................     150,000      150,000
6.5% notes due in 2008......................................     200,000           --
7.7% notes due in 2009......................................     200,000      200,000
6.95% amortizing notes due in 2010..........................      55,691       58,859
Floating rate notes due in 2011 (putable in 1999)...........     200,000      200,000
7.875% debentures due in 2013...............................      55,627       55,627
7.0% notes due in 2015 (putable in 2002)....................     300,000      300,000
6.3% notes due in 2020 (putable in 2003)....................     300,000           --
Medium term notes, maturities through 2019, fixed average
  interest rate of 9.32%....................................      35,720       35,720
Convertible debentures, interest rates range from
  4.75%-5.5%, due through 2008, conversion price ranges from
  $11.25-$50.00.............................................      49,979       45,673
Mortgage and other notes payable with maturities through
  2015......................................................     216,833      156,931
Deferred loan costs.........................................     (19,888)     (13,078)
                                                              ----------   ----------
Total debt..................................................   3,860,657    2,699,269
Less current maturities.....................................     (96,067)     (64,570)
                                                              ----------   ----------
          Total long-term debt..............................  $3,764,590   $2,634,699
                                                              ==========   ==========

The Company's primary revolving credit agreement provides for borrowings up to $1,000,000 and consists of two committed tranches -- a 364-day tranche and a 5-year tranche -- which are utilized to support commercial paper issuance and for general corporate needs.

The 364-day tranche allows for borrowings up to $300,000. This facility expires June 25, 1999, but has provisions to be extended for additional 364-day terms. At the end of any term, the outstanding balance may

43

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

be converted into a 2 year term loan at the Company's option. Interest rates are based on various indices as determined by the Company. In addition, a facility fee of 0.08% is paid quarterly on the total commitment amount.

The 5-year tranche allows for borrowings up to $700,000, including $500,000 in various currencies. This facility expires June 27, 2002. Interest rates on this facility are based on various indices as determined by the Company. In addition, a facility fee is paid quarterly on the total commitment amount. The facility fee, which ranges from 0.07% to 0.15%, is based on the Company's senior debt ratings, and is currently set at 0.08%. At December 31, 1998, approximately $217,345 of revolving notes were outstanding under this facility at a weighted average interest rate of 5.65%.

On November 3, 1998, the Company entered into an additional revolving credit facility in the amount of $800,000. This facility is primarily intended to support commercial paper issuance, has a 364-day maturity, and expires November 2, 1999. A facility fee of 0.09% is paid quarterly on the total commitment amount.

As of December 31, 1998, $433,251 of commercial paper was outstanding at a weighted average interest rate of 6.68%, which was backed by the above facilities. For the year ended December 31, 1998, the average outstanding balance of commercial paper was $349,426 at a weighted average interest rate of 5.73%.

The commercial paper borrowings and revolving notes generally have maturities ranging from one to ninety days.

The credit facilities described above have financial compliance provisions that contain certain restrictions on levels of net worth, debt, liens, and guarantees.

The Company primarily uses the revolving credit facilities, described above, to finance the Company's ongoing acquisition programs. From time to time, the Company raises debt or equity in the public markets to refinance balances drawn on these facilities. The timing of these public debt or equity offerings is dependent on numerous factors including market conditions, long and short term interest rates, the Company's capitalization ratios and the outstanding balances under the revolving credit facilities. Since it is the Company's intent to refinance borrowings under these facilities with long-term debt or equity, the Company has classified such borrowings as long-term debt.

In March 1998, the Company issued two senior note securities. The first note issued was a $200,000, 10-year, non-callable security with a 6.5% coupon due in March 2008. The second note was a $300,000, 22-year security due in March 2020. This second note is subject to mandatory tender to a remarketing agent in March 2003 and in March 2010. The coupon on this issue is presently 6.30%, but may change when tendered and remarketed. The proceeds of this offering were primarily used to repay existing debt outstanding under the Company's revolving credit agreements.

The Company issued a senior note security in December 1998 in the amount of $600,000. The note is a non-callable security with a 6.0% coupon that will mature in December of 2005. The proceeds of this offering were primarily used to repay existing debt outstanding under the Company's revolving credit agreements.

Approximately $27,595 of the Company's facilities and cemetery properties were pledged as collateral for the mortgage notes at December 31, 1998.

At December 31, 1998, the Company had $21,728 in letters of credit outstanding primarily to guarantee funding of certain insurance claims.

The aggregate principal payments on debt for the five years subsequent to December 31, 1998, excluding amounts due to banks under revolving credit loan agreements, are as follows: 1999-$96,067; 2000-$205,096; 2001-$203,694; 2002-$337,685; and 2003-$326,857.

44

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash interest payments for the three years ended December 31, 1998 totaled $187,641, $162,521, and $150,961, respectively.

Approximately $2,112,526 of the Company's debt is denominated in foreign currencies at December 31, 1998. Of this amount, $1,711,899 has been converted from US dollars as a result of cross-currency swaps.

Similarly, the stated coupons described above have been substantially modified through the use of interest rate and cross-currency interest rate swaps used in the management of interest rates within defined targets for fixed and floating interest rate exposure (see Note Nine).

During the three months ended December 31, 1998, pursuant to a shelf registration filed with the Commission to be used exclusively for future acquisitions, the Company guaranteed the following promissory notes issued through subsidiaries in connection with various acquisitions of operations:

                     SUBSIDIARY                       AMOUNT
                     ----------                       ------
SCI Iowa Funeral Services, Inc......................  $6,900

NOTE NINE

DERIVATIVES

The Company enters into derivatives primarily in the form of interest rate swaps and cross-currency interest rate swaps in combination with local currency borrowings to manage its mix of fixed and floating rate debt and to substantially hedge the Company's net investments in foreign assets. The Company has procedures in place to monitor and control the use of derivatives and only enters into transactions with a limited group of creditworthy financial institutions. The Company does not engage in derivative transactions for speculative or trading purposes, nor is it a party to leveraged derivatives.

In general, cross-currency swaps convert US dollar debt into the respective foreign currency of the Company's various foreign operations. Such cross-currency swaps are used in combination with local currency borrowings to substantially hedge the Company's net investment in foreign operations. The cross-currency swaps generally include interest rate provisions to enable the Company to additionally hedge a portion of the earnings of its foreign operations. Accordingly, movements in currency rates that impact the swap are generally offset by a corresponding movement in the value of the underlying assets being hedged. Similarly, currency movements that impact foreign expense due under the cross-currency interest rate swaps are generally offset by a corresponding movement in the earnings of the foreign operation.

45

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables present information about the Company's derivatives:

                                                                              DECEMBER 31, 1998
                                                     -------------------------------------------------------------------
                                                                                                WEIGHTED
                                                                                                AVERAGE
                                                                    CARRYING                 INTEREST RATE
                                                      NOTIONAL    AMOUNT ASSET               --------------
                                                       AMOUNT     (LIABILITY)    MATURITY    RECEIVE   PAY    FAIR VALUE
                                                     ----------   ------------   ---------   -------   ----   ----------
Interest Rate Swaps:
  US dollar fixed to US dollar floating............  $  250,000     $     --     1999-2001    7.35%    5.32%   $  7,931
  US dollar fixed to US dollar floating............     600,000           --     2002-2003    6.24%    5.24%     15,093
  US dollar fixed to US dollar floating............     300,000           --     2004-2006    7.02%    5.33%     25,082
  US dollar fixed to US dollar floating............     300,000           --     2008-2009    6.61%    5.39%     24,552
  US dollar floating to US dollar fixed............     420,000           --     2000-2001    5.22%    5.84%     (5,751)
  US dollar floating to US dollar fixed............     380,000           --     2003-2004    5.03%    5.54%    (10,425)
  Canadian dollar floating to Canadian dollar
    fixed..........................................     196,528           --     2007-2008    5.23%    5.92%    (18,873)
  Australian dollar floating to Australian dollar
    fixed..........................................      39,670           --       2006       4.75%    7.81%     (5,981)
  British pound floating to British pound fixed....     289,819           --       2008       6.04%    6.83%    (32,083)
  French franc floating to German mark floating....     175,311           --       2006       3.56%    3.84%     (2,815)
  German mark floating to French franc fixed.......      87,833           --       2003       3.79%    5.66%     (7,566)
Cross-Currency Interest Rate Swaps:
  US dollar fixed to Canadian dollar floating......     181,728       20,955     1999-2010    6.82%    5.58%     29,476
  US dollar floating to Canadian dollar fixed......     193,901        9,861       2003       5.22%    5.53%      8,163
  US dollar floating to Australian dollar fixed....     208,255       21,851     1999-2003    5.25%    6.14%     18,057
  US dollar floating to Australian dollar
    floating.......................................      59,196        7,931     2000-2003    5.22%    4.80%      7,217
  US dollar fixed to British pound fixed...........      91,407       (7,238)      2002       8.72%    9.64%     (7,636)
  US dollar fixed to British pound floating........     295,352      (19,129)    2002-2004    8.38%    6.59%     15,587
  US dollar fixed to French franc fixed............     300,000       36,678     2000-2007    6.29%    6.21%     22,465
  US dollar fixed to French franc floating.........     150,000       15,654     2000-2007    6.90%    3.90%     26,956
  US dollar floating to French franc fixed.........     117,833      (12,628)      2000       5.26%    4.23%    (15,005)
  US dollar fixed to German mark floating..........     150,000       15,766     2003-2006    5.98%    3.48%     28,414
  US dollar floating to Spanish peseta fixed.......      98,214       (5,899)      2003       5.26%    4.84%    (11,106)
  US dollar floating to Norwegian krone fixed......      22,815          (64)      2003       5.26%    5.80%         72
  Australian dollar fixed to US dollar floating....      88,141      (15,079)    1999-2000    6.14%    5.30%    (13,880)
                                                     ----------     --------                                   --------
                                                     $4,996,003     $ 68,659                                   $ 97,944
                                                     ==========     ========                                   ========

                                                                              DECEMBER 31, 1997
                                                     -------------------------------------------------------------------
                                                                                                WEIGHTED
                                                                                                AVERAGE
                                                                    CARRYING                 INTEREST RATE
                                                      NOTIONAL    AMOUNT ASSET               --------------
                                                       AMOUNT     (LIABILITY)    MATURITY    RECEIVE   PAY    FAIR VALUE
                                                     ----------   ------------   ---------   -------   ----   ----------
Interest Rate Swaps:
  US dollar fixed to US dollar floating............  $  450,000     $     --     2001-2002    6.53%    5.89%   $  4,392
  US dollar fixed to US dollar floating............     300,000           --     2004-2006    7.02%    5.78%     14,295
  US dollar fixed to US dollar floating............     200,000           --       2009       7.43%    5.76%     12,264
  US dollar floating to US dollar fixed............     200,000           --       2004       5.81%    5.72%        783
  Canadian dollar floating to Canadian dollar
    fixed..........................................      78,138           --       1999       2.64%    3.97%     (4,024)
  Canadian dollar floating to Canadian dollar
    fixed..........................................      38,456           --       2007       1.41%    1.95%     (1,927)
  Canadian dollar floating to Canadian dollar fixed
    effective 11/98................................      94,777           --       2003         --       --      (5,559)
  Australian dollar floating to Australian dollar
    fixed..........................................      42,270           --       2006       5.91%    7.81%     (3,672)
  French franc floating to German mark floating....      81,820           --       2006       3.69%    3.99%     (1,479)
  French franc fixed to German mark floating.......      82,152           --       2006       6.80%    5.38%      3,036
  German mark floating to French franc fixed.......      82,152           --       2003       5.38%    6.20%     (4,903)
Cross-Currency Interest Rate Swaps:
  US dollar fixed to French franc fixed............     250,000       44,736     2000-2002    6.05%    5.89%     42,540
  US dollar fixed to French franc fixed............     150,000       26,722       2007       7.00%    6.93%     20,516
  US dollar fixed to French franc floating.........     100,000       13,183       2006       7.20%    3.93%     18,408
  US dollar fixed to German mark floating..........     100,000       17,861       2003       5.37%    3.25%     19,016
  US dollar fixed to British pound fixed...........     385,386      (23,509)    2002-2004    8.46%    8.43%     20,181
  US dollar fixed to British pound floating........      28,222       (1,949)      2002       8.72%    7.94%    (28,581)
  US dollar floating to Australian dollar fixed....     132,296       11,526     1999-2000    5.91%    6.51%    (36,676)
  US dollar floating to Australian dollar
    floating.......................................      59,196        4,571     2000-2003    5.91%    5.07%     49,937
  US dollar fixed to Canadian dollar floating......     100,000        5,223       2010       6.95%    4.83%      7,264
  US dollar fixed to Canadian dollar floating......      81,727        3,589       1999       6.66%    3.94%      4,849
  US dollar floating to French franc fixed.........     117,834       (4,189)      2000       5.88%    4.23%     (3,943)
                                                     ----------     --------                                   --------
                                                     $3,154,426     $ 97,764                                   $126,717
                                                     ==========     ========                                   ========

46

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1998, the Company's consolidated debt totaled $3,860,657 at a weighted average rate of 6.77%. After giving consideration to the interest rate and cross-currency interest rate swaps, the weighted average rate of debt (excluding $212,484 of Provident debt) was 6.16%.

At December 31, 1998, the Company's debt, including the derivative instruments, consisted of approximately 74% of fixed interest rate debt at a weighted average rate of 6.17% and approximately 26% of floating interest rate debt at a weighted average rate of 6.15%. At December 31, 1997, the Company's total debt consisted of approximately 44% of fixed interest rate debt at a weighted average rate of 7.00% and approximately 56% of floating interest rate debt at a weighted average rate of 5.50%. Approximately $2,112,526 and $1,832,000 of the Company's debt consists of foreign-denominated debt at December 31, 1998 and 1997, respectively.

Interest rate swap settlements are generally semi-annual and match the coupons of the underlying debt or related intercompany loan payments on the foreign operations being hedged. Additionally, as of December 31, 1998 and 1997, $558,407 and $566,594, respectively, of the interest rate swaps contained provisions which require termination of the swap or convert the swap to a new index if certain interest rate conditions are met. In the cross-currency swaps, the notional amounts are exchangeable in accordance with the terms of the swaps:
either at maturity for nonamortizing swaps or according to defined amortization tables. Maturities of notional amounts relating to derivative financial instruments held on December 31, 1998, are as follows: 1999 -- $228,556; 2000 -- $710,879; 2001 -- $330,000; 2002 -- $535,016; 2003 -- $1,067,725; and thereafter -- $2,123,827.

NOTE TEN

CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments has been determined using available market information and appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, trade receivables and accounts payable approximate fair values due to the short-term maturities of these instruments. The carrying value of Provident's receivables approximates fair value as the majority of the loan portfolio carries market rates of interest. It is not practicable to estimate the fair value of receivables due on cemetery contracts or prearranged funeral contracts (other than cemetery merchandise trust funds and prearranged funeral trust funds, see Notes Four and Six) without incurring excessive costs because of the large number of individual contracts with varying terms. The investments of the Company's insurance subsidiaries are reported at fair value in the consolidated balance sheet.

The Company has entered into various derivative financial instruments with major financial institutions to hedge potential exposures in interest and foreign exchange rates (swap agreements). Fair values were obtained from counterparties to the agreements and represent their estimate of the amount the Company would pay or receive to terminate the swap agreements based upon the existing terms and current market conditions. The net fair value of the Company's various swap agreements at December 31, 1998 is an asset of $97,944 (see note nine). At December 31, 1997, the net fair value was an asset of $126,717. The fair value of the Company's swap agreements may vary substantially with changes in interest and currency rates. The Company's credit exposure is limited to the sum of the fair value of positions that have become favorable to the Company and any accrued interest receivable due from counterparties. Potential credit exposure is dependent upon the maximum adverse impact of interest and currency movement. Such potential credit exposure is minimized by selection of counterparties from a limited group of high quality institutions and inclusion of certain contract provisions. Management believes that any credit exposure with respect to its favorable positions at December 31, 1998 is minimal (see Note Nine).

47

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Fair value of debt was as follows:

                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1998         1997
                                                              ----------   ----------
Bank revolving credit agreements and commercial paper.......  $  650,596   $  616,589
6.375% notes due in 2000....................................     151,598      150,285
6.75% notes due in 2001.....................................     153,196      151,755
8.72% amortizing notes due in 2002..........................     123,344      150,266
8.375% notes due in 2004....................................      58,093       57,055
7.375% notes due in 2004....................................     266,397      260,725
6.0% notes due in 2005......................................     596,618           --
7.2% notes due in 2006......................................     159,900      155,730
6.875% notes due in 2007....................................     157,774      152,265
6.5% notes due in 2008......................................     204,842           --
7.7% notes due in 2009......................................     222,220      214,980
6.95% amortizing notes due in 2010..........................      60,392       60,336
Floating rate notes due in 2011 (putable in 1999)...........     200,000      200,000
7.875% debentures due in 2013...............................      62,885       61,001
7.0% notes due in 2015 (putable in 2002)....................     333,037      336,840
6.3% notes due in 2020 (putable in 2003)....................     302,826           --
Medium term notes, maturities through 2019, fixed average
  interest rate of 9.32%....................................      42,711       43,636
Convertible debentures, interest rates range from
  4.75% - 5.5%, due through 2008, conversion price ranges
  from $11.25 - $50.00......................................      65,828       83,258
Mortgage and other notes payable with maturities through
  2015......................................................     218,863      138,379
                                                              ----------   ----------
          Total debt........................................  $4,031,120   $2,833,100
                                                              ==========   ==========

The fair value of the fixed rate long-term borrowings was estimated by discounting the future cash flows, including interest payments, using rates currently available for debt of similar terms and maturity, based on the Company's credit standing and other market factors. The carrying value of convertible securities has been estimated based on the respective shares of Company common stock into which such securities may be converted. The carrying value of the Company's revolving credit agreements approximate fair value because the rates on such agreements are variable, based on current market conditions.

Provident is a party to financial instruments with potential credit risk. The financial instruments result from loans made in the normal course of business to meet the financing needs of borrowers who are principally independent funeral home and cemetery operators. These financial instruments also include loan commitments of approximately $31,449 at December 31, 1998 ($50,000 at December 31, 1997) to extend credit. Provident's total loans receivable at December 31, 1998, were approximately $269,500 ($198,000 at December 31, 1997). Provident evaluates each borrower's creditworthiness and the amount loaned and collateral obtained, if any, is determined by this evaluation.

The Company grants credit in the normal course of business and the credit risk with respect to these funeral, cemetery and prearranged funeral receivables due from customers is generally considered minimal because of the wide dispersion of the customers served. Procedures are in effect to monitor the creditworthiness of customers and bad debts have not been significant in relation to the volume of revenues.

Customer payments on prearranged funeral contracts that are placed in state regulated trusts or used to pay premiums on life insurance contracts issued by third party insurance companies generally do not subject the Company to collection risk. Insurance funded contracts are subject to supervision by state insurance departments and are protected in the majority of states by insurance guaranty acts.

48

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE ELEVEN

COMMITMENTS

The annual payments for operating leases (primarily for funeral home facilities and transportation equipment) are as follows:

1999........................................................  $35,795
2000........................................................   31,998
2001........................................................   28,350
2002........................................................   24,305
2003........................................................   19,036
Thereafter..................................................   86,886

The majority of these operating leases contain one of the following options: (a) purchase the property at the fair value at date of exercise, (b) purchase the property for a value determined at the inception of the lease or
(c) renew for the fair rental value at the end of the primary term of the lease. Some of the equipment leases contain residual value exposures. For the three years ended December 31, 1998, rental expense was $69,196, $71,225, and $64,073, respectively.

The Company has entered into management, consultative and noncompetition agreements (generally for five to ten years) with certain officers of the Company and former owners and key employees of businesses acquired. During the three years ended December 31, 1998, $74,578, $68,667, and $55,688, respectively, were charged to expense. At December 31, 1998, the maximum estimated future commitment under all agreements with a remaining term in excess of one year is $355,323, including $10,559 with certain officers of the Company.

Effective January 1, 1999, the Company has a minimum purchase agreement with a major casket manufacturer for its North American operations. The agreement contains provisions to increase the minimum annual purchases for normal price increases and for the maintenance of product quality. In addition, the contract provides for a one-year extension period in which the Company is required to purchase any remaining commitment that exists at the end of the original term. The agreement contains a total purchase commitment of $750,000 over the next six years (1999 -- $90,000; 2000 -- $105,000; 2001 -- $115,000; 2002 -- $130,000; 2003 -- $145,000; 2004 -- $165,000).

NOTE TWELVE

CONVERTIBLE PREFERRED SECURITIES OF SCI FINANCE LLC

During 1997, the Company redeemed all the outstanding shares of its convertible preferred shares into 11,178,522 shares of Company common stock and cash.

NOTE THIRTEEN

STOCKHOLDERS' EQUITY

The Company is authorized to issue 1,000,000 shares of preferred stock, $1 per share par value. No shares were issued as of December 31, 1998. At December 31, 1998, 500,000,000 common shares of $1 par value were authorized, 259,201,104 shares were issued and outstanding (252,923,784 at December 31, 1997), net of 68,373 shares held, at cost, in treasury (66,373 at December 31, 1997).

During the first quarter of 1998, the Company adopted the provisions of Statement of Financial Accounting Standards (FAS) No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income. All prior periods presented have been restated to conform to this new standard.

49

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has benefit plans whereby shares of the Company's common stock may be issued pursuant to the exercise of stock options granted to officers and key employees. The plans allow for options to be granted as either non-qualified or incentive stock options. The options are granted with an exercise price equal to the then current market price of the Company's common stock. The options are generally exercisable at a rate of 33 1/3% each year unless, at the discretion of the Company's Compensation Committee of the Board of Directors, alternative vesting methods are allowed. At December 31, 1998 and 1997, 15,713,000 and 15,668,000, respectively, options had been granted to officers and key employees of the Company which contain alternative vesting methods. Under the alternative vesting methods, partial or full accelerated vesting will occur when the price of Company common stock reaches pre-determined prices. If the pre-determined stock prices are not met in the required time period, the options will fully vest in periods ranging from eight to ten years from date of grant. At December 31, 1998 and 1997, 4,783,558 and 7,628,350 shares, respectively, were reserved for future option grants under all stock option plans.

The following tables set forth certain stock option information:

                                                                         WEIGHTED-AVERAGE
                                                             OPTIONS      EXERCISE PRICE
                                                            ----------   ----------------
Outstanding at December 31, 1995..........................  11,581,832        $13.27
                                                            ----------        ------
  Granted.................................................   2,239,200         22.63
  Exercised...............................................    (724,425)         8.82
  Cancelled...............................................     (47,338)        20.45
                                                            ----------        ------
Outstanding at December 31, 1996..........................  13,049,269         15.09
                                                            ----------        ------
  Granted.................................................   7,144,150         30.37
  Exercised...............................................    (775,716)        12.51
  Cancelled...............................................    (104,252)        22.85
                                                            ----------        ------
Outstanding at December 31, 1997..........................  19,313,451         20.81
                                                            ----------        ------
  Granted.................................................   2,953,553         36.66
  Exercised...............................................  (4,785,496)        13.50
  Cancelled...............................................    (102,992)        26.62
                                                            ----------        ------
Outstanding at December 31, 1998..........................  17,378,516        $25.48
                                                            ==========        ======
Exercisable at December 31, 1998..........................   6,435,679        $17.23
                                                            ==========        ======
Exercisable at December 31, 1997..........................   9,488,214        $14.07
                                                            ==========        ======
Exercisable at December 31, 1996..........................   1,055,435        $11.01
                                                            ==========        ======

                           OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
                ------------------------------------------   -----------------------
                                 WEIGHTED-       WEIGHTED-                 WEIGHTED-
                  NUMBER          AVERAGE         AVERAGE      NUMBER       AVERAGE
   RANGE OF     OUTSTANDING      REMAINING       EXERCISE    EXERCISABLE   EXERCISE
EXERCISE PRICE  AT 12/31/98   CONTRACTUAL LIFE     PRICE     AT 12/31/98     PRICE
--------------  -----------   ----------------   ---------   -----------   ---------
$         9.41     104,018          1.1           $ 9.41        104,018     $ 9.41
  9.41 - 20.00   5,395,174          8.3            14.36      4,137,694      13.60
 20.00 - 30.00   4,517,232          5.1            25.70      2,092,580      23.87
 30.00 - 40.00   7,299,592          6.4            33.65        101,387      36.12
 40.00 - 50.00      62,500          5.6            41.53             --         --
-------------   ----------          ---           ------     ----------     ------
$ 9.41 - 50.00  17,378,516          6.6           $25.48      6,435,679     $17.23
=============   ==========          ===           ======     ==========     ======

The Company's 1996 Incentive Plan reserves 12,000,000 shares of common stock for future awards of stock options, restricted stock and other stock based awards to officers and key employees of the Company.

50

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's 1996 Non-qualified Incentive Plan reserves 4,000,000 shares of common stock for future awards of nonqualified stock options to employees who are not officers of the Company. Under the Company's 1995 Stock Plan for Non-Employee Directors, non-employee directors automatically receive yearly awards of restricted stock through the year 2000. Each award is for 3,000 shares of common stock and vests after one year of service.

For the three years ended December 31, 1998, 30,000, 73,000, and 49,600 shares of restricted stock were awarded at average fair values of $40.88, $33.35 and $25.76, respectively.

The Board of Directors has adopted a preferred share purchase rights plan and has declared a dividend of one preferred share purchase right for each share of common stock outstanding. The rights become exercisable in the event of certain attempts to acquire 20% or more of the common stock of the Company and entitle the rights holders to purchase certain securities of the Company or the acquiring company. The rights, which are redeemable by the Company for $.01 per right, expire in July 2008 unless extended.

If the Company had elected to recognize compensation cost for its option plans based on the fair value at the grant dates for awards under those plans, net income and earnings per share would have been changed to the pro forma amounts indicated below:

                                                         YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
Net income:
  As reported......................................  $342,142    $333,750    $265,298
  Pro forma........................................   318,057     315,733     252,929
Basic earnings per share:
  As reported......................................  $   1.34    $   1.36    $   1.13
  Pro forma........................................      1.24        1.30        1.07
Diluted earnings per share:
  As reported......................................  $   1.31    $   1.31    $   1.08
  Pro forma........................................      1.22        1.25        1.03

The fair value of the Company's stock options used to compute pro forma net income and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 1998, 1997 and 1996, respectively: dividend yield of 1%, 1%, and 1%, expected volatility of 28.3%, 26.6% and 25.3%, a risk free interest rate of 5.5%, 6.5% and 6.8%; and an expected holding period of 7, 8, and 9 years.

NOTE FOURTEEN

RETIREMENT PLANS

The Company has a defined benefit pension plan covering substantially all United States employees, a supplemental retirement plan for certain current and former key employees (SERP), a supplemental retirement plan for officers and certain key employees (Senior SERP), and a retirement plan for non-employee directors (Directors' Plan).

For the United States noncontributory pension plan, retirement benefits are generally based on years of service and compensation. The Company annually contributes to the pension plan an actuarially determined amount consistent with the funding requirements of the Employee Retirement Income Security Act of 1974. Assets of the pension plan consist primarily of bank money market funds, fixed income investments, and marketable equity securities. The marketable equity securities include shares of Company common stock with a value of $12,575 and $12,141 at December 31, 1998 and 1997, respectively ($4,956 at March 12, 1999).

51

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Retirement benefits under the SERP are based on years of service and average monthly compensation, reduced by benefits under the pension plan and Social Security. The Senior SERP provides retirement benefits based on years of service and position. The Directors' Plan will provide an annual benefit to directors following their retirement, based on a vesting schedule. The Company purchased various life insurance policies on the participants in the SERP, Senior SERP and Directors' Plan with the intent to use the proceeds or any cash value buildup from such policies to assist in funding, at least to the extent of such assets, the plans' funding requirements. The funding status of the SERP, Senior SERP, and Directors' Plan requires the Company to recognize an additional liability in accordance with FAS No. 87, "Employers' Accounting for Pensions." At December 31, 1998 and 1997, the additional minimum liability was $14,513 and $14,101, respectively.

The Company's United Kingdom operation has a defined benefit pension plan. The Company and employees contribute to the plan consistent with United Kingdom funding requirements. Most other foreign employees are covered by various foreign government mandated or defined contribution plans which are adequately funded and are not considered material to the financial condition or results of operations of the Company. The plans' liabilities and their related costs are computed in accordance with the laws of the individual countries and appropriate actuarial practices.

The Company adopted FAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," during 1998. FAS No. 132 supersedes the disclosure requirements in FAS No. 87. All prior periods presented have been restated to conform to this new standard.

