EQUITY CORP INTERNATIONAL, S-3, 1996-12-13

EQUITY CORP INTERNATIONAL
S-3, 1996-12-13
PERSONAL SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1996

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------

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

<TABLE>
<S> <C>
DELAWARE 75-2521142
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
W. CARDON GERNER
SENIOR VICE PRESIDENT -- CHIEF FINANCIAL OFFICER
EQUITY CORPORATION INTERNATIONAL
415 SOUTH FIRST STREET 415 SOUTH FIRST STREET
SUITE 210 SUITE 210
LUFKIN, TEXAS 75901 LUFKIN, TEXAS 75901
(409) 631-8700 (409) 631-8700
(Address, including zip code, and telephone number, (Name, address, including zip code, and
including area code, of registrant's principal telephone number, including area code,
executive offices) of agent for service)
</TABLE>

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

Copies to:

<TABLE>
<S> <C>
KEITH FULLENWEIDER
WILLIAM N. FINNEGAN, IV VINSON & ELKINS L.L.P.
ANDREWS & KURTH L.L.P. 1001 FANNIN STREET
4200 TEXAS COMMERCE TOWER SUITE 2300
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 220-4200 (713) 758-2222
</TABLE>

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

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

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED(1) REGISTERED(2) PER SHARE(3) OFFERING PRICE(3) FEE
- - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share.......................... 8,497,458 shares $19.75 $167,824,796 $50,856
- - - ----------------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------------
</TABLE>

(1) Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
contained in this Registration Statement also relates to 696,501 shares of
Common Stock carried forward from the Company's Registration Statement on
Form S-3 (Reg. No. 33-80841), as to which a filing fee of $2,081 was
previously paid.
(2) Includes 1,199,212 shares issuable upon exercise of an over-allotment option
granted by the Company to the Underwriters.
(3) Estimated solely for the purpose of determining the registration fee, and
calculated pursuant to Rule 457(c) under the Securities Act of 1933 by
averaging the high and low sale prices of the Common Stock on the Nasdaq
National Market on December 10, 1996.
---------------------

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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

********************************************************************************
* 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 DECEMBER 13, 1996
PROSPECTUS

7,994,747 SHARES

[ECI LOGO]

EQUITY CORPORATION INTERNATIONAL
COMMON STOCK
------------------------
All of the 7,994,747 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of Equity Corporation International, a Delaware corporation
(the "Company"), offered hereby (the "Offering") are being offered by Service
Corporation International (the "Selling Stockholder"). The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholder.
See "Selling Stockholder" and "Underwriting."

The Common Stock is quoted on the Nasdaq National Market under the symbol
"ECII." On December 10, 1996, the last reported sale price of the Common Stock
on the Nasdaq National Market was $19 1/2 per share. See "Price Range of Common
Stock and Dividend Policy."

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE 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 COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------
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PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDER(2)
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<S> <C> <C> <C>
Per Share............................... $ $ $
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Total(3)................................ $ $ $
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</TABLE>

(1) The Company and the Selling Stockholder have 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 pro rata by the Selling Stockholder and
the Company estimated at $ .

(3) The Company has granted to the several Underwriters an option for 30 days to
purchase up to an additional 1,199,212 shares of 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, Proceeds to Selling Stockholder and Proceeds to
Company will be $ , $ , $ and $ ,
respectively. See "Underwriting."

------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, 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 Common Stock will be made in New York, New York on or
about , 1997.

------------------------
MERRILL LYNCH & CO.
THE CHICAGO CORPORATION

J.P. MORGAN & CO.

RAYMOND JAMES & ASSOCIATES, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3

[Map of the U.S. marking property locations of funeral homes and cemeteries
operated by the Company as of December 1, 1996. Circles are used to indicate
funeral homes, squares are used to indicate cemeteries and a star is used to
mark the Company's corporate headquarters.]

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."

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

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto included
elsewhere in this Prospectus or incorporated by reference in this Prospectus.
Unless the context requires otherwise, references to "ECI" or the "Company" in
this Prospectus include Equity Corporation International and its subsidiaries
and their respective predecessors. All data relating to shares of Common Stock
reflects a 579-for-1 stock split in June 1994 and a 3-for-2 stock split in
October 1996. Unless otherwise noted, the information contained in this
Prospectus assumes that the Underwriters' over-allotment option is not
exercised.

THE COMPANY

GENERAL

The Company is the fourth largest publicly traded provider of deathcare
services and products in the United States, primarily serving communities
located in non-metropolitan areas. As of December 1, 1996, the Company operated
169 funeral homes and 62 cemeteries in 23 states. For the nine months ended
September 30, 1996 and the year ended December 31, 1995, the Company had net
revenues of $65.7 million and $64.0 million, respectively.

The Company commenced operations in May 1990 through the acquisition of 71
funeral homes and 3 cemeteries from Service Corporation International ("SCI").
Effective January 1, 1994, the Company significantly expanded its cemetery
operations through the acquisition of MLI/The Loftis Corporation ("MLI"), which
operated 40 cemeteries and 4 funeral homes. In addition to its acquisition of
MLI, the Company acquired 12 funeral homes and 5 cemeteries in 1994 for purchase
prices totaling approximately $13.5 million and 27 funeral homes and 13
cemeteries in 1995 for purchase prices totaling approximately $41.1 million. In
the first eleven months of 1996, the Company acquired 50 funeral homes and 1
cemetery for purchase prices totaling approximately $52.9 million. As of
December 1, 1996, the Company was a party to letters of intent relating to the
acquisition of 17 funeral homes and 3 cemeteries for purchase prices totaling
approximately $19.4 million.

The Company's funeral homes perform all of the services related to
funerals, provide funeral facilities and vehicles and sell related merchandise
and services. The Company's funeral homes are primarily located in communities
with populations ranging from 10,000 to 250,000 residents. The Company's
cemeteries perform all of the services related to interment and sell cemetery
interment rights, mausoleum spaces and related merchandise. The Company's
cemeteries are primarily located in communities with populations ranging from
75,000 to 500,000 residents. In order to improve the efficiency and
profitability of its operations, the Company's funeral homes and cemeteries are
generally operated in "clusters" or groups within a given geographic area. The
clustering of funeral homes and the clustering of cemeteries provide
opportunities to share personnel, vehicles and other resources, effect operating
and administrative cost reductions and implement revenue enhancing
cross-marketing programs.

ECI believes it is differentiated from the other large, national deathcare
companies by its focus on the consolidation of funeral homes and cemeteries in
non-metropolitan areas of the United States. The Company has focused on
non-metropolitan areas in order to take advantage of the unique opportunities
offered by such areas as compared to metropolitan areas, including (i) the
opportunity to establish and maintain higher market shares as a result of the
smaller number of deathcare providers typically found in a non-metropolitan
area, (ii) the relatively lower level of competition for acquisitions and (iii)
the stronger preference for traditional funeral services and burials.

THE DEATHCARE INDUSTRY

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

3
<PAGE> 5

Stability. Death rates in the United States are fairly predictable, thereby
lending stability to the deathcare industry. The number of deaths in the United
States has increased at a compound rate of approximately one percent per year
since 1980 and is expected to increase by approximately one percent per year
through 2010. In addition, the ownership of funeral home and cemetery businesses
has traditionally passed from generation to generation within the same family
and the aggregate number of funeral homes and cemeteries in the United States
has remained relatively constant.

BUSINESS STRATEGY

The Company's strategy is to continue to expand through the aggressive
acquisition of premier funeral homes and cemeteries primarily in
non-metropolitan areas of the United States and to generate increasing levels of
profitability through the implementation of proven revenue-enhancement and
cost-containment programs.

The Company's acquisition program is focused on premier funeral homes and
cemeteries in non-metropolitan areas both within and outside the Company's
current markets that can serve as anchor locations for new clusters or that
complement the operations of its existing clusters. The Company believes that it
is well positioned to continue successfully implementing its growth strategy
primarily due to the large number of attractive acquisition opportunities
management believes are still available in the United States. The Company
currently expects to spend approximately $65 million for the acquisition of
funeral homes and cemeteries in 1997. The Company typically retains the former
owners and other key personnel of acquired funeral homes and, where appropriate,
the former owners and other key personnel of acquired cemeteries in an effort to
ensure the continuation of high quality services and the maintenance of each
acquired operation's unique reputation, heritage and long-standing local
relationships. In nearly all cases, acquired funeral homes and cemeteries
continue operations under the same tradenames as were used by the prior owners.

Following the acquisition of a funeral home or cemetery, the Company
implements its proven revenue-enhancement program. For acquired funeral homes,
the program includes the introduction of the Company's funeral merchandising and
sales training program. For acquired cemeteries, the program includes the
expansion of preneed marketing of cemetery interment rights, services and
merchandise. Following an acquisition, cross-marketing opportunities are also
identified in an effort to maximize revenues when newly acquired funeral homes
and cemeteries are located in close proximity to existing clusters. In order to
improve the profitability of its operations, particularly its newly acquired
properties, the Company also implements aggressive cost-containment programs
including (i) the elimination, where possible, of costs through the sharing of
personnel, vehicles and other resources, (ii) the realization of favorable
pricing and terms from suppliers through volume discounts on certain significant
expenditures and (iii) the consolidation of certain administrative and financial
management functions.

4
<PAGE> 6

THE OFFERING

Common Stock offered by the
Selling Stockholder...... 7,994,747 shares(1)

Common Stock to be
outstanding after the
Offering................. 19,216,334 shares(1)(2)

Use of Proceeds............ The Company will not receive any of the proceeds
from the sale of Common Stock by the Selling
Stockholder in the Offering. If the over-allotment
option is exercised by the Underwriters in full,
the Company will receive net proceeds of
approximately $ million. The Company will use such
proceeds to repay outstanding indebtedness under
the Company's revolving bank credit facility. See
"Use of Proceeds."

Nasdaq National Market
symbol................... ECII
- - - ---------------

(1) Does not include 1,199,212 shares of Common Stock subject to purchase from
the Company upon the exercise by the Underwriters of their over-allotment
option.

(2) Based on shares outstanding as of December 1, 1996. Does not include 816,531
shares issuable upon the exercise of options outstanding as of December 1,
1996 under the Company's 1994 Long-Term Incentive Plan (the "Incentive
Plan"), 267,419 of which were exercisable as of such date.

5
<PAGE> 7

SUMMARY FINANCIAL AND OPERATING DATA

The following table sets forth certain summary financial and operating data
for the Company. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993(1) 1992(1) 1991(1)
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues:
Funeral................. $40,232 $25,321 $36,261 $27,382 $21,432 $19,525 $19,413
Cemetery................ 25,426 19,662 27,740 21,919 847 865 773
------- ------- ------- ------- ------- ------- -------
Total net
revenues...... 65,658 44,983 64,001 49,301 22,279 20,390 20,186
Gross profit:
Funeral................. 11,462 5,844 8,819 7,580 6,118 3,399 2,917
Cemetery................ 7,301 6,009 8,477 6,157 47 59 78
------- ------- ------- ------- ------- ------- -------
Total gross
profit........ 18,763 11,853 17,296 13,737 6,165 3,458 2,995
General and administrative
expenses................ 4,370 3,442 4,782 3,885 1,521 1,093 765
------- ------- ------- ------- ------- ------- -------
Income from operations.... 14,393 8,411 12,514 9,852 4,644 2,365 2,230
Interest expense.......... 1,690 1,297 2,207 3,178 701 556 533
------- ------- ------- ------- ------- ------- -------
Income before income taxes
and extraordinary
item.................... 12,703 7,114 10,307 6,674 3,943 1,809 1,697
Provision for income
taxes................... 5,709 2,810 4,071 2,728 1,388 598 807
Extraordinary item, net... -- -- -- (198) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income................ 6,994 4,304 6,236 3,748 2,555 1,211 890
Preferred stock
dividends............... -- -- -- -- 1,563 1,563 1,531
------- ------- ------- ------- ------- ------- -------
Net income (loss)
attributable to common
stock................... $ 6,994 $ 4,304 $ 6,236 $ 3,748 $ 992 $ (352) $ (641)
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share(2):
Continuing operations... $ 0.40 $ 0.29 $ 0.42 $ 0.39 $ 0.15 $ (0.49) $ (0.89)
Extraordinary item...... -- -- -- (0.02) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 0.40 $ 0.29 $ 0.42 $ 0.37 $ 0.15 $ (0.49) $ (0.89)
======= ======= ======= ======= ======= ======= =======
Weighted average number of
common and equivalent
shares outstanding(2)... 17,583 14,807 14,835 10,002 6,613 717 717
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital............................................................. $ 10,921
Preneed funeral contracts................................................... 145,046
Total assets................................................................ 400,377
Deferred preneed funeral contract revenues.................................. 150,082
Long-term debt, net of current maturities................................... 28,902
Stockholders' equity........................................................ 171,880
</TABLE>

6
<PAGE> 8

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993(1) 1992(1) 1991(1)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
FUNERAL OPERATIONS:
Funeral homes in operation
at end of period........ 163 113 119 95 79 76 82
Funeral services
performed............... 8,681 5,780 8,332 6,181 5,127 4,753 5,096
Preneed funeral contracts
sold or obtained through
acquisitions............ 12,353 10,225 12,415 6,397 2,124 2,462 1,652
Backlog of preneed funeral
contracts at end of
period.................. 42,871 30,332 32,199 21,084 16,103 14,979 13,370
CEMETERY OPERATIONS:
Cemeteries in operation at
end of period........... 62 59 61 48 3 3 3
Interments performed....... 6,707 4,975 7,080 6,283 293 264 286
</TABLE>

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

(1) The Company's financial and operating data for the years ended December 31,
1993, 1992 and 1991 do not reflect the operations of MLI, which were
acquired effective January 1, 1994. As a result of the MLI acquisition and
certain other factors, the Company believes that its results of operations
for the nine months ended September 30, 1996 and 1995 and for the years
ended December 31, 1995 and 1994 are not necessarily comparable with its
results of operations for prior periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

(2) Earnings (loss) per share is based on the weighted average number of common
and equivalent shares outstanding during the period which takes into
consideration (i) for the nine months ended September 30, 1996 and 1995 and
for the year ended December 31, 1995, the dilutive effect of stock options
and restricted stock issued under the Company's Incentive Plan based on the
treasury stock method, (ii) for 1994, 1993, 1992 and 1991, the issuance of
228,375 shares of Common Stock at a price of approximately $6.13 per share
in June 1994 reflected under the treasury stock method prior to issuance
and (iii) for 1993, the dilutive effect of a warrant exercisable for common
shares held by SCI. The redeemable preferred stock dividends are deducted
from the 1993, 1992 and 1991 net income for purposes of calculating
earnings (loss) per share. The weighted average number of common and
equivalent shares outstanding reflects a 579-for-1 stock split in June 1994
and a 3-for-2 stock split in October 1996.

7
<PAGE> 9

RISK FACTORS

In addition to the other information set forth or incorporated by reference
in this Prospectus, the following factors should be considered carefully by
prospective investors before purchasing the Common Stock offered hereby.

COMPETITION FOR ACQUISITIONS

To date, the Company has expanded its operations principally through the
acquisition of established funeral homes and cemeteries. Acquisitions of premier
funeral homes and cemeteries primarily in non-metropolitan areas of the United
States with demographic profiles that the Company believes are favorable will
continue to be a key component of the Company's business strategy. Competition
in the acquisition market is currently intense, and prices paid for funeral
homes and cemeteries have increased substantially in recent years. 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. See "Business -- Business
Strategy," "-- Acquisition Program" and "-- Competition."

TREND TOWARD CREMATION

There is an increasing trend in the United States toward cremation as an
alternative to traditional burial. According to industry studies, cremations
represented approximately 21% of all dispositions of human remains in the United
States in 1995, as compared with approximately 10% in 1980. Cremation is
increasingly marketed as part of a complete deathcare package that includes a
funeral service and traditional memorialization. While cremations have
historically generated gross profit percentages similar to those for traditional
funeral services, cremations generally result in lower average revenue and gross
profit dollars when compared to traditional funeral services. 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 -- Operations -- Funeral Home Operations."

DEPENDENCE UPON KEY PERSONNEL

The Company believes that its continued success will depend to a
significant extent upon the abilities and continued efforts of its existing
senior management. The loss of key members of the Company's senior management
could adversely affect the Company's results of operations. 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.

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 laws, ordinances and regulations
varies depending on the location of the Company's funeral homes and cemeteries.
Among the regulations applicable to the Company are those requiring the
establishment and maintenance of trust accounts for the deposit of certain funds
obtained from the purchasers of preneed funeral contracts and preneed cemetery
merchandise and trust accounts for the perpetual care of cemetery properties.
The Company has in place various safeguards designed to ensure that funds are
deposited in such trust accounts as required and that improper withdrawals from
such trust accounts do not occur.

From time to time, federal and state regulatory agencies have considered
and may enact additional legislation or regulations that could affect the
deathcare industry. If adopted, such legislation or regulations could have a
material adverse effect on the Company's results of operations.

Approximately 43% and 54% of the Company's funeral home net revenues
(approximately 26% and 31% of the Company's total net revenues) for the nine
months ended September 30, 1996 and the year ended

8
<PAGE> 10

December 31, 1995, respectively, were attributable to funeral home operations in
Texas, and approximately 25% and 32% of the Company's cemetery net revenues
(approximately 10% and 14% of the Company's total net revenues) for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively, were attributable to cemetery operations in North Carolina. Any
material adverse change in the regulatory requirements applicable to Texas
funeral home operations or North Carolina cemetery operations could have a
material adverse effect on the Company's results of operations. See
"Business -- Trust Funds" and "-- Regulation."

ANTI-TAKEOVER PROVISIONS

The Company's Amended and Restated Certificate of Incorporation ("Charter")
and Amended and Restated Bylaws ("Bylaws") contain certain provisions that may
have the effect of discouraging, delaying or preventing a change in control of
the Company or unsolicited acquisition proposals that a stockholder might
consider favorable, including 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. In addition, the Company's Board of Directors has
adopted a preferred share rights plan. The rights plan, as well as certain
provisions of Delaware law, may also have the effect of discouraging, delaying
or preventing a change in control of the Company or an unsolicited acquisition
proposal.

FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE

This Prospectus contains forward-looking statements and information that
are based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this document, the words
"anticipate," "believe," "estimate" and "expect" and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to future events and are subject to certain
risks, uncertainties and assumptions, including the risk factors described in
this Prospectus. 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.

9
<PAGE> 11

THE COMPANY

The Company commenced operations in May 1990 through the acquisition of 71
funeral homes and 3 cemeteries from SCI. Effective January 1, 1994, the Company
significantly expanded its cemetery operations through the acquisition of MLI,
which operated 40 cemeteries and 4 funeral homes. In addition to its acquisition
of MLI, the Company acquired 12 funeral homes and 5 cemeteries in 1994 for
purchase prices totaling approximately $13.5 million and 27 funeral homes and 13
cemeteries in 1995 for purchase prices totaling approximately $41.1 million. In
the first eleven months of 1996, the Company acquired 50 funeral homes and 1
cemetery for purchase prices totaling approximately $52.9 million. As of
December 1, 1996, the Company was a party to letters of intent relating to the
acquisition of 17 funeral homes and 3 cemeteries for purchase prices totaling
approximately $19.4 million.

The Company's funeral homes perform all of the services related to
funerals, provide funeral facilities and vehicles and sell related merchandise
and services. The Company's funeral homes are primarily located in communities
with populations ranging from 10,000 to 250,000 residents. The Company's
cemeteries perform all of the services related to interment and sell cemetery
interment rights, mausoleum spaces and related merchandise. The Company's
cemeteries are primarily located in communities with populations ranging from
75,000 to 500,000 residents. In order to improve the efficiency and
profitability of its operations, the Company's funeral homes and cemeteries are
generally operated in clusters or groups within a given geographic area. The
clustering of funeral homes and the clustering of cemeteries provide
opportunities to share personnel, vehicles and other resources, effect operating
and administrative cost reductions and implement revenue enhancing
cross-marketing programs.

The Company's principal executive office is located at 415 South First
Street, Suite 210, Lufkin, Texas 75901, and its telephone number is (409)
631-8700.

