LOEWEN GROUP INC, 10-K/A, 2000-04-28

LOEWEN GROUP INC
10-K/A, 2000-04-28
PERSONAL SERVICES

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K/A

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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
(Mark One) OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ For the fiscal year ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-12163
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THE LOEWEN GROUP INC.

(Exact name of registrant as specified in its charter)
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BRITISH COLUMBIA 98-0121376
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)

4126 NORLAND AVENUE, BURNABY, BRITISH COLUMBIA, V5G 3S8
CANADA (Postal Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: 604-299-9321

Securities registered pursuant to Section 12(b) of the Act:

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(Title of class) (Name of each exchange on
COMMON SHARES WITHOUT PAR VALUE which registered)
THE TORONTO STOCK EXCHANGE

LOEWEN GROUP CAPITAL, L.P.
9.45% CUMULATIVE MONTHLY INCOME
PREFERRED SECURITIES, SERIES A,
GUARANTEED BY THE LOEWEN GROUP INC.
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Securities registered pursuant to Section 12(g) of the Act:

NONE
(Title of class)

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. / /
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /
------------------------

The aggregate market value of Common shares held by non-affiliates of the
registrant was approximately U.S.$50,011,000 as of March 6, 2000. The number of
outstanding Common shares as of March 6, 2000, was 74,145,466.

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TABLE OF CONTENTS

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PAGE
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GENERAL INFORMATION......................................... 1

PART I
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ITEM
NUMBER
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1. BUSINESS.................................................... 2

2. PROPERTIES.................................................. 5

3. LEGAL PROCEEDINGS........................................... 6

4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS......... 9

EXECUTIVE OFFICERS OF LOEWEN................................ 10

DIRECTORS OF LOEWEN......................................... 12

PART II

5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 14

RECENT ACCOUNTING STANDARDS................................. 15

FORWARD-LOOKING AND CAUTIONARY STATEMENTS................... 15

6. SELECTED FINANCIAL DATA..................................... 17

7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 20

7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 28

8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 30

9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 131

PART III

10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 131

11. EXECUTIVE COMPENSATION...................................... 136

12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................ 149

13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 151

PART IV

14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................. 152
</TABLE>

This Form 10-K/A was filed on April 28, 2000 to provide the information
required in Part III, Items 10, 11, 12 and 13, and to include the subsequent
event with respect to the uncertainty of the secured status of certain of the
Company's senior debt as disclosed in Part II, Items 5, 7 and 8.

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GENERAL INFORMATION

Unless the context otherwise requires (i) "Loewen" refers to The Loewen
Group Inc., a corporation organized under the laws of British Columbia, Canada,
(ii) "LGII" refers to Loewen Group International, Inc., a Delaware corporation
and a wholly-owned subsidiary of Loewen, and (iii) the "Company" refers to
Loewen together with its subsidiaries and associated companies.

All dollar amounts are in United States dollars ("U.S.$" or "$") unless
otherwise indicated. References to "Cdn.$" are to Canadian dollars.

Except as specifically noted, financial information is presented in
accordance with accounting principles generally accepted in Canada ("Canadian
GAAP"). Material differences between Canadian GAAP and accounting principles
generally accepted in the United States ("U.S. GAAP"), as applicable to the
Company, are explained in Note 20 to the Company's consolidated financial
statements for the year ended December 31, 1999 (the "Consolidated Financial
Statements"), included in Item 8 of this Form 10-K.

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PART I

ITEM 1. BUSINESS.

OVERVIEW

The Company is the second-largest operator of funeral homes and cemeteries
in North America. In addition to providing services at-need, the Company also
makes funeral, cemetery and cremation arrangements on a pre-need basis. As at
February 29, 2000, the Company operated 1,107 funeral homes and 428 cemeteries
throughout North America and 34 funeral homes in the United Kingdom. As at
February 29, 2000, the Company also operated three insurance subsidiaries that
principally sell a variety of life insurance products to fund funeral services
on a pre-need basis.

On June 1, 1999 (the "Petition Date"), Loewen and each of approximately 850
United States subsidiaries and a foreign subsidiary voluntarily filed a petition
for creditor protection under Chapter 11 of the U.S. Bankruptcy Code
("Chapter 11") in the U.S. Bankruptcy Court for the District of Delaware (the
"U.S. Bankruptcy Court"). Concurrent with the Chapter 11 filing, Loewen and 116
of its Canadian subsidiaries filed for creditor protection under the Companies'
Creditors Arrangement Act ("CCAA") with the Ontario Superior Court of Justice,
Toronto, Ontario, Canada (together with the U.S. Bankruptcy Court, the
"Bankruptcy Courts"). The Company's insurance, United Kingdom and certain
funeral and cemetery subsidiaries were not included in the Chapter 11 and
CCAA filings. Subsequent to the Petition Date, three additional subsidiaries of
the Company voluntarily filed petitions for creditor protection and a fourth
subsidiary's petition was voluntarily deleted. Loewen and its subsidiaries under
creditor protection (the "Debtors") are presently operating their businesses as
debtors-in-possession. The U.S. trustee for the District of Delaware appointed a
statutory committee of unsecured creditors (the "Official Unsecured Creditors'
Committee"). The proceedings of the Debtors are being jointly administered for
procedural purposes only.

The Company's Consolidated Financial Statements have been prepared on a
"going concern" basis in accordance with Canadian GAAP. The "going concern"
basis of presentation assumes that the Company will continue in operation for
the foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. There is
substantial doubt about the appropriateness of the use of the "going concern"
assumption because of the Chapter 11 and CCAA bankruptcy proceedings and
circumstances relating to this event, including the Company's current debt
structure, recent losses and negative cash flow. As such, realization of assets
and discharge of liabilities are subject to significant uncertainty.

The Consolidated Financial Statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for the Consolidated Financial Statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. The appropriateness of the "going concern" basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to renegotiate and comply with the
terms of a debtor-in-possession revolving credit facility and the ability to
generate sufficient cash from operations and financing arrangements to meet
obligations.

If a plan of reorganization is approved by the Bankruptcy Courts, the
Company will be required to adopt "fresh start" accounting under Canadian and
U.S. GAAP. This accounting will require that assets and liabilities be recorded
at fair value based on the values determined in connection with the plan of

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reorganization. As a result, the reported amounts in the Consolidated Financial
Statements could materially change, because they do not give effect to the
adjustments to the carrying value of assets and liabilities that may ultimately
result from the adoption of "fresh start" accounting.

In January 1999, the Company's Board of Directors appointed John S. Lacey as
Chairman, replacing Co-Chairmen Robert L. Lundgren and Raymond L. Loewen. In
June 1999, Paul A. Houston was appointed to the Board of Directors. In December
1999, Robert L. Lundgren resigned from the Board of Directors. In February 2000,
Donna R. Moore and John J. Wiesner were appointed to the Board of Directors.

In July 1999, Michael A. Cornelissen was appointed Chief Financial Officer.
In December 1999, Paul A. Houston was appointed President and Chief Executive
Officer, replacing Robert L. Lundgren.

Loewen serves as the holding company for all operations of the Company,
which are contained in subsidiary and associated companies. Loewen was
incorporated under the Company Act of British Columbia on October 30, 1985. The
principal executive offices of the Company are located at 4126 Norland Avenue,
Burnaby, British Columbia V5G 3S8, telephone number (604) 299-9321.

BUSINESS OPERATIONS

The Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance. The Company maintains a regional management structure
for both funeral home and cemetery businesses that is organized in several
geographic regions in the United States, Canada and United Kingdom.

Historically, the Company pursued an aggressive growth strategy based
primarily on acquisitions. In more recent years, this growth strategy emphasized
cemetery acquisitions, as compared to the prior emphasis on funeral home
acquisitions. The Company's current strategy is to reduce costs and improve
liquidity. In March 1999, the Company sold 124 cemeteries and three funeral
homes for gross proceeds of $193 million.

On January 24, 2000, the Company announced that the U.S. Bankruptcy Court
approved the Company's previously-announced program for disposition of
non-strategic assets. Through this program, the Company intends to sell up to
371 of its approximately 1,400 U.S. funeral home and cemetery locations.
Although many of the properties that will be made available for sale have good
track records and well-established reputations in their communities, the Company
has determined that they do not fit into its long-range business plans -- in
many cases because their geographic locations do not permit the properties to
realize synergies with other Company funeral homes and cemeteries. A further
54 locations are anticipated to be merged with existing locations.

The Company's financial advisors have established a process by which parties
interested in bidding must submit letters of intent identifying the properties
that they wish to purchase and stating, subject to further due diligence, the
prices that they would be prepared to pay for those assets. In the course of the
asset disposition program, the Company will consider all qualified bids, whether
for geographic groups of properties or for single locations, with the objective
of maximizing the total value received for assets.

FUNERAL HOMES

The Company's funeral homes offer a full range of funeral services,
including the collection of remains, registration of death, professional
embalming, use of funeral home facilities, sale of caskets and other
merchandise, and transportation to a place of worship, funeral chapel, cemetery
or crematorium.

Substantially all of the Company's funeral homes provide basic cremation
services, and the Company has proprietary programs designed to provide a full
range of merchandise and services to families choosing cremation. In 1999,
cremations accounted for approximately 30% of all funeral services performed by
the

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Company compared to approximately 29% in 1998. As a percentage of all funeral
services in the United States, cremations have been increasing by approximately
1.0% annually over the past five years and, in 1998, accounted for approximately
24% of all funeral services performed in the United States.

Funeral operations comprised approximately 59% of the Company's consolidated
revenue for 1999. Amounts paid for funeral services are recorded as revenue at
the time the service is performed. Payments made for pre-need funeral contracts
are either placed in trust by the Company or are used on behalf of the purchaser
of the pre-need contract to pay premiums on life insurance polices under which
the Company is designated as the beneficiary. At the date of performing a
pre-arranged funeral service, the Company records as funeral revenue the amount
originally trusted or the insurance contract amount, together with related
accrued earnings retained in trust and increased insurance benefits. The
Company's gross pre-arranged funeral sales in 1999 were approximately
$168 million (1998 -- $258 million).

CEMETERIES

The Company's cemetery operations assist families in making burial
arrangements and offer a complete line of cemetery products (including a
selection of burial spaces, burial vaults, lawn crypts, caskets, memorials,
niches and mausoleum crypts), the opening and closing of graves and
cremation services.

The Company's cemetery operations comprised approximately 32% of the
Company's consolidated revenue for 1999, the majority of which was derived from
pre-need sales of cemetery products and services. The pre-need sale of interment
rights and related products and services is recorded as revenue when customer
contracts are signed. At that time, costs related to the sale are also recorded
and an allowance is established for future cancellations and refunds, based on
management's estimates in light of actual historical experience, trends and
analysis. A portion of the proceeds received by the Company from pre-need
merchandise and service sales is generally set aside in trust funds to provide
for the future delivery of the cemetery products and services. Earnings of
merchandise and service trust funds are recognized as income in the year
realized; increases in the costs for merchandise and services are recognized as
a charge to income.

In addition, the Company provides for the long-term maintenance of its
cemetery properties by placing a portion, typically 10% to 15%, of the proceeds
from the sale of interment rights into a perpetual care trust fund. The income
from these funds is used to offset the maintenance costs of operating the
cemeteries. At December 31, 1999, the Company's cemeteries had approximately
$247 million in perpetual care trust funds, which are not reflected on the
Company's balance sheet because the principal is required to stay in trust in
perpetuity.

INSURANCE

The Company operates three insurance subsidiaries licensed in a total of
29 jurisdictions, which sell a variety of life insurance products, primarily to
fund pre-arranged funerals. The Company's insurance operations comprised
approximately 9% of the Company's consolidated revenue for 1999.

COMPETITION

The funeral service industry in North America is highly fragmented,
consisting primarily of small, family-owned businesses. Competition generally
arises among local funeral homes and cemeteries for at-need and pre-need
business. The market share of a single funeral home or cemetery in any community
is often a function of the name, reputation and location of that funeral home or
cemetery. Gains in market share within a community are usually achieved over a
period of time.

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REGULATION

The funeral service industry is regulated primarily on a state and
provincial basis with a vast majority of jurisdictions requiring licensing and
supervision of individuals who provide funeral-related services. A number of
jurisdictions also regulate the sale of pre-need services and the administration
of any resulting trust funds or insurance contracts. The laws and regulations
are complex, subject to the interpretation by regulators, and vary from
jurisdiction to jurisdiction. Non-compliance with these regulations can result
in fines or suspension of licenses required to sell pre-need services and
merchandise. In addition, concerns regarding lack of competition have led a few
jurisdictions to enact legislation restricting the common ownership of funeral
homes, cemeteries and related operations within a specific geographic region.

The Company's United States operations must also comply with Federal
legislation, including the laws administered by the Occupational Safety and
Health Administration, the Americans with Disabilities Act and the Federal Trade
Commission ("FTC") regulations. The FTC administers the Trade Regulation Rule on
Funeral Industry Practices, the purpose of which is to prevent unfair or
deceptive acts or practices in connection with the provision of funeral goods or
services. Certain regulatory requirements also exist in Canada and the
United Kingdom.

The Company's insurance company subsidiaries are subject to regulation by
the states in which they are domiciled and the states in which their products
are sold.

ENVIRONMENTAL RISK

The Company's operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. The Company's policies are designed to control
environmental risk upon acquisition through extensive due diligence and
corrective measures taken prior to and after acquisition. Management endeavors
to ensure that environmental issues are identified and addressed in advance of
acquisition or are covered by an indemnity by the seller or an offset to the
purchase price. On a continuing basis, management assesses and evaluates
environmental risk and, when necessary, conducts appropriate corrective
measures. The Company provides for environmental liabilities using its best
estimates. Actual environmental liabilities could differ significantly from
these estimates.

EMPLOYEES

At February 29, 2000, the Company employed approximately 11,900 people with
approximately 600 people employed at the Company's corporate office. Management
believes that its relationship with employees is good, but recognizes employees
have concerns over the challenges facing the Company. Approximately 130 of the
Company's employees are members of collective bargaining units.

ITEM 2. PROPERTIES.

The Company's properties consist primarily of funeral homes and cemeteries.
Of the Company's 1,141 funeral homes at February 29, 2000 (including 51 funeral
homes located on or adjacent to a cemetery property), 180 were leased facilities
and the balance were owned by the Company. In addition, 49 of the funeral homes
owned by the Company were mortgaged as security for loans from the seller of the
property or from a commercial lender. Generally, the Company has a right of
first refusal and an option to purchase its leased premises.

The Company operated or provided management or sales services to 428
cemeteries at February 29, 2000, of which six were mortgaged as security for
loans from the seller of the property. For certain cemeteries, the Company
provides management and sales services pursuant to various management and

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sales agreements. The cemeteries operated by the Company contained an aggregate
of approximately 19,500 acres of which approximately 58% were developed.

The Company's corporate office in Burnaby occupies 35,000 square feet in a
building owned by the Company and an aggregate 103,000 square feet of leased
corporate office space.

ITEM 3. LEGAL PROCEEDINGS.

BANKRUPTCY FILINGS

On June 1, 1999, Loewen and each of approximately 850 United States
subsidiaries filed a voluntary petition for creditor protection and to
reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court. The filings subsequently were consolidated for joint administration (IN
RE: LOEWEN GROUP INTERNATIONAL, INC., ET AL., No. 99-1244). On the same day,
Loewen and 116 Canadian subsidiaries filed an application for creditor
protection under the Companies' Creditors Arrangement Act in the Ontario
Superior Court of Justice in Toronto (File No. 99-CL-3384). The Company's United
Kingdom subsidiaries, which generate less than 1% of the Company's revenues,
along with the Company's insurance and certain funeral and cemetery
subsidiaries, were excluded from the filings. Subsequent to the Petition Date,
three additional subsidiaries of the Company voluntarily filed petitions for
creditor protection and a fourth subsidiary's petition was voluntarily deleted.

Loewen and its subsidiaries under creditor protection are presently
operating their businesses as debtors-in-possession. An Official Unsecured
Creditors' Committee has been appointed by the United States trustee in the
bankruptcy proceedings. On July 16, 1999, the U.S. Bankruptcy Court approved a
Petition Date $200,000,000 debtor-in-possession revolving credit facility (the
"DIP Facility"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for further information about the
DIP Facility.

As a result of the bankruptcy filings, litigation against Loewen and its
filing subsidiaries was stayed as of June 1, 1999 (unless the stay is lifted by
the supervising court), and any additional liabilities related thereto will be
subject to compromise.

SECURITIES CLASS ACTIONS

Since December 1998, the Company has been served with various related
lawsuits filed in the United States District Courts for the Eastern District of
Pennsylvania and for the Eastern District of New York. Raymond L. Loewen, the
former Chairman and Chief Executive Officer, and certain current and former
officers and directors have been named as defendants in some of the suits. All
but one of these lawsuits were filed as purported class actions on behalf of
persons or entities that purchased Company Common shares during five different
time periods ranging from November 3, 1996 through January 14, 1999. LGII and
Loewen Group Capital, L.P. ("LGC") are named as defendants in two suits (with
the Company, the "Loewen Defendants"). The plaintiffs in these two lawsuits
purport to sue on behalf of a class of purchasers of Monthly Income Preferred
Securities ("MIPS") from March 5, 1997 through January 14, 1999. The MIPS were
issued by LGC.

The complaints generally make allegations concerning, among other things,
the Company's internal controls, accounting practices, financial disclosures and
acquisition practices.

The Judicial Panel on Multidistrict Litigation (the "MDL Panel") granted the
Loewen Defendants' motion to consolidate all of the actions for pre-trial
coordination in the United States District Court for the Eastern District of
Pennsylvania. On April 15, 1999, Judge Thomas O'Neill of the District Court for
the Eastern District of Pennsylvania entered an order consolidating in the
Eastern District of Pennsylvania, all of the cases then filed, as well as any
related cases thereafter transferred to that District (the "April 15 Order").
The April 15 Order appointed the City of Philadelphia Board of Pensions and
Retirement as lead

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plaintiff. Subsequent to the Company's bankruptcy filings, Judge O'Neill entered
an order staying all of the cases and placing them on the suspense docket.

The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or to reasonably estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to these lawsuits has been made in the Company's Consolidated Financial
Statements.

FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP ET AL.

Two complaints were filed in 1997 on behalf of individuals who claim damages
in connection with funeral insurance policies allegedly issued to them by
insurance companies owned, directly or indirectly, by S.I. Acquisition
Associates, L.P. ("S.I."). The Company acquired the assets but not the stock of
S.I. in March 1996. In January 1997, Elmer C. Feldheim and four other
individuals filed a lawsuit seeking a class action on behalf of themselves and a
class of similarly situated individuals and/or entities against SI-SIFH Corp.,
SI-SI Insurance Company, Inc., Loewen Louisiana Holdings, Inc., and LGII in the
Parish of Jefferson, State of Louisiana. Plaintiffs seek a class action. SI-SIFH
Corp. and SI-SI Insurance Company, Inc. are affiliates of S.I.

In June 1997, Lloyd Duffy, Sr. and four other individuals filed a lawsuit
seeking a class action on behalf of themselves and a class of similarly situated
individuals and/or entities against SI-SIFH Corp., SI-SI Insurance
Company, Inc., Loewen Louisiana Holdings, Inc., and LGII in the Parish of
Orleans, State of Louisiana. The DUFFY complaint was filed by the same lawyers
who filed the complaint in the FELDHEIM case, and is a virtually identical copy
of the FELDHEIM complaint. The DUFFY case is pending in the trial court and, as
of the date hereof, no discovery has taken place.

The FELDHEIM and DUFFY plaintiffs allegedly hold or held funeral insurance
policies issued by insurance companies owned, directly or indirectly, by the
defendants. The plaintiffs allege that (i) the defendants failed to provide the
funeral services purchased with the policies by, among other things, offering a
casket of inferior quality upon presentation of a policy, and (ii) in connection
with the sale of the insurance policy, the insurance companies negligently or
fraudulently represented and interpreted the scope and terms of the policies and
omitted to provide material information regarding the policy benefits and
limitations. Plaintiffs also alleged unfair trade practices in violation of
Louisiana's trade practices laws.

Plaintiffs' petitions seek damages, penalties and attorney's fees. Louisiana
law prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs
also seek a declaratory judgment compelling defendants to honor the policies.

On June 13, 1997, the district court in Jefferson Parish dismissed the
FELDHEIM plaintiffs' claim to a class action, and the plaintiffs appealed. On
June 30, 1998, the Louisiana Fifth Circuit Court of Appeal affirmed the
dismissal of the FELDHEIM plaintiffs' class-action claims.

Following various rulings on the DUFFY lawsuit in the trial court, on
January 6, 1999, the Fourth Circuit Court of Appeal dismissed the action. On
February 5, 1999, the DUFFY plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court. On April 30, 1999, the Louisiana
Supreme Court denied the writ application and thereby declined to review the
Court of Appeal's dismissal of plaintiffs' class action allegations.

The Company has determined that it is not possible at this time to predict
the final outcome of these legal proceedings, and that it is not possible to
establish a reasonable estimate of possible damages, if any, or reasonably to
estimate the range of possible damages that may be awarded to plaintiffs.
Accordingly, no provision with respect to these lawsuits has been made in the
Company's Consolidated Financial Statements.

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LUENING, ET AL. V. SI-SIFH CORP., ET AL.

In June 1998, Warren S. Luening and four other individuals filed a lawsuit
seeking a class action on behalf of themselves and a class of similarly situated
individuals and/or entities against SI-SIFH Corp, SI-SI Insurance
Company, Inc., Loewen Louisiana Holdings, Inc., and LGII in the Parish of St.
Bernard, State of Louisiana. Defendants in this case are the same entities
against whom complaints were filed in Jefferson Parish, Louisiana (the FELDHEIM
case) and in Orleans Parish, Louisiana (the DUFFY case), and, aside from the
addition of local counsel in St. Bernard Parish, the same lawyers who filed the
FELDHEIM and DUFFY complaints filed the LUENING complaint.

Plaintiffs allegedly hold and held funeral insurance policies issued by
insurance companies owned, directly or indirectly, by the defendants. Plaintiffs
allege that the defendants failed to provide the funeral services purchased with
policies by, among other things, (i) charging them for certain funeral services,
including the services of a funeral director and staff, a funeral ceremony, care
of the deceased, automotive services and a casket, even though these services
were allegedly covered by their policies, and (ii) unjustly enriching themselves
through the payment of services allegedly covered under the plaintiffs'
policies, and the plaintiffs are therefore entitled to restitution of those
payments. Plaintiffs' complaint seeks compensatory and nonpecuniary damages and
attorneys' fees. Louisiana law prohibits plaintiffs from alleging specific
amounts of damages in their complaint.

On February 3, 1999, the state court ruled that the dismissal of the class
action claims in the FELDHEIM and DUFFY cases did not operate to bar the
particular sub-class of potential plaintiffs identified in LUENING. On
March 25, 1999, the Fourth Circuit reversed the trial court, while recognizing
that individual plaintiffs' claims could proceed in St. Bernard Parish. On
March 29, 1999 the LUENING plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court. On April 30, 1999, the Louisiana
Supreme Court denied the writ application and thereby declined to review the
Court of Appeal's dismissal of plaintiffs' class action allegations.

The Company has determined that it is not possible to predict the final
outcome of this legal proceeding, and it is not possible to establish a
reasonable estimate of possible damages, if any, or reasonably to estimate the
range of possible damages that may be awarded to plaintiffs. Accordingly, no
provision with respect to this lawsuit has been made in the Company's
Consolidated Financial Statements.

F. LEO GROFF, INC. ET AL. V. RESTLAWN MEMORIAL GARDENS, INC. ET AL.

This action (No. 96-CV-397, Court of Common Pleas, Erie County, Ohio) was
served on Loewen and other defendants on September 19, 1996. Plaintiffs
allegedly compete with defendants Restlawn Memorial Park Association, Restlawn
Memorial Gardens, Inc., and Sinfran, Inc., which were acquired by the Company.
Plaintiffs allege thirteen counts, including counts alleging that defendant
Restlawn engaged in false and deceptive advertising, misused confidential
information, defamed plaintiffs, breached contractual obligations,
misappropriated trade secrets, and tortiously interfered with plaintiffs'
contractual relationships. Plaintiffs further allege that the Company knew or
should have known of Restlawn's conduct and adopted and continued Restlawn's
alleged unfair, false, and deceptive practices. Plaintiffs also allege that the
defendants conspired to destroy the plaintiffs' business and created a "trust in
order to prevent competition" in violation of Ohio's antitrust laws. Plaintiffs
seek compensatory damages, which are unspecified but alleged to exceed $350,000;
punitive damages, which are unspecified but alleged to exceed $300,000; and
injunctive relief. Defendants' summary judgment motion was denied as to all but
one of plaintiffs' counts. A trial set for July 12, 1999 was stayed as a result
of the bankruptcy proceedings, and no new trial date has been set.

The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to this lawsuit has been made in the Company's Consolidated Financial
Statements.

8
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FLANAGAN V. THE LOEWEN GROUP INC., ET AL.

In December 1998, Honorine T. Flanagan filed a complaint in the Superior
Court of the State of California in the County of Los Angeles against the
Company and LGII. The matter was subsequently removed to federal court based on
diversity jurisdiction, and it is now pending in the United States District
Court in the Central District of California.

In 1995, Ms. Flanagan and her husband John Flanagan (now deceased) sold
their mausoleum and mortuary business to LGII for cash and Loewen stock.
Ms. Flanagan's complaint contains causes of action for breach of contract in
connection with the share purchase agreement and in connection with employment
and consulting agreements entered into at the time of the share purchase
agreement. Additionally, Ms. Flanagan alleges causes of action for intentional
and negligent misrepresentation and declaratory relief.

Ms. Flanagan estimates that her damages as a result of the alleged breaches
and misrepresentations are not less than $5,000,000. Further, Ms. Flanagan seeks
punitive damages in an unspecified sum. On the declaratory relief cause of
action, Ms. Flanagan seeks a declaration that she is to be reimbursed for her
losses pursuant to the indemnity provision contained in the share purchase
agreement. She also seeks a declaration that until she is indemnified for her
losses she is not obligated to transfer property that LGII has the option to
purchase for a specified price pursuant to the share purchase agreement.

The Company has determined that it is not possible at this time to predict
the final outcome of this proceeding or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiff. Accordingly, no provision with
respect to this lawsuit has been made in the Company's Consolidated Financial
Statements.

THE LOEWEN GROUP INC. ET AL. V. THE UNITED STATES OF AMERICA

In October 1998, the Company and Raymond L. Loewen, the then-Chairman and
Chief Executive Officer of the Company, filed a claim against the United States
government for damages under the arbitration provisions of the North American
Free Trade Agreement ("NAFTA"). The claimants contend that they were damaged as
a result of breaches by the United States of its obligations under NAFTA in
connection with certain litigation in the State of Mississippi entitled O'KEEFE
VS. THE LOEWEN GROUP INC. Specifically, the plaintiffs allege that they were
subjected to discrimination, denial of the minimum standard of treatment
guaranteed by NAFTA and uncompensated expropriation, all in violation of NAFTA.
The Company has determined that it is not possible at this time to predict the
final outcome of this proceeding or to establish a reasonable estimate of the
damages, if any, that may be awarded to the Company.

OTHER

The Company is a party to other legal proceedings in the ordinary course of
its business but does not expect the outcome of any other proceedings,
individually or in the aggregate, to have a material adverse effect on the
Company's financial position, results of operation or liquidity.

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

None.

9
<PAGE>
EXECUTIVE OFFICERS OF LOEWEN

The following table sets forth certain information with respect to the
current executive officers of Loewen. The ages of the executive officers are
shown as of February 29, 2000.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
John S. Lacey(1).......................... 56 Chairman of the Board

Paul A. Houston(2)........................ 51 President and Chief Executive Officer

Michael G. Weedon(3)...................... 46 Senior Vice-President, Trust and Insurance

Michael A. Cornelissen(4)................. 56 Senior Vice-President, Chief Financial
Officer

Jeffrey L. Cashner(5)..................... 45 Senior Vice-President, USA

Harry C.B. Rath(6)........................ 64 Senior Vice-President, Canada

Nick Taylor(7)............................ 50 Managing Director, United Kingdom

Bradley D. Stam(8)........................ 52 Senior Vice-President, Legal and Asset
Management

Gordon D. Orlikow(9)...................... 39 Senior Vice-President, People

Dwight K. Hawes(10)....................... 40 Senior Vice-President, Corporate
Controller

Peter S. Hyndman(11)...................... 58 Corporate Secretary

Guy Heywood(12)........................... 41 Vice-President, Treasurer
</TABLE>

- ------------------------

(1) Mr. Lacey became the Chairman of the Board of Directors of Loewen in
January 1999. He is not an employee of The Loewen Group Inc. or any
affiliated company, and serves as a non-executive Chairman. In December
1998, Mr. Lacey became a Director of Loewen. From July 1998 to
November 1998, Mr. Lacey was President and Chief Executive Officer of The
Oshawa Group Ltd. in Toronto, Ontario. From November 1996 to July 1998,
Mr. Lacey was President and Chief Executive Officer of WIC Western
International Communications Inc. in Vancouver, British Columbia. From
March 1990 to November 1996, Mr. Lacey was President and Chief Executive
Officer of Scott's Hospitality Inc. in Toronto, Ontario.

(2) Mr. Houston became President and Chief Executive Officer of Loewen in
December 1999. In June 1999, Mr. Houston became a Director of Loewen. From
August 1996 to October 1999, Mr. Houston was President and Chief Executive
Officer of Scott's Restaurants Inc. From April 1995 to August 1996,
Mr. Houston was President and Chief Operating Officer of Scott's Food
Services. From December 1992 to April 1995, Mr. Houston was President of
Black Photo Corporation.

(3) Mr. Weedon became Senior Vice-President, Trust and Insurance in
February 2000. In November 1997, Mr. Weedon served as Chief Administrative
Officer, from November 1997 to July 1998, as Executive Vice-President of
Administration, from July 1998 to November 1998, as Executive
Vice-President, Operations and Administration, from November 1998 to
February 2000, as Executive Vice-President, Administration, Accounting and
Control, and Chief Administrative Officer of Loewen. From December 1996 to
November 1997, Mr. Weedon was a private business consultant and investor.
From April 1993 to December 1996, Mr. Weedon served as Executive
Vice-President and Chief Operating Officer of Viridian Inc. (formerly
Sherritt Inc.) in Fort Saskatchewan, Alberta.

(4) Mr. Cornelissen became Senior Vice-President, Chief Financial Officer in
February 2000. From July 1999 to February 2000, Mr. Cornelissen served as
Chief Financial Officer of Loewen. Prior to July 1999, Mr. Cornelissen was
an independent business consultant.

10
<PAGE>
(5) Mr. Cashner became Senior Vice-President, USA of Loewen in January 1999.
From August 1996 to January 1999, Mr. Cashner served as Regional President,
Operations, South East Region and from February 1994 until August 1996,
Mr. Cashner served as Vice-President, Cemetery and Combination Division,
South and Western Region of Loewen.

(6) Mr. Rath became Senior Vice-President, Canada of Loewen in February 2000.
From December 1998 to February 2000, Mr. Rath served as Regional
Vice-President, Funeral Home Operations, Eastern Canada, from August 1996 to
December 1998, as Vice-President Operations, Eastern Canada, from April 1993
to August 1996, as Director, Operations, Eastern Canada of Loewen.

(7) Mr. Taylor became Managing Director, United Kingdom of Loewen in January
2000. Prior to January 2000, Mr. Taylor was a funeral director of a
family-owned funeral business.

(8) Mr. Stam became Senior Vice-President, Legal and Asset Management in
February 2000. From March 1998 to February 2000, Mr. Stam served as Senior
Vice-President, Law of Loewen. From January 1996 until September 1997,
Mr. Stam was President, General Counsel and a director of Western Star
Trucks Holdings Ltd. From June 1995 to January 1996, Mr. Stam was
Vice-President, General Counsel and Corporate Secretary of Western Star
Trucks Holdings Ltd. Prior to that time, Mr. Stam was a partner with the
Seattle-based law firm of Culp, Dwyer, Guterson & Grader.

(9) Mr. Orlikow became Senior Vice-President, People of Loewen in February
2000. From November 1999 to February 2000, Mr. Orlikow served as Senior
Vice-President, Human Resources of Loewen. From March 1999 to
November 1999, Mr. Orlikow was a consultant with PricewaterhouseCoopers.
From April 1996 to March 1999, Mr. Orlikow was Director of Human Resources
of BC Rail Ltd. Prior to that time, Mr. Orlikow was Manager Employment,
Training and Development of BC Rail Ltd.

(10) Mr. Hawes became Senior Vice-President, Corporate Controller of Loewen in
August 1998. From October 1994 to August 1998, Mr. Hawes served as
Vice-President, Finance and from January 1993 to October 1994, as Director
of Treasury Operations of Loewen.

(11) In addition to serving as Corporate Secretary of Loewen, Mr. Hyndman served
as Vice-President, Law of Loewen from March 1995 to November 1997.

(12) Mr. Heywood became Vice-President, Treasurer of Loewen in November 1998.
From June 1996 to November 1998, Mr. Heywood served as Director, Treasury
Operations of Loewen. Prior to that time, Mr. Heywood was Assistant
Vice-President of ABN AMRO Bank, in Vancouver, British Columbia.

No executive officer of Loewen is related by blood, marriage or adoption to
any director or other executive officer of Loewen.

There are no arrangements or understandings between any executive officer of
Loewen and any other person pursuant to which the executive officer was selected
to serve as an executive officer of Loewen.

11
<PAGE>
DIRECTORS OF LOEWEN

The following table sets forth certain information with respect to the
current Board of Directors of Loewen. The ages of the Directors are shown as of
February 29, 2000.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
John S. Lacey(b)(1)....................... 56 Chairman of the Board
Toronto, Ontario, Canada

Paul A. Houston(2)........................ 51 President, Chief Executive Officer and
Toronto, Ontario, Canada Director

Charles B. Loewen(a)(c)(3)................ 67 Director
Toronto, Ontario, Canada

James D. McLennan(a)(c)(4)................ 63 Director
Park Ridge, Illinois, U.S.A.

Donna R. Moore(c)(5)...................... 60 Director
Eureka, Montana, U.S.A.

William R. Riedl(b)(6).................... 59 Director
Toronto, Ontario, Canada

The Right Honorable John N. Turner, P.C., 70 Director
C.C., Q.C.(a)(b)(7).....................
Toronto, Ontario, Canada

John J. Wiesner(a)(8)..................... 61 Director
Oklahoma City, Oklahoma, U.S.A.
</TABLE>

- ------------------------

(a) Audit Committee

(b) Corporate Governance Committee

(3) Mr. Loewen became a Director of Loewen in May 1990. Mr. Loewen is
President, Corporate Services International Inc., an international investing
and consulting company.

(4) Mr. McLennan became a Director of Loewen in June 1993. Mr. McLennan is
President of McLennan Company, a realty company.

12
<PAGE>
(5) Ms. Moore became a Director of Loewen in February 2000. Ms. Moore is an
independent consultant. From 1995 to 1997, Ms. Moore was Chief Executive
Officer of Discovery Zone, an entertainment company.

(6) Mr. Riedl became a Director of Loewen in December 1998. Mr. Riedl is
President and Chief Executive Officer, Fairvest Securities Corporation, a
stock brokerage firm.

(7) Mr. Turner became a Director of Loewen in June 1992. Mr. Turner is a
partner of Miller, Thomson, Barristers and Solicitors.

(8) Mr. Wiesner became a Director of Loewen in February 2000. Mr. Wiesner is an
independent consultant. From 1987 to 1997, Mr. Wiesner was Chairman of the
Board, Chief Executive Officer and President of C. R. Anthony Company, a
retail company.

13
<PAGE>
PART II

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

MARKET INFORMATION

The Common shares of Loewen trade on The Toronto Stock Exchange ("TSE")
under the symbol "LWN". Until March 3, 2000, the Common shares were also listed
on The New York Stock Exchange ("NYSE").

The following table sets forth, for the periods indicated, the range of high
and low sales prices, as reported by the TSE and the NYSE.

<TABLE>
<CAPTION>
TORONTO STOCK NEW YORK STOCK
EXCHANGE EXCHANGE
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
(CDN.$) (U.S.$)
<S> <C> <C> <C> <C>
1998 First quarter.......................................... 38.750 30.150 27.500 20.875
Second quarter.......................................... 41.450 35.000 28.813 24.625
Third quarter........................................... 39.800 17.000 26.875 11.063
Fourth quarter.......................................... 21.950 10.750 14.500 7.000

1999 First quarter.......................................... 12.500 1.350 8.438 0.938
Second quarter.......................................... 2.450 0.340 1.438 0.250
Third quarter........................................... 2.450 0.770 1.688 0.500
Fourth quarter.......................................... 0.950 0.550 0.625 0.378
</TABLE>

As at March 6, 2000, there were 2,593 record holders of Loewen's
Common shares.

During 1999, new standards for continued listing of securities on the NYSE
were adopted. The new continued listing standards are: (i) total market
capitalization and shareholders' equity of not less than $50 million;
(ii) total market capitalization of not less than $15 million over a 30-day
trading period; and (iii) minimum share price of $1.00 over a 30-day
trading period.

The Company has not met the required minimum $1.00 criterion, and trading of
its shares was suspended by the NYSE on March 3, 2000. The NYSE is expected to
apply to the United States Securities and Exchange Commission (the "SEC") for
delisting of the Company's Common shares. Trading of the Company's MIPS, which
also were listed on the NYSE, was suspended on March 3, 2000, and the NYSE is
expected to apply to the SEC for delisting of the MIPS as well.

DIVIDENDS

Under the terms of the DIP Facility, the Company is prohibited from
declaring dividends on its Common shares, Preferred shares and MIPS. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information regarding restrictions on the payment of
dividends. Aggregate dividends declared per Common share in the last two years
were as follows:

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Dividends per Common share.................................. $ -- $0.10
</TABLE>

The payment of cash, stock and deemed dividends on the Common shares is
generally subject to Canadian withholding tax. The rate of withholding tax is
25% or such lesser amount as may be provided by treaty between Canada and the
country of residence of the recipient. Under the current income tax treaty
between the United States and Canada, such withholding tax rate is reduced
to 15% (5% for holders of more than 10% of the Common shares).

14
<PAGE>
RECENT ACCOUNTING STANDARDS

The effective date for Statement of Financial Accounting Standards No. 133
("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as
deferred by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of Financial Accounting Standards No. 133 (an amendment of FASB statement
No. 133)," is for all fiscal quarters of fiscal years beginning after June 15,
2000. FAS 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Management has not determined the impact of this
accounting standard on the Company's Consolidated Financial Statements.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides the staff's
views on the application of existing generally accepted accounting principles to
revenue recognition in financial statements. The application of SAB 101 to
industry and Company revenue recognition policies is unclear. If it is
determined that SAB 101 modifies or amends revenue recognition policies followed
by the industry and previously accepted by the SEC, the adjustments would be
recorded in the Company's Consolidated Financial Statements for the first
quarter of 2000.

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

FORWARD-LOOKING STATEMENTS

Certain statements made in this Form 10-K, including certain statements made
in the section entitled "Quantitative and Qualitative Disclosures about Market
Risk," in other filings made with the Securities and Exchange Commission, and
elsewhere (including oral statements made on behalf of the Company) are
forward-looking statements within the meaning of Section 27A(i) of the
Securities Act of 1933 and Section 21E(i) of the Securities Exchange Act of
1934. Shareholders and potential investors are hereby cautioned that certain
events or circumstances could cause actual results to differ materially from
those estimated, projected or predicted. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

CAUTIONARY STATEMENTS

In addition to other information in this Form 10-K, including the
information that appears in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition," the following important factors, among others, could cause future
results to differ materially from estimates, predictions or projections.

1. ABILITY TO CONTINUE AS A GOING CONCERN. The Company's Consolidated
Financial Statements have been prepared on a "going concern" basis in accordance
with Canadian GAAP. The "going concern" basis of presentation assumes that the
Company will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities and commitments in the
normal course of business. There is substantial doubt about the appropriateness
of the use of the "going concern" assumption because of the Chapter 11 and CCAA
bankruptcy proceedings and circumstances relating to this event, including the
Company's current debt structure, recent losses and negative cash flow. As such,
realization of assets and discharge of liabilities are subject to significant
uncertainty.

15
<PAGE>
reported amounts in the Consolidated Financial Statements do not give effect to
adjustments to the carrying value of the underlying assets or amounts of
liabilities that may ultimately result. The appropriateness of the "going
concern" basis is dependent upon, among other things, confirmation of a plan of
reorganization, future profitable operations, the ability to renegotiate and
comply with terms of a debtor-in-possession revolving credit facility and the
ability to generate sufficient cash from operations and financing arrangements
to meet obligations.

2. BANKRUPTCY PROCEEDINGS. The Company is reorganizing its affairs under
the protection of Chapter 11 and CCAA and will propose a plan of reorganization
for itself and other filing subsidiaries, which will be submitted to the
Bankruptcy Courts overseeing the Chapter 11 and CCAA proceedings for
confirmation after submission to any vote and approval required by affected
parties. If the plan of reorganization receives all requisite approvals, the
Company will be required, under Canadian and U.S. GAAP, to adopt "fresh start"
accounting. Fresh start accounting requires that assets and liabilities be
recorded at fair value, based on the values determined in connection with the
plan of reorganization. If the reorganization plan is approved and the Company
emerges from bankruptcy, the carrying value of assets and liabilities recorded
in the Company's financial statements after the adoption of fresh start
accounting could differ materially from the amounts reported in the consolidated
balance sheet at December 31, 1999.