The components of net periodic benefit cost were as follows:

                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                          1998      1997       1996
                                                        --------   -------   --------
Service cost -- benefits earned during the period.....  $ 12,889   $ 9,806   $  8,550
Interest cost on projected benefit obligation.........    10,732    10,033      9,400
Return on plan assets.................................   (10,866)   (7,991)   (13,341)
Net amortization and deferral of gain.................     1,280     1,708      9,747
                                                        --------   -------   --------
                                                        $ 14,035   $13,556   $ 14,356
                                                        ========   =======   ========

52

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Plans' funded status were as follows (funded plan based on valuations as of September 30):

                                                           DECEMBER 31,
                                           ---------------------------------------------
                                                   1998                    1997
                                           ---------------------   ---------------------
                                            FUNDED    NON-FUNDED    FUNDED    NON-FUNDED
                                             PLAN       PLANS        PLAN       PLANS
                                           --------   ----------   --------   ----------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
  year...................................  $101,293    $ 39,840    $ 96,575    $ 40,281
Service cost.............................    11,984         905       6,593       1,015
Interest cost............................     7,889       2,843       5,477       2,731
Plan amendments..........................        --          --          --        (930)
Actuarial (gain) loss....................     3,659       2,055         739      (1,262)
Benefits paid............................   (12,366)     (2,135)     (8,091)     (1,995)
                                           --------    --------    --------    --------
Benefit obligation at end of year........  $112,459    $ 43,508    $101,293    $ 39,840
                                           ========    ========    ========    ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
  year...................................  $125,166    $     --    $103,435    $     --
Actual return on plan assets.............      (488)         --      22,121          --
Employer contributions...................        80       2,135       7,701       1,995
Benefits paid............................   (12,366)     (2,135)     (8,091)     (1,995)
                                           --------    --------    --------    --------
Fair value of plan assets at end of
  year...................................  $112,392    $     --    $125,166    $     --
                                           ========    ========    ========    ========

Funded status of plan....................  $    (67)   $(43,508)   $ 23,873    $(39,840)
Fourth quarter contributions.............     8,873          --          --          --
Unrecognized actuarial (gain) loss.......     8,940       7,695      (5,539)      5,823
Unrecognized prior service cost..........    (1,314)      6,907      (1,674)      8,364
                                           --------    --------    --------    --------
Prepaid (accrued) benefit cost...........  $ 16,432    $(28,906)   $ 16,660    $(25,653)
                                           ========    ========    ========    ========

The plans' weighted-average assumptions were as follows:

                                                       1998                  1997
                                                -------------------   -------------------
                                                FUNDED   NON-FUNDED   FUNDED   NON-FUNDED
                                                 PLAN      PLANS       PLAN      PLANS
                                                ------   ----------   ------   ----------
Discount rate used to determine obligations...   6.75%      6.75%      7.25%      7.25%
Assumed rate of compensation increase.........    5.5        5.5        5.5        5.5
Assumed rate of return on plan assets.........    9.0         --        9.0         --

NOTE FIFTEEN

SEGMENT REPORTING

The Company adopted FAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", during the fourth quarter of 1998. FAS No. 131 establishes standards for reporting information about operating segments and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company's chief decision making group. This group is comprised of senior management who are responsible for the allocation of resources and assessment of operating performance.

Because the Company's operations are product based and geographically based, the Company's primary reportable operating segments presented below are based on products or services and include funeral, cemetery, and insurance operations. The Company's geographic segments include North America, France,

53

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other Europe and other Foreign. The Company conducts funeral operations in all geographical regions, cemetery operations in all regions, except France, and financial services operations in North America and France. See Note Two.

The Company's reportable segment information was as follows:

                                                                             REPORTABLE
                                       FUNERAL      CEMETERY    INSURANCE     SEGMENTS
                                      ----------   ----------   ----------   -----------
Revenues from external customers:
  1998..............................  $1,829,136   $  846,601   $  178,773   $ 2,854,510
  1997..............................   1,720,291      724,862       74,175     2,519,328
  1996..............................   1,656,736      612,421       67,799     2,336,956
Depreciation and amortization:
  1998..............................  $  152,396   $   28,584   $    4,947   $   185,927
  1997..............................     123,652       21,611        3,707       148,970
  1996..............................     100,228       18,601        3,468       122,297
Income from operations:
  1998..............................  $  384,607   $  306,161   $   18,561   $   709,329
  1997..............................     401,371      271,897        6,712       679,980
  1996..............................     374,190      214,721        6,651       595,562
Total assets:
  1998..............................  $6,944,480   $4,012,685   $1,750,840   $12,708,005
  1997..............................   6,124,463    3,309,431      637,312    10,071,206
  1996..............................   5,379,608    2,638,775      676,646     8,695,029
Capital expenditures:
  1998..............................  $  590,065   $  369,212   $    2,029   $   961,306
  1997..............................     487,802      404,100          592       892,494
  1996..............................     398,806      268,039          281       667,126
Operating locations at year end (unaudited):
  1998..............................       3,578          488           --         4,066
  1997..............................       3,244          441           --         3,685
  1996..............................       2,987          390           --         3,377

54

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table reconciles certain reportable segment amounts to the Company's corresponding consolidated amounts:

                                        REPORTABLE
                                         SEGMENTS     PROVIDENT   CORPORATE   CONSOLIDATED
                                        -----------   ---------   ---------   ------------
Revenues from external customers:
  1998................................  $ 2,854,510   $ 20,580    $     --    $ 2,875,090
  1997................................    2,519,328     16,537          --      2,535,865
  1996................................    2,336,956     18,386          --      2,355,342
Depreciation and amortization:
  1998................................  $   185,927   $      7    $ 16,343    $   202,277
  1997................................      148,970          5       8,575        157,550
  1996................................      122,297          9       7,513        129,819
Total assets:
  1998................................  $12,708,005   $271,448    $286,705    $13,266,158
  1997................................   10,071,206    200,562     243,162     10,514,930
  1996................................    8,695,029    148,193     177,556      9,020,778
Capital expenditures (1):
  1998................................  $   961,306   $    180    $ 21,253    $   982,739
  1997................................      892,494          2      14,698        907,194
  1996................................      667,126         --      11,582        678,708


(1) Consolidated capital expenditures include $729,515, $676,662 and $485,556 for the three years ended December 31, 1998, respectively, for purchases of property, plant and equipment, cemetery property, and names and reputations of acquired businesses.

The following table reconciles reportable segment income from operations shown above to the Company's consolidated income before income taxes and extraordinary loss:

                                                        1998        1997       1996
                                                      ---------   --------   --------
Income from operations:
  Reportable segments...............................  $ 709,329   $679,980   $595,562
  Provident income from operations..................      9,441      7,632      8,890
  General and administrative expenses...............    (66,839)   (66,781)   (63,215)
                                                      ---------   --------   --------
Consolidated income from operations.................    651,931    620,831    541,237
  Interest expense..................................   (177,053)  (136,720)  (138,557)
  Dividends on preferred securities of SCI Finance
     LLC............................................         --     (4,382)   (10,781)
  Other income......................................     43,649    100,244     21,982
                                                      ---------   --------   --------
Income before income taxes and extraordinary loss...  $ 518,527   $579,973   $413,881
                                                      =========   ========   ========

55

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company geographic segment information was as follows:

                                NORTH                   OTHER       OTHER
                               AMERICA      FRANCE      EUROPE     FOREIGN      TOTAL
                              ----------   --------   ----------   --------   ----------
Revenues from external
  customers:
  1998......................  $1,877,294   $621,359   $  266,678   $109,759   $2,875,090
  1997......................   1,658,398    554,648      225,087     97,732    2,535,865
  1996......................   1,468,936    600,341      184,943    101,122    2,355,342
Income from operations:
  1998......................  $  517,560   $ 71,499   $   35,666   $ 27,206   $  651,931
  1997......................     490,430     55,332       46,371     28,698      620,831
  1996......................     419,004     54,305       34,973     32,955      541,237
Long-lived assets:
  1998......................  $4,846,151   $497,477   $1,060,405   $421,485   $6,825,518
  1997......................   3,979,614    440,744      902,554    196,656    5,519,568
  1996......................   3,229,800    450,864      874,868    181,006    4,736,538
Operating locations at year end
  (unaudited):
  1998......................       1,843      1,214          840        169        4,066
  1997......................       1,720      1,101          712        152        3,685
  1996......................       1,551      1,056          631        139        3,377

Included in the North American figures above are the following United States amounts:

                                                      1998         1997         1996
                                                   ----------   ----------   ----------
Revenues from external customers.................  $1,799,796   $1,586,910   $1,407,296
Income from operations...........................     500,865      468,822      400,924
Long-lived assets................................   4,513,827    3,664,194    3,045,544
Operating locations at year end (unaudited)......       1,686        1,574        1,441

56

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE SIXTEEN

SUPPLEMENTARY INFORMATION

The detail of certain balance sheet accounts was as follows:

                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1998         1997
                                                              ----------   ----------
Cash and cash equivalents:
  Cash......................................................  $   80,782   $   41,264
  Commercial paper and temporary investments................     277,428        5,613
                                                              ----------   ----------
                                                              $  358,210   $   46,877
                                                              ==========   ==========
Receivables and allowances:
  Current:
     Trade accounts.........................................  $  336,213   $  312,931
     Cemetery contracts.....................................     225,449      269,503
     Loans and other........................................     101,444       80,109
                                                              ----------   ----------
                                                                 663,106      662,543
                                                              ----------   ----------
  Less:
     Allowance for contract cancellations and doubtful
       accounts.............................................      53,292       52,597
     Unearned finance charges...............................      44,262       52,465
                                                              ----------   ----------
                                                                  97,554      105,062
                                                              ----------   ----------
                                                              $  565,552   $  557,481
                                                              ==========   ==========
  Long-term:
     Cemetery contracts.....................................  $  534,801   $  387,566
     Trusted cemetery merchandise sales.....................     613,917      486,139
     Loans and other........................................     360,776      207,687
                                                              ----------   ----------
                                                               1,509,494    1,081,392
                                                              ----------   ----------
  Less:
     Allowance for contract cancellations and doubtful
       accounts.............................................      38,707       35,964
     Unearned finance charges...............................      62,711       64,307
                                                              ----------   ----------
                                                                 101,418      100,271
                                                              ----------   ----------
                                                              $1,408,076   $  981,121
                                                              ==========   ==========

57

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest rates on cemetery contracts and loans and other notes receivable range from 3.2% to 15.7% at December 31, 1998 (1.5% to 19.0% at December 31, 1997). Included in long-term loans and other notes receivable at December 31, 1998, are $15,054 in notes with officers and employees of the Company ($16,049 at December 31, 1997), the majority of which are collateralized by real estate, and $28,323 in notes with other related parties ($24,095 at December 31, 1997).

                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1998         1997
                                                              ----------   ----------
Cemetery property:
  Undeveloped land..........................................  $1,512,198   $1,234,321
  Developed land, lawn crypts and mausoleums................     523,699      402,538
                                                              ----------   ----------
                                                              $2,035,897   $1,636,859
                                                              ----------   ----------
Property, plant and equipment:
  Land......................................................  $  441,897   $  422,877
  Buildings and improvements................................   1,304,426    1,152,235
  Operating equipment.......................................     514,865      413,108
  Leasehold improvements....................................      52,613       46,853
                                                              ----------   ----------
                                                               2,313,801    2,035,073
                                                              ----------   ----------
  Less: accumulated depreciation............................    (488,822)    (390,936)
                                                              ----------   ----------
                                                              $1,824,979   $1,644,137
                                                              ==========   ==========
Accounts payable and accrued liabilities:
  Trade payables............................................  $  111,518   $   74,874
  Dividends.................................................      24,333       18,975
  Payroll...................................................      75,085       70,957
  Interest..................................................      44,414       31,665
  Insurance.................................................      70,432       41,799
  Bank overdraft............................................      19,759       29,977
  Other.....................................................     106,813      157,384
                                                              ----------   ----------
                                                              $  452,354   $  425,631
                                                              ==========   ==========

NON-CASH TRANSACTIONS

                                                                 YEARS ENDED DECEMBER 31,
                                                               ----------------------------
                                                                1998       1997      1996
                                                               -------   --------   -------
Common stock issued under restricted stock plans............   $ 1,196   $  2,405   $ 1,278
Minimum liability under retirement plans....................      (535)    (4,097)   (2,235)
Debenture conversions to common stock.......................     2,594      6,417     1,240
Common stock issued in acquisitions.........................    97,124     83,173    15,823
Debt issued in acquisitions.................................    28,560     21,325    26,467
Conversion of preferred securities of SCI Finance LLC.......        --    167,911        --

58

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE SEVENTEEN

EARNINGS PER SHARE

The basic and diluted per share computations for income before extraordinary item were as follows:

                                                              YEARS ENDED DECEMBER 31,
                                                       ---------------------------------------
                                                          1998          1997          1996
                                                       -----------   -----------   -----------
                                                        (THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income (numerator):
  Income before extraordinary item -- basic..........   $342,142      $374,552      $265,298
  After tax interest on convertible debentures.......      1,368         4,611         8,031
                                                        --------      --------      --------
  Income before extraordinary item -- diluted........   $343,510      $379,163      $273,329
                                                        ========      ========      ========
Shares (denominator):
  Shares -- basic....................................    256,271       245,470       235,299
     Stock options and warrants......................      4,290         4,827         3,919
     Convertible debentures..........................      1,959         2,212         2,187
     Convertible preferred securities of SCI Finance
       LLC...........................................         --         5,272        11,465
                                                        --------      --------      --------
  Shares -- diluted..................................    262,520       257,781       252,870
                                                        ========      ========      ========
Earnings per share before extraordinary item:
  Basic..............................................   $   1.34      $   1.53      $   1.13
  Diluted............................................   $   1.31      $   1.47      $   1.08

NOTE EIGHTEEN

QUARTERLY FINANCIAL DATA (UNAUDITED)

                                          FIRST*     SECOND     THIRD      FOURTH       YEAR
                                         --------   --------   --------   --------   ----------
Revenues:
  1998.................................  $698,844   $690,230   $712,520   $773,496   $2,875,090
  1997.................................   652,690    616,329    600,995    665,851    2,535,865
Gross profit:
  1998.................................   216,128    187,690    173,706    141,246      718,770
  1997.................................   188,152    163,183    151,772    184,505      687,612
Net income:
  1998.................................   108,786     90,948     83,213     59,195      342,142
  1997.................................    90,345     78,801     72,724     91,880      333,750
Basic earnings per share:
  1998.................................       .43        .36        .32        .23         1.34
  1997.................................       .38        .33        .29        .36         1.36
Diluted earnings per share:
  1998.................................       .42        .35        .32        .23         1.31
  1997.................................       .36        .31        .28        .36         1.31


* The quarter ended March 31, 1997 includes (1) a $68,100 gain ($42,000 after tax) on the sale of the Company's interest in ECI and (2) a $40,802 extraordinary loss (net of tax) on the early extinguishment of debt.

59

SERVICE CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE NINETEEN
SUBSEQUENT EVENTS

In January 1999, a wholly-owned subsidiary of the Company acquired ECI. The combination occurred through a stock-for-stock transaction in which ECI stockholders received 15,500,824 shares of Company common stock, and was accounted for under the purchase method of accounting.

Since January 26, 1999, several lawsuits have been commenced on behalf of persons who (i) acquired shares of Company common stock in the merger of a wholly owned subsidiary of the Company into ECI, (ii) purchased shares of Company common stock during certain specified class periods or (iii) owned employee stock options in ECI. As of March 24, 1999, 20 class action lawsuits that had been originally filed in federal district court in Houston, Texas had been consolidated into one action pending in that court, and one additional class action lawsuit that had been originally filed in the federal district court in Lufkin, Texas was still pending in that court. These lawsuits allege violations of federal securities laws and name as defendants the Company and certain of its officers and directors. As of the same date, two former state court lawsuits, one of which was a class action, naming the Company as defendant and alleging fraud and violations of Texas securities and common law had been removed to the federal district court in Lufkin. The lawsuits generally refer to the Company's January 26, 1999 public announcement that the Company's diluted earnings per share for the fourth quarter of 1998 and for the year ended December 31, 1998 would be lower than analyst expectations. The lawsuits seek, among other things, to recover unspecified damages. Since the litigation is in its very preliminary stages, no discovery has been taken, and the Company cannot quantify its ultimate liability, if any, for the payment of damages in these lawsuits. However, the Company believes that the allegations in the lawsuits do not provide a basis for the recovery of damages.

60

SERVICE CORPORATION INTERNATIONAL

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1998

                                         BALANCE AT   CHARGED TO   CHARGED TO                     BALANCE
                                         BEGINNING    COSTS AND       OTHER                      AT END OF
              DESCRIPTION                OF PERIOD     EXPENSES    ACCOUNTS(2)   DEDUCTIONS(1)    PERIOD
              -----------                ----------   ----------   -----------   -------------   ---------
                                                                    (THOUSANDS)
Current --
  Allowance for contract cancellations
     and doubtful accounts:
     Year ended December 31, 1998......   $52,597      $27,190       $2,327        $(28,822)      $53,292
     Year ended December 31, 1997......    45,155       23,400        5,333         (21,291)       52,597
     Year ended December 31, 1996......    34,147       14,187        6,638          (9,817)       45,155
Due After One Year --
  Allowance for contract cancellations
     and doubtful accounts:
     Year ended December 31, 1998......   $35,964      $ 3,650       $ (499)       $   (408)      $38,707
     Year ended December 31, 1997......    29,951        6,202        1,123          (1,312)       35,964
     Year ended December 31, 1996......    23,298        3,072        3,581              --        29,951
Deferred Tax Valuation Allowance:
     Year ended December 31, 1998......   $15,327      $(2,269)      $   --        $     --       $13,058
     Year ended December 31, 1997......     6,128        9,199           --              --        15,327
     Year ended December 31, 1996......     8,729       (2,601)          --              --         6,128


(1) Uncollected receivables written off, net of recoveries.

(2) Primarily acquisitions and dispositions of operations.

61

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information called for by PART III (Items 10, 11, 12 and 13) has been omitted as the Company intends to file with the Commission not later than 120 days after the close of its fiscal year a definitive Proxy Statement pursuant to Regulation 14A. Such information is set forth in such Proxy Statement (i) with respect to Item 10 under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance", (ii) with respect to Items 11 and 13 under the captions "Certain Information with Respect to Officers and Directors", "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" and (iii) with respect to Item 12 under the caption "Voting Securities and Principal Holders." The information as specified in the preceding sentence is incorporated herein by reference. Notwithstanding anything set forth in this Form 10-K, the information under the captions "Compensation Committee Report on Executive Compensation" and "Performance Graph" in such Proxy Statement are not incorporated by reference into this Form 10-K.

The information regarding the Company's executive officers called for by Item 401 of Regulation S-K has been included in PART I of this report.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1)-(2) Financial Statements and Schedule:

The financial statements and schedule are listed in the accompanying Index to Financial Statements and Related Schedule on page 26 of this report.

(3) Exhibits:

The exhibits listed on the accompanying Exhibit Index on pages 65-67 are filed as part of this report.

(b) Reports on Form 8-K

During the quarter ended December 31, 1998, the Company filed a Form 8-K dated December 11, 1998 reporting (i) under "Item 5. Other Events" certain information regarding a registration statement relating to a public offering of securities and (ii) under "Item 7. Financial Statements and Exhibits" certain exhibits, including underwriting agreements, relating to the aforementioned registration statement.

(c) Included in (a) above.

(d) Included in (a) above.

62

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Service Corporation International, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SERVICE CORPORATION INTERNATIONAL

                                          By:     /s/ JAMES M. SHELGER
                                            ------------------------------------
                                                     (James M. Shelger,
                                               Senior Vice President, General
                                                   Counsel and Secretary)

Dated: March 30, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----

R. L. WALTRIP*                                          Chairman of the Board, Chief    March 30, 1999
-----------------------------------------------------  Executive Officer and President
(R. L. Waltrip)

GEORGE R. CHAMPAGNE*                                   Executive Vice President Chief   March 30, 1999
-----------------------------------------------------   Financial Officer (Principal
(George R. Champagne)                                        Financial Officer)

                 /s/ WESLEY T. MCRAE                    North American Controller of    March 30, 1999
-----------------------------------------------------   SCI Management Corporation, a
                  (Wesley T. McRae)                     subsidiary of the Registrant
                                                       (Principal Accounting Officer)

ANTHONY L. COELHO*                                                Director              March 30, 1999
-----------------------------------------------------
(Anthony L. Coelho)

JACK FINKELSTEIN*                                                 Director              March 30, 1999
-----------------------------------------------------
(Jack Finkelstein)

A. J. FOYT, JR.*                                                  Director              March 30, 1999
-----------------------------------------------------
(A. J. Foyt, Jr.)

JAMES H. GREER*                                                   Director              March 30, 1999
-----------------------------------------------------
(James H. Greer)

B. D. HUNTER*                                                     Director              March 30, 1999
-----------------------------------------------------
(B. D. Hunter)

JOHN W. MECOM, JR.*                                               Director              March 30, 1999
-----------------------------------------------------
(John W. Mecom, Jr.)

CLIFTON H. MORRIS, JR.*                                           Director              March 30, 1999
-----------------------------------------------------
(Clifton H. Morris, Jr.)

63

                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----

E. H. THORNTON, JR.*                                              Director              March 30, 1999
-----------------------------------------------------
(E. H. Thornton, Jr.)

W. BLAIR WALTRIP*                                                 Director              March 30, 1999
-----------------------------------------------------
(W. Blair Waltrip)

EDWARD E. WILLIAMS*                                               Director              March 30, 1999
-----------------------------------------------------
(Edward E. Williams)

*By  /s/ JAMES M. SHELGER
-----------------------------------------------------
(James M. Shelger, as Attorney-In-Fact
For each of the Persons indicated)

64

EXHIBIT INDEX

PURSUANT TO ITEM 601 OF REG. S-K

EXHIBIT
  NO.                                    DESCRIPTION
-------                                  -----------

   3.1           -- Restated Articles of Incorporation. (Incorporated by
                    reference to Exhibit 3.1 to Registration Statement No.
                    333-10867 on Form S-3).
   3.2           -- Articles of Amendment to Restated Articles of
                    Incorporation. (Incorporated by reference to Exhibit 3.1
                    to Form 10-Q for the fiscal quarter ended September 30,
                    1996).
   3.3           -- Statement of Resolution Establishing Series of Shares of
                    Series D Junior Participating Preferred Stock, dated July
                    27, 1998. (Incorporated by reference to Exhibit 3.2 to
                    Form 10-Q for the fiscal quarter ended June 30, 1998).
   3.4           -- Bylaws, as amended. (Incorporated by reference to Exhibit
                    3.7 to Form 10-K for the fiscal year ended December 31,
                    1991).
   4.1           -- Rights Agreement dated as of May 14, 1998 between the
                    Company and Harris Trust and Savings Bank. (Incorporated
                    by reference to Exhibit 99.1 to Form 8-K dated May 14,
                    1998).
  10.1           -- Retirement Plan For Non-Employee Directors. (Incorporated
                    by reference to Exhibit 10.1 to Form 10-K for the fiscal
                    year ended December 31, 1991).
  10.2           -- Agreement dated May 14, 1992 between the Company, R. L.
                    Waltrip and related parties relating to life insurance.
                    (Incorporated by reference to Exhibit 10.4 to Form 10-K
                    for the fiscal year ended December 31, 1992).
  10.3           -- Employment Agreement, dated January 1, 1998, between SCI
                    Executive Services, Inc. and R.L. Waltrip.
  10.4           -- Non-Competition Agreement and Amendment to Employment
                    Agreement, dated November 11, 1991, among the Company, R.
                    L. Waltrip and Claire Waltrip. (Incorporated by reference
                    to Exhibit 10.9 to Form 10-K for the fiscal year ended
                    December 31, 1992).
  10.5           -- Employment Agreement, dated January 1, 1998, between SCI
                    Executive Services, Inc. and L. William Heiligbrodt.
                    (Incorporated by reference to Exhibit 10.5 to Form 10-K
                    for the fiscal year ended December 31, 1997).
  10.6           -- Separation and Release Agreement, dated March 15, 1999,
                    among the Company, SCI Executive Services, Inc. and L.
                    William Heiligbrodt.
  10.7           -- Independent Contractor/Consultative Agreement, dated
                    March 15, 1999, between SCI Management Corporation and L.
                    William Heiligbrodt.
  10.8           -- Employment Agreement, dated January 1, 1998, between SCI
                    Executive Services, Inc. and W. Blair Waltrip.
                    (Incorporated by reference to Exhibit 10.6 to Form 10-K
                    for the fiscal year ended December 31, 1997).
  10.9           -- Employment Agreement, dated January 1, 1998, between SCI
                    Executive Services, Inc. and Jerald L. Pullins.
                    (Incorporated by reference to Exhibit 10.1 to Form 10-Q
                    for the fiscal quarter ended June 30, 1998).
  10.10          -- Employment Agreement, dated January 1, 1998, between SCI
                    Executive Services, Inc. and George R. Champagne.
  10.11          -- Form of Employment Agreement pertaining to officers
                    (other than the officers identified in the preceding
                    exhibits). (Incorporated by reference to Exhibit 10.9 to
                    Form 10-K for the fiscal year ended December 31, 1997).

65

EXHIBIT
  NO.                                    DESCRIPTION
-------                                  -----------
  10.12          -- Form of 1986 Stock Option Plan. (Incorporated by
                    reference to Exhibit 10.21 to Form 10-K for the fiscal
                    year ended December 31, 1991).
  10.13          -- Amendment to 1986 Stock Option Plan, dated February 12,
                    1997. (Incorporated by reference to Exhibit 10.11 to Form
                    10-K for the fiscal year ended December 31, 1996).
  10.14          -- Amendment to 1986 Stock Option Plan, dated November 13,
                    1997. (Incorporated by reference to Exhibit 10.12 to Form
                    10-K for the fiscal year ended December 31, 1997).
  10.15          -- Amended 1987 Stock Plan. (Incorporated by reference to
                    Appendix A to Proxy Statement dated April 1, 1991).
  10.16          -- First Amendment to Amended 1987 Stock Plan. (Incorporated
                    by reference to Exhibit 10.23 to Form 10-K for the fiscal
                    year ended December 31, 1993).
  10.17          -- 1993 Long-Term Incentive Stock Option Plan. (Incorporated
                    by reference to Exhibit 4.12 to Registration Statement
                    No. 333-00179 on Form S-8).
  10.18          -- Amendment to 1993 Long-Term Incentive Stock Option Plan,
                    dated February 12, 1997. (Incorporated by reference to
                    Exhibit 10.15 to Form 10-K for the fiscal year ended
                    December 31, 1996).
  10.19          -- Amendment to 1993 Long-Term Incentive Stock Option Plan,
                    dated November 13, 1997. (Incorporated by reference to
                    Exhibit 10.17 to Form 10-K for the fiscal year ended
                    December 31, 1997).
  10.20          -- 1995 Incentive Equity Plan. (Incorporated by reference to
                    Annex B to Proxy Statement dated April 17, 1995).
  10.21          -- Amendment to 1995 Incentive Equity Plan, dated February
                    12, 1997. (Incorporated by reference to Exhibit 10.18 to
                    Form 10-K for the fiscal year ended December 31, 1996).
  10.22          -- Amendment to 1995 Incentive Equity Plan, dated November
                    13, 1997. (Incorporated by reference to Exhibit 10.21 to
                    Form 10-K for the fiscal year ended December 31, 1997).
  10.23          -- 1995 Stock Plan for Non-Employee Directors. (Incorporated
                    by reference to Annex A to Proxy Statement dated April
                    17, 1995).
  10.24          -- 1996 Incentive Plan. (Incorporated by reference to Annex
                    A to Proxy Statement dated April 15, 1996).
  10.25          -- Amendment to 1996 Incentive Plan, dated February 12,
                    1997. (Incorporated by reference to Exhibit 10.22 to Form
                    10-K for the fiscal year ended December 31, 1996).
  10.26          -- Amendment to 1996 Incentive Plan, dated November 13,
                    1997. (Incorporated by reference to Exhibit 10.25 to Form
                    10-K for the fiscal year ended December 31, 1997).
  10.27          -- Split Dollar Life Insurance Plan. (Incorporated by
                    reference to Exhibit 10.36 to Form 10-K for the fiscal
                    year ended December 31, 1995).
  10.28          -- Supplemental Executive Retirement Plan for Senior
                    Officers (as Amended and Restated Effective as of January
                    1, 1998).
  10.29          -- Deferred Compensation Plan. (Incorporated by reference to
                    Exhibit 10.31 to Form 10-K for the fiscal year ended
                    December 31, 1997).
  12.1           -- Ratio of Earnings to Fixed Charges.
  21.1           -- Subsidiaries of the Company.

66

EXHIBIT
  NO.                                    DESCRIPTION
-------                                  -----------
  23.1           -- Consent of Independent Accountants
                    (PricewaterhouseCoopers LLP).
  24.1           -- Powers of Attorney.
  27             -- Financial Data Schedules.
  99.1           -- List of Pending Class Action Litigation.

In the above list, the management contracts or compensatory plans or arrangements are set forth in Exhibits 10.1 through 10.29.

Pursuant to Item 601(b)(4) of Regulation S-K, there are not filed as exhibits to this report certain instruments with respect to long-term debt under which the total amount of securities authorized thereunder does not exceed 10 per cent of the total assets of Registrant and its subsidiaries on a consolidated basis. Registrant agrees to furnish a copy of any such instrument to the Commission upon request.

67

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (the "Agreement") made and entered into as of this 1st day of January, 1998, by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to all of the rights, duties and obligations under this Agreement, and R. L. WALTRIP (the "Employee").

1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date hereof and ending as of the close of business on December 31, 2002 (such period together with all extensions thereof, is referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each January 1 thereafter (each such date shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate five (5) year(s) from such Renewal Date if (i) the Compensation Committee of the Board of Directors of the Parent (hereinafter referred to as the "Compensation Committee") authorizes such extension during the 60-day period preceding such Renewal Date and (ii) the Employee has not previously given the Company written notice that the Employment Period shall not be so extended. In the event that the Company gives the Employee written notice at any time that the Compensation Committee has determined not to authorize such extension, or if the Company fails to notify the Employee of the Compensation Committee's determination prior to the Renewal Date (the "Renewal Deadline"), the Employment Period shall be extended so as to terminate five (5) year(s) after the date such notice is given (or, in case of a failure to notify, five (5) year(s) after the Renewal Deadline) and shall not thereafter be further extended.

2. Duties and Powers of Employee. During the Employment Period, the Employee shall serve as the Chairman of the Board and Chief Executive Officer of the Parent and the Company and shall have the duties, powers and authority heretofore possessed by the holder of such offices and such other powers consistent therewith as are delegated to him in writing from time to time by the Board of Directors of the Parent (the "Board"). The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and

-1-

responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 14(a) below).

3. Compensation. The Employee shall receive the following compensation for his services:

(a) Salary. During the Employment Period, he shall be paid an annual base salary ("Annual Base Salary") at the rate of not less than $870,000 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Compensation Committee may from time to time direct such upward adjustments to Annual Base Salary as the Compensation Committee deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded to Employee prior to the Change of Control Period. Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section
3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement.

(b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Compensation Committee (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Compensation Committee to receive awards from any plan of the Company or any of its affiliated companies (as defined in Section 14(d) below) providing for the payment of bonuses in cash to senior management employees of the Company or its affiliated companies (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in Section 14(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus.

(c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and

-2-

programs applicable generally to other senior management employees of the Company and its affiliated companies.

