CARRIAGE SERVICES INC, S-1/A, 1998-05-06

CARRIAGE SERVICES INC
S-1/A, 1998-05-06
PERSONAL SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1998
REGISTRATION NO. 333-51153

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

CARRIAGE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 7261 76-0423828
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
(281) 556-7400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

MELVIN C. PAYNE
CHIEF EXECUTIVE OFFICER
1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
(281) 556-7400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)

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

COPIES TO:

T. MARK KELLY
VINSON & ELKINS L.L.P. THOMAS P. MASON
2300 FIRST CITY TOWER, 1001 ANDREWS & KURTH L.L.P.
FANNIN 4200 CHASE TOWER, 600 TRAVIS
HOUSTON, TEXAS 77002-6760 HOUSTON, TX 77002
(713) 758-2222 (713) 220-4200
(713) 615-5531 (FAX)

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------

If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 6, 1998

PROSPECTUS

5,000,000 SHARES

[LOGO]

CLASS A COMMON STOCK
------------------------

All 5,000,000 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. ("Carriage" or the "Company").

The Class A Common Stock is quoted on the Nasdaq National Market ("NASDAQ")
under the symbol "CRSV." On May 4, 1998, the last reported sale price of the
Class A Common Stock on the NASDAQ was $24 per share. The Company has made
application to list the Class A Common Stock on the New York Stock Exchange
("NYSE") under the symbol "CSV," and it is expected that the Class A Common
Stock will begin to trade on the NYSE on or about May 8, 1998. See "Price Range
of Class A Common Stock and Dividend Policy."

The Company has two classes of Common Stock: the Class A Common Stock 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"). Each share of Class
A Common Stock offered hereby is entitled to one vote. Each share of Class B
Common Stock is entitled to ten votes 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 79% of the voting power of the outstanding shares of
Common Stock. See "Description of Capital Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH 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............. $ $ $
- -------------------------------------------------------------------------------
Total(3).............. $ $ $
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

(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 $500,000.

(3) The Company has granted to the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to 750,000 additional
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 total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , 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 the
Underwriters against payment therefor, subject to certain 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
, 1998.

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

MERRILL LYNCH & CO.
ABN AMRO INCORPORATED
CREDIT SUISSE FIRST BOSTON
RAYMOND JAMES & ASSOCIATES, INC.
------------------------
The date of this Prospectus is , 1998.
<PAGE>
[MAP]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF CLASS A COMMON
STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. UNLESS OTHERWISE
INDICATED, REFERENCES HEREIN TO "CARRIAGE" AND THE "COMPANY" REFER TO CARRIAGE
SERVICES, INC., ITS CONSOLIDATED SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS.

THE COMPANY

GENERAL

Carriage is a leading provider of death care services and products in the
United States. As of March 31, 1998, the Company operated 123 funeral homes and
21 cemeteries in 21 states. The Company provides a complete range of services
relating to funerals, burials and cremations, including the use of funeral homes
and motor vehicles, the performance of cemetery interment services and the
management and maintenance of cemetery grounds. The Company also sells related
products and merchandise including caskets, burial vaults, garments, cemetery
interment rights, stone and bronze memorials, as well as other items. Over the
past five years, the Company's revenues, earnings and profit margins have
increased significantly. From 1993 to 1997, revenues increased from $11.3
million to $77.4 million, operating income increased from $75,000 to $14.1
million and diluted earnings per common share from continuing operations
increased from a loss of $0.66 to a profit of $0.34. For the three months ended
March 31, 1998, the Company's revenues were $28.1 million, operating income was
$6.9 million and diluted earnings per common share from continuing operations
were $0.22 as compared to $0.16 in the same period of 1997.

Since the Company's formation in 1991, management has focused on
distinguishing itself from its competitors by developing an employee driven
organization that emphasizes: (i) providing the highest level of personalized
service to client families, (ii) comprehensive employee training, (iii) a
decentralized management structure, and (iv) incentive compensation and
broad-based employee stock ownership. The Company's success in developing its
operating philosophy, as well as the increasing awareness of the Company in the
death care industry, has resulted in an increasing number of highly attractive
acquisition opportunities. The Company acquired 38 funeral homes and seven
cemeteries for consideration of $68 million in 1996 and 44 funeral homes and 10
cemeteries for consideration of $118 million in 1997. In addition, through April
30, 1998, the Company has either acquired or executed non-binding letters of
intent to acquire 24 funeral homes and four cemeteries for consideration of
approximately $80 million.

DEATH CARE INDUSTRY

The death care industry has 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 25% of the 1997 United States
death care industry revenues are represented by the five publicly traded death
care companies. Death care businesses have traditionally been transferred to
successive generations within a family and in most cases have developed a loyal
clientele and a local heritage and tradition that provide a formidable barrier
to those wishing to enter an existing market. Death rates in the United States
are fairly predictable over time, which lends stability to the industry.

The number of deaths in the United States has increased at a compound rate
of approximately 1% per year since 1980 and is expected to continue to increase
at that rate through 2010. In the past several years, the industry has witnessed
considerable consolidation. Estate planning issues, needs for enhanced service
levels, increased government regulation and a desire to address management
succession concerns have led independent funeral home owners to pursue
opportunities to combine their businesses with larger, national

3
<PAGE>
death care companies. Management believes that the Company is well positioned to
be a major participant in the continued consolidation of the industry.

BUSINESS STRATEGY

The Company's business strategy is to build upon its reputation as a
premier operating company thereby creating attractive opportunities for
acquisitions. The Company seeks to achieve a balance between the need for
superior overall corporate financial performance and the desire to promote
higher levels of personalized service to client families. The commitment of
local management and employees to the Company's decentralized, entrepreneurial
service culture has been a major factor in the Company's ability to deliver
increasing levels of profitability and to attract premier funeral home and
cemetery owners to Carriage.

The Company's operating strategy is focused on increasing the revenues and
profitability of each operating location through a combination of personalized
local service and improved operating efficiencies. In order to maximize the
long-term performance of existing and newly acquired properties and to position
the Company for future growth, management has made significant operating and
infrastructure enhancements over the past 12 months. These enhancements include
strengthening the corporate and operating management teams, improving supplier
arrangements, expanding operating and financial information systems, setting
higher service and financial standards for individual operations, monitoring
more closely the performance of individual operations and developing employee
stock ownership and incentive compensation programs. The Company initiated a
comprehensive Company-wide service training program for its employees and
managers to emphasize and enhance the delivery of personalized service as well
as to improve management skills. The Company has also built a national preneed
sales force to increase its market share and to improve the performance of its
funeral homes and cemeteries.

The Company's acquisition strategy is focused on expanding its funeral home
and cemetery presence into new markets across the United States and increasing
its funeral home and cemetery presence in markets that it currently serves. The
Company aggressively pursues the acquisition of premier funeral homes and
cemeteries that have a strong local market presence. In evaluating specific
acquisition candidates, the Company considers such factors as the property's
reputation, heritage, quality of operating management, competitive market
position, volume of business, location, aesthetics, potential for development or
expansion, pricing structure and profitability potential. In the future, the
Company intends to pursue more cemetery acquisition opportunities than it has in
the past, especially combination funeral home/cemetery properties. Management
believes the development of its national preneed sales organization positions
the Company to compete successfully for cemetery acquisitions and achieve its
targeted returns on cemetery investments. Furthermore, the Company's increased
cemetery presence will partially reduce exposure to declines in the death rate,
improve the Company's position in markets where it already owns funeral homes
and provide cross-marketing opportunities which leverage its preneed sales
organization. Management believes that many independent funeral home and
cemetery owners have chosen to combine their businesses with the Company due to
the attractiveness of the Company's operating philosophy and management style
that encourages individual input and personal growth while providing the
challenge of helping the Company achieve its strategic objectives within their
particular regions. These opportunities provided by the Company have resulted in
certain owners' desire to receive equity securities of the Company as part of
their acquisition consideration.

The Company's principal executive office is located at 1300 Post Oak Blvd.,
Suite 1500, Houston, Texas 77056, and its telephone number is (281) 556-7400.

4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Class A Common Stock offered......... 5,000,000 shares
Common Stock to be outstanding after
the Offering(1):
Class A Common Stock............... 11,533,327 shares
Class B Common Stock............... 4,624,823 shares
Total......................... 16,158,150 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 and for general
corporate purposes, including future acquisitions.
See "Use of Proceeds."
Class A Common Stock NASDAQ "CRSV"
symbol(2)..........................
</TABLE>
- ------------

(1) Excludes, as of March 31, 1998, (i) approximately 65,000 shares of Class B
Common Stock issuable upon exercise of options, (ii) approximately 1,654,000
shares of Class A Common Stock issuable upon exercise of options, (iii)
74,364 shares of Class B Common Stock issuable upon conversion of 1,682,500
shares of the Company's convertible redeemable Series D Preferred Stock, par
value $.01 per share (the "Series D Preferred Stock"), and (iv) 722,250
shares of Class A Common Stock issuable upon conversion of 12,278,285 shares
of the Company's convertible redeemable Series F Preferred Stock, par value
$.01 per share (the "Series F Preferred Stock"). See "Management" and
"Description of Capital Stock."

(2) The Company has made application to list the Class A Common Stock on the
NYSE under the symbol "CSV," and it is expected that the Class A Common
Stock will begin to trade on the NYSE on or about May 8, 1998.

5
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED 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 five years ended December 31,
1997 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 three months ended March 31, 1997 and 1998
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
following information should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral............................. $ 10,651 $ 17,368 $ 22,661 $ 37,445 $ 64,888 $ 15,288 $ 23,243
Cemetery............................ 614 1,036 1,576 2,903 12,533 2,701 4,875
--------- --------- --------- --------- --------- --------- ---------
Total net revenues............. 11,265 18,404 24,237 40,348 77,421 17,989 28,118
--------- --------- --------- --------- --------- --------- ---------
Gross profit:
Funeral............................. 917 2,856 3,740 6,804 16,484 4,668 7,410
Cemetery............................ 143 158 250 362 2,899 475 1,377
--------- --------- --------- --------- --------- --------- ---------
Total gross profit............. 1,060 3,014 3,990 7,166 19,383 5,143 8,787
General and administrative expenses..... 985 1,266 2,106 2,474 5,277 1,021 1,869
--------- --------- --------- --------- --------- --------- ---------
Operating income........................ 75 1,748 1,884 4,692 14,106 4,122 6,918
Interest expense, net................... 1,745 2,671 3,684 4,347 5,889 1,154 2,107
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes....... (1,670) (923) (1,800) 345 8,217 2,968 4,811
Provision for income taxes.............. --(1) 40 694 138 3,726 1,143 2,165
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item.................................. (1,670) (963) (2,494) 207 4,491 1,825 2,646
Extraordinary item, net................. -- -- -- (498) (195) -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) after extraordinary
item.................................. (1,670) (963) (2,494) (291) 4,296 1,825 2,646
Preferred stock dividends............... -- -- -- 622 890 363 150
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) attributable to common
stockholders.......................... $ (1,670) $ (963) $ (2,494) $ (913) $ 3,406 $ 1,462 $ 2,496
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common share Basic:
Continuing operations............... $ (.66) $ (.38) $ (.99) $ (.09) $ .35 $ .16 $ .22
Extraordinary item.................. -- -- -- (.10) (.02) -- --
--------- --------- --------- --------- --------- --------- ---------
Basic net income (loss) per common
share............................. $ (.66 (1) $ (.38) $ (.99) $ (.19) $ .33 $ .16 $ .22
========= ========= ========= ========= ========= ========= =========
Diluted:
Continuing operations............... $ (.66) $ (.38) $ (.99) $ (.09) $ .34 $ .16 $ .22
Extraordinary item.................. -- -- -- (.10) (.02) -- --
--------- --------- --------- --------- --------- --------- ---------
Diluted net income (loss) per common
share............................. $ (.66 (1) $ (.38) $ (.99) $ (.19) $ .32 $ .16 $ .22
========= ========= ========= ========= ========= ========= =========
Weighted average number of common and common equivalent shares outstanding:
Basic............................... 2,520(1) 2,520 2,520 4,869 10,226 9,054 11,151
========= ========= ========= ========= ========= ========= =========
Diluted............................. 2,520 2,520 2,520 4,869 10,485 10,568 12,122
========= ========= ========= ========= ========= ========= =========
</TABLE>

(TABLE CONTINUED ON FOLLOWING PAGE)

6
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND FINANCIAL DATA:
Funeral homes at end of period.......... 25 34 41 76 120 97 123
Cemeteries at end of period............. 2 3 3 10 20 12 21
Funeral services performed during
period................................ 2,265 3,529 4,414 7,181 12,131 2,948 4,203
Preneed funeral contracts sold.......... 644 762 2,610 3,760 4,020 1,127 1,568
Backlog of preneed funeral contracts.... 5,170 6,855 8,676 22,925 34,797 26,400 36,425
Depreciation and amortization........... $ 947 $ 1,476 $ 1,948 $ 3,629 $ 7,809 $ 1,563 $ 2,417
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------
AS OF DECEMBER 31, 1997 ACTUAL AS ADJUSTED(2)
----------------------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 5,823 $ 5,344 $ 5,344
Total assets............................ 277,940 287,311 287,311
Long-term debt, net of current
maturities............................ 121,553 131,323 17,823
Redeemable preferred stock.............. 13,951 13,951 13,951
Stockholders' equity.................... 98,565 100,861 214,361
</TABLE>

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

(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 1993, the entities were subchapter S corporations, and taxes
were the direct responsibility of the owners. Thus, the tax provision
reflected above for 1993 is based on assumptions about what the tax
provision (benefit) 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 this period because the Company followed a policy of not
recognizing the benefits associated with net operating losses during such
period.

(2) As adjusted to give effect to the Offering and the application of the
estimated net proceeds to the Company therefrom.

7
<PAGE>
FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including without limitation, statements that include the words
"anticipates," "believes," "estimates" and "expects" and similar expressions and
statements relating to the Company's strategic plans, capital expenditures,
industry trends and the Company's financial position. Such forward-looking
statements reflect the Company's current views with respect to future events and
are subject to certain risks, uncertainties and assumptions, including
competition for and availability of funeral home and cemetery acquisitions, the
ability of the Company to manage an increasing number of funeral homes and
cemeteries, the Company's ability to retain key management personnel and to
continue to attract and retain skilled funeral home and cemetery management
personnel, state and federal regulations, changes in the death rate or
acceleration of the trend towards cremation, availability and cost of capital
and general industry and economic conditions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, believed, estimated
or expected. The Company does not intend to update these forward-looking
statements and information.

RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.

AVAILABILITY, FINANCING AND INTEGRATION OF ACQUISITIONS

The Company has grown rapidly through acquisitions of funeral homes and
cemeteries. Although the Company believes it has an adequate infrastructure,
there can be no assurance that the Company's current management, personnel and
other corporate infrastructure will be adequate to manage the Company's growth.
In addition, to the extent the success of the Company's strategy is contingent
on making further acquisitions, there can be no assurance that the Company will
be able to identify and acquire acceptable acquisition candidates on terms
favorable to the Company or that the Company will be able to integrate such
acquisitions successfully 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, risks associated with unanticipated events or liabilities and
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Competition in the acquisition market is intense, and
prices paid for funeral homes and cemeteries have increased in recent years. In
addition, the four other publicly held North American death care companies, each
of which has greater financial and other resources than the Company, are
actively engaged in acquiring funeral homes and cemeteries in a number of
markets. In addition, to the extent the Company is required to writedown
goodwill associated with acquisitions due to a decline in the value of such
acquired businesses, such writedown could have a material adverse effect on the
operating results of the Company.

The Company may finance future acquisitions through the incurrence of
additional bank indebtedness, the utilization of cash from operations, the
issuance of Class A Common Stock or other securities, or any combination
thereof. In the event that the Class A Common Stock does not maintain a
sufficient market value, or potential acquisition candidates are otherwise
unwilling to accept Class A Common Stock or other securities as part of the
consideration for the sale of their businesses, the Company may be required to
utilize more of its cash resources or available funds under the New Credit
Facility (as defined herein) in order to finance future acquisitions. If the
Company does not have sufficient cash resources, its ability to make
acquisitions could be limited unless it is able to obtain additional capital
through debt or equity financings. There can be no assurance that the Company
will be able to obtain all the financing it will need in the future on terms the
Company deems acceptable.

8
<PAGE>
FLUCTUATIONS IN OPERATING RESULTS

Results for any particular period are not necessarily indicative of the
results that the Company may achieve for any subsequent period. Quarterly or
yearly results may vary materially as a result of the timing and structure of
acquisitions, any writedown of goodwill, the timing and magnitude of costs
related to such acquisitions and fluctuations in the death rate. Such
fluctuations in operating results may adversely affect the market price of the
Class A Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

DEPENDENCE UPON KEY PERSONNEL

The Company depends to a large extent upon the abilities and continued
efforts of Melvin C. Payne, Chairman of the Board and Chief Executive Officer,
Mark W. Duffey, President, 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 has entered into employment agreements with its
principal executive officers. 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 approximately 11.5 million
shares of Class A Common Stock outstanding and approximately 4.6 million shares
of Class B Common Stock outstanding. The Company's Amended and Restated
Certificate of Incorporation (the "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 approximately 79% of the voting power of the
outstanding shares of Common Stock (approximately 78% if the Underwriters'
over-allotment option is exercised in full). These stockholders are 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 (the "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. Certain holders of Class B Common Stock have entered
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 1996, as compared with approximately
10% in 1980. Compared to traditional funeral services, cremations have

9
<PAGE>
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

As of March 31, 1998, there were 6,533,327 shares of Class A Common Stock
issued and outstanding, and upon the issuance of the 5,000,000 shares of Class A
Common Stock to be issued by the Company and offered for sale in the Offering,
there will be 11,533,327 shares of Class A Common Stock issued and outstanding.
Approximately 5,900,000 shares of Class A Common Stock (which includes
approximately 5,400,000 shares of Class A Common Stock issuable upon conversion
of outstanding shares of Class B Common Stock and outstanding shares of
preferred stock based on conversion rates as of March 31, 1998) held by existing
stockholders of the Company are "restricted securities" within the meaning of
Rule 144 under the Securities Act. The Company believes that substantially all
of these "restricted" shares of Class A Common Stock are currently eligible for
resale subject to the volume, manner of sale and other limitations of Rule 144.
See "Shares Eligible for Future Sale." In addition, an aggregate of
approximately 1,954,000 shares of Class A Common Stock and approximately 68,200
shares of Class B Common Stock are reserved for issuance to employees, directors
and consultants of the Company under the Company's option plans. As of March 31,
1998, approximately 1,654,000 shares of Class A Common Stock and approximately
65,000 shares of Class B Common Stock are issuable under existing options
granted to employees, directors and consultants. The Company has registered all
shares of Common Stock issuable pursuant to its option plans pursuant to
registration statements on Forms S-8 filed with the Securities and Exchange
Commission (the "Commission"). See "Management -- Incentive Plans," "Description
of Capital Stock" and "Shares Eligible for Future Sale." In addition, the
Company has filed a shelf registration statement covering up to 2,000,000 shares
of Class A Common Stock that may be issued from time to time by the Company to
fund future acquisitions. As of March 31, 1998, approximately 1,500,000 shares
of Class A Common Stock remained available for issuance under this shelf
registration statement. Shares covered by the shelf registration statement may
be issued or resold (as the case may be) and are freely tradeable, when issued,
by the holders thereof (other than "affiliates" of the Company and in the case
of acquisitions, "affiliates" of the businesses acquired).

The Company and its executive officers and directors 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 90 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

10
<PAGE>
exercisable and such shares issuable upon exercise of options or pursuant to
acquisitions shall not be transferable prior to the end of the 90-day period.
See "Shares Eligible for Future Sale" and "Underwriting."

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."

11
<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDEND POLICY

The Company's Class A Common Stock is quoted on the NASDAQ under the symbol
"CRSV." The Company has made application to list the Class A Common Stock on the
NYSE under the symbol "CSV," and it is expected that the Class A Common Stock
will begin to trade on the NYSE on or about May 8, 1998. The following table
presents the quarterly high and low sale prices as reported by the Nasdaq
National Market since the shares became publicly traded on August 9, 1996.

HIGH LOW
---- ----
1996:
Third Quarter (beginning August 9,
1996)........................... $22 3/4 $ 141/4
Fourth Quarter..................... 23 1/2 183/8
1997:
First Quarter...................... 26 181/4
Second Quarter..................... 22 3/4 17
Third Quarter...................... 22 3/4 161/4
Fourth Quarter..................... 19 5/8 161/2
1998:
First Quarter...................... 24 3/4 163/4
Second Quarter (through May 4,
1998)........................... 26 23

On May 4, 1998, the last reported sale price of the Class A Common Stock
on the NASDAQ was $24.00 per share. As of March 31, 1998, there were 6,533,327
shares of Class A Common Stock outstanding held by approximately 195 holders of
record. The Company believes there are approximately 2,400 beneficial owners of
the Class A Common Stock.
The Company has never paid a cash dividend on the Class A or Class B Common
Stock. The Company currently intends to retain earnings to finance the growth
and development of its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. In addition, certain
provisions of the New Credit Facility provide certain restrictions on the
payment of dividends on the Class A or Class B 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 dividends at an
annual rate of $.06 per share or $.07 per share, depending on the date such
shares were issued. Holders of shares of the Series F Preferred Stock are
currently entitled to receive dividends at an annual rate of $.042 per share.
Such dividends are payable quarterly. From January 1, 1996 through March 31,
1998, cash dividends of approximately $918,924 on the Series D Preferred Stock
and $743,370 on the Series F Preferred Stock had been paid. See "Description of
Capital Stock."
USE OF PROCEEDS

The net proceeds to be received by the Company from the Offering (assuming
a price of $24.00 per share) are estimated to be approximately $113.5 million
(approximately $130.6 million if the Underwriter's over-allotment option is
exercised in full), after deducting the estimated underwriting discount and
Offering expenses. Substantially all of the net proceeds will be used to repay
outstanding indebtedness under the New Credit Facility, incurred principally to
fund acquisitions. As of April 30, 1998, $121.0 million was outstanding under
the New Credit Facility with an average effective interest rate of 6.85%. Any
remaining net proceeds will be used for general corporate purposes, including
future acquisitions. Amounts repaid on the New Credit Facility may be reborrowed
from time to time for possible future acquisitions, capital expenditures and
other general corporate purposes.

12
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1998 and as adjusted to reflect the sale of the shares of Class A
Common Stock offered hereby (assuming the Underwriters' over-allotment option is
not exercised) 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
the Consolidated Financial Statements and notes thereto included elsewhere in
this Prospectus.

AS OF MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
Current portion of long-term debt and
obligations under capital leases... $ 2,116 $ 2,116
======== ============
Long-term debt and obligations under
capital leases (excluding current portion):
Credit facility................. $115,550 $ 2,050
Acquisition debt................ 11,243 11,243
Other........................... 4,530 4,530
Obligations under capital
leases........................ 4,391 4,391
-------- ------------
Total long-term debt and
obligations under capital
leases..................... 135,714 22,214
-------- ------------
Redeemable preferred stock(1)........ 13,951 13,951
-------- ------------
Stockholders' equity(2):
Class A Common Stock, par value
$.01 per share, 40,000,000
shares authorized; 6,533,327
shares issued and outstanding;
11,533,327 shares issued and
outstanding, as adjusted...... 66 116
Class B Common Stock, par value $.01 per share, 10,000,000 shares
authorized; 4,624,823 shares issued and outstanding,
and as adjusted............... 46 46
Contributed capital............. 101,855 215,305
Accumulated deficit............. (1,106) (1,106)
-------- ------------
Total stockholders'
equity..................... 100,861 214,361
-------- ------------
Total
capitalization........ $250,526 $250,526
======== ============

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

(1) The redeemable preferred stock (the Series D Preferred Stock and Series F
Preferred Stock) is convertible at the holder's option into Class A and
Class B Common Stock at a conversion price based upon a ten-day average of
the market price of the Class A Common Stock ($22.625 as of March 31, 1998)
for the Series D Preferred Stock and at a current conversion price of $17.00
per share for the Series F Preferred 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. On December 31, 2007, the Company must redeem all shares
of Series F 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."

(2) Does not include shares of Common Stock issuable upon exercise of options
outstanding under the Company's stock option plans. See "Management."

