EQUITY CORP INTERNATIONAL, 10-K405, 1997-03-27

EQUITY CORP INTERNATIONAL
10-K405, 1997-03-27
PERSONAL SERVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _________

COMMISSION FILE NUMBER: 0-24728

EQUITY CORPORATION INTERNATIONAL
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)

75-2521142
(I.R.S. EMPLOYER IDENTIFICATION NO.)

415 SOUTH FIRST STREET, SUITE 210
LUFKIN, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

75901
(ZIP CODE)

(409) 631-8700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Common Stock, $.01 par value
Preferred Share Purchase Rights
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes. [X] No.[ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (^ 229.405 under the Securities Exchange Act of 1934) is
not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

As of March 26, 1997, there were 20,695,983 shares of Equity Corporation
International Common Stock, $.01 par value, issued and outstanding, 20,089,907
of which, having an aggregate market value of approximately $449,511,669, were
held by non-affiliates of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement related to the registrant's 1997 annual
meeting of stockholders, which proxy statement will be filed under the
Securities Exchange Act of 1934 within 120 days of the end of the registrant's
fiscal year ended December 31, 1996, are incorporated by reference into Part III
of this Form 10-K.

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TABLE OF CONTENTS

PAGE
----
Item 1. Business............................. 1
The Company..................... 1
The Deathcare Industry.......... 1
Business Strategy............... 3
Acquisition Program............. 3
Operations...................... 4
Competition..................... 7
Trust Funds..................... 7
Regulation...................... 8
Employees....................... 9
Item 2. Properties........................... 10
Item 3. Legal Proceedings.................... 11
Item 4. Submission of Matters to a Vote of
Security Holders................... 11
Item 5. Market for Registrant's Common Equity
and Related
Stockholder Matters................ 12
Item 6. Selected Financial Data.............. 13
Item 7. Management's Discussion and Analysis
of Financial Condition
and Results of Operations.......... 15
Introduction.................... 15
Results of Operations........... 17
Liquidity and Capital
Resources..................... 23
Seasonality..................... 25
Inflation....................... 25
Recent FASB Pronouncements...... 25
Item 8. Financial Statements and
Supplementary Data................. 25
Item 9. Changes in and Disagreements with
Accountants on
Accounting and Financial
Disclosure......................... 25
Item 10. Directors and Executive Officers of
the Registrant..................... 25
Item 11. Executive Compensation............... 25
Item 12. Security Ownership of Certain
Beneficial Owners and Management... 25
Item 13. Certain Relationships and Related
Transactions....................... 26
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form
8-K................................ 27

NOTE ON FORWARD-LOOKING STATEMENTS

This Form 10-K contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-K are forward-looking
statements. When used in this document, the words "anticipate," "believe,"
"estimate" and "expect" and similar expressions are intended to identify
such forward-looking statements. Such statements reflect the Company's current
views with respect to future events and are subject to certain uncertainties and
assumptions. Important factors that could cause actual results to differ
materially from expectations ("Cautionary Statements") are disclosed in this
Form 10-K, including without limitation in conjunction with the forward-looking
statements included in this Form 10-K. Should one or more of these uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from expectations. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.

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PART I
ITEM 1. BUSINESS

THE COMPANY

Equity Corporation International ("ECI" or 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 31, 1996, ECI operated 178 funeral homes and 64 cemeteries in 24
states. For the year ended December 31, 1996, the Company had revenues of $92.0
million.

The Company's funeral homes perform all of the services related to
funerals, provide funeral facilities and vehicles and sell related merchandise.
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 and services, 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.

As used herein, unless the context indicates otherwise, the terms "ECI"
and the "Company" refer to Equity Corporation International and its
consolidated subsidiaries and their respective predecessors. 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.

For financial information regarding the Company's industry segments,
including the identifiable assets of the Company by industry segment, see Note
12 to the consolidated financial statements contained in Item 8 of this Annual
Report on Form 10-K.

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:

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 four other publicly traded North American
deathcare companies with operations in the United States, Service Corporation
International ("SCI"), The Loewen Group Inc. ("Loewen"), Stewart
Enterprises, Inc. ("Stewart") and Carriage Services, Inc. ("Carriage"),
control in the aggregate approximately 11% of the funeral homes and
approximately 7% of the

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commercial cemeteries in the United States. Based upon industry estimates, these
five companies represented less than 21% of the total 1996 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 1996 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
2020. 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 geographic 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. 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 assures a backlog of future business.

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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, it
is estimated that cremations will represent approximately 26% of all
dispositions of human remains in the United States by the year 2000, 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.

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.

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

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

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

0 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:

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

o 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;

o 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;

o 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;

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

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

o 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.

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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 ensure the continuation of high quality services
and the 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 ("Common
Stock"). 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 seven 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.

OPERATIONS

FUNERAL HOME OPERATIONS. The Company's funeral homes are primarily located
in non-metropolitan areas of the United States. As of December 31, 1996, the
Company operated 178 funeral homes in 21 states. Funeral home operations
accounted for approximately 62% and 57% of the Company's net revenues for the
years ended December 31, 1996 and 1995, respectively. Approximately 41% and 54%
of the Company's funeral home net revenues (approximately 26% and 31% of the
Company's total net revenues) for the years ended December 31, 1996 and 1995,
respectively, were attributable to funeral home operations in Texas.

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.

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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. As of December 31, 1996 the Company operated 14 anchor
locations 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 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 22% of dispositions performed by the Company in
1996. Approximately 31% of the Company's cremations were attributable to the
Company's Florida operations in 1996, a state in which the cremation rate is
substantially higher than the national average. Excluding cremations
attributable to the Company's Florida operations, cremations accounted for
approximately 16% of dispositions performed by the Company in 1996. 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 31, 1996, the Company owned seven
cremation facilities that serve the Company's funeral homes and 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 nature of the markets served by the
Company's funeral homes, however, the Company does not extensively market
preneed funeral contracts. Nevertheless, the Company will market preneed funeral
contracts in specific markets where the Company deems it 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 16,176 preneed funeral contracts in the year ended December 31,
1996. At December 31, 1996, the Company had a backlog of 45,978 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 each of
the years ended December 31, 1996 and 1995.

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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 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 or a portion of 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 31, 1996 the Company
operated 64 cemeteries in 11 states. Cemetery operations accounted for 38% and
43% of the Company's net revenues for the years ended December 31, 1996 and
1995, respectively. Approximately 26% and 32% of the Company's cemetery net
revenues (approximately 10% and 14% of the Company's total net revenues) for the
years ended December 31, 1996 and 1995, respectively, were attributable to
cemetery operations in North Carolina.

The Company's cemeteries are organized geographically into regional
operating groups, each of which is under the direction of an operations director
with substantial cemetery experience. Cemetery marketing efforts are coordinated
by 2 regional sales vice presidents and 13 field sales directors. The Company
aggressively markets cemetery interment rights, interment services and
merchandise 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
December 31, 1996, the Company employed a staff of approximately 242 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 trusts. 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 13% and 17% of the
Company's cemetery net revenues for the years ended December 31, 1996 and 1995,
respectively.

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

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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 69% and 67% of the Company's cemetery
net revenues for the years ended December 31, 1996 and 1995, respectively.

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
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."

COMPETITION

The Company currently competes for acquisitions with, among others, the
four other publicly traded North American deathcare companies with operations in
the United States, SCI, Loewen, Stewart and Carriage, 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 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 (which
varies from state to state) 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

7
<PAGE>
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 $59 million and $32
million as of December 31, 1996 and 1995, respectively, 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 purchased by a customer prior
to the time of need. Such amounts are 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 $14 million and $11
million as of December 31, 1996 and 1995, respectively. 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 $16 million and $14
million as of December 31, 1996 and 1995, respectively, 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 operations when earned.

For additional information with respect to the Company's trusts, see Notes
1 and 4 to the audited consolidated financial statements contained in Item 8 of
this Annual Report on Form 10-K.

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,

8
<PAGE>
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 December 31, 1996, the Company and its subsidiaries employed 959
full-time and 641 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. As of December 31, 1996, no employees of the Company or its
subsidiaries were members of a collective bargaining unit.

9
<PAGE>
ITEM 2. PROPERTIES

As of December 31, 1996, the Company operated 178 funeral homes and 64
cemeteries in 24 states. The Company owned the real estate and buildings of 142
of its funeral homes and 61 of its cemeteries, leased facilities in connection
with 36 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 64
cemeteries operated by the Company cover a total of approximately 2,450 acres,
of which 1,216 acres, or approximately 50% of the total acreage, is available
for future development. 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 31,
1996, regarding the Company's funeral homes and cemeteries by state:

NUMBER OF
FUNERAL HOMES
--------------------- NUMBER OF
STATE OWNED LEASED(1) CEMETERIES
- ------------------------------------- ----- --------- -----------
Alabama.............................. 2 6 3
Arkansas............................. 1 -- 1
California........................... 1 -- --
Florida.............................. 6 3 4(2)
Georgia.............................. 2(3) -- 14
Illinois............................. 9 4 --
Indiana.............................. 7 1 --
Iowa................................. 10 -- 1
Maine................................ 12 1 --
Mississippi.......................... 1 -- --
Missouri............................. 11 6 --
Nebraska............................. 2 4 --
New Hampshire........................ 3 -- --
North Carolina....................... 1(3) -- 17
Ohio................................. 1 -- --
Oklahoma............................. 3 1 --
Oregon............................... 4(3) -- 5
South Carolina....................... -- -- 4
South Dakota......................... 2 -- --
Tennessee............................ -- -- 6
Texas................................ 61(3)(4) 7(5) 5
Vermont.............................. 3 -- --
Virginia............................. -- -- 4
West Virginia........................ -- 3 --
----- --------- -----------
Total..................... 142 36 64
===== ========= ===========
- ------------
(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) Three of these 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 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.

(FOOTNOTES CONTINUED ON FOLLOWING PAGE)

10
<PAGE>
(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 seven 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 31, 1996, the Company's corporate headquarters occupied
approximately 30,700 square feet of leased office space in Lufkin, Texas.

As of December 31, 1996, the Company operated 609 vehicles, of which 526
were owned and 83 were leased, 77 of which were leased from a subsidiary of SCI,
a former stockholder of the Company. 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.

ITEM 3. LEGAL PROCEEDINGS

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.

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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

11
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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 during each full quarterly period within the Company's two most
recent fiscal years. The sale prices set forth below have been adjusted to
reflect a 3-for-2 stock split in October 1996.

HIGH LOW
---- ----
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.................. 25 1/2 17 1/4

As of March 26, 1997, there were 20,695,983 shares of Common Stock
outstanding held by 140 holders of record, and the Company believes there were
approximately 6,200 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. In addition, the Company's revolving credit
facility with certain banks (the "Credit Facility") permits the payment of
dividends only to the extent the Company maintains a specified minimum net worth
(approximately $168.1 million as of December 31, 1996) and certain financial
ratios. The Company's net worth as of December 31, 1996 was approximately $177.5
million. 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 at the time.

12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
----------- ----------- ----------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues:
Funeral................... $ 56,939 $ 36,261 $ 27,382 $21,432 $19,525
Cemetery.................. 35,035 27,740 21,919 847 865
----------- ----------- ----------- ------- -------
Total net revenues... 91,974 64,001 49,301 22,279 20,390
Gross profit:
Funeral................... 16,000 8,819 7,580 6,118 3,399
Cemetery.................. 10,137 8,477 6,157 47 59
----------- ----------- ----------- ------- -------
Total gross profit... 26,137 17,296 13,737 6,165 3,458
General and administrative
expenses..................... 5,848 4,782 3,885 1,521 1,093
----------- ----------- ----------- ------- -------
Income from operations.......... 20,289 12,514 9,852 4,644 2,365
Interest expense................ 2,374 2,207 3,178 701 556
----------- ----------- ----------- ------- -------
Income before income taxes and
extraordinary item........... 17,915 10,307 6,674 3,943 1,809
Provision for income taxes...... 7,589 4,071 2,728 1,388 598
Extraordinary item, net......... -- -- (198) -- --
----------- ----------- ----------- ------- -------
Net income...................... 10,326 6,236 3,748 2,555 1,211
Preferred stock dividends....... -- -- -- 1,563 1,563
----------- ----------- ----------- ------- -------
Net income (loss) attributable
to Common Stock.............. $ 10,326 $ 6,236 $ 3,748 $ 992 $ (352)
=========== =========== =========== ======= =======
Earnings (loss) per share(2):
Continuing operations..... $ 0.57 $ 0.42 $ 0.39 $ 0.15 $ (0.49)
Extraordinary item........ -- -- (0.02) -- --
----------- ----------- ----------- ------- -------
Net income (loss)......... $ 0.57 $ 0.42 $ 0.37 $ 0.15 $ (0.49)
=========== =========== =========== ======= =======
Weighted average number of
common and equivalent shares
outstanding(2)............... 18,068 14,835 10,002 6,613 717
=========== =========== =========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
----------- ----------- ----------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 19,179 $ 9,093 $ 4,495 $ 5,973 $ 6,208
Preneed funeral contracts....... 156,028 102,889 72,318 48,817 41,520
Total assets.................... 443,891 305,159 211,307 83,095 72,244
Deferred preneed funeral
contract revenues............ 161,153 107,969 76,447 51,640 44,032
Long-term debt, net of current
maturities................... 49,197 54,518 4,037 8,244 6,998
Redeemable preferred stock(3)... -- -- -- 20,844 20,844
Stockholders' equity
(deficit).................... 177,464 91,665 84,083 (503) (1,495)
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)

13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
----------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
FUNERAL OPERATIONS:
Funeral homes in operation at
end of period................ 178 119 95 79 76
Funeral services performed...... 12,483 8,332 6,181 5,127 4,753
Preneed funeral contracts sold
or obtained through
acquisitions................. 16,176 12,415 6,397 2,124 2,462
Backlog of preneed funeral
contracts at end of period... 45,978 32,199 21,084 16,103 14,979
CEMETERY OPERATIONS:
Cemeteries in operation at end
of period.................... 64 61 48 3 3
Interments performed............ 9,137 7,080 6,283 293 264
</TABLE>
- ------------
(1) The Company's financial and operating data as of and for the years ended
December 31, 1993 and 1992 do not reflect the operations of MLI/The Loftis
Corporation ("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 1996, 1995 and 1994 are not
necessarily comparable with its results of operations for prior periods.