(d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other senior management employees of the Company and its affiliated companies.

(e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect.

(f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, past practices, programs and policies of the Company and its affiliated companies from time to time in effect.

(g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, commensurate with his position.

(h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies.

(i) Change of Control. During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e),
3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the one-year period immediately preceding the Change of Control Date.

4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has

-3-

occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with
Section 15(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably).

(b) Cause. The Company may terminate the Employ-ment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) the Employee's deliberate and intentional continuing refusal to substantially perform his duties and obligations under this Agreement (other than a breach of the Employee's obligations under this Agreement arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) if he shall have either failed to remedy such alleged breach within 60 days from his receipt of written notice from the Secretary of the Company demanding that he remedy such alleged breach, or shall have failed to take reasonable steps in good faith to that end during such 60 day period and thereafter, or (ii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed.

(c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean

(i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities prior to the date of such assignment or any other action by the Company or the Parent which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and insubstantial action not taken in bad faith and

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which is remedied by the Company promptly after receipt of notice thereof given by the Employee;

(ii) any failure by the Company to comply with any of the provisions of Section 3, other than an isolated and insubstantial failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee;

(iii) the Company's requiring the Employee to be based at any office or location other than that described in Section 2(a);

(iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; or

(v) any failure by the Company or the Parent to comply with and satisfy Section 13(c), provided that the successor referred to in Section 13(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of
Section 13(c).

For purposes of this Section 4(c), during the Change of Control Period, any good faith determination of "Good Reason" made by the Employee shall be conclusive.

(d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated ,(iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice) and
(iv) if the termination is by the Company for Cause, indicates that the Board has determined that a basis for termination for Cause exists, that the Employee has failed to take reasonable steps in good faith to remedy the alleged basis for such termination, and contains a certified copy of a resolution of the Board adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board in a meeting called and held for that purpose in which the Employee was given an opportunity to be heard, finding that a basis for termination for Cause exists and that the Employee has failed to take reasonable steps in good faith to remedy such alleged basis for termination. The failure by the Employee or the Company to set forth in the

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Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the Company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder.

(e) Date of Termination. "Date of Termination" means
(i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and (iii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. Notwithstanding the foregoing, if the Company gives the Employee written notice pursuant to the second sentence of Section 1 hereof, then "Date of Termination" shall mean the last day of the five (5) year period for which the Employment Period is extended pursuant to such sentence.

5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b)(i)(A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(b)(based on the Highest Recent Bonus), 3(c) and
3(d) (it being understood that if the Company gives the Employee written notice that the Compensation Committee has determined not to authorize an extension, or fails to notify the Employee of the Compensation Committee's determination prior to the Renewal Deadline, in either case as contemplated by the second sentence of Section 1 hereof, the giving of such notice or the failure to so notify the Employee shall not be deemed a termination of the employment of the Employee with the Company during the Employment Period for purposes of this Section 5(a)).

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(b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under
Section 3 and notwithstanding any other provision hereunder:

(i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

(A) the sum of (1) all unpaid amounts due to the Employee under Section 3 through the Date of Termination, including without limitation, the Employee's Annual Base Salary and any accrued vacation pay, (2) the product of (x) the Highest Recent Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and
(3) any compensation previously deferred by the Employee (together with any accrued interest or earnings thereon) to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued Obligations" and the sum of the amounts described in clauses (1) and (3) shall be hereinafter referred to as the "Unpaid Agreement Amounts"); and

(B) the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the sum of

(1) Five (5) multiplied by the Employee's Annual Base Salary, plus

(2) Five (5) multiplied by the Employee's Highest Recent Bonus;

(ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding

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the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and

(iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families.

Such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company.

(c) Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and
(ii) any cash amount to be received by the Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) five (5) year(s) from the Date of

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Termination or (ii) the period provided by the plans, programs, policies or practices described in Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families on the Date of Termination or, if the Date of Termination occurs after the Change of Control Date, during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. "Other Benefits" shall mean the timely payment or provision to the Employee and/or the Employee's family of any other amounts or benefits required to be paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families on the Date of Termination or, if the Date of Termination occurs after the Change of Control Date, during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families.

(d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under
Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies.

(e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under
Section 3, the Company shall

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pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts.

6. Non-exclusivity of Rights. Except as provided in Sections
5(a), 5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in Sec-tions 5(b)(ii) and 5(d), such amounts shall not be reduced whether or not the Employee obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Employee or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code").

(b) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family

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or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Section 5(a) or 5(b) as through such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled.

8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 (or a successor provision of like import) of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an accounting firm of national reputation selected by the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise

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Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee.

(c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order to effectively contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis,

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for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance,
(C) any extension of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any

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amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee.

10. Employee's Obligation to Avoid Conflicts of Interest. (a) The Employee shall comply with the conflict of interest policy of the Parent as in effect from time to time.

11. Ownership of Information, Ideas, Concepts, Improvements, Discoveries and Inventions and all Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company.

(b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United States or foreign letters patent, including divisions,

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continuations, continuations-in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks.

(c) Moreover, if during Employee's employment by the Company or any of its affiliated companies, Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries.

12. Obligations to Refrain From Competing Unfairly. In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for five (5) year(s) following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other party than the Company or any of its affiliated companies,
(a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto.

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13. Successors. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise.

14. Certain Definitions. The following defined terms used in this Agreement shall have the meanings indicated:

(a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is terminated or there is a change in the circumstances of the Employee's employment which constitutes Good Reason, and if it is reasonably demonstrated by the Employee that such termination or change in circumstances: (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control; or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation.

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(b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period.

(c) "Change of Control" shall mean:

(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of Common Stock of the Parent (the "Outstanding Parent Common Stock") or (B) the combined voting power of the then outstanding voting secu-rities of the Parent entitled to vote generally in the election of directors (the "Outstanding Parent Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Parent (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by the Parent, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent or any corporation controlled by the Parent or (D) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (A), (B) and (C) of subsection (iii) of this definition of "Change of Control" are satisfied; or

(ii) Individuals who, as of the effective date hereof, constitute the Board of Directors of the Parent (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Parent; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Parent's shareholders, was approved by (A) a vote of at least a majority of the directors then constituting the Incumbent Board of the Parent, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board of Directors of the Parent at a time when such committee consisted of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (ii), shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Parent; or

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(iii) Approval by the shareholders of the Parent of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such organization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or

(iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in

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substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and
(C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent.

(d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company.

(e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the three most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date.

15. Miscellaneous. (a) This Agreement supersedes all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. Notwithstanding the foregoing, this Agreement shall not supersede, alter or affect the terms of the Non-Competition Agreement and Amendment to Employment Agreement between the Parent and Employee dated November 11, 1991, attached hereto as Exhibit "A". This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company or the Parent to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto.

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(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Employee:

R. L. Waltrip
1929 Allen Parkway
Houston, TX 77019

If to the Company:

SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary

If to the Parent:

Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) The Employee's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Employee or the Company may have hereunder, including, without limitation, the right of the Employee to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f) No breach, whether actual or alleged, of this Agreement by the Employee shall constitute grounds for the Company to withhold or offset any payment or benefit due to the Employee

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under any other agreement, contract, plan, program, policy or practice of the Company.

IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from the Board, the Company have caused this Agreement to be executed this 1st day of January, 1998.

R. L. WALTRIP

      /s/ R. L. Waltrip
----------------------------------------
           "EMPLOYEE"

SCI EXECUTIVE SERVICES, INC.

By:  /s/ Curtis G. Briggs
   ------------------------------------
Name:Curtis G. Briggs
Title:Vice President
          "COMPANY"

Pursuant to due authorization from its Board of Directors, the Parent, by its execution hereof, absolutely and unconditionally guarantees to Employee the full and timely payment and performance of each obligation of the Company to Employee under this Agreement, waives any and all rights that it may otherwise have to require Employee to proceed against the Company for nonpayment or nonperformance, waives any and all defenses that would otherwise be a defense to this guarantee, and agrees to remain liable to Employee for all payment and performance obligations of the Company under this Agreement, whether arising before, on or after the date of this Agreement, until this Agreement shall terminate pursuant to its terms.

SERVICE CORPORATION
INTERNATIONAL

By:   /s/ James M. Shelger
   -----------------------------------
Name:James M. Shelger
Title:Senior Vice President
        General Counsel and
        Secretary
                "PARENT"

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EXHIBIT 10.6

SEPARATION AND RELEASE AGREEMENT

This Separation and Release Agreement ("Agreement") is entered into as of the 15th day of March, 1999, among Service Corporation International, a Texas corporation ("SCI"), SCI Executive Services, Inc., a Delaware corporation ("Executive Services"), and L. William Heiligbrodt ("Heiligbrodt") but is effective for all purposes (other than Sections 4 and 5 hereof) as of February 11, 1999.

SCI, Executive Services and Heiligbrodt agree as follows:

1. On February 11, 1999, Heiligbrodt resigned as an officer, director, and employee of SCI, SCI Executive Services, Inc., and all of their subsidiaries and affiliated companies and enterprises (collectively "SCI Group") in order to facilitate the consolidation of the executive responsibility of SCI at that time into one office.

2. On February 11, 1999, SCI paid Heiligbrodt by wire transfer of funds to a bank designated by Heiligbrodt the amount of $23,211,957.92, representing:

(a) the purchase price for Heiligbrodt's equity in his fully vested options to purchase 933,452 shares of Common Stock, $1.00 per value, of SCI ("Common Stock") at a price of $4.125 per option (representing the difference between the $17.00 assumed market value of the Common Stock on February 11, 1999 and the $12.875 exercise price of such options);

(b) the purchase price of the 583,114 shares of Common Stock owned by Heiligbrodt and his affiliates at a price of $17.00 per share; and

(c) a cash payment in the amount of $15 million in consideration of the execution of this Agreement, the cancellation of the Employment Agreement dated January 1, 1998, between Executive Services and Heiligbrodt ("Supplanted Agreement') and the various restraints imposed upon Heiligbrodt's commercial and personal flexibility by the terms of the Independent Contractor/Consultative Agreement, dated of even date herewith, but effective for all purposes as of February 11, 1999, between SCI Management Corporation, a Delaware corporation, and Heiligbrodt ("Consulting Agreement").

The amounts referred to in clauses (a) and (c) were paid to Heiligbrodt net of applicable withholding taxes. SCI acknowledges receipt from Heiligbrodt of stock certificates, in proper form for transfer, representing 578,114 shares of the shares of Common Stock referred to in clause (b) above.


3. Heiligbrodt confirms that, as of February 11, 1999, he surrendered for cancellation and relinquished to SCI all options to purchase Common Stock that had been theretofore granted to him by SCI. Heiligbrodt hereby confirms that he is willing to receive the benefits payable to him under SCI's Supplemental Executive Retirement Plan for Senior Officers ("SERP") in the form of a lump-sum payment in the amount of $6,345,458 payable as soon as reasonably practicable after the approval of the Compensation Committee of SCI's Board of Directors.

4. In consideration of the payment to Heiligbrodt referred to in numbered paragraph 2(c) above, the receipt and sufficiency of which Heiligbrodt hereby acknowledges, Heiligbrodt discharges and releases SCI, Executive Services, all other members of SCI Group, their successors, assigns, divisions, representatives, agents, officers, directors, stockholders, and employees, from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring on or prior to the date of execution of this Agreement, including but not limited to, the following: (a) any statutory claims under the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Civil Rights Acts of 1964 and 1991, the Employee Retirement Income Security Act, Chapter 451 of the Texas Labor Code and/or the Texas Commission on Human Rights Act, (b) any tort or contract claims, including claims arising under or relating to the Supplanted Agreement and/or (c) any claims, matters or actions related to Heiligbrodt's employment and/or affiliation with, or separation from SCI Group; provided, however, that the release set forth in this numbered paragraph 4 shall not affect any claims, demands and/or causes of action that Heiligbrodt may have for indemnity, contribution or otherwise against any member of the SCI Group arising from or relating to the lawsuits listed on Exhibit A to this Agreement and any additional lawsuits that are filed after the date hereof arising from or relating to essentially the same factual matters ("Excepted Litigation").

5. Additionally, SCI and Executive Services discharge and release Heiligbrodt and his heirs, executors and administrators from any claims, demands, and/or causes of action whatsoever, presently known or unknown, that are based upon facts occurring on or prior to the date of execution of this Agreement, including, but not limited to, any claim, matter or action related to Heiligbrodt's employment and/or affiliation with, or separation from SCI Group; provided, however, that the release set forth in this numbered paragraph 5 shall not affect any claims, demands and/or causes of action that any member of the SCI Group may have against Heiligbrodt arising from or relating to the Excepted Litigation.

6. Pursuant to Section 7 of Article IV of SCI's Bylaws, the right of indemnification provided for therein shall "continue as to a person who has ceased to be a director, officer, or representative and shall inure to the benefit of the heirs, executors and administrators of such a person." SCI confirms that, Heiligbrodt's rights to indemnification under Article IV of SCI's Bylaws in respect of the Excepted Lawsuits and any other event occurring prior to the time of his resignation as an officer and director of SCI and its subsidiaries and affiliated companies will not be affected.

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7. This Agreement is not an admission by either Heiligbrodt, SCI, Executive Services, or any other member of SCI Group of any wrongdoing or liability.

8. Heiligbrodt agrees that he shall engage in no act which is intended, or may be reasonably expected, to harm the reputation, business, prospects, or operations of any members of SCI Group, their officers, directors, stockholders or employees. Heiligbrodt will not reveal to any third party any difference of opinion that may exist at any time between Heiligbrodt and any member of management of SCI, Executive Services, or any other members of SCI Group.

9. The parties agree that they shall not disclose, or cause to be disclosed, the terms of this Agreement, or the fact that this Agreement exists, except to their respective attorneys, accountants and/or tax advisors, or to the extent otherwise required by law. The parties further agree that this numbered paragraph 9 is not applicable to discussions of this Agreement in the ordinary course of business among representatives, agents, officers, directors, stockholders and employees of any members of SCI Group.

10. The execution, validity, interpretation and performance of this Agreement shall be determined and governed exclusively by the laws of the State of Texas, without reference to the principles of conflict of laws.

11. With the exception of the Consulting Agreement, this Agreement represents the complete agreement among Heiligbrodt, SCI and Executive Services concerning the subject matter in this Agreement and supersedes all prior agreements or understandings, written or oral, including the Supplanted Agreement and the Memorandum of Understanding dated February 11, 1999 between Heiligbrodt and SCI. No attempted modification or waiver of any of the provisions of this Agreement shall be binding on any party hereto unless in writing and signed by Heiligbrodt, SCI and Executive Services.

12. Each of the numbered paragraphs contained in this Agreement shall be enforceable independently of every other numbered paragraph in this Agreement, and the invalidity or nonenforceability of any numbered paragraph shall not invalidate or render nonenforceable any other numbered paragraph contained in this Agreement.

13. It is further understood that for a period of seven (7) days following the execution of this Agreement in duplicate originals, Heiligbrodt may revoke this Agreement, and this Agreement shall not become effective or enforceable until the revocation period has expired.

14. This Agreement has been entered into voluntarily and not as a result of coercion, duress, or undue influence. Heiligbrodt acknowledges that he has read and fully understands the terms of this Agreement and has consulted with an attorney before executing this Agreement. Additionally, Heiligbrodt acknowledges that he has been afforded the opportunity to take twenty-one (21) days to consider this Agreement.

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15. The dispute resolution provisions set forth in Section 15 of the Consulting Agreement are applicable to any dispute arising under this Agreement.

The parties to this Agreement have executed this Agreement as of the day and year first written above but effective for all purposes (other than Sections 4 and 5 hereof) as of the effective date above written.

   /s/L. William Heiligbrodt            Service Corporation International
----------------------------
L. William Heiligbrodt
                                        By: s/James M. Shelger
                                           ------------------------------------
                                            Authorized Officer

SCI Executive Services, Inc.

By: s/Curtis G. Briggs
   ------------------------------------
    Authorized Officer

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Exhibit A

PENDING EXCEPTED LITIGATION

1. H-99-0283; RUJIRA SRISYTHEP Individually, and an Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt In the United States District Court for the Southern District of Texas, Houston Division (Judge Melinda Harmon)

2. H-99-0297; MARK W. COLLMER; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge Lee H. Rosenthal)

3. H-99-0280; DANA ASHTON; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, L. William Heligbrodt, AND George R. Champagne; In the United States District Court for the Southern District of Texas, Houston Division


(Judge Lynn N. Hughes)

4. H-99-03 2 1; A. CARL HELWIG; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge Sim Lake)

5. 1-1-99-03 68; ALAN T. HOYT; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, L. William Heligbrodt, and George R. Champagne; In the United States District Court for the Southern District of Texas, Houston Division


(Judge David Hittner)

6. H-99-0389; MICHAEL G. WASSON, Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, L. William Heligbrodt John W. Morrow, Jr. Glenn McMillen, George R. Champagne, and Vincent L. Visosky; In the United States District Court for the Southern District of Texas, Houston Division (Judge Kenneth M. Hoyt)

7. H-99-0401; Joseph H. Eichenbaum; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, L. William Heligbrodt; and George R. Champagne; In the United States District Court for the Southern District of Texas, Houston Division (Judge Sim Lake)

8. H-99-0411; ALLAN LISSE; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge Nancy F. Atlas)

9. H-99-0417; RAYMOND J. OBUCHOWSKI; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, L. William


Heligbrodt, and George R. Champagne; In the United States District Court for the Southern District of Texas, Houston Division (Judge Nancy F. Atlas)

10. H-99-0421; ERICA A. WETZEL; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, L. William Heligbrodt, John W. Morrow, Jr., Glenn McMillen, George R. Champagne, and Vincent L. Visosky; In the United States District Court for the Southern District of Texas, Houston Division (Judge Lynn N. Hughes)

11. H-99-0469; TAMMY NEWMAN Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge David Hittner)

12. H-99-0495; ROBERT MARKEWICH; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, L. William Heligbrodt, and George R. Champagne; In the United States District Court for the Southern District of Texas, Houston Division


(Judge Nancy F. Atlas)

13. H-99-0494; PATRICIA L. RATNER Individually, and on Behalf of All Others Similarly Situated vs, Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge Ewing Werlein, Jr.)

14. H-99-0505; JOSEPH DA FONSECA; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge Nancy F. Atlas)

15. H-99-0520; GISELA FRIEDMAN; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, W. Blair Waltrip, L. William Heligbrodt, George R. Champagne, John W. Morrow, Jr., B.D. Hunter, Jack Finkelstein, Lowell A. Kirkpatrick, Jr. Vincent L. Visosky, W. Mark Hamilton, and Glenn McMillen; In the United. States District Court for the Southern District of Texas, Houston Division (Judge Melinda Harmon)

16. H-99-0539; MICHAEL ZELMAN; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge Vanessa D. Gilmore)

17. H-99-0547; MARY LOUISE RUBIN, Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip, W. Blair Waltrip, L. William Heligbrodt, George R. Champagne, John W. Morrow, Jr., B.D. Hunter, Jack Finkelstein, Lowell A. Kirkpatrick; Jr. Vincent L. Visosky, W. Mark Hamilton, and Glenn McMillen; In the United States District Court for the Southern District of Texas, Houston Division (Judge Ewing Werlein, Jr.)

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18. H-99-0568; JIM ENGELAGE; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge John D. Rainey)

19. H-99-0476; ROBERT WINOCOUR; Individually, and on Behalf of All Others Similarly Situated vs. Service Corp. International, Robert Waltrip and L. William Heligbrodt; In the United States District Court for the Southern District of Texas, Houston Division (Judge David Hittner)

20. Cause No. 31,820-99-2; CHARLES FREDRICK, Individually, and as a Representative Of the Class v. Service Corp. International, In the ____ Judicial District Court of Angelina County, Texas

21. Cause No, 31,832-99-2; SUSANNE PARKER, Individually, and as a Representative of the Class v. Service Corp. International, In the ____ Judicial District Court of Angelina County, Texas

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EXHIBIT 10.7

INDEPENDENT CONTRACTOR/CONSULTATIVE AGREEMENT

THIS AGREEMENT is made and dated as of the 15th day of March, 1999, by and between SCI Management Corporation, a Delaware corporation ("Corporation"), and L. William Heiligbrodt, a resident of Harris County, Texas ("Heiligbrodt" or "Consultant"), but is effective for all purposes as of February 11, 1999.

W I T N E S S E T H:

In consideration of the premises and the agreements herein contained, the parties intending to be legally bound hereby, agree as follows:

Section 1. Scope and Term of Agreement.

(a) Contemporaneously with the execution of this Agreement, Heiligbrodt, Service Corporation International, a Texas corporation ("SCI"), and SCI Executive Services, Inc., a Delaware corporation ("Executive Services"), have entered into a Separation and Release Agreement dated of even date herewith, but effective for most purposes as of February 11, 1999 ("Separation Agreement"). The Separation Agreement terminates, and this Agreement supplants in its entirety, the Employment Agreement, dated January 1, 1998, between Heiligbrodt and Executive Services ("Supplanted Agreement").

(b) The $15 million payment to Heiligbrodt referred to in numbered paragraph 2(c) of the Separation Agreement provides additional consideration for Consultant's commitments, agreements and undertakings set forth in this Agreement, including without limitation those appearing in Sections 7, 8, 9, 10, 11 and 12 hereof.

(c) Corporation and Executive Services are both wholly owned subsidiaries of SCI. References to the "Group" in this Agreement include SCI, Corporation, Executive Services and the other subsidiaries and affiliated companies and enterprises of SCI.


(d) Subject to the provisions of this Agreement, the Primary Term of this Agreement ("Primary Term" of this Agreement) shall begin on the effective date hereof and end on the 10th day of February, 2003. At the option of the Group, this Agreement may be extended for additional two-year periods ("Secondary Term") following the expiration of the Primary Term as is more fully described in Section 9(b) herein. In the event the Group elects to exercise the term for the first successive two-year period, it shall not be obligated, but shall have the option of extending the term for the second successive two-year period. References herein to the "Term of this Agreement" shall be deemed to mean the Primary Term unless this Agreement has been extended at the option of the Group as provided herein, in which case the Term of the Agreement shall be deemed to mean the remaining period of the Secondary Term for which the Group has previously exercised its option to extend.

Section 2. Consultant's Services. During the Term of this Agreement, Consultant agrees to and shall furnish to members of the Group Consultant's best advice, information, judgment and knowledge with respect to the operations of the members of the Group, and the acquisition, expansion, operation and financing of funeral homes, cemeteries, crematories, and related businesses. Consultant shall not be required to maintain specific working hours. Consultant shall furnish such advice at the request of members of the Board of Directors of SCI or at the request of the Chairman of the Board of SCI. Consultant may furnish his consulting services either in person, by telephone or other means of electronic communication at any reasonable time during normal business hours. Requests for personal consulting shall be made in a manner to not unduly inconvenience Consultant and shall be scheduled at the mutual agreement of SCI and Consultant. In no event shall Consultant be required to spend more than 40 hours per week performing consulting services. Consultant shall be an independent contractor and not an employee of Corporation.

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Section 3. Consideration. During the Primary Term of this Agreement, as consideration for Consultant's duties described herein, Corporation agrees to pay Consultant a consulting fee ("Consulting Fee") of Seven Hundred and Thirty Thousand and No/100 Dollars ($730,000.00) per year, payable in equal monthly installments, the first such installment being due thirty (30) days from the effective date hereof. In the event the Group exercises its option to extend the term of this Agreement to the Secondary Term, during such Secondary Term Consultant will be paid a Consulting Fee of $365,000 per year, such amount being paid in the same manner as the Consulting Fee was paid during the Primary Term.

Section 4. Reimbursement of Expenses; Office Allowance; Automobile; and Personal Security Monitoring.

(a) Corporation shall reimburse Consultant for all reasonable expenses incurred by Consultant in connection with the performance of Consultant's duties hereunder, including expenses for travel, lodging and entertainment. Consultant must present an itemized account and receipts evidencing such expenditures, and such expenditures shall not be materially in excess of the expenditures incurred by Consultant when he performed similar services as a full time employee of the Group. Consultant shall not incur any single expense or related group of expenses in excess of Five Thousand and No/100 ($5,000.00) without the prior approval of Corporation.

(b) No later than April 30, 1999, Heiligbrodt and his executive assistant, Donna Cowart, will vacate their existing office space in SCI's Houston executive office building and relocate to other premises. All equipment, furniture and other items located in Heiligbrodt's current executive offices that are owned by SCI shall remain in place. During the Term of this Agreement, Corporation will pay Consultant a monthly office space allowance of $2,500 per month (inclusive of all utility, telephone, security, common area, maintenance and similar fees and expenses). Corporation will

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furnish Consultant's new office with appropriate furniture and equipment, which items shall not exceed a cost of $35,000. Upon the termination of this Agreement, said furniture and equipment purchased with the allowance provided by Corporation shall be returned to SCI. SCI Office Services, a division of SCI, will move all of Heiligbrodt's personal effects from his current executive offices at SCI to his new office location. Donna Cowart will relocate to Consultant's new office to serve as his office assistant but will remain a full-time employee of Corporation during the Term of this Agreement. Effective April 1, 1999, Ms. Cowart's annual salary will be reduced to $30,000.

(c) Promptly following the execution of this Agreement, Corporation will cause ownership of the 1999 Lexus LS400 sedan currently provided to Heiligbrodt by SCI to be transferred to him, and Heiligbrodt shall thereupon be solely responsible for the payment of all maintenance, fuel, insurance and other expenses associated with that vehicle.

(d) Corporation will continue to pay the costs of monitoring the security system on Heiligbrodt's principal personal residence during the Term of this Agreement.

Section 5. Benefits.

(a) Consultant shall be eligible to participate in the employee benefit plans of the Group and the other benefits that are listed on Schedule A to this Agreement during the Term of this Agreement. Consultant shall not be eligible to participate in any of the other employee benefit plans of the Group or receive any of the other benefits to which he was entitled while employed as an executive of the Group pursuant to the Supplanted Agreement, including without limitation those listed on Schedule B to this Agreement.

(b) Provided Heiligbrodt delivers reasonably satisfactory collateral to Corporation prior to March 15, 1999, Corporation shall continue to reimburse Heiligbrodt for the interest payments on his Promissory Note dated August 19, 1993 payable to SCI in the original principal amount of One

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Million and No/100 Dollars ($1,000,000.00), bearing interest at 6 1/2% per annum and maturing on August 10, 2003. Such reimbursements shall be made in accordance with prior practice and shall include a gross-up for federal income taxes payable in respect thereof.

Section 6. Termination. Corporation may terminate the consulting relationship set forth in this Agreement for Cause. For purposes of this Agreement, "Cause" shall mean (a) a material breach by Consultant of this Agreement, if the breach is willful on Consultant's part or is committed in bad faith or without reasonable belief that such breach is in the best interests of the Group, or (b) the conviction of Consultant of a felony. The parties agree that the death of Consultant shall not constitute Cause. If the consulting relationship is terminated for Cause, Corporation's obligations hereunder will end on the date of termination. If Corporation terminates the consulting relationship for any reason other than for Cause, Consultant shall be entitled to receive a lump sum payment equal to the amount which would have been paid to Consultant during the remainder of the Term of this Agreement, and Consultant or Consultant's family shall be entitled to continue to participate in the Corporation's Group Health and Dental Plan and Executive Medical Reimbursement Plan described on Schedule A hereto, during the remainder of the Term of this Agreement.

Section 7. Duty to Cooperate. During and after the Term of this Agreement, Consultant agrees that he will cooperate with members of the Group in matters relating to internal investigations, external investigations, and/or litigation proceedings. During the Term of this Agreement, at Corporation's request, Consultant will provide strategic input, information and, if necessary, testimony.

Section 8. Confidentiality. Consultant understands that he received in his capacity as a senior executive of one or more members of the Group, and may receive in his capacity as a consultant under this Agreement, certain trade secrets and other confidential information concerning the business

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of members of the Group. Consultant understands that, among other things, the management methods, operating techniques, financing schemes, plans and strategies, procedures and methods, customer lists, prospective acquisitions, employee lists, training manuals and procedures, personnel evaluation procedures, collection procedures, and financial reports of members of the Group are confidential, and Consultant agrees that he will not at any time during or after the Term of this Agreement reveal any such confidential information or otherwise use same without specific written authorization by Corporation.

Section 9. Non-Competition.

(a) To protect the goodwill, trade secrets and confidential information of the members of the Group, Consultant agrees that, during the Term of this Agreement he will not, directly or indirectly, be engaged in, have an economic interest in or be employed by any business conducting the funeral, cemetery, crematory, burial or funeral prearranged sales business (collectively, the "Funeral Business") if such Funeral Business is directly or indirectly in competition with the business of any member of the Group. Specifically, but without limitation, Consultant shall not individually, or as a partner, member, employee, advisor, officer, director, shareholder or agent of any corporation, trust, or other business entity, own, manage, join, participate in, encourage, support, finance, be engaged in the Funeral Business or any business reasonably related to the Funeral Business which is in direct or indirect competition with any business owned, managed or operated by any member of the Group.

(b) Upon at least six (6) months prior written notice to Consultant, Corporation may extend the Term of this Agreement for an additional two (2) year period following the Primary Term set forth in Section 1(d) hereof. Corporation may, at its option, extend the term of this Agreement

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for an additional two (2) year period upon giving at least six months written notice to Consultant prior to the expiration of the first two (2) year extension period.

(c) Consultant agrees that the limitations as to time, geographic area, and scope of activity contained in the covenant not to compete set forth in Section 9(a) above do not impose a greater restraint than is necessary to protect the confidential information, goodwill, and other business interests of the members of the Group. If an arbitrator or a court of competent jurisdiction should declare the covenant not to compete unenforceable, in whole or in part, due to any unreasonable restriction of duration and/or geographical area, then Corporation and Consultant hereby acknowledge and agree that such arbitrator or court of law or equity shall have the express authority to reform the covenant not to compete set forth in Section 9(a) above to a reasonable restriction and/or to grant Corporation any and all relief, at law or in equity, reasonably necessary to protect the interests of the members of the Group.