During the pendency of the reorganization proceedings, the Company is
implementing operational and system improvements. In particular, a new cemetery
contract management system is being implemented in the cemetery operations on a
location by location basis to improve the recording and tracking of individual
preneed contracts. Management believes the new cemetery contract management
system will: (i) improve the timeliness of and access to operational and
financial information; (ii) reduce administrative costs; (iii) provide for
improved trust efficiencies, and (iv) improve the estimation of merchandise and
service liabilities. Further adjustments may be made to the estimation of
cemetery merchandise and service liabilities as the cemetery contract management
system is implemented.

In April 2000, the Company announced that under the collateral trust
agreement among the Company, LGII and their senior lenders (the "Collateral
Trust Agreement"), there is uncertainty as to the secured status of the
Company's Series 3, 4, 6 and 7 Senior Notes and the Pass-through Asset Trust
Securities (the "Subject Debt"). The aggregate principal amount outstanding of
the Subject Debt is $1.1 billion. See Note 3 of the Consolidated Financial
Statements for additional information regarding the terms of the Subject Debt.
Under the Collateral Trust Agreement, senior lenders share certain collateral
and guarantees on a pari passu basis. In accordance with the terms of the
Collateral Trust Agreement, holders of future indebtedness or their
representatives were to effect registration by delivering to the collateral
trustee Additional Secured Indebtedness Registration Statements. Pursuant to the
agreements with lender representatives in connection with financings subsequent
to the establishment of the Collateral Trust Agreement, the Company and LGII
have treated the Subject Debt as secured.

The Company was recently advised that Additional Secured Indebtedness
Registration Statements relating to the Subject Debt were either not entered
into the collateral trustee's register or were entered with an incorrect
outstanding amount. Under the terms of the Collateral Trust Agreement, these
circumstances give rise to uncertainty as to the secured status of the Subject
Debt. The Company has confirmed that it satisfied its obligations under the
financing agreements to adopt appropriate corporate resolutions and to deliver
to lender representatives, in connection with closing, Additional Secured
Indebtedness Registration Statements relating to the Subject Debt.

It is not known when the uncertainty regarding the secured status of the
Subject Debt will be resolved. Accordingly, the effects of this contingency, if
any, have not been reflected in the Company's Consolidated
Financial Statements.

3. REVENUE AND MARGINS. Revenue is affected by the volume of services
rendered and the mix and pricing of services and products sold and actual
pre-need contract cancellation experience. Margins are affected by the volume of
services rendered, the mix and pricing of services and products sold and related

16
<PAGE>
costs. Further, revenue and margins may be affected by fluctuations in the
number of deaths (which may be significant from period to period), competitive
pricing strategies, pre-need sales and other sales programs implemented by the
Company and the ability to hire and retain the necessary level of sales staff.
Revenue is also affected by the level of dispositions and acquisitions. Revenue
may also be affected by the negative implications associated with the bankruptcy
proceedings.

4. DISPOSITIONS. In December 1999, the Company identified 371 locations as
probable for sale. In January 2000, the U.S. Bankruptcy Court for the District
of Delaware approved the Company's proposed disposition process. Although the
Company may consummate additional asset sales, it is not committed to sell and
has not identified any other properties for which a material sale is probable.
When properties are sold, gains or losses could be small or significant
depending upon the type of property, location, cash flow and prevailing
market conditions.

5. TAX RATE. Prior to the year ended December 31, 1998, the Company's
financing structures allowed it to achieve an effective tax rate well below the
Canadian statutory rate of 45%. These structures are not expected to produce
similar benefits in the future due to uncertainty as to when, if ever, the tax
benefit of deducting the Company's losses and future interest expense will be
realized. As a result, the Company expects that its effective income tax rate
for 2000 and beyond will likely vary significantly from the Canadian
statutory rate.

Future income and losses, and the disposition of certain locations may
require the Company to record a change in the valuation allowance of certain tax
assets that were taken into account in determining the net amount of the
Company's liability for future income taxes recorded on its balance sheet at
December 31, 1999. If this occurs, the resulting change in the valuation
allowance, which could be significant, would generally be treated as an
additional income tax expense or benefit in future periods.

6. OTHER. Consolidated financial results also may be affected by (i) the
ability of the Company to successfully develop and implement a plan of
reorganization pursuant to bankruptcy proceedings that provides for achieving
profitable operations and obtaining appropriate financing, among other things,
(ii) the ability of the Company to retain and motivate its employees, including
senior management and critical staff, (iii) the continued availability of
operating cash flow and debtor-in-possession financing, (iv) dispositions and
the related valuation of assets, (v) the number of Common shares outstanding,
(vi) competition, (vii) the level of the Company's general and administrative
costs, and (viii) changes in applicable governmental regulations.

ITEM 6. SELECTED FINANCIAL DATA.

Set forth below is certain selected consolidated financial and operating
information of the Company for each year in the five-year period ended
December 31, 1999. The selected consolidated financial information is derived
from the Company's audited consolidated financial statements for such periods.
The Company's Consolidated Financial Statements are prepared in accordance with
Canadian GAAP. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto.

The financial results for the year ended December 31, 1999 include
$414 million of pre-tax charges representing impairment of capital assets and
investments and accrual of contingent losses on investments and $93 million of
reorganization costs. The 1999 results exclude $100 million of contractual
interest expense applicable to certain pre-Petition Date debt obligations which
are subject to compromise. As at December 31, 1999, $2.3 billion of liabilities
were subject to compromise.

The financial results for the year ended December 31, 1998 include
$649 million of pre-tax charges representing impairment of capital assets and
investments and accrual of contingent losses on investments.

17
<PAGE>
The financial results for the year ended December 31, 1997 include
$89 million of pre-tax charges, representing certain restructuring, strategic
initiative and other charges. The financial results for the year ended
December 31, 1996 include $19 million of finance and other costs related to a
competitor's hostile takeover proposal for the Company, which was withdrawn in
January 1997. The financial results for the year ended December 31, 1995 include
an aggregate of $196 million for legal settlements and litigation related
finance costs and certain general and administrative costs related to the legal
settlements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue............................ $1,030,373 $1,136,234 $1,114,099 $ 908,385 $ 598,493
Gross margin....................... 288,659 291,736 363,639 329,008 224,476
Earnings (loss) from operations.... (248,607) (263,966) 152,131 204,670 117,765
Net earnings (loss)................ (465,176) (598,969) 41,810 65,999 (75,604)
Basic earnings (loss) per
share(1)......................... (6.40) (8.22) 0.48 1.01 (1.67)
Ratio of earnings to fixed
charges(2)....................... n/a n/a 1.3x 1.9x n/a
Aggregate dividends declared per
share............................ -- 0.10 0.20 0.20 0.05
</TABLE>

<TABLE>
<CAPTION>
AS AT DECEMBER 31
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND OPERATING INFORMATION)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................... $4,110,583 $4,673,908 $4,790,687 $3,718,734 $2,380,011
Liabilities subject to
compromise(4).................... 2,282,601 -- -- -- --
Total long-term debt(3)(4)......... 91,204 2,268,014 1,793,934 1,495,925 932,296
Preferred securities of
subsidiary(4).................... -- 75,000 75,000 75,000 75,000
Shareholders' equity............... 444,346 905,441 1,517,771 1,026,617 591,006

OPERATING INFORMATION:
Number of funeral homes............ 1,141 1,151 1,070 956 815
Number of funeral services......... 162,000 163,000 153,000 142,000 114,000
Number of cemeteries............... 428 550 483 313 179
</TABLE>

- ------------------------

(1) There are no material differences between basic and fully diluted earnings
(loss) per share.

(2) The 1999, 1998 and 1995 losses are not sufficient to cover fixed charges by
a total of approximately $497.7 million, $765.9 million and $127.9 million,
respectively, and as such the ratio of earnings to fixed charges has not
been computed. The 1999 fixed charges exclude certain contractual interest
charges on liabilities subject to compromise.

(3) Total long-term debt comprises long-term debt which is not subject to
compromise, including the current portion.

(4) Under-secured and unsecured debt obligations (including the MIPS, which are
identified as "Preferred securities of subsidiary") have been reclassified
to liabilities subject to compromise as a result of the bankruptcy filings.

18
<PAGE>
Had the Company's Consolidated Financial Statements been prepared in
accordance with U.S. GAAP (see Note 20 to the Consolidated Financial
Statements), selected consolidated financial information would have been
as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenue............................ $1,028,454 $1,123,460 $1,115,400 $ 909,137 $ 598,493
Gross margin....................... 282,654 295,831 366,562 332,815 225,917
Earnings (loss) from operations.... (324,656) (260,127) 153,038 203,040 117,442
Earnings (loss) before cumulative
effect of change in accounting
principles....................... (523,439) (594,257) 42,231 64,559 (75,800)
Basic earnings (loss) per share
before cumulative effect of
change in accounting
principles(1)(2)................. (7.18) (8.15) 0.49 0.98 (1.67)
Ratio of earnings to fixed
charges(3)....................... n/a n/a 1.3x 1.8x n/a
Aggregate dividends declared per
share............................ -- 0.10 0.20 0.20 0.05
</TABLE>

<TABLE>
<CAPTION>
AS AT DECEMBER 31
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets....................... $4,059,751 $4,709,654 $4,776,535 $3,699,950 $2,345,874
Liabilities subject to
compromise(5).................... 2,282,601 -- -- -- --
Total long-term debt(4)(5)......... 91,204 2,268,014 1,793,934 1,495,925 892,296
Preferred securities of
subsidiary(5).................... -- 75,000 75,000 75,000 75,000
Shareholders' equity............... 383,075 913,365 1,524,195 1,026,110 519,006
</TABLE>

- ------------------------

(1) There are no material differences between basic and diluted earnings (loss)
per share.

(2) Effective December 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share," for United States GAAP
purposes, on a retroactive basis.

(3) The 1999, 1998 and 1995 losses are not sufficient to cover fixed charges by
a total of approximately $573.7 million, $767.1 million and $128.3 million,
respectively, and as such the ratio of earnings to fixed charges has not
been computed. The 1999 fixed charges exclude certain contractual interest
charges on liabilities subject to compromise.

(4) Total long-term debt comprises long-term debt which is not subject to
compromise, including the current portion.

(5) Under-secured and unsecured debt obligations (including the MIPS, which are
identified as "Preferred securities of subsidiary") have been reclassified
to liabilities subject to compromise as a result of the bankruptcy filings.

19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

FINANCIAL CONDITION

BANKRUPTCY PROCEEDINGS

On June 1, 1999, Loewen and each of approximately 850 United States
subsidiaries and a foreign subsidiary voluntarily filed a petition for creditor
protection under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11") in the
U.S. Bankruptcy Court, for the District of Delaware. Concurrent with the
Chapter 11 filing, Loewen and 116 of its Canadian subsidiaries filed for
creditor protection under the Companies' Creditors Arrangement Act with the
Ontario Superior Court of Justice, Toronto, Ontario, Canada (together with the
U.S. Bankruptcy Court, the "Bankruptcy Courts"). Subsequent to the Petition
Date, three additional subsidiaries of Loewen voluntarily filed petitions for
creditor protection and a fourth subsidiary's petition was voluntarily deleted.
The Company's insurance, United Kingdom and certain funeral and cemetery
subsidiaries were not included in the Chapter 11 and CCAA filings.

The Debtors are presently operating their businesses as
debtors-in-possession. The United States trustee for the District of Delaware
appointed an Official Unsecured Creditors' Committee. The proceedings of the
Debtors are being jointly administered for procedural purposes only.

The Company is reorganizing its affairs under the protection of Chapter 11
and CCAA and will propose a plan of reorganization for itself and other filing
subsidiaries, which will be submitted to the Bankruptcy Courts overseeing the
Chapter 11 and CCAA bankruptcy proceedings for confirmation after submission to
any vote and approval required by affected parties. If a plan of reorganization
is approved by the Bankruptcy Courts, the Company will be required to adopt
"fresh start" accounting under Canadian and United States accounting principles.
This accounting will require that assets and liabilities be recorded at fair
value, based on the values determined in connection with the plan of
reorganization. As a result, the reported amounts in the Consolidated Financial
Statements could materially change because they do not give effect to the
adjustments to the carrying value of assets and liabilities that may ultimately
result from the adoption of "fresh start" accounting. On January 24, 2000, the
Company announced that the United States Bankruptcy Court for the District of
Delaware approved the Company's disposition process in connection with its
previously-announced program for disposition of non-strategic assets. Through
this program, the Company intends to sell up to 371 of its approximately
1,400 U.S. funeral home and cemetery locations. A further 54 locations are
anticipated to be merged with existing locations.

BASIS OF PRESENTATION

This discussion and analysis of the Company should be read in conjunction
with the Consolidated Financial Statements and accompanying Notes in Item 8 of
this Form 10-K. The results reported herein have been prepared on a "going
concern" basis in accordance with Canadian GAAP. The "going concern" basis of
presentation assumes that the Company will continue in operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. There is
substantial doubt about the appropriateness of the use of the "going concern"
assumption because of the Chapter 11 and CCAA bankruptcy proceedings and
circumstances relating to this event, including the Company's current debt
structure, recent losses and negative cash flow. As such, realization of assets
and discharge of liabilities are subject to significant uncertainty.

The Consolidated Financial Statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for the Consolidated Financial Statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. Additionally, the amounts reported could materially change
because of a plan of reorganization, since the reported amounts in the
Consolidated Financial Statements do not give effect to adjustments to the
carrying value of the underlying assets or amounts of liabilities that may
ultimately result. The

20
<PAGE>
appropriateness of the "going concern" basis is dependent upon, among other
things, confirmation of a plan of reorganization, future profitable operations,
the ability to renegotiate and comply with the terms of a debtor-in-possession
revolving credit agreement and the ability to generate sufficient cash from
operations and financing arrangements to meet obligations.

RESULTS OF OPERATIONS

Detailed below are the Company's operating results for the years ended
December 31, 1999, 1998 and 1997, expressed in dollar amounts as well as
relevant percentages. The operating results are presented as a percentage of
revenue, except income taxes, which are presented as a percentage of earnings
(loss) before income taxes.

The Company's operations are comprised of three businesses: funeral homes,
cemeteries and insurance. Additional segment information is provided in Note 18
to the Consolidated Financial Statements in Item 8 of this Form 10-K.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
------------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
--------- -------- -------- -------- -------- --------
(IN MILLIONS) (PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Funeral................................. $ 609.7 $ 631.2 $ 602.1 59.2 55.6 54.0
Cemetery................................ 326.6 408.5 422.0 31.7 36.0 37.9
Insurance............................... 94.1 96.5 90.0 9.1 8.4 8.1
--------- -------- -------- ----- ----- -----
Total................................. $ 1,030.4 $1,136.2 $1,114.1 100.0 100.0 100.0
========= ======== ======== ===== ===== =====
Gross margin
Funeral................................. $ 215.5 $ 223.9 $ 227.9 35.3 35.5 37.9
Cemetery................................ 52.8 51.3 119.0 16.2 12.6 28.2
Insurance............................... 20.4 16.5 16.7 21.7 17.1 18.5
--------- -------- --------
Total................................. 288.7 291.7 363.6 28.0 25.7 32.6
Expenses
General and administrative.............. 99.9 133.3 112.7 9.7 11.7 10.1
Depreciation and amortization........... 82.2 88.5 65.4 8.0 7.8 5.9
Provision for asset impairment.......... 355.2 333.9 -- 34.5 29.4 --
Restructuring costs..................... -- -- 33.4 -- -- 3.0
--------- -------- --------
Earnings (loss) from operations........... (248.6) (264.0) 152.1 (24.1) (23.2) 13.6

Interest on long-term debt................ 87.9 182.3 132.2 8.5 16.1 11.9
Provision for investment impairment and
contingent losses....................... 59.2 315.2 -- 5.8 27.8 --
Reorganization costs...................... 92.8 -- -- 9.0 -- --
Dividends on preferred securities of
subsidiary.............................. 3.0 7.1 7.1 0.3 0.6 0.6
Other expenses (income)................... 5.6 (5.1) (29.8) 0.5 (0.5) (2.7)
--------- -------- --------
(497.1) (763.5) 42.6 (48.2) (67.2) 3.8
Income taxes.............................. (31.9) (164.5) 0.8 n/a n/a 1.8
--------- -------- --------
Net earnings (loss)....................... $ (465.2) $ (599.0) $ 41.8 (45.1) (52.7) 3.8
========= ======== ========
</TABLE>

21
<PAGE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Consolidated revenue decreased 9.3% to $1.030 billion for the year ended
December 31, 1999 from $1.136 billion in 1998. Management believes that the
revenue decline in the funeral business was in part due to the bankruptcy
filings on June 1, 1999. Cemetery revenue was significantly affected by the
disposition of 124 properties at March 31, 1999 and pre-need sales contract term
changes, such as shorter terms and larger down payments that are less attractive
to certain customers but are designed to improve cash flow. Consolidated gross
margin decreased slightly, 1.1%, to $288.7 million in 1999 from $291.7 million
in 1998, with a decline in funeral gross margin offset by improved insurance
gross margin. As a percentage of revenue, consolidated gross margin increased to
28.0% in 1999 from 25.7% in 1998.

Funeral revenue decreased 3.4% to $609.7 million in 1999 compared to
$631.2 million in 1998, primarily due to fewer funeral services and a reduced
average revenue per funeral service, partly, management believes, attributable
to consumer concerns caused by the bankruptcy filings. At locations in operation
for all of 1998 and 1999 ("Established Locations") the average revenue per
funeral service decreased by 5.7%, while the number of funeral services
performed decreased by 4.5%. Overall funeral gross margin, as a percentage of
funeral revenue, decreased slightly to 35.3% in 1999 from 35.5% in 1998,
principally as a result of lower revenues and significant fixed operating costs.
The Company's previously-announced program to dispose of 201 funeral home
locations that are considered non-strategic assets will result in a significant
reduction in future funeral revenue.

Cemetery revenue decreased 20.1% to $326.6 million in 1999 compared to
$408.5 million in 1998, primarily due to the disposition of 124 cemetery
properties at March 31, 1999. In addition, revenues were negatively impacted by
pre-need sales contract term changes, such as shorter terms and larger down
payments that are less attractive to certain customers but are designed to
improve cash flow and, management believes, by consumer concerns caused by the
bankruptcy filings in June. Overall cemetery gross margin, as a percentage of
cemetery revenue, increased to 16.2% in 1999 from 12.6% in 1998. In 1999,
cemetery gross margin increased $1.5 million from 1998. In 1998 cemetery gross
margin was reduced from the prior year due to a decline in pre-need sales and an
increase in the estimate of the allowance for pre-need accounts receivable due
to increased cancellation experience, trends and analysis. During 1999, there
was a further decline in pre-need sales and an increase in cancellation
experience. In addition, gross margins were significantly reduced in 1999 due to
a decline in revenues related to the bankruptcy and the disposition of
124 properties mentioned above. Cemetery gross margin was also negatively
impacted by fixed operating costs and adjustments to cemetery liabilities to
reflect current costs. The Company's previously-announced program to dispose of
170 cemetery locations that are considered non-strategic assets will result in a
significant reduction in future cemetery revenue.

Insurance revenue decreased to $94.1 million for 1999 from $96.5 million in
1998. However, excluding 1998 revenue of a subsidiary sold in 1998, insurance
revenue increased by approximately $10.7 million primarily due to the continuing
effort to expand the sale of pre-need funeral insurance through Company-owned
funeral homes. Overall insurance gross margin as a percentage of insurance
revenue increased to 21.7% for 1999 from 17.1% in 1998, primarily due to an
increase in pre-need funeral sales.

The Company's gross pre-arranged funeral sales decreased to approximately
$168 million in 1999 from approximately $258 million in 1998. Pre-arranged
funeral services comprised approximately 23% of the annual funeral services
performed by the Company in 1999 and in 1998. The Company estimates that it had
a backlog of approximately $1.2 billion in pre-need funeral sales as of
December 31, 1999. Approximately 80% of the Company's cemetery gross sales in
1999 was generated from pre-need sales compared with 75% in 1998.

General and administrative expenses, as a percentage of revenue, decreased
to 9.7% in 1999 from 11.7% in 1998. General and administrative expenses in 1999
decreased $33.4 million to $99.9 million from $133.3 million in 1998. The
decrease in general and administrative expenses in 1999 is primarily due to the
closure of the Trevose corporate office in the second quarter of 1999 and the
termination of various

22
<PAGE>
strategic initiatives subsequent to the bankruptcy filing on June 1, 1999. The
general and administrative expenses in 1998 included $14.9 million of previously
capitalized acquisition and construction costs associated with potential and
existing locations that were no longer pursued.

Depreciation and amortization expenses decreased to $82.2 million in 1999
compared to $88.5 million in 1998, primarily due to dispositions made in 1999,
as well as the write off in 1998 of various depreciable assets. As a percentage
of revenue, depreciation was 8.0% in 1999 compared to 7.8% in 1998, primarily
due to the decline in revenue.

In 1999, the Company recorded a pre-tax asset impairment provision of
$355.2 million applicable to certain properties, including the 371 properties
the Company identified for sale in December 1999. In December 1998, the Company
recorded a pre-tax asset impairment provision of $333.9 million on certain
individual properties, the majority of which were sold in March 1999 for gross
proceeds of $193 million and no further significant gain or loss. The asset
impairment provisions are based on management estimates and, as a result, actual
results could differ significantly from these estimates.

Interest expense on long-term debt decreased by $94.4 million to
$87.9 million in 1999 from $182.3 million in 1998. The decrease is primarily a
result of the suspension of post-Petition Date interest expense and payments for
under-secured and unsecured debt obligations resulting from the Company's
bankruptcy filings. Contractual interest expense not recorded on certain
pre-Petition Date debt obligations amounted to $99.9 million for the year ended
December 31, 1999.

In 1998, the Company concluded that its investments in Prime Succession
Holdings, Inc. ("Prime") and Rose Hills Holding Corp. ("Rose Hills") had
suffered a decline in value that was other than temporary and wrote down its
investments. In 1999, the Company reevaluated these investments in light of
further developments during the year. The Company concluded that its investment
in Prime had suffered a further decline in value that was other than temporary
and, accordingly, wrote off the remaining investment at December 31, 1999. The
Company also revalued its contingent loss under the majority owner of Prime's
put option (estimated difference between the option price, as defined, and the
Company's estimate of the fair value of the majority owner's interest based in
part on current market conditions), and adjusted the contingent loss. As with
Prime, although no further decline in the investment value had occurred, the
Company revalued its contingent loss for Rose Hills under the majority owner's
put option, and adjusted the contingent liability. These adjustments resulted in
investment impairment and contingent losses of $59.2 million recorded during
1999 compared to $315.2 million recorded in 1998. The contingent loss amounts
could change based on changes in the estimated future value of the businesses. A
net liability has been recorded reflecting an accrual of the expected losses on
the options reduced by the remaining carrying value of the investments.

Reorganization costs of $92.8 million in 1999, included a charge of
$23.0 million for the write off of deferred debt issue costs and $9.8 million
for the recording of the PATS option liability, each associated with debt now
subject to compromise, $27.0 million for the write off of costs associated with
executory contracts submitted for rejection by the Company, approximately
$5.7 million for the Company's Key Employee Retention Plan and $27.3 million of
professional fees for accounting, legal and consulting services provided to the
Company and the Official Unsecured Creditors' Committee, and other costs and
fees incurred while the Company reorganizes under Chapter 11 and CCAA.

The income tax benefit of $31.9 million in 1999 compares to an income tax
benefit of $164.5 million in 1998. In 1999, the Company established additional
valuation allowances of $138.6 million against the following tax assets:
a) provision for losses on the Company's existing investment in Rose Hills and
Prime and an increase in the liability regarding the Company's put obligations;
b) certain state, provincial, and federal net operating and capital loss
carryovers; c) interest expense; and d) certain other tax benefits. In addition,
the Company was unable to realize the benefit of either the operating loss for
the period or the deductible portion of the reorganization expenses incurred in
the period. The Company expects that its effective income tax rate for 2000 and
beyond may vary significantly from the Canadian statutory rate.

23
<PAGE>
Future income and losses, and the disposition of certain locations, may require
the Company to record a change in the valuation allowance of certain tax assets
that were taken into account in determining the net amount of the Company's
liability for future income taxes recorded on its balance sheet at December 31,
1999. If this occurs, the resulting change in the valuation allowance, which
could be significant, would generally be treated as an additional income tax
expense or benefit in future periods.

The Company had a net loss of $465.2 million in 1999 compared to a net loss
of $599.0 million in 1998. Basic loss per share was $6.40 in 1999 compared to a
loss of $8.22 in 1998. The decrease in net loss for 1999 resulted primarily from
lower investment impairment and contingent losses, interest on long-term debt
and general and administrative expense, partially offset by reduced income tax
benefits, increased reorganization costs, asset impairment and lower funeral
gross margin.

The Company's statement of cash flows for the year ended December 31, 1999
reflects cash provided from operations of $33.1 million, compared to cash
applied of $124.5 million in 1998, primarily due to the suspension of interest
on under-secured and unsecured debt obligations as a result of the bankruptcy
filings.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Consolidated revenue increased 2.0% to $1.136 billion in the year ended
December 31, 1998 from $1.114 billion in 1997, due to acquisitions. Consolidated
gross margin decreased 19.8% to $291.7 million in 1998 from $363.6 million in
1997, primarily due to volume declines in funeral and cemetery businesses and
increases in the allowance for funeral accounts receivable and pre-need cemetery
accounts receivable as a result of worsening trends in collection and
cancellation experience. As a percentage of revenue, consolidated gross margin
decreased to 25.7% in 1998 from 32.6% in 1997, principally due to the declines
in funeral, cemetery and insurance gross margins, as discussed below.

Funeral revenue increased 4.8% to $631.2 million in 1998 compared to
$602.1 million in 1997, due to revenue from acquisitions. The number of funeral
services performed at locations in operation for all of 1997 and 1998
("Established Locations") declined by 5.2% from 1997 to 1998. This decline,
combined with slightly lower average revenue per funeral service, had an
unfavorable impact on revenue. Funeral gross margin as a percentage of funeral
revenue for Established Locations decreased to 37.2% in 1998 from 38.0% in 1997,
as the decrease in revenue was partially offset by a 5.2% decrease in costs,
resulting from the decline in the number of funeral services performed and the
fixed nature of operating costs. As a result of the gross margin decrease for
Established Locations, together with the lower margins of recently acquired
funeral locations, overall funeral gross margin as a percentage of funeral
revenue decreased to 35.5% in 1998 from 37.9% in 1997.

Cemetery revenue decreased 3.2% to $408.5 million in 1998 compared to
$422.0 million in 1997, and cemetery gross margin decreased to 12.6% in 1998
from 28.2% in 1997, both primarily due to a decline in pre-need sales and an
increase in the estimate of the allowance for pre-need accounts receivable to
reflect worsening trends in cancellation experience. Similarly, for Established
Locations, cemetery gross margin decreased to 7.1% in 1998 from 27.5% in 1997.

Insurance revenue increased to $96.5 million for 1998 from $90.0 million in
1997. The increase in revenues was primarily due to the continuing effort to
expand the sale of pre-need funeral insurance through Company-owned funeral
homes, partially offset by reduced revenues as a result of the sale of First
Capital Life Insurance Company of Louisiana ("First Capital"). First Capital had
tangible assets of approximately $90 million and annual revenues of
approximately $24 million. Insurance gross margin decreased to 17.1% for 1998
from 18.5% in 1997, primarily due to the loss of First Capital business and the
implementation of the Company's insurance products in and expansion into
several states.

24
<PAGE>
The Company's gross pre-arranged funeral sales decreased to approximately
$258 million in 1998 from approximately $267 million in 1997. Pre-arranged
funeral services comprised approximately 23% and 21% of the annual funeral
services performed by the Company in 1998 and 1997, respectively. The Company
estimates that it had a backlog of approximately $1.1 billion in pre-need
funeral sales as of December 31, 1998. Approximately 75% of the Company's
cemetery gross sales in 1998 was generated from pre-need sales compared with 77%
in 1997.

General and administrative expenses, as a percentage of revenue, increased
to 11.7% in 1998 from 10.1% in 1997. For the year ended December 31, 1998,
general and administrative expenses increased $20.6 million to $133.3 million
from $112.7 million in 1997. The increase in general and administrative expenses
in 1998 was a result of the write off of $14.9 million of previously capitalized
costs, primarily for acquisitions and planned construction projects that were no
longer pursued, and approximately $2.0 million of costs associated with the
Company's initiative to evaluate strategic alternatives to maximize shareholder
value, including the transition of the Trevose office, partially offset by the
pre-tax gain of $6.8 million from the sale of First Capital (see above). Without
reflecting the impact of these items, general and administrative expenses for
1998 as a percentage of revenue, was 10.8% as compared to 7.9% in 1997, after
the exclusion of $24.8 million of charges for litigation and various asset write
downs in 1997.

Depreciation and amortization expenses, as a percentage of revenue,
increased to 7.8% in 1998, compared to 5.9% in 1997, primarily due to the fixed
cost component effect of lower than expected revenues, accelerated deprecation
and amortization of assets based on a reassessment of useful lives and the write
off of certain assets.

Interest expense on long-term debt increased by $50.1 million in 1998,
primarily as a result of additional borrowings by the Company to finance its
previous acquisition programs and working capital needs. In 1998, the Company
wrote off as interest expense approximately $15.0 million of deferred debt issue
costs related to its bank credit agreements.

Due to severe liquidity constraints and the need to generate cash in late
1998, the Company identified certain properties, which it would consider selling
at their fair value. On March 31, 1999, one group of properties consisting of
124 cemeteries and three funeral homes was sold for gross proceeds of
$193.0 million, before purchase price adjustments and transaction costs. The
Company recorded a pre-tax asset impairment provision of $333.9 million in 1998.
In calculating the impairment provision, the Company used estimated cash flow
from operations and estimated cash proceeds on the sale of these properties. The
asset impairment provision was based on management estimates.

The Company recorded an investment impairment provision and contingent loss
of $315.2 million relating to its investments in Prime and Rose Hills. Prior to
the fourth quarter of 1998, the Company had evaluated the exercise of its call
options related to the majority owner's investment in Prime and Rose Hills as
likely, and the exercise of the majority owner's put options as unlikely. Due to
liquidity concerns of the Company, the performance of Prime and Rose Hills, and
the reduced market values for the Company's and other industry participants'
stock, the Company determined the exercise of the calls to be unlikely and the
exercise of the puts to be likely. Accordingly, the Company determined that its
investments suffered a decline in value that was other than temporary and wrote
down its investment in Prime and Rose Hills based on an assumed distribution of
Prime's and Rose Hills' shareholders' equity at December 31, 1998, after taking
into account the majority owner's return under the put. In addition, the Company
estimated the expected put option price on the sixth anniversary, the first date
the put options become exercisable by the majority owner, based on the Company's
best estimate of earnings before interest, taxes, depreciation and amortization
at that time and the relevant formula in the put/call agreements. The Company
accrued contingent losses based upon the difference between the estimated option
prices and the Company's estimates of the fair value of the majority owner's
interest which was based in part on then-current market conditions. Such amount
could change based on changes in the estimated future value of the businesses. A

25
<PAGE>
net liability was recorded reflecting an accrual of the expected losses on the
options reduced by the remaining carrying value of the investments.

The income tax benefit of $164.5 million in 1998 compared to an income tax
expense of $0.8 million in 1997. In 1998, the Company established valuation
allowances against future potential tax deductions associated with the following
items in the amounts indicated: a) provision for losses on the Company's
existing investment in Prime and Rose Hills and the establishment of a liability
regarding the Company's put obligation in the amount of $120.0 million;
b) certain state, provincial, and federal net operating loss carryovers in the
amount of $50.1 million; and c) certain other tax benefits in the amount of
$7.5 million.

The Company had a net loss of $599.0 million in 1998 compared to net income
of $41.8 million in 1997. Basic loss per share was $8.22 compared to earnings of
$0.48 in 1997. The net loss and loss per share for 1998 were primarily due to
the decrease in operating earnings and the charges taken for asset impairment
primarily related to cemetery disposals and the impairment of the Company's
equity investments and accrual for contingent loss in Prime and Rose Hills.

The Company's statement of cash flows for the year ended December 31, 1998
reflected cash applied to operations of $124.5 million, primarily as a result of
pre-need cemetery programs.

DISPOSITIONS AND ACQUISITIONS, INVESTMENTS AND CAPITAL EXPENDITURES

In December 1999, the Company announced its intention to dispose of
201 funeral homes and 170 cemeteries in the United States that do not meet the
Company's future geographic and strategic objectives. In January 2000, the
Bankruptcy Courts approved the Company's disposition process for the locations
identified. The Company has recorded in 1999 a pre-tax asset impairment
provision of $279.1 million on these locations. A further 54 locations are
anticipated to be merged with existing locations.

In March 1999, the Company completed the sale of 124 cemeteries and three
funeral homes. The Company received gross proceeds of $193.0 million, before
purchase price adjustments and transaction costs, resulting in a loss of
$1.1 million. The Company had two smaller groups of properties, which were also
considered probable for sale. The Company recorded a pre-tax asset impairment
provision of $333.9 million in 1998 and $15.1 million in 1999 on individual
properties contained in the above groups. In December 1998, the Company also
completed the sale of its insurance subsidiary, First Capital. The aggregate
proceeds from this sale were approximately $24 million, resulting in a gain
before taxes of $6.8 million.

In 1998, the Company acquired 89 funeral homes and 65 cemeteries for
consideration of $278.0 million. The Company does not expect to consummate any
material acquisitions during 2000.

LIQUIDITY AND CAPITAL RESOURCES

Over the past few years, the Company's strategic growth plan had emphasized
cemetery acquisitions, as compared to its historical emphasis on funeral home
acquisitions. Acquisition and the integration of cemeteries required significant
cash due to the pre-need sales of cemetery interment rights, products and
services and related interest costs on debt incurred.

On June 1, 1999, Loewen and most of its subsidiaries voluntarily filed a
petition for creditor protection under Chapter 11 and CCAA. The Company will
continue to conduct business in the ordinary course as debtors-in-possession
under the protection of the Bankruptcy Courts while a plan of reorganization is
developed.

Loewen, LGII and all of its U.S. debtor subsidiaries, as
debtors-in-possession, are parties to the $200 million DIP Facility, as amended.
The DIP Facility was approved by the U.S. Bankruptcy Court on July 16, 1999. The
DIP Facility has a term of two years and is secured by a perfected security
interest in

26
<PAGE>
substantially all of the existing and future assets of LGII and its U.S. debtor
subsidiaries (subject only to valid and perfected pre-Petition Date liens). The
lenders under the DIP Facility also have the benefit of a "super-priority"
administrative expense claim in LGII's bankruptcy proceedings. The DIP Facility
will be used primarily to fund LGII's working capital needs during the course of
the bankruptcy proceedings. Use of the DIP Facility for letters of credit is
limited to a maximum of $50 million. As at December 31, 1999, the borrowings
under the DIP Facility were $8.0 million and the letters of credit outstanding
were $20.2 million.

In addition, the Company has taken steps to improve profitability and cash
flow throughout the organization, including a review of its cemetery pre-need
sales strategy. To improve cash flow, the Company implemented changes to the
terms and conditions of cemetery pre-need sales. These changes included: setting
contract term thresholds; adjusting sales force compensation for sales with
certain terms; and eliminating certain types of contracts in jurisdictions with
poor cash flow characteristics after trusting obligations are considered.

As a result of the Chapter 11 and CCAA filings, no principal or interest
payments will be made on most pre-Petition Date debt obligations without
Bankruptcy Court approval or until a plan of reorganization providing for the
repayment terms has been submitted to any required vote and approval of affected
parties, has been confirmed by the Bankruptcy Courts and has become effective.
Interest on unsecured and under-secured pre-Petition Date debt obligations
subject to compromise has not been accrued after the Petition Date. Interest
expense and principal payments will continue to be recorded on most secured
vendor financing, including capital lease obligations, unless the leases are
rejected by the Debtors. Contractual interest expense not recorded on certain
pre-Petition Date debt obligations totaled $99.9 million for the year ended
December 31, 1999.

In March 1999, the Company deferred future dividends applicable to the MIPS.
Since June 1, 1999, as a result of the bankruptcy filings, the Company was in
default of its bank and term credit agreements, senior amortizing notes and
senior notes and, accordingly, has not made interest, principal or dividend
payments when due on secured, unsecured and under-secured debt obligations.

The Company's balance sheet at December 31, 1999 as compared to
December 31, 1998, reflects significant changes from the disposition of
properties, the bankruptcy filings as of June 1, 1999, and impairment
provisions, and, to a lesser extent, ongoing operating activities.

COLLATERAL TRUST AGREEMENT

In 1996, Loewen, LGII and their senior lenders entered into a collateral
trust agreement pursuant to which the senior lenders share certain collateral
and guarantees on a pari passu basis (the "Collateral Trust Agreement"). The
security for lenders under the Collateral Trust Agreement consists of (i) all of
LGII's right, title and interest in and to all rights to receive payment under
or in respect of accounts, contracts, contractual rights, chattel paper,
documents, instruments and general intangibles, (ii) a pledge of the shares of
capital stock of substantially all of the subsidiaries in which Loewen directly
or indirectly holds more than a 50% voting or economic interest, and (iii) a
guarantee by each subsidiary that is pledging stock. The security is held by a
trustee for the equal and ratable benefit of the senior lending group. This
senior lending group consists principally of the lenders under the senior
amortizing notes, senior notes and bank and term credit agreements, as well as
the holders of certain letters of credit. At the Petition Date, the indebtedness
owed to the senior lending group subject to the Collateral Trust Agreement,
including the holders of certain letters of credit, aggregated approximately
$2.0 billion.

In April 2000, the Company announced that under the Collateral Trust
Agreement, there is uncertainty as to the secured status of the Company's
Series 3, 4, 6 and 7 Senior Notes and the Pass-through Asset Trust Securities
(the "Subject Debt"). The aggregate principal amount outstanding of the Subject
Debt is $1.1 billion. In accordance with the terms of the Collateral Trust
Agreement, holders of future indebtedness or their representatives were to
effect registration by delivering to the collateral

27
<PAGE>

trustee Additional Secured Indebtedness Registration Statements. Pursuant to the
agreements with lender representatives in connection with financings subsequent
to the establishment of the Collateral Trust Agreement, the Company and LGII
have treated the Subject Debt as secured.

RESTRICTIONS

The DIP Facility, as amended, contains various financial and other
restrictive covenants including, among other things, limitations on asset sales,
additional indebtedness, capital expenditures, and minimum levels of operating
cash flow, gross margin and revenue. Under the terms of the DIP Facility, the
cash of the Company, LGII and its subsidiaries which have filed under
Chapter 11, is generally restricted for use within this group of filed
companies. In December 1999, the Company favorably renegotiated certain
covenants and received approval from the lenders for initiative expenditures not
contemplated when the original DIP Facility was obtained. These amendments
received Bankruptcy Court approval in December 1999. As at the date of issue of
this report, there are no funded advances under this facility. The pricing,
covenants and facility limit are presently the subject of discussion between the
Company and the DIP Agent with a view to reducing the cost and better adapting
the terms to the requirements of the proposed business plan. Loans made under
the amended DIP Facility bear interest at floating rates of U.S. Prime plus
1.25% (LIBOR plus 2.75% for Eurodollar advances). A fee of 2.75% is charged on
letters of credit under the amended DIP Facility. A commitment fee of 0.50% is
charged on the unused portion of the amended DIP Facility. Related debt issue
costs have been deferred and are being amortized over the two-year life of the
amended DIP Facility. The Company believes that sufficient cash resources
currently exist to satisfy its near-term obligations.

The Company's insurance subsidiaries, which have not filed for protection
under Chapter 11, are also subject to certain state regulations that restrict
distributions, loans and advances from such subsidiaries to the Company.

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

The Company used derivatives, prior to filing for bankruptcy, primarily in
the form of interest rate swaps, cross-currency interest rate swaps, and both
Canadian and United States dollar borrowings. The objective was to manage the
mix of floating and fixed rate debt and to substantially hedge the Company's net
investment in foreign assets. The Company's major market risk exposures are to
changing interest rates, equity prices and foreign currency fluctuations. The
Company's exposure to interest rate fluctuations and equity prices primarily
reside in the United States, while the Company's exposure to foreign currency
fluctuations primarily resides in Canadian dollar investments. All derivative
and other financial instruments described were non-trading and were stated in
U.S. dollars. The Company's derivative contracts were entered into with major
financial institutions, thereby minimizing the risk of credit loss. Fluctuations
in interest and currency rates that affected the swaps were generally offset by
corresponding movements in the assets or debt being hedged. The Company's market
risk exposure, discussed below, provides information about the Company's market
sensitive financial instruments and constitutes

28
<PAGE>
"forward-looking statements" which involve risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.

As a result of the Company's bankruptcy filings on the Petition Date,
virtually all of the Company's fixed and floating rate debt are in default. Such
obligations have been reclassified as liabilities subject to compromise and will
not be settled until a plan of reorganization is confirmed by the Bankruptcy
Courts. These material limitations restrict the Company's ability to fully
reflect the net market risk exposure of these instruments. Accordingly,
information about fair values and scheduled repayments of the debt obligations
has been omitted. In addition, all interest rate derivatives previously held by
the Company have been terminated and a liability has been recorded if necessary.
Comparative information for the prior year has similarly been omitted as the
information is no longer meaningful due to the bankruptcy proceedings.

The Company's sensitivity to floating interest rates is primarily
attributable to borrowings under the DIP Facility. Accordingly, changes in U.S.
interest rates affect the interest paid on the Company's debt.

The Company has foreign operations in the United Kingdom (34 locations) and
Mexico (one location). These countries are generally stable politically and
economically, and are not highly inflationary.