10
<PAGE> 12

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market under the symbol "ECII." 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 October 19, 1994. The
sale prices set forth below have been adjusted to reflect a 3-for-2 stock split
in October 1996.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
1994:
Fourth Quarter (beginning October 19, 1994)........................ $10 3/8 $ 8 5/8
1995:
First Quarter...................................................... 11 8 5/8
Second Quarter..................................................... 13 7/8 9 5/8
Third Quarter...................................................... 16 7/8 13 1/8
Fourth Quarter..................................................... 16 1/2 12 1/2
1996:
First Quarter...................................................... 20 15 3/8
Second Quarter..................................................... 20 1/2 17 5/8
Third Quarter...................................................... 22 1/8 16 3/8
Fourth Quarter (through December 10, 1996)......................... 25 1/2 19 1/4
</TABLE>

On December 10, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $19.50 per share. As of December 1, 1996, there
were 19,216,334 shares of Common Stock outstanding held by approximately 146
holders of record. The Company believes there are approximately 3,500 beneficial
owners of the Common Stock.

The Company has never paid a cash dividend on the Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future. 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. The Company's revolving bank
credit facility (the "Credit Facility") permits the payment of dividends only to
the extent the Company maintains a specified minimum net worth (approximately
$163.3 million as of September 30, 1996) and certain financial ratios. The
Company's net worth as of September 30, 1996 was approximately $171.9 million.

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholder in the Offering. If the over-allotment option
is exercised in full, the Company will receive net proceeds of approximately
$ million, which will be used to repay outstanding indebtedness under
the Company's Credit Facility. Any excess net proceeds will be used for general
corporate purposes, including future acquisitions. Pending application of any
excess net proceeds, the Company will invest such net proceeds in short-term,
investment grade, interest-bearing securities.

As of December 1, 1996, $17.9 million was outstanding under the Credit
Facility at a weighted average interest rate of 6.5% per annum and maturing in
October 1999. The indebtedness outstanding under the Credit Facility was
primarily incurred in connection with the acquisitions of 21 funeral homes in
1996.

11
<PAGE> 13

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of September 30, 1996. This table should be read in conjunction with
the Company's consolidated financial statements and notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996(1)
---------------------
(IN THOUSANDS)
<S> <C>
Long-term debt, net of current maturities:
Credit Facility(2)...................................................... $ 16,000
Other................................................................... 12,902
--------
Total long-term debt............................................ 28,902
--------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
no shares issued and outstanding..................................... --
Common stock, $.01 par value; 50,000,000 shares authorized;
19,216,334 shares issued and outstanding............................. 192
Capital in excess of par value.......................................... 155,217
Retained earnings....................................................... 16,471
--------
Total stockholders' equity......................................... 171,880
--------
Total capitalization............................................ $ 200,782
========
</TABLE>

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

(1) Assuming the Underwriters' over-allotment option is exercised in full and
the net proceeds received by the Company therefrom are used to repay
outstanding indebtedness under the Credit Facility, long-term debt, net of
current maturities under the Credit Facility would be $ , total
long-term debt would be $ , common stock would be $ ,
capital in excess of par value would be $ , total stockholders'
equity would be $ and total capitalization would be $ .

(2) As of December 1, 1996, $17.9 million was outstanding under the Credit
Facility.

12
<PAGE> 14

SELECTED FINANCIAL AND OPERATING DATA

The following table presents selected financial and operating data for the
Company as of the dates and for the periods indicated. The financial data
presented below has been derived from the Company's consolidated financial
statements. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993(1) 1992(1) 1991(1)
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues:
Funeral..................... $40,232 $25,321 $36,261 $27,382 $21,432 $19,525 $19,413
Cemetery.................... 25,426 19,662 27,740 21,919 847 865 773
------- ------- ------- ------- ------- ------- -------
Total net
revenues.......... 65,658 44,983 64,001 49,301 22,279 20,390 20,186
Gross profit:
Funeral..................... 11,462 5,844 8,819 7,580 6,118 3,399 2,917
Cemetery.................... 7,301 6,009 8,477 6,157 47 59 78
------- ------- ------- ------- ------- ------- -------
Total gross
profit............ 18,763 11,853 17,296 13,737 6,165 3,458 2,995
General and administrative
expenses.................... 4,370 3,442 4,782 3,885 1,521 1,093 765
------- ------- ------- ------- ------- ------- -------
Income from operations........ 14,393 8,411 12,514 9,852 4,644 2,365 2,230
Interest expense.............. 1,690 1,297 2,207 3,178 701 556 533
------- ------- ------- ------- ------- ------- -------
Income before income taxes and
extraordinary item.......... 12,703 7,114 10,307 6,674 3,943 1,809 1,697
Provision for income taxes.... 5,709 2,810 4,071 2,728 1,388 598 807
Extraordinary item, net....... -- -- -- (198) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income.................... 6,994 4,304 6,236 3,748 2,555 1,211 890
Preferred stock dividends..... -- -- -- -- 1,563 1,563 1,531
------- ------- ------- ------- ------- ------- -------
Net income (loss) attributable
to common stock............. $ 6,994 $ 4,304 $ 6,236 $ 3,748 $ 992 $ (352) $ (641)
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share(2):
Continuing operations....... $ 0.40 $ 0.29 $ 0.42 $ 0.39 $ 0.15 $ (0.49) $ (0.89)
Extraordinary item.......... -- -- -- (0.02) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $ 0.40 $ 0.29 $ 0.42 $ 0.37 $ 0.15 $ (0.49) $ (0.89)
======= ======= ======= ======= ======= ======= =======
Weighted average number of
common and equivalent shares
outstanding(2).............. 17,583 14,807 14,835 10,002 6,613 717 717
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
SEPTEMBER
30, AS OF DECEMBER 31,
------------ -----------------------------------------------------
1996 1995 1994 1993(1) 1992(1) 1991(1)
------------ -------- -------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ 10,921 $ 9,093 $ 4,495 $ 5,973 $ 6,208 $ 4,225
Preneed funeral contracts.......... 145,046 102,889 72,318 48,817 41,520 37,227
Total assets....................... 400,377 302,827 210,366 83,095 72,244 66,805
Deferred preneed funeral contract
revenues......................... 150,082 107,969 76,447 51,640 44,032 39,222
Long-term debt, net of current
maturities....................... 28,902 54,518 4,037 8,244 6,998 4,729
Redeemable preferred stock(3)...... -- -- -- 20,844 20,844 20,844
Stockholders' equity (deficit)..... 171,880 91,665 84,083 (503) (1,495) (1,143)
</TABLE>

13
<PAGE> 15

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993(1) 1992(1) 1991(1)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
FUNERAL OPERATIONS:
Funeral homes in operation
at end of period......... 163 113 119 95 79 76 82
Funeral services
performed................ 8,681 5,780 8,332 6,181 5,127 4,753 5,096
Preneed funeral contracts
sold or obtained through
acquisitions............. 12,353 10,225 12,415 6,397 2,124 2,462 1,652
Backlog of preneed funeral
contracts at end of
period................... 42,871 30,332 32,199 21,084 16,103 14,979 13,370
CEMETERY OPERATIONS:
Cemeteries in operation at
end of period............ 62 59 61 48 3 3 3
Interments performed........ 6,707 4,975 7,080 6,283 293 264 286
</TABLE>

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

(2) Earnings (loss) per share is based on the weighted average number of common
and equivalent shares outstanding during the period which takes into
consideration (i) for the nine months ended September 30, 1996 and 1995 and
for the year ended December 31, 1995, the dilutive effect of stock options
and restricted stock issued under the Company's Incentive Plan based on the
treasury stock method, (ii) for 1994, 1993, 1992 and 1991, the issuance of
228,375 shares of Common Stock at a price of approximately $6.13 per share
in June 1994 reflected under the treasury stock method prior to issuance and
(iii) for 1993, the dilutive effect of a warrant exercisable for common
shares held by SCI. The redeemable preferred stock dividends are deducted
from the 1993, 1992 and 1991 net income for purposes of calculating earnings
(loss) per share. The weighted average number of common and equivalent
shares outstanding reflects a 579-for-1 stock split in June 1994 and a
3-for-2 stock split in October 1996.

(3) Effective January 1, 1994, the Company's redeemable preferred stock and a
warrant exercisable for common shares held by SCI were exchanged for
5,896,860 shares of Common Stock and the common shares held by James P.
Hunter, III were exchanged for 628,140 shares of Common Stock.

14
<PAGE> 16

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

INTRODUCTION

General. The Company commenced operations in May 1990 through the
acquisition of 71 funeral homes and 3 cemeteries from SCI. Although the Company
acquired 23 additional funeral homes from May 1990 through December 1993 that
complemented existing properties, management's primary focus during this period
was on improving the operating efficiency and profitability of the properties
acquired from SCI. Over this period, the Company disposed of or consolidated 15
funeral homes that, in general, did not meet its growth or financial performance
criteria. Effective January 1, 1994, the Company significantly expanded its
cemetery operations through its acquisition of MLI, which operated 40 cemeteries
and 4 funeral homes.

Since the MLI acquisition, the Company has adopted a growth strategy which
emphasizes an aggressive acquisition program and the implementation of proven
revenue enhancement and cost-containment programs. As part of this growth
strategy, the Company has significantly expanded its corporate development
capabilities from only one full-time professional to a team including a senior
corporate development executive with substantial deathcare industry experience
and six additional professionals with full-time responsibility for identifying,
evaluating, negotiating and closing acquisitions of funeral homes and
cemeteries. With the Company's knowledge of non-metropolitan markets and
experienced management team, the Company believes it is well positioned to take
advantage of the continuing consolidation trend in the deathcare industry. The
Company's future results of operations will depend in large part on the
Company's ability to continue to make acquisitions on attractive terms and to
successfully integrate and manage the acquired properties.

As a result of the MLI acquisition and certain other factors, including the
Company's increased corporate development activities, the Company believes that
the results for the Company in 1995 and 1994 are not necessarily comparable to
the results for the Company in 1993. In addition, the comparability of the
Company's results of operations since the beginning of 1994 has been impacted by
the Company's active acquisition program. See "Business -- Acquisition Program."

The following table sets forth certain income statement data expressed as a
percentage of net revenues for the periods presented.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- -------------------------
1996 1995 1995 1994 1993(1)
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Gross profit....................................... 28.6% 26.3% 27.0% 27.9% 27.7%
General and administrative expenses................ 6.7 7.6 7.5 7.9 6.8
----- ----- ----- ----- -----
Income from operations............................. 21.9 18.7 19.5 20.0 20.8
Interest expense................................... 2.5 2.9 3.4 6.4 3.1
Provision for income taxes......................... 8.7 6.2 6.4 5.5 6.2
----- ----- ----- ----- -----
Income before extraordinary item................... 10.7 9.6 9.7 8.0 11.5
Extraordinary item, net............................ -- -- -- (0.4) --
----- ----- ----- ----- -----
Net income......................................... 10.7% 9.6% 9.7% 7.6% 11.5%
===== ===== ===== ===== =====
</TABLE>

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

(1) Does not include income statement data of MLI which was acquired effective
January 1, 1994.

The Company's net revenues increased by 46.0% to $65.7 million for the nine
months ended September 30, 1996 from $45.0 million for the nine months ended
September 30, 1995. Income from operations increased by 71.1% to $14.4 million
for the nine months ended September 30, 1996 from $8.4 million for the nine
months ended September 30, 1995. Income from operations increased to 21.9% of
net revenues for the nine months ended September 30, 1996 from 18.7% for the
nine months ended September 30, 1995. The increase in income from operations as
a percentage of net revenues was primarily attributable to (i) increases

15
<PAGE> 17
in revenues and improved operational efficiencies for the nine months ended
September 30, 1996 at funeral home operations that had been owned since January
1, 1995, (ii) the buyout of several long-term licensing and lease agreements for
$2.1 million which generated a gross profit of $1.0 million for the nine months
ended September 30, 1996, and (iii) economies of scale realized by the Company
as general and administrative expenses were spread over a larger revenue base.

The increase in interest expense to $1.7 million for the nine months ended
September 30, 1996 from $1.3 million for the nine months ended September 30,
1995 was primarily attributable to higher levels of acquisition indebtedness
partially offset by the repayment of the Credit Facility with proceeds from the
Company's May 1996 equity offering.

The Company's net revenues increased by 29.8% to $64.0 million in 1995 from
$49.3 million in 1994 and income from operations increased by 27.0% to $12.5
million in 1995 from $9.9 million in 1994. Income from operations decreased to
19.5% of net revenues in 1995 from 20.0% of net revenues in 1994. The decline in
income from operations as a percentage of net revenues was attributable to (i)
an overall lower average death rate during 1995 in the Company's geographic
areas of operation, thereby adversely affecting funeral home operations which
have a relatively high fixed cost structure as well as (ii) a greater number of
newly acquired funeral operations in 1995 over 1994 which generally produce
lower gross margins until they have been operated long enough by the Company to
realize enhancements and efficiencies which are implemented subsequent to their
acquisition. The decrease in interest expense to $2.2 million in 1995 from $3.2
million in 1994 was primarily attributable to the decrease in indebtedness
resulting from the repayment of debt with proceeds from the Company's initial
public offering in October 1994.

The Company's net revenues increased by 121.3% to $49.3 million in 1994
from $22.3 million in 1993 and income from operations increased by 112.2% to
$9.9 million in 1994 from $4.6 million in 1993, primarily as a result of the MLI
acquisition, which was effective January 1, 1994. Income from operations
decreased to 20.0% of net revenues in 1994 from 20.8% of net revenues in 1993.
The decline in income from operations as a percentage of net revenues resulted
from the additional general and administrative expenses incurred in the second
half of 1994 in connection with the Company expanding its corporate development
staff and related activities as well as additional administrative expenses
resulting from compliance with the Company's public reporting responsibilities
following its initial public offering. The increase in interest expense to $3.2
million in 1994 from $.7 million in 1993 resulted primarily from the additional
indebtedness incurred or assumed by the Company in connection with the
acquisition of MLI. For a discussion of period to period increases in net
revenues and gross profit attributable to existing, acquired and disposed
operations, see "-- Results of Operations" below.

Funeral Home Operations. The following table sets forth the number of
funeral homes operated by the Company for the periods presented.

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- ------------------
1996 1995 1994 1993
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Funeral homes operated at beginning of period............... 119 95 79 76
Acquisitions................................................ 44 27 16 6
Dispositions and consolidations............................. -- (3) -- (3)
--- --- --- ---
Funeral homes operated at end of period..................... 163 119 95 79
=== === === ===
</TABLE>

The Company's funeral home revenues are generated primarily through the
sale of funeral services and merchandise both prior to and at the time of need.
Proceeds from the sale of funeral services at the time of need are recorded as
revenues in the period of sale. Proceeds from the sale of preneed funeral
contracts are not recognized until the funeral service is performed. Preneed
funeral contracts are funded by the customer through either lump sum or
installment payments placed in trust or through the purchase of a life insurance
policy. Balances in trust accounts and proceeds from insurance policies are made
available to the Company at the time the related funeral services are performed.
Trust principal amounts and the cash value of insurance policies are refunded to
customers upon cancellation of contracts where required by state law. Preneed
funeral

16
<PAGE> 18

trust earnings and increasing benefits under insurance policies are accrued and
deferred until the related funeral services are performed. Earnings on trust
funds increase the amount of cash to be received by the Company at the time the
funeral service is performed and historically have allowed the Company to
adequately cover the inflationary increase in costs of funeral services. See
"Business -- Trust Funds."

Commissions and direct marketing costs related to preneed funeral contracts
are also deferred and recognized over 12 years, which approximates the expected
timing of the performance of services related to preneed contracts. These
deferred costs have historically averaged less than approximately 10% of the
amount of preneed funeral contracts. All principal, earnings, receivables and
deferred costs associated with price guaranteed preneed funeral contracts are
included in the Company's consolidated balance sheet as long-term assets with a
corresponding credit to deferred preneed funeral contract revenues.

Aggressive preneed funeral sales are frequently associated with highly
competitive market areas or are utilized to rapidly build market share. Because
of the significant market shares of most of the Company's funeral homes in their
areas of operation, the Company does not extensively market preneed funeral
contracts. The Company does, however, market preneed funeral contracts in
specific markets where it is necessary to build current and future market share
or in response to sales campaigns launched by competitors, but typically does
not sell such preneed funeral contracts at a significant discount to current at
need sales prices.

Many of the Company's acquired funeral homes have provided high quality
service to client families for many decades. The resulting client loyalty often
represents a substantial portion of the value of a funeral business. The excess
of purchase price over the fair value of identifiable net tangible assets
acquired in transactions accounted for as a purchase are included in names and
reputations and generally are amortized on a straight-line basis over 40 years.

Cemetery Operations. The following table sets forth the number of
cemeteries operated by the Company for the periods presented.

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- ------------------
1996 1995 1994 1993
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
Cemeteries operated at beginning of period.................. 61 48 3 3
Acquisitions................................................ 1 13 45 --
--- --- --- ---
Cemeteries operated at end of period........................ 62 61 48 3
=== === === ===
</TABLE>

The Company's cemetery revenues are generated primarily through the sale of
cemetery interment rights, related merchandise and interment services. Cemetery
interment rights, interment services and related merchandise are sold either on
a preneed or at need basis. Approximately 64.1% and 63.0% of the Company's
cemetery net revenues for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, is attributable to sales made prior to
the time of need. Revenues from preneed cemetery sales are recognized when the
contract is signed, with concurrent recognition of related costs. The Company
typically receives payment of at least 5% of the sales price at the time the
contract is signed. Allowances for customer cancellations and refunds are
accrued at the time of sale based upon historical experience. Costs of cemetery
merchandise are accrued at the time of sale based upon actual costs incurred or
estimated future costs.

Preneed cemetery sales are usually financed by the Company through
installment sale contracts bearing interest at rates currently ranging from
12.5% to 14.5% per annum. Finance charges are recognized as cemetery revenues
over the terms of the related installment receivables.

Generally, a portion of the proceeds from the sale of cemetery interment
rights is deposited into perpetual care trusts or endowment funds in accordance
with state law. Principal balances in these trusts (including, in some states,
realized and unrealized capital gains) must generally be held in perpetuity.
Accordingly, the trust fund corpus is not reflected in the Company's
consolidated financial statements. The Company recognizes and withdraws
currently all dividend and interest income earned and, where permitted, any
capital gains realized by the perpetual care trusts to provide for the
maintenance of cemetery properties.

17
<PAGE> 19

Additionally, pursuant to state law, a portion of the proceeds from the
sale of preneed cemetery merchandise may also be required to be paid into
cemetery merchandise trusts. Principal held in these trusts is made available to
the Company upon delivery of the merchandise or upon cancellation of the
contract by the customer after three days of the date of sale. These amounts are
reflected in long-term receivables in the Company's consolidated balance sheet.
The Company recognizes income on these trusts when earned.

RESULTS OF OPERATIONS

The following is a discussion of the Company's results of operations for
the nine month periods ended September 30, 1996 and 1995 and for the three years
in the period ended December 31, 1995. For purposes of this discussion, funeral
homes and cemeteries owned and operated throughout each period being compared
are referred to as "existing operations." Correspondingly, operations acquired
or opened during either period being compared are referred to as "acquired
operations," and operations disposed of during either period being compared are
referred to as "disposed operations."

Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995. Total net revenues for the nine months ended September 30,
1996 increased $20.7 million or 46.0% over the nine months ended September 30,
1995. The increase in net revenues reflects a $16.8 million increase in net
revenues attributable to acquired operations and a $1.8 million, or 4.3%
increase in net revenues from existing operations. The substantial increase in
net revenues from acquired operations is due primarily to the full period
results of the 27 funeral homes and 13 cemeteries acquired in 1995 and the
partial period results of the 44 funeral homes and one cemetery acquired during
the nine months ended September 30, 1996. The remainder of the increase in net
revenues of $2.1 million results from the buyout of several long-term licensing
and lease agreements related to three funeral homes which had been previously
operated by a third party since January 1993.

Gross profit for the nine months ended September 30, 1996 increased $6.9
million or 58.3% over the nine months ended September 30, 1995. The increase in
gross profit reflects a $4.6 million increase attributable to acquired
operations and $1.3 million, or 11.4% increase from existing operations. The
increase in gross profit from existing operations was attributable primarily to
increased revenues at both funeral home and cemetery operations as well as
improved operational efficiencies at funeral home operations. The remainder of
the increase in gross profit of $1.0 million relates to the gain recognized on
the buyout of the long-term licensing and lease agreements.