(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 1996 and 1995, the dilutive effect of stock options
and restricted stock issued under the Company's Incentive Plan based on the
treasury stock method, and (ii) for 1994, 1993 and 1992, the issuance of
228,372 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 and 1992 net income for purposes of calculating earnings
(loss) per share. The weighted average number of common and equivalent
shares outstanding reflects a 579-for-one 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 Mr. James P.
Hunter, III, Chairman and Chief Executive Officer of the Company, were
exchanged for 628,140 shares of Common Stock.

<PAGE>
ITEM 7. 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/The Loftis Corporation
("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 seven 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.

The following table sets forth certain income statement data for the
Company in dollar amounts as well as percentages of net revenues for the periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- -------------------------------
1996 1995 1994 1996 1995 1994(1)
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues......................... $ 91,974 $ 64,001 $ 49,301 100.0% 100.0% 100.0%
========= ========= ========= ========= ========= =========
Gross profit......................... $ 26,137 $ 17,296 $ 13,737 28.4% 27.0% 27.9%
General and administrative
expenses........................... 5,848 4,782 3,885 6.4 7.5 7.9
--------- --------- --------- --------- --------- ---------
Income from operations............... 20,289 12,514 9,852 22.0 19.5 20.0
Interest expense..................... 2,374 2,207 3,178 2.6 3.4 6.5
Provision for income taxes........... 7,589 4,071 2,728 8.2 6.4 5.5
--------- --------- --------- --------- --------- ---------
Income before extraordinary item..... 10,326 6,236 3,946 11.2 9.7 8.0
Extraordinary item, net.............. -- -- (198) -- -- (0.4)
--------- --------- --------- --------- --------- ---------
Net income........................... $ 10,326 $ 6,236 $ 3,748 11.2% 9.7% 7.6%
========= ========= ========= ========= ========= =========
</TABLE>
The Company's net revenues increased by 43.7% to $92.0 million in 1996 from
$64.0 million in 1995 and income from operations increased by 62.1% to $20.3
million in 1996 from $12.5 million in 1995. Income from operations increased to
22.0% of net revenues in 1996 from 19.5% of net revenues in 1995. The increase
in income from operations as a percentage of net revenues was primarily
attributable to (i) increases in revenues and improved operational efficiencies
at funeral home operations, (ii) the buyout of several long-term licensing and
lease agreements for $2.1 million which generated a gross profit of $1.0 million
in 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 $2.4 million in 1996 from $2.2 million in 1995 was primarily
attributable to higher average levels of acquisition indebtedness partially
offset by the repayment of the Credit Facility with proceeds from the Company's
May 1996 equity offering.

15
<PAGE>
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 is attributable to (i)
lower gross margins at newly acquired operations that had not yet been operated
long enough by the Company to realize enhancements and efficiencies which are
implemented subsequent to their acquisition as well as (ii) 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. 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.

FUNERAL HOME OPERATIONS. The following table sets forth the number of
funeral homes operated by the Company for the periods presented.

YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Funeral homes operated at beginning
of period............................ 119 95 79
Acquisitions......................... 59 27 16
Dispositions and consolidations...... -- (3) --
--------- --------- ---------
Funeral homes operated at end of
period............................... 178 119 95
========= ========= =========

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 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 and
generally require that funeral contracts be sold at a discount to at need sales
prices. Because of the nature of the markets served by the Company's funeral
homes, the Company does not extensively market preneed funeral contracts. The
Company does, however, market preneed funeral contracts in specific markets
where the Company deems it 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.

16
<PAGE>
CEMETERY OPERATIONS. The following table sets forth the number of
cemeteries operated by the Company for the periods presented.

YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Cemeteries operated at beginning of
period............................... 61 48 3
Acquisitions......................... 3 13 45
---- ---- ----
Cemeteries operated at end of
period............................... 64 61 48
==== ==== ====

The Company's cemetery net revenues are generated primarily through the
sale of cemetery interment rights, interment services and related merchandise
which are sold either on a preneed or at need basis. Approximately 68.5% and
67.3% of the Company's cemetery net revenues for the years ended December 31,
1996 and 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.

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 three years in the period ended December 31, 1996. 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."

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31,
1995. Total net revenues for the year ended December 31, 1996 increased 43.7%
or $28.0 million over 1995. The increase in net revenues reflects a $23.3
million increase in net revenues attributable to acquired operations and a $2.6
million, or 4.7% 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 59 funeral homes and three cemeteries
acquired in 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.

17
<PAGE>
Gross profit for the year ended December 31, 1996 increased 51.1% to $26.1
million from $17.3 million for the year ended December 31, 1995. The increase in
gross profit reflects a $6.1 million increase attributable to acquired
operations and $1.7 million, or 10.7% 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 years ended December 31, 1996 and 1995.

YEAR ENDED
DECEMBER 31, CHANGE
-------------------- -------------------
1996 1995 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations............. $ 32,212 $ 30,630 $ 1,582 5.2%
Acquired operations............. 22,642 5,631 17,011 *
Buyout.......................... 2,085 -- 2,085 *
--------- --------- ---------
Total funeral net
revenues................ $ 56,939 $ 36,261 $ 20,678 57.0%
========= ========= =========
Gross profit:
Existing operations............. $ 9,602 $ 7,758 $ 1,844 23.8%
Acquired operations............. 5,448 1,061 4,387 *
Buyout.......................... 950 -- 950 *
--------- --------- ---------
Total funeral gross
profit.................. $ 16,000 $ 8,819 $ 7,181 81.4%
========= ========= =========
- ------------
* Not meaningful.

Total funeral net revenues for the year ended December 31, 1996 increased
57.0% to $56.9 million from $36.3 million for the year ended December 31, 1995.
The increase in funeral net revenues reflects a $17.0 million increase from
acquired operations, a $1.6 million, or 5.2% increase from existing operations
and $2.1 million related to the buyout of the long-term licensing and lease
agreements. The increase in revenues from existing operations is primarily
attributable to a 5.6% increase in the average revenue per regular funeral
service performed partially offset by a decrease of approximately 0.8% in the
number of regular funeral services performed.

Total funeral gross profit for the year ended December 31, 1996 increased
81.4% to $16.0 million from $8.8 million for year ended December 31, 1995. The
increase in funeral gross profit reflects a $4.4 million increase from acquired
operations, a $1.8 million, or 23.8% increase from existing operations and $1.0
million related to the gain on the aforementioned buyout. Excluding the effects
of the gain on the buyout, funeral gross margin improved to 27.4% from 24.3%.
Funeral gross margin at existing operations improved to 29.8% from 25.3%
primarily as a result of sales price increases exceeding the cost increases in
merchandising and salaries as well as maximizing the leverage off of allocable
fixed operating costs. Funeral gross margin at acquired operations improved to
24.1% from 18.8% primarily due to volume improvement, profitability enhancements
and cost efficiencies beginning to be implemented. 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.

18
<PAGE>
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 year ended December 31, 1996 and 1995.

YEAR ENDED
DECEMBER 31, CHANGE
-------------------- --------------------
1996 1995 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations......... $ 26,811 $ 25,750 $ 1,061 4.1%
Acquired operations......... 8,224 1,990 6,234 *
--------- --------- ---------
Total cemetery net
revenues............ $ 35,035 $ 27,740 $ 7,295 26.3%
========= ========= =========
Gross profit:
Existing operations......... $ 8,192 $ 8,322 $ (130) (1.6)%
Acquired operations......... 1,945 155 1,790 *
--------- --------- ---------
Total cemetery gross
profit.............. $ 10,137 $ 8,477 $ 1,660 19.6%
========= ========= =========
- ------------
* Not meaningful.

Total cemetery net revenues for the year ended December 31, 1996 increased
26.3% to $35.0 million from $27.7 million for the year ended December 31, 1995.
The increase in cemetery net revenues reflects a $6.2 million increase from
acquired operations and a $1.1 million, or 4.1%, increase from existing
operations. The increase in net revenues from existing operations resulted
primarily from an increase in preneed sales and income recognized on earnings
from merchandise trusts partially offset by a 1.7% decrease in at need sales.
The increase in preneed sales occurred primarily in the fourth quarter as a
result of aggressive marketing programs instituted by the Company. The
merchandise trust earnings increased as a result of higher average balances in
such trusts as well as improved investment performance. The decrease in at need
revenues was a result of slightly lower interment volume with no price
increases.

Total cemetery gross profit for the year ended December 31, 1996 increased
19.6% to $10.1 million from $8.5 million for the year ended December 31, 1995.
The increase reflects a $1.8 million increase from acquired operations partially
offset by a $.1 million, or 1.6%, decrease from existing operations. Cemetery
gross margin at existing operations decreased to 30.6% from 32.3%, primarily as
a result of higher selling and fixed operating costs as a percentage of revenue
partially offset by lower maintenance expenses as a percentage of net revenues.
Selling and fixed operating costs as a percentage of net revenues increased
primarily as a result of inefficiencies incurred in connection with the
consolidation of the Company's cemetery corporate operations from Georgia to
Texas as well as the cemetery management transition which occurred in the middle
of 1996. The decrease in maintenance expense as a percentage of net revenues
from 1995 was primarily related to the increase in earnings recognized from
perpetual care trusts. Earnings recognized from perpetual care trusts are used
to defray maintenance and upkeep of the cemetery grounds. Although investments
in perpetual care trusts are primarily conservative interest bearing
instruments, earnings recognized from perpetual care trusts increased due to
improved investment returns as well as to higher average balances in such trusts
as compared to 1995. Cemetery gross margin at acquired operations was 23.7% for
the year ended December 31, 1996 primarily because they had not been operated by
the Company long enough to fully implement its preneed marketing programs to
enable leveraging off of the maintenance and fixed operating costs which
generally start being incurred immediately after the acquisition.

General and administrative expenses for the year ended December 31, 1996
increased $1.1 million, or 22.3% over the year ended December 31, 1995. This
increase resulted primarily from increased personnel costs as well as
professional fees and insurance necessary to support a higher rate

19
<PAGE>
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. Additionally, general and
administrative expenses for the year ended December 31, 1996 include $.3 million
of legal fees incurred in connection with an action brought against the Company
by Loewen associated with SCI's attempted takeover bid for Loewen, which has
since been terminated. This expense was offset by a $.6 million gain related to
insurance proceeds received on a funeral home facility which was destroyed by
fire. General and administrative expenses as a percentage of net revenues,
excluding the effects of the gain on the aforementioned buyout, decreased to
6.5% in the year ended December 31, 1996 from 7.5% in the corresponding period
in 1995, reflecting economies of scale realized by the Company as expenses are
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, 1996 increased $167,000,
or 7.6% from the year ended December 31, 1995. The increase was the result of
overall higher average levels of indebtedness partially offset by a lower
average interest rate on borrowed funds in 1996 as compared to 1995. Although
the average levels of indebtedness for the last half of 1996 were actually lower
than the comparable period in 1995 as a result of the repayment of all amounts
borrowed under the Credit Facility from the proceeds of the May 1996 equity
offering, it did not completely offset the much higher average levels of
indebtedness in the first half of 1996 as compared to the same period in 1995.
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 year ended December 31, 1996 was
42.4% compared to 39.5% for the year ended in December 31, 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 exceeded 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. This was partially reduced by
the utilization of state net operating loss carryforwards. The Company expects
the effective tax rate for income generated in 1997 will be approximately 40%.

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.

20
<PAGE>
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.

YEAR ENDED
DECEMBER 31, CHANGE
-------------------- --------------------
1995 1994 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations.......... $ 25,376 $ 25,826 $ (450) (1.7)%
Acquired operations.......... 10,885 1,556 9,329 *
Disposed operations.......... -- -- -- --
--------- --------- ---------
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 *
Disposed operations.......... -- -- -- --
--------- --------- ---------
Total funeral gross
profit............... $ 8,819 $ 7,580 $ 1,239 16.3%
========= ========= =========
- ------------
* 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
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. Funeral gross margin 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.

21
<PAGE>
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.

YEAR ENDED
DECEMBER 31, CHANGE
-------------------- --------------------
1995 1994 AMOUNT PERCENT
--------- --------- --------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations.......... $ 24,065 $ 21,150 $ 2,915 13.8%
Acquired operations.......... 3,675 769 2,906 *
Disposed operations.......... -- -- -- --
--------- --------- ---------
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 *
Disposed operations.......... -- -- -- --
--------- --------- ---------
Total cemetery gross
profit............... $ 8,477 $ 6,157 $ 2,320 37.7%
========= ========= =========
- ------------
* 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 a higher gross margin
at existing operations, which increased to 32.0% in 1995 from 28.8% in 1994. The
increased margin 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
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,

22
<PAGE>
reflecting economies of scale realized by the Company as the expenses were
spread over a larger 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.

