UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 4, 2007

STONEMOR PARTNERS L.P.
(Exact name of registrant as specified in its charter)

 
					
Delaware	 	000-50910	 	80-0103159	
(State or other jurisdiction
of incorporation)	 	(Commission File Number)	 	(IRS Employer
Identification No.)	

155 Rittenhouse Circle, Bristol, PA	 	19007	
(Address of principal executive offices)	 	(Zip Code)	
(215) 826-2800
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
 
¨	 	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
¨	 	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
¨	 	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
¨	 	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

Certain statements contained in this Current Report on Form 8-K of StoneMor Partners L.P., a Delaware limited partnership (“StoneMor”), including, but not limited to, information regarding the status and progress of StoneMor’s operating activities, the plans and objectives of StoneMor’s management, assumptions regarding StoneMor’s future performance and plans, and any financial guidance provided are forward-looking statements within the meaning of Section 27A(i) of the Securities Act of 1933, as amended, and Section 21E(i) of the Securities Exchange Act of 1934, as amended. The words “believe,” “may,” “will,” “estimate,” “continues,” “anticipate,” “intend,” “project,” “expect,” “predict,” and similar expressions identify these forward-looking statements. These forward-looking statements are made subject to certain risks and uncertainties that could cause actual results to differ materially from those stated, including, but not limited to, the following: uncertainties associated with the integration or anticipated benefits of the acquisition disclosed within this Current Report on Form 8-K, information disclosed within this Current Report on Form 8-K; uncertainties associated with future revenue and revenue growth; the impact of StoneMor’s significant leverage on its operating plans; the ability of StoneMor to service its debt; StoneMor’s ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume and timing of pre-need sales of cemetery services and products; variances in death rates; variances in the use of cremation; changes in the political or regulatory environments, including potential changes in tax accounting and trusting policies; StoneMor’s ability to successfully implement a strategic plan relating to producing operating improvement, strong cash flows and further deleveraging; uncertainties associated with the integration or the anticipated benefits of the acquisition of assets in September 2006; and various other uncertainties associated with the deathcare industry and StoneMor’s operations in particular. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in our filings with the Securities and Exchange Commission. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking   statements made by us, whether as a result of new information, future events or otherwise.
Item 1.01 Entry into a Material Definitive Agreement.
On December 4, 2007, StoneMor Operating LLC, a Delaware limited liability company (the “Operating LLC”) and a wholly-owned subsidiary of StoneMor, joined by certain direct and indirect subsidiary entities of the Operating LLC and by Cemetery Management Services of Ohio, L.L.C. (collectively, the “Buyer”), entered into the Asset Purchase and Sale Agreement (the “Purchase Agreement”) with SCI Funeral Services, Inc., an Iowa corporation (“SCI”) and a wholly-owned subsidiary of Service Corporation International, a Texas corporation, joined by certain of SCI’s direct and indirect subsidiary entities, by SCI Ohio Funeral Services, Inc. (“SCI Ohio”), and by Alderwoods (Ohio) Cemetery Management, Inc. (“Alderwoods Ohio”) (collectively, the “Seller”). The following is a summary of the material provisions of the Purchase Agreement. This summary is not intended to be complete and is qualified in its entirety by reference to the Purchase Agreement, attached to this Current Report on Form 8-K as Exhibit 10.1 and incorporated herein by reference. Capitalized terms which are not defined in this Current Report on Form 8-K shall have the meanings assigned to such terms in the Purchase Agreement.
Pursuant to the Purchase Agreement, the Buyer agreed to acquire or manage, as applicable, 45 cemeteries, 30 funeral homes and 1 pet cemetery (collectively, the “Properties”), including certain related assets (together with the Properties, the “Acquired Assets”) and certain related liabilities (the “Assumed Liabilities” and, together with the Acquired Assets, the “Business”). The Properties that comprise the Business are located in Alabama (2 cemeteries and 2 funeral homes), Arkansas (2 funeral homes), California (7 cemeteries and 10 funeral homes), Florida (1 funeral home), Hawaii (1 cemetery), Iowa (1 cemetery), Illinois (5 cemeteries, 2 funeral homes and 1 pet cemetery), Indiana (5 cemeteries), Kentucky (1 cemetery), Missouri (2 cemeteries and 1 funeral home), North Carolina (3 cemeteries), Ohio (7 cemeteries and 1 funeral homes), Oregon (2 cemeteries and 3 funeral homes), South Carolina (2 cemeteries and 2 funeral homes), Tennessee (3 cemeteries and 4 funeral homes), Washington (2 cemeteries), West Virginia (1 funeral home), and Puerto Rico (2 cemeteries and 1 funeral home).
 
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The parties to the Purchase Agreement anticipate closing this transaction in the fourth quarter of 2007 (the “Closing”), or such other time as the parties may agree. At the Closing, the Buyer will, in consideration for the transfer of the Acquired Assets and in addition to the assumption of the Assumed Liabilities, pay to the Seller $68,000,000 (the “Closing Purchase Price”) in cash.
The Closing Purchase Price can be increased or decreased post-closing for accounts receivable, merchandise trust amounts and endowment care trust amounts above or below agreed levels, as provided in the Purchase Agreement.
The Purchase Agreement may be terminated by SCI or the Buyer: (i) upon their mutual consent and written notice of termination, or (ii) upon written notice to the other party given at any time after December 31, 2007, if any or all of the conditions precedent to the party’s obligations under the Purchase Agreement have not been met, without such party’s fault.
The closing of the transactions contemplated by the Purchase Agreement is subject to a number of conditions, including the Buyer obtaining financing satisfactory to the Buyer in the Buyer’s reasonable discretion. The Purchase Agreement also includes various representations, warranties, covenants and other conditions precedent to closing which are customary for a transaction of this nature.
In connection with the Purchase Agreement, on December 7, 2007, the Buyer entered into a Transition Agreement with the Seller (the “Transition Agreement”) pursuant to which the Seller will continue to operate, for the Buyer’s benefit, any elements of the Business for which regulatory approval to transfer ownership is not obtained by the Closing until such approval is obtained. Under the Transition Agreement, the Buyer is obligated to reimburse the Seller for all costs incurred by the Seller while operating Owned Locations (as defined in the Transition Agreement) for the benefit of the Buyer. This summary is not intended to be complete and is qualified by in its entirety by reference to the Transition Agreement, attached to this Current Report on Form 8-K as Exhibit 10.2 and incorporated herein by reference.
As StoneMor previously reported in its Current Reports on Form 8-K, dated October 13, 2005 and September 28, 2006, respectively, the Operating LLC, joined by certain of its direct and indirect subsidiary entities, had entered into asset purchase and sale agreements with SCI, joined by certain of its direct and indirect subsidiary entities, on October 13, 2005 and September 28,   2006.
Item 7.01. Regulation FD Disclosure.
On December 4, 2007, StoneMor issued a press release announcing the entry into the Purchase Agreement. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and   incorporated herein by reference in its entirety.
Item 9.01 Financial Statements and Exhibits.
 
 	(a)	Financial statements of businesses acquired.	
Project Dignity 2007 Businesses, Combined Financial Statements for the Years Ended December 31, 2006, 2005 and 2004 and Report of Independent Registered Accounting Firm attached hereto as Exhibit 99.2 and incorporated herein by reference:
Report of Independent Registered Public Accounting Firm
Combined Balance Sheets as of December 31, 2006 and 2005
Combined Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004
Combined Statements of Changes in Owner’s Equity for the Years Ended December 31, 2006, 2005 and 2004
Combined Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004
Notes to Combined Financial Statements
 
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Project Dignity 2007 Business (Alderwoods), Combined Financial Statements for the period from January 1, 2006 to November 28, 2006, the 52 weeks ended December 31, 2005 and the 52 weeks ended January 1, 2005 and Report of Independent Registered Public Accounting Firm attached hereto as Exhibit 99.3 and incorporated herein by reference:
Report of Independent Registered Public Accounting Firm
Combined Balance Sheets as of November 28, 2006 and December 31,2005
Combined Statements of Operations for the Period Ended November 28, 2006, the 52 Weeks Ended December 31, 2005 and the 52 Weeks Ended January 1, 2005
Combined Statements of Changes in Owner’s (Deficit) Equity for the period from January 1, 2006 to November 28, 2006, the 52 Weeks Ended December 31, 2005 and the 52 Weeks Ended January 1, 2005
Combined Statements of Cash Flows for the for the period from January 1, 2006 to November 28, 2006, the 52 Weeks Ended December 31, 2005 and the 52 Weeks Ended January 1, 2005
Notes to Combined Financial Statements
Project Dignity 2007 Businesses, Unaudited Condensed Combined Financial Statements for the Period Ended September 30, 2007 attached hereto as Exhibit 99.4 and incorporated herein by reference:
Unaudited Condensed Combined Balance Sheets as of September 30, 2007 and 2006
Unaudited Condensed Combined Statements of Operations for the Nine Months Ended September 30, 2007 and 2006
Unaudited Condensed Combined Statements of Changes in Owner’s Equity for the Nine Months Ended September 30, 2007 and 2006
Unaudited Condensed Combined Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006
Notes to Unaudited Condensed Combined Financial Statements
Project Dignity 2007 Business (Alderwoods), Unaudited Condensed Combined Financial Statements for the Period Ended September 30, 2006 attached hereto as Exhibit 99.5 and incorporated herein by reference:
Unaudited Condensed Combined Balance Sheets as of October 7, 2006
Unaudited Condensed Combined Statements of Operations for the 40 Weeks Ended October 7, 2006
Unaudited Combined Statements of Changes in Owner’s (Deficit) Equity for the 40 Weeks Ended October 7, 2006
Unaudited Condensed Combined Statements of Cash Flows for the 40 Weeks Ended October 7, 2006
Notes to Unaudited Condensed Combined Financial Statements
 
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 	(b)	Pro forma financial information.	
Unaudited Pro Forma Condensed Combined Financial Information attached hereto as Exhibit 99.6 and incorporated herein by reference:
Basis of Presentation
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2007
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2006
Unaudited Pro Forma Condensed Combined Statement of Operations for the Period Ended September 30, 2007
Notes to Unaudited Pro Forma Condensed Combined Financial Information
 
 	(d)	Exhibits.	
The following exhibits are filed herewith:

Exhibit No.	  	Description	
		
10.1	  	Asset Purchase and Sale Agreement, dated December 4, 2007, by and among StoneMor Operating LLC, joined by its direct and indirect subsidiary entities listed in Exhibits A to the Asset Purchase and Sale Agreement and by Cemetery Management Services of Ohio, L.L.C., and SCI Funeral Services, Inc., joined by its direct and indirect subsidiary entities listed in Exhibit B to the Asset Purchase and Sale Agreement, as well as by SCI Ohio Funeral Services, Inc., and Alderwoods (Ohio) Cemetery Management, Inc.	
		
10.2	  	Transition Agreement, dated December 7, 2007, by an among StoneMor Operating LLC, joined by those of its direct and indirect subsidiary entities which are parties to the Purchase Agreement, as defined therein, and SCI Funeral Services, Inc., joined by those of its direct and indirect subsidiary entities which are parties to the Purchase Agreement.	
		
23.1	  	Consent of PricewaterhouseCoopers LLP.	
		
23.2	  	Consent of PricewaterhouseCoopers LLP.	
		
99.1	  	Press Release of StoneMor Partners L.P, dated December 4, 2007.	
		
99.2	  	Project Dignity 2007 Businesses, Combined Financial Statements for the Years Ended December 31, 2006, 2005 and 2004 and Report of Independent Registered Public Accounting Firm.	
		
99.3	  	Project Dignity 2007 Businesses (Alderwoods), Combined Financial Statements for the for the period from January 1, 2006 to November 28, 2006, the 52 Weeks Ended December 31, 2005 and the 52 Weeks Ended January 1, 2005 and Report of Independent Registered Public Accounting Firm.	
		
99.4	  	Project Dignity 2007 Businesses, Unaudited Condensed Combined Financial Statements for the Period Ended September 30, 2007 and 2006	
		
99.5	  	Project Dignity 2007 Businesses (Alderwoods), Unaudited Condensed Combined Financial Statements for the Period Ended October 7, 2006	
		
99.6	  	Unaudited Pro Forma Condensed Combined Financial Information.	
 
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SIGNATURES
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 hereunto duly authorized.

Date: December 7, 2007	 		 	STONEMOR PARTNERS L.P.	
			
	 	By:	 	StoneMor GP LLC its general partner	
				
	 		 	By:	 	/s/ William R. Shane	
	 		 		 	Name:	 	William R. Shane	
	 		 		 	Title:	 	Executive Vice President and
Chief Financial Officer	
 
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EXHIBIT INDEX

Exhibit No.	  	Description	
		
10.1	  	Asset Purchase and Sale Agreement, dated December 4, 2007, by and among StoneMor Operating LLC, joined by its direct and indirect subsidiary entities listed in Exhibits A to the Asset Purchase and Sale Agreement and by Cemetery Management Services of Ohio, L.L.C., and SCI Funeral Services, Inc., joined by its direct and indirect subsidiary entities listed in Exhibit B to the Asset Purchase and Sale Agreement, as well as by SCI Ohio Funeral Services, Inc., and Alderwoods (Ohio) Cemetery Management, Inc.	
		
10.2	  	Transition Agreement, dated December 7, 2007, by an among StoneMor Operating LLC, joined by those of its direct and indirect subsidiary entities which are parties to the Purchase Agreement, as defined therein, and SCI Funeral Services, Inc., joined by those of its direct and indirect subsidiary entities which are parties to the Purchase Agreement.	
		
23.1	  	Consent of PricewaterhouseCoopers LLP.	
		
23.2	  	Consent of PricewaterhouseCoopers LLP.	
		
99.1	  	Press Release of StoneMor Partners L.P, dated December 4, 2007.	
		
99.2	  	Project Dignity 2007 Businesses, Combined Financial Statements for the Years Ended December 31, 2006, 2005 and 2004 and Report of Independent Registered Public Accounting Firm.	
		
99.3	  	Project Dignity 2007 Businesses (Alderwoods), Combined Financial Statements for the for the period from January 1, 2006 to November 28, 2006, the 52 Weeks Ended December 31, 2005 and the 52 Weeks Ended January 1, 2005 and Report of Independent Registered Public Accounting Firm.	
		
99.4	  	Project Dignity 2007 Businesses, Unaudited Condensed Combined Financial Statements for the Period Ended September 30, 2007 and 2006	
		
99.5	  	Project Dignity 2007 Businesses (Alderwoods), Unaudited Condensed Combined Financial Statements for the Period Ended October 7, 2006	
		
99.6	  	Unaudited Pro Forma Condensed Combined Financial Information.	
 
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EXHIBIT 10.1
Execution Copy
ASSET PURCHASE AND SALE AGREEMENT
This ASSET PURCHASE AND SALE AGREEMENT ( “ Agreement ” ) dated this 4 th day of December, 2007, is made by and among STONEMOR OPERATING LLC, a Delaware limited liability company (“ StoneMor LLC ”), joined herein by those of its direct and indirect subsidiary entities which are listed in the “ Operating LLC ” column on Exhibit A attached hereto (all such entities individually and collectively referred to herein as “ Buyer LLC ”), those of its direct and indirect subsidiary entities which are listed in the “ NQ Sub ” column on Exhibit A attached hereto (all such entities individually and collectively referred to herein as “ Buyer NQ Sub ”) and CEMETERY MANAGEMENT SERVICES OF OHIO , L.L.C. , a Delaware limited liability company (“ Ohio Management LLC ” and individually and collectively with StoneMor LLC, Buyer LLC and Buyer NQ Sub, “ Buyer ”), and SCI FUNERAL SERVICES, INC. , an Iowa corporation (“ Parent ”), joined herein by those of its direct and indirect subsidiary entities which are listed in the “ Subsidiary Owner ” column on Exhibit B attached hereto (all such entities individually and collectively referred to herein as “ Seller Entity ”), SCI OHIO FUNERAL SERVICES, INC. , an Ohio corporation (“ SCI Ohio ”), ALDERWOODS (OHIO) CEMETERY MANAGEMENT, INC. , an Ohio corporation (“ Alderwoods Ohio ” and together with Parent, Seller Entity, SCI Ohio and Alderwoods Ohio “ Seller ”).
WITNESSETH:
W HEREAS , the designated Seller entity owns and operates those funeral, cremation, cemetery and other related businesses which are listed on Exhibit B attached hereto (each location listed on Exhibit B referred to herein as an “ Owned Location ,” and the business conducted at each Owned Location referred to individually and collectively as the “ Owned Business ”);
 
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W HEREAS , Sierra View Memorial Park, a California nonprofit corporation (“SVMP”), owns certain ground at the cemetery operated by SCI California Funeral Services, Inc., a California corporation (“SCI California”) and located at 4900 Olive Avenue, Olivehurst, California 95961; and
W HEREAS , SCI Ohio and Alderwoods Ohio each provide certain sales, accounting, management and other administrative services for the cemetery businesses which are listed on Exhibit C attached hereto (the locations listed on Exhibit C and owned by those particular Ohio non-profit corporations also listed on Exhibit C are referred to as the “Ohio NFPs” and the “ Managed Locations ”, respectively, SVMP and the Ohio NFPs are referred to as the “NFPs”, the marketing and accounting services agreements with SCI Ohio and Alderwoods Ohio, for their respective Managed Locations, are referred to as the “ Management Agreements ”, the businesses conducted at the Managed Locations are referred to individually and collectively as the “ Managed Businesses ” and together with the Owned Business, as the “ Business ”); and
W HEREAS , the parties desire to provide for the purchase, sale and transfer of the Owned Business, including certain of the personal property located at, used in connection with, or arising out of, such Owned Business, together with the real estate utilized in the Owned Business, the assumption and assignment of the Management Agreements, and the ongoing operation of SVMP in exchange for cash and other consideration, upon the terms and subject to the conditions herein set forth; and
W HEREAS , the NFPs desire to provide their consent to the terms and provisions of the Agreement and the transactions contemplated hereunder including the assignment of the Management Agreements; and
W HEREAS , this Agreement sets forth the terms and conditions to which the parties have agreed.
 
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N OW , T HEREFORE , in consideration of the premises and the mutual covenants, agreements, representations and warranties herein contained, the parties, intending to be legally bound hereby, agree as follows:
ARTICLE I
Purchase and Sale
Section 1.1 Transfer of Acquired Assets . Subject to the terms and conditions of this Agreement, and except as provided in Section 1.2, Seller, which as to each particular Owned Location shall be the particular Subsidiary Owner of such Owned Location as designated on Exhibit B hereto and which as to the Management Agreements shall be SCI Ohio or Alderwoods Ohio, as applicable) does hereby agree to sell, transfer, convey, assign and deliver to Buyer, and Buyer does hereby agree to purchase and accept from Seller free and clear of all Liens and Liabilities (other than the Assumed Liabilities (as defined below)), all right, title and interest to the following property and rights located at, used in connection with, arising out of or relating to the Business (collectively, the “Acquired Assets” ):
(a) All of Seller’s real property used in the operation of the Owned Business as specifically described in the commitments for title insurance received from Land Services USA, Inc. (the “Title Company” ), together with all buildings, structures, improvements, fixtures, easements, benefits and rights and appurtenances benefiting, belonging or pertaining thereto (the “Owned Real Property” );
(b) All furniture, equipment, tools, supplies and other tangible personal property owned or used by Seller exclusively or primarily in the operation of the Owned Business as of the date hereof or acquired between the date hereof and the Effective Time, including, without limitation, those items listed on Schedule 2 to this Agreement;
(c) All vehicles listed on Schedule 3 to this Agreement;
 
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(d) All caskets, crypts, urns, vaults, monuments, grave spaces, mausoleum spaces, niches, lawn crypts, supplies and other merchandise inventory of the Owned Business ( “Inventory” ), including, without limitation, the Inventory of the funeral homes, crematories and flower shops included in the Owned Business and the items stored for or delivered to customers at the cemeteries included in the Owned Business, plus or minus any changes to such Inventory which result from the ordinary course of operation of the Owned Business, consistent with past practices, until the Effective Time (and specifically limited to the rights permitted by or provided under applicable Laws with regard to merchandise designated as being stored for or delivered to customers under Pre-/At-Need Contracts (as defined below)), and all Services in Progress (as hereinafter defined);
(e) All benefits, rights and entitlements of or relating to the Business under and in all contracts, agreements, leases, licenses and commitments (including the Management Agreements and those other items) listed on Schedule 5 to this Agreement ( “Business Contracts” );
(f) All benefits, rights and entitlements under any leases for any real property at the Owned Location or otherwise exclusively or primarily related to the Owned Business (whether Seller is lessee or lessor thereunder) ( “Real Property Leases” ), including, without limitation, those listed on Schedule 5 to this Agreement, together with any security deposits held or paid on account of any of the Real Property Leases (the real property leased by Seller as a lessee or sublessee under the Real Property Leases being referred to herein as “Leased Real Property” and, together with the Owned Real Property, the “Real Property” );
(g) All benefits, rights and entitlements under all of the Contracts, engagements and commitments, written or oral, relating to the provision or sale by the Owned Business of at-need or pre-need cemetery, funeral or cremation merchandise, properties or services and all deposits, prepaid amounts, insurance policies and trust funds relating to such Contracts, engagements and commitments,
 
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including, without limitation, those items listed on Schedules 7 and 8 to this Agreement, plus or minus any similar items entered into or delivered or furnished in the ordinary course of the operation of the Owned Business subsequent to the date(s) of the listing(s) on Schedules 7 and 8 until the Effective Time (collectively, the “Pre-/At-Need Contracts” and, together with the Business Contracts, any collective bargaining or similar agreements included in Schedule 6 and the Real Property Leases, the “Assumed Contracts” );
(h) All of the Permits of each of Seller necessary for the ownership, operation, maintenance or presently planned expansion (by Seller) of the Owned Business, to the extent transferable;
(i) Intentionally omitted;
(j) All utility and other deposits previously paid to and/or held by third parties in connection with the operation of the Business as of the Effective Time;
(k) All accounts and notes receivable (i) of Alderwoods Ohio and SCI Ohio generated in or relating to the management of the Managed Businesses; (ii) of SCI California due from SVMP, and (iii) relating to the operation of the Owned Business ( “Owned Receivables” ), including, without limitation, those listed on Schedule 9 to this Agreement, plus or minus any changes in such receivables which result from the ordinary course of the operation of the Business, consistent with past practices, subsequent to the date(s) of the listing(s) on Schedule 9 until the Effective Time, but specifically excluding pending trust claims specified in Section 5.5(b)(ii) and pending insurance claims;
(l) All of the Seller’s rights and incidents of interest in and to causes of action, suits, proceedings, judgments, claims and demands of any nature, whenever maturing or asserted, relating to or arising directly or indirectly out of any of the Acquired Assets or the Business, including, without limitation, all rights of the Seller against the prior owner of the Alexander Funeral Home, but specifically excluding pending trust claims specified in Section 5.5(b)(ii) and pending insurance claims; and
 
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(m) All goodwill associated with the Owned Business, together with all lists of present or former customers of the Owned Business, all business books, documents, records, files, databases and reports relating to the Acquired Assets and reasonably necessary for Buyer to continue the Owned Business to conduct the business of SVMP or to manage the Managed Businesses (collectively, “Seller Records” ) (whether or not the Seller Records are physically located at the Owned Location or the Managed Locations), the wired telephone numbers and listings for the Owned Business, and all Intellectual Property owned and/or used by the Seller exclusively or primarily in connection with the Owned Business, ( “Business Intellectual Property” ), including, without limitation, all right, title and interest in and the right to use the trademarks, service marks and trade names for the Owned Location as listed on Exhibit B hereto. All Seller Records not physically located at the Managed or Owned Locations shall be copied and, at the election of Buyer, either delivered in person to a representative of Buyer at the location where such Seller Records are held on the Closing Date (as defined below) or shipped to Buyer by Seller at Buyer’s expense by such delivery service selected by Buyer. All requests and other communications from Buyer to Seller regarding Seller Records, either before or after the Closing (as defined below), shall be directed to Michael Lehmann, Service Corporation International, 1929 Allen Parkway, Houston, Texas 77019, fax: (713) 525-7372.
Except as specifically provided in Section 1.2, it is intended that the assets, properties and rights of the Business to be sold to Buyer pursuant to this Agreement shall include all of the assets, properties and rights reflected in the Schedules relating to the subsections of Section 1.1, other than those assets, properties and rights that may have been disposed of in the ordinary course of business prior to the Effective Time, but including all similar assets, properties and rights of the Business that may have been acquired in the ordinary course of business since the dates of the listings in the Schedules relating to the subsections of Section 1.1 until the Effective Time.
 
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It is understood that in general the Buyer is not purchasing the assets that comprise SVMP or the assets that comprise the Managed Businesses (the “Managed Assets” ). Following Closing, SVMP shall continue to own its assets, and the Managed Assets shall remain the property of the Ohio NFPs, the owners of the Managed Locations; however, SVMP shall consent to the termination of its current arrangement with SCI California, and the Ohio NFPs shall consent to the assignment of the Management Agreements. Notwithstanding the foregoing, Buyer shall acquire all assets, property and rights in the Managed Businesses that permit the Buyer to manage the Managed Businesses pursuant to the Management Agreements.
Section 1.2 Excluded Assets . Seller shall not transfer, convey or assign to Buyer, and Buyer shall not purchase, the following assets (collectively, the “Excluded Assets” ): (a) non-pre-need related cash and cash equivalents, (b) computer software and information and similar rights (provided, however, that none of the Seller Records shall be deemed to be an Excluded Asset, whether or not contained or stored in or on the hard drive of any computers or on any computer system or server, disk or any other electronic media), (c) corporate records, minutes and records of shareholders’ and directors’ meetings of Seller, provided, however, custody or control of such records and minutes of the NFPs along with any existing Tax records, general ledger and other books of original entry, and original payroll records (the “NFP Records” ) shall be transferred to Buyer at Closing, (d) any pending trust claims specified in Section 5.5(b)(ii) and any pending insurance claims, (e) those items specifically identified in Schedule 2 as being subject to a corporate lease or otherwise excluded from the sale of the Acquired Assets, including the Managed Assets; (f) approximately 31 acres of undeveloped real property (the exact amount and configuration of which shall be mutually determined by the parties after good faith
 
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negotiation before or subsequent to Closing) at Graceland East Memorial Park in Simpsonville, South Carolina (the “Graceland Tract”) with such retained acreage to include a restriction that the property will not be used as a cemetery, as part of the operation of a funeral home or a crematory or for any other purpose (or use that is related to the death care business or that is inconsistent with the operation of Graceland East Memorial Park as a cemetery; (g) all of Seller’s claims and rights in and under the matter captioned SCI California Funeral Services, Inc. v. Five Bridges Foundation , Case No. 432392 in the San Mateo County, California Superior Court; (h) the real estate comprising Donelson, Sewell and Mathews Mortuary; and (i) all other assets of Seller which are not used exclusively or primarily in the ownership, operation or maintenance of the Business and which are not necessary to the continued operation of the Business in a manner consistent with the Seller’s past practices, including training, promotional materials, procedure and policy manuals.
Section 1.3 Consideration for the Business Payable at the Closing . On the terms and subject to the conditions of this Agreement, Buyer, in consideration for the transfer and delivery to it of the Acquired Assets as herein provided, will, in addition to the assumption of liabilities set forth in Section 1.4(a) below, pay to Seller at the Closing the sum of Sixty-Eight Million Dollars ($68,000,000) (the “ Closing Purchase Price ”), to be delivered by bank wire transfer to such account as Seller shall designate to Buyer in writing at least three (3) business days prior to the Closing Date.
Section 1.4 Liabilities .
(a) Assumed Liabilities . From and after the Effective Time, Buyer agrees to assume and perform the liabilities and obligations of the Business ( “Assumed Liabilities” ) under and pursuant to the terms and conditions of any Assumed Contract, but only to the extent such obligations arise, accrue or first become due after the Effective Time under the terms of the Assumed Contracts; provided , however , that Buyer will not assume or be responsible for any such liabilities or obligations which arise from any
 
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breach or default by Seller under any Assumed Contract that occurs prior to the Effective Time or that arises out of or relates to events or circumstances that occur or exist prior to the Effective Time, all of which liabilities and obligations will constitute Retained Liabilities (as defined herein). Notwithstanding anything to the contrary contained in this Agreement or any document delivered in connection herewith, Buyer’s obligations in respect of the Assumed Liabilities will not extend beyond the extent to which Seller was obligated in respect thereof and will be subject to Buyer’s right to contest in good faith the nature and extent of any liability or obligation (but such right to contest shall not affect Buyer’s indemnification responsibilities under Section 8.4(a)(iii)). For purposes hereof, Buyer Burial Resolutions as defined in Section 5.22 shall constitute an Assumed Liability.
(b) Retained Liabilities . Except as provided in Section 1.4(a) hereof, Seller (and/or as applicable, the NFPs) will retain, and Buyer will not assume or be responsible or liable with respect to, any Liabilities of the Business that precede the Effective Time (except as specifically provided in subclause (vii) of this Section 1.4(b)), whether or not arising out of or relating to the conduct of Seller or associated with or arising from any of the Acquired Assets, whether fixed or contingent or known or unknown (collectively, the “Retained Liabilities” ), including, without limitation, the following:
(i) Liabilities relating to any Excluded Asset irrespective of whether such liability relates to the period before or after Closing;
(ii) Liabilities of Seller that constitute trade payables;
(iii) Liabilities of Seller or the NFPs arising under or relating to any Assumed Contract to the extent such Liabilities relate to periods prior to the Effective Time or arise from any breach or default by Seller or the NFPs under any Assumed Contract that occurs prior to the Effective Time or that arises out of or relates to events or circumstances that occur or exist prior to the Effective Time, including the Seller Burial Resolutions (as defined in Section 5.22 below);
 
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(iv) Liabilities of Seller or the NFPs arising under or relating to any Contract other than an Assumed Contract;
(v) Liabilities with respect to (A) any Employee Plan maintained, sponsored, contributed to or participated in by Seller or the NFPs for the benefit of or relating to any current or former employee of the Business ( “Seller Employee Plan” ) and the amendment to or the termination of any Seller Employee Plan, or (B) any person at any time employed by Seller or the NFPs (including, without limitation, any such person who fails to accept an offer of employment by Buyer or any of its Affiliates), and any such person’s spouse, children, other dependents or beneficiaries, with respect to any such person’s employment or termination of employment by Seller or the NFPs, including, without limitation, claims arising under health, medical, dental, disability or other benefit plan for products, supplies or services provided or rendered prior to the Effective Time;
(vi) Seller’s or the NFPs’ deferred sales commissions;
(vii) Liabilities of Seller or the NFPs, based in whole or in part on violations of, or failure to comply with, Law or environmental conditions occurring or existing prior to the Closing and arising out of or relating to Environmental Requirements, except to the extent that such Liabilities are identified in the Environmental Reports.
(viii) Except as otherwise specifically provided in this Agreement, all Liabilities of Seller or the NFPs for any Tax for (A) operations of the Business prior to the Effective Time; (B) Pre-Closing Tax Periods and Straddle Tax Periods for the NFPs to the extent specified in Section 5.12; (C) the transfer of the Acquired Assets; and (C) income earned by the Pre-Need Trust Funds and the Endowment Care Funds (as each of these terms is defined in Section 5.4) prior to delivery thereof to Buyer’s Trustee pursuant to Section 5.5 below to the extent such income (1) is not taxable to the applicable trusts as independent taxpayer entities, and (2) is withdrawn by or for any Seller or otherwise distributed to any Seller (whether such withdrawal or distribution is made before or after the Effective Time);
 
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(ix) Liabilities of Seller or any of the NFPs arising out of or relating to any Proceeding to which Seller or any of the NFPs is a party on the date of this Agreement and relating to the Business or any of the matters referenced on Schedule 10 (“Retained Proceedings”); and
(x) Liabilities arising out of the management of the Managed Businesses by Seller.
It is intended that the Management Agreements shall govern the rights and duties between Seller and the Ohio NFPs and, after the Effective Time, between Buyer and the Ohio NFPs. Notwithstanding the foregoing, the terms of this Agreement shall control in the event of any conflict between this Agreement and any of the Management Agreements.
Section 1.5 Post-Closing Adjustments to Purchase Price .
(a) Audit Report . Seller and Buyer acknowledge that PricewaterhouseCoopers (the “Independent Auditor” ) has performed a financial audit and review of the Business and that the report of the Independent Auditor with respect to such audit and review (the “Audit Report” ) is expected to be delivered to Buyer on or before the Closing Date. For purposes of this Agreement, the term “Base Gross AR Amount” means the aggregate amount of the gross accounts receivable of all of the cemeteries included in the Business as of the last day of the quarter immediately preceding the Closing Date (excluding any trust claims specified in Section 5.5(b)(ii) and any pending insurance claims), as reflected in the Audit Report (without regard to any allowance for doubtful accounts or other reserve in respect of accounts receivable of the Business), and the term “Base Net Merchandise Trust Amount” means the Net Transferred Merchandise Trust Amount minus the aggregate amount of the Merchandise Liabilities of all of the cemeteries included in the Business, as of the last day of the quarter immediately preceding
 
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the Closing Date as reflected in the Audit Report. Buyer shall deliver a copy of the Audit Report to Seller within 15 days after receiving the Audit Report. No later than ten (10) days after the Closing Date, Seller shall deliver to Buyer a detailed statement of Merchandise Liabilities as of the last day of the quarter immediately preceding the Closing Date as reflected in the Audit Report of all of the cemeteries included in the Owned Location and each of the Managed Locations.
(b) Accounts Receivable Adjustment . If the Base Gross AR Amount is less than $6,615,800, then, subject to Section 1.5(e), the Purchase Price shall be decreased by, and Seller shall pay to Buyer, an amount equal to the discounted present value of the amount by which the Base Gross AR Amount is less than $6,964,000, using a discount rate of .065 and a discount period of three (3) years. If the Base Gross AR Amount is greater than $7,312,200, then, subject to Section 1.5(e), the Purchase Price shall be increased by, and Buyer shall pay to Seller, an amount equal to the discounted present value of the amount by which the Base Gross AR Amount is greater than $6,964,000, using a discount rate of .065 and a discount period of three (3) years. If the Base Gross AR Amount is greater than or equal to $6,615,800, but less than or equal to $7,312,200, then no adjustment shall be made to the Purchase Price, and no amount shall be due by any party hereto, under this Section 1.5(b).
(c) Merchandise Trust Adjustment . If the Base Net Merchandise Trust Amount is less than $36,353,650, then, subject to Section 1.5(e), the Purchase Price shall be decreased by, and Seller shall pay to Buyer, the discounted present value of the amount by which the Base Net Merchandise Trust Amount is less than $38,267,000, using a discount rate of .065 and a discount period of ten (10) years. If the Base Net Merchandise Trust Amount is greater than $40,180,350, then subject to Section 1.6(e), the Purchase Price shall be increased by, and Buyer shall pay to Seller, an amount equal to the discounted present value of the amount by which the Base Net Merchandise Trust Amount is greater than $38,267,000, using a discount rate of .065 and a discount period of ten (10) years. If the Base Net
 
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Merchandise Trust Amount is greater than or equal to $36,353,650, but less than or equal to $40,180,350, then no adjustment shall be made to the Purchase Price, and no amount shall be due by any party hereto, under this Section 1.5(c).
(d) Endowment Care Trust Adjustment . If the Transferred Endowment Care Trust Amount is less than $43,557,000, then, subject to Section 1.5(e), the Purchase Price shall be decreased by, and Seller shall pay to Buyer, the Net Endowment Care Adjustment Amount. If the Transferred Endowment Care Trust Amount is greater than $43,557,000, then, subject to Section 1.5(e), the Purchase Price shall be increased by, and Buyer shall pay to Seller, the Net Endowment Care Adjustment Amount.
(e) Net Purchase Price Adjustment Amount . The Purchase Price adjustment amounts provided for in Sections 1.5(b), (c) and (d), if any, shall all be aggregated and netted against each other such that either (i) a single amount shall be payable to Buyer by Seller and no amount shall be payable by Buyer to Seller under this Section 1.5, (ii) a single amount shall be payable to Seller by Buyer, and no amount shall be payable by Seller to Buyer under this Section 1.5, or (iii) no amount shall be payable by any party hereto under either this Section 1.5. By way of example only, if $150,000 is payable by Seller to Buyer pursuant to Section 1.5(b), $50,000 is payable by Seller to Buyer pursuant to Section 1.5(c) and $100,000 is payable by Buyer to Seller pursuant to Section 1.5(d), then Seller shall pay to Buyer, in accordance with Section 1.5(f), an amount equal to $100,000 (i.e., $150,000 + $50,000—$100,000).
(f) Payment of Purchase Price Adjustment Amounts . Any payment due under Section 1.5(e) by Seller on the one hand or Buyer on the other hand shall be paid in full, in cash, no later than seventy-five (75) days after the Closing Date, or, if later than such time, twenty (20) days after the date that the Audit Report is delivered to Buyer. Any amounts not paid within such time period shall accrue interest from the Closing Date through the date of payment at the prime rate as reported in The Wall Street Journal, Eastern Edition for the date of the Audit Report.
 
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(g) Tax Treatment . Any payments made pursuant to this Section 1.5 shall be treated by Seller and Buyer as adjustments to the Purchase Price for all Tax purposes.
Section 1.6 Prorations; Services in Progress; Transaction Taxes .
(a) Seller shall be responsible for all Taxes (i) arising as a result of the operation of the Business or ownership of the Acquired Assets prior to the Effective Time and (ii) for Pre-Closing Tax Periods (as hereinafter defined in Section 5.12) of the NFPs. At Closing, all real and personal property Taxes on the Acquired Assets shall be prorated between Seller on the one hand and Buyer on the other hand on a per diem basis. Seller shall also be responsible for all Taxes on income earned by the Pre-Need Trust Funds and the Endowment Care Funds relating to periods prior to the Effective Time to the extent such income (A) is not taxable to the applicable trusts as independent taxpayer entities, and (B) is withdrawn by or for Seller or otherwise distributed to Seller (whether such withdrawal or distribution is made before or after the Effective Time), and Seller shall make all applicable estimated Tax payments to the relevant Taxing Authorities associated with such income. For purposes of determining the amount of Taxes owed by Seller with respect to the Pre-Need Trust Funds and the Endowment Care Funds, the amount of such Taxes shall be computed as if the tax year of such funds ended on the Effective Time with regard to the Managed Businesses and SVMP and the date of the Final Trust Delivery (as defined in Section 5.5(e) below) with regard to the Owned Business.
(b) The parties shall cooperate in transferring from the Seller, to Buyer, all water, electrical, gas and other utility services provided to or benefiting the Real Property, SVMP and the Managed Locations, and as and to whatever extent billings are received by any party relating to services utilized both before the Effective Time (for which Seller shall be responsible) and after the Effective Time (for which Buyer shall be responsible), the parties shall cooperate to make appropriate adjustments and reimbursements between them to accomplish the proper allocation of such billings.
 
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(c) With respect to the Owned Business, all revenues from and direct costs for merchandise paid to third parties in the ordinary course of business associated with Services in Progress will be allocated to Buyer. For purposes of this Agreement, “Services in Progress” means any “at need” cemetery, crematory and/or funeral related services for which a Contract has been entered into, but which have not been completed as of the Effective Time. For purposes of this Agreement, such cemetery, crematory and/or funeral related services are complete when the body or remains have been cremated or interred.
(d) Except as set forth in Sections 1.6(e) and (f) below, Seller shall be responsible for the timely payment of, and shall indemnify and hold harmless Buyer against, all sales, use, value added, documentary, stamp, gross receipts, registration, transfer (including, without limitation, real estate), conveyance, excise and other similar Taxes and fees (collectively, “Transfer Taxes” ) arising out of or in connection with or attributable to (i) the transfer of the Acquired Assets and (ii) the transactions contemplated by this Agreement. Seller shall prepare and timely file all Tax Returns required to be filed in respect of such Transfer Taxes. Seller shall be responsible for filing all required notices related to bulk sales laws and shall indemnify and hold harmless Buyer against all Taxes or other Losses that Buyer becomes liable for as a result of the Seller’s failure to file any applicable bulk sales notices or pay any of its Taxes.
(e) The parties shall share in the payment of any recording and other similar fees arising out of or in connection with or attributable to the transactions contemplated by this Agreement in accordance with the normal practices in the applicable states in which the various Acquired Assets are located; provided, however, that Seller shall pay for the recording of the release of any Lien (other than Permitted Encumbrances) with respect to any Acquired Asset.
 
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(f) Buyer shall be responsible for the timely payment of, and shall indemnify and hold harmless Seller against, all Transfer Taxes arising out of or in connection with or attributable to the transfer of the vehicles listed on Schedule 3 to this Agreement. Buyer shall prepare and timely file all Tax Returns required to be filed in respect of such Transfer Taxes.
Section 1.7 Allocation of Closing Purchase Price .
(a) On or prior to the Closing Date, Buyer and Seller shall mutually agree upon a written statement (the “Statement of Allocation” ) setting forth an allocation of the Closing Purchase Price ( “Purchase Price Allocation” ) (which for such purpose shall be increased by the amount of the liabilities assumed by Buyer). The Statement of Allocation shall include: (i) the assets to be purchased by each of Ohio Management LLC, Buyer LLC and Buyer NQ Sub; (ii) the portion of the Closing Purchase Price that will be paid by or on behalf of Ohio Management LLC, Buyer LLC and Buyer NQ Sub to acquire the Acquired Assets, and (iii) an allocation of the portion of the Closing Purchase Price paid by or on behalf of each of Ohio Management LLC, Buyer LLC and Buyer NQ Sub ( “Purchased Acquired Assets Allocation” ) among each of the respective categories of Acquired Assets that are purchased. Buyer and Seller agree that each of the allocations required to be prepared pursuant to this Section 1.7 shall be prepared in accordance with the provisions of Section 1060 of the Code, the Treasury Regulations promulgated thereunder and any similar provisions of state, local or foreign law, as applicable.
(b) All federal, state, local and foreign income Tax Returns of Seller and Buyer shall be filed consistently with the information set forth on the Statement of Allocation. Moreover, Seller and Buyer further agree to file IRS Form 8594 (and any corresponding form required to be filed by a state or local Taxing Authority) in a manner that is consistent with the Purchased Acquired Assets Allocation. Seller and Buyer agree to promptly provide each other with any information necessary to complete such
 
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Tax Returns and IRS Form 8594 (and any corresponding form required to be filed by a state or local Taxing Authority). Seller and Buyer shall not take any position on a Tax Return, tax proceeding or audit that is inconsistent with any information set forth on the Statement of Allocation.
Section 1.8 Effective Time . The Effective Time of the transfer of the Acquired Assets shall be 11:59 p.m. on the Closing Date.
ARTICLE II
Closing
Section 2.1 Closing . The closing of the transaction provided for in this Agreement (the “Closing” ) shall take place at the offices of Buyer’s counsel, Blank Rome LLP, One Logan Square, Philadelphia, Pennsylvania 19103, on December 19, 2007 (the “Closing Date” ), or at such other location, time and date as the parties shall mutually agree. In the event of any postponement thereof, all references in this Agreement to the Closing Date shall be deemed to refer to the time and to the date to which the Closing Date shall have been so postponed as herein provided.
Section 2.2 Instruments of Conveyance and Transfer . At the Closing, Seller shall deliver to Buyer such special warranty deeds, bills of sale, endorsements, assignments, title affidavits and other documents reasonably requested by the Title Company, and such other instruments of transfer, conveyance and assignment as may be reasonably requested by Buyer, in forms reasonably satisfactory to Buyer, in order to more fully vest in Buyer good and marketable title to the Acquired Assets. Seller shall take all such steps as may be reasonably requested by Buyer to put Buyer in actual possession and control of the Acquired Assets and the Business as of the Closing.
 
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ARTICLE III
Representations and Warranties by Seller
Seller (which as to each Owned Location shall include Parent and the applicable Seller Entity, as to SVMP shall include Parent and SCI California and as to the Managed Locations shall include Parent and as applicable, SCI Ohio or Alderwoods Ohio, in each case jointly and severally) hereby represents and warrants to Buyer, both as of the date hereof and as of the Effective Time, as follows:
Section 3.1 Organization; Standing; Authorization . Capacity. Each of Seller and the NFPs is a corporation, nonprofit corporation or limited liability company, as applicable, duly organized, validly existing and in good standing under the laws of its state of formation, with all requisite power and authority to own the Acquired Assets or the Managed Assets, as the case may be, and to conduct the Business as it is now being conducted and is presently proposed by Seller to be conducted. Each of Seller and the NFPs is duly qualified to conduct business and is in good standing in each jurisdiction in which the nature of its business or location of its properties makes such qualification necessary, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance of, or consent to, this Agreement by each of Seller and the NFPs, as the case may be, has been duly and effectively authorized by all necessary action on the part of Seller and the NFPs, including authorization by the board of directors, trustees or managers of each of Seller and the NFPs, and no further action or Consent is required from Seller or the NFPs. This Agreement has been duly executed and delivered by Seller and consented to by the NFPs, and constitutes the valid and binding obligation of each of Seller, enforceable against Seller in accordance with its terms.
Section 3.2 Financial Information . The unaudited income and expense statements for the Business for the twelve month periods ending December 31, 2004, 2005 and 2006 (collectively, the “Income Statements” ), copies of which are attached hereto as Schedule 4 , accurately reflect in all material respects the income and expenses of each Owned Location and Managed Location for the periods covered.
 
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Section 3.3 Tax Matters .
(a) (i) each of Seller and the NFPs have properly and timely filed all Tax Returns required to be filed by it, which, with respect to NFPs, were correct and complete in all material respects; (ii) each of Seller and the NFPs has paid all Taxes required to be paid by it (whether or not shown on a Tax Return); and (iii) there are no encumbrances for Taxes on the Acquired Assets, SVMP, the Managed Assets, or the Business other than for Taxes not yet due and payable.
(b) With regard to the NFPs: (i) since January 1, 2002, no audit or other tax proceeding by any Taxing Authority has ever been conducted, is currently pending or, is threatened; (ii) no notice of any proposed Tax audit, or of any Tax deficiency or adjustment, has been received and there is no known reasonable basis for any Tax deficiency or adjustment to be assessed; (iii) there are no agreements or waivers currently in effect that provide for an extension of time for the assessment of any Tax; and (iv) no claim has ever been made by a Taxing Authority in a jurisdiction where an NFP does not file a Tax Return that it is or may be subject to taxation by that jurisdiction.
(c) Each of Seller and the NFPs have withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other person for all periods for which the statutory period of limitations for the assessment of such Tax has not yet expired and all IRS Forms W-2 and 1099 (and other applicable forms required to be filed by a state or local Taxing Authority) required with respect thereto have been properly completed and timely filed.
(d) Neither the Seller nor any of the NFPs is a “foreign person” as such term is defined in Section 1445(f)(3) of the Code.
 