Section 10. Conflicts of Interest.

(a) Consultant agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest, or upon notice by a member of the Group that a conflict exists, allow such a conflict to continue. Moreover, Consultant agrees that he shall use his reasonable best efforts to disclose to Corporation any facts which might involve a conflict of interest that have not been approved by Corporation.

(b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Funeral Business conducted by any member of the Group, involves a possible conflict of interest. It is understood that nothing contained in this Agreement shall prohibit Consultant or any affiliate of Consultant, from acquiring or owning, as a passive investment, less than 5% of the stock or other

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equity interest of any entity the interests of which are traded over any established exchange. Circumstances in which a conflict of interest on the part of Consultant would or might arise, and which should be reported immediately to Corporation, include, but are not limited to, the following:

(i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which any member of the Group does business;

(ii) Acting in any capacity, including director, officer, partner, consultant, employee, distributor, agent or the like, for suppliers, contractors, subcontractors, or other entities with which any member of the Group does significant amounts of business;

(iii) Ownership of any equity interest in, or acting in any capacity, including director, officer, partner, consultant, employee, advisor, agent, or the like for, any corporation, partnership, limited liability company, trust or other business entity that owns, or intends to acquire, directly or indirectly, any interest in any equity security issued by any member of the Group;

(iv) Acceptance, directly or indirectly, of payments, services or loans from a supplier, contractor, subcontractor, or other entity with which any member of the Group does a significant amount of business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value;

(v) Misuse of information or facilities to which Consultant had access under the Supplanted Agreement or has access under this Agreement, in each case in a manner which will be detrimental to the interest of any member of the Group, such as utilization for Consultant's own benefit of know-how or information developed through any member of the Group's business activities;

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(vi) Disclosure or other misuse of information of any kind obtained through Consultant's connection with any member of the Group; or

(vii) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design, marketing or financing of products or services designed, marketed or financed by any member of the Group.

(c) Although an activity does not constitute a conflict of interest under Section 10(b), it may still be proscribed under Section 9. In the event that Corporation determines, in the exercise of its reasonable judgment, that a conflict of interest exists between Consultant and any member of the Group, Corporation shall notify Consultant in writing in accordance with this Agreement, providing reasonably detailed information identifying the source of the conflict of interest. Within the 60-day period following receipt of such notice, Consultant shall take reasonably satisfactory action to eliminate the conflict of interest. Failure of Consultant to take such action within such 60-day period shall constitute "Cause" under Section 6 hereof.

Section 11. Disclosure of Information. Consultant agrees that during the Term of this Agreement, upon request by the Corporation, Consultant shall promptly disclose in writing to Corporation all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Consultant, either individually or jointly with others, and which relate to the business, products or services of any member of the Group. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, financing schemes, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for any member of the Group's business activities, and the like.

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Section 12. Obligations to Refrain from Competing Unfairly. Consultant agrees that during the Term of this Agreement, he shall not at any time, directly or indirectly for the benefit of any person or entity other than a member of the Group, (a) induce, entice, or solicit any employee of any member of the Group to leave his or her employment, or (b) contact, communicate or solicit any customer of any member of the Group derived from any customer list, customer lead, mail, printed matter or other information secured from any member of the Group or their present or past employees, or (c) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or material of any member of the Group, or (d) take any of the action or perform any of the services referred to in Section 10(b)(iii) above.

Section 13. Severability. In case any term, phrase, clause, paragraph, restriction, covenant, or agreement herein contained shall be held to be invalid or unenforceable, same shall be deemed, and it is hereby agreed that same are meant to be, severable and shall not defeat or impair the remaining provisions hereof.

Section 14. Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This Agreement shall not be assigned by either party hereto without the prior written consent of the other party.

Section 15. Dispute Resolution.

(a) Consultant and Corporation agree that, except for the matters identified in subsection (b) of this Section 15, all disputes relating to any aspects of Heiligbrodt's prior relationship with any member of the Group arising under the Supplanted Agreement, his rights and obligations arising under the Separation Agreement or his business relationship with any member of the Group arising under this Agreement shall be resolved by binding arbitration. This includes, but is not limited to, any claims against members of the Group or their officers, directors, employees, or agents for breach of

-10-

contract, discrimination, harassment, defamation, misrepresentation, and emotional distress, as well as any disputes pertaining to the meaning or effect of the Supplanted Agreement, the Separation Agreement or this Agreement.

(b) It is expressly agreed that this Section 15 shall not govern (i) any claim by Corporation against Consultant which is based on fraud, theft or other dishonest conduct of Consultant, or (ii) any action by Corporation to enjoin Consultant's alleged violation of Section 10(b)(iii).

(c) Any claim which either party has against the other must be presented in writing by the claiming party to the other within one year of the date the claiming party knew or should have known of the facts giving rise to the claim. Otherwise, the claim shall be deemed waived and forever barred even if there is a federal or state statute of limitations which would have given more time to pursue the claim.

(d) Each party may retain legal counsel and shall pay its own costs and attorneys' fees, regardless of the outcome of the arbitration. Each party shall pay one-half of the compensation to be paid to the arbitrators, as well as one-half of any other costs relating to the administration of the arbitration proceeding (for example, room rental, court reporter, etc.).

(e) An arbitrator shall be selected by mutual agreement of the parties. If the parties are unable to agree on a single arbitrator, each party shall select one arbitrator, and the two arbitrators so selected shall select a third arbitrator. The three arbitrators so selected will then hear and decide the matter. All arbitrators must be attorneys, judges or retired judges who are licensed to practice law in the State of Texas. The arbitration proceedings shall be conducted in Houston, Texas.

(f) The arbitration proceedings shall be conducted in accordance with the arbitration rules of the American Arbitration Association ("AAA"); provided however, that the foregoing reference

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to the AAA rules shall not be deemed to require any filing with that organization, nor any direct involvement of that organization. In the event of any inconsistency between this Agreement and the statutes, rules or regulations to be applied pursuant to this paragraph, the terms of this Agreement shall apply.

(g) The arbitrator shall issue a written award, which shall contain, at a minimum, the names of the parties, a summary of the issues in controversy, and a description of the award issued. Upon motion to a court of competent jurisdiction, either party may obtain a judgment or decree in conformity with the arbitration award, and said award shall be enforced as any other judgment or decree.

(h) In resolving claims governed by this Section 15, the arbitrator shall apply the laws of the State of Texas, and/or federal law, if applicable.

(i) Consultant and Corporation agree and acknowledge that any arbitration proceedings covered by this Section 15, and the outcome of such proceedings, shall be kept strictly confidential; provided however, that any member of the Group may disclose such information to the extent required by law and to its employees, agents and professional advisors who have a legitimate need to know such information, and Consultant may disclose such information (i) to the extent required by law, (ii) to the extent that Consultant is required to disclose same to professional persons assisting Consultant in preparing tax returns; and (iii) to Consultant's legal counsel.

Section 16. Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

Section 17. Notices. All notices provided for hereunder shall be in writing and shall be deemed to be given: (a) when delivered to Consultant or to the president of the Corporation to which

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the notice is directed; or (b) three days after the same has been deposited in the United States mail sent Certified or Registered mail with Return Receipt Requested, postage prepaid and addressed as provided in this Section 17; or (c) when delivered by an overnight delivery service (including United States Express Mail) with receipt acknowledged and with all charges prepaid by the sender addressed as provided in this Section 17. Notices shall be directed as follows:

(a) if to Consultant, addressed to:

L. William Heiligbrodt 11015 Landon Lane
Houston, Texas 77024

With a copy to:

Edward E. Hartline
Brown McCarroll & Oaks Hartline, L.L.P.

1300 Wortham Tower
2727 Allen Parkway
Houston, Texas 77019

(b) if to Corporation, addressed to:

SCI Management Corporation Attention: President 1929 Allen Parkway
Houston, TX 77019

with a copy to:

General Counsel
SCI Management Corporation 1929 Allen Parkway
Houston, TX 77019

or at such other place or places or to such other person or persons as shall be designated by notice by any party hereto.


Section 18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

Section 19. Entire Agreement. With the exception of the Separation Agreement, this Agreement supersedes all previous agreements and discussions relating to the same or similar subject matters between Consultant and Corporation, or any other member of the Group, including, without limitation, the Supplanted Agreement, and shall be governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written but effective for all purposes as of the effective date above written.

CONSULTANT:

   /s/ L. William Heiligbrodt
---------------------------------------
       L. WILLIAM HEILIGBRODT

SCI MANAGEMENT CORPORATION:

By   /s/ Curtis G. Briggs
  -------------------------------------
       Vice President

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SCHEDULE A

ELIGIBLE EMPLOYEE BENEFIT PLANS AND OTHER BENEFITS

o Group Health and Dental (subject to payment by Heiligbrodt of the applicable participant's contribution)
o Executive Medical Reimbursement
o Supplemental Disability
o Carve-Out Life Insurance
o Split-Dollar Life Insurance

Initial:          s/LWH
        ----------------------------------
         (LWH)

Initial:          s/CGB
        ----------------------------------
              (SCI Management Corporation)


SCHEDULE B

INELIGIBLE EMPLOYEE BENEFIT PLANS AND OTHER BENEFITS

o Club dues
o Financial planning reimbursement (other than those incurred prior to the date of this Agreement)
o Personal aircraft usage
o Business travel insurance
o Further contributions to the SCI Cash Balance Plan
o Group Disability
o Future benefits made available to SCI officers or employees
o Company credit cards
o Cellular telephones and pagers
o Personal use of other corporate assets (e.g., Great Lakes, Greenbriar, LSI, and other similar assets)

Initial:          s/LWH
        ----------------------------------
         (LWH)

Initial:          s/CGB
        ----------------------------------

         (SCI Management Corporation)


EXHIBIT 10.10

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (the "'Agreement"') made and entered into as of this lst day of January, 1998, by and between SCI EXECUTIVE SERVICES, INC., a Delaware corporation (the "Company") wholly owned by SERVICE CORPORATION INTERNATIONAL, a Texas corporation (the "Parent") and successor by assignment to all of the rights, duties and obligations under this Agreement, and George R. Champagne (the "Employee");

WHEREAS, the Company, the Parent and the Employee desire to join in the execution of this Agreement to set out more fully the rights, duties and obligations of the parties hereto;

WHEREAS, Employee is employed by the Company in a management capacity, has extraordinary access to the Company's confidential business information, and has significant duties and responsibilities in connection with the conduct of the company's business which places Employee in a special and uncommon classification of employees; and

WHEREAS, attendant to Employee's employment by the Company, the Company and Employee wish for there to be a complete understanding and agreement between the Company and Employee with respect to the fiduciary duties owed by Employee to the Company; Employee's obligation to avoid conflicts of interest, disclose pertinent information to the Company, and refrain from using or disclosing the Company's information; the term of employment and conditions for or upon termination thereof; the compensation and benefits owed to Employee; and the post-employment obligations Employee owes to the Company; and

WHEREAS, but for Employee's agreement to the covenants and conditions of this Agreement, particularly the conflict of interest provisions, the provisions with respect to confidentiality of information and the ownership of intellectual property, and the post-employment obligations of Employee, the Company would not have entered into this Agreement;

NOW, THEREFORE, in consideration of Employee's continued employment by the Company and the mutual promises and covenants contained herein, the receipt and sufficiency of such consideration being hereby acknowledged, the Company and Employee agree as follows:


1. Employment and Term. The Company agrees to employ the Employee and the Employee agrees to remain in the employ of the Company, in accordance with the terms and provisions of this Agreement, for the period beginning on the date hereof and ending as of the close of business on December 31, 1999 (such period together with all extensions thereof, is referred to hereinafter as the "Employment Period"); provided, however, that commencing on the date one year after the date hereof, and on each January 1 thereafter (each such date shall be hereinafter referred to as a "Renewal Date") the Employment Period shall be automatically extended so as to terminate two (2) year(s) from such Renewal Date if (i) the Compensation Committee of the Board of Directors of the Parent (hereinafter referred to as the "Compensation Committee") authorizes such extension during the 60-day period preceding such Renewal Date and (ii) the Employee has not previously given the Company written notice that the Employment Period shall not be so extended. In the event that the Company gives the Employee written notice at any time that the Compensation Committee has determined not to authorize such extension, or if the Company fails to notify the Employee of the Compensation Committee's determination prior to the Renewal Date (the "Renewal Deadline"), the Employment Period shall be extended so as to terminate two (2) year(s) after the date such notice is given (or, in case of a failure to notify, two (2) year(s) after the Renewal Deadline) and shall not thereafter be further extended.

2. Duties and Powers of Employee. (a) Position; Location. During the Employment Period, the Employee shall - perform such duties and have such powers as designated by the Board of Directors of the Company (the "Board") in connection with the execution of this Agreement. The Employee's services shall be performed at the location where the Employee is currently employed or any office which is the headquarters of the Company and is less than 50 miles from such location. During the Change of Control Period, the Employee's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned with or by the Company or the Parent at any time during the 90-day period immediately preceding the Change of Control Date (as defined in Section 16(a) below).

(b) Duties, During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote his attention and time during normal business hours to the business and affairs of the Company and to use the Employee's best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Employee to (i) serve on corporate, civic or charitable boards

-2


or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of the Employee's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Employee prior to the date of this Agreement or subsequent thereto consistent with this Section 2(b), the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) shall not thereafter be deemed to interfere with the performance of the Employee's responsibilities to the Company.

(c) Employee agrees and acknowledges that he owes, and will comply with, a fiduciary duty of loyalty, fidelity or allegiance to act at all times in the best interests of the Company and to take no action or fail to take action if such action or failure to act would injure the Company's business, its interests or its reputation.

3. Compensation. The Employee shall receive the following compensation for his services:

(a) Salary. During the Employment Period, he shall be paid an annual base salary ("Annual Base Salary") at the rate of not less than $360,000 per year, in substantially equal bi-weekly installments, and subject to any and all required withholdings and deductions for Social Security, income taxes and the like. The Compensation Committee may from time to time direct such upward adjustments to Annual Base Salary as the Compensation Committee deems to be appropriate or desirable; provided, however, that during the Change of Control Period, the -Annual Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary generally awarded in the ordinary course of business to other employees of comparable rank with the Company and its affiliated companies (as defined in Section 16(d) below). Annual Base Salary shall not be reduced after any increase thereof pursuant to this Section 3(a). Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation of the Company under this Agreement.

(b) Incentive Cash Compensation. During the Employment Period, he shall be eligible annually for a cash bonus at the discretion of the Compensation Committee (such aggregate awards for each year are hereinafter referred to as the "Annual Bonus") and at the discretion of the Compensation Committee to receive awards from any plan of the Company or any of its affiliated companies providing for the payment of

-3-

bonuses in cash to employees of the Company or its affiliated companies having rank comparable to that of the Employee (such plans being referred to herein collectively as the "Cash Bonus Plans") in accordance with the terms thereof; provided, however, that, during the Change of Control Period, the Employee shall be awarded, for each fiscal year ending during the Change of Control Period, an Annual Bonus at least equal to the Highest Recent Bonus (as defined in section 16(e) below). Each Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Employee shall elect to defer the receipt of such Annual Bonus.

(c) Incentive and Savings and Retirement Plans. During the Employment Period, the Employee shall be entitled to participate in all incentive and savings (in addition to the Cash Bonus Plans) and retirement plans, practices, policies and programs applicable generally to other employees of comparable rank with the Company and its affiliated companies.

(d) Welfare Benefit Plans. During the Employment Period, the Employee and/or the Employee's family, as the case may be, shall be eligible for participation in all welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other employees of comparable rank with the Company and its affiliated companies.

(e) Expenses. During the Employment Period and for so long as the Employee is employed by the Company, he shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the policies, practices and procedures of the Company and its affiliated companies from time to time in effect.

(f) Fringe Benefits. During the Employment Period, the Employee shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies from time to time in effect, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies.

(g) Office and Support Staff. During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance,

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commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies.

(h) Vacation and Other Absences. During the Employment Period, the Employee shall be entitled to paid vacation and such other paid absences whether for holidays, illness, personal time or any similar purposes, in accordance with the plans, policies, programs and practices of the Company and its affiliated companies in effect from time to time, commensurate with his position and on a basis at least comparable to those received by other employees of comparable rank with the Company and its affiliated companies.

(i) Change of Control. During the Change of Control Period, the Employee's benefits listed under Sections 3(c), 3(d), 3(e), 3(f), 3(g) and 3(h) above shall be at least commensurate in all material respects with the most valuable and favorable of those received by the Employee at any time during the 90-day period immediately preceding the Change of Control Date.

4. Termination of Employment. (a) Death or Disability. The Employment Period shall terminate automatically upon the Employee's death during the Employment Period. If the Company determines in good faith that the Disability of the Employee has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Employee written notice in accordance with Section 17(b) of its intention to terminate the Employment Period. In such event, the Employment Period shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" shall mean the inability of the Employee to perform the Employee's duties with the Company on a full-time basis as a result of incapacity due to mental or physical illness which continues for more than one year after the commencement of such incapacity, such incapacity to be determined by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably).

(b) Cause. The Company may terminate the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean (i) a material breach by the Employee of Section 9 which is willful on the Employee's part or which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies, or (ii) a

-5-

material breach by the Employee of the Employee's obligations under Section 2 (other than a breach of the Employee's obligations under Section 2 arising from the failure of the Employee to work as a result of incapacity due to physical or mental illness) or any material breach by the Employee of Section 10, 11 or 12 of this Agreement which in either case is willful on the Employee's part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and its affiliated companies and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach, or (iii) the conviction of the Employee of a felony involving malice which conviction has been affirmed on appeal or as to which the period in which an appeal can be taken has lapsed.

(c) Good Reason; Window Period. The Employee's employment may be terminated (i) by the Employee for Good Reason (as defined below) or (ii) during the Window Period (as defined below) by the Employee without any reason. For purposes of this Agreement, the "Window Period" shall mean the 30-day period immediately following the first anniversary of the Change of Control Date. For purposes of this Agreement, "Good Reason" shall mean

(i) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities prior to the date of such assignment or any other action by the Company or the Parent which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and insubstantial action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee;

(ii) any failure by the Company to comply with any of the provisions of Section 3, other than an isolated and insubstantial failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee;

(iii) the Company's requiring the Employee to be based at any office or location other than that described in Section 2(a);

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(iv) any purported termination by the Company of the Employee's employment otherwise than as expressly permitted by this Agreement; or

(v) any failure by the Company or the Parent to comply with and satisfy Section 16(c), provided that the successor referred to in Section 16(c) has received at least ten days prior written notice from the Company or the Employee of the requirements of
Section 16(c).

For purposes of this Section 4(c), during the Change of Control Period, any good faith determination of "Good Reason" made by the Employee shall be conclusive.

(d) Notice of Termination. Any termination by the Company for Cause or by the Employee without any reason during the Window Period or for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 17(b). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employment Period under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 15 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Employee or the Company hereunder or preclude the Employee or the company from asserting such fact or circumstance in enforcing the Employee's or the Company's rights hereunder.

(e) Date of Termination. "Date of Termination" means (i) if the Employee's employment is terminated by the Company for Cause, or by the Employee during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be,
(ii) if the Employee's employment is terminated by the Company other than for Cause or Disability, or by the Employee other than for Good Reason or during the Window Period, the Date of Termination shall be the date on which the Company or the Employee, as the case may be, notifies the other of such termination and
(iii) it the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. Notwithstanding the foregoing, if the Company gives the Employee written notice pursuant to the second sentence of Section I hereof, then "Date of

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Termination" shall mean the last day of the two (2)-year period for which the Employment Period is extended pursuant to such sentence.

5. Obligations of the Company Upon Termination. (a) Certain Terminations Prior to Change of Control Date. If, during the Employment Period prior to any Change of Control Date, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee for Good Reason, then, in lieu of the obligations of the Company under Section 3, (1) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts (as defined in Section 5(b) (i) (A) below) and (ii) notwithstanding any other provision hereunder, for the longer of (A) the remainder of the Employment Period or (B) to the extent compensation and/or benefits are provided under any plan, program, practice or policy, such longer period, if any, as such plan, program, practice or policy may provide, the Company shall continue to provide to the Employee the compensation and benefits provided in Sections 3(a), 3(c) and 3(d) (it being understood that if the Company gives the Employee written notice that the Compensation Committee has determined not to authorize an extension,' or fails to notify the Employee of the Compensation Committee's determination prior to the Renewal Deadline, in either case as contemplated by the second sentence of Section 1 hereof, the giving of such notice or the failure to so notify the Employee shall not be deemed a termination of the employment of the Employee with the Company during the Employment Period for purposes of this Section 5(a)).

(b) Certain Terminations After Change of Control Date. If, during the Change of Control Period, the employment of the Employee with the Company shall be terminated (i) by the Company other than for Cause, death or Disability or (ii) by the Employee either for Good Reason or without any reason during the Window Period, then, in lieu of the obligations of the Company under
Section 3 and notwithstanding any other provision hereunder:

(i) the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts:

(A) the sum of (1) all unpaid amounts due to the Employee under Section 3 through the Date of Termination, including without limitation, the Employee's Annual Base Salary and any accrued vacation pay, (2) the product of (x) the Highest Recent Bonus and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Employee

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(together with any accrued interest or earnings thereon) to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the "Accrued obligations" and the sum of the amounts described in clauses (1) and (3) shall be hereinafter referred to as the "Unpaid Agreement Amounts"); and

(B) the amount (such amount shall be hereinafter referred to as the "Severance Amount") equal to the sum of

(1) Two (2) multiplied by the Employee's Annual Base Salary, plus

(2) Two (2) multiplied by the Employee's Highest Recent Bonus;

(ii) for the longer of (A) the remainder of the Employment Period or (B) to the extent benefits are provided under any plan, program, practice or policy, such longer period as such plan, program, practice or policy may provide, the Company shall continue benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families; provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be required only to the extent not provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility of the Employee for retiree benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Employment Period and to have retired on the last day of such period; and

(iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Employee and/or the Employee's family for the remainder of the Employment Period any other amounts or benefits required to be

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paid or provided or which the Employee and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank with the Company and its affiliated companies and their families during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families.

such amounts received under this Section 5(b) shall be in lieu of any other amount of severance relating to salary or bonus continuation to be received by the Employee upon termination of employment of the Employee under any severance plan, policy or arrangement of the Company.

(c), Termination as a Result of Death. If the Employee's employment is terminated by reason of the Employee's death during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee's estate (i) all Accrued Obligations (which shall be paid in a lump sum in cash within 30 days after the Date of Termination) and the timely payment or provision of the Welfare Benefit Continuation (as defined below) and the Other Benefits (as defined below) and
(ii) any cash amount to be received by the Employee or the Employee's family as a death benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies. "Welfare Benefit Continuation" shall mean the continuation of benefits to the Employee and/or the Employee's family for the longer of (i) two (2) year(s) from the Date of Termination or (ii) the period provided by the plans, programs, policies or practices described in
Section 3(d) in which the Employee participates as of the Date of Termination, such benefits to be at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in
Section 3(d) if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families on the Date of Termination or, if the Date of Termination occurs after the Change of Control Date, during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally at any time thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families. "Other Benefits" shall mean the timely payment or provision to the Employee and/or the Employee's family of any other amounts or benefits required, to be paid or provided or which the Employee

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and/or the Employee's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies as in effect and applicable generally to other employees of comparable rank and their families on the Date of Termination or, if the Date of Termination occurs after the Change of Control Date, during the 90-day period immediately preceding the Change of Control Date or, if more favorable to the Employee, as in effect generally thereafter with respect to other employees of comparable rank with the Company and its affiliated companies and their families.

(d) Termination as a Result of Disability. If the Employee's employment is terminated by reason of the Employee's Disability during the Employment Period, in lieu of the obligations of the Company under Section 3, the Company shall pay or provide to the Employee (i) all Accrued Obligations which shall be paid in a lump sum in cash within 30 days after the Date of Termination and the timely payment or provision of the Welfare Benefit Continuation and the Other Benefits, provided, however, that if the Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the Welfare Benefit Continuation shall be required only to the extent not provided under such other plan during such applicable period of eligibility, and (ii) any cash amount to be received by the Employee as a disability benefit pursuant to the terms of any plan, policy or arrangement of the Company and its affiliated companies.

(e) Cause; Other than for Good Reason. If the Employee's employment shall be terminated during the Employment Period by the Company for Cause or by the Employee other than during the Window Period and other than for Good Reason, in lieu of the obligations of the Company under Section 3, the Company shall pay to the Employee in a lump sum in cash within 30 days after the Date of Termination all Unpaid Agreement Amounts.

6. Non-exclusivity of Rights. Except as provided in Sections 5(a),
5(b)(i)(B), 5(b)(ii), 5(c) and 5(d), nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy,

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practice or program or contract or agreement except as explicitly modified by this Agreement.

7. Full Settlement; Resolution of Disputes. (a) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement and, except as provided in Sections 5 (b) (ii) and 5 (d), such amounts shall not be reduced whether or not the Employee obtains other employment. The Company agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Employee or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to this Agreement), plus in! each case interest on any payment required to be made under this Agreement but not timely paid at the rate provided for in Section 28OG(d) (4) of the Internal Revenue Code of 1986, as amended (the "Code") .

(b,) If there shall be any dispute between the Company and the Employee (i) in the event of any termination of the Employee's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Employee, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Employee of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Employee and/or the Employee's family or other beneficiaries, as the case may be, that the company would be required to pay or provide pursuant to Section 5(a) or 5(b) as though such termination were by the Company without Cause or by the Employee with Good Reason. The Employee hereby undertakes to repay to the Company all such amounts to which the Employee is ultimately adjudged by such court not to be entitled.

8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment")

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would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

(b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by an accounting firm of national reputation selected by the Company (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Employee within 15 business days of the receipt of notice from the Employee that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving (or has served within the three years preceding the Change of Control Date) as accountant or auditor for the individual, entity or group effecting the Change of Control, or is unwilling or unable to perform its obligations pursuant to this Section 8, the Employee shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Employee within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written opinion that failure to report the Excise Tax on the Employee's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Employee thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the

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Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Employee.

(c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that,if successful, would require the payment by the Company of the Gross Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Company, subject to the provisions of this Section 8(c), shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. In this connection, the Employee agrees, subject to the provisions of this Section 8(c), to (i) prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine, (ii) give the Company any information reasonably requested by the Company relating to such claim, (iii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iv) cooperate with the Company in good faith in order to effectively contest such claim and (v) permit the Company to participate in any proceedings relating to such claim. The foregoing is subject, however, to the following: (A) the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed in connection therewith and the payment of costs and expenses in such connection, (B) if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee, on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance, (C) any extension

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of the statute of limitations relating to payment of taxes for the taxable year of the Employee with respect to which such contested amount is claimed to be due shall be limited solely to such contested amount and (D) the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall (subject to the Company's complying with the requirements of Section 8(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

9. Confidential Information. The Employee shall hold in a fiduciary capacity for the benfit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Employee during the Employee's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Employee or representatives of the Employee in violation of this Agreement). After termination of the Employee's employment with the Company or any of its affiliated companies, the Employee shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 9 constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement. Subject to the previous sentence, nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages from the Employee.

10. Employee's obligation to Avoid Conflicts of Interest. (a) In keeping with Employee's fiduciary duties to the

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company, Employee agrees that he shall not knowingly become involved in circumstances constituting a conflict of interest with .such duties, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee agrees that he shall disclose to the Secretary of the Parent or the Company any facts which might involve a conflict of interest that have not been approved by the Company. The Board hereby acknowledges and agrees that the activities of Employee listed on Schedule A hereto do not, and the continuation of such activities will not, constitute a conflict of interest for purposes of this
Section 10.

(b) In this connection, it is agreed that any direct interest in, connection with, or benefit from any outside activities, particularly commercial activities, which might in any way adversely affect the Company of any of its affiliated companies, involves a possible conflict of interest. Circumstances in which a conflict of interest on the part of Employee would or might arise, and which should be reported immediately to the Company or the Parent, include, but are not limited to, the following:

(i) Ownership of a material interest in any lender, supplier, contractor, customer or other entity with which the Company or any of its affiliated companies does business;

(ii) Acting in any capacity, including director,officer, partner, consultant, employee, distributor,agent or the like, for lenders, suppliers, contractors, subcontractors, customers or other entities with which the Company or any of its affiliated companies does business;

(iii) Acceptance, directly or indirectly, of payments, services or loans from a lender, supplier, contractor, subcontractor, customer or other entity with which the Company or any of its affiliated companies does business, including but not limited to, gifts, trips, entertainment, or other favors of more than a nominal value, but excluding loans from publicly held insurance companies and commercial or savings banks at normal rates of interest;

(iv) Misuse of information or facilities to which Employee has access in a manner which will be detrimental to the company's or any of its affiliated companies' interest, such as utilization for Employee's own benefit of

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know-how or information developed through the Company's or any of its affiliated companies' business activities;

(v) Disclosure or other misuse of information of any kind obtained through Employee's connection with the Company or any of its affiliated companies; or

(vi) Acquiring or trading in, directly or indirectly, other properties or interests connected with the design or marketing of products or services designed or marketed by the company or any of its affiliated companies.

(c) In the event that the Company determines, in the exercise of its reasonable judgment, that a conflict of interest exists between the Employee and the Company or any of its affiliated companies, the Company shall notify the Employee in writing in accordance with Section 17(b) hereof, providing reasonably detailed information identifying the source of the conflict of interest. Within the 60-day period following receipt of such notice, the Employee shall take action satisfactory to the Company to eliminate the conflict of interest. Failure of the Employee to take such action within such 60-day period shall constitute "Cause" under Section 4(b) hereof.

11. Disclosure of Information, Ideas, Concepts, Improvements, Discoveries and Inventions. As part of Employee's fiduciary duties to the Company, Employee agrees that during the Employment Period, and for a period of six (6) months after the Date of Termination, Employee shall promptly disclose in writing to the Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not reduced to practice, which are conceived, developed, made or acquired by Employee, either individually or jointly with others, and which relate to the business, products or services of the company or any of its affiliated companies, irrespective of whether Employee utilized the Company's or any of its affiliated companies' time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived, developed, discovered or acquired by Employee on the job, at home, or elsewhere. This obligation extends to all types of information, ideas and concepts, including information, ideas and concepts relating to new types of services, corporate opportunities, acquisition prospects, the identity of key representatives within acquisition prospect organizations, prospective names or service marks for the Company's or any of its affiliated companies' business activities, and the like.