The extraordinary item in 1994 of $.2 million, net of an income tax benefit
of $.1 million, reflects a charge recorded in the fourth quarter 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, in certain situations, the issuance of shares of
Common Stock to sellers of funeral homes and cemeteries 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 $12.7 million at December 31, 1996,
representing an increase of $6.4 million from December 31, 1995. For the year
ended December 31, 1996, net cash flow from operating activities was
approximately $4.2 million. Cash used in investing activities totaled
approximately $25.5 million. Cash provided by financing activities amounted to
approximately $27.7 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 $12.4 million primarily attributable to
a 27.9% 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 $2.3 million of capital expenditures related to
additions and improvements at several funeral home and cemetery facilities
(including $.9 million to rebuild a funeral home facility destroyed by fire in
1996), $2.1 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 $21.5 million of internal funds
to consummate funeral home and cemetery acquisitions during the year ended
December 31, 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 and $.9 million of
insurance proceeds related to the funeral home facility destroyed by fire
discussed above. Significant components of cash provided by financing activities
included the proceeds of approximately $73.0 million from the issuance of Common
Stock in connection with the Company's equity offering consummated in May 1996
partially 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.

23
<PAGE>
Long-term debt, including current maturities, at December 31, 1996 totaled
$49.7 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 December 31, 1996 consisted of $35.0 million drawn under
the Credit Facility and $14.7 million owed under various notes payable to
sellers of funeral homes and cemeteries. Approximately $25.9 million of the
indebtedness outstanding under the Credit Facility was incurred in connection
with acquisitions made in 1996 and the remaining $9.1 million will be used in
1997 for cemetery and funeral home acquisitions, the payoff of existing seller
financing and general corporate purposes. The total amount available to be
borrowed under the Credit Facility was increased from $60 million to $100
million in February 1996. The Credit Facility also supports letters of credit
totaling $3 million related to one of the Company's 1996 acquisitions. At
December 31, 1996, $62.0 million was available for borrowings under the Credit
Facility. 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 weighted average interest rate on
amounts borrowed under the Credit Facility was 6.39% at December 31, 1996. 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. In
June 1995, the Company filed a shelf registration statement relating to shares
of Common Stock to be used to fund acquisitions. During 1996, the Company issued
approximately 113,000 shares of Common Stock pursuant to the shelf registration
statement to fund acquisitions. As of December 31, 1996, approximately 878,000
shares of Common Stock remained available for issuance pursuant to this shelf
registration statement.

In February 1997, the Company received net proceeds of approximately $22.1
million in connection with the issuance and sale by the Company of 1,199,178
shares of Common Stock at $19.25 per share pursuant to the underwriters'
exercise of an overallotment option granted by the Company in the registration
and sale of shares of Common Stock owned by SCI.

The Company currently expects to acquire funeral homes and cemeteries for
purchase prices aggregating approximately $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 $7.9 million in 1997. Additionally, the Company
approved the authorization to expend approximately $4.5 million to construct two
new funeral home facilities and approximately $1.6 million to perform
significant renovations and improvements on certain of its funeral home
facilities.

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 middle 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.

24
<PAGE>
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.

RECENT FASB PRONOUNCEMENTS

In February 1997, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share" which simplifies the
standards for computing and presenting earnings per share ("EPS") and makes
them comparable to international EPS standards. This statement is effective for
the year ending December 31, 1997. Earlier application is not permitted and
restatement of prior period EPS data is required. The Company does not believe
implementation of SFAS No. 128 will have a material impact on its EPS.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this Item 8 are incorporated under
Item 14 in Part IV of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item as to the directors and executive
officers of the Company is hereby incorporated by reference from the information
appearing under the captions " -- Election of Directors -- Directors and
Nominees for Director," " -- Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement which involves the election of directors and is to be filed with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 120
days of the end of the Company's fiscal year ended December 31, 1996.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item as to the management of the Company
is hereby incorporated by reference from the information appearing under the
captions "Executive Compensation" and "Election of Directors -- Director
Compensation" in the Company's definitive proxy statement which involves the
election of directors and is to be filed with the Commission pursuant to the
Exchange Act within 120 days of the end of the Company's fiscal year ended
December 31, 1996.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item as to the ownership by management and
others of securities of the Company is hereby incorporated by reference from the
information appearing under the caption "Voting Securities and Principal
Stockholders" in the Company's definitive proxy statement which involves the
election of directors and is to be filed with the Commission pursuant to the
Exchange Act within 120 days of the end of the Company's fiscal year ended
December 31, 1996.

25
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Until February 1997, SCI and its subsidiaries owned approximately 43% of
the shares of the Company's outstanding Common Stock. SCI disposed of all of the
shares beneficially owned by it and its subsidiaries in February 1997. In
addition, T. Craig Benson, a vice president of SCI, served as a director of the
Company until December 1996. As described in "Item 2 -- Properties" above, the
Company leased certain vehicles from SCI during 1996.

During 1996, the Company acquired 12 funeral homes located in Florida,
Maine, West Virginia, Iowa and Texas (the "SCI Businesses") from SCI. Total
consideration for the acquisitions consisted of approximately $13.0 million in
cash. The consideration was determined through negotiations between the Company
and representatives of the SCI Businesses. The SCI Businesses are funeral homes
providing deathcare services, including all services related to funerals,
providing funeral facilities and vehicles, and selling related merchandise.

Additional information required by this item as to certain business
relationships and transactions with management and other related parties of the
Company is hereby incorporated by reference to such information appearing under
the captions "Executive Compensation -- Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" in the Company's definitive
proxy statement which involves the election of directors and is to be filed with
the Commission pursuant to the Exchange Act within 120 days of the end of the
Company's fiscal year ended December 31, 1996.

26
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1 FINANCIAL STATEMENTS

The following financial statements and the Report of Independent
Accountants are filed as a part of this report on the pages indicated:

PAGE
----
Report of Independent Accountants.... F-2
Consolidated Balance Sheet as of
December 31, 1996 and 1995......... F-3
Consolidated Statement of Operations
for the Years Ended
December 31, 1996, 1995 and 1994... F-4
Consolidated Statement of Changes in
Stockholders' Equity for
the Years Ended December 31, 1996,
1995 and 1994...................... F-5
Consolidated Statement of Cash Flows
for the Years Ended
December 31, 1996, 1995 and 1994... F-6
Notes to Consolidated Financial
Statements......................... F-7

(a) 2 FINANCIAL STATEMENT SCHEDULES

The following Financial Statement Schedule and the Report of Independent
Accountants on Financial Statement Schedule are included in this report on the
pages indicated:

PAGE
----
Report of Independent Accountants on
Financial Statement Schedule....... S-1
Financial Statement Schedule
II -- Valuation and Qualifying
Accounts...................... S-2

All other schedules are omitted as the required information is inapplicable
or the information is presented in the consolidated financial statements or
related notes.

(a) 3 EXHIBITS

The exhibits to this report have been included only with the copies of this
report filed with the Commission. Copies of individual exhibits will be
furnished to stockholders upon written request to the Company and payment of a
reasonable fee.

EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1+ -- Amended and Restated Certificate of Incorporation (filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-8
(Reg. No. 33-98052))

3.2+ -- Amended and Restated Bylaws (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Reg. No. 33-98052))

4.1+ -- Form of Certificate representing shares of Common Stock (filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-1
(Reg. No. 33-82546))

4.2+ -- Stockholder Rights Agreement, dated October 13, 1994, between the
Company and American Stock Transfer & Trust Company, as Rights
Agent (filed as Exhibit 4.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994)

4.3+ -- Certificate of Designation of the Series One Junior Participating
Preferred Stock (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (Reg. No. 33-98052))

4.4+ -- First Amendment to Stockholder Rights Agreement, dated September
10, 1996, between the Company and American Stock Transfer & Trust
Company, as Rights Agent (filed as Exhibit 6 to the Company's
Registration Statement on Form 8-A/A (Amendment No. 2)).

27
<PAGE>
4.5+ -- Registration Agreement, dated December 22, 1995, among Equity
Corporation International, Investment Capital Corporation and
Service Corporation International (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (Reg. No. 33-80841))

10.1+* -- Employment Agreement, dated February 1, 1994, between the Company
and James P. Hunter, III (filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.2+* -- Employment Agreement, dated March 7, 1994, between the Company
and Jack D. Rottman (filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.3+* -- Employment Agreement, dated July 22, 1994, between the Company
and Billy C. Wells (filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.4+* -- Employment Agreement, dated February 1, 1995, between the Company
and W. Cardon Gerner (filed as Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994)

10.5+* -- Employment Agreement, dated April 8, 1996 between the Company and
William C. McNamara (filed as Exhibit 99.2 to the Company's
report on Form 8-K filed on May 3, 1996)

10.6+* -- Stockholder's Agreement, dated June 30, 1994, between the Company
and Jack D. Rottman (filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.7+ -- Stock Registration Agreement, dated February 1, 1994, among the
Company and Investment Capital Corporation, James P. Hunter, III
and Robert W. Loftis (filed as Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.8+ -- First Amendment to Stock Registration Agreement, dated September
1, 1994, among the Company and Investment Capital Corporation,
Kanawha, L.L.C., James P. Hunter, III and Robert W. Loftis (filed
as Exhibit 10.11 to the Company's Registration Statement on Form
S-1 (Reg. No. 33-82546))

10.9+ -- Second Amendment to Stock Registration Agreement, dated May 31,
1995, among the Company and James P. Hunter, III, Investment
Capital Corporation, Kanawha, L.L.C., The Loftis Foundation, Inc.
and Robert Wayne Loftis (filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-92876))

10.10 -- Equity Corporation International Amended and Restated 1994
Long-Term Incentive Plan (amended as of October, 1996)

10.11+* -- Form of Incentive Stock Option Agreement for Executive Officers
under the 1994 Long-Term Incentive Plan (filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994)

10.12+* -- Form of Nonqualified Stock Option Agreement for Executive
Officers under the 1994 Long-Term Incentive Plan (filed as
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994)

10.13+* -- Form of Non-Qualified Stock Option Agreement for employees under
the 1994 Long-Term Incentive Plan (filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)

10.14+* -- Form of Non-Qualified Employee Stock Option Agreement for
employees of the Cemetery Division under the 1994 Long-Term
Incentive Plan (filed as Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995)

10.15+*-- Form of Nonqualified Stock Option Agreement for Non-Employee
Directors under the 1994 Long-Term Incentive Plan (filed as
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994)

28
<PAGE>
10.16+* -- Option #2 of Amendment and Restatement of Agreement between ECI
Cemetery Services, Inc. and certain employees concerning
replacement of former deferred compensation arrangements with
restricted stock award programs (filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)

10.17+* -- Option #3 of Amendment and Restatement of Agreement between ECI
Cemetery Services, Inc. and certain employees concerning
replacement of former deferred compensation arrangements with
restricted stock award programs (filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)

10.18+ -- Form of Indemnification Agreement with Executive Officers and
Directors (filed as Exhibit 10.13 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-82546))

10.19+ -- Form of Vehicle Lease Agreement between the Company and SCI
Funeral Services of Texas, Inc. and related Assignment of Vehicle
Lease (filed as Exhibit 10.15 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-82546))

10.20+ -- Formation Agreement, dated November 30, 1993, among Investment
Capital Corporation, James P. Hunter, III, ECI Capital
Corporation, Robert W. Loftis, Ronnie Shivers, Robert Lucky and
MLI/The Loftis Corporation (filed as Exhibit 10.21 to the
Company's Registration Statement on Form S-1 (Reg. No. 33-82546))

10.21+ -- Purchase and Sale Agreement, dated September 8, 1994, between ECI
Services of Texas, Inc., JPH Properties, Inc., James P. Hunter,
III, Hunter-Metcalf Properties and Ruth Metcalf (filed as Exhibit
10.22 to the Company's Registration Statement on Form S-1 (Reg.
No. 33-82546))

10.22+ -- Credit Agreement, dated October 26, 1994, among the Company, the
Banks named therein and NationsBank of Texas, N.A., as agent for
the Banks (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended September 30,
1994)

10.23+ -- Amendment No. 1, dated August 31, 1995, to Credit Agreement
listed as Exhibit 10.21 hereto (filed as Exhibit 10.26 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1995)

10.25* -- Consulting Agreement, dated as of September 12, 1996, between the
Company and James P. Hunter, III

11.1 -- Statement regarding computation of per share earnings

21.1 -- List of Subsidiaries as of December 31, 1996

23.1 -- Consent of Coopers & Lybrand L.L.P.

24.1 -- A power of attorney, pursuant to which amendments to this Report
may be filed, is included on the signature page contained in Part
IV of this Report

27.1 -- Financial Data Schedule
- ------------
+ Incorporated herein by reference to the indicated filing.

* Management contract or compensatory plan.

(b) REPORTS ON FORM 8-K

The Company filed a Form 8-K on October 16, 1996 with respect to the
acquisition of 11 funeral homes from SCI. No financial statements were filed.

29
<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LUFKIN,
STATE OF TEXAS ON MARCH 27, 1997.