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(e) All amounts received by Seller or the NFPs on sales by the Business which are required under applicable state law to be trusted have been deposited in trust and all Tax Returns required to be filed concerning such trusts and the income from such trusts have been filed through all fiscal years ending prior to the Closing Date.
(f) Each NFP is not and has not been a party to any Tax allocation or Tax sharing agreement. No NFP is a member of any Affiliated Group (as defined in Section 1504(a) of the Code or any corresponding provision of state, local or foreign Tax Law) other than the Affiliated Group of which SCI is the parent. No NFP has any Liabilities for Taxes of any Person (A) under United States Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Law), except those which shall be discharged by SCI or one of its Affiliates, (B) as a transferee or successor, or (C) by contract or otherwise.
(g) No NFP has been the “distributing corporation” (within the meaning of Section 355(a)(1) of the Code or any corresponding provision of state, local or foreign Tax Law) nor the “controlled corporation” (within the meaning of Section 355(a)(1) of the Code or any corresponding provision of state, local or foreign Tax Law) within the two-year period ending as of the date of this Agreement.
(h) No NFP (i) has agreed to and is not required to make any adjustment pursuant to Section 481(a) of the Code; (ii) has knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method with respect to such NFP; and (iii) has no application pending with any Taxing Authority requesting a change in accounting method.
(i) No NFP will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) “closing agreement” as described in Section 7121 of the Code (or any corresponding
 
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provision of state, local or foreign income Tax Law); (ii) installment sale or open transaction disposition made on or prior to the Closing Date; (iii) prepaid amount received on or prior to the Closing Date; or (iv) intercompany transactions or excess loss accounts described in the Treasury Regulations promulgated under Section 1502 of the Code (or any corresponding provision of state, local or foreign income Tax Law).
(j) No NFP is subject to any private letter ruling of the Internal Revenue Service or comparable rulings of other Taxing Authorities. No power of attorney currently in force has been granted by any NFP concerning any Tax matter.
Section 3.4 No Violation . Neither the execution, delivery or performance of this Agreement by the Seller nor the consent to this Agreement by the NFPs will, subject to receipt of all Required Consents, (a) violate, conflict with or result in a breach of any Law, (b) violate, conflict with or result in a breach or termination of, or otherwise give any contracting party additional rights or compensation under, or the right to terminate or accelerate, or constitute (with notice or lapse of time, or both) a default under the terms of any organizational documents (i.e., charter, bylaws, operating agreement, partnership agreement or similar document), any note, deed, lease, instrument, permit, security agreement, mortgage, commitment, contract, agreement, order, judgment, decree, license or other instrument or agreement, whether written or oral, express or implied, including, without limitation, the Assumed Contracts, to which Seller and/or the NFPs is a party or by which any of the Acquired Assets, the Managed Assets or the Business is bound, or (c) result in the creation or imposition of any Liens with respect to the Acquired Assets, the Managed Assets or the Business.
Section 3.5 Status of Acquired Assets and Managed Assets .
(a) Title to Acquired Assets . Seller has fee simple title to the Owned Real Property, a valid leasehold interest in the Leased Real Property and good and marketable title to all of the Acquired
 
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Assets, subject to no Liens, except for Permitted Encumbrances and as otherwise disclosed in Schedule 1 or Schedule 5 . At the Closing, Buyer will acquire fee simple title to the Owned Real Property, a valid leasehold interest in the Leased Real Property and good and marketable title to all of the Acquired Assets, in each case free and clear of any and all Liens except Permitted Encumbrances. Other than as disclosed in Schedule 1 , neither Seller nor the NFPs have entered into any Contract granting rights to third parties in any real or personal property of Seller or the NFPs included in the Acquired Assets or the Managed Assets, and no Person has any right to possession or occupancy of any of the Acquired Assets.
(b) Condition of Acquired Assets and Managed Assets . The Real Property and the tangible Acquired Assets that are reasonably necessary for the operation of the Owned Business are in operating condition and reasonable repair (subject to normal wear and tear) and are sufficient to permit Buyer to conduct the Owned Business as presently conducted. The Managed Assets are sufficient to permit Buyer to manage the Managed Businesses as presently conducted in accordance with the terms of the Management Agreements. The assets of SVMP are sufficient for its business.
Section 3.6 Improvements . To the Knowledge of Seller, no municipal or other governmental improvements affecting the Real Property or the real property utilized by the NFPs (the “NFP Real Property” ) are in the course of construction or installation, and no such improvement has been ordered to be made; and any municipal or other governmental improvements affecting the Real Property or the NFP Real Property which have been constructed or installed have been paid for and will not hereafter be assessed (except with respect to any currently recorded assessments which are to become due after the Closing), and all assessments heretofore made have been paid in full, other than any recorded assessments which are to become due after the Closing; and neither Seller nor the NFPs has entered into any private contractual obligations relating to the installation of or connection to any sanitary sewers, storm sewers or any other improvements.
 
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Section 3.7 Real Property Approvals . To the Knowledge of Seller, all permanent certificates of occupancy and all other licenses, permits, authorizations, consents, certificates and approvals required by all Governmental Authorities having jurisdiction and the requisite certificates of the local board of fire underwriters (or other body exercising similar functions), if applicable, have been issued for the Real Property or the NFP Real Property, have been paid for, and are in full force and effect.
Section 3.8 Zoning . Except as disclosed on the letters delivered by the zoning code enforcement officers for the municipality where the Real Property or the NFP Real Property is located, neither Seller nor the NFPs have received notice from any Governmental Authority that: (i) any parcel of the Real Property or the NFP Real Property is not in compliance with current zoning and use classifications under the respective municipal zoning ordinance governing such Real Property or the NFP Real Property; (ii) any existing use at or on the Real Property or the NFP Real Property is not a permitted use or an existing non-conforming use thereunder; and (iii) the current construction, operation and use of the buildings and other improvements constituting the Real Property or the NFP Real Property violate any zoning, subdivision, building or similar law, ordinance, order, regulation or recorded plat or any certificate of occupancy issued for the Real Property or the NFP Real Property.
Section 3.9 No Violations Relating to Real Property . No portion of the Real Property or the NFP Real Property, and no current use of the Real Property or the NFP Real Property, is in violation of any applicable Law, except where such violation would not have a Material Adverse Effect. Seller has not received notice of any presently outstanding and uncured violations of any building, housing, safety or fire ordinances with respect to the Real Property or the NFP Real Property.
Section 3.10 Real Estate Taxes . Seller has not received notice of any proceeding pending for the adjustment of the assessed valuation of all or any portion of the Real Property or the NFP Real Property. To the Knowledge of Seller, there is no abatement, reduction or deferral in effect with respect to all or any portion of the real estate Taxes or assessments applicable to the Real Property or the NFP Real Property.
 
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Section 3.11 Eminent Domain . Seller has not received any notice of any condemnation proceeding or other proceedings in the nature of eminent domain ( “Taking” ) in connection with the Real Property or the NFP Real Property and, to the Knowledge of Seller, no Taking has been threatened.
Section 3.12 Inventory . Seller or the NFPs have good and marketable title to the Inventories (which for purposes of this Section 3.12 includes the same categories of items at SVMP and the Managed Businesses as are defined as the “Inventory” of the Owned Business in Section 1.1(d) above) free and clear of any and all Liens (other than a customer’s rights in items being stored for such customer). The Inventory does not consist of any material amount of items that are obsolete or damaged or items held on consignment. Neither Seller nor the NFPs have acquired or committed to acquire or produce Inventory for sale which is not of a quality usable in the ordinary course of business within a reasonable period of time and consistent with past practice.
Section 3.13 Litigation . No Proceeding before any Governmental Authority, mediator or arbitrator is pending or, to the Knowledge of Seller, threatened, involving Seller and/or the NFPs wherein a judgment, decree, order, settlement or other resolution would have a Material Adverse Effect, or which would prevent the carrying out of this Agreement, declare unlawful the transactions contemplated by this Agreement, cause such transactions to be rescinded, require Buyer to divest itself of any of the Acquired Assets or require termination of the Management Agreements or the loss of any rights or benefits thereunder. To the Knowledge of Seller, no facts or circumstances or other events have occurred that can reasonably be expected to give rise to any such Proceeding.
 
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Section 3.14 Court Orders and Decrees . There is not outstanding or, to the Knowledge of Seller, threatened any order, writ, injunction or decree of any Governmental Authority, mediator or arbitrator against or affecting Seller, relating to any of the Acquired Assets, the Managed Assets or the Business.
Section 3.15 Trade Names . The Owned Location names set forth on Exhibit B and the Managed Location names set forth on Exhibit C constitute the only trade names held for use or used by the Seller and/or the NFPs in connection with the Business and, other than such trade names, there are no Trademarks that are material to the Business. Seller and/or the NFPs have the legal right to use the Owned Location names set forth on Exhibit B and/or the Managed Location names set forth on Exhibit C , as used by Seller and/or the NFPs in connection with the Business, without the Consent of any other Person.
Section 3.16 Pre-need and Trust Accounts and Contracts .
(a) All monies paid to Seller or the NFPs for the benefit of the Business in respect of the Pre-/At-Need Contracts have been, and as of the Closing will be, set aside and identified as set forth in Schedules 7 and 8 . Each of Seller and the NFPs have complied with the terms and conditions of the Pre-/At-Need Contracts. Neither Seller nor the NFPs are in default or breach of any Pre-/At-Need Contract.
(b) The amounts (including interest) held in trust in respect of each of the Pre-/At-Need Contracts, including, without limitation, perpetual care funds, endowment care funds, extended care funds, merchandise trust funds and prearranged mortuary trust funds (collectively, the “Trust Funds” ), are held in conformity with all applicable Laws. All of Seller’s and the NFPs’ required contributions to, withdrawals from and investment and other uses of the Trust Funds of Seller and the NFPs have been made in accordance with all applicable Laws, and each of Seller and the NFPs will have paid as of the Closing (or will pay after Closing when due), all commissions due and owing to commissioned sales people in respect of the Pre-/At-Need Contracts. Seller has no Knowledge of any actual or alleged non-compliance on the part of Seller or the NFPs with respect to the Trust Funds.
 
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(c) For those Pre-/At-Need Contracts that are funded by insurance or performance bonds, Seller or the NFPs have purchased and, when required, posted all such insurance policies and performance bonds required to legally fund or secure all such Pre-/At-Need Contracts, and no future premiums or other amounts remain to be paid, except for those instances where, pursuant to the terms of such insurance policies or performance bonds and in the ordinary course of business, the policies or performance bonds specify payment of premiums or other amounts over time. All such insurance policies and performance bonds are fully identified on Schedule 7 .
(d) All of the Trust Funds are interest bearing trust accounts or other investment accounts that are permissible under applicable Laws. All of the Trust Funds relating to the Owned Business are identified and described under Schedule 8 . Copies of trust agreement pursuant to which Trust Funds relating to SVMP or the Managed Businesses are held have been furnished to the Buyer and are referenced on Schedule 8.
Section 3.17 Contracts . Except for the Assumed Contracts (copies of which have been delivered to Buyer), neither Seller nor any of the NFPs, is a party to or bound by any material Contract relating to the Acquired Assets, the Managed Assets or the Business. Except as disclosed on Schedule 11 , all of the Assumed Contracts are in full force and effect, and there exists no default or breach thereunder by Seller or the NFPs or, to the Knowledge of Seller, any other party thereto other than with respect to any Pre-/At-Need Contracts. Neither Seller nor the NFPs has received any notice (written or oral) indicating the intention of any party to any Assumed Contract to amend, modify, rescind or terminate such Assumed Contract. All of the Assumed Contracts are in full force and effect and are enforceable against the Seller and/or the NFPs and any of their affiliates that is a party thereto and, to the Knowledge of Seller, against all other parties thereto in accordance with their terms and applicable Laws.
 
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Section 3.18 Licenses and Permits . Except as set forth on Schedule 11 , either the Seller or the NFPs holds all of the Permits required to own, operate and maintain the Business under any applicable Law as currently conducted or proposed (by Seller and/or the NFPs) to be conducted ( “Existing Permits” ), and all Existing Permits are, and as of immediately prior to the Closing will be, in full force and effect. To the Knowledge of Seller, except as set forth on Schedule 11 , there are no material restrictions on Buyer’s ability to replace or renew any of the Existing Permits. Each of Seller and the NFPs is in compliance with all Existing Permits, except where the failure to be in compliance would not have a Material Adverse Effect.
Section 3.19 Consents . Each of Seller and the NFPs have, or will have prior to the Closing, obtained, satisfied or made all Consents (the “Required Consents” ) that are required to be obtained, satisfied or made pursuant to any Laws, Permits, Assumed Contracts or other agreements by which Seller or the NFPs, or any of their properties or business assets, including, without limitation, the Acquired Assets and the Managed Assets, are bound in connection with (a) the execution and delivery of this Agreement by Seller; (b) the sale and transfer to Buyer of the Acquired Assets, including, without limitation, the Assumed Contracts and, if transferable to Buyer under applicable Law, the Existing Permits, or (c) the consent of the NFPs to this Agreement.
Section 3.20 Compliance with Laws . The Business presently is conducted, and the Acquired Assets and Managed Assets and their respective uses are, in compliance with all Laws applicable to them, including, without limitation, the funding of or maintaining of all Trust Funds in compliance with applicable Laws or to the posting of performance bonds in lieu thereof, except where the failure to so comply would not have a Material Adverse Effect. Neither Seller nor the NFPs have received any written notice of any administrative, civil or criminal investigation or audit by any Governmental Authority relating to, or which could result in a Material Adverse Effect.
 
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Section 3.21 OSHA or ADA . There is no Proceeding pending with respect to Seller or the NFPs, and, to the Knowledge of Seller, no charge or claim has been made against Seller or the NFPs that has not been dismissed, discharged or otherwise fully resolved, under the Occupational Safety and Health Act ( “OSHA” ) or the Americans with Disabilities Act ( “ADA” ) pertaining to the facilities and operations of the Business.
Section 3.22 Labor Relations . Except as otherwise set forth in Schedule 6, neither Seller nor the NFPs are a party to any collective bargaining or union Contract and Seller is not aware of any current union organization effort with respect to employees of the Business. There are no pending or unresolved unfair labor practice complaints from or with respect to any employees of the Business. Since December 31, 2006, neither Seller nor the NFPs have received any written notice of any strikes, slowdowns, work stoppages, lockouts or threats thereof, by or with respect to any employees of the Business. Since December 31, 2006, neither Seller nor the NFPs have had an “employment loss” within the meaning of the WARN Act or any similar Law.
Section 3.23 Employees and Independent Contractors . Schedule 6 sets forth a list of all employees of the Business, together with (a) their titles or responsibilities, (b) their salaries or wages during the 2006 calendar year, (c) their dates of hire, (d) any employment or severance agreements with them, and (e) any outstanding loans or advances made to them. Except as limited by any employment Contracts listed in Schedule 5 or Schedule 6 and except for any limitations of general application which may be imposed under applicable employment Laws, either Seller or the NFPs have the right to terminate the employment of each employee of the Business at will and without incurring any penalty or liability other than Retained Liabilities. Each of the Seller and the NFPs are in compliance with all Laws
 
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respecting employment practices, except where the failure to so comply would not have a Material Adverse Effect. To the Knowledge of Seller, no employee of the Business has provided to Seller or the NFPs written notice of such employee’s intent to terminate his or her employment with the Business after the date hereof.
Section 3.24 No Brokers . Neither Seller nor any Person acting on behalf of Seller, has agreed to pay to any Person any commission, finder’s or investment banking fee, or similar payment in connection with this Agreement or the transactions contemplated thereby, nor has Seller, or any Person acting on behalf of Seller, taken any action on which a claim for any such payment could be based.
Section 3.25 Accounts Receivable . None of the Owned Receivables or the receivables of SVMP or the Managed Businesses related to the Pre-/At-Need Contracts (together with the Owned Receivables, the “Receivables” ) have been sold and/or factored. All Receivables arising since December 31, 2006, represent bona fide claims of Seller or the NFPs against debtors of the Business for sales made, services performed or other charges or valid consideration arising on or before the date hereof. All such Receivables are valid and enforceable claims for payment consistent with past practices, without, to the Knowledge of Seller, setoff or counterclaim. With regard to any receivables owed by any or all of the NFPs to SCI Ohio, Alderwoods Ohio and/or SCI California, Seller makes no representation or warranty whatsoever regarding the existence, amount or collectibility thereof, or otherwise with respect thereto, and all expressed or implied warranties and/or representations regarding such receivables are expressly disclaimed.
Section 3.26 Operations in Ordinary Course of Business . Since December 31, 2006, Seller and the NFPs have operated and conducted the Business in the ordinary and usual course consistent with past practices. Since December 31, 2006, there has been no material adverse change in the financial condition, assets, liabilities, or operations of the Business, nor have any events occurred, nor to the
 
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Knowledge of Seller do there exist any circumstances, which would constitute, either before or after the Closing, any such change. Without limiting the generality of the foregoing and except as set forth on Schedule 11 , since December 31, 2006, neither the Seller nor the NFPs have:
(a) sold, assigned, leased or transferred any of their assets, which are material to the Business singly or in the aggregate, other than assets sold or disposed of in the ordinary course of business, consistent with past practice;
(b) canceled, terminated, amended, modified or waived any material term of any Contract relating to the Business to which any of them is a party or by which any of them or any of their assets is bound providing for aggregate annual revenues to Seller or the NFPs in excess of $25,000;
(c) (i) increased the base compensation payable or to become payable to any of its employees or independent contractors, except for normal periodic increases in such base compensation in the ordinary course of business, consistent with past practices (including, without limitation, past practices with respect to amounts and timing), (ii) increased the sales commission rate payable or to become payable to any of its employees or independent contractors except in the ordinary course of business consistent with past practices (including, without limitation, past practices with respect to amounts and timing), (iii) granted, made or accrued any loan, bonus, fee, incentive compensation (excluding sales commissions), service award or other like benefit, contingently or otherwise, to or for the benefit of any of its employees or independent contractors, except in the ordinary course of business consistent with past practices (including, without limitation, past practices with respect to amounts and timing), or (iv) entered into any new employment, collective bargaining or consulting agreement or caused or suffered any written or oral termination, cancellation or amendment thereof (except for Assumed Contracts or with respect to any employee at will without a written agreement);
 
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(d) executed any lease for real or personal property for the Business or incurred any Liability therefor except as otherwise disclosed herein;
(e) suffered any damage, destruction or loss (whether or not covered by insurance) affecting the Business or any assets used in the Business that exceeds $25,000 in any one instance or $100,000 in the aggregate; or
(f) mortgaged or pledged, or otherwise made or suffered any Lien (other than any Permitted Encumbrance) on, any material asset of the Business or group of assets that are material in the aggregate to the Business.
Section 3.27 Corporate Status of SVMP . SVMP is organized as a California nonprofit corporation and has been classified as a mutual benefit corporation. SVMP has no members and its Board fills all vacancies arising on the Board. The individuals comprising the current Board and their respective terms of office will be set forth in the Secretary’s certificate furnished pursuant to Section 7.1(m).
Section 3.28 Intentionally Deleted .
Section 3.29 Compliance with Cemetery Laws . In connection with the ownership and operation of each cemetery included in the Business, each of Seller and the NFPs have complied in all material respects with all applicable Laws governing the operation of cemeteries, the provision of cemetery services and the sale of cemetery merchandise. Furthermore, with respect to the ownership and operation of each cemetery included in the Business, there are no pending or, to the Knowledge of Seller, threatened claims or suspensions against Seller and/or the NFPs, by any Person related to the operation of cemeteries, the provision of cemetery services and the sale of cemetery merchandise.
Section 3.30 Full Disclosure . None of the representations and warranties made by Seller in this Agreement (including the Schedules hereto) or in any document delivered to Buyer by or on behalf of
 
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Seller or the NFPs pursuant to Section 7.1, contains any untrue statement of a material fact, or omits any material fact necessary to make any of them, in light of the circumstances in which it was made, not misleading.
Section 3.31 No Other Representations or Warranties . Except as expressly stated in this Agreement, Seller makes no other representation or warranty of any kind whatsoever.
ARTICLE IV
Representations and Warranties of Buyer
Buyer hereby represents and warrants to Seller, both as of the date hereof and as of the Effective Time, as follows:
Section 4.1 Authority .
(a) Each of StoneMor LLC, Buyer LLC, Buyer NQ Sub and Ohio Management LLC are limited liability companies or corporations duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. The execution, delivery and performance of this Agreement by StoneMor LLC, Buyer LLC, Buyer NQ Sub and Ohio Management LLC, have been duly authorized and consented to by the Board of Managers or Board of Directors of each such Person, and no other or additional consent or authorization on the part of any such Person is required in connection therewith. The consummation of the transactions contemplated by this Agreement will not result in a breach, violation or default by StoneMor LLC, Buyer LLC, Buyer NQ Sub or Ohio Management LLC of or under any judgment, decree or Contract applicable to any of them except to the extent that any such breach, violation or default would not reasonably be expected to have a material adverse effect on the ability of StoneMor LLC, Buyer LLC, Buyer NQ Sub and Ohio Management LLC to perform their obligations hereunder.
 
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(b) Upon execution and delivery hereof, this Agreement shall constitute the valid and binding obligation of StoneMor LLC, Buyer LLC, Buyer NQ Sub and Ohio Management LLC enforceable against each of them in accordance with its terms.
Section 4.2 No Brokers . Neither Buyer, nor any Person acting on behalf of Buyer, has agreed to pay a commission, finder’s or investment banking fee, or similar payment in connection with this Agreement or any matter related hereto to any Person, nor has any such Person taken any action on which a claim for any such payment could be based.
Section 4.3 No Other Representations or Warranties . Except as expressly stated in this Agreement, Buyer makes no other representation or warranty of any kind whatsoever.
Section 4.4 Knowledge of Seller Breach . Except as disclosed to Seller in writing, none of the Buyer Representatives (as defined below) have actual knowledge of a breach by Seller of any representation or warranty contained in Article III, or any covenant or agreement to be performed or complied with by Seller in accordance with this Agreement prior to the Effective Time. For purposes of this Section 4.4, the term “Buyer Representative” means William R. Shane, Paul Waimberg, Frank Milles, Michael Stache, Gregg Strom, Alan Fisher, Ken Lee, Penny Casey and Tim Yost, and such persons shall be deemed to have actual knowledge of any breach referred to in the preceding sentence of which any individual assigned by a third-party representative or advisor of Buyer to provide substantial services in connection with the transaction contemplated hereby has actual knowledge.
 
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ARTICLE V
Covenants
Section 5.1 Access to Business . From and after the date of this Agreement, Seller will give and will cause the NFPs to give Buyer and its representatives full and free access to all properties, Contracts, books and records of the Business so that Buyer may have full opportunity to make such investigation as it shall desire to make of the affairs of the Business, including, without limitation, the conduct of any environmental investigations or assessments, provided that (i) such investigation or assessment shall not unreasonably interfere with the operations of the Business, and (ii) prior to Buyer or any of its representatives or contractors contacting any Owned or Managed Location any personnel at such Location, Buyer shall first communicate with and receive approval from Michael Lehmann, which approval shall not be unreasonably withheld. Seller agrees to furnish to Buyer and its representatives all data and information of a financial or operational nature concerning the Acquired Assets, the Managed Assets and the Business that may be reasonably requested by them to conduct a complete a thorough due diligence review of the Acquired Assets, the Managed Assets, the Business and the employees of the Business. In furtherance and not in limitation of the foregoing, Seller agrees to fully cooperate with Buyer as reasonably requested and as reasonably necessary in connection with the arrangement of any equity or debt financing required by Buyer to consummate the transaction contemplated by this Agreement, provided, however, such cooperation shall impose no monetary obligation on Seller.
Section 5.2 Conduct of Business Pending Closing . From and after the date of this Agreement until the Closing, and except as otherwise permitted by this Agreement or as consented to by Buyer in writing, Seller covenants that:
(a) Seller and the NFPs will conduct the Business only in the ordinary course consistent with past practices, which shall include, without limitation, compliance in all material respects with all applicable Laws and the maintenance in force of all insurance policies and performance bonds;
 
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(b) Seller and the NFPs shall maintain the Acquired Assets or the Managed Assets, as the case may be, in their current state of repair, excepting normal wear and tear and use their commercially reasonable efforts to protect the goodwill of the Business and to maintain for the Business the current relationships with suppliers and customers of the Business and others having business relations with the Business;
(c) Seller and the NFPs shall use their commercially reasonable efforts to ensure that key employees and key independent contractors continue their association with the Business through the Closing Date; and
(d) Neither Seller nor the NFPs shall engage in any practice, take, fail to take, or omit any action, or enter into any transaction, (i) of the kind described in Section 3.26 or (ii) which would make any of the representations and warranties in Article III not true.
Section 5.3 Consents and Licenses . Seller shall use commercially reasonable efforts to obtain, satisfy or make, prior to the Closing, all Required Consents.
Section 5.4 Buyer’s Trustee and Endowment Care and Pre-Need Trust Funds . Buyer shall, prior to Closing, (i) secure all licenses, permits and other governmental authorizations and approvals required by those jurisdictions listed on Exhibit D as a prerequisite to Buyer selling Pre-/At-Need Contracts or accepting funds paid by customers toward Pre-/At-Need Contracts with the Owned Business; and (ii) select and formally designate a trustee or trustees ( “Buyer’s Trustee” ) that is qualified under applicable Laws to receive all bank, trust or other funds or accounts, excluding insurance premium payments, containing amounts that have been received by Seller prior to the Effective Time pursuant to
 
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Pre-/At-Need Contracts for pre-need cemetery, funeral and/or cremation merchandise and/or services to be provided by the Owned Business ( “Owned Pre-Need Trust Funds” ), or which are being held as endowment care, perpetual care, extended care or similar trust funds ( “Owned Endowment Care Funds” ), or which are being held as pre-construction trust funds ( “Owned Pre-construction Trust Funds” ) (all herein collectively the “Owned Trust Funds” ). (The Owned Pre-Need Trust Funds and their counterpart at SVMP or the Managed Businesses (the “NFP Pre-Need Trust Funds” ) are collectively referred to as the “Pre-Need Trust Funds.” The Owned Endowment Care Funds and their counterpart at SVMP or the Managed Businesses (the “NFP Endowment Care Funds” ) are collectively referred to as the “Endowment Care Funds.” The Owned Pre-construction Trust Funds and their counterpart at SVMP or the Managed Businesses (the “NFP Pre-construction Trust Funds” ) are collectively referred to as the “Pre-construction Trust Funds.” The Pre-Need Trust Funds, the Endowment Care Funds and the Pre-construction Trust Funds are collectively referred to as the “Trust Funds” ). At or prior to Closing, Buyer shall confirm in writing to Seller and Seller’s Trustees (as defined below) its compliance with the above requirements and acceptance by Buyer’s Trustee of its/their designation and appointment as such. After the Closing Date, all amounts held in the Owned Trust Funds shall be transferred for safekeeping to Buyer’s Trustee, pursuant to Section 5.5, and assuming compliance with these requirements by Buyer, Buyer agrees that all such amounts will be held, administered and withdrawn in accordance with state and federal law. Promptly following the Closing, Buyer shall obtain and post with the requisite authorities in Alabama, California, Hawaii, Iowa, Illinois, Kentucky and South Carolina bonds which are legally and financial adequate to cause the release of the existing bonds regarding the relevant Location Pre-/At-Need Contract performance liability. At closing, Seller shall also provide sufficient information regarding trust or other funds or accounts maintained by SVMP or the Managed Businesses to permit Buyer to discharge its duties pursuant to the terms of the Management Agreements or otherwise with regard to the NFP Pre-Need Trust Funds, the NFP Endowment Care Funds and the NFP Pre-construction Trust Funds.
 
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Section 5.5 Delivery of Owned Trust Funds .
(a) Within the first five (5) business days following the Closing, Seller shall cause the trustees that hold the Owned Trust Funds ( “Seller’s Trustees” ) to deliver to Buyer’s Trustee, by wire transfer in accordance with the instructions from Buyer and/or Buyer’s Trustee, amounts from each of the various Owned Trust Funds equal to approximately 90% of the Closing Date balances thereof (the “Initial Trust Delivery” ), based on (i) most recently obtained bank/trustee account statements for non-commingled accounts and (ii) recent (within 60 days prior to Closing) trust summary report balances for commingled accounts.
(b) For a period of not more than 90 days after the Closing Date, Seller and the NFPs shall continue to make (i) deposits to the undelivered portion of the Trust Funds (the “Retained Trust Funds” ) as legally and contractually required with respect to payments upon Pre-/At-Need Contracts received by Seller and the NFPs after the Closing, and (ii) withdrawals from the Retained Trust Funds for legally and contractually allowed amounts with respect to Pre-/At-Need Contracts serviced by Seller and/or the NFPs or other appropriate withdrawals, all in accordance with historical practices of Seller or the NFPs in those regards and consistent with applicable Laws.
(c) Also during the 90-day period referenced in (b) above, Seller shall cause to be computed (for payment to the applicable Taxing Authorities) such Taxes as are due on income earned (and recognized) by the Pre-Need Trust Funds and the Endowment Care Funds. Seller and Buyer shall cause to be retained/withdrawn such tax amount from the Retained Trust Funds prior to their delivery (if applicable) to Buyer’s Trustee.
 
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(d) Notwithstanding anything to the contrary, but except as contemplated/allowed in (c) preceding, after the Closing, Seller shall not be entitled to receive any amounts from, or with respect to, the Endowment Care Funds or the Pre-construction Trust Funds.
(e) On or before the 90 th day following Closing, Seller shall cause to be delivered to Buyer’s Trustee, by wire transfer in accordance with instructions from Buyer and/or Buyer’s Trustee, the remaining Owned Trust Funds (the “Final Trust Delivery,” and herein together with the Initial Trust Delivery, the “Post-Closing Trust Delivery” ), and shall contemporaneously provide to StoneMor LLC a written reconciliation of the amounts making up the Post-Closing Trust Delivery, including designation of the specific Pre-/At-Need Contracts to which the various delivered amounts are attributable. From and after the date of delivery of the Final Trust Delivery, Seller shall not be entitled to any further withdrawals from the Owned Trust Funds, and any further deposits made by Seller to the Trust Funds shall not be considered as additions to the Post-Closing Trust Delivery for other purposes thereof.
(f) For a period of no more than 90 days after the Closing Date, Buyer shall permit Seller reasonable access to the books and records of the Business as shall be reasonably necessary for Seller to properly make the Post-Closing withdrawals and deposits to the Retained Trust Funds as are contemplated in (b) above.
Section 5.6 Cooperation Regarding Publicity . Neither Seller nor Buyer shall make any press release or other public announcement or filing regarding the transactions contemplated herein without prior consultation and coordination with the other party(ies) hereto, so that the business interests of all are properly served. Notwithstanding the foregoing or anything else to the contrary, Seller and its Affiliates, on the one hand, and Buyer and its Affiliates, on the other hand, may make one or more public announcements or filings in connection with the transactions contemplated by this Agreement to the extent that such announcement or filing is reasonably required for the party making such announcement
 
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or filing (or any of such party’s Affiliates) to avoid Liability under applicable Laws; provided, however, that the party making such announcement or filing shall notify the other party(ies) hereto, if reasonably possible, at least three business days prior to making such filing.
Section 5.7 Title to Real Estate . Buyer has obtained (and provided copies to Seller, one-half at Buyer’s expense and one-half at Seller’s expense, commitments for title insurance in amounts equal to (i) as to the Owned Real Property, the portion of the Closing Purchase Price deemed allocated to the Owned Real Property as reflected on the Statement of Allocation, and (ii) as to the NFP Real Property, an aggregate amount not exceeding the portion of the Closing Purchase Price deemed allocated to the Management Agreements, as reflected on the Statement of Allocation, in each case from the Title Company, showing title to the Owned Real Property and the NFP Real Property to be held in fee simple and good, marketable and vested in Seller and the NFPs, subject to the liens, claims and encumbrances, easements, rights-of-way, reservations, restrictions, outstanding mineral interests and other matters affecting the Real Property or the title thereto (i) identified on Schedule 1 , or (ii) otherwise constituting Permitted Encumbrances. At Closing or soon thereafter as practicable, the Title Company shall issue, one-half at Buyer’s expense and one-half at Seller’s expense, its title insurance policy(ies) consistent with its previous title commitment(s) approved by Buyer.
Section 5.8 Inspections . Seller and Buyer acknowledge that Buyer has performed and obtained inspections and surveys of the Owned Real Property and the NFP Real Property at Buyer’s expense.
Section 5.9 Delivery of Seller Schedules . On or before the fifth (5) business day preceding the Closing Date, the Seller shall deliver to Buyer Schedule 1 through and including Schedule 11 to this Agreement on a compact disk (the “Seller Schedules” ). Such delivery shall constitute Seller’s certification that the Seller Schedules, which shall thereupon be incorporated herein by reference, conform to the requirements of the Agreement. Each such Schedule shall set forth true, accurate and complete information as to the matters set forth in the respective Sections of the Agreement herein, all as of the date of such delivery, unless otherwise indicated thereon.
 
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Section 5.10 Satisfaction of Pre-Closing Covenants . Seller and Buyer shall use their commercially reasonable efforts to satisfy at or prior to Closing all of the covenants and agreements to be performed or complied with by each of them, respectively, pursuant to this Agreement at or prior to Closing.
Section 5.11 Post Closing Access .
(a) For a period of eight (8) years from the Closing Date, Seller shall retain and make available to Buyer for any lawful purpose, upon reasonable notice and at reasonable times, Tax records, general ledgers and other books of original entry, and original payroll records of Seller with respect to periods prior to the Effective Time. If Seller ceases to conduct operations prior to the end of such eight-year period, Seller shall give Buyer 60 days’ prior written notice and an opportunity to accept (without charge to Buyer) from Seller, a transfer of such books and records, and if Buyer elects not to accept such books and records, the Seller’s obligations under this paragraph (a) shall cease.
(b) For a period of eight (8) years from the Closing Date, Buyer shall retain and make available to Seller for any lawful purpose, upon reasonable notice and at reasonable times, the books and records of the Business with respect to periods prior to the Effective Time and to actions and events after the Effective Time, to the extent they relate to periods prior to the Effective Time. If Buyer ceases to conduct operations prior to the end of such eight-year period, Buyer shall give Seller 60 days prior written notice and an opportunity to accept (without charge to Seller) from Buyer a transfer of such books and records from Buyer, and if Seller elects not to accept such books and records, Buyer’s obligations under this paragraph (b) shall cease.
 
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(c) After the Closing, for a period of 30 days, Buyer shall provide and allow Seller reasonable access, at such times as are mutually agreed upon in advance by Seller and Buyer, to the facilities in which the Business is conducted as reasonably necessary to collect and remove the Excluded Assets; provided , however , Buyer’s employees shall not be obligated to physically assist in the collection and removal of Excluded Assets and in no event shall such collection and removal of Excluded Assets unreasonably disrupt or interfere with the operations of the Business, and provided , further that , Seller shall fully indemnify Buyer for any and all Losses arising from or relating to Seller’s collection and removal of the Excluded Assets.
(d) Within 45 days following the Closing, Buyer will remove from all computers located at any of the Owned Locations and/or the Managed Locations all Seller proprietary software using “F disks” and instructions provided by Seller transition personnel. Additionally within the same 45-day period, all Seller-held software licenses for non-proprietary software will be terminated by and/or otherwise transferred to Buyer as a result of Buyer communication directly with applicable software vendors/owners.
Section 5.12 Tax Matters .
(a) Seller shall be responsible for preparing and filing, at Seller’s expense, as applicable, within the times and in the manner prescribed by law (subject, however, to filing under any extension) all Tax Returns of Seller, for all Tax periods. Seller shall also make such filings for the NFPs for all periods prior to the Effective Time.
(b) Seller and Buyer shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with any Tax proceeding relating to: (i) the Acquired Assets; (ii) the Managed Assets; (iii) the Business; or (iv) the transactions contemplated by this Agreement. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and
 
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information which are reasonably relevant to any Tax audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Seller agrees to retain all books and records with respect to Tax matters pertinent to Seller relating to any taxable period beginning before the Closing Date until the longer of (x) sixty (60) days after the expiration of the statute of limitations of the respective taxable periods or (y) eight years, and to abide by all record retention agreements entered into with any Taxing Authority.
(c) Seller and Buyer agree, upon request, to use their commercially reasonable efforts to obtain any ruling, certificate or other document from any Taxing Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed solely with respect to the transactions contemplated by this Agreement.
(d) Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the NFPs for all Tax periods ending on or prior to the Effective Time ( “Pre-Closing Tax Periods” ) which are required to be filed after the Closing Date other than income Tax Returns with respect to periods for which a consolidated, unitary or combined income Tax Return of any Seller will include the operations of the NFPs. Seller shall pay to (or as directed by) Buyer any Taxes of the NFPs for all Pre-Closing Tax Periods to the extent such Taxes have not already been paid by the NFPs (or Seller or an affiliate thereof) prior to the Closing Date, and such payments shall be made in each applicable case within five days after the date when Buyer notifies Sellers of an amount of such Taxes that is payable to the relevant Taxing Authority.
(e) Buyer shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of the NFPs for Tax periods which begin before the Effective Time and end after the Effective Time ( “Straddle Tax Periods” other than income Tax Returns with respect to periods for which a consolidated, unitary or combined income Tax Return of any Seller will include the operation of the
 
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NFPs). Seller shall pay to Buyer an amount equal to the portion of such Taxes which relates to the portion of such Straddle Tax Period ending on the Effective Time. Any such payment for Taxes for any Straddle Tax Period shall be made by Seller to Buyer within five days after the date when Buyer notifies Seller of an amount of such Taxes that is payable to the relevant Taxing Authority. For purposes of this Section 5.12(e), in the case of any Taxes that are imposed on a periodic basis and are payable for a Straddle Tax Period, the portion of such Tax which relates to the portion of such Tax period ending on the Effective Time shall be deemed equal to the amount which would be payable if the relevant Tax period ended on the Effective Time. Any credits relating to a Straddle Tax Period shall be taken into account as though the relevant Tax period ended on the Effective Time. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practice (to the extent permitted by applicable Law) of the NFPs.
Section 5.13 Employees .
(a) Buyer may, but shall not be obligated to, offer employment to any employees of the Business on such terms and conditions as Buyer may determine. Seller shall retain all obligations and liabilities arising on or prior to the Effective Time in respect of current and former employees of Seller and the NFPs under any and all employee benefit plans, policies or practices of each of Seller or any of the NFPs, and applicable Laws. Prior to the Closing, Buyer shall notify the Seller, as applicable, of those employees of the Business to whom Buyer expects to make an offer of employment. Buyer shall not assume or otherwise be responsible for any obligation or liability of employee benefit plans, policies or practices of the Seller or any of the NFPs, or from any employee’s employment or termination of employment prior to the Closing.
(b) Seller shall be responsible for providing health benefit continuation coverage under Section 162(k) and Section 4980B of the Code with respect to (i) any former employee of Seller or any of
 
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the NFPs, and any other qualified beneficiary under any group health plan who as of the Closing is receiving or is eligible to receive such continuation coverage, and (ii) any employee of the Seller or any of the NFPs, and any qualified beneficiary with respect to such employee.
(c) Seller shall be responsible for, and shall comply with, any and all WARN Act obligations relating to periods prior to Closing or associated with, or incurred as a result of, the transactions contemplated by this Agreement.
Section 5.14 No Solicitation; Notification .
(a) No Solicitation . Prior to Closing, Seller shall not, and Seller shall cause its representatives (including, without limitation, investment bankers, attorneys and accountants), employees, directors, members, partners and other Affiliates not to, directly or indirectly, enter into, solicit, initiate, conduct or continue any discussions or negotiations with, or encourage or respond to any inquiries or proposals by, or participate in any negotiations with, or provide any information to, or otherwise cooperate in any other way with, any Person other than Buyer and its representatives concerning any sale of all or any portion of the assets of the Business of, or of any shares of capital stock or other units of equity interests in Seller, or any merger, consolidation, recapitalization, liquidation, dissolution or similar transaction involving either Seller or the NFPs that encompasses any portion of the Business, the Managed Assets or the Acquired Assets (each such transaction being referred to herein as a “Proposed Acquisition Transaction” ). Seller hereby represents and warrants that it is not now engaged in discussions or negotiations with any party other than Buyer with respect to any Proposed Acquisition Transaction. Seller shall not cause its representatives (including, without limitation, investment bankers, attorneys and accountants), employees, directors, members, partners and other Affiliates not to, agree to release any third party from, or waive any provision of, any confidentiality or standstill agreement that relates in any way to all or a portion of the Business.
 
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(b) Notification . Seller shall (i) immediately notify Buyer if any written offer, inquiry or proposal is made or given to Seller or the NFPs (or any of their Affiliates) with respect to any Proposed Acquisition Transaction, and (ii) promptly provide Buyer with a copy of any such offer, proposal or inquiry; provided, however, that no such notice hereunder shall relieve Seller of its respective obligations under Section 5.14(a).
Section 5.15 Confidentiality . The parties acknowledge that the transactions described herein are of a confidential nature and shall not be disclosed except to consultants, advisors, lenders or other financial sources and Affiliates, or as required by Law, until such time as the parties make a public announcement regarding the transaction as provided hereunder. In connection with the negotiation of this Agreement, the preparation for the consummation of the transactions contemplated hereby, and the performance of obligations hereunder, each party acknowledges that it has had, and will continue to have, access to confidential information relating to the other party. Each party shall treat such information as confidential, preserve the confidentiality thereof and not disclose such information, except to its advisors, consultants and other representatives and to Affiliates, or as required by Law, in connection with the transactions contemplated hereby. Notwithstanding the foregoing, Buyer may disclose this Agreement and the information and data in Buyer’s possession in connection herewith to its lenders, but shall advise them of the requirement to maintain the confidentiality of such information and data. This Section 5.15 shall not apply to any information that is (a) in the public domain through no fault on the part of the receiving party hereto or any of their Affiliates or the employees, agents or representatives of such party or any of its Affiliates, or (b) learned or discovered through any independent source that is not obligated to maintain such information as confidential. Because of the difficulty of measuring economic loss as a result of a breach of the foregoing covenants in this Section 5.15, and because of the immediate and irreparable damage that would be caused for which there may be no other adequate remedy at law, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants in this Section 5.15, such covenants may be enforced against them by injunction or restraining order.
 
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Section 5.16 Post-Closing Cooperation Regarding Financial Information . After the Closing, without limiting the generality of any other provision of this Agreement, and without further consideration, Seller shall, and shall cause its respective Affiliates to, provide reasonable cooperation (including reasonable access to files, records and employees of Seller) to Buyer and its agents and representatives (including Buyer’s external auditors) in connection with the preparation of financial statements and financial information and disclosures relating to the Business, the Managed Assets and the Acquired Assets, including, without limitation, disclosures required under Items 2.01 and 9.01 of Form 8-K adopted by the Securities and Exchange Commission (“SEC”), including all requirements for pro forma financial information. Until such time as StoneMor Partners L.P. (“SPLP”) has filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2008, Seller shall (i) consent to the inclusion or incorporation by reference of the Audit Report in any registration statement, report or other document of Buyer to be filed with the SEC in which Buyer reasonably determines that the Audit Report is required to be included or incorporated by reference to satisfy any rule or regulation of the SEC or to satisfy relevant disclosure obligations under U.S. laws pertaining to securities , (ii) use commercially reasonable efforts to cooperate with Buyer to obtain the consent of the Independent Auditor to the inclusion or incorporation by reference of the Audit Report in any such registration statement, report or other document, and (iii) execute and deliver or cause to be executed and delivered to the Independent Auditor such representation letters, in form and substance customary of representation letters provided to external audit firms by management of the company whose financial statements are the subject of an audit, as may be reasonably requested by the Independent Auditor, with respect to the Audit Report.
 
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Section 5.17 Other Post-closing Covenants .
(a) The Graceland Tract, the Donelson Lease and Restriction on Use . Following the Closing, the parties agree to take such other commercially reasonable steps as may be required to satisfy the intent of the parties with respect to the segregation of the Graceland Tract. As appropriate, Seller shall pursue subdivision approval and other regulatory approval for the segregation of the Graceland Tract. Buyer shall cooperate with Seller in its pursuit of such approvals; provided, however, Buyer shall not be required to incur any out-of-pocket expenses in connection with such efforts. The parties shall cooperate in the payment of real estate taxes upon the Graceland Tract such that they are prorated based on the percentage of land to be owned by each party. Seller agrees that the Graceland Tract shall not be used as a cemetery, as part of the operation of a funeral home or a crematory or for any other purpose or use that is related to the death care business or that is inconsistent with the operation of Graceland East Memorial Park as a cemetery. Following expiration of the Donelson Lease (as defined below), Seller agrees to a similar restriction upon the use of the premises comprising the Donelson Lease. Seller agrees that Buyer and Seller shall enter into and record concurrently an agreement, which shall be a covenant running with the land, memorializing such restrictions on the use of the Graceland Tract and the premises comprising the Donelson Lease.
(b) Huson Funeral Home . Lessor for the premises at 6000 Camp Robinson Road, North Little Rock, Pulaski County, Arkansas has requested certain repairs to the leasehold. Seller has agreed to make such repairs, to arrange for the completion of such repairs or to make other arrangements which shall be to the satisfaction of the lessor.
(c) Sacramento Memorial Lawn . Seller agrees to complete repairs to the crematory at Sacramento Memorial Lawn in order to restore it to good working order.
 
