CARRIAGE SERVICES INC, 424B1, 1996-08-09

CARRIAGE SERVICES INC
424B1, 1996-08-09
PERSONAL SERVICES

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PROSPECTUS

3,400,000 SHARES

[LOGO]
CARRIAGE SERVICES, INC.

CLASS A COMMON STOCK
------------------------
All 3,400,000 shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), offered hereby (the "Offering") are being sold by
Carriage Services, Inc. (the "Company").

Prior to the Offering, there has been no public market for the Class A
Common Stock of the Company. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price.

The Company has two classes of Common Stock, the Class A Common Stock
offered hereby and Class B Common Stock, par value $.01 per share (the "Class B
Common Stock" and, together with the Class A Common Stock, the "Common Stock").
The Class A Common Stock is entitled to one vote per share. The Class B Common
Stock is entitled to ten votes per share and is convertible on a share-for-share
basis into Class A Common Stock. Except with respect to votes per share and
conversion rights, the Class A Common Stock and the Class B Common Stock are
identical. Upon consummation of the Offering, holders of Class B Common Stock
will hold approximately 93% of the voting power of the outstanding shares of
Common Stock. See "Description of Capital Stock."

The Class A Common Stock has been approved for quotation, subject to
official notice of issuance, on the Nasdaq National Market under the symbol
"CRSV."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED
HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

- -------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------
Per Share...... $ 13.50 $.95 $12.55
- -------------------------------------------------------------------------
Total(3)....... $45,900,000 $3,230,000 $42,670,000
- -------------------------------------------------------------------------

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $1,000,000.

(3) The Company has granted to the several Underwriters an option, exercisable
within 30 days after the date of this Prospectus, to purchase up to an
additional 510,000 shares of Class A Common Stock at the Price to Public,
less Underwriting Discount, solely to cover over-allotments, if any. If such
option is exercised in full, the Price to Public, Underwriting Discount and
Proceeds to Company will be $52,785,000, $3,714,500 and $49,070,500,
respectively. See "Underwriting."
------------------------

The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Class A Common Stock will be made in New York, New
York, on or about August 14, 1996.
------------------------
MERRILL LYNCH & CO. THE CHICAGO CORPORATION
------------------------
The date of this Prospectus is August 8, 1996.

<PAGE>
COMPANY LOCATIONS
As of July 15, 1996

[GRAPHIC OMITTED]

[Picture map of the United States showing Funeral Homes,
Cemeteries and Headquarters]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S CLASS
A COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS ASSUMES (A) THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED, (B) ALL OUTSTANDING SHARES OF THE COMPANY'S SERIES A, SERIES B AND
SERIES C PREFERRED STOCK ARE CONVERTED INTO SHARES OF CLASS B COMMON STOCK ON
THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A
PART AND (C) A ONE-FOR-TWO REVERSE STOCK SPLIT OF THE CLASS B COMMON STOCK. AS
USED IN THIS PROSPECTUS, UNLESS THE CONTEXT INDICATES OTHERWISE, THE TERMS
"CARRIAGE" AND THE "COMPANY" REFER TO CARRIAGE SERVICES, INC., ITS CONSOLIDATED
SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS.

THE COMPANY

GENERAL

Carriage Services, Inc. believes that it is the sixth largest provider of
death care services and products in the United States based on 1995 revenues.
The Company provides a complete range of funeral services and products to meet
families' needs, including consultation, removal and preparation of remains,
sale of caskets and related funeral merchandise, transportation services and the
use of funeral home facilities for visitation. The Company also offers cemetery
products and services, including rights to interment in cemetery sites,
interment services and related cemetery merchandise. As of June 30, 1996, the
Company operated 62 funeral homes and seven cemeteries in 13 states. Funeral
services constituted approximately 93% of revenues in 1995 and 92% of revenues
in the first half of 1996.

Since the Company's formation in 1991, management has undertaken a
disciplined approach to growth that has allowed the Company the necessary time
to integrate acquisitions, develop effective operating, administrative and
financial systems and controls, recruit an experienced operating management team
and promote a decentralized, entrepreneurial service culture. From 1992 through
1995, the Company acquired 42 funeral homes and four cemeteries for
consideration ranging from approximately $9 million to $14 million in each of
the four years. The Company believes that the infrastructure it has developed
over the past four years positioned the Company to pursue an accelerated growth
strategy beginning in late 1995. As a result, the Company has acquired 24
funeral homes and four cemeteries for consideration of $33.5 million through the
first six months of 1996 and an additional two funeral homes and one cemetery
for consideration of $7.8 million through July 15, 1996. In addition, as of July
15, 1996, the Company had letters of intent to acquire eight funeral homes and
one cemetery for consideration of $13.5 million.

DEATH CARE INDUSTRY

The death care industry has certain attractive fundamental characteristics,
including highly fragmented ownership, barriers to entry and stable, predictable
demand. There are an estimated 22,000 funeral homes and 9,600 commercial
cemeteries in the United States, and less than 20% of the 1995 United States
death care industry revenues are represented by the four largest publicly traded
domestic death care companies. Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have
developed a local heritage and tradition that act as a formidable barrier for
those wishing to enter an existing market. Death rates in the United States are
fairly predictable, which lends stability to the death care industry. The number
of deaths in the United States has increased at a compounded rate of
approximately 1% per year since 1980 and is expected to continue at that rate
through 2010. In the past several years, the industry has witnessed considerable
consolidation. Estate planning issues, increased governmental regulation and a
desire to address management succession concerns have led independent funeral
home owners to pursue opportunities to divest their businesses. Former owners
frequently remain associated with the funeral home in a managerial capacity
after the sale. Management believes consolidation in the industry will continue
to accelerate and that the Company is well positioned to be a major participant
in such consolidation.

BUSINESS STRATEGY

The Company's objective is to become the preferred succession planning
alternative for premier funeral homes throughout the United States while
continuing to promote a decentralized, entrepreneurialservice culture.
Management believes that the Company's reputation and collaborative operating
style have allowed it to successfully pursue acquisition opportunities. The
Company also has been successful in implementing programs to improve
profitability at newly acquired properties.

Management believes the Company distinguishes itself from other national
death care providers through its decentralized management style and its
incentive-based compensation structure. The Company's management structure
affords local funeral directors autonomy in operating their businesses, while
the utilization of a proprietary personal computer-based system allows senior
management to "manage by exception." In this manner, the Company can obtain
current information on the performance of individual operations and institute
corrective action if necessary. The Company's compensation structure is designed
to maintain or create a sense of ownership by awarding local managers meaningful
cash bonuses and stock options for achieving or exceeding previously established
performance objectives.

The Company's strategy to enhance the profitability of acquired operations
includes improving merchandising and sales training, realizing volume purchase
discounts, centralizing certain financial, accounting, legal, administrative and
employee benefits functions, offering cross-marketing opportunities and
increasing preneed sales in selective markets. Management believes that
significant value can be created by bringing sound business principles to
family-owned businesses, a majority of which do not measure their financial
performance against any annually established parameters. The introduction of
management techniques focused on budgeting and financial performance has proven
to be effective in increasing the profitability of acquired properties.

The Company will continue to aggressively pursue the acquisition of premier
funeral homes that have a strong local market presence and that conduct from 100
to 600 funeral services per year, as well as funeral homes in close proximity to
the Company's existing properties. In addition, although the Company
traditionally has not focused on acquiring cemetery operations, the Company
intends to more aggressively pursue cemetery acquisitions in markets where the
Company operates, or plans to operate, funeral homes to take advantage of
cross-marketing opportunities.

THE OFFERING

Class A Common Stock offered......... 3,400,000 shares

Common Stock to be outstanding after
the Offering(1):
Class A Common Stock............ 3,400,000 shares

Class B Common Stock............ 4,501,476 shares

Total...................... 7,901,476 shares

Voting Rights........................ Each share of Class A Common Stock is
entitled to one vote per share on all
matters requiring stockholder approval,
and each share of Class B Common Stock is
entitled to ten votes per share. See
"Description of Capital Stock."

Conversion of Class B Common Stock... Each share of Class B Common Stock is
convertible at the holder's option into
one share of Class A Common Stock. In
addition, each share of Class B Common
Stock automatically converts into one
share of Class A Common Stock upon a sale
or transfer to anyone other than a
permitted transferee. In any event, each
share of Class B Common Stock will
automatically convert into one share of
Class A Common Stock on December 31,
2001. See "Description of Capital Stock."

Use of Proceeds...................... To repay outstanding indebtedness
incurred principally to fund
acquisitions. See "Use of Proceeds."

Class A Common Stock
Nasdaq National Market symbol...... "CRSV"

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

(1) Excludes as of June 30, 1996, (i) 90,000 shares of Class B Common Stock
issuable upon exercise of options and (ii) 633,009 shares of Class B Common
Stock issuable upon conversion of 8,545,616 shares of the Company's
convertible redeemable Series D Preferred Stock, par value $.01 per share
(the "Series D Preferred Stock"). Also, does not include (i) 600,000
shares of Class A Common Stock issuable upon the exercise of options to be
granted under the Company's stock option plans concurrently with the
Offering, (ii) 594,815 shares of Class B Common Stock issuable upon
conversion of 8,030,000 shares of Series D Preferred Stock issued in
connection with acquisitions completed subsequent to June 30, 1996 and (iii)
51,852 shares of Class B Common Stock issuable upon conversion of 700,000
shares of Series D Preferred Stock and an additional 53,333 shares of Class
B Common Stock to be issued in connection with pending acquisitions. See
"Management -- Incentive Plans" and "Description of Capital Stock."

SUMMARY FINANCIAL AND OPERATING DATA

The following table presents summary historical consolidated financial and
operating data as of the dates and for the periods indicated. The consolidated
financial data of the Company as of and for the four years ended December 31,
1995 and six months ended June 30, 1996 set forth below have been derived from
financial statements audited by Arthur Andersen LLP, independent public
accountants. The consolidated financial data of the Company as of and for the
six months ended June 30, 1995 have been derived from unaudited financial
statements which, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial data for such periods. The summary historical financial data
should be read in conjunction with the Consolidated Financial Statements of the
Company and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- ---------------------
1992 1993 1994 1995 1995 1996
------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral ..................................... $ 1,625 $ 10,651 $ 17,368 $ 22,661 $ 10,800 $ 15,648
Cemetery .................................... 178 614 1,036 1,576 701 1,277
------- -------- -------- -------- -------- --------
Total net revenues ..................... 1,803 11,265 18,404 24,237 11,501 16,925
Gross profit:
Funeral ..................................... (88) 917 2,856 3,740 2,062 3,194
Cemetery .................................... 113 143 158 250 110 195
------- -------- -------- -------- -------- --------
Total gross profit ..................... 25 1,060 3,014 3,990 2,172 3,389
General and administrative
expenses .................................... 490 985 1,266 2,106 832 1,155
------- -------- -------- -------- -------- --------
Operating income (loss) ....................... (465) 75 1,748 1,884 1,340 2,234
Interest expense, net ......................... 295 1,745 2,671 3,684 1,648 2,644
------- -------- -------- -------- -------- --------
Loss before income taxes ...................... (760) (1,670) (923) (1,800) (308) (410)
Provision for income taxes .................... -- -- 40 694 390 251
------- -------- -------- -------- -------- --------
Net loss ...................................... (760) (1,670) (963) (2,494) (698) (661)
Preferred stock dividends ..................... -- -- -- -- -- 101
------- -------- -------- -------- -------- --------
Net loss attributable to common
stock ......................................... $ (760) $ (1,670) $ (963) $ (2,494) $ (698) $ (762)
======= ======== ======== ======== ======== ========
Loss per common share ......................... $ (.30)(1) $ (.66)(1) $ (.28) $ (.66) $ (.20) $ (.17)
======= ======== ======== ======== ======== ========
Weighted average number of common
and common equivalent shares
outstanding ................................. 2,543(1) 2,543(1) 3,406 3,781 3,543 4,512
======= ======== ======== ======== ======== ========
OPERATING AND FINANCIAL DATA:
Funeral homes at end of period ................ 14 25 34 41 39 62
Funeral services performed during
period ...................................... 389 2,265 3,529 4,414 2,127 3,004
Preneed funeral contracts sold ................ 451 644 762 2,610 1,279 1,997
Backlog of preneed funeral
contracts ................................... 2,576 5,170 6,855 8,676 7,769 23,758
Depreciation and amortization ................. $ 261 $ 947 $ 1,476 $ 1,948 $ 907 $ 1,389
</TABLE>

AS OF
JUNE 30, 1996
AS OF -----------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(2)
------------- --------- -----------
BALANCE SHEET DATA:
Working capital....................... $ 6,472 $ 1,461 $ 6,124
Total assets.......................... 61,746 94,037 93,695
Long-term debt, net of current
maturities.......................... 42,057 60,277 23,270
Redeemable preferred stock............ -- 8,545 8,545
Stockholders' equity.................. 9,151 8,650 49,978

- ------------
(1) Prior to January 1, 1994, the Company consisted of three entities whose
owners contributed their equity in these entities in exchange for 2,520,000
shares of common stock of the Company effective January 1, 1994.
Accordingly, shares of common stock shown outstanding for these periods
assume the exchange had taken place at the beginning of the periods
presented. In 1992 and 1993, the entities were subchapter S corporations,
and taxes were the direct responsibility of the owners. Thus, the tax
provisions reflected above for these periods are based on assumptions about
what tax provisions (benefits) would have been if the Company had been a
taxable entity. In the opinion of management, no pro forma tax provision
(benefit) was appropriate for these periods because the Company follows a
policy of fully reserving its net operating losses.

(2) As adjusted to reflect the application of the net proceeds of the Offering,
borrowings under a new credit facility, the write-off of $667,000 of
capitalized debt issuance costs related to indebtedness to be repaid with
the proceeds of the Offering and the incurrence of $325,000 of capitalized
debt issuance costs related to the new credit facility. The write-off of the
$667,000 capitalized debt issuance costs will be recorded as an expense in
the period in which the related indebtedness is repaid.

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF THE CLASS A COMMON STOCK OFFERED HEREBY.

COMPETITION FOR ACQUISITIONS

The Company's operations have expanded principally through the acquisition
of established funeral homes and cemeteries. Acquisitions of funeral homes and
cemeteries in selected markets will continue to be an integral part of the
Company's business strategy. Competition in the acquisition market is intense,
and prices paid for funeral homes and cemeteries have increased substantially in
recent years. In addition, the four largest publicly held North American death
care companies, each of which has significantly greater financial and other
resources than the Company, are actively engaged in acquiring funeral homes and
cemeteries in a number of markets. Accordingly, no assurance can be given that
the Company will be successful in expanding its operations through acquisitions
or that funeral homes and cemeteries will be available at reasonable prices or
on reasonable terms. As of July 15, 1996, the Company had letters of intent for
the acquisition of eight funeral homes and one cemetery. These letters of intent
are non-binding, except for certain provisions relating to confidentiality and
restricting the seller from negotiating a sale with others. Accordingly, no
assurance can be given that such transactions will be successfully completed.
See "Business -- Death Care Industry," "-- Business Strategy" and "--
Competition."

ACQUISITION RISKS

The Company intends to grow primarily through the acquisition of additional
funeral homes and cemeteries. There can be no assurance that the Company will be
able to identify, acquire or profitably manage additional funeral homes and
cemeteries or successfully integrate acquired funeral homes and cemeteries, if
any, into the Company without substantial costs, delays or other operational or
financial problems. Further, acquisitions involve a number of special risks,
including possible adverse effects on the Company's operating results, diversion
of management's attention, failure to retain key acquired personnel and
unanticipated events or liabilities, some or all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

NO HISTORY OF PROFITABILITY

The Company was formed in June 1991 and, consequently, has a limited
operating history. The Company also has grown dramatically in the past year
through the acquisition of a number of funeral homes and cemeteries. A
substantial portion of the funds utilized for such acquisitions has been
obtained through the incurrence of debt, and therefore, the Company has incurred
net losses in each of its five years of operations. As of June 30, 1996, the
Company had an accumulated deficit of $6,857,000. There can be no assurance that
the Company will become profitable in the future. See "Selected Historical
Consolidated Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

SUBSTANTIAL CAPITAL REQUIREMENTS

The Company has and will have substantial capital requirements for the
acquisition of funeral homes and cemeteries. Historically, the Company has
financed these requirements primarily with the proceeds from debt and the
issuance of preferred stock. While management believes the Company will have
sufficient capital available under its credit facility, from cash flow and from
proceeds from the Offering to fund acquisitions, if revenues or the Company's
borrowing base decrease as a result of operating difficulties or other reasons,
the Company may have limited ability to expend the capital necessary to
undertake or complete future acquisitions. There can be no assurance that
sufficient debt or equity financing or cash generated by operations will be
available to meet these requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

DEPENDENCE UPON KEY PERSONNEL

The Company depends to a large extent upon the abilities and continued
efforts of Melvin C. Payne, President and Chief Executive Officer, Mark W.
Duffey, Executive Vice President and Chief Financial Officer, and its other
senior management. The loss of the services of the key members of the Company's
senior management could have a material adverse effect on the Company's
continued ability to compete in the death care industry. The Company will enter
into employment agreements with its principal executive officers prior to the
Offering. The Company's future success will also depend upon its ability to
attract and retain skilled funeral home and cemetery management personnel. See
"Management."

CONTROL BY EXISTING STOCKHOLDERS

Following the Offering, the Company will have 3,400,000 shares of Class A
Common Stock outstanding and 4,501,476 shares of Class B Common Stock
outstanding. The Company's Amended and Restated Certificate of Incorporation
("Charter") provides that holders of Class A Common Stock shall have one vote
per share on all matters requiring stockholder approval and that holders of
Class B Common Stock shall have ten votes per share on all matters requiring
stockholder approval. Accordingly, following the Offering and assuming
conversion of the Series D Preferred Stock, holders of Class B Common Stock will
hold 94% of the voting power of the outstanding shares of Common Stock (93% if
the Underwriters' over-allotment option is exercised in full). These
stockholders will be in a position to exert substantial influence over the
outcome of most corporate actions requiring stockholder approval, including the
election of directors, the future issuance of Common Stock or other securities
of the Company, the declaration of any dividend payable on the Common Stock and
the approval of transactions involving a change in control of the Company. See
"Description of Capital Stock."

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Charter and Amended and Restated Bylaws ("Bylaws") contain
certain provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable, including the voting
rights of the Class B Common Stock and provisions authorizing the issuance of
"blank check" preferred stock, providing for a Board of Directors with
staggered, three-year terms, requiring supermajority or class voting to effect
certain amendments to the Charter and Bylaws, limiting the persons who may call
special stockholders' meetings, limiting stockholder action by written consent
and establishing advance notice requirements for nominations for election to the
Board of Directors or for proposing matters that can be acted upon at
stockholders' meetings. It is anticipated that certain holders of Class B Common
Stock will enter into a voting agreement restricting each person's ability to
sell their shares of capital stock of the Company to a competitor and obligating
such persons to vote against any proposal to merge, consolidate or sell all or
substantially all of the Company's assets to a competitor. See "Description of
Capital Stock -- Delaware Law and Certain Charter Provisions."

TREND TOWARD CREMATION

There is an increasing trend in the United States toward cremation.
According to industry studies, cremations represented approximately 21% of the
burials performed in the United States in 1994, as compared with approximately
10% in 1980. Cremations represented approximately 3% of the Company's funeral
revenues for the year ended December 31, 1995. The Company believes that its low
cremation rate is primarily a result of cultural or religious traditions in the
markets the Company serves. The Company's cremation rate will increase if the
cremation rate in its current markets increases or if the Company enters new
markets where the cremation rate is higher. Compared to traditional funeral
services, cremations have historically generated similar gross profit
percentages but lower revenues. A substantial increase in the rate of cremations
performed by the Company could have a material adverse effect on the Company's
results of operations. See "Business -- Death Care Industry."

REGULATION

The Company's operations are subject to regulation, supervision and
licensing under numerous federal, state and local laws, ordinances and
regulations, including extensive regulations concerning trust funds, preneed
sales of funeral and cemetery products and services and various other aspects of
the Company's business. The impact of such regulations varies depending on the
location of the Company's funeral homes and cemeteries.

From time to time, states and other regulatory agencies have considered and
may enact additional legislation or regulations that could affect the death care
industry. For example, some states and regulatory agencies have considered or
are considering regulations that could require more liberal refund and
cancellation policies for preneed sales of products and services, prohibit
door-to-door or telephone solicitation of potential customers, increase trust
requirements and prohibit the common ownership of funeral homes and cemeteries
in the same market. If adopted in the states in which the Company operates,
these and other possible proposals could have a material adverse effect on the
Company's results of operations. See "Business -- Trust Funds" and "--
Regulation."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 3,400,000 shares of
Class A Common Stock outstanding and 4,501,476 shares of Class B Common Stock
outstanding. The 3,400,000 shares of Class A Common Stock will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"), except for shares sold by persons
deemed to be "affiliates" of the Company or acting as "underwriters," as those
terms are defined in the Securities Act. All shares of Class B Common Stock will
be "restricted securities" within the meaning of Rule 144 under the Securities
Act and will be eligible for resale subject to the volume, manner of sale,
holding period and other limitations of Rule 144. In addition, an aggregate of
310,000 shares of Class A Common Stock and 90,000 shares of Class B Common Stock
are reserved for issuance to employees and directors of the Company under the
Company's 1995 Stock Incentive Plan, 600,000 shares of Class A Common Stock are
reserved for issuance to employees under the Company's 1996 Stock Incentive Plan
and 200,000 shares of Class A Common Stock are reserved for issuance to outside
directors under the 1996 Nonemployee Directors Plan. Currently, 90,000 shares of
Class B Common Stock are issuable under existing options granted to employees
and directors. In addition, options exercisable for 600,000 shares of Class A
Common Stock will be granted to employees under the Company's stock option plans
concurrently with the Offering. See "Management -- Incentive Plans,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."

Pursuant to certain stock registration agreements, the Company may be
required, subject to certain conditions, to register under the Securities Act an
aggregate of up to 4,444,436 shares of Class A Common Stock issuable upon
conversion of the Class B Common Stock by the current stockholders. Such
stockholders have waived their registration rights under the stock registration
agreements arising in connection with the Offering. In addition, the holders of
Series D Preferred Stock have been granted certain registration rights if the
Company proposes to undertake a public offering. Such holders have waived their
registration rights in connection with the Offering.

The Company and the executive officers and directors and certain
stockholders of the Company have agreed not to sell, offer to sell, contract to
sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for or any rights
to purchase or acquire Common Stock for a period of 180 days commencing on the
date of this Prospectus without the prior written consent of the representatives
of the Underwriters, other than the issuance of options to purchase Common Stock
or shares of Common Stock issuable upon the exercise thereof and issuances of
capital stock by the Company in connection with acquisitions of funeral homes
and cemeteries, provided that such options shall not vest and become exercisable
and such shares issuable upon exercise of options or pursuant to acquisitions
shall not be transferable prior to the end of the 180-day period. See "Shares
Eligible for Future Sale" and "Underwriting."

NO PRIOR MARKET FOR CLASS A COMMON STOCK

Prior to the Offering, there has been no public market for the Class A
Common Stock. There can be no assurance that an active market for the Class A
Common Stock will develop upon completion of the Offering or, if developed, that
such market will be sustained. The initial public offering price of the Class A
Common Stock has been determined through negotiations between the Company and
the representatives of the Underwriters and may bear no relationship to the
market prices of the Class A Common Stock after the Offering. Prices for the
Class A Common Stock after the Offering may be influenced by a number of
factors, including the liquidity of the market for the Class A Common Stock,
investor perceptions of the Company and the death care industry in general and
general economic and other conditions. Sales of substantial amounts of Class A
Common Stock in the public market subsequent to the Offering could adversely
affect the market price of the Class A Common Stock. For information relating to
the factors to be considered in determining the initial public offering price,
see "Underwriting."

OFFER AND SALE OF UNREGISTERED SECURITIES

The Company has offered and sold an aggregate of 8,030,000 shares of Series
D Preferred Stock at a value of $1.00 per share (convertible into 594,815 shares
of Class B Common Stock, subject to adjustment) in connection with the purchases
of certain funeral homes in transactions that were not registered under the
Securities Act in reliance upon the exemption from registration under Section
4(2) of the Securities Act. In the event such offer and sale of the Series D
Preferred Stock were determined not to be exempt from registration under the
Securities Act, the holders of such unregistered Series D Preferred Stock may
have the right under federal securities laws for rescission of their investment
in addition to potential other remedies. The Company does not believe
registration of such offers and sales were required, nor does it believe that it
will incur any material liability in connection with such offers and sales.

BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS

In addition to the benefits to be derived from the Company having publicly
traded securities following the Offering, certain existing stockholders of the
Company will benefit from the Offering in that the Company will use $8.3 million
of the net proceeds to repay borrowings from Mr. C. Byron Snyder, Chairman of
the Board of Directors and one of the Company's principal stockholders, and will
use $37.9 million of the net proceeds to repay borrowings from Provident
Services, Inc. In addition, the personal guarantees of Melvin C. Payne, Mark W.
Duffey and C. Byron Snyder, three of the Company's principal stockholders, on
certain indebtedness will be released. See "Use of Proceeds." The Company also
will enter into certain employment agreements and issue options under the
Company's stock option plans to the executive officers, directors and certain
key employees concurrently with the Offering. See "Management -- Employment
Agreements," "-- Compensation of Directors" and "-- Incentive Plans."

SUBSTANTIAL DILUTION

Investors in the Class A Common Stock offered hereby will experience
immediate and substantial dilution in net tangible book value per share of
$11.94. See "Dilution."

DIVIDENDS

The Company intends to retain its cash for the continued development of its
business and currently does not intend to pay cash dividends on the Common Stock
in the foreseeable future. See "Dividend Policy."

THE COMPANY

The Company was incorporated in Delaware on December 29, 1993. The
Company's principal executive office is located at 1300 Post Oak Blvd., Suite
1500, Houston, Texas 77056, and its telephone number is (713) 556-7400.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Class A
Common Stock offered hereby are estimated to be approximately $41.7 million
(approximately $48.1 million if the Underwriters' over-allotment option is
exercised in full), after deducting the estimated underwriting discount and
offering expenses. All of the net proceeds will be used to repay outstanding
indebtedness of the Company. The Company will use the net proceeds of the
Offering and a portion of the proceeds from a new bank credit facility to be
entered into concurrently with the Offering to repay borrowings from Mr. C.
Byron Snyder, Chairman of the Board of Directors and one of the Company's
principal stockholders (the "Snyder Notes"), borrowings from Provident
Services, Inc. ("Provident") and borrowings from Texas Commerce Bank National
Association ("TCB").

The Snyder Notes consist of subordinated notes bearing interest at a
predetermined rate plus 3% (a weighted average rate of 11.3% for the six months
ended June 30, 1996), subject to adjustment under certain conditions. Interest
on the notes is payable annually on December 31 in the form of cash or the
issuance of additional subordinated notes. As of June 30, 1996, a total of $8.3
million of principal and accrued interest was owed under such notes. The notes
mature in May 2001.

The indebtedness payable to Provident consists of notes, secured by deeds
of trust and security agreements covering certain real and personal property and
guaranteed by Messrs. Payne and Duffey. The notes bear interest at the prime
rate plus 1.5% per annum and the prime rate (a weighted average rate of 9.79%
for the six months ended June 30, 1996). As of June 30, 1996, a total of $37.9
million was outstanding under these notes. Such indebtedness is scheduled to
mature at various dates through 2001. The funds received from Provident were
used by the Company to fund the acquisition and improvement of funeral homes and
for working capital purposes.

The indebtedness payable to TCB consists of three notes secured by deeds of
trust and security agreements covering certain real and personal property. The
notes, on an aggregate basis, bore interest at a weighted average rate of 7.87%
for the six months ended June 30, 1996. As of June 30, 1996, a total of $16.7
million was outstanding under these notes. Such indebtedness is scheduled to
mature at various dates through 2003. The funds received from TCB were used by
the Company to fund acquisitions of and improvements to funeral homes.

The Company anticipates that it will enter into a new credit facility with
certain commercial lenders concurrently with the Offering. The Company has
obtained a commitment from NationsBank of Texas, N.A. ("NationsBank") and
Provident that provides for a $75 million revolving line of credit (the "Credit
Facility"). It is anticipated that a portion of the Credit Facility will provide
for both LIBOR and base rate interest options and the remainder of the Credit
Facility will bear interest at LIBOR plus 2%. The facility will be unsecured,
will have a term of three years and will be available to the Company to repay
existing outstanding indebtedness, to fund its working capital needs and to take
advantage of opportunities to acquire additional funeral homes and cemeteries as
they arise. It is anticipated that the Credit Facility will contain customary
restrictive covenants, including a restriction on the payment of dividends on
the Common Stock, and will require the Company to maintain certain financial
ratios, which may effectively limit the Company's borrowing capacity.

DIVIDEND POLICY

The Company has never paid a cash dividend on the Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying a cash dividend on the Common Stock
in the foreseeable future. In addition, the Company expects that the Credit
Facility will contain certain restrictions on the payment of dividends on the
Common Stock. Any future change in the Company's dividend policy will be made at
the discretion of the Company's Board of Directors in light of the financial
condition, capital requirements, earnings and prospects of the Company and any
restrictions under credit agreements, as well as other factors the Board of
Directors may deem relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Holders of shares of the Company's Series D Preferred Stock are
entitled to receive annual cash dividends of $.06 per share, $.0625 per share or
$.07 per share depending on the date such shares were issued. Such dividends are
payable quarterly. Through June 30, 1996, cash dividends of $100,941 on the
Series D Preferred Stock have been paid. See "Description of Capital Stock."

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996, and as adjusted to reflect the sale of the shares of Class A Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. The table should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Consolidated Financial Statements and the notes thereto
included elsewhere in this Prospectus.

AS OF JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
Current portion of long-term debt ................ $ 5,015 $ 352
======== ========
Long-term debt (excluding current
portion):
Senior debt ................................. $ 49,906 $ --
Subordinated notes .......................... 10,371 2,530
Credit Facility ............................. -- 20,740
-------- --------
Total long-term debt ................... 60,277 23,270
-------- --------
Redeemable preferred stock(2) .................... 8,545 8,545
-------- --------
Stockholders' equity:
Preferred Stock, par value $.01 per
share, 40,000,000 shares
authorized; 16,215,000 shares
issued and 16,045,000 shares
outstanding; 50,000,000 shares
authorized; no shares issued or
outstanding, as adjusted ................... 162 --
Common Stock, par value $.01 per
share, 20,000,000 shares
authorized; 2,521,000 shares
issued and outstanding; 30,000,000
shares authorized; no shares
issued or outstanding, as
adjusted ................................... 25 --
Class A Common Stock, par value
$.01 per share, no shares
authorized, issued or outstanding;
15,000,000 shares authorized,
3,400,000 shares issued and
outstanding, as adjusted(3) ................ -- 34
Class B Common Stock, par value
$.01 per share, no shares
authorized, issued or outstanding;
15,000,000 shares authorized,
4,501,476 shares issued and
outstanding, as adjusted(4) ................ -- 45
Contributed capital ......................... 15,650 57,086
Treasury stock .............................. (330) (330)
Accumulated deficit ......................... (6,857) (6,857)
-------- --------
Total stockholders' equity ............. 8,650 49,978
-------- --------
Total capitalization .............. $ 77,472 $ 81,793
======== ========

- ------------
(1) As adjusted to reflect the application of the net proceeds of the Offering,
borrowings under the Credit Facility, the write-off of $667,000 of
capitalized debt issuance costs related to indebtedness to be repaid with
the proceeds of the Offering and the incurrence of $325,000 of capitalized
debt issuance costs related to the Credit Facility. The write-off of the
$667,000 capitalized debt issuance costs will be recorded as an expense in
the period in which the related indebtedness is repaid.

(2) The redeemable preferred stock (the Series D Preferred Stock) is convertible
at the holder's option into Class B Common Stock at the lesser of the
initial public offering price or the applicable initial conversion base
price (currently ranging from $15.00 to $18.00). On December 31, 2001, the
Company must redeem all shares of Series D Preferred Stock then outstanding
at a redemption price of $1.00 per share, together with all accrued and
unpaid dividends. See "Description of Capital Stock."

(3) Does not include 600,000 shares of Class A Common Stock issuable upon the
exercise of options under the Company's stock option plans to be granted
concurrently with the Offering. See "Management -- Incentive Plans."

(4) Excludes as of June 30, 1996, 90,000 shares of Class B Common Stock issuable
upon exercise of options and 633,009 shares of Class B Common Stock issuable
upon conversion of the 8,545,616 shares of the Series D Preferred Stock.
Also, does not include (i) 594,815 shares of Class B Common Stock issuable
upon conversion of 8,030,000 shares of Series D Preferred Stock issued in
connection with acquisitions completed subsequent to June 30, 1996 and (ii)
51,852 shares of Class B Common Stock issuable upon conversion of 700,000
shares of Series D Preferred Stock and an additional 53,333 shares of Class
B Common Stock to be issued in connection with pending acquisitions. See
"Management -- Incentive Plans" and "Description of Capital Stock."

DILUTION

The net tangible book deficit of the Company as of June 30, 1996 was
$28,877,000 or $6.42 per share of Common Stock. Net tangible book deficit per
share is determined by dividing total tangible assets less total liabilities of
the Company by the total number of outstanding shares of Common Stock (4,501,476
shares, which includes the assumed conversion of all outstanding shares of the
Company's Series A, Series B and Series C Preferred Stock into shares of Class B
Common Stock). After giving effect to the sale of the shares of Class A Common
Stock offered hereby at the initial public offering price of $13.50 per share
and the receipt of the estimated net proceeds of approximately $41,670,000
(after deducting the underwriting discount and estimated expenses) and the
write-off of capitalized debt issuance costs of $450,000, the pro forma net
tangible book value of the Company at June 30, 1996 would have been $12,343,000
or $1.56 per share. This represents an immediate increase in the net tangible
book value of $7.98 per share to existing stockholders and an immediate dilution
(I.E., the difference between the initial public offering price and the pro
forma net tangible book value after the Offering) of $11.94 to new investors.
The following table illustrates such per share dilution:

Initial public offering price per
share................................. $ 13.50
Historical net tangible book
deficit per share at June 30,
1996............................. $ (6.42)
Increase in net tangible book value
per share attributable to the
Offering......................... 7.98
Pro forma net tangible book value per
share after giving effect to the
Offering.............................. 1.56
---------
Dilution per share to new investors..... $ 11.94
=========

The following table sets forth, after giving effect to the Offering, the
number of shares of Common Stock purchased from the Company, the total
consideration paid therefor and the average price per share paid by existing
stockholders and by new investors:

SHARES PURCHASED TOTAL CONSIDERATION
------------------ --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --- -------------- --- -------------
Existing stockholders.. 4,501,476 57.0% $ 15,507,000 25.2% $ 3.44
New investors.......... 3,400,000 43.0 45,900,000 74.8 13.50
---------- --- -------------- ---
Total............. 7,901,476 100.0% $ 61,407,000 100.0%
========== === ============== ===

The foregoing tables assume no exercise of outstanding stock options and no
conversion of Series D Preferred Stock. As of June 30, 1996, 90,000 shares of
Class B Common Stock are issuable upon the exercise of stock options at an
average exercise price of $10.54 per share. See "Shares Eligible for Future
Sale."

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth selected consolidated financial and
operating data as of the dates and for the periods indicated. The consolidated
financial data of the Company as of and for the four years ended December 31,
1995 and the six months ended June 30, 1996 set forth below have been derived
from financial statements audited by Arthur Andersen LLP, independent public
accountants. The consolidated financial data of the Company as of and for the
period from inception to December 31, 1991 and as of and for the six months
ended June 30, 1995 set forth below have been derived from unaudited financial
statements which, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial data for such periods. The selected consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>

PERIOD FROM SIX MONTHS
INCEPTION TO YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
------------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral ............................ $ -- $ 1,625 $ 10,651 $ 17,368 $ 22,661 $ 10,800 $ 15,648
Cemetery ........................... -- 178 614 1,036 1,576 701 1,277
------- -------- -------- -------- -------- -------- --------
Total net revenues ............... -- 1,803 11,265 18,404 24,237 11,501 16,925
Gross profit:
Funeral ............................ -- (88) 917 2,856 3,740 2,062 3,194
Cemetery ........................... -- 113 143 158 250 110 195
------- -------- -------- -------- -------- -------- --------
Total gross profit ............... -- 25 1,060 3,014 3,990 2,172 3,389
General and administrative expenses .. 202 490 985 1,266 2,106 832 1,155
------- -------- -------- -------- -------- -------- --------
Operating income (loss) .............. (202) (465) 75 1,748 1,884 1,340 2,234
Interest expense, net ................ 6 295 1,745 2,671 3,684 1,648 2,644
------- -------- -------- -------- -------- -------- --------
Loss before income taxes ............. (208) (760) (1,670) (923) (1,800) (308) (410)
Provision for income taxes ........... -- -- -- 40 694 390 251
------- -------- -------- -------- -------- -------- --------
Net loss ............................. (208) (760) (1,670) (963) (2,494) (698) (661)
Preferred stock dividends ............ -- -- -- -- -- -- 101
------- -------- -------- -------- -------- -------- --------
Net loss attributable to common
stock .............................. $ (208) $ (760) $ (1,670) $ (963) $ (2,494) $ (698) $ (762)
======= ======== ======== ======== ======== ======== ========
Loss per common share ................ $ (.08)(1) $ (.30)(1) $ (.66)(1) $ (.28) $ (.66) $ (.20) $ (.17)
======= ======== ======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares
outstanding ........................ 2,543(1) 2,543 2,543(1) 3,406 3,781 3,543 4,512
======= ======== ======== ======== ======== ======== ========

OPERATING AND FINANCIAL DATA:
Funeral homes at end of period ....... -- 14 25 34 41 39 62
Funeral services performed during
period ............................. -- 389 2,265 3,529 4,414 2,127 3,004
Preneed funeral contracts sold ....... -- 451 644 762 2,610 1,279 1,997
Backlog of preneed funeral
contracts .......................... -- 2,576 5,170 6,855 8,676 7,769 23,758
Depreciation and amortization ........ $ 2 $ 261 $ 947 $ 1,476 $ 1,948 $ 907 $ 1,389

BALANCE SHEET DATA (AT PERIOD END):
Working capital ...................... $ -- $ 678 $ (142) $ 4,271 $ 6,472 $ 2,297 $ 1,461
Total assets ......................... 24 13,089 28,784 44,165 61,746 49,296 94,037
Long-term debt, net of current
maturities ......................... 220 12,656 26,270 32,622 42,057 37,613 60,277
Redeemable preferred stock ........... -- -- -- -- -- -- 8,545
Stockholders' equity (deficit) ....... (198) (958) (2,626) 3,429 9,151 2,792 8,650
</TABLE>

(FOOTNOTES ON FOL LOWING PAGE)

- ------------
(1) Prior to January 1, 1994, the Company consisted of three entities whose
owners contributed their equity in these entities in exchange for 2,520,000
shares of common stock of the Company effective January 1, 1994.
Accordingly, shares of common stock shown outstanding for these periods
assume the exchange had taken place at the beginning of the periods
presented. In 1992 and 1993, the entities were subchapter S corporations,
and taxes were the direct responsibility of the owners. Thus, the tax
provisions reflected above for these periods are based on assumptions about
what tax provisions (benefits) would have been if the Company were a taxable
entity. In the opinion of management, no pro forma tax provision (benefit)
was appropriate for these periods because the Company follows a policy of
fully reserving its net operating losses.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company was formed in 1991 in order to take advantage of the attractive
fundamentals and significant opportunities to consolidate the death care
industry. Although the Company provides services and products in both the
funeral home and cemetery businesses, the Company has historically focused on
acquiring funeral home businesses. From 1992 through 1995, the Company acquired
42 funeral homes and four cemeteries, for consideration ranging from
approximately $9 million to $14 million in each of the four years. The Company
intentionally took a disciplined, deliberate approach to acquisitions that
allowed management the time to integrate early acquisitions, to develop and
implement systems, including operational procedures, administrative policies,
financial systems and related controls, and to promote a decentralized service
culture. In order to strengthen and bring greater focus to the Company's
operations, the Company recruited Russell W. Allen, Executive Vice President of
Operations, in 1993. During the next two years, two additional operating
executives and related support staff were added. These three operating
executives bring more than sixty years of combined death care industry
experience to the management team.

The Company believes that management's focus on controlled growth while
implementing sophisticated operational, administrative systems and related
controls to effectively manage a highly decentralized management structure
positioned it to pursue an accelerated growth strategy beginning in late 1995.
Since the beginning of 1996, the Company has expanded its corporate development
activities, with Mark W. Duffey becoming responsible for corporate development
and overseeing two additional professionals with full-time responsibility for
identifying and evaluating acquisition candidates. Through the first six months
of 1996, the Company has acquired 24 funeral homes and four cemeteries for an
aggregate consideration of approximately $33.5 million. Two funeral homes and
one cemetery were acquired in July 1996 for approximately $7.8 million. These
acquisitions were funded through additional debt, issuance of 6,355,000 shares
of Series D Preferred Stock valued at $1.00 per share and available cash. In
addition, as of July 15, 1996, the Company had letters of intent to acquire
eight funeral homes and one cemetery for an aggregate consideration of
approximately $13.5 million. The Company believes that it will continue to see
attractive acquisition opportunities as further consolidation of the industry
occurs.

Upon acquisition, the operations team focuses on increasing historic
operating income by improving the merchandising approach, pricing structure and
marketing strategy of acquired businesses. These enhancements, complemented by
discounts from consolidated purchasing, generally result in improved margins
within the first 12 months.

In certain instances, a review of the marketing strategy of an acquired
business results in increased preneed funeral and cemetery sales efforts to
secure or gain future market share. Preneed funeral sales are effected by
deposits to a trust or purchases of third party insurance products. Since the
Company does not have access to these funds, the sale is not recorded until the
service is performed nor are the related assets and liabilities reflected on the
Company's consolidated balance sheet. The trust income earned and increases in
insurance benefits are also deferred until the service is performed in order to
offset possible inflation in cost to provide the service in the future. Unlike
preneed funeral sales, the Company has access to the funds related to preneed
cemetery sales. Therefore, preneed cemetery sales and the related estimated
costs are recorded at the time of sale. Trust fund requirements relate only to
the estimated costs of providing merchandise and service. Any income from the
merchandise and service trust funds is recorded as cemetery revenue in the
period earned. These earnings are an offset to any inflation in the cost of
providing the merchandise and services in the future. These estimated costs are
reviewed at least annually, and any significant increase in estimated costs are
recorded at that time. Due to the Company's small number of cemetery operations,
the impact of these trust earnings and any inflation in estimated costs have not
historically been significant.

FACTORS AFFECTING HISTORICAL FINANCIAL RESULTS

For 1992, 1993 and 1994, the Company's corporate infrastructure required
only modest additions to support its disciplined approach to acquisitions. As a
result, general and administrative expenses declined as a percentage of revenues
over these years. In anticipation of accelerating its acquisition activity, the
Company began in 1995 to significantly expand its corporate infrastructure to
support more rapid growth. As a result, general and administrative expenses in
1995 increased as a percentage of revenues over 1994. Although general and
administrative expenses will continue to increase as the Company grows, these
expenses are expected to increase at a lower rate relative to revenue, and thus,
general and administrative expenses as a percentage of revenues are expected to
decline.