EQUITY-PRICE RISK MANAGEMENT

The sale of pre-arranged funeral services, pre-need cemetery merchandise and
insurance products results in the Company having significant investment in, or
managing trusts that have significant investment in, mutual funds and equity
securities which are sensitive to current market prices. Fluctuations in
interest and equity market rates on investments held in pre-arranged funeral
trusts do not result in significant current income fluctuation as the income is
not realized until services are performed. Investments in pre-need cemetery
merchandise trusts and insurance invested assets predominately hold fixed income
securities. These investments are generally not sold prior to maturity.
Accordingly, any unrealized gains or losses created by fluctuations in interest
rates will not be realized. The Company manages the mix of equities and fixed
income securites in accordance with policies set by the Investment Committee
which is comprised of members of senior management. The Investment Committee
sets and modifies the mix of investments with the assistance of independent
professional financial advisors. The policy emphasizes a conservative approach
while maintaining acceptable levels of income and capital appreciation.

29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
THE LOEWEN GROUP INC., CONSOLIDATED FINANCIAL STATEMENTS

Management's Statement of Responsibility.................. 32

Report of Independent Accountants......................... 33

Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................... 34

Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997........................ 35

Consolidated Statements of Retained Earnings (Deficit) for
the Years Ended December 31, 1999, 1998 and 1997........ 36

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997........................ 37

Notes to Consolidated Financial Statements................ 38

Supplementary Data: Quarterly Financial Data
(unaudited)............................................. 83

LOEWEN GROUP INTERNATIONAL, INC., CONSOLIDATED FINANCIAL
STATEMENTS(1)

Report of Independent Accountants......................... 85

Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................... 86

Consolidated Statements of Operations and Deficit for the
Years Ended December 31, 1999, 1998 and 1997............ 87

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997........................ 88

Notes to Consolidated Financial Statements................ 89
</TABLE>

- ------------------------

(1) FINANCIAL STATEMENTS OF LOEWEN GROUP INTERNATIONAL, INC. ("LGII") ARE
INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K BECAUSE THE OUTSTANDING SHARES OF
LGII CONSTITUTE A "SUBSTANTIAL PORTION" OF THE COLLATERAL (WITHIN THE MEANING OF
SECURITIES AND EXCHANGE COMMISSION RULE 3-10 UNDER REGULATION S-X) THAT SECURES
THE SERIES 1 THROUGH 4 AND SERIES 6 AND 7 NOTES THAT WERE ISSUED BY LGII AND
GUARANTEED BY LOEWEN.

30
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS

31
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT'S STATEMENT OF RESPONSIBILITY

The management of The Loewen Group Inc. is responsible for the preparation
of the accompanying consolidated financial statements and the preparation and
presentation of all information in the Annual Report. The consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in Canada and are considered by management to present fairly the
financial position and operating results of the Company.

The Company maintains various systems of internal control designed to
provide reasonable assurance that transactions are appropriately authorized and
recorded, that assets are safeguarded, and that financial records are properly
maintained to provide accurate and reliable financial statements in all material
respects.

The Company's audit committee is composed entirely of non-management
directors and is appointed by the Board of Directors annually. The audit
committee meets periodically with the Company's management and independent
auditors to review financial reporting matters and internal controls and to
review the consolidated financial statements and the independent auditors'
report. The audit committee reported its findings to the Board of Directors who
have approved the consolidated financial statements.

The Company's independent auditors, KPMG LLP, have examined the consolidated
financial statements and their report follows.

<TABLE>
<S> <C>
/s/ PAUL A. HOUSTON /s/ MICHAEL A. CORNELISSEN
President and Chief Executive Officer Senior Vice-President, Chief Financial
Officer
</TABLE>

March 14, 2000

32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders
The Loewen Group Inc.

We have audited the consolidated balance sheets of The Loewen Group Inc. as
at December 31, 1999 and 1998 and the consolidated statements of operations,
retained earnings (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1999. In connection with our audits of the
consolidated financial statements, we also have audited financial statement
Schedule II included in Item 14 of the Company's annual report on Form 10-K.
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 in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999, in accordance with
Canadian generally accepted accounting principles. As required by the Company
Act of the Province of British Columbia, we report that, in our opinion, these
principles have been applied on a consistent basis. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

Canadian generally accepted accounting principles vary in certain
significant respects from accounting principles generally accepted in the
United States. Application of accounting principles generally accepted in the
United States would have affected results of operations for each of the years in
the three-year period ended December 31, 1999 and assets, liabilities and
shareholders' equity as at December 31, 1999 and 1998 to the extent summarized
in Note 20 to the consolidated financial statements.

/s/ KPMG LLP

Chartered Accountants

Vancouver, Canada

March 14, 2000, except as to Note 22, which is as of April 7, 2000

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA -- U.S. REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the consolidated financial statements. Our report to the shareholders
dated March 14, 2000, except as to Note 22, which is as of April 7, 2000, is
expressed in accordance with Canadian reporting standards which do not permit a
reference to such events and conditions in the auditor's report when these are
adequately disclosed in the financial statements.

/s/ KPMG LLP

Chartered Accountants

Vancouver, Canada

March 14, 2000, except as to Note 22, which is as of April 7, 2000

33
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 55,166 $ 94,141
Receivables, net of allowances............................ 198,500 203,772
Inventories............................................... 34,850 34,482
Prepaid expenses.......................................... 12,332 8,916
---------- ----------
300,848 341,311
Long-term receivables, net of allowances.................... 577,733 664,999
Cemetery property........................................... 923,344 1,235,847
Property and equipment...................................... 799,813 825,985
Names and reputations....................................... 650,200 748,665
Insurance invested assets................................... 281,423 266,661
Future income tax assets.................................... 5,128 12,003
Pre-arranged funeral services............................... 438,541 413,934
Other assets................................................ 133,553 164,503
---------- ----------
$4,110,583 $4,673,908
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities not subject to compromise
Current liabilities
Current indebtedness.................................... $ -- $ 66,222
Accounts payable and accrued liabilities................ 97,637 170,134
Long-term debt, current portion......................... 20,693 874,123
---------- ----------
118,330 1,110,479
---------- ----------
Long-term debt, net of current portion.................... 70,511 1,393,891
Other liabilities......................................... 426,019 399,304
Insurance policy liabilities.............................. 184,207 166,920
Future income tax liabilities............................. 146,028 208,939
Deferred pre-arranged funeral services revenue............ 438,541 413,934
Liabilities subject to compromise........................... 2,282,601 --
Preferred securities of subsidiary.......................... -- 75,000
Shareholders' equity
Common shares............................................. 1,276,434 1,274,096
Preferred shares.......................................... 157,146 157,146
Deficit................................................... (1,004,917) (539,741)
Foreign exchange adjustment............................... 15,683 13,940
---------- ----------
444,346 905,441
---------- ----------
$4,110,583 $4,673,908
========== ==========
BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION (NOTE 1)
COMMITMENTS AND CONTINGENCIES (NOTES 3, 5, 10, 13, 15, 19
AND 22)
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

34
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue
Funeral................................................ $ 609,710 $ 631,221 $ 602,112
Cemetery............................................... 326,562 408,497 422,010
Insurance.............................................. 94,101 96,516 89,977
---------- ---------- ----------
1,030,373 1,136,234 1,114,099
Costs and expenses
Funeral................................................ 394,227 407,302 374,191
Cemetery............................................... 273,760 357,183 302,965
Insurance.............................................. 73,727 80,013 73,304
---------- ---------- ----------
741,714 844,498 750,460
---------- ---------- ----------
288,659 291,736 363,639
Expenses
General and administrative............................. 99,874 133,289 112,766
Depreciation and amortization.......................... 82,212 88,513 65,378
Provision for asset impairment......................... 355,180 333,900 --
Restructuring costs.................................... -- -- 33,364
---------- ---------- ----------
537,266 555,702 211,508
---------- ---------- ----------
Earnings (loss) from operations.......................... (248,607) (263,966) 152,131

Interest on long-term debt............................... 87,849 182,305 132,252
Provision for investment impairment and contingent
losses................................................. 59,247 315,207 --
Reorganization costs..................................... 92,791 -- --
Dividends on preferred securities of subsidiary.......... 2,971 7,088 7,088
Other expenses (income).................................. 5,651 (5,126) (29,804)
---------- ---------- ----------
Earnings (loss) before income taxes...................... (497,116) (763,440) 42,595
Income taxes
Current................................................ 8,232 23,118 34,152
Future................................................. (40,172) (187,589) (33,367)
---------- ---------- ----------
(31,940) (164,471) 785
---------- ---------- ----------
Net earnings (loss)...................................... $ (465,176) $ (598,969) $ 41,810
========== ========== ==========
Basic earnings (loss) per Common share................... $ (6.40) $ (8.22) $ 0.48
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

35
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1999 1998 1997
----------- --------- --------
<S> <C> <C> <C>
Retained earnings (deficit), beginning of year............. $ (539,741) $ 75,624 $ 58,305
Net earnings (loss)........................................ (465,176) (598,969) 41,810
Common share dividends..................................... -- (7,496) (14,958)
Preferred share dividends.................................. -- (8,900) (9,533)
----------- --------- --------
Retained earnings (deficit), end of year................... $(1,004,917) $(539,741) $ 75,624
=========== ========= ========
Dividend per Common share.................................. $ -- $ 0.100 $ 0.200
Dividend per Preferred share............................... $ -- $ 1.011 $ 1.083
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

36
<PAGE>
THE LOEWEN GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
1999 1998 1997
--------- --------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net earnings (loss)..................................... $(465,176) $(598,969) $ 41,810
Items not affecting cash
Depreciation and amortization......................... 82,212 88,513 65,378
Amortization of debt issue costs...................... 4,929 26,581 6,802
Provision for asset impairment........................ 355,180 333,900 --
Provision for investment impairment and contingent
losses.............................................. 59,247 315,207 --
Loss (gain) on sale of assets......................... 1,122 (6,768) (27,208)
Future income taxes................................... (40,172) (187,589) (33,367)
Equity and other earnings of associated companies..... 4,529 (5,126) (13,380)
Non-cash restructuring costs.......................... -- -- 15,645
Non-cash reorganization costs......................... 59,184 -- --
Other, including net changes in other non-cash
balances.............................................. (27,991) (90,277) (216,356)
--------- --------- -----------
33,064 (124,528) (160,676)
--------- --------- -----------
Investing
Proceeds on disposition of assets and investments....... 202,635 56,340 70,087
Purchase of property and equipment...................... (39,530) (43,540) (52,830)
Construction of new facilities.......................... (14,974) (19,208) (32,429)
Purchase of insurance invested assets................... (147,510) (224,145) (261,987)
Proceeds on disposition and maturities of insurance
invested assets....................................... 130,434 180,175 252,626
Business acquisitions................................... (173) (252,598) (481,617)
Investments, net........................................ -- (1,422) 14,523
--------- --------- -----------
130,882 (304,398) (491,627)
--------- --------- -----------
Financing
Increase in long-term debt.............................. 14,936 1,105,441 1,343,545
Repayment of long-term debt............................. (140,613) (645,667) (1,082,970)
Increase in (repayment of) current indebtedness......... (66,222) 66,222 --
Debt issue costs........................................ (8,866) (17,884) (7,120)
Issue of Common shares, before income tax recovery...... -- 1,801 439,429
Common share dividends.................................. -- (14,713) (12,340)
Preferred share dividends............................... (2,156) (8,900) (9,533)
--------- --------- -----------
(202,921) 486,300 671,011
--------- --------- -----------
Increase (decrease) in cash............................... (38,975) 57,374 18,708
Cash, beginning of year................................... 94,141 36,767 18,059
--------- --------- -----------
Cash, end of year......................................... $ 55,166 $ 94,141 $ 36,767
========= ========= ===========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

37
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 1. BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION

BANKRUPTCY PROCEEDINGS

The Loewen Group Inc. (the "Company") is a company organized under the laws
of British Columbia, Canada. On June 1, 1999 (the "Petition Date"), the Company
and each of approximately 850 United States subsidiaries and a foreign
subsidiary voluntarily filed a petition for creditor protection under Chapter 11
of the U.S. Bankruptcy Code ("Chapter 11") in the U.S. Bankruptcy Court, for the
District of Delaware. Concurrent with the Chapter 11 filing, the Company and 116
of its Canadian subsidiaries filed for creditor protection under the Companies'
Creditors Arrangement Act ("CCAA") with the Ontario Superior Court of Justice,
Toronto, Ontario, Canada (together with the U.S. Bankruptcy Court, the
"Bankruptcy Courts"). Subsequent to the Petition Date, three additional
subsidiaries of the Company voluntarily filed petitions for creditor protection
and a fourth subsidiary's petition was voluntarily deleted.

The Company and its subsidiaries under creditor protection (the "Debtors")
are presently operating their businesses as debtors-in-possession. The United
States trustee for the District of Delaware appointed a statutory committee of
unsecured creditors (the "Official Unsecured Creditors' Committee"). The
proceedings of the Debtors are being jointly administered for procedural
purposes only. The Company's insurance, United Kingdom and certain funeral and
cemetery subsidiaries were not included in the Chapter 11 and CCAA filings.

BASIS OF PRESENTATION

The accompanying financial statements have been prepared on a "going
concern" basis in accordance with Canadian generally accepted accounting
principles. The "going concern" basis of presentation assumes that the Company
will continue in operation for the foreseeable future and will be able to
realize its assets and discharge its liabilities and commitments in the normal
course of business. There is substantial doubt about the appropriateness of the
use of the "going concern" assumption because of the Chapter 11 and CCAA
bankruptcy proceedings and circumstances relating to this event, including the
Company's current debt structure, recent losses and negative cash flow. As such,
realization of assets and discharge of liabilities are subject to significant
uncertainty.

The consolidated financial statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for these consolidated financial statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. The appropriateness of the "going concern" basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to renegotiate and comply with the
terms of a debtor-in-possession revolving credit facility, and the ability to
generate sufficient cash from operations and financing arrangements to meet
obligations.

Additionally, if a plan of reorganization is approved by the Bankruptcy
Courts, the Company will be required to adopt "fresh start" accounting under
Canadian and U.S. generally accepted accounting

38
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 1. BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION (CONTINUED)
principles. This accounting will require that assets and liabilities be recorded
at fair value, based on the values determined in connection with the plan of
reorganization. As a result, the reported amounts in the consolidated financial
statements could materially change, because they do not give effect to the
adjustments to the carrying values of assets and liabilities that may ultimately
result from the adoption of "fresh start" accounting.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in Canada, which in the
case of the Company, generally conform with those established in the United
States, except as explained in Note 20.

The United States dollar is the principal currency of the Company's business
and, accordingly, the consolidated financial statements are expressed in United
States dollars.

BASIS OF CONSOLIDATION

The accounts of all subsidiary companies have been included in the
consolidated financial statements from their respective dates of acquisition of
control or formation. All subsidiaries are wholly owned at December 31, 1999
except for a few companies with small minority interests. The Company's
operating subsidiaries in the United States are held through Loewen Group
International, Inc. ("LGII").

The Company accounts for its investment in companies in which it has
significant influence by the equity method. The Company's proportionate share of
income (loss) as reported, net of amortization of excess purchase price over net
assets acquired, is included in income and added to (deducted from) the cost of
the investment. The equity method carrying value of the investment is also
reduced by any provision for asset impairment and common share dividends
received.

All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.

MEASUREMENT UNCERTAINTY

The preparation of consolidated financial statements in accordance 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. As a result, actual results could significantly differ from
those estimates.

FUNERAL SERVICES

The Company provides a full range of at-need funeral services as well as
pre-arranged funeral services.

39
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
designated as beneficiary. Except for insurance commissions and amounts not
required to be trusted, which are used to defray initial costs of
administration, no income is recognized until the performance of a specific
funeral.

Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance benefits,
are deferred until the service is performed. The Company estimates that trust
fund investment earnings and annual insurance benefits exceed the increase in
cost over time of providing the related services. Upon performance of the
specific funeral service, the Company will recognize the trust fund principal
amount or insurance contract amount together with the accumulated trust earnings
and annual insurance benefits as funeral revenues. Direct obtaining costs
related to the sale of pre-arranged funeral services are included in other
assets and amortized over a period of ten years, approximating the period the
benefits are expected to be realized. Indirect obtaining costs relating to the
sale of pre-arranged funeral services are expensed in the period incurred.

CEMETERY OPERATIONS

The Company provides a complete line of cemetery products and services, the
majority of which are sold on a pre-need basis.

Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when customer contracts are signed with
concurrent recognition of related costs. Changes in estimated costs of
merchandise and services are recognized in income when additional information
becomes available. Interest is imputed at a market rate for contracts that do
not bear a market rate of interest. An allowance for cancellations and refunds
is provided at the date of sale based on management's estimates. The allowance
is reviewed quarterly and changes in estimates are reflected for current and
prior contracts as a result of recent cancellation experience, trends and
analysis. Actual cancellation rates in the future will result in changes in
estimate which are recognized when information is available.

A portion of the proceeds from cemetery sales is generally required by law
to be paid into perpetual or endowment care trust funds. Cemetery revenue is
recorded net of the amount to be deposited to perpetual or endowment care trust
funds. Earnings of perpetual or endowment care trust funds are used to defray
the maintenance costs of cemeteries. Additionally, pursuant to various state and
provincial laws, a portion of the proceeds from the sale of pre-need merchandise
and services may also be required to be paid into trust funds which are recorded
as long-term receivables. Earnings of merchandise and services trust funds are
recognized in income in the year realized; increases of cost in the merchandise
and services are recognized as a charge to income.

INSURANCE OPERATIONS

The Company's insurance companies sell a variety of life insurance products,
primarily to fund pre-arranged funeral services.

40
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities are carried at moving average market value. Net realized gains and
losses on the disposal of equity securities are deferred and amortized to income
on a declining balance basis.

Insurance policy liabilities represent an estimate of the amount which,
together with future premiums and investment income, will be sufficient to pay
future benefits, dividends and expenses on insurance and annuity contracts.
Liabilities are computed using the policy premium method which involves the use
of estimates concerning such factors as mortality and morbidity rates, future
investment yields, future expense levels and rates of surrender. Consequently,
policy liabilities include reasonable provisions for adverse deviations from
those estimates. These assumptions will be revised if it is determined that
future experience differs substantially from that previously assumed.

CASH

Cash includes cash and term deposits with an initial maturity less than or
equal to 90 days.

INVENTORIES

Inventories are carried at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.

CEMETERY PROPERTY

Cemetery property, including capitalized interest, consists of developed and
undeveloped cemetery property and mausoleums, and is valued at average cost.
Amounts are expensed as sales of cemetery plots and mausoleums occur.

PROPERTY AND EQUIPMENT

Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:

<S> <C>
Buildings and improvements........................ 10 to 40 years
Automobiles....................................... Up to 6 years
Furniture, fixtures and equipment................. 6 to 10 years
Computer hardware and software.................... 6 years
Leasehold improvements............................ Over the term of the lease plus one renewal
</TABLE>

NAMES AND REPUTATIONS

The amount paid for the names and reputations of operations acquired is
equivalent to the excess of the purchase price over the fair value of
identifiable net assets acquired, as determined by management. Amortization is
provided on a straight-line basis over 40 years.

Covenants not to compete included with names and reputations on the
consolidated balance sheet represent amounts capitalized for non-competition
agreements with certain key management personnel of

41
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
acquired operations. Amortization of such prepaid covenants not to compete is
provided on a straight-line basis over the terms of the relevant agreements,
typically ten years.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company monitors the recoverability of long-lived assets, including
names and reputations, cemetery property, property and equipment, investments
and other assets based on estimates using factors such as future asset
utilization, business climate and future undiscounted cash flows expected to
result from the use of the related assets or realized upon sale. The Company's
policy is to write down assets to their net recoverable amount in the period
when it is determined that the carrying amount of the asset is not likely to be
recovered.

DEBT ISSUE COSTS

Debt issue costs included in other assets on the consolidated balance sheet
represent the costs of negotiating and securing the Company's long-term debt and
preferred securities of subsidiary and are included in interest expense on a
straight-line basis over the respective term of the related instrument. These
costs include legal fees, accounting fees, underwriting and agency fees and
other related costs.

DERIVATIVE INSTRUMENTS

Prior to filing for bankruptcy, the Company used derivative transactions
with financial institutions primarily as hedges of other financial transactions.
The Company's policies do not allow leveraged transactions and are designed to
minimize credit and concentration risk with counterparties.

The Company typically used interest rate swap agreements to manage interest
rate exposure on its long-term debt. Differences between the amounts paid and
received would be accrued and accounted for as an adjustment to interest expense
over the life of the swap agreement.

The Company used basic swap and option products to manage its exposure to
interest rate movements when anticipated financing transactions were probable
and the significant characteristics and expected terms were identified. Any gain
or loss as a result of the hedging would be deferred and amortized as an
adjustment to interest expense over the life of the financing instrument hedged.
If at any point in time a hedging transaction no longer met the criteria of a
hedge, any gain or loss would be recognized in current earnings.

The Company also used foreign exchange forward contracts, cross currency
swaps, options and futures to hedge the Company's exposure to fluctuations in
foreign exchange rates. Gains or losses as a result of the hedge transaction
would be accounted for as an adjustment to the related transaction.

SHARE ISSUE EXPENSES

The costs of issuing shares, net of income tax recoveries thereon, are
applied to reduce the stated value of such shares.

42
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE INCOME TAXES

The Company follows the asset and liability method of accounting for income
taxes. Under this method, current income taxes are recognized for the estimated
income taxes payable for the current period. Future income tax assets and
liabilities are recognized for temporary differences between the tax and
accounting bases of assets and liabilities as well as for the benefit of losses
available to be carried forward to future years for tax purposes. Future income
tax assets and liabilities are measured using substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on future income
tax assets and liabilities of a change in tax rates is recognized in operations
in the period that includes the substantive enactment date. A valuation
allowance is recognized to the extent the recoverability of future income tax
assets is not considered more likely than not.

EARNINGS PER SHARE

Basic earnings (loss) per share is calculated based on net earnings (loss)
attributable to Common shareholders using the weighted average number of Common
shares outstanding during the respective periods. Fully diluted earnings (loss)
per share is not materially different from basic earnings (loss) per share.

FOREIGN CURRENCY TRANSLATION

The assets and liabilities of the Company's Canadian operations and other
operations outside the United States, which are accounted for as self-sustaining
operations, have been translated into United States dollars at the rates of
exchange as at the balance sheet dates, and revenue and expenses are translated
at the average rates of exchange for the periods of operation. The net gains or
losses arising from the translations are deferred and are classified as "Foreign
exchange adjustment" within Shareholders' equity.

COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1999.

43
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT

In the Chapter 11 and CCAA proceedings, substantially all unsecured and
under-secured liabilities of the Debtors as of the Petition Date are subject to
compromise or other treatment under a plan of reorganization to be confirmed by
the Bankruptcy Courts after submission to any required vote and approval by
affected parties. For financial reporting purposes, those liabilities and
obligations whose treatment and satisfaction are dependent on the outcome of the
Chapter 11 and CCAA proceedings have been segregated and classified as
liabilities subject to compromise in the consolidated financial statements.
Generally, all actions to enforce or otherwise effect repayment of pre-Petition
Date liabilities as well as all pending litigation against the Debtors are
stayed while the Debtors continue their business operations as
debtors-in-possession. The Bar Date, which was the last date by which claims
against the Company had to be filed in the U.S. Bankruptcy Court if the
claimants wished to receive any distribution in the Chapter 11 proceedings,
expired on December 15, 1999. The Bar Date for claims against operating entities
applicable to the CCAA proceeding was set at March 10, 2000.

Differences between amounts shown by the Debtors and claims filed by
creditors will be investigated and either amicably resolved, adjudicated before
the Bankruptcy Courts, or resolved through other resolution processes. The
ultimate amount of and settlement terms for such liabilities are subject to an
approved plan of reorganization and, accordingly, are not presently
determinable.

Under the U.S. Bankruptcy Code, the Debtors may elect to assume or reject
leases, employment contracts, service contracts and other pre-Petition Date
executory contracts, subject to U.S. Bankruptcy Court approval including those
described in Note 13. Liabilities related to executory contracts are recorded as
liabilities not subject to compromise, unless the Company has decided to reject
the contract. Claims for damages resulting from the rejection, after
December 15, 1999, of executory contracts will be subject to separate bar dates.
The Debtors are reviewing all executory contracts for assumption or rejection.
In August 1999, the Debtors applied to the U.S. Bankruptcy Court to reject
approximately 200 non-compete agreements. The Company has suspended payments
applicable to these non-compete agreements. The U.S. Bankruptcy Court disallowed
the Company's motion to reject these non-compete agreements as a group in
August 1999. The Company may resubmit some or all of these non-compete
agreements on an individual or smaller group basis in the future, as well as
applications to reject additional executory contracts.

The principal categories of obligations classified as liabilities subject to
compromise under the reorganization proceedings are identified below. The
amounts in total may vary significantly from the stated amount of proofs of
claim that are filed with the Bankruptcy Courts, and may be subject to future
adjustment depending on Bankruptcy Court action, further developments with
respect to potential disputed claims, and determination as to the value of any
collateral securing claims or other events. Additional claims may also arise
from the rejection of executory contracts by the Debtors.

44
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED)
The liabilities subject to compromise and debt are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1999 1998
----------- --------- ----------
LIABILITIES
SUBJECT TO LONG-TERM LONG-TERM
COMPROMISE DEBT DEBT
----------- --------- ----------
<S> <C> <C> <C>
DIP Facility............................................... $ -- $ 8,000 $ --
Bank credit agreements..................................... 338,689 -- 427,292
11.12% (1998 - 9.62%) Series D senior amortizing notes due
in 2003.................................................. 36,518 -- 42,857
7.82% (1998 - 6.49%) Series E senior amortizing notes due
in 2004.................................................. 30,432 -- 42,857
7.50% Series 1 senior notes due in 2001.................... 225,000 -- 225,000
7.75% Series 3 senior notes due in 2001.................... 125,000 -- 125,000
8.25% Series 2 and 4 senior notes due in 2003.............. 350,000 -- 350,000
6.10% Series 5 senior notes due in 2002 (Cdn.
$200,000,000)............................................ 139,567 -- 130,676
7.20% Series 6 senior notes due in 2003.................... 200,000 -- 200,000
7.60% Series 7 senior notes due in 2008.................... 250,000 -- 250,000
6.70% Pass-through Asset Trust Senior notes ("PATS") and
related option liability recorded, due in 1999........... 309,760 -- 300,000
Promissory notes and capital lease obligations............. 80,159 83,204 174,332
Accounts payable and accrued liabilities................... 95,622 -- --
9.45% Cumulative Monthly Income Preferred Securities,
Series A ("MIPS")........................................ 75,000 -- --
Executory contracts........................................ 26,854 -- --
---------- -------- ----------
2,282,601 91,204 2,268,014
Less current portion of long-term debt..................... -- 20,693 874,123
---------- -------- ----------
$2,282,601 $ 70,511 $1,393,891
========== ======== ==========
</TABLE>

Litigation against the Company and its filing subsidiaries as of June 1,
1999 and any additional liabilities related thereto will be subject to
compromise (see Note 10).

As a result of the Chapter 11 and CCAA filings, no principal or interest
payments will be made on most pre-Petition Date debt obligations without
Bankruptcy Court approval or until a plan of reorganization providing for the
repayment terms has been submitted to any required vote and approval of affected
parties, has been confirmed by the Bankruptcy Courts and has become effective.
Interest on unsecured and under-secured pre-Petition Date debt obligations
subject to compromise has not been accrued after the Petition Date. Interest
expense and principal payments will continue to be recorded on most secured
vendor financing, including capital lease obligations, unless the leases are
rejected by the Debtors. Contractual interest expense not recorded on
liabilities subject to compromise totaled $99,885,000 for the year ended
December 31, 1999.

45
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED)
In March 1999, the Company deferred future dividends applicable to the MIPS.
Since June 1, 1999, as a result of the bankruptcy filings, the Company was in
default of its bank credit agreements, Series D and E senior amortizing notes,
Series 1 through 7 Senior notes, and PATS and, accordingly, has not made
interest, principal or dividend payments when due on secured, unsecured and
under-secured debt obligations. The amounts in arrears on the Company's senior
debt obligations are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
<S> <C>
Interest payments in arrears:
Bank credit agreements............................ $ 21,417
11.12% Series D senior notes...................... 1,825
7.82% Series E senior notes....................... 958
7.50% Series 1 senior notes....................... 8,438
8.25% Series 2 senior notes....................... 5,156
7.75% Series 3 senior notes....................... 4,844
8.25% Series 4 senior notes....................... 9,281
6.10% Series 5 senior notes....................... 4,257
7.20% Series 6 senior notes....................... 14,659
7.60% Series 7 senior notes....................... 19,361
6.70% PATS........................................ 10,050
--------
$100,246
========
Principal payments in arrears:
11.12% Series D senior notes...................... $ 8,571
6.70% PATS........................................ 300,000
--------
$308,571
========
Dividends in arrears:
9.45% MIPS........................................ $ 5,906
========
</TABLE>

The Company, LGII and all of its U.S. debtor subsidiaries, as
debtors-in-possession, are parties to a Petition Date $200,000,000 revolving
credit agreement (the "DIP Facility"). The DIP Facility was approved by the U.S.
Bankruptcy Court on July 16, 1999 and amended in December, 1999. The amended DIP
Facility has a term of two years and is secured by a perfected security interest
in substantially all of the existing and future assets of LGII and its U.S.
debtor subsidiaries (subject only to valid and perfected pre-Petition Date
liens). The lenders under the amended DIP Facility also have the benefit of a
"super-priority" administrative expense claim in LGII's bankruptcy proceedings.
The amended DIP Facility will be used primarily to fund LGII's working capital
needs during the course of the bankruptcy proceedings. Use of the amended DIP
Facility for letters of credit is limited to a maximum of $50,000,000. As at
December 31, 1999, the borrowings under the amended DIP Facility were $8,000,000
and the letters of credit outstanding were $20,163,000.

46
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED)
the amended DIP Facility, the cash and cash equivalents of the Company, LGII and
its subsidiaries which have filed under Chapter 11, is generally restricted for
use within this group of filed companies. In December 1999, the Company
favorably renegotiated certain covenants and received approval from the lenders
for initiative expenditures not contemplated when the original DIP Facility was
obtained. These amendments received Bankruptcy Court approval in December 1999.
In March 2000, the covenants will be subject to review in conjunction with the
Company's proposed business plan. Loans made under the amended DIP Facility bear
interest at floating rates of U.S. Prime plus 1.25% (LIBOR plus 2.75% for
Eurodollar advances). A fee of 2.75% is charged on letters of credit under the
amended DIP Facility. A commitment fee of 0.50% is charged on the unused portion
of the amended DIP Facility. Related debt issue costs have been deferred and are
being amortized over the two-year life of the amended DIP Facility.

In 1996, the Company, LGII and their senior lenders entered into a
collateral trust agreement pursuant to which the senior lenders share certain
collateral and guarantees on a pari passu basis (the "Collateral Trust
Agreement"). The security for lenders under the Collateral Trust Agreement
consists of (i) all of LGII's right, title and interest in and to all rights to
receive payment under or in respect of accounts, contracts, contractual rights,
chattel paper, documents, instruments and general intangibles, (ii) a pledge of
the shares of capital stock of substantially all of the subsidiaries in which
the Company directly or indirectly holds more than a 50% voting or economic
interest, and (iii) a guarantee by each subsidiary that is pledging stock. The
security is held by a trustee for the equal and ratable benefit of the senior
lending group. The senior lending group consists principally of the lenders
under the senior amortizing notes, senior notes and bank and term credit
agreements as well as the holders of certain letters of credit. At the Petition
Date, the indebtedness owed to the senior lending group subject to the
Collateral Trust Agreement, including holders of certain letters of credit,
aggregated $2,016,000,000 (see Note 22).

In September 1998, a subsidiary of the Company, which was not included in
the Chapter 11 or CCAA filings, established a revolving receivables finance
facility (the "Receivables Finance Facility") through a subsidiary of one of the
Company's bank lenders. Under the terms of the agreement, new receivables were
added to the pool each month to offset collections from existing receivables. At
December 31, 1999, the Receivables Finance Facility was extinguished
(1998 -- $66,222,000 of current indebtedness was outstanding).

Interest expense for the year ended December 31, 1999 includes $4,929,000 of
amortization and write-offs of unamortized debt issue costs
(1998 -- $26,581,000, 1997 -- $6,802,000). In 1999, unamortized debt issue costs
applicable to debt which is subject to compromise of $23,035,000 was charged to
reorganization costs (see Note 11).

In 1994, Loewen Group Capital L.P. ("LGC") issued 3,000,000 9.45% Cumulative
Monthly Income Preferred Securities, Series A ("MIPS") for an aggregate amount
of $75,000,000. LGC is a limited partnership and LGII as its general partner
manages its business and affairs. LGII serves as the holding company for all
United States assets and operations of the Company. The MIPS were due
August 31, 2024 and were subject to redemption at par at the option of LGC, in
whole or in part, from time to time on or after August 31, 2004. As a result of
the Chapter 11 filing, LGC has commenced wind-up proceedings and the MIPS became
currently redeemable. The MIPS are subject to an unsecured guarantee by the
Company and LGII. Accordingly, the MIPS have been designated as liabilities
subject to compromise.

47
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE AND DEBT (CONTINUED)
Summarized financial data for LGII are presented as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income statement information:
Revenue................................................ $ 945,697 $1,072,556 $1,035,099
Gross margin........................................... 262,903 275,139 305,764
Earnings (loss) from operations........................ (251,456) (465,797) 120,622
Net loss............................................... (465,797) (635,912) (78,750)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance sheet information:
Current assets......................................... $ 195,124 $ 218,107 $ 242,596
Non-current assets..................................... 3,456,213 3,922,407 3,967,751
---------- ---------- ----------
Total assets........................................... 3,651,337 4,140,514 4,210,347

Liabilities not subject to compromise:
Current liabilities.................................. 104,113 1,207,708 172,371
Non-current liabilities.............................. 1,175,831 3,237,888 3,737,722
Liabilities subject to compromise...................... 3,115,990 -- --
---------- ---------- ----------
Total liabilities...................................... 4,395,934 4,445,596 3,910,093

Shareholders' equity (deficiency)...................... (744,597) (305,082) 300,254
</TABLE>

Included in LGII's liabilities subject to compromise are net inter-company
payables of $1,015,163,000.

Maturities of long-term debt which are not subject to compromise are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000.................................................... $20,693
2001.................................................... 20,939
2002.................................................... 8,553
2003.................................................... 8,411
2004.................................................... 10,159
Thereafter.............................................. 22,449
-------
$91,204
=======
</TABLE>

48
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 4. DISPOSITIONS AND ACQUISITIONS

(a) DISPOSITIONS

In 1999, the Company sold 124 cemeteries and three funeral homes to an
investor group (see Note 19) for gross proceeds of $193,000,000, before purchase
price adjustments and transaction costs, resulting in a pre-tax loss of
$1,122,000. An impairment charge of $301,605,000, relating to these properties,
was recorded in 1998 (see Note 12). The assets and liabilities disposed of were
$244,338,000 and $67,867,000, respectively.

In 1998, the Company sold First Capital Life Insurance Company of Louisiana,
a wholly owned subsidiary, for gross proceeds of $24,522,000 resulting in a
pre-tax gain of $6,768,000. The assets and liabilities disposed of were
$89,958,000 and $72,204,000, respectively.

(b) ACQUISITIONS

In 1998, the Company acquired 89 funeral homes and 65 cemeteries for cash of
$252,598,000, debt of $24,310,000 and Common shares in the amount of $1,085,000.
All of the Company's acquisitions have been accounted for by the purchase
method. In 1998, the Company acquired assets and liabilities of $392,968,000 and
$114,975,000, respectively.

The following table reflects, on an unaudited pro-forma basis, the combined
results of the Company's operations acquired and disposed of, as if all such
acquisitions and dispositions had taken place at the beginning of the respective
years presented. Appropriate adjustments have been made to reflect the
accounting basis used in recording the acquisitions. This pro-forma information
does not purport to be indicative of the results of operations that would have
resulted had the acquisitions and dispositions been in effect for the entire
years presented, and is not intended to be a projection of future results or
trends.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1999 1998
--------- ----------
<S> <C> <C>
Revenue..................................................... $ 956,006 $1,154,984
Net loss.................................................... $(477,973) $ (600,172)
Basic loss per share........................................ $ (6.57) $ (8.23)
</TABLE>

NOTE 5. INVESTMENTS

(a) PRIME

The Company owns 213.2353 shares of Prime Succession Holdings, Inc.
("Prime") common stock, representing 21.8% of Prime's voting common stock, and
100% of Prime's non-voting preferred stock, with a 10% cumulative annual
payment-in-kind dividend. Blackstone Capital Partners II Merchant Banking Fund
L.P. and certain affiliates (together, "Blackstone") owns 764.7059 shares of
Prime common stock, representing 78.2% of Prime's voting common stock.

49
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
Company, and $190,000,000 was financed through bank borrowings and the issuance
of senior subordinated notes. The excess of the purchase price over the fair
value of net assets of approximately $230,000,000, was established as goodwill
in Prime Succession, Inc. and is being amortized over 40 years.

Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Prime Board of Directors. Blackstone controls the
strategic operating, investing and financing policies of Prime. Neither
Blackstone nor the Company can, without the consent of the other party, sell or
transfer its share in Prime to a party other than to an affiliate of itself.

Under a Put/Call Agreement entered into with Blackstone in August 1996, the
Company has the option to acquire ("Call") Blackstone's Prime common stock
commencing on the fourth anniversary of the acquisition, and for a period of two
years thereafter, at a price determined pursuant to the Put/Call Agreement.
Blackstone has the option to sell ("Put") its Prime common stock to the Company
commencing on the sixth anniversary of the acquisition, and for a period of two
years thereafter, at a price determined pursuant to the Put/Call Agreement.

The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of approximately 12x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.

Upon a Call, Blackstone is entitled to receive, at a minimum, its original
investment plus a 24.1% compound return per annum thereon regardless of the
calculated equity value. Any additional equity value attributable to Blackstone
common stock interest will be determined on the basis of a formula set forth in
the Put/Call Agreement. Upon a Put by Blackstone, there is no guaranteed return
to Blackstone. Any payment to Blackstone is limited to Blackstone's share of the
calculated equity value based on a formula set forth in the Put/Call Agreement.

Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Prime and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, in 1998, the Company concluded that its
investment had suffered a decline in value that was other than temporary and
wrote down its investment based on an assumed distribution of Prime's
shareholders' equity. In 1999, due to the performance of Prime, the Company
wrote off its remaining investment.

50
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
estimates of EBITDA and debt at the first date the Put option becomes
exercisable by Blackstone. Based upon changes to the estimates of the expected
Put option price and the fair value of Blackstone's equity in Prime, the Company
reduced the accrual of its contingent loss as at December 31, 1999. Such amount
could change based on changes in the estimated future value of the business. The
respective contingent liability has been recorded in "Other liabilities,"
(Note 17). In 1999, 1998 and 1997, the Company recognized income (loss) of
$(2,861,000) $(1,430,000) and $5,073,000, respectively, applicable to its
investment in Prime, excluding the investment impairment provisions and
contingent losses.

The latest available annual financial data reported by Prime was:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Income statement information:
Revenue................................................... $ 98,005 $101,139
Gross margin.............................................. 32,293 38,616
Earnings from operations.................................. 17,595 24,123
Payment-in-kind dividend.................................. 7,226 6,542
Net loss attributable to common shareholders.............. (14,524) (6,739)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information:
Total assets.............................................. $391,122 $395,106
Total liabilities......................................... 272,012 268,698
Shareholders' equity...................................... 119,110 126,408
</TABLE>

(b) ROSE HILLS

The Company owns 204.5454 shares of Rose Hills Holdings Corp. ("Rose Hills")
common stock, representing 20.45% of Rose Hills' voting common stock, and 100%
of Rose Hills non-voting preferred stock, with a 10% cumulative annual
payment-in-kind dividend. Blackstone owns 795.4546 shares of Rose Hills common
stock, representing 79.55% of Rose Hills' voting common stock.

Rose Hills holds all of the outstanding common stock of Rose Hills Company
("RHC") and the cemetery related assets of Rose Hills Memorial Park Association,
representing the largest single location cemetery in the United States. These
companies were purchased on November 19, 1996 for approximately $285,000,000 of
which $35,000,000 was funded by Blackstone and $95,000,000 by the Company, and
$155,000,000 was financed through bank borrowings and the issuance of senior
subordinated notes. The excess of the purchase price over the fair value of net
assets of approximately $130,000,000 was established as goodwill in RHC and is
being amortized over 40 years.

51
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
of Rose Hills. Neither Blackstone nor the Company can, without the consent of
the other party, sell or transfer its shares in Rose Hills to a party other than
to an affiliate of itself.

Under a Put/Call Agreement entered into with Blackstone in November 1996,
the Company has the option to acquire ("Call") Blackstone's Rose Hills common
stock commencing on the fourth anniversary of the acquisition, and for a period
of two years thereafter, at a price determined pursuant to the Put/Call
Agreement. Blackstone has the option to sell ("Put") its Rose Hills common stock
to the Company commencing on the sixth anniversary of the acquisition, and for a
period of two years thereafter, at a price determined pursuant to the Put/Call
Agreement.

The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of approximately 14x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.

Upon a Call, Blackstone is entitled to receive, at a minimum, its original
investment plus a 22.5% compound return per annum thereon regardless of the
calculated equity value. Any additional equity value attributable to Blackstone
common stock interest will be determined on the basis of a formula set forth in
the Put/Call Agreement. Upon a Put by Blackstone, there is no guaranteed return
to Blackstone. Any payment to Blackstone is limited to Blackstone's share of the
calculated equity value based on a formula set forth in the Put/Call Agreement.