13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OPERATING DATA

The following table sets forth selected 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 five years ended
December 31, 1997 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 three months ended March 31,
1997 and 1998 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 following information 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 notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral............................ $ 10,651 $ 17,368 $ 22,661 $ 37,445 $ 64,888 $ 15,288 $ 23,243
Cemetery........................... 614 1,036 1,576 2,903 12,533 2,701 4,875
--------- --------- --------- --------- --------- --------- ---------
Total net revenues............ 11,265 18,404 24,237 40,348 77,421 17,989 28,118
--------- --------- --------- --------- --------- --------- ---------
Gross profit:
Funeral............................ 917 2,856 3,740 6,804 16,484 4,668 7,410
Cemetery........................... 143 158 250 362 2,899 475 1,377
--------- --------- --------- --------- --------- --------- ---------
Total gross profit............ 1,060 3,014 3,990 7,166 19,383 5,143 8,787
General and administrative expenses..... 985 1,266 2,106 2,474 5,277 1,021 1,869
--------- --------- --------- --------- --------- --------- ---------
Operating income........................ 75 1,748 1,884 4,692 14,106 4,122 6,918
Interest expense, net................... 1,745 2,671 3,684 4,347 5,889 1,154 2,107
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes....... (1,670) (923) (1,800) 345 8,217 2,968 4,811
Provision for income taxes.............. --(1) 40 694 138 3,726 1,143 2,165
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item.................................. (1,670) (963) (2,494) 207 4,491 1,825 2,646
Extraordinary item, net................. -- -- -- (498) (195) -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) after extraordinary
item.................................. (1,670) (963) (2,494) (291) 4,296 1,825 2,646
Preferred stock dividends............... -- -- -- 622 890 363 150
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) attributable to common
stockholders.......................... $ (1,670) $ (963) $ (2,494) $ (913) $ 3,406 $ 1,462 $ 2,496
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common share Basic:
Continuing operations.............. $ (.66) $ (.38) $ (.99) $ (.09) $ .35 $ .16 $ .22
Extraordinary item................. -- -- -- (.10) (.02) -- --
--------- --------- --------- --------- --------- --------- ---------
Basic net income (loss) per common
share............................ $ (.66 (1) $ (.38) $ (.99) $ (.19) $ .33 $ .16 $ .22
========= ========= ========= ========= =========
Diluted:
Continuing operations.............. $ (.66) $ (.38) $ (.99) $ (.09) $ .34 $ .16 $ .22
Extraordinary item................. -- -- -- (.10) (.02) -- --
--------- --------- --------- --------- --------- --------- ---------
Diluted net income (loss) per
common share..................... $ (.66 (1) $ (.38) $ (.99) $ (.19) $ .32 $ .16 $ .22
========= ========= ========= ========= ========= ========= =========

Weighted average number of common and
common equivalent shares outstanding:
Basic.............................. 2,520(1) 2,520 2,520 4,869 10,226 9,054 11,151
========= ========= ========= ========= ========= ========= =========
Diluted............................ 2,520 2,520 2,520 4,869 10,485 10,568 12,122
========= ========= ========= ========= ========= ========= =========
</TABLE>
14
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------
1993 1994 1995 1996 1997 AS OF MARCH 31, 1998
--------- --------- --------- ---------- ---------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ (142) $ 4,271 $ 6,472 $ 5,089 $ 5,823 $ 5,344
Total assets............................ 28,784 44,165 61,746 131,308 277,940 287,311
Long-term debt, net of current
maturities............................ 26,270 32,622 42,057 42,733 121,553 131,323
Redeemable preferred stock.............. -- -- -- 17,251 13,951 13,951
Stockholder's equity (deficit).......... (2,626) 3,429 9,151 57,043 98,565 100,861
</TABLE>

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

15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company became a public company during the third quarter of 1996. The
Company's focus is on growth through acquisitions and enhancements at facilities
currently owned to increase revenues and gross profit. The Company entered 1997
with the goals (among others) of increasing cash flow from operations;
increasing margins in its funeral home and cemetery operations; substantially
increasing the preneed sales and marketing activities; and filling critical
personnel needs in the finance, corporate development and cemetery operations
areas. The objective of these goals was to build the infrastructure and
stability of the Company as it continued to pursue consolidation opportunities
in the death care industry. The Company successfully met these goals and
achieved profitability in each quarter of 1997, even though death rates were
lower than expected in certain markets.

Cash flow from operations, which the Company defines as earnings before
interest, income taxes, and depreciation and amortization, increased, as a
percentage of net revenues, from 22.6% for 1996 to 29.7% for 1997. This
improvement was largely due to the increased gross profits at the individual
locations. Gross margins for the funeral homes increased to 25.4% in 1997 from
18.2% in 1996 as a result of margin management training for the managers and
directors related to merchandising and memorialization and benefits from cost
containment and clustering, where realizable. Improvements in cemetery gross
profit margins were dramatic in 1997. Fueled by a doubling of the number of
cemeteries during the year and the restructuring of the preneed sales function
in late 1996, cemetery gross profit increased 700% while cemetery revenues
increased 332%. As a percentage of cemetery net revenues, cemetery gross profit
was 23.1% in 1997 compared to 12.5% in 1996. The Rolling Hills Cemetery, which
was acquired in early 1997, contributed 87% of the revenue increase for the
year. Preneed sales and marketing efforts began to have a significant impact in
the latter part of 1997, as revenues and gross profits from cemeteries owned at
least one year increased 66% and 373%, respectively, in the fourth quarter
compared to the same period in 1996.

The Company has experienced significant growth since the end of 1995 when
it owned 44 facilities. During 1996 and 1997, the Company acquired 45 and 54
facilities, respectively. In a deliberate and managed process, the Company
increased personnel and related infrastructure as a function of the increase in
the Company's revenue run rate. As a consequence, general and administrative
expenses increased from $2.1 million in 1995 to $2.5 million in 1996 and to $5.3
million in 1997. However, general and administrative expenses declined as a
percentage of revenues over these years from 8.7% in 1995 to 6.8% in 1997. The
additional personnel filled critical roles in expanding the geographic coverage
of both corporate development and preneed sales and marketing activities, as
well as the financial, data processing and administrative functions needed to
support the growing number of locations operating in a decentralized management
fashion with timely financial and management information. Additionally, near the
end of 1996, the prearranged funeral and cemetery sales organization was
significantly restructured and expanded. The Company has also begun to allocate
more of its resources to cemetery acquisitions to continue to leverage off its
growing preneed sales force and to partially reduce exposure to fluctuations in
the death rate.

During 1996, the Company acquired 38 funeral homes and seven cemeteries for
an aggregate consideration of approximately $68 million. Forty-four funeral
homes and ten cemeteries were acquired during 1997 for approximately $118
million. These acquisitions were funded through cash flow from operations,
additional borrowings under the Company's credit facilities and issuance of
preferred and common stock. In addition, as of April 24, 1998, the Company had
either acquired or had letters of intent to acquire 20 funeral homes and three
cemeteries for an aggregate consideration of approximately $80 million. The
Company believes its increased recognition in the death care industry as an
established operator and purchaser of funeral homes and cemeteries has improved
its ability to attract potential acquisitions that are larger, strategic and
accretive and its ability to finance its acquisitions with debt and equity.

16
<PAGE>
One consequence of the Company's rapid growth through acquisitions in
recent years is a relatively high level of non-cash depreciation and
amortization expense. For the year ended December 31, 1997, depreciation and
amortization expense as a percentage of net revenues was 10.1%. The Company
believes that this percentage was higher than others in the industry due to the
fact that most of the Company's acquisitions have occurred during the past two
years and have been primarily comprised of funeral homes (as compared to
cemeteries which have a large non-depreciable land component). Because all of
the Company's properties have been acquired in these types of transactions in
the past few years, the non-cash charges related to purchase price allocations
resulting from these acquisitions have had a significant impact on the Company's
reported net income.

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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues, net.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Total gross profit................... 16.5 17.8 25.0 28.6 31.3
General and administrative
expenses............................. 8.7 6.1 6.8 5.7 6.6
Operating income..................... 7.8 11.6 18.2 22.9 24.6
Interest expense, net................ 15.2 10.8 7.6 6.4 7.5
Net income (loss) before
extraordinary item................. (10.3) 0.5 5.8 10.1 9.4
</TABLE>

The following table sets forth the number of funeral homes and cemeteries
owned and operated by the Company for the periods presented:

THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ MARCH 31,
1995 1996 1997 1998
---- ---- ---- ---------
Funeral homes at beginning of
period............................... 34 41 76 120
Acquisitions......................... 8 38 44 4
Divestitures......................... 1 3 0 1
---- ---- ---- ---------
Funeral homes at end of
period........................ 41 76 120 123
==== ==== ==== =========
Cemeteries at beginning of period.... 3 3 10 20
Acquisitions......................... 0 7 10 1
Divestitures......................... 0 0 0 0
---- ---- ---- ---------
Cemeteries at end of period..... 3 10 20 21
==== ==== ==== =========

As of April 30, 1998, the Company had acquired an additional two funeral
homes and had non-binding letters of intent for the acquisition
of 18 funeral homes and three cemeteries.

The following is a discussion of the Company's results of operations for
the three months ended March 31, 1997 and 1998 and the three years ended
December 31, 1995, 1996 and 1997. For purposes of this discussion, funeral homes
and cemeteries owned and operated for the entirety of both periods being
compared are referred to as "existing operations." Operations acquired or opened
during either period being compared are referred to as "acquired operations."

17
<PAGE>

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

FUNERAL HOME SEGMENT.__The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its funeral home
operations for the three months ended March 31, 1997 compared to the three
months ended March 31, 1998.

THREE MONTHS ENDED
MARCH 31, CHANGE
-------------------- ------------------
1997 1998 AMOUNT PERCENT
--------- --------- ------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations............. $ 12,606 $ 13,669 $ 1,063 8.4%
Acquired operations............. 2,682 9,574 6,892 *
--------- --------- -------
Total net revenues......... $ 15,288 $ 23,243 $ 7,955 52.0%
========= ========= =======
Gross profit:
Existing operations............. $ 3,679 $ 4,121 $ 442 12.0%
Acquired operations............. 989 3,289 2,300 *
--------- --------- -------
Total gross profit......... $ 4,668 $ 7,410 $ 2,742 58.7%
========= ========= =======

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

* Not meaningful.

Due to the rapid growth of the Company, existing operations for the quarter
ended March 31, 1998 represented only 59% of the total funeral revenues and only
56% of the total funeral gross profit. Total funeral net revenues for the three
months ended March 31, 1998 increased $8.0 million or 52.0% over the three
months ended March 31, 1997. The higher net revenues reflect an increase of $6.9
million in net revenues from acquired operations and an increase in net revenues
of $1.1 from existing operations.

Total funeral gross profit for the three months ended March 31, 1998
increased $2.7 million or 58.7% over the comparable three months of 1997. The
higher total gross profit reflected an increase of $2.3 million from acquired
operations and an increase of $442,000 from existing operations. Gross profit
for existing operations increased due to the efficiencies gained by
consolidation, cost savings, improved collections experience and the increasing
effectiveness of the Company's merchandising strategy. Total gross margin
increased from 30.5% for the first quarter of 1997 to 31.9% for the first
quarter of 1998 due to these factors. Included in the 30.5% gross margin for
1997 is a gain on the sale of property of $276,000, the exclusion of which would
reduce funeral gross margin to 28.7% for the first quarter of 1997.

CEMETERY SEGMENT.__The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its cemetery
operations for the three months ended March 31, 1997 compared to the three
months ended March 31, 1998.

THREE MONTHS ENDED
MARCH 31, CHANGE
-------------------- ------------------
1997 1998 AMOUNT PERCENT
--------- --------- ------- -------
(DOLLARS IN THOUSANDS)
Total net revenues................... $ 2,701 $ 4,875 $ 2,174 80.5%
========= ========= =======
Total gross profit................... $ 475 $ 1,377 $ 902 189.9%
========= ========= =======

Due to the rapid growth of the Company, existing operations for the
quarter ended March 31, 1998 represented approximately 35% of the cemetery
revenues and approximately 30% of cemetery gross profit as the Company had only
10 cemeteries in operation at the beginning of the first quarter of 1997 versus
21 at the end of the first quarter of 1998. As a result, the Company does not
believe it is meaningful to present the results for existing and acquired
operations separately. Total cemetery net revenues for the three months ended
March 31, 1998 increased $2.2 million over the three months ended March 31,
1997, and total cemetery gross profit increased $902,000 over the comparable
three months of 1997. Total gross margin increased from 17.6% for the first
quarter of 1997 to 28.2% for the first quarter of 1998. These increases were due
primarily to the Company's acquisition of ten cemeteries during 1997 and
increased preneed marketing efforts.

18
<PAGE>

General and administrative expenses for the three months ended March 31,
1998 increased $848,000 or 83.1% over the first three months of 1997 due
primarily to the increased personnel expense necessary to support a higher rate
of growth and acquisition activity. However, the increase in general and
administrative expenses as a percentage of net revenues was less than one
percentage point as the expenses were spread over a larger volume of revenue.

Interest expense for the three months ended March 31, 1998 increased
$953,000 over the first three months of 1997 principally due to increased
borrowings for acquisitions. In September 1997, the Company entered into a new
credit facility (the "New Credit Facility") for an increased line of credit. The
New Credit Facility reflects substantially improved terms and reduced interest
rates compared to the previous arrangements.

Preferred stock dividends of $150,000 were subtracted from the $2.6 million
of net income in computing the net income available to common stockholders of
$2.5 million for the three months ended March 31, 1998. The reduction in
preferred stock dividends from 1997 to 1998 is due to conversions of the
preferred stock to common stock.

For the three months ended March 31, 1998, the Company provided for income
taxes on income before income taxes at a combined state and federal rate of 45%
compared with 38.5% for the same period in 1997. The effective tax rate for the
1997 quarter included a 4.5% tax benefit for the utilization of prior year net
operating losses.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996

FUNERAL HOME SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its funeral home
operations during the years ended December 31, 1996 and 1997:

YEAR ENDED
DECEMBER 31, CHANGE
-------------------- ------------------
1996 1997 AMOUNT PERCENT
--------- --------- ------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations........... $ 25,042 $ 24,627 $ (415) (1.7)%
Acquired operations........... 12,403 40,261 27,858 *
--------- --------- -------
Total net revenues....... $ 37,445 $ 64,888 $27,443 73.3%
========= ========= =======
Gross profit:
Existing operations........... $ 4,396 $ 5,675 $ 1,279 29.1%
Acquired operations........... 2,408 10,809 8,401 *
--------- --------- -------
Total gross profit....... $ 6,804 $ 16,484 $ 9,680 142.3%
========= ========= =======
- ------------

* Not meaningful.

Due to the rapid growth of the Company, existing operations represented
only 38% of the total funeral revenues and only 34% of the total funeral gross
profit for the year ended December 31, 1997. Total funeral net revenues for the
year ended December 31, 1997 increased $27.4 million or 73.3% over 1996. The
higher net revenues reflect an increase of $27.9 million in net revenues from
acquired operations and a decrease in net revenues of $415,000 or 1.7% from
existing operations. The decrease in revenues for the existing operations
primarily resulted from fewer funeral services being performed, which was
partially offset by a 2.6% increase in the average revenue per funeral service.
Fewer services were performed in 1997 primarily due to lower than usual seasonal
death rates in certain of the Company's markets, especially in the East North
Central region of the country where the Company has a large number of existing
operations.

Total funeral gross profit for the year ended December 31, 1997 increased
$9.7 million or 142.3% over 1996. The higher total gross profit reflected an
increased of $8.4 million from acquired operations and an increase of $1.3
million or 29.1% from existing operations. Gross profit for existing operations
increased due to the efficiencies gained by consolidation, cost savings,
improved collections experience and the

19
<PAGE>
increasing effectiveness of the Company's merchandising strategy, which were
partially offset by lower revenues. Total gross profit increased from 18.2% for
1996 to 25.4% for 1997 due to these factors.

CEMETERY SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its cemetery
operations for the years ended December 31, 1996 and 1997.

YEAR ENDED
DECEMBER 31, CHANGE
-------------------- -----------------
1996 1997 AMOUNT PERCENT
--------- --------- ------ -------
(DOLLARS IN THOUSANDS)
Total net revenues................... $ 2,903 $ 12,533 $9,630 331.7%
========= ========= ======
Total gross profit................... $ 362 $ 2,899 $2,537 700.8%
========= ========= ======

Due to the rapid growth of the Company, existing operations represented
approximately 15% of cemetery revenues and approximately 9% of cemetery gross
profit for the years ended December 31, 1997. As a result, the Company does not
believe it is meaningful to present the results for existing and acquired
operations separately.

Total cemetery net revenues for the years ended December 31, 1997 increased
$9.6 million or 331.7% over 1996 and total cemetery gross profit increased $2.5
million or 700.8% over 1996. Total gross margin increased from 12.5% for the
year ended December 31, 1996 to 23.1% for the year ended December 31, 1997.
These increases were due primarily to the Company's acquisition of ten
cemeteries during 1997 and increased preneed marketing efforts.

As a result of the acceleration of the Company's acquisition program
beginning in 1996, the profit contribution from acquired properties exceeded
that of existing operations even though most were not owned for the entire year.
The acquisition and integration of these new properties received the majority of
the corporate operations group's management focus during the year. During the
fourth quarter of 1996, significant additional management resources were added
to this group to provide assistance in increasing revenue and profit margins
from existing ongoing operations and to more rapidly achieve targeted margins
for acquired businesses.

General and administrative expenses for the year ended December 31, 1997
increased $2.8 million or 113.3% over 1996 due primarily to the increased
personnel expense necessary to support a higher rate of growth and acquisition
activity. However, the increase in general and administrative expenses as a
percentage of net revenues was less than one percentage point as the expenses
were spread over a larger volume of revenue.
Interest expense for the year ended December 31, 1997 increased $1.5
million over 1996 principally due to increased borrowings for acquisitions. In
August 1996, the Company utilized the net proceeds from its initial public
offering (the "IPO") and borrowings under a credit facility to repay the
majority of its outstanding debts. In September 1997, the Company entered into
the New Credit Facility for an increased line of credit. In connection with
repayments of debt in both years, the Company recognized an extraordinary loss
of approximately $498,000 and $195,000, net of income tax benefits of
approximately $332,000 and $159,000, for the write-off of the deferred loan
costs associated with the early retirement of debts, for the years ended
December 31, 1996 and 1997, respectively. The New Credit Facility reflects
substantially improved terms and reduced interest rates compared to the previous
arrangements.

During 1997, the Company issued approximately $20 million of redeemable
preferred stock to fund a portion of its acquisition program. Dividends on this
preferred stock are 4% per annum. Preferred dividends of $890,000 were
subtracted from the $4.5 million of net income before extraordinary item in
computing earnings attributable to common stockholders resulting in a net income
before extraordinary item of $3.6 million for purposes of computing basic and
diluted earnings per common share.

For 1997, the Company provided for income taxes on income before income
taxes and extraordinary item at a combined state and federal tax rate of 45.3%.
The provision for income taxes for 1997 includes a one-time charge in the amount
of $390,000 to revalue the historical deferred tax liability accounts because
the Company's taxable income has grown to the level at which the federal
corporate tax rate increases from 34% to 35%. Amortization of names and
reputations related to stock acquisitions, which is nondeductible, is

20
<PAGE>
the primary cause of the Company's effective rate exceeding 34%. Prior to 1997,
the Company experienced net operating losses and the tax benefits associated
with these net operating loss carryforwards were reserved. The Company continues
to analyze the benefits associated with these losses and adjusts the valuation
allowance as appropriate.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

The following table sets forth certain information regarding the net
revenues and gross profit of the Company from its operations during the years
ended December 31, 1995 and 1996:

YEAR ENDED
DECEMBER 31, CHANGE
-------------------- ------------------
1995 1996 AMOUNT PERCENT
--------- --------- ------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations........... $ 21,482 $ 20,921 $ (561) (2.6%)
Acquired operations........... 2,755 19,427 16,672 *
--------- --------- -------
Total net revenues....... $ 24,237 $ 40,348 $16,111 66.5%
========= ========= =======
Gross profit:
Existing operations........... $ 3,451 $ 3,481 $ 30 0.9%
Acquired operations........... 539 3,685 3,146 *
--------- --------- -------
Total gross profit....... $ 3,990 $ 7,166 $ 3,176 79.6%
========= ========= =======

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

* Not meaningful.

Total net revenues for the year ended December 31, 1996 increased $16.1
million or 66.5% over 1995. The higher net revenues reflect an increase of $16.7
million in net revenues from acquired operations and a decrease in net revenues
of $561,000 or 2.6% from existing operations. The decrease in net revenues for
the existing operations primarily resulted from fewer funeral services being
performed, which was partially offset by a 3.9% increase in the average revenue
per funeral service. Fewer services were performed in 1996 due to the
divestiture of three funeral homes and a longer than normal seasonal decline in
the number of deaths in certain of the Company's markets. This seasonal decline
in the number of services ended in mid-November. At December 31, 1996, the
Company operated 10 cemeteries. The net revenues and gross profit of cemeteries
represented less than eight percent of the Company's total operations and
accordingly are not shown separately.

Total gross profit for the year ended December 31, 1996 increased $3.2
million or 79.6% over 1995. The higher total gross profit reflected an increase
of $3.1 million from acquired operations and an increase of $30,000 or 0.9% from
existing operations. Gross profit for existing operations increased due to the
efficiencies gained by consolidation and the increasing effectiveness of the
Company's merchandising strategy, which was partially offset by lower revenues.
Total gross margin increased from 16.5% for 1995 to 17.8% for 1996 due to these
factors. As a result of the acceleration of the Company's acquisition program in
1996, the profit contribution from acquired properties exceeded that of existing
operations even though most were not owned for the entire year. The acquisition
and integration of these new properties received the majority of the corporate
operations group's management focus during the year. During the fourth quarter,
significant additional management resources were added to this group to provide
assistance in increasing revenue and profit margins from existing ongoing
operations and to more rapidly achieve targeted margins for acquired businesses.

General and administrative expenses for the year ended December 31, 1996
increased $368,000 or 17.5% over 1995 due primarily to the increased personnel
expense necessary to support a higher rate of growth and acquisition activity.
However, general and administrative expenses as a percentage of net revenues
decreased from 8.7% for 1995 to 6.1% for 1996, reflecting economies of scale
realized by the Company as the expenses were spread over a larger operations
revenue base.

Interest expense for the year ended December 31, 1996 increased $663,000
over 1995 principally due to increased borrowings for acquisitions. In August
1996, the Company utilized the net proceeds from the

21
<PAGE>
IPO and borrowings under the Former Credit Facility (as defined herein) to repay
the majority of its outstanding debts. In connection with repayment of debt, the
Company recognized an extraordinary charge of approximately $498,000, net of
income tax benefit of approximately $332,000, to reflect the write-off of the
deferred loan costs associated with the early retirement of debt. The Former
Credit Facility reflected substantially improved terms and reduced interest
costs compared to the previous arrangements.

During 1996, the Company issued approximately $18 million of redeemable
preferred stock to fund a portion of its acquisition program. Dividends on the
majority of this preferred stock range from 6-7% per annum. Preferred dividends
of $622,000 were subtracted from the $207,000 of income before extraordinary
item in computing earnings attributable to common stockholders resulting in a
net loss of $415,000 for purposes of computing primary earnings per common
share. Approximately $16 million of redeemable preferred stock converted into
Common Stock subsequent to December 31, 1996.

For 1996, the Company provided for income taxes on net income before income
taxes and extraordinary item at a combined state and federal tax rate of 40%.
Prior to 1996, the Company experienced net operating losses. The tax benefits
associated with these net operating loss carryforwards were reserved. The
Company continues to analyze the benefits associated with these losses and will
adjust the recorded valuation allowance as appropriate in future periods.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $0.5 million at March 31, 1998,
representing a decrease of $5.6 million from December 31, 1997. For the three
months ended March 31, 1998, cash provided by operations was $3.6 million as
compared to $2.8 million for the three months ended March 31, 1997. The increase
in net cash provided by operating activities was principally due to the increase
in income from operations, which was partially offset by increases in accounts
receivable and other deferred charges. Cash used in investing activities was
$10.8 million for the three months ended March 31, 1998 compared to $33.1
million for the first three months of 1997, due primarily to the decrease in
acquisitions. In the first three months of 1998, cash flow provided by financing
activities amounted to approximately $1.6 million, primarily due to proceeds
from long-term debt which were used to fund acquisitions.