Three separate transactions completed by the Company in September 1992,
November 1992 and July 1993 resulted in the acquisition of packages of two,
eight and eight funeral homes, respectively, for a total of 18 funeral homes.
Eight of these funeral homes were acquired from one of the large death care
companies that was divesting these properties to comply with a Federal Trade
Commission order. Since these properties were sold as packages, the Company's
acquisition criteria could not be applied on a location by location basis. While
the poor performance of certain properties was reflected in the purchase price,
certain of the funeral homes had been losing market share prior to the
acquisition or otherwise required significant operational improvements, thus
negatively impacting overall gross margin. As of June 30, 1996, the Company had
divested three of these funeral homes. The Company has also divested one
cemetery which was included in one of these packages.

As a result of the Company's increased recognition in the death care
industry as an established purchaser of funeral homes and cemeteries, the
Company has been in a better position to finance its acquisitions with debt and
equity, thereby reducing the negotiated value of agreements not to compete.
Since the Company's agreements not to compete have, generally, been amortized
over four to ten years, whereas any excess purchase price allocated to names and
reputations is amortized over 40 years, any reduction in the non-competition
agreement payments (assuming the same purchase price) results in a reduction in
operating expense during the amortization period of the agreements not to
compete. Since mid-1995, the Company has experienced a reduction in the
operating expenses for amortization of agreements not to compete compared to
prior years.

The Company's future results of operations will depend in large part on the
Company's ability to continue to make acquisitions on attractive terms and to
successfully integrate and manage the acquired properties. See "Risk Factors --
Competition for Acquisitions" and " -- No History of Profitability."

RESULTS OF OPERATIONS

The following table sets forth certain income statement data for the
Company expressed as a percentage of net revenues for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues, net..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Total gross profit...................... 9.4 16.4 16.5 18.9 20.0
General and administrative expenses..... 8.7 6.9 8.7 7.2 6.8
Operating income........................ 0.7 9.5 7.8 11.7 13.2
Interest expense, net................... 15.5 14.5 15.2 14.3 15.6
Net loss................................ (14.8) (5.2) (10.3) (6.1) (3.9)
</TABLE>
20

The following table sets forth the number of funeral homes and cemeteries
owned and operated by the Company for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Funeral homes at beginning of period.... 14 25 34 41
Acquisitions............................ 11 9 8 24
Divestitures............................ 0 0 1 3
-- -- -- --
Funeral homes at end of period.......... 25 34 41 62
== == == ==
Cemeteries at beginning of period....... 2 2 3 3
Acquisitions............................ 1 1 0 4
Divestitures............................ 1 0 0 0
-- -- -- --
Cemeteries at end of period............. 2 3 3 7
== == == ==
</TABLE>

The following is a discussion of the Company's results of operations for
the six months ended June 30, 1995 and 1996 and the three years ended December
31, 1993, 1994 and 1995. For purposes of this discussion, funeral homes and
cemeteries owned and operated for the entirety of each period being compared are
referred to as "existing operations." Operations acquired or opened during
either period being compared are referred to as "acquired operations."

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995

The following table sets forth certain information regarding the net
revenues and gross profit of the Company from its operations during the six
months ended June 30, 1995 and 1996:

SIX MONTHS ENDED
JUNE 30, CHANGE
-------------------- --------------------
1995 1996 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations........... $ 10,849 $ 11,102 $ 253 2.3%
Acquired operations........... 652 5,823 5,171 *
--------- --------- ---------
Total net revenues....... $ 11,501 $ 16,925 $ 5,424 47.2%
========= ========= =========
Gross profit:
Existing operations........... $ 2,013 $ 2,231 $ 218 10.8%
Acquired operations........... 159 1,158 999 *
--------- --------- ---------
Total gross profit....... $ 2,172 $ 3,389 $ 1,217 56.0%
========= ========= =========
- ------------
* Not meaningful.

Total net revenues for the six months ended June 30, 1996 increased $5.4
million or 47.2% over the six months ended June 30, 1995. The higher net
revenues reflect an increase of $5.2 million in net revenues from acquired
operations and an increase in net revenues of $253,000 or 2.3% from existing
operations. The increase in net revenues for the existing operations was due to
a 4.4% increase in the average revenue per funeral service which was partially
offset by a decrease in net revenues attributable to fewer funeral services
being performed due primarily to the divestiture of three funeral homes. At June
30, 1996, the Company operated seven cemeteries, the net revenues and gross
profit of which were not significant.

Total gross profit for the six months ended June 30, 1996 increased $1.2
million or 56.0% over the first six months of 1995. The higher total gross
profit reflects an increase of $999,000 from acquired operations and an increase
of $218,000 or 10.8% from existing operations. The increase in gross profit for
the existing operations was due to the efficiencies gained by consolidation and
an expanded product offering. Total

gross margin increased from 18.9% for the six months ended June 30, 1995 to
20.0% for the six months ended June 30, 1996 due to the factors mentioned above.

General and administrative expenses for the six months ended June 30, 1996
increased $323,000 over the first six months of 1995 due primarily to the
increased personnel expense necessary to support a higher rate of growth and
increased acquisition activity. However, general and administrative expenses as
a percentage of net revenues decreased from 7.2% for the first six months of
1995 to 6.8% for the comparable period of 1996 because revenues increased at a
higher rate, due to acquisitions, than general and administrative expenses.

Interest expense for the six months ended June 30, 1996 increased $996,000
over the first six months of 1995 principally due to increased borrowings for
acquisitions.

Although the Company experienced net operating losses before tax, the
Company's policy to fully reserve operating loss carryforwards created a tax
provision of $251,000 in the six months ended June 30, 1996 and $390,000 in the
six months ended June 30, 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

The following table sets forth certain information regarding the net
revenues and gross profit of the Company during the years ended December 31,
1994 and 1995:
YEAR ENDED
DECEMBER 31, CHANGE
-------------------- --------------------
1994 1995 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations......... $ 16,593 $ 16,838 $ 245 1.5%
Acquired operations......... 1,811 7,399 5,588 *
--------- --------- ---------
Total net revenues..... $ 18,404 $ 24,237 $ 5,833 31.7%
========= ========= =========
Gross profit:
Existing operations......... $ 2,685 $ 2,792 $ 107 4.0%
Acquired operations......... 329 1,198 869 *
--------- --------- ---------
Total gross profit..... $ 3,014 $ 3,990 $ 976 32.4%
========= ========= =========
- ------------
* Not meaningful.

Total net revenues for the year ended December 31, 1995 increased $5.8
million or 31.7% over 1994. The higher net revenues were due primarily to an
increase of $5.6 million in net revenues from acquired operations. Net revenues
from existing operations increased $245,000 or 1.5% over 1994. The increase in
net revenues from existing operations resulted from a 4.4% increase in average
revenue per funeral service which was partially offset by a decrease in net
revenues due to fewer funeral services performed primarily as a result of the
divestiture of one funeral home and the planned divestiture of two additional
funeral homes. At December 31, 1995, the Company operated three cemeteries, the
net revenues and gross profit of which were not significant.

Total gross profit for the year ended December 31, 1995 increased $976,000
or 32.4% over 1994. The higher total gross profit reflects an increase of
$869,000 from acquired operations and an increase of $107,000 or 4.0% from
existing operations. The gross profit increase for the existing operations was
due to the efficiencies gained by consolidation and implementation of a new
merchandising strategy. Total gross margin remained relatively consistent.

General and administrative expense for the year ended December 31, 1995
increased $840,000 over 1994 and increased as a percentage of net revenues to
8.7% for 1995 from 6.9% for 1994. These increases resulted primarily from
increased personnel expense necessary to support a higher rate of growth and
increased acquisition activity.

Interest expense for the year ended December 31, 1995 increased $1.0
million over 1994, principally due to increased borrowings for acquisitions.

Although the Company experienced net operating losses before tax, the
Company's policy to fully reserve operating loss carryforwards created a tax
provision of $40,000 in 1994 and $694,000 in 1995.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

The following table sets forth certain information regarding the net
revenues and gross profit of the Company during the years ended December 31,
1993 and 1994:

YEAR ENDED
DECEMBER 31, CHANGE
-------------------- --------------------
1993 1994 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations.......... $ 7,383 $ 7,597 $ 214 2.9%
Acquired operations.......... 3,882 10,807 6,925 *
--------- --------- ---------
Total net revenues...... $ 11,265 $ 18,404 $ 7,139 63.4%
========= ========= =========
Gross profit:
Existing operations.......... $ 764 $ 1,085 $ 321 42.0%
Acquired operations.......... 296 1,929 1,633 *
--------- --------- ---------
Total gross profit...... $ 1,060 $ 3,014 $ 1,954 184.3%
========= ========= =========
- ------------
* Not meaningful.

Total net revenues for the year ended December 31, 1994 increased $7.1
million or 63.4% over 1993. The higher net revenues are primarily due to an
increase of $6.9 million in net revenues from acquired operations. Net revenues
from existing operations increased $214,000 or 2.9% over 1993. The increase in
net revenues from existing operations resulted from a 4.7% increase in average
revenue per funeral service which was partially offset by a slight decrease in
the number of funeral services performed. At December 31, 1994, the Company
operated three cemeteries, the net revenues and gross profit of which were not
significant.

Total gross profit for the year ended December 31, 1994 increased $2.0
million or 184.3% over 1993. The higher total gross profit reflects an increase
of $1.6 million from acquired operations and an increase of $321,000 or 42.0%
from existing operations. The gross profit increase for the existing operations
was due to the efficiencies gained by consolidation and implementation of a new
merchandising strategy. Total gross margin increased from 9.4% in 1993 to 16.4%
in 1994.

General and administrative expense for the year ended December 31, 1994
increased $281,000 over 1993. This increase resulted primarily from increased
personnel expense necessary to support a higher rate of growth and increased
acquisition activity. However, general and administrative expenses decreased as
a percentage of net revenues to 6.9% for 1994 from 8.7% for 1993, primarily due
to increased net revenues from acquisitions without significant additions to
corporate infrastructure.

Interest expense for the year ended December 31, 1994 increased $926,000
over 1993 principally due to increased borrowings for acquisitions.

Although the Company experienced net operating losses before tax, the
Company's policy to fully reserve operating loss carryforwards created a tax
provision of $40,000 in 1994.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $4.5 million at June 30, 1996,
representing a decrease of $3.1 million from December 31, 1995. For the six
months ended June 30, 1996, cash flow from operations decreased to $465,000 from
$804,000 for the six months ended June 30, 1995. Cash used in investing
activities produced a negative cash flow of $25.1 million for the six months
ended June 30, 1996 compared to a negative cash flow of $4.2 million in the
prior period, due primarily to cash used for acquisitions. In the first half of
1996, cash flow provided by financing activities amounted to approximately $21.6
million, primarily due to debt incurred of approximately $23.8 million.

Historically, the Company has financed its acquisitions with proceeds from
debt and the issuance of preferred stock. As of June 30, 1996, the Company has
issued 8,545,616 shares of Series D Preferred Stock which can be converted into
Class B Common Stock. The holders of Series D Preferred Stock are entitled to

receive annual cash dividends of $.06, $.0625 and $.07 per share depending upon
when such shares were issued. Commencing on the second anniversary of the
completion of the Offering, the Company may, at its option, redeem all or any
portion of the shares of Series D Preferred Stock then outstanding at a
redemption price of $1.00 per share, together with all accrued and unpaid
dividends. Such redemption is subject to the right of each holder of Series D
Preferred Stock to convert such holder's shares into shares of Class B Common
Stock. On December 31, 2001, the Company must redeem all shares of Series D
Preferred Stock then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends.

In connection with the Company's formation in June 1991, the Company's
Chairman, C. Byron Snyder, provided an initial capital commitment of $6 million,
funded in the form of subordinated notes for working capital and acquisitions.
The Snyder Notes bear interest at a predetermined rate plus 3%, subject to
adjustment in certain circumstances, and are payable annually in the form of
cash or additional subordinated notes. As of June 30, 1996, the aggregate amount
outstanding under the Snyder Notes was $7,841,000. The Company will use a
portion of the proceeds from the Offering to repay the Snyder Notes.

In addition, Provident has provided long-term acquisition financing to the
Company on a senior secured basis (the "Provident Loans"). The Provident Loans
are made pursuant to the Ninth Amended and Restated Loan Agreement, dated as of
August 31, 1994, as amended, and bear interest at prime plus 1.5% and the prime
rate. As of June 30, 1996, approximately $37,860,000 was outstanding under the
Provident Loans. The Company plans to use a portion of the proceeds from the
Offering to repay a portion of the Provident Loans.

The Company also has in place three senior secured term loan arrangements
with Texas Commerce Bank National Association ("TCB") which bear interest at a
weighted average of 7.87% for the six months ended June 30, 1996 and are
indirectly guaranteed in whole or in part by Messrs. Payne, Duffey and Snyder.
As of June 30, 1996, approximately $16,709,000 was outstanding under these
notes. The Company plans to use a portion of the net proceeds from the Offering
to repay a portion of the TCB loans.

In connection with repayment of debt, a substantial portion of the
capitalized debt issuance costs ($667,000 at June 30, 1996) will be written off
in the period in which the debt is repaid.

The Company anticipates that it will enter into the Credit Facility
concurrently with the closing of the Offering. The Company has obtained a
commitment from NationsBank and Provident for a $75 million revolving line of
credit. A portion of the Credit Facility is expected to provide for both LIBOR
and base rate interest options and the remainder of the facility will bear
interest at LIBOR plus 2%. The facility will be unsecured, will have a term of
three years and will contain customary restrictive covenants, including a
restriction on the payment of dividends on the Common Stock, and will require
the Company to maintain certain financial ratios, which may effectively limit
the Company's borrowing capacity.

As of July 15, 1996, the Company had effective non-binding letters of
intent for the acquisition of eight additional funeral homes and one additional
cemetery in Connecticut, Tennessee, Texas, Indiana and North Carolina for an
aggregate consideration of approximately $13.5 million, which will be funded
with cash flow from operations, borrowings under the Credit Facility and
potential issuances of equity securities. It is expected that such transactions,
if completed, would occur by the end of the third quarter of 1996.

Although the Company has no agreements or letters of intent to purchase
additional funeral homes or cemeteries other than as noted above, the Company
expects to continue to aggressively pursue additional acquisitions of funeral
homes and cemeteries following the completion of the Offering to take advantage
of the trend toward consolidation of funeral homes and cemeteries occurring in
the industry which will require significant levels of funding from various
sources. While the amount of expenditures for acquisitions in the future will
depend upon the specific transaction and opportunities as they are presented,
the Company has budgeted $26 million for acquisitions for the remainder of 1996
and $69 million for acquisitions for 1997. Management believes that cash flow
from operations, borrowings under the Credit Facility and potential issuances of
equity securities will be used to fund such acquisitions.

The Company currently expects to incur approximately $1.2 million for
capital expenditures in the remainder of 1996, primarily for upgrading funeral
home facilities. Management believes that cash flows

from operations and the borrowing capacity available under the Credit Facility
should be sufficient to meet its anticipated capital expenditures and other
operating requirements for the remainder of 1996 and in 1997. However, because
future cash flows and the availability of financing are subject to a number of
variables, such as the number and size of acquisitions made by the Company,
there can be no assurance that the Company's capital resources will be
sufficient to fund acquisitions. Additional debt and equity financings may be
required in connection with future acquisitions.

SEASONALITY

Although the death care business is relatively stable and fairly
predictable, the Company's business can be affected by seasonal fluctuations in
the death rate. Generally, death rates are higher during the winter months. In
addition, the quarterly results of the Company may fluctuate depending on the
magnitude and timing of acquisitions.

BUSINESS

THE COMPANY

DEATH CARE INDUSTRY

Death care companies provide products and services to families in three
principal areas: (i) ceremony and tribute, generally in the form of a funeral or
memorial service, (ii) disposition of remains, either through burial or
cremation and (iii) memorialization, generally through monuments, markers or
inscriptions. The death care industry in the United States is characterized by
the following fundamental attributes:

HIGHLY FRAGMENTED OWNERSHIP. A significant majority of death care operators
consist of small, family-owned businesses that control one or several funeral
homes or cemeteries in a single community. Management estimates that there are
approximately 22,000 funeral homes and 9,600 commercial (as opposed to
religious, family, fraternal, military or municipal) cemeteries in the United
States. Less than 20% of the 1995 United States death care industry revenues are
represented by the four largest publicly traded death care companies.

BARRIERS TO ENTRY. Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have
developed a local heritage and tradition that act as a formidable barrier for
those wishing to enter an existing market. Heritage and tradition afford an
established funeral home or cemetery a local franchise and provides the
opportunity for repeat business. Other difficulties faced by entities desiring
to enter a market include local zoning restrictions, substantial capital
requirements, increasing regulatory burdens and scarcity of cemetery land in
certain urban areas. In addition, established firms' backlog of preneed,
prefunded funerals or presold cemetery and mausoleum spaces also makes it
difficult for new entrants to gain entry into the marketplace.

STABILITY. The death rates in the United States are fairly predictable,
thereby affording stability to the death care industry. Since 1980, the number
of deaths in the United States has increased at a compounded rate of
approximately 1% per year. According to a 1993 report prepared by the U.S.
Department of Commerce, Bureau of the Census, the number of deaths in the United
States is expected to increase by approximately 1% per year between 1996 and
2010. Because the industry is relatively stable, non-cyclical and fairly
predictable, business failures are uncommon. As a result, ownership of funeral
home and cemetery businesses generally have not experienced significant
turnover, and the aggregate number of funeral homes and cemeteries in the United
States has remained relatively constant.

INCREASED CONSOLIDATION. In the past several years, the industry has
experienced a trend toward consolidation of small death care operations with
large, primarily publicly owned death care providers that can benefit from
economies of scale, improved managerial control and more effective strategic
planning and greater financial resources. This trend appears to result
principally from increased regulation, a desire on the part of small, family
operated funeral businesses to address family succession and estate planning
issues, a desire for liquidity, and the increasing competitive threat posed by
the large death care providers. The active acquisition market for funeral homes
and cemeteries provides a source of potential liquidity that was not as readily
available to individual owners in the past. The consolidation trend has
accelerated in recent years as several large death care companies have expanded
their operations significantly through acquisitions.

CLUSTERED OR COMBINED OPERATIONS. The death care industry has also
witnessed a trend by firms to cluster their funeral home and cemetery
operations. Clusters refer to funeral homes and/or cemeteries which

are grouped together in a geographical region. Clusters provide a company with
the ability to generate cost savings through the sharing of personnel, vehicles
and other resources. Firms also are increasingly combining funeral home and
cemetery operations at a single site to allow cross-marketing opportunities and
for further cost reductions through shared resources. The ability to offer the
full range of products and services at one location or to cluster funeral home
and cemetery operations and cross-market the full range of death care services
has proven to be a competitive advantage which tends to increase the market
share and profitability of both the funeral home and cemetery.

PRENEED MARKETING. In addition to sales at the time of death or on an "at
need" basis, an increasing number of death care products and services are being
sold prior to the time of death or on a "preneed" basis by death care providers
who have developed sophisticated marketing staffs to actively promote such
products and services. At the same time, consumers are becoming more aware of
the benefits of advanced planning, such as the financial assurance and peace of
mind achieved by establishing in advance a fixed price and type of service, and
the elimination of the emotional strain of making death care plans at the time
of need. Effective marketing of preneed products and services assures a backlog
of future business.

CREMATION. In recent years, there has been steady, gradual growth in the
number of families in the United States that have chosen cremation as an
alternative to traditional methods of burial. According to industry studies,
cremations represented approximately 21% of the United States burial market in
1994, as compared to approximately 10% in 1980. Many parts of the Southern and
Midwestern United States and many non-metropolitan communities exhibit
materially lower rates of cremation as a result of religious and cultural
traditions. Cremation historically has been marketed as a less costly
alternative to interment. However, cremation is increasingly marketed as part of
a complete death care package that includes traditional funeral services and
memorialization.

BUSINESS STRATEGY

The Company's objective is to become the preferred succession planning
alternative for premier funeral homes throughout the United States while
continuing to promote a decentralized, entrepreneurial service culture.
Management believes that the Company's reputation and collaborative operating
style have allowed it to successfully pursue acquisition opportunities. The
Company also has been successful in implementing programs to increase
profitability at newly acquired properties.

OPERATING STRATEGY. Since its formation, the Company has focused on
becoming a succession planning alternative to the larger death care providers.
The Company believes that its decentralized operating style, which provides
autonomy and flexibility to local management, is attractive to owners of funeral
homes seeking to sell their operations. Management believes that its operating
style is also a key component in its ability to attract and retain quality
managers. While the Company's management style allows local operators
significant responsibility in the daily operating decisions, financial
parameters jointly established during the budgeting process are monitored by
senior management through the Company's management and accounting systems. This
personal computer based system, CSASE (the Carriage Services Assistance System),
was specifically designed by the Company for use in its operations and is linked
to most of the Company's funeral home locations. CSASE enables a location to
function on its own by maintaining accounts receivables and payables locally,
thereby reducing the costs related to maintaining this function centrally. The
information provided by CSASE to the Company's senior management also allows the
Company, on a timely basis, to access critical operating and financial data from
a site in order to analyze the performance of individual locations and institute
corrective action if necessary.

The Company also has established a compensation structure that is designed
to maintain and create a sense of ownership on the part of local managers. The
Company awards meaningful cash bonuses tied to achieving certain earnings
objectives at a location and issues stock options to local management for
exceptional performance. As a result, local management has the opportunity to
significantly increase their personal net worths through strong local and
corporate performance.

Management also believes that implementing its operating strategy on newly
acquired businesses can lead to enhanced profitability of acquired operations.
The Company has an extensive merchandising and

training program that is designed to educate local funeral home operators about
opportunities to improve marketing of products and services, to share sales
leads and other cross-marketing opportunities and to become familiar with and
adopt the Company's business objectives. The larger size of the Company as
compared to local operations also allows favorable pricing and terms to be
achieved from vendors through volume discounts on significant expenditures, such
as caskets, vaults, memorials and vehicles. In addition, while operational
functions and management autonomy are retained at the local level, centralizing
certain financial, accounting, legal, administrative and employee benefit
functions allows for more efficient and cost-effective operations. The Company
also institutes preneed sales programs in selected local markets to maintain or
increase market presence and assure a backlog of future business.

ACQUISITION STRATEGY. The Company believes that significant acquisition
opportunities currently exist in the death care industry that the Company
intends to aggressively pursue. In evaluating specific properties for
acquisition, the Company considers such factors as the property's location,
reputation, heritage, physical size, volume of business, profitability, name
recognition, aesthetics, potential for development or expansion, competitive
market position, pricing structure and quality of operating management. The
Company will continue to focus on acquiring premier funeral homes throughout the
United States that have a strong local presence and that conduct between 100 to
600 funeral services per year. In purchasing the premier location in a
particular market, management believes that the Company is able to attract the
most talented personnel, minimize downside risk of loss of volume to competitors
and provide opportunities for increased profitability when such operations are
coupled with the Company's management techniques. In addition, the Company
generally retains the former owners and other key personnel of acquired funeral
homes and provides them with significant operating responsibility to assure the
continuation of high quality services and the maintenance of the acquired firm's
reputation and heritage. In nearly all cases, acquired funeral homes continue
operations under the same trade names as those of the prior owners. In addition,
the Company views experienced management of certain acquired operations as
potential corporate management candidates. Management believes that this
potential for advancement within the Company combined with the Company's
decentralized operating structure and incentive-based compensation system makes
it a particularly attractive acquiror to some independent owners. The Company
also will continue to analyze the possibility of acquiring additional funeral
homes in present markets so that personnel and vehicles can be shared and profit
margins enhanced.

The Company follows a disciplined approach to acquisitions utilizing
specific operating and financial criteria. The Company develops pro forma
financial statements for acquisition targets reflecting estimates of revenue and
costs under the Company's ownership and then utilizes such information to
determine a purchase price which it believes is reasonable. The Company
anticipates that the consideration for future acquisitions will consist of a
combination of cash, long-term notes and equity. In addition, the Company often
assumes existing indebtedness of the acquired entities. The Company also will
typically enter into management, consulting and non-competition agreements with
former owners and key executive personnel of acquired businesses.

Although the Company traditionally has not focused on acquiring cemetery
operations, management intends to pursue cemetery acquisitions primarily in
markets where the Company operates or plans to operate funeral homes in order to
take advantage of cross-marketing opportunities.

While the Company focuses its efforts on identifying acquisition candidates
with the potential for a negotiated, non-competitive acquisition process, the
Company also competes for more broadly marketed acquisition opportunities. In
many cases, the Company has been successful in acquiring operations where it has
not been the highest bidder because of the Company's reputation, operating
strategy and corporate culture. Management believes that the issuance of equity
securities to fund certain funeral home acquisitions has been, and will continue
to be, attractive to select acquisition candidates.

The Company has successfully executed this acquisition strategy since its
inception, as demonstrated in the table set forth below.

FUNERAL
PERIOD CONSIDERATION HOMES(1) CEMETERIES(2)
- ------------------------------------ ------------- --------- -------------
(DOLLARS IN THOUSANDS)
1992................................ $11,832 14 2
1993................................ 13,843 11 1
1994................................ 9,153 9 1
1995................................ 12,191 8 0
Six months ended June 30, 1996(3)... 33,515 24 4
------------- -- -
$80,534 66 8
============= == =
- ------------
(1) The Company subsequently divested four of these funeral homes.

(2) The Company subsequently divested one of these cemeteries.

(3) Subsequent to June 30, 1996, the Company has acquired two funeral homes and
one cemetery for aggregate consideration of $7.8 million.

OPERATIONS

FUNERAL HOME OPERATIONS. The Company's funeral homes are located in Texas,
Ohio, Kentucky, Georgia, Tennessee, Illinois, Michigan, Florida, Kansas, South
Carolina, Washington, Idaho and Alabama. Funeral home revenues accounted for
approximately 93% of the Company's net revenues for the year ended December 31,
1995 and 92% in the six months ended June 30, 1996.

The Company's funeral home operations are managed by four experienced death
care industry professionals. Although certain financial management and policy
matters are centralized, local funeral home operators have substantial autonomy
in determining the manner in which their services and products are marketed and
delivered and their funeral homes are managed. The Company believes that this
strategy permits each local firm to maintain its unique style of operation and
to capitalize on its reputation and heritage, while the Company maintains
centralized supervisory controls and provides specialized services at the
corporate level.

The Company's funeral homes offer a complete range of services to meet
families' funeral needs, including consultation, the removal and preparation of
remains, the sale of caskets and related funeral merchandise, the use of funeral
home facilities for visitation and worship, and transportation services. Most of
the Company's funeral homes have a non-denominational chapel on the premises,
thereby permitting family visitation and religious services to take place at one
location, which reduces transportation costs to the Company and inconvenience to
the family.

CEMETERY OPERATIONS. The Company's seven cemeteries are located in Texas,
Kentucky, South Carolina, Florida and Idaho. Cemetery revenues accounted for
approximately 7% of the Company's net revenues for the year ended December 31,
1995 and 8% for the six months ended June 30, 1996. As of June 30, 1996, the
Company employed a staff of approximately 45 cemetery sales counselors for the
sale of interment rights and merchandise.

The Company's cemetery products and services include interment services,
the rights to interment in cemetery sites, including grave sites, crypts,
niches, and mausoleums, and related cemetery merchandise such as markers,
monuments, memorials and burial vaults. Cemetery operations generate revenues
through sales of interment rights, markers and memorials; fees for interment and
cremation services and marker and memorial installations; interest income from
installment sales contracts; and investment income from preneed cemetery
merchandise and perpetual care trusts.

PRENEED PROGRAMS. In addition to sales of funeral merchandise and services
and cemetery interment rights and merchandise at the time of need, the Company
also markets funeral and cemetery services and products on a preneed basis.
Preneed funeral or cemetery contracts enable families to establish in advance

the type of service to be performed, the products to be used and the cost of
such products and services in accordance with prices prevailing at the time the
agreement is signed rather than when the products and services are delivered.
Preneed contracts permit families to eliminate the emotional strain of making
death care plans at the time of need and enable the Company to establish a
portion of its future market share. Because of the significant market share of
most of the Company's funeral homes in their areas of operation, however, the
Company does not aggressively market preneed funeral contracts. Proceeds from
the sale of preneed funeral contracts are not recognized as revenues until the
time the funeral service is performed. The Company sold 2,610 preneed funeral
contracts in the year ended December 31, 1995 and 1,997 preneed funeral
contracts in the six months ended June 30, 1996. At June 30, 1996, the Company
had a backlog of 23,758 preneed funeral contracts to be delivered in the future.

Preneed funeral contracts are usually paid on an installment basis. The
performance of preneed funeral contracts is usually secured by placing the funds
collected in trust for the benefit of the customer or by the purchase of a life
insurance policy, the proceeds of which will pay for such services at the time
of need. Insurance policies intended to fund preneed funeral contracts cover the
original contract price and generally include built-in escalation clauses
designed to offset future inflationary cost increases.

In addition to preneed funeral contracts, the Company also offers
"preplanned" funeral arrangements whereby a client determines in advance
substantially all of the details of a funeral service without any financial
commitment or other obligation on the part of the client until the actual time
of need. Preplanned funeral arrangements permit families to avoid the emotional
strain of making death care plans at the time of need and enable a funeral home
to establish relationships with clients that frequently lead to at need sales.

Preneed cemetery sales are usually financed by the Company through
installment sale contracts, generally with terms of five years. Preneed sales of
cemetery interment rights and other related services and merchandise are
recorded as revenues when the contract is signed, with concurrent recognition of
related costs. The Company typically receives payment of at least 5% of the
sales price at the time the contract is signed. Allowances for customer
cancellations and refunds are accrued at the date of sale based upon historical
experience. Preneed cemetery sales represented approximately 42% of the
Company's net cemetery revenues for the year ended December 31, 1995 and
approximately 61% of the Company's net cemetery revenues for the six months
ended June 30, 1996.

PROPERTIES

At June 30, 1996, the Company operated 62 funeral homes and seven
cemeteries in 13 states. The Company owns the real estate and buildings of 44 of
its funeral homes and all of its cemeteries and leased facilities in connection
with 18 of its funeral homes. The seven cemeteries operated by the Company cover
a total of approximately 300 acres. The Company's inventory of unsold developed
lots totaled approximately 37,000 at June 30, 1996. In addition, approximately
140 acres, or approximately 47% of the total acreage, is available for future
development. The Company does not anticipate any shortage of available space in
any of its current cemeteries for the foreseeable future.

The following table sets forth certain information as of June 30, 1996
regarding the Company's funeral homes and cemeteries by state:

NUMBER OF
FUNERAL HOMES
------------------
STATE OWNED LEASED(1) CEMETERIES
- ------------------------------------- ----- --------- ----------

Texas................................ 8(2) 1 2
Ohio................................. 9 2 0
Kentucky............................. 6 4 1
Georgia.............................. 3 3 0
Tennessee............................ 3 1 0
Illinois............................. 0 4 0
Michigan............................. 1 2 0
Florida.............................. 2 1 1
Kansas............................... 2 0 0
South Carolina....................... 5 0 1
Washington........................... 2 0 0
Idaho................................ 2(3) 0 2
Alabama.............................. 1 0 0
----- -- --
Total(4)........................ 44 18 7
===== == ==
- ------------
(1) The leases with respect to these funeral homes have remaining terms ranging
from two to fifteen years, and the Company generally has a right of first
refusal on any proposed sale of the property where these funeral homes are
located.

(2) One of these funeral homes is located on property contiguous to and operated
in combination with a Company cemetery.

(3) These funeral homes are located on property contiguous to and operated in
combination with Company cemeteries.

(4) Subsequent to June 30, 1996, the Company has acquired two funeral homes in
Conneticut and one cemetery in Texas for aggregate consideration of $7.8
million.

The Company's corporate headquarters occupy approximately 11,000 square
feet of leased office space in Houston, Texas.

At June 30, 1996, the Company operated 249 vehicles, of which 183 were
owned and 66 were leased.

The specialized nature of the Company's business requires that its
facilities be well-maintained. Management believes that this standard is met.

COMPETITION

The acquisition environment in the death care industry is highly
competitive. The four major publicly held death care companies, Service
Corporation International ("SCI"), The Loewen Group, Inc., Stewart Enterprises,
Inc. and Equity Corporation International, are substantially larger than the
Company and have significantly greater financial and other resources than the
Company. In addition, a number of smaller companies are actively acquiring
funeral homes and cemeteries. Prices for funeral homes and cemeteries have
increased substantially in recent years, and, in some cases, competitors have
paid acquisition prices substantially in excess of the prices offered by the
Company. Accordingly, no assurance can be given that the Company will be
successful in expanding its operations through acquisitions or that funeral
homes and cemeteries will be available at reasonable prices or on reasonable
terms.

The Company's funeral home and cemetery operations generally face
competition in the markets that they serve. Market share for funeral homes and
cemeteries is largely a function of reputation and heritage, although
competitive pricing, professional service and attractive, well-maintained and
conveniently located facilities are also important. The sale of preneed funeral
services and cemetery property has increasingly been used by many companies as
an important marketing tool to build market share. Due to the importance of
reputation and heritage, market share increases are usually gained over a long
period of time.

TRUST FUNDS

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

PRENEED FUNERAL TRUSTS. Preneed funeral sales are facilitated by deposits
to a trust or purchase of a third party insurance product. All preneed funeral
sales are deferred until the service is performed. The trust income earned and
any increase in insurance benefits are also deferred until the service is
performed in order to offset possible inflation in cost when providing the
service in the future. Although direct marketing costs and commissions incurred
for the sale of preneed funeral contracts are a current use of cash, such costs
are also deferred and amortized over 12 years, which approximates the expected
timing of the performance of the services related to the preneed funeral
contracts. Since the Company does not have access to the trust fund principal or
earnings, the related assets and liabilities are not reflected on the Company's
balance sheet. In most states, the Company is not permitted to withdraw
principal or investment income from such trusts until the funeral service is
performed. Some states, however, allow for the retention of a percentage
(generally 10%) of the receipts to offset any administrative and selling
expenses, which the Company defers until the service is provided. The aggregate
balance of the Company's preneed funeral contracts held in trust was
approximately $24.3 million as of June 30, 1996.

PRENEED CEMETERY MERCHANDISE AND SERVICE TRUSTS. The Company is generally
required under applicable state laws to deposit a specified amount (which varies
from state to state, generally 110% of wholesale cost) into a merchandise and
service trust fund for cemetery merchandise and services sold on a preneed
basis. The related trust fund income is recognized in current revenues as trust
earnings. These earnings are offset by any current period inflation costs
accrued related to the merchandise that has not yet been purchased. Liabilities
for undelivered cemetery merchandise and services, including accruals for
inflation increases, are reflected in the balance sheet net of the merchandise
and service trust balance. The Company is permitted to withdraw the trust
principal and the accrued income when the merchandise is purchased or service is
provided by the Company or when the contract is cancelled. The merchandise and
service trust fund balances, in the aggregate, were approximately $1.1 million
as of June 30, 1996.

PERPETUAL CARE TRUSTS. In certain states, regulations require a portion,
generally 10%, of the sale amount of cemetery property and memorials to be
placed in trust. These perpetual care trusts provide the funds necessary to
maintain cemetery property and memorials in perpetuity. The related trust fund
income is recognized in current revenues as trust earnings. While the Company is
entitled to withdraw the income from its perpetual care trust to provide for the
maintenance of the cemetery and memorials, they are not entitled to withdraw any
of the principal balance of the trust fund, and therefore, none of the principal
balances are reflected in the Company's balance sheet. The Company's perpetual
care trust balances were approximately $1.7 million as of June 30, 1996.

For additional information with respect to the Company's trusts, see Note 1
of the Consolidated Financial Statements located elsewhere in this Prospectus.

REGULATION

The Company's funeral home operations are subject to substantial regulation
by the Federal Trade Commission (the "FTC"). Certain regulations contain minimum
standards for funeral industry practices, require extensive price and other
affirmative disclosures to the customer at the time of sale and impose mandatory
itemization requirements for the sale of funeral products and services.

The Company is subject to the requirements of the federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the United States Environmental Protection Agency
community right-to-know regulations under Title III of the federal Superfund
Amendment and Reauthorization Act and similar state statutes require the Company
to organize information about hazardous materials used or produced in its
operations. Certain of this information must

be provided to employees, state and local governmental authorities and local
citizens. The Company is also subject to the federal Americans with Disabilities
Act and similar laws which, among other things, may require that the Company
modify its facilities to comply with minimum accessibility requirements for
disabled persons.

The Company's operations, including its preneed sales and trust funds, are
also subject to extensive regulation, supervision and licensing under numerous
other federal, state and local laws and regulations. See "-- Trust Funds."

The Company believes that it is in substantial compliance with all such
laws and regulations. Federal and state legislatures and regulatory agencies
frequently propose new laws, rules and regulations some of which, if enacted,
could have a material adverse effect on the Company's operations and on the
death care industry in general. The Company cannot predict the outcome of any
proposed legislation or regulations or the effect that any such legislation or
regulations might have on the Company.

LEGAL MATTERS

The Company and certain of its subsidiaries are parties to a number of
legal proceedings that arise from time to time in the ordinary course of
business. While the outcome of these proceedings cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the Company.

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

EMPLOYEES

As of June 30, 1996, the Company and its subsidiaries employed
approximately 300 full-time employees, 280 part-time employees and 100 preneed
sales counselors. All of the Company's funeral directors and embalmers possess
licenses required by applicable regulatory agencies. Management believes that
its relationship with its employees is good. No employees of the Company or its
subsidiaries are members of a collective bargaining unit.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company currently has a Board of Directors composed of four members.
Upon completion of the Offering, the Company will increase the size of the Board
of Directors to seven members and elect three additional directors. In
accordance with the Bylaws of the Company, the members of the Board of Directors
are divided into three classes and are elected for a term of office expiring at
the third succeeding annual stockholders' meeting following their election to
office or until a successor is duly elected and qualified. The Bylaws also
provide that such classes shall be as nearly equal in number as possible. The
terms of office of the Class I, Class II and Class III directors expire at the
annual meeting of stockholders in 1997, 1998 and 1999, respectively. The
officers of the Company are elected by and serve until their successors are
elected by the Board of Directors.

The following table sets forth the names, ages and titles of the current
directors and executive officers of the Company and, in the case of the
directors, the expiration of their respective terms.

<TABLE>
<CAPTION>
EXPIRATION OF
NAME AGE POSITION WITH THE COMPANY TERM AS DIRECTOR
- ---------------------------------------- --- -------------------------------------------- ----------------
<S> <C> <C> <C>
Melvin C. Payne(1)...................... 53 President, Chief Executive Officer and 1997
Director
Mark W. Duffey(1)....................... 40 Executive Vice President, Chief Financial 1998
Officer and Director
Russell W. Allen........................ 49 Executive Vice President, Operations --
Mary-Lees Payne......................... 47 Vice President, Administration and --
Accounting
Reid A. Millard......................... 37 Vice President, Corporate Development --
C. Byron Snyder(1)...................... 47 Chairman of the Board of Directors 1997
Barry K. Fingerhut(1)(2)................ 50 Director 1998
Stuart W. Stedman(3)(4)................. 38 Director 1999
Robert D. Larrabee(2)(4)................ 61 Director 1997
Ronald A. Erickson(3)(4)................ 59 Director 1999
</TABLE>

- ------------
(1) Member of Executive Committee.

(2) Member of Compensation Committee.

(3) Member of Audit Committee.

(4) To be elected following completion of the Offering.

Set forth below is a brief description of the business experience of the
directors and executive officers of the Company.

MELVIN C. PAYNE, one of the three management founders of the Company, has
been President, Chief Executive Officer and a director of the Company since its
inception. Prior to co-founding the Company, Mr. Payne was a co-founder in 1990
of Sovereign Capital Partners, Inc., an investment and management advisory firm
which specialized in restructuring, recapitalizing and acquiring or selling
financially troubled companies. From 1991 to 1993, Mr. Payne served as a
director and officer of Sovereign Holdings, Inc., RTO Enterprises Inc. and
various subsidiaries of RTO Enterprises Inc. Mr. Payne has 25 years of broad
investment, banking and operating management experience, including positions as
Executive Vice President and director of Wedge Group, Inc., an investment
holding company with multi-industry operations, and with Texas Commerce Bank and
Prudential Insurance Company. Mr. Payne serves on the Board of Trustees of WNL
Series Trust, a mutual fund affiliated with Western National Life Insurance
Company and on the Board of Managers of Sovereign Capital Partners, LC, a
private acquisition company.

MARK W. DUFFEY, one of the three management founders of the Company, has
been Executive Vice President and Chief Financial Officer since the inception of
the Company and in 1995 became a director. Prior to co-founding the Company, Mr.
Duffey was a co-founder of Sovereign Capital Partners, Inc. with

Mr. Payne. Mr. Duffey was previously Chief Operating Officer of a private
investment firm in Houston with interests in energy, real estate and public
securities. From 1991 to 1993, Mr. Duffey served as a director and officer of
Sovereign Holdings, Inc., RTO Enterprises Inc. and various subsidiaries of RTO
Enterprises Inc. Prior to 1989, he held various positions with Mellon Bank over
a ten-year period, both in Pittsburgh and in Houston. He serves on the Board of
Managers of Sovereign Capital Partners, LC.

RUSSELL W. ALLEN joined the Company in June 1993 as Executive Vice
President, Operations. Mr. Allen has over 32 years of operational experience in
the funeral home industry. Prior to joining the Company, he was affiliated with
Earthman Funeral Directors and Greenwood-Mount Olivet Funeral Homes and
Cemeteries of Fort Worth, Texas for one and 21 years, respectively, serving most
recently as Executive Vice President of operations with each company. Mr. Allen
recently completed a term of six years as Vice Chairman of the Texas Funeral
Service Commission and as Chairman of the Education and Legislation Committees.
He is also a member of the Texas Cemetery Association and has served on the
Legislative Committees with that organization.

MARY-LEES PAYNE provided consulting services to the Company during the
initial start-up period beginning in January 1992 and became Controller of the
Company in June 1993 and Vice President, Administration and Accounting in June
1995. From 1984 to 1989, she served as Vice President and Controller for three
start-up companies, two in the death care industry. Prior to 1984, Ms. Payne was
an audit manager in the international accounting firm of Ernst & Young. Ms.
Payne is a certified public accountant and is not related to Melvin C. Payne.

REID A. MILLARD, one of the three management founders, served as Executive
Vice President until November 1993. From November 1993 until June 1996, Mr.
Millard was active in various positions in operations and corporate development.
In June 1996, Mr. Millard became Vice President, Corporate Development of the
Company. Mr. Millard has 21 years of management experience in the funeral
service industry, including spending nine years at SCI, where he obtained a wide
range of experience in operations, marketing, merchandising, real estate,
preneed sales, general management and independent funeral home owner
relationships. He left SCI in 1990 to pursue various entrepreneurial activities,
including the ownership and operation of a funeral home in Jefferson City,
Missouri.

C. BYRON SNYDER has been Chairman of the Board of Directors of the Company
since its inception. Mr. Snyder is presently owner and President of Relco
Refrigeration Co., a distributor of refrigeration equipment, which he acquired
in 1992. Prior to co-founding the Company, Mr. Snyder was the owner and Chief
Executive Officer of Southwestern Graphics International, Inc., a diversified
holding company which owned Brandt & Lawson Printing Co., a Houston-based
general printing business, and Acco Waste Paper Company, an independent
recycling business. Brandt & Lawson Printing Co. was sold to Hart Graphics in
1989, and Acco Waste Paper Company was sold to Browning-Ferris Industries in
1991.

BARRY K. FINGERHUT has been a director of the Company since 1995. Since
1981, Mr. Fingerhut has been associated with, and now serves as President of,
GeoCapital, a registered investment adviser located in New York City which
focuses its investment advice and management on securities of small
capitalization companies. As of December 31, 1995, GeoCapital managed accounts
having a market value of approximately $1.8 billion. Mr. Fingerhut also has
co-founded several investment partnerships that invest primarily in undervalued
publicly traded companies and high growth companies engaged in the
communications, media or entertainment industries. Mr. Fingerhut presently is a
director of Millbrook Press, Inc., a publisher of children's non-fiction books,
and Glasser Legal Works, Inc., a niche publisher of legal texts, journals and
seminars. He previously served as a director of La Quinta Inns, Inc., a
nationwide lodging chain, and Lakeshore National Bank, Inc., which was acquired
by First Chicago Corp. in 1994.