EQUITY CORPORATION INTERNATIONAL

By: /s/ JAMES P. HUNTER, III
JAMES P. HUNTER, III
CHAIRMAN OF THE BOARD, PRESIDENT
AND
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

We, the undersigned, directors and officers of Equity Corporation
International (the "Company"), do hereby severally constitute and appoint
James P. Hunter, III and W. Cardon Gerner and each or any of them, our true and
lawful attorneys 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 any
and all amendments to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and to file the same with all exhibits thereto,
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each or any of
them, full power and authority to do and perform each and every act and thing
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 and agents, and each of them, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
- ---------------------- ------------------------------------- ---------------
s/JAMES P. HUNTER, III Chairman of the Board, President and March 27, 1997
JAMES P. HUNTER, III Chief Executive Officer (Principal
Executive Officer)

/s/W. CARDON GERNER Senior Vice President -- Chief March 27, 1997
W. CARDON GERNER Financial Officer (Principal
Financial and Accounting Officer)

/s/J. PATRICK DOHERTY Director March 27, 1997
J. PATRICK DOHERTY

/s/JACK T. HAMMER Director March 27, 1997
JACK T. HAMMER

/s/THOMAS R. McDADE Director March 27, 1997
THOMAS R. MCDADE

/s/KENNETH W. SMITH Director March 27, 1997
KENNETH W. SMITH

30
<PAGE>
EQUITY CORPORATION INTERNATIONAL
INDEX TO FINANCIAL STATEMENTS

PAGE
-----

AUDITED CONSOLIDATED FINANCIAL
STATEMENTS:

Report of Independent
Accountants................... F-2

Consolidated Balance Sheet as of
December 31, 1996 and 1995.... F-3

Consolidated Statement of
Operations for the Years Ended
December 31, 1996, 1995 and
1994.......................... F-4

Consolidated Statement of
Changes in Stockholders'
Equity for the Years Ended
December 31, 1996, 1995 and
1994.......................... F-5

Consolidated Statement of Cash
Flows for the Years Ended
December 31, 1996, 1995 and
1994.......................... F-6

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

F-1
<PAGE>
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, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
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 require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Equity
Corporation International and subsidiaries as of December 31, 1996 and 1995 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Houston, Texas
March 6, 1997

F-2
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31,
------------------------
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents....... $ 12,654 $ 6,233
Receivables, net of
allowances.................... 9,050 5,490
Inventories..................... 6,029 5,060
Other........................... 1,825 1,177
----------- -----------
Total current
assets........... 29,558 17,960
Preneed funeral contracts............ 156,028 102,889
Cemetery properties, at cost......... 84,706 77,435
Long-term receivables, net of
allowances......................... 37,226 30,767
Property, plant and equipment, at
cost (net)......................... 57,263 36,417
Deferred charges and other assets.... 7,986 7,352
Names and reputations (net).......... 71,124 32,339
----------- -----------
Total assets......... $ 443,891 $ 305,159
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities................... $ 6,943 $ 5,532
Income taxes payable............ 294 1,108
Deferred income taxes........... 2,605 1,692
Current maturities of long-term
debt.......................... 537 535
----------- -----------
Total current
liabilities...... 10,379 8,867
Deferred preneed funeral contract
revenues........................... 161,153 107,969
Long-term debt....................... 49,197 54,518
Deferred cemetery costs.............. 21,268 19,912
Deferred income taxes................ 22,799 21,340
Other liabilities.................... 1,631 888
Commitments and contingencies........
Stockholders' equity:
Preferred stock................. -- --
Common stock, $.01 par value;
50,000,000 shares authorized;
19,322,723 and 14,847,251
issued and outstanding in 1996
and 1995, respectively........ 193 148
Capital in excess of par
value......................... 157,468 82,040
Retained earnings............... 19,803 9,477
----------- -----------
Total stockholders'
equity........... 177,464 91,665
----------- -----------
Total liabilities and
stockholders'
equity........... $ 443,891 $ 305,159
=========== ===========

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

F-3
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
Net revenues......................... $ 91,974 $ 64,001 $ 49,301
Costs and expenses................... 65,837 46,705 35,564
--------- --------- ---------
Gross profit......................... 26,137 17,296 13,737
General and administrative
expenses........................... 5,848 4,782 3,885
--------- --------- ---------
Income from operations.......... 20,289 12,514 9,852
Interest expense..................... 2,374 2,207 3,178
--------- --------- ---------
Income before income taxes and
extraordinary item........... 17,915 10,307 6,674
Provision for income taxes........... 7,589 4,071 2,728
--------- --------- ---------
Income before extraordinary
item......................... 10,326 6,236 3,946
Extraordinary item -- early
extinguishment of debt, net of
income tax benefit of $102......... -- -- (198)
--------- --------- ---------
Net income...................... $ 10,326 $ 6,236 $ 3,748
========= ========= =========
Earnings per share:
Continuing operations........... $ 0.57 $ 0.42 $ 0.39
Extraordinary item.............. -- -- (0.02)
--------- --------- ---------
Net income...................... $ 0.57 $ 0.42 $ 0.37
========= ========= =========
Weighted average number of common and
equivalent shares outstanding...... 18,068 14,835 10,002
========= ========= =========

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

F-4
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN RETAINED STOCKHOLDERS'
---------------------- EXCESS OF EARNINGS EQUITY
SHARES AMOUNT PAR VALUE (DEFICIT) (DEFICIT)
------------- ------ ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
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
Net income...................... -- -- -- 10,326 10,326
Common stock issued:
Equity offering........... 4,335,000 43 72,964 -- 73,007
Acquisitions.............. 113,455 1 2,414 -- 2,415
Option exercises.......... 1,999 -- 22 -- 22
Other..................... 25,018 1 28 -- 29
------------- ------ ---------- --------- --------------
Balance, December 31, 1996........... 19,322,723 $193 $ 157,468 $ 19,803 $177,464
============= ====== ========== ========= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
Net income......................... $ 10,326 $ 6,236 $ 3,748
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and
amortization.............. 4,801 3,458 2,716
Provision for bad debts and
contract cancellations.... 3,742 3,217 3,399
(Gain) loss on sale of
assets.................... (1,489) (42) 51
Deferred income taxes........ 1,394 816 737
Extraordinary item........... -- -- 198
Changes in assets and liabilities,
net of effects from
acquisitions:
Receivables.................. (12,382) (7,482) (7,004)
Inventories.................. 283 (282) 25
Other current assets......... (515) 263 (267)
Other long-term assets....... (2,636) (2,998) (2,093)
Accounts payable and accrued
liabilities............... 1,599 (998) 1,255
Income taxes payable......... (895) 901 (80)
Preneed funeral contracts and
associated deferred
revenues.................. (36) 123 1,299
----------- ----------- -----------
Net cash provided by
operating activities.... 4,192 3,212 3,984
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures............... (8,318) (7,691) (2,609)
Proceeds from sale of assets....... 4,192 68 68
Acquisitions, net of cash acquired
(used).......................... (21,541) (906) 1,429
Other.............................. 196 106 214
----------- ----------- -----------
Net cash used in investing
activities.............. (25,471) (8,423) (898)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of
common stock.................... 73,029 974 46,061
Borrowings on debt................. 11,615 11,123 --
Payments on debt................... (56,944) (6,485) (45,798)
Dividends paid to preferred
stockholder..................... -- -- (261)
----------- ----------- -----------
Net cash provided by
financing activities.... 27,700 5,612 2
----------- ----------- -----------
Increase in cash and cash
equivalents.......................... 6,421 401 3,088
Cash and cash equivalents at
beginning of year.................. 6,233 5,832 2,744
----------- ----------- -----------
Cash and cash equivalents at end of
year................................. $ 12,654 $ 6,233 $ 5,832
=========== =========== ===========

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

F-6
<PAGE>
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, 1996, the Company operated 178 funeral homes and 64 cemeteries
in 24 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 at
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 renamed to "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 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 reclassifications 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 estimates.

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>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CEMETERY OPERATIONS

Preneed sales of cemetery interment rights, interment services 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. Costs related to sales of interment services and
merchandise are based on actual costs incurred or estimates of future costs.
Allowances for customer cancellations and refunds are provided at the date of
sale based upon historical experience.

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, 1996 and 1995 was approximately $16,249,000 and $14,326,000,
respectively, and such principal generally cannot be withdrawn by the Company.
Earnings recognized on perpetual care trusts for the years ended December 31,
1996, 1995 and 1994 were approximately $1,304,000, $934,000 and $1,102,000,
respectively. 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, 1996 and 1995 of approximately $14,316,000 and
$11,377,000, 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, 1996, 1995 and 1994 were approximately $1,113,000, $535,000 and
$234,000, respectively.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.

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. The
Company periodically reviews its properties for possible impairment whenever
events or changes in circumstance might indicate that the carrying amount of an
asset may not be recoverable. Maintenance and repairs are charged to expense
whereas renewals and major replacements are capitalized. Gains and losses from
dispositions are included in operations.

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

F-8
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related to preneed funeral contracts. The aggregate costs deferred as of
December 31, 1996 and 1995 were approximately $1,582,000 and $1,225,000,
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, 1996 and
1995, prepaid covenants not to compete amounted to approximately $4,882,000 and
$4,012,000, 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,
1996 and 1995, was approximately $2,750,000 and $1,614,000, respectively. The
amortization charged against income was approximately $1,214,000, $640,000, and
$235,000 for the three years ended December 31, 1996, 1995 and 1994,
respectively.

EARNINGS PER SHARE

Earnings per share is based on the weighted average number of shares
outstanding during the period after consideration (i) for 1996 and 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, and (ii) for
1994, 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. 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.

STOCK-BASED COMPENSATION PLANS

In 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123")
which encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options and other equity instruments based on
a fair-value method of accounting. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB 25") and related interpretations (Note 7).

RECENT FASB PRONOUNCEMENTS

F-9
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period earnings per share data is required. The Company does not believe
implementation of SFAS No. 128 will have a material impact on its EPS.

2. ACQUISITIONS

The following table is a summary of acquisitions made during the years
ended December 31, 1996 and 1995:

1996 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
Number acquired:
Funeral homes................... 59 27
Cemeteries...................... 3 13
Purchase price....................... $ 65,047 $ 41,119

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 $832,000 and $2,188,000 for
noncompetition agreements which were prepaid to individuals related to
businesses acquired in 1996 and 1995, respectively. The acquisitions have been
accounted for as purchases and their operating results have been included since
their respective date of acquisition. Included in the 1996 totals are 12 funeral
homes purchased from Service Corporation International ("SCI") for an
aggregate purchase price of $13,005,000. SCI was a significant stockholder but
is now no longer financially affiliated with the Company (Note 7).

F-10
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

1996 1995
--------- ---------
(IN THOUSANDS)
Current assets....................... $ 3,994 $ 2,232
Preneed funeral contracts............ 41,365 19,700
Cemetery properties.................. 6,036 15,123
Long-term receivables, net of
allowances........................... (319) 4,793
Property, plant and equipment........ 17,223 8,494
Deferred charges and other assets.... 603 2,133
Names and reputations................ 40,367 18,759
Current liabilities.................. (624) (1,764)
Deferred preneed funeral contract
revenues............................. (41,561) (20,529)
Long-term debt....................... (40,009) (41,312)
Deferred cemetery costs.............. (803) (3,721)
Deferred income taxes................ (978) (2,580)
Noncurrent liabilities............... (465) (54)
Common stock issued.................. (2,415) (119)
--------- ---------
Total........................... 22,414 1,155
Less cash acquired.............. 873 249
--------- ---------
Cash used for acquisitions...... $ 21,541 $ 906
========= =========

The following represents the unaudited pro forma results of operations as
if all of the above noted business combinations had occurred at the beginning of
1995:

YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net revenues......................... $ 107,857 $ 98,645
Income before extraordinary item..... 11,401 7,664
Net income........................... 11,401 7,664
Earnings per common and equivalent
share.............................. $ 0.63 $ 0.51

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

Subsequent to December 31, 1996, the Company acquired a cemetery in
exchange for one of its funeral home facilities. In connection with the
transaction, the Company received $250,000 in cash and will recognize a gain of
approximately $750,000 in the first quarter of 1997.

3. 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

F-11
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revenues and related costs and expenses is $2,085,000 and $1,135,000,
respectively, related to the transaction.

4. 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 $67,364,000 and $38,063,000 will be funded by trusts and
approximately $88,664,000 and $64,826,000 will be funded by insurance policies
as of December 31, 1996 and 1995, respectively. Accumulated earnings from trust
funds and increasing insurance benefits have been included to the extent that
they have accrued through December 31, 1996 and 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 December 31, 1996 and 1995, the amounts collected and held in
trusts, at cost, which approximates market, were approximately $59,246,000 and
$32,176,000, 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.

5. INCOME TAXES

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.

F-12
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

1996 1995
--------- ---------
(IN THOUSANDS)
Developed and undeveloped land....... $ 22,231 $ 21,607
Property, plant and equipment........ 2,062 1,004
Receivables related to sales of
cemetery interment rights and
related products................... 3,751 3,086
Names and reputations................ 669 214
Deferred obtaining costs............. 650 493
Other................................ 475 456
--------- ---------
Total deferred tax liabilities....... 29,838 26,860
--------- ---------

Preneed funeral contracts............ 2,280 1,807
Allowance for bad debts and
cancellation reserves.............. 1,350 1,056
Other................................ 804 965
--------- ---------
Total deferred tax assets............ 4,434 3,828
--------- ---------
Net deferred tax (assets)
liabilities........................ $ 25,404 $ 23,032
========= =========

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

1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Current tax expense:
Federal......................... $ 5,399 $ 2,868 $ 1,613
State........................... 798 387 378
--------- --------- ---------
Total current............. 6,197 3,255 1,991
--------- --------- ---------

Deferred tax expense:
Federal......................... 1,282 738 619
State........................... 110 78 118
--------- --------- ---------
Total deferred............ 1,392 816 737
--------- --------- ---------
Total tax expense.... $ 7,589 $ 4,071 $ 2,728
========= ========= =========

F-13
<PAGE>
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:

1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Tax at U.S. statutory rate........... $ 6,270 $ 3,504 $ 2,269
State income taxes, net of federal
tax................................ 590 307 328
Increase in federal marginal tax
rate............................... 565 -- --
Nondeductible amortization of Names
and reputations.................... 180 139 65
Other, net........................... (16) 121 66
--------- --------- ---------
$ 7,589 $ 4,071 $ 2,728
========= ========= =========
Total effective tax rate............. 42.4% 39.5% 40.9%
========= ========= =========

During the year ended December 31, 1996, the Company exceeded the taxable
income threshold requiring the Company's statutory federal income tax rate to be
increased from 34 percent to 35 percent. As a result, the provision for income
taxes for the year ended December 31, 1996 includes an adjustment to deferred
taxes of $565,000 related to this increase in the statutory federal income tax
rate.