Historically, the Company has financed its acquisitions with proceeds from
debt and the issuance of common and preferred stock. As of December 31, 1997,
the Company had 1,682,500 shares of Series D Preferred Stock and 12,278,285
shares of Series F Preferred Stock issued and outstanding. The Series D
Preferred Stock is convertible into Class B Common Stock, and the Series F
Preferred Stock is convertible into Class A Common Stock. The holders of Series
D Preferred Stock are entitled to receive cash dividends at an annual rate of
$.06-$.07 per share depending on the date such shares were issued. Commencing on
the second anniversary of the completion of the IPO (August 8, 1998), 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 holders
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.

The holders of the Series F Preferred Stock are entitled to receive cash
dividends at the annual rate currently of $.042 per share, with the annual rate
increasing by 5% per year commencing January 1, 1999 until January 1, 2001, at
which time the annual rate becomes fixed at $.0486 per share. On December 31,
2007, the Company must redeem all shares of Series F Preferred Stock, as
discussed above, then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends. The Company does not have the
option to redeem any Series F Preferred Stock prior to December 31, 2007. The
Series F Preferred Stock is convertible at each holders option into an aggregate
of 722,250 shares of Class A Common Stock based on the exercise price in effect
at March 31, 1998.

In conjunction with the closing of the IPO, the Company entered into a
credit facility (the "Former Credit Facility") which provided for a $75 million
revolving line of credit with both LIBOR and base rate interest options. In
August 1996, the Company repaid all of its outstanding indebtedness with the
proceeds from the issuance of its Class A Common Stock in connection with the
IPO (see Note 7) and utilization of the Former Credit Facility. The Former
Credit Facility was unsecured with a term of three years and

22
<PAGE>

contained customary restrictive covenants, including a restriction on the
payment of dividends on common stock, and required the Company to maintain
certain financial ratios. In September 1997, the Company entered into the New
Credit Facility for a $150 million revolving line of credit. The New Credit
Facility has a five-year term, is unsecured and contains customary restrictive
covenants, including a restriction on the payment of dividends on common stock
and requires the Company to maintain certain financial ratios. Interest under
the New Credit Facility is provided at both LIBOR and prime rate options. In
connection with repayment of debt in August 1996 and the retirement of debt
issued with the New Credit Facility in September 1997, the Company recognized an
extraordinary loss of approximately $498,000 and $195,000, net of income tax
benefit of approximately $332,000 and $159,000 for the write-off of the deferred
loan costs associated with the early retirement of debt for the years ended
December 31, 1996 and 1997, respectively. At April 30, 1998 approximately $121.0
million was outstanding under the New Credit Facility.

The Company expects to continue to aggressively pursue additional
acquisitions of funeral homes and cemeteries to take advantage of the trend
toward consolidation occurring in the industry which will require significant
levels of funding from various sources. At the beginning of 1998, the Company
expected to spend $85 million on acquisitions in 1998. Due to increased
acquisition activity in 1998, as of April 30, 1998, the Company has spent $13
million, has signed non-binding letters of intent for acquisitions totaling $67
million and has increased its estimate of acquisition spending for 1998 to $120
million. In addition, the Company currently expects to incur less than $10
million of capital expenditures during 1998, primarily for upgrading funeral
home facilities. The Company believes that cash flow from operations, borrowings
under the New Credit Facility and issuances of additional debt and equity
securities should be sufficient to fund acquisitions and its anticipated capital
expenditures and other operating requirements for the remainder of 1998.

In March 1997, the Company filed a shelf registration statement relating to
2,000,000 shares of Class A Common Stock to be issued to fund acquisitions. As
of March 31, 1998, approximately 1,500,000 shares remained available for
issuance under this shelf registration. 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 its capital
needs. Additional debt and equity financing may be required to maintain the
Company's acquisition program. The availability and terms of these capital
sources will depend on prevailing market conditions and interest rates and the
then existing financial condition of the Company.

SEASONALITY

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.

INFLATION

Inflation has not had a significant impact on the results of operations of
the Company during the last three years.

YEAR 2000

The Company's information systems management group regularly reviews the
management and accounting software packages for internal accounting and
information requirements to meet with the continued growth of the Company. In
addition, the Company's staff has comprehensively considered existing systems
and equipment that need to be changed as a result of Year 2000 issues. The
Company's staff has determined that some computer software will require
upgrading. Based on current estimates, the costs related to these upgrades are
immaterial. The Company is in contact with its vendors and customers, and no
major problem has been discovered to date.

23
<PAGE>
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. There are an estimated 22,000 funeral
homes and 9,600 commercial (as opposed to religious, family, fraternal, military
or municipal) cemeteries in the United States, and less than 25% of the 1997
United States death care industry revenues are represented by the five 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 provide 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, an established firm's 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. The number of deaths in
the United States has increased at a compound rate of approximately 1% per year
since 1980 and is expected to continue to increase at that rate through 2010.
Because the industry is relatively stable, non-cyclical and fairly predictable,
business failures are uncommon. As a result, ownership of independent funeral
home and cemetery businesses generally have not

24
<PAGE>
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 independent death care operations by
large, primarily publicly owned death care providers that can benefit from
economies of scale, improved managerial control, more effective strategic
planning and greater financial resources. This trend appears to result
principally from increased regulation, a desire on the part of independent,
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 companies 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 are also increasingly combining funeral home and cemetery
operations at a single site to allow cross-marketing opportunities and 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 organizations 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
1996, as compared to approximately 10% in 1980. 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

OPERATING STRATEGY

The Company's operating strategy is focused on increasing the revenues and
profitability of each operating location through a combination of personalized
service and operating efficiencies. Key elements of the Company's operating
strategy include the following:

25
<PAGE>
PERSONALIZED SERVICE. The Company believes that providing personalized
service results in increased customer satisfaction, increased market share, more
motivated employees and consistently higher levels of profitability. The Company
has placed a great deal of emphasis on communicating to its employees the
linkage between personalized service, customer satisfaction, market share
increases and profitability throughout the organization.

EMPLOYEE TRAINING. Beginning in late 1997, the Company made a significant
commitment of financial and human resources to a Company-wide training effort.
The training is designed to improve the management of and communication between
employees and to develop personalized service that will be of value to clients.
In training employees to deliver personalized service, the Company emphasizes
employee listening and communication skills towards the goal of uniquely
memorializing the life of an individual. Management believes that this long-term
investment in the Company's employees will, over time, lead to increased market
share, resulting in meaningfully higher profitability.

DECENTRALIZED MANAGEMENT STRUCTURE. The Company's decentralized operating
style provides a high level of autonomy and flexibility to local management.
Local operators have significant responsibility for daily operating decisions
and are accountable for operating results. Individual funeral home and cemetery
service and financial goals are jointly developed with corporate management as
part of a rigorous, Company-wide planning process. The corporate office utilizes
an integrated computer system linked to all of the Company's funeral homes to
monitor and access critical operating and financial data in order to analyze the
performance of individual locations on a timely basis and institute corrective
action if necessary.

INCENTIVE COMPENSATION. The Company has established a compensation
structure that is designed to create and maintain an ownership mentality to
align compensation with overall Company performance objectives. Local management
is awarded meaningful cash bonuses and stock options for achieving specified
service, operational and financial performance objectives. The Company has also
implemented a stock option program which awards options to full-time employees
based upon the performance of their local businesses during a two-year period.
As a result, all management and full-time employees have the opportunity to
increase their personal net worth through strong local and corporate
performance.

COST SAVINGS AND OPERATING EFFICIENCIES. The larger size of the Company, as
compared to local operators, 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 responsibility are retained at the local level,
centralizing certain financial, accounting, legal, administrative and employee
benefit functions allows for more efficient and cost-effective operations.

ACQUISITION STRATEGY

26
<PAGE>
that encourages individual input and personal growth while providing the
challenge of helping the Company achieve its strategic objectives within their
particular regions. These opportunities provided by the Company have resulted in
certain owners' desire to receive equity securities of the Company as part of
their acquisition consideration.

Consideration for acquisitions consists of cash, deferred purchase price,
and preferred and common equity or a combination thereof. 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 the Company believes is
consistent with its investment objectives. In many cases, the Company has been
successful in acquiring operations where it has not been the high bidder because
of the Company's reputation, operating strategy and corporate culture. The
Company typically enters into management, consulting and non-competition
agreements with former owners and key executive personnel of acquired
businesses. In nearly all cases, acquired funeral homes continue operations
under the same trade names as those of the prior owners.

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

<TABLE>
<CAPTION>
ACQUISITION FUNERAL
PERIOD CONSIDERATION(1) HOMES(2) CEMETERIES(3)
- ------------------------------------- ---------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1992................................. $ 11,832 14 2
1993................................. 13,843 11 1
1994................................. 9,153 9 1
1995................................. 12,191 8 0
1996................................. 68,181 38 7
1997................................. 118,260 44 10
1998 (through April 30, 1998)(4)..... 79,629 24 4
--
---------------- ---
$313,089 148 25
================ === ==
</TABLE>

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

(1) From January 1, 1996 through April 30, 1998, 27.2% of the Company's
aggregate acquisition consideration consisted of common or convertible
preferred stock of the Company.

(2) The Company subsequently divested five of these funeral homes.

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

(4) Includes 18 funeral homes and three cemeteries for which the Company has
non-binding letters of intent to acquire for aggregate consideration of
$66.6 million.

OPERATIONS

The Company's funeral home and cemetery operations are managed by
individuals with extensive death care industry experience. Although certain
financial management and policy matters are centralized, local funeral home and
cemetery managers have active involvement 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 service and to capitalize on its reputation and
heritage while the Company maintains centralized supervisory controls and
provides specialized services at the corporate level.

FUNERAL HOME OPERATIONS. As of March 31, 1998, the Company operated 123
funeral homes in 21 states. Funeral home revenues accounted for approximately
93% and 84% of the Company's net revenues for the years ended December 31, 1996
and 1997, respectively, and 83% of net revenues in the first quarter of 1998.

The Company's funeral homes offer a complete range of services to meet a
family's 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

27
<PAGE>
of the Company's funeral homes have a non-denominational chapel on the premises,
which permits family visitation and religious services to take place at one
location and thereby reduces transportation costs to the Company and
inconvenience to the family.

CEMETERY OPERATIONS. As of March 31, 1998, the Company operated 21
cemeteries in 11 states. Cemetery revenues accounted for approximately 7% and
16% of the Company's net revenues for the years ended December 31, 1996 and
1997, respectively, and 17% of net revenues in the first quarter of 1998.

The Company's cemetery products and services include interment services,
the rights to interment in cemetery sites (including grave sites, mausoleum
crypts and niches) and related cemetery merchandise such as memorials and
vaults. Cemetery operations generate revenues through sales of interment rights
and memorials, installation fees, fees for interment and cremation services,
finance charges 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,
cemetery interment rights, cemetery merchandise and services 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 contract 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.

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. Proceeds from the sale of
preneed funeral contracts are not recognized as revenues until the time the
funeral service is performed.

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 always receives an initial payment at the time the
contract is signed. Allowances for customer cancellations and refunds are
accrued at the date of sale based upon historical experience.

Beginning in the fourth quarter of 1996, the Company committed to building
its cemetery operations infrastructure and began to add experienced preneed
marketing professionals at the national and regional levels. This investment in
additional preneed marketing management allowed the Company to increase preneed
sales at existing cemetery properties and positioned the Company to more
effectively integrate future cemetery acquisitions. As of December 31, 1997, the
Company employed a staff of approximately 185 advanced planning representatives
for the sale of preneed products and services and has added 37 additional
advanced planning representatives during the first quarter of 1998.

The Company sold 3,760 and 4,020 preneed funeral contracts in the years
ended December 31, 1996 and 1997, respectively and 1,568 contracts in the first
three months of 1998. At March 31, 1998, the Company had a backlog of 36,425
preneed funeral contracts to be delivered in the future. Preneed cemetery sales
as a percentage of the Company's net cemetery revenues increased from 65% for
the year ended December 31, 1996 to 73% for the first three months of 1998.

28
<PAGE>
PROPERTIES

At March 31, 1998, the Company operated 123 funeral homes and 21 cemeteries
in 21 states. The Company owns the real estate and buildings of 73% of its
funeral homes and all of its cemeteries and leases facilities in connection with
27% of its funeral homes. The 21 cemeteries operated by the Company cover a
total of approximately 725 acres. The Company's inventory of unsold developed
lots totaled approximately 44,000 and 80,000 at December 31, 1996 and 1997,
respectively. In addition, approximately 359 acres, or approximately 50% 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 Company's corporate headquarters occupy approximately 19,700 square
feet of leased office space in Houston, Texas.

At December 31, 1997, the Company operated 465 vehicles, of which 388 were
owned and 77 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 other major publicly held death care companies, Service
Corporation International ("SCI"), The Loewen Group Inc., Stewart Enterprises,
Inc. and Equity Corporation International, are larger than the Company and have
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 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 the expected timing of the performance of
the services covered by 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 and insurance

29
<PAGE>

contracts was approximately $106.2 million and $113.6 million as of December 31,
1997 and March 31, 1998, respectively.

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 50% to 100% of selling 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 canceled. The merchandise and
service trust fund balances, in the aggregate, were approximately $9.6 million
and $10.2 million as of December 31, 1997 and March 31, 1998, respectively.

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 $8.4 million and $9.0 million as of
December 31, 1997 and March 31, 1998, respectively.
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

30
<PAGE>
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 March 31, 1998, the Company and its subsidiaries employed 652
full-time employees, 586 part-time employees and 223 advanced planning
representatives (most of whom are part-time employees). 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.

31
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company currently has a Board of Directors composed of nine members. In
accordance with the Company's Charter, the members of the Board of Directors are
divided into three classes, designated Class I, Class II and Class III,
respectively, and are elected for a term of office expiring at the third
succeeding annual stockholders' meeting following their election to office and
until their successors are duly elected and qualified. The Charter also provides
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 2000, 1998 and 1999, respectively. The Class II
directors, Messrs. Duffey, Fingerhut and Brudnicki, have been nominated by the
Board of Directors for reelection at the annual meeting of stockholders to be
held on May 6, 1998. 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 positions 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 TERM AS DIRECTOR
- ------------------------------------- ---- ----------------------------------------- -----------------
<S> <C> <C>
Melvin C. Payne(1)................... 55 Chairman of the Board, Chief Executive 2000
Officer and Director
Mark W. Duffey(1).................... 41 President and Director 1998
Thomas C. Livengood.................. 42 Executive Vice President, Chief Financial --
Officer and Secretary
Russell W. Allen..................... 51 Executive Vice President of Operations --
Gary O'Sullivan...................... 45 Senior Vice President -- Marketing --
Reid A. Millard...................... 39 Vice President, Corporate Development --
C. Byron Snyder(1)(2)................ 49 Director 2000
Barry K. Fingerhut(1)(2)............. 52 Director 1998
Greg M. Brudnicki.................... 42 Director 1998
Ronald A. Erickson(3)................ 61 Director 1999
Robert D. Larrabee................... 63 Director 2000
Stuart W. Stedman(3)................. 40 Director 1999
Mark F. Wilson....................... 51 Director 1999
</TABLE>

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

(1) Member of Executive Committee.

(2) Member of Compensation Committee.

(3) Member of Audit Committee.

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 Chairman of the Board and Chief Executive Officer of the Company since
December 1996. Prior to then, he had been the President, Chief Executive Officer
and a director of the Company since its inception in 1991. From 1991 to 1993,
Mr. Payne also served as a director and officer of Sovereign Holdings, Inc., RTO
Enterprises, Inc. and various subsidiaries of RTO Enterprises, Inc. Mr. Payne
serves on the Board of Trustees of WNL Series Trust, a mutual fund affiliated
with Western National Life Insurance Company, and the Board of Directors of
Sovereign Business Forms, Inc., a private company in the business forms
manufacturing industry.

MARK W. DUFFEY, one of the three management founders of the Company, has
been President of the Company since December 1996. Prior to then, he had been
Executive Vice President and Chief Financial Officer since the inception of the
Company in 1991 and became a director in 1995. From 1991 to 1993, Mr. Duffey
served as a director and officer of Sovereign Holdings, Inc., RTO Enterprises,
Inc. and various

32
<PAGE>
subsidiaries of RTO Enterprises, Inc. He serves on the Board of Directors of
Sovereign Business Forms, Inc., a private company in the business forms
manufacturing industry.

THOMAS C. LIVENGOOD joined the Company in December 1996 as Executive Vice
President, Chief Financial Officer and Secretary. Mr. Livengood, a certified
public accountant, has responsibility for the financial and administrative
functions of the Company. Prior to joining the Company, he served as Vice
President and Chief Financial Officer of Tenneco Energy, previously the largest
division of Tenneco Inc., a Fortune 100 company, prior to the divestiture of its
diversified businesses. Prior to joining Tenneco Energy in 1988, Mr. Livengood
served in various financial management capacities with USX Corp., Texas Oil &
Gas Corp. and KPMG Peat Marwick, an international CPA firm.

RUSSELL W. ALLEN joined the Company in June 1993 as Executive Vice
President of 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 in 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.

GARY O'SULLIVAN joined the Company in October 1996 as Senior Vice President
- -- Marketing. From March 1996 to September 1996, Mr. O'Sullivan was the Regional
Vice President of Sales (Florida) for SCI. Prior to then, Mr. O'Sullivan was the
Vice President of Sales and Marketing for Woodlawn Memorial Park and Funeral
Home from May 1993 to March 1996. He was the Director of Sales and Marketing for
Earthman Funeral Home and Cemeteries from August 1989 to May 1993.

REID A. MILLARD, one of the three management founders of the Company, has
served as the Vice President, Corporate Development of the Company since June
1996. From November 1993 until June 1996, Mr. Millard was active in various
positions with the Company in operations and corporate development. From the
Company's inception in 1991 until November 1993, Mr. Millard served as Executive
Vice President 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
ownership relations. 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 a director of the Company since 1991, was Chairman
of the Board of Directors of the Company from 1991 to December 1996, and is
currently Chairman of the Executive Committee. Mr. Snyder is the President of
Sterling City Capital, LLC, a Houston-based investment company specializing in
consolidating privately owned businesses simultaneously with an initial public
offering. Mr. Snyder is the Chairman of the Board of Directors of Integrated
Electrical Services, Inc., a publicly traded national provider of electrical
contracting and maintenance services in the commercial, industrial, and
residential markets. Mr. Snyder was the owner and President of Relco
Refrigeration Company, a distributor of refrigeration equipment, which he
acquired in 1992. In February 1998, Relco Refrigeration was merged into
Hospitality Companies, Inc., which provides food equipment and heating/air
conditioning products to the hospitality industry. In connection with the
merger, Mr. Snyder became a member of the Board of Directors of Hospitality
Companies. Prior to 1992, 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

33
<PAGE>
companies. As of December 31, 1997, GeoCapital managed accounts having a market
value of approximately $2.1 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 childrens non-fiction books, and UOL Publishing,
Inc., an online publisher of academic and corporate texts. 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.

GREG M. BRUDNICKI became a director of the Company in November 1997 when
Forest Lawn/Evergreen Management Corp. ("Forest Lawn") merged with a subsidiary
of the Company. Forest Lawn and its affiliate owned and operated three funeral
homes and three cemeteries in Panama City and Fort Walton Beach, Florida and
Dothan, Alabama. Mr. Brudnicki served as the President and Chief Executive
Officer of Forest Lawn from its inception in 1984 until the merger, when he
became the Co-Manager of the Forest Lawn cemeteries and funeral homes operated
by the Company. In connection with the merger, the Company agreed to increase
the Board of Directors by one member and appoint Mr. Brudnicki to fill the
resulting vacancy. Mr. Brudnicki serves as a Trustee for Bay Medical Center, a
non-profit hospital in Panama City, Florida. He also serves on the Board of
Directors of Peoples 1st Community Bank which has locations in 15 Florida
cities.

RONALD A. ERICKSON has been a director of the Company since the Company
went public in August 1996. 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.

ROBERT D. LARRABEE has been a director of the Company since it went public
in August 1996. 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. In connection with that transaction, the Company agreed
to undertake to appoint Mr. Larrabee to the Board if the Company went public,
and Mr. Larrabee also became an employee of a subsidiary of the Company. Mr.
Larrabee also is the co-founder and co-owner of Evergreen Estates, a retirement
community in Clarkston, Washington. He is the founding President and past
director of Valley Bank in Clarkston, Washington (now part of U.S. Bank of
Idaho); founding Chairman of the Board and President of Purple Cross Insurance
Company (now part of American Memorial Life); and founder of Lewis-Clark Savings
and Loan Association (now part of Sterling Financial Corporation). He also
serves on the Board of Directors of Sterling Financial Corporation and, until
1995, served on the Board of Directors of Laurentian Capital Corporation.

STUART W. STEDMAN has been a director of the Company since it went public
in August 1996. 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 a Manager of Strand
Energy, L.L.C., a private exploration and production company.

MARK F. WILSON became a director of the Company in January 1997 when CNM
merged with the Company. Mr. Wilson served as the President of CNM from 1988
until its merger with the Company in January 1997, when he became the President
of Carriage Funeral Services of California, Inc., a subsidiary of the Company.
CNM owned and operated nine Wilson & Kratzer Funeral Homes and the Rolling Hills
Memorial Park Cemetery in Alameda and Contra Costa Counties, California. In
connection with the CNM merger, the Company agreed to increase the Board of
Directors to eight members and appoint Mr. Wilson as a director. Mr. Wilson also
serves on the Board of Directors of Mechanics Bank, Richmond, California, and
Hills Newspapers, a publisher of weekly newspapers in Northern California.

34
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth information for the years ended December 31,
1997, 1996 and 1995 with respect to the Chairman of the Board and Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company whose total annual salary and bonus during 1997 exceeded
$100,000 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
---------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- ---------------------------------------- ---- -------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Melvin C. Payne......................... 1997 $225,000 $ -- -- 20,000(3) $ 1,201
Chairman of the Board and 1996 194,292 -- -- 250,000 1,168
Chief Executive Officer 1995 171,576 -- -- -- 1,174
Mark W. Duffey.......................... 1997 $185,000 $ -- -- 16,000(3) $ 1,957
President 1996 162,231 -- -- 150,000 1,901
1995 145,632 -- -- -- 1,889
Russell W. Allen........................ 1997 $145,000 $ -- -- 12,000(3) $--
Executive Vice President 1996 121,634 -- -- 50,000 --
of Operations 1995 93,356 20,000 -- -- 193
Thomas C. Livengood..................... 1997 $175,000 $ -- -- 50,000(3) $ 2,188
Executive Vice President, 1996 (4)
CFO and Secretary
Gary O'Sullivan......................... 1997 $190,496 $ -- -- 60,000(3) $--
Senior Vice President -- 1996 (5)
Marketing
</TABLE>
- ------------

(1) Excludes perquisites and other personal benefits unless the aggregate amount
of such compensation exceeded the lesser of $50,000 or 10% of the total
annual salary and bonus reported for the Named Executive Officer.

(2) Each of the amounts in this column reflect contributions by the Company to
its 401(k) Plan for the executives benefit.

(3) All of the options issued to Messrs. Payne, Duffey, Allen and Livengood, and
30,000 of the options issued to Mr. O'Sullivan, were granted in February
1998. Of the February 1998 option grants, all but 38,000 shares to Mr.
Livengood and 18,000 shares to Mr. O'Sullivan were for 1997 performance, and
all are subject to stockholder approval.

(4) Mr. Livengood joined the Company in December 1996 and his compensation
during such year did not exceed $100,000.

(5) Mr. O'Sullivan joined the Company in October 1996 and his compensation
during such year did not exceed $100,000.

STOCK OPTION GRANTS IN 1997

The Company has four stock option plans, the 1995 Stock Incentive Plan (the
"1995 Plan"), the 1996 Stock Option Plan (the "1996 Plan"), the 1996 Directors
Stock Option Plan (the "Directors' Plan"), and the 1998 Stock Option Plan for
Consultants (the "Consultants Plan"). Subject to approval by the Company's
stockholders of an amendment to the 1995 Plan, 950,000 shares of Class A and B
Common Stock are reserved for issuance under the 1995 Plan. Options issued under
the 1995 Plan prior to the Company's initial public offering in August 1996 are
satisfied with shares of Class B Common Stock, but options issued after that
date are satisfied with shares of Class A Common Stock. Subject to approval by
the Company's stockholders of an amendment to the 1996 Plan, 800,000 shares of
Class A Common Stock are reserved for issuance under the 1996 Plan, 200,000
shares of Class A Common Stock are reserved for issuance under the Directors'
Plan, and 100,000 shares of Class A Common Stock are reserved for issuance under
the Consultants Plan. Options issued under the 1995 Plan and the 1996 Plan may
be either "Incentive Stock Options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options.