Prior to March 1, 2000, the Company had provided various management and
administrative services to RHC and subsidiaries under an Administrative Services
Agreement for an annual fee of $250,000. The Company and RHC have agreed to
amend that Agreement, effective March 1, 2000, to provide that, until such time
as the Company makes an election to reject or assume the Agreement under
Chapter 11 of the Bankruptcy Act, the annual fee payable by RHC under the
Agreement will be reduced to nil and the Company will no longer be required to
provide any services to RHC under the Agreement. That annual fee is subject to
renegotiation in the event that RHC requests further services from the Company.
If the Agreement were to become terminable by Blackstone due to the Company's
material breach thereof or other failure to comply in any material respect, the
price payable to Blackstone upon a Put of its interests would, under the terms
of the Put/Call Agreement, be no less than an amount equal to its original
investment plus a 25% compound return per annum thereon which increases to 27.5%
in the event of a change in control of the Company regardless of the calculated
equity value.

Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Rose Hills and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, in 1998 the Company assessed that its investment
had suffered a decline in value that was other than temporary and wrote down its
investment based on an assumed distribution of Rose Hills' shareholders' equity
at December 31, 1998 taking into account Blackstone's return under the Put. No

52
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 5. INVESTMENTS (CONTINUED)
further write down was made in 1999. As at December 31, 1999 and 1998, the
carrying value of the Company's investment in Rose Hills was $43,990,000.

In addition, the Company estimated the expected Put option price on the
sixth anniversary, the first date the Put option becomes exercisable by
Blackstone, based on the Company's best estimate of EBITDA and debt at that time
and the relevant formula in the Put/Call Agreement. The Company accrued a
contingent loss at December 31, 1998 based upon the difference between the
estimated Put option price and the Company's estimate of the fair value of
Blackstone's equity in Rose Hills which is based in part on prevailing market
conditions. In the fourth quarter of 1999, due to the performance of Rose Hills
and the reduced market values and performance of other industry participants,
the Company re-assessed the estimates of EBITDA and debt at the first date the
Put option becomes exercisable by Blackstone. Based upon changes to the
estimates of the expected Put option price and the fair value of Blackstone's
equity in Rose Hills, the Company increased the accrual of the contingent loss
as at December 31, 1999. Such amount could change based on changes in the
estimated future value of the business. The respective contingent liability has
been recorded in "Other liabilities," net of the carrying value of Rose Hills
(see Note 17). In 1999, 1998 and 1997, the Company recognized income of nil,
$6,535,000 and $6,566,000, respectively, applicable to its investment in
Rose Hills, excluding the investment impairment provisions and contingent
losses.

The latest available annual financial data reported by Rose Hills was:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Income statement information:
Revenue................................................... $ 83,577 $ 70,645
Gross margin.............................................. 69,814 59,900
Earnings from operations.................................. 19,538 14,738
Payment-in-kind dividend.................................. 9,568 8,708
Net loss attributable to common shareholders.............. (8,534) (10,476)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information:
Total assets.............................................. $321,933 $312,598
Total liabilities......................................... 193,641 185,340
Shareholders' equity...................................... 128,292 127,258
</TABLE>

53
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 6. INSURANCE INVESTED ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed maturities.................................... $262,267 $244,168 $246,576 $251,454
Equity securities................................... 60 36 80 44
Short-term investments and other.................... 19,096 19,096 20,005 20,005
-------- -------- -------- --------
$281,423 $263,300 $266,661 $271,503
======== ======== ======== ========
</TABLE>

On the insurance invested assets, the Company earned $19,450,000 of
investment income for the year ended December 31, 1999 (1998 -- $21,349,000).
Included in the market value of insurance invested assets are $200,000 and
$18,323,000 of unrealized gains and losses, respectively (1998 -- $6,942,000 and
$2,100,000, respectively).

Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 4,770 $ 4,387 $ 6,853 $ 6,746
Due in one to five years.................... 20,656 19,663 25,667 25,801
Due in five to ten years.................... 66,819 62,527 67,598 69,049
Thereafter.................................. 103,880 92,881 72,843 73,209
-------- -------- -------- --------
$196,125 $179,458 $172,961 $174,805
======== ======== ======== ========
</TABLE>

The Company's mortgage-backed securities and collateralized mortgage
obligations consist of:

54
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 7. PRE-ARRANGED FUNERAL SERVICES

Pre-arranged funeral services represents amounts deposited in accordance
with state trusting laws with various financial institutions together with
accrued earnings. The Company will receive the pre-arranged funeral trust
amounts when the funeral services are performed. The funds deposited in trust
are invested as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Short-term investments...................................... $165,799 $151,113
Fixed maturities............................................ 155,633 142,385
Mutual funds................................................ 10,148 1,419
Equity securities........................................... 61,284 65,268
Insurance policies held by trust............................ 44,833 52,844
Other....................................................... 844 905
-------- --------
$438,541 $413,934
======== ========
</TABLE>

The weighted average rate of return on the above pre-arranged funeral trust
assets for the year ended December 31, 1999 was 2.7% (1998 -- 3.0%,
1997 -- 3.8%).

NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS

Prior to filing for bankruptcy, the Company used derivative transactions
with financial institutions primarily as hedges of other financial transactions.
The Company does not trade in financial instruments and is not a party to
leveraged derivatives.

(a) SWAP AGREEMENTS AND INTEREST RATE OPTIONS

The Company entered into swap agreements and interest rate options with a
number of different commercial banks and financial institutions to manage
its interest rate exposure on fixed-rate long-term debt. At December 31,
1999, no such agreements were outstanding.

(b) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and term deposits, current receivables, current
indebtedness and accounts payable and accrued liabilities approximates fair
value due to the short-term maturities of these instruments. The fair value
of insurance policy liabilities has been omitted because it is not

55
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS (CONTINUED)
practicable to determine fair values with sufficient reliability. Financial
instruments with a carrying value materially different from their fair value
include:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Pre-arranged funeral services.............. $438,541 $441,839 $ 413,934 $ 415,759
Insurance invested assets.................. 281,423 263,300 266,661 271,503
Long-term receivables:
Practicable to estimate fair value....... 395,155 407,262 391,842 399,943
Not practicable to estimate fair value... 182,578 n/a 255,250 n/a

Financial liabilities not subject to
compromise:
Long-term debt............................. $ 91,204 91,204 $2,268,014 $2,008,634
Preferred securities of a subsidiary....... n/a n/a 75,000 57,938
</TABLE>

The fair value determination of pre-arranged funeral services, insurance
invested assets and long-term receivables is based on quoted market prices.
The long-term receivables for which it is not practicable to estimate fair
value comprise primarily installment receivables on cemetery sales, which
generally have terms of one to seven years and contractual or imputed
interest ranging from 9% to 12%.

Due to the Chapter 11 and CCAA filings, calculation of fair values for
long-term debt, the preferred securities of a subsidiary and other
liabilities subject to compromise cannot be determined as at December 31,
1999. As detailed in Note 3, the majority of the Company's long-term debt
and the preferred securities of a subsidiary became subject to compromise
effective June 1, 1999.

The 1999 fair value of long-term debt approximates its carrying value. The
1998 fair value of long-term debt subject to fixed interest rates was
estimated by discounting the future cash flows, including interest payments,
using rates then available for debt of similar terms and maturity, based on
the Company's credit standing and other market factors. The 1998 fair value
of long-term debt subject to floating market rates approximated its carrying
value. The 1998 fair value of the preferred securities of a subsidiary was
estimated based upon quoted market prices.

56
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 9. SHARE CAPITAL

(a) AUTHORIZED

200,000,000 (1998 -- 200,000,000) First Preferred shares without par value

40,000,000 (1998 -- 40,000,000) Class A shares without par value

750,000,000 (1998 -- 750,000,000) Common shares without par value

Of the 200,000,000 First Preferred shares, 1,000,000 shares are designated
as 7.75% Cumulative Redeemable Convertible First Preferred Shares without par
value, Series A, 425,000 shares are designated as Convertible First Preferred
Shares, Series B, (see (c) below), and 8,800,000 shares are designated as 6.00%
Cumulative Redeemable Convertible First Preferred Shares, Series C ("Series C
Preferred shares") (see (c) below).

(b) ISSUED AND OUTSTANDING SHARES

<TABLE>
<CAPTION>
NUMBER OF
SHARES STATED VALUE
---------- ------------
<S> <C> <C>
Common shares and contributed surplus
Outstanding December 31, 1996............................. 59,057,015 $ 796,431
Issued for cash by public offering, net of expenses of
$10,402,000............................................. 13,800,000 445,136
Issued for cash on exercise of stock options, including
related tax benefits.................................... 181,086 4,813
Issued for cash under stock purchase plan................. 56,625 1,630
Issued for acquisitions................................... 807,161 23,001
Issued under employee stock bonus plan.................... 9,010 166
---------- ----------
Outstanding December 31, 1997............................... 73,910,897 1,271,177
Issued for cash on exercise of stock options, including
related tax benefits.................................... 54,876 1,092
Issued for cash under stock purchase plan................. 18,425 650
Issued for acquisitions................................... 64,007 1,085
Issued under employee stock bonus plan.................... 7,885 92
---------- ----------
Outstanding December 31, 1998............................... 74,056,090 1,274,096
Issued for cash on exercise of stock options, including
related tax benefits.................................... 5,496 112
Issued for cash under stock purchase plan................. 350 1
Issued under acquisition option agreements, including
related tax benefits.................................... 80,000 2,223
Issued under employee stock bonus plan.................... 3,465 2
---------- ----------
Outstanding December 31, 1999............................. 74,145,401 $1,276,434
========== ==========
Preferred shares
Series C Preferred shares................................. 8,800,000 $ 157,146
========== ==========
</TABLE>

First Preferred shares may be issued from time to time in one or more series
and in such numbers and with such special rights and restrictions as the
directors of the Company determine.

57
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 9. SHARE CAPITAL (CONTINUED)
During 1994, as part of the Management Equity Investment Plan, 425,000
shares were designated as Convertible First Preferred shares, Series B of the
Company. Each Convertible First Preferred share is convertible into ten Common
shares at any time prior to July 13, 2011. No Series B Preferred shares have
been issued.

The Series C Preferred shares were issued for cash of $157,146,000 by public
offering, net of expenses of $3,776,000, in 1996. The holders of Series C
Preferred shares will have the right at any time before January 1, 2003, to
convert each Series C Preferred share into that number of Common shares
determined by dividing Cdn. $25.00 by Cdn. $38.125. Thereafter, a holder of
Series C Preferred shares will have the right on January 1, 2003, and on the
first business day of each quarter thereafter, to convert all or part of such
Series C Preferred shares into that number of Common shares determined by
dividing Cdn. $25.00 plus accrued and unpaid dividends by the greater of Cdn.
$3.00 and 95% of the Current Market Price (as defined) on the date of
conversion.

The holders of the Series C Preferred shares are entitled, as and when
declared by the Board of Directors, to a fixed preferential cumulative cash
dividend of 6% per year, payable quarterly. In March 1999, the Company suspended
future dividends on its Common shares and deferred future dividends on its
Preferred shares.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
<S> <C>
Dividends in arrears:
6.00% Preferred Shares, Series C.......................... $6,909
======
</TABLE>

On or after July 1, 1999, the Series C Preferred shares are redeemable by
the Company, upon giving not less than 30 days notice, at a redemption price
equal to Cdn. $25.00 per share together with accrued and unpaid dividends. Prior
to July 1, 2001, the redemption will only be effected by the issuance of Common
shares, determined by dividing the redemption price by the greater of Cdn. $3.00
and 95% of the current market price at the date of redemption. On and after
July 1, 2001, the redemption may be effected by the issuance of Common shares or
payment of a cash amount.

In the event of the liquidation, dissolution or winding up of the Company or
other distribution of assets of the Company among its shareholders for the
purpose of winding up its affairs, the holders of the Series C Preferred shares
shall be entitled to receive the redemption price before any amounts are paid to
the holders of Common shares or any other class of shares ranking junior to the
Series C Preferred shares.

(d) MANAGEMENT EQUITY INVESTMENT PLAN ("MEIP")

4,250,000 Common shares of the Company were reserved upon adoption by the
Company of the MEIP on June 15, 1994. Senior Exchangeable Debentures amounting
to $127,670,000 were issued by LGII to a wholly-owned subsidiary of LGII formed
to act as agent for the MEIP. The Debentures are due July 15, 2001 and bear
interest at floating rates. Each $300.40 of principal amount of Debentures will
be exchangeable for one Convertible First Preferred share, Series B of the
Company, each of which will be convertible into ten Common shares of the
Company. As at December 31, 1999 and 1998, the MEIP

58
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 9. SHARE CAPITAL (CONTINUED)
participants had paid $2,869,000 for option rights to acquire $57,382,000 of
Debentures exercisable as to 50% in 1999, 25% in 2000 and 25% in 2001. If an
option expires unexercised, the participant is entitled to a refund without
interest of the amount paid to acquire such option right. In addition, as at
December 31, 1999 and 1998, the former Chairman had paid $2,253,000 for the
right and obligation to acquire $45,060,000 of Debentures with the same exercise
dates.

(e) SHAREHOLDER PROTECTION RIGHTS PLAN

The Company has in place a Shareholder Protection Rights Plan (the "Plan"),
which is meant to discourage unfair takeover bid tactics and to give the Board
of Directors time, if there is an unsolicited bid, to pursue alternatives to
maximize shareholder value. There are exceptions to the Plan to permit the
acquisition of shares by (i) persons who held more than 20% of the Common shares
on April 20, 1990, subject to certain restrictions, and (ii) registered pension
plans whose governing legislation prohibits them from holding more than 30% and
who are acquiring the Common shares independently for investment. The Plan
expires on April 20, 2000.

(f) STOCK OPTION PLANS

The Company has separate fixed stock option plans for its United States and
Canadian employees which enable the Company to grant options to its employees
and Directors. The option plans are administered by the Compensation Committee
of the Company's Board of Directors. Each participant enters into an option
agreement which sets forth, among other things, the number of options granted,
the exercise price and the vesting conditions of the options. The exercise price
of an option may not be less than the market price of the Company's stock on the
trading day immediately prior to the grant date and in no event may an option
terminate later than ten years after the grant date of such option. Granting of
stock options has been suspended since the Petition Date.

A summary status of the Company's fixed stock option plans and changes is as
follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------
1999 1998
--------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
STOCK OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding beginning of year................. 4,569,073 $26 5,781,704 $26
Options granted............................. 66,748 3 1,139,365 18
Options exercised........................... (80,000) 29 (58,094) 22
Options cancelled........................... (1,631,787) 30 (2,293,902) 21
---------- ----------
Outstanding end of year....................... 2,924,034 24 4,569,073 26
========== ==========
Options exercisable at end of year............ 1,813,667 2,272,916
</TABLE>

59
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 9. SHARE CAPITAL (CONTINUED)
The following table summarizes information about the Company's fixed stock
options outstanding:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED
CONTRACTUAL LIFE AVERAGE
NUMBER OUTSTANDING (IN YEARS) EXERCISE PRICE
------------------ ---------------- --------------
<S> <C> <C> <C>
Range of options
outstanding -- $0.93 to $45.00.................. 2,924,034 6.6 $24
Range of options
exercisable -- $5.50 to $45.00.................. 1,813,667 $26
</TABLE>

NOTE 10. LEGAL CONTINGENCIES

BANKRUPTCY FILINGS

On June 1, 1999, the Company and each of approximately 850 United States
subsidiaries and a foreign subsidiary filed a voluntary petition for creditor
protection and to reorganize under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
filings subsequently were consolidated for joint administration (IN RE: LOEWEN
GROUP INTERNATIONAL, INC., ET AL., No. 99-1244). On the same day, the Company
and 116 Canadian subsidiaries filed an application for creditor protection under
the Companies' Creditors Arrangement Act in the Ontario Superior Court of
Justice in Toronto (File No. 99-CL-3384). The Company's United Kingdom
subsidiaries, which generate less than 1% of the Company's revenues, along with
the Company's insurance and certain funeral and cemetery subsidiaries, were
excluded from the filings. Subsequent to the Petition Date, three additional
subsidiaries of the Company voluntarily filed petitions for creditor protection
and a fourth subsidiary's petition was voluntarily deleted.

The Company and its subsidiaries under creditor protection are presently
operating their businesses as debtors-in-possession. An Official Unsecured
Creditors' Committee has been appointed by the United States trustee in the
bankruptcy proceedings. On July 16, 1999, the Bankruptcy Court approved the DIP
Facility.

As a result of the bankruptcy filings, litigation against the Company and
its filing subsidiaries was stayed as of June 1, 1999 (unless the stay is lifted
by the supervising court), and any additional liabilities related thereto will
be subject to compromise.

SECURITIES CLASS ACTIONS

Since December 1998, the Company has been served with various related
lawsuits filed in the United States District Courts for the Eastern District of
Pennsylvania and for the Eastern District of New York. Raymond L. Loewen, the
former Chairman and Chief Executive Officer, and certain current and former
officers and directors have been named as defendants in some of the suits. All
but one of these lawsuits were filed as purported class actions on behalf of
persons or entities that purchased Company Common shares during five different
time periods ranging from November 3, 1996 through January 14, 1999. LGII and
Loewen Group Capital L.P. ("LGC") are named as defendants in two suits (with the
Company, the

60
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
"Loewen Defendants"). The plaintiffs in these two lawsuits purport to sue on
behalf of a class of purchasers of MIPS from March 5, 1997 through January 14,
1999. The MIPS were issued by LGC.

The complaints generally make allegations concerning, among other things,
the Company's internal controls, accounting practices, financial disclosures and
acquisition practices.

FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP ET AL.

61
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
Plaintiffs' petitions seek damages, penalties and attorney's fees. Louisiana
law prohibits plaintiffs from alleging specific amounts of damages. Plaintiffs
also seek a declaratory judgment compelling defendants to honor the policies.

LUENING, ET AL. V. SI-SIFH CORP., ET AL.

On February 3, 1999, the state court ruled that the dismissal of the class
action claims in the FELDHEIM and DUFFY cases did not operate to bar the
particular sub-class of potential plaintiffs identified in LUENING. On March 25,
1999, the Fourth Circuit reversed the trial court, while recognizing that
individual plaintiffs' claims could proceed in St. Bernard Parish. On March 29,
1999 the LUENING plaintiffs filed an application for writ of certiorari with the
Louisiana Supreme Court. On April 30, 1999, the Louisiana Supreme Court

62
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
denied the writ application and thereby declined to review the Court of Appeal's
dismissal of plaintiffs' class action allegations.

F. LEO GROFF, INC. ET AL. V. RESTLAWN MEMORIAL GARDENS, INC. ET AL.

The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to this lawsuit has been made in the Company's consolidated financial
statements.

FLANAGAN V. THE LOEWEN GROUP INC., ET AL.

63
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
Ms. Flanagan estimates that her damages as a result of the alleged breaches
and misrepresentations are not less than $5,000,000. Further, Ms. Flanagan seeks
punitive damages in an unspecified sum. On the declaratory relief cause of
action, Ms. Flanagan seeks a declaration that she is to be reimbursed for her
losses pursuant to the indemnity provision contained in the share purchase
agreement. She also seeks a declaration that until she is indemnified for her
losses she is not obligated to transfer property that LGII has the option to
purchase for a specified price pursuant to the share purchase agreement.

THE LOEWEN GROUP INC. ET AL. V. THE UNITED STATES OF AMERICA

OTHER

64
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 11. REORGANIZATION AND RESTRUCTURING COSTS

(a) REORGANIZATION COSTS

During 1999, the Company incurred the following pre-tax charges for costs
associated with reorganizing its affairs under the protection of Chapter 11 and
CCAA as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
Executory contracts......................................... $26,955
Deferred debt issue costs written off....................... 23,035
PATS option liability recorded.............................. 9,760
Key Employee Retention Plan costs........................... 5,676
Professional fees and other costs........................... 27,365
-------
$92,791
=======
</TABLE>

Certain executory contracts, primarily covenants not to compete, have been
rejected by the Company as a result of its bankruptcy filing on the Petition
Date and have been charged to reorganization costs (see Note 3).

In September 1999, the Bankruptcy Courts approved the Key Employee Retention
Plan, a long-term agreement structured to ensure that appropriate employee
levels and expertise are retained during the reorganization process (see
Note 13).

Professional fees and other costs include accounting, legal and consulting
services provided to the Company and the Official Unsecured Creditors' Committee
which, subject to court approval, are required to be paid by the Company as it
reorganizes under Chapter 11 and CCAA.

(b) RESTRUCTURING COSTS

During 1997, the Company recorded pre-tax charges of $33,400,000, for
restructuring associated with the Company's efforts to more fully integrate its
field and administrative operations and improve long-term financial performance.
The restructuring charges primarily consisted of $19,400,000 for severance,
$7,500,000 for the closure of a corporate office and $6,000,000 of asset
write-downs.

NOTE 12. IMPAIRMENT OF ASSETS

During 1999, as a result of the Company's bankruptcy filings and operating
performance decline, the Company conducted extensive reviews of each of its
operating locations. The reviews also resulted in the identification of 371
locations as probable for sale. In January 2000, the Bankruptcy Courts approved
the Company's previously-announced program for disposition of the locations
identified. A further 54 locations are anticipated to be merged with existing
locations. As a result of these reviews, the Company recorded a pre-tax asset
impairment provision of $340,068,000. In calculating the asset impairment
provision, the Company used estimated cash flow from operations and, for the
locations identified as probable for sale, used estimated cash proceeds on the
anticipated sale of these properties. The asset

65
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 12. IMPAIRMENT OF ASSETS (CONTINUED)
impairment provision has reduced cemetery property by $258,002,000, names and
reputations by $79,066,000 and funeral property by $3,000,000.

In December 1998, the Company recorded a pre-tax asset impairment provision
of $333,900,000 on certain properties. In calculating the asset impairment
provision, the Company used estimated cash flow from operations and estimated
cash proceeds on the sale of these properties. The asset impairment provision
reduced cemetery property by $319,300,000, property and equipment by $4,000,000
and names and reputations by $10,600,000. Of this asset impairment provision,
$301,605,000 was applicable to the sale of 124 cemeteries and three funeral
homes. In March 1999, these properties were sold for gross proceeds of
$193,000,000, before purchase price adjustment and transaction costs. The
balance of the 1998 asset impairment provision was applicable to certain
properties within two smaller groups of properties identified at December 31,
1998 as probable for sale. In June 1999, the Company recorded an additional
pre-tax asset impairment provision of $15,112,000 applicable to other properties
within these two groups.

The asset impairment provisions noted above are based on management
estimates and, as a result, actual results could differ significantly from these
estimates. In addition, due to the bankruptcy proceedings, other properties,
although not specifically identified, could be sold.

NOTE 13. COMMITMENTS AND CONTINGENCIES

(a) KEY EMPLOYEE RETENTION PLAN

In September 1999, the Bankruptcy Courts approved the Key Employee Retention
Plan ("KERP") a long-term agreement structured to ensure that appropriate
employee levels and expertise are retained during the reorganization process.
The KERP is comprised of four separate components: a Retention Incentive Plan, a
Performance Incentive Plan, a Confirmation Incentive Plan and a Severance Plan.
The KERP supercedes previous employee arrangements, including the Executive
Severance Arrangements. Pre-tax costs incurred in 1999 under the KERP amounted
to $5,676,000. The maximum amount which could be incurred under the Retention
Incentive Plan, the Performance Incentive Plan and the Confirmation Incentive
Plan has been estimated at approximately $31,000,000.

(b) LEASES

The Company is committed to operating lease payments for premises,
automobiles and office equipment in the following approximate amounts:

<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000........................................................ $13,240
2001........................................................ 11,288
2002........................................................ 9,523
2003........................................................ 7,450
2004........................................................ 6,325
Thereafter.................................................. 40,927
</TABLE>

66
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total expense incurred under these operating leases for the year ended
December 31, 1999 was $19,344,000, (1998 -- $16,849,000), (1997 -- $18,268,000).

In connection with various acquisitions, the Company entered into
non-competition agreements ("covenants not to compete") with certain key
management personnel of operations acquired. The Company's payments under the
agreements may be made at closing or over future periods and are expensed over
the terms of the specific contracts. During 1999, the Company suspended payments
applicable to the agreements which the Company has elected to reject (see
Notes 3 and 11). The agreements for which payments have not been suspended will
result in future payments in the following approximate amounts:

<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000........................................................ $ 9,945
2001........................................................ 7,498
2002........................................................ 6,950
2003........................................................ 5,845
2004........................................................ 5,130
Thereafter.................................................. 14,229
</TABLE>

(d) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES

(e) CONTINGENCY RELATED TO POTENTIAL PURCHASE OF INVESTMENTS

The Company has identified and accrued for contingent losses arising from
the potential exercise of the Put/Call Agreements in connection with its
investments in Prime and Rose Hills (see Note 5).

67
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 14. RETIREMENT PLANS

The Company has a defined contribution retirement plan covering
substantially all United States employees. There are no required future
contributions under this plan in respect of past service. The Company has a
401(K) Retirement Savings Plan for United States employees who may defer between
2% and 15% of their compensation. The Company will match 100% of employee
contributions to a maximum of 2% of employees' eligible compensation.

The Company has a Registered Retirement Savings Plan for Canadian employees
who may contribute 3% of their compensation which is matched by an equal
contribution to the plan by the Company on behalf of employees. There are no
required future contributions under these plans in respect of past service.

The total expense for retirement plans for the three years ended
December 31, 1999 was $2,777,000, $3,271,000, and $3,222,000, respectively.

NOTE 15. INCOME TAXES

(a) EFFECTIVE TAX RATE

The Company's effective income tax rate is derived as follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
% % %
<S> <C> <C> <C>
Combined Canadian federal and provincial income tax rate.... (45.5) (45.5) 45.5
Non-deductible amortization and write down of goodwill
arising from acquisitions................................. 5.9 1.5 11.9
Non-deductible restructuring and other charges.............. 1.7 0.2 8.7
Change in valuation allowance on future tax assets.......... 27.9 21.7 19.0
Foreign income and losses taxed at lower rates and other
taxes not based on income................................. 2.4 (1.2) (73.1)
Other....................................................... 1.2 1.8 (10.2)
----- ----- -----
(6.4) (21.5) 1.8
===== ===== =====
</TABLE>

68
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 15. INCOME TAXES (CONTINUED)

(b) FUTURE TAX ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Future tax liabilities
Long-term receivables..................................... $ 102,179 $ 60,384
Cemetery property......................................... 193,163 303,003
Property and equipment.................................... 60,754 61,204
Names and reputations..................................... -- 1,284
Insurance policy liabilities.............................. 16,440 18,905
Other..................................................... 25,151 23,238
--------- ---------
Total future tax liabilities.............................. 397,687 468,018
--------- ---------
Future tax assets
Accounts payable and accrued liabilities.................. 15,868 17,340
Cemetery long-term liabilities............................ 39,759 34,649
Insurance assets.......................................... 13,500 15,149
Legal settlements......................................... 14,454 15,517
Names and reputations..................................... 15,923 --
Interest.................................................. 173,069 150,614
Unrealized losses on investments in Prime and
Rose Hills.............................................. 131,469 119,994
Deferred costs related to pre-arranged funeral services... 7,417 14,813
Share issue costs......................................... 4,926 8,414
Operating and capital loss carryforwards.................. 132,899 63,050
Other..................................................... 23,670 9,133
--------- ---------
Total future tax assets before valuation allowance........ 572,954 448,673
Valuation allowance....................................... (316,167) (177,591)
--------- ---------
Total future tax assets after valuation allowance......... 256,787 271,082
--------- ---------
Net future tax liabilities................................ $ 140,900 $ 196,936
========= =========
</TABLE>

Although realization of the Company's future tax assets is not assured,
management believes that it is more likely than not that reversals of future tax
liabilities provide sufficient taxable income to realize the future tax assets
after consideration of the valuation allowance. It is reasonably possible that
the estimated valuation allowance could change in the near term due to matters
such as the timing and manner of reversals of future tax liabilities, sales of
operations, and future income or loss. During the year ended December 31, 1999,
the Company increased its valuation allowance by approximately $138,576,000
(1998 -- $166,015,000).

69
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 16. CHANGES IN OTHER NON-CASH BALANCES

Supplemental disclosures related to statements of cash flows consist of the
following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
Decrease (increase) in assets:
Receivables, net of allowances
Trade................................................... $ 5,602 $ 12,299 $ 14,806
Other................................................... (43,903) 22,168 (12,963)
Inventories............................................... (384) 671 (1,371)
Prepaid expenses.......................................... (3,672) 2,630 892
Amounts receivable from cemetery merchandise trusts....... (93,175) (114,072) (88,422)
Installment contracts, net of allowances.................. 66,885 6,481 (134,382)
Cemetery property......................................... (4,785) (46,081) (34,924)
Other assets.............................................. (8,682) (20,309) (38,092)

Increase (decrease) in liabilities, including certain
liabilities subject to compromise:
Accounts payable and accrued liabilities.................. 15,819 14,908 39,746
Other liabilities......................................... 10,140 8,635 13,887
Cemetery long-term liabilities............................ 10,427 (15,046) 22,268
Insurance policy liabilities.............................. 17,287 22,935 313

Other changes in non-cash balances.......................... 450 14,504 1,886
-------- -------- ---------
$(27,991) $(90,277) $(216,356)
======== ======== =========
Supplemental information:
Interest paid............................................. $ 87,388 $174,628 $ 103,799
Taxes paid................................................ 3,604 15,226 44,282
Bad debt expense.......................................... 8,374 14,322 11,935

Non-cash investing and financing activities:
Non-cash debt and share consideration on acquisitions..... $ -- $ 25,395 $ 64,881
Non-cash share issues pursuant to option agreements....... (2,280) -- --
Capital leases............................................ (14,846) -- --
Note receivable from sale of subsidiaries................. -- -- 15,725
</TABLE>

70
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 17. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Receivables, net of allowances:
Trade accounts............................................ $ 96,277 $ 101,051
Allowance for doubtful accounts........................... (36,660) (33,862)
Other..................................................... 71,747 32,221
Installment contracts..................................... 100,038 158,884
Unearned finance income................................... (15,218) (30,404)
Allowance for contract cancellations and refunds.......... (17,684) (24,118)
---------- ----------
$ 198,500 $ 203,772
========== ==========
Long-term receivables, net of allowances:
Notes receivable.......................................... $ 8,433 $ 11,999
Amounts receivable from cemetery merchandise trusts....... 412,325 410,055
Installment contracts..................................... 233,706 353,054
Unearned finance income................................... (36,070) (53,217)
Allowance for contract cancellations and refunds.......... (40,661) (56,892)
---------- ----------
$ 577,733 $ 664,999
========== ==========
Cemetery property:
Developed land and lawn crypts............................ $ 171,874 $ 293,030
Undeveloped land.......................................... 666,218 810,160
Mausoleums................................................ 85,252 132,657
---------- ----------
$ 923,344 $1,235,847
========== ==========
Property and equipment:
Land...................................................... $ 176,516 $ 174,366
Buildings and improvements................................ 553,280 547,218
Automobiles............................................... 96,835 80,940
Furniture, fixtures and equipment......................... 140,899 154,182
Computer hardware and software............................ 48,219 41,900
Leasehold improvements.................................... 18,239 16,082
Accumulated depreciation and amortization................. (234,175) (188,703)
---------- ----------
$ 799,813 $ 825,985
========== ==========
Names and reputations:
Names and reputations..................................... $ 784,513 $ 775,865
Covenants not to compete.................................. 82,518 81,855
Accumulated amortization.................................. (216,831) (109,055)
---------- ----------
$ 650,200 $ 748,665
========== ==========
</TABLE>

71
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 17. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Other assets:
Deferred debt issue costs................................. $ 3,035 $ 23,709
Deferred direct obtaining costs........................... 106,913 102,632
Cemetery management contracts............................. 12,614 13,413
Investments............................................... 2,469 3,385
Other..................................................... 8,522 21,364
---------- ----------
$ 133,553 $ 164,503
========== ==========
Accounts payable and accrued liabilities:
Trade payables............................................ $ 28,207 $ 46,210
Interest.................................................. 4,046 38,686
Dividends................................................. -- 2,154
Insurance, property and business taxes.................... 5,399 6,353
Other..................................................... 59,985 76,731
---------- ----------
$ 97,637 $ 170,134
========== ==========
Other liabilities:
Cemetery long-term liabilities............................ $ 181,475 $ 211,647
Accrual for contingent losses (see Note 5)................ 190,441 128,333
Covenants not to compete.................................. 18,695 20,540
Regional partnership liabilities.......................... 9,265 9,971
Participants' deposits in MEIP (see Note 9(d))............ -- 5,120
Other..................................................... 26,143 23,693
---------- ----------
$ 426,019 $ 399,304
========== ==========
</TABLE>

NOTE 18. SEGMENTED INFORMATION

The Company's reportable segments are comprised of the three businesses it
operates, each of which offers different products and services: funeral homes,
cemeteries and insurance.

The funeral homes offer a full range of funeral services, encompassing the
collection of remains, registration of death, professional embalming, use of
funeral home facilities, sale of caskets and other merchandise, and
transportation to a place of worship, funeral chapel, cemetery or crematorium.
In addition to providing at-need funeral services, the Company also provides
pre-arranged funeral services to its customers.

The cemeteries assist families in making burial arrangements and offer a
complete line of cemetery products (including a selection of burial spaces,
burial vaults, lawn crypts, caskets, memorials, niches and mausoleum crypts),
the opening and closing of graves and cremation services. The majority of
cemetery revenue is from pre-need sales.

72
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 18. SEGMENTED INFORMATION (CONTINUED)
The insurance companies sell a variety of life insurance products, primarily
to fund pre-arranged funeral services. The funeral home companies sell insurance
contracts on behalf of the Company's insurance operations for which they receive
commission revenue. In 1999, the inter-company commissions amounted to
$4,554,000 and were eliminated in the Company's consolidated financial
statements (1998 -- $3,717,000, 1997 -- nil).

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2). The Company sells
primarily to external customers, though any intersegment sales or transfers
occur at market price. The Company evaluates performance based on earnings from
operations of the respective businesses.

<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED
---------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue earned from external sales:
1999............................... $ 609,710 $ 326,562 $ 94,101 $ -- $1,030,373
1998............................... 631,221 408,497 96,516 -- 1,136,234
1997............................... 602,112 422,010 89,977 -- 1,114,099
Earnings (loss) from operations:
1999............................... $ 52,994 $ (245,128) $ 20,344 $ (76,817) $ (248,607)
1998............................... 125,242 (301,789) 16,472 (103,891) (263,966)
1997............................... 147,730 100,638 16,508 (112,745) 152,131
Investment revenue (included in
earnings (loss) from operations):
1999............................... $ 1,682 $ 43,972 $ 19,450 $ 1,246 $ 66,350
1998............................... 3,391 34,432 21,351 1,774 60,948
1997............................... 5,560 29,197 23,519 335 58,611
Depreciation and amortization:
1999............................... $ 61,479 $ 10,898 $ 31 $ 9,804 $ 82,212
1998............................... 62,892 11,384 31 14,206 88,513
1997............................... 51,085 7,820 36 6,437 65,378
Total assets:
1999............................... $1,984,739 $1,745,673 $290,398 $ 89,773 $4,110,583
1998............................... 2,059,422 2,175,663 276,098 162,725 4,673,908
1997............................... 1,963,099 2,124,409 331,754 371,425 4,790,687
Capital expenditures:
1999............................... $ 22,195 $ 23,955 $ 190 $ 8,337 $ 54,677
1998............................... 74,681 26,370 420 6,513 107,984
1997............................... 108,691 53,023 208 11,157 173,079
</TABLE>

73
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 18. SEGMENTED INFORMATION (CONTINUED)
The following table reconciles earnings from operations of reportable
segments to earnings (loss) before income taxes and identifies the components of
"Other" segment earnings from operations:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Earnings (loss) from operations of funeral, cemetery and
insurance segments........................................ $(171,790) $(160,075) $ 264,876
Other expenses of operations:
General and administrative expenses....................... (67,220) (87,659) (72,128)
Restructuring costs....................................... -- -- (33,364)
Depreciation and amortization............................. (9,804) (14,206) (6,437)
Other..................................................... 207 (2,026) (816)
--------- --------- ---------
(76,817) (103,891) (112,745)
--------- --------- ---------
Total earnings (loss) from operations....................... $(248,607) $(263,966) $ 152,131
========= ========= =========
</TABLE>

The following table reconciles total assets of reportable segments and
details the components of "Other" segment assets which is mainly comprised of
corporate assets:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total assets of funeral, cemetery and insurance
segments............................................... $4,020,810 $4,511,183 $4,419,262
"Other" assets includes:
Cash................................................... 24,642 61,012 2,681
Receivables............................................ 12,291 11,492 41,444
Prepaid expenses....................................... 7,265 3,499 3,216
Long-term receivables, net of allowances............... 5,397 7,753 3,957
Investments............................................ -- 2,581 224,008
Property and equipment................................. 30,005 33,323 42,198
Names and reputations.................................. 3,548 4,358 4,766
Future income tax assets............................... -- 10,243 7,849
Deferred debt issue costs.............................. 3,035 23,709 33,182
Other.................................................. 3,590 4,755 8,124
---------- ---------- ----------
89,773 162,725 371,425
---------- ---------- ----------
$4,110,583 $4,673,908 $4,790,687
========== ========== ==========
</TABLE>

74
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 18. SEGMENTED INFORMATION (CONTINUED)
The Company operates principally in North America. Over 90% of its revenues
are earned in the United States. The Company also has operations in Canada and
the United Kingdom. The following tables depict the revenues earned and the long
term assets held in the reportable geographic segments.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
United States.......................................... $ 959,830 $1,065,074 $1,048,236
Canada................................................. 59,298 63,979 64,965
Other.................................................. 11,245 7,181 898
---------- ---------- ----------
$1,030,373 $1,136,234 $1,114,099
========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment, names and reputations and
cemetery property:
United States.......................................... $2,180,204 $2,623,497 $2,614,772
Canada................................................. 168,848 163,932 171,680
Other.................................................. 24,305 23,068 12,291
---------- ---------- ----------
$2,373,357 $2,810,497 $2,798,743
========== ========== ==========
</TABLE>

NOTE 19. RELATED PARTY TRANSACTIONS

As part of the acquisition of Osiris Holding Corporation ("Osiris") in 1995,
the Company recorded a liability for the present value of contingent payments.
The contingent payments were due over a five-year period ending in 2001 to the
former shareholders of Osiris, two of whom were officers of the Company. In
1999, the two officers of the Company entered into an agreement with the Company
to purchase 124 cemeteries and three funeral homes and ended their association
with the Company. The balance of the contingent payments, which was $14,947,000
at December 31, 1998, was paid out of the proceeds of the sale in 1999 (see
Note 12).

In addition, as part of the acquisition of Shipper Management ("Shipper") in
1996, the Company recorded a liability for the present value of contingent
payments. The contingent payments were payable through 2001, to the former
shareholders of Shipper, one of whom was an officer of the Company. In 1999, the
remaining balance of $4,838,000 became subject to compromise under the
bankruptcy.

At December 31, 1999, current and former officers, directors and employees
were indebted to the Company for approximately $11,016,000
(1998 -- $10,800,000). As at December 31, 1999, an allowance of $8,041,000
(1998 -- $3,261,000) was recorded against those amounts for former officers and
employees.

75
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:

(a) EARNINGS (LOSS) AND EARNINGS (LOSS) PER COMMON SHARE

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net earnings (loss) in accordance with Canadian GAAP........ $(465,176) $(598,969) $41,810
Less effects of differences in accounting for:
Provision for asset impairment (c)........................ (56,624) -- --
Insurance operations (d).................................. (3,436) 2,833 1,701
Cost of start-up activities (e)........................... 1,819 1,915 --
Stock options............................................. (22) (36) (173)
Foreign exchange loss (f)................................. -- -- (1,107)
--------- --------- -------
Net earnings (loss) before cumulative effect of a change in
accounting principle...................................... (523,439) (594,257) 42,231

Cumulative effect of adopting SOP 98-5 as of
January 1, 1998 (e)....................................... -- (5,000) --
--------- --------- -------
Net earnings (loss) in accordance with U.S. GAAP............ (523,439) (599,257) 42,231

Other comprehensive income:
Foreign currency translations:
Unrealized foreign currency gains (losses) arising
during the period..................................... 1,743 116 998
Less: reclassification adjustment for losses included in
net earnings (loss)................................... -- -- (1,909)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the
period, net of deferred tax recovery (expense) of
$5,157, $(8,354), and $(5,992), respectively............ (8,066) 10,211 7,323
Less: reclassification adjustment for gains included in
net earnings (loss)..................................... (2,905) (8,486) (3,044)
--------- --------- -------
Comprehensive income (loss) in accordance with U.S. GAAP.... $(532,667) $(597,416) $45,599
========= ========= =======
Basic earnings (loss) before cumulative effect of change in
accounting principle per Common share..................... $ (7.18) $ (8.15) $ 0.49
========= ========= =======
</TABLE>

For the year ended December 31, 1998, the impact on basic earnings (loss)
per Common share of the cumulative effect of the change in accounting principle
was $0.07, and would have resulted in basic loss per Common share of $(8.22).

