SERVICE CORPORATION INTERNATIONAL, 10-Q, 1999-11-12

SERVICE CORPORATION INTERNATIONAL
10-Q, 1999-11-12
PERSONAL SERVICES

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<PAGE> 1
FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

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

FOR THE TRANSITION PERIOD FROM ___________ TO __________

COMMISSION FILE NUMBER 1-6402-1

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

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

TEXAS 74-1488375
(State or other jurisdiction of (I. R. S. employer
incorporation or organization) identification number)

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

(713) 522-5141
(Registrant's telephone number, including area code)

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

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 and (2) has been subject to the filing
requirements for the past 90 days.

YES X NO
--- ---

The number of shares outstanding of the registrant's common stock as of October
29, 1999, was 272,060,576 (excluding treasury shares).

<PAGE> 2

SERVICE CORPORATION INTERNATIONAL

INDEX

<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Income -
Three and Nine Months Ended September 30, 1999 and 1998 3

Consolidated Balance Sheet -
September 30, 1999 and December 31, 1998 4

Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 5

Consolidated Statement of Stockholders' Equity -
Nine Months Ended September 30, 1999 6

Notes to Consolidated Financial Statements 7 - 13

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 - 27

Item 3. Quantitative and Qualitative Disclosures about Market Risk 28

Part II. Other Information

Item 1. Legal Proceedings 29

Item 5. Other Information 30

Item 6. Exhibits and Reports on Form 8-K 31

Signature 32
</TABLE>
<PAGE> 3

ITEM 1. FINANCIAL STATEMENTS

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share amounts) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues.............................................................. $ 776,845 $ 712,520 $ 2,511,137 $ 2,101,594
Costs and expenses ................................................... (648,200) (538,814) (1,984,036) (1,524,070)
----------- ---------- ----------- -----------
Gross profit ......................................................... 128,645 173,706 527,101 577,524

General and administrative expenses .................................. (19,322) (15,422) (55,839) (49,681)
Restructuring charge ................................................. -- -- (89,884) --
----------- ---------- ----------- -----------
Income from operations ............................................... 109,323 158,284 381,378 527,843

Interest expense ..................................................... (59,404) (47,816) (173,613) (125,990)
Other income ......................................................... (334) 18,087 27,034 35,266
----------- ---------- ----------- -----------
(59,738) (29,729) (146,579) (90,724)
----------- ---------- ----------- -----------
Income before income taxes and extraordinary gain .................... 49,585 128,555 234,799 437,119
Provision for income taxes ........................................... (17,530) (45,342) (84,848) (154,172)
----------- ---------- ----------- -----------

Income before extraordinary gain ..................................... 32,055 83,213 149,951 282,947
Extraordinary gain on early extinguishments of debt
(net of income taxes of $1,071) ................................... -- -- 1,885 --
----------- ---------- ----------- -----------
Net income ........................................................... $ 32,055 $ 83,213 $ 151,836 $ 282,947
=========== =========== =========== ===========

Earnings per share:
Basic:
Income before extraordinary gain .................. $ .12 $ .32 $ .55 $ 1.11
Extraordinary gain on early extinguishments
of debt ........................................ -- -- .01 --
----------- ---------- ----------- -----------
Net income ........................................ $ .12 $ .32 $ .56 $ 1.11
=========== =========== =========== ===========
Diluted:
Income before extraordinary gain .................. $ .12 $ .32 $ .55 $ 1.08
Extraordinary gain on early extinguishments
of debt ........................................ -- -- .01 --
----------- ---------- ----------- -----------
Net income ........................................ $ .12 $ .32 $ .56 $ 1.08
=========== =========== =========== ===========

Dividends per share .................................................. $ .09 $ .09 $ .27 $ .27
=========== =========== =========== ===========

Basic weighted average number of shares .............................. 272,060 257,380 272,354 255,673
=========== =========== =========== ===========
Diluted weighted average number of shares ............................ 273,079 263,416 274,368 262,308
=========== =========== =========== ===========
</TABLE>

(See notes to consolidated financial statements)

<PAGE> 4

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>

September 30, December 31,
(Dollars in thousands, except share amounts) 1999 1998
- ----------------------------------------------------------------------------------------------

<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 205,837 $ 358,210
Receivables, net of allowances ..................... 598,348 565,552
Inventories ........................................ 209,445 189,070
Other .............................................. 78,974 96,248
------------ ------------
Total current assets .......................... 1,092,604 1,209,080
------------ ------------

Investments - insurance subsidiaries ........................ 1,284,291 1,234,678
Prearranged funeral contracts ............................... 3,079,762 2,588,806
Long-term receivables, net of allowances .................... 1,587,720 1,408,076
Cemetery property, at cost .................................. 2,183,996 2,035,897
Property, plant and equipment, at cost (net) ................ 1,956,475 1,824,979
Deferred charges and other assets ........................... 1,285,766 1,151,430
Names and reputations (net) ................................. 2,501,823 1,813,212
------------ ------------
$ 14,972,437 $ 13,266,158
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........... $ 600,058 $ 452,354
Current maturities of long-term debt ............... 88,718 96,067
Income taxes ....................................... 99,551 81,904
------------ ------------
Total current liabilities ..................... 788,327 630,325
------------ ------------

Long-term debt .............................................. 4,111,305 3,764,590
Reserves and annuity benefits - insurance subsidiaries ...... 1,292,835 1,207,169
Deferred prearranged funeral contract revenues .............. 3,306,471 2,819,794
Deferred income taxes ....................................... 833,612 797,086
Other liabilities ........................................... 931,760 893,092

Stockholders' equity:
Common stock, $1 per share par value, 500,000,000
shares authorized, 272,060,576 and 259,201,104,
issued and outstanding (net of 2,796,545 and
68,373 treasury shares, at cost) .............. 272,060 259,201
Capital in excess of par value ..................... 2,156,240 1,646,765
Retained earnings .................................. 1,311,146 1,232,758
Accumulated other comprehensive (loss) income ...... (31,319) 15,378
------------ ------------
Total stockholders' equity .................... 3,708,127 3,154,102
------------ ------------
$ 14,972,437 $ 13,266,158
============ ============
</TABLE>

(See notes to consolidated financial statements)

4
<PAGE> 5

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>

Nine months ended
September 30,
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................. $ 151,836 $ 282,947
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ..................................... 185,092 133,880
Provision for deferred income taxes ............................... 18,082 26,762
Restructuring charge .............................................. 89,884 --
Extraordinary gain on early extinguishments of debt,
net of income taxes ............................................. (1,885) --
Gains from dispositions (net) ..................................... (15,969) (24,426)
Realized gains on sales of investments ............................ (25,495) --
Realized losses on sales of investments ........................... 24,691 --
Change in assets and liabilities, net of effects from acquisitions:
Increase in receivables ...................................... (181,753) (162,353)
Increase in other assets ..................................... (9,413) (70,405)
Increase in payables and other liabilities ................... 101,920 65,204
Other ........................................................ (9,993) 4,329
----------- -----------
Net cash provided by operating activities .................................. 326,997 255,938
----------- -----------

Cash flows from investing activities:
Capital expenditures .............................................. (160,998) (152,990)
Net effect of prearranged funeral production and
maturities ....................................................... (74,641) 53,097
Purchases of securities - insurance subsidiaries .................. (1,454,778) (768,315)
Sales of securities - insurance subsidiaries ...................... 1,306,616 759,477
Proceeds from sales of property and equipment ..................... 67,125 27,563
Acquisitions, net of cash acquired ................................ (74,064) (668,830)
Loans issued by lending subsidiary ................................ (67,429) (115,527)
Principal payments received on loans issued by
lending subsidiary ............................................... 91,190 62,631
Other ............................................................. (11,085) 1,376
----------- -----------
Net cash used in investing activities ...................................... (378,064) (801,518)
----------- -----------

Cash flows from financing activities:
Net increase in borrowings under revolving
credit agreements ................................................ 611,074 257,226
Proceeds from issuance of long-term debt .......................... -- 500,000
Payments of long-term debt ........................................ (228,142) (61,433)
Early extinguishments of long-term debt ........................... (365,936) --
Repurchase of common stock ........................................ (45,750) --
Dividends paid .................................................... (72,294) (65,156)
Bank overdrafts and other ......................................... (258) (14,954)
----------- -----------
Net cash (used in) provided by financing activities ........................ (101,306) 615,683
----------- -----------
Net (decrease) increase in cash and cash equivalents ....................... (152,373) 70,103
Cash and cash equivalents at beginning of period ........................... 358,210 46,877
----------- -----------
Cash and cash equivalents at September 30, 1999 and 1998 ................... $ 205,837 $ 116,980
=========== ===========
</TABLE>

(See notes to consolidated financial statements)

<PAGE> 6

SERVICE CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Accumulated
Capital in other
Common excess Retained comprehensive
(Dollars in thousands) stock of par value earnings income (loss) Total
- --------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ..................... $ 259,201 $ 1,646,765 $ 1,232,758 $ 15,378 $ 3,154,102

Comprehensive income:
Net income ................................. 151,836 151,836

Other comprehensive loss:
Foreign currency translation ............ (18,727) (18,727)
Unrealized loss on securities ........... (27,970) (27,970)
-----------
Total other comprehensive loss .......... (46,697)
-----------
Comprehensive income ....................... 105,139

Common stock issued:
Acquisitions ............................... 15,506 550,325 565,831
Stock option exercises and stock grants .... 170 1,382 1,552
Debenture conversions ...................... 44 657 701

Repurchase of common stock .................... (2,861) (42,889) (45,750)

Dividends on common stock ..................... (73,448) (73,448)
----------- ----------- ----------- ----------- -----------

Balance at September 30, 1999 .................... $ 272,060 $ 2,156,240 $ 1,311,146 $ (31,319) $ 3,708,127
=========== =========== =========== =========== ===========
</TABLE>

The Company's comprehensive income for the nine months ended September 30, 1998,
of $280,583 consisted of net income of $282,947, a foreign currency translation
adjustment of $(14,693), and an unrealized gain on securities of $12,329.

(See notes to consolidated financial statements)

6
<PAGE> 7

SERVICE CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE,
RATIO AMOUNTS AND NUMBER OF LOCATIONS)

1. NATURE OF OPERATIONS

Service Corporation International (the "Company" or "SCI") is the largest
funeral and cemetery company in the world. At September 30, 1999, the Company
operated 3,823 funeral service locations, 524 cemeteries and 198 crematoria
located in 20 countries on five continents.

The Company's operations consist of funeral homes, cemeteries, crematoria
and related businesses. Company personnel at the funeral service locations
provide all professional services relating to funerals, including the use of
funeral facilities and motor vehicles. Funeral related merchandise is sold at
funeral locations and certain funeral service locations contain crematoria. The
Company sells price guaranteed prearranged funeral contracts whereby a customer
selects the terms of a funeral to be performed in the future. The Company's
cemeteries provide cemetery interment rights (including mausoleum spaces, lots,
and lawn crypts) and certain merchandise including burial vaults and stone and
bronze memorials. These items are sold on an at need or preneed basis. Company
personnel at cemeteries perform interment services and provide management and
maintenance of cemetery grounds. Certain cemeteries contain crematoria. The
Company has approximately 167 combination facilities in which a funeral service
location is contained within a cemetery.

The financial services segment represents a combination of the Company's
insurance operations primarily related to the funding of prearranged funeral
contracts, prearranged funeral and cemetery trust administration, investment
management and lending activities providing capital financing for independent
funeral home and cemetery operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The consolidated financial statements for the three and
nine months ended September 30, 1999 and 1998 include the accounts of SCI and
all majority-owned subsidiaries and are unaudited but include all adjustments,
consisting of normal recurring accruals and any other adjustments which
management considers necessary for a fair presentation of the results for these
periods. These consolidated financial statements have been prepared in a manner
consistent with the accounting policies described in the annual report on Form
10-K filed with the Securities and Exchange Commission (the "Commission") for
the year ended December 31, 1998, and should be read in conjunction therewith.
The year-end consolidated balance sheet was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the full year period. Certain
reclassifications have been made to the prior period to conform to the current
period presentation with no effect on previously reported net income, financial
condition or cash flows.

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

3. ACQUISITIONS

In January 1999, a wholly owned subsidiary of the Company merged with Equity
Corporation International ("ECI") in a stock-for-stock transaction in which ECI
shareholders received approximately 15,501 shares of Company common stock valued
at approximately $557,000 and approximately 1,200 options to purchase Company
common stock valued at approximately $8,628. At the time of the merger, ECI
owned 359 funeral service locations and 80 cemeteries in North America.

7
<PAGE> 8
Exclusive of the merger with ECI, the Company acquired 72 funeral service
locations, 15 cemeteries and 2 crematoria during the nine months ended September
30, 1999, for an aggregate purchase price of approximately $89,700. The Company
acquired 255 funeral service locations, 40 cemeteries and 14 crematoria during
the nine months ended September 30, 1998, for an aggregate purchase price of
approximately $606,800. Additionally in July, 1998, the Company acquired
American Memorial Life Insurance Company ("AML"), the prearranged funeral
services division of American Annuity Group, for $164,000. AML offers a variety
of prearranged and final expense life insurance and annuity products to finance
prearranged funerals.

The consideration for these acquisitions consisted of combinations of cash,
common stock of the Company and issued debt. All acquisitions have been
accounted for under the purchase method of accounting; therefore, the operating
results of these acquisitions have been included since their respective
acquisition dates.

The effect of acquisitions, net of cash acquired, on the consolidated
balance sheet at September 30, was as follows:

1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Current assets .......................................... $ 109,570 $ 55,577
Investments - insurance subsidiaries .................... -- 622,379
Prearranged funeral contracts ........................... 309,169 47,802
Long-term receivables ................................... 44,891 74,690
Cemetery property ....................................... 201,893 163,680
Property, plant and equipment, net ...................... 160,890 84,342
Deferred charges and other assets ....................... (6,928) 138,391
Names and reputations ................................... 731,474 350,099
Current liabilities ..................................... (136,446) (65,588)
Long-term debt .......................................... (338,912) (62,907)
Reserves and annuity benefits - insurance subsidiaries... -- (594,848)
Deferred prearranged funeral contract revenues .......... (315,753) (45,870)
Deferred income taxes and other liabilities ............. (119,953) (51,160)
Stockholders' equity .................................... (565,831) (47,757)
--------- ---------
Cash used for acquisitions ......... $ 74,064 $ 668,830
========= =========
</TABLE>

4. PREARRANGED FUNERAL ACTIVITIES

Unperformed price guaranteed prearranged funeral contracts not funded
through Company owned insurance subsidiaries are included in the consolidated
balance sheet as "Prearranged funeral contracts." This balance represents
amounts due from trust accounts, customer receivables, or third party insurance
companies. A corresponding credit is recorded to "Deferred prearranged funeral
contract revenues." Prearranged funeral contracts are recognized in funeral
revenues at the time the funeral services are performed. Trust earnings and
increasing insurance benefits from third party insurance companies are intended
to cover future increases in the cost of providing price guaranteed funeral
services and are accrued and deferred until the funeral services are performed,
at which time the funds are recognized in funeral revenues. Net obtaining costs
incurred pursuant to the sales of trust funded and third party insurance funded
prearranged funeral contracts are included in "Deferred charges and other
assets" in the consolidated balance sheet. The net obtaining costs include sales
commissions and certain other direct costs which are deferred and amortized over
a period representing the estimated life of the prearranged funeral contracts.

8
<PAGE> 9
Prearranged funeral contracts may also be funded by insurance policies or
annuities written by the Company's wholly-owned insurance subsidiaries. These
insurance subsidiaries follow generally accepted accounting principles for life
insurance companies. As part of the funding through Company insurance
subsidiaries of prearranged funeral contracts, the insurance subsidiaries invest
cash received for such contracts in debt and marketable equity securities that
are classified as available-for-sale. These securities are included in the
consolidated balance sheet as "Investments-insurance subsidiaries" and are
included at quoted market values, if readily marketable, or at the Company's
estimated fair value if not readily marketable. Policy acquisition costs are
deferred and included in "Deferred charges and other assets" in the consolidated
balance sheet and amortized in accordance with generally accepted accounting
principles for life insurance companies.

The total value of unperformed prearranged funeral contracts includes
contracts that are to be funded by trust, third party insurance companies, or by
the Company's insurance subsidiaries. The total value represents the original
contract values plus any accumulated trust fund earnings or increasing insurance
benefits. The total value of unperformed prearranged funeral contracts that are
trust funded or funded by third party insurance companies are included in
"Deferred prearranged funeral contract revenues" in the consolidating balance
sheet. In accordance with generally accepted accounting principles for life
insurance companies, the Company records an actuarially determined amount
included in "Reserves and annuity benefits - insurance subsidiaries" in the
consolidated balance sheet representing future amounts to be funded from the
Company's insurance subsidiaries for SCI and non-SCI unperformed prearranged
funeral contracts. The total value of all SCI unperformed prearranged funeral
contracts is shown below as if the contracts funded through the Company's
insurance subsidiaries were valued at original contract values plus increasing
insurance benefits.

September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Deferred prearranged funeral contract revenues $3,306,471 $2,819,794
SCI contracts funded by Company owned insurance subsidiaries 1,072,194 932,056
------------------ -----------------
Total value of unperformed prearranged funeral contracts $4,378,665 $3,751,850
================== =================
</TABLE>

5. DEBT
Debt at September 30, 1999 and December 31, 1998 was as follows:
<TABLE>
<CAPTION>

September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Bank revolving credit agreements and commercial paper $1,269,760 $ 650,596
Fixed rate notes, interest rates ranging from 6.0% - 8.7%, due 2000
through 2020 2,725,811 2,763,137
Convertible debentures 49,278 49,979
Mortgage notes and other debt 174,152 416,833
Deferred loan costs (18,978) (19,888)
------------------ -----------------
Total debt 4,200,023 3,860,657
Less current maturities (88,718) (96,067)
------------------ -----------------
Total long-term debt $4,111,305 $3,764,590
================== =================
</TABLE>

As of September 30, 1999, the Company's primary revolving credit agreements
provided for borrowings up to $1,800,000 and consisted of three committed
facilities - two 364-day facilities and a 5-year, multi-currency facility. On
November 2, 1999, these credit agreements were modified and the maximum
available borrowings were reduced to $1,600,000 due to the Company's reduced
credit needs. These facilities are primarily used to support commercial paper
issuance and for general corporate purposes.

One 364-day facility allows for borrowings up to $300,000. This facility
expires June 25, 2000, but the outstanding balance may be converted into a
two-year term loan at the Company's option. Interest rates are based on various
indices as

<PAGE> 10
determined by the Company. A facility fee, which was 0.125% at September 30,
1999, is paid quarterly on the total commitment amount. On November 2, 1999,
this facility fee was increased to 0.25% and can range from 0.25% to 0.50%
depending upon the Company's senior debt ratings.

The second 364-day facility, which expired on November 2, 1999, permitted
borrowings up to $800,000 at September 30, 1999. An annual facility fee is paid
quarterly on the total commitment amount and was 0.09% at September 30, 1999. On
November 2, 1999, this facility was extended for another 364 days and now allows
for borrowings up to $600,000. On this date, the facility fee was increased to
0.25% and can range from 0.25% to 0.50% depending upon the Company's senior debt
ratings.

The 5-year facility allows for borrowings up to $700,000, including
$500,000 in various foreign currencies. This facility expires June 27, 2002.
Interest rates on this facility are based on various indices as determined by
the Company. An annual facility fee is paid quarterly and can range from 0.07%
to 0.15% based on the Company's senior debt ratings and was 0.10% on September
30, 1999. On November 2, 1999, the facility fee was increased to 0.25% and can
range from 0.25% to 0.50% depending upon the Company's senior debt ratings. At
September 30, 1999, $274,960 in various foreign currencies was outstanding under
the 5-year facility with a weighted average interest rate of 4.78%. At December
31, 1998, $217,345 was outstanding in various foreign currencies under the same
facility with a weighted average interest rate of 5.65%.

At September 30, 1999, $994,800 of commercial paper was outstanding with a
weighted average interest rate of 5.90% ($433,251 outstanding at December 31,
1998 with a weighted average interest rate of 6.68%). The Company's commercial
paper program is backed by the above facilities. The commercial paper borrowings
and revolving notes generally have maturities ranging from 1 to 180 days. Since
it is the Company's intent to refinance borrowings under these facilities with
long-term debt or equity, the Company has classified such borrowings as
long-term debt.

The credit facilities described above, as modified, contain customary
restrictive covenants requiring the Company to maintain certain financial ratios
and places limitations on guarantees, subsidiary borrowings and cash
distributions.

In March 1999, the Company repurchased two issues of debt. On March 26,
the Company repurchased $200,000 floating-rate notes, which were originally due
April 2011. These notes were to be remarketed in April 1999 as fixed-rate
notes. The Company chose to refinance with commercial paper to maintain
floating-rate exposure. The purchase price was $200,000 plus a premium of
approximately $22,185 and accrued interest resulting in an extraordinary after
tax loss of $14,148. On March 31, the Company repurchased $143,750 of ECI
convertible debentures, which were originally due December 2004. This
repurchase was effected by a change-of-control clause allowing the holders to
put the bonds back to the Company after the acquisition of ECI. The purchase
price was $143,750 plus accrued interest and resulted in an extraordinary gain
of $25, 141 ($16,033 net of tax) relating to the unamortized premium reflecting
the market valuation of the debentures at the date ECI merged with the Company.
These debentures were also refinanced with commercial paper.

6. DERIVATIVES

The Company has entered into various derivative financial instruments ("swap
agreements") with high quality financial institutions to hedge potential
exposures in interest and foreign exchange rates. The Company uses local
currency borrowings in addition to these swap agreements to hedge the Company's
net investment in foreign assets and to manage its mix of fixed and floating
rate debt. The Company has procedures in place to monitor and control the use of
derivatives and only enters into transactions with a limited group of
creditworthy financial institutions. The Company does not engage in derivative
transactions for speculative or trading purposes, nor is it a party to leveraged
derivatives.

Excluding $183,580 of debt related to the Company's lending activities, the
Company's debt outstanding at September 30, 1999 had a weighted average interest
rate of 6.50% compared to a weighted average interest rate of 6.77% at December
31, 1998. After giving consideration to the interest rate and the cross-currency
interest rate swap agreements, the weighted average interest rate at September
30, 1999 was 5.92% compared to 6.16% at December 31, 1998. The financial
instruments associated with the 5.92% weighted average interest rate at
September 30, 1999, consisted of approximately 58% of fixed interest rate debt
at a weighted average interest rate of 6.19% and approximately 42% of floating
interest rate debt at a weighted average interest rate of 5.54%. After inclusion
of the swap agreements, approximately $1,843 of the Company's indebtedness
was foreign-denominated.

10
<PAGE> 11
The net fair value of the swap agreements at September 30, 1999, was an
asset of $101,100 ($97,944 at December 31, 1998). Fair values were obtained from
the counterparties to the agreements and represent their estimate of the amount
the Company would pay or receive to terminate the swap agreements based upon the
existing terms and current market conditions.

7. RATIO OF EARNINGS TO FIXED CHARGES

Nine months
ended September 30,
1999 1998
----------------------------------------
2.15 3.88

For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes and extraordinary gain; (1) less
undistributed income of equity investees which are less than 50% owned, (2) plus
the minority interest of majority-owned subsidiaries with fixed charges and (3)
plus fixed charges (excluding capitalized interest). Fixed charges consist of
interest expense, whether capitalized or expensed, amortization of debt costs,
and one-third of rental expense which the Company considers representative of
the interest factor in the rentals. The decrease in the Company's ratio of
earnings to fixed charges in 1999 is attributable to the $89,884 pretax
restructuring charge recorded during the first quarter of 1999 (see note 10) and
increased interest expense related to additional indebtedness attributable to
business acquisitions consummated subsequent to September 30, 1998. Without the
restructuring charge, the ratio of earnings to fixed charges would have been
2.59.

8. SEGMENT REPORTING

The Company manages its operations based on service and geography. The
Company's primary reportable operating segments presented below are based on
services and include funeral, cemetery, and insurance operations. The Company's
geographic segments include North America, France, Other Europe and Other
Foreign. The Company conducts funeral operations in all geographical regions,
cemetery operations in all regions except France, and insurance operations in
North America and France.

The Company's reportable segment information was as follows:

<TABLE>
<CAPTION>
Reportable
Funeral Cemetery Insurance Segments
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers:
Three months ended September 30,
1999 ...................................................... $ 469,138 $ 233,837 $ 68,654 $ 771,629
1998 ...................................................... 433,276 213,369 60,570 707,215

Nine months ended September 30,
1999 ...................................................... $1,526,957 $ 742,863 $ 224,850 $2,494,670
1998 ...................................................... 1,351,603 636,138 98,888 2,086,629

- -----------------------------------------------------------------------------------------------------------------------
Gross profit:
Three months ended September 30,
1999 ...................................................... $ 64,736 $ 56,549 $ 4,891 $ 126,176
1998 ...................................................... 85,253 78,248 7,568 171,069

Nine months ended September 30,
1999 ...................................................... $ 278,531 $ 218,370 $ 22,444 $ 519,345
1998 ...................................................... 308,622 250,365 11,400 570,387
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
11

<PAGE> 12
The following table reconciles reportable segment gross profit to the
Company's consolidated income before income taxes and extraordinary gain:

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross profit reportable segments ............................ $ 126,176 $ 171,069 $ 519,345 $ 570,387
Other financial services income from operations .... 2,469 2,637 7,756 7,137
General and administrative expenses ................ (19,322) (15,422) (55,839) (49,681)
Restructuring charge (see note 10) ................. -- -- (89,884) --
---------------------------------------------------
Income from operations ...................................... 109,323 158,284 381,378 527,843
Interest expense ................................... (59,404) (47,816) (173,613) (125,990)
Other income ....................................... (334) 18,087 27,034 35,266
---------------------------------------------------
Income before income taxes and extraordinary gain ........... $ 49,585 $ 128,555 $ 234,799 $ 437,119
===================================================
</TABLE>

The Company's geographic segment information was as follows:

<TABLE>
<CAPTION>
North Other Other
America France Europe Foreign Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues from external customers:
Three months ended September 30,
1999 ............................................ $ 534,991 $ 122,645 $ 69,673 $ 49,536 $ 776,845
1998 ............................................ 471,295 147,970 62,018 31,237 712,520
Nine months ended September 30,
1999 ............................................ $1,721,566 $ 432,553 $ 230,538 $ 126,480 $2,511,137
1998 ............................................ 1,387,985 446,063 188,032 79,514 2,101,594
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations before restructuring
charge (see note 10):
Three months ended September 30,
1999 ............................................ $ 81,356 $ 8,363 $ 4,587 $ 15,017 $ 109,323
1998 ............................................ 123,072 21,324 2,857 11,031 158,284
Nine months ended September 30,
1999 ............................................ $ 366,532 $ 44,087 $ 26,920 $ 33,723 $ 471,262
1998 ............................................ 432,031 52,206 22,287 21,319 527,843
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations:
Three months ended September 30,
1999 ............................................ $ 81,356 $ 8,363 $ 4,587 $ 15,017 $ 109,323
1998 ............................................ 123,072 21,324 2,857 11,031 158,284
Nine months ended September 30,
1999 ............................................ $ 313,467 $ 23,220 $ 13,758 $ 30,933 $ 381,378
1998 ............................................ 432,031 52,206 22,287 21,319 527,843
- ----------------------------------------------------------------------------------------------------------------------------------
Operating locations at September 30:
1999 ............................................ 2,292 1,236 835 182 4,545
1998 ............................................ 1,837 1,200 782 161 3,980
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 13

Included in the North America figures above are the following United States
amounts:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers ........................... $ 515,700 $ 452,365 $1,661,179 $1,328,336
Income from operations before restructuring charge.......... $ 78,204 $ 119,173 $ 353,654 $ 417,327
Income from operations ..................................... $ 78,204 $ 119,173 $ 301,546 $ 417,327
Operating locations ........................................ -- -- 2,141 1,680
=====================================================================================================================
</TABLE>

9. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations are presented below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income (numerator):
Income before extraordinary gain - basic ........... $ 32,055 $ 83,213 $149,951 $282,947
After tax interest on convertible debentures ....... 82 392 408 1,162
-------- -------- -------- --------
Income before extraordinary gain - diluted ......... $ 32,137 $ 83,605 $150,359 $284,109
- ---------------------------------------------------------------------------------------------------------------
Shares (denominator):
Shares - basic ..................................... 272,060 257,380 272,354 255,673
Stock options and warrants .................. 267 3,959 897 4,515
Convertible debentures ...................... 752 2,077 1,117 2,120
-------- -------- -------- --------
Shares - diluted ................................... 273,079 263,416 274,368 262,308
- ---------------------------------------------------------------------------------------------------------------
Earnings per share before extraordinary gain:
Basic .............................................. $ .12 $ .32 $ .55 $ 1.11
Diluted ............................................ $ .12 $ .32 $ .55 $ 1.08
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

10. RESTRUCTURING CHARGE
During the first quarter of 1999, the Company recorded a pretax restructuring
charge of $89,884, related to a cost rationalization program initiated in 1999.
The $89,884 charge relates to the following: (1) severance costs of $56,757; (2)
a charge of $19,123 for terminated projects representing costs associated with
certain construction projects that have been cancelled ($2,153) and costs
associated with acquisition due diligence which will no longer be pursued
($16,970); (3) a $7,245 charge for business and facility closures, primarily in
the Company's European operations; and (4) a remaining charge of $6,759
consisting of various other cost initiatives.

The $56,757 for severance costs is related to the termination of five
executive contractual relationships and the involuntary termination of
approximately 100 employees in North America (of which approximately 20 were
located in the corporate office), 600 employees in France, 85 employees in Other
European operations and 10 employees in other foreign operations. The positions
terminated were both operational and administrative in nature and the severance
costs are expected to be paid out over the next 6 to 12 months. The severance
costs related to the executive contractual relationships will be paid out
according to the terms of the respective agreements and will extend through
2005.

At September 30, 1999, approximately $24,867 remained in accrued
liabilities, of which $23,838 related to severance costs and $1,029 related to
cancellation fees and remaining non-cancellable payments on operating leases.
During the three months ended September 30, 1999, the Company made payments
totaling $3,345 relating to severance and $519 relating to cancellation fees and
non-cancellable leases.

<PAGE> 14

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE SALES PRICES,
PER SHARE AMOUNTS, AND NUMBER OF LOCATIONS)

OVERVIEW:

The Company is the largest funeral and cemetery Company in the world conducting
funeral services and cemetery operations in 20 countries on five continents. The
Company's largest markets are North America and France, which when combined,
represent approximately 78% of the Company's total operating locations, and
approximately 86% of the Company's total revenues.

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

The funeral service locations and cemetery operations consist of the
Company's funeral homes, cemeteries, crematoria and related businesses. Both
funeral service locations and cemeteries can contain crematoria facilities. The
Company has approximately 167 combination facilities in which a funeral service
location is contained within a cemetery.

RESULTS OF OPERATIONS:

The following is a discussion of the Company's results of operations for the
three and nine month periods ended September 30, 1999 and 1998. For purposes of
this discussion, funeral homes, cemeteries and crematoria owned and operated
before January 1, 1998, are referred to as comparable operations.
Correspondingly, operations acquired or opened after January 1, 1998, are
referred to as acquired operations.

THREE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998

For the quarter ended September 30, 1999, the Company reported revenues of
$776,845, representing a 9.0% increase compared to $712,520 for the third
quarter of 1998. Gross profit in the third quarter of 1999 decreased 25.9% to
$128,645, compared to $173,706 in the same period of 1998. For the three months
ended September 30, 1999 the Company reported net income of $32,055 and diluted
earnings per share of $.12 ($.12 basic). The Company reported net income of
$83,213 and diluted earnings per share of $.32 ($.32 basic) for the third
quarter of 1998.

<PAGE> 15

Results for the Company's three lines of business were as follows:

Three months ended September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral .................... $469,138 $433,276 $ 35,862 8.3%
Cemetery ................... 233,837 213,369 20,468 9.6
Financial services ......... 73,870 65,875 7,995 12.1
-------- -------- --------
$776,845 $712,520 $ 64,325 9.0%
======== ======== ========

Gross profit and margin percentage:
Funeral .................... $ 64,736 13.8% $ 85,253 19.7% $(20,517) (24.1)%
Cemetery ................... 56,549 24.2 78,248 36.7 (21,699) (27.7)
Financial services ......... 7,360 10.0 10,205 15.5 (2,845) (27.9)
-------- -------- --------
$128,645 16.6% $173,706 24.4% $(45,061) (25.9)%
======== ======== ========
</TABLE>

THE FOLLOWING FACTORS CONTRIBUTED TO THE RESULTS FOR THE THIRD QUARTER OF 1999:

o Comparable funeral services performed by the Company's worldwide
funeral service locations were 1.2% below comparable funeral services
performed in the third quarter of 1998 primarily related to weakened
death rates in France and United Kingdom. Comparable funeral services
performed in the Company's North American funeral service locations in
the third quarter of 1999 were equivalent to the comparable funeral
services performed in the third quarter of 1998.

o The average revenue per funeral service for all funeral service
locations in North America was equivalent to the average revenue per
funeral service in the third quarter of 1998. On a comparable location
basis, the average revenue per funeral service in North America
decreased approximately 1.0% when compared to the third quarter of
1998. In their respective local currencies, the average revenue per
funeral service at comparable locations increased 3% in France and
remained unchanged in the United Kingdom when compared to the third
quarter of 1998.

o Funeral service gross profit decreased 24.1% to $64.7 million in the
third quarter of 1999 related to a 2.1% worldwide decrease in
comparable funeral revenue, lower margins from acquired businesses in
North America, increased infrastructure costs in areas of technology
spending, higher personnel costs and higher amortization of deferred
prearranged funeral acquisition costs.

o Cemetery revenues increased 9.6% to $233.8 million primarily as a
result of total North America preneed cemetery revenues increasing
approximately $11.5 million to $126.5 million. Increases in preneed
cemetery revenues in North America are primarily attributable to
acquired cemetery properties. In comparable cemetery locations in North
America, total preneed and atneed revenues decreased approximately 4%
compared to the third quarter of 1998.

o Cemetery gross profit decreased approximately 28% in the third quarter
of 1999 related to weakened death rates, inclement weather conditions
in the southeastern United States and the Company's continued strategic
initiative to concentrate on the sale of heritage cemetery property.

o Realized investment earnings and capital gains related to cemetery
trust funds were $20,285 in the third quarter of 1999 compared to
$17,236 for the same period of 1998.

15
<PAGE> 16

FUNERAL
Funeral revenues by geographic segment were as follows:
<TABLE>
<CAPTION>
Three months ended
September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
---------------------------------------------
<S> <C> <C> <C> <C>
North America ................. $270,199 $234,880 $ 35,319 15.0%
France ........................ 114,248 126,312 (12,064) (9.6)
Other European ................ 61,921 56,629 5,292 9.3
Other Foreign ................. 22,770 15,455 7,315 4.7
-------- -------- --------
Total funeral revenues..... $469,138 $433,276 $ 35,862 8.3%
======== ======== ========
</TABLE>

The increase in North American funeral revenues was primarily due to the
January 1999 merger with ECI as well as revenues from other acquired locations.
Revenues from acquired funeral service locations in the third quarter of 1999
were $48,435 compared to $8,154 in the third quarter of 1998.

The decrease in French funeral revenue was primarily the result of a
$10,484 decrease, or 9.1%, in revenues from comparable locations. The number of
funeral services performed at comparable locations in France in the third
quarter of 1999 decreased 2.8% compared to the same period of 1998, which the
Company believes is primarily mortality driven as the Company's market share in
France remained unchanged during the third quarter of 1999.

The increase in Other European funeral revenue was the result of a $1,023
increase, or 2.2%, in revenues from comparable locations and a $4,124 increase
in revenues from acquired locations. The increase in revenue from acquired
locations reflects the Company's 1998 acquisitions growth in Continental Europe.

The increase in Other Foreign funeral revenue is primarily the result of a
$4,116 increase in acquired funeral operations in South America.

Funeral gross profit and margin percentage were as follows:

<TABLE>
<CAPTION>
Three months ended September 30, Increase % Increase
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America ..................... $ 50,212 18.6% $59,254 25.3% $(9,042) (15.3)%
France ............................ 4,949 4.3 17,609 13.9 (12,660) (71.9)
Other European .................... 4,513 7.3 3,710 6.5 803 21.6
Other Foreign .................... 5,062 22.2 4,680 30.3 382 8.2
-------- ------- --------
Total gross profit and margin.. $ 64,736 13.8% $85,253 19.7% $(20,517) (24.1)%
======== ======= ========
</TABLE>

The decrease in North American funeral gross profit and margin percentage
was primarily the result of increases in operating expenses, coupled with flat
comparable volumes and a slight decrease, 1.0%, in the average revenue per
funeral service at comparable locations.

The decrease in French funeral gross profit and margin percentage was
primarily the result of decreased funeral services performed causing reduced
profit due to the Company's fixed cost structure compounded by a delay of
anticipated reengineering cost saving measures which are now expected to be
fully implemented in early 2000.

The increase in Other European gross profit and margin percentage is
primarily due to acquired funeral service locations in Continental Europe.

16
<PAGE> 17
CEMETERY

Cemetery revenues by geographic segment were as follows:
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998 Increase % Increase
---------------------------------------------------
<S> <C> <C> <C> <C>
North America .................. $199,319 $192,198 $ 7,121 3.7%
Other European ................. 7,752 5,389 2,363 43.8
Other Foreign .................. 26,766 15,782 10,984 69.6
-------- -------- --------
Total cemetery revenues..... $233,837 $213,369 $ 20,468 9.6%
======== ======== ========
</TABLE>

The increase in North American cemetery revenues was primarily the result
of a $22,079 increase in revenues from acquired locations and an increase of
$3,049 in realized investment earnings and capital gains from cemetery trust
funds, partially offset by a decrease of $16,600 of cemetery revenues from
comparable North American operations (which consists of preneed and atneed sales
and proceeds from the sale of undeveloped cemetery property).

The increase in Other European cemetery revenues is primarily due to a
$1,882 increase in revenues from acquired locations.

The increase in Other Foreign cemetery revenues was primarily the result of
revenue increases from the Company's acquired South American cemetery
operations.

Cemetery gross profit and margin percentage were as follows:
<TABLE>
<CAPTION>
Three months ended September 30, Increase % Increase
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America ........................ $44,909 22.5% $ 70,481 36.7% $(25,572) (36.3)%
Other European ....................... 1,685 21.7 1,416 26.3 269 19.0
Other Foreign ........................ 9,955 37.2 6,351 40.2 3,604 36.2
------- -------- --------
Total gross profit and margin.. $56,549 24.2% $ 78,248 36.7% $(21,699) (27.7)%
======= ======== ========
</TABLE>

The decrease in North American cemetery gross profit and margin percentage
was primarily the result of weakened death rates, inclement weather conditions
in the southeastern United States, and increased property costs and commissions
expenses related to strategic initiatives to concentrate on the sale of heritage
cemetery property. The Company believes the sale of heritage cemetery property
such as lots, lawn crypts, and mausoleums spaces will assist in increasing
market share in its cemetery operations. Heritage sales are cemetery contracts,
including interment spaces, with new property owners which can usually be
expected to lead to additional future merchandise sales, additional new property
sales based on referrals, and sales of prearranged and atneed funerals,
especially at funeral and cemetery combination operations.

The increase in Other Foreign cemetery gross profit was primarily the
result of increases in gross profit from the Company's acquired South American
cemetery operations.

<PAGE> 18

FINANCIAL SERVICES

Financial services revenues were as follows:
<TABLE>
<CAPTION>
Three months ended
September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
--------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance:
North America ....................... $ 60,257 $ 38,912 $ 21,345 54.9%
France .............................. 8,397 21,658 (13,261) (61.2)
-------- -------- --------
Total insurance .......................... 68,654 60,570 8,084 13.3
Lending subsidiary ....................... 5,216 5,305 (89) (1.7)
-------- -------- --------
Total financial services revenues ... $ 73,870 $ 65,875 $ 7,995 12.1%
======== ======== =======
</TABLE>

Financial services gross profit and margin percentage were as follows:

<TABLE>
<CAPTION>
Three months ended September 30,
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insurance:
North America.................. $ 1,478 2.5% $ 3,853 9.9% $(2,375) (61.6)%
France......................... 3,413 40.6 3,715 17.2 (302) (8.1)
--------- ------- -------
Total insurance .................. 4,891 7.1 7,568 12.5 (2,677) (35.4)
Lending subsidiary ............... 2,469 47.3 2,637 49.7 (168) (6.4)
--------- ------- -------
Total gross profit and margin.. $ 7,360 10.0% $10,205 15.5% $(2,845) (27.9)%
========= ======= =======
</TABLE>

The increase in North American insurance revenues is primarily due to the
growth of AML since its acquisition by the Company, effective July 1998. This
growth is attributed to the Company's initiative of funding prearranged funeral
contracts, to the extent possible, through AML. The decrease in gross profit and
margin percentage is the result of increased costs from information technology
and overhead costs related to the increased utilization of AML by the Company to
fund prearranged funeral contracts.

The decrease in French insurance revenues is primarily due to a realized
loss from a repositioning of the investment portfolio during the quarter. The
gross profit and margin percentage for French insurance was only slightly
impacted due to French regulatory requirements providing a related significant
decrease in costs.

The Company's lending subsidiary reported a gross profit of $2,469 for the
three months ended September 30, 1999, compared to $2,637 for the same period in
1998. The average outstanding loan portfolio during the current period increased
to $244,571 compared to $229,408 in 1998, however, the average interest rate
spread decreased to 2.4%, compared to 3.3% in 1998.

OTHER INCOME AND EXPENSES

General and administrative expenses increased $3,900 to $19,322, compared to in
the third quarter of 1998. The increase was related to increased professional
fees related to ongoing cost rationalization programs and information technology
costs related to the Company's year 2000 preparation. Expressed as a percentage
of revenues, general and administrative expenses were 2.5% for the three months
ended September 30, 1999, compared to 2.2% for the comparable period in 1998.

Interest expense increased $11,588 or 24.2% in the third quarter of 1999
compared to the same period of 1998. The increased interest expense primarily
reflects the Company's funding of acquisitions with debt subsequent to the third
quarter of 1998.

Other income primarily consists of gains and losses from the sales of
businesses that are disposed of for strategic or government mandated purposes.
In the third quarter of 1999, the Company recorded an approximate $7.1 million
loss related to the sale of cemetery operations in the state of Wisconsin as a
result of a judicial interpretation of state law. The Company recorded net gains
from the sales of business of approximately $14.6 million in the third quarter
of 1998.

<PAGE> 19

The provision for income taxes reflected a 35.4% effective tax rate for the
three months ended September 30, 1999, compared to a 35.3% effective tax rate
for the comparable period in 1998. The slight increase in the effective tax rate
is due primarily to the non-deductibility of increased names and reputations
associated with the Company's merger with ECI.

NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998

Results for the Company's three lines of business were as follows:
<TABLE>
<CAPTION>
Nine months ended September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Funeral..................... $1,526,957 $1,351,603 $175,354 13.0%
Cemetery.................... 742,863 636,138 106,725 16.8
Financial services.......... 241,317 113,853 127,464 112.0
---------- ---------- --------
$2,511,137 $2,101,594 $409,543 19.5%
========== ========== ========
Gross profit and margin percentage:
Funeral..................... $ 278,531 18.2% $ 308,622 22.8% $(30,091) (9.8)%
Cemetery.................... 218,370 29.4 250,365 39.4 (31,995) (12.8)
Financial services.......... 30,200 12.5 18,537 16.3 11,663 62.9
---------- ---------- --------
$ 527,101 21.0% $ 577,524 27.5% $(50,423) (8.7)%
========== ========== ========
</TABLE>

FUNERAL

Funeral revenues by geographic segment were as follows:

<TABLE>
<CAPTION>
Nine months ended September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
North America ..................... $ 887,937 $ 752,150 $135,787 18.0%
France .......................... 378,306 386,087 (7,781) (2.0)
Other European .................... 204,527 170,411 34,116 20.0
Other Foreign ..................... 56,187 42,955 13,232 30.8
---------- ---------- --------
Total funeral revenues.... $1,526,957 $1,351,603 $175,354 13.0%
========== ========== ========
</TABLE>

The increase in North American funeral revenues was the result of increased
revenues from acquired locations, primarily due to the January 1999 merger with
ECI. Funeral revenues from comparable locations in North America of $721,975 was
equivalent to comparable funeral revenues in the same period of 1998 primarily
due to flat funeral services performed period over period.

The decrease in French funeral revenues was the result of a slight
decrease in the number of funerals performed in France and a negative impact of
approximately $6,000 related to the French franc to US dollar currency exchange
rate.

The increase in Other European funeral revenues was the result of a $8,411,
or 5.6%, increase in revenues from comparable locations and a $26,070 increase
in revenues from acquired locations. The growth in comparable revenue is
primarily due to a 6.6% increase in comparable revenue reported by the Company's
United Kingdom funeral operations. The growth in revenues reported by acquired
locations is primarily the result of acquisitions in Continental Europe.

The increase in Other Foreign funeral revenues was the result of a $9,843
increase in revenues at acquired locations. The increase in revenues at acquired
locations was primarily due to an increase in the number of funerals performed
at the

<PAGE> 20

Company's South American funeral service locations coupled with increases in
comparable funeral revenues in the Pacific Rim.

Funeral gross profit and margin percentage were as follows:
<TABLE>
<CAPTION>

Nine months ended September 30, Increase % Increase
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America ............................. $210,381 23.7% $231,706 30.8% $(21,325) (9.2)%
France..................................... 33,845 8.9 44,659 11.6 (10,814) (24.2)
Other European ............................ 24,263 11.9 22,457 13.1 1,806 8.0
Other Foreign ............................. 10,042 17.9 9,800 22.8 242 2.5
-------- -------- --------
Total gross profit and margin.......... $278,531 18.2% $308,622 22.8% $(30,091) (9.8)%
======== ======== ========
</TABLE>

The decrease in North American funeral gross profit and margin
percentage was primarily the result of increases in operating expenses at both
comparable and acquired locations. Comparable locations experienced increases in
operating expenses, coupled with flat funeral service volumes and average
revenue per funeral service. The decline in comparable funeral gross profit was
partially offset by acquired locations added in the January 1999 merger with
ECI.
The decrease in French funeral gross profit and margin percentage was
primarily the result of decreased funeral services performed causing reduced
profit due to the Company's fixed cost structure compounded by a delay of
anticipated reengineering cost saving measures in the third quarter of 1999
which are now expected to be fully implemented in early 2000.

CEMETERY

Cemetery revenues by geographic segment were as follows:

<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998 Increase % Increase
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
North America ..................... $646,559 $581,958 $ 64,601 11.1%
Other European .................... 26,011 17,621 8,390 47.6
Other Foreign,..................... 70,293 36,559 33,734 92.3
-------- -------- --------
Total cemetery revenues......... $742,863 $636,138 $106,725 16.8%
======== ======== ========
</TABLE>

The increase in North American cemetery revenues was the result of a
$12,527 increase in revenues from comparable locations (which consists of
preneed and atneed sales and sales of undeveloped cemetery property) and a
$65,970 increase in revenues from acquired locations primarily due to the merger
in January 1999 with ECI. Partially offsetting these increases was a $11,057
reduction in realized investment earnings and capital gains from cemetery trust
funds.

Other European cemetery revenues increased due to continued growth in
Continental Europe. Revenues from the Company's Belgium and Netherlands cemetery
operations increased $4,412 in 1999, primarily as a result of acquisitions.

The increase in Other Foreign cemetery revenues was primarily the result of
revenue increases from additional South America cemetery operations acquired in
December 1998.

20
<PAGE> 21

Cemetery gross profit and margin percentage were as follows:
<TABLE>
<CAPTION>

Nine months ended September 30, Increase % Increase
1999 % of Revenue 1998 % of Revenue (Decrease) (% Decrease)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North America ............................ $186,668 28.9% $232,972 40.0% $(46,304) (19.9)%
Other European ........................... 8,021 30.8 5,874 33.3 2,147 36.6
Other Foreign............................. 23,681 33.7 11,519 31.5 12,162 105.6
-------- -------- --------
Total gross profit and margin....... $218,370 29.4% $250,365 39.3% $(31,995) (12.8)%
======== ======== ========
</TABLE>

The decrease in North American cemetery gross profit and margin percentage
was primarily the result of increases in property costs and commission expenses
as a result of heritage cemetery property sales initiatives and reductions in
realized investment earnings and capital gains from cemetery trust funds.

The increase in Other Foreign cemetery gross profit and margin percentage
was primarily the result of increases in gross profit from the Company's
acquired South America cemetery operations.

FINANCIAL SERVICES

Financial services revenues were as follows:
<TABLE>
<CAPTION>
Nine months ended September 30, Increase % Increase
1999 1998 (Decrease) (% Decrease)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance:
North America ....................... $170,603 $ 38,912 $131,691 338.4%
France............................... 54,247 59,976 (5,729) (9.6)
-------- -------- --------
Total insurance......................... 224,850 98,888 125,962 127.4
Lending subsidiary ..................... 16,467 14,965 1,502 10.0
-------- -------- --------
Total financial services revenues.. $241,317 $113,853 $127,464 112.0%
======== ======== ========
</TABLE>

Financial services gross profit and margin percentage were as follows:

<TABLE>
<CAPTION>
Nine months ended September 30,
1999 % of Revenue 1998 % of Revenue Increase % Increase
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insurance:
North America .................. $ 12,202 7.2% $ 3,853 9.9% $ 8,349 216.7%
France ......................... 10,242 18.9 7,547 12.6 2,695 35.7
-------- ------- -------
Total insurance ................... 22,444 10.0 11,400 11.5 11,044 96.9
Lending subsidiary ................ 7,756 47.1 7,137 47.7 619 8.7
-------- ------- -------
Total gross profit and margin.. $ 30,200 12.5% $18,537 16.3% $11,663 62.9%
======== ======= =======
</TABLE>

The increase in North American insurance revenues and gross profit is
primarily due to the acquisition of AML effective July 1998.

The decrease in French insurance revenues is due to decreased investment
income related to a repositioning of the investment portfolio. The gross profit
and margin percentage for French insurance did not experience similar losses due
to French regulatory requirements providing a related significant decrease in
costs.

The Company's third party lending subsidiary reported a gross profit of
$7,756 for the nine months ended September 30, 1999, compared to $7,137 for the
same period in 1998. The average outstanding loan portfolio during the current
period increased to $267,705 compared to $218,475 in 1998, however, the average
interest rate spread decreased to 2.6%, compared to 3.2% in 1998.

<PAGE> 22

OTHER INCOME AND EXPENSES

General and administrative expenses increased $6,158 to $55,839, compared to the
nine months ended September 30, 1998. The increase primarily relates to
increased professional expenses related to ongoing cost rationalization programs
and information technology costs related to the Company's Year 2000 preparation.
Expressed as a percentage of revenues general and administrative expenses were
2.2% for the nine months ended September 30, 1999, compared to 2.4% for the
comparable period in 1998.

Interest expense increased 37.8% or $47,623 in the nine months ended
September 30, 1999, compared to the same period of 1998. The increased interest
expense primarily reflects the Company's funding of acquisitions with debt
subsequent to the third quarter 1998.

Other income primarily consist of gains and losses from the sales of
businesses that are disposed of for strategic or government mandated purposes.
In the third quarter of 1999, the Company recorded an approximate $7.1 million
loss related to the sale of cemetery operations in the state of Wisconsin as
result of a judicial interpretation of state law.

The provision for income taxes reflected a 36.1% effective tax rate for the
nine months ended September 30, 1999, compared to a 35.3% effective tax rate for
the comparable period in 1998. The increase in the effective tax rate is due
primarily to the non-deductibility of increased names and reputations associated
with the Company's merger with ECI.

During the first quarter 1999, the Company recorded a pretax
restructuring charge of $89,884, related to a cost rationalization program
initiated in 1999. At September 30, 1999, approximately $24,867 remained in
accrued liabilities, of which $23,838 related to severance costs and $1,029
related to cancellation fees and remaining non-cancelable payments on operating
leases. Payments of these accrued liabilities will occur through 2005. The
Company does not expect these payments will have a significant effect on its
liquidity or financial position. The effect of the cost rationalization program,
coupled with other cost reduction initiatives, is expected to produce future
annualized cost savings of at least $60,000, on a pretax basis, primarily
through the reduction of personnel and facility costs.

FINANCIAL CONDITION AND LIQUIDITY AT SEPTEMBER 30, 1999:

General

The Company is currently pursuing a strategy to reduce debt, improve cash flows
and generate improved returns on invested capital. Key initiatives include (i)
operational improvement resulting from strategic revenue and marketing
initiatives combined with cost-improvement programs through business
reengineering; (ii) working capital improvement through accelerated cash
receipts expected from the Company's recently announced consumer financing
program related to the Company's atneed funeral and atneed and preneed cemetery
activities; (iii) disposition of selected operating businesses and certain
non-core assets; (iv) limiting the Company's acquisition program; (v) reduction
of capital expenditures; and (vi) suspension of the cash dividend on the
Company's common stock. Management believes that these initiatives will improve
cash flows and result in debt reduction in the range of $200,000 to $400,000 by
the end of 2000.

Historically, the Company had funded its working capital needs and capital
expenditures primarily through cash provided by operating activities and
borrowings under bank revolving credit agreements and commercial paper. Funding
required for the Company's acquisition program has been generated through public
and private offerings of debt and the issuance of equity securities supplemented
by the Company's revolving credit agreements and additional securities
registered with the Securities and Exchange Commission.

In January 1999, the Company merged with ECI in a stock-for-stock
transaction in which ECI shareholders received approximately 15,501 shares of
Company common stock valued at approximately $557,000 and approximately 1,200
options to purchase Company common stock valued at approximately $8,628. In
connection with the merger, the Company assumed approximately $310,000 of ECI
indebtedness. The ECI merger added 359 funeral homes and 80 cemeteries in North
America.

Excluding the ECI transaction, for the nine-month period ended September
30, 1999, the Company acquired 72 funeral service locations, 15 cemeteries and 2
crematoria for an aggregate purchase price of approximately $89,700. As of
October 21, 1999, the Company had received signed letters of intent to acquire
an additional 3 funeral service locations for an aggregate purchase price of
approximately $12,400. Combined, these businesses are expected to produce
approximately

<PAGE> 23

$56,700 in annualized revenues. The Company has significantly limited its
acquisition program and is concentrating instead on key initiatives described
above to replace operating profit growth historically generated through
acquisitions without the outlay of significant additional capital.

At September 30, 1999, the Company had net working capital of $304,277 and
a current ratio of 1.39:1, compared to working capital of $578,755 and a current
ratio of 1.92:1 at December 31, 1998.

SOURCES AND USES OF CASH

Cash flows from operating activities: Net cash provided by operating activities
was $326,997 for the nine months ended September 30, 1999, compared to $255,938
for the same period in 1998, an increase of $71,059. Significant components of
cash flow provided by operating activities for the nine months ended September
30, 1999 included: (1) net income adjusted for non-cash items, (2) the original
$89,884 pretax restructuring provision (of which $24,867 remains at September
30, 1999, and the decrease is reflected through the change in payables and other
liabilities), partially offset by (3) an increase in receivables of $181,753
primarily attributed to the sales of preneed cemetery products and services
($396,700 in North America for the nine months ended September 30, 1999) which
are usually financed on an installment basis in excess of 12 months. In
reference to the increase in receivables, the Company entered into a consumer
financing agreement subsequent to the third quarter of 1999. The consumer
financing program has been designed to be consumer-friendly to the Company's
client families and is non-recourse to the Company. After national
implementation of the consumer financing program in the United States, the
program is expected to improve cash flows from funeral and cemetery operations.