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12. Ownership of Information, Ideas, Concepts Improvements, Discoveries and Inventions and all- Original Works of Authorship. (a) All information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by Employee or which are disclosed or made known to Employee, individually or in conjunction with others, during Employee's employment by the Company or any of its affiliated companies and which relate to the Company's or any of its affiliated companies' business, products or services (including all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names and marks) are and shall be the sole and exclusive property of the Company. Moreover, all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions are and shall be the sole and exclusive property of the Company.

(b) In particular, Employee hereby specifically sells, assigns and transfers to the Company all of his worldwide right, title and interest in and to all such information, ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor's certificates or other industrial rights that may be filed thereon, including divisions, continuations, continuations-in-part, reissues and/or extensions thereof, and applications for registration of such names and marks. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee shall assist the Company and its nominee at all times in the protection of such information, ideas, concepts, improvements, discoveries or inventions, both in the United States and all foreign countries, including but not limited to, the execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation, prosecution, issuance or enforcement of any applications for United states or foreign letters patent, including divisions, continuations, continuations -in-part, reissues, and/or extensions thereof, and any application for the registration of such names and marks.

(c) Moreover, if during Employee's employment by the Company or any of its affiliated companies Employee creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as

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videotapes, written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures or the like) relating to the Company's or any of its affiliated companies' business, products, or services, whether such work is created solely by Employee or jointly with others, the Company shall be deemed the author of such work if the work is prepared by Employee in the scope of his or her employment; or, if the work is not prepared by Employee within the scope of his or her employment but is specially ordered by the Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation or as an instrumental text, then the work shall be considered to be work made for hire and the Company shall be the author of the work. In the event such work is neither prepared by the Employee within the scope of his or her employment or is not a work specially ordered and deemed to be a work made for hire, then Employee hereby agrees to assign, and by these presents does assign, to the Company all of Employee's worldwide right, title and interest in and to such work and all rights of copyright therein. Both during the period of Employee's employment by the Company or any of its affiliated companies and thereafter, Employee agrees to assist the Company and Its nominee, at any time, in the protection of the Company's worldwide right, title and interest in and to the work and all rights of copyright therein, including but not limited to, the execution of all formal assignment documents requested by the Company or its nominee and the execution of all lawful oaths and applications, for registration of copyright in the United States and foreign countries.

13. Employee's Post-Employment Non-Competition Obligations. (a)During the Employment Period and, subject to the conditions of Sections 13(b) and
13(c), for a period of two (2) year(s) thereafter (the "Non-Competition Period"), Employee shall not, acting alone or in conjunction with others, directly or indirectly, in any of the business territories in which the Company or any of its affiliated companies is presently or at the time of termination of employment conducting business, engage in any business in competition with the business conducted by the Company or any of its affiliated companies at the time of the termination of the employment relationship, whether for his own account or by soliciting, canvassing or accepting any business or transaction for or from any other company or business in competition with such business of the Company or any of its affiliated companies.

(b) If Employee's employment is discontinued- (i) by Company for Cause pursuant to Section 4(b); or (ii) by Employee because of any reason other than for Good Reason or other than during the Window Period pursuant to
Section 4(c), Employee shall be bound by the obligations of Section 13(a) and the Company shall have no obligation to make the Non-Competition Payments (as defined

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in Section 13(c) below). However, if the employment relationship is terminated by any other circumstance or for any other reason, Employee's post-employment non-competition obligations required by Section 13(a) shall be subject to the Company's obligation to make the Non-Competition Payments specified in Section 13(c).

(c) Notwithstanding the provisions of Section 4 of this Agreement, whenever Employee's employment is terminated due to the expiration of the Employment Period in accordance with the provisions of Section 1, or due to Employee's Disability (Section 4(a)), or by the Company without Cause (Section
4(b)), unless the Company exercises its option as hereinafter provided, Employee shall be entitled to continue to receive payments (the "Non-Competition Payments") equal to his then current Annual Base Salary (as of the Date of Termination) during the Non-Competition Period. During the Non-Competition Period, the Employee shall not, however, be deemed to be an employee of the Company or be entitled to continue to receive any other employee benefits other than as set forth in Section 5 or Section 8. Moreover, the Non-Competition Payments shall be reduced to the extent Employee has already received lump-sum payments in lieu of salary and bonus pursuant to Section 5. The Company shall have the option, exercisable at any time on or within one (1) month after: (i) the date the Company gives the Employee notice that the Employment Period will not be extended (or in the case of failure to notify, on or within one month after the Renewal Deadline), in accordance with Section 1; or (ii) in the case of termination due to Employee's disability or by the Company without Cause, the Date of Termination, to cancel Employee's post-employment non-competition obligations under Section 13(a) and the Company's corresponding obligation to make the Non-Competition Payments. Such option shall be exercised by the Company mailing a written notice thereof to Employee in accordance with Section 17(b); if the Company does not send such notice within the prescribed one-month period, the Company shall remain obligated to make the Non-Competition Payments and Employee shall remain obligated to comply with the provisions of Section 13(a). The amounts to be paid by the Company are not intended to be liquidated damages or an estimate of the actual damages that would be sustained by the Company if Employee breaches his post-employment non-competition obligations. If Employee breaches his post-employment non-competition obligations, the Company shall be entitled to cease making the Non-Competition Payments and shall be entitled to all of its remedies at law or in equity for damages and injunctive relief.

14. Obligations to Refrain From Competing Unfairly In addition to the other obligations agreed to by Employee in this Agreement, Employee agrees that during the Employment Period and for two (2) Year(s) following the Date of Termination, he shall not at any time, directly or indirectly for the benefit of any other

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party than the Company or any of its affiliated companies, (a) induce, entice, or solicit any employee of the Company or any of its affiliated companies to leave his employment, or (b) contact, communicate or solicit any customer of the Company or any of its affiliated companies derived from any customer list, customer lead, mail, printed matter or other information secured from the Company or any of its affiliated companies or their present or past employees, or (c) in any other manner use any customer lists or customer leads, mail, telephone numbers, printed material or material of the Company or any of its affiliated companies relating thereto.

15. Successors (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives.

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. The Parent will require any successor (whether direct or indirect, by purchase, merger/ consolidation or otherwise) to all or substantially all of the business and/or assets of the Parent or the Parent to assume expressly and agree to perform the Parent's obligations hereunder in the same manner and to the same extent that the Parent would be required to perform them if no such succession had taken place. As used in this Agreement, "Parent" shall mean the Parent as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform the Parent's obligations hereunder by operation of law, or otherwise.

16. Certain Definitions. The following defined terms used in this Agreement shall have-the meanings indicated:

(a) The "Change of Control Date" shall mean the first date on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Employee's employment with the Company is

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terminated or there is a change in the circumstances of the Employee's employment which constitutes Good Reason, and if it is reasonably demonstrated by the Employee that such termination or change in circumstances: (i) was at the request of a third party who has taken steps reasonably calculated to effect the Change of Control; or (ii) otherwise arose in connection with or anticipation of the Change of Control, then, for all purposes of this Agreement, the "Change of Control Date" shall mean the date immediately prior to the date of such termination or cessation.

(b) The "Change of Control Period" shall mean the period commencing on the Change of Control Date and ending on the last day of the Employment Period.

(c) "Change of Control" shall mean:

(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of Common Stock of the Parent (the "Outstanding Parent Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Parent entitled to vote generally in the election of directors (the "Outstanding Parent Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Parent (excluding an acquisition by virtue of the exercise of a conversion privilege), (B) any acquisition by the Parent, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Parent or any corporation controlled by the Parent or (D) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (A), (B) and (C) of subsection (iii) of this definition of "Change of Control" are satisfied; or

(ii) Individuals who, as of the effective date hereof, constitute the Board of Directors of the Parent (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Parent; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Parent's shareholders, was approved by (A) a vote of at least a majority of the directors then constituting the Incumbent Board of the Parent, or (B) a vote of at least a majority of the directors then comprising the Executive Committee of the Board of Directors of the Parent at a time

-22-

when such committee consisted of at least five members and all members of such committee were either members of the Incumbent Board or considered as being members of the Incumbent Board pursuant to clause (A) of this subsection (ii), shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors of the Parent; or

(iii) Approval by the shareholders of the Parent of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (A) more than 60% of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and outstanding Parent Voting Securities immediately prior to such organization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Parent Common Stock and outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent, any employee benefit plan or related trust of the Parent or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the Outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or

-23-

(iv) Approval by the shareholders of the Parent of (A) a complete liquidation or dissolution of the Parent or (B) the sale or other disposition of all or substantially all of the assets of the Parent, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Parent Common Stock and Outstanding Parent Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the outstanding Parent Common Stock and Outstanding Parent Voting Securities, as the case may be, (B) no Person (excluding the Parent and any employee benefit plan or related trust of the Parent or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 20% 'or more of the outstanding Parent Common Stock or Outstanding Parent Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the Board of Directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board of Directors of the Parent providing for such sale or other disposition of assets of the Parent.

(d) The term "affiliated company" shall mean any company controlled by, controlling or under common control with the Company.

(e) The term "Highest Recent Bonus" shall mean the highest Annual Bonus (annualized for any fiscal year consisting of less than twelve full months) paid or payable, including by reason of any deferral, to the Employee by the Company and its affiliated companies in respect of the two most recent full fiscal years ending on or prior to, (i) if prior to a Change of Control, the Date of Termination, or (ii) if after a Change of Control, the Change of Control Date.

17. Miscellaneous. (a) This Agreement supersedes all previous agreements and discussions relating to the same or similar subject matters between Employee and the Company and shall be

-24-

governed by and construed in accordance with the laws of the State of Texas, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board or a duly authorized committee thereof, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of this Agreement or anything in reference thereto.

(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Employee:

George R.,Champagne
10 Twin Greens Court
Kingwood, TX 77339

if to the Company:

SCI Executive Services, Inc.
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary

If to the Parent:

Service Corporation International
1929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or enforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as

-25-

shall be required to be withheld pursuant to any applicable law or regulation.

(e) The Employee's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Employee or the Company may have hereunder, including, without limitation, the right of the Employee to terminate employment for Good Reason pursuant to Section 4(c) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.

(f) No breach, whether actual or alleged, of this Agreement by the Employee shall constitute grounds for the Company to withhold or offset any payment or benefit due to the Employee under any other agreement, contract, plan, program, policy or practice of the Company.

IN WITNESS WHEREOF, the Employee and, pursuant to due authorization from the Board, the Company have caused this Agreement to be executed this 1st day of January, 1998.

GEORGE R. CHAMPAGNE

/s/ GEORGE R. CHAMPAGNE
---------------------------------------
              "EMPLOYEE"

SCI EXECUTIVE SERVICES, INC.

By: /s/ CURTIS G. BRIGGS
   -----------------------------------------
Name: Curtis G. Briggs

Title: Vice President

"COMPANY"

-26-

Pursuant to due authorization from its Board of Directors, the Parent, by its execution hereof, absolutely and unconditionally guarantees to Employee the full and timely payment and performance of each obligation of the Company to Employee under this Agreement, waives any and all rights that it may otherwise have to require Employee to proceed against the Company for nonpayment or nonperformance, waives any and all defenses that would otherwise be a defense to this guarantee, and agrees to remain liable to Employee for all payment and performance obligations of the Company under this Agreement, whether arising before, on or after the date of this Agreement, until this Agreement shall terminate pursuant to its terms.

SERVICE CORPORATION
INTERNATIONAL,,

By: /s/ JAMES M. SHELGER
   --------------------------------------
Name:  James M. Shelger
       Senior Vice President
       General Counsel
        and Secretary

"PARENT"

-27-

SCHEDULE A

TO EMPLOYMENT AGREEMENT
REVISED AS OF JANUARY 1, 1998

GEORGE R. CHAMPAGNE

DIRECTOR: Provident Services, Inc.
Investment Capital Corporation

OFFICER: Service Corporation International SCI Aviation, Inc.
International Funeral Services, Inc.

OWNERSHIP INTEREST IN:

LOAN FROM: Provident Credit Corp. - Mortgage Loan secured by residence.

OTHER:

THE FOREGOING IS CERTIFIED TO BE TRUE AND CORRECT AS OF THE ABOVE NOTED

DATE.

/s/ GEORGE R. CHAMPAGNE
----------------------------
GEORGE R. CHAMPAGNE


EXHIBIT 10.28

SERVICE CORPORATION INTERNATIONAL

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

FOR SENIOR OFFICERS

(AS AMENDED AND RESTATED EFFECTIVE
AS OF JANUARY 1, 1998)


SERVICE CORPORATION INTERNATIONAL

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR SENIOR OFFICERS

TABLE OF CONTENTS

                                                                                                               PAGE
                                                                                                               ----

ARTICLE I. - DEFINITIONS..........................................................................................1
   Accrued Benefit................................................................................................1
   Actuarial Equivalent or Actuarially Equivalent.................................................................1
   Beneficiary....................................................................................................1
   Board of Directors.............................................................................................1
   Cause .........................................................................................................2
   Change of Control..............................................................................................2
   Code ..........................................................................................................5
   Company .......................................................................................................5
   Committee......................................................................................................5
   Credited Service...............................................................................................5
   Employee.......................................................................................................5
   Participant....................................................................................................5
   Person ........................................................................................................6
   Plan ..........................................................................................................6
   Plan Year......................................................................................................6
   Prior Plan.....................................................................................................6
   Retirement.....................................................................................................6
   Retirement Benefit.............................................................................................6
   Retirement Date................................................................................................6
   SCI Cash Balance Plan..........................................................................................6
   Securities Act.................................................................................................7
   Spouse ........................................................................................................7
   Standard Form..................................................................................................7
   Stock .........................................................................................................7
   Subsidiary.....................................................................................................7
   Voting Securities..............................................................................................7

ARTICLE II. - ELIGIBILITY.........................................................................................8

ARTICLE III. - RETIREMENT BENEFIT.................................................................................9
   3.1.    Retirement Benefit.....................................................................................9
             (a)    Amount of Retirement Benefit..................................................................9
             (b)    Post-1991 Cost-of-Living Increases for Certain Participants...................................9
             (c)    Post-1993 Cost-of-Living Increases for Certain Participants..................................10

i

   3.2.    Form and Time of Payment..............................................................................10
             (a)    Standard Form:  180-Month Certain Annuity....................................................10
             (b)    Lump Sum Payment.............................................................................11
             (c)    In-Service Commencement of Standard Form of Benefit..........................................12
             (d)    Lump Sum Payment After Commencement..........................................................13

ARTICLE IV. - BENEFITS IN THE EVENT OF A CHANGE OF CONTROL.......................................................15

ARTICLE V. - DEATH BENEFIT.......................................................................................16
   5.1.    Benefits in the Event of Participant's Death..........................................................16
   5.2.    Beneficiary Designation...............................................................................17

ARTICLE VI. - PROVISIONS RELATING TO ALL BENEFITS................................................................18
   6.1.    Effect of This Article................................................................................18
   6.2.    Benefits Upon Re-employment...........................................................................18
   6.3.    Forfeiture For Cause..................................................................................18
   6.4.    Claims Procedure......................................................................................21
   6.5.    Provisions Applicable To a Participant................................................................22

ARTICLE VII. - ADMINISTRATION....................................................................................23
   7.1.    Committee Appointment.................................................................................23
   7.2.    Committee Organization and Voting.....................................................................23
   7.3.    Powers of the Committee...............................................................................23
   7.4.    Committee Discretion..................................................................................24
   7.5.    Reimbursement of Expenses and Indemnification.........................................................25

ARTICLE VIII. - AMENDMENT AND/OR TERMINATION.....................................................................26
   8.1.    Amendment or Termination of the Plan..................................................................26
   8.2.    No Retroactive Effect on Accrued Benefits.............................................................26

ARTICLE IX. - FUNDING............................................................................................27
   9.1.    Payments Under This Plan are the Obligation of the Company............................................27
   9.2.    Plan May Be Funded Through a Rabbi Trust..............................................................27
   9.3.    Participants Must Rely Only on General Credit of the Company..........................................27

ARTICLE X. - MISCELLANEOUS.......................................................................................29
   10.1.   Responsibility for Distributions and Withholding of Taxes.............................................29
   10.2.   Limitation of Rights..................................................................................29
   10.3.   Distributions to Incompetents or Minors...............................................................29
   10.4.   Nonalienation of Benefits.............................................................................30
   10.5.   Reliance Upon Information.............................................................................30
   10.6.   Severability..........................................................................................31
   10.7.   Survival of Terms.....................................................................................31
   10.8.   Notice................................................................................................31
   10.9.   Gender and Number.....................................................................................31
   10.10.  Governing Law.........................................................................................31

ii

SERVICE CORPORATION INTERNATIONAL

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
FOR SENIOR OFFICERS

WHEREAS, Service Corporation International has established an unfunded deferred compensation plan for certain management personnel so as to retain their loyalty and to offer a further incentive to them to maintain and increase their standard of performance, which plan is entitled the Service Corporation International Supplemental Executive Retirement Plan for Senior Officers (the "Prior Plan"); and

WHEREAS, in Section 8.1 of the Prior Plan, Service Corporation International reserved the right to amend the plan from time to time; and

WHEREAS, it has been determined that the Prior Plan should be completely amended, restated and continued in the form of this Plan ("Plan") without a gap or lapse in coverage, time, or effect, in order to reflect certain amendments to the Plan.

NOW, THEREFORE, Service Corporation International hereby amends, restates and continues the Prior Plan in the form of this Plan, without a gap or lapse in coverage, time, or effect, the terms of which Plan are as follows:


ARTICLE I.

DEFINITIONS

"ACCRUED BENEFIT" means, as of any given time, the amount of unpaid Retirement Benefit (if any) under this Plan that a Participant has accrued as of such time under applicable provisions of the Plan (whether payable at such time or only at a future date).

"ACTUARIAL EQUIVALENT" or "ACTUARIALLY EQUIVALENT" means equality in value of the aggregate amounts expected to be received at different times or in a different form of payment, [a time, or in a form, other than the Standard Form] determined by the use of the same interest rate (and mortality assumptions, if applicable) as are being used, as of January 1 of the calendar year immediately preceding the calendar year in which such benefits are paid or commenced, under the definition of "Actuarial Equivalent" under the SCI Cash Balance Plan; provided, however, that, except as otherwise provided in Article III with respect to Participants to which a Prior Plan benefit formula is still applicable, in no event will the Actuarially Equivalent value of any Accrued Benefit provided by the Plan be actuarially increased by reason of a Participant's Retirement Date occurring after his attainment of age 60. If there is no SCI Cash Balance Plan or successor qualified defined benefit plan, then the actuarial factors to be used will be those actuarial factors as are selected by the actuarial firm that last serviced the SCI Cash Balance Plan prior to its termination or merger, as being then appropriate had the SCI Cash Balance Plan remained in existence at its last level of benefits and with its last participant census.

"BENEFICIARY" means a person or entity designated by the Participant under the terms of this Plan to receive any amounts distributable under the Plan upon the death of the Participant.

"BOARD OF DIRECTORS" means the Board of Directors of the Company.


"CAUSE" means the reason or reasons for which the Company terminates a Participant's employment as such reasons are described in, and as the quoted term is defined in, the latest employment agreement entered into by and between the Company and each Participant, and such definition of "Cause" is incorporated by reference into this Plan.

"CHANGE OF CONTROL" means an event listed in subparagraph (a), (b), (c) or (d) below.

(a) The acquisition by a Person of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities Act) of 20 percent or more of either (1) the then outstanding shares of Stock or (2) the combined voting power of the then outstanding Voting Securities.

However, the following acquisitions will not constitute a Change of Control: (1) any acquisition directly from the Company (excluding an acquisition by virtue of the exercise of a conversion privilege), (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by any corporation controlled by the Company or (3) any acquisition by a corporation pursuant to a reorganization, merger or consolidation, if, following the reorganization, merger or consolidation, the conditions described in clauses (1), (2) and (3) of subsection (c) of this definition are satisfied.

(b) Individuals who, as of January 1, 1992, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors.

However, any individual becoming a director subsequent to January 1, 1992, whose election, or nomination for election by the shareholders of the Company, was approved by (1) a vote of at least a majority of the directors then constituting the Incumbent Board, or (2) a vote of at least a majority of the directors then composing the

2

Executive Committee of the Board of Directors at a time when that committee was composed of at least five members and all members of the committee were either members of the Incumbent Board or considered as being members of the Incumbent Board under clause (1) of this subsection (b), will be considered as though that individual were a member of the Incumbent Board, but excluding, for this purpose, any individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as those terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors.

(c) Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, immediately following the reorganization, merger or consolidation: (1) more than 60 percent of, respectively, the then outstanding shares of common stock of the corporation resulting from that reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of the corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Stock and outstanding Voting Securities immediately prior to the reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to the reorganization, merger or consolidation, of the outstanding Stock and outstanding Voting Securities, as the case may be, (2) no Person (excluding any employee benefit plan or related trust) of the corporation resulting from the reorganization, merger or

3

consolidation and any Person beneficially owning, immediately prior to the reorganization, merger or consolidation, directly or indirectly, 20 percent or more of the outstanding Stock or outstanding Voting Securities, as the case may be, beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from the reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of the corporation entitled to vote generally in the election of directors and (3) at least a majority of the members of the board of directors of the corporation resulting from the reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for the reorganization, merger or consolidation.

(d) Approval by the shareholders of the Company of: (1) a complete liquidation or dissolution of the Company or (2) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which, immediately following the sale or other disposition: (x) more than 60 percent of, respectively, the then outstanding shares of common stock of the corporation and the combined voting power of the then outstanding voting securities of the corporation entitled to vote generally in the election of directors, is then beneficially owned directly or indirectly by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Stock and outstanding Voting Securities immediately prior to that sale or other disposition in substantially the same proportion as their ownership, immediately prior to the sale or other disposition, of the outstanding Stock and outstanding Voting Securities, as the case may be, (y) no Person (excluding any employee benefit plan or related trust) of the corporation and any Person

4

beneficially owning, immediately prior to the sale or other disposition, directly or indirectly, 20 percent or more of the outstanding Stock or outstanding Voting Securities, as the case may be, beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation and the combined voting power of the then outstanding voting securities of the corporation entitled to vote generally in the election of directors and (z) at least a majority of the members of the board of directors of the corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for that sale or other disposition of assets of the Company.

"CODE" means the Internal Revenue Code of 1986, as amended from time to time, and applicable regulations or other guidance issued thereunder by the Internal Revenue Service or other division of the U.S. Department of Treasury.

"COMPANY" means Service Corporation International.

"COMMITTEE" means the persons who are from time to time serving as members of the committee administering this Plan.

"CREDITED SERVICE" means service with the Company and its Subsidiaries for which the Participant is awarded credited service under the SCI Cash Balance Plan for benefit accrual purposes.

"EMPLOYEE" means a full time common law employee of the Company who receives salary remuneration from the Company.

"PARTICIPANT" means: (a) an Employee or former Employee of the Company who is participating in the Plan; and (b) an Employee or a former Employee of the Company whose vested Accrued Benefit has not been completely distributed; provided, however, that a person

5

described in clause (b) will be considered to be a Participant of the Plan as of any given date only to the extent of the portion of his vested Accrued Benefit that has not been distributed as of such date.

"PERSON" means any individual, entity or group within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Act, excluding the Company and any employee benefit plan or related trust maintained by the Company.

"PLAN" means the Service Corporation International Supplemental Executive Retirement Plan For Senior Officers set forth in this document, as amended from time to time.

"PLAN YEAR" means a one year period that coincides with the fiscal year of the Company.

"PRIOR PLAN" means the Service Corporation International Supplemental Executive Retirement Plan for Senior Officers as in effect prior to its amendment, restatement and continuation under the form of this Plan, and/or its predecessors, the Service Corporation International Supplemental Executive Retirement Plan established by the Company effective as of June 6, 1988 and any amended and restated Plan documents adopted after such date and before January 1, 1998.

"RETIREMENT" means the Participant's separation from service with the Company.

"RETIREMENT BENEFIT" means the Accrued Benefit (if any) payable to a qualifying Participant at his Retirement Date, as such amount is described in
Section 3.1 and paid under Section 3.2 (subject to any other applicable provisions of the Plan).

"RETIREMENT DATE" means the later of the date on which the Participant attains age 55 or the date on which he separates from service with the Company.

"SCI CASH BALANCE PLAN" means the SCI Cash Balance Plan, a defined benefit plan qualified under Section 401(a) of the Code, as such plan is amended from time to time.

6

"SECURITIES ACT" means the Securities Exchange Act of 1934, as amended from time to time.

"SPOUSE" means the person to whom the Participant is married in a marriage that is valid under applicable state law.

"STANDARD FORM" means a 180-month term certain annuity that provides for monthly annuity payments to the Participant until the earlier of the date on which the 180th monthly payment is made to the Participant or the date of the Participant's death, which Standard Form will be the form in which the vested Accrued Benefit will be payable to a Participant whose Retirement Benefit is not payable as a lump sum payment under Section 3.2.

"STOCK" means the common stock of the Company.

"SUBSIDIARY" means any subsidiary of the Company that is in the Company's controlled group of corporations as defined in Section 1563(a) of the Code.

"VOTING SECURITIES" means any security of the Company that ordinarily possesses the power to vote in the election of the Board of Directors without the happening of any precondition or contingency.

7

ARTICLE II.

ELIGIBILITY

Those Employees who are selected by the Committee will be eligible to participate in the Plan. The Committee will select those Employees who it believes are in a select group of officers of the Company in a position to contribute materially to the continued growth and financial success of the Company. The Committee will notify, in writing, each Employee selected as a Participant. In addition, each selected Employee will be given the opportunity to enter into an individual written agreement with the Company, which agreement will constitute a part of this Plan and will set forth the amount of Retirement Benefit that will be provided to such Employee as a Participant hereunder (subject to other applicable Plan provisions).

8

ARTICLE III.

RETIREMENT BENEFIT

3.1. RETIREMENT BENEFIT. Subject to Section 6.3 and other applicable provisions of the Plan, Retirement Benefits provided under the Plan will be determined and paid in accordance with the following provisions.

(a) Amount of Retirement Benefit. The monthly amount of Retirement Benefit that is provided hereunder to any Participant will be such amount as is determined by the Committee in its sole discretion. Such amount will be set forth in an individual participation agreement entered into, in writing, by and between the Company and each Participant hereunder. Such written agreement will include a provision that the Retirement Benefit provided by this amended and restated Plan are provided in lieu of, and not in addition to, the benefits provided by any Prior Plan. However, in no event will the Actuarially Equivalent value of the monthly Retirement Benefit provided under this Plan be less than the Actuarially Equivalent value of the greater of: (i) the monthly benefits to which a Participant was entitled as of December 31, 1993 under the Prior Plan as in effect on such date, or (ii) with respect to any Participant whose Retirement Benefit under the Plan is determined under a benefit schedule prescribed by a Prior Plan, the monthly amount of Retirement to which such a Participant is entitled under such benefit schedule.

(b) Post-1991 Cost-of-Living Increases for Certain Participants. In addition to the Retirement Benefit described in subsection (a) immediately above, certain Participants who are selected by the Committee in its sole discretion will accrue, as of the last day of 1992 and as of the last day of 1993, cost-of-living increases in such

9

Retirement Benefit. For each such calendar year the increase in a selected Participant's monthly Retirement Benefit will be an amount equal to: (i) such Participant's monthly Retirement Benefit as of his Retirement Date, his date of death, or the date of Change of Control, whichever event triggered the commencement of the Retirement Benefit to the Participant, times (ii) the percentage of increase in the "Consumer Price Index" (as defined herein) for the twelve-month period ending on the last day of such calendar year (but in no event more than seven percent (7 percent)). For purposes of this Section 3.1(b), the "Consumer Price Index" will mean the CPI - All Urban Consumers, U.S. City Average, All Items - Series A (1982 - 1984 = 100). The Committee will advise selected Participants, in writing, of their selection for any cost-of-living increase granted under this Section 3.1(b).

(c) Post-1993 Cost-of-Living Increases for Certain Participants. In addition to the Retirement Benefit described in subsection (a) above, certain Participants in the Plan who are selected by the Committee in its sole discretion will accrue, as of the last day of 1994 and of each succeeding calendar year, cost-of-living increases in such Retirement Benefit. The amount of such cost-of-living increases will be determined under the method described in subsection (b) immediately above. The Committee will advise selected Participants, in writing, of their selection for any cost-of-living increase granted under this Section 3.1(c).

3.2. FORM AND TIME OF PAYMENT. Subject to Section 6.3, the Retirement Benefit payable hereunder will be paid as follows:

(a) Standard Form: 180-Month Certain Annuity. A Participant who is entitled to a Retirement Benefit hereunder will receive his entire Retirement Benefit in

10

the Standard Form except to the extent that his Retirement Benefit is payable in the form of a lump sum payment pursuant to succeeding provisions of this Section 3.2, Article IV, or any other Plan provision. Payments of the Standard Form of benefit will commence as of the first day of the month coincident with or next following the Participant's Retirement Date unless he had properly elected in-service commencement of such benefit pursuant to Section 3.2(c) below.

(b) Lump Sum Payment.

(1) Participants May Request. A Participant may request, in the form and manner prescribed by the Committee, payment of his entire Retirement Benefit in a single lump sum payment that is made as of his Retirement Date; provided that:
(i) the Participant provides his written request to the Committee not less than twelve (12) calendar months before his Retirement Date; and (ii) the Committee, in its sole discretion, accepts the Participant's request. The Committee may, in its sole discretion, accept such request in total, accept such request in part and reject it in part, or reject such request in total.