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 nine months ended September 30, 1996 and 1995.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, CHANGE
------------------ -----------------
1996 1995 AMOUNT PERCENT
-------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations...................................... $ 24,084 $ 22,638 $ 1,446 6.4%
Acquired operations...................................... 14,063 2,683 11,380 *
Buyout................................................... 2,085 -- 2,085 *
------- ------- -------
Total funeral net revenues....................... $ 40,232 $ 25,321 $ 14,911 58.9%
======= ======= =======
Gross profit:
Existing operations...................................... $ 7,042 $ 5,499 $ 1,543 28.1%
Acquired operations...................................... 3,470 345 3,125 *
Buyout................................................... 950 -- 950 *
------- ------- -------
Total funeral gross profit....................... $ 11,462 $ 5,844 $ 5,618 96.1%
======= ======= =======
</TABLE>

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

* Not meaningful.

18
<PAGE> 20

Total funeral net revenues for the nine months ended September 30, 1996
increased $14.9 million or 58.9% over the nine months ended September 30, 1995.
The increase in funeral net revenues reflects an $11.4 million increase from
acquired operations, a $1.4 million, or 6.4% increase from existing operations
and a $2.1 million increase related to the buyout of the long-term licensing and
lease agreements.

Total funeral gross profit for the nine months ended September 30, 1996
increased $5.6 million or 96.1% over the nine months ended September 30, 1995.
The increase in funeral gross profit reflects a $3.1 million increase from
acquired operations, a $1.5 million, or 28.1% increase from existing operations
and a $1.0 million increase related to the gain on the aforementioned buyout.
Excluding the effects of the gain on the buyout, funeral gross margin improved
to 27.6% from 23.1%. Funeral gross margin at existing operations improved to
29.2% from 24.3% primarily as a result of volume improvement, sales price
increases exceeding the cost increases in merchandising and salaries as well as
achieving a better merchandising mix and maximizing the leverage off of
allocable fixed operating costs. Funeral gross margin at acquired operations
improved to 24.7% from 12.9% primarily due to volume improvement, profitability
enhancements and cost efficiencies beginning to be implemented.

Cemetery Segment. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its cemetery
operations during the nine month periods ended September 30, 1996 and 1995.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, CHANGE
------------------ -----------------
1996 1995 AMOUNT PERCENT
------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations................................... $19,207 $18,850 $ 357 1.9%
Acquired operations................................... 6,219 812 5,407 *
------- ------- ------
Total cemetery net revenues................... $25,426 $19,662 $5,764 29.3%
======= ======= ======
Gross profit:
Existing operations................................... $ 5,816 $ 6,048 $ (232) (3.8)%
Acquired operations................................... 1,485 (39) 1,524 *
------- ------- ------
Total cemetery gross profit................... $ 7,301 $ 6,009 $1,292 21.5%
======= ======= ======
</TABLE>

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

* Not meaningful.

Total cemetery net revenues for the nine months ended September 30, 1996
increased $5.8 million or 29.3% over the nine months ended September 30, 1995.
The increase in cemetery net revenues reflects a $5.4 million increase from
acquired operations and a $.4 million, or 1.9% increase from existing
operations.

Total cemetery gross profit for the nine months ended September 30, 1996
increased $1.3 million or 21.5% over the nine months ended September 30, 1995.
The increase reflects a $1.5 million increase from acquired operations offset by
a $.2 million or 3.8% decrease from existing operations. Cemetery gross margin
at existing operations decreased to 30.3% from 32.1%, primarily as a result of
higher interment rights/merchandise costs and maintenance expense as a
percentage of revenue offset partially by lower selling and fixed operating
costs as a percentage of net revenues. Cemetery gross margin at acquired
operations for the nine months ended September 30, 1996 were 23.9% primarily
because they had not been operated by the Company long enough to fully implement
its preneed marketing programs to leverage the maintenance and fixed operating
costs which generally are incurred beginning immediately after an acquisition.

General and administrative expenses for the nine months ended September 30,
1996 increased $.9 million or 27.0% over the nine months ended September 30,
1995. This increase resulted primarily from increased personnel costs as well as
professional fees and insurance necessary to support a higher rate of growth
and, to a lesser extent, increased facility and travel expense as a result of
consolidating the cemetery corporate operations from Georgia to the Company's
corporate headquarters in Lufkin, Texas. General and administra-

19
<PAGE> 21

tive expenses as a percentage of net revenues, excluding the effects of the gain
on the aforementioned buyout, decreased to 6.9% in the nine months ended
September 30, 1996 from 7.7% in the corresponding period in 1995, reflecting
economies of scale realized by the Company as expenses are spread over a larger
revenue base.

Interest expense for the nine months ended September 30, 1996 increased $.4
million or 30.3% over the nine months ended September 30, 1995. The increase was
the result of higher debt levels as the Company increased its borrowings to
finance acquisitions through April 1996. Subsequent to April 1996, the Company
repaid all amounts borrowed under the Credit Facility, substantially reducing
the average level of indebtedness from May through September 1996. Interest
income of approximately $.3 million related to temporary investment of the May
1996 equity offering proceeds has been netted against interest expense.

The Company's effective tax rate for the nine months ended September 30,
1996 was 44.9% compared to 39.5% for the comparable nine months in 1995. The
higher rate in 1996 was due primarily to an increase in the Company's statutory
Federal income tax rate from 34% to 35% as the Company expects to exceed the
taxable income threshold requiring the higher tax rate during 1996, and a
one-time charge of $.6 million to revalue the Company's deferred tax liability
accounts to appropriately reflect the higher statutory rate. The Company expects
the effective tax rate for income generated in the remainder of 1996 will be
40.5%.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994.
Total net revenues for the year ended December 31, 1995 increased $14.7 million
or 29.8% over 1994. The increase resulted primarily from an $8.9 million or
32.4% increase in funeral net revenues and a $5.8 million or 26.6% increase in
cemetery net revenues due primarily to the full year results of the 12 funeral
homes and 5 cemeteries acquired in 1994 (exclusive of the MLI acquisition which
was effective January 1, 1994) and the partial year results of the 27 funeral
homes and 13 cemeteries acquired in 1995.

Gross profit for the year ended December 31, 1995 increased $3.6 million or
25.9% over 1994. Of this increase, $2.5 million was attributable to acquired
funeral home and cemetery operations and the balance was primarily attributable
to increased revenues and operational efficiencies at existing cemeteries.

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, 1995 and 1994.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------- ------------------
1995 1994 AMOUNT PERCENT
------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations................................. $25,376 $25,826 $ (450) (1.7)%
Acquired operations................................. 10,885 1,556 9,329 *
------- ------- ------
Total funeral net revenues.................. $36,261 $27,382 $8,879 32.4%
======= ======= ======
Gross profit:
Existing operations................................. $ 6,630 $ 7,200 $ (570) (7.9)%
Acquired operations................................. 2,189 380 1,809 *
------- ------- ------
Total funeral gross profit.................. $ 8,819 $ 7,580 $1,239 16.3%
======= ======= ======
</TABLE>

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

* Not meaningful.

Total funeral net revenues for the year ended December 31, 1995 increased
$8.9 million or 32.4% over 1994. The increase in net revenues reflects a $9.3
million increase in net revenues attributable to acquired operations offset by a
$.4 million or 1.7% decrease in net revenues from existing operations. The
decrease in net revenues from existing operations resulted from a decrease of
approximately 6.4% in the number of regular funeral services performed partially
offset by a 5.0% increase in the average revenue per regular funeral service

20
<PAGE> 22

performed. The decrease in the number of funeral services performed by the
Company was reflective of an overall decrease in the United States death rate in
1995 compared to 1994.

Total funeral gross profit for the year ended December 31, 1995 increased
$1.2 million or 16.3% over 1994. The increase in gross profit reflects a $1.8
million increase in gross profit attributable to acquired operations offset by a
$.6 million or 7.9% decrease in gross profit from existing operations. Total
funeral gross margin decreased to 24.3% in 1995 from 27.7% in 1994 primarily as
a result of the lower death rate and lower margins from acquired operations. Due
to the relatively fixed cost structure of funeral home operations, lower
marginal costs on incremental funeral services performed were not achieved due
to the decrease in regular funeral services performed in 1995, resulting in a
gross margin decrease at existing properties to 26.1% in 1995 from 27.9% in
1994. Gross margins at acquired operations decreased to 20.1% in 1995 from 24.4%
in 1994 as a result of the decrease in regular funeral services performed in
1995 and the fact that the acquired operations were not operated long enough by
the Company to fully realize the revenue enhancement and cost efficiencies
implemented by the Company subsequent to their acquisition. Depending on
numerous factors including the size of an acquired operation, the proximity to
other Company operations and market sensitivity, it may take 12 to 36 months
before margin improvement is realized at an acquired operation as a result of
new policies and procedures implemented by the Company.

Cemetery Segment. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its cemetery
operations during the years ended December 31, 1995 and 1994.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------- ------------------
1995 1994 AMOUNT PERCENT
------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations................................. $24,065 $21,150 $2,915 13.8%
Acquired operations................................. 3,675 769 2,906 *
------- ------- ------
Total cemetery net revenues................. $27,740 $21,919 $5,821 26.6%
======= ======= ======
Gross profit:
Existing operations................................. $ 7,699 $ 6,097 $1,602 26.3%
Acquired operations................................. 778 60 718 *
------- ------- ------
Total cemetery gross profit................. $ 8,477 $ 6,157 $2,320 37.7%
======= ======= ======
</TABLE>

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

* Not meaningful.

Total cemetery net revenues for the year ended December 31, 1995 increased
$5.8 million or 26.6% over 1994. The increase in net revenues reflects a $2.9
million increase in net revenues attributable to acquired operations and a $2.9
million or 13.8% increase in net revenues from existing operations. The increase
in net revenues from existing operations resulted from an increase in preneed
sales, contract interest income and income recognized on earnings from
merchandise trusts. Preneed sales increased as a result of aggressive marketing
throughout the year. The contract interest income increased as a result of
higher cemetery installment receivable balances due to increased preneed sales
and acquisitions. The merchandise trust income increased as a result of higher
balances in such trusts as well as better investment performance.

Total cemetery gross profit for the year ended December 31, 1995 increased
$2.3 million or 37.7% over 1994. The increase in gross profit reflects a $.7
million increase attributable to acquired operations and $1.6 million or 26.3%
increase from existing operations. Total cemetery gross margin increased to
30.6% in 1995 from 28.1% in 1994 primarily as a result of higher gross margins
at existing operations, which increased to 32.0% in 1995 from 28.8% in 1994. The
increased margins at existing operations resulted primarily from reduced sales
costs and fixed operating costs partially offset by increased maintenance
expense as a percentage of cemetery net revenues. Sales costs as a percentage of
cemetery net revenues decreased as a result of the Company restructuring the
deferred compensation and selling programs for the cemetery sales and marketing

21
<PAGE> 23

professionals. The fixed operating costs decreased as a percentage of cemetery
net revenues due to a nominal increase in these costs being spread over a larger
revenue base. Maintenance expense as a percentage of cemetery net revenues
increased over 1994 due primarily to reduced earnings recognized from perpetual
care trusts. The earnings are used to defray maintenance and upkeep of the
cemetery grounds. Investments in the perpetual care trusts are conservative
interest bearing instruments whose investment return in 1995 was lower than
1994, resulting in lower earnings being recognized.

General and administrative expenses for the year ended December 31, 1995
increased $.9 million or 23.1% over 1994. The increase resulted primarily from
increased personnel and corporate development expenses as well as professional
fees necessary to support a higher rate of growth and the Company's public
reporting responsibilities following its initial public offering. General and
administrative expenses as a percentage of net revenues decreased to 7.5% in
1995 from 7.9% in 1994, reflecting economies of scale realized by the Company as
the expenses were spread over a larger revenue base. While increases in general
and administrative costs are expected in the future to adequately support the
Company's infrastructure, management believes that such costs should decrease as
a percentage of net revenues as the Company continues to leverage off of an
increasingly greater revenue base.

Interest expense for the year ended December 31, 1995 decreased $1.0
million or 30.6% from 1994. The decrease was primarily attributable to a
decrease in indebtedness resulting from the repayment of $43.0 million in debt
with proceeds from the Company's initial public offering in October 1994,
partially offset by increases in borrowings to finance acquisitions during 1995.
The decrease was also the result of a lower average interest rate on borrowed
funds in 1995 compared to 1994.

The Company's effective tax rate for the year ended December 31, 1995 was
39.5% compared to 40.9% in 1994. The tax rates were higher than the Company's
statutory federal rate of 34% due primarily to the effect of state income taxes
and nondeductible expenses. The decrease in the effective tax rate in 1995 as
compared to 1994 primarily relates to the utilization of effective state tax
strategies.

Year Ended December 31, 1994 Compared to Year Ended December 31,
1993. Total net revenues for the year ended December 31, 1994 increased $27.0
million over 1993. The increase resulted from a $21.1 million increase in
cemetery net revenues due principally to the MLI acquisition and a $6.0 million
or 27.8% increase in funeral net revenues due primarily to the full year results
of the six funeral homes acquired in 1993 and the partial year results of the
sixteen funeral homes acquired in 1994.

Gross profit for the year ended December 31, 1994 increased $7.6 million
over 1993. Of this increase, $6.0 million was attributable to the MLI
acquisition, and the balance was primarily attributable to increased funeral
revenues.

22
<PAGE> 24

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------------ -----------------
1994 1993 AMOUNT PERCENT
------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations.................................... $21,740 $20,472 $1,268 6.2%
Acquired operations.................................... 5,642 694 4,948 *
Disposed operations.................................... -- 266 (266) *
------- ------- ------
Total funeral net revenues..................... $27,382 $21,432 $5,950 27.8%
======= ======= ======
Gross profit:
Existing operations.................................... $ 5,986 $ 5,926 $ 60 1.0%
Acquired operations.................................... 1,594 152 1,442 *
Disposed operations.................................... -- 40 (40) *
------- ------- ------
Total funeral gross profit..................... $ 7,580 $ 6,118 $1,462 23.9%
======= ======= ======
</TABLE>

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

* Not meaningful.

Total funeral net revenues for the year ended December 31, 1994 increased
$6.0 million or 27.8% over 1993. The increase in net revenues reflects a $4.9
million increase in net revenues from acquired operations and a $1.3 million or
6.2% increase in net revenues from existing operations. The increase in net
revenues from existing operations resulted primarily from a 3.0% increase in the
average revenues per funeral service performed as well as a slight increase in
the number of funeral services performed.

Total funeral gross profit for the year ended December 31, 1994 increased
$1.5 million or 23.9% over 1993. The increase in gross profit reflects a $1.4
million increase in gross profit attributable to acquired operations (including
MLI's four funeral homes) and a $.1 million or 1.0% increase in gross profit
from existing operations. Total funeral gross margin decreased to 27.7% in 1994
from 28.5% in 1993, primarily as a result of lower margins at existing
operations and slightly lower margins from acquired operations. While the
average revenue per funeral service performed increased, gross margin from
existing operations decreased to 27.5% in 1994 from 28.9% in 1993 primarily as a
result of slightly higher merchandise and personnel costs.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
--------------- ------------------
1994 1993 AMOUNT PERCENT
------- ---- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations...................................... $ 1,066 $847 $ 219 25.9%
Acquired operations...................................... 20,853 -- 20,853 *
------- ---- -------
Total cemetery net revenues...................... $21,919 $847 $21,072 *
======= ==== =======
Gross profit:
Existing operations...................................... $ 156 $ 47 $ 109 *
Acquired operations...................................... 6,001 -- 6,001 *
------- ---- -------
Total cemetery gross profit...................... $ 6,157 $ 47 $ 6,110 *
======= ==== =======
</TABLE>

- - - ---------------
* Not meaningful.

23
<PAGE> 25

Prior to 1994, the Company operated three cemeteries, the net revenues and
gross profit of which were not significant. Total cemetery net revenues for the
year ended December 31, 1994 increased $21.1 million over 1993. The increase in
net revenues was primarily attributable to the MLI acquisition.

Total cemetery gross profit for the year ended December 31, 1994 increased
$6.1 million over 1993. The increase in gross profit was primarily attributable
to the MLI acquisition. Total cemetery gross margin increased to 28.1% in 1994
from 5.6% in 1993. Gross margin from existing operations increased to 14.6% in
1994 from 5.6% in 1993 primarily as a result of reduced operating costs combined
with marginally higher revenues per cemetery contract.

General and administrative expenses for the year ended December 31, 1994
increased $2.4 million over 1993. This increase resulted primarily from the MLI
acquisition, increased bonus accruals, increased corporate development expense
and overall increased personnel expense necessary to support a higher rate of
growth, increased acquisition activity and the Company's public reporting
responsibilities following its initial public offering.

Interest expense for the year ended December 31, 1994 increased $2.5
million over 1993. The increase was principally the result of increased
borrowings, primarily attributable to indebtedness incurred or assumed in
connection with the MLI acquisition, and an increase in average interest rates.

The Company's effective tax rate for the year ended December 31, 1994 was
40.9% compared to 35.2% in 1993. The majority of the increase resulted from an
increase in state income taxes as the Company further expanded its operations
into states with higher state income taxes.

The extraordinary item of $.2 million, net of an income tax benefit of $.1
million, reflects a charge recorded in the fourth quarter of 1994 recognizing
the effect of the Company's write-off of the deferred loan costs associated with
indebtedness that was retired with the proceeds from the Company's initial
public offering in October 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically relied on cash flow from operations and third
party borrowings to finance its operations, and on third party borrowings, the
issuance of notes payable and the issuance of shares of Common Stock to finance
its acquisition program. Recently acquired funeral homes typically generate
positive cash flow immediately following acquisition. In contrast, recently
acquired cemeteries typically generate negative cash flow during an
approximately three to nine month start-up period following the introduction of
an aggressive preneed cemetery sales effort, although in some cases this period
has exceeded nine months. This negative cash flow is typically offset by
positive cash flow from mature cemetery operations.

Cash and cash equivalents totaled $4.9 million at September 30, 1996,
representing a decrease of $1.3 million from December 31, 1995. For the nine
months ended September 30, 1996, net cash flow from operating activities was
approximately $3.3 million. Cash used in investing activities totaled
approximately $23.6 million. Cash provided by financing activities amounted to
approximately $19.0 million. Significant components of cash flow generated from
operating activities include net income adjusted for non-cash items partially
offset by an increase in receivables of $7.8 million primarily attributable to a
23.1% increase in preneed cemetery sales which are usually financed on an
installment basis over 36 months. Significant components of cash used in
investing activities included $1.0 million of capital expenditures related to
additions and improvements at several funeral home and cemetery facilities, $1.5
million related to the acquisition of professional vehicles and cemetery
maintenance equipment, $.6 million related to a new telephone system and
furnishings to accommodate the consolidation of cemetery corporate operations at
the Company's corporate headquarters in Lufkin, Texas, and the purchase for $.3
million of a funeral home operation that was previously leased. Additionally,
the Company utilized approximately $21.0 million of internal funds to consummate
funeral home and cemetery acquisitions during the nine months ended September
30, 1996. Partially offsetting these investing activities' uses of cash was
approximately $2.1 million of proceeds received in April 1996 related to the
buyout of several long-term licensing and lease agreements. Significant
components of cash provided by financing activities included the proceeds of
approximately

24
<PAGE> 26

$73.0 million from the issuance of Common Stock in connection with the Company's
equity offering consummated in May 1996 offset by payoffs of $52.7 million
borrowed under the Company's Credit Facility, lump sum payments of $2.2 million
to extinguish seller financed notes and normal scheduled payments on debt.

Long-term debt, including current maturities, at September 30, 1996 totaled
$29.7 million as compared to $55.1 million at December 31, 1995. The decrease
was principally attributable to the payoff of $50.0 million outstanding under
the Credit Facility with proceeds from the Company's equity offering in May
1996. Long-term debt at September 30, 1996 consisted of $16.0 million drawn
under the Credit Facility and $13.7 million owed under various notes payable to
sellers of funeral homes and cemeteries. The total amount available to be
borrowed under the Credit Facility was increased from $60 million to $100
million in February 1996. Any amounts repaid under the Credit Facility are
available for future borrowings under the terms of the Credit Facility.

Borrowings under the Credit Facility bear interest, at the Company's
option, at either (i) the prime rate plus up to 0.25% per annum or (ii) the
London Interbank Offered Rate plus 0.75% up to 1.50% per annum, depending on the
Company's leverage ratio, as defined. The Credit Facility was extended in
September 1996 and is due October 1999, contains customary restrictive
covenants, permits the payment of dividends only to the extent the Company
maintains a specified net worth and requires the Company to maintain certain
financial ratios. The Credit Facility is guaranteed by all of the Company's
subsidiaries.