76
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
Under U.S. GAAP, basic earnings (loss) per Common share, similar to Canadian
GAAP, is based on the weighted average number of Common shares outstanding
during the year. Diluted earnings (loss) per Common share is not materially
different from basic earnings (loss) per Common share. The computation of basic
earnings (loss) before the 1998 cumulative effect of the change in accounting
principle per Common share is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss) before cumulative effect of change in
accounting principle.................................... $(523,439) $(594,257) $ 42,231
Less: Preferred share dividends........................... 8,885 8,900 9,533
--------- --------- ---------
Net earnings (loss) before cumulative effect of change in
accounting principle attributable to Common
shareholders............................................ $(532,324) $(603,157) $ 32,698
========= ========= =========
Weighted average number of shares outstanding
(thousands)............................................. 74,114 73,989 67,313
Basic earnings (loss) before cumulative effect of change
in accounting principle per Common share................ $ (7.18) $ (8.15) $ 0.49
========= ========= =========
</TABLE>

(b) BALANCE SHEET

The amounts in the consolidated balance sheet that materially differ from
those reported under Canadian GAAP are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------
CANADIAN UNITED STATES CANADIAN UNITED STATES
GAAP GAAP GAAP GAAP
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Assets:
Long-term receivables, net of
allowances.............................. $ 577,733 $ 589,840 $ 664,999 $ 673,100
Cemetery property......................... 923,344 845,840 1,235,847 1,235,847
Names and reputations..................... 650,200 655,191 748,665 748,665
Insurance invested assets................. 281,423 263,960 266,661 270,809
Other assets.............................. 133,553 161,091 164,503 187,759

Liabilities and Shareholders' Equity
(Deficiency):
Other liabilities......................... 426,019 423,384 399,304 394,377
Insurance policy liabilities.............. 184,207 217,915 166,920 196,230
Future income tax liabilities............. 146,028 125,394 208,939 212,378
Common shares............................. 1,276,434 1,302,806 1,274,096 1,300,428
Deficit................................... (1,004,917) (1,059,529) (539,741) (536,089)
Accumulated other comprehensive income:
Unrealized gains (losses) on securities
available for sale, net of tax........ -- (4,034) -- 6,937
Foreign exchange adjustment............... 15,683 (13,314) 13,940 (15,057)
</TABLE>

77
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(c) IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," for U.S. GAAP purposes.

FAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used or to be disposed of. FAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The review for
recoverability should include an estimate of the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
estimated expected future cash flows (undiscounted and without interest charges)
is less than the carrying amount of the asset, an impairment provision should be
recognized. Measurement of an impairment provision for long-lived assets should
be based on the fair value of the asset.

Under Canadian GAAP, the asset impairment provision of $355,180,000 in 1999
was determined on the basis of undiscounted cash flows. The incremental effects
resulting from the application of FAS 121 for U.S. GAAP purposes in 1999 was an
additional pre-tax asset impairment provision of $73,014,000.

(d) INSURANCE OPERATIONS

PRESENT VALUE OF INSURANCE POLICIES

Under U.S. GAAP, the Company recognizes an asset that represents the
actuarially-determined present value of the projected future profits of the
insurance in-force at dates of acquisition. Canadian GAAP does not recognize
such an asset. The asset is being amortized to insurance expense over the
estimated life of the insurance in-force at the date of acquisition.

DEFERRED POLICY ACQUISITION COSTS

Under U.S. GAAP, the Company defers costs related to the production of new
business, which consist principally of commissions, certain underwriting
expenses, and the costs of issuing policies. Deferred acquisition costs are
amortized over the expected premium-paying periods of the related policies.
Canadian GAAP does not permit deferral of such costs.

INSURANCE POLICY LIABILITIES

Insurance policy liabilities, which represent liabilities for future policy
benefits, are accounted for under U.S. GAAP using the net level premium method
which involves different actuarial assumptions and methodologies than the policy
premium method used for Canadian GAAP. In addition, under Canadian GAAP, all
actuarial assumptions are re-evaluated on a periodic basis, resulting in
adjustments to insurance policy liabilities and insurance costs and expenses.
Under U.S. GAAP, assumptions established at the time a policy is written are
locked in and only revised if it is determined that future experience will
worsen from that previously assumed.

78
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(e) REPORTING ON THE COSTS OF START-UP ACTIVITIES

The AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") on April 3, 1998, to be effective for fiscal
years beginning after December 15, 1998. SOP 98-5 states that the costs of
start-up activities, including organization costs, should be expensed as
incurred. The Company elected early adoption of SOP 98-5 to be effective for the
year ended December 31, 1998, for U.S. GAAP purposes. Pursuant to SOP 98-5, in
1998 the Company wrote off the unamortized costs of start-up activities, which
were contained in "Other assets," as a change in accounting principle.

SOP 98-5 was adopted in the fourth quarter of 1998, and was effective
January 1, 1998. The effects on 1998 net earnings (loss) and basic earnings
(loss) per Common share would be decreases of approximately $5,000,000 and
$0.07, respectively, resulting from the cumulative effect of the adoption of
SOP 98-5.

(f) FOREIGN EXCHANGE LOSS

Upon the sale of a Canadian equity investment in 1997, the Company
recognized a foreign exchange loss of $802,000 for Canadian GAAP purposes. The
foreign exchange loss under U.S. GAAP was $1,909,000 due to differences in the
related foreign exchange adjustment on the balance sheet that arose from the
Company's change in reporting currency on January 1, 1994.

(g) UNREALIZED GAINS AND LOSSES

Amounts receivable from cemetery merchandise trusts and insurance invested
assets are subject to the provisions of Financial Accounting Standards No. 115
("FAS 115"), "Accounting for Certain Investments in Debt and Equity" under
U.S. GAAP. Under FAS 115, fixed maturity securities which the Company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Fixed maturity securities
classified as held-to-maturity were approximately $25,859,000 at December 31,
1999 (1998 -- $30,582,000). Debt and equity securities that are held with the
objective of trading to generate profits on short-term differences in price are
carried at fair value, with changes in fair value reflected in the results of
operations. At December 31, 1999 and 1998, the Company had no securities
classified as trading. All other fixed maturity and equity securities not
classified as either held-to-maturity or trading are classified as
available-for-sale and carried at fair value which was approximately
$625,596,000 at December 31, 1999 (1998 -- $619,913,000). Available-for-sale
securities may be sold in response to changes in interest rates and liquidity
needs. Unrealized holding gains and losses related to available-for-sale
investments, after deducting amounts allocable to income taxes, are reflected as
a separate component of stockholders' equity. Unrealized holding gains and
losses related to trading investments, after deducting amounts allocable to
income taxes, are reflected in earnings.

(h) STOCK-BASED COMPENSATION

The Company follows the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation," for U.S. GAAP purposes.

The Company continues to record compensation expense for U.S. GAAP purposes
following the intrinsic value principles of Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for

79
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
Stock Issued to Employees," in accounting for the plans. Under APB 25, no
compensation expense has been recognized for its stock-based compensation plans
in any of the three years ending December 31, 1999. Had compensation cost been
determined based on fair value at the grant dates for awards under those plans
consistent with the measurement provisions of FAS 123, net earnings (loss)
before cumulative effect of change in accounting principle under U.S. GAAP would
have been $(521,922,000) for the year ended December 31, 1999
(1998 -- $(593,648,000), 1997 -- $35,781,000) and basic earnings (loss) before
cumulative effect of change in accounting principle per Common share would have
been $(7.16) (1998 -- $(8.14), 1997 -- $0.39).

For these purposes, the fair value of each option is estimated on the date
of the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: dividend yield nil% (1998 -- nil%, 1997 -- 0.5%),
expected volatility 80% (1998 -- 29%, 1997 -- 24%), Canadian risk-free interest
rates 5.38% (1998 -- 4.88%, 1997 -- 5.24%), United States risk-free interest
rates 5.38% (1998 -- 5.11%, 1997 -- 5.89%) and expected average option term of
3.8 years (1998 -- 3.5 years, 1997 -- 5.0 years). The weighted average fair
value of the options granted was $1.59 (1998 -- $5.51, 1997 -- $9.15) per
option.

(i) ADVERTISING COSTS

Advertising costs were $14,876,000 for the year ended December 31, 1999
(1998 -- $10,444,000, 1997 -- $9,509,000).

(j) RECENT ACCOUNTING STANDARDS

In December 1999, the United States Securities and Exchange Commission (the
"SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 provides the staff's views on the
application of existing generally accepted accounting principles to revenue
recognition in financial statements. The application of SAB 101 to industry and
Company revenue recognition policies is unclear. If it is determined that
SAB 101 modifies or amends revenue recognition policies followed by the industry
and previously accepted by the SEC, the adjustments would be recorded in the
Company's consolidated financial statements for the first quarter of 2000.

80
<PAGE>
THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 21. SUMMARIZED CHAPTER 11 AND CCAA FINANCIAL INFORMATION

Summarized financial data for the companies under creditor protection of
Chapter 11 and CCAA are presented as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Income statement information:
Revenue................................................... $ 791,150
Gross margin.............................................. 235,205
Loss from operations...................................... (225,048)
Net loss.................................................. (421,847)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Balance sheet information:
Current assets............................................ $ 247,268
Net investment in subsidiaries not under creditor
protection (a).......................................... 512,358
Non-current assets........................................ 3,031,798
----------
Total assets................................................ 3,791,424

Liabilities not subject to compromise:
Current liabilities....................................... 98,286
Non-current liabilities................................... 966,191
Liabilities subject to compromise........................... 2,282,601
----------
Total liabilities........................................... 3,347,078

Shareholders' equity........................................ 444,346
</TABLE>

- ------------------------

(a) Net investments in subsidiaries not under creditor protection of Chapter 11
and CCAA include the net assets of legal subsidiaries, as well as the net
assets of cemetery operations legally owned by third parties. The net assets
of the third parties are included in the Company's consolidated financial
statements since the Company has the economic risks and rewards of ownership
of the underlying operations.

81
<PAGE>

THE LOEWEN GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS
EXCEPT PER SHARE AMOUNTS AND NUMBER OF SHARES

NOTE 22. SUBSEQUENT EVENT

In April 2000, the Company announced that there is uncertainty as to the
secured status of certain senior debt under the Collateral Trust Agreement with
respect to approximately $1,100,000,000 of senior debt issued subsequent to the
execution of the Collateral Trust Agreement. In accordance with the terms of the
Collateral Trust Agreement, holders of future indebtedness or their
representatives were to effect registration by delivering to the collateral
trustee Additional Secured Indebtedness Registration Statements in a form set
forth in the Collateral Trust Agreement.

Subsequent to the execution of the Collateral Trust Agreement, among other
financings, the Company issued the Series 3, Series 4, Series 6 and Series 7
Senior Notes and the PATS. Pursuant to the agreements with lender
representatives in connection with those financings, the Company has treated the
related debt as secured under the Collateral Trust Agreement.

The Company was recently advised that Additional Secured Indebtedness
Registration Statements relating to the aforementioned senior debt were either
not entered into the collateral trustee's register or were entered with an
incorrect outstanding amount. Under the terms of the Collateral Trust Agreement,
these circumstances give rise to uncertainty as to the secured status of these
securities. The Company has confirmed that it satisfied its obligations under
the financing agreements to adopt appropriate corporate resolutions and to
deliver to lender representatives, in connection with closing, Additional
Secured Indebtedness Registration Statements relating to such debt. It is not
known when the uncertainty will be resolved. Accordingly, the effects of this
contingency, if any, have not been reflected in the Company's consolidated
financial statements.

82
<PAGE>
THE LOEWEN GROUP INC.

SUPPLEMENTARY DATA

QUARTERLY FINANCIAL DATA (UNAUDITED)

EXPRESSED IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Revenue.......................................... $310,805 $ 264,088 $231,819 $ 223,661
Gross profit..................................... 108,442 73,469 59,907 46,841
Net earnings (loss).............................. 6,927 (105,330) 1,916 (368,689)
Basic earnings (loss) per Common share(1)........ $ 0.06 $ (1.45) $ -- $ (5.00)

Year ended December 31, 1998
Revenue.......................................... $309,736 $ 301,923 $263,887 $ 260,688
Gross profit..................................... 113,380 93,605 63,593 21,158
Net earnings (loss).............................. 30,039 10,242 (32,438) (606,812)
Basic earnings (loss) per Common share........... $ 0.37 $ 0.11 $ (0.47) $ (8.22)
</TABLE>

- ------------------------

(1) The basic earnings (loss) per Common share figures for the second and third
quarter of 1999 have been restated to reflect the effect of undeclared
cumulative Preferred share dividends previously omitted from the
calculation.

83
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS

84
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders
Loewen Group International, Inc.

We have audited the consolidated balance sheets of Loewen Group
International, Inc. as at December 31, 1999 and 1998 and the consolidated
statements of operations and deficit and cash flows for each of the years in the
three-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

Canadian generally accepted accounting principles vary in certain
significant respects from accounting principles generally accepted in the
United States. Application of accounting principles generally accepted in the
United States would have affected results of operations for each of the years in
the three-year period ended December 31, 1999 and assets, liabilities and
shareholders' deficiency as at December 31, 1999 and 1998 to the extent
summarized in Note 20 to the consolidated financial statements.

/s/ KPMG LLP

Chartered Accountants

Vancouver, Canada

March 14, 2000, except as to Note 22, which is as of April 7, 2000

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA -- U.S. REPORTING DIFFERENCE

/s/ KPMG LLP

Chartered Accountants

Vancouver, Canada

March 14, 2000, except as to Note 22, which is as of April 7, 2000

85
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
----------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 42,396 $ 84,202
Receivables, net of allowances............................ 112,253 96,584
Inventories............................................... 30,060 30,137
Prepaid expenses.......................................... 10,415 7,184
----------- ----------
195,124 218,107
Long-term receivables, net of allowances.................... 474,146 504,295
Cemetery property........................................... 914,310 1,226,358
Property and equipment...................................... 679,086 712,995
Names and reputations....................................... 580,976 678,576
Investments................................................. 30,133 30,245
Insurance invested assets................................... 281,423 266,661
Pre-arranged funeral services............................... 372,521 351,961
Other assets................................................ 123,618 151,316
----------- ----------
$ 3,651,337 $4,140,514
=========== ==========

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Liabilities not subject to compromise
Current liabilities
Accounts payable and accrued liabilities................ $ 87,040 $ 150,412
Loans and advances from affiliates, current portion..... -- 227,841
Long-term debt, current portion......................... 17,073 829,455
----------- ----------
104,113 1,207,708
----------- ----------
Loans and advances from affiliates, net of current
portion................................................. -- 784,369
Long-term debt, net of current portion.................... 64,960 1,254,036
Other liabilities......................................... 432,745 414,319
Insurance policy liabilities.............................. 184,207 166,920
Future income tax liabilities............................. 121,398 191,283
Deferred pre-arranged funeral services revenue............ 372,521 351,961
Liabilities subject to compromise........................... 3,115,990 --
Preferred securities of subsidiary.......................... -- 75,000
Shareholders' deficiency
Common shares............................................. 554,289 526,058
Deficit................................................... (1,288,969) (823,172)
Foreign exchange adjustment............................... (9,917) (7,968)
----------- ----------
(744,597) (305,082)
----------- ----------
$ 3,651,337 $4,140,514
=========== ==========
BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION (NOTE 1)
COMMITMENTS AND CONTINGENCIES (NOTES 3, 5, 10, 13, 15, 19
AND 22)
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

86
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Revenue
Funeral................................................ $ 537,062 $ 559,217 $ 536,926
Cemetery............................................... 314,534 416,823 408,196
Insurance.............................................. 94,101 96,516 89,977
----------- ---------- ----------
945,697 1,072,556 1,035,099
----------- ---------- ----------
Costs and expenses
Funeral................................................ 343,583 363,742 336,473
Cemetery............................................... 265,484 353,662 319,558
Insurance.............................................. 73,727 80,013 73,304
----------- ---------- ----------
682,794 797,417 729,335
----------- ---------- ----------
262,903 275,139 305,764
Expenses
General and administrative............................. 92,951 114,397 97,792
Depreciation and amortization.......................... 70,765 76,225 56,358
Provision for asset impairment......................... 350,643 301,605 --
Restructuring costs.................................... -- -- 30,992
----------- ---------- ----------
514,359 492,227 185,142
----------- ---------- ----------
Earnings (loss) from operations.......................... (251,456) (217,088) 120,622

Interest and financing fee paid to affiliates, net....... 47,444 119,571 102,226
Interest on long-term debt............................... 75,319 165,403 119,972
Provision for investment impairment and contingent
losses................................................. 50,248 313,459 --
Loss on early extinguishment of debt..................... -- -- 4,591
Reorganization costs..................................... 85,724 -- --
Dividends on preferred securities of subsidiary.......... 2,971 7,088 7,088
Other income............................................. (2,189) (10,929) (11,593)
----------- ---------- ----------
Loss before income taxes................................. (510,973) (811,680) (101,662)
Income taxes
Current................................................ 8,204 9,629 20,186
Future................................................. (53,380) (185,397) (43,098)
----------- ---------- ----------
(45,176) (175,768) (22,912)
----------- ---------- ----------
Loss for the year........................................ (465,797) (635,912) (78,750)
Deficit, beginning of year............................... (823,172) (187,260) (108,510)
----------- ---------- ----------
Deficit, end of year..................................... $(1,288,969) $ (823,172) $ (187,260)
=========== ========== ==========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

87
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (APPLIED TO)
Operations
Net loss............................................... $(465,797) $ (635,912) $ (78,750)
Items not affecting cash
Depreciation and amortization........................ 70,765 76,225 56,358
Amortization of debt issue costs..................... 3,838 25,018 6,387
Provision for asset impairment....................... 350,643 301,605 --
Provision for investment impairment and contingent
loss............................................... 50,248 313,459 --
Future income taxes.................................. (53,380) (185,397) (43,098)
Loss (gain) on sale of investment.................... (2,687) (6,768)
Equity and other earnings of associated companies.... 498 (10,929) (11,593)
Non-cash restructuring costs......................... -- -- 12,697
Non-cash reorganization costs........................ 57,250 -- --
Proceeds on factored accounts receivable............. 88,010 142,181 185,179
Other, including net changes in other non-cash
balances............................................. (139,678) (223,157) (229,524)
--------- ----------- -----------
(40,290) (203,675) (102,344)
--------- ----------- -----------
Investing
Proceeds on disposition of assets and investments...... 194,224 56,202 3,767
Purchase of property and equipment..................... (30,670) (34,670) (42,632)
Construction of new facilities......................... (12,580) (17,929) (24,954)
Purchase of insurance invested assets.................. (147,510) (224,145) (261,987)
Proceeds on disposition and maturities of insurance
invested assets...................................... 130,434 180,175 252,626
Business acquisitions.................................. (173) (236,737) (453,223)
Investments, net....................................... -- 16 (2,275)
--------- ----------- -----------
133,725 (277,088) (528,678)
--------- ----------- -----------
Financing
Increase in long-term debt............................. 14,776 1,102,681 1,195,242
Repayment of long-term debt............................ (132,230) (603,978) (1,031,105)
Debt issue costs....................................... (8,218) (16,954) (3,999)
Issue of Common shares................................. -- -- 185,250
Increase in loans and advances from affiliates......... 8,275 339,527 446,450
Repayment of loans and advances from affiliates........ (46,075) (291,874) (142,763)
Capital contribution from affiliate.................... 28,231 -- --
--------- ----------- -----------
(135,241) 529,402 649,075
--------- ----------- -----------
Increase (decrease) in cash.............................. (41,806) 48,639 18,053
Cash, beginning of year.................................. 84,202 35,563 17,510
--------- ----------- -----------
Cash, end of year........................................ $ 42,396 $ 84,202 $ 35,563
========= =========== ===========
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

88
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 1. BANKRUPTCY PROCEEDINGS AND BASIS OF PRESENTATION

BANKRUPTCY PROCEEDINGS

Loewen Group International, Inc. (the "Company") is a company organized
under the laws of Delaware. On June 1, 1999 (the "Petition Date"), the Company
and each of approximately 850 United States subsidiaries voluntarily filed a
petition for creditor protection under Chapter 11 of the U.S. Bankruptcy Code
("Chapter 11") in the U.S. Bankruptcy Court, for the District of Delaware (the
"U.S. Bankruptcy Court").

The Company is reorganizing its affairs under the protection of Chapter 11
and will propose a plan of reorganization for itself and other filing
subsidiaries, which will be submitted to the U.S. Bankruptcy Court overseeing
the Chapter 11 proceedings for confirmation after submission to any vote and
approval required by affected parties.

BASIS OF PRESENTATION

The accompanying financial statements have been prepared on a "going
concern" basis in accordance with Canadian generally accepted accounting
principles. The "going concern" basis of presentation assumes that the Company
will continue in operation for the foreseeable future and will be able to
realize its assets and discharge its liabilities and commitments in the normal
course of business. There is substantial doubt about the appropriateness of the
use of the "going concern" assumption because of the Chapter 11 bankruptcy
proceedings and circumstances relating to this event, including the Company's
debt structure, recent losses and negative cash flow. As such, realization of
assets and discharge of liabilities are subject to significant uncertainty.

The consolidated financial statements do not reflect adjustments that would
be necessary if the "going concern" basis was not appropriate. If the "going
concern" basis was not appropriate for these consolidated financial statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used. The appropriateness of the "going concern" basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to renegotiate and comply with the
terms of a debtor-in-possession revolving credit agreement, and the ability to
generate sufficient cash from operations and financing arrangements to meet
obligations.

Additionally, if a plan of reorganization is approved by the U.S. Bankruptcy
Court, the Company will be required to adopt "fresh start" accounting under
Canadian and U.S. generally accepted accounting principles. This accounting will
require that assets and liabilities be recorded at fair value, based on the
values determined in connection with the plan of reorganization. As a result,
the reported amounts in the Consolidated Financial Statements could materially
change, because they do not give effect to the adjustments to the carrying
values of assets and liabilities that may ultimately result from the adoption of
"fresh start" accounting.

89
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The United States dollar is the principal currency of the Company's business
and, accordingly, the consolidated financial statements are expressed in United
States dollars.

BASIS OF CONSOLIDATION

The Company accounts for its investments in joint ventures using the
proportionate consolidation method.

Other long-term investments including preferred share investments are
accounted for using the cost method.

All significant inter-company balances and transactions have been eliminated
in the consolidated financial statements.

MEASUREMENT UNCERTAINTY

FUNERAL SERVICES

The Company provides a full range of at-need funeral services as well as
pre-arranged funeral services.

Pre-arranged funeral services provide for future funeral services generally
determined by prices prevailing at the time the contract is signed. The payments
made under the contract, in part, are either placed in trust or are used to pay
the premiums of life insurance policies under which the Company will be
designated as beneficiary. Except for insurance commissions and amounts not
required to be trusted, which are used to defray initial costs of
administration, no income is recognized until the performance of a specific
funeral.

90
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in cost over time of providing the related services. Upon performance of the
specific funeral service, the Company will recognize the trust fund principal
amount or insurance contract amount together with the accumulated trust earnings
and annual insurance benefits as funeral revenues. Direct obtaining costs
related to the sale of pre-arranged funeral services are included in other
assets and amortized over a period of ten years, approximating the period the
benefits are expected to be realized. Indirect obtaining costs relating to the
sale of pre-arranged funeral services are expensed in the period incurred.

CEMETERY OPERATIONS

The Company provides a complete line of cemetery products and services, the
majority of which are sold on a pre-need basis.

Pre-need sales of cemetery interment rights and other related products and
services are recorded as revenue when customer contracts are signed with
concurrent recognition of related costs. Changes in estimated costs of
merchandise and services are recognized in income when additional information
becomes available. Interest is imputed at a market rate for contracts that do
not bear a market rate of interest. An allowance for cancellations and refunds
is provided at the date of sale based on management's estimates. The allowance
is reviewed quarterly and changes in estimates are reflected for current and
prior contracts as a result of recent cancellation experience. Actual
cancellation rates in the future will result in changes in estimate which are
recognized when information is available.

INSURANCE OPERATIONS

The Company's insurance companies sell a variety of life insurance products,
primarily to fund pre-arranged funeral services.

Insurance invested assets, primarily consisting of bonds and other
fixed-term securities, are carried at amortized cost. Net realized gains and
losses on the disposal of bonds and other fixed-term securities are deferred and
amortized to income over the remaining term to maturity of the security sold.
Equity securities are carried at moving average market value. Net realized gains
and losses on the disposal of equity securities are deferred and amortized to
income on a declining balance basis.

91
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH

Cash includes cash and term deposits with an initial maturity less than or
equal to 90 days.

INVENTORIES

Inventories are carried at the lower of cost, determined primarily on a
specific identification basis or a first in first out basis, and net realizable
value.

CEMETERY PROPERTY

PROPERTY AND EQUIPMENT

Property and equipment is recorded initially at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:

NAMES AND REPUTATIONS

Covenants not to compete included with names and reputations on the
consolidated balance sheet represent amounts capitalized for non-competition
agreements with certain key management personnel of acquired operations.
Amortization of such prepaid covenants not to compete is provided on a
straight-line basis over the terms of the relevant agreements, typically ten
years.

IMPAIRMENT OF LONG-LIVED ASSETS

DEBT ISSUE COSTS

Debt issue costs included in other assets on the consolidated balance sheet
represent the costs of negotiating and securing the Company's long-term debt and
preferred securities of subsidiary and are

92
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
included in interest expense on a straight-line basis over the respective term
of the related instrument. These costs include legal fees, accounting fees,
underwriting and agency fees and other related costs.

DERIVATIVE INSTRUMENTS

FUTURE INCOME TAXES

FOREIGN CURRENCY TRANSLATION

The assets and liabilities of the Company's operations outside the United
States, which are accounted for as self-sustaining operations, have been
translated into United States dollars at the rates of exchange as at the balance
sheet dates, and revenue and expenses are translated at the average rates of
exchange for the periods of operation. The net gains or losses arising from the
translations are deferred and are classified as "Foreign exchange adjustment"
within Shareholders' equity.

COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform to the
presentation adopted in 1999.

93
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES

In the Chapter 11 proceedings, substantially all unsecured and undersecured
liabilities of the Debtors as of the Petition Date are subject to compromise or
other treatment under a plan of reorganization to be confirmed by the U.S.
Bankruptcy Court after submission to any required vote and approval by affected
parties. For financial reporting purposes, those liabilities and obligations
whose treatment and satisfaction are dependent on the outcome of the Chapter 11
proceedings have been segregated and classified as liabilities subject to
compromise in the consolidated financial statements. Generally, all actions to
enforce or otherwise effect repayment of pre-Petition Date liabilities as well
as all pending litigation against the Debtors are stayed while the Debtors
continue their business operations as debtors-in-possession. The Bar Date, which
was the last date by which claims against the Company had to be filed in the
U.S. Bankruptcy Court if the claimants wished to receive any distribution in the
Chapter 11 proceedings, expired on December 15, 1999.

Differences between amounts shown by the Debtors and claims filed by
creditors will be investigated and either amicably resolved, adjudicated before
the U.S. Bankruptcy Court, or resolved through other resolution processes. The
ultimate amount of and settlement terms for such liabilities are subject to an
approved plan of reorganization and, accordingly, are not presently
determinable.

The principal categories of obligations classified as liabilities subject to
compromise under the reorganization proceedings are identified below. The
amounts in total may vary significantly from the stated amount of proofs of
claim that are filed with the U.S. Bankruptcy Court, and may be subject to
future adjustment depending on U.S. Bankruptcy Court action, further
developments with respect to potential disputed claims, and determination as to
the value of any collateral securing claims or other events. Additional claims
may also arise from the rejection of executory contracts by the Debtors.

94
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES (CONTINUED)
The liabilities subject to compromise, debt and loans and advances from
affiliates are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998
----------------------- ----------
LIABILITIES
SUBJECT TO LONG-TERM LONG-TERM
COMPROMISE DEBT DEBT
----------- --------- ----------
<S> <C> <C> <C>
Debt and other liabilities:
DIP Facility.............................................. $ -- $ 8,000 $ --
Bank credit agreements.................................... 338,689 -- 427,292
7.82% (1998 - 6.49%) Series E senior amortizing notes due
in 2004................................................. 30,432 -- 42,857
7.50% Series 1 senior notes due in 2001................... 225,000 -- 225,000
7.75% Series 3 senior notes due in 2001................... 125,000 -- 125,000
8.25% Series 2 and 4 senior notes due in 2003............. 350,000 -- 350,000
7.20% Series 6 senior notes due in 2003................... 200,000 -- 200,000
7.60% Series 7 senior notes due in 2008................... 250,000 -- 250,000
6.70% Pass-through Asset Trust Senior notes ("PATS") and
related option liability recorded, due in 1999.......... 309,760 -- 300,000
Promissory notes and capital lease obligations............ 79,707 74,033 163,342
Accounts payable and accrued liabilities.................. 90,716 -- --
9.45% Cumulative Monthly Income Preferred Securities,
Series A ("MIPS')....................................... 75,000 -- --
Executory contracts....................................... 26,523 -- --
---------- ------- ----------
2,100,827 82,033 2,083,491
----------
Less current portion of long-term debt.................... 17,073 829,455
------- ----------
Total long term debt...................................... $64,960 $1,254,036
======= ==========
</TABLE>

<TABLE>
<CAPTION>
LOANS AND LOANS AND
ADVANCES ADVANCES
--------- ----------
<S> <C> <C> <C>
Loans and advances from (to) affiliates:
Term loan from affiliated company
Interest at 11.50%...................................... 889,905 $ -- $ 889,905
Revolving credit loans from affiliated companies
Interest at U.S. treasury rate plus 5% due in 2002...... 136,781 -- 137,594
Interest at 11.25% due in 1999.......................... 10,291 -- 10,291
Interest at prime plus 2% due in 1999................... 11,526 -- 11,550
Other loans from (to) affiliates
Due from Parent Company................................. (36,540) -- (16,958)
Due to (from) other affiliates, net..................... 3,200 -- (20,172)
---------- ------- ----------
1,015,163 -- 1,012,210
---------- ------- ----------
Less current portion of loans and advances from
affiliates.............................................. -- 227,841
------- ----------
Total loans and advances from affiliates.................... $ -- $ 784,369
======= ==========
Total liabilities subject to compromise..................... $3,115,990
==========
</TABLE>

95
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES (CONTINUED)
Litigation against the Company and its filing subsidiaries as of June 1,
1999 and any additional liabilities related thereto will be subject to
compromise (see Note 10).

As a result of the Chapter 11 filings, no principal or interest payments
will be made on most pre-Petition Date debt obligations without Bankruptcy Court
approval or until a plan of reorganization providing for the repayment terms has
been submitted to any required vote and approval of affected parties, has been
confirmed by the Bankruptcy Court and has become effective. Interest on
unsecured and undersecured pre-Petition Date debt obligations subject to
compromise has not been accrued after the Petition Date. Interest expense and
principal payments will continue to be recorded on most secured vendor
financing, including capital lease obligations, unless the leases are rejected
by the Debtors. Contractual interest expense not recorded on debt and other
liabilities subject to compromise totaled $92,299,000 for the year ended
December 31, 1999. Contractual interest expense not recorded on loans and
advances from affiliates subject to compromise totaled $68,736,000 for the year
ended December 31, 1999.

In March 1999, the Company deferred future dividends applicable to the MIPS.
Since June 1, 1999, as a result of the bankruptcy filings, the Company was in
default of its bank credit agreements, Series E senior amortizing notes,
Series 1 through 4, 6 and 7 Senior notes, and PATS and, accordingly, has not
made interest, principal or dividend payments when due on secured, unsecured and
undersecured debt obligations. The amounts in arrears on the Company's senior
secured obligations are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------
<S> <C>
Interest payments in arrears:
Bank credit agreements............................ $ 21,417
7.82% Series E senior notes....................... 958
7.50% Series 1 senior notes....................... 8,438
8.25% Series 2 senior notes....................... 5,156
7.75% Series 3 senior notes....................... 4,844
8.25% Series 4 senior notes....................... 9,281
7.20% Series 6 senior notes....................... 14,659
7.60% Series 7 senior notes....................... 19,361
6.70% PATS........................................ 10,050
--------
$ 94,164
========
Principal payments in arrears:
6.70% PATS........................................ $300,000
========
Dividends in arrears:
9.45% MIPS........................................ $ 5,906
========
</TABLE>

The Company, and all of its U.S. debtor subsidiaries, as
debtors-in-possession, are parties to a Petition Date $200,000,000 revolving
credit agreement (the "DIP Facility"). The DIP Facility was approved by the U.S.
Bankruptcy Court on July 16, 1999. The DIP Facility has a term of two years and
is secured by a perfected security interest in substantially all of the existing
and future assets of the Company and its U.S. debtor subsidiaries (subject only
to valid and perfected pre-Petition Date liens). The lenders under the

96
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES (CONTINUED)
DIP Facility also have the benefit of a "super-priority" administrative expense
claim in the Company's bankruptcy proceedings. The DIP Facility will be used
primarily to fund the Company's working capital needs during the course of the
bankruptcy proceedings. Use of the DIP Facility for letters of credit is limited
to a maximum of $50,000,000. As at December 31, 1999, the borrowings under the
DIP Facility were $8,000,000 and the letters of credit outstanding were
$20,163,000.

The amended DIP Facility contains various financial and other restrictive
covenants including, among other things, limitations on asset sales, additional
indebtedness, intercompany payments, capital expenditures, and minimum levels of
operating cash flow, gross margin and revenue. Under the terms of the DIP
Facility, the cash and cash equivalents of the Company, the Company and its
subsidiaries which have filed under Chapter 11, is generally restricted for use
within this group of filed companies. In December 1999, the Company favorably
renegotiated certain covenants and received approval from the lenders for
initiative expenditures not contemplated when the original DIP Facility was
obtained. These amendments received Bankruptcy Court approval in December 1999.
In March 2000, the covenants will be subject to review in conjunction with the
Company's proposed business plan. Loans made under the amended DIP Facility bear
interest at floating rates of U.S. Prime plus 1.25% (LIBOR plus 2.75% for
Eurodollar advances). A fee of 2.75% is charged on letters of credit under the
amended DIP Facility. A commitment fee of 0.50% is charged on the unused portion
of the amended DIP Facility. Related debt issue costs have been deferred and are
being amortized over the two-year life of the amended DIP Facility.

In 1996, the Company, The Loewen Group Inc. (the "Parent Company") and their
senior lenders entered into a collateral trust agreement pursuant to which the
senior lenders share certain collateral and guarantees on a pari passu basis
(the "Collateral Trust Agreement"). The security for lenders under the
Collateral Trust Agreement consists of (i) all of the Company's right, title and
interest in and to all rights to receive payment under or in respect of
accounts, contracts, contractual rights, chattel paper, documents, instruments
and general intangibles, (ii) a pledge of the shares of capital stock of
substantially all of the subsidiaries in which the Company directly or
indirectly holds more than a 50% voting or economic interest, and (iii) a
guarantee by each subsidiary that is pledging stock. The security is held by a
trustee for the equal and ratable benefit of the senior lending group. The
senior lending group consists principally of the lenders under the senior
amortizing notes, senior notes and bank and term credit agreements as well as
the holders of certain letters of credit. At the Petition Date, the indebtedness
owed to the senior lending group subject to the Collateral Trust Agreement,
including holders of certain letters of credit, aggregated $1,843,000,000 (see
Note 22).

In 1994, Loewen Group Capital L.P. ("LGC") issued 3,000,000 9.45% Cumulative
Monthly Income Preferred Securities, Series A ("MIPS") for an aggregate amount
of $75,000,000. LGC is a limited partnership and the Company as its general
partner manages its business and affairs. The Company serves as the holding
company for all United States assets and operations of the Company. The MIPS
were due August 31, 2024 and were subject to redemption at par at the option of
LGC, in whole or in part, from time to time on or after August 31, 2004. As a
result of the Chapter 11 filing, LGC has commenced wind-up proceedings and the
MIPS became currently redeemable. The MIPS are subject to an unsecured guarantee
by the Parent Company and the Company. Accordingly, the MIPS have been
designated as liabilities subject to compromise.

97
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 3. LIABILITIES SUBJECT TO COMPROMISE, DEBT AND LOANS AND ADVANCES FROM
AFFILIATES (CONTINUED)
Loans and advances from (to) affiliates subject to compromise represent
balances between the Company and various affiliates, most of whom are also under
creditor protection. The substantial majority of these balances are subject to
the plan of reorganization. Adjustments between the carrying value and the
ultimate settlement amount will be recorded as adjustments to equity.

Included in interest expense for the year ended December 31, 1999 is
$4,279,000 of amortization and write-offs of unamortized debt issue costs
(1998 -- $25,018,000, 1997 -- $6,387,000). In 1999, unamortized debt issue costs
applicable to debt which is subject to compromise of $21,730,000 was charged to
reorganization costs (see Note 11).

Maturities of long-term debt which are not subject to compromise are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31
--------------
<S> <C>
2000................................................ $17,073
2001................................................ 19,720
2002................................................ 8,094
2003................................................ 5,957
2004................................................ 9,798
Thereafter.......................................... 21,391
-------
$82,033
=======
</TABLE>

NOTE 4. DISPOSITIONS AND ACQUISITIONS

(a) DISPOSITIONS

In 1999, the Company sold 124 cemeteries and three funeral homes to an
investor group (see Note 19) for gross proceeds of $149,769,000, before purchase
price adjustments and transaction costs, resulting in a pre-tax loss of
$1,122,000. An impairment charge of $301,605,000, relating to these properties,
was recorded in 1998 (see Note 12). The assets and liabilities disposed of were
$201,107,000 and $67,867,000 respectively. Concurrently, an affiliate of LGII
sold related accounts receivable, at their carrying value of $43,231,000, to the
same investor group.

(b) ACQUISITIONS

In 1998, the Company acquired 62 funeral homes and 62 cemeteries for cash of
$236,737,000, debt of $20,538,000 and Common shares of the Parent Company in the
amount of $1,085,000. All of the Company's acquisitions have been accounted for
by the purchase method. In 1998, the Company acquired assets and liabilities of
$363,577,000 and $105,217,000 respectively.

98
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 4. DISPOSITIONS AND ACQUISITIONS (CONTINUED)
beginning of the respective years presented. Appropriate adjustments have been
made to reflect the accounting basis used in recording the acquisitions. This
pro-forma information does not purport to be indicative of the results of
operations that would have resulted had the acquisitions and dispositions been
in effect for the entire years presented, and is not intended to be a projection
of future results or trends.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1999 1998
--------- ----------
<S> <C> <C>
Revenue..................................................... $ 871,389 $1,086,401
Net loss.................................................... $(478,565) $ (649,033)
</TABLE>

NOTE 5. INVESTMENTS

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
4103 Investments Ltd. ("4103").............................. $ -- $ --
Prime Succession Holdings, Inc. ("Prime")................... -- --
Rose Hills Holdings Corp. ("Rose Hills").................... -- --
TLGI Management Corp.
70,586,000 Preferred shares representing 40.34%........... 28,626 28,626
Other....................................................... 1,507 1,619
------- -------
$30,133 $30,245
======= =======
</TABLE>

(a) 4103 INVESTMENTS

In March 1997, the Company transferred 100 Common shares and 6,668 Preferred
shares in Prime at their carrying value of $72,279,000 to 4103 Investments, a
Canadian company under common control. The Company also transferred 100 Common
shares and 6,300 Preferred shares in Rose Hills at their carrying value of
$65,976,000 to 4103 Investments. In exchange, the Company received 189,475,132
Class B non-voting Common shares representing 48.68% of 4103 Investments common
shares. 4103 Investments cannot declare dividends on the Class A voting Common
shares without first paying an equal dividend on the Class B Common shares.

On November 25, 1998, the Company's investment became a joint venture when
the Company received, as a capital contribution 1,000 Class A Common voting
shares of 4103 Investments, representing 50% of the voting rights, from the
Parent Company. Effective from that date, the Company has accounted for its
investment in 4103 Investments common shares by the proportionate consolidation
method. The net loss recorded by 4103 Investments subsequent to November 25,
1998 was $205,944,000, which included an investment impairment charge of
$209,323,000. Prior to November 25, 1998, the Company accounted for its
investment in 4103 Investments by the equity method. Accordingly, the Company's
proportionate share of the assets and liabilities are reflected in the Company's
balance sheet at December 31, 1999 and 1998. For the period to November 25,
1998, equity income of $14,107,000 (1997 -- income of $10,659,000) was recorded
which includes $4,455,000 of income related to equity earnings from Prime and
Rose Hills.

99
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 5. INVESTMENTS (CONTINUED)
Summarized financial data for 4103 Investments is presented as follows:

<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Income statement information:
Earnings before income taxes and equity loss of associated
company................................................. $ 4,001 $ 35,147
Net earnings (loss)....................................... (16,394) (176,965)

Balance sheet information:
Current assets............................................ $ -- $ --
Non-current assets........................................ 91,029 111,425
-------- ---------
Total assets.............................................. 91,029 111,425

Current liabilities....................................... 49 49
Non-current liabilities................................... -- --
-------- ---------
Total liabilities......................................... 49 49

Shareholders' equity...................................... 90,980 111,376
</TABLE>

(b) PRIME

The Company owns 163.0475 shares of Prime Succession Holdings Inc. ("Prime")
common stock, representing 16.67% of Prime's voting common stock, and 48.68% of
Prime's non-voting preferred stock, with a 10% cumulative annual payment-in-kind
dividend. Blackstone Capital Partners II Merchant Banking Fund L.P. and certain
affiliates (together, "Blackstone") owns 764.7059 shares of Prime common stock,
representing 78.2% of Prime's voting common stock. The remaining 5.13% of
Prime's voting common stock and 51.32% of Prime's non-voting preferred stock are
owned by a company affiliated with LGII.

Prime holds all of the outstanding common shares of Prime Succession, Inc.,
an operator of funeral homes and cemeteries in the United States. Prime
Succession, Inc. was purchased on August 26, 1996 for approximately $320,000,000
of which $52,000,000 was funded by Blackstone and $78,000,000 by the Company,
and $190,000,000 was financed through bank borrowings and the issuance of senior
subordinated notes. The excess of the purchase price over the fair value of net
assets of approximately $230,000,000, was established as goodwill in Prime
Succession, Inc. and is being amortized over 40 years.