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(d) Retained Proceedings . Seller shall have sole authority with regard to Retained Proceedings; provided, however, Seller shall keep Buyer apprised of the status of such matters.
(e) Financial Audits of South Carolina Cemeteries . In order to secure required Permits for Buyer to operate Frederick Memorial Gardens and Graceland East Memorial Park, Seller has undertaken certain financial audits as required by the South Carolina Perpetual Care Cemetery Board. Seller agrees to complete such audits to the satisfaction of the cemetery regulatory authority on or before February 1, 2008.
(f) Crematories . For the three (3) years immediately following Closing, Seller agrees that while owned or managed by Seller, locations currently utilizing the crematories at the Owned or Managed Locations will continue to do so subject to customer preference and provided that Buyer’s pricing at each location is within five percent (5%) of the average price for crematories operating within a 10 mile radius thereof and Buyer’s practices are consistent with current practices of the Seller. Buyer further agrees that during the term of this covenant its pricing shall not increase more than five percent (5%).
Section 5.18 Further Assurances . From time to time after the Closing, at the request of Buyer, and without further consideration but at no cost to Seller, Seller will execute and deliver such additional documents and will take such other actions as Buyer reasonably may request to more fully and absolutely convey, assign, transfer, deliver and vest in Buyer title to the Acquired Assets and the Owned Business and all of Seller’s rights under the Management Agreements with respect to the Managed Assets and Managed Businesses and to otherwise carry out the terms of this Agreement.
Section 5.19 Notice of Breaches . Seller shall give prompt notice to Buyer in writing of (a) the occurrence, or failure to occur, of any event, which occurrence or failure causes or would reasonably be expected to cause any representation or warranty of Seller contained in this Agreement or in any Exhibit
 
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or Schedule hereto to be untrue or inaccurate, (b) any Material Adverse Effect, and (c) any failure of Seller or any of its respective Affiliates, shareholders or representatives to comply with, perform or satisfy any covenant, condition or agreement to be complied with, performed by or satisfied by them under this Agreement or any Exhibit or Schedule hereto; and if after receiving such disclosure Buyer has elected to proceed with the Closing, such disclosure shall be deemed to cure, and shall relieve Seller of any Liability with respect to any breach of, or failure to satisfy, any representation, warranty, covenant, condition or agreement hereunder to the extent such breach or failure was fully and accurately described in such disclosure.
Section 5.20 HSR Act . The Seller and the Buyer have filed with the United States Federal Trade Commission (the “FTC” ) and the United States Department of Justice (the “DOJ” ) the notification and report form required by the Hart Scott Rodino Antitrust Improvement Act of 1976 (the “HSR Act” ). The Seller and the Buyer shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, the FTC or the DOJ and shall comply promptly with any such inquiry or request and shall promptly provide any supplemental information requested in connection with the filings made hereunder pursuant to the HSR Act. Any such supplemental information shall be in substantial compliance with the requirements of the HSR Act. Each party shall use it reasonable best efforts to obtain any clearance required under the HSR Act for the consummation of the transaction contemplated by this Agreement. For purposes of this Section 5.20, the “reasonable best efforts” of any party shall not require that party to pay any amount to or incur any obligation in favor of any Person other than for filing fees payable under the HSR Act or agree to any prohibition, limitation or other similar requirement. The Buyer shall be responsible for the filing fees under the HSR Act ( “HSR Filing Fees” ).
 
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Section 5.21 Dignity Memorial Benefits . Seller shall make available to Buyer the Dignity Memorial benefits listed on Exhibit F , for the prices listed on Exhibit F , after the Closing, solely to allow Buyer to service Pre-/At-Need Contracts that may include Dignity Memorial products. The prices for the items referenced on Exhibit F will increase each year on the anniversary of the Closing Date by 4%. Buyer will remove/destroy all “Dignity” and “Dignity Memorial” signs at the Business within 60 days following the Closing Date.
Section 5.22 Wrongful Burial Resolutions . Buyer and Seller recognize that during the term of Seller’s ownership, Seller has discovered material issues/problems at certain of the cemeteries included in the Business (Carolina Biblical Gardens of Guilford, in Jamestown, North Carolina; Martin Memorial Gardens in Everetts, North Carolina; York Memorial Park, in Charlotte, North Carolina; and Memorial Park Sedalia, in Sedalia, Missouri) resulting from burials that were misplaced, improperly recorded or that could not otherwise be properly accounted for ( “Burial Issues” ). Seller believes that the Burial Issues at Martin Memorial Gardens and Memorial Park Sedalia identified to date have been properly remedied and that the Burial Issues at Carolina Biblical Gardens and York Memorial Park identified to date are still in the process of remediation. With respect to presently known or hereafter (including after the Effective Time) discovered Burial Issues at any of the above-named cemeteries, Buyer agrees to use reasonable efforts consistent with current cemetery standards and practices, including utilization of Buyer employees, equipment, merchandise and other available lands within the affected cemetery(ies), to resolve promptly such Burial Issues including continuation of remediation efforts initiated by Seller and to mitigate the third party claims by customers of the cemeteries and their families (the “Buyer Burial Resolutions” ). However, to the extent that Buyer in carrying out Buyer Burial Resolutions incurs expense as a result of payments to third parties including expenditures related to the defense and settlement of claims asserted by third parties (herein, the “Seller Burial Resolutions”), Seller shall retain
 
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responsibility therefor and fully indemnify Buyer therefrom in accordance with the terms of this Agreement; provided, however, such indemnification shall not relieve Buyer of its responsibilities with regard to Buyer Burial Resolutions, and Seller may assert Buyer’s failure to discharge Buyer Burial Resolutions as a defense to Buyer’s right of indemnification.
ARTICLE VI
Conditions Precedent to Closing
Section 6.1 Conditions to Seller Closing . The obligations of Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction on or before the Closing of the following conditions, any one or more of which may be waived by Seller at its option:
(a) the representations and warranties of Buyer contained in this Agreement shall be true and correct, both on the date of this Agreement and at and as of the Closing, except for representations or warranties made as of some other specified date, which as of the Closing shall remain true and correct as of such specified date;
(b) Buyer shall have discharged, performed or complied with, in all material respects, all covenants and agreements contemplated by this Agreement to be performed or complied with by Buyer at or prior to the Closing;
(c) Buyer shall have delivered, or caused to be delivered, to Seller each of the documents required by Section 7.2;
(d) The waiting period under the HSR Act shall have expired or terminated; and
(e) The retainage by Seller of acreage from Graceland East Memorial Park, Simpsonville, South Carolina, shall have been fully negotiated.
(f) The parties shall have completed Exhibit E to their mutual satisfaction.
 
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Section 6.2 Conditions to Buyer Closing . The obligations of Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction on or before the Closing of the following conditions, any one or more of which may be waived by Buyer at its option:
(a) the representations and warranties of Seller contained in this Agreement shall be true and correct, both on the date of this Agreement and at and as of the Closing, except for representations or warranties made as of some other specified date, which as of the Closing shall remain true and correct as of such specified date;
(b) Seller shall have discharged, performed or complied with, in all material respects, all covenants and agreements contemplated by this Agreement to be performed or complied with by Seller at or prior to the Closing;
(c) The environmental condition or other liability related to the sewage treatment unit at Memorial Park Sedalia in Sedalia, Missouri and the release of hazardous materials from Olivet Memorial Park and Crematory in Colma, California shall have been addressed to the reasonable satisfaction of the Buyer;
(d) Seller shall have delivered Seller Records pursuant to Section 1.1(m) and transferred custody and control of the NFP Records pursuant to Section 1.2;
(e) Seller shall have delivered the copies of the written resignations of the directors or trustees and officers of the NFPs as well as copies of resolutions adopted by the NFPs filling the vacancies caused by such resignation or otherwise, which shall be to the satisfaction of the Buyer;
(f) Seller shall have delivered, or caused to be delivered, to Buyer each of the documents required by Section 7.1;
(g) Buyer shall have obtained financing (both debt and equity) for the Purchase Price on terms satisfactory to the Buyer in Buyer’s reasonable discretion.
 
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(h) There shall have been no material adverse change in the condition (financial, physical or otherwise) of the assets, commercial relationships, business or operations of the Business, the Managed Assets or the Acquired Assets from and after December 31, 2006;
(i) No Law, order or judgment shall have been enacted, entered, issued or promulgated by any Governmental Authority, arbitrator or mediator, which challenges, or seeks to prohibit, restrict or enjoin the consummation of the transactions contemplated hereby, nor shall there be pending or threatened, any action, suit or proceeding by or before any Governmental Authority, arbitrator or mediator, challenging any of the transactions contemplated by this Agreement, seeking monetary relief by reason of the consummation of such transactions or seeking to effect any material divestiture or to revoke or suspend any material Contract or Permit of the Business by reason of any or all of the transactions contemplated by this Agreement;
(j) Buyer shall have obtained all required Permits for the operation of the Business;
(k) All Required Consents shall have been made, obtained or given, including without limitation, those of Buyer’s existing lenders, and such Consents shall be in full force and effect;
(l) Buyer shall not have made any discovery during its due diligence investigation of the Business which would (in the reasonable judgment of a third party) have a Material Adverse Effect on the value of the Business to be purchased hereunder;
(m) Buyer shall have received the Seller Schedules and such Seller Schedules shall not be different from the information that was contained on the Bowne Data Room(s) containing information regarding the Business and accessible to Buyer, as that information existed on March 28, 2007, to such an extent that the difference would (in the reasonable judgment of a third party) have a Material Adverse Effect on the value of the Business to be purchased hereunder; and
(n) The waiting period under the HSR Act shall have expired or terminated.
 
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(o) Buyer shall have received the Audit Report and reasonable assurance from its auditors that the Audit Report is sufficient, in the opinion of Deloitte & Touche, to permit SPLP to satisfy its disclosure obligations under Items 2.01 and 9.01 of Form 8-K adopted by the SEC, including all requirements for pro forma financial information.
(p) The parties shall have agreed on: (i) the steps to be taken post-closing to resolve the status of SVMP and its relationship to StoneMor; (ii) the desired result to be achieved and (iii) the post-closing adjustment, if any, to Closing Purchase Price in the event the desired result is not achieved.
(q) The parties shall have completed Exhibit E to their mutual satisfaction.
ARTICLE VII
Closing Deliveries
Section 7.1 Seller’s and the NFPs’ Closing Deliveries . At the Closing, Seller will deliver to Buyer the following documents, duly executed as required, and each in form and substance reasonably acceptable to Buyer and its counsel:
(a) motor vehicle transfer/tax forms transferring the automobiles comprised in the Acquired Assets to Buyer, free and clear of all Liens (one for each automobile) and duly endorsed certificates of title for the automobiles evidencing that title to such vehicles are held in Buyer and are free and clear of all Liens (one for each automobile); provided, however, that as to all such vehicles which are covered by leases from Wheels, Inc., as referenced above, Buyer recognizes that Wheels, Inc. will cause new certificates of title to be issued and delivered to Buyer after Closing according to the standard procedures of the applicable states regarding such matters;
(b) a bill of sale conveying the applicable Acquired Assets to Buyer, in form and substance reasonably acceptable to Buyer;
 
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(c) an assignment and assumption agreement assigning to Buyer all of the Assumed Contracts;
(d) an assignment agreement assigning to Buyer (and/or to Buyer’s Trustee, as appropriate), all Trust Funds, insurance policies and Receivables related to the Pre-/At-Need Contracts of the Owned Location (other than those specified in Section 5.5);
(e) a certificate of Seller, to the effect that the conditions set forth in Sections 6.2(a), (b) and (f) hereof have been satisfied;
(f) a certificate of each of Seller to the effect that the Seller is not a foreign person within the meaning of Section 1445 of the Code (or any comparable law);
(g) Special Warranty Deeds conveying to Buyer title in fee simple to the Owned Real Property;
(h) fully executed counterparts of any and all required transfer tax forms;
(i) such title affidavits, opinions and indemnities as may be requested by the Title Company to issue the policy to Buyer;
(j) all other bills of sale, deeds, leases, transfers, assignments, acts, things and assurances as may be required in the reasonable opinion of Buyer for more perfectly and absolutely assigning, transferring, conveying, assuring to and vesting in Buyer title to the Acquired Assets free and clear of all Liens and Seller’s rights in and under the Management Agreements;
(k) copies of all Required Consents, duly executed by the Person from whom consent is required to be obtained;
(l) a mutual release by and among SCI Ohio, Alderwoods Ohio and the Ohio NFPs and a mutual release and termination of management arrangement between SCI California and SVMP, all in form and substance reasonably satisfactory to the Buyer;
 
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(m) a Secretary’s Certificate from each of the NFPs certifying that the governing documents appended thereto including without limitation the articles of incorporation, bylaws, management agreements and resolutions are current, correct and complete and with regard to SVMP setting forth the names of the individuals who comprise the current Board and their respective terms of office;
(n) a lease of the premises from which the Donelson, Sewell and Mathews Mortuary currently operates (the “Donelson Lease”); and
(o) such other documents as may be reasonably required to consummate the transaction contemplated hereunder.
Section 7.2 Buyer’s Closing Deliveries . At the Closing, Buyer will deliver to Seller the following:
(a) in the form and manner specified in Section 1.3 hereof, the Closing Purchase Price, as adjusted pursuant to this Agreement;
(b) the Donelson Lease duly executed on behalf of the Buyer accompanied by the rents specified therein;
(c) a certificate of Buyer, signed by an executive officer thereof, to the effect that the conditions set forth in Sections 6.1(a) and (b) hereof have been satisfied; and
(d) such other documents as may be reasonably required to consummate the transaction contemplated hereunder.
ARTICLE VIII
Survival of Representations, Warranties and Covenants;
Indemnification; Enforcement of Agreement
Section 8.1 Nature of Representations . For purposes of this Agreement, the contents of all Exhibits, certificates, Schedules, and other items incorporated herein by reference shall, in addition to the representations, warranties and covenants made in this Agreement, constitute representations, warranties and covenants made in this Agreement by Seller or Buyer, as the case may be.
 
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Section 8.2 Survival of Representations, Warranties and Covenants . The representations, warranties and covenants of the parties made in this Agreement shall survive the Closing, without regard to any investigation by the parties with respect thereto, as follows:
(a) The representations and warranties set out in Sections 3.1 ( Organization, Standing; Authorization; Capacity ), 3.3 ( Tax Matters ), 3.5(a) ( Title to Acquired Assets ), 3.10 ( Real Estate Taxes ), 3.16(b) ( Pre-need and Trust Accounts and Contracts ), 3.24 ( No Brokers ), 3.27 ( Corporate Status of SVMP ) and 4.1 ( Authority ) (claims with respect to any of the foregoing representations and warranties referred to herein as “ Special Claims ”), and the indemnification obligations of the parties with respect to breaches of such representations and warranties, shall survive for a period equal to the statute of limitations pertaining thereto;
(b) All other representations and warranties made in this Agreement, and the indemnification obligations of the parties with respect to breaches of such representations and warranties, shall survive for a period of two (2) years after the Closing;
(c) Any claims, actions or suits that the Seller, on the one hand, or the Buyer, on the other hand, may have against the other that arise from any actual fraud on the part of such other party in connection with this Agreement or the transactions contemplated hereunder, shall continue in full force and effect without limitation;
(d) All covenants and agreements made in this Agreement, and the indemnification obligations of the parties with respect to breaches of such covenants and agreements, shall survive for a period equal to the statute of limitations or the period of time specified herein for a particular covenant or agreement; provided , however that the covenants contained in Section 5.18 ( Further Assurances ) and the indemnification obligations of the parties with respect to breaches thereof, shall survive the Closing indefinitely; and
 
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(e) Notwithstanding the foregoing or anything else to the contrary, if any claim or proceeding is to be made or brought by an Indemnitee (as defined in Section 8.8) within the applicable time period set forth above in this Section 8.2, such claim, and the representation, warranty and/or covenant alleged to have been breached in such claim or proceeding, and all indemnification obligations of the parties with respect thereto, shall survive until the final resolution of such claim by settlement, arbitration, litigation or otherwise.
Section 8.3 Indemnification by Seller .
(a) Seller (being for this purpose, as to any particular Owned Location, Parent and that Location’s particular Subsidiary Owner, jointly and severally, and as to any particular Managed Location, Parent and either SCI Ohio or Alderwoods Ohio, as applicable, jointly and severally) agrees to indemnify and hold each Indemnitee (as defined in Section 8.8), harmless from all Losses incurred, suffered or paid, directly or indirectly, as a result of or arising out of:
(i) any breach or default in the performance by Seller of any covenant or agreement of Seller contained in this Agreement or any related document executed pursuant hereto;
(ii) any breach of warranty or inaccurate or erroneous representation made by Seller (except to the extent that a Buyer Representative had actual knowledge thereof in breach of Section 4.4);
(iii) any Retained Liabilities;
(iv) any Taxes of Seller or the NFPs (for all periods through the Effective Time), including, without limitation, (A) Transfer Taxes; (B) the portion of real and personal property Taxes for which Seller or the NFPs are liable for pursuant to Section 1.7.; (C) Taxes on income earned (and
 
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recognized) by the Pre-Need Trust Funds and the Endowment Care Funds prior to the Effective Time with regard to SVMP and the Managed Businesses and prior to delivery thereof to Buyer’s Trustee with regard to the Owned Business; and (D) Taxes payable by any trust (as an independent taxpayer entity) of or relating to any Seller or any of the NFPs, and to any or all of the Business, including, without limitation, Taxes relating to or arising from income earned (and recognized) by the Pre-Need Trust Funds and the Endowment Care Funds prior to the Effective Time with regard to SVMP and the Managed Businesses and prior to the delivery thereof to Buyer’s Trustee with regard to the Owned Business; and
(v) any (A) Taxes of the NFPs for any Pre-Closing Tax Periods and the portion of the Straddle Tax Period that ends on the Effective Time, and (B) unpaid Taxes of any Person including under United States Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law) as a transferee or successor, by Contract or otherwise.
(b) Notwithstanding anything herein to the contrary, Buyer shall have no claim for indemnification hereunder until the total amount of all Losses incurred which would otherwise be subject to indemnification hereunder exceeds $1,000,000, and then only to the extent of such excess, but in no event shall the aggregate amount of all Losses subject to indemnification under this Section 8.3 exceed the Closing Purchase Price; provided, however, that the amounts set forth in this Section 8.3(b) shall not apply to any Losses resulting from or arising out of, directly or indirectly, (i) any Special Claims, (ii) claims under Sections 8.3(a)(i), 8.3(a)(iii) (other than the Retained Liabilities identified in Section 1.4(b)(vii)), 8.3(a)(iv) or 8.3(a)(v) or (iii) claims arising from any actual fraud on the part of Seller, as to which Seller shall have liability for the entire amount of such Loss without any limitation; and
(c) Except as provided in Section 8.7, the indemnification obligations of Seller shall be the exclusive remedy of Buyer with respect to any matter subject to indemnification hereunder.
 
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(d) Seller will be entitled to receive as a credit against any indemnification amount owing to Buyer hereunder an amount equal to the net proceeds of any insurance policy actually received by Buyer for any Loss for which Seller agreed to indemnify Buyer under this Section 8.3.
Section 8.4 Indemnification by Buyer .
(a) Buyer agrees to indemnify and hold each Indemnitee (as defined in Section 8.8) harmless from all Losses incurred, suffered or paid, directly or indirectly, as a result of or arising out of:
(i) any breach or default in the performance by Buyer of any covenant or agreement of Buyer contained in this Agreement or any related document executed pursuant hereto;
(ii) any breach of warranty or inaccurate or erroneous representation made by Buyer herein (except to the extent that Seller had actual knowledge thereof prior to the Closing); and
(iii) the failure of Buyer to fully pay and discharge as and when same are due the Assumed Liabilities or any of the obligations, liabilities and/or duties relating to or arising from the Business from and after the Effective Time.
(b) Except as provided in Section 8.7, the indemnification obligations of Buyer hereunder shall be exclusive remedy of Seller with respect to any matter subject to indemnification hereunder.
(c) Buyer will be entitled to receive as a credit against any indemnification amount owed to Seller hereunder an amount equal to the net proceeds of any insurance policy actually received by Seller for a Loss for which the Buyer agreed to indemnify Seller under this Section 8.4.
Section 8.5 Defense of Claims; Payment .
(a) Any Indemnitee seeking indemnification with respect to any actual or alleged Loss shall give notice to the applicable Indemnitor within the applicable survival period set forth in Section 8.2. If any claim, suit, demand or action is asserted or threatened by a third party (“ Claim ”) after the
 
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Closing Date for which an Indemnitor may be liable under the terms of Article VIII, then the Indemnitee shall notify the Indemnitor within thirty (30) days after such Claim is known to the Indemnitee (provided, however, that failure to provide such notice will not affect the Indemnitee’s rights to indemnity hereunder from Indemnitor, unless the Indemnitee can show actual material prejudice resulting from such failure and then only to the extent of such actual material prejudice) and shall give the Indemnitor a reasonable opportunity: (i) to take part in any examination of any books and records; (ii) to conduct any proceedings or negotiations in connection therewith and necessary or appropriate to defend the Indemnitee; (iii) to take all other required steps or proceedings to settle or defend any such Claim; and (iv) to employ counsel to contest any such Claim in the name of the Indemnitee or otherwise (except as set forth below in Section 8.5(b)).
(b) If the Indemnitor intends to assume the defense of such Claim, it shall give written notice of such intention to the Indemnitee within 15 days after Indemnitor first receives written notice of such Claim, whereupon Indemnitee shall permit, and Indemnitor shall assume, the defense of any such Claim, through counsel reasonably satisfactory to the Indemnitee. Notwithstanding the foregoing, the Indemnitee may participate in such defense of such Claim (with one or more counsel of its own choice) at its own expense, provided, however, that if the parties to any such Claim (including any impleaded parties) include both the Indemnitor and the Indemnitee, and the Indemnitor shall have been advised in writing by counsel for the Indemnitee that there may be one or more defenses available to the Indemnitee that are not available to the Indemnitor or legal conflicts of interest pursuant to applicable rules of professional conduct between the Indemnitor and the Indemnitee, the Indemnitor shall not have the right to assume the defense of such Claim on behalf of the Indemnitee and the fees and expenses of one such separate counsel employed by the Indemnitee shall be at the expense of the Indemnitor.
 
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(c) If the Indemnitor fails to assume the defense of any Claim within 15 days after Indemnitor first receives written notice of such Claim, the Indemnitee may defend against such Claim in such manner as it may deem appropriate (provided that the Indemnitor may participate in such defense at its own expense) and a recovery against the Indemnitee in such Claim for damages suffered by it in good faith, shall be conclusive in its favor against the Indemnitor.
(d) The Indemnitor shall not, without the written consent of the Indemnitee, settle or compromise any Claim or consent to the entry of any judgment with respect thereto which does not include, as an unconditional term thereof, the giving to the Indemnitee a release by all other participants from all liability in respect of such Claim. Unless the Indemnitor shall have elected not to assume the defense of any claim subject to Article VIII or, after reasonable written notice of any Claim that is subject to the indemnification provisions of this Article VIII shall have failed to assume or participate in the defense thereof, the Indemnitee may not settle or compromise such Claim without the written consent of the Indemnitor, such consent not to be unreasonably withheld.
(e) Upon determination of the amount due to an Indemnitee (“ Indemnification Amount ”) in connection with any matter for which indemnification is sought under this Article VIII (“ Indemnification Matter ”) (whether by agreement between the Indemnitor and the Indemnitee or after a settlement agreement is executed or a final judgment or order is rendered by an arbitrator or court of competent jurisdiction with respect to the Indemnification Matter), the Indemnitor shall promptly (and in any event, not later than 10 days after such determination) pay the Indemnification Amount, in cash, to the Indemnitee. Any Indemnification Amount that is not paid in full within 10 days after final determination of the Indemnification Amount as set forth above, such unpaid amount shall thereafter accrue interest through the date of payment at the prime rate as reported in The Wall Street Journal, Eastern Edition for the date of such final determination.
 
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Section 8.6 Dispute Resolution .
(a) Except as provided in Section 8.6(g), any and all disputes among the parties to this Agreement (defined for the purpose of this provision to include their respective officers, directors, managers, members, partners, shareholders, agents and/or other Affiliates) arising out of or in connection with the negotiation, execution, interpretation, performance or nonperformance of this Agreement and the transactions contemplated herein shall be solely and finally settled by arbitration, which shall be conducted in such city as the parties shall mutually agree, or if they are unable to agree, in Wilmington, Delaware, by a single arbitrator selected by the parties. The arbitrator shall be a lawyer familiar with business transactions of the type contemplated in this Agreement who shall not have been previously employed by or affiliated with any of the parties hereto. If the parties fail to agree on the arbitrator within thirty (30) days of the date one of them invokes this arbitration provision, either party may apply to the American Arbitration Association to make the appointment.
(b) The parties hereby renounce all recourse to litigation and agree that the award of the arbitrator shall be final and subject to no judicial review. The arbitrator shall conduct the proceedings pursuant to the Commercial Arbitration Rules of the American Arbitration Association, as now or hereafter amended (the “ Rules ”).
(c) The arbitrator shall decide the issues submitted (i) in accordance with the provisions and commercial purposes of this Agreement, and (ii) with all substantive questions of Law determined under the Laws of the State of Delaware (without regard to its principles of conflicts of laws). The arbitrator shall promptly hear and determine (after giving the parties due notice and a reasonable opportunity to be heard) the issues submitted and shall render a decision in writing within six (6) months after the appointment of the arbitrator. No fees shall be paid to the arbitrator with respect to services rendered by the arbitrator after the elapse of six (6) months following the appointment of the arbitrator.
 
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(d) The parties agree to facilitate the arbitration by (i) conducting arbitration hearings to the greatest extent possible on successive days, and (ii) observing strictly the time periods established by the Rules or by the arbitrator for submission of evidence or briefs.
(e) The parties shall share equally the fees and expenses of the arbitrator.
(f) Judgment on the award of the arbitrator may be entered in any court having jurisdiction over the party against which enforcement of the award is being sought and the parties hereby irrevocably consent to the jurisdiction of any such court for the purpose of enforcing any such award.
(g) The parties hereto agree that the provisions of this Section 8.6 shall not be construed to prohibit any party from obtaining, in the proper case, specific performance or injunctive relief in any court of competent jurisdiction with respect to the enforcement of any covenant or agreement of another party to this Agreement as provided herein.
Section 8.7 Enforcement of Agreement . Each party hereto acknowledges that irreparable damage would result if this Agreement is not specifically enforced. Therefore, the covenants, agreements, rights and obligations of the parties under the Agreement, including, without limitation, their respective rights and obligations to sell and purchase the Acquired Assets, and to assign the Management Agreements, as well as the rights and obligations of the parties under Articles V, VIII and X, shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. Each party hereto agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense that a remedy at law may be adequate in any action for specific performance hereunder.
 
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Section 8.8 Definitions .
(a) In the case of a claim of indemnification brought pursuant to Section 8.3, “ Indemnitee ” shall mean Buyer and Buyer’s Affiliates and the directors, officers, partners, members, managers, employees, successors and assigns of Buyer or any of its Affiliates, and in the case of a claim of indemnification brought pursuant to 8.4, it shall mean Seller, its Affiliates and the directors, officers, partners, members, managers, employees, successors and assigns of Seller or its Affiliates.
(b) In the case of a claim of indemnification brought pursuant to Section 8.3, “ Indemnitor ” shall mean Seller, and in the case of a claim of indemnification brought pursuant to Section 8.4, it shall mean Buyer.
Section 8.9 Cooperation .
(a) If Buyer or Seller submits to an insurance carrier for any of their respective insurance policies, a claim arising from or relating to a Claim or action by a third party which may otherwise be subject to indemnification pursuant to Section 8.3 or Section 8.4, as the case may be, and if such insurance carrier agrees to defend such claim, then the defense of such claim shall be tendered to such insurance carrier and the rights of the parties between themselves regarding the assumption and control of such defense shall be subject to the reasonable requirements of such insurance carrier.
(b) After the Closing Date, the parties agree to cooperate with each other in connection with the resolution of any on-going or future litigation, regulatory matter, consumer complaint or any other Claim or matter related to the operation of the Business prior to the Closing Date, or for any matter arising after the Closing Date, for which either party may be obligated to indemnify the other (“ Litigation Matters ”). Cooperation may include, but is not limited to, providing access to books and records related to a Litigation Matter, access to employees who have or may have information related to a Litigation Matter for interview, deposition or trial, or any other reasonable cooperation requested by one party of the other in connection with a Litigation Matter.
 
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ARTICLE IX
Termination of Agreement
Section 9.1 Termination . Except where a right to terminate this Agreement is otherwise specifically provided for herein, this Agreement may be terminated by written notice of termination at any time before the Closing Date only as follows:
(a) by mutual consent of Seller and Buyer;
(b) by Buyer, upon written notice to Seller given at any time after December 31, 2007, if any or all of the conditions precedent to Buyer’s obligations hereunder set forth in Section 6.2 hereof have not been met, without fault of Buyer;
(c) by Seller, upon written notice to Buyer given at any time after December 31, 2007 if any or all of the conditions precedent to Seller’s obligations hereunder set forth in Section 6.1 hereof have not been met, without fault of Seller.
Section 9.2 Effect of Termination . In the event of the termination of this Agreement pursuant to the provisions of Section 9.1: (a) this Agreement shall become void and have no effect, without any liability on the part of any of the parties except for the provisions of Section 5.15 and except as provided below in this Section 9.2; (b) each party shall return all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same; and (c) no confidential information received by any party with respect to the business of any other party or its Affiliates shall be disclosed to any third party, unless required by Law. Notwithstanding the foregoing or anything else to the contrary, neither Seller nor Buyer shall be relieved of liability under, and as provided in, this Agreement for a breach of this Agreement occurring prior to such termination, or for a breach of any provision of this Agreement which specifically survives termination hereunder.
 
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ARTICLE X
Miscellaneous
Section 10.1 Certain Defined Terms . The following terms shall have the following meanings for purposes of this Agreement, which meanings shall be equally applicable to both the singular and plural forms of such terms:
“ Affiliate ” means, with respect to any Person, one who at such time controls, is controlled by, or is under common control with, such Person.
“ Code ” means the Internal Revenue Code of 1986, as amended, and all rules and regulations promulgated thereunder.
“ Consent ” means any consent, waiver, approval, order or authorization of, or registration, declaration or filing with or notice to, any Governmental Authority or other Person.
“ Contract ” means and includes all contracts, agreements, indentures, leases, franchises, licenses, commitments or legally binding arrangements, express or implied, written or oral.
“ Employee Plans ” means all employee benefit plans as defined in Section 3(3) of ERISA and all severance, bonus, retirement, pension, profit sharing and deferred compensation plans and other similar material, fringe or employee benefit plans, programs or arrangements, and all material employment or compensation agreements, written or otherwise.
“ Endowment Care Adjustment Amount ” means the product of (i) the absolute value of the difference between the Transferred Endowment Care Trust Amount and $43,577,000, multiplied by (ii) .05.
 
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“ Environmental Reports ” means the Phase I and/or Phase II Environmental Assessment Reports specifically identified on Exhibit E .
“ Environmental Requirements ” means all applicable Laws, Permits and similar items of any Governmental Authority relating to the protection of the environment, including all requirements pertaining to reporting, licensing, permitting, investigation, and remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials.
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.
“ Governmental Authority ” means any federal, state, local or foreign government or any subdivision, authority, department, commission, board, bureau, agency, court or other instrumentality thereof.
“ Hazardous Materials ” means any substance: (A) the presence of which requires investigation or remediation under any Law; (B) which is or has been identified as a potential hazardous waste, hazardous substance, pollutant or contaminant under any applicable Law, or (C) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, reactive, or otherwise hazardous and has been identified as regulated by any Governmental Authority.
“ Intellectual Property ” means all intellectual property and all intellectual property and industrial property rights owned, held or used, including but not limited to (i) inventions, designs, algorithms and discoveries, know-how, methods, and processes, and all enhancements and improvements thereto, whether patentable or unpatentable, and whether or not reduced to practice, and all patents therefor or in connection therewith, whether U.S. or foreign, and all patent applications, patent disclosures, and all divisions, continuations, continuations-in-part, reissues, re-examinations and extensions thereof; (ii) trademarks, trade names and service marks, trade dress, logos, fictitious names, internet domain names, slogans, and symbols (collectively, “ Trademarks ”), and all goodwill and similar value associated with
 
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any of the foregoing, and all applications, registrations, and renewals therefor or in connection therewith (collectively, “ Trademark Applications ”); (iii) mask works, written works (excluding computer software programs and applications and documentation of or for such software programs), audio works, multimedia works, works of authorship, lists, databases and copyrights (whether or not registered) and all registrations and applications for registration and renewals thereof, as well as moral, paternity, and integrity rights; (iv) trade secrets (as such are determined under applicable law), and other confidential business information, including trade secret or confidential technical information, marketing plans, research, designs, plans, methods, techniques, and processes, any and all technology, supplier lists, statistical models, e-mail lists, inventions, databases, and data, whether in tangible or intangible form and whether or not stored, compiled or memorialized physically, electronically, graphically, photographically or in writing; (v) any and all other rights to existing and future registrations and applications for any of the foregoing and any and all rights in or under, or relating to, any of the foregoing, including, without limitation, remedies against and rights to sue for past infringements, and rights to damages and profits due or accrued in or relating to any of the foregoing; and (vi) any and all other intangible proprietary property, information and materials and rights therein and thereto.
“ IRS ” means the United States Internal Revenue Service.
“ Laws ” means any laws, statutes, rules, regulations, ordinances, orders, codes, common laws, arbitration awards, judgments, decrees, orders or other legal requirements of any Governmental Authority.
“ Liability ” means any direct or indirect indebtedness, liability, assessment, expense, obligation or responsibility (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether disputed or undisputed, whether choate or inchoate, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.
 
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“ Liens ” means any and all liens, mortgages, security interests or other encumbrances.
“ Losses ” means any and all demands, claims, assessments, judgments, losses, liabilities, damages, costs and expenses (including interest, penalties, reasonable attorney’s fees and expenses, reasonable accounting fees and investigation costs).
“ Material Adverse Effect ” means any effect, change or circumstance that, individually or in the aggregate with any other like effect, change or circumstance, is materially adverse to the Business (including with respect to any one particular Location), including, without limitation, the financial condition and the results of operations of the Business.
“ Merchandise Liabilities ” means the current cost of products and services that have been sold by the cemeteries included in the Business, but have not yet been delivered to the customer.
“ Net Endowment Care Adjustment Amount ” means the amount equal to the present value of the future stream of ten annual payments (as though payable on the Closing Date and each of the first nine anniversaries of the Closing Date), each equal to the Endowment Care Adjustment Amount, calculated using a discount rate of .065.
“ Net Transferred Merchandise Trust Amount ” means the amount equal to (i) the aggregate amount transferred to Buyer’s Trustee at the Closing as part of the Initial Trust Delivery in respect of the Owned Pre-Need Trust Funds of the cemeteries included in the Owned Location in accordance with Section 5.5(a), plus (ii) the aggregate amount transferred to Buyer’s Trustee as part of the Final Trust Delivery in respect of pre-need merchandise and/or services relating to the Pre-/At-Need Contracts of the cemeteries included in the Owned Location, plus, (iii) the aggregate amount within the NFP Pre-Need Trust Funds as of the time they are made accessible to Buyer.
“ NFPs ” means the Ohio NFPs and SVMP.
 
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“ Ohio NFPs ” means Alderwoods (Ohio) Cemetery Holdings, Inc., Highland Memorial Park, Inc., Hillside Memorial Park Association, Inc. and Northlawn Memorial Gardens.
“ Permits ” means any licenses, permits, approvals, registrations, certificates (including, but not limited to, certificates of occupancy and any licensure required for the operation of cemeteries, crematoria and funeral homes including authority to sell goods and services on a Pre-need basis and burial spaces) and other evidence of authority required to operate the Business.
“ Permitted Encumbrances ” means (i) liens, encumbrances or restrictions related to taxes not yet due or payable or which are being contested in good faith and for which appropriate reserves have been taken, (ii) any matters shown on the title commitment(s) not objected to by Buyer as provided for in this Agreement or, if objected to by Buyer, later waived by Buyer as provided for in this Agreement and (iii) liens, encumbrances or restrictions that are created by Buyer.
“ Person ” means any individual, firm, corporation, partnership, trust, estate, association or other entity.
“ Proceeding ” means any suit, action, litigation, investigation, notice of violation, audit, arbitration, administrative hearing or any other similar proceeding.
“ Purchase Price ” means the Closing Purchase Price plus any contingent consideration payable pursuant to Section 1.3 plus the assumption of the Assumed Liabilities by Buyer exclusive of Merchandise Liabilities for which Seller has posted a Performance Bond, as adjusted pursuant to and in accordance with the terms and conditions of this Agreement.
“ Seller’s Knowledge ,” “ Knowledge of the Seller ” or any other reference to the “ Knowledge ” of the Seller means the knowledge of (i) Michael Lehmann, Margie Stewart-Runnels, Eileen Farrell, Carla Patrick and Michael Smith, (ii) any other individual who is serving as a director, officer, manager or member of Seller or the NFPs, and (iii) any manager of the Location, after reasonable inquiry. For
 
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purposes of this definition, the persons referenced in the immediately preceding sentence shall be deemed to have knowledge of matters of which any individual assigned by a third-party representative or advisor of Seller to provide substantial services in connection with the transaction contemplated hereby has actual knowledge.
“ Tax ” means any income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane, boat, vessel or other title or registration, capital stock, franchise, employees’ income withholding, foreign or domestic withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer (including, without limitation, realty transfer and burial lot transfer), value added, alternative, add-on minimum and other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever and any interest, penalty, addition or additional amount thereon imposed, assessed or collected by or under the authority of any governmental body or payable under any tax-sharing agreement or any other Contract.
“ Taxing Authority ” shall mean any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising tax regulatory authority.
“ Tax Return ” means any return (including any information return), report, statement, schedule, notice, form, declaration, claim for refund or other document or information filed with or submitted to, or required to be filed with or submitted to, any governmental body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any law relating to any Tax, including any amendment thereto.
“ Transferred Endowment Care Trust Amount ” means the amount equal to the aggregate amount transferred to Buyer’s Trustee at the Closing as part of the Initial Trust Delivery in respect of the Owned
 
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Endowment Care Funds of the cemeteries included in the Owned Location in accordance with Section 5.5(a), plus (ii) the aggregate amount included in the Final Trust Delivery in respect of the Owned Endowment Care Funds of the cemeteries included in the Owned Location plus (iii) the aggregate amount held within the NFP Endowment Care Funds as of the time they are made accessible to Buyer.
“ WARN Act ” means the Worker Adjustment and Retraining Notification Act, as the same may be amended from time to time.
Section 10.2 Notices . All notices and other communications required or provided for hereunder shall be in writing and shall be deemed to be given:
(a) When delivered personally to the individual, or to an officer of the company, to which the notice is directed;
(b) Three (3) business days after the same has been deposited in the United States mail, sent Certified or Registered mail with Return Receipt Requested, postage prepaid and addressed as provided in this Section; or
(c) One (1) business day after the same has been deposited with a generally recognized overnight delivery service, with receipt acknowledged and with all charges prepaid by the sender addressed as provided in this Section. Except as specifically provided otherwise herein, notices and other communications relating to this Agreement or the transactions contemplated hereby shall be directed as follows:
 
 	(1)	if to Seller, to:	
President
SCI F UNERAL S ERVICES , I NC .
1929 Allen Parkway
Houston, Texas 77019
 
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with a copy to:
General Counsel
S ERVICE C ORPORATION I NTERNATIONAL
1929 Allen Parkway
Houston, Texas 77019
and if before Closing, also with a copy to:
John Burleson
P AKIS , G IOTES , P AGE  & B URLESON , P.C.
Post Office Box 58
Waco, Texas 76703-0058
 
 	(2)	if to Buyer, to:	
STONEMOR OPERATING LLC
Attention: Lawrence Miller, President and Chief Executive Officer
155 Rittenhouse Circle
Bristol, Pennsylvania 19007
with a copy to:
BLANK ROME LLP
Attention: Lewis J. Hoch
One Logan Square
18 th and Cherry Streets
Philadelphia, Pennsylvania 19103-6998
or at such other place or places or to such other person or persons as shall be designated by like notice by any party hereto.
Section 10.3 Expenses . Subject to the terms of Section 1.3 above, and except as otherwise specifically provided in Sections 1.6, 5.7 and 5.8 and any other provision of this Agreement, each party hereto shall pay its own expenses, including without limitation, fees and expenses of its agents, representatives, counsel, auditors, and accountants, incidental to the consideration, negotiation, preparation and carrying out of this Agreement and the transactions contemplated hereby.
Section 10.4 Attorney’s Fees . In the event of any controversy, claim or dispute between or among any of the parties hereto arising out of or relating to this Agreement, or any default or breach or alleged default or breach hereof, each party shall pay its own attorney’s fees, costs and expenses
 
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associated with any such action except as provided in Article VIII. If any party hereto shall be joined as a party in any judicial, administrative, or other legal proceeding arising from or incidental to any obligation, conduct or action of another party hereto, the party so joined shall be entitled to be reimbursed by the other party for its reasonable attorney’s fees and costs associated therewith.
Section 10.5 Assignment; Parties in Interest . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. This Agreement shall not be assigned by any party hereto without the prior written consent of the other parties, except that prior to Closing, Buyer may assign its rights and obligations hereunder to any one or more of its direct or indirect subsidiaries, provided that any such assignment shall not relieve Buyer from its obligations and liabilities hereunder. Except as provided in Article VIII, nothing in this Agreement, expressed or implied, is intended to confer upon any third person any rights or remedies under or by reason of this Agreement.
Section 10.6 Entire Agreement; Amendment; Waiver .
(a) This Agreement together with the Schedules and Exhibits hereto and the other agreements and documents delivered, or to be delivered, pursuant to Section 7.1 and Section 7.2 (all of which are hereby incorporated herein by reference) embody the whole agreement of the parties with respect to the subject matter hereof and thereof, and there are no promises, terms, conditions, or obligations other than those contained herein and therein. All previous negotiations between the parties, either verbal or written, not herein contained are hereby withdrawn and annulled. This Agreement, together with the Schedules and Exhibits hereto, supersedes all previous communications, representations, or agreements, either verbal or written, between the parties hereto with respect to the subject matter hereof.
 
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(b) This Agreement may not be amended or modified except by an instrument in writing signed on behalf of each party hereto.
(c) No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective. No waiver by any party of any provision of this Agreement in a particular instance shall be deemed to constitute a waiver of such provision thereafter unless otherwise agreed in writing and signed by the party against whom the waiver is to be effective.
(d) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 10.7 Severability . If one or more provisions of this Agreement shall be held invalid, illegal or unenforceable, such provision shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement. In either case, the balance of this Agreement shall be interpreted as if such provision were so modified or excluded, as the case may be, and shall be enforceable in accordance with its terms.
Section 10.8 Certain Interpretive Matters . The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Unless the context otherwise requires, all references in this Agreement to Sections, Articles, Exhibits or Schedules are to Sections, Articles, Exhibits or Schedules of or to this Agreement. No provision of this Agreement will be interpreted in favor of, or against, any of the parties to this Agreement by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof
 
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or thereof. The singular form of any word used herein shall be deemed to include the plural form of such word and vice versa. References herein to feminine, masculine or neuter gender shall be deemed to include all genders. As used herein, the words “and” and “or” shall be deemed to mean “and/or” as the context requires. The word “including” (and with correlative meaning, the word “include”) means including without limiting the generality of any description preceding such word.
Section 10.9 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Section 10.10 Governing Law . This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws.
S IGNATURE P AGES F OLLOW
 
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In Witness Whereof, the undersigned parties hereto have duly executed this Agreement on the date first above written.