Cash flows from investing activities: Net cash used in investing activities
was $378,064 for the nine months ended September 30, 1999, compared to $801,518
for the same period in 1998, a decrease in the use of cash of $423,454.
Significant components of cash used in investing activities for the nine months
ended September 30, 1999 included $160,998 in capital expenditures and
approximately $148,162 of purchases in excess of sales of securities at the
Company's insurance subsidiaries. One of the subsidiaries had an approximate
$80,000 cash position at December 31, 1998, in which a significant portion of
the excess cash was used to purchase securities.

Cash flows from financing activities: Net cash used in financing activities
was $101,306 for the nine months ended September 30, 1999, compared to net cash
provided by financing activities of $615,683 for the same period in 1998. The
$615,683 includes $500,000 of proceeds from the issuance of long-term debt.
Significant components of cash used in financing activities for the nine months
ended September 30, 1999, included $365,936 for the early extinguishment of
certain floating rate debt and the ECI convertible debentures, as well as
$160,254 to repay other debt assumed in connection with the ECI merger.

As of September 30, 1999, the Company's debt to capitalization ratio was
53% compared to 55% at December 31, 1998 (52% and 54%, respectively, excluding
the Company's third party lending subsidiary). The interest coverage ratio for
the nine months ended September 30, 1999, was 2.78:1 (excluding the 1999
restructuring charge of $89,884), compared to 4.29:1 for the same period in
1998.

The Company expects adequate sources of funds to be available to conduct
its future operations through internally generated funds, borrowings under
credit facilities and the issuance of securities. As of September 30, 1999, the
Company had approximately $530,000 of available borrowings under its primary
revolving credit agreements. As of November 2, 1999, following the renewal and
modification of the revolving credit agreements, the Company had approximately
$239,000 of available borrowings under these facilities. As of September 30,
1999, the Company also had the ability to issue $900,000 in securities
registered with the Commission under a shelf registration. In addition, 12,870
shares of common stock and a total of $187,000 of guaranteed promissory notes
and convertible debentures are registered with the Commission under a separate
shelf registration to be used exclusively for future acquisitions.

23
<PAGE> 24

PREARRANGED FUNERAL ACTIVITIES

The Company sells price guaranteed prearranged funeral contracts through various
programs providing for future funeral services at prices prevailing when the
contracts are signed. Payments under these contracts are placed into trust
accounts or are used to pay premiums on life insurance or annuity contracts.
Trust earnings and increasing insurance benefits are accrued and deferred until
funeral services are performed, at which time, all funds are recognized in
funeral revenue. Trust earnings and increasing insurance benefits are intended
to cover future increases in the cost of providing a price guaranteed funeral
service.

The total value of unperformed prearranged funeral contracts includes
contracts that are to be funded by trust, third party insurance companies, or
the Company's insurance subsidiaries. The total value represents the original
contract values plus any accumulated trust fund earnings or increasing insurance
benefits. At September 30, 1999, the total value of unperformed prearranged
funeral revenues expected to be recognized in future periods was $4,378,665
which is an approximate 17% increase over the December 31, 1998, balance of
$3,751,850. Approximately 8% of the increase from December 31, 1998, relates to
acquisitions and 16% of the increase relates to additional prearranged funeral
contract sales, accumulated trust fund earnings and increasing insurance
benefits. Such increases are offset primarily by maturities, which accounts for
approximately 6%, as well as unfavorable foreign currency fluctuations of 1%.

The Company's investment program targets a real return in excess of the
amount necessary to cover future increases in the cost of providing a price
guaranteed funeral services. The investment portfolio is allocated to the
appropriate investments that more accurately match the anticipated maturity of
the contracts. The Company's current asset allocation in its investment
portfolio is approximately 50% equity and 37% fixed income with the remainder
held in cash, cash equivalents and other investments.

The sales of prearranged funeral contracts afford the Company the
opportunity to protect both current market share as well as expand market share
in certain markets. On a comparable basis, prearranged funeral services
fulfilled as a percent of North American funerals performed was 28.7% for the
nine months ended September 30, 1999, (26.3% for the nine months ended September
30, 1998) and is expected to increase over time.

OTHER MATTERS:

Year 2000 Issue
- ---------------

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

The Company has established Y2K program offices at its corporate offices in
Houston, Texas and Birmingham, England. These program offices, under the
direction of senior management, are responsible for advising and monitoring the
numerous facets of the Company's Y2K preparations. The Company is utilizing
internal personnel, contract programmers and testers, as well as other third
party vendors, to identify Y2K issues, test and implement the chosen solutions.

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

State of Readiness

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

24
<PAGE> 25

Production systems: All of the Company's critical production systems have
been assessed for Y2K readiness. Of these, six systems have not progressed
through all phases that the Company requires for Y2K readiness.

During the third quarter of 1999, the Company determined that the full
deployment of the newly developed proprietary funeral home and cemetery
production systems to all of its North American operations could not feasibly be
completed by December 31, 1999. Thus, interim Y2K compliant patches to the
existing system have been developed and tested, and are being implemented at the
remaining locations beginning November 15. Full implementation of the interim
patches is expected to be completed by the middle of December.

Testing of the Company's Y2K-ready payroll system in France is also nearing
completion. However, production use of the new system will not begin until
January 2000, as the existing system will be used for year-end 1999 tax
reporting requirements.

Four less critical systems are nearing the end of the correction, testing,
and implementation phases and will be implemented by the middle of December
1999.

Networks: All of the Company's critical computer networks have been
assessed for Y2K readiness. Upgrades and replacements are substantially complete
in North America and Australia. Critical networks for the Company's European
operations are in the process of being upgraded or consolidated with the
Company's North American infrastructure. All critical networks are expected to
be Y2K ready by the end of November 1999.

Desktops: Testing has been conducted to determine the extent to which the
Y2K problem associated with desktops will affect the Company's ability to
conduct business. As none of the Company's critical computer systems directly
access date information from the desktop's real time clock, it has been
determined that very few desktops will pose a critical Y2K issue. As part of
ongoing technology refresh programs and new production systems' deployment,
desktops are being upgraded, as needed, to better meet the Company's business
needs. As part of contingency planning, personnel have been instructed on how to
verify each desktop's date, and reset if necessary, after January 1, 2000.

User developed applications: Inventory and discovery for items in this
category have been achieved. Very few critical applications were found to have
date dependencies. Those that have date dependencies continue to be tested to
ensure no problems arise because of Y2K issues. As these applications often work
in tandem with the Company's production systems, final testing and
implementation has/will coincide with those systems.

Vendor supplied software: It is the policy of the Company to query each
manufacturer of critical "off-the-shelf" software to ascertain the vendor's
statement regarding the Y2K readiness of their products. Once the vendor's
statement is obtained, upgrades, replacements and testing are conducted to
minimize the risk of Y2K issues arising from the software. The Company will
continue to apply new software patches from third party vendors as they are
reported necessary until November 1999, when all systems will be frozen from
further modifications (unless currently unknown critical software patches are
received) to prepare for the transition to the year 2000.

Facilities and telecommunications: The Company recognizes the potential for
Y2K issues to arise from embedded technology systems which may be in use at its
numerous facilities. Telecommunications equipment has proven the most
vulnerable, however, replacements and/or upgrades have been completed as
necessary.

Supply chain: Due to the Company's geographically dispersed locations and
methods of operation, assessing the Y2K readiness of the Company's supply chain
must occur at both the corporate level (for core supply chain relationships) and
the local level (for those relationships unique to a location). Inventory and
discovery have been completed at a number of operating locations and is
completed at the Company's headquarters. Activities were undertaken to assign
criticality to both corporate and local supply relationships and additional
efforts have been made to ascertain the Y2K readiness of critical suppliers.
Where the assessment raised concern about a critical supplier's Year 2000
preparations, contingency plans have been created.

Costs

The aggregate costs for the Company to achieve Y2K readiness are not expected to
exceed $33 million of which $3.8 million represents lease payments which will be
incurred from 2000-2002. All costs associated with Y2K readiness are expected to
be funded from cash flows from operations. The Company's actual costs incurred
associated with Y2K readiness through September 30, 1999, are estimated at $22.6
million, of which approximately $9.1 million has been expensed and approximately
$13.5 million has been capitalized. Approximately $6.8 million of the estimated
remaining expenditures will be expensed and

<PAGE> 26
approximately $3.6 million will be capitalized. The capitalized expenditures
represent new hardware and new enterprise software that introduces new
functionality to the Company.

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

Risks and Contingency Plans:

The majority of the Company's internal Y2K exposure exists at its corporate
offices where the Company's production systems operate. The failure to correct a
material Y2K problem at these locations could result in an interruption of
certain normal corporate business activities. Such a failure would not, however,
render the Company's various operating locations unable to deliver goods and
services.

The Company believes that the greatest risks continue to arise from the
uncertainty of the Y2K readiness of critical third party suppliers, both private
businesses and government entities, especially in the Company's international
markets. The possible consequences of critical third party suppliers not being
Y2K ready by January 1, 2000 could include temporary location closings, delays
in the delivery of goods and services, delays in the receipt of goods and
invoice and collection errors. Efforts made by the Company to ascertain the Y2K
status of critical third party suppliers is expected to significantly reduce the
Company's level of uncertainty in this arena and, through the use of contingency
planning, the possibility of significant interruptions in normal operations
should be reduced. At this time, the Company has no substantiated reason to
believe that one or more key third party suppliers will not be able to meet
their obligations to the Company after January 1, 2000.

With respect to the systems controlled by the Company, the Company believes
that the greatest risks exist with the two critical production systems that are
not yet fully Y2K ready. If the interim Y2K compliant patches to the existing
North American funeral home and cemetery production systems are not implemented
at all locations that require them by December 15, 1999, contingency plans will
be invoked. Under these plans, locations unable to process their own
transactions will forward their data to another location with input capability.

Because the first payroll processing date under the new system in France
does not occur until the third week of January, the Company is confident that it
will be able to identify and correct any significant items noted in its final
testing during November and December. Should difficulties arise in the first
payroll processing, contingency plans will be invoked to ensure that all French
employees are adequately compensated.

Because of the many uncertainties that exist, it is part of the Company's
Y2K preparation that contingency plans be established for critical systems in
each of the categories outlined above. Contingency planning is being approached
both from an information technology perspective and from a business perspective.
Information technology plans encompass each critical system and outline a course
of action should a date related problem occur. Business plans encompass each
critical business function and outline a course of action should a supporting
computer system or infrastructure item not be available (i.e., electricity,
phone service, etc.). Although these contingency plans are at different stages
at the Company's various locations, contingency plans for all critical
production systems and for all individual operating locations are in place or
are expected to be in place by the end of December 1999.

In addition to contingency plans, the Company has developed preliminary
transition plans aimed at detailing operations immediately before and after the
date change to 2000. These transition plans include procedures for establishing
a Y2K Transition Command Center, backing-up critical files, shutting down
non-essential processing, staffing, and emergency communications during the
transition time period. These transition plans will be continuously updated and
reviewed through the end of December 1999.

Recent Accounting Pronouncements
- --------------------------------

In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133."

<PAGE> 27

SFAS No. 137 defers the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. The Company plans to adopt SFAS No. 137 during
the first quarter of the year ended December 31, 2001.

Cautionary Statement on Forward-looking Statements
- --------------------------------------------------

The statements contained in this filing on Form 10-Q that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements may be accompanied by
words such as "believe," "estimate,""project,""expect," "anticipate," or
"predict," that convey the uncertainty of future events or outcomes. These
statements are based on assumptions that the Company believes are reasonable;
however, many important factors could cause the Company's actual results in the
future to differ materially from the forward-looking statements made herein and
in any other documents or oral presentations made by, or on behalf of, the
Company. Important factors which could cause actual results of the Company to
differ materially from those in forward-looking statements include, among
others, the following:

1) Changes in general economic conditions both domestically and
internationally impacting financial markets (e.g. marketable security
values, as well as currency and interest rate fluctuations) that could
negatively affect the Company, especially the Company's anticipated
cemetery trust revenues.

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

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

4) The Company's ability to sell preneed heritage cemetery property which
is usually associated with new customers to the Company's cemeteries.

5) The Company's ability to successfully integrate acquisitions into the
Company's business and to realize expected cost savings in connection
with such acquisitions.

6) The Company's ability to successfully implement certain cost reduction
initiatives, including the cost reduction initiatives previously
announced, as well as changes in domestic and international political
and/or regulatory environments which could negatively effect the
implementation of the Company's cost initiatives.

7) The Company's ability to successfully implement certain strategic
revenue and marketing initiatives resulting in increased volume
through its existing facilities and the Company's ability to
successfully implement certain strategic cash flow initiatives,
including the presently announced funeral and cemetery consumer
financing program, which could improve or generate cash flow for the
Company.

8) The Company's ability to successfully complete the disposition of
selected operating businesses and certain non-core assets in order for
the proceeds from such dispositions to assist in the reduction of the
Company's debt.

9) The Company's ability to successfully leverage its substantial
purchasing power with certain of the Company's vendors.

10) The ability of the Company, or its critical third-party suppliers, to
adequately complete "Y2K" preparation efforts. "Y2K" refers to the
inability of some computer programs and computer-based microprocessors
to correctly interpret the century from a date in which the year is
represented by only two digits.

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

<PAGE> 28

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding the Company's exposure to certain market risks, see
Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Except as noted below, there have been no material changes to the disclosure on
this matter made in such Form 10-K.

Cemetery Merchandise Trust Funds

The cost and market value associated with the assets held in cemetery
merchandise trust funds are stated below as of December 31, 1998, and September
30, 1999. The Company records a receivable due from cemetery merchandise trust
funds which is included at cost in current and long-term receivables in the
Company's consolidated balance sheet. The Company does not believe the
unrealized loss at September 30, 1999, associated with the assets held in the
cemetery merchandise trust funds is permanent in nature and therefore does not
believe a related provision for impairment is necessary.

December 31, 1998 September 30, 1999
------------------------ ------------------------

Cost Market Cost Market
-------- -------- -------- --------
<S> <C> <C> <C> <C>
$662,564 $656,408 $795,518 $751,527

</TABLE>

<PAGE> 29
SERVICE CORPORATION INTERNATIONAL
PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Previously Reported Litigation. The following discussion describes
certain litigation as of November 11, 1999, which was previously
reported:

Civil Action H-99-0280; In Re Service Corporation International; In the
United States District Court for the Southern District of Texas,
Houston Division ("the Consolidated Lawsuit"). The Consolidated Lawsuit
is pending before Judge Lynn N. Hughes and includes all 21 class action
lawsuits that were filed in the Southern District of Texas and two
class action lawsuits that were originally brought in the United States
District Court for the Eastern District of Texas, Lufkin Division. The
Consolidated Lawsuit names as defendants the Company and three of the
Company's current or former executive officers or directors: Robert L.
Waltrip, L. William Heiligbrodt and George R. Champagne (the
"Individual Defendants"). The plaintiffs have filed a Consolidated
Class Action Complaint in the Consolidated Lawsuit alleging that
defendants violated federal securities laws by making materially false
and misleading statements and failing to disclose material information
concerning SCI's preneed funeral business. The Consolidated Lawsuit
seeks to recover an unspecified amount of monetary damages. Since the
litigation is in its very preliminary stages, no discovery has
occurred, and the Company cannot quantify its ultimate liability, if
any, for the payment of damages. However, the Company believes that the
allegations in the Consolidated Lawsuit do not provide a basis for the
recovery of damages because the Company has made all required
disclosures on a timely basis. The Company and the Individual
Defendants have filed an Answer to the Consolidated Class Action
Complaint, and the Company intends to aggressively defend this lawsuit.

The Consolidated Lawsuit has been brought on behalf of all persons and
entities who (i) acquired shares of Company common stock in the merger
of a wholly owned subsidiary of Company into Equity Corporation
International ("ECI"); (ii) purchased shares of Company common stock
during the period July 17, 1998, through January 26, 1999 ("the Class
Period"); (iii) purchased Company call options in the open market
during the Class Period; (iv) sold Company put options in the open
market during the Class Period; (v) held employee stock options in ECI;
and (vi) held Company employee stock options granted during the Class
Period. Excluded from the foregoing categories are the Individual
Defendants, the members of their immediate families and all other
persons who were directors or executive officers of the Company or its
affiliated entities at any time during the Class Period. Judge Hughes
has certified the Consolidated Lawsuit as a class action.

29
<PAGE> 30
The Company and the Individual Defendants have filed a Motion to
Dismiss the Consolidated Lawsuit, and the plaintiffs have filed their
Opposition to Defendants' Motion to Dismiss the Consolidated Lawsuit.
The Company and the Individual Defendants intend to file promptly a
pleading in response to the plaintiffs' most recent filing. The
foregoing pleadings will be considered by Judge Hughes in due course.

Copies of the complaint in the Consolidated Lawsuit and the pleadings
that have been filed in response thereto and that are referred to
herein are filed as exhibits to this Quarterly Report on Form 10-Q.

9-99-CV58; Charles Fredrick v. Service Corporation International; In
the United States District Court for the Eastern District of Texas,
Lufkin Division. This additional securities fraud case has been brought
against the Company by a former shareholder of ECI alleging causes of
action exclusively under Texas statutory and common law. The Company
has requested that the case be transferred to the Southern District of
Texas to be consolidated with the Consolidated Lawsuit.

Additional Litigation. On November 10, 1999, James P. Hunter, III and a
related family trust filed a lawsuit against the Company, the
Individual Defendants, two other officers, an employee of the Company
and PricewaterhouseCoopers LLP, the Company's auditors, in state
District Court in Angelina County, Texas ("State Litigation"). The
plaintiffs allege, among other things, violations of Texas securities
law and statutory and common law fraud, and seek unspecified
compensatory and exemplary damages. Mr. Hunter is currently an employee
of the Company and was Chairman, President and Chief Executive Officer
of ECI at the time of its merger with a wholly-owned subsidiary of the
Company. Since the litigation has only been recently initiated and no
discovery has occurred, the Company cannot quantify its ultimate
liability, if any, for the payment of damages. However, the Company
believes that the allegations in the State Litigation, like those in
the Consolidated Lawsuit, do not provide a basis for the recovery of
damages because all required disclosures were made in a timely basis.
The Company intends to aggressively defend this litigation.

A copy of the Plaintiff's Original Petition in the State Litigation is
filed as an exhibit to this Quarterly Report on Form 10-Q.

Item 5. OTHER INFORMATION

On November 11, 1999, the Company amended its Bylaws to add a new
section, Section 10 of Article I, providing for advance notice of certain
shareholder proposals to bring business before a shareholder meeting. Any
shareholder desiring to bring business before the Company's 2000 Annual Meeting
of Shareholders scheduled to be held on May 1, 2000 in a form other than a
shareholder proposal in accordance with Rule 14a-8 of the rules and regulations
of the Commission must give written notice that is received by the Company,
addressed to the Secretary, no earlier than January 14, 2000, and no later than
February 3, 2000.

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A shareholder must also comply with other requirements as set forth in such
advance notice provision. Any such notice should be addressed to the Secretary
of the Company, 1929 Allen Parkway, P.O. Box 130548, Houston, Texas 77219-0548.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Bylaws, as amended.
12.1 Ratio of earnings to fixed charges for the nine months
ended September 30, 1999 and 1998.
27.1 Financial data schedule.
99.1 Consolidated Class Action Complaint filed September 3,
1999 in Civil Action No. H-99-280, In re Service
Corporation International.
99.2 Defendants' Answer to the Consolidated Class Action
Complaint filed September 17, 1999 in Civil Action
No. H-99-280, In Re Service Corporation International.
99.3 Defendants' Motion to Dismiss the Consolidated Class
Action Complaint filed October 8, 1999 in Civil Action
No. H-99-280, In re Service Corporation International.
99.4 Plaintiffs' Opposition to Defendants' Motion to Dismiss
the Consolidated Class Action Complaint filed
November 5, 1999 in Civil Action No. H-99-280, In Re
Service Corporation International.
99.5 Plaintiff's Original Petition filed November 10, 1999
in Cause No. __________, James P. Hunter, III and James
P. Hunter, III Family Trust v. Service Corporation
International, Robert L. Waltrip, L. William
Heiligbrodt, George R. Champagne, W. Blair Waltrip,
James M. Shelger, Wesley T. McRae and
PriceWaterhouseCoopers, L.L.P.; in the __________
Judicial District Court of Angelina County, Texas.

(b) Reports on Form 8-K
There were no reports on Form 8-K during the quarter ended
September 30, 1999.

<PAGE> 32

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

November 12, 1999 SERVICE CORPORATION INTERNATIONAL

By: /s/ George R. Champagne
----------------------------------
George R. Champagne
Executive Vice President
Chief Financial Officer
(Principal Financial Officer)

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INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Bylaws, as amended.
12.1 Ratio of earnings to fixed charges for the nine months
ended September 30, 1999 and 1998.
27.1 Financial data schedule.
99.1 Consolidated Class Action Complaint filed September 3,
1999 in Civil Action No. H-99-280, In re Service
Corporation International.
99.2 Defendants' Answer to the Consolidated Class Action
Complaint filed September 17, 1999 in Civil Action
No. H-99-280, In Re Service Corporation International.
99.3 Defendants' Motion to Dismiss the Consolidated Class
Action Complaint filed October 8, 1999 in Civil Action
No. H-99-280, In re Service Corporation International.
99.4 Plaintiffs' Opposition to Defendants' Motion to Dismiss
the Consolidated Class Action Complaint filed
November 5, 1999 in Civil Action No. H-99-280, In Re
Service Corporation International.
99.5 Plaintiff's Original Petition filed November 10, 1999
in Cause No. __________, James P. Hunter, III and James
P. Hunter, III Family Trust v. Service Corporation
International, Robert L. Waltrip, L. William
Heiligbrodt, George R. Champagne, W. Blair Waltrip,
James M. Shelger, Wesley T. McRae and
PriceWaterhouseCoopers, L.L.P.; in the __________ Judicial
District Court of Angelina County, Texas.

<PAGE> 1
EXHIBIT 3.1

BYLAWS

SERVICE CORPORATION INTERNATIONAL

SHAREHOLDERS

ARTICLE I

Section 1. Annual Meeting. The annual meeting of shareholders shall be
held on the second Thursday in May of each year at ten o'clock in the morning,
if not a legal holiday, and, if a legal holiday, then on the next succeeding
business day, for the purpose of electing directors. Any business may be
transacted at an annual meeting, except as otherwise provided by law or by these
bylaws. The Board of Directors may alter or postpone the time of holding the
annual meeting of shareholders as they shall deem advisable.

Section 2. Special Meeting. A special meeting of shareholders may be
called at any time by the holders of at least ten percent (10%) of the
outstanding stock entitled to be voted at such meeting, by the Board of
Directors, by the Chairman of the Board or by the President. Only such business
shall be transacted at a special meeting as may be stated or indicated in the
notice of such meeting.

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Section 3. Place. The annual meeting of shareholders may be held at any
place within or without the State of Texas designated by the Board of Directors.
Special meetings of shareholders may be held at any place within or without the
State of Texas designated by the Chairman of the Board, if he shall call the
meeting; by the President, if he shall call the meeting; or the Board of
Directors, if they shall call the meeting. Meetings of shareholders shall be
held at the principal office of the corporation unless another place is
designated for meetings in the manner provided herein.

Section 4. Notice. Written or printed notice stating the place, day and
hour of each meeting of shareholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than fifty (50) days before the date of the meeting,
either personally or by mail, to each shareholder of record entitled to vote at
such meeting.

Section 5. Quorum. The holders of at least a majority of the
outstanding stock entitled to vote thereat and present in person or by proxy
shall constitute a quorum. Except as otherwise required by law, the articles of
incorporation or these bylaws, the act of a majority of the stock at any meeting
at which a quorum is present shall be the act of the shareholders' meeting.

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<PAGE> 3

The Chairman of the meeting or the holders of a majority of stock present at any
meeting, though less than a quorum, may adjourn the meeting and any business may
be transacted at the adjournment that could be transacted at the original
meeting. No notice of adjournment, other than the announcement at the meeting,
need be given.

Section 6. Proxies. At all meetings of shareholders, a shareholder may
vote either in person or by proxy executed in writing by the shareholder or by
his duly authorized attorney in fact. Such proxies shall be filed with the
Secretary of the corporation before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. Each proxy shall be revocable unless expressly
provided therein to be irrevocable or unless otherwise made irrevocable by law.
Proxies solicited by management shall be for the meetings set forth in the Proxy
Statement or Statements with respect to which the Proxy is being solicited and
any recesses or adjournments thereof, and shall cover only matters referred to
in such Proxy Statement or Statements.

Section 7. Voting of Shares. Each outstanding share entitled to vote
upon a matter submitted to a vote at a meeting of

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<PAGE> 4

shareholders shall be entitled to one vote on such matter, unless otherwise
provided in the articles of incorporation.

Section 8. Officers. The President shall preside at and the Secretary
shall keep records of each meeting of shareholders, and in the absence of either
such officer, his duties shall be performed by some person appointed by the
meeting.

Section 9. List of Shareholders. A complete list of shareholders
entitled to vote at each shareholders' meeting, arranged in alphabetical order,
with the address of and number of shares held by each, shall be prepared by the
Secretary and filed at the registered office of the corporation and subject to
inspection by any shareholder during usual business hours for a period of ten
(10) days prior to such meeting and shall be produced at such meeting and at all
times during such meeting be subject to inspection by any shareholder.

Section 10. Notice of Shareholder Business. Only such business shall be
conducted at shareholder meetings and only such persons shall be eligible to
serve on the Board of Directors as shall have been brought before the meeting or
nominated, as applicable, (a) by or at the direction of the Board of Directors
or (b) by any shareholder of the Corporation who shall be entitled to vote at
such meeting who complies with the notice procedures

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<PAGE> 5

set forth in this Section 10 and who complies with all other requirements
imposed by these Bylaws. For business to be properly brought before a
shareholder meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice for nominations or other matters to be considered at an
annual meeting must be delivered to, or mailed and received at, the principal
executive offices of the Corporation not more than 120 days and not less than
100 days prior to the first anniversary of the previous year's annual meeting;
provided, however, that if no annual meeting of shareholders was held in the
previous year or if the date of the annual meeting is advanced by more than 30
days prior to, or delayed by more than 60 days after, such anniversary date,
notice by the shareholder to be timely must be so delivered, or mailed and
received, not later than the close of business on the 10th day following the day
on which the date of such meeting has been first publicly disclosed. To be
timely, a shareholder's notice of the nomination of persons for election to the
Board of Directors at a special shareholder meeting at which one or more
directors is to be elected must be delivered to, or mailed and received at, the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which the date of such meeting has
been first publicly disclosed. Notwithstanding anything in this Article 1,
Section 10 of these Bylaws to the contrary, in the event that the number of

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directors to be elected to the Board of Directors is increased and there is no
public disclosure naming all of the nominees for election or reelection to the
Board of Directors or specifying the size of the increased Board of Directors
made by the Corporation at least 130 days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice of nomination shall be
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to, or mailed and received at, the principal
executive offices of the Corporation not later than the close of business on the
10th day following the day on which public disclosure of such increase in the
number of directors to be elected to the Board of Directors is first made by the
Corporation. In no event shall the public announcement of an adjournment of a
shareholder meeting commence a new time period for the giving of timely notice
as described above. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (b) the name and address,
as they appear on the Corporation's books, of the shareholder proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, (d) any material interest of the
shareholder in such business, and (e) any such further information as shall be
reasonably requested by the

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<PAGE> 7

Corporation. Additionally, a shareholder's notice of the nomination of persons
for election to the Board of Directors shall set forth as to each person whom
the shareholder proposes to nominate for election or reelection to the Board of
Directors (a) all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to being named as a
nominee and to serving as a director if elected) and (b) any such further
information as shall be reasonably requested by the Corporation. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at a
shareholder meeting except in accordance with the procedures set forth in this
Section 10. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of these Bylaws, and if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 10, a shareholder shall also comply with
all applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section. Nothing in the

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<PAGE> 8

Section shall be deemed to affect any rights of (a) shareholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act or (b) the holders of any series of Preferred Stock
to elect directors under specified circumstances. For purposes of these Bylaws,
"publicly disclosed" or "public disclosure" shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission.

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<PAGE> 9

ARTICLE II

BOARD OF DIRECTORS

Section 1. Number of Term of Office. The business and property of the
corporation shall be managed and controlled by the Board of Directors, and
subject to restrictions imposed by law, by the articles of incorporation, or by
these bylaws, they may exercise all the powers of the corporation.

(a) Number. The Board of Directors shall consist of not less than nine
(9) nor more than fifteen (15) Directors, as so determined from time to time by
resolution of the Board of Directors. Within the above limits, the number of
directors may be increased or decreased (provided that such decrease does not
shorten the term of any incumbent director) from time to time by resolution of
the Board of Directors. Directors need not be shareholders nor residents of
Texas.

(b) Election and Terms. At the 1982 Annual Meeting of Shareholders, the
directors shall be divided into three classes, as nearly equal in number as
possible, with the term of office of the first class to expire at the 1983
Annual Meeting of Shareholders, the term of office of the second class to expire
at the 1984 Annual Meeting of Shareholders and the term of office of

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<PAGE> 10

the third class to expire at the 1985 Annual Meeting of Shareholders; in each
case, the term shall continue until the respective successors are elected and
qualified. At each Annual Meeting of Shareholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Shareholders and until their successors have been
elected and qualified.

(c) Vacancies and Increases of Directors. Any vacancy (other than by an
increases in number) in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. Any directors so elected by
the Board of Directors to fill a vacancy shall hold office for the unexpired
term of the director whose place he has been elected to fill, even though that
term may extend beyond the next annual meeting of shareholders. In case of any
increase in the number of directors (within the above limits), the additional
directors shall be elected at an annual meeting or at a special meeting of
shareholders called for that purpose.

(d) Removal. Any director, or the entire Board of Directors, may be
removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least four-fifths of all of the
outstanding shares of capital stock of

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<PAGE> 11

the corporation entitled to vote on election of directors at a meeting of
shareholders called for that purpose, except that if the Board of Directors, by
an affirmative vote of at least four-fifths of the entire Board of Directors,
recommends removal of a director to the shareholders, such removal may be
effected by the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock of the corporation entitled to vote on the
election of directors at a meeting of shareholders called for that purpose.

Section 2. Meeting of Directors. The directors may hold their meetings
and may have an office and keep the books of the corporation, except as
otherwise provided by statute, in such place or places in the State of Texas, or
outside the State of Texas, as the Board of Directors may from time to time
determine.

Section 3. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the shareholders, and no notice of such meeting shall be
necessary.

Section 4. Election of Officers. At the first regularly scheduled
meeting of the Board of Directors in each year at which

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a quorum shall be present, held next after the commencement of the fiscal year,
the Board of Directors shall proceed to the election of the officers of the
corporation.

Section 5. Regular Meeting. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated, from time to
time, by resolution of the Board of Directors. Notice of such regular meetings
shall not be required.

Section 6. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board, the President or by
a majority of the directors for the time being in office.

Section 7. Notice. The Secretary shall give notice of each special
meeting in person, or by mail or by telegraph at least two (2) days before the
meeting to each director. The attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
on the grounds that the meeting is not lawfully called or convened. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.

At any meeting at which every director shall be present, even though
without any notice, any business may be transacted.

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Section 8. Quorum. A majority of the directors fixed by these bylaws
shall constitute a quorum for the transaction of business, but if at any meeting
of the Board of Directors there be less than a quorum present, a majority of
those present or any director solely present may adjourn the meeting from time
to time without further notice. The act of a majority of the directors present
at a meeting at which a quorum is in attendance shall be the act of the Board of
Directors, unless the act of a greater number is required by the articles of
incorporation or by these bylaws.

Section 9. Order of Business. At meetings of the Board of Directors,
business shall be transacted in such order as from time to time the Board may
determine.

At all meetings of the Board of Directors, the Chairman of the Board
shall preside, and in the absence of the Chairman then the President, and in the
absence of the President then a chairman shall be chosen by the Board from among
the directors present.

The Secretary of the corporation shall act as secretary of the meetings
of the Board of Directors, but in the absence of the Secretary, the presiding
officer may appoint any person to act as secretary of the meeting.

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Section 10. Compensation. Directors and members of any committee of the
Board of Directors shall be entitled to such reasonable compensation for their
services as directors and members of any such committee as shall be fixed from
time to time by resolution of the Board of Directors, and shall also be entitled
to reimbursement for any reasonable expenses incurred in attending such
meetings. The compensation of directors may be on such basis as is determined in
the resolution of the Board of Directors. Any director receiving compensation
under these provisions shall not be barred from serving the corporation in any
other capacity and receiving reasonable compensation for such other services.

Section 11. Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.

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Section 12. Executive Committee and other Committees.

(a) Designation of Executive Committee. The Board of Directors, by
resolution adopted by a majority of the entire number of directors, from time to
time may designate two or more directors to constitute an Executive Committee.
The designation of such Executive Committee, and the delegation of authority
thereto, shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed upon it or him by law. No member of the
Executive Committee shall continue to be a member thereof after he ceases to be
a director of the corporation. The Board of Directors shall have the power at
any time to increase or decrease the number of members of the Executive
Committee, to fill vacancies thereon, to change any member thereof, and to
change the function or terminate the existence thereof.

(b) Powers of the Executive Committee. During intervals between
meetings of the Board of Directors, and subject to such limitations as may be
imposed by resolutions of the Board of Directors, the Executive Committee shall
have any and may exercise all of the powers and authority of the Board of
Directors, including, but without limitation, the power to authorize the
corporate seal to be affixed to any instruments executed on behalf of the
Corporation, and the power to authorize the issuance of shares of the
corporation's capital stock, except that no such

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committee shall have the authority of the Board of Directors in reference to
amending the articles of incorporation, approving a plan of merger or
consolidation, recommending to the shareholders the sale, lease, or exchange of
all or substantially all of the property and assets of the corporation otherwise
than in the usual and regular course of its business. Furthermore, in such
circumstances, the Executive Committee may not recommend to shareholders a
voluntary dissolution of the corporation or a revocation thereof, amend, alter,
or repeal the bylaws of the corporation, or adopt new bylaws for the
corporation, fill vacancies in or remove members of the Board of Directors or
any such committee, elect or remove officers or members of any such committee,
fix the compensation of any member of such committee, or alter or repeal any
resolution of the Board of Directors which by its terms provides that it shall
not be so amendable or repealable. All minutes of the meetings of the Executive
Committee shall be submitted to the next succeeding meeting of Board of
Directors; but failure to submit the same or to receive the approval thereof
shall not invalidate any completed or incomplete action taken by the corporation
upon authorization by the Executive Committee prior to the time at which the
same has been, or was, submitted to the Board of Directors.

(c) Procedure; Meetings; Quorum. Unless designated by the Board of
Directors, the chairman of the Executive Committee shall be chosen by the
Executive Committee, and the Secretary of the

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corporation, if present, shall act as Secretary of the meetings. In the absence
of either, the Executive Committee shall appoint a chairman or secretary, as the
case may be, of the meeting. The Executive Committee shall keep a record of its
acts and proceedings. The Executive Committee shall fix its own rules of
procedure (which need not be written) and shall meet from time to time on call
of the President or any two or more members of the Executive Committee. Notice
of each such meeting, stating the place, day and hour thereof, shall be mailed,
telegraphed or telephoned to each member's business or residential address at
least twenty-four hours before the meeting, but need not state the purpose of
the meeting. Meetings may be held at any place within or without the State of
Texas, specified in the notice of such meeting. Notice of any meeting may be
waived in writing, signed by the member or members entitled to such notice,
whether before or after the time stated therein, and shall be equivalent to the
giving of such notice. Attendance of any members at a meeting shall constitute a
waiver of notice of such meeting. A majority of the Executive Committee shall be
necessary to constitute a quorum for the transaction of any business, and the
act of a majority of the members present at a meeting at which a quorum is
present shall be the act of the Executive Committee. The members of the
Executive Committee shall act only as a Committee, and the individual members
shall have no power as such, but the Executive Committee may vote the members of
the Executive Committee a

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reasonable fee as compensation and remainder of expenses for attendance at
meetings of such Committee.

(d) Other Committees. The Board of Directors may by resolution provide
for such other standing or special committees as it from time to time deems
desirable, and discontinue the same at its pleasure. Each such committee shall
have such powers and perform such duties, not inconsistent with law, as may be
assigned to it by the Board of Directors. If provision be made for any such
committee, the members thereof shall be appointed by the Board of Directors and
shall serve at the pleasure of the Board. Vacancies in such committees shall be
filled by the Board of Directors.

Section 13. Action Without A Meeting.

(a) Any action required or permitted to be taken at a meeting of the
Board of Directors or any committee may be taken without a meeting if a consent
in writing, setting forth the action so taken, is signed by all the members of
the Board of Directors or Committee, as the case may be. Such consent shall have
the same force and effect as a unanimous vote at a meeting, and may be stated as
such in any document or instrument filed with the Secretary of State.

(b) Members of the Board of Directors, or members of any committee
designated by such board, may participate in and hold a meeting of such board or
committee by means of conference telephone or similar communications equipment
by means of which

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all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section shall constitute presence in person at
such meeting, except where a person participates in the meeting for the express
purpose of objection to the transaction of any business on the ground that the
meeting is not lawfully called or convened.

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ARTICLE III

OFFICERS

Section 1. Number, Titles and Term of Office. The officers of the
corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a
President, one or more Vice Presidents (including one or more Executive Vice
Presidents and one or more Senior Vice Presidents if deemed appropriate by the
Board of Directors), a Secretary, a Treasurer and such other officers as the
Board of Directors may from time to time elect or appoint. Each officer shall
hold office until his successor shall have been duly elected and qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided. One person may hold more than one office, except
that the President shall not hold the office of Secretary. None of the officers
need be a director.

Section 2. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so

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removed. Election or appointment of an officer or agent shall not of itself
create contract rights.

Section 3. Vacancies. A vacancy in the office of any officer may be
filled by vote of a majority of the directors for the unexpired portion of the
term.

Section 4. Powers and Duties of the Chairman of the Board. The Chairman
of the Board shall be chief executive officer of the corporation and shall
preside at all meetings of the Board of Directors and shall have such other
powers and duties as designated in these bylaws and as from time to time may be
assigned to him by the Board of Directors.

Section 5. Powers and Duties of the Vice Chairman of the Board. The
Vice Chairman of the Board in the absence of the Chairman of the Board shall
preside at all meetings of the Board of Directors and in the absence of both the
Chairman of the Board and the President preside at all meetings of the
shareholders and shall have such other powers and duties as from time to time
may be assigned him by the Board of Directors.

Section 6. Powers and Duties of the President. The President shall be
the chief administrative officer of the corporation and, subject to the Board of
Directors and the

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Chairman of the Board, he shall have general administrative charge, management
and control of the properties and operations of the corporation in the ordinary
course of its business with all such powers with respect to such properties and
operations as may be reasonably incident to such responsibilities; he shall
preside at all meetings of the shareholders and in the absence of both the
Chairman of the Board and the Vice Chairman of the Board at all meetings of the
Board of Directors; he may agree upon and execute all bonds, contracts and all
other obligations in the name of the corporation; and he may sign all
certificates for shares of capital stock of the corporation.

Section 7. Vice Presidents. Each Vice President shall have such powers
and duties as may be assigned to him by the Board of Directors and shall
exercise the powers of the President during that officer's absence or inability
to act. Any action taken by a Vice President in the performance of the duties of
the President shall be conclusive evidence of the absence or inability to act of
the President at the time such action was taken.

Section 8. Treasurer. The Treasurer shall have custody of all the funds
and securities of the corporation which come into his hands. When necessary or
proper, for collection he may, on behalf of the corporation, endorse checks,
notes and other obligations and shall deposit the same to the credit of the

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corporation in such bank or banks or depositories as shall be designated in the
manner prescribed by the Board of Directors, and he may sign all receipts and
vouchers for payments made to the corporation, either alone or jointly with such
other officer as is designated by the Board of Directors. Whenever required by
the Board of Directors, he shall render a statement of his cash account; he
shall enter or cause to be entered regularly in the books of the corporation to
be kept by him for the purpose full and accurate accounts of all moneys received
and paid out on account of the corporation; he shall perform all acts incident
to the position of Treasurer subject to the control of the Board of Directors;
and he shall, if required by the Board of Directors, give such bond for the
faithful discharge of his duties in such form as the Board of Directors may
require.

Section 9. Assistant Treasurer. Each Assistant Treasurer shall have the
usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer's absence or inability to act.

Section 10. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors and committees thereof and the minutes of all
meetings of the stockholders, in books

-23-
<PAGE> 24

provided for that purpose. He shall attend to the giving and serving of all
notices; he may sign with the President, in the name of the corporation, all
contracts of the corporation and affix the seal of the corporation thereto; he
may sign with the President all certificates for shares of the capital stock of
the corporation; he shall have charge of the certificate books, transfer books
and stock ledgers, and such other books and papers as the Board of Directors may
direct, all of which shall at all reasonable times be open to inspection of any
director upon application at the office of the corporation during business
hours; and he shall in general perform all duties incident to the office of
Secretary, subject to the control of the Board of Directors.

Section 11. Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as may be assigned to him by the Board of Directors or the
Secretary. The Assistant Secretaries shall exercise the powers of the Secretary
during that officer's absence or inability to act.

-24-
<PAGE> 25

ARTICLE IV

INDEMNIFICATION

Section 1. Each director and officer of the Company and any person who
may have served at the request of the Company as a director or officer of
another corporation in which it owns shares or of which it is a creditor shall
be indemnified by the Company against any costs and expenses, including counsel
fees, actually and necessarily incurred in connection with the defense of any
civil, criminal, administrative, or other claim, action, suit, or proceeding,
whether by or in the right of the Company or otherwise, in which he may become
involved or with which he may be threatened by reason of his being or having
been a director or officer of the Company or by reason of his serving or having
served at the request of the Company as a director or officer of another
corporation as aforesaid, provided that, in connection with such matter, the
said director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. Costs and expenses indemnified shall include
payments in settlement or in satisfaction of any judgment, fine or penalty.

-25-
<PAGE> 26

The termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or equivalent shall
not, of itself, create a presumption that the director, officer, or
representative did not act in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company, or with respect to
any criminal action or proceeding that he had reasonable cause to believe his
conduct was unlawful.

Section 2. Any indemnification provided for herein, unless ordered by a
court, shall be made by the Company only as authorized in the specific case upon
a determination that indemnification of the director or officer is proper in the
circumstances because he had met the applicable standard of conduct set forth in
Section 1 hereof. Such determination shall be made (a) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit, or proceeding, or (b) if such quorum is not obtainable, or,
even if obtainable, and a quorum of disinterested directors so directs, by
independent legal counsel (who may be of counsel to the corporation) in a
written opinion, or (c) by the shareholders.

Section 3. It is specifically intended to provide indemnification with
regard to acts or omissions on the part of

-26-
<PAGE> 27

directors or officers which may be or are adjudged to constitute negligence,
misrepresentations, slander, libel, misconduct, or other breach of duty, but
only to the extent that such indemnification may be provided for under law, and
only upon a determination under Section 2 hereof that such conduct was in good
faith and reasonably believed to be in or not opposed to the best interest of
the Company and, with respect to any criminal action or proceeding, that there
was not reasonable cause for belief that the conduct was unlawful.

Section 4. The Company shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation itself would
have the power to indemnify him against such liability under law.

Section 5. To the extent permitted by law, expenses incurred in
connection with a civil, criminal, administrative or investigative action, suit
or proceeding, or threat thereof, may

-27-
<PAGE> 28

be paid by the corporation in advance of the final disposition of such action,
suit or proceeding as authorized in the manner provided in Section 2 of this
Article, upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as authorized in this Article.

Section 6. Should any of the indemnification rights provided for herein
be declared invalid, such declaration shall not invalidate the indemnification
provisions generally, and such of the indemnification rights provided for herein
as are permissible under law shall remain effective.

Section 7. The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any director, officer, or representative
may be entitled under any other bylaw, agreement, or vote of shareholders or
disinterested directors, as a matter of law or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, or representative and shall inure to the benefit of the heirs,
executors, and administrators of such a person.

-28-
<PAGE> 29

Section 8.

(a) In addition, and not in lieu of, any indemnity provided under the
preceding sections of this Article IV, the Company shall indemnify each
director, officer or employee and each former director, officer or employee of
the Company against any costs and expenses, including counsel fees, actually and
necessarily incurred in connection with the defense of any civil, criminal,
administrative or other claim, action, suit or proceeding, whether by or in the
right of the Company or otherwise, in which he may become involved or with which
he may be threatened with regard to any error or omission or breach of duty
committed or alleged to have been committed in the discharge of his fiduciary
duties, obligations or responsibilities with respect to any employee pension,
deferred compensation, welfare benefit or other benefit plan, including
specifically, but without limitation, plans covered under the Employee
Retirement Income Security Act of 1974 (which plans are herein collectively
called "employee benefit plan"), of the corporation or any other corporation in
which it owns shares of capital stock, or of which it is a creditor (which
entities are herein collectively called the "Company") provided, that in
connection with such matter, the said director, officer or employee acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

-29-
<PAGE> 30

The Company shall be deemed to have requested a director, officer or
employee of the Company to serve an employee benefit plan where the performance
by such person of his duties to the Company also imposes duties on or otherwise
involves services by such person to such employee benefit plan or participants
or beneficiaries thereof; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to said Act of Congress shall be deemed "fines";
and action taken or omitted by such a person with respect to an employee benefit
plan in the performance of such person's duties for a purpose reasonably
believed by such person to be in the interest of the participants and
beneficiaries of the employee benefit plan shall be deemed to be for a purpose
which is not opposed to the best interest of the Company.

Costs and expenses indemnified shall include payments in settlements or
in satisfaction of any judgement, fine or penalty. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the director, officer, or employee did not act in good faith.

(b) Any indemnification provided for herein, unless ordered by a court,
shall be made by the Company only as authorized in the specific case upon a
determination that indemnification of the director, officer or employee is
proper in the circumstances because he had met the applicable standard of
conduct set forth in

-30-
<PAGE> 31

Section 8 (a) hereof. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit, or proceeding, or (b) if such quorum is not
obtainable, or even if obtainable, and a quorum of disinterested directors so
directs, by independent legal counsel (who may be of counsel to the corporation)
in a written opinion, or (c) by the shareholders.

(c) It is specifically intended to provide indemnification with regard
to acts or omissions on the part of directors, officers or employees which may
be or are adjudged to constitute negligence, misrepresentations, slander, libel,
misconduct, or other breach of duty, but only to the extent that such
indemnification may be provided for under law, and only upon a determination
under Section 8 (b) hereof that such conduct was in good faith.

(d) The Company shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise (and "other enterprise" shall in this Section 8 be
deemed to include an employee benefit plan), against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or

-31-
<PAGE> 32

not the corporation itself would have the power to indemnify him against such
liability under law. (e) To the extent permitted by law, expenses incurred in
connection with a civil, criminal, administrative or investigative action, suit
or proceeding, or threat thereof, may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as authorized in the
manner provided in Section 8 (b) hereof, upon receipt of an undertaking by or on
behalf of the director, officer or employee to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.

(f) Should any of the indemnification rights provided for herein be
declared invalid, such declaration shall not invalidate the indemnification
provisions generally, and such of the indemnification rights provided for herein
as are permissible under law shall remain effective.

(g) The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any director, officer, employee or
representative may be entitled under any other bylaw, agreement, or vote of
shareholders or disinterested directors, as a matter of law or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office or performing such of his duties and shall continue as to a
person who has ceased to be a director, officer,

-32-
<PAGE> 33

employee or representative and shall inure to the benefit of the heirs,
executors, and administrators of such a person.

-33-
<PAGE> 34

ARTICLE V

CAPITAL STOCK

Section 1. Certificates of Shares. The certificates for shares of the
capital stock of the corporation shall be in such form as shall be approved by
the Board of Directors. The certificates shall be signed by the President or a
Vice President, and also by the Secretary or an Assistant Secretary or by the
Treasurer or an Assistant Treasurer and may be sealed with the seal of this
corporation or a facsimile thereof. Where any such certificate is countersigned
by a transfer agent, or registered by a registrar, either of which is other than
the corporation itself or an employee of the corporation, the signatures of any
such President or Vice President and Secretary or Assistant Secretary may be
facsimiles. They shall be consecutively numbered and shall be entered in the
books of the corporation as they are issued and shall exhibit the holder's name
and the number of shares.

Section 2. Transfer of Shares. The shares of stock of the corporation
shall be transferable only on the books of the corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender and cancellation of certificates for a like
number of shares.

-34-
<PAGE> 35

Section 3. Closing of Transfer Books. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors of the corporation may provide that the stock transfer books
shall be closed for a stated period but not to exceed, in any case, fifty (50)
days. If stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten (10) days immediately preceding such
meeting. In lieu of closing the stock transfer books the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty (50) days and, in
case of a meeting of shareholders, not less than ten (10) days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or stockholders entitled to receive payment of a
dividend, the date on which the notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
shareholders.

-35-
<PAGE> 36

Section 4. Regulations. The Board of Directors shall have power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration or the replacement of
certificates for shares of the capital stock of the corporation.

-36-
<PAGE> 37

ARTICLE IV

MISCELLANEOUS PROVISIONS

Section 1. Offices. Until the Board of Directors otherwise determines,
the registered office of the corporation required by the Texas Business
Corporation Act to be maintained in the State of Texas shall be the principal
place of business of the corporation, but such registered office may be changed
from time to time by the Board of Directors in the manner provided by law and
need not be identical to the principal place of business of the corporation.

Section 2. Fiscal Year. The fiscal year of the corporation shall be
such as the Board of Directors shall, by resolution, establish.

Section 3. Seal. The seal of the corporation shall be such as from time
to time may be approved by the Board of Directors.

Section 4. Notice and Waiver of Notice. Whenever any notice whatever is
required to be given under the provisions of these bylaws, said notice shall be
deemed to be sufficient if given by depositing the same in a post office box in
a sealed postpaid wrapper addressed to the person entitled thereto at his post

-37-
<PAGE> 38

office address, as it appears on the books of the corporation, and such notice
shall be deemed to have been given on the day of such mailing. A waiver of
notice, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.

Section 5. Resignations. Any director or officer may resign at any
time. Such resignations shall be made in writing and shall take effect at the
time specified therein, or, if not time be specified, at the time of its receipt
by the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.

Section 6. Securities of Other Corporation. The Chairman of the Board,
the President or any Vice President of the corporation shall have power and
authority to transfer, endorse for transfer, vote, consent or take any other
action with respect to any securities of another issuer which may be held or
owned by the corporation and to make, execute and deliver any waiver, proxy or
consent with respect to any such securities.

-38-
<PAGE> 39

ARTICLE VII

AMENDMENTS

Except as set forth below, bylaws may be altered, amended or repealed,
or new bylaws may be adopted, by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock entitled to vote thereon at
any annual meeting, or at any special meeting if notice of the proposed
amendment is contained in the notice of said special meeting, or by the
affirmative vote of a majority of the full Board of Directors at any regular or
special meeting, provided notice of said proposed amendment is contained in the
notice of the meeting.

Notwithstanding the provisions of the preceding paragraph, the
affirmative vote of the holders of at least four-fifths of the outstanding
shares of capital stock of the Corporation entitled to vote thereon at a meeting
called for that purpose shall be required to amend or repeal, or to adopt any
provisions inconsistent with, Section 1, Article II or Article VII of the
corporation's Bylaws.

-39-

<PAGE> 1
EXHIBIT 12.1

SERVICE CORPORATION INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
- -----------------------------------------------------------------------------------------------------
(Thousands, except ratio amounts)

<S> <C> <C>
Pretax income from continuing operations ....................... $ 234,799 $ 437,119

Undistributed income of less than 50% owned equity investees ... (1,337) (5,814)
Minority interest in income of majority owned subsidiaries
with fixed charges ............................................ 257 320
Add fixed charges as adjusted (from below) ..................... 201,360 146,651
--------- ---------
$ 435,079 $ 578,276
--------- ---------

Fixed charges:
Interest expense:
Corporate ............................................ $ 173,359 $ 126,386
Financial service .................................... 8,689 7,372
Capitalized .......................................... 1,250 2,431
Amortization of debt costs .................................... 254 (396)
1/3 of rental expense ......................................... 19,058 13,289
--------- ---------
Fixed charges .................................................. 202,610 149,082
Less: Capitalized interest ................................... (1,250) (2,431)
--------- ---------
Fixed charges as adjusted ...................................... $ 201,360 $ 146,651
========= =========

Ratio (earnings divided by fixed charges) ...................... 2.15 3.88
========= =========

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF SERVICE CORPORATION INTERNATIONAL AS OF SEPTEMBER
30, 1999 AND THE RELATED STATEMENT OF INCOME FOR THE NINE MONTHS THEN ENDED AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 205,837
<SECURITIES> 1,232,108
<RECEIVABLES> 2,315,426
<ALLOWANCES> 129,358
<INVENTORY> 209,445
<CURRENT-ASSETS> 1,092,604
<PP&E> 2,537,265
<DEPRECIATION> 580,790
<TOTAL-ASSETS> 14,972,437
<CURRENT-LIABILITIES> 788,327
<BONDS> 4,111,305
0
0
<COMMON> 272,060
<OTHER-SE> 3,436,067
<TOTAL-LIABILITY-AND-EQUITY> 14,972,437
<SALES> 2,330,545
<TOTAL-REVENUES> 2,511,137
<CGS> 1,853,749
<TOTAL-COSTS> 1,984,036
<OTHER-EXPENSES> 267,321
<LOSS-PROVISION> 16,973
<INTEREST-EXPENSE> 182,302
<INCOME-PRETAX> 234,799
<INCOME-TAX> 84,848
<INCOME-CONTINUING> 149,951
<DISCONTINUED> 0
<EXTRAORDINARY> 1,885
<CHANGES> 0
<NET-INCOME> 151,836
<EPS-BASIC> .56
<EPS-DILUTED> .56

</TABLE>

<PAGE> 1
EXHIBIT 99.1

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

In re: SERVICE CORPORATION INTERNATIONAL Civil Action No. H-99-280

JURY DEMANDED
-------------

CONSOLIDATED CLASS ACTION COMPLAINT

Plaintiffs sue individually and on behalf of all those similarly
situated. Their allegations are upon personal knowledge as to their own acts.
Other matters are alleged based upon the investigation conducted by counsel as
detailed below.

This class action against Service Corporation International ("SCI" or
the "Company") and certain of its present and former officers and directors is
prosecuted on behalf of all members of the class certified by the Court on
August 25, 1999 (the "Class") who were damaged by defendants' violations of the
federal securities laws.

JURISDICTION AND VENUE

1. This action arises under Sections 11,12(a)(2) and 15 of the
Securities Act of 1933 (the "Securities Act"), 15 U.S.C. Sections 77(k),
77(l)(2) and 77(o); Sections 10(b), 20(a) and 20A of the Securities Exchange Act
of 1934 (the "Exchange Act"), 15 U.S.C. Sections 78j(b), 78t(a) and 78t-1, and
the rules and regulations promulgated thereunder, including Securities and
Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. 240.10b-5.

2. Jurisdiction exists under 15 U.S.C. Section 77v, 15 U.S.C. Section
78aa; and 28 U.S.C. Section 1331.

Page 1

<PAGE> 2

3. Venue is proper in this district under 28 U.S.C. Sections 1391 (b)
and (c) as acts, transactions and wrongful conduct alleged herein, including the
dissemination to the investing public of the materially false and misleading
statements at issue, occurred in substantial part in this District. In
addition, the principal offices of SCI are located in this District.

4. Defendants, directly or indirectly, used the mails and
instrumentalities of interstate commerce in connection with the acts and conduct
alleged in the Complaint.