STUART W. STEDMAN will become a director of the Company upon consummation
of the Offering. For the past ten years, Mr. Stedman has been President of
Wesley West Interests, Inc., a management company responsible for various family
holdings, including marketable securities, oil, gas and coal properties, ranch
lands and urban real estate. Mr. Stedman also serves as Manager of Strand
Energy, L.L.C., a private exploration and production company.

ROBERT D. LARRABEE will become a director of the Company upon consummation
of the Offering. Mr. Larrabee is the former owner of a group of four funeral
homes and two cemeteries in the states of Washington and Idaho that the Company
acquired in April 1996. He is the founder, past president and past director of
Valley Bank in Clarkston, Washington; founder, past Chairman of the Board and
past President of Purple Cross Insurance Company (now American Memorial Life);
and founder of Lewis-Clark Savings and Loan Association. He also serves on the
board of Sterling Financial Corporation and, until 1995, served on the Board of
Directors of Laurentian Capital Corporation.

RONALD A. ERICKSON will become a director of the Company upon consummation
of the Offering. Mr. Erickson is Chief Executive Officer of Holiday Companies,
Minneapolis, Minnesota, a family business consisting primarily of convenience
stores, supermarkets, sporting goods stores and wholesale food distribution. Mr.
Erickson serves on the Board of Directors of First Bank National Association.

EXECUTIVE COMPENSATION

The following table sets forth information with respect to the President
and Chief Executive Officer of the Company and each of the two other most highly
compensated executive officers of the Company for the year ended December 31,
1995. No other executive officer of the Company had salary and bonus which
exceeded $100,000 in 1995:

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION IN THE --------------------- ALL OTHER
COMPANY SALARY BONUS COMPENSATION
- ------------------------------------- ---------- --------- ------------
Melvin C. Payne, President, Chief
Executive Officer and Director..... $ 175,000 -- --
Mark W. Duffey, Executive Vice
President, Chief Financial Officer
and Director....................... $ 150,000 -- --
Russell W. Allen, Executive Vice
President, Operations.............. $ 100,000 $ 20,000 $6,000(1)
- ------------
(1) Represents compensation for automobile allowance.

EMPLOYMENT AGREEMENTS

The Company intends to enter into separate employment agreements with each
of Melvin C. Payne, Mark W. Duffey and Russell W. Allen prior to the Offering.
The employment agreements with Mr. Payne and Mr. Duffey will have an initial
term of five years with an evergreen two year extension continuing after the
first three years of the employment agreements unless either the Company or the
employee gives 90 days notice of termination. The employment agreement with Mr.
Allen is for an initial term of five years. Pursuant to these agreements,
Messrs. Payne, Duffey and Allen will be entitled to receive a salary of not less
than $225,000, $185,000 and $145,000, respectively, and a bonus to be determined
on an annual basis by the Board of Directors. In addition, each agreement will
contain a covenant prohibiting the employee from competing with the Company
during the period they are receiving compensation under their agreements,
provided however, that, following termination of employment, the employee may
elect to forego certain severance payments which he may be entitled to under the
employment agreements and thereafter shall not be prohibited from competing with
the Company. In addition, the agreements will contain customary benefits and
perquisites.

COMPENSATION OF DIRECTORS

Following the Offering, it is anticipated that in lieu of cash compensation
each director of the Company who is not an officer or employee of the Company or
any of its subsidiaries (a "nonemployee director") will be entitled to options
as described below and will be reimbursed for expenses incurred in the attending
meetings of the Board of Directors and Committees thereof. The 1996 Nonemployee
Directors' Stock Option Plan (the "Nonemployee Directors' Plan") has been
adopted for the nonemployee directors. Under the Nonemployee Directors' Plan,
each individual who is a nonemployee director as of the date of the Offering or
who is elected to the Board of Directors on such date, will receive, as of such
date, a

nonqualified stock option (an "Initial Option") to purchase 15,000 shares
(which amount shall be increased to 25,000 if the nonemployee director also
serves on the Executive Committee as of such date) of Class A Common Stock at an
exercise price per share equal to the initial public offering price of $13.50
per share. Further, each nonemployee director will receive, as of the date of
each annual meeting of the stockholders of the Company, a nonqualified stock
option (an "Annual Option") to purchase 6,000 shares of Class A Common Stock.
Each Annual Option will have an exercise price equal to the fair market value of
the Class A Common Stock on the date of grant. The exercise price under an
option granted pursuant to the Nonemployee Directors' Plan may be paid in cash,
in shares of Class A Common Stock (valued at fair market value at the date of
exercise), or by a combination of such means of payment. The number of shares
covered by each option and the exercise price per share will be proportionately
adjusted in the event of a stock split, reverse stock split, stock dividend, or
similar capital adjustment effected without receipt of consideration by the
Company. The aggregate number of shares of Class A Common Stock that may be
issued pursuant to the exercise of options granted under the Nonemployee
Directors' Plan is 200,000 shares. Shares issuable pursuant to the Nonemployee
Directors' Plan may be authorized but unissued shares or reacquired shares, and
the Company may purchase shares required for this purpose.

Options granted under the Nonemployee Directors' Plan will have a maximum
term of ten years. Annual Options will vest immediately. An Initial Option will
vest with respect to one-third of the shares subject to such option in four
equal annual installments beginning on the first anniversary of the date of the
Offering. An Initial Option will vest immediately with respect to the remaining
two-thirds of the shares subject to such option if, within four years after the
date of the Offering, the average of the fair market value of the Class A Common
Stock over twenty consecutive trading days is greater than or equal to $28.00
which is based on a predetermined compound growth rate of the Class A Common
Stock price. "Fair market value" is defined as the average of the high and low
prices for the Class A Common Stock on the specified date as reported by the
Nasdaq National Market. If the stock price target described above is not timely
satisfied, then an Initial Option will vest with respect to the two-thirds of
the shares subject to such option in four equal annual installments beginning on
the fifth anniversary of the date of the Offering. All options granted under the
Nonemployee Directors' Plan will also become fully vested and exercisable in
full in the event that a nonemployee director's membership on the Board of
Directors terminates by reason of death or disability or upon the occurrence of
a "Change of Control" while a nonemployee director is a member of the Board of
Directors. The Nonemployee Directors' Plan provides that a Change of Control
occurs (i) if the Company is dissolved and liquidated, (ii) if the Company is
not the surviving entity in any merger, consolidation, or reorganization, (iii)
if the Company sells, leases or exchanges, or agrees to sell, lease, or
exchange, all or substantially all of its assets, (iv) if any person, entity or
group acquires or gains ownership or control of more than 50% of the outstanding
shares of the Company's voting stock (based upon voting power), or (v) if, after
a contested election of directors, the persons who were directors before such
election cease to constitute a majority of the Board of Directors. Upon
termination of a nonemployee director's membership on the Board of Directors,
the nonemployee director will have three months (12 months if such termination
is by reason of death or disability) to exercise his or her options, but only to
the extent such options are vested as of the date of such termination.

A nonemployee director will not recognize any taxable income at the time an
option is granted under the Nonemployee Directors' Plan. Ordinary income will be
recognized by a nonemployee director at the time of exercise in an amount equal
to the excess of the fair market value of the shares of Class A Common Stock on
the date of exercise over the option price for such shares. However, if other
shares of Class A Common Stock have been purchased by a nonemployee director
within six months of the exercise of an option, recognition of the income
attributable to such exercise may under certain circumstances be postponed for a
period of up to six months from the date of such purchase of such other shares
of Class A Common Stock due to liability to suit under Section 16(b) of the
Exchange Act. If applicable, one effect of any such postponement would be to
measure the amount of the nonemployee director's taxable income by reference to
the fair market value of such shares at the same time such liability to suit
under Section 16(b) of the Exchange Act no longer exists (rather than at the
earlier date of the exercise of the option). Upon the nonemployee director's
exercise of an option granted under the Nonemployee Directors' Plan, the Company

may claim a deduction for compensation paid at the same time and in the same
amount as ordinary income is recognized by the nonemployee director.

The Nonemployee Directors' Plan is not qualified under section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"). The comments set
forth above are only a summary of certain of the Federal income tax consequences
relating to the Nonemployee Directors' Plan. No consideration has been given to
the effects of state, local or other tax laws on the Nonemployee Directors'
Plan, the Company or the award recipients.

Based upon current law and published interpretations, the Company does not
believe the Nonemployee Directors' Plan is subject to any of the provisions of
the Employee Retirement Income Security Act of 1974.

INCENTIVE PLANS

The Company has adopted two incentive compensation plans designed to align
the interests of the executives and employees with those of its stockholders.

1995 STOCK INCENTIVE PLAN. The Company has adopted the 1995 Stock Incentive
Plan (the "1995 Plan"). The maximum number of shares of Common Stock which may
be issued pursuant to the 1995 Plan, as amended, is 400,000. Awards under the
1995 Plan made prior to the date of the Offering will be satisfied in shares of
Class B Common Stock, and awards under the 1995 Plan made on or after the date
of the Offering will be satisfied in shares of Class A Common Stock. Under the
1995 Plan, the Company may grant incentive stock options intended to qualify
under Section 422 of the Code to eligible employees of the Company, and options
that are not qualified as incentive stock options (non-statutory stock options)
to any eligible individual. The exercise price will be determined by the
Compensation Committee and will not be less than the fair market value of the
Class A Common Stock on the date that the option is granted. The exercise price
may be paid in cash, in shares of Class A Common Stock (valued at fair market
value at the date of exercise) or by a combination of such means of payment as
may be determined by the Compensation Committee. The 1995 Plan provides that in
the event a holder pays all or a part of the exercise price of an incentive
stock option or a non-statutory stock option in shares of Class A Common Stock,
the Committee may grant a corresponding "reload option," which is not qualified
as an incentive stock option, for an equal number of shares of Class A Common
Stock. Reload options may be granted concurrently with the award of a stock
option or subsequent to the award of a stock option. Additionally, alternate
appreciation rights may be granted to eligible individuals in conjunction with
options. Alternate appreciation rights give the holder, among other things, the
right to a payment of Class A Common Stock in an amount equal to the difference
between the fair market value of the Class A Common Stock at the date of
exercise and the option exercise price. In conjunction with options and
alternate appreciation rights, "limited rights" may also be granted to eligible
individuals. Limited rights give the holder, among other things, the right to
cash in an amount equal to the difference between the fair market value of the
Class A Common Stock at the date of exercise and the option exercise price.
Limited rights are exercisable for a period of seven months following the date
of a "Change in Control." The 1995 Plan provides that a Change in Control occurs
(i) if the Company is dissolved and liquidated, (ii) if the Company is not the
surviving entity in any merger, consolidation, or reorganization, (iii) if the
Company sells, leases or exchanges, or agrees to sell, lease, or exchange, all
or substantially all of its assets, (iv) if any person, entity or group acquires
or gains ownership or control of more than 50% of the outstanding shares of the
Company's voting stock (based upon voting power), or (v) if, after a contested
election of directors, the persons who were directors before such election cease
to constitute a majority of the Board of Directors. The 1995 Plan also provides
for the issuance of shares of Class A Common Stock which may be subject to
forfeiture under circumstances specified by the Compensation Committee at the
time of the award of such shares ("bonus stock"). Pursuant to a bonus stock
award, shares of Class A Common Stock will be issued to the individual at the
time the award is made without any payment to the Company (other than for any
payment amount determined by the Compensation Committee in its discretion), but
such shares may be, if so specified by the Compensation Committee, subject to
certain restrictions on the disposition thereof and certain obligations to
forfeit such shares to the Company, as determined in the discretion of the
Compensation Committee.

The 1995 Plan provides that the total number of shares covered by each
award will be proportionately adjusted in the event of a stock split, reverse
stock split, or other similar capital adjustment effected without the receipt of
consideration by the Company. Further, the total number of shares covered by the
plan, the exercise price per share under each option, and any other matters
deemed appropriate by the Compensation Committee, may be appropriately adjusted
in event of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares, or similar
transaction.

Directors, executive officers and other employees of the Company and its
subsidiary and affiliate corporations and former owners of funeral homes or
cemeteries that have been acquired by the Company are eligible to receive awards
under the 1995 Plan. The 1995 Plan is administered by the Compensation
Committee. Subject to the terms of the 1995 Plan, the Compensation Committee is
authorized to select the recipients of awards from among those eligible and to
establish the number of shares that may be issued under each award. Concurrently
with the Offering, the Company anticipates that options exercisable for 120,000
shares of Class A Common Stock will be issued to employees who are not executive
officers at an exercise price equal to the initial public offering price. Such
options will be subject to a four-year vesting period.

1996 STOCK OPTION PLAN. The Company has adopted the 1996 Stock Option Plan
(the "1996 Plan") and 600,000 shares of Class A Common Stock have been reserved
for issuance pursuant to such plan. Under the 1996 Plan, the Company may grant
both incentive stock options intended to qualify under Section 422 of the Code,
and options that are not qualified as incentive stock options. The exercise
price will be determined by the Compensation Committee and will be no less than
the fair market value of the Class A Common Stock on the date that the option is
granted. The exercise price may be paid in cash, in shares of Class A Common
Stock (valued at fair market value at the date of exercise) or by a combination
of such means of payment, as may be determined by the Compensation Committee.
The 1996 Plan provides that stock appreciation rights may be granted to
employees in conjunction with options. Stock appreciation rights give the
holder, among other things, the right to a payment in an amount equal to the
difference between the fair market value of the Class A Common Stock at the date
of exercise and the option exercise price. Such payment may be made, at the
election of the holder (subject to the consent or disapproval of the
Compensation Committee of any election to receive cash), in cash, in shares of
Class A Common Stock (valued at fair market value at the date of exercise), or
by a combination thereof.

The 1996 Plan provides that the total number of shares covered by such
plan, the number of shares covered by each option, and the exercise price per
share under each option will be proportionately adjusted in the event of a stock
split, reverse stock split, stock dividend, or similar capital adjustment
effected without receipt of consideration by the Company.

All employees of the Company and its subsidiary corporations (including an
employee who may also be a director of any such company) are eligible to receive
options under the 1996 Plan. The 1996 Plan is administered by the Compensation
Committee of the Board of Directors. Subject to the terms of the 1996 Plan, the
Compensation Committee is authorized to select the recipients of options from
among those eligible and to establish the number of shares that may be issued
under each option.

Concurrently with the Offering, the Compensation Committee intends to award
a non-statutory stock option under the 1996 Plan to each of the following
individuals with respect to the number of shares of Class A Common Stock
indicated: Melvin C. Payne -- 250,000 shares; Mark W. Duffey -- 150,000 shares;
Russell W. Allen -- 50,000 shares; and Reid A. Millard -- 30,000 shares. Each
such option will (i) have an exercise price per share equal to the initial
public offering price, (ii) have a maximum term of ten years, (iii) vest with
respect to one-third of the shares subject to such option in four equal annual
installments beginning on the first anniversary of the date of the Offering, and
(iv) vest immediately with respect to the remaining two-thirds of the shares
subject to such option if, within four years after the date of the Offering, the
average of the fair market value of the Class A Common Stock over twenty
consecutive trading days is greater than a predetermined compound growth rate of
the Class A Common Stock price. If the stock price target described in clause
(iv) of the preceding sentence is not satisfied, then each such option will vest
with respect to two-thirds of the shares subject to such option in four equal
annual installments beginning on the

fifth anniversary of the date of the Offering. All of such options will also
become fully vested and exercisable in full in the event the optionee's
employment with the Company terminates by reason of death or disability or upon
the occurrence of a "Corporate Change" while the optionee is employed by the
Company or a subsidiary corporation. The term "Corporate Change" has the same
meaning under the 1996 Plan as the term "Change of Control" has under the 1995
Plan. For purposes of determining whether the stock price target described above
is satisfied, the fair market value of a share of Class A Common Stock is
defined as the average of the high and low sales prices for such stock on a
specified date as reported by the Nasdaq National Market.

FEDERAL INCOME TAX ASPECTS OF THE 1995 PLAN AND THE 1996 PLAN. As a general
rule, no federal income tax is imposed on the optionee upon the grant of a
compensatory non-statutory stock option such as those under the 1995 Plan and
the 1996 Plan (whether or not including a stock appreciation right, an alternate
appreciation right or a limited right) and the Company is not entitled to a tax
deduction by reason of such grant. Generally, upon the exercise of a
non-statutory stock option that has been granted as compensation for services,
the optionee will be treated as receiving compensation taxable as ordinary
income in the year of exercise in an amount equal to the excess of the fair
market value of the shares on the date of exercise over the option price paid
for such shares. In the case of the exercise of a stock appreciation right, an
alternate appreciation right, or a limited right, which has been granted as
compensation for services, the optionee will be treated as receiving
compensation taxable as ordinary income in the year of exercise in an amount
equal to the cash received plus the fair market value of the shares distributed
to the optionee. Upon the exercise of a non-statutory stock option, a stock
appreciation right, an alternate appreciation right, or a limited right, which
has been granted as compensation for services and subject to the application of
Section 162(m) of the Code as discussed below, the Company may claim a deduction
for compensation paid at the same time and in the same amount as compensation
income is recognized to the optionee assuming any federal income tax withholding
requirements are satisfied. Upon a subsequent disposition of the shares received
upon exercise of such award, any appreciation after the date of exercise should
qualify as capital gain. If such shares received upon the exercise of an option,
a stock appreciation right, or an alternate appreciation right are transferred
to the optionee subject to certain restrictions, then the taxable income
realized by the optionee, unless the optionee elects otherwise, and the
Company's tax deduction (assuming any federal income tax withholding
requirements are satisfied) should be deferred and should be measured at the
fair market value of the shares at the time the restrictions lapse. The
restrictions imposed on officers, directors and 10% shareholders by Section
16(b) of the Exchange Act is such a restriction during the period prescribed
thereby if other shares have been purchased by such an individual within six
months of the exercise of a non-statutory stock option, a stock appreciation
right, or an alternate appreciation right.

The incentive stock options under the 1995 Plan and the 1996 Plan are
intended to constitute "incentive stock options" within the meaning of Section
422 of the Code. Incentive stock options are subject to special federal income
tax treatment. No federal income tax is imposed on the optionee upon the grant
or the exercise of an incentive stock option if the optionee does not dispose of
shares acquired pursuant to the exercise within the two-year period beginning on
the date the option was granted or within the one-year period beginning on the
date the option was exercised (collectively, the "holding period"). In such
event, the Company would not be entitled to any deduction for federal income tax
purposes in connection with the grant or exercise of the option or the
disposition of the shares so acquired. With respect to an incentive stock
option, the difference between the fair market value of the stock on the date of
exercise and the exercise price must be included in the optionee's alternative
minimum taxable income. However, if the optionee exercises an incentive stock
option and disposes of the shares received in the same year and the amount
realized is less than the fair market value of the shares on the date of
exercise, the amount included in alternative minimum taxable income will not
exceed the amount realized over the adjusted basis of the shares.

Upon disposition of the shares received upon exercise of an incentive stock
option after the holding period, any appreciation of the shares above the
exercise price constitutes capital gain. If an optionee disposes of shares
acquired pursuant to his or her exercise of an incentive stock option prior to
the end of

the holding period, the optionee will be treated as having received, at the time
of disposition, compensation taxable as ordinary income. In such event, and
subject to the application of Section 162(m) of the Code as discussed below, the
Company may claim a deduction for compensation paid at the same time and in the
same amount as compensation is treated as received by the optionee. The amount
treated as compensation is the excess of the fair market value of the shares at
the time of exercise (or in the case of a sale on which a loss would be
recognized, the amount realized on the sale if less) over the exercise price;
any amount realized in excess of the fair market value of the shares at the time
of exercise would be treated as short-term or long-term capital gain, depending
on the holding period of the shares.

An individual who has been granted bonus stock under the 1995 Plan as
compensation for services will not realize taxable income at the time of grant,
and the Company will not be entitled to a deduction at that time, assuming that
there are restrictions on the stock which constitute a substantial risk of
forfeiture for federal income tax purposes. Upon expiration of any such
forfeiture restrictions (i.e., as shares become vested), a holder who has
received such bonus stock as compensation for services will realize ordinary
income in an amount equal to the excess of the fair market value of the shares
at such time over the amount, if any, paid for such shares, and, subject to the
application of Section 162(m) of the Code as discussed below, the Company will
be entitled to a corresponding deduction. Any dividends paid to such holder in
respect of bonus stock during the period that the forfeiture restrictions apply
will also be compensation to such holder and deductible as such by the Company.
Notwithstanding the foregoing, the recipient of bonus stock that is granted as
compensation for services may elect to be taxed at the time of grant of the
bonus stock based upon the fair market value of the shares on the date of the
award, in which case (a) subject to Section 162(m) of the Code, the Company will
be entitled to a deduction at the same time and in the same amount, (b)
dividends paid to the recipient during the period the forfeiture restrictions
apply will be taxable as dividends and will not be deductible by the Company,
and (c) there will be no further federal income tax consequences when the
forfeiture restrictions lapse.

Section 162(m) of the Code precludes a public corporation from taking a
deduction in a taxable year for compensation in excess of $1 million paid to its
chief executive officer or any of its four other highest-paid officers. However,
compensation that qualifies under Section 162(m) of the Code as
"performance-based" is specifically exempt from the deduction limit. Further,
the regulations issued under Section 162(m) of the Code provide a special
transitional rule for privately held corporations that become publicly held
pursuant to an initial public offering. Pursuant to this transitional rule, the
Code Section 162(m) deduction limit will not apply to any remuneration paid
pursuant to a plan that existed during the period in which the corporation was
not publicly held, to the extent that the prospectus accompanying the initial
public offering disclosed information concerning such plan that satisfied all
applicable securities laws then in effect. This transitional rule may be relied
upon until the earliest of (i) the expiration of the plan, (ii) the material
modification of the plan, (iii) the issuance of all employer stock or other
compensation under the plan, or (iv) the first meeting of stockholders at which
directors are to be elected that occurs after the close of the third calendar
year following the calendar year in which the initial public offering occurred.
The transitional rule will apply to any compensation received pursuant to an
award under the 1995 Plan or the 1996 Plan that is made prior to the earliest of
the dates specified in the preceding sentence. Upon expiration of the
transitional relief, compensation relating to awards thereafter granted under
the 1995 Plan or the 1996 Plan would be subject to the deduction limitations of
Code Section 162(m). However, the Company currently anticipates that it will
amend the 1995 Plan and the 1996 Plan and seek stockholder approval of the
amended plans prior to the expiration of the transitional relief so that the
compensation paid under such plans (other than perhaps bonus stock awarded under
the 1995 Plan) can qualify under Code Section 162(m) as "performance-based."

Neither the 1995 Plan nor the 1996 Plan is qualified under section 401(a)
of the Code.

The comments set forth in the above paragraphs are only a summary of
certain of the Federal income tax consequences relating to the 1995 Plan and the
1996 Plan. No consideration has been given to the effects of state, local, or
other tax laws on the 1995 Plan, the 1996 Plan, the Company or the award
recipients.

Based upon current law and published interpretations, the Company does not
believe the 1995 Plan or the 1996 Plan is subject to any of the provisions of
the Employee Retirement Income Security Act of 1974.

CERTAIN TRANSACTIONS

In connection with the Company's formation in June 1991, C. Byron Snyder,
Chairman of the Board of Directors, provided an initial capital commitment of $6
million. The Snyder Notes bear interest at a predetermined rate plus 3%, subject
to adjustment in certain circumstances, payable annually in the form of cash or
additional subordinated notes. On January 1, 1995, the Company issued additional
notes to Mr. Snyder totalling $648,215 which represents the interest accrued on
the Snyder Notes during the year ended December 31, 1994. On January 1, 1996,
the Company issued additional notes to Mr. Snyder totalling $825,118 which
represents the interest accrued on the Snyder Notes during the year ended
December 31, 1995. A portion of the proceeds of the Offering will be used to
repay such loans.

The Company has an agreement with ACCO Collection Company ("ACCO"), which
is owned by Mr. Snyder, under which the Company may transfer responsibility for
collection of past due accounts receivable to ACCO in return for a percentage of
the collections received. To date, fees totalling $1,200 have been made to ACCO
by the Company.

The Company pays Mr. Snyder a $25,000 annual fee in return for certain
services provided to the Company. Mr. Snyder is the Chairman of the Board of the
Company and is active in determining the strategic direction of the Company as
well as being involved in reviewing major acquisitions. In addition, the Company
pays Mr. Snyder $40,000 per year as consideration for Mr. Snyder's indirect
guarantee of a portion of the Company's loan from TCB. Mr. Snyder's guarantee
will be released upon repayment of the loan in connection with the Offering.

Robert D. Larrabee, a director of the Company and former owner of certain
properties recently acquired by the Company, is a party to an arrangement with
the Company whereby Mr. Larrabee may receive annual cash bonuses if acquisition
candidates which he develops and which are subsequently acquired by the Company
attain cash flow in excess of certain cash flow targets over a ten-year period.
Pursuant to the arrangement, Mr. Larrabee may elect to sell back to the Company
his share of excess cash flow during the last three-year period at a
predetermined cash flow multiple. To date no payments have been made by the
Company under this arrangement.

The Company in July 1996 loaned Russell W. Allen $316,714 to fund the
consideration payable with respect to the exercise of Mr. Allen's right to
purchase shares of Class B Common Stock of the Company and to pay certain
federal income tax liability associated with respect to such exercise. The loan
matures on June 30, 1999, bears interest at 7% per year payable annually on or
before March 31 of each year and is secured by 50% of the Class B Common Stock
purchased by Mr. Allen.

PRINCIPAL STOCKHOLDERS

The following table sets forth information as of July 15, 1996 as adjusted
to reflect the sale of the Class A Common Stock offered hereby, with respect to
the beneficial ownership of Common Stock by each person known by the Company to
be the beneficial owner of more than 5% of outstanding Common Stock, by each
director and executive officer of the Company and by all directors and executive
officers of the Company as a group. Each person named has sole voting and
investment power with respect to the shares indicated except as otherwise stated
in the notes to the table.

<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
SHARES OF CLASS A AND B VOTING CONTROL
CLASS B COMMON STOCK AFTER
COMMON STOCK OWNED AFTER OFFERING OFFERING
------------ -------------------- --------------
<S> <C> <C> <C>
C. Byron Snyder(1)...................... 1,296,311 16.4% 26.8%
Melvin C. Payne(2)...................... 629,770 8.0 13.0
Barry K. Fingerhut(3)................... 520,925 6.6 10.8
Mark W. Duffey.......................... 313,625 4.0 6.5
Reid A. Millard......................... 201,600 2.6 4.2
Stuart W. Stedman(4).................... 110,223 1.4 2.3
Ronald A. Erickson(5)................... 44,015 * *
Robert D. Larrabee...................... -- -- --
Russell W. Allen........................ 63,000 * 1.3
Mary-Lees Payne......................... 25,200 * *
All directors and executive officers as
a group
(10 persons, including the directors
and executive officers named above)... 3,204,669 40.6 66.2
</TABLE>
- ------------
* less than 1%

(1) Includes 367,550 shares owned by 1996 Snyder Family Partnership, Ltd., 9,005
shares owned by the C. Byron Snyder 1996 Trust and 9,005 shares owned by the
Marthanne Snyder 1996 Trust.

(2) Includes 119,161 shares owned by 1996 Payne Family Partnership, Ltd., 2,919
shares owned by the Melvin C. Payne 1996 Trust and 2,919 shares owned by the
Karen P. Payne 1996 Trust.

(3) Includes holdings of Applewood Associates, L.P. and related affiliates and
shares held jointly with Michael J. Marocco and 522,500 shares of Series D
Preferred Stock which are convertible into 38,704 shares of Class B Common
Stock.

(4) Includes 31,309 shares owned by the Betty Ann Stedman Trust, 8,349 shares
owned by the Wesley West Descendants Trust, 3,130 shares owned by the
Courtney Lynn Meagher Trust and 3,130 shares owned by the Evan Everett 1989
Trust.

(5) Owned by the Alfred and Rose Erickson Trust.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares
of common stock and 50,000,000 shares of preferred stock, par value $.01 per
share ("Preferred Stock"). The Common Stock is divided into two classes: Class A
Common Stock and Class B Common Stock. The Class A Common Stock and the Class B
Common Stock are collectively referred to as "Common Stock."

COMMON STOCK

As of June 30, 1996, 2,521,000 shares of Common Stock were outstanding and
held of record by 17 persons. Upon completion of the Offering, 3,400,000 shares
of Class A Common Stock will be outstanding. In addition, 4,501,476 shares of
Class B Common Stock will be outstanding after giving effect to the mandatory
conversion of all outstanding shares of Preferred Stock (other than the Series D
Preferred Stock) into 1,980,475 shares of Class B Common Stock. This total
excludes 90,000 shares of Class B Common Stock issuable upon exercise of
outstanding options at June 30, 1996.

The holders of Class A Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of Common stockholders. The holders of
Class B Common Stock are entitled to ten votes for each share held on all
matters submitted to a vote of Common stockholders. The Common Stock

does not have cumulative voting rights, which means that the holders of a
majority of the voting power of shares of Common Stock outstanding can elect all
the directors and the holders of the remaining shares will not be able to elect
any directors. Each share of Common Stock is entitled to participate equally in
dividends, if, as and when declared by the Company's Board of Directors, and in
the distribution of assets in the event of liquidation, subject in all cases to
any prior rights of outstanding shares of Preferred Stock. The Company has never
paid cash dividends on its Common Stock. The shares of Common Stock have no
preemptive rights, redemption rights, or sinking fund provisions. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby upon issuance and sale will be, duly authorized, validly issued, fully
paid and nonassessable.

It is anticipated that certain holders of Class B Common Stock will enter
into a voting agreement (the "Voting Agreement"). The parties to the Voting
Agreement will include Messrs. Payne, Duffey, Fingerhut, Millard, Snyder and
Stedman and certain other stockholders. Pursuant to the Voting Agreement, each
stockholder who is a party will agree not to sell his shares of Common Stock to
a Competitor of the Company and not to vote in favor of any merger,
consolidation or other similar business combination with a Competitor of the
Company. The term "Competitor" is defined to mean any person or entity who is
engaged in the funeral service, cemetery, crematory or related lines of business
that, at the time of any proposed Disposition (or at any time within the
12-month period preceding the date of the proposed Disposition), has any
operations within a 50-mile radius of any locations of the Company or an entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, the Company, and includes any
other person or entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with any
such person or entity.

Each share of Class B Common Stock is convertible at any time, at the
option of the registered holder thereof, into one share of Class A Common Stock.
In addition, each share of Class B Common Stock automatically converts into one
share of Class A Common Stock upon a sale or transfer to anyone other than a
permitted transferee. In any event, any outstanding shares of Class B Common
Stock will be automatically converted into shares of Class A Common Stock on
December 31, 2001.

PREFERRED STOCK

As of June 30, 1996, the Company's outstanding Preferred Stock consisted of
7,000,000 shares of Series A Preferred Stock, 545,000 shares of Series B
Preferred Stock, 8,500,000 shares of Series C Preferred Stock and 8,545,616
shares of Series D Preferred Stock. Upon effectiveness of the Registration
Statement, all outstanding shares of Preferred Stock (other than the Series D
Preferred Stock) will have been automatically converted into shares of Class B
Common Stock.

The Company is authorized to issue 50,000,000 shares of Preferred Stock.
The Company's Board of Directors may establish, without stockholder approval,
one or more classes or series of Preferred Stock having the number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations that the Board of Directors may designate.
The Company believes that this power to issue Preferred Stock will provide
flexibility in connection with possible corporate transactions. The issuance of
Preferred Stock, however, could adversely affect the voting power of holders of
Common Stock and restrict their rights to receive payments upon liquidation of
the Company. It could also have the effect of delaying, deferring or preventing
a change in control of the Company.

SERIES D PREFERRED STOCK

Through June 30, 1996, the Company has issued 8,545,616 shares of Series D
Preferred Stock in six different transactions. The Company issued 6,355,000
shares of Series D Preferred Stock in connection with the acquisition of two
funeral homes and one cemetery which were acquired in July 1996. These shares
will remain outstanding following the Offering. The following description is a
summary of the Certificate of Amendment to the Certificate of Designation for
the Series D Preferred Stock, and it is qualified in its entirety by reference
to that document.

DIVIDENDS. The Series D Preferred Stock ranks, with respect to dividend
rights and distribution of assets on liquidation, senior and prior to Common
Stock and junior to, or on parity with, as the case may be, any other stock of
the Company designated as senior to, or on parity with, as the case may be,
Series D Preferred Stock. Holders of Series D Preferred Stock are entitled to
receive cumulative annual cash dividends ranging from $.06 to $.07 per share
payable quarterly, depending upon when such shares were issued. Upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of Series D Preferred Stock then outstanding will be entitled to
receive an amount of cash per share equal to $1.00, together with all accrued
and unpaid dividends, after any distribution is made on any senior securities
and before any distribution is made on any junior securities, including Common
Stock. As long as any shares of Series D Preferred Stock are outstanding, the
Company may not pay a dividend (other than stock dividends in Common Stock) or
other distribution on or repurchase Common Stock, directly or indirectly, unless
all past due cumulative dividends on the Series D Preferred Stock have been
paid. The terms of Series D Preferred Stock may be amended with the consent of
the holders of a majority of the outstanding shares of Series D Preferred Stock.

REDEMPTION. The Series D Preferred Stock is mandatorily redeemable by the
Company on December 31, 2001 (subject to conversion rights at any time on or
prior to November 30, 2001) at a redemption price of $1.00 per share plus all
accrued and unpaid dividends to the date of redemption. The Series D Preferred
Stock is redeemable, in whole or in part, at the option of the Company at any
time during the period commencing on the second anniversary of the consummation
of the Offering and ending on December 31, 2001 (subject to conversion rights up
to 15 days prior to the redemption date) at a redemption price of $1.00 per
share plus accrued and unpaid dividends to the date of redemption. Partial
redemptions must be pro rata.

CONVERSION. The Series D is convertible at any time into Class B Common
Stock at an initial conversion base price ranging from $15.00 to $18.00 per
share, subject to adjustment for certain antidilutive events. For the first six
months following consummation of the Offering, the conversion price will be the
lesser of the initial conversion price or the initial price of the Class A
Common Stock to the public in the Offering. Thereafter, the conversion price
increases every six months by $.50 until the last day of the eighteenth month
following the consummation of the Offering, whereupon the conversion price is
the average market price for the ten days preceding the date of delivery of
notice of conversion on the principal securities market on which the Class A
Common Stock is then traded. At the initial public offering price of $13.50, a
total of 1,227,823 shares of Class B Common Stock would be issuable upon the
conversion of the 16,575,616 shares of Series D Preferred Stock.

The conversion price at which Series D Preferred Stock is converted prior
to the eighteen month anniversary of the consummation of the Offering is subject
to reduction for certain dilutive issuances and to adjustments for stock
dividends, splits and combinations.

VOTING RIGHTS. The Series D Preferred Stock has general voting rights on
all issues submitted to stockholders. The number of votes to which each share of
Series D Preferred Stock is entitled is a fraction of a vote determined by (i)
dividing $1.00 by the then effective conversion price per share and (ii)
dividing the resulting fraction by 20. The Series D Preferred Stock is entitled,
as a separate class, to vote upon (or consent to) any amendment to the
Certificate of Incorporation, bylaws or Certificate of Designations which would
adversely effect the rights or powers of the Series D Preferred Stock. The
requisite vote for approval is a majority of the shares of Series D Preferred
Stock outstanding.

REGISTRATION RIGHTS. Until December 31, 2005 or, as to any holder of Series
D Preferred Stock, upon (a) the consent of the holder, (b) the date such holder
owns less than the equivalent of 10,000 shares of fully diluted Class A Common
Stock or Class B Common Stock, or (c) the date on which such holder is able to
dispose of all shares of Class B Common Stock issuable upon conversion of the
Series D Preferred Stock in one three month period under Rule 144, the holders
of Series D Preferred Stock have piggyback registration rights on any offering
by the Company of Common Stock to the public for cash except (i) shares issuable
upon the exercise of employee or director stock options, or (ii) shares issued
in mergers wherein the Company is the surviving corporation. The Company is
required to give holders of Series D Preferred Stock at least 30 days prior
written notice of the filing of a registration statement, including the
estimated price

range of the offering. The holders of the Series D Preferred Stock have waived
their registration rights with respect to a Registration Statement filed by the
Company with respect to the Offering.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person becomes an interested stockholder unless (a)
before that person became an interested stockholder, the Company's Board of
Directors approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (b) upon completion
of the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (c) following the transaction in which that person became an
interested stockholder, the business combination is approved by the Company's
Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder.

Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors who were directors before any person
became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors then in office.

The Company's Board of Directors is divided into three classes. The
directors of each class are elected for three-year terms, with the terms of the
three classes staggered so that directors from a single class are elected at
each annual meeting of stockholders. Stockholders may remove a director only for
cause upon the vote of holders of at least 80% of voting power of the
outstanding shares of Common Stock. In general, the Board of Directors, not the
stockholders, has the right to appoint persons to fill vacancies on the Board of
Directors.

The Certificate of Incorporation provides that special meetings of holders
of Common Stock may be called only by the Company's Board of Directors and that
only business proposed by the Board of Directors may be considered at special
meetings of holders of Common Stock.

The Certificate of Incorporation provides that the only business (including
election of directors) that may be considered at an annual meeting of holders of
Common Stock, in addition to business proposed (or persons nominated to be
directors) by the directors of the Company, is business proposed (or persons
nominated to be directors) by holders of Common Stock who comply with the notice
and disclosure requirements set forth in the Certificate of Incorporation. In
general, the Certificate of Incorporation requires that a stockholder give the
Company notice of proposed business or nominations no later than 60 days before
the annual meeting of holders of Common Stock (meaning the date on which the
meeting is first scheduled and not postponements or adjournments thereof) or (if
later) ten days after the first public notice of the annual meeting is sent to
holders of Common Stock. In general, the notice must also contain information
about the stockholder proposing the business or nomination, the stockholder's
interest in the business, and (with respect to nominations for director)
information about the nominee of the nature ordinarily required to be disclosed
in public proxy solicitation statements. The stockholder also must submit a
notarized letter from each of the stockholder's nominees stating the nominee's
acceptance of the nomination and indicating the nominee's intention to serve as
director if elected.

The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws requires a greater
percentage. The Certificate of Incorporation provides that approval by the
holders of at least 66.7% of the voting power of the outstanding voting stock of
the Company is required to amend the provisions of the Certificate of
Incorporation previously discussed and certain other provisions.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 3,400,000 shares of
Class A Common Stock and 4,501,476 shares of Class B Common Stock outstanding.
The 3,400,000 shares of Class A Common Stock offered hereby will be freely
tradable without restriction or further registration under the Securities Act,
except for shares sold by persons deemed to be "affiliates" of the Company or
acting as "underwriters," as those terms are defined in the Securities Act. The
4,501,476 shares of Class B Common Stock will be "restricted securities" within
the meaning of Rule 144 under the Securities Act and will be eligible for resale
subject to the volume, manner of sale, holding period and other limitations of
Rule 144. The remaining "restricted" shares will become eligible for resale
pursuant to Rule 144 from time to time thereafter.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least two years, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock which does not exceed the greater of one percent of the number of then
outstanding shares or the average weekly reported trading volume during the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain notice requirements and to the availability of current public
information about the Company and must be made in unsolicited brokers'
transactions or to a market maker. A person (or persons whose shares are
aggregated) who is not an "affiliate" of the Company under the Securities Act
during the three months preceding a sale and who has beneficially owned such
shares for at least three years is entitled to sell such shares under Rule 144
without regard to the volume, notice, information and manner of sale provisions
of such Rule.

An aggregate of 310,000 shares of Class A Common Stock and 90,000 shares of
Class B Common Stock are reserved for issuance to employees and directors of the
Company pursuant to the 1995 Stock Incentive Plan, 600,000 shares of Class A
Common Stock are reserved for issuance to employees and directors of the Company
pursuant to the 1996 Stock Incentive Plan and 200,000 shares of Class A Common
Stock are reserved for issuance to outside directors under the 1996 Nonemployee
Directors Plan. Currently, 90,000 shares of Class B Common Stock are issuable
under existing options granted to employees and directors. In addition, options
exercisable for 600,000 shares of Class A Common Stock will be granted to
employees concurrently with the Offering pursuant to the Company's stock option
plans. After the Offering, the Company intends to file a registration statement
on Form S-8 to register the shares of Common Stock issuable upon exercise of
options to be granted pursuant to the 1995 and 1996 Stock Incentive Plans.
Accordingly, shares issued upon exercise of such options will be freely
tradeable, except for any shares held by an "affiliate" of the Company.

Pursuant to stock registration agreements, the Company may be required,
subject to certain conditions, to register under the Securities Act an aggregate
of up to 4,444,436 shares of Class A Common Stock issuable upon conversion of
the Class B Common Stock by the current common stockholders. Such stockholders
have waived their registration rights under the stock registration agreements
arising in connection with the Offering.

In addition, the holders of Series D Preferred Stock have been granted
certain "piggy-back" registration rights if the Company proposes to undertake a
public offering. Such holders of Series D Preferred Stock have waived their
registration rights in connection with the Offering.

The Company and the executive officers and directors and certain
stockholders of the Company have agreed not to sell, offer to sell, contract to
sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for or any rights
to purchase or acquire Common Stock for a period of 180 days commencing on the
date of this Prospectus without the prior written consent of the representatives
of the Underwriters, other than the issuance of options to purchase Common Stock
or shares of Common Stock issuable upon the exercise thereof, and issuances of
capital stock by the Company in connection with acquisitions of funeral homes
and cemeteries, provided that such options shall not become exercisable and such
shares issuable upon exercise of options or pursuant to acquisitions shall not
be transferable prior to the end of the 180-day period.

Prior to the Offering, there has been no market for the Class A Common
Stock. No predictions can be made of the effect, if any, that market sales of
shares of Class A Common Stock or the availability of such shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
significant amounts of Class A Common Stock could adversely affect the
prevailing market price of Class A Common Stock, as well as impair the ability
of the Company to raise capital through the issuance of additional equity
securities.

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters, for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and The Chicago Corporation are
acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company the number of shares of Class A Common Stock set forth
below opposite their respective names. The Underwriters are committed to
purchase all of such shares if any are purchased. Under certain circumstances,
the commitments of non-defaulting Underwriters may be increased as set forth in
the Purchase Agreement.

NUMBER
UNDERWRITER OF SHARES
- ------------------------------------- -----------
Merrill Lynch, Pierce, Fenner & Smith Incorporated ............. 950,000
The Chicago Corporation ........................................ 950,000
Bear, Stearns & Co., Inc. ...................................... 100,000
Alex, Brown & Sons Incorporated ................................ 100,000
Dean Witter Reynolds Inc. ...................................... 100,000
A.G. Edwards & Sons, Inc. ...................................... 100,000
Goldman, Sachs & Co. ........................................... 100,000
Interstate/Johnson Lane Corporation ............................ 100,000
J.P. Morgan Securities Inc. .................................... 100,000
PaineWebber Incorporated ....................................... 100,000
Raymond James & Associates, Inc. ............................... 100,000
Smith Barney Inc. .............................................. 100,000
Wasserstein Perella Securities, Inc ............................ 100,000
William Blair & Company, L.L.C ................................. 50,000
J.C. Bradford & Co. ............................................ 50,000
Gerard Klauer Mattison & Co. LLC ............................... 50,000
Edward D. Jones & Co. .......................................... 50,000
Legg Mason Wood Walker, Incorporated ........................... 50,000
Nesbitt Burns Securities Inc. .................................. 50,000
Parker/Hunter Incorporated ..................................... 50,000
Rodman & Renshaw, Inc. ......................................... 50,000
---------
Total ............................................ 3,400,000
=========

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Class A Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $.57 per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $.10 per share on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.