On May 1, 1996, the Company completed a public offering of 4,335,000 shares
of its Common Stock at $18.00 per share for net proceeds of $73.0 million. A
portion of the net proceeds was used to repay amounts borrowed under the Credit
Facility and the remainder was used for general corporate purposes, including
acquisitions. In addition, in June 1995, the Company filed a shelf registration
statement relating to shares of Common Stock to be used in connection with
acquisitions.

The Company currently expects to acquire funeral homes and cemeteries for
purchase prices aggregating $65 million in 1997. The Company anticipates that
the consideration for future acquisitions will consist of a combination of cash,
long-term notes, the assumption of existing indebtedness of the acquired
businesses, and, in some cases, the issuance of additional shares of the
Company's Common Stock. The Company anticipates making ongoing capital
expenditures of approximately $6 million in 1997. Additionally, the Company
authorized the expenditure of approximately $4.2 million to construct two new
funeral home operations.

Management believes that cash flow from operations and the borrowing
capacity available under the Credit Facility should be sufficient to meet its
anticipated capital expenditures and other operating requirements and to fund
anticipated acquisitions through the first quarter of 1998. However, because
future cash flows and the availability of financing are subject to a number of
variables, such as the number and size of acquisitions made by the Company,
there can be no assurance that the Company's capital resources will be
sufficient to maintain currently planned levels of capital expenditures, or to
fund future acquisitions. Additional debt and equity financings may be required
in connection with future acquisitions. The availability of these capital
sources will depend on prevailing market conditions and interest rates and the
then-existing financial condition of the Company.

SEASONALITY

Although the deathcare business is relatively stable and fairly
predictable, the Company's results of operations may periodically fluctuate due
to limited seasonality. Revenues from the Company's funeral home operations tend
to be somewhat greater in the first and fourth quarters of each calendar year
while revenues from its cemetery operations tend to be somewhat greater in the
second and fourth quarters of each calendar year.

INFLATION

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

25
<PAGE> 27

THE DEATHCARE INDUSTRY

Fragmented Nature. It is estimated that there are approximately 22,000
funeral homes and 9,600 commercial (as opposed to religious, family, fraternal,
military or municipal) cemeteries in the United States. Many of these properties
are owned by small, family-owned firms that control one or several funeral homes
or cemeteries in a single community. Based upon industry statistics, management
believes that the Company and the three largest publicly traded North American
deathcare companies, SCI, The Loewen Group Inc. ("Loewen") and Stewart
Enterprises, Inc. ("Stewart"), control in the aggregate approximately 10% of the
funeral homes and approximately 7% of the commercial cemeteries in the United
States. Based upon industry estimates, ECI and these three other companies
represented less than 20% of the total 1995 United States deathcare industry
revenues.

Barriers to Entry. The deathcare industry is characterized by significant
barriers to the establishment of a new funeral home or cemetery in an existing
market, the most formidable of which typically is local heritage and tradition.
Heritage and tradition, particularly in non-metropolitan areas where there are
fewer market participants, afford an established funeral home or cemetery a
local franchise which tends to foster family loyalty. Other barriers to entry
include local zoning restrictions, substantial capital requirements, increasing
regulatory burdens and scarcity of suitable cemetery land in certain areas. In
addition, established firms backlog of preneed, prefunded funerals or presold
cemetery and mausoleum spaces also makes it difficult for new entrants to gain a
foothold in the marketplace.

Stability. Death rates in the United States are fairly predictable, thereby
lending stability to the deathcare industry. The number of deaths in the United
States has increased at a compound rate of approximately one percent per year
since 1980. According to the 1993 report prepared by the U.S. Department of
Commerce, Bureau of the Census, the number of deaths in the United States is
expected to increase by approximately one percent per year between 1996 and
2010. In addition, the ownership of funeral home and cemetery businesses has
traditionally passed from generation to generation within the same family and
the aggregate number of funeral homes and cemeteries in the United States has
remained relatively constant.

Over the past several years, the following trends have developed in the
deathcare industry:

Consolidation. As the deathcare industry has matured, a trend toward
consolidation has developed. From the standpoint of individual owners, this
trend appears to result principally from family succession issues, a desire for
liquidity, increasing tax and estate planning complexities and the increasing
competitive threat posed by the large deathcare 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. From the standpoint of the large deathcare providers, the
consolidation trend is driven by the benefits derived from economies of scale,
improved managerial control and more effective strategic and financial planning.
The consolidation trend has accelerated in recent years as several large
deathcare companies have expanded their operations significantly through
acquisitions.

Clustered Operations. There has also been a trend for firms to cluster
their funeral homes and cemetery operations. Clusters refer to funeral homes
and/or cemeteries which are grouped together in a geographical region. Clusters
provide cost savings to funeral homes and cemeteries and a higher level of
service to client families through the sharing of personnel, vehicles and other
resources. In addition, funeral home and cemetery clusters provide opportunities
for a company to cross-market the full range of deathcare services with limited
incremental overhead expense.

Combined Operations. In recent years, there has been an increase in the
number of firms establishing combined operations. Combined operations refer to
funeral home and cemetery operations conducted on a single site. These
operations provide cost savings through shared resources and cross-marketing
opportunities.

26
<PAGE> 28

The ability to offer the full range of products and services at one location 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 (i.e., on an
"at need" basis), an increasing number of deathcare products and services are
being sold prior to the time of death (i.e., on a "preneed" basis) by deathcare
providers who have developed sophisticated marketing staffs that 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 deathcare plans
at the time of need. Effective marketing of preneed products and services
ensures 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 all dispositions of human remains in
the United States in 1995, as compared with approximately 10% in 1980. Many
areas of the United States and many non-metropolitan communities exhibit
materially lower rates of cremation as a result of religious and cultural
traditions. Cremation historically has been marketed as a less costly
alternative to interment. However, cremation is increasingly marketed as part of
a complete deathcare package that includes traditional funeral services and
memorialization.

27
<PAGE> 29

BUSINESS

THE COMPANY

ECI is the fourth largest publicly traded provider of deathcare services
and products in the United States, primarily serving communities located in
non-metropolitan areas. As of December 1, 1996, ECI operated 169 funeral homes
and 62 cemeteries in 23 states.

BUSINESS STRATEGY

Acquisitions. The Company's acquisition program is focused on:

- acquiring premier properties that can serve as anchor locations for new
clusters;

- expanding existing clusters with the acquisition of adjacent properties;
and

- acquiring cemeteries that complement the Company's existing funeral home
clusters, and acquiring funeral homes that complement the Company's
existing cemetery clusters.

Profitability Enhancement. The Company believes that it can enhance
revenues and reduce costs at its properties, particularly its newly acquired
properties, through, among other things, the following:

- introducing the Company's funeral merchandising and sales training
programs at newly acquired funeral homes;

- implementing professional preneed sales efforts at newly acquired
cemeteries, which often have had limited historical preneed sales, and
marketing a broader line of cemetery products and services;

- improving the revenues and earnings of its established operations by
assisting local managers with on-going programs to market services more
effectively and enhance the reputation of their operations in the
community;

- sharing sales leads and other cross-marketing opportunities that are
anticipated to develop as the Company acquires cemeteries that complement
existing funeral home clusters and funeral homes that complement existing
cemetery clusters;

- sharing personnel, vehicles and other resources within funeral home and
cemetery clusters;

- realizing favorable pricing and terms from suppliers through volume
discounts on significant expenditures, such as vehicles, caskets, vaults
and memorials; and

- consolidating and centralizing certain administrative and financial
management functions while retaining critical operational functions at
the local level.

ACQUISITION PROGRAM

The Company intends to continue its active acquisition program focused on
premier funeral homes and cemeteries in non-metropolitan areas throughout the
United States. The Company's funeral home acquisition effort is targeted at
markets with approximately 10,000 to 250,000 residents where a single property
or cluster of properties can be a leading or dominant competitor in that market
area. The Company's cemetery acquisition effort is targeted at markets with
approximately 75,000 to 500,000 residents that are large enough to support an
aggressive preneed sales effort.

The Company typically retains the former owners and other key personnel of
acquired funeral homes and, where appropriate, the former owners and other key
personnel of acquired cemeteries, and gives them significant operating
responsibility in an effort to assure the continuation of high quality services
and the

28
<PAGE> 30

maintenance of the acquired operation's unique reputation, heritage and
long-standing local relationships. In nearly all cases, acquired funeral homes
and cemeteries continue operations under the same tradenames as were used by the
prior owners. In addition, the Company views the experienced management of
certain acquired operations as potential regional and corporate management
candidates. As a result, the Company believes that it may be regarded as a
particularly attractive acquiror by some independent owners because such owners
may be afforded a greater opportunity for advancement with the Company than they
may be afforded on their own or with the other large deathcare providers.

In evaluating specific properties for acquisition, the Company considers
such factors as the property's location, reputation, heritage, physical size,
volume of business, profitability, available inventory, name recognition,
aesthetics, potential for development or expansion, competitive market position,
pricing structure and the quality of operating management. The Company follows a
disciplined approach based on specific financial criteria for determining
acquisition prices. The Company anticipates that the consideration for future
acquisitions will consist of a combination of cash, long-term notes, the
assumption of existing indebtedness of the acquired businesses, and, in some
cases, the issuance of additional Common Stock of the Company. The Company
typically enters into management, consulting and non-competition agreements with
former owners and key executive personnel of acquired funeral homes and, where
appropriate, acquired cemeteries.

The Company maintains a full-time corporate development staff responsible
for identifying, evaluating, negotiating and closing acquisitions of funeral
homes and cemeteries. The current staff includes a senior corporate development
executive with substantial deathcare industry experience and six additional
professionals. Other members of the Company's senior and regional management
teams are also actively involved in the acquisition process.

The Company is continually evaluating and negotiating potential funeral
home and cemetery acquisitions. The Company typically enters into letters of
intent related to potential acquisitions when an agreement in principle has been
reached between the parties. Such letters of intent are generally intended to be
non-binding and are subject to various contingencies, which may include
completing satisfactory due diligence, negotiating definitive agreements and
obtaining approval of the Company's Board of Directors. The Company is currently
involved in various stages of acquisition negotiations with respect to a number
of funeral homes and cemeteries, and, as of December 1, 1996, was a party to
letters of intent relating to the acquisition of 17 funeral homes and 3
cemeteries for purchase prices totaling approximately $19.4 million.

OPERATIONS

Funeral Home Operations. The Company's funeral homes are primarily located
in non-metropolitan areas of the United States. As of December 1, 1996, the
Company operated 169 funeral homes in 18 states. Funeral home operations
accounted for approximately 61% and 57% of the Company's net revenues for the
nine months ended September 30, 1996 and the year ended December 31, 1995,
respectively.

In order to improve the efficiency and profitability of its operations, the
Company's funeral homes are generally operated in clusters within a given
geographic area. The clustering of funeral homes provides opportunities to share
personnel, vehicles and other resources, effect operating and administrative
cost reductions and implement cross-marketing programs. The Company's operations
are primarily located in non-metropolitan areas, where clusters typically
generate fewer operating economies than in metropolitan areas principally due to
greater distances between properties and lower volumes of funerals and
interments. The Company believes, however, that it achieves significant economic
benefits by clustering its operations.

An important aspect of the Company's acquisition program is the acquisition
of premier funeral homes outside of its existing clusters that can serve as
anchor locations for new clusters. These new anchor locations are operated on a
stand-alone basis until such time as the Company has acquired nearby properties
to form a new cluster. There are currently 12 anchor locations operated on a
stand-alone basis.

The Company's funeral homes are organized geographically into regional
operating groups, each of which is under the direction of a regional management
team with substantial funeral home experience. Although certain financial
management and policy matters are centralized, regional management and local
funeral home

29
<PAGE> 31

directors have substantial autonomy in determining the manner in which their
services and products are marketed and delivered and their funeral homes are
managed. The Company believes that this strategy permits each local firm to
maintain its unique style of operation and to capitalize on its reputation and
heritage, while the Company maintains centralized supervisory controls and
provides specialized services at the corporate level.

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

Although cremation represents a small part of the Company's funeral net
revenues, all of the Company's funeral homes offer cremation. Cremations
accounted for approximately 19.3% of the dispositions performed by the Company
in 1995. Approximately 46.3% of the Company's cremations were attributable to
the Company's Florida operations, a state in which the cremation rate is
substantially higher than the national average. Excluding the Company's Florida
operations, cremations accounted for approximately 12% of the dispositions
performed by the Company in 1995. Cremations are often combined with traditional
funeral services and various types of memorialization. While cremations have
historically generated gross profit margins similar to those for traditional
funeral services, cremations generally result in lower average revenue and gross
profit dollars when compared to traditional funeral services. As of December 1,
1996, the Company owned six cremation facilities that serve the Company's
funeral homes. Five of such cremation facilities also serve independent funeral
homes in the surrounding areas. The Company uses independent cremation
facilities to service the needs of its client families in markets where the
Company does not operate its own cremation facility. A majority of the Company's
cremations are performed by independent cremation facilities.

In addition to sales of funeral services and products at the time of need,
the Company also markets funeral services and products on a preneed basis.
Preneed funeral contracts enable families to establish in advance the type of
service to be performed, the products to be used and the cost of such products
and services in accordance with prices prevailing at the time the agreement is
signed rather than when the products and services are delivered. Preneed funeral
contracts permit families to eliminate the emotional strain of making deathcare
plans at the time of need and enable the Company to establish a portion of its
future market share. Because of the significant market share of most of the
Company's funeral homes in their areas of operation, however, the Company does
not extensively market preneed funeral contracts. Nevertheless, the Company will
market preneed funeral contracts in specific markets where necessary to build
current and future market share or in response to sales campaigns launched by
competitors. The Company has historically sold preneed funeral contracts at
prices similar to those obtained for at need funeral services. Proceeds from the
sale of preneed funeral contracts are not recognized as revenues until the time
the funeral service is performed. The Company sold or obtained through
acquisitions 12,415 preneed funeral contracts in the year ended December 31,
1995 and has sold or obtained through acquisitions 12,353 preneed funeral
contracts in the nine months ended September 30, 1996. At September 30, 1996,
the Company had a backlog of 42,871 preneed funeral contracts to be delivered in
the future. Preneed funeral contracts fulfilled as a percentage of the total
funerals performed was approximately 19% for the nine months ended September 30,
1996 and for the year ended December 31, 1995.

Preneed funeral contracts are paid for by the customer through either
lump-sum payments or 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. The Company's selection of trust or
insurance arrangements depends primarily on the individual customer's preference
and the regulatory requirements of the applicable state. In the case of
trust-funded contracts, state law requires that all or a portion of the payments
received by the

30
<PAGE> 32

Company for preneed funeral contracts be placed in trust accounts established by
the Company. See "-- Trust Funds -- Preneed Funeral Trusts." Insurance-funded
contracts are offered principally through third-party insurance underwriters
specializing in preneed funeral contracts. In the event of cancellation of a
preneed funeral contract, the Company complies with its contractual obligations
and applicable state laws, which generally require a refund of all principal
amounts held in trust, and in some cases accrued interest.

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 deathcare plans at the time of need and enable a funeral home
to establish relationships with clients that frequently lead to at need sales.

Cemetery Operations. The Company's cemeteries are primarily located in
non-metropolitan areas of the United States. As of December 1, 1996 the Company
operated 62 cemeteries in 11 states. Cemetery operations accounted for 39% and
43% of the Company's net revenues for the nine months ended September 30, 1996
and the year ended December 31, 1995, respectively.

The Company's cemeteries are organized geographically into six regional
operating groups, each of which is under the direction of an operations director
with substantial cemetery experience. Cemetery marketing efforts are coordinated
by two regional sales vice presidents working with thirteen field sales
directors responsible for their own individual location sales performance. The
Company aggressively markets cemetery interment rights, merchandise and services
on a preneed basis. The Company believes that consumers throughout the United
States increasingly favor commercial perpetual care cemeteries, such as those
operated by the Company, over non-perpetual care cemeteries, many of which are
operated by family, fraternal and religious organizations. As of September 30,
1996, the Company employed a staff of approximately 216 cemetery sales
counselors. The Company has an extensive training program for all cemetery sales
personnel, including senior sales managers and entry-level sales counselors.
Cemetery sales prospects are generated through the use of a variety of media,
including direct response advertising, direct mailings, door-to-door surveys,
telephone surveys and purchaser referrals.

The Company's cemetery products and services include interment services and
rights to interment in cemetery sites, including grave sites, crypts, niches,
family and community mausolea and columbaria and related cemetery merchandise
such as markers, monuments, memorials and burial vaults. Cemetery operations
generate revenues through sales of interment rights, markers and memorials; fees
for interment and cremation services and marker and memorial installations;
interest income from installment sales contracts; and investment income from
preneed cemetery merchandise. Earnings from perpetual care trusts are recognized
currently and are intended to defray cemetery maintenance costs. The Company
aggressively markets mausolea, columbaria and related entombment products, sales
of which accounted for approximately 16% of the Company's cemetery net revenues
for the nine months ended September 30, 1996 and 17% for the year ended December
31, 1995.

Cemetery interment rights, interment services and merchandise are sold
either on a preneed or at need basis. Preneed cemetery sales are usually
financed by the Company through installment sale contracts, generally with terms
not exceeding five years (or seven years for some of the larger purchases).
Preneed sales of cemetery interment rights and other related services and
products are recorded as revenues when the contract is signed, with concurrent
recognition of related costs. The Company typically receives payment of at least
5% of the sales price at the time the contract is signed. Allowances for
customer cancellations and refunds are accrued at the date of sale based upon
historical experience. Customers generally have the option to cancel a contract
for cemetery products within three days of the date of sale and receive a refund
of amounts paid. After this three-day period, the Company generally does not
refund amounts received under such contracts. Preneed cemetery sales represented
approximately 64% of the Company's cemetery net revenues for the nine months
ended September 30, 1996 and 63% for the year ended December 31, 1995.

The Company is generally required under state laws to deposit in trust a
specified percentage of the current cost of providing cemetery merchandise sold
prior to the time of need. The Company also provides maintenance of cemetery
grounds pursuant to perpetual care contracts and state laws that require the

31
<PAGE> 33

Company to place a portion, generally 10%, of the proceeds from sales of
cemetery interment rights into a perpetual care trust or endowment fund. See
"-- Trust Funds -- Preneed Cemetery Merchandise Trusts" and "-- Trust
Funds -- Perpetual Care Trusts."

PROPERTIES

As of December 1, 1996, the Company operated 169 funeral homes and 62
cemeteries in 23 states. The Company owned the real estate and buildings of 134
of its funeral homes and 59 of its cemeteries, leased facilities in connection
with 35 of its funeral homes, and operated 3 of its cemeteries pursuant to a
management contract. Five of the Company's funeral homes and ten of the
Company's cemeteries are mortgaged to the seller of the property. The 62
cemeteries operated by the Company cover a total of approximately 2,400 acres,
of which approximately 50% is available for future development. Based on the
Company's 1995 sales of interment rights related to developed lots, the Company
has approximately 30 years of unsold developed lot inventory as of December 31,
1995 (the latest date for which the Company has available information). The
Company does not anticipate any shortage of available space in its current
cemeteries for the foreseeable future.

The following table sets forth certain information, as of December 1, 1996,
regarding the funeral homes and cemeteries operated by the Company in each
state:

<TABLE>
<CAPTION>
NUMBER OF
FUNERAL HOMES
-------------------- NUMBER OF
OWNED LEASED(1) CEMETERIES
----- --------- ----------
<S> <C> <C> <C>
Alabama..................................... -- 5 3
Arkansas.................................... 1 -- 1
Florida..................................... 5 3 3(2)
Georgia..................................... 2(3) -- 14
Illinois.................................... 9 4 --
Indiana..................................... 7 1 --
Iowa........................................ 10 -- 1
Maine....................................... 10 1 --
Mississippi................................. 1 -- --
Missouri.................................... 11 6 --
Nebraska.................................... 2 4 --
New Hampshire............................... 3 -- --
North Carolina.............................. 1(3) -- 16
Ohio........................................ 1 -- --
Oklahoma.................................... 3 1 --
Oregon...................................... 4(3) -- 5
South Carolina.............................. -- -- 4
South Dakota................................ 2 -- --
Tennessee................................... -- -- 6
Texas....................................... 59(3)(4) 7(5) 5
Vermont..................................... 3 -- --
Virginia.................................... -- -- 4
West Virginia............................... -- 3 --
--- -- --
Total............................. 134 35 62
==== === ==
</TABLE>

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

(1) The leases with respect to these funeral homes have remaining terms
ranging from 1 to 10 years, and the Company generally has renewal
options or a right of first refusal on any proposed sale of these
funeral homes.