Income taxes paid during the years ending December 31, 1996, 1995 and 1994
were approximately $6,974,000, $2,308,000 and $1,822,000, respectively.

6. DEBT

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

1996 1995
--------- ---------
(IN THOUSANDS)
Credit facility...................... $ 35,000 $ 45,000
Notes payable........................ 13,914 9,208
Capitalized lease obligations........ 820 845
--------- ---------
49,734 55,053
Less current maturities... 537 535
--------- ---------
$ 49,197 $ 54,518
========= =========

The Company maintains an uncollateralized revolving credit agreement with a
group of banks for a $100,000,000 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 1999 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 weighted
average interest rate on amounts borrowed under the Credit Facility was 6.39% at
December 31, 1996. In addition, the Company pays a commitment fee on unused
funds ranging from 0.20% to 0.32%, depending on the Company's leverage ratio, as
defined. The Credit Facility also supports letters of credit totaling $3,000,000
related to one of the Company's acquisitions in 1996. The Credit Facility
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.

F-14
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 4.9% to
12.6%.

Capitalized lease obligations are due in monthly installments through 1998
with interest rates ranging from 7.9% to 9.5%. Total assets recorded under
capital leases and the accumulated amortization thereon were $1,507,000 and
$669,000 at December 31, 1996, respectively, and $1,544,000 and $666,000 at
December 31, 1995, respectively.

Prior to 1995, the Company financed certain acquisitions through the
issuance of notes payable to affiliates which were collateralized by various
security agreements and lien interests. In October 1994, the Company paid
substantially all of its outstanding indebtedness to affiliates as well as
seller financed notes with the proceeds from the issuance of its common stock in
connection with the Company's initial public offering (Note 7). 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. All remaining indebtedness to
affiliates was paid in full in 1995. Interest expense related to the
indebtedness to affiliates was approximately $101,000 and $2,782,000 for the
years ended December 31, 1995 and 1994, respectively.

Aggregate principal payments on long-term debt for each of the five years
and thereafter subsequent to December 31, 1996 are $537,000, $1,479,000,
$43,493,000, $555,000, $415,000, and $3,255,000. Interest paid during the years
ended December 31, 1996, 1995 and 1994 was approximately $2,426,000, $1,865,000
and $3,147,000, respectively.

7. CAPITAL STOCK

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 over-allotment 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.

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, giving effect to the stock split described below, would have been as
follows:

Earnings per share:
Continuing operations........... $ 0.38
Extraordinary item.............. (0.01)
---------
Net income................ $ 0.37
=========

F-15
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $73,007,000 (after selling commissions and estimated
related expenses of approximately $5,023,000). The net proceeds were used to pay
off amounts outstanding under the Credit Facility and the remainder was used for
general corporate purposes, including acquisitions.

On September 10, 1996, the Company's Board of Directors declared a 3-for-2
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 the
stock was distributed on October 2, 1996. All share and per share information in
the accompanying consolidated financial statements have been retroactively
restated to reflect the effects of the stock split.

In February 1997, the Company received net proceeds of approximately $22.1
million in connection with the issuance and sale by the Company of 1,199,178
shares of common stock at $19.25 per share pursuant to the underwriters'
exercise of an overallotment option granted by the Company in the registration
and sale of 7,994,522 shares of common stock owned by SCI, which represented
SCI's total investment in the Company.

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, 1996. 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.

F-16
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1994 LONG-TERM INCENTIVE PLAN

The 1994 Long-Term Incentive Plan, as amended (the "Incentive Plan"),
provides up to 1,950,000 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 the deferred compensation agreements with certain
employees of the Company's cemetery operations (Note 8), 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.

F-17
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the activity relating to stock options under
the Incentive Plan for the years ended December 31 (Share amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- -------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period... 683 $10.11 548 $ 8.67 -- $ --
Granted......................... 363 18.32 248 12.64 548 8.67
Exercised....................... 2 8.67 113 8.67 -- --
Cancelled....................... 7 14.20 -- -- -- --
------ ------ ------
Outstanding at end of period......... 1,037 $12.96 683 $10.11 548 $ 8.67
====== ====== ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996. (Share amounts in thousands.)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -----------------------------
NUMBER WGTD. AVG. WGTD. AVG. NUMBER WGTD. AVG.
RANGE OF OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
EXERCISE PRICES AT 12/31/96 CONTRACT LIFE PER SHARE AT 12/31/96 PER SHARE
- ------------------------------------- ----------- ------------- -------------- ------------ --------------
<C> <C> <C> <C> <C> <C>
$8.67 to $15.00 678 7.92 Yrs. $10.11 319 $ 9.66
$15.00 to $19.67 359 9.70 18.35 -- n/a
----------- ------------
$8.67 to $19.67 1,037 8.53 Yrs. $12.96 319 $ 9.66
=========== ============
</TABLE>
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.

The weighted average fair value of the options granted during the years
ended December 31, 1996 and 1995 was $5.90 and $4.05, respectively.

The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1995 and 1996, respectively: dividend
yield of 0.0% for both years; expected volatility of 21.32% for both years;
risk-free interest rates are different for each grant and range from 5.28% to
6.99%; and the expected life of the options is 5 years for all grants.

Had compensation cost been determined in accordance with SFAS 123, the
Company's net income and earnings per share would have been $9,949,000 and
$0.55, respectively, for the year ended December 31, 1996 and $6,222,000 and
$0.42, respectively, for the year ended December 31, 1995. The effects of
applying SFAS 123 in this pro forma disclosure are not indicative of future
amounts. SFAS 123 does not apply to awards prior to 1995.

8. 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,
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. All of the deferred compensation agreements were
amended during 1996 and 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 62,578

F-18
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 1996, amounts granted under these deferred
compensation agreements aggregated approximately $1,615,000, of which
approximately $416,000 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.

9. SUPPLEMENTARY INFORMATION

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

1996 1995
--------- ---------
(IN THOUSANDS)
Receivables and allowances:
Trade........................... $ 8,908 $ 5,572
Affiliates...................... 145 75
Other........................... 1,413 652
--------- ---------
10,466 6,299
Less allowance for bad debts.... 1,416 809
--------- ---------
$ 9,050 $ 5,490
========= =========
Long-term:
Installment contracts..... $ 31,096 $ 25,970
Cemetery merchandise
receivables............. 14,316 11,377
--------- ---------
45,412 37,347
Less:
Allowance for contract
cancellations........... 2,669 2,006
Unearned finance
charges................. 5,517 4,574
--------- ---------
$ 37,226 $ 30,767
========= =========

Interest rates on installment contracts range from 12.5% to 14.5%, at
December 31, 1996.

1996 1995
--------- ---------
(IN THOUSANDS)
Inventories:
Caskets......................... $ 3,364 $ 2,234
Interment rights................ 456 510
Mausolea and lawn crypts........ 759 1,244
Other........................... 1,450 1,072
--------- ---------
$ 6,029 $ 5,060
========= =========

F-19
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1996 1995
--------- ---------
(IN THOUSANDS)
Property, plant and equipment:
Land............................ $ 11,384 $ 7,381
Buildings and improvements...... 39,135 25,154
Equipment....................... 16,691 11,315
--------- ---------
67,210 43,850
Less accumulated depreciation
and amortization............. 9,947 7,433
--------- ---------
$ 57,263 $ 36,417
========= =========
Accounts payable and accrued
liabilities:
Trade........................... $ 2,427 $ 1,582
Compensation.................... 1,868 1,637
Other........................... 2,648 2,313
--------- ---------
$ 6,943 $ 5,532
========= =========

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:

1996 1995 1994
------- ------- -------
(IN THOUSANDS)
Income tax benefit from exercise of
stock options...................... $ -- $ 194 $ --
Restricted stock issued for accrued
compensation....................... 29 59 --
Exchange of ECICC common stock,
redeemable preferred stock and a
warrant for ECI common stock....... -- -- 20,844
Note issued for equipment............ -- -- 28

10. 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.

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, 1996:

(IN THOUSANDS)
1997................................. $ 929
1998................................. 927
1999................................. 838
2000................................. 678
2001................................. 473
Thereafter........................... 1,113
--------------
Total minimum obligations............ $4,958
==============

F-20
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rent expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $1,065,000, $1,130,000 and $1,110,000, respectively, of which
$24,000, $34,000 and $35,000, respectively, was contingent rentals.

In addition to the noncancelable operating leases, the Company also
subleases vehicles from a subsidiary of SCI under an operating lease agreement
that is cancelable at the lessor's option. Lease payments made under these
obligations were approximately $476,000, $528,000 and $473,000 in 1996, 1995 and
1994, respectively.

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
$29,182,000, at December 31, 1996.

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.

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 this 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. For the year ended December 31, 1996,
the Company paid the fixed annual payment of $400,000.

LITIGATION

11. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS

CREDIT RISK

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

The Company grants customers credit in the normal course of business and
the credit risk with respect to trade and long-term receivables is 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.

F-21
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $13,867,000 and $9,277,000 at December 31, 1996 and 1995,
respectively, approximate their fair value.

The carrying amounts of the Company's revolving credit agreement and notes
payable of $867,000 approximate fair value because the rates on these agreements
are 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 approximate their fair value.

F-22
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. MAJOR SEGMENTS OF BUSINESS

The Company conducts its funeral and cemetery operations throughout the
United States.
<TABLE>
<CAPTION>
FUNERAL CEMETERY CORPORATE CONSOLIDATED
----------- --------- --------- ------------
(DOLLARS IN THOUSANDS)
Net revenues:
<S> <C> <C> <C> <C>
1996............................ $ 56,939 $ 35,035 $ -- $ 91,974
1995............................ 36,261 27,740 -- 64,001
1994............................ 27,382 21,919 -- 49,301

Operating expenses:
1996............................ $ 40,939 $ 24,898 $ 5,848 $ 71,685
1995............................ 27,442 19,263 4,782 51,487
1994............................ 19,802 15,762 3,885 39,449

Income from operations:
1996............................ $ 16,000 $ 10,137 $ (5,848) $ 20,289
1995............................ 8,819 8,477 (4,782) 12,514
1994............................ 7,580 6,157 (3,885) 9,852

Identifiable assets:
1996............................ $ 294,373 $ 134,229 $ 15,289 $443,891
1995............................ 177,412 119,566 8,181 305,159
1994............................ 113,689 91,290 6,328 211,307

Depreciation and amortization:
1996............................ $ 3,358 $ 1,118 $ 325 $ 4,801
1995............................ 2,082 1,107 269 3,458
1994............................ 1,408 1,151 157 2,716

Capital expenditures:
1996............................ $ 4,580 $ 2,997 $ 741 $ 8,318
1995............................ 5,442 1,380 869 7,691
1994............................ 1,177 809 623 2,609

Number of operating locations at:
December 31, 1996............... 178 64 -- 242
December 31, 1995............... 119 61 -- 180
December 31, 1994............... 95 48 -- 143
</TABLE>
F-23
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. QUARTERLY FINANCIAL DATA (UNAUDITED)

FIRST SECOND THIRD FOURTH
--------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996
Net revenues................. $ 23,080 $21,526 $ 21,052 $ 26,316
Gross profit................. 7,386 6,134 5,243 7,374
Net income................... 2,237 2,645 2,112 3,332
Earnings per common and
equivalent share(1)....... $ 0.15 $ 0.14 $ 0.11 $ 0.17
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(1)....... $ 0.11 $ 0.10 $ 0.08 $ 0.13
- ------------
(1) Earnings per share for all periods presented reflect the effects of a
3-for-2 stock split in October 1996.

F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

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

Our report on the consolidated financial statements of Equity Corporation
International and subsidiaries is included on page F-2 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in Item 14(a) in this Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

COOPERS & LYBRAND L.L.P.

Houston, Texas
March 6, 1997

S-1
<PAGE>
EQUITY CORPORATION INTERNATIONAL
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS(1) DEDUCTIONS OF YEAR
- ------------------------------------- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for bad debts and
contract cancellations....... $2,815,081 $3,741,729 $ 940,201 $3,411,805 $4,085,206
========= ========== =========== ========== ==========
Year ended December 31, 1995:
Allowance for bad debts and
contract cancellations....... $2,294,843 $3,217,125 $ 617,754 $3,314,641 $2,815,081
========= ========== =========== ========== ==========
Year ended December 31, 1994
Allowance for bad debts and
contract cancellations....... $ 464,164 $3,399,447 $2,020,310 $3,589,078 $2,294,843
========= ========== =========== ========== ==========
</TABLE>
- ------------
(1) Relates to valuation allowance established at acquired companies on the date
of acquisition.