The Company has granted the Underwriters an option, exercisable by the
Representatives, to purchase up to 510,000 additional shares of Class A Common
Stock at the initial public offering price, less the underwriting discount. Such
option, which expires 30 days after the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent that the
Representatives exercise such option, each of the Underwriters will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of the option shares that the number of shares to be purchased
initially by that Underwriter bears to the total number of shares to be
purchased initially by the Underwriters.

The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

Prior to the Offering, there has been no public market for the Class A
Common Stock. There can be no assurance that an active market for the Class A
Common Stock will develop upon completion of the Offering or, if developed, that
such market will be sustained. The initial public offering price of the Class A
Common Stock has been determined through negotiations between the Company and
the representatives of the Underwriters, and may bear no relationship to the
market prices of the Class A Common Stock after this offering. Prices for the
Class A Common Stock after this offering may be influenced by a number of
factors, including the depth and liquidity of the market for the Class A Common
Stock, investor perceptions of the Company and the death care industry in
general, and general economic and other conditions.

At the request of the Company, the Underwriters have reserved 340,000
shares of Class A Common Stock for sale at the initial public offering price to
directors, officers, employees, business associates and other persons with whom
the Company has relationships. The number of shares of Class A Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby.

The Chicago Corporation acted as placement agent for the private placement
of $8.5 million of the Company's Series C Preferred Stock, completed in
September 1995, for which The Chicago Corporation received a customary fee.

The Company and the executive officers and directors and certain
stockholders of the Company have agreed not to sell, offer to sell, contract to
sell, pledge or otherwise dispose of or transfer any shares of Common Stock, or
any securities convertible into or exchangeable or exercisable for or any rights
to purchase or acquire Common Stock for a period of 180 days commencing on the
date of this Prospectus without the prior written consent of the representatives
of the Underwriters, other than the issuance of options to purchase Common Stock
or shares of Common Stock issuable upon the exercise thereof issuances of
capital stock by the Company in connection with acquisitions of funeral homes
and cemeteries, provided that such options shall not become exercisable and such
shares issuable upon exercise of options or pursuant to acquisitions shall not
be transferable prior to the end of the 180-day period.

The Representatives have informed the Company that they do not expect the
Underwriters to confirm sales of shares of Class A Common Stock offered hereby
to any accounts over which they exercise discretionary authority.

LEGAL MATTERS

The validity of the issuance of the shares of Class A Common Stock offered
hereby will be passed upon for the Company by Vinson & Elkins L.L.P., Houston,
Texas. Certain legal matters relating to the Class A Common Stock offered hereby
will be passed upon for the Underwriters by Andrews & Kurth L.L.P., Houston,
Texas.

EXPERTS

The consolidated financial statements and the financial statements for CFS
1996 Group, Kubach-Smith Funeral Home, Inc., Lusk Funeral Home, Inc., West End
Funeral Home, Inc., James E. Drake Funeral Home, Inc., Dwayne R. Spence Funeral
Home, Inc. and Merchant Funeral Home Group included in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto and
included herein in reliance upon the authority of said firm as experts in giving
said reports.

The financial statements for Hennessy Funeral Home, Inc. included in this
Prospectus and Registration Statement have been audited by Kee & Associates,
Inc., independent public accountants, as indicated in their report with respect
thereto and included herein in reliance upon the authority of said firm as
experts in giving said report.

The financial statements for Vail Holt Memorial Funeral Home, Inc. included
in this Prospectus and Registration Statement have been audited by McCauley,
Nicolas & Company, LLC, independent public accountants, as indicated in their
report with respect thereto and included herein in reliance upon the authority
of said firm as experts in giving said report.

The financial statements for Forest Lawn of Chesnee, Inc., included in this
Prospectus and Registration Statement have been audited by Michael S. Upton,
CPA, P.A., independent public accountant, as indicated in his report with
respect thereto and included herein in reliance upon the authority of said
individual as an expert in giving said report.

The financial statements for Bailey Funeral Home, Inc., O'Brien Funeral
Home, Inc., and C. Funk & Son Funeral Home, Inc. included in this Prospectus and
Registration Statement have been audited by Gitlin, Campise, Pascoe & Blum,
independent public accountants, as indicated in their reports with respect
thereto and included herein in reliance upon the authority of said firm as
experts in giving said reports.

The financial statements for Lytle-Gans-Andrew Funeral Home included in
this Prospectus and Registration Statement have been audited by Scott,
Callicotte & Co., independent public accountants, as indicated in their report
with respect thereto and included herein in reliance upon the authority of said
firm as experts in giving said report.

AVAILABLE INFORMATION

The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Commission a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the offer and sale of
Class A Common Stock pursuant to this Prospectus. This Prospectus, filed as a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement or the exhibits and schedules thereto in
accordance with the rules and regulations of the Commission and reference is
hereby made to such omitted information. Statements made in this Prospectus
concerning the contents of any contract, agreement or other document filed as an
exhibit to the Registration Statement are summaries of the terms of such
contracts, agreements or documents and are not necessarily complete. Reference
is made to each such exhibit for a more complete description of the matters
involved and such statements shall be deemed qualified in their entirety by such
reference. The Registration Statement and the exhibits and schedules thereto
filed with the Commission may be inspected, without charge, and copies may be
obtained at prescribed rates, at the public reference facility maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621-2511. For further information
pertaining to the Class A Common Stock offered by this Prospectus and the
Company, reference is made to the Registration Statement.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.

INDEX TO FINANCIAL STATEMENTS

PAGE
-----
CARRIAGE SERVICES, INC. -- CONSOLIDATED
FINANCIAL STATEMENTS:
Report of Independent Public Accountants ...................... F-2

Consolidated Balance Sheets as of December
31, 1994 and 1995 and June 30, 1996 .......................... F-3

Consolidated Statements of Operations for
the Years Ended December 31, 1993, 1994
and 1995 and the Six Months Ended June 30,
1995 and 1996 ................................................ F-4

Consolidated Statements of Changes in
Stockholders' Equity for the Years
Ended December 31, 1993, 1994 and 1995
and the Six Months Ended June 30, 1996 ....................... F-5

Consolidated Statements of Cash Flows
for the Years Ended December 31, 1993,
1994 and 1995 and the Six Months Ended
June 30, 1995 and 1996 ....................................... F-6

Notes to Consolidated Financial Statements .................... F-7

CARRIAGE SERVICES, INC. -- UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL STATEMENTS:

Unaudited Pro Forma Consolidated Balance
Sheet as of June 30, 1996 .................................... F-22

Unaudited Pro Forma Consolidated Statements
of Operations for the Year Ended December 31,
1995 and the Six Months Ended June 30, 1996 .................. F-23

Notes to the Unaudited Pro Forma Consolidated
Financial Statements ......................................... F-24

CFS 1996 GROUP:
Report of Independent Public Accountants ...................... F-28

Statements of Operations for the Period from
January 1, 1996 to April 29, 1996, the Years
Ended December 31, 1995 and December 31, 1994,
and the Three Months Ended December 31, 1993 ................. F-29

Statements of Cash Flows for the Period from
January 1, 1996 to April 29, 1996, the Years
Ended December 31, 1995 and December 31, 1994,
and the Three Months Ended December 31, 1993 .................. F-30

Statements of Stockholder's Equity for the Period
from January 1, 1996 to April 29, 1996, the Years
Ended December 31, 1995 and December 31, 1994, and
the Three Months Ended December 31, 1993 ...................... F-31

Notes to Financial Statements .................................. F-32

KUBACH-SMITH FUNERAL HOME, INC.:
Report of Independent Public Accountants ....................... F-34

Statement of Operations for the Period from
October 1, 1993 to September 6, 1994 .......................... F-35

Statement of Cash Flows for the Period from
October 1, 1993 to September 6, 1994 .......................... F-36

Statement of Shareholders' Equity for the
Period from October 1, 1993 to September 6, 1994 .............. F-37

Notes to Financial Statements .................................. F-38

LUSK FUNERAL HOME, INC.:
Report of Independent Public Accountants ....................... F-40

Statements of Operations for the Years Ended
December 31, 1995 and December 31, 1994 and
the Three Months Ended December 31, 1993 ...................... F-41

Statements of Cash Flows for the Years Ended
December 31, 1995 and December 31, 1994 and
the Three Months Ended December 31, 1993 ...................... F-42

Statements of Shareholders' Deficit for the
Years Ended December 31, 1995 and December 31,
1994 and the Three Months Ended December 31, 1993 ............. F-43

Notes to Financial Statements .................................. F-44

F-1

WEST END FUNERAL HOME, INC.:
Report of Independent Public Accountants ........................ F-47

Statements of Operations for the Period
from January 1, 1995 to May 10, 1995,
the Year Ended December 31, 1994, and
the Three Months Ended December 31, 1993 ....................... F-48

Statements of Cash Flows for the Period
from January 1, 1995 to May 10, 1995,
the Year Ended December 31, 1994, and the
Three Months Ended December 31, 1993 ........................... F-49

Statements of Shareholders' Equity for the
Period from January 1, 1995 to May 10, 1995,
the Year Ended December 31, 1994, and the
Three Months Ended December 31, 1993 ........................... F-50

Notes to Financial Statements ................................... F-51

HENNESSY FUNERAL HOME, INC.:
Report of Independent Public Accountants ........................ F-53

Statements of Operations for the Years Ended
December 31, 1993, December 31, 1994, December 31,
1995 and the Ten Weeks Ended March 8, 1996 ..................... F-54

Statements of Cash Flows for the Period from
December 1, 1995 to February 29, 1996, and the
Years Ended November 30, 1995 and November 30, 1994 ............ F-55

Notes to Financial Statements ................................... F-56

JAMES E. DRAKE FUNERAL HOME, INC.:
Report of Independent Public Accountants ........................ F-59

Statements of Operations for the Period from
December 1, 1995 to February 29, 1996, and the
Years Ended November 30, 1995 and November 30, 1994 ............ F-60

Statements of Cash Flows for thePeriod from December 1,
1995 to February 29, 1996, and the Years Ended
November 30, 1995 and November 30, 1994 ........................ F-61

Statements of Stockholders' Equity for the Period from
December 1, 1995 to February 29, 1996, and the Years
Ended November 30, 1995 and November 30, 1994 ..................... F-62

Notes to Financial Statements ...................................... F-63

DWAYNE R. SPENCE FUNERAL HOME, INC.:
Report of Independent Public Accountants ........................... F-65

Statements of Operations for the Period from January 1,
1996 to March 29, 1996, the Years Ended December 31,
1995 and December 31, 1994, and the Three Months
EndedDecember 31, 1993 ............................................ F-66

Statements of Cash Flows for the Period from January 1, 1996 to
March 29, 1996, the Years Ended December 31, 1995 and December 31,
1994, and the Three Months EndedDecember 31, 1993 ................. F-67

Statements of Shareholder's Equity for the Period from January 1,
1996 to March 29, 1996, the Years Ended December 31, 1995 and
December 31, 1994, and the Three Months Ended December 31, 1993 ... F-68

Notes to Financial Statements ...................................... F-69

MERCHANT FUNERAL HOME GROUP:
Report of Independent Public Accountants ........................... F-72

Statements of Operations for the Period from July 1, 1995 to April
1, 1996, and the Years Ended June 30, 1995 and June 30, 1994 ...... F-73

Statements of Cash Flows for the Period from July 1, 1995 to April
1, 1996, and the Years Ended June 30, 1995 and June 30, 1994 ...... F-74

Statements of Shareholders' Equity for the Period from
July 1, 1995 to April 1, 1996, and the Years Ended June 30,
1995 and June 30, 1994 ............................................ F-75

Notes to Financial Statements ...................................... F-76

F-1(a)

VAIL HOLT MEMORIAL FUNERAL HOME, INC.:
Independent Auditors' Report ....................................... F-79

Balance Sheets as of June 30, 1996 and December 31,
1995, 1994, and 1993 .............................................. F-80

Statement of Income for the Six-Month Period Ended June 30,
1996 and the Years Ended December 31, 1995, 1994, and 1993 ........ F-81

Statement of Retained Earnings for the Six-Month Period Ended June
30, 1996 and the Years Ended December 31, 1995, 1994, and 1993 .... F-82

Statement of Cash Flows for the Six-Month Period Ended June 30,
1996 and the Years Ended December 31, 1995, 1994, and 1993 ........ F-83

Notes to Financial Statements ...................................... F-85

FOREST LAWN OF CHESNEE, INC.:
Report of Independent Public Accountant ............................ F-88

Statements of Operations for the Ten Months Ended
June 26, 1996 and the Year Ended August 31, 1995 .................. F-89

Statements of Cash Flows for the Ten Months Ended
June 26, 1996 and the Year Ended August 31, 1995 .................. F-90

Statements of Changes in Stockholders' Equity for the Ten
Months Ended June 26, 1996 and the Year Ended August 31, 1995 ..... F-91

Notes to the Financial Statements .................................. F-92

BAILEY FUNERAL HOME, INC.:
Report of Independent Public Accountants ........................... F-94

Balance Sheets as of December 31, 1993, 1994, 1995
and June 30, 1996 ................................................. F-95

Statements of Income for the Years Ended December 31, 1993, 1994,
1995 and the Six Months Ended June 30, 1996 ....................... F-96

Statements of Retained Earnings for the Years Ended December 31,
1993, 1994, 1995 and the Six Months Ended June 30, 1996 .......... F-97

Statements of Cash Flows for Years Ended December 31, 1993, 1994,
1995 and the Six Months Ended June 30, 1996 ...................... F-98

Notes to Financial Statements ..................................... F-99

O'BRIEN FUNERAL HOME, INC.:
Report of Independent Public Accountants .......................... F-102

Balance Sheets as of December 31, 1993, 1994,
1995 and June 30, 1996 ........................................... F-103

Statements of Income for the Years Ended December 31, 1993, 1994,
1995 and the Six Months Ended June 30, 1996 ...................... F-104

Statements of Retained Earnings for the Years Ended
December 31, 1993, 1994, 1995 and the Six Months Ended
June 30, 1996 .................................................... F-105

Statements of Cash Flows for Years Ended December 31,
1993, 1994, 1995 and the Six Months Ended June 30, 1996 .......... F-106

Notes to Financial Statements ..................................... F-107

C. FUNK & SON FUNERAL HOME, INC.:
Report of Independent Public Accountants .......................... F-110

Balance Sheets as of September 30, 1994, 1995 and June 30, 1996 ... F-111

Statements of Operations for the Years Ended September 30, 1994,
1995 and the Nine Months Ended June 30, 1996 ...................... F-112

Statements of Stockholders' Equity for the Years Ended September 30,
1994, 1995 and the Nine Months Ended June 30, 1996 ................ F-113

Statements of Cash Flows for the Years Ended September 30, 1994,
1995 and the Nine Months Ended June 30, 1996 ...................... F-114

Notes to Financial Statements ...................................... F-115

F-1(b)

LYTLE-GANS-ANDREW FUNERAL HOME:
Report of Independent Public Accountants ........................... F-119

Balance Sheets as of June 30, 1996 and August 31, 1995 and 1994 .... F-120

Income Statements for the Ten Months From September 1,
1995 to June 30, 1996 and for the Years Ended August 31,
1995 and August 31, 1994 .......................................... F-121

Statements of Changes in Capital for Ten Months From September 1,
1995 to June 30, 1996 and for the Years Ended August 31, 1995
and August 31, 1994 ............................................... F-122

Statements of Cash Flows for the Ten Months From September 1,
1995 to June 30, 1996 and for the Years Ended August 31,
1995 and August 31, 1994 .......................................... F-123

Notes to Financial Statements ...................................... F-124

F-1(c)

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Carriage Services, Inc.:

We have audited the accompanying consolidated balance sheets of Carriage
Services, Inc., (formerly Carriage Funeral Services, Inc. -- a Delaware
corporation) and subsidiaries (the Company) as of December 31, 1994 and 1995 and
June 30, 1996 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the three years in the period ended
December 31, 1995 and the six months in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Carriage
Services, Inc., and subsidiaries as of December 31, 1994, and 1995 and June 30,
1996, and the consolidated results of their operations and their cash flows for
the three years in the period ended December 31, 1995 and the six months in the
period ended June 30, 1996 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
July 18, 1996

F-2

CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............. $ 836 $ 7,573 $ 4,490
-------- -------- --------
Accounts receivable --
Trade, net of allowance for
doubtful accounts of
$205 in 1994, $305 in
1995 and $360 in 1996 ......... 2,168 2,637 3,748
Other ............................ 447 505 198
-------- -------- --------
2,615 3,142 3,946
Marketable securities, available
for sale ............................ 4,357 864 1
Inventories and other current
assets .............................. 2,026 2,106 3,158
-------- -------- --------
Total current
assets ................... 9,834 13,685 11,595
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, at
cost:
Land .................................. 3,594 4,416 7,316
Buildings and improvements ............ 10,851 14,200 25,529
Furniture and equipment ............... 3,994 5,365 7,273
-------- -------- --------
18,439 23,981 40,118
Less -- accumulated
depreciation ........................ (1,329) (2,311) (2,994)
-------- -------- --------
17,110 21,670 37,124
CEMETERY PROPERTY, at cost ................. 526 496 2,384
NAMES AND REPUTATIONS, net of
accumulated amortization of $480 in
1994, $959 in 1995 and $1,316 in
1996 ..................................... 13,555 22,559 37,527
DEFERRED CHARGES AND OTHER NONCURRENT
ASSETS ................................... 3,140 3,336 5,407
-------- -------- --------
$ 44,165 $ 61,746 $ 94,037
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ...................... $ 997 $ 1,041 $ 1,236
Accrued liabilities ................... 2,179 2,957 3,539
Current portion of long-term
debt and obligations under
capital leases ...................... 2,387 3,215 5,359
-------- -------- --------
Total current
liabilities .............. 5,563 7,213 10,134
PRENEED LIABILITIES, net ................... 433 709 2,817
LONG-TERM DEBT, net of current
portion .................................. 32,622 42,057 60,277
OBLIGATIONS UNDER CAPITAL LEASES, net
of current portion ....................... 671 716 732
DEFERRED INCOME TAXES ...................... 1,447 1,900 2,882
-------- -------- --------
Total liabilities ........... 40,736 52,595 76,842
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ................. -- -- 8,545
STOCKHOLDERS' EQUITY:
Preferred stock ....................... 72 157 162
Common stock .......................... 25 25 25
Treasury stock ........................ -- -- (330)
Contributed capital ................... 6,992 15,100 15,650
Unrealized loss on securities
available for sale .................. (59) (36) --
Retained deficit ...................... (3,601) (6,095) (6,857)
-------- -------- --------
Total stockholders'
equity ................... 3,429 9,151 8,650
-------- -------- --------
$ 44,165 $ 61,746 $ 94,037
======== ======== ========

The accompanying notes are an integral part of these financial statements.

F-3

CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED DECEMBER 31, MONTHS ENDED JUNE 30,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net ...................................... $ 11,265 $ 18,404 $ 24,237 $ 11,501 $ 16,925
Costs and expenses ................................. 10,205 15,390 20,247 9,329 13,536
-------- -------- -------- -------- --------
Gross profit .................................. 1,060 3,014 3,990 2,172 3,389
General and administrative expenses ................ 985 1,266 2,106 832 1,155
-------- -------- -------- -------- --------
Operating income .............................. 75 1,748 1,884 1,340 2,234
Interest expense, net .............................. 1,745 2,671 3,684 1,648 2,644
-------- -------- -------- -------- --------
(Loss) before income taxes .................... (1,670) (923) (1,800) (308) (410)
Provision for income taxes ......................... -- 40 694 390 251
-------- -------- -------- -------- --------
Net (loss) .................................... (1,670) (963) (2,494) (698) (661)
Preferred stock dividend requirements .............. -- -- -- -- 101
-------- -------- -------- -------- --------
Net (loss) attributable to
common stockholders ......................... $ (1,670) $ (963) $ (2,494) $ (698) $ (762)
======== ======== ======== ======== ========
Loss per share:
(Loss) per common and common
equivalent share ............................ $ (.66) $ (.28) $ (.66) $ (.20) $ (.17)
======== ======== ======== ======== ========
Weighted average number of
common and common equivalent
shares outstanding .......................... 2,543 3,406 3,781 3,543 4,512
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-4

CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTRIBUTED NET
NUMBER PREFERRED NUMBER COMMON TREASURY CAPITAL UNREALIZED RETAINED
OF SHARES STOCK OF SHARES STOCK STOCK (DEFICIT) GAIN (LOSS) DEFICIT
--------- --------- --------- ------ -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1992......... -- $ -- 2,409 $ 24 $-- $ (14) $-- $ (968)
Net loss -- 1993..................... -- -- -- -- -- -- -- (1,670)
Issuance of common stock............. -- -- 111 1 -- 1 -- --
--------- --------- --------- ------ -------- ----------- ----------- --------
Balance -- December 31, 1993......... -- -- 2,520 25 -- (13) -- (2,638)
Net loss -- 1994..................... -- -- -- -- -- -- -- (963)
Issuance of preferred stock.......... 7,160 72 -- -- -- 7,005 -- --
Unrealized net loss -- available for
sale securities.................... -- -- -- -- -- -- (59) --
--------- --------- --------- ------ -------- ----------- ----------- --------
Balance -- December 31, 1994......... 7,160 72 2,520 25 -- 6,992 (59) (3,601)
Unrealized net gain -- available for
sale securities.................... -- -- -- -- -- -- 23 --
Issuance of preferred stock.......... 8,500 85 -- -- -- 8,108 -- --
Net loss -- 1995..................... -- -- -- -- -- -- -- (2,494)
--------- --------- --------- ------ -------- ----------- ----------- --------
Balance -- December 31, 1995......... 15,660 157 2,520 25 -- 15,100 (36) (6,095)
Net loss -- six months ended June 30,
1996............................... -- -- -- -- -- -- -- (661)
Issuance of preferred stock.......... 555 5 -- -- -- 540 -- --
Unrealized net gain -- available for
sale securities.................... -- -- -- -- -- -- 36 --
Purchase of treasury stock........... -- -- -- -- (330) -- -- --
Exercise of stock options............ -- -- 1 -- -- 10 -- --
Preferred dividends.................. -- -- -- -- -- -- -- (101)
--------- --------- --------- ------ -------- ----------- ----------- --------
Balance -- June 30, 1996............. 16,215 $ 162 2,521 $ 25 $ (330) $15,650 $ 0 $ (6,857)
========= ========= ========= ====== ======== =========== =========== ========
</TABLE>

TOTAL
---------

Balance -- December 31, 1992......... $ (958)
Net loss -- 1993..................... (1,670)
Issuance of common stock............. 2
---------
Balance -- December 31, 1993......... (2,626)
Net loss -- 1994..................... (963)
Issuance of preferred stock.......... 7,077
Unrealized net loss -- available for
sale securities.................... (59)
---------
Balance -- December 31, 1994......... 3,429
Unrealized net gain -- available for
sale securities.................... 23
Issuance of preferred stock.......... 8,193
Net loss -- 1995..................... (2,494)
---------
Balance -- December 31, 1995......... 9,151
Net loss -- six months ended June 30,
1996............................... (661)
Issuance of preferred stock.......... 545
Unrealized net gain -- available for
sale securities.................... 36
Purchase of treasury stock........... (330)
Exercise of stock options............ 10
Preferred dividends.................. (101)
---------
Balance -- June 30, 1996............. $ 8,650
=========

The accompanying notes are an integral part of these financial statements.

F-5

CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED DECEMBER 31, MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ................................... $ (1,670) $ (963) $ (2,494) $ (698) $ (661)
Adjustments to reconcile net (loss)
to net cash provided by
operating activities --
Depreciation and amortization ............. 947 1,476 1,948 907 1,389
Deferred income taxes ..................... -- 43 449 157 74
Changes in assets and
liabilities net of effects
from acquisitions:
Decrease (increase) in
accounts receivable .................. (298) (198) (637) 265 (113)
Decrease (increase) in
inventories and other
current assets ....................... (206) (91) 115 164 (370)
(Increase) decrease in other
deferred charges ..................... -- -- (144) 44 (242)
Increase (decrease) in
accounts payable ..................... 951 (214) 45 (475) 163
Increase in accrued
liabilities .......................... 873 1,028 1,671 400 180
Increase (decrease) in preneed
liabilities .......................... (1) (4) 44 40 45
-------- -------- -------- ------- --------
Net cash provided by
operating activities .............. 596 1,077 997 804 465
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash
acquired .................................. (13,843) (9,073) (12,191) (5,960) (24,415)
Dispositions of businesses formerly
owned ..................................... -- -- -- -- 397
Purchase of marketable securities
available for sale ........................ -- (4,417) (1,795) -- --
Disposal of marketable securities
available for sale ........................ -- -- 5,312 3,052 900
Purchase of property, plant and
equipment ................................. (717) (1,179) (3,019) (1,257) (2,004)
-------- -------- -------- ------- --------
Net cash (used in)
investing activities .............. (14,560) (14,669) (11,693) (4,165) (25,122)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ................. 12,750 7,781 11,563 6,234 23,772
Payments on long-term debt,
obligations under capital
leases .................................... (911) (1,705) (2,273) (1,180) (1,575)
Proceeds from subordinated notes ............. 2,561 390 -- -- --
Proceeds from sale of preferred
stock ..................................... -- 6,992 8,192 -- --
Payment of preferred stock
dividends ................................. -- -- -- -- (101)
Exercise of stock options .................... -- -- -- -- 10
Purchase of treasury stock ................... -- -- -- -- (330)
Payment of deferred debt charges ............. (166) (45) (49) (45) (202)
-------- -------- -------- ------- --------
Net cash provided by
financing activities .............. 14,234 13,413 17,433 5,009 21,574
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................. 270 (179) 6,737 1,648 (3,083)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .......................... 745 1,015 836 836 7,573
-------- -------- -------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ....................................... $ 1,015 $ 836 $ 7,573 $ 2,484 $ 4,490
======== ======== ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid through issuance of
new debt .................................. $ 275 $ 231 $ 644 $ 648 $ 825
======== ======== ======== ======= ========
Retirement of debt through issuance
of preferred stock ........................ $ -- $ -- $ 500 $ -- $ --
======== ======== ======== ======= ========
Cash interest paid ........................... $ 1,187 $ 2,038 $ 3,127 $ 1,611 $ 2,399
======== ======== ======== ======= ========
Issuance of preferred stock for
acquisitions .............................. $ -- $ 80 $ -- $ -- $ 9,100
======== ======== ======== ======= ========
Retirement of debt through
disposition of business ................... $ -- $ -- $ -- $ -- $ 2,642
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-6

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:

NATURE OF OPERATIONS

Carriage Services, Inc. (the Company -- formerly Carriage Funeral Services,
Inc.), was organized under the laws of the State of Delaware on December 29,
1993. The Company owns and operates funeral homes and cemeteries throughout the
United States. The Company provides professional services related to funerals
and interments at its funeral homes and cemeteries. Prearranged funerals and
preneed cemetery property are marketed in the geographic markets served by the
Company's locations.

REORGANIZATION AND PRINCIPLES OF CONSOLIDATION

Effective January 1, 1994, the shareholders of three affiliated companies
which had common ownership and management exchanged their stock for Common Stock
of the Company. In this transaction, the assets and liabilities of the
affiliated companies were recorded at historical cost in a manner similar to a
pooling-of-interests. Accordingly, for financial reporting purposes, the
consolidated financial statements of the Company reflect the predecessor
entities as if the reorganization had taken place prior to the first period
presented. Thus, the shares of the predecessor are treated as outstanding for
prior years at the equivalent number of Company shares of Common Stock
subsequently recorded at January 1, 1994. The financial statements include the
consolidated financial statements of Carriage Services, Inc. and its
subsidiaries. In consolidation, all significant intercompany balances and
transactions are eliminated. The consolidated financial statements have been
restated as of the earliest period presented to reflect a one for two reverse
stock split as further discussed in Note 10.

INTERIM FINANCIAL STATEMENTS

The unaudited interim condensed financial statements for June 30, 1995 have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair presentation of interim results
of operations (consisting only of normal recurring accruals and adjustments)
have been made to the interim financial statements. Results of operations for
the six-month periods ended June 30, 1995 and June 30, 1996 are not necessarily
indicative of results of operations for the respective full year.

FUNERAL AND CEMETERY OPERATIONS

The Company records the sale of funeral merchandise and services upon
performance. The Company records the sale of the right of cemetery interment or
mausoleum entombment and related merchandise at the time of sale. The cost for
cemetery merchandise and services sold but not yet provided is accrued as an
expense at the same time the cemetery revenue is recognized. Allowances for
customer cancellations, refunds and bad debts are provided at the date of sale
based on the historical experience of the Company. Accounts receivable -- trade,
net consists of approximately $2,106,000, $2,546,000, and $3,623,000 of funeral
receivables and approximately $62,000, $91,000, and $125,000 of current cemetery
receivables at December 31, 1994, and 1995, and June 30, 1996, respectively.
Noncurrent cemetery receivables, those payable after one year, are included in
Deferred Charges and Other Noncurrent Assets on the Consolidated Balance Sheets
(see Note 3).

Cemetery revenues are less than 7% of the consolidated revenues of the
Company and, accordingly, the Company only operates in one business segment.

F-7

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRENEED FUNERAL ARRANGEMENTS

Preneed funeral sales are effected by deposits to a trust or purchase of a
third-party insurance product. Since the Company does not have access to these
funds, the sale is not recorded until the service is performed, nor generally,
are the related assets and liabilities reflected on the Consolidated Balance
Sheets. The trust income earned and the increases in insurance benefits on the
insurance products are also deferred until the service is performed in order to
offset inflation in cost to provide the service in the future. The preneed
funeral trust assets were approximately $11,045,000, $14,934,000 and $24,258,000
at December 31, 1994, and 1995 and June 30, 1996, respectively, which in the
opinion of management, exceed the future obligations under such arrangements.

The following summary reflects the composition of the assets held in trust
to satisfy the Company's future obligations under prearranged funeral
arrangements.

UNREALIZED
HISTORICAL HOLDING FAIR
COST BASIS GAIN (LOSS) VALUE
---------- ----------- ------
(IN THOUSANDS)
As of December 31, 1994 --
Cash and cash equivalents ............... $ 7,427 $-- $ 7,427
Fixed income investment contracts ....... 989 -- 989
Mutual funds, corporate bonds and
stocks ............................... 2,690 (61) 2,629
------- ---- -------
Total .............................. $11,106 $(61) $11,045

As of December 31, 1995 --
Cash and cash equivalents ............... $10,275 $-- $10,275
Fixed income investment contracts ....... 1,396 -- 1,396
Mutual funds, corporate bonds and
stocks ............................... 3,206 57 3,263
------- ---- -------
Total .............................. $14,877 $ 57 $14,934

As of June 30, 1996 --
Cash and cash equivalents ............... $15,212 $-- $15,212
Fixed income investment contracts ....... 2,343 -- 2,343
Mutual funds, corporate bonds and
stocks ............................... 6,698 5 6,703
------- ---- -------
Total .............................. $24,253 $ 5 $24,258

The mutual funds, corporate bonds and stocks held in trust are classified
as available for sale.

CEMETERY MERCHANDISE AND SERVICE TRUST

The Company is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust fund for cemetery
merchandise and services contracts sold on a preneed basis. The principal and
accumulated earnings of the trust may be withdrawn by the Company upon maturity
(generally, death of the purchaser) or cancellation of the contracts. Trust fund
investment income is recognized in current revenues as trust earnings accrue,
net of current period inflation costs recognized related to the merchandise that
has not yet been purchased. Merchandise and service trust fund balances, in the
aggregate, were approximately $48,000, $60,000 and $1,118,000 at December 31,
1994, and 1995 and June 30, 1996, respectively, and are included in Preneed
Liabilities, net on the accompanying Consolidated Balance Sheets.

PERPETUAL AND MEMORIAL CARE TRUST

In accordance with respective state laws, the Company is generally required
to deposit a specified amount into perpetual and memorial care trust funds for
each interment/entombment right and memorial

F-8

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

sold. Income from the trust funds is used to provide care and maintenance for
the cemeteries and mausoleums and is periodically distributed to the Company and
recognized as revenue. The perpetual and memorial care trust assets were
approximately $555,000, $599,000 and $1,695,000 at December 31, 1994, and 1995
and June 30, 1996, respectively, which, in the opinion of management, will cover
future obligations under such arrangements. The Company does not have the right
to withdraw any of the principal balances of these funds and, accordingly, these
trust fund balances are not reflected in the accompanying Consolidated Balance
Sheets.

DEFERRED OBTAINING COSTS

Deferred obtaining costs consist of sales commissions and other direct
marketing costs applicable to preneed funeral sales, net of insurance
commissions received. These costs are deferred and amortized over 12 years which
approximates the expected timing of the performance of the services related to
the preneed funeral contracts. These amounts were not significant prior to 1995.

CASH AND CASH EQUIVALENTS

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

MARKETABLE SECURITIES

The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, and the Company's investment
securities are classified as available for sale securities. These securities are
stated at cost adjusted for market value fluctuations. Unrealized gains and
losses created by changes in the market values of these securities are
recognized as an adjustment to and are reported as a separate component of
Stockholders' Equity, net of tax. The specific identification method is used in
determining realized gains and losses from the sale of securities. At December
31, 1994 and 1995 and June 30, 1996, the Company had gross unrealized gains of
approximately $9,000, $4,000 and $0 and gross unrealized losses of approximately
$68,000, $40,000 and $0, respectively. The Company does not use derivative
financial instruments or participate in hedging activities.

INVENTORY

Inventory is stated at the lower of its cost basis (fair value at date of
acquisition) or net realizable value.

NAMES AND REPUTATIONS

The excess of the purchase price over the fair value of net tangible and
identifiable intangible assets acquired, as determined by management in
transactions accounted for as purchases, is included in the consolidated
financial statements as Names and Reputations. Such amounts are being amortized
over 40 years. Many of the Company's acquired funeral homes have provided high
quality service to families for generations. The resulting loyalty often
represents a substantial portion of the value of a funeral business. The Company
reviews the carrying value of Names and Reputations at least quarterly on a
location-by-location basis to determine if facts and circumstances exist which
would suggest that the intangible asset may be impaired or that the amortization
period needs to be modified. If indicators are present which indicate impairment
is probable, the Company will prepare a projection of the undiscounted cash
flows of the location and determine if the intangible assets are recoverable
based on these undiscounted cash flows. If impairment is indicated, then an
adjustment will be made to reduce the carrying amount of the intangible assets
to their fair value. The Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of," as of January 1, 1996, and the adoption did not have a material
impact on the Company's consolidated financial position or results of
operations.

F-9

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment are stated at cost at the time of
acquisition. The costs of ordinary maintenance and repairs are charged to
operations, while renewals and replacements are capitalized. Depreciation of
Property, Plant and Equipment is computed based on the straight-line method over
the estimated useful lives of the assets as follows:

YEARS
--------

Buildings and improvements........... 40
Furniture and fixtures............... 10
Machinery and equipment.............. 5 to 10
Automobiles.......................... 5

INCOME TAXES

The Company files a consolidated federal income tax return. The Company
provides deferred taxes for temporary differences between the tax basis and
financial reporting basis of assets and liabilities.

LOSS PER COMMON SHARE

Loss per common share is computed by dividing net loss by the weighted
average number of common and common equivalent shares outstanding during each
period, as calculated pursuant to various SEC pronouncements. (See Note 9).

USE OF ESTIMATES

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

Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with current year presentation.

2. ACQUISITIONS:

During the first six months of 1996, the Company acquired substantially all
of the assets and certain liabilities of 24 funeral homes and four cemeteries
through the purchase of stock and assets. In 1995, the Company acquired
substantially all of the assets and certain liabilities of eight funeral homes
through the purchase of stock and assets. In 1994, the Company also acquired
substantially all of the assets and certain liabilities of nine funeral homes
and one cemetery through the purchase of stock. These transactions have been
accounted for utilizing the purchase method of accounting, and the results of
operations are included in the accompanying consolidated financial statements
from the dates of acquisition.

Relatively few liabilities were assumed in connection with these
acquisitions. Costs were allocated to the net assets acquired based on
management's estimate of the fair value of the acquired assets and liabilities
at the date of acquisition. Many of the Company's acquired funeral homes have
provided high quality service to families for generations. The resulting loyalty
often represents a substantial portion of the value of a funeral business. As a
result, the excess of the consideration paid over the fair value of net tangible
and identifiable intangible assets is allocated to Names and Reputations. Future
adjustments to the allocation of the purchase price may be made during the 12
months following the date of acquisition due to the resolution of uncertainties
existing at the acquisition date, which include obtaining additional information
regarding asset and liability valuations. There were no material purchase price
allocation adjustments made during 1994, 1995 or the first six months of 1996.

F-10

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table is a summary of the above acquisitions made during the
years ended December 31, 1994 and 1995 and the six months ended June 30, 1996:

1994 1995 1996
----------- ----------- -----------

Number acquired:
Funeral homes................... 9 8 24
Cemeteries...................... 1 -- 4

The effect of the above acquisitions on the Consolidated Balance Sheets at
December 31, 1994 and 1995 and June 30, 1996 was as follows:

1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Current Assets....................... $ 645 $ 291 $ 2,857
Cemetery Property.................... 253 -- 1,927
Property, Plant and Equipment........ 4,516 2,727 15,104
Deferred Charges and Other Noncurrent
Assets............................. 809 210 500
Names and Reputations................ 3,502 9,349 17,344
Current Liabilities.................. (435) (67) (1,293)
Debt................................. (137) (87) --
Other Liabilities.................... -- (232) (2,924)
--------- --------- ---------
9,153 12,191 33,515
Preferred Stock issued............... (80) -- (9,100)
--------- --------- ---------
Cash used for acquisitions...... $ 9,073 $ 12,191 $ 24,415
========= ========= =========

The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and the businesses acquired during the year ended
December 31, 1994 and 1995 as if such acquisitions had taken place at the
beginning of 1994, and for the businesses acquired during the six months ended
June 30, 1996 as if such acquisitions had taken place at the beginning of 1995.
Appropriate adjustments have been made to reflect the accounting basis used in
recording these acquisitions. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations that would have resulted had the combinations been in effect on the
dates indicated, that have resulted since the date of acquisition or that may
result in the future.

FOR THE YEARS ENDED
DECEMBER 31,
-------------------- FOR THE SIX MONTHS
1994 1995 ENDED JUNE 30, 1996
--------- --------- -------------------

(UNAUDITED AND IN THOUSANDS)
Revenues, net...................... $ 26,341 $ 39,761 $20,952
Net (loss) before income taxes..... (1,716) (3,033) (1,357)
Net (loss) attributable to common
stockholders..................... (1,094) (3,753) (1,652)
(Loss) per common and common
equivalent share................. (.32) (.99) (.37)

F-11

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. DEFERRED CHARGES AND OTHER NONCURRENT ASSETS:

Deferred Charges and Other Noncurrent Assets at December 31, 1994 and 1995
and June 30, 1996, were as follows:

1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)

Agreements not to compete, net of
accumulated amortization of $790,
$1,198 and $1,448, respectively.... $ 2,449 $ 2,269 $ 2,599
Deferred debt expense, net of
accumulated amortization of $192,
$337 and $435, respectively........ 439 492 667
Noncurrent cemetery receivables...... 252 443 1,784
Deferred obtaining costs............. -- 132 357
--------- --------- ---------
$ 3,140 $ 3,336 $ 5,407
========= ========= =========

The Company has entered into prepaid agreements not to compete with former
owners of businesses acquired that are being amortized over the term of the
agreements, ranging from four to 10 years. Deferred debt expense is being
amortized over the term of the related debt, generally five years. Noncurrent
cemetery receivables result from the multi-year payment terms in the underlying
contracts. These cemetery receivables are recorded net of allowances for
customer cancellations, refunds and bad debts.

F-12

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT:

The Company's long-term debt and subordinated notes at December 31, 1994
and 1995 and June 30, 1996, consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, secured by deed of trust and security agreements covering certain
real property, due in monthly installments ranging from $3,542 to $18,750,
plus interest at prime plus 1.75%; prime plus 1.50% after April 20, 1994
(9.75% as of June 30, 1996) through
January 1999 ................................................................. $ 13,799 $ 13,038 $ 12,658
Notes payable, secured by deed of
trust and security agreements covering certain real property, due in monthly
installments of $52,000, plus interest at 7.31%; through July 1998 at which
time the interest rate fluctuates based upon the greater of prime plus .50%,
the base certificate of deposit rate plus 1.50% or the federal funds rate plus
1% until maturity in July
2000 ......................................................................... 8,466 7,842 7,530
Note payable, secured by deed of
trust and security agreements covering certain real property, principal due in
quarterly installments of $18,750 and interest due in monthly installments at
a rate of the lesser of prime plus 1%, the base certificate of deposit rate
plus 1.50% or the federal funds rate plus 1% (9.25% as of June 30, 1996)
until maturity in October 1999 ............................................... -- 476 679
Notes payable, secured by deed of
trust and security agreements covering certain real property, due in monthly
installments ranging from $3,125 to $15,208, plus interest at prime plus 1.50%
(9.75% as of June 30, 1996) through
December 2000 ................................................................ 5,269 14,960 24,381
Note payable, secured by deed of
trust and security agreements covering certain real property, due in monthly
installments of $47,222, plus interest at prime (8.25% at June 30, 1996)
through March 31, 1998, at which time the Company must enter into a swap
agreement to effectively convert the note to a fixed rate loan until maturity
at
March 31, 2003 ............................................................... -- -- 8,500
Subordinated notes payable to
stockholder, with interest at a predetermined rate plus 3% which is subject to
adjustment under certain conditions (11.25% as of June 30, 1996). Interest is
payable in the form of cash if certain conditions are met, otherwise interest
is paid in the form of additional subordinated notes issued annually; these
principal and interest notes
are payable in May 2001 ...................................................... 6,371 7,016 7,841
Other .......................................................................... 893 1,542 3,703
Less -- Current portion ........................................................ (2,176) (2,817) (5,015)
-------- -------- --------
$ 32,622 $ 42,057 $ 60,277
======== ======== ========
</TABLE>

No principal payments on the subordinated debt may be made until the notes
payable are paid. The notes payable are generally guaranteed by certain
principal stockholders of the Company and secured by the Common Stock of the
Company, property, plant and equipment, accounts receivable, inventory and
intangibles. A major stockholder received a $40,000 fee for a guarantee for each
of the years ended December 31, 1994 and 1995. At June 30, 1996, $20,000 has
been accrued related to this fee. The guaranteed amount as of June 30, 1996, was
$2,000,000. The debt agreements contain provisions regarding minimum net worth
and cash flow to debt service ratios, and restrictions regarding other
borrowings,

F-13

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payment of dividends, capital expenditures and acquisitions. The aggregate
maturities of notes payable for the six-month period ended December 31, 1996 and
for the subsequent five years, are approximately $2,064,000, $9,631,000,
$8,586,000, $7,638,000, $14,699,000 and $16,159,000, respectively and $6,515,000
thereafter. The Company has a $400,000 line of credit which matures in May 1997;
$350,000 was outstanding under such line of credit at June 30, 1996.

Upon the completion of the initial public offering, the Company intends to
retire a substantial portion of the existing debt with the net proceeds
therefrom. Accordingly, a significant portion of the then existing deferred debt
expense related to the existing debt will be written off in the accounting
period in which the debt is retired. In addition, to the extent that the net
proceeds of the initial public offering are less than the then existing debt
balances, the Company intends to retire the remaining debt with funds to be
drawn from a new revolving credit facility, a commitment for which has been
received by the Company. If the debt had been retired through the application of
the net proceeds of the Offering and borrowings from the new revolving credit
facility as of June 30, 1996, the write off of deferred debt expense would have
been $667,000.

5. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases certain office facilities, vehicles and equipment under
operating leases for one to ten years. Certain of these leases provide for an
annual adjustment to rent for operating expenses in excess of a prescribed
amount or increases due to inflation, as well as options to purchase the assets
at fair market value. Rent expense was approximately $442,000, $734,000,
$951,000, and $413,000 for the years ended December 31, 1993, 1994 and 1995, and
the six-month period ended June 30, 1996, respectively. Assets acquired under
capital leases are included in Property, Plant and Equipment on the accompanying
Consolidated Balance Sheets.

Minimum payments over the lease periods will be as follows:

MINIMUM LEASE
PAYMENTS
----------------------
OPERATING CAPITAL
LEASES LEASES
---------- ---------

Years ended December 31,
1996............................ $ 446 $ 218
1997............................ 902 411
1998............................ 857 289
1999............................ 796 163
2000............................ 580 68
Thereafter...................... 2,382 114
---------- ---------
Total minimum lease payments......... $5,963 1,263
==========
Less: amount representing interest... 187
---------
Long-term obligations under capital
leases............................. $ 1,076
=========

AGREEMENTS AND EMPLOYEE BENEFITS

The Company has entered into various employment and agreements not to
compete with key employees and former owners of businesses acquired. These
agreements are generally for one to ten years and provide for future payments
annually, quarterly or monthly. The aggregate payments due under these
agreements for the six-month period ended December 31, 1996 and for the
subsequent five years, are approximately $608,000, $1,068,000, $1,053,000,
$1,014,000, $765,000 and $691,000, respectively and

F-14

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$2,095,000 thereafter. In conformity with industry practice, these agreements
are not included in the accompanying Consolidated Balance Sheets.

The Company sponsors one defined contribution plan for the benefit of its
employees. The expense for this plan has not been significant for the periods
presented. In addition, the Company does not offer any other post-retirement or
post-employment benefits.

LITIGATION

The Company is, from time to time, subject to routine litigation incidental
to its business. Management believes that the results of any litigation or other
pending legal proceedings will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.

6. INCOME TAXES:

Prior to January 1, 1994, the Company was an S corporation, was not subject
to federal income taxes, and instead, the owners were taxed on the Company's
income in a manner similar to partnerships. On January 1, 1994, the Company
became a C corporation and adopted Statement of Financial Accounting Standards
No. 109. Accordingly, a charge to income taxes in 1994 of approximately $57,000
was made to establish deferred taxes payable. The Company did not pay any
federal taxes in 1993, 1994 or 1995 or during the six-months ended June 30,
1996. The provision (benefit) for income taxes for the years ended December 31,
1994 and 1995, and for the six-month period ended June 30, 1996 consisted of:

1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Current:
U. S. Federal................... $ -- $ -- $ --
State........................... 10 35 85
--------- --------- ---------
Total current provision.... 10 35 85
--------- --------- ---------
Deferred:
U. S. Federal................... (35) 585 149
State........................... 8 74 17
--------- --------- ---------
Total deferred (benefit)
provision............... (27) 659 166
--------- --------- ---------
Provision resulting from
change in tax status.... 57 -- --
--------- --------- ---------
Total income tax
provision............... $ 40 $ 694 $ 251
========= ========= =========

A reconciliation of taxes at the Federal statutory rate of 34% to those
reflected in the Consolidated Statements of Operations for the years ended
December 31, 1994 and 1995, and for the six-month period ended June 30, 1996 is
as follows:

1994 1995 1996
--------- --------- ---------

Federal statutory rate............... (34.0)% (34.0)% (34.0)%
Effect of state income taxes......... (2.6) (6.0) (2.4)
Effect of nondeductible expenses..... 6.2 3.9 16.3
Effect of valuation allowance........ 30.3 74.7 81.3
Effect of change in tax status....... 4.4 -- --
--------- --------- ---------
4.3% 38.6% 61.2%
========= ========= =========

F-15

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994, and
1995 and June 30, 1996, were as follows:

1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss
carryforwards................. $ 314 $ 1,536 $ 1,991
Book/tax differences relating to
reserves...................... 80 117 131
Accrued liabilities and other... 168 130 55
Amortization of non-compete
agreements.................... 178 292 391
Accrued interest not currently
deductible.................... 427 190 190
--------- --------- ---------
1,167 2,265 2,758
Valuation allowance.................. (303) (1,517) (1,990)
--------- --------- ---------
Total deferred tax
assets.................. $ 864 $ 748 $ 768
========= ========= =========
Deferred tax liability:
Amortization and depreciation... (1,721) (2,229) (3,315)
--------- --------- ---------
Total deferred tax
liabilities............. (1,721) (2,229) (3,315)
========= ========= =========
Net deferred tax liability........... (857) (1,481) (2,547)
========= ========= =========
Current net deferred asset........... 590 419 335
Long-term net deferred liability..... (1,447) (1,900) (2,882)
--------- --------- ---------
$ (857) $ (1,481) $ (2,547)
========= ========= =========

The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets for which realization is uncertain. At June 30,
1996, the Company has approximately $4,424,000 of federal Net Operating Losses
(NOL) carryforwards which will expire between 2009 and 2011, if not utilized,
and $7,019,000 of state NOL carryforwards which will expire between the years
2000 and 2011, if not utilized. As a result of the initial public offering (see
Note 10), there may be a limitation placed on the Company's utilization of its
NOL's by Section 382 of the Internal Revenue Code. The Company will review the
valuation allowance at the end of each quarter and will make adjustments if it
is determined that it is more likely than not that the NOL's will be realized.

7. STOCKHOLDERS' EQUITY:

COMMON STOCK

The Company has 20,000,000 authorized shares of Common Stock with a par
value of $.01 per share of which approximately 2.52 millon shares were issued
and outstanding at December 31, 1994, and 1995, and June 30, 1996. A voting
agreement exists between certain stockholders where such parties agreed to,
among other things, vote their respective shares of Common Stock in an agreed
upon manner. Subsequent to June 30, 1996, the Company amended and restated its
certificate of incorporation to authorize a total of 30,000,000 shares of Common
Stock.

PREFERRED STOCK

As of June 30, 1996 the Company was authorized to issue up to 40,000,000
shares of preferred stock, issuable in series from time to time established by
the Board of Directors. Subsequent to June 30, 1996, the Company amended and
restated its certificate of incorporation to authorize a total of 50,000,000
shares of Preferred Stock. The Company has 7,000,000 authorized shares of Series
A Preferred Stock with a par value

F-16

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of $.01 per share, all of which were issued and outstanding as of December 31,
1994, and 1995 and June 30, 1996. These shares can be converted into shares of
Common Stock at a conversion price of $7.143 per share. The Company also has
2,500,000 authorized shares of Series B Preferred Stock with a par value of $.01
of which 160,000 shares were issued and outstanding as of December 31, 1994 and
1995 and 715,000 shares were issued and 545,000 were outstanding as of June 30,
1996. Subsequent to June 30, 1996, the Company amended and restated its
certificate of incorporation to authorize a total of 1,000,000 shares of Series
B Preferred Stock. These shares can be converted into Common Stock at various
conversion prices from $8.00 to $11.00 per share. As of December 31, 1995 and
June 30, 1996, the Company has 8,500,000 authorized shares of Series C Preferred
Stock with a par value of $.01 of which all 8,500,000 were issued and
outstanding. These shares can be converted into shares of Common Stock at a
conversion price of $9.00 per share. The Preferred Stocks (Series A, B and C)
can be converted into shares of Common Stock at the option of the holder at any
time and will automatically convert at the effective date of the Registration
Statement for the initial public offering (See Note 10), or a sale of the
Company.

TREASURY STOCK

In the six-month period ended June 30, 1996, the Company purchased 170,000
shares of Series B Preferred Stock for total consideration of $330,000.

STOCK OPTION PLAN

The Company has a 1995 Stock Incentive Plan (the Plan) which was adopted by
the Board of Directors. The Company accounts for these plans under APB Opinion
No. 25, under which no compensation cost has been recognized. Had compensation
cost for these plans been determined consistent with Statement of Financial
Accounting Standards No. 123, the Company's net loss and loss per share would
have been the following pro forma amounts:
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net (loss) attributable to common
stockholders: As reported............. $ (2,494) $ (762)

Pro forma............... (2,721) (865)

(Loss) per share attributable to
common stockholders: As reported............. (.66) (.17)

Pro forma............... (.72) (.19)
</TABLE>

The Plan provides for the issuance of up to 500,000 shares of the Company's
Common Stock, subject to 1% annual increases beginning January 1, 1997, in
connection with the exercise of stock options granted under such Plan to
officers and key employees. The Plan is administered by a stock option committee
appointed by the Board of Directors. The Plan allows for options to be granted
as non-qualified options, incentive stock options, reload options, alternative
appreciation rights and stock bonus options. As of June 30, 1996, only
non-qualified options and incentive stock options have been issued. The options
are granted with an exercise price equal to the then fair market value of the
Company's Common Stock as determined by the Board of Directors. The
non-qualified and incentive stock options are immediately exercisable and expire
ten years from the date of grant unless a shorter period is provided by the
stock option committee.

F-17

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Plan at December 31, 1995 and at June 30,
1996 and changes during the year and six months then ended is presented in the
table and narrative below:

YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------- -------------------
SHARES WTD AVG SHARES WTD AVG
(000) EX PRICE (000) EX PRICE
------- -------- ------- --------

Outstanding at beginning of period.. -- $-- 50 $ 9.80
Granted............................. 50 9.80 41 10.94
Exercised........................... -- -- (1) 10.00
Cancelled........................... -- -- -- --
Outstanding at end of period........ 50 9.80 90 10.54
Exercisable at end of period........ 50 9.80 90 10.54
Weighted average fair value of
options granted................... $4.57 $ 4.94

All of the options outstanding at June 30, 1996 have exercise prices
between $8.00 and $12.00, with a weighted average exercise price of $10.54 and a
weighted average remaining contractual life of 9.34 years. All of these options
are exercisable.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and the six months ended June 30, 1996,
respectively: risk-free interest rates of 6.27% and 6.02%; expected dividend
yields of zero percent and zero percent; expected lives of ten years and ten
years; expected volatility of zero percent and zero percent.

Pursuant to a 1993 agreement, the Company intends to repurchase
approximately 106,470 shares of Common Stock from an executive officer of the
Company at $2.40 per share. Options to purchase these 106,470 shares were
granted in 1993 to several members of the management team, who have no other
stock ownership in the Company, at $2.40 per share which the Board of Directors
believes was the fair market value of the Company's Common Stock at the date of
grant.

OTHER

The Company has also entered into a consulting arrangement with a
stockholder of the Company, requiring quarterly payments of $6,250.

8. REDEEMABLE PREFERRED STOCK:

The Company has 10,000,000 authorized shares of Series D Preferred Stock
with a par value of $.01 per share, of which approximately 8,545,000 shares were
issued and outstanding at June 30, 1996. Subsequent to June 30, 1996, the
Company amended and restated its certificate of incorporation to authorize a
total of 20,000,000 shares of Series D Preferred Stock. These shares can be
converted into Common Stock at the lesser of the initial public offering price
of the Class A Common Stock or the applicable conversion price (currently
ranging from $15.00 to $18.00 per share). The holders of Series D Preferred
Stock are entitled to receive preferential dividends at an annual rate ranging
from $0.06 to $0.07 per share, payable quarterly. Dividends are payable
quarterly as long as the stock is outstanding. The Series D Preferred Stock is
redeemable, in whole or in part, at the option of the Company, at any time
during the period commencing with the second anniversary of the Company's
initial public offering and ending December 31, 2001. On December 31, 2001 the
Company must redeem all shares of Series D Preferred Stock then outstanding at a
redemption price of $1.00 per share, together with all accrued and unpaid
dividends.

Concurrent with every issuance of Series D Preferred Stock, an irrevocable
standby letter of credit, issued by a financial institution and guaranteed by
the Company, was given to the holder (or a designated beneficiary) and can be
drawn upon if certain events occur, such as: the Company has failed to pay

F-18

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

dividends, the Company has failed to redeem the shares on the designated
mandatory redemption date or a liquidation, dissolution or winding up of affairs
of the Company occurs. As of June 30, 1996, letters of credit of approximately
$8,800,000 were outstanding relative to Series D Preferred Stock. This stock is
classified as Redeemable Preferred Stock on the Consolidated Balance Sheets of
the Company.

9. LOSS PER SHARE:

Loss per share is calculated based on the weighted average number of common
and common equivalent shares outstanding during the period using guidance
provided by the SEC for companies contemplating an initial public offering. Loss
per share has been presented as if the reverse stock split had occurred at the
beginning of the earliest period presented (see Note 10). Loss per common and
common equivalent share for the years ended December 31, 1993, 1994 and 1995 and
for the six month periods ending June 30, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net (loss)........................... $ (1,670) $ (963) $ (2,494) $ (698) $ (661)
Preferred stock dividend
requirements....................... -- -- -- -- 101
--------- --------- --------- ----------- ---------
Net (loss) attributable to Common
stockholders....................... $ (1,670) $ (963) $ (2,494) $ (698) $ (762)
========= ========= ========= =========== =========
Common shares outstanding(a)......... 2,520 2,520 2,520 2,520 2,520
Common equivalent shares:
Stock options, treasury stock
method(b)..................... 23 23 23 23 23
Assumed conversion of preferred
stock(c)...................... -- 863 1,238 1,000 1,969
--------- --------- --------- ----------- ---------
Total weighted average common and
common equivalent shares
outstanding........................ 2,543 3,406 3,781 3,543 4,512
========= ========= ========= =========== =========
(Loss) per common and common
equivalent share................... $ (.66) $ (.28) $ (.66) $ (.20) $ (.17)
========= ========= ========= =========== =========
</TABLE>
- ------------
(a) Effective January 1, 1994, the shareholders of three affiliated
companies which had common ownership and management exchanged their stock in
those companies for Common Stock of the Company. In this transaction, the assets
and liabilities were recorded at historical cost in a manner similar to a
pooling-of-interests. Accordingly, loss per share has been presented as if the
Common Stock has been outstanding for all periods presented at the conversion
rate utilized at January 1, 1994.

(b) In accordance with the SEC's Staff Accounting Bulletin No. 83, the
loss per share has been presented assuming that all stock options granted by the
Company within one year of the Company's initial public offering have been
outstanding for all periods presented. The effect of such stock options has been
calculated using the "treasury stock" method, assuming an estimated initial
public offering price of $14 per share and has been included in the calculation
of common equivalent shares outstanding despite the fact that the effect of the
assumed exercise of such options is anti-dilutive. The effect on common
equivalent shares of using an initial public offering price of $13.50, rather
than $14.00, is insignificant.

(c) Pursuant to the terms of their respective agreements, the Company's
Series A, B and C Preferred Stocks automatically convert to Common Stock upon
the Company's initial public offering. Therefore, in accordance with the SEC's
position relative to securities with these conversion characteristics, the
effect of such conversions has been reflected from the respective dates of
issuance of the preferred stocks in common equivalent shares outstanding,
despite the fact that the effect of the assumed conversion is anti-dilutive.

F-19

CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. EVENTS SUBSEQUENT TO JUNE 30, 1996:

ACQUISITIONS

Two funeral homes and one cemetery were acquired in July 1996 for
approximately $7.8 million. These acquisitions were funded through additional
debt, issuance of 6,355,000 shares of Series D Preferred Stock, valued at $1.00
per share, and available cash. Such sales of Series D Preferred Stock were
effected without registration under the Securities Act of 1933. See "Risk
Factors - Offer and Sale of Unregistered Securities." These acquisitions have
been accounted for by the purchase method, and the results of operations will be
included in the accompanying consolidated financial statements from the dates of
acquisition.

The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and the businesses acquired through July 18, 1996, as
if such acquisitions had taken place at the beginning of each of the respective
periods presented. Appropriate adjustments have been made to reflect the
accounting basis used in recording these acquisitions. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of the results of operations that would have resulted had the
combinations been in effect on the date indicated, that have resulted since the
date of acquisition or that may result in the future.

YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------ --------------
(UNAUDITED AND IN THOUSANDS)
Revenues............................. $ 26,680 $ 18,252
Net (loss) before income taxes....... (2,028) (537)
Net (loss) attributable to common
stockholders....................... (3,009) (936)
(Loss) per common and common
equivalent share................... (.80) (.21)

INITIAL PUBLIC OFFERING

The Company has filed a registration statement with the SEC on Form S-1 for
an initial public offering of shares of its Class A Common Stock and expects the
transaction to be completed in 1996. In connection with the initial public
offering, the Company plans to perform a recapitalization of its Common Stock
into two classes of Common Stock (Class A and Class B), provide separate voting
rights to each class and convert existing Common Stock to Class B Common Stock.
The holders of Class A Common Stock will be entitled to one vote for each share
held on all matters submitted to a vote of common stockholders. The holders of
Class B Common Stock will be entitled to ten votes for each share held on all
matters submitted to a vote of common stockholders. Additionally under their
respective terms, the Series A, B and C Preferred Stocks automatically convert
into Class B Common Stock on the effective date of the Registration Statement.
Series D Preferred Stock will remain outstanding after the initial public
offering. This recapitalization has not been reflected in the accompanying
Consolidated Financial Statements since it has not occurred.

REVERSE STOCK SPLIT

On July 18, 1996, the Company's Board of Directors and stockholders
approved an amendment to the Company's Certificate of Incorporation which
authorized a one for two reverse stock split. The Consolidated Financial
Statements have been restated as if the reverse stock split had occurred at the
beginning of the earliest period presented. For each two shares of Class B
Common Stock at $.01 par, the stockholder received one share of Class B Common
Stock at $.01 par. The number of shares held by each Series A, B and C Preferred
stockholder remained the same; however, the conversion prices for Class B Common
Stock on those preferred shares doubled in conjunction with the above-mentioned
reverse stock split. In addition, the exercise prices on outstanding stock
options also doubled related to this reverse stock split, and the number of
shares of Class B Common Stock coverd by such options decreased by 50%.

F-20

CARRIAGE SERVICES, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following tables set forth the unaudited pro forma consolidated
statements of operations for the Company for the year ended December 31, 1995
and the six months ended June 30, 1996, and the unaudited pro forma balance
sheet of the Company as of June 30, 1996 after giving effect to the acquisitions
made from the period beginning January 1, 1995 through June 30, 1996, the
acquisition of two funeral homes and one cemetery completed in July 1996 and the
acquisition of five funeral homes deemed probable at the time of this filing
(the "Acquisitions"). The unaudited pro forma financial statements present a
column as a subtotal which reflects the effects of the Acquisitions. In
addition, the unaudited pro forma financial statements also give effect to the
transactions related to the sale of Class A Common Stock offered hereby (the
"Offering") and the application of the net proceeds therefrom and the following
assumptions: (i) the conversion of the Company's Series A, B and C Preferred
Stock into their common share equivalents, (ii) the exercise of stock options
issued within one year of the initial public offering and (iii) the Company's
revolving credit facility as if it were put in place in connection with the
initial public offering (the "Offering Adjustments"). The pro forma total
columns in the unaudited pro forma consolidated financial statements include the
effects of the Acquisitions and the Offering Adjustments. The unaudited pro
forma consolidated statements of operations assume that these transactions
occurred as of January 1, 1995 and the unaudited pro forma consolidated balance
sheet assumes that the transactions occurred as of June 30, 1996. The
Acquisition adjustments assume that the debt and preferred stock used to effect
these business combinations were outstanding as of January 1, 1995.

The unaudited pro forma consolidated statements of operations do not assume
any additional profitability resulting from the application of the Company's
revenue enhancement measures or cost reduction programs to the historical
results of the acquired businesses, nor do they assume increases in corporate
general and administrative expenses which may have resulted from the Company
managing the acquired businesses for the year ended December 31, 1995, and the
six months ended June 30, 1996.

The following unaudited pro forma consolidated financial statements should
be read in conjunction with the Consolidated Financial Statements of the Company
and the related notes thereto included elsewhere herein. Such pro forma
information is based on historical data with respect to the Company and the
acquired businesses. The pro forma information is not necessarily indicative of
the results that might have occurred had such transactions actually taken place
at the beginning of the period specified and is not intended to be a projection
of future results. The pro forma information presented herein is provided to
comply with the requirements of the SEC. The information reflects historical
operations of each acquired entity, as adjusted to reflect certain adjustments,
primarily relating to (i) eliminations of depreciation and amortization recorded
by the acquired entities prior to the date of acquisition, (ii) eliminations of
interest expense recorded by the acquired entities prior to the date of
acquisition, (iii) the reclassification of general and administrative expenses
and net other (income) expense, (iv) depreciation of property, plant and
equipment and amortization of non-compete agreements and names and reputations
in connection with the acquisitions and (v) interest expense and amortization of
deferred loan costs related to debt incurred to fund such acquisitions. The pro
forma information does not reflect any adjustments to reflect the manner in
which the acquired entities are being or will be operated under the control of
the Company. The Company expects that operating results for the acquired
entities will improve due to the Company's focused merchandising approach,
pricing structure and marketing strategy. These enhancements, complemented by
discounts from consolidated purchasing, generally result in improved margins in
the first 12 months.

F-21

CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
----------------------------------------------------------------
HISTORICAL OFFERING
CONSOLIDATED ACQUISITIONS SUBTOTAL ADJUSTMENTS TOTAL
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................ $ 4,490 $ (1,671)(A) $ 2,819 $-- $ 2,819
Accounts receivable, net ................. 3,946 429(A) 4,375 -- 4,375
Marketable securities, available
for sale ............................... 1 -- 1 -- 1
Inventories and other current
assets ................................. 3,158 220(A) 3,378 -- 3,378
-------- --------- --------- --------- ---------
Total current assets ................ 11,595 (1,022) 10,573 -- 10,573
-------- --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, net ............ 37,124 4,975(A) 42,099 -- 42,099
CEMETERY PROPERTY, at cost .................... 2,384 250(A) 2,634 -- 2,634
NAMES AND REPUTATIONS, net .................... 37,527 11,938(A) 49,465 -- 49,465
DEFERRED CHARGES AND OTHER
NONCURRENT ASSETS ........................... 5,407 212(A) 5,619 (434)(B) 5,185
-------- --------- --------- --------- ---------
$ 94,037 $ 16,353 $ 110,390 $ (434) $ 109,956
======== ========= ========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................... $ 1,236 $ 84(A) $ 1,320 $ -- $ 1,320
Accrued liabilities ...................... 3,539 138(A) 3,677 -- 3,677
Current portion of long-term
obligations ............................ 5,359 360(A) 5,719 (5,375)(C) 344
-------- --------- --------- --------- ---------
Total current liabilities ........... 10,134 582 10,716 (5,375) 5,341
-------- --------- --------- --------- ---------
PRENEED LIABILITIES, net ...................... 2,817 -- 2,817 -- 2,817
LONG-TERM DEBT, net of current
portion ..................................... 60,277 6,373(A) 66,650 (62,792)(C) 3,858
CREDIT FACILITY ............................... -- -- -- 24,899 (C) 24,899
OBLIGATIONS UNDER CAPITAL LEASE ............... 732 -- 732 -- 732
DEFERRED INCOME TAXES ......................... 2,882 128(A) 3,010 -- 3,010
-------- --------- --------- --------- ---------
Total liabilities ................... 76,842 7,083 83,925 (43,268) 40,657
COMMITMENT AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK .................... 8,545 9,020(A) 17,565 -- 17,565
STOCKHOLDERS' EQUITY:
Preferred stock .......................... 162 -- 162 (162)(D) --
Common stock:
Common stock ........................ 25 -- 25 (25)(D) --
Class A ............................. -- -- -- 34 (C) 34
Class B ............................. -- -- -- 45 (D) 45
Treasury stock ........................... (330) -- (330) -- (330)
Contributed capital ...................... 15,650 250(A) 15,900 42,942 (B)(C)(D) 58,842
Retained deficit ......................... (6,857) -- (6,857) -- (6,857)
-------- --------- --------- --------- ---------
Total stockholders' equity .......... 8,650 250 8,900 42,834 51,734
-------- --------- --------- --------- ---------
$ 94,037 $ 16,353 $ 110,390 $ (434) $ 109,956
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements

F-22

CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
-------------------------------------------------------------------
HISTORICAL OFFERING
CONSOLIDATED ACQUISITIONS SUBTOTAL ADJUSTMENTS TOTAL
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............... $ 4,490 $ (1,671)(A) $ 2,819 $ -- $ 2,819
Accounts receivable, net ................ 3,946 429(A) 4,375 -- 4,375
Marketable securities, available
for sale .............................. 1 -- 1 -- 1
Inventories and other current
assets ................................ 3,158 220(A) 3,378 -- 3,378
-------- --------- --------- --------- ---------
Total current assets ............... 11,595 (1,022) 10,573 -- 10,573
-------- --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, net ........... 37,124 4,975(A) 42,099 -- 42,099
CEMETERY PROPERTY, at cost ................... 2,384 250(A) 2,634 -- 2,634
NAMES AND REPUTATIONS, net ................... 37,527 11,938(A) 49,465 -- 49,465
DEFERRED CHARGES AND OTHER
NONCURRENT ASSETS .......................... 5,407 212(A) 5,619 (434)(B) 5,185
-------- --------- --------- --------- ---------
$ 94,037 $ 16,353 $ 110,390 $ (434) $ 109,956
======== ========= ========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................ $ 1,236 $ 84(A) $ 1,320 $ -- $ 1,320
Accrued liabilities ..................... 3,539 138(A) 3,677 -- 3,677
Current portion of long-term
obligations ........................... 5,359 360(A) 5,719 (5,375)(C) 344
-------- --------- --------- --------- ---------
Total current liabilities .......... 10,134 582 10,716 (5,375) 5,341
-------- --------- --------- --------- ---------
PRENEED LIABILITIES, net ..................... 2,817 -- 2,817 -- 2,817
LONG-TERM DEBT, net of current
portion .................................... 60,277 6,373(A) 66,650 (62,792)(C) 3,858
CREDIT FACILITY .............................. -- -- -- 26,497(C) 26,497
OBLIGATIONS UNDER CAPITAL LEASE .............. 732 -- 732 -- 732
DEFERRED INCOME TAXES ........................ 2,882 128(A) 3,010 -- 3,010
-------- --------- --------- --------- ---------
Total liabilities .................. 76,842 7,083 83,925 (41,670) 42,255
COMMITMENT AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ................... 8,545 9,020(A) 17,565 -- 17,565
STOCKHOLDERS' EQUITY:
Preferred stock ......................... 162 -- 162 (162)(D) --
Common stock:
Common stock ....................... 25 -- 25 (25)(D) --
Class A ............................ -- -- -- 34(C) 34
Class B ............................ -- -- -- 45(D) 45
Treasury stock .......................... (330) -- (330) -- (330)
Contributed capital ..................... 15,650 250(A) 15,900 41,344(B)(C)(D) 57,244
Retained deficit ........................ (6,857) -- (6,857) -- (6,857)
-------- --------- --------- --------- ---------
Total stockholders' equity ......... 8,650 250 8,900 41,236 50,136
-------- --------- --------- --------- ---------
$ 94,037 $ 16,353 $ 110,390 $ (434) $ 109,956
======== ========= ========= ========= =========
</TABLE>

See accompanying notes to the unaudited
pro forma consolidated financial statements

F-22

CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------------
PRO FORMA (UNAUDITED)
--------------------------------------------------------------
HISTORICAL OFFERING
CONSOLIDATED ACQUISITIONS SUBTOTAL ADJUSTMENTS TOTAL
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues, net ............................. $ 24,237 $ 20,873(AA) $ 45,110 $ -- $ 45,110
Costs and expenses ........................ 20,247 20,091(AA)(BB) 40,338 -- 40,338
-------- -------- -------- ------- --------
Gross Profit ......................... 3,990 782 4,772 -- 4,772
General and administrative
expenses ................................ 2,106 -- 2,106 -- 2,106
-------- -------- -------- ------- --------
Operating income ..................... 1,884 782 2,666 -- 2,666
Interest expense, net ..................... 3,684 2,961(CC) 6,645 (4,815)(FF) 1,830
-------- -------- -------- ------- --------
Income (loss) before income
taxes .............................. (1,800) (2,179) (3,979) 4,815 836
Provision (benefit) for income
taxes ................................... 694 (2,246)(AA)(DD) (1,552)(DD) 1,878(GG) 326
-------- -------- -------- ------- --------
Net income (loss) .................... (2,494) 67 (2,427) 2,937 510
Preferred stock dividend
requirements ............................ -- 1,075(EE) 1,075 -- 1,075
-------- -------- -------- ------- --------
Net income (loss) attributable
to common stock .................... $ (2,494) $ (1,008) $ (3,502) $ 2,937 $ (565)
======== ======== ======== ======= ========
Earnings (loss) per common share .......... $ (.07)(HH)
========
Weighted average of common and
common equivalent shares
outstanding ............................. 7,945(HH)
========
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
---------------------------------------------------------------------------------
PRO FORMA (UNAUDITED)
----------------------------------------------------------------
HISTORICAL OFFERING
CONSOLIDATED ACQUISITIONS SUBTOTAL ADJUSTMENTS TOTAL
-------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues, net .............................. $ 16,925 $ 6,826(AA) $ 23,751 $ -- $ 23,751
Costs and expenses ......................... 13,536 7,471(AA)(BB) 21,007 -- 21,007
-------- ------- -------- ------- --------
Gross Profit .......................... 3,389 (645) 2,744 -- 2,744
General and administrative
expenses ................................. 1,155 -- 1,155 -- 1,155
-------- ------- -------- ------- --------
Operating income ...................... 2,234 (645) 1,589 -- 1,589
Interest expense, net ...................... 2,644 722(CC) 3,366 (2,411)(FF) 955
-------- ------- -------- ------- --------
Income (loss) before income
taxes ............................... (410) (1,367) (1,777) 2,411 634
Provision (benefit) for income
taxes .................................... 251 (944)(AA)(DD) (693)(DD) 940(GG) 247
-------- ------- -------- ------- --------
Net income (loss) ..................... (661) (423) (1,084) 1,471 387
Preferred stock dividend
requirements ............................. 101 437(EE) 538 -- 538
-------- ------- -------- ------- --------
Net income (loss) attributable
to common stock ..................... $ (762) $ (860) $ (1,622) $ 1,471 $ (151)
======== ======= ======== ======= ========
Earnings (loss) per common share ........... $ (.02)(HH)
========
Weighted average of common and
common equivalent shares
outstanding .............................. 7,945(HH)
========

</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.

F-23

CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS

The accompanying unaudited pro forma consolidated balance sheet as of June
30, 1996 gives effect to the Acquisitions and the Offering Adjustments. The
estimated fair market values reflected below are based on preliminary estimates
and assumptions and are subject to revision as more information becomes
available. In management's opinion, the preliminary allocation is not expected
to be materially different from the final allocation.

(A) Reflects the Company's acquisitions which occurred subsequent to June
30, 1996 as if such acquisitions had occurred on June 30, 1996. The unaudited
pro forma consolidated financial statements include acquisitions of seven
funeral homes and one cemetery expected to be made during this period, which
were planned to be funded by (i) $1,671,000 in cash, (ii) $6,733,000 in debt and
(iii) 250,000 shares of the Company's Series B Preferred Stock valued at
$250,000 and (iv) 9,020,000 shares of the Company's Series D Preferred Stock
valued at $9,020,000. In conjunction with each of these acquisitions, the key
employees and former owners of the acquired businesses have entered into
employment and non-compete agreements with the Company. The estimated fair
market value of the assets and liabilities of these acquisitions are as follows:

DESCRIPTION AMOUNT
- ---------------------------------------- --------------
(IN THOUSANDS)
Net assets acquired:
Accounts receivable, net .............................. $ 429
Inventories and other current
assets ............................................... 220
Property, plant and equipment,
net .................................................. 4,975
Cemetery property, at cost ............................ 250
Names and reputations, net ............................ 11,938
Deferred charges and other non
current assets ....................................... 212
Accrued liabilities ................................... (222)
Deferred income taxes ................................. (128)
--------
$ 17,674
========

F-24

CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DESCRIPTION AMOUNT
- ---------------------------------------- --------------
(IN THOUSANDS)
Consideration paid:
Cash ................................................... (1,671)
Series B Preferred Stock ............................... (250)
Series D Redeemable Preferred
Stock ................................................. (9,020)
Long-term debt issued to fund cash
for acquisition ....................................... (6,733)
--------
$(17,674)
========

In connection with the allocation of the purchase price to identifiable
intangible assets, the Company considered the nature of each business it
acquired, non-compete agreements which key employees and former owners entered
into in connection with the acquisitions, and the economic value attributable to
community loyalty of the businesses acquired. Relative to the non-compete
agreements, management considered the term of the respective agreements. The
purchase price allocated to these agreements is amortized on a straight line
basis over the lives of the respective agreements.

In its consideration of the value attributable to the names and reputations
of acquired businesses, management reviewed the unique position of each acquired
business within its respective market. Further, management considered the fact
that death care businesses have often been in existence for an extended period
of time, and in most cases have developed a local heritage and tradition that
act as a formidable barrier for those wishing to enter an existing market. The
resulting loyalty has historically represented a substantial portion of the
value of the acquired business. In almost all cases the names and principal
facilities of the acquired businesses are left in place. Although the acquired
businesses generally have the ability to extend their existence indefinitely,
the Company believes that the names and reputations asset is being appropriately
amortized on a straight line basis over a 40 year period. This is consistent
with the lives used by the Company's publicly held competitors within the death
care industry.

The Company reviews the carrying value of names and reputations and other
assets at least quarterly on a location-by-location basis to determine if facts
and circumstances exist which would suggest that this intangible asset may be
impaired or that the amortization period needs to be modified. If indicators are
present which indicate impairment is probable, the Company will prepare a
projection of the undiscounted cash flows of the location and determine if the
intangible assets are recoverable based on these undiscounted cash flows. If
impairment is indicated, then an adjustment will be made to reduce the carrying
amount of the intangible assets to their fair value.

(B) Reflects the write-off of $667,000 of capitalized debt issuance costs
related to certain of the Company's pre-existing outstanding debt and the
write-off of $92,000 of capitalized debt issuance costs related to debt incurred
in connection with acquisitions subsequent to June 30, 1996 and those deemed
probable at the time of this filing which is expected to be retired with the
application of the net proceeds of the Offering. In addition, reflects the
capitalization of approximately $325,000 incurred in connection with the credit
facility.

(C) Reflects the issuance of 3,400,000 shares of the Company's Class A
Common Stock, par value $0.01 per share, at a price of $13.50 per share, in the
Offering, resulting in an increase of $34,000 to Class A Common Stock and
$41,636,000 to contributed capital. The initial public offering is expected to
yield proceeds to the Company of $45,900,000. Associated transaction costs are
expected to be approximately $4,230,000. Also reflects the application of the
net proceeds of the Offering and proceeds borrowed under a recently negotiated
revolving credit facility of $26,497,000 to retire $5,375,000 of current debt
and $62,792,000 of long-term debt related to certain of the Company's lenders.

(D) Reflects the conversion of the Company's Series A, B, and C Preferred
Stock into Common Stock concurrent with the Offering. Upon the closing of the
Offering, $162,000 of preferred stock is converted at the specified conversion
prices into the Company's Class B Common Stock, which would represent an
increase of $20,000 to Class B Common Stock and $142,000 to contributed capital.
This adjustment has no profit and loss impact, but it does increase the number
of shares of Common Stock outstanding in the earnings per share calculation.
Also reflects the conversion of the $25,000 of currently outstanding Common
Stock into Class B Common Stock.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS

The accompanying unaudited pro forma consolidated statements of operations
for the year ended December 31, 1995 and six months ended June 30, 1996 give
effect to the Acquisitions and the Offering Adjustments.

(i) Notes (AA) - (EE) represent adjustments made relating to the
acquisitions which took place from January 1, 1995 to June 30, 1996 and any
probable acquisitions subsequent to June 30, 1996 as if they occurred January 1,
1995.

(AA) Reflects the combined results of operations, prior to acquisition, of
the businesses acquired by the Company, in transactions accounted for as
purchases, subsequent to January 1, 1995, as if the businesses had been acquired
as of the beginning of the respective period.

YEAR ENDED SIX MONTHS ENDED
DESCRIPTION DECEMBER 31, 1995 JUNE 30, 1996
- -------------------------------------- -------------------- ----------------
(IN THOUSANDS)
Revenues, net......................... $ 20,873 $6,826
Costs and expenses.................... 17,885 6,800
Provision (benefit) for income taxes.. 757 (30)

The unaudited pro forma consolidated statements of operations do not assume
any additional profitability resulting from the application of the Company's
revenue enhancement or cost containment programs to the results of the acquired
businesses, nor do they include any assumed increases in corporate general and
administrative expenses which may have resulted from the Company managing the
acquired businesses. The historical general and administrative expenses of the
acquired businesses have been included in costs and expenses consistent with the
Company's methodology of including expenses directly related to the operation of
funeral homes, cemeteries and crematories in costs and expenses.

F-25

CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(BB) Reflects adjustments for increased depreciation and amortization
expense relative to the Company's new basis in the net assets of businesses
acquired after January 1, 1995 as if such acquisitions had taken place as of
January 1, 1995. Pro forma depreciation expense has been recorded based on the
Company's estimate of the useful lives of the acquired assets, using the
Company's depreciation methods and the Company's basis in such assets which is
established at acquisition. Pro forma costs and amortization have been recorded
using the contract lives to reflect the costs related to non-compete agreements
and a 40 year life to amortize of names and reputations associated with such
acquisitions.

YEAR ENDED SIX MONTHS ENDED
DESCRIPTION DECEMBER 31, 1995 JUNE 30, 1996
- ------------------------------------- -------------------- ----------------
(IN THOUSANDS)
Additional depreciation.............. $ 774 $ 230
Additional costs and amortization.... 1,432 441
-------- ------
Total depreciation and amortization
adjustment......................... $2,206 $ 671
======== ======

This adjustment is reflected in costs and expenses for the applicable
periods.

(CC) Reflects additional interest expense of $2,961,000 for the year ended
December 31, 1995, and $722,000 for the six months ended June 30, 1996, which
would have been incurred by the Company assuming the acquisitions made by the
Company subsequent to January 1, 1995, had been made as of the beginning of
January 1, 1995.

(DD) Tax provisions in the pro forma consolidated financial statements have
been made to reflect normal effective provisions (benefits) for these events as
if the effective rate will be 39%. Similarly, management has not considered the
use of any available net operating loss carryforwards in these unaudited pro
forma consolidated statements of operations. This adjustment reflects a tax
benefit of $3,003,000 for the year ending December 31, 1995, and $914,000 for
the six months ending June 30, 1996, in order to derive an effective rate of
39%, for federal and state taxes that the Company would have incurred on a pro
forma basis. Such pro forma adjustments have been made to give effect to the tax
benefit at an effective tax rate of 39%, which the Company's management believes
would be indicative of the Company's tax position assuming the acquisitions were
made as of the beginning of the respective period.

(EE) Reflects the pro forma dividend payable on the Company's Series D
Redeemable Preferred Stock actually issued in connection with certain of its
acquisitions consummated subsequent to January 1, 1996 as if the related stock
issuance had occurred on January 1, 1995. A total of 17,566,000 shares of Series
D Redeemable Preferred Stock have been utilized to fund acquisitions subsequent
to January 1, 1995, and those shares, which would have yielded a pro forma cash
dividend of $1,075,000 for the year ending December 31, 1995, and $437,000 for
the six months ending June 30, 1996, have been utilized to fund acquisitions
subsequent to January 1, 1995. The Series D Redeemable Preferred Stock is not a
common stock equivalent.

(ii) Notes (FF) - (HH) represent the Offering Adjustments

(FF) Reflects the elimination of $6,873,000 and $3,372,000 of interest
expense for the year ending December 31, 1995 and six months ending June 30,
1996, respectively, related to the application of the estimated net proceeds of
the Offering to retire a portion of the $5,375,000 and $62,792,000 of current
and non-current long-term debt and reflects the addition of $1,995,000 and
$905,000 of interest expense for the year ending December 31, 1995 and six
months ending June 30, 1996, respectively, from a $26,497,000 draw-down on the
Company's recently negotiated credit facility to be used to retire the remaining
existing long-term debt and long-term debt that was or will be used related to
acquisitions subsequent to June 30, 1996 and deemed probable at the time of this
filing. Reflects the net elimination of $129,000 for the year ending December
31, 1995 and $65,000 for the six months ending June 30, 1996 of amortization
expense related to deferred financing costs. Also reflects elimination of a
guarantee fee relating to existing debt that will be retired amounting to
$40,000 and $20,000 for the year ending December 31, 1995 and six months ending
June 30, 1996, respectively, and the addition of an agent fee and unused
commitment fee of $50,000 and $182,000, respectively, for the year ending
December 31, 1995 and $50,000 and $91,000, respectively, for the six months
ending June 30, 1996. All of the above-mentioned adjustments assume that the net
proceeds of the Offering and the draw on the credit facility were used to retire
debt on January 1, 1995.

F-26

CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(GG) Reflects the provision of federal and state income taxes at an
effective rate of 39% on pro forma adjustments consistent with management's
assumption that this rate would be indicative of the Company's tax position
assuming the acquisitions and the Offering were completed as of the beginning of
the respective period. In its assumption of the effective tax rate, management
has not considered the utilization of net operating losses which the Company has
generated since inception. It has been the Company's policy ot fully reserve its
net operating losses.

(HH) Earnings (loss) per share are computed based on the weighted average
number of common and common equivalent shares outstanding for the respective
period. Weighted average common and common equivalent shares are calculated as
more fully discussed in Note 9 of the Company's Consolidated Financial
Statements. In summary, pursuant to SEC directives relative to companies
contemplating an initial public offering, all stock options issued within one
year of an initial public offering will be considered outstanding for all
periods presented. In addition, the Company's Series A, B and C Preferred Stock
are considered as common equivalent shares, since their respective dates of
issuance, as they convert to Common Stock concurrent with the initial public
offering.