100
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 5. INVESTMENTS (CONTINUED)
The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of approximately 12x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.

Upon a Call, Blackstone is entitled to receive at a minimum, its original
investment plus a 24.1% compound return per annum thereon regardless of the
calculated equity value. Any additional equity value attributable to Blackstone
common stock interest will be determined on the basis of a formula set forth in
the Put/Call Agreement. Upon a Put by Blackstone, there is no guaranteed return
to Blackstone. Any payment to Blackstone is limited to Blackstone's share of the
calculated equity value based on a formula set forth in the Put/Call Agreement.

In addition, the Company estimated the expected Put option price on the
sixth anniversary, the first date the Put option becomes exercisable by
Blackstone, based on the Company's best estimate of EBITDA and debt at that time
and the relevant formula in the Put/Call Agreement. The Company accrued a
contingent loss at December 31, 1998 based upon the difference between the
estimated Put option price and the Company's estimate of the fair value of
Blackstone's equity in Prime which is based in part on prevailing market
conditions. In the fourth quarter of 1999, due to the performance of Prime and
the reduced market values and performance of other industry participants, the
Company re-assessed the estimates of EBITDA and debt at the first date the Put
option becomes exercisable by Blackstone. Based upon changes to the estimates of
the expected Put option price and the fair value of Blackstone's equity in
Prime, the Company reduced the accrual of its contingent loss as at
December 31, 1999. Such amount could change based on changes in the estimated
future value of the business. The respective contingent liability has been
recorded in "Other liabilities," (Note 17). In 1999, 1998 and 1997, the Company
recognized loss of $(1,392,000) $(3,100,000) and $(133,000), respectively,
applicable to its investment in Prime, excluding the investment impairments and
contingent losses.

101
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 5. INVESTMENTS (CONTINUED)
The latest available annual financial data reported by Prime was:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Income statement Information
Revenue................................................... $ 98,005 $101,139
Gross margin.............................................. 32,293 38,616
Earnings from operations.................................. 17,595 24,123
Payment-in-kind dividend.................................. 7,226 6,542
Net loss attributable to common shareholders.............. (14,524) (6,739)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information
Total assets.............................................. $391,122 $395,106
Total liabilities......................................... 272,012 268,698
Shareholders' equity...................................... 119,110 126,408
</TABLE>

The Company owns 153.2143 shares of Rose Hills Holdings Corp. ("Rose Hills")
common stock, representing 15.32% of Rose Hills' voting common stock, and 62.4%
of Rose Hills non-voting preferred stock, with a 10% cumulative annual
payment-in-kind dividend. Blackstone owns 795.4546 shares of Rose Hills common
stock, representing 79.55% of Rose Hills' voting common stock. The remaining
5.13% of Rose Hills' voting common stock and 37.6% of Rose Hills' non-voting
preferred stock are owned by a company affiliated with LGII.

Blackstone and the Company have the right to designate five and three
nominees, respectively, to the Rose Hills' Board of Directors. Blackstone
controls the strategic operating, investing and financing policies of Rose
Hills. Neither Blackstone nor the Company can, without the consent of the other
party, sell or transfer its shares in Rose Hills to a party other than to an
affiliate of itself.

102
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 5. INVESTMENTS (CONTINUED)
commencing on the sixth anniversary of the acquisition, and for a period of two
years thereafter, at a price determined pursuant to the Put/Call Agreement.

The prices for the Call and the Put are based on a formula that calculates
the equity value attributable to Blackstone's common share interest. The
calculated equity value is determined at the Put or Call date based on a
multiple of approximately 14x earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the previous year, after deduction of certain
liabilities. Any payment to Blackstone under the Call or the Put may be in the
form of cash and/or Common shares of the Company, at the Company's option,
subject to certain conditions.

Prior to the fourth quarter of 1998, the Company evaluated the exercise of
the Call on the fourth anniversary date as likely. Due to liquidity concerns of
the Company, the performance of Rose Hills and the reduced market values for the
Company's and other industry participants' stock, the Company has determined the
exercise of the Call on the fourth anniversary as unlikely and the exercise of
the Put as likely. Accordingly, in 1998 the Company assessed that its investment
had suffered a decline in value that was other than temporary and wrote down its
investment based on an assumed distribution of Rose Hills' shareholders' equity
at December 31, 1998 taking into account Blackstone's return under the Put. No
further write down was made in 1999. As at December 31, 1999 and 1998, the
carrying value of the Company's investment in Rose Hills was $27,452,000.

103
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 5. INVESTMENTS (CONTINUED)
reduced market values and performance of other industry participants, the
Company re-assessed the estimates of EBITDA and debt at the first date the Put
option becomes exercisable by Blackstone. Based upon changes to the estimates of
the expected Put option price and the fair value of Blackstone's equity in Rose
Hills, the Company increased the accrual of the contingent loss as at
December 31, 1999. Such amount could change based on changes in the estimated
future value of the business. The respective contingent liability has been
recorded in Other Liabilities, net of the carrying value of Rose Hills (see
Note 17). In 1999, 1998 and 1997, the Company recognized income of nil,
$3,699,000 and $1,023,000, respectively, applicable to its investment in
Rose Hills, excluding the investment impairment and contingent loss in 1998.

The latest available annual financial data reported by Rose Hills was:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Income statement Information
Revenue................................................... $ 83,577 $ 70,645
Gross margin.............................................. 69,814 59,900
Earnings from operations.................................. 19,538 14,738
Payment-in-kind dividend.................................. 9,568 8,708
Net loss attributable to common shareholders.............. (8,534) (10,476)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1998 1997
-------- --------
<S> <C> <C>
Balance sheet information
Total assets.............................................. $321,933 $312,598
Total liabilities......................................... 193,641 185,340
Shareholders' equity...................................... 128,292 127,258
</TABLE>

(d) TLGI MANAGEMENT CORP

The Company owns 70,586,000 Class A redeemable preferred shares of TLGI
Management Corp., a Canadian subsidiary of the Parent Company that owns and
operates funeral homes in Canada. In December 1998, the Company recorded its
share of an impairment charge against its preferred share investment in TLGI
Management Corp. of $41,960,000.

104
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 6. INSURANCE INVESTED ASSETS

Maturities of fixed maturity securities, excluding mortgage-backed
securities and collateralized mortgage obligations, are estimated as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------- -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 4,770 $ 4,387 $ 6,853 $ 6,746
Due in one to five years.................... 20,656 19,663 25,667 25,801
Due in five to ten years.................... 66,819 62,527 67,598 69,049
Thereafter.................................. 103,880 92,881 72,843 73,209
-------- -------- -------- --------
$196,125 $179,458 $172,961 $174,805
======== ======== ======== ========
</TABLE>

The Company's mortgage-backed securities and collateralized mortgage
obligations consist of:

105
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 7. PRE-ARRANGED FUNERAL SERVICES

<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Short-term investments...................................... $105,170 $ 94,043
Fixed maturities............................................ 150,242 137,482
Mutual funds................................................ 10,148 1,419
Equity securities........................................... 61,284 65,268
Insurance policies held by trust............................ 44,833 52,844
Other....................................................... 844 905
-------- --------
$372,521 $351,961
======== ========
</TABLE>

NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS

(a) SWAP AGREEMENTS AND INTEREST RATE OPTIONS

The Company entered into swap agreements and interest rate options with a
number of different commercial banks and financial institutions to manage
its interest rate exposure on fixed rate long-term debt. At December 31,
1999, no such agreements were outstanding.

(b) FAIR VALUE OF FINANCIAL INSTRUMENTS

106
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- -----------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Pre-arranged funeral services.............. $372,521 $375,816 $ 351,961 $ 353,696
Insurance invested assets.................. 281,423 263,300 266,661 271,503
Long-term receivables:
Practicable to estimate fair value....... 395,155 407,262 391,842 399,943
Not practicable to estimate fair value... 78,991 n/a 112,453 n/a

Financial liabilities not subject to
compromise:
Long-term debt............................. $ 82,033 82,033 $2,083,491 $1,856,123
Preferred securities of a subsidiary
(Note 3)................................. n/a n/a 75,000 57,938
</TABLE>

Due to the Chapter 11 filings, calculation of fair values for long-term
debt, the preferred securities of a subsidiary and other liabilities subject
to compromise cannot be determined as at December 31, 1999. As detailed in
Note 3, the majority of the Company's long-term debt and the preferred
securities of a subsidiary became subject to compromise effective June 1,
1999.

The 1999 fair value of long-term debt approximates its carrying value. The
1998 fair value of long-term debt subject to fixed interest rates 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 1998
fair value of long-term debt subject to floating market rates approximated
its carrying value. The 1998 fair value of the preferred securities of a
subsidiary was estimated based upon quoted market prices.

107
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 9. SHARE CAPITAL

(a) AUTHORIZED

3,000 Common shares with a par value of $0.01

(b) ISSUED AND OUTSTANDING

<TABLE>
<CAPTION>
NUMBER OF
SHARES STATED VALUE
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common shares............................................. 1,521 1,521 $ -- $ --
Contributed surplus....................................... 554,289 526,058
-------- --------
$554,289 $526,058
======== ========
</TABLE>

During 1999, the Parent Company contributed capital of $28,231,000 to
the Company.

NOTE 10. LEGAL CONTINGENCIES

BANKRUPTCY FILINGS

On June 1, 1999, the Company and each of approximately 850 United States
subsidiaries filed a voluntary petition for creditor protection and to
reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court for the District of Delaware (the "U.S. Bankruptcy Court"). The filings
subsequently were consolidated for joint administration (IN RE: LOEWEN GROUP
INTERNATIONAL, INC., ET AL., No. 99-1244).

SECURITIES CLASS ACTIONS

Since December 1998, The Loewen Group Inc. (the "Parent Company") has been
served with various related lawsuits filed in the United States District Courts
for the Eastern District of Pennsylvania and for the Eastern District of New
York. Raymond L. Loewen, the former Chairman and Chief Executive Officer, and
certain current and former officers and directors have been named as defendants
in some of the suits. All but one of these lawsuits were filed as purported
class actions on behalf of persons or entities that purchased the Parent
Company's Common shares during five different time periods ranging from
November 3, 1996 through January 14, 1999. The Company and Loewen Group
Capital, L.P. ("LGC") are named as defendants in two suits (with the Parent
Company, the "Loewen Defendants"). The plaintiffs in these two lawsuits purport
to sue on behalf of a class of purchasers of MIPS from March 5, 1997 through
January 14, 1999. The MIPS were issued by LGC.

108
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
The complaints generally make allegations concerning, among other things,
the Parent Company's and the Company's internal controls, accounting practices,
financial disclosures and acquisition practices.

FELDHEIM ET AL. V. SI-SIFH CORP. ET AL. AND DUFFY ET AL. V. SI-SIFH CORP ET AL.

Two complaints were filed in 1997 on behalf of individuals who claim damages
in connection with funeral insurance policies allegedly issued to them by
insurance companies owned, directly or indirectly, by S.I. Acquisition
Associates, L.P. ("S.I."). The Company acquired the assets but not the stock of
S.I. in March 1996. In January 1997, Elmer C. Feldheim and four other
individuals filed a lawsuit seeking a class action on behalf of themselves and a
class of similarly situated individuals and/or entities against SI-SIFH Corp.,
SI-SI Insurance Company, Inc., Loewen Louisiana Holdings, Inc., and the Company
in the Parish of Jefferson, State of Louisiana. Plaintiffs seek a class action.
SI-SIFH Corp. and SI-SI Insurance Company, Inc. are affiliates of S.I.

In June 1997, Lloyd Duffy, Sr. and four other individuals filed a lawsuit
seeking a class action on behalf of themselves and a class of similarly situated
individuals and/or entities against SI-SIFH Corp., SI-SI Insurance
Company, Inc., Loewen Louisiana Holdings, Inc., and the Company in the Parish of
Orleans, State of Louisiana. The DUFFY complaint was filed by the same lawyers
who filed the complaint in the FELDHEIM case, and is a virtually identical copy
of the FELDHEIM complaint. The DUFFY case is pending in the trial court and, as
of the date hereof, no discovery has taken place.

109
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
On June 13, 1997, the district court in Jefferson Parish dismissed the
FELDHEIM plaintiffs' claim to a class action, and the plaintiffs appealed. On
June 30, 1998, the Louisiana Fifth Circuit Court of Appeal affirmed the
dismissal of the FELDHEIM plaintiffs' class-action claims.

Following various rulings on the DUFFY lawsuit in the trial court, on
January 6, 1999, the Fourth Circuit Court of Appeal dismissed the action. On
February 5, 1999 the DUFFY plaintiffs filed an application for writ of
certiorari with the Louisiana Supreme Court. On April 30, 1999, the Louisiana
Supreme Court denied the writ application and thereby declined to review the
Court of Appeal's dismissal of plaintiffs' class action allegations.

LUENING, ET AL. V. SI-SIFH CORP., ET AL.

In June 1998, Warren S. Luening and four other individuals filed a lawsuit
seeking a class action on behalf of themselves and a class of similarly situated
individuals and/or entities against SI-SIFH Corp, SI-SI Insurance
Company, Inc., Loewen Louisiana Holdings, Inc., and the Company in the Parish of
St. Bernard, State of Louisiana. Defendants in this case are the same entities
against whom complaints were filed in Jefferson Parish, Louisiana (the FELDHEIM
case) and in Orleans Parish, Louisiana (the DUFFY case), and, aside from the
addition of local counsel in St. Bernard Parish, the same lawyers who filed the
FELDHEIM and DUFFY complaints filed the LUENING complaint.

On February 3, 1999, the state court ruled that the dismissal of the class
action claims in the FELDHEIM and DUFFY cases did not operate to bar the
particular sub-class of potential plaintiffs identified in LUENING. On March 25,
1999, the Fourth Circuit reversed the trial court, while recognizing that
individual plaintiffs' claims could proceed in St. Bernard Parish. On March 29,
1999 the LUENING plaintiffs filed an application for writ of certiorari with the
Louisiana Supreme Court. On April 30, 1999, the Louisiana Supreme Court denied
the writ application and thereby declined to review the Court of Appeal's
dismissal of plaintiffs' class action allegations.

The Company has determined that it is not possible to predict the final
outcome of this legal proceeding, and it is not possible to establish a
reasonable estimate of possible damages, if any, or

110
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
reasonably to estimate the range of possible damages that may be awarded to
plaintiffs. Accordingly, no provision with respect to this lawsuit has been made
in the Company's consolidated financial statements.

F. LEO GROFF, INC. ET AL. V. RESTLAWN MEMORIAL GARDENS, INC. ET AL.

This action (No. 96-CV-397, Court of Common Pleas, Erie County, Ohio) was
served on the Company and other defendants on September 19, 1996. Plaintiffs
allegedly compete with defendants Restlawn Memorial Park Association, Restlawn
Memorial Gardens, Inc., and Sinfran, Inc., which were acquired by the Company.
Plaintiffs allege thirteen counts, including counts alleging that defendant
Restlawn engaged in false and deceptive advertising, misused confidential
information, defamed plaintiffs, breached contractual obligations,
misappropriated trade secrets, and tortiously interfered with plaintiffs'
contractual relationships. Plaintiffs further allege that the Company knew or
should have known of Restlawn's conduct and adopted and continued Restlawn's
alleged unfair, false, and deceptive practices. Plaintiffs also allege that the
defendants conspired to destroy the plaintiffs' business and created a "trust in
order to prevent competition" in violation of Ohio's antitrust laws. Plaintiffs
seek compensatory damages, which are unspecified but alleged to exceed $350,000;
punitive damages, which are unspecified but alleged to exceed $300,000; and
injunctive relief. Defendants' summary judgment motion was denied as to all but
one of plaintiffs' counts. A trial set for July 12, 1999 was stayed as a result
of the bankruptcy proceedings, and no new trial date has been set.

The Company has determined that it is not possible at this time to predict
the final outcome of these proceedings or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiffs. Accordingly, no provision with
respect to this lawsuit has been made in the Company's Consolidated Financial
Statements.

FLANAGAN V. THE LOEWEN GROUP INC., ET AL.

In December 1998, Honorine T. Flanagan filed a complaint in the Superior
Court of the State of California in the County of Los Angeles against the Parent
Company and the Company. The matter was subsequently removed to federal court
based on diversity jurisdiction, and it is now pending in the United States
District Court in the Central District of California.

In 1995, Ms. Flanagan and her husband John Flanagan (now deceased) sold
their mausoleum and mortuary business to the Company for cash and Loewen stock.
Ms. Flanagan's complaint contains causes of action for breach of contract in
connection with the share purchase agreement and in connection with employment
and consulting agreements entered into at the time of the Share Purchase
Agreement. Additionally, Ms. Flanagan alleges causes of action for intentional
and negligent misrepresentation and declaratory relief.

Ms. Flanagan estimates that her damages as a result of the alleged breaches
and misrepresentations are not less than $5,000,000. Further, Ms. Flanagan seeks
punitive damages in an unspecified sum. On the declaratory relief cause of
action, Ms. Flanagan seeks a declaration that she is to be reimbursed for her
losses pursuant to the indemnity provision contained in the share purchase
agreement. She also seeks a declaration that until she is indemnified for her
losses she is not obligated to transfer property that the Company has the option
to purchase for a specified price pursuant to the share purchase agreement.

111
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 10. LEGAL CONTINGENCIES (CONTINUED)
The Company has determined that it is not possible at this time to predict
the final outcome of this proceeding or to establish a reasonable estimate of
possible damages, if any, or reasonably to estimate the range of possible
damages that may be awarded to the plaintiff. Accordingly, no provision with
respect to this lawsuit has been made in the Company's consolidated financial
statements.

THE LOEWEN GROUP INC. ET AL. V. THE UNITED STATES OF AMERICA

In October 1998, the Parent Company and Raymond L. Loewen, the then-Chairman
and Chief Executive Officer of the Company, filed a claim against the United
States government for damages under the arbitration provisions of the North
American Free Trade Agreement ("NAFTA"). The claimants contend that they were
damaged as a result of breaches by the United States of its obligations under
NAFTA in connection with certain litigation in the State of Mississippi entitled
O'KEEFE VS. THE LOEWEN GROUP INC. Specifically, the plaintiffs allege that they
were subjected to discrimination, denial of the minimum standard of treatment
guaranteed by NAFTA and uncompensated expropriation, all in violation of NAFTA.
The Company has determined that it is not possible at this time to predict the
final outcome of this proceeding or to establish a reasonable estimate of the
damages, if any, that may be awarded to the Company.

OTHER

NOTE 11. REORGANIZATION AND RESTRUCTURING COSTS

(a) REORGANIZATION COSTS

During 1999, the Company incurred the following pre-tax charges for costs
associated with reorganizing its affairs under the protection of Chapter 11 as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
Executory contracts......................................... $26,483
Deferred debt issue costs written off....................... 21,730
PATS option liability recorded.............................. 9,760
Key Employee Retention Plan costs........................... 3,998
Professional fees and other costs........................... 23,753
-------
$85,724
=======
</TABLE>

112
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 11. REORGANIZATION AND RESTRUCTURING COSTS (CONTINUED)
In September 1999, the Bankruptcy Courts approved the Key Employee Retention
Plan, a long-term agreement structured to ensure that appropriate employee
levels and expertise are retained during the reorganization process (see
Note 13).

(b) RESTRUCTURING COSTS

During 1997, the Company recorded pre-tax charges of $31,000,000, for
restructuring associated with the Company's efforts to more fully integrate its
field and administrative operations and improve long-term financial performance.
The restructuring charges primarily consisted of $19,000,000 for severance,
$7,500,000 for the closure of a corporate office and $4,100,000 of asset
write-downs.

NOTE 12. IMPAIRMENT OF ASSETS

During 1999, as a result of the Company's bankruptcy filings and operating
performance decline, the Company conducted extensive reviews of each of its
operating locations. The reviews also resulted in the identification of 371
locations as probable for sale. In January 2000, the Bankruptcy Courts approved
the Company's proposed disposition process for the locations identified. A
further 54 locations are anticipated to be merged with existing locations. As a
result of these reviews, the Company recorded a pre-tax asset impairment
provision of $335,531,000. In calculating the asset impairment provision, the
Company used estimated cash flow from operations and for the locations
identified as probable for sale, used estimated cash proceeds on the anticipated
sale of these properties. The asset impairment provision has reduced cemetery
property by $256,875,000, names and reputations by $75,656,000 and funeral
property by $3,000,000.

In December 1998, the Company recorded a pre-tax asset impairment provision
of $301,605,000 on certain properties. In calculating the asset impairment
provision, the Company used estimated cash flow from operations and estimated
cash proceeds on the sale of these properties. The asset impairment provision
reduced cemetery property by $295,957,000, property and equipment by $2,284,000
and names and reputations by $3,364,000. This provision was applicable to the
sale of 124 cemeteries and three funeral homes. In March 1999, these properties
were sold for gross proceeds of $149,769,000, before purchase price adjustments
and transaction costs. In June 1999, the Company recorded an additional pre-tax
asset impairment provision of $15,112,000 applicable to other properties
identified in December 1998.

113
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 13. COMMITMENTS AND CONTINGENCIES

(a) KEY EMPLOYEE RETENTION PLAN

In September 1999, the Bankruptcy Courts approved the Key Employee Retention
Plan ("KERP") a long-term agreement structured to ensure that appropriate
employee levels and expertise are retained during the reorganization process.
The KERP is comprised of four separate components: a Retention Incentive Plan, a
Performance Incentive Plan, a Confirmation Incentive Plan and a Severance Plan.
The KERP supercedes previous employee arrangements, including the Executive
Severance Arrangements. Pre-tax costs incurred in 1999 under the KERP amounted
to $3,998,000. The maximum amount which could be incurred under the Retention
Incentive Plan, the Performance Incentive Plan and the Confirmation Incentive
Plan has been estimated at approximately $24,521,000.

(b) LEASES

The Company is committed to operating lease payments for premises,
automobiles and office equipment in the following approximate amounts:

<TABLE>
<CAPTION>
DECEMBER 31
------------
<S> <C>
2000........................................................ $ 9,656
2001........................................................ 8,541
2002........................................................ 7,860
2003........................................................ 6,466
2004........................................................ 5,665
Thereafter.................................................. 35,248
</TABLE>

Total expense incurred under these operating leases for the year ended
December 31, 1999 was $15,998,000, (1998 -- $13,462,000), (1997 -- $15,258,000).

In connection with various acquisitions, the Company has entered into
non-competition agreements ("covenants not to compete") with certain key
management personnel of operations acquired. The Company's payments under the
agreements may be made at closing or over future periods and are expensed over
the terms of the specific contracts. During 1999, the Company suspended payments
applicable to the agreements which the Company has elected to reject (see
Note 3). The agreements for

114
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
which payments have not been suspended will result in future payments in the
following approximate amounts:

(d) ENVIRONMENTAL CONTINGENCIES AND LIABILITIES

(e) CONTINGENCY RELATED TO POTENTIAL PURCHASE OF INVESTMENTS

The Company has identified and accrued for contingent losses arising from
the potential exercise of the Put/Call Agreements in connection with its
investments in Prime and Rose Hills (see Note 5).

115
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 14. RETIREMENT PLANS

The Company has a defined contribution retirement plan covering
substantially all United States employees. There are no required future
contributions under this plan in respect of past service. The Company has a
401(K) Retirement Savings Plan for United States employees who may defer between
2% and 15% of eligible compensation. The Company will match 100% of employee
contributions to a maximum of 2% of employees' eligible compensation.

The total expense for the retirement plan for the three years ended
December 31, 1999 was $1,912,000, $2,622,000 and $2,356,000 respectively.

NOTE 15. INCOME TAXES

(a) EFFECTIVE TAX RATE

The Company's effective income tax rate is derived as follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
% % %
<S> <C> <C> <C>
Combined United States federal and state income tax rate.... (40.0) (40.0) (40.0)
Non-deductible amortization and write down of goodwill
arising from acquisitions................................. 4.7 0.8 3.9
Non-deductible restructuring and other charges.............. 1.4 0.1 0.6
Change in valuation allowance on future tax assets.......... 22.0 15.5 7.8
Other....................................................... 3.1 1.9 5.2
----- ----- -----
(8.8) (21.7) (22.5)
===== ===== =====
</TABLE>

116
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 15. INCOME TAXES (CONTINUED)

(b) FUTURE TAX ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Future tax liabilities:
Long-term receivables..................................... $ 91,633 $ 62,563
Cemetery property......................................... 193,543 303,145
Property and equipment.................................... 56,251 54,149
Names and reputations..................................... -- 633
Insurance policy liabilities.............................. 16,440 18,905
Other..................................................... 16,722 13,902
--------- ---------
Total future tax liabilities.............................. 374,589 453,297
--------- ---------
Future tax assets:
Accounts payable and accrued liabilities.................. 13,303 16,206
Cemetery long-term liabilities............................ 39,759 34,649
Legal settlements......................................... 14,454 15,517
Insurance assets.......................................... 13,500 15,149
Names and reputations..................................... 16,767 --
Interest.................................................. 173,068 150,614
Unrealized losses on investments in Prime and
Rose Hills.............................................. 113,165 101,842
Deferred costs related to pre-arranged funeral services... 7,417 14,813
Operating and capital loss carryforwards.................. 87,376 41,795
Other..................................................... 24,357 9,032
--------- ---------
Total future tax assets before valuation allowance........ 503,166 399,617
Valuation allowance....................................... (249,975) (137,603)
--------- ---------
Total future tax assets after valuation allowance......... 253,191 262,014
--------- ---------
Net future tax liabilities................................ $ 121,398 $ 191,283
========= =========
</TABLE>

117
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 16. CHANGES IN OTHER NON-CASH BALANCES

Supplemental disclosures related to statements of cash flows consist of the
following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Decrease (increase) in assets:
Receivables, net of allowances
Trade................................................... $ (21,010) $ 20,279 $ 8,945
Other................................................... (45,464) -- --
Inventories............................................... (287) 565 (689)
Prepaid expenses.......................................... (3,578) 1,771 1,627
Amounts receivable from cemetery merchandise trusts....... (92,644) (98,114) (89,893)
Installment contracts, net of allowances.................. (37,078) (119,759) (143,599)
Cemetery property......................................... (4,934) (47,286) (31,045)
Other assets.............................................. (2,332) (19,327) (49,135)

Increase (decrease) in liabilities, including certain
liabilities subject to compromise:
Accounts payable and accrued liabilities.................. 18,964 9,684 40,232
Other liabilities......................................... 10,525 8,597 10,900
Cemetery long-term liabilities............................ 11,239 (15,448) 19,261
Insurance policy liabilities.............................. 17,287 22,935 5,786

Other changes in non-cash balances.......................... 9,634 12,946 (1,914)
--------- --------- ---------
$(139,678) $(223,157) $(229,524)
========= ========= =========
Supplemental information:
Interest paid............................................. $ 73,333 $ 160,012 $ 88,796
Taxes paid................................................ 2,442 80 33,067
Bad debt expense.......................................... 8,003 13,430 11,406

Non-cash investing and financing activities:
Non-cash debt and share consideration on acquisitions..... $ -- $ 21,623 $ 58,068
Note receivable from sale of subsidiary................... -- -- 15,725
Exchange of common and preferred shares of Prime and Rose
Hills for shares of 4103 Investments.................... -- -- 138,255
Increase in loans and advances from affiliates in
consideration for share issuances....................... -- 38,544 185,250
</TABLE>

118
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 17. SUPPLEMENTARY FINANCIAL INFORMATION

A summary of certain balance sheet accounts is as follows:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1999 1998
--------- ----------
<S> <C> <C>
Receivables, net of allowances:
Trade accounts............................................ $ 29,011 $ 46,593
Allowance for doubtful accounts........................... (9,684) (14,150)
Other..................................................... 35,671 28,458
Installment contracts..................................... 70,453 50,001
Unearned finance income................................... (5,631) (7,884)
Allowance for contract cancellations and refunds.......... (7,567) (6,434)
--------- ----------
$ 112,253 $ 96,584
========= ==========
Long-term receivables, net of allowances:
Notes receivable.......................................... $ 8,433 $ 11,942
Amounts receivable from cemetery merchandise trusts....... 411,620 409,907
Installment contracts..................................... 83,507 116,973
Unearned finance income................................... (13,701) (19,147)
Allowance for contract cancellations and refunds.......... (15,713) (15,380)
--------- ----------
$ 474,146 $ 504,295
========= ==========
Cemetery property:
Developed land and lawn crypts............................ $ 168,789 $ 206,743
Undeveloped land.......................................... 661,854 889,257
Mausoleums................................................ 83,667 130,358
--------- ----------
$ 914,310 $1,226,358
========= ==========
Property and equipment:
Land...................................................... $ 147,535 $ 145,674
Buildings and improvements................................ 477,231 479,097
Automobiles............................................... 84,229 69,346
Furniture, fixtures and equipment......................... 120,744 132,775
Computer hardware and software............................ 22,609 26,510
Leasehold improvements.................................... 15,501 13,818
Accumulated depreciation and amortization................. (188,763) (154,225)
--------- ----------
$ 679,086 $ 712,995
========= ==========
Names and reputations:
Names and reputations..................................... $ 701,707 $ 698,009
Covenants not to compete.................................. 81,753 81,070
Accumulated amortization.................................. (202,484) (100,503)
--------- ----------
$ 580,976 $ 678,576
========= ==========
</TABLE>

119
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 17. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1999 1998
--------- ----------
<S> <C> <C>
Other assets:
Deferred debt issue costs................................. $ 3,035 $ 21,137
Deferred direct obtaining costs........................... 99,716 97,254
Cemetery management contracts............................. 12,614 13,413
Other..................................................... 8,253 19,512
--------- ----------
$ 123,618 $ 151,316
========= ==========
Accounts payable and accrued liabilities:
Trade payables............................................ $ 25,849 $ 38,852
Interest.................................................. 3,791 34,727
Insurance, property and business taxes.................... 4,565 5,593
Other..................................................... 52,835 71,240
--------- ----------
$ 87,040 $ 150,412
========= ==========
Other liabilities:
Cemetery long-term liabilities............................ $ 172,935 $ 202,267
Accrual for contingent loss (see Note 5).................. 206,979 155,338
Covenants not to compete.................................. 18,695 20,540
Regional partnership liabilities.......................... 9,265 9,836
Participants' deposits in MEIP............................ -- 5,120
Other..................................................... 24,871 21,218
--------- ----------
$ 432,745 $ 414,319
========= ==========
</TABLE>

NOTE 18. SEGMENTED INFORMATION

The Company's reportable segments are comprised of the three businesses it
operates, each of which offers different products and services: funeral homes,
cemeteries and insurance.

The insurance companies sell a variety of life insurance products, primarily
to fund pre-arranged funeral services. The funeral home companies sell insurance
contracts on behalf of the Company's

120
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 18. SEGMENTED INFORMATION (CONTINUED)
insurance operations for which they receive commission revenue. In 1999, the
inter-company commissions amounted to $4,554,000 and were eliminated in the
Company's consolidated financial statements (1998 -- $3,717,000, 1997 -- nil).

<TABLE>
<CAPTION>
FUNERAL CEMETERY INSURANCE OTHER CONSOLIDATED
---------- ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenue earned from external sales:
1999................................ $ 537,062 $ 314,534 $ 94,101 $ -- $ 945,697
1998................................ 559,217 416,823 96,516 -- 1,072,556
1997................................ 536,926 408,196 89,977 -- 1,035,099
Earnings (loss) from operations:
1999................................ $ 41,811 $ (246,510) $ 20,343 $(67,100) $ (251,456)
1998................................ 113,608 (262,366) 16,472 (84,802) (217,088)
1997................................ 126,865 70,709 16,508 (93,460) 120,622
Investment revenue (included in
earnings (loss) from operations):
1999................................ $ 1,491 $ 42,778 $ 19,450 $ 720 $ 64,439
1998................................ 3,197 33,602 21,351 1,590 59,740
1997................................ 5,354 28,647 23,518 275 57,794
Depreciation and amortization:
1999................................ $ 54,499 $ 10,604 $ 31 $ 5,631 $ 70,765
1998................................ 56,146 10,668 31 9,380 76,225
1997................................ 45,531 7,391 36 3,400 56,358
Total assets:
1999................................ $1,700,601 $1,576,398 $290,398 $ 83,940 $3,651,337
1998................................ 1,790,679 1,923,540 276,098 150,197 4,140,514
1997................................ 1,734,321 1,850,223 331,754 294,049 4,210,347
Capital expenditures:
1999................................ $ 18,461 $ 23,567 $ 190 $ 1,204 $ 43,422
1998................................ 64,845 25,574 420 3,448 94,287
1997................................ 83,381 52,893 208 6,807 143,289
</TABLE>

121
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Earnings (loss) from operations of funeral, cemetery and
insurance segments........................................ $(184,356) $(132,286) $214,082
Other expenses of operations:
General and administrative expenses....................... (61,469) (74,846) (58,252)
Restructuring costs....................................... -- -- (30,922)
Depreciation and amortization............................. (5,631) (9,380) (3,400)
Other..................................................... -- (576) (886)
--------- --------- --------
Total earnings (loss) from operations....................... $(251,456) $(217,088) $120,622
========= ========= ========
</TABLE>

The following table reconciles total assets of reportable segments and
details the components of "Other" segment assets which is mainly comprised of
corporate assets:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total assets of funeral, cemetery and insurance
segments............................................... $3,567,397 $3,990,317 $3,916,298
"Other" assets includes:
Cash................................................... 12,313 52,007 1,884
Receivables............................................ 14,788 16,233 41,359
Prepaid expenses....................................... 5,960 2,362 1,472
Long-term receivables, net of allowances............... 5,397 7,696 3,957
Investments............................................ 29,299 30,245 184,723
Property and equipment................................. 7,725 13,338 19,240
Names and reputations.................................. 3,548 4,358 4,766
Deferred debt issue costs.............................. 3,035 21,137 29,201
Other.................................................. 1,875 2,821 7,447
---------- ---------- ----------
83,940 150,197 294,049
---------- ---------- ----------
$3,651,337 $4,140,514 $4,210,347
========== ========== ==========
</TABLE>

122
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 19. RELATED PARTY TRANSACTIONS

During 1999, the Company entered into agreements, through a series of
transactions, to sell cemetery installment contract receivables to an affiliate
of the Company for $59,804,000 (1998 -- $112,861,000, 1997 -- $185,179,000)
resulting in a loss of $4,938,000, (1998 -- $11,189,000, 1997 -- $22,066,000),
and funeral home contract receivables for $29,605,000 (1998 -- $23,674,000,
1997 -- nil) resulting in a loss of $2,378,000 (1998 -- $1,903,000,
1997 -- nil).

For the year ended December 31, 1999, the Company paid management fees to
the Parent Company of $32,426,000 (1998 -- $23,264,000; 1997 -- $18,961,000).

During the year ended December 31, 1997, the Company paid approximately
$10,800,000 for insurance and other services to a related company. There were no
such expenditures in 1998 or 1999.

At December 31, 1999, current and former officers, directors and employees
of the Company were indebted to the Company for approximately $10,898,000
(1998 -- $10,400,000). As at December 31, an allowance of $7,952,000 has been
recorded against those amounts for former officers and employees
(1998 -- $3,261,000).

123
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES

(a) EARNINGS (LOSS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Net loss in accordance with Canadian GAAP................... $(465,797) $(635,912) $(78,750)
Less effects of differences in accounting for:
Provision for asset impairment (c)........................ (52,900) -- --
Factoring transactions (d)................................ (4,392) 604 12,314
Insurance operations (e).................................. (3,436) 2,833 1,701
Cost of start-up activities (f)........................... 404 2,302 --
--------- --------- --------
Net loss before cumulative effect of a change in
accounting principle...................................... (526,121) (630,173) (64,735)

Cumulative effect of adopting SOP 98-5 as of
January 1, 1998 (f)....................................... -- (3,940) --
--------- --------- --------
Net loss in accordance with U.S. GAAP....................... (526,121) (634,113) (64,735)

Other comprehensive income:
Foreign currency translations............................. (1,949) (7,968) --
Unrealized gains (losses) on securities:
Unrealized holding gains arising during the period, net of
deferred tax recovery (expense) of $5,157, $(8,354), and
$(5,992), respectively.................................. (8,066) 10,211 7,323
Less: reclassification adjustment for gains included in
net earnings............................................ (2,905) (8,486) (3,044)
--------- --------- --------
Comprehensive loss in accordance with U.S. GAAP............. $(539,041) $(640,356) $(60,456)
========= ========= ========
</TABLE>

124
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(b) BALANCE SHEET

The amounts in the consolidated balance sheet that materially differ from
those reported under Canadian GAAP are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- ---------------------------
CANADIAN UNITED STATES CANADIAN UNITED STATES
GAAP GAAP GAAP GAAP
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Assets
Receivables, net of allowances........... $ 112,253 $ 183,598 $ 96,584 $ 182,171
Long-term receivables, net of
allowances............................. 474,146 576,146 504,295 651,858
Cemetery property........................ 914,310 842,349 1,226,358 1,226,358
Names and reputations.................... 580,976 586,416 678,576 678,576
Insurance invested assets................ 281,423 263,960 266,661 270,809
Other assets............................. 123,618 151,209 151,316 176,984

Liabilities and Shareholders' Equity
(Deficiency)
Loans and advances from affiliates,
current portion........................ -- 64,707 227,841 288,824
Loans and advances from affiliates....... -- 82,324 784,369 926,666
Other liabilities........................ 432,745 430,110 414,319 409,392
Insurance policy liabilities............. 184,207 217,915 166,920 196,230
Future income tax liabilities............ 121,398 109,731 191,283 205,275
Share capital............................ 554,289 555,963 526,058 527,732
Deficit.................................. (1,288,969) (1,336,595) (823,172) (810,472)
Accumulated other comprehensive income:
Unrealized gains (losses) on securities
available for sale, net of tax....... -- (4,034) -- 6,937
</TABLE>

125
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
Under Canadian GAAP the pre-tax asset impairment provision of $350,643,000
in 1999 was determined on the basis of undiscounted cash flows. The incremental
effects resulting from the application of FAS 121 for U.S. GAAP purposes in 1999
was an additional pre-tax asset impairment provision of $67,022,000
(1998 -- nil).

(d) SALES OF RECEIVABLES

The Company adopted Financial Accounting Standard No. 125 ("FAS 125"),
"Accounting for Transfers and Servicing of Financial Assets", for transfers of
financial assets after December 31, 1996. Under FAS 125, the Company does not
recognize the sales of receivables until the transferred receivables are put
beyond the reach of the Company's creditors. The Company's cemetery installment
contract receivables have been sold to an affiliate whose capital stock is
pledged as collateral for the benefit of the Company's senior lenders, see
Note 3. Accordingly, for U.S. GAAP purposes, the Company continues to carry the
transferred receivables on its financial statements, the proceeds from the sales
of receivables have been reflected in loans and advances from affiliates and the
related losses are deferred and recognized as interest expense over the life of
the loan.

(e) INSURANCE OPERATIONS

PRESENT VALUE OF INSURANCE POLICIES

DEFERRED POLICY ACQUISITION COSTS

INSURANCE POLICY LIABILITIES

126
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(f) REPORTING ON THE COSTS OF START-UP ACTIVITIES

The AICPA issued Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") on April 3, 1998, to be effective for fiscal
years beginning after December 15, 1998. SOP 98-5 states that the costs of
start-up activities, including organization costs, should be expensed as
incurred. The Company elected early adoption of SOP 98-5 to be effective for the
year ended December 31, 1998, for U.S. GAAP purposes. Pursuant to SOP 98-5, in
1998 the Company wrote off the unamortized costs of start-up activities, which
are contained in "Other assets," as a change in accounting principle.

SOP 98-5 was adopted in the fourth quarter of 1998, and was effective
January 1, 1998. The effect on 1998 net loss would be a decrease of $3,940,000
resulting from the cumulative effect of the adoption of SOP 98-5.

(g) UNREALIZED GAINS AND LOSSES

Amounts receivable from cemetery merchandise trusts and insurance invested
assets are subject to the provisions of Financial Accounting Standards No. 115
("FAS 115"), "Accounting for Certain Investments in Debt and Equity" under U.S.
GAAP. Under FAS 115, fixed maturity securities which the Company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Fixed maturity securities
classified as held-to-maturity were approximately $25,859,000 at December 31,
1999 (1998 -- $30,582,000). Debt and equity securities that are held with the
objective of trading to generate profits on short-term differences in price are
carried at fair value, with changes in fair value reflected in the results of
operations. At December 31, 1999 and 1998, the Company had no securities
classified as trading. All other fixed maturity and equity securities not
classified as either held-to-maturity or trading are classified as
available-for-sale and carried at fair value which was approximately
$625,596,000 at December 31, 1999 (1998 -- $619,913,000). Available-for-sale
securities may be sold in response to changes in interest rates and liquidity
needs. Unrealized holding gains and losses related to available-for-sale
investments, after deducting amounts allocable to income taxes, are reflected as
a separate component of stockholders' equity. Unrealized holding gains and
losses related to trading investments, after deducting amounts allocable to
income taxes, are reflected in earnings.

(h) ACCOUNTING FOR JOINT VENTURE

Beginning in November 1998, the Company proportionately consolidates, for
Canadian GAAP purposes, its investment in 4103 Investments, which is a joint
venture. Under U.S. GAAP, the investment in 4103 Investments is recorded under
the equity method.

(i) STOCK-BASED COMPENSATION

The Company follows the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation", for U.S. GAAP purposes.