35
<PAGE>
The following table sets forth information on the grants of options to
acquire shares of Class A Common Stock made during the year ended December 31,
1997 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED(1) IN 1997 ($/SH) DATE 5% 10%
- ------------------------------------- ----------- ----------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Melvin C. Payne...................... -- -- -- -- -- --
Mark W. Duffey....................... -- -- -- -- -- --
Russell W. Allen..................... -- -- -- -- -- --
Thomas C. Livengood.................. -- -- -- -- -- --
Gary O'Sullivan...................... 30,000 8.9% $ 18.00 2006 $ 858,300 $ 1,334,300
</TABLE>
- ------------

(1) Options granted are for a term of ten years and vest 8.33% per year on the
first through fourth anniversary dates of the grant date and 16.66% per year
on the fifth through eighth anniversary dates of the grant date; provided,
however, the options scheduled to vest in years 5-8 from the grant date
(i.e., 66 2/3% of the total grant) vest immediately if the average of the
daily high and low prices of the Class A Common Stock for 20 consecutive
trading days exceeds $27.99 prior to the fourth anniversary of the grant
date.

(2) These amounts represent certain assumed rates of appreciation based actual
option term and annual compounding from the date of grant. Assumed rates of
appreciation are in accordance with guidelines established by the
Commission. Actual gains, if any, on stock options exercises and Class A
Common Stock holdings are dependent on the future performance of the Class A
Common Stock and overall stock market conditions. There can be no assurance
that the stock appreciation amounts reflected in this table will be
achieved, or that actual gains may be prove to be substantially in excess of
those presented.

1997 OPTION EXERCISES AND YEAR-END OPTION HOLDINGS

The following table sets forth, with respect to the Named Executive
Officers, information concerning the exercise of stock options during the year
ended December 31, 1997, and the year-end value of unexercised options. This
table sets forth options for Class A Common Stock.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Melvin C. Payne......................... -- -- 20,833 229,167 $ 114,581 $ 1,260,419
Mark W. Duffey.......................... -- -- 12,500 137,500 68,750 756,250
Russell W. Allen........................ -- -- 4,166 45,834 22,913 252,087
Thomas C. Livengood..................... -- -- 4,166 45,834 521 5,729
Gary O'Sullivan......................... -- -- 2,500 27,500 2,500 27,500
</TABLE>
- ------------

(2) An option is "in-the-money" if the market value of the Class A Common Stock
exceeds the exercise price of the option. The values of the options set
forth in these columns are based upon the difference between the closing
price of $19.00 on the NASDAQ on December 31, 1997 and any lesser exercise
price.

COMPENSATION OF DIRECTORS

In lieu of cash compensation, each director of the Company who is not an
executive officer of the Company, but who may be an employee (a "qualified
director") is entitled to receive options under the

36
<PAGE>
Directors' Plan. In addition, qualified directors are reimbursed for expenses
incurred in attending meetings of the Board of Directors and Committees thereof.

Under the Directors' Plan, each individual who was a qualified director as
of the date of the Company's initial public offering in August 1996 received a
nonqualified stock option (an "Initial Option") to purchase 15,000 shares (or
25,000 if the nonemployee director also served 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. C. Byron Snyder and Barry K.
Fingerhut were each serving on the Executive Committee on such date and received
options for 25,000 shares of Class A Common Stock. Each of the Initial Options
granted were for a term of ten years and vest 8.33% per year on the first
through fourth anniversary dates of the grant date and 16.66% per year on the
fifth through eighth anniversary dates of the grant date; provided, however, the
options scheduled to vest in years 5-8 from the grant date (i.e. 66 2/3% of the
total grant) vest immediately if the average of the daily high and low prices of
the Class A Common Stock for 20 consecutive trading days exceeds $27.99 prior to
the fourth anniversary of the grant date.

When a new qualified director is appointed or elected to the Board, such
qualified director will receive an option grant to purchase 15,000 shares of
Class A Common Stock (or 25,000 shares if such director also becomes a member of
the Executive Committee).

Further, each qualified director is automatically granted a nonqualified
stock option (an "Annual Option") to purchase 6,000 shares of Class A Common
Stock on the date of each annual meeting of stockholders. Each Annual Option has
a term of ten years and an exercise price equal to the fair market value of the
Class A Common Stock on the date of grant. The aggregate number of shares of
Class A Common Stock reserved for issuance under the Directors' Plan is 200,000
shares.

In January 1997, Mark F. Wilson became a director of the Company and the
President of a subsidiary of the Company in connection with the acquisition of
certain funeral homes and cemeteries in California. On such date, the Board
granted Mr. Wilson an option to purchase 15,000 shares of Class A Common Stock
under the Directors' Plan.

In November 1997, Greg M. Brudnicki became a director of the Company and an
employee of a subsidiary of the Company in connection with the acquisition of
certain funeral homes and cemeteries in Florida and Alabama. At that time, the
Board granted Mr. Brudnicki an option to purchase 15,000 shares of Class A
Common Stock under the Directors' Plan.

EMPLOYMENT AGREEMENTS

Effective July 1, 1996, the Company entered into separate employment
agreements with each of Melvin C. Payne, Mark W. Duffey and Russell W. Allen.
The employment agreements with Mr. Payne and Mr. Duffey 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 are 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. Effective February 1, 1998, Mr. Allen's annual
base salary was increased to $165,000. If the executive is terminated without
cause during the term of the agreement, the executive will receive a monthly
severance payment until the end of the term had the executive not been
terminated plus a proportionate amount of the bonus earned for the year of
termination. Such monthly severance payment would be equal to the average
monthly amount (including salary and bonus) earned by the executive during the
three calendar years prior to his termination. During the period that the
executive receives the monthly severance payments, the executive also would be
entitled to participate in any employee benefit plans or programs in which the
executive was participating at the time of his termination. In addition, each
agreement contains a covenant prohibiting the executive from competing with the
Company during the period he is receiving compensation under their agreements,
provided, however, that following termination of employment, the executive may
elect to forego certain severance payments which he would be entitled to

37
<PAGE>
under the employment agreement and thereafter would not be prohibited from
competing with the Company. In addition, the agreements contain customary
benefits and perquisites.

Effective December 13, 1996, the Company entered into an employment
agreement with Thomas C. Livengood for a five year term ending December 31,
2001. Pursuant to this agreement, Mr. Livengood is entitled to receive a salary
of not less than $175,000 and a bonus to be determined on an annual basis by the
Board of Directors. The other terms of Mr. Livengoods employment agreement are
substantially the same as those described above for Messrs. Payne, Duffey and
Allen.

Effective October 8, 1996, the Company entered into an employment agreement
with Gary O'Sullivan for a five year term. Pursuant to this agreement, Mr.
O'Sullivan is entitled to receive a salary of $190,000. Mr. O'Sullivan also is
entitled to receive an annual bonus of (i) $40,000 if the Company's consolidated
net revenues from cemetery activities for such year equals or exceeds a budgeted
amount set each year by the Chief Executive Officer of the Company and (ii)
$25,000 if the Company's consolidated net revenues from funeral activities for
such year equals or exceeds a budgeted amount set each year by the Chief
Executive Officer of the Company. The agreement also provided for Mr. O'Sullivan
to receive options under the 1996 Stock Option Plan for 30,000 shares at an
exercise price of $18.00 per share, subject to vesting requirements similar to
other options granted under such plan. If Mr. O'Sullivan is terminated without
cause during the term of the agreement, he will receive his base salary until
the end of the term. In addition, the agreement contains customary benefits and
perquisites.

CERTAIN TRANSACTIONS

In connection with the acquisition in January 1997 by the Company of CNM,
which was controlled by Mark F. Wilson and others, (i) Mr. Wilson and a
subsidiary of the Company entered into a five-year employment agreement
providing for, among other things, the payment of a base salary to Mr. Wilson of
$150,000 per year, (ii) Mr. Wilson and such subsidiary entered into a
fifteen-year non-competition agreement providing for, among other things, the
payment to Mr. Wilson of $170,000 per year, and (iii) the Company agreed to
appoint Mr. Wilson to the Board of Directors of the Company. In addition, Mr.
Wilson and the other former shareholders of CNM who acquired equity of the
Company entered into a co-sale agreement with Messrs. Snyder, Fingerhut, Payne,
Duffey and certain affiliated stockholders, under which such persons agreed not
to sell a certain level of their stock holdings in a single or related group of
transactions unless the former CNM shareholders were given the opportunity to
participate in the sales transaction, and in which the selling group could
require the other parties to participate in a sales transaction. This
transaction was entered into immediately prior to Mr. Wilson becoming a director
of the Company, and the compensation detailed above does not relate to any
services provided by Mr. Wilson as a director of the Company.

Mr. Wilson also is a party to an arrangement with the Company whereby Mr.
Wilson may receive annual cash consideration 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 this
arrangement, Mr. Wilson 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.

In connection with the acquisition in November 1997 by the Company of
certain funeral homes and cemeteries in Florida, which were controlled by Greg
M. Brudnicki and another person, (i) Mr. Brudnicki and a subsidiary of the
Company entered into a five year employment contract providing for, among other
things, the payment of a base salary to Mr. Brudnicki of $75,000 per year, (ii)
Mr. Brudnicki became a participant in an incentive compensation plan for certain
key employees of the Company's operations in Panama City, Florida, and (iii) the
Company agreed to appoint Mr. Brudnicki to the Board of Directors of the
Company. This transaction was entered into immediately prior to Mr. Brudnicki
becoming a director of the Company and the compensation detailed above does not
relate to any services provided by Mr. Brudnicki as a director of the Company.

38
<PAGE>
Mr. Brudnicki also is a party to a plan whereby Mr. Brudnicki may receive
cash consideration if acquisition candidates developed by him or other
participants in the plan are subsequently acquired by the Company and attain
cash flow in excess of certain cash flow targets. This plan covers Northern
Florida, Southern Georgia and Alabama. At the election of the participant, the
compensation is payable in cash or in shares of Class A Common Stock. To date,
no payments have been made by the Company to Mr. Brudnicki under the plan.

In July 1996, the Company loaned Russell W. Allen, an executive officer of
the Company, $316,714 to allow Mr. Allen to exercise his options to purchase
shares of Class B Common Stock of the Company and to pay the federal income tax
liability incurred pursuant 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 presently secured by approximately 30% of the Class B Common Stock
purchased by Mr. Allen. In order to pay the interest due March 31, 1997 and
March 31, 1998 on this note, Mr. Allen executed new promissory notes totaling
$39,458 with the same terms as the other note. On July 30, 1997, the Company
agreed to release 7,875 shares of Class B Common Stock from this pledge, and on
April 3, 1998, an additional 5,000 shares were released from the pledge.

In connection with the acquisition by a subsidiary of the Company of three
corporations controlled by Robert D. Larrabee and his wife, which owned and
operated four funeral homes and two cemeteries in Washington and Idaho, (i) the
Company's subsidiary executed a note payable to Mr. Larrabee and his wife in the
original principal amount of $246,000, secured by the land and buildings of one
of the funeral home locations, as seller financing for that location, (ii) Mr.
Larrabee and such subsidiary entered into a five-year employment agreement
providing for, among other things, the payment of a base salary to Mr. Larrabee
of $25,000 per year, (iii) the Larrabees granted to such subsidiary an option to
purchase a five-acre parcel of land adjacent to one of the cemeteries included
in the acquisition for a purchase price of $300,000, and (iv) the Company agreed
to undertake to appoint Mr. Larrabee to the Company's Board of Directors if the
Company went public. This transaction was entered into prior to Mr. Larrabee
becoming a director of the Company, and the compensation outlined above does not
relate to any services provided by Mr. Larrabee as a director of the Company.

Mr. Larrabee also 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, and the Company is currently renegotiating this arrangement with
Mr. Larrabee. In addition, the Company has entered into a letter of intent with
Mr. Larrabee to acquire a 15-acre parcel of land in an arm's length transaction.

39
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information as of March 31, 1998, and 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>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS A AND B
------------------------ COMMON STOCK PERCENT OF
CLASS A CLASS B --------------------------- VOTING CONTROL
COMMON COMMON PRIOR TO THE AFTER THE AFTER THE
BENEFICIAL OWNER STOCK(1) STOCK(2) OFFERING OFFERING OFFERING(3)
- ---------------------------------------- ----------- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
C. Byron Snyder(4)(5)................... 88,083 1,296,311 12.4% 8.5% 22.6%
Barry K. Fingerhut(4)(6)................ 189,133 520,924 6.4 4.4 9.3
Melvin C. Payne(4)(7)................... 50,835 629,769 6.1 4.2 11.0
Mark F. Wilson(8)....................... 495,388 -- 4.4 3.0 *
Mark W. Duffey(4)....................... 92,375 238,625 3.0 2.1 4.3
Stuart W. Stedman(9).................... 143,388 145,223 2.6 1.8 2.8
Reid A. Millard(4)...................... 2,500 201,600 1.8 1.3 3.5
Greg M. Brudnicki....................... 210,494 -- 1.9 1.3 *
Ronald A. Erickson(10).................. 19,650 61,621 * * 1.1
Robert D. Larrabee(11).................. 7,250 66,298 * * 1.2
Russell W. Allen........................ 10,916 55,125 * * *
Thomas C. Livengood..................... 11,980 2,000 * * *
Gary O'Sullivan......................... 2,500 -- * * *
All directors and executive officers as
a group (13 persons).................. 1,324,492 3,217,496 40.7 28.1 57.9
</TABLE>
- ------------

* Indicates less than one percent.

(1) The ownership of shares of Class A Common Stock shown in the table includes
shares which may be acquired within 60 days upon exercise of outstanding
stock options granted one of the Company's stock option plans by each of
the persons and group, as follows: Mr. Snyder -- 2,083 shares; Mr.
Fingerhut -- 2,083 shares; Mr. Payne -- 20,830 shares; Mr. Wilson -- 1,250
shares; Mr. Duffey -- 12,500 shares; Mr. Stedman -- 1,250 shares; Mr.
Millard -- 2,500 shares; Mr. Erickson -- 1,250 shares; Mr. Larrabee --
1,250 shares; Mr. Allen -- 4,166 shares; Mr. Livengood -- 4,166 shares; Mr.
O'Sullivan -- 2,500 shares; and directors and executive officers as a group
-- 55,828 shares.

(2) Each share of Class B Common Stock has ten votes per share and is
convertible at any time into one share of Class A Common Stock. If not
converted earlier, any outstanding shares of Class B Common Stock will be
automatically converted into shares of Class A Common Stock on December 31,
2001.

(3) This column sets forth the percentage of voting power held by the person
based on the type of securities held. Each share of Class A Common Stock is
entitled to one vote, each share of Class B Common Stock is entitled to ten
votes, each share of Series D Preferred Stock is entitled to 0.0022 votes,
and each share of Series F Preferred Stock is entitled to .0588 votes.

(4) C. Byron Snyder and certain of his affiliates, Melvin C. Payne and certain
of his affiliates, Mark W. Duffey, Barry K. Fingerhut and certain of his
affiliates and business associates and Reid A. Millard have executed a
Voting Agreement dated effective as of August 8, 1996 relating to any
shares of capital stock of the Company held by any of them. These parties
beneficially hold an aggregate of 422,926 shares of Class A Common Stock
and 2,887,229 shares of Class B Common Stock. Under the Voting Agreement,
each party has agreed (i) not to sell or otherwise transfer any shares of
capital stock of the Company held or acquired by such party to any
"competitor" of the Company without the prior written consent of the
holders of at least 80% of the voting power of the shares of capital stock
subject to the Voting Agreement, (ii) unless the holders of at least 80% of
the voting power of the outstanding shares of capital stock of the Company
are in favor of such action, not to vote the

(FOOTNOTES CONTINUED ON FOLLOWING PAGE)

40
<PAGE>
shares of capital stock of the Company held by such party in favor of (x) a
merger, consolidation or similar corporate action involving a "competitor,"
other than in connection with an acquisition by the Company of funeral
homes or cemeteries in which the Company is the acquiring or controlling
party, (y) the sale of all or substantially all of the assets of the
Company to a "competitor," or (z) any amendment to Articles V, VI or VII of
the Company's Certificate of Incorporation (which relate to the classified
Board of Directors, the relative rights and powers of the Board of
Directors and the stockholders and the ability of the stockholders of the
Company to act by written consent). A "competitor" is defined in the Voting
Agreement as any person or entity engaged in the funeral service, cemetery,
crematory or related lines of business.

(5) Mr. Snyder's holdings include 367,550 shares of Class B Common Stock owned
by 1996 Snyder Family Partnership, Ltd., 9,005 shares of Class B Common
Stock owned by the C. Byron Snyder 1996 Trust, and 9,005 shares of Class B
Common Stock owned by the Martha Ann Snyder 1996 Trust.

(6) Mr. Fingerhut's holdings include 422,222 shares of Class B Common Stock
held by Applewood Associates, L.P., a limited partnership of which Mr.
Fingerhut is a general partner; 6,111 shares of Class B Common Stock held
by Longboat Key Associates, a general partnership of which Mr. Fingerhut is
a general partner; and 8,333 shares of Class B Common Stock held by Mr.
Fingerhut jointly with Michael J. Marocco.

(7) Mr. Payne's holdings include 119,161 shares of Class B Common Stock owned
by 1996 Payne Family Partnership, Ltd., 2,919 shares of Class B Common
Stock owned by the Melvin C. Payne 1996 Trust, 2,919 shares of Class B
Common Stock owned by the Karen P. Payne 1996 Trust, and 5,555 shares of
Class B Common Stock owned by the Melvin C. Payne, Jr. Pension Plan and
Trust.

(8) Mr. Wilson's holdings include 2,790,772 shares of Series F Preferred Stock
which are presently convertible into 164,163 shares of Class A Common Stock
and have the same number of votes. Of these shares of Series F Preferred
Stock which may be deemed held by Mr. Wilson, 707,700 are held by the
Wilson Trust B U/A/D 9/9/77 by Francis Wilson and 707,700 are held by the
Wilson Trust C U/A/D 9/9/77 by Francis Wilson, bother of which Mr. Wilson
is a beneficiary of and a Co-Trustee.

(9) Mr. Stedman's holdings include (i) 2,689 shares of Class A Common Stock and
31,309 shares of Class B Common Stock which are held by the Betty Ann
Stedman Trust, of which Mr. Stedman is a Trustee, (ii) 1,083 shares of
Class A Common Stock and 8,349 shares of Class B Common Stock which are
held by the Wesley West Descendants Trust, of which Mr. Stedman is a
Trustee, (iii) 292 shares of Class A Common Stock and 3,130 shares of Class
B Common Stock which are held by the Courtney Lynn Meagher Trust, of which
Mr. Stedman is a Trustee, (iv) 239 shares of Class A Common Stock and 3,130
shares of Class B Common Stock which are held by the Evan Everett Meagher
1989 Trust, of which Mr. Stedman is a Trustee, (v) 19,902 shares of Class A
Common Stock and 35,000 shares of Class B Common Stock which are held by
the Wesley West Land Holding Company, of which Mr. Stedman is the President
and an indirect beneficial owner through a trust of which he is a
beneficiary, (vi) 46,056 shares of Class A Common Stock which are held by
the Wesley West Long Term Partnership, a partnership of which Mr. Stedman
serves as the Manager of the General Partner, (vii) 32,850 shares of Class
A Common Stock which are held by the Wesley West Flexible Partnership, a
partnership of which Mr. Stedman serves as the Managing Partner, (viii)
24,350 shares of Class A Common Stock which are held by Wesley West
Investment Company L.L.C., of which Mr. Stedman is the sole Manager, and
(ix) 7,120 shares of Class A Common Stock and 5,218 shares of Class B
Common Stock which are owned jointly by Mr. Stedman and his spouse.

(10) Mr. Erickson's holdings include (i) 4,000 shares of Class A Common Stock
and 44,015 shares of Class B Common Stock which are held by the Alfred and
Rose Erickson Trust f/b/o Ronald A. Erickson, (ii) 1,400 shares of Class A
Common Stock and 17,606 shares of Class B Common Stock which are held by
the Alfred and Rose Erickson Trust f/b/o Donovan A. Erickson, of which Mr.
Erickson is the Trustee, and (iii) 7,000 shares of Class A Common Stock
held by Mr. Erickson's minor son, David S. Erickson.

(11) Mr. Larrabee and his spouse hold an aggregate of 1,500,000 shares of Series
D Preferred Stock, of which 252,410 shares are held by Larrabee Land
Company, Inc. which is owned by Mr. Larrabee and his spouse. Such shares of
Series D Preferred Stock are convertible as of March 31, 1998 into 66,298
shares of Class B Common Stock which are in turn convertible at any time
into 66,298 shares of Class A Common Stock. Also, such shares of Series D
Preferred Stock presently have 3,314 votes.

41
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares
of common stock and 70,000,000 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 March 31, 1998, 11,158,150 shares of Common Stock were outstanding
and held of record by approximately 195 persons. Upon completion of the
Offering, 11,533,327 shares of Class A Common Stock will be outstanding. In
addition, 4,624,823 shares of Class B Common Stock will be outstanding.

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.

Certain holders of Class B Common Stock have entered into a voting
agreement (the "Voting Agreement"). The parties to the Voting Agreement include
Messrs. Payne, Duffey, Fingerhut, Millard and Snyder and certain other
stockholders. Pursuant to the Voting Agreement, each stockholder who is a party
has agreed 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 (as defined in the Voting Agreement), 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, all 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 March 31, 1998, the Company's outstanding Preferred Stock consisted
of 1,682,500 shares of Series D Preferred Stock and 12,278,285 shares of Series
F Preferred Stock.

The Company is authorized to issue 70,000,000 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 provides
flexibility in connection with possible corporate transactions. The issuance of
Preferred Stock, however, could adversely affect the voting power of holders of
Common Stock

42
<PAGE>
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

As of March 31, 1998, the Company had 1,682,500 shares of Series D
Preferred Stock issued and outstanding. 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 Preferred Stock is convertible at any time into
Class B Common Stock at a conversion price equal to 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
March 31, 1998, the conversion price was $22.625, yielding, a total of 74,364
shares of Class B Common Stock that would be issuable upon the conversion of the
1,682,500 shares of Series D Preferred Stock outstanding.

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 Charter,
Bylaws or Certificate of Designation which would adversely affect 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.

SERIES F PREFERRED STOCK

Through March 31, 1998, the Company has issued 19,999,992 shares of Series
F Preferred Stock in one transaction. A total of 7,721,707 shares have been
converted to Class A Common Stock, leaving 12,278,285 shares outstanding at
March 31, 1998. The following description is a summary of the Certificate of
Designation, as amended, for the Series F Preferred Stock, and it is qualified
in its entirety by reference to that document.

DIVIDENDS. The Series F Preferred Stock ranks, with respect to dividend
rights and distribution of assets on liquidation, senior and prior to Common
Stock and the Series D Preferred Stock (together, the

43
<PAGE>
"Junior 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 F Preferred Stock. Holders of Series F Preferred Stock are currently
entitled to receive cumulative annual cash dividends of $.042 per share payable
quarterly. Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of Series F 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 and Series D Preferred Stock. As long as any shares of
Series F Preferred Stock are outstanding, the Company may not pay a dividend
(other than stock dividends in Junior Stock) or other distributions on or
repurchase Junior Stock, directly or indirectly, unless all past due cumulative
dividends on the Series F Preferred Stock have been paid. The terms of Series F
Preferred Stock may be amended with the consent of the holders of a majority of
the outstanding shares of Series F Preferred Stock.

REDEMPTION. The Series F Preferred Stock is mandatorily redeemable by the
Company on December 31, 2007 (subject to conversion rights at any time on or
prior to November 30, 2007) at a redemption price of $1.00 per share plus all
accrued and unpaid dividends to the date of redemption. The Company may not
redeem the Series F Preferred Stock prior to December 31, 2007.