F-27

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Carriage Services, Inc.:

We have audited the accompanying statements of operations of CFS 1996 Group (see
Note 1) and the related statements of cash flows and stockholder's equity for
the period from January 1, 1996 to April 29, 1996, the years ended December 31,
1995, and December 31, 1994, and the three months ended December 31, 1993. These
financial statements are the responsibility of CFS 1996 Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

As discussed in Note 2, the accompanying financial statements are intended to
present the results of operations, cash flows and stockholder's equity as if CFS
1996 Group was a stand-alone entity; however, as discussed in Note 2, CFS 1996
Group has extensive transactions with Service Corporation International, its
parent, and is allocated certain costs from Service Corporation International.
Because of this relationship, the terms of some or all of the transactions and
allocations between Service Corporation International and CFS 1996 Group
included in the accompanying financial statements are not necessarily indicative
of that which would have resulted if CFS 1996 Group had been a stand-alone
entity.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of CFS 1996 Group and its cash
flows for the period from January 1, 1996 to April 29, 1996, the years ended
December 31, 1995, and December 31, 1994, and the three months ended December
31, 1993, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 28, 1996

F-28

CFS 1996 GROUP

STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

1993 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES ................................. $ 1,010,145 $ 4,614,590 $ 4,637,823 $ 1,710,806

COSTS AND EXPENSES ....................... 784,902 3,436,619 3,598,562 1,620,944
----------- ----------- ----------- -----------

GROSS PROFIT ........................ 225,243 1,177,971 1,039,261 89,862

GENERAL AND ADMINISTRATIVE EXPENSES ...... 182,030 775,861 570,207 317,698
----------- ----------- ----------- -----------

OPERATING INCOME (LOSS) ............. 43,213 402,110 469,054 (227,836)

OTHER (INCOME) EXPENSE ................... (40,726) (4,308) (187,048) 164,584

INTEREST (INCOME) EXPENSE ................ 16,195 49,439 (1,575) 785
----------- ----------- ----------- -----------

INCOME (LOSS) BEFORE INCOME TAX ALLOCATION 67,744 356,979 657,677 (393,205)

INCOME TAX ALLOCATION (NOTE 2) ........... 27,504 143,506 247,287 (153,350)
----------- ----------- ----------- -----------

NET INCOME (LOSS) ........................ $ 40,240 $ 213,473 $ 410,390 $ (239,855)
=========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-29

CFS 1996 GROUP

STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>

1993 1994 1995 1996
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................... $ 40,240 $ 213,473 $ 410,390 $(239,855)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization ............................. 24,004 103,701 122,800 48,125
Increase in accounts receivable ........................... (55,975) (226,229) (118,838) (119,831)
(Increase) decrease in inventories and other current assets 2,052,805 (1,110,152) (269,049) 47,605
Increase (decrease) in accounts payable ................... (9,429) 1,475 20,498 (437)
Increase (decrease) in accrued liabilities ................ (573,769) (387,869) (1,061,582) 655,786
----------- ----------- ----------- ---------

Net cash provided by (used in) operating activities 1,477,876 (1,405,601) (895,781) 391,393
----------- ----------- ----------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ....................... (30,906) (149,633) (58,590) (49,739)
----------- ----------- ----------- ---------

Net cash used in investing activities ............. (30,906) (149,633) (58,590) (49,739)
----------- ----------- ----------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ........................... (1,426,519) 1,788,501 730,308 (263,077)
----------- ----------- ----------- ---------

Net cash provided by (used in) financing activities (1,426,519) 1,788,501 730,308 (263,077)
----------- ----------- ----------- ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............... 20,451 233,267 (224,063) 78,577

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 24,352 44,803 278,070 54,007
----------- ----------- ----------- ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 44,803 $ 278,070 $ 54,007 $ 132,584
=========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-30

CFS 1996 GROUP

STATEMENTS OF STOCKHOLDER'S EQUITY

FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

Balance, October 1, 1993 ............................... $ 2,651,401

Net Income ............................................. 40,240
---------
Balance, December 31, 1993 ............................. 2,691,641

Net Income ............................................. 213,473
---------
Balance, December 31, 1994 ............................. 2,905,114

Net Income ............................................. 410,390
---------
Balance, December 31, 1995 ............................. 3,315,504

Net loss ............................................... (239,855)
---------
Balance, April 29, 1996 ................................ $ 3,075,649
===========

The accompanying notes are an integral part of these financial statements.

F-31

CFS 1996 GROUP

NOTES TO FINANCIAL STATEMENTS

FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

1. ORGANIZATION/NATURE OF OPERATIONS

Effective April 29, 1996, CFS Funeral Services, Inc. (Carriage) purchased four
funeral homes and two cemeteries located in Texas and Florida from Service
Corporation International (the Parent) for aggregate consideration in excess of
the recorded amounts of the net assets of the homes and cemeteries. The four
funeral homes and two cemeteries purchased by Carriage in this transaction are,
hereinafter, collectively referred to as "CFS 1996 Group." CFS 1996 Group
performs personal and professional services related to funerals at its funeral
homes. Preneed funerals are marketed in the geographic markets served by CFS
1996 Group's funeral service locations.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying financial statements have been prepared from the separate
records of CFS 1996 Group. Certain expenses of a general and administrative
nature, either directly attributable to CFS 1996 Group, or allocations of actual
expenses incurred by the Parent for the benefit of CFS 1996 Group, have been
included in the accompanying statements of operations. Such allocated costs
include, among others, legal, payroll, employee benefits, insurance and
professional services. In addition, CFS 1996 Group is charged interest expense
for amounts payable to the Parent. Management of CFS 1996 Group believes that
such expenses have been allocated on a reasonable basis.

REVENUES

CFS 1996 Group recognizes revenue upon performance of funeral services and sale
of related funeral merchandise. CFS 1996 Group records revenue related to the
right of interment or mausoleum entombment and related merchandise at the time
of sale.

PRENEED FUNERAL TRUST

CFS 1996 Group is generally required by state laws to deposit amounts in a trust
fund related to preneed funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to CFS 1996 Group only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract and interest
earned on such funds is deferred until performance of the specified service.

CEMETERY MERCHANDISE AND SERVICE TRUST

CFS 1996 Group is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust for cemetery merchandise
and services sold on a preneed basis. The principal and accumulated earnings of
the trust may only be withdrawn upon maturity (generally, death of purchaser) or
cancellation of the contracts. Trust fund income is recognized in current
revenues as trust earnings accrue, net of current period inflation costs
recognized related to the merchandise that has not yet been purchased.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, CFS 1996 Group considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.

F-32

INVENTORIES

Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs amounted to $185,170,
$283,797, $233,591 and $54,891 for the period from January 1, 1996 to April 29,
1996, the years ended December 31, 1995 and December 31, 1994, and the three
months ended December 31, 1993, respectively. Dispositions are removed at cost
less accumulated depreciation.

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:

YEARS METHOD
----- -------------
Building and Improvements .................. 25-40 Straight line
Furniture and fixtures ..................... 5-7 Straight line
Other ...................................... 3-7 Straight line

INCOME TAXES

CFS 1996 Group does not file separate federal and state income tax returns since
all income taxes related to CFS 1996 Group are included in the consolidated
federal and state income tax returns of the Parent. The income tax allocations
included in the accompanying statements of operations reflect an estimate of the
income taxes which would have been attributed to CFS 1996 Group had it been a
separate entity. The income tax allocations approximate the Parent's effective
tax rate, or an estimate thereof, for the periods presented and were 39%, 37.6%,
40.2% and 40.6%, respectively.

NAMES AND REPUTATIONS

The excess of the purchase price paid by the Parent over the net assets of CFS
1996 Group is included in CFS 1996 Group's balance sheet as names and
reputations. Names and reputations are amortized on a straight line basis over
40 years. Amortization of names and reputations totaled approximately $4,000,
$12,000, $12,000 and $3,000 for the period from January 1, 1996 to April 29,
1996, the years ended December 31, 1995 and December 31, 1994, and the three
months ended December 31, 1993, respectively.

USE OF ESTIMATES

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

3. OPERATING LEASES

CFS 1996 Group has entered into certain operating leases for facilities and
equipment used in its business. For the period from January 1, 1996 to April 29,
1996, the years ended December 31, 1995 and December 31, 1994 and the three
months ended December 31, 1993, lease expense approximated $37,000, $112,000,
$93,000 and $17,000, respectively.

F-33

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Kubach-Smith Funeral Home, Inc.:

We have audited the accompanying statement of operations of Kubach-Smith Funeral
Home, Inc. and the related statements of shareholders' equity and cash flows for
the period from October 1, 1993, to September 6, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Kubach-Smith Funeral Home,
Inc., and its cash flows for the period from October 1, 1993, to September 6,
1994, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 28, 1996

F-34

KUBACH-SMITH FUNERAL HOME, INC.

STATEMENT OF OPERATIONS

FOR THE PERIOD FROM OCTOBER 1, 1993 TO SEPTEMBER 6, 1994

REVENUES ................................................. $ 1,295,231
COSTS AND EXPENSES ....................................... 1,193,684
---------
GROSS PROFIT .................................... 101,547
GENERAL AND ADMINISTRATIVE EXPENSES ...................... 205,193
---------
OPERATING LOSS ...................................... (103,646)
OTHER INCOME ............................................. 10,083
INTEREST EXPENSE ......................................... 29,952
---------
LOSS BEFORE INCOME TAXES ................................. (123,515)
INCOME TAX BENEFIT ....................................... 21,336
---------
NET LOSS ................................................. $ (102,179)

The accompanying notes are an integral part of these financial statements.

F-35

KUBACH-SMITH FUNERAL HOME, INC.

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM OCTOBER 1, 1993 TO SEPTEMBER 6, 1994
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $(102,179)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation and amortization ............................... 47,620
Decrease in accounts receivable ............................. 76,724
Decrease in prepaid assets .................................. 12,378
Decrease in inventories and other current assets ........... 25,028
Increase in accounts payable ................................ 34,510
Increase in accrued liabilities ............................. 22,613
---------

Net cash provided by operating activities 116,694
---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ......................... (46,051)
---------

Net cash used in investing activities ... (46,051)
---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ........................................ (32,934)

Net cash used in financing activities ... (32,934)
---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ............................ 37,709

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 4,547
---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 42,256
=========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid ..................................................... $ 29,952
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-36

KUBACH-SMITH FUNERAL HOME, INC.

STATEMENT OF SHAREHOLDERS' EQUITY

FOR THE PERIOD FROM OCTOBER 1, 1993 TO SEPTEMBER 6, 1994

Balance, October 1, 1993 ................................ $ 152,225

Net loss ................................................ (102,179)
---------
Balance, September 6, 1994 .............................. $ 50,046
=========

The accompanying notes are an integral part of these financial statements.

F-37

KUBACH-SMITH FUNERAL HOME, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE PERIOD FROM OCTOBER 1, 1993 TO SEPTEMBER 6, 1994

1. ORGANIZATION/NATURE OF OPERATIONS

Kubach-Smith Funeral Home, Inc. (the Company), a taxable corporation, was
incorporated in Ohio in 1969. The Company owns and operates four funeral homes
in Ohio. The Company performs personal and professional services related to
funerals. Prearranged funerals are marketed in the markets served by the
Company's funeral service locations.

Effective September 6, 1994, all of the Company's capital stock was sold to
Carriage Funeral Services of Ohio, Inc. for aggregate consideration in excess of
the recorded amounts of the Company's net assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

REVENUES

The Company recognizes revenues upon performance of funeral services and sale of
related funeral merchandise.

TRUST FUNDS

The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract, and interest
earned on such funds is deferred until performance of the specified service.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORIES

Inventories are recorded at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while minor replacements, maintenance
and repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs totaled $40,422 for
the period from October 1, 1993 to September 6, 1994. Dispositions are removed
at cost less accumulated depreciation.

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:

YEARS METHOD
----- ------------------------
Leasehold Improvements .............. 20-25 Straight line
Furniture and fixtures .............. 5-7 Double-declining balance
Other ............................... 5 Double-declining balance

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes".
Under SFAS No. 109, the Company

F-38

determines deferred tax assets and liabilities
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities.

USE OF ESTIMATES

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

3. INCOME TAXES

The only significant temporary difference between the Company's financial
statement and tax bases of accounting results from a net operating loss
generated by the Company during the period from October 1, 1993 to September 6,
1994, which management believes will be realized. The income tax benefit for the
period consisted of:

CURRENT DEFERRED TOTAL
-------- -------- --------
U.S. federal ............. $ (8,312) $ (8,532) $(16,844)
State .................... (2,217) (2,275) (4,492)
-------- -------- --------

$(10,529) $(10,807) $(21,336)
======== ======== ========

The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it would become subject to a higher U.S. federal marginal tax
rate. The differences in the income taxes recorded by the Company and the amount
determined by applying the U.S. federal statutory rate to loss before income
taxes of the Company for the period from October 1, 1993 to September 6, 1994
are summarized as follows:

U.S. federal income statutory rate ..................................... (15%)
Effect of state income taxes ........................................... (4%)
Effect of non-deductible expenses ...................................... 2%
---
(17%)
===
4. RELATED-PARTY TRANSACTIONS

The Company has a five year lease with a shareholder on certain facilities, with
options to renew for an additional five years. For the period October 1, 1993 to
September 6, 1994, lease expense totaled approximately $79,970. In addition,
interest expense for the period from October 1, 1993 to September 6, 1994,
included approximately $17,000 of interest expense related to a note payable to
a shareholder.

F-39

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Lusk Funeral Home, Inc.:

We have audited the accompanying statements of operations of Lusk Funeral Home,
Inc. and the related statements of cash flows and shareholder's deficit for the
years ended December 31, 1995, and December 31, 1994 and the three months ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Lusk Funeral Home, Inc., and
its cash flows for the years ended December 31, 1995, and December 31, 1994 and
the three months ended December 31, 1993, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 28, 1996

F-40

LUSK FUNERAL HOME, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1995, AND
DECEMBER 31, 1994 AND THE THREE MONTHS ENDED DECEMBER 31,1993

1993 1994 1995
-------- -------- ---------
REVENUES ................................ $ 93,009 $452,390 $ 603,394
COSTS AND EXPENSES ...................... 90,386 355,235 499,403
-------- -------- ---------
GROSS PROFIT ....................... 2,623 97,155 103,991
GENERAL AND ADMINISTRATIVE EXPENSES ..... 10,503 46,351 87,521
-------- -------- ---------
OPERATING INCOME (LOSS) ............ (7,880) 50,804 16,470
OTHER INCOME ............................ 3,339 12,240 11,481
INTEREST EXPENSE ........................ 9,132 35,864 39,460
-------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ....... (13,673) 27,180 (11,509)
INCOME TAX (BENEFIT) PROVISION .......... (2,038) 5,464 (1,369)
-------- -------- ---------
NET INCOME (LOSS) ....................... $(11,635) $ 21,716 $ (10,140)
======== ======== =========

The accompanying notes are an integral part of these financial statements.

F-41

LUSK FUNERAL HOME, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1995, AND
DECEMBER 31, 1994 AND THE THREE MONTHS ENDED DECEMBER 31,1993
<TABLE>
<CAPTION>

1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $(11,635) $ 21,716 $(10,140)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization ............................... 7,633 38,231 27,944
(Increase) decrease in accounts receivable .................. (10,157) (31,977) 17,766
(Increase) decrease in inventories and other current assets . 19,171 5,108 (7,371)
Increase (decrease) in accounts payable ..................... 21,843 (6,649) (5,184)
Increase (decrease) in accrued liabilities .................. (3,628) 14,214 37,915
-------- -------- --------
Net cash provided by operating activities 23,227 40,643 60,930
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ......................... (21,651) (5,768) (11,341)
-------- -------- --------
Net cash used in investing activities ... (21,651) (5,768) (11,341)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt ........................................ (3,662) (21,483) (24,195)
-------- -------- --------
Net cash used in financing activities .. (3,662) (21,483) (24,195)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. (2,086) 13,392 25,394
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 17,410 15,324 28,716
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 15,324 $ 28,716 $ 54,110
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ..................................................... $ 9,132 $ 35,864 $ 39,460
======== ======== ========
Taxes paid ........................................................ $ 3,000 $ 4,200 $ 8,500
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-42

LUSK FUNERAL HOME, INC.

STATEMENTS OF SHAREHOLDER'S DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

Balance, October 1, 1993 ................................ $(147,410)

Net Loss ................................................ (11,635)
---------
Balance, December 31, 1993 .............................. (159,045)

Net Income .............................................. 21,716
---------
Balance, December 31, 1994 .............................. (137,329)

Net Loss ................................................ (10,140)
---------
Balance, December 31, 1995 .............................. $(147,469)
=========

The accompanying notes are an integral part of these financial statements.

F-43

LUSK FUNERAL HOME, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1995, AND DECEMBER 31, 1994
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

1. ORGANIZATION/NATURE OF OPERATIONS

Lusk Funeral Home, Inc. (the Company), a taxable corporation, was organized
under the laws of the State of Kentucky on September 29, 1976. The Company owns
and operates two funeral homes in Kentucky. The Company performs personal and
professional services related to funerals at its funeral homes. Prearranged
funerals are marketed in the markets served by the Company's funeral service
locations.

Effective January 4, 1996, all of the Company's stock was sold to Carriage
Funeral Holdings, Inc. for aggregate consideration in excess of the recorded
amounts of the Company's net assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUES

The Company recognizes revenue upon performance of funeral services and sale of
related funeral merchandise.

TRUST FUNDS

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORIES

Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs totaled $10,836,
$5,923 and $2,336 for the years ended December 31, 1995, and December 31,1994
and the three months ended December 31, 1993 respectively. Dispositions are
removed at cost less accumulated depreciation.

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:

YEARS METHOD
Building and Improvements .............. 25 Straight line
Furniture and fixtures ................. 5 Double-declining balance
Other .................................. 3 Straight line

F-44

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), " Accounting for Income
Taxes". Under SFAS No. 109, the Company determines deferred tax assets and
liabilities based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities.

USE OF ESTIMATES

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

3. INCOME TAXES

The only significant temporary difference between the Company's financial
statement and tax bases of accounting is related to a net operating loss (NOL)
generated in the three months ended December 31, 1993; that NOL was utilized in
the year ended December 31, 1994. The income tax provision (benefit) for income
taxes for the years ended December 31, 1995, and December 31, 1994 and the three
months ended December 31, 1993 consisted of:

1993 1994 1995
------- ------ -------
Current:
U.S. federal ................................ $ -- $2,705 $(1,081)
State ....................................... -- 721 (288)
------- ------ -------
Total current provision (benefit) ............ $ -- $3,426 $(1,369)
------- ------ -------
Deferred:
U.S. federal .......................... $(1,609) $1,609 $ --
State ................................ (429) 429 --
------- ------ -------
Total deferred provision (benefit) ...... $(2,038) $2,038 $ --
------- ------ -------

Total income tax provision (benefit) .... $(2,038) $5,464 $(1,369)
======= ====== =======

The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it would become subject to a higher U.S. federal marginal tax
rate. The differences between the income taxes recorded by the Company and the
income taxes provided for by applying the federal statutory rate to the
Company's pre-tax income for the years ended December 31, 1995, and 1994 and the
three months ended December 31, 1993, are summarized as follows:

1993 1994 1995
------- ----- ------
U.S. federal statutory rate .................. (15%) 15% (15%)
Effect of state income taxes ................. (4) 4 (4)
Effect of non-deductible expenses ............ 4 1 7
---- ---- ----
Total income tax provision (benefit) ............ (15%) 20% (12%)
==== ==== ====

4. EMPLOYEE BENEFIT PLAN

Effective January 1, 1993, the Company began participation in an employee
benefit plan, the Lusk-McFarland Funeral Home, Inc. Profit Sharing Plan (the
"Plan"), which covers substantially all full time

F-45

employees having at least one year of service, subject to certain minimum age
requirements. Total employee/employer contributions may not exceed the lesser of
$30,000 or 25% of eligible compensation per year, subject to limitations imposed
by the Internal Revenue Code. In its sole discretion, the Company can make
contributions to the Plan. Expenses related to the Plan were $24,542, $9,012 and
$0 for the years ended December 31, 1995, and December 31,1994 and the three
months ended December 31, 1993, respectively.

5. RELATED-PARTY TRANSACTIONS

The Company recorded $23,980, $24,696 and $6,174 of interest expense related to
debt owed by the Company to the shareholder for the years ended December 31,
1995, and 1994 and the three months ended December 31, 1993.

6. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company has entered into operating leases for certain equipment utilized in
its business. For the years ended December 31, 1995, and December 31, 1994 and
the three months ended December 31, 1993, lease expense totaled $10,692,
$12,151, and $0, respectively.

F-46

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
West End Funeral Home, Inc.:

We have audited the accompanying statements of operations of West End Funeral
Home, Inc. and the related statements of shareholders' equity and cash flows for
the period from January 1, 1995 to May 10, 1995, the year ended December 31,
1994, and the three months ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of West End Funeral Home, Inc.,
and its cash flows for the period from January 1, 1995 to May 10, 1995, the year
ended December 31, 1994, and the three months ended December 31, 1993, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 28, 1996

F-47

WEST END FUNERAL HOME, INC.

STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM JANUARY 1, 1995 TO MAY 10, 1995,
THE YEAR ENDED DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

1993 1994 1995
-------- ---------- ----------
REVENUES ............................... $518,947 $2,265,923 $1,016,164
COSTS AND EXPENSES ..................... 420,390 1,757,797 746,623
-------- ---------- ----------
GROSS PROFIT ...................... 98,557 508,126 269,541
GENERAL AND ADMINISTRATIVE EXPENSES .... 75,062 233,556 172,318
-------- ---------- ----------
OPERATING INCOME .................. 23,495 274,570 97,223
OTHER INCOME ........................... 13,862 66,321 34,935
INTEREST EXPENSE ....................... 7,023 26,678 10,319
-------- ---------- ----------
NET INCOME ............................. $ 30,334 $ 314,213 $ 121,839
======== ========== ==========

The accompanying notes are an integral part of these financial statements.

F-48

WEST END FUNERAL HOME, INC.

STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM JANUARY 1, 1995 TO MAY 10, 1995,
THE YEAR ENDED DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 30,334 $ 314,213 $ 121,839
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization ............................... 20,417 91,378 54,611
(Increase) decrease in accounts receivable .................. 23,148 (21,009) 168,344
(Increase) decrease in other current assets ................ 9,339 4,917 (16,436)
Increase (decrease) in accounts payable ..................... 13,542 32,404 (52,523)
Decrease in deferred and other liabilities ................ (6,567) (36,325) (8,971)
Increase (decrease) in accrued liabilities .................. (24,837) 9,634 (22,433)
--------- --------- ---------
Net cash provided by operating activities 65,376 395,212 244,431
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ......................... (5,780) (290,249) (53,274)
--------- --------- ---------
Net cash used in investing activities ... (5,780) (290,249) (53,274)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ............................. (14,998) 12,353 (67,256)
Shareholder distribution .......................................... (2,454) (140,296) (102,786)
--------- --------- ---------
Net cash used in financing activities ... (17,452) (127,943) (170,042)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. 42,144 (22,980) 21,115
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 308,480 350,624 327,644
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 350,624 $ 327,644 $ 348,759
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ..................................................... $ 7,023 $ 26,678 $ 10,319
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-49

WEST END FUNERAL HOME, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE PERIOD FROM JANUARY 1, 1995 TO MAY 10, 1995,
THE YEAR ENDED DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

Balance, October 1, 1993 ................................ $ 397,198
Shareholder distribution ................................ (2,454)
Net Income .............................................. 30,334
---------
Balance, December 31, 1993 .............................. 425,078
Shareholder distribution ................................ (140,296)
Net Income .............................................. 314,213
---------
Balance, December 31, 1994 .............................. 598,995
Shareholder distribution ................................ (102,786)
Net Income .............................................. 121,839
---------
Balance, May 10, 1995 ................................... $ 618,048
=========

The accompanying notes are an integral part of these financial statements.

F-50

WEST END FUNERAL HOME, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE PERIOD FROM JANUARY 1, 1995 TO MAY 10, 1995,
THE YEAR ENDED DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31,1993

1. ORGANIZATION /NATURE OF OPERATIONS

West End Funeral Home, Inc. (the Company), a corporation qualified under
Subchapter S of the Internal Revenue Code, was organized under the laws of the
state of Illinois. The Company owns and operates four funeral homes in Chicago,
Illinois and the surrounding area. The Company performs personal and
professional services related to funerals at its funeral homes. Prearranged
funerals are marketed in the markets served by the Company's funeral service
locations.

Effective May 10, 1995, substantially all of the Company's assets were sold to
Carriage Funeral Holdings, Inc. for aggregate consideration in excess of the
recorded amounts of the Company's net assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUES

The Company recognizes revenue upon performance of funeral services and sale of
related funeral merchandise.

TRUST FUNDS

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORIES

Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while minor replacements, maintenance
and repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs amounted to $4,148,
$29,836 and $4,486 for the period from January 1, 1995 to May 10, 1995, the year
ended December 31, 1994, and the three months ended December 31, 1993,
respectively. Dispositions are removed at cost less accumulated depreciation.

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:

YEARS METHOD
----- ------------------------
Leasehold Improvements ............... 10 Double-Declining Balance
Furniture and fixtures ............... 5 Double-Declining Balance
Other ................................ 3-5 Double-Declining Balance

F-51

INCOME TAXES

The Company is organized under subchapter S of the Internal Revenue Code.
Federal and state income taxes for subchapter S corporations are the direct
responsibility of the Company's shareholders. Accordingly, no provision for
income taxes has been reflected in the accompanying financial statements.

USE OF ESTIMATES

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

3. OPERATING LEASES

The Company leases certain facilities from a shareholder. For the period from
January 1, 1995 to May 10, 1995, the year ended December 31, 1994, and the three
months ended December 31, 1993, lease expense to this shareholder totaled
approximately $84,382, $178,517 and $34,341, respectively.

4. EMPLOYEE BENEFIT PLAN

Effective March 28, 1970, as amended and restated effective January 1, 1989, the
Company began participation in an employee benefit plan, the West End Funeral
Home, Inc. Profit Sharing Plan (the Plan), which covers substantially all full
time employees having at least one year of service. In its sole discretion, the
Company can make contributions to the Plan. Expenses related to the Plan were
$0, $20,000 and $2,345 for the period from January 1, 1995, to May 10, 1995, the
year ended December 31, 1994, and the three months ended December 31, 1993,
respectively.

F-52

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Hennessy Funeral Home, Inc.
Akron, OH

We have audited the accompanying statements of income, retained earnings, and
cash flows for the years ended December 31, 1993, December 31, 1994, December
31, 1995 and the ten weeks ended March 8, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to the above present fairly,
in all material respects, the results of operations and cash flows for Hennessy
Funeral Home, Inc. for the years ended December 31, 1993, December 31, 1994,
December 31, 1995 and the ten weeks ended March 8, 1996 in conformity with
generally accepted accounting principles.

KEE & ASSOCIATES, INC.

May 31, 1996

F-53

HENNESSY FUNERAL HOME, INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1994,
DECEMBER 31,1995 AND THE TEN WEEKS ENDED MARCH 8, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES .......................... $976,167 $1,001,932 $1,242,716 $ 221,670
-------- ---------- ---------- ---------
COSTS AND EXPENSES: ............... 429,210 429,716 509,087 113,296
-------- ---------- ---------- ---------
GROSS PROFIT ................. 546,957 572,216 733,629 108,374
GENERAL AND ADMINISTRATIVE EXPENSES 508,033 533,282 602,414 114,056
-------- ---------- ---------- ---------
OPERATING PROFIT (LOSS) ...... 38,924 38,934 131,215 (5,682)
INTEREST EXPENSE .................. 18,244 3,646 1,002 356
-------- ---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 20,680 35,288 130,213 (6,038)
INCOME TAXES ...................... 7,949 10,248 43,215 813
-------- ---------- ---------- ---------
NET INCOME (LOSS) ................. $ 12,731 $ 25,040 $ 86,998 $ (6,851)
======== ========== ========== =========
RETAINED EARNINGS
BEGINNING RETAINED EARNINGS ....... $604,303 $ 617,034 $ 642,074 $ 729,072
NET INCOME (LOSS) ................. 12,731 25,040 86,998 (6,851)
-------- ---------- ---------- ---------
ENDING RETAINED EARNINGS .......... $617,034 $ 642,074 $ 729,072 $ 722,221
======== ========== ========== =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-54

HENNESSY FUNERAL HOME, INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1994,
DECEMBER 31,1995 AND THE TEN WEEKS ENDED MARCH 8, 1996
<TABLE>
<CAPTION>

1993 1994 1995 1996
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................ $ 12,731 $ 25,040 $ 86,998 $ (6,851)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization ...................................... 66,560 59,389 56,524 18,654
(Increase) decrease in accounts receivable ......................... 48,979 (21,993) (29,910) (11,686)
(Increase) decrease in inventories and other current assets ......... (1,098) (6,937) (7,045) 3,026
Increase (decrease) in accounts payable ............................ 9,058 (10,708) 57,200 (65,633)
Increase (decrease) in accrued liabilities ......................... 4,160 (7,350) 55,749 (42,169)
--------- -------- --------- ---------
Net cash provided by operating activities ...... 140,390 37,441 219,516 (104,659)
--------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes receivable from officer ............................ 8,246 -- -- 0
Purchase of property, plant and equipment ................................ (35,721) (11,454) (109,201) 0
--------- -------- --------- ---------
Net cash used in investing activities .......... (27,475) (11,454) (109,201) 0
--------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings from shareholder .................................. 0 0 20,315 0
Additional long-term borrowings ......................................... 16,035 0 0 0
Payments on long-term debt ............................................... (85,268) (45,402) 0 0
--------- -------- --------- ---------
Net cash used by financing activities ......... (69,233) (45,402) 20,315 0
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................ 43,682 (19,415) 130,630 (104,659)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 37,772 81,454 62,039 192,669
--------- -------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 81,454 $ 62,039 $ 192,669 $ 88,010
========= ======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................................................ $ 18,244 $ 3,646 0 $ 356
========= ======== ========= =========
Taxes paid ............................................................... $ 15,980 $ 4,634 $ 7,581 $ 1,697
========= ======== ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

The Company sold an automobile to it's majority shareholder at book value. In
conjuction with the sale the following asset was acquired and liability was
retired:
Note receivable shareholder ................................................. $ 0 $ 0 $ 0 $ 39,022
========= ======== ========= =========
Note payable shareholder, including accrued interest ........................ $ 0 $ 0 $ 0 $ 21,673
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-55

HENNESSY FUNERAL HOME, INC.

NOTES TO FINANCIAL STATEMENTS

FOR YEARS ENDED DECEMBER 31,1993, DECEMBER 31, 1994,
AND DECEMBER 31, 1995 AND FOR THE TEN WEEKS ENDED MARCH 8, 1996

1. ORGANIZATION/NATURE OF OPERATIONS

Hennessy Funeral Home, Inc. (the Company), was organized under the laws of the
State of Ohio on October 11, 1973. The Company owns and operates 2 funeral homes
in Ohio. The Company performs personal and professional services related to
funerals at its funeral homes. Prearranged funerals are marketed in the
geographic markets served by the Company's funeral service locations.

Effective March 8, 1996, all of the Company's stock was sold to Carriage Funeral
Holdings, Inc. for aggregate consideration of $2,791,370.74.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

REVENUES

The Company records the sale of funeral merchandise and services upon
performance.

TRUST FUNDS

The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract and interest
earned on such funds is deferred until performance of the specified service.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORY

The effect of changes in inventories is included in merchandise costs at the
lower of its cost basis (as determined by the specific identification method) or
market.

PROPERTY, PLANT AND EQUIPMENT

Furniture, leasehold improvements and equipment are capitalized at cost.
Expenditures for major additions and improvements are capitalized while
replacements, maintenance and repairs which do not improve or extend the life of
the related assets are charged to operations as incurred. Maintenance and
repairs amounted to $27,413, $27,414, $33,311, and $7,107, for the years ended
December 31, 1993 and December 31,1994, December 31, 1995 and for the ten weeks
ended March 8, 1996 respectively. Dispositions are removed at cost less
accumulated depreciation.

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
Leasehold Improvements .............. 7 - 15 years Straight-line
Furniture and fixtures .............. 5 - 10 years Straight-line
Other ............................... 5 years Straight-line

F-56

Depreciation expense for the years ended December 31, 1993, December 31, 1994,
December 31, 1995, and the ten weeks ended March 8, 1996 were as follows:

1993 ................................................. $65,360
1994 ................................................. 58,189
1995 ................................................. 55,324
1996 ................................................. 18,431

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), " Accounting for Income
Taxes". Under SFAS No. 109, the Company determines deferred tax assets and
liabilities based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities.

USE OF ESTIMATES

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

3. INCOME TAXES:

There are no significant temporary differences between the Company's financial
statement and tax bases of accounting. In addition, the Company's effective tax
rate materially approximates the applicable statutory rate.

Income taxes expensed for the year ended December 31, 1993, December 31, 1994,
and December 31, 1995 and for the ten weeks ended March 8, 1996 consisted of:

1993 1994 1995 1996
------- ------- ------- ----
Current:
U.S. federal ........... $ 3,100 $ 6,418 $32,233 $ 0
State .................. 4,849 3,830 10,982 813
------- ------- ------- ----
$ 7,949 $10,248 $43,215 $813
------- ------- ------- ----

4. RELATED PARTY TRANSACTIONS

The Company leases two funeral homes and adjoining parking areas from its'
shareholders. The terms of these leases are contained in note 5.

The Company also accrued interest at 9% on a note payable to its' majority
shareholder. The $20,314.75 note was dated May 18, 1995. Interest expensed on
this note for the year ending December 31, 1995 was $1,002 and for the ten weeks
ended March 8, 1996 was $356. The note was retired on March 8, 1996.

5. LEASES

The company leases the Akron and Tallmadge funeral homes under operating leases
from its' shareholders.

The Akron funeral home and adjoining parking lots are leased from the Company's
majority shareholder and other family members. The lease is a ten year lease
with options to renew the lease for two additional five year periods. Rent is
payable in monthly installments of $2,754.

F-57

Additional parking space is leased from the majority shareholder under a 5 year
lease dated September 1, 1991. Rent was payable in monthly installments of $785.
This lease included a 5 year option to renew, however as a result of the merger
with Carriage Funeral Services, Inc. (see note 7) a new 10 year lease with 3
five year options to renew was signed with the surviving corporation on March 8,
1996. Monthly rental beginning March 8, 1996 is $943.50.

The Tallmadge funeral home was leased from the Company's shareholders. The lease
dated September 1, 1991 included a 5 year option to renew. Rent was payable in
monthly installments of $3,850. The Tallmadge funeral home was sold by the
shareholders to the surviving corporation as part of the merger with Carriage
Funeral Services, Inc.

Rental expense to the shareholders under the terms of the above leases for the
years ending December 31, 1993, December 31, 1994 and December 31, 1995 and for
the ten weeks ending March 8, 1996 were as follows:

1993 1994 1995 1996
------- ------- ------- -------
Akron funeral home $31,600 $34,400 $33,000 $7,000
Akron lots 8,940 8,940 8,940 2,085
Tallmadge funeral home 46,119 46,119 46,119 8,711
------- ------- ------- -------
$86,659 $89,459 $88,059 $17,796
------- ------- ------- -------

Future minimum rental payments applicable to the lease arrangements at March 8,
1996 are as follows:
AKRON FUNERAL HOME AKRON LOTS TALLMADGE
December 31, 1996 ............. $24,786 $ 6,605 $0
December 31, 1997 ............. 33,048 11,322 0
December 31, 1998 ............. 33,048 11,322 0
December 31, 1999 ............. 33,048 11,322 0
December 31, 2000 ............. 33,048 11,322 0
Thereafter .................... 22,032 61,327 0

6. DEFINED CONTRIBUTION PENSION PLAN

The Company provides a Simplified Employee Pension (SEP) defined contribution
plan for its employees. The Company determines its share of the contribution to
the plan annually. The Company's contribution to the plan for the years ending
December 31, 1993, December 31, 1994 and December 31, 1995 and for the ten weeks
ended March 8, 1996 were as follows:

1993 ................................................. $34,862
1994 ................................................. 26,986
1995 ................................................. 43,814
1996 ................................................. 8,576

7. SUBSEQUENT EVENTS

At the close of business on March 8, 1996, the Company merged with Carriage
Funeral Services, Inc. Under terms of the agreement, the Company's shareholders
received approximately 82% of the proceeds in Series D voting preferred stock
with a dividend rate of 6.25% per annum. As structured, the transaction is
intended to qualify as a reverse triangular merger under Internal Revenue Code
Section 368(a)(1)(A) and 368 (a)(2)(E), and appears to meet the requirements for
a tax-free reorganization. Additionally, the surviving corporation acquired the
funeral home located in Tallmadge, Ohio from the Company's shareholders. Also,
the agreement contains covenants not to compete and employment contracts with
the shareholders.

F-58

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
James E. Drake Funeral Home, Inc.:

We have audited the accompanying statements of operations of James E. Drake
Funeral Home, Inc. and the related statements of cash flows and stockholders'
equity for the period from December 1, 1995, to February 29, 1996, and the years
ended November 30, 1995 and November 30, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of James E. Drake Funeral Home,
Inc., and its cash flows for the period from December 1, 1995, to February 29,
1996, and the years ended November 30, 1995 and November 30, 1994, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 28, 1996

F-59

JAMES E. DRAKE FUNERAL HOME, INC.

STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM DECEMBER 1, 1995, TO FEBRUARY 29, 1996,
AND THE YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994

1994 1995 1996
-------- -------- ---------
REVENUES ................................. $635,070 $698,665 $ 129,304
COSTS AND EXPENSES ....................... 517,039 582,688 128,245
-------- -------- ---------
GROSS PROFIT ........................ 118,031 115,977 1,059
GENERAL AND ADMINISTRATIVE EXPENSES ...... 24,583 30,476 3,706
-------- -------- ---------
OPERATING INCOME (LOSS) ............. 93,448 85,501 (2,647)
OTHER INCOME ............................. 250 2,117 29,466
INTEREST EXPENSE ......................... 51,446 47,651 12,174
-------- -------- ---------
INCOME BEFORE INCOME TAXES ............... 42,252 39,967 14,645
INCOME TAX PROVISION ..................... 13,464 12,598 4,064
-------- -------- ---------
NET INCOME ............................... $ 28,788 $ 27,369 $ 10,581
======== ======== =========

The accompanying notes are an integral part of these financial statements.

F-60

JAMES E. DRAKE FUNERAL HOME, INC.

STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM DECEMBER 1, 1995, TO FEBRUARY 29, 1996,
AND THE YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................... $ 28,788 $ 27,369 $ 10,581
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization .............................. 111,303 103,231 12,812
Gain on disposition of asset ............................... -- -- (27,852)
(Increase) decrease in accounts receivable ................. (47,577) 18,536 31,855
(Increase) decrease in inventories ......................... (997) (20,059) 2,334
Decrease in other assets ................................... 45,335 26,415 9,339
Increase (decrease) in accounts payable .................... 24,226 (12,953) (14,952)
Increase (decrease) in accrued liabilities ................. 36,822 4,940 (5,681)
--------- --------- ---------
Net cash provided by operating activities 197,900 147,479 18,436
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposition (purchase) of property, plant and equipment .......... (142,472) 9,240 58,073
--------- --------- ---------
Net cash provided by (used in) investing activities ... (142,472) 9,240 58,073
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ............................ (75,191) 47,432 (73,216)
Dividends paid .................................................. -- (24,000) --
Treasury shares purchased ....................................... -- -- (120,000)
--------- --------- ---------
Net cash provided by (used in) financing activities ... (75,191) 23,432 (193,216)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ (19,763) 180,151 (116,707)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................... 75,250 55,487 235,638
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 55,487 $ 235,638 $ 118,931
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid .................................................... $ 51,446 $ 47,651 $ 12,174
========= ========= =========
Taxes paid ....................................................... $ 13,000 $ 13,000 $ 4,000
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-61

JAMES E. DRAKE FUNERAL HOME, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE PERIOD FROM DECEMBER 1, 1995, TO FEBRUARY 29, 1996,
AND THE YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994

Balance, December 1, 1993 ................................. $ 211,755
Net Income ................................................ 28,788
---------
Balance, November 30, 1994 ................................ 240,543
Dividends paid ............................................ (24,000)
Net Income ................................................ 27,369
---------
Balance, November 30, 1995 ................................ 243,912
Treasury shares purchased, at cost ........................ (120,000)
Net Income ................................................ 10,581
---------
Balance, February 29, 1996 ................................ $ 134,493
=========

The accompanying notes are an integral part of these financial statements.

F-62

JAMES E. DRAKE FUNERAL HOME, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE PERIOD FROM DECEMBER 1, 1995, TO FEBRUARY 29, 1996,
AND THE YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994

1. ORGANIZATION/NATURE OF OPERATIONS

James E. Drake Funeral Home, Inc. (the Company), a taxable corporation, was
organized under the laws of the State of Kentucky on December 22, 1981. The
Company owns and operates two funeral homes in Kentucky. The Company performs
personal and professional services related to funerals at its funeral homes.
Prearranged funerals are marketed in the markets served by the Company's funeral
service locations.

Effective March 1, 1996, all of the Company's stock was sold to Carriage Funeral
Holdings, Inc. for aggregate consideration in excess of the recorded amounts of
the Company's net assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUES

The Company recognizes revenue upon performance of funeral services and sale of
related funeral merchandise.

TRUST FUNDS

The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract and interest
earned on such funds is deferred until performance of the specified service.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORIES

Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs totaled $1,243,
$13,525 and $10,188 for the period from December 1, 1995 to February 29, 1996,
and the years ended November 30, 1995 and November 30, 1994, respectively.
Dispositions are removed at cost less accumulated depreciation.

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:
YEARS METHOD
Building and improvements ........... 10-25 Straight line
Furniture and fixtures .............. 5-7 Double-Declining Balance
Other ............................... 3-5 Double-Declining Balance

F-63

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), " Accounting for Income Taxes."
Under SFAS No. 109, the Company determines deferred tax assets and liabilities
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities.

USE OF ESTIMATES

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

3. INCOME TAXES

There are no significant temporary differences between the Company's financial
statement and tax bases of accounting. The income tax provision for the period
from December 1, 1995 to February 29, 1996, and the years ended November 30,
1995 and November 30, 1994, consisted of:

1994 1995 1996
--------- --------- --------
Current:
U.S. federal ......................... $10,974 $10,199 $3,198
State ................................ 2,490 2,399 866
------- ------- ------
Total income tax provision ............ $13,464 $12,598 $4,064
------- ------- ------

The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it becomes subject to a higher U.S. federal marginal tax rate.
The differences in the income taxes recorded by the Company and the income taxes
provided for by applying the federal statutory rate to the Company's pre-tax
income for the period from December 1, 1995 to February 29, 1996, and the years
ended November 30, 1995 and November 30, 1994, are summarized as follows:

1994 1995 1996
---- ---- ----
U.S. federal statutory rate ............................. 15% 15% 15%
Effect of graduated U.S. federal rate ................... 4 3 --
Effect of state income taxes ............................ 4 4 4
Effect of non-deductible depreciation and amortization .. 9 10 9
---- ---- ----
Total income tax provision ................................. 32% 32% 28%
==== ==== ====

4. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company has entered into operating leases for certain facilities and
equipment utilized in its business. For the period from December 1, 1995 to
February 29, 1996, and the years ended November 30, 1995 and November 30, 1994,
lease expense totaled $2,014, $9,480 and $8,146, respectively.

LEGAL MATTERS

In the normal course of its operations, the Company has become involved in a
legal dispute. In this case, the Company has been named as one of several
defendants in a suit in which the plaintiff alleges, among other things,
defamation. The Company believes it has meritorious defenses in this case and
believes that a decision adverse to the Company in this dispute would not have a
material effect on the results of operations of the Company.

F-64

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Dwayne R. Spence Funeral Home, Inc.:

We have audited the accompanying statements of operations of Dwayne R. Spence
Funeral Home, Inc. and the related statements of shareholder's equity and cash
flows for the period from January 1, 1996 to March 29, 1996, the years ended
December 31, 1995 and December 31, 1994, and the three months ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Dwayne R. Spence Funeral
Home, Inc., and its cash flows for the period from January 1, 1996 to March 29,
1996, the years ended December 31, 1995 and December 31, 1994, and the three
months ended December 31, 1993, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 28, 1996

F-65

DWAYNE R. SPENCE FUNERAL HOME, INC.

STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31,1993
<TABLE>
<CAPTION>
1993 1994 1995 1996
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES .......................... $309,814 $ 1,167,952 $ 1,141,311 $ 313,941
COSTS AND EXPENSES ................ 265,182 1,069,009 1,031,445 363,288
-------- ----------- ----------- ---------
GROSS PROFIT (LOSS) .... 44,632 98,943 109,866 (49,347)
GENERAL AND ADMINISTRATIVE EXPENSES 8,105 33,414 31,525 7,126
-------- ----------- ----------- ---------
OPERATING INCOME (LOSS) 36,527 65,529 78,341 (56,473)
OTHER (INCOME) EXPENSE ............ 6,575 (8,382) (9,373) (92)
INTEREST EXPENSE .................. 349 7,705 11,590 157
-------- ----------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES . 29,603 66,206 76,124 (56,538)
INCOME TAX PROVISION (BENEFIT) .... 5,624 14,199 17,075 (10,742)
-------- ----------- ----------- ---------
NET INCOME (LOSS) ................. $ 23,979 $ 52,007 $ 59,049 $ (45,796)
======== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-66

DWAYNE R. SPENCE FUNERAL HOME, INC.

STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1994 1995 1996
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $ 23,979 $ 52,007 $ 59,049 $ (45,796)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities-
Depreciation and amortization .................................. 17,631 73,594 73,200 13,343
(Increase) decrease in accounts receivable ..................... (62,494) 7,770 95,910 6,538
(Increase) decrease in inventories and other current assets ... 21,751 5,099 (32,371) (10,126)
Increase (decrease) in accounts payable ........................ 13,570 (3,014) 35,062 (2,756)
Increase (decrease) in accrued liabilities ..................... 33,025 26,296 (98,971) 31,644
-------- --------- --------- ---------
Net cash provided by (used in) operating activities .. 47,462 161,752 131,879 (7,153)
-------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:

(Purchase of) proceeds from disposition of property, plant and
equipment ................................................... 7,881 (108,458) (26,314) (2,359)
--------- --------- ---------
Net cash provided by (used in) investing activities .. 7,881 (108,458) (26,314) (2,359)
-------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ................................ (69,371) 38,411 (54,149) 26,076
-------- --------- --------- ---------
Net cash provided by (used in) financing activities .. (69,371) 38,411 (54,149) 26,076
-------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... (14,028) 91,705 51,416 16,564
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................ 47,719 33,691 125,396 176,812
-------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 33,691 $ 125,396 $ 176,812 $ 193,376
======== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ........................................................ $ 349 $ 7,705 $ 11,590 $ 157
======== ========= ========= =========
Taxes paid ........................................................... $ 4,500 $ 20,000 $ 9,000 $ 2,250
======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-67

DWAYNE R. SPENCE FUNERAL HOME, INC.

STATEMENTS OF SHAREHOLDER'S EQUITY

FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

Balance, October 1, 1993 ................................ $ 424,513
Net Income .............................................. 23,979
---------
Balance, December 31, 1993 .............................. 448,492
Net Income .............................................. 52,007
---------
Balance, December 31,1994 ............................... 500,499
Net Income .............................................. 59,049
---------
Balance, December 31, 1995 .............................. 559,548
Net Loss ................................................ (45,796)
---------
Balance, March 29, 1996 ................................. $ 513,752
=========

The accompanying notes are an integral part of these financial statements.

F-68

DWAYNE R. SPENCE FUNERAL HOME, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 29, 1996,
THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
AND THE THREE MONTHS ENDED DECEMBER 31, 1993

1. ORGANIZATION /NATURE OF OPERATIONS

Dwayne R. Spence Funeral Home, Inc. (the Company), a taxable corporation, was
organized in 1977 in the state of Ohio. The Company owns and operates two
funeral homes in Ohio. The Company performs personal and professional services
related to funerals at its funeral homes. Prearranged funerals are marketed in
the markets served by the Company's funeral service locations.

Effective March 29, 1996, all of the Company's capital stock was sold to
Carriage Funeral Holdings, Inc. for aggregate consideration in excess of the
recorded amounts of the Company's net assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUES

The Company recognizes revenue upon performance of funeral services and sale of
related merchandise.

TRUST FUNDS

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORIES

Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while minor replacements, maintenance
and repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs totaled $12,593,
$33,098, $36,370 and $8,197 for the period from January 1, 1996 to March 29,
1996, the years ended December 31, 1995 and December 31, 1994, and the three
months ended December 31, 1993, respectively. Dispositions are removed at cost
less accumulated depreciation.

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:

YEARS METHOD
----- ------------------------
Buildings and improvements .......... 10-25 Straight line
Furniture and fixtures .............. 5-7 Double-declining balance
Other ............................... 3-7 Double-declining balance

F-69

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109, the Company determines deferred tax assets and liabilities
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities.

USE OF ESTIMATES

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

3. OPERATING LEASES

The Company has entered into operating leases for certain facilities used in its
business. For the period from January 1, 1996 to March 29, 1996, the years ended
December 31, 1995 and December 31, 1994, and the three months ended December 31,
1993, lease expense totaled approximately $35,250, $139,975, $136,430 and
$33,045, respectively. In addition, the Company leases certain equipment from a
shareholder. For the period from January 1, 1996 to March 29, 1996, the years
ended December 31, 1995 and 1994, and the three months ended December 31, 1993,
expense related to this lease totaled $12,827, $29,560, $25,821 and $186,
respectively.

4. INCOME TAXES

There are no significant temporary differences between the Company's financial
statement and tax bases of accounting. The provision (benefit) for income taxes
for the period from January 1, 1996 to March 29, 1996, the years ended December
31, 1995 and December 31, 1994, and the three months ended December 31, 1993
consisted of:

1993 1994 1995 1996
------ ------- ------- --------
Current:
U.S. federal ........................ $4,440 $11,551 $14,031 $ (8,481)

State ............................... 1,184 2,648 3,044 (2,261)
------ ------- ------- --------
Total current provision (benefit) ... $5,624 $14,199 $17,075 $(10,742)
====== ======= ======= ========

The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it becomes subject to a higher U.S. federal marginal tax rate.
The differences between the income taxes recorded by the Company and the income
taxes provided by applying the U.S. federal statutory rate of 15% to the
Company's pre-tax income for the period from January 1, 1996 to March 29, 1996,
the years ended December 31, 1995 and December 31, 1994, and the three months
ended December 31, 1993 are summarized below:

1993 1994 1995 1996
---- ---- ---- ----
U.S. federal statutory rate ...................... 15% 15% 15% (15%)

Effect of graduated federal statutory rate ....... -- 2 3 --

Effect of state income taxes ..................... 4 4 4 (4)
---- ---- ---- ----

Total income tax provision (benefit) ............. 19% 21% 22% (19%)
==== ==== ==== ====

F-70

5. EMPLOYEE BENEFIT PLAN

Effective January 1, 1995, the Company participates in an employee benefit plan,
the Dwayne R. Spence Funeral Home, Inc. 401K Pension Plan, which covers
substantially all full-time employees, subject to certain minimum age and length
of service requirements. In its sole discretion, the Company can make
contributions to the plan. This plan replaced a plan in which the Company
participated prior to January 1, 1995. For the period from January 1, 1996 to
March 29, 1996, the years ended December 31, 1995 and 1994, and the three months
ended December 31, 1993, the employee benefit plan expense totaled $ 0, $18,941,
$67,532 and $40,715, respectively.

F-71

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Merchant Funeral Home Group:

We have audited the accompanying statements of operations of Merchant Funeral
Home Group and the related statements of shareholders' equity and cash flows for
the period from July 1, 1995 to April 1, 1996, and the years ended June 30, 1995
and June 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Merchant Funeral Home Group,
and its cash flows for the period from July 1, 1995 to April 1, 1996, and the
years ended June 30, 1995 and June 30, 1994, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
May 28, 1996

F-72

MERCHANT FUNERAL HOME GROUP

STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM JULY 1, 1995 TO APRIL 1, 1996,
AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994

1994 1995 1996
---------- ---------- -----------
REVENUES .............................. $1,068,304 $1,289,444 $ 1,041,222
COSTS AND EXPENSES .................... 944,882 1,111,945 864,936
---------- ---------- -----------
GROSS PROFIT ..................... 123,422 177,499 176,286
GENERAL AND ADMINISTRATIVE EXPENSES ... 66,453 105,355 127,357
---------- ---------- -----------
OPERATING MARGIN ................. 56,969 72,144 48,929
OTHER (INCOME) EXPENSE ................ 22,859 13,623 (16,582)
INTEREST EXPENSE ...................... 7,680 19,828 7,885
---------- ---------- -----------
INCOME BEFORE INCOME TAXES ............ 26,430 38,693 57,626
INCOME TAX PROVISION .................. 5,174 7,512 11,943
---------- ---------- -----------
NET INCOME ............................ $ 21,256 $ 31,181 $ 45,683
========== ========== ===========

The accompanying notes are an integral part of these financial statements.

F-73

MERCHANT FUNERAL HOME GROUP

STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM JULY 1, 1995 TO APRIL 1, 1996,
AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994

<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 21,256 $ 31,181 $ 45,683
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization ............................. 46,658 54,901 38,502
(Increase) decrease in accounts receivable ................ 12,412 (30,675) 14,054
(Increase) decrease in inventories and other current assets (139,623) 10,258 143,949
Increase (decrease) in accounts payable ................... (46,646) (9,467) 2,709
Increase (decrease) in deferred and other liabilities ..... 32,207 2,684 (40)
Increase (decrease) in accrued liabilities ................ 15,858 (24,156) (23,660)
--------- -------- ---------
Net cash provided by (used in) operating activities .. (57,878) 34,726 221,197
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ....................... (102,548) (23,876) (1,647)
--------- -------- ---------
Net cash used in investing activities ................ (102,548) (23,876) (1,647)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term debt ........................... 223,841 3,523 (138,293)
Dividends ....................................................... -- -- (40,104)
--------- -------- ---------
Net cash provided by (used in) financing activities .. 223,841 3,523 (178,397)
--------- -------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... 63,415 14,373 41,153
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 8,436 71,851 86,224
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 71,851 $ 86,224 $ 127,377
========= ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................................... $ 7,680 $ 19,828 $ 7,885
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-74

MERCHANT FUNERAL HOME GROUP

STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE PERIOD FROM JULY 1, 1995 TO APRIL 1, 1996,
AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994

Balance, October 1, 1993 ................................ $ 142,620
Net income .............................................. 21,256
---------
Balance, June 30, 1994 .................................. 163,876
Net Income .............................................. 31,181
---------
Balance, June 30, 1995 .................................. 195,057
Dividends paid .......................................... (40,104)
Net income .............................................. 45,683
---------
Balance, April 1, 1996 .................................. $ 200,636
=========

The accompanying notes are an integral part of these financial statements.

F-75

MERCHANT FUNERAL HOME GROUP

NOTES TO FINANCIAL STATEMENTS

FOR THE PERIOD FROM JULY 1, 1995 TO APRIL 1, 1996,
AND THE YEARS ENDED JUNE 30, 1995 AND JUNE 30, 1994

1. ORGANIZATION/NATURE OF OPERATIONS

Merchant Funeral Home Group (the Company) is comprised of three taxable
corporations which own and operate four funeral homes and two cemeteries in
Washington and Idaho. The Company performs personal and professional services
related to funerals and burials at its various locations. Prearranged funerals
are marketed in the geographic markets served by the Company's funeral service
locations.

Effective April 1, 1996, all of the Company's stock was sold to Carriage Funeral
Services, Inc. for aggregate consideration in excess of the recorded amounts of
the Company's net assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUES

The Company recognizes revenue upon performance of funeral and interment or
entombment services and sale of related funeral merchandise.

PRENEED FUNERAL TRUST

The Company is generally required by state laws to deposit amounts in a trust
fund related to prearranged funeral arrangements. The principal and interest
earned is withdrawn when the funeral services are provided. The proceeds of the
original amounts paid by the purchaser of the prearranged funeral contract are
available to the Company only in the event of death of the purchaser and are
refundable to the purchaser under certain state laws that provide for the return
of all or a portion of amounts collected under the purchaser's option to cancel
the prearranged funeral contract. No funeral revenue is recognized on the funds
collected from the purchaser of the prearranged funeral contract and interest
earned on such funds is deferred until performance of the specified service.

CEMETERY MERCHANDISE AND SERVICE TRUST

The Company is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust for cemetery merchandise
and services sold on a preneed basis. The principal and accumulated earnings of
the trust may only be withdrawn upon maturity (generally, death of purchaser) or
cancellation of the contracts. Trust fund income is recognized in current
revenues as trust earnings accrue, net of current period inflation costs
recognized related to the merchandise that has not yet been purchased.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORIES

Inventories are stated at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are capitalized at cost. Expenditures for major
additions and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs amounted to $30,351,
$45,726 and $38,516 for the period from July 1, 1995 to April 1, 1996, and the
years ended June 30, 1995 and June 30, 1994, respectively. Dispositions are
removed at cost less accumulated depreciation.

F-76

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:

YEARS METHOD
----- ------------------------
Building and improvements ........... 10-25 Straight line
Furniture and fixtures .............. 5-7 Double-Declining Balance
Other ............................... 3-5 Double-Declining Balance

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109, the Company determines deferred tax assets and liabilities
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities.

USE OF ESTIMATES

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

3. INCOME TAXES

There are no significant temporary differences between the Company's financial
statement and tax bases of accounting. The income tax provision for the period
from July 1, 1995 to April 1, 1996, and the years ended June 30, 1995 and June
30, 1994 consisted of:

1994 1995 1996
------ ----- -------
Current:
U.S. federal ........................ $4,085 5,933 $ 9,606
State ............................... 1,089 1,579 2,337
------ ----- -------
Total current provision .............. $5,174 7,512 $11,943
------ ----- -------

The Company is an accrual basis taxpayer. The Company is generally subject to a
marginal U.S. federal rate of 15% because of the level of the Company's taxable
income. However, in instances in which the Company's taxable income exceeds a
specified level, it would become subject to a higher U.S. federal marginal tax
rate. The differences in the income taxes recorded by the Company and the income
taxes provided for by applying the U.S. federal statutory rate of 15% to the
Company's pre-tax income for the period from July 1, 1995 to April 1, 1996, and
the years ended June 30, 1995 and June 30, 1994 are summarized as follows:

1993 1994 1995
---- ---- ----
U.S. federal statutory rate ......................... 15% 15% 15%
Effect of state income taxes ........................ 4 4 4
Effect of non-deductible expenses and other ......... 1 -- 2
---- ---- ----

Total income tax provision .................. 20% 19% 21%
==== ==== ====

Cash taxes paid for the period from July 1, 1995 to April 1, 1996, and the years
ended June 30, 1995 and June 30, 1994 were approximately $14,000, $18,000 and
$14,000, respectively.

F-77

4. OPERATING LEASES

The Company has entered into operating leases for certain facilities and
equipment utilized in its business. For the period from July 1, 1995 to April 1,
1996, and the years ended June 30, 1995 and June 30, 1994, lease expense totaled
$102,364, $129,748 and $125,554, respectively. The Company paid approximately
$18,000, $24,000 and $18,000 of facility lease expense for the period from July
1, 1995 to April 1, 1996, and the years ended June 30, 1995 and June 30, 1994,
respectively, to a shareholder.

5. EMPLOYEE BENEFIT PLAN

Effective July 1, 1993, the Company began participation in an employee benefit
plan, the Merchant Funeral Home, Inc. Profit Sharing Plan, which covers
substantially all of the Company's full-time employees, subject to certain
minimum age and length of service requirements. In its sole discretion, the
Company can make contributions to the plan. Expenses related to the plan were
$0, $0 and $24,973 for the period from July 1, 1995 to April 1, 1996, and the
years ended June 30, 1995 and June 30, 1994, respectively.

F-78

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Stockholder of
Vail Holt Memorial Funeral Home, Inc.
Madison, Indiana

We have audited the balance sheets of Vail Holt Memorial Funeral Home, Inc.
as of June 30, 1996, and December 31, 1995, 1994, and 1993, and the related
statements of income, retained earnings, and cash flows for the six-month period
and years then ended, respectively. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vail Holt Memorial Funeral
Home, Inc. as of June 30, 1996, and December 31, 1995, 1994, and 1993 and the
results of operations and its cash flows for the six-month period and years then
ended, respectively, in conformity with generally accepted accounting
principles.

McCAULEY, NICOLAS & COMPANY, LLC
Certified Public Accountants

New Albany, Indiana
July 8, 1996

F-79

VAIL HOLT MEMORIAL FUNERAL HOME, INC.
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash (Note 1)................... $ 22,100 $ 13,437 $ 2,805 $ 22,688
Accounts receivable, net (Note
3)............................ 118,598 133,573 167,726 79,610
Inventory (Note 1).............. 22,283 22,600 17,934 12,561
------------ ------------ ------------ ------------
Total current assets....... 162,981 169,610 188,465 114,859
------------ ------------ ------------ ------------
Property and Equipment (Notes 1 and 5):
Leasehold improvements.......... 103,476 99,397 97,147 97,147
Equipment and fixtures.......... 171,953 158,706 146,506 136,070
Vehicles........................ 131,185 131,185 100,309 100,309
------------ ------------ ------------ ------------
406,614 389,288 343,962 333,526
Less accumulated depreciation... (296,395) (283,640) (260,266) (241,660)
------------ ------------ ------------ ------------
Net property and
equipment............... 110,219 105,648 83,696 91,866
------------ ------------ ------------ ------------
Other Assets:
Deposit......................... 2,025 2,025 -- --
------------ ------------ ------------ ------------
TOTAL ASSETS............... $ 275,225 $ 277,283 $ 272,161 $ 206,725
============ ============ ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current portion of long-term
debt (Note 5)................. $ 7,854 $ 6,654 $ 1,782 $ 11,920
Accounts payable................ 18,090 19,186 36,966 41,365
Advance from stockholder........ -- -- -- 3,175
Accrued liabilities (Note 4).... 5,385 4,838 6,393 9,958
------------ ------------ ------------ ------------
Total current
liabilities............. 31,329 30,678 45,141 66,418
------------ ------------ ------------ ------------

Long-term Liabilities:
Noncurrent portion of long-term
debt (Note 5)................. 15,292 15,100 -- 1,782
------------ ------------ ------------ ------------
Total long-term
liabilities............. 15,292 15,100 -- 1,782
------------ ------------ ------------ ------------
TOTAL LIABILITIES.......... 46,621 45,778 45,141 68,200
------------ ------------ ------------ ------------
Stockholders' Equity:
Common stock without par value,
1,000 shares authorized; 100
shares issued and
outstanding................... 4,442 4,442 4,442 4,442
Additional paid-in capital...... 5,404 5,404 5,404 5,404
Retained earnings............... 218,758 221,659 217,174 128,679
------------ ------------ ------------ ------------
TOTAL STOCKHOLDERS'
EQUITY.................. 228,604 231,505 227,020 138,525
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.... $ 275,225 $ 277,283 $ 272,161 $ 206,725
============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-80

VAIL HOLT MEMORIAL FUNERAL HOME, INC.
STATEMENT OF INCOME
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND THE YEARS ENDED
DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues -- Funeral services, net.... $463,214 $ 794,587 $ 772,233 $ 647,342
---------- ---------- ---------- ----------
Cost of Sales:
Purchases....................... 77,171 152,581 99,778 142,611
Other funeral expenses.......... 4,818 7,968 10,840 12,028
---------- ---------- ---------- ----------
Total cost of sales........ 81,989 160,549 110,618 154,639
---------- ---------- ---------- ----------
Gross profit............... 381,225 634,038 661,615 492,703
---------- ---------- ---------- ----------
Operating Expenses:
Compensation.................... 121,185 241,255 224,011 204,653
Payroll taxes................... 12,506 19,647 18,503 16,427
Rent (Note 7)................... 35,168 70,046 71,674 40,435
Depreciation (Note 1)........... 12,755 23,373 18,606 19,053
Insurance....................... 10,474 17,496 17,858 15,190
Operating leases (Note 7)....... 24,233 52,334 28,230 20,206
Contract labor.................. 3,920 9,626 9,052 4,020
Automobile expenses............. 12,243 16,259 13,796 11,677
Advertising..................... 1,772 6,046 11,277 13,322
Provision for bad debts......... 25,932 39,898 57,922 19,090
Repairs and maintenance......... 5,856 12,806 11,957 18,128
Utilities and telephone......... 9,858 17,018 12,623 11,016
Legal and professional fees..... 9,542 14,527 6,899 5,601
Office and postage.............. 4,405 11,685 4,546 4,712
Taxes and licenses.............. 4,885 1,443 4,008 2,436
Miscellaneous................... 9,874 7,236 9,880 15,398
---------- ---------- ---------- ----------
Operating expenses......... 304,608 560,695 520,842 421,364
---------- ---------- ---------- ----------
Income from operations..... 76,617 73,343 140,773 71,339
Other Income (Expense):
Interest income................. 39 78 2,685 218
Gain on sale of asset........... -- 8,442 -- --
Interest expense................ (1,117) (1,228) -- (2,368)
---------- ---------- ---------- ----------
Net income (Note 6)........ $ 75,539 $ 80,635 $ 143,458 $ 69,189
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-81

VAIL HOLT MEMORIAL FUNERAL HOME, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND THE
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balances, beginning of period........... $221,659 $ 217,174 $ 128,679 $ 88,182
Net income for the period............... 75,539 80,635 143,458 69,189
Distribution paid....................... (78,440) (76,150) (54,963) (28,692)
---------- ---------- ---------- ----------
Balances, end of period................. $218,758 $ 221,659 $ 217,174 $ 128,679
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-82

VAIL HOLT MEMORIAL FUNERAL HOME, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND THE
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------------------------------
1996 1995 1994 1993
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers....... $ 452,257 $ 788,842 $ 626,195 $ 631,736
Cash paid to suppliers and
employees........................ (348,142) (681,974) (568,269) (550,764)
Interest paid...................... (1,117) (1,228) -- (2,368)
Interest received.................. 39 78 2,685 218
---------- ------------ ------------ ------------
Net cash provided by operating
activities................. 103,037 105,718 60,611 78,822
---------- ------------ ------------ ------------
Cash flows from investing activities:
Purchase of equipment.............. (17,326) (61,883) (10,436) (28,581)
Proceeds from disposal of
equipment........................ -- 25,000 -- --
Proceeds from note receivable...... -- -- -- 14,925
---------- ------------ ------------ ------------
Net cash used by investing
activities................. (17,326) (36,883) (10,436) (13,656)
---------- ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of note
payable.......................... 4,849 41,452 -- --
Principal payments on note
payable.......................... (3,457) (21,480) (11,920) (8,587)
Deposit on operating leases........ -- (2,025) -- --
Payments to stockholder............ -- -- (3,175) (3,712)
Distributions to stockholder....... (78,440) (76,150) (54,963) (28,692)
---------- ------------ ------------ ------------
Net cash used by financing
activities................. (77,048) (58,203) (70,058) (40,991)
---------- ------------ ------------ ------------
Net increase (decrease) in cash......... 8,663 10,632 (19,883) 24,175
Cash at beginning of period............. 13,437 2,805 22,688 (1,487)
---------- ------------ ------------ ------------
Cash at end of period................... $ 22,100 $ 13,437 $ 2,805 $ 22,688
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.

F-83

VAIL HOLT MEMORIAL FUNERAL HOME, INC.
STATEMENT OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND THE
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, ------------------------------------
1996 1995 1994 1993
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 75,539 $ 80,635 $ 143,458 $ 69,189
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Provision for losses on
uncollectible trade
receivables................ 25,932 39,898 57,922 19,090
Depreciation.................. 12,755 23,373 18,606 19,053
Gain on sale of assets........ -- (8,442) -- --
Change in assets and liabilities:
(Increase) in accounts
receivable................. (10,957) (5,745) (146,038) (17,348)
(Increase) decrease in
inventory.................. 317 (4,666) (5,373) (1,461)
(Decrease) in accounts
payable.................... (1,096) (17,780) (4,399) (14,325)
Increase (decrease) in accrued
liabilities................ 547 (1,555) (3,565) 4,624
---------- ---------- ------------ ----------
Net cash provided by
operating
activities............ $103,037 $ 105,718 $ 60,611 $ 78,822
========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.

F-84

VAIL HOLT MEMORIAL FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

This summary of significant accounting policies of Vail Holt Memorial
Funeral Home, Inc. (the Company) is presented to assist in understanding the
Company's financial statements. The financial statements and notes are
representations of the Company's management, who is responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.

NATURE OF OPERATIONS:

Vail Holt Memorial Funeral Home, Inc. is a privately-held corporation with
funeral homes located in Hanover and Madison, Indiana. The Company provides a
variety of services associated with funeral arrangements.

STATEMENT OF CASH FLOWS:

The Company maintains one checking account, regular passbook savings
account, and petty cash fund which it classifies as cash for purposes of the
statement of cash flows.

INVENTORIES:

Inventories consisting of caskets, vaults, and funeral supplies are valued
at the lower of cost (generally determined on a first-in, first-out basis) or
market.

PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred; renewals or betterments are capitalized. Gain or
loss on retirement or disposition of assets is credited or charged to
operations, and the respective costs and accumulated depreciation are eliminated
from the accounts.

Depreciation is provided as follows: depreciation of property and equipment
is provided on the basis of estimated useful lives of the assets using the
straight-line and declining-balance methods. The estimated useful lives are 5 to
7 years for equipment and fixtures, 5 years for vehicles, and 7 to 39 years for
leasehold improvements.

ESTIMATES:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities (and
disclosure of contingent assets and liabilities, if any) at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

2. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

The carrying amount of cash, receivables, payables, and short-term and
long-term debt obligations approximates their fair market values.

3. ACCOUNTS RECEIVABLE:

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- trade............ $276,148 $ 265,191 $ 259,446 $ 113,408
Less: allowance for uncollectible
accounts.............................. 157,550 131,618 91,720 33,798
-------- ---------- ---------- ----------
Net accounts receivable -- trade........ $118,598 $ 133,573 $ 167,726 $ 79,610
======== ========== ========== ==========
</TABLE>

F-85

VAIL HOLT MEMORIAL FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. ACCRUED LIABILITIES:

Accrued liabilities at the end of each respective period consist of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accrued payroll tax withholdings........ $ 3,068 $ 2,639 $ 1,828 $ 6,431
Accrued sales tax....................... 2,039 2,085 4,521 2,567
Other................................... 278 114 44 960
-------- ---------- ---------- ----------
Total................................... $ 5,385 $ 4,838 $ 6,393 $ 9,958
======== ========== ========== ==========
</TABLE>

5. LONG-TERM DEBT:

Long-term debt at June 30, 1996, December 31, 1995, 1994, and 1993 consists
of the following:

DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994 1993
------- ------- ------- -------

8.5% note payable to Madison Bank and
Trust Company, payable $687 monthly,
including interest, through December,
1998, secured by a vehicle with a cost
of $30,876 and a book value of $25,365 $18,497 $21,754 $ -- $ --

20.896% note payable to Excel Financial
Co., payable $149 monthly, including
interest, through March, 2000, secured
by equipment with a cost of $4,849 and
a book value of $4,572 ............... 4,649 -- -- --

12% note payable to Madison First
Federal Saving and Loan Association,
payable $606 monthly, including
interest, secured by deposit account . -- -- 1,782 8,398

10.944% note payable to Madison Bank
and Trust Company, payable $617
monthly, including interest, secured
by a van ............................. -- -- -- 5,304
------- ------- ------- -------
23,146 21,754 1,782 13,702
Less current portion ................... 7,854 6,654 1,782 11,920
------- ------- ------- -------
Noncurrent portion of long-term
debt ................................... $15,292 $15,100 $ -- $ 1,782
======= ======= ======= =======

The following are the maturities of long-term debt:

June 30, 1997........................ $ 7,854
June 30, 1998........................ $ 8,677
June 30, 1999........................ $ 5,377
June 30, 2000........................ $ 1,238

6. INCOME TAXES:

The Company, with the consent of its stockholder, has elected under the
Internal Revenue Code to be treated as an S corporation. In lieu of corporation
income taxes, the stockholder of an S corporation is taxed on his proportionate
share of the Company's taxable income. The State of Indiana also recognizes the
S corporation. Accordingly, there is no provision for federal or state income
taxes for the six months ended June 30, 1996, and the years ended December 31,
1995, 1994, and 1993.

F-86

VAIL HOLT MEMORIAL FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. RELATED PARTY TRANSACTIONS AND LEASE COMMITMENTS:

The Company leases vehicles from unrelated parties under operating leases
with two-year terms. These payments are recorded under operating leases in the
financial statements. The following is a schedule of the future minimum rentals
under these leases at June 30, 1996:

June 30, 1997........................... $ 31,223
June 30, 1998........................... $ 7,476

Additionally, the Company leases its operating facilities at both its
Hanover, Indiana and Madison, Indiana, locations from the stockholder of the
Company. The leases are on a month-to-month basis. The total rent expense
associated with these facility leases is $35,168, $70,046, $71,674, and $40,435
for the periods June 30, 1996 and December 31, 1995, 1994, and 1993,
respectively. In addition, the Company pays all utilities, taxes, insurance, and
normal maintenance required for the buildings and property.

8. BUSINESS COMBINATION:

On December 31, 1993, the Company purchased substantially all of the
operating assets and assumed certain liabilities of Vail Holt Lincoln Funeral
Home, Inc. for $15,000 cash payment. The acquisition has been accounted for as a
purchase transaction, and the cash paid was allocated to equipment assets at
estimated fair value. There was no goodwill recorded as part of this
transaction. The Statement of Income for the six month period ending June 30,
1996, and the years ended December 31, 1995 and 1994, include the operating
results of the acquired operations.

The pro forma net income results for the year ended December 31, 1993, had
the purchase occurred on January 1, 1993, would have resulted in the following
income statement presentation:

Gross revenue........................ $ 804,417

Cost of sales........................ 182,833
----------
Gross profit.................... 621,584
Operating expenses................... 515,862
----------
Income from operations.......... 105,722
Other income, net.................... 8,445
----------
Net income...................... $ 114,167
==========

9. ADDITIONAL INFORMATION:

The Company and the sole stockholder are contemplating the future sale of
substantially all the operating assets of the Company to an unrelated party
under an Asset Purchase Agreement. However, as of the date of this report, no
formal agreements had been executed.

F-87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT

To the Board of Directors of
Forest Lawn of Chesnee, Inc.

I have audited the accompanying statements of operations of Forest Lawn of
Chesnee, Inc. and the related statements of cash flows and stockholders' equity
for the ten months ended June 26, 1996, and the year ended August 31, 1995.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.

I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation. I
believe that my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of Forest Lawn of Chesnee,
Inc., and its cash flows for the ten months ended June 26, 1996, and the year
ended August 31, 1995, in conformity with generally accepted accounting
principles.

MICHAEL S. UPTON, CPA, P.A.

Greenville, South Carolina
July 3, 1996

F-88

FOREST LAWN OF CHESNEE, INC.
STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED JUNE 26, 1996
AND THE YEAR ENDED AUGUST 31, 1995

1996 1995
------------ ------------

REVENUES................................ $ 1,217,406 $ 1,477,801
COST AND EXPENSES
Merchandise costs.................. 394,562 422,772
Salaries and wages................. 238,877 305,496
Depreciation and amortization...... 100,155 141,973
Facilities and grounds............. 66,702 84,329
Transportation costs............... 11,052 15,874
Other.............................. 75,242 75,998
Bad Debt Expense................... 114,673 26,796
------------ ------------
1,001,263 1,073,238
PROMOTIONAL EXPENSE..................... 34,293 51,867
GENERAL AND ADMINISTRATIVE EXPENSES..... 161,382 156,795
------------ ------------
OPERATING MARGIN........................ 20,468 195,901
OTHER INCOME............................ 5,375 12,605
INTEREST EXPENSE........................ 73,707 81,517
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES....... (47,864) 126,989
INCOME TAXES............................ 28,447 35,945
------------ ------------
NET INCOME.............................. $ (76,311) $ 91,044
============ ============

The accompanying notes are an integral part of these financial statements.

F-89

FOREST LAWN OF CHESNEE, INC.
STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED JUNE 26, 1996
AND THE YEAR ENDED AUGUST 31, 1995

1996 1995
---------- ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss).................. $ (76,311) $ 91,043
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and
amortization................. 100,155 141,973
(Increase) decrease in
accounts receivable.......... 51,991 (60,244)
(Increase) decrease in
inventories and other current
assets....................... 41,264 (14,044)
Increase (decrease) in
accounts payable............. 40,080 (8,265)
Increase (decrease) in accrued
liabilities.................. (26,983) 26,118
---------- ------------
Net cash provided by operating
activities......................... 130,196 176,581
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........... (36,228) (499,449)
---------- ------------
Net cash used in investing
activities......................... (36,228) (499,449)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt......... (128,119) (118,734)
Loan proceeds...................... 393,055
Dividends paid..................... (37,901) --
---------- ------------
Net cash used by financing
activities......................... (166,020) 274,321
---------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... (72,052) (48,547)
CASH AND EQUIVALENTS AT BEGINNING OF
PERIOD............................. 72,052 120,599
---------- ------------
CASH AND EQUIVALENTS AT END OF
PERIOD............................. $ -- $ 72,052
========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid................. $ 68,431 $ 81,517
---------- ------------
Taxes paid.................... $ 23,776 $ 5,000
---------- ------------
Non-cash Dividends (Note 1)... $ 333,646 $ --
---------- ------------

The accompanying notes are an integral part of these financial statements.

F-90

FOREST LAWN OF CHESNEE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE TEN MONTHS ENDED JUNE 26, 1996
AND THE YEAR ENDED AUGUST 31, 1995

Balance September 1, 1994............... $ 619,791
Net Income (Loss)....................... 91,044
------------
Balance August 31, 1995................. 710,835
Net Income (Loss)....................... (76,311)
Dividends (Note 1)...................... (371,547)
------------
Balance June 26, 1996................... $ 262,977
============

The accompanying notes are an integral part of these financial statements.

F-91

FOREST LAWN OF CHESNEE, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED JUNE 26, 1996
AND THE YEAR ENDED AUGUST 31, 1995

1. ORGANIZATIONS/NATURE OF OPERATIONS:

Forest Lawn of Chesnee, Inc. was organized under the laws of the State of
South Carolina on September 14, 1970. The Company owns and operates three
funeral homes in South Carolina. The Company performs personal and professional
services related to funerals at its funeral homes. Prearranged funerals are
marketed in the geographic market served by the Company's funeral service
locations.

Effective June 26, 1996, all of the Company's stock was sold to Carriage
Funeral Holdings, Inc. for aggregate consideration of $2,970,000. Certain
non-operating assets and specific liabilities were distributed to the
stockholders as a result of the negotiations of the stock sale. These
distributions, in cash and property, totaled $371,547.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

REVENUES

The Company records the sale of funeral merchandise and services upon
performance.

TRUST FUNDS

The Company is generally required by state laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amount paid by the purchaser of the prearranged funeral
contract, and accumulated interest earned, are available to the Company only in
the event of the death of the purchaser and are refundable to the purchaser
under certain state laws that provide for the return of all of the amounts
collected under the purchaser's option to cancel the prearranged funeral
contract. No funeral revenue is recognized on the funds collected from the
purchaser of the prearranged funeral contract and interest earned on such funds
is reported to and taxed to the purchaser of the prearranged funeral contract
annually.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORY

The effect of changes in inventories is included in merchandise costs at
the lower of its cost basis (as determined by the First-in, first-out method) or
market.

PLANT, PROPERTY AND EQUIPMENT

Plant, property and equipment are capitalized at cost. Expenditures for
major additions and improvements are capitalized while replacements, maintenance
and repairs which do not improve or extend the life of the related assets are
charged to operations as incurred. Maintenance and repairs amounted to $33,622
and $26,503 for the ten months period ended June 26, 1996 and the year ended
August 31, 1995, respectively.

Depreciation is provided over the estimated useful lives of the depreciable
assets as follows:

YEARS METHOD
----- -------------

Buildings and improvements.............. 40 Straight-line
Furniture and fixtures.................. 5-7 200% DB
Other................................... 5-15 200% DB

F-92

FOREST LAWN OF CHESNEE, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes". Under SFAS No. 109, the Company determines deferred tax assets and
liabilities based on the estimated future tax effects of differences between
financial statement and tax basis of assets and liabilities.

USE OF ESTIMATES

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

3. INCOME TAXES:

There are no significant differences between the Company's financial
statements and tax bases of accounting at August 31, 1996. In June, 1996,
non-cash distributions to stockholders, referred to in Note 1, included
appreciated assets on which the corporation must recognize taxable income of
$150,000. In addition, the Company's effective tax rate materially approximates
the applicable statutory rate.

The provision for income taxes for the period ended June 26, 1996 and the
year ended August 31, 1995, consisted of:

1996 1995
--------- ---------
Current:
U.S. Federal....................... $ 23,075 $ 29,957
State.............................. 5,372 5,988
--------- ---------
$ 28,447 $ 35,945
========= =========

F-93

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Bailey Funeral Home, Inc.
Plainville, Connecticut

We have audited the accompanying balance sheets of BAILEY FUNERAL HOME,
INC. (an S Corporation), as of December 31, 1993, 1994, 1995 and June 30, 1996,
and the related statements of income, retained earnings and cash flows for the
years ended December 31, 1993, 1994 and 1995 and the six months ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BAILEY FUNERAL HOME, INC.,
as of December 31, 1993, 1994, 1995 and June 30, 1996, and the results of
operations and its cash flows for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996, in conformity with generally
accepted accounting principles.

GITLIN, CAMPISE, PASCOE & BLUM

West Hartford, Connecticut
July 3, 1996

F-94

BAILEY FUNERAL HOME, INC.
BALANCE SHEETS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1996

<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................. $ 118,787 $ 93,221 $ 56,114 $ 146,151
Accounts receivable, net of allowance
for doubtful accounts of $10,000 in
1993, $11,000 in 1994, $12,500 in
1995 and $15,000 in 1996........... 144,507 160,683 165,016 157,604
Note receivable -- related party...... -- -- -- 10,000
Inventories and other current
assets............................. 26,047 13,332 20,928 4,000
---------- ---------- ------------ ------------
Total current assets............. 289,341 267,236 242,058 317,755
---------- ---------- ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Leasehold improvements................ 20,695 27,432 33,516 33,516
Furniture and equipment............... 24,583 27,225 35,956 37,345
Vehicles.............................. 68,250 98,336 119,852 101,852
---------- ---------- ------------ ------------
113,528 152,993 189,324 172,713
Less: accumulated depreciation........ (80,628) (94,175) (129,869) (123,375)
---------- ---------- ------------ ------------
32,900 58,818 59,455 49,338
---------- ---------- ------------ ------------
OTHER NONCURRENT ASSETS:
Intangible assets, net................ 126,065 102,750 79,750 68,250
---------- ---------- ------------ ------------
TOTAL ASSETS............................ $ 448,306 $ 428,804 $ 381,263 $ 435,343
========== ========== ============ ============

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts payable...................... $ 11,940 $ 11,711 $ 8,269 $ 23,330
Accrued liabilities................... 15,101 19,556 10,912 61,520
Current portion of accrued payments
for agreement not to compete....... 17,678 19,025 20,474 21,100
Current portion of long-term debt..... 32,417 7,568 5,764 5,248
Deferred taxes........................ 9,877 10,806 11,555 3,828
---------- ---------- ------------ ------------
Total current liabilities........ 87,013 68,666 56,974 115,026
STOCKHOLDER'S LOAN...................... 62,044 67,102 48,700 10,687
ACCRUED PAYMENTS FOR AGREEMENTS NOT TO
COMPETE, net of current portion....... 142,997 123,972 103,498 94,524
LONG-TERM DEBT, net of current
portion............................... 1,158 7,822 2,058 --
---------- ---------- ------------ ------------
Total liabilities................ 293,212 267,562 211,230 220,237
---------- ---------- ------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 500
shares authorized, 10 shares issued
and outstanding.................... 1,000 1,000 1,000 1,000
Retained earnings..................... 154,094 160,242 169,033 214,106
---------- ---------- ------------ ------------
Total stockholder's equity....... 155,094 161,242 170,033 215,106
---------- ---------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY................................ $ 448,306 $ 428,804 $ 381,263 $ 435,343
========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-95

BAILEY FUNERAL HOME, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES............................. $ 642,161 $ 658,509 $ 786,699 $ 450,164
COSTS AND EXPENSES................... 504,528 506,964 635,897 333,882
---------- ---------- ---------- ----------
GROSS PROFIT......................... 137,633 151,545 150,802 116,282
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 71,238 82,836 81,905 47,443
---------- ---------- ---------- ----------
OPERATING INCOME..................... 66,395 68,709 68,897 68,839
OTHER (INCOME) EXPENSES:
Interest income................. (3,860) (3,756) (4,003) (3,130)
Covenant not to compete......... 23,000 23,000 23,000 11,500
Gain on sale of vehicle......... -- -- -- (4,028)
Interest expense................ 15,044 17,466 13,179 4,040
---------- ---------- ---------- ----------
Net other (income) expenses..... 34,184 36,710 32,176 8,382
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........... 32,211 31,999 36,721 60,457
PROVISION FOR INCOME TAXES........... 3,140 4,916 4,870 6,853
---------- ---------- ---------- ----------
NET INCOME........................... $ 29,071 $ 27,083 $ 31,851 $ 53,604
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-96

BAILEY FUNERAL HOME, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996

1993 1994 1995 1996
--------- --------- --------- ---------
BEGINNING BALANCE, JANUARY 1 $ 143,158 $ 154,094 $ 160,242 $ 169,033

NET INCOME ................. 29,071 27,083 31,851 53,604

DISTRIBUTIONS TO STOCKHOLDER (18,135) (20,935) (23,060) (8,531)
--------- --------- --------- ---------

ENDING BALANCE ............. $ 154,094 $ 160,242 $ 169,033 $ 214,106
========= ========= ========= =========

The accompanying notes are an integral part of these financial statements.

F-97

BAILEY FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 29,071 $ 27,083 $ 31,851 $ 53,604
Adjustments to reconcile net income
to net cash:
Depreciation and amortization... 19,576 24,033 35,695 10,534
Covenant not to
compete -- amortization....... 23,000 23,000 23,000 11,500
Gain on sale of vehicle......... -- -- -- (4,028)
Deferred taxes.................. (697) 929 749 (7,727)
Changes in operating assets and
liabilities:
Accounts receivable........... 752 (16,176) (4,333) 7,412
Note receivable--related
party...................... -- -- -- (10,000)
Inventories and other current
assets..................... (5,600) 12,710 (7,596) 16,928
Accounts payable.............. (2,345) (229) (3,442) 15,061
Accrued liabilities........... 473 4,455 (8,644) 50,608
---------- ---------- ---------- ----------
Net cash provided by operating
activities...................... 64,230 75,805 67,280 143,892
---------- ---------- ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of vehicle...... -- -- -- 5,000
Capital expenditures............... (2,715) (49,631) (36,331) (1,389)
---------- ---------- ---------- ----------
Net cash provided by investing
activities...................... (2,715) (49,631) (36,331) 3,611
---------- ---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on agreement not to
compete......................... (17,743) (17,678) (19,025) (8,348)
Proceeds from loans................ -- 19,000 -- --
Principal payments on debt......... (4,633) (37,185) (7,569) (2,574)
Stockholder loans, net............. 64,258 5,058 (18,402) (38,013)
Distributions to stockholder....... (18,135) (20,935) (23,060) (8,531)
---------- ---------- ---------- ----------
Net cash provided by financing
activities...................... 23,747 (51,740) (68,056) (57,466)
---------- ---------- ---------- ----------

NET INCREASE (DECREASE) IN CASH...... 85,262 (25,566) (37,107) 90,037

CASH AT BEGINNING OF PERIOD.......... 33,525 118,787 93,221 56,114
---------- ---------- ---------- ----------
CASH AT END OF PERIOD................ $ 118,787 $ 93,221 $ 56,114 $ 146,151
========== ========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash interest paid................. $ 15,044 $ 17,466 $ 13,179 $ 4,040
Income taxes paid.................. 3,500 5,000 5,000 1,205
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-98

BAILEY FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1996

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Bailey Funeral Home, Inc. (the Company), was organized under the laws of
Connecticut on February 15, 1989. The Company owns and operates a funeral home
in Plainville, Connecticut. The Company performs personal and professional
services related to funerals at its funeral home. Prearranged funerals are
marketed in the geographic markets served by the Company's funeral service
location.