S-2
<PAGE>
EXHIBIT INDEX

3.2+ -- Amended and Restated Bylaws (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Reg. No. 33-98052))

4.1+ -- Form of Certificate representing shares of Common Stock (filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-1
(Reg. No. 33-82546))

4.3+ -- Certificate of Designation of the Series One Junior Participating
Preferred Stock (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (Reg. No. 33-98052))

4.5+ -- Registration Agreement, dated December 22, 1995, among Equity
Corporation International, Investment Capital Corporation and
Service Corporation International (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-3 (Reg. No. 33-80841))

10.1+* -- Employment Agreement, dated February 1, 1994, between the Company
and James P. Hunter, III (filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.2+* -- Employment Agreement, dated March 7, 1994, between the Company
and Jack D. Rottman (filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.3+* -- Employment Agreement, dated July 22, 1994, between the Company
and Billy C. Wells (filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.5+* -- Employment Agreement, dated April 8, 1996 between the Company and
William C. McNamara (filed as Exhibit 99.2 to the Company's
report on Form 8-K filed on May 3, 1996)

10.6+* -- Stockholder's Agreement, dated June 30, 1994, between the Company
and Jack D. Rottman (filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-82546))

10.16+* -- Option #2 of Amendment and Restatement of Agreement between ECI
Cemetery Services, Inc. and certain employees concerning
replacement of former deferred compensation arrangements with
restricted stock award programs (filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)

10.18+ -- Form of Indemnification Agreement with Executive Officers and
Directors (filed as Exhibit 10.13 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-82546))

10.24+ -- Amendment No. 2, dated February 12, 1996, to Credit Agreement
listed as Exhibit 10.21 hereto (filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995)
<PAGE>
10.25* -- Consulting Agreement, dated as of September 12, 1996, between the
Company and James P. Hunter, III

11.1 -- Statement regarding computation of per share earnings

21.1 -- List of Subsidiaries as of December 31, 1996

23.1 -- Consent of Coopers & Lybrand L.L.P.

24.1 -- A power of attorney, pursuant to which amendments to this Report
may be filed, is included on the signature page contained in Part
IV of this Report

27.1 -- Financial Data Schedule
- ------------
+ Incorporated herein by reference to the indicated filing.

* Management contract or compensatory plan.

EXHIBIT 10.10

AMENDED AS OF OCTOBER, 1996

AMENDMENT AND RESTATEMENT OF THE
EQUITY CORPORATION INTERNATIONAL
1994 LONG-TERM INCENTIVE PLAN

September 19, 1995

SECTION 1. PURPOSE

The purposes of the Equity Corporation International 1994 Long-Term Incentive
Plan (the "Plan") are to promote the interests of the Company and its
shareholders by (i) attracting and retaining executive personnel and other key
employees of outstanding ability; (ii) motivating executive personnel and other
key employees, by means of performance-related incentives, to achieve
longer-range performance goals; and (iii) enabling such employees to participate
in the long-term growth and financial success of the Company.

SECTION 2. DEFINITIONS

"Act" shall mean the Securities Exchange Act of 1934, as amended.

"Affiliate" shall mean any company or other entity which is not a Subsidiary but
as to which the Company possesses a direct or indirect ownership interest and
has representation on the board of directors or any similar governing body.

"Award" shall mean a grant or award under Sections 6 through 10, inclusive, of
the Plan, as evidenced in a written document delivered to a Participant as
provided in Section 11(b).

"Board of Directors" or "Board" shall mean the Board of Directors of the
Company.

"Change in Control" shall be deemed to have occurred if (i) any person(s) (as
such term is used in Sections 13(d) and 14(d)2 of the Act) or parties other than
the current stockholders of the Company as of the date the Plan is approved
becomes the beneficial owner (as defined in Rule 13d-3 under the Act), directly
or indirectly, of securities of the Company representing 25% or more of the
<PAGE>
combined voting power of the Company's then outstanding securities, or (ii) the
stockholders of the Company approve a merger, consolidation, sale or disposition
of all or substantially all of the Company's assets or plan of liquidation.

"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.

"Committee" shall mean such committee of the Board of Directors as is designated
by the Board of Directors to administer the Plan. None of the members of the
Committee can be a former officer of the Company or a former employee receiving
deferred compensation.

"Common Stock" or "Stock" shall mean the Common Stock, par value $0.01 per
share, of the Company.

"Company" shall mean Equity Corporation International, a Delaware corporation.

"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive amounts due the
Participant in the event of the Participant's death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean the
Participant's estate.

"Employee" shall mean any employee of any Employer.

"Employer" shall mean the Company and any Subsidiary or Affiliate.

"Fair Market Value" shall mean, with respect to the closing price of a share of
Stock quoted on the New York Stock Exchange Composite Tape, or if the Stock is
not listed on the New York Stock Exchange, on the principal United States
securities exchange registered under the Act on which such stock is listed, or
if the Stock is not listed on any such stock exchange, the last sale price, or
if none is reported, the highest closing bid quotation on the National
Association of Securities Dealers, Inc., Automated Quotations System or any
successor system then in use on the date of grant, or if none are available on
such day, on the next preceding day for which are available, of if no such
quotations are available, the fair market value on the date of grant of a share
of Stock as determined in good faith by the Board of Directors; provided,
however, with respect to any initial Award granted as of the effective date of
the initial public offering ("IPO") of the Stock, Fair Market

-2-
<PAGE>
Value shall mean the IPO offering price per share of Stock. In the event the
Stock is not publicly traded at the time a determination of its fair market
value is required to be made hereunder, the determination of fair market value
is required to be made hereunder, the determination of fair market value shall
be made in good faith by the Committee.

"Fiscal Year" shall mean the fiscal year of the Company.

"Incentive Stock Option" shall mean a stock option granted under Section 6 which
is intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.

"Non-Employee Director" shall mean a member of the Board of Directors who is not
otherwise employed by the Company or a Subsidiary.

"Nonqualified Stock Option" shall mean a stock option granted under Section 6
which is not intended to be an Incentive Stock Option.

"Option" shall mean an Incentive Stock Option or a Nonqualified Stock Option.

"Participant" shall mean an individual who (i) is selected by the Committee to
receive an Award under the Plan or (ii) is entitled pursuant to the provisions
of Section 6(a)(2) to receive a Nonqualified Stock Option under the Plan.

"Payment Value" shall mean the dollar amount assigned to a Performance Share
which shall be equal to the Fair Market Value of the Common Stock on the day of
the Committee's determination under Section 8(c)(1) with respect to the
applicable Performance Cycle.

"Performance Cycle" or "Cycle" shall mean the period selected by the Committee
during which the performance is measured for the purpose of determining the
extent to which an award of Performance Shares has been earned.

"Performance Goals" shall mean the objectives established by the Committee for a
Performance Cycle, for the purposes of determining the extent to which
Performance Shares which have been contingently awarded for such Cycle are
earned.

-3-
<PAGE>
"Performance Share" shall mean an award granted pursuant to Section 8 of the
Plan expressed as a share of Common Stock.

"Restricted Period" shall mean the period selected by the Committee during which
a grant of Restricted Stock or Restricted Stock Units may be forfeited to the
Company.

"Restricted Stock" shall mean shares of Common Stock contingently granted to a
Participant under Section 9 of the Plan.

"Restricted Stock Unit" shall mean a fixed or variable dollar denominated unit
contingently awarded under Section 9 of the Plan.

"Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Act, or any successor rule or regulations thereto as in
effect from time to time.

"Stock Appreciation Right" shall mean a right granted under Section 7.

"Stock Unit Award" shall mean an award of Common Stock or units granted under
Section 10.

"Subsidiary" shall mean any business entity in which the Company possesses
directly or indirectly fifty percent (50%) or more of the total combined voting
power.

SECTION 3. ADMINISTRATION

The Plan shall be administered by the Committee, which Committee shall consist
of at least two members. All members of the Committee shall be "disinterested
persons" within the meaning of Rule 16b-3 and "outside directors", as defined in
Section 162(m) of the Code and regulations promulgated thereunder. A majority of
the Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the terms of the Plan and applicable
law, the Committee shall have sole and complete authority to adopt, alter and
repeal such administrative rules, guidelines and practices

-4-
<PAGE>
governing the operation of the Plan as it shall from time to time deem
advisable, and to interpret the terms and provisions of the Plan. The Committee
may delegate to one or more executive officers of the Company the power to make
Awards to Participants who are not subject to Section 16 of the Act provided the
Committee shall fix the maximum amount of such Awards for the group and a
maximum for any one Participant. The Committee's decisions shall be binding upon
all persons, including the Company, its stockholders, Employers, Employees,
Participants and Designated Beneficiaries.

SECTION 4. ELIGIBILITY

All employees, directors and non-employee consultants and advisors of the
Company who, in the opinion of the Committee, have the capacity for contributing
in a substantial measure to the successful performance of the Company are
eligible to be Participants in the Plan.

SECTION 5. MAXIMUM AMOUNT AVAILABLE FOR AWARDS

(a) The maximum number of shares of Stock in respect of which Awards may be
made under the Plan shall be a total of 1,950,000 shares of Common Stock.
Also, no Participant may receive Awards that in aggregate equal more than
35% of all shares authorized for grant under this Plan. Shares of Common
Stock may be made available from the authorized but unissued shares of the
Company or from shares reacquired by the Company, including shares
purchased in the open market. In the event that (i) an Option or Stock
Appreciation Right is settled for cash or expires or is terminated
unexercised as to any shares of Common Stock covered thereby, or (ii) any
Award in respect of shares is canceled or forfeited for any reason under
the Plan without the delivery of shares of Common Stock, such shares shall
thereafter be again available for award pursuant to the Plan.

(b) In the event that the Committee shall determine that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares,
warrants or rights offering to purchase Common Stock as a price
substantially below fair market value, or other similar corporate event
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available

-5-
<PAGE>
under this Plan, then the Committee shall, in its sole discretion, and in
such manner as the Committee may deem equitable, adjust any or all of (1)
the number and kind of shares which thereafter may be awarded or optioned
and sold or made the subject of Stock Appreciation Rights under the Plan,
(2) the number and kind of shares subject to Options and other Awards, and
(3) the grant, exercise or conversion price with respect to any of the
foregoing and/or, if deemed appropriate, make provision for cash payment
to a Participant or a person who has an outstanding Option or other Award;
provided, however, that the number of shares subject to any Option or
other Award shall always be a whole number.

SECTION 6. STOCK OPTIONS

(a) Grant.

(1) Subject to the provisions of the Plan, the Committee shall have sole
and complete authority to determine the Participants to whom Options
shall be granted, the number of shares to be covered by each Option,
the option price therefor and the conditions and limitations
applicable to the exercise of the Option. The Committee shall have
the authority to grant Incentive Stock Options, or to grant
Nonqualified Stock Options, or to grant both types of options. In
the case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with such rules as may be
prescribed by Section 422 of the Code, as from time to time amended,
and any implementing regulations.

(2) Non-Employee Directors shall automatically receive Nonqualified
Stock Options to purchase Common Stock without the exercise of the
discretion of any person or persons as set forth herein. Upon
commencement of service, a Non-Employee Director will receive a
Nonqualified Stock Option to purchase 3,750 shares of Common Stock
(22,500 shares for those Non-Employee Directors who serve in such
capacities upon the effective date of this Plan). In addition, each
Non- Employee Director who is in office immediately after each
annual meeting of the Company's stockholders held during the term of
the Plan and who is not then entitled to receive an Option

-6-
<PAGE>
pursuant to the foregoing sentence due to commencement of service
will receive, as of the date of such meeting, Nonqualified Stock
Options to purchase an additional 3,750 shares of Common Stock.
Options granted to Non-Employee Directors will become exercisable in
one-third (1/3) increments on each of the first three anniversaries
of the date of grant.

(b) Option Price.

The Committee shall establish the option price at the time each Option is
granted, which price shall not be less than 100% of the Fair Market Value
of the Common Stock on the date of grant, except that, the option price
for any option described in Section 6(a)(2) shall be equal to 100% of the
Fair Market Value of the Common Stock on the date of grant.

(1) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award or thereafter or as otherwise
provided in this Plan; provided, however, that in no event may any
Option granted hereunder be exercisable after the expiration of ten
years from the date of such grant. The Committee may impose such
conditions with respect to the exercise of Options, including
without limitation, any relating to the application of federal or
state securities laws, as it may deem necessary or advisable.

(2) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by
the Company. Such payment may be made in cash, or its equivalent,
or, if and to the extent permitted by the Committee, by exchanging
shares of Common Stock owned by the optionee (which are not the
subject of any pledge or other security interest), or by a
combination of the foregoing, provided that the combined value of
all cash and cash equivalents and the Fair Market Value of any such
Common Stock so tendered to the Company, valued as of the date of
such tender, is at least equal to such option price.

-7-
<PAGE>
SECTION 7. STOCK APPRECIATION RIGHTS

(a) The Committee may, with sole and complete authority, grant Stock
Appreciation Rights in tandem with an Option, in addition to an Option, or
freestanding and unrelated to an Option. Stock Appreciation Rights granted
in tandem with or in addition to an Option may be granted either at the
same time as the Option or at a later time. Stock Appreciation Rights
shall not be exercisable earlier than six months after grant, shall not be
exercisable after the expiration of ten years from the date of grant and
shall have an exercise price of not less than 100% of the Fair Market
Value of the Common Stock on the date of grant.