To the extent that a lump sum payment request is accepted by the Committee, the lump sum payment made under this Section 3.2(b)(1) will be the Actuarial Equivalent, determined as of the requesting Participant's Retirement Date, of such Participant's entire Retirement Benefit or, if applicable, the part thereof with respect to which the Committee accepted the Participant's lump sum request.

Within such time as it considers reasonable under the circumstances, the Committee will notify, in writing, a Participant who has requested a lump sum

11

                  payment of the extent to which it has accepted such request.
                  The opportunity to request a lump sum payment under this
                  Section 3.2(b)(1) will be available only once to any
                  Participant and, once such a request is made, it will be
                  irrevocable by such Participant.

(2)            (2)Committee May Initiate. Regardless of whether a Participant
                  requests a single lump sum payment of his entire Retirement
                  Benefit pursuant to paragraph (1) of this Section 3.2(b), the
                  Committee may, in its sole discretion, determine that any
                  Participant who terminates employment with the Company for any
                  reason (except a Participant who is discharged by the Company
                  for Cause) will receive, as soon as administratively feasible
                  after such termination, a single lump sum payment of the
                  Actuarially Equivalent value (determined as of such
                  Participant's termination date) of his unpaid vested
                  Retirement Benefit.

                           Within such time as it considers appropriate under
                  the circumstances, the Committee will notify a Participant
                  whose Retirement Benefit is to be paid pursuant to this
                  paragraph (2) of Section 3.2(b).

                  (c) In-Service Commencement of Standard Form of Benefit. If a
         Participant is both at least age 54 and an active Employee of the
         Company, he may elect to commence receipt of his Retirement Benefit in
         the Standard Form as of the first day of the month following the later
         of: (i) the date he attains age 55 or (ii) the subsequent date he
         specifies that is prior to his Retirement Date; provided that such
         Participant's written election of such form of payment is received by
         the Committee not less than 12 calendar months before the applicable
         commencement date.

12

If the payment of a Participant's Retirement Benefit annuity described in this Section 3.2(c) commences before he attains the age of 60, the monthly amount of annuity that would otherwise commence at his age 60 will be discounted to the Actuarially Equivalent value of such annuity as of its actual commencement date.

The monthly amount of any in-service annuity commenced pursuant to this Section 3.2(c) will not be increased after its payment commencement date by reason of any subsequent increase in the Participant's years of Credited Service, compensation, by the deemed accrual of interest, or for any other reason; provided, however, that the Committee in its sole discretion may provide for cost-of-living increases in the amount of such annuity.

The opportunity to elect in-service commencement under this
Section 3.2(c) will be available only once to any Participant and, once such an election is made, it may not be revoked by the Participant except to the extent that such Participant requests, and the Committee approves, a lump sum payment under Section 3.2(d) below.

(d) Lump Sum Payment After Commencement. A Participant who has commenced receipt, while an active Employee of the Company, of an annuity under Sections 3.2(c) or 3.2(d) of the Prior Plan (as in effect on December 31, 1994) or Section 3.2(c) of the Plan, may request to receive, as of his Retirement Date, a lump sum payment of the Actuarially Equivalent value, determined as of the date that is 12 calendar months prior to his Retirement Date, of all remaining monthly annuity payments payable to him; provided that such Participant's written request for such lump sum payment is received by the Committee not less than 12 calendar months prior to his Retirement Date. The

13

Committee may, in its sole discretion, accept such request in total, accept such request in part and reject it in part, or reject such request in total.

Within such time as it considers reasonable under the circumstances, the Committee will notify, in writing, a Participant who has requested such a lump sum payment of the extent to which it has accepted such request. The opportunity to request, under this Section 3.2(d), a lump sum payment after commencement of an annuity under the Plan will be available only once to any Participant and, once such a request is made, it may not be revoked by such Participant.

14

ARTICLE IV.

BENEFITS IN THE EVENT OF A CHANGE OF CONTROL

Notwithstanding any other provision of this Plan, within five days after the date of any Change of Control of the Company, the Company will pay a lump sum cash payment to each Participant (or to his Beneficiary, if the Participant has died). Except as provided below, the amount of such lump sum payment will be the Actuarially Equivalent value, determined as of the Change of Control date, of any unpaid portion of such Participant's Accrued Benefit; provided, however, that in the case of a Participant who, on the Change of Control date, is an active Employee and has not commenced receipt of his Retirement Benefit, his lump sum payment under this article will be based upon (instead of his actual Accrued Benefit at such time) the Accrued Benefit to which he would have become entitled if he had continued to earn Credited Service from the Change of Control date to his attainment of age 65.

15

ARTICLE V.

DEATH BENEFIT

5.1. BENEFITS IN THE EVENT OF PARTICIPANT'S DEATH. If a Participant dies after his commencement of annuity benefits from this Plan and before receiving 180 monthly annuity payments, his Beneficiary will receive, as soon as administratively practical after such Participant's death, a lump sum cash payment of the Actuarially Equivalent value, determined as of the date of the Participant's death and on the basis of such Participant's age at his date of death, of whichever of the following amounts is applicable to the Participant:

(a) In the case of a Participant who was receiving the Standard Form of benefit, such Participant's remaining Accrued Benefit as of his date of death; provided, however, that if the Participant was an active Employee on the date of his death, instead of such Participant's actual Accrued Benefit, the Beneficiary's death benefit will, if greater, be based upon the Accrued Benefit to which the Participant would have been entitled if he had continued to earn Credited Service from the date of his death to the date on which he would have attained the age of 60.

(b) In the case of a Participant who was receiving the in-service annuity described in Section 3.2(c) of the Prior Plan (as in effect on December 31, 1994), the Participant's Accrued Benefit as of December 31, 1994, less any payments received prior to his death; and

(c) In the case of a Participant who had elected the in-service annuity described in Section 3.2(c) above, the Participant's Accrued Benefit determined as of December 31 of the year in which he signed the written election form by which he elected such form of benefit, less any payments already received prior to his death.

16

5.2. BENEFICIARY DESIGNATION. Each Participant upon entering the Plan will file with the Committee a designation of one or more Beneficiaries to whom the death benefit provided by this Article V will be paid in the event of the Participant's death. The designation will be effective upon receipt by the Committee of a properly executed form that the Committee has approved for that purpose. The Participant may from time to time revoke or change any designation of Beneficiary by filing another approved Beneficiary designation form with the Committee. If there is no valid designation of Beneficiary on file with the Committee at the time of the Participant's death or if all of the Beneficiaries designated in the last Beneficiary designation have predeceased the Participant (or, in the case of one or more trusts, have ceased to exist), the Beneficiary will be the Participant's Spouse if the Spouse survives the Participant; or otherwise the Participant's estate. If any Beneficiary survives the Participant but dies (or, in the case of a trust, ceases to exist) before receiving the lump sum death benefit due under this Article V (or such Beneficiary's portion of such lump sum payment, if more than one Beneficiary was designated by the Participant), the payment that would have been paid to that Beneficiary will, unless the Participant's designation provides otherwise, be distributed to the deceased individual Beneficiary's estate, or to the Participant's estate in the case of a Beneficiary that is not an individual.

17

ARTICLE VI.

PROVISIONS RELATING TO ALL BENEFITS

6.1. EFFECT OF THIS ARTICLE. The provisions of this Article will control over all other provisions of this Plan.

6.2. BENEFITS UPON RE-EMPLOYMENT. If a former Employee is a Participant who is receiving the Standard Form of benefit under this Plan at the time he is reemployed by the Company, the payment of such benefits hereunder will continue during his period of reemployment and the monthly amount of such Participant's benefit will not be changed as a result of his reemployment. Such Employee will continue to be considered as a Participant with respect to any undistributed portion of his Accrued Benefit under the Plan that is attributable to his prior period of employment, but he will not be eligible to recommence active participation in the Plan unless and until he is again selected as a Participant and notified by the Committee, pursuant to Article II, in connection with his reemployment as an Employee of the Company.

6.3. FORFEITURE FOR CAUSE.

(a) General Rule. If the Committee in its sole discretion finds, after full consideration of the facts presented on behalf of both the Company and the Participant, that the Participant was discharged by the Company for Cause, such Participant's entire Accrued Benefit will be forfeited and neither such Participant nor his Beneficiary will have any further claim to benefits under this Plan.

The decision of the Committee as to whether a Participant was discharged for Cause will be final. No decision of the Committee will affect in any manner the finality of the discharge of the Participant by the Company.

18

Notwithstanding the immediately preceding paragraph, the forfeiture created by this Section 6.3(a) will not apply to a Participant who is or was discharged for Cause during the Plan Year in which a Change of Control occurs, or during the next three succeeding Plan Years following the Plan Year in which a Change of Control occurs, unless an arbitrator selected to review the Committee's findings agrees with the Committee's determination to apply the forfeiture. The arbitrator will be selected by permitting the Company and the Participant each to strike one name from a panel of three names obtained from the American Arbitration Association. The person whose name is remaining will be the arbitrator.

(b) Special Rule. Notwithstanding any provision of this Plan to the contrary except the succeeding provisions of this subsection
(b), in the event that, at any time within the first ten calendar years after a Participant (including for purposes of this subsection, a former Employee-Participant) terminates employment with the Company, he becomes an employee, director, partner, member, advisor, agent or consultant of any business entity that is in competition with the Company or any of its Subsidiaries or affiliates, such Participant's entire Accrued Benefit attributable to his participation in the Plan after December 31, 1996 will be immediately forfeited, and neither such Participant nor any Beneficiary will have any claim to benefits that accrued on or after January 1, 1997 under this Plan (the "Noncompete Rule"). After full consideration of the facts presented on behalf of both the Company and the Participant, the decision of the Committee as to whether a Participant has violated the Noncompete Rule will be final.

In the event that a Participant violates the Noncompete Rule after having received all or part of his Accrued Benefit that is subject to forfeiture under that rule, such

19

Participant will be required, and by agreeing to participate in this Plan each Participant specifically agrees, to repay to the Company the full amount of any Accrued Benefit he has received, plus interest from the date of the violation of the Noncompete Rule as determined by the Committee; and to make such repayment at the time or times and in the manner determined by the Committee. The interest rate will be the weekly quoted one-year Treasury bill rate at the last weekly auction held immediately before the Committee's determination that such Participant has violated the Noncompete Rule, plus one percent (1 percent).

By agreeing to participate in this Plan each Participant further consents to the Company's deduction from any amounts the Company or any of its Subsidiaries or affiliates owes to such Participant from time to time (including amounts owed to such Participant as wages or other compensation, fringe benefits, or other amounts owed to such Participant by the Company) to the extent of the amount such Participant owes the Company under this subsection (b). Whether or not the Company elects to make any such deductions, in whole or in part, under this subsection (b), if the Company does not recover the full amount owed to it by such Participant, calculated as set forth above, such Participant agrees to pay the unpaid balance to the Company upon demand. Such Participant may be released from this obligation to repay the Company only if the Committee, in its sole discretion, determines that his action is not detrimental to the best interests of the Company or any of its Subsidiaries of affiliates.

The provisions of this subsection (b) will not be held invalid or unenforceable because of the specified period of time within which such provisions are operative, but the maximum period of time during which such provisions are operative is subject to

20

determination by a final judgment of any court that has jurisdiction over the parties and subject matter.

6.4. CLAIMS PROCEDURE. When a benefit is due, the Member or Beneficiary, as applicable (the "claimant") should submit his claim to the person or office designated by the Committee to receive claims. Under normal circumstances, a final decision will be made as to a claim within 90 days after receipt of the claim. If the Committee notifies the claimant in writing during the initial 90 day period, it may extend the claims period up to 180 days after the initial receipt of the claim. The written notice must describe the circumstances necessitating the extension and the anticipated date for the final decision. If a claim is denied during the claims period, the Committee must notify the claimant in writing. The notification must include the specific reasons for the denial, the Plan provisions upon which the denial is based, and the claims review procedure. If no action is taken during the claims period, the claim is treated as if it were denied on the last day of the claims period.

If a claimant's claim is denied and he wants a review of such denial, he must apply to the Committee in writing. That application may include any comment or argument the claimant wants to make. The claimant may either represent himself or appoint a representative, either of whom has the right to inspect all documents pertaining to the claim and its denial. The Committee may schedule any meeting with the claimant or his representative that it finds necessary or appropriate to complete its review.

The request for review must be filed within 90 days after the claim denial. If it is not, the denial becomes final. If a timely request for review is made, the Committee must make its decision, under normal circumstances, within 60 days after the receipt of the request for review. However, if the Committee notifies the claimant prior to the expiration of the initial 60 day

21

review period, it may extend the period of review up to 120 days following the initial receipt of the request for a review. All decisions of the Committee must be in writing and must include the specific reasons for its action and the Plan provisions on which its decision is based. If a decision is not given to the claimant within the review period, the claim is treated as if it were denied on the last day of the review period.

6.5. PROVISIONS APPLICABLE TO A PARTICIPANT. The provisions of the Plan applicable to any Participant hereunder will be those provisions that are in effect on the date of the Participant's termination of employment with the Company unless a subsequent amendment of the Plan by its express terms (but subject to Section 3.1(a)) applies to Participants who have previously terminated employment with the Company.

22

ARTICLE VII.

ADMINISTRATION

7.1. COMMITTEE APPOINTMENT. The Committee will be the compensation committee of the Company unless the Board of Directors appoints other individuals. Each Committee member will serve until his or her resignation or removal. The Board of Directors will have the sole discretion to remove any one or more Committee members and appoint one or more replacement or additional Committee members from time to time.

7.2. COMMITTEE ORGANIZATION AND VOTING. The Committee will select from among its members a chairman who will preside at all of its meetings and will select a secretary without regard to whether that person is a member of the Committee. The secretary will keep all records, documents and data pertaining to the Committee's supervision and administration of this Plan. A majority of the members of the Committee will constitute a quorum for the transaction of business and the vote of a majority of the members present at any meeting will decide any question brought before the meeting. In addition, the Committee may decide any question by vote, taken without a meeting, of a majority of its members. A member of the Committee who is also a Participant will not vote or act on any matter relating solely to himself.

7.3. POWERS OF THE COMMITTEE. The Committee will have the exclusive responsibility for the general administration of this Plan according to the terms and provisions of this Plan and will have all powers necessary to accomplish those purposes, including, but not by way of limitation, the complete discretionary right, power and authority:

(a) to make rules and regulations for the administration of this Plan;

23

(b) to select all Participants in this Plan (including the eligibility of any Participant to receive cost-of-living adjustments pursuant to Sections 3.1(b) and/or 3.1 (c));

(c) to determine the monthly amount of a Retirement Benefit, Accrued Benefit, death benefit or any other benefit to which a Participant (or Beneficiary) is entitled under the Plan;

(d) to construe all terms, provisions, conditions and limitations of this Plan;

(e) to correct any defect, supply any omission or reconcile any inconsistency that may appear in this Plan in the manner and to the extent it deems expedient to carry this Plan into effect for the greatest benefit of all parties at interest;

(f) to determine all controversies relating to the administration of this Plan, including but not limited to:

(1) differences of opinion arising between the Company and a Participant except when the difference of opinion relates to the entitlement to, the amount of, or the method or timing of payment of, a benefit as a result of a Change of Control; and

(2) any question it deems advisable to determine in order to promote the uniform administration of this Plan for the benefit of all parties at interest; and

(g) to delegate by written notice those clerical and recordation duties of the Committee, as it deems necessary or advisable for the proper and efficient administration of this Plan.

7.4. COMMITTEE DISCRETION. The Committee in exercising any power or authority granted under this Plan or in making any determination under this Plan will perform or refrain

24

from performing those acts using its sole discretion and judgment. Any decision made by the Committee or any refraining to act or any act taken by the Committee in good faith will be final and binding on all parties. The Committee's decision will never be subject to de novo review. Notwithstanding the foregoing, the Committee's decisions in refraining to act or acting will be subject to judicial review for benefits resulting from a Change of Control.

7.5. REIMBURSEMENT OF EXPENSES AND INDEMNIFICATION. The members of the Committee will serve without compensation for their services but will be reimbursed by the Company for all expenses properly and actually incurred in the performance of their duties under this Plan. The Company will indemnify the Committee members against, and hold the Committee members harmless from, any and all loss, damage, penalty, liability, cost and expense (including, without limitation, attorneys' fees and disbursements) that may be incurred by, imposed upon, or asserted against the Committee members by reason of any claim, regulatory proceeding, or litigation arising from any act done or omitted to be done by any member of the Committee with respect to the Plan, excepting only losses, claims, damages, liabilities, costs and expenses arising from the Committee member's bad faith or gross negligence. Each affected member of the Committee will promptly notify the Company of any claim, action or proceeding for which he may seek indemnification. The indemnification of Committee members provided for in this Section will survive the resignation or removal of the Committee member and the termination of the Plan.

25

ARTICLE VIII.

AMENDMENT AND/OR TERMINATION

8.1. AMENDMENT OR TERMINATION OF THE PLAN. Subject to Section 8.2, the Board of Directors may amend or terminate this Plan at any time by an instrument in writing.

8.2. NO RETROACTIVE EFFECT ON ACCRUED BENEFITS. No amendment or termination of this Plan will affect the rights of any Participant to the Accrued Benefit provided in Article III previously accrued by the Participant, or to the death benefit provided to his Beneficiary in Article V, if the Participant completes the requirements for the benefit, and no amendment hereto will change, without his written consent, a Participant's rights under any provision relating to a Change of Control after a Change of Control has occurred.

26

ARTICLE IX.

FUNDING

9.1. PAYMENTS UNDER THIS PLAN ARE THE OBLIGATION OF THE COMPANY. The Company will pay the benefits due to the Participants and Beneficiaries under this Plan.

9.2. PLAN MAY BE FUNDED THROUGH A RABBI TRUST. It is specifically recognized by both the Company and the Participants that the Company may, but is not required to, contribute any amount it finds desirable to a trust established to accumulate assets sufficient to fund the obligations of the Company under this Plan. However, under all circumstances, the rights of the Participants to the assets held in the trust will be no greater than the rights expressed in this agreement. Nothing contained in the trust agreement that creates the funding trust will constitute a guarantee by the Company that assets of the Company transferred to the trust will be sufficient to pay any benefits under this Plan or would place the Participant in a secured position ahead of general creditors in the event that the Company become insolvent or bankrupt. Any trust agreement that is executed to fund the Company's obligations under this Plan must specifically set out these principles so it is clear in that trust agreement that the Participants in this Plan are only unsecured general creditors of the Company in relation to their benefits under this Plan.

9.3. PARTICIPANTS MUST RELY ONLY ON GENERAL CREDIT OF THE COMPANY. It is also specifically recognized by both the Company and the Participants that this Plan is only a general corporate commitment and that each Participant must rely upon the general credit of the Company for the fulfillment of its obligations under this Plan. Under all circumstances the rights of Participants to any asset held by the Company will be no greater than the rights expressed in this Plan. Nothing contained in this Plan will constitute a guarantee by the Company that the assets of the Company will be sufficient to pay any benefits under this Plan or would place the

27

Participant in a secured position ahead of general unsecured creditors of the Company. Though the Company may establish or become a signatory to a rabbi trust, as indicated in Section 9.2, to accumulate assets to fulfill its obligations, the Plan and that trust will not create any lien, claim, encumbrance, right, title or other interest of any kind in any Participant in any asset held by the Company, contributed to the trust or otherwise designated to be used for payment of any of its obligations created in this Plan. No specific asset of the Company has been or will be set aside, or will in any way be transferred to the trust or will be pledged for the performance of the Company's obligations under this Plan in any way that would remove the asset from being subject to the creditors of the Company.

28

ARTICLE X.

MISCELLANEOUS

10.1. RESPONSIBILITY FOR DISTRIBUTIONS AND WITHHOLDING OF TAXES. The Committee will furnish to the Company information concerning the amount and form of distribution to any Participant entitled to a distribution so that the Company may make or cause any rabbi trust established to make the distribution required. The Company[?] will also calculate the deductions from the amount of the benefit paid under this Plan for any taxes required to be withheld by federal, state or local government and will cause them to be withheld.

10.2. LIMITATION OF RIGHTS. Nothing in this Plan will be construed:

(a) to give a Participant any right with respect to any benefit except in accordance with the terms of this Plan;

(b) to limit in any way the right of the Company to terminate a Participant's employment with the Company at any time;

(c) to evidence any agreement or understanding, expressed or implied, that the Company will employ a Participant in any particular position or for any particular remuneration; or

(d) to give a Participant or any other person claiming through him any interest or right under this Plan other than that of any unsecured general creditor of the Company.

10.3. DISTRIBUTIONS TO INCOMPETENTS OR MINORS. If a Participant becomes incompetent or designates a Beneficiary who is a minor or incompetent, the Committee is authorized to pay the funds due to the parent of the minor or to the guardian of the minor or incompetent or to apply those funds for the benefit of the minor or incompetent in any manner the Committee determines in its sole discretion. The application of those funds under this provision will relieve

29

the Company of any further liability to the Participant or his Beneficiary to the extent of the application of those funds.

10.4. NONALIENATION OF BENEFITS. No right or benefit provided in this Plan will be transferable by the Participant except, upon his death, to a named Beneficiary as provided in this Plan. No right or benefit under this Plan will be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge the same will be void. No right or benefit under this Plan will in any manner be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to the benefit. If any Participant or any Beneficiary becomes bankrupt or attempts to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan, that right or benefit will, in the sole discretion of the Committee, cease. In that event, the Committee may have the Company hold or apply the right or benefit or any part of it to the benefit of the Participant or Beneficiary, his or her spouse, children or other dependents or any of them in any manner and in any proportion the Committee believes to be proper in its sole and absolute discretion, but is not required to do so.

10.5. RELIANCE UPON INFORMATION. The Committee will not be liable for any decision or action taken in good faith in connection with the administration of this Plan. Without limiting the generality of the foregoing, any decision or action taken by the Committee when it relies upon information supplied it by any officer of the Company, the Company's legal counsel, the Company's actuary, the Company's independent accountants or other advisors in connection with the administration of this Plan will be deemed to have been taken in good faith.

30

10.6. SEVERABILITY. If any term, provision, covenant or condition of this Plan is held to be invalid, void or otherwise unenforceable, the rest of the Plan will remain in full force and effect and will in no way be affected, impaired or invalidated.

10.7. SURVIVAL OF TERMS. The provisions of this Plan will bind the successors of the Company.

10.8. NOTICE. Any notice or filing required or permitted to be given to the Committee or a Participant will be sufficient if in writing and hand delivered or sent by U.S. mail to the principal office of the Company or to the residential mailing address of the Participant. Notice will be deemed to be given as of the date of hand delivery or if delivery is by mail, as of the date shown on the postmark.

10.9. GENDER AND NUMBER. If the context requires it, words of one gender when used in this Plan will include the other genders, and words used in the singular or plural will include the other.

10.10. GOVERNING LAW. The Plan will be construed, administered and governed in all respects by the laws of the State of Texas.

IN WITNESS WHEREOF, the Company has executed this amended and restated Plan document as of this 23rd day of November, 1998, effective as of January 1, 1998.

SERVICE CORPORATION INTERNATIONAL

By:  /s/ Jack L. Stoner
   -------------------------------------------
Printed Name:   Jack L. Stoner
             ---------------------------------

31

EXHIBIT 12.1

SERVICE CORPORATION INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES

                                               TWELVE MONTHS ENDED DECEMBER 31
                                                      1998           1997
-------------------------------------------------------------------------------
                                              (THOUSANDS, EXCEPT RATIO AMOUNTS)
Pretax income from continuing operations .....   $  518,527        $  579,973

Undistributed income of less than 50%
 owned equity investees ......................       (7,652)           (4,267)
Minority interest in income of majority owned
 subsidiaries with fixed charges .............          818               124
Add fixed charges as adjusted (from below) ...      207,475           170,278
                                                 ----------        ----------
                                                 $  719,168        $  746,108
                                                 ----------        ----------

Fixed charges:
Interest expense:
  Corporate ..................................   $  177,436        $  135,560
  Financial services .........................       13,695             8,015
  Capitalized ................................        3,028             3,787
Amortization of debt cost ....................         (383)            1,160
1/3 of rental expense ........................       16,727            21,161
Dividends on convertible preferred stock
 of subsidiary ...............................            0             4,382
                                                 ----------        ----------
Fixed charges ................................      210,503           174,065
Less: Capitalized interest ...................       (3,028)           (3,787)
                                                 ----------        ----------
Fixed charges as adjusted ....................   $  207,475        $  170,278
                                                 ==========        ==========

Ratio (earnings divided by fixed charges) ....         3.42              4.29
                                                 ==========        ==========




EXHIBIT 21.1

Subsidiaries of the Company

                                                                                         March 19, 1999
                                                                                           OWNERSHIP
ALABAMA
         Equity Corporation International (DE Corp.) Alabama subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Alabama subsidiaries
                           ECI Alabama Cemetery Services, Inc..................................100%
                  ECI Services, Inc. (DE Corp.) Alabama subsidiaries
                           ECI Agency, Inc.....................................................100%
                           ECI Alabama Services, Inc...........................................100%
         SCI Funeral Services, Inc. (Iowa Corp) Alabama subsidiaries
                  SCI Alabama Funeral Services, Inc............................................100%
                           EC Land Company, Inc................................................100%
                           Memory Chapel Funeral Homes, Inc....................................100%
ALASKA
         SCI Funeral Services, Inc. (Iowa Corp.) Alaska subsidiaries
                  SCI Alaska Funeral Services, Inc.............................................100%
ARIZONA
         Equity Corporation International (DE Corp.) Arizona subsidiaries
                  ECI Services, Inc. (DE Corp.) Arizona subsidiaries
                           ECI Services of Arizona, Inc. (DE Corp.) Arizona subsidiaries
                                    Memory Chapel, Inc.........................................100%
                                    Parker Funeral Home, Inc...................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Arizona subsidiaries
                  National Cremation Society, Inc..............................................100%
                  SCI Arizona Funeral Services, Inc............................................100%
                           Green Acres Mortuaries and Cemeteries, Inc..........................100%
                           Redwood Memorial Gardens, Inc.......................................100%
ARKANSAS
         Equity Corporation International (DE Corp.) Arkansas subsidiaries
                  ECI Services, Inc. (DE Corp.) Arkansas subsidiaries
                           ECI Services of Arkansas, Inc. (DE Corp.) Arkansas subsidiaries
                                    Huson Funeral Home, Inc....................................100%
                                    Nelson Acquisition Company.................................100%
                                    Steele Funeral Home, Inc...................................100%
         SCI Funeral Services, Inc. (Iowa Corp) Arkansas subsidiaries
                  SCI Arkansas Funeral Services, Inc...........................................100%
CALIFORNIA
         Provident Services, Inc. (DE Corp.)California subsidiary
                  Provident Credit of California, Inc..........................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) California subsidiaries
                  Hong Kong Funeral Homes......................................................100%
                  International Funeral Parlours...............................................100%
                  SCI California Funeral Services, Inc.........................................100%
                           CWFD, Inc...........................................................100%
                           Ellis-Olson Mortuary................................................100%
                           Eric H. Ramsey Enterprises, Inc.....................................100%
                           Lakeside Memorial Lawn..............................................100%
                           Mount Vernon Memorial Park..........................................100%
                           Oak Hill Improvement Company........................................100%
                           Pierce Brothers.....................................................100%
                           SCI Southern California Region, Inc.................................100%
                           World Funeral Home..................................................100%
COLORADO
         SCI Funeral Services, Inc. (Iowa Corp.) Colorado subsidiaries
                  SCI Colorado Funeral Services, Inc...........................................100%
                           SCI Western Division, Inc...........................................100%

1

CONNECTICUT
         SCI Funeral Services, Inc. (Iowa Corp.) Connecticut subsidiaries
                  SCI Connecticut Funeral Services, Inc........................................100%
                           Fulton-Theroux Funeral Service, Inc.................................100%
DELAWARE
         Christian Funeral Services, Inc.......................................................100%
         Equity Corporation International......................................................100%
                  ECI Capital Corporation......................................................100%
                  ECI Cemetery Services, Inc...................................................100%
                           ECI Cemetery Management Services, Inc...............................100%
                           ECI Cemetery Services of Arkansas, Inc..............................100%
                           ECI Cemetery Services of California, Inc............................100%
                           ECI Cemetery Services of Illinois, Inc..............................100%
                           ECI Cemetery Services of Iowa, Inc..................................100%
                           ECI Cemetery Services of Maryland, Inc..............................100%
                           ECI Cemetery Services of Missouri, Inc..............................100%
                           ECI Cemetery Services of New Mexico, Inc............................100%
                           ECI Cemetery Services of Ohio, Inc..................................100%
                           ECI Cemetery Services of Oklahoma, Inc..............................100%
                                    ECI-Sunny Lane, Inc........................................100%
                           ECI Cemetery Services of Oregon, Inc................................100%
                           Lake View Management Company, Inc...................................100%
                  ECI Services, Inc............................................................100%
                           ECI Alabama Services, Inc. (AL Corp.) Delaware subsidiaries
                                    ECI-Chapel Hill, Inc.......................................100%
                           ECI-Carr Funeral Home, Inc...........................................49%
                           ECI-Fay McCabe Funeral Home, Inc.....................................49%
                           ECI-Henderson Funeral Home, Inc......................................49%
                           ECI Management Services, Inc........................................100%
                           ECI-Rapino Memorial Home, Inc........................................49%
                           ECI-San Jose, Inc...................................................100%
                           ECI Services of Arizona, Inc........................................100%
                           ECI Services of Arkansas, Inc.......................................100%
                           ECI Services of California, Inc.....................................100%
                           ECI Services of Connecticut, Inc....................................100%
                           ECI Services of Florida, Inc........................................100%
                           ECI Services of Georgia, Inc........................................100%
                           ECI Services of Illinois, Inc.......................................100%
                           ECI Services of Indiana, Inc........................................100%
                           ECI Services of Iowa, Inc...........................................100%
                           ECI Services of Louisiana, Inc......................................100%
                           ECI Services of Maine, Inc..........................................100%
                           ECI Services of Massachusetts, Inc..................................100%
                           ECI Services of Minnesota, Inc......................................100%
                           ECI Services of Mississippi, Inc....................................100%
                           ECI Services of Missouri, Inc.......................................100%
                           ECI Services of New Hampshire, Inc..................................100%
                           ECI Services of New Jersey, Inc.....................................100%
                           ECI Services of New Mexico, Inc.....................................100%
                           ECI Services of New York, Inc.......................................100%
                                    ECI-Conway, Inc............................................100%
                           ECI Services of North Carolina, Inc.................................100%
                           ECI Services of North Dakota, Inc...................................100%
                           ECI Services of Ohio, Inc...........................................100%
                           ECI Services of Oklahoma, Inc.......................................100%
                           ECI Services of Pennsylvania, Inc...................................100%
                           ECI Services of South Carolina, Inc.................................100%