REVENUES

The Company recognizes revenue upon performance of funeral services and
sale of related merchandise.

TRUST FUNDS

The Company is generally required by State laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amounts paid by the purchaser of the prearranged
funeral contract are available to the Company only in the event of death of the
purchaser and are refundable to the purchaser under certain State laws that
provide for the return of all or a portion of amounts collected under the
purchaser's option to cancel the prearranged funeral contract. No funeral
revenue is recognized on the funds collected from the prearranged funeral
contract and is deferred until performance of the specific service. The
prearranged funeral trust assets were approximately $790,000 at June 30, 1996,
which in the opinion of management exceed the future obligations under such
arrangements.

INVENTORY

Inventory is stated at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost at the time of acquisition.
Major additions and renewals are capitalized and depreciated over their
estimated useful lives.

INTANGIBLE ASSETS

Intangible assets consist of organization costs, goodwill and a covenant
not to compete agreement. These costs are being amortized on a straight-line
basis over 5 to 10 years.

INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company does not pay
Federal corporate income taxes on its taxable income. Instead, the stockholder
is liable for individual Federal income taxes on his respective share of the
Company's taxable income. Therefore, no provision or liability for Federal
income taxes has been included in the financial statements.

Deferred income taxes are provided for temporary differences between State
income tax basis and financial reporting basis of asset and liabilities.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.

F-99

BAILEY FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 NON-COMPETE AGREEMENT

The Company entered into a non-compete agreement with the former owner of
the business. The non-compete agreement is being amortized over the 10 year term
of the agreement. In conjunction with the non-compete agreement the Company
assumed liabilities as follows:

<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accrued payments of monthly
installments of $2,410 including
interest at 7.4% over 144 months.
The note is personally guaranteed
by the stockholder and all the shares
of stock in the Corporation........... $ 160,675 $ 142,997 $ 123,972 $ 115,624
Less current portion of accrued
payments.............................. 17,678 19,025 20,474 21,100
---------- ---------- ---------- ----------
Net long-term portion of payments....... $ 142,997 $ 123,972 $ 103,498 $ 94,524
========== ========== ========== ==========
</TABLE>

Future accrued payments for agreement not to compete are as follows:

Period ended 06/30/97................... $ 21,100
Period ended 06/30/98................... 22,718
Period ended 06/30/99................... 24,448
Period ended 06/30/00................... 26,310
Period ended 06/30/01................... 21,048
----------
Total................................... $ 115,624
==========

NOTE 3 LONG-TERM DEBT

The Company's long-term debt consisted of the following:

1993 1994 1995 1996
------- ------- ------- -------
Vehicle installment note -- payable
in monthly installments of $386
including interest at 8.0% over 36
months ............................... $ 5,792 $ 1,158 $ -- $ --
Note payable to related
party -- payable in monthly
installments of $448, including
interest at 9.25% amortized over
120 months, personally guaranteed
by the shareholder of the Company ....
The note was paid in full in
1994 ................................. 27,783 -- -- --
Vehicle installment note--payable in
monthly installments of $557,
including interest at 7.5% over 36
months ............................... -- 14,232 7,822 5,248
------- ------- ------- -------
Total long-term debt ................... 33,575 15,390 7,822 5,248
Less current portion ................... 32,417 7,568 5,764 5,248
------- ------- ------- -------
Net long-term debt ..................... $ 1,158 $ 7,822 $ 2,058 $ --
======= ======= ======= =======

NOTE 4 RELATED PARTY TRANSACTIONS

The Company rents the facilities used in its business from a related
party/stockholder on a month-to-month basis. For the years ended December 31,
1993, 1994, 1995 and the six months ended June 30, 1996, rent expense totaled
$31,514, $46,332, $67,721 and $36,000, respectively.

The stockholder's loan consists of non-interest bearing loans and
miscellaneous advances to the Company during the year. There is no formal
repayment schedule.

The Company had an outstanding loan, with a brother of the stockholder, in
the amount of $27,783 payable over 12 years as of December 31, 1993. The note
was paid in full in 1994 (see Note 3).

F-100

BAILEY FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company has a non-interest bearing note receivable from a related
party. There is no formal repayment schedule.

NOTE 5 INCOME TAXES

The income tax provision relates to income taxes due in the State of
Connecticut which does not recognize the Company's "S" corporation status.

The net deferred tax liability as presented in the accompanying balance
sheets consists of temporary differences between tax and book basis reporting.
The Company is on the modified cash basis for tax reporting purposes and the
accrual basis for financial reporting purposes. The deferred tax liability
balance is primarily the result of temporary differences in accounts receivable,
prepaid expenses, accounts payable and accrued expenses for state tax purposes.

The components of the income tax provision for the periods ended are as
follows:

1993 1994 1995 1996
-------- -------- -------- --------
Federal .......... $ -- $ -- $ -- $ --
State ............ 3,140 4,916 4,870 6,853
-------- -------- -------- --------
$ 3,140 $ 4,916 $ 4,870 $ 6,853
======== ======== ======== ========
Current .......... $ 3,837 $ 3,987 $ 4,121 $ 14,580
Deferred ......... (697) 929 749 (7,727)
-------- -------- -------- --------
$ 3,140 $ 4,916 $ 4,870 $ 6,853
======== ======== ======== ========

NOTE 6 CONCENTRATIONS OF CREDIT RISK

The Company's cash account balances maintained at a financial banking
institution may exceed the Federally insured $100,000 during the year.
Management monitors regularly the financial condition of the banking institution
along with its balances in cash and tries to keep the potential risk at a
minimum.

The Company performs services within its facility located in Connecticut.
The Company extends credit to customers located within the surrounding areas.

F-101

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
O'Brien Funeral Home, Inc.
Forestville, Connecticut

We have audited the accompanying balance sheets of O'BRIEN FUNERAL HOME,
INC., as of December 31, 1993, 1994, 1995 and June 30, 1996, and the related
statements of income, retained earnings and cash flows for the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of O'BRIEN FUNERAL HOME, INC.,
as of December 31, 1993, 1994, 1995 and June 30, 1996, and the results of
operations and its cash flows for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996, in conformity with generally
accepted accounting principles.

GITLIN, CAMPISE, PASCOE & BLUM

West Hartford, Connecticut
July 3, 1996

F-102

O'BRIEN FUNERAL HOME, INC.
BALANCE SHEETS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1996

<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash............................... $ 38,842 $ 135,792 $ 67,476 $ 153,609
Accounts receivable, net of
allowance for doubtful accounts
of $5,650, $6,000, $7,200 and
$7,600, respectively............. 109,775 115,460 137,357 143,374
Inventories........................ 36,614 38,136 52,894 9,321
---------- ---------- ---------- ----------
Total current assets.......... 185,231 289,388 257,727 306,304
---------- ---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land............................... 2,167 2,167 2,167 2,167
Building and improvements.......... 300,312 358,924 416,965 416,965
Furniture and equipment............ 84,064 92,209 86,293 89,742
Vehicles........................... 179,954 147,715 174,135 174,135
---------- ---------- ---------- ----------
566,497 601,015 679,560 683,009
Less: accumulated depreciation..... 249,541 281,633 303,497 327,497
---------- ---------- ---------- ----------
316,956 319,382 376,063 355,512
---------- ---------- ---------- ----------
OTHER NONCURRENT ASSETS:
Intangible assets, net............. 28,000 26,000 24,000 23,000
---------- ---------- ---------- ----------
TOTAL ASSETS............................ $ 530,187 $ 634,770 $ 657,790 $ 684,816
========== ========== ========== ==========

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts payable................... $ 23,841 $ 64,018 $ 70,156 $ 23,487
Accrued liabilities................ 12,444 8,585 9,806 57,934
Deferred taxes..................... 18,000 22,000 28,300 30,000
Current portion of long-term
debt............................. 40,372 44,291 45,882 22,244
---------- ---------- ---------- ----------
Total current liabilities..... 94,657 138,894 154,144 133,665
---------- ---------- ---------- ----------
LONG-TERM DEBT, net of current
portion............................... 37,628 77,709 50,618 39,165
---------- ---------- ---------- ----------
STOCKHOLDER'S EQUITY:
Common stock, $10 par value, 5,000
shares authorized,
3,000 shares issued and
outstanding...................... 30,000 30,000 30,000 30,000
Retained earnings.................. 428,229 448,494 483,355 542,313
---------- ---------- ---------- ----------
458,229 478,494 513,355 572,313
Less: 727 shares treasury stock, at
cost............................. 60,327 60,327 60,327 60,327
---------- ---------- ---------- ----------
Total stockholder's equity.... 397,902 418,167 453,028 511,986
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY................................ $ 530,187 $ 634,770 $ 657,790 $ 684,816
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-103

O'BRIEN FUNERAL HOME, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUES............................. $ 884,487 $ 998,506 $ 1,110,056 $ 648,062
COSTS AND EXPENSES................... 780,264 896,939 964,444 521,131
---------- ---------- ------------ ----------
GROSS PROFIT......................... 104,223 101,567 145,612 126,931
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 65,688 69,977 97,640 36,477
---------- ---------- ------------ ----------
OPERATING INCOME..................... 38,535 31,590 47,972 90,454
---------- ---------- ------------ ----------
OTHER (INCOME) EXPENSES:
Interest income................. (4,601) (4,392) (5,591) (1,275)

Interest expense................ 5,966 6,139 11,091 2,211
---------- ---------- ------------ ----------
Net other (income) expenses..... 1,365 1,747 5,500 936
---------- ---------- ------------ ----------
INCOME BEFORE INCOME TAXES........... 37,170 29,843 42,472 89,518
PROVISION FOR INCOME TAXES........... 10,549 6,078 7,611 30,560
---------- ---------- ------------ ----------
NET INCOME........................... $ 26,621 $ 23,765 $ 34,861 $ 58,958
========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-104

O'BRIEN FUNERAL HOME, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BEGINNING BALANCE, JANUARY 1......... $ 421,608 $ 428,229 $ 448,494 $ 483,355

NET INCOME........................... 26,621 23,765 34,861 58,958

DIVIDENDS DECLARED AND PAID.......... (20,000) (3,500) -- --
---------- ---------- ---------- ----------

ENDING BALANCE....................... $ 428,229 $ 448,494 $ 483,355 $ 542,313
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-105

O'BRIEN FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
1993 1994 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 26,621 $ 23,765 $ 34,861 $ 58,958
Adjustments to reconcile net income
to net cash:
Depreciation and amortization... 49,813 48,370 60,605 25,000
Deferred taxes.................. 4,000 4,000 6,300 1,700
Changes in operating assets and
liabilities:
Accounts receivable........... (11,241) (5,685) (21,897) (6,017)
Inventories................... (3,138) (1,522) (14,758) 43,573
Accounts payable.............. (33,621) 40,177 6,138 (46,669)
Accrued liabilities........... (3,740) (3,859) 1,221 48,128
---------- ---------- ---------- ----------
Net cash provided by operating
activities...................... 28,694 105,246 72,470 124,673
---------- ---------- ---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (75,349) (66,777) (115,286) (3,449)
Proceeds from sale of auto......... -- 17,981 -- --
---------- ---------- ---------- ----------
Net cash provided by investing
activities...................... (75,349) (48,796) (115,286) (3,449)
---------- ---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans................ 48,000 90,000 18,791 --
Principal payments on debt......... (34,050) (46,000) (44,291) (35,091)
Dividend paid...................... (20,000) (3,500) -- --
---------- ---------- ---------- ----------
Net cash provided by financing
activities...................... (6,050) 40,500 (25,500) (35,091)
---------- ---------- ---------- ----------

NET INCREASE (DECREASE) IN CASH...... (52,705) 96,950 (68,316) 86,133

CASH AT BEGINNING OF PERIOD.......... 91,547 38,842 135,792 67,476
---------- ---------- ---------- ----------

CASH AT ENDING OF PERIOD............. $ 38,842 $ 135,792 $ 67,476 $ 153,609
========== ========== ========== ==========

Supplemental disclosures of cash flow
information
Cash paid during the year was as follows:
Interest...................... $ 5,966 $ 6,139 $ 11,091 $ 1,811
Income taxes.................. 3,186 7,427 1,984 1,260
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-106

O'BRIEN FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, 1995 AND JUNE 30, 1996

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

O'Brien Funeral Home, Inc. (the Company), was organized under the laws of
Connecticut on January 3, 1948. The Company owns and operates two funeral homes
in Connecticut. The Company performs personal and professional services related
to funerals at its funeral home. Prearranged funerals are marketed in the
geographic markets served by the Company's funeral service location.

REVENUES

The Company recognizes revenue upon performance of funeral services and
sale of related merchandise.

TRUST FUNDS

The Company is generally required by State laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amounts paid by the purchaser of the prearranged
funeral contract are available to the Company only in the event of death of the
purchaser and are refundable to the purchaser under certain State laws that
provide for the return of all or a portion of amounts collected under the
purchaser's option to cancel the prearranged funeral contract. No funeral
revenue is recognized on the funds collected from the prearranged funeral
contract and is deferred until performance of the specific service. The
prearranged funeral trust assets were approximately $1,570,400 at June 30, 1996,
which in the opinion of management exceed the future obligations under such
arrangements.

INVENTORY

Inventory is stated at the lower of cost (as determined by the specific
identification method) or market.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost at the time of acquisition.
Major additions and renewals are capitalized and depreciated over their
estimated useful lives. When the items become fully depreciated, they are
removed from the records.

INTANGIBLE ASSETS

The intangible assets consist of goodwill. These costs are being amortized
on a straight-line basis over 15 years.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting (FAS) No. 109, "Accounting for Income Taxes," which
requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's income taxable for Federal and State income tax reporting purposes.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.

F-107

O'BRIEN FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 LONG-TERM DEBT

The Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995 1996
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Installment note -- payable in
monthly installments of $1,000 plus
interest at 7.5%. ................. $ 30,000
Installment note -- payable in
monthly installments of $1,949,
plus interest at 10.69%. .......... $ 90,000
Installment note--payable in monthly
installments of $2,191, including
interest at 7.87%. Secured by all
assets of the Company and
guaranteed by the stockholder. .... $ 70,000 $ 61,409
Vehicle installment note -- payable
in monthly installments of $656,
including interest at 10.0%. ...... 15,400
Installment note -- payable in
monthly installments of $1,495,
including interest at 7.5% over 36
months. ........................... 48,000 32,000 11,100 --
--------- ---------- --------- ---------
Total long-term debt................. 78,000 122,000 96,500 61,409
Less current portion................. 40,372 44,291 45,882 22,244
--------- ---------- --------- ---------
Net long-term debt................... $ 37,628 $ 77,709 $ 50,618 $ 39,165
========= ========== ========= =========
</TABLE>
NOTE 3 RELATED PARTY TRANSACTIONS

The Company rents one facility used in its business on a month-to-month
basis from a related party. For the years ended December 31, 1993, 1994, 1995
and the six months ended June 30, 1996, rent expense totaled approximately
$36,000, $36,000, $43,000 and $24,000, respectively.

On December 21, 1995, the Company signed a formal lease for three years
with minimum annual rent to be paid as follows:

1996.................................... $ 48,000
1997.................................... 54,000
1998.................................... 60,000

The Company has a renewal option for three additional 3-year periods with
the following minimum annual rent:

1999 to 2001............................ $ 63,000
2002 to 2004............................ 66,150
2005 to 2007............................ 69,458

In addition, the Company has agreed to pay its proportionate share of real
estate taxes, fire insurance, repairs and maintenance and utilities.

NOTE 4 CONCENTRATIONS OF CREDIT RISK

The Company's cash account balances maintained at financial banking
institutions may exceed the Federally insured $100,000 during the year.
Management monitors regularly the financial condition of the banking
institutions along with their balances in cash and tries to keep the potential
risk at a minimum.

The Company performs services within its facilities located in Connecticut.
The Company extends credit to customers located within the surrounding areas.

F-108

O'BRIEN FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 INCOME TAXES

The net deferred tax liability in the accompanying balance sheets consists
of temporary differences between tax and book basis reporting. The Company is on
the modified cash basis for tax reporting purposes and the accrual basis for
financial reporting purposes. The deferred tax liability balance is primarily
the result of temporary differences in accounts receivable, accounts payable and
accrued expenses for tax purposes.

1993 1994 1995 1996
--------- --------- --------- ---------
Federal ................. $ 6,081 $2,300 $ 3,775 $21,000
State ................... 4,468 3,778 3,836 9,560
------- ------ ------- -------
$10,549 $6,078 $ 7,611 $30,560
======= ====== ======= =======
Current ................. $ 6,549 $2,078 $ 1,311 $28,860
Deferred ................ 4,000 4,000 6,300 1,700
------- ------ ------- -------
$10,549 $6,078 $ 7,611 $30,560
======= ====== ======= =======

NOTE 6 PENSION PLAN

The Company has a defined contribution pension plan which is paid by the
Company. No employee contributions are allowed. The Company will contribute to
the plan an amount equal to 10% of the earnings of each employee who has
completed two years of employment and at least 500 hours of service during that
year. The amounts contributed were $15,982 in 1993, $23,170 in 1994, $25,870 in
1995 and $13,570 in 1996.

NOTE 7 SUBSEQUENT EVENT

On July 3, 1996, all of the Company's stock was sold to Carriage Funeral
Services of Connecticut, Inc., a subsidiary of Carriage Funeral Holdings, Inc.,
for aggregate consideration in excess of the recorded amounts of the Company's
net assets.

F-109

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
C. Funk & Son Funeral Home, Inc.
Bristol, Connecticut

We have audited the accompanying balance sheets of C. FUNK & SON FUNERAL
HOME, INC., as of September 30, 1994, 1995 and June 30, 1996, and the related
statements of operations, stockholders' equity and cash flows for the years
ended September 30, 1994, 1995 and the nine months ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of C. FUNK & SON FUNERAL HOME,
INC., as of September 30, 1994, 1995 and June 30, 1996, and the results of
operations and its cash flows for the years ended September 30, 1994, 1995 and
the nine months ended June 30, 1996, in conformity with generally accepted
accounting principles.

GITLIN, CAMPISE, PASCOE & BLUM

West Hartford, Connecticut
July 3, 1996

F-110

C. FUNK & SON FUNERAL HOME, INC.
BALANCE SHEETS
SEPTEMBER 30, 1994, 1995 AND JUNE 30, 1996

<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 93,120 $ 176,360 $ 9,050
Accounts receivable, net of
allowance of $15,000 in 1994, and
$20,000 in 1995 and 1996......... 68,750 67,740 77,810
Inventories........................ 33,370 40,690 14,390
Equity securities, trading......... 51,840 60,910 --
Deferred taxes..................... 4,200 5,500 5,500
Prepaid expenses................... 14,900 -- 11,725
------------ ------------ ------------
Total current assets.......... 266,180 351,200 118,475
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings................. 802,400 845,590 848,560
Vehicles........................... 218,420 228,270 268,290
Furniture and equipment............ 165,690 175,790 179,760
------------ ------------ ------------
1,186,510 1,249,650 1,296,610
Less: accumulated depreciation..... (395,330) (465,750) (518,970)
------------ ------------ ------------
791,180 783,900 777,640
------------ ------------ ------------
OTHER NONCURRENT ASSETS:
Intangible assets, net............. 6,000 5,000 4,000
Deferred taxes..................... -- -- 24,600
Cash value life insurance policy... 16,300 26,500 --
Officer loan....................... 103,930 110,170 115,340
------------ ------------ ------------
Total other assets............ 126,230 141,670 143,940
------------ ------------ ------------
TOTAL ASSETS............................ $ 1,183,590 $ 1,276,770 $ 1,040,055
============ ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable................... $ 30,750 $ 37,940 $ 37,400
Accrued liabilities................ 23,920 62,620 18,520
Deferred taxes..................... 3,100 5,000 --
Current portion of long-term debt
and obligations under capital
leases........................... 50,070 55,670 --
------------ ------------ ------------
Total current liabilities..... 107,840 161,230 55,920
------------ ------------ ------------
LONG-TERM DEBT AND OBLIGATIONS UNDER
CAPITAL LEASES, net of current
portion............................... 102,560 46,900 --
------------ ------------ ------------
DEFERRED TAXES.......................... 86,300 92,000 94,700
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 100
shares authorized, 100 issued and
outstanding...................... 37,220 37,220 37,220
Additional paid-in capital......... 15,000 15,000
Retained earnings.................. 854,670 924,420 837,215
Treasury stock..................... (5,000) -- --
------------ ------------ ------------
Total stockholders' equity.... 886,890 976,640 889,435
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................ $ 1,183,590 $ 1,276,770 $ 1,040,055
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements

F-111

C. FUNK & SON FUNERAL HOME, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995
AND THE NINE MONTHS ENDED JUNE 30, 1996

1994 1995 1996
------------ ------------ ------------

REVENUES............................. $ 1,229,040 $ 1,325,360 $ 1,018,410
COSTS AND EXPENSES................... 1,043,050 1,095,650 951,160
------------ ------------ ------------
GROSS PROFIT......................... 185,990 229,710 67,250
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 177,030 167,720 209,845
------------ ------------ ------------
OPERATING INCOME (LOSS).............. 8,960 61,990 (142,595)
------------ ------------ ------------
OTHER (INCOME) EXPENSES:
Interest and dividend income.... (14,560) (10,150) (8,780)
Rental income................... (18,510) (22,870) (13,600)
Realized gain on trading
securities.................... -- -- (6,110)
Unrealized gain on trading
securities.................... (11,240) (6,700) --
(Gain) loss on sale of fixed
assets........................ (29,080) 2,250 --
------------ ------------ ------------
Total other (income) expenses... (73,390) (37,470) (28,490)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES.... 82,350 99,460 (114,105)
------------ ------------ ------------
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 27,540 29,710 (26,900)
------------ ------------ ------------
NET INCOME (LOSS).................... $ 54,810 $ 69,750 $ (87,205)
============ ============ ============

The accompanying notes are an integral part of these financial statements.

F-112

C. FUNK & SON FUNERAL HOME, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995
AND THE NINE MONTHS ENDED JUNE 30, 1996

1994 1995 1996
---------- ---------- ----------

BEGINNING BALANCE, OCTOBER 1......... $ 824,780 $ 886,890 $ 976,640
NET INCOME (LOSS).................... 54,810 69,750 (87,205)
DIVIDENDS DECLARED AND PAID.......... (2,700) -- --
SALE OF TREASURY STOCK............... 10,000 20,000 --
---------- ---------- ----------
ENDING BALANCE....................... $ 886,890 $ 976,640 $ 889,435
========== ========== ==========

The accompanying notes are an integral part of these financial statements.

F-113

C. FUNK & SON FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995
AND THE NINE MONTHS ENDED JUNE 30, 1996

1994 1995 1996
---------- ---------- ----------

CASH FLOWS FROM OPERATING EXPENSES:
Net income (loss)..................... $ 54,810 $ 69,750 $ (87,205)
Adjustments to reconcile net income to
net cash:
Depreciation and amortization...... 60,760 73,370 54,220
Deferred taxes..................... 25,000 6,300 (26,900)
Gain (loss) on sales of fixed
assets........................... (29,080) 2,250 --
Purchase of marketable securities,
trading.......................... (600) (2,370) (2,420)
Sale of trading securities......... -- -- 69,440
Realized gain on trading
securities....................... -- -- (6,110)
Unrealized gain on trading
securities....................... (11,240) (6,700) --
Changes in operating assets and
liabilities:
Accounts receivable.............. 14,150 1,010 (10,070)
Inventories...................... (3,540) (7,320) 26,300
Prepaid expenses................. 2,730 14,900 (11,725)
Accounts payable................. 5,130 7,190 (540)
Accrued liabilities.............. 1,070 38,700 (44,100)
---------- ---------- ----------
Net cash provided by operating
activities....................... 119,190 197,080 (39,110)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment.......................... (225,380) (75,340) (46,960)
Sale of property, plant and
equipment.......................... 77,270 8,000 --
Cash surrender value life insurance,
net................................ (5,900) (10,200) 26,500
---------- ---------- ----------
Net cash provided by investing
activities......................... (154,010) (77,540) (20,460)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt --
obligations under capital leases... 64,870 -- --
Payments on long-term debt,
obligations under capital leases... (47,000) (50,060) (102,570)
Proceeds from treasury stock.......... 10,000 20,000 --
Payment of dividends.................. (2,700) -- --
Payment to stockholders............... (4,530) (6,240) (5,170)
---------- ---------- ----------
Net cash provided by financing
activities......................... 20,640 (36,300) (107,740)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH......... (14,180) 83,240 (167,310)
CASH AT BEGINNING OF PERIOD............. 107,300 93,120 176,360
---------- ---------- ----------
CASH AT ENDING OF PERIOD................ $ 93,120 $ 176,360 $ 9,050
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash interest paid.................... $ 11,330 $ 13,590 $ 7,500
Income taxes paid..................... 15,810 8,510 35,135

The accompanying notes are an integral part of these financial statements.

F-114

C. FUNK & SON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1995 AND JUNE 30, 1996

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

C. Funk & Son Funeral Home, Inc. (the Company), was organized under the
laws of Connecticut on September 25, 1946. The Company owns and operates a
funeral home in Bristol, Connecticut. The Company performs personal and
professional services related to funerals at its funeral home. Prearranged
funerals are marketed in the geographic markets served by the Company's funeral
service location.

REVENUES

The Company recognizes revenue upon performance of funeral services and
sale of related merchandise.

TRUST FUNDS

The Company is generally required by State laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amounts paid by the purchaser of the prearranged
funeral contract are available to the Company only in the event of death of the
purchaser and are refundable to the purchaser under certain State laws that
provide for the return of all or a portion of amounts collected under the
purchaser's option to cancel the prearranged funeral contract. No funeral
revenue is recognized on the funds collected from the prearranged funeral
contract and is deferred until performance of the specific service. The
prearranged funeral trust assets were approximately $2,150,000, $2,470,000 and
$2,920,000 at September 30, 1994, 1995 and June 30, 1996, respectively, which in
the opinion of management exceed the future obligations under such arrangements.

INVENTORY

Inventory is stated at the lower of cost (as determined by the specific
identification method) or net realized value.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost at the time of acquisition.
Major additions and renewals are capitalized and depreciated over their
estimated useful lives of 5 to 40 years. Depreciation expense for the years
ended September 30, 1994, 1995 and for the period ended June 30, 1996, was
$49,760, $72,370 and $53,220, respectively.

INTANGIBLE ASSETS

Intangible assets consist of purchased trade names. These costs are being
amortized on a straight-line basis over 5 to 10 years.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (FAS) No. 109, "Accounting for Income Taxes,"
which requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's income taxable for Federal and State income tax reporting purposes.

USE OF ESTIMATES

F-115

C. FUNK & SON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.

EQUITY SECURITIES

The Company accounts for equity securities in accordance with Statement of
Financial Accounting Standards No. 115 and the Company's investment securities
are classified as trading securities. These securities are stated at cost
adjusted for market value fluctuations. Unrealized gains and losses created by
changes in the market values of these securities are recognized as an adjustment
to and are reported as a separate component of net income.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

In March of 1995, Financial Accounting Standard Board issued FAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This statement requires write-down to fair value when
long-lived assets to be held and used are impaired. The statement also requires
long-lived assets to be disposed of to be carried at the lower of cost or fair
value less estimated selling costs and does not allow such assets to be
depreciated. The Company has not elected to adopt this statement earlier than
required; however, the impact upon adoption is not expected to be material.

NOTE 2 EQUITY SECURITIES

Equity securities at September 30, 1994, 1995 and June 30, 1996, were as
follows:

GROSS
AMORTIZED UNREALIZED FAIR
COST GAINS VALUE
--------- ---------- ---------

Trading: (Financial)
1994............................ $40,600 $ 11,240 $ 51,840
1995............................ 42,970 17,940 60,910
1996............................ -- -- --

NOTE 3 CONCENTRATIONS OF CREDIT RISK

The Company performs services within its facility located in Bristol,
Connecticut. The Company extends credit to customers located within the
surrounding areas.

The Company's cash account balances maintained at financial banking
institutions may exceed the Federally insured $100,000 during the year.
Management monitors regularly the financial condition of the banking institution
along with their balances in cash and tries to keep the potential risk at a
minimum.

NOTE 4 INCOME TAXES

The provision for corporate income taxes consists of the following:

1994 1995 1996
--------- --------- ----------

Federal income tax................... $ 19,170 $ 18,670 $ (14,560)
State income tax..................... 8,370 11,040 (12,340)
--------- --------- ----------
Total provision (benefit) for
income taxes.................... $ 27,540 $ 29,710 $ (26,900)
========= ========= ==========
Current portion...................... $ 2,540 $ 23,410 $ --
Deferred portion..................... 25,000 6,300 (26,900)
--------- --------- ----------
$ 27,540 $ 29,710 $ (26,900)
========= ========= ==========

F-116

C. FUNK & SON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes result from timing differences between the
recognition of certain income and expense items for income tax reporting and
financial reporting purposes. Deferred income tax assets (liability) result
from:

1994 1995 1996
--------- --------- ----------

Deferred Tax Asset
Net operating loss.............. $ -- $ -- $ 24,600
Allowance for bad debts......... 4,200 5,500 5,500
--------- --------- ----------
Total...................... $ 4,200 $ 5,500 $ 30,100
========= ========= ==========
Deferred Tax Liabilities
Unrealized gain on trading
securities...................... $ 3,100 $ 5,000 $ --
Excess tax depreciation......... 86,300 92,000 94,700
--------- --------- ----------
Total...................... $ 89,400 $ 97,000 $ 94,700
========= ========= ==========

NOTE 5 CAPITAL LEASE OBLIGATIONS

The Company had entered into a long-term capital lease agreement to acquire
vehicles for $163,400. Capitalized future minimum lease payments associated with
the vehicles are included in the Company's vehicle costs in the accompanying
balance sheet. The future minimum lease payments under the capital lease were as
follows:

1994 1995 1996
--------- --------- ----------

Current portion...................... $ 20,510 $ 23,130 $ --
Long-term portion.................... 33,490 10,360 --
--------- --------- ----------
Total........................... $ 54,000 $ 33,490 $ --
========= ========= ==========

NOTE 6 LONG-TERM DEBT

The Company's long-term debt at September 30, 1994, 1995 and June 30, 1996,
consisted of the following:

1994 1995 1996
--------- --------- ----------

Note payable, secured by certain real
property, due in monthly installments
of $1,500 and $1,000, including
interest at prime plus 1.5%........ $ 83,100 $ 60,030 $ --
Note payable, secured by certain real
property, due in monthly
installments of $645, including
interest at 10.0%.................. 15,530 9,050 --
Less: current portion................ (29,560) (32,540) --
--------- --------- ----------
Total long-term debt................. $ 69,070 $ 36,540 $ --
========= ========= ==========

NOTE 7 TREASURY STOCK

During 1994, the Company sold ten treasury shares for $10,000, crediting
treasury stock for its cost of $10,000. During 1995, the Company sold ten
treasury shares for $20,000, crediting treasury stock for its cost of $5,000 and
paid-in capital for $15,000.

NOTE 8 PENSION PLAN

The Company has a defined contribution pension plan that covers all
employees meeting minimum age and length of service requirements. The Company
may fund contributions up to the statutory maximum

F-117

C. FUNK & SON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
established by ERISA. Contributions to this plan in the years ended September
30, 1994, 1995, and the period ended June 30, 1996, was $30,000, $50,000 and
$45,600, respectively.

NOTE 9 RENTAL INCOME

The Company owns and rents garages, parking spaces and apartments to
individuals on a monthly basis.

NOTE 10 RELATED PARTY TRANSACTIONS

The Company has a loan receivable from a stockholder/officer at September
30, 1994, 1995, and June 30, 1996, of $103,930, $110,170 and $115,340,
respectively. The loan has no formal repayment terms and accrues interest at
prime rate.

NOTE 11 FAIR VALUE OF FINANCIAL INSTRUMENTS

The following valuation methods and assumptions were used by the Company in
estimating the fair value of the above financial instruments:

CASH, TRADE RECEIVABLES AND TRADE PAYABLES

The carrying amounts approximates fair value because of the short maturity
of those instruments.

LONG-TERM DEBT

The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the current rates offered to the Company for debt of
the same remaining maturities. The fair value of long-term debt on September 30,
1994 and 1995, were $98,630 and $69,080, respectively.

EQUITY SECURITIES

The fair values are based on quoted market prices. The fair value of equity
securities on September 30, 1994 and 1995, were $51,840 and $60,910,
respectively.

OFFICER LOAN

Because of the lack of comparable borrowing and investing rates, it is not
practicable to estimate the fair value of the stockholder loan.

NOTE 12 SUBSEQUENT EVENT

F-118

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Spence Schnaitter, Executor
Lytle-Gans-Andrew Funeral Home
423 West Main St.
Madison, IN 47250

We have audited the accompanying balance sheets of Lytle-Gans-Andrew
Funeral Home, an estate, as of June 30, 1996, August 31, 1995, and August 31,
1994, and the related statements of income, changes in capital, and cash flows
for the ten month period from September 1, 1995 to June 30, 1996 and the years
ended August 31, 1995 and August 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lytle-Gans-Andrew Funeral
Home, as of June 30, 1996, August 31, 1995, and August 31, 1994, and the results
of its operations and its cash flows for the ten month period from September 1,
1995 to June 30, 1996 and the years ended August 31, 1995 and August 31, 1994 in
conformity with generally accepted accounting principles.

Scott, Callicotte & Co.

Madison, Indiana
July 3, 1996

F-119

LYTLE-GANS-ANDREW FUNERAL HOME
BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, 1996 AUGUST 31, 1995 AUGUST 31, 1994
------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash & Cash Equivalents......... $ 7,291 $ 7,359 $ 9,644
Accounts Receivable............. 57,639 56,129 83,059
Inventory....................... 12,003 12,272 7,530
Notes Receivable................ 38,022 17,289 5,762
------------- --------------- ---------------
Total Current Assets....... 114,955 93,049 105,995
Fixed Assets
Land............................ 30,000 30,000 30,000
Building........................ 200,000 200,000 200,000
Furniture and Equipment......... 51,050 48,856 48,856
------------- --------------- ---------------
281,050 278,856 278,856
Less: Accumulated
Depreciation.................. (60,297) (49,163) (35,224)
------------- --------------- ---------------
Net Fixed Assets................ 220,753 229,693 243,632
------------- --------------- ---------------
TOTAL ASSETS......................... $ 335,708 $ 322,742 $ 349,627
============= =============== ===============
LIABILITIES AND CAPITAL
Current Liabilities
Accounts Payable................ $ 7,216 $ 14,923 $ 14,229
Accrued & Withheld Taxes........ 7,611 8,458 9,410
Notes Payable................... 0 0 8,305
Current Portion of Long-term Debt.... 7,053 9,560 6,216
------------- --------------- ---------------
Total Current
Liabilities............. 21,880 32,941 38,160
Long-term Liabilities
Long-term Debt, Net of
Current....................... 50,144 56,130 62,503
------------- --------------- ---------------
Total Liabilities.......... 72,024 89,071 100,663
CAPITAL
Capital, Ruth Lytle Estate...... 263,684 233,671 248,964
------------- --------------- ---------------
TOTAL LIABILITIES AND CAPITAL........ $ 335,708 $ 322,742 $ 349,627
============= =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-120

LYTLE-GANS-ANDREW FUNERAL HOME
INCOME STATEMENTS
FOR THE TEN MONTHS FROM SEPTEMBER 1, 1995 TO JUNE 30, 1996
FOR THE YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994

1996 1995 1994
---------- ---------- ----------

Revenues
Sales and Services.............. $ 338,795 $ 408,141 $ 532,095

Cost and Expenses
Merchandise Costs............... 48,297 111,509 113,051
Salaries and Wages.............. 162,439 167,207 159,513
Depreciation.................... 11,134 13,939 18,333
Facilities and Grounds.......... 14,803 18,533 19,162
Transportation Costs............ 4,191 5,079 4,686
Other........................... 29,756 36,989 69,770
---------- ---------- ----------
Total...................... 270,620 353,256 384,515

Promotional Expense.................. 5,600 11,039 13,772

General and Administrative........... 16,909 30,622 27,035
---------- ---------- ----------

Operating Margin..................... 45,666 13,224 106,773

Interest Expense..................... 4,382 6,174 8,134

Other Income......................... 2,729 8,682 5,449
---------- ---------- ----------

Net Income........................... $ 44,013 $ 15,732 $ 104,088
========== ========== ==========

The accompanying notes are an integral part of these financial statements.

F-121

LYTLE-GANS-ANDREW FUNERAL HOME
STATEMENTS OF CHANGES IN CAPITAL
INCOME STATEMENTS FOR THE TEN MONTHS FROM SEPTEMBER 1, 1995 TO JUNE 30, 1996
FOR THE YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994

Balance, September 1, 1993.............. $ 186,965
Net Income.............................. 104,088
Distribution to Estate.................. (46,300)
Capital Contributed..................... 4,211
----------
Balance, August 31, 1994................ 248,964
Net Income.............................. 15,732
Distribution to Estate.................. (31,025)
----------
Balance, August 31, 1995................ 233,671
Net Income.............................. 44,013
Distribution to Estate.................. (14,000)
----------
Balance, June 30, 1996.................. $ 263,684
==========

The accompanying notes are an integral part of these financial statements.

F-122

LYTLE-GANS-ANDREW FUNERAL HOME
STATEMENTS OF CASH FLOWS
INCOME STATEMENTS FOR THE TEN MONTHS FROM SEPTEMBER 1, 1995 TO JUNE 30, 1996
FOR THE YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994

1996 1995 1994
---------- ---------- ----------

Cash Flows From Operating Activities
Net Income............................ $ 44,013 $ 15,732 $ 104,088
Adjustments to reconcile net income to
net cash provided
by (used in) operating activities:
Depreciation....................... 11,134 13,939 18,333
(Increase) Decrease in Accounts
Receivable....................... (1,510) 26,930 (67,928)
(Increase) Decrease in Inventories
and Other Current
Assets........................... (20,464) (16,269) (5,459)
Increase (Decrease) in Accounts
Payable.......................... (7,707) 694 3,624
Increase (Decrease) in Accrued
Liabilities...................... (847) (952) (2,235)
---------- ---------- ----------
Net Cash Provided by Operating
Activities................. 24,619 40,074 50,423
Cash Flows From Investing Activities:
Purchase of Equipment................. (2,194) 0 0
---------- ---------- ----------
Net Cash Used in Investing
Activities................. (2,194) 0 0
Cash Flows from Financing Activities:
Proceeds (Payments) on Debt........... (8,493) (11,334) (14,546)
Capital Contributed................... 0 0 4,211
Distributions to Estate............... (14,000) (31,025) (46,300)
---------- ---------- ----------
Net Cash Used in Financing
Activities................. (22,493) (42,359) (56,635)
Net Increase (Decrease) in Cash and Cash
Equivalents........................... (68) (2,285) (6,212)
Cash and Cash Equivalents at Beginning
of Period............................. 7,359 9,644 15,856
---------- ---------- ----------
Cash and Cash Equivalents at End of
Period................................ $ 7,291 $ 7,359 $ 9,644
========== ========== ==========

The accompanying notes are an integral part of these financial statements.

F-123

LYTLE-GANS-ANDREW FUNERAL HOME
NOTES TO FINANCIAL STATEMENTS
FOR THE TEN MONTHS FROM SEPTEMBER 1, 1995 TO JUNE 30, 1996
FOR THE YEARS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION/NATURE OF OPERATIONS

Lytle-Gans-Andrew Funeral Home (the Company), is owned by the Ruth Lytle
Estate. The Company owns and operates a funeral home in Indiana. The Company
performs personal and professional services related to funerals at its funeral
home. Prearranged funerals are marketed in the markets served by the Company's
funeral service location.

The Company has reached an agreement in principle to sell all of its assets
to Carriage Funeral Holdings, Inc. for aggregate consideration in excess of the
recorded amounts of the Company's net assets.

FUNERAL REVENUES

The Company records the sale of funeral merchandise and services upon
performance.

TRUST FUNDS

The company is generally required by state laws to deposit amounts in a
trust fund related to prearranged funeral arrangements. The principal and
interest earned is withdrawn when the funeral services are provided. The
proceeds of the original amounts paid by the purchaser of the prearranged
funeral contract are available to the Company only in the event of the death of
the purchaser and are refundable to the purchaser under certain state laws that
provide for the return of all or a portion of amounts collected under the
purchaser's option to cancel the prearranged funeral contract. No funeral
revenue is recognized on the funds collected from the purchaser of the
prearranged funeral contract and interest earned on such funds is deferred until
performance of the specific service. The Company does not have the right to
withdraw any of the funds and, accordingly, these trust fund balances are not
reflected in the accompanying financial statements.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.

INVENTORY

Inventory is stated at the lower of its cost basis (fair value at date of
acquisition) or net realizable value.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at fair value at the time of Ruth
Lytle's death. Depreciation of property, plant and equipment is computed based
on the straight-line method over estimated useful lives of the assets. The costs
of ordinary maintenance and repairs are charged to operations while renewals and
replacements are capitalized.

INCOME TAXES

Income from the Company is combined with the income and expenses of the
estate from other sources and reported in the estate's federal and state income
tax returns. The Company is not a taxpaying entity for purposes of federal and
state income taxes, and thus no income taxes have been recorded in the
statements. The estate customarily makes estimated tax payments toward its
income tax liability from the Company bank account. These payments are treated
as withdrawals of capital.

F-124

LYTLE-GANS-ANDREW FUNERAL HOME
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTS RECEIVABLE

The Company uses the direct write off method to account for bad debts which
is not materially different from Generally Accepted Accounting Principles.

USE OF ESTIMATES

2. LONG-TERM DEBT

The Company's long-term debt at June 30, 1996, August 31, 1995 and 1994
consisted of the following:

6/30/96 8/31/95 8/31/94
------- ------- -------
Note payable, secured by deed
of trust and security agreements
covering certain real property, due
in monthly installments of $988 with
interest at 8.375% variable rate
interest, matures October 2002....... $57,197 $65,690 $68,719
Less Current Portion: (7,053) (9,560) (6,216)
------- ------- -------
Long-term Portion.................... $50,144 $56,130 $62,503

Maturities of Long-term Debt for the years ended June 30 are as follows:

1997 1998 1999 2000 2001 THEREAFTER
-------- --------- --------- --------- --------- ----------

$7,053 $ 7,705 $ 8,417 $ 9,195 $ 10,046 $ 14,781

F-125

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE CLASS A COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSONS TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE
----
Prospectus Summary ........................................................ 3
Risk Factors .............................................................. 8
The Company ............................................................... 12
Use of Proceeds ........................................................... 13
Dividend Policy ........................................................... 14
Capitalization ............................................................ 15
Dilution .................................................................. 16
Selected Historical Consolidated Financial and Operating Data ............. 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 19
Business .................................................................. 26
Management ................................................................ 34
Certain Transactions ...................................................... 42
Principal Stockholders .................................................... 43
Description of Capital Stock .............................................. 43
Shares Eligible for Future Sale ........................................... 47
Underwriting .............................................................. 49
Legal Matters ............................................................. 50
Experts ................................................................... 50
Available Information ..................................................... 51
Index to Financial Statements ............................................. F-1

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

UNTIL SEPTEMBER 2, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

3,400,000 SHARES

[CARRIAGE SERVICES LOGO]

CLASS A COMMON STOCK

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

3,400,000 SHARES

[L O G O]

CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------

MERRILL LYNCH & CO.
THE CHICAGO CORPORATION
AUGUST 8, 1996
PROSPECTUS
------------------------

MERRILL LYNCH & CO.
THE CHICAGO CORPORATION
AUGUST 8, 1996