CONVERSION. The Series F Preferred Stock is convertible at any time into
Class A Common Stock at a current conversion base price of $17.00 per share,
subject to adjustment for certain antidilutive events. The conversion base price
increases to $18.00 per share on January 1, 1999 and increases by $1.00 per
share each January 1 thereafter until January 1, 2002 at which time the
conversion base price will be equal to the market price of the Class A Common
Stock.

VOTING RIGHTS. The Series F Preferred Stock has general voting rights on
all issues submitted to stockholders. The number of votes to which each share of
Series F Preferred Stock is entitled is a fraction of a vote determined by
dividing $1.00 by the conversion price per share in effect on the record date
for determining stockholders entitled to vote on such matter. The Series F
Preferred Stock is entitled, as a separate class, to vote upon (or consent to)
(i) any amendment to the Charter, Bylaws or Certificate of Designation which
would adversely affect the rights or powers of the Series F Preferred Stock and
(ii) any issuance by the Company of any Preferred Stock or other class or series
of the Company's capital stock that is senior or preferential to the Series F
Preferred Stock in any distribution of the Company's assets in connection with
the liquidation, dissolution or winding up of the affairs of the Company.

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 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

44
<PAGE>
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 Charter 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 Charter 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 Charter 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 stockholders 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 stockholders nominees stating the nominees acceptance of the
nomination and indicating the nominees 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 Charter provides that approval by the holders of at least 66
2/3% of the voting power of the outstanding voting stock of the Company is
required to amend the provisions of the Charter 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.

45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

As of March 31, 1998, there were 6,533,327 shares of Class A Common Stock
issued and outstanding, and upon the issuance of the 5,000,000 shares of Class A
Common Stock to be sold by the Company in the Offering, there will be 11,533,327
shares of Class A Common Stock issued and outstanding. In addition, as of March
31, 1998, there were 4,624,823 shares of Class B Common Stock issued and
outstanding. Approximately 5,900,000 shares of Class A Common Stock (which
includes approximately 5,400,000 shares of Class A Common Stock issuable upon
conversion of outstanding shares of Class B Common Stock and outstanding shares
of preferred stock based on conversion rates as of March 31, 1998) held by
existing stockholders of the Company are "restricted securities" within the
meaning of Rule 144 under the Securities Act. The Company believes that
substantially all of these "restricted" shares of Class A Common Stock are
currently eligible for resale subject to the volume, manner of sale and other
limitations of Rule 144.

Approximately 854,000 shares of Class A Common Stock and approximately
68,200 shares of Class B Common Stock are reserved for issuance to employees and
directors of the Company pursuant to the 1995 Stock Incentive Plan, 800,000
shares of Class A Common Stock are reserved for issuance to employees of the
Company pursuant to the 1996 Stock Option Plan, 200,000 shares of Class A Common
Stock are reserved for issuance to eligible directors under the 1996 Directors
Stock Option Plan, and 100,000 shares of Class A Common Stock are reserved for
issuance under the 1998 Stock Option Plan for consultants. As of March 31, 1998,
approximately 1,654,000 shares of Class A Common Stock and approximately 65,000
shares of Class B Common Stock are issuable under existing options granted to
employees, directors and consultants. The Company has filed registration
statements on Form S-8 to register the shares of Common Stock issuable upon
exercise of options granted or to be granted pursuant to these plans.
Accordingly, shares issued upon exercise of such options will be freely
tradeable, except for any shares held by an "affiliate" of the Company.

In addition, the Company has filed a shelf registration statement covering
up to 2,000,000 shares of Class A Common Stock that may be issued from time to
time by the Company to fund future acquisitions. As of March 31, 1998,
approximately 1,500,000 shares of Class A Common Stock remained available for
issuance under this shelf registration. Shares covered by the shelf registration
may be issued or resold (as the case may be) and are freely tradeable, when
issued, by the holders thereof (other than "affiliates" of the Company and in
the case of acquisitions, "affiliates" of the businesses acquired).

In connection with the Offering, the Company and its executive officers and
directors 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 90 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 90-day period.

No prediction can be made as to the effect, if any, that future sales of
Class A Common Stock, or the availability of Class A Common Stock for future
sale, will have on the market price of the Class A Common Stock prevailing from
time to time. Sales of substantial amounts of Class A Common Stock in the public
market subsequent to this Offering could adversely affect the market price of
the Class A Common Stock.

46
<PAGE>
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"), ABN AMRO Incorporated, Credit
Suisse First Boston Corporation and Raymond James & Associates, Inc. are acting
as representatives (the "Representatives"), severally has agreed to purchase
from the Company, the number of shares of Class A Common Stock set forth
opposite its name below.

NUMBER
UNDERWRITER OF SHARES
- ------------------------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............
ABN AMRO Incorporated................
Credit Suisse First Boston
Corporation..........................
Raymond James & Associates, Inc......

----------
Total.................. 5,000,000
==========

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Class A Common Stock offered hereby 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 $ per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share to certain other dealers. After the 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 an aggregate of 750,000 additional shares of
Class A Common Stock at the public offering price set forth on the cover page of
this Prospectus, 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.

The Company and its executive officers and directors have agreed that for a
period of 90 days from the date of this Prospectus they will not, without the
prior written consent of Merrill Lynch, (i) directly or indirectly, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any share of Class A Common Stock
or any securities convertible into or exercisable or exchangeable for Class A
Common Stock or file any registration statement under the Securities Act with
respect to any of the

47
<PAGE>
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Class A Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Class A Common Stock or such other securities, in cash or otherwise. The
foregoing restrictions do not apply, however, to the shares of Class A Common
Stock being sold hereunder, any shares of Class A Common Stock issued by the
Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to herein, any shares of
Class A Common Stock issued or options to purchase Class A Common Stock granted
pursuant to existing employee benefit plans of the Company, any shares of Class
A Common Stock issued pursuant to any non-employee stock option plan, or any
shares of Class A Common Stock or any securities convertible or exchangeable
into Class A Common Stock issued as payment of any part of the purchase price
for funeral homes or cemeteries (or businesses or capital stock of businesses
that operate funeral homes or cemeteries) which are acquired by the Company,
subject to certain conditions.

Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Class A Common
Stock. As an exception to these rules, the Representatives are permitted to
engage in certain transactions that stabilize the price of the Class A Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Class A Common Stock.

If the Underwriters create a short position in the Class A Common Stock in
connection with the Offering, i.e., if they sell more shares of Class A Common
Stock than are set forth on the cover page of this Prospectus, the
Representatives may reduce that short position by purchasing Class A Common
Stock in the open market. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.

The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Class A Common Stock in the open market to reduce the
Underwritersshort position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

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.

48
<PAGE>
EXPERTS

The consolidated financial statements 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 are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports and other information with the
Commission. Such reports and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commissions regional
offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be
obtained at the prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. The Commission maintains
a web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as the Company,
that file electronically with the Commission. The Company's Class A Common Stock
is traded on the Nasdaq National Market and, as a result, the Company also files
such reports and information with The Nasdaq Stock Market, and such reports and
other information are available for inspection at the offices of The Nasdaq
Stock Market at 1735 K Street, N.W., Washington, D.C. 20006. Following the
listing of the Class A Common Stock on the NYSE, the Company will file such
reports and information with the NYSE, and such reports and information will be
available for inspection at the offices of the NYSE at 20 Broad Street, New
York, NY 10004.

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
shares of Class A Common Stock offered hereby. This Prospectus, which
constitutes part of the Registration Statement, omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. Statements contained in this Prospectus as to the contents of any
document are not necessarily complete, and in each instance reference is made to
the copy of such document filed as an exhibit to the Registration Statement,
each such statement being hereby qualified in all respects by such reference.
The Registration Statement, including the exhibits and schedules thereto, is on
file at the offices of the Commission and may be obtained upon payment of the
fee prescribed by the Commission or may be examined without charge at the public
reference facilities of the Commission described above.

49
<PAGE>
CARRIAGE SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS

PAGE
----

UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as
of December 31, 1997 and March
31, 1998....................... F-2
Consolidated Statements of
Operations for the
Three Months Ended March 31,
1997 and 1998.................. F-3
Consolidated Statements of Cash
Flows for the
Three Months Ended March 31,
1997 and 1998.................. F-4
Notes to Consolidated Financial
Statements..................... F-5
AUDITED CONSOLIDATED FINANCIAL
STATEMENTS:

Report of Independent Public
Accountants.................... F-7
Consolidated Balance Sheets as
of December 31, 1996 and
1997........................... F-8
Consolidated Statements of
Operations for the Years Ended
December 31, 1995, 1996 and
1997........................... F-9
Consolidated Statements of
Changes in Stockholders' Equity
for the Years Ended December
31, 1995, 1996 and 1997........ F-10
Consolidated Statements of Cash
Flows for the Years Ended
December 31, 1995, 1996 and
1997........................... F-11
Notes to Consolidated Financial
Statements..................... F-12

F-1
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents.......... $ 6,126 $ 544
Accounts receivable --
Trade, net of allowance for
doubtful accounts of $1,291
in 1997 and $1,170 in
1998....................... 11,617 12,176
Other......................... 1,295 2,042
------------ -----------
12,912 14,218
Inventories and other current
assets............................ 5,691 6,153
------------ -----------
Total current assets.......... 24,729 20,915
------------ -----------
Property, plant and equipment, at cost,
net of accumulated depreciation of
$7,123 in 1997 and $8,081 in 1998..... 85,865 90,880
Cemetery property, at cost.............. 32,154 35,459
Names and reputations, net of
accumulated amortization of $4,480 in
1997 and $5,241 in 1998............... 118,099 121,588
Deferred charges and other noncurrent
assets................................ 17,093 18,469
------------ -----------
$277,940 $ 287,311
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 9,022 $ 3,993
Accrued liabilities................ 7,545 9,462
Current portion of long-term debt
and obligations under capital
leases............................ 2,339 2,116
------------ -----------
Total current liabilities..... 18,906 15,571
Preneed liabilities, net................ 7,403 7,154
Long-term debt, net of current
portion............................... 121,553 131,323
Obligations under capital leases, net of
current portion....................... 4,449 4,391
Deferred income taxes................... 13,113 14,060
------------ -----------
Total liabilities............. 165,424 172,499
------------ -----------
Commitments and contingencies
Redeemable preferred stock.............. 13,951 13,951
Stockholders' equity:
Class A Common Stock, $.01 par value;
40,000,000 shares authorized;
6,454,000 and 6,533,000 issued and
outstanding at December 31, 1997
and March 31, 1998, respectively.. 64 66
Class B Common Stock; $.01 par
value; 10,000,000 shares
authorized; 4,691,000 and
4,625,000 issued and outstanding
at December 31, 1997 and March 31,P
1998, respectively................ 47 46
Contributed capital................ 102,056 101,855
Retained deficit................... (3,602) (1,106)
------------ -----------
Total stockholders' equity.... 98,565 100,861
------------ -----------
$277,940 $ 287,311
============ ===========

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

F-2
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)

FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1998
--------- ---------
Revenues, net
Funeral......................... $ 15,288 $ 23,243
Cemetery........................ 2,701 4,875
--------- ---------
17,989 28,118
Costs and expenses
Funeral......................... 10,620 15,833
Cemetery........................ 2,226 3,498
--------- ---------
12,846 19,331
--------- ---------
Gross profit............... 5,143 8,787
General and administrative
expenses............................. 1,021 1,869
--------- ---------
Operating income................ 4,122 6,918
Interest expense, net................ 1,154 2,107
--------- ---------
Income before income taxes...... 2,968 4,811
Provision for income taxes........... 1,143 2,165
--------- ---------
Net income........................... 1,825 2,646
Preferred stock dividend
requirements......................... 363 150
--------- ---------
Net income available to common
stockholders................... $ 1,462 $ 2,496
========= =========
Earnings per share:
Basic........................... $ .16 $ .22
========= =========
Diluted......................... $ .16 $ .22
========= =========
Weighted average number of common and common equivalent shares outstanding:
Basic........................... 9,072 11,151
========= =========
Diluted......................... 10,586 12,122
========= =========

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

F-3
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)

FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1998
--------- ---------
Cash flows from operating activities:
Net income......................... $ 1,825 $ 2,645
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 1,563 2,417
Provision for losses on accounts
receivable...................... 270 420
Deferred income taxes........... 445 947
Changes in assets and
liabilities, net of effects
from acquisitions:
Increase in accounts
receivable..................... (1,233) (2,604)
Increase in inventories and
other current assets......... (476) (397)
Increase in other deferred
charges...................... (319) (1,247)
Increase in accounts
payable...................... 1,442 233
Increase (decrease) in accrued
liabilities.................. (377) 1,521
Increase (derease) in preneed
liabilities.................. 377 (303)
Other, net...................... (737) --
--------- ---------
Net cash provided by
operating services........... 2,780 3,632
Cash flows from investing activities:
Acquisitions, net of cash
acquired........................... (33,437) (6,252)
Purchase of property, plant and
equipment....................... (1,242) (4,372)
Other, including disposition of
assets.......................... 1,607 (171)
--------- ---------
Net cash used in investing
activities................... (33,072) (10,795)
Cash flows from financing activities:
Proceeds from long-term debt....... 31,969 8,163
Payments on long-term debt and
obligations under capital
leases.......................... (327) (6,459)
Payment of preferred stock
dividends....................... (363) (150)
Exercise of stock options.......... 28 55
Payment of deferred debt charges
and other....................... -- (28)
--------- ---------
Net cash provided by
financing activities......... 31,307 1,581
Net increase (decrease) in cash and
cash equivalents..................... 1,015 (5,582)
Cash and cash equivalents at
beginning of period.................. 1,712 6,126
--------- ---------
Cash and cash equivalents at end of
period............................... $ 2,727 $ 544
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest............. $ 889 $ 2,001
========= =========
Cash paid for income taxes......... $ -- $ 597
========= =========
Non-cash consideration for
acquisitions....................... $ 25,571 $ 2,056
========= =========

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

F-4
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements include Carriage
Services, Inc. and its subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.

The information for the three months ended March 31, 1997 and 1998 is
unaudited, but in the opinion of management, reflects all adjustments which are
of a normal, recurring nature necessary for a fair presentation of financial
position and results of operations for the interim periods. The accompanying
consolidated financial statements have been prepared consistent with the
accounting policies described in Note 1 to the Audited Consolidated Financial
Statements, and should be read in conjunction therewith.

2. ACQUISITIONS

During the three months ended March 31, 1998, the Company purchased four
funeral homes and one cemetery. 22 funeral homes and two cemeteries were
acquired during the three months ended March 31, 1997. These acquisitions have
been accounted for by the purchase method, and their results of operations are
included in the accompanying consolidated financial statements from the dates of
acquisition.

The effect of the above acquisitions on the Consolidated Balance Sheets was
as follows:

MARCH 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS)
Current assets, net of cash
acquired............................. $ 6,997 $ 647
Cemetery property.................... 18,845 2,305
Property, plant and equipment........ 17,755 1,683
Deferred charges and other noncurrent
assets............................... 400 101
Names and reputations................ 25,685 3,837
Current liabilities.................. (4,119) (211)
Other liabilities.................... (6,555) (54)
--------- ---------
Total acquisitions.............. 59,008 8,308
--------- ---------
Consideration:
Debt................................. -- 2,056
Redeemable preferred stock issued.... 20,000 --
Common stock issued.................. 5,571 --
--------- ---------
Cash used for acquisitions...... 33,437 6,252
========= =========

The following table represents, on an unaudited pro forma basis, the
combined operations of the Company and the above noted acquisitions, as if such
acquisitions had occurred as of January 1, 1997. Appropriate adjustments have
been made to reflect the accounting basis used in recording these acquisitions,
however, these unaudited pro forma results are based on the acquired businesses'
historical financial results and 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.
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 dates of acquisition or that may result in the future.

F-5
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
Revenues, net........................ $ 26,046 $ 28,439
Net income before income taxes....... 2,723 4,783
Net income available to common
stockholders......................... 1,312 2,481
Earnings per common share:
Basic........................... 0.14 0.22
Diluted......................... 0.14 0.22

3. DEBT

In August 1996, the Company entered into a credit facility (the "Former
Credit Facility") for a $75 million revolving line of credit. The Former Credit
Facility provided for both LIBOR and base rate interest options. That facility
was unsecured and was for a term of three years. During September 1997, the
Company entered into a new credit facility (the "New Credit Facility") for a
$150 million revolving line of credit. The New Credit Facility has a five year
term, is unsecured and contains customary restrictive covenants, including a
restriction on the payment of dividends on common stock, and requires the
Company to maintain certain financial ratios. Interest under the New Credit
Facility is provided at both LIBOR and prime rate options. As of March 31, 1998,
$115.6 million was outstanding under the line of credit.

F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Stockholders and Board of Directors of Carriage Services, Inc.:

We have audited the accompanying consolidated balance sheets of Carriage
Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
February 10, 1998

F-7
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

DECEMBER 31,
----------------------
1996 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents....... $ 1,712 $ 6,126
Accounts receivable --
Trade, net of allowance for
doubtful accounts of
$530 in 1996 and $1,291
in 1997................. 5,665 11,617
Other...................... 673 1,295
---------- ----------
6,338 12,912
Inventories and other current
assets......................... 3,350 5,691
---------- ----------
Total current assets.... 11,400 24,729
---------- ----------
Property, plant and equipment, at cost:
Land............................ 9,640 21,789
Buildings and improvements...... 31,750 56,153
Furniture and equipment......... 8,817 15,046
---------- ----------
50,207 92,988
Less -- accumulated
depreciation................... (4,095) (7,123)
---------- ----------
46,112 85,865
Cemetery property, at cost........... 4,061 32,154
Names and reputations, net of
accumulated amortization of $2,007
in 1996 and $4,480 in 1997......... 62,568 118,099
Deferred charges and other
non-current assets................. 7,167 17,093
---------- ----------
$ 131,308 $ 277,940
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................ $ 2,192 $ 9,022
Accrued liabilities............. 3,033 7,545
Current portion of long-term
debt and obligations under
capital leases................. 1,086 2,339
---------- ----------
Total current
liabilities........... 6,311 18,906
Preneed liabilities, net............. 3,664 7,403
Long-term debt, net of current
portion............................ 42,733 121,553
Obligations under capital leases, net
of current portion................. 557 4,449
Deferred income taxes................ 3,749 13,113
---------- ----------
Total liabilities....... 57,014 165,424
---------- ----------
Commitments and contingencies
Redeemable preferred stock........... 17,251 13,951
Stockholders' equity:
Class A Common Stock, $.01 par
value; 40,000,000 shares authorized;
3,990,000 and 6,454,000 issued and
outstanding in 1996 and 1997,
respectively................... 40 64
Class B Common Stock; $.01 par
value; 10,000,000 shares
authorized; 4,502,000 and
4,691,000 issued and
outstanding in 1996 and 1997,
respectively................... 45 47
Contributed capital............. 63,966 102,056
Retained deficit................ (7,008) (3,602)
---------- ----------
Total stockholders'
equity................ 57,043 98,565
---------- ----------
$ 131,308 $ 277,940
========== ==========

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

F-8
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Revenues, net
Funeral......................... $ 22,661 $ 37,445 $ 64,888
Cemetery........................ 1,576 2,903 12,533
--------- --------- ---------
24,237 40,348 77,421
Costs and expenses
Funeral......................... 18,921 30,641 48,404
Cemetery........................ 1,326 2,541 9,634
--------- --------- ---------
20,247 33,182 58,038
--------- --------- ---------
Gross profit.................... 3,990 7,166 19,383
General and administrative
expenses........................... 2,106 2,474 5,277
--------- --------- ---------
Operating income................ 1,884 4,692 14,106
Interest expense, net................ 3,684 4,347 5,889
--------- --------- ---------
Income (loss) before income
taxes and extraordinary
item.......................... (1,800) 345 8,217
Provision for income taxes........... 694 138 3,726
--------- --------- ---------
Net income (loss) before
extraordinary item............ (2,494) 207 4,491
Extraordinary item -- loss on early
extinguishment of debt, net of
income tax benefit of $332 in 1996
and $159 in 1997................... -- (498) (195)
--------- --------- ---------
Net income (loss)............... (2,494) (291) 4,296
Preferred stock dividend
requirements....................... -- 622 890
--------- --------- ---------
Net income (loss) available to
common stockholders........... $ (2,494) $ (913) $ 3,406
========= ========= =========
Basic earnings (loss) per share:
Net income (loss) before
extraordinary item............ $ (.99) $ (.09) $ .35
Extraordinary item.............. -- (.10) (.02)
--------- --------- ---------
Net income (loss)............... $ (.99) $ (.19) $ .33
========= ========= =========
Diluted earnings (loss) per share:
Net income (loss) before
extraordinary item............ $ (.99) $ (.09) $ .34
Extraordinary item.............. -- (.10) (.02)
--------- --------- ---------
Net income (loss)............... $ (.99) $ (.19) $ .32
========= ========= =========
Weighted average number of common and
common equivalent shares
outstanding
Basic........................... 2,520 4,869 10,226
========= ========= =========
Diluted......................... 2,520 4,869 10,485
========= ========= =========

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

F-9
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTRIBUTED NET RETAINED
NO. OF PREFERRED NO. OF COMMON CAPITAL UNREALIZED EARNINGS
SHARES STOCK SHARES STOCK (DEFICIT) GAIN (LOSS) (DEFICIT) TOTAL
--------- --------- --------- ------ ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1994......... 7,160 $ 72 2,520 $ 25 $ 6,992 $ (59) $ (3,601) $ 3,429
Net loss -- 1995..................... -- -- -- -- -- -- (2,494) (2,494)
Issuance of preferred stock.......... 8,500 85 -- -- 8,108 -- -- 8,193
Unrealized net gain -- available
for sale securities................ -- -- -- -- -- 23 -- 23
--------- --------- --------- ------ ----------- ----------- -------- -------
BALANCE -- DECEMBER 31, 1995......... 15,600 157 2,520 25 15,100 (36) (6,095) 9,151
Net loss -- 1996..................... -- -- -- -- -- -- (291) (291)
Issuance of preferred stock.......... 555 5 -- -- 540 -- -- 545
Issuance of common stock............. -- -- 3,947 40 47,942 -- -- 47,982
Conversion of preferred stock to
common stock....................... (16,045) (160) 1,980 20 140 -- -- --
Conversion of redeemable
preferred stock to common stock.... -- -- 39 -- 522 -- -- 522
Unrealized net gain -- available
for sale securities................ -- -- -- -- -- 36 -- 36
Purchase of treasury stock........... (170) (2) -- -- (339) -- -- (341)
Exercise of stock options............ -- -- 6 -- 61 -- -- 61
Preferred dividends.................. -- -- -- -- -- -- (622) (622)
--------- --------- --------- ------ ----------- ----------- -------- -------
BALANCE -- DECEMBER 31, 1996......... -- -- 8,492 85 63,966 -- (7,008) 57,043
Net income -- 1997................... -- -- -- -- -- -- 4,296 4,296
Issuance of common stock............. -- -- 978 10 14,714 -- -- 14,724
Conversion of redeemable
preferred stock to common stock.... -- -- 1,658 16 23,276 -- -- 23,292
Purchase of treasury stock........... -- -- (3) -- (60) -- -- (60)
Exercise of stock options............ -- -- 20 -- 160 -- -- 160
Preferred dividends.................. -- -- -- -- -- -- (890) (890)
--------- --------- --------- ------ ----------- ----------- -------- -------
BALANCE -- DECEMBER 31, 1997......... -- $ -- 11,145 $ 111 $ 102,056 $-- $ (3,602) $98,565
========= ========= ========= ====== =========== =========== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-10
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (2,494) $ (291) $ 4,296
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation and
amortization............ 1,948 3,629 7,809
Provision for losses on
accounts receivable..... 488 683 1,025
Loss on early
extinguishment of debt,
net of income taxes..... -- 498 195
Deferred income taxes...... 659 54 2,230
Changes in assets and liabilities net of effects from acquisitions:
Increase in accounts
receivable.............. (1,125) (3,440) (4,747)
Decrease (increase) in
inventories and other
current assets.......... 115 (465) (1,223)
Increase in other deferred
charges................. (144) (1,146) (1,884)
Increase (decrease) in
accounts payable........ 45 1,151 1,168
Increase (decrease) in
accrued liabilities..... 1,461 (403) 422
Increase (decrease) in
preneed liabilities..... 44 44 370
---------- ---------- ----------
Net cash provided by
operating
activities......... 997 314 9,661
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash
acquired...................... (12,191) (42,707) (65,607)
Disposition of businesses
formerly owned................ -- 393 --
Purchase of marketable
securities available for
sale.......................... (1,795) -- --
Disposition of marketable
securities available for
sale.......................... 5,312 976 --
Purchase of property, plant and
equipment..................... (3,019) (4,630) (9,163)
---------- ---------- ----------
Net cash used in
investing
activities......... (11,693) (45,968) (74,770)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.... 11,563 59,849 79,300
Payments on long-term debt and
obligations under capital
leases........................ (2,273) (65,925) (9,196)
Proceeds from sale of preferred
stock......................... 8,192 -- --
Proceeds from issuance of common
stock......................... -- 47,694 566
Preferred stock dividends....... -- (622) (890)
Exercise of stock options....... -- 61 160
Purchase of treasury stock...... -- (341) (60)
Payment of deferred debt
charges....................... (49) (923) (357)
---------- ---------- ----------
Net cash provided by
financing
activities......... 17,433 39,793 69,523
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 6,737 (5,861) 4,414
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................. 836 7,573 1,712
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... $ 7,573 $ 1,712 $ 6,126
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid through issuance
of new debt................... $ 644 $ -- $ --
========== ========== ==========
Retirement of debt through
issuance of stock............. $ 500 $ -- $ --
========== ========== ==========
Cash paid for interest.......... $ 3,127 $ 4,466 $ 5,477
========== ========== ==========
Cash paid for income taxes...... $ -- $ -- $ 1,385
========== ========== ==========
Retirement of debt through
disposition of business....... $ -- $ 2,642 $ --
========== ========== ==========
Non-cash consideration for
acquisitions.................. $ -- $ 25,474 $ 52,653
========== ========== ==========

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

F-11
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

BUSINESS

Carriage Services, Inc. (the "Company") 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.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The financial statements include the consolidated financial statements of
Carriage Services, Inc. and its subsidiaries. In consolidation, all significant
intercompany balances and transactions have been eliminated. Certain prior year
amounts in the consolidated financial statements have been reclassified to
conform with current year presentation.