2

                           ECI Services of South Dakota, Inc...................................100%
                           ECI Services of Texas, Inc..........................................100%
                           ECI Services of Vermont, Inc........................................100%
                           ECI Services of Virginia, Inc.......................................100%
                           ECI Services of West Virginia, Inc..................................100%
                           ECI Services of Wisconsin, Inc......................................100%
         Salvatore Air Transportation Corp.....................................................100%
         SCI Aviation, Inc.....................................................................100%
         SCI Executive Services, Inc...........................................................100%
         SCI Finance Management Inc............................................................100%
         SCI Financial Services, Inc...........................................................100%
                  American Datasource Inc......................................................100%
                  OSC, Inc.....................................................................100%
                  Provident Services, Inc......................................................100%
                           Provident Credit Corp...............................................100%
                  Purple Cross Insurance Agency................................................100%
                  SCI Investment Services, Inc.................................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Delaware subsidiaries
                  First Memorial Funeral Services, Inc.........................................100%
                  Gibraltar Mausoleum Construction Company, Inc................................100%
                  IFC-Boyertown, Inc...........................................................100%
                  Memorial Guardian Plans, Inc.................................................100%
                  Rose Hill Securities Company.................................................100%
                  SCI Funeral Services, Inc....................................................100%
                  SCI Georgia Funeral Services, Inc............................................100%
                  SCI International Services, Inc..............................................100%
                           Kenyon International Emergency Services, Inc........................100%
                  SCI Missouri Funeral Services, Inc. (MO Corp.)Delaware subsidiaries
                           IFC-York, Inc.......................................................100%
                  SCIT Holdings, Inc...........................................................100%
                           SCI Texas Funeral Services, Inc. (TX Corp.) DE subsidiaries
                                    PSI Funding, Inc...........................................100%
                  SCI Iowa Funeral Services, Inc. (IA Corp.) Delaware subsidiaries
                           SCI Iowa Finance Company............................................100%
                  SCI Pennsylvania Funeral Services, Inc. (PA Corp.) Delaware subsidiaries
                           Gabauer Funeral Home, Inc...........................................100%
         SCI International Limited.............................................................100%
                  SCI Capital Holdings, Inc.....................................................70%
                  SCI Financing Corporation....................................................100%
                  SCI GP1, LLC-(DE limited liability company)..................................100%
                  SCI GP2, LLC-(DE limited liability company)..................................100%
                  TRA Acquisition Corporation..................................................100%
         SCI Special, Inc......................................................................100%
                  SCI Capital Corporation......................................................100%
                           Investment Capital Corporation (Texas Corp.) Delaware subsidiaries
                                    IFC-YP, Inc................................................100%
                  SCI Management Corporation...................................................100%
                           International Funeral Services, Inc.................................100%
                           SCI European Aviation, Inc..........................................100%
                           SCI Management Finance Company......................................100%
         Sharon Acquisition Corp...............................................................100%
DISTRICT OF COLUMBIA
         SCI Funeral Services, Inc. (Iowa Corp.) DC subsidiaries
                  Witzke Funeral Homes, Inc....................................................100%

3

FLORIDA
         Equity Corporation International (DE Corp.) Florida subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Florida subsidiaries
                           ECI Cemetery Services of Florida, Inc. (GA Corp.) FL subsidiaries
                                    Beverly Hills Memorial Gardens, Inc........................100%
                  ECI Services, Inc. (DE Corp.) Florida subsidiaries
                           ECI Services of Florida, Inc. (DE Corp.) Florida subsidiaries
                                    San Jose Funeral Homes, Inc................................100%
         Preferred Funeral Services, Inc. (GA Corp.) Florida subsidiaries
                  Marianna Chapel Funeral Home, Inc............................................100%
         SCI Funeral Services, Inc. (Iowa Corp) Florida subsidiaries
                  SCI Funeral Services of Florida, Inc.........................................100%
                           Dorsey Funeral Home, Inc............................................100%
                           FM Cemetery, Inc....................................................100%
                           Fountainhead Memorial Park, Inc.....................................100%
                           Gibraltar Mausoleum of Florida, Inc.................................100%
                           Hillsboro Memorial Gardens, Inc.....................................100%
                           Lakeview Memorial Gardens, Inc......................................100%
                           Memorial Plans, Inc.................................................100%
GEORGIA
         Equity Corporation International (DE Corp.) Georgia subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Georgia subsidiaries
                           ECI Cemetery Services of Florida, Inc...............................100%
                           ECI Cemetery Services of Georgia, Inc...............................100%
                           ECI Cemetery Services of North Carolina, Inc........................100%
                           ECI Cemetery Services of South Carolina, Inc........................100%
                  ECI Services, Inc. (DE Corp.) Georgia subsidiaries
                           ECI Agency, Inc.....................................................100%
                           ECI Services of Georgia, Inc. (DE Corp.) Georgia subsidiaries
                                    Ryan Funeral Home, Inc.....................................100%
                                    Vance Memorial Chapel, Inc.................................100%
         Preferred Funeral Services, Inc.......................................................100%
                  All Southern Vault Company...................................................100%
                  Berkshire Land Company.......................................................100%
                  Boone/Lipsey Funeral Home, Inc...............................................100%
                  Brown's Funeral Home, Inc....................................................100%
                  Crosby Funeral Home, Inc.....................................................100%
                  Edwards Funeral Home, Inc....................................................100%
                  GMG Holdings, Inc............................................................100%
                  Goddard Acquisition, Inc.....................................................100%
                  Ivie Funeral Home of Commerce, Inc...........................................100%
                  Maxwell-Miller Funeral Home, Inc.............................................100%
                  Music Acquisition, Inc.......................................................100%
                  Pinelawn Memorial Gardens, Inc...............................................100%
                  Rainer-Carmichael Funeral Home, Inc..........................................100%
                  R. T. Patterson Funeral Home, Inc............................................100%
                  Sherrell Acquisition Corp....................................................100%
                  Simmons Funeral Home, Inc....................................................100%
                  Sumner Acquisition, Inc......................................................100%
                  Tift Memorial Gardens, Inc...................................................100%
                  Tifton Acquisition, Inc......................................................100%
                  Wainwright & Parlor Funeral Home, Inc........................................100%
                  Watson-Mathews Funeral Home, Inc.............................................100%
                  Woodlawn Memorial Gardens, Inc...............................................100%
         SCI Funeral Services, Inc. (Iowa corp.) Georgia subsidiaries
                  SCI Georgia Funeral Services, Inc. (Delaware Corp.) Georgia subsidiaries
                           Clark Funeral Home, Inc.............................................100%

4

                           Ingleside Memorial Chapel, Inc......................................100%
                           Memorial Gardens of Rome, Inc.......................................100%
                           SCI Georgia Land, Inc...............................................100%
                           SCI Southern Division, Inc..........................................100%
HAWAII
       SCI Funeral Services, Inc. (Iowa Corp.) Hawaii subsidiaries
                  SCI Hawaii Funeral Services, Inc.............................................100%
                          *Hawaiian Memorial Park Cemetery..................................... -0-
                                    Garden Life Plan, Ltd...................................... 50%
                                    Hawaiian Memorial Life Plan, Ltd...........................100%
IDAHO
NO SUBSIDIARIES
ILLINOIS
         Equity Corporation International (DE Corp.) Illinois subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Illinois subsidiaries
                           ECI Cemetery Services of Illinois, Inc. (DE Corp.) IL subsidiaries
                                    Lake View Memorial Gardens, Inc............................100%
                                            Lake View Funeral Home, Inc........................100%
                  ECI Services, Inc. (DE Corp.) Illinois subsidiaries
                           ECI Agency, Inc.....................................................100%
                           ECI Services of Illinois, Inc. (DE Corp.) Illinois subsidiaries
                                    Marengo-Union Funeral Home, Ltd............................100%
                                    Querhammer Funeral Home, Ltd...............................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Illinois subsidiaries
                  SCI Illinois Services, Inc...................................................100%
                           Bloomington Park Hill Cemetery Company, Inc.........................100%
                           Chris J. Balodimas, Inc.............................................100%
                           IFS Illinois, Inc...................................................100%
                           John V. May Funeral Home, Inc.......................................100%
                           Kolbus Funeral Home, Inc............................................100%
                           Memory Gardens Cemetery, Inc........................................100%
                           Vault Company of Illinois, Inc......................................100%
INDIANA
         Equity Corporation International (DE Corp.) Indiana subsidiaries
                  ECI Services, Inc. (DE Corp.) Indiana subsidiaries
                           ECI Services of Indiana, Inc. (DE Corp.) Indiana subsidiaries
                                    J & J Enterprises, Inc.....................................100%
                                    Little & Sons, Inc.........................................100%
                                    Myers Funeral Service, Inc.................................100%
         Alexander Funeral Homes, Incorporated.................................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Indiana subsidiaries
                  SCI Indiana Funeral Services, Inc............................................100%
                           Alpha Services Corporation..........................................100%
                           George A. Kraft, Incorporated.......................................100%
                                    Graceland Memorial Park Corporation........................100%
                           Gibraltar Mausoleum of Indiana, Inc.................................100%
                           Gibraltar Services, Inc.............................................100%
                           Gold Crusader Insurance Agency, Inc.................................100%
                           Indiana Cemetery Services, Inc......................................100%
                           Park Hill Development Co., Inc......................................100%
                           Roselawn Memorial Association, Inc..................................100%
IOWA
         Equity Corporation International (DE Corp.) Iowa subsidiaries
                  ECI Services, Inc. (DE Corp.) Iowa subsidiaries
                           ECI Services of Iowa, Inc. (DE Corp.) Iowa subsidiaries
                                    Willim Funeral Homes, Ltd..................................100%
         SCI Funeral Services, Inc.............................................................100%

5

                  Bunker's Eden Vale, Inc......................................................100%
                  SCI Iowa Funeral Services, Inc...............................................100%
                           Davenport Memorial Park Inc.........................................100%
KANSAS
         SCI Funeral Services, Inc. (Iowa Corp.) Kansas subsidiaries
                  SCI Kansas Funeral Services, Inc.............................................100%
                  Services of Kansas, Inc......................................................100%
KENTUCKY
         SCI Funeral Services, Inc. (Iowa Corp) Kentucky subsidiaries
                  SCI Kentucky Funeral Services, Inc............................................99%
                           Highland Memory Gardens, Inc........................................100%
                           Kentucky Cemetery Services, Inc.....................................100%
                           Kentucky Funeral Services, Inc......................................100%
LOUISIANA
         Equity Corporation International (DE Corp.) Louisiana subsidiaries
                  ECI Services, Inc. (DE Corp.) Louisiana subsidiaries
                           ECI Services of Louisiana, Inc. (DE Corp.) Louisiana subsidiaries
                                    Sibille Funeral Home, Inc..................................100%
         SCI Funeral Services, Inc. (Iowa Corp) Louisiana subsidiaries
                  SCI Louisiana Funeral Services, Inc..........................................100%
MAINE
         Equity Corporation International (DE Corp.) Maine subsidiaries
                  ECI Services, Inc. (DE Corp.) Maine subsidiaries
                           ECI Services of Maine, Inc. (DE Corp.) Maine subsidiaries
                                    Birmingham Funeral Home....................................100%
                                    J. W. Raymond & Son Funeral Home...........................100%
         SCI Funeral Services, Inc. (Iowa Corp) Maine subsidiaries
                  SCI Maine Funeral Services, Inc..............................................100%
MARYLAND
         SCI Funeral Services, Inc. (Iowa Corp.) Maryland subsidiaries
                  HFH, Inc.....................................................................100%
                           Hubbard Funeral Home, Inc...........................................100%
                           Bradley-Ashton-Dabrowski-Matthews Funeral Home, Inc.................100%
                           Charles S. Zeiler & Son, Inc........................................100%
                           Danzansky-Goldberg Memorial Chapels, Inc............................100%
                           Edward Sagel Funeral Direction, Inc.................................100%
                           Fleck Funeral Home, Inc.............................................100%
                           Gary L. Kaufman Funeral Home at
                                    Meadowridge Memorial Park, Inc.............................100%
                           Gary L. Kaufman Funeral Home of Elkridge, Inc.......................100%
                           Gary L. Kaufman Funeral Home Southwest, Inc.........................100%
                           John C. Miller, Incorporated........................................100%
                           Lemmon Funeral Home of Dulaney Valley, Inc..........................100%
                           Loring Byers Funeral Directors, Inc.................................100%
                           Moran-Ashton-Dabrowski Funeral Home, Inc............................100%
                           Sterling-Ashton-Schwab Funeral Home, Inc............................100%
                           The Dippel Funeral Homes, Incorporated..............................100%
                           Witzke Funeral Home of Catonsville, Inc.............................100%
                                    Witzke, Inc..............................................55.17%
                  SCI Maryland Funeral Services, Inc...........................................100%
                           Cedar Lawn Memorial Park, Inc.......................................100%
                           George Washington Cemetery Company, Inc.............................100%
                           Holly Hill Memorial Gardens, Inc....................................100%

MASSACHUSETTS
         Equity Corporation International (DE Corp.) Massachusetts subsidiaries
                  ECI Services, Inc. (DE Corp.) Massachusetts subsidiaries

6

                           ECI Life Insurance Agency, Inc......................................100%
                           ECI-Fay McCabe Funeral Home, Inc. (DE Corp) MA subsidiaries
                                    Fay-McCabe Funeral Home, Inc...............................100%
                           ECI-Henderson Funeral Home, Inc. (DE Corp) MA subsidiaries
                                    J.E. Henderson Co., Inc....................................100%
                           ECI-Rapino Memorial Home, Inc. (DE Corp) MA subsidiaries
                                    Tauro and Sons, Inc........................................100%
                                    Tauro Family Enterprises, Inc..............................100%
                  Provident Services, Inc. (Delaware Corp.) Massachusetts subsidiaries
                  PSI Massachusetts, Inc.......................................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Massachusetts subsidiaries
                  Affiliated Family Funeral Service, Inc.......................................100%
                           AFFS Boston, Inc.....................................................40%
                           AFFS North, Inc......................................................30%
                           AFFS Norwood, Inc....................................................40%
                           AFFS Quincy, Inc.....................................................40%
                           AFFS South Coast East, Inc...........................................40%
                           AFFS South Coast West, Inc...........................................10%
                           AFFS West, Inc.......................................................30%
                           Langone Funeral Home, Inc............................................40%
                           Messier Funeral Home, Inc............................................40%
                           Perlman Funeral Home, Inc............................................40%
                           Pillsbury Funeral Homes, Inc.........................................40%
                           Stanetsky Memorial Chapels, Inc......................................40%
                           Sullivan Funeral Homes, Inc..........................................40%
MICHIGAN
         SCI Funeral Services, Inc. (Iowa Corp) Michigan subsidiaries
                  SCI Michigan Funeral Services, Inc...........................................100%
                           A.J. Desmond & Sons Funeral Directors, Inc.......................... 42%
                           Cemetery/Funeral Warehouse Services, Inc............................100%
                           Christian Memorial Funeral Center, Inc..............................100%
                           Diener Funeral Home, Inc............................................100%
                           Godhardt-Tomlinson Funeral Home, Inc................................100%
                           Memorial Land Company, Inc..........................................100%
                           Pixley Memorial Chapel, Inc.........................................100%
MINNESOTA
         Equity Corporation International (DE Corp.) Minnesota subsidiaries
                  ECI Services, Inc. (DE Corp.) Minnesota subsidiaries
                           ECI Services of Minnesota, Inc. (DE Corp.) Minnesota subsidiaries
                                    Bonnerup & Son Funeral Chapel, Inc.........................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Minnesota subsidiaries
                  SCI Minnesota Funeral Services, Inc..........................................100%
                           Crystal Lake Cemetery Association...................................100%

MISSISSIPPI
         Equity Corporation International (DE Corp.) Mississippi subsidiaries
                  ECI Services, Inc. (DE Corp.) Mississippi subsidiaries
                           ECI Services of Mississippi, Inc.(DE Corp.) Mississippi subsidiaries
                                    Nowell Funeral Homes, Inc..................................100%
                                    Nowell Funeral Services, Inc. of Kosciusko,
                                    Mississippi................................................100%
                                    Nowell-Robinson Funeral Home, Inc..........................100%
                                    Waters Funeral Home, Inc...................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Mississippi subsidiaries
                  SCI Mississippi Funeral Services, Inc........................................100%
                           Olive Branch Funeral Home, Inc......................................100%

7

MISSOURI
         Equity Corporation International (DE Corp.) Missouri subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Missouri subsidiaries
                           ECI Cemetery Services of Missouri, Inc. (DE Corp.) MO subsidiaries
                                    The Oak Hill Realty Company................................100%
         SCI Funeral Services, Inc. (Iowa Corp) Missouri subsidiaries
                  SCI Missouri Funeral Services, Inc...........................................100%
                           Memorial Guardian Plans, Inc........................................100%
MONTANA
         NO SUBSIDIARIES
NEBRASKA
         Equity Corporation International (DE Corp.) Nebraska subsidiaries
                  ECI Services, Inc. (DE Corp.) Nebraska subsidiaries
                           ECI Services of Nebraska, Inc.......................................100%
                                    A.R.C. Corporation.........................................100%
                                    Wherry Bros., Inc..........................................100%
         SCI Funeral Services, Inc. (Iowa Corp) Nebraska subsidiaries
                  SCI Nebraska Funeral Services, Inc...........................................100%
NEVADA
         SCI Funeral Services, Inc. (Iowa Corp) Nevada subsidiaries
                  Ross, Burke & Knobel Mortuary................................................100%
                  SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiaries
                  SCI Texas Funeral Services, Inc. (Texas Corp) Nevada subsidiaries
                                    SCI Texas Finance Company..................................100%
NEW HAMPSHIRE
         Equity Corporation International (DE Corp.) New Hampshire subsidiaries
                  ECI Services, Inc. (DE Corp.) New Hampshire subsidiaries
                           ECI Services of New Hampshire, Inc. (DE Corp.) NH subsidiaries
                                    Fleury & Patry Funeral Homes, Inc..........................100%
NEW JERSEY
         Equity Corporation International (DE Corp.) New Jersey subsidiaries
                  ECI Services, Inc. (DE Corp.) New Jersey subsidiaries
                           ECI Services of New Jersey, Inc. (DE Corp.) NJ subsidiaries
                                    H.T. Layton & Son Home for Funerals........................100%
                  SCI Funeral Services, Inc. (Iowa Corp) New Jersey subsidiaries
                  SCIT Holdings, Inc. (Delaware Corp.) New Jersey subsidiaries
                           SCI New Jersey Funeral Services, Inc................................100%
                                    Blake-Doyle Funeral Home, Inc..............................100%
                                    Garden State Crematory, Inc................................100%
                                    Heritage Funeral Service, Inc..............................100%
                                    Heritage Livery Service, Inc...............................100%
                                    Wien & Wien, Inc...........................................100%
NEW MEXICO
         Equity Corporation International (DE Corp.) New Mexico subsidiaries
                  ECI Services, Inc. (DE Corp.) New Mexico subsidiaries
                           ECI Agency, Inc.....................................................100%
         SCI Funeral Services, Inc. (Iowa Corp) New Mexico subsidiaries
                  Memorial Guardian Plans, Inc. (DE Corp) New Mexico subsidiaries
                           Ensure Agency of New Mexico, Inc....................................100%
                  SCI New Mexico Funeral Services, Inc.........................................100%
                           Alameda Funeral Services, Inc.......................................100%
                           Lawn Haven Memorial Gardens, Inc....................................100%
NEW YORK
         Casey Funeral Home, Inc...............................................................100%
         Equity Corporation International (DE Corp.) New York subsidiaries
                  ECI Services, Inc. (DE Corp.) New York subsidiaries
                           ECI Services of New York, Inc. (DE Corp.) NY subsidiaries

8

                                    Daniel J. Schaefer, Inc....................................100%
                                    Eldan Holding Corp.........................................100%
                                    James D. Barrett Funeral Home, Inc.........................100%
                                    Light's Funeral Home, Inc..................................100%
                                    North Shore Livery Service, Inc............................100%
                                    The Kenneth Howe Funeral Home, Inc.........................100%
         SCI Funeral Services, Inc. (Iowa Corp) New York subsidiaries
                  SCI Funeral Services of New York, Inc........................................100%
                           Burr Davis-Sharpe Funeral Homes, Inc................................100%
                           Chas. Peter Nagel Inc...............................................100%
                           I. J. Morris, Inc...................................................100%
                           Marsellus Casket Company, Inc.......................................100%
                           New York Funeral Chapels, Inc.......................................100%
                           SCI Eastern Division, Inc...........................................100%
                           Thomas M. Quinn & Sons, Inc..........................................80%
                                    Werst Realty Co. Inc.......................................100%
                           Virginia Funeral Chapel, Inc........................................100%
                           Virginia Funeral Home, Inc..........................................100%
                  SCI Services of New York, Inc................................................100%
                           *The Acacia Park Cemetery Association, Inc..........................100%
NORTH CAROLINA
         SCI Funeral Services, Inc. (Iowa Corp) North Carolina subsidiaries
                  SCI North Carolina Funeral Services, Inc.....................................100%
                           Piedmont Memorial Gardens, Inc......................................100%
                           West Lawn Memorial Park Incorporated................................100%
NORTH DAKOTA
         SCI Funeral Services, Inc. (Iowa Corp) North Dakota subsidiaries
                  Memorial Guardian Plans, Inc.................................................100%
OHIO
         Equity Corporation International (DE Corp.) Ohio subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Ohio subsidiaries
                           ECI Cemetery Services of Ohio, Inc. (DE Corp.) Ohio subsidiaries
                                    Green Hills Management, Inc................................100%
                  ECI Services, Inc. (DE Corp.) Ohio subsidiaries
                           ECI Agency, Inc.....................................................100%
                           ECI Services of Ohio, Inc. (DE Corp.) Ohio subsidiaries
                                    Allmon-Dugger and Hively Funeral Home, Inc.................100%
                                    Gattozzi and Sons Funeral Homes, Inc.......................100%
                                    Hahn Funeral Home, Inc.....................................100%
                                    Halteman-Fett & Dyer Funeral Home, Inc.....................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Ohio subsidiaries
         Memorial Guardian Plans, Inc. (Delaware Corp.) Ohio subsidiaries
                           Ensure Agency of Ohio, Inc..........................................100%
                  SCI Ohio Funeral Services, Inc................................................90%
                           Cemetery Sales & Consulting Company, Inc............................100%
                           Ciriello Funeral Home - Rose Hill Chapel, Inc.......................100%
                           Custer Funeral Home, Inc............................................100%
                           Ohio Cemetery Services, Inc.........................................100%
                           Pioneer of Ohio Insurance Agency, Inc...............................100%
                           Selby-Cole Funeral Home, Inc........................................100%
                           STE Acquisition Corp................................................100%
                                    Sunset Trust Estate........................................100%
                           The Knollwood Cemetery Company......................................100%
OKLAHOMA
         Equity Corporation International (DE Corp.) Oklahoma subsidiaries
                  ECI Services, Inc. (DE Corp.) Oklahoma subsidiaries
                           ECI Services of Oklahoma, Inc. (DE Corp.) Oklahoma subsidiaries

9

                                    Altebaumer Funeral Homes, Inc..............................100%
                                    Anadarko Enterprises, Inc..................................100%
                                    Gragg & Gragg, Inc.........................................100%
                                    Ray Smith Funeral Home, Inc................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Oklahoma subsidiaries
                  AED, Inc.....................................................................100%
                           Memorial Gardens Association........................................100%
                           RMG Trust...........................................................100%
                                    Resthaven Memory Gardens of Oklahoma City Trust............100%
                           Rose Hill Burial Park, a Trust.......................................90%
                  IFC-YP, Inc. (Delaware Corp) Oklahoma subsidiaries
                           IFC-Amedco, Inc.....................................................100%
                  SCI Oklahoma Funeral Services, Inc...........................................100%
                           Hillcrest Memorial Park Trust.......................................100%
                           Memorial Park Cemetery of Bartlesville, Oklahoma,
                                    A Business Trust...........................................100%
                           Memory Gardens, Inc.................................................100%
                           Rose Hill Memorial Park Trust.......................................100%
                           SSP Limited Liability Company........................................50%
                                    SSP Insurance Agency, Inc..................................100%
                           Sunset Memorial Park Cemetery Trust.................................100%
                           Woodland Memorial Company...........................................100%
                  Sentinel Security Plans, Inc.(VA Corp.) Oklahoma Subsidiaries
                           SSP Limited Liability Company........................................50%
OREGON
         SCI Funeral Services, Inc. (Iowa Corp) Oregon subsidiaries
                  SCI Oregon Funeral Services, Inc.............................................100%
                           Uniservice Corporation..............................................100%
PENNSYLVANIA
         Equity Corporation International (DE Corp.) Pennsylvania subsidiaries
                  ECI Services, Inc. (DE Corp.) Pennsylvania subsidiaries
                           ECI Services of Pennsylvania, Inc. (DE Corp.) PA subsidiaries
                                    Mohney-Yargar Funeral Chapel, Inc.-(Old Corp.).............100%
         SCI Funeral Services, Inc. (Iowa Corp) Pennsylvania subsidiaries
                  Memorial Guardian Plans, Inc.( Delaware Corp) Pennsylvania
                           subsidiaries
                           Ensure Agency of Pennsylvania, Inc..................................100%
                  SCI Pennsylvania Funeral Services, Inc.......................................100%
                           Auman Funeral Home, Inc.............................................100%
                           Edgewood Memorial Park Company......................................100%
                           Forest Lawn Cemeteries, Inc............................             100%
                           Forest Lawn Gardens, Inc.............................................50%
                                    Speer-Anthony Kaprive Funeral Home, Inc.....................50%
                           Funeral Corporation Pennsylvania....................................100%
                                    Laughlin Funeral Home, Ltd.................................100%
                                    Luther M. Kniffen, Inc.....................................100%
                                    Rohland Funeral Home.......................................100%
                           Grandview Cemetery Association......................................100%
                           Harold B. Mulligan Co., Inc.........................................100%
                           Remembrance Services, Inc...........................................100%
                           Stephen R. Haky Funeral Home, Inc...................................100%
                           Theo. C. Auman, Inc.................................................100%
                                    Auman's, Inc...............................................100%
                                    Forest Hills Memorial Park, Inc............................100%
                                    Francis F. Seidel, Inc.....................................100%
                                    Memorial Services Planning Corporation.....................100%

10

RHODE ISLAND
         SCI Funeral Services, Inc. (Iowa corp.) Rhode Island subsidiaries
                  SCI Rhode Island Funeral Services, Inc.......................................100%
                           Chai, Ltd...........................................................100%
                           CMQ Business Properties, Inc........................................100%
                           Mount Sinai Memorial Chapel, Inc....................................100%
                           The M-1985 Corp.....................................................100%
SOUTH CAROLINA
         SCI Funeral Services, Inc. (Iowa corp.) South Carolina subsidiaries
                  SCI South Carolina Funeral Services, Inc.....................................100%
                           Greenville Vault Co., Inc...........................................100%
SOUTH DAKOTA
         SCI Financial Services, Inc. (Delaware Corp) South Dakota subsidiaries
                  American Memorial Life Insurance Company.....................................100%
                           Rushmore National Life Insurance Company............................100%
TENNESSEE
         Equity Corporation International (DE Corp.) Tennessee subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Tennessee subsidiaries
                           ECI Cemetery Services of Tennessee, Inc.............................100%
                                    Erwin Cemetery Company.....................................100%
         SCI Funeral Services, Inc. (Iowa Corp) Tennessee subsidiaries
                  SCI Tennessee Funeral Services, Inc..........................................100%
                           Collierville Funeral Home, Inc......................................100%
                           Horner Funeral Home, Inc............................................100%
                           Lily of the Valley, Inc.............................................100%
                           Lynnhurst Cemetery, Inc.............................................100%
                           Memorial Guardian Plans, Inc........................................100%
                           Memphis Memory Gardens, Inc.........................................100%
                           Sherwood Memorial Gardens, Inc......................................100%
                           Woodlawn East, Incorporated.........................................100%
                           Woodlawn Memorial Park, Inc.........................................100%
TEXAS
         Equity Corporation International (DE Corp.) Texas subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Texas subsidiaries
                           ECI Cemetery Services of Texas, Inc.................................100%
                                Gardens of Memories Memorial Park of Lufkin, Inc...............100%
                  ECI Services, Inc. (DE Corp.) Texas subsidiaries
                           ECI Services of Texas, Inc. (DE Corp.) Texas subsidiaries
                                    Gipson Funeral Home, Inc...................................100%
                           Equity Corporation International of Texas...........................100%
                           Huntsville Funeral Home, Inc.........................................95%
                           JPH Properties, Inc.................................................100%
                           Professional Funeral Associates, Inc................................100%
                  Vandiver Funeral Home, Inc...................................................100%
         SCI Funeral Services, Inc. (Iowa Corp) Texas subsidiaries
                  SCIT Holdings, Inc. (Delaware Corp.) Texas subsidiaries
                           SCI Texas Funeral Services, Inc.....................................100%
                                    EFH, Inc...................................................100%
                                    Greenlawn Memorial Park, Inc...............................100%
                                    SCI Holdings of Texas, Inc.................................100%
                                    The New Rose Hill Memorial Park, Inc.......................100%
                                    West Oaks Funeral Home, Inc................................100%
         SCI International Limited (Delaware Corp.)
                  Service Corporation International PLC (UK Corp.)
                           SCI Capital LLC-(TX limited liability company)......................100%
         SCI Special, Inc. (Delaware Corp.)
                  SCI Capital Corporation (Delaware Corp.) Texas subsidiaries