(2) These 3 cemeteries are operated pursuant to a management contract
with the owner of the property. The contract has an initial term
ending in 1998 with options exercisable by the

32
<PAGE> 34

Company for 3 additional 5-year terms. Under the contract, the Company realizes
all revenues, assumes all operating costs and pays a fixed annual payment and a
specified royalty to the extent revenues exceed specified amounts.

(3) Six of the Company's funeral homes are located on property
contiguous to and operated in combination with a Company cemetery.
Of these funeral homes, 3 are located in Oregon, 1 is located in
Georgia, 1 is located in North Carolina and 1 is located in Texas.

(4) The current manager of 7 of these funeral homes owns a 5% interest
in the earnings of such funeral homes and holds an option to acquire
up to an additional 15% interest in the earnings of such funeral
homes. The Company may be required to purchase the current manager's
interest under certain circumstances.

(5) Two of these funeral homes are owned by a third party and are
operated by the Company pursuant to a joint venture agreement. Each
party has a right of first refusal to purchase the interest of the
other. In addition, the Company has an option to purchase such
funeral homes and may be required to purchase such funeral homes
under certain circumstances.

As of December 1, 1996, the Company's corporate headquarters occupied
approximately 30,700 square feet of leased office space in Lufkin, Texas.

As of December 1, 1996, the Company operated 588 vehicles, of which 502
were owned and 86 were leased, of which 80 were leased from a subsidiary of SCI.
The Company presently leases one aircraft.

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

Effective March 1996, the Company conveyed to SCI three funeral home
operations which had been previously operated by an unaffiliated third party for
an aggregate cash purchase price of approximately $2.1 million. The three
funeral homes had originally been acquired by the Company from SCI in May 1990.
In January 1993 the Company entered into long-term agreements with the third
party, under which the third party operated the three funeral homes. In February
1996, a subsidiary of SCI acquired the operations of the third party and assumed
the long-term agreements with the Company. In addition, on June 30, 1996, the
Company acquired 1 funeral home located in Florida from SCI for a purchase price
of $2.3 million and on September 30, 1996, the Company acquired 11 funeral homes
located in Maine, West Virginia, Iowa and Texas from SCI for approximately $10.6
million. The purchase price for each of these transactions was determined by
direct negotiation between the Company and SCI. The Company believes that the
terms of these transactions were no less favorable than terms reasonably
obtainable from unaffiliated third parties.

COMPETITION

The Company currently competes for acquisitions with four of the publicly
held North American deathcare companies, SCI, Loewen, Stewart and Carriage
Services, Inc., as well as smaller national and regional consolidators. While a
significant amount of acquisition activity appears to be concentrated on funeral
homes and cemeteries in metropolitan areas, which are not areas of primary
interest to the Company, the Company faces intense competition in the
acquisition of funeral homes and cemeteries in many of the non-metropolitan
areas in which it has focused its acquisition program. Prices for funeral homes
and cemeteries have increased substantially in recent years, and in some cases
competitors have paid acquisition prices substantially in excess of those that
the Company felt were appropriate. 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 funeral services
and products and cemetery interment rights and merchandise on a preneed basis
has increasingly been used by many companies as an important marketing tool

33
<PAGE> 35

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 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 trusts secure the funds paid by the
purchasers of preneed funeral contracts pending use of the funds at the time of
need. In most states in which the Company operates, a percentage (depending on
applicable state law) of the proceeds from the sale of each preneed funeral
contract can be retained by the Company with the balance deposited in a trust.
In most states, the Company is not permitted to withdraw principal or investment
income from such trusts until the time the funeral service is performed.
Earnings on trust funds increase the amount of cash to be received by the
Company at the time the funeral service is performed and historically have
allowed the Company to adequately cover the inflationary increase in costs of
funeral services. While direct marketing costs and commissions incurred with the
sale of preneed funeral contracts are a current use of cash, such costs are
deferred for financial reporting purposes and recognized over 12 years, which
approximates the expected timing of the performance of services related to
preneed contracts. Proceeds from the sale of preneed funeral contracts and
earnings on such proceeds are not recognized as revenue until the time the
funeral service is performed. All price guaranteed preneed funeral contracts are
included in the Company's consolidated balance sheet as a long-term asset with a
corresponding credit to deferred preneed funeral contract revenues. The
aggregate balance of the Company's preneed funeral contracts held in trust was
approximately $55.1 million as of September 30, 1996, which was included in
preneed funeral contracts in the Company's consolidated balance sheet.

Preneed Cemetery Merchandise Trusts. The Company is generally required
under applicable state laws to deposit in preneed cemetery merchandise trusts a
percentage (which varies from state to state) of either the net sales price or
the current cost of providing cemetery merchandise or services purchased by a
customer prior to the time of need. Such amounts are generally deposited in
trust on a pro rata basis as payments are received from the customer. Income on
cemetery merchandise trusts is recognized in cemetery net revenues in the period
that trust earnings accrue. The Company is permitted to withdraw from such
trusts principal and the related investment income when the cemetery merchandise
is purchased by the Company or the merchandise contract is canceled. The
Company's preneed cemetery merchandise trust funds had an aggregate balance of
approximately $12.4 million as of September 30, 1996. The funds contained in the
Company's preneed cemetery merchandise trusts are included in the Company's
consolidated balance sheet as long-term receivables. The cost of preneed
cemetery merchandise is accrued as a liability and included in deferred cemetery
costs in the Company's consolidated balance sheet.

Perpetual Care Trusts. The purpose of a perpetual care trust is to provide
the funds necessary to maintain cemetery property and memorials in perpetuity.
Pursuant to state law, a portion (which varies from state to state, but is
generally 10%) of the proceeds from each sale of a cemetery interment right is
placed in such a trust. While the Company does not have the right to withdraw
the principal balance at any time, the Company is entitled to withdraw
substantially all of the investment income from its perpetual care trusts to be
used for cemetery and memorial maintenance. The aggregate principal balance in
the Company's perpetual care trusts was approximately $14.8 million as of
September 30, 1996, none of which was included in the Company's consolidated
balance sheet. Investment income from the perpetual care trust funds is included
in the Company's consolidated statement of revenues when earned.

For additional information with respect to the Company's trusts, see Notes
1 and 3 to the audited consolidated financial statements of the Company and Note
3 to the unaudited interim consolidated financial statements of the Company
included in this Prospectus.

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<PAGE> 36

REGULATION

The Company's funeral home operations are comprehensively regulated by the
Federal Trade Commission ("FTC") under Section 5 of the Federal Trade Commission
Act and a trade regulation rule for the funeral industry promulgated thereunder
(the "Funeral Rule"). The Funeral Rule contains minimum standards for funeral
industry practices, requires extensive price and other affirmative disclosures
to the customer at the time of sale and imposes a mandatory itemization
requirement 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 which, if enacted, could have
a material adverse effect on the Company's operations and on the deathcare
industry in general. The Company cannot predict the outcome of any proposed
legislation or regulations or the effect that any such legislation or
regulations, if enacted, might have on the Company.

EMPLOYEES

As of September 30, 1996, the Company and its subsidiaries employed 927
full-time and 595 part-time employees. All of the Company's funeral directors
and embalmers have been professionally trained, possess all licenses required by
applicable regulatory agencies and are graduates of accredited colleges of
mortuary science. 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.

LEGAL PROCEEDINGS

SCI is subject to five Consent Orders (the "Consent Orders") issued by the
FTC, pursuant to which SCI and its subsidiaries are prohibited for certain
specified periods from acquiring existing funeral homes, cemeteries and
cremation facilities in specified market areas without giving prior notice to
the FTC. The Consent Orders prohibit SCI and its subsidiaries from acquiring
existing (i) funeral homes in Waycross, Gainesville and Rome, Georgia and Fort
Smith, Arkansas and surrounding areas until October 2001, (ii) funeral homes in
certain portions of San Bernardino and Riverside Counties, California until
February 2002, (iii) funeral homes in Chattanooga and Soddy Daisy, Tennessee and
La Fayette and Savannah, Georgia and surrounding areas until June 2004, and (iv)
funeral homes and cemeteries in Jackson County, Oregon until June 2005, (v)
funeral homes, cemeteries and cremation facilities in Amarillo, Texas until
April 2006, (vi) funeral homes and cemeteries in Brevard County, Florida until
April 2006 and (vii) funeral homes in Lee County, Florida until April 2006
without giving prior notice to the FTC. Because of the extent of SCI's
beneficial ownership of Common Stock, acquisitions by the Company of funeral
homes, cemeteries and cremation facilities in the covered market areas without
giving prior notice to the FTC might result in a violation of such Consent
Orders. Management believes that compliance with such Consent Orders, if
required, will not materially adversely affect the Company's funeral home and
cemetery acquisition program. After the Offering, SCI will not own any Common
Stock of the Company and, therefore, any acquisition by the Company in such
areas should not result in a violation of the Consent Orders.

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<PAGE> 37

On October 10, 1996, Loewen, Loewen Group International, Inc. and Ridge
Chapels, Inc. (collectively, the "Plaintiffs") brought an action against SCI,
New Service Corporation International, Inc. and SCI Holdings Canada, Inc.
(collectively, the "SCI Group") and the Company in the United States District,
Eastern District of New York. The Plaintiffs have alleged that the actions of
the SCI Group in combination with the Company are designed to eliminate
Plaintiffs as a competitive factor in numerous markets across the United States.
The Plaintiffs have asked the court to adjudge that the Company and the SCI
Group have participated in a conspiracy to restrain trade in violation of
Section 1 of the Sherman Act and that the Plaintiffs be granted such other and
further relief as the court may deem just and proper, including recovery from
the Company and the SCI Group for the cost of this suit and reasonable
attorneys' fees incurred by the Plaintiffs. While the outcome of this lawsuit
cannot be predicted with certainty, management believes that it will not have a
material adverse effect on the Company. SCI has made a bid to acquire Loewen.
The Company is not a party to the proposed acquisition.

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

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

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<PAGE> 38

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information concerning the directors and the
executive officers of the Company as of December 4, 1996, including the business
experience of each during the past five years:

<TABLE>
<CAPTION>
NAME AGE POSITION
- - - ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
James P. Hunter, III...................... 59 Chairman of the Board of Directors,
President and Chief Executive Officer
W. Cardon Gerner.......................... 41 Senior Vice President -- Chief Financial
Officer
William C. McNamara....................... 48 Senior Vice President -- Cemetery
Operations
Jack D. Rottman........................... 47 Senior Vice President -- Corporate
Development
Billy C. Wells............................ 45 Vice President -- Funeral Operations
Jack T. Hammer............................ 55 Director
Thomas R. McDade.......................... 63 Director
Kenneth W. Smith.......................... 60 Director
</TABLE>

James P. Hunter, III has been the President, Chief Executive Officer and a
director of the Company since May 1990 and Chairman of the Board since June
1994. Prior to joining the Company, Mr. Hunter was a Vice President of SCI from
1987 to 1990 and was the executive officer responsible for SCI's Regional
Partners Division, the division that operated the 71 funeral homes and 3
cemeteries acquired by the Company from SCI in May 1990. From 1988 to 1990, he
was Vice Chairman of SCI's Legislative Affairs Committee. Prior to joining SCI,
Mr. Hunter was President and Chief Executive Officer of Oakley-Metcalf, Inc., a
family-owned operator of funeral homes in Lufkin and Nacogdoches, Texas, and was
associated with that firm for over 25 years. From 1985 to 1991, Mr. Hunter was a
member of, and during 1987 and 1988 the Chairman of, the Texas Funeral Service
Commission.

W. Cardon Gerner has been Senior Vice President -- Chief Financial Officer
since March 1995. For 17 years prior to joining the Company, Mr. Gerner held
various positions with the international accounting firm of Ernst & Young LLP,
including being a partner in such firm from October 1990 until March 1995.

William C. McNamara has been Senior Vice President -- Cemetery Operations
since April 1996. Prior to joining the Company, Mr. McNamara had been employed
in various capacities by subsidiaries of SCI since 1981, most recently as Vice
President of Preneed Funeral and Preneed Cemetery Sales and Administration of
SCI's Eastern Division, which included over 300 funeral home and cemetery
operations.

Jack D. Rottman has been Senior Vice President -- Corporate Development of
the Company since March 1994. Prior to joining the Company, Mr. Rottman held
various positions at SCI, including Vice President of Funeral Service Operations
from 1991 to 1993 and Vice President of Corporate Development from 1987 to 1989.
He was also Senior Vice President and a loan officer of Provident Services,
Inc., a subsidiary of SCI, from 1989 to 1991.

Billy C. Wells has been Vice President -- Funeral Operations of the Company
since May 1990. Prior to joining the Company, Mr. Wells held various management
positions within SCI's funeral home operations, most recently as Vice President
of SCI's Regional Partners Division from January 1990 to May 1990.

Jack T. Hammer has been a director of the Company since December 1994. Mr.
Hammer has been the Chairman, President and Chief Executive Officer of Housing
Systems, Incorporated, a company that owns and operates conventional, low income
and cooperative housing, since he organized that company in 1970. Prior to 1992,
he was active in the ownership and management of Arlington Corp., a
privately-held deathcare company that was subsequently acquired by SCI. Since
January 1993, Mr. Hammer has also been the President of Cemetery Management
Consultants, a privately held company that primarily invests in deathcare
businesses.

37
<PAGE> 39

Thomas R. McDade has been a director of the Company since December 1994. He
is a licensed attorney and has been a partner in the law firm of McDade &
Fogler, L.L.P., Houston, Texas since 1992. From 1971 through 1991, Mr. McDade
was a partner in the law firm of Fulbright & Jaworski, L.L.P., Houston, Texas.
Mr. McDade is also a director of The Coastal Corporation, a publicly-held energy
conglomerate.

Kenneth W. Smith has been a director of the Company since May 1990. He is a
certified public accountant and has been in private practice in Lufkin, Texas
for the past 34 years. Prior to such time, he was a senior accountant of the
international accounting firm of Arthur Andersen & Co.

38
<PAGE> 40

SELLING STOCKHOLDER

The shares of Common Stock being offered hereby (excluding shares issuable
pursuant to the Underwriters' over-allotment option) are beneficially owned by
SCI and held of record by Investment Capital Corporation ("ICC"), a wholly owned
subsidiary of SCI (collectively the "Selling Stockholder"). SCI beneficially
owns 7,994,747 shares of Common Stock and will sell all of such shares in the
Offering pursuant to registration rights granted to it under a stock
registration agreement with the Company. Under the terms of the stock
registration agreement, SCI will be indemnified by the Company for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act") in
connection with the Offering, except for liabilities arising from information
provided in writing by SCI for inclusion in this Prospectus. SCI has agreed to
pay its pro rata share of all expenses of the Offering. T. Craig Benson, who is
currently Vice President International Corporate Development of SCI, served as a
director of the Company from May 1990 to December 1996. The Company has
purchased from and sold to SCI various funeral homes within the past three
years. See "Business -- Properties."

39
<PAGE> 41

UNDERWRITING

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

NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................
The Chicago Corporation....................................................
J.P. Morgan Securities Inc. ...............................................
Raymond James & Associates, Inc............................................
----------
Total.......................................................... 7,994,747
==========
</TABLE>

The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose to offer the shares of Common Stock to the public
initially 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 re-allow, a
discount not in excess of $ per share on sales 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 1,199,212 additional shares of 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 and the Selling Stockholder have 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.

In connection with the Offering, the Company, its directors and executive
officers and the Selling Stockholder have agreed that they will not, for a
period of 90 days from the date of this Prospectus, without the prior written
consent of Merrill Lynch, directly or indirectly, offer, sell, grant any option
with respect to, pledge or otherwise dispose of, any shares of Common Stock or
any securities convertible into shares of Common Stock, except (i) in the case
of the Company and the Selling Stockholder, for sales of Common Stock to the
Underwriters pursuant to the Purchase Agreement and (ii) in the case of the
Company, for (a) subject to certain limitations, the issuance of shares 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, (b) the issuance of shares upon
the exercise of options granted pursuant to the Incentive Plan prior to the date
hereof, and (c) subject to certain limitations, the grant

40
<PAGE> 42

of options, restricted shares, restricted stock units, stock unit awards payable
in the form of Common Stock or performance shares issued or granted pursuant to
the Incentive Plan.

In connection with the Offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in the Offering, in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Passive market making consists of displaying bids on the Nasdaq
National Market limited by the bid prices of independent market makers and
purchases limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Common Stock during a specified prior period and must be discontinued when such
limit is reached. Passive market making may stabilize the market price of the
Common Stock at a level above that which might otherwise prevail. Such
stabilizing, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the Common Stock being offered hereby by the Selling
Stockholder will be passed upon for the Selling Stockholder by Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P., Houston, Texas. The validity of the Common Stock
being offered hereby by the Company will be passed upon for the Company by
Andrews & Kurth L.L.P., Houston, Texas. Certain legal matters in connection with
the Common Stock offered hereby will be passed upon for the Underwriters by
Vinson & Elkins L.L.P., Houston, Texas.

EXPERTS

The consolidated balance sheet of the Company as of December 31, 1995 and
1994 and the consolidated statements of operations, changes in stockholders'
equity and cash flows of the Company for each of the three years in the period
ended December 31, 1995 included in this Prospectus; and (i) the consolidated
financial statement schedule of the Company for each of the three years in the
period ended December 31, 1995; and (ii) the consolidated financial statements
of MLI/The Loftis Corporation as of December 31, 1993 and 1992, and for each of
the three years in the period ended December 31, 1993, incorporated by reference
in this Prospectus, have been included or incorporated herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act and the rules and regulations promulgated thereunder and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004,
and at the following Regional Offices of the Commission: Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and New
York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may also be obtained at the prescribed rates from
the Public Reference Section of the Commission at its principal office at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004. The Company's
Common Stock is quoted on the Nasdaq National Market and, as a result, the
Company also files reports, proxy statements and other information with The
Nasdaq Stock Market, and such reports, proxy statements 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. The Registration Statement and other
information filed by the Company with the Commission are also available at the
web site of the Commission at http://www.sec.gov.

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes part
of the Registration Statement, omits certain of the information contained in

41
<PAGE> 43

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 and web site of the Commission described above.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, or portions of documents, previously filed by the
Company with the Commission are incorporated by reference in this Prospectus:

(i) the Company's Annual Report on Form 10-K for the year ended December
31, 1995;
(ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996;
(iii) the Company's Current Reports on Form 8-K, dated April 24, 1996,
September 11, 1996, September 18, 1996 and September 30, 1996;
(iv) the Report of Independent Accountants, Coopers & Lybrand L.L.P., dated
July 15, 1994 and the consolidated balance sheet of MLI/The Loftis
Corporation as of December 31, 1992 and 1993, and the related
consolidated statements of income, stockholders' equity (deficit) and
cash flows of MLI/The Loftis Corporation for the three years in the
period ended December 31, 1993 included in the Company's Registration
Statement on Form S-1 (Reg.No. 33-82546); and
(v) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A (File No. 0-24728) filed with the
Commission on August 23, 1994 pursuant to Section 12 of the Exchange
Act, as amended by Amendment No. 1 on Form 8-A/A filed with the
Commission on October 6, 1994 and Amendment No. 2 on Form 8-A/A filed
with the Commission on September 11, 1996.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this Offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of the filing of such
documents.

Any statement contained herein or in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement or this Prospectus.

The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered upon the written or oral request of such person, a
copy of any or all of the documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to
the Company at 415 South First Street, Suite 210, Lufkin, Texas 75901,
Attention: Corporate Secretary (telephone: (409) 631-8700).

42
<PAGE> 44

EQUITY CORPORATION INTERNATIONAL

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants.................................................. F-2
Consolidated Balance Sheet as of December 31, 1995 and 1994........................ F-3
Consolidated Statement of Operations for the Years Ended December 31, 1995, 1994
and 1993........................................................................ F-4
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993................................................ F-5
Consolidated Statement of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993........................................................................ F-6
Notes to Consolidated Financial Statements......................................... F-7
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of September 30, 1996 and December 31, 1995
(Unaudited)..................................................................... F-23
Consolidated Statement of Operations for the Nine Months Ended September 30, 1996
and 1995 (Unaudited)............................................................ F-24
Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1996
and 1995 (Unaudited)............................................................ F-25
Consolidated Statement of Stockholders' Equity for the Nine Months Ended September
30, 1996 (Unaudited)............................................................ F-26
Notes to the Consolidated Financial Statements (Unaudited)......................... F-27
</TABLE>

F-1
<PAGE> 45

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
Equity Corporation International:

We have audited the accompanying consolidated balance sheet of Equity
Corporation International and subsidiaries, as of December 31, 1995 and 1994,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
upon our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards required 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 Equity
Corporation International and subsidiaries as of December 31, 1995 and 1994 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Houston, Texas
March 8, 1996, except as to the
information presented in Note 13,
for which the date is October 2, 1996.