BUYER :	
	
STONEMOR OPERATING LLC, a Delaware limited liability company	
	
STONEMOR ALABAMA LLC, an Alabama limited liability company	
	
STONEMOR ALABAMA SUBSIDIARY, INC., an Alabama corporation	
	
STONEMOR ARKANSAS SUBSIDIARY LLC, an Arkansas limited liability company	
	
STONEMOR CALIFORNIA, INC. , a California corporation	
	
STONEMOR CALIFORNIA SUBSIDIARY, INC., a California corporation	
	
STONEMOR FLORIDA SUBSIDIARY LLC , a Florida limited liability company	
	
STONEMOR HAWAII LLC , a Hawaii limited liability company	
	
STONEMOR HAWAII SUBSIDIARY LLC , a Hawaii limited liability company	
	
STONEMOR IOWA LLC, an Iowa limited liability company	
	
STONEMOR IOWA SUBSIDIARY LLC, an Iowa limited liability company	
	
STONEMOR ILLINOIS LLC, an Illinois limited liability company	
	
STONEMOR ILLINOIS SUBSIDIARY LLC, an Illinois limited liability company	
 
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STONEMOR INDIANA LLC, an Indiana limited liability company	
	
STONEMOR INDIANA SUBSIDIARY LLC, an Indiana limited liability company	
	
STONEMOR KENTUCKY LLC , a Kentucky limited liability company	
	
STONEMOR KENTUCKY SUBSIDIARY LLC , a Kentucky limited liability company	
	
STONEMOR MISSOURI LLC, a Missouri limited liability company	
	
STONEMOR MISSOURI SUBSIDIARY LLC, a Missouri limited liability company	
	
STONEMOR NORTH CAROLINA LLC, a North Carolina limited liability company	
	
STONEMOR NORTH CAROLINA SUBSIDIARY LLC, a North Carolina limited liability company	
	
CEMETERY MANAGEMENT SERVICES OF OHIO, an Ohio limited liability company	
	
CORNERSTONE FUNERAL AND CREMATION SERVICES LLC, a Delaware limited liability company	
	
STONEMOR OREGON LLC , an Oregon limited liability company	
	
STONEMOR OREGON SUBSIDIARY LLC , an Oregon limited liability company	
	
STONEMOR SOUTH CAROLINA LLC, a South Carolina limited liability company	
	
STONEMOR SOUTH CAROLINA SUBSIDIARY LLC, a South Carolina limited liability company	
	
LAKEWOOD HAMILTON CEMETERY LLC, a Tennessee limited liability company	
 
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LAKEWOOD HAMILTON CEMETERY SUBSIDIARY, INC., a Tennessee corporation	
	
STONEMOR TENNESSEE SUBSIDIARY, INC., a Tennessee corporation	
	
STONEMOR WASHINGTON, INC., a Washington corporation	
	
STONEMOR WASHINGTON SUBSIDIARY, INC., a Washington corporation	
	
CORNERSTONE FAMILY SERVICES OF WEST VIRGINIA SUBSIDIARY, INC., a West Virginia corporation	
	
STONEMOR PUERTO RICO LLC, a Puerto Rico limited liability company	
	
STONEMOR PUERTO RICO SUBSIDIARY LLC, a Puerto Rico limited liability company	
	
In each case,	
		
By:	 	/s/ Paul Waimberg	
	 	PAUL WAIMBERG, Vice President of Finance	
{ Signatures continued on the following page }
 
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SELLER :	
	
SCI FUNERAL SERVICES, INC., an Iowa corporation	
	
ECI ALABAMA SERVICES, LLC, an Alabama limited liability company	
	
JPH PROPERTIES, INC., a Texas corporation,	
	
SCI ALABAMA FUNERAL SERVICES, INC., an Alabama corporation	
	
SCI ARKANSAS FUNERAL SERVICES, INC., an Arkansas corporation	
	
ALDERWOODS GROUP (CALIFORNIA), INC., a California corporation	
	
SCI CALIFORNIA FUNERAL SERVICES, INC., a California corporation	
	
UNIVERSAL MEMORIAL CENTERS VI, INC., a California corporation	
	
SECURITY TRUST PLANS, INC., a Florida corporation	
	
HAWAIIAN MEMORIAL LIFE PLAN, LTD., a Hawaii corporation	
	
SCI IOWA FUNERAL SERVICES, INC., an Iowa corporation	
	
ALDERWOODS (CHICAGO NORTH), INC., an Illinois corporation	
	
PINEVIEW MEMORIAL PARK, INC., an Illinois corporation	
	
ALDERWOODS (ILLINOIS), INC., an Illinois corporation	
	
WOODLAWN MEMORIAL PARK, INC., an Illinois corporation	
 
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ELMWOOD ACQUISITION CORPORATION, an Illinois corporation	
	
ALDERWOODS (INDIANA), INC., an Indiana corporation	
	
SCI INDIANA FUNERAL SERVICES, INC., a Delaware corporation	
	
SCI KENTUCKY FUNERAL SERVICES, INC., a Kentucky corporation	
	
SCI MISSOURI FUNERAL SERVICES, INC., a Missouri corporation	
	
LINEBERRY GROUP, INC., a North Carolina corporation	
	
CAROTHERS HOLDING COMPANY, INC., a North Carolina corporation	
	
CINCINNATI CEMETERIES LIMITED PARTNERSHIP, an Ohio limited partnership	
	
ALDERWOODS (OHIO) FUNERAL HOME, INC., an, Ohio corporation	
	
UNIVERSAL MEMORIAL CENTERS I, INC., an Oregon corporation	
	
ALDERWOODS (OREGON), INC., an Oregon corporation	
	
ALDERWOODS (SOUTH CAROLINA), INC., a South Carolina corporation	
	
GRACELAND CEMETERY DEVELOPMENT CO., a South Carolina corporation	
	
ALDERWOODS (TENNESSEE), INC., a Tennessee corporation	
	
ALDERWOODS (WASHINGTON), INC., a Washington corporation	
 
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ALDERWOODS (WEST VIRGINIA), INC., a West Virginia corporation	
	
SCI PUERTO RICO FUNERAL AND CEMETERY SERVICES, INC., a Puerto Rico corporation	
		
Each by:	 	/s/ Lori E. Spilde	
	 	Lori E. Spilde, Vice President	
	
SCI OHIO FUNERAL SERVICES, INC., an Ohio corporation	

By:	 	/s/ Lori E. Spilde	
	 	Lori E. Spilde, Vice President	
	
ALDERWOODS (OHIO) CEMETERY MANAGEMENT, INC., an Ohio corporation	
		
By:	 	/s/ Lori E. Spilde	
	 	Lori E. Spilde, Vice President	

	 	CONSENT BY SVMP AND OWNERS OF THE MANAGED BUSINESSES	
		
	 	The following entity consents to the terms and provisions of this agreement:	
		
	 	SIERRA VIEW MEMORIAL PARK, a California nonprofit corporation	
			
	 	By:	 	/s/ Curtis G. Briggs	
	 		 	Curtis G. Briggs, Vice President	
		
	 	The following entities consent to the terms and provisions of this agreement including the assignment of the Management Agreements:	
 
Page 83 of 96

					
	 	ALDERWOODS (OHIO) CEMETERY HOLDINGS, INC. HIGHLAND MEMORIAL PARK, INC. HILLSIDE MEMORIAL PARK ASSOCIATION, INC., and NORTHLAWN MEMORIAL GARDENS	
		
	 	each an Ohio nonprofit corporation	
			
	 	Each By:	 	/s/ Curtis G. Briggs	
	 		 	Curtis G. Briggs, Vice President	
			
	 	Dated:	 	December 4, 2007	
 
Page 84 of 96

EXHIBIT A
DIRECT AND INDIRECT SUBSIDIARIES OF STONEMOR OPERATING LLC

Operating LLC	 	 	 	NQ Sub	
STONEMOR ALABAMA LLC , an Alabama limited liability company	 		 	STONEMOR ALABAMA SUBSIDIARY, INC ., an Alabama corporation	
			
	 		 	STONEMOR ARKANSAS SUBSIDIARY LLC , an Arkansas limited liability company	
			
STONEMOR CALIFORNIA, INC ., a California corporation	 		 	STONEMOR CALIFORNIA SUBSIDIARY, INC ., a California corporation	
			
	 		 	STONEMOR FLORIDA SUBSIDIARY LLC , a Florida limited liability company	
			
STONEMOR HAWAII LLC , a Hawaii limited liability company	 		 	STONEMOR HAWAII SUBSIDIARY LLC , a Hawaii limited liability company	
			
STONEMOR IOWA LLC , an Iowa limited liability company	 		 	STONEMOR IOWA SUBSIDIARY LLC , an Iowa limited liability company	
			
STONEMOR ILLINOIS LLC , an Illinois limited liability company	 		 	STONEMOR ILLINOIS SUBSIDIARY LLC , an Illinois limited liability company	
			
STONEMOR INDIANA LLC , an Indiana limited liability company	 		 	STONEMOR INDIANA SUBSIDIARY LLC , an Indiana limited liability company	
			
STONEMOR KENTUCKY LLC , a Kentucky limited liability company	 		 	STONEMOR KENTUCKY SUBSIDIARY LLC , a Kentucky limited liability company	
			
STONEMOR MISSOURI LLC , a Missouri limited liability company	 		 	STONEMOR MISSOURI SUBSIDIARY LLC , a Missouri limited liability company	
			
STONEMOR NORTH CAROLINA LLC , a North Carolina limited liability company	 		 	STONEMOR NORTH CAROLINA SUBSIDIARY LLC , a North Carolina limited liability company	
 
Page 85 of 96

					
STONEMOR OREGON LLC, an Oregon limited liability company	 		 	STONEMOR OREGON SUBSIDIARY LLC, an Oregon limited liability company	
			
STONEMOR SOUTH CAROLINA LLC , a South Carolina limited liability company	 		 	STONEMOR SOUTH CAROLINA SUBSIDIARY LLC , a South Carolina limited liability company	
			
	 		 	CORNERSTONE FUNERAL AND CREMATION SERVICES LLC , a Delaware limited liability company	
			
LAKEWOOD HAMILTON CEMETERY LLC , a Tennessee limited liability company	 		 	LAKEWOOD HAMILTON CEMETERY SUBSIDIARY, INC ., a Tennessee corporation	
			
	 		 	STONEMOR TENNESSEE SUBSIDIARY, INC ., a Tennessee corporation	
			
STONEMOR WASHINGTON, INC ., a Washington corporation	 		 	STONEMOR WASHINGTON SUBSIDIARY, INC ., a Washington corporation	
			
	 		 	CORNERSTONE FAMILY SERVICES OF WEST VIRGINIA SUBSIDIARY, INC ., a West Virginia corporation	
			
STONEMOR PUERTO RICO LLC , a Puerto Rico limited liability company	 		 	STONEMOR PUERTO RICO SUBSIDIARY LLC , a Puerto Rico limited liability company	
 
Page 86 of 96

EXHIBIT B
OWNED BUSINESS AND SCI SUBSIDIARY OWNERS

SCI
Location
Number	  	Location Name and Address	  	Owner Sub-Business	
1517	  	E LKINS E AST C HAPEL
7435 Highway 72
Killen, Alabama 35645	  	ECI A LABAMA S ERVICES , LLC, an Alabama limited liability company	
			
1516	  	E LKINS F UNERAL H OME
1535 Hermitage Drive
Florence, Alabama 35630	  	ECI A LABAMA S ERVICES , LLC, an Alabama limited liability company	
			
0590	  	H UNTSVILLE M EMORY G ARDENS
6810 University Drive, Highway 72W
Huntsville, Alabama 35806	  	ECI A LABAMA S ERVICES , LLC, an Alabama limited liability company	
			
0352	  	T RICITIES M EMORIAL G ARDENS
2601 Florence Boulevard
Florence, Alabama 35630	  	SCI A LABAMA F UNERAL S ERVICES , I NC ., an Alabama corporation	
			
1521	  	H USON F UNERAL H OME
6400 Mabelvale Pike
Little Rock, Arkansas 72209	  	SCI A RKANSAS F UNERAL S ERVICES , I NC ., an Arkansas corporation	
			
1523	  	H USON F UNERAL H OME
7700 Highway 107
Sherwood, Arkansas 72120	  	SCI A RKANSAS F UNERAL S ERVICES , I NC ., an Arkansas corporation	
			
7050	  	A LTERNATIVE B URIAL & C REMATION S ERVICES
445 North American Street
Stockton, California 95202	  	A LDERWOODS G ROUP (C ALIFORNIA ), I NC ., a California corporation	
			
0250	  	L AVERNE C EMETERY
3201 North “B” Street
Laverne, California 91750	  	SCI C ALIFORNIA F UNERAL S ERVICES , I NC ., a California corporation	
			
6205	  	L ODI M EMORIAL P ARK & C EMETERY
5750 East Pine Street
Lodi, California 95240	  	U NIVERSAL M EMORIAL C ENTERS VI, I NC ., a California corporation	
			
6203
7036	  	M ELROSE A BBEY M EMORIAL P ARK AND M ORTUARY
2303 South Manchester Avenue
Anaheim, California 92802	  	A LDERWOODS G ROUP (C ALIFORNIA ), I NC ., a California corporation	
 
Page 87 of 96

					
SCI
Location
Number	  	Location Name and Address	  	Owner Sub-Business	
0297
4915
0747
2868	  	O AKMONT M EMORIAL P ARK , M ORTUARY , C REMATORY
& F LOWER S HOP
2099 Reliez Valley Road
Lafayette, California 94549	  	SCI C ALIFORNIA F UNERAL S ERVICES , I NC ., a California corporation	
			
0664
0463	  	O LIVET M EMORIAL P ARK & C REMATORY
1601 Hillside Boulevard
Colma, California 94014	  	SCI C ALIFORNIA F UNERAL S ERVICES , I NC ., a California corporation	
			
7048	  	R OCHA ’ S M ORTUARY
215 South School Street
Lodi, California 95240	  	U NIVERSAL M EMORIAL C ENTERS VI, I NC ., a California corporation	
			
0363
2299	  	S ACRAMENTO M EMORIAL L AWN
6100 Stockton Boulevard
Sacramento, California 95824	  	SCI C ALIFORNIA F UNERAL S ERVICES , I NC ., a California corporation	
			
0217
2478
0442
2479	  	S IERRA V IEW M EMORIAL P ARK , M ORTUARY
& C REMATORY /H UTCHISON & C ARNES C OLONIAL C HAPEL
4900 Olive Avenue
Olivehurst, California 95961	  	SCI C ALIFORNIA F UNERAL S ERVICES , I NC ., a California corporation	
			
7049	  	W ALLACE -M ARTIN F UNERAL H OME
520 North Sutter Street
Stockton, California 95202	  	A LDERWOODS G ROUP (C ALIFORNIA ), I NC ., a California corporation	
			
7026	  	W HITEHURST -G RIM F UNERAL S ERVICE
429 Bassett Street
King City, California 93930	  	A LDERWOODS G ROUP (C ALIFORNIA ), I NC ., a California corporation	
			
7029	  	W HITEHURST -M ULLER F UNERAL S ERVICE
41 East Alisal
Salinas, California 93901	  	A LDERWOODS G ROUP (C ALIFORNIA ), I NC ., a California corporation	
			
7107	  	S COTT F UNERAL H OME
504 West Interlake Boulevard
Lake Placid, Florida 33852	  	S ECURITY T RUST P LANS , I NC ., a Florida corporation	
			
0237	  	G REENHAVEN M EMORIAL P ARK
47-147 Waikalua Road
Kaneohe Oahu, Hawaii 96744	  	H AWAIIAN M EMORIAL L IFE P LAN , L TD ., a Hawaii corporation	
			
0309	  	M EMORIAL P ARK C EMETERY
6605 Morningside Avenue
Sioux City, Iowa 51106	  	SCI I OWA F UNERAL S ERVICES , I NC ., an Iowa corporation	
 
Page 88 of 96

					
SCI
Location
Number	  	Location Name and Address	  	Owner Sub-Business	
6252	  	M C H ENRY C OUNTY M EMORIAL P ARK
11301 Lake Avenue
Woodstock, Illinois 60098	  	A LDERWOODS (C HICAGO N ORTH ), I NC ., an Illinois corporation	
			
6250
6251	  	W ILLOW L AWN M EMORIAL P ARK /A ARROWOOD P ET C EMETERY & C REMATORIUM
24090 West Highway 45
Vernon Hills, Illinois 60061	  	P INEVIEW M EMORIAL P ARK , I NC ., an Illinois corporation	
			
7151	  	W INDRIDGE F UNERAL H OME
104 High Road
Cary, Illinois 60013	  	A LDERWOODS (C HICAGO N ORTH ), I NC ., an Illinois corporation	
			
6236	  	W INDRIDGE M EMORIAL P ARK & N ATURE S ANCTUARY
7014 South Rawson Bridge Road
Cary, Illinois 60013	  	A LDERWOODS (C HICAGO N ORTH ), I NC ., an Illinois corporation	
			
7575	  	W OODLAWN F UNERAL H OME
3201 West Jefferson Street
Joliet, Illinois 60431	  	A LDERWOODS (I LLINOIS ), I NC ., an Illinois corporation	
			
6253	  	W OODLAWN M EMORIAL P ARK
23060 West Jefferson Street
Joliet, Illinois 60431	  	W OODLAWN M EMORIAL P ARK , I NC ., an Illinois corporation	
			
6249	  	W OODLAWN M EMORIAL P ARK II
22500 West Jefferson Street
Joliet, Illinois 60431	  	E LMWOOD A CQUISITION C ORPORATION , an Illinois corporation	
			
6257	  	H IGHLAND C EMETERY
2257 Portage Avenue
South Bend, Indiana 46616	  	A LDERWOODS (I NDIANA ), I NC ., an Indiana corporation	
			
0186	  	P ARK L AWN C EMETERY & M AUSOLEUM
1526 South Green River Road
Evansville, Indiana 47715	  	SCI I NDIANA F UNERAL S ERVICES , I NC ., a Delaware corporation	
			
6258	  	R IVERVIEW C EMETERY
2300 Portage Avenue
South Bend, Indiana 46616	  	A LDERWOODS (I NDIANA ), I NC ., an Indiana corporation	
			
6256	  	S T . J OSEPH V ALLEY M EMORIAL P ARK
375 West Cleveland Road
Granger, Indiana 46530	  	A LDERWOODS (I NDIANA ), I NC ., an Indiana corporation	
 
Page 89 of 96

					
SCI
Location
Number	  	Location Name and Address	  	Owner Sub-Business	
6255	  	V ALHALLA M EMORY G ARDENS & C REMATORIUM
310 North Johnson Avenue
Bloomington, Indiana 47404	  	A LDERWOODS (I NDIANA ), I NC ., an Indiana corporation	
			
0366	  	F OREST L AWN M EMORIAL P ARK
3227 Dixie Highway
Erlanger, Kentucky 41018	  	SCI K ENTUCKY F UNERAL S ERVICES , I NC ., a Kentucky corporation	
			
2153	  	E WING -S CHUTTE -S EMLER F UNERAL H OME
701 South Osage
Sedalia, Missouri 65301	  	SCI M ISSOURI F UNERAL S ERVICES , I NC ., a Missouri corporation	
			
0135	  	H IGHLAND S ACRED G ARDENS
3600 East 28 th Street
Sedalia, Missouri 65301	  	SCI M ISSOURI F UNERAL S ERVICES , I NC ., a Missouri corporation	
			
0134	  	M EMORIAL P ARK S EDALIA
3306 Greenridge Road
Sedalia, Missouri 65301	  	SCI M ISSOURI F UNERAL S ERVICES , I NC ., a Missouri corporation	
			
6276	  	C AROLINA B IBLICAL G ARDENS OF G UILFORD
5710 Riverdale Road
Jamestown, North Carolina 27282	  	L INEBERRY G ROUP , I NC ., a North Carolina corporation	
			
6273	  	M ARTIN M EMORIAL G ARDENS
U.S. Highway 64 West
Everetts, North Carolina 27892	  	C AROTHERS H OLDING C OMPANY , I NC ., a North Carolina corporation	
			
6270	  	Y ORK M EMORIAL P ARK
5150 York Road
Charlotte, North Carolina 28217	  	C AROTHERS H OLDING C OMPANY , I NC ., a North Carolina corporation	
			
7363	  	T EREBINSKI -J ENNINGS F UNERAL H OME
11900 North Dixie Drive
Tipp City, Ohio 45371	  	A LDERWOODS (O HIO ) F UNERAL H OME , I NC ., an Ohio corporation	
			
7393	  	D ONELSON , S EWELL AND M ATTHEWS M ORTUARY
171 North East 3 rd Avenue
Hillsboro, Oregon 97124	  	U NIVERSAL M EMORIAL C ENTERS I, I NC ., an Oregon corporation	
			
6289
7394	  	F IR L AWN M EMORIAL P ARK & M ORTUARY
1070 West Main
Hillsboro, Oregon 97123	  	A LDERWOODS (O REGON ), I NC ., an Oregon corporation	
 
Page 90 of 96

					
SCI
Location
Number	  	Location Name and Address	  	Owner Sub-Business	
6287	  	F OREST L AWN C EMETERY
400 SW Walters Road
Gresham, Oregon 97080	  	A LDERWOODS (O REGON ), I NC ., an Oregon corporation	
			
7395	  	P EAKE F UNERAL C HAPEL
1925 SE Scott Street
Milwaukie, Oregon 97222	  	A LDERWOODS (O REGON ), I NC ., an Oregon corporation	
			
6293
7424	  	F REDERICK M EMORIAL G ARDENS /S HUFORD
H ATCHER F UNERAL H OME AT F REDERICK
986 Chesnee Highway
Gaffney, South Carolina 29341	  	A LDERWOODS (S OUTH C AROLINA ), I NC ., a South Carolina corporation	
			
6291	  	G RACELAND E AST M EMORIAL P ARK
2206 Woodruff Road
Simpsonville, South Carolina 29681	  	G RACELAND C EMETERY D EVELOPMENT C O ., a South Carolina corporation	
			
7423	  	S HUFORD -H ATCHER F UNERAL H OME
211 East Frederick Street
Gaffney, South Carolina 29340	  	A LDERWOODS (S OUTH C AROLINA ), I NC ., a South Carolina corporation	
			
7453	  	A LEXANDER F UNERAL H OME
584 Nashville Pike
Gallatin, Tennessee 37066	  	A LDERWOODS (T ENNESSEE ), I NC ., a Tennessee corporation	
			
6299	  	M EMORIAL P ARK S OUTHWOODS
5485 Hacks Cross Road
Memphis, Tennessee 38125	  	A LDERWOODS (T ENNESSEE ), I NC ., a Tennessee corporation	
			
7459	  	N EWBY F UNERAL H OME
202 East Main Street
Gallatin, Tennessee 37066	  	A LDERWOODS (T ENNESSEE ), I NC ., a Tennessee corporation	
			
6298
7432	  	N ORTHRIDGE W OODHAVEN C EMETERY , F UNERAL H OME
6755 Highway 51 North
Millington, Tennessee 38053	  	A LDERWOODS (T ENNESSEE ), I NC ., a Tennessee corporation	
			
6303
7447	  	W OODHAVEN C HAPEL & M EMORIAL G ARDENS
160 Edgemoore Road
Powell, Tennessee 37849	  	A LDERWOODS (T ENNESSEE ), I NC ., a Tennessee corporation	
			
6314	  	E VERGREEN M EMORIAL P ARK & M AUSOLEUM
1301 - 10 th Street NE
East Wenatchee, Washington 98802	  	A LDERWOODS (W ASHINGTON ), I NC ., a Washington corporation	
 
Page 91 of 96

					
SCI
Location
Number	  	Location Name and Address	  	Owner Sub-Business	
6313	  	M ARYSVILLE C EMETERY
8801 State Avenue
Marysville, Washington 98270	  	A LDERWOODS (W ASHINGTON ), I NC ., a Washington corporation	
			
7572	  	D ORSEY F UNERAL H OME
701 South Pike Street
Shinnston, West Virginia 26431	  	A LDERWOODS (W EST V IRGINIA ), I NC ., a West Virginia corporation	
			
6857	  	C AMPOSANTO D E C RISTO R ESUCITADO
Carr 2 KM 225 HMG
Ponce
PUERTO RICO	  	SCI P UERTO R ICO F UNERAL AND C EMETERY S ERVICES , I NC ., a Puerto Rico corporation	
			
6858
6904	  	P EPINO M EMORIAL P ARK & F UNERAL H OME
Carretera 119 a LasMarias-Barr
San Sebastian
PUERTO RICO	  	SCI P UERTO R ICO F UNERAL AND C EMETERY S ERVICES , I NC ., a Puerto Rico corporation	
 
Page 92 of 96

EXHIBIT C
MANAGED BUSINESSES AND NFPs

SCI
Location
Number	  	Location Name and Address	  	Owner Sub-Business	
6284	  	C ROWN H ILL M EMORIAL P ARK AND M AUSOLEUM
11825 Pippin Road
Cincinnati, Ohio 45231	  	A LDERWOODS (O HIO ) C EMETERY H OLDINGS , I NC ., an Ohio nonprofit corporation*	
			
6283	  	F OREST H ILLS M EMORIAL G ARDENS
11890 North Dixie Drive
Tipp City, Ohio 45371	  	A LDERWOODS (O HIO ) C EMETERY H OLDINGS , I NC ., an Ohio nonprofit corporation	
			
0662	  	H IGHLAND M EMORIAL P ARK
264-12 th Street
Beloit, Ohio 44609	  	H IGHLAND M EMORIAL P ARK , I NC ., an Ohio nonprofit corporation	
			
0894	  	H ILLSIDE M EMORIAL P ARK
1025 Canton Road
Akron, Ohio 44312	  	H ILLSIDE M EMORIAL P ARK A SSOCIATION , I NC ., an Ohio nonprofit corporation	
			
0896
0483	  	N ORTHLAWN M EMORIAL G ARDENS & C REMATORY
4724 State Road
Peninsula, Ohio 44264	  	N ORTHLAWN M EMORIAL G ARDENS , an Ohio nonprofit corporation	
			
6280	  	R ESTHAVEN M EMORY G ARDENS
3700 Center Road
Avon, Ohio 44011	  	A LDERWOODS (O HIO ) C EMETERY H OLDINGS , I NC ., an Ohio nonprofit corporation	
			
6282	  	W EST M EMORY G ARDENS
6722 Hemple Road
Moraine, Ohio 45418	  	A LDERWOODS (O HIO ) C EMETERY H OLDINGS , I NC ., an Ohio nonprofit corporation	

*	The ground at Crown Hill Memorial Park and Mausoleum is owned by Cincinnati Cemeteries Limited Partnership, an Ohio limited partnership.	
 
Page 93 of 96

EXHIBIT D
JURISDICTIONS REQUIRING GOVERNMENTAL AUTHORIZATION
 
 	1.	Alabama	
 
 	2.	Arkansas	
 
 	3.	California	
 
 	4.	Florida	
 
 	5.	Hawaii	
 
 	6.	Illinois	
 
 	7.	Indiana	
 
 	8.	Iowa	
 
 	9.	Kentucky	
 
 	10.	Missouri	
 
 	11.	North Carolina	
 
 	12.	Ohio	
 
 	13.	Oregon	
 
 	14.	South Carolina	
 
 	15.	Tennessee	
 
 	16.	Washington	
 
 	17.	West Virginia	
 
 	18.	Puerto Rico	
 
Page 94 of 96

EXHIBIT E
ENVIRONMENTAL REPORTS

Type	  	Address	  	Date	  	Prepared By	
 
Page 95 of 96

EXHIBIT F
DIGNITY MEMORIAL ® PACKAGE FOR NON-AFFILIATES
Use this form to order Dignity Memorial ®  products that are needed to satisfy a prearranged Dignity Plan. A confirmation will be sent along with an invoice for the amount listed below.
Charge To:

Name of Funeral Home	 	 	  		
Address	 	 	  		
City	 	 	  		
State	 	 	  		
Zip	 	 	  		
			
Contact Person	 	 	  		
Contact Phone Number	 	 	  		

 	 	Dignity Memorial Plan Package	 	$325.00	
	 	(This package includes 1 Aftercare Planner & Contents, Processing fees for the Compassion Helpline, and the Bereavement Travel program, a Personal Planning Guide Legal Services, One-Hour Phone Card, Making Everlasting Memories (MeM))	 		
			
 	 	VFW package	 	$150.00	
	 	(This package includes a VFW Flag case or A VFW memento box)	 		
SHIP TO:

Relation to the deceased	 	 	  		
Name of Person (First, Last)	 	 	  		
Address	 	 	  		
Apt #	 	 	  		
City	 	 	  		
State	 	 	  		
Zip	 	 	  		
FAX COMPLETED FORM TO 713-525-7647
 
Page 96 of 96

Exhibit 10.2
TRANSITION AGREEMENT
TRANSITION AGREEMENT (this “ Agreement ”), dated as of December 7, 2007, by and between StoneMor Operating LLC , a Delaware limited liability company (“ StoneMor LLC” ), joined herein by those of its direct and indirect subsidiary entities which are parties to the Purchase Agreement, as defined herein (collectively, with StoneMor LLC, the “ Buyer ”), and SCI Funeral Services, Inc. , an Iowa corporation (“ Parent ”), joined herein by those of its direct and indirect subsidiary entities which are parties to the Purchase Agreement (collectively, with Parent, the “ Seller ”).
RECITALS
A. In accordance with that certain Asset Purchase and Sale Agreement, dated as of December 4, 2007 (the “ Purchase Agreement ”), Seller is selling the Business (as defined in the Purchase Agreement) and the assets associated therewith to Buyer.
B. Buyer has made application for all Permits required for the operation of the Business which Buyer anticipates receiving on or before the Closing Date. Exhibit “A” sets forth as of the date hereof the current status of applications for Permits at the Owned Locations and Managed Locations which comprise the Business (collectively the “ Locations ”). Buyer and Seller wish to make certain arrangements in the event Buyer does not obtain all of the Permits required to operate the Business and is unable to arrange for Interim Approval as hereinafter defined.
NOW, THEREFORE , in consideration of the covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller, intending to be legally bound, hereby agree as follows:
ARTICLE I
EFFECT AND DEFINITIONS
1.1 Effect of Agreement. This Agreement supplements the Purchase Agreement.
1.2 Definitions. Defined terms used in this Agreement and not otherwise defined in this Agreement will have their respective meanings set forth in the Purchase Agreement.
ARTICLE II
PERMITS
2.1 On or before the Closing Date, Buyer shall identify on Exhibit “B” the Locations for which Buyer does not anticipate receiving as of the Closing Date either (a) the Permits that it requires to operate or (b) interim approval from applicable regulatory authorities that permit it to operate pending receipt of required Permits (“Interim Approval”). (Such Locations are referred to as Locations Pending Approval). For each of the Locations Pending Approval, Seller has agreed to continue to operate such Locations for the account of and for the benefit of the Buyer. Buyer agrees to make both the assets comprising and the employees staffing such Locations available to Seller for such purpose. Buyer further agrees that during the term of this arrangement as hereinafter provided,

TRANSITION AGREEMENT	  	Page 1	

it will continue to diligently pursue Interim Approval and/or required Permits from applicable regulatory authorities. The parties agree that upon receipt of either required Permits or Interim Approvals for a Location Pending Approval, Buyer shall promptly assume and undertake operations at such Locations, and Seller shall cease to operate such Location for the benefit of the Buyer. The parties further agree to amend Exhibit “B” from time to time to delete the Locations Pending Approval for which Buyer has secured Interim Approval or required Permits.
ARTICLE III
DURATION
3.1 The term of this Agreement (the “ Term ”) will commence as of the Closing Date and will continue on a Location by Location basis until Buyer as to each Location Pending Approval has secured required Permits or Interim Approval.
ARTICLE IV
FEES
4.1 Buyer agrees to reimburse the Seller for all costs incurred by Seller while operating Owned Locations for the benefit of Buyer as provided in Article II.
ARTICLE V
MISCELLANEOUS
5.1 Notices . All notices and other communications required or provided for hereunder shall be in writing and shall be deemed to be given:
(a) When delivered personally to the individual, or to an officer of the company, to which the notice is directed;
(b) Three (3) business days after the same has been deposited in the United States mail, sent Certified or Registered mail with Return Receipt Requested, postage prepaid and addressed as provided in this Section; or
(c) One (1) business day after the same has been deposited with a generally recognized overnight delivery service (including United States Express Mail), with receipt acknowledged and with all charges prepaid by the sender addressed as provided in this Section. Except as specifically provided otherwise herein, notices and other communications relating to this Agreement or the transactions contemplated hereby shall be directed as follows:

if to Seller, to:	  		
		
	  	President
SCI Funeral Services, Inc.
1929 Allen Parkway
Houston, Texas 77019	

TRANSITION AGREEMENT	  	Page 2	

			
		
	  	with a copy to:
 
General Counsel
Service Corporation International
1929 Allen Parkway
Houston, Texas 77019	
		
if to Buyer, to:	  		
		
	  	StoneMor Operating, LLC
Attention: Lawrence Miller, President & Chief Executive Officer
155 Rittenhouse Circle
Bristol, Pennsylvania 19007
 
with a copy to:
 
Blank Rome LLP
Attention: Lewis J. Hoch
One Logan Square
18 th  & Cherry Streets
Philadelphia, Pennsylvania 19103-6998	
or at such other place or places or to such other person or persons as shall be designated by like notice by any party hereto.
5.2 Compliance . Each of Seller and Buyer agrees that it will take appropriate action by instruction of or agreement with its personnel to ensure that all personnel performing services under this Agreement will be bound by and comply with all of the terms and conditions of this Agreement.
5.3 Relationship of Parties . The relationship between the parties created by this Agreement is that of independent contractors and not partners, joint venturers or agents.
5.4 Arbitration . Any dispute concerning this Agreement, its effect, or the transactions contemplated by it, shall be settled by arbitration in accordance with Section 8.6 of the Purchase Agreement.
5.5 Assignment; Parties in Interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. This Agreement shall not be assigned by any party hereto without the prior written consent of the other parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any third person any rights or remedies under or by reason of this Agreement.

TRANSITION AGREEMENT	  	Page 3	

5.6 Entire Agreement; Amendment; Waiver.
(a) This Agreement together with the Exhibits hereto and the Purchase Agreement embody the whole agreement of the parties with respect to the subject matter hereof and thereof. There are no promises, terms, conditions, or obligations other than those contained herein and therein. All previous negotiations between the parties, either verbal or written, not herein or therein contained are hereby withdrawn and annulled. This Agreement, together with the Exhibits hereto, and the Purchase Agreement supersede all previous communications, representations, or agreements, either verbal or written, between the parties hereto with respect to the subject matter hereof.
(b) This Agreement may not be amended except by an instrument in writing signed by an authorized representative on behalf of each party hereto.
(c) No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective. No waiver by any party of any provision of this Agreement in a particular instance shall be deemed to constitute a waiver of such provision thereafter unless otherwise agreed in writing and signed by the party against whom the waiver is to be effective.
(d) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
5.7 Severability . If one or more provisions of this Agreement shall be held invalid, illegal or unenforceable, such provision shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement. In either case, the balance of this Agreement shall be interpreted as if such provision were so modified or excluded, as the case may be, and shall be enforceable in accordance with its terms.
5.8 Certain Interpretive Matters. The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. No provision of this Agreement will be interpreted in favor of, or against, any of the parties to this Agreement by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. The singular form of any word used herein shall be deemed to include the plural form of such word and vice versa. References herein to feminine, masculine or neuter gender shall be deemed to include all genders. As used herein, the words “and” and “or” shall be deemed to mean “and/or” as the context requires.
5.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
5.10 Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws.

TRANSITION AGREEMENT	  	Page 4	

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers on the date first above written.
BUYER:
STONEMOR OPERATING LLC,
a Delaware limited liability company
STONEMOR ALABAMA LLC,
an Alabama limited liability company
STONEMOR ALABAMA SUBSIDIARY, INC.,
an Alabama corporation
STONEMOR ARKANSAS SUBSIDIARY LLC,
an Arkansas limited liability company
STONEMOR CALIFORNIA, INC. ,
a California corporation
STONEMOR CALIFORNIA SUBSIDIARY, INC. ,
a California corporation
STONEMOR FLORIDA SUBSIDIARY LLC ,
a Florida limited liability company
STONEMOR HAWAII LLC ,
a Hawaii limited liability company
STONEMOR HAWAII SUBSIDIARY LLC ,
a Hawaii limited liability company
STONEMOR IOWA LLC,
an Iowa limited liability company
STONEMOR IOWA SUBSIDIARY LLC,
an Iowa limited liability company
STONEMOR ILLINOIS LLC,
an Illinois limited liability company
STONEMOR ILLINOIS SUBSIDIARY LLC,
an Illinois limited liability company
 
TRANSITION AGREEMENT

STONEMOR INDIANA LLC,
an Indiana limited liability company
STONEMOR INDIANA SUBSIDIARY LLC,
an Indiana limited liability company
STONEMOR KENTUCKY LLC ,
a Kentucky limited liability company
STONEMOR KENTUCKY SUBSIDIARY LLC ,
a Kentucky limited liability company
STONEMOR MISSOURI LLC,
a Missouri limited liability company
STONEMOR MISSOURI SUBSIDIARY LLC,
a Missouri limited liability company
STONEMOR NORTH CAROLINA LLC,
a North Carolina limited liability company
STONEMOR NORTH CAROLINA SUBSIDIARY LLC,
a North Carolina limited liability company
CEMETERY MANAGEMENT SERVICES OF OHIO ,
an Ohio limited liability company
CORNERSTONE FUNERAL AND CREMATION SERVICES LLC,
a Delaware limited liability company
STONEMOR OREGON LLC ,
an Oregon limited liability company
STONEMOR OREGON SUBSIDIARY LLC ,
an Oregon limited liability company
STONEMOR SOUTH CAROLINA LLC,
a South Carolina limited liability company
STONEMOR SOUTH CAROLINA SUBSIDIARY LLC,
a South Carolina limited liability company
LAKEWOOD HAMILTON CEMETERY LLC,
a Tennessee limited liability company
 
TRANSITION AGREEMENT

LAKEWOOD HAMILTON CEMETERY SUBSIDIARY, INC.,
a Tennessee corporation
STONEMOR TENNESSEE SUBSIDIARY, INC.,
a Tennessee corporation
STONEMOR WASHINGTON, INC.,
a Washington corporation
STONEMOR WASHINGTON SUBSIDIARY, INC.,
a Washington corporation
CORNERSTONE FAMILY SERVICES OF WEST VIRGINIA SUBSIDIARY, INC.,
a West Virginia corporation 
STONEMOR PUERTO RICO LLC,
a Puerto Rico limited liability company
STONEMOR PUERTO RICO SUBSIDIARY LLC,
a Puerto Rico limited liability company
In each case,

By:	 	/s/ PAUL WAIMBERG	
	 	PAUL WAIMBERG,  Vice President of Finance	
 
TRANSITION AGREEMENT

SELLER :
SCI FUNERAL SERVICES, INC .,
an Iowa corporation
ECI ALABAMA SERVICES, LLC,
an Alabama limited liability company
JPH PROPERTIES, INC.,
a Texas corporation
SCI ALABAMA FUNERAL SERVICES, INC.,
an Alabama corporation
SCI ARKANSAS FUNERAL SERVICES, INC.,
an Arkansas corporation
ALDERWOODS GROUP (CALIFORNIA), INC.,
a California corporation
SCI CALIFORNIA FUNERAL SERVICES, INC.,
a California corporation
UNIVERSAL MEMORIAL CENTERS VI, INC.,
a California corporation
SECURITY TRUST PLANS, INC.,
a Florida corporation
HAWAIIAN MEMORIAL LIFE PLAN, LTD.,
a Hawaii corporation
SCI IOWA FUNERAL SERVICES, INC.,
an Iowa corporation
ALDERWOODS (CHICAGO NORTH), INC.,
an Illinois corporation
PINEVIEW MEMORIAL PARK, INC.,
an Illinois corporation
ALDERWOODS (ILLINOIS), INC.,
an Illinois corporation
WOODLAWN MEMORIAL PARK, INC.,
an Illinois corporation
 
TRANSITION AGREEMENT

ELMWOOD ACQUISITION CORPORATION,
an Illinois corporation
ALDERWOODS (INDIANA), INC.,
an Indiana corporation
SCI INDIANA FUNERAL SERVICES, INC.,
a Delaware corporation
SCI KENTUCKY FUNERAL SERVICES, INC.,
a Kentucky corporation
SCI MISSOURI FUNERAL SERVICES, INC.,
a Missouri corporation
LINEBERRY GROUP, INC.,
a North Carolina corporation
CAROTHERS HOLDING COMPANY, INC.,
a North Carolina corporation
CINCINNATI CEMETERIES LIMITED PARTNERSHIP ,
an Ohio limited partnership
ALDERWOODS (OHIO) FUNERAL HOME, INC.,
an, Ohio corporation
UNIVERSAL MEMORIAL CENTERS I, INC.,
an Oregon corporation
ALDERWOODS (OREGON), INC.,
an Oregon corporation
ALDERWOODS (SOUTH CAROLINA), INC.,
a South Carolina corporation
GRACELAND CEMETERY DEVELOPMENT CO. ,
a South Carolina corporation
ALDERWOODS (TENNESSEE), INC.,
a Tennessee corporation
ALDERWOODS (WASHINGTON), INC.,
a Washington corporation
 
TRANSITION AGREEMENT

ALDERWOODS (WEST VIRGINIA), INC.,
a West Virginia corporation
SCI PUERTO RICO FUNERAL AND CEMETERY SERVICES, INC.,
a Puerto Rico corporation
SCI OHIO FUNERAL SERVICES, INC.,
an Ohio corporation
ALDERWOODS (OHIO) CEMETERY MANAGEMENT, INC.,
an Ohio corporation
In each case,

By:	 	/s/ Michael D. Lehman	
	 	Michael D. Lehman, Vice President	
 
TRANSITION AGREEMENT

EXHIBIT A
Dignity 2007 – Licensure Status Chart
(last revised 12/6/2007)

State	  	Status of Licensure	
ALABAMA
 
(2 cemeteries, 2 funeral homes)	  	funeral establishment licensure is issued post-closing - Board of Funeral Services	
	  	cemetery/funeral establishment preneed licensure is pending, expected in December - Department of Insurance,	
		
ARKANSAS
 
(2 funeral homes)	  	funeral establishment licensure is issued post-closing - State Board of Embalmers and Funeral Directors
 
preneed pending, expected in December - Insurance Department	
		
CALIFORNIA
 
(7 cemeteries, 8 funeral homes, 4 crematories)	  	pending, expected in December; interim approval being sought to coincide with public offering - Cemetery and Funeral Bureau	
		
FLORIDA
 
(1 funeral home)	  	pending, funeral establishment licensure expected by Board teleconference meeting in January and preneed licensure expected at Board meeting in February - Board of Funeral, Cemetery and Consumer Services	
		
HAWAII
 
(1 cemetery)	  	pending, expected in December - Cemetery and Pre-Need Funeral Authority	
		
ILLINOIS
 
(5 cemeteries, 2 funeral homes, 2 crematories)	  	pending, expected in December ( subject to satisfactory audits of SCI) - Comptroller, Cemetery Care and Burial Trust Division	
 
TRANSITION AGREEMENT
 
A-1

			
State	  	Status of Licensure	
INDIANA
 
(5 cemeteries, 1 crematory)	  	8 of 12 licenses issued December 6, remaining 4 licenses expected shortly (pending status for those 4 noted in Board’s licensure database) - State Board of Funeral and Cemetery Service	
		
IOWA
 
(1 cemetery)	  	Pending, expected by December 19 subject to satisfactory SCI audit - Insurance Division, Securities and Regulated Industries Bureau	
		
KENTUCKY
 
(1 cemetery)	  	licenses issued October 1, 2007 - Office of the Attorney General	
		
MISSOURI
 
(2 cemeteries, 1 funeral home)	  	licensure issues post-closing, awaiting confirmation receipt of City of Sedalia business licenses as a licensure condition - Office of Endowed Care Cemeteries; State Board of Embalmers and Funeral Directors	
		
NORTH CAROLINA
 
(3 cemeteries)	  	October 17 meeting approval - Cemetery Commission	
		
OHIO
 
(7 cemeteries, 1 funeral home, 1 crematory)	  	Cemetery licensure approved at December 6 meeting subject to conditions to be satisfied within 30 days - Cemetery Dispute Resolution Commission
 
funeral establishment licensure is issued post-closing - State Board of Embalmers and Funeral Directors	
 
TRANSITION AGREEMENT
 
A-2

			
State	  	Status of Licensure	
OREGON
 
(2 cemeteries, 3 funeral homes)	  	pending, the Board has advised they will attempt to issue temporary authority to operate all facilities prior to the intended closing date of December 19 - Mortuary and Cemetery Board
 
preneed is issued post-closing after transfer of assumed names - Division of Finance and Corporate Securities	
		
SOUTH CAROLINA
 
(2 cemeteries, 2 funeral homes)	  	cemetery licensure approved at November 28 meeting subject to conditions being satisfied - Perpetual Care Cemetery Board
 
funeral establishment licensure expected at December 13 meeting - Board of Funeral Service
 
pending preneed funeral homes, expected in December 19 - Department of Consumer Affairs	
		
TENNESSEE
 
(3 cemeteries, 4 funeral homes)	  	pending, expected in December; interim approval being sought to coincide with public offering - Department of Commerce and Insurance	
		
WASHINGTON
 
(2 cemeteries)	  	Licenses issued 9/28/2007 - Department of Licensing, Funeral and Cemetery Licensing Office	
		
WEST VIRGINIA
 
(1 funeral home)	  	funeral establishment licensure pending (require contract or price list modifications), expected in December - Board of Funeral Service Examiners
 
preneed licensure is issued post-closing upon notice of closing - Consumer Protection and Antitrust Division	
 
TRANSITION AGREEMENT
 
A-3

			
State	  	Status of Licensure	
PUERTO RICO
 
(2 cemeteries, 1 funeral home)	  	post-closing - Ponce Municipal Permits Office; Regulations and Permits Administration Office - Health Department, Fire Department - use permits will issue approximately 2 to 3 months post-closing	
 
TRANSITION AGREEMENT
 
A-4

EXHIBIT B
 
TRANSITION AGREEMENT
 
B-1

Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-144453) and Form S-8 (No. 333-143863) of StoneMor Partners L.P. of our report dated December 4, 2007 relating to the financial statements of Project Dignity 2007 Businesses, which appears in the Current Report on Form 8-K of StoneMor Partners L.P. filed on December 7, 2007.
/s/ PricewaterhouseCoopers LLP
Houston, TX
December 7, 2007

Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-144453) and Form S-8 (No. 333-143863) of StoneMor Partners L.P. of our report dated December 4, 2007 relating to the financial statements of Project Dignity 2007 Businesses (Alderwoods), which appears in the Current Report on Form 8-K of StoneMor Partners L.P. filed on December 7, 2007.
/s/ PricewaterhouseCoopers LLP
Houston, TX
December 7, 2007

Exhibit 99.1
StoneMor Partners L.P. Announces Signing an Agreement to Acquire or Manage 45 Cemeteries and 30 Funeral Homes
BRISTOL, PA—(Marketwire – December 4, 2007) - StoneMor Partners L.P. (NASDAQ: STON ) today announced that it entered into an agreement with Service Corporation International (NYSE: SCI) and related entities to acquire or manage 45 cemeteries and 30 funeral homes and one pet cemetery located in 17 states and Puerto Rico, for an aggregate price of approximately $68 million in cash, subject to various post-closing adjustments. In 2006, these properties generated over $44 million in revenues, which is in excess of 35% of StoneMor’s 2006 consolidated revenues, and this proposed acquisition, which is the largest since StoneMor went public, will bring the total number of properties owned or managed to 281, a 37% increase. Thirteen of the cemeteries and 16 of the funeral homes to be acquired or managed are in states where StoneMor does not currently operate, namely Arkansas, California, Florida, Hawaii, Iowa, South Carolina as well as Puerto Rico. The acquisition of these 76 properties is consistent with StoneMor’s growth strategy and provides for an expansion of its national operating platform. In conjunction with this transaction, StoneMor will receive control of cemetery merchandise and service trusts of approximately $66 million, and perpetual care trusts of approximately $50 million, related to these locations. The acquisition is subject to a number of conditions, including obtaining financing satisfactory to StoneMor in its reasonable discretion. The acquisition is expected to close in the fourth quarter of 2007.
Thirty-two of the cemeteries and 14 of the funeral homes are located in states where StoneMor currently operates and are expected to help strengthen its current market position and will benefit from its existing operational management structure. Although there is no assurance of future performance or increased distributions to unit holders, historically, StoneMor has been able to improve revenues and operating profits of acquired properties, and StoneMor’s prior acquisitions have contributed to increased distributions to its unit holders.
In 2006, the cemeteries proposed to be acquired or managed performed approximately 8,300 burials and the funeral homes performed approximately 4,000 funerals. Additionally, in 2006, the properties proposed to be acquired or managed had over 600 undeveloped acres available for sale, over 200,000 unsold cemetery spaces in the developed sections, over 3,000 unsold lawn crypts, over 7,000 constructed unsold mausoleum crypts, and over 5,000 constructed unsold cremation niches.
About StoneMor Partners L.P.
StoneMor Partners L.P., headquartered in Bristol, Pennsylvania, is an owner and operator of cemeteries and funeral homes in the United States, with 178 cemeteries and 27 funeral homes in 21 states. StoneMor is the only publicly traded deathcare company structured as a partnership. StoneMor’s cemetery products and services, which are sold on both a pre-need (before death) and at-need (at death) basis, include: burial lots, lawn and mausoleum crypts, burial vaults, caskets, memorials, and all services which provide for the installation of this merchandise.
For additional information about StoneMor Partners L.P., please visit StoneMor’s website, and the Investor Relations section, at http://stonemor.com .
Forward-Looking Statements
Certain statements contained in this press release, including, but not limited to, information regarding the status and progress of the StoneMor’s global operating activities, the plans and objectives of StoneMor’s management, assumptions regarding StoneMor’s future performance and plans, and any financial guidance provided, as well as certain information in other filings with the SEC and elsewhere, are forward-looking statements within the meaning of Section 27A(i) of the Securities Act of 1933 and Section 21E(i) of the Securities Exchange Act of 1934. The words “believe,” “may,” “will,” “estimate,” “continues,” “anticipate,” “intend,” “project,” “expect,” “predict,” and similar expressions identify these forward-looking

statements. These forward-looking statements are made subject to certain risks and uncertainties that could cause actual results to differ materially from those stated, including, but not limited to, the following: the ability of StoneMor to complete the proposed acquisition and uncertainties associated with the integration or anticipated benefits of the proposed acquisition; uncertainties associated with future revenue and revenue growth; the impact of StoneMor’s significant leverage on its operating plans; the ability of StoneMor to service its debt; StoneMor’s ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume and timing of pre-need sales of cemetery services and products; variances in death rates; variances in the use of cremation; changes in political or regulatory environments, including potential changes in tax accounting and trusting policies; StoneMor’s ability to successfully implement a strategic plan relating to producing operating improvement, strong cash flows and further deleveraging; uncertainties associated with the integration or the anticipated benefits of the acquisition of assets in September 2006; and various other uncertainties associated with the deathcare industry and StoneMor’s operations in particular.
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in StoneMor’s Annual Report on Form 10-K/A and its Quarterly Reports on Form 10-Q filed with the SEC. StoneMor assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by them, whether as a result of new information, future events, or otherwise.