FUNERAL AND CEMETERY OPERATIONS

The Company records the sale of funeral merchandise and services upon
performance of the funeral service. 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 $4,977,000 and
$7,245,000 of funeral receivables and approximately $688,000 and $4,372,000 of
current cemetery receivables at December 31, 1996 and 1997, respectively.
Non-current cemetery receivables, those payable after one year, are included in
Deferred Charges and Other Non-current Assets on the Consolidated Balance
Sheets.

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 $36,523,000 and $52,931,000 at December
31, 1996 and 1997, respectively, which in the opinion of management, exceed the
future obligations under such arrangements. The type of instruments that the
trusts may invest in are regulated by state agencies.

F-12
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

HISTORICAL UNREALIZED
COST BASIS GAIN (LOSS) FAIR VALUE
----------- ----------- -----------
(IN THOUSANDS)
As of December 31, 1996 --
Cash and cash equivalents...... $16,022 $-- $16,022
Fixed income investment
contracts.................... 8,434 -- 8,434
Mutual funds, corporate bonds
and stocks................... 11,965 102 12,067
----------- ----------- -----------
Total..................... $36,421 $ 102 $36,523
----------- ----------- -----------
As of December 31, 1997 --
Cash and cash equivalents...... $23,891 $-- $23,891
Fixed income investment
contracts.................... 10,638 -- 10,638
Mutual funds, corporate bonds
and stocks................... 17,960 442 18,402
----------- ----------- -----------
Total..................... $52,489 $ 442 $52,931
=========== =========== ===========

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 service contracts sold on a preneed basis. The principal and
accumulated earnings of the trust may be withdrawn by the Company upon maturity
(generally, the 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 $1,134,000 and $9,567,000 at
December 31, 1996 and 1997, 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 required to
deposit a specified amount into perpetual and memorial care trust funds for each
interment/entombment right and memorial sold. Income from the trust fund is used
to provide care and maintenance for the cemeteries and mausoleums and is
periodically distributed to the Company and recognized as revenue upon
distribution. The perpetual and memorial care trust assets were approximately
$2,002,000 and $8,408,000 at December 31, 1996 and 1997, respectively, which, in
the opinion of management, will cover future obligations to provide care and
maintenance for the Company's cemeteries and mausoleums. 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 in funeral costs
and expenses over the expected timing of the performance of the services covered
by the preneed funeral contracts.

CASH AND CASH EQUIVALENTS

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

F-13
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

MARKETABLE SECURITIES

The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, and all of the Company's
investment securities are classified as available for sale securities. At
December 31, 1996 and 1997, the Company had no gross unrealized gains (losses).
The Company does not use derivative financial instruments or participate in
hedging activities.

INVENTORY

Inventory is recorded at the lower of its cost basis (determined by the
specific identification method) or net realizable value.

NAMES AND REPUTATIONS

The excess of the purchase price over the fair value of net identifiable
assets acquired, as determined by management in transactions accounted for as
purchases, is recorded as Names and Reputations. Such amounts are 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 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 asset to its fair value. At December 31, 1997, no impairment was
deemed to have occurred.

The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of," as of January 1, 1996, and such adoption
did not have a material impact on the Company's consolidated financial position
or results of operations.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. The costs of ordinary
maintenance and repairs are charged to operations as incurred, while renewals
and betterments are capitalized. Capitalized interest was $162,000 and $264,000
in 1996 and 1997, respectively. Depreciation of property, plant and equipment is
computed based on the straight-line method over the following estimated useful
lives of the assets:

YEARS
--------
Buildings and improvements........... 15 to 40
Furniture and fixtures............... 7 to 10
Machinery and equipment.............. 5 to 10
Automobiles.......................... 5 to 7

INCOME TAXES

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

EARNINGS PER COMMON SHARE

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share, which replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously

F-14
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported fully diluted earnings per share. All earnings per share amounts for
all periods presented have been restated to conform to the Statement 128
requirements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Management believes that carrying value approximates fair value for cash
and cash equivalents and marketable equity securities which are designated as
available-for-sale. Additionally, its floating rate Credit Facility approximates
its fair value. Management also believes that its redeemable preferred stock is
stated at fair value.

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.

BUSINESS SEGMENTS

In June 1997, the Financial Accounting Standards Board issued Statement No.
131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise and Related
Information. SFAS 131, effective for years beginning after December 15, 1997,
requires segment information to be reported on a basis consistent with that used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company will adopt SFAS No. 131 in 1998 and is
evaluating the way segment information is reported.

2. ACQUISITIONS:

During 1997, the Company acquired 44 funeral homes and 10 cemeteries
through the purchase of stock and assets. In 1996, the Company acquired 38
funeral homes and 7 cemeteries through the purchase of stock and assets. These
transactions have been accounted for utilizing the purchase method of
accounting, and the results of operations of the acquired businesses have been
included in the results of the Company from the respective dates of acquisition.

In accordance with APB Opinion 16, purchase prices 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 other 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 resolution of uncertainties existing at the
acquisition date, which may include obtaining additional information regarding
asset and liability valuations.

F-15
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The effect of the above acquisitions on the Consolidated Balance Sheets at
December 31, 1996 and 1997 was as follows:

1996 1997
---------- ----------
(IN THOUSANDS)
Current Assets....................... $ 3,532 $ 11,909
Cemetery Property.................... 3,610 28,276
Property, Plant and Equipment........ 22,574 34,830
Deferred Charges and Other
Non-current Assets................. 1,542 1,597
Names and Reputations................ 43,139 55,013
Current Liabilities.................. (1,025) (1,631)
Debt................................. -- (1,072)
Other Liabilities.................... (5,191) (10,662)
---------- ----------
68,181 118,260
Consideration:
Redeemable preferred stock issued.... (17,775) (20,000)
Debt................................. (6,582) (18,210)
Preferred stock issued............... (555) --
Cash acquired in acquisitions........ (274) (556)
Common Stock issued.................. (288) (13,887)
---------- ----------
Cash used for acquisitions...... $ 42,707 $ 65,607
========== ==========

The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and the businesses acquired during 1996 and 1997 as if
such acquisitions had taken place at the beginning of 1996. 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 combination been in effect on the date
indicated, that have resulted since the respective dates of acquisition or that
may result in the future.

1996 1997
---------- ----------
(UNAUDITED AND IN
THOUSANDS)
Revenues, net........................ $ 95,169 $ 98,672
Income (loss) before income taxes and
extraordinary item................. (1,686) 7,803
Net income (loss) available to common
stockholders....................... (2,157) 3,207
Earnings (loss) per share
Basic........................... (.44) .31
Diluted......................... (.44) .31

F-16
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. DEFERRED CHARGES AND OTHER NON-CURRENT ASSETS:

Deferred charges and other non-current assets at December 31, 1996 and 1997
were as follows (in thousands):

1996 1997
--------- ---------
Agreements not to compete, net of
accumulated amortization of
$1,722 and $2,233 respectively..... $ 3,297 $ 4,034
Deferred debt expense, net of
accumulated amortization of $78
and $23, respectively.............. 511 324
Non-current cemetery and notes
receivable......................... 2,114 9,807
Deferred obtaining costs, net of
accumulated amortization of $44
and $253, respectively............. 1,245 2,928
--------- ---------
$ 7,167 $ 17,093
========= =========

The cost of agreements not to compete with former owners of businesses
acquired are amortized over the term of the respective agreements, ranging from
four to 10 years. Deferred debt expense is being amortized over the term of the
related debt. Non-current 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.

4. LONG-TERM DEBT:

The Company's long-term debt consisted of the following at December 31 (in
thousands):

1996 1997
--------- ----------
Credit Facility, unsecured floating rate $150 million line, interest is due on a
quarterly basis for prime borrowings and on the maturity dates of the
eurodollar borrowings at the applicable eurodollar rate plus .50% to 1.25%
(weighted average interest rate was 6.8772% for the quarter ended December 31,
1997), matures in September,
2002............................... $ -- $ 107,500
Credit Facility, unsecured floating rate $75 million line, interest was due on a
quarterly basis at prime to prime plus .25% or at the applicable eurodollar
rate plus
.75% to 2.0%....................... 36,500 --
Acquisition debt..................... 6,395 10,817
Other................................ 574 5,219
Less -- Current portion.............. (736) (1,983)
--------- ----------
$ 42,733 $ 121,553
========= ==========

In conjunction with the closing of the initial public offering (the "IPO")
in August 1996, the Company entered into a Credit Facility (the "Former Credit
Facility") which provided for a $75 million revolving line of credit with both
LIBOR and base rate interest options. This Former Credit Facility was unsecured
and was for a term of three years. During September 1997, the Company entered
into a new credit facility (the "New Credit Facility") for a $150 million
revolving line of credit. The New Credit Facility has a five year term, is
unsecured and contains customary restrictive covenants, including a restriction
on the payment of dividends on common stock and requires the Company to maintain
certain financial ratios. The Company was in compliance with all covenants at
December 31, 1997. In August 1996, the Company paid all of its outstanding
indebtedness with the proceeds from the issuance of its Class A Common Stock in
connection with the Company's IPO (see Note 7) and utilization of the Former
Credit Facility. In connection with repayment of debt in August 1996 and the
retirement of debt issued by the Former Credit Facility in

F-17
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
September 1997, the Company recognized an extraordinary loss of approximately
$498,000 and $195,000, net of income tax benefit of approximately $332,000 and
$159,000 for the write-off of the deferred loan costs associated with the early
retirement of debt for the years ended December 31, 1996 and 1997, respectively.

Acquisition debt consists of deferred purchase prices, payable to sellers.
The deferred purchase price notes bearing interest at 0%, discounted at imputed
interest rates ranging from 6% to 8%, with maturities from 3 to 15 years.

The aggregate maturities of long-term debt for the year ended December 31,
1998 and for the subsequent four years, are approximately $1,983,000,
$2,021,000, $1,196,000, $1,193,000, and $108,744,000, respectively and
$8,399,000 thereafter.

5. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases certain office facilities, vehicles and equipment under
operating leases for terms ranging from one to fifteen years. Certain of these
leases provide for an annual adjustment. Rent expense was approximately
$951,000, $924,000 and $1,997,000 for 1995, 1996 and 1997, respectively.

Assets acquired under capital leases are included in property, plant and
equipment on the accompanying Consolidated Balance Sheets.

At December 31, 1997 minimum lease payments were as follows:

MINIMUM LEASE PAYMENTS
-----------------------
OPERATING CAPITAL
LEASES LEASES
---------- --------
(IN THOUSANDS)
Years ended December 31,
1998............................ $1,792 $ 679
1999............................ 1,557 2,632
2000............................ 1,099 230
2001............................ 799 207
2002............................ 1,449 198
Thereafter...................... 2,181 2,716
---------- --------
Total minimum lease payments......... $8,877 6,662
==========
Less: amount representing interest... 1,857
Less: current portion of obligations
under capital leases............... 356
--------
Long-term obligations under capital
leases............................. $ 4,449
========

AGREEMENTS AND EMPLOYEE BENEFITS

The Company has entered into various employment agreements and agreements
not to compete with key employees and former owners of businesses acquired.
Payments for such agreements are not made in advance. 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
subsequent five years, are approximately $1,356,000, $1,342,000, $1,101,000,
$924,000 and $845,000, respectively and $2,576,000 thereafter. In conformity
with industry practice, these agreements are not included in the accompanying
Consolidated Balance Sheets.

F-18
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Certain of the funeral homes located in California that were acquired by
the Company in early 1997, along with other death care providers, are defendants
in litigation in the state of California alleging that a flight service
contracted to dispose of cremains failed to properly carry out its duties. While
the litigation is in the early stages, management, with the advice of legal
counsel, believes that there are adequate insurance coverages, indemnities and
reserves such that the results of this litigation will not have a material
effect on the Company's consolidated financial position or result of operations.
Additionally, the Company is, from time to time, subject to routine litigation
arising in the normal course of its business. Management, with the advice of
legal counsel, similarly believes that the results of any such routine
litigation or other pending legal proceedings will not have a material effect on
the Company's consolidated financial position or results of operations.

6. INCOME TAXES:

The provision for income taxes for 1995, 1996 and 1997 consisted of:

1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
Current
U. S. Federal................... $ -- $ -- $ 1,275
State........................... 35 84 759
--------- --------- ---------
Total current provision.... 35 84 2,034
--------- --------- ---------
Deferred:
U. S. Federal................... 585 48 1,564
State........................... 74 6 128
--------- --------- ---------
Total deferred provision... 659 54 1,692
--------- --------- ---------
Total income tax
provision............... $ 694 $ 138 $ 3,726
========= ========= =========

A reconciliation of taxes to the U.S. federal statutory rate to those
reflected in the Consolidated Statements of Operations for 1995, 1996 and 1997
is as follows:

1995 1996 1997
--------- --------- ---------
Federal statutory rate............... (34.0)% 34.0% 34.0%
Effect of state income taxes, net of
federal benefit at 34%............. (6.0) 4.0 5.3
Effect of nondeductible expenses and
other, net......................... 3.9 57.3 15.9
Effect of valuation allowance........ 74.7 (55.3) (14.5)
Effect of change in statutory rate... -- -- 4.6
--------- --------- ---------
38.6% 40.0% 45.3%
========= ========= =========

F-19
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
deferred tax assets and liabilities at December 31, 1996 and 1997 were as
follows:

1996 1997
--------- ----------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss
carryforwards................. $ 2,369 $ 510
Reserves not currently
deductible.................... 200 509
Accrued liabilities and other... 104 701
Amortization of non-compete
agreements.................... 387 816
--------- ----------
3,060 2,536
Valuation allowance.................. (1,442) (268)
--------- ----------
Total deferred tax
assets.................. $ 1,618 $ 2,268
========= ==========
Deferred tax liability:
Amortization and depreciation... $ (4,893) $ (12,814)
Preneed assets, net............. (170) (1,670)
--------- ----------
Total deferred tax
liabilities............. $ (5,063) $ (14,484)
========= ==========
Net deferred tax liability........... $ (3,445) $ (12,216)
========= ==========
Current net deferred asset........... $ 304 $ 897
Non-current net deferred liability... (3,749) (13,113)
--------- ----------
$ (3,445) $ (12,216)
========= ==========

The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets for which realization is uncertain. The Company
reviews the valuation allowance at the end of each quarter and makes adjustments
if it is determined that it is more likely than not that the NOL's will be
realized. At December 31, 1997, the Company has approximately $584,000 of
federal net operating loss ("NOL") carryforwards which will expire between 2009
and 2011, if not utilized, and $3,826,000 of state NOL carryforwards which will
expire between the years 2000 and 2012, if not utilized. As a result of the IPO
(see Note 7), there may be a limitation placed on the Company's utilization of
its NOL's by Section 382 of the Internal Revenue Code in any one particular tax
year. Deferred tax liabilities were recorded with respect to purchase accounting
transactions during the year ended December 31, 1997 in the approximate amount
of $7,218,000.

7. STOCKHOLDERS' EQUITY:

INITIAL PUBLIC OFFERING

On August 8, 1996 the Company completed its IPO of 3,910,000 shares of its
Class A Common Stock at $13.50 per share for net proceeds of approximately $48
million, after selling commissions and related expenses of approximately $5
million. The net proceeds of the IPO were used to repay outstanding indebtedness
of the Company. In connection with the IPO, the Company performed a
recapitalization of its Common Stock into two classes of Common Stock (Class A
and Class B), provided separate voting rights to each class and converted
existing Common Stock to Class B Common Stock. 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 Series A, B and C Preferred Stocks automatically converted
into Class B Common Stock upon closing of the IPO. Series D Preferred Stock
remained outstanding after the IPO (see Note 8).

F-20
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PREFERRED STOCK

Prior to the IPO, the Company had three classes of preferred stock
outstanding, Series A, B and C. These preferred stocks automatically converted
into shares of Class B Common Stock at the effective date of the IPO (August 8,
1996).

TREASURY STOCK

The Company purchased 3,292 shares of Class B Common Stock for $60,000 and
170,000 shares of Series B Preferred Stock for $341,000, during 1997 and 1996,
respectively. Such shares have been canceled.

STOCK OPTION PLANS

The Company has three stock option plans currently in effect under which
future grants may be issued: the 1995 Stock Incentive Plan (the "1995 Plan"),
the 1996 Stock Option Plan (the "1996 Plan") and the 1996 Nonemployee Director
Stock Option Plan (the "Directors' Plan").

Options granted under the 1995 Plan have a ten year term. All options
granted under the 1995 Plan prior to the IPO vest immediately, while
substantially all of those issued in conjunction with and after the IPO vest
over a four year period at 25% per year. Options issued under this plan prior to
the Company' s IPO are satisfied with shares of Class B Common Stock, but
options issued after that date are satisfied with shares of Class A Common
Stock. A total of 700,000 shares are reserved for issuance under the 1995 Plan
of which 408,449 shares were outstanding at December 31, 1997.

Options granted under the 1996 Plan and the Directors' Plan have ten year
terms and vest 8.33% per year on the first through fourth anniversary dates of
the grant date and 16.66% per year on the fifth through eighth anniversary dates
of the grant date; provided, however, the options scheduled to vest in years 5-8
from the grant date (i.e., 66 2/3% of the total grant) vest immediately if the
average of the daily high and low prices of the Class A Common Stock for 20
consecutive trading days exceeds $27.99 prior to the fourth anniversary of the
grant date. A total of 600,000 shares of Class A Common Stock are reserved for
issuance under the 1996 Plan and 200,000 shares of Class A Common Stock are
reserved for issuance under the Directors' Plan. A total of 560,000 and 130,000
shares were outstanding under the 1996 Plan and Directors' Plan, respectively.

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 SFAS No. 123, the Company' s net income (loss)
and income (loss) per share would have been the following pro forma amounts:

YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income (loss) available to common
stockholders
As reported..................... $ (2,494) $ (913) $ 3,406
Pro forma....................... (2,721) (1,122) 2,353
Net income (Loss) per share available to common stockholders:
Basic
As reported..................... (.99) (.19) .33
Pro forma....................... (1.08) (.23) .23
Diluted
As reported..................... (.99) (.19) .32
Pro forma....................... (1.08) (.23) .22

F-21
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Each of the plans is administered by a stock option committee appointed by
the Board of Directors. The plans allow for options to be granted as
non-qualified options, incentive stock options, reload options, alternative
appreciation rights and stock bonus options. As of December 31, 1997, 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.

A summary of the status of the plans at December 31, 1996 and 1997 and
changes during the year ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997
------------------ ------------------
SHARES WTD AVG. SHARES WTD AVG.
(000) EX PRICE (000) EX PRICE
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period... 50 $ 9.80 850 $13.74
Granted.............................. 818 13.9 338 20.18
Exercised............................ (5) 10.43 (23) 11.35
Canceled............................. (13) 10.11 (65) 16.80
------ ------
Outstanding at end of year........... 850 13.74 1,100 15.40
------ ------
Exercisable at end of year........... 74 10.34 146 12.41
------ ------
Weighted average fair value of
options granted.................... $ 8.00 $ 8.52
</TABLE>
All of the options outstanding at December 31, 1997 have exercise prices
between $8.00 and $24.75, with a weighted average exercise price of $15.40 and a
weighted average remaining contractual life of 8.8 years.

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 1996 and 1997, respectively: risk-free interest
rates of 6.67% and 6.45%; expected dividend yields of zero percent and zero
percent; expected lives of ten years and five years; expected volatility of
30.45% and 35.90%.

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 were restated in 1996 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. Upon completion of the IPO, the Series A, B and C Preferred
Stocks automatically converted into Class B Common Stock. 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 covered by
such options decreased by 50%.

8. REDEEMABLE PREFERRED STOCK:

The Company has 20,000,000 authorized shares of Series D Preferred Stock
with a par value of $.01 per share, of which approximately 17,253,000 and
1,682,500 shares were issued and outstanding at December 31, 1996 and 1997,
respectively. As of December 31, 1997, these shares can be converted into Class
A Common Stock at the rate of $15.50 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 IPO
(August 8, 1998) and ending December 31, 2001. On

F-22
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, irrevocable
standby letters of credit, issued by a financial institution and guaranteed by
the Company, were given to the holders (or designated beneficiaries) and can be
drawn upon if certain events occur, including the following: the Company has
failed to pay preferred stock dividends, the Company has failed to redeem the
preferred stock shares on the designated mandatory redemption date or a
liquidation, dissolution or winding up of affairs of the Company occurs. As of
December 31, 1997, letters of credit of approximately $1,740,000 were
outstanding relative to Series D Preferred Stock.

During the first quarter of 1997, the Company issued approximately
20,000,000 shares of Series F Preferred Stock with a par value of $.01 per share
to fund a portion of the acquisitions, of which 12,278,285 were outstanding at
December 31, 1997. These shares are convertible into Class A Common Stock at the
rate of $16.00 per share as of December 31, 1997, and increasing to $17.00 per
share on January 1, 1998. The holders of the Series F Preferred Stock are
entitled to receive preferential dividends at the amount of $.04 payable
quarterly, increasing to five percent per year for the period January 1, 1998
until January 1, 2001, at which time the annual rate becomes fixed at $.0486 per
share. On December 31, 2007, the Company must redeem all shares of Series F
Preferred Stock then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends.