F-2
<PAGE> 46

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 6,233 $ 5,832
Receivables, net of allowances....................................... 5,490 4,596
Inventories.......................................................... 5,060 3,399
Other................................................................ 1,177 1,384
-------- --------
Total current assets......................................... 17,960 15,211
Preneed funeral contracts.............................................. 102,889 72,318
Cemetery properties, at cost........................................... 75,103 61,055
Long-term receivables, net of allowances............................... 30,767 22,071
Property, plant and equipment, at cost (net)........................... 36,417 22,278
Deferred charges and other assets...................................... 7,352 3,213
Names and reputations (net)............................................ 32,339 14,220
-------- --------
Total assets................................................. $302,827 $210,366
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................. $ 5,532 $ 5,034
Income taxes payable................................................. 1,108 377
Deferred income taxes................................................ 1,692 848
Debt due affiliates.................................................. -- 3,170
Current maturities of long-term debt................................. 535 1,287
-------- --------
Total current liabilities.................................... 8,867 10,716
Deferred preneed funeral contract revenues............................. 107,969 76,447
Long-term debt......................................................... 54,518 4,037
Deferred cemetery costs................................................ 17,580 15,605
Deferred income taxes.................................................. 21,340 18,841
Other liabilities...................................................... 888 637
Commitments and contingencies..........................................
Stockholders' equity:
Preferred stock...................................................... -- --
Common stock, $01 par value; 50,000,000 shares authorized; 14,847,251
and 14,688,859 shares issued and outstanding in 1995 and 1994,
respectively...................................................... 148 147
Capital in excess of par value....................................... 82,040 80,695
Retained earnings.................................................... 9,477 3,241
-------- --------
Total stockholders' equity................................... 91,665 84,083
-------- --------
Total liabilities and stockholders' equity................... $302,827 $210,366
======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE> 47

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net revenues................................................... $64,001 $49,301 $22,279
Costs and expenses............................................. 46,705 35,564 16,114
------- ------- -------
Gross profit................................................... 17,296 13,737 6,165
General and administrative expenses............................ 4,782 3,885 1,521
------- ------- -------
Income from operations......................................... 12,514 9,852 4,644
Interest expense............................................... 2,207 3,178 701
------- ------- -------
Income before income taxes and extraordinary item.............. 10,307 6,674 3,943
Provision for income taxes..................................... 4,071 2,728 1,388
------- ------- -------
Income before extraordinary item............................... 6,236 3,946 2,555
Extraordinary item -- early extinguishment of debt, net of
income tax benefit of $102................................... -- (198) --
------- ------- -------
Net income..................................................... 6,236 3,748 2,555
Preferred stock dividend requirements.......................... -- -- 1,563
------- ------- -------
Net income attributable to common stock........................ $ 6,236 $ 3,748 $ 992
======= ======= =======
Earnings per share:
Continuing operations........................................ $ 0.42 $ 0.39 $ 0.15
Extraordinary item........................................... -- (0.02) --
------- ------- -------
Net income................................................... $ 0.42 $ 0.37 $ 0.15
======= ======= =======
Weighted average number of common and equivalent shares
outstanding.................................................. 14,835 10,002 6,613
======= ======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE> 48

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CAPITAL
IN RETAINED STOCKHOLDERS'
EXCESS OF EARNINGS EQUITY
COMMON STOCK PAR VALUE (DEFICIT) (DEFICIT)
-------------------- --------- -------- -------------
SHARES AMOUNT
---------- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992.............. 628,140 $ 6 $ (2) $ (1,499) $(1,495)
Net income............................ -- -- -- 2,555 2,555
Preferred dividends................... -- -- -- (1,563) (1,563)
---------- ---- ------- ------- -------
Balance, December 31, 1993.............. 628,140 6 (2) (507) (503)
Net income............................ -- -- -- 3,748 3,748
Common stock issued:
Reorganization..................... 5,896,860 59 20,785 -- 20,844
Officers and directors............. 228,372 2 1,398 -- 1,400
Initial public offering............ 5,692,500 57 44,604 -- 44,661
Acquisitions....................... 2,242,987 23 13,910 -- 13,933
---------- ---- ------- ------- -------
Balance, December 31, 1994.............. 14,688,859 147 80,695 3,241 84,083
Net income............................ -- -- -- 6,236 6,236
Common stock issued:
Acquisitions....................... 8,332 -- 119 -- 119
Option exercises................... 112,500 1 1,167 -- 1,168
Other.............................. 37,560 -- 59 -- 59
---------- ---- ------- ------- -------
Balance, December 31, 1995.............. 14,847,251 $148 $82,040 $ 9,477 $91,665
========== ==== ======= ======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE> 49

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 6,236 $ 3,748 $ 2,555
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 3,458 2,716 1,078
Provision for bad debts and contract cancellations...... 3,217 3,399 318
(Gain) loss on sale of assets........................... (42) 51 (212)
Deferred income taxes................................... 816 737 61
Extraordinary item...................................... -- 198 --
Changes in assets and liabilities, net of effects from
acquisitions:
Receivables............................................. (7,482) (7,004) (315)
Inventories............................................. (282) 25 (1)
Other current assets.................................... 263 (267) (296)
Other long-term assets.................................. (1,607) (1,657) (592)
Accounts payable and accrued liabilities................ (2,389) 819 390
Other................................................... 901 (80) 75
Preneed funeral contracts and associated deferred
revenues............................................. 123 1,299 229
------- -------- -------
Net cash provided by operating activities.......... 3,212 3,984 3,290
------- -------- -------
Cash flows from investing activities:
Capital expenditures......................................... (7,691) (2,609) (897)
Proceeds from sale of assets................................. 68 68 233
Acquisitions, net of cash (used) acquired.................... (906) 1,429 (563)
Other........................................................ 106 214 195
------- -------- -------
Net cash used in investing activities.............. (8,423) (898) (1,032)
------- -------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock................... 974 46,061 --
Borrowings on long-term debt................................. 11,123 -- 153
Payments on debt............................................. (6,485) (45,798) (553)
Dividends paid to preferred stockholder...................... -- (261) (1,563)
------- -------- -------
Net cash provided by (used in) financing
activities...................................... 5,612 2 (1,963)
------- -------- -------
Increase in cash and cash equivalents.......................... 401 3,088 295
Cash and cash equivalents at beginning of year................. 5,832 2,744 2,449
------- -------- -------
Cash and cash equivalent at end of year........................ $ 6,233 $ 5,832 $ 2,744
======= ======== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE> 50

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Corporate Organization

Equity Corporation International ("ECI") and its wholly owned subsidiaries
(the "Company") is a provider of deathcare services and products primarily to
communities located in non-metropolitan areas of the United States. At December
31, 1995, the Company operated 119 funeral homes and 61 cemeteries in 19 states.

ECI was incorporated in January 1994 to effect the MLI/The Loftis
Corporation ("MLI") acquisition and facilitate the reorganization of ECI Capital
Corporation ("ECICC"). Effective January 1, 1994, the holders of ECICC common
stock, redeemable preferred stock and a warrant for common stock exchanged their
interest in ECICC for approximately 6,525,000 shares of ECI common stock.
Additionally, as part of the formation of ECI, effective January 1, 1994, the
holders of MLI exchanged their stock in MLI for approximately 2,175,000 shares
of ECI common stock valued at approximately $13,333,000 and cash consideration
of approximately $11,186,000 which ECI borrowed from an affiliate.

Due to the common control by the stockholders of ECICC on the effective
date of exchanging their securities with ECI, the transfer was accounted for as
its historical cost in a manner similar to that in a pooling of interests.
Accordingly, the historical consolidated financial statements and related notes
of ECICC have been redesignated as "ECI" and the stockholders' equity and
earnings per share information of ECICC have been adjusted to reflect the
capital structure of ECI. The acquisition of MLI has been accounted for as a
purchase in accordance with APB Opinion No. 16 -- "Business Combinations" and,
accordingly, the assets and liabilities of MLI have been adjusted to their fair
values effective January 1, 1994.

Principles of Consolidation

The consolidated financial statements include ECI and all majority-owned
subsidiaries. The former owner of one subsidiary owns shares of the subsidiary's
nonvoting common stock under the terms of the shareholder agreement. This owner
is entitled to an annual bonus under the terms of the shareholder agreement.
Significant intercompany balances and transactions have been eliminated in
consolidation. Certain classifications of prior years have been made to conform
to current period classifications.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that 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 periods. Actual results could differ from those entities.

Funeral Operations

The Company recognizes revenue on funeral sales at the time the services
are performed. The Company's trade receivables consist primarily of funeral
services already performed. An allowance for doubtful accounts has been provided
for those accounts which management estimates will not be collected in the
future. All price guaranteed preneed funeral sales contracts (including
insurance funded contracts), are included in the accompanying consolidated
balance sheet as a long-term asset with a corresponding credit to deferred
preneed funeral contract revenues. Preneed funeral trust earnings are deferred
until the funeral service is performed. Additionally, increasing benefits under
insurance funded contracts are accrued and deferred until the funeral service is
performed.

F-7
<PAGE> 51

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cemetery Operations

Preneed sales of cemetery interment rights and merchandise are recorded as
revenues when customer contracts are executed with concurrent recognition of
related costs. Costs related to the sales of cemetery interment rights include
cemetery property and costs related to cemetery development activities and are
charged to operations using the specific identification method. Allowances for
customer cancellations and refunds are provided at the date of sale based upon
historical experience. Costs related to merchandise are based on actual costs
incurred or estimates of future costs.

Generally, a portion of the proceeds from the sale of cemetery interment
rights is required by state law to be paid into perpetual care trust funds.
Principal balances in these trusts (including in some states realized and
unrealized capital gains) must generally be held in perpetuity. Accordingly, the
trust fund corpus is not reflected in the Company's consolidated financial
statements. Earnings from these trusts are recognized currently and are intended
to defray cemetery maintenance costs. The amount of perpetual care funds trusted
at December 31, 1995 and 1994 was approximately $14,326,000 and $11,036,000,
respectively, and such principal generally cannot be withdrawn by the Company.
Earnings recognized on perpetual care trusts for the years ended December 31,
1995 and 1994 were approximately $934,000 and $1,102,000, respectively. Earnings
recognized for the year ended December 31, 1993 were insignificant.
Additionally, pursuant to state law, a portion of the proceeds from the sale of
preneed cemetery merchandise may also be required to be paid into trust funds.
The Company's preneed cemetery merchandise trusts funds had an aggregate balance
at December 31, 1995 and 1994 of approximately $11,377,000 and $7,202,000,
respectively, which approximated fair value. The Company recognizes income on
these merchandise trusts in current cemetery net revenues as trust earnings
accrue. Earnings recognized on merchandise trusts for the years ended December
31, 1995 and 1994 were approximately $535,000 and $234,000, respectively. The
earnings recognized on merchandise trusts for the year ended December 31, 1993
were significant.

Cash and Cash Equivalents

The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.

The Company maintains cash balances at financial institutions located
throughout the United States. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. The Company's accounts at
these institutions, at times, may exceed the federally insured limits. The
Company has not experienced any losses in any accounts.

Inventories

Inventories, consisting of funeral merchandise (primarily caskets) and
cemetery merchandise (primarily vaults and crypts) are stated at cost, which is
not in excess of market, determined using the first-in, first-out (FIFO) method
for funeral merchandise and the average cost method for cemetery merchandise.

Property, Plant and Equipment

Depreciation and amortization of property, plant and equipment, which
includes the amortization of assets recorded under capital leases, are provided
using the straight-line method over the estimated useful lives of the various
classes of depreciable assets, ranging from five to thirty-nine years.
Maintenance and repairs are charged to expense whereas renewals and major
replacements are capitalized. Gains and losses from dispositions are included in
operations.

F-8
<PAGE> 52

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred Obtaining Costs

Included in Deferred charges and other assets are obtaining costs
consisting of sales commissions and other direct marketing costs applicable to
preneed funeral contracts which are deferred and recognized over 12 years, which
approximates the expected timing of the performance of services related to
preneed funeral contracts. The aggregate costs deferred as of December 31, 1995
and 1994 were approximately $1,225,000 and $894,000, respectively.

Covenants Not to Compete

Included in Deferred charges and other assets are prepaid noncompetition
agreements entered into with former owners and key employees of businesses
acquired. Noncompetition agreements are amortized using the straight-line method
over the period of the agreement. At December 31, 1995 and 1994, prepaid
covenants not to compete amounted to approximately $4,012,000 and $1,704,000,
respectively.

Names and Reputations

The excess of purchase price over the fair value of identifiable net
tangible assets acquired in transactions accounted for as a purchase are
included in Names and reputations (net) and generally are amortized on a
straight-line basis over 40 years which, in the opinion of management, is not
necessarily the minimum period benefited. Many of the Company's acquired funeral
homes have provided high quality service to client families for many decades.
The resulting client loyalty often represents a substantial portion of the value
of a funeral business. The recoverability of Names and reputations is evaluated
periodically as events or circumstances indicate a possible inability to recover
its carrying amount. Recoverability is then determined by comparing the
undiscounted net cash flows of the assets to which the Names and reputations
applies to the net book value (including the Names and reputations) of those
assets. The accumulated amortization of Names and reputations, at December 31,
1995 and 1994, was approximately $1,614,000 and $974,000, respectively. The
amortization charged against income was approximately $640,000, $235,000, and
$242,000 for the three years ended December 31, 1995, 1994 and 1993,
respectively.

Earnings Per Share

Earnings per share is based on the weighted average number of common and
equivalent shares outstanding during the period which takes into consideration
(i) for 1995, the dilutive effect of stock options and restricted stock issued
under the Company's 1994 Long-Term Incentive Plan based on the treasury stock
method, (ii) for 1994 and 1993, the Company's issuance of 228,372 shares of
common stock to certain officers and directors of the Company on June 30, 1994,
reflected under the treasury stock method prior to issuance and (iii) for 1993,
the dilutive effect of a warrant exercisable for common shares held by SCI. The
redeemable preferred stock dividends are deducted from net income for purposes
of calculating earnings per share. Fully diluted earnings per share are not
presented because such amounts would be the same as amounts computed for primary
earnings per share or would be antidilutive.

Recent FASB Pronouncements

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
which establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The pronouncement is effective for the year ended December 31,
1996. Earlier application is encouraged and restatement of previously issued
financial statements is not permitted. In October 1995, the FASB issued SFAS No.
123 "Accounting for Stock-Based Compensation" which establishes accounting and
reporting standards for stock-based employee

F-9
<PAGE> 53

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

compensation plans. The pronouncement is effective for the year ended December
31, 1996, although earlier application regarding reporting disclosure
requirements is encouraged. Based on a preliminary review, the Company intends
to adopt only the reporting disclosure provisions of SFAS No. 123. The Company
does not believe implementation of SFAS Nos. 121 and 123 will have a significant
impact on its financial position, results of operations or cash flows.

2. ACQUISITIONS

The following table is a summary of acquisitions made during the years
ended December 31, 1995 and 1994:

<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Number acquired:
Funeral homes.................................................. 27 16
Cemeteries..................................................... 13 45
Purchase price................................................... $41,119 $38,450
</TABLE>

The purchase price, in both years, consisted primarily of combinations of
cash, common stock and debt issued. The excess of purchase price over the fair
value of net assets acquired is included in Names and reputations (net). In
connection with these acquisitions, the Company enters into customary
employment, consulting and noncompetition agreements with certain employees and
former owners of the businesses acquired. In certain situations, the Company
will prepay a portion of the noncompetition agreements and amortize such
prepayments on a straight-line basis over the terms of the agreements. The
purchase prices indicated above do not include $2,188,000 for noncompetition
agreements which were prepaid to individuals related to businesses acquired in
1995. There were no prepaid noncompetition agreements in 1994. The acquisitions
have been accounted for as purchases and their operating results have been
included since their respective date of acquisition. Included in the summary of
acquisitions for 1994 are two funeral homes and related assets that were
acquired from an officer and director and a member of his family for a net
aggregate purchase price of approximately $4,000,000. The purchase price was
paid by delivery of promissory notes. The officer and director received
approximately $2,700,000 and the other seller received approximately $1,300,000.
The notes bore interest at 7.75% per annum and matured in May 1995, at which
time the notes were repaid in full.

F-10
<PAGE> 54

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The effect of acquisitions on the collateral balance sheet at December 31,
was as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets............................................... $ 2,232 $ 7,023
Preneed funeral contracts.................................... 19,700 12,707
Long-term receivables, net of allowances..................... 4,793 18,587
Cemetery properties.......................................... 15,123 60,929
Property, plant and equipment................................ 8,494 8,514
Deferred charges and other assets............................ 2,133 738
Names and reputations........................................ 18,759 5,650
Current liabilities.......................................... (1,764) (11,182)
Deferred preneed funeral contract revenues................... (20,529) (12,851)
Long-term debt............................................... (41,312) (39,086)
Noncurrent liabilities....................................... (54) (559)
Deferred cemetery costs...................................... (3,721) (14,800)
Deferred income taxes........................................ (2,580) (19,940)
Common stock issued.......................................... (119) (13,933)
-------- --------
Total.............................................. 1,155 1,797
Less cash acquired......................................... 249 3,226
-------- --------
Cash (acquired) used for acquisitions...................... $ 906 $ (1,429)
======== ========
</TABLE>

The following represents the unaudited pro forma results of operations as
if all of the above noted business combinations and the reorganization as
described in Note 1 had occurred at the beginning of 1994:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1994
------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenues................................................... $73,482 $69,751
Income before extraordinary item............................... 6,420 4,224
Net income..................................................... 6,420 4,026
Earnings per common and equivalent share....................... $ 0.43 $ 0.40
</TABLE>

The pro forma financial data should not be construed as indicative of the
Company's results of operations or financial condition had the acquisitions been
consummated on the dates indicated and are not intended to project the Company's
results of operations or financial condition for any future period or as of any
future date.

3. PRENEED FUNERAL CONTRACTS AND DEFERRED PRENEED FUNERAL CONTRACT REVENUES

The Company sells preneed funeral contracts through various programs
providing for future funeral services at prices prevailing when the agreement is
signed. These contracts are included in the consolidated balance sheet as
Preneed funeral contracts. Payments on these contracts are generally placed in
trust (pursuant to state law) or are used to pay premiums on life insurance
policies issued by third party insurers. When the services are performed,
approximately $38,063,000 and $26,648,000 will be funded by trusts and
approximately $64,826,000 and $45,670,000 will be funded by insurance policies
as of December 31, 1995 and 1994, respectively. Accumulated earnings from trust
funds and increasing insurance benefits have been included to the extent that
they have accrued through December 31, 1995 and 1994, respectively. The
cumulative total has been reduced by allowable cash withdrawals for trust
earning distributions and amounts retained by the Company pursuant to various
state laws. At December 31, 1995 and 1994, the amounts

F-11
<PAGE> 55

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

collected and held in trusts, at cost, which approximates market, were
approximately $32,176,000 and $21,639,000, respectively. The amounts in trusts
and all life insurance policies are generally transferred to the customer upon
contract cancellation.

Deferred preneed funeral contract revenues includes the contract amount of
all price guaranteed funeral services and accumulated trust earnings and
increasing insurance benefits earned. The Company defers recognition of trust
earnings and insurance benefits until performance of the funeral service. Upon
performance of the funeral service, the Company will recognize the fixed
contract price and related accumulated trust earnings or increasing insurance
benefits as funeral service revenues.

4. INCOME TAXES

The Company utilizes the liability method in accounting for income taxes.
Under this method, deferred taxes are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted marginal tax rates currently in effect when the differences
reverse.