THE PARTIES

5. Rujira Srisythep, Carl Helwig, and Allan Lisse were appointed as
Lead Plaintiffs by this Court's order dated June, 9, 1999. On August 25, 1999,
the Court certified them as Class representatives. Each Lead Plaintiff purchased
SCI common stock during the Class Period (July 17, 1998 through January 26,
1999) and was damaged thereby.

6. Defendant SCI is a corporation organized and existing under the laws
of the State of Texas. Its principal executive offices are at 1929 Allen
Parkway, Houston, Texas. SCI purports to be the world's largest provider of
death care services. At December 31, 1998, SCI operated 3,442 funeral service
locations, 433 cemeteries, and 191 crematoria located in 20 countries on five
continents.

7. At all relevant times, defendant R.L. Waltrip ("Waltrip") was SCI's
Chairman of the Board and Chief Executive Officer. Waltrip signed the materially
false and misleading Amendment No. 1 to Form S-4 Registration Statement
containing a Proxy Statement/Prospectus, filed with the SEC on or about November
19, 1998 (the "Registration Statement/Prospectus"). The Registration
Statement/Prospectus was declared effective on November 20, 1998. Waltrip

Page 2

<PAGE> 3

also made numerous materially false and misleading statements to the public via
media reports and press releases issued by the Company during the Class Period
as alleged herein.

8. At all relevant times, defendant George R. Champagne ("Champagne")
was SCI's Senior Vice President and Chief Financial Officer. Champagne signed
the materially false and misleading: (i) Form 10-Q Quarterly Report Pursuant to
Section 13 or 15(D) of the Securities Exchange Act of 1934 for the Quarterly
Period Ended June 10, 1998, filed with the SEC on August 14, 1998 (the "1998 Q2
10-Q"); (ii) Form 10-Q Quarterly Report pursuant to Section 13 or 15 (D) of the
Securities Exchange Act of 1934 for the Quarterly Period Ended September 30,
1998, filed with the SEC on November 16, 1998 (the "1998 Q3 10-Q"); and
Registration Statement/Prospectus. Champagne also made numerous materially false
and misleading statements to the public via media reports and press releases
issued by the Company during the Class Period as alleged herein.

9. At all relevant times, defendant L. William Heiligbrodt
("Heiligbrodt") was SCI's President and Chief Operating Officer. Heiligbrodt
signed the materially false and misleading Registration Statement/Prospectus.
Heiligbrodt also made numerous materially false and misleading statements to the
public via media reports and press releases issued by the Company during the
Class Period as alleged herein. Heiligbrodt left the employment of the Company
shorty after the disclosure of the adverse information alleged herein.

10. Defendants Waltrip, Champagne and Helligbrodt are sometimes
collectively referred to as the "Individual Defendants."

11. The Individual Defendants, by reason of their stock ownership,
management positions, and/or membership on the Company's Board of Directors and
committees thereof, had

Page 3

<PAGE> 4

control over the operations of the Company and had the power and/or ability to
control each of the wrongful acts and practices complained of herein. The
Individual Defendants exercised such power and control to commit the wrongful
acts complained of herein, including making materially false and misleading
statements and material omissions in statements to the media, the Company's
press releases, quarterly SEC filings, and the Registration
Statement/Prospectus. The Individual Defendants were, "control persons" of SCI
within the meaning of Section 15 of the Securities Act and Section 20(a) of the
Exchange Act.

12. As a result of their positions with SCI, the Individual Defendants
had access to undisclosed adverse information throughout the Class Period about
SCI's multi-million dollar backlog of unprofitable preneed funeral business and
the impact this backlog had, and would continue to have, on SCI's profitability.
They had access to such information through: (a) internal corporate documents;
(b) corporate profit/loss information conveyed directly to corporate
headquarters from each of the Company's domestic funeral homes on a next-day
basis, via, the Company's proprietary "Falcon" computer system; (c)
conversations and communications with other corporate officers and employees;
(d) attendance at management and/or meetings of the Board and committees
thereof; and (e) daily, weekly and monthly reports such as SCI's "Call In
Reports" which provided them with profit and loss information on each of SCI's
domestic funeral homes, and other information provided in connection therewith.

13. It is appropriate to treat the Individual Defendants as a group for
pleading purposes and to presume that the materially false, misleading and
incomplete information conveyed in the company's public filings, press releases
and other publications as alleged herein are the collective actions of the
Individual Defendants identified above.

Page 4

<PAGE> 5

14. The Individual Defendants made and were involved in drafting,
reviewing and/or disseminating the materially false and misleading statements
and information alleged herein. Each of the Individual Defendants was provided
with copies of the documents alleged herein to be misleading prior to their
issuance and or had the ability and/or opportunity to prevent their issuance or
cause them to be corrected. Accordingly, each of the Individual Defendants is
responsible for the accuracy of the public reports, press releases, and
statements detailed herein and is therefore primarily liable for the materially
false representations and omissions contained therein.

15. As officers and/or directors and controlling persons of a public
company whose securities were registered with the SEC and governed by the
federal securities laws, the Individual Defendants each had a duty to
disseminate promptly accurate and truthful information with respect to the
Company's business, operations, financial condition, management, earnings, and
present and future business prospects, and to correct any previously issued
statements that had become materially false and misleading so that the market
price of the Company's publicly traded securities would be based upon truthful,
accurate and complete information. The Individual Defendants' material
misrepresentations and omissions, and failures to correct, during the Class
Period violated these specific requirements and obligations as alleged below.

SUBSTANTIVE ALLEGATIONS

SCI'S FUNERAL HOME CONSOLIDATOR BUSINESS MODEL

16. Throughout the 1990s, thousands of locally-owned family operated
independent funeral homes have been acquired by major corporations known in the
funeral industry as "funeral home consolidators." The three largest publicly
traded funeral home consolidators are SCI,

Page 5

<PAGE> 6

Loewen Group Inc. ("Loewen"), and Metarie, Louisiana-based Stewart Enterprises
Inc. ("Stewart").

17. All funeral home consolidators employ a relatively standard
business model. SCI's model consists of acquiring several independently owned
and locally managed funeral homes in one geographic area and then sharing labor
and equipment among this "cluster" to cut costs. As reported in SCI's Form 10-K
for the fiscal year ended December 31, 1998, filed with the SEC on March 31,
1999 (the "SCI 1998 Form 10-K"):

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

18. Once SCI acquires a funeral home, the public often is unaware of
any change in ownership. By SCI's own design, the original family owners and
employees usually remain and continue to operate the SCI-acquired funeral home
under the original family name. This semblance of continuity is essential to SCI
retaining the goodwill and future business of a client base largely loyal to the
funeral homes' original family owners.

SCI ACQUIRES THOUSANDS OF INDEPENDENT FUNERAL HOMES

19. According to SCI's 1998 Form 10-K, "[SCI] is the largest provider
of death care services in the world. At December 31, 1998, the Company operated
3,442 funeral service locations, 433 cemeteries and 191 crematoria located in 20
countries on five continents." However, SCI was not always this large.

Page 6

<PAGE> 7

20. SCI's funeral empire is a creature of an acquisition campaign SCI
has waged since the early 1990s. The following table illustrates the annual
growth in the number of funeral homes owned by SCI throughout the 1990s:

<TABLE>
<CAPTION>
NUMBER OF FUNERAL HOMES
YEAR ACQUIRED
<S> <C>

1990 45
1991 164
1992 54
1993 124
1994 674
1995 1,263
1996 210
1997 294
1998 308
Total 2,873
</TABLE>

21. In acquiring a funeral home, SCI typically acquires all assets and
assumes all liabilities of the acquired funeral home while paying the funeral
home owner in cash, SCI securities, or some combination thereof.

PRE-NEED FUNERAL SERVICES

22. The assets purchased by SCI in a typical funeral home acquisition
transaction included "preneed" or "guaranteed price" funeral contracts entered
into by the independent funeral homes during the years those homes were
independently operated. Preneed funeral contracts generally govern an
arrangement where individuals purchase their funeral arrangements prior to their
death, and funeral homes agree to perform the funeral service in the future for

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payment of a fixed sum that is paid at the time the contract is entered into, or
over time pursuant to an installment payment schedule. The contractual
obligation to perform these guaranteed price funerals in the future was
typically reflected as a liability on the books of the independent funeral homes
prior to their acquisition by SCI. Once acquired SCI assumed this future
liability.

23. In connection with each acquisition, SCI also acquired the mortuary
trust assets that eventually are used to pay for the preneed funerals. At the
time the preneed funeral contracts were sold to prospective clients, the
independent funeral homes typically established mortuary trusts, funded with
payments from the prospective clients. The total funds, or trust principal,
generally were less than the then-current cost of providing the funeral service
because preneed funeral services were often sold at a discount. The trust
principal was routinely invested in a certificate of deposit issued by a bank
and redeemable only upon the death of the prospective client. To the extent that
the principal and income generated by the trust equals or exceeds the ultimate
cost of performing the funeral service, the funeral home will either break-even
or realize a profit. If, on the other hand, the mortuary trust assets do not
grow to equal or exceed the future cost of performing the service, then the
funeral service will be performed at the contractually agreed upon price,
resulting in a loss for the funeral home performing the service.

24. The practice of selling preneed funeral contracts began to gain
increasing acceptance in the late 1980s. At this time and throughout the 1990s,
the vast majority of the nation's funeral homes were independently owned and
operated and lacked the financial sophistication to perform any meaningful
analysis aimed at determining whether the assets invested in the mortuary trusts
would generate a real rate of return in excess of the amount necessary to cover
future increases in the cost of providing a price guaranteed funeral service. As
a result, the

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funds invested in these mortuary trusts were often not actively managed - if
they were managed at all - and the answer to whether such funds would grow
sufficiently to equal or exceed the cost of providing a price guaranteed funeral
service at some future date was left to happenstance. Industry sources have
confirmed that the financial management of these mortuary trust assets often
consisted of little more than opening a certificate of deposit at a local bank
and then throwing the preneed contract into a drawer where it remained
essentially untouched until the prospective client passed away.

25. While the financial impact of such a laissez-faire approach to
mortuary trust asset management may have been relatively insignificant during
periods of high prevailing interest rates and relatively low funeral home cost
inflation, these practices have had a severely negative impact on funeral home
profit margins during the protracted period of declining interest rates and
escalating funeral home costs, such as those experienced throughout the 1990s.

26. By way of example, interest rates on 24 month certificates of
deposit stood as high as 8.21% in 1990, however, by 1998 they had fallen to as
low as 4.22%. Conversely, the costs associated with providing funeral services
increased at an average annual rate of 8.5% during this same time period. As a
result, funeral homes that entered into guaranteed price funeral contracts, but
failed to actively manage their mortuary trust assets during this time period,
amassed multi-million dollar preneed funeral backlogs that would eventually be
performed at break-even - or a loss - resulting in a drastic, negative impact on
profit margins.

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SCI FAILS TO DISCLOSE THAT IT HAS AMASSED A MULTI-MILLION DOLLAR BACKLOG OF
UNPROFITABLE PRENEED FUNERALS BY ACQUIRING THOUSANDS OF INDEPENDENT FUNERAL
HOMES THAT FAILED TO MANAGE THESE PRENEED FUNDS

27. It is well known in the death services industry that the failure to
actively manage preneed contract trust funds can have disastrous effects on a
company's financial position. As one industry analyst recognized as early as
March 1997:

You see there is one basic problem with preneed - the money. Regardless
of how you finance prearranged funerals - trusts, insurance or some
combination - the amount of the funeral at-need and the amount
available to finance it will never be exactly the same. Sometimes the
difference may be only a few dollars or it could be several hundred
dollars. Trusts and insurance will naturally grow at a different rate
than funeral prices. Therefore, there will always be only two
possibilities. Either there will be too little money to finance the
service at current prices, or there will be an overage.

If there is a shortfall, it is the funeral home that must absorb that
shortage. No trust or insurance company will be willing to make up the
difference. We can rationalize it in any number of ways, but a shortage
is a shortage and must be accounted for somewhere, either through an
increase of at-need prices or decreased profit. BUT WHAT WOULD HAPPEN
TO YOUR FUNERAL HOME IF EVERY FUNERAL YOU DID THIS YEAR HAD BEEN FUNDED
10 YEARS AGO? THERE IS NO WAY TO RECOVER THE SHORTAGES. HOW WOULD YOU
SURVIVE? While it may be unrealistic to think that someday all funerals
will be prefunded, isn't that the direction we are encouraging through
our preneed marketing efforts? [Emphasis added].

Curtis Rostad, Preneed: Here Today, Gone Tomorrow, The Director (March 1997).

28. The "direction" that Mr. Rostad found the industry "encouraging"
is precisely the direction taken by SCI during the 1990s. Significantly, by
1998, SCI had acquired ownership of more than 2,873 independent funeral homes
during the preceding eight years. In doing so, SCI amassed a multi-billion
dollar backlog of preneed funeral contracts. Indeed, between 1992 and 1998, in
just a six-year period, SCI's prearranged funeral contract backlog increased
three-fold, from $1.2 billion to $3.7 billion. The chart that follows depicts
the explosive growth in the dollar

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value of prearranged funeral contracts acquired and sold by SCI, as well as
SCI's preneed funeral contract backlog between 1992 and 1998:

<TABLE>
<CAPTION>
Value of
Prearranged
Prearranged Funeral Prearranged Funeral
Year Contracts Acquired Funeral Contracts Backlog
Services-Sold
<S> <C> <C> <C>
12/31/92 $ 24 million $119 million $1.2 billion
12/31/93 $ 60 million $159 million $1.3 billion
12/31/94 $127 million S245 million $1.5 billion
12/31/95 $656 million $371 million $2.3 billion
12/31/96 $ 72 million $512 million $2.7 billion
12/31/97 $102 million $529 million $3.3 billion
12/31/98 $138 million $490 million $3.7 billion
TOTAL $1.179 billion $2.425 billion --
</TABLE>

29. Undisclosed to the Class was the fact that a material number of
independent funeral homes acquired by SCI throughout the 1990s were among those
that had failed to actively manage their mortuary trust assets to insure that
such assets would equal or exceed the cost of providing the guaranteed price
funerals in the future. As a result, each time SCI acquired ownership of another
independent funeral home, SCI had, unbeknownst to the Class, also acquired
countless numbers of unprofitable guaranteed price funeral contracts that had
long-ago been entered into by the independent funeral homes. Significantly, all
of these unprofitable funerals would eventually have to be performed by SCI.

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30. Also undisclosed to the Class throughout the Class Period was the
fact that SCI failed to establish any means of actively managing the mortuary
trust assets that would eventually be used to pay for these acquired preneed
funeral contracts. Defendants never disclosed that SCI's failure to take such
measures had already caused, and would continue to cause, SCI to perform a
material number of these prearranged funerals unprofitably, and that this
ultimately would have a severe adverse impact on SCI's profit margins.

DEFENDANTS CONCEAL THE RESULTS OF THE PRENEED STUDY

31. During 1995 alone, SCI purchased 1,263 independent funeral homes
and acquired a staggering $656 million in preneed funeral contracts in
connection with these purchases. These purchases resulted in SCI increasing its
preneed funeral backlog by more than 40% in a single year and created an
unprecedented need to determine the projected profitability - or lack thereof -
of these preneed funeral contracts.

32. During 1996, SCI undertook what it termed "a review of the
prearranged trust investment process which included an asset/liability study"
(the "Preneed Study"). The results of the Preneed Study confirmed that SCI had
amassed ownership of a material number of independent funeral homes with
significant preneed contract inventories throughout the 1990s. The Preneed Study
also confirmed for the defendants that a significant number of the independent
funeral homes acquired by SCI had failed to actively manage their mortuary trust
assets. As a result, a material number of SCI's funeral services had been, and
would continue to be, performed at significant losses.

33. Although defendants publicly disclosed the fact that the Preneed
Study had been conducted in the Company's Form 10-K for the fiscal year ended
December 31, 1996 filed with

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the SEC on March 28, 1997 (the "SCI 1996 Form 10-K"), they never disclosed the
clearly material factual findings of the Preneed Study to Class members. In this
vein, the SCI 1996 Form 10-K reported only that:

THE COMPANY HAS RECENTLY COMPLETED A REVIEW OF THE PREARRANGED TRUST
INVESTMENT PROCESS WHICH INCLUDED AN ASSET/LIABILITY STUDY. This has
resulted in a NEW INVESTMENT PROGRAM which entails the consolidation of
multiple trustees, the use of institutional managers with differing
investing styles and consolidated performance monitoring and tracking.
THIS NEW PROGRAM TARGETS A REAL RETURN IN EXCESS OF THE AMOUNT
NECESSARY TO COVER FUTURE INCREASES IN THE COST OF PROVIDING A PRICE
GUARANTEED FUNERAL SERVICE AS WELL AS ANY SELLING COSTS. THIS IS
ACCOMPLISHED BY ALLOCATING THE PORTFOLIO MIX TO THE APPROPRIATE
INVESTMENTS THAT MORE ACCURATELY MATCH THE ANTICIPATED MATURITY OF THE
POLICIES. THIS HAS RESULTED IN A NEW ASSET ALLOCATION POLICY OF
APPROXIMATELY 65% EQUITY AND 35% FIXED INCOME WHICH THE COMPANY INTENDS
TO IMPLEMENT IN THE FIRST HALF OF 1997. [Emphasis added].

34. Defendants again referred to the Preneed Study in the Company's
Form 10-K for the fiscal year ended December 31, 1997 filed with the SEC on
March 30, 1998 (the "SCI 1997 Form 10-K"). Defendants again failed to disclose
the results of the study and instead stated only that:

During 1997, the Company completed a review of the prearranged trust
investment process which included an asset/liability study. THIS HAS
RESULTED IN A NEW INVESTMENT PROGRAM WHICH ENTAILS THE CONSOLIDATION
OF MULTIPLE TRUSTEES, THE USE OF INSTITUTIONAL MANAGERS WITH DIFFERING
INVESTMENT STYLES AND CONSOLIDATED PERFORMANCE MONITORING AND
TRACKING. THIS NEW PROGRAM TARGETS A REAL RETURN IN EXCESS OF THE
AMOUNT NECESSARY TO COVER FUTURE INCREASES IN THE COST OF PROVIDING A
PRICE GUARANTEED FUNERAL SERVICE AS WELL AS ANY SELLING COSTS. This is
accomplished by allocating the portfolio mix to the appropriate
investments that more accurately match the anticipated maturity of the
policies. The Company is currently reallocating the portfolio to
achieve a new asset allocation of approximately 65% equity and 35%
fixed income. [Emphasis added.]

35. While SCI, and the Individual Defendants disclosed the fact that
the Preneed Study had been conducted and boasted of the "new [preneed]
investment program" that was to be implemented, they misled investors by failing
to disclose the material information they had learned

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as a result of the Preneed Study - namely that a significant number of
independent funeral homes acquired by SCI had failed to actively manage their
mortuary trust assets and, as a result, a material number of SCI's funeral
services had been, and would continue to be, performed at significant losses to
SCI.

36. Equally misleading was SCI's disclosure concerning the steps the
Company was purportedly taking in connection with the implementation of its "new
investment program." While the Company's public filings proclaim that this
program "targets a real rate of return in excess of the amount necessary to
cover future increases in the cost of providing a price guaranteed funeral
service as well as any selling costs," the filings did not disclose that this
"new investment program" would only be utilized to manage preneed assets
acquired by SCI in the future. Nor did defendants disclose the absence of any
effective program to manage the assets associated with the previously acquired
preneed funeral service contracts. Significantly, the vast majority of the
preneed assets that SCI had previously acquired in connection with its purchases
of independent funeral homes were not, and would not be, invested in accordance
with the terms of the "new investment program." This clearly material fact, as
well as the reasons why this was so, were not publicly disclosed. By 1998, SCI's
failure to actively manage its mortuary trust assets was having an increasingly
negative impact on SCI's profit margin as reflected in the following graph:

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FUNERAL SERVICE GROSS MARGIN FY 19

[GRAPH]

37. Rather than disclose the fact that SCI's funeral margins had been,
and would continue to be, severely negatively impacted as a result of SCI
continually having to perform the non-profitable preneed funerals in its
backlog, defendants misled the Class by instead blaming the margin contraction
throughout 1998 on a number of other factors including "increased costs," "lower
funeral service volume," and "higher personnel and facility costs." Defendants
did so in hopes that they could execute their plan to conceal the true cause of
the margin squeeze by "burying" the impact of these non-profitable funerals in a
"one time charge" as discussed in detail below.

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SCI'S NEED TO SECRET ITS IDENTITY RESTRICTS THE COMPANY'S
ABILITY TO ACTIVELY MANAGE THE PRENEED ASSETS SCI ACQUIRED
WHEN IT PURCHASED THOUSANDS OF INDEPENDENT FUNERAL HOMES

38. In order to profit from the goodwill and long standing reputations
of the family-owned independent funeral homes, it was necessary for SCI to
refrain from advertising its acquisitions to the public. As an article in the
August 28, 1995 edition of The Boston Globe reported, large funeral operators,
like SCI, were so successful in hiding their ownership of the formerly
independent family-run funeral homes from the public that most consumers failed
to notice a change in ownership. The August 28 article stated, "chains prefer to
keep the owners on, usually with good pay and benefits, to preserve the
operation's family image... Most consumers would never even notice that their
local funeral home is now owned by an outside firm."

39. The December 8, 1996 edition of The Boston Globe reported that,
although SCI handled roughly one in every 10 funeral arrangements in the United
States at this time, its expanding presence had generally gone unnoticed by the
public. "When it buys a funeral home, SCI keeps the same name and usually the
same management in place. What changes are the backroom operations; vehicle
fleets, embalming operations, casket purchases and management are all
centralized. " While a December 11, 1996 Seattle Times article entitled, "Big
Corporations Shove Aside Mom and Pop" reported

SCI and Loewen have been accused of hiding local buyouts hoping to cash
in on the good feelings that a locally owned funeral business has
accumulated through the years. Thus, with the old name still on the
building, family portraits of the founders still in the lobby and the
old manager still in his post, many customers won't know they're
dealing with a chain.

40. Negative press on the aggressive sales practices engaged in by SCI
provided further impetus to conceal SCI's ownership from the local clientele.
For example, the July 6, 1996

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edition of The Ledger (Lakeland, FL) reported on the abuse of the elderly by an
SCI-owned funeral home. According to this report, two months after performing
the funeral service for Mr. Russell Carriere, a salesman from the SCI-operated
Glen Abbey Memorial Gardens ("Glen Abbey") repeatedly approached Mr. Carriere's
81-year-old widow and cajoled her into purchasing her own prepaid funeral for an
astonishing $132,439, which included a $39,000 casket, and a $52,000 mausoleum.
As Mrs. Carriere's niece stated, "They truly preyed on a lonely, weak old
woman." A civil suit against SCI and Glen Abbey was filed on behalf of Mrs.
Carriere, charging them with coercing Mrs. Carriere, who had been disabled by a
stroke, into buying burial services she did not want.

41. Included among the myriad examples of negative publicity were:

a. A report in The Arizona Daily Star on January 14, 1996
stated that SCI was singled out by consumers as "providing for minimum disposal
without regard for the emotional needs of the family." The report also quoted a
source as saying, "Some of the policies put in place locally by SCI decrease the
amount of service while maintaining a status quo on cost."

b. In a story in the February 15, 1996 Las Vegas Review
Journal, it was reported that an SCI-owned funeral home attempted to bury a
prominent local businessman in the mausoleum of an unrelated family because,
although there was insufficient space for the businessman to have his own
mausoleum, the funeral home operator wanted the publicity of having the
prominent businessman buried on the premises.

c. The Chicago Sun Times reported on April 28, 1996 that two
SCI-owned funeral homes employed sales personnel who attempted to persuade
bereaved consumers

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to buy more expensive caskets by describing more affordable caskets as "public
aid" caskets, instead of providing the consumer a price list, as required by
law. The reference by the salesperson to "public aid" was designed to create the
image that only persons with limited or no assets were buried in the public aid
caskets and induce the purchase of a higher-priced casket. According to the
report, "Psychology plays an important role in choices made by survivors. Many
buyers would feel guilty purchasing a less expensive casket."

d. An August 6, 1998 report in The Fort Worth Star Telegram
stated that the Texas Funeral Service Commission would consider a recommendation
that SCI be fined $450,000 for allowing unsupervised trainees to embalm bodies
and failing to advise consumers that the price being charged for embalming was
higher than the cost to the funeral home.

42. Because of such criticisms, and SCI's fear of losing clients who
learned that the local funeral home was no longer locally owned, SCI's ability
to actively manage the preneed trust assets it had acquired was severely
hampered. The Company was hampered because it would have been required to
disclose its ownership of the funeral homes and control of the preneed trust
assets it acquired to future clients in order to advise these clients that these
assets would now be actively managed. Doing so meant risking the loss of
millions of dollars worth of potentially profitable preneed funeral business.

43. Defendants feared that undertaking such a process would lead to
countless contract terminations when customers realized that an organization
tarnished by allegations of the outrageous conduct described above was
responsible for something as highly sensitive as the customers' future burial
services. Moreover, an admission by defendants that customers' funds had long
been inactively managed by the local funeral home would serve to criticize the

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independent funeral home operators who were well regarded by their clients and
thus could lead to even more contract cancellations and loss of business.

SCI Attempts To Conceal its Plunging Profit Margins

44. The undisclosed results of the Preneed Study confirmed for the
defendants that a significant number of the independent funeral homes acquired
by SCI had failed to actively manage their mortuary trust assets and, as a
result, a material number of SCI's future funeral services had been, and would
continue to be, performed at significant losses, severely cutting into SCI
profit margins.

45. Rather than disclosing this clearly material adverse information,
defendants embarked upon a campaign to conceal the truth about increasing number
of unprofitable prearranged funerals SCI was performing, the Company's growing
backlog of inadequately funded acquired preneed funeral contracts, and the
increasingly adverse impact these factors were having, and would continue to
have, on SCI's profit margins and earnings. The first step in this campaign was
the public dissemination of materially misleading and incomplete information
falsely representing that SCI was actively managing its preneed mortuary trust
assets to ensure sufficient funds to cover or exceed costs for performing
contractually prearranged funerals. In fact, there was no active management by
SCI of the vast majority of the preneed trust assets it had amassed through its
aggressive acquisitions of funeral homes over the last decade.

46. As part of its scheme to conceal the true facts about the adverse
impact of SCI's multi-billion dollar backlog of preneed funeral contracts on
SCI profit margins, the defendants misleadingly touted the implementation of
their so-called "new investment program," described in detail above, without
disclosing that the "new investment program" did not address the

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enormous and growing backlog of preneed mortuary trust assets acquired in SCI's
purchases of funeral private homes, which were laying virtually dormant in CD's,
unable to grow sufficiently to cover the costs to SCI of providing the
associated contractually prearranged funeral services.

47. Defendants' false and misleading representations that SCI was, in
fact, actively managing its backlog of acquired preneed trust assets was
reinforced when, at the beginning of the Class Period in July, 1998, the
defendants publicly announced the creation of SCI Financial Services, Inc., a
subsidiary which would purportedly actively manage SCI's preneed trust assets.

48. Because defendants could not afford the time and expense involved
in building this new subsidiary from the ground up, SCI sought quickly to
establish this new organization and did so by purchasing two operating
businesses, each of which had extensive experience in preneed asset management.
The first acquisition involved SCI's purchase of American Memorial Life
Insurance Company ("AML" or "American Memorial") and the second acquisition
involved the purchase of Equity Corporation International ("ECI").

49. The purchase of these two organizations provided SCI for the first
time with an organizational infrastructure for managing the Company's preneed
business.

50. The purchase of ECI is of particular significance because ECI,
unlike SCI, already had established, and fully disclosed the existence of, a
financial management system which ensured that its customers' preneed
investments, or the funeral insurance coverage obtained, would be sufficient to
cover adequately the costs of prearranged funeral services. In its Form 10-K for
the fiscal year ending December 31, 1997 filed with the SEC on or about March
30, 1998 (the "ECI 1997 Form 10-K"), ECI reported:

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Insurance policies intended to fund preneed funeral contracts cover the
original contract price AND GENERALLY INCLUDE BUILT-IN ESCALATION
CLAUSES DESIGNED TO OFFSET FUTURE INFLATIONARY COST INCREASES.
[Emphasis added.]

Moreover, the ECI 1997 Form 10-K stated:

Earnings on trust funds increase the amount of cash to be received by
the Company at the time the funeral service is performed AND
HISTORICALLY HAVE ALLOWED THE COMPANY TO ADEQUATELY COVER THE
INFLATIONARY INCREASE IN COSTS OF FUNERAL SERVICES. [Emphasis added.]

51. ECI also recognized the high financial risk posed by the preneed
funeral business and took protective measures accordingly. In its Form 10-K for
fiscal year ending December 31, 1996, filed with the SEC on or about March 27,
1997 (the "ECI 1996 Form 10-K"), ECI succinctly recognized the risk of
overextending preneed funeral sales absent careful financial management of the
mortuary trusts:

Aggressive preneed funeral sales are frequently associated with highly
competitive market areas or are utilized to rapidly build market share
and generally require that funeral contracts be sold at a discount to
at need sales prices.

52. In response to the risks, ECI employed independent financial
institutions to manage this risk. Both the ECI 1996 Form 10-K and ECI's Form
10-K for fiscal year ending December 31, 1995, filed with the SEC on or about
March 25, 1996 (the "ECI 1995 Form 10-K") stated that ECI had:

...established a variety of trusts in connection with its funeral home
and cemetery operations as required under applicable state law. Such
trusts include (i) preneed funeral trusts, (ii) preneed cemetery
merchandise trusts and (iii) perpetual care trusts. These trusts are
typically administered by independent financial institutions selected
by the Company. The Company also uses independent professional managers
to advise the Company on investment matters.

53. The lack of disclosure regarding the Preneed Study in SCI's public
filings is striking when compared to the disclosures made by ECI. While ECI
disclosed that its insurance

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policies included "built-in escalation clauses" and that earnings on its trust
funds "have allowed [it] to adequately cover the inflationary increase in costs
of funeral services," SCI remained silent on these points. The reason for SCI's
omissions is clear: the Preneed Study confirmed that SCI's trust funds had not
been managed to grow at a rate equal to or greater than the increase in the
costs of funeral services.

54. Neither the establishment of SCI Financial Services, Inc. nor the
so-called "new investment program," however, addressed SCI's multi-million
dollar backlog of unprofitable preneed funeral contracts whose related mortuary
trust assets lay virtually dormant in certificates of deposit, and other
under-performing investments unable to grow sufficiently to cover the costs of
performing funeral services in the future.

55. Defendants had been able to deceive the Class as to the primary -
and continuing - reason for SCI's funeral service gross margin contraction
during the first three quarters of 1998 by pointing to declining death rates in
North America, higher costs and lower volumes of funerals throughout the
industry. In addition, defendants were able to carefully "manage" SCI's reported
1998 second and third quarter earnings by, inter alia, their aggressive
acquisition program which provided SCI fresh sources of revenue, including, for
example, the purchase of American Memorial Life Insurance in the third quarter
of 1998. However, defendants knew that SCI's deteriorating funeral service
profit margins would inevitably impact reported earnings, the all important
indicia of SCI's financial condition for the investing public; and that SCI's
fiscal year end would soon bring about a day of reckoning. Accordingly,
defendants desperately needed to find and a new way to conceal the impact that
the continued performance of these unprofitable funerals was having on the
Company's profitability.

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56. According to knowledgeable former employees, by November 1998, the
Individual Defendants knew that SCI's fourth quarter 1998 earnings would fall at
least between $.08 to $.10 below analysts' estimates. The Individual Defendants
were also aware, by virtue of their receipt of daily, weekly and monthly
profit/loss reports via the Company's "Falcon" system from each of the Company's
domestic funeral homes, that this shortfall resulted from SCI's performance of a
material number of unprofitable preneed funerals, as well as undisclosed changes
in SCI's costs. Other senior executives were also aware of this impending
shortfall and the reasons for it, and openly discussed how to hide the shortfall
from investors and how they and the Individual Defendants planned to "bury" this
shortfall in a one-time charge that SCI planned to take in connection with its
acquisition of ECI. All were well aware that the success of their plan hinged
on their ability to close the ECI acquisition during the fourth quarter of 1998
so that SCI could take this one-time charge in the fourth quarter and close the
ECI transaction without having to disclose the true reasons for the Company's
earnings shortfall.

57. Defendants' scheme was foiled, however, when the United States
Federal Trade Commission (the "FTC"), which was required to approve SCI's
purchase of ECI, refused to allow SCI to close the ECI transaction until SCI had
divested itself of certain funeral homes in numerous locations around the
country.

58. In particular, the FTC conditioned its approval on SCI's sale of
19 funeral homes and cemetery properties located in 14 markets, primarily in
the southern, western and mid-western parts of the United States, to Carriage
Service Inc., another Texas-based funeral home consolidator. Under the consent
agreement reached with the FTC, SCI would be permitted to acquire ECI, but only
after divesting specified properties within seven days of the FTC's order.

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59. SCI was unable to divest itself of these properties in time to
obtain FTC approval to close the ECI transaction in the fourth quarter of 1998.
As a result, SCI was unable to "bury" the earnings shortfall, which by the end
of the fourth quarter had nearly doubled to $.19 to $.20 per share, in an
acquisition charge as defendants had planned because the Merger did not close
until after the end of the fourth quarter.

60. Evidencing the degree of scienter with which defendants acted,
defendants nonetheless proceeded to close the ECI transaction without ever
disclosing to ECI or the Class that SCI would report a drastic shortfall in its
1998 fourth quarter earnings.

61. Defendants did so despite the fact that the Agreement and Plan of
Merger By and Among Service Corporation International, SCI Delaware Funeral
Services, Inc. and Equity Corporation International, dated August 6, 1998 (the
"Merger Agreement") required SCI to disclose to ECI its poor performance during
the fourth quarter of 1998 at any time at which it could reasonably be
anticipated that such poor performance could have an adverse financial impact on
SCI. Under the Merger Agreement, ECI would have had the right to terminate the
Merger Agreement if SCI's poor fourth quarter results had been disclosed prior
to the closing of the Merger. The fourth quarter results constituted material
adverse information known to defendants which defendants had a duty to disclose
in connection with the Merger.

62. The Registration Statement/Prospectus SCI filed with the SEC
incorporated the entire executed Merger Agreement. The Registration
Statement/Prospectus at page 6 stated: "The Merger Agreement is attached hereto
as Appendix A and incorporated herein by reference."

63. Article IV of the Merger Agreement is entitled "Representations and
Warranties of Parent and Merger Sub." Section 4.7 of Article IV is entitled
"Absence of Certain Changes

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Or Events" and provides, with respect to SCI, that "there has not been any
event, occurrence, development or state of circumstances or facts which has had,
or could reasonably be anticipated to have, individually or in the aggregate, a
Material Adverse Effect."

64. Section 10.10 of the Merger Agreement, entitled "Certain
Definitions," defines Material Adverse Effect as:

any event, occurrence, fact, condition, change, development or effect
that is or could reasonably be anticipated to be materially adverse to
the business, assets (including intangible assets), liabilities,
financial condition, results of operations, properties (including
intangible properties) or business prospects of the Company and all of
its Subsidiaries or the Parent and all of its Subsidiaries, as
applicable, taken as a whole....

65. Section 8.2 of the Merger Agreement, entitled "Conditions To
Obligation Of [ECI] To Effect The Merger," establishes as a condition for
consummating the Merger that the representations and warranties made by SCI in
the Merger Agreement shall continue to be true up to and including the day on
which SCI's shares are exchanged for ECI's shares. Section 8.2(a) provides:

the representations and warranties of [SCI] and Merger Sub contained in
this Agreement shall be true and correct in all material respects (or
in all respects in the case of any representation or warranty
containing any materiality qualification) on and as of the date made
and on and as of the Closing Date as if made at and as of such date,
and the Company shall have received a certificate executed on behalf of
Parent by the President or a Vice President of Parent and on behalf of
Merger Sub by the President and Chief Executive Officer or a Vice
President of Merger Sub to that effect.

66. Under the terms of the Merger Agreement, ECI had the right to
terminate the Merger Agreement at any time prior to January 19, 1999 if a
Material Adverse Event existed at SCI. Article IX of the Merger Agreement,
entitled "Termination, Amendment And Waiver," provides:

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[t]his Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of the
Company...if the representations and warranties of Parent and Merger
Sub shall fail to be true and correct in all material respects (or in
all respects in the case of any representation or warranty containing
any materiality qualification) on and as of the date made or, except in
the case of any such representations and warranties made as of a
specified date, on and as of any subsequent date as if made at and as
of subsequent date and such failure shall not have been cured in all
material respects (or in all respects in the case of any representation
or warranty containing any materiality qualification) within 30 days
after written notice of such failure is given to [SCI] by [ECI].

67. Defendants were well aware that disclosure of the adverse financial
conditions at SCI related to its unprofitable preneed business would lead to the
termination of the Merger by ECI or to a renegotiation of the transaction so
that SCI would potentially have to double the number of shares issued in order
to acquire ECI. This was a risk the defendants were not willing to take.

68. Under the terms of the Merger Agreement, SCI would acquire all of
ECI's common stock through a stock-for-stock transaction that would result in
ECI shareholders receiving $27 per share in SCI common stock. The number of
shares of SCI stock to be issued to ECI shareholders was to be determined based
on the average trading price of SCI common stock for the ten day trading period
ending on the third day prior to the closing of the Merger, provided that such
price was not less than $34 and not more than $41.50 per share. The Merger
Agreement provided that if the average trading price of SCI's common stock was
less than $34 per share, then 0.79412 shares of SCI common stock would be
exchanged for each share of ECI common stock. The Merger Agreement provided that
if the average trading price of SCI's common stock was greater than $41.50 per
share, then 0.65050 shares of SCI common stock would be exchanged for each share
of ECI stock declined, provided, however, that if SCI's common stock was trading
at

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a price above or below the price "collar" identified in the Merger Agreement
SCI shares would be exchanged for the outstanding ECI shares at fixed floor and
ceiling ratios.

69. The original Merger Agreement provided that if the average trading
price for a share of SCI common stock fell below $34, then SCI would exchange
0.79412 SCI shares for each ECI share. In exchange for raising the asset
divestiture limit, SCI required an amendment to the Merger Agreement that
provided that if the average trading price for a share of SCI stock prior to the
closing was below $38 per share, then SCI would exchange 0.71053 SCI shares for
each ECI share. This reduced the maximum number of SCI shares payable to ECI
shareholders from 17,298,472 to 15,477,614.

70. Defendants' audacity, however, is perhaps best highlighted by the
fact that, at some point after the FTC began its review of the Merger,
representatives from SCI started to discuss raising the Merger Agreement's limit
on assets that SCI would be required to divest as a condition for the Merger.
SCI used this opportunity to negotiate for a lower purchase price to be paid to
ECI in exchange for agreeing to divest assets having aggregate 1997 revenue of
up to $20 million, by demanding that ECI agree to lower the maximum number of
SCI shares to be exchanged for ECI's outstanding shares.

71. On December 14, 1998, SCI and ECI amended the Merger Agreement to
raise the asset divestiture revenue limit to $20 million and to reduce the
maximum SCI shares exchangeable for ECI shares. When the Merger closed on
January 19, 1999, the average trading price of a share of SCI was below $38,
triggering the re-negotiated maximum exchange ratio. Remarkably, defendants
renegotiated the consideration to be received by ECI shareholders with knowledge
of SCI's impending earnings shortfall and never disclosed it, despite having
warranted that there had

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been no such adverse development at the Company. Indeed, December 14 was only 12
business days prior to the end of SCI's fourth quarter for 1998, by which time
the Individual Defendants were well aware that SCI's preneed business would lead
to a material earnings shortfall for the fourth quarter. They were made aware,
in part, by the SCI proprietary computer systems known as the "Falcon" system,
which provided profit and loss information for every domestic funeral home owned
by SCI directly to SCI corporate headquarters electronically on a next-day
basis. However, this information was never disclosed to ECI shareholders and the
Class until after the Merger was completed.

DEFENDANTS' MATERIALLY FALSE AND MISLEADING STATEMENTS AND MATERIAL OMISSIONS
DURING THE CLASS PERIOD

72. Throughout the Class Period, defendants acted negligently,
recklessly or intentionally by omitting to disclose material information
concerning SCI and by issuing a series of materially false and misleading
statements concerning the Company's financial condition and preneed funeral
business. Defendants' misconduct caused the price of the Company's securities to
become and remain artificially inflated (artificially depressed in the case of
put options) throughout the Class Period, and ultimately resulted in millions of
dollars in damages being incurred by Class members. Defendants' materially false
and misleading statements, and the reasons why such statements were materially
false and misleading, are set forth below.

73. On July 17, 1998, SCI issued a materially false and misleading
press release that bore the headline, Service Corporation International Buys
Pre-need Insurance Division of American Annuity Group and Forms New Financial
Services Subsidiary. Defendant Champagne was listed as the "contact" person for
the press release. The release stated in relevant part:

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Service Corporation International (NYSE: SRV) ("SCI"), the world's
largest funeral and cemetery company, announced today that it will
acquire the pre-need funeral services division of American Annuity
Group Inc. (NYSE: AAG) ("AAG") of Cincinnati, Ohio for $164 million
cash.

* * *

SCI HAS FORMED A NEW FINANCIAL SERVICES SUBSIDIARY, SCI FINANCIAL
SERVICES, INC., TO FACILITATE THE EXPANSION OF SCI'S PRE-NEED
BUSINESSES AND FINANCIAL ACTIVITIES WORLDWIDE. The new company's
operations will include prearranged funeral marketing, funeral and
cemetery trust administration, investment management, life insurance
operations and the lending activities of Provident Services, Inc., an
existing SCI subsidiary which provides capital financing for
independent funeral home and cemetery operations.

SCI FINANCIAL SERVICES WILL COORDINATE THE INVESTMENT OF OVER $3
BILLION OF PRE-NEED FUNERAL TRUST AND INSURANCE ASSETS AND OVER $1
BILLION IN CEMETERY TRUST ASSETS, DIRECT THE MARKETING FOR OVER $700
MILLION IN ANNUAL FACE AMOUNTS OF PREARRANGED FUNERAL SALES, ADMINISTER
OVER ONE MILLION PRE-NEED FUNERAL TRUST AND INSURANCE CONTRACTS AND
OVERSEE A FINANCE OPERATION WITH A LOAN PORTFOLIO IN EXCESS OF $250
MILLION. [Emphasis added.]

74. The foregoing statements were intended to, and did, misrepresent to
the investing public the false and misleading information that the formation of
SCI Financial Services, Inc. would result in the active and effective investment
of SCI's existing and future pre-need funeral trust assets to ensure SCI's
revenues and earnings from its pre-need funeral business, which the statements
also falsely implied was financially healthy and profitable. The Company and the
Individual Defendants failed, however, to disclose the following facts, known to
or recklessly disregarded by the defendants when the press release was issued,
that rendered the statements in the press release materially false and
misleading when made:

(a) the Individual Defendants knew from the Preneed Study that a
material number of the independent funeral homes acquired by SCI throughout the
1990s had failed to actively manage their mortuary trust assets to ensure that
such assets would equal or exceed the

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cost of providing the prearranged guaranteed price funerals SCI was
contractually obligated to provide, and, as a result, a material number of SCI's
funeral services had been, and would continue to be, performed at significant
losses;

(b) SCI's funeral profit margins were being, and were going to
continue to be severely eroded as a result of having to perform prearranged
funeral services at costs not covered by the mortuary trust assets dedicated to
those funeral services as a result of the failure by SCI to establish any means
to actively or effectively invest its existing mortuary trust assets, including
those from funeral homes acquired by SCI, to improve the rates of return on or
growth of those assets, and, as a result, SCI had performed, and would continue
to perform, a material number of prearranged funeral services at significant
losses;

(c) far from establishing SCI Financial Services, Inc. "to
facilitate the expansion of SCI's pre-need business and financial activities
worldwide," as defendants claimed, the creation of this subsidiary marked the
first time in SCI's history that the Company had implemented any concrete steps
to actively manage at least a portion of its preneed trust assets. Prior to the
creation of this subsidiary, and notwithstanding defendants' earlier
representations about a "new investment program," no individual or organization
at SCI had been responsible for actively managing those assets;

(d) SCI Financial Services, Inc. would not be involved in
managing of the vast majority SCI's existing multi-billion dollar backlog of
preneed mortuary trust assets acquired in SCI's funeral home acquisitions, which
would continue to be invested in dormant, underperforming interest bearing
vehicles, such as bank CD's;

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(e) American Memorial was being acquired to provide SCI with a
vehicle to begin to actively manage preneed assets going forward, in order to
blunt the ongoing drastic adverse impact that the under-performance of SCI's
preexisting mortuary trust assets was having on SCI's profitability, but

(f) SCI's "new investment program," which was purportedly
implemented in 1997 in order to "target a real return in excess of the amount
necessary to cover future increases in the cost of providing a price guaranteed
funeral service as well as any selling costs," was not actively managing the
vast majority of the preneed trust assets SCI had acquired by purchasing
independent funeral homes. Indeed, SCI was unable to actively manage these
preneed trust assets because doing so would have required SCI to step out of the
shadows and identify itself as the true owner of thousands of funeral homes
across the country and internationally and would cause existing and future
customers to seek out other locally-owned funeral homes when they learned that
what they believed was a locally-owned funeral home was actually owned by SCI,
the world's largest funeral home conglomerate.

75. On July 18, 1998, the Houston Chronicle published an article
entitled, SCI To Get Into Funeral Insurance; Houston Giant To Buy 'Final
Expense' Business. This article discussed SCI's acquisition of American Memorial
and quoted defendant Waltrip as stating:

"SCI is a world leader in the provision of high-quality funeral and
cemetery services," said R.L. Waltrip, SCI chairman and chief executive
officer. "This acquisition enables SCI to directly respond to the
increased demand for alternative methods for paying for these
services."

* * *

"SCI's longstanding relationship with American Memorial makes them the
logical choice to drive our expansion into the preneed insurance
business," Waltrip said. The way SCI sees it, the acquisition is a way
for it to expand its profit

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base. Not only will it make money arranging funerals, but it will also
collect the insurance premiums people pay for final-expense insurance,
Heiligbrodt said. "Our goal is to pick up two profits," he said. "The
money we're spending is buying new profits and generating new future
profits."

"WE'RE ADDING ANOTHER DIMENSION TO MAKE SURE WE'RE PICKING UP ALL THE
VALUE WE CAN FOR OUR SHAREHOLDERS," Heiligbrodt said.

SCI sells about $700 million of prearranged funerals a year worldwide,
he said. [Emphasis added).

76. The foregoing statements were materially false and misleading at
the time they were made and were intended to, and did, convey to the investing
public the false impression that SCI was in the midst of a profitable "expansion
into the pre-need insurance business," and that SCI's acquisition of American
Memorial was undertaken to build on and increase the profitability of its
existing preneed "profit base." In fact, as defendant Waltrip knew, or
recklessly disregarded, SCI's profitability was being severely undercut by its
existing backlog of preneed funeral contracts, and the acquisition of American
Memorial and planned expansion into preneed insurance was not "a way to expand
[SCI's] profit base," nor an effort to "make sure we're picking up all the value
we can for our shareholders." Instead, the acquisition of American Memorial was
an attempt to obtain new sources of revenue to mask the growing reductions in
SCI's overall profit margins caused by having to provide unprofitable
prearranged funerals pursuant to SCI's existing and acquired preneed contracts,
and to ensure that going forward SCI would not be saddled with even more dormant
and underperforming mortuary trust assets that could not cover the costs of
prearranged funerals.

77. The foregoing statements by defendant Waltrip were also false and
misleading because of the failure to disclose the facts set forth in Paragraph
74(a)-(f) above, which were necessary to

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make the statements Waltrip made about SCI's acquisition of American Memorial
and expansion into the preneed insurance business not false and misleading.

78. On July 23, 1998, SCI issued a materially false and misleading
press release that bore the headline, Service Corporation International Reports
Net Income up 15% and EPS up 13% for Second Quarter. Defendant Champagne was
listed as the "contact" person on the press release. The release stated in
relevant part:

Service Corporation International (NYSE: SRV) ("SCI"), the world's
largest funeral and cemetery company, today reported record second
quarter revenues and earnings. For the three months ended June 30,
1998, the company reported revenues of $671.9 million, net income of
$90.9 million and diluted earnings per share of $.35 ($.36 basic). This
represents a 11.8 percent increase in revenues, a 15.4 percent increase
in net income and a 12.9 percent increase in diluted earnings per share
(9.1 percent basic) when compared to the second quarter of 1997.

"Strong North American cemetery results contributed impressively to our
quarterly earnings growth, MORE THAN OFFSETTING THE EFFECT ON THE
FUNERAL SEGMENT OF LOWER THAN EXPECTED NORTH AMERICAN MORTALITY RATES.
FUNERAL VOLUMES IMPROVED IN JUNE AFTER EXPERIENCING UNUSUALLY WEAK
VOLUMES IN APRIL AND MAY," said R. L. Waltrip, SCI's Chairman and Chief
Executive Officer.

***

Commenting on the results, L. William Heiligbrodt, SCI's President and
Chief Operating Officer said, "FLUCTUATIONS IN MORTALITY RATES PRESENT
OPERATIONAL CHALLENGES OVER CERTAIN TIME PERIODS; however, THE
FUNDAMENTALS OF THE FUNERAL SERVICE INDUSTRY REMAIN STRONG. Our
properties include MANY OF THE PREMIER FUNERAL BUSINESSES IN MAJOR
METROPOLITAN MARKETS around the world, providing excellent
opportunities for growth. OUR NEWLY FORMED FINANCIAL SERVICES GROUP AND
ITS ACQUISITION OF AMERICAN MEMORIAL LIFE INSURANCE COMPANY WILL
INCREASE OUR PREARRANGED FUNERAL MARKETING EFFORTS, PROVIDING FOR
FUTURE FUNERAL VOLUME TO MAINTAIN OUR CONSISTENT PERFORMANCE."

***

During the second quarter of 1998, sales of prearranged funeral
contracts were approximately $138.9 million, WHICH EXPANDED THE BACKLOG
OF PREARRANGED

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FUNERAL CONTRACTS TO BE SERVICED IN FUTURE PERIODS TO APPROXIMATELY
$3.3 BILLION. [Emphasis added.]

79. The foregoing statements were materially false and misleading at
the time they were made because, as defendants SCI, Waltrip, Heiligbrodt and
Champagne knew, or recklessly disregarded, and failed to disclose:

(a) the financial results of SCI's funeral segment was being
adversely effected by the increasing number of unprofitable prearranged funeral
services SCI was performing, not by "lower . . . mortality rates" or "weak
volumes;"

(b) the principal operational "challenge" facing SCI was not
"[f]luctuations in mortality rates," but the multi-million dollar backlog of
passive underperforming preneed mortuary trust assets;

(c) SCI's "newly formed financial services group [SCI
Financial Services, Inc.]" was not addressing the known and growing
deterioration in SCI's funeral services profit margins caused by its backlog of
preneed mortuary trust assets invested in passive, low return bank CDs and
similar investment vehicles; and

(d) SCI Financial Services, Inc. and the acquisition of
American Memorial were part of SCI's attempt to begin to actively manage the
investment of future preneed mortuary assets, not the "expanded ... backlog" of
existing preneed funeral contracts, nor was SCI in any manner seeking to
"maintain [the] consistent performance" of its multi-billion dollar backlog of
preneed funeral contracts, but, to the contrary, was actively concealing the
increasingly unprofitable performance of that segment of its business.

80. On August 6, 1998, SCI issued a materially false and misleading
press release that bore the headline, Service Corporation International
Announces Definitive Agreement for Merger

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With Equity Corporation International. Defendant Champagne was listed as a
"contact" person on the press release. The release stated in relevant part:

Service Corporation International (NYSE: SRV)("SCI"), the world's
largest funeral and cemetery company, announced today that it has
reached a definitive agreement with Equity Corporation International
(NYSE: EQU)("ECI") to form a business combination between the two
companies.

ECI, the nation's fourth largest publicly traded death care company,
based in Lufkin, Texas, currently owns and operates 326 funeral homes
and 81 cemeteries in 35 states and one Canadian province. The
combination would occur through a stock-for-stock transaction that
would result in ECI shareholders receiving $27 per share in SCI
stock. The actual number of shares of SCI stock to be issued to the ECI
shareholders will be determined based on the average SCI stock price
for the ten (10) consecutive trading days ending on the third trading
day prior to the closing of the merger. The average price of SCI stock
used in computing the exchange will not be less than $34.00 and no more
than $41.50 per share.

***

In explaining the transaction, Robert L. Waltrip, Chairman of the Board
and Chief Executive Officer of SCI said, "The merger will create a
combined North American operation with unparalleled resources servicing
both the metropolitan and rural markets throughout the country. The
addition of ECI and its exceptional revenue growth rate should further
enhance SCI's leading domestic market position."

***

L. William Heiligbrodt, President and Chief Operating Officer of SCI
noted, "The addition of ECI's properties opens SCI and its newly formed
financial services division to the North American rural market,
providing an expanded network and infrastructure through which we can
better service both out prearranged and at-need families. Additional
synergies should result from consolidating our operations and through
further leveraging our cost structure."

***

81. The foregoing statements were materially false and misleading at
the time they were made because defendants SCI, Waltrip and Heiligbrodt knew, or
were reckless in not knowing, and failed to disclose that:

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(a) the acquisition of ECI was part of SCI's attempt to
establish, belatedly, a means to actively manage its preneed mortuary trust
assets in order to ensure that its own future sales of preneed funeral contracts
would not result in the kind of unprofitable funeral services increasingly
generated by a substantial portion of SCI's existing multi-billion dollar
preneed backlog; and

(b) SCI's "leading domestic market position" was largely the
result of SCI's acquisition of private funeral homes, and of their poorly
invested preneed mortuary trust assets, which, at the time the statements were
made, were severely cutting into SCI's profit margins.

82. On August 7, 1999, the Houston Chronicle published an article
entitled, SCI Will Buy Rural-Market Equity Corp.; $588 Million Deal a Reunion
For The Two Firms. This article discussed SCI's acquisition of ECI, quoted
defendants Waltrip and Heiligbrodt, and stated in relevant part:

Service Corporation International, the world's largest funeral company
and one of the largest firms in Houston, is buying a Lufkin-based
company [ECI] specializing in buying and operating funeral homes in
rural areas and small cities.

***

"The merger will create a combined North American operation with
unparalleled resources servicing both the metropolitan and rural
markets throughout the country," Service Corp. Chairman Robert L.
Waltrip said in a written statement. "The addition of ECI and its
exceptional revenue growth rate SHOULD FURTHER ENHANCE SCI'S LEADING
DOMESTIC MARKET POSITION."

***

"THEY HAVE A VERY GOOD MANAGEMENT TEAM. THEY OPERATE THEIR BUSINESS
VERY WELL," Heiligbrodt said. "THEY SEE THINGS LIKE WE DO. THEIR
OPERATIONAL SYSTEMS ARE VERY SIMILAR TO OURS. WE KNOW EACH OTHER VERY
WELL. IT IS ONE OF THE SAFEST ACQUISITIONS A COMPANY LIKE SCI COULD
DO." [Emphasis added.]

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83. The foregoing statements were materially false and misleading at
the time they were made because defendants SCI, Waltrip and Heiligbrodt knew, or
were reckless in not knowing, and failed to disclose:

(a) the facts set forth in Paragraph 81(a) and (b), above; and

(b) that ECI's "operational systems" were fundamentally
different from SCI's systems in that ECI, unlike SCI, had an established program
to actively manage its preneed mortuary assets to ensure that the funds
available from those assets would cover or exceed the cost of providing
guaranteed price preneed funeral services in the future.