Exhibit 99.2
PROJECT DIGNITY 2007 BUSINESSES
Financial Statement for the year ended 2006, 2005, and 2004

Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Service Corporation International:
In our opinion, the accompanying combined balance sheets and the related combined statements of operations, owner’s equity and cash flows present fairly, in all material respects, the financial position of Project Dignity 2007 Businesses (collectively the “Businesses”) at December 31, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Businesses’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the combined financial statements, the Businesses have significant transactions and relationships with affiliated entities. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.
As described in Note 2 to the combined financial statements, the Businesses changed their method of accounting for deferred selling costs related to preneed funeral and cemetery contracts effective January 1, 2005.

	
Houston, Texas	
December 4, 2007	

PROJECT DIGNITY 2007 BUSINESSES
COMBINED STATEMENT OF OPERATIONS

 	  	Years Ended December 31,	 	
 	  	2006	 	 	2005	 	 	2004	 	
 	  	(In thousands)	 	
Revenues	  	$	25,286	 	 	$	23,464	 	 	$	22,100	 	
Costs and expenses	  	 	(22,455	)	 	 	(19,905	)	 	 	(19,096	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Gross profits	  	 	2,831	 	 	 	3,559	 	 	 	3,004	 	
General and administrative expenses	  	 	(1,347	)	 	 	(1,157	)	 	 	(1,591	)	
Gains (losses) on dispositions of assets and impairment charges, net	  	 	153	 	 	 	1,569	 	 	 	(134	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	 	1,637	 	 	 	3,971	 	 	 	1,279	 	
Other income, net	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Interest expense	  	 	(664	)	 	 	(854	)	 	 	(1,202	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes and cumulative effect of accounting changes	  	 	973	 	 	 	3,117	 	 	 	77	 	
Provision for income taxes	  	 	(812	)	 	 	(1,461	)	 	 	(164	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before cumulative effect of accounting changes	  	 	161	 	 	 	1,656	 	 	 	(87	)	
Cumulative effect of accounting changes (net of income tax benefit of $139)	  	 	—  	 	 	 	(207	)	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	  	$	161	 	 	$	1,449	 	 	$	(87	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
(See notes to combined financial statements)

PROJECT DIGNITY 2007 BUSINESSES
COMBINED BALANCE SHEET

 	  	December 31,	
 	  	2006	  	2005	
 	  	(In thousands)	
ASSETS	  			  			
Current assets:	  			  			
Cash	  	$	11	  	$	3	
Receivables, net	  	 	567	  	 	765	
Inventories	  	 	1,000	  	 	539	
Other current assets	  	 	—  	  	 	101	
	  	 	 	  	 	 	
Total current assets	  	 	1,578	  	 	1,408	
Preneed funeral receivables and trust investments	  	 	16,509	  	 	10,707	
Preneed cemetery receivables and trust investments	  	 	71,273	  	 	38,898	
Cemetery property, at cost	  	 	46,376	  	 	36,342	
Property and equipment, at cost, net	  	 	25,318	  	 	5,397	
Goodwill	  	 	16,548	  	 	11,999	
Deferred charges and other assets	  	 	5,984	  	 	2,697	
Cemetery perpetual care trust investments	  	 	50,054	  	 	26,189	
	  	 	 	  	 	 	
	  	$	233,640	  	$	133,637	
	  	 	 	  	 	 	
LIABILITIES & OWNER’S EQUITY	  			  			
Current liabilities:	  			  			
Accounts payable and accrued liabilities	  	$	4,436	  	$	2,438	
Current maturities of long-term debt	  	 	232	  	 	766	
Income taxes	  	 	3,252	  	 	3,179	
	  	 	 	  	 	 	
Total current liabilities	  	 	7,920	  	 	6,383	
Long-term debt	  	 	1,161	  	 	100	
Deferred preneed funeral revenues	  	 	5,580	  	 	4,214	
Deferred preneed cemetery revenues	  	 	27,312	  	 	17,386	
Deferred income taxes	  	 	10,751	  	 	805	
Other liabilities	  	 	4,069	  	 	1,937	
Advances from affiliates, net	  	 	28,646	  	 	15,542	
Non-controlling interest in funeral and cemetery trusts	  	 	78,667	  	 	41,601	
Non-controlling interest in perpetual care trusts	  	 	49,677	  	 	25,973	
Commitments and contingencies (Note 9)	  			  			
Owner’s equity	  	 	19,857	  	 	19,696	
	  	 	 	  	 	 	
	  	$	233,640	  	$	133,637	
	  	 	 	  	 	 	
(See notes to combined financial statements)
 
2

PROJECT DIGNITY 2007 BUSINESSES
COMBINED STATEMENT OF CASH FLOWS

 	  	Years Ended December 31,	 	
 	  	2006	 	 	2005	 	 	2004	 	
 	  	(In thousands)	 	
Cash flows from operating activities:	  				 				 				
Net income (loss)	  	$	161	 	 	$	1,449	 	 	$	(87	)	
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	  				 				 				
Cumulative effect of accounting changes, net of tax	  	 	—  	 	 	 	207	 	 	 	—  	 	
Depreciation and amortization	  	 	1,197	 	 	 	893	 	 	 	949	 	
Amortization of cemetery property	  	 	400	 	 	 	303	 	 	 	480	 	
Provision (benefit) for doubtful accounts	  	 	213	 	 	 	(239	)	 	 	49	 	
Benefit for deferred income taxes	  	 	(1,264	)	 	 	(1,797	)	 	 	(204	)	
(Gains) losses on dispositions of assets and impairment charges, net	  	 	(153	)	 	 	(1,569	)	 	 	134	 	
Change in assets and liabilities, net of effects from acquisitions:	  				 				 				
Decrease (increase) in receivables	  	 	115	 	 	 	453	 	 	 	(242	)	
Increase in other assets	  	 	(272	)	 	 	(523	)	 	 	(289	)	
(Decrease) increase in payables and other liabilities	  	 	(484	)	 	 	2,760	 	 	 	724	 	
Net effect of preneed funeral production and deliveries:	  				 				 				
Increase in preneed funeral receivables and trust investments	  	 	(279	)	 	 	(1,077	)	 	 	(648	)	
Decrease in deferred preneed funeral revenue	  	 	(167	)	 	 	(375	)	 	 	(800	)	
Increase in deferred selling cost	  	 	—  	 	 	 	—  	 	 	 	(2	)	
Increase in funeral non-controlling interest	  	 	458	 	 	 	974	 	 	 	1,414	 	
Net effect of preneed cemetery production and maturities:	  				 				 				
Decrease in preneed cemetery receivables and trust investments	  	 	3,902	 	 	 	3,272	 	 	 	1,531	 	
(Decrease) increase in deferred preneed cemetery revenue	  	 	(2,142	)	 	 	670	 	 	 	499	 	
Increase in deferred selling cost	  	 	—  	 	 	 	—  	 	 	 	(418	)	
Increase (decrease) in cemetery non-controlling interest	  	 	222	 	 	 	(2,912	)	 	 	(52	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	1,907	 	 	 	2,489	 	 	 	3,038	 	
Cash flows from investing activities:	  				 				 				
Capital expenditures	  	 	(796	)	 	 	(868	)	 	 	(842	)	
Acquisitions, net of cash acquired	  	 	(13,675	)	 	 	—  	 	 	 	—  	 	
Proceeds from sales of property and equipment	  	 	474	 	 	 	1,519	 	 	 	1,501	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net cash (used in) provided by investing activities	  	 	(13,997	)	 	 	651	 	 	 	659	 	
Cash flows from financing activities:	  				 				 				
Payments of debt	  	 	(750	)	 	 	—  	 	 	 	(21	)	
Principal payments on capital leases	  	 	(184	)	 	 	(15	)	 	 	(14	)	
Advances from (to) affiliates	  	 	13,026	 	 	 	(3,162	)	 	 	(3,623	)	
Bank overdrafts and other	  	 	6	 	 	 	37	 	 	 	(48	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	 	12,098	 	 	 	(3,140	)	 	 	(3,706	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash	  	 	8	 	 	 	—  	 	 	 	(9	)	
Cash at beginning of period	  	 	3	 	 	 	3	 	 	 	12	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash at end of period	  	$	11	 	 	$	3	 	 	$	3	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
(See notes to combined financial statements)
 
3

PROJECT DIGNITY 2007 BUSINESSES
COMBINED STATEMENT OF OWNER’S EQUITY

 	  	Owner’s
Equity	 	
 	  	(In thousands)	 	
Balance at December 31, 2003	  	$	18,334	 	
Net (loss)	  	 	(87	)	
	  	 	 	 	
Balance at December 31, 2004	  	$	18,247	 	
Net income	  	 	1,449	 	
	  	 	 	 	
Balance at December 31, 2005	  	$	19,696	 	
Net income	  	 	161	 	
	  	 	 	 	
Balance at December 31, 2006	  	$	19,857	 	
	  	 	 	 	
(See notes to combined financial statements)
 
4

PROJECT DIGNITY 2007 BUSINESSES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
The accompanying financial statements present the combined financial position, results of operations, changes in owner’s equity, and cash flows of certain businesses of Service Corporation International (“SCI”). These financial statements include the accounts of 30 funeral homes and 46 cemeteries (collectively, the “Businesses”) being purchased by StoneMor Operating LLC as outlined in a Letter of Intent dated October 4, 2007 and referred to as Project Dignity 2007.
The combined financial statements of the Businesses contained herein reflect the financial position at December 31, 2006 and 2005 for funeral homes and cemeteries wholly-owned by SCI on those dates, and the results of operations, changes in equity, and cash flows for the Businesses for the years ended December 31, 2006, 2005, and 2004. On November 28, 2006 SCI acquired Alderwoods Group, Inc (“Alderwoods”) and certain of the funeral homes and cemeteries were, prior to that date, wholly-owned operations of Alderwoods. All other funeral homes and cemeteries were acquired by SCI prior to the earliest year presented.
The Businesses’ funeral service and cemetery operations consist of funeral service locations, cemeteries, crematoria, and related businesses. Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles and preparation and embalming services. Funeral-related merchandise, including caskets, burial vaults, cremation receptacles, flowers, and other ancillary products and services, is sold at funeral service locations. Cemeteries provide cemetery property interment rights, including mausoleum spaces, lots, and lawn crypts, and sell cemetery-related merchandise and services, including stone and bronze memorials, markers, casket and cremation memorialization products, merchandise installations, and burial openings and closings. The Businesses also sell preneed funeral and cemetery products and services whereby a customer contractually agrees to the terms of certain products and services to be provided in the future.
All significant inter-entity balances and transactions between the Businesses have been eliminated in the combined financial statements.
The preparation of these financial statements include the use of “carve out” accounting procedures wherein certain assets, liabilities and expenses historically recorded or incurred by SCI at the Parent level, which relate to or were incurred on behalf of the Businesses, have been identified and allocated as appropriate to properly reflect the stand-alone financial results of the Businesses, in accordance with accounting principles generally accepted in the United States of America. In this context, no direct owner relationship existed among the various locations comprising the Businesses as described above. Accordingly, SCI’s net investment in the Businesses is shown as Owner’s equity in these combined financial statements.
In the ordinary course of business, SCI provided various services to the Businesses, including accounting, treasury, tax, legal, human resources, public affairs, the use of centralized facilities and assets owned by SCI, and executive oversight. The costs of performing these services have been allocated to these Businesses based on the Businesses’ total revenue as a percent of SCI’s total revenue. Both SCI and the Businesses consider these cost allocations to be reasonable reflections of the cost of services provided. Charges for these services included in Costs and expenses totaled $1.8 million, $1.6 million, and $1.0 million for the years ended December 31, 2006, 2005, and 2004, respectively. Charges for these services included in General and administrative expenses totaled $1.3 million, $1.2 million, and $1.6 million for the years ended December 31, 2006, 2005, and 2004, respectively. Additionally, included in Interest expense is $0.6 million, $0.8 million, and $1.2 million of interest costs on the intercompany advances due to SCI for the years ended December 31, 2006, 2005, and 2004, respectively. This interest expense is charged to the Businesses from SCI at a rate of 4.5% of the average balances in Advances from affiliates, net. On a pro-forma basis at a current market rate of 7.3%, interest expense would have been approximately $1.6 million for 2006.
Throughout the periods covered by the combined financial statements, SCI provided cash management services to the Businesses through centralized treasury systems such that cash was either advanced or drawn from SCI with a corresponding decrease or increase to Advance from affiliates, net . As a result, all charges and cost allocations to the Businesses covered by such centralized treasury systems were deemed to have been paid by the Businesses to SCI, in cash, during the period in which the related costs were recorded in the combined financial statements. Increases or decreases in Advances from affiliates, net are classified as financing activities in the combined statement of cash flows.
 
5

All of the allocations and estimates in these combined financial statements are based on assumptions that management believes are reasonable under the circumstances. However, these allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted had the Businesses been operated as a stand-alone, independent entity.
Use of Estimates in the Preparation of Financial Statements
The preparation of the combined financial statements in conformity with accounting principles generally accepted in the United States of America 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 combined financial statements and the reported amounts of expenses during the reporting period. As a result, actual results could differ from these estimates.
Cemetery Operations
Revenue associated with sales of cemetery merchandise and services is recognized when the service is performed or merchandise is delivered. The Businesses’ cemetery trade receivables consist of amounts due for services already performed and merchandise already delivered. An allowance for doubtful accounts has been provided based on historical experience. Revenue associated with sales of preneed cemetery interment rights is recognized in accordance with the retail land sales provisions of SFAS No. 66, “Accounting for the Sales of Real Estate” (SFAS 66). Under SFAS 66, revenue from constructed cemetery property is not recognized until 10% of the sales price has been collected. Revenue related to the preneed sale of unconstructed cemetery property is deferred until it is constructed and 10% of the sales price is collected. Revenue associated with sales of preneed merchandise and services is not recognized until the merchandise is delivered or the services are performed. Allowances for customer cancellations for preneed cemetery contracts are based upon historical experience. For personalized marker merchandise, with the customer’s direction generally obtained at the time of sale, the Businesses can choose to order, store, and transfer title to the customer. Upon the earlier of vendor storage of these items or delivery in the cemetery, the Businesses recognize the associated revenues and record the cost of sale. For services and non-personalized merchandise (such as vaults), the Businesses defer the revenues until the services are performed and the merchandise is delivered. Sales taxes collected are recognized on a net basis.
Pursuant to state law, all or a portion of the proceeds from cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds. The Businesses defer investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed. The Businesses recognize unrealized gains and losses on their trust funds’ investments, which are completely offset by the portion of the unrealized gains and losses attributable to non-controlling interest in the trusts, in Other comprehensive income . Realized gains and losses on disposition of trust investments and trust expenses and the offsetting interest expense related to the non-controlling interest in the trusts are recorded in Other income, net.
A portion of the proceeds from the sale of cemetery property interment rights is required by state law to be paid into perpetual care trust funds. Investment earnings from these trusts are distributed to the Businesses regularly, are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs, which are expensed as incurred. The principal amount of such perpetual care trust funds generally cannot be withdrawn.
Costs related to the sale of property interment rights include the property and construction costs specifically identified by project. Upon completion of the project, construction costs are charged to expense in the same period revenue is recognized. Costs related to sales of merchandise and services are charged to expense when merchandise is delivered and when services are performed. See Note 4 to these combined financial statements regarding preneed cemetery activities.
Funeral Operations
Revenue is recognized when the funeral services are performed and funeral merchandise is delivered. The Businesses’ trade receivables consist of amounts due for services already performed and merchandise delivered. An allowance for doubtful accounts is provided based on historical experience. The Businesses sell price guaranteed preneed funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Revenues associated with sales of preneed funeral contracts are deferred until such time that the funeral services are performed. Allowances for customer cancellations are based upon historical experience. Sales taxes collected are recognized on a net basis.
Pursuant to state law, all or a portion of the proceeds from funeral merchandise or services sold on a preneed basis may be required to be paid into trust funds. The Businesses defer investment earnings related to these merchandise and services trusts until the associated merchandise are delivered or services are performed. The Businesses recognize unrealized gains and losses on their trust funds’ investments, which are completely offset by the portion of the unrealized gains and losses attributable to non-controlling
 
6

interest in the trusts, in Other comprehensive income . Realized gains and losses on disposition of trust investments and trust expenses and the offsetting interest expense related to the non-controlling interest in the trusts are recorded in Other income, net. Costs related to sales of merchandise and services are charged to expense when merchandise is delivered and services performed. See Note 3 to these combined financial statements regarding preneed funeral activities.
Accounts Receivables and Allowance for Doubtful Accounts
The Businesses’ trade receivables primarily consist of amounts due for funeral services already performed. The Businesses provide various allowances and/or cancellation reserves for their funeral and cemetery preneed and atneed receivables as well as for their preneed funeral and preneed cemetery deferred revenues. These allowances are based on an analysis of historical trends and include, where applicable, collection and cancellation activity. Atneed funeral and cemetery receivables are considered past due after 30 days. Collections are managed by the Businesses until a receivable is 180 days delinquent at which time it is written off and sent to a collection agency. These estimates are impacted by a number of factors, including changes in economy, relocation, and demographic or competitive changes in the Businesses’ areas of operation.
Inventories and Cemetery Property
Funeral and cemetery merchandise are stated at the lower of average cost or market. Cemetery property is recorded at cost. Inventory costs and cemetery property are primarily relieved using specific identification in performance of a contract.
Property and Equipment, Net
Property and equipment are recorded at cost. Maintenance and repairs are charged to expense whereas renewals and major replacements that extend the assets useful lives are capitalized. Depreciation is recognized ratably over the estimated useful lives of the various classes of assets. Buildings and improvements are depreciated over a period ranging from seven to forty years, equipment is depreciated over a period from three to eight years and leasehold improvements are depreciated over the shorter of the lease term or ten years. Depreciation expense related to property and equipment was $0.9 million, $0.6 million and $0.6 million for the years ended December 31, 2006, 2005, and 2004, respectively. Depreciation expense for the year ended December 31, 2006 includes $0.2 million expense related to capital leases on certain transportation assets that were classified as operating leases in prior years. When property is sold or retired, the cost and related accumulated depreciation are removed from the combined balance sheet; resulting gains and losses are included in the combined statement of operations in the period of sale or disposal.
Covenants not to Compete
Covenants not to compete are recorded under Deferred Charges and Other Assets on the combined balances sheets, representing amounts capitalized for non-competition agreements with certain key management personnel of acquired operations. Amortization of such prepaid covenants not to compete is recorded ratably over the terms of the relevant agreements, typically ten years.
Impairment or Disposal of Long-Lived Assets
The Businesses review their long-lived assets for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 requires that long-lived assets to be held and used are reported at the lower of their carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential are recorded at the lower of their carrying amount or fair value less estimated cost to sell.
Long-term debt
In 2006, the Businesses paid $0.8 million upon the maturity of a debenture issued in connection with SCI’s original acquisition of certain of the Businesses’ locations. As of December 31, 2006, all long-term debt consists of capital lease arrangements. Interest paid on long-term debt was $45 thousand, $42 thousand, and $49 thousand for the years ended December 31, 2006, 2005, and 2004, respectively.
No debt or interest expense has been allocated to the Businesses from SCI. As a result, the Businesses’ Combined Statement of Operations may not necessarily be indicative of the results of operations that would have existed had the Businesses operated as a separate, independent company.
 
7

Leases
The Businesses have lease arrangements primarily related to funeral service locations and transportation equipment which were primarily classified as capital leases at December 31, 2006. Lease terms related to funeral home properties generally range from one to 35 years with options to renew at varying terms. Lease terms related to transportation equipment generally range from one to five years with options to renew at varying terms. The Businesses calculate operating lease expense ratably over the lease term. The Businesses consider reasonably assured renewal options and fixed escalation provisions in their calculation of operating lease expense. For more information related to leases, see Note 9 to these combined financial statements.
Goodwill
The Businesses test for impairment of goodwill using a two-step approach as prescribed in SFAS 142 “Goodwill and Other Intangible Assets” . The first step of the goodwill impairment test compares the fair value of the Businesses to their carrying amount, including goodwill. The Businesses do not record an impairment of goodwill in instances where the fair value exceeds its carrying amount. If fair value is less than the carrying amount, the Businesses compare the implied fair value of goodwill (as defined in SFAS 142) to the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The relative fair market value of the Businesses was determined using a calculation based on multiples of revenue and multiples of EBITDA (earnings before interest, taxes, depreciation and amortization). Based on the impairment tests performed, the Businesses concluded that there was no impairment of goodwill at December 31, 2006 or 2005.
Intangible Assets
The Businesses’ intangible assets consist of funeral and cemetery preneed deferred revenue assets resulting from the acquisition of Alderwoods. The assets are relieved using specific identification in performance of a contract.
Income Taxes
Income taxes are computed using the liability method. Deferred taxes are provided on all temporary differences between the financial bases and the tax bases of assets and liabilities. The Businesses record a valuation allowance to reduce their deferred tax assets when uncertainty regarding their realization exists. Income taxes have been calculated as if the Businesses filed a separate return for the years ended December 31, 2006, 2005, and 2004. For more information related to income taxes, see Note 8 to the combined financial statements.
2. Recent Accounting Pronouncements and Accounting Changes
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective January 1, 2008 for the Businesses. The Businesses are currently evaluating the impact of adopting SFAS 157 on their combined financial statements. 
In July 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (FIN 48) was issued, which clarifies the accounting for uncertain income tax positions recognized in an enterprise’s financial statements in accordance with SFAS 109. This interpretation requires companies to use a prescribed model for assessing the financial statement recognition and measurement of all tax positions taken or expected to be taken in its tax returns. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for the Businesses on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to opening retained earnings (or as an adjustment to goodwill, in the case of uncertain tax positions acquired in the recent Alderwoods merger). The Businesses adopted FIN 48 in 2007 with a cumulative effect of the change in accounting principle of $1.1 million recorded as an adjustment to goodwill.
 
8

Effective January 1, 2005, the Businesses changed their method of accounting for direct selling costs related to the acquisition of preneed funeral and preneed cemetery contracts. Prior to this change, the Businesses capitalized these direct selling costs and amortized them in proportion to the revenue recognized. Under the new method of accounting, the Businesses expense direct selling costs as incurred. The Businesses believes the new method is preferable because it better reflects the economics of their business. The Businesses recorded a cumulative effect charge of $0.2 million, net of tax of $0.1 million. Pro forma net loss for the year ended December 31, 2004, reflecting the new policy to expense selling costs as incurred, would have been $0.5 million.
3. Preneed Funeral Activities
Preneed Funeral Receivables and Trust Investments
Preneed funeral receivables and trust investments , net of allowance for cancellation, represent trust investments, including investment earnings and customer receivables related to unperformed, price-guaranteed preneed funeral contracts. When the Businesses, as the primary beneficiary, receive payments from the customer, the Businesses deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed funeral revenues into Non-controlling interest in funeral and cemetery trusts. Amounts are withdrawn from the trusts after the contract is performed. The Businesses, as allocated from SCI’s deposits and withdrawals based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, deposited $0.8 million and $0.6 million into and withdrew $1.2 million and $0.8 million from trusts during the years ended December 31, 2006 and 2005, respectively. Cash flows from preneed funeral contracts are presented as operating cash flows in the combined statement of cash flows.
The components of Preneed funeral receivables and trust investments in the combined balance sheet at December 31 are as follows:

 	  	2006	 	 	2005	 	
 	  	(In thousands)	 	
Trust investments, at market	  	$	14,481	 	 	$	9,047	 	
Receivables from customers	  	 	2,255	 	 	 	1,751	 	
	  	 	 	 	 	 	 	 	
	  	 	16,736	 	 	 	10,798	 	
Allowance for cancellation	  	 	(227	)	 	 	(91	)	
	  	 	 	 	 	 	 	 	
Preneed funeral receivables and trust investments	  	$	16,509	 	 	$	10,707	 	
	  	 	 	 	 	 	 	 	
An allowance for contract cancellation is estimated based on historical experience. Upon cancellation of a trust funded preneed funeral contract, a customer is generally entitled to receive a refund of the funds held in trust. In many jurisdictions, the Businesses may be obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust including investment returns. Therefore, when realized or unrealized losses of a trust result in preneed funeral contracts being insufficient to meet contingent customer withdrawals, the Businesses assess such contracts to determine whether a loss provision should be recorded. No such loss provisions were required to be recognized as of December 31, 2006 or 2005.
Preneed funeral receivables and trust investments are reduced by the trust investment earnings (realized and unrealized) that the Businesses have been allowed to withdraw in certain states prior to maturity. These earnings are recorded in Deferred preneed funeral revenues until the service is performed or the merchandise is delivered.
The cost and market values associated with funeral trust investments at December 31, 2006 and 2005 are detailed below and are allocated from SCI’s combined cost and market values based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments. Cost reflects the investment (net of redemptions) of contract holders in common trust funds, mutual funds and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holders’ equity in majority-owned real estate investments). The fair market value of funeral trust investments was based primarily on quoted market prices at December 31, 2006 and 2005. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” , on a quarterly basis. Any impairment charges taken as a result of other-than-temporary declines in fair value are recognized as investment losses and offset by interest income related to non-controlling interest in funeral trust investments in Other income, net in the combined Statements of Operations. As a result of the Businesses’ most recent reviews at December 31, 2006 and 2005, no adjustments to cost for the unrealized losses related to certain private equity and other investments were required. See Note 6 to these combined financial statements for further information related to non-controlling interest in funeral trust investments.
 
9

															
 	  	December 31, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	2,472	  	$	—  	  	$	—  	 	 	$	2,472	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	759	  	 	17	  	 	(3	)	 	 	773	 	
Foreign government	  	 	911	  	 	6	  	 	(5	)	 	 	912	 	
Corporate	  	 	51	  	 	1	  	 	—  	 	 	 	52	 	
Mortgage-backed	  	 	46	  	 	1	  	 	—  	 	 	 	47	 	
Insurance-backed	  	 	2,139	  	 	—  	  	 	—  	 	 	 	2,139	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	7	  	 	—  	  	 	—  	 	 	 	7	 	
Common stock	  	 	3,452	  	 	236	  	 	(28	)	 	 	3,660	 	
Mutual funds:	  			  			  				 				
Equity	  	 	1,304	  	 	135	  	 	(6	)	 	 	1,433	 	
Fixed income	  	 	2,230	  	 	90	  	 	(24	)	 	 	2,296	 	
Private equity and other	  	 	684	  	 	14	  	 	(8	)	 	 	690	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	14,055	  	$	500	  	$	(74	)	 	$	14,481	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	103	%	
		
 	  	December 31, 2005	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	532	  	$	—  	  	$	—  	 	 	$	532	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	805	  	 	23	  	 	(9	)	 	 	819	 	
Foreign government	  	 	707	  	 	4	  	 	(5	)	 	 	706	 	
Corporate	  	 	67	  	 	2	  	 	(1	)	 	 	68	 	
Mortgage-backed	  	 	777	  	 	29	  	 	(11	)	 	 	795	 	
Insurance-backed	  	 	1,796	  	 	—  	  	 	—  	 	 	 	1,796	 	
Asset-backed and other	  	 	8	  	 	—  	  	 	—  	 	 	 	8	 	
Equity securities:	  			  			  				 				
Common stock	  	 	2,585	  	 	119	  	 	(36	)	 	 	2,668	 	
Mutual funds:	  			  			  				 				
Equity	  	 	597	  	 	89	  	 	(7	)	 	 	679	 	
Fixed income	  	 	717	  	 	13	  	 	(11	)	 	 	719	 	
Private equity and other	  	 	294	  	 	6	  	 	(43	)	 	 	257	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	8,885	  	$	285	  	$	(123	)	 	$	9,047	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	102	%	
Maturity dates of the fixed income securities range from 2007 to 2038. Maturities of fixed income securities at December 31, 2006 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	1,322	
Due in one to five years	  	 	647	
Due in five to ten years	  	 	952	
Thereafter	  	 	1,002	
	  	 	 	
	  	$	3,923	

10

The Businesses have determined that unrealized losses in the funeral trust investments at both December 31, 2006 and 2005 are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The Businesses believe that none of the securities are other than temporarily impaired based on an analysis of the investments as well as their discussions with trustees, money managers and consultants. The Businesses’ funeral trust investment unrealized losses, their durations and the fair market value as of December 31, 2006, are shown in the following table.

 	  	Less Than 12 Months	 	 	Greater Than 12 Months	 	 	Total	 	
 	  	Fair
Market
Value	  	Unrealized
Losses	 	 	Fair
Market
Value	  	Unrealized
Losses	 	 	Fair
Market
Value	  	Unrealized
Losses	 	
	  	 	(In thousands)	 	
Fixed income securities:	  			  				 			  				 			  				
U.S. Treasury	  	$	—  	  	$	—  	 	 	$	90	  	$	(3	)	 	$	90	  	$	(3	)	
Foreign government	  	 	10	  	 	(3	)	 	 	200	  	 	(2	)	 	 	210	  	 	(5	)	
Equity securities:	  			  				 			  				 			  				
Common stock	  	 	52	  	 	(1	)	 	 	692	  	 	(27	)	 	 	744	  	 	(28	)	
Mutual funds:	  			  				 			  				 			  				
Equity	  	 	154	  	 	(1	)	 	 	113	  	 	(5	)	 	 	267	  	 	(6	)	
Fixed income	  	 	195	  	 	(2	)	 	 	807	  	 	(22	)	 	 	1,002	  	 	(24	)	
Private equity and other	  	 	69	  	 	(1	)	 	 	376	  	 	(7	)	 	 	445	  	 	(8	)	
	  	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
Total temporarily impaired securities	  	$	480	  	$	(8	)	 	$	2,278	  	$	(66	)	 	$	2,758	  	$	(74	)	
	  	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
During the year ended December 31, 2006, purchases and sales of available-for-sale securities included in trust investments, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $6.8 million and $9.1 million, respectively. These sale transactions resulted in $0.9 million and $0.4 million of realized gains and realized losses, respectively, for the year ended December 31, 2006. During the year ended December 31, 2005, purchases and sales of available-for-sale securities included in trust investments, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $7.2 million and $9.0 million, respectively. These sale transactions resulted in $0.5 million and $0.2 million of realized gains and realized losses, respectively, for the year ended December 31, 2005. The Businesses use the first in, first out (FIFO) method to determine the cost of funeral trust available-for-sale securities sold during the period.
Earnings from all trust investments are recognized in current funeral revenues when the service is performed, merchandise is delivered, or upon cancellation of the amount the Businesses are entitled to retain. Recognized earnings (realized and unrealized) related to these trust investments were $0.1 million for each of the years ended December 31, 2006, 2005, and 2004.
Deferred Preneed Funeral Revenues
At December 31, 2006 and 2005, Deferred preneed funeral revenues , net of allowance for cancellation, represent future funeral service revenues, including distributed trust investment earnings associated with unperformed trust funded preneed funeral contracts that are not held in trust accounts. Deferred preneed funeral revenues are recognized in current funeral revenues when the service is performed or merchandise is delivered. Future funeral service revenues and net trust investment earnings that are held in trust accounts are included in Non-controlling interest in funeral and cemetery trusts.
Insurance-Funded Preneed Funeral Contracts
Not included in the combined balance sheet are insurance-funded preneed funeral contracts that will be funded by life insurance or annuity contracts issued by third party insurers. Prior to the adoption of FIN 46R on March 31, 2004, the net amount of these contracts was included in Preneed funeral receivables and trust investments with a corresponding liability in Deferred preneed funeral revenues. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenues as these funerals are performed by the Businesses.
 
11

4. Preneed Cemetery Activities
Preneed Cemetery Receivables and Trust Investments
Preneed cemetery receivables and trust investments , net of allowance for cancellation, represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, for contracts sold in advance of when the property interment rights, merchandise or services are needed. When the Businesses, as the primary beneficiary, receive payments from the customer, the Businesses deposit the amount required by law into the trust, remove the corresponding amount from Deferred preneed cemetery revenues , and record the amount into Non-controlling interest in funeral and cemetery trusts. Amounts are withdrawn from the trusts when the contract is performed. The Businesses, as allocated from SCI’s deposits and withdrawals based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, deposited $5.7 million and $3.8 million into and withdrew $4.3 million and $4.3 million from the trusts during the years ended December 31, 2006 and 2005, respectively. Cash flows from preneed cemetery contracts are presented as operating cash flows in our consolidated statement of cash flows.
The components of Preneed cemetery receivables and trust investments in the combined balance sheet at December 31, 2006 and 2005 are as follows:

 	  	December 31,
2006	 	 	December 31,
2005	 	
 	  	(In thousands)	 	
Trust investments, at market	  	$	64,916	 	 	$	32,894	 	
Receivables from customers	  	 	9,151	 	 	 	7,678	 	
Unearned finance charges	  	 	(1,020	)	 	 	(1,082	)	
	  	 	 	 	 	 	 	 	
	  	 	73,047	 	 	 	39,490	 	
Allowance for cancellation	  	 	(1,774	)	 	 	(592	)	
	  	 	 	 	 	 	 	 	
Preneed cemetery receivables and trust investments	  	$	71,273	 	 	$	38,898	 	
	  	 	 	 	 	 	 	 	
The cost and market values associated with the cemetery merchandise and service trust investments at December 31, 2006 and 2005 are detailed below and are allocated from SCI’s combined cost and market values based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments. Cost reflects the investment (net of redemptions) of contract holders in common trust funds, mutual funds and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holders’ equity in majority-owned real estate alternative investments). The fair market value of cemetery trust investments was based primarily on quoted market prices at December 31, 2006 and 2005. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” on a quarterly basis. Any impairment charges taken as a result of other-than-temporary declines in fair value are recognized as investment losses and offset by interest income related to non-controlling interest in cemetery trust investments in Other income, net in the combined Statement of Operations. As a result of the Businesses’ most recent reviews at December 31, 2006 and 2005, no adjustments to cost for the unrealized losses related to certain private equity and other investments were required. See Note 6 to the combined financial statements for further information related to non-controlling interest in cemetery trust investments.

 	  	December 31, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	12,562	  	$	—  	  	$	—  	 	 	$	12,562	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	3,004	  	 	204	  	 	(104	)	 	 	3,104	 	
Foreign government	  	 	1,225	  	 	36	  	 	(1	)	 	 	1,260	 	
Corporate	  	 	254	  	 	19	  	 	(2	)	 	 	271	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	100	  	 	8	  	 	(1	)	 	 	107	 	
Common stock	  	 	14,597	  	 	1,300	  	 	(85	)	 	 	15,812	 	
Mutual funds:	  			  			  				 				
Equity	  	 	10,134	  	 	1,377	  	 	(35	)	 	 	11,476	 	
Fixed income	  	 	18,218	  	 	1,031	  	 	(148	)	 	 	19,101	 	
Private equity and other	  	 	1,401	  	 	24	  	 	(202	)	 	 	1,223	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	61,495	  	$	3,999	  	$	(578	)	 	$	64,916	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	106	%	
 
12

															
 	  	December 31, 2005	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	2,994	  	$	—  	  	$	—  	 	 	$	2,994	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	4,060	  	 	232	  	 	(34	)	 	 	4,258	 	
Foreign government	  	 	718	  	 	30	  	 	(1	)	 	 	747	 	
Corporate	  	 	441	  	 	26	  	 	(4	)	 	 	463	 	
Mortgage-backed	  	 	5,798	  	 	335	  	 	(51	)	 	 	6,082	 	
Asset-backed and other	  	 	78	  	 	5	  	 	(1	)	 	 	82	 	
Equity securities:	  			  			  				 				
Common stock	  	 	9,584	  	 	657	  	 	(85	)	 	 	10,156	 	
Mutual funds:	  			  			  				 				
Equity	  	 	4,479	  	 	741	  	 	(28	)	 	 	5,192	 	
Fixed income	  	 	2,206	  	 	67	  	 	(34	)	 	 	2,239	 	
Private equity and other	  	 	794	  	 	—  	  	 	(113	)	 	 	681	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	31,152	  	$	2,093	  	$	(351	)	 	 	32,894	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	106	%	
Maturity dates of the fixed income securities range from 2007 to 2038. Maturities of fixed income securities at December 31, 2006 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	900	
Due in one to five years	  	 	1,150	
Due in five to ten years	  	 	1,637	
Thereafter	  	 	948	
	  	 	 	
	  	$	4,635	
	  	 	 	
The Businesses have determined that unrealized losses in the cemetery trust investments at December 31, 2006 and 2005 are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The Businesses believe that none of the securities are other than temporarily impaired based on an analysis of the investments as well as discussions with trustees, money managers, and consultants. The Businesses’ cemetery trust investment unrealized losses, their durations, and their fair market value as of December 31, 2006, are shown in the following table.

 	  	Less Than 12 Months	 	 	Greater Than 12 Months	 	 	Total	 	
 	  	Fair Market
Value	  	Unrealized
Losses	 	 	Fair Market
Value	  	Unrealized
Losses	 	 	Fair Market
Value	  	Unrealized
Losses	 	
 	  	(In thousands)	 	
Fixed income securities:	  			  				 			  				 			  				
U.S. Treasury	  	$	—  	  	$	—  	 	 	$	777	  	$	(104	)	 	$	777	  	$	(104	)	
Foreign government	  	 	—  	  	 	—  	 	 	 	268	  	 	(1	)	 	 	268	  	 	(1	)	
Corporate	  	 	—  	  	 	—  	 	 	 	68	  	 	(2	)	 	 	68	  	 	(2	)	
Equity securities:	  			  				 			  				 			  				
Preferred stock	  	 	—  	  	 	—  	 	 	 	26	  	 	(1	)	 	 	26	  	 	(1	)	
Common stock	  	 	—  	  	 	—  	 	 	 	3,720	  	 	(85	)	 	 	3,720	  	 	(85	)	
Mutual funds:	  			  				 			  				 			  				
Equity	  	 	850	  	 	(3	)	 	 	1,085	  	 	(32	)	 	 	1,935	  	 	(35	)	
Fixed income	  	 	2,136	  	 	(22	)	 	 	5,271	  	 	(126	)	 	 	7,407	  	 	(148	)	
Private equity and other	  	 	—  	  	 	—  	 	 	 	1,132	  	 	(202	)	 	 	1,132	  	 	(202	)	
	  	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
Total temporarily impaired securities	  	$	2,986	  	$	(25	)	 	$	12,347	  	$	(553	)	 	$	15,333	  	$	(578	)	

13

During the year ended December 31, 2006, purchases and sales of available-for-sale securities included in trust investments, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $37.6 million and $48.1 million, respectively. These sale transactions resulted in $4.9 million and $2.3 million of realized gains and realized losses, respectively, for the year ended December 31, 2006. During the year ended December 31, 2005, purchases and sales of available-for-sale securities included in trust investments, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $30.7 million and $33.5 million, respectively. These sale transactions resulted in $2.3 million and $0.7 million of realized gains and realized losses, respectively for year ended December 31, 2005. The Businesses use the FIFO method to determine the cost of cemetery trust available-for-sale securities sold during the period.
Earnings from all trust investments are recognized in current cemetery revenues when the service is performed or the merchandise is delivered or upon cancellation of the amount the Businesses are entitled to retain. Recognized earnings (realized and unrealized) related to these trust investments were $0.5 million, $0.5 million, and $0.4 million for the years ended December 31, 2006, 2005, and 2004, respectively.
Deferred Preneed Cemetery Revenues
At December 31, 2006 and 2005, Deferred preneed cemetery revenues , net of allowance for cancellation, represent future cemetery revenues, including distributed trust investment earnings associated with unperformed trust funded preneed cemetery contracts that are not held in trust accounts. Deferred preneed cemetery revenues are recognized in current cemetery revenues when the service is performed or merchandise delivered. Future cemetery revenues and net trust investment earnings that are held in trust accounts are included in Non-controlling interest in funeral and cemetery trusts.
5. Cemetery Perpetual Care Trusts
The Businesses are required by state law to pay into perpetual care trusts a portion of the proceeds from the sale of cemetery property interment rights. As the primary beneficiary of the trusts, the Businesses consolidate the perpetual care trust investments with a corresponding amount recorded as Non-controlling interest in perpetual care trusts. The Businesses, as allocated from SCI’s deposits and withdrawals based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, deposited $1.2 million and $0.8 million into trusts and withdrew $2.3 million and $1.1 million from trusts during the years ended December 31, 2006 and 2005, respectively. Cash flows from cemetery perpetual care contracts are presented as operating cash flows in our consolidated statement of cash flows.
The cost and market values associated with trust investments held in perpetual care trusts at December 31, 2006 and 2005 are detailed below and are allocated from SCI’s combined cost and market values based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holders’ equity in majority-owned real estate investments). The fair market value of perpetual care trusts was based primarily on quoted market prices at December 31, 2006 or 2005. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “ Accounting for Certain Investments in Debt and Equity Securities ”, on a quarterly basis. Any impairment charges taken as a result of other-than-temporary declines in fair value are recognized as investment losses and offset by interest income related to non-controlling interest in perpetual care trust investments in Other income, net in the combined Statements of Operations. As a result of the Businesses’ most recent reviews at December 31, 2006 and 2005, no adjustments to cost for the unrealized losses related to certain private equity and other investments were required. See Note 6 to the combined financial statements for further information related to non-controlling interest in perpetual care trust investments.
 
14

															
 	  	December 31, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	8,839	  	$	—  	  	$	—  	 	 	$	8,839	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	610	  	 	35	  	 	(6	)	 	 	639	 	
Foreign government	  	 	1,517	  	 	50	  	 	(5	)	 	 	1,562	 	
Corporate	  	 	1,271	  	 	66	  	 	(1	)	 	 	1,336	 	
Mortgage-backed	  	 	34	  	 	—  	  	 	—  	 	 	 	34	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	419	  	 	29	  	 	—  	 	 	 	448	 	
Common stock	  	 	4,590	  	 	465	  	 	(6	)	 	 	5,049	 	
Mutual funds:	  			  			  				 				
Equity	  	 	3,247	  	 	268	  	 	(11	)	 	 	3,504	 	
Fixed income	  	 	25,406	  	 	1,270	  	 	(76	)	 	 	26,600	 	
Private equity and other	  	 	1,951	  	 	129	  	 	(37	)	 	 	2,043	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Perpetual care trust investments	  	$	47,884	  	$	2,312	  	$	(142	)	 	$	50,054	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	105	%	
		
 	  	December 31, 2005	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	1,707	  	$	—  	  	$	—  	 	 	$	1,707	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	2,360	  	 	73	  	 	(3	)	 	 	2,430	 	
Foreign government	  	 	1,214	  	 	51	  	 	(2	)	 	 	1,263	 	
Corporate	  	 	2,679	  	 	64	  	 	(3	)	 	 	2,740	 	
Mortgage-backed	  	 	4,398	  	 	105	  	 	(5	)	 	 	4,498	 	
Asset-backed and other	  	 	1,009	  	 	24	  	 	(1	)	 	 	1,032	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	480	  	 	47	  	 	(2	)	 	 	525	 	
Common stock	  	 	3,371	  	 	149	  	 	(8	)	 	 	3,512	 	
Mutual funds:	  			  			  				 				
Equity	  	 	1,616	  	 	88	  	 	(8	)	 	 	1,696	 	
Fixed income	  	 	5,396	  	 	105	  	 	(38	)	 	 	5,463	 	
Private equity and other	  	 	1,161	  	 	203	  	 	(41	)	 	 	1,323	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Perpetual care trust investments	  	$	25,391	  	$	909	  	$	(111	)	 	$	26,189	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	103	%	
The Businesses have determined that unrealized losses in the perpetual care trust investments are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The Businesses believe that none of the securities are other than temporarily impaired based on an analysis of the investments as well as discussions with trustees, money managers, and consultants. The Businesses’ perpetual care trust investment unrealized losses, their durations, and fair market values as of December 31, 2006, are shown in the following table.