Significant components of the Company's deferred tax liabilities and
assets, at December 31, were as follows:

<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Excess of book over tax basis in undeveloped and developed
land......................................................... $21,607 $19,422
Excess of book over tax basis in property, plant and
equipment.................................................... 1,004 587
Receivables related to sales of cemetery interment rights and
related products............................................. 3,086 2,362
Deferred obtaining costs....................................... 493 357
Other.......................................................... 670 170
------- -------
Total deferred tax liabilities................................. 26,860 22,898
------- -------
Preneed funeral contracts...................................... 1,807 1,500
Allowance for bad debts and cancellation reserves.............. 1,056 764
Other.......................................................... 965 945
------- -------
Total deferred tax assets...................................... 3,828 3,209
------- -------
Net deferred tax (assets) liabilities.......................... $23,032 $19,689
======= =======
</TABLE>

Significant components of the provision for income taxes, for the years
ended December 31, were as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal................................................... $2,868 $1,613 $1,216
State..................................................... 387 378 110
------ ------ ------
Total current..................................... 3,255 1,991 1,326
------ ------ ------
Deferred tax expense:
Federal................................................... 738 619 58
State..................................................... 78 118 4
------ ------ ------
Total deferred.................................... 816 737 62
------ ------ ------
$4,071 $2,728 $1,388
====== ====== ======
</TABLE>

F-12
<PAGE> 56

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The differences between the federal tax rate and the Company's effective
tax rate, at December 31, were as follows:

<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rate.................................. $3,504 $2,269 $1,341
State income taxes, net of federal tax...................... 307 328 75
Utilization of capital loss................................. -- -- (12)
Nondeductible expenses...................................... 139 65 82
Other, net.................................................. 121 66 (98)
------ ------ ------
$4,071 $2,728 $1,388
====== ====== ======
Total effective tax rate.................................... 39.5% 40.9% 35.2%
====== ====== ======
</TABLE>

Income taxes paid during the years ending December 31, 1995, 1994 and 1993
were approximately $2,308,000, $1,822,000 and $1,152,000, respectively.

5. DEBT

Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Credit facility................................................. $45,000 $ --
Notes payable................................................... 9,208 4,153
Capitalized lease obligations................................... 845 1,171
------- ------
55,053 5,324
Less current maturities....................................... 535 1,287
------- ------
$54,518 $4,037
======= ======
</TABLE>

In October 1994, the Company entered into an uncollateralized revolving
credit agreement with a group of banks for a $60,000,000 line of credit to be
used for acquisition financing and general corporate purposes. The Credit
Facility, as amended ("Credit Facility"), provides for a revolving credit period
expiring in October 1998 and bears interest, at the Company's option, at either
(i) the prime rate plus up to 0.25% or (ii) the London Interbank Offered Rate
plus 0.75% up to 1.50% depending on the Company's leverage ratio, as defined.
The Credit Facility also contains customary restrictive covenants requiring the
Company to maintain certain financial ratios and is guaranteed by all of the
Company's subsidiaries. The Credit Facility will permit the payment of dividends
on the Company's common stock only to the extent the Company maintains a
specified net worth.

In February 1996, the Credit Facility was amended to increase its size from
$60,000,000 to $100,000,000.

Notes payable include notes issued by funeral home and cemetery
subsidiaries to financial institutions and individuals with varying maturities
through 2015, collateralized by property and equipment, or in certain instances,
guaranteed by the Company. Interest rates on these notes range from 3.0% to
12.6%.

Capitalized lease obligations are due in monthly installments through 1997
with interest rates ranging from 7.9% to 9.5%. Total assets recorded under
capital leases and the accumulated amortization thereon were $1,544,000 and
$666,000 at December 31, 1995, respectively, and $1,575,000 and $662,000 at
December 31, 1994, respectively.

F-13
<PAGE> 57

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1994, the debt due to affiliates totaling $3,170,000
consisted primarily of a note to an officer and director of the Company for the
purchase of certain funeral homes. The note was collateralized by deeds of trust
and carried an interest rate of 7.75% payable monthly. The note was paid in full
in May 1995.

The Company maintained a $500,000 revolving credit line to affiliates
through October 1994 which was collateralized by various security agreements and
lien interests. Interest at the prime rate plus 1.5% was due in monthly
installments. All unpaid principal and interest was due and paid in October
1994.

In October 1994, the Company paid substantially all of its outstanding
indebtedness to its affiliates and seller financed notes of approximately
$43,000,000 with the proceeds from the issuance of its common stock in
connection with the Company's initial public offering (Note 6). The Company
recognized an extraordinary loss of approximately $198,000, net of income tax
benefit of approximately $102,000 for the write-off of the deferred loan costs
associated with the early retirement of debt.

Interest expense related to the indebtedness to affiliates was
approximately $101,000, $2,782,000 and $437,000 for the years ended December 31,
1995, 1994 and 1993, respectively.

Aggregate principal payments on long-term debt for each of the five years
and thereafter subsequent to December 31, 1995 are $535,000, $1,938,000,
$47,756,000, $585,000, $555,000, and $3,684,000. Interest paid during the years
ended December 31, 1995, 1994 and 1993 was approximately $1,865,000, $3,147,000
and $579,000, respectively.

6. CAPITAL STOCK

In June 1994, the Board of Directors approved a 579-for-1 stock dividend
and also increased its authorized capital to 20,000,000 shares of common stock
and decreased the par value of its common stock from $1.00 to $.01.
Additionally, in October 1994, the Board of Directors approved an increase in
its authorized capital to 50,000,000 shares of common stock. The financial
statements and notes thereto have been adjusted to reflect the stock dividend
and increase in authorized shares for all years presented.

As described in Note 1, effective January 1, 1994, the holders of ECICC
common stock, redeemable preferred stock and a warrant for common stock
exchanged their interest in ECICC for approximately 6,525,000 shares of ECI
common stock. Additionally, as part of the formation of ECI effective January 1,
1994, the holders of MLI exchanged their stock in MLI for approximately
2,175,000 shares of ECI common stock and cash consideration of approximately
$11,186,000.

Common Stock

Holders of the Company's common stock are entitled to receive dividends if,
as and when declared by the Board of Directors of the Company out of funds
legally available only after payment of, or provision for, full dividends on all
outstanding shares of any series of preferred stock and after the Company has
made provision for any sinking funds for any series of preferred stock. The
Company has never paid cash dividends on its common stock.

On June 30, 1994, the Company issued 228,372 shares of its common stock to
certain officers and directors of the Company for total proceeds of
approximately $1,400,000.

On October 26, 1994, the Company completed its initial public offering of
5,692,500 shares of its common stock at $8.67 per share, including 742,500
shares sold to the underwriters under the overallotment option granted to them,
for net proceeds (after selling commissions and related expenses of
approximately $4,674,000) of approximately $44,661,000. The net proceeds of the
initial public offering were used to repay debt and for general corporate
purposes.

F-14
<PAGE> 58

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Assuming the initial public offering of 5,692,500 shares of common stock
and the use of the proceeds to retire outstanding debt had occurred on January
1, 1994, unaudited pro forma earnings per share, for the year ended December 31,
1994, would have been as follows:

<TABLE>
<S> <C>
Earnings per share:
Continuing operations............................. $ 0.38
Extraordinary item................................ (0.01)
------
Net income........................................ $ 0.37
======
</TABLE>

Preferred Stock

The authorized capital stock of the Company also consists of 10,000,000
shares of preferred stock, par value $.01 per share, of which 500,000 shares are
designated as the Series One Junior Participating Preferred Stock (the "Series
One Preferred Stock"). No shares of preferred stock were issued as of December
31, 1995. The preferred stock is issuable by the Board of Directors in one or
more series, with the number of shares of each series and the designations,
powers, preferences, qualifications, limitations or restrictions of each series
to be determined by the Board of Directors. Among the specific matters that may
be determined by the Board of Directors are: the annual rate of dividends; the
redemption price, if any; the terms of a sinking fund, if any; the amount
payable in the event of any voluntary liquidation, dissolution or winding up of
the affairs of the Company; conversion rights, if any; and voting powers, if
any. All series of preferred stock will rank equally and be identical in all
respects except as may otherwise be provided in the Certificate of Designations
establishing such series. The Board of Directors of the Company, without
obtaining stockholder approval, may issue shares of the preferred stock with
voting rights or conversion rights that could affect the voting power of the
holders of common stock. The issuance of any shares of preferred stock could be
utilized, under certain circumstances, in an attempt to prevent an acquisition
of the Company. Except in connection with the preferred share purchase rights,
the Company has no present intention to issue any shares of preferred stock.

On October 11, 1994, the Board of Directors declared a dividend
distribution of one preferred share purchase right (the "Right") for each
outstanding share of common stock on such date and issued thereafter. The Rights
become exercisable in the event of certain attempts to acquire 20% or more of
the common stock of the Company, subject to certain exceptions. Each Right
entitles the registered holder to purchase from the Company one one-hundred
fiftieth of a share of Series One Preferred Stock, at a price of $30.00 per one
one-hundred fiftieth of a share, subject to adjustment under certain
circumstances. The Rights expire on October 11, 2004. The Series One Preferred
Stock will rank junior to all other Series of Preferred Stock that may be
established by the Board of Directors with respect to the payment of dividends
and the distribution of assets upon liquidation. In general, the voting,
dividend and liquidation rights of Series One Preferred Stock are designed so
that one one-hundred fiftieth of a share of Series One Preferred Stock will be
the economic equivalent of one share of common stock.

1994 Long-Term Incentive Plan

In October 1994, the Board of Directors adopted, and the stockholders of
the Company approved, the 1994 Long-Term Incentive Plan (the "Incentive Plan").
The Incentive Plan reserved up to 1,350,000 shares of the Company's common stock
for issuance to key employees, consultants and advisors and provides for the
granting of stock options, stock appreciation rights, performance shares,
restricted stock, restricted stock units and other stock-based awards.

The Incentive Plan is administered by a committee of the Company's Board of
Directors comprised of non-employee directors (the "Committee"). Stock options
granted under the Incentive Plan may be either nonqualified stock options, or
may qualify as incentive stock options. The exercise price of any stock option
may not be less than the fair market value of the underlying common stock as of
the date of grant. Except for

F-15
<PAGE> 59

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the deferred compensation agreements with certain employees of the Company's
cemetery operations (see Note 7), incentive stock options and nonqualified stock
options granted under the Incentive Plan are generally exercisable in one-fifth
and one-third increments on each of the first five and three anniversaries of
the date of grant, respectively. The Incentive Plan also provides for automatic
stock option grants to directors who are not otherwise employed by the Company
or its subsidiaries. Upon commencement of service, a non-employee director will
receive a nonqualified stock option to purchase 3,750 shares of common stock and
continuing non-employee directors annually will receive nonqualified options to
purchase an additional 3,750 shares of common stock. Stock options granted to
non-employee directors will become exercisable in one-third increments on each
of the first three anniversaries of the date of grant.

Stock appreciation rights may be granted in tandem with a stock option, in
addition to a stock option, or freestanding and unrelated to a stock option.
Stock appreciation rights may not be exercisable earlier than six months after
the date of grant or after the expiration of ten years from the date of grant
and may not have an exercise price of less than the fair market value of the
common stock on the date of grant.

Upon the grant of performance shares, the Committee will establish
performance goals for each performance cycle on the basis of such criteria as
the Committee may select. After the end of a performance cycle, the Committee
will determine the number of performance shares which have been earned on the
basis of performance in relation to the established performance goals. Payment
values of earned performance shares will be distributed either in cash or common
stock.

The Committee determines the participants to whom restricted stock and
restricted stock units shall be granted, the number of shares of restricted
stock and the number of restricted stock units to be granted to each
participant, the duration of the restricted period during which, and the
conditions under which, the restricted stock and restricted stock units may be
forfeited to the Company, and the other terms and conditions of such awards.
Individual restricted periods may be shortened, lengthened or waived by the
Committee at any time in its discretion.

The Committee also grants stock unit awards in the form of common stock or
units, the value of which is based, in whole or in part, on the value of the
common stock. Subject to the provisions of the Incentive Plan, stock unit awards
are subject to such terms and conditions as the Committee may determine.

The following table summarizes the activity relating to stock options under
the Incentive Plan for the years ended December 31:

<TABLE>
<CAPTION>
1995 1994
---- ----
(IN
THOUSANDS)
<S> <C> <C>
Outstanding at beginning of period..................................... 548 --
Granted.............................................................. 248 548
Exercised............................................................ 113 --
--- ---
Outstanding at end of period........................................... 683 548
=== ===
</TABLE>

Options exercised in 1995 were exercised at a price of $8.67 per share. At
December 31, 1995, options were outstanding at prices ranging from $8.67 to
$14.33 per share, of which approximately 123,000 were immediately exercisable.
At December 31, 1994, options outstanding were at $8.67 per share, of which
112,500 were immediately exercisable.

7. INCENTIVE ARRANGEMENTS AND EMPLOYEE BENEFIT PLANS

The Company has entered into deferred compensation agreements pursuant to
which certain qualified employees of its cemetery operations may earn incentive
cash compensation based upon performance goals established for individual
employees. The incentive amount for each employee vests over a ten-year period,

F-16
<PAGE> 60

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

initially with 30% vesting on the third anniversary of the determination date
and an additional 10% vesting on each anniversary thereafter until full vesting
on the tenth anniversary. Substantially all of the deferred compensation
agreements were amended during 1995 to provide that vested amounts as of an
employee's determination date in 1995 would be satisfied by a cash payment and
unvested amounts as of such date would be satisfied by the issuance of 37,560
shares of restricted stock in the aggregate. The restrictions generally lapse
over the employees' original vesting period as discussed above. Additionally,
achievement of performance goals for 1995 and beyond result in a combination of
deferred cash bonus and stock option awards generally vesting after the fourth
year of grant. At December 31, 1995, amounts granted under these deferred
compensation agreements aggregated approximately $1,407,000, of which
approximately $311,000 was vested.

In addition, certain employees of the Company's funeral operations are
eligible for participation in a bonus program pursuant to which such employees
may earn a bonus of up to 30% of their base salaries if certain annual
performance goals are met, which goals are established annually by the Company's
compensation committee.

The Company sponsors a retirement savings plan which covers all employees
who have met certain eligibility requirements for the plan. The Company may make
discretionary contributions to the plan. To date, the Company has made no
contributions to the plan.

8. SELECTED BALANCE SHEET INFORMATION

The detail of certain balance sheet accounts, at December 31, was as
follows:

<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Receivables and allowances:
Trade........................................................... $ 5,572 $ 4,279
Affiliates...................................................... 75 94
Other........................................................... 652 800
------- -------
6,299 5,173
Less allowance for bad debts.................................... 809 577
------- -------
$ 5,490 $ 4,596
======= =======
Long-term:
Installment contracts........................................ $25,970 $20,582
Cemetery merchandise receivables............................. 11,377 7,202
------- -------
37,347 27,784
Less:
Allowance for contract cancellations......................... 2,006 1,718
Unearned finance charges..................................... 4,574 3,995
------- -------
$30,767 $22,071
======= =======
</TABLE>

F-17
<PAGE> 61

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest rates on installment contracts range from 12.5% to 14.5%, at
December 31, 1995.

<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Caskets......................................................... $ 2,234 $ 1,678
Interment rights................................................ 510 225
Vaults and lawn crypts.......................................... 1,491 1,181
Other........................................................... 825 315
------- -------
$ 5,060 $ 3,399
======= =======
Property, plant and equipment:
Land............................................................ $ 7,381 $ 3,383
Buildings and improvements...................................... 25,154 17,004
Equipment....................................................... 11,315 7,093
------- -------
43,850 27,480
Less accumulated depreciation and amortization.................. 7,433 5,202
------- -------
$36,417 $22,278
======= =======
Accounts payable and accrued liabilities:
Trade........................................................... $ 1,582 $ 1,506
Compensation.................................................... 1,637 1,812
Other........................................................... 2,313 1,716
------- -------
$ 5,532 $ 5,034
======= =======
</TABLE>

Non-cash financing and investment activities related to acquisitions is
disclosed in Notes 1 and 2. Other non-cash financing and investing activities
for the years ended December 31, were as follows:

<TABLE>
<CAPTION>
1995 1994 1993
---- ------- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit from exercise of stock options.......... $194 $ -- $ --
Restricted stock issued for accrued compensation........... 59 -- --
Exchange of ECICC common stock, redeemable preferred stock
and a warrant for ECI common stock....................... -- 20,844 --
Note issued for equipment.................................. -- 28 --
Repurchase of preferred nonvoting stock of a subsidiary in
exchange for cancellation of the related note
receivable............................................... -- -- 90
Sale of assets in exchange for long-term notes
receivables.............................................. -- -- 400
Capital lease sale......................................... -- -- 589
</TABLE>

9. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company has entered into various operating leases, whereby it is
generally obligated for an initial term of 10 years, with renewal options
ranging from 5 to 20 years. Certain of the leases contain escalation clauses and
purchase options. Most of the leases require the Company to pay for repairs,
taxes, and insurance expense and include contingent rentals based on varying
percentages of net revenues generated by the related funeral home.

F-18
<PAGE> 62

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments under noncancelable operating leases with
initial or remaining terms of one or more years consisted of the following at
December 31, 1995:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996................................................................... $ 736
1997................................................................... 694
1998................................................................... 627
1999................................................................... 526
2000................................................................... 378
Thereafter............................................................. 1,368
------
Total minimum obligations.............................................. $4,329
======
</TABLE>

In addition to the noncancelable operating leases, the Company also
subleases vehicles from an affiliate under an operating lease agreement that is
cancelable at the lessor's option. Lease payments made to the affiliate under
these obligations were approximately $528,000, $473,000 and $440,000 in 1995,
1994 and 1993, respectively.

Rent expense for the years ended December 31, 1995, 1994 and 1993 was
approximately $1,130,000, $1,110,000 and $1,218,000, respectively, of which
$34,000, $35,000 and $13,000, respectively, was contingent rentals.

In 1994, the Company entered into an agreement, with options to renew, to
maintain and operate the cemetery system of the City of Fort Lauderdale,
Florida. Under the terms of this agreement, the Company is required to make
annual payments to the city in the amount of $400,000. Additionally, the Company
is required to finance and construct capital improvements in the minimum amount
of $650,000 within the first five years of the agreement. As of December 31,
1995, the Company has made $406,000 in such capital improvements.

Agreements

The Company has entered into various employment, consulting, and
noncompetition agreements with key employees and former owners of businesses
acquired. These agreements are generally for five to ten years and provide for
payments either at the date of the agreement or in future annual, semi-annual,
or monthly installments. The aggregate amounts remaining to be paid in future
periods if all such commitments are fulfilled by all parties was approximately
$20,454,000 at December 31, 1995.

The Company has additionally secured employment agreements with various
officers of the Company. The agreements generally provide for the employee's
annual base salary and bonus participation. The agreements also generally
provide for one year noncompetition agreements and severance payments of up to
one year's salary in the event the employee is terminated without cause.

Under the terms of a shareholder agreement with a former owner of one of
the Company's subsidiaries, the Company is obligated to repurchase the nonvoting
common shares held by this individual upon the occurrence of certain future
events. The purchase price for the shares will be the greater of an amount based
on a multiple of the net income of the subsidiary or the original cost of the
shares to the shareholder.

Litigation

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

F-19
<PAGE> 63

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

Credit Risk

The Company grants customers credit in the normal course of business and
the credit risk with respect to these trade and long-term receivables are
generally considered minimal because of the wide geographic area served.
Procedures are in effect to monitor the credit worthiness of customers and
appropriate allowances have been made.

Prearranged funeral contracts generally do not subject the Company to
collection risk because customer payments are either placed in state supervised
trusts or used to pay premiums on life insurance contracts. Insurance funded
contracts are subject to supervision by state insurance departments and are
protected in the majority of states by insurance guaranty acts.

Fair Value of Financial Instruments

The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.

The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts of the Company's fixed rate long-term
borrowings, totaling $9,277,000 and $6,452,000 at December 31, 1995 and 1994,
respectively, approximate their fair value.

The carrying value of the Company's revolving credit agreement approximates
fair value because the rate on such agreement is variable, based on current
market. It is not practicable to estimate the fair value of receivables due on
cemetery contracts without incurring excessive costs because of the large number
of individual contracts with varying terms. The carrying amounts of preneed
funeral contracts and the related deferred preneed funeral revenues approximates
their fair value.

F-20
<PAGE> 64

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. MAJOR SEGMENTS OF BUSINESS

The Company conducts its funeral and cemetery operations throughout the
United States. Prior to the acquisition of MLI in January 1994, the Company did
not have a cemetery operating segment.