(b) A Stock Appreciation Right shall entitle the Participant to receive from
the Company an amount equal to the excess of the Fair Market Value or
other specified valuation of a share of Common Stock on the exercise of
the Stock Appreciation Right over the grant price thereof, provided that
the Committee may for administrative convenience determine that, for any
Stock Appreciation Right which is not related to an Incentive Stock Option
which Stock Appreciation Right can only be exercised during limited
periods of time in order to satisfy the conditions of certain rules of the
Securities and Exchange Commission, the exercise of any Stock Appreciation
Right for cash during such limited period shall be deemed to occur for all
purposes hereunder on the day during such limited period on which the Fair
Market Value of the Stock is the highest. Any such determination by the
Committee may be changed by the Committee from time to time and may govern
the exercise of Stock Appreciation Rights granted prior to such
determination as well as Stock Appreciation Rights thereafter granted. The
Committee shall determine upon the exercise of a Stock Appreciation Right
whether such Stock Appreciation Right shall be settled in cash, shares of
Common Stock, Stock Options, or a combination thereof.

(c) A Limited Stock Appreciation Right related to an Option which can only be
exercised during limited periods following a Change in Control of the
Company, may entitle the Participant to receive an amount based upon the
highest price paid or offered for Common Stock in any transaction relating
to the Change in Control or paid during the thirty-day period immediately
preceding the occurrence of the

-8-
<PAGE>
Change in Control in any transaction reported on any securities exchange
or transaction reporting system upon which the Common Stock is then
listed.

SECTION 8. PERFORMANCE SHARES

(a) The Committee shall have sole and complete authority to determine the
Participants who shall receive Performance Shares and the number of such
shares for each Performance cycle, and to determine the duration of each
Performance Cycle and the value of each Performance Share. There may be
more than one Performance Cycle in existence at any one time, and the
duration of Performance Cycles may differ from each other.

(b) The Committee shall establish Performance Goals for each Cycle on the
basis of such criteria and to accomplish such objectives as the Committee
may from time to time select. During any Cycle, the Committee may adjust
the Performance Goals for such Cycle as it deems equitable in recognition
of unusual or non-recurring events affecting the Company, changes in
applicable tax laws or accounting principles, or such other factors as the
Committee may determine.

(c) (1) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares which
have been earned on the basis of performance in relation to the
established Performance Goals.

(2) Payment Values of earned Performance Shares shall be distributed to
the Participant or, if the Participant has died, to the
Participant's Designated Beneficiary, as soon as practicable after
the expiration of the Performance Cycle and the Committee's
determination under paragraph (1), above. The Committee shall
determine whether Payment Values are to be distributed in the form
of cash or shares of Common Stock.

-9-
<PAGE>
SECTION 9. RESTRICTED STOCK AND RESTRICTED STOCK UNITS

(a) Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the Participants to whom shares of
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. The Restricted Period may be
shortened, lengthened or waived by the Committee at any time in its
discretion with respect to one or more Participants or Awards outstanding.

(b) Shares of Restricted Stock and Restricted Stock Units may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as herein
provided, during the Restricted Period. Certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the
Participant and deposited by such Participant, together with a stock power
endorsed in blank, with the Company. At the expiration of the Restricted
Period, the Company shall deliver such certificates to the Participant or
the Participant's legal representative. Payment for Restricted Stock Units
shall be made to the Company in cash/or shares of Common Stock, as
determined at the sole discretion of the Committee.

SECTION 10. OTHER STOCK BASED AWARDS

(a) In addition to granting Option, Stock Appreciation Rights, Performance
Shares, Restricted Stock and Restricted Stock Units, the Committee shall
have authority to grant to Participants Stock Unit Awards which can be in
the form of Common Stock or units, the value of which is based, in whole
or in part, on the value of Common Stock. Subject to the provisions of the
Plan, including Section 11(b) below, Stock Unit Awards shall be subject to
such terms, restrictions, conditions, vesting requirements and payment
rules (all of which are sometimes hereinafter collectively referred to as
"rules") as the Committee may determine in its sole and complete
discretion at the time of grant. The rules need not be identical for each
Stock Unit Award.

-10-
<PAGE>
(b) In the sole and complete discretion of the Committee, a Stock Unit Award
may be granted subject to the following rules:

(1) Any shares of Common Stock which are part of a Stock Unit Award may
not be assigned, sold, transferred, pledged or otherwise encumbered
prior to the date on which the shares are issued, or, if later, the
date provided by the Committee at the time of grant of the Stock
Unit Award.

(2) Stock Unit Awards may provide for the payment of cash consideration
by the person to whom such Award is granted or provide that the
Award, and any Common Stock to be issued in connection therewith, if
applicable, shall be delivered without the payment of cash
consideration, provided that for any Common Stock to be purchased in
connection with a Stock Unit Award the purchase price shall be at
least 50% of the Fair Market Value of such Common Stock on the date
such Award is granted.

(3) Stock Unit Awards may relate in whole or in part to certain
performance criteria established by the Committee at the time of
grant.

(4) Stock Unit Awards may provide for deferred payment schedules and/or
vesting over a specified period of employment.

(5) In such circumstances as the Committee may deem advisable, the
Committee may waive or otherwise remove, in whole or in part, any
restriction or limitation to which a Stock Unit Award was made
subject at the time of grant.

(c) In the sole and complete discretion of the Committee, an Award, whether
made as a Stock Unit Award under this Section 10 or as an Award granted
pursuant to Sections 6 through 9, may provide the Participant with (i)
dividends or dividend equivalents (payable on a current or deferred basis)
and (ii) cash payments in lieu of or in addition to an Award.

-11-
<PAGE>
SECTION 11. GENERAL PROVISIONS

(a) Withholding.

The Employer shall have the right to deduct from all amounts paid to a
Participant in cash (whether under this Plan or otherwise) any taxes
required by law to be withheld in respect of Awards under this Plan. In
the case of payments of incentive awards in the form of Common Stock, at
the Committee's discretion the Participant may be required to pay to the
Employer the amount of any taxes required to be withheld with respect to
such Common Stock, or, in lieu thereof, the Employer shall have the right
to retain (or the Participant may be offered the opportunity to elect to
tender) the number of shares of Common Stock whose Fair Market Value
equals the amount required to be withheld.

(b) Awards.

Each Award hereunder shall be evidenced in writing, delivered to the
Participant and shall specify the terms and conditions thereof and any
rules applicable thereto, including but not limited to the effect on such
Award of the death, retirement or other termination of employment of the
Participant and the effect thereon, if any, of a Change in Control of the
Company.

No Award shall be assignable or transferable except by will or the laws of
descent and distribution (or, in the case of Restricted Stock, to the
Company), and no right or interest in any Award of any Participant shall
be subject to any lien, obligation or liability of the Participant.
Notwithstanding the above, in the discretion of the Committee, Awards may
be transferable pursuant to a qualified domestic relations order as
determined by the Committee. In addition, the Committee may prescribe and
include in applicable Award agreements other restrictions on transfer.
Each Award, and each right under any Award, shall be exercisable only by
the Participant during the Participant's lifetime, or, if permissible
under applicable law, by the

-12-
<PAGE>
Participant's guardian or legal representative or by a transferee
receiving such Award pursuant to a qualified domestic relations order as
determined by the Committee.

(d) No Right to Employment.

No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right
to be retained in the employ of the Employer. Further, the Employer
expressly reserves the right at any time to dismiss a Participant free
from any liability, or any claim under the Plan, except as provided herein
or in any agreement entered into with respect to an Award.

(e) No Rights as Stockholder.

Subject to the provisions of the applicable Award, no Participant or
Designated Beneficiary shall have any rights as a stockholder with respect
to any shares of Common Stock to be distributed under the Plan until he or
she has become the holder thereof. Notwithstanding the foregoing, in
connection with each grant of Restricted Stock hereunder, the applicable
Award shall specify if and to what extent the Participant shall not be
entitled to the rights of a stockholder in respect of such Restricted
Stock.

(f) Construction of the Plan.

The validity, construction, interpretation, administration and effect of
the Plan and of its rules and regulations, and rights relating to the
Plan, to the extent not otherwise governed by the mandatory provisions of
the Code or the securities laws of the United States, shall be determined
solely in accordance with the laws of the state of Texas.

(g) Effective Date.

The Plan, as amended and restated, shall be effective on September 19,
1995. No Options or Awards may be granted under the Plan after October 18,
2004; however,

-13-
<PAGE>
all previous awards made that have not expired under their original terms
at the time the Plan expires will remain outstanding.

(h) Amendment of Plan.

The Board of Directors may amend, suspend or terminate the Plan or any
portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with
any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief under
Section 16(b) of the Act and Rule 16b-3; provided, however, that the
provisions of Section 6(a)(2) of this Plan shall not be amended more
frequently than once every six months, other than to comport with changes
in the Code and the Employee Retirement Income Security Act, as amended,
or the rules thereunder. Notwithstanding anything to the contrary
contained herein, the Committee may amend the Plan in such manner as may
be necessary so as to have the Plan conform with local rules and
regulations.

(i) Amendment of Award.

The Committee may amend, modify or terminate any outstanding Award without
the Participant's consent at any time prior to payment or exercise in any
manner not inconsistent with the terms of the Plan, including without
limitation, (I) to change the date or dates of which (A) an Option or
Stock Appreciation Rights becomes exercisable; (B) a Performance Share is
deemed earned; (C) Restricted Stock becomes nonforfeitable; or (II) to
cancel and reissue an Award under such different terms and conditions as
it determines appropriate.

(j) Change in Control.

In order to preserve a Participant's rights under an Award in the event of
a Change in Control of the Company, the Committee in its discretion may,
at the time an Award is made or any time thereafter, take one or more of
the following action: (i) provide for the acceleration of any time period
relating to the exercise of the Award, (ii) provide for the purchase of
the Award upon the Participant's request for

-14-
<PAGE>
an amount of cash or other property that could have been received upon the
exercise or realization of the Award had the Award been currently
exercisable or payable, (iii) adjust the terms of the Award in a manner
determined by the Committee to reflect the Change in Control, (iv) cause
the Award to be assumed, or new rights substituted therefor, by another
entity, or (v) make such other provision as the Committee may consider
equitable and in the best interests of the Company.

(k) Restrictions.

No Common Stock or other form of payment shall be issued with respect to
any Award unless the Company shall be satisfied based on the advice of its
counsel that such issuance will be in compliance with applicable federal
and state securities laws. It is the intent of the Company that the Plan
comply in all respects with Rule 16b-3, that any ambiguities or
inconsistencies in the construction of the Plan be interpreted to give
effect to such intention, and that if any provision of the Plan is found
not to be in compliance with Rule 16b-3, such provision shall be null and
void to the extent required to permit the Plan to comply with Rule 16b-3.
Certificates evidencing shares of Common Stock delivered under the Plan
may be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any securities
exchange or transaction reporting system upon which the Common Stock is
then listed and any applicable federal and state securities law. The
Committee may cause a legend or legends to be placed upon any such
certificates to make appropriate reference to such restrictions.

(l) Unfunded Plan.

Insofar as its provides for Awards of cash, Common Stock or rights
thereto, the Plan shall be unfunded. Although bookkeeping accounts may be
established with respect to Participants who are entitled to cash, Common
Stock or rights thereto under the Plan, any such accounts shall be used
merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common
Stock or rights thereto, nor shall the Plan be construed as providing for
such segregation, nor shall the Company nor the Board of Directors

-15-
<PAGE>
nor the Committee be deemed to be a trustee of any cash, Common Stock or
rights thereto to be granted under the Plan. Any liability or obligations
of the Company to any Participant with respect to a grant of cash, Common
Stock or rights thereto under the Plan shall be based solely upon any
contractual obligations that may be created by the Plan and any Award
agreement, and no such liability or obligation of the Company shall be
deemed to be secured by any pledge or other encumbrance on any property of
the Company. Neither the Company nor the Board of Directors nor the
Committee shall be required to give any security or bond for the
performance of any obligation that may be created by the Plan.

(m) No Fractional Shares.

No fractional shares shall be issued or delivered pursuant to the Plan or
any Award, and the Committee shall determine whether cash, other
securities, or other property shall be paid or transferred in lieu of any
fractional shares or whether such fractional shares or any rights thereto
shall be cancelled, terminated, or otherwise eliminated.

EXHIBIT 10.25

CONSULTING AGREEMENT

This CONSULTING AGREEMENT ("Agreement") is entered into the 10th day of
September, 1996, by and between EQUITY CORPORATION INTERNATIONAL, a Delaware
corporation (hereinafter with its subsidiaries collectively called
"Corporation"), and JAMES P. HUNTER, III ("Consultant");

W I T N E S E T H:
WHEREAS, Corporation is engaged in the funeral home, cemetery and related
businesses primarily in non-metropolitan areas of the United States; and

WHEREAS, Consultant was the founder of the Corporation and presently
serves as the Chairman of the Board, President and Chief Executive Officer of
the Corporation; and

WHEREAS, Corporation considers it necessary to preserve and continue for
Corporation the identity of Consultant with the Corporation and to have the
assistance of Consultant in preserving and increasing the goodwill of the
Corporation after such time as Consultant has ceased to serve as a full time
employee of the Corporation;

NOW, THEREFORE, in consideration of the premises and of the agreements
herein contained, the parties intending to be legally bound hereby, agree as
follows:

SECTION 1. CONSULTING TERM.

(a) Subject to the provisions of this Agreement, the Consulting Term
("Consulting Term") shall be for three (3) years, beginning on the date that
Consultant shall have ceased to serve as a full time employee of the
Corporation. The Consulting Term shall terminate upon the death of Consultant.
<PAGE>
(b) If Consultant shall have ceased to serve as a full time employee of
the Corporation prior to the date that Consultant attains the age of sixty-two
(62) due to:

(i) the resignation from such employment by Employee other than on
account of the breach by the Corporation of any material obligation
of the Corporation to the Employee, or

(ii) the termination of such employment by the Corporation for "cause" as
that term is defined in any Employment Agreement in effect between
the Corporation and Employee,

then this Agreement shall terminate and be of no further force or effect,
provided however, if a "Change of Control" (as hereinafter defined) of the
Corporation has occurred, the provisions of this Section 1(b) shall no longer
apply.