 	  	Less Than 12 Months	 	 	Greater Than 12 Months	 	 	Total	 	
 	  	Fair
Market
Value	  	Unrealized
Losses	 	 	Fair
Market
Value	  	Unrealized
Losses	 	 	Fair
Market
Value	  	Unrealized
Losses	 	
 	  	(In thousands)	 	
Fixed income securities:	  			  				 			  				 			  				
U.S. Treasury	  	$	—  	  	$	—  	 	 	$	285	  	$	(6	)	 	$	285	  	$	(6	)	
Foreign government	  	 	250	  	 	(2	)	 	 	345	  	 	(3	)	 	 	595	  	 	(5	)	
Corporate	  	 	—  	  	 	—  	 	 	 	60	  	 	(1	)	 	 	60	  	 	(1	)	
Equity securities:	  			  				 			  				 			  				
Common stock	  	 	—  	  	 	—  	 	 	 	23	  	 	(6	)	 	 	23	  	 	(6	)	
Mutual funds:	  			  				 			  				 			  				
Equity	  	 	—  	  	 	—  	 	 	 	129	  	 	(11	)	 	 	129	  	 	(11	)	
Fixed income	  	 	4,309	  	 	(20	)	 	 	1,764	  	 	(56	)	 	 	6,073	  	 	(76	)	
Private equity and other	  	 	233	  	 	(3	)	 	 	709	  	 	(34	)	 	 	942	  	 	(37	)	
	  	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
Total temporarily impaired securities	  	$	4,792	  	$	(25	)	 	$	3,315	  	$	(117	)	 	$	8,107	  	$	(142	)	

15

Maturity dates of the fixed income securities range from 2007 to 2038. Maturities of fixed income securities at December 31, 2006 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	971	
Due in one to five years	  	 	1,111	
Due in five to ten years	  	 	655	
Thereafter	  	 	834	
	  	 	 	
	  	$	3,571	
	  	 	 	
During the year ended December 31, 2006, purchases and sales of available-for-sale securities in the perpetual care trusts, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $48.4 million and $58.1 million, respectively. These sale transactions resulted in $2.2 million and $1.4 million of realized gains and realized losses, respectively. During the year ended December 31, 2005, purchases and sales of available-for-sale securities in the perpetual care trusts, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $34.4 million and $36.3 million, respectively. These sales transactions resulted in $0.7 million and $0.4 million of realized gains and realized losses, respectively.
Distributable earnings from these perpetual care trust investments are recognized in current cemetery revenues to the extent of qualifying cemetery maintenance costs. Recognized earnings related to these perpetual care trust investments were $1.3 million, $1.0 million, and $1.1 million for the years ended December 31, 2006, 2005, and 2004, respectively.
6. Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
Non-Controlling Interest in Funeral and Cemetery Trusts
The Businesses consolidate in their balance sheet the merchandise and service trusts associated with their preneed funeral and cemetery activities as a result of the implementation of FIN 46R. Although FIN 46R requires the consolidation of the merchandise and service trusts, it does not change the legal relationships among the trusts, the Businesses or their customers. The customers are the legal beneficiaries of these merchandise and service trusts, and therefore, their interests in these trusts represent a non-controlling interest in subsidiaries.
Non-Controlling Interest in Perpetual Care Trusts
The Non-controlling interest in perpetual care trusts reflected in the combined balance sheet represents the cemetery perpetual care trusts, net of the accrued expenses and other long-term liabilities of the perpetual care trusts.
The components of Non-controlling interest in funeral and cemetery trusts and Non-controlling interest in perpetual care trusts in the combined balance sheet at December 31, 2006 and 2005 are detailed below.

 	  	December 31, 2006	 	 	December 31, 2006	 	
 	  	Preneed
Funeral	 	 	Preneed
Cemetery	 	 	Total	 	 	Cemetery
Perpetual Care	 	
 	  	(In thousands)	 	
Trust investments, at market value	  	$	14,481	 	 	$	64,916	 	 	$	79,397	 	 	$	50,054	 	
Less: Accrued trust operating payables, deferred taxes and other	  	 	(109	)	 	 	(621	)	 	 	(730	)	 	 	(377	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	  	$	14,372	 	 	$	64,295	 	 	$	78,667	 	 	$	49,677	 	

 	  	December 31, 2005	 	 	December 31, 2005	 	
 	  	Preneed
Funeral	 	 	Preneed
Cemetery	 	 	Total	 	 	Cemetery
Perpetual Care	 	
 	  	(In thousands)	 	
Trust investments, at market value	  	$	9,047	 	 	$	32,894	 	 	$	41,941	 	 	$	26,189	 	
Less: Accrued trust operating payables, deferred taxes and other	  	 	(43	)	 	 	(297	)	 	 	(340	)	 	 	(216	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	  	$	9,004	 	 	$	32,597	 	 	$	41,601	 	 	$	25,973	 	

16

7. Goodwill
The changes in the carrying amounts of goodwill for the Businesses are as follows (in thousands):

Balance as of December 31, 2004	  	$	11,999	
	  	 	 	
Balance as of December 31, 2005	  	 	11,999	
Increase in goodwill related to acquisitions	  	 	4,549	
	  	 	 	
Balance as of December 31, 2006	  	$	16,548	
	  	 	 	
The increase in goodwill related to acquisitions in 2006 is a result of the acquisition of Alderwoods on November 28, 2006 (Note 1). The preliminary allocation of the purchase price to specific assets and liabilities was based, in part, upon the consideration of an outside appraisal of the fair value of Alderwoods’ assets and from information obtained from the accounting systems of Alderwoods. The following table summarizes, based on the purchase price allocation applicable to the Businesses, the fair values of the assets acquired and liabilities assumed as of that date:

 	  	(In thousands)	
Current assets	  	$	628	
Cemetery property	  	 	10,390	
Property and equipment, net	  	 	19,488	
Preneed funeral and cemetery receivables and trust investments	  	 	57,649	
Intangible assets	  	 	2,783	
Deferred charges and other assets	  	 	444	
Goodwill	  	 	4,549	
	  	 	 	
Total assets acquired	  	 	95,931	
Current liabilities	  	 	908	
Long-term debt	  	 	693	
Deferred preneed funeral and cemetery revenues and non-controlling interest in trusts	  	 	67,549	
Other liabilities	  	 	13,106	
	  	 	 	
Total liabilities assumed	  	 	82,256	
	  	 	 	
Net assets acquired	  	$	13,675	
	  	 	 	
Goodwill, land and certain identifiable intangible assets recorded in the acquisition are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment as required by SFAS 142. None of this goodwill is deductible for tax purposes. The $2.8 million in identified intangible assets consists of preneed backlog intangible assets with a useful life of 10-14 years.
8. Income Taxes
The provision or benefit for income taxes includes U.S. federal income taxes and state and local income taxes, determined on a hypothetical basis as if the Businesses constituted ‘stand-alone’ taxpayer. Certain amounts historically recorded at levels above the Businesses were allocated to properly reflect income taxes on a separate return basis.
Income tax provision (benefit) consisted of the following:

 	  	Year ended December 31,	 	
 	  	2006	 	 	2005	 	 	2004	 	
 	  	(In thousands)	 	
Current:	  				 				 				
United States	  	$	1,291	 	 	$	2,397	 	 	$	—  	 	
State and local	  	 	785	 	 	 	861	 	 	 	368	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	 	2,076	 	 	 	3,258	 	 	 	368	 	
Deferred:	  				 				 				
United States	  	 	(1,204	)	 	 	(1,506	)	 	 	(47	)	
State and local	  	 	(60	)	 	 	(291	)	 	 	(157	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	 	(1,264	)	 	 	(1,797	)	 	 	(204	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	812	 	 	$	1,461	 	 	$	164	 	

17

The Businesses made income tax payments of approximately $3.2 million and $0.4 million for the years ended December 31, 2006 and 2005, respectively.
The differences between the U.S. federal statutory income tax rate and the Businesses’ effective tax rate were as follows:

 	  	Year ended December 31,	 	
 	  	2006	 	 	2005	 	 	2004	 	
 	  	(In thousands)	 	
Computed tax provision at the applicable federal statutory income tax rate	  	$	341	 	 	$	1,091	 	 	$	27	 	
State and local taxes, net of federal income tax benefits	  	 	471	 	 	 	370	 	 	 	137	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Provision for income taxes	  	$	812	 	 	$	1,461	 	 	$	164	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total effective tax rate	  	 	83.5	%	 	 	46.9	%	 	 	213.0	%	
	  	 	 	 	 	 	 	 	 	 	 	 	
Deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted marginal tax rates. The tax effects of temporary differences and carry-forwards that give rise to significant portions of deferred tax assets and liabilities as of December 31 consisted of the following:

 	  	2006	 	 	2005	 	
 	  	(In thousands)	 	
Inventories and cemetery property, principally due to purchase accounting adjustments	  	$	4,453	 	 	$	5,840	 	
Property and equipment, principally due to differences in depreciation methods and purchase accounting adjustments	  	 	10,772	 	 	 	—  	 	
Receivables, principally due to sales of cemetery interment rights and related products	  	 	522	 	 	 	—  	 	
Other	  	 	169	 	 	 	165	 	
	  	 	 	 	 	 	 	 	
Deferred tax liabilities	  	 	15,916	 	 	 	6,005	 	
			
Deferred revenue on preneed funeral and cemetery contracts, principally due to earnings from trust funds	  	 	(405	)	 	 	(632	)	
Accrued liabilities & prepaid assets	  	 	(2,399	)	 	 	(1,335	)	
Property and equipment, principally due to differences in depreciation methods and purchase accounting adjustments	  	 	—  	 	 	 	(1,169	)	
Intangibles, principally due to amortization methods	  	 	(1,131	)	 	 	(1,775	)	
Receivables, principally due to sales of cemetery interment rights and related products	  	 	—  	 	 	 	(66	)	
Loss and tax credit carry-forwards	  	 	(794	)	 	 	(494	)	
	  	 	 	 	 	 	 	 	
Deferred tax assets	  	 	(4,729	)	 	 	(5,471	)	
	  	 	 	 	 	 	 	 	
Valuation allowance	  	 	740	 	 	 	331	 	
	  	 	 	 	 	 	 	 	
Net deferred income taxes	  	$	11,927	 	 	$	865	 	
	  	 	 	 	 	 	 	 	
The valuation allowance increase in 2006 is attributable to uncertainty with respect to realization of the loss carry-forwards. It is possible that the estimated valuation allowance could change in the near term due to matters such as the timing and manner of reversals of deferred tax liabilities and future actual income or loss. If this occurs, any resulting increase or decrease in the valuation allowance would generally be treated as an additional income tax expense or benefit in the period in which it arises. As of December 31, 2006, the Businesses have stand-alone state loss carry-forwards of $15.3 million with expiration dates through 2026. Current taxes payable of $2.0 million and $3.1 million and short-term deferred tax liabilities of $1.2 million and $0.1 million are reflected as Income taxes in the combined balance sheet as of December 31, 2006 and 2005, respectively. 
9. Commitments and Contingencies
Non-Competition Agreements
The Businesses have entered into non-competition agreements, generally for five to ten years, with certain officers and employees and former owners. At December 31, 2006, the maximum estimated future cash commitment under agreements with remaining commitment terms was as follows:

 	  	Non-Competition	
 	  	(In thousands)	
2007	  	$	100	
2008	  	 	4	
	  	 	 	
Total	  	$	104	

18

Leases
As of December 31, 2006, leases consisted of capital leases related to funeral home property and transportation equipment and operating leases related to other equipment. Prior to January 1, 2006, the leases on certain transportation equipment were classified as operating leases. Rent expense on operating leases was $0.2 million, $0.4 million, and $0.4 million for the years ended December 31, 2006, 2005, and 2004, respectively. As of December 31, 2006, future minimum lease payments for non-cancelable operating and capital leases exceeding one year are as follows:

 	  	Operating	  	Capital	 	
 	  	(In thousands)	 	
2007	  	$	282	  	$	335	 	
2008	  	 	285	  	 	302	 	
2009	  	 	289	  	 	277	 	
2010	  	 	293	  	 	234	 	
2011	  	 	291	  	 	199	 	
2012 and thereafter	  	 	970	  	 	508	 	
	  	 	 	  	 	 	 	
Total	  	$	2,410	  	 	1,855	 	
	  	 	 	  	 	 	 	
Less: Interest on capital leases	  			  	 	(462	)	
	  			  	 	 	 	
Total principal payable on capital leases	  			  	$	1,393	 	
	  			  	 	 	 	
Litigation
The Businesses are parties to various litigation matters, investigations, and proceedings in the ordinary course of business. Management of the Businesses does not expect the outcome of any proceedings, individually or in the aggregate, to have a materially adverse effect on the Businesses’ financial position, results of operations, or liquidity.
10. Supplementary Information
The detail of certain balance sheet accounts is as follows:

 	  	December 31,	 	
 	  	2006	 	 	2005	 	
 	  	(In thousands)	 	
Cemetery property:	  				 				
Undeveloped land	  	$	29,289	 	 	$	27,428	 	
Developed land, lawn crypts, and mausoleums	  	 	17,087	 	 	 	8,914	 	
	  	 	 	 	 	 	 	 	
	  	$	46,376	 	 	$	36,342	 	
	  	 	 	 	 	 	 	 	
Property and equipment:	  				 				
Land	  	$	6,979	 	 	$	790	 	
Buildings and improvements	  	 	18,210	 	 	 	6,546	 	
Operating equipment	  	 	6,058	 	 	 	2,610	 	
Leasehold improvements	  	 	452	 	 	 	376	 	
	  	 	 	 	 	 	 	 	
	  	 	31,699	 	 	 	10,322	 	
Less: accumulated depreciation	  	 	(6,381	)	 	 	(4,925	)	
	  	 	 	 	 	 	 	 	
	  	$	25,318	 	 	$	5,397	 	
	  	 	 	 	 	 	 	 	
Deferred charges and other assets:	  				 				
Preneed covenants-not-to-compete, net	  	$	2,096	 	 	$	1,999	 	
Preneed backlog intangible assets	  	 	2,783	 	 	 	—  	 	
Other	  	 	1,105	 	 	 	698	 	
	  	 	 	 	 	 	 	 	
	  	$	5,984	 	 	$	2,697	 	
	  	 	 	 	 	 	 	 	
Accounts payable and accrued liabilities:	  				 				
Accounts payable	  	$	1,577	 	 	$	862	 	
Accrued compensation	  	 	328	 	 	 	179	 	
Accrued interest	  	 	—  	 	 	 	31	 	
Self insurance	  	 	946	 	 	 	670	 	
Accrued trust expenses	  	 	1,065	 	 	 	544	 	
Other accrued liabilities	  	 	520	 	 	 	152	 	
	  	 	 	 	 	 	 	 	
	  	$	4,436	 	 	$	2,438	 	

19

Exhibit 99.3
PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
Financial statement for the period ended November 28, 2006 and the 52 weeks ended 2005 and 2006

Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Service Corporation International:
In our opinion, the accompanying combined balance sheets and the related combined statements of operations, owner’s (deficit) equity and cash flows present fairly, in all material respects, the financial position of Project Dignity 2007 Businesses (Alderwoods) (collectively, the “Businesses”) at November 28, 2006 and December 31, 2005, and the results of their operations and their cash flows for the period from January 1, 2006 to November 28, 2006, the fifty-two weeks ended December 31, 2005 and the fifty-two weeks ended January 1, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Businesses’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the combined financial statements, the Businesses have significant transactions and relationships with affiliated entities. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

Houston, Texas
December 4, 2007

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
COMBINED STATEMENT OF OPERATIONS

 	  	Period Ended
November 28,
2006	 	 	52 Weeks Ended
December 31,
2005	 	 	52 Weeks Ended
January 1,
2005	 	
 	  	(In thousands)	 	
Revenues	  	$	18,735	 	 	$	21,963	 	 	$	22,575	 	
Costs and expenses	  	 	(18,141	)	 	 	(20,723	)	 	 	(19,551	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Gross profits	  	 	594	 	 	 	1,240	 	 	 	3,024	 	
General and administrative expenses	  	 	(2,778	)	 	 	(3,001	)	 	 	(2,636	)	
(Losses) gains on dispositions of assets, net	  	 	—  	 	 	 	(3	)	 	 	1,114	 	
Goodwill impairment charges	  	 	—  	 	 	 	(4,564	)	 	 	(3,977	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Operating loss	  	 	(2,184	)	 	 	(6,328	)	 	 	(2,475	)	
Interest expense	  	 	(1,993	)	 	 	(1,824	)	 	 	(1,613	)	
Other income, net	  	 	—  	 	 	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Loss before income taxes	  	 	(4,177	)	 	 	(8,152	)	 	 	(4,088	)	
Benefit (provision) for income taxes	  	 	69	 	 	 	153	 	 	 	(40	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net loss	  	$	(4,108	)	 	$	(7,999	)	 	$	(4,128	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
(See notes to combined financial statements)

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
COMBINED BALANCE SHEET

 	  	November 28,
2006	 	 	December 31,
2005	
 	  	(In thousands)	
ASSETS	  				 			
Current assets:	  				 			
Cash	  	$	26	 	 	$	18	
Receivables, net	  	 	400	 	 	 	1,110	
Inventories	  	 	444	 	 	 	480	
Prepaid expenses	  	 	7	 	 	 	7	
	  	 	 	 	 	 	 	
Total current assets	  	 	877	 	 	 	1,615	
Preneed funeral receivables and trust investments	  	 	5,470	 	 	 	5,627	
Preneed cemetery receivables and trust investments	  	 	34,070	 	 	 	32,060	
Cemetery property, at cost	  	 	8,273	 	 	 	8,433	
Property and equipment, at cost, net	  	 	14,701	 	 	 	14,725	
Deferred charges and other assets	  	 	822	 	 	 	881	
Cemetery perpetual care trust investments	  	 	22,731	 	 	 	21,588	
	  	 	 	 	 	 	 	
	  	$	86,944	 	 	$	84,929	
	  	 	 	 	 	 	 	
LIABILITIES & OWNER’S (DEFICIT) EQUITY	  				 			
Current liabilities:	  				 			
Accounts payable and accrued liabilities	  	$	683	 	 	$	1,190	
Income taxes	  	 	104	 	 	 	155	
	  	 	 	 	 	 	 	
Total current liabilities	  	 	787	 	 	 	1,345	
Deferred preneed funeral revenues	  	 	1,814	 	 	 	1,972	
Deferred preneed cemetery revenues	  	 	6,662	 	 	 	7,034	
Other liabilities	  	 	1,192	 	 	 	978	
Advances due to Alderwoods and affiliates, net	  	 	23,987	 	 	 	19,908	
Non-controlling interest in funeral and cemetery trusts	  	 	33,615	 	 	 	31,632	
Non-controlling interest in perpetual care trusts	  	 	22,485	 	 	 	21,550	
Commitments and contingencies (Note 9)	  				 			
Owner’s (deficit) equity	  	 	(3,598	)	 	 	510	
	  	 	 	 	 	 	 	
	  	$	86,944	 	 	$	84,929	
	  	 	 	 	 	 	 	
(See notes to combined financial statements)
 
2

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
COMBINED STATEMENT OF CASH FLOWS

 	  	Period Ended
November 28,
2006	 	 	52 Weeks Ended
December 31,
2005	 	 	52 Weeks Ended
January 1,
2005	 	
 	  	(In thousands)	 	
Cash flows from operating activities:	  				 				 				
Net loss	  	$	(4,108	)	 	$	(7,999	)	 	$	(4,128	)	
Adjustments to reconcile net loss to net cash used in operating activities:	  				 				 				
Depreciation and amortization	  	 	950	 	 	 	1,016	 	 	 	963	 	
Amortization of cemetery property	  	 	335	 	 	 	375	 	 	 	21	 	
Provision (benefit) for doubtful accounts	  	 	536	 	 	 	(122	)	 	 	(86	)	
Losses (gains) on dispositions, net	  	 	—  	 	 	 	3	 	 	 	(1,114	)	
Goodwill impairment charge	  	 	—  	 	 	 	4,564	 	 	 	3,977	 	
Change in assets and liabilities, net of effects from acquisitions and dispositions:	  				 				 				
Decrease (increase) in receivables	  	 	461	 	 	 	397	 	 	 	(714	)	
Decrease (increase) in other assets	  	 	50	 	 	 	(4	)	 	 	15	 	
Decrease in payables and other liabilities	  	 	(777	)	 	 	(391	)	 	 	(525	)	
Net effect of preneed funeral production and deliveries:	  				 				 				
Decrease in preneed funeral receivables and trust investments	  	 	377	 	 	 	277	 	 	 	1,160	 	
Decrease in deferred preneed funeral revenue	  	 	(471	)	 	 	(140	)	 	 	(868	)	
Decrease in funeral non-controlling interest	  	 	(6	)	 	 	(69	)	 	 	(45	)	
Net effect of preneed cemetery production and maturities:	  				 				 				
(Increase) decrease in preneed cemetery receivables and trust investments	  	 	(503	)	 	 	255	 	 	 	617	 	
Increase (decrease) in deferred preneed cemetery revenue	  	 	478	 	 	 	(243	)	 	 	1,407	 	
(Decrease) increase in cemetery non-controlling interest	  	 	(303	)	 	 	267	 	 	 	(2,199	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in operating activities	  	 	(2,981	)	 	 	(1,814	)	 	 	(1,519	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from investing activities:	  				 				 				
Capital expenditures	  	 	(938	)	 	 	(1,300	)	 	 	(1,064	)	
Proceeds from divestitures and sales of property and equipment	  	 	4	 	 	 	9	 	 	 	1,135	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net cash (used in) provided by investing activities	  	 	(934	)	 	 	(1,291	)	 	 	71	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash flows from financing activities:	  				 				 				
Changes in advances due to Alderwoods and affiliates, net	  	 	3,923	 	 	 	3,110	 	 	 	1,410	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by financing activities from continuing operations	  	 	3,923	 	 	 	3,110	 	 	 	1,410	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net increase (decrease) in cash	  	 	8	 	 	 	5	 	 	 	(38	)	
Cash at beginning of period	  	 	18	 	 	 	13	 	 	 	51	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Cash at end of period	  	$	26	 	 	$	18	 	 	$	13	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
(See notes to combined financial statements)
 
3

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
COMBINED STATEMENT OF OWNER’S (DEFICIT) EQUITY

 	  	Owner’s
(Deficit)
Equity	 	
 	  	(In thousands)	 	
Balance at January 3, 2004	  	$	12,637	 	
Net loss	  	 	(4,128	)	
	  	 	 	 	
Balance at January 1, 2005	  	$	8,509	 	
	  	 	 	 	
Net loss	  	 	(7,999	)	
	  	 	 	 	
Balance at December 31, 2005	  	$	510	 	
	  	 	 	 	
Net loss	  	 	(4,108	)	
	  	 	 	 	
Balance at November 28, 2006	  	$	(3,598	)	
	  	 	 	 	
(See notes to combined financial statements)
 
4

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
The accompanying financial statements present the combined financial position, results of operations, changes in owner’s (deficit) equity, and cash flows of certain businesses of Alderwoods Group Inc. (“Parent” or “Alderwoods”). These financial statements include the accounts of 21 funeral homes and 30 cemeteries (collectively, the “Businesses”) being purchased by StoneMor Operating LLC (“StoneMor”) as outlined in a Letter of Intent dated June 6, 2007 and referred to as Project Dignity 2007.
On November 28, 2006, Alderwoods was acquired by Service Corporation International (“SCI”). Accordingly, the combined financial statements of the Businesses contained herein reflect the financial position at November 28, 2006 and December 31, 2005 for funeral homes and cemeteries wholly-owned by Alderwoods on those dates, and the results of operations, changes in owner’s (deficit) equity, and cash flows for the period ended November 28, 2006, the 52 weeks ended December 31, 2005 and the 52 weeks ended January 1, 2005.
The Businesses’ funeral service and cemetery operations consist of funeral service locations, cemeteries, crematoria, and related businesses. Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles and preparation and embalming services. Funeral-related merchandise, including caskets, burial vaults, cremation receptacles, flowers, and other ancillary products and services, is sold at funeral service locations. Cemeteries provide cemetery property interment rights, including mausoleum spaces, lots, and lawn crypts, and sell cemetery-related merchandise and services, including stone and bronze memorials, markers, casket and cremation memorialization products, merchandise installations, and burial openings and closings. The Businesses also sell preneed funeral and cemetery products and services whereby a customer contractually agrees to the terms of certain products and services to be provided in the future.
All significant inter-entity balances and transactions between the Businesses have been eliminated in the combined financial statements.
The preparation of these financial statements include the use of “carve out” accounting procedures wherein certain assets, liabilities and expenses historically recorded or incurred by Alderwoods at the Parent level, which relate to or were incurred on behalf of the Businesses, have been identified and allocated as appropriate to properly reflect the stand-alone financial results of the Businesses, in accordance with accounting principles generally accepted in the United States of America. In this context, no direct owner relationship existed among the various locations comprising the Businesses as described above. Accordingly, Alderwoods’ net investment in the Businesses is shown as Owner’s Equity (Deficit) in these Combined Financial Statements.
In the ordinary course of business, Alderwoods provided various services to the Businesses, including accounting, treasury, tax, legal, human resources, public affairs, the use of centralized facilities and assets owned by Alderwoods, and executive oversight. The costs of performing these services have been allocated to these Businesses based on the Businesses’ total revenue as a percent of Alderwoods’ total revenue. Both Alderwoods and the Businesses consider these cost allocations to be reasonable reflections of the cost of services provided. Charges for these services recorded as General and administrative expenses totaled $2.8 million, $3.0 million, and $2.6 million for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively. Additionally, included in Interest expense is $2.0 million, $1.8 million, and $1.6 million of interest costs on the intercompany advances due to Alderwoods for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively. The interest expense is charged to the Business from Alderwoods at a rate of 11% of the average balances in Advances due to Alderwoods and affiliates, net . On a proforma basis at a current market rate of 7.8%, interest expense would have been approximately $1.4 million in 2006. No debt or associated interest expense has been allocated to the Businesses from the Parent.
Throughout the periods covered by the combined financial statements, Alderwoods provided cash management services to the Businesses through centralized treasury systems such that cash was either advanced or drawn from Alderwoods with a corresponding decrease or increase to Advances due to Alderwoods and affiliates, net . As a result, all charges and cost allocations to the Businesses covered by such centralized treasury systems were deemed to have been paid by the Businesses to Alderwoods, in cash, during the period in which the related costs were recorded in the combined financial statements. Increases or decreases in Advances due to Alderwoods and affiliates, net are classified as financing activities in the combined statement of cash flows.
 
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All of the allocations and estimates in these Combined Financial Statements are based on assumptions that management believes are reasonable under the circumstances. However, these allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted had the Businesses been operated as a stand-alone, independent entity.
Use of Estimates in the Preparation of Financial Statements
The preparation of the combined financial statements in conformity with accounting principles generally accepted in the United States of America 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 combined financial statements and the reported amounts of expenses during the reporting period. As a result, actual results could differ from these estimates.
Fiscal year
The period ended November 28, 2006 reflects the period from January 1, 2006 to November 28, 2006, the date on which SCI purchased Alderwoods, including the Project Dignity 2007 Businesses.
The fiscal year for Alderwoods, including the Project Dignity 2007 Businesses, ended on the Saturday nearest to December 31 in each fiscal year (whether before or after such date). This resulted in fiscal 2005 being the 52 weeks ended December 31, 2005 and fiscal 2004 being the 52 weeks ended January 1, 2005.
Cemetery Operations
Revenue associated with sales of cemetery merchandise and services is recognized when the service is performed or merchandise is delivered. The Businesses’ cemetery trade receivables consist of amounts due for services already performed and merchandise already delivered. An allowance for doubtful accounts has been provided based on historical experience. Revenue associated with sales of preneed cemetery interment rights is recognized in accordance with the retail land sales provisions of Statement of Financial Accounting Standards (“SFAS No. 66”), “Accounting for the Sales of Real Estate” (SFAS 66). Under SFAS 66, revenue from constructed cemetery property is not recognized until 10% of the sales price has been collected. Revenue related to the preneed sale of unconstructed cemetery property is deferred until it is constructed and 10% of the sales price is collected. Revenue associated with sales of preneed merchandise and services is not recognized until the merchandise is delivered or the services are performed. Allowances for customer cancellations for preneed cemetery contracts are based upon historical experience. Sales taxes collected are recognized on a net basis.
Pursuant to state law, all or a portion of the proceeds from cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds. The Businesses defer investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed. The Businesses recognize unrealized gains and losses on their trust funds’ investments, which are completely offset by the portion of the unrealized gains and losses attributable to non-controlling interest in the trusts, in Other comprehensive income . Realized gains and losses on disposition of trust investments and trust expenses and the offsetting interest expense related to the non-controlling interest in the trusts are recorded in Other income, net.
A portion of the proceeds from the sale of cemetery property interment rights is required by state law to be paid into perpetual care trust funds. Investment earnings from these trusts are distributed to the Businesses regularly, are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs, which are expensed as incurred. The principal amount of such perpetual care trust funds generally cannot be withdrawn.
Costs related to the sale of property interment rights include the property and construction costs specifically identified by project. Upon the completion of the project, construction costs are charged to expense in the same period revenue is recognized. Costs related to sales of merchandise and services are charged to expense when merchandise is delivered and when services are performed. See Note 4 to the combined financial statements regarding preneed cemetery activities.
 
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Funeral Operations
Revenue is recognized when the funeral services are performed and funeral merchandise is delivered. The Businesses trade receivables consist of amounts due for services already performed and merchandise delivered. An allowance for doubtful accounts is provided based on historical experience. The Businesses sell price guaranteed preneed funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Revenues associated with sales of preneed funeral contracts are deferred until such time that the funeral services are performed. Allowances for customer cancellations are based upon historical experience. Sales taxes collected are recognized on a net basis.
Pursuant to state law, all or a portion of the proceeds from funeral merchandise or services sold on a preneed basis may be required to be paid into trust funds. The Businesses defer investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed. The Businesses recognize unrealized gains and losses on their trust funds’ investments, which are completely offset by the portion of the unrealized gains and losses attributable to non-controlling interest in the trusts, in Other comprehensive income . Realized gains and losses on disposition of trust investments and trust expenses and the offsetting interest expense related to the non-controlling interest in the trusts are recorded in Other income, net. Costs related to sales of merchandise and services are charged to expense when merchandise is delivered and services performed. See Note 3 to the combined financial statements regarding preneed funeral activities.
Accounts Receivables and Allowance for Doubtful Accounts
The Businesses’ trade receivables primarily consist of amounts due for funeral services already performed. The Businesses provide various allowances and/or cancellation reserves for their funeral and cemetery preneed and atneed receivables as well as for their preneed funeral and preneed cemetery deferred revenues. These allowances are based on an analysis of historical trends and include, where applicable, collection and cancellation activity. These estimates are impacted by a number of factors, including changes in economy, relocation, and demographic or competitive changes in the Businesses areas of operation.
Inventories and Cemetery Property
Funeral and cemetery merchandise are carried at the lower of cost, determined primarily on a specific identification basis or a first-in first-out basis, and net realizable value.
Cemetery property, including capitalized interest, consists of developed plots, lawn crypts, mausoleums or niches and undeveloped land, and is valued at average cost. Capitalized costs are expensed at the time revenue from sales of cemetery property is recognized.
Property and Equipment, Net
Property and equipment are recorded at cost. Maintenance and repairs are charged to expense whereas renewals and major replacements that extend the assets useful lives are capitalized. Depreciation is recognized ratably over the estimated useful lives of the various classes of assets. Buildings and improvements are depreciated typically over twenty years, automobiles are depreciated over a period from two to five years, equipment is depreciated over a period from three to ten years and leasehold improvements are depreciated over the shorter of the lease term or ten years. Depreciation expense related to property and equipment was $0.9 million for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively. When property is sold or retired, the cost and related accumulated depreciation are removed from the combined balance sheet; resulting gains and losses are included in the combined statement of operations in the period of sale or disposal.
Impairment or Disposal of Long-Lived Assets
The Businesses review their long-lived assets for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 requires that long-lived assets to be held and used are reported at the lower of their carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential are recorded at the lower of their carrying amount or fair value less estimated cost to sell.
Leases
The Businesses have lease arrangements primarily related to funeral service locations and transportation equipment. Lease terms related to funeral home properties generally range from one to 10 years with options to renew at varying terms. Lease terms related to
 
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transportation equipment generally range from one to five years with options to renew at varying terms. The Businesses calculate operating lease expense ratably over the lease term. The Businesses consider reasonably assured renewal options and fixed escalation provisions in their calculation of operating lease expense. For more information related to leases, see Note 9 to these combined financial statements.
Goodwill
The Businesses test for impairment of goodwill using a two-step approach as prescribed in SFAS 142, “ Goodwill and Other Intangible Assets ”. The first step of the goodwill impairment test compares the fair value of the Businesses to their carrying amount, including goodwill. The Businesses do not record an impairment of goodwill in instances where the fair value exceeds its carrying amount. If fair value is less than the carrying amount, the Businesses compare the implied fair value of goodwill (as defined in SFAS 142) to the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The fair market value of the Businesses is determined using a discounted cash flow methodology with a discount rate comparable with other enterprises in the death care industry, adjusted for risks associated with differences in company size, certain characteristics specific to the Businesses and cash flow projection risk.
Income Taxes
Income taxes are computed using the liability method. Deferred taxes are provided on all temporary differences between the financial bases and the tax bases of assets and liabilities. The Businesses record a valuation allowance to reduce their deferred tax assets when uncertainty regarding their realization exists. Income taxes have been calculated as if the Businesses filed a separate return for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively. For more information related to income taxes, see Note 8 to the combined financial statements.
2. Recent Accounting Pronouncements and Accounting Changes
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective January 1, 2008 for the Businesses. The Businesses are currently evaluating the impact of adopting SFAS 157 on their combined financial statements. 
In July 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (FIN 48) was issued, which clarifies the accounting for uncertain income tax positions recognized in an enterprise’s financial statements in accordance with SFAS 109. This interpretation requires companies to use a prescribed model for assessing the financial statement recognition and measurement of all tax positions taken or expected to be taken in its tax returns. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for the Businesses on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to owner’s (deficit) equity.
3. Preneed Funeral Activities
Preneed Funeral Receivables and Trust Investments
Preneed funeral receivables and trust investments , net of allowance for cancellation, represent trust investments, including investment earnings, amounts receivable from funeral trusts and customer receivables related to unperformed, price-guaranteed preneed funeral contracts. When the Businesses, as the primary beneficiary, receive payments from the customer, the Businesses deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed funeral revenues into Non-controlling interest in funeral and cemetery trusts. Amounts are withdrawn from the trusts after the contract is performed. The Businesses deposited $0.2 million into and withdrew $0.3 million, $0.4 million, and $0.4 million from trusts during the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively. Cash flows from preneed funeral contracts are presented as operating cash flows in the combined statement of cash flows.
 
8

The components of Preneed funeral receivables and trust investments in the combined balance sheet at November 28, 2006 and December 31, 2005 are as follows:

 	  	November 28,
2006	 	 	December 31,
2005	 	
 	  	(In thousands)	 	
Trust investments, at market	  	$	4,493	 	 	$	4,538	 	
Amounts receivable from funeral trusts	  	 	448	 	 	 	525	 	
Receivables from customers	  	 	615	 	 	 	657	 	
	  	 	 	 	 	 	 	 	
	  	 	5,556	 	 	 	5,720	 	
Allowance for cancellation	  	 	(86	)	 	 	(93	)	
	  	 	 	 	 	 	 	 	
Preneed funeral receivables and trust investments	  	$	5,470	 	 	$	5,627	 	
	  	 	 	 	 	 	 	 	
An allowance for contract cancellation is estimated based on historical experience. Upon cancellation of a trust funded preneed funeral contract, a customer is generally entitled to receive a refund of the funds held in trust. In many jurisdictions, the Businesses may be obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust including investment returns. Therefore, when realized or unrealized losses of a trust result in preneed funeral contracts being insufficient to meet contingent customer withdrawals, the Businesses assess such contracts to determine whether a loss provision should be recorded. No such loss provisions were required to be recognized as of November 28, 2006 or December 31, 2005.
Preneed funeral receivables and trust investments are reduced by the trust investment earnings (realized and unrealized) that the Businesses have been allowed to withdraw in certain states prior to maturity. These earnings are recorded in Deferred preneed funeral revenues until the service is performed or the merchandise is delivered.
The cost and market values associated with funeral trust investments at November 28, 2006 and December 31, 2005 are detailed below and represent those of funeral trusts of the Businesses and to the extent necessary, the Businesses’ portion of any trusts participated in jointly with other Alderwoods locations. The portion of such joint trust assets is included based on the gross fair market value of the Businesses’ portion of assets compared to the total trust fair market value. Cost reflects the investment (net of redemptions) of contract holders in fixed income securities, common investment funds and mutual funds. Fair market value represents the value of the underlying securities or cash held by the common investment funds and mutual funds at published values. The fair market value of funeral trust investments was based primarily on quoted market prices at November 28, 2006 and December 31, 2005. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” . As a result of the Businesses’ most recent reviews of their trust investments at November 28, 2006 and December 31, 2005, no adjustment to cost for the unrealized losses was required. See Note 6 to the combined financial statements for further information related to non-controlling interest in funeral trust investments.

 	  	November 28, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	560	  	$	0	  	$	0	 	 	$	560	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	1,665	  	 	4	  	 	(14	)	 	 	1,655	 	
Equity	  	 	1,415	  	 	217	  	 	0	 	 	 	1,632	 	
Other	  	 	646	  	 	0	  	 	0	 	 	 	646	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	4,286	  	$	221	  	$	(14	)	 	$	4,493	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	105	%	

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 	  	December 31, 2005	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	467	  	$	0	  	$	0	 	 	$	467	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	2,427	  	 	1	  	 	(61	)	 	 	2,367	 	
Equity	  	 	922	  	 	48	  	 	0	 	 	 	970	 	
Other	  	 	732	  	 	2	  	 	0	 	 	 	734	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	 	4,548	  	 	51	  	 	(61	)	 	$	4,538	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	100	%	
	  			  			  				 	 	 	 	
Maturities of fixed income securities at November 28, 2006 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	17	
Due in one to five years	  	 	622	
Due in five to ten years	  	 	323	
Thereafter	  	 	693	
	  	 	 	
	  	$	1,655	
	  	 	 	
The Businesses have determined that unrealized losses in the funeral trust investments at both November 28, 2006 and December 31, 2005 are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The Businesses believe that none of the securities are other than temporarily impaired based on an analysis of the investments as well as their discussions with trustees, money managers and consultants. The Businesses’ funeral trust investment unrealized losses, their durations and the fair market value as of November 28, 2006, are shown in the following table.

 	  	Less Than 12 Months	  	Greater Than 12 Months	 	 	Total	 	
 	  	Fair Market
Value	  	Unrealized
Losses	  	Fair Market
Value	  	Unrealized
Losses	 	 	Fair Market
Value	  	Unrealized
Losses	 	
 	  	(In thousands)	 	
The Businesses investment funds:	  			  			  			  				 			  				
Fixed income	  	$	0	  	$	0	  	$	1,324	  	$	(14	)	 	$	1,324	  	$	(14	)	
	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	  	 	 	 	
Total temporarily impaired securities	  	$	0	  	$	0	  	$	1,324	  	$	(14	)	 	$	1,324	  	$	(14	)	
	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	  	 	 	 	
Earnings from all trust investments are recognized in current funeral revenues when the service is performed, merchandise is delivered, or upon cancellation of the amount we are entitled to retain. Recognized earnings (realized) related to these trust investments were $100 thousand, $58 thousand, and $187 thousand for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively.
Deferred Preneed Funeral Revenues
At November 28, 2006 and December 31, 2005, Deferred preneed funeral revenues , net of allowance for cancellation, represent future funeral service revenues, including distributed trust investment earnings associated with unperformed trust funded preneed funeral contracts that are not held in trust accounts. Deferred preneed funeral revenues are recognized in current funeral revenues when the service is performed or merchandise is delivered. Future funeral service revenues and net trust investment earnings that are held in trust accounts are included in Non-controlling interest in funeral and cemetery trusts.
 
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4. Preneed Cemetery Activities
Preneed Cemetery Receivables and Trust Investments
Preneed cemetery receivables and trust investments , net of allowance for cancellation, represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, for contracts sold in advance of when the property interment rights, merchandise or services are needed. When the Businesses, as the primary beneficiary, receive payments from the customer, the Businesses deposit the amount required by law into the trust, remove the corresponding amount from Deferred preneed cemetery revenues , and record the amount into Non-controlling interest in funeral and cemetery trusts. Amounts are withdrawn from the trusts when the contract is performed. The Businesses deposited $1.8 million, $1.6 million, and $2.7 million into and withdrew $1.8 million, $2.3 million, and $1.7 million from the trusts during the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively. Cash flows from preneed cemetery contracts are presented as operating cash flows in the consolidated statement of cash flows.
The components of Preneed cemetery receivables and trust investments in the combined balance sheet at November 28, 2006 and December 31, 2005 are as follows:

 	  	November 28,
2006	 	 	December 31,
2005	 	
 	  	(In thousands)	 	
Trust investments, at market	  	$	32,496	 	 	$	30,138	 	
Receivables from customers	  	 	3,059	 	 	 	3,203	 	
Unearned finance charges	  	 	(314	)	 	 	(319	)	
	  	 	 	 	 	 	 	 	
	  	 	35,241	 	 	 	33,022	 	
Allowance for cancellation	  	 	(1,171	)	 	 	(962	)	
	  	 	 	 	 	 	 	 	
Preneed cemetery receivables and trust investments	  	$	34,070	 	 	$	32,060	 	
	  	 	 	 	 	 	 	 	
The cost and market values associated with the cemetery merchandise and service trust investments at November 28, 2006 and December 31, 2005 are detailed below and represent those of cemetery trusts of the Businesses and to the extent necessary, the Businesses’ portion of any trusts participated in jointly with other Alderwoods locations. The portion of such joint trust assets included is based on the gross fair market value of the Businesses’ portion of assets compared to the total trust. Cost reflects the investment (net of redemptions) of contract holders in common trust funds, mutual funds and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values. The fair market value of cemetery trust investments was based primarily on quoted market prices at November 28, 2006 and December 31, 2005. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” . As a result of the Businesses’ most recent reviews of their investments at November 28, 2006 and December 31, 2005, no adjustment for the unrealized losses was required. See Note 6 to the combined financial statements for further information related to non-controlling interest in cemetery trust investments.

 	  	November 28, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	1,385	  	$	0	  	$	0	 	 	$	1,385	 	
Fixed income securities	  	 	193	  	 	3	  	 	0	 	 	 	196	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	14,940	  	 	45	  	 	(94	)	 	 	14,891	 	
Equity	  	 	13,283	  	 	2,741	  	 	0	 	 	 	16,024	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	29,801	  	$	2,789	  	$	(94	)	 	$	32,496	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	109	%	

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 	  	December 31, 2005	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	1,295	  	$	0	  	$	0	 	 	$	1,295	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	13,869	  	 	57	  	 	(277	)	 	 	13,649	 	
Equity	  	 	14,153	  	 	1,041	  	 	0	 	 	 	15,194	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	29,317	  	$	1,098	  	$	(277	)	 	$	30,138	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	103	%	
	  			  			  				 	 	 	 	
Maturities of fixed income securities at November 28, 2006 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	4	
Due in one to five years	  	 	90	
Due in five to ten years	  	 	83	
Thereafter	  	 	19	
	  	 	 	
	  	$	196	
	  	 	 	
The Businesses have determined that unrealized losses in the cemetery trust investments are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The Businesses believe that none of the securities are other than temporarily impaired based on an analysis of the investments as well as discussions with trustees, money managers, and consultants. The Businesses’ cemetery trust investment unrealized losses, their durations, and their fair market value as of November 28, 2006, are shown in the following table.

 	  	Less Than 12 Months	  	Greater Than 12 Months	 	 	Total	 	
 	  	Fair Market
Value	  	Unrealized
Losses	  	Fair Market
Value	  	Unrealized
Losses	 	 	Fair Market
Value	  	Unrealized
Losses	 	
 	  	(In thousands)	 	
Common investment funds:	  			  			  			  				 			  				
Fixed income	  	$	0	  	$	0	  	$	10,746	  	$	(94	)	 	$	10,746	  	$	(94	)	
	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	  	 	 	 	
Total temporarily impaired securities	  	$	0	  	$	0	  	$	10,746	  	$	(94	)	 	$	10,746	  	$	(94	)	
	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	  	 	 	 	
Earnings from all trust investments are recognized in current cemetery revenues when the service is performed or the merchandise is delivered or upon cancellation of the amount we are entitled to retain. Recognized earnings (realized) related to these trust investments were $91 thousand, $52 thousand, and $13 thousand for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively.
Deferred Preneed Cemetery Revenues
At November 28, 2006 and December 31, 2005, Deferred preneed cemetery revenues , net of allowance for cancellation, represent future cemetery revenues, including distributed trust investment earnings associated with unperformed trust funded preneed cemetery contracts that are not held in trust accounts. Deferred preneed cemetery revenues are recognized in current cemetery revenues when the service is performed or merchandise delivered. Future cemetery revenues and net trust investment earnings that are held in trust accounts are included in Non-controlling interest in funeral and cemetery trusts.
5. Cemetery Perpetual Care Trusts
The Businesses are required by state law to pay into perpetual care trusts a portion of the proceeds from the sale of cemetery property interment rights. As the primary beneficiary of the trusts, the Businesses consolidate the perpetual care trust investments with a corresponding amount recorded as Non-controlling interest in perpetual care trusts. The Businesses deposited $1.0 million, $0.5 million, and $0.5 million into trusts and withdrew $0.7 million, $0.9 million, and $0.7 million from trusts during the period ended December 31, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively. Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the consolidated statement of cash flows.
 
12

The cost and market values associated with trust investments held in perpetual care trusts at November 28, 2006 and December 31, 2005 are detailed below and represent those of cemetery trusts of the Businesses and to the extent necessary, the Businesses’ portion of any trusts participated in jointly with other Alderwoods locations. The portion of such joint trust assets included is based on the gross fair market value of the Businesses’ portion of assets compared to the total trust. Cost reflects the investment (net of redemptions) of contract holders in common investment funds, mutual funds and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds and mutual funds at published. The fair market value of perpetual care trusts was based primarily on quoted market prices at November 28, 2006 and December 31, 2005. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “ Accounting for Certain Investments in Debt and Equity Securities ”. As a result of the Businesses’ most recent reviews of the investments at November 28, 2006 and December 31, 2005, no adjustment for the unrealized losses was required. See Note 6 to the combined financial statements for further information related to non-controlling interest in perpetual care trust investments.

 	  	November 28, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	1,182	  	$	0	  	$	0	 	 	$	1,182	 	
Fixed income securities	  	 	2,814	  	 	8	  	 	0	 	 	 	2,822	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	14,404	  	 	62	  	 	(65	)	 	 	14,401	 	
Equity	  	 	3,430	  	 	863	  	 	0	 	 	 	4,293	 	
Other	  	 	19	  	 	14	  	 	0	 	 	 	33	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Perpetual care trust investments	  	$	21,849	  	$	947	  	$	(65	)	 	$	22,731	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	104	%	

 	  	December 31, 2005	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	1,229	  	$	0	  	$	0	 	 	$	1,229	 	
Fixed income securities	  	 	3,206	  	 	0	  	 	(46	)	 	 	3,160	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	13,646	  	 	11	  	 	(263	)	 	 	13,394	 	
Equity	  	 	3,301	  	 	445	  	 	0	 	 	 	3,746	 	
Other	  	 	59	  	 	0	  	 	0	 	 	 	59	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Perpetual care trust investments	  	$	21,441	  	$	456	  	$	(309	)	 	$	21,588	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	101	%	
	  			  			  				 	 	 	 	
The Businesses have determined that unrealized losses in the perpetual care trust investments are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The Businesses believe that none of the securities are other than temporarily impaired based on an analysis of the investments as well as discussions with trustees, money managers, and consultants. The Businesses’ perpetual care trust investment unrealized losses, their durations, and fair market values as of November 28, 2006, are shown in the following table.