84. On August 11, 1998, a death care industry journal entitled Death
Care Business Advisor published an article entitled SCI Acquires American
Annuity Group, Moves Into Preneed Services. This article, which discussed SCI's
acquisition of American Memorial, contained extensive quotes from defendant
Champagne that echoed many of the false and misleading representations about
SCI's business and plans which began with the July 17, 1998 announcement of
SCI's acquisition of American Memorial. Defendant Champagne was quoted as
commenting on the American Memorial acquisition as follows:

"It's a new focus on our part," confirmed SCI Senior VP/CFO George
Champagne. He called the acquisition a "logical fit," citing SCI's
history in the prearranged funeral business. "WE'VE LONG BEEN THE
LEADERS IN THE PREARRANGED FUNERAL BUSINESS," he claimed.

SCI has been seeking ways, to increase its market share, according to
Champagne. "THE MOST COMPELLING WAY TO DO THAT IS TO INCREASE THE LEVEL
OF THE PREARRANGED FUNERAL BUSINESS," HE OFFERED. "THE ACQUISITION OF
AMERICAN MEMORIAL GIVES US THE ABILITY TO FUND OUR PREARRANGED
BUSINESS."

***

"YOU'RE EFFECTIVELY BUILDING YOUR BACKLOG OF FUNDING FOR PREARRANGED
FUNERALS," WHICH HAS THE EFFECT OF EXPANDING OR MAINTAINING SCI'S

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PREARRANGED FUNERAL BUSINESS, EXPLAINED CHAMPAGNE. "THAT IS A VERY
IMPORTANT ASPECT TO A COMPANY LIKE SCI. THERE IS A LOT OF COMPETITION
FOR PREARRANGED FUNERAL BUSINESS." Thus the acquisition of AAG's
funeral services division, he said, will allow SCI to better compete
for and serve customers. [Emphasis added.]

85. The foregoing statements made by Champagne were materially false
and misleading because they failed to disclose facts that Champagne knew or
recklessly disregarded, and that were necessary to make the statements accurate
and truthful when made, including that:

(a) the acquisition of American Memorial was part of
defendants' scheme to conceal the sharply adverse effects on SCI's profit
margins caused by the multi-million dollar backlog of inadequately funded
and/or dormant and underperforming mortuary trust assets;

(b) SCI's position as a "leader in the prearranged funeral
business" was gained through the acquisition of small, private funeral homes
that brought with them dormant and underperforming mortuary trust assets that
were, and continued to be, inadequate to cover the costs of the related
guaranteed price prearranged funerals SCI was obligated to provide;

(c) SCI's acquisition of American Memorial did not, and would
not give it "the ability to fund [its] prearranged business" because that
business included large numbers of preneed funeral contracts funded by
inadequate and/or dormant and underperforming mortuary trust assets; and

(d) SCI's "competition for prearranged funeral business," such
as ECI, had taken steps to actively manage their mortuary trust assets and were
thus not subject to the drastic decreases in profit margins plaguing SCI.

86. In that August 11, 1998 article, Champagne was also quoted as
stating:

Lastly, Champagne reminded that in the early 1980s SCI was in the
insurance business. "We owned Family Services Life Insurance
Company.... At the time," he continued, "SCI WAS A MUCH

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SMALLER COMPANY. WE DID NOT HAVE THE INFRASTRUCTURE OF FUNERAL HOMES
ACROSS THE COUNTRY."

Then, in 1989, SCI made "a strategic decision to exit that portion of
the business," said Champagne. "We couldn't support the insurance
organization that was predominantly selling insurance for independent
funeral homes." TODAY, THOUGH, AS THE DOMINANT FUNERAL SERVICES
PROVIDER IN THE INDUSTRY, "WE'VE GOT THE INFRASTRUCTURE ACROSS THE
COUNTRY," Champagne said.

***

Citing the company's record [1998] second-quarter earnings, with net
income reportedly up 15 percent and earnings per share up 13 percent,
CHAMPAGNE SAID SCI IS PLEASED WITH THE RESULTS "IN THE FACE OF WHAT
HAS COME TO BE WEAK FUNERAL VOLUMES CAUSED BY A LOWER DEATH RATE
SCENARIO IN NORTH AMERICA IN THE SECOND QUARTER." BUT THE COMPANY
DOESN'T EXPECT THAT TREND TO CONTINUE. "WE DON'T THINK IT'S A
CONTINUING PHENOMENON," CHAMPAGNE SAID. "THAT'S ONE THING ABOUT THE
FUNERAL BUSINESS. IT'S PREDICTABLE, CONSISTENT AND SUSTAINABLE OVER A
LONG PERIOD OF TIME. IN ANY THREE-MONTH PERIOD YOU'RE GOING TO HAVE
FLUCTUATIONS. THE CHALLENGE IS TO MANAGE THROUGH THOSE FLUCTUATIONS."

***

"OUR ACQUISITION ACTIVITY CONTINUES AT A VERY STRONG PACE RIGHT NOW,"
SAID CHAMPAGNE. "WE'RE ON TARGET TO ACQUIRE BETWEEN 280 MILLION AND 300
MILLION OF ANNUALIZED REVENUES, of which probably 50 percent to 60
percent of that will be from international sources." [Emphasis added.]

87. These additional statements were also materially false and
misleading at the time they were made because defendant Champagne, knew, or was
reckless in not knowing, and failed to disclose that:

(a) SCI's "infrastructure of funeral homes around the country"
included a material number of formerly privately owned funeral homes that
brought with them inadequately funded and/or dormant and underperforming
mortuary trust assets;

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(b) SCI's position as the "dominant funeral services provider"
was obtained through the acquisition of a material number of formerly private
funeral homes with inadequately funded and/or dormant and underperforming
mortuary trust assets;

(c) SCI's weakness in the second quarter was the result of the
unprofitability of prearranged guaranteed price funeral services performed
pursuant to inadequately funded and/or dormant and underperforming mortuary
trust assets, and not "weak volumes caused by a lower death rate scenario"; and

(d) SCI's acquisition activities were continuing "at a very
strong pace" because of the urgent need to "purchase" revenue to disguise the
fundamental and growing problems caused by the Company's enormous backlog of
inadequately funded and/or dormant and underperforming mortuary trust assets.

88. On August 14, 1998, SCI filed its Form 10-Q for the quarter ended
June 30, 1998 with the SEC (the "1998 Q2 Form 1O-Q"). The 1998 Q2 Form 10-Q was
also incorporated by reference into the Registration Statement/Prospectus for
SCI's acquisition of ECI, filed on November 19, 1998. The 1998 Q2 Form 10-Q was
signed by defendant Champagne and contained the following materially false and
misleading statements in Note 4 to the Consolidated Financial Statements:

Prearranged Funeral Activities

The Company sells price guaranteed prearranged funeral contracts
through various programs providing for future funeral services at
prices prevailing when the agreements are signed. Payments under these
contracts are generally placed in trust accounts (pursuant to
applicable law) or are used to pay premiums on life insurance policies
[issued by third party insurers] ... Trust earnings and increasing
insurance benefits are accrued and deferred until the service is
performed, at which time these funds are also recognized in funeral
revenues

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and are intended to cover future increases in the cost of providing a
price guaranteed funeral service.... [Emphasis added.]

1998 Q2 Form 10-Q at 7-8.

89. The foregoing statements were materially false and misleading when
made because SCI and the Individual Defendants knew, or were reckless or
negligent in not knowing, and failed to disclose that:

(a) SCI's backlog of prearranged funeral contracts included a
material number of contracts that were not sold "at prices prevailing when the
agreements [were] signed," but at discounts to those prices; and

(b) The funds from many of SCI'S mortuary trusts did not
"cover" or exceed the cost of their related price guaranteed funeral services,
and, as a result, SCI was and would continue to experience drastically
deteriorating profit margins in its funeral service business.

90. The 1998 Q2 Form 10-Q also stated in the Management's Discussion
and Analysis of Financial Condition ("MD&A") section, that:

Prearranged Funeral Services

The Company has a marketing program to sell prearranged funeral
contracts and the funds collected are generally held in trust or are
used to purchase life insurance or annuity contracts. The principal
amount of each such prearranged funeral contract will be received in
cash by a Company funeral service location at the time the funeral is
performed. EARNINGS ON TRUST FUNDS AND INCREASING BENEFITS UNDER
INSURANCE AND ANNUITY FUNDED CONTRACTS ALSO INCREASE THE AMOUNT OF CASH
TO BE RECEIVED UPON PERFORMANCE OF THE FUNERAL AND ARE INTENDED TO
COVER FUTURE INCREASES IN THE COST OR PROVIDING A PRICE GUARANTEED
FUNERAL SERVICE AS WELL AS ANY SELLING COSTS. DURING 1997, THE COMPANY
COMPLETED A REVIEW OF THE PREARRANGED TRUST INVESTMENT PROCESS WHICH
INCLUDED AN ASSET/LIABILITY STUDY. THIS HAS RESULTED IN A NEW
INVESTMENT PROGRAM WHICH ENTAILS THE CONSOLIDATION OF MULTIPLE
TRUSTEES, THE USE OF INSTITUTIONAL MANAGERS WITH DIFFERING INVESTMENT
STYLES AND CONSOLIDATED PERFORMANCE MONITORING AND TRACKING. THIS NEW
PROGRAM TARGETS A REAL RETURN IN EXCESS OF THE AMOUNT NECESSARY TO
COVER FUTURE INCREASES IN THE COST OF PROVIDING A PRICE GUARANTEED
FUNERAL SERVICE AS WELL AS ANY SELLING COSTS. ...[Emphasis added.]

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1998 Q2 Form 10-Q at 19-20.

91. The foregoing statements were materially false and misleading at
the time they were made because SCI and the Individual Defendants knew, or were
reckless or negligent in not knowing, and failed to disclose that:

(a) SCI's backlog of prearranged funeral contracts included a
material number of contracts that were backed by mortuary trusts that were
inadequately funded and/or had assets that were not actively invested to ensure
growth adequate to cover "the cost of providing a price guaranteed funeral
service";

(b) The Preneed Study showed that a material number of funeral
homes acquired by SCI failed to actively manage their mortuary trust assets,
and, as a result, a material number of SCI's funeral services had been, and
would continue to be, performed at significant losses, resulting in an
increasingly sharp erosion in SCI's profit margins for funeral services; and

(c) SCI's "new investment program" was not actively managing
the vast majority of the preneed trust assets SCI had acquired by purchasing
independent private funeral homes, and was not obtaining "a real return in
excess of the amount necessary to cover" the costs to SCI of providing a
material number of prearranged guaranteed price funeral services.

92. On September 30, 1998, SCI issued a materially false and misleading
press release that bore the headline, Service Corporation International
Completes Strategic Acquisition of Pre-need Insurance Division of American
Annuity Group. The release stated in relevant part:

Service Corporation International (NYSE: SRV), the world's largest
funeral and cemetery company, announced today that it has completed its
previously announced acquisition of the pre-need funeral services
division of American Annuity Group Inc. (NYSE: AAG) of Cincinnati, Ohio
for $164 million cash.

* * *

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AMERICAN MEMORIAL WILL BE PART OF A NEW FINANCIAL SERVICES SUBSIDIARY,
SCI FINANCIAL SERVICES, INC., FORMED TO FACILITATE THE EXPANSION OF
SCI'S PRE-NEED BUSINESSES AND FINANCIAL ACTIVITIES WORLDWIDE. The new
company's operations include prearranged funeral marketing, funeral and
cemetery trust administration, investment management, life insurance
operations and the lending activities of Provident Services, Inc., an
existing SCI subsidiary which provides capital financing for
independent funeral home and cemetery operations. [Emphasis added.]

93. The foregoing statements were materially false and misleading at
the time they were made because SCI and the Individual Defendants knew, or were
reckless in not knowing, and failed to disclose that:

(a) the acquisition of American Memorial was an attempt by SCI
to conceal its deteriorating funeral service profit margins resulting from its
backlog of inadequately funded and/or dormant and underperforming preneed
mortuary trust assets; and

(b) SCI Financial Services, Inc. and SCI's acquisition of
American Memorial was part of SCI's attempt to begin to actively manage the
investments of future preneed mortuary assets, and did not and would not address
the continually more acute and drastic deterioration in profit margins caused by
the existing backlog of inadequately funded and/or dormant and underperforming
assets SCI acquired pursuant to its purchases of privately owned funeral homes.

94. On October 22, 1998, SCI issued a materially false and misleading
press release that bore the headline, Service Corporation International Reports
14.4% Increase in Net Income and 14.3% Increase in EPS for Third Quarter 1998.
Defendant Champagne was listed as a "contact" person for the press release. The
release stated in relevant part:

Strategic Highlights

-- Completed the acquisition of American Memorial Life Insurance
Company (AML) for $164 million.

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-- Announced the business combination with Equity Corporation
International for $830 million, including assumed
indebtedness.

-- Formed a new financial services subsidiary, SCI Financial
Services, Inc. to facilitate expansion of preneed businesses
and financial activities worldwide.

Commenting on the results, Robert Waltrip, Chairman and Chief Executive
Officer, said:

"I AM PLEASED TO REPORT ANOTHER QUARTER OF INCREASED PROFITABILITY FOR
SCI DESPITE THE WIDELY PUBLICIZED REDUCED NUMBER OF DEATHS REPORTED BY
OUR INDUSTRY. WHILE SCI WAS NOT INSULATED FROM THIS EXPERIENCE, THE
STRATEGIC ACQUISITIONS AND INITIATIVES ANNOUNCED THIS SUMMER WILL ADD
VALUE TO SCI TODAY AND LONG-TERM."

SCI's President and Chief Operating Officer, L. William Heiligbrodt,
added:

"SINCE 1990, SCI'S NORTH AMERICAN MARKET SHARE HAS NEARLY DOUBLED TO
APPROXIMATELY 11% TODAY, MAINLY THROUGH ACQUISITIONS, NEW CONSTRUCTION
AND PREARRANGED FUNERALS. SCI'S MARKET SHARE IS EXPECTED TO INCREASE AS
WE ACCELERATE THE SALES OF PREARRANGED FUNERALS. WE PLAN TO DOUBLE THE
ANNUAL SALES OF PREARRANGED FUNERALS WITHIN FIVE YEARS...."

Acquisition Activity

Effective July 1, 1998, SCI acquired AML, the pre-need funeral services
division of American Annuity Group Inc., for $164 million cash. AML
offers a variety of pre-need and final expense life insurance and
annuity products to finance prearranged funerals. TO FACILITATE THE
EXPANSION OF SCI'S PRE-NEED BUSINESSES AND FINANCIAL ACTIVITIES
WORLDWIDE, SCI FORMED A NEW FINANCIAL SERVICES SUBSIDIARY, SCI
FINANCIAL SERVICES, INC.

In August, SCI reached an agreement with Equity Corporation
International (ECI) to enter into a business combination between the
two companies. The combined company will have operations throughout
metropolitan and rural North America and will consist of approximately
3,600 funeral homes, 500 cemeteries and 200 crematoria worldwide, with
annualized revenues approaching $3 billion. [Emphasis added.]

95. The foregoing statements made by SCI and the Individual Defendants
were materially false and misleading at the time they were made because these
defendants knew, or were reckless in not knowing, and failed to disclose that:

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(a) the profitability of SCI's funeral services business was
and continued to deteriorate materially as a result of the increasing number of
unprofitable funeral services being performed pursuant to preneed funeral
service contracts backed by inadequately funded and/or dormant and
underperforming preneed mortuary trusts;

(b) SCI's nearly doubling of its market share since 1990
"mainly through acquisitions, new construction and prearranged funerals"
resulted in the accumulation of an enormous backlog of preneed contracts backed
by inadequately funded and/or dormant and underperforming mortuary trust assets,
resulting in drastically decreasing profits margins;

(c) far from establishing SCI Financial Services, Inc. "to
facilitate the expansion of SCI's pre-need business and financial activities
worldwide," as defendants claimed, the creation of this subsidiary marked the
first time in SCI's history that the Company had implemented any concrete steps
to manage actively at least a portion of its preneed trust assets. Prior to the
creation of this subsidiary, and notwithstanding defendants' earlier
representations about a "new investment program," no individual or organization
at SCI had been responsible for actively managing those assets;

(d) SCI's new investment management operations through the
establishment of SCI Financial Services, Inc. would not be involved in managing
of the vast majority of SCI's existing multi-billion dollar backlog of preneed
mortuary trust assets acquired in SCI's funeral home acquisitions, which would
continue to be invested in underperforming interest bearing vehicles, such as
bank CDs; and

(e) the acquisition of ECI was part of SCI's attempt to
establish, belatedly, a means to actively manage its preneed mortuary trust
assets in order to ensure that its future sales

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of preneed funeral contracts would not result in the kind of unprofitable
funeral services increasingly generated by a substantial portion of SCI's
existing multi-billion dollar preneed backlog.

96. On November 10, 1998, Death Care Business Advisor published an
article entitled SCI Reports 14 Percent Gains in Income, Share Earnings. This
article discussed SCI's third quarter 1998 financial results, quoted defendants
Waltrip and Champagne, and stated in relevant part:

A slowdown in the number of deaths in North America did not stop
Service Corporation International from racking up double-digit gains in
net income and earnings per share for the third quarter of 1998 (see
detailed results on p4). THE COMPANY USED ITS STRATEGY OF ACQUISITIONS
COMBINED WITH A CONSCIOUS EFFORT TO CUT COSTS TO, AS SCI CHAIRMAN
ROBERT WALTRIP SAID, "ADD VALUE TO SCI TODAY AND LONG TERM."

Commenting on future plans, SCI, which holds an 11 percent market
share in the funeral industry, has aggressive plans to grow its
business operations.

* * *

SCI Takes on More Preneed

RESPONDING TO CONCERNS THAT THE DEATH RATE WAS FALLING, SCI TOUTED THE
MOVES IT HAS MADE IN THE PRENEED FUNERAL MARKET, INCLUDING THE RECENT
ACQUISITION OF AMERICAN MEMORIAL LIFE, THE PRENEED INSURANCE DIVISION
OF AMERICAN ANNUITY GROUP, INC. ON JULY 1. THE COMPANY PAID 164
MILLION. TO FACILITATE SCI'S GROWTH IN THIS AREA, THE COMPANY FORMED A
NEW SUBSIDIARY, SCI FINANCIAL SERVICES INC. TO HANDLE PRENEED AND OTHER
COMPANY FINANCIAL ACTIVITIES.

IN THAT AREA, THE COMPANY SHOWED BOOMING GROWTH, WITH REVENUES GROWING
FROM 21.5 MILLION IN THE THIRD QUARTER OF 1997 TO 65.8 MILLION FOR THE
THIRD QUARTER OF 1998, INCORPORATING THE ACQUISITION OF AML INTO ITS
FINANCIAL RESULTS.

"IN 1997, DOMESTICALLY, JUST OVER 25 PERCENT OF THE ATNEED SERVICES WE
PROVIDED WERE THE CULMINATION OF A PRE-ARRANGED CONTRACT. THAT MEANS
ONE-QUARTER OF OUR FUNERALS CAME FROM THE BACKLOG, UP TWO PERCENTAGE
POINTS FROM 1996," SAID SCI CHIEF FINANCIAL OFFICER GEORGE CHAMPAGNE.
"FOR THE FIRST NINE MONTHS

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OF 1998, THAT PERCENTAGE IS JUST BELOW 27 PERCENT. PRENEED IS PROVIDING
AN INCREASING AMOUNT OF OUR ATNEED SERVICES, AND THERE IS POTENTIAL TO
EXPAND MARKET SHARE."

* * *

Expenses Drop in Quarter

DESPITE THE GROWTH THE COMPANY ACHIEVED THROUGH ACQUISITION, THE FLAT
DEATH RATE DOMESTICALLY CAUSED IT TO BECOME AGGRESSIVE IN THE AREA OF
EXPENSE REDUCTION. For the third quarter of 1998, general and
administrative expenses were 15.4 million, a decrease from the 16.7
million SCI spent last year.

Champagne said that SCI has made an effort to reduce those expenses,
but they should see a reasonable upswing in the fourth quarter as most
executive compensation and bonuses accrue during that time. Following
that, he said they can be expected to increase reasonably, as expected,
based on expansion and market conditions. [Emphasis added].

97. The foregoing statements made by defendants Waltrip and Champagne
were materially false and misleading at the time they were made because these
defendants knew, or were reckless in not knowing, and failed to disclose that:

(a) far from enjoying a unique advantage over its competitors
in addressing the slowdown in North American deaths by virtue of acquisition and
cost cutting, SCI was continuing to experience drastic deterioration in its
funeral services profit margins as a result of its backlog of inadequately
funded and/or dormant and underperforming preneed mortuary trust assets;

(b) the acquisition of American Memorial and the formation of
SCI Financial Services, Inc. did not address SCI's backlog of unprofitable
preneed funeral service contracts; and

(c) the "booming growth" and increased revenues from SCI's new
financial activities were part of SCI's scheme to mask its increasingly
deteriorating profit margins in its preneed funeral services business, and the
touted increase in the number of funerals "from the

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backlog" of preneed contracts was, in fact, fueling the profit margin
deterioration, and was not, as represented, a positive development for SCI.

98. On November 16, 1998, SCI filed its Form 10-Q for the quarter ended
September 30, 1998 with the SEC (the "1998 Q3 Form 10-Q"). The 1998 Q3 Form 10-Q
was also incorporated by reference into the Registration Statement/Prospectus
for SCI's acquisition of ECI, filed on November 19, 1998. The 1998 Q3 Form 10-Q
was signed by defendant Champagne and contained the following materially false
and misleading statements in Note 4 to the Consolidated Financial Statements:

Prearranged Funeral Activities

The Company sells price guaranteed prearranged funeral contracts
through various programs providing for future funeral services at
prices prevailing when the agreements are signed. Payments under these
contracts are placed in trust accounts (pursuant to applicable law) or
are used to pay premiums on life insurance policies. ... TRUST EARNINGS
AND INCREASING INSURANCE BENEFITS ARE ACCRUED AND DEFERRED UNTIL, THE
SERVICE IS PERFORMED, AT WHICH TIME THESE FUNDS ARE ALSO RECOGNIZED IN
FUNERAL REVENUES AND ARE INTENDED TO COVER FUTURE INCREASES IN THE COST
OF PROVIDING A PRICE GUARANTEED FUNERAL SERVICE.... The total value of
unperformed prearranged funerals at September 30, 1998 was $3,395,916
($3,163,357 at December 31, 1997). [Emphasis added.]

1998 Q3 Form 10-Q at 7-8

* * *

99. The foregoing statements were materially false and misleading when
made because SCI and the Individual Defendants knew, or were reckless or
negligent in not knowing, and failed to disclose that:

(a) SCI's backlog of prearranged funeral contracts included a
material number of contracts that were not sold "at prices prevailing when the
agreements were signed," but at discounts to those prices; and

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(b) The funds from many of SCI's mortuary trusts did not
"cover" or exceed the cost of their related "price guaranteed" funeral services,
and as a result, SCI was and would continue to experience drastically
deteriorating profit margins for its funeral service business.

100. The 1998 Q3 Form 10-Q also stated in the MD&A section, that:

Prearranged Funeral Services

The Company has a marketing program to sell prearranged funeral
contracts and the funds collected are generally held in trust or are
used to purchase life insurance or annuity contracts. The principal
amount of each such prearranged funeral contract will be received in
cash by a Company funeral service location at the time the funeral is
performed. EARNINGS ON TRUST FUNDS AND INCREASING BENEFITS UNDER
INSURANCE AND ANNUITY FUNDED CONTRACTS ALSO INCREASE THE AMOUNT OF CASH
TO BE RECEIVED UPON PERFORMANCE OF THE FUNERAL AND ARE INTENDED TO
COVER FUTURE INCREASES IN THE COST OF PROVIDING A PRICE GUARANTEED
FUNERAL SERVICE AS WELL AS ANY SELLING COSTS. During 1997, the Company
completed a review of the prearranged trust investment process which
included an asset/liability study. THIS HAS RESULTED IN A NEW
INVESTMENT PROGRAM WHICH ENTAILS THE CONSOLIDATION OF MULTIPLE
TRUSTEES, THE USE OF INSTITUTIONAL MANAGERS WITH DIFFERING INVESTMENT
STYLES AND CONSOLIDATED PERFORMANCE MONITORING AND TRACKING. THIS NEW
PROGRAM TARGETS A REAL RETURN IN EXCESS OF THE AMOUNT NECESSARY TO
COVER FUTURE INCREASES IN THE COST OF PROVIDING A PRICE GUARANTEED
FUNERAL SERVICE AS WELL AS ANY SELLING COSTS....

* * *

Prearranged funeral service sales afford the Company the opportunity to
both protect current market share and mix as well as expand market
share in certain markets. The Company believes this will stimulate
future revenue growth. Prearranged funeral services fulfilled as a
percent of the total North American funerals performed annually
approximates 25% and is expected to grow, thereby making the total
number of funerals performed more predictable. [Emphasis added.]

1998 Q3 Form 10-Q at 19-20.

101. The foregoing statements were materially false and misleading at
the time they were made because SCI and the Individual Defendants knew, or were
reckless or negligent in not knowing, and failed to disclose that:

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(d) the increasing percentage of "at need" funerals
attributable to "prearranged funeral services fulfilled" was, far from being the
positive development represented in the 1988 Q3 Form 10-Q, a reflection of the
increasing number of unprofitable funeral services being performed pursuant to
preneed contracts backed by underfunded and/or dormant and underperforming
mortuary trust assets, which was fueling SCI's drastically deteriorating profit
margins.

102. On or about November 19, 1998, defendants Waltrip, Champagne and
Heiligbrodt, caused SCI to file the materially false and misleading Registration
Statement/Prospectus with the SEC in connection with SCI's acquisition of ECI.
The Registration Statement/Prospectus was

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signed by each of the foregoing defendants, declared effective by the SEC on
November 20, 1998, and incorporated SCI's 1998 Q2 Form 10-Q, and 1998 Q3 Form
1O-Q by reference.

103. The Registration Statement/Prospectus contained numerous
materially false and misleading statements and omitted to disclose numerous
material facts that were required to be disclosed in order to render the
statements made therein not materially misleading at the time it was declared
effective, including, by incorporation, the materially misleading statements
contained in SCI's 1998 Q2 Form 10-Q and in SCI's 1998 Q3 Form 10-Q, which are
set forth in detail above.

104. The Registration Statement/Prospectus at pages 40-41 also
contained the following materially false and misleading statements:

SCI's strategy is to:

o continue to expand through the acquisition and construction, both
domestically and internationally of funeral homes, cemeteries and
crematoria in areas with demographics that SCI believes to be
favorable;
o increase the operating margins of its existing and acquired
facilities by having those facilities share resources pursuant to
SCI's cluster strategy;
o increase revenue per location through the merchandising of a broad
line of funeral and cemetery products and services, both on a
preneed and at-need basis; and
o increase future volume and revenues through the sale of
prearranged funeral services.

105. The foregoing statements were materially false and misleading at
the time they were made because SCI and the Individual Defendants knew, or were
reckless or negligent in not knowing, and failed to disclose that:

(a) SCI had been, and would continue to, suffer from materially
deteriorating profit margins as a result of its enormous backlog of preneed
funeral service contracts that were backed by inadequately funded and/or dormant
and underperforming mortuary trust assets; and

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(b) those deteriorating profit margins and the material adverse
impact they had on SCI's overall profits and earnings would not be reversed by
SCI's touted strategies of: continued expansion through "acquisition and
construction"; having facilities "share resources pursuant to SCI's cluster
strategy"; increased "merchandising"; or increased sales of "prearranged funeral
services."

106. The Merger Agreement, which was made an exhibit to the
Registration Statement/Prospectus and incorporated therein by reference,
contained the following statement at pages A15-16, in the form of a
representation by SCI:

there has not been any event, occurrence, development or state of
circumstances or facts which has had, or could reasonably be
anticipated to have, individually or in the aggregate, a Material
Adverse Effect.

107. The Merger Agreement provided that this statement "shall be true
and correct in all material respects... as of the Closing Date" as a condition
to the consummation of the merger.

108. On January 19, 1999, the merger was consummated, and, as of that
date, SCI, by virtue of, inter alia, its increasingly deteriorating funeral
service profit margins, had suffered a Material Adverse Effect, as reflected by
its poor earnings per share in the fourth quarter of 1998, which ended almost
three weeks prior to the closing of the merger.

109. SCI and the Individual Defendants' failure to disclose the
existence of Material Adverse Effects which they knew, or were reckless or
negligent in not knowing, at the time that the Registration Statement/Prospectus
was filed with the SEC and declared effective and, as a result the Registration
Statement/Prospectus was materially false and misleading. Further, on or about
January 19, 1999, by announcing in a press release that the merger had been
completed, SCI

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and the Individual Defendants impliedly told investors that the representation
that there had been no material adverse changes was true as of the closing of
the merger when, in fact, they knew or recklessly disregarded the true and
undisclosed facts regarding the adverse earnings and causes thereof.

ADDITIONAL SCIENTER ALLEGATIONS

DEFENDANTS' MOTIVES TO MISREPRESENT SCI'S FINANCIAL CONDITION

110. Defendants were highly motivated to conceal the true reasons
behind SCI's funeral margin contraction and the negative impact that SCI's
unprofitable multi-million dollar preneed funeral backlog had already had, and
was continuing to have, on SCI's profit margins and earnings. By doing so,
defendants were able to cause the market price of SCI's to become and remain
materially artificially inflated (artificially depressed in the case of put
options) throughout the Class Period. Because the consideration paid by SCI to
ECI stockholders was SCI common stock, SCI was able to effectively purchase ECI
with "watered stock," thereby saving SCI millions.

111. As alleged above, the ECI acquisition was critical to the
Company's ability to turn around its unprofitable preneed business and therefore
represented significant motivation to defraud Class members.

112. Under Section 9.1 of the Merger Agreement, ECI had the right to
terminate the Merger Agreement "if the representations and warranties of [SCI]
shall fail to be true and correct in all material respects...." Thus, prior to
negotiating the deal with ECI, SCI was motivated to maintain SCI's stock price
in an effort to acquire ECI in a stock-for-stock transaction for less than ECI's
true value. After the Merger Agreement was executed, but before the deal closed,

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SCI was motivated to conceal the adverse developments from ECI to prevent ECI
from terminating the Merger Agreement. Disclosure of SCI's unprofitable preneed
business would have constituted a Material Adverse Effect, as contemplated by
the Merger Agreement. Had SCI admitted the existence of the Company's problems,
ECI would have been able to terminate the Merger Agreement under Section 9.1.

113. In addition, defendants were motivated to conceal the truth
concerning SCI's funeral margin contraction in order to obtain and maintain
favorable ratings on the debt securities that SCI had registered with the SEC
but not yet issued.

114. In particular, in a prospectus filed with the SEC on May 29, 1998,
SCI registered to sell up to $1 billion of debt, common stock and warrants to
the public from "time-to-time." Similarly, in a prospectus filed with the SEC on
October 15, 1998, SCI registered to sell an additional $500 million in SCI
preferred stock. The debt and equity securities were issued pursuant to shelf
registration statements that were declared effective by the SEC on June 10, 1998
and October 29, 1998, respectively. As a result of filing the shelf registration
statements, SCI was able to avail itself of much-needed funds to finance the
Company's acquisitions and operations.

115. The omissions concerning SCI's unprofitable preneed business
ensured that the debt securities would be priced as attractively as possible to
SCI upon issuance. Favorable pricing allowed SCI to save millions of dollars in
interest payments that would otherwise have been paid to bondholders had SCI's
debt instruments been assigned lower ratings by credit rating agencies such as
Standard & Poor's. Also, the omissions would ensure that SCI stock and
warrants would be sold to the investing public at the highest possible prices.

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116. The defendants' omissions about the unprofitable preneed business
had the desired effect on the public, particularly Standard & Poor's ("S&P"). On
October 27, 1998, shortly after defendants announced SCI's favorable third
quarter results which omitted from disclosure facts about the unprofitable
preneed business, S&P issued a press release praising SCI's "well-established
and diverse geographic market positions, and strong industry characteristics
[which] should enable the company to generate predictable cash flow." Most
importantly, S&P affirmed its triple-B plus corporate credit, unsecured debt,
and bank loan ratings as well as its triple B plus subordinated debt rating and
it's A-2 commercial paper rating on SCI. S&P also assigned its preliminary
triple B plus/triple B rating to the Company's debt registered pursuant to the
shelf registration statement.

117. Thus, SCI's ability to sustain growth through continued
acquisition activity was intimately tied to its ability to maintain favorable
credit ratings and also periodically issue equity for cash flow purposes. By
publicly making materially false and misleading statements and omitting from
disclosure material facts, defendants had been able to artificially increase and
maintain the inflated price of SCI common stock, maintain favorable credit
ratings, and increase SCI's shelf registration for a announcement of a combined
debt and equity offering of $1.5 billion.

THE INDIVIDUAL DEFENDANTS KNEW THE TRUE FINANCIAL CONDITION OF SCI

118. SCI's earnings shortfall for the fourth quarter 1998 was an
extraordinary event in the financial history of SCI. Prior to the fourth quarter
of 1998, SCI's management repeatedly forecasted current quarterly financial
performance with extraordinary accuracy.

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119. SCI's quarterly results are particularly easy for management to
estimate prior to a quarter's end because of a number of factors generally
applicable to companies in the death care field and because of certain factors
particularly applicable to SCI. Initially, death care providers have an
extremely high level of recurring, budgeted, fixed costs that generally do not
fluctuate greatly with demand for a company's services. Unlike companies in
other industries, death care providers cannot respond to increased demand by
delaying the period in which a service will be provided; obviously, a death care
provider cannot promise to fill an order "in a week or two" and still retain a
customer. The SCI 1998 Form 10-K explains, "[t]he funeral business has a high
fixed cost structure (approximately 80%-90% of funeral costs) that does not
easily lend itself to reduction during periods of slower revenue growth."

120. Additionally, demand for death services is steadier than almost
any other industry. Demand for death care services may fluctuate somewhat as a
result of disease patterns or seasonal changes, but demand is not affected by
changes in consumer taste or technological developments.

121. SCI is also able to accurately measure its current quarterly
performance because SCI's Falcon system reports North American cemetery and
funeral home sales on a daily basis. This enables SCI to determine accurately
the level of funeral and cemetery sales at any point during a quarter.

122. Further, it reasonably could have been anticipated that the
declining profitability caused by SCI's undisclosed backlog of inadequately
funded and/or dormant and underperforming preneed trust assets would continue
into the fourth quarter. Indeed, as a result of the increasingly deteriorating
profitability caused by inadequately funded preneed contracts, costs had been
steadily increasing as a percentage of revenue throughout the entire 1998 year.
In the first quarter 1998,

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SCI's costs were approximately 68% of revenue; in the second quarter 1998 costs
were approximately 72% of revenue; in the third quarter 1998 costs were
approximately 76% of revenue; and in the fourth quarter 1998 costs were
approximately 82% of revenue.

THE TRUTH IS REVEALED

123. On January 26, 1999, just five business days after SCI and ECI
jointly announced the completion of the Merger, SCI shocked the investment
community by issuing a press release which stated:

[SCI], the world's largest funeral and cemetery company, announced
today that it expects diluted earnings per share for the fourth
quarter of 1998 to be lower than current analyst expectations.

SCI's fourth quarter 1998 gross profits were $141,246,000. This represented a
19% decline from SCI's third quarter 1998 gross profits and a 24% decline from
SCI's fourth quarter 1997 gross profits. SCI's earnings per share for fourth
quarter 1998 were $.23. This was 28% below EPS for third quarter 1998; 36% below
SCI's EPS for the fourth quarter 1997; and 45% below the average forecast or
"consensus estimate" for fourth quarter EPS by analysts who followed SCI. These
"consensus estimates" were based on misleading information given directly by SCI
to professional market analysts. Defendants deceptively failed to disclose to
analysts, the market, or to ECI or its shareholders in connection with the
negotiation and closing of its acquisition of ECI, the grave and worsening
losses in its preneed funeral business.

124. The market's reaction to the January 26, 1999 disclosure was swift
and severe. The price of SCI common stock plunged from $34 7/16 on January 25 to
$19 1/8 on trading of over 36 million shares, a one-day decline of $15.3125 or
44%. This price decline also effectively cut the consideration paid for each
share of ECI common stock in the merger virtually in half.

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Pursuant to the Merger Agreement, ECI shareholders received SCI common stock
that was worth $25.53 when the deal closed, in exchange for each share of ECI
common stock they owned. Following SCI's January 26, 1999 disclosure, that same
SCI common stock was worth only $12.79, effectively reducing the total
consideration paid for ECI from $556 million to $278 million. As of September 1,
1999, SCI's common stock was trading at or about $14.00 per share.

125. On February 9, 1999, the Company issued a press release
purporting to explain the earnings shortfall. The primary reasons cited for the
shortfall were decreased revenues and increased costs. However, the true reason
for the earnings surprise was revealed later by defendant Heiligbrodt.

126. Indeed, the Company and defendant Heiligbrodt have admitted that
the earnings shortfalls reported for fiscal year 1998 resulted from losses on
SCI's preneed business which was information known to defendants throughout the
Class Period. A story published by the Death Care Business Advisor on February
23, 1999 stated in part:

Because the company said that it is now selling preneed at prices
which, combined with its investment strategy should lead to increased
at-need earnings, SCI is understandably bullish on preneed. Especially
when it estimates that only 30 percent of the people who buy preneed
through an SCI facility would be an SCI atneed customer.

For the time being, though, preneed is hurting company profit margins.
Because SCI does not count preneed funds in its earnings until services
are delivered, many of the 27 percent of SCI calls in 1998 that were
the result of a preneed sale were from policies sold 12-15 years ago.

According to SCI, many of those policies were sold by third parties,
such as companies later purchased by SCI. ACCORDING TO [DEFENDANT)
HEILIGBRODT, THE AT NEED VALUE OF MANY OF THE PRENEED PLANS SOLD IN THE
1980S IS ABOUT 20 PERCENT LESS THAN THE COMPANY PRESENTLY CHARGES FOR
ITS SERVICES. [Emphasis added.]

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127. Following up on its February 23, 1999 article, Death Care Business
Advisor published another story on August 12, 1999 entitled "SCI Looking For
Comeback In 2000; Company Results Miss Targets As Expected: Management Expects
Flat Earnings in 1999" stating, in part:

SCI has said in the past that it loses money on some of its preneed
services because the contract was sold at too low a price by a funeral
home or death care company later bought by SCI.

When pursuing preneed, it is worth considering that a large percentage
of the contracts still become at-need within 5 years of purchase, not
leaving a lot of time to make up the seller's commission and
inflationary price increases, to ensure the preneed seller of the same
profit ordinarily achieved from an atneed funeral.

While these numbers are not likely to slow the boom in the sale of
preneed funeral contract, they are worth looking over. Preneed sales
are supposed to ensure a successful future, not serve as a drain on
company profit.

PLAINTIFFS' INVESTIGATION

128. Plaintiffs' allegations set forth herein are based on a thorough
investigation conducted by and through their attorneys. Such investigation
included a review and analysis of:

a. SCI's filings with the SEC both prior to and throughout
the Class Period;

b. the Company's Annual Reports to shareholders both prior
to and during the Class Period;

c. The Company's press releases and other publicly
disseminated statements made by defendants prior to,
during, and following the Class Period;

d. reports, articles, and other written materials concerning
the Company and the subject matter of this complaint;

e. analyst reports and investor advisory service reports;
and

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f. consultations with forensic accountants, former company
employees and other individuals knowledgeable about the
Company's business, operations and services.

INAPPLICABILITY OF STATUTORY SAFE HARBOR

129. The statutory safe harbor provided for forward-looking statements
pursuant to 15 U.S.C. Section 78u-5 does not apply to any of the false
statements pleaded in this Complaint. The statements alleged to be false and
misleading herein all relate to then-existing facts and conditions known to
defendants. In addition, to the extent that defendants may claim that certain
statements alleged to be false and misleading may be characterized as forward
looking, (i) such statements were not identified as "forward-looking statements"
when made; (ii) there was no statement made with respect to any of those
representations forming the basis of this complaint that actual results "could
differ materially from those projected"; and (iii) there were no meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those in the purportedly forward-looking
statements. Alternatively, to the extent that the statutory safe harbor does
apply to any forward-looking statements pleaded herein, defendants are liable
for those false forward-looking statements because at the time each of those
forward-looking statements was made, the particular speaker had actual knowledge
that the particular forward-looking statement was false, and/or the
forward-looking statement was authorized and/or approved by an executive officer
of SCI who knew that those statements were false when made.

FRAUD ON THE MARKET PRESUMPTION

130. At all relevant times, the market for SCI securities was an
efficient market for the following reasons, among others:

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a. SCI common stock met the requirements for listing,
and was listed and actively traded, on the New York
Stock Exchange (the "NYSE"), a highly efficient
market;

b. As a regulated issuer, SCI filed periodic public
reports with the SEC and the NYSE;

C. SCI was followed by securities analysts employed by
major brokerage firms who wrote reports which were
distributed to the sales force and customers of their
respective brokerage firms. Each of these reports was
publicly available and entered the public
marketplace. The securities firms that followed the
Company during the Class Period, included, inter
alia, Morgan Stanley Dean Witter, ABN AMRO; Merrill
Lynch; J.P. Morgan; Nations Banc Montgomery
Securities; Wasserstein Perella; and Bear, Stearns;
and

d. SCI regularly communicated with public investors by
means of established market communication mechanisms,
including through regular dissemination of press
releases on the national circuits of major newswire
services and through other wide-ranging public
disclosures, such as communications with the
financial press and other similar reporting services.
Each of these releases was publicly available and
entered the public marketplace.

As a result, the market for SCI common stock promptly digested current
information with respect to SCI from all publicly-available sources and all such
information was reflected in market prices

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of SCI common stock. Under these circumstances, all those who purchased or
otherwise acquired SCI securities during the Class Period suffered similar
injury through their acquisition of such securities at artificially inflated
prices and a presumption of reliance applies.

COUNT I

AGAINST ALL DEFENDANTS FOR VIOLATION OF SECTION 11 OF THE SECURITIES ACT

131. Plaintiffs incorporate each of the foregoing paragraphs as if
fully set forth herein, except to the extent such allegations charge the
defendants with intentional or reckless conduct. For the purposes of this Count,
plaintiffs expressly do not allege that any defendant acted with scienter or
fraudulent intent, which is not an element of a Section 11 claim.

132. This Count is asserted against all defendants for violations of
Section 11 of the Securities Act, 15 U.S.C. Section 77(k).

133. This count is brought on behalf of those Class members who
exchanged shares of ECI common stock for shares of SCI common stock in
connection with the Merger or held employee options to purchase ECI common stock
under a stock plan of ECI that became options to purchase SCI common stock as a
result of the Merger.

134. SCI is the issuer of the stock via the Registration
Statement/Prospectus filed with the SEC in connection with the Merger. The
Individual Defendants are signatories of the Registration Statement/Prospectus.

135. The Registration Statement/Prospectus contained untrue statements
of material fact and/or omitted to disclose material facts required to be stated
therein or necessary to make the statements made therein not misleading as
alleged herein.

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<PAGE> 63

136. Defendants participated in the preparation of, issued, caused to
be issued and participated in the issuance of the materially false and
misleading Registration Statement/Prospectus, which was inaccurate and
misrepresented or failed to disclose, inter alia, material facts concerning
SCI's business and prospects, as set forth above.

137. The Individual Defendants as directors and/or officers of SCI and
as signatories of the Registration Statement/Prospectus that was filed with the
SEC were responsible for the preparation of the Registration
Statement/Prospectus and failed to make a reasonable investigation or possess
reasonable grounds for believing that the representations contained in the
Registration Statement/Prospectus, were true and that they disclosed all
material facts.

138. The Individual Defendants are primarily liable under Section 11 of
the Securities Act and are also secondarily liable as controlling persons of SCI
under Section 15 of the Securities Act.

139. As a direct and proximate result of the false and misleading
statements in the Registration Statement/Prospectus, plaintiffs and the Class
acquired SCI securities issued pursuant to the defective Registration
Statement/Prospectus.

140. Accordingly, plaintiffs and the Class have sustained damages as a
result of the violations of Section 11 of the Securities Act by defendants and
are entitled to recover damages therefore pursuant to Section 11(e) of the Act.

141. At the time they approved the Merger and acquired SCI common
stock, plaintiffs and the class were without knowledge of the untruths and
omissions alleged herein.

142. The action was brought within one year after the discovery of the
untrue statements and omissions and within three years after SCI stock was
offered to the public in the Merger.

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<PAGE> 64

COUNT II

AGAINST SCI FOR VIOLATION OF SECTION 12(a)(2) OF THE SECURITIES ACT

143. Plaintiffs incorporate each of the foregoing allegations as if
fully set forth herein, except to the extent that such allegations charge the
defendants with intentional or reckless misconduct. For the purposes of this
Count, plaintiffs expressly do not allege that any defendant acted with scienter
or fraudulent intent, which is not an element of a Section 12(a)(2) claim.

144. This count is asserted against SCI for violation of Section
12(a)(2) of the Securities Act, 15 U.S.C. Section 771.

145. This count is brought on behalf of those Class members who
exchanged shares of ECI common stock for shares of SCI common stock in
connection with the Merger or held employee options to purchase ECI common stock
under a stock plan of ECI that became options to purchase SCI common stock as a
result of the Merger.

146. SCI was a seller, offeror, and/or solicitor of sales of the SCI
common stock for its financial benefit pursuant to the Registration
Statement/Prospectus in connection with the Merger.

147. The Registration Statement/Prospectus contained materially false
and misleading statements and omitted to state material facts necessary in order
to make the statements, in light of the circumstances under which they were
made, not misleading.

148. None of the defendants named in this Count made a reasonable
investigation or possessed reasonable grounds for the belief that the statements
contained in the Registration Statement/Prospectus were true, without omissions
of any material facts and were not misleading.

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<PAGE> 65

149. Plaintiffs, individually and representatively, hereby elect to
rescind and tender to SCI those securities that plaintiffs and other members of
the Class continue to own, in return for the consideration paid for those
securities together with interest thereon.

150. Plaintiffs and members of the Class who have sold their SCI common
stock are entitled to recissory damages.

151. The action was brought within one year after the discovery of the
untrue statements and omissions and within three years after SCI common stock
was offered to the public.

COUNT III

AGAINST THE INDIVIDUAL DEFENDANTS FOR
VIOLATION OF SECTION 15 OF THE SECURITIES ACT

152. Plaintiffs repeat and reallege each and every allegation contained
above as if fully set forth herein, except to the extent that such allegations
charge the Individual Defendants with intentional or reckless conduct. For
purposes of this Count, plaintiffs do not allege than any Individual Defendant
acted with scienter or fraudulent intent, which is not an element of controlling
persons' liability under Section 15.

153. Count III is brought pursuant to Section 15 of the Securities Act,
15 U.S.C. Section 77o, against the Individual Defendants. SCI is liable to
plaintiffs and the Class as an issuer under Section 11 and as a seller under
Section 12(a)(2) of the Securities Act, as previously set forth in Counts I and
II above.

154. This count is brought on behalf of those Class members who
exchanged shares of ECI common stock for shares of SCI common stock in
connection with the Merger or held employee options to purchase ECI common stock
under a stock plan of ECI that became options to purchase SCI common stock as a
result of the Merger.

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155. The Individual Defendants were controlling persons of SCI by
virtue of their positions as senior officers and directors of the Company. As a
result, the Individual Defendants are jointly and severably liable with and to
the same extent as SCI under Section 15 of the Securities Act for SCI's primary
violations of Sections 11 and 12(2)(a) of the Securities Act.

COUNT IV

AGAINST ALL DEFENDANTS FOR
VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE 10b-5

156. Plaintiffs incorporate the foregoing allegations as if fully set
forth herein. This claim is asserted against SCI and the Individual Defendants.

157. These defendants, and each of them, carried out a plan, scheme
and course of conduct which was intended to and did: (i) deceive the investing
public, including plaintiffs and other Class members, as alleged herein; and
(ii) artificially inflate (artificially deflate in the case of put options) and
maintain the market price of SCI securities. In furtherance of this unlawful
scheme, plan and course of conduct, these defendants, and each of them, took the
actions set forth herein.

158. Defendants employed devices, schemes, and artifices to defraud;
made untrue statements of material fact and/or omitted to state material facts
necessary to make the statements made not misleading; and engaged in acts,
practices and a course of business which operated as a fraud and deceit upon
Class members in an effort to maintain artificially high market prices for SCI's
common stock in violation of Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder. These defendants are sued either as primary participants
in the wrongful and illegal conduct charged herein or as controlling persons.

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159. In addition to the duties of full disclosure imposed on defendants
as a result of their making of affirmative statements and reports, or
participation in the making of affirmative statements and reports to the
investing public, the defendants had a duty to promptly disseminate truthful
information that would be material to investors so that the market prices of the
Company's publicly traded common stock would be based on truthful, complete and
accurate information.

160. Defendants, individually and in concert, directly and indirectly,
by the use of means and instrumentalities of interstate commerce and/or of the
mails, engaged and participated in a continuous course of conduct to conceal
adverse material information about the Company's financial results, business,
operations, and future outlook as specified herein. These defendants employed
devices, schemes and artifices to defraud, while in possession of material
adverse non-public information and engaged in acts, practices, and a course of
conduct as alleged herein in an effort to mislead purchasers of SCI's securities
concerning the Company's business prospects and financial condition, which
included the making of, or the participation in the making of, untrue statements
of material facts and omitting to state material facts necessary in order to
make the statements made about the Company's financial and business operations
in the light of the circumstances under which they were made, not misleading, as
set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon Class members.

161. Defendants had actual knowledge of the misrepresentation and
omissions of material facts set forth herein, or acted with reckless disregard
for the truth in that they failed to ascertain and to disclose such facts, even
though such facts were available to them. Defendants' material
misrepresentations and/or omissions were done knowingly or recklessly and for
the purpose and

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effect of concealing SCI's operations and business affairs from the investing
public and supporting the artificially inflated price of its securities.

162. As a result of the dissemination of the materially false and
misleading information and failure to disclose material facts, as set forth
above, the market price of SCI securities was artificially inflated
(artificially deflated in the case of put options) throughout the Class Period.
In ignorance of the fact that the market price of SCI's securities were
artificially inflated, and relying directly or indirectly on the false and
misleading statements made by defendants, or upon the integrity of the market in
which the securities trade, and the truth of any representations made to
appropriate agencies as the investing public, at the times at which any
statements were made, and/or on the absence of material adverse information that
was known to or recklessly disregarded by defendants but not disclosed in public
statements by defendants, plaintiffs and the other members of the Class
purchased SCI's securities at artificially high prices and were damaged thereby.

163. At the time of said misrepresentations and omissions, plaintiffs
and the other members of the Class were ignorant of their falsity, and believed
them to be true. Had plaintiffs and the other member of the Class and the
marketplace known of the true nature of the operations of the Company and the
noncompliance with federal law, which were not disclosed by defendants,
plaintiffs and the other members of the Class would not have acquired their SCI
securities, or, if they had acquired such securities, they would not have done
so at the artificially inflated (artificially deflated in the case of put
options) prices which they paid.

164. By virtue of the foregoing, defendants have violated Section 10(b)
of the Exchange Act, and Rule 10b-5 promulgated there under.

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165. As a direct and proximate result of these defendants' wrongful
conduct, plaintiffs and the other members of the Class suffered damages in
connection with their purchases of SCI securities.

COUNT V

AGAINST THE INDIVIDUAL DEFENDANTS FOR
VIOLATION OF SECTION 20(a) OF THE EXCHANGE ACT

166. Plaintiffs incorporate the foregoing allegations as if fully set
forth herein. This claim is asserted against the Individual Defendants.

167. The Individual Defendants acted as controlling persons of SCI
within the meaning of Section 20(a) of the Exchange Act as alleged herein. By
virtue of their stock ownership, executive positions and Board membership, as
alleged above, the Individual Defendants had the power to influence and control
and did influence and control, directly or indirectly, the operations of the
Company, and possessed the power and/or ability to control each of the wrongful
acts and practices complained of herein, including the content and dissemination
of the various statements which plaintiffs contend are false and misleading. The
Individual Defendants were provided with or had unlimited access to copies of
the Company's internal reports, press releases, public filings and other
statements alleged by plaintiffs to be misleading prior to and/or shortly after
these statements were issued and had the ability to prevent the issuance of the
statements or cause the statements to be corrected.

168. In particular, the Individual Defendants had direct involvement in
the day-to-day operations of the Company and therefore, are presumed to have had
the power to control or influence the particular transactions giving rise to the
securities violations as alleged herein, and exercised the same.

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169. As set forth above, SCI violated Section 10(b) and Rule l0b-5 by
its acts and omissions as alleged in this Complaint. By virtue of their
positions as controlling persons of SCI, the Individual Defendants are liable
pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result
of defendants' wrongful conduct, plaintiffs and the other members of the Class
suffered damages in connection with their purchases of SCI securities.

COUNT VI

AGAINST SCI FOR VIOLATIONS
OF SECTION 20A OF THE EXCHANGE ACT

170. Plaintiffs incorporate the foregoing allegations as if fully set
forth herein. This claim is asserted against SCI. This count is brought on
behalf of those Class members who exchanged shares of ECI common stock for
shares of SCI common stock in connection with the Merger or held employee
options to purchase ECI common stock under a stock plan of ECI that became
options to purchase SCI common stock as a result of the Merger.

171. The exchange of SCI stock for ECI stock pursuant to the Merger
Agreement constituted a sale of securities within the meaning of Section 20A of
the Exchange Act. 15 U.S.C. Section 78t-1. At the time of the exchange of SCI
stock for ECI stock, SCI was in possession of material, non-public information
concerning the financial condition of SCI. As a result of SCI's failure to
disclose the material, non-public information in its possession, SCI was able to
negotiate a higher ratio of exchange of SCI stock for ECI stock.

172. By virtue of the foregoing, SCI has violated Section 20A of the
Exchange Act.

173. As a direct and proximate result of SCI's wrongful conduct,
members of the Class suffered damages in connection with their exchange of ECI
stock and ECI options for SCI stock and SCI options.

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PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on their own behalf and on behalf of the other
members of the Class. respectfully request that this Court enter judgment in
their favor and against defendants as follows:

(a) Awarding plaintiffs and the other members of the Class rescission
of their shares and/or the appropriate measure of damages;

(b) Awarding plaintiffs and the other members of the Class prejudgment
and post-judgment interest, as well as their reasonable attorneys' fees, expert
witness fees and other costs and expenses; and

JURY DEMAND

Plaintiffs demand a trial by jury.