The Company continues to record compensation expense for U.S. GAAP purposes
following the intrinsic value principles of Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," in accounting for
the plans. Under APB 25, no compensation expense has been recognized for its
stock-based compensation plans in any of the three years ending December 31,

127
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 20. UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
1999. Had compensation cost been determined based on fair value at the grant
dates for awards under those plans consistent with the measurement provisions of
FAS 123, net loss before cumulative effect of change in accounting principle
under U.S. GAAP would have been $527,968,000 for the year ended December 31,
1999 (1998 -- $632,306,000, 1997 -- $67,491,000).

For these purposes, the fair value of each option is estimated on the date
of the grant using the Black-Scholes option-pricing model. There were no grants
in 1999. The following weighted average assumptions for prior years are:
dividend yield (1998 -- nil%, 1997 -- 0.5%), expected volatility (1998 -- 29%,
1997 -- 24%), United States risk-free interest rates (1998 -- 5.11%,
1997 -- 5.89%) and expected average option term (1998 -- 3.4 years,
1997 -- 4.6 years). The weighted average fair value of the options granted per
option in 1998 was $6.41 (1997 -- $8.92).

(j) ADVERTISING COSTS

Advertising costs were $13,546,000 for the year ended December 31, 1999
(1998 -- $8,796,000, 1997 -- $7,896,000).

(k) RECENT ACCOUNTING STANDARDS

The effective date for Statement of Financial Accounting Standards No. 133
("FAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as
deferred by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of Financial Accounting Standards No. 133 (an amendment of FASB statement
No. 133)" is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. FAS 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management has not determined the impact of
this accounting standard on the Company's consolidated financial statements.

128
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 21. SUMMARIZED CHAPTER 11 FINANCIAL INFORMATION

Summarized financial data for the companies under creditor protection of
Chapter 11 and CCAA are presented as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Income statement information:
Revenue................................................... $ 719,375
Gross margin.............................................. 212,795
Loss from operations...................................... (227,210)
Net loss.................................................. (421,263)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Balance sheet information:
Current assets............................................ $ 150,911
Net investment in subsidiaries not under creditor
protection (a).......................................... 484,128
Non-current assets........................................ 2,705,667
----------
Total assets................................................ 3,340,706

Liabilities not subject to compromise:
Current liabilities....................................... 88,811
Non-current liabilities................................... 880,502
Liabilities subject to compromise:
Loans from affiliated companies........................... 1,015,163
Debt and other liabilities................................ 2,100,827
----------
Total liabilities........................................... 4,085,303

Shareholders' deficiency.................................... (744,597)
</TABLE>

- ------------------------

129
<PAGE>
LOEWEN GROUP INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

TABULAR AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS

NOTE 22. SUBSEQUENT EVENT

In April 2000, the Company and the Parent Company announced that there is
uncertainty as to the secured status of certain senior debt under the Collateral
Trust Agreement with respect to approximately $1,100,000,000 of senior debt
issued subsequent to the execution of the Collateral Trust Agreement. In
accordance with the terms of the Collateral Trust Agreement, holders of future
indebtedness or their representatives were to effect registration by delivering
to the collateral trustee Additional Secured Indebtedness Registration
Statements in a form set forth in the Collateral Trust Agreement.

The Company and the Parent Company were recently advised that Additional
Secured Indebtedness Registration Statements relating to the aforementioned
senior debt were either not entered into the collateral trustee's register or
were entered with an incorrect outstanding amount. Under the terms of the
Collateral Trust Agreement, these circumstances give rise to uncertainty as to
the secured status of these securities. The Company has confirmed that it
satisfied its obligations under the financing agreements to adopt appropriate
corporate resolutions and to deliver to lender representatives, in connection
with closing, Additional Secured Indebtedness Registration Statements relating
to such debt. It is not known when the uncertainty will be resolved.
Accordingly, the effects of this contingency, if any, have not been reflected in
the Company's consolidated financial statements.

130
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

EXECUTIVE OFFICERS OF LOEWEN

See Part I, page 10, for details.

DIRECTORS OF LOEWEN

See Part I, page 12, for details.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established a standing Audit Committee, a
standing Compensation Committee, and a standing Corporate Governance Committee
(each, a "Committee"). The Board does not have an Executive Committee or a
Nominating Committee, although the Corporate Governance Committee is responsible
for the nomination of Directors.

The Audit Committee receives and considers the reports of the firm of
independent auditors appointed by the shareholders and approves the consolidated
financial statements of the Company. This Committee also oversees the Company's
internal auditing and compliance with the Company's environmental policies and
environmental laws. The members of this Committee are Charles B. Loewen
(Chairman), James D. McLennan, The Right Honourable John N. Turner, P.C., C.C.,
Q.C. and John J. Wiesner, all of whom are non-employee Directors. The Audit
Committee held 14 meetings during 1999.

The Corporate Governance Committee considers and makes recommendations
concerning the composition and functioning of the Board of Directors and
Committees thereof and generally all matters pertaining to the organization and
management of the Company. The Corporate Governance Committee held six meetings
during 1999. For particulars of the functions and composition of the Corporate
Governance Committee, see "Corporate Governance" below.

The Compensation Committee reviews and recommends, for approval by the Board
of Directors, specifically the executive compensation of the Chief Executive
Officer and generally the Company's executive compensation policies. The
Compensation Committee held six meetings in 1999. For particulars of the
functions and composition of the Compensation Committee, see "Executive
Compensation -- Composition of the Compensation Committee" and "Report on
Executive Compensation" below.

A Special Committee was established by the Board of Directors in September
1998 to identify and evaluate opportunities for the maximization of shareholder
value including strategic alternatives available to the Company, and to liaise
with senior management of the Company and with the investment advisers appointed
by the Company to assist in the maximization of shareholder value and the
initiation of discussions with potential partners regarding possible strategic
partnerships, combinations and capital investments in the Company. The members
of the Committee were The Right Honourable John N. Turner, P.C., C.C., Q.C.
(Chairman), Charles B. Loewen, James D. McLennan, William R. Riedl and John S.
Lacey. The Special Committee met three times in 1999 and was terminated on
June 4, 1999 following the Company's bankruptcy filings on June 1, 1999. See
"Corporate Governance -- Chapter 11 and CCAA Filings" below.

131
<PAGE>

CORPORATE GOVERNANCE

In December 1995, a Corporate Governance Committee was established as a
permanent standing Committee of the Board. The current members of the Corporate
Governance Committee are William R. Riedl (Chairman), The Right Honourable
John N. Turner, P.C., C.C., Q.C. and John S. Lacey, each of whom is a
non-executive Director and brings to the Corporate Governance Committee the
benefit of his experience in sitting on other public company boards. Mr. Riedl,
Chairman of the Committee, is also President of Fairvest Securities Corporation,
a leading Canadian advocate of shareholder rights and corporate
governance issues. The Corporate Governance Committee met six times in 1999.

In August 1997, the Board of Directors asked the Corporate Governance
Committee to review the present Board status with respect to Board size,
composition and process in light of prevailing corporate governance practices.
Following preliminary research, the Corporate Governance Committee met in two
special sessions. The recommendations of the Corporate Governance Committee,
adopted by the Board in March 1998, included a recommended reduction over time
in the size of the Board from 15 to no more than 12 and a reduction in the
number of "inside" (or "management") Directors to one or possibly two at most.
As part of this plan, the Committee also recommended that the Board continue to
consider additional appropriately qualified candidates to serve as
outside Directors.

In December 1998, three Board members who were inside Directors retired from
the Board: Lawrence Miller, Timothy R. Hogenkamp and Paul Wagler. Appointed to
replace them were three new outside Directors: Thomas R. Taylor, John S. Lacey
and William R. Riedl.

In January 1999, John S. Lacey was appointed non-executive Chairman of the
Board.

In March 1999, Kenneth S. Bagnell, The Honourable J. Carter Beese, Jr.,
Earl A. Grollman, Albert S. Lineberry, Sr., Ernest G. Penner and Kenneth T.
Stevenson retired from the Board, and the size of the Board was reduced to
eight. In April 1999, the position on the Board theretofore occupied by Raymond
L. Loewen was eliminated, further reducing the size of the Board to seven (with
only one inside Director, namely Robert B. Lundgren).

In June 1999, Thomas M. Taylor retired from the Board, and in his place
Paul A. Houston was appointed. Also in June 1999, William R. Riedl and The Right
Honourable John N. Turner were re-elected Directors of the Company.

In December 1999, Robert B. Lundgren retired from the Board in conjunction
with his retirement as President and Chief Executive Officer.

In January 2000, the size of the Board was increased from seven to eight
members, and two new Directors were appointed: Donna R. Moore and John J.
Wiesner. The Board presently consists of eight members, with only one inside
Director, namely Paul A. Houston, who is President and Chief Executive Officer.

132
<PAGE>

CHAPTER 11 AND CCAA FILINGS

On June 1, 1999, Loewen and certain of its subsidiaries, as detailed in
Part I, Item 1, filed for creditor protection under Chapter 11 and CCAA (the
"Chapter 11 and CCAA Filings"). In June 1999, the U.S. Trustee for the District
of Delaware appointed an Official Unsecured Creditors' Committee. The Board of
Directors has met twice with the Official Unsecured Creditors' Committee.

The Chapter 11 and CCAA Filings of June 1, 1999 impact corporate governance
issues in two important ways.

First, the Company is now operating under the Bankruptcy Courts'
supervision, which may require the Company to obtain the Bankruptcy Courts'
authorization to engage in certain acts. The Company is otherwise subject to
such orders as the Bankruptcy Courts may make, and to the laws governing
Chapter 11 and CCAA proceedings.

Second, as a consequence of the Company's insolvency, the fiduciary duties
of the Board of Directors and management are owed to an expanded group of
stakeholders, including the Company's creditors.

REPORT ON CORPORATE GOVERNANCE

The Toronto Stock Exchange ("TSE") requires each listed company to disclose
in its information circular or annual report its approach to corporate
governance. The following discussion is provided in compliance with such listing
requirement. The TSE recommends 14 guidelines with respect to systems of
corporate governance generally, which guidelines were adopted in 1995 in a
policy of the TSE (the "TSE Policy"). The Company is fully or substantially
aligned with all of the guidelines applicable in the Company's present
circumstances.

The following table sets forth the 14 guidelines from the TSE Policy,
together with a summary of the position of the Company with respect to
each guideline.

<TABLE>
<CAPTION>
DOES THE
COMPANY ALIGN
TSE POLICY WITH
CORPORATE GOVERNANCE GUIDELINES THE GUIDELINES? COMMENTS
------------------------------- --------------- --------
<S> <C> <C>

1. Board should explicitly assume Yes to the See "Chapter 11 and CCAA Filings" above. For
responsibility for stewardship of extent certain matters, the Company now requires
the corporation, and specifically applicable in the Bankruptcy Courts' approval in addition
for: the to Board approval.
- adoption of a strategic planning circumstances
process
- identification of principal
risks, and implementing risk
management systems
- succession planning and
monitoring senior management
- communications policy
- integrity of internal control
and management information
systems.
</TABLE>

133
<PAGE>

<TABLE>
<CAPTION>
DOES THE
COMPANY ALIGN
TSE POLICY WITH
CORPORATE GOVERNANCE GUIDELINES THE GUIDELINES? COMMENTS
------------------------------- --------------- --------
<S> <C> <C>
2. Majority of directors should be Yes Of the eight Board members, six are
"unrelated" (independent of "unrelated." Paul A. Houston is treated as
management and free from "related" because he is President and Chief
conflicting interest). Executive Officer. For the purpose of
responding to the TSE Policy guidelines,
John S. Lacey is treated as related by the
Board primarily because of the role he is
playing in the reorganization and
restructuring of the Company for the benefit
of the Company's stakeholders.
Notwithstanding such role, Mr. Lacey is the
non-executive Chairman of the Board of the
Company and is not a member of management.

3. Disclosure for each director Yes The Corporate Governance Committee defines
whether he or she is related, and "unrelated" as "independent of management
how that conclusion was reached. and free from conflicting interest." Each
Director is asked to consider the
applicability of the term "unrelated" in
relation to his or her individual
circumstances. See also (2) above.

4. Appoint a committee responsible Yes The Corporate Governance Committee performs
for appointment/assessment this function.
of directors.

Composed exclusively of Yes
non-management directors, the
majority of whom are "unrelated."

5. Implement a process for Yes See (4) above.
considering the assessment of the
effectiveness of the board, its
committees and individual
directors.

6. Provide orientation and education Yes Prior to official appointment, new Directors
programs for new directors. are provided education and orientation about
the Company and the industry.

7. Consider reducing the size of Yes Board size has been reduced from 15 to 8.
board, with a view to improving
effectiveness.

8. Review compensation of directors Yes The Compensation Committee reviews this item
in light of risks on a periodic basis.
and responsibilities.
</TABLE>

134
<PAGE>

<TABLE>
<CAPTION>
DOES THE
COMPANY ALIGN
TSE POLICY WITH
CORPORATE GOVERNANCE GUIDELINES THE GUIDELINES? COMMENTS
------------------------------- --------------- --------
<S> <C> <C>
9. Committees should generally be Yes All of the Board Committees are composed
composed of non-management solely of non-management and "unrelated"
directors. Directors, with the exception of the
Corporate Governance Committee of which
Mr. Lacey is a member.

Majority of committee members Yes
should be "unrelated."

10. Appoint a committee responsible Yes The Board has appointed the Corporate
for approach to corporate Governance Committee, which is responsible
governance issues. for the Company's approach to corporate
governance issues.

11. Define limits to management's Yes See "Chapter 11 and CCAA Filings" and (1)
responsibilities by developing above.
mandates for:
(i) The board
(ii) The CEO.

Board should approve CEO's Yes
corporate objectives.

12. Establish structures and Yes The Board of eight has only one Director
procedures to enable the board to from management and only two Directors
function independently treated as related pursuant to TSE Policy.
of management. The Board has three standing Committees
(Audit, Compensation and Corporate
Governance) each of which is composed
entirely of Directors who are "unrelated"
with the exception of Mr. Lacey who is a
member of the Corporate Governance
Committee.

13. Establish an audit committee with Yes The Board has an Audit Committee with a
a specifically defined mandate. specifically defined mandate.

All members should be Yes See (9) above.
non-management directors.

14. Implement a system to enable Yes Individual Directors can engage outside
individual directors to engage advisors with the authorization of the
outside advisors, at Corporate Governance Committee.
corporation's expense.
</TABLE>

135
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

The following table sets forth compensation earned during the last three
fiscal years by each person who served as the Chief Executive Officer during
1999 and the Company's four most highly compensated executive officers, other
than the persons who served as Chief Executive Officer, who served as executive
officers at the end of 1999 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE (1)

<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION (2)
-------------------------------------------------
AWARDS
-----------

SECURITIES
OTHER ANNUAL UNDER OPTIONS ALL OTHER
SALARY BONUS COMPENSATION GRANTED COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (3) (#) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Lundgren 1999 425,000 -- -- -- 5,107 (6)
President and 1998 33,973 -- 50,660 (5) 411,000 (5) 34,753
Chief Executive Officer (4) 1997 -- -- 46,250 (5) 10,000 (5) --
- ----------------------------------------------------------------------------------------------------------------------
Paul A. Houston 1999 32,719 -- -- -- 2,230 (8)
President and 1998 -- -- -- -- --
Chief Executive Officer (7) 1997 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
John S. Lacey 1999 338,642 -- -- 2,000 --
Chairman of the Board (9) 1998 -- -- -- -- --
1997 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Jeffrey L. Cashner 1999 300,000 161,250 -- -- 3,200 (10)
Senior Vice-President, USA 1998 200,000 -- -- -- 3,000
1997 200,000 -- -- -- 3,200
- ----------------------------------------------------------------------------------------------------------------------
Michael G. Weedon 1999 252,406 126,203 -- -- 7,659 (12)
Senior Vice-President, 1998 235,579 -- -- 150,000 6,501
Trust and Insurance (11) 1997 33,654 -- -- -- 1,028
- ----------------------------------------------------------------------------------------------------------------------
Bradley D. Stam 1999 238,232 120,149 -- -- 6,292 (14)
Senior Vice-President, 1998 166,977 -- -- 50,000 4,984
Legal and Asset Management (13) 1997 -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) All dollar amounts are expressed in U.S. dollars, unless indicated
otherwise. The applicable exchange rate to translate amounts expressed in
U.S. dollars to Canadian dollars for 1999 is $1 US = $1.4857 Canadian
(1998 -- $1 US = $1.4831 Canadian, 1997 -- $1 US = $1.3847 Canadian). These
rates are based on a weighted average of the Bank of Canada noon spot rate
exchange.

(2) The Company has not granted any restricted shares or restricted share units,
stock appreciation rights or long term incentive plan payouts to the Named
Executive Officers.

(3) In accordance with SEC rules, the value of perquisites and other personal
benefits, securities and property for each Named Executive Officer that does
not exceed the lesser of $50,000 or 10% of the total of the annual salary
and bonus is not reported herein.

(4) Mr. Lundgren retired as President and Chief Executive Officer on
December 2, 1999. His annual salary continues pursuant to severance
provisions. See "Report on Executive Compensation -- Chief Executive Officer
Compensation" below.

136
<PAGE>

(5) Mr. Lundgren served as an outside Director during 1997 and until he was
appointed President and Chief Executive Officer in October 1998.
Mr. Lundgren received annual retainer and meeting fees aggregating $46,250
in 1997 and $50,660 in 1998. In addition, pursuant to the Outside Director
Plan, Mr. Lundgren was granted options to purchase 10,000 Common Shares in
1997 and 11,000 Common Shares in 1998. He received an option to purchase
400,000 Common Shares in 1998 in connection with his appointment as
President and Chief Executive Officer.

(6) Consists of taxable medical benefits ($529) and contributions to the
Company's group registered retirement pension plan ($4,578).

(7) Mr. Houston was appointed President and Chief Executive Officer effective
December 2, 1999 at the same annual salary of $425,000 as Mr. Lundgren.

(8) Consists of club dues ($1,212) and contributions to the Company's group
registered retirement pension plan ($1,018).

(9) Mr. Lacey was appointed Chairman of the Board on January 28, 1999. In
addition, he agreed to provide for compensation such services as determined
from time to time by the Board in connection with strategic alternatives
being pursued by the Company and the development of a plan or plans of
reorganization or restructuring. See "Director Meetings, Director
Compensation and Other Payments" below.

(10) Consists of matching contributions to the LGII 401(k) retirement plan
($1,016) and a reimbursement of excess contributions ($2,184).

(11) Mr. Weedon commenced employment with the Company on November 3, 1997.

(12) Consists of taxable medical benefits ($238), taxable auto benefits
($2,878), and contributions to the Company's group registered
retirement plan ($4,543).

(13) Mr. Stam commenced employment with the Company on March 2, 1998.

(14) Consists of taxable medical benefits ($529), taxable auto benefits
($1,220), and contributions to the Company's group registered
retirement plan ($4,543).

OPTION GRANTS DURING THE
YEAR ENDED DECEMBER 31, 1999

Prior to the Chapter 11 and CCAA Filings on June 1, 1999, a limited number
of options were granted. The options are presently out-of-the-money and are
considered by management to have little or no value. The Company's Common Share
price on December 31, 1999 was $0.61 Cdn. on the TSE and $0.4375 US on the NYSE
and trading of the Company's Common Shares has since been suspended by the NYSE.
See "Market Information," Part II, Item 5, page 14 above.

The following table sets forth individual grants of stock options by the
Company during the last fiscal year to the Named Executive Officers.

137
<PAGE>

<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------

POTENTIAL
REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL MARKET VALUE ANNUAL RATES OF
SECURITIES OPTIONS OF SECURITIES SHARE PRICE
UNDERLYING GRANTED TO UNDERLYING APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTIONS ON THE OPTION TERM
GRANTED IN FISCAL BASE PRICE DATE OF GRANT EXPIRATION ---------------
NAME (#) (1) YEAR (2) ($/SECURITY) ($/SECURITY) DATE 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert B. Lundgren -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Paul A. Houston -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
John S. Lacey 2,000 (3) 3.0 Cdn. $12.52 Cdn. $12.60 Jan. 4, 2009 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Jeffrey L. Cashner -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Michael G. Weedon -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Bradley D. Stam -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) To the extent permitted by applicable securities and tax laws and stock
exchange rules, options granted under the Company's Employee Stock Option
Plans and the Outside Director Plan are transferable to a personal holding
company of which the optionee holds all direct and indirect interests.

(2) Includes options granted by the Company pursuant to all of its option plans,
including options granted to Directors and consultants.

(3) Comprised of grants pursuant to the Outside Director Plan.

AGGREGATED OPTION EXERCISES DURING THE YEAR ENDED DECEMBER 31, 1999
AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information regarding options
exercised during the year ended December 31, 1999 and options held by the Named
Executive Officers as at December 31, 1999. No options were exercised
during 1999.

<TABLE>
- ----------------------------------------------------------------------------------------------------------------

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
SECURITIES AGGREGATE OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1999 (#) (1)
ON REALIZED --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert B. Lundgren -- -- 97,500 325,500
- ----------------------------------------------------------------------------------------------------------------
Paul A. Houston -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
John S. Lacey -- -- -- 2,000
- ----------------------------------------------------------------------------------------------------------------
Jeffrey L. Cashner -- -- 12,124 2,200
- ----------------------------------------------------------------------------------------------------------------
Michael G. Weedon -- -- 30,000 120,000
- ----------------------------------------------------------------------------------------------------------------
Bradley D. Stam -- -- 10,000 40,000
- ----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The closing price of the Common Shares on December 31, 1999 on the TSE was
Cdn. $0.61 and on the NYSE was US $0.4375. The options are presently
out-of-the-money and are considered by management to have little or no
value.

138
<PAGE>

PENSION BENEFITS

The Company does not have any defined benefit or actuarial pension plans.
The Company does have a defined contribution retirement plan for United States
employees, the LGII 401(k) Retirement Plan. For Canadian employees, the Company
has a group registered retirement savings plan.

The estimated aggregate cost to the Company for the year ended December 31,
1999 for pension benefits for senior officers under the Company's group
registered retirement savings plan was $57,605.

The estimated aggregate cost to the Company for the year ending December 31,
1999 for benefits for senior officers of the Company under the LGII 401(k)
Retirement Plan was $57,366. Annual discrimination testing (that is to say, the
testing of the entitlement of more highly compensated employees against the
entitlement of employees with lower compensation) gave rise to adjustments in
respect of twenty-one United States-based senior officers for 1999 in the
aggregate amount of $34,214. Refunded sums represent compensation to such
officers and were included in the amounts set out above in the Summary
Compensation Table (as to the portions paid to Named Executive Officers).

EMPLOYMENT CONTRACTS

The following Named Executive Officers have written employment agreements
with the Company: Paul A. Houston, Jeffrey L. Cashner and Bradley D. Stam. All
these agreements are in the general form of the "Employment and Release
Agreement For Corporate and Country Management" (the "Employment and Release
Agreement") as specified in the Company's Key Employee Retention Program (the
"KERP"). See "Report on Executive Compensation" below. The Employment and
Release Agreement provides for the continuing employment of the executive at the
executive's salary and the entitlement of the executive to benefits under the
KERP for which the executive may be eligible. The executive agrees with
confidentiality and non-competition provisions and releases the Company from all
claims arising from pre-existing employment arrangements with the Company.
Pursuant to the Employment and Release Agreement, the employment of each
executive is at will, subject to the severance provisions of the KERP.

John S. Lacey's services as Chairman are provided pursuant to a consulting
agreement between the Company, John S. Lacey, and Doncaster Consolidated
Limited. See "Director Meetings, Director Compensation and Other
Payments" below.

Certain present or former executive officers and other key employees of the
Company, including all Named Executive Officers except Michael Weedon are
presently participating in the KERP, which is described in the Report on
Executive Compensation below.

COMPOSITION OF THE COMPENSATION COMMITTEE

The Chairman of the Compensation Committee is James D. McLennan. In addition
to Mr. McLennan, the current members of the Compensation Committee are Charles
B. Loewen and Donna R. Moore. The Compensation Committee met six times in 1999.
All members are outside Directors of the Company.

REPORT ON EXECUTIVE COMPENSATION

The Company's executive compensation program is directed and monitored by
the Compensation Committee. The Compensation Committee reviews and recommends,
for approval by the Board of Directors, specifically the executive compensation
of the Chief Executive Officer and generally the Company's executive
compensation policies. With respect to the Company's stock plans (presently
suspended), awards made to executive officers have generally been made by the
Compensation Committee (and approval of the full Board of Directors has not been
sought) in order to provide for the deductibility of stock-based compensation
under United States income tax laws. See "Policy with Respect to Deductibility
of Compensation" below.

139
<PAGE>

COMPENSATION PHILOSOPHY

In light of the changing and uncertain circumstances of the Company through
1998 and the first five months of 1999 (see "Corporate Governance -- Chapter 11
and CCAA Filings" above), the Company's executive compensation program was
amended in 1999 to provide competitive financial incentives for executives
(a) to remain in the Company's employ through to the effective date of a plan or
plans of reorganization being approved by the Bankruptcy Courts, (b) to assume
the additional administrative and operational burdens imposed on the Company by
the need to develop a plan or plans of reorganization, and (c) to use their best
efforts to improve the Company's financial performance and to facilitate a
successful plan or plans of reorganization.

BASE SALARY

In general, an executive's base salary has been determined by a subjective
assessment of his or her responsibilities and sustained performance. In 1998,
William M. Mercer Ltd. ("Mercer") was retained by the Compensation Committee as
an external consultant to conduct a review of the general levels of executive
salary within the Company. As at the start of 1999, the Compensation Committee
believed the general level of executive salaries within the Company to be
comparable to public companies of similar size in North America.

ANNUAL OR SHORT TERM INCENTIVES (BONUSES)

1998 RETENTION PLAN

In September 1998, the Compensation Committee concluded that, in light of
the changing and uncertain circumstances of the Company, it was essential to
establish a retention or "stay put" short-term incentive program for the purpose
of retaining or recruiting key executives during a period of uncertainty.
Accordingly, a retention bonus plan was established in October 1998 and was
designed to encourage key executives to stay with the Company and to perform at
and above normal level over the short term and to assist with the recruiting of
key executives. The retention bonus plan provided for the payment of a potential
bonus in the amount of 50% of an executive's base salary provided that the
executive continued employment with the Company for the six-month period from
October 1, 1998 until March 31, 1999, subject to a subjective review of the
executive's performance and commitment.

1999 KERP

Following the Chapter 11 and CCAA Filings on June 1, 1999 the Company
established the KERP.

The Company worked with its professional advisor, Mercer, and the Official
Unsecured Creditors' Committee and its advisors to develop the KERP, which is
designed to provide the incentives necessary for the Company to retain its
management team and other key employees and to assist with the recruiting of key
executives while adhering to the financial constraints and obligations to
creditors that the Company faces as a Chapter 11 and CCAA debtor. The KERP was
approved by the Bankruptcy Courts.

The retention incentive measures have been designed to improve the retention
of the Company's management employees at all levels at the lowest possible cost.
These measures were based upon competitive conditions, industry-wide standards
and the Company's past practices and were developed with the assistance of the
Company's employee compensation consultant, Mercer. Mercer has advised the
Company that the retention incentive measures that the Company offers are
incentives comparable to (a) those provided to employees with similar positions
and experience at competitors of the Company in the funeral home and cemetery
industries and (b) similar arrangements that have been approved for employees of
comparable Chapter 11 debtors.

The KERP includes four separate components: (a) a retention incentive plan
(the "Retention Incentive Plan"), designed to provide retention incentives to
key management employees; (b) a performance incentive plan (the "Performance
Incentive Plan"), designed to encourage employees to devote their efforts to
improving the Company's financial performance; (c) a confirmation incentive plan

140
<PAGE>

(the "Confirmation Incentive Plan"), designed to provide an additional incentive
to those key management employees who are particularly essential to the
development of a successful plan of reorganization; and (d) an employee
severance plan (the "Severance Plan"), designed to ensure basic job protection
for all employees. The Company is in the process of developing the specific
incentive formulae applicable to the Performance Incentive Plan.

LONG-TERM INCENTIVES

As a consequence of the Chapter 11 and CCAA Filings, the Company's Employee
Stock Option Plans, previously the source of long-term incentives, have been
suspended. Another long-term incentive provided options on Common Shares to be
issued to certain executives in connection with the 1994 Management Equity
Investment Plan ("MEIP"). These options are presently out-of-the-money and are
considered by management to have little or no value.

CHIEF EXECUTIVE OFFICER COMPENSATION

In November 1998, the Compensation Committee recommended a base salary of
$425,000 for the then Chief Executive Officer, Robert B. Lundgren; a bonus
target of 50% of base salary, to a maximum of 100% (on the same sliding scale as
would be applied to other senior executives) and 400,000 options in Common
Shares of the Company exercisable in five equal annual instalments.

Robert B. Lundgren resigned as Chief Executive Officer effective
December 2, 1999. Mr. Lundgren did not receive a bonus in 1999 and his option
agreements expired according to their terms following his resignation. Pursuant
to the provisions of the Severance Plan of the KERP Mr. Lundgren receives an
agreed severance of two years' salary and normal benefits, payable on the
Company's normal payroll basis over two years and subject to mitigation after
15 months.

In December 1999, the Compensation Committee recommended a base salary of
$425,000 per year for the new Chief Executive Officer, Paul A. Houston, together
with eligibility for certain incentive entitlements under the KERP and
eligibility for a possible value added payment in connection with a plan or
plans of reorganization of the Company. The value added payment (if any) is
contingent upon (i) the percentage of value ultimately recovered by the senior
secured public debtholders in the reorganization of the Company and (ii) the
timing of the effective date of the confirmation of a plan or plans of
reorganization, compromise or arrangement. There shall be no value added payment
if the percentage recovery is less than 65% or if the confirmation date is
April 2, 2001 or later.

POLICY WITH RESPECT TO DEDUCTIBILITY OF COMPENSATION

Section 162(m) of the United States Internal Revenue Code of 1986, as
amended ("Section 162(m)"), governs the deductibility of discretionary,
incentive-based compensation in excess of $1 million paid annually to the Chief
Executive Officer and certain other highly paid executive officers.

The Company believes that the MEIP and the Company's Employee Stock Option
Plans qualify for an exception from the $1 million limitation. The Company's
incentive programs, including the 1998 Retention Plan and the KERP, currently do
not so qualify, but the Company does not anticipate that this will result in any
significant cost. The Compensation Committee will continue to monitor the impact
of Section 162(m) and will recommend modification to the Company's compensation
program in the future if appropriate.

Submitted by the Compensation Committee:

James D. McLennan, Chairman
Charles B. Loewen
Donna R. Moore

141
<PAGE>

DIRECTOR MEETINGS, DIRECTOR COMPENSATION AND OTHER PAYMENTS

The Board of Directors held 14 meetings in 1999, of which eight were held by
telephone conference call and six were held in person. The aggregate average
attendance at meetings of the Board of Directors and its permanent standing
Committees was 93%. During his 1999 incumbency, each incumbent Director attended
at least 75% of the total number of meetings of the Board of Directors and the
respective Committees on which he served.

Directors who are not officers or employees of the Company or any of its
subsidiaries ("Outside Directors") were each entitled to an annual retainer of
$23,500 for 1999. In addition, each Outside Director was entitled to $1,500 for
attendance in person at a meeting (Board or Committee), $250 for attendance by
telephone at a meeting (Board or Committee), $5,000 per annum for being a member
of a Committee and $5,000 per annum for chairing a Committee. Fees were pro
rated for service periods of less than a complete year. Directors are reimbursed
their reasonable travel expenses for attending meetings of the Board and
its Committees.

The Outside Director Plan was terminated effective June 1, 1999 as a
consequence of the Chapter 11 and CCAA Filings. Pursuant to the Outside Director
Plan, Outside Directors could elect to receive all or part of their retainer and
meeting fees in Common Shares. In addition, the Outside Director Plan provides
that on an annual basis each Outside Director could receive options to purchase
Common Shares.

In July 1994, the Company entered into a consulting agreement with
Charles B. Loewen and a corporation of which Mr. Loewen is an employee, officer
and director (the "C.B. Loewen Agreement"). Under the terms of the C.B. Loewen
Agreement, Mr. Loewen agrees to provide, from time to time as requested, advice
on financial planning, financial presentation, Board of Director and other
matters relating to compensation, corporate governance, audit and general
corporate policy, in exchange for payments to be made for such services, which
payments are, in each case, in lieu of payments to him personally of Directors'
retainer, Committee and meeting fees. The 1999 payment was $77,750.

In January 1999, the Company entered into a consulting agreement with
John S. Lacey and Doncaster Racing Limited, a corporation of which Mr. Lacey is
an employee, officer and director (the "First Doncaster Agreement"). Under the
terms of the First Doncaster Agreement, Mr. Lacey agreed to serve as a director
and as non-executive Chairman of the Board of the Company and in connection
therewith agreed to provide such additional services as determined from time to
time by the Board, including services as non-executive Chairman of the Board and
services in connection with the strategic alternatives being pursued by the
Special Committee.

In October 1999, the Company entered into a second consulting agreement with
John S. Lacey and Doncaster Consolidated Limited, a corporation of which
Mr. Lacey is an employee, officer and director (the "Second Doncaster
Agreement"). The Second Doncaster Agreement replaced the First Doncaster
Agreement. The provisions of the Second Doncaster Agreement, which generally
follow those of the Employment and Release Agreement of the KERP, were approved
by the Bankruptcy Courts. Under the terms of the Second Doncaster Agreement,
Mr. Lacey agreed to serve as a director and as non-executive Chairman of the
Board and agreed to provide such additional services as determined from time to
time by the Board, including services in connection with the Chapter 11 and CCAA
Filings and the efforts of the Company to develop a plan or plans of
reorganization or restructuring. The Second Doncaster Agreement provided for an
annual base fee in respect of the services of Mr. Lacey in the amount of
$500,000 from June 1, 1999 plus eligibility for Mr. Lacey to participate in the
Confirmation Incentive and Corporate Incentive Plans of the KERP, together with
eligibility of Mr. Lacey for a possible value-added payment in connection with a
plan or plans of reorganization or restructuring of the Company. The value added
payment (if any) is contingent upon (i) the percentage of value ultimately
recovered by the senior secured public debtholders in the reorganization of the
Company and (ii) the timing of the effective date of the confirmation of a plan
or plans of reorganization, compromise or arrangement. There shall be no value

142
<PAGE>

added payment if the percentage recovery is less than 65% or if the confirmation
date is April 1, 2001 or later.

Total payments in 1999 by the Company pursuant to the First Doncaster
Agreement and the Second Doncaster Agreement were $338,642.

See "Indebtedness of Directors and Senior Officers" and Part III, Item 13
"Certain Relationships and Related Transactions" for a description of certain
transactions between entities related to certain Directors and the Company.

Based on information furnished by the Directors individually, no Director
beneficially owns, directly or indirectly, or exercises control or direction
over shares of the Company carrying 10% or more of the voting rights attaching
to shares of the Company.

PERFORMANCE GRAPH

The following graph compares the cumulative total shareholder return on the
Common Shares with the cumulative return on the Peer Group Total Return Index,
TSE 300 Total Return Index and Standard & Poor's 500 Total Return Index for a
five-year period. Such cumulative shareholder return and the Total Return
Indices reflect the cumulative return, including dividend reinvestment. The Peer
Group Total Return Index is comprised of the cumulative shareholder return on
the common stock of Service Corporation International (listed on the NYSE) and
Stewart Enterprises, Inc. (quoted on the Nasdaq National Market) and the
Class A and Class B Shares of Arbor Memorial Services, Inc. (listed on
the TSE).

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
LOEWEN PEER GROUP S&P 500 TSE 300
<S> <C> <C> <C> <C>
1994 100 100 100 100
1995 94 153 130 112
1996 147 200 158 141
1997 101 271 215 159
1998 23 277 292 153
1999 2 54 327 198
</TABLE>

OTHER COMPENSATION INFORMATION

(THE INFORMATION SET FORTH UNDER THE TWO FOLLOWING SUBHEADINGS IS STIPULATED
FOR DISCLOSURE PURSUANT TO THE COMPANY ACT OF BRITISH COLUMBIA. THIS INCLUDES
DISCLOSURE WITH RESPECT TO "SENIOR OFFICERS" WHICH TERM GENERALLY INCLUDES ANY
VICE-PRESIDENT, THE SECRETARY, THE TREASURER, THE GENERAL MANAGER AND ANY
INDIVIDUAL WHO PERFORMS FUNCTIONS SIMILAR TO THOSE NORMALLY PERFORMED BY AN
INDIVIDUAL OCCUPYING ANY OF THESE OFFICES, AS WELL AS THE NAMED EXECUTIVE
OFFICERS.)

143
<PAGE>

DIRECTORS' AND OFFICERS' REMUNERATION

The aggregate compensation paid or payable directly to the Company's
Directors and senior officers as a group (including the Named Executive
Officers) by the Company and its subsidiaries for the year ended December 31,
1999 was $11,202,387. These amounts include salaries, fees (including Directors'
retainer and meeting fees), commissions and bonuses; cash bonuses to be paid for
services rendered in 1999; cash bonuses paid in 1999 for services rendered in
previous years; any 1999 severance payments; the cash equivalent of Common
Shares issued to Directors under the Outside Director Plan; and all deferred
compensation earned in 1999; but excludes compensation paid in 1999 in respect
of another year that was described in a previous information circular and
excludes the value of options granted in partial compensation for salary or
bonus. The Directors and senior officers as a group earned taxable benefits in
1999 aggregating $77,798 including, among other benefits, taxable auto benefits,
medical insurance, life insurance (taxable benefits portion only), relocation
expenses and imputed interest on non-interest-bearing loans and contributions to
the Company's group registered retirement plan.

OPTIONS

The following table sets forth certain information with respect to options
to purchase Common Shares that were granted to Directors and senior officers as
a group during the fiscal year 1999:

OPTION GRANTS TO DIRECTORS AND SENIOR OFFICERS, 1999

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF MARKET VALUE
SHARES MARKET VALUE (LOW-HIGH RANGE)
OPTIONED DATE EXERCISE ON THE DATE EXPIRATION IN 30 DAY PERIOD
GROUP IN 1999 OF GRANT PRICE OF GRANT DATE PRECEDING GRANT
- ------------------------------------------------------------------------------------------------------------------------
Directors and Senior Officers 4,000 Jan. 5 Cdn. $12.52 Cdn. $12.60 Jan. 4, 2009 Cdn. $11.10-$14.20
10,000 Feb. 8 Cdn. $ 5.55 Cdn. $ 5.85 Feb. 7, 2009 Cdn. $ 5.20-$13.35
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

No monetary consideration was received by the Company for the granting of
the foregoing. These options are presently out-of-the-money and are considered
by management to have little or no value.

INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS

(THE INFORMATION SET FORTH IN THIS SECTION IS STIPULATED FOR DISCLOSURE
PURSUANT TO THE SECURITIES ACT OF BRITISH COLUMBIA AND, IN SOME INSTANCES, BY
THE SEC.)

INDEBTEDNESS UNDER SECURITIES PURCHASE PROGRAMS

As at April 1, 2000, the aggregate indebtedness

(i) to the Company or any of its subsidiaries, or

(ii) to another entity which is the subject of a guarantee, support
agreement, letter of credit or similar arrangement or understanding
provided by the Company or any of its subsidiaries

of all officers, Directors, employees and former officers, Directors and
employees of the Company or any of its subsidiaries in connection with the
purchase of securities of the Company or any of its subsidiaries was
$24,142,821.

The following table sets forth indebtedness of Directors, executive officers
and senior officers of the Company or any of its subsidiaries pursuant to the
MEIP approved by the shareholders at the annual general meeting of the Company
held on May 16, 1994. All dollar amounts are expressed in United
States dollars.

144
<PAGE>

TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS
AND SENIOR OFFICERS UNDER SECURITIES PURCHASE PROGRAMS

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIALLY
LARGEST AMOUNT AMOUNT OUTSTANDING ASSISTED
NAME AND PRINCIPAL INVOLVEMENT OF OUTSTANDING AS AT SECURITIES
POSITION ISSUER OR DURING 1999 ($) APRIL 1, 2000 ($) PURCHASED
(IN ALPHABETICAL ORDER) SUBSIDIARY (1)(2) (1)(2) DURING 1999
- ---------------------------------------------------------------------------------------------------------------
George M. Amato (3) Owed to LGII 285,353 285,353 n/a
- ---------------------------------------------------------------------------------------------------------------
Ronald Gushulak Owed to LGII 57,056 57,056 n/a
Vice-President,
Operations
- ---------------------------------------------------------------------------------------------------------------
Dwight K. Hawes Owed to LGII 79,473 79,473 n/a
Senior Vice-President,
Corporate Controller
- ---------------------------------------------------------------------------------------------------------------
Timothy R. Hogenkamp (4) Owed to LGII 684,682 684,682 n/a
- ---------------------------------------------------------------------------------------------------------------
Peter S. Hyndman Owed to LGII 40,164 40,164 n/a
Corporate Secretary
- ---------------------------------------------------------------------------------------------------------------
Kenneth E. Lee, Jr. (5) Owed to LGII 114,113 114,113 n/a
- ---------------------------------------------------------------------------------------------------------------
Raymond L. Loewen (6) Owed to LMIC 22,530,000 22,530,000 n/a
- ---------------------------------------------------------------------------------------------------------------
Douglas D. Routley Owed to LGII 79,456 79,456 n/a
Vice-President,
Accounting
and Administration
- ---------------------------------------------------------------------------------------------------------------
F. Duane Schaefer Owed to LGII 136,936 136,936 n/a
Regional Vice-President,
Funeral Division, West
Region
- ---------------------------------------------------------------------------------------------------------------
Michael L. Schweer (7) Owed to LGII 135,583 135,583 n/a
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

(1) In each case, other than in respect of Raymond L. Loewen, indebtedness is to
LGII. Such indebtedness had been to a third party lender and was guaranteed
by LGII and TLGI. The guarantee was supported by a letter of credit.
Following the Chapter 11 and CCAA Filings the third party lender on June 7,
1999 drew upon the letter of credit for the full amount of principal and
interest under all the indebtedness. The issue of whether the indebtedness
should continue to accrue interest following June 7, 1999 is under
consideration by the Compensation Committee of the Board of Directors in
consultation with the Official Unsecured Creditors' Committee.