F-23
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. EARNINGS PER SHARE:

The following table sets forth the computation of the basic and diluted
earnings (loss) per share for 1995, 1996 and 1997:

1995 1996 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Numerator:
Net income (loss) before
extraordinary item............ $ (2,494) $ 207 $ 4,491
Extraordinary item.............. -- (498) (195)
--------- --------- ---------
Net income (loss)............... (2,494) (291) 4,296
Preferred stock dividends....... -- (622) (890)
--------- --------- ---------
Numerator for basic earnings per
share -- net income (loss)
available to common
stockholders.................. $ (2,494) $ (913) $ 3,406
Effect of dilutive securities:
Preferred stock
dividends............... -- -- --
--------- --------- ---------
Numerator for diluted earnings
per share -- net income
available to common
stockholders after assumed
conversions................... $ (2,494) $ (913) $ 3,406
--------- --------- ---------
Denominator:
Denominator for basic earnings
per share --
weighted-average shares....... 2,520 4,869 10,226
Effect of dilutive securities:
Stock options.............. -- -- 259
--------- --------- ---------
Denominator for diluted earnings
per share --
adjusted weighted-average
shares and assumed
conversions................... 2,520 4,869 10,485
--------- --------- ---------
Basic earnings per share:
Net income (loss) before
extraordinary item............ $ (.99) $ (.09) $ .35
Extraordinary item.............. -- (.10) (.02)
--------- --------- ---------
Net income (loss)............... $ (.99) $ (.19) $ .33
========= ========= =========
Diluted earnings per share:
Net income (loss) before
extraordinary item............ $ (.99) $ (.09) $ .34
Extraordinary item.............. -- (.10) (.02)
--------- --------- ---------
Net income (loss)............... $ (.99) $ (.19) $ .32
========= ========= =========

F-24
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. MAJOR SEGMENTS OF BUSINESS

The Company conducts funeral and cemetery operations only in the United
States.
<TABLE>
<CAPTION>
FUNERAL CEMETERY CORPORATE CONSOLIDATED
-------- --------- ---------- -------------
(IN THOUSANDS, EXCEPT NUMBER OF OPERATIONS LOCATIONS)
<S> <C> <C> <C> <C>
Revenues:
1997............................ $ 64,888 $12,533 $ -- $ 77,421
1996............................ 37,445 2,903 -- 40,348
1995............................ 22,661 1,576 -- 24,237
-------- --------- ---------- -------------
Income from operations:
1997............................ $ 16,484 $ 2,899 $ (5,277) $ 14,106
1996............................ 6,804 362 (2,474) 4,692
1995............................ 3,740 250 (2,106) 1,884
-------- --------- ---------- -------------
Identifiable assets:
1997............................ $208,833 $57,020 $ 12,087 $ 277,940
1996............................ 117,061 9,285 4,962 131,308
1995............................ 48,847 2,169 10,730 61,746
-------- --------- ---------- -------------
Depreciation and amortization:
1997............................ $ 5,195 $ 1,454 $ 1,160 $ 7,809
1996............................ 2,863 129 637 3,629
1995............................ 1,609 72 267 1,948
-------- --------- ---------- -------------
Capital expenditures:(a)
1997............................ $ 34,858 $34,653 $ 2,758 $ 72,269
1996............................ 24,737 5,073 1,004 30,814
1995............................ 4,530 100 1,116 5,746
-------- --------- ---------- -------------
Number of operating locations at year end:
1997............................ 120 20 -- 140
1996............................ 76 10 -- 86
1995............................ 41 3 -- 44
</TABLE>
- ------------

(a) Includes $2,727,000, $26,184,000 and $63,106,000 for the three years ended
December 31, 1997, respectively, for purchases of property, plant and
equipment and cemetery property of acquired businesses.

F-25
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. QUARTERLY FINANCIAL DATA (UNAUDITED):

The table below sets forth consolidated operating results by fiscal quarter
for the years ended December 31, 1996 and 1997 (in thousands, except per share
data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
1996(A)
Revenues, net........................ $ 7,635 $ 9,290 $ 10,145 $ 13,278
Gross profit......................... 1,670 1,719 994 2,783
Net income (loss) before
extraordinary item................. (193) (468) (414) 1,282
Extraordinary item................... -- -- (498) --
Preferred stock dividend
requirements....................... 10 91 250 271
Net income (loss).................... (203) (559) (1,162) 1,011
Basic earnings (loss) per common
share
Continuing operations........... $ (.08) $ (.22) $ (.11) $ .12
Extraordinary item.............. -- -- (.09) --
--------- --------- --------- ---------
Net income (loss)............... $ (.08) $ (.22) $ (.20) $ .12
--------- --------- --------- ---------
Diluted earnings (loss) per common
share
Continuing operations........... $ (.08) $ (.22) $ (.11) $ .12
Extraordinary item.............. -- -- (.09) --
--------- --------- --------- ---------
Net income (loss)............... $ (.08) $ (.22) $ (.20) $ .12
--------- --------- --------- ---------
1997(A)
Revenues, net........................ $ 17,989 $ 19,061 $ 18,245 $ 22,126
Gross profit......................... 5,143 5,003 3,557 5,680
Net income before extraordinary
item............................... 1,825 1,489 347 830(b)
Extraordinary item................... -- -- (195) --
Preferred stock dividend
requirements....................... 363 174 176 177
Net income (loss).................... 1,462 1,315 (24) 653(b)
Basic earnings per common share:
Continuing operations........... $ .16 $ .13 $ 0.02 $ .06(b)
Extraordinary item.............. -- -- (0.02) --
--------- --------- --------- ---------
Net income...................... $ .16 $ .13 $ -- $ .06(b)
--------- --------- --------- ---------
Diluted earnings per common share:
Continuing operations........... $ .16 $ .12 $ 0.02 $ .06(b)
Extraordinary item.............. -- -- (0.02) --
--------- --------- --------- ---------
Net income...................... $ .16 $ .12 $ -- $ .06(b)
--------- --------- --------- ---------
</TABLE>
- ------------

(a) Earnings per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share amounts does not
equal the total computed for the year due to stock transactions which
occurred during the periods presented.

(b) Includes a one-time charge of $390,000 (equivalent to $.04 per share) to
revalue historical deferred tax accounts from 34% to 35%.

F-26
<PAGE>
- ------------------------------------------------------
- ------------------------------------------------------

, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, THE CLASS
A COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON 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 CIRCUM-STANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY 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
Forward-Looking Statements........... 8
Risk Factors......................... 8
Price Range of Class A Common Stock
and Dividend Policy................ 12
Use of Proceeds...................... 12
Capitalization....................... 13
Selected Historical Consolidated
Financial and Operating Data....... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Business............................. 24
Management........................... 32
Certain Transactions................. 38
Principal Stockholders............... 40
Description of Capital Stock......... 42
Shares Eligible for Future Sale...... 46
Underwriting......................... 47
Legal Matters........................ 48
Experts.............................. 49
Available Information................ 49
Index to Financial Statements........ F-1

5,000,000 SHARES

[L O G O]

CLASS A COMMON STOCK

------------------------
PROSPECTUS
------------------------

MERRILL LYNCH & CO.
ABN AMRO INCORPORATED
CREDIT SUISSE FIRST BOSTON
RAYMOND JAMES & ASSOCIATES, INC.

, 1998

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses of the offering are estimated to be as follows:

Securities and Exchange Commission
registration fee...................... $ 42,619
NASD filing fee......................... 14,660
NYSE listing fee........................ 125,000
Legal fees and expenses................. 100,000
Accounting fees and expenses............ 50,000
Blue Sky fees and expenses (including
legal fees)........................... 5,000
Printing expenses....................... 125,000
Transfer Agent fees..................... 10,000
Miscellaneous........................... 27,721
----------
TOTAL.............................. $ 500,000
==========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "DGCL"), subject to the procedures and
limitations stated therein, to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation
or other enterprise, against reasonable expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually incurred by him in
connection with such action, suit or proceeding, if such director, officer,
employee or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The Company is required by Section 145 to indemnify any
person against reasonable expenses (including attorneys' fees) actually incurred
by him in connection with an action, suit or proceeding in which he is a party
because he is or was a director, officer, employee or agent of the Company or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation or other enterprise, if he has been successful, on
the merits or otherwise, in the defense of the action, suit or proceeding.
Section 145 also allows a corporation to purchase and maintain insurance on
behalf of any such person against any liability asserted against him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145. In addition, Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise.

Article 10 of the Company's Charter provides that the Company shall
indemnify and hold harmless any person who was, is, or is threatened to be made
a party to a proceeding by reason of the fact that he or she (i) is or was a
director or officer of the Company or (ii) while a director or officer of the
Company, is or was serving at the request of the Company as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the DGCL. The right to indemnification under
Article 10 of the Charter is a contract right which includes, with respect to
directors and officers, the right to be paid by the Company the expenses
incurred in defending any such proceeding in advance of its disposition.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

From October 28, 1994 to May 29, 1996, the Company sold an aggregate of
715,000 shares of Preferred Stock, valued at $1.00 per share, to the former
owners of acquired funeral homes. Consideration for such shares consisted of
ownership interests in funeral home businesses and contract rights. The Company
relied on an exemption under Section 4(2) of the Securities Act in effecting
these transactions.

On September 25, 1995, the Company sold in a private placement an aggregate
of 8,500,000 shares of Series C Preferred Stock. The Chicago Corporation acted
as placement agent in connection with this offering. Such shares were purchased
for $1.00 per share. The Company relied on an exemption under Section 4(2) of
the Securities Act in effecting the placement.

From March 8, 1996 to September 6, 1996, the Company sold an aggregate of
17,775,616 shares of Series D Preferred Stock, valued at $1.00 per share, to the
former owners of acquired funeral homes. Consideration for such shares consisted
of ownership interests in funeral home businesses. The Company relied on an
exemption under Section 4(2) of the Securities Act in effecting these
transactions.

On May 28, 1996, an employee exercised options to purchase 1,000 shares of
Common Stock pursuant to the Company's 1995 Stock Incentive Plan at an exercise
price of $5.00 per share. The Company relied on an exemption under Section 4(2)
of the Securities Act in effecting this transaction.

On January 7, 1997, the Company sold 19,999,992 shares of Series F
Preferred Stock, valued at $1.00 per share, to the former owners of acquired
funeral homes. Consideration for such shares consisted of ownership interests in
funeral home businesses. The Company relied on an exemption under Section 4(2)
of the Securities Act in effecting this transaction.

From August 30, 1996 to May 31, 1997, the Company sold an aggregate of
517,197 shares of Class A Common Stock, valued at market prices, to the former
owners of acquired funeral homes. Consideration for such shares consisted of
ownership interests in funeral home businesses. The Company relied on an
exemption under Section 4(2) of the Securities Act in effecting these
transactions.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

<TABLE>
<CAPTION>
<C> <S>
*1.1 -- Form of Purchase Agreement
3.1 -- Amended and Restated Certificate of Incorporation of the Company, as amended, incorporated
herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 (File No. 1-11961)
3.2 -- Certificate of Amendment dated May 9, 1996, incorporated herein by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 (File No. 1-11961)
3.3 -- Certificate of Decrease, reducing the authorized Series D Preferred Stock, incorporated
herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 1-11961)
3.4 -- Certificate of Decrease, reducing the authorized Series F Preferred Stock, incorporated
herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 1-11961)
3.5 -- Amended and Restated Bylaws of the Company,
incorporated herein by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (File No.
333-05545)
4.1 -- Specimen Common Stock certificate, incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File No. 333-05545)
5.1 -- Opinion of Vinson & Elkins L.L.P.
</TABLE>
II-2

<PAGE>

<TABLE>
<CAPTION>
<C> <S>
10.1 -- Loan Agreement between the Company and NationsBank of Texas, N.A. dated September 9, 1997,
incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 (File No. 1-11961)
10.2 -- Merger Agreement dated July 3, 1996 among Carriage Services, Inc., CSI Funeral Services of
Connecticut, Inc., C. Funk & Son Funeral Home, Incorporated and Ronald F. Duhaime, Emilie
P. Duhaime and Christopher J. Duhaime, incorporated herein by reference to Exhibit 10.20
to the Company's Registration Statement on Form S-1 (File No. 333-05545)
10.3 -- Merger Agreement dated July 3, 1996 among Carriage Services, Inc., CFS Funeral Services of
Connecticut, Inc., O'Brien Funeral Home, Incorporated and Thomas P. OBrien, incorporated
herein by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1
(File No. 333-05545)
10.4 -- Merger Agreement dated June 26, 1996 among Carriage Services, Inc., Carriage Funeral
Services of South Carolina, Inc., Forest Lawn of Chesnee Inc. and shareholders,
incorporated herein by reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-1 (File No. 333-05545)
10.5 -- Merger Agreement dated October 17, 1996 among Carriage Services, Inc., Carriage Funeral
Services of California, Inc., CNM and the shareholders of CNM, incorporated herein by
reference to Exhibit 10.22 to the Company's Current Report on Form 8-K/A dated January 7,
1997 (File No. 1-11961)
10.6 -- Asset Purchase Agreement dated November 13, 1997 among Carriage Funeral Holdings, Inc.,
Sidun Funeral Group, Inc. and Charles D. Sidun, incorporated herein by reference to
exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31,
1997 (File No. 1-11961)
10.7 -- Merger Agreement dated November 19, 1997 among Carriage Services, Inc., Carriage Services
of Florida, Inc., Forest Lawn/Evergreen Management Corp., Greg M. Brudnicki and Charles E.
Kent, incorporated herein by reference to exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 (File No. 1-11961)
10.8 -- Asset Purchase Agreement dated November 19, 1997 among Carriage Funeral Holdings, Inc.,
Kent-Thornton Funeral Home, Inc., Greg Brudnicki, Charles Kent, Ricky Kent and Jane
Thornton, incorporated herein by reference to exhibit 10.19 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 (File No. 1-11961)
10.9 -- Employment Agreement with Melvin C. Payne,
incorporated herein by reference to Exhibit 10.23 to
the Company's Registration Statement on Form S-1 (File
No. 333-05545)
10.10 -- Employment Agreement with Mark W. Duffey,
incorporated herein by reference to Exhibit 10.24 to
the Company's Registration Statement on Form S-1 (File
No. 333-05545)
10.11 -- Employment Agreement with Russell W. Allen,
incorporated herein by reference to Exhibit 10.25 to
the Company's Registration Statement on Form S-1 (File
No. 333-05545)
10.12 -- Employment Agreement with Gary O'Sullivan,
incorporated herein by reference to Exhibit 10.26 to
the Company's Annual Report on Form 10-K (File No.
1-11961)
10.13 -- Employment Agreement with Thomas C. Livengood, incorporated herein by reference to Exhibit
10.27 to the Company's Annual Report on Form 10-K (File No.
1-11961)
</TABLE>
II-3

<PAGE>

<TABLE>
<CAPTION>
<C> <S>
10.14 -- Amended and Restated 1995 Stock Incentive Plan, incorporated herein by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K (File No. 1-11961)
10.15 -- Amended and Rested 1996 Stock Option Plan, incorporated herein by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K (File No. 1-11961)
10.16 -- Amended and Restated 1996 Directors' Stock Option
Plan, incorporated herein by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K
(File No. 1-11961)
10.17 -- Employment Agreement with Greg M. Brudnicki
10.18 -- Employment Agreement with Robert D. Larrabee
10.19 -- Employment Agreement with Mark F. Wilson
10.20 -- Carriage Partners Plan for Northern Florida, Southern Georgia and Alabama effective
November 20, 1997
10.21 -- Plan Adoption Agreement dated as of November 20, 1997 by and among Carriage Services of
Florida, Inc. and Greg M. Brudnicki
10.22 -- Carriage Partners Plan for Northwestern Idaho and Eastern Washington effective April 1,
1996
10.23 -- Plan Adoption Agreement dated as of April 1, 1996 by and among Carriage Funeral Services
of Idaho, Inc. and Robert D. Larrabee
10.24 -- Carriage Partners Plan for California effective January 7, 1997
10.25 -- Plan Adoption Agreement dated as of January 7, 1997 by and among Carriage Funeral Services
of California, Inc. and Mark F. Wilson
10.26 -- Amendment No. 1 dated April 24, 1998 to the Loan Agreement by and among the Company and
NationsBank of Texas, N.A., dated September 9, 1997, incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 (File No. 1-11961)
*21.1 -- Subsidiaries of the Company
*23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1 hereto)
24.1 -- Powers of Attorney (included on the signature page to this Registration Statement)
</TABLE>

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

* Filed herewith.

All other exhibits have been previously filed.

(b) Consolidated Financial Statement Schedules

All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate

II-4
<PAGE>
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF HOUSTON, STATE OF TEXAS, ON THE 6TH DAY OF MAY, 1998.

CARRIAGE SERVICES, INC.
By /s/ MELVIN C. PAYNE
MELVIN C. PAYNE
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- -------------------------------------- ---------------
<S> <C> <C>
/s/MELVIN C. PAYNE Chairman of the Board, Chief Executive
MELVIN C. PAYNE Officer and Director May 6, 1998
/s/MARK W. DUFFEY President and Director
MARK W. DUFFEY May 6, 1998
/s/THOMAS C. LIVENGOOD Executive Vice President, Chief
THOMAS C. LIVENGOOD Financial Officer and Secretary
(Principal Financial and Accounting
Officer) May 6, 1998
* Director
C. BYRON SNYDER May 6, 1998
* Director
BARRY K. FINGERHUT May 6, 1998
* Director
GREG M. BRUDNICKI May 6, 1998
* Director
RONALD A. ERICKSON May 6, 1998
* Director
ROBERT D. LARRABEE May 6, 1998
* Director
STUART W. STEDMAN May 6, 1998
* Director
MARK F. WILSON May 6, 1998
*By: /s/ THOMAS C. LIVENGOOD
THOMAS C. LIVENGOOD,
AS ATTORNEY-IN-FACT
</TABLE>

II-6

EXHIBIT 1.1

DRAFT OF 4/30/98

CARRIAGE SERVICES, INC.
(a Delaware corporation)

5,000,000 Shares of Class A Common Stock

PURCHASE AGREEMENT

Dated: May __, 1998
<PAGE>
TABLE OF CONTENTS

PAGE

PURCHASE AGREEMENT...........................................................1

SECTION 1. REPRESENTATIONS AND WARRANTIES.............................3
a. REPRESENTATIONS AND WARRANTIES BY THE COMPANY..............3
i. COMPLIANCE WITH REGISTRATION REQUIREMENTS.............3
ii. INDEPENDENT ACCOUNTANTS...............................4
iii. FINANCIAL STATEMENTS..................................4
iv. NO MATERIAL ADVERSE CHANGE IN BUSINESS................4
v. GOOD STANDING OF THE COMPANY..........................4
vi. GOOD STANDING OF SUBSIDIARIES.........................5
vii. CAPITALIZATION........................................5
viii.AUTHORIZATION OF AGREEMENT............................5
ix. AUTHORIZATION AND DESCRIPTION OF SECURITIES...........5
x. ABSENCE OF DEFAULTS AND CONFLICTS.....................6
xi. ABSENCE OF LABOR DISPUTE..............................6
xii. ABSENCE OF PROCEEDINGS................................7
xiii.ACCURACY OF EXHIBITS..................................7
xiv. POSSESSION OF INTELLECTUAL PROPERTY...................7
xv. ABSENCE OF FURTHER REQUIREMENTS.......................7
xvi. POSSESSION OF LICENSES AND PERMITS....................7
xvii.TITLE TO PROPERTY.....................................8
xviii.COMPLIANCE WITH CUBA ACT.............................8
xix. INVESTMENT COMPANY ACT................................8
xx. ENVIRONMENTAL LAWS....................................8
xxi. REGISTRATION RIGHTS...................................9
xxii.LISTING OF CLASS A COMMON STOCK.......................9
xxiii.TAXES................................................9
xxiv.INSURANCE COVERAGE....................................9
b. OFFICER'S CERTIFICATES....................................10

SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING................10
a. INITIAL SECURITIES........................................10
b. OPTION SECURITIES.........................................10
c. PAYMENT...................................................10
d. DENOMINATIONS; REGISTRATION...............................11

SECTION 3. COVENANTS OF THE COMPANY..................................11
a. COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS..................................................11

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<PAGE>
b. FILING OF AMENDMENTS......................................12
c. DELIVERY OF REGISTRATION STATEMENTS.......................12
d. DELIVERY OF PROSPECTUSES..................................12
e. CONTINUED COMPLIANCE WITH SECURITIES LAWS.................12
f. BLUE SKY QUALIFICATIONS...................................13
g. RULE 158..................................................13
h. USE OF PROCEEDS...........................................13
i. LISTING...................................................13
j. RESTRICTION ON SALE OF SECURITIES.........................14
k. REPORTING REQUIREMENTS....................................14

SECTION 4. PAYMENT OF EXPENSES.......................................14
a. EXPENSES..................................................14
b. TERMINATION OF AGREEMENT..................................15

SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS...................15
a. EFFECTIVENESS OF REGISTRATION STATEMENT...................15
b. OPINION OF VINSON & ELKINS L.L.P..........................15
c. OPINION OF SNELL & SMITH P.C..............................16
d. OPINION OF COUNSEL FOR UNDERWRITERS.......................16
e. OFFICERS' CERTIFICATE.....................................16
f. ACCOUNTANT'S COMFORT LETTER...............................16
g. BRING-DOWN COMFORT LETTER.................................17
h. APPROVAL OF LISTING.......................................17
i. NO OBJECTION..............................................17
j. LOCK-UP AGREEMENTS........................................17
k. CONDITIONS TO PURCHASE OF OPTION SECURITIES...............17
l. ADDITIONAL DOCUMENTS......................................18
m. TERMINATION OF AGREEMENT..................................18

SECTION 6. INDEMNIFICATION...........................................18
a. INDEMNIFICATION OF UNDERWRITERS...........................18
b. INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS........19
c. ACTIONS AGAINST PARTIES; NOTIFICATION.....................19
d. SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE........20

SECTION 7. CONTRIBUTION..............................................20

SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY..................................................22

SECTION 9. TERMINATION OF AGREEMENT..................................22
a. TERMINATION; GENERAL......................................22
b. LIABILITIES...............................................22

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<PAGE>
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS................22

SECTION 11. NOTICES...................................................23

SECTION 12. PARTIES...................................................23

SECTION 13. GOVERNING LAW AND TIME....................................24

SECTION 14. EFFECT OF HEADINGS........................................24

SCHEDULES
Schedule A - List of Underwriters..........................Sch A-1
Schedule B - Public Offering Price.........................Sch B-1
Schedule C - Persons to Deliver Lock-up Letters............Sch C-1

EXHIBITS
Exhibit A - Form of Opinion of Vinson & Elkins L.L.P...........A-1
Exhibit B - Form of Opinion of Snell & Smith P.C...............B-1
Exhibit C - Form of Lock-up Letter.............................C-1

-iii-
<PAGE>
CARRIAGE SERVICES, INC.
(a Delaware corporation)
5,000,000 Shares of Class A Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
May __, 1998

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
ABN AMRO Incorporated
Credit Suisse First Boston Corporation
Raymond James & Associates, Inc.
as Representative of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209

Ladies and Gentlemen:

CARRIAGE SERVICES, INC., a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, ABN AMRO Incorporated, Credit Suisse First
Boston Corporation and Raymond James & Associates, Inc. are acting as
representatives (in such capacity, the "Representatives"), with respect to the
issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of Class A Common
Stock, par value $.01 per share, of the Company ("Class A Common Stock") set
forth in said Schedule A, and with respect to the grant by the Company to the
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 750,000 additional shares of
Class A Common Stock to cover over-allotments, if any. The aforesaid 5,000,000
shares of Class A Common Stock (the "Initial Securities") to be purchased by

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<PAGE>
the Underwriters and all or any part of the 750,000 shares of Class A Common
Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities."

The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-51153) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated May __, 1998 together with the Term
Sheet, and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. For purposes of this Agreement, all references
to the Registration Statement, any preliminary prospectus, the Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").

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<PAGE>
SECTION 1. REPRESENTATIONS AND WARRANTIES.

a. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:

i. COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with. At the respective times the Registration Statement, any
Rule 462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. Neither the Prospectus nor any
amendments or supplements thereto, at the time the Prospectus or any such
amendment or supplement was issued and at the Closing Time (and, if any
Option Securities are purchased, at the Date of Delivery), included or
will include an untrue statement of a material fact or omitted or will
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectus shall not be "materially
different," as such term is used in Rule 434, from the prospectus included
in the Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
made in reliance upon and in conformity with information furnished to the
Company in writing by any Underwriter through Merrill Lynch expressly for
use in the Registration Statement or Prospectus.

Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when
so filed in all material respects with the 1933 Act Regulations and, if
applicable, each preliminary prospectus and the Prospectus delivered to
the Underwriters for use in connection with this offering was identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.