(c) For purposes of this Agreement, "Change in Control" shall be deemed to
have occurred upon the occurrence of the Change of Control under 1994 Equity
Corporation International Long-Term Incentive Plan.

SECTION 2. DUTIES AND CONSIDERATION.

(a) During the Consulting Term, Consultant shall furnish to Corporation
Consultant's best advice, information, judgment and knowledge with respect to
the affairs, business, business methods and practices, history, patrons,
customers, employees and suppliers of Corporation, and to work to preserve and
increase the business and goodwill thereof.

(b) As compensation for such duties to be rendered, Corporation agrees to
pay to Consultant a monthly Consulting Fee equal to the monthly salary in effect
for Consultant for the last month that Consultant serves as the full time Chief
Executive Officer of the Corporation.

-2-
<PAGE>
(c) During the Consulting Term, to the extent Consultant may be qualified,
the Consultant and/or the Consultant's family, as the case may be, shall be
eligible for participation in all welfare benefit plans, practices, policies and
programs provided by the Corporation (including, without limitation, medical,
disability, group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to officers of the Corporation.

(d) The Consulting Fee shall be reduced by any compensation for services
(other than compensation described in this Agreement and directors fees, if any)
paid to Consultant by the Corporation during the Consulting Term.

SECTION 3. MISCELLANEOUS COVENANTS. Consultant agrees that at all times
during the Term of this Agreement:

(a) Consultant will not knowingly or intentionally do or say any act or
thing which will or may impair, damage or destroy the goodwill and esteem of the
Corporation, or

(b) Consultant will not knowingly or intentionally do any act or thing
detrimental to the Corporation or the business of the Corporation.

SECTION 4. NON-COMPETITION; TRADE SECRETS AND CONFIDENTIAL INFORMATION.

(a) As part of the consideration for the payment to the Consultant of the
Consulting Fee, Employee agrees, during the Consulting Term, directly or
indirectly, in any of the business territories in which the Corporation is
conducting business, not to engage in competition with the business conducted by
the Corporation, whether for his own account or by soliciting, canvassing or
accepting any business or transaction for any other company or business in
competition with such business of the Corporation. In addition, if the
Corporation gives written notice to Consultant within thirty (30) days from the
date of termination of the Consulting Term of its

-3-
<PAGE>
election to extend the obligations of Consultant under this paragraph (a) for an
additional twelve (12) month period, such obligations shall be so extended, in
which event the Corporation shall be obligated to make monthly payments to
Consultant equal to the Consulting Fee for such twelve (12) month period.

(b) Corporation and Consultant hereby expressly understand and agree that
this covenant shall not be held invalid or unenforceable because of the scope of
the territory or actions subject hereto or restricted hereby, or the period of
time within which such covenant is operative; but the maximum territory, the
actions subject to such covenant, and the period of time in which such covenant
is enforceable, respectively, are subject to determination and reformation by a
final judgment of any court which has jurisdiction over the parties and subject
matter of this Agreement.

(c) Consultant understands that in the course of Consultant's relationship
with Corporation, Consultant may receive certain trade secrets, lists of
customers and other confidential information concerning the business of
Corporation which Corporation desires to protect. Consultant understands that,
among other things, the management methods, operating techniques, procedures and
methods, customer lists, prospective acquisitions, employee lists, training
manuals and procedures, personnel evaluation procedures, collection procedures
and financial reports of Corporation are confidential and are not at any time,
during or after the period of Consultant's relationship with Corporation, to be
revealed to anyone not affiliated with Corporation without specific written
authorization by an officer of Corporation, except as specifically required by
law or order of a court. Consultant agrees not to divulge to anyone not
affiliated with Corporation such confidential information or trade secrets so
long as the confidential or secret nature of such

-4-
<PAGE>
information shall continue, unless specifically required to do so by law or by
order of a court. Consultant further agrees not to use any such confidential
information or trade secrets in competing with Corporation at any time during or
after his consulting relationship with Corporation.

SECTION 5. EXPENSE REIMBURSEMENT. Corporation will reimburse Consultant
for all reasonable business expenses incurred by Consultant in the performance
of this Agreement, upon the presentation by Consultant, from time to time, of an
itemized account of such expenditures and such receipts or other documents as
the Corporation may reasonably require.

SECTION 6. SEVERABILITY. In case any term, phrase, clause, paragraph,
restriction, covenant, or agreement herein contained shall be held to be invalid
or unenforceable, same shall be deemed, and it is hereby agreed that same are
meant to be severable and shall not defeat or impair the remaining provisions
hereof.

SECTION 7. BINDING EFFECT. This Agreement shall inure to the benefit of
and shall be binding upon the parties hereto and their respective heirs,
successors and assigns.

SECTION 8. REMEDIES. The parties agree that the remedy at law for any
actual or threatened breach of this Agreement by either would be inadequate and
that both shall be entitled to specific performance hereof or injunction or
other appropriate judicial remedy, writ, or order in addition to any damages
which both may legally be entitled to recover, together with reasonable expenses
of litigation including attorney's fees incurred in connection therewith.

SECTION 9. HEADINGS. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

-5-
<PAGE>
SECTION 10. NOTICES. All notices provided for hereunder shall be in
writing and shall be deemed to be given: (1) when delivered to the individual,
or to an officer of the company, to which the notice is directed; or (2) three
days after the same has been deposited in the United States mail sent Certified
or Registered mail with Return Receipt Requested, postage prepaid and addressed
as provided in this Section; or (3) when delivered by an overnight delivery
service (including United States Express Mail) with receipt acknowledged and
with all charges prepaid by the sender addressed as provided in this Section.
Notices shall be directed as follows:

(a) If to Consultant, addressed to:

James P. Hunter, III

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

(b) If to the Corporation, addressed to:

EQUITY CORPORATION INTERNATIONAL
P. O. Drawer 100
415 South 1st, Suite 210
Lufkin, Texas 75902-0100

with a copy to:

Mr. J. Patrick Doherty
Cochran, Rooke & Craft, L.L.P.
2200 Post Oak Boulevard, Suite 700
Houston, Texas 77056

or at such other place or places or to such other person or persons as shall be
designated by notice as herein provided by any party hereto.

SECTION 11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

-6-
<PAGE>
SECTION 12. MODIFICATION. This Agreement may be modified only by a written
instrument signed by each of the parties hereto.

SECTION 13. GENDER. Any reference herein shall include both the masculine
and feminine gender, as may be applicable.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.

CONSULTANT:

------------------------------------------
James P. Hunter, III

CORPORATION:

EQUITY CORPORATION INTERNATIONAL

By:_______________________________________
W. Cardon Gerner, Senior Vice President

-7-

EXHIBIT 11.1

EQUITY CORPORATION INTERNATIONAL
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Computation of earnings per share:
Income before extraordinary item
attributable to common
stock........................ $ 10,325,593 $ 6,235,801 $ 3,946,070
Extraordinary item.............. -- -- (198,049)
-------------- -------------- --------------
Net income attributable to
common stock................. $ 10,325,593 $ 6,235,801 $ 3,748,021
============== ============== ==============
Weighted average number of common
shares outstanding................. 17,781,279 14,699,353 9,854,281
Additional shares assuming conversion
of stock options................... 268,572 134,740 --
Effect of restricted stock issued.... 18,175 444 --
Shares sold prior to the initial
public offering...................... -- -- 228,375
Less shares assumed repurchased with
proceeds from sale of shares....... -- -- (80,809)
-------------- -------------- --------------
Weighted average shares for primary
savings per share.................. 18,068,026 14,834,537 10,001,847
Incremental shares issuable using
year-end market price:
Conversion of stock options..... 13,431 49,312 --
Effect of restricted stock
issued....................... 1,654 819 --
-------------- -------------- --------------
Weighted average shares for fully
diluted earnings per share......... 18,083,111 14,884,668 10,001,847
============== ============== ==============
Primary earnings per common and
equivalent share:
Income before extraordinary
item......................... $ 0.57 $ 0.42 $ 0.39
Extraordinary item.............. -- -- (0.02)
-------------- -------------- --------------
Net income...................... $ 0.57 $ 0.42 $ 0.37
============== ============== ==============
Fully diluted earnings per common and
equivalent share:
Income before extraordinary
item......................... $ 0.57 $ 0.42 $ 0.39
Extraordinary item.............. -- -- (0.02)
-------------- -------------- --------------
Net income...................... $ 0.57 $ 0.42 $ 0.37
============== ============== ==============
</TABLE>

EXHIBIT 21.1

EQUITY CORPORATION INTERNATIONAL

LIST OF SUBSIDIARIES AS OF DECEMBER 31, 1996

STATE OF
COMPANY INCORPORATION
------------------------------------- -------------
1. ECI Capital Corporation.............. DE
2. ECI Management Services, Inc......... DE
3. ECI Services, Inc.................... DE
4. Equity Corporation International of
Texas .............................. TX
5. ECI-Chapel Hill, Inc................. DE
6. ECI Services of Alabama, Inc......... DE
7. Elliott Funeral Home, Inc............ AL
8. ECI Services of Arkansas, Inc........ DE
9. Nelson Acquisition Company........... ARK
10. ECI Services of California, Inc...... DE
11. ECI Services of Connecticut, Inc..... DE
12. ECI Services of Florida, Inc......... DE
13. ECI Services of Georgia, Inc......... DE
14. ECI Services of Illinois, Inc........ DE
15. ECI Services of Indiana, Inc......... DE
16. Carmony Funeral Home, Inc............ IN
17. Kuiper Funeral Home, Inc............. IN
18. ECI Services of Iowa, Inc............ DE
19. ECI Services of Maine, Inc........... DE
20. Edwards Funeral Homes, Inc........... ME
21. Michael Wilson, Inc.................. ME
22. Redington Company Funeral Home....... ME
23. ECI Services of Massachusetts,
Inc. ............................... DE
24. ECI Services of Mississippi, Inc..... DE
25. Jones Funeral Home of Ellisville,
Mississippi, Inc. .................. MS
26. ECI Services of Missouri, Inc........ DE
27. ECI Services of Nebraska, Inc........ NE
28. ECI Services of New Hampshire,
Inc. ............................... DE
29. Fleury & Patry Funeral Homes, Inc.... NH
30. ECI Services of New York, Inc........ DE
31. ECI Services of North Carolina,
Inc. ............................... DE
32. ECI Services of Ohio, Inc............ DE
33. ECI Services of Oklahoma, Inc........ DE
34. ECI Services of South Carolina,
Inc. ............................... DE
35. ECI Services of South Dakota, Inc.... DE
36. ECI Services of Texas, Inc........... DE
37. J.M. Day Funeral Home, Inc........... TX
38. ECI Services of Vermont, Inc......... DE
39. ECI Services of West Virginia,
Inc. ............................... DE
40. ECI Stowers, Inc..................... DE
41. JPH Properties, Inc.................. TX
42. Professional Funeral Associates,
Inc. ............................... TX
<PAGE>
STATE OF
COMPANY INCORPORATION
------------------------------------- -------------
43. Riley Funeral Home, Incorporated..... TX
44. ECI Cemetery Services, Inc........... DE
45. ECI Cemetery Management Services,
Inc.................................. DE
46. ECI Cemetery Services of Alabama,
Inc. ............................... DE
47. ECI Cemetery Services of Arkansas,
Inc. ............................... DE
48. ECI Cemetery Services of Florida,
Inc. ............................... GA
49. ECI Cemetery Services of Georgia,
Inc. ............................... GA
50. ECI Cemetery Services of Iowa,
Inc. ............................... DE
51. ECI Cemetery Services of North
Carolina, Inc. ..................... GA
52. C.D.C. Corp.......................... NC
53. ECI Cemetery Services of Oregon,
Inc. ............................... DE
54. ECI Cemetery Services of South
Carolina, Inc. ..................... GA
55. ECI Cemetery Services of Tennessee,
Inc. ............................... TN
56. ECI Cemetery Services of Texas,
Inc. ............................... TX
57. ECI Cemetery Services of Virginia,
Inc. ............................... VA
58. Mausoleum Builders, Inc. ............ GA

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements
of Equity Corporation International ("the Company") on Form S-3 (File No.
333-4436), Form S-4 (File No. 33-92876) and Form S-8 (File No. 33-98052) of our
reports dated March 6, 1997, on our audits of the consolidated financial
statements and financial statement schedule of the Company as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, which reports are included in this Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

Houston, Texas
March 27, 1997

<ARTICLE> 5
<LEGEND>
THE FINANICAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S BALANCE SHEET AND INCOME STATEMENT AS OF AND FOR THE YEAR
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 12,654
<SECURITIES> 0
<RECEIVABLES> 8,908
<ALLOWANCES> 1,416
<INVENTORY> 6,029
<CURRENT-ASSETS> 29,558
<PP&E> 67,210
<DEPRECIATION> 9,947
<TOTAL-ASSETS> 443,891
<CURRENT-LIABILITIES> 10,379
<BONDS> 49,197
0
0
<COMMON> 193
<OTHER-SE> 177,271
<TOTAL-LIABILITY-AND-EQUITY> 443,891
<SALES> 41,772
<TOTAL-REVENUES> 91,974
<CGS> 12,610
<TOTAL-COSTS> 65,837
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 486
<INTEREST-EXPENSE> 2,374
<INCOME-PRETAX> 17,915
<INCOME-TAX> 7,589
<INCOME-CONTINUING> 10,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,326
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57

</TABLE>