 	  	Less Than 12 Months	 	 	Greater Than 12 Months	 	 	Total	 	
 	  	Fair Market
Value	  	Unrealized
Losses	 	 	Fair Market
Value	  	Unrealized
Losses	 	 	Fair Market
Value	  	Unrealized
Losses	 	
 	  	(In thousands)	 	
The Businesses investment funds:	  			  				 			  				 			  				
Fixed income	  	$	201	  	$	(1	)	 	$	10,711	  	$	(64	)	 	$	10,912	  	$	(65	)	
	  	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
Total temporarily impaired securities	  	$	201	  	$	(1	)	 	$	10,711	  	$	(64	)	 	$	10,912	  	$	(65	)	

13

Maturities of fixed income securities at November 28, 2006 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	0	
Due in one to five years	  	 	539	
Due in five to ten years	  	 	419	
Thereafter	  	 	1,864	
	  	 	 	
	  	$	2,822	
	  	 	 	
Distributable earnings from these perpetual care trust investments are recognized in current cemetery revenues to the extent of qualifying cemetery maintenance costs. Recognized earnings related to these perpetual care trust investments were $0.9 million, $0.8 million, and $0.7 million for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively.
6. Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
Non-Controlling Interest in Funeral and Cemetery Trusts
The Businesses consolidate in their balance sheet the merchandise and service trusts associated with their preneed funeral and cemetery activities as a result of the implementation of FIN 46R. Although FIN 46R requires the consolidation of the merchandise and service trusts, it does not change the legal relationships among the trusts, the Businesses or their customers. The customers are the legal beneficiaries of these merchandise and service trusts, and therefore, their interests in these trusts represent a non-controlling interest in subsidiaries.
Non-Controlling Interest in Perpetual Care Trusts
The Non-controlling interest in perpetual care trusts reflected in the consolidated balance sheet represents the cemetery perpetual care trusts, net of the accrued expenses and other long-term liabilities of the perpetual care trusts.
The components of Non-controlling interest in funeral and cemetery trusts and Non-controlling interest in perpetual care trusts in the combined balance sheet at November 28, 2006 and December 31, 2005 are detailed below.

 	  	November 28, 2006	 	 	November 28, 2006	 	
 	  	Preneed
Funeral	 	 	Preneed
Cemetery	 	 	Total	 	 	Cemetery
Perpetual Care	 	
 	  	(In thousands)	 	
Trust investments, at market value	  	$	4,434	 	 	$	32,629	 	 	 	37,063	 	 	$	22,730	 	
Less: Deferred taxes	  	 	(25	)	 	 	(343	)	 	 	(368	)	 	 	(245	)	
Less: Receivables from trusts	  	 	(342	)	 	 	(2,738	)	 	 	(3,080	)	 	 	0	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	  	$	4,067	 	 	$	29,548	 	 	$	33,615	 	 	$	22,485	 	

																	
 	  	December 31, 2005	 	 	December 31, 2005	 	
 	  	Preneed
Funeral	 	 	Preneed
Cemetery	 	 	Total	 	 	Cemetery
Perpetual Care	 	
 	  	(In thousands)	 	
Trust investments, at market value	  	$	4,533	 	 	$	30,120	 	 	$	34,653	 	 	$	21,588	 	
Less: Deferred taxes	  	 	1	 	 	 	(107	)	 	 	(106	)	 	 	(38	)	
Less: Receivables from trusts	  	 	(342	)	 	 	(2,573	)	 	 	(2,915	)	 	 	0	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	  	$	4,192	 	 	$	27,440	 	 	$	31,632	 	 	$	21,550	 	

14

7. Goodwill
The changes in the carrying amounts of goodwill for the Businesses are as follows (in thousands):

Balance as of January 3, 2004	  	$	8,541	 	
Reduction of goodwill related to impairment	  	 	(3,977	)	
	  	 	 	 	
Balance as of January 1, 2005	  	$	4,564	 	
Reduction of goodwill related to impairment	  	 	(4,564	)	
	  	 	 	 	
Balance as of December 31, 2005	  	 	0	 	
	  	 	 	 	
Balance as of November 28, 2006	  	$	0	 	
	  	 	 	 	
Based on the impairment tests performed, the Businesses recorded a $4.0 million impairment for the 52 weeks ended December 1, 2005, and a $4.6 million impairment for the 52 weeks ended December 31, 2005, resulting in no goodwill remaining at December 31, 2005. The goodwill impairments in 2004 and 2005 are primarily the result of declining revenues in the funeral operations of the Businesses.
8. Income Taxes
The provision or benefit for income taxes includes U.S. federal, state and local income taxes, and Puerto Rican income taxes determined as if the Businesses constituted ‘stand alone’ tax payers. Certain amounts historically recorded at levels above the Businesses were allocated to properly reflect income taxes on a separate return basis.
Income tax (benefit) provision consisted of the following:

 	  	Period Ended
November 28,
2006	 	 	52 Weeks
Ended
December 31,
2005	 	 	52 Weeks
Ended
January 1,
2005	 	
 	  	(In thousands)	 	
Current:	  				 				 				
United States	  	$	(173	)	 	$	(308	)	 	$	(170	)	
State and local	  	 	104	 	 	 	155	 	 	 	210	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	(69	)	 	$	(153	)	 	$	40	 	
Deferred:	  				 				 				
United States	  	$	0	 	 	$	0	 	 	$	0	 	
State and local	  	 	0	 	 	 	0	 	 	 	0	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	0	 	 	$	0	 	 	$	0	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
	  	$	(69	)	 	$	(153	)	 	$	40	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
The Businesses made income tax payments of approximately $0.1 million and $0.2 million for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005.
The differences between the U.S. federal statutory income tax rate and the Businesses’ effective tax rate were as follows:

 	  	Period Ended
November 28,
2006	 	 	52 Weeks
Ended
December 31,
2005	 	 	52 Weeks
Ended
January 1,
2005	 	
 	  	(In thousands)	 	
Computed tax benefit at the applicable federal statutory income tax rate	  	$	(1,420	)	 	$	(2,772	)	 	$	(1,390	)	
State and local taxes, net of federal income tax benefits	  	 	68	 	 	 	102	 	 	 	139	 	
Puerto Rico tax rate difference	  	 	(27	)	 	 	(18	)	 	 	(18	)	
Write-down of assets with no tax benefit	  	 	—  	 	 	 	1,552	 	 	 	1,352	 	
Release of reserves due to statute expiration	  	 	(173	)	 	 	(308	)	 	 	(170	)	
Other	  	 	(211	)	 	 	11	 	 	 	10	 	
Valuation allowance	  	 	1,694	 	 	 	1,280	 	 	 	117	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
(Benefit) provision for income taxes	  	$	(69	)	 	$	(153	)	 	$	40	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total effective tax rate	  	 	1.7	%	 	 	1.9	%	 	 	1.0	%	

15

Deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted marginal tax rates. The tax effects of temporary differences and carry-forwards that give rise to significant portions of deferred tax assets and liabilities as of November 28, 2006 and December 31, 2005 consisted of the following:

 	  	November 28,
2006	 	 	December 31,
2005	 	
 	  	(In thousands)	 	
Property and equipment	  	$	222	 	 	$	264	 	
Customer receivables, trust receivables and trust investments for preneed funeral and cemetery contracts	  	 	9,044	 	 	 	7,989	 	
Other	  	 	798	 	 	 	438	 	
	  	 	 	 	 	 	 	 	
Deferred tax liabilities	  	$	10,064	 	 	$	8,691	 	

Deferred revenue on preneed funeral and cemetery contracts	  	$	(8,412	)	 	$	(7,523	)	
Cemetery property	  	 	(7,623	)	 	 	(7,676	)	
Receivables	  	 	(120	)	 	 	(114	)	
Goodwill and covenants not to compete	  	 	(365	)	 	 	(440	)	
Federal and state net operating losses	  	 	(5,171	)	 	 	(2,932	)	
Other	  	 	(18	)	 	 	(54	)	
	  	 	 	 	 	 	 	 	
Deferred tax assets	  	$	(21,709	)	 	$	(18,739	)	
	  	 	 	 	 	 	 	 	
Valuation allowance	  	 	11,645	 	 	 	10,048	 	
	  	 	 	 	 	 	 	 	
Net deferred income taxes	  	$	0	 	 	$	0	 	
	  	 	 	 	 	 	 	 	
The Businesses believe that there will not be sufficient taxable income to realize the net deferred tax assets and have recorded a valuation allowance to the extent the deferred tax assets exceed the deferred tax liabilities. It is possible that the estimated valuation allowance could change in the near term due to matters such as the timing and manner of reversals of deferred tax liabilities and future actual income or loss. If this occurs, any resulting decrease reflecting realization of the benefits of the tax assets that had a corresponding valuation allowance established as a result of “fresh start accounting” in connection with the Businesses emergence from bankruptcy in 2002 would be treated as a reduction of goodwill established on the “fresh start date”. Any excess over the value assigned to such goodwill would be recognized as a capital transaction.
As of November 28, 2006, the Businesses have stand-alone loss carryforwards in various jurisdictions of approximately $39.0 million with expiration dates through 2026. Management believes that uncertainty exists with respect to future realization of the loss carryforwards and a full valuation allowance has been established.
9. Commitments and Contingencies
Leases
As of November 28, 2006, leases consisted of operating leases related to funeral home property, transportation equipment and other equipment. Rent expense on operating leases was $0.4 million, $0.4 million, and $0.3 million for the period ended November 28, 2006 and the 52 weeks ended December 31, 2005 and January 1, 2005, respectively. As of November 28, 2006, future minimum lease payments for non-cancelable operating leases exceeding one year are as follows (in thousands):

 	  	Operating	
2007	  	$	592	
2008	  	$	466	
2009	  	$	263	
2010	  	$	162	
2011	  	$	94	
2012 and thereafter	  	$	392	
	  	 	 	
Total	  	$	1,969	

16

Litigation
The Businesses are parties to various litigation matters, investigations, and proceedings in the ordinary course of business. Management of the Businesses does not expect the outcome of any proceedings, individually or in the aggregate, to have a materially adverse effect on the Businesses’ financial position, results of operations, or liquidity.
10. Supplementary Information
Balance Sheet

 	  	November 28,
2006	 	 	December 31,
2005	 	
 	  	(In thousands)	 	
Receivables, net:	  				 				
Atneed customer receivables	  	$	950	 	 	$	1,189	 	
Allowances	  	 	(721	)	 	 	(473	)	
Other	  	 	171	 	 	 	394	 	
	  	 	 	 	 	 	 	 	
	  	$	400	 	 	$	1,110	 	
	  	 	 	 	 	 	 	 	
Cemetery property:	  				 				
Undeveloped land	  	$	446	 	 	$	436	 	
Developed land and lawn crypts	  	 	2,897	 	 	 	2,930	 	
Developed mausoleums and niches	  	 	4,930	 	 	 	5,067	 	
	  	 	 	 	 	 	 	 	
	  	$	8,273	 	 	$	8,433	 	
	  	 	 	 	 	 	 	 	
Property and equipment:	  				 				
Land	  	$	3,985	 	 	$	3,985	 	
Buildings and improvements	  	 	10,717	 	 	 	10,164	 	
Operating equipment	  	 	4,357	 	 	 	4,053	 	
Leasehold improvements	  	 	76	 	 	 	41	 	
	  	 	 	 	 	 	 	 	
	  	 	19,135	 	 	 	18,243	 	
Less: accumulated depreciation	  	 	(4,434	)	 	 	(3,518	)	
	  	 	 	 	 	 	 	 	
	  	$	14,701	 	 	$	14,725	 	
	  	 	 	 	 	 	 	 	
Deferred charges and other assets:	  				 				
Prepaid covenants-not-to-compete, net	  	$	6	 	 	$	20	 	
Deferred cemetery merchandise costs	  	 	807	 	 	 	820	 	
Other	  	 	9	 	 	 	41	 	
	  	 	 	 	 	 	 	 	
	  	$	822	 	 	$	881	 	
	  	 	 	 	 	 	 	 	
Accounts payable and accrued liabilities:	  				 				
Accounts payable	  	$	261	 	 	$	193	 	
Accrued compensation	  	 	139	 	 	 	135	 	
Sales counselor reserves	  	 	194	 	 	 	191	 	
Other accrued liabilities	  	 	89	 	 	 	671	 	
	  	 	 	 	 	 	 	 	
	  	$	683	 	 	$	1,190	 	
	  	 	 	 	 	 	 	 	
Other liabilities:	  				 				
Endowment care obligation	  	$	314	 	 	$	355	 	
Other	  	 	878	 	 	 	623	 	
	  	 	 	 	 	 	 	 	
	  	$	1,192	 	 	$	978	 	
	  	 	 	 	 	 	 	 	
Cash Flow
During the period ended November 28, 2006, purchases and sales of available-for-sale securities included in Funeral, Cemetery Merchandise and Services, and Cemetery Perpetual Care trust investments, as allocated from Alderwoods purchases and sales based on gross fair value of the investments, were $18.5 million and $16.9 million, respectively. During the 52 weeks ended December 31, 2005, purchases and sales of available-for-sale securities included in Funeral, Cemetery Merchandise and Services, and Cemetery Perpetual Care trust investments, as allocated from Alderwoods purchases and sales based on gross fair value of the investments, were $38.2 million and $34.8 million, respectively. These sale transactions resulted in $1.0 million and $0.7 million of realized gains and realized losses, respectively for the 52 weeks ended December 31, 2005. The Businesses use the first in, first out (FIFO) method to determine the cost of funeral trust available-for-sale securities sold during the period.
 
17

Exhibit 99.4
PROJECT DIGNITY 2007 BUSINESSES
Financial Statement for the period ended September 30, 2007

PROJECT DIGNITY 2007 BUSINESSES
CONDENSED COMBINED STATEMENT OF OPERATIONS
(Unaudited)

 	  	Nine months ended
September 30,	 	
 	  	2007	 	 	2006	 	
 	  	(In thousands)	 	
Revenues	  	$	33,707	 	 	$	17,536	 	
Costs and expenses	  	 	(31,262	)	 	 	(15,939	)	
	  	 	 	 	 	 	 	 	
Gross profits	  	 	2,445	 	 	 	1,597	 	
General and administrative expenses	  	 	(1,887	)	 	 	(1,011	)	
Gains (losses) on dispositions of assets and impairment charges, net	  	 	3	 	 	 	(1	)	
	  	 	 	 	 	 	 	 	
Operating income	  	 	561	 	 	 	585	 	
Other income, net	  	 	—  	 	 	 	—  	 	
Interest expense	  	 	(1,167	)	 	 	(412	)	
	  	 	 	 	 	 	 	 	
(Loss) income before income taxes	  	 	(606	)	 	 	173	 	
Provision for income taxes	  	 	(208	)	 	 	(97	)	
	  	 	 	 	 	 	 	 	
Net (loss) income	  	$	(814	)	 	$	76	 	
	  	 	 	 	 	 	 	 	
(See notes to unaudited condensed combined financial statements)

PROJECT DIGNITY 2007 BUSINESSES
CONDENSED COMBINED BALANCE SHEET
(Unaudited)

 	  	September 30,
2007	  	December 31,
2006	
 	  	(In thousands)	
ASSETS	  			  			
Current assets:	  			  			
Cash	  	$	6	  	$	11	
Receivables, net	  	 	244	  	 	567	
Inventories	  	 	817	  	 	1,000	
	  	 	 	  	 	 	
Total current assets	  	 	1,067	  	 	1,578	
Preneed funeral receivables and trust investments	  	 	16,655	  	 	16,509	
Preneed cemetery receivables and trust investments	  	 	75,478	  	 	71,273	
Cemetery property, at cost	  	 	46,643	  	 	46,376	
Property and equipment, at cost, net	  	 	24,891	  	 	25,318	
Goodwill	  	 	17,627	  	 	16,548	
Deferred charges and other assets	  	 	5,759	  	 	5,984	
Cemetery perpetual care trust investments	  	 	50,364	  	 	50,054	
	  	 	 	  	 	 	
	  	$	238,484	  	$	233,640	
	  	 	 	  	 	 	
LIABILITIES & OWNER’S EQUITY	  			  			
Current liabilities:	  			  			
Accounts payable and accrued liabilities	  	$	4,322	  	$	4,436	
Current maturities of long-term debt	  	 	241	  	 	232	
Income taxes	  	 	2,507	  	 	3,252	
	  	 	 	  	 	 	
Total current liabilities	  	 	7,070	  	 	7,920	
Long-term debt	  	 	1,112	  	 	1,161	
Deferred preneed funeral revenues	  	 	5,277	  	 	5,580	
Deferred preneed cemetery revenues	  	 	32,210	  	 	27,312	
Deferred income taxes	  	 	9,323	  	 	10,751	
Other liabilities	  	 	6,755	  	 	4,069	
Advances from affiliates, net	  	 	25,417	  	 	28,646	
Non-controlling interest in funeral and cemetery trusts	  	 	82,094	  	 	78,667	
Non-controlling interest in perpetual care trusts	  	 	50,183	  	 	49,677	
Commitments and contingencies (Note 7)	  			  			
Owner’s equity	  	 	19,043	  	 	19,857	
	  	 	 	  	 	 	
	  	$	238,484	  	$	233,640	
	  	 	 	  	 	 	
(See notes to unaudited condensed combined financial statements)
 
2

PROJECT DIGNITY 2007 BUSINESSES
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(Unaudited)

 	  	Nine months ended
September 30,	 	
 	  	2007	 	 	2006	 	
 	  	(In Thousands)	 	
Net cash provided by (used in) operating activities	  	 	4,663	 	 	 	(1,243	)	
Cash flows from investing activities:	  				 				
Capital expenditures	  	 	(1,395	)	 	 	(238	)	
Other	  	 	3	 	 	 	46	 	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(1,392	)	 	 	(192	)	
Cash flows from financing activities:	  				 				
Advances (to) from affiliates	  	 	(3,242	)	 	 	1,574	 	
Other	  	 	(34	)	 	 	(139	)	
	  	 	 	 	 	 	 	 	
Net cash (used in) provided by financing activities	  	 	(3,276	)	 	 	1,435	 	
	  	 	 	 	 	 	 	 	
Net decrease in cash	  	 	(5	)	 	 	—  	 	
Cash at beginning of period	  	 	11	 	 	 	3	 	
	  	 	 	 	 	 	 	 	
Cash at end of period	  	$	6	 	 	$	3	 	
	  	 	 	 	 	 	 	 	
(See notes to unaudited condensed combined financial statements)
 
3

PROJECT DIGNITY 2007 BUSINESSES
CONDENSED COMBINED STATEMENT OF OWNER’S EQUITY
(Unaudited)

 	  	Owner’s
Equity	 	
 	  	(In thousands)	 	
Balance at December 31, 2006	  	$	19,857	 	
Net loss	  	 	(814	)	
	  	 	 	 	
Balance at September 30, 2007	  	$	19,043	 	
	  	 	 	 	
(See notes to unaudited condensed combined financial statements)
 
4

PROJECT DIGNITY 2007 BUSINESSES
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
The accompanying financial statements present the condensed combined financial position, results of operations, changes in equity, and cash flows of certain businesses of Service Corporation International (“SCI”). These financial statements include the accounts of 30 funeral homes and 46 cemeteries (collectively, the “Businesses”) being purchased by StoneMor Operating LLC as outlined in a Letter of Intent dated October 4, 2007 and referred to as Project Dignity 2007.
The condensed combined financial statements of the Businesses contained herein reflect the financial position at September 30, 2007 and December 31, 2006 for funeral homes and cemeteries wholly-owned by SCI on those dates, and the results of operations, changes in equity, and cash flows for the Businesses for the nine months ended September 30, 2007 and 2006. On November 28, 2006 SCI acquired Alderwoods Group, Inc (“Alderwoods”) and certain of the funeral homes and cemeteries were, prior to that date, wholly-owned operations of Alderwoods. All other funeral homes and cemeteries were acquired by SCI prior to the earliest period presented.
The condensed combined financial statements 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 condensed combined financial statements have been prepared in a manner consistent with the accounting policies described in the combined financial statements as of December 31, 2006, unless otherwise disclosed herein, and should be read in conjunction therewith. The accompanying year-end condensed combined balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period.
The Businesses’ funeral service and cemetery operations consist of funeral service locations, cemeteries, crematoria, and related businesses. Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles and preparation and embalming services. Funeral-related merchandise, including caskets, burial vaults, cremation receptacles, flowers, and other ancillary products and services, is sold at funeral service locations. Cemeteries provide cemetery property interment rights, including mausoleum spaces, lots, and lawn crypts, and sell cemetery-related merchandise and services, including stone and bronze memorials, markers, casket and cremation memorialization products, merchandise installations, and burial openings and closings. The Businesses also sell preneed funeral and cemetery products and services whereby a customer contractually agrees to the terms of certain products and services to be provided in the future.
All significant inter-entity balances and transactions between the Businesses have been eliminated in the condensed combined financial statements.
The preparation of these financial statements include the use of “carve out” accounting procedures wherein certain assets, liabilities and expenses historically recorded or incurred by SCI at the Parent level, which related to or were incurred on behalf of the Businesses have been identified and allocated as appropriate to properly reflect the stand-alone financial results of the Businesses, in accordance with accounting principles generally accepted in the United States of America. In this context, no direct owner relationship existed among the various locations comprising the Businesses as described above. Accordingly, SCI’s net investment in the Businesses is shown as Owner’s equity in these combined financial statements.
 
5

In the ordinary course of business, SCI provided various services to the Businesses, including accounting, treasury, tax, legal, human resources, public affairs, the use of centralized facilities and assets owned by SCI, and executive oversight. The costs of performing these services have been allocated to these Businesses based on the Businesses’ total revenue as a percent of SCI’s total revenue. Both SCI and the Businesses consider these cost allocations to be reasonable reflections of the cost of services provided. Charges for these services included in Costs and expenses totaled $2.0 million and $1.3 million for the nine months ended September 30, 2007 and 2006, respectively. Charges for these services included in General and administrative expenses totaled $1.9 million and $1.0 million for the nine months ended September 30, 2007 and 2006, respectively. Additionally, included in Interest expense is $1.1 million and $0.4 million of interest on the intercompany advances due to SCI for the nine months ended September 30, 2007 and 2006, respectively. This interest expense is charged to the Businesses from SCI at a rate of 4.5% of the average balances in Advances from affiliates, net. On a pro-forma basis at a current market rate of 7.3%, interest expense would have been approximately $1.5 million for the nine months ended September 30, 2007.
Throughout the periods covered by the combined financial statements, SCI provided cash management services to the Businesses through centralized treasury systems such that cash was either advanced or drawn from SCI with a corresponding decrease or increase to Advance from affiliates, net . As a result, all charges and cost allocations to the Businesses covered by such centralized treasury systems were deemed to have been paid by the Businesses to SCI, in cash, during the period in which the related costs were recorded in the combined financial statements. Increases or decreases in Advances from affiliates, net are classified as financing activities in the combined statement of cash flows.
All of the allocations and estimates in these combined financial statements are based on assumptions that management believes are reasonable under the circumstances. However, these allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted had the Businesses been operated as a stand-alone, independent entity.
Effective Tax Rate
The effective tax rate for the nine months ended September 30, 2007 was -34%, compared to 56% for the same period in 2006. The effective tax rate for the nine months ended September 30, 2007 was impacted by a net increase in our liability for uncertain tax positions and the establishment of state valuation allowances.
Use of Estimates in the Preparation of Financial Statements
The preparation of the condensed combined financial statements in conformity with accounting principles generally accepted in the United States of America 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 condensed combined financial statements and the reported amounts of expenses during the reporting period. As a result, actual results could differ from these estimates.
2. Recent Accounting Pronouncements and Accounting Changes
Fair Value Option for Financial Assets and Liabilities
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities ” (SFAS 159). This Statement permits entities to choose to measure various financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for the Businesses beginning January 1, 2008. The Businesses are currently evaluating the impact of SFAS 159 on their combined financial statements.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective January 1, 2008 for the Businesses. The Businesses are currently evaluating the impact of adopting SFAS 157 on their combined financial statements.
 
6

Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued FASB Interpretation No. 48, “ Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 ” (FIN 48), which clarifies the accounting for uncertain income tax positions recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “ Accounting for Income Taxes ”. This interpretation requires companies to use a prescribed model for assessing the financial statement recognition and measurement of all tax positions taken or expected to be taken in its tax returns. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Businesses adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Businesses recorded a $1.1 million increase in their liability for unrecognized tax benefits, which was recorded as a increase to goodwill as it related to uncertain tax positions acquired in the recent Alderwoods transaction.
3. Preneed Funeral Activities
Preneed Funeral Receivables and Trust Investments
Preneed funeral receivables and trust investments , net of allowance for cancellation, represent trust investments, including investment earnings and customer receivables related to unperformed, price-guaranteed preneed funeral contracts. When the Businesses, as the primary beneficiary, receive payments from the customer, the Businesses deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed funeral revenues into Non-controlling interest in funeral and cemetery trusts. Amounts are withdrawn from the trusts after the contract is performed. The Businesses, as allocated from SCI’s deposits and withdrawals based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, deposited $0.7 million and $0.6 million into trusts and withdrew $1.2 million and $0.8 million from trusts during the nine months ended September 30, 2007 and 2006, respectively. Cash flows from preneed funeral contracts are presented as operating cash flows in the condensed combined statement of cash flows.
The components of Preneed funeral receivables and trust investments in the condensed combined balance sheet are as follows:

 	  	September 30,
2007	 	 	December 31,
2006	 	
 	  	(In thousands)	 	
Trust investments, at market	  	$	14,718	 	 	$	14,481	 	
Receivables from customers	  	 	2,153	 	 	 	2,255	 	
	  	 	 	 	 	 	 	 	
	  	 	16,871	 	 	 	16,736	 	
Allowance for cancellation	  	 	(216	)	 	 	(227	)	
	  	 	 	 	 	 	 	 	
Preneed funeral receivables and trust investments	  	$	16,655	 	 	$	16,509	 	
	  	 	 	 	 	 	 	 	
The cost and market values associated with funeral trust investments at September 30, 2007 and December 31, 2006 are detailed below and are allocated from SCI’s combined cost and market values based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments. Cost reflects the investment (net of redemptions) of contract holders in common trust funds, mutual funds and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holders’ equity in majority-owned real estate investments). The fair market value of funeral trust investments was based primarily on quoted market prices at the balance sheet date. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” , on a quarterly basis. For the nine months ended September 30, 2007 the Businesses recorded a $39 thousand impairment charge (as allocated from SCI’s impairment charge based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments) as a result of other-than-temporary declines in fair value related to unrealized losses on certain private equity and other investments. The impairment charges are recognized as investment losses and offset by interest income related to non-controlling interest in funeral trust investments in Other income, net in the condensed combined Statements of Operations. See Note 6 to the condensed combined financial statements for further information related to non-controlling interest in funeral trust investments.
 
7

															
 	  	September 30, 2007	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	3,924	  	$	—  	  	$	—  	 	 	$	3,924	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	985	  	 	11	  	 	(2	)	 	 	994	 	
Foreign government	  	 	1,005	  	 	3	  	 	(10	)	 	 	998	 	
Corporate	  	 	110	  	 	3	  	 	(1	)	 	 	112	 	
Mortgage-backed	  	 	60	  	 	1	  	 	—  	 	 	 	61	 	
Insurance-backed	  	 	1,942	  	 	—  	  	 	—  	 	 	 	1,942	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	17	  	 	1	  	 	—  	 	 	 	18	 	
Common stock	  	 	3,152	  	 	205	  	 	(20	)	 	 	3,337	 	
Mutual funds:	  			  			  				 				
Equity	  	 	953	  	 	66	  	 	(5	)	 	 	1,014	 	
Fixed income	  	 	1,508	  	 	64	  	 	(11	)	 	 	1,561	 	
Private equity and other	  	 	766	  	 	41	  	 	(50	)	 	 	757	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	14,422	  	$	395	  	$	(99	)	 	$	14,718	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	102	%	
		
 	  	December 31, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	2,472	  	$	—  	  	$	—  	 	 	$	2,472	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	759	  	 	17	  	 	(3	)	 	 	773	 	
Foreign government	  	 	911	  	 	6	  	 	(5	)	 	 	912	 	
Corporate	  	 	51	  	 	1	  	 	—  	 	 	 	52	 	
Mortgage-backed	  	 	46	  	 	1	  	 	—  	 	 	 	47	 	
Insurance-backed	  	 	2,139	  	 	—  	  	 	—  	 	 	 	2,139	 	
Asset-backed and other	  			  			  				 				
Equity securities:	  	 	7	  	 	—  	  	 	—  	 	 	 	7	 	
Common stock	  	 	3,452	  	 	236	  	 	(28	)	 	 	3,660	 	
Mutual funds:	  			  			  				 				
Equity	  	 	1,304	  	 	135	  	 	(6	)	 	 	1,433	 	
Fixed income	  	 	2,230	  	 	90	  	 	(24	)	 	 	2,296	 	
Private equity and other	  	 	684	  	 	14	  	 	(8	)	 	 	690	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	14,055	  	$	500	  	$	(74	)	 	$	14,481	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	103	%	
Maturity dates of the fixed income securities range from 2007 to 2038. Maturities of fixed income securities at September 30, 2007 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	1,206	
Due in one to five years	  	 	828	
Due in five to ten years	  	 	1,010	
Thereafter	  	 	1,063	
	  	 	 	
	  	$	4,107	

8

During the nine months ended September 30, 2007, purchases and sales of available-for-sale securities included in trust investments, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $7.1 million and $6.3 million, respectively. These sale transactions resulted in $1.0 million and $0.2 million of realized gains and realized losses, respectively, for the nine months ended September 30, 2007. During the nine months ended September 30, 2006, purchases and sales of available-for-sale securities included in trust investments, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $3.0 million and $3.3 million, respectively. These sale transactions resulted in $0.5 million and $0.2 million of realized gains and realized losses, respectively, for the nine months ended September 30, 2006. The Businesses use the first in, first out (FIFO) method to determine the cost of funeral trust available-for-sale securities sold during the period.
Earnings from all trust investments are recognized in current funeral revenues when the service is performed, merchandise is delivered, or upon cancellation of the amount the Businesses are entitled to retain. Recognized earnings (realized and unrealized) related to these trust investments were $0.2 million and $0.1 million for the nine months ended September 30, 2007 and 2006, respectively.
4. Preneed Cemetery Activities
Preneed Cemetery Receivables and Trust Investments
Preneed cemetery receivables and trust investments , net of allowance for cancellation, represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, for contracts sold in advance of when the property interment rights, merchandise or services are needed. When the Businesses, as the primary beneficiary, receive payments from the customer, the Businesses deposit the amount required by law into the trust, remove the corresponding amount from Deferred preneed cemetery revenues , and record the amount into Non-controlling interest in funeral and cemetery trusts. Amounts are withdrawn from the trusts when the contract is performed. The Businesses, as allocated from SCI’s deposits and withdrawals based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, deposited $4.5 million and $3.1 million into and withdrew $6.1 million and $2.3 million from trusts during the nine months ended September 30, 2007 and 2006, respectively. Cash flows from preneed cemetery contracts are presented as operating cash flows in our condensed combined statement of cash flows.
The components of Preneed cemetery receivables and trust investments in the condensed combined balance sheet at are as follows:

 	  	September 30,
2007	 	 	December 31,
2006	 	
 	  	(In thousands)	 	
Trust investments, at market	  	$	68,013	 	 	$	64,916	 	
Receivables from customers	  	 	9,241	 	 	 	9,151	 	
Unearned finance charges	  	 	(1,016	)	 	 	(1,020	)	
	  	 	 	 	 	 	 	 	
	  	 	76,238	 	 	 	73,047	 	
Allowance for cancellation	  	 	(760	)	 	 	(1,774	)	
	  	 	 	 	 	 	 	 	
Preneed cemetery receivables and trust investments	  	$	75,478	 	 	$	71,273	 	
	  	 	 	 	 	 	 	 	
The cost and market values associated with cemetery merchandise and service trust investments at September 30, 2007 and December 31, 2006 are detailed below and are allocated from SCI’s combined cost and market values based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments. Cost reflects the investment (net of redemptions) of contract holders in common trust funds, mutual funds and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holders’ equity in majority-owned real estate investments). The fair market value of cemetery merchandise and service trust investments was based primarily on quoted market prices at the balance sheet date. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” , on a quarterly basis. For the nine months ended September 30, 2007, the Businesses recorded a $0.2 million impairment charge (as allocated from SCI’s impairment charge based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments) as a result of other-than-temporary declines in fair value related to unrealized losses on certain private equity and other investments. The impairment charges are recognized as investment losses and offset by interest income related to non-controlling interest in funeral trust investments in Other income, net in the condensed combined Statements of Operations. See Note 6 to the condensed combined financial statements for further information related to non-controlling interest in cemetery merchandise and service trust investments.
 
9

															
 	  	September 30, 2007	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	21,855	  	$	—  	  	$	—  	 	 	$	21,855	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	3,059	  	 	142	  	 	(16	)	 	 	3,185	 	
Foreign government	  	 	1,155	  	 	23	  	 	(5	)	 	 	1,173	 	
Corporate	  	 	492	  	 	39	  	 	(3	)	 	 	528	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	144	  	 	11	  	 	(1	)	 	 	154	 	
Common stock	  	 	15,810	  	 	1,337	  	 	(87	)	 	 	17,060	 	
Mutual funds:	  			  			  				 				
Equity	  	 	6,913	  	 	974	  	 	(24	)	 	 	7,863	 	
Fixed income	  	 	14,025	  	 	950	  	 	(91	)	 	 	14,884	 	
Private equity and other	  	 	1,358	  	 	129	  	 	(176	)	 	 	1,311	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	64,811	  	$	3,605	  	$	(403	)	 	$	68,013	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	105	%	
		
 	  	December 31, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	12,562	  	$	—  	  	$	—  	 	 	$	12,562	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	3,004	  	 	204	  	 	(104	)	 	 	3,104	 	
Foreign government	  	 	1,225	  	 	36	  	 	(1	)	 	 	1,260	 	
Corporate	  	 	254	  	 	19	  	 	(2	)	 	 	271	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	100	  	 	8	  	 	(1	)	 	 	107	 	
Common stock	  	 	14,597	  	 	1,300	  	 	(85	)	 	 	15,812	 	
Mutual funds:	  			  			  				 				
Equity	  	 	10,134	  	 	1,377	  	 	(35	)	 	 	11,476	 	
Fixed income	  	 	18,218	  	 	1,031	  	 	(148	)	 	 	19,101	 	
Private equity and other	  	 	1,401	  	 	24	  	 	(202	)	 	 	1,223	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	61,495	  	$	3,999	  	$	(578	)	 	$	64,916	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	106	%	
Maturity dates of the fixed income securities range from 2007 to 2038. Maturities of fixed income securities at September 30, 2007 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	199	
Due in one to five years	  	 	1,477	
Due in five to ten years	  	 	2,032	
Thereafter	  	 	1,178	
	  	 	 	
	  	$	4,886	
	  	 	 	
During the nine months ended September 30, 2007, purchases and sales of available-for-sale securities included in trust investments, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $40.8 million and $33.7 million, respectively. These sale transactions resulted in $5.2 million and $1.2 million of realized gains and realized losses, respectively, for the nine months ended September 30, 2007. During the nine months ended September 30, 2006, purchases and sales of available-for-sale securities included in trust investments, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $16.9 million and $18.1 million, respectively. These sale transactions resulted in $2.0 million and $1.3 million of realized gains and realized losses, respectively, for the nine months ended September 30, 2006. The Businesses use the first in, first out (FIFO) method to determine the cost of cemetery trust available-for-sale securities sold during the period.
 
10

Earnings from all trust investments are recognized in current cemetery revenues when the service is performed, merchandise is delivered, or upon cancellation of the amount the Businesses are entitled to retain. Recognized earnings (realized and unrealized) related to these trust investments were $0.8 million and $0.3 million for the nine months ended September 30, 2007 and 2006, respectively.
5. Cemetery Perpetual Care Trusts
The Businesses are required by state law to pay into perpetual care trusts a portion of the proceeds from the sale of cemetery property interment rights. As the primary beneficiary of the trusts, the Businesses consolidate the perpetual care trust investments with a corresponding amount recorded as Non-controlling interest in perpetual care trusts. The Businesses, as allocated from SCI’s deposits and withdrawals based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, deposited $1.1 million and $0.7 million into and withdrew $1.2 million and $1.5 million from trusts during the nine months ended September 30, 2007 and 2006, respectively. Cash flows from cemetery perpetual care contracts are presented as operating cash flows in our condensed combined statement of cash flows.
The cost and market values associated with trust investments held in perpetual care trusts at September 30, 2007 and December 31, 2006 are detailed below and are allocated from SCI’s combined cost and market values based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holders’ equity in majority-owned real estate investments). The fair market value of perpetual care trusts was based primarily on quoted market prices at December 31, 2006 or 2005. SCI assesses its trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “ Accounting for Certain Investments in Debt and Equity Securities ”, on a quarterly basis. For the nine months ended September 30, 2007, the Businesses recorded a $0.1 million impairment charge (as allocated from SCI’s impairment charge based on the gross fair market value of the Businesses’ portion of trust investments compared to the total trust investments) as a result of other-than-temporary declines in fair value related to unrealized losses on certain private equity and other investments. The impairment charges are recognized as investment losses and offset by interest income related to non-controlling interest in funeral trust investments in Other income, net in the condensed combined Statements of Operations. See Note 6 to the condensed combined financial statements for further information related to non-controlling interest in cemetery perpetual car trust investments.

 	  	September 30, 2007	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	11,216	  	$	—  	  	$	—  	 	 	$	11,216	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	108	  	 	31	  	 	(1	)	 	 	138	 	
Foreign government	  	 	1,579	  	 	26	  	 	(10	)	 	 	1,595	 	
Corporate	  	 	1,733	  	 	33	  	 	(15	)	 	 	1,751	 	
Mortgage-backed	  	 	280	  	 	—  	  	 	—  	 	 	 	280	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	121	  	 	4	  	 	(1	)	 	 	124	 	
Common stock	  	 	5,657	  	 	538	  	 	(33	)	 	 	6,162	 	
Mutual funds:	  			  			  				 				
Equity	  	 	2,417	  	 	154	  	 	(10	)	 	 	2,561	 	
Fixed income	  	 	24,584	  	 	577	  	 	(157	)	 	 	25,004	 	
Private equity and other	  	 	1,477	  	 	117	  	 	(61	)	 	 	1,533	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Perpetual care trust investments	  	$	49,172	  	$	1,480	  	$	(288	)	 	$	50,364	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	102	%	
 
11

															
 	  	December 31, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	8,839	  	$	—  	  	$	—  	 	 	$	8,839	 	
Fixed income securities:	  			  			  				 				
U.S. Treasury	  	 	610	  	 	35	  	 	(6	)	 	 	639	 	
Foreign government	  	 	1,517	  	 	50	  	 	(5	)	 	 	1,562	 	
Corporate	  	 	1,271	  	 	66	  	 	(1	)	 	 	1,336	 	
Mortgage-backed	  	 	34	  	 	—  	  	 	—  	 	 	 	34	 	
Equity securities:	  			  			  				 				
Preferred stock	  	 	419	  	 	29	  	 	—  	 	 	 	448	 	
Common stock	  	 	4,590	  	 	465	  	 	(6	)	 	 	5,049	 	
Mutual funds:	  			  			  				 				
Equity	  	 	3,247	  	 	268	  	 	(11	)	 	 	3,504	 	
Fixed income	  	 	25,406	  	 	1,270	  	 	(76	)	 	 	26,600	 	
Private equity and other	  	 	1,951	  	 	129	  	 	(37	)	 	 	2,043	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Perpetual care trust investments	  	$	47,884	  	$	2,312	  	$	(142	)	 	$	50,054	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as a percentage of cost	  			  			  				 	 	105	%	
Maturity dates of the fixed income securities range from 2007 to 2038. Maturities of fixed income securities at September 30, 2007 are estimated as follows:

 	  	Market	
 	  	(In thousands)	
Due in one year or less	  	$	651	
Due in one to five years	  	 	1,574	
Due in five to ten years	  	 	741	
Thereafter	  	 	798	
	  	 	 	
	  	$	3,764	
	  	 	 	
During the nine months ended September 30, 2007, purchases and sales of available-for-sale securities included in the perpetual care trusts, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $32.4 million and $17.5 million, respectively. These sale transactions resulted in $1.6 million and $0.6 million of realized gains and realized losses, respectively, for the nine months ended September 30, 2007. During the nine months ended September 30, 2006, purchases and sales of available-for-sale securities included in the perpetual care trusts, as allocated from SCI’s purchases and sales based on the gross fair value of the Businesses’ portion of trust investments compared to the total trust investments, were $29.1 million and $29.4 million, respectively. These sale transactions resulted in $1.3 million and $1.0 million of realized gains and realized losses, respectively, for the nine months ended September 30, 2006. The Businesses use the first in, first out (FIFO) method to determine the cost of perpetual care trust available-for-sale securities sold during the period.
Distributable earnings from these perpetual care trust investments are recognized in current cemetery revenues to the extent of qualifying cemetery maintenance costs. Recognized earnings (realized and unrealized) related to these trust investments were $1.4 million and $1.1 million for the nine months ended September 30, 2007 and 2006, respectively.
6. Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
The Businesses consolidate in their balance sheet the merchandise and service trusts associated with their preneed funeral and cemetery activities as a result of the implementation of FIN 46R. Although FIN 46R requires the consolidation of the merchandise and service trusts, it does not change the legal relationships among the trusts, the Businesses or their customers. The customers are the legal beneficiaries of these merchandise and service trusts, and therefore, their interests in these trusts represent a non-controlling interest in subsidiaries.
 
12

The components of Non-controlling interest in funeral and cemetery trusts and Non-controlling interest in perpetual care trusts in the condensed combined balance sheet are detailed below.

 	  	September 30, 2007	 	 	September 30, 2007	 	
 	  	Preneed
Funeral	 	 	Preneed
Cemetery	 	 	Total	 	 	Cemetery
Perpetual Care	 	
 	  	(In thousands)	 	
Trust investments, at market value	  	$	14,718	 	 	$	68,013	 	 	$	82,731	 	 	$	50,364	 	
Less: Accrued trust operating payables, deferred taxes and other	  	 	(55	)	 	 	(582	)	 	 	(637	)	 	 	(181	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	  	$	14,663	 	 	$	67,431	 	 	$	82,094	 	 	$	50,183	 	

 	  	December 31, 2006	 	 	December 31, 2006	 	
 	  	Preneed
Funeral	 	 	Preneed
Cemetery	 	 	Total	 	 	Cemetery
Perpetual Care	 	
 	  	(In thousands)	 	
Trust investments, at market value	  	$	14,481	 	 	$	64,916	 	 	$	79,397	 	 	$	50,054	 	
Less: Accrued trust operating payables, deferred taxes and other	  	 	(109	)	 	 	(621	)	 	 	(730	)	 	 	(377	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	  	$	14,372	 	 	$	64,295	 	 	$	78,667	 	 	$	49,677	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
7. Commitments and Contingencies
Litigation
The Businesses are parties to various litigation matters, investigations, and proceedings in the ordinary course of business. Management of the Businesses does not expect the outcome of any proceedings, individually or in the aggregate, to have a materially adverse effect on the Businesses’ financial position, results of operations, or liquidity.
 