11

                           Great Lakes, Inc....................................................100%
                           Investment Capital Corporation......................................100%
UTAH
         SCI Funeral Services, Inc. (Iowa Corp.) Utah subsidiaries
                  SCI Utah Funeral Services, Inc...............................................100%
                           Valley View Memorial Park...........................................100%
                           Wasatch Land and Improvement Company................................100%
                           Wasatch Lawn Cemetery Association...................................100%
         Valley View Acquisition Corp..........................................................100%
VERMONT
         Equity Corporation International (DE Corp.) Vermont subsidiaries
                  ECI Services, Inc. (DE Corp.) Vermont subsidiaries
                           ECI Life Insurance Agency, Inc......................................100%
VIRGINIA
         Equity Corporation International (DE Corp.) Virginia subsidiaries
                  ECI Cemetery Services, Inc. (DE Corp.) Virginia subsidiaries
                           ECI Cemetery Services of Virginia, Inc..............................100%
                                    Sunset Cemetery, Inc.......................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Virginia subsidiaries
                  Memorial Guardian Plans, Inc. (Delaware Corp)
                           Sentinel Security Plans, Inc........................................100%
                  SCI Virginia Funeral Services, Inc...........................................100%
                           The Stonewall Memory Gardens Incorporated...........................100%
                           Wood Funeral Home, Inc..............................................100%
WASHINGTON
         SCI Funeral Services, Inc. (Iowa Corp.) Washington subsidiaries
                  SCI Washington Funeral Services, Inc.........................................100%
                           Ball & Dodd Funeral Home, Inc.......................................100%
                           Meyer Funeral Home, Ltd.............................................100%
                           Oakwood Hill Cemetery & Columbarium, Inc............................100%
                           Piper-Morley Funeral Home, Inc......................................100%
WEST VIRGINIA
         SCI Funeral Services, Inc. (Iowa Corp.) West Virginia subsidiaries
                  SCI West Virginia Funeral Services, Inc......................................100%
                           Gibraltar Mausoleum of West Virginia, Inc...........................100%
                           Rosedale Cemetery Company...........................................100%
                           Rosedale Funeral Chapel, Inc........................................100%
                           Sunset Services, Inc................................................100%
WISCONSIN
         Equity Corporation International (DE Corp.) Wisconsin subsidiaries
                  ECI Services, Inc. (DE Corp.) Wisconsin subsidiaries
                           ECI Services of Wisconsin, Inc. (DE Corp.) Wisconsin subsidiaries
                                    Fuller-Speckien Funeral Home, Inc..........................100%
                                    Schramka Funeral Homes, Inc................................100%
                                    Steinhaus Funeral Home, Inc................................100%
         SCI Funeral Services, Inc. (Iowa Corp.) Wisconsin subsidiaries
                  Cemetery Services, Inc.......................................................100%
                           Appleton Highland Memorial Park, Inc................................100%
                  SCI Wisconsin Funeral Services, Inc..........................................100%
                           ATK Corporation.....................................................100%
WYOMING
         SCI Funeral Services, Inc. (Iowa Corp.) Wyoming subsidiaries
                  Memorial Guardian Plans, Inc.................................................100%

12

CANADA
         Equity Corporation International (DE Corp.) Ohio subsidiaries
                  ECI Capital Corporation (DE Corp.) Canadian subsidiaries
                  ECI Capital Corporation Limited..............................................100%
                  ECI Services of Canada Limited...............................................100%
         SCI International Limited (Delaware Corp.) Canada subsidiaries
                  Service Corporation International (Canada) Limited...........................100%
                          1252973 Ontario Inc.-(Ontario).......................................100%
                                   Westside Cemeteries Limited-(Ontario).......................100%
                                            Westside Cemetery Holdings Limited-(ON)............100%
                           Andrews Community Funeral Centre Ltd.-(ON)..........................100%
                           Barthel Funeral Home Ltd.-(Ontario).................................100%
                           Brennen Funeral Home Ltd.- (Alberta)................................100%
                           Can Ensure Group, Inc.-(Federal)....................................100%
                           Carrothers Funeral Home Ltd.-(Ontario)..............................100%
                           Centre Funeraire Cote-des-Neiges Inc.-(Quebec).......................49%
                           CFCDN Holdings Inc.-(Quebec)........................................100%
                           Christensen Salmon Funeral Homes Ltd.-(Alberta).....................100%
                           Fairview Funeral & Cremation Services, Inc.-(Ontario)...............100%
                           H.A. Management Ltd.-(NB)...........................................100%
                                    Maher Investments Ltd.-(NB)................................100%
                                            Maher's Funeral Homes Ltd.-(NB)....................100%
                           Harmony Funeral Services, Inc.-(AB).................................100%
                           Hetherington and Deans Limited-(Ontario)............................100%
                           Hong Kong Funeral Homes B.C. Ltd-(British Columbia).................100%
                           Hulse & English Funeral Home Inc.-(Ontario).........................100%
                           Ingram Funeral Home Ltd.............................................100%
                           International Funeral Parlours B.C. Ltd-(B.C.)......................100%
                           Jewell Funeral Home Limited-(ON)....................................100%
                           Kaye Funeral Home Limited-(Ontario).................................100%
                           Lion Holdings, Limited-(NS).........................................100%
                                    Fillmore & Whitman Funeral Home Limited-(NS)...............100%
                                    Iverness Funeral Home Limited-(NS).........................100%
                                    Patten Funeral Home (1987) Limited-(NS)....................100%
                                    T. W. Curry Limited-(NS)...................................100%
                           Maison Funeraire Daniel Brunet Inc.-(Quebec)........................100%
                           McEvoy-Shields Funeral Homes Ltd.-(Ontario).........................100%
                           Needham Funeral Service Inc.-(Ontario)..............................100%
                           Placements Darche, Inc.-(Quebec)....................................100%
                           Rosar-Morrison Funeral Home Limited-(Ontario).......................100%
                           Rose Garden Chapels Ltd.-(Alberta)..................................100%
                                    Barrhead Community Chapel-(Alberta)........................100%
                           Salmon Funeral Home Ltd.- (Alberta).................................100%
                           SCI Holdings Canada, Inc............................................100%
                           SCI Northwest Region, Inc. - (B.C.).................................100%
                           Swackhamer, Truscott, Brown and Dwyer Funeral Homes of
                                    Hamilton Limited-(Ontario).................................100%
                                    Dwyer Funeral Home Limited -(Ontario)......................100%
                           Sydney Crematorium Limited-(NS).....................................100%
                           The Markey Family Funeral Homes Limited-(Ontario)...................100%
                           The Thorpe Brothers Funeral Home Co. Limited-(Ontario)..............100%
                           Thompson (Aurora) Limited-(ON)......................................100%
                           William-Lee-Ingram Funeral Home, Inc................................100%
                           World Funeral Home B.C. Ltd.-(British Columbia).....................100%
                  Service Corporation International Capital Funding Ltd.-(AL)..................100%
                  611102 Saskatchewan Ltd......................................................100%

13

ARGENTINA
         SCI International Limited (Delaware Corp.) Argentina subsidiaries
                  SCI Latin America Ltd. (Cayman Island Corp.) Argentina subsidiaries
                     ***Jardine de Pilar SA....................................................100%
                                    Casa Cordoba 1800 SA.......................................100%
                  TRA Acquisition Corp.(Delaware Corp.) Argentina subsidiaries
                           Jardin de Paz SA....................................................100%
                                    Parque del Campanario SA...................................100%
                                    Parque Lujan S.A.........................................33.33%
                           Parque Lujan S.A..................................................33.33%
                           Solaz S.A...........................................................100%
                                    Parque Lujan S.A.........................................33.33%

*** 1 share of stock is owned by SCI Cayman II Ltd and 1 share of stock is owned
    by Service Corporation International

AUSTRALIA
         SCI International Limited (Delaware Corp.) Australia subsidiaries
                  Service Corporation International Australia Pty., Ltd........................100%
                           Australian Cremation Society Pty Limited............................100%
                           Kitleaf Pty Limited.................................................100%
                           Labor Funerals Contribution Fund Pty Limited........................100%
                           Memorial Guardian Plan Pty Limited..................................100%
                           Metro. Burial & Cremation Society Funeral Cont. Fund................100%
                           New South Wales Cremation Company Pty., Ltd.........................100%
                           Pine Grove Forest Lawn Funeral Benefit Co. Pty Limited..............100%
BELGIUM
         SCI International Limited (Delaware Corp.) Belgium subsidiaries
                  SCI Continental Europe SA (French Corp.) Belgium subsidiaries
                           OGF-PFG SA (French Corp.)Belgium subsidiaries
                                    Pompes Funebres Reunies SA..................................99%
                                            B. & C. Nyutten B.V................................100%
                                            Enterprises Dethier................................100%
                                            Pompes Funebres Laloux.............................100%
                                            Pompes Funebres Michel..............................10%
                                            S.E.S.C.............................................35%
                                                     Societe de Cremation de Charleroi..........90%
                                            Van Dooren.........................................100%
CAYMAN ISLANDS
         SCI International Limited (Delaware Corp.) Cayman Island subsidiaries
                  SCI Latin America Ltd........................................................100%
                           SCI Cayman II Ltd...................................................100%
CHILE
         SCI International Limited (Delaware Corp.) Chile subsidiaries
                  SCI Latin America Ltd.  (Cayman Island Corp.) Chile subsidiaries
                           Service Corporation International Chile Limitada....................100%
                                    Los Parques Administradora SA..............................100%
                                    Los Parques SA.............................................100%
CZECH REPUBLIC
         SCI International Limited (Delaware Corp.) Czech Republic subsidiaries
                  SCI Continental Europe SA (French Corp.) Czech Republic subsidiaries
                           OGF-PFG SA (French Corp.)Czech Republic subsidiaries
                                    PAX.........................................................54%
FRANCE
         SCI International Limited (Delaware Corp.) French subsidiaries
                  SCI Continental Europe SA....................................................100%
                           RLC.............................................................. 99.99%
                                    OGF-PFG SA.................................................100%

14

                                            Agence St Martin.....................................59%
                                            AUGIVAL...........................................95.30%
                                            AUXIA.............................................99.96%
                                                     Agence St Martin............................20%
                                                     AUXIA Assistance.........................99.95%
                                                     AUXIA Immobilier...........................100%
                                            CEFORTHA............................................100%
                                            CGM...............................................99.07%
                                                     Cie Pradel...............................99.58%
                                            CGPF..............................................99.78%
                                            CGSM..............................................99.88%
                                                     Agence St Martin............................20%
                                                     Alepee SA................................99.88%
                                                              Martex..........................54.82%
                                                     Martex...................................45.06%
                                                     MIFA.....................................99.58%
                                            EDIL................................................100%
                                            Funerarium de Dax....................................96%
                                            GARGAS............................................97.60%
                                            Garnard le Beaupain.................................100%
                                            GFPL..............................................62.19%
                                            Mries Lescarcelle...................................100%
                                            PF Garonne........................................99.99%
                                            Poulain et Fils...................................99.91%
                                            S.E. Graugnard....................................99.84%
                                            S.E. Mbries Surget................................99.99%
                                                     Mbries de la Vallee........................100%
                                                     Mbries Duchauchoy........................99.84%
                                            Services Ariane.....................................100%
                                            Seuropras.........................................99.20%
                                            SOMOTHA...........................................98.63%
                                            SPPF..............................................99.86%
                                            SPPF Walter.......................................57.61%
                                            Vet Sonia...........................................100%
GERMANY
         SCI International Limited (Delaware Corp.) Germany subsidiaries
                  SCI D GmbH....................................................................100%
                           Bohmecke GmbH........................................................100%
                           Franz Puschmann GmbH.................................................100%
                           Meyer-Hader GmbH.....................................................100%
                  Schmidt & Co GmbH.............................................................100%
                           Thomas Amm GmbH......................................................100%
IRELAND
         SCI International Limited (Delaware Corp.) Ireland subsidiaries
                  Estare Wood Limited...........................................................100%
                           Jennings & Company (Ireland) Limited.................................100%
                           Jennings & Company Limited...........................................100%
                                    Lemford Limited.............................................100%
                  T Stafford & Son Limited...................................................... 25%

15

ITALY
         SCI International Limited (Delaware Corp.) Italy subsidiaries
                  SCI Continental Europe SA (French Corp.) Italy subsidiaries
                           OGF-PFG SA (French Corp.) Italy subsidiaries
                                    F.I.S. (Netherlands Corp.) Italy subsidiaries
                                             OFISA.............................................100%
                                                     Franceschini..............................100%
                                                     OFT......................................  98%
MALAYSIA
         SCI International Limited (Delaware Corp.) Malaysia subsidiaries
                  OGF-PFG SA (French Corp.) Malaysia subsidiaries
                           F.I.S. (Netherlands Corp.) Malaysia subsidiaries
                                    Bahau Funeral Services SDN BHD...........................33.33%
                                    Bahau Memorial Park SDN BHD..............................16.67%
                           Singapore Casket Company PLC(Singapore)Malaysia subsidiaries
                                    Bahau Funeral Services SDN BHD...........................33.33%
                                    Bahau Memorial Park SDN BHD..............................16.67%
                                            Bahau Funeral Services SDN BHD...................33.33%
NETHERLANDS
         SCI International Limited (Delaware Corp.) Netherlands subsidiaries
                  Fontina......................................................................100%
                           Exploitatiemaatschappij Nijenheim B.V...............................100%
                                    Centrale Uitvaartmij Nederland.............................100%
                                            BV Heerlen.........................................100%
                                            Goes BV............................................100%
                                            Van Kerkvoorde BV..................................100%
                                                     Crematorium Temeuzen BV...................100%
                                                     Uitvaartcentrum Heemskerk Konig BV........100%
                                            Vink B.V...........................................100%
                                    Noordveld BV...............................................100%
                                    Van Gestek B.V.............................................100%
                                    Via Nova BV................................................100%
                                    Voomeveld BV...............................................100%
                  Libitina Groep B.V...........................................................100%
                  OGF-PFG SA (French Corp.) Netherlands subsidiaries
                           F.I.S................................................................95%
                  Soek Uitvaartverzorging B.V..................................................100%
NORWAY
         SCI International Limited (Delaware Corp.) Norway subsidiaries
                  SCI Norway...................................................................100%
PORTUGAL
         SCI International Limited (Delaware Corp.) Portugal subsidiaries
                  J Salgado Figueira (Successores), SA.........................................100%
                           A Funeraria Da Amoreira, Lda........................................100%
                           Agencia Funeraria da Penha de Franca, Lda...........................100%
                           Agencia Funeraria Magno, Lda........................................100%
                           Agencia Funeraria Melo, Lda.........................................100%
                           Agencia Funeraria Migueis, Lda......................................100%
                           Alfredo Magno & Jaime Gomes, Lda....................................100%
SINGAPORE
         SCI International Limited (Delaware Corp.) Singapore subsidiaries
                  OGF-PFG SA (French Corp.) Singapore subsidiaries
                           Singapore Casket Company PLC......................................67.57%
                                    Casket Palace Company PLC..................................100%

16

SPAIN
         SCI International Limited (Delaware Corp.) Spain subsidiaries
                  CIA Gral Servicios Funerarios, S.A.(Barna)...................................100%
                           Pompas Funebres Girona, S.L.........................................100%
                                    Funeraria Poch, S.A........................................100%
                                    Servei Comarcal de Pompes Funebres, S.A....................100%
                           Pompas Funebres Sevilla, S.L........................................100%
                                    Pompas Funebres La Nueva, S.L..............................100%
                           SCI Servicios Funerarios, S.A.......................................100%
                                    Virgen del Rosarios, S.L...................................100%
                                            Funeraria Gaditanas Asociadas SA....................49%
                           Servicios Funerarios Turia, S.A.....................................100%
                                    Funlis, S.L................................................100%
                                            Servipublic, S.L....................................90%
                  Funeraria La Fe Guadalajara, S.L.............................................100%
                           Ambulancias Herranz SA..............................................100%
                                    Servicios Funerarios de Guadalajara, NSA, S.A..............100%
                  OGF-PFG SA (French Corp.) Spain subsidiaries
                           Pompas Funebres Mediterraneas, S.L..................................100%
                                    Servicios Funerarios Barcelona, S.A........................100%
                  Servicios Funerarios de Zaragoza S.A.........................................100%
                           Pompes Funebres de Zaragoza, S.A.....................................90%
                                    Servicios Funerarios de Torrero SA..........................45%
SWITZERLAND
         SCI International Limited (Delaware Corp.) Switzerland subsidiaries
                  SCI Continental Europe SA (French Corp.) Switzerland subsidiaries
                           OGF-PFG SA (French Corp.)Switzerland subsidiaries
                                    Omnium de Services et de Financement SA.....................99%
                                            PFG Lausanne SA.....................................95%
                                                     Alea Prevoyance Funeraire SA..............100%
                                                     Allegemeine Bestattungs AG................100%
                                                     Bestattungsdienst Hedy Linder-Walther AG .100%
                                                     Bestattungsdienst Josef Mulhauser AG......100%
                                                     Cerba SA..................................100%
                                                     Pompes Funebres Amoos SA..................100%
                                                     Pompes Funebres de St. Laurent SA.........100%
                                                     Pompes Funebres Gaillard Et Pittet SA.....100%
                                                     Pompes Funebres Gavillet SA...............100%
                                                     Pompes Funebres Lemania SA................100%
                                                     Pompes Funebres Monney SA.................100%
                                                     Pompes Funebres Perusset SA...............100%
                                                     Pompes Funebres Voeffray SA...............100%
                                                     Pompes Funebres Wasserfallen SA...........100%
                                                     Utiger & Ryf Bestattungs AG...............100%

17

UNITED KINGDOM
         SCI International Limited (Delaware Corp.) United Kingdom subsidiaries
                  Service Corporation International PLC........................................100%
                           Birkbeck Securities Limited.........................................100%
                           Demetriou & English Funeral Directors Limited .......................50%
                           Dignity Limited.....................................................100%
                           Lanecliff Limited...................................................100%
                           Pitcher and LeQuesne Limited........................................100%
                           SCI Funerals Limited................................................100%
                           SCI Pre-arrangements Limited........................................100%
                           Swift & Mildred Limited..............................................95%

18

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements of Service Corporation International on Form S-3 (File No. 333-65711), Form S-4 (File No. 333-01857) and Form S-8 (File Nos. 333-33101, 333-00177, 333-00179, 33-9790, 33-17982, 333-68683, 333-19863, 333-70983, and 33-50987) of our report dated March 24, 1999, on our audits of the consolidated financial statements and financial statement schedule of Service Corporation International as of December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K.

Houston, Texas

March 31, 1999


EXHIBIT 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

     /s/ R. L. Waltrip
---------------------------------------
         R. L. WALTRIP


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

      /s/ George R. Champagne
---------------------------------------
          GEORGE R. CHAMPAGNE


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

   /s/ Anthony L. Coelho
-----------------------------------------
       ANTHONY L. COELHO


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

   /s/ Jack Finkelstein
-----------------------------------------
       JACK FINKELSTEIN


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

   /s/ A.J. Foyt, Jr.
-----------------------------------------
       A.J. FOYT, JR.


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

   /s/ James H. Greer
-----------------------------------------
       JAMES H. GREER


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

    /s/ B.D. Hunter
--------------------------------------
        B.D. HUNTER


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

     /s/ John W. Mecom, Jr.
---------------------------------------
         JOHN W. MECOM, JR.


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

    /s/ Clifton H. Morris, Jr.
-------------------------------------------
        CLIFTON H. MORRIS, JR.


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

    /s/ E.H. Thornton, Jr.
--------------------------------------
        E.H. THORNTON, JR.


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

    /s/ W. Blair Waltrip
------------------------------------------
        W. BLAIR WALTRIP


POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer or director or both, of Service Corporation International, a Texas corporation (the "Company"), does hereby constitute and appoint George R. Champagne and James M. Shelger his true and lawful attorneys and agents (each with authority to act alone), with power and authority to sign for and on behalf of the undersigned the name of the undersigned as officer or director, or both, of the Company to the Company's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year of the Company ending December 31, 1998 and to any amendments thereto filed with the Securities and Exchange Commission, and to any instrument or document filed as a part of, as an exhibit to or in connection with said Report or amendments; and the undersigned does hereby ratify and confirm as his own act and deed all that said attorney and agent shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has subscribed these presents this 9th day of March, 1999.

   /s/ Edward E. Williams
-----------------------------------------------
       EDWARD E. WILLIAMS


ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF THE APPLICABLE PERIOD END DATE AND THE RELATED STATEMENT OF INCOME FOR THE PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
RESTATED:
MULTIPLIER: 1,000


PERIOD TYPE 12 MOS 9 MOS 6 MOS 3 MOS
FISCAL YEAR END DEC 31 1998 DEC 31 1998 DEC 31 1998 DEC 31 1998
PERIOD END DEC 31 1998 SEP 30 1998 JUN 30 1998 MAR 31 1998
CASH 358,210 116,980 75,526 241,587
SECURITIES 1,203,644 1,241,460 609,739 575,633
RECEIVABLES 1,257,959 1,170,662 1,035,549 997,593
ALLOWANCES 91,999 93,594 91,709 90,621
INVENTORY 189,070 183,039 183,920 170,410
CURRENT ASSETS 1,209,080 962,845 885,645 1,023,070
PP&E 2,313,801 2,225,758 2,150,880 2,499,468
DEPRECIATION 488,822 451,515 432,195 412,240
TOTAL ASSETS 13,266,158 12,053,975 11,244,662 10,798,760
CURRENT LIABILITIES 630,325 656,117 525,206 570,288
BONDS 3,764,590 3,365,982 3,077,286 2,842,697
PREFERRED MANDATORY 0 0 0 0
PREFERRED 0 0 0 0
COMMON 259,201 257,821 257,186 255,903
OTHER SE 2,894,901 2,745,844 2,679,799 2,574,521
TOTAL LIABILITY AND EQUITY 13,266,158 12,053,975 11,244,662 10,798,760
SALES 2,657,726 1,957,340 1,300,320 654,278
TOTAL REVENUES 2,875,090 2,101,594 1,389,074 698,844
CGS 2,134,202 1,516,242 980,096 480,284
TOTAL COSTS 2,156,320 1,524,070 985,256 482,716
OTHER EXPENSES 67,765 50,137 34,647 17,146
LOSS PROVISION 30,840 20,747 15,863 10,426
INTEREST EXPENSE 190,748 133,362 82,946 40,004
INCOME PRETAX 518,527 437,119 308,564 168,061
INCOME TAX 176,385 154,172 108,830 59,275
INCOME CONTINUING 342,142 282,947 199,734 108,786
DISCONTINUED 0 0 0 0
EXTRAORDINARY 0 0 0 0
CHANGES 0 0 0 0
NET INCOME 342,142 282,947 199,734 108,786
EPS PRIMARY 1.34 1.11 .78 .43
EPS DILUTED 1.31 1.08 .77 .42

ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF THE APPLICABLE PERIOD END DATE AND THE RELATED STATEMENT OF INCOME FOR THE PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
RESTATED:
MULTIPLIER: 1,000


PERIOD TYPE 12 MOS 9 MOS 6 MOS 3 MOS
FISCAL YEAR END DEC 31 1997 DEC 31 1997 DEC 31 1997 DEC 31 1997
PERIOD END DEC 31 1997 SEP 30 1997 JUN 30 1997 MAR 31 1997
CASH 46,877 62,114 31,557 47,411
SECURITIES 558,925 537,379 528,256 533,695
RECEIVABLES 1,131,195 1,067,705 1,060,733 1,052,246
ALLOWANCES 88,561 95,677 90,509 81,216
INVENTORY 172,169 151,418 150,803 141,421
CURRENT ASSETS 811,408 755,471 719,268 731,110
PP&E 2,035,073 1,936,922 1,876,020 1,808,930
DEPRECIATION 390,936 372,213 354,764 341,182
TOTAL ASSETS 10,514,930 9,737,921 9,408,557 9,081,072
CURRENT LIABILITIES 535,422 606,688 539,692 574,351
BONDS 2,634,699 2,317,259 2,268,369 2,128,708
PREFERRED MANDATORY 0 0 0 0
PREFERRED 0 0 0 0
COMMON 252,924 251,837 251,469 239,005
OTHER SE 2,473,080 2,365,706 2,316,405 2,065,970
TOTAL LIABILITY AND EQUITY 10,514,930 9,737,921 9,408,557 9,081,072
SALES 2,397,766 1,770,875 1,210,335 617,391
TOTAL REVENUES 2,535,865 1,870,014 1,269,019 652,690
CGS 1,836,973 1,360,452 913,470 464,538
TOTAL COSTS 1,848,253 1,366,907 917,684 464,538
OTHER EXPENSES 67,671 49,813 32,935 16,848
LOSS PROVISION 22,603 10,790 7,364 3,631
INTEREST EXPENSE 144,735 106,222 71,350 36,250
INCOME PRETAX 579,973 438,407 326,814 205,524
INCOME TAX 205,421 155,735 116,866 74,377
INCOME CONTINUING 374,552 282,672 209,948 131,147
DISCONTINUED 0 0 0 0
EXTRAORDINARY 40,802 40,802 40,802 40,802
CHANGES 0 0 0 0
NET INCOME 333,750 241,870 169,146 90,345
EPS PRIMARY 1.36 1.00 0.71 0.38
EPS DILUTED 1.31 0.95 0.67 0.36

ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF THE APPLICABLE PERIOD END DATE AND THE RELATED STATEMENT OF INCOME FOR THE PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
RESTATED:
MULTIPLIER: 1,000


PERIOD TYPE 12 MOS
FISCAL YEAR END DEC 31 1996
PERIOD END DEC 31 1996
CASH 44,131
SECURITIES 633,019
RECEIVABLES 997,736
ALLOWANCES 75,102
INVENTORY 139,019
CURRENT ASSETS 714,040
PP&E 1,776,534
DEPRECIATION 319,459
TOTAL ASSETS 9,020,778
CURRENT LIABILITIES 607,543
BONDS 2,048,737
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 236,193
OTHER SE 1,999,124
TOTAL LIABILITY AND EQUITY 9,020,778
SALES 2,232,644
TOTAL REVENUES 2,355,342
CGS 1,741,394
TOTAL COSTS 1,750,890
OTHER EXPENSES 63,798
LOSS PROVISION 12,147
INTEREST EXPENSE 147,470
INCOME PRETAX 413,881
INCOME TAX 148,583
INCOME CONTINUING 265,298
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET INCOME 265,298
EPS PRIMARY 1.13
EPS DILUTED 1.08

EXHIBIT 99.1

PENDING CLASS ACTION LITIGATION AS OF MARCH 24, 1999

PART I

STYLES OF PENDING CASES

1. Civil Action H-99-0280, In Re Service Corporation International; In the United States District Court for the Southern District of Texas, Houston Division(1)

2. 9-99-CV59; Charles Fredrick, Individually and on Behalf of All Others Similarly Situated vs. Service Corporation International, R. L. Waltrip, William Heligbrodt and George R. Champagne; In the United States District Court for the Eastern District of Texas, Lufkin Division(2)

3. 9-99-CV58; Charles Fredrick v. Service Corp. International; In the United States District Court for the Eastern District of Texas, Lufkin Division(3)(4)

4. 9-99-CV60; Susanne Parker, Individually, and as a Representative of the Class v. Service Corp. International; In the United States District Court for the Eastern District of Texas, Lufkin Division(4)


(1) Twenty separate class action lawsuits filed in the United States District Court for the Southern District of Texas, Houston Division, have been consolidated into this proceeding. Since a lead plaintiff and its counsel have not been designated by Judge Lynn N. Hughes, a consolidated complaint has not been filed.

(2) A motion to transfer venue to the United States District Court for the Southern District of Texas, Houston Division, has been filed.

(3) This case was originally filed as a class action. The original petition was subsequently amended to delete the class action allegations.

(4) These cases were originally filed in state district court in Angelina County, Texas but have been removed to the United States District Court for the Eastern District of Texas, Lufkin Division. Motions to transfer venue of both cases from this court to the United States District Court for the Southern District of Texas, Houston Division, have been filed.


PART II

PERSONS NOT EXPRESSLY EXCLUDED FROM CERTAIN CLASSES

The following persons were security holders of Equity Corporation International ("ECI") immediately prior to ECI's merger with a wholly-owned subsidiary of Service Corporation International ("SCI") in January 1999 and were also officers or directors of SCI at March 24, 1999:

George R. Champagne(b)                      Lowell A. Kirkpatrick, Jr.(b)
Anthony L. Coelho(a)                        Richard T. Sells(b)
W. Cardon Gerner(b)                         E.H. Thornton, Jr.(a)
James H. Greer(a)                           Michael R. Webb(b)

The foregoing persons (a) are not expressly excluded as members of the classes referred to in the class action lawsuits listed in numbered paragraphs 2 and 4 of Part I of this Exhibit 99.1 and (b) may not be expressly excluded as members of one or more subclasses of plaintiffs once a consolidated complaint is filed in the legal proceeding referred to in numbered paragraph 1 of Part I of this Exhibit 99.1.


(a) Director of SCI.
(b) Officer of SCI.

PART III

OFFICERS AND DIRECTORS OF SCI NAMED AS DEFENDANTS

The following present or former officers and directors of SCI are named as individual defendants in one or more of the lawsuits that have been consolidated into the proceeding referred to in numbered paragraph 1 of Part I of this Exhibit 99.1:

R.L. Waltrip(a)(b)                          Glenn G. McMillen(b)
W. Blair Waltrip(a)(b)                      Vincent L. Visosky(b)
George R. Champagne(b)                      B.D. Hunter(a)
W. Mark Hamilton(b)                         Jack Finkelstein(a)
Lowell A. Kirkpatrick, Jr.(b)               L. William Heiligbrodt(c)
John W. Morrow, Jr.(b)

-------------------------------

(a) Director of SCI at March 24, 1999.
(b) Officer of SCI at March 24, 1999.

(c) Former officer and director of SCI.