DATED: September 3, 1999

Respectfully submitted,

By:
--------------------------------
ROGER B. GREENBERG
Attorney-in-Charge
State Bar No. 08390000
12 Greenway Plaza, 10th Fl.
Houston, TX 77046
(713) 627-2720
(713) 627-7057 Fax

Lead Counsel for Plaintiffs

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OF COUNSEL:

GREENBERG, PEDEN, SIEGMYER & OSHMAN, P.C.
David E. Sharp
Tenth Floor, 12 Greenway Plaza
Houston, TX 77046
(713) 627-2720
(713) 627-7057 Fax

WOLF POPPER LLP
Robert M. Kornreich
Paul O. Paradis
Peter Safirstein
Catherine E. Anderson
845 Third Avenue
New York, NY 10022

BERMAN, DEVALERIO & PEASE LLP
Glen DeValerio
Michael T. Matraia
One Liberty Square
Boston, MA 02109

BERNSTEIN LITOWITZ BERGER
& GROSSMANN, LLP
Douglas M. McKeige
1285 Avenue of the Americas
33rd Floor
New York, NY 10019

LAW OFFICES OF STEVEN E. CAULEY, PA
Steven E. Cauley
Suite 218, Cypress Plaza
Little Rock, AK 72212

COHEN, MILSTEIN, HAUSFELD & TOLL, PLLC
Steven J. Toll
999 Third Avenue, Suite 3600
Seattle, WA 98104

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MILBERG WEISS BERSHAD
HYNES & LERACH LLP
Abraham Rappaport
Maya Saxena
5355 Town Center Road
Suite 900
Boca Raton, FL 33486

ABBEY, GARDY & SQUITIERI LLP
Mark S. Gardy
212 East 39th Street
New York, NY 10016

BARRACK, RODOS & BACINE
2001 Market Street
33rd Floor
Philadephia, PA 19103

BERGER & MONTAGUE, PC
Todd S. Collins
Michael L. Block
1622 Locust Street
Philadelphia, PA 19103

BOIES & SCHILLER, LLP
Richard Drubel
26 South Main Street
Hanover, New Hampshire 03755

BRUCE G. MURPHY
265 Llywyd's Lane
Veto Beach, Florida 32963

CHANDLER LAW OFFICES
George Chandler
P.O. Box 3400
Lufkin, TX 75901

CLAXTON & HILL, PLLC
Roger F. Claxton
Robert J. Hill
3131 McKinney Avenue - LB 103
700 McKinney Place
Dallas, Texas 75204-2471

<PAGE> 74

CONSTANT & VELA
Anthony Constant
802 North Caranachua
Suite 1570
Corpus Christi, TX 78401

CRUSE, SCOTT, HENDERSON & ALLEN, LLP
Sam W. Cruse
600 Travis Street, Suite 3900
Houston, TX 77002-2910

FARUQI & FARUQI
Nadeem Farqui
415 Madison Avenue
New York, NY 10017

FINKELSTEIN & KRINSK
Howard D. Finkelstein
Jeffrey R. Krinsk
501 West Broadway, Suite 1250
San Diego, CA 92101-3579

FRANK & ROSEN
Alan L. Frank
David T. Shulick,
1835 Market Street, Suite 320
Philadelphia, PA 19103

HOEFFNER, BILEK & EIDMAN
Thomas E. Bilek
720 Lyric Office Center
440 Louisiana, Suite 720
Houston, TX 77002

JAROSLAWICZ & JAROS
David Jaroslawicz
150 William Street
New York, NY 10038

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KAPLAN, KILSHEIMER & FOX LLP
Robert N. Kaplan
Peter A. Lennon
Janine R. Azriliant
685 Third Avenue, 26th Floor
New York, NY 10017

KENNETH A. ELAN
217 Broadway, Suite 404
New York, NY 10007

KIRBY MCINERNEY SQUIRE
Jeffrey H. Squire
Ira M. Press
830 Third Avenue, 10th Floor
New York, NY 10022

LAW OFFICES OF CLAYTON E. DARK, JR.
Clayton E. Dark, Jr.
P.O. Box 2207
Lufkin, TX 75902-2207

LAW OFFICES OF DENNIS J. JOHNSON
Dennis J. Johnson
1690 Williston Road
South Burlington, VT 05403

LOCKRIDGE, GRINDAL, NAUEN & HOSTEIN, PLLP
Richard A. Lockridge
Karen M. Hanson
100 Washington Avenue South, Suite 2200
Minneapolis, MN 55401

LOWEY DANNENBERG BEMPORAD
& SELINGER PC
Richard Bemporad
David C. Harrison
The Gateway - 11th Floor
One North Lexington Avenue
White Plains, NY 10601-1714

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LYNN STODGHIIL MELCHIMER
AND TILLOTSON, LLP
Thomas M. McIsheimer
M. Brett Johnson
750 N. Pearl Street, Suite 1400
Dallas, TX 75201

RABIN & PECKEL LLP
Marvin L. Frank
Joseph V. McBride
275 Madison Avenue, 34th Floor
New York, NY 10016

SCHIFFRIN & BARROWAY, LLP
Andrew L. Barroway
David Kessler
Three Bala Plaza East, Suite 400
Bala Cynwyd, Penn. 19004

SCOTT & SCOTT
Neil Rothstein
108 Norwich Avenue
P.O. Box 192
Cochester, CT 06415

SCOTT, DOUGLASS & MCCONNICO, LLP
Stephen E. McConnico
600 Congress Avenue, 15th Floor
Austin, TX 78701-2334

SPECTOR & ROSEMAN, PC
Eugen A. Spector
Jeffrey L. Kodroff
1818 Market Street, Suite 2500
Philadelphia, PA 19103

STULL STULL & BRODY
Jules Brody
Aaron Brody
6 East 45th Street
New York, NY 10017

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SUSMAN GODFREY LLP
Kenneth S. Marks
5100 First Interstate Bank Plaza
1000 Louisiana
Houston, TX 77002-5096

THE OLSEN LAW FIRM
Kurt Olsen
2121 K. Street, N.W. Suite 800
Washington, D.C. 20037

WEISS & YOURMAN
Joseph H. Weiss
551 Fifth Avenue, Suite 1600
New York, NY 10176

WHITTINGTON, VONSTERNBERG, EMERSON
& WILSHER, LLP
John G. Emerson, Jr.
2600 South Gessner, Suite 600
Houston, TX 77063

WOLF, HALDENSTEIN, ADLER, FREEMAN
& HERZ, LLP
Fred T. Isquith
Robert Abrams
270 Madison Avenue
New York, NY 10016

ATTORNEYS FOR PLAINTIFFS

Certificate of Service

This document was served on defendants' counsel of
record on September 3, 1999 pursuant to the Federal
Rules of Civil Procedure.

/s/ David E. Sharp
------------------
David E. Sharp

Page 77

<PAGE> 1
EXHIBIT 99.2

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

(
(
IN RE SERVICE CORPORATION (
INTERNATIONAL ( CIVIL ACTION NO. H-99-0280
( (Judge Lynn N. Hughes)
(
(

DEFENDANTS' ANSWER TO THE
CONSOLIDATED CLASS ACTION COMPLAINT

Defendants Service Corporation International ("SCI"), R. L. Waltrip,
George R. Champagne and L. William Heiligbrodt file this Answer to the
Consolidated Class Action Complaint, and would show the Court as follows:

RESPONSES TO ALLEGATIONS

1. Admit that this is a civil action in which Plaintiffs have brought
suit under the various statutes, rules and regulations cited in Paragraph 1 of
the Consolidated Class Action Complaint, but deny the truth of any of those
allegations and further deny that any factual basis for cognizable claims under
such statutes and laws exist as against the Defendants.

2. Admit that this Court has subject matter jurisdiction over this
cause based upon application of the laws set out in Paragraph 2 of the
Consolidated Class Action Complaint, but deny that the factual basis for such
jurisdiction exists.

3. Admit that this Court has venue over this cause based upon
application of the laws set out in Paragraph 3 of the Consolidated Class Action
Complaint, but deny any factual basis for cognizable claims under such statutes
and laws exist as against the Defendants.

4. Deny.

<PAGE> 2

5. Admit the first two sentences of Paragraph 5 of the Consolidated
Class Action Complaint; deny the third sentence of Paragraph 5 of the
Consolidated Class Action Complaint.

6. Admit.

7. Admit that R.L. Waltrip is SCI's Chairman of the Board and Chief
Executive Officer. Admit that the Registration Statement/Prospectus was declared
effective on November 20, 1998. Deny the remaining allegations contained in
Paragraph 7 of the Consolidated Class Action Complaint.

8. Admit that George Champagne is SCI's Senior Vice President and Chief
Financial Officer. Deny the remaining allegations contained in Paragraph 8 of
the Consolidated Class Action Complaint.

9. Admit that L. William Heiligbrodt was SCI's President and Chief
Operating Officer. Deny the remaining allegations contained in Paragraph 9 of
the Consolidated Class Action Complaint.

10. Admit.

11. Deny the first two sentences of Paragraph 11 of the Consolidated
Class Action Complaint. Admit the third sentence of Paragraph 11 of the
Consolidated Class Action Complaint.

12. Deny.

13. Deny.

14. Deny.

15. Admit that the Individual Defendants had an obligation to comply
with applicable federal securities laws. Deny the remaining allegations.

16. Admit.

-2-

<PAGE> 3

17. Admit.

18. Admit.

19. Admit.

20. Admit that Paragraph 20 of the Consolidated Class Action Complaint
correctly lists the number of funeral homes acquired worldwide by SCI, year by
year, from 1990 to 1998. However, Defendants deny that the total number of
funeral homes acquired by SCI is 2,873. Plaintiff has made a mathematical error.
The correct number should be 3,136.

21. Admit.

22. Deny that the contractual obligations to perform guaranteed price
funerals in the future were typically reflected as a liability on the books of
the independent funeral homes prior to their acquisition by SCI. Admit the
remaining allegations contained in Paragraph 22 of the Consolidated Class Action
Complaint.

23. Admit the first, second and fifth sentences of Paragraph 23 of the
Consolidated Class Action Complaint. Deny the remaining allegations contained in
Paragraph 23 of the Consolidated Class Action Complaint.

24. Admit that the practice of selling preneed funeral contracts began
to gain increasing acceptance in the late 1980s. Admit that financial management
of some mortuary trust assets consisted of opening a certificate of deposit.
Deny the remaining allegations contained in Paragraph 24 of the Consolidated
Class Action Complaint.

25. Deny.

26. SCI is without sufficient knowledge to admit or deny the first
sentence of Paragraph 26 of the Consolidated Class Action Complaint. Deny the
remaining allegations.

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<PAGE> 4

27. Admit that the block quotation is contained in the March 1997 issue
of The Director. Deny the remaining allegations contained in Paragraph 27 of the
Consolidated Class Action Complaint.

28. Admit that SCI acquired ownership of more than 2,873 independent
funeral homes from 1990-1998. Admit that between 1992 and 1998, SCI's
prearranged funeral contract backlog increased from $1.2 billion to $3.7
billion. Deny that the chart accurately reflects the prearranged funeral
services sold.

29. Deny.

30. Deny.

31. Admit that during 1995 SCI purchased 1,263 independent funeral
homes and acquired $656 million in preneed funeral contracts. Deny the remaining
allegations contained in Paragraph 31 of the Consolidated Class Action
Complaint.

32. Admit that during 1996 SCI undertook "a review of the prearranged
trust investment process which included an asset/liability study." Deny the
remaining allegations contained in Paragraph 32 of the Consolidated Class Action
Complaint.

33. Admit that the block quotation is contained in SCI's 10-K for the
year ended December 31, 1996. Deny the remaining allegations contained in
Paragraph 33 of the Consolidated Class Action Complaint.

34. Admit that the block quotation is contained in SCI's 10-K for the
year ended December 31, 1997. Deny the remaining allegations contained in
Paragraph 34 of the Consolidated Class Action Complaint.

35. Deny.

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<PAGE> 5

36. Admit that the chart in Paragraph 36 of the Consolidated Class
Action Complaint accurately reflects SCI's gross profit margins for fiscal year
1998. Deny the remaining allegations contained in Paragraph 36 of the
Consolidated Class Action Complaint.

37. Deny.

38. Admit that the August 28, 1995 edition of the Boston Globe included
the referenced quotations. Deny the remaining allegations contained in Paragraph
38 of the Consolidated Class Action Complaint.

39. Admit that the December 8, 1996 edition of the Boston Globe and the
December 11, 1996 edition of the Seattle Times included the referenced
quotations. Deny the remaining allegations contained in Paragraph 39 of the
Consolidated Class Action Complaint.

40. Admit that the July 6, 1996 edition of The Ledger included a story
about a salesman from the SCI-operated Glen Abbey Memorial Gardens. Admit that a
lawsuit was filed against SCI and Glenn Abbey Memorial Gardens on behalf of Mrs.
Carriere. Deny the remaining allegations.

41. Admit that the various periodicals cited included stories about
SCI. Deny the remaining allegations.

42. Deny.

43. Deny.

44. Deny.

45. Deny.

46. Deny.

47. Admit that SCI announced the creation of SCI Financial Services,
Inc. in July, 1988.

Deny the remaining allegations.

-5-

<PAGE> 6

48. Deny.

49. Deny.

50. Admit that the block quotations are contained in ECI's 10-K for the
year ended December 31, 1997. Deny the remaining allegations contained in
Paragraph 50 of the Consolidated Class Action Complaint.

51. Admit that the block quotations are contained in ECI's 10-K for the
year ended December 31, 1997. Deny the remaining allegations contained in
Paragraph 51 of the Consolidated Class Action Complaint.

52. Admit that the block quotations are contained in ECI's 10-K for the
year ended December 31, 1997. Deny the remaining allegations contained in
Paragraph 52 of the Consolidated Class Action Complaint.

53. Deny.

54. Deny.

55. Deny.

56. Deny.

57. Deny.

58. Admit.

59. Admit that SCI was unable to divest itself of these properties in
time to obtain FTC approval to close the ECI transaction in the fourth quarter
of 1998. Deny the remaining allegations contained in Paragraph 59 of the
Consolidated Class Action Complaint.

60. Deny.

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<PAGE> 7

61. Insofar as the Plaintiffs refer to the Merger Agreement, the
document speaks for itself. Deny the remaining allegations contained in
Paragraph 61 of the Consolidated Class Action Complaint.

62. Admit.

63. Admit.

64. Admit.

65. Admit that the block quotation is contained in the Merger
Agreement. Insofar as the Plaintiffs further refer to the Merger Agreement, the
document speaks for itself.

66. Admit that the block quotation is contained in the Merger
Agreement. Insofar as the Plaintiffs further refer to the Merger Agreement, the
document speaks for itself.

67. Deny.

68. Admit.

69. Admit.

70. Deny.

71. Admit the first two sentences of Paragraph 71 of the Consolidated
Class Action Complaint. Deny the remaining allegations contained in Paragraph 71
of the Consolidated Class Action Complaint.

72. Deny.

73. Admit that the block quotation is contained in SCI's July 17, 1998
press release. Deny the remaining allegations contained in Paragraph 73 of the
Consolidated Class Action Complaint.

74. Deny.

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<PAGE> 8

75. Admit.

76. Deny.

77. Deny.

78. Admit that the block quotation is contained in SCI's July 23, 1998
press release. Deny the remaining allegations contained in Paragraph 78 of the
Consolidated Class Action Complaint.

79. Deny.

80. Admit that the block quotation is contained in SCI's August 6, 1998
press release. Deny the remaining allegations contained in Paragraph 80 of the
Consolidated Class Action Complaint.

81. Deny.

82. Admit that the block quotation is contained in SCI's August 7, 1998
press release. Deny the remaining allegations contained in Paragraph 82 of the
Consolidated Class Action Complaint.

83. Deny.

84. Admit that the block quotation is contained in the August 11, 1998
edition of Death Care Business Advisor. Deny the remaining allegations contained
in Paragraph 84 of the Consolidated Class Action Complaint.

85. Deny.

86. Admit.

87. Deny.

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<PAGE> 9

88. Admit that the block quotation is contained in SCI's 10-Q for the
quarter ended June 30, 1998. Deny the remaining allegations contained in
Paragraph 88 of the Consolidated Class Action Complaint.

89. Deny.

90. Admit.

91. Deny.

92. Admit that the block quotation is contained in SCI's September 30,
1998 press release. Deny the remaining allegations contained in Paragraph 92 of
the Consolidated Class Action Complaint.

93. Deny.

94. Admit that the block quotation is contained in SCI's October 22,
1998 press release. Deny the remaining allegations contained in Paragraph 94 of
the Consolidated Class Action Complaint.

95. Deny.

96. Admit.

97. Deny.

98. Admit that the block quotation is contained in SCI's 10-Q for the
quarter ended September 30, 1998. Deny the remaining allegations contained in
Paragraph 98 of the Consolidated Class Action Complaint.

99. Deny.

100. Admit.

101. Deny.

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<PAGE> 10

102. Deny.

103. Deny.

104. Admit that the block quotation is contained in SCI's Registration
Statement/Prospectus. Deny the remaining allegations contained in Paragraph 104
of the Consolidated Class Action Complaint.

105. Deny.

106. Admit.

107. Admit.

108. Deny.

109. Deny.

110. Deny.

111. Deny.

112. Admit the first sentence of Paragraph 112 of the Consolidated
Class Action Complaint. Deny the remaining allegations contained in Paragraph
112 of the Consolidated Class Action Complaint.

113. Deny.

114. Admit.

115. Deny.

116. Admit that Standard & Poor's issued a press release on October 27,
1998 that contained the referenced quotations. Deny the remaining allegations
contained in Paragraph 116 of the Consolidated Class Action Complaint.

117. Deny.

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<PAGE> 11

118. Deny.

119. Deny the first sentence of Paragraph 119 of the Consolidated Class
Action Complaint. Admit the remaining allegations contained in Paragraph 119 of
the Consolidated Class Action Complaint.

120. Deny.

121. Admit that the Falcon system allows SCI to determine the level of
funeral and cemetery sales. Deny the remaining allegations contained in
Paragraph 121 of the Consolidated Class Action Complaint.

122. Deny.

123. Admit that SCI issued a press release on January 26, 1999 that
contained the referenced block quotation. Insofar as Plaintiffs further refer to
the January 26, 1999 press release, the document speaks for itself. Deny the
remaining allegations contained in Paragraph 123 of the Consolidated Class
Action Complaint.

124. Admit.

125. Admit that SCI issued a press release on February 9, 1999. Deny
the remaining allegations contained in Paragraph 125 of the Consolidated Class
Action Complaint.

126. Admit that the block quotation is contained in the February 23,
1999 Death Care Advisor. Insofar as Paragraph 126 of the Consolidated Class
Action further refers to the February 23, 1999 article, the article speaks for
itself.

127. Admit.

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<PAGE> 12

128. SCI is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in Paragraph 128 of the
Consolidated Class Action Complaint. Therefore, such allegations shall be
treated as denied.

129. Deny.

130. SCI is without knowledge or information sufficient to form a
belief as to the truth of the allegations contained in Paragraph 128 of the
Consolidated Class Action Complaint. Therefore, such allegations shall be
treated as denied.

131. Deny.

132. Deny.

133. Deny.

134. Admit.

135. Deny.

136. Deny.

137. Deny.

138. Deny.

139. Deny.

140. Deny.

141. Deny.

142. Deny.

143. Deny.

144. Deny.

145. Deny.

-12-

<PAGE> 13

146. Admit.

147. Deny.

148. Deny.

149. Deny.

150. Deny.

151. Deny.

152. Deny.

153. Deny.

154. Deny.

155. Deny.

156. Deny.

157. Deny.

158. Deny.

159. Deny.

160. Deny.

161. Deny.

162. Deny.

163. Deny.

164. Deny.

165. Deny.

166. Deny.

167. Deny.

-13-

<PAGE> 14

168. Deny.

169. Deny.

170. Deny.

171. Admit that the exchange of SCI stock for ECI stock pursuant to the
Merger Agreement constituted a sale of securities within the meaning of Section
20A of the Exchange Act. Deny the remaining allegations in Paragraph 171 of the
Consolidated Class Action Complaint.

172. Deny.

173. Deny.

AFFIRMATIVE DEFENSES

174. The Consolidated Class Action Complaint fails to allege facts
sufficient to state a claim upon which relief may be granted.

175. Plaintiffs are not entitled to any recovery from Defendants
because the registration statement did not contain any untrue statement of
material fact nor did Defendants omit to state any material fact required to be
stated or necessary to make the statements made not misleading.

176. Plaintiffs are not entitled to any recovery from Defendants
because the documents, filings and announcements quoted did not contain any
untrue statement of material fact nor did Defendants omit to state any material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.

177. Plaintiffs are not entitled to any recovery from Defendants
because at all relevant times Defendants acted diligently and reasonably and had
a good faith belief in the truthfulness of each of the matters alleged in the
Consolidated Class Action Complaint to be inaccurate and further

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<PAGE> 15

believed that there was no failure to state a material fact alleged in the
Consolidated Class Action Complaint to be omitted.

178. Any increase or decrease in the market value of Plaintiffs' stock
was the result of market or other factors and not the alleged wrongful conduct
on the part of Defendants.

179. Plaintiffs are not entitled to any recovery from Defendants
because the substance of the material information that Plaintiffs allege to have
been omitted or misrepresented was in fact disclosed in SCI's public filings,
prospectuses and other public releases, was otherwise publicly available and/or
widely known to the market and to the investing community.

180. Plaintiffs are not entitled to any recovery from Defendants
because no act or omission of SCI was the cause in fact or the proximate cause
of any damage to Plaintiffs.

181. Plaintiffs are not entitled to any recovery because Plaintiffs did
not exercise reasonable care to discover the facts relating to the alleged
misstatements or omissions.

182. The Consolidated Class Action Complaint fails to plead fraud
against Defendants with the specificity required by Rule 9(b) of the Federal
Rules of Civil Procedure.

183. Every act or omission alleged in the Consolidated Class Action
Complaint was done or omitted in good faith conformity with the rules and
regulations of the Securities and Exchange Commission, and therefore, pursuant
to Section 23(a) of the Securities Exchange Act of 1934, there is no liability
for any act or omission so alleged.

184. Plaintiffs would have purchased SCI stock even with full knowledge
of the facts that they allege were misrepresented or omitted.

185. Defendants lacked the requisite scienter required for liability.

186. Plaintiffs did not rely upon the misrepresentations or misleading
statements alleged.

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<PAGE> 16

187. The actual facts which Plaintiffs allege were misrepresented or
omitted in fact were known to and entered the securities market through credible
sources.

188. Plaintiffs fail to satisfy the requirements of the Private
Securities Litigation Reform Act of 1995.

WHEREFORE, Defendants pray as follows:

1. That Plaintiffs take nothing by the Consolidated Class Action
Complaint;

2. That the complaint be dismissed with prejudice;

3. That Defendants be awarded its costs of suit, including reasonable
attorneys' fees;

4. That Defendants have such other, further and different relief as
this Court deems just and proper.

Respectfully submitted,

Bracewell & Patterson, L.L.P.

By:
-----------------------------------------
J. Clifford Gunter III
State Bar No. 08627000

South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Telephone: (713) 223-2900
Facsimile: (713) 221-1212

-16-

<PAGE> 17

Of Counsel:

Andrew M. Edison
State Bar No. 00790629

Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Telephone: (713) 223-2900
Facsimile: (713) 221-1212

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document
was forwarded by certified mail, return receipt requested, on the 17th day of
September, 1999 to all counsel of record:

Mr. Roger E. Greenberg
Mr. David E. Sharp
Greenberg, Peden, Siegmyer & Oshman, P.C.
12 Greenway Plaza
10th Floor
Houston, Texas 77046

----------------------------------------
Andrew M. Edison

-17-

<PAGE> 1
EXHIBIT 99.3

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

)
)
IN RE SERVICE CORPORATION )
INTERNATIONAL ) CIVIL ACTION NO. H-99-0280
) (Judge Lynn N. Hughes)
)
)

DEFENDANTS' MOTION TO DISMISS THE
CONSOLIDATED CLASS ACTION COMPLAINT

J. Clifford Gunter III
Andrew M. Edison

Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Telephone: (713) 223-2900
Facsimile: (713) 221-1212

COUNSEL FOR DEFENDANTS
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
INTRODUCTION......................................................................................................1

NATURE AND STAGE OF PROCEEDINGS...................................................................................3

PLAINTIFFS' ALLEGATIONS...........................................................................................4

STATEMENT OF FACTS................................................................................................5

I. GENERAL BACKGROUND..............................................................................5

II. THE PRENEED FUNERAL BUSINESS....................................................................6

III. THE "PRENEED STUDY."............................................................................7

IV. ACQUISITION, EXPANSION AND MERGER...............................................................8

V. THE SCI-ECI MERGER CLOSES AND FOURTH QUARTER
EARNINGS ARE ANNOUNCED..........................................................................9

ARGUMENT AND AUTHORITIES.........................................................................................10

I. THE CONSOLIDATED CLASS ACTION COMPLAINT DOES
NOT STATE THE BASIS FOR PLAINTIFFS' INFORMATION
AND BELIEF.....................................................................................10

II. PLAINTIFFS FAIL TO PLEAD FRAUD WITH PARTICULARITY..............................................13

A. Plaintiffs Do Not Plead Specific Facts Showing That The
SCI Defendants' Statements Were False When Made.......................................13

B. Plaintiffs' References to the Preneed Study Are Insufficient to
Show That the SCI Defendants' Statements Were False
When Made.............................................................................17

C. Allegations Based on Internal Corporate Documents are
Insufficient to Satisfy the Reform Act................................................21

III. MANY OF THE ALLEGED MISSTATEMENTS ARE NOT
ACTIONABLE AS A MATTER OF LAW..................................................................23
</TABLE>

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<PAGE> 3

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
A. General Statements of Optimism Do Not Support a Fraud Claim...........................23

B. Statements of Historical Fact Do Not Support a Fraud Claim............................25

C. The SCI Defendants' Forward-Looking Statements are Protected
by The Safe Harbor....................................................................25

IV. PLAINTIFFS DO NOT ADEQUATELY ALLEGE SCIENTER...................................................26

A. Under the Reform Act, Plaintiffs Must Allege Specific
Facts Creating a Strong Inference of Scienter that the SCI
Defendants Acted Knowingly or Recklessly, Not Just That
They Had a Motive and Opportunity to Commit Fraud.....................................28

B. Plaintiffs' Allegations Do Not Support a Strong Inference
of Scienter...........................................................................32

1. Plaintiffs' Allegations that the SCI Defendants Made
Misstatements to Maintain SCI's Bond Rating Fails
to Create the Required Inference of Scienter.................................33

2. Plaintiffs' Allegation that the SCI Defendants Made
Misstatements to Facilitate Consummation of the
SCI-ECI Merger Fails to Create the Required Inference
of Scienter..................................................................34

3. The Individual Defendants' Lack of Trading in SCI Stock
Negates Any Inference of Scienter............................................35

CONCLUSION.......................................................................................................38

CERTIFICATE OF SERVICE...........................................................................................40
</TABLE>

-ii-

<PAGE> 4

TABLE OF AUTHORITIES

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CASES

Bryant v. Avado Brands, Inc., 1999 WL 688050 (11th Cir. 1999)....................................................31

Duncan v. Pencer, 1996 WL 19043 (S.D. N.Y. 1996).................................................................35

Ernst v. Hockfelder, 425 U.S. 185 (1976).........................................................................27

Ferber v. Travelers Corp., 785 F. Supp. 1101 (D. Conn. 1991).....................................................12

Friedberg v. Discreet Logic, Inc., 959 F. Supp. 42 (D.Mass. 1997)................................................30

Garcia v. United States, 469 U.S. 70 (1984).......................................................................1

Grossman v. Novell, Inc., 120 F.3d 1112 (10th Cir. 1997).........................................................24

Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186 (1974)...........................................................30

Haft v. Eastland Fin. Corp., 772 F. Supp. 1315 (D.R.I. 1991).....................................................12

Harris v. Ivax Corp., 998 F. Supp. 1449 (S.D. Fla. 1998),
aff'd, 182 F.3d 799 (11th Cir. 1999)...................................................................26

Hausberg v. Comp USA, Inc., 1995 U.S. Dist.
LEXIS 20333 (N.D. Tex. 1995).............................................................................2

Head v. NetManage, Inc., 1998 WL 917794 (N.D. Cal. 1998).........................................................36

In re 1993 Corning Sec. Litig., 1996 WL 257603 (S.D.N.Y. 1996)...................................................34

In re Advanta Corp. Sec. Litig., 1998 WL 387595 (E.D. Pa. 1998),
aff'd, 180 F.3d 525 (3d Cir. 1999)......................................................................21

In re Advanta Corp. Sec. Litig., 180 F.3d 525 (3d Cir. 1999).....................................................31

In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 (3d Cir. 1997)..........................................35

In re Caere Corp. Sec. Litig., 837 F. Supp. 1054 (N.D. Cal. 1993)................................................24

In re Cirrus Logic Sec. Litig., 946 F. Supp. 1446 (N.D. Cal. 1996)...............................................34
</TABLE>

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<PAGE> 5

<TABLE>
<S> <C>
In re Comshare Sec. Litig., 1997 WL 1091468 (E.D. Mich. 1997),
aff'd, 183 F.3d 542 (6th Cir. 1999).....................................................................37

In re Comshare Sec. Litig., 183 F.3d 542 (6th Cir. 1999).........................................................31

In re Convergent Techs, Sec, Litig., 948 F.2d 507 (9th Cir.1991).................................................25

In re Credit Acceptance Corporation Securities Litigation,
50 F. Supp.2d 662 (E.D. Mich. 1999).....................................................................37

In re Crown Am. Realty Trust Sec. Litig., 1997 WL 599299
(W.D. Pa. 1997).........................................................................................34

In re Cypress Semiconductor Sec. Litig., 891 F. Supp. 1369
(N.D. Cal. 1995)........................................................................................25

In re Gleaner Technologies, Inc. Sec. Litig., 1998 WL 915907
(S.D.N.Y. 1998).........................................................................................37

In re Glenfed, Inc. Sec. Litig., 42 F.3d 1541 (9th Cir. 1994)....................................................28

In re Health Mgmt. Sys. Sec. Litig., 1998 WL 283286 (S.D.N.Y. 1998)..........................................16, 37

In re Health Management, Inc. Sec. Litig., 970 F. Supp. 192
(E.D.N.Y.1997)..........................................................................................34

In re Mobile Telecommunication Techs. Corp. Sec. Litig.,
915 F. Supp. 828 (S.D. Miss. 1995)......................................................................24

In re Oak Tech. Sec. Litig., 1997 WL 448168 (N.D. Cal. 1997).................................................13, 15

In re Paracelsus Corp. Sec. Litig., 1998 WL 1108373
(S.D. Tex. 1998)....................................................................................29, 32

In re Silicon Graphics, Inc. Sec. Litig., 970 F. Supp. 746
(N.D. Cal. 1997) ...................................................................................10, 12

In re Silicon Graphics Sec. Litig., 183 F.3d 970 (9th Cir. 1999)......................3, 11, 22, 23, 29, 30, 31, 32

In re Stac Elecs. Sec. Litig., 89 F.3d 1399 (9th Cir. 1996),
cert. denied, 117 S.Ct. 1105 (1997)..................................................................5, 13

In re Stratosphere Corp. Sec. Litig., 1997 WL 581032 (D.Nev. 1997)...............................................13
</TABLE>

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<PAGE> 6

<TABLE>
<S> <C>
In re VeriFone Sec. Litig., 784 F. Supp. 1471 (N.D. Cal. 1992),
aff'd, 11 F.3d 865 (9th Cir. 1993).....................................................................24

In re Worlds of Wonder Sec. Litig., 35 F.3d 1407 (9th Cir. 1994),
cert. denied, 116 S.Ct. 185 (1995)...................................................................4, 38

INS v. Cardoza-Fonseca, 480 U.S. 421 (1987)......................................................................30

L.L. Capital Partners, L.P. v. Rockefeller Center Properties, Inc.,
939 F. Supp. 294 (S.D.N.Y. 1996).......................................................................33

Leonard v. Netframe Sys., Inc., 1995 WL 798923 (N.D. Cal. 1995)..................................................14

Leventhal v. Tow, 48 F. Supp. 2d 104 (D. Conn. 1999).........................................................34, 35

Lovelace v. Software Spectrum Inc., 78 F.3d 1015 (5th Cir. 1996)..............................................5, 28

Malin v. Ivax, 17 F. Supp.2d 1345 (S.D. Fla. 1998)...............................................................35

McNamara v. Bre-X Minerals Ltd., 1999 WL 507441
(E.D. Tex. 1999)........................................................................................14

Melder v. Morris, 27 F.3d 1097, 1100 (5th Cir. 1994).................................................13, 17, 29, 33

Northwest Forest Resource Council v. Glickman,
82 F.3d 825 (9th Cir. 1996)..............................................................................1

Novak v. Kasaks, 997 F. Supp. 425 (S.D.N.Y. 1998)............................................................12, 15

Press v. Chemical Investment Services Corp., 166 F.3d 529
(2d Cir. 1999)..........................................................................................31

Raab v. General Physics Corp., 4 F.3d 286 (4th Cir. 1993)........................................................24

Robertson v. Strassner, 32 F. Supp.2d 443 (S.D. Tex. 1998).......................................................32

Ronconi v. Larkin, 1998 WL 230987 (N.D. Cal. 1998)...........................................................16, 17

San Leandro Emergency Med. Group Profit Sharing Plan v. Philip
Morris Companies, 75 F.3d 801 (2d Cir. 1996)........................................................32, 33

Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124 (2d Cir. 1994)..................................................28

Snowden v. Hughes, 321 U.S. 1 (1944).........................................................................20, 21

Tuchman v. DSC Communications Corp., 14 F.3d 1061 (5th Cir. 1994)................................................27
</TABLE>

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<PAGE> 7

<TABLE>
<S> <C>
Wenger v. Lumisys, Inc., 2 F. Supp.2d 1231 (N.D. Cal. 1998)..............................................14, 22, 25

Williams v. WMX Techs., Inc., 112 F.3d 175 (5th Cir.),
cert. denied, 118 S.Ct. 412 (1997)......................................................................32

Zeid v. Kimberley, 930 F. Supp. 431 (N.D. Cal. 1996).........................................................14, 22

STATUTES/RULES

Fed. R. Civ. P. 9(b)...........................................................................1, 2, 12, 13, 28, 33

Fed. R. Evid. 201(b)..............................................................................................2

15 U.S.C. Section 78u-4(b)(1)................................................................................10, 11

15 U.S.C. Section 78u-4(b)(1)(B).................................................................................11

15 U.S.C. Section 78u-4(b)(2)....................................................................................29

15 U.S.C. Section 78u-4(b)(3)(A)..................................................................................2

15 U.S.C. Section 78u-5(c)(1)(A)(i)..............................................................................25

OTHER

H.R. Conf. Rep. No. 104-369, 104th Cong., 1st Sess. 31 (1995),
reprinted in 1995 U.S.C.C.A.N. 730........................................................1, 2, 28, 29, 30

H.R. Doc. No. 104-150 (1995).....................................................................................30
</TABLE>

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<PAGE> 8

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

)
)
IN RE SERVICE CORPORATION )
INTERNATIONAL ) CIVIL ACTION NO. H-99-0280
) (Judge Lynn N. Hughes)
)
)

DEFENDANTS' MOTION TO DISMISS THE
CONSOLIDATED CLASS ACTION COMPLAINT

Pursuant to Fed. R. Civ. P. 9(b), 12(b)(6) and the Private Securities
Litigation Reform Act of 1995, Defendants Service Corporation International
("SCI"), R. L. Waltrip, L. William Heiligbrodt and George R. Champagne
(collectively "the SCI Defendants")(1) file this Motion to Dismiss the
Consolidated Class Action Complaint.

INTRODUCTION

This securities fraud class action is governed by the Private
Securities Litigation Reform Act of 1995, Pub. L. No. 104-67 (the "Reform Act").
In enacting the Reform Act, Congress found "significant evidence of abuse in
private securities lawsuits." H.R. Conf. Rep. No. 104-369, 104th Cong., 1st
Sess. 31 (1995), reprinted in 1995 U.S.C.C.A.N. 730.(2) Specifically, Congress
noted that these abusive practices included "the routine filing of lawsuits
against issuers of securities and others whenever there is a significant change
in an issuer's stock price, without regard to any underlying

- --------

(1) Waltrip, Heiligbrodt and Champagne are referred to as the
"Individual Defendants."

(2) The Conference Report is the "authoritative source for finding the
Legislature's intent." Garcia v. United States, 469 U.S. 70, 76 (1984). See also
Northwest Forest Resource Council v. Glickman, 82 F.3d 825, 835 (9th Cir. 1996)
("[A] congressional conference report is recognized as the most reliable
evidence of congressional intent because 'it represents the final statement of
the terms agreed to by both houses'").

<PAGE> 9

culpability of the issuer, and with only faint hope that the discovery process
might lead eventually to some plausible cause of action[.]" Id. Congress further
found that the standard for pleading fraud under Fed. R. Civ. P. 9(b) "has not
prevented abuse of the securities laws by private litigants." Id. at 41.

Among other things, the Reform Act requires plaintiffs to state with
particularity the facts -- not speculation -- that supports their belief that a
fraud really has taken place. Plaintiffs now must convince the court that they
have facts to support a fraud action, and not just a vivid imagination and hope
that the discovery process will be fruitful. Unlike a traditional Rule 12(b)(6)
motion, a motion to dismiss under the Reform Act does not permit a plaintiff to
rest on presumptions or require the Court to draw inferences in plaintiffs'
favor. The Reform Act authorizes courts to scrutinize complaints for the
requisite factual basis at the outset, and requires dismissal of cases that are
deficient. 15 U.S.C. Section 78u-4(b)(3)(A).

This securities fraud class action is exactly the type of case that
prompted Congress to reform the federal securities laws, for Plaintiffs have
brought this action solely on the basis that SCI experienced a significant drop
in its stock price during the Class Period, going from a closing price of 43-3/8
on July 17, 1998 to 19-1/2 on January 26, 1999.(3) Although Plaintiffs accuse
SCI and its three highest ranking officers of engaging in a fraud of the
greatest magnitude, there are no facts to substantiate this serious charge.

Reminiscent of pre-Reform Act pleadings, Plaintiffs simply recite a
litany of statements by the SCI Defendants covering all aspects of SCI's
business - including operating challenges,

- --------

(3) In rendering its decision on a motion to dismiss, the Court may
consider matters of public record involving historical stock prices. Fed. R.
Evid. 201(b); Hausberg v. Comp USA, Inc., 1995 U.S. Dist. LEXIS 20333, at *31
n.14 (N.D. Tex. 1995).

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<PAGE> 10

acquisitions and financial results. The Consolidated Class Action Complaint
("CCAC") then summarily concludes that these statements were false or misleading
when made because SCI did not disclose that its preneed funeral business was
causing a sharp erosion in its profit margins. This type of pleading simply does
not satisfy the Reform Act.

It is noteworthy that Plaintiffs conveniently forget to mention that
the Individual Defendants in this case -- the purported masterminds of this
fraud -- did not sell any shares of SCI stock during the Class Period. This
completely negates any inference of scienter.

The CCAC should be dismissed for the following reasons:

1. The CCAC does not satisfy the Reform Act requirement
that allegations made on "information and belief"
state with particularity the facts on which the
belief is formed;

2. The CCAC does not allege, with the particularity
required by the Reform Act, that the SCI Defendants'
statements concerning SCI's preneed funeral business
were false when made;

3. The statements alleged to be false or misleading were
in fact innocuous, non-actionable statements of
general optimism or historical fact. Courts have long
held that such statements cannot serve as the basis
for a securities claim; and

4. The CCAC fails to allege with particularity facts
giving rise to a strong inference that the SCI
Defendants acted with, at a minimum, deliberate
recklessness. See In re Silicon Graphics Sec. Litig.,
183 F.3d 970 (9th Cir. 1999) (Silicon Graphics II).
Far from meeting that standard, the CCAC even fails
to meet lower scienter standards applied by other
courts interpreting the Reform Act.

NATURE AND STAGE OF PROCEEDINGS

In January and February 1999, more than 20 virtually identical class
action lawsuits were filed in the Southern District of Texas against SCI and
certain of its present and former officers and directors. Two class action
lawsuits were brought in the Eastern District of Texas and transferred

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<PAGE> 11

to the Southern District of Texas. All of these actions have been consolidated
before this Court under Cause No. H-99-0280; In Re Service Corporation
International.

On June 9, 1999, this Court appointed Rujira Srisythep, Carl Helwig and
Allan Lisse to serve as Lead Plaintiffs. This Court also appointed Roger
Greenberg to serve as Lead Plaintiffs' Counsel. On August 25, 1999, this Court
certified the Lead Plaintiffs as class representatives. The Class Period is from
July 17, 1998 to January 26, 1999.

On September 3,1999, Plaintiffs filed the CCAC, alleging claims against
the SCI Defendants under Sections 11, 12(a)(2), and 15 of the Securities Act of
1933, Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934, and
Rule 10b-5 promulgated by the Securities and Exchange Commission ("SEC").(4)

PLAINTIFFS' ALLEGATIONS

The allegations contained in the CCAC focus entirely on SCI's preneed
funeral business. According to Plaintiffs, the SCI Defendants were aware that
SCI's preneed funeral business was unprofitable but failed to disclose that
information to the public. This elaborate ruse is alleged to have been
perpetrated so that SCI could inflate its stock price in order to maintain high
credit ratings on debt securities and obtain favorable terms in connection with
a stock-for-stock transaction.

- --------

(4) There can be no violation of Section 15 of the Securities Act of
1933 and Section 20(a) of the Securities Exchange Act of 1934 without a primary
violation. See In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1428 n.9 (9th
Cir. 1994), cert. denied, 116 S.Ct. 185 (1995). Because Plaintiffs have not
stated a claim under Section 10(b) or Rule 10b-5, they have no claim under
Sections 20(a) and 20A. Similarly, because Plaintiffs have not stated a claim
under Sections 11 or 12(a)(2), they have no claim under Section 15 either.

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<PAGE> 12

STATEMENT OF FACTS

I. GENERAL BACKGROUND.

SCI is a Texas corporation founded in 1962 by R.L. Waltrip. From a
single funeral home in the Heights, SCI has grown into the largest provider of
death care services and products in the world. See CCAC at Paragraph 19. As of
December 31, 1998, SCI and its subsidiary and affiliate companies operated 3,442
funeral service locations, 433 cemeteries and 191 crematoria located in 20
countries on five continents. Id. SCI performs approximately 11 percent of the
funeral services in North America, 28 percent of the funeral services in France,
14 percent of the funeral services in the United Kingdom and 25 percent of the
funeral services in Australia. See SCI's Form 10-K for the Fiscal Year ended
December 31, 1998, attached as Exhibit A, at p. 2.(5) SCI's common stock is
listed on the New York Stock Exchange.

Historically, SCI's growth has been largely attributable to
acquisitions.(6) During the 1990s alone, SCI added more than 2,800 funeral homes
worldwide. See CCAC at Paragraph 20.

During the Class Period, Waltrip served as SCI's Chief Executive
Officer, Heiligbrodt served as SCI's Chief Operating Officer and Champagne
served as SCI's Chief Financial Officer. Id. at Paragraphs 7-9.

- --------

(5) All exhibits attached to this Motion to Dismiss are referenced in
the CCAC or are public documents filed with the SEC. It is well-settled that the
Court may take judicial notice on a motion to dismiss of those documents which
are referenced in the Complaint or are public documents filed with the SEC. See
In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1405 n.4 (9th Cir. 1996), cert.
denied, 117 S. Ct. 1105 (1997); Lovelace v. Software Spectrum Inc., 78 F.3d
1015, 1018 (5th Cir. 1996).

(6) SCI revolutionized the funeral industry through its innovative
"clustering" concept. SCI believed that by sharing facilities, vehicles,
equipment and personnel, several funeral homes within a given area or "cluster"
could operate more efficiently and lower combined overhead costs, thus achieving
economies of scale unavailable to them as independent operators. See CCAC at
Paragraph 17.

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<PAGE> 13

II. THE PRENEED FUNERAL BUSINESS.

Preneed funeral contracts are arrangements where individuals select and
purchase their funeral arrangements prior to their death, and funeral homes
agree to perform the funeral services in the future. Id. at Paragraph 22. For
SCI, preneed funeral contracts provide an opportunity to protect current market
share and lock-in future market share. Id. at Paragraph 126 ("only 30 percent of
the people who buy preneed through an SCI facility would be an SCI at need
customer"). For consumers, by planning ahead, they avoid forcing family and
friends from having to make costly and difficult funeral decisions during a
period of peak emotional strain.

SCI's SEC filings fully disclose how its preneed funeral business
operates:

SCI sells price guaranteed prearranged funeral contracts
through various programs providing for future funeral services
at prices prevailing when the agreements are signed. Payments
under these contracts are placed in trust accounts (pursuant
to applicable law) or are used to pay premiums on life
insurance policies. Earnings on trust funds and increasing
benefits under insurance funded contracts also increase the
amount of cash to be received upon performance of the funeral.

See SCI's Form 10-K for the Fiscal Year Ended December 31, 1997, attached as
Exhibit B, at p. 16.(7) As SCI purchased additional funeral homes, it acquired
both the obligation to perform preneed funerals and the mortuary trust assets
that eventually are used to pay for the preneed funerals. See CCAC at Paragraph
22.

- --------

(7) SCI's SEC filings also note the accounting treatment given to
prearranged funerals:

Amounts paid by a customer under a prearranged funeral
contract are recognized in funeral revenue at the time the
funeral service is performed. Trust earnings and increasing
insurance benefits are accrued and deferred until the services
are performed, at which times these funds are also recognized
in funeral revenues....

See Exhibit A at p.36.

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<PAGE> 14

SCI's trust funds are invested to "cover future increases in the cost
of providing a price guaranteed funeral service." See Exhibit A at p.18. Recent
years have seen SCI's trust funds perform very well. In fact, SCI's "North
American prearranged trust portfolio earned a return of 18.0% in 1998 and 12.5%
in 1997 (including realized gains)." Id. As of December 31, 1998, the total
value of unperformed prearranged funeral contracts expected to be recognized by
SCI in future periods was $3.75 billion (up from $3.37 billion as of December
31, 1997).(8) Id.

III. THE "PRENEED STUDY."

To determine how to optimize the performance of trust investments, SCI
undertook during 1996 and 1997 a "review of the prearranged trust investment
process which included an asset/liability study." See Exhibit B at p.16. The
CCAC refers to this review as the "Preneed Study." (9) See CCAC at Paragraph 32.

At the time the Preneed Study was initiated, SCI invested its funeral
trust funds approximately 21 percent in equity and 79 percent in fixed income.
See Exhibit C-1 at SCI0009. The Preneed Study looked at five different asset
allocation mixes available to SCI (including the 21 percent equity/79 percent
fixed income asset allocation mix in effect at the time), and found that SCI
could increase the trust rate of return through adoption of a new asset
allocation mix. See Exhibit C-4 at SCI0062-63. In light of this conclusion, SCI,
during 1997, reallocated its trust portfolio to

- --------

(8) The total value of unperformed prearranged funeral contracts are
trust funded or insurance funded and represent the original contract price plus
accumulated trust earnings or increasing insurance benefits. See Exhibit A at
p.36.

(9) True and correct copies of the various documents comprising the
Preneed Study are attached as Exhibits C-1 to C-7. The Preneed Study is
authenticated by the Declaration of Mary Beth Russo, attached as Exhibit C. The
"asset/liability" study referred to in SCI's Form 10-K is part of the Preneed
Study and is attached as Exhibit C-1. For simplicity sake, all pages of the
Preneed Study have been stamped with a "SCI" bates-stamp.

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<PAGE> 15

achieve a "new asset allocation of approximately 65 percent equity and 35
percent fixed income." See Exhibit B at p.16. SCI also implemented "a new
investment program which entail[ed] the consolidation of multiple trustees, the
use of institutional managers with differing investment styles and consolidated
performance monitoring and tracking." Id.

The Preneed Study was fully disclosed in SCI's numerous SEC filings.
See, e.g., Exhibit B at pp. 16-17; SCI's Form 10-K for the Fiscal Year Ended
December 31, 1996, attached as Exhibit D, at p. 17.

IV. ACQUISITION, EXPANSION AND MERGER.

The summer of 1998 was a busy time for SCI. On July 17, 1998, SCI
announced that it had acquired American Memorial Life Insurance Company, the
preneed funeral services division of American Annuity Group, Inc. See CCAC at
Paragraph 73. Also on July 17, 1998, SCI announced that it had formed a new
financial services subsidiary, SCI Financial Services, Inc., to facilitate the
expansion of SCI's preneed businesses and financial activities worldwide. Id. A
week later, SCI announced its second quarter revenues and earnings. Id. at
Paragraph 78. For the three months ended June 30, 1998, SCI reported revenues of
$671.9 million, net income of $90.9 million and diluted earnings per share of
$.35. Id.

On August 6, 1998, SCI announced that it had reached a definitive
agreement with Equity Corporation International ("ECI"), the nation's fourth
largest publicly traded death care company, to acquire ECI in a merger
transaction. Id. at Paragraph 80. In an interesting twist to the merger,
urban-oriented SCI and rural-oriented ECI were part of the same company until
1990 when ECI was spun off and relocated its headquarters to Lufkin, Texas. Id.

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<PAGE> 16

On October 22, 1998, SCI announced its third quarter revenues. Id. at
Paragraph 94. For the three months ended September 30, 1998, SCI reported
revenues of $712.5 million, net income of $83.2 million and earnings per share
of $.32. Id. These results were significantly higher as compared to the same
period for the year before. Id.

V. THE SCI-ECI MERGER CLOSES AND FOURTH QUARTER EARNINGS ARE ANNOUNCED.

The SCI-ECI merger closed on January 19, 1999 with ECI shareholders
receiving .71053 of a share of SCI common stock for each share of ECI common
stock. Id. at Paragraph 69.

On January 26, 1999, SCI issued a press release, announcing that it
expected diluted earnings per share for the fourth quarter of 1998 would be
lower than analysts' expectations (10) See Exhibit E. For the three months ended
December 31, 1998, SCI said it expected diluted earnings per share in the range
of $.22-$.24 as compared to the First Call earnings estimate of $0.42 per share
(11) Id. The stock market reacted swiftly to the news. SCI's stock price dropped
from 34 7/16 to 19 1/2, a

- --------
(10) SCI explained in a press release the reasons for the lower than
expected earnings included:

o Reduced mortality rates in the Company's major
markets resulting in fewer funerals performed at the
Company's locations.

o Cemetery revenues below anticipated levels.

o Increased operating costs and field overhead expenses
associated with necessary investment in newly
acquired operations, information technology systems
and training programs.

o Fewer acquisitions during the quarter than were
previously expected due to higher than anticipated
acquisition pricing.

o Disappointing results from selected foreign
operations.

See Exhibit E.

(11) While SCI did not meet analyst's expectations, it should be noted
that, for the year ended December 31, 1998, SCI still earned $1.31 a share on
net income of $342.1 million. See Exhibit A at p.7.

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<PAGE> 17
single day loss of almost 44 percent. See CCAC at Paragraph 124. Today, SCI's
common stock trades at around $8.(12)

ARGUMENT AND AUTHORITIES

I. THE CONSOLIDATED CLASS ACTION COMPLAINT DOES NOT STATE THE BASIS FOR
PLAINTIFFS' INFORMATION AND BELIEF

The Reform Act adopted several procedural requirements designed to weed
out non-meritorious cases at the pleading stage. It forbids conclusory or
generalized allegations of fraud, and commands that a complaint "shall specify
each statement alleged to have been misleading, the reason or reasons why the
statement is misleading, and, if an allegation regarding the statement or
omission is made on information and belief, the complaint shall state with
particularity all facts on which that belief is formed." 15 U.S.C. Section
78u-4(b)(1) (emphasis added). A complaint that does not meet these criteria
"shall" be terminated at the pleading stage. 15 U.S.C. Section 78u-4(b)(3)(A)
(emphasis added).

The Reform Act's information and belief provision is a significant new
requirement. In this case, Plaintiffs do not profess to have personal knowledge
of their allegations; hence, they are pleading on information and belief. See In
re Silicon Graphics, Inc. Sec. Litig., 970 F. Supp. 746, 763 (N.D. Cal. 1997)
(Silicon Graphics I) (noting that a complaint based on "investigation of
counsel" is the same as a complaint based upon "information and belief"), aff'd,
In re Silicon Graphics, Inc.

- --------

(12) SCI is not the only company in the death care industry to see its
stock tumble in the last year. Operating challenges have severely impacted the
funeral industry as a whole. Loewen Group (NYSE: LWN), the nation's second
largest death care firm, is now mired in Chapter 11 bankruptcy proceedings. Its
stock is currently trading at around 1/2 (52 week high: 15-3/8). Another major
force in the industry, Stewart Enterprises, Inc., (NASDAQ: STEI) recently warned
of lower than expected earnings for the rest of this year and its stock dropped
as well. It is currently trading at around 5-1/32 (52 week high: 24-3/4).

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<PAGE> 18
Graphics, Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999). Plaintiffs must
therefore "state with particularity all facts" that support their belief that
the SCI Defendants committed fraud. See 15 U.S.C. Section 78u-4(b)(1).

The only attempt to comply with the Reform Act -- other than
Plaintiffs' specious reference to the Preneed Study, discussed more fully below
- -- is a boilerplate paragraph entitled "Plaintiff's [sic] Investigation," which
alleges:
Plaintiff's [sic] allegations set forth herein are based on a
thorough investigation conducted by and through their
attorneys. Such investigation included a review and analysis
of:

a. SCI's filings with the SEC both prior to and
throughout the Class Period;

b. the Company's Annual Reports to shareholders both
prior to and during the Class Period;

c. the Company's press releases and other publicly
disseminated statements made by defendants prior to,
during, and following the Class Period;

d. reports, articles, and other written materials
concerning the Company and the subject matter of this
complaint;

e. analyst reports and investor advisory service
reports; and

f. consultations with forensic accountants, former
company employees and other individuals knowledgeable
about the Company's business, operations and
services.

See CCAC at Paragraph 128.

Courts applying the Reform Act have held repeatedly that this type of
conclusory pleading does not comply with the statutory requirement to "state
with particularity all facts" that form plaintiffs' belief that the defendants
committed fraud. See 15 U.S.C. Section 78u-4(b)(1)(B). Indeed, complaints with
virtually identical "Basis of Allegations" paragraphs have been routinely
dismissed. See, e.g., Silicon Graphics II, 183 F.3d 985 (rejecting a rote basis
of allegations paragraph, stating that "a plaintiff must provide, in great
detail, all the relevant facts forming the basis of her belief");

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<PAGE> 19

Novak v. Kasaks, 997 F. Supp. 425, 431 (S.D.N.Y. 1998) (virtually identical
"Basis of Allegations" paragraph coupled with allegations of negative internal
reports insufficient).

Plaintiffs' assertion that their allegations are based in part on
unspecified "consultations with forensic accountants, former company employees
and other individuals knowledgeable about the Company's business, operations and
services" (CCAC at Paragraph 128) is especially flawed. "If, in fact, these
unnamed 'consultants' provided information forming the basis for these
allegations, then the consultants should have been named in the complaint."
Novak, 997 F. Supp. at 431 (dismissing complaint); see also Silicon Graphics I,
970 F. Supp. at 763 (Reform Act legislative history suggests plaintiffs must
identify "confidential informants, employees, competitors, Government employees,
members of the media, and others who have provided information leading to the
filing of the case"). Plaintiffs do not identify any single discussion with
anyone upon which they formed their supposed "belief." There are no facts in the
CCAC that would suggest that Plaintiffs' allegations are derived from anything
more than their counsel's surmise and speculation.(13)

- --------

(13) Plaintiffs cite an August 12, 1999 article from The Death Care
Business Advisor that does not even purport to quote SCI executives. Under the
Reform Act, such an article does not support a claim for fraud. Ferber v.
Travelers Corp., 785 F. Supp. 1101, 1108 (D. Conn. 1991) ("The strictures of
Rule 9(b) are not satisfied by indirect quotes taken from a newspaper reporter's
notebook"); Haft v. Eastland Fin. Corp., 772 F. Supp. 1315, 1319 (D.R.I. 1991)
(news article "fail[ed] to provide the underlying factual support required by
Rule 9(b)" because "[i]t is not a direct quote from the defendants, it is merely
an analysts' opinion ").

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<PAGE> 20

II. PLAINTIFFS FAIL TO PLEAD FRAUD WITH PARTICULARITY

A. PLAINTIFFS DO NOT PLEAD SPECIFIC FACTS SHOWING THAT THE SCI
DEFENDANTS' STATEMENTS WERE FALSE WHEN MADE.

Despite its length and complexity, the CCAC does not satisfy the Reform
Act's rigorous pleading standard.(14) The CCAC contains no facts detailing when,
where, and how the SCI Defendants knew the challenged statements were false when
made (15) "Apparently, plaintiffs believe that the sheer volume of their
allegations gives credibility to their claims." In re Oak Tech. Sec. Litig.,
1997 WL 448168, at *4 (N.D. Cal. 1997).