(2) Other than in respect of Raymond L. Loewen, the indebtedness represents a 5%
down payment on an option to acquire exchangeable debentures issued by LGII.
Payment of the remaining 95% of the exercise price entitles the optionholder
to acquire debentures exchangeable for Series B Preferred Shares of the
Company. The Series B Preferred Shares are immediately convertible to Common
Shares. The options are presently out-of-the-money and are considered by
management to have little or no value.

(3) Mr. Amato ceased employment with the Company on December 6, 1999, prior to
which time he served as Director, Asset Development.

(4) Mr. Hogenkamp ceased employment with the Company on July 8, 1999, prior to
which time he served as Executive Vice-President, Corporate Affairs.

(5) Mr. Lee ceased employment with the Company on March 31, 1999, prior to which
time he served as Vice-President of Combination Operations and Alternative
Services.

(6) Raymond L. Loewen, whose position as a Director ceased in April 1999, is
obligated to purchase exchangeable debentures from Loewen Management
Investment Corporation ("LMIC"), a wholly-owned subsidiary of LGII. These
debentures in the principal amount of $22,530,000 were due to be

145
<PAGE>

purchased on June 15, 1999. The debenture purchase due on June 15, 1999 has
not been made. In addition, Mr. Loewen is obligated to purchase additional
LMIC debentures in the principal amount of $11,265,000 on each of June 15,
2000 and June 15, 2001.

(7) Mr. Schweer ceased employment with the Company on April 18, 2000, prior to
which time he served as Regional Manager, Funeral Home Division.

INDEBTEDNESS OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS

As at April 1, 2000, the aggregate indebtedness

(i) to the Company or any of its subsidiaries, or

(ii) to another entity which is the subject of a guarantee, support
agreement, letter of credit or similar arrangement or undertaking
provided by the Company or any of its subsidiaries,

of all officers, Directors, employees and former officers, Directors and
employees of the Company or any of its subsidiaries not entered into in
connection with securities purchase programs of the Company or any of its
subsidiaries was $2,416,166.

The following table sets forth the indebtedness of Directors, executive
officers and senior officers other than indebtedness pursuant to the MEIP. All
dollar amounts are expressed in United States dollars unless indicated
otherwise.

TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS
AND SENIOR OFFICERS OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVOLVEMENT OF LARGEST AMOUNT OUTSTANDING
THE COMPANY AMOUNT OUTSTANDING AS AT
NAME AND PRINCIPAL POSITION OR SUBSIDIARY (1) DURING 1999 ($) APRIL 1, 2000 ($)
- ---------------------------------------------------------------------------------------------------------------
George M. Amato (2) LGII is lender 751,492 764,643
- ---------------------------------------------------------------------------------------------------------------
Jeffrey L. Cashner Company is lender 278,895 179,177
Senior Vice-President, U.S. Operations (3)
- ---------------------------------------------------------------------------------------------------------------
Donald F. Delaney Company was lender 275,000 nil
Vice-President, Corporate Controller (4)
- ---------------------------------------------------------------------------------------------------------------
Peter Gray LGII was lender 35,000 nil
Vice-President Cemetery Operations (5)
- ---------------------------------------------------------------------------------------------------------------
Ronald Gushulak LGII is lender 40,000 40,000
Vice-President Funeral Operations (6)
- ---------------------------------------------------------------------------------------------------------------
Timothy R. Hogenkamp (7) LGII is lender 501,842 510,624
- ---------------------------------------------------------------------------------------------------------------
Kenneth E. Lee, Jr. (8) LGII was lender 50,000 nil
- ---------------------------------------------------------------------------------------------------------------
Raymond L. Loewen (9) Company is lender Cdn. 23,063 Cdn. 23,063
- ---------------------------------------------------------------------------------------------------------------
Loewen Development Corporation (10) Company is lender Cdn. 267,194 Cdn. 271,869
- ---------------------------------------------------------------------------------------------------------------
Donald W. Matthews (11) LGII is lender 48,407 48,288
- ---------------------------------------------------------------------------------------------------------------
Lawrence Miller LGII was lender 2,952,500 nil
William R. Shane
Osiris Investments, L.L.C. (12)
- ---------------------------------------------------------------------------------------------------------------
Frank Milles (13) LGII was lender 75,000 nil
- ---------------------------------------------------------------------------------------------------------------
Ronald P. Robertson (14) LGII was lender 25,000 nil
- ---------------------------------------------------------------------------------------------------------------
Michael L. Schweer (15) LGII is lender 671,955 683,714
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

146
<PAGE>

(1) This table and the amount of aggregate indebtedness disclosed in the
paragraph immediately preceding this table do not include an amount which
may become payable by Thomas C. Hardy, of New Orleans, Louisiana, to LGII
pursuant to a non-recourse promissory note delivered in connection with
Mr. Hardy's equity incentive agreement with LGII and Loewen Life.

(2) George M. Amato, of New York, New York, is indebted to LGII for a promissory
note in the amount of $723,854, which was used for investment purposes and
as a housing loan. The note bears interest at 7% per annum from April 30,
1998 and is due and payable on December 31, 2002. Mr. Amato has agreed to
provide, but has not yet provided at the date hereof, security for the loan.
The amounts shown in the table are net of a bonus payable in 1999 in the
amount of $59,905. Mr. Amato ceased employment with the Company on
December 6, 1999. The Company is seeking collection of this indebtedness.

(3) Jeffrey L. Cashner, of Montgomery, Texas, is indebted to the Company for a
secured promissory note in the amount of $320,000. The note bears interest
at 7% per annum from February 18, 1997 and was due and payable on
February 18, 1999. Mr. Cashner repaid $68,892 of his principal indebtedness
in September 1997, $37,213 in April 1999 and $38,719 in February 2000. The
balance of the indebtedness and accrued interest remains unpaid. The Company
intends to require this indebtedness to be repaid in the current year.

(4) Donald F. Delaney, of Blaine, Washington, was indebted to the Company for a
secured promissory note in the amount of $275,000, the proceeds of which
were used for a housing loan. The note was non-interest bearing.
Mr. Delaney repaid the full amount of his indebtedness in April 1999.

(5) Peter Gray, of Conroe, Texas, was indebted to LGII for a secured promissory
note in the amount of $35,000 given in connection with the purchase of a
home relating to his employment at the Philadelphia office of LGII. The note
bore interest at 7% per annum from October 1, 1995 and was due and payable
on May 1, 2000. This note was repaid in October 1999.

(6) Ronald Gushulak, of Conroe, Texas, is indebted to LGII for a promissory note
in the amount of $40,000. The note was issued in August 1995, is
non-interest bearing and no payments are required until April 1, 2001 after
which all after-tax incentive payments are to be applied to principal
repayment.

(7) Timothy R. Hogenkamp, of Cincinatti, Ohio, is indebted to LGII for an
unsecured demand loan expiring May 12, 2000 and personal advances which were
primarily used for investment purposes. The loan bears interest at 8.5% per
annum from May 12, 1998. The advances bear interest at 7% per annum from
date of advance. The amounts shown in the table are net of a bonus payable
in 1999 in the amount of $99,810. Mr. Hogenkamp ceased employment with the
Company on July 8, 1999. The Company is seeking collection of
this indebtedness.

(8) Kenneth E. Lee, Jr., of Doylestown, Pennsylvania, was indebted to LGII for a
promissory note in the amount of $50,000 given in connection with the
purchase of a home relating to his employment at the Philadelphia office of
LGII. The note bore interest at 7% per annum from June 2, 1995 and was due
and payable on June 2, 2000. This indebtedness was satisfied in connection
with the disposition by the Company of certain cemeteries and funeral homes
to an investor group led by McCown De Leeuw & Co. See Part III, Item 13.
Mr. Lee is no longer an employee of LGII.

(9) Raymond L. Loewen is indebted to the Company in the amount of Cdn. $23,063
relating to usage costs of Company property and other expenses incurred
during the period of his employment by the Company, which ceased on
October 8, 1998.

(10) Loewen Development Corporation ("LDC") of Burnaby, British Columbia, a
wholly-owned subsidiary of Loewen Capital Corporation, is an associate of
Raymond L. Loewen and Anne Loewen (the sole shareholders of Loewen Capital
Corporation). LDC is indebted to the Company in

147
<PAGE>

connection with the consolidation of funeral home operations as part of the
initial organization of the Company. LDC entered into a loan agreement,
security agreement and term promissory note on April 1, 1998 to formalize
this indebtedness with interest at 7% per annum from April 1, 1998 payable
quarterly with principal due on April 1, 2003. LDC suspended interest
payments on this loan effective July 1, 1999. The Company is seeking
collection of this indebtedness.

(11) Donald W. Matthews, of Reno, Nevada, is indebted to LGII for a promissory
note in the amount of $42,000 given in connection with the purchase of a
home relating to his employment at the Philadelphia office of LGII. The note
bears interest at 7% per annum from February 21, 1997 and is due and payable
on February 21, 2002. Mr. Matthews began paying interest on this note during
1999 and ceased employment with LGII in November 1999. The Company intends
to seek collection of this note.

(12) Lawrence Miller, of Ivyland, Pennsylvania, William R. Shane, of Cherry
Hill, New Jersey and Osiris Investments, L.L.C., a Delaware limited
liability company of which Messrs. Miller and Shane are the sole members,
were indebted to LGII for a promissory note in the amount of $2,952,500, the
proceeds of which were used to repay an obligation to and purchase an
obligation from Montefiore Cemetery Company Perpetual Care Fund.
Messrs. Miller and Shane and Osiris Investments, L.L.C. were jointly and
severally liable under the promissory note, which was secured by contingent
payments to be made to them by LGII in connection with LGII's acquisition of
Osiris Holding Corporation, a Delaware corporation of which Messrs. Miller
and Shane were the majority shareholders prior to such acquisition. The note
was non-interest bearing. This indebtedness was satisfied in connection with
the disposition by the Company of certain cemeteries and funeral homes to an
investor group led by McCown De Leeuw & Co. See Part III, Item 13.
Messrs. Miller and Shane are no longer employees of the Company.

(13) Frank Milles, of Langhorne, Pennsylvania was indebted to LGII for a
promissory note in the amount of $75,000 given in connection with the
purchase of a home relating to his employment at the Philadelphia office of
LGII. The note bore interest at 7% per annum from October 19, 1995 and was
due and payable on July 19, 2000. This indebtedness was satisfied in
connection with the disposition by the Company of certain cemeteries and
funeral homes to an investor group led by McCown De Leeuw & Co. See
Part III, Item 13. Mr. Milles is no longer an employee of LGII.

(14) Ronald P. Robertson, of Jamison, Pennsylvania, was indebted to LGII for a
promissory note in the amount of $75,000 given in connection with the
purchase of a home relating to his employment at the Philadelphia office of
LGII. The note bore interest at 7% per annum from August 15, 1995 and was
due and payable on August 15, 2000. Mr. Robertson repaid $25,000 of his
principal indebtedness in October 1996 and an additional $25,000 of his
principal indebtedness in December 1997. The remaining $25,000 was settled
as part of a severance agreement. Mr. Robertson is no longer an employee
of LGII.

(15) Michael L. Schweer, of Cincinnati, Ohio, is indebted to LGII for an
unsecured demand loan expiring May 12, 2000 and personal advances, which
were used for investment purposes. The loan bears interest at 8.5% per annum
from May 12, 1998. The advances bear interest at 7% per annum from date of
advance. Mr. Schweer ceased employment with the Company on April 18, 2000.
The Company is seeking collection of this indebtedness.

148
<PAGE>

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

VOTING SHARES AND PRINCIPAL HOLDERS THEREOF

The authorized capital of the Company consists of 990,000,000 shares divided
into 750,000,000 Common Shares without par value, 40,000,000 Class A Shares
without par value (the "Class A Shares") and 200,000,000 First Preferred Shares
without par value of which 1,000,000 shares are designated as 7.75% Cumulative
Redeemable Convertible First Preferred Shares, Series A ("Series A Preferred
Shares"), 425,000 shares are designated as Convertible First Preferred Shares,
Series B ("Series B Preferred Shares") and 8,800,000 shares are designated as
6.00% Cumulative Redeemable Convertible First Preferred Shares, Series C
("Series C Preferred Shares"). As of March 6, 2000 there were 74,145,466 Common
Shares outstanding. As of March 6, 2000, there were 8,800,000 Series C Preferred
Shares outstanding. There are no Class A Shares, Series A Preferred Shares or
Series B Preferred Shares outstanding. The Company has no current intention to
issue Class A Shares or Series A Preferred Shares. All of the Series B Preferred
Shares have been allotted for issuance pursuant to the MEIP.

The Directors and officers of the Company are not aware of any person or
company that beneficially owns, directly or indirectly, or exercises control or
direction over, shares carrying more than five percent (5%) of the voting rights
attached to the Common Shares of the Company as at the close of business on
March 15, 2000 other than:

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------ -------------------- ----------------
<S> <C> <C>
Canadian Imperial Bank of Commerce ......................... 10,062,125(1) 13.6%
Commerce Court
Toronto, Ontario M5L 1A2
</TABLE>

- ------------------------

(1) Information as to the number of Common Shares owned by Canadian Imperial
Bank of Commerce, a Canadian chartered bank, was obtained from their
Schedule 13G filed with the U.S. Securities and Exchange Commission on
June 16, 1999.

The following table shows: (i) the number of Common Shares beneficially
owned by each of the Directors, the Named Executive Officers (as defined herein)
and all Directors and executive officers as a group, as of April 1, 2000
excluding shares which such persons have the right to acquire within 60 days of
April 1, 2000 but do not actually own, (ii) the number of Common Shares which
each of such persons has the right to acquire within 60 days of April 1, 2000
but does not actually own, and (iii) the total number of Common Shares which
each of such persons owns as of April 1, 2000 and has the right to acquire
within 60 days of April 1, 2000. No Director or executive officer beneficially
owns 1% or more of the Common Shares outstanding. All of the Directors and
executive officers together beneficially own approximately 0.4% of the Common
Shares outstanding.

None of the Directors or Named Executive Officers is related to one another.

149
<PAGE>

SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMBER OF
SHARES
BENEFICIALLY RIGHT TO
OWNED, ACQUIRE TOTAL NUMBER
EXCLUDING SHARES OF SHARES
RIGHT TO WITHIN BENEFICIALLY
NAME ACQUIRE SHARES 60 DAYS OWNED
- ------------------------------------------------------------------------------------------
DIRECTORS:

Paul A. Houston -- -- --
- ------------------------------------------------------------------------------------------
John S. Lacey 434 1,000 1,434
- ------------------------------------------------------------------------------------------
Charles B. Loewen -- 24,750 24,750
- ------------------------------------------------------------------------------------------
James D. McLennan 7,658 22,179 29,837
- ------------------------------------------------------------------------------------------
Donna R. Moore -- -- --
- ------------------------------------------------------------------------------------------
William R. Riedl 597 1,000 1,597
- ------------------------------------------------------------------------------------------
John N. Turner 5,003 23,024 28,027
- ------------------------------------------------------------------------------------------
John J. Wiesner -- -- --
- ------------------------------------------------------------------------------------------
NAMED EXECUTIVE OFFICERS WHO ARE
NOT DIRECTORS:

Jeffrey L. Cashner 55 12,124 12,179
- ------------------------------------------------------------------------------------------
Robert B. Lundgren 9,005 -- 9,005
- ------------------------------------------------------------------------------------------
Bradley D. Stam -- 20,000 20,000
- ------------------------------------------------------------------------------------------
Michael G. Weedon 5 60,000 60,005
- ------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS:

Michael A. Cornelissen -- -- --
- ------------------------------------------------------------------------------------------
Dwight K. Hawes 205 44,191 44,396
- ------------------------------------------------------------------------------------------
Robert G. Heywood -- 8,695 8,695
- ------------------------------------------------------------------------------------------
Peter S. Hyndman 5 36,617 36,622
- ------------------------------------------------------------------------------------------
Gordon D. Orlikow -- -- --
- ------------------------------------------------------------------------------------------
Harry C.B. Rath 5 18,706 18,711
- ------------------------------------------------------------------------------------------
Nick Taylor -- -- --
- ------------------------------------------------------------------------------------------
TOTAL: ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP 22,972 272,286 295,258
- ------------------------------------------------------------------------------------------
</TABLE>

150
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The services of Michael A. Cornelissen, Senior Vice-President, Chief
Financial Officer are provided pursuant to a consulting agreement of June 30,
1999 between the Company and Cornscape Enterprises Ltd. ("Cornscape").
Mr. Cornelissen is an officer, director, and shareholder of Cornscape. Fees paid
by the Company to Cornscape pursuant to the consulting agreement with respect to
services provided in 1999 totalled $198,316.

In March 1999, the Company disposed of 124 cemeteries and three funeral
homes in the United States to an investor group which included Lawrence Miller
and William R. Shane (formerly part of the Company's senior management) and
which was led by McCown De Leeuw & Co., a private investment firm. Gross
proceeds of the disposition were $193 million before purchase price adjustments
and transaction costs, resulting in a pre-tax loss of $1.1 million. Additional
information regarding this sale is disclosed in Notes 4, 12 and 19 of the
Consolidated Financial Statements of the Company in Part II, Item 8.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's Directors, executive officers and beneficial owners of more than
10% of the outstanding Common Shares (collectively, "reporting persons") to file
with the U.S. Securities and Exchange Commission reports of ownership and
changes in ownership of equity securities of the Company. Based solely upon its
review of such reports and written representations from the reporting persons
that Form 5 was either filed or not required to be filed by such reporting
persons, the Company believes that all of the reporting persons (20 persons
total) complied with the Section 16(a) filing requirements during the year ended
1999, except as follows: Brian King, William Stewart and Robert G. Heywood
failed to file an Initial Statement of Beneficial Ownership on Form 3 within the
10-day period.

151
<PAGE>
PART IV

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

(a) DOCUMENTS FILED AS PART OF THIS REPORT:

(1) FINANCIAL STATEMENTS

THE LOEWEN GROUP INC.

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 1999 and 1998

Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997

Consolidated Statements of Retained Earnings (Deficit) for the Years
Ended December 31, 1999, 1998 and 1997

Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997

Notes to Consolidated Financial Statements

Supplementary Data: Quarterly Financial Data (unaudited)

LOEWEN GROUP INTERNATIONAL, INC.

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 1999 and 1998

Consolidated Statements of Operations and Deficit for the Years Ended
December 31, 1999, 1998 and 1997

Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997

Notes to Consolidated Financial Statements

(2) FINANCIAL STATEMENT SCHEDULE

Schedule II--Valuation and Qualifying Accounts

152
<PAGE>
(3) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
3 CHARTER DOCUMENTS

3.1 Certificate of Incorporation of The Loewen Group Inc.
("Loewen") issued by the British Columbia Registrar of
Companies ("Registrar") on October 30, 1985(1)

3.2 Altered Memorandum of Loewen, filed with the Registrar on
June 21, 1996(2)

3.3 Articles of Loewen, restated, filed with the Registrar on
March 1, 1988, as amended on March 30, 1988, April 21,
1988, May 19, 1989, May 28, 1992, May 20, 1993, June 29,
1994, December 21, 1995 and February 7, 1996(3)

4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES

4.1.1 Note Agreement, dated for reference September 1, 1993, by
and between Loewen and LGII re 9.62% Senior Guaranteed
Notes, Series D, due September 11, 2003, issued by Loewen
("Series D Notes"), as amended on June 10, 1994(1)

4.1.2 Second Amendment, dated for reference May 15, 1996, to Note
Agreement, dated for reference September 1, 1993, among
Loewen, LGII and institutions named therein, re Series D
Notes(4)

4.1.3 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party(5)

4.2 Guaranty Agreement by LGII re Series D Notes, dated for
reference April 1, 1993(1)

4.3.1 Note Agreement by LGII and Loewen re 6.49% Senior Guaranteed
Notes, Series E, due February 25, 2004, issued by LGII
("Series E Notes"), dated for reference February 1,
1994(1)

4.3.2 Second Amendment, dated for reference May 15, 1996, to Note
Agreement, dated for reference February 1, 1994, among
Loewen, LGII and Teachers Insurance and Annuity
Association of America, re Series E Notes(4)

4.3.3 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)

4.4 Guaranty Agreement by Loewen re Series E Notes, dated for
reference February 1, 1994(1)

4.5.1 Amended and Restated 1994 MEIP Credit Agreement, dated as of
June 14, 1994, amended and restated as of May 15, 1996
(the "MEIP Credit Agreement"), by and between Loewen
Management Investment Corporation, in its capacity as
agent for LGII ("LMIC"), Loewen and the banks listed
therein (the "MEIP Banks") and Wachovia Bank of Georgia,
N.A., as agent for the MEIP Banks ("MEIP Agent")(6)

4.5.2 First Amendment to the MEIP Credit Agreement, dated as of
December 2, 1996(7)

4.5.3 Second Amendment to the MEIP Credit Agreement, dated as of
April 30, 1997(7)

4.5.4 Third Amendment to the MEIP Credit Agreement, dated as of
May 21, 1997(8)

4.5.5 Fourth Amendment to the MEIP Credit Agreement, dated as of
September 29, 1997(8)

4.5.6 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)
</TABLE>

153
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
4.6 Security Agreement, dated as of June 14, 1994, by and
between LMIC and the MEIP Agent(1)

4.7 Guaranty dated as of June 14, 1994, by LGII in favor of the
MEIP Agent for the ratable benefit of the MEIP Banks(1)

4.8 Guaranty dated as of June 14, 1994, by Loewen in favor of
the MEIP Agent for the ratable benefit of the MEIP
Banks(1)

4.9 Exchange Acknowledgment by Loewen, with respect to the 1994
Exchangeable Floating Rate Debentures due July 1, 2001
issued by LGII, dated June 15, 1994(1)

4.10 Indenture, dated as of August 15, 1994, by and between LGII,
as issuer, Loewen, as guarantor, and State Street Bank and
Trust Company, as trustee with respect to 9.45% Junior
Subordinated Debentures, Series A, due 2024, issued by
LGII and guaranteed by Loewen(9)

4.11 MIPS Guarantee Agreement, dated August 15, 1994(9)

4.12 Indenture, dated as of March 20, 1996, by and between LGII,
as issuer, Loewen, as guarantor of the obligations of LGII
under the Indenture, and Fleet National Bank as Trustee,
with respect to Series 1 and 2 Senior Guaranteed Notes of
LGII(3)

4.13 Form of Senior Guarantee of LGII's Series 1 and 2 Notes
(included in Exhibit 4.12)

4.14 Form of Global Series 1 and 2 Exchange Notes of LGII(4)

4.15 Form of Physical Series 1 and 2 Exchange Notes of LGII(4)

4.16 Form of Senior Guarantee of LGII's Series 1 and 2 Exchange
Notes (included in Exhibits 4.14 and 4.15)

4.17.1 Amended and Restated Credit Agreement, dated as of March 27,
1998 ("BMO Credit Agreement"), among LGII, as borrower,
Loewen, as a guarantor, the lenders named therein, as the
lenders, Goldman, Sachs & Co., as the documentation agent,
and Bank of Montreal, as issuer, swingline lender and
administrative and syndication agent(8)

4.17.2 Summary of Terms and Conditions, dated March 30, 1999,
amending certain credit agreements to which Loewen is a
party (see Exhibit 4.1.3)

4.18 Collateral Trust Agreement, dated as of May 15, 1996, among
Bankers Trust Company, as trustee, Loewen, LGII and
various other pledgors(4)

4.19 Indenture, dated as of October 1, 1996, by and between LGII,
Loewen and Fleet National Bank, as trustee, with respect
to the Series 3 and 4 Notes(6)

4.20 Form of Senior Guarantee of LGII's Series 3 and 4 Notes
(included in Exhibit 4.19)

4.21 Form of Global Series 3 and 4 Exchange Notes of LGII(10)

4.22 Form of Physical Series 3 and 4 Exchange Notes of LGII(10)

4.23 Form of Senior Guarantee of LGII's Series 3 and 4 Exchange
Notes (included in Exhibits 4.21 and 4.22)
</TABLE>

154
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
4.24 Indenture, dated as of September 26, 1997, between Loewen,
as issuer, LGII, as guarantor, and The Trust Company of
Bank of Montreal, as trustee, with respect to the Series 5
Guaranteed Notes(11)

4.25 Form of Series 5 Guaranteed Notes of LGII(11)

4.26 Form of Loewen Guarantee of LGII's Series 5 Notes(11)

4.27 Indenture, dated as of September 30, 1997, between LGII, as
issuer, Loewen, as guarantor, and State Street Bank and
Trust Company, as trustee, with respect to the Series 5
Senior Guaranteed Notes due 2009(11)

4.28 Form of Global "PATS" Senior Guaranteed Notes due 2009 of
LGII(11)

4.29 Form of Physical "PATS" Senior Guaranteed Notes due 2009 of
LGII(11)

4.30 Form of Senior Guarantee of LGII's "PATS" Senior Guaranteed
Notes due 2009(11)

4.31 Shareholder Protection Rights Plan, dated as of April 20,
1990, as amended on May 24, 1990 and April 7, 1994 and
reconfirmed on May 17, 1995(1)

4.32 Form of Indenture by and between LGII, as issuer, Loewen, as
guarantor, and Fleet National Bank, as trustee, relating
to the Debt Securities that may be issued pursuant to
Registration Statement No. 333-29443(12)

4.33 Indenture dated as of May 28, 1998, between LGII, as issuer,
Loewen, as guarantor, and State Street Bank and Trust
Company, as trustee, with respect to the Series 6 and 7
Notes(13)

4.34 Form of Senior Guarantee of Series 6 and 7 Notes of LGII
(included in Exhibit 4.33)

4.35 Form of Global Series 6 and 7 Exchange Notes of LGII(14)

4.36 Form of Physical Series 6 and 7 Exchange Notes of LGII(14)

4.37 Form of Senior Guarantee of LGII's Series 6 and 7 Exchange
Notes (included in Exhibits 4.35 and 4.36)

4.38.1 Debtor-In-Possession Credit Agreement, dated as of June 1,
1999 (the "DIP Agreement"), by and among LGII, as debtor
and debtor-in-possession, each of LGII's subsidiaries
listed on the signature pages thereof, each as debtor and
debtor-in-possession, Loewen, the Lenders named therein,
as the initial Lenders, and First Union National Bank, as
the L/C Issuer and as the Administrative Agent for the
Lenders(15)

4.38.2 First Amendment to the DIP Agreement, dated as of July 16,
1999(15)

4.38.3 Second Amendment to the DIP Agreement, dated as of
August 25, 1999(16)

4.38.4 Third Amendment to the DIP Agreement, dated as of October
21, 1999(16)

4.38.5 Fourth Amendment to the DIP Agreement, dated as of
December 21, 1999(16)

4.39 Loewen and LGII hereby agree to furnish to the Commission,
upon request, a copy of the instruments which define the
rights of holders of long-term debt of Loewen and LGII.
None of such instruments not included as exhibits herein
collectively represents long-term debt in excess of 10% of
the consolidated total assets of Loewen or LGII.
</TABLE>

155
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
10 MATERIAL CONTRACTS

10.1 Receipt Agreement, dated as of January 3, 1996, for the
Cumulative Redeemable Convertible First Preferred Shares,
Series C, of Loewen ("Series C Shares")(3)

10.2 Undertaking by Raymond L. Loewen and Anne Loewen, dated as
of January 3, 1996, to vote in favor of the motion to
subdivide the Series C Shares(3)

*10.3 Form of Indemnification Agreement with Outside Directors(17)

*10.4 Form of Indemnification Agreement with Officers(17)

*10.5.1 The Loewen Group Inc. Corporate Incentive Plan(16)

*10.5.2 The Loewen Group Inc. Operations Incentive Plan(16)

*10.5.3 The Loewen Group Inc. Basic Employee Severance Plan(16)

*10.5.4 The Loewen Group Inc. Executive and Other Specified Employee
Severance Plan(16)

*10.5.5 The Loewen Group Inc. Confirmation Incentive Plan(16)

*10.5.6 The Loewen Group Inc. Retention Incentive Plan(16)

*10.5.7 Form of Employment and Release Agreement for Corporate and
Country Management(16)

*10.5.8 Form of Employment and Release Agreement for Employees Other
Than Corporate and Country Management(16)

*10.6 1994 Management Equity Investment Plan (the "MEIP")(17)

*10.7 Form of Executive Agreement executed by participants in the
MEIP(9)

*10.8 1994 Outside Director Compensation Plan, as restated and
amended as at January 9, 1997, and further amended as at
June 25, 1998(5)

*10.9 Employee Stock Option Plan (International), as restated and
amended as at September 17, 1998(5)

*10.10 Employee Stock Option Plan (Canada), as restated and amended
as at September 17, 1998(5)

*10.11 Form of Stay Put Bonus Plan Letters, dated February 26,
1999(5)

*10.12 Employment Agreement, dated April 12, 1991, by and between
Loewen and Dwight Hawes(1)

*10.13 Consulting Agreement, dated July 18, 1994, by and between
Loewen and Charles B. Loewen, LGII, and Corporate Services
International Inc.(1)

*10.14 Resignation and Release Agreement, effective June 10, 1996,
by and between Loewen, LGII and Robert O. Wienke(6)

*10.15 Employment Agreement, dated October 31, 1997, by and between
Loewen and Michael G. Weedon(8)

*10.16 Employment Agreement, dated January 30, 1998, by and between
Loewen and Brad Stam(8)

*10.17 Employment Agreement, dated October 26, 1998, by and between
Loewen and Peter S. Hyndman(5)

*10.18.1 Employment Agreement, dated November 30, 1998, by and
between Loewen and Robert Lundgren(5)
</TABLE>

156
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
*10.18.2 Indemnification Agreement, dated February 3, 1999, by and
between Loewen and Robert Lundgren(5)

11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

21 SUBSIDIARIES OF LOEWEN

23 CONSENTS OF EXPERTS

23.1 Consent of KPMG LLP

24 POWERS OF ATTORNEY (INCLUDED IN THE SIGNATURE PAGES TO THIS
REPORT)

27 FINANCIAL DATA SCHEDULE

99 ADDITIONAL EXHIBITS

99.1 Stock Purchase Agreement, dated as of June 14, 1996, by and
among Prime Succession, Inc. the other individuals or
entities listed on the signature pages thereof, Loewen and
Blackhawk Acquisition Corp.(18)

99.2 Put/Call Agreement, dated as of August 26, 1996, by and
among Blackstone, Blackstone Offshore Capital Partners II
L.P. ("Blackstone Offshore"), Blackstone Family Investment
Partnership II L.P. ("Blackstone Family"), PSI Management
Direct L.P. ("PSI"), LGII and Loewen(19)

99.3 Stockholders' Agreement, dated as of August 26, 1996, by and
among Prime Succession, inc. (to be renamed Prime
Succession Holdings, Inc.), Blackstone, Blackstone
Offshore, Blackstone Family, PSI and LGII(18)

99.4 Subscription Agreement, dated as of November 19, 1996, by
and among Rose Hills Holdings Corp. ("Rose Hills"),
Blackstone, Blackstone Rose Hills Offshore Capital
Partners L.P. ("Blackstone Rose Hills"), Blackstone
Family, Roses Delaware, Inc. ("RDI"), Loewen, LGII and RHI
Management Direct, L.P. ("RHI")(20)

99.5 Put/Call Agreement, dated as of November 19, 1996, by and
among Blackstone, Blackstone Offshore, Blackstone Family,
Blackstone Rose Hills, LGII, RDI, Loewen and RHI(20)

99.6 Stockholders' Agreement, dated as of November 19, 1996, by
and among Rose Hills, Blackstone, Blackstone Rose Hills,
Blackstone Family, RDI, LGII and RHI(20)

99.7 Form of Letter of Transmittal(21)

99.8 Form of Notice of Guaranteed Delivery(21)
</TABLE>

- ------------------------

* Compensatory plan or management contract

(1) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1994, filed on March 31, 1995 (File No. 0-18429)

(2) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, filed on August 14, 1996 (File No. 0-18429)

(3) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1995, filed on March 28, 1996, as amended (File No.
0-18429)

157
<PAGE>
(4) Incorporated by reference from the Registration Statement on Form S-4 filed
by Loewen on May 3, 1996, as amended by the Registration Statement on Form
S-4/A filed by Loewen on June 20, 1996 and the Registration Statement on
Form S-4/A filed by Loewen on August 26, 1996 (File No. 333-03135)

(5) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1998, filed on April 15, 1999 (File No. 1-12163)

(6) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed on November 14, 1996 (File No.
1-12163)

(7) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, filed on May 13, 1997 (File No. 1-12163)

(8) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1997, filed on March 30, 1998 (File No. 1-12163)

(9) Incorporated by reference from the combined Registration Statement on Form
F-9/F-3 filed by LGII and Loewen on July 1, 1994, as amended (File Nos.
33-81032 and 33-81034)

(10)Incorporated by reference from the Registration Statement on Form S-4 filed
by LGII and Loewen on November 18, 1996, as amended (File Nos. 333-16319 and
333-16319-01)

(11) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, filed on November 14, 1997 (File No.
1-12163)

(12) Incorporated by reference from the Registration Statement on Form S-3 filed
by Loewen and LGII on March 21, 1997, as amended (File Nos. 333-23747 and
333-23747-01)

(13) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1998, filed on August 13, 1998 (File No. 1-12163)

(14) Incorporated by reference from the Registration Statement on Form S-4 filed
by LGII and Loewen on August 26, 1998, as amended (File No. 333-62239-01)

(15) Incorporated by reference from Loewen's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, filed on August 13, 1999 (File
No. 1-12163)

(16) Incorporated by reference from Loewen's Annual Report on Form 10-K for the
year ended December 31, 1999, filed on March 16, 2000 (File No. 1-12163)

(17) Incorporated by reference from Loewen's Solicitation/Recommendation
Statement on Schedule 14D-9, filed on October 10, 1996, as amended

(18) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
August 26, 1996, filed October 11, 1996, as amended October 29, 1996 (File
No. 1-12163)

(19) Incorporated by reference from Loewen's Periodic Report on Form 8-K/A
No. 1, dated August 26, 1996, filed October 29, 1996 (File No. 1-12163)

(20) Incorporated by reference from Loewen's Periodic Report on Form 8-K, dated
November 19, 1996, filed December 27, 1996 (File No. 1-12163)

(21) Incorporated by reference from Amendment No. 1 to the Registration
Statement on Form S-4 filed by LGII and Loewen on September 21, 1998 (File
No. 333-62239-01)

158
<PAGE>
(b) REPORTS ON FORM 8-K

The following Current Reports on Form 8-K were filed by Loewen during the
last quarter of fiscal 1999:

<TABLE>
<CAPTION>
FILING DATE ITEM NUMBER DESCRIPTION
----------- ----------- -----------
<S> <C> <C>
November 2, 1999 (dated Item 5. Other Events Press release announcing third
November 1, 1999) quarter financial results

November 17, 1999 (dated Item 5. Other Events Press release announcing that
November 16, 1999) Loewen's current waivers for
non-compliance with certain
financial covenants in its
$200 million debtors-in-possession
financing have expired

November 26, 1999 (dated Item 5. Other Events Press release announcing the
November 17, 1999) appointment of Gordon D. Orlikow as
Senior Vice President of Human
Resources

December 2, 1999 (dated Item 5. Other Events Press release announcing the
December 1, 1999) resignation of Robert Lundgren, and
the election of Paul Houston, as
Loewen's President and Chief
Executive Officer

December 16, 1999 (dated Item 5. Other Events Press release announcing Loewen's
December 15, 1999) intention to apply to the courts for
approval for the disposition of up
to 201 funeral homes and
170 cemeteries in the United States
</TABLE>

(d) Financial statements of Loewen Group International, Inc. ("LGII") are
included in this Annual Report on Form 10-K because the outstanding
shares of LGII constitute a "substantial portion" of the collateral
(within the meaning of Securities and Exchange Commission Rule 3-10 under
Regulation S-X) that secures the Series 1 through 4 Notes and Series 6
and 7 Notes that were issued by LGII and guaranteed by Loewen.

159
<PAGE>
THE LOEWEN GROUP INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

DECEMBER 31, 1999

(IN THOUSANDS OF U.S. DOLLARS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) END OF PERIOD
- ----------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Current -- Allowance for doubtful
accounts

Year ended December 31, 1999........ $33,862 $ 8,374 $ 335 $ (5,911) $36,660
Year ended December 31, 1998(2)..... 25,481 14,322 519 (6,460) 33,862
Year ended December 31, 1997(2)..... 18,616 11,935 1,322 (6,392) 25,481

Current -- Allowance for contract
cancellations and refunds

Year ended December 31, 1999........ $24,118 $14,281 $(1,327) $(19,388) $17,684
Year ended December 31, 1998(2)..... 7,388 33,193 541 (17,004) 24,118
Year ended December 31, 1997(2)..... 9,100 20,415 1,481 (23,608) 7,388

Allowance for long-term contract
cancellations and refunds

Year ended December 31, 1999........ $56,892 $33,323 $(3,097) $(46,457) $40,661
Year ended December 31, 1998(2)..... 20,112 65,669 1,338 (30,227) 56,892
Year ended December 31, 1997(2)..... 19,848 26,042 2,372 (28,150) 20,112
</TABLE>

- ------------------------------

(1) Uncollected receivables written off, net of recoveries

(2) The 1998 and 1997 amounts have been reclassified to conform with the
presentation adopted in 1999.

160
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this Form 10K/A to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S> <C> <C>
THE LOEWEN GROUP INC.

Dated: April 28, 2000 By: /s/ PAUL A. HOUSTON
-----------------------------------------
Paul A. Houston
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10K/A has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<S> <C>
Dated: April 28, 2000 /s/ PAUL A. HOUSTON
---------------------------------------------------
Paul A. Houston
President, Chief Executive Officer and Director
(Principal Executive Officer)

Dated: April 28, 2000 /s/ MICHAEL A. CORNELISSEN*
---------------------------------------------------
Michael A. Cornelissen
Senior Vice-President, Chief Financial Officer
(Principal Financial Officer)

Dated: April 28, 2000 /s/ DWIGHT K. HAWES*
---------------------------------------------------
Dwight K. Hawes
Senior Vice-President, Corporate Controller
(Principal Accounting Officer)

Dated: April 28, 2000 /s/ JOHN S. LACEY*
---------------------------------------------------
John S. Lacey
Chairman of the Board

Dated: April 28, 2000 /s/ CHARLES B. LOEWEN*
---------------------------------------------------
Charles B. Loewen
Director

Dated: April 28, 2000 /s/ JAMES D. MCLENNAN*
---------------------------------------------------
James D. McLennan
Director
</TABLE>

161
<PAGE>

<TABLE>
<S> <C>
Dated: April 28, 2000 /s/ DONNA R. MOORE*
---------------------------------------------------
Donna R. Moore
Director

Dated: April 28, 2000 /s/ WILLIAM R. RIEDL*
---------------------------------------------------
William R. Riedl
Director

Dated: April 28, 2000 /s/ JOHN N. TURNER*
---------------------------------------------------
The Right Honourable John N. Turner,
P.C., C.C., Q.C.
Director

Dated: April 28, 2000 /s/ JOHN J. WIESNER*
---------------------------------------------------
John J. Wiesner
Director
</TABLE>

AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

The undersigned is the Registrant's authorized representative in the United
States.

<TABLE>
<S> <C>
Dated: April 28, 2000 /s/ DONALD F. DELANEY*
-------------------------------------------------
Donald F. Delaney
Vice-President, Corporate Controller
</TABLE>

<TABLE>
<S> <C>
*By: /s/ PAUL A. HOUSTON
--------------------------------------
Paul A. Houston
ATTORNEY-IN-FACT
</TABLE>

162

<PAGE>

Exhibit 23.1

[LETTERHEAD OF KPMG LLP]

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
The Loewen Group Inc. and Loewen Group International, Inc.

We consent to incorporation by reference in the registration statements on
Forms S-8 (Nos. 333-07033, 333-22551, 333-38551, 333-38553, 33-42892,
33-79604, 33-79602, 333-52811), S-3 (Nos. 333-23747, 333-43519, 333-43463),
and S-4 (No. 333-09523) of The Loewen Group Inc. and the registration
statement on Form S-3 (No. 333-23747) of Loewen Group International, Inc. of
our reports:

(i) dated March 14, 2000, except as to Note 22, which is as of April
7, 2000, relating to the consolidated balance sheets of The Loewen
Group Inc. as at December 31, 1999 and 1998 and the consolidated
statements of operations, retained earnings (deficit) and cash flows
of The Loewen Group Inc. for each of the years in the three year
period ended December 31, 1999 and related schedule; and

(ii) dated March 14, 2000, except as to Note 22, which is as of April
7, 2000, relating to the consolidated balance sheets of Loewen Group
International, Inc. as at December 31, 1999 and 1998 and the
consolidated statements of operations and deficit and cash flows of
Loewen Group International, Inc. for each of the years in the three
year period ended December 31, 1999.

all of which reports appear in the December 31, 1999 annual report on
Form 10-K/A of The Loewen Group Inc.

Our reports include Comments by Auditors for U.S. readers on Canada-U.S.
reporting differences which contains additional comments regarding conditions
which raise substantial doubt about each of the entities' ability to continue
as a going concern. The consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of that uncertainty.

/s/ KPMG LLP

Chartered Accountants
Vancouver, Canada

April 28, 2000