13

Exhibit 99.5
PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
Financial statement for 40 weeks ended October 7, 2006

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
CONDENSED COMBINED STATEMENT OF OPERATIONS
40 WEEKS ENDED OCTOBER 7, 2006
(Unaudited)
(In thousands)

Revenues	  	$	15,666	 	
Costs and expenses	  	 	(15,568	)	
	  	 	 	 	
Gross profit	  	 	98	 	
General and administrative expenses	  	 	(2,164	)	
	  	 	 	 	
Operating loss	  	 	(2,066	)	
Interest expense	  	 	(1,508	)	
Other income, net	  	 	—  	 	
	  	 	 	 	
Loss before income taxes	  	 	(3,574	)	
Benefit for income taxes	  	 	89	 	
	  	 	 	 	
Net loss	  	$	(3,485	)	
	  	 	 	 	
(See notes to unaudited condensed combined financial statements)

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
CONDENSED COMBINED BALANCE SHEET
OCTOBER 7, 2006
(Unaudited)
(In thousands)

ASSETS	  				
Current assets:	  				
Cash	  	$	18	 	
Receivables, net	  	 	493	 	
Inventories	  	 	382	 	
Other current assets	  	 	7	 	
	  	 	 	 	
Total current assets	  	 	900	 	
Preneed funeral receivables and trust investments	  	 	5,117	 	
Preneed cemetery receivables and trust investments	  	 	33,537	 	
Cemetery property, at cost	  	 	8,184	 	
Property and equipment, at cost, net	  	 	14,664	 	
Deferred charges and other assets	  	 	839	 	
Cemetery perpetual care trust investments	  	 	21,605	 	
	  	 	 	 	
	  	$	84,846	 	
	  	 	 	 	
LIABILITIES & OWNER’S DEFICIT	  				
Current liabilities:	  				
Accounts payable and accrued liabilities	  	$	1,100	 	
Income taxes	  	 	89	 	
	  	 	 	 	
Total current liabilities	  	 	1,189	 	
Deferred preneed funeral revenues	  	 	2,088	 	
Deferred preneed cemetery revenues	  	 	6,700	 	
Other liabilities	  	 	980	 	
Advances from affiliates	  	 	22,713	 	
Non-controlling interest in funeral and cemetery trusts	  	 	32,677	 	
Non-controlling interest in perpetual care trusts	  	 	21,474	 	
Commitments and contingencies (Note 7)	  				
Owner’s deficit	  	 	(2,975	)	
	  	 	 	 	
	  	$	84,846	 	
	  	 	 	 	
(See notes to unaudited condensed combined financial statements)
 
2

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
CONDENSED COMBINED STATEMENT OF CASH FLOWS
40 WEEKS ENDED OCTOBER 7, 2006
(Unaudited)
(In thousands)

Net cash used in operating activities	  	$	(2,256	)	
		
Cash flows from investing activities:	  				
Capital expenditures	  	 	(770	)	
Proceeds from divestitures and sales of property and equipment	  	 	3	 	
	  	 	 	 	
Net cash used in investing activities	  	 	(767	)	
		
Cash flows from financing activities:	  				
Advances from affiliates	  	 	3,023	 	
	  	 	 	 	
Net cash provided by financing activities	  	 	3,023	 	
		
Net change in cash	  	 	—  	 	
Cash at beginning of period	  	 	18	 	
	  	 	 	 	
Cash at end of period	  	$	18	 	
	  	 	 	 	
(See notes to unaudited condensed combined financial statements)
 
3

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
CONDENSED COMBINED STATEMENT OF OWNER’S EQUITY (DEFICIT)
(Unaudited)

 	  	Owner’s
Equity
(Deficit)	 	
 	  	(In thousands)	 	
Balance at December 31, 2005	  	$	510	 	
Net loss	  	 	(3,485	)	
	  	 	 	 	
Balance at October 7, 2006	  	$	(2,975	)	
	  	 	 	 	
(See notes to unaudited condensed combined financial statements)
 
4

PROJECT DIGNITY 2007 BUSINESSES (Alderwoods)
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
The accompanying financial statements present the condensed combined financial position, results of operations, changes in owner’s equity (deficit), and cash flows of certain businesses of Alderwoods Group Inc. (“Parent” or “Alderwoods”). These financial statements include the accounts of 21 funeral homes and 30 cemeteries (collectively, the “Businesses”) being purchased by StoneMor Operating LLC (“StoneMor”) as outlined in a Letter of Intent dated October 4, 2007 and referred to as Project Dignity 2007.
On November 28, 2006, Alderwoods was acquired by Service Corporation International (“SCI”). The condensed combined financial statements of the Businesses contained herein reflect the financial position at October 7, 2006 for funeral homes and cemeteries wholly-owned by Alderwoods on that date, and the results of operations, changes in owner’s equity (deficit), and cash flows for the 40 weeks ended October 7, 2006.
The condensed combined financial statements 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 condensed combined financial statements have been prepared in a manner consistent with the accounting policies described in the combined financial statements as of and for the period January 1, 2006 to November 28, 2006, unless otherwise disclosed herein, and should be read in conjunction therewith. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period.
The Businesses’ funeral service and cemetery operations consist of funeral service locations, cemeteries, crematoria, and related businesses. Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles and preparation and embalming services. Funeral-related merchandise, including caskets, burial vaults, cremation receptacles, flowers, and other ancillary products and services, is sold at funeral service locations. Cemeteries provide cemetery property interment rights, including mausoleum spaces, lots, and lawn crypts, and sell cemetery-related merchandise and services, including stone and bronze memorials, markers, casket and cremation memorialization products, merchandise installations, and burial openings and closings. The Businesses also sell preneed funeral and cemetery products and services whereby a customer contractually agrees to the terms of certain products and services to be provided in the future.
All significant inter-entity balances and transactions between the Businesses have been eliminated in the condensed combined financial statements.
The preparation of these financial statements include the use of “carve out” accounting procedures wherein certain assets, liabilities and expenses historically recorded or incurred by Alderwoods at the Parent level, which relate to or were incurred on behalf of the Businesses, have been identified and allocated as appropriate to properly reflect the stand-alone financial results of the Businesses, in accordance with accounting principles generally accepted in the United States of America. In this context, no direct owner relationship existed among the various locations comprising the Businesses as described above. Accordingly, Alderwoods’ net investment in the Businesses is shown as Owner’s Equity (Deficit) in these condensed combined financial statements.
In the ordinary course of business, Alderwoods provided various services to the Businesses, including accounting, treasury, tax, legal, human resources, public affairs, the use of centralized facilities and assets owned by Alderwoods, and executive oversight. The costs of performing these services have been allocated to these Businesses based on the Businesses’ total revenue as a percent of Alderwoods’ total revenue. Both Alderwoods and the Businesses consider these cost allocations to be reasonable reflections of the cost of services provided. Charges for these services recorded as General and administrative expenses totaled $2.2 million for the 40 weeks ended October 7, 2006. Additionally, included in Interest expense is $1.5 million of interest costs on the intercompany advances due to Alderwoods for the 40 weeks ended October 7, 2006. No debt or associated interest expense has been allocated to the Businesses from the Parent.
Throughout the periods covered by the combined financial statements, Alderwoods provided cash management services to the Businesses through centralized treasury systems such that cash was either advanced or drawn from Alderwoods with a corresponding decrease or increase to Advances from affiliates, net . As a result, all charges and cost allocations to the Businesses covered by such
 
5

centralized treasury systems were deemed to have been paid by the Businesses to Alderwoods, in cash, during the period in which the related costs were recorded in the combined financial statements. Increases or decreases in Advances from affiliates, net are classified as financing activities in the combined statement of cash flows.
All of the allocations and estimates in these condensed combined financial statements are based on assumptions that management believes are reasonable under the circumstances. However, these allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted had the Businesses been operated as a stand-alone, independent entity.
Use of Estimates in the Preparation of Financial Statements
The preparation of the condensed combined financial statements in conformity with accounting principles generally accepted in the United States of America 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 condensed combined financial statements and the reported amounts of expenses during the reporting period. As a result, actual results could differ from these estimates.
Effective Tax Rate
The effective tax rate for the 40 weeks ended October 7, 2006 was 2.5%. The effective tax rate was impacted by state income taxes and the establishment of valuation allowances against net operating losses.
2. Recent Accounting Pronouncements and Accounting Changes
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective January 1, 2008 for the Businesses. The Businesses are currently evaluating the impact of adopting SFAS 157 on their combined financial statements. 
In July 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (FIN 48) was issued, which clarifies the accounting for uncertain income tax positions recognized in an enterprise’s financial statements in accordance with SFAS 109. This interpretation requires companies to use a prescribed model for assessing the financial statement recognition and measurement of all tax positions taken or expected to be taken in its tax returns. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are effective for the Businesses on January 1, 2007, with the cumulative effect of the change in accounting principle, if any, recorded as an adjustment to owner’s equity (deficit).
3. Preneed Funeral Activities
Preneed Funeral Receivables and Trust Investments
Preneed funeral receivables and trust investments , net of allowance for cancellation, represent trust investments, including investment earnings and customer receivables related to unperformed, price-guaranteed preneed funeral contracts. When the Businesses, as the primary beneficiary, receive payments from the customer, the Businesses deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed funeral revenues into Non-controlling interest in funeral and cemetery trusts. Amounts are withdrawn from the trusts after the contract is performed. The Businesses deposited $0.1 million into and withdrew $0.2 million from trusts during the 40 weeks ended October 7, 2006. Cash flows from preneed funeral contracts are presented as operating cash flows in the condensed combined statement of cash flows.
The components of Preneed funeral receivables and trust investments in the condensed combined balance sheet are as follows (in thousands):

 	  	October 7,
2006	 	
Trust investments, at market	  	$	4,187	 	
Amounts receivable from funeral trusts	  	 	452	 	
Receivables from customers	  	 	562	 	
	  	 	 	 	
	  	 	5,201	 	
Allowance for cancellation	  	 	(84	)	
	  	 	 	 	
Preneed funeral receivables and trust investments	  	$	5,117	 	

6

The cost and market values associated with funeral trust investments at October 7, 2006 are detailed below and represent those of funeral trusts of the Businesses and to the extent necessary, the Businesses’ portion of any trusts participated in jointly with other Alderwoods locations. The portion of such joint trust assets is included based on the gross fair market value of the Businesses’ portion of assets compared to the total trust fair market value. Cost reflects the investment (net of redemptions) of contract holders in fixed income securities, common investment funds and mutual funds. Fair market value represents the value of the underlying securities or cash held by the common investment funds and mutual funds at published values. The fair market value of funeral trust investments was based primarily on quoted market prices at October 7, 2006. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” . As a result of the Businesses’ most recent reviews of their trust investments at October 7, 2006, no adjustment to cost for the unrealized losses was required. See Note 6 to the condensed combined financial statements for further information related to non-controlling interest in funeral trust investments.

 	  	October 7, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	458	  	$	—  	  	$	—  	 	 	$	458	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	1,641	  	 	1	  	 	(25	)	 	 	1,617	 	
Equity	  	 	1,264	  	 	121	  	 	—  	 	 	 	1,385	 	
Other	  	 	685	  	 	42	  	 	—  	 	 	 	727	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	4,048	  	$	164	  	$	(25	)	 	$	4,187	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	103	%	
4. Preneed Cemetery Activities
Preneed Cemetery Receivables and Trust Investments
Preneed cemetery receivables and trust investments , net of allowance for cancellation, represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, for contracts sold in advance of when the property interment rights, merchandise or services are needed. When the Businesses, as the primary beneficiary, receive payments from the customer, the Businesses deposit the amount required by law into the trust, remove the corresponding amount from Deferred preneed cemetery revenues , and record the amount into Non-controlling interest in funeral and cemetery trusts. Amounts are withdrawn from the trusts when the contract is performed. The Businesses deposited $1.5 million into and withdrew $1.5 million from trusts during the 40 weeks ended October 7, 2006. Cash flows from preneed cemetery contracts are presented as operating cash flows in the condensed combined statement of cash flows.
 
7

The components of Preneed cemetery receivables and trust investments in the condensed combined balance sheet at are as follows (in thousands):

 	  	October 7,
2006	 	
Trust investments, at market	  	$	31,777	 	
Receivables from customers	  	 	3,269	 	
Unearned finance charges	  	 	(321	)	
	  	 	 	 	
	  	 	34,725	 	
Allowance for cancellation	  	 	(1,188	)	
	  	 	 	 	
Preneed cemetery receivables and trust investments	  	$	33,537	 	
	  	 	 	 	
The cost and market values associated with cemetery merchandise and services trust investments at October 7, 2006 are detailed below and represent those of cemetery trusts of the Businesses and to the extent necessary, the Businesses’ portion of any trusts participated in jointly with other Alderwoods locations. The portion of such joint trust assets is included based on the gross fair market value of the Businesses’ portion of assets compared to the total trust fair market value. Cost reflects the investment (net of redemptions) of contract holders in fixed income securities, common investment funds and mutual funds. Fair market value represents the value of the underlying securities or cash held by the common investment funds and mutual funds at published values. The fair market value of cemetery trust investments was based primarily on quoted market prices at October 7, 2006. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” . As a result of the Businesses’ most recent reviews of their trust investments at October 7, 2006, no adjustment to cost for the unrealized losses was required. See Note 6 to the condensed combined financial statements for further information related to non-controlling interest in cemetery trust investments.

 	  	October 7, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	1,095	  	$	—  	  	$	—  	 	 	$	1,095	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	15,197	  	 	11	  	 	(215	)	 	 	14,993	 	
Equity	  	 	13,740	  	 	1,949	  	 	—  	 	 	 	15,689	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	30,032	  	$	1,960	  	$	(215	)	 	$	31,777	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	106	%	
5. Cemetery Perpetual Care Trusts
The Businesses are required by state law to pay into perpetual care trusts a portion of the proceeds from the sale of cemetery property interment rights. As the primary beneficiary of the trusts, the Businesses consolidate the perpetual care trust investments with a corresponding amount recorded as Non-controlling interest in perpetual care trusts. The Businesses deposited $0.8 million into and withdrew $0.6 million from trusts during the 40 weeks ended October 7, 2007. Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the condensed combined statement of cash flows.
The cost and market values associated with trust investments held in perpetual care trusts at October 7, 2006 are detailed below and represent those of perpetual care trusts of the Businesses and to the extent necessary, the Businesses’ portion of any trusts participated in jointly with other Alderwoods locations. The portion of such joint trust assets is included based on the gross fair market value of the Businesses’ portion of assets compared to the total trust fair market value. Cost reflects the investment (net of redemptions) of contract holders in fixed income securities, common investment funds and mutual funds. Fair market value represents the value of the underlying securities or cash held by the common investment funds and mutual funds at published values. The fair market value of perpetual care trust investments was based primarily on quoted market prices at October 7, 2006. The Businesses assess their trust investments for other-than-temporary declines in fair value, as defined in SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities” . As a result of the Businesses’ most recent reviews of their trust investments at October 7, 2006, no adjustment to cost for the unrealized losses was required. See Note 6 to the condensed combined financial statements for further information related to non-controlling interest in perpetual care trust investments.
 
8

															
 	  	October 7, 2006	 	
 	  	Cost	  	Unrealized
Gains	  	Unrealized
Losses	 	 	Fair Market
Value	 	
 	  	(In thousands)	 	
Cash and cash equivalents	  	$	681	  	$	—  	  	$	—  	 	 	$	681	 	
The Businesses investment funds:	  			  			  				 				
Fixed income	  	 	13,954	  	 	25	  	 	(184	)	 	 	13,795	 	
Equity	  	 	3,327	  	 	648	  	 	—  	 	 	 	3,975	 	
Other	  	 	3,168	  	 	9	  	 	(23	)	 	 	3,154	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Trust investments	  	$	21,130	  	$	682	  	$	(207	)	 	$	21,605	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
Market value as of a percentage of cost	  			  			  				 	 	102	%	
6. Non-Controlling Interest in Funeral and Cemetery Trusts and in Perpetual Care Trusts
The Businesses consolidate in their balance sheet the merchandise and service trusts associated with their preneed funeral and cemetery activities as a result of the implementation of FIN 46R. Although FIN 46R requires the consolidation of the merchandise and service trusts, it does not change the legal relationships among the trusts, the Businesses or their customers. The customers are the legal beneficiaries of these merchandise and service trusts, and therefore, their interests in these trusts represent a non-controlling interest in subsidiaries.
The components of Non-controlling interest in funeral and cemetery trusts and Non-controlling interest in perpetual care trusts in the condensed combined balance sheet are detailed below.

 	  	October 7, 2006	 	 	October 7, 2006	 	
 	  	Preneed
Funeral	 	 	Preneed
Cemetery	 	 	Total	 	 	Cemetery
Perpetual Care	 	
 	  	(In thousands)	 	
Trust investments, at market value	  	$	4,187	 	 	$	31,777	 	 	$	35,964	 	 	$	21,605	 	
Less: Accrued trust operating payables, deferred taxes and other	  	 	(10	)	 	 	(224	)	 	 	(234	)	 	 	(131	)	
Less: Receivables from trust	  	 	(343	)	 	 	(2,710	)	 	 	(3,053	)	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-controlling interest	  	$	3,834	 	 	$	28,843	 	 	$	32,677	 	 	$	21,474	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
7. Commitments and Contingencies
Litigation
The Businesses are parties to various litigation matters, investigations, and proceedings in the ordinary course of business. Management of the Businesses does not expect the outcome of any proceedings, individually or in the aggregate, to have a materially adverse effect on the Businesses’ financial position, results of operations, or liquidity.
 
9

Exhibit 99.6
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 Introduction
The following unaudited pro forma condensed combined balance sheet as of September 30, 2007 and unaudited pro forma condensed combined statements of operations for the year ended December 31, 2006 and the nine months ended September 30, 2007 are based on the historical consolidated financial statements of StoneMor Partners L.P. (“StoneMor”), the historical combined financial statements of the SCI Assets (as defined below) and the historical combined financial statements of the Alderwoods Assets (as defined below). The following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 is also based on the historical combined financial statements of the SCI 2006 Assets (as defined below) and internal records relating to the SCI 2006 Assets.
The unaudited pro forma condensed combined financial statements give pro forma effect to:
 
 	Ÿ	 	StoneMor’s proposed acquisition (the “SCI Acquisition”) from SCI Funeral Services, Inc., as well as certain of its direct and indirect subsidiaries, SCI Ohio Funeral Services, Inc., and Alderwoods (Ohio) Cemetery Management, Inc. (collectively, the “SCI Group”) of 45 cemeteries, 30 funeral homes and one pet cemetery (collectively, the “SCI Properties”), including certain related assets and liabilities (together with the SCI Properties, the “SCI Assets”);	
 
 	Ÿ	 	the proposed issuance of 2,650,000 common units to the public at the assumed offering price of $20.75 per unit and the receipt of approximately $51.1 million in net proceeds after deducting the underwriting discount and estimated offering expenses, and including our general partner’s proportionate capital contribution of approximately $1.1 million;	
 
 	Ÿ	 	the proposed issuance of $17.5 million of senior secured notes under StoneMor’s note purchase agreement; and	
 
 	Ÿ	 	the proposed borrowing of $5.0 million under StoneMor’s acquisition line of credit.	
The unaudited pro forma condensed combined financial statements have been prepared, using the purchase method of accounting for the SCI Acquisition, as if the transactions described above had been completed on January 1, 2006 for purposes of the unaudited pro forma condensed combined statements of operations and on September 30, 2007 for purposes of the unaudited pro forma condensed combined balance sheet.
The SCI Properties include 30 cemeteries (including one pet cemetery) and 21 funeral homes (the “Alderwoods Assets”) that the SCI Group acquired on November 28, 2006 when Service Corporation International acquired Alderwoods Group Inc. The historical financial statements of the SCI Assets reflect the financial position as of the dates presented, and the results of operations, changes in equity and changes in cash flows for the periods presented, of the SCI Assets, including the Alderwoods Assets from and after November 28, 2006.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 also gives pro forma effect to StoneMor’s acquisition on September 28, 2006 of 21 cemeteries, 14 funeral
 
1

homes and 3 crematories, including certain related assets and liabilities (collectively, the “SCI 2006 Assets”), from SCI Funeral Services, Inc., as well as certain of its direct and indirect subsidiary entities, Hawes, Inc. and Hillcrest Memorial Company (collectively, the “SCI 2006 Group”). The pro forma effect of StoneMor’s acquisition of the SCI 2006 Assets is set forth under the column “StoneMor Pro Forma for SCI 2006 Assets (other than supplemental information)” included in the following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 and further described in note 3. This pro forma financial information is based on the historical financial statements of StoneMor and the SCI 2006 Assets and on the internal records relating to the SCI 2006 Assets. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 gives pro forma effect to StoneMor’s acquisition of the SCI 2006 Assets, using the purchase method of accounting, as if such acquisition had been completed on January 1, 2006.
The following unaudited pro forma condensed combined financial statements are based on the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. These assumptions may not be realized, so the actual effects of these transactions may differ from the effects reflected in the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read in conjunction with:
 
 	Ÿ	 	the historical consolidated financial statements and accompanying notes of StoneMor for the three years ended December 31, 2006 included in StoneMor’s Current Report on Form 8-K filed with the SEC on November 21, 2007 and for the nine months ended September 30, 2007 included in StoneMor’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007;	
 
 	Ÿ	 	the historical combined financial statements and accompanying notes of the SCI Assets for the three years ended December 31, 2006 and the nine months ended September 30, 2007 included in this Current Report on Form 8-K;	
 
 	Ÿ	 	the historical combined financial statements and accompanying notes of the Alderwoods Assets for the period ended November 28, 2006, the 52 weeks ended December 31, 2005, the 52 weeks ended January 1, 2005 and the 40 weeks ended October 7, 2006 included in StoneMor’s Current Report on Form 8-K filed with the SEC on December 7, 2007; and	
 
 	Ÿ	 	the historical combined financial statements and accompanying notes of the SCI 2006 Assets for the period ended June 30, 2006 included in StoneMor’s Current Report on Form 8-K/A filed with the SEC on December 12, 2006.	
Under the purchase method of accounting, the purchase price of the SCI Assets is allocated to the underlying assets acquired and liabilities assumed based on their respective fair market values. The pro forma purchase price allocation has been derived from estimates of the fair market value of the tangible assets and liabilities of the SCI Assets based upon management’s estimates using established valuation techniques. The total purchase price of the SCI Assets has been allocated on a preliminary basis to identifiable assets acquired and liabilities assumed based upon valuation procedures performed to date. This allocation is subject to change pending a final analysis of the total purchase price paid, including the direct costs of the acquisition and the estimated fair value of the assets acquired and liabilities assumed; however, StoneMor does not believe that the impact of these changes will be material.
The unaudited pro forma condensed combined financial statements do not reflect any effect of operating efficiencies, cost savings, and other benefits anticipated by StoneMor’s management as a result of the SCI Acquisition. Additionally, certain integration costs may be recorded subsequent to the SCI Acquisition that under purchase accounting will not be treated as part of the SCI Assets’ purchase price. These costs have not been reflected in these unaudited pro forma condensed combined statements of operations because they are not expected to have a continuing impact on the combined results.
 
2

 StoneMor Partners L.P.
Pro Forma Condensed Combined Balance Sheet
(in thousands)
(unaudited)

 	 	StoneMor as
Reported	 	SCI Assets As
Provided	 	Adjustments	 	 	Note 2	 	Pro
Forma	
 	 	as of
September 30,	 	as of
September 30,	 	 	 	 	 	 	 	
 	 	2007	 	2007	 	 	 	 	 	 	 	
ASSETS	 			 			 				 		 			
CURRENT ASSETS:	 			 			 				 		 			
Cash and cash equivalents	 	$	13,228	 	$	6	 	$	49,963	 	 	(a)	 	$	13,228	
	 			 			 	 	1,100	 	 	(b)	 			
	 			 			 	 	17,500	 	 	(c)	 			
	 			 			 	 	5,000	 	 	(d)	 			
	 			 			 	 	(73,569	)	 	(e)	 			
Accounts receivable, net of allowance	 	 	23,058	 	 	244	 	 	—  	 	 		 	 	23,302	
Prepaid expenses	 	 	3,498	 	 	—  	 	 	—  	 	 		 	 	3,498	
Other current assets	 	 	3,966	 	 	817	 	 	—  	 	 		 	 	4,783	
	 	 	 	 	 	 	 	 	 	 	 		 	 	 	
Total current assets	 	 	43,750	 	 	1,067	 	 	(6	)	 		 	 	44,811	
LONG-TERM ACCOUNTS RECEIVABLE—net of allowance	 	 	39,156	 	 	—  	 	 	9,402	 	 	(f)	 	 	48,558	
CEMETERY PROPERTY	 	 	173,110	 	 	46,643	 	 	(2,925	)	 	(g)	 	 	216,828	
PROPERTY AND EQUIPMENT, net of accumulated depreciation	 	 	28,307	 	 	24,891	 	 	—  	 	 		 	 	53,198	
MERCHANDISE TRUSTS, restricted, at fair value	 	 	147,487	 	 	92,133	 	 	(9,402	)	 	(f)	 	 	230,218	
PERPETUAL CARE TRUSTS, restricted, at fair value	 	 	166,245	 	 	50,364	 	 	—  	 	 		 	 	216,609	
DEFERRED FINANCING COSTS—net of accumulated amortization	 	 	3,471	 	 	—  	 	 	—  	 	 		 	 	3,471	
DEFERRED SELLING AND OBTAINING COSTS	 	 	35,336	 	 	—  	 	 	—  	 	 		 	 	35,336	
OTHER ASSETS	 	 	371	 	 	23,386	 	 	(23,386	)	 	(h)	 	 	371	
	 	 	 	 	 	 	 	 	 	 	 		 	 	 	
TOTAL ASSETS	 	$	637,233	 	$	238,484	 	$	(26,317	)	 		 	$	849,400	
	 	 	 	 	 	 	 	 	 	 	 		 	 	 	
LIABILITIES AND OWNERS’ /
PARTNERS’ EQUITY	 			 			 				 		 			
CURRENT LIABILITIES:	 			 			 				 		 			
Accounts payable and accrued liabilities	 	$	11,588	 	$	4,322	 	$	(4,322	)	 	(i)	 	$	11,588	
Accrued interest	 	 	501	 	 	—  	 	 	—  	 	 		 	 	501	
Income taxes	 	 	—  	 	 	2,507	 	 	(2,507	)	 	(i)	 	 	—  	
Current portion, long-term debt	 	 	667	 	 	241	 	 	(241	)	 	(i)	 	 	667	
	 	 	 	 	 	 	 	 	 	 	 		 	 	 	
Total current liabilities	 	 	12,756	 	 	7,070	 	 	(7,070	)	 		 	 	12,756	
LONG-TERM DEBT	 	 	115,034	 	 	1,112	 	 	17,500	 	 	(c)	 	 	137,534	
	 			 			 	 	5,000	 	 	(d)	 	 	—  	
	 			 			 	 	(1,112	)	 	(j)	 	 	—  	
DEFERRED INCOME TAXES	 	 	—  	 	 	9,323	 	 	25,509	 	 	(k)	 	 	25,509	
	 			 			 	 	(9,323	)	 	(i)	 	 	—  	
DEFERRED PREARRANGED CONTRACT REVENUE	 	 	—  	 	 	5,277	 	 	—  	 	 		 	 	5,277	
DEFERRED CEMETERY REVENUES	 	 	201,742	 	 	32,210	 	 	(9,988	)	 	(l)	 	 	223,964	
ADVANCES FROM AFFILIATES, NET	 	 	—  	 	 	25,417	 	 	(25,417	)	 	(i)	 	 	—  	
OTHER LIABILITIES	 	 	—  	 	 	6,755	 	 	(6,755	)	 	(i)	 	 	—  	
MERCHANDISE LIABILITY	 	 	49,528	 	 	—  	 	 	20,513	 	 	(m)	 	 	70,041	
	 	 	 	 	 	 	 	 	 	 	 		 	 	 	
Total liabilities	 	 	379,060	 	 	87,164	 	 	8,858	 	 		 	 	475,082	
	 	 	 	 	 	 	 	 	 	 	 		 	 	 	
{Table continued on next page)
 
3

																
 	 	StoneMor as
Reported	 	SCI
Assets As
Provided	 	Adjustments	 	 	Note 2	 	Pro
Forma	
 	 	as of
September 30,	 	as of
September 30,	 	 	 	 	 	 	 	
 	 	2007	 	2007	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	 			 			 				 		 			
NON-CONTROLLING INTEREST IN PERPETUAL CARE TRUSTS	 	 	166,245	 	 	50,183	 	 	181	 	 	(n)	 	 	216,609	
NON-CONTROLLING INTEREST IN FUNERAL AND CEMETERY TRUSTS	 	 	—  	 	 	82,094	 	 	(67,376	)	 	(n)	 	 	14,718	
						
OWNERS’ EQUITY	 			 			 				 		 			
Owners’ Equity	 	 	—  	 	 	19,043	 	 	(19,043	)	 	(o)	 	 	—  	
						
PARTNERS’ EQUITY	 			 			 				 		 			
General partner	 	 	1,785	 	 	—  	 	 	1,100	 	 	(b)	 	 	2,885	
Limited partners:	 			 			 				 		 			
Common	 	 	66,518	 	 	—  	 	 	54,988	 	 	(a)	 	 	116,481	
Subordinated	 	 	23,625	 	 	—  	 	 	—  	 	 		 	 	23,625	
	 	 	 	 	 	 	 	 	 	 	 		 	 	 	
Total owners’ / partners’ equity	 	 	91,928	 	 	19,043	 	 	32,020	 	 		 	 	142,991	
	 	 	 	 	 	 	 	 	 	 	 		 	 	 	
TOTAL LIABILITIES AND OWNERS’ / PARTNERS’ EQUITY	 	$	637,233	 	$	238,484	 	$	(26,317	)	 		 	$	849,400	

 
See accompanying notes to unaudited pro forma condensed combined financial statements.
 
4

 StoneMor Partners L.P.
Pro Forma Condensed Combined Statement of Operations
(in thousands, except unit data)
(unaudited)

 	 	StoneMor as
Reported
(other than
supplemental
information)	 	 	   	 	StoneMor
Pro Forma
for SCI
2006 Assets
(other than
supplemental
information)
(See Note 3)	 	 	Alderwoods
Assets As
Provided
(other than
supplemental
information)	 	 	SCI
Assets As
Provided
(other than
supplemental
information)	 	 	Adjustments	 	Note 4	 	 	Pro Forma	 	
 	 	Period Ended
December 31,	 	 	   	 	Period Ended
December 31,	 	 	Period Ended
November 28	 	 	Period Ended
December 31,	 	 	 	 	 	 	 	 	 	
 	 	2006	 	 	   	 	2006	 	 	2006	 	 	2006	 	 	 	 	 	 	 	 	 	
REVENUES	 	$	115,113	 	 	 	 	$	126,195	 	 	$	18,735	 	 	$	25,286	 	 			 			 	$	170,216	 	
COSTS AND EXPENSES	 	 	(70,559	)	 	 	 	 	(80,245	)	 	 	(18,141	)	 	 	(22,455	)	 			 			 	 	(120,841	)	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
GROSS PROFITS	 	 	44,554	 	 	 	 	 	45,950	 	 	 	594	 	 	 	2,831	 	 			 			 	 	49,375	 	
		 							
GENERAL AND ADMINISTRATIVE EXPENSE	 	 	(32,596	)	 	 	 	 	(34,662	)	 	 	(2,778	)	 	 	(1,347	)	 			 			 	 	(38,787	)	
LOSSES ON DISPOSITIONS AND IMPAIRMENT CHARGES, NET	 	 	—  	 	 	 	 	 	—  	 	 	 	—  	 	 	 	153	 	 			 			 	 	153	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
OPERATING INCOME (LOSS)	 	 	11,958	 	 	 	 	 	11,288	 	 	 	(2,184	)	 	 	1,637	 	 			 			 	 	10,741	 	
INTEREST EXPENSE	 	 	(7,491	)	 	 	 	 	(7,889	)	 	 	(1,993	)	 	 	(664	)	 	 	616	 	(p	)	 	 	(9,930	)	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
INCOME (LOSS) BEFORE INCOME TAXES	 	 	4,467	 	 	 	 	 	3,399	 	 	 	(4,177	)	 	 	973	 	 	 	616	 			 	 	811	 	
BENEFIT (PROVISION) FOR INCOME TAXES	 	 	(1,427	)	 	 	 	 	(1,393	)	 	 	69	 	 	 	(812	)	 			 			 	 	(2,136	)	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
NET INCOME (LOSS)	 	 	3,040	 	 	 	 	 	2,006	 	 	 	(4,108	)	 	 	161	 	 	 	616	 			 	 	(1,325	)	
		 							
SUPPLEMENTAL INFORMATION	 				 	 	 				 				 				 			 			 				
		 							
GENERAL PARTNER’S INTEREST IN NET INCOME (LOSS) FOR THE PERIOD	 	$	60	 	 	 	 	$	39	 	 	$	(82	)	 	$	3	 	 	$	12	 			 	$	(27	)	
		 							
LIMITED PARTNERS’ INTEREST IN NET INCOME (LOSS) FOR THE PERIOD	 				 	 	 				 				 				 			 			 				
Common	 	$	1,879	 	 	 	 	$	1,240	 	 	$	(2,539	)	 	$	100	 	 	$	381	 			 	$	(819	)	
Subordinated	 	$	1,100	 	 	 	 	$	726	 	 	$	(1,487	)	 	$	58	 	 	$	223	 			 	$	(480	)	
		 							
NET INCOME (LOSS) PER LIMITED PARTNER UNIT (BASIC AND DILUTED)	 	$	.34	 	 	 	 	$	.22	 	 	$	(.46	)	 	$	.02	 	 	$	.07	 			 	$	(.15	)	
		 							
WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERS’ UNITS OUTSTANDING (BASIC AND DILUTED)	 	 	11,481	 	 	 	 	 	11,481	 	 	 	11,481	 	 	 	11,481	 	 	 	11,481	 			 	 	11,481	 	
See accompanying notes to unaudited pro forma condensed combined financial statements.
 
5

StoneMor Partners L.P.
Pro Forma Condensed Combined Statement of Operations
(in thousands, except unit data)
(unaudited)

 	  	StoneMor as
Reported
(other than
supplemental
information)	 	 	SCI Assets As
Provided
(other than
supplemental
information)	 	 	Adjustments	 	 	Note 4	 	 	Pro
Forma	 	
 	  	Period Ended
September 30,	 	 	Period Ended
September 30,	 	 	 	 	 	 	 	 	 	 	
 	  	2007	 	 	2007	 	 	 	 	 	 	 	 	 	 	
REVENUES	  	$	106,580	 	 	$	33,707	 	 				 			 	$	140,287	 	
COSTS AND EXPENSES	  	 	(67,928	)	 	 	(31,262	)	 				 			 	 	(99,190	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
GROSS PROFITS	  	 	38,652	 	 	 	2,445	 	 				 			 	 	41,097	 	
						
GENERAL AND ADMINISTRATIVE EXPENSE	  	 	(27,516	)	 	 	(1,887	)	 				 			 	 	(29,403	)	
GAINS ON DISPOSITIONS AND IMPAIRMENT CHARGES, NET	  	 	—  	 	 	 	3	 	 				 			 	 	3	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
OPERATING INCOME	  	 	11,136	 	 	 	561	 	 				 			 	 	11,697	 	
						
EXPENSES RELATED TO REFINANCING	  	 	(157	)	 	 	—  	 	 				 			 	 	(157	)	
INTEREST EXPENSE	  	 	(6,441	)	 	 	(1,167	)	 	 	(364	)	 	(p	)	 	 	(7,972	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
INCOME (LOSS) BEFORE INCOME TAXES	  	 	4,538	 	 	 	(606	)	 	 	(364	)	 			 	 	3,568	 	
PROVISION FOR INCOME TAXES	  	 	(533	)	 	 	(208	)	 				 			 	 	(741	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
NET INCOME (LOSS)	  	 	4,005	 	 	 	(814	)	 	 	(364	)	 			 	 	2,827	 	
						
SUPPLEMENTAL INFORMATION	  				 				 				 			 				
						
GENERAL PARTNER’S INTEREST IN NET INCOME (LOSS) FOR THE PERIOD	  	$	81	 	 	$	(16	)	 	$	(7	)	 			 	$	.57	 	
						
LIMITED PARTNERS’ INTEREST IN NET INCOME (LOSS) FOR THE PERIOD	  				 				 				 			 				
Common	  	$	2,501	 	 	$	(508	)	 	$	(227	)	 			 	$	1,765	 	
Subordinated	  	$	1,424	 	 	$	(289	)	 	$	(129	)	 			 	$	1,005	 	
						
NET INCOME (LOSS) PER LIMITED PARTNER UNIT (BASIC AND DILUTED)	  	$	.34	 	 	$	(.07	)	 	$	(.03	)	 			 	$	.24	 	
						
WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERS’ UNITS OUTSTANDING (BASIC AND DILUTED)	  	 	11,686	 	 	 	11,686	 	 	 	11,686	 	 			 	 	11,686	 	
See accompanying notes to unaudited pro forma condensed combined financial statements.
 
6

 Stonemor Partners L.P.
Notes to Pro Forma Condensed Combined Financial Information
(unaudited)
NOTE 1. Description of Transactions
The unaudited pro forma condensed combined financial statements give pro forma effect to:
 
 	Ÿ	 	the proposed acquisition of the SCI Assets for a cash purchase price of $68.0 million;	
 
 	Ÿ	 	the proposed issuance of 2,650,000 common units to the public at an assumed offering price of $20.75 per unit and the receipt of approximately $51.1 million in net proceeds after deducting the underwriting discount and estimated offering expenses, and including our general partner’s proportionate capital contribution of approximately $1.1 million;	
 
 	Ÿ	 	the proposed issuance of $17.5 million of senior secured notes under StoneMor’s note purchase agreement; and	
 
 	Ÿ	 	the proposed borrowing of $5.0 million under StoneMor’s acquisition line of credit.	
The SCI Assets include the Alderwoods Assets that the SCI Group acquired on November 28, 2006 when Service Corporation International acquired Alderwoods Group Inc. The historical financial statements of the SCI Assets reflect the financial position as of the dates presented, and the results of operations, changes in equity and changes in cash flows for the periods presented, of the SCI Assets, including the Alderwoods Assets from and after November 28, 2006.
The pro forma adjustments have been prepared as if the transactions described above had been completed on January 1, 2006 for purposes of the unaudited pro forma condensed combined statements of operations and on September 30, 2007 for purposes of the unaudited pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 also gives pro forma effect to StoneMor’s acquisition of the SCI 2006 Assets on September 28, 2006. The pro forma adjustments have been prepared, using the purchase method of accounting, as if the acquisition of the SCI 2006 Assets had been completed on January 1, 2006. (Note 3)
NOTE 2. Unaudited Pro Forma Condensed Combined Balance Sheet
Under the purchase method of accounting, the purchase price of the SCI Assets is allocated to the underlying assets acquired and liabilities assumed based on their respective fair market values. The following information on the components and allocation of the purchase price is based on StoneMor’s preliminary evaluation and review of the assets acquired and liabilities assumed and may change as those evaluations and reviews are completed. Among other things, the consideration paid by StoneMor may be different than the estimated purchase price below as a result of certain adjustments in the purchase agreement relating to the SCI Acquisition. These elements include, but are not limited to, adjustments for accounts receivable amounts, merchandise trust amounts and perpetual care trust amounts above or below an agreed upon level, as provided in the purchase agreement relating to the SCI Acquisition.
The components of the purchase price are as follows (in thousands):

Paid to the SCI Group	  	$	68,000	
Acquisition costs	  	 	5,563	
	  	 	 	
Total consideration	  	$	73,563	

7

 Stonemor Partners L.P.
Notes to Pro Forma Condensed Combined Financial Information—(Continued)
(unaudited)
 
The allocation of the purchase price is as follows:

Total consideration	  	$	73,563	
	  	 	 	
Allocated to:

Accounts receivable, net	  	$	244	 	
Inventories	  	 	817	 	
Long-term accounts receivable, net	  	 	9,402	 	
Investment in trust—funeral	  	 	14,718	 	
Investment in trust—cemetery	  	 	68,013	 	
Cemetery property	  	 	43,718	 	
Property, plant and equipment	  	 	24,891	 	
Cemetery perpetual care trusts	  	 	50,364	 	
Deferred income taxes	  	 	(25,509	)	
Deferred prearranged contract revenue	  	 	(5,277	)	
Deferred margin	  	 	(22,222	)	
Merchandise liability	  	 	(20,513	)	
Non-controlling interest in perpetual care trusts	  	 	(50,364	)	
Non-controlling interest in funeral trusts	  	 	(14,718	)	
The following adjustments have been reflected in the unaudited pro forma condensed combined balance sheet as of September 30, 2007:
 
 	(a)	 	Reflects the gross proceeds to StoneMor of $55.0 million from the issuance and sale of 2,650,000 common units at an assumed offering price of $20.75 per common unit, net of the underwriting discount of $3.0 million and the payment of offering expenses of $2.0 million.	
 
 	(b)	 	Reflects the capital contribution of $1.1 million from StoneMor GP to maintain its 2% general partner interest.	
 
 	(c)	 	Reflects the gross proceeds to StoneMor of $17.5 million from the issuance of the 9.27% senior secured notes due                     , 2012 by StoneMor’s operating company and its subsidiaries.	
 
 	(d)	 	Reflects borrowings by StoneMor of $5.0 million under its acquisition line of credit at an interest rate of 8.38% due                     , 2012.	
 
 	(e)	 	Reflects the payment of the purchase price of the acquisition of the SCI Assets, including acquisition costs and cash not acquired from the SCI Group.	
 
 	(f)	 	Reclassifies long-term accounts receivable from merchandise trusts, restricted at fair value to conform to StoneMor’s accounting policies.	
 
 	(g)	 	Adjusts cemetery property to represent approximated fair value as follows:	

(in thousands)	  	Approximated
Fair Value	  	Net Book
Value	  	Adjustment	
Cemetery property	  	$	43,718	  	$	46,643	  	$	2,925	
 
 	(h)	 	Eliminates other assets not acquired in the SCI Acquisition.	
 
 	(i)	 	Eliminates liabilities not acquired in the SCI Acquisition.	
 
 	(j)	 	Eliminates predecessor debt not acquired in the SCI Acquisition.	
 
8

 Stonemor Partners L.P.
Notes to Pro Forma Condensed Combined Financial Information—(Continued)
(unaudited)
 
 	(k)	 	Reflects the effect on income taxes provision (benefit) resulting from the acquisition of the SCI Assets.	
 
 	(l)	 	Reflects elimination of deferred cemetery revenues of SCI Assets and provides for a reasonable profit margin to account for the future costs of delivering products and providing services on pre-need contracts due to the SCI Acquisition.	
 
 	(m)	 	Records a liability for pre-need products and services sold but not yet delivered.	
 
 	(n)	 	Conforms non-controlling interest amounts to StoneMor’s accounting policies.	
 
 	(o)	 	Eliminates owners’ equity.	

 	NOTE  3.	 	Unaudited Condensed Combined Statement of Operations for the Year Ended December 31, 2006	
The pro forma condensed combined financial information of StoneMor for the year ended December 31, 2006 set forth in this note 3 and in the column to which this note 3 relates gives pro forma effect to StoneMor’s acquisition of the SCI 2006 Assets as if the acquisition had been completed on January 1, 2006. The pro forma information in this note 3 and in the column to which this note 3 relates is based on the historical consolidated financial statements and accompanying notes of StoneMor for the year ended December 31, 2006 included in StoneMor’s Current Report on Form 8-K filed with the SEC on November 21, 2007 and the historical combined financial statements and accompanying notes of the SCI Assets for the period ended June 30, 2006 included in StoneMor’s Current Report on Form 8-K/A filed with the SEC on December 12, 2006 and internal records relating to the SCI Assets for the period July 1, 2006 through September 28, 2006.
 
9

StoneMor Partners L.P.
Pro Forma Condensed Combined Statement of Operations
(in thousands, except unit data)
(unaudited)

 	  	StoneMor as
Reported
(Other than
supplemental
information)	 	 	SCI 2006
Assets as
Provided	 	 	SCI 2006
Assets as
Provided	 	 	Adjustments	 	 	Note A	 	 	Pro Forma	 	
 	  	Year Ended
December 31,	 	 	Six Months
Ended
June 30,	 	 	Period July 1-
September 27,	 	 	 	 	 	 	 	 	 	 	
 	  	2006	 	 	2006	 	 	2006	 	 	 	 	 	 	 	 	 	 	
Revenues	  	$	115,113	 	 	$	8,598	 	 	$	2,484	 	 	$	—	 	 			 	$	126,195	 	
Costs and expenses	  	 	(70,559	)	 	 	(7,577	)	 	 	(2,129	)	 	 	20	 	 	(i	)	 	 	(80,245	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
Gross profits	  	 	44,554	 	 	 	1,021	 	 	 	355	 	 	 	20	 	 			 	 	45,950	 	
							
General and administrative expense	  	 	(32,596	)	 	 	(1,622	)	 	 	(444	)	 	 	—  	 	 			 	 	(34,662	)	
Losses on dispositions and impairment charges, net	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 			 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
Operating income (loss)	  	 	11,958	 	 	 	(601	)	 	 	(89	)	 	 	20	 	 			 	 	11,288	 	
Interest expense	  	 	(7,491	)	 	 	—  	 	 	 	—  	 	 	 	(398	)	 	(ii	)	 	 	(7,889	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
Income (loss) before income taxes	  	 	4,467	 	 	 	(601	)	 	 	(89	)	 	 	(378	)	 			 	 	3,399	 	
Provision for income taxes	  	 	(1,427	)	 	 	231	 	 	 	34	 	 	 	(231	)	 	(iii	)	 	 	(1,393	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 			 	 	 	 	
Net income (loss)	  	 	3,040	 	 	 	(370	)	 	 	(55	)	 	 	(609	)	 			 	 	2,006	 	
							
Supplemental Information	  				 				 				 				 			 				
General partner's interest in net income for the period	  	$	60	 	 				 				 				 			 	$	39	 	
Limited partners' interest in net income for the period	  				 				 				 				 			 				
Common	  	$	1,549	 	 				 				 				 			 	$	1,022	 	
Subordinated	  	$	1,430	 	 				 				 				 			 	$	944	 	
Net income per limited partner unit (basic and diluted)	  	$	.34	 	 				 				 				 			 	$	.23	 	
Weighted average number of limited partners' units outstanding (basic and diluted)	  	 	8,831	 	 				 				 				 			 	 	8,831	 	
Note A. Unaudited Pro Forma Condensed Combined Statement of Operations
In consideration for the SCI 2006 Assets, StoneMor paid the SCI 2006 Group an aggregate of $6,159,000 in cash and delivered to the SCI 2006 Group an aggregate of 275,046 common units equal in value to $5,875,000 based on the closing price per common unit as quoted on the NASDAQ Global Market for the second business day immediately preceding the closing date.
 
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The following information on the components and allocation of the purchase price is based on our evaluation and review of the assets acquired and liabilities assumed and may change as additional facts become evident. Among other things, the consideration paid by us may be different than the estimated purchase price below as a result of certain adjustments in the purchase agreements relating to the SCI 2006 Assets and the registration rights agreement relating to the common units issued to the SCI 2006 Group in connection with the acquisition.
The components of the purchase price were as follows (in thousands):

Paid to sellers	  	$	6,159	
Value of common units issued to sellers	  	 	5,875	
Acquisition costs	  	 	3,692	
	  	 	 	
Total consideration	  	$	15,725	
	  	 	 	
The allocation of the purchase price is as follows:

Total consideration	  	$	15,725	
Allocated to:

Accounts receivable, net	  	$	3,855	 	
Inventories	  	 	2,076	 	
Investment in trust	  	 	24,986	 	
Cemetery property	  	 	4,502	 	
Property, plant and equipment	  	 	4,123	 	
Cemetery perpetual care trusts	  	 	17,202	 	
Deferred interest	  	 	(628	)	
Deferred margin	  	 	(12,059	)	
Merchandise liability	  	 	(11,130	)	
Non-controlling interest in perpetual care trusts	  	 	(17,202	)	
The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 set forth in this note 3 reflects the following adjustments:
 
 	(i)	 	Adjusts cost of goods sold land and crypts based on the approximated fair market value of the cemetery property acquired.	
 
 	(ii)	 	Reflects increase in interest expense due to borrowing of $9.0 million in acquisition principal.	
 
 	(iii)	 	Eliminates the benefit from taxes due to the impairment charge recorded on the financial statements of the SCI 2006 Assets. StoneMor would not have received similar benefit had it written down the value of the assets due to its structure as a master limited partnership.	
 
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 	NOTE  4.	 	Unaudited Pro Forma Condensed Combined Statements of Operations for the Year Ended December 31, 2006 and for the Nine Months Ended September 30, 2007	
The following adjustments have been reflected in the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2006 and for the nine months ended September 30, 2007:
 
 	(p)	 	Reflects increase in interest expense due to the issuance of senior secured notes by StoneMor’s operating company and its subsidiaries and borrowings under StoneMor’s acquisition line of credit. Assumes an interest rate of 9.27% on the senior secured notes and 8.38% on the borrowings under the acquisition line of credit. Also reflects the elimination of the SCI Assets’ interest expense.	
 
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