Plaintiffs' allegations are based on the conclusory assumption that at
the time statements were made concerning SCI's financial condition and preneed
funeral business, the opposite of what was said was true. This type of
conclusory, fraud-by-hindsight pleading was routinely rejected even under the
less rigorous pre-Reform Act pleading standard:

Plaintiff's conclusory attempt to plead as "facts" the
converse of the positive statements made by defendants does
not satisfy [the] requirement that a plaintiff identify
particular facts indicating the falsity of defendants'
statements. Essentially, plaintiff points to a positive
statement by defendants,

- --------

(14) As an aside, the CCAC also does not satisfy the requirements of
Fed. R. Civ. P. 9(b). See Melder v. Morris, 27 F.3d 1097 (5th Cir. 1994).

(15) These standards apply equally to securities fraud claims brought
under Sections 10(b) and 20A of the 1934 Act and Sections 11 and 12(2) of the
1933 Act where, as here, the gravamen of each claim is fraud. See, e.g., In re
Stac Elecs. Sec. Litig., 89 F.3d at 1404-05 (holding that "the particularity
requirements of Rule 9(b) apply to claims brought under Section 11 when, as
here, they are grounded in fraud"); Melder, 27 F.3d at 1100 n.6 (holding that
Rule 9(b) applies to 1933 Act claims when they are grounded in fraud rather than
negligence, and applying the rule to Section 11 and 12(2) claims). Here,
Plaintiffs' Section 11 and 12(2) claims sound in fraud. Plaintiffs' effort to
distinguish between negligence and fraud are not successful because Plaintiffs'
Section 11 and 12(2) claims are based on the same predicate facts. See In re
Stratosphere Corp. Sec. Litig., 1997 WL 581032 at *7-8 (D.Nev. 1997) (holding
that "[p]laintiffs cannot avoid the more stringent requirements of Rule 9(b) by
merely inserting boilerplate language into their Complaint stating that claims
are based in negligence, not fraud, or try to plead both fraud and negligence by
stating Defendants 'knew or should have known' of the alleged falsity").

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<PAGE> 21

such as, "We are very pleased with growth through the second
quarter and look forward to the opportunities and challenges
ahead," and, in a conclusory manner, states the opposite, such
as "the Company expected a material decline in its
profitability." These are not specific "facts" indicating that
the first statement was false; these are simply allegations
that the opposite was true without any supporting facts or
circumstances. Plaintiff does not specify dates, places,
amounts, transactions, etc. Plaintiff does not point to any
inconsistent contemporaneous statements or information (such
as internal reports) which were made by or available to
defendants at the time of the positive statements which would
suggest that the positive statements were false or misleading.
. . . Because of this, plaintiff's allegations must be
dismissed.

Leonard v. Netframe Sys., Inc., 1995 WL 798923, at *6 (N.D. Cal. 1995)
(citations omitted).

Not surprisingly,"post-Reform Act cases have emphasized [that] without
references to specific facts demonstrating that the statements at issue were
false or misleading when made, allegations regarding adverse information
supposedly known to defendants are merely 'speculation and conclusions drawn
from hindsight.'" Wenger v. Lumisys, Inc., 2 F. Supp.2d 1231, 1250 (N.D. Cal.
1998) (citation omitted). See also Zeid v. Kimberley, 930 F. Supp. 431, 436
(N.D. Cal. 1996) (conclusory allegations insufficient to support securities
fraud claim where complaint did not plead contemporaneous facts tending to show
that the allegedly misleading statements were false when made); In re Oak Tech
Sec. Litig., 1997 WL 448168, at *5 (insufficient for plaintiffs to merely allege
that defendants made certain representations even though they were aware of
contrary adverse information; plaintiffs must provide supporting contemporaneous
factual allegations, including allegations of when defendants learned of adverse
information); McNamara v. Bre-X Minerals Ltd., 1999 WL 507441, at *20 (E.D. Tex.
1999) (same).

Here, Plaintiffs allege that the SCI Defendants "knew" that the
independent funeral homes acquired by SCI had failed to actively manage their
funeral trust assets (CCAC at Paragraph 44); "knew" that SCI had failed to
actively invest its existing mortuary trust assets (Paragraph 74); "knew" that
funeral trust

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<PAGE> 22

funds were inadequately funded to cover the cost of providing a funeral
(Paragraph 91); and "knew" that SCI's preneed funeral business was a drain on
SCI's profitability. (Paragraphs 12, 44).

These conclusory allegations are not sufficient to meet Plaintiffs'
pleading burden. The CCAC does not plead what specific information the SCI
Defendants knew, how they knew it, and why it rendered their statements false.
Plaintiffs have failed to point to particular contemporaneous, inconsistent
statements by the SCI Defendants or to show specific information available to
the SCI Defendants revealed something different than what the SCI Defendants
stated or failed to state. Conclusory pleadings that "'adverse material facts
were in existence or known by Defendants at the time the allegedly misleading
statements were made" are not enough. In re Oak Tech. Sec. Litig., 1997 WL
448168, at *4.

In Novak, 997 F. Supp. 425, the court dismissed plaintiffs' securities
fraud action for failing to plead "facts underlying the complaint's allegations
as to the information that was available to the individual defendants" or to
"direct the Court to where those facts might be found." Id. at 431. Plaintiffs'
allegations here, like those in the Novak case, are based on unnamed consultants
and other unspecified sources, and do not identify any basis for concluding that
any SCI Defendant knew of any adverse fact concerning SCI's preneed funeral
business.

Throughout the CCAC's 77 pages, Plaintiffs point to a number of
statements made by the SCI Defendants and claim, without providing any factual
support, that the opposite of what the SCI Defendants said was true. For
example:

o SCI said in public filings that preneed funeral
contracts are sold at prices prevailing when the
agreements are signed. See CCAC at Paragraph 88.

o Plaintiffs claim this is not true.
Id. at Paragraph 89.

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<PAGE> 23

o SCI said that its financial services subsidiary would
coordinate the investment of all funeral trust
assets. Id. at Paragraph 73.

o Plaintiffs blithely assert this is
not true. Id. at Paragraph 74.

o SCI coordinated investments of all of the company's
funeral trust funds. Id. at Paragraph 94.

o Plaintiffs claim this is not the
case. Id. at Paragraph 95.

o SCI said that the operational systems of SCI and ECI
were similar. Id. at Paragraph 82.

o Plaintiffs claim this is not true.
Id. at Paragraph 83.

o SCI said in 1997 that it had implemented a new
investment program for its funeral trust funds
targeting "a real return in excess of the amount
necessary to cover future increases in the cost of
providing a price guaranteed funeral." Id. at
Paragraph 90.

o Plaintiffs allege this is not true.
Id. at Paragraph 91.

o SCI said it had purchased American Memorial Life
Insurance Company to facilitate the expansion of SCI
pre-need business and financial activities worldwide.
Id. at Paragraph 92.

o Plaintiffs say this is not true.
Id. at Paragraph 93.

"[T]he conclusory allegation that the opposite of a statement in a press release
is true, without further factual elaboration, is insufficient." In re Health
Mgmt. Sys. Sec. Litig., 1998 WL 283286, at * 6 (S.D.N.Y. 1998). Without specific
factual detail, this type of pleading certainly does not satisfy the Reform Act.

Ronconi v. Larkin, 1998 WL 230987 (N.D. Cal. 1998) is directly on
point. In that case, the court dismissed a securities fraud claim based upon
purported misstatements made in connection with an announced merger. In an
observation applicable to this case, the court noted that "plaintiffs'
allegations of falsity really amount to the following: defendants said X. X was
false. X was false

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<PAGE> 24

because the opposite of X was true. Or X was false because X did not later come
true." Id. at *4. The court continued: "While such a syllogism might be a
sufficient statement of falsity in ordinary expression, it is not adequate under
the standards of law for pleading violations of the Securities Exchange Act of
1934." Id. The same is the case here. Plaintiffs' failure to allege a factual
basis for their claims requires a dismissal. This is not a technical defect.
This issue prompted securities litigation reform legislation: plaintiffs are no
longer allowed to base their claims on guesswork, with the "faint hope" that
discovery might prove the guess correct.

B. PLAINTIFFS' REFERENCES TO THE PRENEED STUDY ARE INSUFFICIENT
TO SHOW THAT THE SCI DEFENDANTS' STATEMENTS WERE FALSE WHEN
MADE.

Plaintiffs attempt to satisfy the Reform Act's strict pleading
requirements by alleging that the SCI Defendants were aware through the Preneed
Study that SCI's preneed funeral business was unprofitable. Specifically,
Plaintiffs claim that the Preneed Study confirmed that:

o a "significant number of independent funeral homes
acquired by SCI had failed to actively manage their
mortuary trust assets and, as a result, a material
number of SCI's funeral services had been and would
continue to be, performed at significant losses to
SCI, severely cutting into SCI's profit margins."
CCAC at Paragraph 44. See also CCAC at Paragraphs 32,
35, 74(a); and

o "SCI's trust funds had not been managed to grow at a
rate equal to or greater than the increase in the
cost of funeral services." CCAC at Paragraph 53
(emphasis included in original).

The problem with Plaintiffs' reliance on the Preneed Study is twofold. FIRST,
THE STATEMENTS IN THE CCAC ABOUT THE ALLEGED CONTENTS OF THE PRENEED STUDY ARE
OUTRIGHT FALSEHOODS.(16) The Preneed

- --------

(16) As in Melder, 27 F.3d at 1101 fn. 8, "if plaintiffs' counsel had
been bound under the same strictures concerning veracity as were the
[defendants] under governing securities law standards, their complaint would
have to be labeled misleading."

-17-
<PAGE> 25

Study simply does not in any respect say what Plaintiffs claim it says. By way
of example, a thorough review of the Preneed Study will not find one sentence,
chart or graph supporting Plaintiffs' baseless accusations that a "significant
number of independent funeral homes acquired by SCI had failed to actively
manage their mortuary trust assets" or that "SCI's trust funds had not been
managed to grow at a rate equal to or greater than the increase in the cost of
funeral services."

SECOND, THE PRENEED STUDY ACTUALLY REBUTS EACH OF PLAINTIFFS'
UNSUBSTANTIATED ALLEGATIONS, COMPLETELY UNDERMINING THE CREDIBILITY OF THE
CLAIMS RAISED IN THE CCAC. For example, contrary to Plaintiffs' bald assertion
that the Preneed Study demonstrates that "SCI's trust funds had not been managed
to grow at a rate equal to or greater than the increase in the cost of funeral
services" (CCAC at Paragraph 53), the Preneed Study shows that SCI's return on
mortuary trust assets has considerably outpaced inflation. The Preneed Study
indicated that the "current actual" return of SCI's mortuary trust assets was 2
percent over inflation. See Exhibit C-4 at SCI0064. The Preneed Study also
estimated that a 65 percent equity/35 percent fixed income asset allocation mix
would, on an annual basis, return more than five percent over inflation.(17) Id.
In 1997, SCI selected the 65 percent equity/35 percent fixed income asset
allocation. The fully disclosed results have been even better than expected, as
SCI's "North American prearranged trust portfolio earned a return of 18.0% in
1998 and 12.5 % in 1997 (including realized gains)." See Exhibit A at p.18.

Far from showing that "a material number of SCI's funeral services had
been and would continue to be, performed at significant losses," the Preneed
Study actually demonstrates that the preneed funeral business is profitable.
Indeed, the asset/liability study (which was part of the

- --------

(17) The 65 percent equity/35 percent fixed income asset allocation mix
was mix #2 in the asset/liability study. See Exhibit C-1 at SCI0009.

-18-
<PAGE> 26

Preneed Study) conducted by Coopers & Lybrand, L.L.P. looked at three states -
Florida, Texas and California -- and established that the preneed funeral
contracts in those states alone had a present value of more than $210 million in
company net income. See Exhibit C-1 at SCI0020. The Preneed Study also found
that "The Five Asset Allocation Mixes Reviewed All Resulted in Significant Net
Cash Flow to SCI" and "Given Any Reasonable Time Frame (Longer than One Year),
The More Aggressive Asset Mixes Provide Great Upside Potential With No
Measurable Downside." See Exhibit C-4 at SCI0063.

The notion that the Preneed Study "confirmed" the unprofitability of
SCI's preneed funeral business is belied by the clear and unequivocal charts and
graphs of the Preneed Financing Option Report, which was also prepared by
Coopers & Lybrand, L.L.P. and is part of the Preneed Study. See Exhibit C-3.
This Report looked at the various opportunities available to fund preneed
funerals such as trust funds, insurance and bonding. Id. This model forecasted
cash flows forward for 40 years and discounted them back to the present using
present value techniques. Id. At-need funerals were forecast in the same way in
this model as a comparison point. Id. The states of Florida, Texas, California
and Missouri were modeled. Id. In all four states, profits generated by preneed
contracts were more profitable than the at-need contracts, even using very
conservative inflation assumptions. Id. at SCI0040, SCI0051, SCI0054,
SCI0056-57.

Not surprisingly, the Preneed Study also demonstrates that many of the
other allegations raised by Plaintiffs regarding SCI's preneed funeral business
are without any merit whatsoever. For example:

o While Plaintiffs claim that "the vast majority of the
preneed assets that SCI had previously acquired in
connection with its purchase of independent funeral
homes were not, and would not be, invested in
accordance with the terms of the "new investment
program" (CCAC

-19-
<PAGE> 27

at Paragraph 36, 44, 45), the Preneed Study
demonstrates this is not the case. The truth is that
the "new investment program" included all North
American funeral trust assets, whether acquired in a
purchase or not. SCI had established procedures in
place to quickly move the trust funds it acquired to
SCI's preferred trustees for investment in accordance
with the new asset allocation mix. See Exhibit C-7
(When SCI acquires a funeral home, it takes steps to
"amend the trust agreement or to have the trust adopt
the master agreement for that state, assignment of an
account number, verification of assets, and
transferring of the trust to a new trustee"); Id.
("Once the [trust] assets are moved to the new
trustee...the Corporate Investment Department will
forward a package reflecting the asset allocation
that is designated for the trust funds they hold").
(18)

o While Plaintiffs claim that SCI did not have any
program to manage the assets associated with preneed
funeral trusts prior to the creation of SCI Financial
Services, Inc. in 1998 (See CCAC at Paragraph 95),
the Preneed Study shows this is not the case. The
Preneed Study expressly states that "[a]lthough SCI
previously had an overall asset allocation policy for
these trusts, the new allocation has been developed
based upon on [sic] a more scientific, analytical
approach, focused on meeting SCI's financial
objectives." See Exhibit C-5 at SCI0070 (emphasis
added).

o While Plaintiffs claim that SCI's "backlog of
prearranged funeral contracts included a material
number of contracts that were not sold at prices
prevailing when the agreements were signed" (CCAC at
P. 89), the Preneed Study establishes the falsity of
Plaintiffs' claim. See Exhibit C-5 at SCI0068 ("At
the time the [preneed] contract is signed, the
contract's goods and services are priced at the
current retail price").

o While Plaintiffs claim that SCI failed to disclose
during the Class Period that it had not
"establish[ed] any means of actively managing the
mortuary trust assets that would eventually be used
to pay for these acquired preneed funeral contracts"
(CCAC at Paragraph 30), this is

- --------

(18) SCI's Form 10-Ks further demonstrate that SCI moved a considerable
amount of the trust assets it acquired to its new investment program. In 1996,
the year before SCI's new investment program went into effect, $276 million (or
31.8 percent) of the $866 million in funeral trust assets were in cash
equivalents. By the end of 1997, after a year of SCI's new investment program,
only $134 million (or 12.6 percent) of the $1.070 billion in funeral trust
assets were in cash equivalents. See Exhibit B at p. 30.

-20-
<PAGE> 28

simply not true. As noted above, in 1997 SCI
implemented a "new investment program which entailed
the consolidation of multiple trustees, the use of
institutional managers with differing investment
styles and consolidated performance monitoring and
tracking." See Exhibit B at p. 16. The Preneed Study
details the components of this "new investment
program" in great detail. See Exhibit C-5 at
SCI0066-71.

A district court's central task in evaluating a motion to dismiss is to
determine whether the complaint alleges facts sufficient to state a cause of
action. In conducting that inquiry, the court need not accept a complaint's
"bald assertions" or "unsupportable conclusions." See Snowden v. Hughes, 321
U.S. 1, 10 (1944). In this case, the Preneed Study speaks for itself. Plaintiffs
should not be permitted to base a complaint solely on disingenuous and false
references to the Preneed Study.

C. ALLEGATIONS BASED ON INTERNAL CORPORATE DOCUMENTS ARE
INSUFFICIENT TO SATISFY THE REFORM ACT.

Aside from the Preneed Study, the Plaintiffs allege no facts for their
claim that SCI encountered troubles in its preneed funeral business.(19)
Plaintiffs allege only that SCI's executives had access to unspecified internal
adverse information showing the "true" state of affairs. See CCAC at Paragraph
12 (the SCI Defendants were aware of true facts through "internal corporate
documents," "conversations and communications with other corporate officers and
employees," and "attendance at management and/or meetings of the Board and
committees"). Courts across the United States have expressly rejected
allegations of fraud based on unspecified allegations of negative "internal

- --------

(19) Plaintiffs claim that the Individual Defendants, as a result of
their high-ranking positions with SCI, had access to "undisclosed adverse
information." This is not sufficient to satisfy the Reform Act's pleading
standards. See, e.g, In re Advanta Corp. Sec. Litig., 1998 WL 387595, at *7
(E.D. Pa. 1998), aff'd, 180 F.3d 525 (3d Cir. 1999) (allegations that
defendants' positions within the company rendered them knowledgeable about
adverse conditions is an "unsupported conclusion;" plaintiffs must point "to
specific reports, circulated among defendants, which contained the adverse
information defendants are charged with knowing").

-21-
<PAGE> 29

company documents." See, e.g., Wenger, 2 F. Supp.2d at 1250-51 (rejecting
unsubstantiated allegation that defendants were aware of the "true facts" and
had access to "internal corporate documents"); Zeid, 930 F. Supp. at 436
(without any reference to particular corporate documents or other information,
the Court can only conclude that Plaintiffs' allegations are based purely on
speculation and conclusions drawn from hindsight). If the mere allegation that
internal reports were "negative" were sufficient, any public company could be
sued for fraud whenever its stock price dropped -- precisely what the Reform Act
was intended to prevent.(20)

Silicon Graphics II is instructive. In that case, plaintiffs alleged
that the company ("SGI") and six of its top officers made a series of misleading
statements, or withheld information, to inflate the value of SGI's stock while
they engaged in massive insider trading, realizing nearly $14 million. See 183
F.3d at 982. Plaintiffs alleged that internal memorandum showed: (1) the
company's product was not shipping in volume; (2) sales were slow in North
America and Europe; and (3) SGI would not meet its revenue and growth targets.
Id. at 984. Plaintiffs contended that these reports notified officers that SGI
was suffering, but the officers did not disclose the information to the public.
Id. Rather, according to the plaintiffs' allegations, the officers entered into
a "conspiracy of silence" whereby they agreed to downplay the seriousness of
SGI's problems while they dumped their SGI stock. Id.

The Ninth Circuit ruled that where plaintiffs rely on such allegations,
they must set forth "the sources of [their] information with respect to the
[negative internal] reports," how plaintiffs "learned of the report[s]," "who
drafted them," "which officers received them," and "an adequate description

- --------

(20) In any event, the Individual Defendants' access to the Preneed
Study gave them no reason to believe SCI had encountered troubles of the sort
asserted by the Plaintiffs in SCI's preneed funeral business.

-22-
<PAGE> 30

of their contents" which should include "specifics." Id. at 985. As the Reform
Act requires, a plaintiff must state "with particularity all facts on which
[her] belief is formed." Id.

The CCAC lacks any specific factual allegations. As in Silicon Graphics
II, Plaintiffs here rely on the Individual Defendants' positions and allege
participation in the day-to-day management and overall direction of the Company
allowed them access to "undisclosed adverse information." See CCAC at Paragraph
12. Without such "corroborating details," the Court simply "cannot determine
whether there is any basis for alleging that the [Individual Defendants] knew
that their statements were false at the time they were made." Silicon Graphics
II, 183 F.3d at 985.

Plaintiffs' cursory allegation that the Individual Defendants had
access to "undisclosed confidential information" through reports generated by
SCI's Falcon computer system and "Call In Reports" is not sufficient. See CCAC
at Paragraph 12. The problem with the CCAC is that it fails to provide details
such as when these reports were allegedly generated, who prepared them, to whom
they were directed, the sources from which Plaintiffs obtained this information
or the contents of such reports. See Silicon Graphics II, 183 F.3d at 985.(21)
In short, the CCAC does not comply with the Reform Act. It should therefore be
dismissed.

III. MANY OF THE ALLEGED MISSTATEMENTS ARE NOT ACTIONABLE AS A MATTER OF LAW

A. GENERAL STATEMENTS OF OPTIMISM DO NOT SUPPORT A FRAUD CLAIM.

The CCAC challenges numerous inactionable, vague statements of puffery
and general optimism, a natural consequence of Plaintiffs' decision to include
in the CCAC virtually every public statement SCI made during the Class Period.
Even before the Reform Act, courts consistently held

- --------

(21) Moreover, Plaintiffs' claims are contradicted by the very document
which they reference -- The Preneed Study. See Exhibit C.

-23-
<PAGE> 31

that general statements of corporate optimism cannot support liability for
securities fraud. Raab v. General Physics Corp., 4 F.3d 286, 290 (4th Cir. 1993)
(vague statements of opinion are not actionable under the federal securities
laws because they are considered immaterial and discounted by the market as mere
"puffing"); In re VeriFone Sec. Litig., 784 F. Supp. 1471, 1481 (N.D. Cal. 1992)
("investors . . . know how to devalue the optimism of corporate executives"),
aff'd, 11 F.3d 865 (9th Cir. 1993).

As would be expected, SCI made a number of general statements
concerning the growth of its business, its acquisition strategy and its
potential for profitability in the future. Here are a few examples of the types
of vaguely optimistic statements Plaintiffs challenge.

o "The acquisition [of American Memorial Life Insurance
Company] is a way for [SCI] to expand its profit
base." See CCAC at Paragraph 75.

o The acquisition of American Memorial Life Insurance
Company "will allow SCI to better compete for and
serve customers." Id. at Paragraph 84.

o "We're adding another dimension to make sure we're
picking up all the value we can for our
shareholders." Id. at Paragraph 75.

o "The fundamentals of the funeral industry remain
strong". Id. at Paragraph 78.

o "We've long been the leaders in the prearranged
funeral business." Id. at Paragraph 84.

o SCI "used its strategy of acquisitions...[to] add
value to SCI today and long term." Id. at Paragraph
96.

These statements are not actionable because they cannot reasonably be relied
upon by an investor making an investment decision. See Grossman v. Novell, Inc.,
120 F.3d 1112, 1121-22 (10th Cir. 1997) (dismissing as puffing a statement that
the merger presented a "compelling set of opportunities"); In re Mobile
Telecommunication Techs. Corp. Sec. Litig., 915 F. Supp. 828, 834 (S.D. Miss.
1995) (dismissing as inactionable the statement that: "[w]e are highly
optimistic that we

-24-
<PAGE> 32

will be profitable in 1993 as demand for nationwide and international wireless
messaging services continues to grow both in the U.S. and in the international
countries we serve"); In re Caere Corp. Sec. Litig., 837 F. Supp. 1054, 1057-58
(N.D. Cal. 1993) (dismissing as inactionable the statement that the company was
"well-positioned for growth").

Plaintiffs further attack certain public statements that are vague
expressions of optimism about the merger between SCI and ECI. Specifically,
Plaintiffs seek to hold the SCI Defendants liable for stating that the merger
"should further enhance SCI's leading domestic market position" (CCAC at
Paragraphs 80, 82), and that the merger "will create a combined North American
operation with unparalleled resources" (CCAC at Paragraphs 80, 82). These
statements are also not actionable because no reasonable investor would rely
upon such obvious "puffery."

B. STATEMENTS OF HISTORICAL FACT DO NOT SUPPORT A FRAUD CLAIM.

Of the statements made by the SCI Defendants, a number report
historical facts regarding SCI's business, such as the results of the second and
third quarters of 1998. See CCAC at Paragraphs 78, 86, 96. However, Plaintiffs
do not allege that these results were false or inaccurate. Moreover, the
announcement of past financial results cannot in itself imply that such results
will continue. See, e.g., In re Convergent Techs, Sec, Litig., 948 F.2d 507,
512-13 (9th Cir.1991); Wenger, 2 F. Supp. 2d at 1245 ("disclosure of accurate
historical data does not become misleading even if less favorable results might
be predictable by the company in the future"). Thus, none of these statements
are actionable on the grounds they were false or misleading. See, e.g., In re
Cypress Semiconductor Sec. Litig., 891 F. Supp. 1369, 1379 (N.D. Cal. 1995)
(accurate statements of historical fact are not actionable).

-25-
<PAGE> 33

C. THE SCI DEFENDANTS' FORWARD-LOOKING STATEMENTS ARE PROTECTED
BY THE SAFE HARBOR.

The Reform Act's safe harbor provides that a person "shall not be
liable" for any forward-looking statement accompanied by a "meaningful
cautionary statement identifying important factors that could cause actual
results to differ materially from those in the forward-looking statement...." 15
U.S.C. Section 78u-5(c)(1)(A)(i). This is true even if the cautionary statement
fails "to include the particular factor that ultimately causes the
forward-looking statement not to come true . . . ." H.R. Conf. Rep. No. 104-369,
at 44.

Plaintiffs have purposefully tried to mischaracterize forward-looking
statements as statements of historical fact by alleging that the statements were
made with knowledge of their falsity. This disingenuous effort to avoid the safe
harbor should be rejected. Statements concerning a strategy yet to be fully
implemented and yet to be completed are, by definition, forward looking in
nature. Harris v. Ivax Corp., 998 F. Supp. 1449, 1453 (S.D. Fla. 1998) (although
couched in present tense, allegations regarding business conditions were forward
looking because "[r]epresentations regarding the state of a business' position
in a changing market or the soundness of its growth strategies are necessarily
forward-looking"), aff'd, 182 F.3d 799 (11th Cir. 1999).

Plaintiffs assert that the SCI Defendants failed to warn investors of
various factors -- including an allegedly unprofitable preneed funeral business
- - that could have an adverse impact on earnings. However, SCI's August 6, 1998
and October 22, 1998 press releases, both of which Plaintiffs assert contain
misleading statements, are accompanied by cautionary statements and specific
risk factor disclosures. See Exhibits F and G.(22) Plaintiffs also complain that
statements

- -----------------
(22) SCI's cautionary statement under the Reform Act provides as
follows:

(continued...)

-26-
<PAGE> 34

contained in the Forms 10-Q filed by SCI on August 14, 1998 and November 16,
1998 misled investors about the expected growth in revenues and profitability of
SCI. The Forms 10-Q, however, also contained safe harbor language. See Exhibit H
at p.21 and Exhibit I at pp.22-23. In light of these ample risk disclosures, the
Reform Act's safe harbor provision renders it impossible for Plaintiffs to claim
that SCI's forward looking statements were misleading.

IV. PLAINTIFFS DO NOT ADEQUATELY ALLEGE SCIENTER

"Scienter is a crucial element" in claims of securities fraud. Tuchman
v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir. 1994).(23) This is so
"because not every misstatement or omission in a corporation's disclosures gives
rise to a Rule 10b-5 claim." Id. Only when a plaintiff can show that the
defendant acted with "a mental state embracing intent to deceive, manipulate, or
defraud" does an alleged misstatement or omission raise a legitimate claim of
securities fraud. Id. (quoting Ernst v. Hockfelder, 425 U.S. 185, 193 n.12
(1976)).

- --------

(22) (...continued)

Certain matters discussed in this release are forward-looking
statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those
projected. Such risks and uncertainties include, but are not
limited to, the following: The company maintaining its high
level of acquisition activity and achieving expected
performance from these acquired businesses, and the ability to
manage internal growth of existing operations; the economy,
competition and death rates in the company's geographic areas
of operations; and sufficient availability of capital
resources to fund future acquisitions and planned levels of
capital expenditures which will depend on prevailing market
conditions, interest rates, and the financial condition of the
company.

See Exhibits F and G (emphasis added).

(23) To establish a securities fraud claim under Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5, a plaintiff must plead and prove
a (1) material misstatement or omission (2) of material fact (3) made with
scienter (4) on which the plaintiff relied (5) that proximately caused the
plaintiff's injury. Tuchman, 14 F.3d. at 1067. Scienter is not an element of
Plaintiffs' Section 11 and 12(a)(2) claims.

-27-
<PAGE> 35

Plaintiffs attempt to satisfy the heightened scienter requirement of
the Reform Act in two ways. First, Plaintiffs contend that the SCI Defendants
made false and misleading statements "to obtain and maintain favorable ratings
on the debt securities that SCI had registered with the SEC but not yet issued."
See CCAC at Paragraph 113. Second, Plaintiffs allege that the SCI Defendants
made misstatements to facilitate the consummation of the SCI-ECI merger. See
CCAC at Paragraphs 110, 112. As shown below, neither of these scienter
allegations pass muster.

A. UNDER THE REFORM ACT, PLAINTIFFS MUST ALLEGE SPECIFIC FACTS
CREATING A STRONG INFERENCE OF SCIENTER THAT THE SCI
DEFENDANTS ACTED KNOWINGLY OR RECKLESSLY, NOT JUST THAT THEY
HAD A MOTIVE AND OPPORTUNITY TO COMMIT FRAUD.

Before the Reform Act, the courts used a range of standards governing
the degree of specificity needed to plead a defendant's state of mind for a
securities fraud claim. Some circuits found a general allegation of scienter
sufficient under Fed. R. Civ. P. 9(b), e.g., In re Glenfed, Inc. Sec. Litig., 42
F.3d 1541, 1545 (9th Cir. 1994), while others, including the Fifth Circuit, held
that plaintiffs "must set forth specific facts to support an inference of
fraud." Lovelace, 78 F.3d at 1018. The Second Circuit employed a standard
requiring plaintiffs to plead specific facts that would support "a strong
inference of fraud." Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d
Cir. 1994). Under this "strong inference" standard, a plaintiff had to allege
specific facts that would either "constitute strong circumstantial evidence of
conscious misbehavior or recklessness" or "show that defendants had both motive
and opportunity to commit fraud." Id.

In enacting the Reform Act, Congress sought to reduce the volume of
abusive federal securities litigation by erecting procedural barriers to prevent
plaintiffs from asserting baseless securities fraud claims. See H.R. Conf. Rep.
104-369, at 31. An important component of the Reform Act's new standard is its
heightened pleading requirement for scienter. Under this heightened

-28-
<PAGE> 36

standard, plaintiffs must "state with particularity facts giving rise to a
strong inference that the defendant acted with the required state of mind," and
do so "with respect to each act or omission alleged." 15 U.S.C. Section
78u-4(b)(2) (emphasis added). This new standard augments and reinforces the
Fifth Circuit's existing mandate under Fed. R. Civ. P. 9(b) that the
circumstances allegedly constituting fraud must be spelled out in great detail.
See Melder, 27 F.3d at 1100 (setting forth Rule 9(b) requirements for pleading
securities fraud).

The Reform Act's new standard no longer permits plaintiffs to plead
scienter by merely alleging facts showing defendants' "motive and opportunity"
to commit fraud. See, e.g., Silicon Graphics II, 183 F.3d at 977-79. Congress
soundly rejected Second Circuit case law that allegations of "motive and
opportunity" could suffice to provide the required strong inference of
scienter.(24) In fact, the Conference Report, which is the authoritative source
for finding the Legislature's intent, expressly stated that Congress declined to
adopt the "motive and opportunity" test:

The Conference Committee language is based in part on the
pleading standard of the Second Circuit. . . .Regarded as the
most stringent pleading standard, the Second Circuit
requirement is that the plaintiff state facts with
particularity, and that these facts, in turn, must give rise
to a "strong inference" of the defendant's fraudulent intent.
Because the Conference Committee intends to strengthen
existing pleading requirements, it does not intend to codify
the Second Circuit's case law interpreting this pleading
standard. FN 23/

FN 23/ For this reason, the Conference Report chose not to
include in the pleading standard certain language relating to
motive, opportunity, or recklessness.

- --------

(24) The legislative history of this provision of the Reform Act is set
out in great detail in In re Paracelsus Corp. Sec. Litig., 1998 WL 1108373, at
*5-6 (S.D. Tex. 1998) (Werelin, J.).

-29-
<PAGE> 37

H.R. Conf. Rep. 104-369, at 41 n.23. See also S. Rep. 104-98, at 15 ("The
Committee does not intend to codify the Second Circuit's case law interpreting
[the strong inference] pleading standard, although courts may find this body of
law instructive").

Congress also rejected an amendment that would have codified the Second
Circuit standard, making "motive and opportunity" part of the statutory
language. See H.R. Conf. Rep. 104-369, at 41; 141 Cong. Rec. S9199, S9201.
Several courts have considered Congress' rejection of such proposed statutory
language to be persuasive evidence that Congress did not intend to leave alive
the "motive and opportunity" test. See, e.g., Friedberg v. Discreet Logic, Inc.,
959 F. Supp. 42, 48-9 (D.Mass. 1997). Indeed, "[f]ew principles of statutory
construction are more compelling than the proposition that Congress does not
intend sub silentio to enact statutory language that it has earlier discarded in
favor of other language." INS v. Cardoza-Fonseca, 480 U.S. 421, 442-43 (1987).
See also Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 200 (1974) (by
expressly declining to adopt proposed statutory language, Congress' action
"strongly militates against a judgment that Congress intended [the] result that
it expressly declined to enact").

"Congress further provided very strong evidence of its intent to go
beyond the Second Circuit standard when it overrode President Clinton's veto of
the [Reform Act]." Silicon Graphics II, 183 F.3d 979. President Clinton vetoed
the Reform Act, in part, because "the conferees make crystal clear...their
intent to raise the [pleading] standard even beyond [the Second Circuit] level,"
and "the conferees meant to erect a higher barrier to bringing suit than any now
existing." H.R. Doc. No. 104-150 (1995). By overriding the President's veto and
enacting this "higher barrier," Congress provided powerful evidence to elevate
the pleading standard to a level beyond that in the Second Circuit.

-30-
<PAGE> 38

Accordingly, a number of courts addressing the issue have held that
following passage of the Reform Act, allegations of motive and opportunity,
without more, will no longer be presumed sufficient to support a strong
inference of scienter.(25) As the Ninth Circuit has explained:

[P]laintiffs proceeding under the [Reform Act] can no longer
aver intent in general terms of mere motive and opportunity or
"recklessness," but rather, must state specific facts
indicating no less than a degree of recklessness that strongly
suggests actual intent. Thus...the [Reform Act] requires
plaintiffs to plead, at a minimum, particular facts giving
rise to a strong inference of deliberate or conscious
recklessness.

- --------

(25) Three other circuit courts have agreed that the Reform Act raised
the scienter pleading standard to something more than just "motive and
opportunity." In In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 549 (6th Cir.
1999), the Sixth Circuit held that plaintiffs "may plead scienter in Section
10(b) or Rule 10b-5 cases by alleging facts giving rise to a strong inference of
recklessness, but not by alleging facts merely establishing that a defendant had
the motive and opportunity to commit fraud." Similarly, the 11th Circuit has
recently held that ("[Congress] did not intend to codify the lesser-known,
lesser-accepted, and certainly not well-established notion that allegations of
motive and opportunity to commit fraud are sufficient to show scienter"). Bryant
v. Avado Brands, Inc., 1999 WL 688050, *12 (11th Cir. 1999). The Third Circuit
found that the "Reform Act establishes a pleading standard approximately equal
in stringency to that of the [pre-Reform Act] Second Circuit," (including
allegations of motive and opportunity), but recognized that "particularity"
language in the Reform Act resulted in a "heightened standard." In re Advanta
Corp. Sec. Litig., 180 F.3d 525, 534 (3d Cir. 1999).

By contrast, the Second Circuit, without any analysis of the statutory
language or the oft-cited legislative history, merely adopted the "motive and
opportunity" test used before the enactment of the Reform Act. Press v. Chemical
Investment Services Corp., 166 F.3d 529, 538 (2d Cir. 1999).

-31-
<PAGE> 39

Silicon Graphics II at *21.(26) This interpretation follows from Congress'
intent as expressed in the legislative history of the Reform Act.(27)

B. PLAINTIFFS' ALLEGATIONS DO NOT SUPPORT A STRONG INFERENCE OF
SCIENTER.

Plaintiffs' scienter allegations amount to no more than an attempt to
plead motive alone and therefore fail to satisfy the Reform Act's heightened
pleading standard. On this ground alone, Plaintiffs' 10(b) and 10b-5 claims
should be dismissed. But whatever standard applies, the Reform Act requires
"facts giving rise to a strong inference" of scienter. The CCAC's scienter
allegations fall woefully short of the mark.

- --------

(26) The SCI Defendants expect the Plaintiffs to cite Williams v. WMX
Techs., Inc., 112 F.3d 175, 178 (5th Cir.), cert. denied, 118 S.Ct. 412 (1997)
for the proposition that the Fifth Circuit has adopted the "motive and
opportunity" test under the Reform Act. This argument is without merit as Judge
Werlein recently noted:

The Court notes the argument made by Plaintiffs that the Fifth Circuit
in Williams v. WMX Techs., Inc., 112 F.3d 175, 178 (5th Cir.), cert.
denied, 118 S.Ct. 412 (1997), stated that the [Reform Act] did not
change the strong inference pleading standard adopted by the Second
Circuit.... In Williams, however, the Fifth Circuit was not discussing
the standard for pleading scienter under Section 10(b); instead, the
court cited a Second Circuit case that discussed the particularity with
which the elements of fraud had to be pled under Rule 9(b) (i.e., the
"who, what, when, and where"). See Williams, 112 F.3d at 177-78 (citing
Mills v. Polar Molecular Corp., 12 F.3d 1170 (2d Cir.1993) (setting
forth the specificity with which the elements of fraud must be pled)).
The Fifth Circuit in Williams did not discuss the new requirement for
pleading scienter under Section 10(b), nor did it rely upon the Second
Circuit's contrary decision in Shields, which had held that pleading
motive and opportunity was sufficient from which to infer scienter.
Maldonado v. Dominguez,137 F.3d 1, 9 n.5 (1st Cir.1998), which made a
similar statement to the one in Williams, is distinguishable on the
same basis as Williams.

In re Paracelsus Corp., 1998 WL 1108373, at *6 fn.2.

(27) The two courts in the Southern District of Texas that have
construed this section of the Reform Act are divided in their interpretations.
Compare In re Paracelsus Corp., 1998 WL 1108373 (holding that the Reform Act
imposes a heightened pleading standard and eliminates the ability to plead
scienter solely by alleging evidence of a defendant's motive and opportunity)
with Robertson v. Strassner, 32 F. Supp.2d 443 (S.D. Tex. 1998) (Atlas, J.)
(adopting "motive and opportunity" test).

-32-
<PAGE> 40

1. PLAINTIFFS' ALLEGATIONS THAT THE SCI DEFENDANTS MADE
MISSTATEMENTS TO MAINTAIN SCI'S BOND RATING FAILS TO
CREATE THE REQUIRED INFERENCE OF SCIENTER.

Plaintiffs' conclusory allegation that the SCI Defendants made false
and misleading statements "to obtain and maintain favorable ratings on the debt
securities that SCI had registered with the SEC but not yet issued" (CCAC at
Paragraph 113) fails to support an inference of motive even under the pre-
Reform Act pleading standards for scienter. Applying only Rule 9(b), courts,
including the Fifth Circuit, repeatedly refused to infer "motive" from similar
allegations that misstatements were made to maintain a high bond or credit
rating. See, e.g., Melder, 27 F.3d at 1102;(28) L.L. Capital Partners, L.P. v.
Rockefeller Center Properties, Inc., 939 F. Supp. 294, 300 (S.D.N.Y. 1996)
(holding under Rule 9(b) that allegations that misrepresentations were made to
facilitate $21 million offering insufficient to establish motive).

Post-Reform Act cases looking to motive as a relevant factor equally
reject such allegations as a basis for inferring scienter. In San Leandro
Emergency Med. Group Profit Sharing Plan v. Philip Morris Companies, 75 F.3d
801, 813-14 (2d Cir. 1996), for example, the plaintiffs attempted to establish
motive by alleging that an inflated stock price maintained the company's bond or
credit rating at the highest possible level, so as to maximize the marketability
of $700 million of debt securities. The Second Circuit held:

We do not agree that a company's desire to maintain a high
bond or credit rating qualifies as a sufficient motive for
fraud in these circumstances, because "if scienter could be
pleaded on that basis alone, virtually every

- --------

(28) The Fifth Circuit, in Melder, affirmed the dismissal of
plaintiffs' section 10(b) claims where plaintiffs alleged that defendants
engaged in securities fraud "so that they could inflate the price of the
Company's common stock in order to . . . successfully bring to fruition the
[initial and secondary public] offering." 27 F.3d at 1102. The Melder court held
that plaintiffs' allegations "did not set out facts sufficient to allow for a
proper inference of scienter." Id.

-33-
<PAGE> 41

company in the United States that experiences a downturn in
stock price could be forced to defend securities fraud
actions."

San Leandro, 75 F.3d at 814 (citation omitted).

Courts have quite correctly interpreted the San Leandro decision as an
"unequivocal rejection of the concept of motive predicated upon desire to
maximize the marketability of debt securities and to minimize interest rates."
In re 1993 Corning Sec. Litig., 1996 WL 257603, at * 6 (S.D.N.Y. 1996) (holding
that allegations of company's desire to complete bond offering and maximize
ongoing marketability of debt securities insufficient to plead scienter). See
also In re Crown Am. Realty Trust Sec. Litig., 1997 WL 599299, at *25 (W.D. Pa.
1997) (holding that allegations of "desire to improve [defendant's] financial
picture to enhance its ability to finance further capital improvements" is
insufficient to plead scienter). Accordingly, even if this Court is prepared to
accept "motive and opportunity" allegations as a sufficient basis for scienter,
the allegations in the CCAC of the SCI Defendants' motivation is inadequate.

2. PLAINTIFFS' ALLEGATION THAT THE SCI DEFENDANTS MADE
MISSTATEMENTS TO FACILITATE CONSUMMATION OF THE
SCI-ECI MERGER FAILS TO CREATE THE REQUIRED INFERENCE
OF SCIENTER.

Plaintiffs also allege that the SCI Defendants were motivated to commit
fraud to facilitate the consummation of the SCI-ECI merger. See CCAC at
Paragraph 112 ("SCI was motivated to maintain SCI's stock price in an effort to
acquire ECI in a stock-for-stock transaction for less than ECI's true value").

However, it is well-settled that a "desire to consummate [a] corporate
transaction does not constitute a motive for securities fraud." In re Health
Management, Inc. Sec. Litig., 970 F. Supp. 192, 203-04 (E.D.N.Y.1997) (motive
not established by pleading corporate acquisition using supposedly artificially
inflated stock). See also Leventhal v. Tow, 48 F. Supp. 2d 104, 115 (D. Conn.

-34-
<PAGE> 42

1999) (finding that allegation that the defendants had a motive to artificially
inflate stock price during the class period in order to get more favorable terms
in the stock-for-stock transactions and in the issuance of the debentures was an
insufficient allegation of scienter); Malin v. Ivax, 17 F. Supp.2d 1345, 1361
(S.D. Fla. 1998) (rejecting motive "maintaining the stock price...to facilitate
mergers and acquisitions"); In re Cirrus Logic Sec. Litig., 946 F. Supp. 1446,
1477 (N.D. Cal. 1996) (allegation that defendants misrepresented reserves to
facilitate stock-for-stock merger is insufficient to establish scienter).

If all a securities fraud plaintiff had to do to sufficiently plead
scienter was to allege that the defendants artificially inflated a stock's price
to obtain more favorable terms in a stock-for-stock transaction "nearly every
stock-for-stock transaction conducted in the United States could be subject to
challenge." In re Cirrus Logic Sec. Litig., 946 F. Supp. at 1477. At that point,
the scienter requirement becomes meaningless.

Additionally, the Plaintiffs do not expressly or even inferentially
explain how the desire to conclude the SCI-ECI merger by using inflated value of
the stock as consideration for the merger, is in the economic self-interest of
the Individual Defendants. Numerous courts have found that stock ownership,
standing alone, is insufficient to plead scienter. See, e.g., Duncan v. Pencer,
1996 WL 19043, at * 11 (S.D. N.Y. 1996) (defendants' motive "to enhance the
value of their personal holdings and options" is insufficient to plead
scienter).

3. THE INDIVIDUAL DEFENDANTS' LACK OF TRADING IN SCI
STOCK NEGATES ANY INFERENCE OF SCIENTER.

Plaintiffs' scienter allegations contain an interesting - although
unsurprising - omission. Plaintiffs fail to inform the Court that none of the
Individual Defendants sold SCI stock during the

-35-
<PAGE> 43

Class Period.(29) The collective failure of the three Individual Defendants -
SCI's Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer - to take advantage of "artificially inflated prices" and to sell stock
during the Class Period negates any inference of scienter. See, e.g., In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1423 (3d Cir. 1997) (finding
that no inference of scienter was established because "two of the more powerful"
defendants did not sell any stock).

The Individual Defendants are, without question, substantial
shareholders in SCI. The chart below summarizes the Individual Defendants stock
ownership as of July 17, 1998:

<TABLE>
<CAPTION>
Total Holdings
Shares of Stock(30) Vested Options(31) Available for Sale
------------------- ------------------ ------------------
<S> <C> <C> <C>
Waltrip 889,645 2,235,753 3,125,398

Heiligbrodt 588,944 1,333,452 1,922,396

Champagne 63,150 510 63,660
</TABLE>

Despite the fact that the Individual Defendants had a cumulative
5,111,454 shares available for sale, there are no allegations that the
Individual Defendants sold a single share during the Class Period. It defies
belief that the three presumed masterminds of the massive fraud alleged in the

- --------

(29) The Individual Defendants' stock sales are publicly reported on
SEC Form 4 within 10 days of the end of the month in which a transaction occurs.
Form 4 requires the dates and amounts of the security purchased or sold. See SEC
Rules 16a-1 to a-3 and Form 4, codified at 17 C.F.R. Section 240.16a-1 to a-3,
and Official Form (1997). Form 4 is usually the only source of data on insider
trades.

(30) See Forms 4 and Forms 5, attached as Exhibits J, K and L. Form 5
is an Annual Statement of Changes in Beneficial Ownership. These figures include
both indirect and direct holdings.

(31) See 1999 Proxy Statement and 1999 Annual Meeting Notice, attached
as Exhibit M, at p. 14.

-36-
<PAGE> 44

CCAC would not take advantage of that scheme and sell even a small portion of
their stock holdings during the Class Period.

In evaluating whether the allegations of a complaint sufficiently
allege scienter, courts routinely place great importance on the complaint's lack
of any allegations of stock trading by the company's high-ranking executives. In
In re Gleaner Technologies, Inc. Sec. Litig., 1998 WL 915907 (S.D.N.Y. 1998),
for example, the Court stated:

[P]erhaps most importantly, the inference of scienter is
undermined by the fact that [the company's] Chief Executive
Officer ("CEO") and Chairman, Vice Chairman, Chief Financial
Officer ("CFO") and Comptroller did not sell any stock before
the Company publicly disclosed the [negative] impact of the
FCC freeze [on the company]. Certainly one can assume that
these high-ranking corporate officers, arguably the most
knowledgeable of all Board members, would be part of any
fraudulent scheme to benefit from insider information through
pre-emptive stock sales. The absence of sales from these
individuals, then, suggests that the February trading by the
seven defendants does not give rise to a strong inference of
scienter.

Id. at *4. See also Head v. NetManage, Inc., 1998 WL 917794, at *4 (N.D. Cal.
1998) (dismissing complaint; holding that chief financial officer did not sell
negated scienter and stating that it makes no sense that "the alleged
masterminds of the fraudulent scheme" would not take advantage of the scheme);
In re Health Mgmt. Sys. Sec. Litig., 1998 WL 283286, at * 6 (finding that no
inference of scienter is created because the CFO did not sell any stock); In re
Comshare Sec. Litig., 1997 WL 1091468, at * 10 (E.D. Mich. 1997), aff'd, 183
F.3d 542 (6th Cir. 1999) ("the CEO and CFO would have been essential
participants in any scheme, thus, their having sold no stock, undermines any
suggestion of knowledge on the part of defendants due to the other sales"); In
re Credit Acceptance Corporation Securities Litigation, 50 F. Supp.2d 662, 677
(E.D. Mich. 1999) ("It seems as though the CFO would have been an essential
participant in any fraudulent scheme to defraud the company.

-37-
<PAGE> 45

The fact that he did not sell any shares during the class period undermines the
suggestion that the Defendants engaged in securities fraud in order to profit
from their own stock sales") .

The fact that the three Individual Defendants retained substantial
holdings affirmatively demonstrates no scienter. See In re Worlds of Wonder Sec.
Litig., 35 F.3d at 1425 (holding that there was no inference of scienter where
defendants retained the bulk of their shares). Waltrip's SCI total holdings
declined in value approximately $46.6 million on January 26, 1999, the day SCI
announced that it expected earnings per share for the fourth quarter 1998 to be
lower than analysts' expectations. That same day, Heiligbrodt's SCI total
holdings declined in value approximately $28.7 million and Champagne's SCI total
holdings declined in value approximately $950,000. Far from supporting a "strong
inference" that the Individual Defendants had a motive to capitalize on
artificially inflated stock prices, these facts suggest they had every incentive
to ensure the long term growth and stability of SCI.(32)

CONCLUSION

Plaintiffs' allegations against the SCI Defendants epitomize the
abusive claims the Reform Act was designed to prevent. For the reasons stated
above, the SCI Defendants respectfully request that the Court dismiss the
Consolidated Class Action Complaint in its entirety with prejudice.

- --------

(32) Further refuting an inference of scienter is the fact that
Heiligbrodt sold all of his holdings of SCI stock after the end of the Class
Period, at $17 per share. See Exhibit M at p. 17. This is approximately 50
percent less than SCI's stock price at the beginning of the Class Period. If, as
Plaintiffs assert, Heiligbrodt was responsible for committing a fraud, one would
expect him to sell his stock when it was "inflated," not when it was at a
52-week low.

-38-
<PAGE> 46

Respectfully submitted,

Bracewell & Patterson, L.L.P.