<TABLE>
<CAPTION>
FUNERAL CEMETERY CORPORATE CONSOLIDATED
-------- -------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
1995............................................ $ 36,261 $ 27,740 $ -- $ 64,001
1994............................................ 27,382 21,919 -- 49,301
Operating expenses:
1995............................................ $ 27,442 $ 19,263 $ 4,782 $ 51,487
1994............................................ 19,802 15,762 3,885 39,449
Income from operations:
1995............................................ $ 8,819 $ 8,477 $(4,782) $ 12,514
1994............................................ 7,580 6,157 (3,885) 9,852
Identifiable assets:
1995............................................ $177,412 $117,234 $ 8,181 $302,827
1994............................................ 113,689 90,349 6,328 210,366
Depreciation and amortization:
1995............................................ $ 2,186 $ 1,107 $ 165 $ 3,458
1994............................................ 1,408 1,151 157 2,716
Capital expenditures:
1995............................................ $ 5,442 $ 1,380 $ 869 $ 7,691
1994............................................ 1,177 809 623 2,609
Number of operating locations at:
December 31, 1995............................... 119 61 -- 180
December 31, 1994............................... 95 48 -- 143
</TABLE>

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Net revenues...................................... $14,394 $14,917 $15,672 $19,018
Gross profit...................................... 4,234 3,875 3,744 5,443
Net income........................................ 1,640 1,476 1,188 1,932
Earnings per common and equivalent share.......... $ 0.11 $ 0.10 $ 0.08 $ 0.13
1994(1)
Net revenues...................................... $12,287 $11,879 $11,765 $13,370
Gross profit...................................... 3,945 2,818 2,659 4,315
Income before extraordinary item.................. 1,496 758 282 1,410
Extraordinary item................................ -- -- -- (198)
Net income........................................ 1,496 758 282 1,212
Earnings per common and equivalent share:
Continuing operations.......................... 0.17 0.09 0.03 0.10
Extraordinary item............................. -- -- -- (0.01)
------- ------- ------- -------
Net income..................................... $ 0.17 $ 0.09 $ 0.03 $ 0.09
</TABLE>

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

(1) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share in 1994
does not equal the total computed for the year due to stock transactions
which occurred during 1994.

F-21
<PAGE> 65

EQUITY CORPORATION INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SUBSEQUENT EVENT

On September 10, 1996, the Company's Board of Directors declared a
three-for-two split of the Company's Common Stock to be effected as a stock
dividend. The record date for purposes of the stock dividend was September 23,
1996, and was distributed on October 2, 1996. All shares and per share
information in the accompanying consolidated financial statements have been
retroactively restated to reflect the effects of the stock split.

F-22
<PAGE> 66

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
ASSETS

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 4,900 $ 6,233
Receivables, net of allowances................................. 7,337 5,490
Inventories.................................................... 6,008 5,060
Other.......................................................... 1,532 1,177
-------- --------
Total current assets................................... 19,777 17,960
Preneed funeral contracts........................................ 145,046 102,889
Cemetery properties, at cost..................................... 77,245 75,103
Long-term receivables, net of allowances......................... 34,338 30,767
Property, plant and equipment, at cost (net)..................... 52,836 36,417
Deferred charges and other assets................................ 7,603 7,352
Names and reputations (net)...................................... 63,532 32,339
-------- --------
Total assets........................................... $ 400,377 $302,827
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities....................... $ 5,907 $ 5,532
Income taxes payable........................................... 446 1,108
Deferred income taxes.......................................... 1,753 1,692
Current maturities of long-term debt........................... 750 535
-------- --------
Total current liabilities.............................. 8,856 8,867
Deferred preneed funeral contract revenues....................... 150,082 107,969
Long-term debt................................................... 28,902 54,518
Deferred cemetery costs.......................................... 16,936 17,580
Deferred income taxes............................................ 22,575 21,340
Other liabilities................................................ 1,146 888
Commitments and contingencies....................................
Stockholders' equity:
Preferred stock................................................ -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
19,216,334 and 14,847,251 shares issued and outstanding in
1996 and 1995, respectively................................. 192 148
Capital in excess of par value................................. 155,217 82,040
Retained earnings.............................................. 16,471 9,477
-------- --------
Total stockholders' equity............................. 171,880 91,665
-------- --------
Total liabilities and stockholders' equity............. $ 400,377 $302,827
======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-23
<PAGE> 67

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net revenues:
Funeral.............................................................. $40,232 $25,321
Cemetery............................................................. 25,426 19,662
------- -------
65,658 44,983
Costs and expenses:
Funeral.............................................................. 28,770 19,477
Cemetery............................................................. 18,125 13,653
------- -------
46,895 33,130
------- -------
Total gross profit..................................................... 18,763 11,853
General and administrative expenses.................................... 4,370 3,442
------- -------
Operating income....................................................... 14,393 8,411
Interest expense....................................................... 1,690 1,297
------- -------
Income before income taxes............................................. 12,703 7,114
Provision for income taxes............................................. 5,709 2,810
------- -------
Net income............................................................. $ 6,994 $ 4,304
======= =======
Earnings per share..................................................... $ 0.40 $ 0.29
======= =======
Weighted average number of common and equivalent shares outstanding.... 17,583 14,807
======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-24
<PAGE> 68

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 6,994 $ 4,304
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 3,543 2,449
Provision for bad debts and contract cancellations................. 2,832 2,227
Gain on sale of assets............................................. (909) (32)
Deferred income taxes.............................................. 835 314
Changes in assets and liabilities, net of effects from acquisitions:
Receivables........................................................ (7,823) (4,991)
Inventories........................................................ 17 (37)
Other current assets............................................... (351) (190)
Other long-term assets............................................. (724) (3,428)
Accounts payable and accrued liabilities........................... (460) (1,577)
Income taxes payable............................................... (663) 1,127
Preneed funeral contracts and associated deferred revenues......... (29) 168
-------- -------
Net cash provided by operating activities..................... 3,262 334
-------- -------
Cash flows from investing activities:
Capital expenditures.................................................. (5,829) (3,076)
Proceeds from sale of assets.......................................... 3,037 44
Acquisitions, net of cash used........................................ (21,012) (787)
Other................................................................. 162 60
-------- -------
Net cash used in investing activities......................... (23,642) (3,759)
-------- -------
Cash flows from financing activities:
Net proceeds from issuance of Common Stock............................ 73,071 --
Borrowings on long-term debt.......................................... 2,278 5,573
Payments on debt...................................................... (56,302) (6,364)
-------- -------
Net cash provided by (used in) financing activities........... 19,047 (791)
-------- -------
Decrease in cash and cash equivalents................................... (1,333) (4,216)
Cash and cash equivalents at beginning of period........................ 6,233 5,832
-------- -------
Cash and cash equivalents at end of period.............................. $ 4,900 $ 1,616
======== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-25
<PAGE> 69

EQUITY CORPORATION INTERNATIONAL

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
-------------------- EXCESS OF RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS EQUITY
---------- ------ ---------- -------- ------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.............. 14,847,251 $148 $ 82,040 $ 9,477 $ 91,665
Net income............................ -- -- -- 6,994 6,994
Common stock issued:
Option exercises................... 1,999 -- 22 -- 22
Equity offering.................... 4,335,000 43 72,977 -- 73,020
Acquisitions....................... 7,066 -- 150 -- 150
Other.............................. 25,018 1 28 -- 29
---------- ---- -------- ------- --------
Balance, September 30, 1996............. 19,216,334 $192 $ 155,217 $ 16,471 $171,880
========== ==== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-26
<PAGE> 70

EQUITY CORPORATION INTERNATIONAL

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the
accounts of Equity Corporation International and all majority owned subsidiaries
("the Company") and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information in footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to these rules and regulations. In the opinion of management, only
adjustments consisting of normal recurring accruals considered necessary for a
fair presentation have been included. Operating results for the interim periods
are not necessarily indicative of the results that may be expected for the year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1995.

The Company's statutory Federal income tax rate has been increased from 34%
to 35% as the Company expects to exceed the taxable income threshold requiring
the higher tax rate during 1996. As a result, the Company has recorded through
the provision for income taxes for the nine months ended September 30, 1996 a
one-time charge of $565,000 to revalue the deferred tax liability accounts to
appropriately reflect the higher statutory rate.

On September 10, 1996, the Company's Board of Directors declared a
three-for-two split of the Company's Common Stock to be effected as a stock
dividend. The record date for purposes of the dividend was September 23, 1996,
and was distributed on October 2, 1996. All share and per share information in
the accompanying consolidated financial statements reflect the effects of the
stock split.

2. ACQUISITIONS

The following table is a summary of acquisitions made during the nine month
periods ended September 30, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Number acquired:
Funeral homes........................................... 44 21
Cemeteries.............................................. 1 11
Purchase price............................................ $49,915,000 $35,592,000
</TABLE>

The purchase price for these acquisitions consisted of cash, Common Stock
and debt issued or assumed. The excess of purchase price over the fair value of
assets acquired and liabilities assumed is included in Names and reputations
(net) on the Consolidated Balance Sheet and will be amortized over a 40-year
period. In connection with these acquisitions, the Company enters into customary
employment, consulting and noncompetition agreements with certain employees and
former owners of the businesses acquired. In certain situations, the Company
will prepay a portion of the noncompetition agreements and amortize such
prepayments on a straight-line basis over the terms of the agreements. The
purchase prices indicated above do not include $832,000 and $1,805,000 for
noncompetition agreements which were prepaid to individuals related to
businesses acquired in the nine month periods ended September 30, 1996 and 1995,
respectively. The acquisitions have been accounted for as purchases and their
operating results have been included since their respective dates of
acquisition.

Included in the summary of acquisitions for the 1996 period are 11 funeral
homes and related assets that were acquired from Service Corporation
International (SCI), a significant stockholder of the Company, in September 1996
for an aggregate purchase price of approximately $10,625,000 in cash.

F-27
<PAGE> 71

EQUITY CORPORATION INTERNATIONAL

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets................................................. $ 3,166 $ 1,445
Preneed funeral contracts...................................... 35,358 18,610
Cemetery properties............................................ 2,349 10,805
Long-term receivables, net of allowances....................... (1,075) 1,858
Property, plant and equipment.................................. 13,684 7,006
Deferred charges and other assets.............................. 773 1,805
Name and reputations........................................... 32,422 16,890
Current liabilities............................................ (3,207) (998)
Deferred preneed funeral contract revenues..................... (35,458) (19,432)
Long-term debt................................................. (25,515) (31,857)
Deferred cemetery costs........................................ 121 (1,188)
Deferred income taxes.......................................... (462) (874)
Other liabilities.............................................. (336) (3,053)
Common Stock issued............................................ (150) (119)
-------- --------
Total........................................................ 21,670 898
Less cash acquired........................................... 658 111
-------- --------
Cash used for acquisitions................................... $ 21,012 $ 787
======== ========
</TABLE>

The following represents the unaudited pro forma results of operations for
the nine month periods ended September 30, 1996 and 1995, assuming the above
noted acquisitions had occurred as of January 1, 1995:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Net revenues..................................................... $75,789 $66,685
Income before income taxes....................................... 13,883 9,032
Net income....................................................... 7,696 5,464
Earnings per common and equivalent share......................... $ 0.44 $ 0.37
</TABLE>

3. PRENEED FUNERAL CONTRACTS AND DEFERRED PRENEED FUNERAL CONTRACT REVENUES

The Company sells preneed funeral contracts through various programs
providing for future funeral services at prices prevailing when the agreement is
signed. These contracts are included in the Consolidated Balance Sheet as
Preneed funeral contracts. Payments on these contracts are generally placed in
trust (pursuant to state law) or are used to pay premiums on life insurance
policies issued by third party insurers. When the services are performed,
approximately $63,250,000 and $38,063,000 will be funded by trusts and
approximately $81,796,000 and $64,826,000 will be funded by insurance policies
as of September 30, 1996 and December 31, 1995, respectively. Accumulated
earnings from trust funds and increasing insurance benefits have been included
to the extent they have accrued through September 30, 1996 and December 31,
1995, respectively. The cumulative total has been reduced by allowable cash
withdrawals for trust earning distributions and amounts retained by the Company
pursuant to various state laws. At September 30, 1996

F-28
<PAGE> 72

EQUITY CORPORATION INTERNATIONAL

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

and December 31, 1995, the amounts collected and held in trusts, at cost, which
approximates market, were approximately $55,129,000 and $32,176,000,
respectively. The amounts in trusts and all life insurance policies are
generally transferred to the customer upon contract cancellation.

4. DEBT

In October 1994, the Company entered into an uncollateralized revolving
credit agreement with a group of banks to be used for acquisition financing and
general corporate purposes. The Credit Facility, as amended ("Credit Facility"),
provides for a line of credit up to $100,000,000 and expires in October 1999.
The Credit Facility bears interest, at the Company's option, at either (i) the
prime rate plus up to 0.25% or (ii) the London Interbank Offered Rate plus 0.75%
up to 1.50%, depending on the Company's leverage ratio, as defined. The Credit
Facility also contains customary restrictive covenants requiring the Company to
maintain certain financial ratios and is guaranteed by all of the Company's
subsidiaries. The Credit Facility will permit the payment of dividends on the
Company's Common Stock only to the extent the Company maintains a specified net
worth.

5. DISPOSITIONS

During March 1996, the Company conveyed to SCI three funeral home
operations which had been previously operated by an unaffiliated third party for
an aggregate purchase price of $2,085,000. The three funeral homes had
originally been acquired by the Company from SCI in May 1990. In January 1993,
the Company entered into long-term agreements with the third party, under which
the third party operated the three funeral homes. In February 1996, a subsidiary
of SCI acquired the operations of the third party and assumed the long-term
agreements with the Company. Included in net funeral service revenues and
related funeral costs and expenses is the $2,085,000 and $1,135,000,
respectively, related to the transaction. Proceeds from the sale were remitted
to the Company in April 1996.

6. EQUITY OFFERING

On May 1, 1996 the Company completed a public offering of 4,335,000 shares
of its Common Stock at $18.00 per share, including 585,000 shares sold to the
underwriters pursuant to the overallotment option granted to them, for net
proceeds of approximately $73,000,000 (after selling commissions and estimated
related expenses of $5,000,000). The net proceeds were used to pay off amounts
outstanding under the Credit Facility and will be used for general corporate
purposes, including current and future acquisitions.

F-29
<PAGE> 73

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

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS AND, 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, ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 8
The Company........................ 10
Price Range of Common Stock and
Dividend Policy.................. 11
Use of Proceeds.................... 11
Capitalization..................... 12
Selected Financial and Operating
Data............................. 13
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 15
The Deathcare Industry............. 26
Business........................... 28
Management......................... 37
Selling Stockholder................ 39
Underwriting....................... 40
Legal Matters...................... 41
Experts............................ 41
Available Information.............. 41
Incorporation of Certain Documents
by Reference..................... 42
Index to Financial Statements...... F-1
</TABLE>
===============================================================================

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

7,994,747 SHARES

[ECI LOGO]

EQUITY
CORPORATION
INTERNATIONAL

COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.

THE CHICAGO CORPORATION

J.P. MORGAN & CO.

RAYMOND JAMES & ASSOCIATES, INC.
, 1997

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

<PAGE> 74

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses to be paid by the Company and the Selling Stockholder pro rata
in connection with this offering other than underwriting discounts and
commissions, if any, are estimated as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $50,856
NASD filing fee.................................................... 18,658
Nasdaq National Market listing fee................................. *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Transfer agent and registrar fees.................................. *
Blue Sky fees and expenses......................................... 5,000
Miscellaneous fees and expenses.................................... *
-------
Total.................................................... *
=======
</TABLE>

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

* To be filed by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Delaware General Corporation Law

Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware empowers a corporation 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, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.

Subsection (b) of Section 145 empowers a corporation 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 or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.

Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
or in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided by Section 145 shall, unless
otherwise

II-1
<PAGE> 75

provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.

Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.

Amended and Restated Certificate of Incorporation

Paragraph 13 of the Company's Amended and Restated Certificate of
Incorporation provides that no director of the corporation shall be liable to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit.

Amended and Restated Bylaws

Article VIII of the Company's Amended and Restated Bylaws further provides
that the Company shall indemnify its directors, officers, employees and agents
to the fullest extent permitted by applicable law. The Company is generally
required to indemnify its directors, officers, employees, and agents against all
judgments, fines, settlements, legal fees, and other expenses incurred in
connection with pending or threatened legal proceedings because of the person's
position with the Company or another entity that the person serves at the
Company's request, subject to certain conditions, and to advance funds to enable
them to defend against such proceedings.

Indemnification Agreements

The Company has entered into indemnification agreements with each of its
directors and executive officers, which agreements contain provisions
indemnifying such parties against certain liabilities within the scope required
by the Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws.

Purchase Agreement

The Purchase Agreement filed as Exhibit 1.1 hereto contains provisions
indemnifying the directors and officers of the Company against certain
liabilities under the Securities Act.

Insurance

The Company maintains directors' and officers' liability insurance covering
such persons in their official capacities with the Company and its subsidiaries.

II-2
<PAGE> 76

ITEM 16. LIST OF EXHIBITS.

The following instruments are included as exhibits to this Registration
Statement and are filed herewith unless otherwise indicated. Exhibits
incorporated by reference are so indicated by parenthetical information.

<TABLE>
<C> <S>
*1.1 -- Form of Purchase Agreement among ECI, the Selling Stockholder and the
Underwriters.
*5.1 -- Opinion of Andrews & Kurth L.L.P.
*5.2 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
*23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5. 1)
*23.2 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in Exhibit
5.2)
23.3 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Powers of attorney (included on the signature page contained in Part II of this
Registration Statement)
</TABLE>

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

* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of the registrant of expenses incurred
or paid by a director, officer or controlling person of 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
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 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
of 1933, the information omitted from the form of prospectus filed as part
of the 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 the
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, 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-3
<PAGE> 77

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lufkin, State of Texas, on the 12th day of December,
1996.

EQUITY CORPORATION INTERNATIONAL

By /s/ JAMES P. HUNTER, III
--------------------------------------
James P. Hunter, III
President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints James P. Hunter and W. Cardon Gerner, and
each of them with full power to act without the other, his true and lawful
attorney-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities, to sign,
execute and file this registration statement under the Securities Act and any
and all amendments (including, without limitation, post-effective amendments and
any amendment or amendments or additional registration statements filed pursuant
to Rule 462 under the Securities Act increasing the amount of securities for
which registration is being sought) to this registration statement, and to file
the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, to sign any and all
applications, registration statements, notices or other documents necessary or
advisable to comply with applicable state securities laws, and to file the same,
together with other documents in connection therewith, with the appropriate
state securities authorities, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and things
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents and each of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ JAMES P. HUNTER, III Chairman of the Board, December 12, 1996
- - - --------------------------------------------- President and Chief
James P. Hunter, III Executive
Officer (Principal executive
officer)

/s/ W. CARDON GERNER Senior Vice December 12, 1996
- - - --------------------------------------------- President -- Chief Financial
W. Cardon Gerner Officer (Principal Financial
and accounting officer)

/s/ JACK T. HAMMER Director December 12, 1996
- - - ---------------------------------------------
Jack T. Hammer

/s/ THOMAS R. McDADE Director December 12, 1996
- - - ---------------------------------------------
Thomas R. McDade

/s/ KENNETH W. SMITH Director December 12, 1996
- - - ---------------------------------------------
Kenneth W. Smith
</TABLE>
<PAGE> 78

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - - ------------------------------------------------------------------------------------ -------------
<C> <S> <C>
*1.1 -- Form of Purchase Agreement among ECI, the Selling Stockholder and the
Underwriters.
*5.1 -- Opinion of Andrews & Kurth L.L.P.
*5.2 -- Opinion of Liddell, Sapp, Zivley, Hill & Laboon, L.L.P.
*23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
*23.2 -- Consent of Liddell, Sapp, Zivley, Hill & Laboon, L.L.P. (included in
Exhibit 5.2)
23.3 -- Consent of Coopers & Lybrand L.L.P.
24.1 -- Powers of attorney (included on the signature page contained in Part
II of this Registration Statement)
</TABLE>

- - - ---------------
* To be filed by amendment.

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to (a) the inclusion of our report dated March 8, 1996, except
as to the information presented in Note 13, for which the date is October 2,
1996, on our audits of the consolidated financial statements of Equity
Corporation International (the "Company") as of December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995; and (b) the
incorporation by reference of (i) our report dated March 8, 1996, on our audits
of the consolidated financial statement schedule of the Company for each of the
three years in the period ended December 31, 1995; and (ii) our report dated
July 15, 1994, on our audits of the consolidated financial statements of MLI/The
Loftis Corporation as of December 31, 1993 and 1992, and for each of the three
years in the period ended December 31, 1993 in the Registration Statement on
Form S-3 relating to the registration of the offering of 7,994,747 shares of the
Company's Common Stock; and to the reference to our firm under the caption
"Experts."

COOPERS & LYBRAND L.L.P.

Houston, Texas
December 12, 1996