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<PAGE>
ii. INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.

iii. FINANCIAL STATEMENTS. The financial statements included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved. The supporting schedules, if any, included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Prospectus present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement.

iv. NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business (a "Material Adverse Effect"), (B) there
have been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered
as one enterprise, and (C) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any class of its capital
stock.

v. GOOD STANDING OF THE COMPANY. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws
of the state of Delaware and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described
in the Prospectus and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.

vi. GOOD STANDING OF SUBSIDIARIES. Each of [List Subsidiaries] (each
a "Subsidiary" and, collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and

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<PAGE>
to conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct
of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each such Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity, except
those Subsidiaries incorporated in Ohio, of which up to 20% of the common
stock of each such Subsidiaries is owned by third parties; none of the
outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of
such Subsidiary. The only subsidiaries of the Company are the subsidiaries
listed on Exhibit 21 to the Registration Statement.

vii. CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus in the column
entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in violation
of the preemptive or other similar rights of any securityholder of the
Company.

viii. AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.

ix. AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities have
been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company pursuant to
this Agreement against payment of the consideration set forth herein, will
be validly issued and fully paid and non-assessable; the Class A Common
Stock conforms to all statements relating thereto contained in the
Prospectus and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities will be subject
to personal liability by reason of being such a holder; and the issuance
of the Securities is not subject to the preemptive or other similar rights
of any securityholder of the Company.

x. ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any of
its Subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement

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<PAGE>
or instrument to which the Company or any of its Subsidiaries is a party
or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any Subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults that
would not result in a Material Adverse Effect; and the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated herein and in the Registration Statement (including the
issuance and sale of the Securities and the use of proceeds from the sale
of Securities as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations hereunder
have been duly authorized by all necessary corporate action and do not and
will not, whether with or without the giving of notice or passage of time
or both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company
or any Subsidiary pursuant to, the Agreements and Instruments (except for
such conflicts, breaches or defaults or liens, charges or encumbrances
that would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of the
Company or any Subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Company or any Subsidiary or any of their assets, properties or
operations. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other evidence
of indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company or any Subsidiary.

xi. ABSENCE OF LABOR DISPUTE. No labor dispute with the employees of
the Company or any Subsidiary exists or, to the knowledge of the Company,
is imminent, and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its or any Subsidiary's
principal suppliers, manufacturers, customers or contractors, which, in
either case, may reasonably be expected to result in a Material Adverse
Effect.

xii. ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding,
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any
Subsidiary, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Company of its obligations hereunder;
the aggregate of all pending legal or governmental proceedings to which
the Company or any Subsidiary is a party or of which any of their
respective property or assets is the subject which are not described in
the Registration Statement, including ordinary

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<PAGE>
routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.

xiii. ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.

xiv. POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its Subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its Subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding)
or invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.

xv. ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale
of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been already obtained
or as may be required under the 1933 Act or the 1933 Act Regulations or
under state securities laws.

xvi. POSSESSION OF LICENSES AND PERMITS. The Company and its
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them, except where the
failure to possess such Governmental Licenses would not, singly or in the
aggregate, result in a Material Adverse Effect; the Company and its
Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are valid and in full force and effect, except when
the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the

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<PAGE>
subject of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.

xvii. TITLE TO PROPERTY. The Company and its Subsidiaries have good
and marketable title to all real property owned by the Company and its
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectus or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company or any of
its Subsidiaries; and all of the leases and subleases material to the
business of the Company and its Subsidiaries, considered as one
enterprise, and under which the Company or any of its Subsidiaries holds
properties described in the Prospectus, are in full force and effect, and
neither the Company nor any Subsidiary has any notice of any material
claim of any sort that has been asserted by anyone adverse to the rights
of the Company or any Subsidiary under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company or
such Subsidiary to the continued possession of the leased or subleased
premises under any such lease or sublease.

xviii.COMPLIANCE WITH CUBA ACT. The Company and its Subsidiaries
have complied with, and are and will be in compliance with, the provisions
of that certain Florida act relating to disclosure of doing business with
Cuba, codified as Section 517.075 of the Florida statutes, and the rules
and regulations thereunder (collectively, the "Cuba Act") or are exempt
therefrom.

xix. INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended.

xx. ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its
Subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment
(including, without limitation, ambient air, surface water, groundwater,
land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution,
use, treatment,

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<PAGE>
storage, disposal, transport or handling of Hazardous Materials
(collectively, "Environmental Laws"), (B) the Company and its Subsidiaries
have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
Subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its Subsidiaries relating to Hazardous Materials or any Environmental
Laws.

xxi. REGISTRATION RIGHTS. Except as disclosed in the Prospectus,
there are no persons with registration rights or other similar rights to
have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act. All persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement have waived such rights
in writing.

xxii. LISTING OF CLASS A COMMON STOCK. The Class A Common Stock has
been approved for listing on the New York Stock Exchange, subject to
official notice of issuance.

xxiii.TAXES. All tax returns required to be filed by the Company
have been timely filed and such returns are true, complete and correct in
all material respects, except for certain franchise tax reports for
certain Subsidiaries that have had no Material Adverse Effect. All taxes
due or claimed to be due from the Company that are due and payable have
been paid, other than those (i) being contested in good faith and for
which an adequate reserve or accrual has been established in accordance
with GAAP or (ii) those currently payable without penalty or interest for
which an adequate reserve or accrual has been established in accordance
with GAAP or extensions duly paid. Except as described in the Prospectus,
the Company does not know of (A) any actual or proposed material
additional tax assessments or (B) any probable basis for the imposition of
any material additional tax assessments for any fiscal period against the
Company.

xxiv. INSURANCE COVERAGE. The Company and each Subsidiary maintains
insurance, which is in full force and effect, of the types and in the
amounts customary in the funeral home and cemetery business. Neither the
Company nor any Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from insurers at a cost that would
not have a Material Adverse Effect.

b. OFFICER'S CERTIFICATES. Any certificate signed by any officer of
the Company or any of its Subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall

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<PAGE>
be deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby.

SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.

a. INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.

b. OPTION SECURITIES. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional 750,000
shares of Class A Common Stock at the price per share set forth in Schedule B,
less an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial Securities but not payable on the Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial Securities upon notice by the Representatives to
the Company setting forth the number of Option Securities as to which the
several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Representatives, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the Option Securities, each
of the Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as the Representatives in their discretion shall
make to eliminate any sales or purchases of fractional shares.

c. PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Andrews
& Kurth L.L.P., 4200 Chase Tower, 600 Travis, Houston, Texas 77002, or at such
other place as shall be agreed upon by the Representatives and the Company, at
9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called "Closing Time").

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<PAGE>
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company.

Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.

d. DENOMINATIONS; REGISTRATION. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.

SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Underwriter as follows:

a. COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS.
The Company, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as applicable, and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been filed,
(ii) of the receipt of any comments from the Commission, (iii) of any request by
the Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Company will
promptly effect the filings necessary pursuant to Rule 424(b) and will take such
steps as it deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not,

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<PAGE>
it will promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.

b. FILING OF AMENDMENTS. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus will
furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall object.

c. DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and reports of accountants,
and will also deliver to the Representatives, without charge, a conformed copy
of the Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the Underwriters. The copies of the Registration
Statement and each amendment thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

d. DELIVERY OF PROSPECTUSES. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), such number of copies of the
Prospectus (as amended or supplemented) as such Underwriter may reasonably
request. If applicable, the Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.

e. CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is necessary,
in the opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if

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<PAGE>
it shall be necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the Prospectus in order to
comply with the requirements of the 1933 Act or the 1933 Act Regulations, the
Company will promptly prepare and file with the Commission, subject to Section
3(b), such amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectus comply with
such requirements, and the Company will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may reasonably
request.

f. BLUE SKY QUALIFICATIONS. The Company will use all reasonable
efforts, in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Representatives may designate and to
maintain such qualifications in effect for as long as required for distribution
of the Securities; provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is not
so qualified or to subject itself to taxation in respect of doing business in
any jurisdiction in which it is not otherwise so subject. In each jurisdiction
in which the Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such jurisdiction to
continue such qualification in effect for as long as required for distribution
of the Securities.

g. RULE 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.

h. USE OF PROCEEDS. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds".

i. LISTING. The Company will use its best efforts to maintain the
quotation of the Securities on the New York Stock Exchange and will file with
the New York Stock Exchange all documents and notices required by the New York
Stock Exchange of companies that have securities that are traded on the New York
Stock Exchange.

j. RESTRICTION ON SALE OF SECURITIES. During a period of 90 days
from the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Class A Common Stock or any securities
convertible into or exercisable or exchangeable for Class A Common Stock or file
any registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Class A Common Stock, whether any such swap or
transaction described in

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<PAGE>
clause (i) or (ii) above is to be settled by delivery of Class A Common Stock or
such other securities, in cash or otherwise. The foregoing sentence shall not
apply to (A) the Securities to be sold hereunder, (B) any shares of Class A
Common Stock issued by the Company upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof and referred to in
the Prospectus, (C) any shares of Class A Common Stock issued or options to
purchase Class A Common Stock granted pursuant to existing employee benefit
plans of the Company referred to in the Prospectus (D) any shares of Class A
Common Stock issued pursuant to any non-employee stock option plan or (E) any
shares of Class A Common Stock or any securities convertible or exchangeable
into Class A Common Stock issued as payment of any part of the purchase price
for funeral homes or cemeteries (or businesses or capital stock of businesses
that operate funeral homes or cemeteries) which are acquired by the Company
(provided, however, that such shares shall be subject to restrictions that will
prohibit the transfer thereof until after the expiration of the 90-day lock-up
period described in the preceding sentence).

k. REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.

SECTION 4. PAYMENT OF EXPENSES. a. EXPENSES. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale,
issuance or delivery of the Securities, (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Underwriters, including
any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to [, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with,] the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities and (x) the fees and expenses incurred in connection with the
listing of the Securities on the New York Stock Exchange.

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b. TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.

SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any Subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

a. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective under the 1933 Act and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
Underwriters. A prospectus containing the Rule 430A Information shall have been
filed with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the Company
has elected to rely upon Rule 434, a Term Sheet shall have been filed with the
Commission in accordance with Rule 424(b).

b. OPINION OF VINSON & ELKINS L.L.P. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Vinson & Elkins, L.L.P., counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to the effect set forth
in Exhibit A hereto and to such further effect as counsel to the Underwriters
may reasonably request. In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the State of
New York, the law of the State of Texas, the federal law of the United States
and the General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the Representatives. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.

c. OPINION OF SNELL & SMITH P.C. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Snell & Smith, a Professional Corporation, counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters to
the effect set forth in Exhibit B hereto and to such further effect as counsel
to the Underwriters may reasonably request. In giving such opinion such counsel
may rely, as to all matters governed by the laws of jurisdictions other than the
law of the State of Texas, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions

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<PAGE>
of counsel satisfactory to the Representatives. Such counsel may also state
that, insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.

d. OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Andrews & Kurth L.L.P., counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
with respect to the matters set forth in clauses (i), (ii), (iv), (v) (solely as
to preemptive or other similar rights arising by operation of law or under the
charter or by-laws of the Company), (vi) through (viii), inclusive, (xi), (xii)
(solely as to the information in the Prospectus under "Description of Capital
Stock--Class A Common Stock") and the last paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New York the federal
law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representatives. Such
counsel may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of officers
of the Company and its Subsidiaries and certificates of public officials.

e. OFFICERS' CERTIFICATE. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
of the Company, dated as of Closing Time, to the effect that (i) there has been
no such material adverse change, (ii) the representations and warranties in
Section 1(a) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or are contemplated by the
Commission.

f. ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Representatives shall have received from Arthur Andersen LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.

g. BRING-DOWN COMFORT LETTER. At Closing Time, the Representatives
shall have received from Arthur Andersen LLP a letter, dated as of Closing Time,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (f) of this Section, except

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<PAGE>
that the specified date referred to shall be a date not more than three business
days prior to Closing Time.

h. APPROVAL OF LISTING. At Closing Time, the Securities shall have
been approved for listing on the New York Stock Exchange, subject only to
official notice of issuance.

i. NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.

j. LOCK-UP AGREEMENTS. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit C hereto signed by the persons listed on Schedule C hereto.

k. CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that
the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any Subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the Representatives shall have received:

i. OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at the Closing Time pursuant to Section 5(e)
hereof remains true and correct as of such Date of Delivery.

ii. OPINION OF COUNSEL FOR COMPANY. The favorable opinions of Vinson
& Elkins L.L.P. and Snell & Smith, a Professional Corporation, counsel for
the Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinions required by Sections 5(b) and (c) hereof.

iii. OPINION OF COUNSEL FOR UNDERWRITERS. The favorable opinion of
Andrews & Kurth L.L.P., counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion required by
Section 5(d) hereof.

iv. BRING-DOWN COMFORT LETTER. A letter from Arthur Andersen LLP, in
form and substance satisfactory to the Representatives and dated such Date
of Delivery, substantially in the same form and substance as the letter
furnished to the Representatives pursuant to Section 5(g) hereof, except
that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.

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<PAGE>
l. ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.

m. TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.

SECTION 6. INDEMNIFICATION.

a. INDEMNIFICATION OF UNDERWRITERS. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:

i. against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

ii. against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of
the Company; and

-18-
<PAGE>
iii. against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above;

PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).

b. INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).

c. ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 6(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 6(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in

-19-
<PAGE>
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.

d. SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.

The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.

-20-
<PAGE>
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.

SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its Subsidiaries submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriters.

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<PAGE>
SECTION 9. TERMINATION OF AGREEMENT.

a. TERMINATION; GENERAL. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the [Nasdaq National Market], or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the [Nasdaq National Market] has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.

b. LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.

SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of
the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:

a. if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or

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<PAGE>
b. if the number of Defaulted Securities exceeds 10% of the number
of Securities to be purchased on such date, this Agreement or, with respect to
any Date of Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without liability on
the part of any non-defaulting Underwriter.

No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.

SECTION 11. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of Cara I. Londin;
and notices to the Company shall be directed to it at 1300 Post Oak Boulevard,
Suite 1500, Houston, Texas 77056, attention of Melvin C. Payne.

SECTION 12. PARTIES. This Agreement shall each inure to the benefit of and
be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.

SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

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<PAGE>
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.

-24-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.

Very truly yours,

CARRIAGE SERVICES, INC.

By: _________________________
Title:

CONFIRMED AND ACCEPTED, as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ABN AMRO INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
RAYMOND JAMES & ASSOCIATES, INC.

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By _____________________________________
Authorized Signatory

For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.

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<PAGE>
SCHEDULE A

Number of
Initial
NAME OF UNDERWRITER SECURITIES

Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
ABN AMRO Incorporated.........................................
Credit Suisse First Boston Corporation........................
Raymond James & Associates, Inc...............................

------------
Total......................................................... 5,000,000
============

Sch A-1
<PAGE>
SCHEDULE B

Carriage Services, Inc.
5,000,000 Shares of Class A Common Stock
(Par Value $.01 Per Share)

1. The public offering price per share for the Securities, determined as
provided in said Section 2, shall be $_____.

2. The purchase price per share for the Securities to be paid by the several
Underwriters shall be $_____, being an amount equal to the public offering price
set forth above less $_____ per share; provided that the purchase price per
share for any Option Securities purchased upon the exercise of the
over-allotment option described in Section 2(b) shall be reduced by an amount
per share equal to any dividends or distributions declared by the Company and
payable on the Initial Securities but not payable on the Option Securities.

Sch B-2
<PAGE>
SCHEDULE C

Russell W. Allen
Greg M. Brudnicki
Mark W. Duffey
Ronald A. Erickson
Barry K. Fingerhut
Robert D. Larrabee
Thomas C. Livengood
Reid A. Millard
Gary O'Sullivan
Melvin C. Payne
C. Byron Snyder
Stuart W. Stedman
Mark F. Wilson

Sch C-1
<PAGE>
Exhibit A

FORM OF OPINION OF VINSON & ELKINS L.L.P.
TO BE DELIVERED PURSUANT TO
SECTION 5(b)

(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.

(ii) The Company has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Purchase Agreement.

(iii) [TO BE COVERED BY VINSON & ELKINS OR SNELL & SMITH] The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus in the column entitled "Actual" under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to the Purchase Agreement or
pursuant to reservations, agreements or employee benefit plans referred to in
the Prospectus or pursuant to the exercise of convertible securities or options
referred to in the Prospectus); the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other similar rights of
any securityholder of the Company.

(iv) The Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to the Purchase Agreement and, when issued and delivered
by the Company pursuant to the Purchase Agreement against payment of the
consideration set forth in the Purchase Agreement, will be validly issued and
fully paid and non-assessable and no holder of the Securities is or will be
subject to personal liability by reason of being such a holder.

(v) The issuance of the Securities is not subject to preemptive or other
similar rights of any securityholder of the Company other than such rights as
have been waived in writing.

(vi) The Purchase Agreement has been duly authorized, executed and delivered
by the Company.

(vii) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); and, to our knowledge, no stop order
suspending the effectiveness of the Registration Statement or a Rule 462(b)
Registration Statement has been issued under the 1933 Act and no proceedings for
that purpose have been instituted or are pending or threatened by the
Commission.

A-1
<PAGE>
(viii)The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and Prospectus as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion) complied as to form
in all material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.

(ix) If Rule 434 has been relied upon, the Prospectus was not "materially
different," as such term is used in Rule 434, from the prospectus included in
the Registration Statement at the time it became effective.

(x) The Company has made all filings required to be made under the
Securities Exchange Act of 1934 prior to the date hereof.

(xi) The form of certificate used to evidence the Class A Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the charter and bylaws of the Company and
the requirements of the [Nasdaq National Market].

(xii) The information in the Prospectus under "Description of Capital
Stock--Common Stock," "--Preferred Stock" and "--Series D Preferred Stock" to
the extent that it constitutes matters of law, summaries of legal matters, the
Company's charter and bylaws or legal conclusions, has been reviewed by us and
is correct in all material respects.

(xiii)To our knowledge, there are no statutes or regulations that are
required to be described in the Prospectus that are not described as required.

(xiv) All descriptions in the Registration Statement of contracts and other
documents to which the Company or its subsidiaries are a party are accurate in
all material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.

(xv) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign (other than under the 1933 Act and the 1933 Act
Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or for the offering, issuance
or sale of the Securities.

(xvi) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreement and
in the Registration Statement (including the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as described

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in the Prospectus under the caption "Use Of Proceeds") and compliance by the
Company with its obligations under the Purchase Agreement do not and will not,
result in any violation of the provisions of the charter or bylaws of the
Company or any Subsidiary, or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, known to us, of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their respective properties, assets or
operations.

(xvii)[TO BE COVERED BY VINSON & ELKINS OR SNELL & SMITH] To the best of our
knowledge, there are no persons with registration rights or other similar rights
to have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act.

(xviiiThe Company is not an "investment company" or an entity "controlled"
by an "investment company,"as such terms are defined in the 1940 Act.

Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time the Prospectus
was issued, at the time any such amended or supplemented prospectus was issued
or at the Closing Time, included or includes an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

In rendering such opinion, such counsel may rely as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. Such opinion shall not
state that it is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).

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<PAGE>
Exhibit B

FORM OF OPINION OF SNELL & SMITH P.C.
TO BE DELIVERED PURSUANT TO
SECTION 5(c)

(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.

(ii) [TO BE COVERED BY VINSON & ELKINS OR SNELL & SMITH] The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus in the column entitled "Actual" under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to the Purchase Agreement or
pursuant to reservations, agreements or employee benefit plans referred to in
the Prospectus or pursuant to the exercise of convertible securities or options
referred to in the Prospectus); the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other similar rights of
any securityholder of the Company.

(iii)The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.

(iv) Each Subsidiary has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, to the best of our knowledge, is owned by the Company,
directly or through Subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.

(v) To the best of our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Company or any
Subsidiary is a party, or to which the property of the Company or any Subsidiary
is subject, before or brought by any court or governmental agency or body,
domestic or foreign, which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the

B-1
<PAGE>
consummation of the transactions contemplated in the Purchase Agreement or the
performance by the Company of its obligations thereunder.

(vi) To the best of our knowledge, there are no statutes or regulations that
are required to be described in the Prospectus that are not described as
required.

(vii)All descriptions in the Registration Statement of contracts and other
documents to which the Company or its subsidiaries are a party are accurate in
all material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.

(viii)The information in the Prospectus under "Shares Eligible for Future
Sale," and in the Registration Statement under item 15, to the extent that it
constitutes matters of law, summaries of legal matters, or legal proceedings, or
legal conclusions, has been reviewed by us and is correct in all material
respects.

(ix) To the best of our knowledge, neither the Company nor any Subsidiary is
in violation of its charter or by-laws and no default by the Company or any
Subsidiary exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.

(x) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreement and
in the Registration Statement (including the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use Of Proceeds") and compliance by the Company
with its obligations under the Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(x) of the Purchase Agreement) under or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any Subsidiary pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or any other agreement or instrument,
known to us, to which the Company or any Subsidiary is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any Subsidiary, or any applicable
law, statute, rule, regulation, judgment, order, writ or decree, known to us, of
any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their respective
properties, assets or operations.

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<PAGE>
(xi) [TO BE COVERED BY VINSON & ELKINS OR SNELL & SMITH] To the best of our
knowledge, there are no persons with registration rights or other similar rights
to have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act.

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<PAGE>
Exhibit C
, 1998

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED,
ABN AMRO INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
RAYMOND JAMES & ASSOCIATES, INC.
as Representative(s) of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209

Re: PROPOSED PUBLIC OFFERING BY CARRIAGE SERVICES, INC.

Dear Sirs:

The undersigned, a stockholder [and an officer and/or director] of Carriage
Services, Inc., a Delaware corporation (the "Company"), understands that Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), ABN AMRO Incorporated, Credit Suisse First Boston Corporation and
Raymond James & Associates, Inc. propose to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $0.01 per
share (the "Common Stock"). In recognition of the benefit that such an offering
will confer upon the undersigned as a stockholder [and an officer and/or
director] of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each underwriter to be named in the Purchase Agreement that, during a
period of 90 days from the date of the Purchase Agreement, the undersigned will
not, without the prior written consent of Merrill Lynch, directly or indirectly,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any shares of the
Company's Common Stock or any securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or

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<PAGE>
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction is to be settled by delivery of Common Stock or
other securities, in cash or otherwise.

Very truly yours,

Signature:
Print Name:

C-2

EXHIBIT 21.1

CARRIAGE SERVICES, INC.

SUBSIDIARIES AS OF APRIL 30, 1998

JURISDICTION OF
NAME INCORPORATION
---- -------------

Carriage Funeral Holdings, Inc. Delaware
CFS Funeral Services, Inc. Delaware
Carriage Holding Company, Inc. Delaware
Carriage Funeral Services of Michigan, Inc. Michigan
Carriage Funeral Services of Ohio, Inc. Ohio
CFS Funeral Services of Ohio, Inc. Ohio
Hennessy-Bagnoli Funeral Home, Inc. Ohio
Carriage Funeral Services of Idaho, Inc. Idaho
Dwayne R. Spence Funeral Home, Inc. Ohio
Carriage Funeral Services of Kentucky, Inc. Kentucky
Carriage Funeral Services of South Carolina, Inc. South Carolina
Carriage Funeral Services of Connecticut, Inc. Connecticut
Carriage Funeral Services of Indiana, Inc. Indiana
Carriage Funeral Services of Texas, Inc. Texas
Carriage Funeral Services of California, Inc. California
Wilson & Kratzer Mortuaries California
Rolling Hills Memorial Park California
Cheda & Matteucci, Inc. California
Ouimet Concord Funeral Chapel, Inc. California
Frank J. Calcaterra Funeral Home, Inc. Michigan
Hillcrest Memorial Gardens, Inc. Idaho
Richmond County Memorial Park, Inc. North Carolina
Bryan Funeral Home, Inc. Ohio
Stevens Funeral Homes, Inc. Ohio
Grandview Memorial Gardens, Inc. Indiana
Carriage Funeral Services of Kansas, Inc. Kansas
CFS Funeral Services of Kansas, Inc. Kansas
CFS Services of Kentucky, Inc. Kentucky
Carriage Services of Illinois, Inc. Illinois
Carriage Services of New York, Inc. New York
Pioneer Funeral Plans, Inc. Texas
Carriage Services of Connecticut, Inc. Connecticut
Geisendorf-Rush Smith Funeral Home, Ltd. Kansas
Hamilton County Burial Services, Inc. Tennessee
Carriage Services of Florida, Inc. Florida
Schlup-Pucak Funeral Home, Inc. Ohio
Fox-Engartner Funeral Home, Inc. Ohio
Feeney Funeral Home, Inc. New Jersey
CSI Funeral Services of Massachusetts, Inc. Massachusetts
Oak View Memorial Park Cemetery California
Allison Funeral Service, Inc. Texas

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT

As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.

ARTHUR ANDERSEN LLP

Houston, Texas
May 5, 1998