By:
----------------------------------
J. Clifford Gunter III
State Bar No. 08627000

South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Telephone: (713) 223-2900
Facsimile: (713) 221-1212
ATTORNEY-IN-CHARGE

Andrew M. Edison
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2781
Telephone: (713) 223-2900
Facsimile: (713) 221-1212

COUNSEL FOR DEFENDANTS

-39-
<PAGE> 47

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document
was forwarded by messenger on the 8th day of October, 1999 to Plaintiffs' Lead
Counsel:

Mr. Roger E. Greenberg
Greenberg, Peden, Siegmyer & Oshman, P.C.
12 Greenway Plaza
10th Floor
Houston, Texas 77046

----------------------------------------
Andrew M. Edison

-40-

<PAGE> 1
EXHIBIT 99.4

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

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

In re: SERVICE CORPORATION INTERNATIONAL Civil Action No. H-99-280

JURY DEMANDED
- -------------------------------------------

PLAINTIFFS' OPPOSITION TO DEFENDANTS' MOTION TO DISMISS
THE CONSOLIDATED CLASS ACTION COMPLAINT
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
PRELIMINARY STATEMENT.....................................................................................................1

THE ALLEGATIONS OF THE COMPLAINT..........................................................................................4

A. Background...............................................................................................4

B. The Preneed Study Proves A Number Of Plaintiffs' Allegations.............................................6

C. Defendants' Scheme.......................................................................................7

D. Defendants' Motives.....................................................................................10

E. The Truth Is Revealed...................................................................................11

ARGUMENT ................................................................................................................13

I. THE APPLICABLE LEGAL STANDARDS..................................................................................13

II. THE COMPLAINT STATES CLAIMS AGAINST DEFENDANTS FOR
VIOLATIONS OF SECTIONS 11 AND 12(a)(2)..........................................................................14

A. Elements of Claims Under Sections 11 and 12(a)(2).......................................................15

B. The Amended Complaint Adequately Alleges the Elements of Claims
Under Sections 11 and 12(a)(2) For Material Omissions and Misstatements
in the Registration Statement/Prospectus................................................................17

C. Plaintiffs' Section 11 and 12(a)(2) Claims Are Not Subject to Fed. R.
Civ. P. 9(b) Or To the Particularity Requirements of the PSLRA..........................................20

III. THE COMPLAINT STATES CLAIMS FOR VIOLATIONS OF SECTION
10(b) AND RULE 10b-5............................................................................................21

A. The Circumstances of Defendants' Fraud Are Stated With
Sufficient Particularity Under Rule 9(b) And The PSLRA..................................................21

1. Defendants' Fraudulent Statements in Connection With the ECI
Acquisition and the Fourth Quarter of 1998.........................................................22

2. The Complaint Also Alleges With Particularity the Defendants'
False and Misleading Statements Throughout The Class Period........................................24
</TABLE>

- i -

<PAGE> 3

<TABLE>
<S> <C> <C>
B. The Preneed Study, Along With Defendants' Public Statements And
Admissions, Amply Support The Allegations In The Complaint..............................................25

C. Plaintiffs Are Not Required By The PSLRA Or Rule 9(b) To
Identify Internal Documents Or Informants...............................................................27

IV. THE COMPLAINT ADEQUATELY ALLEGES SCIENTER.......................................................................28

A. The Legal Standards.....................................................................................28

B. The Defendants Acted With Actual Knowledge Or A
Reckless Disregard For The Truth........................................................................31

C. Defendants Also Had Motive And Opportunity To Engage
In The Fraudulent Scheme................................................................................33

V. THE FALSE AND MISLEADING STATEMENTS CHALLENGED
IN THE COMPLAINT ARE NEITHER "PUFFERY" NOR "FORWARD LOOKING."...................................................36

A. Defendants' Statements Regarding SCI's Growth And Profitability
Are More Than Mere Corporate Puffery....................................................................36

B. Defendants' Statements And Omissions Are Not Protected By The Safe Harbor
Provisions of the PSLRA.................................................................................38

CONCLUSION...............................................................................................................40
</TABLE>

- ii -

<PAGE> 4

TABLE OF AUTHORITIES

CASES

<TABLE>
<S> <C> <C>
Blake v. Dierdorff, 856 F.2d 1365 (9th Cir. `988)........................................................................35

Bryant v. Avado Brands, Inc., 1999 WL 688050, *12 (11th Cir. 1999).......................................................30

Coates v. Heartland Wireless Communications, Inc., 26 F. Supp.
2d 910 (N.D. Tex. 1998)............................................................................................27, 29

Cohen v. Koenig, 25 F.3d 1168 (2d Cir. 1994).............................................................................27

Conley v. Gibson, 355 U.S. 41 (1957).....................................................................................13

Cooper v. Pickett, 137 F.3d 616 (9th Cir. 1997)..........................................................................38

Cosmas v. Hassett, 886 F.2d 12 (2d Cir. 1989)........................................................................27, 35

Degulis v. LXR Biotechnology, Inc., 928 F. Supp. 1301 (S.D.N.Y. 1996)................................................16, 20

Duncan v. Pencer, No. 94 Civ. 0321, U.S. Dist. LEXIS 401, at
*48-49 (S.D.N.Y. Jan. 18, 1996)........................................................................................34

Epstein v. Itron, Inc., 993 F.Supp. 1314 (E.D. Wash. 1998)...............................................................35

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).........................................................................16

Friedberg v. Discreet Logic Inc., 959 F. Supp. 42 (D. Mass. 1997)........................................................32

Goldman v. Belden, 754 F.2d 1059 (2d Cir. 1985)..........................................................................27

Greebel v. FTP Software, Inc., 1999 WL 902898 (1st Cir. 1999)............................................................30

Gross v. Medaphis Corp., 977 F.Supp. 1463 (N.D. Ga. 1997)........................................................33, 35, 39

Hanon v. Dataproducts Corp., 976 F.2d 497 (9th Cir. 1992)............................................................35, 38

Hartsell v. SourceMedia, Inc., 1999 WL 649645 (N.D. Texas 1999)..........................................................29

Harvey M. Jasper Retirement Trust v. Ivax Corp., 920 F.Supp. 1260 (S.D. Fla. 1995).......................................34

Herman and MacLean v. Huddleston, 459 U.S. 375 (1983)................................................................16, 20
</TABLE>

- iii -

<PAGE> 5

<TABLE>
<S> <C> <C>
Hill York Corporation v. American International Franchises, Inc.,
448 F.2d 680 (5th Cir. 1971)...........................................................................................16

Holmes v. Texas A&M Univ., 145 F.3d 681 (5th Cir. 1998)..................................................................13

In re Advanta Corp. Sec. Litig., 1999 WL 395997, at *3 (3d Cir. June 17, 1999)...........................................30

In re Bausch & Lomb, Inc. Sec. Litig., 941 F. Supp. 1352 (W.D.N.Y. 1996).............................................14, 27

In re Cephalon Sec. Litig., [1997 Transfer Binder] Fed. Sec. L. Rep.
(CCH) P. 99,562, at 97,799 (E.D. Pa. Aug. 29, 1997)....................................................................14

In re Compaq Sec. Litig., 848 F. Supp. 1307 (S.D. Tex. 1993).............................................................35

In re Comshare, Inc. Sec. Litig., 183 F.3d 542 (6th Cir. 1999)...........................................................31

In re Digi Int'l Sec. Litig., 6 F. Supp. 2d 1089 (D. Minn. 1998).........................................................14

In re F & M Distributors, Inc. Sec. Litig., 937 F. Supp. 647 (E.D.Mich. 1996)............................................16

In re Health Management Sec. Litig., 970 F. Supp. 192 (E.D.N.Y. 1997)................................................14, 34

In re Home Health Corp. of America, Inc. Sec. Litig.,
1999 WL 79057, *15 (E.D. Pa. 1999).....................................................................................35

In re Nationsmart Sec. Litig., 130 F.3d 309 (8th Cir. 1997)..............................................................21

In Re Silicon Graphics II, 183 F.3d at 977-79 (9th Cir. 1999)............................................................30

In re Stratosphere Corp. Sec Litig., 1 F. Supp. 2d 1096 (D. Nev. 1998)...................................................26

In re Wells Fargo, 12 F.3d 922 (9th Cir. 1993)...........................................................................35

Kensington Capital Management v. Oakley, Inc., [1999 Transfer Binder]
Fed. Sec. L. Rep. (CCH) P. 90,411 (C.D.Cal. Jan. 14, 1999).............................................................21

Khurana v. Innovative Health Care Systems, Inc., 130 F.3d 143 (5th Cir. 1997)........................................13, 25

Leventhal v. Tow, 1999 WL 270089, *10-11 (D. Conn. 1999).................................................................34

Lowrey v. Texas A&M University System, 117 F.3d 242 (5th Cir. 1997)......................................................13

Marra v. Tel-Save Holdings, Inc., 1999 WL 317103 (E.D.Pa. 1999)..........................................................34
</TABLE>

- iv -

<PAGE> 6

<TABLE>
<S> <C> <C>
McNamara v. Bre-X Minerals Ltd., 57 F. Supp. 2d 396 (E.D. Tex. 1999).....................................................29

Parcelsus, 1998 WL 1108373 (N.D. Tex. 1998)..............................................................................29

Picture Lake Campground v. Holiday Inns, Inc., 497 F. Supp. 858 (E.D. Va. 1980)..........................................14

Powers v. Eichen, 977 F. Supp. 1031 (S.D. Cal. 1997).....................................................................33

Press v. Chemical Inv. Servs. Corp., 166 F.3d 529 (2d Cir. 1999).....................................................29, 30

Rehm v. Eagle Finance Corp., 954 F. Supp. 1246 (N.D. Ill. 1997)..........................................................32

Robertson v. Strassner, 32 F. Supp. 2d 443 (S.D. Tex. 1998)...................................................13, 29-31, 36

Ross v. A.H. Robins Co., 607 F.2d 545 Cir. 1979).........................................................................14

Shaw v. Digital Equip. Corp. 82 F.3d 1194 (1st Cir. 1996).............................................................18-21

Shields v. Citytrust Bancorp, 25 F.3d 1124 (2d Cir. 1994)................................................................33

STI Classic Fund v. Bollinger Industries, Inc., 1996 U.S. Dist.
Lexis 21553, *3 (N.D. Tex. 1996)...................................................................................29, 30

Virginia Bankshares v. Sandberg, 501 U.S. 1083 (1991)....................................................................38

Weiner v. Quaker Oats Co., 129 F.3d 310 (3d Cir. 1997)...................................................................35

Williams v. WMX Techs., Inc., 112 F.3d 175 (5th Cir.) cert. denied,
118 S.Ct. 412 (1997)............................................................................................21, 29-31

Zuckerman v. Foxmeyer Health Corp., 4 F. Supp. 2d 618 (N.D. Tex. 1998).............................13, 21, 25, 29-31, 35-36

STATUTES AND RULES

Section 11 of the Securities Exchange Act of 1933 (15 U.S.C. Section 77(k))......................1, 2, 14, 15-18, 20-21, 23

Section 12(a)(2) of the Securities Exchange Act of 1933 (15 U.S.C. Section 77(l)(2)).................1, 2, 14-17, 20-21, 23

Section 15 of the Securities Exchange Act of 1933 (15 U.S.C. Section 77(o))..............................................40

Section 20(a) of the Securities Exchange Act of 1933 (15 U.S.C. Section 78t(a))..........................................40

Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78j(b))..........................2, 4, 20-21, 28-29
</TABLE>

- v -

<PAGE> 7

<TABLE>
<S> <C> <C>
Section 20A of the Securities Exchange Act of 1934 (15 U.S.C. Section 78t-1).............................................35

15 U.S.C. Section 77z-1..................................................................................................20

15 U.S.C. Section 78u-4..................................................................................................20

15 U.S.C. Section 78u-4(b)(1)........................................................................................21, 28

Fed. R. Civ. P. 9(b).....................................................................................13, 14, 22, 26, 29

Fed. R. Civ. 12(b)6)..................................................................................................4, 13

Private Securities Litigation Reform Act of 1995.................................................................in passium

OTHER

Merriam Webster's Collegiate Dictionary 598-99 (10th ed. 1993)...........................................................26

141 Cong. Rec. S19044-45 (Dec. 21, 1995) ................................................................................28

House-Senate Conference Report, H. R. Rep. No. 104-369, at 41 (Nov. 28, 1995)............................................28
</TABLE>

- vi -

<PAGE> 8

Plaintiffs submit this memorandum in opposition to the defendants'
motion to dismiss the Consolidated Class Action Complaint (the "Complaint").(1)

PRELIMINARY STATEMENT

There are two principal claims at issue in this case. The first is on
behalf of former owners of the common stock and stock options of Equity Corp.
International ("ECI"). These innocent shareholders were duped when, 19 days
after the close of the fourth quarter of Service Corp. International's ("SCI")
financial year, they exchanged their ECI stock and options for SCI stock and
options. By January 19, 1999, the date of the exchange, SCI's fourth quarter
results were in hand, were far below expectations, and yet were not disclosed to
the ECI holders as required under the securities laws. Seven days later, on
January 26, 1999, when SCI finally chose to disclose those results, its stock
price was cut almost in half, and the value of the SCI shares that the ECI
holders had received days before dropped from $556 million to $278 million.

Pursuant to Sections 11 and 12(a)(2) of the Securities Act of 1933 (the
"1933 Act"), plaintiffs need only prove that the poor 1998 fourth quarter
results for SCI were in existence and rendered SCI's registration statement and
prospectus (the "Registration Statement/Prospectus"), pursuant to which the ECI
shares were exchanged, misleading. Plaintiffs do not have to prove defendants'
scienter under these 1933 Act claims -- neither recklessness, nor knowledge, nor
intent. In fact, the Registration Statement/Prospectus were patently misleading
because they contained a provision requiring SCI to disclose up until the
closing of the exchange any event which was having -- or could have -- a
materially adverse effect on its business condition. Liability attaches strictly
from the failure

- ----------------
(1) All references to "P." followed by a number indicate the referenced
paragraph of the Complaint.

- 1 -

<PAGE> 9

to disclose the materially adverse fourth quarter results; the reasons for these
poor results are irrelevant to these claims.

Defendants' Motion to Dismiss essentially ignores -- and thereby
concedes -- the validity of the claims brought on behalf of the ECI stock and
option holders regarding the January 19, 1999 stock exchange. Defendants' only
mention of the Section 11 and 12(a)(2) claims (set forth solely in footnote 15,
page 13 of their brief) asserts that plaintiffs must plead these claims with
particularity because they sound in fraud. However, defendants do not contend
that plaintiffs failed to plead these claims with particularity. Indeed, such an
argument strains credulity: how could plaintiffs be more particular than
pleading (1) the fourth quarter had ended; (2) the fourth quarter's poor results
were necessarily complete; (3) defendants closed on the ECI transaction without
disclosing these results; and (4) the Registration Statement/Prospectus
affirmatively represented that SCI experienced no events -- up until the close
of the transaction -- which would have a materially adverse effect on their
business condition? These claims must be sustained.

The second set of claims in this case is brought on behalf of both the
former ECI stock and option holders who exchanged their ECI holdings for SCI
common stock on January 19, 1999 and open-market purchasers of SCI stock and
options from July 17, 1998 through January 26, 1999 (the "Class Period"). This
second set of claims is brought under Section 10(b) of the Securities and
Exchange Act of 1934 (the "1934 Act"). In addition to former ECI shareholders,
all members of the class who bought SCI stock during the Class Period in
reliance on the integrity and honesty of SCI's public statements suffered
dramatic losses when the disclosure of SCI's true financial condition on January
26, 1999 drove the inflated price of SCI stock down a stunning 44%.

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<PAGE> 10

As alleged in the Complaint, the poor fourth quarter results were no
surprise to defendants. To the contrary, the exchange of grossly inflated SCI
stock for ECI securities on January 19, 1999 was the culmination of defendants'
longstanding scheme to conceal a growing deterioration in the business and
financial condition of SCI, a deterioration that was known by the defendants
throughout the Class Period. The most critical of SCI's mounting problems was
the enormous backlog of unprofitable "preneed" funeral service contracts SCI had
inherited from the hundreds of funeral homes it had acquired in the 1990s.
Defendants concealed that crisis from the investing public during the second and
third quarters of 1998 by carefully "managing" SCI's reported financial results,
and schemed to continue to conceal the problem in the fourth quarter financial
results.

By mid-November the Individual Defendants(2) were openly discussing
among themselves their scheme to "bury" what they already knew would be an $.08
to $.10 shortfall in reported earnings in a special one-time charge attributed
to the ECI acquisition. The scheme was foiled, however, when the closing date
for the ECI acquisition was delayed past year-end 1998 by regulatory issues and
defendants were forced to reveal SCI's results.

Defendants failed to disclose this information in any of the statements
they made to the investing public during the Class Period, i.e., SCI's growing
backlog of unprofitable acquired preneed contracts and the increasingly adverse
impact those contracts had already had, and were continuing to have, on SCI's
overall profit margins. In particular, the Complaint alleges that SCI woefully
failed to manage its preneed funds actively to generate a rate of return in
excess of actual funeral cost increases. The Complaint also specifically
identifies all of the materially false and misleading statements and omissions
made by defendants during the Class Period, and explains in

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(2)The Individual Defendants are R.L. Waltrip, SCI's CEO; George Champagne,
SCI's CFO and L. William Heiligbrodt, SCI's President.

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<PAGE> 11

detail how and why those statements and omissions were fraudulent. The Complaint
also alleges specific facts that are more than sufficient to raise a compelling
inference that defendants made those statements with knowledge -- or reckless
disregard -- of their untruthfulness. The facts alleged thus state a Section
10(b) claim under the 1934 Act and more than satisfy the pleading requirements
of the Private Securities Litigation Reform Act of 1995 ("PSLRA") and Federal
Rules of Civil Procedure 9(b) and 12(b)(6). The Section 10(b) claims must also
be sustained.

THE ALLEGATIONS OF THE COMPLAINT

A. BACKGROUND.

SCI operates 3,442 funeral service locations, 433 cemeteries and 191
crematoria located in 20 countries on five continents. P. 19. SCI became the
world's largest death care services provider by purchasing more than 3,000
locally-owned family operated independent funeral homes throughout the 1990's.
P. 20.
Among the assets acquired by SCI from these funeral home purchases were
"preneed" (sometimes called "guaranteed price") funeral contracts that had been
entered into when the acquired funeral homes were independently operated. P. 22.
Preneed funeral contracts allow individuals to make and lock in the price of
funeral arrangements before dying. Under such contracts, the funeral home agrees
to provide funeral services and products in the future in return for a fixed sum
paid at the time of the contract or under an installment schedule. P. 22.
Defendants have admitted that SCI assumed the contractual obligation to perform
price guaranteed funerals when it acquired the independent funeral homes. Ans.
P. 22.(3)

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(3) The abbreviation "Ans." followed by a paragraph designation refers to
Defendants' Answer to the Complaint.

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<PAGE> 12

When the preneed contracts were sold, the independent funeral homes
established mortuary trusts funded with the payments from the prospective
clients. P. 23. The total funds, or trust principal, generally were less than
the then-current cost of providing the funeral service because preneed funeral
services were often sold at a discount. P. 23. SCI acquired those mortuary trust
assets when it purchased the independent homes. P. 23; Ans. P. 23.

To the extent that the principal and income generated by the trust
equals or exceeds the ultimate cost of performing the funeral service, the
funeral home either will break-even or realize a profit. P. 23. If, on the other
hand, the mortuary trust assets do not grow to equal or exceed the future cost
of performing the service, then the funeral service will be performed at the
contractually agreed upon price, resulting in a loss. P. 23. As SCI's internal
documents unequivocally recognize, "[t]he exposure to cost increases falls to
SCI." Exhibits in Support of Defendants Motion to Dismiss the Consolidated Class
Action Complaint (hereinafter "Exhibit"), Exhibit C-5, SCI0068. As defendants
admit, SCI had amassed a multi-billion dollar preneed funeral contract backlog.
Ans. P. 31 (acknowledging that "[d]uring 1995 alone, SCI purchased 1,263
independent funeral homes and acquired a staggering $656 million in preneed
funeral contracts"); Ans. P. P. 24, 28 (conceding between 1992 and 1998, in just
a six-year period, SCI's preneed funeral contract backlog increased three-fold,
from $1.2 billion to $3.7 billion").

The vast majority of the independent funeral homes acquired by SCI
lacked the financial sophistication to perform any meaningful analysis aimed at
determining whether the assets invested in the mortuary trusts would generate a
real rate of return in excess of the amount necessary to cover future increases
in the cost of providing a price guaranteed funeral service. P. 24. The funds
invested in these mortuary trusts often were not actively managed - if they were
managed at all - and whether

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<PAGE> 13

such funds would grow sufficiently to equal or exceed the cost of providing a
price guaranteed funeral service at some future date was left to happenstance.
P. 24. Indeed, defendants have admitted that the financial management of these
mortuary trust assets often consisted of little more than opening a certificate
of deposit at a local bank. Ans. P. 24. And these practices have had a severely
negative impact on SCI's profit margins during the protracted period of
declining interest rates and escalating funeral home costs throughout the
1990's. P. P. 25, 26.

B. THE PRENEED STUDY PROVES A NUMBER OF PLAINTIFFS' ALLEGATIONS.

During 1996, SCI undertook what it termed "a review of the prearranged
trust investment process which included an asset/liability study" (the "Preneed
Study"). P. 32. Defendants have submitted a collection of select unauthenticated
internal SCI documents that they conclusorily assert constitute the Preneed
Study alleged in the Complaint. Defendants' reliance on these select documents,
and arguments based on self-serving interpretations of these documents, amount
to a debate about the meaning and weight of evidence, inappropriate on a motion
to dismiss.

In all events, even the documents submitted by defendants, which have
not been tested by any discovery or cross-examinations, support plaintiffs'
claim that "SCI failed to establish any means of actively managing the mortuary
trust assets that would eventually be used to pay for these acquired preneed
funeral contracts." P. 30. Among other things, the collection of internal SCI
documents defendants attached to their motion confirms that:

o SCI did not have an investment program to provide "independent,
objective advice and assistance, particularly in the areas of asset allocation
development and investment manager evaluation and selection," Exhibit C-5,
SCI0067;

o SCI did not have a "scientific, analytical approach, focused on
meeting SCI's financial objectives" and, at best, SCI was "in the process of
developing" an "overall investment policy for the Pre-arranged Funeral trust
funds." Exhibit C-5, SCI0070;

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<PAGE> 14

o SCI lacked the ability to even identify all of the mortuary trust
assets it had acquired during its funeral home acquisition campaign - let alone
manage these assets. See Exhibit C-6, SCI0138 (December 1996 memorandum stated
"[c]urrently there is no reliable source to determine whether all acquisitions
have been loaded to the trust general ledger."); Exhibit C-5, SCI0070 ("all
trust funds currently identifiable are on the FSG system.") (Emphasis added);

o more than $600 million in mortuary trust assets was not even being
monitored - let alone managed - as recently as June 30, 1997: "as of June 30,
1997, approximately 2000 trusts with total assets of $1.72 billion are being
monitored." Exhibit C-5, SCI0070. According to the Company's Form 10-Q for the
quarter ended June 30, 1997, however, total preneed contract assets totaled $2.3
billion;(4)

o SCI's failure to actively manage its preneed mortuary trust assets
resulted in SCI earning approximately 5.5% annually on these assets. In stark
contrast, funeral home costs escalated approximately 8.5% annually during this
same period - thereby guaranteeing SCI a loss of at least 3% per annum on these
assets. See Exhibit C-1, SCI0005. The 5.5% rate of return on SCI's preneed
mortuary trust assets was 1.5% below SCI's own "target" rate of return, and a
full 3.0% below the rate of return SCI knew it needed to earn on these preneed
mortuary trust assets in order to perform this funeral backlog at break-even.
Exhibit C-4, SCI0064;

o SCI's preneed mortuary trust assets were not invested in accordance
with SCI's own asset allocation policy. SCI had invested 33% of its preneed
trust assets in "Cash," when its asset allocation policy required that no more
than 10% of such assets be invested in "Cash;" and only 21% of the assets had
been invested in "Domestic Equities" when SCI's program had required that 40% of
such assets be invested in "Domestic Equities." See Exhibit C-1, SCI0009;
Exhibit C-4, SCI0063. These practices, as defendants knew, virtually guaranteed
that these preneed mortuary trust assets would not grow sufficiently to allow
SCI to perform the associated funerals profitably. As the defendants' own
documents state: "Studies have shown that the asset class allocation decision
ultimately determines over 90% of the fund's total return." Exhibit C-5,
SCI0070; and

o 26% ($211 million of $811 million total prearranged funeral funds as
of June 30, 1997 - an undeniably material portion) of the preneed trust assets
acquired by SCI remained in the possession of "pre-acquisition trustees,"
inactively managed, and invested in low yielding certificates of deposit.
Exhibit C-5, SCI0067.

C. DEFENDANTS' SCHEME.

By 1998, SCI's failure to actively manage its mortuary trust assets was
having an increasingly negative impact on SCI's profit margin. P. 36. Gross
margins decreased from 28% to 15% during

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(4)Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, at 4.

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<PAGE> 15

fiscal year 1998. P. 36. Although defendants were keenly aware of the risk posed
by SCI's failure to actively manage the preneed assets, they were severely
hampered in correcting the condition because of SCI's need to secret its
identity from the public. P.'s 38, 40, 42, Ans. P. 18.

Rather than disclosing that SCI had amassed an enormous backlog of
unmanaged, underperforming preneed funds and that a material number of SCI's
funeral services had been, and would continue to be, performed at significant
losses, defendants falsely represented that SCI was actively managing its
backlog of acquired preneed trust assets. P. P. 45, 47. At the beginning of the
Class Period in July 1998, the defendants publicly announced the creation of SCI
Financial Services, Inc., a subsidiary which would purportedly actively manage
SCI's preneed trust assets. P. 47. To establish this new organization SCI
purchased two companies, each of which had experience in preneed asset
management. P. 48. The first acquisition was of American Memorial Life Insurance
Company ("AML" or "American Memorial"), and the second was ECI. P. 49.

The purchase of ECI is of particular significance because ECI, unlike
SCI, already had established, and fully disclosed the existence of, a financial
management system which ensured that its customers' preneed investments, or the
funeral insurance coverage obtained, would be sufficient to cover adequately the
future costs of prearranged funeral services. P. 50. While ECI disclosed that
its insurance policies included "built-in escalation clauses" and that earnings
on its trust funds "have allowed [it] to adequately cover the inflationary
increase in costs of funeral services," SCI remained silent on these points. P.
53. The reason for SCI's omissions is clear: SCI's trust funds had not been
managed to grow at a rate equal to or greater than the increase in the costs of
funeral services. P. 53.

Defendants deceived the Class as to the primary -- and continuing --
reason for SCI's funeral service gross margin contraction during the first three
quarters of 1998 by pointing to declining death

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<PAGE> 16

rates in North America, higher costs and lower volumes of funerals throughout
the industry. P. 55. In addition, defendants carefully "managed" SCI's reported
1998 second and third quarter earnings by, inter alia, their aggressive
acquisition program which provided SCI fresh sources of revenue, including, for
example, the purchase of American Memorial in the third quarter of 1998. P. 55.
However, defendants knew that SCI's deteriorating funeral service profit margins
had already, and were continuing to, impact reported earnings, the all important
indicia of SCI's financial condition for the investing public, and that SCI's
fiscal year end would soon bring about a day of reckoning. P. 55.

By November 1998, the Individual Defendants knew that SCI's fourth
quarter 1998 earnings would fall at least between $.08 to $.10 below analysts'
estimates. P. 56. The Individual Defendants were also aware, by virtue of their
receipt of daily, weekly and monthly profit/loss reports via SCI's "Falcon"
system from each of SCI's domestic funeral homes, that this shortfall resulted
from the performance of unprofitable preneed funerals, as well as undisclosed
increases in costs for those services. P. 56.(5) Senior SCI executives, also
aware of this impending shortfall and the reasons for it, openly discussed how
to hide the shortfall from investors and how they and the Individual Defendants
planned to "bury" this shortfall in a one-time charge that SCI planned to take
in connection with its acquisition of ECI. P. 56.

Defendants knew the success of their plan hinged on their ability to
close the ECI acquisition during the fourth quarter of 1998 so that SCI could
take a one-time charge in the fourth quarter and close the ECI transaction
without having to disclose the true reasons for the Company's earnings
shortfall. P. 56. Pointedly, defendants make no attempt in their motion to
challenge the sufficiency of the Complaint's allegations about their scheme to
bury expected earnings shortfall in a one-time

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(5)The defendants have admitted that the Falcon system "allows SCI to
determine the level of funeral and cemetery sales." Ans. P. 121.

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<PAGE> 17

charge that SCI planned to take in the fourth quarter in connection with the ECI
merger. P. 56. This omission, coupled with defendants' admission that SCI was
unable to divest itself of certain properties in time to obtain FTC approval to
close the ECI merger in the fourth quarter of 1998, further supports plaintiffs'
claims. Ans. P. 59.

Defendants' scheme was foiled, however, when SCI was unable to divest
itself of certain properties in time to obtain FTC approval to close the ECI
transaction in the fourth quarter of 1998. P. 57; Ans. P. 59. Defendants were
unable to "bury" the earnings shortfall, which by the end of the fourth quarter
had nearly doubled to $.19 to $.20 per share, in an acquisition charge as
defendants had planned because the Merger did not close until after the end of
the fourth quarter. P. 59.

Defendants nonetheless proceeded to close the ECI transaction without
ever disclosing to ECI or the Class that SCI would report a drastic shortfall in
its 1998 fourth quarter earnings. P. 60. Defendants did so despite the fact that
the Merger Agreement between SCI and ECI, dated August 6, 1998 required SCI to
disclose to ECI its poor performance during the fourth quarter of 1998 at any
time at which it could reasonably be anticipated that such poor performance
could have an adverse financial impact on SCI. P. 61. Defendants, aware that
disclosure of the adverse financial conditions at SCI would lead to the
termination of the Merger by ECI or to a renegotiation of the transaction,
refused to take that risk. P. 67.

D. DEFENDANTS' MOTIVES.

Defendants had strong motives to conceal the true reasons behind SCI's
funeral margin contraction and the negative impact that SCI's unprofitable
multi-million dollar preneed funeral backlog had already had, and was continuing
to have, on SCI's profit margins and earnings. P. 110. By doing so, defendants
were able to cause the market price of SCI's stock to become and remain

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<PAGE> 18

materially artificially inflated throughout the Class Period. P. 110. Because
the consideration paid by SCI to ECI stockholders was SCI common stock, SCI was
able to effectively purchase ECI with "watered stock," thereby saving SCI
millions. P. 110.

The ECI acquisition was undeniably critical to SCI's ability to turn
around its unprofitable preneed business. P. 111. ECI had the right to terminate
the Merger Agreement, however, "if the representations and warranties of [SCI]
shall fail to be true and correct in all material respects . . . ." P. 112.
Thus, prior to negotiating the deal with ECI, SCI had ample motive to maintain
SCI's stock price in an effort to acquire ECI in a stock-for-stock transaction
for less than ECI's true value. P. 112. After the Merger Agreement was executed,
but before the deal closed, SCI had motive to continue to hide conceal adverse
developments from ECI to prevent ECI from terminating the Merger Agreement. P.
112. Had SCI disclosed the existence of its problems, ECI would have been able
to terminate the Merger Agreement under Section 9.1. P. 112. Defendants also
admit that the shelf- registration statements filed with the SEC during the
Class Period permitted SCI to "avail itself of much needed funds to finance the
Company's acquisitions and operations." Ans. P. 114 (emphasis added).

E. THE TRUTH IS REVEALED.

On January 26, 1999, just five business days after SCI and ECI jointly
announced the completion of the Merger, SCI shocked the investment community by
issuing a press release which stated:

[SCI], the world's largest funeral and cemetery company, announced
today that it expects diluted earnings per share for the fourth quarter
of 1998 to be lower than current analyst expectations.

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<PAGE> 19

P. 123. SCI's fourth quarter 1998 gross profits declined by 19% from SCI's third
quarter 1998 and 24% from SCI's fourth quarter 1997 gross profits. SCI's
earnings per share for fourth quarter 1998 were 28% below the third quarter
1998, 36% below the fourth quarter 1997, and 45% below the average forecast or
"consensus estimate" for the fourth quarter by analysts who followed SCI. P.
123. These "consensus estimates" were based on misleading information given
directly by SCI to professional market analysts. P. 123. Defendants deceptively
failed to disclose to analysts and the market, and to ECI and its shareholders
in the course of negotiating and closing the Merger, the truth about SCI's
increasingly unprofitable preneed funeral business. P. 123.

The market's reaction to the January 26, 1999 disclosure was swift and
severe. P. 124. The price of SCI common stock plunged from $34 7/16 per share on
January 25 to $19 1/8 per share on trading of over 36 million shares, a one-day
decline of $15.3125 per share or 44%. P. 124. This price decline also virtually
cut the consideration paid for each share of ECI common stock in the Merger in
half.P. 124.

On February 9, 1999, the Company issued a press release purporting to
explain the earnings shortfall. The primary reasons cited by SCI for the
shortfall were decreased revenues and increased costs. However, the true reason
for this "surprised" shortfall was revealed later by statements defendant
Heiligbrodt made to the press. As alleged, this earnings shortfall resulted from
losses on SCI's preneed business, losses which were known to defendants
throughout the Class Period. P. 126 (excerpting story in industry publication in
which defendant Heiligbrodt stated "the at need value of many of the preneed
plans sold in the 1980's is about 20 percent less than the company presently
charges for its services"); Ans. P. 127 (admitting, without qualification, story
in industry publication

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<PAGE> 20

reporting that "SCI has said in the past that it loses money on some of its
preneed services because the contract was sold at too low a price").

ARGUMENT

I. THE APPLICABLE LEGAL STANDARDS

Rule 12(b)(6): Rule 12(b)6) allows for dismissal of a complaint if the
plaintiff fails to "state a claim upon which relief may be granted." Robertson
v. Strassner, 32 F. Supp. 2d 443, 445 (S.D. Tex. 1998) (citations omitted). A
motion to dismiss is "viewed with disfavor and is rarely granted." Lowrey v.
Texas A&M University System, 117 F.3d 242, 247 (5th Cir. 1997). Dismissal is
appropriate only when "it appears beyond doubt that the plaintiff can prove no
set of facts in support of his claim which would entitle him to relief." Conley
v. Gibson, 355 U.S. 41, 45-46 (1957); Holmes v. Texas A&M Univ., 145 F.3d 681,
683 (5th Cir. 1998). In deciding whether dismissal is warranted, the Court must
accept as true the non-conclusory allegations in the plaintiff's complaint.
Khurana v. Innovative Health Care Systems, Inc., 130 F.3d 143, 147 (5th Cir.
1997); Zuckerman v. Foxmeyer Health Corp., 4 F. Supp. 2d 618, 621 (N.D. Tex.
1998).

Rule 9(b): Rule 9(b) properly serves to deter vague and conclusory
allegations of fraud. But, Rule 9(b) does not allow "defendants by sophisticated
claims of ignorance, to plow meritorious claims into stumps...Enforcement of
Rule 9(b) should not become .... a tool to require plaintiffs repeatedly to
redraft pleadings despite defendants' pre-existing full knowledge of the matters
which plaintiffs' pleadings address." Picture Lake Campground v. Holiday Inns,
Inc., 497 F. Supp. 858, 866-67 (E.D. Va. 1980). The defendants urge the Court to
interpret Rule 9 (and the PSLRA) as requiring plaintiffs to, in effect, prove
their claims with evidentiary detail at the pleading stage, Def. Mem. at 14-16,
but there is no requirement that plaintiffs plead their evidence in a publicly
filed complaint. See, e.g., In

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<PAGE> 21

re Health Management Sec. Litig., 970 F. Supp. 192, 208 (E.D.N.Y. 1997) (Rule
9(b) does not require that the pleading contain "'detailed evidentiary matter'")
(quoting Ross v. A.H. Robins Co., 607 F.2d 545, 557 n.20 (2d Cir. 1979)); In re
Bausch & Lomb, Inc. Sec. Litig., 941 F. Supp. 1352, 1361 (W.D.N.Y. 1996) (same);
In re Cephalon Sec. Litig., [1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) P.
99,562, at 97,799 (E.D. Pa. Aug. 29, 1997) (PSLRA "does not require pleading all
of the evidence and proof thereunder supporting a plaintiff's claim"); In re
Digi Int'l Sec. Litig., 6 F. Supp. 2d 1089, 1096-97 (D. Minn. 1998) (plaintiffs
allegations need not be supported by "underlying documentary evidence").

Facts supporting plaintiffs' allegations of fraud are plead in detail,
based on publicly available information and plaintiffs' counsels' extensive
investigation into SCI's operations. See, e.g., P. 128. Those facts -- together
with the reasonable inferences drawn therefrom -- more than adequately state a
claim against defendants.(6)

II. THE COMPLAINT STATES CLAIMS AGAINST DEFENDANTS FOR

VIOLATIONS OF SECTIONS 11 AND 12(a)(2).

The Section 11 and Section 12(a)(2) claims arise from the fact that the
owners of the common stock and stock options of ECI, 19 days after the close of
the fourth quarter of SCI's financial year, exchanged their ECI stock and
options for SCI stock and options based upon SCI's false and

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

(6)Defendants resort to a well-worn, conclusory argument, stating that
"[t]his securities fraud class action is exactly the type of case that prompted
Congress to reform the federal securities laws: that this case is "reminiscent
of pre-Reform Act pleadings", and requires dismissal under the PSLRA. Def. Mem.
at 2. However, the PSLRA was not enacted to erect impregnable barriers to
legitimate private fraud actions, but to deter frivolous litigation. See PSLRA
Statement of Managers, 141 Cong. Rec. at H13699 (daily ed. 11/28/95)
(recognizing legitimate private fraud actions are an "indispensable tool with
which defrauded investors can recover their losses," "promote...confidence in
our capital markets," and "help to deter wrongdoing"). This action is the very
kind of carefully prepared case, attacking real fraud by insiders, based on a
significant investigation of plaintiffs' counsel, that Congress, by weeding out
frivolous suits, wanted victims to be able to prosecute more effectively.

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<PAGE> 22

misleading Registration Statement/Prospectus. At the time of the exchange on
January 19, 1999, SCI's fourth quarter was already closed, the results were far
below expectations, and yet these results were not disclosed to ECI holders.
Seven days later, on January 26, 1999, when SCI finally disclosed its poor
fourth quarter results, its stock price was cut almost in half and the value of
the SCI shares that the ECI holders had received just days earlier were now
worth just over half as much -- losing $278 million dollars in value.

SCI's Registration Statement/Prospectus warranted -- as defendants
admit -- that "as of the closing date," "there has not been any event,
occurrence, development or state of circumstances or facts which has had, or
could reasonably be anticipated to have, individually or in the aggregate, a
Materially Adverse Effect." P.'s 106-107; Ans. at P.'s 106-107 (emphasis
added). Because the fourth quarter had already closed at the time of the
completion of the stock exchange, and because its results demonstrated a severe
earnings shortfall, it is clear that an event had indeed occurred that had a
materially adverse effect on SCI's operations. Thus, the Registration
Statement/Prospectus' warranty to the contrary was necessarily false and
misleading in violation of Sections 11 and 12(a)(2). These claims must be
sustained.

A. ELEMENTS OF CLAIMS UNDER SECTIONS 11 AND 12(a)(2).

Under Section 11 of the 1933 Act, purchasers of registered securities
may recover damages if the registration statement contains a material
misstatement or omission; plaintiffs do not need to plead or prove fraud,
reliance, motive, intent, knowledge or recklessness:

[Section 11] impos[es] a stringent standard of liability on the parties
who play a direct role in a registered offering. If a plaintiff
purchased a security issued pursuant to a registration statement, he
need only show a material misstatement or omission to establish his
prima facie case. Liability against the issuer of the security is
virtually absolute, even for innocent misstatements.

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<PAGE> 23

Herman and MacLean v. Huddleston, 459 U.S. 375, 381 (1983)(emphasis added). See
also Ernst & Ernst v. Hochfelder, 425 U.S. 185, 200 (1976)(policy underlying
Section 11 was to create liability regardless of fault); In re F & M
Distributors, Inc. Sec. Litig., 937 F. Supp. 647, 656 n. 5 (E.D.Mich.
1996)(scienter is not an element of Section 11 or 12(a)(2) claims). To state a
claim under Section 11, the Complaint need only allege that: (1) the plaintiff
purchased securities traceable to an effective registration statement (see P.
133); (2) the defendant falls within the statutorily enumerated categories (see
P. 134); and (3) the registration statement contained a material misstatement or
omission.(7)

Section 12(a)(2) of the 1933 Act, like Section 11, imposes strict
liability for false and misleading statements in a prospectus, and it has no
reference to the effective date of the registration statement. See, e.g. Degulis
v. LXR Biotechnology, Inc., 928 F. Supp. 1301, 1310 (S.D.N.Y. 1996)("only a
material misstatement or omission need be shown to establish a prima facie case
[under Section 11 or 12], and scienter need not be alleged"). Rather, Section
12(a)(2) imposes liability whenever a prospectus (such as the one at issue here)
is false or misleading and securities are eventually sold or acquired thereby.
In Hill York Corporation v. American International Franchises, Inc., 448 F.2d
680 (5th Cir. 1971), the Fifth Circuit set forth the elements of a section
12(a)(2) violation:

the plaintiffs were required to prove that the defendants sold or
offered to sell these securities by the use of the mails or instruments
of transportation or communication in interstate commerce, and that the
defendants misrepresented or omitted material facts. In addition the
plaintiffs had to show that they had no knowledge of any untruth or
omission. The plaintiffs need not prove scienter on the part of the
defendants. Finally, the plaintiffs need not prove that they relied in
any way on the alleged misrepresentations or omissions.

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(7)Although absent in their motion, defendants will no doubt argue in their
reply that the accuracy of the registration statement is tested on its effective
date, November 20, 1998. However, the registration statement itself expressly
provides that it will be accurate up until the date of closing. (P. 107).

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<PAGE> 24

Id. at 695 (internal citations omitted).

As shown below, defendants violated Sections 11 and 12(a)(2) by
consummating an exchange of SCI stock and options for their ECI counterparts on
January 19, 1999 based upon false and misleading statements in the Registration
Statement/Prospectus regarding SCI's financial health.

B. THE AMENDED COMPLAINT ADEQUATELY ALLEGES THE ELEMENTS OF CLAIMS
UNDER SECTIONS 11 AND 12(a)(2) FOR MATERIAL OMISSIONS AND
MISSTATEMENTS IN THE REGISTRATION STATEMENT/PROSPECTUS.

Sections 11 and 12(a)(2) placed defendants under a duty to disclose,
both to the investing public and as a condition of the ECI merger, the adverse
financial conditions at SCI both during the fourth quarter and after the quarter
closed. As of November 1998, the individual defendants knew that ECI had a
material shortfall in its fourth quarter earnings but nonetheless falsely
represented in the Registration Statement that no material, adverse changes in
SCI's business had -- or could -- occur. P. 56. Defendants' knowledge is clear
from two admissions in its Answer. First, defendants admit that the Falcon
system "allows SCI to determine the level of funeral and cemetery sales" (Ans.
P. 121) -- information plaintiffs allege was available on a daily basis. P. 121.
Accordingly, by the date the Registration Statement became effective on November
20, 1999, nearly two-thirds of the way through SCI's fourth quarter, SCI had
available, via Falcon, data regarding SCI's earnings shortfall. Second, SCI knew
that this shortfall could not possibly be made up in the remainder of the
quarter because, as defendants' admit, SCI's high fixed cost structure could not
be reduced to accommodate slower periods of revenue growth, and supply could not
be increased to make up the shortfall because "a death care provider cannot
promise to fill an order in 'a week or two.'" P. 119; Ans. 119. Thus, SCI's
Falcon system informed it of its earnings shortfall and the nature of the
defendants' business made it impossible to recover from that shortfall; in other
words, the writing was on the wall.

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<PAGE> 25

Accordingly, even as early as the preliminary effective date of the Registration
Statement in November, SCI's claim that there were no materially adverse effects
on its business was necessarily false and misleading. See Shaw v. Digital Equip.
Corp. 82 F.3d 1194, 1210 (1st Cir. 1996)("Present, known information that
strongly implies an important future outcome is not immune from mandatory
disclosure merely because it does not foreordain any particular outcome").

For the same reasons, the Registration Statement/Prospectus were
defectively misleading when, only twelve business days prior to the end of SCI's
quarter, SCI and ECI amended the Merger Agreement in SCI's favor. P.'s
70-71.(8) At this point in time, Falcon had provided defendants with nearly
conclusive fourth quarter results and there was even less time to make up the
shortfall that was now all but a fait accompli. Still, defendants failed to
disclose the deteriorating results or the material impact on SCI's business
operations, leaving uncorrected the unavoidably false and misleading statement
of "no materially adverse effect" in the Registration Statement/Prospectus. P.
71, 56-57. Then, on December 31, 1998, the ECI shareholders voted to approve the
merger and stock exchange, still without any disclosure of the fourth quarter
debacle. Finally, 19 days after the fourth quarter had closed, sealing SCI's
poor performance, SCI unbelievably continued to keep private its knowledge of
the dramatic decline in SCI's earnings, waiting until one week after the
acquisition transaction was safely closed to share its knowledge with the world
and the ECI shareholders that SCI's fourth quarter results were nearly 50% below
expectations. "[I]n the context of a public offering, there is a strong
affirmative duty of disclosure." Shaw v. Digital Equip. Corp. 82 F.3d at 1202
(emphasis added). In the Shaw case, the First Circuit sustained Section 11
claims based upon a failure to disclose poor quarterly results in a registration

- ------------------
(8)Plaintiffs believe that this amendment to the Merger Agreement
(which was incorporated in the Registration Statement/Prospectus), created a new
effective date in late December 1998.

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<PAGE> 26

statement that became effective 11 days prior to the end of the quarter. Id. at
1211. The Court analogized the defendant corporation to an inside trader,
arguing that

just as an individual insider with material nonpublic information about
a pending merger. . . could not purchase his company's securities
without making disclosure, the company itself may not engage in such a
purchase of its own stock, if it is in possession of such undisclosed
information. By extension, a comparable rule should apply to issuers
engaged in a stock offering. Otherwise, a corporate issuer selling its
own securities would be left free to exploit its information trading
advantage, at the expense of investors, by delaying disclosure of
material nonpublic negative news until after completion of the
offering.

Id. at 1204 (internal citations omitted and emphasis added). Any other rule
"would allow companies to exploit what amounts to a naked informational trading
advantage." Id. at 1209. Thus, at "any point in a quarter," if "there is a
sufficient probability that unexpected disastrous quarter-to-date performance
will carry forward to the end of the quarter," to avoid liability, such results
must be disclosed if "a reasonable investor would likely consider the interim
performance important to the overall mix of information available.". Id. at 1210
(emphasis added).

The facts of the instant case are even more egregious than Shaw
because, here, the defendants thrice traded on inside information, utilizing
their "naked informational trading advantage" by failing to disclose negative
information material to the acquisition of ECI, in November of the fourth
quarter, 12 business days before the quarter's end, and even after the quarter
had closed -- in spite of their express promise in the Registration
Statement/Prospectus to report such information up until the date the
transaction closed.(9) Accordingly, plaintiffs have amply met their pleading
burden to allege

- ------------------
(9)Plaintiffs allege that the cause of the material fourth quarter earnings
shortfall was principally the result of the undisclosed mounting backlog of
unprofitable preneed contracts, and that the failure to disclose the shortfall
prior to the closure of the ECI transaction was the culmination of defendants'
six-month fraudulent campaign to cover up a long-standing financial crisis.
Defendants claim that the shortfall was caused by business reasons outside of
its control. See Def. Mem. at 9, n. 10 (citing company press release). While the
reasons for SCI's fourth quarter earnings shortfall are a factual dispute to be
resolved at trial, these reasons are irrelevant to plaintiffs' Section 11 and
12(a)(2) claims.

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<PAGE> 27

material misstatements and omissions. Nothing more is required under Sections 11
and 12(a)(2) of the 1933 Act. Herman & MacLean v. Huddleston, 459 U.S. at
381-82.(10)

C. PLAINTIFFS' SECTION 11 AND 12(a)(2) CLAIMS ARE NOT SUBJECT TO FED.
R. CIV. P. 9(b) OR TO THE PARTICULARITY REQUIREMENTS OF THE PSLRA

Defendants also argue -- albeit in a conclusory manner in a cursory
footnote -- that the plaintiffs' 1933 Act claims are subject to the
particularity requirements of the PSLRA and Rule 9(b) because the gravamen of
all the claims is fraud. See Def. Mem. at 13. This argument has no merit.

The PSLRA, which included amendments to both the 1933 Act and the 1934
Securities Exchange Act of 1934 (the "1934 Act"), only added "particularity"
pleading requirements to the 1934 Act, clearly preserving the strict liability
of the 1933 Act claims. Compare 15 U.S.C. Section 77z-1 with 15 U.S.C. Section
78u-4. Plaintiffs' prima facie case for violations of Section 11 and 12(a)(2) is
pled by alleging the presence of false and misleading statements or omissions in
the Registration Statement. Degulis v. LXR Biotechnology, Inc., 928 F. Supp.
1301, 1310 (S.D.N.Y. 1996). See also In re Nationsmart Sec. Litig., 130 F.3d
309, 315 (8th Cir. 1997) (declining to apply Rule 9(b) to Section 11 claim
because Section 11 does not include fraud or mistake as an element). Kensington
Capital

- --------------
(10)As the Shaw court noted, the duty of an inside trader -- whether an
individual or a corporation -- is to "disclose or abstain from trading." Shaw,
82 F3d at 1203. Plaintiffs' Section 11 and Section 12(a)(2) claims on behalf of
the ECI holders are predicated on SCI's failure to disclose, making its
Registration Statement/Prospectus false and misleading. In addition, plaintiffs
also assert Section 10(b) claims on behalf of the ECI holders, based upon SCI's
knowing or deliberately reckless failure to abstain from trading when it was in
possession of superior information than that available to the market. As
demonstrated below, plaintiffs have plead their 10(b) claims with sufficient
particularity and with sufficiently strong allegations of scienter to survive
dismissal. See Point III, infra. Accordingly, the ECI holders' 10(b) claims must
be sustained as well.

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<PAGE> 28

Management v. Oakley, Inc., [1999 Transfer Binder] Fed. Sec. L. Rep. (CCH) P.
90,411, at 91,855 (C.D.Cal. Jan. 14, 1999) (same).

III. THE COMPLAINT STATES CLAIMS FOR VIOLATIONS OF SECTION 10(b) AND RULE
10b-5.

Not only are the statements in the Registration Statement per se
actionable under Sections 11 and 12(a)(2), but those statements, as well as the
other statements detailed in the Complaint, give rise to a cause of action under
Section 10(b).(11)

A. THE CIRCUMSTANCES OF DEFENDANTS' FRAUD ARE STATED WITH
SUFFICIENT PARTICULARITY UNDER RULE 9(B) AND THE PSLRA.

Pursuant to Rule 9(b) of the Federal Rules of Civil Procedure a
plaintiff must specify the "statements contended to be fraudulent, identify the
speaker, state when and where the statements were made, and explain why the
statements were fraudulent." Zuckerman v. Foxmeyer Health Corp., 4 F. Supp. 2d
618, 622 (N.D. Tex. 1998). Plaintiffs have identified the precise omissions and
misstatements alleged to have been made, the Registration Statement, press
release, or SEC filing in which they were made, the context and the manner in
which the statements were misleading and what defendants gained by the alleged
fraud.

If an allegation regarding a statement or omission is made on
information and belief, the PSLRA requires the complaint to state with
particularity "all facts on which that belief is formed." 15 U.S.C. Section
78u-4(b)(1). Because the Complaint's detailed allegations of falsity are based
on the

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(11)See, e.g., Shaw, 82 F.3d at 1221 (the same misstatements and omissions
in a Registration Statement which give rise to Section 11 and 12(a)(2) claims
may give rise to a cause of action under Section 10(b) provided that plaintiffs
establish the additional elements of Rule 10(b); Williams v. WMX Technologies,
Inc., 112 F.3d 175, 177 (5th Cir. 1997) ("to state a claim based on Section
10(b) of the Securities Exchange Act of 1934 the plaintiff must allege 1) a
misstatement or omission; 2) of material fact; 3) made with the intent to
defraud; 4) on which the plaintiff relied; and 5) which proximately caused the
plaintiff's injury.").

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<PAGE> 29

investigation of plaintiffs' counsel (P. 128) rather than on information and
belief, the PSLRA's information and belief pleading requirements do not
apply.(12) Moreover, even if the Complaint were deemed to have been alleged on
information and belief for purposes of the PSLRA, its allegations of fact more
than sufficiently meet the requirements of the PSLRA.

1. DEFENDANTS' FRAUDULENT STATEMENTS IN CONNECTION WITH THE
ECI ACQUISITION AND THE FOURTH QUARTER OF 1998.

The Complaint alleges specific facts showing defendants carefully
considered a plan to deceive the investing public about SCI's financially
debilitating preneed contracts and underperforming acquired mortuary trust
assets -- a plan which reached an unprecedented level in the fourth quarter of
1998, by which time it had become clear to defendants that the increasingly
adverse impact on SCI's reported results could continue to be concealed only by
burying deteriorating earnings in a "charge" attributed to the ECI acquisition.
In Section 10.10 of the Merger Agreement, which was attached as an Exhibit to
the Registration Statement, defendants represented that no "events" had occurred
which had, or could reasonably be anticipated to have, individually or in the
aggregate, a "Material Adverse Effect." P.'s 63-66.

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

(12)See, e.g., Schlagel v. Learning Tree, [1999 Transfer Binder] Fed. Sec.
L. Rep. (CCH) P. 90,403, at 91,816 n.4 (C.D. Cal. Dec. 23, 1998) (plaintiffs'
allegations, based upon the investigation of their counsel, did not constitute
pleading on information and belief); Cherednichenko v. Quarterdeck Corp., [1998
Supp. Transfer Binder] Fed. Sec. L. Rep. (CCH) P. 90,108, at 90,142 n.3 (C.D.
Cal. Nov. 26, 1997) ("Plaintiffs' allegations are based on the investigation of
their counsel, not on information and belief. The heightened standard does not
apply here."); Zeid v. Kimberley, 973 F. Supp. 910, 915; Lister v. Oakley, Inc.,
No. SA CV 97-809-GLT (EEX) 1999 U.S. Dist. LEXIS 389, at *7 (C.D. Cal. Jan. 14,
1999); Warman v. Overland Data, Inc., [1998 Supp. Transfer Binder] Fed. Sec. L.
Rep. (CCH) P. 90,167, at 90,529 (S.D. Cal. Feb. 23, 1998). See also In re
Employee Solutions Sec. Litig., CIV 97-545-PHX-RGS-OMP, 1998 U.S. Dist. LEXIS
16444, at *13 (D. Ariz. Sept. 29, 1998) (plaintiffs are not required to reveal
the individual sources of their allegations under the PSLRA).

- 22 -

<PAGE> 30

The Complaint specifies in detail why that statement was misleading.
Defendants knew when the statement was made that SCI's unprofitable acquired
preneed contracts had already had, and were continuing to have, "a material
adverse effect" which was required to be disclosed pursuant to the Merger
Agreement. P. 56. By November 1998, defendants knew that SCI's fourth quarter
1998 earnings would fall at least between .$08 to $.10 below analysts'
estimates, and talked openly among themselves about their scheme to hide the
deteriorating earnings with a special "charge" attributed to the ECI
acquisition. P. 56. Disclosure of the drastic impact of servicing the preneed
contracts either would require renegotiation or termination of the ECI deal -- a
risk defendants were unwilling to take.
P. 67.

Similarly, on December 14, 1998, when the Merger Agreement was amended,
the Complaint alleges that defendants again failed to disclose materially
deteriorating fourth quarter earnings caused by, inter alia, the impact of the
Company's acquired mortuary trust assets. P. 71. This was less than two weeks
prior to the end of SCI's fourth quarter, by which time defendants were aware of
the extent of the earnings shortfall. P. 71. By that time, defendants knew they
would not be able to continue to conceal SCI's deteriorating financial condition
from the public when it came time to file year end reports with the SEC.P. 56.
Moreover, the true condition of SCI -- not only in the fourth quarter, but
throughout the Class Period, was well known to the Individual Defendants, who
closely monitored results from SCI's many funeral homes through next-day reports
generated by SCI's computer system, "Falcon." P. 56. The Complaint alleges with
the particularity required by Rule 9(b) and the PSLRA, why the statements made
in connection with the ECI merger were false and misleading.(13)

- ----------------
(13) Accordingly, even if plaintiffs were required to state their Sections
11 and 12 claims with particularity -- which they are not -- they have done so.

- 23 -

<PAGE> 31

2. THE COMPLAINT ALSO ALLEGES WITH PARTICULARITY THE
DEFENDANTS' FALSE AND MISLEADING STATEMENTS THROUGHOUT THE
CLASS PERIOD.

Not only does the Complaint satisfy the PSLRA and Rule 9(b)'s
particularity requirements with respect to the defendants' false and misleading
statements in connection with the ECI acquisition, but it also satisfies those
requirements with respect to the defendants' statements throughout the Class
Period. In this case, as in many others, there were material undisclosed facts
concerning the same subject -- SCI's unprofitable acquired preneed funeral
contracts and the impact they were having on the Company's overall profit
margins and performance -- that rendered all of the challenged statements from
the beginning of the Class Period materially false and misleading when made. The
Complaint specifies how and why these undisclosed adverse facts rendered each of
the defendants' affirmative statements identified in the Complaint false and
misleading when made. See P.'s 73, 75, 78, 80, 82, 84, 86, 88, 90, 92, 94, 96,
98, 100, 102, 103, 104, 106-108 (false and misleading statements) followed by
P.'s 74, 76, 77, 79, 81, 83, 85, 87, 89, 91, 93, 95, 97, 99, 101, 105, 109
(detailed explanations of why the statements were materially false and
misleading).

In an attempt to transform plaintiffs' Complaint into a case they might
rather defend, defendants mischaracterize these detailed allegations of fraud as
"conclusory." Def. Mem. at 12-16. Defendants' claim is belied by the Complaint's
specific allegations regarding each of the alleged omissions and misstatements,
which must be deemed to be true on a motion to dismiss. For example, plaintiffs
do not merely "conclude" that the Company's 1998 third quarter 10-Q omitted
material information regarding the Company's underperforming preneed contracts
and mortuary trust assets. P. 100. They allege, very specifically, that the
Company's backlog of prearranged funeral contracts included a material number of
contracts that were backed by mortuary trust assets that were inadequately
funded or were funded by assets invested only to ensure growth adequate to cover
"the

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<PAGE> 32

cost of providing a price guaranteed funeral." P. 101(a). At the time the 1998
third quarter 10-Q was filed, a material number of SCI's funeral services had
been, and would continue to be, performed at significant losses, resulting in an
increasingly sharp erosion in SCI's profit margins for funeral services. P.
101(b).(14)

The Complaint more than adequately satisfies Rule 9(b) and the PSLRA's
particularity requirements. Nothing more is required.

B. THE PRENEED STUDY, ALONG WITH DEFENDANTS' PUBLIC STATEMENTS AND
ADMISSIONS, AMPLY SUPPORT THE ALLEGATIONS IN THE COMPLAINT.

Defendants argue that the collection of select unauthenticated
documents they assert constitute the preneed study rebuts each of plaintiff's
allegations, based on their own, self-serving interpretation of those documents.
This argument -- which clearly addresses the merits of the Complaint -- is
entirely improper on a motion to dismiss where the Court must accept as true
reasonable inferences drawn from plaintiffs' allegations. Khurana v. Innovative
Health Care Systems, Inc., 130 F.3d 143, 147 (5th Cir. 1997); Zuckerman v.
Foxmeyer Health Corp., 4 F. Supp. 2d 618, 621 (N.D. Tex. 1998); accord, In re
Stratosphere Corp. Sec Litig., 1 F. Supp. 2d 1096, 1109 (D. Nev. 1998)(resolving
disputed facts or inferences improper on motion to dismiss).

Defendants' "explanation," which at its core admits the existence of
SCI's preneed problems, goes to SCI's ultimate defense. It is a merits argument,
which should be presented to the jury at trial, after plaintiffs have had their
right to complete merits discovery, and where SCI's "defenses" will be subject
to cross-examination and the rules of evidence; it has no place in a motion to
dismiss. In any

- ------------------
(14)The Complaint also sets forth in detail the number of funeral homes SCI
acquired (P. 20), the increased costs associated with providing funeral
services, (P. 26), SCI's increasing backlog of preneed contracts, (P. 28), the
negative impact on SCI's profit margin (P.'s 36-37), the Company's attempts to
conceal its plunging profit margins (P.'s 42-71), and the admitted negative
impact on earnings resulting from losses on SCI's preneed business. P. 126.

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<PAGE> 33

event, SCI's defense is meritless. Even the select documents defendants rely on,
along with defendants' post Class Period public statements and admissions, amply
support the allegations in the Complaint. Indeed, the defendants have admitted
that fourth quarter earnings shortfall was caused by SCI's unprofitable preneed
business. See P. 126 (excerpting story in industry publication in which
defendant Heiligbrodt stated "the at need value of many of the preneed plans
sold in the 1980's is about 20 percent less than the company presently charges
for its services"); Ans. P. 127 (admitting without qualification, story in
industry publication reporting that "SCI has said in the past that it looses
money on some of its preneed services because the contract was sold at too low a
price").

Defendants do not deny the explosive growth in preneed contracts. See
Ans. P.'s 28 (conceding "between 1992 and 1998, in just a six-year period,
SCI's prearranged funeral contract backlog increased three-fold, from $1.2
billion to $3.7 billion"); P. 31. Defendants also admit that CD's were used to
finance the future cost of performing the funeral services for preneed
customers. Ans. P. 24. And the defendants' own submissions show that SCI had a
material amount of its mortuary trust assets -- 33% -- tied up in cash or other
low risk/low return investments (Exhibit C-1, SCI0009), despite knowing this
percentage was potentially disastrous. See Exhibit C-1, SCI0009: ExhibitC-4
SCI0063 (SCI's "policy" was to invest only 10% of the preneed investments in
cash).(15)

- -----------------
(15)Defendants' reliance on statements in their documents about "return
over inflation" of 2% (Exhibit C-4, SCI0064) to refute the merits of the
Complaint are woefully inapt. "Inflation" refers to a "continuing rise in the
general price level." Merriam Webster's Collegiate Dictionary 598-99 (10th ed.
1993) (emphasis added). The Complaint alleges that there were specific cost
increases in the funeral industry, stating "the costs associated with providing
funeral services increased at an average annual rate of 8.5%. . . ." P. 26.
Thus, defendants knew, or were reckless in not knowing, that a mere 2% return
over inflation (assumed in defendants' documents to be 3.5%, Exhibit C-1,
SCI0005) was totally insufficient in the face of 8.5% cost increases.

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<PAGE> 34

C. PLAINTIFFS ARE NOT REQUIRED BY THE PSLRA OR RULE 9(b) TO IDENTIFY
INTERNAL DOCUMENTS OR INFORMANTS.

Contrary to defendants' argument (Def. Mem. at 21-23), plaintiffs need
not specify which internal documents they relied on or even that they relied on
internal documents at all. The Complaint satisfies the PSLRA by alleging
compelling facts which raise a strong inference of scienter without reference to
any internal documents, and by identifying with particularity the facts that
support plaintiffs' claim that the specific statements made by defendants were
misleading. See Coates v. Heartland Wireless Communications, Inc., 26 F. Supp.
2d 910, 916 (N.D. Tex. 1998). Once a plaintiff sets forth the specifics of an
internal corporate problem and its importance, as plaintiffs have done, the
Second Circuit precedents from which the PSLRA standard is derived do not
require a plaintiff to have personal knowledge or identify precisely how the
problems were communicated to the company's top executives. See, e.g., Cosmas v.
Hassett, 886 F.2d at 12-13 (2d Cir. 1989), Cohen v. Koenig, 25 F.3d 1168, 1173
(2d Cir. 1994); Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir. 1985). The court
in In re Bausch & Lomb Sec. Litig., 941 F. Supp. 1352, 1361 (W.D.N.Y. 1996),
addressed this very issue, and upheld plaintiffs' complaint even though the
"complaint did not point to any specific documents that defendants saw, nor did
it state precisely when or how each individual defendant became aware that the
Company's statements to the public were false or misleading." Id. Notably, the
court concluded, "We will not demand clairvoyance from pleaders." Id. (citation
omitted).

Defendants also assert that plaintiffs must identify the underlying
sources of their factual allegations (i.e., the names of their confidential
informants) before plaintiffs' factual allegations may be accepted as true by
the Court. Def. Mem. at 21-23. However, such a requirement is refuted by the
plain and unambiguous language of the PSLRA. The PSLRA states (for 1934 Act
claims only):

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<PAGE> 35

[T]he complaint shall specify each statement alleged to have been
misleading, the reason or reasons why the statement is misleading, and,
if an allegation regarding the statement or omission is made on
information and belief, the complaint shall state with particularity
all facts on which that belief is formed.

15 U.S.C. Section 78u-4(b)(1) (emphasis added). Thus, even if the Complaint's
allegations were made on "information and belief," the PSLRA requires only that
plaintiffs plead all facts upon which their belief is based, not the sources of
those facts. There is absolutely no reference in the PSLRA to the word "source,"
let alone a requirement that plaintiffs identify their sources by name in a
publicly-filed pleading.(16)

IV. THE COMPLAINT ADEQUATELY ALLEGES SCIENTER

A. THE LEGAL STANDARDS.

Plaintiffs may meet the requirements of Rule 9(b) and the PSLRA as
applied to Section 10(b) by "alleging either motive and opportunity to commit
fraud, or by pleading facts which identify circumstances indicating defendants'
conscious or reckless behavior, so long as the totality of the allegations
raises a strong inference of fraudulent intent. Robertson v. Strassner, 32 F.
Supp. 2d 443, 446 (S.D. Tex. 1998). Accord, Zuckerman v. Foxmeyer Health Corp.,
4 F. Supp. 2d 618, 622 (N.D. Tex. 1998), STI Classic Fund v. Bollinger
Industries, Inc., 1996 U.S. Dist. Lexis 21553, *3

- ------------------
(16) An earlier draft of the PSLRA (requiring plaintiffs to plead "all
information") was ultimately changed to require only the pleading of "all
facts." This change was proposed by Judge Anthony Scirica of the Third Circuit
on behalf of the Judicial Conference of the United States in order to conform
the requirements of Section 21D(b)(1) of the PSLRA to those set forth in Rule
9(b). See 141 Cong. Rec. S19044-45 (Dec. 21, 1995) (remarks of Senator Domenici
reproducing letter from the Hon. Anthony Scirica). See also House-Senate
Conference Report, H. R. Rep. No. 104-369, at 41 (Nov. 28, 1995) (noting that
the final text was "specifically written to conform the language to Rule 9(b)'s
notion of pleading with 'particularity'"); Schaffer v. Evolving Sys., Inc., 29
F. Supp. 2d 1213, 1223 (D. Colo. 1998) (holding that Section 78u-4(b)(1) appears
to be "merely a codification" of pre-existing Rule 9(b) jurisprudence).

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<PAGE> 36

(N.D. Tex. 1996)(holding that the "motive and opportunity" test survived the
PSLRA). See also, Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 537-38 (2d
Cir. 1999).

Defendants incorrectly argue that the Fifth Circuit's decision in
Williams v. WMX Techs., Inc., 112 F.3d 175, 178 (5th Cir.) cert. denied, 118
S.Ct. 412 (1997), is inapposite. In Williams, the Fifth Circuit applied the
Second Circuit's approach to proper pleading of securities fraud allegations,
and expressly stated that, although the case before it was filed prior to the
PSLRA's effective date, "the [PSLRA] adopted the same standard we apply today."
Id. at 177-178. It is therefore hardly surprising that of the seven published
and unpublished district court cases in the Fifth Circuit that have commented on
the pleading requirements for the scienter element under the PSLRA, all but one
- - - Parcelsus, 1998 WL 1108373 (N.D. Tex. 1998) -- interpret the act to allow a
plaintiff to plead scienter by showing motive and opportunity. See, McNamara v.
Bre-X Minerals Ltd., 57 F. Supp. 2d 396 (E.D. Tex. 1999)(circumstantial evidence
of conscious misbehavior or recklessness satisfies the pleading requirement;
facts showing motive and opportunity can also satisfy the requirement, although
they may not always do so conclusively); Coates v. Heartland Wireless
Communications, Inc., 55 F. Supp. 2d 628, 633 (N.D. Tex. 1999)("This court holds
that scienter can be pleaded based on motive and opportunity to commit fraud;
Hartsell v. SourceMedia, Inc., 1999 WL 649645 (N.D. Texas 1999) ("allegations of
motive and opportunity are sufficient.")17; accord Robertson v. Strassner,

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(17)The transcript of the hearing in Hartsell v. Source Media Inc., No.
3:98-CV-1980-R (N.D. Tex. July 15, 1999) before Judge Buchmeyer is attached
hereto as Exhibit A. Judge Buchmeyer rejected the Ninth Circuit's opinion in
Silicon Graphics, supra, finding that the better approach allows plaintiffs to
prove scienter through motive and opportunity. Exh. A, pg. 33, 15-25.

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<PAGE> 37

32 F. Supp. 2d 443 (S.D. Tex. 1998); Zuckerman v. Foxmeyer Health Corp., 4 Supp.
2d 618 (S.D. Tex. 1998); STI Classic Fund v. Bollinger Industries, Inc., 1996 WL
885802 (N.D. Tex. 1996).(18)

In Re Silicon Graphics II, 183 F.3d at 977-79 (9th Cir. 1999), heavily
relied on by defendants, is at odds with this Circuit's interpretation of the
PSLRA's pleading requirements, as is evident from WMX Technologies and district
court cases such as Zuckerman and Strassner. See also In re Advanta Corp. Sec.
Litig., 1999 WL 395997, at *3 (3d Cir. June 17, 1999) (noting that the Fifth
Circuit in Williams concluded that the PSLRA codified the Second Circuit
standard for pleading scienter). Indeed, none of the other Circuit Courts to
address the PSLRA thus far (the First, Second, Third, Sixth and Eleventh) have
taken the extreme view endorsed by the Silicon Graphics court, and have held
that motive and opportunity are either alone sufficient to prove scienter or can
- -- at minimum -- constitute strong evidence of the requisite state of mind. See,
Greebel v. FTP Software, Inc., 1999 WL 902898 (1st Cir. 1999); Press v. Chemical
Investment Services Corp., 166 F.3d 529, 538 (2d Cir. 1999); In re Advanta,
supra. In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 549 (6th Cir. 1999);
Bryant v. Avado Brands, Inc., 1999 WL 688050, *12 (11th Cir. 1999).

Defendants also indulge in a misguided attempt to minimize the strong
allegations of fraudulent intent by dissecting plaintiffs' allegations, and
arguing that each factor, standing alone, is insufficient to prove scienter.
Def. Mem. at 33-37. This argument is based on a misinterpretation of the PSLRA,
which requires that the totality of the allegations raises a strong inference of
fraudulent intent. Robertson v. Strassner, 32 F. Supp. 2d at 446. Accord,
Zuckerman v. Foxmeyer Health

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(18)Defendants' arguments that the PSLRA imposed a new scienter standard
based on legislative history have been considered and discussed at great length
by the district courts ruling on the issue, and then rejected. "[T]he
Legislative history of the [Reform Act] does not indicate that Congress acted to
eliminate recklessness as a basis for scienter. . . ." McNamara, 57 F.Supp. at
634 (citing Marksman Partners, L.P. v. Chantal Pharm. Corp., 927 F.Supp. 1297,
1310 (C.D. Cal. 1996).

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<PAGE> 38

Corp., 4 F. Supp. 2d 618, 622 (N.D. Tex. 1998). This case does more than raise
allegations that defendants made false and misleading statements to maintain
favorable ratings on debt securities (Def. Mem. at 33) or to consummate a merger
(Def. Mem. at 34) alone. Viewed in totality, the Complaint's numerous, detailed
allegations set forth amply defendants' motive, opportunity, and reckless or
deliberate conduct in compliance with the PSLRA.

B. THE DEFENDANTS ACTED WITH ACTUAL KNOWLEDGE OR A RECKLESS DISREGARD
FOR THE TRUTH.

The Complaint alleges specific facts which create a strong inference
that the defendants acted with, at least, a reckless disregard for the truth,
and in many instances, acted intentionally and deliberately, including:

o According to SCI insiders, by November 1998 the individual defendants
knew that SCI's fourth quarter earnings would fall at least between $.08 to $.10
below analysts' estimates.
P. 56;

o Senior executives and the defendants were not only aware of the
impending earnings shortfall, they openly discussed how to hide the shortfall
from investors and plotted an intricate plan to "bury" the shortfall in a
one-time charge that SCI would take in connection with the ECI merger.
P. 56;

o The Falcon system provided the individual defendants daily, weekly,
and monthly profit/loss reports from each of the Company's more than 3,000
domestic funeral homes. Falcon reported SCI's performance of a material number
of unprofitable preneed funerals as well as undisclosed changes in SCI's costs,
for each and every funeral home owned by SCI, making it simply not credible that
these defendants were unaware of SCI's financial performance. P. 20, 56;

o Due to the Falcon system's reporting methods and the extremely high
level of recurring, budgeted, fixed costs which do not fluctuate in the death
care industry, death care providers such as SCI, can easily predict quarterly
results. Defendants knew that fourth quarter results -- absent "burial" of the
preneed impact in an ECI-related charge -- would be significantly less than
estimated. P. 119; and

o Defendant Heiligbrodt admitted, subsequent to the Class Period, that
the Company's earnings shortfalls reported for fiscal year 1998 resulted from
losses on SCI's preneed business, P.'s 126, 127.

- 31 -

<PAGE> 39

Moreover, the Individual Defendants controlled and approved the
issuance of SCI's financial statements, press releases, and SEC filings during
the Class Period. The magnitude of the fraud also supports the strong inference
of scienter: On January 26, 1999, SCI announced that its fourth quarter 1998
gross profits declined 19% from its third quarter gross profits and 24% from
SCI's fourth quarter 1997 gross profits. SCI's EPS for the fourth quarter of
1998 were a remarkable 36% below SCI's EPS for the fourth quarter of 1997 and
45% below the consensus estimate. P. 123. The magnitude of the completely
unexpected shortfall caused SCI's shares to drop over 44% in one day. P. 124.
Rehm v. Eagle Finance Corp., 954 F. Supp. 1246, 1254 (N.D. Ill. 1997)("[t]he
more serious the error, the less believable are defendants' protests that they
were completely unaware of defendants true financial status and the stronger the
inference that defendants must have known about the discrepancy.").

There is also the close proximity of the January 26, 1999 disclosure of
SCI's deteriorated finances and the date on which the completion of the ECI
merger was closed, a lapse of only five business days. P. 123. Defendants'
failure to reveal the material, negative impact of the debilitating inherited
preneed and inadequately invested mortuary trust assets is itself strong
circumstantial evidence of scienter. See, e.g., Powers v. Eichen, 977 F. Supp.
1031, 1039 (S.D. Cal. 1997) (Where "bad news" was disclosed approximately four
weeks after defendants' optimistic statements were made the court held that
"[t]he proximity of the bad news to the dates that the defendants made
optimistic statements is circumstantial evidence that the defendants knew that
their optimistic statements were false."); Friedberg v. Discreet Logic Inc., 959
F. Supp. 42, 51 (D. Mass. 1997)(court upheld a complaint where the time lapse
between the optimistic statements and the

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<PAGE> 40

disclosure of negative news was approximately two months because of "the
temporal proximity between an alleged misstatement and the later disclosure of
inconsistent information.").

C. DEFENDANTS ALSO HAD MOTIVE AND OPPORTUNITY TO ENGAGE IN THE
FRAUDULENT SCHEME.

Defendants also had both motive and opportunity to create a false
picture of SCI's operating condition in order to maintain its artificially
inflated stock price. It is undisputed that the Individual Defendants, all high
ranking officers of SCI with access to internal documents, "Falcon" generated
reports from each separate funeral home, attendance at regular meetings, and
inside knowledge of the Company's affairs, had the opportunity to engage in the
fraudulent scheme. P.'s 8-15. Defendants also had motive.

To plead motive adequately requires a showing of "concrete benefits
that could be realized by one or more of the false statements." In re Health
Management, 970 F. Supp. 192, 202 (E.D.N.Y. 1997), quoting Shields v. Citytrust
Bancorp, 25 F.3d 1124, 1128 (2d Cir. 1994)(internal quotations omitted). Here,
defendants were motivated to keep the price of SCI's stock as high as possible
prior to the effective date of the ECI merger. The ECI acquisition was critical
to SCI's ability to turn around its increasingly unprofitable acquired preneed
business. P. 111. As a result of SCI's disclosure on January 26, 1999, the
consideration paid for each share of ECI common stock in the Merger was cut
virtually in half. P. 124. ECI shareholders who received SCI common stock worth
$25.53 per share when the deal closed, now held shares worth only $12.79 per
share. P. 124. The total consideration paid for ECI was effectively reduced from
$556 million to $278 million. Id.

Allegations that defendants were motivated to issue false and
misleading statements in order to complete stock-for-stock acquisitions
sufficiently pleads motive. See Gross v. Medaphis Corp., 977 F.Supp. 1463, 1471
(N.D. Ga. 1997); Marra v. Tel-Save Holdings, Inc., 1999 WL 317103 (E.D.Pa.

- 33 -

<PAGE> 41

1999). In Tel-Save, the court found a strong inference of fraudulent intent
where plaintiffs identified a specific acquisition that occurred during the
class period which was funded by a combination of Tel- Save stock and cash. Id.
at *9. See also, Duncan v. Pencer, No. 94 Civ. 0321, U.S. Dist. LEXIS 401, at
*48-49 (S.D.N.Y. Jan. 18, 1996) (company's motive to obtain monies to "fund its
expansion and otherwise satisfy its financial needs" held sufficient to
withstand a motion to dismiss); Harvey M. Jasper Retirement Trust v. Ivax Corp.,
920 F.Supp. 1260, 1264-65 (S.D. Fla. 1995) (allegations that defendants inflated
stock price to use as currency in stock-for-stock merger transaction showed what
defendants gained by their misrepresentations).(19)

In addition to consummating the ECI merger -- and consummating it on
terms favorable to SCI -- defendants were motivated to misrepresent SCI's true
financial condition because:

o Defendants needed to maintain favorable ratings on debt securities,
in particular, the May 29, 1998 registration of up to $1 billion of debt, common
stock and warrants, and an October 15, 1998 registration for $500 million in SCI
preferred stock. By failing to disclose the nature of SCI's unprofitable preneed
business, SCI was able to save millions of dollars in interest payments that
would otherwise have been paid to bondholders. P.'s 113-115; and

o It was necessary for SCI to retain its favorable Standard & Poor's
credit rating in order to continue to "avail itself of much need funds" to
further its acquisition spree, revenues from which SCI used to mask the poor
performance of its prearranged funeral contracts. P.'s 116-117; Ans. P. 114
(emphasis added.)

Finally, defendants argue that any inference of scienter is negated by
the absence of insider trading. Def. Mem. at 36-36. SCI did, however, engage in
insider trading by exchanging inflated

- -----------------
(19) While it may be that "unsubstantiated allegations that [a company]
sought to inflate its market price to consummate unspecified acquisitions do not
raise a strong inference of scienter," In re Home Health Corp. of America, Inc.
Sec. Litig., 1999 WL 79057, *15 (E.D. Pa. 1999), that is not the case here. The
allegations about SCI's stock-for-stock merger with ECI are neither
unsubstantiated nor unspecified. Defendants reliance on Leventhal v. Tow, 1999
WL 270089, *10-11 (D. Conn. 1999) and Health Management, supra, is misplaced. In
both cases, the court found that allegations that defendants were motivated by a
desire to complete unspecified future stock-for-stock transactions was
insufficient to allege scienter.

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<PAGE> 42

SCI stock for ECI stock in the Merger, an act defendants admit "constituted a
sale of securities." within the meaning of the statue prohibiting "selling a
security while inpossession of material, nonpublic information." 15U.S.C.
Section 78t-1. Ans. P. 171. Moreover, in the face of detailed, substantial
allegations of motive, opportunity, and a reckless disregard for the truth, even
the absence of insider trading by any defendant is no defense to a well-pled
complaint. See e.g., STI Classic Fund v. Bollinger Indus. Inc., 1996 U.S. Dist.
LEXIS 21553, at *5-6 (N.D. Tex. Oct. 25, 1996) (motive established in post-PSLRA
case despite absence of any insider trading); In re Wells Fargo, 12 F.3d 922,
931 (9th Cir. 1993) (allegations of unusual insider trading not required to
establish scienter); In re Compaq Sec. Litig., 848 F. Supp. 1307, 1311 (S.D.
Tex. 1993). Accord Hanon v. Dataproducts Corp., 976 F.2d 497, 507 (9th Cir.
1992); Cosmas v. Hassett, 886 F.2d 8, 13 (2d. Cir. 1989). Indeed, post-PSLRA
decisions have found scienter in the absence of any insider trading. See, e.g.,
Gross, 977 F.Supp. at 1472 (scienter established through allegations that
defendants made false statements in order to inflate the value of its stock
thereby facilitating the acquisition of other companies); Epstein v. Itron,
Inc., 993 F.Supp. 1314, 1326-27 (E.D. Wash. 1998).(20)

Considering the totality of the circumstances in this case, including
the fact that insider trading is not required to establish scienter, and the
particularized facts demonstrating defendants knew of the

- ---------------
(20)The Individual Defendants also had motives to maintain and enhance the
price of SCI common stock to protect and enhance their executive positions and
the substantial compensation and prestige obtained thereby. See, e.g., Zuckerman
v. Foxmeyer Health Corp. 4 F. Supp. 2d 618, 627 (N.D. Tx. 1998) (personal
pecuniary benefits can create a strong motive to engage in fraud); In re Compaq
Sec. Litig., 848 F. Supp. at 1311; Weiner v. Quaker Oats Co., 129 F. 3d 310, 318
n.8 (3d Cir. 1997); Blake v. Dierdorff, 856 F.2d 1365, 1369-70 (9th Cir. 1988).
See also Wells Fargo 12 F.3d at 931 (allegations that defendants "stood to
receive more compensation because of the alleged non-disclosure of material
information" sufficient to raise an inference of scienter); In re Digi Int'l
Inc. Sec. Litig., 6 F. Supp. 2d 1089, 1098 (D. Minn. 1998) (holding that
allegations that individual defendants could receive substantially more
performance-based compensation as a result of misrepresentations constituted
evidence of scienter).

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<PAGE> 43

adverse impacts of SCI's multi-billion dollar preneed funeral backlog on SCI's
profit margins and earnings, there can be no doubt that defendants had both the
motive and opportunity to commit fraud. See, Robertson v. Strassner, 32 F. Supp.
2d at 449 (defendants "misperceive Plaintiffs' allegations as to motive and
place[d] undue reliance on Defendants' sales of OEDC stock"); see also
Zuckerman, 4 F. Supp. 2d at 627 ("[a]fter consideration of the entire complaint,
the Court is of the opinion that Plaintiffs have succeeded in alleging
scienter).

V. THE FALSE AND MISLEADING STATEMENTS CHALLENGED IN THE
COMPLAINT ARE NEITHER "PUFFERY" NOR "FORWARD LOOKING."

A. DEFENDANTS' STATEMENTS REGARDING SCI'S GROWTH AND PROFITABILITY
ARE MORE THAN MERE CORPORATE PUFFERY.

Defendants argue that numerous statements alleged to be false and
misleading in the Complaint are merely statements of "corporate optimism." Def.
Mem. at 24. Unable to refute the actual statements alleged to be false and
misleading, defendants cite -- piecemeal -- to one or two sentences taken out of
context from plaintiffs' allegations. In fact, when these very allegations are
viewed in their entirety, it is evident that these statements are not only false
and misleading, but actionable. See, e.g., P.'s 75, 84, 78, 96. For example, P.
75 challenges a series of statements by defendant Heiligbrodt about SCI's
acquisition of American Life, statements defendants claim are merely "vaguely
optimistic statements." Def. Mem. at 24. Not true.

Heiligbrodt's statements were intended to and did convey the impression
to the investing public that SCI was in the midst of a "profitable expansion
into the preneed insurance business" and that SCI's acquisition of American
Memorial was undertaken to build on and increase the profitability of its
existing preneed "profit base". See P.'s 74(a-f), 75-76. In fact, when
Heiligbrodt's statements were made, SCI's profitability was being severely
undercut by its existing backlog of preneed funeral

- 36 -

<PAGE> 44

contracts. The acquisition of American Memorial and planned expansion into
preneed insurance was an attempt to fraudulently mask the growing reductions in
SCI's overall profit margins caused by having to provide unprofitable
prearranged funeral services and to ensure that SCI would not be saddled with
even more dormant and underperforming mortuary trust assets. P. 76.

Similarly, in P. 84, which defendants also challenge as "mere puffery",
defendant Champagne characterized "the most compelling way" for SCI to "increase
its market share" was to "increase the level of the prearranged funeral
business". P. 84. With respect to the American Memorial acquisition, Champagne
added: "You're effectively building your backlog of funding for pre-arranged
funerals which has the effect of expanding or maintaining SCI's prearranged
funeral business...[t]hat is a very important aspect to a company like SCI.
There is a lot of competition for prearranged funeral business." P. 84.

Defendants' statements touting SCI's acquisition and boasting of the
growing and enormous volume of preneed funeral business -- a critical cause of
SCI's devastating January 26 earnings shortfall -- was an act designed to
mislead the investing public. To imply, as the defendants do in their brief,
that investors would dismiss as mere "puffery" statements about the strength of
SCI's preneed business -- which by defendants' own representations constituted a
"very important aspect" of SCI's business -- is just disingenuous. See also, P.
78 (defendants' discussion of the increasing backlog of prearranged funeral
contracts without any mention of the resulting adverse impact on profit margins
caused by unprofitable acquired contracts); P. 80 (discussion of SCI's "leading
market positions" without disclosure of how SCI became a "market leader" through
the acquisition of funeral homes with underperforming preneed mortuary trust
assets); P. 82 (comparing ECI's operational

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<PAGE> 45

systems to SCI's, notably excluding disclosure that ECI, unlike SCI, had an
established program to ensure its ability to cover the cost of prearranged
funerals).(21)

Contrary to defendants' assertions, federal courts repeatedly have
upheld challenges to statements far more general than those they label "too
vague" in this case. As long as a reasonable investor could arguably rely on the
statement, "general expressions of optimism may be actionable under the federal
securities laws." Hanon v. Dataproducts Corp., 976 F.2d 497, 501 (9th Cir.
1992); Virginia Bankshares v. Sandberg, 501 U.S. 1083, 1091-93 (1991)(even
"indefinite and unverifiable" expressions of insiders "are reasonably understood
to rest on a factual basis that justifies them as accurate."). See also, Cooper
v. Pickett, 137 F.3d 616, 629 (9th Cir. 1997)(general statements of optimism
actionable "if not genuinely or reasonably believed, or if the speaker is aware
of undisclosed facts that tend seriously to undermine the statement's
accuracy").

B. DEFENDANTS' STATEMENTS AND OMISSIONS ARE NOT PROTECTED BY THE
SAFE HARBOR PROVISIONS OF THE PSLRA.

Defendants' contention that the misrepresentations alleged are
"forward- looking," and therefore protected by the statutory safe harbor
provision (Def. Mem. at 21-26), is wrong. Defendants, of course, concede that
their omissions are not protected by any safe harbor provision. The Complaint's
allegations challenge statements of then existing known facts, not

- -------------------
(21)Defendants' reliance on In re Verifone Sec. Litig., 784 F. Supp. 1471,
1482 (N.D. Ca. 1992), is misplaced. There the court held that a corporation need
not disclose "its own internal forecasts or otherwise provide the market with
the corporation's prediction of its own future. The decision was based on the
belief that disclosure of predictions is "duplicative information already known
to most analysts," that such predictions were likely to be a "hinderance, not a
benefit, to investors," and that the securities laws do not oblige a corporation
to bury shareholders with trivial information. Id. at 1482-83. The Complaint
here alleges, however, that the defendants violated the securities laws by
failing to disclose "hard" factual information about SCI's unprofitable acquired
preneed business and mortuary trust assets. See, e.g., P.'s 29-37. Disclosure
of internal forecasts or "soft" information is simply not at issue.

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<PAGE> 46

"forward-looking" information, and therefore do not fall within the statutory
safe harbor. See Harris v. Ivax, 182 F.3d 799, 806 (11th Cir. 1999) ("Of course,
if any of the individual sentences describing known facts (such as the
customer's bankruptcy) were allegedly false, we could easily conclude that the
smaller, non-forward-looking statement falls outside the safe harbor."). The
nature of the fraud in this case is the defendants' concealment of the ongoing
effect of SCI's existing acquired preneed business -- the negative impact of
which was fully known to defendants throughout the Class Period, and which
continued to adversely impact the Company's profitability. See, e.g., Gross v.
Medaphis, 977 F. Supp. at 1473 ("the statutory safe harbor, like the 'bespeaks
caution' doctrine, does not insulate defendants from private securities
liability based on statements that misrepresent historical/hard or current
facts").

Even if any of the statements detailing SCI's ongoing and past business
operations could somehow be considered "forward-looking" -- which they simply
cannot -- none of the statements were accompanied by "meaningful cautionary
statements." See Harris v. Ivax, 182 F.3d at 804, 806 ("A defendant can fully
benefit from the safe harbor's shelter only when it has disclosed risk factors
in a warning accompanying the forward looking statement."). Defendants' reliance
on SCI's warnings about such generalized "risks" as the state of the economy and
SCI's level of acquisition activity is misplaced. Def. Mem. at 27. Nothing
specific, unique or meaningful in respect to the actual, and then existing,
material problems that SCI had already and was continuing to experience with its
unprofitable acquired preneed business, the failure to properly invest mortuary
trust assets or the resulting impact on SCI's profitability as a result of
having to service contracts at a loss was ever disclosed during the Class
Period.

- 39 -

<PAGE> 47

Investors had to wait until after the Class Period and after the
closing of the Merger -- when defendant Heiligbrodt admitted that the earnings
shortfall was due to the underperforming preneed contracts -- to discover the
truth about the Company's financial situation. Defendants cannot seek shelter
within the PSLRA's safe harbor to escape liability for deceiving and defrauding
the investing public.(22)

CONCLUSION

For all of the foregoing reasons, the Court should deny defendants'
motion in all respects.

DATED: November 5, 1999
Respectfully submitted,

By:
--------------------------------
ROGER B. GREENBERG
Attorney-in-Charge
State Bar No. 08390000
12 Greenway Plaza, 10th Fl.
Houston, TX 77046
(713) 627-2720
(713) 627-7057 Fax

LEAD COUNSEL FOR PLAINTIFFS

OF COUNSEL:

GREENBERG, PEDEN, SIEGMYER & OSHMAN, P.C.
David E. Sharp
Tenth Floor, 12 Greenway Plaza
Houston, TX 77046
(713) 627-2720
(713) 627-7057 Fax

- ---------------
(22)Plaintiffs have also stated claims against the Individual Defendants as
"control persons" of SCI pursuant to Sections 20(a) and 15. See,. e.g., P.'s
166-173. Defendants do not contest the Individual Defendants' "control" status,
relying instead entirely on their mistaken assertion that the Complaint does not
state claims for primary liability. Def. Mem. at 4, n.4.

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<PAGE> 48

<TABLE>
<S> <C>
WOLF POPPER LLP BERGER & MONTAGUE, PC
Robert M. Kornreich Todd S. Collins
Paul O. Paradis Michael L. Block
Peter Safirstein 1622 Locust Street
Catherine E. Anderson Philadelphia, PA 19103
845 Third Avenue
New York, NY 10022 BOIES & SCHILLER, LLP
Richard Drubel
BERMAN, DEVALERIO & PEASE LLP 26 South Main Street
Glen DeValerio Hanover, New Hampshire 03755
Michael T. Matraia
One Liberty Square BRUCE G. MURPHY
Boston, MA 02109 265 Llywyd's Lane
Veto Beach, Florida 32963
BERNSTEIN LITOWITZ BERGER
& GROSSMANN, LLP CHANDLER LAW OFFICES
Douglas M. McKeige George Chandler
1285 Avenue of the Americas P.O. Box 3400
33rd Floor Lufkin, TX 75901
New York, NY 10019
CLAXTON & HILL, PLLC
LAW OFFICES OF STEVEN E. CAULEY, PA Roger F. Claxton
Steven E. Cauley Robert J. Hill
Suite 218, Cypress Plaza 3131 McKinney Avenue - LB 103
Little Rock, AK 72212 700 McKinney Place
Dallas, Texas 75204-2471
COHEN, MILSTEIN, HAUSFELD & TOLL, PLLC
Steven J. Toll CONSTANT & VELA
999 Third Avenue, Suite 3600 Anthony Constant
Seatlle, WA 98104 802 North Caranachua
Suite 1570
MILBERG WEISS BERSHAD Corpus Christi, TX 78401
HYNES & LERACH LLP
Abraham Rappaport CRUSE, SCOTT, HENDERSON & ALLEN, LLP
Maya Saxena Sam W. Cruse
5355 Town Center Road 600 Travis Street, Suite 3900
Suite 900 Houston, TX 77002-2910
Boca Raton, FL 33486
FARUQI & FARUQI
ABBEY, GARDY & SQUITIERI LLP Nadeem Farqui
Mark S. Gardy 415 Madison Avenue
212 East 39th Street New York, NY 10017
New York, NY 10016

BARRACK, RODOS & BACINE
2001 Market Street, 33rd Floor
Philadephia, PA 19103
</TABLE>

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<PAGE> 49

<TABLE>
<S> <C>
FINKELSTEIN & KRINSK LAW OFFICES OF DENNIS J. JOHNSON
Howard D. Finkelstein Dennis J. Johnson
Jeffrey R. Krinsk 1690 Williston Road
501 West Broadway, Suite 1250 South Burlington, VT 05403
San Diego, CA 92101-3579
LOCKRIDGE, GRINDAL, NAUEN & HOSTEIN,
FRANK & ROSEN PLLP
Alan L. Frank Richard A. Lockridge
David T. Shulick Karen M. Hanson
1835 Market Street, Suite 320 100 Washington Avenue South, Suite 2200
Philadelphia, PA 19103 Minneapolis, MN 55401

HOEFFNER, BILEK & EIDMAN LOWEY DANNENBERG BEMPORAD
Thomas E. Bilek & SELINGER PC
720 Lyric Office Center Richard Bemporad
440 Louisiana, Suite 720 David C. Harrison
Houston, TX 77002 The Gateway - 11th Floor
One North Lexington Avenue
JAROSLAWICZ & JAROS White Plains, NY 10601-1714
David Jaroslawicz
150 William Street LYNN STODGHILL MELCHIMER
New York, NY 10038 AND TILLOTSON, LLP
Thomas M. McIsheimer
KAPLAN, KILSHEIMER & FOX LLP M. Brett Johnson
Robert N. Kaplan 750 N. Pearl Street, Suite 1400
Peter A. Lennon Dallas, TX 75201
Janine R. Azriliant
685 Third Avenue, 26th Floor RABIN & PECKEL LLP
New York, NY 10017 Marvin L. Frank
Joseph V. McBride
KENNETH A. ELAN 275 Madison Avenue, 34th Floor
217 Broadway, Suite 404 New York, NY 10016
New York, NY 10007
SCHIFFRIN & BARROWAY, LLP
KIRBY MCINERNEY & SQUIRE Andrew L. Barroway
Jeffrey H. Squire David Kessler
Ira M. Press Three Bala Plaza East, Suite 400
830 Third Avenue, 10th Floor Bala Cynwyd, Penn. 19004
New York, NY 10022
SCOTT & SCOTT
LAW OFFICES OF CLAYTON E. DARK, JR. Neil Rothstein
Clayton E. Dark, Jr. 108 Norwich Avenue
P.O. Box 2207 P.O. Box 192
Lufkin, TX 75902-2207 Cochester, CT 06415
</TABLE>

- 42 -

<PAGE> 50

SCOTT, DOUGLASS & MCCONNICO, LLP
Stephen E. McConnico
600 Congress Avenue, 15th Floor
Austin, TX 78701-2334

SPECTOR & ROSEMAN, PC
Eugene A. Spector
Jeffrey L. Kodroff
1818 Market Street, Suite 2500
Philadelphia, PA 19103

STULL STULL & BRODY
Jules Brody
Aaron Brody
6 East 45th Street
New York, NY 10017

SUSMAN GODFREY LLP
Kenneth S. Marks
5100 First Interstate Bank Plaza
1000 Louisiana
Houston, TX 77002-5096

THE OLSEN LAW FIRM
Kurt Olsen
2121 K. Street, N.W. Suite 800
Washington, D.C. 20037

WEISS & YOURMAN
Joseph H. Weiss
551 Fifth Avenue, Suite 1600
New York, NY 10176

WHITTINGTON, VONSTERNBERG, EMERSON
& WILSHER, LLP
John G. Emerson, Jr.
2600 South Gessner, Suite 600
Houston, TX 77063

WOLF, HALDENSTEIN, ADLER, FREEMAN
& HERZ, LLP
Fred T. Isquith
Robert Abrams
270 Madison Avenue
New York, NY 10016

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<PAGE> 51

CERTIFICATE OF SERVICE

I do hereby certify that on this the 5th day of November 1999, a true
and correct copy of the Opposition has been duly and properly serviced upon
counsel of record in accordance with the Federal Rules of Civil Procedure.

-----------------------------------------
David E. Sharp

- 44 -

<PAGE> 1
EXHIBIT 99.5

NO. _______________

JAMES P. HUNTER, III and ) IN THE DISTRICT COURT
JAMES P. HUNTER, III FAMILY TRUST, )
)
Plaintiffs, )
)
vs. )
)
)
SERVICE CORPORATION INTERNATIONAL, ) ANGELINA COUNTY, TEXAS
ROBERT L. WALTRIP, )
L. WILLIAM HEILIGBRODT, )
GEORGE R. CHAMPAGNE, )
W. BLAIR WALTRIP, )
JAMES M. SHELGER, )
WESLEY T. MCRAE and )
PRICEWATERHOUSECOOPERS, L.L.P. )
) ________ JUDICIAL DISTRICT
Defendants. )

PLAINTIFF'S ORIGINAL PETITION

TO THE HONORABLE JUDGE OF SAID COURT:

Plaintiffs James P. Hunter, III and James P. Hunter, III Family Trust
complain of defendants Service Corporation International, Robert L. Waltrip,
L. William Heiligbrodt, George R. Champagne, W. Blair Waltrip, James M. Shelger,
Wesley T. McRae and PricewaterhouseCoopers, L.L.P. and for cause would show the
following:

NATURE OF ACTION

1. Plaintiffs (collectively Hunter), sues for fraud and misrepresentation
under state statutory and common law. Hunter gave up shares and stock options in
Equity Corporation International (Equity) and acquired the shares of Service
Corporation International (SCI) in the stock-for-stock merger of Equity into SCI
(the Merger) on January 19, 1999. Jim Hunter also surrendered his positions as
Chairman, CEO, and President of Equity and accepted instead a position
<PAGE> 2
as an employee and officer of SCI. As the top executive officer of Equity and
its chairman, as well as one of Equity's largest shareholders, Jim Hunter's
consent to the Merger was essential to its consummation. To persuade Jim Hunter
to consent to the Merger and to accept employment by SCI, SCI and the other
defendants hid knowledge they had and were under a duty to disclose concerning
SCI's poor financial performance in the quarter ending December 31, 1998. In so
doing, defendants misrepresented and concealed material information that, had
it been disclosed, would have resulted in termination of the transaction.

II.

JURISDICTION AND VENUE

2. The claims asserted herein arise under the Texas Securities Act, Tex.
Rev. Civ. Stat art. 581-33, Tex. Bus. & Comm. Code Section 27.01, common law
fraud, negligent misrepresentation, and conspiracy.

3. This Court has jurisdiction pursuant to Tex. Gov. Code Sections 24.007
and 24.008.

4. Venue is proper in this Court pursuant to Tex. Civ. Prac. & Rem. Code
Section 15.002.

III.

PARTIES

5. Plaintiff Jim Hunter is a resident of Lufkin, Texas. Jim Hunter was the
Chairman of the Board, President, and Chief Executive Officer of Equity from the
time of its spin-off in 1990 from SCI until the Merger. Jim Hunter built Equity
into the fourth largest publicly-traded provider of deathcare services and
products in the United States, and increased annual revenues from $18 million in
1990 to an estimated $206 million in 1998.

6. Defendant SCI is a corporation organized under the laws of the State of
Texas with its principal executive offices located at 1929 Allen Parkway,
Houston, Texas. J. Clifford Gunter,

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<PAGE> 3
III, of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana Street,
Suite 2900, Houston, Texas 77002 has been authorized by defendant SCI to accept
service of this Plaintiffs' Original Petition. A copy of Plaintiffs' Original
Petition has been delivered to him.

7. Defendant Robert L. Waltrip (Waltrip) is the Chief Executive Officer
and Chairman of the Board of SCI. Waltrip resides in Houston, Texas. J. Clifford
Gunter, III, of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana
Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant
Waltrip to accept service of this Plaintiffs' Original Petition. A copy of
Plaintiffs' Original Petition has been delivered to him.

8. L. William Heiligbrodt (Heiligbrodt) was the President and Chief
Operating Officer of SCI from before the time he contacted Hunter on July 22,
1998, to ask Hunter to consider the Merger, until February 11, 1999. J. Clifford
Gunter, III, of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana
Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant
Heiligbrodt to accept service of this Plaintiffs' Original Petition. A copy of
Plaintiffs' Original Petition has been delivered to him.

9. George R. Champagne (Champagne) has been the Executive Vice President
and Chief Financial Officer of SCI since before July 22, 1998. J. Clifford
Gunter, III, of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana
Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant
Champagne to accept service of this Plaintiffs' Original Petition. A copy of
Plaintiffs' Original Petition has been delivered to him.

10. W. Blair Waltrip (Blair Waltrip) is the son of R. L. Waltrip and has
been an Executive Vice President of SCI since before July 22, 1998. J. Clifford
Gunter, III, of the law firm of Bracewell & Patterson, L.L.P., 711 Louisiana
Street, Suite 2900, Houston, Texas 77002 has been authorized by defendant Blair
Waltrip to accept service of this Plaintiffs' Original Petition. A copy

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of Plaintiffs' Original Petition has been delivered to him.

11. James M. Shelger (Shelger) is the Senior Vice President, Secretary and
General Counsel of SCI and has held such position since before July 22, 1998.
J. Clifford Gunter, III, of the law firm of Bracewell & Patterson, L.L.P., 711
Louisiana Street, Suite 2900, Houston, Texas 77002 has been authorized by
defendant Shelger to accept service of this Plaintiffs' Original Petition. A
copy of Plaintiffs' Original Petition has been delivered to him.

12. Defendant Wesley T. McRae (McRae) was the Controller of SCI during
1998. J. Clifford Gunter, III, of the law firm of Bracewell & Patterson,
L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas 77002 has been
authorized by defendant McRae to accept service of this Plaintiffs' Original
Petition. A copy of Plaintiffs' Original Petition has been delivered to him.

13. Defendants Waltrip, Heiligbrodt, Champagne, Blair Waltrip, Shelger,
and McRae (the Individual Defendants), as senior officers or directors of SCI,
were controlling persons of the Company. Each exercised his power and influence
to cause SCI to engage in the fraudulent acts and practices complained of
herein.

14. Defendant Pricewaterhouse Coopers, L.L.P. (Pricewaterhouse) is a
national accounting firm with offices throughout the United States, including
two in Houston, Texas, one at 1201 Louisiana, Suite 2900, Houston, Texas
77002-5678 and another at 1100 Louisiana, Suite 4100, Houston, Texas
77002-9980. Pricewaterhouse may be served with process at either of the above
locations.

IV.

FACTS

NEGOTIATION AND CLOSING OF THE MERGER AGREEMENT

15. On July 22, 1998, defendants Heiligbrodt and Waltrip contacted Jim
Hunter to ask

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him whether Equity would be interested in being acquired by SCI.

16. Jim Hunter thought that SCI was an attractive merger prospect for
Equity in the summer of 1998. On April 23, 1998, SCI had announced record
revenues and earnings, increased margins, and "increased investment returns
associated with the larger asset base from cemetery merchandise and endowment
care trust funds." On July 23, 1998, SCI had reported record revenues and
earnings for the second quarter of 1998. The Company had fueled its growth
primarily through acquisitions such as Equity and had apparently been quite
successful in integrating and managing its acquisitions. Accordingly, when
defendants Heiligbrodt and Waltrip contacted Jim Hunter on July 22, 1998, Jim
Hunter decided to consider a merger with SCI.

17. On July 27, 1998, Heiligbrodt met with Jim Hunter. Heiligbrodt told Jim
Hunter that SCI was a strong company with a bright future and that SCI expected
no significant problems despite unfavorable business trends in the industry.
Heiligbrodt also told Jim Hunter the Merger was in the best interests of the
Equity shareholders because they would gain the liquidity, stability, and growth
associated with ownership of SCI's stock. At the meeting, Heiligbrodt delivered
a letter signed by defendant Waltrip reiterating Heiligbrodt's statements about
the benefits of merging with SCI and urging Jim Hunter to enter into formal
merger negotiations.

18. Following the July 27, 1998 meeting, Equity formally retained ABN AMRO
as its financial advisor. SCI hired J.P. Morgan & Co. (Morgan). Negotiations for
the Merger began in earnest.

19. SCI and Equity executed a merger agreement (the Merger Agreement) on
August 6, 1998.

20. In connection with the Merger, Jim Hunter agreed to an employment
agreement with SCI and its subsidiary to serve as SCI's Executive Vice President
for at least three years. The

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employment agreement provided for a salary, discretionary bonuses, and other
compensation to Jim Hunter.

21. In the Merger Agreement, SCI represented that at the closing date of
the Merger, there had been no development that could reasonably be anticipated
to be adverse to SCI's business or financial condition (sections 4.7 and
10.10(g)), and promised that SCI would promptly notify Equity if it learned of
any such development (section 7.9). Equity had the right to terminate the
Merger Agreement in the event of any such development (sections 8.2(a) and
9.1(a)(i)). Hunter relied on SCI's representations and promises, and understood
that SCI had a duty to disclose any such adverse development to Equity, and
therefore to Jim Hunter, Equity's CEO.

22. The Merger Agreement was incorporated by reference in and attached to
a November 20, 1998 Prospectus and Proxy Statement (the Prospectus) that was
transmitted to Hunter. The Prospectus explicitly stated that shareholders
should rely on the information contained in and incorporated by reference in
the Prospectus.

23. In December 1998, the Merger Agreement was amended to lower the
exchange ratio for the Merger, reflecting the rising price of SCI stock. On
December 12, 1998, SCI amended the Prospectus to disclose the lower exchange
ratio. In accordance with the renegotiated exchange ratio, Hunter received when
the Merger closed 0.71053 shares of SCI stock for each of his shares of Equity
stock, and exchanged his Equity stock options for SCI stock options on the same
exchange ratio.

24. The merger closed on January 19, 1999. Through January 19, 1999, SCI
did not disclose to Equity or Hunter any development that could reasonably be
anticipated to be adverse to SCI's business or financial condition. Hunter
reasonably believed that there had been no such adverse development up to and
including January 19, 1999, because he knew that SCI was required to disclose
any such development to Equity, and SCI had not done so.

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SCI DISCLOSES ITS POOR RESULTS

25. Within seven days of the Merger, however, SCI publicly announced on
January 26, 1999 that it had substantially missed both its fourth quarter and
its annual earnings estimates.

26. SCI's failure to meet its earnings estimates was material information
to Hunter. If Hunter had known that SCI anticipated missing or had missed its
earnings estimates before the Merger closed on January 19, 1999, Jim Hunter
would have caused Equity to terminate the Merger Agreement. SCI's failure to
meet its earnings estimates was a development that could reasonably be
anticipated to be adverse to SCI's business or financial condition and SCI did
in fact anticipate that it would be adverse to SCI's business and financial
condition. SCI knew that the earnings information would come as a tremendous
shock to the investment community and would cause an immediate and drastic
drop in the price of SCI's shares.

HUNTER DISCOVERS THE FRAUD AND IS TOLD TO RESIGN

27. After SCI publicly announced its failure to meet its earnings
estimates on January 26, 1999, SCI's CFO, defendant George Champagne,
acknowledged to Jim Hunter that SCI had known before the Merger closed that SCI
would substantially miss its earnings estimates.

28. In addition, after the January 26, 1999 announcement, an employee of
Pricewaterhouse told Jim Hunter that Pricewaterhouse knew before the Merger
closed that SCI would substantially miss its earnings estimates, and that this
information was memorialized in a memorandum that had been sent to SCI.

29. In late February or early March, 1999, Jim Hunter was asked to
attend a meeting in which counsel for SCI asked for Jim Hunter's reaction to
the statement that "our investigation has shown that senior management of SCI
had no knowledge of the impending earnings shortfall." Jim Hunter responded
that the statement was ludicrous.

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30. Two days later, defendant Waltrip advised Jim Hunter that there was
no longer any place for him in the SCI organization. Accordingly, Jim Hunter
resigned as an officer of SCI and entered into an amendment of his employment
agreement with SCI. Pursuant to the amendment, the term of the employment
agreement was limited, Jim Hunter's duties were restricted, and Jim Hunter's
eligibility to earn bonus payments was constrained.

CAUSES OF ACTION

COUNT I

TEXAS SECURITIES ACT, ART. 581-33

31. Plaintiffs repeat and reallege each allegation contained above.

32. Plaintiffs bring this Count under the Texas Securities Act, Art.
581-33A, B, and C, against all defendants.

33. SCI offered to buy from Hunter their Equity shares, and to sell to
Hunter SCI shares, by means of an untrue statement of a material fact, and by
an omission to state a state a material fact necessary to make the statements
made, in the light of the circumstances under which they were made, not
misleading.

34. SCI was the issuer for the SCI shares sold to Hunter via the Merger.
SCI disseminated a prospectus for the Merger exchange shares registered under
15 U.S.C. Section 77f. The prospectus contained an untrue statement of material
fact, and omissions of material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading.

35. Plaintiffs had no knowledge of the misrepresentations or omissions at
the time of the Merger when they sold their Equity shares and purchased SCI
shares.

36. Each of the defendants had knowledge of the misrepresentations and
omissions or in

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the exercise of reasonable care would have known of the untruths or omissions.

37. Each of the Individual Defendants was a control person of SCI for
purposes of art. 581-33 F and so is liable jointly and severally with SCI for
SCI's violations of art. 581-33 A, B and C.

38. Pricewaterhouse materially aided SCI, for purposes of art. 581-33 F,
in violating art. 581-33 A, B and C. Pricewaterhouse acted directly or
indirectly with the intent to deceive Hunter or acted with reckless disregard
for the truth or for the law. Accordingly, Pricewaterhouse is liable jointly
and severally with SCI for SCI's violations of art. 581-33 A, B and C.

39. Pursuant to art. 581-33 D, Hunter hereby tenders their SCI shares and
options and seeks recovery of the value of the Equity shares and options they
surrendered upon the Merger, which were worth several millions of dollars, with
any offsets as provided under the statute.

40. Hunter also seeks costs and reasonable attorney's fees.

COUNT II
TEXAS BUSINESS & COMMERCE CODE SECTION 27.01

41. Plaintiffs repeat and reallege each allegation contained above.

42. Plaintiffs bring this Count for fraud in a transaction involving stock
in a corporation under Tex. Bus. & Comm. Code Section 27.01 against all
defendants.

43. SCI and the Individual Defendants misrepresented that there had been
no development that could reasonably be anticipated to be adverse to SCI's
business or financial condition through the date the Merger was consummated.

44. SCI and the Individual Defendants made the material misrepresentations
with the intent to induce Jim Hunter to refrain from terminating the Merger
Agreement and to cause Equity to consummate the Merger after shareholder
approval.

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45. Hunter relied on the material misrepresentations.

46. Hunter had no knowledge of the falsity of SCI's material
misrepresentations.

47. As persons who made material false representations to Hunter in
violation of Section 27.01(a), SCI and the Individual Defendants are liable to
Hunter for actual damages under Section 27.01(b). Hunter's actual damages are in
the millions of dollars, and include their loss on the value of their Equity
stock and options as well as Jim Hunter's diminished compensation as an employee
of SCI.

48. Because SCI and the Individual Defendants had actual awareness of the
falsity of their material misrepresentations, they are liable to Hunter for
exemplary damages under Section 27.01(c).

49. Pricewaterhouse had actual awareness of the falsity of SCI's and the
Individual Defendants' material misrepresentations, but failed to disclose same
to Equity and Hunter. Pricewaterhouse benefitted from the fraud in that it
retained SCI's audit business. Accordingly, Pricewaterhouse is liable to Hunter
for actual and exemplary damages under Section 27.01(d).

50. All the defendants are liable to Hunter under Section 27.01(e) for
reasonable and necessary attorney's fees, expert witness fees, costs for copies
of depositions, and costs of court.

COUNT III

COMMON LAW FRAUD

51. Plaintiffs repeat and reallege each allegation contained above.

52. Plaintiffs allege this Count against SCI and the Individual Defendants.

53. SCI and the Individual Defendants made the material misrepresentations
described above. In addition, SCI and the Individual Defendants had a duty to
disclose the information concerning SCI's poor results, but failed to do so. As
soon as SCI learned of the possibility that it would miss its earnings target,
SCI had a duty to inform Equity, and therefore Hunter, and the failure

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to do so constituted a material omission and a continuing misrepresentation that
it had not suffered any adverse development.

54. SCI and the Individual Defendants knew that the misrepresentations were
false when made or made such material misrepresentations recklessly and without
any knowledge of their truth, and knew that the omissions failed to correct
prior representations that were false.

55. SCI and the Individual Defendants intended that Hunter rely on the
material misrepresentations.

56. Hunter did rely on SCI's and the Individual Defendants' material
misrepresentations.

57. As result of the defendants' fraud, Hunter suffered injury. Hunter's
actual damages are in the millions of dollars, and include their loss on the
value of their Equity stock and options as well as Jim Hunter's diminished
compensation as an employee of SCI. The defendants are liable to Hunter for
actual damages.

58. Defendants wilfully and intentionally defrauded Hunter and so are
liable to them for exemplary damages.

COUNT IV

NEGLIGENT MISREPRESENTATION

59. Plaintiffs repeat and reallege each allegation contained above.

60. Plaintiffs bring this Count against SCI and the Individual Defendants.

61. SCI and the Individual Defendants provided false information to Hunter
in the course of their business or in a transaction in which they had a
pecuniary interest.

62. SCI and the Individual Defendants provided the false information for
the guidance of Hunter in Hunter's business.

63. SCI and the Individual Defendants did not exercise reasonable care or
competence

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in obtaining or communicating the information to Hunter.

64. As a result of SCI's and the Individual Defendant's negligent
misrepresentations, Hunter suffered damages. Hunter's actual damages are in the
millions of dollars, and include their loss on the value of their Equity stock
and options as well as Jim Hunter's diminished compensation as an employee of
SCI.

COUNT V

CONSPIRACY

65. Plaintiffs repeat and reallege each allegation contained above.

66. SCI and Pricewaterhouse conspired to hide SCI's true value for the
purpose of inducing Jim Hunter to effect the Merger. In furtherance of such
purpose, SCI and Pricewaterhouse agreed to commit and did commit the violations
of common law and statutory law described above. Hunter suffered damages in the
millions of dollars as a result of SCI's and Pricewaterhouse's unlawful acts.

WHEREFORE, plaintiffs pray for relief and judgment, as follows:

o Compensatory damages against all defendants, jointly and severally;

o Exemplary damages against all defendants;

o Interest on damages in accordance with law;

o Plaintiff's reasonable attorney's fees;

o Costs of court;

o Expert witness fees;

o Costs of copies of depositions; and

o Such other and further relief as the Court may deem just and proper.

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JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

DATED: 11-10-99 Respectfully submitted,
------------------
SUSMAN GODFREY L.L.P.

By: /s/ MARK L.D. WAWRO
---------------------------------
Mark L.D. Wawro
State Bar No. 20988275
1000 Louisiana Street, Suite 5100
Houston, Texas 77002
Telephone: (713) 651-9366
Fax: (713) 654-6666

Martha A. Evans
State Bar No. 06723870
SUSMAN GODFREY L.L.P.
2323 Bryan Street, Suite 1400
Dallas, Texas 75201
Telephone: (214) 754-1900
Fax: (214) 754-1933

Attorneys for Plaintiffs